Gujarat H.C : the income chargeable to tax for the AY 2011-12 has escaped assessment within the meaning of Section 147

High Court Of Gujarat

AASPAS Multimedia Ltd. vs. DCIT

Section 148

Asst. Year 2011-12

M.R. Shah & B.N. Karia, JJ.

Special Civil Application No. 21052 & 21087 of 2016

9th June, 2017

Counsel Appeared:

B S Soparkar Adv., for the Petitioner. : Mauna M Bhatt, Adv., for the Respondent.

M.R. SHAH, J:

1. As common question of law and facts arise in both these petitions and as such with respect to the same assessee but with respect to different assessment years, both these petitions are heard, decided and disposed of by this common judgment and order. Special Civil Application No.21052/2016

2.0 By way of this petition under Article 226 of the Constitution of India, the petitioner assessee has prayed for an appropriate writ, direction and order to quash and set aside the impugned notice under Section 148 of the Income Tax Act, 1961 (hereinafter referred to as “IT Act”) by which the AO has sought to reopen the assessment for AY 201112 on the ground that the income chargeable to tax for the AY 2011-12 has escaped assessment within the meaning of Section 147 of the IT Act.

Special Civil Application No.21087/2016

2.1. By way of this petition under Article 226 of the Constitution of India, the petitioner assessee has prayed for an appropriate writ, direction and order to quash and set aside the impugned notice under Section 148 of the IT Act by which the AO has sought to reopen the assessment for AY 2012-13 on the ground that the income chargeable to tax for the AY 2012-13 has escaped assessment within the meaning of Section 147 of the IT Act. Special Civil Application No.21052/2016

3.0. Facts leading to the Special Civil Application No.21052/2016 are as under: consideration. That thereafter the AO passed the scrutiny assessment order under Section 143(3) of the IT Act on making certain additions and disallowances.

3.2. That thereafter by impugned notice dated 01.09.2015, the AO has sought to reopen the assessment for AY 2011-12. That the petitioner assessee filed the return of income on 27.10.2015 declaring total income of Rs.33,03,225/-in response to the impugned notice under Section 148 of the IT Act. That thereafter at the request of the assessee the AO has furnished / provided the reasons for reopening of the assessment for AY 2011-12. The reasons recorded of reopening the assessment for AY 2011-12 are as under:

“Reasons of Reopening the Assessment

The Pr. Director of Income tax (Investigation), Ahmedabad vide confidential letter No.PDIT(Inv)/AHD/Pravin Jain/15-16 dated 16.06.2015 forwarded the information that a search u/s.132 of the I.T. Act was conducted in the case of Shri Pravin Kumar Jain on 1.10.2013. The search action resulted in collection of evidence and other findings which conclusively proved that Shri Pravin Kumar Jain is engaged in providing accommodation entries of various natures like unsecured loans, bogus share application / capital and bogus sales and purchases to the beneficiaries spread throughout India.

M/s. Aaspas Multimedia Ltd. has routed its unaccounted money amounting to Rs.4,80,00,000/- by way of share application from various bogus companies operated by Shri Pravin Kumar Jain as mentioned below.

Anchal Properties P. Ltd. Ansh Mechandise P. Ltd. Olive Overseas P. Ltd. Vanguard Jewels Ltd.

On the basis of above mentioned fact, I have reason to believe that there is an escapement of income more than Rs.1.00 lac in the case of the above assessee and the case is therefore, requried to be reopened u/s.147 of the IT Act by way of issuing notice u/s.148 of the IT Act.”

That on receipt of the reasons recorded for reopening the assessment for AY 2011-12, the petitioner assessee submitted its objections. It was submitted that no reliance can be placed and cognizance cannot be taken from the material found from the third party premises. It was further submitted that all the parties to share application money is received is duly registered with ROC and they even possess PAN. It was further submitted that at the time of scrutiny assessment assessee furnished full particulars with respect to the details of share application money and the source and therefore, the subsequent reopening is nothing but a change of opinion of the subsequent AO. That thereafter vide order dated 14.10.2016, the AO has disposed of the objections referring to the information received from the Investigating Wing and the objections raised by the petitioner are not accepted by the AO and the AO has rejected the same in totality. Hence, the petitioner assessee has preferred the Special Civil Application No.21052/2016 challenging the impugned notice under Section 148 of the IT Act by which the AO has sought to reopen the assessment for AY 2011-12.

Facts leading to the Special Civil Application No.21052/2016 are as under: Special Civil Application No.21087/2016 consideration. That thereafter the AO passed the scrutiny assessment order under Section 143(3) of the IT Act on 25.02.2014 making certain additions and disallowances.

