Gujarat High Court
International Housing Finance ... vs Income- Tax Officer Or His Sucessor In ... on 15 April, 2014
Author: Akil Kureshi
Bench: Akil Kureshi, Sonia Gokani
C/SCA/3679/2014 ORDER
IN THE HIGH COURT OF GUJARAT AT AHMEDABAD
SPECIAL CIVIL APPLICATION NO. 3679 of 2014
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INTERNATIONAL HOUSING FINANCE CORPORATION LTD....Petitioner(s)
Versus
INCOME- TAX OFFICER OR HIS SUCESSOR IN OFFICE &
1....Respondent(s)
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Appearance:
MR RK PATEL, ADVOCATE for the Petitioner(s) No. 1
MRS MAUNA M BHATT, ADVOCATE for the Respondent(s) No. 1 - 2
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CORAM: HONOURABLE MR.JUSTICE AKIL KURESHI
and
HONOURABLE MS JUSTICE SONIA GOKANI
Date : 15/04/2014
ORAL ORDER
(PER : HONOURABLE MR.JUSTICE AKIL KURESHI)
1. Heard learned counsel for the parties for final disposal of the petition.
2. Petitioner has challenged notice dated 28.03.2013 issued by respondent No.1, Income Tax Officer under Section 148 of the Income Tax Act, 1961 ('the Act' for short). By such notice, he seeks to reopen the assessment of the petitioner for the assessment year 2006-07. The notice is thus issued beyond the period of four years from the end of the relevant assessment year.
3. The petitioner was supplied with reasons recorded by the Assessing Officer for issuing the notice which reasons read as under:
Page 1 of 12 C/SCA/3679/2014 ORDER"A search action was carried out in the case of the assessee on 04.03.2010. Subsequently, notice u/s. 153A of the Act was issued on 07.10.2010 and the assessee filed his return of income on 05.05.2011 declaring total income as Nil. The assessment u/s. 143(3) rws 153(A)(1)
(b) of the Act completed on 29.12.2011 assessing total income at Rs. Nil. On perusal of balance sheet and annexure attached with it, P/L A/c revealed that the assessee had given unsecured loan of Rs. 15,93,67,476/-
as on 01/04/2005. The outstanding loan as on 31.03.2006 was Rs. 15,92,34,359/-. Out of this loan, loan worth Rs. 10,19,19,998/- was given to related companies as interest free. However, no interest on accrual basis has been considered as income on remaining interest bearing loans of Rs. 5,73,14,361/- which is required to be charged as accrued interest under section 5(1)(b) of the Act?"
4. The petitioner raised objections under letter dated 20.11.2013. Such objections were rejected by the Assessing Officer by an order dated 30.12.2013. Hence, this petition.
5. Drawing our attention to the reasons recorded by the Assessing Officer and the materials on record, counsel for the petitioner raised following contentions:
1. There was no failure on part of the petitioner to disclose truly and fully all material facts for assessment.
Notice for reopening issued beyond period of four years from the end of relevant assessment year was, therefore, invalid.
2. During the assessment, the Assessing Officer had raised several queries with respect to loans and advances made by the petitioner, on which, interest was not charged. In response to such queries, petitioner had Page 2 of 12 C/SCA/3679/2014 ORDER made further disclosures. After considering such material as also considering the petitioner's averment that in the earlier years no disallowance was made on the ground of interest on borrowed fund, the Assessing Officer framed assessment making no further additions. Any attempt on his part now to reopen the same issue would be based on a mere change of opinion.
3. Counsel lastly contended that the notice for reopening had been issued at the behest of audit party. When such a contention was raised in the objection raised, the same was not denied. Counsel, therefore, referred to the decision of this Court in case of Fag Bearing India Ltd. vs. Deputy Commissioner of Income Tax reported in 353 ITR 405 and submitted that on this count also the notice is required to be quashed.
