DEPUTY COMMISSIONER OF INCOME TAX (CENTRAL) CIRCLE 1(2) versus M/S. M. R. SHAH LOGISTICS PVT. LTD. on 28 March 2022

[2022] 14 S.C.R.

ADEPUTY COMMISSIONER OF INCOME TAX (CENTRAL)CIRCLE 1(2)

v.

M/S. M. R. SHAH LOGISTICS PVT. LTD.

B(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 SchemeC(IDS) – Search proceedings were conducted by Revenue at the officepremises of one ‘SCS’ wherein several materials and documents wereseized – Revenue was of the opinion that the assessee was also abeneficiary of the business (of accommodation entries provided by‘SCS’) through bogus companies – This was based on the fact thatDmany companies which invested amounts towards share capital onhigh premiums in the assessee’s company were also controlled andmanaged by ‘SCS’ – On the basis of the aforesaid opinion, theimpugned notice u/s.147/148 to re-assess the income of the assesseefor AY 2010-2011 was issued – Notice quashed by High Court – Onappeal, held: The basis for a valid re-opening of assessment shouldEbe availability of tangible material, which can lead the AO toscrutinize the returns for the previous assessment year in question,to determine, whether a notice u/s.147 is called for – In the presentcase, the “reasons to believe” forming part of the s.147, point tothe fact that the reopening of assessment was based on informationFaccessible by the AO that a substantial amount of unaccountedincome of promoters/directors was introduced in the closely heldcompanies of the assessee group through ‘SCS’, alleged to be aMumbai based accommodation entry provider- through anotheraccommodation entry provider based at Ahmedabad – The basisfor reopening the assessment in this case was the information fromGthe material seized during search in cases of ‘SCS’ and correlationwith return of income of the assessee – Further, there was no scrutinyassessment done at the original assessment stage – Also, thedeclarant was Garg Logistic Pvt Ltd and not the assessee – Facially,s.192 affords immunity to the declarant – Therefore, the protectionHgiven, is to the declarant, and for a limited purpose – However, the High Court proceeded on the footing that such protection wouldbar the revenue from scrutinizing the assessee’s return, absolutely– The re-opening of assessment was not based on Garg Logistic’sdeclaration, the fact that such an entity owned up and paid tax andpenalty on amounts which it claimed, were invested by it as shareapplicant, (though the share applicants were other companies andentities) to the assessee in the present case, cannot by any rule orprinciple inure to the assessee’s advantage – High Court fell intoerror in holding that the sequitur to a declaration under the IDS canlead 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

Conclusion

HELD : 1.1 The basis for a valid re-opening of assessmentshould be availability of tangible material, which can lead the AOto scrutinize the returns for the previous assessment year inquestion, to determine, whether a notice under Section 147 iscalled for. In the present case, the basis for reopening ofassessment was not that Garg Logistics Pvt Ltd had declared ¹6,36,00,000/- as undisclosed cash utilized for investment in theassessee’s share capital. The assessee’s contention thatreopening was done based on the disclosure made by GargLogistics is therefore, not correct. The original assessment wasnot completed after scrutiny, but was under Section 143 (1) ofthe Act. The status of such assessment –is essentially weak. Thus,in the present case, the returns filed by the assessee were notexamined, or scrutinized; only an intimation that it was filed, wasissued by the AO. The “reasons to believe” forming part of theSection 147- in this case, clearly point to the fact that thereopening of assessment was based on information accessible bythe AO that a substantial amount of unaccounted income ofpromoters/directors was introduced in the closely held companiesof the assessee group through Shirish Chandrakant Shah, allegedto be a Mumbai based accommodation entry provider- throughPradeep Birewar, another accommodation entry provider basedat Ahmedabad. During the course of search at the office premiseof Shirish Chandrakant Shah (on 09.04.2013 at Mumbai)

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Aapparently, 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 computerin that office in form of computer back up. The AO, in the reasonsrecorded with the re-assessment notice stated that a comparisonof data of accommodation entry provided by Shirish ChandrakantBShah through various companies controlled and managed by himand found from his office premise with the return of income ofthe assessee (for AY 2011-12) revealed that the latter (i.e. theassessee) had availed one time accommodation entry from variouscompanies controlled and managed by Shirish Chandrakant Shah.CThe AO also noticed that the assessee had not proved creditworthiness of various share applicants, who invested amountswith high premium, in the assessee company during AY 2010-11nor shown genuineness of such transactions. [Paras 23-25][1093-D-F; 1094-A-F]

D1.2 The record also reveals that Garg Logistics Pvt. Ltdhad not invested ` 6,36,00,000/- in the assessee company duringthe relevant period. The details of income declaration by GargLogistics under the IDS scheme was submitted by Pravin. P.Agrawal (the assessee’s chairman) in support of its claim ofgenuineness of receipt of share capital. However, as noticedEearlier, the basis for reopening the assessment in this case wasthe information from the material seized during search in casesof Shrish Chandrakant Shah and correlation with return of incomeof the assessee. Further, there was no scrutiny assessment doneat the original assessment stage. [Paras 26, 27][1094-F-G; 1095-FC-E]

