Pushpa Uttamchand Mehta v. Income Tax Officer Ward 3(2)(9), Ahmedabad

IN THE HIGH COURT OF GUJARAT AT AHMEDABAD R/SPECIAL CIVIL APPLICATION NO. 21532 of 2019 FOR APPROVAL AND SIGNATURE: HONOURABLE MR. JUSTICE J.B.PARDIWALA andHONOURABLE MS. JUSTICE NISHA M. THAKORE ==========================================================1Whether Reporters of Local Papers may be allowed toNOsee the judgment ?1Whether Reporters of Local Papers may be allowed toNOsee the judgment ?2To be referred to the Reporter or not ?NO3Whether their Lordships wish to see the fair copy of theNOjudgment ?3Whether their Lordships wish to see the fair copy of theNOjudgment ?4Whether this case involves a substantial question of lawNOas to the interpretation of the Constitution of India orany order made thereunder ?as to the interpretation of the Constitution of India orany order made thereunder ? ========================================================== PUSHPA UTTAMCHAND MEHTA Versus INCOME TAX OFFICER WARD 3(2)(9), AHMEDABAD ==========================================================Appearance:MR NITIN K MEHTA(3286) for the Petitioner(s) No. 1MR MR BHATT SENIOR COUNSEL WITH MR KARAN SANGHANI,ADVOCATE FOR M R BHATT & CO.(5953) for the Respondent(s) No. 1========================================================== CORAM:HONOURABLE MR. JUSTICE J.B.PARDIWALA andHONOURABLE MS. JUSTICE NISHA M. THAKORE Date : 05/04/2022 ORAL JUDGMENT (PER : HONOURABLE MR. JUSTICE J.B.PARDIWALA) By this writ application under Article 226 of the Constitution of India, the writ applicant has prayed for the following reliefs: “A) That the Honorable Court be pleased to issue a writ of mandamusand/or certiorari or a writ in the nature of mandamus and/or certiorarior any other appropriate writ, order or direction quashing and settingaside the impugned Notice dated 08/03/2019 and impugned Orderdated 28/11/2019; B) Pending the hearing and final disposal of the present Petition, theHonorable Court be pleased to stay the operation, implementation andexecution of the impugned Notice dated 08/03/2019 and impugnedOrder dated 28/11/2019 and the assessment proceedings inconsequence to the impugned Notice; C) The Hon'ble Court be pleased to grant ad-interim relief in terms ofpara 'B' above; D) For such other and further reliefs as the nature and circumstances ofcase may require.” 2The subject matter of challenge is the notice dated 8[th] March 2019issued under Section 148 of the Income Tax Act, 1961 (for short, “theAct, 1961”) seeking to reopen the assessment for the assessment year2012-13. It appears that the assessee had filed her original return ofincome on 29[th] March 2013 for the A. Y. 2012-13 declaring the totalincome of Rs.6,47,880/- under ITR – 2. The writ applicant mainlyshowed the interest income, dividend income and agricultural income.The writ applicant also claimed exempt Long Term Capital Gain from thepenny scrip namely M/s. Unisys Softwares and Holding Inds. Ltd. ofRs.11,43,900/-. The scrutiny assessment under Section 143(3) wascompleted on 5[th] February 2015 assessing the total income in accordancewith the return income. 3It appears that the Assessing Officer received information from theADIT (System), o/o CIT (Admn & CO), Ahmedabad on 1[st] April 2016that the assessee had claimed exempt Long Term Capital Gain from the penny scrip namely M/s. Unisys Softwares of Rs.11,43,900/-. The writapplicant had purchased the same on 25[th] January 2010 forRs.2,51,100/- and sold it on 24[th] June 2011 for the amount ofRs.13,95,000/- at the rate of Rs.93 per share. In the reasons assigned forreopening of the assessment, the following has been stated: 3It appears that the Assessing Officer received information from theADIT (System), o/o CIT (Admn & CO), Ahmedabad on 1[st] April 2016that the assessee had claimed exempt Long Term Capital Gain from the penny scrip namely M/s. Unisys Softwares of Rs.11,43,900/-. The writapplicant had purchased the same on 25[th] January 2010 forRs.2,51,100/- and sold it on 24[th] June 2011 for the amount ofRs.13,95,000/- at the rate of Rs.93 per share. In the reasons assigned forreopening of the assessment, the following has been stated: “3.1On analysis of information received, it is evident that UnisysSoftwares and Holding Inds Ltd is penny scrip and has been used by theoperators/entry-exit providers to provide exempt LTCG/Short TermCapital Loss/Business Loss, which has been substantiated by theoutcome of enquiries made with BSENSE and Directorate ofinvestigation, Kolkata. 