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Etiam Emedia Limited vs. ITO (Madhya Pradesh High Court)

COURT:
CORAM: ,
SECTION(S): , ,
GENRE:
CATCH WORDS: , ,
COUNSEL:
DATE: December 19, 2018 (Date of pronouncement)
DATE: December 26, 2018 (Date of publication)
AY: 2011-12
FILE: Click here to download the file in pdf format
CITATION:
S. 147 Reopening to assess Bogus share capital: Law explained whether allegation that assessee is a dummy concern used to route unaccounted money by way of bogus share application money is sufficient to reopen assessment (all imp judgements referred)

Writ Petition No.28177/2018 1
HIGH COURT OF MADHYA PRADESH: BENCH AT INDORE
D.B: HON’BLE SHRI JUSTICE S.C. SHARMA & HON’BLE SHRI JUSTICE
VIRENDER SINGH
Writ Petition No.28177/2018
M/s Etiam Emedia Limited
v/s
Income Tax Officer-2(2) & Another
Shri P.M. Choudhary, learned senior counsel along with Shri Anand
Prabhawalkar, learned counsel for the petitioner.
Ms. Veena Mandlik, learned counsel for the respondents.
__________________________________________________________________
O R D E R
( Passed on this 19 th day of December, 2018 )
Per : S.C. Sharma, Justice:
The petitioner before this Court, which is a company
registered under the Companies Act, 1956, has filed this present
petition being aggrieved by the notice dated 31.03.2018 and order
dated 22.11.2018 passed by the Income Tax Officer – 2(2), Indore.
2. The petitioner’s contention is that the petitioner/company is a
limited company and was earlier known as ‘M/s Quality Automation
Limited’, it was incorporated in the year 1995. In the year 2000, the
name of the company was changed as ‘M/s Etiam Emedia Limited’
and the petitioner/company is a regular assessee in respect of the
Income Tax and is filing the return 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 balanceWrit
Petition No.28177/2018 2
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 believe that the assessee’s income
chargeable for the assessment year 2011-12 and has escaped
assessment within the meaning of Section 147 of the Income Tax
Act, 1961, and therefore, it is proposed to assess such income for
the relevant assessment year. The petitioner was required to deliver
a return for the said assessment year within 30 days’ of the notice.
6. The petitioner/company has further stated that the recorded
reason to believe as also the previous sanction from the Principal
Commissioner, Income Tax were not communicated to the
petitioner, nor appended to the notice. The petitioner has further
stated that in response to the notice, the petitioner/company
submitted a reply on 23.04.2018 and requested the Income Tax
Officer to treat the original return filed by the petitioner/company
on 30.03.2012 in compliance of the notice issued under Section 148
of the Income Tax Act, 1961.
7. The petitioner/company, thereafter, on 25.05.2018, wrote a
Writ Petition No.28177/2018 3
letter to respondent No.1 stating that compliance has been done by
the petitioner in response to the notice under Section 148 of the
Income Tax Act, 1961 and the reasons recorded for initiation of
proceedings be communicated to the petitioner.
8. The petitioner/company has further stated that in spite of the
request to supply the reason for reopening of the assessment, the
notice was issued under Section 142 (1) of the Income Tax Act,
1961 and the petitioner/company again wrote a letter on 11.07.2018
to supply the reasons and to keep the proceedings in abeyance. The
petitioner has further stated that respondent No.1 finally supplied
the reasons recorded by him for issuance of notice under Section
148 of the Income Tax Act, 1961 along with his notice dated
13.07.2018. The petitioner’s contention is that the reason, so
supplied, reflected that the proceedings have been initiated against
the petitioner on the basis of some pre and post search investigation
consequent upon a search conducted by the Income Tax Department
at the premises of ‘M/s Shreeji Polymers (India) Limited’ and on the
basis of a vague allegation that the petitioner company is a dummy
concern of Shri Anand Bangur, who allegedly uses dummy
companies for routing his unaccounted money through the group
companies. It also reflected that the petitioner/company has bogus
share application money to the extent of Rs.2,63,75,500/-, 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
Writ Petition No.28177/2018 4
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 the respondent
No.1 u/s 148 of the Income Tax Act, 1961 for initiation of
proceedings for reopening petitioner’s assessment for AY 2011-12
u/s 147 of the Income Tax is illegal, bad in law and without
jurisdiction for want of satisfaction of conditions of section 147 of
the Act, which are condition precedent for assumption of
jurisdiction under that section.
