Gujarat High Court
Klb Securities Pvt Ltd vs Assistant Commissioner Of Income Tax ... on 9 December, 2016
Bench: M.R. Shah, B.N. Karia
C/SCA/16551/2010 JUDGMENT
IN THE HIGH COURT OF GUJARAT AT AHMEDABAD
SPECIAL CIVIL APPLICATION NO. 16551 of 2010
For Approval and Signature:
HONOURABLE MR.JUSTICE M.R. SHAH
and
HONOURABLE MR.JUSTICE B.N. 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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KLB SECURITIES PVT LTD....Petitioner(s)
Versus
ASSISTANT COMMISSIONER OF INCOME TAX (OSD)1 RANGE
4....Respondent(s)
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Appearance:
MR BS SOPARKAR with MRS SWATI SOPARKAR, ADVOCATE for Petitioner
MR MANISH BHATT, SR. ADVOCATE with MS MAUNA M BHATT, ADVOCATE
for the Respondent(s) No. 1
NOTICE SERVED BY DS for the Respondent(s) No. 1
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CORAM: HONOURABLE MR.JUSTICE M.R. SHAH
and
HONOURABLE MR.JUSTICE B.N. KARIA
Date : 09/12/2016
ORAL JUDGMENT
(PER : HONOURABLE MR.JUSTICE M.R. SHAH) [1.0] By way of this petition under Article 226 of the Constitution of India, the petitioner assessee has prayed for an appropriate writ, direction and order to quash and set aside the impugned notice dated Page 1 of 9 HC-NIC Page 1 of 9 Created On Tue Jan 24 02:40:34 IST 2017 C/SCA/16551/2010 JUDGMENT 28.03.2010 (wrongly typed as 20.03.2009) issued under Section 148 of the Income Tax Act, 1961 (hereinafter referred to as "IT Act"), by which the Assessing Officer has sought to reopen the assessment for AY 2006 07, in exercise of powers under Section 147 of the IT Act.
[2.0] Facts leading to the present Special Civil Application in nutshell are as under:
[2.1] That the assessee filed the return of income for the AY 200607 on 21.12.2006 declaring a total income of Rs.6,18,63,815/. The case was selected for scrutiny and accordingly notice under Section 143(2) of the IT Act was issued and served upon the petitioner on 08.10.2007. That the assessee claimed the Security Transaction Tax (STT) rebate of Rs.1,78,48,022/ under Section 88E of the IT Act against the tax payabel under normal provision. That thereafter the assessment was finalized under Section 143(3) of the IT Act on 19.12.2008 and the Assessing Officer accepted the return of income as filed by the assessee without making any additions.
[2.2] That thereafter the Assessing Officer issued the notice under Section 148 of the IT Act, which is dated 20.03.2009, by which the Assessing Officer sought to reassess the income for AY 200607. That again on 04.10.2010, the Assessing Officer issued the impugned notice (Annexure AII) under Section 148 of the IT Act. At the request made by the assessee, the Assessing Officer vide letter dated 14.07.2010 provided the reasons for reopening the assessment with regard to the notice dated 04.10.2010. That the assessee raised the objections vide reply dated 20.11.2010 raising the objections against initiating reassessment proceedings under Section 148 of the IT Act. Simultaneously, the assessee also filed an application under the Right to Information Act on 20.11.2010 seeking information regarding the objection raised by the Page 2 of 9 HC-NIC Page 2 of 9 Created On Tue Jan 24 02:40:34 IST 2017 C/SCA/16551/2010 JUDGMENT audit party for AY 200607 as well as the correspondence and reply with the audit party with reasons for AY 200607. The aforesaid exercise was done by the assessee as the assessee was of the opinion that the reopening of the assessment for AY 200607 is on the audit objection raised by the audit party only.
[2.3] That the Assessing Officer vide letter dated 17.12.2010 rejected and disposed of the objections raised by the assessee and asked the petitioner to furnish detailed clarifications regarding the escaped income. Hence, the petitioner has preferred the present Special Civil Application under Article 226 of the Constitution of India challenging the impugned reassessment proceedings for AY 200607.
