# DEPUTY COMMISSIONER OF INCOME TAX (CENTRAL) CIRCLE 1(2) v. M/S. M. R. SHAH LOGISTICS PVT. LTD

- **Citation:** [2022] 14 S.C.R. 1078
- **Court:** Supreme Court of India
- **Decided:** 2022-03-28
- **Case number:** Civil Appeal No. 2453 of 2022
- **Bench:** Uday Umesh Lalit, S. Ravindra Bhat
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/deputy-commissioner-of-income-tax-central-circle-1-2-v-m-s-m-r-shah-logistics-35724
- **Pages:** 22

## Headnote

Income Tax Act,1961- ss.147, 148, 143 - "Reasons to believe"
- Finance Act, 2016 - Chapter IX- Income Declaration Scheme
(IDS) - Search proceedings were conducted by Revenue at the office
premises of one 'SCS' wherein several materials and documents were
seized - Revenue was of the opinion that the assessee was also a
beneficiary of the business (of accommodation entries provided by
'SCS') through bogus companies - This was based on the fact that
many companies which invested amounts towards share capital on
high premiums in the assessee's company were also controlled and
managed by 'SCS' - On the basis of the aforesaid opinion, the
impugned notice u/s.147/148 to re-assess the income of the assessee
for AY 2010-2011 was issued - Notice quashed by High Court - On
appeal, held: The basis for a valid re-opening of assessment should
be availability of tangible material, which can lead the AO to
scrutinize the returns for the previous assessment year in question,
to determine, whether a notice u/s.147 is called for - In the present
case, the "reasons to believe" forming part of the s.147, point to
the fact that the reopening of assessment was based on information
accessible by the AO that a substantial amount of unaccounted
income of promoters/directors was introduced in the closely held
companies of the assessee group through 'SCS', alleged to be a
Mumbai based accommodation entry provider- through another
accommodation entry provider based at Ahmedabad - The basis
for reopening the assessment in this case was the information from
the material seized during search in cases of 'SCS' and correlation
with return of income of the assessee - Further, there was no scrutiny
assessment done at the original assessment stage - Also, the
declarant was Garg Logistic Pvt Ltd and not the assessee - Facially,
s.192 affords immunity to the declarant - Therefore, the protection
given, is to the declarant, and for a limited purpose - However, the
[2022] 14 S.C.R. 1078
1078
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High Court proceeded on the footing that such protection would
bar the revenue from scrutinizing the assessee's return, absolutely
- The re-opening of assessment was not based on Garg Logistic's
declaration, the fact that such an entity owned up and paid tax and
penalty on amounts which it claimed, were invested by it as share
applicant, (though the share applicants were other companies and
entities) to the assessee in the present case, cannot by any rule or
principle inure to the assessee's advantage - High Court fell into
error in holding that the sequitur to a declaration under the IDS can
lead to immunity (from taxation) in the hands of a non-declarant -
Impugned judgment set aside.
Finance Act, 2016 - Chapter IX- Income Declaration Scheme
- Scope and effect of - Discussed.
Allowing the appeal, the Court
HELD : 1.1 The basis for a valid re-opening of assessment
should be availability of tangible material, which can lead the AO
to scrutinize the returns for the previous assessment year in
question, to determine, whether a notice under Section 147 is
called for. In the present case, the basis for reopening of
assessment was not that Garg Logistics Pvt Ltd had declared 1
6,36,00,000/- as undisclosed cash utilized for investment in the
assessee's share capital. The assessee's contention that
reopening was done based on the disclosure made by Garg
Logistics is therefore, not correct. The original assessment was
not completed after scrutiny, but was under Section 143 (1) of
the Act. The status of such assessment -is essentially weak. Thus,
in the present case, the returns filed by the assessee were not
examined, or scrutinized; only an intimation that it was filed, was
issued by the AO. The "reasons to believe" forming part of the
Section 147- in this case, clearly point to the fact that the
reopening of assessment was based on information accessible by
the AO that a substantial amount of unaccounted income of
promoters/directors was introduced in the closely

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SUPREME COURT REPORTS
[2022] 14 S.C.R.
DEPUTY COMMISSIONER OF INCOME TAX (CENTRAL)
CIRCLE 1(2)
v.
M/S. M. R. SHAH LOGISTICS PVT. LTD.
(Civil Appeal No(s). 2453 of 2022)
MARCH 28, 2022
[UDAY UMESH LALIT AND S. RAVINDRA BHAT, JJ.]