12. It has further been contended that the impugned order dated
22.11.2018 passed by respondent No.1 rejecting petitioner’s
objection filed against the impugned reopening of assessment, is
bad in law, as it suffers from error apparent on the face of record in
so far as it fails to apply mind to the conditions of section 147 of the
Income Tax Act without satisfaction of which, no proceedings can
be validly initiated.
13. It has further been contended that the respondents failed to
see that for reopening the assessment of an assessee u/s 147, the
Assessing Officer must have reason to believe that any income
Writ Petition No.28177/2018 5
chargeable to tax, has escaped assessment of any assessment year,
which can be assessed for the assessment year concerned in the
hands of the assessee. The escapement of any income chargeable to
tax is thus an essential condition for assumption of jurisdiction for
assessing such escaped income and for valid initiation of
proceedings for such assessments.
14. It has further been contended that the respondents failed to
see that for valid assumption of jurisdiction for making assessment
of the escaped income, the condition precedent is existence of
reasons and formation of believe about escapement of income from
tax and without which no action u/s 147 can be taken nor any notice
u/s 148 can be issued.
15. It has further been stated that that the respondents also failed
to see that the existence of reason for formation of the requisite
belief is thus essential for invoking the provisions of section 147
and the belief required to be formed is about the fact that any
income chargeable to tax has escaped assessment of any assessment
year, which is required to be assessed in the concerned assessment
year.
16. It has further been stated that the respondents also failed to
see that the income sought to be assessed u/s 147 as escaped
income must necessarily pertain to the assessment year for which
the proceedings of assessment have been reopened and the belief
required to be formed on the basis 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
Writ Petition No.28177/2018 6
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 could be any formation of
belief about escapement of any such income. In absence of the
existence of valid reason and in absence of formation of requisite
belief, the impugned proceedings for reopening petitioner’s
assessment are wholly without jurisdiction.
20. It has further been contended that the respondents failed to
see that the word ‘reason’ connotes a statement of facts implied as
an argument to justify a conclusion and hence the reasons required
to be recorded in writing cannot be construed to mean any fact
whatsoever to be recorded in writing. It must be understood as such
statement of fact as would reasonably justify the conclusion. In the
instant case in absence of any receipt of share capital which has
escaped assessment for AY 2011-12 cannot be said to be a reason as
contemplated u/s 147 which can form the basis of requisite belief
under that section.
Writ Petition No.28177/2018 7
21. It has further been contended that the respondent also failed to
see that the expression ‘any assessment year’ for which any income
chargeable to tax has escaped assessment, in respect of which the
proceedings u/s 147 read with section 148 are sought to be initiated
is referable to the relevant assessment year in which the income is
to be taxed and cannot mean any assessment whatsoever.
22. It has further been contended that the respondents also failed
to see that it is not only the existence of reason on the basis of
which the belief has to be formed but the reason on the basis of
which the belief as contemplated u/s 147 is formed must have
rational connection or relevant bearing on the formation of belief
i.e. there must be a direct nexus or live link between the material
coming into the notice of AO and the formation of belief about the
escapement of income.
23. It has further been contended that the existence of material in
the shape of reasons on the basis of which the requisite belief is to
be formed for purpose of section 147 is also necessary. In the
instant case there is neither any material nor any reason on the basis
of which the belief about escapement of income from tax in the
present assessment year could be formed.
24. It has further been contended that the alleged material in the
nature of report of DDIT, Indore can hardly be said to be the
material which could warrant the formation be belief about the
escapement of share capital received in the 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
Writ Petition No.28177/2018 8
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, the impugned notice dated
31.03.2018 has been actually served on 01.04.2018 i.e. after expiry
of limitation on 31.03.2018, the impugned notice as also
consequent proceedings are barred by limitation and accordingly
without jurisdiction.
28. It has further been contended that even the reason that
petitioner is a dummy company is also equally non-existent reason
because the petitioner is a legal juristic entity created by law
incorporated in the year 1995 and assessed by department since
then.
30. In support of the aforesaid grounds, learned senior counsel for
the petitioner has placed reliance on several judgments i.e. in the
cases of GKN Driveshafts (India) Ltd. v/s Income Tax Officer
reported in (2002) 125 Taxman 963 (SC), Calcutta Discount Co.
