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2016 (8) TMI 280 - GUJARAT HIGH COURT

2016 (8) TMI 280 - GUJARAT HIGH COURT - TMI - Reopening of assessment - reasons to believe - information received from the DGIT, Investigation Branch - Held that:- We are of 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 Assessi .....

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apement of income and therefore, looking to the scope of Section 147 as also Sections 148 to 152 of the Act, even if scrutiny assessment has been undertaken, if substantial 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 .....

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ed 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, Ahmedabad, can never be said to be additional information. We are of the opinion that the information which has been received is on 26.3.2015 from the DGIT, Investigation Branch, Ahmedabad, whereby it has been revealed that present petitioner is also the beneficiaries of those Kayan brothers, who .....

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:- 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 (PER : HONOURABLE MR.JUSTICE A.J. SHASTRI) 1. Present petition is filed by the petitioner for challenging the legality and validity of the impugned notice issued under Section 148 of the Income-Tax Act,1961 as well as an order disposing of the objections filed by the petitioner in that respect. 2. The petitioner is a limited company dealing in t .....

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the Act on 12.8.2013 along with questionnaires running into 24 questions calling for various details. On 22.8.2013, the petitioner had specifically replied to the details which are demanded and has also clarified the aspect of commission being paid by the petitioner along with Permanent Account Numbers of the party, to whom the said commission was paid. The petitioner while submitting reply has also specified that TDS was deducted on the amount of the total commission which was paid to the said .....

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tion having been made in the scrutiny assessment, the petitioner has challenged the additions made in the assessment order by way of filing an appeal before the CIT (Appeals). The appellate authority had passed an order but, since it is not related to the issue involved in the present petition, same is not made a part of the proceedings. The petitioner has subsequently received the notice under Section 148 of the Income-Tax Act on 31.3.2015, inter-alia, stating to the petitioner that the authori .....

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of the Income-Tax Act, so that it could file his return of income and complied with notice. It is the case of the petitioner that in response to the notice of reassessment, the petitioner filed its return on 28.4.2015 and on 10.8.2015, the respondent authority supplied the reasons recorded and simultaneously, served the petitioner notices under Section 143(2) and 142(1) of the Income-Tax Act. On 24.8.2015, the petitioner, in response thereto, filed its objections wherein, it has been specificall .....

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e legality and validity of notice under Section 148 of the Income-Tax Act as well as challenging the order disposing of the objections of the petitioner. 5. Mr.Manish J. Shah, learned counsel appearing for the petitioner has submitted several contentions to justify the challenge. It was, inter-alia, contended that though the notice for reopening is served within a period of 4 years to reopen the scrutiny assessment, the authority has over-looked the material fact that petitioner has disclosed fu .....

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ble belief that income of the assessee has escaped the assessment. It was contended by leaned counsel that the order of disposal of objections also appearing to be based on no proper exercise of powers and while forming an opinion, the Assessing Officer has also not verified the impugned transaction and therefore, there appears to be a clear error on the part of authority in deciding to reopen the assessment. Learned counsel submitted that during the scrutiny assessment, factum of TDS amount hav .....

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ved by DGIT (Inv.) Ahmedabad can never be termed as an additional information and that information can never be used to reopen the assessment. If that be so, the decision of authority to reopen the assessment said to be based on extraneous information. Learned counsel submitted that if the authority is not taking appropriate decision in consonance with the principle of law then, it is always open for the High Court to put check on the authority by exercising extraordinary jurisdiction and for th .....

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submissions made by learned counsel for the petitioner. 6. To meet with this stand taken by the learned counsel for the petitioner, Mr.Sudhir Mehta, learned counsel appearing on behalf of revenue submitted that while taking the decision to reopen the assessment, authority has properly applied its mind. It has been submitted that a specific reason is recorded as to why there is a reasonable belief formulated by the authority to believe that income of the petitioner is escaped the assessment. It i .....

