Court upholds tax department’s right to reopen assessment based on fresh evidence from search operations

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Case Name

Zaveri and Company Private Limited vs Deputy Commissioner of Income Tax, (High Court of Gujarat)

R/Special Civil Application No. 19821 of 2019

Date: 5th July 2021

Key Takeaways

• Tax authorities can reopen assessments even after scrutiny assessment if they receive fresh material evidence
• The “reason to believe” standard for reopening assessments is subjective and doesn’t require conclusive proof
• Information from search operations conducted on third parties can justify reopening an unrelated taxpayer’s assessment
• Proper sanction under section 151 (of Income Tax Act, 1961) is mandatory for reopening assessments after 4 years
• Courts will not examine the sufficiency of reasons at the notice stage, only whether there was prima facie material

Issue

Can the Assessing Officer reopen a completed scrutiny assessment under sections 147 (of Income Tax Act, 1961)/148 of the Income Tax Act based on fresh information received from search operations conducted on third parties, suggesting the assessee was involved in bogus transactions through penny stocks?

Facts

Zaveri and Company Private Limited is a jewelry manufacturing and trading company that also deals in shares, securities, and commodities. For the assessment year 2012-13, they filed their return and later a revised return. The case went through scrutiny assessment, and the Assessing Officer completed the assessment under section 143(3) (of Income Tax Act, 1961) on March 28, 2014.

But here’s where it gets interesting - the company received another reopening notice under section 148 (of Income Tax Act, 1961) on March 28, 2017, which resulted in an assessment order on December 29, 2017. Then, they received yet another reopening notice on March 30, 2019, for the same assessment year 2012-13.

The reason for this second reopening was fresh information the tax department received from two separate search operations:

1. A search conducted on September 11, 2018, at the premises of Sanjay Shah and Jignesh Shah in Ahmedabad, which uncovered evidence of accommodation entries and bogus long-term capital gains (LTCG) transactions
2. A search conducted on March 19, 2019, at the premises of Naresh Jain and associates in Mumbai, which revealed similar bogus transactions

The investigation revealed that Zaveri company had transacted in penny stocks like Dhvanil Chemicals Ltd./Veronica Production Ltd. and VMS Industries Ltd., which were allegedly used for creating bogus losses and LTCG. The company had sold scrips worth Rs. 7,15,585/- and bought scrips worth Rs. 42,83,705/-, and was also involved in transactions worth Rs. 97,13,809/- in VMS Industries Ltd.

Arguments

Petitioner’s Arguments (Zaveri Company):

The company’s lawyer, Mr. R.K. Patel, made several key arguments:

1. Incorrect Facts: He argued that the reasons for reopening were based on completely wrong facts. The company’s transactions were legitimate market transactions in listed securities through proper banking channels and recognized brokers
2. IPO vs Penny Stock: He emphasized that original allotment in Initial Public Offerings (IPO) cannot be equated with penny stocks since these are allotted after SEBI approval and proper procedures
3. No Nexus: There was no connection between Zaveri company and the people mentioned in the search operations (Naresh Jain, Sanjay Shah, etc.)
4. Borrowed Belief: Relying on the case of Gateway Leasing P. Ltd. versus Assistant Commissioner of Income Tax (2020) 117 Taxmann.com 442 (Bom.), he argued that the tax officer merely acted on borrowed belief from investigation wings without proper verification
5. Section 115JB (of Income Tax Act, 1961): Since the company was assessed under section 115JB (of Income Tax Act, 1961) (Minimum Alternate Tax), the tax paid was already more than what would be due under normal provisions, so there was no escapement of income
6. Lack of Proper Sanction: He cited Chhugamal Rajpal versus S.P. Chaliha and others (79 ITR 603) to argue that there was no proper reasoned sanction by the Principal Commissioner as required under section 151 (of Income Tax Act, 1961)

Respondent’s Arguments (Tax Department):