3.1.1 Further, the analysis of the share price movement of UnisysSoftwares and Holding Inds Ltd was done. The stock price was ofaround Rs. 10/- in January, 2010 The price was jacked up to Rs.272/-inNov, 2012 from Rs.10 in 35 months thus within 35 months the pricewas jumped up nearly 27 times and thereafter, the price of the sharehas fallen freely and has been trading between the range of Rs. 10 toRs. 15 The shore price movement connote that exponential rise 27times in the price of the scrip within 35 months was artificiallymanipulated to provide exempt LTCG/Short Term CapitalLoss/Business Loss 3.1.2 From the trade data of BSE the element of synchronized tradehas also been established. Further, it is observed that the assessee hasbought shares of Unisys Softwares and Holding och Ltd in 2010 andsold me same on 24.06.2011 to book bogus exempt capital gain u/s10(38) of Rs.11,43,900/-, In view of the discussion, it is crystal clearthat the said purchase and sale of share of Unisys Software's andHolding Inds Ltd, were nothing but mode used by operators/entry-exitproviders to provide exempt LTCG/Short Term Capitol Loss/BusinessLoss bogus. 3.2The assessee has entered into bogus transactions amounting toRs.11,43,900/- to claim bogus exempt income which remainsunexplained during the F.Y. 2011-12 relevant to AY, 2012-13, whichhas escaped assessment. 4Inquiries were made from the ID/IBA data and it is found thatthe assessed has entered into transaction of penny stock with a view toclaim bogus capital gain. It is pertinent to mention that theinvestigation Wing, Kolkata has also made deep inquiries andestablished that the assessee is one of the beneficiaries of accommodation entry by way of investment in penny stock UnisysSoftwares and Holding Inds Ltd. Further in the statement recorded u/s.132(4), Shri Jagadish Purohit one of the Directors of Unisys Softwaresand Holding Inds ltd had solemnly affirmed that he was engaged inaccommodation entry providing business (Ans. To Q7, 24, & 25). Healso stated that with a view to provide accommodation entry he hasformed 32 companies and become directors of those companies.” 4To the aforesaid, the writ applicant filed her objections stating asunder: accommodation entry by way of investment in penny stock UnisysSoftwares and Holding Inds Ltd. Further in the statement recorded u/s.132(4), Shri Jagadish Purohit one of the Directors of Unisys Softwaresand Holding Inds ltd had solemnly affirmed that he was engaged inaccommodation entry providing business (Ans. To Q7, 24, & 25). Healso stated that with a view to provide accommodation entry he hasformed 32 companies and become directors of those companies.” 4To the aforesaid, the writ applicant filed her objections stating asunder: “3.It is submitted that for A.Y. 2012-2013, I had filed my return ofincome disclosing the long term capital gains of Rs. 11,43,900 asexempt. My return was taken up for scrutiny under section 143 andaccordingly various queries were raised. During the assessmentproceedings a letter dated 25/09/2014 was issued by the AssessingOfficer specifically raising query at point 4 and 5 regarding the exemptcapital gain of Rs. 11,43,900 and the sale of shares of Unisys Softwareand Holding Industries Limited and further called for informationregarding the same. A copy of the letter dated 25/09/2014 is enclosedherewith as Annexure A. This query was replied by a letter submitted incourse of assessment proceeding wherein the explanation as well as therelated documents were submitted to the Assessing Officer. A copy ofthe letter submitted in course of assessment proceeding is enclosedherewith as Annexure B. It is only after being fully satisfied with theexplanation, submission and the details submitted during theassessment proceedings, the learned Assessing Officer finalized theassessment under section 143(3) by passing the Assessment Orderdated 05/02/2015 without making any addition or disallowance fromthe taxable income disclosed in the return of income originally filed. Acopy of the Assessment Order dated 5/02/2015 is enclosed herewith asAnnexure C. This is categorically clear from para 3 of the saidAssessment Order. 