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he country and prima faice, it has been found by the authority that the petitioner is the beneficiary in past and therefore, that material having been unearthed upon receipt of the information from the separate wing, the authority has rightly and reasonably believed that income of the petitioner is escaped from the assessment. Learned counsel also submitted that opening of reassessment is after proper procedure envisaged under the statutory provision and the authority has acted well within the s .....

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taken into consideration and hence, same are reproduced hereinafter : 3. The assessee is engaged in the business of manufacturing of textile machinery and spare parts. The assessee has filed his return of income on 29.9.2011 declaring total income at ₹ 5,44,47,395/-. The case was selected for scrutiny and assessment was completed u/s.143(2) dated 3.10.2013 assessing income at ₹ 4,45,52,400/-. 4. In this case, information has been received by DGIT (Investigation), Ahmedabad vide No.D .....

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arget Goods Pvt. Ltd.) pertaining to A.Y.2011-12. 8. On perusal of the same, it would appear that there is a specific information received from DGIT (Inv.) Ahmedabad under a communication dated 26.3.20156 that two survey operations were carried out in place of Vikrant Kayan and Arvind Kayan, the material has led to believe that income of the petitioner has also escaped the assessment. The Kayan brothers named above are well known entry operators of Calcutta and have spread their wings across the .....

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essing Officer to make a further scrutiny which can never be said to be either a change of opinion or taking a review of earlier decision of assessment or it can never be said to be a reflection of non application of mind. Therefore, the reasons which are assigned are sufficient enough to believe for the authority to reopen the assessment. 9. Learned counsel for the petitioner, as stated earlier, has contended that scrutiny assessment has already taken place and therefore, said assessment cannot .....

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Act. This decision cannot be termed as a change of opinion nor can it be said to be passed based upon non-application of mind. The earlier scrutiny assessment was not based upon such information which has been received by the DGIT (Inv.) Branch and therefore, there was no occasion for Assessing Officer to examine the nexus between Kayan brothers and the petitioner and a specific information came to be received that the assessee is the beneficiary of said entry operators well known in the countr .....

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n based upon which the action is initiated, cannot be treated to mean that Assessing Officer has finally ascertained the fact of legal evidence or conclusion. At the initial stage, what is required to be seen is that reason to believe is concluded not on the established fact of the escapement of income and therefore, only question left for relevant consideration is, whether there was a material to form a reasonable belief to be seen and therefore, looking to the position prevailing as on date, i .....

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in Para.16, 17 and 18 the Court has analyzed the provisions and has propounded as referred to above. 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 sai .....

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n 147(a) (as the 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 m .....

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they stood prior 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 rea .....

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ng Officer for 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. 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 step .....

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s come to the conclusion that reopening is permissible. In the said group of appeals, the substantial question of law posed before the Court, whether the ITAT was justified in setting aside the reassessment orders on the ground that reopening of assessment under Section 147 of the Act was bad in law. In that particular group of matters, 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-Ta .....

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there was no independent application of mind on the part of Assessing Officer and just based upon said information provided by the Excise Department, the authority resorted to Section 148 of the Act to reopen the assessment. This issue in extenso dealt with by the Division Bench of this Court and by a detailed judgment, came to conclusion 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 n .....

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ch relevant materials, was alongwith report and showcause notice placed at the disposal of the Assessing Officer. These materials prima facie suggested suppression of sale consideration of the tiles manufactured by the assessee to evade excise duty. On the basis of such material, the Assessing Officer also formed a belief that income 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 a .....

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may refer to various decisions cited by the counsel for the Revenue. 10. In case of Central Provinces Manganese Ore Co. Ltd. vs. Income Tax Officer, Nagpur (supra) the Supreme Court noted that in case of the assessee which had an office in London, this Customs authority had come to know that the assessee had declared very low price 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 .....

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t held and observed as under: So far as the first condition is concerned, the Income Tax Officer, in his recorded reasons, has relied upon the fact as found by the Customs Authorities that the appellant had under invoiced the goods it exported. It is not doubt correct that the said finding may not be binding upon the income tax authorities 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 rele .....