1.3 As a matter of fact, M/s Garg Logistics filed its IDSapplication with a different Commissionerate which did not shareinformation with the AO in the present case; he did not also callfor any such information. Pravin Chandra Agrawal, the chairmanGof the assessee (M.R. Shah group) was queried with regard tothe capital raised with high premium during a search, and postsearch inquiry. He submitted details of the IDS declaration byGarg Logistics Pvt Ltd to say that the amounts received towardshare applications were genuine transactions. Clearly, in thepresent case, the High Court went wrong in holding that theH

department had shared confidential IDS information of GargLogistics Pvt Ltd. The AO utilized the material submitted byPravin. P. Agrawal (the assessee’s chairman) and correlated itwith the ROC data filed by the assessee. Further, it is alsoapparent, that the AO’s “reasons to believe” do not disclose anyinquiry made in relation to Garg Logistic Pvt Ltd’s account ordeclaration. The information or “tangible material” which theassessing officer comes by enabling re-opening of an assessment,means that the entire assessment (for the concerned year) is atlarge; the revenue would then get to examine the returns for theprevious year, on a clean slate – as it were. Therefore, to hold- asthe High Court did, in this case, that since the assessee mayhave a reasonable explanation, is not a ground for quashing anotice under Section 147. As long as there is objective tangiblematerial (in the form of documents, relevant to the issue) thesufficiency 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 theassessee. Facially, Section 192 affords immunity to the declarant:“...nothing contained in any declaration made under section 183shall be admissible in evidence against the declarant for thepurpose of any proceeding relating to imposition of penalty…”Therefore, the protection given, is to the declarant, and for alimited purpose. However, the High Court proceeded on thefooting that such protection would bar the revenue fromscrutinizing the assessee’s return, absolutely. Quite apart fromthe fact that the re-opening of assessment was not based on GargLogistic’s declaration, the fact that such an entity owned up andpaid tax and penalty on amounts which it claimed, were investedby it as share applicant, (though the share applicants were othercompanies 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 adeclaration under the IDS can lead to immunity (from taxation) inthe 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]

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ACommissioner of Income Tax v. Rajesh Jhaveri StockBroker Ltd. [2007] 7 SCR 765; Commissioner of IncomeTax v. Rajesh Jhaveri Stock Broker Ltd. [1961] 2 SCR241; Income Tax Officer, Calcutta & Ors. v. LakhmaniMewal Das [1976] 3 SCR 956; Phool Chand BajrangLal & Ors. v. Income Tax Officer & Ors. [1993] 1 Suppl.BSCR 28; Commissioner of Income Tax, Delhi v.Kelvinator of India Ltd. [2010] 1 SCR 768; State, CBIv. Sashi Balasubramanian & Ors. [2006] 8 Suppl. SCR914; Tanna & Modi v Commissioner of Income Tax,Mumbai XXV & Ors. [2007] 8 SCR 233; Tekchand &COrs. v. Competent Authority [1993] 2 SCR 864 –referred to.

CIVIL APPELLATE JURISDICTION: Civil Appeal No. 2453Fof 2022.

From the Judgment and Order dated 14.08.2018 of the High Courtof Gujarat at Ahmedabad in SCA No. 21028 of 2017.

N. Venkataraman, ASG, Ashok Panigrahi, Anmol Chandan, AditKhorana, Ms. Priyanka Das, Ms. Megha Karanwal, Raj Bahadur Yadav,GAdvs. for the Appellant.

Guru Krishnakumar, Sr. Adv., Ms. Manisha T. Karia, Sukhda Kalra,Adarsh Kumar, Ms. Nidhi Nagpal, Ms. Nupur Dhiren Mehta, Advs. forthe 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, theappeal was heard finally. The Commissioner of Income tax (hereafter“the revenue”) appeals against a judgment of the Gujarat High Court[1],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 therevenue, under the Act, at the office premises of one Shirish ChandrakantShah on 09.04.2013 at Mumbai; during the course of the search, severalmaterials- and documents, were seized. On analysis of such documents,the revenue was of opinion that Shirish Chandrakant Shah was providingaccommodation entries, through various companies controlled andmanaged by him, and that the assessee was one of the beneficiaries ofthe business (of accommodation entries provided by Shri Shirish Shah)through bogus companies. This was based on the fact that manycompanies which invested amounts towards share capital on highpremiums -in the assessee’s company were also controlled and managedby Shri Shirish Shah. The AO, on a consideration of these and othermaterials, was of opinion that the assessee was also a beneficiary of theaccommodation entries provided by Shri Shirish Shah. On the basis ofthis opinion the impugned notice to re-assess the income of the assesseefor AY 2010-2011, was issued on 31.3.2017.

