Gujarat High Court
Sandesh Procon Private Limited vs Assistant Commissioner Of Income Tax, ... on 13 June, 2023
Author: Vipul M. Pancholi
Bench: Vipul M. Pancholi
C/SCA/5359/2022 JUDGMENT DATED: 13/06/2023
IN THE HIGH COURT OF GUJARAT AT AHMEDABAD
R/SPECIAL CIVIL APPLICATION NO. 5359 of 2022
FOR APPROVAL AND SIGNATURE:
HONOURABLE MR. JUSTICE VIPUL M. PANCHOLI Sd./-
and
HONOURABLE MR. JUSTICE DEVAN M. DESAI Sd./-
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1 Whether Reporters of Local Papers may be allowed NO
to see the judgment ?
2 To be referred to the Reporter or not ? NO
3 Whether their Lordships wish to see the fair copy NO
of the judgment ?
4 Whether this case involves a substantial question NO
of law as to the interpretation of the Constitution
of India or any order made thereunder ?
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SANDESH PROCON PRIVATE LIMITED
Versus
ASSISTANT COMMISSIONER OF INCOME TAX, CENTRAL CIRCLE 1(2),
AHMEDABAD
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Appearance:
MR B S SOPARKAR(6851) for the Petitioner(s) No. 1
MR.VARUN K.PATEL(3802) for the Respondent(s) No. 1,2
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CORAM:HONOURABLE MR. JUSTICE VIPUL M. PANCHOLI
and
HONOURABLE MR. JUSTICE DEVAN M. DESAI
Date : 13/06/2023
ORAL JUDGMENT
(PER : HONOURABLE MR. JUSTICE VIPUL M. PANCHOLI) Page 1 of 13 Downloaded on : Thu Jun 15 20:38:30 IST 2023 C/SCA/5359/2022 JUDGMENT DATED: 13/06/2023
1. Since, this matter involves a short question of law, at the joint request made by the learned Advocates for the parties, the same was taken-up for final hearing and disposal, at the admission stage.
1.1 Rule. Learned Standing Counsel, Mr. Patel, waives service of Rule for the Respondents.
2. This is a petition, filed under Article 226 of the Constitution of India, whereby, the petitioner has sought the following reliefs;
"7. ...
(a) quash and set aside the impugned notice dated 30.03.2021 at Annexure-'A' to this petition;
(b) quash and set aside the impugned order dated 25.02.2022 at Annexure- 'J' to this petition;
(c) pending the admission, hearing and final disposal of this petition, to stay implementation and operation of the notice at Annexure- 'A' to this petition and stay further proceedings for assessment for A.Y. 2014-15.
(d) any other and further relief deemed just and proper be granted in the interest of justice;
(e) to provide for the cost of this petition;"
3. Heard, learned Advocate, Mr. Soparkar, appearing for the petitioner and learned Standing Counsel, Mr. Patel, appearing for the petitioner.
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4. The brief facts of the case are that the petitioner submitted its return of income for A.Y. 2014-2015 on 27.11.2014, declaring total income at loss of Rs.2,40,35,772/-.
4.1 It appears that the return of income filed by the petitioner was taken-up for scrutiny by the respondents and the petitioner was issued several notices under Section 142(1) of the Income Tax Act, 1961 (hereinafter referred to as, 'the Act'). By notice dated 03.08.2016, pointed questions, relating to the investments of the petitioner, income earned from it and dis-allowance of expenditure under Section 14A of the Act, were raised.
4.1.1 The petitioner replied to the questions raised in the aforesaid notice at the time of personal hearing as well as vide communications dat ed 23.08.2016 and 30.11.2016.
4.2 Thereafter, assessment order dated 08.12.2016, under Section 143(3) of the Act, came to be passed, whereby, the return filed by the petitioner was accepted.
4.3 It is averred that, pursuant to the above, the Respondents issued the impugned notice under Section 148 of the Act, on 30.03.2021, asking the petitioner to file return of income and the petitioner filed the return of income, without prejudice, in response to Page 3 of 13 Downloaded on : Thu Jun 15 20:38:30 IST 2023 C/SCA/5359/2022 JUDGMENT DATED: 13/06/2023 the aforesaid notice, accordingly. Then, the petitioner was provided with the reasons on 18.06.2021. Against the same, the petitioner filed its objections on 10.07.2021.
