TaxTMI 
TaxTMI 
2026 (9) TMI 57
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.... material; c) It is based on borrowed satisfaction which is impermissible in law; d) There is no live nexus between the alleged information and formation of the belief and there is a total non-application of mind; (e) It is merely a change of opinion since there was already a scrutiny assessment conducted in the Assessee's case & an Assessment Order was passed under Section 143(3) of the I. T. Act. f) There is no proper valid sanction within the meaning of Section 151 as the sanction has been granted in a mechanical manner and without any application of mind. 4. To understand the challenge, it would be necessary to refer to some basic facts. According to the Petitioner, it is a very well known and reputed concern in the business of manufacturing of gold chains since more than about 20 years. It was incorporated as a partnership firm in the year 2004 and got converted into a company under Part IX of the erstwhile Companies Act, 1956. The Petitioner is having a huge turnover, including a substantial export turnover, running into hundreds of crores. According to the Petitioner, it enjoys substantial profitability having exponential growth in the ....
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....ny, including to verify the applicability of Section 56(2)(viib) of the I. T. Act. In the course of the assessment proceedings, the Petitioner-Company filed very exhaustive details, explanations and evidence in support of the receipt of the share capital. This included, amongst others, all documents in relation to valuation as well as the mandatory compliances of the Reserve Bank of India, Registrar of Companies, etc. 8. Pending the assessment, a survey under Section 133A of the I. T. Act was carried out at the business premises of the Petitioner-Company on 7th September 2018. During this survey, once again, the issue of share capital was explained in detail, including by way of a statement on oath, recorded of a Director of the Petitioner-Company which was accepted by the 1st Respondent himself. 9. According to the Petitioner-Company, no new or additional information or material, much less any incriminating material was found during the survey. As such, it was only after full verification and examination that the Assessment Order under Section 143(3) of the I. T. Act was passed by the Assessing Officer on 28th November 2018 accepting the genuineness of the shares allotted to....
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....at during the relevant year, the amount of share capital infused in the Petitioner-Company amounting to Rs. 15,55,79,207/- was non-genuine. She submitted that without furnishing the said statement, and which the Revenue contends is new tangible material for reopening the assessment, the entire reassessment proceedings are bad on the ground of violation of the principles of natural justice alone. She submitted that if the statement was in fact provided to the Petitioner, they could have demonstrated that the transaction which the Revenue alleges as non-genuine, was in fact, a genuine transaction under which infusion of capital took place in the Petitioner-Company. She further submitted that merely because the Assessing Officer was of the view that the premium charged for infusion of capital was at a higher rate does not ipso facto, without anything more, lead to any conclusion that income had escaped assessment. She submitted that what premium is to be charged on the shares issued by the Petitioner-Company is entirely at the discretion of the Petitioner-Company and the Income Tax Department cannot dictate to an Assessee as to what rate it should charge a premium for issuing its equi....
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....record that there was no justification for the premium to be increased from Rs. 5/- per share to Rs. 59/- per share within a short span of 4 months and especially taking into consideration that the Petitioner-Company was incorporated on 5th September 2013. Mr. Chhotaray took us through the reasons recorded and submitted that apart from this fact, there were statements of Mr. Bhavishi recorded under Section 131 of the I.T. Act which clearly established that Mr. Manoj Jain of M/s. Viren Jewellers LLC was one who was engaged in non-genuine business practices, including collection of cash and transaction of money to and from India by means of non-genuine/bogus export/import business and trading in gold jewellery. It is on this basis that the Assessing Officer in the reasons recorded that Mr. Bhavishi's statements reveal that M/s. Viren Jewellers LLC, Dubai had provided accommodation entries to the Petitioner-Company. It is in view of the dubious background of Mr. Manoj Jain [of M/s. Viren Jewellers LLC, Dubai], coupled with the fact that there was no proper economic rationale for the premium charged from the fundamentals of the company, that the Assessing Officer came to the conclusion....
