M/S. M. R. SHAH LOGISTRICS PRIVATE LIMITED vs. DEPUTY COMMISSIONER OF INCOME-TAX CENTRAL CIRCLE-1(2)

The   petitioner   has   challenged   a   notice   dated   31.3.2017 issued by the respondent Assessing Officer to reopen the petitioner's   assessment   for   the   assessment   year   2010­ 2011. 2. Brief facts are as under. The petitioner is a private limited company. The petitioner had filed return of income for the assessment   year   2010­2011   on   25.9.2010. Such   return was accepted under section 143(1) of the Income Tax Act, 1961 (“the Act” for short)  without scrutiny. On 31.3.2017, the   respondent   Assessing   Officer   issued   the   impugned notice   seeking   to   reopen   the   assessment.   Upon   being asked, he also supplied the reasons recorded by him for issuing   such   notice   to   the   petitioner.   Armed   with   the reasons, the petitioner raised objections to the notice of reopening under letter dated 29.8.2017. Such objections were rejected by the Assessing Officer by an order dated 30.10.2017, whereupon this petition came to be filed.

Reasons recorded  by the Assessing Officer are rather long. We may therefore, record the gist of such reasons. In such reasons, the Assessing Officer records that a search under section 132 of the Act was conducted on the petitioner and its group companies on 20.9.2016. During such search, one   Pravin   Chandra   Agrawal,   chairman   of   group companies was asked about the share application money received by the assessee company. In his statement dated 18.11.2016, he had stated that one Garg Logistics Pvt Ltd. had   disclosed   an   undisclosed   cash   amount   of   Rs.6.36 crores which was utilised for investment in share capital of the   assessee   company   through   various   companies.   This amount also included commission. He had also produced declaration filed by Garg Logistics Pvt Ltd. under section 183 of the Finance Act 2016, under the Income Declaration Scheme 2016 (“the scheme” for short).  In the reasons, the Assessing Officer reproduced the entire declaration made by Garg Logistics Pvt Ltd.  under the scheme which showed share   investments   of   a   total   of   Rs.   6.25   crores   in   the assessee company through different companies. A further sum of  Rs. 11 lacs  was showed as commission paid, thus coming   to   a   total   disclosure   of   Rs.   6.36   crores.   The Assessing Officer then goes on to compare the statement of Garg Logistics Pvt Ltd.  and the accounts of the assessee company and detects minor discrepancies.

3   Thus the claim of the assessee company that cash declared by Garg Logistics was utilized to make investment in assessee company through  paper  companies remains unexplained....”

Learned   counsel   Shri   Patel   for   the   petitioner   drew   our attention to the declaration made by Garg Logistics Pvt Ltd. under the scheme where he had made total declaration of Rs.6.36 crores for the year under consideration, further declaring that undisclosed cash was utilised for investment in share capital of M R Shah Logistics Pvt Ltd. through various companies including commission. He pointed out that   this   declaration   was   accepted   by   the   Principal Commissioner   of   Income­tax.   Pursuant   to   such acceptance,   entire   tax   with   surcharge   and   penalty   was deposited by Garg Logistics Pvt Ltd.  in three installments. Sum   of   Rs.   1.62   crores   was   deposited   on   24.11.2016, second   installment   of   Rs.1.62   crores   was   deposited   on 28.3.2017 and the last installment of Rs.3.24 crores was deposited   on   24.8.2017. He   clarified   that   the   entire payment was not for this particular declaration alone but for   declarations   which   were   spread   over   three   different assessment years.

Based on such facts, learned counsel for the   petitioner raised the following contentions : 1)   The Assessing Officer had no reason to believe that the income   chargeable   to   tax   had   escaped   assessment. Reasons   recorded   by   him   nowhere   disclosed   any foundation for such a belief. 2)   The amount in question was the income disclosed by Garg Logistics Pvt Ltd  under the scheme. Such declaration was accepted by the department, pursuant to which, Garg Logistics Pvt Ltd   had also paid full tax with penalty as provided under the scheme. Any attempt on part of the Assessing Officer to assess such amount in the hands of the assessee would amount to double taxation. 3)       The   Assessing   Officer   has   placed   reliance   on declaration   made   by   Garg   Logistics   Pvt   Ltd.     which   is wholly impermissible as per the scheme.

On the other hand, learned counsel Shri Manish Bhatt for the department resisted the petition making the following submissions : 1)   Merely because Garg Logistics Pvt Ltd.  has declared the same income and such declaration is accepted, would not   preclude   the   Assessing   Officer   from   reopening   the assessment of the petitioner, if there is reason to believe that income actually belonged to the petitioner company. 2)     The Assessing Officer had traced the history of the petitioner   company,   its   close   association   with     Pradeep Birewar group and transactions of routing its own income in shares of bogus share capital and in that light of the matter, formed a belief that amount of Rs. 6.36 crores is also undisclosed income of the petitioner company. 3)  Assessment was framed under section 143(1) of the Act and   the   Assessing   Officer   therefore,   would   have   much greater latitude in reopening such assessment. 4)     At any rate, commission of Rs. 11 lacs paid to Garg Logistics   Pvt   Ltd.   is   undisclosed   expenditure   of   the assessee from its undisclosed income.

