Name of the Investor,"Amount of investment received by
M R Shah Logistics Pvt Ltd as per
form no. 2 file by it with ROC","Amount claimed to be paid by
Garg Logistics Pvt Ltd as per
form no. 2 filed under IDS
declaration
Sangam Distributors Pvt Ltd.,"Rs. 20,00,000/-","Rs. 10,00,000/-
Fountain Commerce Pvt Ltd,"Rs. 25,00,000/-",NIL
Panorama Commercial Pvt Ltd.,NIL,"Rs. 25,00,000/-
Sanskar Distributors Pvt Ltd.,"Rs. 10,00,000/-","Rs. 20,00,000/-
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 assessee-company 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 assessee-company. 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-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 assessee-company 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.â€",,
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 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 Rs. 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,,
â€" 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).,,
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 Rs. 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 â€" 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 Rs. 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. 2007 (7) SCR765 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.,,
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 Rs. 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 year. 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:",,
“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.â€",,
“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 assessment year and the Assessing Officer has,,
obtained prior approval of the specified authority to issue such notice.â€,,
19. Long ago, in its decision reported as Calcutta Discount Company Ltd v Income Tax officer 1961 (2) SCR 241 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.â€,,
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 Das 1976 (3) SCR 956 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 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.â€,,
21. In Phool Chand Bajrang Lal & Ors. vs. Income Tax Officer & Ors 1993 Supp (1) SCR 28, 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.â€",,
22. A three judge Bench, of this court, in Commissioner of Income Tax, Delhi v. Kelvinator of India Ltd 2010 (1) SCR 768 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 re-open 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.,,
Sl. No.,Name of the Allottees Companies,Amount of Investment
1.,Amar Commercial Pvt. Ltd.,"Rs. 1,40,00,000/-
2.,Fountain Commerce Pvt. Ltd.,"Rs. 25,00,000/-
3.,Ganga Marketing Pvt. Ltd.,"Rs. 20,00,000/-
4.,Gurukul Vinayak Pvt. Ltd.,"Rs. 80,00,000/-
5.,Heaven Mercantile Pvt. Ltd.,"Rs. 1,00,00,000/-
6.,Neelkamal Trade Link Pvt. Ltd.,"Rs. 1,50,00,000/-
7.,Red Hot Mercantile Pvt. Ltd.,"Rs. 80,00,000/-
8.,Sanskar Distributors Pvt. Ltd.,"Rs. 10,00,000/-
9.,Sangam Distributors Pvt. Ltd.,"Rs. 20,00,000/-
Total,,"Rs. 6,25,00,000/-
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.,,
29. Another aspect which should not be lost sight of is that 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 â€" 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.",,
30. That brings the court to the scope and effect of the Income Declaration Scheme (IDS), introduced by Chapter IX of the Finance Act, 2016. The",,
objective of its provisions was to enable an assessee to declare her (or his) suppressed undisclosed income or properties acquired through such,,
income. It is based on voluntary disclosure of untaxed income and the assessee’s acknowledging income tax liability. This disclosure is through a,,
declaration (Section 183) to the Principal Commissioner of Income Tax within a time period, and deposit the prescribed amount towards income tax",,
and other stipulated amounts, including penalty. Section 192 grants limited immunity to declarants, and states as follows:",,
“192. Notwithstanding anything contained in any other law for the time being in force, 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, other",,
than the penalty leviable under section 185, or for the purposes of prosecution under the Income-tax Act or the Wealth-tax Act, 1957.â€",,
31. As noticed previously 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 â€" by any rule or principle inure to the assessee’s advantage. In similar circumstances, dealing with another",,
scheme (the Kar Vivad Samadhan Scheme 1988, a previous tax amnesty scheme) this court had, in State, CBI vs. Sashi Balasubramanian & Ors",,
2006 Supp (8) SCR 914 held as follows:,,
“an immunity is granted only in respect of offences purported to have been committed under direct tax enactment or indirect tax,,
enactment, but by no stretch of imagination, the same would be granted in respect of offences under the Prevention of Corruption Act. A",,
person may commit several offences under different Acts; immunity granted in relation to one Act would not mean that immunity granted,,