Income Tax Act,1961- ss.147, 148, 143 - "Reasons to believe"
- Finance Act, 2016 - Chapter IX- Income Declaration Scheme
(IDS) - Search proceedings were conducted by Revenue at the office
premises of one 'SCS' wherein several materials and documents were
seized - Revenue was of the opinion that the assessee was also a
beneficiary of the business (of accommodation entries provided by
'SCS') through bogus companies - This was based on the fact that
many companies which invested amounts towards share capital on
high premiums in the assessee's company were also controlled and
managed by 'SCS' - On the basis of the aforesaid opinion, the
impugned notice u/s.147/148 to re-assess the income of the assessee
for AY 2010-2011 was issued - Notice quashed by High Court - On
appeal, held: The basis for a valid re-opening of assessment should
be availability of tangible material, which can lead the AO to
scrutinize the returns for the previous assessment year in question,
to determine, whether a notice u/s.147 is called for - In the present
case, the "reasons to believe" forming part of the s.147, point to
the fact that the reopening of assessment was based on information
accessible by the AO that a substantial amount of unaccounted
income of promoters/directors was introduced in the closely held
companies of the assessee group through 'SCS', alleged to be a
Mumbai based accommodation entry provider- through another
accommodation entry provider based at Ahmedabad - The basis
for reopening the assessment in this case was the information from
the material seized during search in cases of 'SCS' and correlation
with return of income of the assessee - Further, there was no scrutiny
assessment done at the original assessment stage - Also, the
declarant was Garg Logistic Pvt Ltd and not the assessee - Facially,
s.192 affords immunity to the declarant - Therefore, the protection
given, is to the declarant, and for a limited purpose - However, the
[2022] 14 S.C.R. 1078
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High Court proceeded on the footing that such protection would
bar the revenue from scrutinizing the assessee's return, absolutely
- The re-opening of assessment was not based on Garg Logistic's
declaration, the fact that such an entity owned up and paid tax and
penalty on amounts which it claimed, were invested by it as share
applicant, (though the share applicants were other companies and
entities) to the assessee in the present case, cannot by any rule or
principle inure to the assessee's advantage - High Court fell into
error in holding that the sequitur to a declaration under the IDS can
lead to immunity (from taxation) in the hands of a non-declarant -
Impugned judgment set aside.
Finance Act, 2016 - Chapter IX- Income Declaration Scheme
- Scope and effect of - Discussed.
Allowing the appeal, the Court
HELD : 1.1 The basis for a valid re-opening of assessment
should be availability of tangible material, which can lead the AO
to scrutinize the returns for the previous assessment year in
question, to determine, whether a notice under Section 147 is
called for. In the present case, the basis for reopening of
assessment was not that Garg Logistics Pvt Ltd had declared 1
6,36,00,000/- as undisclosed cash utilized for investment in the
assessee's share capital. The assessee's contention that
reopening was done based on the disclosure made by Garg
Logistics is therefore, not correct. The original assessment was
not completed after scrutiny, but was under Section 143 (1) of
the Act. The status of such assessment -is essentially weak. Thus,
in the present case, the returns filed by the assessee were not
examined, or scrutinized; only an intimation that it was filed, was
issued by the AO. The "reasons to believe" forming part of the
Section 147- in this case, clearly point to the fact that the
reopening of assessment was based on information accessible by
the AO that a substantial amount of unaccounted income of
promoters/directors was introduced in the closely held companies
of the assessee group through Shirish Chandrakant Shah, alleged
to be a Mumbai based accommodation entry provider- through
Pradeep Birewar, another accommodation entry provider based
at Ahmedabad. During the course of search at the office premise
of Shirish Chandrakant Shah (on 09.04.2013 at Mumbai)
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apparently, an MS Excel sheet "pradeep abad" in the Excel file
"ac1.xls" in a pen-drive, backed up from a removable disc folder
(called "Bips backup 14.02.2012) was seized from the computer
in that office in form of computer back up. The AO, in the reasons
recorded with the re-assessment notice stated that a comparison
of data of accommodation entry provided by Shirish Chandrakant
Shah through various companies controlled and managed by him
and found from his office premise with the return of income of
the assessee (for AY 2011-12) revealed that the latter (i.e. the
assessee) had availed one time accommodation entry from various
companies controlled and managed by Shirish Chandrakant Shah.
The AO also noticed that the assessee had not proved credit
worthiness of various share applicants, who invested amounts
with high premium, in the assessee company during AY 2010-11
nor shown genuineness of such transactions. [Paras 23-25][1093D-F; 1094-A-F]
1.2 The record also reveals that Garg Logistics Pvt. Ltd
had not invested ` 6,36,00,000/- in the assessee company during
the relevant period. The details of income declaration by Garg
Logistics under the IDS scheme was submitted by Pravin. P.