We are conscious that the return filed by the assessee was accepted without scrutiny and that therefore, the principle of change of opinion preventing the Assessing Officer from reopening   the   assessment   would   have   no   applicability. Nevertheless,   this   Court   has   recognised   in   series   of judgments that even in such a case, the requirement that the Assessing Officer has reason to believe that  income chargeable to tax has escaped assessment would apply. In this   context,   we   would   have   to   appreciate   the   reasons recorded by the Assessing Officer. Reference in this respect may   be   made   to   a   decision   of   this   Court   in   case   of Inductotherm   (India)   P.   Ltd.   v.   M.   Gopalan,   Deputy Commissioner of Income­tax reported in (2013) 356 ITR 481 (Guj) in which following observations were made :

We may recall the Assessing Officer received information of share investment of Rs. 6.25 crores by Garg Logistics Pvt Ltd. which was made in the name of different companies but was owned up by Garg Logistics Pvt Ltd. under the declaration made under the scheme. The Assessing Officer also referred to the so­called track record of the company of having in the past indulged in routing its own income through share application money. Insofar as present case is   concerned,   however,   the   Assessing   Officer   had   no information at his command to come to the conclusion that the investment owned up and declared by Garg Logistics Pvt Ltd. was not from the funds of the said declarant but was   in   fact,   the   unaccounted   income   of   the   assessee company. We have gone through the reasons again and again but do not find any link, howsoever weak, to connect the source of such money to the assessee company. In fact, the   Assessing   Officer   has   after   giving   the   background history of the assessee company and the declaration made by   Garg   Logistics   Pvt   Ltd.,   shifted   the   burden   on   the assessee company to establish that such share application money was not its unaccounted income. This important part of the reasons, we have reproduced verbatim. He had stated   that   the   assessee   company   had   received   credit amount   in   its   books   but   failed   to   establish   that   cash declared   by   Garg   Logistics   Pvt   Ltd.   under   the   Income Declaration   Scheme   was   not   actually   the   cash   of   the assessee   company.   The   company   failed   to   provide documentary evidence of investment of cash declared by Garg Logistics Pvt Ltd.. To put it mildly, this is a strange logic. The Assessing Officer casts burden on the assessee company to establish that the declaration made by Garg Logistics Pvt Ltd. was correct and to prove in negative that money was not the company's unaccounted income. He further expects the assessee company to establish source of such amount in the hands of Garg Logistics Pvt Ltd.. On such   foundation,   the   Assessing   Officer   concludes   that credit   received   by   the   company   as   share   premium   and share   capital   is   not   genuine   but   mere   accommodation entry in order to avoid tax and it is in fact, undisclosed income   of   the   company   itself.   Quite   apart   from impermissiblity   of casting such burden on the assessee, we wonder at which stage would the assessee discharge such   burden.   Return   was   accepted   without   scrutiny. Before issuing impugned notice, no information was called from the assessee by the Assessing Officer.

The   reasons   so   recorded   simply   lack   validity.   We   are conscious that it is well settled by series of judgments of the   Supreme   Court   that   in   the   context   of   the   reasons recorded   by   the   Assessing   Officer   to   form   a   belief   that income chargeable to tax has escaped assessment, it is not necessary   for   him   to   demonstrate   conclusively   that   the addition will invariably be made or sustained. As long as belief is formed bona fide on the basis of tangible materials on record, the Court would not examine the sufficiency of such reasons. Reference in this respect can be made to the decision   in   case   of  Commissioner   of   Income   Tax   v. Rajesh Jhaveri Stock Brokers P. Ltd. reported in (2007) 291 ITR 500(SC). However, in the present case, we see no reasons at all. The conclusions are based on surmises and conjectures   which   are   not   permissible   in   law   and   not backed by any material on record. This is so for an amount of Rs. 6.25 crores of share capital investment.

Insofar as sum of Rs. 11 lacs is concerned, we may recall, this was the commission received by Garg Logistics Pvt Ltd. as per the declaration made under the scheme. The Assessing Officer believed that this commission was paid by the assessee company and since this payment is undisclosed,   he treats it as unaccounted expenditure of the assessee. There are multiple flaws to this logic. Firstly, this figure of Rs. 11 lacs is found in the declaration made by   Garg   Logistics   Pvt   Ltd.   under   the   scheme.   We   have serious   doubt   whether   any   such   statement   could   be utilised   for   the   purpose   of   reopening   the   petitioner's assessment. That apart, even in such declaration, we do not find any averment that the commission of Rs. 11 lacs was paid by the petitioner company to Garg Logistics Pvt Ltd.. Shri Manish Bhatt however, submitted that when the accommodation entries are provided for the benefit of the company, it is logical that payment would also have come from the coffers of the company. There is however a fallacy in this logic. Firstly, the Assessing Officer has not so stated in the reasons recorded. Secondly, when we find that he had no tangible material to form a belief that investment of Rs. 6.25 crores in the share capital of the company was from the company's own undisclosed income, the question of receipt of Rs. 11 lacs of commission by Garg Logistics Pvt Ltd. from the petitioner company would not arise.