[3.0] Shri B.S. Soparkar, learned advocate appearing on behalf of the petitioner - assessee has vehemently submitted that the impugned notice dated 04.10.2010 under Section 148 of the IT Act to reopen the assessment for AY 200607 is absolutely illegal, without jurisdiction and bad in law.
[3.1] It is vehemently submitted by Shri B.S. Soparkar, learned advocate appearing on behalf of the petitioner - assessee that the impugned reassessment proceedings are initiated by the Assessing Officer solely on the audit objections raised by the audit party. It is submitted by Shri B.S. Soparkar, learned advocate appearing on behalf of the petitioner - assessee that it is evident from the information received under the Right to Information Act that even subsequently and after the issuance of the impugned notice, the Assessing Officer communicated and opined that the audit objection raised by the audit department is not acceptable and the same is required to be dropped. It is submitted that in the communication dated 30.11.2010 the Assessing Officer wrote a letter to the Deputy Accountant General, Rajkot that the audit objection is Page 3 of 9 HC-NIC Page 3 of 9 Created On Tue Jan 24 02:40:34 IST 2017 C/SCA/16551/2010 JUDGMENT required to be dropped. It is submitted that therefore the Assessing Officer on the date of issuance of notice under Section 148 of the IT Act would not have formed a belief that any income has escaped assessment. Shri Soparkar, learned advocate appearing on behalf of the petitioner - assessee has submitted that therefore the impugned notice and the reassessment proceedings for AY 200607 deserves to be quashed and set aside on the aforesaid ground alone. In support of his above submissions, he has heavily relied upon the decision of this Court in the case of Adani Exports vs. Deputy Commissioner of Income Tax (Assessments) reported in (1999) 240 ITR 224. Shri Soparkar, learned advocate appearing on behalf of the petitioner - assessee has also relied upon the decision of the Division Bench of this Court in the case of Commissioner of Income Tax, AhmedabadIV vs. Shilp Gravures Ltd. reported in (2013)40 Taxmann 309 and in the case of Vodafone West Ltd. vs. Assistant Commissioner of Incometax reported in (2013) 37 Taxmann 158 (Gujarat).
[3.2] Shri Soparkar, learned advocate appearing on behalf of the petitioner - assessee has further submitted that even the impugned notice dated 04.10.2010 under Section 148 of the IT Act deserves to be quashed and set aside on the ground that the same is a second / another notice for reopening as earlier the notice dated 20.03.2009 (20.03.2010) under Section 148 of the IT Act was already issued and pending determination. It is submitted that therefore unless and until the first notice under Section 148 of the IT Act is disposed of, there cannot be any second notice. In support of his above submissions, Shri Soparkar, learned advocate appearing on behalf of the petitioner - assessee has heavily relied upon the decision of this Court in the case of Aditya Medisales Ltd. vs. Deputy Commissioner of Incometax, Circle 1(1) reported in (2016)73 Taxmann.com 197 (Gujarat).
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C/SCA/16551/2010 JUDGMENT
[4.0] Shri Manish R. Bhatt, learned Counsel appearing on behalf of the respondent - Revenue has tried to oppose the present petition by submitting that the impugned notice under Section 148 of the IT Act is absolutely in consonance with the provisions of Section 147 of the IT Act.
Relying upon the averments in the affidavit in reply filed on behalf of the Revenue it is vehemently submitted that reassessment proceedings are not initiated solely on the audit objections raised by the audit party.
[4.1] It is submitted that on considering the audit objections, thereafter after applying the mind independently and having been satisfied that the income has escaped the assessment and therefore, the Assessing Officer is justified in reopening the assessment.
It is submitted that earlier the issue of submission of Form Nos.10DB and 10DC as per the provisions of Section 88E read with Rule 20AB during the assessment to claim rebate for STT paid was not discussed earlier which required verification for the purpose of IT Act. It is submitted that therefore to verify the genuineness of the claim, which was not verified earlier, the case has been reopened.
[4.2] It is further submitted by Shri Bhatt, learned Counsel appearing on behalf of the respondent - Revenue that as such the correspondence with the audit party is the internal matter of the Department and does not form the basis of reasons of reopening of the assessment. It is submitted that reasons recorded by the Assessing Officer is the material which form the basis for reopening of the assessment and not the internal correspondence of the Department with the audit party. It is submitted that thus correspondence with the audit party is not to be considered as satisfaction recorded by the Assessing Officer.
