Singhal Fabrics Private Limited v. The Income Tax Officer Ward 4(1)(1

IN THE HIGH COURT OF GUJARAT AT AHMEDABAD R/SPECIAL CIVIL APPLICATION NO. 16717 of 2019 ==================================================== SINGHAL FABRICS PRIVATE LIMITED VersusTHE INCOME TAX OFFICER WARD 4(1)(1) ===================================================== Appearance:MS VAIBHAVI K PARIKH(3238) for the Petitioner(s) No. 1MRS MAUNA M BHATT(174) for the Respondent(s) No. 1 ===================================================== CORAM: HONOURABLE MR. JUSTICE J.B.PARDIWALAandHONOURABLE MR. JUSTICE ILESH J. VORA Date : 16/02/2021 ORAL ORDER (PER : HONOURABLE MR. JUSTICE ILESH J. VORA) 1. By filing this writ application under Article 226 of theConstitution of India, the writ applicant – M/s. SinghalFabrics Private Limited, seeks to challenge the Notice dated29.03.2019 issued by the respondent under Section 148 ofthe Income Tax Act, 1961 (for short “the Act, 1961”) for theA.Y. 2012-13 on the ground that the same is illegal,without jurisdiction and beyond a period of limitation asprescribed under the Act.Constitution of India, the writ applicant – M/s. SinghalFabrics Private Limited, seeks to challenge the Notice dated29.03.2019 issued by the respondent under Section 148 ofthe Income Tax Act, 1961 (for short “the Act, 1961”) for theA.Y. 2012-13 on the ground that the same is illegal,without jurisdiction and beyond a period of limitation asprescribed under the Act. 2. Briefly stated the facts of the case are that, the writapplicant being private limited company is engaged in theactivities of trading in textiles. During the A.Y 2012-13, theCompany had filed its return of income on 28.09.2012declaring its total income at Rs.25,01,600/- and the samewas processed under Section 143(1) of the Act. Thereafter,the assessing officer reopened the assessment underapplicant being private limited company is engaged in theactivities of trading in textiles. During the A.Y 2012-13, theCompany had filed its return of income on 28.09.2012declaring its total income at Rs.25,01,600/- and the samewas processed under Section 143(1) of the Act. Thereafter,the assessing officer reopened the assessment under Section 148 of the Act by issuing the impugned noticedated 29.03.2019. The writ applicant filed its return ofincome in response to the impugned Notice and requestedthe respondent to supply the copy of the reasons forreopening and the same was supplied vide communicationdated 15.05.2019. 3. The writ applicant vide letter dated 10.06.2019 raised theobjections, which came to be disposed of by the revenuevide order dated 11.10.2019. objections, which came to be disposed of by the revenuevide order dated 11.10.2019. 4. The assessing officer before issuing the impugned Noticehas recorded the following reasons for reopening of theassessment:- has recorded the following reasons for reopening of theassessment:- Reasons recorded:- “1. In this case, the assessee has e-filed its return ofincome for A.Y.2012-13, on 28.09.2012 declaring totalincome at Rs.25,01,600/-. The same was processed u/s 143(1) on 21.02.2013. The assessee companyengaged in the business of textiles. 2. An Information received from the ADIT(Inv.). Unit-5,KolkatavideletterNo.ADIT/Kol/nformation-FIU-IND/2018-19/1460-76dated 28.02.2019 that Sri Om Prakash Bihani, who isa proprietor of M/s. Shree Ambika Service, M/s. ShreeBalaji Texofm. M/s. Shree Ambika Trading and M/s.Shree Ambika Enterprises has provided entries to M/s.Singhal Fabrics Pvt Ltd. The gist are as under: Reasons recorded:- “1. In this case, the assessee has e-filed its return ofincome for A.Y.2012-13, on 28.09.2012 declaring totalincome at Rs.25,01,600/-. The same was processed u/s 143(1) on 21.02.2013. The assessee companyengaged in the business of textiles. 2. An Information received from the ADIT(Inv.). Unit-5,KolkatavideletterNo.ADIT/Kol/nformation-FIU-IND/2018-19/1460-76dated 28.02.2019 that Sri Om Prakash Bihani, who isa proprietor of M/s. Shree Ambika Service, M/s. ShreeBalaji Texofm. M/s. Shree Ambika Trading and M/s.Shree Ambika Enterprises has provided entries to M/s.Singhal Fabrics Pvt Ltd. The gist are as under: 2.1 Credible information is received that in the bankaccount vide A/c.No. 518011065594 maintained withING Vysya Bank Ltd. of K.K. Tagore Branch, Kolkata ofM/s, Shree Ambika Service whose proprieor is Shri OMPrakash Bihani, total credits of INR 327.80 crores,which includes cash credits of Rs.263.68 crores andtotal debits of INR 327.68 crores were noticed duringthe period from account opening to 13.05.2014. It wasfurther noticed that the funds so received in theaccount being paid to several firms by way of clearing cheques below the reporting thresh hold limit ofRs.50000/-. In connection with the above information so received,bank statement of the alerted bank account and otheraccounts have been