Agrawal (the assessee's chairman) in support of its claim of
genuineness of receipt of share capital. However, as noticed
earlier, the basis for reopening the assessment in this case was
the information from the material seized during search in cases
of Shrish Chandrakant Shah and correlation with return of income
of the assessee. Further, there was no scrutiny assessment done
at the original assessment stage. [Paras 26, 27][1094-F-G; 1095C-E]
1.3 As a matter of fact, M/s Garg Logistics filed its IDS
application with a different Commissionerate which did not share
information with the AO in the present case; he did not also call
for any such information. Pravin Chandra Agrawal, the chairman
of the assessee (M.R. Shah group) was queried with regard to
the capital raised with high premium during a search, and post
search inquiry. He submitted details of the IDS declaration by
Garg Logistics Pvt Ltd to say that the amounts received toward
share applications were genuine transactions. Clearly, in the
present case, the High Court went wrong in holding that the
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department had shared confidential IDS information of Garg
Logistics Pvt Ltd. The AO utilized the material submitted by
Pravin. P. Agrawal (the assessee's chairman) and correlated it
with the ROC data filed by the assessee. Further, it is also
apparent, that the AO's "reasons to believe" do not disclose any
inquiry made in relation to Garg Logistic Pvt Ltd's account or
declaration. The information or "tangible material" which the
assessing officer comes by enabling re-opening of an assessment,
means that the entire assessment (for the concerned year) is at
large; the revenue would then get to examine the returns for the
previous year, on a clean slate - as it were. Therefore, to hold- as
the High Court did, in this case, that since the assessee may
have a reasonable explanation, is not a ground for quashing a
notice under Section 147. As long as there is objective tangible
material (in the form of documents, relevant to the issue) the
sufficiency of that material cannot dictate the validity of the notice.
[Paras 28, 29][1095-E-H; 1096-A-C]
1.4 The declarant was Garg Logistic Pvt Ltd and not the
assessee. Facially, Section 192 affords immunity to the declarant:
"...nothing contained in any declaration made under section 183
shall be admissible in evidence against the declarant for the
purpose of any proceeding relating to imposition of penalty..."
Therefore, the protection given, is to the declarant, and for a
limited purpose. However, the High Court proceeded on the
footing that such protection would bar the revenue from
scrutinizing the assessee's return, absolutely. Quite apart from
the fact that the re-opening of assessment was not based on Garg
Logistic's declaration, the fact that such an entity owned up and
paid tax and penalty on amounts which it claimed, were invested
by it as share applicant, (though the share applicants were other
companies and entities) to the assessee in the present case,
cannot - by any rule or principle inure to the assessee's advantage.
The High Court fell into error, in holding that the sequitur to a
declaration under the IDS can lead to immunity (from taxation) in
the hands of a non-declarant. The impugned judgment is set aside.
The AO is at liberty to take steps to complete the re-assessment.
[Paras 31, 34 and 35][1096-F-H; 1097-A-B; 1099-D-E]
DEPUTY COMMISSIONER OF INCOME TAX (CENTRAL) CIRCLE 1(2) v.
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Commissioner of Income Tax v. Rajesh Jhaveri Stock
Broker Ltd. [2007] 7 SCR 765; Commissioner of Income
Tax v. Rajesh Jhaveri Stock Broker Ltd. [1961] 2 SCR
241; Income Tax Officer, Calcutta & Ors. v. Lakhmani
Mewal Das [1976] 3 SCR 956; Phool Chand Bajrang
Lal & Ors. v. Income Tax Officer & Ors. [1993] 1 Suppl.
SCR 28; Commissioner of Income Tax, Delhi v.
Kelvinator of India Ltd. [2010] 1 SCR 768; State, CBI
v. Sashi Balasubramanian & Ors. [2006] 8 Suppl. SCR
914; Tanna & Modi v Commissioner of Income Tax,
Mumbai XXV & Ors. [2007] 8 SCR 233; Tekchand &
Ors. v. Competent Authority [1993] 2 SCR 864 -
referred to.
Case Law Reference
[2007] 7 SCR 765
referred to
Para 16
[1961] 2 SCR 241
referred to
Para 19
[1976] 3 SCR 956
referred to
Para 20
[1993] Supp 1 SCR 28
referred to
Para 21
[2010] 1 SCR 768
referred to
Para 22
[2006] 8 Suppl. SCR 914
referred to
Para 31
[2007] 8 SCR 233
referred to
Para 32
[1993] 2 SCR 864
referred to
Para 33
CIVIL APPELLATE JURISDICTION: Civil Appeal No. 2453
of 2022.
From the Judgment and Order dated 14.08.2018 of the High Court
of Gujarat at Ahmedabad in SCA No. 21028 of 2017.
N. Venkataraman, ASG, Ashok Panigrahi, Anmol Chandan, Adit
Khorana, Ms. Priyanka Das, Ms. Megha Karanwal, Raj Bahadur Yadav,
Advs. for the Appellant.
Guru Krishnakumar, Sr. Adv., Ms. Manisha T. Karia, Sukhda Kalra,
Adarsh Kumar, Ms. Nidhi Nagpal, Ms. Nupur Dhiren Mehta, Advs. for
the Respondent.
