Chittewan v. The Assistant Commissioner Ofincome Tax, Circle-13(2)(2),R

Chittewan IN THE HIGH COURT OF JUDICATURE AT BOMBAY ORDINARY ORIGINAL CIVIL JURISDICTION WRIT PETITION NO.1091 OF 2022 Punia Capital Pvt. Ltd.212, Gemstar Commercial ComplexRamchandra Lane Extension, Kaanchpada,Malad (West), Mumbai-400 064.…Petitioner Versus 1. The Assistant Commissioner ofIncome Tax, Circle-13(2)(2),R.No.571, Aaykar Bhavan, M.K. Road,Mumbai-400 020. 2. The Principal Commissioner ofIncome Tax-5,Aayakar Bhavan, M.K. Road,Mumbai-400 020. 3. National Faceless Assessment CentreNew Delhi 4. Union of IndiaAaykar Bhavan, M.K. Road,Mumbai-400 020.…Respondents *** Mr. Mandar M. Vaidya for the Petitioner. Mr. Akhileshwar Sharma a/w Mr. Vikas T. Khanchandani for theRespondents. *** CORAM :DHIRAJ SINGH THAKUR &ABHAY AHUJA, JJ. PRONOUNCED ON : 15 FEBRUARY 2023 : J U D G M E N T : (Per DHIRAJ SINGH THAKUR, J.) . The Petitioner challenges the validity of the notice issuedunder Section 148 of the Income-tax Act, 1961 (“Act”), as also theproceedings for reopening of assessment under Section 147 of theAct. 2Briefly stated the material facts are as under : The Petitioner fled a return of income under Section 139 ofthe of the Act for the assessment year 2015-16. The case wasselected for scrutiny under Computer Assisted Scrutiny Selection(‘CASS’). The assessing offcer issued a notice under Section 142(1)of the Act calling for various details mentioned therein. ThePetitioner states that pursuant to the said notice, it submitted itsfnancial statements for the year ending 31 March 2015. Theassessment proceedings were completed under Section 143(3) on31 August 2017 accepting the loss at Rs.(-) 4,23,213/- declared inthe return of income. Chittewan 3A notice under Section 148 of the Act dated 31 March 2021was issued by the assessing offcer seeking to reopen thePetitioner’s assessment for assessment year 2015-16 on the groundthat the assessing offcer had reason to believe that income for thatyear had escaped assessment within the meaning of Section 147 ofthe Act. The notice under Section 148, therefore, required thePetitioner to fle a return in the prescribed form for the saidassessment year within 30 days from the date of service of the saidnotice. The notice was purported to have been issued afterobtaining necessary satisfaction of Principal Commissioner ofIncome Tax-5, Mumbai. 4The Petitioner further states that return of income was fledin response to the notice under Section 148 on 13 April 2021declaring income at Rs.(-) 4,23,213/- and further also made arequest for a copy of the reasons recorded for reopening theassessment. This right was exercised keeping in view thedirections of the Supreme Court in the case of GKN Drivershafts(India) Ltd. Vs. ITO[1], wherein it was held that on receipt of a noticeunder Section 148, the proper course for the assessee was to fle areturn if he so desired and to seek the reasons for issuing thenotice. The assessing offcer was then held bound to furnish 1(2003) 259 ITR 19 reasons, to which the the Noticee was entitled to fle objections tothe notice. Thereafter, assessing offcer was held to be under anobligation to dispose of the same by passing a speaking order. 5Respondent No.1, accordingly, supplied the reasons recordedfor reopening the assessment vide communication dated 23 June2021, which read as under : 1. ……... 1(2003) 259 ITR 19 reasons, to which the the Noticee was entitled to fle objections tothe notice. Thereafter, assessing offcer was held to be under anobligation to dispose of the same by passing a speaking order. 5Respondent No.1, accordingly, supplied the reasons recordedfor reopening the assessment vide communication dated 23 June2021, which read as under : 1. ……... 2Brief details of information collected/received bythe AO : In this case, credible information isreceived on INSIGHTS PORTAL under the highrisk CRIU/VRU cases. On perusal of theinformation from the insights portal, it is statedthat the assessee has transacted funds with theAccount No.914020039098036 of M/s OutstripeSuppliers Pvt. Ltd. which has been conclusivelyproven to be a shell company by the investigationwing. The assessee has taken accommodationentries amounting to Rs.2,15,00,000/- during theA.Y.the AO : In this case, credible information isreceived on INSIGHTS PORTAL under the highrisk CRIU/VRU cases. On perusal of theinformation from the insights portal, it is statedthat the assessee has transacted funds with theAccount No.914020039098036 of M/s OutstripeSuppliers Pvt. Ltd. which has