4.2. That thereafter by impugned notice dated 01.09.2015, the AO has sought to reopen the assessment for AY 2012-13. That the petitioner assessee filed the return of income on 19.10.2015 declaring total income of Rs.62,29,334/-in response to the impugned notice under Section 148 of the IT Act. That thereafter at the request of the assessee the AO has furnished / provided the reasons for reopening of the assessment for AY 2012-13. The reasons recorded of reopening the assessment for AY 2012-13 are as under:

“Reasons of Reopening the Assessment

The Pr. Director of Income tax (Investigation), Ahmedabad vide confidential letter No.PDIT(Inv)/AHD/Pravin Jain/15-16 dated 16.06.2015 forwarded the information that a search u/s.132 of the I.T. Act was conducted in the case of Shri Pravin Kumar Jain on 1.10.2013. The search action resulted in collection of evidence and other findings which conclusively proved that Shri Pravin Kumar Jain is engaged in providing accommodation entries of various natures like unsecured loans, bogus share application / capital and bogus sales and purchases to the beneficiaries spread throughout India.

M/s. Aaspas Multimedia Ltd. has routed its unaccounted money amounting to Rs.4,87,00,000/-by way of share application from various bogus companies operated by Shri Pravin Kumar Jain as mentioned below.

Kush Hindustan Ent. Ltd. Duke Business P. Ltd. Nakshatra Business P. Ltd. Olive Overseas P. Ltd. Triangular Infocom Ltd. Vanguard Jewels Ltd.
Yash V Jewels Ltd.

On the basis of above mentioned fact, I have reason to believe that there is an escapement of income more than Rs.1.00 lac in the case of the above assessee and the case is therefore, requried to be reopened u/s.147 of the IT Act by way of issuing notice u/s.148 of the IT Act.”

That on receipt of the reasons recorded for reopening the assessment for AY 2012-13, the petitioner assessee submitted its objections. It was submitted that no reliance can be placed and cognizance cannot be taken from the material found from the third party premises. It was further submitted that all the parties to share application money is received is duly registered with ROC and they even possess PAN. It was further submitted that at the time of scrutiny assessment assessee furnished full particulars with respect to the details of share application money and the source and therefore, the subsequent reopening is nothing but a change of opinion of the subsequent AO. That thereafter vide order dated 14.10.2016, the AO has disposed of the objections referring to the information received from the Investigating Wing and the objections raised by the petitioner are not accepted by the AO and the AO has rejected the same in totality. Hence, the petitioner assessee has preferred the Special Civil Application No.21087/2016 challenging the impugned notice under Section 148 of the IT Act by which the AO has sought to reopen the assessment for AY 2012-13.

Shri B.S. Soparkar, learned Advocate has appeared on behalf of the petitioner assessee and Shri Manish R. Bhatt, learned Senior Advocate has appeared on behalf of the Revenue.

5.1. It is vehemently submitted by Shri Soparkar, learned Advocate appearing on behalf of the petitioner assessee that the impugned notices under Section 148 of the IT Act and reopening of the assessment for AY 2011-12 and 2012-13 are absolutely bad in law and against the provisions of the statute more particularly under Section 147 of the IT Act.

5.2. It is further submitted by Shri Soparkar, learned Advocate appearing on behalf of the petitioner assessee that as such the subsequent reopening of the assessment for AY 2011-12 and 2012-13 is nothing but change of opinion by the subsequent Officer and therefore, mere on change of opinion of the subsequent Officer the reopening of the concluded assessment is not permissible.

5.3. It is further submitted by Shri Soparkar, learned Advocate appearing on behalf of the petitioner assessee that as such the original assessments were scrutiny assessments under Section 143(3) of the IT Act. That thorough inquiry was made during the original assessment proceedings relating to the identity of the shareholders, their creditworthiness and genuineness of the transactions. It is submitted that detailed questionnaires were sent by the AO and pursuant thereto the assessee furnished the details including PAN, returns of income, bank account details and ledger copy. It is submitted that despite the above the AO was of the opinion that assessee has failed in the onus to prove the genuineness of the transactions as the letters under Section 133(6) issued to the parties returned unserved. It is submitted that assessee brought it to the notice of the AO that the assessees have changed and asked the parties to themselves confirmation letters and the concerned parties submitted the same. It is submitted that thereafter the AO accepted the transactions to be genuine and did not make any addition in the assessment orders. It is submitted that therefore the subsequent reopening is nothing but change of opinion of the subsequent AO and therefore, the reopening of the assessments on mere change of opinion by the subsequent AO deserve to be quashed and set aside. In support of his above submissions, Shri Soparkar, learned Advocate appearing on behalf of the petitioner has relied upon the following decisions of the Hon’ble Supreme Court, this Court and the Delhi High Court.