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The Judgment of the Court was delivered by
S. RAVINDRA BHAT, J.
1. Special leave granted. With consent of counsel for parties, the
appeal was heard finally. The Commissioner of Income tax (hereafter
"the revenue") appeals against a judgment of the Gujarat High Court1,
which quashed a notice issued under Section 147/148, Income Tax Act
(hereafter "the Act") seeking to re-open the respondent's assessment,
for the assessment year (AO) 2010-11. The respondent is hereafter,
referred to as "the assessee".
2. The facts are that search proceedings were conducted- by the
revenue, under the Act, at the office premises of one Shirish Chandrakant
Shah on 09.04.2013 at Mumbai; during the course of the search, several
materials- and documents, were seized. On analysis of such documents,
the revenue was of opinion that Shirish Chandrakant Shah was providing
accommodation entries, through various companies controlled and
managed by him, and that the assessee was one of the beneficiaries of
the business (of accommodation entries provided by Shri Shirish Shah)
through bogus companies. This was based on the fact that many
companies which invested amounts towards share capital on high
premiums -in the assessee's company were also controlled and managed
by Shri Shirish Shah. The AO, on a consideration of these and other
materials, was of opinion that the assessee was also a beneficiary of the
accommodation entries provided by Shri Shirish Shah. On the basis of
this opinion the impugned notice to re-assess the income of the assessee
for AY 2010-2011, was issued on 31.3.2017.
3. The assessee is a private limited company and had filed return
of income for the AY 2010-11 on 25.9.2010. The return was accepted
under section 143(1) of the Act without scrutiny. On 31.3.2017, the
impugned notice was issued. The AO also furnished reasons recorded
by him for issuing notice of reassessment.
4. The "reasons to believe" which were the basis for re-opening
the assessment, recorded that search proceedings were conducted in
the M.R. Shah group and Champalal group of companies on 20.09.2016
and that during the course of previous searches in the case of Shirish
1 Dated 14 August, 2018 in Special Civil Application No. 21028 of 2017
DEPUTY COMMISSIONER OF INCOME TAX (CENTRAL) CIRCLE 1(2) v.
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Chandrakant Shah, an accommodation entry provider in Mumbai, it was
observed that huge amounts of unaccounted moneys of promoters/
directors were introduced in closely held companies of the assessee's
group. The reasons to believe also stated that the chairman of M.R.
Shah Group was asked about the application money received by the
assessee, during the statement- recorded under Section 132(4) of the
Act, on 18.11.2016; in the course of that statement, he disclosed that
M/s. Garg Logistics Pvt. Ltd. had declared ` 6.36 crores as undisclosed
cash utilized for investment in the share capital of the assessee, M.R.
Shah Logistics Pvt. Ltd. through various companies. The assessee
company's chairman voluntarily disclosed the statements made by Garg
Logistics under Section 132 of the Act, about the declaration by Garg
Logistics P Ltd, under the Income Declaration Scheme (IDS).
5. The AO, in the reasons to believe, compared the investments
made by Pravin Chandra Aggarwal, i.e. the assessee company's
Chairman with form no.2 of the assessee company and the records of
the Registrar of Companies and prepared a chart, which is reproduced
in a chart below
"On comparison of such data following discrepancies are
noted;
6. The reasons supplied by the AO further noted that he had
completed the assessment in the case of Pradeep Birewar group and
that a search took place in respect of that group along with various
individuals who had obtained accommodation entries of long term capital
gains (LTCG) in the shares of Ganesh Spinners Ltd. from Shirish
Chandrakant Shah. It was found that Pradeep Birewar was an
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Ahmedabad based accommodation entry provider engaged in facilitating
one-time accommodation entries to various clients. The "reasons to
believe" further noted that the materials seized, including the books of
Shirish Chandrakant Shah contained date wise details of cash receipts
and accommodation entries paid. On a consideration of all those materials,
it was found that cash credit of 1 70.01 crores was received by Shirish
Chandrakant Shah for the period 11.02.2010 to 29.07.2011.
7. The AO also recorded as follows:
"2 Further, this office has also completed assessment in the
cases of Pradeep Birewar group. A search action in the case
of Pradeep Birewar was carried out along with various
individuals who had obtained accommodation entries of LongTerm Capital Gains (LTCG) in the shares of Shri Ganesh
Spinners Limited (now known as Yantra Natural Resources
Limited) from Shirish Chandrakant Shah (SCS) through Pradip
Birewar. Pradip Birewar is an Ahmedabad based
accommodation entry provider who is facilitating one time
and other accommodation entries including LTCG entries to
various clients on receipt of cash. He is facilitating these
entries through bigger accommodation entry providers i.e
Shirish Chandra Shah. During the course of search at office
premises of SCS ON 09.04.2013 situated at "Dwarka Ashish
Building", Jambulwadi, Kalbadevi Road Mumbai, MS excel
sheet "pradeep abad" in the excel file "ac1.xls" located at
path 5/pen drive back up/Removable Disk folder named "Bips
backup 14.02.12 was found and seized m the computer (Rajen
Computer) in that office in form of computer-backup. The
said sheet is in the nature of account of "Pradip Birewar" in
the books of SCS which contains the date-wise details of cash
received and accommodation entries paid there against. On
perusal of the said sheet, it has been found that cash
aggregating to Rs.70.01 crores has been received by SCS from/
through Pradip Birewar during the period 11.02.2010 to
29.07.2011.
