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TMI Blog2018 (5) TMI 1845X X X X Extracts X X X X X X X X Extracts X X X X ..... mpany and is engaged in the business of processing man made fabrics on job work basis and manufacturing and trading in cloth. The petitioner has its manufacturing unit situated at GIDC, Sachin, Surat. For the assessment year 2010-11, the petitioner had filed the return of income on 30-09-2010 declaring 'Nil' income. Such return was accepted under section 143(1) of the Act without scrutiny. To reopen such assessment, the respondent Assessing Officer issued impugned notice. In order to do so, he had recorded following reasons: "The assessee company has filed its return of income for the year under consideration on 30-09-2010 declaring total income at Rs. Nil. In the case of the assessee, information have been received from the DDIT(Inv) Unit Unit-3(1), Kolkata in reference to sharing of information of shell companies which have given accommodation entries for share premium in Surat based companies. Vide the referred communication, the DDIT [Inv] Unit-3(1), Kolkata has provided list of 114 Kokata based shell companies which have given accommodation entries in Surat based companies. It has also been stated by the DDIT[Inv] that master data of paper/shell companies maintaine ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , according to the Assessing Officer, information was received from Investigation Wing of Kolkata making reference of shell companies which had given accommodation entries for share premium in Surat based companies. The data so provided by the Investigation Wing showed that during the period under consideration, the assessee-company had accepted share capital/share premium from one Galore Private Limited for issuance of 37000 shares at a sizeable premium. The Assessing Officer noted that since the investor companies are proved to be shell companies indulging in providing accommodation entries, the share capital/share premium claimed to have been received by the assessee from such companies was not genuine. 5. Validity of notice of reopening of assessment of another assessee Aishwarya Dying Mills (P.) Ltd. v. Dy. CIT based on similar facts came up for consideration before this Court in [Special Civil Application No. 22523 of 2017, dated 15-12-2017]. After detailed discussion, by a judgement dated 26-03-2018, the petition was dismissed. In such judgement following observations were made: '8. The contention with respect to the borrowed satisfaction and fishing inquiry overlap. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... torate has been prepared on the basis of statements of maney entry operators or dummy Directors which were recorded during various search and seizure operation/survey operations/investigations/inquiries which were checked. It was found that there are 114 shell companies which were controlled and managed by various Kolkata based entry operators for providing accommodation entries. Details of these companies along with their operators were annexed with this email. It was further conveyed that as far as rest of 274 and odd companies are concerned, which do not form part of the data base so prepared, time was insufficient to make full verification. Such material was placed before the Assessing Officer. On the basis of such information, he found that the petitioner had received share application money from as many as 22 such shell companies during the year under consideration. A total of 3.47 lacs shares were allotted to these companies for raising share capital of Rs. 29,88,500/- and share premium of Rs. 11,87,94,000/-. On the basis of such information, he recorded his satisfaction that income chargeable to tax had escaped assessment. He recorded that he had reason to believe that shar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 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 has been either accepted under section 143(1) of the Act or a scrutiny assessment has been framed under section 143(3) of the Act. A common requirement in both of cases is that the Assessing Officer should have reason to believe that any income chargeable to tax has escaped assessment. 16. It would, thus, emerge that even in case of reopening of an assessment which was previously accepted under section 143(1) of the Act without scrutiny, the Assessing Officer would have power to reopen the assessment, 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." 13. In this context, it is also equally well settled that term ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... " as an in-built test to check abuse of power by the Assessing Officer. Hence, after 1st April, 1989, Assessing Officer has power to re-open, provided there is "tangible material" to come to the conclusion that there is escapement of income from assessment. Reasons must have a live link with the formation of the belief. Our view gets support from the changes made to Section 147 of the Act, as quoted hereinabove. Under the Direct Tax Laws (Amendment) Act, 1987, Parliament not only deleted the words "reason to believe" but also inserted the word "opinion" in Section 147 of the Act. However, on receipt of representations from the Companies against omission of the words "reason to believe", Parliament re-introduced the said expression and deleted the word "opinion" on the ground that it would vest arbitrary powers in the Assessing Officer. We quote hereinbelow the relevant portion of Circular No.549 dated 31st October, 1989, which reads as follows: "7.2 Amendment made by the Amending Act, 1989, to reintroduce the expression `reason to believe' in Section 147.