Backbone Projects Limited v. The Assistant Commissioner Of Income Tax, Circle 1(1) ==========================================================

IN THE HIGH COURT OF GUJARAT AT AHMEDABADR/SPECIAL CIVIL APPLICATION NO. 22613 of 2019 FOR APPROVAL AND SIGNATURE: HONOURABLE MS. JUSTICE BELA M. TRIVEDI Sd/- andHONOURABLE DR. JUSTICE ASHOKKUMAR C. JOSHI Sd/- ==========================================================1Whether Reporters of Local Papers may be allowedNoto see the judgment ?2To be referred to the Reporter or not ?Yes3Whether their Lordships wish to see the fair copyNoof the judgment ?4Whether this case involves a substantial questionNoof law as to the interpretation of the Constitutionof India or any order made thereunder ? ========================================================== BACKBONE PROJECTS LIMITED Versus THE ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE 1(1) ========================================================== Appearance: MR. DARSHAN R PATEL(8486) for the Petitioner(s) No. 1 MR. M.R. BHATT, SENIOR ADVOCATE WITH MR. KARAN SANGHANI,ADVOCATE FOR MRS MAUNA M BHATT, SENIOR STANDING COUNSEL (174) for the Respondent(s) No. 1 ========================================================== CORAM: HONOURABLE MS. JUSTICE BELA M. TRIVEDIand HONOURABLE DR. JUSTICE ASHOKKUMAR C. JOSHI Date : 06/08/2021 CAV JUDGMENT (PER : HONOURABLE MS. JUSTICE BELA M. TRIVEDI) 1.The vexed issue as to whether the AssessingOfficer could have assumed the jurisdictionunder section 147/148 of the Income Tax Act,1961 (hereinafter referred to as ‘the said Act’)for reopening the assessment on the basis of thesubsequent reliable and creditworthy informationreceived by him from the investigating wings,unearthingthebogustransactionsoraccommodation entries involving the assessee,has cropped up in this petition. 2.The petitioner company by way of presentpetition filed under Article 226 of theConstitution of India has challenged the actionof the respondent in reopening of the assessmentfor the A.Y. 2012-13 under section 147 of theIncome Tax Act, 1961 vide the notice dated27.03.2019 issued under section 148 of the saidAct thereof, as also the order dated 13.12.2019passed by the respondent rejecting theobjections filed by the petitioner against thereopening of the assessment. 3.The conspectus of the case as emerging fromthe record is that the petitioner had filed itsreturn of income along with the audit report forthe A.Y. 2012-13 on 31.03.2013. The assessmentorder in that regard was passed by the thenAssessing Officer after making thorough scrutiny C/SCA/22613/2019 CAV JUDGMENT DATED: 06/08/2021 3.The conspectus of the case as emerging fromthe record is that the petitioner had filed itsreturn of income along with the audit report forthe A.Y. 2012-13 on 31.03.2013. The assessmentorder in that regard was passed by the thenAssessing Officer after making thorough scrutiny C/SCA/22613/2019 CAV JUDGMENT DATED: 06/08/2021 under section 143(3) of the said Act on16.03.2015. The petitioner thereafter was servedwith the notice under section 133(6) of the saidAct on 21.03.2019 (Annexure E), whereby thepetitioner was called upon to furnish theinformation as mentioned therein in respect ofthe A.Y. 2012-13, however, it appears that theassessee did not respond to the said notice.The petitioner thereafter was served with theimpugned notice dated 27.03.2019 (Annexure F)under section 148 of the said Act, whereby thepetitioner was called upon to file the return inthe prescribed form for the A.Y. 2012-13 on theground that the Assessing Officer had reason tobelieve that the income chargeable to tax forthe A.Y. 2012-13 had escaped assessment withinthe meaning of section 147 of the said Act. Theassessee therefore filed its return of incomefor the A.Y. 2012-13 on 15.07.2019 declaring itstotal income at Rs. 1,50,23,831/-. Thepetitioner thereafter was provided with a copyof reasons recorded for reopening of theassessment vide the letter dated 12.11.2019(Annexure G), to which the petitioner had filedthe objections on 22.11.2019 (Annexure H). Therespondent vide the impugned order dated13.12.2019 (Annexure I) disposed of the saidobjections, which is under challenge before thisCourt by way of present petition. C/SCA/22613/2019 CAV JUDGMENT DATED: 06/08/2021 respondent