Gujarat High Court
P C Snehal Engineers Private Limited vs Assistant Commissioner Of Income Tax ... on 16 December, 2022
Author: N.V.Anjaria
Bench: N.V.Anjaria, Bhargav D. Karia
C/SCA/16885/2018 CAV JUDGMENT DATED: 16/12/2022
IN THE HIGH COURT OF GUJARAT AT AHMEDABAD
R/SPECIAL CIVIL APPLICATION NO. 16885 of 2018
FOR APPROVAL AND SIGNATURE:
HONOURABLE MR. JUSTICE N.V.ANJARIA
and
HONOURABLE MR. JUSTICE BHARGAV D. KARIA
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1 Whether Reporters of Local Papers may be allowed
to see the judgment ?
2 To be referred to the Reporter or not ?
3 Whether their Lordships wish to see the fair copy
of the judgment ?
4 Whether this case involves a substantial question
of law as to the interpretation of the Constitution
of India or any order made thereunder ?
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P C SNEHAL ENGINEERS PRIVATE LIMITED
Versus
ASSISTANT COMMISSIONER OF INCOME TAX CIRCLE 3(1)(1)
==========================================================
Appearance:
MR MANISH J SHAH(1320) for the Petitioner(s) No. 1
MR MR BHATT, SENIOR ADVOCATE FOR MR BHATT & CO. for the
Respondent(s) No. 1
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CORAM:HONOURABLE MR. JUSTICE N.V.ANJARIA
and
HONOURABLE MR. JUSTICE BHARGAV D. KARIA
Date : 16/12/2022
CAV JUDGMENT
Page 1 of 35
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C/SCA/16885/2018 CAV JUDGMENT DATED: 16/12/2022 (PER : HONOURABLE MR. JUSTICE BHARGAV D. KARIA)
1.Heard learned advocate Mr. Manish J. Shah for the petitioner and learned Senior Advocate Mr. M.R. Bhatt for M.R. Bhatt and Co. for the respondent.
2.By this petition under Article 226 of the Constitution of India, the petitioner has challenged the notice dated 13.03.2018 issued under section 148 of the Income Tax Act, 1961 (For short "the Act") for reopening of the assessment proceedings for the Assessment Year 2011-2012 and also challenged the order dated 3.10.2018 disposing of the objections raised by the petitioner against the notice for reopening.
3.Brief facts of the case are as under :
3.1) The petitioner is private limited Page 2 of 35 Downloaded on : Sat Dec 24 03:44:47 IST 2022 C/SCA/16885/2018 CAV JUDGMENT DATED: 16/12/2022 company and is engaged in business of construction and engineering.
3.2) For the Assessment Year 2011-2012, the petitioner submitted e-return of income declaring total income of Rs.2,61,86,720/-.
3.3) The petitioner received a notice under section 142(1) of the Act dated 3.12.2012 calling for certain details which included details of scrutiny assessments of last three years and whether the petitioner is in appeal against the same and whether appeal has been decided and its status of demand.
3.4) The petitioner received another notice under section 143(2) of the Act dated 27.12.2012 seeking further details.
3.5) The petitioner submitted its reply Page 3 of 35 Downloaded on : Sat Dec 24 03:44:47 IST 2022 C/SCA/16885/2018 CAV JUDGMENT DATED: 16/12/2022 dated 9.01.2013 and submitted copy of company's audit report and tax audit report as well as copies of previous three years' assessment orders and also clarified that the petitioner had preferred appeal against the order for Assessment Year 2009-2010 before the CIT(Appeals) which was pending.
3.6) The respondent thereafter issued notice under section 142(1) of the Act dated 28.06.2013 wherein once again the petitioner was required to submit assessment orders for Assessment Years 2008-2009, 2009-2010 and 2010-2011, if they were selected for scrutiny. Other details were also asked for.
