Vijay Ramanlal Sanghvi vs The Assistant Commissioner Of ...
2022 Latest Caselaw 10198 Guj

    C/SCA/19010/2018                               CAV JUDGMENT DATED: 16/12/2022




               IN THE HIGH COURT OF GUJARAT AT AHMEDABAD

                R/SPECIAL CIVIL APPLICATION NO. 19010 of 2018


FOR APPROVAL AND SIGNATURE:


HONOURABLE MR. JUSTICE N.V.ANJARIA

and
HONOURABLE MR. JUSTICE BHARGAV D. KARIA

==========================================================

1 Whether Reporters of Local Papers may be allowed to see the judgment ?

2 To be referred to the Reporter or not ?

3 Whether their Lordships wish to see the fair copy of the judgment ?

4 Whether this case involves a substantial question of law as to the interpretation of the Constitution of India or any order made thereunder ?

========================================================== VIJAY RAMANLAL SANGHVI Versus THE ASSISTANT COMMISSIONER OF INCOME TAX, CIRLCE 2(1)(2) ========================================================== Appearance:

MR TUSHAR HEMANI, SENIOR ADVOCATE WITH MS VAIBHAVI K

MR.VARUN K.PATEL(3802) for the Respondent(s) No. 1 ==========================================================

CORAM:HONOURABLE MR. JUSTICE N.V.ANJARIA and HONOURABLE MR. JUSTICE BHARGAV D. KARIA

Date : 16/12/2022

CAV JUDGMENT

C/SCA/19010/2018 CAV JUDGMENT DATED: 16/12/2022

(PER : HONOURABLE MR. JUSTICE BHARGAV D. KARIA)

1.Heard learned Senior Advocate Mr. Tushar

Hemani with Ms. Vaibhavi K. Parikh for the

petitioner and learned advocate Mr. Varun K.

Patel for the respondent.

2.By this petition under Article 226 of the

Constitution of India, the petitioner has

challenged the notice dated 27.03.2018 issued

under section 148 of the Income Tax Act, 1961

(For short "the Act") for reopening of the

assessment proceedings for the Assessment

Year 2011-2012 and also prayed to stay the

further proceedings for the Assessment Year

2011-2012.

3.Brief facts of the case are as under :

3.1) The petitioner-assessee is a

Director in Ratnaveer Stainless Products Pvt.

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Ltd., situated at GIDC Savli, Manjusar,

Vadodara.

3.2) It is the case of the petitioner

that during the Assessment Year 2011-2012,

the petitioner received certain funds from

Prraneta Industries Ltd.(Now known as Aadhar

Venture India Ltd) and the same were repaid

during before the end of the year under

consideration which included a sum

aggregating to Rs. 2,10,00,000/- received

through Real Time Gross Settlement (RTGS) on

02.02.2011.

3.3) The petitioner filed original return

of income for the year under consideration on

25.08.2011 declaring total income at

Rs.19,03,430/-.

3.4) It is the case of the petitioner

that after a period of four years from the

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end of relevant assessment year, the

respondent issued the impugned notice dated

27.03.2018 under section 148 for reopening

the assessment for the year under

consideration.

3.5) The petitioner filed return of

income for the year under consideration on

25.04.2018 and submitted copy of such return

of income to the respondent vide letter dated

26.04.2018 and requested the respondent to

supply the copy of reasons recorded for

reopening.

3.6) Accordingly, the respondents

supplied the copy of reasons recorded for

reopening of the assessment dated 18.07.2018

for the Assessment Year 2011-2012. The

reasons recorded by the Assessing Officer

for reopening the assessment under section

147 of the Act read as under :

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"1. The assessee is an individual having present residential address at 20, Vijay Society-1, New Khanderao Road, Vadodara, Gujarat - 390004. He is director in Ratanveer Stainless Products Private Limited, GIDC Savli, Manjusar, Vadodara. He has filed his return of income in ITR-2 on 25.08.2011 at total income of Rs. 19,03,430/- (after deduction of Rs one lakh under chapter VI-A) which includes salary income of Rs 12 lakh, short term capital gain of Rs 7,66,586/- and income from other sources of Rs. 36,845/-.