The tax department’s lawyer, Mr. M.R. Bhatt, countered with:

1. Fresh Material: The reopening was based on specific fresh information from investigation wings revealing systematic tax evasion
2. Reason to Believe: The Assessing Officer had valid reason to believe that income had escaped assessment based on the new material
3. Proper Sanction: The required sanction under section 151 (of Income Tax Act, 1961) was obtained before issuing the notice
4. Premature Challenge: The proper course would be to let the assessment proceed and then challenge it through appeals if aggrieved

Key Legal Precedents

The court relied on several important precedents:

1. Assistant Commissioner of Income Tax versus Rajesh Jhaveri Stock Brokers P. Ltd. (2007) 291 ITR 500(SC): This Supreme Court case established that the formation of belief by the Assessing Officer under section 147 (of Income Tax Act, 1961) is within the realm of subjective satisfaction. The court noted that “reason to believe” means cause or justification, not finally ascertained facts
2. Raymond Woollen Mills Ltd. Versus Income-Tax Officer and others (1999) 236 ITR 34(SC): The Supreme Court held that courts only need to see whether there was prima facie material for reopening - the sufficiency or correctness of material is not to be considered at the notice stage
3. Phool Chand Bajrang Lal versus Income- Tax Officer (203 ITR 456 (SC)): This case distinguished between acquiring fresh information that exposes falsity of original statements versus drawing fresh inferences from the same old material. The court emphasized that where transactions are found to be bogus based on subsequent information, mere disclosure at the time of original assessment doesn’t constitute full and true disclosure
4. Central Provinces Manganese Ore Co. Ltd. v. ITO [1991] 191 ITR 662: Referenced for the principle that at the initiation stage, what’s required is “reason to believe,” not established fact of income escapement
5. Chhugamal Rajpal versus S.P. Chaliha and others (79 ITR 603): Cited by the petitioner regarding the requirement of reasoned sanction under section 151 (of Income Tax Act, 1961)

Judgement

The Gujarat High Court dismissed Zaveri company’s petition. Here’s the court’s reasoning:

Court’s Decision:

The court ruled in favor of the tax department, holding that the Assessing Officer was fully justified in reopening the assessment under sections 147 (of Income Tax Act, 1961)/148

Key Reasoning:

1. Subjective Satisfaction: The court emphasized that the Assessing Officer’s satisfaction is subjective in nature and based on fresh material that led to a prima facie conclusion that the petitioner failed to disclose fully and truly all material facts
2. Fresh Material, Not Borrowed Belief: The court rejected the argument that this was based on borrowed belief, noting that the officer had received specific information from investigation wings outlining systematic tax evasion
3. Reopening After Scrutiny: The court disagreed with the argument that assessment cannot be reopened after scrutiny assessment under section 143(3) (of Income Tax Act, 1961), stating that if fresh material shows non-disclosure of material facts, reopening is justified
4. Proper Sanction: The court found that proper sanction was obtained under section 151 (of Income Tax Act, 1961), unlike the Chhugamal Rajpal case where the Commissioner had mechanically accorded permission without reasons
5. Section 115JB (of Income Tax Act, 1961) Argument Premature: The court agreed with the tax department that whether income had actually escaped assessment couldn’t be determined at the notice stage

Final Order:

The petition was dismissed, notice was discharged, and any interim relief was vacated

FAQs

Q1: Can tax authorities reopen an assessment that has already gone through scrutiny?

A: Yes, if they receive fresh material that suggests the assessee didn’t fully and truly disclose all material facts necessary for assessment, they can reopen even after scrutiny assessment under section 143(3) (of Income Tax Act, 1961).

Q2: What does “reason to believe” mean in the context of reopening assessments?

A: It means the Assessing Officer must have cause or justification to suppose that income has escaped assessment. It doesn’t require conclusive proof - just prima facie material that would lead a reasonable person to form such belief.

Q3: Can information from search operations on third parties be used to reopen someone else’s assessment?

