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TMI Blog2022 (4) TMI 1191X X X X Extracts X X X X X X X X Extracts X X X X ..... ainst profit booked from normal business activity. This is a text book case of tax avoidance. In the said communication it was further stated that, the information was being forwarded to the Pr. commissioner of Income Tax-1, Aurangabad as per the minutes of the Annual Conference of DIT and as proved by the Chairman DBDT, New Delhi, with a request to direct the jurisdictional assessing officer to take necessary remedial action in the case of the assessee for the assessment year 2015-2016 and for the assessment year 20162017. The said office had verified only two transactions of trading in script on test check basis. The jurisdictional assessing officer to be requested to verify all the transactions entered into by the assessee for determining the total tax liability of the assessee. A perusal of the record indicates that, based on the said information received from the Income Tax Officer (I C), Aurangabad giving details, assessing officer issued notice U/Sec. 148 of the I. T. Act and for the reasons recorded by the assessing officer, a reference was made to the information received from Income Tax Officer (I C), Aurangabad from insight portal. Based on the said information and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lok Sharma, Advocate for Respondent Nos. 1 to 3. JUDGMENT (PER : R.D. DHANUKA, J.) :- 1. Rule. Shri Alok Sharma, the learned counsel for respondents waives service. Rule is made returnable forthwith. 2. By this petition filed under Article 226 of the Constitution of India, the petitioner has impugned notice dated 31st March, 2021 issued by the respondent No. 2 under Section 148 of the Income Tax Act, 1961 (for short I. T. Act ) and also order dated 02nd December, 2021 passed by the respondent No. 3 thereby rejecting the objection filed by the petitioner. 3. Some of the relevant facts for deciding this petition are as under : It is the case of the petitioner that, on 25th December, 2018, the then Assessing Officer passed the assessment order for the Assessment Year 2016-2017 after considering all the documents regarding derivative transaction and accepted the loss claimed by the petitioner arising out of said derivative transaction. The Assessing Officer accepted the income claimed by the petitioner in his return for assessment year 2016-2017. On 20th October, 2018, the petitioner supplied all the relevant information regarding derivative transaction. On 10th De ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... U/Sec. 148 of the I. T. Act, copy of sanction taken by the assessing officer from approving authority, copy of relevant tangible material which has been considered by the assessing officer for the reasons to be recorded for re-assessment proceedings. 8. It is submitted by the learned counsel for the petitioner that, the assessing officer thereafter furnished the reasons for initiating proceedings U/Sec. 147 of the I. T. Act for the assessment year 2016-2017 and also the approval granted by the Joint Commissioner of Income Tax, Range 1, Aurangabad U/Sec. 151 of the I. T. Act. He submits that, the said sanction U/ Sec. 151 of the I. T. Act cannot be granted mechanically and without considering the material on record to be placed before the sanctioning authority by the assessing officer. He submits that, from the copy of the sanction produced by the assessing officer U/Sec. 151 of the I. T. Act, it is clear that all the documents alleged to have been possessed by the assessing officer were not produced before the Joint Commissioner of Income Tax while seeking sanction U/Sec. 151 of the I. T. Act. 9. The learned counsel for the petitioner invited our attention to the order dat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 5 th March, 2019 and more particularly paragraph Nos. 6 and 14 and would submit that, the erstwhile assessing officer had already considered all the material produced by the petitioner pursuant to the directions issued by the assessing officer regarding derivative transactions and having accepted the income returned by the petitioner after considering such material, the subsequent assessing officer cannot reopen the assessment order already passed based on change of information. 13. The learned counsel for the petitioner placed reliance on unreported judgment of this Court delivered on 21 st August, 2019 in a case of Marico Ltd. Vs. The Assistant Commissioner of Income Tax12(3)(2) and others in Writ Petition No. 1917 of 2019 and in particular paragraph Nos. 6, 7 and 10 to 12 and would submit that, after adverting to the judgment of the Hon ble Supreme Court in a case of CIT Vs. Kelvinator of India Ltd. reported in (2010) 320 ITR 561, this Court held that non rejection of explanation in the assessment order would amount to the assessing officer accepting the view of the assessee, thus taking a view for forming an opinion would be completely without jurisdiction. He sub ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ich was not available at the time of assessment proceedings U/Sec. 143(3) of the I. T. Act. There was thus, no change of opinion while initiating the re-assessment proceedings U/Sec. 147(1) of the I. T. Act as sought to be canvassed by the petitioner. 