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Varshaben Sanatbhai Patel Versus Income Tax Officer & 1

2015 (11) TMI 934 - GUJARAT HIGH COURT

Reopening of assessment - bogus purchases - material received from an external source viz., the DGIT (Inv.) - Held that:- On a plain reading of the reasons recorded, what emerges is that the Assessing Officer, on verification of the details available on record, has noticed that there were bogus purchases. However, there is no assertion as regards on the basis of which material on record he has come to such conclusion. A perusal of the order rejecting the objections raised by the petitioner, show .....

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he basis of the material on record, the Assessing Officer could not have formed the belief that income chargeable to tax has escaped assessment, inasmuch as, the formation of belief of the Assessing Officer is not based upon the details available on record, but on the material made available by the DGIT (Inv.), Mumbai which is an external source. Under the circumstances, it cannot be said that the requirements of section 147 of the Act are satisfied, inasmuch as, the belief of the Assessing Offi .....

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he basis of which he made such assertion. - Decided in favour of assessee. - Special Civil Application No. 12873 of 2014, Special Civil Application No. 12875 of 2014 - Dated:- 13-10-2015 - Harsha Devani And A. G. Uraizee, JJ. For the Appellant : Mr R K Patel, Adv. with Mr Darshan Patel, Adv For the Respondent : Mr K M Parikh, Adv JUDGMENT ( Per : Honourable Ms. Justice Harsha Devani ) 1. Since the controversy involved in all these petitions under Articles 226 and 227 of the Constitution of India .....

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the returns came to be processed under section 143(1) of the Income Tax Act, 1961 (hereinafter referred to as "the Act"). Subsequently, by the impugned notices dated 26.03.2014, the assessment in relation to each of the above assessment years is sought to be reopened by the Assessing Officer. In response to the notices issued under section 148 of the Act, the petitioner assessee requested the Assessing Officer to furnish the reasons recorded for reopening the assessment. Upon such reas .....

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ourt to the reasons recorded by the Assessing Officer for reopening the assessment, to submit that while recording the reasons, the Assessing Officer has not alleged that the assessee has not disclosed purchases in the books or has not disclosed corresponding sale in the books. It was submitted that if the sales made are held to be genuine, then the corresponding purchases cannot be bogus, because without such purchases, corresponding sales is not possible. It was pointed out that in the reasons .....

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that he has acted pursuant to the information received from the Director General of Income Tax (Inv.), Mumbai; however, there is no reference to such fact in the reasons recorded for reopening the assessment. It was submitted that the information received from the DGIT (Inv.) appears to have been made the basis for reopening the assessment; however, there is no independent application of mind by the Assessing Officer if one looks into the reasons recorded. According to the learned counsel, in th .....

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ithin a period of four years. In all these cases, previously only intimation had been issued under section 143(1) of the Act and hence, the question of there being any change of opinion does not arise as there was no formation of any opinion on the part of the Assessing Officer. Referring to the reasons recorded, it was submitted that the Assessing Officer has duly applied his mind and recorded the reasons for reopening the assessments and the sufficiency of the reasons recorded cannot be gone i .....

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ount to the extent of bogus purchases would not form part of the expenditure, and income to that extent has escaped assessment. It was pointed out that in the peculiar facts of this case, not reflecting the facts as stated in paragraphs 4 and 5 of the order disposing of the objections in the reasons recorded, would not affect the jurisdiction of the Assessing Officer to reopen the assessment within a period of four years, in a case where no assessment had been framed under section 143(3) of the .....

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e or was based on vague, irrelevant and non-specific information. To that limited extent, the court may look into the conclusion arrived at by the Income Tax Officer and examine whether there was any material available on the record from which the requisite belief could be formed by the Income Tax Officer and further whether that material had any rational connection with or a live link for the formation of the requisite belief. Reliance was also placed upon the decision of the Supreme Court in t .....