3.7) In response to the said notice under section 142(1) of the Act, the petitioner vide letter dated 6.08.2013 gave a detailed reply to the queries raised by the Assessing Officer.Page 4 of 35 Downloaded on : Sat Dec 24 03:44:47 IST 2022
C/SCA/16885/2018 CAV JUDGMENT DATED: 16/12/2022 3.8) It is the case of the petitioner that in one of the appearances before the Assessing Officer, the petitioner submitted a copy of order of CIT (Appeals) dated 9.05.2013 in its own case for the Assessment Year 2009-2010 wherein the issue of disallowance of interest payment made to entities specified under section 40A(2)(b) of the Act was considered and allowed and the issue under section 14A was also considered. 3.9) The petitioner thereafter submitted its written submissions dated 19.02.2014 and provided the information that was called for by the respondent with regard to Guarantee Commission and details regarding investment in mutual funds, which is taken as tax free income under section 14A of the Act. The petitioner also submitted a further detailed written submission dated 5.03.2014. Page 5 of 35 Downloaded on : Sat Dec 24 03:44:47 IST 2022 C/SCA/16885/2018 CAV JUDGMENT DATED: 16/12/2022 3.10) It is the case of the petitioner that after thorough scrutiny of all issues, the respondent passed the assessment order under section 143(3) of the Act dated 6.03.2014 disallowing an amount of Rs.75,000/- under section 14A being dividend from cooperative bank.
3.11) The petitioner thereafter received notice under section 148 of the Act dated 13.03.2018 requiring the petitioner to file return within 30 days from service of the said notice.
3.12) The petitioner vide letter dated 11.06.2018 filed its return in response to the notice under section 148 of the Act and also requested the respondent for copy of the reasons recorded.
Page 6 of 35 Downloaded on : Sat Dec 24 03:44:47 IST 2022 C/SCA/16885/2018 CAV JUDGMENT DATED: 16/12/2022 3.13) The respondent vide letter dated 04.07.2018 supplied the copy of reasons for reopening the assessment under section 147 of the Act for the Assessment Year 2011-2012. The reasons recorded by the Assessing Officer for reopening the assessment under section 147 of the Act read as under :
"Reasons for Re-opening Assessment w/s. 147 of the 1.T.Act, 1961
1. The assessee company had filed return of income for A.Y. 2011-12 on 29.07.2011 declaring income of Rs. 2,61,86,720/- The same was assessed u/s. 143(3) and income was determined at Rs.2,62,61,720 vide order dated 06.03.2014.
2. During the F.Y. 2010-11 relevant to A.Y. 2011-12, the assessee has paid Rs.27,26,230 to 6 entities (Bhargav Desai, HUF: 5,85,500, Anuja B. Desai Rs.5,82,500 Rs.5,82,500, Harshal K. Patel HUF: Rs.5,82,500, Ratnakala H Patel: 5,82,500, Mahesh Desai:
Rs,98,000 & Moti Hira Land Developers Pvt. Ltd.:2,98,230) towards guarantee commission. Out of this payment, Rs.23,30,000 paid to first four entities were related persons as reported in annexure-2 of 3 CD report. The assessee company has deducted 10% TDS on this commission. The total guarantee commission is paid @2% of turnover amongst the entire guarantors Page 7 of 35 Downloaded on : Sat Dec 24 03:44:47 IST 2022 C/SCA/16885/2018 CAV JUDGMENT DATED: 16/12/2022 in equal amount.
2.1. As per memorandum of understanding signed between assessee company and Moti Hira land Developers Pvt. Ltd. It was noticed that the memorandum was signed undated and without signature of any witness. The stamp of Rs. 100 embossed on the agreement born the date of 16.04.2010 indicating that it was executed on or after that date.
Further, no agreement is on record in respect of guarantee commission payment made to other entities. The details of properties which were offered by these entities and proof that it were subsequently mortgaged with bank for loan taken by the assessee company is not on record. It is also noticed from the details of secured loan from banks and institution furnished by assessee that it had taken secured loan from three bank/institution as detailed below:
1. The Kalupur Commercial Co-op. Bank Ltd: Cash credit against Bank FD: Rs.50 lakh limit.
2. Kotak Mahindra Bank: Motor Car Loan:
Rs. 40 lakh,
3. Tata Capital Motors: Motors Car Loan: Rs. 16.75 lakh 2.3. Further, merely deduction of tax at source does not establish that expenditure was related to the business of assessee. Under the above circumstances, the payment of guarantee commission of Rs.27,26,230 to six entities has escaped assessment.