A: Yes, if the search reveals that the taxpayer was involved in the same scheme or transactions that were uncovered during the search, this can provide valid grounds for reopening.

Q4: What is the significance of section 151 (of Income Tax Act, 1961) sanction?

A: For reopening assessments after 4 years from the end of the relevant assessment year, the Assessing Officer must obtain sanction from the Principal Commissioner. This sanction must be based on proper application of mind, not mechanical approval.

Q5: Does paying tax under section 115JB(MAT) (of Income Tax Act, 1961) protect against reopening?

A: No, the fact that an assessee paid higher tax under MAT doesn’t prevent reopening if there’s evidence of income escapement. The actual tax impact can only be determined after completing the reassessment.

Q6: What’s the difference between “fresh inference” and “fresh material”?

A: Fresh material refers to new information that wasn’t available during original assessment and exposes falsity of original disclosures. Fresh inference means drawing new conclusions from the same old material - this alone cannot justify reopening.

1. The present petition filed by the petitioner – Zaveri and Company Private Limited through its Director – Kishor Pranjivandas Mandalia, under Article 226 / 227 of the Constitution of India, is directed against the impugned notice dated 30.03.2019 (Annexure - F) issued under section 148 (of Income Tax Act, 1961), (hereinafter referred to as ‘the said Act’), and the order dated 10.10.2019 (Annexure K) passed by the respondent rejecting the objections filed by the petitioner against the said notice.

2. The facts in nutshell as emerging from the record of the petition are that the petitioner – company is engaged in the business of manufacturing and trading in jewellery, bullion trading, trading and speculation in commodities, shares and securities, units of mutual funds and derivatives, generation and sales of electric power through windmills and trading in SEZ unit as well as gold and silver refinery business. The petitioner had filed the return for the A.Y. 2012-13 and thereafter had filed a revised return. After the scrutiny assessment having been undertaken on various points and after issuing the show-cause notice, the Assessing Officer had framed the assessment order under section 143(3) of the Income Tax Act, 1961 on 28.03.2014. Thereafter the petitioner received a notice under section 148 (of Income Tax Act, 1961) on 28.03.2017 seeking re-opening of the assessment for the A.Y. 2012-13 on the ground of the alleged accommodation entries obtained by the petitioner – company, as

revealed during the search proceedings in case of one Bhanwarlal Jain Group. The said proceedings terminated in the assessment order dated 29.12.2017 passed under section 143(3) (of Income Tax Act, 1961) read with Section 147 of the Income Tax Act, 1961 (Annexure

E). According to the petitioner, the petitioner again received the impugned notice dated 30.03.2019 issued by the respondent for reopening of the assessment in the case of the petitioner for the assessment year 2012-13 under section 148 of the Income Tax Act, 1961 (Annexure F). The petitioner filed return of income in response to the said notice as per Annexure G. The petitioner received the reasons dated 18.04.2019 recorded for reopening of the assessment under section 147 (of Income Tax Act, 1961) for the year 2012-13 (Annexure H). On the receipt of the said reasons for reopening, the petitioner filed

exhaustive objections on 13.06.2019 along with the supporting documents (Annexure I). The respondent vide the order dated 10.10.2019, rejected the said objections (Annexure K). Being aggrieved by the said order, the present

petition has been filed.

3. The gist of the reasons recorded for

reopening of the assessment under section 147 (of Income Tax Act, 1961) of

the Act for the assessment year 2012-13, as

emerging from Annexure - H is that the office of

the respondent had received the information from

the office of DDIT (Inv.) Unit-1(3), Ahmedabad

on 24.03.2019 inter alia that the petitioner –

company was identified as one of the

beneficiaries of the accommodation entries

unearthed during the course of search

proceedings conducted on 11.09.2018 in case of

Sanjay Shah and Jignesh Shah of Ahmedabad, which

had resulted into seizure of unaccounted cash of

Rs. 19.37 crores along with the incriminating

digital as well as documentary evidences. The

clandestine record of unaccounted cash,

synchronized trading, proving bogus LTCG in

various BSE listed scrips and transport of such

cash through angadiyas was found to be

maintained in secret Tally Data file. In the

said secret file, against the transactions of

shares on BSE platform, movement and delivery of

cash, the receipt of commission in cash under

the head into “LTG Commission” was recorded,

which manifested the record of the accommodation

entries of LTCG against the receipt of cash.