3. The assessee is a private limited company and had filed returnof income for the AY 2010-11 on 25.9.2010. The return was acceptedunder section 143(1) of the Act without scrutiny. On 31.3.2017, theimpugned notice was issued. The AO also furnished reasons recordedby him for issuing notice of reassessment.

4. The “reasons to believe” which were the basis for re-openingthe assessment, recorded that search proceedings were conducted inthe M.R. Shah group and Champalal group of companies on 20.09.2016and 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

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AChandrakant Shah, an accommodation entry provider in Mumbai, it wasobserved that huge amounts of unaccounted moneys of promoters/directors were introduced in closely held companies of the assessee’sgroup. The reasons to believe also stated that the chairman of M.R.Shah Group was asked about the application money received by theassessee, during the statement- recorded under Section 132(4) of theBAct, on 18.11.2016; in the course of that statement, he disclosed thatM/s. Garg Logistics Pvt. Ltd. had declared ` 6.36 crores as undisclosedcash utilized for investment in the share capital of the assessee, M.R.Shah Logistics Pvt. Ltd. through various companies. The assesseecompany’s chairman voluntarily disclosed the statements made by GargCLogistics under Section 132 of the Act, about the declaration by GargLogistics P Ltd, under the Income Declaration Scheme (IDS).

5. The AO, in the reasons to believe, compared the investmentsmade by Pravin Chandra Aggarwal, i.e. the assessee company’sChairman with form no.2 of the assessee company and the records of Dthe Registrar of Companies and prepared a chart, which is reproducedin a chart below “On comparison of such data following discrepancies arenoted; E

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G6. The reasons supplied by the AO further noted that he hadcompleted the assessment in the case of Pradeep Birewar group andthat a search took place in respect of that group along with variousindividuals who had obtained accommodation entries of long term capitalgains (LTCG) in the shares of Ganesh Spinners Ltd. from ShirishChandrakant Shah. It was found that Pradeep Birewar was anH

Ahmedabad based accommodation entry provider engaged in facilitatingone-time accommodation entries to various clients. The “reasons tobelieve” further noted that the materials seized, including the books ofShirish Chandrakant Shah contained date wise details of cash receiptsand accommodation entries paid. On a consideration of all those materials,it was found that cash credit of ¹ 70.01 crores was received by ShirishChandrakant 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 thecases of Pradeep Birewar group. A search action in the caseof Pradeep Birewar was carried out along with variousindividuals who had obtained accommodation entries of Long-Term Capital Gains (LTCG) in the shares of Shri GaneshSpinners Limited (now known as Yantra Natural ResourcesLimited) from Shirish Chandrakant Shah (SCS) through PradipBirewar. Pradip Birewar is an Ahmedabad basedaccommodation entry provider who is facilitating one timeand other accommodation entries including LTCG entries tovarious clients on receipt of cash. He is facilitating theseentries through bigger accommodation entry providers i.eShirish Chandra Shah. During the course of search at officepremises of SCS ON 09.04.2013 situated at “Dwarka AshishBuilding”, Jambulwadi, Kalbadevi Road Mumbai, MS excelsheet “pradeep abad” in the excel file “ac1.xls” located atpath 5/pen drive back up/Removable Disk folder named “Bipsbackup 14.02.12 was found and seized m the computer (RajenComputer) in that office in form of computer-backup. Thesaid sheet is in the nature of account of “Pradip Birewar” inthe books of SCS which contains the date-wise details of cashreceived and accommodation entries paid there against. Onperusal of the said sheet, it has been found that cashaggregating to Rs.70.01 crores has been received by SCS from/through Pradip Birewar during the period 11.02.2010 to29.07.2011.

2.1 The entries of cash received as recorded by SCS in theevidence seized/impounded during the course of survey athis office have been corroborated with the entries recordedby Shri Pradeep Birewar in Annexure A-5, A-6 and A-7 seized A

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from the residence of Shri Pradeep Birewar during the courseof search conducted in his case on 04.12 2014. When dataseized in different searches ‘at premises of SCS & PradeepBirewar were correlated with data of return of assessee filedfor AY 2011-12 in which year assessee-company had receiveOne Time (OT) entry. Hence, this facts indicate that assesseecompany has been introducing its unaccounted receipt/incomethrough accommodation entries.

2.2 It is also noticed that assessee company had received creditamount in its books but has failed to establish that the cashdeclared by Garg logistics Pvt Ltd under Income Declarationscheme was not actually the cash of the assessee-company.Assessee had only submitted Income Declaration Form no.2of Garg Logistics Pvt Ltd and failed to provide documentaryevidence of investment of cash declared by Garg LogisticsPvt Ltd in the assessee company. Even the list submitted byassessee had discrepancies with data submitted to registrar of companies as discussed in above para. In other words, theassessee has not been able to establish that the incomeadmitted under IDS 2016 by Garg Logistics Pvt Ltd. went inthe books of investor companies. It is worth to highlight thatInvestor companies are independent paper companies andthey have provided entries independently and not throughGarg Logistics Pvt Ltd.

