KESHAV DIAMONDS PVT. LTD. vs. INCOME TAX OFFICER

C/SCA/21124/2019 ORDER IN THE HIGH COURT OF GUJARAT AT AHMEDABAD R/SPECIAL CIVIL APPLICATION NO. 21124 of 2019 ========================================================== KESHAV DIAMONDS PVT. LTD. Versus INCOME TAX OFFICER ========================================================== Appearance: MR OMKAR C DAVE(2003) for the Petitioner(s) No. 1 MRS KALPANA K RAVAL(1046) for the Respondent(s) No. 1 ========================================================== CORAM: HONOURABLE MR. JUSTICE J.B.PARDIWALA and HONOURABLE MR. JUSTICE ILESH J. VORA

Date : 09/03/2021

ORAL ORDER (PER : HONOURABLE MR. JUSTICE ILESH J. VORA) 1. By filing this writ application  under Article  226, the writ applicant   seeks   to   challenge   the   notice   dated   31.03.2019 issued by the respondent under Section 148 of the Income Tax Act, 1961 (‘the  act’ for short) seeking to reopen the applicant’s income assessment for the A.Y 2012­13. 2. The brief facts leading to file the present writ application can be summarized as under: 2.1 The writ applicant – assessee Company filed its return of Income for the A.Y. 2012­13 on 28.09.2012 declaring total income at Rs. 7,58,720/­ and  scrutiny assessment under Section 143(3) of the Act was completed on 31.03.2014. Page 1 of 24

C/SCA/21124/2019 ORDER

2.2 The Assessing Officer has reopened the assessment under Section 147 by issuing impugned notice dated 31.03.2019 under Section 148 of the Act. 2.3 At the request of the writ applicant, reasons recorded have been furnished to the writ applicant on 17.05.2019, which reads as under : “2. In this connection, reason for re­opening of the case for A.Y. 2012­13 are as under 1. The assessee company filed its Return of Income for the A.Y. 2012­13 on 25.09.2012 declaring total income at Rs. 7,58,720/­   Assessment   in   the   case   of   the   assessee   was completed u/s 143(3) on 31.03.2014. 2. In this case, an information has been received from O/o the DDIT(Inv.), Unit­2, Surat through email on 22.03.2019, related to inquiry report in the case of Shri Afroz Mohd. Hasanfatta and group. In this case, Enforcement Directorate (ED)   received   information   through   Customs   Department Surat that some of the companies opened their bank accounts with ICICI Bank Surat and used their accounts for making foreign remittances against fake import documents. The ED conducted investigation and filed a charge sheet against some persons on 18.07.2014 and later on a supplementary charge­ sheet was filed on 18.07.2014 before the Special Court under the Prevention of Money Laundering Act, 2002. During the course of investigation by ED, searches at several places were conducted. Further, investigations were also carried by the Income   Tax   department   on   the   inputs   from   other   Govt. Agencies as well as its own information; which brought the big   scam   of   money   laundering   to   the   fore.   In   the investigation, it was found that foreign remittances have been made by the following 12 entities from their bank accounts to the Dubai and Hongkong based companies on the strength of fake documents for the purpose of money laundering: Sr Name of the entity PAN 1 Agni Gems Pvt. Ltd AAHCA9913G 2 Hem Jewels Pvt Ltd AACCH4749N Page 2 of 24

