Bhargav D. Karia, J.
1. Rule. Learned Standing Counsel Ms. Mauna Bhatt waives service of notice of rule for respondent.
2. Having regard to the controversy involved in this petition, which is in a very narrow compass, with the consent of the learned advocates for the respective parties, the same is taken up for hearing today.
3. By way of this petition, the petitioner has challenged the notice dated 29.3.2018 issued by the respondent under section 148 of the Income Tax Act, 1961 (For short "the Act, 1961") seeking to reopen the assessment of the petitioner for assessment year 2011-2012.
4. The facts stated briefly are that the petitioner filed the return of income for the assessment year 2011-2012 on 28.09.2011 disclosing loss of Rs. 1,98,14,401/-. The return was processed under section 143(1) of the Act,1961. Thereafter, by the impugned notice dated 29.3.2018, the respondent sought to reopen the assessment of the petitioner for the assessment year 2011-2012. The reasons recorded for reopening the assessment are as under :
"The return of income was filed on 28/09/2011 at Rs.Nil.The same was processed u/s.143(1) of the act on 10/11/2011.
1. This office is in receipt of information through the Office of the DDIT(Inv),Unit-3(1) Kolkata.vide his letter No.DDIT(Inv.)/Kol/NMCE/ Report/2017-18/10742 dated 12.03.2017. As per information it was observed that A survey action u/s.133A of the IT Act was conducted by the O/o Pr.DIT(Inv.), Ahmadabad at the premises of NMCE and it was found that clients/members of NMCE were found to be involved in creating artificial volume and suspected evasion of income-tax by misuse of NMCE platform. After analysis of data,85 entities as identified who had booked contrived losses. During the investigation/enquiry statements of entry operators i.e.Shri devesh Upadhyay,Shri pankaj agarwal,Shri Prakash Jajodia etc.are recorded and they accepted in the statement that these companies which are shell/paper companies which are engaged in providing accommodation entries in various forms to the beneficiaries. These entities are engaged in sub broking business, resorted to facilitate accommodation bogus loss/profits to enable beneficiaries to set off such losses against their taxable profits to reduce their tax liability. The misuse of NMCE platform carried out by these shell companies was thus used as a systematic tool for evasion of taxes.
2. As per data received, it was found that most of the trading was done through member/broker of NMCE who was penalized/suspended because they were found to be involved in artificial trading of shares by misuse of NMCE platform. These members/brokers created dummy entities which have neither filed their return of income nor shown income earned through commodities profit,to accommodate bogus loss.
3. As per data received from the o DDIT(Inv.), Unit-3(1), Kolkata, Shri BHARAT NIHALCHAND SHAH is one of the beneficiary and has entered into transaction through Counter Party Client i.e. Pinnacle commodities during the previous year relevant to the A.Y.2010-11 and booked profit of Rs.15,55,275/- by way of misuse of NMCE Platform.
4. The assessee has declared net loss of Rs.198,14,401/-under the head Loss from business other then loss from speculative business including unabsorbed depreciation allowance u/s 35(4)" in SCHEDULE CFL of the return of income. From the information as mentioned above,it is clear that the assessee has booked the profit of Rs.15,55,275/- From the information gathered, the assessee has failed to disclose these income in his return of income.
5. In view of the above, I have reason to believe that the assesee's income has escaped assessment to the tune of Rs.15,55,275/- within the meaning of clause (a) to the Explanation-2 to section 147 of the Income-tax Act,1961. I am therefore satisfied that this is a fit case for re-opening the assessment u/s.147 r.w.s.148 of the Income -tax act, 1961.
6. In view of the above, the provisions of clause (a) of Explanation 2 of the Section 147 are applicable to the facts of the case and assessment year under consideration is deemed to be a case where income chargeable to tax has escaped assessment. It is further to be mentioned that in this case more than four years have elapsed from the end of the assessment year under consideration. Hence, necessary sanction to issue the notice u/s 148 has been obtained separately from the Principal Commissioner of Income Tax-1,AHMEDABAD as per the provisions of sec 151 of the I.T.Act.
In view of the above, issue notice u/s 148 of the I T Act."
5. The respondent assessing officer provided reasons for reopening vide letter dated 8.5.2018 to the petitioner. The petitioner raised various objections and requested to drop the reassessment proceedings vide letter dated 6.10.2018. The respondent disposed of the objections vide order dated 25.10.2018. The petitioner has therefore, preferred this petition challenging the impugned notice issued under section 148 of the Act.