2.3 Thus the claim of the assessee company that Cash declaredby Garg Logistics was utilized to make investment in assesseecompany 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/entitieswhose 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 amountbefore Settlement Commission as his undisclosed income.Based upon such admittance by ‘K’, in case of assesseecompany ITAT had deleted the addition u/s 68 holding that itwould amount to double addition. However, Hon’ble HighCourt held that addition in hands of both K & assessee- company are justified since both are different persons subjectto different causes of action u/s 69 & 68 respectively.

3. Based on the facts discussed above, it is to be derived thatcredit received by assessee as Share premium & Share capitalis not genuine but mere accommodation entry used to avoidtax payment and it is the undisclosed income of the assessee-company itself. On verification of return income & Audit reportfiled by assessee, it is noticed that assessee had received Rs.6,25,00,000/- as share premium & Share capital during FY2009-10 from various persons/companies. It is noticed thatassesssee had shown total income of Rs. 7,94,675/- only andnot offered the amount of Rs. 62500000/- as income tosuppress taxable income and to avoid tax payment and henceit is to be concluded that assessee had understated his incometo the extent of Rs. 62500000/-. Hence the amount of Rs.62500000/-being accommodation entry in form of sharecapital & share premium remained untaxed and escapedassessment and the failure is on the part of the assessee todisclose fully and truly all material facts necessary for itsassessment, for the assessment year 2010-11.”

8. The assessee objected to the re-opening notice by letter dated29.8.2017. The objections were rejected by the AO by an order dated30.10.2017. Aggrieved, the assessee approached the High Court underArticle 226 of the Constitution, impugning the revenue’s action in seekingto re-open the assessment. The revenue resisted the challenge, andjustified the re-opening (of assessment) notice.

9. The High Court, by the impugned judgment, was of the opinionthat the AO had no information to conclude that the disclosure by GargLogistics was not from funds of that declarant but was in fact theunaccounted income of the assessee. The impugned order reasonedthat the AO, after recounting the background history of the assesseeand background of M.R. Logistics, shifted the burden on assessee tosay that the share application money received by it was not its unaccountedincome. This, according to the High Court, was erroneous. The impugnedjudgment was of the opinion that there was no tangible material or reasonfor the AO to reopen the assessment. The High Court also consideredthe scheme of Section 183 of the Finance Act, 2016 and noted thatimmunity was given in respect of amounts declared and brought to tax in AB

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Aterms of such a scheme. Therefore, the AO could not have relied uponthe declaration made by the Garg Logistics to so conclude. The HighCourt also derived strength from the circular of the CBDT dated01.09.2016, especially, the answer to Query no.10.

Contentions of partiesB

10. It was argued on behalf of the revenue by the AdditionalSolicitor General (ASG) for India, Mr. N. Venkataraman, that theimpugned judgment cannot be sustained as there was tangible materialjustifying the reopening of assessment in the circumstances of the case.It was pointed out that the AO traced the history of the assessee company,Cits close association with Pradeep Birewar, one time accommodationentry received by the assessee which was discovered in the course ofsearch in the case of Shirish Chandrakant Shah as well as PradeepBirewar and the transaction of routing its income as investment in bogusshare capital. It was urged that the mere circumstance that Garg Logisticsdeclared the amount of ` 6.36 crores as undisclosed income per seDcould not be an explanation to induce the AO to drop reassessmentnotice.

11. The revenue pointed out that in fact Garg Logistics Pvt. Ltd.had not invested any amount towards share application money; the claimof the assessee was that the companies which had invested in it were allEfronts of Garg Logistics P Ltd, which had in turn declared the amountsas undisclosed income under IDS 2016. It was submitted further thatthe formation of belief by the AO was not on the basis of the declarationof Garg Logistics but rather information culled out through the search/seizure action, survey and search proceedings in the case of commonFentry provided through Shirish Chandrakant Shah.

12. The learned ASG submitted that the assessee company wasnot able to link the income disclosed under the IDS 2016 by Garg Logisticswith the investment by the companies who had applied for shares in theassessee. Learned counsel submitted that the investor companies wereGindependent – paper fronts which had provided entries. Learned counselsubmitted that the High Court erroneously concluded that thereassessment was based upon the IDS declaration of Garg Logistics. Infact, the disclosure was voluntarily provided by the assessee’s chairmanduring 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 uponsome objective material on the record as to constitute tangible material.The sufficiency of that material would ordinarily not be scrutinized bythe courts in exercise of judicial review. It was submitted lastly that onperusal of the circular of CBDT dated 01.09.2016, particularly, the answerto the queries are not relevant in the facts and circumstances of thecase.