3. The assessee has paid interest at Page 8 of 35 Downloaded on : Sat Dec 24 03:44:47 IST 2022 C/SCA/16885/2018 CAV JUDGMENT DATED: 16/12/2022 the rate of 12%, 15% and 18% on unsecured loans from certain parties.
All the loans were taken from persons covered w/s. 40(A)(2)(b) of the Act. It indicated that assessee has access to funds @ 12% hence there can be no justification for paying higher rate of interest. A reasonable rate of interest for payment of unsecured loan would have been 12% as assessee had itself paid interest at this rate to unsecured lenders. Accordingly, excess payment of interest @ 6% (18% 0 12%) and 3% (15% - 12%) is computed as under:-
Sr. Name of Lender Interest Rate of Excess No. Paid Interest payment in excess of 12% 1 Bhargav H. Desai 119962 15 2 Harshad K. Patel 172284 15 3 Deepak J. 33000 15 Jaising 4 P.C. Snehal 106802 15 86409 Construction Co. 432028 5 Chirag M. Patel 8357 18 6 Snehal M. Patel 8534 18 7 Chiranjiv C. 50228 18 Patel 8 Dhiraj S. Patel 52152 18 9 Daksha C. Patel 129020 18 10 Asha S. Patel 104346 18 11 Samrat S. Patel 11400 18 12 Chirag M. 171961 18 Patel(HUF) 13 Snehal M Patel 82407 18 (HUF) 14 Hemant C. Patel 74120 18 15 Purva C. Patel 287530 18 16 Ranjanben M. 169279 18 Page 9 of 35 Downloaded on : Sat Dec 24 03:44:47 IST 2022 C/SCA/16885/2018 CAV JUDGMENT DATED: 16/12/2022 Patel 17 Ratna H. Patel 34353 18 18 Shailkrupa 74985 18 Trading & Investment Pvt.
Ltd.
19 Vandana D. 22200 18
Jaising
1280872 426957
Total excess 513366
payment
Under the circumstances, an amount of Rs.5, 13.366/- has escaped assessment.
3. The assessee company is having huge investment in shares and secures which derives exempt income. Therefore the disallowance w/s.14A should be made. The disallowance u/s. 144 works out to Rs.3,67,488/- and have escaped assessment.
4. In respect of income reconciliation as per 26AS and books of account revealed that the assessee had shown work contract income of Rs.33,54,39,765 and income declared in IT survey of Rs.2,33,00,000 totalling to Rs.35,87,39,765 as income from works contract. The assessee had made disclosure of Rs.2,33,00,000 during the survey dated 06.01.2011 on account of work-in-progress and inadequate explanation of expenditure. It is noticed from income reconciliation as per 26AS that the assessee has total construction income from P.C. Snehal Construction Pvt. Ltd., of Rs.35,28,19,625 during A.Y.2011-12. Against this, assessee has shown only Rs.33,54,39,765 as contract income. Page 10 of 35 Downloaded on : Sat Dec 24 03:44:47 IST 2022 C/SCA/16885/2018 CAV JUDGMENT DATED: 16/12/2022 Therefore the difference of Rs.
1,73,79,860 (35,28,19,625 33,54,39,765) has escaped assessment.
3. In view of the above, income to the tune of Rs.2,09,86,944/-( 27,26,230 5,13,366 + 3,67,488+1,73,79,860) has escaped assessment within the meaning of section 147 of I.T. Act, 1961.
Therefore, I have reason to believe that income has escaped assessment for A.Y. 2011-12 to the tune of Rs.2,09,86,944/- and accordingly assessment is required to be reopened w/s. 147 of the I.T. Act, 1961,"
3.14) The petitioner filed objections dated 20.09.2018 against the issuance of notice for reopening the assessment.
3.15) Respondent vide order dated 3.10.2018 rejected the objections raised by the petitioner against reopening the assessment. The petitioner thereafter received notice dated 12.10.2018.
