Subject: M/s. Century Metal Recycling Private Limited [hereafter “CMR”]. A survey was taken of CMR on 26.03.2015.
Referred Sections:
Section 143(3) of the Income Tax Act, 1961Section 147 of I.T Act.
Section 147 of the Act.
Section 147 of the Act for A.Y2012-13.
Section 148 of the Income Tax 1961
* IN THE HIGH COURT OF DELHI AT NEW DELHI
Decided on: 09.04.2019
+ W.P.(C) 11736/2018, C.M. APPL.45395-45396/2018
+ W.P.(C) 12546/2018, C.M. APPL.48699-48700/2018
SANJIVANI NON-FERROUS TRADING PVT. LTD.
..... Petitioner
Versus
INCOME TAX OFFICER WARD 22(3) NEW DELHI
..... Respondent
Through : Sh. Rajesh Mahna, Sh. Manu. K.
Giri and Sh. Ramanand Roy, Advocates, for
petitioner.
Sh. Zoheb Hossain, Sr. Standing Counsel
with Sh. Vivek Gurnani, Advocate, for
respondent.
CORAM:
HON'BLE MR. JUSTICE S. RAVINDRA BHAT
HON'BLE MR. JUSTICE PRATEEK JALAN
MR. JUSTICE S. RAVINDRA BHAT (OPEN COURT)
%
1. The petitioner challenges the reopening of the assessment for AYs
2011-12 and 2012-13 through orders dated 31.03.2018. In both the cases,
the assessments were originally completed under Section 143(3) of the
Income Tax Act, 1961 [hereafter "the Act"].
2. The petitioner is a subsidiary of M/s. Century Metal Recycling Private
Limited [hereafter "CMR"]. A survey was taken of CMR on 26.03.2015.
The survey report led to the issuance of the reassessment notices in the
present case. The rationale for the reassessment in both the cases is identical.
The extract of one of the "reasons to believe" involved for AY 2012-13 is
W.P.(C) 11736/2018 & 12546/2018 Page 1 of 7
as follows:
"2.3 During the course of survey operation, it has been
observed that CMR purchase their maximum raw material from
its subsidiary company M/s. Sanjivani Non Ferrous Trading
Pvt. Ltd. The perusal of the financials of the said company
revealed the fact that the company showing lower profits despite
huge turnover. A tabular chart showing year-wise turnover and
profit declared by M/s Sanjivani Non Ferrous Pvt. Ltd is shown
as under:
Assessment Year Turnover Rs. Profits (Rs. In
In crores Lakhs)
2013-14 700 29.22
2012-13 597 30.73
2011-12 501 29.71
During the course of survey operation, various incriminating
documents were found and impounded which clearly shows that
the said company has been used to raised bogus purchases in
CMR. Annexure-1 containing Printed pages 2851-2900 i.e.
Pages 1 to 194 consists bill book of Khushkera Mini Truck
Operator Union, Honda Chowk near Sunbeem Company,
Industrial Area, Khushkhera, Tapukara, Distt. Alwar (Raj.) was
found at the entry gate of premises situated at 182, Sector-5,
Manesar (Gurgaon).
XXXXXX XXXXXX XXXXXX
2.6 Contemporaneously, statement of Sh. Viral Shah,
Assistant Manager (Finance & Accounts) in CMR was also
recorded wherein he has been confronted with the same facts. In
his reply he has stated that he has no account in the name of
Khushkhera Mini Truck Operator Union in the books of
accounts of CMR and he had never heard the name of this
transporter.
W.P.(C) 11736/2018 & 12546/2018 Page 2 of 7
Thus, it is established beyond of any doubt that the assessee is
factually involved in procuring bogus bills from its subsidiary
company M/s. Sanjivani Non Ferrous Trading Pvt. Ltd.
XXXXXX XXXXXX XXXXXX
5. Findings of the A.O:
In the light of above discussion, it is apparent that the
assessee company has made bogus sales amounting to
Rs.5,97,36,46,243/- crore to it associate concern M/s CMR
which is apparent from the discussion in above paras. On
perusal of the ITR filed by the assessee it has been observed that
against the total sales of Rs.5,97,36,46,243 the assessee has
declared net profit of Rs. 33,12,137 (0.05%). As the assessee
has indulged in the activity of bogus sales taking the NP. rate to
be 1.5 of the sales the income escaping assessment, would be
Rs.8,96,04,693 (1.5% of sales turnover of Rs. 5,97,36,46,243).
The case of the company is squarely covered under explanation
1 of section 147 of I.T Act. The requisite full and true disclosure
of all material facts necessary for assessment has not been
made available by the company. The requisite material facts as
noted above in the reasons for reopening were embedded in
such a manner that material evidence could not be verified by
the AO from the return of income and could have been
discovered with due diligence, accordingly attracting provisions
of Explanation 1 of section 147 of the Act.
6. Basis of forming reason to believe and details of
escapement of income
As mentioned in para 5 above the assessee company has
made bogus sales amounting to Rs. 5,97,36,46,243 in the A.Y
2011-12. Therefore I have reason to believe that the income of
Rs. 8,62,92,556 (1.5% of sales turnover of Rs. 5,97,36,46,243
less profit already declared Rs.33,12,137) escaped assessment
as defined by section 147 of the Act for A.Y2012-13.
The income chargeable to tax has escaped assessment for this
year by the reasons of the failure on the part of the assessee to
W.P.(C) 11736/2018 & 12546/2018 Page 3 of 7
disclose fully and truly all material facts. Therefore it is a fit
case for the issuance of notice u/s 148 of the Act for AV 2012-
13."