6. On the other hand, learned counsel, Ms. Mauna Bhatt for the department opposed the petition contending:
1. In the return filed by the petitioner he made no specific disclosure about the loans and advances to the outsiders on which, no interest was charged. Such amount came to Rs. 5.73 crores (rounded off).
Disclosures were confined to loans and advances to the sister concerns. There was no further disclosure regarding the rest of the loans where no interest was charged.
2. Even during the assessment proceedings this aspect was not placed on record by the assessee.
Page 3 of 12 C/SCA/3679/2014 ORDER3. Relying on the affidavit in reply filed by the Assessing Officer, she submitted that the Assessing Officer had recorded his reasons and issued reasons for reopening after applying his mind and being satisfied that income chargeable to tax had escaped assessment.
7. Having thus heard learned counsel for the parties, the present being a case of notice for reopening issued beyond the period of four years from the end of assessment year, it is necessary for us to examine whether the additional condition flowing from the proviso to Section 147 of the Act is satisfied. The short question therefore is, whether the income chargeable to tax had escaped assessment for the failure of the assessee to disclose fully and truly all material facts necessary for assessment. In this context, we may notice that in the return filed, the petitioner had produced a balance sheet which included reference to all the loans and advances. Even if there was some ambiguity about loans to outsiders from whom no interest was charged, the entire issue came up for consideration during assessment. Pursuant to such proceedings alongwith notice dated 07.10.2011 the Assessing Officer annexed an annexure which contains several queries for the petitioner to answer. Relevant portion of this document reads as under:
"11. Furnish complete details of all the persons from whom unsecured loan were received during the relevant financial year including squared up loan viz name and latest addresses of the persons, amount of unsecured Page 4 of 12 C/SCA/3679/2014 ORDER loan received during the year and confirmation from such creditors. Also give party wise details of interest paid ) amount and rate of interest) as such loans or advances in the following format:
Sr.No Name, Amount of Rate of Amount of Address and loan interest interest PAN
12. Give details of the sundry debtors in whose names sums exceeding Rs. 1,00,000/- each was outstanding including the accounts squared up during the year in the following format.
Sr.No Name, Opening Addition Reduction Balance Address and PAN
13. Give details of the loans, advances and deposits given including the accounts squared up during the year in the following format.
Sr.No Name, Amount of Rate of Amount of interest
Address loan interest
and PAN
State whether any money has been advanced free of interest. If so, give details and state the necessary of advancing the money. Also show cause why equivalent interest at the prevailing market rate should not be disallowed out of the gross interest expenses claimed as deduction on the ground of not having been wholly and exclusively incurred for the purpose of the business as required u/s. 37(1) of the Income Tax Act, 1961."
8. In response to such queries, the petitioner filed two replies. First one was dated 02.11.2011. In such reply, the petitioner gave details of all the companies with which the petitioner had close relations. The accounts of such concerns were also furnished. With respect to sundry debtors and loans and advances, the assessee conveyed that due to major fire in the office premises on Page 5 of 12 C/SCA/3679/2014 ORDER 19.06.1999, documents were lost and the assessee could not recover the advances given and that the details of such advances would be furnished within one week.
9. In its further reply dated 10.11.2011 in continuation of the earlier reply the assessee provided the copies of accounts of the associated concerns with directors and their family members. The assessee also supplied accounts related to loans and advances pending recovery due to loans of security documents in the fire which broke out on 19.06.1999. The precise disclosure of the assessee in this respect was as under:
"In continuation to the submissions made earlier we are submitting following further details as under:
1. Copies of accounts of associate concerns/ directors and their family members:
(a) Rajesh B Padsala. He was a director of your assessee during the period under consideration and subsequently expired on 4th June,2005.
(b) Sandip B Padsala. He was a director of your assessee in the year under consideration and continues to be a director till date.
(C) Bhikhubhai N Padsala.He was a director of your assessee in the year under consideration and continues to be a director till date.
(d) B Nanji Construction P. Ltd. This is one of the group concerns and was not active in the year under consideration.
(e) B Nanji Enterprise Ltd. This is one of the group concerns.
