Zaveri And Company Private Limited, Kishor Pranjivandasmandalia Director v. Deputy Commissioner Of Income Tax

IN THE HIGH COURT OF GUJARAT AT AHMEDABADR/SPECIAL CIVIL APPLICATION NO. 19821 of 2019 FOR APPROVAL AND SIGNATURE: HONOURABLE MS. JUSTICE BELA M. TRIVEDISd/-andHONOURABLE DR. JUSTICE ASHOKKUMAR C. JOSHISd/-==========================================================1Whether Reporters of Local Papers may be allowedNoto see the judgment ?2To be referred to the Reporter or not ?Yes3Whether their Lordships wish to see the fair copyNoof the judgment ?4Whether this case involves a substantial questionNoof law as to the interpretation of the Constitutionof India or any order made thereunder ? ==========================================================ZAVERI AND COMPANY PRIVATE LIMITED, KISHOR PRANJIVANDASMANDALIA DIRECTOR Versus DEPUTY COMMISSIONER OF INCOME TAX ==========================================================Appearance: MR. R.K. PATEL, ADVOCATE WITH DARSHAN R PATEL(8486) for the Petitioner(s) No. 1 MR. M.R. BHATT, SENIOR ADVOCATE WITH MRS MAUNA M BHATT(174) for the Respondent(s) No. 1 ========================================================== CORAM: HONOURABLE MS. JUSTICE BELA M. TRIVEDIandHONOURABLE DR. JUSTICE ASHOKKUMAR C. JOSHI Date : 05/07/2021 CAV JUDGMENT (PER : HONOURABLE MS. JUSTICE BELA M. TRIVEDI) 1.The present petition filed by the petitioner– Zaveri and Company Private Limited through itsDirector – Kishor Pranjivandas Mandalia, underArticle 226 / 227 of the Constitution of India,is directed against the impugned notice dated30.03.2019 (Annexure - F) issued under section148 of the Income-Tax Act, 1961, (hereinafterreferred to as ‘the said Act’), and the orderdated 10.10.2019 (Annexure K) passed by therespondent rejecting the objections filed by thepetitioner against the said notice. 2.The facts in nutshell as emerging from therecord of the petition are that the petitioner –company is engaged in the business ofmanufacturing and trading in jewellery, bulliontrading, trading and speculation in commodities,shares and securities, units of mutual funds andderivatives, generation and sales of electricpower through windmills and trading in SEZ unitas well as gold and silver refinery business.The petitioner had filed the return for the A.Y.2012-13 and thereafter had filed a revisedreturn. After the scrutiny assessment havingbeen undertaken on various points and afterissuing the show-cause notice, the AssessingOfficer had framed the assessment order undersection 143(3) of the said Act on 28.03.2014.Thereafter the petitioner received a noticeunder section 148 on 28.03.2017 seeking re- C/SCA/19821/2019 CAV JUDGMENT DATED: 05/07/2021 C/SCA/19821/2019 CAV JUDGMENT DATED: 05/07/2021 opening of the assessment for the A.Y. 2012-13on the ground of the alleged accommodationentries obtained by the petitioner – company, asrevealed during the search proceedings in caseof one Bhanwarlal Jain Group. The saidproceedings terminated in the assessment orderdated 29.12.2017 passed under section 143(3)read with Section 147 of the said Act (AnnexureE). According to the petitioner, the petitioneragain received the impugned notice dated30.03.2019 issued by the respondent forreopening of the assessment in the case of thepetitioner for the assessment year 2012-13 undersection 148 of the said Act (Annexure F). Thepetitioner filed return of income in response tothe said notice as per Annexure G. Thepetitioner received the reasons dated 18.04.2019recorded for reopening of the assessment undersection 147 of the Act for the year 2012-13(Annexure H). On the receipt of the saidreasons for reopening, the petitioner filedexhaustive objections on 13.06.2019 along withthe supporting documents (Annexure I). Therespondent vide the order dated 10.10.2019,rejected the said objections (Annexure K).Being aggrieved by the said order, the presentpetition has been filed. 