4.Despite assessment being completed under section 143(3), thesaid Notice came to be issued at the fag end of the completion of 6thyear from the date of the completion of the Assessment year 2012-13. Itis clear that the said Notice cannot be issued unless it is categoricallydemonstrated that any income chargeable to tax has escapedassessment for such assessment year by reason of the failure on the partof the assessee to disclose fully and truly all material facts necessary forthe assessment for that assessment year. It is clear from the recordavailable with you and from the reasons to believe that there is nofailure on the part of the assessee to disclose fully and truly all materialfacts necessary for the assessment. Accordingly the said Notice iswithout jurisdiction and is bad in law. 5.For the very assessment year, during the detailed scrutiny andupon query raised by the Assessing Officer, I submitted all the detailspertaining to the long term capital gain arising out of the sale of sharesof Unisys Softwares and Holding Industries Ltd., including the copy ofthe demat account, sale bill, working of capital gain etc. It is thereforeclear that I had disclosed all the material required for the assessmentand there is no failure on my part to disclose true and correct materialfacts. 5.For the very assessment year, during the detailed scrutiny andupon query raised by the Assessing Officer, I submitted all the detailspertaining to the long term capital gain arising out of the sale of sharesof Unisys Softwares and Holding Industries Ltd., including the copy ofthe demat account, sale bill, working of capital gain etc. It is thereforeclear that I had disclosed all the material required for the assessmentand there is no failure on my part to disclose true and correct materialfacts. 6.The Assessing Officer, having been satisfied with the detailssubmitted by me, formed his opinion that no addition is required to bemade and therefore passed assessment order dated 05/02/2015 undersection 143(3) without making any addition regarding the long termcapital gain arising out of the sale of shares of Unisys Softwares andHolding Industries Ltd. It is submitted that in the Assessment Order, theAssessing Officer accepted the returned income without making anyaddition during the assessment year 2012-13. The said Notice isnothing but a change of opinion on the same issue of Long term capitalgain, which was earlier scrutinized and an opinion formed whilefinalizing the scrutiny assessment u/s 143(3).” 5The objections came to be disposed of vide order dated 28[th]November 2019 stating as under: “This contention of the assessee does not hold true since, whateverdetails available / gathered / received from the investigation wring orfrom other agencies were to be carried for taxation “no opinion wasrequired to be expressed or given nor any mind was to be applied’. It isnot only the evidence in the form of any papers but also thecommitment by Shri Manohar Nangaliya. Needless to mention that suchadmissions are verified by the assessee knowing fully the consequencesfor wrong declaration or the verification. Therefore, this is fresh material and new material so far as thecase of the assessee is concerned. It is also hereby clarified that thismaterial or documents have not been seized from the premises of theassessee and whereas, no assessment in relation to the above assesseewere taken up, these were not available for the purpose of assessmentsof the assessee. Therefore, there is no change of opinion. In view of the above, this was the information in the form ofaccounts/documents received from the Investigation wing and wasrequired to be processed for reopening of the assessments in the spiritof judgement of the Hon'ble ITAT (Agra) in the case of Anil KumarSinghal vs ITO (2013) 33 TAXMANN 434 and also the judgement of the Hon'ble Court in the case of Rajat Export Import India Pvt Ltd. vs. ITO,whereby, the AO is not required to build a full proof case, and only toform a prima facie opinion or belief that income has escapedassessment. The relevancy of the material before the AO is to be judgedonly from that perspective and not from the perspective as to whetherthe material is sufficient or