by filing an affidavit-in-reply inwhich it has been contended inter alia that therespondent had received the information from twosources – firstly, from DDIT (Investigation),Unit 1(2), Ahmedabad, who had reported that thepetitioner - assessee was one of thebeneficiaries of the accommodation entries tothe tune of Rs. 20 lacs for the A.Y. 2012-13, asone Manojbhai H. Patel, proprietor of M/s.Kamdhenu Marketing of Ahmedabad had providedbogus sales entries to the petitioner. Theother information received was from the DDIT(Investigation), Unit 1(3), Ahmedabad, who hadreported that pursuant to the search actionconducted under section 132 of the said Act on11.09.2018 in case of Shri Jignesh Shah,Ahmedabad, it was found that Shri Jignesh Shahwas an accommodation entry provider and thepetitioner assessee had received accommodationentries to the tune of Rs. 1,05,00,000/- duringF.Y. 2011-12 relevant to A.Y. 2012-13 from oneM/s. Arihant Enterprise Ltd. controlled by thesaid Jignesh Shah. It is further contended thaton the basis of said tangible material, havinglive link with the aspect of escapement ofincome by the petitioner, the assessment wassought to be reopened under section 147 of thesaid Act. The petitioner has filed anaffidavit-in-rejoinder to rebut the contentions of the respondent. C/SCA/22613/2019 CAV JUDGMENT DATED: 06/08/2021 of the respondent. C/SCA/22613/2019 CAV JUDGMENT DATED: 06/08/2021 5.The learned advocate Mr. D.R. Patelappearing for the petitioner vehementlysubmitted that the petitioner had disclosedfully and truly all material facts necessary forthe assessment for A.Y. 2012-13 which was framedunder section 143(3) of the said Act. Accordingto him, the assessment was sought to be reopenedon the basis of false allegations and incorrectfacts, inasmuch as the petitioner had borrowedRs. 1,05,00,000/- from Arihant Enterprise Ltd.,which was controlled by Dhiren Shah and family,and at the relevant time, Shri Jignesh Shah hadno interest in the said company as Shri JigneshShah took over the affairs of the said companyafter Shri Dhiren Shah resigned in 2015, andsubsequent to the taking over by Shri JigneshShah, the petitioner had no transaction withArihant Enterprise Ltd. He further submittedthat the assessment could not have been reopenedon the basis of the borrowed belief received bythe respondent from the investigating wingunits, without verifying the material. It issubmitted by Mr. D.R. Patel that it is the dutyof the assessee to disclose fully and truly allmaterial facts which are primary facts, and non-disclosure of other facts which are secondaryfacts, could not be said to be failure on thepart of the petitioner in not disclosing trueand full facts. In this regard, he has reliedupon the decision of Supreme Court in the caseof Calcutta Discount Company Ltd. versus Income- Tax Officer reported in AIR 1961 SC 372 and incase of New Delhi Television Ltd. versus DeputyCommissioner of Income Tax reported in 424 ITR607. Reliance has also been placed by Mr. D.R.Patel on the judgment of this Court in the caseof Manan Exports (P.) Ltd. versus Income-TaxOfficer reported in (2017) 78 taxmann.com 225(Gujarat), to submit that the reopening of theassessment was not permissible merely becausethe subsequent Assessing Officer had a differentview on the material already placed before theAssessing Officer at the time of originalassessment. Mr. Patel has also relied upon thedecision of this Court in the case of HynoupFood & Oil Industries Ltd. versus AssistantCommissioner of Income Tax reported in (2008)175 Taxman 331 (Gujarat), to buttress hissubmission that only the Assessing Officer whohad issued the notice under section 148 of thesaid Act has to record the reasons, and in theinstant case, the reasons have been recorded bythe Assessing Officer different from the Officerwho had issued notice under section 148 of thesaid Act. 6.Per contra, the learned Senior Advocate Mr.M.R. Bhatt submitted that the two investigatingteams having given credible information to therespondent, the petitioner was called upon tofurnish the details by issuing notice undersection 133(6) of the said Act, however, the C/SCA/22613/2019 CAV JUDGMENT DATED: 06/08/2021 6.Per contra, the learned Senior Advocate Mr.M.R. Bhatt submitted that the two investigatingteams