M/S.CROWN CONSULTANTS PVT.LTD vs. COMMISSIONER OF INCOME TAX-4 and ORS

JUDGMENT : (PER M.S. SANKLECHA, J.) Rule,   returnable   forthwith.   By   consent   of   the   parties petition  is heard for final disposal. 2) This petition under Article 226 of the Constitution of India challenges a notice dated 28 September 2012 issued under Section 148 CNR No : HCBM020198612013 Uploaded on - 21/08/2020 Downloaded on - 28/10/2026 04:18:07

ASN 2/9 WP-2595 of   the   Income   Tax   Act,   1961   (“the   Act”)   seeking   to   reopen   the assessment for assessment year 2007­08. 3) Brief facts leading to this petition are : a) The petitioner is engaged in the business of shares and stock brokers. On 30 October 2007 the petitioner filed its return of income for assessment year 2007­08 declaring its income at Rs.62.92 lacs.   The   Assessing   Officer   on   30   November   2009   completed   the assessment under Section 143(3) of the Act arriving at total income of Rs.65.12 lacs. b) On   28   September   2012,   the   Assessing   Officer   issued   a notice under Section 148 of the Act to the petitioner seeking to reopen the petitioner's assessment for assessment year 2007­08 on a reasonable belief that the income chargeable to tax has escaped assessment within the meaning of Section  147 of the Act. Consequent to the demand of the petitioner the Assessing Officer on 10 October 2012 furnished to the petitioner a copy of the reasons recorded by her evidencing reasons for her belief that the income had escaped assessment. The reasons as disclosed  read as follows:­

“ The assessee has filed the return of income of AY   2007­08   on   13/10/2007   declaring   income   of Rs.6292090/­.   The case was selected for scrutiny and   order   u/s.   143(3)   passed   on   30/11/2009   at Rs.6512090/­.   The  addition of Rs.2,20,000/­ was made u/s. 40(a)(ia) on A/c of non­deduction of tax at source for the payment made to stock exchange in Uploaded on - 21/08/2020 Downloaded on - 28/10/2026 04:18:07

ASN 3/9 WP-2595 respect of VSAT charges. The assessee has preferred appeal   against   the   said   addition   before   the   ld. CIT(A). Vide letter No.CIT(A)­9/Crown consultants/ 2010­11 dt. 28/03/2011 the CIT(A)­9 has directed to verify the investments made by family member and relatives of the directors in the company.  During the course of verification done by the undersigned it is noticed that family member of the directors and their family members has given huge loan to the company during the F. Y. 06­07 relevant to the A. Y. 2007­08. The transaction of money taken was not reflected report in the financial statement as well as in the annual   report.   In   the   Col.No.   24(a)(b)   of   Form No.3CD   the   assessee   has   mentioned   against   those columns   as   not   applicable.     The   Col.24(a)   &   (b) pertains to the amount of loan taken and repayment of loan respectively. The verification of the Bank a/c of   directors   &   their   family   members   shows   huge amount of transfer of funds to company and vice versa.   The  assessee  in   the  B/s   shows  the  balance receivable/   payable   to   the   company   due   to   these transaction   under   the   head   of   Margin   Money. However the nature of share transaction executed by these   family   members   reveals   that   there   family members   does   not   require   to   kept   margin   Money with the Company.  Further the verification of Bank A/c of directors and their family member reveals that amount   of   Rs.11987479/­   was   deposited   in   their Bank accounts during the F.Y. 2006­07 relevant to A. Y.   2007­08   by   cash.   Out   of   Rs.11987479/­,   an amount   of   Rs.11942900/­   was   transferred   to   the assessee by cheques.   The assessee is not reporting these transaction in the financial statement.  As per the   information   available,   the   assessee   has   not disclose   fully   and   truly   the   facts   relating   to acceptance   and   repayment   of   loans   particularly where the source of these loans are the cash deposit in   the   Bank   A/c's   of   directors   and   their   family members.   Due   to   non   reporting   of   the   facts,   the assessee   tried   to   evade   the   verification   of   these Uploaded on - 21/08/2020 Downloaded on - 28/10/2026 04:18:07

ASN 4/9 WP-2595 transaction. In view of the facts I have reason to believe that the loan transaction between company and director & their family members running into crores have escaped assessment.” c) On 5 November 2012 the petitioner filed its objections to the   reasons   recorded   by   the   Assessing   Officer   for   reopening   the assessment for assessment year 2007­08. In particular, the petitioner submitted  that  as the  reopening  of  assessment  for assessment  year 2007­08 is beyond the period of 4 years from the end of the relevant assessment year, the reopening of assessment can only take place on satisfaction of two juri ictional requirement namely there must be a reason to believe that income chargeable to tax has escaped assessment and that there has   been a failure on the part of the petitioner to disclose fully and truly   all material facts necessary for its assessment. It is submitted that there was no failure on the part of the petitioner to fully and truly disclose all material facts necessary for its  assessment. Further, the petitioner pointed out that one of the reason for reopening of assessment is not disclosing in Column 24(a) and (b) of form 3CD loans taken and repayment thereof by describing them as not applicable was not sustainable.  This is so as the same applies only where  amounts received or paid in cash is in excess of the limits specified under Section 269SS and 269T of the Act which was not so in this case.  Besides the balance sheet did disclose  the  money received by the  company  under the head margin money as the same was in fact taken in the course of petitioner's business as share broker. The  petitioner made no distinction between the family members and its   constituent/customers placing orders upon it. So far as the amount of Rs.1.19 crores which was received by cheque by the petitioner from its  directors and their family Uploaded on - 21/08/2020 Downloaded on - 28/10/2026 04:18:07

