Gujarat High Court
Kailash Darshan Housing ... vs Deputy Commissioner Of Income-Tax ... on 28 February, 2018
Author: Akil Kureshi
Bench: Akil Kureshi, B.N. Karia
C/SCA/21029/2017 JUDGMENT
IN THE HIGH COURT OF GUJARAT AT AHMEDABAD
SPECIAL CIVIL APPLICATION NO. 21029 of 2017
FOR APPROVAL AND SIGNATURE:
HONOURABLE MR.JUSTICE AKIL KURESHI
and
HONOURABLE MR.JUSTICE B.N. KARIA
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1 Whether Reporters of Local Papers may be allowed to
see the judgment ?
2 To be referred to the Reporter or not ?
3 Whether their Lordships wish to see the fair copy of the
judgment ?
4 Whether this case involves a substantial question of law
as to the interpretation of the Constitution of India or any
order made thereunder ?
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KAILASH DARSHAN HOUSING DEVELOPMENT-(GUJARAT) PRIVATE
LIMITED
Versus
DEPUTY COMMISSIONER OF INCOME-TAX CENTRAL CIRCLE-1(2)
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Appearance:
DARSHAN R PATEL for the PETITIONER(s) No. 1
MRS MAUNA M BHATT for the RESPONDENT(s) No. 1
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CORAM: HONOURABLE MR.JUSTICE AKIL KURESHI
and
HONOURABLE MR.JUSTICE B.N. KARIA
Date : 28/02/2018
ORAL JUDGMENT
Page 1 of 12
C/SCA/21029/2017 JUDGMENT (PER : HONOURABLE MR.JUSTICE AKIL KURESHI)
1. The petitioner has challenged a notice dated 30.3.2017 issued by the respondent Assessing Officer to reopen the petitioner's assessment for the assessment year 2010 2011.
2. Brief facts are as under. For the assessment year 2010 2011, the petitioner had filed return of income on 15.10.2010 disclosing total income of Rs. 1.06 crores (rounded off). The return was taken in scrutiny. The Assessing Officer passed the order under section 143(3) of the Act on 3.7.2012. Such order was also taken in revision by the Commissioner in which he issued notice on 25.9.2014.
3. To reopen such assessment, impugned notice came to be issued which as can be seen was done beyond a period of four years from the end of relevant assessment year. In order to do so, the Assessing Officer had recorded the following reasons :
"A search u/s 132 of the Income Tax Act, 1961 was conducted in the case of Accommodation entry Group of Ahmedabad on 04/12/2014 & on subsequent dates. One of the main persons of the group Anil Hiralal Shah is also known by alias of Raiu Barter & their associated entities are also known as 'Barter group'. The case of Ralu Barter Group is assessed with this office.
During the search & assessment proceedings u/s 153A & 153C of Barter group, it was found from the seized material & inquiries that many of the companies & entities Page 2 of 12 C/SCA/21029/2017 JUDGMENT of the group had taken accommodation entries of unsecured loans and/or share capital with very high premium from a set of entities having no creditworthiness or identity. The genuineness of such transactions was also not proved by the Barter group.
Some of such entities are Ranakpur Securities Ltd, Frontline Financial Services Limited, Hardik Marketing Pvt Ltd, Yankee Management Services Pvt Ltd, Ahinsa Shares & Stock Broking Pvt Ltd.
2. On verification of return of income filed by assessee for AY 201011 and form no. 2 filed by assessee before registrar of companies, it is noticed that total 13 person/companies had invested Rs.50000000/ as share capital & share premium. Copy of the form no. 2 is reproduced below:
Shri Sanjay C. Agarwal informed the director present at the meeting that presently the authorized share capital of the company is Rs. 3.30 Crores and the paid up Share Capital is Rs. 280.00 Lacs Only and it is necessary to increase the paid up share capital of the company upto Rs. 330.00 Lacs ( Rupees Three Hundred Thirty Lacs Only ) for meeting the funds required for the expansion purpose. The Chairman also laid before the table the list of applications received by the Company for allotment of equity Shares.
After having due deliberation over the matter the following resolution was passed.
"Resolved that, pursuant to provisions of Section 75 of the Companies Act, 1956 the company do hereby allot 5,00,000 [ Five Lacs Only ] equity shares of Rs. 10/, each ( Premium Per Share 2 Rs. 90, Discount Per Share : Rs. Nil) to the following applicants Sr. No. Name and Address of the Applicant No. of Equity Occupation shares applied 1 Arcadia Mercantile Capital Ltd 50000 Business 302, Rajkamal PlazaA, 3rd Floor, Opp Sakar III, Nr. Income Tax, Ahmedabad380014 Page 3 of 12 C/SCA/21029/2017 JUDGMENT 2 Genus Commu Trade Ltd 50000 Business 310, Anand Milan Complex Opp.