3.16) Being aggrieved by the action of the respondent, the petitioner has preferred this petition.Page 11 of 35 Downloaded on : Sat Dec 24 03:44:47 IST 2022
C/SCA/16885/2018 CAV JUDGMENT DATED: 16/12/2022
4.Learned advocate Mr. Manish Shah for the petitioner submitted that the assessee has declared and filed correct income tax return for the Assessment Year 2011-2012 under section 148 of the Act and there is no escapement of income.
4.1) It was submitted that all the reasons recorded in writing for issuance of the notice under section 148 of the Act for the Assessment Year 2011-2012 for reassessment were discussed in length during the course of assessment proceedings under section 143(3) of the Act and the petitioner had submitted detailed replies during such assessment proceeding and the Assessing Officer after being satisfied and after application of mind had passed the assessment order under section 143(3) of the Act without making any addition. Therefore, issuance of Page 12 of 35 Downloaded on : Sat Dec 24 03:44:47 IST 2022 C/SCA/16885/2018 CAV JUDGMENT DATED: 16/12/2022 notice for reopening is nothing but a change of opinion by the Assessing Officer which is not permissible as per the provisions of the Act.
4.2) It was submitted that the Assessing Officer has initiated reassessment proceedings under section 147 for the Assessment Year 2011-2012 after expiry of four years which is not permissible as first proviso to section 147 of the Act clearly lays down an exception whereby the Assessing Officer is not permitted to exercise his jurisdiction for reopening the assessment beyond a period of four years from the end of relevant assessment year.
4.3) Learned advocate Mr. Shah submitted that the Assessing Officer has not mentioned in the reasons recorded that the assessee has failed to make full and true disclosure of Page 13 of 35 Downloaded on : Sat Dec 24 03:44:47 IST 2022 C/SCA/16885/2018 CAV JUDGMENT DATED: 16/12/2022 material facts. It was submitted that notice under section 148 of the Act issued beyond a period of four years is barred by limitation under proviso to section 147 and hence the same is without jurisdiction.
4.4) Learned Advocate Mr. Shah submitted that the Assessing Officer has issued notice under section 148 for reopening the assessment for the Assessment Year 2011-2012 mainly on four reasons. With regard to payment of Guarantee Commission of Rs. 27,26,230/- to six entities, the petitioner had in the course of assessment proceedings in its replies dated 5.11.2012, 5.03.2014 and 19.02.2014 produced the details of secured loans taken from banks and institutions, details of Guarantee Commission and also the individual details about the name of person, amount of guarantee commission and nature of payment along with copy of Agreement of Page 14 of 35 Downloaded on : Sat Dec 24 03:44:47 IST 2022 C/SCA/16885/2018 CAV JUDGMENT DATED: 16/12/2022 Guarantee Commission expenses. It was submitted that the Assessing Officer after being satisfied with such details and after application of mind passed the assessment order under section 143(3) of the Act without making any addition towards Guarantee Commission expenses. It was submitted that the Assessing Officer has not unearthed any fresh tangible material on record to prove that the assessee company has failed to disclose truly and fully material facts necessary for assessment.
4.5) With regard to payment of excess interest over 12% of Rs. 5,13,366/-, it was submitted that the Commissioner of Appeals- XI, Ahmedabad in case of the assessee company for the previous Assessment years 2009-2010 and 2010-2011 has allowed the contention of the assessee and passed the order deleting the disallowance of interest under section Page 15 of 35 Downloaded on : Sat Dec 24 03:44:47 IST 2022 C/SCA/16885/2018 CAV JUDGMENT DATED: 16/12/2022 40A(2)(b) in excess of 12% and 15% and the appeal filed by the Revenue against the very same issue was also dismissed. It was submitted that the assessee has taken unsecured loans from Directors, relatives and also from outsider persons not covered under section 40A(2)(b) of the Act and the assessee has claimed total interest expenses of Rs. 1,09,42,951/-. However, the Assessing Officer has arrived at a wrong figure while calculating the interest amount. Therefore, also the notice issued under section 148 should he held to be void and should be set aside.
