Gujarat High Court
Medtronic International Ltd vs The Union Of India on 16 July, 2024
Author: Bhargav D. Karia
Bench: Bhargav D. Karia
NEUTRAL CITATION
C/SCA/10079/2023 JUDGMENT DATED: 16/07/2024
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IN THE HIGH COURT OF GUJARAT AT AHMEDABAD
R/SPECIAL CIVIL APPLICATION NO. 10079 of 2023
FOR APPROVAL AND SIGNATURE:
HONOURABLE MR. JUSTICE BHARGAV D. KARIA
and
HONOURABLE MR. JUSTICE NIRAL R. MEHTA
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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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MEDTRONIC INTERNATIONAL LTD.
Versus
THE UNION OF INDIA & ORS.
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Appearance:
MR DHAVAL SHAH(2354) for the Petitioner(s) No. 1
MR.VARUN K.PATEL(3802) for the Respondent(s) No. 2,3
NOTICE SERVED BY DS for the Respondent(s) No. 1
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CORAM:HONOURABLE MR. JUSTICE BHARGAV D. KARIA
and
HONOURABLE MR. JUSTICE NIRAL R. MEHTA
Date : 16/07/2024
ORAL JUDGMENT
(PER : HONOURABLE MR. JUSTICE BHARGAV D. KARIA)
1. Heard learned advocate Mr. Hiten Thakkar Page 1 of 12 Downloaded on : Tue Jul 23 20:31:15 IST 2024 NEUTRAL CITATION C/SCA/10079/2023 JUDGMENT DATED: 16/07/2024 undefined with learned advocate Mr. Dhaval Shah and learned Senior Standing Counsel Mr. Varun Patel for the respondent.
2. Rule returnable forthwith. Learned Senior Standing Counsel Mr. Patel waives service of notice of rule for the respondent.
3. Brief facts of the case are that the petitioner received a notice under section 148A(a) of the Income Tax Act,1961 [for short 'the Act'] on 07.02.2023 requiring the petitioner to submit the source of amount of Rs. 1,96,36,83,592/- invested in the subsidiary Indian Company. The petitioner, in response to such notice, filed copy of bank statement along with Foreign Inward Remittance Certificate, return of allotment filed in Form PAS-3 with Registrar of Companies, copy of Page 2 of 12 Downloaded on : Tue Jul 23 20:31:15 IST 2024 NEUTRAL CITATION C/SCA/10079/2023 JUDGMENT DATED: 16/07/2024 undefined minutes and board resolutions passed for allotment of shares.
4. However, the respondent-Assessing Officer issued notice under section 148A(b) of the Act dated 10.03.2023for reopening of the assessment for A.Y. 2019-20 as under:
"ANNEXURE
1. Your case has been selected/flagged under Risk Management Strategy (RMS) Cycle-2 consequent upon dissemination of certain High Risk Non-filer cases on the Insight Portal of the Income-tax Department for the AY 2019-20. The following information is available on the insight Portal in your case:
Information Source FY Amount Description (Rs.) Purchase of shares India 2018- 1963683592 issued by the Company Medtronic 19 (including share Pvt. Ltd application money) For the ease of reference, a copy of the same is attached herewith.Page 3 of 12 Downloaded on : Tue Jul 23 20:31:15 IST 2024
NEUTRAL CITATION C/SCA/10079/2023 JUDGMENT DATED: 16/07/2024 undefined
2. Vide this office letter having DIN No.ITBA/ASTIF/17/2022-23/ 1049514433(1) dated 07/02/2023, various information/documents with regard to source of the above investment/bank deposit/time deposit/purchase of shares/Mutual Funds/ Insurance Policy was called for. You have furnished the same.
The same is perused and considered. Since, you failed to furnish one-to- one sources of above investment along with cogent documentary evidence, they remain unexplained. Thus, the reply/submission furnished by you is found not satisfactory & not tenable.
From the information, it can be seen that you have entered into financial transactions of Rs.
1963683592/- which clearly shows that your income for the year under consideration has exceeded the maximum limit not chargeable to tax. In spite of the above, you have not filed ROI for the year under consideration. Thus, the income of Rs.1963683592/- has escaped as you did not file the return of income even though the total income exceeded the maximum amount which is not chargeable to tax in the previous year relevant to assessment year 2019-20.
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3. In view of the above and on the basis of information available with this office, it is established that income to the tune of Rs.1963683592/- has escaped assessment within the meaning of provisions of section 147 of the Act."
5. The petitioner, in response to the aforesaid notice, gave further reply contending that the petitioner during A.Y. 2019-20 invested Rs. 1,96,36,83,592/- in the Indian Subsidiary by acquiring 8,33,482 shares and the said investment made by petitioner is out of the fund received from the parent entity and in this connection, the petitioner also submitted extract of bank statement of the parent company showing transfer of funds to the petitioner.
