TMI Blog2021 (3) TMI 900X X X X Extracts X X X X X X X X Extracts X X X X ..... income chargeable to tax had escaped assessment. AO has considered the materials on record which would, prima facie, suggest that during the year under consideration there was a huge hike in the amount of the share capital and share premium of the assessee company. The assessee received the amount of share capital and share premium from the Kolkata based shell companies, namely, Prime Vyapaar Pvt. Ltd. and Asha Apartments Pvt. Ltd. respectively. The Assessing Officer, prima facie found, based on the materials on record and the information received, that total share capital of ₹ 40 lakh was received during the year under consideration. On verification of the details of the investors companies, it was found, prima facie, that the same was controlled by one Kolkata based accommodation entry provider, namely Manoharlal Nangalia. In a statement recorded by the department, Manoharlal Nangalia is said to have admitted to the fact that his main business is to provide accommodation entries through shell companies to various beneficiaries in lieu of commission. For mere verification or for a fishing inquiry re-opening of the assessment is not permissible. However, such is not the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... purpose of reassessment. (B1) Your Lordships may be pleased to issue a writ of certiorari or a writ in the nature of certiorari or any other appropriate writ, order or direction for quashing and setting aside the impugned assessment order dated 24.12.2018 under section 143(3) r.w.s. 147 of the Income Tax Act, 1961 at Annexure-G collectively. (B2) Pending admission, hearing and final disposal of the present petition, be pleased to stay the implementation, operation and execution of the impugned assessment order dated 24.12.2018 under section 143(3) r.w.s. 147 of the Income Tax Act, 1961 at Annexure-G collectively. (C) Award the cost of this petition. (D) Grant such other and further reliefs as this Hon'ble Court deems fit. 2. The subject matter of challenge in the present litigation is to the notice of re-opening issued under Section 148 of the Income Tax Act, 1961 (for short, 'the Act') for the Assessment Year 2011-12 in a case where the return of income was processed for the relevant year under Section 143(1) of the Act. Otherwise, the re-opening is beyond the period of four years. The reasons assigned by the Assessing Officer for re-opening a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of funds for providing of accommodation entries of share capital/ loan/ purchased sale bill etc. to the various beneficiaries as per their requirement. 4. The above mentioned company has invested amount as per above table towards the share capital and premium thereupon in the assessee company during the year under consideration. It has been noticed that the aforesaid company is managed and controlled by one Kolkata based accommodation entry provider namely Shri Manoharlal Nangalia. A statement on oath of Shri Manoharlal Nangalia has been recorded on oath by the DDIT (Inv.), Kolkata in which he has categorically accepted the fact that his main business is providing accommodation entries through Jama-Khaarchi/Shell companies to various beneficiaries in lieu of commission and also describe/ accepted the modus operandi implied in providing of entry of funds. 5. On such observation facts and looking to considerable increase in the shareholders fund in the hand of the assessee in the year under consideration in this case, necessary permission has been taken from the Pr. CIT-1, Surat to issue letter u/s.133(6) of the I.T. Act. After receiving of permission, to provide a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ut genuineness, creditworthiness, identity are deeper and obtrusive and such basic ingredients could not found explained in this case in connection with receiving of shareholders fund by the assessee company. 7. In view of above facts/ material available on record and further analyzing the same, I have reasons to believe that income of the assessee to the extent of ₹ 40,00,000/has escaped assessment for A.Y. 2011-12 within the meaning of section 147 of the I.T. Act. 8. In this case a return of income was filed for the year under consideration but no scrutiny assessment u/s.143(3) of the Act was made. Accordingly, in this case, the only requirement to initiate proceedings u/s.147 is reason to believe which has been recorded above refer paragraphs 2 to 7) It is pertinent to mention here that in this case the assessee has filed return of income for the year under consideration but no assessment as stipulated u/s.2(40) of the Act was made and the return of income was only processed u/s.143(1) of the Act. In view of the above, provisions of clause (b) of explanation-2 to section 147 are applicable to facts of this case and the assessment year under consideration is deeme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e companies has been accepted as genuine after due verification in scrutiny assessment of last year (i.e. A.Y. 2010-11), in which these amounts were received. We enclose herewith copy of scrutiny assessment order of A.Y. 2010-11. 2. Further, Your Honour has not provided us copies of the material relied in the reasons recorded such as basis/reasons for inclusion of above companies in database of shell companies, report of the DDIT (Inv), Kolkata, and statement of so-called entry provider namely Manoharlal Nangalia. It is simply mentioned that the names of above mentioned companies are there in the database of shell companies. However, in the absence of relevant material for terming them as shell companies, we are unable to know as to for what reasons/basis and when their names were included in this database, as they are very old companies. We, therefore, request Your Honour to kindly provide us copies of all such material on the basis of which reasons have been recorded and our case has been re-opened including copy of the report of DDIT (Inv), Kolkata, and statement of so-called entry provider Manoharlal Nangalia. We also request Your Honour to kindly provide us opportunity of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fact. Further, the reasons recorded by Ld. AO are not 'reasons to believe' but are mere 'reasons to suspect' and whole of the proceeding is merely based on suspicion. 