4.6) With regard to disallowance under section 14A of the Act of Rs.3,67,488/-, it was submitted that during the course of assessment proceedings in its replies dated 5.11.2012, 19.02.2014 and 5.03.2014 the petitioner had submitted list of investments Page 16 of 35 Downloaded on : Sat Dec 24 03:44:47 IST 2022 C/SCA/16885/2018 CAV JUDGMENT DATED: 16/12/2022 yielding tax free income, details regarding investment in mutual fund which is taken as tax free income under section 14A and details of investment in mutual fund and shares and others was also provided. It was submitted that the issue of disallowance under section 14A of the Act was discussed during the course of previous assessment year's assessment proceedings for the financial year 2009-2010 and the submission of the assessee was accepted and no additions under section 14A was made for the Assessment year 2010- 2011. It was submitted that the petitioner had submitted during the course of assessment proceedings that section 14A is not attracted in case of the assessee company and after being satisfied with such submission, the Assessing Officer passed the assessment order, which issue is now sought to be reopened by issuing notice under section 148 of the Act for reopening the assessment.
Page 17 of 35 Downloaded on : Sat Dec 24 03:44:47 IST 2022 C/SCA/16885/2018 CAV JUDGMENT DATED: 16/12/2022 4.7) With regard to disallowance on account of difference in income reconciliation of 26AS Statement with the books of account amounting to Rs.1,73,79,860/-, it was submitted the petitioner had vide reply dated 6.08.2013 during the course of original assessment proceedings submitted statement showing
project wise reconciliation between 26AS and Books of Accounts. It was submitted that the differences were explained at length during the course of assessment proceedings and the Assessing Officer after being satisfied with such explanation thought it fit not to make any addition on account of income difference in 26AS statement and books of account. 4.8) Learned advocate Mr. Shah submitted that reopening is based on audit objections and therefore, also the notice of re- Page 18 of 35 Downloaded on : Sat Dec 24 03:44:47 IST 2022 C/SCA/16885/2018 CAV JUDGMENT DATED: 16/12/2022 assessment of a previously scrutinized assessment beyond a period of four years is bad in law and therefore, the impugned notice and consequential orders may be quashed and set aside.
4.9) In support of his contention that reopening of an already completed scrutiny assessment beyond a period of four years cannot be undertaken, reliance was placed on the following decisions of this Court:
1) In case of Kalpataru Sthapatya (P) Ltd.
v. Income tax Officer, Ward 1(3) reported in (20130 29 taxmann.com 218 Gujarat.
2) In case of Dhruv Dipakbhai Panchal v. Income Tax Officer Ward 5(2)(2) reported in (2018) 93 taxmann.com 206 (Gujarat). 4.10) It was submitted that there is Page 19 of 35 Downloaded on : Sat Dec 24 03:44:47 IST 2022 C/SCA/16885/2018 CAV JUDGMENT DATED: 16/12/2022 nothing stated in the reasons recorded or from the material on record which suggest that the assessee failed to disclose truly and fully all material facts. Therefore, now to propose reassessment on the very same issues would amount to proposing reassessment on a mere change of opinion which is not permissible in law as has been laid down by the Apex Court in case of CIT v. Kelvinator of India Ltd. reported in (2010) 320 ITR 561.