C/SCA/21124/2019 ORDER 3 MB Offshore Distributors Pvt Ltd AAFCM9622E 4 Maa Mumba Devi Gems Pvt Ltd AAGCM7114A 5 RA Distributors Pvt Ltd AAECR5078E AAECR5078E 6 Ramshyam Exports Pvt Ltd. AADCR9459E 7 Riddhi Exim Pvt Ltd AAECR2891P 8 Bajrang Diam Pvt Ltd AAECB4069R 9 Renuka Exim Pvt LTd AAFR3262D 10 Shimmer Exim Pvt Ltd AAOS3360A 11 Aunik Diamond Pvt Ltd AAKCAG419J 12 Jaime Exim Pvt Ltd AADCJO986G 3. During the course of investigation, the following facts were unearthed: 1.   These   companies   remitted   total   foreign   outward remittances of INR 8,159 crores. 2. These entities had received the above said amounts through RTGS credits in their respective bank accounts primarily from certain other Indian fictitious concerns. 3.   It   was   found   that   the   accused   Shri   Madanlal Manekchand Jain and Shri Afroze Mohd. Hasanfatta have used the companies and fictitious firms for illegal transfer   of   money   to   Dubai   and   Hongkong   based companies/concerns on the  strength  of  fake  import documents. 4.   Shri   Afroze   Mohd.   Hasanfatta   was   arrested   on 21.05.2014   and   his   statement   was   recorded   on 22.05.2014 under section 50 of PMLA, 2002. In his statements, he has Stated the entire modus operandi of money laundering scam. 5. Shri Madanlal M Jain was arrested on 17.07.2014 under section 19 of PMLA, 2002. In his statements, he has   stated   the   entire   modus   operandi   of   money laundering   scam.   He   has   stated   that   he   has   made different   directors   and   partners   in   many Page 3 of 24

C/SCA/21124/2019 ORDER companies/firms   and   lent   the   same   to   Shri   Afroze Mohd. Hasanfatta. 6. Apart from the above, many other facts have been recorded in the charge­sheets filed by the ED as well as investigation made by the Income Tax Deptt. which proved that the entire movement of funds was for the illegal purpose of money laundering. 4. In all, this money laundering scam is known as Afroze Mohd. Hasanfatta group scam. Several entities were traced related to this group on the basis funds trail, which were used as   a   conduit   for   channelizing   funds   to   various   concerns, ultimate beneficiaries of which were Hong Kong and Dubai based entities, to which the funds were transferred on the fake documents. 5. The detailed information so received from the Investigation Wing, Surat has been perused carefully and it is found that the   assessee   company   is   one   of   the   concerns   which   has provided   entry   of   funds   to   the   below:mentioned   entities operated by Shri Afroz Fatta during the F.Y. 2011­12 relevant to A.Y.2012­13: Sr. No Parties Name Target entities Amount of transaction (in crore) 1 M/s. Nisha Diamond Pvt. Ltd M/s. Agni Gems Pvt. Ltd 10.13 Total 10.13 6. The above information received from the investigation Wing has been analysed along with the case records available in the case of the assessee company. On perusal of assessment records in the case of the assessee for AY 2012­13, it is seen that the assessee has shown purchase of Rs.4,57,48,000/­ from one of the above alleged concerns i.e. M/s. Agni Gems P. Ltd. It establishes that the allegation that the assessee has made transaction with the above mentioned alleged parties, is true. Further, it is found on the bases of fund trail provided by   Investigation   Wing,   that   during   the   year   under consideration, the assessee company has made transactions with the above mentioned target entity either directly or in a circular manner, in other words, funds have reached to the above destination companies either directly or through other intermediary concerns. Page 4 of 24

C/SCA/21124/2019 ORDER 7. During the course of the assessment proceedings, the assessee failed to disclose fully and truly all material facts related   to   the   above   companies/firms,   necessary   for   his assessment   for   the   assessment   year   under   consideration. Therefore,   the   failure   being   on   the   part   of   the   assessee company and in view of the above facts/material available on records and after analyzing the same, I have reason to believe that   income   of   the   assessee   to   the   extent   of   Rs. 10,13,00,000/­   has   escaped   assessment   for   A.Y.2012­13 within the meaning of section 147 of the IT. Act. 8. In this case, a return of income was filed for the year under consideration and regular assessment u/s.143(3) of the Act was made on 25.03.2014. Since, 4 years from the end of the relevant year has expired in this case, the requirement to initiate   proceedings   u/s.   147   are   reason   to   believe   that income   for   the   year   under   consideration   has   escaped assessment because of failure on the part of the assessee to disclose fully and truly all material facts necessary for his assessment for the assessment year under consideration. It is pertinent to mention here that reasons to believe that income has escaped assessment for the year under consideration have been   recorded   above   (refer   paragraphs   2   to   7).   Though, during the course of assessment proceedings, the assessee company   has   disclosed   the   transaction   with   the   alleged concern   either   directly   or   with   the   intermediary   concerns through which funds were circulated, the requisite material facts   as   noted   above   in   the   reasons   for   reopening   were embedded in such a manner that material evidences could not be discovered by AO and could have been discovered with due   diligence,   accordingly   attracting   provisions   of Explanation 1 of section 147 of the Act. Further, this case is being analysed now on the basis of fresh material which was not   available   with   the   Assessing   Officer   at   the   time   of assessment.   It   is   evident   from   the   above   facts   that   the assessee   had   not   truly   and   fully   disclosed   material   facts necessary for its assessment for the year under consideration thereby reopening u/s. 147 of the Act. In this case more than four years have lapsed from the end of assessment   year   under   consideration.   Hence   necessary sanction to issue notice u/s. 148 has been obtained separately from   Principal   Commissioner   of   Income   Tax   as   per   the provisions of section 151 of the Act. 3. In view of the judgment of Hon'ble GHC in the case of Sahkari Khand Udhyog Mandal Ltd., it is expected from you Page 5 of 24