17. Learned counsel for the respondents tendered a copy of the letter dated 09th December, 2019 and would submit that on the basis of such information received by the assessing officer, notice U/Sec. 148 of the I. T. Act was issued. This information was not available when the earlier assessment order on 25th December, 2018 was passed by the assessing officer. The learned counsel for the respondents placed reliance on Section 147 of the I. T. Act and also to the 1st proviso and would submit that, once notice U/Sec. 148 of the I. T. Act is issued within four years of the completion of assessment, assessment can be reopened. He submits that, reasons are already recorded by the assessing officer before issuance of notice. In support of this submission, the learned counsel for respondents invited our attention to the reasons recorded by the assessing officer at page No. 92 to 94 of the writ petition. He submits that, in the said reasons ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... kbone Projects Limited Vs. The Assistant Commissioner of Income Tax, Circle 1 (1) reported in (2021) TaxCorp (DT) 85341 (HC-GUJARAT) in support of the submission that, since the Assessing Officer had issued notice for reopening of the assessment order under Section 147 of the Income Tax Act, 1961 before four years from the end of relevant assessment year, the condition set out in the said provision had been fully satisfied by the Assessing Officer while issuing notice under Section 148 of the Income Tax Act, 1961. He submits that, the Assessing Officer was justified in issuing notice on the basis of the credible information and tangible material found subsequently. 22. Learned counsel for respondents placed reliance on the judgment of this Court in a case of Chhagan Chandrakant Bhujbal Vs. Income Tax Officer Ward 20 (1) (3), Mumbai, Commissioner of Income Tax-20 Mumbai reported in (2021) TaxCorp (DT) 86184 (HC BOMBAY) and in particular paragraph no.13 in support of the submissions that, since the petitioner had participated in the assessment proceedings before the Assessing Officer, this Court shall not exercise its extraordinary jurisdiction under Article 226 of the Const ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Vs. M/s. S. Goyanka Lime and Chemicals Ltd. in Income Tax Appeal No.82 of 2012 on the ground that, in that case the Joint Commissioner of Income Tax had passed one line order recording his satisfaction before granting sanction under Section 151 of the Income Tax Act, 1961, whereas in this case, the Joint Commissioner of Income Tax had granted sanction by applying his mind and after considering the material produced by the Assessing Officer before him. 27. Learned counsel for the respondents distinguished the judgment of this Court in case of Gagan Omprakash Navani Vs. Income Tax Officer in Writ Petition No.1601 of 2022 on the ground that, in that case there was complete scrutiny while passing the earlier assessment order under Section 143(3) of the Income Tax Act, 1961, but in this case the assessment was passed on random basis for limited purpose. There was limited scrutiny under CASS. 28. Mr. Chandak, learned counsel for the petitioner in his rejoinder arguments submits that, for the purpose of reopening assessment, there shall not be change of opinion on the part of the Assessing Officer. If notice for reopening of the assessment is issued after four years and before ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 29th September, 2016 declaring total income of ₹ 56,92,100/-. The asessing officer had issued a notice for scrutiny assessment of the petitioner for the said return of income filed by the petitioner for the assessment year 2016-2017. On 03rd September, 2018, the assessing officer issued notice U/Sec. 142(1) of the I. T. Act and called upon the petitioner to furnish various information regarding derivative transations. A perusal of the said notice dated 03rd September, 2018 and more particularly paragraph No. 6 indicates that, in the said notice it was observed by the assessing officer that in the balance sheet the petitioner had debited loss from derivatives trading of ₹ 81,48,469/- and in that connection was called upon to furnish details i. e. (i) statement of purchase and sales of derivatives, (ii) copies of brokers note, (iii) copies of ledger account of broker maintained by the petitioner and (iv) copies of Demat account. In para No. 7 of the said notice it was specifically held that, according to the assessing officer there was no profit and loss account maintained by the petitioner HUF. In the capital account net business income had not been credited/debited. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... unt opening Form and copies of letter issued by the broker along with account opening fees provided by the petitioner and various documents. The petitioner was also called upon to disclose the reasons for trading done in end of the year. In response to the said notice U/Sec. 142(1) of the I. T. Act, the petitioner through its Chartered Accountant letter dated 14th December, 2018 submitted various documents. The petitioner clarified that the petitioner had done transaction in derivatives. There was no specific reason to carry out those transactions in the month of March. 34. The assessing officer thereafter completed the assessment on 25th December, 2018 for the said assessment year 2016-2017 and accepted the returned income as furnished by the petitioner in the sum of ₹ 56,92,100/-. A perusal of the said assessment order indicates that, according to the said assessment order, the case of the petitioner was selected for scrutiny under CASS for limited purpose to examine whether the share capital was genuine and from disclosed sources. It was stated in the assessment order that, on verification of return filed and on verification of details and documents filed during the ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ioned in the said reasons and the information available on record, it was clear that assessee had entered into a sham transaction to obtain loss for the purpose of set-off of his taxable income. 