4. The aforesaid objections came to be disposed of by the Assessing Officer vide communication dated 23rd October 2018 as under : 8. The contention raised by the assessee that there is no issue of share on premium to above mentioned companies and has not received any share premium amount of ₹ 20,00,000/- from each Prime Vyapaar Pvt. Ltd. and Asha Apartment Pvt. Ltd. Company. The data submitted by the assessee in support of his contention does not substantiate. Here it should be noted that the assessee has accepted to have received amount of ₹ 10,00,000/- each from Prime Vyapaar Pvt. Ltd. and Asha Apartment Pvt. Ltd. in F.Y. 2009-10 the companies which have been seem as bogus Kolkata based companies. This has been further verified by this office from report of Kolkata I.T.O. (Inv.) office. This has clearly indicated that the said company is not performing any genuine business and is shell company. Thus, the transaction done by issuing share to any such company required to be verifi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... has received shareholders' funds from the Kolkata based shell companies. According to Mr.Patel, the Assessing Officer has just proceeded on the borrowed satisfaction. Mr.Patel would submit that the Assessing Officer wishes to make a fishing inquiry. 7. In the last, Mr.Patel submitted that while according sanction under Section 151 of the Act for the purpose of issue of notice under Section 148 of the Act, the sanctioning authority has, without any proper application of mind, recorded a mechanical satisfaction for the purpose of permitting the Assessing Officer to proceed with the re-opening of the assessment. 8. In such circumstances referred to above, Mr.Patel prays that there being merit in his writ-application, the same be allowed and the impugned notice along with the final order of assessment passed under Section 143(3) of the Act be quashed and set-aside. SUBMISSIONS ON BEHALF OF THE RESPONDENT : 9. On the other hand, this writ-application has been vehemently opposed by Mrs.Kalpana K.Raval, the learned senior standing counsel appearing for the Revenue. Mrs.Raval would submit that the return filed by the assessee was accepted without scrutiny. Since there was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... genuine after due verification in scrutiny assessment of the year in which these amounts were received. It was submitted that therefore the assessing officer has proceeded on a factually incorrect premise and that on the basis of the reasons recorded, the assessing officer could not have formed the requisite belief that income chargeable to the tax has escaped assessment for the year under consideration. It was submitted that therefore, in the absence of the assessing officer having formed a requisite belief, the assumption of jurisdiction under section 147 of the Act is without authority of law. 2. Having regard to the submissions advanced by the learned advocate for the petitioner, issue NOTICE returnable on 7.1.2019. By way of ad-interim relief, the respondent is permitted to proceed further pursuant to the impugned notice; he, however, shall not pass the final order without the permission of this Court. 13. It appears that after the aforesaid order came to be passed, the final order of assessment under Section 143(3) of the Act came to be passed by the Assessing Officer. In such circumstances, the writ-applicant brought a draft amendment which was allowed vide order ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t an intimation was to be sent to the assessee whether or not any adjustment had been made under the first proviso to section 143(1) and notwithstanding that no tax or interest was found due from the assessee concerned. Between April 1, 1998 and May 31, 1999, sending of an intimation under section 143(1)(a) was mandatory. Thus, the legislative intent is very clear from the use of the word intimation as substituted for assessment that two different concepts emerged. While making an assessment, the Assessing Officer is free to make any addition after grant of opportunity to the assessee. By making adjustments under the first proviso to section 143(1) (a), no addition which is impermissible by the information given in the return could be made by the Assessing Officer. The reason is that under section 143(1)(a) no opportunity is granted to the assessee and the Assessing Officer proceeds on his opinion on the basis of the return filed by the assessee. The very fact that no opportunity of being heard is given under section 143(1)(a) indicates that the Assessing Officer has to proceed accepting the return and making the permissible adjustments only. As a result of insertion of the Explana ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . The intimation under section 143(1)(a) was deemed to be a notice of demand under section 156, for the apparent purpose of making machinery provisions relating to recovery of tax applicable. By such application only recovery indicated to be payable in the intimation became permissible. And nothing more can be inferred from the deeming provision. Therefore, there being no assessment under section 143(1)(a), the question of change of opinion, as contended, does not arise. 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 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 for the public exchequer with a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssioner of Income Tax, Rajkot-3 vs. Gokul Ceramics [Taxman Vol. 241 (2016) 241], the Division Bench of this Court had examined the contention of the Assessing Officer proceeded on the basis of the information supplied by the department, and after referring to the several judgments, made the following observations in para 9 which read thus: It can thus be seen that the entire material collected by the DGCEI during the search, which included incriminating documents and other such relevant materials, was along with report and show cause 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 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 show-cause not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n was not scrutinized before acceptance originally cannot be resorted to unless the Assessing Officer has a reason to believe that the income chargeable to tax had escaped assessment. In other words, for mere verification or for a fishing inquiry re-opening of the assessment is not permissible. However, such is not the case on hand. It cannot be said to be a fishing inquiry. There is some tangible material as on date in the hands of the Assessing Officer, and the Assessing Officer, after due application of mind, has recorded a satisfaction of his own that the income has escaped the assessment. 22. From the various judicial pronouncement on the subject, over a period of time, the following principles can be culled out: To confer jurisdiction to the Assessing Officer to reopen the assessment under Section 147 of the Income Tax Act beyond four years from the end of an Assessment Year, the following two conditions must be satisfied: [a] that the Assessing Officer must have reason to believe that the income chargeable to tax has escaped assessment; and that [b] the same occasioned, on account of either failure on the part of the assessee to make a return of his income f ..... X X X X Extracts X X X X X X X X Extracts X X X X
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