2. The information from the DCIT Central Circle 2(2), Mumbai has been received on 26.03.2018 through letter dated 19.03.2018 of the DCIT, Circle 2(1)(1), Vadodara. As per the information, shri Vijay R. Sanghvi, has obtained three accommodation entries of Rs. 70 lakh each (total 2.1 Cr) all on 02.02.2011 which were credited in CITI Bank NA, Vadodara in the bank account of shri Vijay R. Sanghvi. The said debits were made from bank account of Prraneta Industries Ltd. now known as Aadhar Venture India Ltd.

3. All three entries of Rs 70 lakh each totaling to Rs 2.1 Cr were obtained by shri Vijay R. Sanghvi on a single day on 2.2.2011 are not commensurate with the return filed by the assessee in ITR-2 for the A.Y. 2011-12. In return filed, bank

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account details are not mentioned. Besides salary income and other income shown, short term capital gain shown in the return is Rs 7,66,586/- only. Such huge amount of Rs 2.1 Cr received in case of an individual whose main source of income is salary income as director of a company prima facie show the transaction as non genuine transaction.

                   4. As per ITS data, assessee had
                   entered   in   to    sale/purchase   of
                   shares    for     total    amount    of
                   transactions       being      of     Rs

8,11,00,174/- in 161 transactions of such sales and purchases. Further, it was observed that out of 161 such transactions, 159 transactions are related to transactions in shares of Chandni Textile Engineering Ind. Ltd. during two months of January, 2011 and February, 2011 only. It is pertinent to mention that three entries of Rs 70 lakh each totaling to Rs 2.1 Cr was received by the assessee on 2.2.2011. Therefore, said accommodation entries might be related to such transactions. Other two transactions are of 4.94 lakh only. Salary of Rs 12 lakh is reflected as received from Ratanveer Stainless Products Pvt. Ltd. No bank detail is shown in ITS data for the A.Y. 2011-12 while as per transaction details, bank account has to there. Information received also establishes bank account of the assessee.

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5. The credit of Rs 2.1 Cr in bank account of shri Vijay R. Sanghvi on a single day from 2.2.2011.from account of a company is neither commensurate with income of shown in return filed by shri Vijay R.

Sanghvi in ITR-2. The return filed in ITR-2 by an individual assessee do not reflect such huge amount of fund received and thus escapement of income on account of such accommodation entries by the assessee is evident.

6. As per the information available on records, three entries of Rs 70 lakh each totaling to Rs 2.1 Cr received on 2.2.2011 through an established entry provider entity and also that returned income by assessee is not commensurate with said transaction as mentioned supra. I am satisfied that entry of Rs 2.1 Cr obtained by assessee was unaccounted money routed through accommodation entries in his bank account. In view of this, I have reasons to believe that income chargeable to tax has escaped assessment for the A.Y. 2011-12 within the meaning of section 147 of the I.T. Act, 1961. Therefore, I am satisfied that this is the fit case for initiation of proceedings u/s 147 of the Act..

7. In this case a return of income was filed for the year under consideration but no scrutiny assessment u/s. 143(3) of the Act was made. Accordingly, in this case,

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the only requirement to initiate proceedings u/s. 147 is reason to believe which has been recorded above in paragraph 6.

It is pertinent to mention here that in this case the assessee has filed return of income for the year under consideration but no assessment as stipulated u/s. 2(40) of the Act was made and the return of income was only processed u/s. 143(1) of the Act. In view of the above, provisions of clause (b) of explanation 2 to 147 are applicable to facts of this case and the assessment year under consideration is deemed to be a case where income chargeable to tax has escaped assessment.

In this case more than four years have lapsed from the end of assessment year under consideration. Hence necessary sanction to issue notice u/s. 148 has been obtained separately from the Pr. CIT as per the provisions of section 151 of the Act."

3.7) The petitioner filed objections

dated 31.08.2018 against the issuance of

notice for reopening.

3.8) Respondent vide order dated

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17.10.2018 rejected the objections raised by

the petitioner against reopening the

assessment.

3.9) Being aggrieved by the action of the

respondent, the petitioner has preferred this

petition.

4.Learned Senior Advocate Mr. Tushar Hemani for

the petitioner submitted that the impugned

order is patently bad, illegal, contrary to

law and in gross violation of the fundamental

rights guaranteed to the petitioner under

Article 14 of the Constitution of India.