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iving detailed particulars collected from Bombay Stock Exchange which revealed earning of share and price of share increased during period in question and quotation appearing at Calcutta Stock Exchange was as a result of manipulated transaction. On the basis of such information, the Assessing Officer issued notice for reopening of the assessment. The question, therefore, arose whether the information contained in the letter of Directorate of Investigation could be said to be definite information .....

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stigation into the information sent by Shri Bagai. Merely because the impugned notice was sent on the next day after receipt of the letter of Shri Bagai does not mean that the Income Tax Officer did not apply his mind to the information contained in the said letter of Shri Bagai. On the basis of the said facts and information contained 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 t .....

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wed, the impugned judgment of the High Court is set aside and the Writ Petitions filed by the respondents are dismissed. No order as to costs. 12. In case of Income Tax Officer vs Selected Dalurband Coal Co. Pvt. Ltd.(supra), the assessment was reopened on the basis of the information contained in letter from Chief Mining Officer 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 .....

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ssee and according to the opinion of the officers of the Mining Department, there was under reporting of the raising figure to the extent indicated in the said letter. The report is made by a Government Department and that too after conducting a joint inspection. It gives a reasonably specific estimate of the excessive coal mining 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 co .....

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such a belief, it cannot be said that the issuance of notice was invalid. Inasmuch as, as a result of our order, the reassessment proceedings have not to go on we don not and we ought not to express any opinion on the merits. 13. In case of AGR Investment Ltd. vs. Additional Commissioner of Income Tax and anr (supra), a Division Bench of Delhi High Court considered the validity of reopening of assessment where the notice was based on information received from Directorate of investigation that th .....

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he assessing officer treated them as objections and made a communication. However, on a scrutiny of the order, it is perceivable that the authority has passed the order dealing with the objections in a very careful and studied manner. He has taken note of the fact that transactions involving ₹ 27 lakhs mentioned in the table 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 i .....

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on of a specific provision which was done in a particular manner in the original assessment and sought to be done in a different manner in the proceeding under Section 147 of the Act. The reason to believe has been appropriately understood by the assessing officer and there is material on the basis of which the notice was issued. 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 Articl .....

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ein is not applicable to the factual matrix in the case at hand. In the case of Sarthak Securities Co. Pvt. Ltd. (supra), the Division Bench had noted that certain companies were used as conduits but the assessee had, at the stage of original assessment, furnished the names of the companies with which it had entered into transactions 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 co .....

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whether on the basis of information supplied by the Excise Department to the Assessing Officer of suppression of valuation of goods or clandestine removal of goods for evading excise duty, notice for re-opening of the assessment could have been issued. 12. On the basis of aforesaid proposition laid by series of decisions, we are of 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 throughl .....

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ion of the assessing authority at this stage is to administer the statute and what is required at this stage is a reason to believe and not establish fact of escapement of income and therefore, looking to the scope of Section 147 as also Sections 148 to 152 of the Act, even if scrutiny assessment has been undertaken, if substantial 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 assessm .....

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nt. In the present case, 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, Ahmedabad, can never be said to be additional information. We are of the opinion that the information which has been received is on 26.3.2015 f .....

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ned in the petition being devoid of merits, same deserves to be dismissed. 13. From the aforesaid pronouncements, in the opinion of this Court, the observations made by the Hon ble Apex Court in the cases referred to above are sufficient enough to meet with the situation and therefore, without repeating or reproducing the same, the Court is of the opinion that extraordinary jurisdiction is not required to be exercised in the background of aforesaid facts. No doubt, the High Court has power of ju .....

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ng process and one of such decisions delivered by the Hon ble Apex Court in the case of State of U.P. & Anr. V/s. Johri Mal, reported in AIR 2004 SC 3800 wherein, the scope of examining the decision of authority is spelt out. Relevant Para.30 of the said decision is worth to be taken note of which reads, thus; 30. It is well-settled that while exercising the power of judicial review the Court is more concerned with the decision making process than the merit of the decision itself. In doing s .....

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