Gujarat High Court allows reassessment under Section 148 on the strength of fresh survey material
Background of the dispute
The matter in Amar Jewellers Ltd. Vs ACIT came before the Gujarat High Court as a writ petition under Article 226 of the Constitution of India. The assessee sought judicial review of a notice issued under Section 148 of the Income Tax Act 1961 for Assessment Year 2013-14, whereby the Assessing Officer reopened a completed assessment on the ground of alleged bogus purchases.
The assessee company, incorporated under the Companies Act 1956, is engaged in the business of trading in gold and jewellery. For the Financial Year 2012-13 corresponding to Assessment Year 2013-14, the assessee had recorded various purchases in its audited books, including transactions with a proprietorship concern named “Swastik Corporation”.
A search under Section 132 was carried out on 07.08.2013 in the cases of the Amar Group of Surat, which also covered the assessee. Pursuant to this search, proceedings under Section 153A were initiated, and the assessee filed its return under that provision on 20.10.2014, declaring income of Rs. 12,80,15,570/-. The Assessing Officer called for details of purchases exceeding Rs. 1 lakh under Section 142(1) and, after examining the information furnished, completed the assessment under Section 143(3) read with Section 153A on 28.03.2016. No addition was made in that search assessment in respect of purchases from Swastik Corporation.
Subsequently, on 28.03.2019, the Assessing Officer issued notice under Section 148, proposing to reassess the income for the same year on the foundation of new material received from Investigation Wings at Mumbai and Surat, primarily relating to Swastik Corporation and its proprietor, Shri Bijal Ashok Shah. This notice and the consequent reopening were challenged before the High Court.
Reasons recorded for reopening under Section 147/148
The recorded reasons, as reproduced in the judgment, reflect the following key elements:
Information from Investigation Wing
The Assessing Officer received intelligence from:
- Dy. Director of Income Tax (Investigation), Unit-4(2), Mumbai regarding Swastik Corporation (proprietor: Shri Bijal Ashok Shah), and
- Dy. Director of Income Tax (Investigation), Unit-2, Surat regarding M/s. A. Kumar and related concerns.
These agencies had carried out inquiries based on inputs about suspicious financial activities, indicating that certain entities were engaged in providing accommodation entries.
Survey and statement of Shri Bijal Ashok Shah
A survey under
Section 133Awas conducted on 14.01.2017 in the case of Shri Bijal Ashok Shah, proprietor of Swastik Corporation.His statement on oath was recorded, wherein he allegedly:
- Admitted to undertaking cash transactions with various parties,
- Explained a modus operandi of issuing accommodation entries in exchange for commission,
- Clarified that such transactions did not involve actual purchase or sale of goods and were only routed through accounting software, and
- Acknowledged that Swastik Corporation functioned merely as a front or paper concern for issuing such bogus bills.
Relying on this material and the investigation report, the Assessing Officer concluded that Swastik Corporation was a shell or paper entity controlled by Shri Bijal Ashok Shah for the exclusive purpose of issuing accommodation bills without corresponding physical trade.
Formation of belief regarding escapement of income
On examination of the investigation reports and statement of Shri Bijal Ashok Shah, the Assessing Officer:
- Identified that the assessee had recorded purchases from Swastik Corporation amounting to Rs. 29,94,900/- during
F.Y. 2012-13. - Treated these purchases as bogus entries, holding that they were intended to inflate expenses and thereby reduce taxable profits.
- Recorded that income to the extent of Rs. 29,94,900/- had escaped assessment within the meaning of
Section 147.
Further, since more than four years had elapsed from the end of Assessment Year 2013-14, the Assessing Officer expressly recorded that:
- The reopening was premised on the assessee’s alleged failure to fully and truly disclose all material facts necessary for the assessment, and
- The case attracted the proviso to
Section 147as well asExplanation 1thereto, on the footing that the true nature of transactions with Swastik Corporation could not have been discovered from the audited financial statements alone without the external information from the survey.
After obtaining approvals from the Addl. CIT and the Pr. CIT, the notice under Section 148 was issued.
Objections raised by the assessee
The assessee filed detailed objections to the reopening, which can be grouped as follows:
1. Challenge to reliance on statement of Shri Bijal Ashok Shah
- The assessee contended that:
- The statement of Shri Bijal Ashok Shah, recorded during survey, did not specifically state that bogus bills were issued to the assessee.
- The statement had not been supplied to the assessee despite requests, hence it could not be used against it.
- Without a direct admission relating to the assessee, the general confession of being engaged in accommodation entries could not justify treating the assessee’s purchases as bogus.