We have also perused the scheme. Section 183 of the Finance Act, 2016 (“the Act of 2016” for short)  pertains to declaration   of   undisclosed   income.   Sub­section(1)   of section   183   envisages   declaration   to   be   made   by   any person within specified time, of any income chargeable to tax for which he had failed to furnish return or he had failed to disclose any return filed or which had escaped assessment by reason of his omission or failure to fully and truly disclose all material facts. Section 184 of the Act of 2016 is a charging provision providing for basic tax rate at the rate of thirty per cent  and surcharge at the prescribed rate on the income so disclosed. Section 185 provides that notwithstanding anything contained in the Income Tax Act, the   person   making   a   declaration   of  undisclosed  income would be liable to pay penalty at the rate of twenty­five per cent of such tax in addition to tax and surcharge. Section 186   prescribes   the   manner   of   declaration.   Section   188 provides that amount of undisclosed income declared in accordance with section 183 shall not be included in the total   income   of   the   declarant   for   any   assessment   year under   the   Income   Tax   Act,   if   the   declarant   makes   the payment of tax and surcharge referred to in section 184 and the penalty under section 185 by the specified date. Section 190 of the Act of 2016 provides that the provisions of the Benami Transactions (Prohibition) Act, 1988 shall not apply in respect of declaration of undisclosed income made in the form of investment in any asset, if the asset existing in the name of benamidar is transferred to the declarant within the prescribed period. Section 197 of the Act   of   2016   is   a   clarificatory   provision   and   inter­alia provides for removal of doubt. It is declared that where any declaration has been made under section 183 but no tax, surcharge or penalty has been paid within the prescribed time, the undisclosed income shall be chargeable to tax under the Income­Tax Act in the previous year in which such declaration is made.

The   Scheme   thus   makes   detailed   provisions   for declaration   of   income   which   hitherto   was   either undisclosed or not charged to tax. Upon such declaration being accepted, declarant would pay tax at the prescribed rate   with   surcharge   and   penalty.   Upon   such   amounts being   paid,   declarant   would   receive   certain   immunities. The income so declared would not be included in the total income of any assessment year. Even Benami transactions would not be targeted. The scheme thus appears to have been   framed   to   encourage   disclosures   of   unaccounted income.   Upon   acceptance   of   such   disclosure,   Revenue would collect tax, surcharge and penalty at the prescribed rates. In turn, the declarant would have peace of mind and certain immunities.

In   the   present   case,   same   amount   which   the Assessing   Officer   wishes   to   tax   in   the   hands   of   the petitioner   company   by   resorting   to   reopening   of assessment was declared by  Garg Logistics Pvt Ltd. under such   declaration.   Declaration   was   accepted   by   the competent authority pursuant to which Garg Logistics Pvt Ltd. in three installments also deposited the entire amount of tax with surcharge and penalty.  Any attempt on part of the Assessing Officer to assess the same income in the hands  of  assessee  would  amount  to   charging   the  same income twice.

This Court in case of  B. Nanji Enterprise Ltd. v. Deputy Commissioner of Income­tax  reported in (2017) 84   taxmann.com   155   (Gujarat)     noticed   that   cash   was seized from the bank lockers of assessee company during search action. The Assessing Officer added such sum by way of undisclosed cash receipt of the assessee. Director of the company had filed settlement application owning up such amount as his undisclosed income and paid tax on such income. The Court held that the department should not levy tax from the company again.

In case of  Principal Commissioner of Income­tax, Ahmedabad   v.   Kanubhai   Maganlal   Patel  reported   in (2017) 79 taxmann.com 257 (Gujarat), the Court noticed that certain income was taxed in case of a partnership firm, same therefore, could not be taxed in the hands of partner again.

We further notice that CBDT in its circulars has been clarifying various issues cropping up out of the scheme from time to time. In one such circular dated 1.9.2016, following question was addressed : “Question No. 10 : Where certain income has been charged to tax in the hands of two different persons or where it has been charged to tax in the case of same person in two different assessment year, one on substantive basis and the other on the protective basis, will the declarant or the other person get advantage in respect of additions made both substantively and protectively?” It was answered in the following manner : “Answer: The assessees are advised to make declarations in cases or for assessment years where the additions are made on substantive basis. The protective demand is not subjected to recovery unless it is finally upheld. Once the declaration in a substantive case or year is accepted, the tax arrear in protective case/year would not longer be valid and   will   be   rectified   by   suitable   orders   in   the   normal course.”

It can thus be seen that upon an assessee in whose hands     the   income   is   charged,   files   a   declaration,   the protective assessment in hands of another assessee would automatically   abate,   clearly   indicating   the   intention   of charging tax on the same income only once.

In the result, impugned notice is set aside. Petition is allowed and disposed of. (AKIL KURESHI, J) (B.N. KARIA, J) Raghu