South Yarra Holdings v. Income Tax Officer 16 (1) (1) (4) Mumbai & Anr …

RNG 1/7 5-wp3398.18 IN THE HIGH COURT OF JUDICATURE AT BOMBAYORDINARY ORIGINAL CIVIL JURISDICTION WRIT PETITION NO.3398 OF 2018 South Yarra Holdings .. Petitioner vs Income Tax Officer 16 (1) (1) (4) Mumbai & anr … Respondents ---- Mr.K.Gopal with Mr.Tanmay Phadke I/bMs.Neha Paranjpe for PetitionerMr.Suresh Kumar for Respondents. CORAM : AKIL KURESHI & M.S.SANKLECHA, JJDATE : 1st MARCH, 2019 P.C. 1.At the request of the parties, the petition is taken up forfinal disposal. 2.This petition under Article 226 of the Constitution of Indiachallenges a notice dated 29.3.2018 issued by respondent no.1-AssessingOfficer under section 148 of the Income Tax Act, 1961 (for short, 'theAct'). The impugned notice seeks to re-open assessment for A.Y.2011-12. 3. For the Assessment Year 2011-12 the petitioner filed itsreturn of income on 29.9.2012 declaring an income of Rs.12.52 lacs(rounded off). The return was taken up for scrutiny assessment by theAssessing Officer. On 1.11.2013 the Assessing Officer passed an orderunder section 143 (3) of the Act enhancing the petitioner's income toRs.20.14 lacs. 4. Thereafter on 29.3.2018, the Assessing Officer issued theimpugned notice seeking to re-open assessment for A.Y.2011-12. Thereasons in support of the impugned notice as communicated to thepetitioner reads thus:- “Reasons for reopening u/s 148 for A.Y.2-011-12 is provided as under : 1. The information has been received from DDIT (Inv) Unit 8 (3) ScindiaHouse, Mumbai-38 vide their letter dated 23-3-2018 which is received in thisoffice on 28-03-2018. 2) The DDIT (Inv) Mumbai has received information that M/s NivyahInfrastructure & Telecom Services Ltd is a penny stock listed do in BSE withscrip code (517634) and this company has been used to facilitate introduction ofunaccounted income of members of beneficiaries in the form of exempt capitalgain or short term capital loss in their books of accounts. It was noticed thatshare price of M/s Nivyah Infrastructure & Telecom Services Ltd rose from Rs.39in 21st July 2009 to Rs.2050 on January 2011 and dipped to Rs.47.20 on 18[th]July 2012. However, the financials of the company for the relevant period do notshow any substantial change so as to support such huge share price movement.The company does not have business worth while to justify the sharp rise inmarket price of shares. The sharp rise in market price of this entity is notsupported by the fundamentals of the company. Both purchase and sale of theshares are concentrated within few person/entities. 2.2. The DDIT (Inv) has traded in the above script namely M/s NivyahInfrastructure & Telecom Services Ltd during the F.Y. 2010-11 to the tune ofRs.35040000000000000000. 2.3. The DDIT (Inv) Unit – 8 (3) Mumbai has given a finding that enquirieshave been conducted in the penny scrip namely M/s Nivyah Infrastructure &Telecom Services Ltd vis-a-vis facilitating introduction of unaccounted income ofmembers of beneficiaries in the form of exempt Capital gain or Short termCapital Loss in their books of account. These transactions are mostly in view ofcash of equal amount and commission is charged over and above at certain fixedpercentage for providing such accommodation entry. These accommodationentries were taken from various beneficiaries for introducing their unaccountedcash into their books of accounts without paying the due taxes. 2.4 The detailed investigation report containing the modus operandi of taxevasion through penny stock and discussion in entry operators from brokers andscripts has been provided along with the letter of DDIT (Inv) Mumbai. 2.4 The detailed investigation report containing the modus operandi of taxevasion through penny stock and discussion in entry operators from brokers andscripts has been provided along with the letter of DDIT (Inv) Mumbai. 2.5. Our assessee is one of the beneficiary who have availed accommodationentries by way of traded in shares to the tune of Rs.3504000,000000000005 inM/s Nivyah Infrastructure & Telecom Services Ltd with a view to ultimatelyreduce tax liability and or to bring capital in the form of equity or debt or taxexempt income or a combination of the above transaction, therefore, it isnecessary to verify the actual amount of bogus LTCG analyzing the D-matstatement and bank account statement. 3. In this case return of income as fixed for the year under considerationand regular assessment u/s 143 (3)was made on 27.11.2013. Since 4 yearsfrom the end of the relevant year has expired in this case the requirements toinitiate proceedings u/s 147 of the IT Act are reasons to believe that income forthe year under consideration has escaped assessment because of failure on thepart of the assessee to disclose fully and truly all material facts necessary for hisassessment for the year under consideration. It is pertinent to mention here thatreasons to believe that income has escaped assessment for the year underconsideration have been recorded in paragraph 2 above. 4. In this case more than four years have lapsed from the end of assessmentyear under consideration. Hence, necessary sanction to issue the notice u/s148has been obtained separately from the Pr.Commissioner of Income Tax as perthe provisions of section 151 of the Act. 5. Notice u/s 148 was issued with prior approval of Pr.Commissioner ofIncome Tax-6 Mumbai.” 