Ltd. v/s Income Tax Officer & Another reported in (1961) ITR 191
(SC), Jeans Knit (P.) Ltd. v/s Deputy Commissioner of Income
Writ Petition No.28177/2018 9
Tax, Banglore reported in (2017) 77 taxmann. Com 176 (SC),
Garden Finance Ltd. v/s Assistant Commissioner of Income Tax
reported in (2004) 268 ITR 48 (Gujarat), Commissioner of
Income Tax v/s Foramer France* reported in (2003) 264 ITR 566
(SC), JSRG Udyog Ltd. v/s Income Tax Officer reported in (2009)
313 ITR 321 (Delhi), Tiwari Kanhaiya Lal v/s Commissioner of
Income Tax reported in (1985) 154 ITR 109 (Rajasthan),
Ghanshyam K. Khabrani v/s Assistant Commissioner of Income
Tax Circle-1 reported in (2012) 346 ITR 443 (Bombay),
Commissioner of Income Tax Delhi-IV v/s Gupta Abhushan (P.)
Ltd reported in (2009) 312 ITR 166 (Delhi), SKY View
Consultants (P.) Ltd. v/s Income Tax Officer, Ward 23(4) reported
in (2017) 397 ITR 673 (Delhi), Income Tax Officer v/s
Lakhamani Mewal Das reported in (1976) 103 ITR 437 (SC),
Ganga Saran & Sons (P.) Ltd. v/s Income Tax Officer reported in
(1981) 130 ITR 1 (SC), Amar Jewellers Ltd v/s Deputy
Commissioner of Income Tax reported in (2018) 405 ITR 561
(Gujrat), Ardent Steel Ltd. v/s Assistant Commissioner of Income
Tax (Central)-2, Raipur reported in (2018) 405 ITR 422
(Chhatishgarh), Commissioner of Income Tax, Delhi v/s
Kelvinator of India Ltd. reported in (2010) 320 ITR 561 (SC),
Smt. Uma Devi Jhawar v/s Income Tax Officer reported in (1996)
218 ITR 573 (Calcutta), Krown Agro Foods (P.) Ltd. v/s Assistant
Commissioner of Income Tax, Circle 5(1), New Delhi reported in
(2015) 375 ITR 460 (Delhi), Arjun Singh v/s Assistant Director of
Income Tax reported in (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
Writ Petition No.28177/2018 10
(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 petitioner had not
shown any business activity, and hence, had not filed audited
accounts. It has further been stated that the petitioner has filed only
its Income Tax Return, which only shows closing balance on the
said item, and therefore, changes made and squared off during the
year and change in the composition of the shareholder without
justifying the closing figure, cannot be ascertained from the Income
Tax Return for the relevant year.
34. The respondents have also stated that the balance-sheet and
the profit & loss account, as annexed with the present petition, have
not been delivered before the Income Tax Department by the
petitioner, at least till the time of initiation of the proceedings under
Section 147 of the Income Tax Act, 1961.
35. The respondents have also stated that the Assessing Officer
Writ Petition No.28177/2018 11
had reason to believe that the petitioner’s income has escaped
assessment within the meaning of Section 147 of the Act, and
therefore, he has rightly issued the notice under Section 148 of the
Income Tax Act, 1961 and there is no legal requirement to
communicate the reason to believe. It is communicated in due
course and the same was also done by the department. The
respondents have also stated that the petitioner’s contention
regarding pre and post search investigation are baseless. The
department conducted a very detailed and thorough investigation,
evidence was gathered, large number of persons were examined,
huge amount of hard and soft data were looked into and after
investigating hundreds of man-hours, the department has arrived at
a conclusion that opportunity to defend himself shall be available to
the petitioner during the assessment proceedings, which are taking
place.
36. The respondents have also stated that the petitioner has not
shown any business activity for the relevant year and has not filed
any audited account before the Income Tax Department, at least till
the time of initiation of the proceedings under Section 147 of the
Income Tax Act, 1961 and has filed only its Income Tax Return.
The respondents have also stated that sufficiency or insufficiency of
the material can not be looked into at the stage of notice under
Section 148 of the Income Tax Act, 1961.
