TMI Blog2021 (8) TMI 918X X X X Extracts X X X X X X X X Extracts X X X X ..... iny 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 the assessment. AO has reason to believe that the petitioner is a beneficiary of accommodation entry and basis for formation of such belief is several inquiries and the investigation by the Investigation Wing, Ahmedabad and report thereof. The reasons for the formation of the belief by the Assessing Officer in the instant case, appear to have a rational connection with or relevant bearing on the formation of belief that there has been escapement of the income of the assessee from assessment in the particular year because of his failure to disclose fully and truly all material facts. Accordingly, no interference is called for at the hands of this Court in this petition under Article 226 of the Constitution of India. - Decided against assessee. - R/SPECIAL CIVIL APPLICATION NO. 7743 of 2021 - - - Dated:- 19-8-2021 - HONOURABLE MS. JUSTICE BELA M. TRIVEDI And HONOURABLE DR. JUSTICE ASHOKKUMAR C. JOSHI ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed 26.05.2021 raising some contentions with regard to the identical matter etc. and grant of interim relief by this Court. Accordingly, the petitioner is before this Court by way of this petition. 3. We have heard, learned advocate Mr. Ketan Shah for the petitioner and learned senior advocate Mr. M. R. Bhatt for learned advocate Mrs. Mauna M. Bhatt for the respondent. 3.1 The learned advocate for the petitioner has vehemently and fervently argued that in the present case, the assessee has neither contacted, nor has remote contact with Shri Jignesh Shah as mentioned in the so-called list and therefore, the notice under section 148 of the Act is bad in law. It is submitted that there is no application of mind by the Assessing Officer and hence, the impugned notice deserves to be set aside. 3.2 It is further contended by the learned advocate for the petitioner that even the list filed by Shri Jignesh Shah does not contain the name of the petitioner herein. The learned advocate for the petitioner further drew our attention to the letter dated 18.12.2014, and submitted that it was noticed by CBDT that the assessee were coerced to admit undisclosed income during searches/surveys ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 299 (Cal.); iii) ITO v. Lakhmani Mewal Das [(1976) 103 ITR 437: 1976 (3) SCC 757]; 3.6 The learned advocate for the petitioner submitted that even otherwise, the statement of a tainted party cannot be considered as tangible material so as to have reason to believe that the income chargeable to tax has escaped assessment. He submitted that the reopening is based on mere change of opinion of the Assessing Officer inasmuch as notice under section 148 of the Act can be issued only if an Assessing Officer has reason to believe that any income chargeable to tax has escaped assessment and for such formation of belief, there should be some tangible material and act, which is lacking in the case on hand. He submitted that the case of the petitioner was selected for scrutiny assessment and the issue on hand was examined threadbare at the original assessment and accordingly, merely because the Assessing Officer happens to change his opinion, action under section 147 of the Act cannot be taken. It is contended and argued by the learned advocate for the petitioner that the assessment for the year under consideration was found to be proper and the same was admitted by the Assessing O ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 377; 1/20 and ultimately, availed the profit of ₹ 57 lakh, which is also doubtful. It is submitted that earlier it was Parikh Herbals Ltd. and now it is Safal Herbs Ltd. He submitted that since the petitioner had purchased the share from so-called Safal Herbs Ltd., which is not in existence and therefore, there is live link between the petitioner assessee and so-called Shri Jignesh Shah (Safal Herbs Ltd.). He submitted that in the reasons recorded, it is clearly stated that, on verification of share trading details of the assessee, it is found that the assessee has also purchased and sold the shares of M/s. Safal Herbs Ltd. and has earned long term capital gain which has been claimed exempt in the return of income filed for AY 2013-14. The assessee had purchased 51900 shares of M/s. Parikh Herbals Ltd. (now known as M/s. Safal Herbs Ltd.) at rate of ₹ 1 per share on 01.04.2011 through broker M/s. Vijay Bhagwandas and Co. The said purchase was through offline mode without STT and payment of ₹ 51900/- was made in cash. On 12.05.2012, the assessee got these shares converted to demat form through M/s. Prudent Broking Services Ltd. After gap of one year, the assesse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ngly, the notice under section 148 of the Act has been rightly issued and that, it cannot be said that merely, on the basis of change of opinion, the same is issued. He submitted that the case of the petitioner is sought to be reopened on the basis of some tangible material available and on the established fact the transactions were bogus in nature, and all the relevant information available with the department at the time of recording the reasons for reopening have been duly discussed in the reasons. 