The data analysis coupled with the

circumstantial evidences led to the discovery

that 15 BSE listed scrips were used for

generating bogus LTCG and contrived losses, as

admitted by the accommodation entry providers.

Further, the respondent office also received an

information in the case of assessee from the

office of Pr. DIT (Inv.), Unit-2, Mumbai on

27.03.2019, that the petitioner – company was

identified as one of the beneficiaries of the

accommodation entries unearthed during the

course of search proceedings conducted on

19.03.2019 in case of one Naresh Jain and his

associates operating from Bombay. It was

revealed that the petitioner had entered into

the transactions in penny stock namely Dhvanil

Chemicals Ltd. / Veronica Production Ltd., which

companies were used for bogus LTCG and contrived

losses, as admitted by the said Sanjay Shah and

Jignesh Shah in their statements recorded during

the course of search proceedings. During the

course of investigation carried out by the

Investigation Wing Mumbai, Shri Naresh Jain had

also admitted in his statement recorded under

section 132(4) of the Income Tax Act, 1961 at his residence

that he had used the scrip VMS Industries for

providing accommodation entries. On the basis

of said specific pieces of information received

from the investigation wings, outlining the

systemic evasion of taxes by the petitioner –

assessee and others, the respondent had reason

to believe that the petitioner – assessee

company had sold scrips to Veronica Productions

Ltd. / Dhvanil Chemical Ltd. for Rs. 7,15,585/-

and had bought 64,200 scrips for Rs. 42,83,705/-

during the financial year 2011-12, and thereby

had booked bogus losses through penny scrip

Veronica Productions Ltd. / Dhvanil Chemical

Ltd. The petitioner – assessee had also sold

shares worth Rs. 97,13,809/- of the penny scrip

– VMS Industries Ltd, and thereby was involved

in bogus transactions through trading in penny

scrip – VMS Industries Ltd. to the tune of Rs.

97,13,809/-. Under the circumstances, the

respondent had a reason to believe that income

of the petitioner – company to the extent of Rs.

1,23,47,788/- had escaped assessment during the

assessment year 2012-13.

4. The sheet anchor of the learned advocate Mr.

R.K. Patel’s arguments was that the reasons for

reopening of the assessment for the A.Y. 2012-13

by the respondent was based on incorrect facts

as demonstrated in detail in the objections

raised before the respondent as well as the

summary produced before the Court. According to

him, the original allotment in the Initial

Public Offering (IPO) could never be equated

with penny stock as the same was allotted after

the approval of the SEBI norms and procedure.

The facts and figures appearing in the reasoning

part for reopening were also absolutely

incorrect as all the alleged transactions were

undertaken by the petitioner at the market rate

in the listed securities through the banking

channel and the recognized brokers after paying

the necessary statutory levies of the concerned

stock exchange. Mr. Patel further submitted

that there was no nexus of the petitioner –

company with Shri Naresh Jain or the other

brokers referred to in the reasons. Relying upon

the decision of Bombay High Court in the case of

Gateway Leasing P. Ltd. versus Assistant

Commissioner of Income Tax reported in (2020)

117 Taxmann.com 442 (Bom.), he submitted that

the respondent had merely acted on the borrowed

belief of the other investigation wings without

verification of facts and record, though the

case of the petitioner was already processed

twice prior to the impugned notice under section

148 of the said Act. Mr. Patel further

submitted that on completion of assessment under

section 143(3) (of Income Tax Act, 1961), the tax paid on the income

assessed under section 115JB (of Income Tax Act, 1961) is more than the

tax liability that may occur on the income

assessed under the normal provisions, and

therefore, it could not be said that there was

an escapement of income. In this regard, he has

relied upon the decision of this Court in case

of PKM Advisory Services Pvt. Ltd. Versus ITO

reported in (2012) 21 taxmann.com 86 (Gujarat).