obtained and perused. : Further,summon u/s.131 of the I.T. Act, 1961 was issued andserved on Shri OM Prakash Bihani, who Is a proprietorof the subject entity M/s. Shree Ambika Service for hispersonal appearance for recording of statement inconnection with the nature and complexity of suchtransactions and the source of cash deposits. Inresponse Sri Om Prakash Bihani appeared andstatement was recorded u/s.131 on oath wherein hestated and confirmed that he was a sole proprietor ofthe entities M/s. Shree Ambika SeaServices, M/s.,Shree Balaji Texofm, M/s. Shree Ambika Trading andM/s. Shree Ambika Enterprises, which have now beenclosed and non-oerational since F.Y.2017-18. Hefurther stated that the transactions involved in thebank accounts of these entities are not relate to anactual business instead these are hundi transactionwhere Sri Om Prakash Bihani deposits cash providedto him by various entities and the same were returnedback to such entities throug account payee cheque inlieu of commission which he earned @ Rs.15/- toRs.20/- per Rs.1 lac of the funds provided to him bysuch entities. While going through the alerted bankaccount no. 518011065594 of the subject entity M/s.Shree Ambika Service, it was perused that cash withinthe range of Rs.2 lacs to below Rs.10 lacs have beendeposited and immediate! got transferred to variousentities through cheques most! below the range ofRs.50,000/-. This pattern of transaction was alsoobserved in other bank accounts of his proprietorshipentities viz. A/c. No. 518011066024 of M/s. ShreeBalaji Texofm, A/c. No. 518011074998 andA/c.No.63801 1009612 of M/s. Shree AmbikaEnterprises and A/c. No. 518011071843 of M/s ShreeAmbika Commercial. On confronting the reason behindsuch credit and debit ententries, Sri Om PrakashBihani stated that the cash so deposited were theaggregated amount received on a day from variousentities and the same got debited through cheques tosuch entities with amount below Rs.50,000/- as perthe instructions given by the beneficial owners of suchcash and in whose names cheques were issued. Hestated further that most of these entities are located inremote areas viz. Ahmedabad, Surat, Bangalore, etc.and the cash were the sale proceeds of the goods traded by such entities in Kolkata and hence forsecurity reason these cash were provided to Sn OmPrakash Bihani who after depositing, issued chequesinthenamesofsuchentities. traded by such entities in Kolkata and hence forsecurity reason these cash were provided to Sn OmPrakash Bihani who after depositing, issued chequesinthenamesofsuchentities. 2.2 On this line, the alerted bank account statement ofM/s. Shree Ambika Service and other proprietorshipentities have been perused and seen that Shri OmPrakash Bihani had deposited cash amount in thebank accounts of his proprietorship entities on whichhe received commission. In view of the above facts andcircumstances, it is clearly inferred that the entities towhom funds were transferred through cheques andagainst which cash were received are beneficialowners of such transferred fund. 3. The information clearly indicates that the concernfrom which the assessee has got entry is not indulgedany business activities but the assessee has broughtmoney into their books through hundi wherein theyprovided cash to the subject entity M/s.Ambika Serviceand other proprietorship entities of Shri Om PrakashBihani and received of 10,80,397/- in cheques belowthe limit of Rs.50,000/-. The details are under: 4 Further, notice u/s 133(6) of the Act was issued bythe undersigned on 19.03.2019 and served by speedpost. However, the assessee failed to furnish the replyto query letter issued to the assessee by this office.Vide above letter, the assessee was asked to providethe details of financial transactions made with Shri OmPrakash Bihani, who is a proprietor of M/s. ShreeAmbika Service, M/s. Shree Balaji Texofm, M/s. ShreeAmbika Trading and M/s. Shree Ambika Enterprisesduring the year along with documentary evidences.However, the assessee did not respond at all. The assessee is one of the beneficiaries who hadreceived of 10,80,397/- in cheques from M/s. Shree Ambika Services and other proprietorship entities ofShri Om Prakash Bihani in FY 2011-12 in the shape ofhundi wherein the assessee provided cash. The natureof credit received from M/s Shree Ambika Service andother proprietorship entities of Shri Om Prakash Bihaniproves to be merely an accommodation entry. Hence,there is escapement within the meaning of section 147of the Act. The assessee was required to file correctreturn of income and disclosed the income receiveduring the A.Y.2012-13 for tax. However, the assesseefailed to disclose the income for A.Y. 2012-13 and alsofailed to furnish the reply to query letter issued to theassessee by this office. In view of the above, I havereason to believe that there is escapement of income tothe extent of Rs. 10,80,397/and failed to disclose fullyand truly all necessary material facts in its return ofincome. 