(f) B Nanji Finance Ltd. This is one of the group concerns and was not active in the year under consideration.Page 6 of 12 C/SCA/3679/2014 ORDER
(g) B Nanji Power Cables P. Ltd. This is one of the group concerns and was not active in the year under consideration.
(h) Samal Investments P Ltd. This is one of the group concerns and was not active in the year under consideration.
(I) Sankira Resorts P Ltd. This is one of the group concerns and was not active in the year under consideration.
(j) Nisarg Developers. This is one of the unit of B Nanji Enterprises Ltd.
(k) Subhadraben B Padsala. She is mother of Shri Sandip B Padsala.
2. Copies of accounts of creditors appearing in the books in relation to fees payable to professionals and towards listing fees payable to the Stock Exchanges etc. (I) K K Dagli and Co. This firm was auditors of your company.
(ii) Mukesh H Shah & Co. This amount is outstanding on account of professional services availed in earlier years.
(iii) Mirror Image P Ltd. This firm is engaged in printing related activites.
(iv) S F Patel & Co. This firm was auditors of your company.
(v) Sakar Sharma & Co. This firm of chartered accountants engaged in tax consultation. Amount represents amount payable to them towards services provided to your assessee.
(vi) Kamlesh M Shah & CO. This firm is engaged in providing secretarial services for compliance of provisions of Companies Act, 1956. They were paid amount towards professional consultancy provided by them.
Page 7 of 12 C/SCA/3679/2014 ORDER(vii) Patel Service. This firm is providing accounting services to your company.
(ix) Softpro Services. This firm is engaged in providing data entry related work for share records.
3. Accounts related to sundry creditors:
(I) Amola Advertising (ii) Crystal Forms P Ltd. This is opening balance
4. Accounts relating to loans and advances recovery due to loss of security documents in major fire having taken place on 19th June, 1999 leading to loss of complete data including particulars about the advances. The accounts include squared up accounts either on account of recovery or payment or on account of book entry adjustment.
(I) Abhimanu (A'bad) Owners Association
(ii) Able Finance P Ltd.
(iii) Bakulaben K Mehta
(iv) Bhartiben M Mehta
(v) Chirag M Mehta
(vi) Dhara Organisers P Ltd.
(vii) Jayprakash Patel
(viii) J K Developers
(ix) Kala Projects P Ltd
(x) Kiritkumar F Mehta
(xi) K Mehta & Co
(xii) Khodiyar Darshan Co operative Housing Society Ltd.
(xiii) Kuber Chanakya Owners Association
(xiv) Bhavin P Shah
(xv) Dipakbhai M Soni (xvi) Jayshreeben P Gandhi (xvii) Kalavatiben J Gandhi (xviii)Surbhi P Shah (xix) Sureshbhai Soni (xx) Sunil Makim (xxi) Maheshkumar F Mehta (xxii) Nitin Pranlal Modi (xxiii) Preksha (xxiv)Pujak Stone & Marble (xxv) Rajiv M Mehta (xxvi) R M Padhiar (xxvii)Ronak M Mehta Page 8 of 12 C/SCA/3679/2014 ORDER (xxviii) Rutulpark Co operative Housing Society (xxix) Shobhana D Kerlekar (xxx) Shushilaben Harishbhai Brijala (xxxi)Sonal R Kandwala (xxxii) The Stock Exchange, Mumbai (xxxiii) Vardan Builders Ltd."
10. One more reply was given by the petitioner to the Assessing officer on 19.12.2011 which was also on this issue. In which the assessee inter alia stated as under:
"1. During the course of assessment proceeding your honour has sought reasons as to why recovery has not been made in respect of loans and advances remain unrealised since many years and as to why your assessee is not charging interest on such advances.