14. Learned senior counsel for the assessee, Mr. GuruKrishnakumar, urged that information of share investment of ` 6.25 croresby Garg Logistics made through different companies, but owned by it,was made in its declaration in the IDS. This information was not furnishedto the AO and he could not, therefore, have legitimately concluded thatsuch investment was not from the funds of Garg Logistics but was infact assessee’s unaccounted income. The AO’s approach was contraryto the law in as much as in the very first instance, he sought to place theburden upon the assessee to prove that it was not in fact routing back itsown cash through the investments made by the companies – which GargLogistics (P) Ltd owned up to be unaccounted income in its declaration.

15. It was argued, the reasons recorded that the assessee hadreceived ` 6.25 crores as share premium and share capital during FY2009-10 from various persons/companies being accommodation entryproviders which was untaxed and escaped assessment and that therewas failure on the part of the assessee to disclose fully and truly allmaterial facts necessary for its AY 2010-2011, are not valid and are badin law and facts of the present case. The foundation of the “reasons tobelieve” in this case lacks validity and is beyond the scheme and scopeof Section 147 and 148 of the Act and IDS.

16. It was argued, that revenue reopened the assessment casuallyon self-contradictory grounds and the re-opening is impermissible asthere is no valid “reason to believe” that the assessee’s income escapedassessment. Reliance is placed on Commissioner of Income Tax v.Rajesh Jhaveri Stock Broker Ltd.[2] and the High Court also categoricallyobserved that the reason so recorded lacks validity and conclusions aremade on surmises and conjectures which are not permissible under thelaw and not backed by any material on record.

2 2007 (7) SCR765

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A17. It was argued, the fact that the assessment was originallydone under Section 143(1) is not decisive in determining the validity ofthe impugned reopening. The High Court was conscious of the legalposition in this regard so much so that it noted that, the return filed by theassessee was accepted without scrutiny and therefore, the principle ofchange of opinion preventing the AO from reopening the assessmentBwould have no applicability. It was further urged that the discrepanciesnoticed by the AO were duly explained in the assessee’s objections anddo not have any effect on quantification of escapement of income/sharecapital for value of ` 6.25 crores. It was lastly urged that no incriminating/tangible material was available to reopen assessment and there was noCestablishment of any nexus or link connecting the source of the investmentto the assessee; the reassessment was opened solely on the basis ofmisconceived theories by the revenue. The record makes it obvious thatthe amount has already been declared by Garg Logistics and full tax hasbeen paid with penalty as per the scheme. Therefore, reassessment ofthis amount would lead to double taxation, which is contrary to the schemeDof the Act itself.

Analysis and conclusions

18. Section 147 of the Act authorizes the re-opening of anyassessment of a previous year[3]. Section 148, which contains the conditionsEfor re-opening assessments, including the limitation period within whichnotices can be issued, by its proviso, enacts that:

“Provided that no notice under this section shall be issuedunless there is information with the Assessing Officer whichsuggests that the income chargeable to tax has escapedFassessment 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 forany assessment year, the Assessing Officer may, subject to the provisions of sectionsG148 to 153, assess or reassess such income or recompute the loss or the depreciationallowance or any other allowance or deduction for such assessment year (hereafter inthis section and in sections 148 to 153 referred to as the relevant assessment year).

Explanation.—For the purposes of assessment or reassessment orrecomputation under this section, the Assessing Officer may assess or reassess theincome in respect of any issue, which has escaped assessment, and such issue comes tohis notice subsequently in the course of the proceedings under this section, irrespectiveHof the fact that the provisions of section 148A have not been complied with.”

assessment year and the Assessing Officer has obtained priorapproval of the specified authority to issue such notice.”

19. Long ago, in its decision reported as Calcutta DiscountCompany Ltd v Income Tax officer[4]this court had underscored theobligation of every assessee to make a true and full disclosure and saidthat:

“There can be no doubt that the duty of disclosing all theprimary facts relevant to the decision of the question beforethe assessing authority lies on the assesses.”

The court further held that once the duty is discharged, it is uptothe assessing officer to inquire further and draw the necessary inferenceswhile completing the assessment.