5.In this case a return of income was filed for theyear under consideration but no scrutiny assessmentu/s.143(3) of the Act was made. Accordingly, in thiscase, the only requirement to initiate proceedingsu/s.147 of the Act is reason to believe which has beenrecorded above (refer Paragraph ..2 to 4) 6. It is pertinent to mention here that in this case.theassessee has filed return of income for the year underconsideration but no assessment as stipulatedu/s.2(40) of the Act was made and the retum of incomewas only processed u/s.143(1) of the Act. In view ofthe above, provisions of clause (b) of explanation 2 toSection 147 are applicable to facts of this case and theassessment year under consideration is deemed to bea case where income chargeable to tax has escapedassessment.” 5. From the aforesaid reasons, it appears that the assessment for the year under consideration sought to be reopened bythe Revenue on the ground that the writ applicant hastaken bogus accommodation entries from Shri Om PrakashBihani, who was engaged in providing bogusaccommodation entries through various concerns ascontained in the reasons recorded for reopening. In short,it is alleged by the respondent that the writ applicant has 5. From the aforesaid reasons, it appears that the assessment for the year under consideration sought to be reopened bythe Revenue on the ground that the writ applicant hastaken bogus accommodation entries from Shri Om PrakashBihani, who was engaged in providing bogusaccommodation entries through various concerns ascontained in the reasons recorded for reopening. In short,it is alleged by the respondent that the writ applicant has received cheque worth of Rs.10,80,397/- from variousconcerns mainly from Shri Om Prakash Bihani and beingthe beneficiary of the entries provided by Shri Om PrakashBihani, the income has escaped assessment in the handsof the writ applicant for the year under consideration. 6. Being aggrieved by the impugned Notice as well as theorder of disposing of the objections, the writ applicant hascome up before this Court with the preset writ application. order of disposing of the objections, the writ applicant hascome up before this Court with the preset writ application. 7. We have heard Mr. Tushar Hemani, the learned Sr.Counsel assisted by Mrs. Vaibhavi Parikh, the learnedcounsel appearing for the writ applicant and Mrs. MaunaBhatt, the learned Sr. Standing Counsel assisted by Mr.Karan Sanghani, learned counsel appearing for theRevenue. Counsel assisted by Mrs. Vaibhavi Parikh, the learnedcounsel appearing for the writ applicant and Mrs. MaunaBhatt, the learned Sr. Standing Counsel assisted by Mr.Karan Sanghani, learned counsel appearing for theRevenue. 8. In assailing the impugned Notice issued by the revenueunder Section 148 of the Act, the learned counsel for thewrit applicant urged the following submissions:- under Section 148 of the Act, the learned counsel for thewrit applicant urged the following submissions:- (i)That, impugned notice is bad, illegal, barred bylimitation and without jurisdiction and therefore, the samedeserves to be quashed and set aside; (ii)That, the assessee had not received any cheque fromvarious concerns referred to in the reasons for reopening.In this context, it was submitted that whatever theamount/funds received during the year underconsideration were against the sales which had been dulycredited to the profit and loss and the income embeddedtherein was already offered to tax. (iii)That, there is no independent application of mind onthe part of the assessing officer while recording the reasonsfor reopening and that merely placing reliance on theinformation provided by the investigating wing forrecording the reasons is impermissible. (iv)Referring to the reasons recorded, it was submittedthat the assessing officer failed to record the independentfindings as to how the income has escaped assessment ona proper application of mind; the assessing officer recordedhis satisfaction only on the basis of the informationreceived from the Investigating wing without any enquiriesand hence, he assumed jurisdiction only on the borrowedsatisfaction, which is impermissible in law. (v)That, the reasons recorded for reopening are vagueand for the purpose of further detailed inquiries, theassessing officer has recorded the reasons on the basis ofthe information received from Investigating wing, which isimpermissible in law and on this count, the notice is bad inlaw. 9. In view of the aforesaid contentions, the learned counselappearing for the writ applicant urged that reopening of theassessment is, therefore, without jurisdiction and hence,the impugned notice deserves to be quashed and set aside.appearing for the writ applicant urged that reopening of theassessment is, therefore, without jurisdiction and hence,the impugned notice deserves to be quashed and set aside. 