2. In this regard it is submitted that due to major fire having taken place at the office premises of your assessee on 19th June, 1999, all records with regard to loans and advances and public deposits accepted by your assessee had been destroyed. The books of accounts for the period subsequent to the audit done prior to fire were reconstructed and written from the information available from various sources. Since security documents obtained at the time of sanction of loans and advances given to the outside parties had also been lost in the course of fire, in absence of addresses and other details your assessee could not recover such advances from these persons. As and when some advances have been recovered, the same has been accounted for in the books. Issue with regard to charging of interest came to be examined consistently in the case of your assessee in scrutiny assessments upto A.Y. 2005-06 by the Assessing Officers and after examining the facts of the case and legal position, no addition with regard to non charging of interest either from the sister concerns or from the outside parties was made. The matter for some years even traveled to the office of the Ld. CIT(A) in respect of various additions disallowances made and no adverse action was taken by the Ld. CIT(A) who is otherwise empowered to enhance the income assessed by the Assessing officer, if he feels necessary. This indicates that no addition is requires to be made on account of Page 9 of 12 C/SCA/3679/2014 ORDER none charging of interest on the loans and advances given. Since your assessee has not claimed carry forward of loss on account of interest paid on and above the interest earned, question of making any disallowance u/s. 14A is also not arising in the year under consideration.
4. Your honour would appreciate that when principal amount advanced is doubtful of recovery, no interest income is requires to be recognised for the purpose of accounting or for the purpose of computing income under the provisions of the Act. This view is supported by the decisions of Hon'ble Punjab & Haryana High Court in the case of CIT vs. Ferozpur Finance Pvt. Ltd. reported in (1980) 124 ITR 619 (Pun) SLP filed by the Department against the said decision has also been dismissed by the Supreme Court and is reported in (1983) 133 ITR (St.) 507 (SC).
5. In view of the view taken by the Assessing Officers upto A.Y 2005-06 and the view taken by the Hon'ble Tribunal and the Hon'ble High Court no addition is requires to be made on hypothetical basis in respect of the advances which have been given from the own funds or from the interest free available funds with your assessee. Needless to mention that your assessee has not claimed any deduction of interest expense on and above the interest income recognised in the books."
11. It was after such detailed questions and replies between the Assessing Officer and the assessee that the final order of assessment was passed on 29.12.2011. On this count of not charging interest on the loans and advances no addition was made. It is this issue which the Assessing Officer now desires to reopen for which the impugned notice has been issued. In our opinion the same would be wholly impermissible particularly when the notice has been issued beyond the period of four years from the end of relevant assessment year. Even if we grant the Assessing officer's contention that the return filed the petitioner left certain ambiguities as Page 10 of 12 C/SCA/3679/2014 ORDER regards loans and advances to the outsiders and the disclosures by the petitioner who are the principal with respect to the loans and advances to sister concerns which directives during the assessment the assessing officer pointed out queries on this issue. The petitioner made full disclosures of loans and advances not only to the related persons but also to the outsiders. Petitioner also questioned why no interest was charged on such loans and advances. It was the contention of the petitioner that due to fire in the year 1999 important documents were destroyed. When the recovery of the principal itself was in jeopardy charging of interest was simply not possible. Whatever be the validity on such a contention it cannot be stated that the petitioner did not make full disclosures. When the Assessing Officer at that stage had some further questions or on the basis of the answers supplied by the petitioner, he wanted to make any disallowances he could as well have done so. Certainly he could not have issued notice for reopening in this factual background after four years from the end of relevant assessment year.
12. In view of such conclusions we do not find it necessary to go into the aspect whether the notice was issued under the directives of the audit party or whether certain averment was brought to the notice of the Assessing officer who having examined the issue was convinced that income chargeable to tax had escaped assessment. We are conscious of finding distinction in law between these two situations. We would have fallen back on the original record to find out in which category Page 11 of 12 C/SCA/3679/2014 ORDER of the cases, present one would fall. In view of our conclusion on the very first aspect of the matter this additional contention of the petitioner becomes redundant.
13. In the result, impugned notice dated 28.03.2013 is quashed. Petition is allowed and disposed of accordingly.
(AKIL KURESHI, J.) (MS SONIA GOKANI, J.) Jyoti Page 12 of 12