C/SCA/21124/2019 ORDER to put your say, if any, within 60 days of receipt of this letter containing reasons of re­opening in your case. i) Once the Assessing Officer serves to an assessee a notice of reopening of assessment section 148 of the Income­tax Act, 1961, and within the time permitted in such notice, the assessee files his return of income in response  to  such  notice,  the  Assessing  Officer shall supply the reasons recorded by him for issuing such notice within 30 days of the filing of the return by the assessee without waiting for the assessee to demand such reasons. ii) Once the assessee receives such reasons, he would be expected to raise his Objections, if he so desires, within 60 days of receipt of such reasons. iii) If objections are received by the Assessing Officer from   the   assessee   within   the   time   permitted hereinabove, the Assessing Officer would dispose of the objections, as far as possible, within four month of date of receipt of the objection filed by the assessee. iv) This is being done in order to ensure that sufficient time is available with the Assessing Officer to frame the assessment after carrying out proper scrutiny. The requirement   and   the   time­frame   for   supplying   the reasons   without   being   demanded   by   the   assessee would be applicable only if the assessee files his return of income within the period permitted in the notice for reopening. Likewise the time frame for the Assessing Officer to dispose of the objections would apply only if the assessee raises objections within the time provided hereinabove. This, however, would not mean that if in either   case,   the   assessee  misses  the  time   limit,  the procedure provided by the Supreme Court in the case of   GKN   Driveshafts   (India)   Ltd   (supra)   would   not apply. If only means _ that the time frame provided hereinabove   would   not   apply   in   such   cases. 4, In view of the above facts, you are requested to submit   your   say   within   permissible   time   limit   as mentioned above for further proceedings of the case.” 2.4 The   writ   applicant   raised   the   objections   vide   its communication dated 04.07.2019, mainly on the following issues on facts and law: Page 6 of 24

C/SCA/21124/2019 ORDER (i) Provision of Section 148(2) not complied with; (ii) No failure on the part of the assessee to disclose fully and truly   all   material   facts   necessary   for   the assessment; (iii) Reopening is based on “borrowed satisfaction”; (iv) provision of Section 151(1) not complied with. 2.5   The objections came to be rejected by the respondent vide order dated 30.08.2019.

5.1 There was full and true disclosure by the writ applicant during   the   course   of   filing   of   return   as   well   as   original assessment framed under Section 143(3) and therefore, there was no false or untrue declaration by the writ applicant on any of the issues on which the reopening is sought to be initiated. Page 7 of 24

C/SCA/21124/2019 ORDER 5.2 It  was submitted that the respondent authority failed to comply with the provisions of Section 148(2) of the Act, as before issuing the notice, the Assessing Officer should record his reasons for reopening of the assessment. Referring to the letter, the learned counsel invited the attention of this Court that no date being mentioned on the reasons recorded, which evident that reasons for issuing notice under Section 148 of the   Act   were   not   recorded   before   issuing   the   notice   and therefore, notice lacks validity. 5.3 It was  further pointed out that,  in the present case, the reopening of the assessment is beyond the period of 4 years and in that case, the sanction of the competent authority as provided under Section 151 of the Act is necessary before issuance of the notice. In this regard, it was submitted that there   is   no   valid  approval  accorded   by   the  sanctioning authority as provided under Section 151 of the Act. 5.4 Referring   to   the   proviso   to   Section   147,   the   learned counsel  pointed out that in the present case, the scrutiny assessment under Section 143(3) was already completed and now it cannot be reopened unless any income chargeable to tax   has   escaped   assessment   for   such   assessment   year   by reason of the failure on the part of the assessee to disclose fully and truly all material necessary facts for its assessment. In this context, the learned counsel submitted that the notice under Section 142(1) was issued by the Assessing Officer to Page 8 of 24