37. The respondents have placed reliance upon a judgment
delivered in the case of AGR Investment Ltd. v/s Assistant
Commissioner of Income Tax & Another reported in (2011) 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
Writ Petition No.28177/2018 12
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 prayed for
dismissal of the writ petition.
39. Heard learned counsel for the parties at length and perused
the record.
40. The petitioner before this Court is aggrieved by the notice
dated 31.03.2018 and order dated 22.11.2018 passed by the
respondents. Undisputedly, the respondents have issued notice to
the petitioner on 31.03.2018 under Section 148 of the Income Tax
Act, 1961 and the petitioner did submit a reply to the respondents.
Thereafter, the petitioner demanded the reasons for reopening of the
assessment in respect of assessment year 2011-12 and the
respondents have supplied the reasons also. The petitioner has
submitted objection in respect of reassessment on 29.09.2018, and
finally, an order has been passed rejecting the objection of the
Writ Petition No.28177/2018 13
petitioner.
41. Sections 147 and 148 of the Income Tax Act, 1961 reads as
under:-
“147. Income escaping assessment. – If the
77[Assessing] Officer [has reason to believe] that any income
chargeable to tax has escaped assessment for any assessment
year, he may, subject to the provisions of sections 148 to 153,
assess or reassess such income and also any other income
chargeable to tax which has escaped assessment and which
comes to his notice subsequently in the course of the
proceedings under this section, or recompute the loss or the
depreciation allowance or any other allowance, as the case may
be, for the assessment year concerned (hereafter in this section
and in sections 148 to 153 referred to as the relevant
assessment year) :
Provided that where an assessment under sub-section (3)
of section 143 or this section has been made for the relevant
assessment year, no action shall be taken under this section
after the expiry of four years from the end of the relevant
assessment year80, unless any income chargeable to tax has
escaped assessment for such assessment year by reason of the
failure80 on the part of the assessee to make a return under
section 139 or in response to a notice issued under sub-section
(1) of section 142 or section 148 or to disclose fully and truly
all material facts80 necessary for his assessment, for that
assessment year:
[Provided [also] that the Assessing Officer may assess or
reassess such income, other than the income involving matters
which are the subject matters of any appeal, reference or
revision, which is chargeable to tax and has escaped
assessment.]”
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
Writ Petition No.28177/2018 14
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 rate ; or
(iii) such income has been made the subject of excessive
relief under this Act ; or
(iv) excessive loss or depreciation allowance or any
other allowance under this Act has been computed;]
[Explanation 3.—For the purpose of assessment or
reassessment86 under this section, the Assessing Officer may
assess or reassess the income in respect of any issue, which has
escaped assessment, and such issue comes to his notice
subsequently in the course of the proceedings under this
section, notwithstanding that the reasons for such issue have
not been included in the reasons recorded under sub-section (2)
of section 148.]
148. Issue of notice where income has escaped
assessment [ (1) ] Before making the assessment, reassessment
or recomputation under section 147, the Assessing Officer shall
serve on the assessee a notice requiring him to furnish within
such period, not being less than thirty days, as may be specified
in the notice, a return of his income or the income of any other
person in respect of which he is assessable under this Act
during the previous year corresponding to the relevant
assessment year, in the prescribed form and verified in the
prescribed manner and setting forth such other particulars as
may be prescribed; and the provisions of this Act shall, so far
as may be, apply accordingly as if such return were a return
required to be furnished under section 139.]
[Provided that in a case –
(a) where a return has been furnished during the
period commencing on the 1st day of October, 1991 and ending
on the 30th day of September, 2005 in response to a notice
served under this section, and
(b) subsequently a notice has been served under subsection
(2) of section 143 after the expiry of twelve months
specified in the proviso to sub-section (2) of section 143, as it
stood immediately before the amendment of said sub-section
by the Finance Act, 2002 (20 of 2002) but before the expirty of
the time limit for making the assessment, reassessment for 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:
Provided further that in a case –
(a) where a return has been furnished during the
period commencing the 1st day of October, 1991 and ending on
the 30th day of September, 2005, in response 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
Writ Petition No.28177/2018 15
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 petitioner and it is also on
record and the same reads as under:-
“1. PLEASE REFER TO YOUR LETTER DATED
25.05.2018, THE REASONS FOR ISSUANCE OF NOTICE
U/S 148 IS MENTIONED AS UNDER:
During the course of search proceedings in the Group
cases of Shriji Polymers (India) Ltd. hereinafter referred as
SPIL was conducted on 27.07.2017. During the course of
search & seizure action, various business premises of the
Group were covered u/s 133A of the Act, as per pre and post
search investigation, it has been established that the various
concerns of the Group are dummy in nature; they are
bogus/briefcase/paper concern handled by the Shri Anand
Bangur the promoter of SPIL.