2.1 The entries of cash received as recorded by SCS in the
evidence seized/impounded during the course of survey at
his office have been corroborated with the entries recorded
by Shri Pradeep Birewar in Annexure A-5, A-6 and A-7 seized
DEPUTY COMMISSIONER OF INCOME TAX (CENTRAL) CIRCLE 1(2) v.
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from the residence of Shri Pradeep Birewar during the course
of search conducted in his case on 04.12 2014. When data
seized in different searches 'at premises of SCS & Pradeep
Birewar were correlated with data of return of assessee filed
for AY 2011-12 in which year assessee-company had receive
One Time (OT) entry. Hence, this facts indicate that assessee
company has been introducing its unaccounted receipt/income
through accommodation entries.
2.2 It is also noticed that assessee company had received credit
amount in its books but has failed to establish that the cash
declared by Garg logistics Pvt Ltd under Income Declaration
scheme was not actually the cash of the assessee-company.
Assessee had only submitted Income Declaration Form no.2
of Garg Logistics Pvt Ltd and failed to provide documentary
evidence of investment of cash declared by Garg Logistics
Pvt Ltd in the assessee company. Even the list submitted by
assessee had discrepancies with data submitted to registrar
of companies as discussed in above para. In other words, the
assessee has not been able to establish that the income
admitted under IDS 2016 by Garg Logistics Pvt Ltd. went in
the books of investor companies. It is worth to highlight that
Investor companies are independent paper companies and
they have provided entries independently and not through
Garg Logistics Pvt Ltd.
2.3 Thus the claim of the assessee company that Cash declared
by Garg Logistics was utilized to make investment in assessee
company through paper companies remains unexplained.
Besides, in the case of Trinetra Commerce & Trade(P) Ltd in
[2016]75 taxmann.com 70(Calcutta) it was seen that assesseecompany had received share capital from persons/entities
whose identity, creditworthiness etc were not established.
Addition u/s 68 was made been made in hands of assesseecompany. Subsequent, one person K disclosed such amount
before Settlement Commission as his undisclosed income.
Based upon such admittance by 'K', in case of assessee
company ITAT had deleted the addition u/s 68 holding that it
would amount to double addition. However, Hon'ble High
Court held that addition in hands of both K & assessee-
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company are justified since both are different persons subject
to different causes of action u/s 69 & 68 respectively.
3. Based on the facts discussed above, it is to be derived that
credit received by assessee as Share premium & Share capital
is not genuine but mere accommodation entry used to avoid
tax payment and it is the undisclosed income of the assesseecompany itself. On verification of return income & Audit report
filed by assessee, it is noticed that assessee had received Rs.
6,25,00,000/- as share premium & Share capital during FY
2009-10 from various persons/companies. It is noticed that
assesssee had shown total income of Rs. 7,94,675/- only and
not offered the amount of Rs. 62500000/- as income to
suppress taxable income and to avoid tax payment and hence
it is to be concluded that assessee had understated his income
to the extent of Rs. 62500000/-. Hence the amount of Rs.
62500000/-being accommodation entry in form of share
capital & share premium remained untaxed and escaped
assessment and the failure is on the part of the assessee to
disclose fully and truly all material facts necessary for its
assessment, for the assessment year 2010-11."
8. The assessee objected to the re-opening notice by letter dated
29.8.2017. The objections were rejected by the AO by an order dated
30.10.2017. Aggrieved, the assessee approached the High Court under
Article 226 of the Constitution, impugning the revenue's action in seeking
to re-open the assessment. The revenue resisted the challenge, and
justified the re-opening (of assessment) notice.
9. The High Court, by the impugned judgment, was of the opinion
that the AO had no information to conclude that the disclosure by Garg
Logistics was not from funds of that declarant but was in fact the
unaccounted income of the assessee. The impugned order reasoned
that the AO, after recounting the background history of the assessee
and background of M.R. Logistics, shifted the burden on assessee to
say that the share application money received by it was not its unaccounted
income. This, according to the High Court, was erroneous. The impugned
judgment was of the opinion that there was no tangible material or reason
for the AO to reopen the assessment. The High Court also considered
the scheme of Section 183 of the Finance Act, 2016 and noted that
immunity was given in respect of amounts declared and brought to tax in
DEPUTY COMMISSIONER OF INCOME TAX (CENTRAL) CIRCLE 1(2) v.