C/SCA/21124/2019 ORDER call   for   certain   particulars   like   details   of   bank,   sales   and purchase, stock etc. In response to the notice, the assessee had   furnished   the   names   of   the   persons   from   whom   the purchases   and   sales   were   made   including   the   transaction related   to  purchase   with   M/s.   Agni  Gems   Pvt.   Ltd.     The learned   counsel   has   urged   that   based   on   the   particulars furnished by the assessee, the transaction with M/s. Agni Gems   Pvt.   Ltd   was   verified   and   accepted   by   the   then Assessing Officer and passed the assessment order without any major additions. In this background of facts, the learned counsel submitted that  there was no failure on the part of the   assessee   to   disclose   material   facts   necessary   for   the assessment   for   the   year   under   consideration.   Therefore, reopening is bad. 5.5 The learned counsel vehemently submitted that according to the case of the revenue, assessee has made entered into transaction   with   M/s.   Agni   Gems   Pvt.   Ltd   amount   to Rs.4,57,48,000/­ and in the reasons recorded, the amount of Rs.10,13,00,000/­ has been shown as escaped assessment. Therefore, when the purchase was of Rs.4,57,48,000/­ then, how the Assessing Officer has recorded that the amount of Rs.10,13,00,000/­ has escaped assessment. In this regard, it has been urged that this discrepancies show that Assessing Officer has not applied his mind while forming the belief of escape assessment. 5.6 It  was further contended that the Assessing Officer  has Page 9 of 24

C/SCA/21124/2019 ORDER acted mechanically on the basis of the information received from   the   concerned   department   and   there   is   no   any independent application of mind by the Assessing Officer to arrive at the conclusion that the income chargeable to tax has escaped assessment. Therefore, reopening based on the third party   satisfaction   cannot   be   sustained   in   law   and   the proceedings initiated on borrowed satisfaction required to be quashed and set aside. 6. In view of the aforesaid contention, the learned counsel for the writ application submitted that, the impugned notice as well as the order of disposing off the objections are bad, illegal   and   without   jurisdiction   and   therefore,   the   same deserve to be quashed and set aside and accordingly, the writ application may be allowed. 7. On the other hand, Mrs. Kalpana K. Raval,  learned Standing Counsel appearing for the revenue has vehemently opposed the writ application,  contending that,  in the present case, subsequent to the scrutiny assessment, the Assessing Officer has   received  the   information   from   the   Investigating  Wing Surat that the assessee company entered into transaction with M/s. Agni Gems Pvt. Ltd amounting to Rs.4,57,48,000/­ and total transactions worked out by the Investigation wing of Rs.10,13,00,000/­   which   prima­facie   appears   to   be   an accommodation entries which was controlled and managed by Hawala dealer Afroze Mohd. Hasanfatta against whom case under the provisions of Prevention of Money Laundering Page 10 of 24

C/SCA/21124/2019 ORDER Act,   was   registered   and   accordingly   he   was   arrested   and during the course of investigation it was found that  foreign remittances were made by 12 entities including M/s. Agni Gem Pvt. Ltd, from their bank account to the Dubai and Hongkong bases company on the strength of fake documents for the purpose of money laundering and the assessee is one of the company which had provided entry of funds to the Nisha Diamond and Agni Gems. In this factual background, the   learned   counsel   for   the   revenue   submitted   that   the Assessing   Officer   has   verified   the   information   and   after independent inquiries, he found that the transactions with M/s.   Agni   Gems   Pvt.   Ltd.,   is   not   genuine   and   it   is   an accommodation   entries  and   the   assessee   was   one   of   the beneficiaries   and   therefore,   the   income   has   escaped assessment. 8. In view of the above contentions, the learned counsel for the revenue   urged   that   the   writ   application   may   not   be entertained.