Relying upon the provisions contained in section

151 of the said Act, and the decision of Supreme

Court in the case of Chhugamal Rajpal versus

S.P. Chaliha and others reported in 79 ITR 603,

Mr. Patel submitted that there was absence of a

reasoned sanction by the Principal Commissioner

as contemplated in the said provision, which is

statutory and mandatory requirement for

reopening the assessment after the expiry of

four years from the end of the relevant.

5. Per contra, the learned Senior Advocate Mr.

M.R. Bhatt appearing for the respondent

challenging the very maintainability of the

petition, submitted that after the objections

are duly considered by the respondent, the

proper course would be to permit the Assessing

Officer to frame an assessment in accordance

with law, and in the event, the petitioner is

aggrieved by the said re-assessment, he could

file an appeal to the CIT Appeals, and

thereafter to the Tribunal as per the provisions

of the Act. Mr. Bhatt further submitted that

the case of the petitioner was reopened for the

assessment year 2012-13 on the basis of the

information received from the Investigation

Wing, Ahmedabad and the Investigation Wing

Mumbai respectively, as a result of which it was

revealed that the petitioner had not made full

and true disclosure during the course of filing

of its return of income or revised return of

income. He also submitted that the Assessing

Officer had a reason to believe, meaning

thereby, he had a cause or justification to

suppose that the income of the petitioner had

escaped assessment and that as per the settled

legal position, the sufficiency of reasons could

not be gone into by the Court. In the instant

case, runs the submission of Mr. Bhatt, the

Assessing Officer after applying his mind on the

information received from the other

investigating wings, had prima facie formed an

opinion that there was a systematic tax evasion

carried out by means of investing in various

scrips, and he had also obtained the requisite

sanction before issuing the impugned notice for

reopening the assessment, as required under

section 151 of the Income Tax Act, 1961. According to Mr.

Bhatt, the submission of Mr. Patel with regard

to the Section 115JB (of Income Tax Act, 1961) can not be considered at

this juncture, as the respondent has not finally

concluded as to how much income chargeable to

tax has escaped assessment.

6. Mr. Bhatt also drew the attention of the

Court to the order dated 20.01.2021 passed by

the Coordinate Bench in Special Civil

Application No. 12615 of 2019 and Special Civil

Application No. 18899 of 2019 involving

identical facts and circumstances and the issues

as involved in the present petition, and by

which order the Coordinate Bench had dismissed

the said petitions.

7. At the outset, it may be noted that as per

the settled legal position, two conditions have

to be satisfied before the Assessing Officer

invokes his jurisdiction to reopen the

assessment under section 147 of the Income Tax Act, 1961

after the expiry of four years from the end of

the relevant assessment year – firstly, that the

Assessing Officer must have reason to believe

that the income chargeable to tax has escaped

assessment for the concerned assessment year,

and secondly, such escapement of assessment was

by reason of failure on the part of the assessee

to make the return under section 139 (of Income Tax Act, 1961), or in

response to a notice issued under Sub-section

(1) of Section 142 (of Income Tax Act, 1961) or Section 148 (of Income Tax Act, 1961) or to disclose

fully and truly all the material facts necessary

for his assessment for that assessment year. So

far as the case of the present petitioner is

concerned, the assessment for the A.Y. 2012-13

is sought to be reopened by the Assessing

Officer under section 147 (of Income Tax Act, 1961)/148 of the said Act,

on his having arrived at a satisfaction that the

income for the said assessment year had escaped

assessment by reason of the failure on the part

of the assessee to disclose fully and truly all

material facts necessary for his assessment.