having given credible information to therespondent, the petitioner was called upon tofurnish the details by issuing notice undersection 133(6) of the said Act, however, the C/SCA/22613/2019 CAV JUDGMENT DATED: 06/08/2021 petitioner did not respond to the said noticeand thereafter the respondent authority hadissued the notice under section 148 forreopening of the assessment for the reasonsrecorded as per Annexure G. He further submittedthat there being tangible material in the formof credible information received from twoinvestigating wings, the assessment was soughtto be reopened. According to Mr. Bhatt, thepetitioner had concealed and hidden from thedepartment, material facts which were unearthedduring the search proceedings carried out at thepremises of Shri Jignesh Shah, and it wasfurther revealed that a huge racket of providingaccommodation entries to evade taxes, was beingcarried out by Shri Jignesh Shah who wascontrolling multiple companies and concerns, andthat the petitioner was one of the beneficiarieswho had obtained accommodation entries from M/s.Arihant Enterprise Ltd., which was a companycontrolled by said Jignesh Shah. Thus, runsthe submission of Mr. Bhatt, the respondenthaving acquired fresh information, specific innature and reliable in character, which primafacie exposed the falsity of the statement madeby the assessee at the time of originalassessment, had rightly assumed the jurisdictionunder section 147 as he had reason to believethat the petitioner had not disclosed fully andtruly all material facts at the time of originalassessment. According to him, such reopening could not be said to be change of opinion by thesubsequent Assessing Officer. Mr. Bhatt triedto distinguish the decisions relied upon by Mr.D.R.Patel,andsubmittedthatthe“accommodation entries” being very difficult tocull out from the books of accounts maintainedin ordinary course of business of the assessee,the Assessing Officer is empowered to reopen theassessment on the receipt of the tangible andcredible material falsifying the material placedby the assessee at the time of originalassessment. 7.As stated hereinabove, the often posedquestion as to whether the Assessing Officercould have assumed the jurisdiction underSection 147/148 of the said Act on the basis ofthe information / material received from theinvestigating wings unearthing the bogustransactions or accommodation entries involvingthe assessee, has been again posed before thisCourt. Before adverting the submissions made bythe learned advocates for the parties, it may benoted that the words “accommodation entries”have not been defined anywhere in the Act,however, in catena of decisions, the Courts havedealt with the issue of “accommodation entries”.It cannot be gainsaid that the tax-evaders inorder to bring back their unaccounted income totheir books of accounts without paying any taxthereon, use numerous methods and techniques. For routing the unaccounted income, the tax-evaders under the guise of loan entries or sharecapital entries or other camouflage entriescreate an appearance of legitimate transactionsin their books of accounts. Such well recognizedrackets are controlled and conducted by thepersonsknownas“accommodationentryproviders”, and the “accommodation entries” areprovided by them to the persons who are the tax-evaders. The entries on paper apparently mayappear to be of routine nature, but the trail ofmoney transited through the layers would besubsequently unearthed during the search andseizure operations conducted either at theassessee’s premises or his associate’s premisesor at the premises of some third party, who maybe an accommodation entry provider. Under thecircumstances, when the material is brought tothe notice of the Assessing Officer, which wouldprima facie discredit or impeach the genuinenessof the particulars furnished by the assessee atthe time of original assessment, and when itprima facie establishes the link between theassessee and the third party who is anaccommodation entry provider, the AssessingOfficer is empowered rather duty bound to makefurther inquiry / investigation to unearth suchcamouflage or wrong or illegal dealings of theassessee. As observed by the Supreme Court inthe case of Sumati Dayal vs Commissioner OfIncome-Taxreported inAIR 1995 SC 2109, C/SCA/22613/2019 CAV JUDGMENT DATED: 06/08/2021 apparent must be considered as real until it isshown that there are reasons to believe thatapparent is not real, and that the TaxingOfficers are entitled to look into thesurrounding circumstances to find out thereality, and the matter has to be considered byapplying the test of human probabilities. 