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....The reasons for reopening the assessment were supplied to the Petitioner-Company by a letter dated 29th October 2021 (page 137 of the paper book). For the sake of convenience, the said reasons are reproduced hereunder:- "The reason for reopening of assessment is as follows: The assessee company is engaged in the business of Manufacturing & trading of Jewellery. The assessee had filed return of income for the year under consideration on 15.10.2016 declaring total income of Rs.5,04,43,130/-. The return was processed by CPC. The case was selected for LIMITED scrutiny and assessment u/s. 143(3) was completed on 28.11.2018 determining total income of Rs. 5,04,43,130/-. 2. A survey action u/s. 133A was carried out on the assessee by DDIT (Inv.)-1(1), Mumbai on 07.09.2018 at the business premises of the assessee. The survey report was forwarded to the then jurisdictional Assessing Officer on 18.04.2019. During the course of survey, it was found that on 06.08.2015, 43,82,923 equity shares of nominal amount of Rs. 10/- per share and premium of Rs. 5/- were allotted to M/s. Viren Jewellers LLC, Office # 302, Gold House Bldg., Gold Souk, Dubai 3611. Thereafter, on 0....
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....ment recorded, it was stated that the company has requirement of funds to expand the business and that was the reason to allot equity shares. As per the resolution passed at meeting of the board of directors of the assessee before offering equity shares at premium during F.Y. 2015-16, the purpose of the same was mentioned to raise funds for working capital need of the company. However, the reason was not found to be substantiated from the financials. There are discrepancies in reporting financials as well. Short Term Loans and Advances was shown at Rs. 11,93,49,814 - (Note No. 12) and Non-Current Investments at Nil as per Balance Sheet as on 31.03.2017. However, as per balance sheet as on 31.03.2018, Short Term Loans and Advances was shown at Rs. 2,93,49,814/- and Non-Current Investments was shown at Rs. 9,00,00,000 as on 31.03. 2017. More importantly, statement of one Mr. Sanjay Khushaldas Bavishi was recorded on oath u/s. 131 on 07.09.2018 to 09.09.2018 wherein he has stated that Mr. Manoj Jain is a person who is known in the trade to be indulging in non-genuine business practices including collection of cash and transfer of money to and from India by means of non-genuin....
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....r, as discussed in the reason to believe income chargeable to tax has been underassessed by an amount of Rs. 15,56,00,843/-. In view of the above facts, the provisions of clause (c) of explanation 2 to section 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. 6. This case is within 4 years from the end of the assessment year under consideration. Therefore, necessary sanction to issue notice u/s. 148 has been obtained separately from the Addl. Commissioner of Income Tax (Central Range-3), Mumbai as per the provisions of section 151 of the Act. If you wish to file objection, if any, against the reopening of assessment, you are requested to file it by 15/11/2021 positively. It may kindly be noted that if you have failed to file the objection, if any, by 15/11/2021, it will be presumed that you have no objection against the reason recorded (before reopening of assessment). It may be noted that further proceedings u/s. 147 r.w.s. 143(3) of the Income-tax Act, 1961 will be undertaken without offering any further opportunity." (emphasis suppl....
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....ly, or regarding the transaction in question, namely, the investment made by M/s. Viren Jewellers LLC in the Petitioner-Company. We, therefore, on perusing the statements recorded of Mr. Sanjay Bhavishi, are unable to understand how is there a live nexus and/or connection between the statements of Mr. Sanjay Bhavishi (being the alleged new tangible material) and the belief formed by the Assessing Officer that income of the Petitioner-Company had escaped assessment. 20. It is now too well settled that the reasons for the formation of the belief that income had escaped assessment must have a rational connection with or a relevant bearing on the formation of the belief. Rational connection postulates that there must be a direct nexus or a live link between the material coming to the notice of the Income Tax Officer and the formation of his belief that there has been an escapement of income of the Petitioner-Company from assessment, in the particular year. It is no doubt true that the Court cannot go into the sufficiency or adequacy of the reasons or material and substitute its own opinion for that of the Income Tax Officer on the point as to whether action should be initiated for r....
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....ncome of the assessee from assessment. The fact that the words "definite information" which were there in Section 34 of the Act of 1922 at one time before its amendment in 1948 are not there in Section 147 of the Act of 1961 would not lead to the conclusion that action can now be taken for reopening assessment even if the information is wholly vague, indefinite, farfetched and remote. The reason for the formation of the belief must be held in good faith and should not be a mere pretence. 12. The powers of the Income Tax Officer to reopen assessment though wide are not plenary. The words of the statute are "reason to believe" and not "reason to suspect" The reopening of the assessment after the lapse of many years is a serious matter. The Act, no doubt, contemplates the reopening of the assessment if grounds exist for believing that income of the assessee has escaped assessment. The underlying reason for that is that instances of concealed income or other income escaping assessment in a large number of cases come to the notice of the Income Tax Authorities after the assessment has been completed. The provisions of the Act in this respect depart from the normal rule that the....