6. The learned advocate Mr. B.S. Soparkar for the petitioner submitted that the reasons recorded to reopen the assessment for the Assessment Year 2011-2012 are based upon the facts pertaining to the transactions relevant to the Assessment Year 2010-2011. The learned advocate Mr. Soparkar invited the attention of the Court to paragraph no.3 of the reasons recorded which refers to the transactions with one Pinnacle commodities during the previous year relevant to A.Y. 2010- 2011. It was therefore, pointed out that while in the opening part of the reasons recorded, the Assessing Officer records that the assessee had filed return of income on 28.9.2011 showing income Rs. Nil which was processed under section 143(1) of the Act on 10.11.2011 but in paragraph nos. 5 and 6, it is recorded that he has reasons to believe that the income has escaped assessment within the meaning of clause(a) to the Explanation-2 to section 147 of the Act,1961. It was submitted that clause(a) to Explanation-2 to section 147 of the Act, 1961 would be applicable when no return of income has been filed by the assessee. The learned advocate Mr. Soparkar would therefore, submit that the reasons recorded for reopening the assessment for the A.Y. 2011-2012 are without proper application of mind on the part of the Assessing Officer.
7. The learned advocate Mr. Soparkar further pointed out that the reasons have been recorded on 29.3.2018 which is the date reflected in the reasons furnished to the petitioner whereas in the Form for recording reasons for initiating the proceedings under section 148 of the Act for obtaining approval of the Additional Commissioner/Commissioner of Income-tax, the same shows date 28.3.2018 which is prior to the date of recording of the reasons. It was therefore, submitted that though the petitioner had raised such objection against reopening of the assessment, the same is brushed aside in the order rejecting the objections on the ground that discrepancies are in the nature of human error while typing which is an inadvertent mistake. It was submitted that in paragraph no. 3.14 of the order rejecting the objections, the Assessing Officer has recorded that the mistake has happened in mostly all the cases re-opened on information based and of non-filers. It was therefore, submitted that the Assessing Officer has mechanically recorded the reasons without properly appreciating the facts of the case of the petitioner.
8. The learned advocate Mr. Soparkar also invited the attention of the Court to the objections raised by the petitioner against the reopening of the assessment to point out that even on merits, the reopening of the assessment is not justified.
9. The learned advocate Mr. Soparkar submitted that the reasons recorded are erroneous inasmuch as no income has escaped assessment because the reopening of assessment for the A.Y. 2011-2012 could not have been made on the ground that the petitioner has booked profit of Rs. 15,55,275/- by way of misuse of the National Multi Commodity Exchange (for short "the NMCE")) platform for the A.Y. 2010-2011. It was therefore, submitted that the impugned notice is required to be quashed and set aside.
10. On the other hand, the learned Standing Counsel Ms. Mauna Bhatt for the Revenue at the outset submitted that the petitioner is filed at a pre-mature stage inasmuch as only notice under section 148 read with section 147 of the Act has been issued and in the event if the petitioner is aggrieved by reassessment, the petitioner has alternative efficacious remedy by way of filing appeal before the CIT(Appeals).
11. The learned counsel Ms. Bhatt submitted that during the survey under section 133A of the Act at the premises of the NMCE, it was found that the members/clients of the NMCE were involved in creating artificial volume and suspected evasion of tax by misuse of the NMCE platform. It was found that the entities were engaged in special business resorted to facilitate the accommodation entries of bogus losses or profits to enable the beneficiaries to set off such losses against their taxable profit to reduce their tax liability. It was also found that the assessee was one of such beneficiary and had entered into transaction through one Pinnacle Commodities during the Previous Year relevant to the Assessment Year 2011-2012.
12. The learned advocate Ms. Bhatt submitted that due to inadvertent error it was stated in the reasons in paragraph no.3 that it pertained to year relevant to the A.Y. 2010-2011 and in fact, it was for the previous year relevant to Assessment Year 2011-2012 and even notice under section 148 was issued for Assessment Year 2011-2012.
13. The learned advocate Ms. Bhatt further submitted that upon receipt of information, the Assessing Officer applied its mind and recorded reasons which were forwarded to Principal CIT and the reasons were recorded by the respondent on 28.3.2018 and the approval was granted by the Principal CIT on 29.3.2018 and therefore, there is no question of having obtained the approval prior to recording of the reasons. It was submitted that notice issued under section 148 is legal and valid and petition being devoid of merit, is required to be dismissed.