been conclusivelyproven to be a shell company by the investigationwing. The assessee has taken accommodationentries amounting to Rs.2,15,00,000/- during theA.Y. 3.Analysis of information collected/received : Ithas been conclusively proven from theinvestigation report of the investigation wing thatthe assessee is the benefciary of accommodationentries by layering of funds through various shellcompanies. The details of the accommodationentries take by the assessee are categorized asunder :has been conclusively proven from theinvestigation report of the investigation wing thatthe assessee is the benefciary of accommodationentries by layering of funds through various shellcompanies. The details of the accommodationentries take by the assessee are categorized asunder : Sr. No. Particulars of Bank A/cValue 1.Account No.914020039098036Rs.2,15,00,000/-Rs.2,15,00,000/- of M/s Outstripe Suppliers Pvt. Ltd. 4. ………… 5. ………… 6. Basis of forming reasons to believe and details ofescapement of income : As discussed above, theassessee is a benefciary of accommodationentries which the assessee has used to evadetaxation. In view of this, I have reasons to believethat income more than Rs.2,15,00,000/-,chargeable to tax escaped assessment within themeaning of Section 147 of the Act, due to thefailure on the part of the assessee not to disclosefully and truly all the material facts in its ROI.escapement of income : As discussed above, theassessee is a benefciary of accommodationentries which the assessee has used to evadetaxation. In view of this, I have reasons to believethat income more than Rs.2,15,00,000/-,chargeable to tax escaped assessment within themeaning of Section 147 of the Act, due to thefailure on the part of the assessee not to disclosefully and truly all the material facts in its ROI. 7. Applicability of the provision of Section 147/151to the facts of the case : In this case, the assesseehas fled return of income, however, no scrutinyassessment has been made for A.Y. 2015-16. Theonly requirement to initiate proceedings u/s 147is reasons to believe which has been recordedabove. to the facts of the case : In this case, the assesseehas fled return of income, however, no scrutinyassessment has been made for A.Y. 2015-16. Theonly requirement to initiate proceedings u/s 147is reasons to believe which has been recordedabove. 6Objections were fled by the assessee to the reopening of theassessment proceedings, in which, it was stated that the reasons forinitiating reassessement proceedings were based upon an incorrectfactual matrix inasmuch it was not a case where the loan had beentaken by the Petitioner, but a case, where the loan had been Chittewan 6Objections were fled by the assessee to the reopening of theassessment proceedings, in which, it was stated that the reasons forinitiating reassessement proceedings were based upon an incorrectfactual matrix inasmuch it was not a case where the loan had beentaken by the Petitioner, but a case, where the loan had been Chittewan advanced to M/s Outstripe Suppliers Pvt. Ltd. on which, thePetitioner was also receiving interest, which details had beenprovided during the initial assessment proceedings. The objectionswere considered and rejected by virtue of Order dated 14 December2021. 7The Petitioner challenges the reopening of the assessmentprimarily on the grounds : That the reasons recorded for reopening of assessmentreflected non-application of mind inasmuch while in para-1 of thereasons recorded, the assessing offcer stated that case was selectedunder CASS and completed under Section 143(3) on 31 August2017 accepting the returned income, wherein in para-7 of the saidreasons, the assessing offcer has stated that no scrutinyassessment has been made for assessment year 2015-16. And that the Principal Commissioner of Income Tax-5,Mumbai also mechanically appears to have accorded sanction to theissuance of the notice under Section 148 without noticing thecontradiction highlighted hereinabove and without verifying as towhether the case was actually ft for grant of such sanction for 8In the reply fled by the Respondent, it is admitted that it wasonly due to inadvertence that in para-7 of the reasons recordedthat a stand was taken that no scrutiny assessment had been made.The Respondent in their reply affdavit further tried to supporttheir action in reopening the assessment on the ground that theassesee made a transaction with M/s Outstripe Suppliers Pvt. Ltd.,which had been proved to be merely a paper company and had beenstruck of from the rolls