3.The gist of the reasons recorded forreopening of the assessment under section 147 ofthe Act for the assessment year 2012-13, as emerging from Annexure - H is that the office ofthe respondent had received the information fromthe office of DDIT (Inv.) Unit-1(3), Ahmedabadon 24.03.2019 inter alia that the petitioner –company was identified as one of thebeneficiaries of the accommodation entriesunearthed during the course of searchproceedings conducted on 11.09.2018 in case ofSanjay Shah and Jignesh Shah of Ahmedabad, whichhad resulted into seizure of unaccounted cash ofRs. 19.37 crores along with the incriminatingdigital as well as documentary evidences. Theclandestine record of unaccounted cash,synchronized trading, proving bogus LTCG invarious BSE listed scrips and transport of suchcash through angadiyas was found to bemaintained in secret Tally Data file. In thesaid secret file, against the transactions ofshares on BSE platform, movement and delivery ofcash, the receipt of commission in cash underthe head into “LTG Commission” was recorded,which manifested the record of the accommodationentries of LTCG against the receipt of cash.Thedataanalysiscoupledwiththecircumstantial evidences led to the discoverythat 15 BSE listed scrips were used forgenerating bogus LTCG and contrived losses, asadmitted by the accommodation entry providers.Further, the respondent office also received aninformation in the case of assessee from theoffice of Pr. DIT (Inv.), Unit-2, Mumbai on C/SCA/19821/2019 CAV JUDGMENT DATED: 05/07/2021 C/SCA/19821/2019 CAV JUDGMENT DATED: 05/07/2021 27.03.2019, that the petitioner – company wasidentified as one of the beneficiaries of theaccommodation entries unearthed during thecourse of search proceedings conducted on19.03.2019 in case of one Naresh Jain and hisassociates operating from Bombay. It wasrevealed that the petitioner had entered intothe transactions in penny stock namely DhvanilChemicals Ltd. / Veronica Production Ltd., whichcompanies were used for bogus LTCG and contrivedlosses, as admitted by the said Sanjay Shah andJignesh Shah in their statements recorded duringthe course of search proceedings. During thecourse of investigation carried out by theInvestigation Wing Mumbai, Shri Naresh Jain hadalso admitted in his statement recorded undersection 132(4) of the said Act at his residencethat he had used the scrip VMS Industries forproviding accommodation entries. On the basisof said specific pieces of information receivedfrom the investigation wings, outlining thesystemic evasion of taxes by the petitioner –assessee and others, the respondent had reasonto believe that the petitioner – assesseecompany had sold scrips to Veronica ProductionsLtd. / Dhvanil Chemical Ltd. for Rs. 7,15,585/-and had bought 64,200 scrips for Rs. 42,83,705/-during the financial year 2011-12, and therebyhad booked bogus losses through penny scripVeronica Productions Ltd. / Dhvanil ChemicalLtd. The petitioner – assessee had also sold shares worth Rs. 97,13,809/- of the penny scrip– VMS Industries Ltd, and thereby was involvedin bogus transactions through trading in pennyscrip – VMS Industries Ltd. to the tune of Rs.97,13,809/-. Under the circumstances, therespondent had a reason to believe that incomeof the petitioner – company to the extent of Rs.1,23,47,788/- had escaped assessment during theassessment year 2012-13. 4.The sheet anchor of the learned advocate Mr.R.K. Patel’s arguments was that the reasons forreopening of the assessment for the A.Y. 2012-13by the respondent was based on incorrect factsas demonstrated in detail in the objectionsraised before the respondent as well as thesummary produced before the Court. According tohim, the original allotment in the InitialPublic Offering (IPO) could never be equatedwith penny stock as the same was allotted afterthe approval of the SEBI norms and procedure.The facts and figures appearing in the reasoningpart for reopening were also absolutelyincorrect as all the alleged transactions wereundertaken by the petitioner at the market ratein the listed securities through the bankingchannel and the recognized brokers after payingthe necessary statutory levies of the concernedstock exchange. Mr. Patel further submittedthat there was no nexus of the petitioner –company with Shri Naresh Jain or the other brokers referred to in the reasons. Relying uponthe decision of Bombay High Court in the case ofGateway Leasing P. Ltd. versus AssistantCommissioner of Income Tax reported in (2020)117 Taxmann.com 442 (Bom.), he submitted thatthe respondent had merely acted on the borrowedbelief of the other investigation wings withoutverification of facts and record, though thecase of the petitioner was already processedtwice prior to the impugned notice under section148 of the said Act. Mr. Patel furthersubmitted that on completion of assessment undersection 143(3), the tax paid on the incomeassessed under section 115JB is more than thetax liability that may occur on the incomeassessed under the normal provisions, andtherefore, it could not be said that there wasan escapement