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07) 291 ITR 500 (SC), for the proposition that so long as the ingredients of section 147 are fulfilled, the Assessing Officer is free to initiate proceeding under section 147 and failure to take steps under section 143(3) will not render the Assessing Officer powerless to initiate reassessment proceedings even when intimation under section 143(1) had been issued. Reliance was also placed upon the decision of this court in the case of Dishman Pharmaceuticals and Chemicals Limited v. Deputy Commis .....

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P. Ltd. v. Assistant Commissioner of Income Tax, (2014) 362 ITR 417 (Delhi) was cited, for the proposition that in its writ jurisdiction, the scope of proceedings before the court while considering a notice under section 147/148 of the Income Tax Act, 1961, is limited. The court cannot enter into the merits of the subjective satisfaction of the Assessing Officer or judge the sufficiency of the reasons recorded, but rather, determine whether such opinion is based on tangible, concrete and new in .....

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information is available so as to justify the conclusion irrespective of the contents of the document sought to be kept confidential. It was, accordingly, urged that the action of the Assessing Officer in issuing the impugned notices under section 148 of the Act being in consonance with the relevant statutory provisions and the settled principles enunciated in that regard, there is no warrant for interference by this court. 5. This court has considered the submissions advanced by the learned cou .....

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39/-, during the financial year 2008-09 i.e. A.Y. 2009-10. By claiming bogus purchases in the trading and P & L A/c as an expenses, the assessee has shown less profit to the extent of the amount of Bogus Purchases. [2] In view of the above facts of the case, I have reason to believe that the income chargeable to tax has escaped assessment within the meaning of section 147 of the I. T. Act, 1961, to the extent of ₹ 30,65,639/- for the A.Y. 2009-10." Special Civil Application No.128 .....

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ing of section 147 of the I. T. Act, 1961, to the extent of ₹ 37,11,752- for the A.Y. 2010-11." Special Civil Application No.12875 of 2014 "[1] On verification of details available on records, it is noticed that assessee has made Bogus Purchase of ₹ 48,92,390/-, during the financial year 2010-11 i.e. A.Y. 2011-12. By claiming bogus purchases in the trading and P & L A/c as an expenses, the assessee has shown less profit to the extent of the amount of Bogus Purchases. [2 .....

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verification of the details available on record has noticed that there were bogus purchases. However, from the reasons there is nothing whatsoever to show as to which is the record which shows that there were bogus purchases to the extent stated therein. No details have been mentioned by the Assessing Officer as to what is the basis on which he says that the purchases are bogus. 7. Pursuant to the objections raised by the assessee against the reopening of assessment, the Assessing Officer has p .....

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e has been recorded on the basis of the knowledge that the assessee is engaged in bogus purchases with the parties mentioned therein. It is also stated therein that the contention of the assessee that the reasons supplied to her are without supporting material are baseless and frivolous. Based on the aforesaid reasoning, the Assessing Officer has turned down the objections whereby it was alleged that the reopening was without any supporting material. 8. At this juncture, reference may be made to .....

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e of the assessee has been reopened to verify the purchases made by the assessee. The notice under section 148 of the Act was issued after recording of reasons and satisfaction of the Assessing Officer on the basis of the details, that is, of DGIT (Inv.), Mumbai, available on record. It is further the case of the respondent that there was no assessment in this case and no opinion was formed, and therefore, there was no question of change of opinion and that the case has been reopened on the basi .....

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nt proceedings even when intimation under section 143(1) had been issued. 9. Thus, the undisputed facts are that in relation to all the three assessment years, the income tax returns filed by the petitioner have only been processed under section 143(1) of the Act and no assessment has been framed under section 143(3) of the Act. Under the circumstances, as held by the Supreme Court Assistant Commissioner of Income Tax v. Rajesh Jhaveri Stock Brokers P. Ltd. (supra), the conditions with regard to .....

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icer, I Ward, Distt. VI, Calcutta and others v. Lakhmani Mewal Das, (1976) 103 ITR 437, wherein it has been held that the grounds or reasons which lead to the formation of belief contemplated by section 147(a) of the Act must have a material bearing on the question of escapement of income of the assessee from assessment. Once there exist reasonable grounds for the Income Tax Officer to form the above belief, that would be sufficient to clothe him with jurisdiction to issue notice. 11. This court .....

