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2016 (8) TMI 277 - GUJARAT HIGH COURT

2016 (8) TMI 277 - GUJARAT HIGH COURT - TMI - Legality and validity of reopening of assessment - information received from DGIT - reasons to believe - Held that:- There was independent application of mind on behalf of the assessing authority in arriving at the conclusion that income had escaped assessment and therefore, the contentions raised by the petitioner are devoid of merits. Dealing with the contentions of the petitioner that the information received from DGIT, Investigation Branch, Ahmed .....

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se, the Authority is justified in issuing notice under Section 148 of the Act to reopen the assessment and therefore, the challenge contained in the petition being devoid of merits, same deserves to be dismissed. - As we found that for the exercise of power of reopening of assessment after a period of 4 years, a proper procedure is observed by the Authority, specific approval has been obtained from the competent Authority and upon perusal of original file, we have satisfied ourselves that t .....

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ith. - Decided against assessee - SPECIAL CIVIL APPLICATION NO. 3249 of 2016 - Dated:- 5-8-2016 - MR. AKIL KURESHI AND MR. A.J. SHASTRI, JJ. FOR THE PETITIONER : MR MANISH J SHAH, ADVOCATE FOR THE RESPONDENT : MR SUDHIR M MEHTA, ADVOCATE CAV JUDGMENT (PER : HONOURABLE MR.JUSTICE A.J. SHASTRI) 1. By way of present petition, the petitioner has challenged the legality and validity of the impugned notice issued under Section 148 of the Income Tax Act, 1961 dated 31.3.2015 as well as the order dispos .....

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Audit Report and Form No.3CA & 3CD. The petitioner thereafter, also filed revised return. Subsequently, the petitioner Company received notice on 25.8.2010 issued under Section 143(2) of the Income Tax Act, 1961 (hereinafter referred to as "the Act") asking the petitioner to produce certain details and in response thereto on 6.9.2010, the petitioner supplied all the relevant details as sought for. The petitioner Company had again filed the return revising earlier one on 27.10.2010 .....

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petitioner and further notice also came to be received by the petitioner on 24.8.2011 under Section 143(2) of the Act, which again replied by the petitioner on 6.9.2011. The petitioner under letter dated 4.10.2011 again clarified the questioners and the details, which have been sought for from the petitioner. It is the case of the petitioner that further details also came to be supplied by the petitioner on 14.10.2011 and subsequently, as scrutiny assessment have been undertaken by the responde .....

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rity has reason to believe that the income chargeable to tax on escape assessment and thereby, the petitioner Company is asked to submit the return within a period of 30 days. The petitioner in response to the same, submitted a letter dated 25.4.2015 undertaking that the return of the petitioner has been thoroughly scrutinized and after scrutiny assessment, specific order came to be passed and therefore, the petitioner has requested the Authority to seek the reasons for issuance of notice so tha .....

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to be disposed of by the Authority by an order dated 21.1.2016 and resultantly, the petitioner is constrained to approach this Court by way of present petition. This Court in an order dated 29.2.2016 was pleased to issue notice calling upon the Authority and in the meantime, ad interim relief is granted staying the further proceedings pursuant to the impugned notice dated 31.3.2015. 3. The learned advocate Mr. J.P. Shah appearing on behalf of the petitioner submitted that the impugned notice iss .....

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sment as well and there is no additional material available, which may permit the reassessment in response to the impugned notice. It was also pointed out by the learned advocate for the petitioner that the reasons, which are recorded are not based upon an independent application of mind, but it seems that the same are based on borrowed satisfaction. It was also submitted that the reopening is impermissible to make a fishing inquiry or just to re-assure whether earlier assessment is proper or no .....

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objections. It was submitted by the learned advocate for the petitioner that in absence of any new material or information, the reopening of the assessment is not permissible. It was submitted by the learned advocate for the petitioner that each and every detail has been submitted before the Authority as and when demanded and there is full disclosure on the part of the petitioner and therefore, by citing the decision of the Hon'ble Apex Court in the case of Calcutta Discount Co. Ltd. Vs. ITO .....