Lakhmani Mewal Das (1976) 103 ITR 437 (SC) JSRS Udyog Ltd. (2009) 313 ITR 321 (Delhi) Replika Press (P.) Ltd. (2013) 218 Taxman 399 (Delhi) Delhi CIT vs. Usha International Ltd. 348 ITR 485 (Delhi) Sarla Rakumar Varma 231 Taxman 889 (Gujarat)

5.4. It is further submitted by Shri Soparkar, learned Advocate appearing on behalf of the petitioner that from the reasons recorded and the affidavit in reply it appears that the statement of one Shri Pravin Kumar Jain recorded during the search of his premises is the basis for reopening of the assessments in case of assessee for AY 2011-12 and 2012-13. It is submitted that however even before the impugned notices, the said Shri Pravin Kumar Jain retracted from his statement which is the basis for reopening of the assessment in the present case. It is submitted that therefore, retracted statement of the third party (Shri Pravin Kumar Jain) cannot be made the basis for reopening. In support of his above submissions, Shri Soparkar, learned Advocate appearing on behalf of the petitioner has relied upon the following decisions of the Hon’ble Supreme Court, Bombay High Court and this Court.

Lakhmani Mewal Das (1976) 103 ITR 437 (SC)

Indian Express Newspapers (Bombay) P. Ltd. (2008) 214 CTR 479 (Bombay) Shardaben K. Modi 217 Taxman 89 (Gujarat) (MAG)

5.5. It is further submitted by Shri Soparkar, learned Advocate appearing on behalf of the petitioner that even otherwise the reasons to reopen the assessment are too vague and no independent findings are recorded. It is submitted that there is no independent inquiry and/or findings recorded on an independent inquiry that the income has escaped assessments for the years under consideration.

5.6. It is further submitted by Shri Soparkar, learned Advocate appearing on behalf of the petitioner that the information given by the Director of Income Tax (Investigation), Ahmedabad that the amount received by the assessee from other company was nothing but accommodation entry and the assessee was beneficiary, is not sufficient to reopen the assessment when the AO had not applied his own mind to that information.

In support of his above submissions, Shri Soparkar, learned Advocate appearing on behalf of the petitioner has heavily relied upon the decision of the Delhi High Court in the case of Signature Hotels P. Ltd. vs. Income-Tax Officer and Another reported in (2011) 338 ITR 51 (Delhi). He has also relied upon the decision of the Division Bench of this Court in the case of Varshaben Sanatbhai Patel vs. ITO reported in (2016) 281 CTR 75 (Gujarat).

Making above submissions and relying upon above decisions, it is requested to allow the present Special Civil Applications and quash and set aside the impugned notices under Section 148 of the IT Act.

6.0. Both these petitions are vehemently opposed by Shri Manish Bhatt, learned Counsel appearing on behalf of the Revenue.

6.1. It is submitted by Shri Bhatt, learned Counsel appearing on behalf of the Revenue that in the present case the AO is justified in issuing the impugned notice under Section 148 of the IT Act to reopen the assessment for AYs 2011-12 and 2012-13 as he has formed an opinion that the income chargeable to tax has escaped assessment.

6.2. It is submitted by Shri Bhatt, learned Counsel appearing on behalf of the Revenue that after the assessment orders were passed by the AO, thereafter the AO received a specific information from the Principal Director of Income Tax (Investigation), Ahmedabad and forwarded information that a search under Section 132 of the IT Act was conducted in the case of one Shri Pravin Kumar Jain and the search action has resulted in collection of evidence and other findings which conclusively prove that Shri Pravin Kumar Jain is engaged in providing accommodation entries of various natures like unsecured loans, bogus share application / capital and bogus sales and purchases to the beneficiaries spread throughout India. The Assessing Officer further received the information that the present – assessee is also one of the beneficiary of such accommodation entry and is engaged in bogus share application money from various bogus concerns operated by Shri Pravin Kumar Jain. It is submitted that thereafter on the basis of such material and the information received the Assessing Officer after forming an opinion that the income chargeable to tax has escaped assessment has issued impugned notice under Section 148 of the IT Act, which is as such within the period of four years.

6.3. Shri Bhatt, learned Counsel for the Revenue has also relied upon the decision of the Division Bench of this Court in the case of Dishman Pharmaceuticals and Chemicals Limited vs. Deputy Commissioner of Income Tax (OSD) (No.1) reported in 346 ITR 228 on how reasons to be recorded. She has also produced before the Court the xerox copy of the relevant file and information received by the Assessing Officer from Shri Pravin Kumar Jain on the basis of which the Assessing Officer has issued the impugned notice by forming an opinion that income chargeable to tax as escaped assessment.

