IN THE HIGH COURT OF JUDICATURE AT BOMBAY ORDINARY ORIGINAL CIVIL JURISDICTION WRIT PETITION NO.2581 OF 2008 Bang Securities Pvt. Ltd. 20, Sonawala Building, 25, Bank Street, Fort, Mumbai - 400 001 ..Petitioner. V/s. 1. The Assistant Commissioner of Income-tax, Central Circle 41, having its office at Room No.655, 6th floor, Aaykar Bhawan, Mumbai - 20. 2. The Commissioner of Income- tax, Central - IV, having his office at Aaykar Bhavan, Mumbai - 400 020. 3. The Union of India, through the Secretary, Department of Revenue, Ministry of Finance, North Block, New Delhi - 1. ..Respondents. Mr.S.E.Dastoor, senior Advocate i/by Mr.A.K. Jasani for the petitioner. Mr.Suresh Kumar, Advocate for the respondents. CORAM : SMT.RANJANA DESAI & J.P. DEVADHAR, JJ. JUDGMENT RESERVED ON : 9TH FEBRUARY, 2009. JUDGMENT PRONOUNCED ON : 18TH MARCH, 2009. ORAL JUDGMENT (Per J.P. Devadhar, J.) ORAL JUDGMENT (Per J.P. Devadhar, J.) ORAL JUDGMENT (Per J.P. Devadhar, J.) 1. Heard. Rule. Rule returnable forthwith. by consent of parties, the writ petition is taken up for final hearing. 2. In this petition, the petitioner has : 2 : challenged the notice issued under Section 148 of the Income Tax Act, 1961 (‘Act’ for short). By the said notice dated 27-3-2008, the assessment for assessment year 2001-02 is sought to be reopened. 3. The petitioner is carrying on business of purchase / sale of shares on behalf of its customers as a sub-broker. 4. In the assessment year 2001-02, the petitioner had inter alia entered into two transactions for purchase and sale of shares of Zee Telefilms for and on behalf of its customers viz. Camelot Enterprises Private Limited (‘Camelot’ for short) and earned speculation profit of Rs.1,32,96,106/-. Admittedly, the said speculation profit has been paid by the petitioner to Camelot and the same has been assessed to tax in the hands of Camelot. 5. On 18-12-2003, assessment for AY 2001-02 under Section 143(3) of the Act was passed by the Assessing Officer determining the loss at Rs.11,68,69,750/-. 6. By the impugned notice dated 27-3-2008, the assessment for assessment year 2001-02 is sought to be reopened by recording reasons, which read thus : : 3 : Office of the ASSTT. COMMISSIONER OF INCOME TAX, CENTRAL CIRCLE - 41, MUMBAI R.No.655, 6th flr., Aayakar Bhavan, Maharshi Karve Road, Mumbai - 400 020 Ph.: 2207 4592, 2203 9131 Extn.2655 --------------------------------------------------- No.ACIT/CC-41/Reasons-148/2008-09 --------------------------------------------------- Date : 01/09/2008. To, M/s.Bank Securities Pvt. Ltd., 20, Sonawala Building, 25 Bank Street, Fort, Mumbai. Sub:- Notice u/s.148 of the IT Act, 1961 ------ Please refer to your letters dated 28-3-2008 on the aforesaid subject. In this connection, I am forwarding herewith the reasons recorded for issuance of notice u/s.148 of the IT Act as under, which is for your information. "A survey u/s.133A of the IT Act was carried out at the business premises of the assessee on 11-1-2005 by the ADIT (Inv.)-II(3), Mumbai. The survey was conducted to verify the genuineness of share trading transactions undertaken by the assessee for M/s. Camelot Enterprises Pvt. Ltd. between 20-01-2001 to 2-2-2001, by which M/s.Camelot Enterprises Pvt. Ltd. had generated speculative profit of Rs.1,32,96,109/-. On verification of records and transactions made by the assessee, it was found that M/s.Camelot Enterprises Pvt.Ltd. had earned speculation profit on sale and purchase of shares of Zee Tele films Ltd. at Rs.1,32,96,109/- from the following two transactions with M/s.Bang Securities Pvt. Ltd. The said shares were purchased by the assessee from the brokers M/s.Nirmal Bank Securities Pvt. Ltd. and M/s.Bang Equity Pvt. Ltd. Bill No.A/045/0144 Speculation dtd. 8-2-2001 Profit Rs. 66,16,960/- Bill No.A/044/0144 Speculation : 4 : dtd. 1-2-2001 Profit Rs. 66,79,149/- ------------------ Total :- Rs. 1,32,96,109/- The charging of margin money from the client is normal practice in the share trading business, however, on verification of aforesaid transactions, it was found that M/s.Bang Securities Pvt. Ltd. had not charged any margin money from M/s.Camelot Enterprises Pvt. Ltd. It was also found that the said company had not done any other transactions with the assessee except the aforesaid two transactions despite the fact that M/s.Camelot Enterprises Pvt. Ltd. had earned substantial profit