37. The assessing officer found that the petitioner had claimed bogus loss on account of call option amounting to ₹ 81,48,170/and the same needs to be disallowed and added to the income of the assessee. The assessing officer accordingly mentioned that, he had reasons to believe that the income to the extent of ₹ 81,48,170/- had escaped assessment. In paragraph No. 8 of the said reasons, it is recorded that since the return of income filed by the petitioner was selectd for CASS for limited scrutiny for different reasons, discrepancy was observed, in the return filed by the petitioner, but no action could be taken and thus only requirement to initiate proceedings in this case U/Sec. 147 was reason to believe which had been recorded in paragraph Nos. 5 and 6 of the said reasons. 38. A perusal of the sanction/approval granted by the Joint Commissioner of Income Tax on 31st March, 2021 U/Sec. 151 of the I. T. Act indicates that, the assessing officer had sent the proposal for a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Evasion through trading in options derivative through trade reversal. The information was received in the name of Shrikant Phulchand Bhakkad (HUF) for ₹ 21,96,600/- in two pieces along with the approval U/Sec. 133(6) from DIT (I CI), Pune dated 11th September, 2018. 41. In the said communication it is further stated that, the Securities and Exchange Board of India came across several instances/internal alerts wherein a set of entities were consistently making loss or profit by their trading in options on individual stocks (stock options) which were listed on the Bombay Stock Exchange Limited (BSE). Trading of these entities was found abnormal because they were consistently seen making significant loss or profit by their trades which were reversed with the same counter parties either on the same day or the next day. It was further observed that, there were several entities who consistently made significant loss and others who consistently made significant profit by executing reversal trades in stock options on the BSE. 42. It is further stated in the said communication that, the notice U/Sec. 133(6) dated 26.06.2019 was issued to the assessee. The Assessee however, did n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of DIT and as proved by the Chairman DBDT, New Delhi, with a request to direct the jurisdictional assessing officer to take necessary remedial action in the case of the assessee for the assessment year 2015-2016 and for the assessment year 20162017. The said office had verified only two transactions of trading in script on test check basis. The jurisdictional assessing officer to be requested to verify all the transactions entered into by the assessee for determining the total tax liability of the assessee. 46. A perusal of the record indicates that, based on the said information received from the Income Tax Officer (I C), Aurangabad giving details, assessing officer issued notice U/Sec. 148 of the I. T. Act and for the reasons recorded by the assessing officer, a reference was made to the information received from Income Tax Officer (I C), Aurangabad from insight portal. Based on the said information and after application of mind, the assessing officer recorded the reasons that as the case was selected for limited scrutiny issue, initially no additions were made. It appears that on the information available on record, assessing officer is of reasonable belief that the petiti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eking approval U/Sec 151 of the I. T. Act demonstrates that various reasons were recorded by the assessing officer based on the information received from the Income Tax Officer (I CI) Aurangabad through insight portal after passing of the original assessment order dated 23rd December, 2018. 50. The Hon ble Supreme Court in a case of Raymond Woollen Mills Ltd. Vs. Income Tax Officer and others (supra) has held that, while dealing with a challenge to the notice U/Sec. 147(A) of the I. T. Act, Court has to only see whether there was prima facie some material on the basis of which department could reopen the case. The sufficiency or correctness of the material is not a thing to be considered at this stage. The Court did not strike down the reopening of the case in that case. It is held that, it would be open for the assessee to prove that the assumption of facts made in the notice was erroneous. The assessee may also prove that new facts came to the knowledge of the Income Tax Officer after completion of the assessment proceedings. The Hon ble Supreme Court did not express any opinion on the merits of the case and left open the question of fact and law to be investigated and dec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y based on the information received from the Income Tax Officer (I CI), Aurangabad, but had applied his mind and formed his opinion that there was reason to believe that the income had escapped assessment. In so far as said assessment year 2016-2017 of the petitioner is concerned, we are in respectful agreement with the view expressed by the Gujarat High Court in a case of Cemach Machineries Ltd. Vs. The Income Tax Officer (supra), which applies to the facts of this case. 54. The Gujarat High Court in a case of Sanjab Baulal Surana Vs. Assistant commissioner of Income Tax (supra) after adverting to various judgments of the Supreme