14. Having heard the learned advocates for the respective parties and having gone through the materials on record, the reasons recorded for reopening of the assessment year 2011-2012 clearly shows non application of mind on part of the Assessing Officer. Paragraph no.3 of the reasons recorded refers to the transactions relevant to assessment year 2010-2011 pertaining to profit of Rs.15,55,275/-. The Assessing Officer could not have issued notice for reopening of the A.Y. 2011-2012 with respect to income escaping assessment to the tune of Rs.15,55,275/- pertaining to A.Y. 2010-2011, though such mistake is accepted in the affidavit in reply being a human error while typing. However, on perusal of the reasons recorded together with the return of income and the audit report along with the balance sheet and Profit and Loss account for the Financial Year 2010- 2011 relevant to the A.Y. 2011-2012, there is no data available with regard to the transactions through the counter party i.e. Pinnacle Commodities by way of alleged misuse of the NMCE platform. In paragraph no.4 of the reasons recorded, it is mentioned that the assessee has declared net loss of Rs.1,98,14,401/- which is as per computation of total income, however there is no basis or material placed on record by the respondent to prima facie show that profit of Rs.15,55,275/- is earned by the petitioner with regard to the transactions relevant to the A.Y. 2011-12. Therefore, it cannot be said that the Assessing Officer has issued notice under section 148 of the Act, 1961 on the basis of the information received for the assessment year 2011-2012.
15. The respondent has tried to buttress the error committed in recording the reasons in the affidavit in reply by stating that there was a typing error in mentioning the assessment year in paragraph no.3 of the reasons recorded by referring to the statement of so-called entry operators recorded wherein they have accepted that 85 entities were identified through which contrived losses were booked and all the companies which were counter party clients were shell/paper companies engaged in providing accommodation entries in various firms to its beneficiaries.
16. From the averments made in the affidavit in reply filed on behalf of the respondent, it emerges that the letter dated 12.3.2017 was received from the office of the DCIT (Investigation) Unit 3(1), Kolkatta during survey action under section 133A of the Act, 1961 at the premises of the NMCE and it was found that members/client of the NMCE were found to be involved in creating artificial volume and suspected evasion of tax by misuse of the NMCE platform. However, on perusal of the said letter which is annexed at Annexure-R/1 to the affidavit in reply, it clearly states that information with respect to A.Y. 2010-11 was shared and said report is meant to disseminate the rest of data for AY 2011-12 and AY 2012-13 only. It appears that the said report is the basis for recording the reasons by the Assessing Officer to reopen the assessment for A.Y.2011- 12. There is no live link between the information received and reasons recorded so as to enable the Assessing Officer to form a reason to believe that income has escaped assessment for AY 2011-12.
17. On perusal of the material on record, it also appears that the Assessing Officer has nowhere found that how amount of Rs.15,55,275/- was earned as profit by the petitioner and the same was not offered to tax for A.Y.2011-12. Therefore, the reasons recorded are only based upon the assumption and presumption. The petitioner is engaged in trading/broking of shares/ securities/ commodities including derivatives transactions and has carried out number of transactions and earned profit as well as losses with respect to them and as per Income Tax Act, loss of Rs. 1,98,14,401/- is computed and reflected in the statement of income and after considering the materials on record, return was processed under section 143(1) of the Act, 1961. On perusal of the report at Annexure-R/1, it pertains to contrived losses claimed by the beneficiaries on the alleged modus operandi adopted by manipulative practices done at the NMCE. The Assessing Officer has failed to form his own opinion with regard to the petitioner for alleged escapement of income of Rs.15,55,275/- by merely stating that such amount pertains to profit earned for A.Y. 2011- 12 though in the reasons recorded, it is mentioned for A.Y. 2010-11. It is also pertinent to note that paragraph no. 5 and 6 of the reasons recorded refers to clause (a) to the Explanation-2 to section 147 of the Act, 1961 for assuming jurisdiction to issue notice under section 148. However on perusal of the said clause which applies to non filer of the return of income but as the petitioner has filed the return of income,
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it would not be applicable. Thus the Assessing Officer has recorded the reasons without proper application of mind. 18. The Assessing Officer has recorded reasons on 29.3.2018 as reflected in the copy of the reasons provided to the petitioner and produced on record. However, there is no reference to approval sought from the Additional Commissioner/Commissioner of Income-tax for issuance of notice under section 148 as provided in section 153 of the Act, 1961. Inspite of the fact that the petitioner raised the objections against the reopening of the assessment on the issue of approval from Additional Commissioner/ Commissioner of Income-tax, the same is brushed aside in the impugned order rejecting the objections on the ground that such discrepancy is in nature of human error while typing. In paragraph no. 3.14 of the impugned order rejecting the objections, the Assessing Officer has recorded that the mistake has happened in mostly all the cases reopened during the year because the cases were reopened on the information based and also of non-filers which depicts that the Assessing Officer has mechanically recorded the reasons without properly appreciating the facts of the case. 19. Thus, taking into consideration the reasons recorded, the Assessing Officer cannot be said to have formed the reason to believe that the income has escaped assessment. Therefore, in view of facts and circumstances of the case, the impugned notice dated 29.3.2018 issued under section 148 of the Act, 1961 cannot be sustained and is accordingly quashed and set aside. 20. The petition is disposed of. Rule is made absolute to the aforesaid extent. No order as to cost.