4.4 It is further submitted by the learned senior advocate for the respondent that thorough inquiry was carried out by the Investigation Wing, Ahmedabad and after verifying all the aspects regarding the incriminating documents unearthed during the course of search action, it declared the transactions were accommodation entries provided by the bogus companies and thus, there is tangible material on record. 4.5 It is further submitted that there is no procedural lapse and/ or deviation from procedure prescribed in reopening and the reasons recorded do not lack validity as all the procedures, laid down under the Act, have been duly followed and necessary approvals from the competen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and secondly, such escapement of assessment was by reason of failure on the part of the assessee to make the return under section 139, or in response to a notice issued under Sub-section (1) of Section 142 or Section 148 or to disclose fully and truly all the material facts necessary for his assessment for that assessment year. So far as the case of the present petitioner is concerned, the assessment for the A.Y. 2012-13 is sought to be reopened by the Assessing Officer under section 147/148 of the said Act, on his having arrived at a satisfaction that the income for the said assessment year had escaped assessment by reason of the failure on the part of the assessee to disclose fully and truly all material facts necessary for his assessment. 8. It is pertinent to note that as held by the Supreme Court in catena of decisions, the formation of belief by the Assessing Officer at the stage of initiation of action under section 147 of the Act is within the realm of subjective satisfaction. The Supreme Court in the case of Assistant Commissioner of Income Tax versus Rajesh Jhaveri Stock Brokers P. Ltd. reported in (2007) 291 ITR 500(SC), had an occasion to deal with the scope and e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t 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 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 Assessing Officer could have jurisdiction to issue notice under section 148 read with section 147(a). But under the substituted section 147 existence of only the first condition suffices. In other words if the Assessing 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. 9. In the case of Raymond Woollen Mills Ltd. Versus Income-Tax Officer and others reported in 1999 236 ITR 34(SC), the Supreme Court observed that the Court has only to see whether there was prima facie some material on the basis of which the Department could reopen the case. The sufficiency or correctness o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re the transaction itself, on the basis of subsequent information, is found to be a bogus transaction, the mere disclosure of that transaction at the time of original assessment proceedings cannot be said to be a disclosure of the true and full facts in the case and the Income-Tax Officer would have the jurisdiction to reopen the concluded assessment in such a case. 5.2 Further, the term reason to believe , however, is not defined in the Act but it can be gathered and available from the information, leading the Assessing Officer to reopen the assessment. The term itself is suggestive of its prima facie characteristics and not established or conclusive facts or information. Meaning thereby, it is the Assessing Officer s prima facie belief, of course, derived from the some material / information, etc. leading him to reopen the assessment. 5.3 The ambit and import of the term reason to believe has been examined in numerous cases, notably in ITO v. Lakhmani Mewal Das [(1976) 103 ITR 437: 1976 (3) SCC 757]. The Apex Court held that, the reason must be held in good faith. It cannot be merely a pretence. It is open to the Court to examine whether the reasons for the forma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oks of accounts. Such well recognized rackets are controlled and conducted by the persons known as accommodation entry providers , and the accommodation entries are provided by them to the persons who are the taxevaders. The entries on paper apparently may appear to be of routine nature, but the trail of money transited through the layers would be subsequently unearthed during the search and seizure operations conducted either at the assessee s premises or his associate s premises or at the premises of some third party, who may be an accommodation entry provider. Under the circumstances, when the material is brought to the notice of the Assessing Officer, which would prima facie discredit or impeach the genuineness of the particulars furnished by the assessee at the time of original assessment, and when it prima facie establishes the link between the assessee and the third party who is an accommodation entry provider, the Assessing Officer is empowered rather duty bound to make further inquiry / investigation to unearth such camouflage or wrong or illegal dealings of the assessee. As observed by the Supreme Court in the case