3. It is argued by Sh. Rajesh Mahna, learned counsel, that the nature of
scrutiny orders for the relevant years clearly show that the Assessing Officer
(AO) took into account the same questions which the Revenue seems to have
agitated, which has triggered the reassessment notices. He relies upon the
scrutiny assessment orders dated 05.03.2014 and 31.03.2014. Both these
orders were concededly made under Section 143(3) of the Act. It is
contended that the Revenue's reasoning virtually amounts to a second
opinion or review of the final scrutiny assessment for both years. Learned
counsel emphasises that what materials were gone into by the AO were
borne from documents produced along with the writ petitions, which
includes copies of the invoices and other supporting documents to
substantiate the petitioner's claim for valid sale to CMR. Learned counsel
highlighted that the goods were procured on a wholesale basis, cleared by
the petitioner and thereafter sold to CMR, its group company. It was also
submitted that the invoices which were allegedly raised were undoubtedly
carefully gone into by the AO in the previous scrutiny assessment years and
had also passed muster by the superior authority, i.e. the Commissioner.
4. It is evident from the above discussion that the trigger for the
reassessment notice in this case was a survey conducted in the premises of
CMR. The AO became aware of this survey report when the investigation
wing through a letter dated 19.03.2018 shared a copy of it with him. Besides
extracting the turnover for three years and the disproportionately low profits
declared, the reassessment notice also alludes to several incriminating
W.P.(C) 11736/2018 & 12546/2018 Page 4 of 7
documents pointing to suspect nature of sale and which the petitioner had
declared.
5. The reassessment notices talk about the statements of two employees
and officials of CMR who were completely unaware and disclosed no
knowledge about the invoices raised upon the transporter, or even its
existence. According to the documents filed, the transporter was responsible
for transporting goods to CMR from the petitioner. Undoubtedly, the
assessee is under a responsibility to disclose all relevant material.
Conversely, the AO cannot lightly order reassessment unless the discovery is
not true or not full in the sense of the material facts [refer Calcutta Discount
Co. Ltd. v. Income Tax Officer 41 ITR 191]. Likewise, the decision in CIT v.
Kelvinator of India Ltd. 320 ITR 561 is also significant in that it directs that
an AO cannot validly invoke the power of reassessing concluded assessment
order unless tangible material is available, i.e. outside of the record or unless
that official becomes aware that material facts were withheld in the course of
the original assessment. In Ms. Phool Chand Bajrang Lal and Anr. v. Income
Tax Officer and Anr. 1993 (4) SCC 77, the question as to the bonafides
disclosed or materials brought on record in the concluded assessment was in
issue. The Supreme Court held as follows:
"25. From a combined review of the judgments of this Court, it
follows that an Income-tax Officer acquires jurisdiction to
reopen assessment under Section 147(a) read with Section
148 of the Income Tax 1961 only if on the basis of specific,
reliable and relevant information coming to his possession
subsequently, he has reasons which he must record, to believe
that by reason of omission or failure on the part of the assessee
to make a true and full disclosure of all material facts necessary
for his assessment during the concluded assessment
W.P.(C) 11736/2018 & 12546/2018 Page 5 of 7
proceedings, any part of his income, profit or gains chargeable
to income tax has escaped assessment. He may start
reassessment proceedings either because some fresh facts come
to light which were not previously disclosed or some
information with regard to the facts previously disclosed comes
into his possession which tends to expose the untruthfulness of
those facts. In such situations, it is not a case of mere change of
opinion or the drawing of a different inference from the same
facts as were earlier available but acting on fresh information.
Since, the belief is that of the Income-tax Officer, the sufficiency
of reasons for forming the belief, is not for the Court to judge
but it is open to an assessee to establish that there in fact existed
no belief or that the belief was not at all a bona fide one or was
based on vague, irrelevant and non-specific information. To
that limited extent, the Court may look into the conclusion
arrived at by the Income-tax Officer and examine whether there
was any material available on the record from which the
requisite belief could be formed by the Income-tax Officer and
further whether that material had any rational connection or a
live link for the formation of the requisite belief. It would be
immaterial whether the Income-tax Officer at the time of making
the original assessment could or, could not have found by
further enquiry or investigation, whether the transaction was
genuine or not, if one the basis of subsequent information, the
Income-tax Officer arrives at a conclusion, after satisfying the
twin conditions prescribed in Section 147(a) of the Act, that the
assessee had not made a full and true disclosure of the material
facts at the time of original assessment and therefore income
chargeable to tax had escaped assessment. The High Courts
which have interpreted Burlop Dealer's case (Supra) as laying
down law to the contrary fell in error and did not appreciate the
import of that judgment correctly."
6. In the present case, the materials on record and made available to the
AO are in the form of a survey report dated 26.03.2015, i.e. after conclusion
of the scrutiny assessments for both years, and the relative records were
shared with the AO only on 19.03.2018.
W.P.(C) 11736/2018 & 12546/2018 Page 6 of 7
7. Given the time constraint after analysing the report of the survey,
including the statement recorded during the survey, the AO was of the
opinion that the issue of profitability which appears to be gone into, requires
re-examination not because of a second opinion or review but because of the
survey conducted subsequently. The materials clearly showed that the sales
declared were suspect, to say the least. For the above reasons, the Court is of
the opinion that the relief claimed in these petitions, i.e. quashing of the
impugned reassessment notice cannot be granted. The writ petitions are
accordingly dismissed.
S. RAVINDRA BHAT
(JUDGE)
PRATEEK JALAN
(JUDGE)
APRIL 9, 2019
W.P.(C) 11736/2018 & 12546/2018 Page 7 of 7
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