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 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) 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 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] 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.
As published in the Supreme Court Reports, Supreme Court of India. Text from the Indian Supreme Court Judgments open data set (Dattam Labs), CC BY 4.0.
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