C/SCA/21124/2019 ORDER to tax have escaped assessment and same was occasioned either on account of   failure on the part of the assessee to make a return of his income or disclose fully and truly all material facts necessary for assessment of that year and both the conditions are condition precedent and must be satisfied simultaneously before issuance of the notice. 11. We have carefully examined the materials  on  the  record as well as the reasons recorded. It appears from the record that the assessee company had filed its return of income for the assessment year 2012­13 dated 25.09.2012 declaring total income at Rs.7,58,720/­ and assessment for the year under consideration was completed under Section 143(3) of the Act on   31.03.2014.     We   take   the   notice   of   the   fact   that   the transaction   of   purchases  with   M/s.   Agni   Gems   pvt.   Ltd. amounting Rs.4,57,48,000/­ was the reason for reopening of the assessment for the year under consideration. 12. A plain reading of the reasons recorded as indicated above, emerge that the Assessing Officer had received inquiry report in relation to Mr.  Afroze Mohd. Hasanfatta  and Mr. Madan Jain,   who   made   foreign   remittances   through   12   different companies,   controlled   and   supervised   by   them   and   there involvement in money laundering was detected. As per the report, out of 12 companies, one of the concerned was M/s. Agni Gems Pvt. Ltd., who made transactions either directly or in   circular   manner,   without   any   import   from   the   other countries and money circulated outside India. The Assessing Page 12 of 24

C/SCA/21124/2019 ORDER Officer noticed that the crores of rupees were remitted in UAE and Hongkong on the basis of forged bill of entry through the bank accounts of 12 companies. The Assessing Officer has noted that the ED busted multicrore havala racket during the search operation at the several places  and found that Mr. Afroze   Mohd.   Hasanfatta  and   their   group,   instead   of importing diamonds, they made bogus import bills, claiming that they have purchased the diamonds from foreign traders and by using this bogus bills, money was routed through 12 entities, without any single diamond being imported in India.

C/SCA/21124/2019 ORDER

C/SCA/21124/2019 ORDER suppression of any facts, the reopening beyond 4 years in the absence of any non­disclosure of material facts cannot be permitted. 17. We  do  not agree with the above contention  mainly on the ground   that   during   the   course   of   previous   assessment proceedings,   the   assessee   failed   to   disclose   material particulars with regard to alleged transactions and the true facts   of   the   transactions   having   been   discovered   by   the Assessing Officer on the basis of the information received from the concerned department. Law in this regard has been settled by various decisions of this Court as well as the Apex Court that burden is on the assessee to make true and full disclosure. Therefore, where the transaction itself on the basis of   the   subsequent   information   is   found   to   be   a   bogus transactions, mere a disclosure of said transaction at the time of original proceedings, cannot be said to be a disclosure of “true and full” facts in the case. In this context, we may refer and rely on the observations made by the Apex Court in the case of Phoolchand Bajranglal and another Vs. ITO (2001) 10 SCC 189. The observations made in para­19 reads thus: “19. 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 original assessment is different from drawing a fresh inference from the some facts and material which was available which   the   I.T.O.   at   the   time   of   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 Page 15 of 24

C/SCA/21124/2019 ORDER the time of original assessment proceedings, cannot be said to be disclosure of the "true" and "full" facts in the case and the I.T.O. would have the jurisdiction to reopen the concluded assessment in such a case. It is correct that   the   assessing   authority   could   have   deferred   the completion of the original assessment proceedings for further enquiry and investigation into the genuineness to the loan transaction but in our opinion his failure to do so and complete the original assessment proceedings would   not   take   away   his   jurisdiction   to   act under Section   147 of   the   Act,   on   receipt   of   the information subsequently. The subsequent information on the basis of which the I.T.O. acquired reasons to believe   that   income   chargeable   to   tax   had   escaped assessment on account of the omission of the assessee to make a full and true disclosure of the primary facts was relevant, reliable and specific. It was not at all vague or nonspecific. ” 18. In case of Yogendrakumar Gupta Vs. ITO (2014) 366 ITR, this Court while rejecting petition challenging the notice for reopening which was issued beyond a period of 4 years from the end of relevant assessment year, wherein, one of the ground was that the issue was previously scrutinized during the   assessment   proceedings.   We   may   reproduce   the observations made in paras 16, 17 and 21, which read thus: 19. In  Aradhna   Estate   (P)   Ltd   Vs.   DCIT,   (2018)   91 taxmann.com 119, this Court held that where reassessment proceedings were initiated on the basis of the information received   from   the   investigation   wing   that   assessee   had received certain amount from the Shell Companies working as an accommodation entry provider merely because these transactions were scrutinized by the Assessing officer during original assessment proceedings, the reassessment could not be held unjustified. Page 16 of 24