20. As to what can be the valid grounds for re-opening anassessment has been the subject matter of several decisions of this court.In Income Tax Officer, Calcutta & Ors. vs. Lakhmani Mewal Das[5]this court held that the “reasons to believe” must be based on objectivematerials, and on a reasonable view. The court held as follows:

“The grounds or reasons which lead to the formation of thebelief contemplated by Section 147(a) of the Act must have amaterial bearing on the question of escapement of income ofthe assessee from assessment because of his failure or omissionto disclose fully and truly all material facts. Once there existreasonable grounds for the Income-tax Officer to form theabove belief, that would be sufficient to clothe him withjurisdiction to issue notice. Whether the grounds are adequateor not is not a matter for the Court to investigate. Thesufficiency of grounds which induce the income-tax Officerto act is, therefore, not a justiciable issue. It is, of course,open to the assessee to contend that the Income-tax Officerdid not hold the belief that there had been such non-disclosure.The existence of the belief can be challenged by the assesseebut not the sufficiency of reasons for the belief. The expression“reason to believe” does not mean a purely subjectivesatisfaction on the part of the Income-tax Officer. The reasonmust 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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Ais open to the Court to examine whether the reasons for theformation of the belief have a rational connection with or arelevant bearing on the formation of the belief and are notextraneous or irrelevant for the purpose of the section. Tothis limited extent, the action of the Income-tax Officer instarting proceedings in respect of income escaping assessmentBis open to challenge in a Court of law.”

21. In Phool Chand Bajrang Lal & Ors. vs. Income Tax Officer& Ors[6], after reviewing the previous case law, and concluding that avalid re-opening is one, preceded by specific, reliable and relevantCinformation, and that the sufficiency of such reasons is not subject tojudicial review- the only caveat being that the court can examine therecord, if such material existed, it was held that the facts disclosed in thereturn, if found later to be unfounded or false, can always be the basis ofa re-opening of assessment:

D“appears to us to be, to ensure that a party cannot get awayby wilfully making a false or untrue statement at the time oforiginal assessment and when that falsity comes to notice, toturn around and say “you accepted my lie, now your handsare tied and you can do nothing”. It would be travesty ofjustice to allow the assessee that latitude.”E22. A three judge Bench, of this court, in Commissioner of IncomeTax, Delhi v. Kelvinator of India Ltd[7] after considering the previousdecisions, re-stated the correct position as follows:

“5....where the Assessing Officer has reason to believe thatFincome has escaped assessment, confers jurisdiction to re-open the assessment. Therefore, post-1st April, 1989, powerto re-open is much wider. However, one needs to give aschematic interpretation to the words “reason to believe”.....

Section 147 would give arbitrary powers to the AssessingGOfficer to re-open assessments on the basis of “mere changeof opinion”, which cannot be per se reason to re-open.

6 1993 Supp (1) SCR 28H7 2010 (1) SCR 768

DEPUTY COMMISSIONER OF INCOME TAX (CENTRAL) CIRCLE 1(2) v.M/S. M. R. SHAH LOGISTICS PVT. LTD. [S. RAVINDRA BHAT, J.]

6. We must also keep in mind the conceptual differencebetween power to review and power to re-assess. TheAssessing Officer has no power to review; he has the powerto re-assess. But re-assessment has to be based on fulfillmentof certain pre-condition and if the concept of “change ofopinion” is removed, as contended on behalf of theDepartment, then, in the garb of re-opening the assessment,review would take place.

7. One must treat the concept of “change of opinion” as anin-built test to check abuse of power by the Assessing Officer.Hence, after 1st April, 1989, Assessing Officer has power tore-open, provided there is “tangible material” to come to theconclusion 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 ofassessment should be availability of tangible material, which can leadthe AO to scrutinize the returns for the previous assessment year inquestion, to determine, whether a notice under Section 147 is called for.In the present case, the basis for reopening of assessment was not thatGarg Logistics Pvt Ltd had declared ` 6,36,00,000/- as undisclosed cashutilized for investment in the assessee’s share capital. The assessee’scontention that reopening was done based on the disclosure made byGarg Logistics is therefore, not correct.

24. It may also be noticed that the original assessment was notcompleted after scrutiny, but was under Section 143 (1) of the Act. Thestatus 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 tobe an order of assessment. The distinction is also well broughtout by the statutory provisions as they stood at different pointsof time. Under Section 143(1)(a) as it stood prior to April 1,1989, the Assessing Officer had to pass an assessment orderif he decided to accept the return, but under the amendedprovision, the requirement of passing of an assessment orderhas been dispensed with and instead an intimation is requiredto be sent. Various circulars sent by the Central Board ofDirect Taxes spell out the intent of the Legislature, i.e., to AB

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Aminimize the Departmental work to scrutinize each and everyreturn and to concentrate on selective scrutiny of returns.”[8]

Thus, in the present case, the returns filed by the assessee werenot examined, or scrutinized; only an intimation that it was filed, wasissued by the AO.B