of income. In this regard, he hasrelied upon the decision of this Court in caseof PKM Advisory Services Pvt. Ltd. Versus ITOreported in (2012) 21 taxmann.com 86 (Gujarat).Relying upon the provisions contained in section151 of the said Act, and the decision of SupremeCourt in the case of Chhugamal Rajpal versusS.P. Chaliha and others reported in 79 ITR 603,Mr. Patel submitted that there was absence of areasoned sanction by the Principal Commissioneras contemplated in the said provision, which isstatutory and mandatory requirement forreopening the assessment after the expiry offour years from the end of the relevant assessment year. 5.Per contra, the learned Senior Advocate Mr.M.R. Bhatt appearing for the respondentchallenging the very maintainability of thepetition, submitted that after the objectionsare duly considered by the respondent, theproper course would be to permit the AssessingOfficer to frame an assessment in accordancewith law, and in the event, the petitioner isaggrieved by the said re-assessment, he couldfile an appeal to the CIT Appeals, andthereafter to the Tribunal as per the provisionsof the Act. Mr. Bhatt further submitted thatthe case of the petitioner was reopened for theassessment year 2012-13 on the basis of theinformation received from the InvestigationWing, Ahmedabad and the Investigation WingMumbai respectively, as a result of which it wasrevealed that the petitioner had not made fulland true disclosure during the course of filingof its return of income or revised return ofincome. He also submitted that the AssessingOfficer had a reason to believe, meaningthereby, he had a cause or justification tosuppose that the income of the petitioner hadescaped assessment and that as per the settledlegal position, the sufficiency of reasons couldnot be gone into by the Court. In the instantcase, runs the submission of Mr. Bhatt, theAssessing Officer after applying his mind on the C/SCA/19821/2019 CAV JUDGMENT DATED: 05/07/2021 informationreceivedfromtheotherinvestigating wings, had prima facie formed anopinion that there was a systematic tax evasioncarried out by means of investing in variousscrips, and he had also obtained the requisitesanction before issuing the impugned notice forreopening the assessment, as required undersection 151 of the said Act. According to Mr.Bhatt, the submission of Mr. Patel with regardto the Section 115JB can not be considered atthis juncture, as the respondent has not finallyconcluded as to how much income chargeable totax has escaped assessment. 6.Mr. Bhatt also drew the attention of theCourt to the order dated 20.01.2021 passed bythe Coordinate Bench in Special CivilApplication No. 12615 of 2019 and Special CivilApplication No. 18899 of 2019 involvingidentical facts and circumstances and the issuesas involved in the present petition, and bywhich order the Coordinate Bench had dismissedthe said petitions. 6.Mr. Bhatt also drew the attention of theCourt to the order dated 20.01.2021 passed bythe Coordinate Bench in Special CivilApplication No. 12615 of 2019 and Special CivilApplication No. 18899 of 2019 involvingidentical facts and circumstances and the issuesas involved in the present petition, and bywhich order the Coordinate Bench had dismissedthe said petitions. 7.At the outset, it may be noted that as perthe settled legal position, two conditions haveto be satisfied before the Assessing Officerinvokes his jurisdiction to reopen theassessment under section 147 of the said Actafter the expiry of four years from the end ofthe relevant assessment year – firstly, that the Assessing Officer must have reason to believethat the income chargeable to tax has escapedassessment for the concerned assessment year,and secondly, such escapement of assessment wasby reason of failure on the part of the assesseeto make the return under section 139, or inresponse to a notice issued under Sub-section(1) of Section 142 or Section 148 or to disclosefully and truly all the material facts necessaryfor his assessment for that assessment year. Sofar as the case of the present petitioner isconcerned, the assessment for the A.Y. 2012-13is sought to be reopened by the AssessingOfficer under section 147/148 of the said Act,on his having arrived at a satisfaction that theincome for the said assessment year had escapedassessment by reason of the failure on the partof the assessee to disclose fully and truly allmaterial facts necessary for his assessment. 