8. It is pertinent to note that as held by the

Supreme Court in catena of decisions, the

formation of belief by the Assessing Officer at

the stage of initiation of action under section

147 of the Act is within the realm of subjective

satisfaction. The Supreme Court in the case of

Assistant Commissioner of Income Tax versus

Rajesh Jhaveri Stock Brokers P. Ltd. reported in

(2007) 291 ITR 500(SC), had an occasion to deal

with the scope and effect of section 147 (of Income Tax Act, 1961) as

substituted w.e.f. April 1st, 1989, in which the

Court has observed as under : -

“Section 147 (of Income Tax Act, 1961) authorises and permits the

Assessing Officer to assess or reassess

income chargeable to tax if he has reason

to believe that income for any assessment

year has escaped assessment. The word

“reason” in the phrase “reason to believe”

would mean cause or justification. If the

Assessing Officer has cause or

justification to know or suppose that

income had escaped assessment, it can be

said to have reason to believe that an

income had escaped assessment. The

expression cannot be read to mean that the

Assessing Officer should have finally

ascertained the fact by legal evidence or

conclusion. The function of the Assessing

Officer is to administer the statute with

solicitude for the public exchequer with

an inbuilt idea of fairness to taxpayers.

As observed by the Supreme Court in

Central Provinces Manganese Ore Co. Ltd.

v. ITO [1991] 191 ITR 662, for initiation

of action under section 147(a) (of Income Tax Act, 1961) (as the

provision stood at the relevant time)

fulfillment of the two requisite

conditions in that regard is essential. At

that stage, the final outcome of the

proceeding is not relevant. In other

words, at the initiation stage, what is

required is “reason to believe”, but not

the established fact of escapement of

income. At the stage of issue of notice,

the only question is whether there was

relevant material on which a reasonable

person could have formed a requisite

belief. Whether the materials would

conclusively prove the escapement is not

the concern at that stage. This is so

because the formation of belief by the

Assessing Officer is within the realm of

subjective satisfaction (see ITO v.

Selected Dalurband Coal P. Ltd. [1996] 217

ITR 597 (SC)]; Raymond Woollen Mills Ltd.

v. ITO [1999] 236 ITR 34 (SC).

The scope and effect of section 147 (of Income Tax Act, 1961) as

substituted with effect from April 1,

1989, as also sections 148 to 152 are

substantially different from the

provisions as they stood prior to such

substitution. Under the old provisions of

section 147 (of Income Tax Act, 1961), separate clauses (a) and (b)

laid down the circumstances under which

income escaping assessment for the past

assessment years could be assessed or

reassessed. To confer jurisdiction under

section 147(a) (of Income Tax Act, 1961) two conditions were

required to be satisfied : firstly the

Assessing Officer must have reason to

believe that income, profits or gains

chargeable to income tax have escaped

assessment, and secondly he must also have

reason to believe that such escapement has

occurred by reason of either omission or

failure on the part of the assessee to

disclose fully or truly all material facts

necessary for his assessment of that year.

Both these conditions were conditions

precedent to be satisfied before the

Assessing Officer could have jurisdiction

to issue notice under section 148 (of Income Tax Act, 1961) read

with section 147(a) (of Income Tax Act, 1961). But under the

substituted section 147 (of Income Tax Act, 1961) existence of only

the first condition suffices. In other

words if the Assessing Officer for

whatever reason has reason to believe that

income has escaped assessment it confers

jurisdiction to reopen the assessment. It

is, however, to be noted that both the

conditions must be fulfilled if the case

falls within the ambit of the proviso to

section 147 (of Income Tax Act, 1961).”

9. In the case of Raymond Woollen Mills Ltd.

Versus Income-Tax Officer and others reported in

1999 236 ITR 34(SC), the Supreme Court observed

that the Court has only to see whether there was

prima facie some material on the basis of which

the Department could reopen the case. The

sufficiency or correctness of the material is

not a thing to be considered at this stage.

