Gujarat High Court
Deepak Natvarlal Pankhiyani (Huf) vs Assistant Commissioner Of Income Tax ... on 14 June, 2024
Author: Bhargav D. Karia
Bench: Bhargav D. Karia
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IN THE HIGH COURT OF GUJARAT AT AHMEDABAD
R/SPECIAL CIVIL APPLICATION NO. 2870 of 2022
FOR APPROVAL AND SIGNATURE:
HONOURABLE MR. JUSTICE BHARGAV D. KARIA
and
HONOURABLE MR. JUSTICE NIRAL R. MEHTA
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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 ?
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DEEPAK NATVARLAL PANKHIYANI (HUF)
Versus
ASSISTANT COMMISSIONER OF INCOME TAX CIRCLE 3(1)(1) & ANR.
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Appearance:
MR B S SOPARKAR(6851) for the Petitioner(s) No. 1
MRS KALPANA K RAVAL(1046) for the Respondent(s) No. 1
NOTICE SERVED for the Respondent(s) No. 2
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CORAM:HONOURABLE MR. JUSTICE BHARGAV D. KARIA
and
HONOURABLE MR. JUSTICE NIRAL R. MEHTA
Date : 14/06/2024
ORAL JUDGMENT
(PER : HONOURABLE MR. JUSTICE BHARGAV D. KARIA)
1. Heard learned advocate Mr. B.S.Soparkar
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for the petitioner and learned Senior
Standing Counsel Mr. Karan Sanghani for
learned advocate Mrs. Kalpana K Raval for
the respondent.
2. Rule returnable forthwith. Learned Senior
Standing Counsel Mr. Karan Sanghani
waives service of notice of rule for the
respondents.
3. Having regard to the controversy in the
narrow compass, with the consent of the
learned advocates for the parties, the
matter is taken up for hearing.
4. By this petition under Article 226 of the
Constitution of India, the petitioner has
prayed for quashing and setting aside the
notice dated 27.03.2021 issued under
section 148 of the Income Tax Act,1961
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[for short 'the Act'] as well as the
impugned order dated 10.01.2022 rejecting
the objection filed by the petitioner.
5. Brief facts as stated in the memo of the
application are as under:
5.1 The petitioner is engaged in the
business of trading in shares and
security. The petitioner filed its
original return of income for AY 2015-16
on 21.09.2015 declaring total loss of Rs.
2,00,23,842/-.
5.2 The case of the petitioner was
selected for limited scrutiny by issuing
notice u/s. 143(2) dated 20.09.2016 where
on of the specific reasons for selection
of case for scrutiny was "Derivative
(Future) transactions" and in response to
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the same, the petitioner filed a reply
dated 26.09.2016 submitting all the
details regarding such derivatives
transactions. Thereafter, notice u/s.
142(1) issued which were replied to by
the petitioner from time to time. Vide
notices dated 04.08.2017 and 19.09.2017,
specific questions relating to the
trading in future in a recognized stock
exchange was raised. Details regarding
the same were provided vide letter dated
29.08.2017 and 22.09.2017. Thereafter,
the assessment u/s. 143(3) was framed on
30.12.2017 at Rs. 1,11,49,610/-.
5.3 The petitioner filed an
application for rectification on
24.01.2018. Thereafter, order u/s. 154
dated 01.02.2018 was passed accepting the
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error and rectifying the same.
5.4 An appeal was also filed by the
petitioner challenging the said
assessment order and the appeal of the
petitioner was partly allowed vide order
dated 30.08.2018.
5.5 The respondent no.1 thereafter
issued the impugned notice under section
148 of the Act dated 27.03.2021 asking
the petitioner to file return of income
for the Assessment Year 2015-16. The
petitioner without prejudice filed its
return of income and sought for the
reasons recorded for reopening. The
petitioner was thereafter provided with
the notice u/s. 143(2) recording issues
as per reasons recorded for reopening on
24.05.2021.
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5.6 Thereafter, the petitioner filed
the objections on 22.07.2021 challenging
the validity of the notice issued u/s.
148 of the Act. The respondent No.2 has
disposed of the objections of the
petitioner on 10.01.2022.
Hence, the petitioner preferred this
petition challenging the notice dated
27.03.2021 issued u/s. 148 of the Act and
the order disposing of the objections
raised dated 10.01.2022.
6. Learned advocate Mr. Soparkar for the
petitioner submitted that the impugned
notice and the order passed by the
respondent No.1 are based upon only one
reason to believe that income has escaped
assessment regarding profit of
Rs. 5,66,96,530/- earned by the
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petitioner by carrying out trading in
shares treating the same as unexplained
credit under section 68 of the Act.