adequate to sustain the addition ultimately.This will have to be done in the course of assessment proceedings afterhearing the assessee. From the discussion made above it is seen that whateverInformation on the basis of which the assessment is being reopened isdiscovered after assessments requires to be taxed u's 147/148 of theIncome Tax Act, 1961 in the spirit and intention of the followingjudgements of the Hon'ble Courts:- 1) Raunaq Finance Ltd. vs. JCIT 2) Deva Soya Ltd. v. Addl. CIT 3] Aquagel Chemicals Pvt. Ltd. vs. ACIT 4] Rabo India Finance Ltd vs DCIT (2013) 34 TAXMANN 228 (Bombay) This material is therefore prima facie and sufficiency or evencorrectness of opined to be considered in the spirit of judgement ofvarious Hon'ble Courts as under : 1) Raymond Woolen Mills Ltd. vs. ITO and Ors.(1999) 238 ITR34 (SC) 2) Reach Cables Networks Ltd. vs. DCIT 3) Deshraj Udyog vs .ITO 4) Chaman Udyog vs. ITO 5) Sun Pharmaceutical Industries Ltd. vs. DCIT 6) Sundar Carpet industries vs . ITO 1) Raunaq Finance Ltd. vs. JCIT 2) Deva Soya Ltd. v. Addl. CIT 3] Aquagel Chemicals Pvt. Ltd. vs. ACIT 4] Rabo India Finance Ltd vs DCIT (2013) 34 TAXMANN 228 (Bombay) This material is therefore prima facie and sufficiency or evencorrectness of opined to be considered in the spirit of judgement ofvarious Hon'ble Courts as under : 1) Raymond Woolen Mills Ltd. vs. ITO and Ors.(1999) 238 ITR34 (SC) 2) Reach Cables Networks Ltd. vs. DCIT 3) Deshraj Udyog vs .ITO 4) Chaman Udyog vs. ITO 5) Sun Pharmaceutical Industries Ltd. vs. DCIT 6) Sundar Carpet industries vs . ITO 7) Societe International De Telecommunication vs. DCIT (Ind.Taxation) In view of these only possibility of escapement of income andreopening of assessment based thereon u/s 148 of the Income Tax,1961 only has to be considered in the spirit of the judgment of Hon’bleCourt in the case of P. Shambu Aithal vs. ITO. Hence from the above, there is tangible material available withthe AO and also belief of the undersigned at the time of recordingreasons u/s 147/148 of the Income Tax Act, 1961.” 6In such circumstances, the writ applicant is here before this Courtwith the present writ application. 7Mr. Nitin Mehta, the learned counsel appearing for the writapplicant would submit that the impugned notice and the orderdisposing of the objections are in gross violation of the principles ofnatural justice. He would submit that there is no tangible materialsavailable with the respondent to form any opinion as regards theescapement of income. It is nothing, but a fishing inquiry according tothe learned counsel. 8Per contra, Mr. Bhatt would submit that there is a specificinformation that M/s. Unisys Softwares is a company run, managed andoperated by entry providers. It is a penny stock and has been used by theoperators to provide exempt LTCG / Short Term Capital Loss. 9Having heard the learned counsel appearing for the parties andhaving gone through the materials on record, the only question that fallsfor our consideration is whether the Assessing Officer committed anyerror in issuing notice under Section 148 of the Act for the reopening ofthe assessment. 10Section 147 of the Act authorizes the re-opening of anyassessment of a previous year. Section 148, which contains theconditions for re-opening assessments, including the limitation periodwithin which notices can be issued, by its proviso, enacts that: “Provided that no notice under this section shall be issued unless there is information with the Assessing Officer which suggests that theincome chargeable to tax has escaped assessment in the case of theassessee for the relevant assessment year and the Assessing Officer hasobtained prior approval of the specified authority to issue such notice.” 11Almost six decades back, the Supreme Court, in its decision in thecase of Calcutta Discount Company Ltd. vs. Income Tax Officer, reportedin 1961 (2) SCR 241 had underscored the obligation of every assessee tomake a true and full disclosure and said that: “There can be no doubt that the duty of disclosing all the primary factsrelevant to the decision of the question before the assessing authoritylies on the assesses.” 12The Supreme Court further held that once the duty is discharged,it is upto the assessing officer to inquire further and draw the necessaryinferences while completing the assessment. 