Court including judgment in the case of Raymond Woollen Mills Ltd. Vs. Income Tax Officer and others (supra) has held that, the assessing officer had reason to believe that the petitioner was a beneficiary of accommodation entry and basis for formation of such belief was several enquiries and the investigation by the Investigation Wing, and report thereof. The reasons for the formation of the belief by the assessing officer appear to have a rational connection with or relevant bearing on the formation of belief that there had been escapemen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... roceedings cannot be entertained. The Gujarat High Court rejected submission made by the assessee that the petitioner had produced all the relevant and material documents before the assessing officer at the time of scrutiny assessment and it was not open for the subsequent assessing officer to reopen the assessment under the guise of having received the information from the investigating teams. It is held by the Gujarat High Court that, mere production of the books of accounts or the documents along with return of income could not be said to be full and true disclosure of all material facts, more particularly when it was subsequently found, on the basis of credible information and tangible material that the petitioner was the beneficiary of the accommodation entries provided by the entry provider. 57. The Gujarat High Court also considered the judgment of the Supreme Court in a case of Phool Chand Bajrang Lal Vs. Income Tax Officer reported in (1993) 203 ITR 456 (SC), in which it was held by the Supreme Court that, acquiring fresh information, specific in nature and reliable in character, relating to the concluded assessment which goes to expose the falsity of the statement ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r passed by the Commissioner granting approval U/Sec. 151 was mechanical or not. This Court held that there was nothing to indicate that there was non application of mind on the part of the Commissioner while granting such approval. It is held that, merely because information was received at 5.47 p.m. and the notice was issued by 10.49 p.m. would not mean that there has been non application of mind. 60. In the facts of that case, this Court found that the petitioner had filed detailed information asked for by the assessing officer U/Sec. 142(1) and 143(2) of the I. T. Act and had participated in the assessment proceedings. This having been done, it was not open for the assesee to now contend that this Court should exercise its extra-ordinary jurisdiction and prohibit the authorities from proceeding further with the impugned notice. This Court accordingly did not interfere with the notice U/ Sec. 148 of the I. T. Act while exercising extra-ordinary jurisdiction under Article 226 of the Constitution of India and to prohibit the authorities from proceeding further in the matter. In our view principles laid down by this Court in a case of Chhagan Chandrakant Bhujbal Vs. Income Tax ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... upon the tangible material while issuing notice U/Sec. 148. The tangible material would mean factual material and not inference/ opinion on material already in existence and considered during the assessment proceedings. However, in the facts of the present case, the assessing officer issued notice U/Sec. 148 of the I. T. Act based on the tangible material made available from the information given by the Income Tax Officer (I C), Aurangabad through insight portal and on the basis of satisfaction of the assessing officer. 64. In our view, the judgment of this Court in a case of Principal Commissioner of Income Tax 5 Vs. Shodiman Investments (P) Ltd. (supra) will also not assist the case of the petitioner. The facts before this Court in the said judgment were totally different. In that case this Court was of the opinion that at the time of reopening of the assessment, the assessing officer did not provide the reasons recorded in support of the reopening of the notice in its entirety to the assessee. This Court in the said judgment held that, mere obtaining of material by itself does not result in reason to believe that income has escaped assessment. In this case, the assessing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t would not apply to the facts of this case. 67. In so far as the judgment of the Supreme Court in a case of Assistant Commissioner of Income Tax Vs. Dhariya Construction Co. (supra) relied upon by the learned counsel for the petitioner is concerned, the Supreme Court rejected the special leave petition filed by the revenue on the ground that the department had sought information of the assessment based on the opinion given by the District Valuation Officer and held that the information of the District Valuation Officer per se was not an information for the purposes of reopening assessment under Section 147 of the I. T. Act. In this case, the information is given by the Income Tax Officer (I C) and said information given formed the basis for issuing notice U/Sec. 148 of the I. T. Act after obtaining sanction from the Joint Commissioner of Income Tax, U/Sec. 151 of the I. T. Act. The said judgment in a case of Assistant Commissioner of Income Tax Vs. Dhariya Construction Co. (supra) would not assist the case of the petitioner. 68. In our view, the petitioner/assessee will have full opportunity to prove his case before the assessing officer in the proceedings of reopeni ..... X X X X Extracts X X X X X X X X Extracts X X X X
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