ASN 5/9 WP-2595 members   was   concerned,   the   petitioner   responded   to   the   same   by stating     there   is   no   requirement   in   law   for   them   to     disclose   the transactions of   their   directors and   their   family members, in the financial statements of the petitioner­company. In view of the above, it was   requested   that   notice   dated   28   September   2012   issued   under Section 148 of  the Act be withdrawn. d) The Assessing Officer by an order   dated 30 September 2013 rejected the petitioner's objections to the grounds for reopening assessment for assessment year 2007­08 by notice  dated 28 September 2012. The order dated 30 September 2013   rejecting the objections records the fact that  an amount of Rs.1,19,42,900/­ transferred to the petitioner from its Directors and their family members is not  disclosed in the  financial statement filed by the petitioner along with its return of income. On the above ground it was held that the income chargeable to tax has escaped assessment as the petitioner had failed to disclose fully and truly all material facts necessary for assessment. 4) Mr. Tiwari, learned Counsel for the petitioner in support of the petition submits  that there has been no failure on the part of the petitioner to make a full and true disclosure necessary for its assessment for assessment year 2007­08. Consequently there was no juri iction in terms of the first proviso under Section 147 of the Act to issue notice under Section 148 of the Act to reopen the assessment for assessment year 2007­08. There has been a full and true disclosure  as it evident from the following:­ Uploaded on - 21/08/2020 Downloaded on - 28/10/2026 04:18:07

ASN 6/9 WP-2595 (i) The response of “Not applicable” in   column 24(a) and (b) of Form 3CD was   correct disclosure. The column 24(a) and (b) of Form 3CD  in the context of taking of loans/deposits or repayment of loan/deposits exceeding the specified limits   provided under Section 269 SS and 269T of the Act for being visted with penalty. The columns were not applicable to the petitioner's case; (ii) The margin money received by it from its Directors and their   family   members   have   in  fact   been  disclosed  in   its financial statement as reflected in Schedule 8 appended to the balance sheet for the year ending 31 March 2007; and (iii) So far as the loan of Rs.1,19,42,900/­ received by the petitioners  from its directors and their family members is concerned it is  submitted that the same was not a loan  but the amounts received by way of margin money. These amounts as margin money  were reflected in Schedule 8 appended to the balance sheet of the year ending 31March 2007. In view of the above, it was submitted that the reasons for reopening do not disclose a reasonable belief that income chargeable to   tax has escaped assessment. In any event,  there has been no failure on the part of the petitioner to make a full and true disclosure for the purpose of assessment. Uploaded on - 21/08/2020 Downloaded on - 28/10/2026 04:18:07

ASN 7/9 WP-2595 5) As against the above, Shri.  Suresh Kumar, learned Counsel for the revenue  seeks to sustain   the notice dated 28 September 2012 issued under Section 148  by placing reliance  on one of the reasons for reopening the assessment   i.e.   on verification of the accounts   the petitioner's directors and their family members it was revealed that an amount of Rs.1,19,42,900/­ was received by the petitioner and the same  has not been disclosed by the petitioner in its financial statement. Thus, there has been a failure on the part of the petitioner to truly and fully   disclose   all   facts   necessary   for   assessment.   It   is   this   further information which would have to be examined during the reassessment proceeding. 6) Mr. Suresh Kumar invites our attention to the petitioner's objections  dated 5 November 2012 to the grounds for reopening of the assessment.  The petitioner in its objection has not categorically stated that the amount of  Rs.1,19, 42,900/­ which the Assessing Officer calls an undisclosed  loan was in fact margin money and reflected as part of Schedule 8 to the balance sheet. It is being urged for the first time in the petition.   The response in the petitioner's objections to the above ground is   that it is not required to furnish details of the accounts of its directors and their family members in its return of income.  Therefore, it was submitted that the aforesaid reason for reopening an assessment has   gone     unchallenged   before   the   Assessing   Officer.   In     the circumstances,   the   Assessing   Officer   was   correct   in   rejecting   the petitioner's objection for reopening the assessment for assessment year 2007­08. Uploaded on - 21/08/2020 Downloaded on - 28/10/2026 04:18:07

ASN 8/9 WP-2595 7) We have considered the rival contentions. The notice dated 28 September 2012 seeks to reopen assessment beyond the period of 4 years i.e. beyond the period of four years from assessment year 2007­

ASN 9/9 WP-2595 Assessing Officer had no occasion to deal with, unless of course the notice   to   reopen   is   ex­facie     without   juri iction   not   requiring consideration of any argument such as beyond limitation. In view of the above, we find substance in the submissions on behalf of the revenue that the Assessing Officer had tangible material to come to prima facie view that income chargeable to tax  has escaped assessment. 8) It  is   very   likely  that  during   the   course  of  reassessment proceeding the petitioner would be able to satisfy the Assessing Officer that   the   amount   of   Rs.1,19,42,900/­   received   in   cheque   by   the petitioner from its directors and family members is nothing but margin money   and   stands   reflected   in   schedule   8   to   the   balance   sheet. However, this would be a subject matter of reassessment proceeding. At this   stage,   we   are   only     to   examine   whether   or   not   there   was   a reasonable belief on the part of the Assessing officer to come to a prima facie view  that the income chargeable to tax has escaped assessment. We find that no sufficient explanation was offered by the petitioner  in its objection  dated 5 November 2012 to the reasons for reopening  of assessment for assessment year 2007­08. 9) In the aforesaid circumstances, we see no reason at this stage to interfere with the notice dated 28 September 2012 issued to the petitioner under Section 148 of the Act. 10) Accordingly,  the  petition  is dismissed with no order as to costs. CHIEF JUSTICE (M.S. SANKLECHA, J.) Uploaded on - 21/08/2020 Downloaded on - 28/10/2026 04:18:07 Powered by TCPDF (www.tcpdf.org)