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TMI Blog2021 (3) TMI 900X X X X Extracts X X X X X X X X Extracts X X X X ..... be limited to examine whether the AO had formed a valid belief, on the basis of the materials available with him, that the income chargeable to tax had escaped assessment. AO has considered the materials on record which would, prima facie, suggest that during the year under consideration there was a huge hike in the amount of the share capital and share premium of the assessee company. The assessee received the amount of share capital and share premium from the Kolkata based shell companies, namely, Prime Vyapaar Pvt. Ltd. and Asha Apartments Pvt. Ltd. respectively. The Assessing Officer, prima facie found, based on the materials on record and the information received, that total share capital of 40 lakh was received during the year under consideration. On verification of the details of the investors companies, it was found, prima facie, that the same was controlled by one Kolkata based accommodation entry provider, namely Manoharlal Nangalia. In a statement recorded by the department, Manoharlal Nangalia is said to have admitted to the fact that his main business is to provide accommodation entries through shell companies to various beneficiaries in lieu of commission. For mere ve ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... purpose of reassessment. (B1) Your Lordships may be pleased to issue a writ of certiorari or a writ in the nature of certiorari or any other appropriate writ, order or direction for quashing and setting aside the impugned assessment order dated 24.12.2018 under section 143(3) r.w.s. 147 of the Income Tax Act, 1961 at Annexure-G collectively. (B2) Pending admission, hearing and final disposal of the present petition, be pleased to stay the implementation, operation and execution of the impugned assessment order dated 24.12.2018 under section 143(3) r.w.s. 147 of the Income Tax Act, 1961 at Annexure-G collectively. (C) Award the cost of this petition. (D) Grant such other and further reliefs as this Hon'ble Court deems fit." 2. The subject matter of challenge in the present litigation is to the notice of re-opening issued under Section 148 of the Income Tax Act, 1961 (for short, 'the Act') for the Assessment Year 2011-12 in a case where the return of income was processed for the relevant year under Section 143(1) of the Act. Otherwise, the re-opening is beyond the period of four years. The reasons assigned by the Assessing Officer for re-opening are as under : ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... olkata based accommodation entry provider namely Shri Manoharlal Nangalia. A statement on oath of Shri Manoharlal Nangalia has been recorded on oath by the DDIT (Inv.), Kolkata in which he has categorically accepted the fact that his main business is providing accommodation entries through "Jama-Khaarchi/Shell" companies to various beneficiaries in lieu of commission and also describe/ accepted the modus operandi implied in providing of entry of funds. 5. On such observation & facts and looking to considerable increase in the shareholders fund in the hand of the assessee in the year under consideration in this case, necessary permission has been taken from the Pr. CIT-1, Surat to issue letter u/s.133(6) of the I.T. Act. After receiving of permission, to provide an opportunity to the assessee to explain the above transactions, a letter u/s.133(6) of the I.T. Act was issued to the assessee on 12.03.2018 with a request to furnish the reply/ details in respect of shareholders fund received during the year. In response to the said letter, the assessee has not filed any reply/ explanation in the above matter. The above information/ details as well as details of list of shell companies ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hin the meaning of section 147 of the I.T. Act. 8. In this case a return of income was filed for the year under consideration but no scrutiny assessment u/s.143(3) of the 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 2 to 7) 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 made and the return of income was only processed u/s.143(1) of the Act. In view of the above, provisions of clause (b) 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." 3. To the aforesaid reasons, the writ-applicant lodged his objections in details. The objections are as under : "(1) Our case has been re-opened by recording the reasons that we have received share capital and share premium from 1) Prime Vyapaar Pvt. Ltd. (₹ 20,00,000/-), and 2) Asha Apartments Pvt. Ltd. (₹ 20,00,000/-) [total ₹ 40,00,000/-] d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tatement of so-called entry provider namely Manoharlal Nangalia. It is simply mentioned that the names of above mentioned companies are there in the database of shell companies. However, in the absence of relevant material for terming them as shell companies, we are unable to know as to for what reasons/basis and when their names were included in this database, as they are very old companies. We, therefore, request Your Honour to kindly provide us copies of all such material on the basis of which reasons have been recorded and our case has been re-opened including copy of the report of DDIT (Inv), Kolkata, and statement of so-called entry provider Manoharlal Nangalia. We also request Your Honour to kindly provide us opportunity of his cross examination. We may mention that as per our information he was neither director nor shareholder of above companies. It is, therefore, not clear as to how his statement is relevant in our case. We reserve our right to make further objections after receipt of above material and opportunity. 3. Further and without prejudice to above, we humbly beg to point out that both these companies are 'very old companies' 'regularly assessed unde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ccepted to have received amount of ₹ 10,00,000/- each from Prime Vyapaar Pvt. Ltd. and Asha Apartment Pvt. Ltd. in F.Y. 2009-10 the companies which have been seem as bogus Kolkata based companies. This has been further verified by this office from report of Kolkata I.T.O. (Inv.) office. This has clearly indicated that the said company is not performing any genuine business and is shell company. Thus, the transaction done by issuing share to any such company required to be verified in depth. Here it should be noted that provision of section 147 clearly indicated that when there is reason to believe that there is escapement of income by the assessee the AO can very well reopen the case. 9. Further the other contention of the assessee that the amount has been received during F.Y. 2009-10 and not during F.Y. 2010-11 does not stand valid as it