2. During the post search investigation, Shri Anand Bangur
was asked to submit the details of the investments made by
these shell/paper/dummy companies for the period 2010-11 to
2016-17 but he ahs not cooperated with the department. Hence
DDIT (inv)-II, Indore has fetched the details of investments
made by these shell companies from the return of income filed
by such companies and passed on the information to concerned
AOs to take the necessary action in respect of share
application/share premium, Investment, Loan & Advances
introduced/made by these shell companies.
3. On perusal of income tax return for A.Y. 2011-12 it is
found that assessee company has shown share capital at
Rs.26,378,500/-.
4. The DDIT (Inv)-II, Indore reported that information
Writ Petition No.28177/2018 16
scouted out from seized/impounded material in the case of
SPIL Group of Ujjain described the facts in respect of M/s
Patni Industries Limited as under:
5. The company is having its registered address at 244,
Apollo Tower, M.G. Road, Indore – 452001. As per ROC data,
its directors are Shri Avinash Parashram Mupuskar, Shri
Kailash Garg, Smt. Chhaya Parmar and Shri Vinod Agrawal.
6. During the course of action, it was proposed to cover the
office premises of M/s Etiam Emedia Ltd and a team was
moved with authorization on the above address. The team
reported that no office in the name M/s Etiam Emedia Ltd is
running at the given address. It is pertinent to mention that the
directors of the company M/s Etiam Emedia Ltd are Shri
Kailash Gard, Shri Avinash Mapushka. In the statement
recorded during the search action and post search investigation,
Shri Kailash Garg and Smt. Chhaya Parmar have admitted that
they 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/-. Therefore I am satisfied that share
application money of Rs.2,63,75,500/- remains unexplained for
taxation for the A.Y. 2011-12 in the hands of assessee company.
Looking to the facts and circumstances of the case I have
reason to believe that income of Rs.2,63,75,500/- has escaped
assessment within the meaning of Section 147 of the Income
Tax Act. It is fit case to issue notice u/s 148.”
43. Learned senior counsel for the petitioner has placed reliance
on various judgments and this Court has carefully gone through the
aforesaid judgments.
44. In the considered opinion of this Court, sufficiency of reasons
Writ Petition No.28177/2018 17
cannot be considered in a writ petition and the assessee has to
participate in the reassessment proceeding and to specify that
escapement of income has taken place. The Division Bench of
Delhi High Court in the case of AGR Investment Ltd. (supra), has
dealt with all important judgments on the subject. Paragraphs-9 to
21 of the aforesaid judgment reads as under:-
“9. The High Court of Gujarat in Praful Chunilal Patel v.
Assistant Commission of Income Tax, [1999] 236 ITR 832 has
opined that in terms of the provision contained in Section 147,
the Assessing Officer should have reason to believe that any
income chargeable to tax has escaped assessment. The word
„reason‟ in the phrase „reason to believe‟ would mean cause or
justification. If the assessing officer has a cause or justification
to think or suppose that income has escaped assessment, he can
be said to have a reason to believe that such income had
escaped assessment. The words „reason to believe‟ cannot
mean that the assessing officer should have finally ascertained
the facts by legal evidence. They only mean that he forms a
belief from the examination he makes and if he likes from any
information that he receives. If he discovers or finds or satisfies
himself that the taxable income has escaped assessment, it
would amount to saying that he had reason to believe that such
income had escaped assessment. The justification for his belief
is not to be judged from the standards of proof required for
coming to a final decision. A belief, though justified for the
purpose of initiation of the proceedings under Section 147, may
ultimately stand altered after the hearing and while reaching the
final conclusion on the basis of the intervening enquiry. At the
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
Writ Petition No.28177/2018 18
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 material. The Court, of course,
cannot investigate into the adequacy or sufficiency
of the reasons which have weighed with the ITO in
coming to the belief, but the Court can certainly
examine whether the reasons are relevant and have a
bearing on the matters in regard to which he is
required to entertain the belief before he can issue
notice under S.147(a). It there is no rational and
intelligible nexus between the reasons and the belief,
so that, on such reasons, no one properly instructed
on facts and law could reasonably entertain the
belief, the conclusion would be inescapable that the
ITO could not have reason to believe that any part of
the income of the assessee had escaped assessment
and such escapement was by reason of the omission
or failure on the part of the assessee to disclose fully
and truly all material facts and the notice issued by
him would be liable to be struck down as invalid.”