6.4. Now, so far as the submission on behalf of the petitioner that the retracted statement of the third party (Shri Pravin Kumar Jain) cannot be the basis to reopen the assessments for the years under consideration and therefore, the reopening of the assessment based on the statement of a third party who had retracted his statement, the reopening is not permissible. It is submitted by Shri Bhatt, learned Counsel appearing on behalf of the Revenue that as such from the reasons recorded it cannot be said that reopening is based solely on the statement of Shri Pravin Kumar Jain who has subsequently retracted from his statement which was recorded at the time of search. It is submitted that the search action in the case of Shri Pravin Kumar Jain resulted in collection of evidence which conclusively proved that the said Shri Pravin Kumar Jain is enaged in providing accommodation entries of various nature, unsecured loans, bogus share applications / capital and bogus sale and purchases to the beneficiaries spread throughout India. That from the collection of evidence, present assessee is also found to be one of the beneficiary and it has been found from the evidence collected during the search conducted in the case of Shri Pravin Kumar Jain that the present assessee has routed its unaccounted money by way of share application from various bogus companies operated by Shri Pravin Kumar Jain. It is submitted that the said material along with the information was sent to the AO and thereafter the AO has formed an opinion considering the material on record which was furnished by the Principal Director of Income Tax (Investigation), Ahmedabad that the income chargeable to tax has escaped assessment during the year under consideration.

6.5. It is further submitted by Shri Bhatt, learned Counsel appearing on behalf of the Revenue that even otherwise the evidentiary value of the statement of Shri Pravin Kumar Jain which was recorded during the search conducted which he is reported to have been retracted subsequently is required to be considered at the time of reassessment proceedings. It is submitted that at this stage what is required to be considered is whether the AO is justified in reopening the assessment on the basis of the material / information supplied by the Principal Director of Income Tax (Investigation), Ahmedabad more particularly with respect to share application transactions or not.

6.6. It is further submitted by Shri Bhatt, learned Counsel appearing on behalf of the Revenue that the impugned notices are issued and the assessments are sought to be reopened on the basis of the information / material supplied from the office of DIT (Investigation), which is in the nature of tangible material, subsequent reopening cannot be said to be on a mere change of opinion by the subsequent AO as sought to be contended on behalf of the petitioner. It is submitted that before the AO while framing the original assessments no opinion was formed on the material / information which is as such subsequent to the passing of the assessment orders.

6.7. Shri Bhatt, learned Counsel appearing on behalf of the Revenue has also heavily relied upon the recent decision dated 29.12.2016 of the Division Bench of this Court in the case of Ankit Financial Services Ltd. vs. Deputy Commissioner of Income Tax, Circle 1(1)(2) rendered in Special Civil Application No.18961/2016 by which the Division Bench of this Court has dismissed the said petition in which the similar notice under Section 148 of the IT Act with similar allegations and the reasons recorded was challenged, has been rejected by this Court. Making above submissions and relying upon above decisions it is requested to dismiss the present petitions.

7.0. Heard learned Counsel appearing on behalf of the respective parties at length.

At the outset it is required to be noted that in the present petitions the assessee has challenged the notices under Section 148 of the IT Act by which the assessment for AYs 2011-12 and 201213 are sought to be reopened.

7.1. At the outset it is required to be noted and it is not in dispute that as such the assessments are sought to be reopened within the period of 4 years and therefore, proviso to section 147 of the IT Act shall not be applicable.

7.2. From the reasons recorded and the affidavit in reply filed on behalf of the Revenue, it appears that after the assessment orders came to be passed, the AO received the information from the Principal Director of Income Tax (Investigation), Ahmedabad vide its Confidential Letter dated 16.06.2015 by which the Principal Director of Income Tax (Investigation), Ahmedabad forwarded the information that a search under Section 132 of the IT Act was conducted in the case of one Shri Pravin Kumar Jain and the search action resulted in collection of the evidence and other findings which conclusively proved that the said Shri Pravin Kumar Jain was engaged in providing accommodation entries of various natures like unsecured loans, bogus share application / capital and bogus sales and purchases to the beneficiaries spread throughout India. From the information received and the material received from the Office of Principal Director of Income Tax (Investigation), Ahmedabad, it is found that the assessee is one of the beneficiaries of bogus share application from various bogus companies operated by the said Shri Pravin Kumar Jain. Thus, the information received from the Office of Principal Director of Income Tax (Investigation), Ahmedabad along with the evidence collected during the search action in case of said Shri Pravin Kumar Jain, the AO has reopened the assessments for AYs 201112 and 2012-13. Therefore, it cannot be said that there was no tangible material available with the AO to form an opinion that the income chargeable to tax has escaped assessment for the years under consideration.