C/SCA/21124/2019 ORDER 20. In Aaspas   Multimedia   Ltd.   VS   DCIT   (2017)   78 taxmann.com, this Court while examining the validity of the notice, held that where assessment was made on the basis of information received from the Principal DIT, (Investigation), that assessee was beneficiary of accommodation entry by way of share application provided by a third party,  same was justified.

(2018)   91,   taxmann.com,  this   Court   held   that   the information from the investigation wing stating that the loan from the company working as an entry operator and earning bogus   firms   to   provide   advances   to   various   persons   was sufficient and would constitute genuine and bonafide reason to believe.

C/SCA/21124/2019 ORDER of purchase made in the books of accounts.  In this context, we may refer the observation of the Apex Court in the case of Honda   Siel   Power   Products   Vs.   Dy.   CIT,   (2011)   10, taxmann.com,  wherein, it is held that assessee having not pointed out during assessment proceedings about exprenses incurred relatable to tax free income u/s. 14A, there was an omission and failure on its part to disclose fully and truly material facts, hence, reopening was justified.

C/SCA/21124/2019 ORDER thus the Assessing officer had such material available with him which he perused, considered, applied his mind and recorded the finding of belief that income chargeable to tax had   escaped   assessment,   the   re­opening   could   not   and should not have been declared as invalid, on the ground that he proceeded on the show­cause notice issued by the Excise Department which had yet not culminated into final order. At this stage the Assessing Officer was not required to hold conclusively that additions invariably be made. He truly had to   form   a   bona   fide   belief   that   income   had   escaped assessment. In this context, we may refer to various decisions cited by the counsel for the Revenue. 10. In case of Central Provinces Manganese Ore Co. Ltd. v. Income   Tax   Officer,   Nagpur   (supra)   the   Supreme   Court noted that in case of the assessee which had an office in London, this Customs authority had come to know that the assessee   had   declared   very   low   price   in   respect   of   the consignment of Manganese exported by them out of India. After   due   inquiries   and   investigations,   the   Customs authorities found that the assessee was systematically under­ voicing   the   value   of   Manganese   as   compared   with   the prevailing market price. The Income Tax Officer on coming to know about the proceedings before the Customs Collector in this respect issued notice for reopening of the assessment. In the reasons that the Assessing Officer relied on the facts as found   by   the   Customs   Authorities   that   the   assessee   had under­voiced   goods   during   export.   Under   such circumstances,   upholding   the   validity   of   the   notice   for reopening, the Supreme Court held and observed as under: "So far as the first condition is concerned, the Income Tax Officer, in his recorded reasons, has relied upon the fact as found by the Customs Authorities that the appellant had under invoiced the goods it exported. It is not doubt correct that the said finding may not be binding upon the income tax authorities but it can be a valid reason to believe that the chargeable income has been under assessed. The final outcome of the proceedings is not relevant. What is relevant is the existence of reasons to make the Income Tax Officer believe that there has been under assessment of the assessee's   income   for   a   particular   year.   We   are satisfied   that   the   first   condition   to   invoke   the jurisdiction of the Income Tax Officer under Section 147(a) of the Act was satisfied." Page 19 of 24