11. In Birla VXL Ltd. v. Assistant Commissioner of
Income Tax, [1996] 217 ITR 1 (Guj.), a Division Bench of the
Gujarat High Court has opined thus:
“Explanation 2 to Section 147 of the Act, as
appended to newly substituted section 147 makes
certain provisions, where in certain circumstances,
the income is deemed to have escaped assessment
giving jurisdiction to the Assessing Officer to act
under the said provision. Another requirement which
is necessary for assuming jurisdiction is that the
Assessing Officer shall record his reasons for issuing
notice. This requirement necessarily postulates that
before the Assessing Officer is satisfied to act under
the aforesaid provisions, he must put in writing as to
why in his opinion or why he holds belief that
income has escaped assessment. “Why” for holding
such belief must be reflected from the record of
reasons made by the Assessing Officer. In a case
where Assessing Officer holds the opinion that
because of excessive loss or depreciation allowance
income has escaped assessment, the reasons
recorded by the Assessing Officer must disclose that
by what process of reasoning he holds such a belief
that excessive loss or depreciation allowance has
been computed in the original assessment. Merely
saying that excessive loss or depreciation allowance
Writ Petition No.28177/2018 19
has been computed without disclosing reasons which
led the assessing authority to hold such belief, in our
opinion, does not confer jurisdiction on the
Assessing Officer 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 reason of the omission or failure on the
part of the assessee to disclose fully and truly all material facts
necessary for the assessment for that period or year. Both the
conditions are conditions precedent for the assumption of
jurisdiction under Section 148 of the Act.
13. In Phool Chand Bajrang Lal & Anr. v. Income Tax
Officer & Anr., [1993] 203 ITR 456 (SC), the Apex Court has
held thus:
“From a combined review of the judgments of this
Court, it follows that an Income-tax Officer acquires
jurisdiction to reopen an assessment under Section
147(a) read with Section 148 of the Income-tax Act,
1961, only if on the basis of specific, reliable and
relevant information coming to his possession
subsequently, he has reasons, which he must record,
to believe that, by reason of omission or failure on
the part of the assessee to make a true and full
disclosure of all material facts necessary for his
assessment during the concluded assessment
proceedings, any part of his income, profits or gains
chargeable to income-tax has escaped assessment. He
may start reassessment proceedings either because
some fresh facts had come to light which were not
Writ Petition No.28177/2018 20
previously disclosed or some information with regard
to the facts previously disclosed comes into his
possession which tends to expose the untruthfulness
of those facts. In such situations, it is not a case of
mere change of opinion or the drawing of a different
inference from the same facts as were earlier
available but acting on fresh information. Since the
belief is that of the Income-tax Officer, the
sufficiency of reasons for forming the belief is not
for the Court to judge but it is open to an assessee to
establish that there in fact existed no belief or that the
belief was not at all a bona fide one or was based on
vague, irrelevant and non-specific information. To
that limited extent, the Court may look into the
conclusion arrived at by the Income-tax Officer and
examine whether there was any material available on
the record from which the requisite belief could be
formed by the Income-tax Officer and further
whether that material had any rational connection or
a live link for the formation of the requisite belief…”
[Emphasis supplied]
In Anant Kumar Saharia v. Commissioner of Income Tax
& Ors., [1998] 232 ITR 533 (Gauhati), it was held as follows:
“The belief is that of 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
Writ Petition No.28177/2018 21
material bearing on the question of escapement of
income by the assessee from assessment because of
his failure or omission to disclose fully and truly all
material facts. Whether such reasons are sufficient or
not, is not a matter to be decided by the court. But
the existence of the belief is subject to scrutiny if the
assessee shows circumstances that there was no
material before the Income-tax Officer to believe that
the income had escaped assessment.”[Emphasis
added]
In H.A. Nanji & Co. v. Income Tax Officer, [1979] 120
ITR 593 (Calcutta), it has been held that at the time of issue of
notice of reassessment, it is not incumbent on the ITO to come
to a finding that income has escaped assessment by reason of
the omission or failure of the assessee to disclose fully and
truly all material facts necessary for assessment. It has been
further held that the belief which the ITO entertains at that
stage is a tentative belief on the basis of the materials before
him which have to be examined and scrutinised on such
evidence as may be available in the proceedings for
reassessment. The Division Bench held that there must be some
grounds for the reasonable belief that there has been a nondisclosure
or omission to file a true or correct return by the
assessee resulting in escapement of assessment or in underassessment.