4.1) Learned Senior Advocate Mr.Hemani

submitted that as per the Scheme of the Act,

an Assessing Officer can reopen the case of

an assessee within the prescribed time limit

provided he has reason to believe that income

chargeable to tax has escaped assessment in

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the hands of the assessee. Thus pre-requisite

for the purpose of reopening an case is that

there must be reason to believe that income

chargeable to tax has escaped assessment and

such reason to believe must be based on some

tangible material and must prima facie

establish that there is escapement of income

chargeable to tax. It was submitted that in

case of the petitioner, the Assessing Officer

was of the view that funds aggregating to Rs.

2,10,00,000/- received from Prraneta

Industries Ltd. are nothing but accommodation

entries and therefore, this is a fit case for

reopening. However, the respondent has failed

to appreciate that the petitioner assessee

having received funds from a particular

person cannot be a ground to have reason to

believe that the same represents the income

of the petitioner which has escaped

assessment. It was submitted that each and

every receipt need not be income of the

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assessee. It was submitted that the Assessing

Officer has not pointed out how such funds

can be said to be the income of the assessee

and unless it is stated that the underlying

transaction has resulted into income which

has escaped assessment, the reassessment

proceedings cannot be initiated. It was

submitted that the petitioner had already

mentioned about the bank details in the

statement of the total income and therefore,

the Assessing Officer is not correct in

holding that bank details are not mentioned

in the return of income and the allegation

that the funds in question are accommodation

entries is without any basis.

4.2) Learned Senior Advocate Mr. Hemani

submitted that the petitioner had repaid the

funds during the year under consideration

itself and that too within a short span of

time and therefore, had it been the case that

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the petitioner availed accommodation entries

from Prraneta Industries Ltd. then the

petitioner would not have repaid the same. It

was therefore, submitted that on this score

also, the reopening under section 147 of the

Act was not justified in the eye of law.

4.3) It was submitted that a person may

receive funds temporarily from any person and

repay it later and therefore, whatever may be

the magnitude of such transaction, the Act

does not provide that receipt of funds should

be commensurate with the income.

4.4) Learned Senior Advocate Mr.Hemani

submitted that reopening is not permissible

for carrying out roving and/or fishing

inquiry or investigation without there being

a specific finding as to escapement of

income. It was submitted that the Assessing

Officer has reopened the assessment on

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suspicion as to escapement of some income

chargeable to tax at the hands of the

assessee and has not carried out further

investigation. It was submitted that merely

because some further investigations have not

been carried out, which if made, could have

led to detection of escapement of income,

cannot be reason enough to hold a view that

the income has escaped assessment and

therefore, reopening of assessment is not

tenable in eye of law. In support of his

submission, reliance was placed on decision

in case of Krupesh Ghanshyambhai Thakkar v.

DCIT reported in (2017) 77 taxmann.com 293

(Gujarat).

4.5) Learned Senior Advocate thereafter

relying upon the judgment in case of ITO v.

Lakhmani Mewal Das reported in (1976) 103 ITR

437, tried to distinguished between 'factors

which indicate an income escaping assessment'

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and 'factors which indicate a suspicion about

income escaping assessment'. It was submitted

that the former category consists of facts

which, if established to be correct, will

have a cause and effect relationship within

income escaping assessment. The latter

category consists of facts which, if

established to be correct, could legitimately

lead to further inquiries which may lead to

detection of income which has escaped

assessment. It was therefore, submitted that

there has to be some kind of cause and effect

relationship between 'reasons recorded' and

'income escaping assessment.

4.6) Learned Senior Advocate Mr. Hemani

submitted that notice under section 148 of

the Act can be issued if and only if an

Assessing Officer has reason to believe that

any income chargeable to tax has escaped

assessment. It was submitted that an

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Assessing Officer himself must be satisfied

that some income chargeable to tax has

escaped assessment and such satisfaction must

be of the Assessing Officer himself. However,

in facts of the present case, the Assessing

Officer has relied upon the information

received from DCIT Central Circle 2(2),

Mumbai for the purpose of reopening the

assessment and the Assessing Officer has not

applied mind independently so as to reach to

a conclusion that income has escaped

assessment. It was submitted that in absence

of such an exercise, it becomes clear that

the assessment has been reopened merely based

on borrowed sanctification as against the

statutory requirement of independent

satisfaction.