5.On the other hand, learned Senior Advocate Mr. M.R. Bhatt for the respondent at the outset submitted that the petition is filed at a premature stage inasmuch as only notice under section 148 read with section 147 of the Act has been issued and in the event, the petitioner is aggrieved by reassessment, the petitioner has alternative efficacious remedy by way of an appeal before the CIT(Appeals) and thereafter before the Tribunal. Page 20 of 35 Downloaded on : Sat Dec 24 03:44:47 IST 2022 C/SCA/16885/2018 CAV JUDGMENT DATED: 16/12/2022 5.1) Learned Senior Advocate Mr. Bhatt submitted that reopening is primarily on four grounds. The first ground of reopening is that the petitioner had paid Rs.27,26,230/- to six entities/individuals towards guarantee commission referred in the reasons recorded. The petitioner had deducted 10% TDS on such commission. The total guarantee commission was paid at 2% of turnover amongst all guarantors in equal amount. It was submitted that the reasons recorded by the Assessing Officer clearly reveal that no agreement was produced by the assessee in respect of guarantee commission payment made to the five entities/individuals except Moti Hira Land Developers Private Limited. It was submitted that the details of properties offered by these entities/individuals and the proof that it was subsequently mortgaged with the Bank for loan taken by the petitioner Company was Page 21 of 35 Downloaded on : Sat Dec 24 03:44:47 IST 2022 C/SCA/16885/2018 CAV JUDGMENT DATED: 16/12/2022 also not produced on record. The Assessing Officer, therefore, formed a rational belief that income chargeable to tax has escaped assessment on account of failure on the part of the petitioner to disclose fully and truly all material facts necessary for assessment. 5.2) Learned Senior Advocate Mr. Bhatt submitted that it is a settled position of law that the onus is on the assessee to disclose all primary facts necessary for assessment and it is up to the Assessing Officer to draw inference on such primary facts. In support of this contention, reliance was placed on the judgment in the case of Calcutta Discount Co. Ltd v. ITO reported in [1961] 41 ITR 191(SC). 5.3) Learned Senior Advocate Mr. Bhatt submitted that the assessee had not disclosed the primary fact being agreements in respect Page 22 of 35 Downloaded on : Sat Dec 24 03:44:47 IST 2022 C/SCA/16885/2018 CAV JUDGMENT DATED: 16/12/2022 of five entities/individual except Moti Hira Land Developers to substantiate the claim of payment of such guarantee commission. The petitioner in its reply dated 05.03.2014 had submitted nature of payment of commission to such entities, however did not produce any agreement with these entities/individual to justify payment of guarantee commission. It was submitted that the agreements on the basis of which such guarantee commission was paid was essential and material fact for the Assessing Officer to arrive at a conclusion as to whether such commission paid was for business purposes or not. It was submitted that the deduction of TDS in itself does not lead to conclusion that such payment was for business purpose. Therefore, there is a failure on the part of the petitioner to truly and fully disclose all material facts necessary for assessment.
Page 23 of 35 Downloaded on : Sat Dec 24 03:44:47 IST 2022 C/SCA/16885/2018 CAV JUDGMENT DATED: 16/12/2022 5.4) Relying upon the Explanation 1 to Section 147 of the Act, it was submitted that the said explanation clearly states that production of account books or other evidence from which material evidence could, with due diligence, have been discovered by the Assessing Officer will not necessarily amount to disclosure. It was submitted that the contention of the petitioner that the Assessing Officer could have asked for further details during the course of original scrutiny proceedings stands negated in view of Explanation 1 to Section 147 which does not exonerate the assessee from disclosing full and true material facts. It was submitted that the Apex court in the decision of Calcutta Discount (supra) has held that the assessee cannot contend that by disclosing certain evidence, he should be deemed to have disclosed other evidence, which might have been discovered by the Page 24 of 35 Downloaded on : Sat Dec 24 03:44:47 IST 2022 C/SCA/16885/2018 CAV JUDGMENT DATED: 16/12/2022 assessing authority if he had pursued investigation on the basis of what has been disclosed. It was submitted that the petitioner also does not dispute the fact that no agreements were produced with regard to guarantee commission payment to entities/individual except Moti Hira Land Developers. Therefore, there is a failure on part of the petitioner as to full and true disclosure, and the same can be clearly culled out from the reasons recorded. 5.5) With regard to the remaining three issues of reopening with regard to (i) Excess Payment of interest, (ii) Disallowance u/s 14A and (iii) Income reconciliation as per 26AS with regard to contract income, it was submitted that that there is no application of mind by the Assessing Officer on these three issues in the original assessment proceedings and therefore, concept of change Page 25 of 35 Downloaded on : Sat Dec 24 03:44:47 IST 2022 C/SCA/16885/2018 CAV JUDGMENT DATED: 16/12/2022 of opinion would not be applicable. It was therefore, submitted that the petition may be dismissed.