by the Registrar of Companies. It is furtherstated that information regarding accommodation entry was a newinformation, which was not a part of scrutiny at the time of originalassessment proceedings under Section 143(3) of the Act. 9Section 147 of the Act as it stood prior to its substitution witheffect from 01.04.2021 by Finance Act, 2021 envisaged that if theassessing offcer has reason to believe in any assessment year, hemay subject to provisions of Section 148 to 153, assess or reassesssuch income and also any other income chargeable to tax which hasescaped assessment and which comes to his notice subsequently inthe course of the proceedings. The frst proviso of Section 147further envisages that if an assessment under sub-section (3) of Chittewan Section 143 has been made for the relevant assessment year, noaction shall be taken under that section after the expiry of fouryears from the end of the relevant assessment year unless anyincome chargeable to tax has escaped assessment for suchassessment year by reason of failure on the part of the assesseeinter alia to disclose fully and truly all material facts necessary forhis assessment, for that assessment year. 10InHindustan Lever Ltd Vs. R.B. Wadkar, AssistantCommissioner of Income-tax[2] this Court held : Chittewan Section 143 has been made for the relevant assessment year, noaction shall be taken under that section after the expiry of fouryears from the end of the relevant assessment year unless anyincome chargeable to tax has escaped assessment for suchassessment year by reason of failure on the part of the assesseeinter alia to disclose fully and truly all material facts necessary forhis assessment, for that assessment year. 10InHindustan Lever Ltd Vs. R.B. Wadkar, AssistantCommissioner of Income-tax[2] this Court held : “….The reasons recorded should be clear andunambiguous and should not suffer from anyvagueness. The reasons recorded must disclose hismind. The reasons are the manifestation of themind of the Assessing Offcer. The reasonsrecorded should be self- explanatory and shouldnot keep the assessee guessing for the reasons.Reasons provide the link between conclusion andevidence. The reasons recorded must be based onevidence. The Assessing Offcer, in the event ofchallenge to the reasons, must be able to justify thesame based on material available on record. Hemust disclose in the reasons as to which fact ormaterial was not disclosed by the assessee fullyand truly necessary for assessment of thatassessment year, so as to establish the vital linkbetween the reasons and evidence. That vital linkis the safeguard against arbitrary reopening of theconcluded assessment.” 11In Hindustan Lever Ltd. (supra), the Court set aside thenotice impugned issued under Section 148 only on this ground. Inthe said judgment, the Court had noticed that the Assessing Offcernowhere stated that there was failure on the part of the assessee todisclose fully and truly the material facts necessary for theassessment of that assessment year, without touching upon any ofthe other grounds. 12From a reading of the reasons recorded although it has beenmentioned that income chargeable to take had escaped assessmenton account of failure on the part of the assessee to disclose fully andtruly material facts, yet juxtaposed with the later part of thereasons, which states that no scrutiny assessment had been madeand that the only requirement was to initiate proceedings underSection 147 on the basis of ‘reason to believe’ goes to prove that theassessing offcer had reopened the assessment only on the basis of‘reason to believe’ and not failure to disclose material facts fully andtruly, on which too the assessing offcer ought to have been satisfedas matter pertained to reopening beyond the period of four years. 13In our opinion, the manner in which the assessing offcerproceeded reflects total non-application of mind, which neither satisfes the jurisdictional condition, which was required to befollowed in terms of Section 147 nor does it in the least satisfy theconditions prescribed in the case of Hindustan Lever Ltd. (supra),as the assessing offcer had failed to highlight in the reasonsrecorded as to which was that material fact, which was notdisclosed by the assessee in its return. 14For the reasons mentioned above, in our opinion, notice underSection 148 of the Act dated 31 March 2021 as also the Order dated14 December 2021 are held to be unsustainable and are accordinglyquashed. No Order as to costs. (ABHAY AHUJA, J.) (DHIRAJ SINGH THAKUR, J.)