ORDER
Niral R. Mehta, J.- Since all the aforesaid matters are arising from similar orders and on similar ground, the same are being disposed of by this common order, by treating the Special Civil Application No.18632 of 2018 as a lead matter and the facts stated therein are recorded as under.
2. The petitioner – assessee by way of this petition under Article 226 of the Constitution of India seeks to challenge the notice under Section 148 of the Income-Tax Act, 1961 (for short ‘the Act’), whereby assessment for the Assessment Year 2011-12 is sought to be reopened.
3. Brief facts of the case are as under :
3.1 The petitioner – assessee submitted a return of income for the Assessment Year 2011-12 on 13.9.2011, declaring total income of Rs.11,72,704/-.
3.2 A notice under Section 143(2) of the Act dated 27.9.2012 and subsequent notice under Section 142(1) of the Act dated 9.4.2013 were issued upon the petitioner along with detailed questionnaires. Apropos to the aforesaid, the petitioner submitted its reply on 2.5.2013. Another notice dated 14.10.2013 under Section 141(1) of the Act was received by the petitioner and thereafter, the same was replied vide reply dated 12.10.2013 and 22.10.2013. In response to certain further queries raised by the respondent during the course of hearing, the petitioner responded to those queries vide letter dated 25.11.2013 along with details about the trading summary of the petitioner from 1.4.2010 to 31.3.2011 during which transactions done through M/s.Divya Commodities were shown.
3.3 Thereafter, a specific show cause notice dated 21.3.2014 came to be issued requiring the petitioner, inter-alia, to submit details and clarification about transactions done through the broker, namely, M/s.Divya Commodities. The petitioner vide reply dated 26.3.2014 explained the transactions along with an affidavit dated 28.3.2014 of one Mr.Vipulkumar I. Thakkar, proprietor of M/s.Divya Commodities.
3.4 Thereafter, an assessment order under Section 143(3) of the Act dated 31.3.2014 came to be passed by making addition of Rs.5,93,29,911/- under Section 68 of the Act. However, the same amount was set-off against against an allowable carried forward loss of the same amount and the assessed total income was eventually rounded off at Rs.12,25,570/-.
3.5 Thereafter, a notice under Section 271 read with Section 271(1)(c) of the Act dated 31.3.2014 came to be issued upon the petitioner for showing cause as to why the penalty should not be levied. The said notice was received by the petitioner vide its reply dated 2.5.2014. The revenue authorities, having considered the reply of the petitioner, vide order dated 3.7.2014, dropped the penalty proceedings.
3.6 Thereafter, a notice under Section 148 of the Act dated 31.3.2018 asking, inter-alia, the petitioner to file return within 30 days came to be issued on e-proceeding portal. The petitioner file his response stating that the return for the Assessment Year 2011-12 has already been filed vide acknowledgment No.283721631130911 and the same has been requested to be considered as return filed under Section 148 of the Act, with a further request to the Assessing Officer to supply the copy of reasons recorded for reopening of assessment under Section 147 of the Act. In response thereof, the respondent forwarded a copy of reasons vide letter dated 11.10.2018.
3.7 The petitioner vide letter dated 31.10.2018, raised detailed objections against the reopening of assessment case. However, the respondent vide order dated 5.11.2018 disposed of the objections filed by the petitioner, justifying opening of reassessment under Section 147 of the Act.
3.8 Being aggrieved and dissatisfied by the aforesaid, the petitioner has approached this Court by way of this petition for the appropriate reliefs.
4. We have heard learned advocate Mr.Manish J. Shah for the petitioner and learned advocate Mr.Karan Sanghani for the respondent.
5. Learned advocate Mr.Manish J. Shah for the petitioner, while assailing the impugned notice, has made the following submissions :
(1) Learned advocate Mr.Manish Shah submitted that the reopening of assessment in case of petitioner is based on factually incorrect information as the respondent in the reasons incorrectly recorded that the case of the petitioner was only processed under Section 143(3) of the Act and there was no scrutiny assessment. Mr.Shah, in the said context, submitted that in fact, the fact is that the return of income filed by the petitioner was previously scrutinized and the same was culminated into assessment order. According to Mr.Shah, thus, the notice issued under Section 148 of the Act cannot be sustained. To substantiate the aforesaid contention, Mr.Shah has heavily relied upon the following judgments :
(i) | | Sagar Enterprise v. ACIT, reported in |
(ii) | | Palgram Hindu Sarvajanik Trust v. ITO(E), reported in (Gujarat) |
(iii) | | Bharatkumar Nihalchand Shah v. ACIT, reported in (Gujarat). |
(iv) | | Kapadia Money Changers (P) Ltd. v. ACIT, reported in (Gujarat) |
(2) Learned advocate Mr.Shah next submitted that reopening of assessment in case of petitioner is based on borrowed satisfaction and there is complete non-application of mind at the instance of Assessing Officer and, therefore, notice issued on the basis of reasons so recorded, is a glaring example of non-application of mind and based on borrowed satisfaction which itself is not permissible in the eye of law.