8.It is pertinent to note that as held by theSupreme Court in catena of decisions, theformation of belief by the Assessing Officer atthe stage of initiation of action under section147 of the Act is within the realm of subjectivesatisfaction. The Supreme Court in the case ofAssistant Commissioner of Income Tax versusRajesh Jhaveri Stock Brokers P. Ltd. reported in(2007) 291 ITR 500(SC), had an occasion to dealwith the scope and effect of section 147 assubstituted w.e.f. April 1[st], 1989, in which the Court has observed as under : - “Section 147 authorises and permits theAssessing Officer to assess or reassessincome chargeable to tax if he has reasonto believe that income for any assessmentyear has escaped assessment. The word“reason” in the phrase “reason to believe”would mean cause or justification. If theAssessingOfficerhascauseorjustification to know or suppose thatincome had escaped assessment, it can besaid to have reason to believe that anincome had escaped assessment. Theexpression cannot be read to mean that theAssessing Officer should have finallyascertained the fact by legal evidence orconclusion. The function of the AssessingOfficer is to administer the statute withsolicitude for the public exchequer withan inbuilt idea of fairness to taxpayers.As observed by the Supreme Court inCentral Provinces Manganese Ore Co. Ltd.v. ITO [1991] 191 ITR 662, for initiationof action under section 147(a) (as theprovision stood at the relevant time)fulfillment of the two requisiteconditions in that regard is essential. Atthat stage, the final outcome of theproceeding is not relevant. In otherwords, at the initiation stage, what isrequired is “reason to believe”, but notthe established fact of escapement ofincome. At the stage of issue of notice,the only question is whether there wasrelevant material on which a reasonableperson could have formed a requisitebelief. Whether the materials wouldconclusively prove the escapement is notthe concern at that stage. This is sobecause the formation of belief by theAssessing Officer is within the realm ofsubjective satisfaction (seeITO v.Selected Dalurband Coal P. Ltd. [1996] 217ITR 597 (SC)]; Raymond Woollen Mills Ltd.v. ITO [1999] 236 ITR 34 (SC). The scope and effect of section 147 assubstituted with effect from April 1, 1989, as also sections 148 to 152 aresubstantiallydifferentfromtheprovisions as they stood prior to suchsubstitution. Under the old provisions ofsection 147, separate clauses (a) and (b)laid down the circumstances under whichincome escaping assessment for the pastassessment years could be assessed orreassessed. To confer jurisdiction undersection 147(a) two conditions wererequired to be satisfied : firstly theAssessing Officer must have reason tobelieve that income, profits or gainschargeable to income tax have escapedassessment, and secondly he must also havereason to believe that such escapement hasoccurred by reason of either omission orfailure on the part of the assessee todisclose fully or truly all material factsnecessary for his assessment of that year.Both these conditions were conditionsprecedent to be satisfied before theAssessing Officer could have jurisdictionto issue notice under section 148 readwith section 147(a). But under thesubstituted section 147 existence of onlythe first condition suffices. In otherwords if the Assessing Officer forwhatever reason has reason to believe thatincome has escaped assessment it confersjurisdiction to reopen the assessment. Itis, however, to be noted that both theconditions must be fulfilled if the casefalls within the ambit of the proviso tosection 147.” 9.In the case of Raymond Woollen Mills Ltd.Versus Income-Tax Officer and others reported in1999 236 ITR 34(SC), the Supreme Court observedthat the Court has only to see whether there wasprima facie some material on the basis of whichthe Department could reopen the case. Thesufficiency or correctness of the material isnot a thing to be considered at this stage. C/SCA/19821/2019 CAV JUDGMENT DATED: 05/07/2021 10.It is very pertinent to note that in thecase of Phool Chand Bajrang Lal versus Income-Tax Officer reported in 203 ITR 456 (SC), it wasobserved that the acquiring fresh information,specific in nature and reliable in character,relating to the concluded assessment, which wentto expose the falsity of the statement made bythe assessee at the time of original assessmentwas different from drawing fresh inference fromthe same facts and material which was availablewith the Income-Tax Officer at the time of theoriginal