8.It is also well settled proposition of lawthat in order to assume the jurisdiction undersection 147 of the said Act, more particularly,after expiry of four years from the end ofrelevant assessment year, the Assessing Officermust have reason to believe that the incomechargeable to tax had escaped assessment for theassessment year under consideration, and thatsuch escapement had occurred by reason offailure on the part of the assessee either tomake a return under section 139 of the said Actor in response to a notice issued under sub-section (1) of Section 142 or section 148, or todisclose fully and truly all material factsnecessary for his assessment for that assessmentyear. 9.So far as facts of the present case areconcerned, the assessment of the petitioner –assessee is sought to be reopened for thereasons recorded in the letter dated 12.11.2019(Annexure – G). The first and formal submissionmade by the learned advocate Mr. D.R. Patel for C/SCA/22613/2019 CAV JUDGMENT DATED: 06/08/2021 9.So far as facts of the present case areconcerned, the assessment of the petitioner –assessee is sought to be reopened for thereasons recorded in the letter dated 12.11.2019(Annexure – G). The first and formal submissionmade by the learned advocate Mr. D.R. Patel for C/SCA/22613/2019 CAV JUDGMENT DATED: 06/08/2021 the petitioner is that the Assessing Officerhaving framed the original assessment afterthorough scrutiny under section 143(3) on16.03.2015 and the petitioner having producedall the relevant documents i.e. the primaryfacts pertaining to the relevant assessment yearat the time of filing original return, it couldnot be said that the petitioner had not madefull and true disclosure. According to him,there was no fresh tangible material which wouldenable the Assessing Officer to invoke thejurisdiction under section 147 of the said Act.Now as transpiring from the reasons recorded,the information received by the AssessingOfficer from the DDIT (Inv.) Unit 1(2) was thatone Manojbhai H. Patel, proprietor of M/s.Kamdhenu Marketing of Ahmedabad had given bogussales entries of Rs. 20 lacs to the petitionerthrough his bank account and had transferredlarge amount to various entities through variouslinked account by RTGS, and that the assesseewas one of the beneficiaries of the saidaccommodation entries to the tune of Rs. 20lacs. Another information received from DDIT(Inv.) Unit 1(3) by the Assessing Officer wasthat during the search action conducted undersection 132 of the said Act on 11.09.2018 incase of Jignesh Shah, it was found that JigneshShah was managing and controlling multiplecompanies and concerns, which were not carryingout any genuine business activities, but were C/SCA/22613/2019 CAV JUDGMENT DATED: 06/08/2021 providing accommodation entries like unsecuredloan, share premium, bogus LTCG / STCG,contrived losses etc., and that such concernswere infact non-existent at their addresses. Itwas also found that the Directors of the saidcompanies / persons in whose names the concernswere registered, had filed their affidavits thatthey were not carrying on any genuine businessactivities and were engaged into providingaccommodation entries through Shri Jignesh Shah.It was also found that the petitioner –assesseee had received accommodation entries tothe tune of Rs. 1,05,00,000/- during the F.Y.2011-12 from one of the such companies i.e. M/s.Arihant Enterprise Ltd., which was controlled byShri Jignesh Shah. 10.It may be noted that in order to verifythe genuineness of the information and aftertaking prior approval of Pr. CIT-1, Rajkot, theAssessing Officer had issued a notice undersection 133(6) of the said Act to thepetitioner, however, the petitioner did notrespond to the said notice. Thus, on the basisof the information received from the twoinvestigating teams and after making inquiryunder section 133(6) of the Act, the AssessingOfficer had formed an opinion and had reason