5.1 By making above submissions, learned advocate urged this Court to allow the present petitions.
6. Per contra, learned advocate Mr.Karan Sanghani for learned advocate Mrs.Kalpana Raval for the respondent, while supporting the impugned notice, has made the following submissions :
(1) Learned advocate Mr.Karan Sanghani submitted that assessment under Section 147 of the Act sought to be reopened on different set of facts which were not available at the time of original scrutiny assessment under Section 143(3) of the Act and thereby, on receipt of new facts and/or tangible material, the scrutiny assessment is sought to be reopened after proper application of mind. According to Mr.Sanghani, therefore, the notice under Section 148 of the Act is perfectly justified and thereby, the present petition is required to be dismissed.
(2) Learned advocate Mr.Sanghani submitted that merely because of small typographical error occurred in reasons of reopening of assessment cannot be vitiated as the said mistake would not cause any prejudice to the petitioner. Learned advocate further submitted that the material facts which have come to the knowledge of the department after the scrutiny assessment in respect of transaction made with M/s.Divya Commodities was neither disclosed by the petitioner voluntarily nor was subjected to examination by the Assessing Officer during the scrutiny assessment and thereby, the impugned notice under Section 148 of the Act is tenable in the eye of law.
(3) Learned advocate Mr.Sanghani submitted that the trading activity through M/s.Divya Commodities of Rs.19,45,15,466/- and earned profit of Rs.75,85,610/- have come into possession of department after completion of scrutiny assessment and thereby, issuance of notice under Section 147 of the Act is based on new and/or tangible material which were not fully and truly disclosed by the petitioner at the time of original assessment and accordingly, present petition deserves to be dismissed.
6. 1 By making above submissions, learned advocate Mr.Raval urged this Court to dismiss the present petition.
7. We have heard the learned advocates appearing for the respective parties and have gone through the material produced on record. No other and further submissions have been canvassed by learned advocates appearing for the respective parties, except what are stated herein-above.
8. Considering the submissions of the learned advocates appearing for the respective parties and having gone through the material produced on record, a short question that falls for consideration of this Court is whether the notice issued under Section 148 of the Act and the order passed disposing of the objection can be said to be legal in eye of law ?
9. So as to decide the aforesaid question, certain undisputed facts deserve to be taken note of, thus, as under :
(i) | | The return declaring total income of Rs.11,72,704/- for the Assessment Year 2011-12 was filed on 13.9.2011 along with audited financial statement. |
(ii) | | A notice under Section 143(2) of the Act dated 27.9.2012 was served under scrutiny assessment. |
(iii) | | A notice under Section 142(1) of the Act dated 9.4.2013 was issued seeking, inter-alia, the specific details about the business activity of the petitioner and trading account, profit and loss account and balance-sheet along with computation of total income. The said notice was replied by the petitioner on 2.5.2013, furnishing the requisite details. |
(iv) | | On 21.3.2014, a show cause notice was issued proposing addition of Rs.5,93,29,911/- on transaction carried through M/s.Divya Commodities on NMCE platform. |
(v) | | The said show cause notice was replied on 26.3.2014 along with affidavit of proprietor of M/s.Divya Commodities, justifying the stand that addition of Rs.5,93,29,911/- should not be made. |
(vi) | | Considering the aforesaid reply and the material so made available, the Assessing Officer vide order dated 31.3.2014 passed under Section 143(3) of the Act framed the assessment order by adding Rs.5,93,29,911/- under Section 68 of the Act and giving set-off of equal amount by assessing total at Rs.12,25,570/- as against the return income of Rs.11,72,700/-. |
(viii) | | The penalty notice dated 31.3.2014 was issued under Section 271(1)(c) of the Act and the same was replied on 24.7.2014. Considering the said reply, the Assessing Officer vide order dated 23.7.2014 dropped the penalty proceedings. |
10. Keeping in mind the aforesaid facts, if the contents of the reasons recorded by the Assessing Officer for reopening the assessment are worth considering and the same are thereby extracted as under :
“5. Finding of the AO :-
On verification of ITBA, it is seen that the assessee has filed his return of income for A.Y 2011-12 but not shown the correct income. Further, based on the information received from the ADIT, it is seen that the Shri Hemanshu Ramaniklal Shah (Client Code 1=”H041)” is also bought commodities of Rs. 18,69,29,856/- and sold for Rs. 19,45,15,466/- the commodity through broker Divya Commodities (Broker code CL0185) during the F.Y 2010-11. The assessee has claimed exempt income of Rs. 1,26,360/-. Since, all the commodity trading done through the brokers Divya Commodities through NMCE are artificial and non genuine, therefore, the profit/loss arisen from trading of commodity through NMCE are escaped assessment. As such it is evident/reason to believe that the assessee has not shown correct income for he year under consideration, which is nothing but escaped income in the hands of the assessee.