13As to what can be the valid grounds for re-opening an assessmenthas been the subject matter of several decisions of the Supreme Court. InIncome Tax Officer, Calcutta & Ors. vs. Lakhmani Mewal Das, 1976 (3)SCR 956, the Supreme Court held that the “reasons to believe” must bebased on objective materials, and on a reasonable view. The court heldas follows: “There can be no doubt that the duty of disclosing all the primary factsrelevant to the decision of the question before the assessing authoritylies on the assesses.” 12The Supreme Court further held that once the duty is discharged,it is upto the assessing officer to inquire further and draw the necessaryinferences while completing the assessment. 13As to what can be the valid grounds for re-opening an assessmenthas been the subject matter of several decisions of the Supreme Court. InIncome Tax Officer, Calcutta & Ors. vs. Lakhmani Mewal Das, 1976 (3)SCR 956, the Supreme Court held that the “reasons to believe” must bebased on objective materials, and on a reasonable view. The court heldas follows: “The grounds or reasons which lead to the formation of the beliefcontemplated by Section 147(a) of the Act must have a materialbearing on the question of escapement of income of the assessee fromassessment because of his failure or omission to disclose fully and trulyall material facts. Once there exist reasonable grounds for the Income-tax Officer to form the above belief, that would be sufficient to clothehim with jurisdiction to issue notice. Whether the grounds are adequateor not is not a matter for the Court to investigate. The sufficiency ofgrounds which induce the income-tax Officer to act is, therefore, not ajusticiable issue. It is, of course, open to the assessee to contend that theIncome-tax Officer did not hold the belief that there had been such non-disclosure. The existence of the belief can be challenged by the assesseebut not the sufficiency of reasons for the belief. The expression "reasonto believe" does not mean a purely subjective satisfaction on the part of the Income-tax Officer. The reason must be held in good faith. It cannotbe merely a pretence. It is open to the Court to examine whether thereasons for the formation of the belief have a rational connection withor a relevant bearing on the formation of the belief and are notextraneous or irrelevant for the purpose of the section. To this limitedextent, the action of the Income-tax Officer in starting proceedings inrespect of income escaping assessment is open to challenge in a Courtof law.” 14In Phool Chand Bajrang Lal & Ors. vs. Income Tax Officer & Ors.,1993 Supp (1) SCR 28, after reviewing the previous case law, andconcluding that a valid re-opening is one, preceded by specific, reliableand relevant information, and that the sufficiency of such reasons is notsubject to judicial review- the only caveat being that the court canexamine the record, if such material existed, it was held that the factsdisclosed in the return, if found later to be unfounded or false, canalways be the basis of a re-opening of assessment: “appears to us to be, to ensure that a party cannot get away by willfullymaking a false or untrue statement at the time of original assessmentand when that falsity comes to notice, to turn around and say "youaccepted my lie, now your hands are tied and you can do nothing". Itwould be travesty of justice to allow the assessee that latitude.” 15A three judge Bench, of the Supreme Court, in the Commissionerof Income Tax, Delhi v. Kelvinator of India Ltd., 2010 (1) SCR 768, afterconsidering its previous decisions, re-stated the position of law asfollows: “5....where the Assessing Officer has reason to believe that income hasescaped assessment, confers jurisdiction to re-open the assessment.Therefore, post-1st April, 1989, power to re-open is much wider.However, one needs to give a schematic interpretation to the words"reason to believe"..