4.7) It was therefore, submitted that

reopening beyond a period of four years from

the end of the relevant assessment year is

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nothing but a mere change of opinion and

therefore, the impugned assessment order is

required to be quashed and set aside.

5.On the other hand, learned advocate Mr. Varun

Patel for the respondent submitted that the

present petition under Article 226 of the

Constitution of India challenging the

impugned notice under section 148 of the Act

does not deserve to be entertained since the

petitioner has failed to disclose violation

of any legal or statutory right of the

petitioner which can be enforced by way of

this petition.

5.1) It was submitted that the Assessing

Officer received the information from the

DCIT Central Circle-2(2) Mumbai to the effect

that the assessee had obtained three

accommodation entries of Rs. 70 lakhs each,

aggregating to Rs. 2.1 Crore on a single day

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on 2.02.2011 which were credited in Citi Bank

account of the petitioner assessee from the

established entry provider entity namely,

Prraneta Industries Ltd. It was submitted

that such a huge credit of Rs. 2.1 Crore

received by the assessee on a single day does

not commensurate with the return filed by the

assessee for the assessment year under

consideration. It was submitted that the

Assessing Officer finding that the

transaction of credits of Rs. 2.1 Crore are

not genuine transaction arrived at

satisfaction/reason to believe that income to

the tune of Rs. 2.1 Crore has escaped

assessment and therefore, the Assessing

Officer issued the impugned notice under

section 148 for reopening the assessment of

the petitioner for the Assessment Year 2011-

2012. It was submitted that the Assessing

Officer has categorically observed in the

reasons for reopening that no scrutiny

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assessment under section 143(3) of the Act

has been made in case of the petitioner and

that provisions of clause(b) of explanation 2

to section 147 is applicable to the facts of

the case of the petitioner and the assessment

year under consideration is deemed to be a

case where income chargeable to tax has

escaped assessment.

5.2) Learned advocate Mr. Patel submitted

that the petitioner had raised objections

against the impugned notice which are duly

considered by the Assessing Officer before

rejecting such objections and therefore, the

order disposing the objections of the

petitioner is just, proper and legal.

5.3) It was submitted that this Court in

case of Yogendrakumar Gupta v. Income tax

Officer reported in (2014) 366 ITR 186 and in

case of Jayant Security and Finance Ltd. v.

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Assistant Commissioner of Income-tax, officer

Circle 1(1) reported in (2018) 254 taxmann

81, after relying on various decisions of the

Apex Court have dismissed the petitions

challenging the identical notice of reopening

issued under section1 48 of the Act. It was

submitted that the SLP being Special Leave to

Appeal (Civil) No. 15381 of 2014 challenging

the decision of this Court in case of

Yogendrakumar Gupta has also been dismissed

by the Apex Court by order dated 26.09.2014.

5.4) Learned advocate Mr. Patel submitted

that the Assessing Officer on the basis of

information received from DCIT, Central

Circle-2(2), Mumbai recorded the satisfaction

to the effect that income to the tune of Rs.

2.1 Crore chargeable to tax has escaped

assessment and therefore, it cannot be said

that reopening in the present case is without

any basis and for carrying out roving and

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fishing inquiry.

5.5) Relying upon the judgment of the

Apex Court in case of Kalyanji Mavji & Co. v.

CIT reported in 102 ITR 287 (SC), it was

submitted that the expression "has reason to

believe" is wider than expression "is

satisfied" and information for reopening may

come from external sources or even from

materials already on record or which may be

derived from the discovery of new and

important matter or fresh facts.

5.6) Relying upon the judgment in case of

Raymond Wollen Mills Ltd. v. ITO reported in

236 ITR 34, learned advocate Mr. Patel

submitted that sufficiency or correctness of

the material is not a thing to be considered

at this stage. The only thing to be

considered at this stage is whether there was

prima facie some material on the basis of

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which the department could reopen the case

and the Assessing Officer has prima facie

come to the conclusion that there are

tangible material pointing to escapement of

income.

