TaxTMI 
TaxTMI 
2019 (1) TMI 223
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....turn right from its incorporation. The present petition relates to assessment year 2011-12 and the petitioner/company is challenging the reassessment proceedings initiated by respondent No.1. 3. It has been stated that the petitioner/company has filed its return of income for the assessment year 2011-12 on 30.03.2012 declaring the income as nil. It has been stated that from the balancehttp:// sheet reflecting position as on 31.03.2011 in respect of the previous year 2010-11, reflects that the share capital of the petitioner/company was carried forward from its previous year without any change or without any fresh share capital being issued or subscribed. 4. It has further been stated that nothing was heard by the petitioner/company after filing of the return for the assessment year 2011-12 and even the prescribed limitation under Section 143 (2) of the Income Tax Act, 1961 for issuance of notice, expired, meaning thereby, there was a deemed acceptance of the return. 5. It has further been contended that the respondent No.1/Income Tax Officer - 2(2) issued a notice under Section 148 of the Income Tax Act, 1961 on 31.03.2018 stating that the Assessing Officer has reason to b....
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....-, which has escaped assessment for the assessment year 2011-12 in the hands of the petitioner, and therefore, reopening of the assessment in respect of escaped income was being done for the assessment year 2011-12. 9. Learned senior counsel for the petitioner has argued before this Court that the reasons recorded for reopening of the assessment are patently vague and there is no substance in the reasons recorded in the matter. Learned counsel has also argued that the petitioner/company has not received any amount towards share application money in the year, which is under consideration and whatever share capital appears in the petitioner's balance-sheet, is being carried forward right from the year of its incorporation without any fresh or new influx of the capital in the assessment year 2011-12. 10. The petitioner after receiving the reasons vide letter dated 29.09.2018, filed a detailed objection, and thereafter, preferred the present writ petition being aggrieved by the notice dated 31.03.2018 and the order rejecting the objection dated 22.11.2018. 11. Various grounds have been raised by the petitioner and it has been contended that the impugned notice issued by th....
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....s of reasons must relate to such income and its escapement from assessment in the relevant assessment year. 17. It has further been stated that the respondents failed to see that the reasons on the basis of which the petitioner's assessment for AY 2011-12 is sought to be reopened viz the alleged bogus share capital/share application money to the extent of Rs. 2,63,75,500/- being a non-existent reason, no belief about escapement of such income from assessment could be formed. 18. It has further been contended that the respondents failed to see that since share capital, which is alleged to be bogus capital and is sought to be assessed as assessed income for AY 2011-12, has not been received by the petitioner in the said year but is merely the balance carried forward right from the year of incorporation of the petitioner company and there was no such belief about escapement of such amount from tax in the relevant assessment year i.e. 2011- 12. 19. It has further been contended that in absence of any fresh share capital/share application money having been received by petitioner in the relevant assessment year i.e. AY 2011-12, neither there could be any reasons nor there co....
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.... year 1995 from tax in AY 2011-12. The material sought to be relied upon by AO on the basis of which the belief is said to have been formed is absolutely vague, indefinite, distant, remote and farfetched and no person of reasonable prudence can form the belief as contemplated u/s 147. 25. It has further been contended that in absence of reasons and consequent belief as required by section 147, the conditions precedent for assumption of jurisdiction u/s 147 remained nonsatisfied which render the entire proceedings as illegal, bad in law and without jurisdiction and no reassessment on the basis of such proceedings can be validly made against the petitioner. 26. It has further been contended that the impugned initiation of proceedings is bad in law and without jurisdiction as the same is barred by limitation prescribed u/s 149(1)(b) for issuance of notice u/s 148 of the Income Tax Act, which is essential for making assessment u/s 147. 27. It has further been contended that no notice of assessment u/s 148 in the present case could be issued beyond a period of six years from the end of relevant assessment year i.e. six years from end of AY 2011-12. Since in the instant case, th....
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....2000) 246 ITR 363 (Madhya Pradesh), Commissioner of Income Tax v/s Bigabass Maheshwari Sewa Samiti reported in (2008) 220 CTR 369 (Rajasthan) and United Electrical Co. (P.) Ltd. v/s Commissioner Income Tax reported in (2002) 258 ITR 317 (Delhi). 31. A detailed and exhaustive reply has been filed by the Income Tax Department and the respondents have admitted issuance of notice under Section 148 of the Income Tax Act, 1961, which was sent by the speed post on 31.03.2018. It has been stated that the proceedings were initiated under Section 147 of the Income Tax Act, 1961 after consideration of specific information that too with due application of mind on the basis of prima facie belief. 32. The respondents have also stated that the objection of the petitioner was disposed of by the Assessing Officer i.e. Income Tax Officer - 2(2) vide order dated 22.11.2018. The respondents have stated that the petitioner's contention is that the share capital continued to be carried forward, as it is from previous year, without any change or without any fresh share capital being issued or subscribed, is not acceptable on face value. 33. The respondents have further stated that the petiti....