Jain Derasar, Navrangpura, Ahmedabad 380 007 3 Nexus Software Ltd 25000 Business B87, Shreeji Market, Near Nageshwar Mandir, Harni Road, Vadodra 4 Frontline Financial Services Ltd 25000 Business 10 Ankur complex, B/H Town Hall, Ellisbridge, Ahmedabad 380006 5 Chardham Developers P. Ltd. 50000 Business 14, Shwetshikhar Soc. Nr. Shantiwan Bus stand, Narayan Nagar road, Paldi, Ahmedabad 380007 6 Ahinsa Share and Stock Broking P. Ltd 50000 Business Shwetshikhar Soc. Nr. Shantiwan Bus stand, Narayan Nagar road, Paldi, Ahmedabad 380007 7 Yankee Management Services Ltd 75000 Business 222, Gopal Tower, Maninagar, Ahmedabad 380 008 8 Hardik Marketing P. Ltd. 25000 Business 52, Second Floor, Shree Cloth Market, O/s. Sarangpur Gate, Nr.
9 Vohera Securities P. ltd 25000 Business 534/3439, Gujarat Housing Board, Bapunagar, Ahmedabad 10 Talent Infoway Ltd 55000 Business H Block, Shri Sadashiv Coop Hsg Society Ltd., 6th road, Santacruz (East) Mumbai 400055 11 Mihir Agencies P. Ltd 25000 Business H Block, Shri Sadashiv Coop Hsg Society Ltd., 6th road, Santacruz (East) Mumbai 400055 12 Goldstar Finvest P. Ltd 30000 Business H Block, Shri Sadashiv Coop Hsg Society Ltd., 6th road, Santacruz (East) Mumbai 400055 13 Ranakpur Securities Ltd 15000 Business 1, Parichay Building, Chipa Mavji Ni.
Further for verification of credit worthiness of these entities, analysis of Income Tax Return showed as below :
Sr. Name PAN AY 201011 AY 200910 AY 200809 No. 1 Frontline Financial AAACF9684Q 0 0 0 Services Ltd 2 Ranakpur Securities AACCR7754H 10571 3540 2494 Ltd Page 4 of 12 C/SCA/21029/2017 JUDGMENT 3 Hardik Marketing P. AACH7247P 42410 0 20970 Ltd.
The above table points out that these persons who are shown as investing crores of rupees in assesseecompany, are persons of no means or meager means. This is evident from the return of income filed by them as stated above. Hence, this proves that these entities did not have credit worthiness to invest such a huge amount in the assessee company.
Further, on verification of data with registrar of companies, it is fouind that Nexus Software Ltd is a dormant company and has not filed any annual returns with registrar of companies from 2008 onwards. The screen short of such inquiry from the website of Ministry of Corporate affairs at www.mca.gov.in is as reproduced below :
xxxx On verification of case records for AY 201011 of assessee, it is noticed that during course of assessment proceedings u/s 143(3) of the IT Act, assessee was specifically asked to furnish details of increase in share capital along with source of applicant with supporting evidence and justification for share issued on the premium & complete address of share holders in respect of security premium introduced during the year vide notice u/s 142(1) dated 19.06.2012. Assessee vide its reply dated 29.06.2012 submitted list of investor (name, address, PAN, Amount invested) along with form no. 2 filed with ROC only.
However, assessee did not submit details of creditworthiness of investor and justification for share issued on high premium. This shows that failure has been on part of assessee to disclose fully and truly all material facts necessary for its assessment.
4 It is to be noted here that even for subsequent year FY 201112 (AY 201213) information has been received from ACITCentral Circle1(1), Ahmedabad (assessing officer of search case of Venus group) vide his letter dated Page 5 of 12 C/SCA/21029/2017 JUDGMENT 18/01/2017 that assesseecompany has availed accommodation entry from Sanjeet Motor Finance Ltd, a group company of Venus group. Such entry is in the form of unsecured loan by paying cash of Rs. 11.1 Crores. This shows that assessee has been continuously taking such accommodation entries.