C/SCA/21124/2019 ORDER 11. In case of Income Tax Officer v. Purushottam Das Bangur (supra)   after   completion   of   assessment   in   case   of   the assessee,   the   Assessing   Officer   received   letter   from Directorate   of   Investigation   giving   detailed   particulars collected   from   Bombay   Stock   Exchange   which   revealed earning of share and price of share increased during period in   question   and   quotation   appearing   at   Calcutta   Stock Exchange was as a result of manipulated transaction. On the basis of such information, the Assessing Officer issued notice for reopening of the assessment. The question, therefore, arose  whether   the   information  contained   in  the   letter   of Directorate   of   Investigation   could   be   said   to   be   definite information and the Assessing Officer could act upon such information for taking action under Section 147(b) of the Act. In such background, the Supreme Court observed as under: "12. Ms. Gauri Rastogi, the learned counsel appearing for the respondents, has urged that the letter of Shri. Bagai   was   received   by   the   Income   tax   Officer   on March 26, 1974 and on the very next day, that is, on March 27, 1974, he issued the impugned notice under Section 147(b) of the Act and that he did not have conducted   any   inquiry   or   investigation   into   the information sent by Shri. Bagai. Merely because the impugned   notice   was   sent   on   the   next   day   after receipt of the letter of Shri. Bagai does not mean that the Income Tax Officer did not apply his mind to the information contained in the said letter of Shri. Bagai. On   the   basis   of   the   said   facts   and   information contained in the said letter, the Income Tax officer, without any further investigation, could have formed the opinion that there was reason to believe that the income of the assessee chargeable to tax had escaped assessment. The High Court, in our opinion, was in error in proceeding on the basis that it could not be said that the Income Tax Officer had in his possession information   on   the   basis   of   which   he   could   have reasons   to   believe   that   income   of   the   assessee chargeable   to   tax   had   escaped   assessment   for   the relevant   assessment   years.   For   the   reasons aforementioned,   we   are   unable   to   uphold   the impugned judgment of the High Court. The appeal is, therefore,   allowed,   the   impugned   judgment   of   the High Court is set aside and the Writ Petitions filed by the respondents are dismissed. No order as to costs." Page 20 of 24

C/SCA/21124/2019 ORDER 12. In case of Income Tax Officer v. Selected Dalurband Coal Co. Pvt. Ltd.(supra), the assessment was reopened on the basis   of   the   information   contained   in   letter   from   Chief Mining Officer that the colliery of the assessee had been inspected and there had been under reporting of coal raised. Upholding   the   validity   of   re­opening   of   assessment,   the Supreme Court held and observed as under: "After hearing the learned counsel for the parties at length, we are of the opinion that we cannot say that the   letter   aforesaid   does   not   constitute   relevant material or that on that basis, the Income Tax Officer could not have reasonably formed the requisite belief. The letter shows that a joint inspection was conducted in the colliery of the respondent on January 9,1967, by   the   officers   of   the   Mining   Department   in   the presence of the representatives of the assessee and according to the opinion of the officers of the Mining Department, there was under reporting of the raising figure to the extent indicated in the said letter. The report is made by a Government Department and that too   after   conducting   a   joint   inspection.   It   gives   a reasonably   specific   estimate   of   the   excessive   coal mining said to have been done by the respondent over and above the figure disclosed by it in its returns. Whether the facts stated in the letter are true or not is not the concern at this stage. It may be well be that the assessee may be able to establish that the facts stated   in   the   said   letter   are   not   true   but   that conclusion can be arrived at only after making the necessary enquiry. At the stage of the issuance of the notice,   the   only   question   is   whether   there   was relevant   material,   as   stated   above,   on   which   a reasonable  person could   have   formed  the  requisite belief. Since we are unable to say that the said letter could not have constituted the basis for forming such a belief, it cannot be said that the issuance of notice was invalid. Inasmuch as, as a result of our order, the reassessment proceedings have not to go on we don not and we ought not to express any opinion on the merits." 13.   In   case   of   AGR   Investment   Ltd.   v.   Additional Commissioner of Income Tax and anr. (supra), a Division Bench   of   Delhi   High   Court   considered   the   validity   of reopening   of   assessment   where   the   notice   was   based   on information received from Directorate of investigation that Page 21 of 24