Such belief must be in good faith, and should not
be a mere pretence or change of opinion on inferential facts or
facts extraneous or irrelevant to the issue and the material on
which the belief is based must have a rational connection or
live link or relevant bearing on the formation of the belief.
17. In N.D. Bhatt, Inspecting Assistant Commissioner,
Income Tax & Another. v. I.B.M. World Trade Corporation,
[1995] 216 ITR 811(Bombay), it has been held thus:
“It is also well-settled that the reasons for reopening
are required to be recorded by the assessing authority
before issuing any notice under section 148 by virtue
of the provisions of section 148(2) at the relevant
time. Only the reason so recorded can be looked at
for sustaining or setting aside a notice issued under
section 148.”
18. In Hindustan Lever Ltd. v. R.B. Wadkar, [2004] 268
ITR 332 (Bom), a Division Bench has opined thus:-
“…. the reasons are required to be read as they were
recorded by the Assessing Officer. No substitution or
deletion is permissible. No additions can be made to
those reasons. No inference can be allowed to be
drawn based on reasons not recorded. It is for the
Assessing Officer to disclose and open his mind
Writ Petition No.28177/2018 22
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 necessary for assessment of
that assessment year, so as to establish the vital link
between the reasons and evidence. That vital link is
the safeguard against arbitrary reopening of the
concluded assessment.” [underlining is ours]
In Assistant Commissioner of Income Tax v. Rajesh
Jhaveri Stock Brokers P. Ltd, [2007] 291 ITR 500 (SC), it has
been ruled thus:-
“Section 147 authorises and permits the Assessing
Officer to assess or reassess income chargeable to
tax if he has reason to believe that income for any
assessment year has escaped assessment. The word
“reason” in the phrase “reason to believe” would
mean cause or justification. If the Assessing 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 Supreme 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
Writ Petition No.28177/2018 23
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 is so because
the formation of belief by the Assessing Officer is
within the realm of subjective satisfaction.”
[Emphasis supplied]
In this context, we may refer with profit to a Division
Bench decision of this Court in SFIL Stock Broking Ltd.
(supra), wherein the Bench was dealing with the validity of the
proceedings under Section 147 of the Act. The Bench
reproduced the initial issuance of notice and thereafter referred
to the reasons for issue of notice under Section 148 which was
provided to the assessee. Thereafter, 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 information and the two
directions as „reasons’ on the basis of which he was
proceeding to issue notice under Section 148. We are
afraid that these cannot be the reasons for
proceeding under Section 147/148 of the said Act.
Writ Petition No.28177/2018 24
The first part is only an information and the second
and the third parts of the beginning paragraph of the
so-called reasons are mere directions. From the socalled
reasons, it is not at all discernible as to
whether the Assessing Officer had applied his mind
to the information and independently arrived at a
belief that, on the basis of the material which he had
before him, income had escaped assessment.
Consequently, we find that the Tribunal has arrived
at the correct conclusion on facts. The law is well
settled. There is no substantial question of law which
arises for our consideration.”
[Emphasis is ours]
21. At this juncture, it is profitable to refer to the
authority in GNK Driveshafts (India) Ltd. v. Income Tax
Officer and Others, (2003) 179 C54 (SC) 11 wherein their
Lordships of the Apex Court have held thus:-
“5. We see no justifiable reason to interfere with the
order under challenge. However, we clarify that
when a notice under Section 148 of the Income Tax
Act is issued, the proper course of action for the
notice is to file return and if he so desires, to seek
reasons for issuing notices. The assessing officer is
bound to furnish reasons within a reasonable time.