tobelieve that the petitioner had receivedaccommodation entries to the tune of Rs.1,25,00,000/- and the said income had escaped C/SCA/22613/2019 CAV JUDGMENT DATED: 06/08/2021 10.It may be noted that in order to verifythe genuineness of the information and aftertaking prior approval of Pr. CIT-1, Rajkot, theAssessing Officer had issued a notice undersection 133(6) of the said Act to thepetitioner, however, the petitioner did notrespond to the said notice. Thus, on the basisof the information received from the twoinvestigating teams and after making inquiryunder section 133(6) of the Act, the AssessingOfficer had formed an opinion and had reason tobelieve that the petitioner had receivedaccommodation entries to the tune of Rs.1,25,00,000/- and the said income had escaped C/SCA/22613/2019 CAV JUDGMENT DATED: 06/08/2021 assessment as the petitioner had not made fulland true disclosure of facts in the RoI. Assettled by the Supreme Court in catena ofdecisions, the expression “reason to believe”cannot be read to mean that Assessing Officershould have finally ascertained the fact bylegal evidence or conclusion. The term “reasonto believe” would mean cause or justification.This is so because the formation of believe bythe Assessing Officer is within the realm ofsubjective satisfaction. If the AssessingOfficer has cause or justification to know orsuppose that income had escaped assessment, itcan be said that he has reason to believe thatan income has escaped assessment. Beneficialreference of the judgments in the case ofAssistant Commissioner of Income Tax versusRajesh Jhaveri Stock Brokers Pvt. Ltd. reportedin (2007) 291 ITR 500 (SC), in case of Income-Tax Officer, Calcutta versus M/s. SelectedDalurband Coal Co. Pvt. Ltd. reported in 1996(217) ITR 597 (SC); in case of Raymond WoollenMills Ltd. vs Income-Tax Officer And Ors.reported in (1999) 236 ITR 34 (SC), be made. 11. This is one of such cases, in which theAssessing Officer had received the reports fromthe investigating teams that the petitioner wasthe beneficiary of the accommodation entries tothe tune of Rs. 1,25,00,000/- , and since therewas no true and full disclosure on the part of C/SCA/22613/2019 CAV JUDGMENT DATED: 06/08/2021 the petitioner – assessee with regard to thesaid entries in its books of accounts, there wasan escapement of income to the tune of Rs.1,25,00,000/- during the assessment year underconsideration. Assumption of jurisdiction onthe part of the Assessing Officer, is sincebased on fresh information specific and reliableand otherwise sustainable under the law, thechallenge to reassessment proceedings can not beentertained. Though it was sought to besubmitted by the learned advocate Mr. D.R. Patelthat the petitioner had produced all therelevant and material documents before theAssessing Officer at the time of scrutinyassessment, and it was not open for thesubsequent Assessing Officer to reopen theassessment under the guise of having receivedthe information from the investigating teams,the Court does not find any substance in thesaid submission. Mere production of the booksof accounts or the documents along with returnof income could not be said to be full and truedisclosure of all material facts, moreparticularly when it is subsequently found, onthe basis of credible information and tangiblematerial that the petitioner was the beneficiaryof the accommodation entries provided by theentry provider Jignesh Shah. 12. Even in the case of New Delhi TelevisionLtd. versus Deputy Commissioner of Income Tax 12. Even in the case of New Delhi TelevisionLtd. versus Deputy Commissioner of Income Tax (supra), relied upon by the learned advocate Mr.D.R. Patel, the Supreme Court after consideringthe various earlier decisions had held that atthe stage of taking action under section 147 ofthe Act, on the basis of material disclosed inthe assessment proceedings for the subsequentyears as well as the other material placed onrecord, the Assessing Officer is required toform only a prima facie view that the income hadescaped assessment. 13. In the case of Phool Chand Bajrang Lalversus Income Tax Officer reported in 1993 203ITR 456 (SC), it has been observed as under : - “19……….Acquiring fresh information, specificin nature and reliable in character, relatingto the concluded assessment which goes toexpose the falsity of the statement made bythe assessee at the time of originalassessment is different from drawing a freshinference from the same facts and materialwhich was available with the I.