7.3. Additionally, we may notice that the expression reason to believe came up for consideration before the Supreme Court in case of Assistant Commissioner of Income Tax vs. Rajesh Jhaveri Stock Brokers P. Ltd. in which, it was held that such expression cannot be read to mean that the Assessing Officer should have finally ascertained the fact by legal evidence or conclusion. The term reason to believe would mean cause or justification. If the Assessing Officer has cause or justification to know or suppose that income had escaped assessment, it can be said to have reason to believe that an income has escaped assessment. It was observed as under:

“16. Section 147 authorises and permits the Assessing Officer to assess or reassess income chargeable to tax if he has reason to believe that income for any assessment year has escaped assessment. The word reason in the phrase reason to believe would mean cause or justification. If the Assessing Officer has cause or justification to know or suppose that income had escaped assessment, it can be said to have reason to believe that an income had escaped assessment. The expression cannot be read to mean that the Assessing Officer should have finally ascertained the fact by legal evidence or conclusion. The function of the Assessing Officer is to administer the statute with solicitude for the public exchequer with an inbuilt idea of fairness to taxpayers. As observed by the Supreme Court in Central Provinces Manganese Ore Co. Ltd. v. ITO [1991 (191) ITR 662], for initiation of action under section 147(a) (as the provision stood at the relevant time) fulfillment of the two requisite conditions in that regard is essential. At that stage, the final outcome of the proceeding is not relevant. In other words, at the initiation stage, what is required is reason to believe, but not the established fact of escapement of income. At the stage of issue of notice, the only question is whether there was relevant material on which a reasonable person could have formed a requisite belief. Whether the materials would conclusively prove the escapement is not the concern at that stage. This is so because the formation of belief by the Assessing Officer is within the realm of subjective satisfaction (see ITO v. Selected Dalurband Coal Co. Pvt. Ltd. [1996 (217) ITR 597 (SC)] ; Raymond Woollen Mills Ltd. v. ITO [ 1999 (236) ITR 34 (SC)].”

7.4. Now, so far as the challenge to the impugned notices on the ground that the same is on the borrowed information and that AO has not formed an independent opinion and/or belief that the income chargeable to tax has escaped assessment, it is required to be noted that on the basis of the information supplied by / from the office of Principal Director of Income Tax (Investigation), Ahmedabad, the AO has found that the petitioner -assessee is the beneficiary of accommodation entries provided by one Shri Pravin Kumar Jain. The AO was having with him findings of the Investigating Team based on the material recovered during the search conducted of Shri Pravin Kumar Jain Group. Under the circumstances, it cannot be said that there was no tangible material available with the AO to prima facie form an opinion / belief that the income chargeable to tax has escaped assessment. The transactions of the assessee are required to be verified in detail on the basis of the material / evidence collected during the search of Shri Pravin Kumar Jain Group. The petitioner – assessee is alleged to be the beneficiary of accommodation entries given by Shri Pravin Kumar Jain Group concerns, therefore, the same are required to be verified in detail. Under the circumstances and in the facts and circumstances of the case, it cannot be said that there is non-application of mind on the part of the AO that while issuing the impugned notices under Section 148 of the IT Act.

7.5. Now, so far as the submission on behalf of the petitioner that as the transactions with respect to share applications by 4 companies / shareholders named in the reasons recorded are concerned, the same were verified by the AO at the time of framing the original assessments and therefore, the reopening can be said to be on change of opinion by the subsequent AO is concerned, at the outset it is required to be noted that as such there was no material available with the AO at the time of framing original assessments, which are now available with the AO received from the office of Principal Director of Income Tax (Investigation), Ahmedabad.

7.6. At this stage, decision of the Division Bench of this Court in the case of Yogendrakumar Gupta (Supra) is required to be referred to and considered. In the case before the Division Bench on the basis of information from CBI that loans accepted as genuine in original assessment were bogus, when the Assessing Officer initiated reassessment proceedings under Section 147 of the IT Act beyond 4 years, the Division Bench has observed that assumption of jurisdiction on the part of the AO is based on fresh information, specific and reliable and otherwise sustainable under the law, challenge to reassessment proceedings warrant no interference and accordingly notice for reassessment was held to be valid. In the case before the Division Bench, it was the case on behalf of the assessee that at the time of original scrutiny assessment, specific query was raised with regard to unsecured loans and advances received from the company B and t hese being the transactions through the cheques and drafts, there would arise no question of the Assessing Officer not accepting such version of the assessee and not treating them as genuine loans and advances. The relevant observation of the Division Bench are in paras 6 to 18. In para 19, the Division Bench has further observed that sufficiency of the reasons recorded by the Assessing Officer need not be gone into by this Court. It is further observed that the AO when forms his belief on the basis of subsequent new and specific information that the income chargeable to tax has escaped assessment on account of omission on the part of the assessee to make full and true disclosure of primary facts, he may start reassessment proceedings as fresh facts revealed the nondisclosure full and true. Such facts were not previously disclosed or it can be said that if previously disclosed, they expose untruthfulness of facts revealed.