Based on the facts discussed above, it is to be derived that credit received by assessee as share premium & share capital is not genuine but mere accommodation entry used to avoid tax payment. On verification of return of income & Audit report filed by assessee, it is further noticed that assessee had received Rs 50,00,000/ as share capital, Rs.4,50,00,000/ as share premium during FY 200910 from various persons/companies. It is noticed that assessee has shown total income of Rs1,07,47,637/ only and has not offered the amount of Rs.5,00,00,000/ [Total of share capital & share premium) as income and hence has understated its income to the extent of Rs. 5,00,00,000/. in respect of such untaxed income which escaped assessment the failure is on the part of the assessee to disclose fully and truly all material facts necessary for its assessment. for the assessment year 201011.
6. Considering above facts, I have reasons to believe that total income to the extent of Rs. 5,00,00,000/ had escaped assessment as per provision of section 147 of the IT Act. I am also satisfied that the failure is on the part of the assessee to disclose fully and truly all material facts necessary for its assessment, for the assessment year 201011. Hence, it is a fit case to issue notice u/s 148 of the Act for the assessment year 201011."
4. Counsel for the petitioner raised the following contentions :
1) There was no failure on part of the assessee to disclose truly and fully all material facts. Notice of reopening issued beyond a period of four years was therefore, not valid.Page 6 of 12
C/SCA/21029/2017 JUDGMENT 2) During the original assessment entire issue of share
application and share premium was examined by the Assessing Officer. Detail inquiries were raised and answered. Any attempt on his part now to make additions would amount to change of opinion.
3) The order was taken in revision by the Commissioner who passed the revisional order. On this ground also, notice for reopening would be invalid.
5. On the other hand, learned counsel Mrs. Bhatt for the Revenue opposed the petition contending that the Assessing Officer has recorded proper reasons. There was total failure on part of the assessee to disclose true facts. The materials on record prima facie suggest that the investments by various individual companies in the petitioner company in the form of share application and share premium was only accommodation entries. The Assessing Officer had voluminous evidence suggesting that the socalled investors simply did not have any means to make sizeable investments. The creditworthiness of the investors was thus not established. The Assessing Officer therefore, formed a belief on the basis of tangible materials that income chargeable to tax had escaped assessment. Such material was extraneous to the documents brought on record during the course of assessment proceedings. At this stage, the Court would not examine the sufficiency of such reasons.
Page 7 of 12C/SCA/21029/2017 JUDGMENT
6. It is undoubtedly true that the return filed by the assessee was scrutinized by the Assessing Officer, during which scrutiny, the transactions of share applications and receipt of share application money by the company came up for consideration. It is also true that notice of reopening has been issued beyond a period of four years from the end of relevant assessment year. It is in this background that the counsel for the petitioner had argued the grounds of change of opinion and failure on part of the assessee to disclose truly and fully all material facts. These two aspects, in facts of the case, overlap. In other words, if the Assessing Officer is proceeding on the same information and material brought on record during the assessment proceedings, his action would fail both on the ground of change of opinion as well as non failure on part of the assessee to disclose truly and fully facts. However, if the Assessing Officer has at his command any extraneous material not forming part of the original assessment proceedings with the aid of which he can demonstrate that the assessee had not disclosed true and full facts and further that there is a bonafide belief that income chargeable to tax had escaped assessment, the reassessment proceedings must be allowed to go ahead.
7. In this context, we may peruse the reasons minutely. The reasons recorded are elaborate. Such reasons however, can be summarised thus. A search was conducted in case of group of persons and entities on 4.12.2014 and subsequent dates. The lead person of the group was one Page 8 of 12 C/SCA/21029/2017 JUDGMENT Anil Hiralal Shah also known as Raju Barter. The group is thus referred to as Barter group. During such search and subsequent assessment proceedings under section 153A and 153C of the Act on the members of the said group, from the seized materials and further inquires, it was found that many of the companies and entities of the group had taken accommodation entries of unsecured loan and share capital with high premium from various sources having no creditworthiness or sometime even identity, some of which were Ranakpur Securities Ltd., Frontline Financial Services Limited, Hardik Marketing Pvt. Ltd., Yankee Management Services Pvt. Ltd and Ahinsa Shares & Stock Broking Pvt Ltd.