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6. The respondent, however, after taking into consideration such reply of the petitioner, passed an order under section 148A(d) on 30.03.2023 along with notice under section 148 of the Act for reopening the assessment of A.Y. 2019-2020. On perusal of the order under section 148A(d) of the Act, it appears that respondent-
Assessing Officer has gone on tangent by referring to section 56(2)(x)(c) of the Act observing that the said section applies in the facts of the case, more particularly, in absence of the valuation given by the assessee, it was believed that the shares received by the assessee is below fair market value and therefore, provision of the said section gets attracted and therefore was an escapement of income to the tune of Page 6 of 12 Downloaded on : Tue Jul 23 20:31:15 IST 2024 NEUTRAL CITATION C/SCA/10079/2023 JUDGMENT DATED: 16/07/2024 undefined Rs. 1,96,36,83,592/-. The relevant extract from the impugned order reads as under:
"3.2 The assessee has furnished copy of bank account statement of Medtronic International Limited, copy of bank account statement of Medtronic INC, copy of minutes of the investee company India Medtronic Pvt. Ltd., copy of FIRC of Bank of America amounting Rs. 196, 36,83,592/-.
3.3 From the information,-it can be seen that the assessee has made investment in purchase of shares of Rs.196,36,83,592/-with India Medtronic Pvt. Ltd. However, the assessee failed to furnish TRC and No PE certificate and Fair Market Valuation Report of shares purchased by it. As the assessee has not furnished any FMV report, the provisions of Section 56(2)(x)(c) of the Act clearly applicable in the case of the assessee. Section 56(2)
(x)(c) provides that --
56.(1)........
Page 7 of 12 Downloaded on : Tue Jul 23 20:31:15 IST 2024NEUTRAL CITATION C/SCA/10079/2023 JUDGMENT DATED: 16/07/2024 undefined (2) in particular, and without prejudice to the generality of the provisions of sub-section (1), the following incomes, shall be chargeable to income-tax under the head "Income from other sources", namely :
(x) where any person receives, in any previous year, from any person or persons on or after the 1st day of April, 2017,
(a)....
(b)......
(c)......any property, other than immovable property, --
A) without consideration, the aggregate fair market value of which exceeds fifty thousand rupees, the whole of the aggregate fair market value of such property;
(B) for a consideration which is less than the aggregate fair market value of the property by an amount exceeding fifty thousand rupees, the aggregate fair market value of such property as exceeds such consideration :Page 8 of 12 Downloaded on : Tue Jul 23 20:31:15 IST 2024
NEUTRAL CITATION C/SCA/10079/2023 JUDGMENT DATED: 16/07/2024 undefined A plain reading of section 56(2)(x)
(c) of the Act says that when any person receives any property other than immovable property, the value of such property should not be less than the fair market value. The assessee did not subbmit any valuation report of shares, hence, it could not be verified whether the value of transaction is as per fair market value or not.
3.3. Therefore, in absence of any valuation given by the assesse, it is believed that property(shares) received by the assessee is below fair market value and therefore provisions of section 56(2)(x)(c) gets attracted. In view of this, the investment is considered as deemed income and therefore such income remained unexplained.
3.4 Further, the assessee has made investment in India Company, the genuineness of investment in shares could not be explain since the fund has come from the company with which India has DTAA and the assessee was required to furnish copy of TRC, No PE Certificate for which the assessee failed to do so. In absence of such documents, genuineness remained unexplained.
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4. Finding under clause (d) of section 148 As per the information available on records, the assessee has entered into financial transaction amounting to Rs.196,36,83,592/-which remain unexplained. This clearly shows that income for the year under consideration has exceeded the maximum limit not chargeable to tax. But assessee has not filed any return of income. Considering facts and circumstances & material available on records which includes information flagged on the system, | am satisfied that income amounting to Rs.196,36,83,592/- chargeable to tax and has escaped assessment and this is fit case for issuing notice u/s 148."
7. Thus, on perusal of the aforesaid observation made in the impugned order passed under section 148A(d) of the Act and the notice under section 148A(b) of the Act, it is apparent that the reasons assigned by the respondent-Assessing Officer for coming to the conclusion that Page 10 of 12 Downloaded on : Tue Jul 23 20:31:15 IST 2024 NEUTRAL CITATION C/SCA/10079/2023 JUDGMENT DATED: 16/07/2024 undefined it is a fit case to reopen the assessment for A.Y. 2019-2020 are totally at variance and contents of the observations in the impugned order are not at all referred to as there was no reference to section 56(2)
(x)(c) of the Act. We also fail to understand as to how the amount of Rs. 1,96,36,83,592/- can be said to be an escapement of income more particularly, when the same is invested in the shares by the assessee and such transaction cannot be said to be unexplained in view of the detailed reply filed by the assessee. In such circumstances, we are of the opinion that the impugned notice under section 148A(b) of the Act and the consequent order under section 148A(d) of the Act and the notice under section 148 of the Act are not tenable and are accordingly Page 11 of 12 Downloaded on : Tue Jul 23 20:31:15 IST 2024 NEUTRAL CITATION C/SCA/10079/2023 JUDGMENT DATED: 16/07/2024 undefined quashed and set aside. However, it is made clear that the respondent-Assessing Officer shall be at liberty to take necessary steps in accordance with law, if permissible. Rule is made absolute to the aforesaid extent. No order as to costs.
Interim relief stands vacated.
(BHARGAV D. KARIA, J) (NIRAL R. MEHTA,J) JYOTI V. JANI Page 12 of 12 Downloaded on : Tue Jul 23 20:31:15 IST 2024