5.7) Learned advocate Mr. Patel submitted

that the issues agitated in this proceeding

will be decided during the reassessment

proceedings after conducting due inquiries

and after giving the assessee an opportunity

of being heard. The assessee can place its

objections and contentions on merits of the

case during the reassessment proceedings and

therefore, this Court may not interfere at

the notice stage.

6.Considering the submissions made by the

learned advocates on both the sides, it

appears that the impugned notice under

section 148 of the Act, 1961 is issued only

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on the ground that as per the information

received, three entries of Rs. 70 lakh each

totalling to Rs. 2.1 Crore received on

2.02.2011 by the assessee was alleged

unaccounted money routed through

accommodation entries in the bank account and

the returned income by assessee did not

commensurate with the said transaction and

therefore, there was escapement of income

chargeable to tax at the hands of the

assessee.

7.On perusal of the record, it appears that the

petitioner had already mentioned bank details

in the statement of total income during the

original assessment proceedings and even bank

interest income from the Savings Bank Account

has been declared in the said return of

income. It also appears from the record that

the funds that the petitioner had received

were also repaid during the year under

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consideration.

8.We are therefore, of the opinion that to

confer jurisdiction to the Assessing Officer

to reopen the assessment under section 147 of

the Act, the two conditions must be satisfied

namely, that the Assessing Officer must have

reason to believe that the income chargeable

to tax has escaped assessment and that the

same was occasioned on account of either

failure on part of the assessee to make a

return of his income for that assessment year

or to disclose fully and truly all material

facts necessary for that assessment year. In

the present case, based upon the information

received from DCIT, Central Circle-2(2),

Mumbai about the three accommodation entries

of Rs. 70 Lakh each credited in the

petitioner's account, the Assessing Officer

came to the conclusion that such transaction

is not a genuine transaction. However, the

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petitioner assessee had disclosed all

relevant facts necessary for assessment which

included details of bank statement and even

bank interest income from Saving bank account

and therefore, all the requisite details were

disclosed which were facts necessary for

assessment.

9. On perusal of the reasons recorded, the

assessment is sought to be reopened for

verification of the facts which are already

on record as to whether the amount of Rs. 2.1

crore received by the assessee and reflected

in the regular books of accounts pertains to

any accommodation entry or not. It is not in

dispute that the assessee returned that

amount within a short span of two months.

Therefore, it appears that under the guise of

reopening the assessment, the Assessing

Officer wants to have a roving inquiry. Under

the circumstances, it cannot be said that

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Assessing Officer had any tangible material

to form an opinion that the income chargeable

to tax has escaped the assessment.

10. In case of Inductotherm (India) (P.)

Ltd. v. M. Gopalan, Deputy CIT reported in

(2013) 356 ITR 481, the Division Bench of

this Court observed that for a mere

verification of the claim, the power of

reopening of assessment could not be

exercised and the Assessing Officer cannot

seek to undertake a fishing or a roving

inquiry and seek to verify the facts which

are already on record, as if it were a

scrutiny assessment. Similar view was

expressed by the Division Bench in case of

Deep Recycling Industries v Dy.CIT (judgment

dated 2.08.2016 passed in Special Civil

Application No.3611/2013) as well as in case

of Krupesh Ghanshyambhai Thakkar (supra).

Applying the above decision to the facts of

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the present case as well as the reasons

recorded to reopen the assessment, we are of

the opinion that under the guise of reopening

the assessment, the Assessing Officer wants

to have a roving inquiry. Under the

circumstances, in absence of any tangible

material to form an opinion that the income

chargeable to tax has escaped assessment and

in absence of any satisfaction recorded by

the Assessing Officer by merely relying upon

the information received from the Office of

DCIT Central Circle 2(2), Mumbai, the

impugned action of reopening the assessment

while exercising power under section 148 of

the Act cannot be sustained.

11. In view of foregoing reasons,

considering the facts of the case, the

impugned notice under section 148 of the Act,

1961 is not tenable in law and is accordingly

quashed and set aside and consequential

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orders are also quashed and set aside.

12. Rule is made absolute to the aforesaid

extent. No order as to costs.

(N.V.ANJARIA, J)

(BHARGAV D. KARIA, J) RAGHUNATH R NAIR