25. The “reasons to believe” forming part of the Section 147- inthis case, clearly point to the fact that the reopening of assessment wasbased on information accessible by the AO that a substantial amount ofunaccounted income of promoters/directors was introduced in the closelyheld companies of the assessee group through Shirish Chandrakant Shah,Calleged to be a Mumbai based accommodation entry provider- throughPradeep Birewar, another accommodation entry provider based atAhmedabad. During the course of search at the office premise of ShirishChandrakant Shah (on 09.04.2013 at Mumbai) apparently, an MS Excelsheet “pradeep abad” in the Excel file “ac1.xls” in a pen-drive, backedup from a removable disc folder (called “Bips backup 14.02.2012) wasDseized from the computer in that office in form of computer back up.The AO, in the reasons recorded with the re-assessment notice statedthat a comparison of data of accommodation entry provided by ShirishChandrakant Shah through various companies controlled and managedby him and found from his office premise with the return of income ofEthe assessee (for AY 2011-12) revealed that the latter (i.e. the assessee)had availed one time accommodation entry from various companiescontrolled and managed by Shirish Chandrakant Shah. The AO alsonoticed that the assessee had not proved credit worthiness of variousshare applicants, who invested amounts with high premium, in the assesseecompany during AY 2010-11 nor shown genuineness of such transactions.F

26. This court further notices that that the record also reveals thatGarg Logistics Pvt. Ltd had not invested ` 6,36,00,000/- in the assesseecompany during the relevant period.The record bears out that thefollowing entities invested in the assessee:

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8 Followed in Deputy Commissioner of Income Tax v Zuari Estate Development andHInvestment Company Ltd 2015 (15) SCC 248

DEPUTY COMMISSIONER OF INCOME TAX (CENTRAL) CIRCLE 1(2) v.M/S. M. R. SHAH LOGISTICS PVT. LTD. [S. RAVINDRA BHAT, J.]

27. The details of income declaration by Garg Logistics under theIDS scheme was submitted by Pravin. P. Agrawal (the assessee’schairman) in support of its claim of genuineness of receipt of sharecapital. However, as noticed earlier, the basis for reopening theassessment in this case was the information from the material seizedduring search in cases of Shrish Chandrakant Shah and correlationwith return of income of the assessee. Further, there was no scrutinyassessment done at the original assessment stage.

28. As a matter of fact, M/s Garg Logistics filed its IDS applicationwith a different Commissionerate[9] which did not share information withthe AO in the present case; he did not also call for any such information.Pravin Chandra Agrawal, the chairman of the assessee (M.R. Shahgroup) was queried with regard to the capital raised with high premiumduring a search, and post search inquiry. He submitted details of the IDSdeclaration by Garg Logistics Pvt Ltd to say that the amounts receivedtoward share applications were genuine transactions. Clearly, in thepresent case, the High Court went wrong in holding that the departmenthad shared confidential IDS information of Garg Logistics Pvt Ltd. TheAO utilized the material submitted by Pravin. P. Agrawal (the assessee’schairman) and correlated it with the ROC data filed by the assessee.Further, it is also apparent, that the AO’s “reasons to believe” do notdisclose any inquiry made in relation to Garg Logistic Pvt Ltd’s accountor declaration.

9 Pr. CIT-2, Ahmedabad

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9 Pr. CIT-2, Ahmedabad

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A29. Another aspect which should not be lost sight of is that theinformation or “tangible material” which the assessing officer comes byenabling re-opening of an assessment, means that the entire assessment(for the concerned year) is at large; the revenue would then get toexamine 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 theBassessee may have a reasonable explanation, is not a ground for quashinga notice under Section 147. As long as there is objective tangible material(in the form of documents, relevant to the issue) the sufficiency of thatmaterial cannot dictate the validity of the notice.

30. That brings the court to the scope and effect of the IncomeCDeclaration Scheme (IDS), introduced by Chapter IX of the FinanceAct, 2016. The objective of its provisions was to enable an assessee todeclare her (or his) suppressed undisclosed income or properties acquiredthrough such income. It is based on voluntary disclosure of untaxedincome and the assessee’s acknowledging income tax liability. ThisDdisclosure is through a declaration (Section 183) to the PrincipalCommissioner of Income Tax within a time period, and deposit theprescribed amount towards income tax and other stipulated amounts,including penalty. Section 192 grants limited immunity to declarants, andstates as follows:

E“192. Notwithstanding anything contained in any other lawfor the time being in force, nothing contained in anydeclaration made under section 183 shall be admissible inevidence against the declarant for the purpose of anyproceeding relating to imposition of penalty, other than thepenalty leviable under section 185, or for the purposes ofFprosecution under the Income-tax Act or the Wealth-tax Act,1957.”

31. As noticed previously the declarant was Garg Logistic PvtLtd and not the assessee. Facially, Section 192 affords immunity to thedeclarant: “...nothing contained in any declaration made underGsection 183 shall be admissible in evidence against the declarantfor the purpose of any proceeding relating to imposition ofpenalty…” Therefore, the protection given, is to the declarant, and fora limited purpose. However, the High Court proceeded on the footingthat such protection would bar the revenue from scrutinizing theHassessee’s return, absolutely. Quite apart from the fact that the re-opening of assessment was not based on Garg Logistic’s declaration, thefact that such an entity owned up and paid tax and penalty on amountswhich it claimed, were invested by it as share applicant,(though theshare applicants were other companies and entities) to the assessee inthe present case, cannot – by any rule or principle inure to the assessee’sadvantage. In similar circumstances, dealing with another scheme (theKar Vivad Samadhan Scheme 1988, a previous tax amnesty scheme)this court had, in State, CBI vs. Sashi Balasubramanian & Ors[10]heldas follows:

