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2016 (7) TMI 929 - GUJARAT HIGH COURT

2016 (7) TMI 929 - GUJARAT HIGH COURT - TMI - Reopening of assessment - the case of the department is that the assessee had claimed bogus labour contract charges paid to these contractors to inflate the expenses and thereby deflate the profit - Held that:- Labour contractors were paid sizable amount of labour charges without such labour work having been taken by the assessee. Surely, these aspects were not at large before the Assessing Officer during the original assessment proceedings. Any exam .....

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gain by reopening the assessment. The question of true and full disclosure and the issue having been examined during the original assessment proceedings substantially overlap in the present case. - If the allegations contained in the reasons recorded are ultimately established, which must depend on the nature of material that may ultimately be brought on record during the reassessment and with respect to which we obviously would not make any comment, it would certainly indicate that the asse .....

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had relied heavily on the investigation carried out by the investigation wing and the material collected during such process, which culminated into a final report submitted by the investigation wing. However, it is not impermissible for the Assessing Officer to rely on such material, as long as of course he has applied his mind to the materials on record and formed his own belief that on the basis of such material, it can be stated that income chargeable to tax has escaped assessment. It was in .....

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action of the investigation wing. Thus Assessing Officer shall carry out the reassessment on the basis of material that may come on record during the assessment, unmindful of any of the observations made herein above. - Decided against assessee - SPECIAL CIVIL APPLICATION NO. 4054 of 2016 - Dated:- 12-7-2016 - MR. AKIL KURESHI AND MR. A.J. SHASTRI, JJ. FOR THE PETITIONER : MR.S.N.SOPARKAR, LD. SENIOR ADVOCATE with MR B S SOPARKAR, ADVOCATE FOR THE RESPNODENT : MR SUDHIR M MEHTA, ADVOCATE ORAL JU .....

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g, trading, exports and imports of diamonds. For the assessment year 2008-09, the petitioner had filed return of income, declaring total income of ₹ 7.52 crores (rounded off). Such return was taken up for scrutiny by the Assessing Officer. He passed order of assessment under section 143(3) of the Income Tax Act, 1961 ('the Act' for short) on 16.12.2010, making certain additions to the income of the assessee. To reopen such assessment, the Assessing Officer issued the impugned notic .....

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The predecided limit of the expenses to be booked in account of each labour contractor in last several years was found in these excel sheets. Wherein the details of limit fixed against the name of each impugned labour contractor and actual amount debited from books of HVK was given. It meant that it was predecided that the expense to be claimed in the case so called labour contractor should not exceed the prefixed limit for that particular year. The veracity of these excel sheets get proved fro .....

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found that such labour expenses against these parties have been booked in the financial year 2007-08 also. The information of such labour contractors and total amount debited by H. Vinodkumar & Company against their name during the financial year 2007-08 is provided by the DDIT (Investigation Wing) vide letter No. DDIT(Inv)-III/ SRT/TB-2008-09/ 2014-15 dated 17/03/2015. Moreover, evidences found by the Investigation wing that these employees were working from the outside premises controlled .....

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ost of the labour contractor have accepted the fact. Hence, from the above explanation it clearly indicates that the claims of the expenses in the case of these bogus labour contractors are not genuine and are also fabricated. Thus, it appears that there are sufficient grounds/reasons to believe that income has escaped. Therefore I have reason to believe that the assessee has concealed the income to extent of ₹ 31,83,20,477/- which is an escaped assessment within the meaning of provision o .....

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contentions. I. There was no failure on part of the assessee to disclose truly and fully all material facts. Notice of reopening beyond a period of four years from the end of relevant assessment year was therefore, issued without authority. II. During the scrutiny assessment, the issue of labour charges was examined by the Assessing Officer in detail and any attempt of reopening on his part on this ground would be based on change of opinion. III. The reasons do not disclose any material on the b .....

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suggesting that bogus labour charges were claimed by the assessee to increase the expenditure. These materials came to light during a search operation. Such material was not before the Assessing Officer during the original assessment. The Assessing Officer after having applied his mind to the material brought to his notice by the investigation wing, has recorded proper reasons and thereafter, issued notice for reopening. 6. We may recall in the present case, notice for reopening has been issued .....

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cer has pointed out that the assessee company was subjected to search action, during which, the back up of the computer and the server installed in the main factory were accessed. The material was downloaded in the harddisks and seized, from which, it was found that the assessee had set predecided limits of the expenses to be booked in the accounts of various labour contractors for last several years. Details of limits fixed against each contractor was compared with the actual amount debited in .....

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ration. Investigation wing noted that these employees were working from outside premises controlled and managed by the assessee and the turnovers booked in the books of the labour contractors against the work done at these premises for disguise. At outside premises, some of the labour contractors were working as main managers, some as managers of some of process and the remaining were either working at the main factory premises or were not working at all. During the investigation, almost all the .....

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he assessee had claimed bogus labour contract charges paid to these contractors to inflate the expenses and thereby deflate the profit. Reference to the data collected from the backup and server of the computer regarding preset limit of such expenditure, must be seen in light of the entire reasons recorded and cannot be seen in isolation. This first part which has reference to the preset limit for claiming expenditure, which also matched with the actual booking of expenditure for labour charge p .....

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l the labour contractors were, in fact, the employees of the assessee. To disguise detection, these labour charges were booked in relation to the work done at the premises outside that of the assessee firm, but controlled and managed by the assessee. The investigation further revealed that almost all these so called labour contractors had accepted such facts. 9. In view of such reasons, we may examine the contentions raised by the counsel for the petitioner. He had drawn our attention to several .....