of Rs.1.32 crores in the aforesaid two transactions. It was further seen that the client code used for aforesaid transactions was "PS 035". According to the assessee PS stands for clients introduced by M/s.Palombee Securities Pvt. Ltd. Thus the transactions were made on the code allotted to M/s.Palombee Securities Pvt. Ltd. In this regard, statement of Director of M/s.Palombee Securities Pvt. Ltd., Shri Bhaskar Hingad was recorded u/s.131 of the IT Act on 14-2-2005, wherein he stated that he does not know M/s. Camelot Enterprises Pvt.Ltd. or its directors or associated persons and he has not introduced M/s. Camelot Enterprises Pvt. Ltd. to the assessee. On verification it was seen that M/s.Bang Securities Pvt. Ltd. was paying introduction fees to M/s.Palombee Securities Pvt. Ltd. in respect of clients introduced by it. However, it is seen that no introduction fees have been paid by M/s.Bang Securities Pvt. Ltd. to M/s.Palombee Securities Pvt. Ltd. in respect of introduction of M/s.Camelot Enterprises Pvt. Ltd. As a result of survey following points were noticed which proved that the transactions made by the assessee with M/s.Camelot Enterprises Pvt. Ltd. were fictitious; and thereby the assessee has transferred the profit of Rs.1,32,96,109/- arising to it to M/s.Camelot Enterprises Pvt.Ltd. (i) These are the two settlements where M/s.Camelot Enterprises Pvt. Ltd. has dealt with M/s.Bang Securities Pvt. Ltd. No transactions prior to or after the said period were there. (ii) The charging of margin money from a new client on big volumes made is a normal practice in the share trading business. However, it was found that no margin money was charged on the said transactions from : 5 : M/s.Camelot Enterprises Pvt. Ltd. (iii) M/s.Camelot Enterprises pvt. Ltd. is the only client of M/s.Bang Securities Pvt. Ltd. where such a big profit exceeding Rs.50 lacs in a particular settlement has been given. (iv) The volume of shares dealt by the sub-broker in this case was abnormally higher than the normal volume in usual business of the assessee with other clients. (v) It was unusual that in both the transactions M/s.Camelot Enterprises Pvt. Ltd. would earn only profit and no loss in any of these transactions. (vi) It was seen that no client code was allotted to M/s.Camelot Enterprises Pvt. Ltd. by M/s.Bang Securities Pvt. Ltd. The assessee has used the client code allotted to M/s.Palombee Securities Pvt. Ltd. for these transactions which is sufficient to prove that the transactions made by the assessee for M/s.Camelot Enterprises Pvt.Ltd. are non genuine. In view of the above facts, it is quite clear that the assessee has diverted the speculation profit of Rs.1,32,96,109/- arising to it to M/s.Camelot Enterprises Pvt.Ltd. The assessee has diverted the profit to a different entity. While entering in to such transactions the assessee has not followed prescribed norms and usual practice. This is a clear case of tax avoidance and the ratio fixed by the Hon’ble Supreme Court in the case of Mcdowell & Co. 154 ITR 148 is applicable in the case of the assessee. The Hon’ble Supreme Court has held that colorable devices can not be part of the tax planning and it is wrong to encourage avoidance of tax by dubious methods. Here in this case the assessee has transferred the profit arising to it to another entity by restoring to colorable devices. An order u/s.143(3) of the I.T. Act was passed in the case of the assessee on 18-12-2003 determining loss Rs.11,68,69,750/-. In view of the facts discussed above it is clear that the assessee has failed to disclose fully and truly all material facts necessary for its assessment, and the assessee has transferred the speculation profit of Rs.1,32,96,109/- in respect of aforesaid : 6 : transactions with M/s.Camelot Enterprises Pvt. Ltd. I have, therefore, reasons to believe that income for Rs.1,32,96,109/- has escaped assessment within the meaning of Section 147 of the IT Act". (V.J. Boricha) Asstt. Commissioner of Income tax, Central Circle-41, Mumbai. 7. The petitioner objected to the reopening of the above assessment, however, the same has been rejected by an order dated 4-11-2008. Therefore, the present writ petition is filed to challenge the action of the respondents in reopening the assessment for assessment year 2001-02. 