7.6.1. The Apex Court in the case of Rajesh Jhaveri Stock Brokers P. Ltd. (Supra) has held that at the stage of issuance of notice of reopening, the Assessing Officer must have a reason to believe and not the established fact of escapement of income in the following manner (headnote);

“The expression reason to believe in section 147 would mean cause or justification. If the Assessing Officer has cause or If the Assessing Officer has cause or justification to know or suppose that income had escaped assessment, it can be said to have reason to believe that an income had escaped assessment. The expression cannot be read to mean that the Assessing Officer should have finally ascertained the fact by legal evidence or conclusion. What is required is reason to believe but not the established fact of escapement of income. At the stage of issue of notice, the only question is whether there was relevant material on which a reasonable person could have formed a requisite belief. Whether the materials would conclusively prove the escapement is not the concern at that stage. This is so because the formation of belief is within the realm of subjective satisfaction of the Assessing Officer.

7.6.2. In the case of Raymond Woolen Mills Ltd. v. Income-tax Officer and others, reported in 236 ITR 34, the Court held that in determining whether commencement of reassessment proceedings was valid, it has only to be seen whether there was prima facie some material on the basis of which the Department could reopen the case. The sufficiency or correctness of the material is not a thing to be considered at such stage.

7.7. In the case of Commissioner of Income Tax vs. Navodaya Castles Pvt. Ltd. reported in 367 ITR 306, Delhi High Court observed as under:

“13. As we perceive, there are two sets of judgments and cases, but these judgments and cases proceed on their own facts. In one set of cases, the assessee produced necessary documents/evidence to show and establish identity of the shareholders, bank account from which payment was made, the fact that payments were received thorough banking channels, filed necessary affidavits of the shareholders or confirmations of the directors of the shareholder companies, but thereafter no further inquiries were conducted. The second set of cases are those where there was evidence and material to show that the shareholder company was only a paper company having no source of income, but had made substantial and huge investments in the form of share application money. The assessing officer has referred to the bank statement, financial position of the recipient and beneficiary assessee and surrounding circumstances. The primary requirements, which should be satisfied in such cases is, identification of the creditors/shareholder, creditworthiness of creditors/shareholder and genuineness of the transaction. These three requirements have to be tested not superficially but in depth having regard to the human probabilities and normal course of human conduct.

18. Lovely Exports Pvt. Ltd. (supra) was also considered and distinguished in N.R. Portfolio Pvt. Ltd. (supra) and it was held that the entire evidence available on record has to be considered, after relying upon CIT Vs. Nipun Builders and Developers, [2013] 350 ITR 407 (Delhi), wherein it has been held that a reasonable approach has to be adopted and whether initial onus stands discharged would depend upon facts and circumstances of each case. In case of private limited companies, generally persons known to directors or shareholders, directly or indirectly, buy or subscribe to shares. Upon receipt of money, the share subscribers do not lose touch and become incommunicado. Call money, dividends, warrants, etc. have to be sent and the relationship remains a continuing one. Therefore, an assessee cannot simply furnish some details and remain quiet when summons issued to shareholders remain unserved and uncomplied. As a general proposition, it would be improper to universally hold that the assessee cannot plead that they had received money, but could do nothing more and it was for the Assessing Officer to enforce shareholders attendance in spite of the fact that the shareholders were missing and not available. Their reluctance and hiding may reflect on the genuineness of the transaction and creditworthiness of the creditor. It would be also incorrect to universally state that an Inspector must be sent to verify the shareholders/subscribers at the available addresses, though this might be required in some cases. Similarly, it would be incorrect to state that the Assessing Officer should ascertain and get addresses from the Registrar of Companies website or search for the addresses of shareholders themselves. Creditworthiness is not proved by showing issue and receipt of a cheque or by furnishing a copy of statement of bank account, when circumstances requires that there should be some more evidence of positive nature to show that the subscribers had made genuine investment or had, acted as angel investors after due diligence or for personal reasons. The final conclusion must be pragmatic and practical, which takes into account holistic view of the entire evidence including the difficulties, which the assessee may face to unimpeachably establish creditworthiness of the shareholders.”