of Sumati Dayal vs Commissioner Of Income-Tax re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... transaction, as only in such scenario, the cash is assured to the buyer and sale proceeds of share are assured in the bank account linked with demat account of seller. This is conclusive evidence of bogus LTCG and synchronized trading. Furthermore, other kind of Digital Data including incriminating MS Excel files, incriminating Word Files, Whatsapp Chats/Images and documents including Khata Bahis were also found and duly analysed. Stamps and bank account of various persons were also found in possession of accommodation entry provider duo. During recording of their statements and by filing affidavits, various dummy directors admitted that they were merely signing documents on directions of operators. They admitted of being involved in providing accommodation entries of LTCG, Loss, Unsecured Loans etc. Data analysis coupled with circumstantial evidences led to discovery that 15 BSE listed scrips have been used for generating bogus LTCG and contrived losses. During investigation, sample trail of funds was also established wherein the infrastructure of shroffs and angadiyas was used by the duo for flouting unaccounted funds of beneficiaries. The duo also admitted being involved in prov ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as been used for providing accommodation entries of bogus LTCG against cash from beneficiaries. 6.2 It is further observed in the reasons recorded that the beneficiary was identified from the trade data made on BSE Platform. On verification of the said data, it was found that the assessee Shri Bharatbhai K. Gadhiya, the petitioner herein, had made the transaction of shares in respect of scrip Safal Herbs Ltd. (Parikh Herbals Ltd.) during the F.Y. 2012-13 relevant to A.Y. 2013-14. The details of the transactions are as under: Sum of Sell Quantity of Shares in FY 2012-13 42000 Sell TRADE VALUE in FY 2012-13 573440 6.3 In view of the above, the Assessing Officer opined that the assessee, the petitioner herein, had taken accommodation entry for claiming bogus capital gain. Further, on perusal of the RoI for A.Y. 2013-14, it was seen that the assessee, the petitioner herein, had taken accommodation entry of ₹ 57,34,400/- in respect of his unaccounted income. Hence, there was an escapement of income of ₹ 57,34,400/-. The Assessing Officer was of the view that the petitioner assessee had not disclosed, fully and truly, all material facts necessary for his assessment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 material, the Authority is not expected to conclude at this stage the issue finally or to ascertain the fact by evidence or conclusion, we are of the opinion that function 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 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 wel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tions 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 the assessment. 6.9 Further, in the decision in Aaspas Multimedia Ltd. v. Deputy Commissioner of Income Tax, Circle 1(1), [2017] 83 Taxmann.com 82 (Gujarat), it is observed as under: In the present case the reassessment proceedings have been initiated by the Assessing Officer on the basis of material provided by the Principal Director (Investigation). It is also required to be noted that the genuineness of the various companies who made share applications are doubted. The assessee is alleged to have been engaged in bogus share applications from various bogus concerns operated by PKJ. The assessee is the beneficiary of the said transactions of share application by those bogus concerns. In the wake of information received by the Assessing Officer, when the Assessing Officer formed a belief that the investment made from the funding of such companies which are bo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... above, one of which is, decision in United Electrical Company (P) Ltd. (supra), wherein, the Court has held that, whether when a challenge is made to action under section 147 what Court is required to examine is whether some material exists on record for Assessing Officer to form requisite belief and reasons for belief have a rational nexus or a relevant bearing to formation of such belief and are not extraneous or irrelevant for purpose of said section . According to the learned senior advocate for the respondent this decision is not applicable in the case on hand for the reason that the same is prior to the amendment. Nonetheless, in the instant case, it was found from the detailed investigation report, based on documentary evidence and statements under sections 131 / 132(4) of the Act of the entry providers, recorded during the course of search/ survey/ enquiry action, that the petitioner was found to be beneficiary of the accommodation entry, which clearly showed that the income chargeable to tax has escaped assessment. Accordingly, it cannot be said that merely, on the basis of change of opinion, the reopening is sought. The case of the petitioner appears to have been reopene ..... X X X X Extracts X X X X X X X X Extracts X X X X
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