… Section 147 would give arbitrary powers to the Assessing Officer to re-open assessments on the basis of "mere change of opinion", whichcannot be per se reason to re-open. 6. We must also keep in mind the conceptual difference between power 15A three judge Bench, of the Supreme Court, in the Commissionerof Income Tax, Delhi v. Kelvinator of India Ltd., 2010 (1) SCR 768, afterconsidering its previous decisions, re-stated the position of law asfollows: “5....where the Assessing Officer has reason to believe that income hasescaped assessment, confers jurisdiction to re-open the assessment.Therefore, post-1st April, 1989, power to re-open is much wider.However, one needs to give a schematic interpretation to the words"reason to believe"..… Section 147 would give arbitrary powers to the Assessing Officer to re-open assessments on the basis of "mere change of opinion", whichcannot be per se reason to re-open. 6. We must also keep in mind the conceptual difference between power to review and power to reassess. The Assessing Officer has no power toreview; he has the power to re-assess. But reassessment has to be basedon fulfillment of certain pre-condition and if the concept of "change ofopinion" is removed, as contended on behalf of the Department, then,in the garb of re-opening the assessment, review would take place. 7. One must treat the concept of "change of opinion" as an in-built testto 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 escapementof income from assessment. Reasons must have a live link with theformation of the belief.” 16It is therefore, clear that the basis for a valid reopening ofassessment should be the availability of tangible material, which canlead the AO to scrutinize the returns for the previous assessment year inquestion, to determine, whether a notice under Section 147 is called for. 17It is a settled position of law that the adequacy of the reasonsprovided by the Assessing Officer fall outside the review powers andremains within the domain of the Assessing Officer at this stage of theproceedings where only a preliminary finding under section 147/148 hasbeen made. It is necessary to reiterate that we are at the stage of thevalidity of the notice under section 148/147. The inquiry at this stage isonly to see whether there are reasonable grounds for the Income TaxOfficer to believe and not whether the omission/failure and theescapement of income is established. It is necessary to keep thisdistinction in mind. (See Shri Krishna (P.) Ltd. vs. ITO (1996) 221 ITR538/87 Taxman 315). 18Having regard to the materials on record it cannot be said thatthere is a total non-application of mind on the part of the AssessingOfficer while recording the reasons for reopening of the assessment. Italso cannot be said that his conclusion was merely based on theobservations and information received from the Investigation Wing. TheAssessing Officer could be said to have applied his mind to the same. 18Having regard to the materials on record it cannot be said thatthere is a total non-application of mind on the part of the AssessingOfficer while recording the reasons for reopening of the assessment. Italso cannot be said that his conclusion was merely based on theobservations and information received from the Investigation Wing. TheAssessing Officer could be said to have applied his mind to the same. The Assessing Officer could not be said to have merely concludedwithout verifying the facts that it is the case of reopening of theassessment. We do not find merit in the vociferous submission of thelearned counsel appearing for the writ applicant that the contents of thereasons recorded by the Assessing Officer for the reopening of theassessment is merely an introduction about the investigations conductedby the Investigation Wing, the modus operandi of the entry providers,the summing up of inquiry of the Investigation Wing, the informationreceived from the Investigation Wing etc. We have examined the beliefof the Assessing Officer to a limited extent to look into whether therewas sufficient material available on record for the Assessing Officer toform a reasonable belief and whether there was a live link existing of thematerial and the income chargeable to tax that escaped assessment. Thecase on hand is not one where it could be argued that the AssessingOfficer, on absolutely vague or unspecific information, initiated theproceedings of reassessment without taking the pains to form his ownbelief in respect of such materials. 19In view of the aforesaid, this writ application fails and is herebyrejected. (J. B. PARDIWALA, J) CHANDRESH (NISHA M. THAKORE,J)