7.8. Considering the aforesaid decisions of the Hon’ble Apex Court as well as decision of the Division Bench of this Court and Delhi High Court and applying the same to the facts of the case on hand, it cannot be said that there was no material before the AO to reopen the assessment. In the present case also the reassessment proceedings have been initiated by the AO on the basis of material provided by the Principal Director of Income Tax (Investigation), Ahmedabad. It is also required to be noted that the genuineness of the various companies who made share applications are doubted. The assessee is alleged to have been engaged in bogus share applications from various bogus concerns operated by Shri Pravin Kumar Jain. The assessee is the beneficiary of the said transactions of share application by those bogus concerns. In the wake of information received by the AO, when AO formed a belief that the investment made from the funding of such companies which are bogus, the AO has rightly assumed the jurisdiction of initiating the reassessment proceedings. AO, on the basis of information subsequently having come to his knowledge, recognized untruthfulness of the facts furnished earlier. In the present case, since both the necessary conditions to reopen the assessment have been duly fulfilled, sufficiency of the reasons is not to be gone into by this Court. Information furnished at the time of original assessment, when by subsequent information received from the Principal Director of Income Tax (Investigation), Ahmedabad, itself found to be controverted, the objection to the notice of reassessment under section 147 of the IT Act must fail. At this stage, para 20 of the decision in the case of Yogendrakumar Gupta (supra) is required to be referred to, which reads as under:

“20. This Court has examined the belief of the Assessing Officer to a limited extent to inquiry as to whether there was sufficient material available on record for the Assessing Officer to form a requisite belief whether there was a live link existing of the material and the income chargeable to tax that escaped assessment. This does not appear to be the case where the Assessing Officer on vague or unspecific information initiated the proceedings of reassessment, without bothering to form his own belief in respect of such material. We need to notice that the Joint Director, CBI, Mumbai, intimated to the DIT (Investigation), Mumbai. A case is registered against Mr.Arun Dalmia, Harsh Dalmia and during the search at their residence and office premises, the substantial material indicated that 20 dummy companies of Mr.Arun Dalmia were engaged in money laundering and the income-tax evasion. The said entities included Basant Marketing Pvt. Ltd. also.

From the analysis of details furnished and the beneficiaries reflected, which are spread across the country, the CIT, Koklata, suspected the accommodation entry related to the assessment year 2006-07 as well, this information has been provided to Director General of Income-tax, Kolkata, who in turn, communicated to the Chief Commissioner of Income-tax, Ahmedabad. Further revelation of investigation as could be noticed from the record examined (file) deserves no reflection in this petition. Insistence on the part of the petitioner to provide any further material forming the part of investigation carried out against Dalmias also needs to meet with negation, as the law requires supply of information on which Assessing Officer recorded her satisfaction, without necessitating supply of any specific documents. The proceedings initiated under section 147 of the Act would not be rendered void on non-supply of such document for which confidentiality is claimed at this stage, following the decision of the Delhi High Court in case of Acorus Unitech Wireless (P.) Ltd. (supra). Assumption of jurisdiction on the part of the Assessing Officer is since based on fresh information, specific and reliable and otherwise sustainable under the law, challenge to reassessment proceedings warrant no interference.”

7.9. In view of the aforesaid facts and circumstances of the case, the decisions of the Hon’ble Supreme Court in the case of Lakhmani Mewal Das (Supra); the decision of the Delhi High Court in the case of JSRS Udyog (Supra); Replika Press (P.) Limited (Supra) and the decision of this Court in the case of Sarla Rajkumar Verma (Supra) shall not be applicable to the facts of the case on hand. In the facts and circumstances of the case, it cannot be said that the reopening of the assessment is on change of opinion by the subsequent AO.

7.10. Now, so far as the submission on behalf of the assessee that the statement of Shri Pravin Kumar Jain, which was recorded at the time of search and which is the basis for reopening of the assessments in the years under consideration, was subsequently retracted and therefore, the reopening of the assessment on such a retracted statement cannot be sustained is concerned, at the outset it is required to be noted that from the reasons recorded it cannot be said that the reopening is solely based upon the statement of Shri Pravin Kumar Jain, which is subsequently retracted. From the reasons recorded it appears that the office of the Principal Director of Income Tax (Investigation), Ahmedabad sent the material / evidence collected during the search of Shri Pravin Kumar Jain and after considering and verifying the same and having been found that the petitioner -assessee is the beneficiary of the accommodation entries by way of share application from various bogus companies operated by Shri Pravin Kumar Jain, only thereafter the impugned notices under Section 148 of the IT Act are issued and the assessments for the AYs 2011-12 and 2012-13 are reopened.

Even otherwise what will be the effect of the retracted statement of Shri Pravin Kumar Jain is required to be decided and/or considered at the time of reassessment proceedings.