-T.O at thetime of original assessment proceedings. Thetwo situations are distinct and different.Thus, where the transaction itself on thebasis of subsequent information is found to bea bogus transaction, the mere disclosure ofthat transaction at the time of originalassessment proceedings cannot be said to be adisclosure of the “true” and “full” facts inthe case and the I.-T.O would have thejurisdiction to reopen the concludedassessment in such a, case. It is correct thatthe assessing authority could have deferredthe completion of the original assessmentproceedingsforfurtherenquiryandinvestigation into the genuineness to the loantransaction but in our opinion his failure todo so and complete the original assessmentproceedings would not take away his jurisdiction to act under S. 147 of the Act,on receipt of the information subsequently.The subsequent information on the basis ofwhich the I.-T.O acquired reasons to believethat income chargeable to tax had escapedassessment on account of the omission of theassessee to make a full and true disclosure ofthe primary facts was relevant, reliable andspecific. It was not at all vague or non-specific.” “26. .………One of the purposes of S. 147,appears to us to be, to ensure that a partycannot get away by wilfully making a false oruntrue statement at the time of originalassessment and when that falsity comes tonotice, to turn around and say “you acceptedmy lie, now your hands are tied and you can donothing.” It would be travesty of justice toallow the assessee that latitude.” (Emphasis supplied) 14. In the case of Ess Kay Engineering Co. (P)Ltd. versus Commissioner of Income Tax reportedin 247 ITR 818 (SC), also it has been observedthat the Assessing Officer is not precluded fromreopening the assessment of an earlier year onthe basis of fresh material discoveredsubsequently during the course of assessment ofnext assessment year. 15. It was also sought to be submitted by thelearned advocate Mr. D.R. Patel for thepetitioner that the reopening was sought to bedone on the basis of false and incorrectmaterial as no amount of Rs. 20 lacs wasreceived from Kamdhenu Marketing, however, thepetitioner had made purchases from KamdhenuMarketing and had made payments against such C/SCA/22613/2019 CAV JUDGMENT DATED: 06/08/2021 15. It was also sought to be submitted by thelearned advocate Mr. D.R. Patel for thepetitioner that the reopening was sought to bedone on the basis of false and incorrectmaterial as no amount of Rs. 20 lacs wasreceived from Kamdhenu Marketing, however, thepetitioner had made purchases from KamdhenuMarketing and had made payments against such C/SCA/22613/2019 CAV JUDGMENT DATED: 06/08/2021 purchases, and that the alleged receipt ofaccommodation entry of Rs. 1,05,00,000/- fromJignesh Shah was also based on falseinformation, inasmuch as, the petitioner hadborrowed the said amount from Arihant EnterpriseLtd. at the relevant time when Shri Dhiren Shahwas the Director of the Company and not JigneshShah. Apart from the fact that no suchcontention was raised by the petitioner in theobjections filed by it on reopening of theassessment, nor in the memo of petition, and hasbeen raised for the first time in the affidavit-in-rejoinder, such contention could not be takeninto consideration at this juncture, it is alsopertinent to note that the petitioner was issueda notice under section 133(6) of the said Act on21.03.2019 requesting it to furnish the evidenceto prove the genuineness of the transactionsmentioned therein before the issuance of theimpugned notice under section 148 of the saidAct, however, the petitioner had chosen not torespond to the said notice. Be that as it may,the respondent has considered all the objectionsin detail raised by the petitioner in theimpugned order dated 13.12.2019, which orderbeing just and proper does not call for anyinterference. 16.In that view of the matter, the petitionbeing devoid of merits is dismissed. Notice is discharged. Interim relief granted earlierstands vacated forthwith. Sd/-(BELA M. TRIVEDI, J) AMAR SINGH Sd/-(A. C. JOSHI,J)