4.3.1 It is the grievance of the petitioner that, without disposing of the objection filed by the petitioner, the respondents issued another notice, Dated: 09.11.2021, to the petitioner, which also contained the reasons for re-opening.
4.3.2 Against the reasons supplied in the notice dated 09.11.2021, the petitioner once again submitted his objections. However, the Respondents disposed of the said objection vide order dated 25.02.2022.
4.4 Thus, being aggrieved with the impugned notice dated 30.03.2021 as well as the order dated 25.02.2022, the petitioner has preferred the present petition.
5. Learned Advocate, Mr. Soparkar, appearing for the petitioner has raised various contentions in this matter. However, he mainly submitted that the petitioner made full disclosure with regard to exempted income and the interest expenses claimed.
5.1 Learned Advocate, Mr. Soparkar, referred to the order dated 18.06.2021, a copy of which is produced at Page-52 of the compilation, and submitted that Page 4 of 13 Downloaded on : Thu Jun 15 20:38:30 IST 2023 C/SCA/5359/2022 JUDGMENT DATED: 13/06/2023 even on the face of the reasons recorded, the Respondent has stated that the reasons are recorded on the basis of the information available on the record only and not from any other source, from which it could be held that the petitioner failed to disclose anything, at the time of original scrutiny.
5.2 It was also submitted that the Respondents seek to re-open a completed assessment beyound the period of four years, from the end of the assessment year, which is not permissible, except, the escapement having occasioned for the failure on the part of the assessee to truly and fully disclose all the material facts. It was submitted that, since, the Respondents have acted beyound their jurisdiction, the notice issued under Section 148 of the Act is bad and illegal.
5.3 It was also pointed out that there is no fresh and tangible material with the Respondents to form a belief or opinion that any income has escaped assessment.
5.4 In support of his submissions, learned Advocate, Mr. Soparkar, placed reliance on the decision of the Division Bench of this Court, rendered in the case of the petitioner, itself, in Special Civil Application No. 19990 of 2019, Dated: 05.02.2021, more particularly, the observations made in Paragraphs-12 and 13, thereof.
Page 5 of 13 Downloaded on : Thu Jun 15 20:38:30 IST 2023C/SCA/5359/2022 JUDGMENT DATED: 13/06/2023 5.5. Learned Advocate, Mr. Soparkar, also placed reliance on the decision rendered in the case of 'INTERCONTINENTAL (INDIA) VS. DEPUTY COMMISSIONER OF INCOME TAX', (2016) 73 taxmann.com 232 (Gujarat), so also the decision of this Court, rendered in the case of 'JIVRAJ TEA LIMITED VS. ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE-1(1)' (2017) 80 taxmann.Com 108 (Gujarat).
5.6 It was submitted that, since, the issue involved in this matter is covered by the aforesaid decisions, without going into the merits of the other contentions raised by the petitioner, only on this ground, this petition be allowed.
6. On the other hand, learned Advocate, Mr. Patel, appearing for the Respondents strongly opposed this petition and referred to the averments made in the affidavit-in-reply filed on behalf of the Respondents and submitted that the contentions taken by the petitioner are misconceived and therefore, this petition may not be entertained.
7. We have heard the learned Advocates for the parties and also perused the material produced on record as well as the submissions canvassed by the learned Advocates for the parties.
7.1 From the record, it transpires that the notice Page 6 of 13 Downloaded on : Thu Jun 15 20:38:30 IST 2023 C/SCA/5359/2022 JUDGMENT DATED: 13/06/2023 under Section 148 of the Act came to be issued to the petitioner on 30.03.2021. Thereafter, the petitioner was provided with the reasons for re-opening on 18.06.2021 and to which, the petitioner submitted its objections on 10.07.2021, a copy whereof is produced at Annexure-G to the compilation.
7.2 It appears that without disposing of the objections filed by the petitioner, yet, another notice, Dated: 09.11.2021, came to be issued to the petitioner, which also contained the reasons for re- opening. Once again, the petitioner submitted its objections to the aforesaid notice, which are placed on record at Annexures- 'I' to the compilation.
7.3 In the above background, if, the order dated 18.06.2021 passed by Respondent No.2 is seen, in Paragraph-2 thereof, it is stated as under;
"2. Scrutiny records revealed that the assessee has made investment of Rs.2047198478/- in the equity shares of Applewoods Estate Pvt. Ltd. Further, the assessee debited interest expenditure of Rs.3,27,05,394/- during the year. However, no disallowance u/s. 14A r.w.s. 8D has been made which works out to Rs.3,20,50,384/-.