8. From the return of the assessee for the assessment year 20102011, it was found that as many as 13 persons or companies had invested a total of Rs. 5 crores as share capital and share premium. The reasons give the breakup of the shares allotted and amounts paid by the share applicants for allotment of such shares. Frontline Financial Services Limited was alloted 25000 shares, Ahinsa Shares & Stock Broking Pvt Ltd. was allotted 50000 shares, Yankee Management Services Pvt. Ltd was allotted 75000 shares, Hardik Marketing Pvt. Ltd was allotted 25000 shares and Ranakpur Securities Ltd. was allotted 15000 shares. The reasons take note of the status of returns of three entities Frontline Financial Services Limited, Ranakpur Securities Ltd. and Hardik Marketing Pvt. Ltd for the AY 20082009, AY 20092010 and AY Page 9 of 12 C/SCA/21029/2017 JUDGMENT 20102011 which shows that these entities had either filed no return or nil return or claimed loss or at very best filed returns declaring meager incomes. Between these three entities in return of three years, highest was of Hardik Marketing Pvt. Ltd for the assessment year 20082009 of Rs.20970/. The reasons further note that Nexus Software Ltd. was a dormant company, had not file any annual return with the Registrar of Companies since 2008.
9. On the basis of above analysis of materials available to the Assessing Officer, he formed a belief that the share application and share capital received by the assessee during the said year was not genuine but was merely in the form of accommodation entries.
10. It can thus be seen that the Assessing Officer had at his disposal materials extraneous to the assessment proceedings which came to his possession after the assessment order was passed prima facie suggesting that the investments made in the company in the form of share application and share premium money was not genuine. The Assessing Officer strikes at the very root of the transactions contending that the investors did not have creditworthiness. These prima facie observations are based on materials outside of the assessment proceedings which the Assessing Officer came in possession subsequently.
11. In case of Yogendrakumar Gupta v. Income Tax officer reported in (2014) 366 ITR 186 (Guj) Division Page 10 of 12 C/SCA/21029/2017 JUDGMENT Bench of this Court in the context of reopening of assessment beyond a period of four years, held and observed as under :
"8. Section 147, thus, permits the reopening of the assessment to the Assessing Officer on his forming a belief that the income chargeable to tax has escaped the assessment. For the Assessing Officer to be authorised to reopen any assessment beyond the period of four years, he could so do it if the assessee fails to make a return under section 139 of the Act or in respect of a notice under sub section (1) of section 142 or he fails to disclose fully and truly all the material facts necessary for such assessment. We are concerned, in the present case, with the reopening of the assessment beyond the period of four years from the end of relevant assessment year, where it is averred that a notice under section 148 of the Act was the result of the assessee not having disclosed fully and truly all the material facts. In the original assessment, if the assessment is framed after the scrutiny under section 143(3) of the Act, the reassessment would be permissible under the law on completion of four years of period from the end of relevant assessment year, for any income chargeable to tax having escaped the assessment only on account of failure on the part of the assessee to disclose fully and truly all the material facts necessary for assessment. Of course, the satisfaction of the Assessing Officer is a must that such income had escaped the assessment by reason of any failure on the part of the assessee, otherwise the assumption of the jurisdiction under section 147 of the Act would be invalid. The Apex Court in the case of Fulchand Bajranglal (203 ITR 456) was considering the question of reassessment beyond the period of four years in the case of an assessee firm which had parted such an amount from Kolkata based company. The assessee also had filed confirmatory letters from the said company in support of its loan transactions. Interest paid to the Kolkata company by the assessee was permitted by the Assessing Officer for nearly five years. However, on the basis of some communication received from the Incometax Officer based on Kolkata, the genuineness of the loan transactions had been questioned.Page 11 of 12
C/SCA/21029/2017 JUDGMENT The Managing Director of the Kolkata company admitted that the company was a mere name lender and no amount had been advanced during last three assessment years. Such transactions being bogus on the basis of these information, reassessment proceedings were initiated. When such notice was challenged before the Apex Court, it held that this was not a case of the Incometax Officer drawing any fresh inference which she could have framed at the time of original assessment on the basis of the material placed before her by the assessee relating to the loan by the Kolkata company. It was the case of acquiring fresh information specific in nature and reliable, relating to the concluded assessment, which went to falsify the statement made by the assessee at the time of original assessment and, therefore, he would be permitted under the law to draw fresh inference from such facts and material. The Court also went to an extent of saying that there are two distinct and different situations where the transaction itself on the basis of subsequent information is found to be bogus transaction and in such event, mere disclosure of the transaction cannot be said to be true and full disclosure and the Incometax Officer would have jurisdiction to reopen the concluded assessment. The subsequent information on the basis of which the Income tax Officer acquired the reason to believe that the income chargeable to tax had escaped on account of omission on the part of the assessee to fully and truly disclose primary facts when was reliable, specific and relevant and not vague or unspecific, the reopening was permitted...."
12. In the result, petition is dismissed. Notice is discharged. Interim relief stands vacated.
(AKIL KURESHI, J.) (B.N. KARIA, J.) raghu Page 12 of 12