Rainbow Texchem Private Limited vs Income Tax Officer Ward No 2(1)(1)

Bela M. Trivedi, J

The petition filed by the petitioner under Article 226 of the Constitution of India is directed against the Notice dated 26.3.2019 (Annexure-B) issued

by the respondent under Section 148 of Income Tax Act (hereinafter referred to the “said Actâ€) and the preliminary order dated 21.9.2019

(Annexure-E) passed by the respondent disposing off the objections raised by the petitioner against the said Notice.

The short facts giving rise to the present petition are that the petitioner is a Private Limited Company incorporated under the Companies Act and is

being regularly assessed to income tax by the Income Tax Department. For the A.Y. 2012-13, a return of income was filed on 29.9.2012 by the

petitioner. No scrutiny assessment was filed under Section 143(3) of the said Act. The petitioner received the impugned Notice dated 26.3.2019 issued

by the respondent under Section 148 read with Section 147 of the said Act, stating inter alia that the respondent had reason to believe that the income

of the petitioner chargeable to Tax for the A. Y. 2012-13 had escaped assessment. The petitioner, therefore, was called upon to deliver a return in the

prescribed form for the said A.Y. The respondent also issued a letter dated 7.5.2019 providing the reasons recorded for reopening of the assessment

for the A.Y. 2012-13 under Section 147 of the said Act. The petitioner filed his objections to the said reasons on 28.7.2019, which have been rejected

vide the impugned order dated 21.9.2019.

The respondent has filed affidavit-in-reply resisting the petition by contending inter alia that the respondent had reason to believe that the petitioner

had suppressed income to the tune of Rs.67,64,436/-for the A.Y. concerned, for the grounds stated in the letter dated 7.5.2019, and therefore, the

assessment was sought to be reopened under Section 147/148 of the Act.

The learned Sr. Advocate Mr.D.R. Patel for the petitioner raised various contentions, challenging the action of the respondent in seeking to reopen

the assessment for the concerned year by submitting that the respondent did not have the jurisdiction under Section 147/148 to reopen the proceedings

based on incorrect facts. According to him, the petitioner had never carried out any transactions with Kamal Zaveri, proprietor of M/s. Rishit

Corporation or his proprietary concern, nor had taken any unsecured loans from him, which was evident from the audit report. He further submitted

that the respondent cannot be permitted to carry out fishing or roving inquiry merely for the purpose of verification. There was total non-application of

mind on the part of the respondent in reopening the assessment, and therefore, it could not be said that there was a reason to believe on the part of the

respondent in initiating the proceedings under Section 147 of the said Act. Mr.Patel has sought to rely upon the unreported judgement of this Court in

case of Parth Knitex Pvt. Ltd., Pravinkumar Ramkaran Agarval Vs. Deputy Commissioner of Income Tax Circle 2(1)(1) (Special Civil Application

No.21107 of 2017 decided on 27.2.2018) and in case of GKN Driveshafts (India) Limited Vs. Income-Tax Officer and Others, reported in 259 ITR

19 in support of his submissions.

Per Contra the learned Senior Standing Counsel Mr.Nikunt Raval for the respondent submitted that a survey action was undertaken by the

Investigation Wing, Surat under Section 133A of the said Act in case of one Kamal Jayantilal Zaveri, Proprietor of M/s.Rishi Corporation on

24.3.2015 and during the reassessment proceedings in case of the said Kamal Jayantilal Zaveri, the impounded material revealed the entries of tax bills

and accommodation loan entries connecting the present petitioner to the tune of Rs.67,64,463/- for the A.Y. 2012-13, and therefore, on the basis of the

said material the respondent had sought to reopen the assessment by recording the reasons. Placing reliance on the decision of Supreme Court in case

of A Raman & Company, reported in 67 ITR 11 (SC), he submitted that the word ‘information’ means instruction or knowledge derived from

external source or as to law relating to a matter bearing on the assessment. He also relied upon the decision of the Supreme Court in case of Kalyanji

Mavji, reported in 102 ITR 287 (SC) to submit that information can come from external sources or even from material already on record and the word

information would include the true and correct state of law. Reliance was also placed on the decision of this Court in case of Jayant Security and

Finance Limited Vs. ACIT, reported in (2018) 91 taxmann.com 181 (Gujarat), and in case of Aaspas Multimedia Limited Vs. DCIT, reported in

(2017) 83 taxmann.com 82 (Gujarat) to submit that the A.O. having recorded the prima facie findings on the basis of search conducted of Shri Kamal

J. Zaveri, it could not be said that there was no tangible material available with the A.O. Mr.Raval has also relied upon the judgement of the Supreme

Court in case of Raymond Woolen Mills Limited Vs. ITO &Ors., reported in (1999) 236 ITR 34 (SC) in support of his submission that the sufficiency

or correctness of the material could not be considered at this juncture and what is required to be considered is whether prima facie there was some

material before the Assessing Officer for reopening of the case of the assessment.

