Wp/14479/2018 Of My Car (Pune) Pvt. Ltd v. Income-Tax Officer-14(2), Pune And Ors

Priya Soparkar IN THE HIGH COURT OF JUDICATURE AT BOMBAY CIVIL APPELLATE JURISDICTION WRIT PETITION NO.14479 OF 2018 My Car (Pune) Pvt. Ltd. … Petitioner V/s. Income-tax Officer-14(4) and ors.… Respondents --- Mr.Jehangir Mistri, Senior Counsel with Mr.Sameer Dalal for thePetitioner.Mr.Sham Walve for Respondent Nos.1 and 3. --- CORAM : AKIL KURESHI AND M.S.SANKLECHA, JJ. DATE : FEBRUARY 21, 2019. P.C.:- 1.At the request of the parties, the petition is taken up forfinal disposal at the stage of admission. 2.This petition under Article 226 of the Constitution of Indiachallenges notice dated 30[th] March, 2018 issued by the respondentNo.1-Assessing Officer under Section 148 of the Income Tax Act,1961 (“the Act” for short). The impugned notice seeks to reopenthe assessment for Assessment Year 2011-12. Priya Soparkar 3.The undisputed facts are that the regular assessment proceedings were completed on 21[st] March, 2014 under Section143(3) of the Act. Thereafter, the Assessing Officer has issued the impugned notice seeking to reopen the assessment for theassessment year 2011-12. 4. The reasons in support of the impugned notice ascommunicated to the petitioner read as under: “01. The assessee filed its return of income declaring income ofRs.1,56,64,480/- on 28/09/2011. The assessee company isengaged in the business of selling of four wheeler and providesales services. The assessment was completed u/s 143(3) of theIncome Tax Act, 1961 on 23.03.2014 and income assessed ofRs.1,75,61,370/-. 02.In the instant case, the information received from AssistantDirector of Income tax (Inv), unit 6(3), New Delhi which are asfollows: This unit had conducted search in case of Himanshu VermaGroup on 29.03.2012. This group was centralised with theAssessing Officer of Central Circle-20, Delhi (ACIT, Central Circle-20, Delhi.) 2.Shri Himanshu Verma was engaged in the activities ofproviding accommodation entries to various beneficiaries group.He did this by incorporation of numerous corporate and non-corporate entities where directors/partners/proprietors were hisemployees and closed associates. 3.Modus operandi of Sh. Himanshu Verma was observed to bemainly of three types: i) He used to take cash from the beneficiaries, deposit the samein some of his entities/individuals' bank accounts, routing the Priya Soparkar same and finally remitting it to various companies of thebeneficiary group in the form of share application money, sharecapital and/or unsecured loan. ii) He used to accept cheques of one set of companies ofbeneficiary group to the bank accounts of some his corporateentities, rotate the same through his various group entities,finally remitting the same to some other set of beneficiarycompanies. Through this method, the beneficiary groupcompanies used to inflate their balance sheets for the purpose ofprocuring more funds from banks/financial institutions. Thismethod was also applied for siphoning off fund from publiclimited company to the Pvt. Limited companies of the samegroup. iii)He used to take cheques of the beneficiary companies andused to issue them sale bills, mainly of fabrics and relatedarticles. This cheque amount was either withdrawn immediatelyor after rotating the same amongst its group entities. The cashwas then returned back to the beneficiary companies. Thismethod was adopted by some concerns who wanted to inflatetheir purchases. 4. M/s MY CAR PUNE PRIVATE LIMITED, the assessee hastaken accommodation entry from Himanshu Verma Group in-F.Y. 201011 as follows: Priya Soparkar AO's Comments: (i)It is evident from the above said facts that the assessee hadnot fully & truly disclosed all the material of facts for itsassessment for the year under consideration thereby necessitatingreopening u/s 147 of the Income Tax Act, 1961. 4. M/s MY CAR PUNE PRIVATE LIMITED, the assessee hastaken accommodation entry from Himanshu Verma Group in-F.Y. 201011 as follows: Priya Soparkar AO's Comments: (i)It is evident from the above said facts that the assessee hadnot fully & truly disclosed all the material of facts for itsassessment for the year under consideration thereby necessitatingreopening u/s 147 of the Income Tax Act, 1961. (ii)It is true that the assessee has filed a copy of annualreport, P & L a/c, balance sheet alongwith return of incomewhere various information/material were disclosed. However, therequisite full and true disclosure of material facts for necessaryfor assessment has not been made as noted above. It is pertinentto mention here that even though the assessee has producedannual report, P & L a/c, balance sheet alongwith return ofincome as mentioned above, the requisite material facts asnoted above in the reasons for reopening were embedded insuch a manner that material evidences could not be discoveredby the AO and could have been discovered with due diligence,according provisions of explanation 1 of section 147 of theIncome Tax Act, 1961. (iii) It