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terms of such a scheme. Therefore, the AO could not have relied upon
the declaration made by the Garg Logistics to so conclude. The High
Court also derived strength from the circular of the CBDT dated
01.09.2016, especially, the answer to Query no.10.
Contentions of parties
10. It was argued on behalf of the revenue by the Additional
Solicitor General (ASG) for India, Mr. N. Venkataraman, that the
impugned judgment cannot be sustained as there was tangible material
justifying the reopening of assessment in the circumstances of the case.
It was pointed out that the AO traced the history of the assessee company,
its close association with Pradeep Birewar, one time accommodation
entry received by the assessee which was discovered in the course of
search in the case of Shirish Chandrakant Shah as well as Pradeep
Birewar and the transaction of routing its income as investment in bogus
share capital. It was urged that the mere circumstance that Garg Logistics
declared the amount of ` 6.36 crores as undisclosed income per se
could not be an explanation to induce the AO to drop reassessment
notice.
11. The revenue pointed out that in fact Garg Logistics Pvt. Ltd.
had not invested any amount towards share application money; the claim
of the assessee was that the companies which had invested in it were all
fronts of Garg Logistics P Ltd, which had in turn declared the amounts
as undisclosed income under IDS 2016. It was submitted further that
the formation of belief by the AO was not on the basis of the declaration
of Garg Logistics but rather information culled out through the search/
seizure action, survey and search proceedings in the case of common
entry provided through Shirish Chandrakant Shah.
12. The learned ASG submitted that the assessee company was
not able to link the income disclosed under the IDS 2016 by Garg Logistics
with the investment by the companies who had applied for shares in the
assessee. Learned counsel submitted that the investor companies were
independent - paper fronts which had provided entries. Learned counsel
submitted that the High Court erroneously concluded that the
reassessment was based upon the IDS declaration of Garg Logistics. In
fact, the disclosure was voluntarily provided by the assessee's chairman
during the search by a statement under Section 132(4).
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13. It was pointed out that the AO's opinion has to be based upon
some objective material on the record as to constitute tangible material.
The sufficiency of that material would ordinarily not be scrutinized by
the courts in exercise of judicial review. It was submitted lastly that on
perusal of the circular of CBDT dated 01.09.2016, particularly, the answer
to the queries are not relevant in the facts and circumstances of the
case.
14. Learned senior counsel for the assessee, Mr. Guru
Krishnakumar, urged that information of share investment of ` 6.25 crores
by Garg Logistics made through different companies, but owned by it,
was made in its declaration in the IDS. This information was not furnished
to the AO and he could not, therefore, have legitimately concluded that
such investment was not from the funds of Garg Logistics but was in
fact assessee's unaccounted income. The AO's approach was contrary
to the law in as much as in the very first instance, he sought to place the
burden upon the assessee to prove that it was not in fact routing back its
own cash through the investments made by the companies - which Garg
Logistics (P) Ltd owned up to be unaccounted income in its declaration.
15. It was argued, the reasons recorded that the assessee had
received ` 6.25 crores as share premium and share capital during FY
2009-10 from various persons/companies being accommodation entry
providers which was untaxed and escaped assessment and that there
was failure on the part of the assessee to disclose fully and truly all
material facts necessary for its AY 2010-2011, are not valid and are bad
in law and facts of the present case. The foundation of the "reasons to
believe" in this case lacks validity and is beyond the scheme and scope
of Section 147 and 148 of the Act and IDS.
16. It was argued, that revenue reopened the assessment casually
on self-contradictory grounds and the re-opening is impermissible as
there is no valid "reason to believe" that the assessee's income escaped
assessment. Reliance is placed on Commissioner of Income Tax v.
Rajesh Jhaveri Stock Broker Ltd.2 and the High Court also categorically
observed that the reason so recorded lacks validity and conclusions are
made on surmises and conjectures which are not permissible under the
law and not backed by any material on record.
2 2007 (7) SCR765
DEPUTY COMMISSIONER OF INCOME TAX (CENTRAL) CIRCLE 1(2) v.
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17. It was argued, the fact that the assessment was originally
done under Section 143(1) is not decisive in determining the validity of
the impugned reopening. The High Court was conscious of the legal
position in this regard so much so that it noted that, the return filed by the
assessee was accepted without scrutiny and therefore, the principle of
change of opinion preventing the AO from reopening the assessment
would have no applicability. It was further urged that the discrepancies
noticed by the AO were duly explained in the assessee's objections and
do not have any effect on quantification of escapement of income/share
capital for value of ` 6.25 crores. It was lastly urged that no incriminating/
tangible material was available to reopen assessment and there was no
establishment of any nexus or link connecting the source of the investment
to the assessee; the reassessment was opened solely on the basis of
misconceived theories by the revenue. The record makes it obvious that
the amount has already been declared by Garg Logistics and full tax has
been paid with penalty as per the scheme. Therefore, reassessment of
this amount would lead to double taxation, which is contrary to the scheme
of the Act itself.