would automatically extend to others. By way of example, we may notice that a person may be prosecuted for commission of an offence in",,
relation to property under the Indian Penal Code as also under another Act, say for example, the Prevention of Corruption Act. Whereas",,
charges under the Prevention of Corruption Act may fail, no sanction having been accorded therefore, the charges under the Penal Code",,
would not.â€,,
32. In Tanna & Modi v Commissioner of Income Tax, Mumbai XXV & Ors 2007 (8) SCR 233 also, this court held, similarly that immunity granted for",,
one purpose, cannot be extended for another:",,
“20. It may be necessary for the aforementioned purpose to bear in mind that the immunity granted pursuant to acceptance of a,,
declaration made under the voluntary taxation scheme or Kar Vivad Samadhan Scheme, 1998 does not lead to a total immunity. Immunity",,
granted under the Scheme has its own limitations. The Scheme must be applied only in the event the conditions precedent laid down,,
therefore are applicable. See State, CBI v. Sashi Balasubramanian and Anr.[2007]289ITR8(SC) and Alpesh Navinchandra Shah v. State of",,
Maharashtra and Ors. 2007 (3) SCR 223,,
21. A raid was conducted in the premises of the firm. Search warrant might have been issued in the name of a partner of the firm. The,,
partner made certain statements. The search revealed some undisclosed income. The firm has a separate legal entity, it could have made a",,
declaration, but it was done in respect of the same amount regarding the partner of the firm made disclosures. What would be the effect of",,
his subsequent retraction is not a matter which we are required to deal with herein. It is one thing to say that when a firm has concealed,,
income, each partner need not make a declaration but it would be another thing to say that when a search has been made on the premises",,
of the firm and the books of accounts of the firm are inspected, on the strength of a search warrant issued in the name of one of the",,
partners thereof, a declaration can be made by the firm so as to cover the loopholes. In a case where Sub-section (2) of Section 64 is",,
applied, Sub-section (1) thereof would not apply inasmuch as it starts with the term ""nothing contained"" in Sub-section (1) shall apply in",,
relation to. What are the conditions which would make Sub-section (1) of Section 64 inapplicable is the income assessable for any,,
assessment year for which a notice under Section 142 or 148 of the Income Tax Act has been served upon such person and the return has,,
not been furnished before commencement of the Scheme and upon strict construction, it is possible to argue that the word ""such person""",,
must relate to that declaring which being a firm would not include within its purview its partners. But, in a case of this nature where fraud is",,
alleged, we cannot be oblivious of the fact that each firm acts through its partner. A firm is the conglomeration of its partners, and is not a",,
juristic person. In the instant case, the purported disclosure made by the firm relates to the same amount which has been disclosed by the",,
partner. Even the source of income was found to be the same. As the income of a firm vis-a-vis its partners have a direct co-relation, in our",,
opinion, while construing a statute granting immunity, it should not be construed in such a manner so as to frustrate its object.â€",,
33. In an earlier decision, Tekchand & Ors. vs. Competent Authority 1993 (2) SCR 864 it was similarly held that immunity granted by a tax amnesty",,
scheme in respect of liabilities under some enactments, did not afford protection against action under other enactments or laws:",,
“13. So far as the contention based upon Sections 11 and 16 of Voluntary Disclosure Act is concerned we have already pointed out,",,
while setting out the said provisions that the immunity conferred thereunder is of a limited character and that it is not an absolute or,,
universal immunity. The immunity cannot be extended beyond the confines specified by the said provisions. There is also no reason to,,
presume that the Parliament intended to extend any immunity to smugglers and manipulators of foreign exchange who are proceeded,,
against under enactments other than those mentioned in Sections 11 and 16 of the Voluntary Disclosure Act. So far as the argument that the,,
authorities under the Act have not properly considered the explanation offered by the appellants and the material produced by them, we",,
must say that we are unable to agree with the same.â€,,
34. This court is, therefore, of the opinion that 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.,,
35. In view of the foregoing reasons, the impugned judgment is hereby set aside. The AO is at liberty to take steps to complete the re-assessment.",,
The revenue’s appeal is allowed in these terms, without order on costs.",,