6.1 It was submitted that the
impugned notice for Assessment Year 2015-
16 is beyond the period four years and
learned advocate Mr. Soparkar referred to
the notice dated 20.09.2016 issued under
section 143(2) of the Act wherein the
details of the derivatives (future
transactions) were called for by the
Assessing Officer which was replied by
the petitioner by reply dated 26.09.2016
disclosing that the petitioner has
entered into various derivatives (future
transactions) during the year for which
ledger accounts and contract notice were
provided. It was further submitted that
further scrutiny was also made by the
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Assessing Officer during the regular
course of assessment by issuing notices
dated 19.06.2017 and 04.08.2017 which
were replied by the petitioner and
thereafter the assessment order dated
30.12.2017 under section 143(3) of the
Act was passed by the Assessing Officer
after considering the details provided by
the petitioner. It was therefore
submitted that the petitioner has
disclosed truly and fully all material
facts during the course of regular
assessment. Therefore, the impugned
notice is without jurisdiction contrary
to the proviso to section 147 of the Act.
6.2 It was further submitted that
the impugned notice for reopening is
issued without independent application of
mind and is only based on borrowed
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satisfaction merely information received
from the third party without disclosing
the contents thereof in the reasons
recorded.
6.3 It was further submitted that
once the reasons recorded are nothing but
change of opinion, as the issue of
trading into shares and stock by the
petitioner was examined thoroughly at the
time of regular assessment and all the
trades entered into by the petitioners
were also considered and therefore,
having examined the issue in detail and
having formed an opinion the attempt of
respondent to reopen again is merely a
change of opinion and hence, no
admissible as per the settled legal
position.
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6.4 It was therefore, submitted
that the impugned notice is liable to be
quashed and set aside as the same is
issued only for making roving and fishing
inquiry without application of mind by
the respondent-Assessing Officer in
absence of any fresh tangible material to
show that the income has escaped
assessment.
6.5 It was further submitted that
the assessing officer while passing
impugned order rejecting the objections
also has failed to consider the
explanation already provided by the
petitioner during the regular course of
assessment.
6.6 Learned advocate Mr. Soparkar
also referred to the additional affidavit
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filed on behalf of the petitioner wherein
it is specifically stated that the
petitioner has earned profit of Rs.
5,66,96,530/- from total 09 trades and
the petitioner has filed return of income
on 21.09.2015 disclosing loss from
business amounting to Rs. 2,00,24,774/-
which was scrutinized in detail after the
petitioner submitted various details in
response to the notice dated 04.08.2017.
It was also pointed out that the
petitioner had supplied ledger account
contract notes and details of derivatives
transaction carried out through broker-
Good Luck Securities in reply dated
26.09.2016 to the show-cause notice
issued by the Assessing Officer. It was
pointed out that on perusal of these
documents, it has become clear that
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income arising from 09 referred
transaction of BSE F&O trading Account
which is under review by the Assessing
Officer and reasons for reopening is
fully accounted for in the books of
accounts as it appears from the profit
and loss account and tax audit report and
therefore, it is not correct to state
that the said income is not reflected in
the income tax return.
6.7 Learned advocate Mr. Soparkar
therefore submitted that the impugned
notice is contrary to the facts on record
and is liable to be quashed and set
aside. In support of his submissions
reliance was placed on the decision of
Alliance Filaments Ltd reported in [2021]
434 ITR 537 (Gujarat).
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7. On the other hand, learned advocate Mr.
Sanghani for the respondent-Assessing
Officer submitted that the petitioner has
alternative remedy to prefer appeal
before CIT(A) against the assessment
order which may be passed and therefore,
the petition may not be entertained. It
was further submitted that the impugned
notice is issued after recording reasons
and after obtaining requisite sanction in
accordance with law based on the
information received by the Assessing
Officer as there is failure on the part
of the petitioner to disclose truly and
fully all material facts as stated in the
reasons recorded.
7.1 It was therefore submitted
that the no interference is required in
the impugned notice.
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7.2 Learned Senior Standing
Counsel Mr Karan Sanghani invited
attention of the Court to the information
received by the Assessing Officer that
large scale reversal of tax in stock
segment of the BSE Limited was reported
wherein the investigation revealed that
total of 291643 trades (comprising 81.38%
of all the trades executed in the Stock
Options Segment of BSE) involved reversal
of buy and sell positions and petitioner
is one of such entity which excluded
total 09 units contracts by reversing its
non-genuine trades within few minutes and
in view of such reversal trades in quick
succession with substantial price
difference indicates towards employing a
manipulative device in connection with
its dealing in a liquid Stock Options
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Contracts. It was therefore submitted
that such information was not available
during the regular course of assessment
and Assessing Officer passed assessment
order under section 143(3) in absence of
such information and therefore, the
reopening of the assessment cannot be
said to be based upon change of opinion.