has been found from the website of MCA that the allotment of share has been done during the F.Y. 2010-11 to companies Prime Vyapaar Pvt. Ltd. and Asha Apartment Pvt. Ltd. which are seem as shell companies. The amount could have been received during F.Y. 2009-10 but the actual purpose of transaction is revealed in A.Y. 2010-11 when amount w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on, the same be allowed and the impugned notice along with the final order of assessment passed under Section 143(3) of the Act be quashed and set-aside. SUBMISSIONS ON BEHALF OF THE RESPONDENT : 9. On the other hand, this writ-application has been vehemently opposed by Mrs.Kalpana K.Raval, the learned senior standing counsel appearing for the Revenue. Mrs.Raval would submit that the return filed by the assessee was accepted without scrutiny. Since there was no scrutiny assessment, the Assessing Officer had no occasion to form any opinion on any of the issues arising out of the return filed by the assessee. Mrs.Raval would submit that the concept of change of opinion would, therefore, have no application in the present case. It is also submitted that at the stage of re-opening of the assessment, the Court may not minutely examine the possible additions which the Assessing Officer wishes to make. It is also argued that the scrutiny at that stage would be limited to examine whether the Assessing Officer had formed a valid belief on the basis of the materials available with him that the income chargeable to tax had escaped assessment. 10. In such circumstances referred to above, th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rim relief, the respondent is permitted to proceed further pursuant to the impugned notice; he, however, shall not pass the final order without the permission of this Court." 13. It appears that after the aforesaid order came to be passed, the final order of assessment under Section 143(3) of the Act came to be passed by the Assessing Officer. In such circumstances, the writ-applicant brought a draft amendment which was allowed vide order dated 9th January 2019. By way of a draft amendment, the writ-applicant also seeks to challenge the legality and validity of the final assessment order passed by the Assessing Officer pursuant to the impugned notice. 14. In such circumstances referred to above, vide order dated 17th January 2019, a Coordinate Bench of this Court, by way of an ad-interim relief, restrained the Revenue from making any coercive recovery pursuant to the impugned assessment order. 15. We shall confine our adjudication only so far as the legality and validity of the notice of re-opening is concerned. 16. The return filed by the assessee was accepted without scrutiny. Since there was no scrutiny assessment, the Assessing Officer had no occasion to form any opinion on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fficer. The reason is that under section 143(1)(a) no opportunity is granted to the assessee and the Assessing Officer proceeds on his opinion on the basis of the return filed by the assessee. The very fact that no opportunity of being heard is given under section 143(1)(a) indicates that the Assessing Officer has to proceed accepting the return and making the permissible adjustments only. As a result of insertion of the Explanation to section 143 by the Finance (No. 2) Act of 1991 with effect from October 1, 1991, and subsequently with effect from June 1, 1994, by the Finance Act, 1994, and ultimately omitted with effect from June 1, 1999, by the Explanation as introduced by the Finance (No. 2) Act of 1991 an intimation sent to the assessee under section 143(1) (a) was deemed to be an order for the purposes of section 246 between June 1, 1994, to May 31, 1999, and under section 264 between October 1, 1991, and May 31, 1999. It is to be noted that the expressions intimation and assessment order have been used at different places. The contextual difference between the two expressions has to be understood in the context the expressions are used. Assessment is used as meaning sometime ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 Delhi High 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 i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... formed a belief that income chargeable to tax had also escaped assessment. When thus the Assessing Officer had such material available with him which he perused, considered, applied his mind and recorded the finding of belief that income chargeable to tax had escaped assessment, the reopening could not and should not have been declared as invalid, on the ground that he proceeded on the show-cause notice issued by the Excise Department which had yet not culminated into final order. At this stage the Assessing Officer was not required to hold conclusively that additions invariably be made. He truly had to form a bona fide belief that income had escaped assessment. In this context, we may refer to various decisions cited by the counsel for the Revenue." 20. The case on hand is not a case where the Income Tax Officer seeks to draw any fresh inference which could have been raised at the time of the original assessment on the basis of the materials placed before him by the assessee as regards the receipt of the share capital and share premium from the two Kolkata based shell companies referred to above. Acquiring fresh information, specific in nature and reliable in character, relating ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t under Section 147 of the Income Tax Act beyond four years from the end of an Assessment Year, the following two conditions must be satisfied: [a] that the Assessing Officer must have reason to believe that the income chargeable to tax has escaped assessment; and that [b] the same occasioned, on account of either failure on the part of the assessee to make a return of his income for that Assessment Year, or to disclose fully and truly all material facts necessary for the assessment of that year. 23. As held by the Supreme Court in Phool Chand Bajrang Lal vs. Income-tax Officer, reported in 203 ITR 456 (SC), where transaction itself, on the basis of subsequent information, is found to be a bogus transaction, the Court held that mere disclosure of such transaction at the time of original assessment proceedings cannot be said to be a disclosure of 'full' and 'true' facts and the Assessing Officer surely would have the jurisdiction to re-open a concluded assessment in such a case. The Supreme Court had also observed in the said case that the Assessing Officer may start reassessment proceedings either because some fresh facts come to light which were not previously disclosed, or s ..... X X X X Extracts X X X X X X X X Extracts X X X X
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