DEPUTY COMMISSIONER OF INCOME TAX (CENTRAL) CIRCLE 1(2) versus M/S. M. R. SHAH LOGISTICS PVT. LTD.

Citation: [2022] 14 S.C.R. 1078 · Decided: 28-03-2022 · Supreme Court of India · Bench: UDAY UMESH LALIT · Disposal: Appeal(s) allowed

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Judgment (excerpt)

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SUPREME COURT REPORTS
[2022] 14 S.C.R.
DEPUTY COMMISSIONER OF INCOME TAX (CENTRAL)
CIRCLE 1(2)
v.
M/S. M. R. SHAH LOGISTICS PVT. LTD.
(Civil Appeal No(s). 2453 of 2022)
MARCH 28, 2022
[UDAY UMESH LALIT AND S. RAVINDRA BHAT, JJ.]
Income Tax Act,1961– ss.147, 148, 143 – “Reasons to believe”
– Finance Act, 2016 – Chapter IX- Income Declaration Scheme
(IDS) – Search proceedings were conducted by Revenue at the office
premises of one ‘SCS’ wherein several materials and documents were
seized – Revenue was of the opinion that the assessee was also a
beneficiary of the business (of accommodation entries provided by
‘SCS’) through bogus companies – This was based on the fact that
many companies which invested amounts towards share capital on
high premiums in the assessee’s company were also controlled and
managed by ‘SCS’ – On the basis of the aforesaid opinion, the
impugned notice u/s.147/148 to re-assess the income of the assessee
for AY 2010-2011 was issued – Notice quashed by High Court – On
appeal, held: The basis for a valid re-opening of assessment should
be availability of tangible material, which can lead the AO to
scrutinize the returns for the previous assessment year in question,
to determine, whether a notice u/s.147 is called for – In the present
case, the “reasons to believe” forming part of the s.147, point to
the fact that the reopening of assessment was based on information
accessible by the AO that a substantial amount of unaccounted
income of promoters/directors was introduced in the closely held
companies of the assessee group through ‘SCS’, alleged to be a
Mumbai based accommodation entry provider- through another
accommodation entry provider based at Ahmedabad – The basis
for reopening the assessment in this case was the information from
the material seized during search in cases of ‘SCS’ and correlation
with return of income of the assessee – Further, there was no scrutiny
assessment done at the original assessment stage – Also, the
declarant was Garg Logistic Pvt Ltd and not the assessee – Facially,
s.192 affords immunity to the declarant – Therefore, the protection
given, is to the declarant, and for a limited purpose – However, the
[2022] 14 S.C.R. 1078
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High Court proceeded on the footing that such protection would
bar the revenue from scrutinizing the assessee’s return, absolutely
– The re-opening of assessment was not based on Garg Logistic’s
declaration, the fact that such an entity owned up and paid tax and
penalty on amounts which it claimed, were invested by it as share
applicant, (though the share applicants were other companies and
entities) to the assessee in the present case, cannot by any rule or
principle inure to the assessee’s advantage – High Court fell into
error in holding that the sequitur to a declaration under the IDS can
lead to immunity (from taxation) in the hands of a non-declarant –
Impugned judgment set aside.
Finance Act, 2016 – Chapter IX- Income Declaration Scheme
– Scope and effect of – Discussed.
Allowing the appeal, the Court
HELD : 1.1 The basis for a valid re-opening of assessment
should be availability of tangible material, which can lead the AO
to scrutinize the returns for the previous assessment year in
question, to determine, whether a notice under Section 147 is
called for. In the present case, the basis for reopening of
assessment was not that Garg Logistics Pvt Ltd had declared ¹
6,36,00,000/- as undisclosed cash utilized for investment in the
assessee’s share capital. The assessee’s contention that
reopening was done based on the disclosure made by Garg
Logistics is therefore, not correct. The original assessment was
not completed after scrutiny, but was under Section 143 (1) of
the Act. The status of such assessment –is essentially weak. Thus,
in the present case, the returns filed by the assessee were not
examined, or scrutinized; only an intimation that it was filed, was
issued by the AO. The “reasons to believe” forming part of the
Section 147- in this case, clearly point to the fact that the
reopening of assessment was based on information accessible by
the AO that a substantial amount of unaccounted income of
promoters/directors was introduced in the closely held companies
of the assessee group through Shirish Chandrakant Shah, alleged
to be a Mumbai based accommodation entry provider- through
Pradeep Birewar, another accommodation entry provider based
at Ahmedabad. During the course of search at the offi

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