10.On the other hand, Mrs. Mauna Bhatt, the learned Sr.Standing Counsel appearing for the Revenue opposed theStanding Counsel appearing for the Revenue opposed the 9. In view of the aforesaid contentions, the learned counselappearing for the writ applicant urged that reopening of theassessment is, therefore, without jurisdiction and hence,the impugned notice deserves to be quashed and set aside.appearing for the writ applicant urged that reopening of theassessment is, therefore, without jurisdiction and hence,the impugned notice deserves to be quashed and set aside. 10.On the other hand, Mrs. Mauna Bhatt, the learned Sr.Standing Counsel appearing for the Revenue opposed theStanding Counsel appearing for the Revenue opposed the writ application contending that, the writ applicant wasbeneficiary of the accommodation entries to the tune ofRs.10,80,397/-. Return of income of the assessee wasprocessed under Section 143(1) of the Act and no scrutinyassessment being made for the year under considerationunder Section 133 (6) of the Act. The notice was servedupon the assessee on 19.03.2019, however, the assesseefailed to furnish the reply to the queries so far thetransaction made with Shri Om Prakash Bihani, who is theproprietor concern through which the assessee hadreceived alleged amount. Under the circumstances,reiterating the stand adopted by the respondent in theaffidavit-in-reply as well as in the order of disposing of theobjections, it was submitted that the action taken by theassessing officer is just, legal and proper and does notwarrant any interference. 11.We have considered the submissions advanced by learnedcounsel for the respective parties and perused the materialon record. From the reasons recorded, it is evident that theassessing officer seeks to reopen the assessment on theground that the writ applicant being beneficiary of theaccommodation entries to the tune of Rs.10,80,397/- fromthe proprietor Shri Om Prakash Bihani, who having no anyactual business and therefore, the amount has escapedassessment for the year under consideration.counsel for the respective parties and perused the materialon record. From the reasons recorded, it is evident that theassessing officer seeks to reopen the assessment on theground that the writ applicant being beneficiary of theaccommodation entries to the tune of Rs.10,80,397/- fromthe proprietor Shri Om Prakash Bihani, who having no anyactual business and therefore, the amount has escapedassessment for the year under consideration. 12.Plain reading of the reasons recorded for reassessmentreveals that the investigation in the case of Shri OmPrakash Bihani was carried out as there was huge cashcredit and debits in his bank account maintained withreveals that the investigation in the case of Shri OmPrakash Bihani was carried out as there was huge cashcredit and debits in his bank account maintained with 13. IngVysya Bank Ltd. at Calcutta. The authority concernedhad verified the bank statements of various accountsmaintained by Shri Bihani and it was found that ShriBihani was proprietor of various concerns like M/s.Ambika Services, M/s. Balaji Taxfoam, M/s. AmbikaTraders and M/s. Ambika Enterprise. It was further foundby the authority that various entities owned by Shri Bihaniwere not involved in actual business and the accountsmaintained by various concerns were used in providingaccommodation entries to earn commission. The saidentities had adopted the modus operandie for providingaccommodation entries, whereby Shri Bihani acceptedcash amount and on the same day, he transferred thesame through cheque using various concerns limiting theamount maximum upto Rs.50,000/-. So far the case of the writ applicant is concerned, afterreceiving information from the investigating wing ascontained in the reasons recorded, the assessing officerhad verified the bank account of the assessee and alsomade independent enquiries. Record indicates that thenotice under Section 133(6) of the Act was served upon theassessee and the assessee failed to comply with the queryletter. Under the circumstances, the assessing officerprima facie came to the conclusion that the assessee beingbeneficiary of the accommodation entries had receivedRs.10,80,397/- through cheques from M/s. AmbikaServices and other entities owned by Shri Om PrakashBihani for the year under consideration, which hasescaped income within the meaning of Section 147 of theAct. 