7.3 It was further submitted that
the Assessing Officer did not form any
opinion while passing order under section
143(3) on the issue under consideration
as the case of the petitioner was
selected for limited scrutiny only on the
issue of mat liability mismatch
derivatives (future transaction), sales
turn over mismatched, security
transaction. It was therefore, submitted
that in absence of any investigation into
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information which subsequently received
by the respondent No.1, it cannot be said
that there was change of opinion for
reopening of the assessment.
7.4 It was submitted that
respondent No.1 after application of mind
have formed a reason to believe that
income as escaped assessment on the basis
of the information received need not be
interfered at this stage.
7.5 In support of his submissions,
learned Senior Standing Counsel Mr.
Sanghani referred to and relied upon the
following averments made in the
affidavit-in-reply filed on behalf of the
respondent:
"(v). With reference to
paragraph 3.11 it is submitted
that the escapement of income has
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been elaborated upon in the
reasons recorded by the AO. There
is clear escapement of income due
to which the case was reopening
for assessment. It is stated that
mere production of account books
or other evidence before the
Assessing Officer from which
material evidence could with due
diligence have been discovered by
the Assessing Office does not
necessarily amount to disclosure.
Reliance is placed on the case of
Rajat Export import India Pvt. Ltd
vs. ITO (2012) 341 ITR 135; 307
(Delhi) (High Court). "In this
case, the Court had dismissed the
writ petition challenging the
reopening on the ground that in
the reasons recorded the Assessing
Officer had referred to the
investigation made byt eh Director
of Income Tax (investigation) who
was in charge of the investigation
into groups that operated as entry
operators, in the various branches
of banks to introduce unaccounted
money in the guise of gifts,
loans, share application money
etc. After referring to the broad
and general modus operandi adopted
by the entry providers, the
Assessing Officer specifically
noticed from the list of entries
given to him by the investigation
wing that assessee had taken
accommodation entry in the amount
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of Rs. 3 Lakhs. The reasons to
believe recorded in writing by the
Assessing Officer were detailed
and showed application of mind. At
the stage when reasons are
recorded for reopening the
assessment, the Assessing Officer
is not required to build a fool
proof case for making addition to
the assesse's income; all that is
required to do at that stage is to
form a prima facie opinion or
belief that income has escaped
assessment. On the facts of the
Court up held the reopening of
assessment and dismissed the writ
petition (A.Y. 2004-05)".
Reliance is also placed on the
decision in case of A.L.A firm vs.
CIT (1991) 189 ITR 285 (SC). In
this case, the Hon'ble Supreme
Court held that the jurisdiction
of the Income Tax Officer to
reassess income arises if he has,
in consequence of specific and
relevant information coming into
his possession subsequent to the
previous concluded assessment,
reason to believe that income
chargeable to tax had escaped
assessment. It was held that even
if the information be such that if
could have been obtained by the
Income Tax Officer during the
previous assessment proceedings by
conducting an investigation or an
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enquiry but was not in fact so
obtained, it would not affect the
jurisdiction of the Income Tax
Officer to initiate reassessment
proceedings if the twin conditions
prescribed under section 147 of
the Act are satisfied."
7.6 It was therefore submitted
that the petition being devoid of any
merit, is liable to be dismissed
summarily.
8. Having heard learned advocate for the
respective parties and having considered
the facts of the case and the material
placed on record it is apparent that the
petitioner has disclosed truly and fully
all material facts including the
derivatives (future transactions) which
are referred to in the reasons recorded
in the books of accounts and after
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scrutinizing the same, the Assessing
Officer has passed the order under
section 143(3) of the Act on 30.12.2017
assessing total income of Rs.
1,11,49,610/- for the Assessment Year
2015-16.
9. The Assessing Officer-respondent No.1 has
recorded the reasons on the basis of the
information received with regard to
reversal of trade in liquid stock as
under:
"2.1 During the investigation
period, total 34 trades for
11,55,000 units were executed in
the said contract wherein Deepak
Natvarlal Pankhiyani HUF was party
to 10 trades for total 9,95,000
units on March 10, 2015 while
deaing in the said contract on
March 10, 2015 Deepak Natvarlal
Pankhiyani HUF at 12:23:55 hrs
entered into buy trade for 4,97,500
units at premium rate of Rs. 20.50
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per unit with counterparty viz. PAT
Financial Consultants Pvt Ltd.