7.11. Now, so far as the reliance placed upon the decision of the Delhi High Court in the case of Signature Workers (P) Ltd. (Supra) by the learned Counsel appearing on behalf of the assessee is concerned, on considering the facts in the said decision, we are of the opinion that the said decision shall not be applicable to the facts of the case on hand. In the present case on the basis of the information received from the office of Principal Director of Income Tax (Investigation), Ahmedabad along with the evidence collected during the search and other findings, the AO has considered the same and after verifying and considering the material on record it has been found by the AO that the present assessee is the beneficiary of the accommodation entries / bogus share application from various bogus companies operated by Shri Pravin Kumar Jain. In the affidavit in reply the Revenue has stated in para 3.8 as under:

“The allegation of the assessee is not correct. The case of the assessee was reopened based on correct facts / law and procedural requirements of the Act were duly complied with. The information provided by The Pr. Director of Income Tax (Investigation), Ahmedabad vide confidential letter No.PDIT(Inv)/AHD/Pravin Jain/15-16 dated 16.06.2015, was throroughly perused. The same has been summarized in the reasons for reopening recorded prior to issuance of section 148 notice. From the same, reason to believe that income has escaped assessment in concerned AY has been logically derived. Thus, only after deriving requisite satisfaction regarding escapement of income on basis of information / material supplied by the Pr. Director of Income Tax (Investigation), Ahmedabad, reopening was initiated. The same is evident from reasons provided for reopening. Information received from third party, more so the information collected by Investigation Wing as a consequence of search u/s. 132 of the Act constitutes sufficient material for reopening, if, Assessing Officer after perusing the said information arrives at conclusion that income has escaped assessment. This is precisely the case in present situation. Thus, all the allegations made by the petitioner are incorrect in this case. In this regard it is stated that the findings of the Investigation wing are based on an the material recovered during search conducted on Shri Pravin Kumar Jain group on 01.10.2013 in Mumbai. The same was sympathetically decoded and corroborated by evidence seized during the search. The details regarding modus of recording transactions has been described in detail by the Investigation wing. The relevant part of the same with findings of Investigation Wing was summarized in reasons recorded. It was found by the Investigation wing that Pravin Kumar Jain group was engaged in business of providing accommodation entries through its concerns like Anchal Properties P. Ltd., Ansh Merchandise P. Ltd., Olive Overseas P. Ltd., Vanguard Jewels Ltd. etc.

It was found that there are bogus transactions to / from account of Anchal Properties P. Ltd., Ansh Merchandise P. Ltd., Olive Overseas P. Ltd., Vanguard Jewels Ltd., to the account of the assessee company. On basis of corroborative evidence and systematic investigation, Investigation Wing has given a finding that all such transactions of accommodation entry given by certain Pravin Kumar Jain group concerns such as Anchal Properties P. Ltd., Ansh Merchandise P. Ltd., Olive Overseas P. Ltd., Vanguard Jewels Ltd. are accompanied with bogus transactions by the corresponding other party or the beneficiary i.e. Aaspaas Multimedia Ltd. in the present case. At this stage, information collected by Investigation Wing as a consequence of search u/s.132 of the Act constituted sufficient material for reopening. In CIT v. Rajesh Jhaveri Stock Brokers (P) Ltd. (2007) 161 Taxman 316 (SC), it has been held that “if the Assessing Officer has cause or jurisdiction to know or suppose that income has escaped assessment, it can be said to have “reasons to believe” that an income has escaped assessment. The said expression cannot be read to mean that the Assessing Officer should have finally ascertained the fact by legal evidence or inclusion. The function of the Assessing Officer is to administer the statute with solicitude for the public exchequer with an in-built idea of fairness to taxpayer”. In view of these facts, it is most humbly submitted that the allegation or arguments raised by the petitioner are incorrect.”

Considering the aforesaid facts and circumstances it cannot be said that the impugned notices under Section 148 of the IT Act and the impugned reassessment proceedings are bad in law.

At this stage it is required to be noted that with respect to another asssessee -Ankit Financial Services Ltd. (Supra) in whose case also on the basis of such information received from the office of Principal Director of Income Tax (Investigation), Ahmedabad and with similar allegation of beneficiary of the accommodation entries / share application from the bogus companies operated by Shri Pravin Kumar Jain when the assessment for AY 2010-11 was sought to be reopened and when the same was challenged before this Court, the Division Bench of this Court vide judgment and order dated 29.12.2016 in Special Civil Application No.18961/2016 has dismissed the said petition.

In view of the above and for the reasons stated above, it cannot be said that the impugned notices under Section 148 of the IT Act are without jurisdiction and/or contrary to section 147 of the IT Act and/or bad in law. Under the circumstances, both the petitions deserve to be dismissed and are, accordingly, dismissed. Notice is discharged. Ad-interim relief, if any, stands vacated forthwith. No costs.

[Citation : 405 ITR 512]