6.Considering the submissions made by the learned advocates for both the sides, it appears that the impugned notice under section 148 of the Act is issued primarily on four main grounds i.e. payment of guarantee commission of Rs. 27,26,230/- to six entities, payment of excess interest over 12% of Rs.5,13,366/-, disallowance under section 14A of the Act of Rs.3,67,488/- and disallowance on account of difference in income reconciliation of 26AS Statement with books of account to the tune of Rs.1,73,79,860/-.
7. On perusal of the material on record, it is apparent that every ground for reopening of the assessment under section 148 of the Act Page 26 of 35 Downloaded on : Sat Dec 24 03:44:47 IST 2022 C/SCA/16885/2018 CAV JUDGMENT DATED: 16/12/2022 was threadbare considered by the Assessing Officer during the original assessment proceedings and thereafter the assessment order came to be passed by the Assessing Officer. Insofar as ground of payment of Guarantee Commission to six different entities is concerned, the assessee had supplied details of secured loans with name, addresses, type of loan and loan limit of individual banks and institutions. The assessee had also tendered details of individuals to whom the assessee had paid Guarantee Commission and also produced the copy of Agreement of Guarantee Commission executed with said entities. The assessee had filed replies for claim of Guarantee Commission expenses during the assessment proceedings and the Assessing Officer passed the assessment order without making any addition under the head Guarantee Commission expenses. Therefore, there was no failure on Page 27 of 35 Downloaded on : Sat Dec 24 03:44:47 IST 2022 C/SCA/16885/2018 CAV JUDGMENT DATED: 16/12/2022 part of the assessee to make full and true disclosure of material facts necessary for assessment.
8.Insofar as payment of excess interest over 12% to the tune of Rs.5,13,366/- is concerned, the petitioner had submitted audited balance sheet with its reply showing bifurcation of interest expenses during the course of assessment proceedings. The Assessing Officer after being satisfied with such documents made no addition on account of reason of higher rate of interest expense.
9.Insofar as disallowance under section 14A of the Act to the tune of Rs. 3,67,488/- is concerned, the petitioner had during the course of assessment proceedings through its reply produced list of investments yielding tax free income as well as details regarding investment in mutual fund which is taken as Page 28 of 35 Downloaded on : Sat Dec 24 03:44:47 IST 2022 C/SCA/16885/2018 CAV JUDGMENT DATED: 16/12/2022 tax free income under section 14A along with details of investment in mutual fund and shares and other investment. The petitioner had pointed out details of Mutual Funds, the opening balance, the purchases and sales made as well as the closing balance of the outstanding amount of investment in mutual fund shares and other investments. The issue of section 14A was very much there before the Assessing Officer during the assessment proceedings and the Assessing Officer made no addition on account of disallowance under section 14A. Therefore, it cannot be said that assessee had failed to make true and full disclosure of material facts necessary for assessment.
10. With regard to disallowance on account of difference in income reconciliation of 26AS Statement with books of Account, the petitioner assessee had produced the Page 29 of 35 Downloaded on : Sat Dec 24 03:44:47 IST 2022 C/SCA/16885/2018 CAV JUDGMENT DATED: 16/12/2022 statement showing project wise reconciliation between 26AS and books of accounts. The Copy of ledger accounts of work in progress and sales account were also submitted to the Assessing Officer during the course of assessment proceedings. After considering such materials available on record, the Assessing Officer made no addition on account of income difference between 26AS Statement and books of account.