assessment proceedings. Where thetransaction itself on the basis of thesubsequent information was found to be a bogustransaction, the mere disclosure of thattransaction at the time of original proceedingscould not be said to be disclosure of the trueand full facts, and the Officer would have thejurisdiction to reopen the concluded assessmentin such a case. The precise observation made bythe Supreme Court in the said case may bereproduced as under : - “In the present case as already noticed,theIncome-TaxOfficer,Azamgarh,subsequent to the completion of theoriginal assessment proceedings, onmaking an enquiry from the jurisdictionalIncome-Tax Officer at Calcutta, learntthat the Calcutta company from whom theassessee claimed to have borrowed theloan of Rs. 50,000/- in cash had notreally lent any money but only its nameto cover up a bogus transaction and,after recording his satisfaction asrequired by the provisions of section 147of the Act, proposed to reopen the “In the present case as already noticed,theIncome-TaxOfficer,Azamgarh,subsequent to the completion of theoriginal assessment proceedings, onmaking an enquiry from the jurisdictionalIncome-Tax Officer at Calcutta, learntthat the Calcutta company from whom theassessee claimed to have borrowed theloan of Rs. 50,000/- in cash had notreally lent any money but only its nameto cover up a bogus transaction and,after recording his satisfaction asrequired by the provisions of section 147of the Act, proposed to reopen the assessment proceedings. The present isthus not a case where the Income-TaxOfficer sought to draw any freshinference which could have been raised atthe time of the original assessment onthe basis of the material placed beforehim by the assessee relating to the loanfrom the Calcutta company and which hefailed to draw at that time. Acquiringfresh information, specific in nature andreliable in character, relating to theconcluded assessment, which goes toexpose the falsity of the statement madeby the assessee at the time of theoriginal assessment is different fromdrawing fresh inference from the samefacts and material which were availablewith the Income-Tax Officer at the timeof the original assessment proceedings.The two situations are distinct anddifferent. Thus, where the transactionitself, on the basis of subsequentinformation, is found to be a bogustransaction, the mere disclosure of thattransaction at the time of originalassessment proceedings cannot be said tobe a disclosure of the “true” and “full”facts in the case and the Income-TaxOfficer would have the jurisdiction toreopen the concluded assessment in such acase.” 11.As stated hereinabove, the Assessing Officerhas sought to reopen the assessment for A.Y.2012-13 of the petitioner on the basis of freshmaterial having been received as a result of thesearch made by the Office of DDIT (Inv.) Unit-1(3), Ahmedabad conducted on 11.09.2018 at thepremises of Sanjay Shah and Jignesh Shah ofAhmedabad, and as a result of the investigationcarried out during the search proceedingsconducted by the office of Pr. DIT (Inv.), Unit-2, Mumbai on 19.03.2019 at the premises of Naresh Jain and his associates at Bombay thatthe petitioner company was one of thebeneficiaries of the accommodation entries asthe petitioner had entered into the transactionsin penny stock namely Dhvanil Chemicals Ltd. /Veronica Production Ltd., which companies wereused for bogus LTCG and contrived losses. TheAssessing Officer had also received specificinformation from the said investigating wingsoutlining the systemic evasion of taxes by thepetitioner and others, and had therefore reasonto believe that the petitioner had sold scripsto Veronica Production Limited / DhvanilChemicals Ltd., which were penny stock to theextent of Rs. 97,13,809/- during financial year2011-12. Such satisfaction arrived at by theAssessing Officer being subjective in nature andbased on the fresh material for coming to theprima facie conclusion that the petitioner hadfailed to disclose fully and truly all materialfacts necessary for his assessment for the A.Y.2012-13, it could not be said that therespondent had initiated the proceedings undersection 147 of the Act on the basis of incorrectfacts or on the basis of borrowed belief of theInvestigation Wings at Ahmedabad and Mumbai, assought to be submitted by the learned advocateMr. R.K. Patel for the petitioner. The Courtalso does not agree with the submission made bythe learned advocate Mr. Patel that therespondent could not