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2016 (8) TMI 281 - GUJARAT HIGH COURT

2016 (8) TMI 281 - GUJARAT HIGH COURT - TMI - Reopening of assessment - information has been received by DGIT (Inv.) branch of Ahmedabad about bogus purchases - Held that:- two survey operations were carried out by the competent authority, Kolkata in case of Vikrant Kayan and Arvind Kayan and the information which has been gathered is that these Kayans are well known entry operators of Kolkata and have been giving entires of bogus share capital, bogus billing entries pertaining and bogus long te .....

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e belief that income of the petitioner assessee has escaped assessment and therefore, it is justified to reopen the assessment. - It is also emerging from the order passed by the authority rejecting the objections submitted by the petitioner dated 21.1.2016 that each and every material submitted by the petitioner has been extensively dealt with and a detailed order came to be passed and the said order is supported by cogent reasons, the decision arrived at to reopen the assessment appears .....

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f the Constitution of India. - Thus from circumstance available and reflected on record, it appears to this Court that the authority has applied its mind and has rightly relied upon the information available before it while exercising the power to reopen the assessment. Thus the background of facts demand reopening of assessment and the authority is justified in issuing notice under Section 148 of the Act and the reasons based upon it are sufficient enough to permit the authority to exercise .....

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e objections submitted in that context by the petitioner. 2. Brief facts leading to the petition are that the petitioner is a Limited Company doing the business of manufacturing winding machines including cone winders, precision winders and versa winders. The petitioner is a regular assessee filing return regularly. For the year 2008-09, the petitioner filed return of income declaring total income of ₹ 4,64,28,086/-. Said return of income was filed along with Tax Audit Report and Form Nos. .....

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had been processed under Section 143(1) of the Act and requested to inform the reasons for issuance of notice under Section 148 of the Act so as to see that it could file his return of income and submit the effective reply. 3. The petitioner, in response to the said notice of reassessment, submitted the return on 28.4.2015 and later on, the company received copy of reasons which have been recorded for issuance of notice under Section 148 of the Act under the communication dated 10.8.2015. Simul .....

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.1.2016, the respondent authority has passed an order rejecting the objections submitted by the petitioner and the authority has continued to form a belief that the income chargeable to tax has escaped the assessment. It is in this background of the fact the present petition is brought before this Court for examining the legality and validity of the notice under Section 148 of the Act and the order rejecting the objections. 4. Mr.M.J.Shah, learned counsel appearing on behalf of the petitioner ha .....

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ening notice has been issued. There is no independent satisfaction arrived at by the authority while taking such decision to reopen the assessment. Learned counsel also submitted that there is enough material to justify that TDS has been deducted on the payments made and also addressed Permanent Account Number and the amount of commission given to the respective parties were very much brought to the notice of the Income-Tax Department and therefore, there is no cogent material to raise any suspi .....

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disposed of vide order referred to above is not reflecting any cogent reasons. On the contrary, it reflects a sheer non-application of mind on the part of authority and there is no valid reason assigned to arrive at a decision or to form an opinion that the income has been escaped from assessment. Learned counsel submitted that fishy inquiry without independent material is impermissible or not a valid ground to reopen the assessment beyond the period of 4 years. Learned counsel thereby submitte .....

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adequate information must be parted with to a person concerned so as to enable him to deal with the objections to be submitted and thereby, learned counsel submitted that at the relevant point of time the reasons recorded have not been provided and therefore, in the background of said fact, the opening of reassessment is not in the right spirit. Learned counsel submitted that the High Court has adequate power of judicial review when the executing authority is trying to act without the jurisdict .....

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eopening the assessment of the petitioner. The Assessing Authority, while issuing the notice under Section 148 of the Act, has enough material to substantiate the reopening and for forming a reasonable belief that income has escaped the assessment. It was submitted by learned counsel that a specific information has been received by the DGIT (Investigation), Ahmedabad on 26.3.2015 wherein, it is stated that two surveys were carried out by the I/o. Pr.DIT (Inv.) Kolkata on Vikrant Kayan and Arvind .....

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opinion and to come to a reasonable belief, the Assessing Officer is not ascertaining finally the fact of legal evidence or conclusion. The function of the Assessing Officer is to administer the statute with solicitude for the public exchange with an inbuilt idea of fairness to tax payer as well and therefore, at the initial stage, what is required is reason to believe but, not established fact of escapement of income and therefore, at this stage of issuance of notice, only question to be dealt .....

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e dealing with the submissions made before the Court, first and foremost consideration to deal with is as to whether a reasonable belief formed by the authority is based upon some material or not. To deal with this, we may reproduce the reasons which are recorded by the authority while issuing notice under Section 148 of the Act. Relevant extract of the said reasons read as under : 3. The assessee is engaged in the business of manufacturing of textile machinery and spare parts. The assessee has .....

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ave been giving entries of bogus share capital, bogus bill of expenses and bogus long term capital gains to various beneficiaries through out the country. The above mentioned assessee is also a beneficiary of ₹ 127.94 lacs (accommodating co. Agnes Bruno Ltd.) pertaining to A.Y.2008-09. 8. Perusal of the said reasons postulate that an information has been received by DGIT (Inv.) branch of Ahmedabad about bogus purchases wherein, it has been emerged that two survey operations were carried ou .....

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ans to the extent of ₹ 127.94 lacs (accommodating co. Agnes Bruno Ltd.) pertaining to A.Y.2008-09 and based upon this material, the authority has issued notice under Section 148 of the Act for reopening of assessment as from the material, the authority found that there is a reasonable belief that income of the petitioner - assessee has escaped assessment and therefore, it is justified to reopen the assessment. 9. It is also emerging from the order passed by the authority rejecting the obje .....

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y and to the extent of sizable amount, the petitioner has also been benefited and this part of the income appears to have been escaped assessment in the belief of the authority, the said belief cannot intercepted by exercising extraordinary jurisdiction of this Court under Article 226 of the Constitution of India. 10. In the background of aforesaid circumstance available and reflected on record, it appears to this Court that the authority has applied its mind and has rightly relied upon the info .....

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t, 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 as escaped the assessment. The word reason in the phrase reason to believe would mean cause or justification and after considering and analyzing the provision, it has been propounded that the expression cannot be read to mean that Assessing Officer should have finally ascertained the fact of .....

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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 it but, only has to examine whether there is a reasonable belief arrived at or not and from the basis of aforesaid circumstance prevailing on record, it appears that the Assessing Officer is justified prima facie in arriving at conclusion to reo .....

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ssment. 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 is to administer the statute with solicitude .....

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stablished 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. Pvt. Ltd. [1996 (217) ITR 597 (SC)] ; Raymond Wolle .....

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onditions 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 were conditions precedent to be satisfied before the Asse .....

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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. 11. In another case recently being dealt with by this Court in a group of tax appeals being Tax Appeal Nos.542 of 2015 and .....

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bad in law. In that particular group of matters, the reopening was admitted 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 informatio .....

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urt 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 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 decisi .....

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ssing 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 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 o .....

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hat 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 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 Of .....

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ng 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 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 .....

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ssing 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 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 .....

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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 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 .....

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ntained 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 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 requis .....

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cific 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 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 t .....

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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 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 th .....

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ing ₹ 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 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 a .....

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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 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 appli .....

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