10. It is very pertinent to note that in the

case of Phool Chand Bajrang Lal versus Income-

Tax Officer reported in 203 ITR 456 (SC), it was

observed that the acquiring fresh information,

specific in nature and reliable in character,

relating to the concluded assessment, which went

to expose the falsity of the statement made by

the assessee at the time of original assessment

was different from drawing fresh inference from

the same facts and material which was available

with the Income-Tax Officer at the time of the

original assessment proceedings. Where the

transaction itself on the basis of the

subsequent information was found to be a bogus

transaction, the mere disclosure of that

transaction at the time of original proceedings

could not be said to be disclosure of the true

and full facts, and the Officer would have the

jurisdiction to reopen the concluded assessment

in such a case. The precise observation made by

the Supreme Court in the said case may be

reproduced as under : -

“In the present case as already noticed,

the Income-Tax Officer, Azamgarh,

subsequent to the completion of the

original assessment proceedings, on

making an enquiry from the jurisdictional

Income-Tax Officer at Calcutta, learnt

that the Calcutta company from whom the

assessee claimed to have borrowed the

loan of Rs. 50,000/- in cash had not

really lent any money but only its name

to cover up a bogus transaction and,

after recording his satisfaction as

required by the provisions of section 147 (of Income Tax Act, 1961)

of the Act, proposed to reopen the

assessment proceedings. The present is

thus not a case where the Income-Tax

Officer sought to draw any fresh

inference which could have been raised at

the time of the original assessment on

the basis of the material placed before

him by the assessee relating to the loan

from the Calcutta company and which he

failed to draw at that time. Acquiring

fresh information, specific in nature and

reliable in character, relating to the

concluded assessment, which goes to

expose the falsity of the statement made

by the assessee at the time of the

original assessment is different from

drawing fresh inference from the same

facts and material which were available

with the Income-Tax Officer at the time

of the original assessment proceedings.

The two situations are distinct and

different. Thus, where the transaction

itself, on the basis of subsequent

information, is found to be a bogus

transaction, the mere disclosure of that

transaction at the time of original

assessment proceedings cannot be said to

be a disclosure of the “true” and “full”

facts in the case and the Income-Tax

Officer would have the jurisdiction to

reopen the concluded assessment in such a

case.”

11. As stated hereinabove, the Assessing Officer

has sought to reopen the assessment for A.Y.

2012-13 of the petitioner on the basis of fresh

material having been received as a result of the

search made by the Office of DDIT (Inv.) Unit-

1(3), Ahmedabad conducted on 11.09.2018 at the

premises of Sanjay Shah and Jignesh Shah of

Ahmedabad, and as a result of the investigation

carried out during the search proceedings

conducted by the office of Pr. DIT (Inv.), Unit-

2, Mumbai on 19.03.2019 at the premises of

Naresh Jain and his associates at Bombay that

the petitioner company was one of the

beneficiaries of the accommodation entries as

the petitioner had entered into the transactions

in penny stock namely Dhvanil Chemicals Ltd. /

Veronica Production Ltd., which companies were

used for bogus LTCG and contrived losses. The

Assessing Officer had also received specific

information from the said investigating wings

outlining the systemic evasion of taxes by the

petitioner and others, and had therefore reason

to believe that the petitioner had sold scrips

to Veronica Production Limited / Dhvanil

Chemicals Ltd., which were penny stock to the

extent of Rs. 97,13,809/- during financial year

2011-12. Such satisfaction arrived at by the

Assessing Officer being subjective in nature and

based on the fresh material for coming to the

prima facie conclusion that the petitioner had

failed to disclose fully and truly all material

facts necessary for his assessment for the A.Y.