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on to believe that the income of the petitioner has escaped assessment within the meaning of Section 147 of the Act. The reasons which are assigned in details, are sufficient enough to permit the Authority to reopen the assessment and therefore, learned advocate submitted that even if it is beyond the period of 4 years in a given case, the Authority can reopen the assessment moment a reasonable cause to open the assessment. Learned advocate for the respondent further submitted that specific appr .....

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advocate further submitted that this is merely notice for reopening of assessment and while issuing the final conclusion on the issue is not to be accepted to be arrived at by the Assessing Authority and therefore, the Authority has acted well within the bounds of its authority and have been satisfied that there is justifiable reasons for reopening of the assessment. Learned advocate for the respondent has filed detailed affidavit-in-reply, which is from Page No.222 onwards and submitted that th .....

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f any change of opinion nor for any review of assessment, which are being undertaken and therefore, submitted that the petition being devoid of merits, deserves to be dismissed. Learned advocate further submitted that there is no violation of principle of natural justice nor any circumstance, which warrants this Court to intercept the process of reopening of assessment and therefore, requested to dismiss the petition. 5. Before dealing with the petition at length, one of contentions raised by th .....

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o be presented by the respondent authority but file was containing mere xerox copy of format for granting of such approval and therefore, to reensure, we have directed the respondent Authority to place the original file containing the original papers. Pursuant to that instruction, on 27.7.2016, the learned advocate for the respondent has submitted original file to deal with the said subject matter on the issue of approval under Section 151 of the Act. Before adverting ourselves to the contention .....

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are substantiating the stand of the respondent Authority for the issuance of the impugned notice, which is only after getting proper approval from the competent Authority and therefore, this aspect is now being clear from the original file. We are examining the other issues raised by the respective parties hereinafter. 6. While dealing with the stand of the respective sides and the contentions raised by the learned advocates for the respective parties, we feel it necessary to first of all exami .....

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as selected for scrutiny and assessment was completed u/s. 143(3) dated 24/10/2011 assessing income at ₹ 65,60,070/-. 2. In this case, information has been received by DGIT (Investigation), Ahmedabad vide No.DGIT (Inv.)/AHD/VAT/Bogus Purchase/2014-15 dated 26.03.2015. It is stated in letter that two surveys were carried out by the Pr. DIT (Inv.), Kolkata on Vikrant Kayan and Arvind Kayan respectively. The Kayans are known entry operators of Kolkata and have been giving entries of bogus sha .....

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he I.T. Act, 1961." 7. From the reasons, which are recorded, it has come to the notice of this Court that a specific information has been received by the DGIT (Investigation), Ahmedabad, with regard to the bogus purchase vide communication dated 26.3.2015 wherein it has been specifically found that two surveys operation which were carried out by T.R.D.I.T. (Investigation) Kolkata of Mr. Vikrant Kayan and one Mr. Arvind Kayan and the said Kayan, as per the information received by Assessing O .....

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e communication dated 26.3.2015 and therefore, on the basis of such materials, the Authority has reason to believe that the income of the petitioner has escaped assessment within the meaning of Section 147 of the Act. It is emerged from the records that on the basis of this new material information having been received, the Authority appears to have issued notice for re-assessment. In the background of aforesaid facts, prima facie it appears that it is not a simple case of change of opinion and .....

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d. reported in 2007 (291) ITR 500. The Hon'ble Apex Court, dealing with the said case, has dealt with statutory provisions prior to the amendment as well as post amendment and after analyzing the provisions of Sections 147 and 148 of the Act, the Apex Court has opined that Section 147 authorizes and permits the Assessing Officer to assess or re-assess the income chargeable to tax if he has reason to believe that income for any assessment year has escaped the assessment. The word reason in th .....

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seen and in the background of present facts, there is a specific information received about the Kayans brothers during investigation by the authority and it has been prima facie found that present petitioner - assessee is also the beneficiary of the said Kayan brothers. At this stage of the proceeding, the factum of said aspect whether the petitioner is beneficiary or not, is not to be finally adjudicated upon by the Assessing Officer and therefore, this Court is not in a position to dwell into .....

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t extract contained in the said decision of the Apex Court is reproduced hereinafter : 16. Section 147 authorises and permits the Assessing Officer to assess or reassess income chargeable to tax if he has reason to believe that income 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 reas .....

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he provision stood at the relevant time) fulfillment of the two requisite conditions in that regard is essential. At that stage, the final outcome of the proceeding is not relevant. In other words, at the initiation stage, 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 .....