Subsequently, within 11 seconds of
the above trade, Deepak Natvarlal
Pankhiyani HUF during 12:24:06 hrs
to 12:38:59 hrs entered into 9 sell
trades with same counterparty viz.
PAT Financial Consultants Pvt. Ltd
for total 4,97,500 units at the
average premium rate of Rs. 31.25
per unit. Further it is noted that
while dealing in the said contract
during the I.P., Deepak Natvarlal
Pankhiyani HUF executed total 10
reversal trades (1 buy trade + 9
sell trades) with same counterparty
viz. PAT Financial Consultants Pvt
Ltd. It is also noted that the said
trades were reversed in short
interval with significant price
difference in buy and sell rates.
Thus, Deepak Natvarlal Pankhiyani
HUF, throug its dealing in the
contract viz. "AXIS15MAR560.00CEW2"
executed 10 non genuine trades
which is 29% of the total trades
from the market in the said
contract during the investigation
period and thereby, Deepak
Natvarlal Pankhiyani HUF generated
artificial volume of Total 9,95,000
units which is 86% of the volume
traded in the said contract form
the market.
2.2 A similar modus operndi was
adopted by Deepak Natvarlal
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Pankihyani HUF in respect of
remaining trades in other unique
contracts. It is observed from the
trading of Deepak Natvarlal
Pankhiyani HUF that is most of the
trades the buy order and sell order
has been entered in quick
succession of each other . In all
the 9 unique contracts Deepak
Natvarlal Pankhiyani HUF had
reversed its non-genuine trades
within few minutes. The buy orders
placed by Deepak Natvarlal
Pankhiyani HUF were matched with
sell orders of counterparties and
sell orders placed by Deepak
Natvarlal Pankhiyani HUF were
matched with buy orders of
counterparties in terms of number
of units and price and time. Thus,
the total volume generated through
such non-genuine trades was
71,27,000 units.
2.4 Above reversal of trades
in quick succession with
substantial price difference
indicates towards employing of a
manipulative device in connection
with its dealing in said illiquid
Stock Options contracts. The non-
genuineness of these transactions
executed by Deepak Natvarlal
Pankhiyani HUF is evident from the
fact that there was no commercial
basis as to why, within a short
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span of time Deepak Natvarlal
Pankhiyani HUF reversed the
position with his counterparties
with significant price difference.
2.5 In view of the
aforementioned factual findings of
the investigation, it was alleged
that Deepak Natvarlal Pankhiyani
HUF had indulged in execution of
reversal trades in stock options
with same counterparty on the same
day which are non genunine in
nature and have created false or
misleading appearance of trading
in terms of artificial volumes
during the investigation period."
10. From the above reasons recorded by the
Assessing Officer, it is clear that
though the assessee has offered to tax
the profit of Rs. 5,66,93,530/- in its
return of income which was already
assessed during the regular course of
assessment, the petitioner has also filed
additional affidavit placing on record
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the profit and loss account to
demonstrate that the petitioner has
already offered profit earned from the 09
transactions referred in the reasons
recorded in the profit and loss account.
11. Therefore, it cannot be said that the
income of the assessee to the tune of
Rs. 5,66,96,530/- is not reflected and
has escaped the assessment. It appears
that the respondent No.1-Assessing
Officer without verification of the
record has blindly relied upon the
information received and picked up the
09-transaction entered into by the
petitioner in BSE F&O Segment. Respondent
No.1 has not even co-related such
information with the material available
with on the record, more particularly,
when the said issue has been thoroughly
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scrutinized in the regular assessment. It
is also apparent that the petitioner has
provided all the information and thereby
disclosed truly and fully all material
facts during the regular course of
assessment. Therefore, the impugned show-
cause notice is without jurisdiction and
contrary to the provision of the Act and
is liable to be quashed and set aside as
there is no fresh tangible material
available on record with the Assessing
Officer to have reasonable belief that
the income has escaped assessment.
Therefore, it is apparent that the
impugned notice for reopening is issued
on merely change of opinion in respect of
the fact of that the entire profit is
offered to tax by the petitioner in the
books of accounts and the same is
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reflected in the return of income filed
by the petitioner which was scrutinized
and the assessment order under section
143(3) of the Act was passed.
12.In view of the foregoing reasons, the
petition succeeds and accordingly
allowed. Impugned notice dated 27.03.2021
issued under section 148 of the Act and
order dated 10.01.2022 rejecting the
objection raised by the petitioner are
hereby quashed and set aside. Rule is
made absolute to the aforesaid extent. No
order as to costs.
(BHARGAV D. KARIA, J)
(NIRAL R. MEHTA,J)
JYOTI V. JANI