Analysis and conclusions
18. Section 147 of the Act authorizes the re-opening of any
assessment of a previous year3. Section 148, which contains the conditions
for re-opening assessments, including the limitation period within which
notices can be issued, by its proviso, enacts that:
"Provided that no notice under this section shall be issued
unless there is information with the Assessing Officer which
suggests that the income chargeable to tax has escaped
assessment in the case of the assessee for the relevant
3 "147. Income escaping assessment
"If any income chargeable to tax, in the case of an assessee, has escaped assessment for
any assessment year, the Assessing Officer may, subject to the provisions of sections
148 to 153, assess or reassess such income or recompute the loss or the depreciation
allowance or any other allowance or deduction for such assessment year (hereafter in
this section and in sections 148 to 153 referred to as the relevant assessment year).
Explanation.-For the purposes of assessment or reassessment or
recomputation 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, irrespective
of the fact that the provisions of section 148A have not been complied with."
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assessment year and the Assessing Officer has obtained prior
approval of the specified authority to issue such notice."
19. Long ago, in its decision reported as Calcutta Discount
Company Ltd v Income Tax officer4 this court had underscored the
obligation of every assessee to make a true and full disclosure and said
that:
"There can be no doubt that the duty of disclosing all the
primary facts relevant to the decision of the question before
the assessing authority lies on the assesses."
The court further held that once the duty is discharged, it is upto
the assessing officer to inquire further and draw the necessary inferences
while completing the assessment.
20. As to what can be the valid grounds for re-opening an
assessment has been the subject matter of several decisions of this court.
In Income Tax Officer, Calcutta & Ors. vs. Lakhmani Mewal Das5
this court held that the "reasons to believe" must be based on objective
materials, and on a reasonable view. The court held as follows:
"The grounds or reasons which lead to the formation of the
belief contemplated by Section 147(a) of the Act must have a
material bearing on the question of escapement of income of
the assessee from assessment because of his failure or omission
to disclose fully and truly all material facts. Once there exist
reasonable grounds for the Income-tax Officer to form the
above belief, that would be sufficient to clothe him with
jurisdiction to issue notice. Whether the grounds are adequate
or not is not a matter for the Court to investigate. The
sufficiency of grounds which induce the income-tax Officer
to act is, therefore, not a justiciable issue. It is, of course,
open to the assessee to contend that the Income-tax Officer
did not hold the belief that there had been such non-disclosure.
The existence of the belief can be challenged by the assessee
but not the sufficiency of reasons for the belief. The expression
"reason to believe" does not mean a purely subjective
satisfaction on the part of the Income-tax Officer. The reason
must be held in good faith. It cannot be merely a pretence. It
4 1961 (2) SCR 241
5 1976 (3) SCR 956
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is open to the Court to examine whether the reasons for the
formation of the belief have a rational connection with or a
relevant bearing on the formation of the belief and are not
extraneous or irrelevant for the purpose of the section. To
this limited extent, the action of the Income-tax Officer in
starting proceedings in respect of income escaping assessment
is open to challenge in a Court of law."
21. In Phool Chand Bajrang Lal & Ors. vs. Income Tax Officer
& Ors6, after reviewing the previous case law, and concluding that a
valid re-opening is one, preceded by specific, reliable and relevant
information, and that the sufficiency of such reasons is not subject to
judicial review- the only caveat being that the court can examine the
record, if such material existed, it was held that the facts disclosed in the
return, if found later to be unfounded or false, can always be the basis of
a re-opening of assessment:
"appears to us to be, to ensure that a party cannot get away
by wilfully making a 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 can do nothing". It would be travesty of
justice to allow the assessee that latitude."
22. A three judge Bench, of this court, in Commissioner of Income
Tax, Delhi v. Kelvinator of India Ltd7 after considering the previous
decisions, re-stated the correct position as follows:
"5....where the Assessing Officer has reason to believe that
income has escaped assessment, confers jurisdiction to reopen the assessment. Therefore, post-1st April, 1989, power
to re-open is much wider. However, one needs to give a
schematic interpretation to the words "reason to believe".....
Section 147 would give arbitrary powers to the Assessing
Officer to re-open assessments on the basis of "mere change
of opinion", which cannot be per se reason to re-open.
6 1993 Supp (1) SCR 28
7 2010 (1) SCR 768
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6. We must also keep in mind the conceptual difference
between power to review and power to re-assess. The
Assessing Officer has no power to review; he has the power
to re-assess. But re-assessment has to be based on fulfillment
of certain pre-condition and if the concept of "change of
opinion" is removed, as contended on behalf of the
Department, then, in the garb of re-opening the assessment,
review would take place.