--A number of representations were received against the omission of the words `reason to believe' from Section 147 and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... concerning multiple questions of claims, deductions and exemptions, which assessments have to be completed in a time frame. To protect the interest of the revenue, therefore, such special provisions are made under section 147 of the Act. However, it must be appreciated that an assessment previously framed after scrutiny when reopened, results into considerable hardship to the assessee. The assessment gets reopened not only qua those grounds which are recorded in the reasons, but also with respect to entire original assessment, of course at the hands of the revenue. This obviously would lead to considerable hardship and uncertainty. It is precisely for this reason that even while recognizing such powers, in special requirements of the statute, certain safeguards are provided by the statute which are zealously guarded by the courts. Interpreting such statutory provisions courts upon courts have held that an assessment previously framed cannot be reopened on a mere change of opinion. It is stated that power to reopening cannot be equated with review." 16. However, we see no fetters on an Assessing Officer carrying out preliminary inquiries even before issuance of notice of reopening ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... raised two additional grounds. Firstly, he argued that in the judgement in case of Aishwarya Dying Mills (P.) Ltd. (supra) while referring the powers of a Revenue Officer under section 133 of the Act, an important proviso to sub-section (6) was not noticed. This proviso prohibits exercise of any such power for calling for information by any officer below the rank of Principal Director or Director or Principal Commissioner or Commissioner without prior approval of such authorities. He submitted that the view taken in case of Aishwarya Dying Mills (P.) Ltd. (supra) therefore, requires reconsideration. The second contention of the counsel was that the impugned notice carries the date of 27-03-2017. Sanction was granted by the Principal Commissioner on 31-03-2017. Thus, the notice preceded the sanction. He further argued that in any case, now it appears from the record that the Assessing Officer recorded the reasons on 29-03-2017. Notice for reassessment was therefore, prepared and assessment reopened before recording reasons which was impermissible. 7. On the other hand, learned counsel Mr. Raval for the department placed heavy reliance on the judgement in case of Aishwarya Dying Mil ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rom the quoted portion of the said judgement and in particular concluding remarks in para 22 of the judgement. After giving detailed reasons why merely bacause the Assessing Officer in a given case calls for information from another wing of the department before making up his mind whether there was sufficient material to reopen the assessment, would not invalidate the proceedings, reference was made to the provisions contained in section 133(6) of the Act to highlight that the powers of the Assessing Officer in this respect are quite wide. In para 22 of the judgement, it was noted that in the present case the Assessing Officer is/has not even called for any information or document from the assessee or any of the person in relation to the assessee's proposed assessments. He has merely contacted the Investigation Wing of the department at Kolkata and called for certain information based on the process of shortlisting. The Court thus had made a clear distinction between exercise of powers under section 133(6) of the Act and the Act of the Assessing officer in the said case of calling for information from another wing of the department. Proviso to sub-section (6) does not take away ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g that, as directed, sharing of information with respect to 389 Kokatta based shell companies which had given accommodation entires was prepared on the basis of statements of entry operators or dummy directors. It was found that there are 114 paper or shell companies out of these 389 companies pertaining to the internal data base which are controlled and managed by various Kolkata based entry operators. 12. The reasons were recorded on 29-03-2017. The same were put up before the immediate superior officer and with his remarks before the Principal Commissioner of Income Tax, who granted his sanction for reopening the assessment on 31-03-2017. The notice was issued and dispatched in the later part of the day on 31-07-2017. 13. The impugned notice undoubtedly carries the date of 27-03-2017. In this context, therefore, when the petitioner had raised the ground that such notice was issued before grant of sanction by the competent authority, the respondent had filed additional affidavit on 05-04-2018 mainly pointing out that the date of 27-03-207 was a printing error which was subsequently corrected as 31-03-2017 through hand. To explain such error in the said affidavit following furth ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t to the assessee company is attached to this affidavit as Annexure-A. (ix) This is the true position of facts, as the undersigned was holding the charge of the DCIT, Circle-1(1)(1), Surat on the dates mentioned above. (x) It is prayed that the correct date of notice may kindly be treated as 31-03-2017 only and not 27-03-2017." 14. If we therefore accept the explanation of the respondent that the date 27-03-2017 mentioned in the impugned notice is only a typographical error and the notice was actually issued on 31-03-2017, everything else would fall in place. We have no reason to discard such explanation. Our reasons for such conclusions are as under: Undisputably, the reasons were recorded on 29-03-2017. The proposal for granting sanction was placed before the Principal Commissioner of Income Tax on 31-03-2017 on which date, he also granted necessary sanction. The notice was actually issued and dispatched in the later part of the day. We therefore have no reason to believe that such notice was issued and dispatched before the sanction was signed by the Principal Commissioner. One more reason to accept the respondent's explanation about the issuance date in the impugned ..... X X X X Extracts X X X X X X X X Extracts X X X X
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