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ries, the assessee had under letter dated 17.10.2010, provided following data. 8) Party wise Labour Register with TDS deduction details for the year 2007-2008. (Question no.22) 9) Labour Register for the period 01012008 to 31.03.2008. (Question no.23) 10. Later on, the Assessing Officer in connection with TDS on labour contract charges under letter dated 21.09.2010 had inquired as under: 4) Copy of Lower rate certificates. It was after such examination that the Assessing Officer had passed the o .....

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ies heavily on the material collected by the investigation wing pursuant to the search operation. This material primafacie suggests that labour contractors were paid sizable amount of labour charges without such labour work having been taken by the assessee. Surely, these aspects were not at large before the Assessing Officer during the original assessment proceedings. Any examination by the Assessing Officer of the assessee's claim of labour expenses would be confined to the declarations ma .....

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the original assessment proceedings substantially overlap in the present case. 11. Coming to the last contention of the petitioner, we have already perused the reasons recorded, which in our opinion, do not suggest either any inconsistency or absence of any material to enable the Assessing Officer to form a belief that income chargeable to tax has escaped assessment. If the allegations contained in the reasons recorded are ultimately established, which must depend on the nature of material that .....

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ed, it would only indicate that the assessee had claimed higher expenditure than what was incurred thereby suppressing the profit. It is true that the Assessing Officer had relied heavily on the investigation carried out by the investigation wing and the material collected during such process, which culminated into a final report submitted by the investigation wing. However, it is not impermissible for the Assessing Officer to rely on such material, as long as of course he has applied his mind t .....

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his own formation of belief that income chargeable to tax has escaped assessment. This is therefore, not a case of the Assessing Officer proceeding on a borrowed satisfaction of the investigation wing. 12. In a recent judgment on the issue of reliance on the inquiry or investigation carried on by one or the other department of the Government to enable the Assessing Officer to reopen the assessment, it was held and observed as under: 9. It can thus be seen that the entire material collected by t .....

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ch material available with him which he perused, considered, applied his mind and recorded the finding of belief that income chargeable to tax had escaped assessment, the reopening could not and should not have been declared as invalid, on the ground that he proceeded on the showcause notice issued by the Excise Department which had yet not culminated into final order. At this stage the Assessing Officer was not required to hold conclusively that additions invariably be made. He truly had to for .....

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ries and investigations, the Customs authorities found that the assessee was systematically undervoicing the value of Manganese as compared with the prevailing market price. The Income Tax Officer on coming to know about the proceedings before the Customs Collector in this respect issued notice for reopening of the assessment. In the reasons that the Assessing Officer relied on the facts as found by the Customs Authorities that the assessee had undervoiced goods during export. Under such circums .....

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assessed. The final outcome of the proceedings is not relevant. What is relevant is the existence of reasons to make the Income Tax Officer believe that there has been under assessment of the assessee's income for a particular year. We are satisfied that the first condition to invoke the jurisdiction of the Income Tax Officer under Section 147(a) of the Act was satisfied. 11. In case of Income Tax Officer vs Purushottam Das Bangur (supra) after completion of assessment in case of the assesse .....

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ter of Directorate of Investigation could be said to be definite information and the Assessing Officer could act upon such information for taking action under Section 147(b) of the Act. In such background, the Supreme Court observed as under: 12. Ms. Gauri Rastogi, the learned counsel appearing for the respondents, has urged that the letter of Shri Bagai was received by the Income tax Officer on March 26, 1974 and on the very next day, that is, on March 27, 1974, he issued the impugned notice un .....

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could have formed the opinion that there was reason to believe that the income of the assessee chargeable to tax had escaped assessment. The High Court, in our opinion, was in error in proceeding on the basis that it could not be said that the Income Tax Officer had in his possession information on the basis of which he could have reasons to believe that income of the assessee chargeable to tax had escaped assessment for the relevant assessment years. For the reasons aforementioned, we are unab .....

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ing of coal raised. Upholding the validity of reopening of assessment, the Supreme Court held and observed as under: After hearing the learned counsel for the parties at length, we are of the opinion that we cannot say that the letter aforesaid does not constitute relevant material or that on that basis, the Income Tax Officer could not have reasonably formed the requisite belief. The letter shows that a joint inspection was conducted in the colliery of the respondent on January 9,1967, by the o .....

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n its returns. Whether the facts stated in the letter are true or not is not the concern at this stage. It may be well be that the assessee may be able to establish that the facts stated in the said letter are not true but that conclusion can be arrived at only after making the necessary enquiry. At the stage of the issuance of the notice, the only question is whether there was relevant material, as stated above, on which a reasonable person could have formed the requisite belief. Since we are u .....

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notice was based on information received from Directorate of investigation that the assessee was beneficiary of bogus accommodation entries. The Court while upholding the validity of reopening observed that sufficiency of reason cannot be considered in a writ petition. It was observed as under: 23 The present factual canvas has to be scrutinized on the touchstone of the aforesaid enunciation of law. It is worth noting that the learned counsel for the petitioner has submitted with immense veheme .....

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ary of bogus accommodation entries provided to it and represents the undisclosed income. The assessing officer has referred to the subsequent information and adverted to the concept of true and full disclosure of facts. It is also noticeable that there was specific information received from the office of the DIT (INVV) as regards the transactions entered into by the assessee company with number of concerns which had made accommodation entries and they were not genuine transactions. As we perceiv .....

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