6. Basis of forming reason to believe and details of escapement of income:
On verification of ITBA, it is seen that the assessee has filed his return of income for A.Y 2011-12.Shri Hemanshu Ramaniklal Shah (Client Code 1-H041) is also bought Rs. 18,69,29,856/- and sold for Rs. 19,45,15,466/- the commodity through broker Divya Commodities (Broker.code CL0185) during the F.Y 2010-11. As such it is evident/reason to believe that the assessee has not shown correct income for the year under consideration, which is nothing but escaped income in the hands of the assessee. On verification of ADIT(Inv)’s report it is seen that Shri Hemanshu Ramaniklal Shah (Client Code 1-H041) is also bought commodities of Rs. 18,69,29,856/- and sold for Rs. 19,45,15,466/- through broker Divya Commodities (Broker code CL0185) during the F.Y 2010-11which was not disclosed by him in the return of income for A.Y. 2011-12. On perusal of information, it is noticed that there are several brokers who have, indulged in providing bogus entry of losses/ profit arisen on trading on NMCE through bogus/jamakharchi companies. The prices of the commodities have artificially rigged on NMCE by the brokers. Further, it is noticed that the commodities are artificially purchased from the same person and sold them back to the same persons within a minutes or very less time after rigging the prices of the commodities which resulted into “lass or profit to the persons who have traded in the commodity at NMCE. The said loss/profit could be set off against the profit/loss arisen from other commodity trading platforms. On detailed analysis of the report, it is noticed that the whole of the affairs are controlled by the very small group of persons who have indulged in providing the accommodation entries of bogus loss/profit on NMCE. The above facts are also accepted by the brokers who have indulged in managing and rigging of prices of commodities on NMCE in his statement recorded on oath.
Therefore, in view of the above facts and explanation 2(b) of section 147 of the Income Tax Act, 1961, I have reason to believe that, the failure is on the part of the assessee to disclose fully and truly all material facts necessary for his assessment, the income to the extent of Rs. 75.85.610/- has escaped assessment within the meaning of Section 147 of the Income Tax Act, 1961 for A.Y. 2011-12, Therefore, I am satisfied that, it is a fit case to issue notice under section 148 of the Act for the A.Y. 2011-12.
7. Escapement of Income:-
In view of the above facts, it is established that the assessee has not disclosed the correct and full material facts of his case for the year under consideration and hence, in view of the above facts and materials, I have reason to believe that an amount of Rs.75,85,610/- has escaped assessment within the meaning of section 147 of the Act for A.Y.2011-12. Since, all the commodity trading done through the brokers Divya Commodities through NMCE are artificial and non genuine, therefore, the profit/loss arisen from trading of commodity through NMCE are escaped assessment. I am therefore, satisfied that this is a fit case for invoking the provisions of section 147 of the Income tax Act.
8. Applicability of the provision of section 147/151:-
In this case, return of income was filed for the year under consideration but no scrutiny assessment u/s. 143(3) of the IT. Act was made. Accordingly, in this case, the only requirement to initiate proceedings u/s.147 is reason to believe which has been recorded above (refer paragraphs 1 to 7 above).
9. It is pertinent to mention here that in this case the assessee has filed return of income for the year under consideration but no assessment as stipulated u/s. 2(40) of the Act was and the return of income was only processed u/s. 143(1) of the I. T. Act. In view of the above, provisions of clause (b) to 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.
10. In this case, more than four years have lapsed from the end of the assessment year. Hence, necessary sanction to issue the notice u/s 148 has been obtained separately from Principal Commissioner of Income Tax-1, Surat, as per the provisions of section 151 of the I.T. Act.”
11. Bare perusal of the reasons so recorded would go to suggest that the Assessing Officer is of the opinion that the assessee has not disclosed fully and truly all facts and details with regard to trading done through the broker i.e. M/s.Divya commodities and as such, the return was processed under Section 143(1) of the Act and no scrutiny assessment was passed under Section 143(3) of the Act, the Assessing Officer has reason to believe the escapement of income. However, in our considered opinion, keeping in mind the aforesaid undisputed fact, the Assessing Officer has while issuing notice and recording reasons completely gone into oblivion to the fact that in the present case, the assessment order under Section 143(3) of the Act was passed on 31.3.2014 by keeping in mind all the details available with regard to transaction done through M/s.Divya Commodities on NMCE platform. However, the Assessing Officer has mechanically recorded that the return was processed only under Section 143(1) of the Act which itself goes to suggest that recording of reasons at the instance of Assessing officer was nothing but in a mechanical manner and with no application of mind.
12. In addition to the aforesaid, it is a matter of record that at the time when the assessment order under Section 143(3) of the Act was passed, the then Assessing Officer was in possession of the transaction details through M/s.Divya Commodities and thereby, the same cannot be made subject matter again to assume jurisdiction under Section 148 of the Act for reopening of assessment, as the same has already been concluded. In our view, the opening on the basis of the same details is nothing but change of opinion and the same is not permissible in the eye of law.
We answer the question accordingly.
13. In the result, the present petitions are allowed. The impugned notices under Section 148 dated 31.3.2018 as well as the orders dated 5.11.2018 in each petition are hereby quashed and set aside.