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MURLIBHAI FATANDAS SAWLANI Versus INCOME TAX OFFICER

2016 (1) TMI 949 - GUJARAT HIGH COURT

Reopening of assessment - Assessing Officer formed a belief that provisions of section 2(22)(e) of the Act would apply - Held that:- The assessee during the year under consideration was a director of the company and had purchased 88,300 shares by investing ₹ 1.76 crores out of which ₹ 1 crore was paid back to the petitioner by the company as advance. It was in this context, the Assessing Officer formed a belief that section 2(22)(e) of the Act would apply. His assertion that the peti .....

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-1-2016 - AKIL KURESHI AND MR. MOHINDER PAL, JJ. FOR THE PETITONER : MR KETAN H SHAH, ADVOCATE FOR THE RESPONDENT : MR SUDHIR M MEHTA, ADVOCATE ORAL ORDER (PER : HONOURABLE MR.JUSTICE AKIL KURESHI) 1. The petitioner is an individual and had filed return of income for assessment year 20082009. Such return was accepted under section 143(1) of the Income Tax Act, 1961( the Act for short) without scrutiny. The Assessing Officer issued impugned notice dated 21.9.2015 under section 148 of the Act seek .....

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t ₹ 1,92,19,545/ Total Reserves ₹ 8,68,57,645 2. During FY 2007 08 relevant to AY.200809, company had given advance of ₹ 1,00,00,000/to Shri Murlibhai Fatandas Sawlan as advance to suppliers and the balance is Still continuing till AY.201314. As the advance given was remained unchanged till AY.201314 hence it is concluded that advances given to Shri Murlibhai Fatandas Sawlani was not in ordinary course of business. In view of the same, provisions of sec.2(22)(e) are applicable .....

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Assessing Officer had no tangible materials and reopening is only for fishing inquiry which was not permissible. Such objections were rejected by order dated 21.9.2015. Hence this petition. 3. Learned counsel for the petitioner submitted that the Assessing Officer had no tangible materials to form a belief that income chargeable to tax had escaped assessment. Reopening cannot be permitted for mere fishing inquiry. Even in case of non scrutiny assessment, reopening would be permissible only if th .....

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crutiny. Question of change of opinion therefore, would not arise. The Assessing Officer having formed a bona fide belief that the income chargeable to tax has escaped assessment, notice for reopening could not be quashed. He submitted that such reason had to be based on prima facie consideration and not a final conclusion. 5. Counsel drew our attention to the affidavit in reply filed by the Assessing Officer in which it is pointed out that the petitioner who was the director of M/S. Shantai Rea .....

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was in this context that the Assessing Officer formed a belief that provisions of section 2(22)(e) of the Act would apply. 6. We may recall that the original assessment in the present case was not framed after scrutiny. This being a case of accepting the return of assessee under section 143(1) of the Act, there was no question of Assessing Officer forming any opinion on the claims made by the assessee. Concept of change of opinion therefore, cannot be applied. 7. In this context, we may refer t .....

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ncome for any assessment year has escaped assessment. The word reason in the phrase reason to believe would mean cause or justification. If the Assessing Officer has cause or justification to know or suppose that income had escaped assessment, it can be said to have reason to believe that an income had escaped assessment. The expression cannot be read to mean that the Assessing Officer should have finally ascertained the fact by legal evidence or conclusion. The function of the Assessing Officer .....

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what is required is reason to believe, but not the established fact of escapement of income. At the stage of issue of notice, the only question is whether there was relevant material on which a reasonable person could have formed a requisite belief. Whether the materials would conclusively prove the escapement is not the concern at that stage. This is so because the formation of belief by the Assessing Officer is within the realm of subjective satisfaction (see ITO v. Selected Dalurband Coal Co .....

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ssed. To confer jurisdiction under section 147(a) two conditions were required to be satisfied firstly the Assessing Officer must have reason to believe that income profits or gains chargeable to income tax have escaped assessment, and secondly he must also have reason to believe that such escapement has occurred by reason of either (i) omission or failure on the part of the assessee to disclose fully or truly all material facts necessary for his assessment of that year. Both these conditions we .....

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he ambit of the proviso to section 147. The case at hand is covered by the main provision and not the proviso. 18. 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. 8. This decision in addition to recognising a greater leverage to .....

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to form such a belief. It would not be necessary to demonstrate conclusively the escapement of income. The Supreme Court in the context referred to and relied upon decision in case of Raymond Woolen Mills Ltd v. Income Tax Officer reported in (1999) 236 ITR 34(SC). 9. We are conscious that in the decision in case of Inductotherm (India) P. Ltd. v. M. Gopalan, Deputy Commissioner of Incometax reported in (2013) 356 ITR 481 (Guj.), Division Bench of this Court even in context of notice for reopen .....

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framed, the basic requirement of section 147 of the Act that the Assessing Officer has reason to believe that income chargeable to tax has escaped assessment is not done away with. Section 147 of the Act permits the Assessing Officer to assess, reassess the income or recompute the loss or depreciation if he has reason to believe that any income chargeable to tax has escaped assessment for any assessment year. This power to reopen assessment is available in either case, namely, while a return ha .....

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ent, provided he had some tangible material on the basis of which he could form a reason to believe that income chargeable to tax had escaped assessment. However, as held by the Apex Court in the case of Assistant Commissioner of Income Tax v. Rajesh Jhaveri Stock Brokers P. Ltd., (supra) and several other decisions, such reason to believe need not necessarily be a firm final decision of the Assessing Officer. 17. If we accept such proposition, the petitioner's apprehension that the Assessin .....

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