On receipt of reasons, the notice is entitled to file
objections to issuance of notice and the assessing
officer is bound to dispose of the same by passing a
speaking order. In the instant case, as the reasons
have been disclosed in these proceedings, the
assessing officer has to dispose of the objections, if
filed, by passing a speaking order, before
proceeding with the assessment in respect of the
abovesaid five assessment years.”
In Sarthak Securities Co. Pvt. Ltd. v. ITO, Writ Petition
No.6087/2010, decided on 18th October, 2010, a Division
Bench of this Court, after reproducing Section 147 of the Act
and relying on certain decisions in the field, expressed the
view as follows:
“23. `The obtaining factual matrix has to be tested
on the anvil of the aforesaid pronouncement of law.
In the case at hand, as is evincible, the assessing
officer was aware of the existence of four
companies with whom the assessee had entered 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
Writ Petition No.28177/2018 25
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 rejection. The assessee in his
objections had clearly stated that the companies had
bank accounts and payments were made to the
assessee company through banking channel. The
identity of the companies was not disputed. Under
these circumstances, it would not be appropriate to
require the assessee to go through the entire gamut
of proceedings. It is totally unwarranted.”
The present factual canvas has to be scrutinized on the
touchstone of the aforesaid enunciation of law. It is worth
noting that the learned counsel for the petitioner has submitted
with immense vehemence that the petitioner had entered into
correspondence to have the documents but the assessing
officer treated them as objections and made a communication.
However, on a scrutiny of the order, it is perceivable that the
authority has passed the order dealing with the objections in a
very careful and studied manner. He has taken note of the fact
that transactions involving Rs.27 lakhs mentioned in the table
in Annexure P-2 constitute fresh information in respect of the
assessee as a beneficiary of bogus accommodation entries
provided to it and represents the undisclosed income. The
assessing officer has referred to the subsequent information
and adverted to the concept of true and full disclosure of facts.
It is also noticeable that there was specific information
received from the office of the DIT (INV-V) as regards the
transactions entered into by the assessee company with number
of concerns which had made accommodation entries and they
were not genuine transactions. As we perceive, it is neither a
change of opinion nor does it convey a particular interpretation
of a specific provision which was done in a particular manner
Writ Petition No.28177/2018 26
in the original assessment and sought to be done in a different
manner in the proceeding under Section 147 of the Act. The
reason to believe has been appropriately understood by the
assessing officer and there is material on the basis of which the
notice was issued. As has been held in Phool Chand Bajrang
Lal (supra), Bombay Pharma Products (supra) and Anant
Kumar Saharia (supra), the Court, in exercise of jurisdiction
under Article 226 of the Constitution of India pertaining to
sufficiency of reasons for formation of the belief, cannot
interfere. The same is not to be judged at that stage. In SFIL
Stock Broking Ltd. (supra), the bench has interfered as it was
not discernible 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, the petitioner requires this Court to
adjudge the sufficiency of the material and to make a roving
enquiry that the initiation of proceedings under Sections 147
and 148 of the Act is not tenable. The same does not come
within the ambit and sweep of exercise of power under Article
226 of the Constitution of India. It is open to the assessee to
participate in the re- assessment proceedings and put forth its
stand and stance in detail to satisfy the assessing officer that
there was no escapement of taxable income. We may hasten to
clarify that any observation made in this order shall not work
to the detriment of the plea put forth by the assessee during the
re- assessment proceedings.”
45. In the present case, the reasons recorded in the matter were
certainly communicated to the petitioner. The objections of the
petitioner have been properly dealt and it is not a case of mere
suspicion, it is a case, wherein the competent authority was having
Writ Petition No.28177/2018 27
reason to believe to reopen the assessment. There was a specific
information available with the authorities. The reasons to believe
had been properly understood by the authorities and there was
material on the basis of which, notice was issued.
46. In exercise of the jurisdiction under Article 226 of the
Constitution of India, the sufficiency or insufficiency for the
formation of the reason to believe cannot be considered, as held by
the Delhi High Court. It is certainly open to the assessee to
participate in the reassessment proceedings and to put forth its stand
in detail to satisfy the Assessing Officer that no escapement of
income has taken place.
At this stage, this Court does not find any reason to interfere
with the notice as well as with the order passed by the respondents.
No case for interference is made out in the matter.
Accordingly, the present writ petition stands dismissed.
Certified copy, as per rules.
(S.C. SHARMA) (VIRENDER SINGH)
J U D G E J U D G E
Ravi

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