C/SCA/21124/2019 ORDER the   assessee   was   beneficiary   of   bogus   accommodation entries. The Court while upholding the validity of reopening observed that sufficiency of reason cannot be considered in a writ petition. It was observed as under: "23 The present factual canvas has to be scrutinized on the touchstone of the aforesaid enunciation of law. It is worth noting that the learned counsel for the petitioner   has   submitted   with   immense   vehemence that the petitioner had entered into correspondence to have the documents but the assessing officer treated them   as   objections   and   made   a   communication. However, on a scrutiny of the order, it is perceivable that the authority has passed the order dealing with the objections in a very careful and studied manner. He   has   taken   note   of   the   fact   that   transactions involving   Rs.   27   lakhs   mentioned   in   the   table   in Annexure P­2 constitute fresh information in respect of   the   assessee   as   a   beneficiary   of   bogus accommodation entries provided to it and represents the   undisclosed   income.   The   assessing   officer   has referred to the subsequent information and adverted to the concept of true and full disclosure of facts. It is also   noticeable   that   there   was   specific   information received from the office of the DIT (INV­V) as regards the transactions entered into by the assessee company with   number   of   concerns   which   had   made accommodation entries and they were not genuine transactions. As we perceive, it is neither a change of opinion nor does it convey a particular interpretation of a specific provision which was done in a particular manner in the original assessment and sought to be done in a different manner in the proceeding under Section 147 of the Act. The reason to believe has been appropriately understood by the assessing officer and there is material on the basis of which the notice was issued. As has been held in Phool Chand Bajrang Lal (supra), Bombay Pharma Products (supra) and Anant Kumar   Saharia   (supra),   the   Court,   in   exercise   of jurisdiction under Article 226 of the Constitution of India   pertaining   to   sufficiency   of   reasons   for formation of the belief, cannot interfere. The same is not to be judged at that stage. In SFIL Stock Broking Ltd. (supra), the bench has interfered as it was not discernible  whether the assessing officer had applied his   mind   to   the   information   and   independently arrived at a belief on the basis of material which he had   before   him   that   the   income   had   escaped Page 22 of 24

C/SCA/21124/2019 ORDER assessment. In our considered opinion, the decision rendered   therein   is   not   applicable   to   the   factual matrix in the case at hand. In the case of Sarthak Securities Co. Pvt. Ltd. (supra), the Division Bench had   noted   that   certain   companies   were   used   as conduits but the assessee had, at the stage of original assessment,   furnished   the   names   of   the   companies with which it had entered into transactions and the assessing officer was made aware of the situation and further   the   reason   recorded   does   not   indicate application of mind. That apart, the existence of the companies was not disputed and the companies had bank   accounts   and   payments   were   made   to   the assessee   company   through   the   banking   channel. Regard being had to the aforesaid fact situation, this Court had interfered. Thus, the said decision is also distinguishable on the factual score." 14. Learned Single Judge of Madras High Court in case of Sterlite Industries (India) Ltd. v. Assistant Commissioner of Income Tax reported in [2008] 302 ITR 275 (Mad) upheld the notice for reopening which was based on information from enforcement directorate showing possible inflation of purchases made by the assessee.” 24. The   learned   counsel   raised   the   contention   that   while according the sanction under Section 151 of the Act, the authority concerned has not applied his mind properly and mechanically accorded the sanction.   We have perused the papers   of   the  approval,   which   shows   that   the   competent authority has given the satisfaction in hand writing and has expressed his satisfaction with regard to reasons recorded and   accorded   the   sanction   to   issue   impugned   notice. Therefore, the approval for reassessment was granted on the date   on   which   the   impugned   notice   was   issued.   In   this circumstances, the contention raised by the learned advocate for the writ applicant that sanction was not obtained before issuance of the notice cannot be accepted. Page 23 of 24

C/SCA/21124/2019 ORDER 25. In view of the discussions made hereinabove, it cannot be said that there was no tangible material before the Assessing Officer and that he proceeded mechanically based on the sole information and the impugned notice is without jurisdiction and contrary to Section 147 of the Act. 26. For   the   foregoing   reasons,   no   case   is   made   out   and accordingly, present writ application deserves to be dismissed and is dismissed. No order as to costs. (J. B. PARDIWALA, J) (ILESH J. VORA,J) P.S. JOSHI Page 24 of 24