11. We are of the opinion that to confer jurisdiction to the Assessing Officer to reopen the assessment under section 147 of the Act beyond four years from the end of relevant assessment year, the two conditions must be satisfied namely, that the Assessing Officer must have reason to believe that the income chargeable to tax has escaped assessment and that the same was occasioned on account of either failure on part of the Page 30 of 35 Downloaded on : Sat Dec 24 03:44:47 IST 2022 C/SCA/16885/2018 CAV JUDGMENT DATED: 16/12/2022 assessee to make a return of his income for that assessment year or to disclose fully and truly all material facts necessary for that assessment year. In the present case, the entire material was available with the Assessing Officer during the original assessment and therefore, there was no failure on part of the assessee to disclose truly and fully all material facts necessary for assessment and based upon such material supplied by the petitioner, the Assessing Officer passed the original assessment order. Further, it appears that the notice for reopening is based upon the audit objection and there is nothing on record to suggest that such reopening is made on account of new tangible material available on record. It is therefore, apparent that there is change of opinion by the Assessing Officer to reopen the assessment for the Assessment Year 2011- 2012, more particularly, when the issue Page 31 of 35 Downloaded on : Sat Dec 24 03:44:47 IST 2022 C/SCA/16885/2018 CAV JUDGMENT DATED: 16/12/2022 raised in the reopening assessment is already considered during the original assessment proceedings. The Assessing Officer cannot have any jurisdiction to issue the notice under section 148 of the Act, 1961 for reopening the assessment for the year under consideration more particularly, when the assessment is sought to be reopened beyond a period of four years as held by the Supreme Court in case of Commissioner of Income tax v. Kelvinator of India Ltd. reported in (2010) 320 ITR 561(SC) as under:
"2. A short question which arises for determination in this batch of civil appeals is, whether the concept of "change of opinion" stands obliterated with effect from 1st April, 1989, i.e., after substitution of Section 147 of the Income Tax Act, 1961 by Direct Tax Laws (Amendment) Act, 1987?
xxxx
6. ............prior to Direct Tax Laws (Amendment) Act, 1987, re-opening could be done under above two conditions and fulfillment of the said conditions alone conferred jurisdiction on the Page 32 of 35 Downloaded on : Sat Dec 24 03:44:47 IST 2022 C/SCA/16885/2018 CAV JUDGMENT DATED: 16/12/2022 Assessing Officer to make a back assessment, but in section 147 of the Act [with effect from 1st April, 1989], they are given a go-by and only one condition has remained, viz., that where the Assessing Officer has reason to believe that income has escaped assessment, confers jurisdiction to re- open the assessment. Therefore, post- 1st April, 1989, power to re-open is much wider, However, one needs to give a schematic interpretation to the words "reason to believe" failing which, we are afraid, Section 147 would give arbitrary powers to the Assessing Officer to re-open assessments on the basis of "mere change of opinion", which cannot be per se reason to re- open. We must also keep in mind the conceptual difference between power to review and power to re-assess. The Assessing Officer has no power to review; he has the power to re-assess. But re-assessment has to be based on fulfillment of certain pre-condition and if the concept of "change of opinion" is removed, as contended on behalf of the Department, then, in the garb of re-opening the assessment, review would take place. One must treat the concept of "change of opinion" as an in-built test to check abuse of power by the Assessing Officer....."
12. The Assessing Officer issued notice under section 148 of the Act only to make a roving inquiry into the facts which were already considered by the Assessing Officer Page 33 of 35 Downloaded on : Sat Dec 24 03:44:47 IST 2022 C/SCA/16885/2018 CAV JUDGMENT DATED: 16/12/2022 at the time of framing the original assessment under section 143(3) of the Act. It appears that the Assessing Officer now wants to re-verify the facts which is not permissible to be an acceptable ground for exercising powers to reopen the assessment.
13. For the foregoing reasons, the impugned notice dated 13.03.2018 issued under section 148 of the Act by the respondent exercising the powers to reopen the assessment for the Assessment Year 2011-2012 is illegal and liable to be set aside. As a consequence order dated 3.10.2018 of the Assessing Officer disposing of the objections of the petitioner against the impugned notice is also liable to be set aside. Accordingly, impugned notice dated 13.03.2018 is hereby set aside. Consequential actions and orders are also set aside.
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14. The petition succeeds and is allowed. Rule is made absolute to the aforesaid extent. No order as to costs.
(N.V.ANJARIA, J) (BHARGAV D. KARIA, J) RAGHUNATH R NAIR Page 35 of 35 Downloaded on : Sat Dec 24 03:44:47 IST 2022