As per Section 14A of the I.T. Act, 1961 deduction is not admissible in respect of expenditure incurred by the assessee in relation to income which does not form part of the total income. The expenditure incurred by way of interest etc. has to be disallowed as per Rule 8D of the It Rules, 1962. The CBDT has issued Circular No.5 of Page 7 of 13 Downloaded on : Thu Jun 15 20:38:30 IST 2023 C/SCA/5359/2022 JUDGMENT DATED: 13/06/2023 2014 dated 11.02.2014 in which the issue as to whether disallowance under Section 14A and Rule 8D can be made in cases where the corresponding exempt income has not been earned during the financial year has been consideration great detail and clarified that section 14A of the Act provides for disallowance of expenditure even where taxpayer in particular year has not earned any exempted income.
On verification of the records it is revealed that the assessee had invested Rs.204,71,98,478/- in equity shares of Applewoods Estate Pvt. Ltd.. Further, the assessee had debited interest expenditure of Rs.3,27,05,394/ during the year, but no disallowance was made by the assessee either in the computation of income not the assessing officer. Disallowance of expenditure under the provision of the Act is worked out as under:
NAME Rs.
(A) Interest Expense Rs.3,27,05,394/-
(B) Average Investment (204,71,76,505 Rs.204,71,98,478/- + 204,72,20,452) / 2 (C) Average asset (315,17,68,883 + Rs.306,92,77,934/-
298,67,86,985) / 2 Expenditure disallowance under Rule Rs.2,18,14,392/- (a) 8D(i) = A X B / C Expenditure dis-allowance under Rule Rs.1,02,35,992/- (b) 8D(ii) 0.5% of B Total (a + b) Rs.3,20,50,384/-
This resulted into under assessment of income of Rs.3,20,50,384/-."
7.4 Thus, from the aforesaid reasons recorded by Respondent No.2, it is clear that Respondent No.2 has recorded the same only on the basis of the Page 8 of 13 Downloaded on : Thu Jun 15 20:38:30 IST 2023 C/SCA/5359/2022 JUDGMENT DATED: 13/06/2023 information or the material, which was already available on the record, and not from any other source or the material, so as to state that the petitioner had withheld or did not disclose something at the time of original scrutiny.
7.5 It is an undisputed fact that the Respondents sought to re-open a completed assessment, beyound the period of four years from the end of the relevant assessment year.
7.6 At this stage, it would be relevant to refer to the observations made by the Division Bench of this Court in Special Civil Application No. 19990 of 2019, which reads as follows;
12. A bare perusal of the reasons and original the assessment order made under Section 143(3) of the Act, the facts emerge that, the respondent authority had determined the issue of disallowance after considering the material available and now again without any tangible material available with the Assessing Officer based on the same materials, which were relied at the time of original assessment proceedings, has reason to believe that there is escapement of income. Therefore, in this circumstances, we are of the view that, the material available with the Assessing Officer, at the relevant point of time, while making original assessment under Section 143 (3) of the Act and at the time of reopening of the assessment, the materials available with the Assessing Officer were the same and there was no any new material surfaced during the reassessment proceedings.
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13. After close scrutiny of the reasons for reopening of assessment, we are of the view that, all the material facts relating to Section 14(A) of the Act were before the Assessing Officer during the course of the original assessment and now, he could not reopen the assessment after 4 years where there is no failure on the part of the assessee to disclose fully and truly all the facts necessary for assessment. It is settled by the Apex Court in the case of CIT Delhi Vs. Kelvinator of India Limited. [(2010) 320 ITR 577] that the existence of tangible material is essential to safeguard against the arbitrarily exercised of power. Therefore, as discussed above, at the time of recording the reasons, there were no fresh materials on which the Assessing Officer could have formed a requisite belief with regard to the escapement of the assessment. The record further indicates that, the assessee had disclosed all materials fully and truly before the respondent at the time of original assessment. Even on merits, it is settled that, disallowance under Section 14A of the Act cannot exceed the exempt income of the assessee. Thus, the twin conditions as provided under Section 147 of the Act, which are condition precedent for reopening of the assessment made after 4 years are not satisfied."