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quired to be provided with a copy of the reasons for issuing notice. The reasons should set out the reasons for formation of the belief of the Assessing Officer that the income has escaped assessment and in case where the reopening of assessment is after the expiry of a period of four years from the end of the relevant assessment year, the belief should be that, by reason of omission or failure on the part of the assessee to disclose fully and truly the material facts, the income has escaped ass .....

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lure on the part of the assessee to disclose fully and truly all material facts has to be recorded in the reasons, though the same may be elaborated by filing an affidavit. But, in the absence of formation of any such belief being recorded in the reasons, it is not open for the Assessing Officer to express formation of such belief for the first time by way of affidavit-in-reply filed in the court. 12. The reasons recorded by the Assessing Officer for reopening of the assessment for the years und .....

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ing of the reasons recorded, what emerges is that the Assessing Officer, on verification of the details available on record, has noticed that there were bogus purchases. However, there is no assertion as regards on the basis of which material on record he has come to such conclusion. A perusal of the order rejecting the objections raised by the petitioner, shows that the reopening is based, not upon the material on record, but on the basis of material received from an external source viz., the D .....

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ssment, inasmuch as, the formation of belief of the Assessing Officer is not based upon the details available on record, but on the material made available by the DGIT (Inv.), Mumbai which is an external source. Under the circumstances, it cannot be said that the requirements of section 147 of the Act are satisfied, inasmuch as, the belief of the Assessing Officer is not based upon the material on record, but on some other material from an external source which does not find reference in the rea .....

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Ram Bai v. Commissioner of Income Tax, (1999) 3 SCC 30, wherein, the Income Tax Officer has made an order of assessment under section 147(a) of the Act holding that a sum of ₹ 2,43,934/- was payable as tax and initiated penalty proceedings. On appeal by the assessee, the Commissioner of Income Tax (Appeals) held that the ITO could not have had any reason to believe that there was escapement of income as there was no material whatever at that time to indicate that the lands were non-agricu .....

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he revenue placed reliance upon the judgment of the Supreme Court in Central Provinces Manganese Ore Co. Ltd. v. Income Tax Officer, (1991) 191 ITR 662, wherein it was held on the facts in that case that the reasons recorded in the notice issued under section 147(a) and the material on record, justified the issue of such notice. The court observed that the said ruling would not help the revenue in that case as there was no material whatever on record to justify the issue of notice by the Income .....

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e land in question is not agricultural land and has not been subjected to agricultural operations. The capital gains are chargeable to income tax. The value as on 1-1-1954 is estimated at ₹ 1000 per acre and the total value of the entire land as on 1-1-1954 would be about ₹ 16,500. Thus the assessee made a net capital gain of ₹ 1,93,860. Besides the amount of interest that accrued year to year will have to be included as a protective basis. The assessee has filed a return discl .....

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sioner to accord sanction for reopening the assessment under Section 147(a)." 7. Apart from the said communication, there is nothing on record to disclose the material on which the ITO decided to reopen the assessment. He has made an assertion in the said communication that the land in question was not subjected to agricultural operation and that he had reason to believe, the income chargeable to tax had escaped for Assessment Year 1965-66 by reason of omission or failure on the part of the .....

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hat case that the reasons recorded in the notice issued under Section 147(a) and the material on record justified the issue of such notice. That ruling will not help the Revenue in this case as there is no material whatever on record to justify the issue of notice by the ITO under Section 147 of the Act." 15. Adverting to the facts of the present case, the returns filed by the assessee have been processed under section 147(1) of the Act. The Assessing Officer in the reasons recorded for the .....

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re made as regards which details available on record reflected such bogus purchases. It is evident that the Assessing Officer for the purpose of reopening the assessment has placed reliance upon the material from an external source which does not form part of the record. However, the said aspect is not reflected in the reasons recorded. On behalf of the Assessing Officer, the learned counsel is not in a position to point out any material on the record on the basis of which the Assessing Officer .....

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