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.... was possible for him to operate the bank account standing in the name of his father. It was, however, alleged by him that he had been carrying on name-lending business since 1958-59. He did not maintain any books of account for such business. When he was asked to state the names and addresses of some of the alleged borrowers who were still showing credits in his name in their books of account, he only referred to the names of two companies and could not mention the name of any other alleged borrowers on the ground that it was not possible for him to say so, without looking into the files containing the confirmatory letters, which had been seized by the I.T. Dept. on November 17, 1965. It also appears from his statement that he had a good credit in the market inasmuch as he could get an aggregate amount of loan of Rs. 81,000 from one Srinivas Bullewa in 1953-54. Further, he had contracted other loans from the market but he could not give the names of the parties from whom he had taken such loans. Relying on the said confessional statement, the ITO, respondent No. 1, issued the impugned notice under s.148. The question that naturally arises is whether this confessional statement is ....
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....o when that confession was made and whether it relates to the period from April 1, 1957, to March 31, 1958, which is the subject-matter of the assessment sought to be reopened. The report was made on February 13, 1967. In the absence of the date of the alleged confession it would not be unreasonable to assume that the confession was made a few weeks or months before the report. To infer from that confession that it relates to the period from April 1, 1957, to March 31, 1958, and that it pertains to the loan shown to have been advanced to the assessee, in our opinion, would be rather farfetched." The confession, that was made by the said Mohansingh Kanayalal in Lakhmani Mewal Das's case [1976] 103 ITR 437 (SC), was to the effect that he was doing only name-lending business. Mr. Sengupta has sought to distinguish the confessional statement made by the said Mohansingh Kanayalal in the Supreme Court case and that made by the said Prahlad Roy Almal in the instant case. It is submitted by him that the confession of Mohansingh Kanayalal that he was doing "only name-lending" means that all his transactions were not bogus or name-lending transactions. In other words, it is his ....
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....11] 9 taxmann.com 62/197 Taxman 177/333 ITR 146 (Delhi), Raymond Wollen Mills Ltd. v. ITO [1999] 236 ITR 34 (SC) and Asstt. CIT v. Rajesh Jhaveri Stock Brokers (P.) Ltd. [2007] 161 Taxman 316/291 ITR 500 (SC), cited by learned Counsel for the revenue, bear on the aspect of sufficiency or otherwise of the material used for formation of belief. These judgments make it clear that what can be submitted to judicial scrutiny is whether or not there was material on the basis of which belief could have been formed about escapement of income from assessment, and not whether the material was actually adequate or sufficient for formation of such belief. There is no quarrel with this proposition here. Here, we are precisely concerned with whether or not such belief could have been formed on the basis of such material as was available with the Assessing Officer. In every State action or order submitted to judicial scrutiny, the matter is assessed from the point of view of Wednesbury unreasonableness. The focus of the scrutiny is, firstly, on whether the authority has kept itself within the four corners of law and, secondly, and even if it has so kept itself, whether it has nevertheless come to ....
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....d or sentence from the entire judgment, divorced from the context and relying upon it, is not permissible (see CIT v. Sun Engg. Works (P.) Ltd. [1992] 64 Taxman 442/198 ITR 297 (SC)). It may be useful to reproduce the context in which the sentence in Rajesh Jhaveri Stock Brokers (P.) Ltd.'s case (supra) being relied upon by the Revenue to support its case, was made. The context, is as under:- "The scope and effect of section 147 as substituted with effect from April 1, 1989, as also sections 148 to 152 are substantially different from the provisions as they stood prior to such substitutions. Under the old provisions of section 147, separate clauses (a) and (b) laid down the circumstances under which income escaping assessment for the past assessment years could be assessed or reassessed to confer jurisdiction under section 147(a) two conditions were required to be satisfied : firstly the Assessing Officer must have reason to believe that income, profits or gains chargeable to income tax have escaped assessment, and secondly he must also have reason to believe that such escapement has occurred by reason of either omission or failure on the part of the assessee to disclo....