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ior to such substitution. Under the old provisions of section 147, separate clauses (a) and (b) laid down the circumstances under which income escaping assessment for the past assessment years could be assessed or reassessed. 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 .....

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whatever reason has reason to believe that income has escaped assessment it confers jurisdiction to reopen the assessment. It is however to be noted that both the conditions must be fulfilled if the case falls within the ambit of the proviso to section 147. The case at hand is covered by the main provision and not the proviso." 8. In another case recently being dealt with by this Court in a group of tax appeals being Tax Appeal Nos.542 of 2015 and allied matters wherein, very issue whether .....

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tters, the reopening was initiated by the authority based upon the show cause notice along with accompanied material forwarded by the Excise Department to the Income-Tax Department and on the basis of said material provided by the Excise Department, the Assessing Officer has reopened the assessment of the assessee by issuing notice under Section 148 of the Act. The assessee of that case in the similar manner in this case has contended that the information provided by a different Investigating Te .....

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nclusion that the Assessing Officer has merely relied upon the show cause notice issued by the Excise Department and has not concluded finally and therefore, there is no illegality or irregularity in arriving at a belief that assessment deserves to be reopen. Relying upon the decision delivered by the Apex Court, it is held that action of reopening of assessment was found to be justified. Relevant Paragraph Nos.9, 10, 11, 12, 13 and 16 of the said decision worth to be taken note of and therefore .....

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ome chargeable to tax had also escaped assessment. When thus the Assessing officer had such 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 re-opening could not and should not have been declared as invalid, on the ground that he proceeded on the show-cause notice issued by the Excise Department which had yet not culminated into final order. At this stage the Assessing Officer w .....

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e in respect of the consignment of Manganese exported by them out of India. After due inquiries and investigations, the Customs authorities found that the assessee was systematically under-voicing 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 C .....

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thorities but it can be a valid reason to believe that the chargeable income has been under 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 Off .....

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the assessment. The question, therefore, arose whether the information contained in the letter 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 appearing for the respondents, has urged that the letter of Shri Bagai was received by the Income tax Officer on March 26, 1974 an .....

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ained in the said letter, the Income Tax officer, without any further investigation, 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 asses .....

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that the colliery of the assessee had been inspected and there had been under reporting of coal raised. Upholding the validity of re-opening 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 i .....

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said to have been done by the respondent over and above the figure disclosed by it in 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 .....

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ench of Delhi High Court considered the validity of reopening of assessment where the 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 .....

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in Annexure P-2 constitute fresh information in respect of the assessee as a beneficiary 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 (INV-V) as regards the transactions entered into by the assessee company with number of concerns whi .....

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As has been held in Phool Chand Bajrang Lal (supra), Bombay Pharma Products (supra) and Anant Kumar Saharia (supra), the Court, in exercise of jurisdiction under Article 226 of the Constitution of India pertaining to sufficiency of reasons for formation of the belief, cannot interfere. The same is not to be judged at that stage. In SFIL Stock Broking Ltd. (supra), the bench has interfered as it was not discernible whether the assessing officer had applied his mind to the information and independ .....

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ons and the assessing officer was made aware of the situation and further the reason recorded does not indicate application of mind. That apart, the existence of the companies was not disputed and the companies had bank accounts and payments were made to the assessee company through the banking channel. Regard being had to the aforesaid fact situation, this Court had interfered. Thus, the said decision is also distinguishable on the factual score. 16. Thus, the decision in case of Futura Ceramic .....

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f the opinion that when the Authority is armed with the tangible material in the form of specific information received by the Investigation Wing, Ahmedabad is throughly justified in issuing a notice for reassessment. It is revealed from the said additional material available on hand a reasonable belief is formed by the Assessing Authority that income of the petitioner has escaped assessment and therefore, once the reasonable belief is formulated by the Authority on the basis of cogent tangible m .....

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new material is found in the form of information on the basis of which the assessing authority can form a belief that the income of the petitioner has escaped assessment, it is always open for the assessing authority to reopen assessment. From the reasons which are recorded, it clearly emerges that the petitioner is the beneficiary of those entries by Kayan brothers, who are well known entry operators across the country and this fact has been unearthed on account of the information received by .....

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