7. One must treat the concept of "change of opinion" as an
in-built test to check abuse of power by the Assessing Officer.
Hence, after 1st April, 1989, Assessing Officer has power to
re-open, provided there is "tangible material" to come to the
conclusion that there is escapement of income from assessment.
Reasons must have a live link with the formation of the belief."
23. It is therefore, clear that the basis for a valid re-opening of
assessment should be availability of tangible material, which can lead
the AO to scrutinize the returns for the previous assessment year in
question, to determine, whether a notice under Section 147 is called for.
In the present case, the basis for reopening of assessment was not that
Garg Logistics Pvt Ltd had declared ` 6,36,00,000/- as undisclosed cash
utilized for investment in the assessee's share capital. The assessee's
contention that reopening was done based on the disclosure made by
Garg Logistics is therefore, not correct.
24. It may also be noticed that the original assessment was not
completed after scrutiny, but was under Section 143 (1) of the Act. The
status of such assessment - if one may so term it, is essentially weak.
As was explained in Rajesh Jhaveri (f.n.1, cited by the assessee):
"the intimation Under Section 143(1)(a) cannot be treated to
be an order of assessment. The distinction is also well brought
out by the statutory provisions as they stood at different points
of time. Under Section 143(1)(a) as it stood prior to April 1,
1989, the Assessing Officer had to pass an assessment order
if he decided to accept the return, but under the amended
provision, the requirement of passing of an assessment order
has been dispensed with and instead an intimation is required
to be sent. Various circulars sent by the Central Board of
Direct Taxes spell out the intent of the Legislature, i.e., to
DEPUTY COMMISSIONER OF INCOME TAX (CENTRAL) CIRCLE 1(2) v.
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minimize the Departmental work to scrutinize each and every
return and to concentrate on selective scrutiny of returns."8
Thus, in the present case, the returns filed by the assessee were
not examined, or scrutinized; only an intimation that it was filed, was
issued by the AO.
25. The "reasons to believe" forming part of the Section 147- in
this case, clearly point to the fact that the reopening of assessment was
based on information accessible by the AO that a substantial amount of
unaccounted income of promoters/directors was introduced in the closely
held companies of the assessee group through Shirish Chandrakant Shah,
alleged to be a Mumbai based accommodation entry provider- through
Pradeep Birewar, another accommodation entry provider based at
Ahmedabad. During the course of search at the office premise of Shirish
Chandrakant Shah (on 09.04.2013 at Mumbai) apparently, an MS Excel
sheet "pradeep abad" in the Excel file "ac1.xls" in a pen-drive, backed
up from a removable disc folder (called "Bips backup 14.02.2012) was
seized from the computer in that office in form of computer back up.
The AO, in the reasons recorded with the re-assessment notice stated
that a comparison of data of accommodation entry provided by Shirish
Chandrakant Shah through various companies controlled and managed
by him and found from his office premise with the return of income of
the assessee (for AY 2011-12) revealed that the latter (i.e. the assessee)
had availed one time accommodation entry from various companies
controlled and managed by Shirish Chandrakant Shah. The AO also
noticed that the assessee had not proved credit worthiness of various
share applicants, who invested amounts with high premium, in the assessee
company during AY 2010-11 nor shown genuineness of such transactions.
26. This court further notices that that the record also reveals that
Garg Logistics Pvt. Ltd had not invested ` 6,36,00,000/- in the assessee
company during the relevant period. The record bears out that the
following entities invested in the assessee:
8 Followed in Deputy Commissioner of Income Tax v Zuari Estate Development and
Investment Company Ltd 2015 (15) SCC 248
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27. The details of income declaration by Garg Logistics under the
IDS scheme was submitted by Pravin. P. Agrawal (the assessee's
chairman) in support of its claim of genuineness of receipt of share
capital. However, as noticed earlier, the basis for reopening the
assessment in this case was the information from the material seized
during search in cases of Shrish Chandrakant Shah and correlation
with return of income of the assessee. Further, there was no scrutiny
assessment done at the original assessment stage.
28. As a matter of fact, M/s Garg Logistics filed its IDS application
with a different Commissionerate9 which did not share information with
the AO in the present case; he did not also call for any such information.
Pravin Chandra Agrawal, the chairman of the assessee (M.R. Shah
group) was queried with regard to the capital raised with high premium
during a search, and post search inquiry. He submitted details of the IDS
declaration by Garg Logistics Pvt Ltd to say that the amounts received
toward share applications were genuine transactions. Clearly, in the
present case, the High Court went wrong in holding that the department
had shared confidential IDS information of Garg Logistics Pvt Ltd. The
AO utilized the material submitted by Pravin. P.