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....9;whatever reasons' in Rajesh Jhaveri Stock Brokers (P.) Ltd.'s, case (supra), only means whatever the material, the reasons recorded must indicate the reasons to believe that income has escaped assessment. This is so as reasons as recorded alone give the Assessing Officer power to re-open an assessment, if it reveals/indicate, reasons to believe that income chargeable to tax has escaped assessment. 12. The re-opening of an Assessment is an exercise of extra-ordinary power on the part of the Assessing Officer, as it leads to unsettling the settled issue/assessments. Therefore, the reasons to believe have to be necessarily recorded in terms of Section 148 of the Act, before re-opening notice, is issued. These reasons, must indicate the material (whatever reasons) which form the basis of re-opening Assessment and its reasons which would evidence the linkage/nexus to the conclusion that income chargeable to tax has escaped Assessment. This is a settled position as observed by the Supreme Court in S. Narayanappa v. CIT [1967] 63 ITR 219, that it is open to examine whether the reason to believe has rational connection with the formation of the belief. To the same effect....
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....as convinced that Mr. Manoj Jain was involved in bogus and illegal cash transactions, the current transaction also should be painted with the same brush. We are afraid that is not the law. The law is that the material has to have a direct nexus to the belief formed by the Assessing Officer that income has escaped assessment. Having a "reason to suspect" is not a ground on which the Assessing Officer can invoke his jurisdiction to reopen the assessment of an Assessee. In fact, even the Survey Report was placed before us for our perusal. It is interesting to note that the Survey Report, on the basis of the statements of the very same Mr. Sanjay Bhavishi, comes to the conclusion that considering the dubious background of Mr. Manoj Jain coupled with the fact that there was no need for additional funding, or the economic rationale on which the value of the shares of the Petitioner-Company was derived, establishes the fact that share capital received by the Petitioner-Company is in fact its unaccounted money routed back to it through the FDI route. Despite this finding, and which we found to be based on no material whatsoever, the Survey Report suggests to the Assessing Officer to carry ....
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.... fair to refer to the decisions relied upon by Mr. Chottaray. Mr. Chottaray relied upon the following decisions:- (i) Commissioner of Income -Tax, West Bengal II v/s Durga Prasad More [(1971) 82 ITR 540 (SC); (ii) Income-Tax Officer v/s Selected Dalurband Coal Co Pvt Ltd [(1996) 217 ITR 597 (SC)] (iii) Raymond Woollen Mills Ltd v/s Income-Tax Officer & Ors [(1999) 236 ITR 34 (SC) (iv) Phool Chand Bajrang Lal & Anr v/s Income-Tax Officer & Anr [(1993)203 ITR 456 (SC) (v) Assistant Commissioner of Income-Tax v/s Rajesh Jhaveri Stock Brokers P. Ltd [(2007) 291 ITR 500 (SC) 30. After perusing these decisions, we find that the same are wholly inapplicable to the facts of the present case. In fact, we find that all these decisions, except the decision in the case of Commissioner of Income-Tax, West Bengal II v/s Durga Prasad More (1971) 82 ITR 540 (SC) have in fact been distinguished by this Court in its decision in Sesa Sterlite (supra), the relevant portion of which we have reproduced earlier. 31. As far as Durga Prasad More (supra) is concerned, the said decision is wholly inapplicable for the simple reason that the same was not even ....
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....d. 33. The second ground for reopening the assessment of the Petitioner-Company was that contributions received from employees for various funds was not deposited with those funds within the due date under those respective Statutes, and therefore, the same ought to be added. The amount involved is Rs. 21,636/-. The Notice issued under Section 148 of the I. T. Act in the present case is dated 30th March 2021. This reason for reopening, therefore, obviously has to be prior to this date. The law as it stood prior to 30th March 2021 was that the contributions to those funds had to be made by the due date of filing the Return of Income under Section 139 of the I. T. Act. It is not in dispute that in the present case, the amounts were deposited by the due date of filing the Return. Therefore, on the date when the Notice was issued, the Assessing Officer could never have had "reason to believe" that the aforesaid income had escaped assessment as it was contrary to the law laid down by this Court in Commissioner of Income Tax v/s Ghatge Patil Transports Ltd [2014] 368 ITR 749 (Bom). 34. It is true that the aforesaid decision of this Court was overruled by the Hon'ble Supreme Court in....