8. It is well established in law that under section 147 of the Act, the assessments finalised under Section 143(3) of the Act can be reopened after the expiry of four years from the end of the relevant assessment year only if the assessing officer has reason to believe that the income chargeable to tax has escaped assessment on account of failure on the part of the assessee to disclose fully and truly all material facts relevant for that assessment year. 9. In the present case, from the reasons recorded for reopening of the assessment, it is seen that there is no material whatsoever to hold that any income chargeable to tax has escaped assessment and the entire case of the revenue is : 7 : based only on conjectures. 10. The fact that the petitioner, apart from the two transactions in question had no other transaction with Camelot would neither be a ground to hold that income chargeable to tax has escaped assessment nor a ground to hold that the petitioner has failed to disclose fully and truly all material facts. Similarly, the fact that the petitioner has not charged margin money, the fact that Camelot is the only customer of the petitioner where such huge profit is shown in a particular settlement, the fact that the volume of shares dealt by the petitioner as a sub-broker in the case in question is very high and the fact that in both these transactions there are only profits and no loss cannot be a ground to infer that income chargeable to tax has escaped assessment. 11. Moreover, from the aforesaid facts it cannot even remotely be considered that the declaration made by the petitioner was false or that the petitioner failed to disclose fully and truly all material facts as a result whereof it can be said that any income chargeable to tax has escaped assessment. In these circumstances, the reopening of the assessment after the expiry of four years from the end of relevant assessment year : 8 : cannot be sustained. 12. The argument of the revenue that the transactions between the petitioner and the Camelot is not genuine because the petitioner has not allotted the client code to Camelot is also without any merit because, from the document at page 78 of the petition, it is seen that in fact client code was allotted by the petitioner to Camelot. The fact that the client code allotted to Camelot is the client code allotted to the introducing party, viz. Palombee Securities and the fact that the director of Palombee Securities denied to have knowledge about Camelot cannot be a ground to hold that the transactions are not genuine especially when the existence of Camelot is not disputed by the revenue and in fact the amount of speculation profit paid by the petitioner has been assessed to tax in the hands of Camelot. 13. Moreover, there is nothing on record to suggest that the revenue has doubted about the existence of Camelot or that the revenue considers that the amount of speculation profit has been wrongly assessed in the hands of Camelot and that the said amount of speculation profit is liable to be assessed only in the hands of the petitioner. : 9 : 14. Strong reliance was placed by the counsel for the revenue on the decision of the Apex Court in the case of ACIT V/s. Rajesh Jhaveri Stock ACIT V/s. Rajesh Jhaveri Stock ACIT V/s. Rajesh Jhaveri Stock Brokers P. Limited Brokers P. Limited Brokers P. Limited reported in 291 ITR 500 (S.C.) 291 ITR 500 (S.C.) 291 ITR 500 (S.C.). In our opinion that decision has no application in the facts of the present case, because in that case the assessment was made under Section 143(1) and the notice under Section 148 of the Act was issued within four years from the end of the relevant assessment year. In the present case assessment was made under Section 143(3) and the notice under Section 148 of the Act is issued beyond four years from the end of relevant assessment year. Moreover, from the reasons recorded for reopening of the assessment it cannot even remotely be considered that there is any failure on the part of the assessee to disclose fully and truly all material facts. 15. In these circumstances, we are clearly of the opinion that the condition precedent for reopening the assessment beyond four years from the end of the relevant assessment year are not fulfilled in the present case. Consequently, the impugned notice dated 27-3-2008 is quashed and set aside. 16. Accordingly, the rule is made absolute with : 10 : no order as to costs. (Judge) (Judge)