7.7 In the case of 'INTERCONTINENTAL (INDIA)' (Supra), this Court has observed as under at Paragraph-5 thereof;
"5. From the aforesaid material on record, it appears that attempt on part of the revenue is to reopen the assessment after scrutiny assessment after a period of more than four years. In view of the settled position of law, in absence of any circumstances about non- disclosure of true and full material on part of the Page 10 of 13 Downloaded on : Thu Jun 15 20:38:30 IST 2023 C/SCA/5359/2022 JUDGMENT DATED: 13/06/2023 assessee, reopening is not permitted. In the present case, in absence of such contingency as is reflected from the record of the case, it is not open for the respondent authority to exercise power of reopening of assessment which had already become final. While submitting that the petitioner had truly and fully disclosed each and every material at the relevant point of time, learned counsel for the petitioner has drawn attention of the Court about the amount admissible under section 40A of the Act. He has drawn attention to form 3CT on page 32 and clause F in tabular form which indicates that the amount has already mentioned which is inadmissible under section 40A of the Act. Similarly, on page 41 in Annexure "A", a specific figure has also been mentioned in column items 10 and 11 which is reflecting the figure of commission received and commission paid and on the basis of that, learned counsel for the petitioner submitted that material has been truly and fully disclosed before the authority and in absence of any such contingency, it is not open for the respondent authority to reopen the assessment after a period of four years. Even on the basis of material which was placed by the petitioner during the course of hearing, statements which have been produced before the authority which are part of the petition compilation on page 62, again learned counsel for the petitioner has drawn attention about figures which have been reflected pertaining to brokerage and commission and submitted that all the details have been specifically dealt with by the authority and therefore, it is not open on part of the respondent authority to reopen the assessment. From the reasons which are recorded as stated above, a specific reference about the fact that the authority has scanned the entire record of the case and upon verification of the record, reasons have been assigned and therefore, if this be allowed, it would be in clear violation of settled principles of law. It is therefore, submitted that action on part of respondent authority in exercise of jurisdiction under section 148 of the Act is Page 11 of 13 Downloaded on : Thu Jun 15 20:38:30 IST 2023 C/SCA/5359/2022 JUDGMENT DATED: 13/06/2023 impermissible. In a series of decisions, the Supreme Court as well as this Court has held that powers of reassessment after a period of four years can never be exercised if full and true disclosure is there on the part of the assessee. Here, from the record, it indicates that the petitioner has disclosed true and full materials before the authority not only with the return but, also at the time of scrutiny assessment. Therefore, this being the position, it is not permissible on part of the respondent authority to reopen the assessment under these circumstances."
7.8 In the case of 'JIVRAJ TEA LIMITED' (Supra), the observations made by this Court at Paragraphs-5 to 7 reads thus;
"5. From the above materials, it can be seen that the notice for reopening came to be issued beyond the period of four years from the end of relevant assessment year. The requirement of the income chargeable to tax having escaped assessment for the failure on the part of the assessee to disclose truly and fully all material facts, would therefore, have to be satisfied.
6. With this background, we may revert back to the reasons recorded. The reasons point out that the assessee company is engaged in two businesses viz. Of trading in tea, income from which is taxed under normal provisions and in generation of power through windmills, income from which is exempt under section 80IA of the Act. According to the Assessing Officer, the assessee had not correctly apportioned the expenditure between these two businesses and thereby artificially inflated the income of the eligible businesses to gain larger deduction.
7. We are not on validity of the Assessing Officer's Page 12 of 13 Downloaded on : Thu Jun 15 20:38:30 IST 2023 C/SCA/5359/2022 JUDGMENT DATED: 13/06/2023 contention. We are concerned only with the question of failure on part of the assessee to disclose fully and truly all material facts."
7.9 From the observations made in the aforesaid decisions, as recorded herein above, it can be said that the attempt on the part of the revenue to reopen the assessment after scrutiny assessment, after a period of more than four years, especially, in absence of any circumstances about non-disclosure of true and full material on the part of the assessee, is not permitted. In the present case, in absence of such contingency, as is reflected from the record of the case, it is not open for the respondent authority to exercise powers of reopening of the assessment, which had already become final.
8. In the result, this petition is allowed and the the impugned notice dated 30.03.2021 as well as the impugned order dated 25.02.2022 are QUASHED and set aside. Rule is made absolute, accordingly.
Sd./-
(VIPUL M. PANCHOLI, J) Sd./-
(D. M. DESAI,J) UMESH/-
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