14.It is settled legal position of law that, at the stage ofinitiation of reassessment, the only thing requires to beseen is that whether there is any prima facie material onthe basis of which the case can be reopened. Sufficiencyand correctness of the material is not required to beconsidered at this stage and the court cannot investigateinto adequate and sufficiency of the reasons. In the presentcase, admittedly, return of income was processed underSection 143 (1) of the Act and no scrutiny assessment wasmade under Section 143(3) of the Act and therefore,proviso to Section 147 of the Act would not apply. In otherwords, though the reopening of the assessment after expiryof four years from the end of relevant assessment year, it isnot necessary for the Assessing Officer to show that therewas any failure to disclose fully or truly material factsnecessary for the assessment. Therefore, when reopeningis sought of an assessment, wherein the initial return wasprocessed under Section 143 (1) of the Act, the AssessingOfficer can form “reason to believe” that the income hasescaped assessment by examining return and/ordocuments accompanying the return. Reference can bemade to the case of Central Prominces Magnese OreCompany Ltd. [(2008) 14 SCC 208], wherein the ApexCourt held that the word “reason” in the phrase “reason tobelieve” in Section 147 would mean 'cause' or'justification'. If the assessing officer has cause orjustification to know or suppose that the income hasescaped assessment, he can be said to have reason tobelieve that the income has escaped assessment. 15.The assessing officer had examined the informationreceived from the concerned authority, made enquiries andupon due satisfaction, came to the conclusion that, thecredit entries amounting to Rs.10,80,397/- has not beenexplained by the assessee and the income has escapedassessment. It is the contention of the assessee that,during the year under consideration, no any amount fromvarious concerns as referred to above had been received.We are of the view that, before recording the reasons forreassessment, summons had been served to explain thecredit entries, however, the assessee did not comply withthe same. The documents relied upon by the assesseecould not throw much light on the credit entries as referredin the reasons recorded. At this stage, it is difficult to cometo the conclusion that no amount being received by theassessee from various entities managed by Shri OmPrakash Bihani as referred to in the reasons recorded. Inour considered view, to substantiate the contentions withrespect to the alleged transaction, the bank statement forthe year under consideration is relevant to resolve theossue as raised by the assessee. It is the assessee toproduce the same before this Court as well as before therespondent authority when he had submitted hisobjections. Under such circumstance, the AO has cause orjustification to form a belief that the income has escapedassessment. received from the concerned authority, made enquiries andupon due satisfaction, came to the conclusion that, thecredit entries amounting to Rs.10,80,397/- has not beenexplained by the assessee and the income has escapedassessment. It is the contention of the assessee that,during the year under consideration, no any amount fromvarious concerns as referred to above had been received.We are of the view that, before recording the reasons forreassessment, summons had been served to explain thecredit entries, however, the assessee did not comply withthe same. The documents relied upon by the assesseecould not throw much light on the credit entries as referredin the reasons recorded. At this stage, it is difficult to cometo the conclusion that no amount being received by theassessee from various entities managed by Shri OmPrakash Bihani as referred to in the reasons recorded. Inour considered view, to substantiate the contentions withrespect to the alleged transaction, the bank statement forthe year under consideration is relevant to resolve theossue as raised by the assessee. It is the assessee toproduce the same before this Court as well as before therespondent authority when he had submitted hisobjections. Under such circumstance, the AO has cause orjustification to form a belief that the income has escapedassessment. 16.In view of the foregoing reasons and considering the factsand circumstances of the present case, we have nohesitation to hold that it could not be said to have thatand circumstances of the present case, we have nohesitation to hold that it could not be said to have that there was no material or grounds before the AssessingOfficer and the assumption of jurisdiction on the part ofthe Assessing Officer under Section 147 of the Act toreopen the assessment by issuing impugned notice underSection 147 of the Act is without authority of law. 17.Accordingly, the assessee failed to make out a case. As aresult, the writ application deserves to be dismissed and ishereby dismissed. No order as to costs.result, the writ application deserves to be dismissed and ishereby dismissed. No order as to costs. (J. B. PARDIWALA, J) (ILESH J. VORA,J) SUCHIT