2012-13, it could not be said that the

respondent had initiated the proceedings under

section 147 (of Income Tax Act, 1961) on the basis of incorrect

facts or on the basis of borrowed belief of the

Investigation Wings at Ahmedabad and Mumbai, as

sought to be submitted by the learned advocate

Mr. R.K. Patel for the petitioner. The Court

also does not agree with the submission made by

the learned advocate Mr. Patel that the

respondent could not have reopened the

assessment of the petitioner under section

147/148 of the said Act after the scrutiny

assessment having been undertaken by the

Assessing Officer under section 143(3) (of Income Tax Act, 1961) of the

said Act for the A.Y. 2012-13. The Assessing

Officer having arrived at his subjective

satisfaction based on additional fresh material

placed before him that the petitioner had not

fully and truly disclosed all the material facts

necessary for his assessment for the relevant

assessment year and prima facie his income

chargeable to tax had escaped assessment, he was

fully justified in initiating the proceedings

under section 147 (of Income Tax Act, 1961)/148 of the said Act.

12. There is also no force in the submission of

Mr. Patel that the Principal Commissioner had

granted sanction under section 151 (of Income Tax Act, 1961) of the said

Act without any application of mind. Since he

has relied upon the decision of Supreme Court in

case of Chhugamal Rajpal (supra) in this regard,

it may be noted that in the said case, the

report of the Income Tax Officer in connection

with the proceedings under section 147 (of Income Tax Act, 1961) did not

set out any reason nor the material that he had

before him for issuing the notice under section

148 was mentioned in the report. Under the

circumstances, the Supreme Court held that the

Commissioner had mechanically accorded the

permission under section 151 (of Income Tax Act, 1961). Such is not the

situation in this case. In this case, the

Assessing Officer has recorded the reasons in

detail and the objections raised by the

petitioner have also been dealt with by him in

detail vide the impugned order. It may further

be noted that no such contention that the

Principal Commissioner had granted sanction

without application of mind or without assigning

any reason, was taken up by the petitioner

before the respondent authority in the

objections filed by him, nonetheless the

respondent has mentioned in the impugned order

that his satisfaction was duly approved by the

CIT-4, Ahmedabad vide his letter / approval

dated 30.03.2019. Again in response to the said

contention raised in the petition, the

respondent has contended in his affidavit-in-

reply that the case of the petitioner was

reopened after obtaining the sanction from the

Pr. CIT-4, Ahmedabad as required by section 151 (of Income Tax Act, 1961)

of the said Act and that the Pr. CIT had

approved the notice after appreciating the facts

and after duly applying his mind. The petitioner

has chosen not to controvert the said submission

in the affidavit-in-rejoinder filed by him.

13. There is also no merit in the submission of

Mr. Patel that the petitioner was assessed under

section 115JB (of Income Tax Act, 1961) and that the assessee was already

paying more tax under section 115JB (of Income Tax Act, 1961) than the

income tax liability arising under the normal

provisions of the Act. As rightly observed by

the respondent in the impugned order disposing

of the objections, whether the income chargeable

to tax has escaped assessment or not, could not

be considered at this stage and no conclusive

opinion could be rendered at this point of time

when the assessment / reassessment has not even

started.

14. Mr. M.R. Bhatt has rightly drawn the

attention of this Court to the decision in case

of Mehrunnisa Mohamed Fazal Maniar versus Income

Tax Officer (supra), in which the proceedings

under section 147 (of Income Tax Act, 1961)/148 initiated by the Assessing

Officer against the petitioners on the basis of

fresh material brought to his notice in respect

of the same search proceedings conducted under

section 132 (of Income Tax Act, 1961) in case of Jignesh Shah on

11.09.2018, were challenged, and the Court vide

the order dated 20.01.2021 has dismissed the

said petitions, after considering the similar

contentions as raised in the present petition.

15. In that view of the matter, the petition

being devoid of merits, is dismissed. Notice is

discharged. Interim relief, if any, stands

vacated forthwith.

Sd/-

(BELA M. TRIVEDI, J)

Sd/-

(A. C. JOSHI,J)

AMAR SINGH