At the outset, it may be stated that one of the purposes of Section 147 of the said Act is to ensure that a party does not get away by willfully

making false or untrue statement at the time of original assessment, and when that falsity comes to notice, to turn around and say “you accepted

my lie, now your hands are tied and you cannot do anythingâ€, as observed by the Supreme Court in case of M/S. Phool Chand Bajrang Lal And

Another vs Income-Tax Officer And Another, reported in 203 ITR 456 (SC) . It is also well settled proposition of law that the Income Tax Officer

acquires jurisdiction to reopen an assessment under Section 147 read with Section 148 of the said Act, only if on the basis of specific, reliable and

relevant information coming to his possession subsequently, he has reason, which he must record, to believe that the income chargeable to tax has

escaped assessment for the concerned assessment year. The sufficiency of reasons for forming the belief is not for the Court to judge, but it is open

to the assessee to establish that there, in fact, existed no belief or that the belief was not bona fide or that the belief was based on vague or irrelevant

information. Therefore, let us examine as to whether the initiation of action under Section 147 read with Section 148 of the said Act against the

petitioner is legal and justified.

In the instant case stated earlier, the impugned notice dated 26.3.2019 was issued by the respondent under Section 148 of the said Act, calling upon

the petitioner to deliver a return in the prescribed form for the A.Y. 2012-13 as the respondent had a reason to believe that the income of the

petitioner chargeable to tax for the said assessment year had “escaped assessment†within the meaning of Section 147 of the said Act. The

respondent had also supplied the reasons in support of the said Notice, conveyed to the petitioner vide the letter dated 7.5.2019. The petitioner, on

28.7.2019, had filed the objections to the said reasons recorded for reopening the assessment, which have been rejected by the respondent.

Now, it appears that the impugned action under Section 147/148 of the said Act has been initiated against the petitioner by the respondent on the

basis of the material and the impounded documents recovered during the course of survey action undertaken by the Investigation Wing, Surat under

Section 133A of the said Act in case of one Shri Kamal J. Zaveri, Proprietor of M/s. Rishit Corporation on 24.3.2015. Therefore, there was a tangible

material available with the respondent and the said material had a prima facie link with the petitioner and with the formation of the belief by the

respondent that income of about Rs.67,64,463/- had escaped assessment.

In case of CIT Vs. M/s.Kelvinator of India Limited, reported in 320 ITR 561 (SC), it has been held inter alia that the Assessing Officer has power

to reopen, provided there is “tangible material†to come to the conclusion that there is an escapement of income from assessment and that

reasons must have a live link with the formation of the belief.

Our Court has also in similar case, in the case of Aaspas Multimedia Pvt. Ltd. (supra) held that if on the basis of information supplied by/from the

office of Principal Director of Income Tax (Investigation), the A.O., has found that the petitioner assessee was the beneficiary of accommodation

entries provided by the other assessee, it could not be said that there was no tangible material available with the A.O., to prima facie form an

opinion/belief that income of the petitioner chargeable to tax has escaped an assessment.

As rightly submitted by the learned Sr. Standing Counsel Mr.Raval, what is required to reopen a case is “reason to believeâ€, the sufficiency or

correctness of material cannot be considered at this juncture, as held by the Supreme Court in case of Raymond Woolen Mills Limited Vs. ITO

(supra).

The Supreme Court in case of ACIT Vs. Rajesh Jhaveri Stock Brokers Pvt. Ltd., reported in (2007) 291 ITR 500 (SC), has also observed that the

word “reason†in the phrase “reason to believe†would mean cause or justification. If the Assessing Officer has a 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 decision relied upon by the learned Advocate Mr.D. R. Patel for the petitioner in case of GKN Driveshafts (India) Limited Vs. Income-Tax

Officer and Others (supra) has no application to the facts of the present case. In the said case, it was observed that the A. O. is bound to furnish

reasons within a reasonable time, and on receipt of the reasons, the noticee is entitled to file objections to issuance of notice and the A. O., is bound to

dispose of the same by passing a speaking order. In the instant case, the A. O. has disposed of the objections of the petitioner by passing a speaking

order considering all legal and factual aspects, which are just and proper, and do not call for any interference by this Court, exercising the jurisdiction

under Article 226 of the Constitution of India.

In that view of the matter, the petition being of devoid of merit is dismissed.