5. On receipt of above reasons on 9.8.2018, the petitioner filedits objections to the reasons in support of the impugned notice and inparticular pointed out that the assessee had dealt with a company called“S.V.Electricals Ltd” and not with M/s Nivyah Infrastructure & TelecomServices Ltd. The name of company “S.V.Electricals Ltd” had subsequentlychanged on 14.2.2012 to M/s Nivyah Infrastructure and Telecom Ltd. Ithad also pointed out in its objection that during the regular assessmentproceedings, details of the petitioner's dealing in scrip namely“S.V.Electricals Ltd” had been submitted during the regular assessmentproceedings. The objections primarily proceeds on the basis, that thereasons as recorded, display total non-application of mind while formingreason to believe, this as during the relevant time, there was no companyby the name “M/s Nivyah Infrastructure and Telecom Services Ltd” inwhich the petitioner could have dealt. The petitioner's objections wererejected by the Assessing Officer by passing an order on 28.9.2018. Theorder on objections, does not deal with the petitioner's primarycontentions that the petitioner had not dealt with any company by name“M/s Nivyah Infrastructure and Telecom Services Ltd” during the periodrelevant to the subject assessment. This order dated 28.9.2018 disposingof the objections is completely silent on the above objections while rejecting the petitioner's objections. 6. The respondent's Assessing Officer has filed an affidavit-inreply dated 5.2.2019 of the Assessing Officer. However, the reply doesnot deal with this objection taken in the petition. Nevertheless, Mr.SureshKumar the learned counsel for the revenue submits that all these issueswill be subject of consideration during the re-assessment proceedings.Thus, this Court should not interfere at this stage. rejecting the petitioner's objections. 6. The respondent's Assessing Officer has filed an affidavit-inreply dated 5.2.2019 of the Assessing Officer. However, the reply doesnot deal with this objection taken in the petition. Nevertheless, Mr.SureshKumar the learned counsel for the revenue submits that all these issueswill be subject of consideration during the re-assessment proceedings.Thus, this Court should not interfere at this stage. 7. It is a settled position in law that re-opening of an assessmenthas to be done by an Assessing Officer on his own satisfaction. It is notopen to an Assessing Officer issue a reopening notice at the dictate and/orsatisfaction of some other authority. Therefore, on receipt of anyinformation which suggests escapement of income, the Assessing Officermust examine the information in the context of the facts of the case andonly on satisfaction leading to a reasonable belief that income chargeableto tax has escaped assessment, that re-opening notice is to be issued. 8. From the reasons, it is evident that the impugned notice hasbeen issued on the basis of information received from the Deputy Collector Income Tax (Investigation) alleging that M/s Nivyah Infrastructure &Telecom Services Ltd is a penny stock listed on the Bombay StockExchange and that the petitioner had dealt with the same leading toescapement of income. On receipt of information, the least that isexpected of the Assessing Officer is to examine the same in the context ofthe facts of this case and satisfy himself whether the information receiveddoes prima facie lead to a reasonable belief that income chargeable to taxhas escaped assessment. In this case, the reasons indicate that theAssessing Officer has not carried out such exercise and accepted the reportof the Deputy Collector of Income Tax (Investigation) Mumbai to concludethat the petitioner had dealt with Nivyah Infrastructure and TelecomServices Ltd during the previous year relevant to the assessment year2011-12. Admittedly, there was no company by name “M/s NivyahInfrastructure & Telecom Services Ltd” in existence during that year forconsideration. This clearly shows that the Assessing Officer acted on thesatisfaction of the Deputy Collector of Income Tax (Investigation) thatincome chargeable to tax has escaped assessment. It must also be bornein mind that the impugned notice is issued beyond the period of four yearsfrom the end of the relevant assessment year in a case, where theassessment was completed under section 143 (3) of the Act. Therefore, the Assessing Officer would have to examine the information received inthe context of the facts on record. If such an exercise were to be done, it islikely that the Assessing Officer would have come to the conclusion thatthere was no failure to disclose truly and fully all material facts necessaryfor assessment. Thus, hit by the proviso to section 147 of the Act.However,the Assessing Officer has not applied his mind to the informationreceived in the context of the facts on record. The impugned notice isbad-in-law, as it has not been issued by the Assessing Officer on hissatisfaction that there is reason to believe, that income chargeable to taxhas escaped assessment. 9. In the above circumstances, the impugned notice is un-sustainable in law and therefore, is quashed and set aside. 10. Accordingly, Petition allowed. (M.S.SANKLECHA, J) (AKIL KURESHI, J)