have reopened the C/SCA/19821/2019 CAV JUDGMENT DATED: 05/07/2021 C/SCA/19821/2019 CAV JUDGMENT DATED: 05/07/2021 assessment of the petitioner under section147/148 of the said Act after the scrutinyassessment having been undertaken by theAssessing Officer under section 143(3) of thesaid Act for the A.Y. 2012-13. The AssessingOfficer having arrived at his subjectivesatisfaction based on additional fresh materialplaced before him that the petitioner had notfully and truly disclosed all the material factsnecessary for his assessment for the relevantassessment year and prima facie his incomechargeable to tax had escaped assessment, he wasfully justified in initiating the proceedingsunder section 147/148 of the said Act. 12.There is also no force in the submission ofMr. Patel that the Principal Commissioner hadgranted sanction under section 151 of the saidAct without any application of mind. Since hehas relied upon the decision of Supreme Court incase of Chhugamal Rajpal (supra) in this regard,it may be noted that in the said case, thereport of the Income Tax Officer in connectionwith the proceedings under section 147 did notset out any reason nor the material that he hadbefore him for issuing the notice under section148 was mentioned in the report. Under thecircumstances, the Supreme Court held that theCommissioner had mechanically accorded thepermission under section 151. Such is not thesituation in this case. In this case, the C/SCA/19821/2019 CAV JUDGMENT DATED: 05/07/2021 Assessing Officer has recorded the reasons indetail and the objections raised by thepetitioner have also been dealt with by him indetail vide the impugned order. It may furtherbe noted that no such contention that thePrincipal Commissioner had granted sanctionwithout application of mind or without assigningany reason, was taken up by the petitionerbefore the respondent authority in theobjections filed by him, nonetheless therespondent has mentioned in the impugned orderthat his satisfaction was duly approved by theCIT-4, Ahmedabad vide his letter / approvaldated 30.03.2019. Again in response to the saidcontention raised in the petition, therespondent has contended in his affidavit-in-reply that the case of the petitioner wasreopened after obtaining the sanction from thePr. CIT-4, Ahmedabad as required by section 151of the said Act and that the Pr. CIT hadapproved the notice after appreciating the factsand after duly applying his mind. The petitionerhas chosen not to controvert the said submissionin the affidavit-in-rejoinder filed by him. 13.There is also no merit in the submission ofMr. Patel that the petitioner was assessed undersection 115JB and that the assessee was alreadypaying more tax under section 115JB than theincome tax liability arising under the normalprovisions of the Act. As rightly observed by the respondent in the impugned order disposingof the objections, whether the income chargeableto tax has escaped assessment or not, could notbe considered at this stage and no conclusiveopinion could be rendered at this point of timewhen the assessment / reassessment has not evenstarted. 14.Mr. M.R. Bhatt has rightly drawn theattention of this Court to the decision in case of Mehrunnisa Mohamed Fazal Maniar versus IncomeTax Officer (supra), in which the proceedingsunder section 147/148 initiated by the AssessingOfficer against the petitioners on the basis offresh material brought to his notice in respectof the same search proceedings conducted undersection 132 in case of Jignesh Shah on11.09.2018, were challenged, and the Court videthe order dated 20.01.2021 has dismissed thesaid petitions, after considering the similarcontentions as raised in the present petition. 14.Mr. M.R. Bhatt has rightly drawn theattention of this Court to the decision in case of Mehrunnisa Mohamed Fazal Maniar versus IncomeTax Officer (supra), in which the proceedingsunder section 147/148 initiated by the AssessingOfficer against the petitioners on the basis offresh material brought to his notice in respectof the same search proceedings conducted undersection 132 in case of Jignesh Shah on11.09.2018, were challenged, and the Court videthe order dated 20.01.2021 has dismissed thesaid petitions, after considering the similarcontentions as raised in the present petition. 15.In that view of the matter, the petitionbeing devoid of merits, is dismissed. Notice isdischarged. Interim relief, if any, standsvacated forthwith. Sd/- (BELA M. TRIVEDI, J) AMAR SINGH Sd/-(A. C. JOSHI,J)