is pertinent to mention here that material facts relevantfor the assessment year on the issues under consideration werenot filed during the course of the assessment proceeding and thesame may be embedded in annual report, audited P & L a/c,Balance sheet and books of account in such manner that itwould require due diligence by the AO to extract theseinformation. For aforesaid reasons, it is not a case of change ofopinion by the AO. 04.Therefore, I have reason to believe that the assessee has notfully and truly disclosed all the material of facts and the incomeof Rs.5,42,00,000/- has escaped the assessment by reason of thefailure on the part of the assessee within the meaning of Sec.147of the Income tax Act, 1961. Therefore approval for issue of notice under section 148 Priya Soparkar may be given. Pune/Dt: 30.03.2018(Dr.Jivan Bachhav)Deputy Commissioner of Income Tax,Circle-14, Pune. 6 Whether Pr.C.I.T. is satisfied on theAs per annexure. reasons recorded by the A.O. that it is afit case for issue of notice u/s 148 of theIncome Tax Act, 1961. Pune/ Date 31.03.2018 Pr. Commissioner of Income Tax. The annexure to the aforesaid reasons being the sanction order in terms of Section 151 (1) of the Act of the Principal Commissioner of Income Tax is also communicated to thepetitioner. It reads as under:- “I have perused the above reason recorded by A.O.along with the information in his possession. It isnoted that the assessee had heavy transaction (wasproviding accommodation entries to variousbeneficiary groups amounting to Rs.5,42,00,000/-,siphoning off fund from Public Ltd. Co. to Pvt. Ltd.Co., inflation of beneficiaries purchases) during therelevant financial year. The assessee has filed thereturn of income declaring total income ofRs.1,56,64,480/- but all the above activities needto be verified. Therefore, I am also satisfied thatincome has escaped assessment in this case.Hence, the approval u/s 151(1) of the Income taxAct is being accorded for Issue of Notice u/s 147r.w.s. 148 of the Income tax Act. Priya Soparkar Dated 31/03/2018 (Ashok Kumar Pandey)Pr.Commissioner of Income tax-6,Pune.” 5.On receipt of the reasons, the petitioner filed its objections to the above reasons on 18[th] September, 2018 with theAssessing Officer. By an order dated 31[st] October, 2018, theAssessing Officer rejected the objections. Thus, this petition. Priya Soparkar Dated 31/03/2018 (Ashok Kumar Pandey)Pr.Commissioner of Income tax-6,Pune.” 5.On receipt of the reasons, the petitioner filed its objections to the above reasons on 18[th] September, 2018 with theAssessing Officer. By an order dated 31[st] October, 2018, theAssessing Officer rejected the objections. Thus, this petition. 6.On the perusal of the reasons as recorded by the AssessingOfficer and the sanction granted by the Commissioner of IncomeTax, we pointed out to Mr.Walve learned counsel appearing forthe revenue that the sanction appears to have been granted on acomplete misreading of the reasons. The reasons for sanction isdifferent from the reasons recorded and thus appears to bewithout application of mind to the reasons recorded. 7.In response Mr.Walve for the respondent submitted that theparagraph 3(ii) of the recorded reasons is in accord with thesanction granted by the Principal Commissioner of Income Tax.Thus the sanction was granted with due application of mind and cannot be faulted. 8.We note that the para 3(ii) of reasons recorded in supportof the impugned notice records the activity of one HimanshuVerma group in providing accommodation entries while theorder granting sanction proceeds on the basis that it is therespondent assessee who is engaged in providing accommodationentries. In the above view, the submission of Mr. Walve does notmerit acceptance. Further, order granting the sanction recordsthat the funds of public limited company are being siphoned ofto the private limited companies. This is not evident at all fromthe reasons recorded which makes references only to PrivateLimited companies being used as vehicles for providingaccounting entries by the Himanshu Verma group. Thus, onthe face of it, the sanction granted is bad in law.It is a settledposition in law that grant of the sanction by the Commissionerof Income Tax under Section 151 of the Act, is not a mechanicalact on his part but it requires due application of mind to thereasons recorded before granting the sanction. This has been soprovided as to safeguard against issue of reopening notice (which seek to disturb the settled position) to ensure that assessee isnot troubled with reopening issues without satisfactory reasons.Therefore, it must pass muster of the Superior Officer in thecontext of Sections 147 and 148 of the Act, before it is issued tothe party. 9.In the above view, as the sanction order indicates non-application of mind to the reasons recorded by the AssessingOfficer, the impugned notice is bad in law. Thus, quashed and setaside. 10.Accordingly, the petition is allowed. (M.S.SANKLECHA,J.) (AKIL KURESHI,J.)….