“an immunity is granted only in respect of offences purportedto have been committed under direct tax enactment or indirecttax enactment, but by no stretch of imagination, the same wouldbe granted in respect of offences under the Prevention ofCorruption Act. A person may commit several offences underdifferent Acts; immunity granted in relation to one Act wouldnot mean that immunity granted would automatically extendto others. By way of example, we may notice that a personmay be prosecuted for commission of an offence in relationto property under the Indian Penal Code as also underanother Act, say for example, the Prevention of CorruptionAct. Whereas charges under the Prevention of Corruption Actmay fail, no sanction having been accorded therefore, thecharges under the Penal Code would not.”

32. In Tanna & Modi v Commissioner of Income Tax, MumbaiXXV & Ors[11] also, this court held, similarly that immunity granted forone purpose, cannot be extended for another:

“20. It may be necessary for the aforementioned purpose tobear in mind that the immunity granted pursuant toacceptance of a declaration made under the voluntarytaxation scheme or Kar Vivad Samadhan Scheme, 1998 doesnot lead to a total immunity. Immunity granted under theScheme has its own limitations. The Scheme must be appliedonly in the event the conditions precedent laid down thereforeare applicable. See State, CBI v. Sashi Balasubramanian andAnr.[2007]289ITR8(SC) and Alpesh Navinchandra Shah v.State of Maharashtra and Ors. 2007 (3) SCR 223

10 2006 Supp (8) SCR 914

11 2007 (8) SCR 233

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21. A raid was conducted in the premises of the firm. Searchwarrant might have been issued in the name of a partner ofthe firm. The partner made certain statements. The searchrevealed some undisclosed income. The firm has a separatelegal entity, it could have made a declaration, but it was donein respect of the same amount regarding the partner of thefirm made disclosures. What would be the effect of hissubsequent retraction is not a matter which we are requiredto deal with herein. It is one thing to say that when a firm hasconcealed income, each partner need not make a declarationbut it would be another thing to say that when a search hasbeen made on the premises of the firm and the books ofaccounts of the firm are inspected, on the strength of a searchwarrant issued in the name of one of the partners thereof, adeclaration can be made by the firm so as to cover theloopholes. In a case where Sub-section (2) of Section 64 isapplied, Sub-section (1) thereof would not apply inasmuchas it starts with the term “nothing contained” in Sub-section(1) shall apply in relation to. What are the conditions whichwould make Sub-section (1) of Section 64 inapplicable is theincome assessable for any assessment year for which a noticeunder Section 142 or 148 of the Income Tax Act has beenserved upon such person and the return has not beenfurnished before commencement of the Scheme and upon strictconstruction, it is possible to argue that the word “suchperson” must relate to that declaring which being a firmwould not include within its purview its partners. But, in acase of this nature where fraud is alleged, we cannot beoblivious of the fact that each firm acts through its partner. Afirm is the conglomeration of its partners, and is not a juristicperson. In the instant case, the purported disclosure made bythe firm relates to the same amount which has been disclosedby the partner. Even the source of income was found to be thesame. As the income of a firm vis-a-vis its partners have adirect co-relation, in our opinion, while construing a statutegranting immunity, it should not be construed in such a mannerso as to frustrate its object.”

33. In an earlier decision, Tekchand & Ors. vs. CompetentAuthority[12] it was similarly held that immunity granted by a tax amnestyscheme in respect of liabilities under some enactments, did not affordprotection against action under other enactments or laws:

“13. So far as the contention based upon Sections 11 and 16of Voluntary Disclosure Act is concerned we have alreadypointed out, while setting out the said provisions that theimmunity conferred thereunder is of a limited character andthat it is not an absolute or universal immunity. The immunitycannot be extended beyond the confines specified by the saidprovisions. There is also no reason to presume that theParliament intended to extend any immunity to smugglers andmanipulators of foreign exchange who are proceeded againstunder enactments other than those mentioned in Sections 11and 16 of the Voluntary Disclosure Act. So far as the argumentthat the authorities under the Act have not properly consideredthe explanation offered by the appellants and the materialproduced by them, we must say that we are unable to agreewith the same.”

34. This court is, therefore, of the opinion that the High Court fellinto error, in holding that the sequitur to a declaration under the IDS canlead to immunity (from taxation) in the hands of a non-declarant.

35. In view of the foregoing reasons, the impugned judgment ishereby set aside. The AO is at liberty to take steps to complete the re-assessment. The revenue’s appeal is allowed in these terms, withoutorder on costs.

Divya Pandey(Assisted by : Neha Sharma, LCRA)

Appeal allowed.

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