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....11) 333 ITR 146 (Delhi). Though, the respondents have given para-wise reply to the writ petition, however, learned counsel for the respondents has argued before this Court that even though, the petitioner/company is legally incorporated company, it doesn't mean that it cannot be a dummy company. It has been stated that the company was incorporated in the year 1995 and after very detailed and thorough investigation carried out in 2017, it was prima facie established that the petitioner is a dummy company. 38. The respondents have stated that there are large number of dummy/bogus/shell/briefcase/paper entities including the petitioner/company in the group, which is being managed and controlled by Shri Anand Bangur for the purposes of routing unaccounted money and the department with great difficulties and after examining huge evidence, has arrived at a conclusion to initiate the proceedings against the petitioner and it is not a case where some unilateral action has been taken against the petitioner, it is a case where petitioner will receive every opportunity to defend himself and the entire mechanism has been provided under the Income Tax Act, 1961 and the respondents have p....
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....ent.]" Explanation 1.-Production84 before the Assessing Officer of account books or other evidence from which material evidence could with due diligence have been discovered by the Assessing Officer will not necessarily84 amount to disclosure within the meaning of the foregoing proviso. Explanation 2.-For the purposes of this section, the following shall also be deemed to be cases where income chargeable to tax has escaped assessment, namely :- (a) where no return of income has been furnished by the assessee although his total income or the total income of any other person in respect of which he is assessable under this Act during the previous year exceeded the maximum amount which is not chargeable to income-tax ; (b) where a return of income has been furnished by the assessee but no assessment has been made and it is noticed by the Assessing Officer that the assessee has understated the income or has claimed excessive loss, deduction, allowance or relief in the return ; (c) where an assessment has been made, but- (i) income chargeable to tax has been underassessed ; or (i) such income has been assessed at too low a ra....
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....to a notice served under this section, and (b) subsequently a notice has been served under clause (ii) of sub-section (2) of section 143 after the expiry of twelve months specified in the proviso to clause (ii) of subsection (2) of section 143, but before the expiry of the time limit for making the assessment, reassessment or recomputation as specified in sub-section (2) of section 153, every such notice referred to in this clause shall be deemed to be a valid notice. Explanation - For the removal of doubts, it is hereby declared that nothing contained in the first proviso or the second proviso shall apply to any return which has been furnished on or after the 1st day of October, 2005 in response to a notice served under this section. (2) The Assessing Officer shall, before issuing any notice under this section, record his reasons for doing so." 42. The action has been initiated by the department against the petitioner under the aforesaid statutory provision of law and by a detailed and speaking order, the objection raised by the petitioner has been rejected. The reasons recorded for issuance of notice under Section 148 has been supplied to the petitio....
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....y work on the direction of the key person of the SPIL Group i.e. Shri Anand Bangur and Shri Amrish Parmar, who is the husband of Smt. Chhaya Parmar submitted that he did not aware regarding his involvement in any company. The detailed discussions on all three dummy directors have ben made supra. As per discussion/findings, it can be concluded that M/s Etiam Emedia Ltd is a dummy concern of Shri Anand Bangur. Shri Bangur uses this company for routing its unaccounted money into other group of companies. It is also observed that M/s Etiam Emedia Ltd has no worth or business activity, it surely acquired some assets but in this case, no substantial assets are available in the balance sheet, which is also one of the reasons to confirm the findings that the company is only a shell/paper company. In the light of the above facts it is established that M/s Etiam Emedia Ltd is a paper company which runs on paper and it engaged in the practice of providing accommodation entry. 7. In view of above facts and statements recorded during the post search investigation of the director Shri Kailash Garg company M/s Etiam Emedia Ltd had bogus share application money of Rs. 2,63,75,500/-. There....
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....he stage where he finds a cause or justification to believe that such income has escaped assessment, the assessing officer is not required to base his belief on any final adjudication of the matter. 10. In Ganga Saran & Sons P. Ltd. v. ITO & Ors., [1981] 130 ITR 1 (SC), it has been held thus: "It is well settled as a result of several decisions of this Court that two distinct conditions must be satisfied before the ITO can assume jurisdiction to issue notice under S. 147(a). First, he must have reason to believe that the income of the assessee has escaped assessment and, secondly, he must have reason to believe that such escapement is by reason of the omission or failure on the part of the assessee to disclose fully and truly all material facts necessary for his assessment. If either of these conditions is not fulfilled, the notice issued by the ITO would be without jurisdiction. The important words under S.147(a) are "has reason to believe" and these words are stronger than the words "is satisfied". The belief entertained by the ITO must not be arbitrary or irrational. It must be reasonable or in other words it must be based on reasons which are relevant and mate....
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....cer to take action under sections 147 and 148 of the Act. We are also of the opinion that, howsoever wide the scope of taking action under section 148 of the Act be, it does not confer jurisdiction on a change of opinion on the interpretation of a particular provision from that earlier adopted by the assessing authority. For coming to the conclusion whether there has been excessive loss or depreciation allowance or there has been underassessment at a lower rate or for applying the other provisions of Explanation 2, there must be material that have nexus to hold opinion contrary to what has been expressed earlier. The scope of section 147 of the Act is not for reviewing its earlier order suo motu irrespective of there being any material to come to a different conclusion apart from just having second thoughts about the inferences drawn earlier. [Emphasis added] 12. In Sheo Narain Jaiswal & Ors. v. Income Tax Officer & Ors., [1989] 176 ITR 352 (Patna), it was held that reassessment proceedings can be initiated under Section 147(a) of the Act if the Income-tax Officer has reason to believe that there has been escapement of income and that the said income escaped assessment by ....
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....the Assessing Officer and the reliability or credibility or for that matter the weight that was attached to the materials naturally depends on the judgment of the Assessing Officer. This court in exercise of power under Article 226 of the Constitution of India cannot go into the sufficiency or adequacy of the materials. After all the Assessing Officer alone is entrusted to administer the impugned Act and if there is prima facie material at the disposal of the Assessing Officer that the income chargeable to income-tax escaped assessment this court in exercise of power under Article 226 of the Constitution of India should refrain from exercising the power. In the instant case, the case of the petitioner was fairly considered and thereafter the above decision is taken." [Underlining is ours] In Bombay Pharma Products v. Income Tax Officer, [1999] 237 ITR 614 (MP), it was held as follows: It is also established that the notice issued under Section 148 of the Act should follow the reasons recorded by the Income-tax Officer for reopening of the assessment and such reasons must have a material bearing on the question of escapement of income by the assessee from ....
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....allowed to be drawn based on reasons not recorded. It is for the Assessing Officer to disclose and open his mind through reasons recorded by him. He has to speak through his reasons. It is for the Assessing Officer to reach to the conclusion as to whether there was failure on the part of the assessee to disclose fully and truly all material facts necessary for his assessment for the concerned assessment year. It is for the Assessing Officer to form his opinion. It is for him to put his opinion on record in black and white. The reasons recorded should be clear and unambiguous and should not suffer from any vagueness. The reasons recorded must disclose his mind. Reasons are the manifestation of mind of the Assessing Officer. The reasons recorded should be self-explanatory and should not keep the assessee guessing for the reasons. Reasons provide the link between conclusion and evidence. The reasons recorded must be based on evidence. The Assessing Officer, in the event of challenge to the reasons, must be able to justify the same based on material available on record. He must disclose in the reasons as to which fact or material was not disclosed by the assessee fully and truly necess....
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....hereafter, the Bench referred to the decisions in CIT v. Atul Jain, 299 ITR 383 (Del), Rajesh Jhaveri Stock Brokers Pvt. Ltd (supra), Jay Bharat Maruti Ltd. v. CIT, 223 CTR 269 (Del) and CIT v. Batra Bhatta Company, 174 Taxman 444 (Del) and eventually held thus: - "9. In the present case, we find that the first sentence of the so-called reasons recorded by the Assessing Officer is mere information received from the Deputy Director of Income Tax (Investigation). The second sentence is a direction given by the very same Deputy Director of Income Tax (Investigation) to issue a notice under Section 148 and the third sentence again comprises of a direction given by the Additional Commissioner of Income Tax to initiate proceedings under Section 148 in respect of cases pertaining to the relevant ward. These three sentence are followed by the following sentence, which is the concluding portion of the so-called reasons:- "Thus, I have sufficient information in my possession to issue notice u/s 148 in the case of M/s SFIL Stock Broking Ltd. on the basis of reasons recorded as above." 10. From the above, it is clear that the Assessing Officer referred to the informa....
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....into transaction. Both the orders clearly exposit that the assessing officer was made aware of the situation by the investigation wing and there is no mention that these companies are fictitious companies. Neither the reasons in the initial notice nor the communication providing reasons remotely indicate independent application of mind. True it is, at that stage, it is not necessary to have the established fact of escapement of income but what is necessary is that there is relevant material on which a reasonable person could have formed the requisite belief. To elaborate, the conclusive proof is not germane at this stage but the formation of belief must be on the base or foundation or platform of prudence which a reasonable person is required to apply. As is manifest from the perusal of the supply of reasons and the order of rejection of objections, the names of the companies were available with the authority. Their existence is not disputed. What is mentioned is that these companies were used as conduits. In that view of the matter, the principle laid down in Lovely Exports (P) Ltd. (supra) gets squarely attracted. The same has not been referred to while passing the order of rejec....
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....ible whether the assessing officer had applied his mind to the information and independently arrived at a belief on the basis of material which he had before him that the income had escaped assessment. In our considered opinion, the decision rendered therein is not applicable to the factual matrix in the case at hand. In the case of Sarthak Securities Co. Pvt. Ltd. (supra), the Division Bench had noted that certain companies were used as conduits but the assessee had, at the stage of original assessment, furnished the names of the companies with which it had entered into transactions and the assessing officer was made aware of the situation and further the reason recorded does not indicate application of mind. That apart, the existence of the companies was not disputed and the companies had bank accounts and payments were made to the assessee company through the banking channel. Regard being had to the aforesaid fact situation, this Court had interfered. Thus, the said decision is also distinguishable on the factual score. In the case at hand, as we find, the petitioner is desirous of an adjudication by the writ court with regard to the merits of the controversy. In fact, ....