Making above submissions, it is requested to dismiss the present petition.
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C/SCA/16551/2010 JUDGMENT
[5.0] Heard learned Advocates appearing for respective parties at length.
At the outset it is required to be noted that the assessment for the AY 2006--07 is sought to be reopened in exercise of powers under Section 147 of the IT Act. The reason recorded to reopen are as under:
"REASON FOR REOPENING A company filed its return of income for assessment year 200607 on
21.12.2006 declaring income of Rs.618.64 lakh. The assessee company claimed STT (Security Transaction Tax) rebate of Rs.178.48 lakh u/s.88E against the tax payable under normal provision and paid the difference amount of Rs.8.44 lakh. The assessment was finalized u/s.143(3) on 19.12.2008 accepted the same income without making any addition.
1) It was noticed that assessee was having Book Profit of Rs.430.17 lakh. However, assessee did not pay any tax on Book Profit as required u/s.115JB because tax payable u/s.115JB was more than that of tax payable as per normal provisions after giving rebate u/s.88E.
As per provisions of Section 115JB in case of company "if the income tax payable on the total income as computed under this Act is less than 7.5% of its book profit, such book profit shall be deemed to be the total income of the assessee and tax will be payable on such deemed income."
The comparison between tax payable under there sections was to be made at the stage of net amount of tax payable and not after deducting rebate claimed. It is also supported by section 87(i), according to which the amount of income tax payable on the total income of an assessee is the amount of income tax less deductions specified in section of Chapter VIII (Rebates and Receipts). Thus rebate u/s. 88E available under normal provision of the Act would not be available against the tax payable under special provisions u/s. 115JB of the Act. Further, STT is an allowable expenditure for calculating of book profit u/s. 115JB. Hence, it is not correct that STT is allowable expenditure as well as rebatable u/s.115JB. This resulted in under assessment of income of Rs.430.17 lakh u/s. 115JB with consequent short levy of tax of Rs.36.93 lakh (including interest of Rs.9.16 lakh u/s.234B of the Act).
Thus, I have a reason to believe that the said income chargeable to tax has escaped from assessment within the meaning of section 147 of the IT Act, 1961.
Page 6 of 9 HC-NIC Page 6 of 9 Created On Tue Jan 24 02:40:34 IST 2017 C/SCA/16551/2010 JUDGMENT 2) According to section 88E of the IT Act (1) Where the total
income of an assessee in a previous year includes any income, chargeable under the head "Profits and gains of business or profession", arising from taxable securities transactions, he shall be entitled to a deduction, from the amount of incometax on such income arising from such transactions, computed in the manner provided in subsection (2), of an amount equal to the securities transaction tax paid by him in respect of the taxable securities transactions entered into in the course of his business during that previous year:
Provided that no deduction under this subsection shall be allowed unless the assessee furnishes along with the return of income, evidence of payment of securities transaction tax in the prescribed form The assessee company filed its return of income on 21/12/2006 declaring income of Rs.61863815. The assessee company claimed Security Transaction Tax (STT) rebate of Rs.17848022 against the tax payable under normal and paid the difference amount of Rs.843945. The assessment was finalized u/s. 143(3) on 19/12/08 accepted the same income without making any addition.
It was mandatory to submit Form No.10DB & 10DC as per provisions of section 88E r.w. Rule 20AB during assessment to claim rebate for STT paid. Scrutiny of records revealed that the assessee did not submit it during assessment. Thus in view of provisions of section 88E r.w. Rule 20AB non submission of Form No.10DB & 10DC during the assessment, the assessee would not entitle the assessee company for claiming rebate u/s.88E. Thus, there was irregular grant of rebate of Rs.17848022 u/s.88E.
Thus, I have a reason to believe that the said income chargeable to tax has escaped from assessment within the meaning of section 147 of the IT Act, 1961."
However, it is the specific case on behalf of the petitioner - assessee that the impugned reassessment proceedings are solely on the basis of the audit objections raised by the audit party and there is no independent formation of the opinion by the Assessing Officer that the income chargeable to tax has escaped the assessment.
[5.1] On considering the audit objections raised by the audit party and Page 7 of 9 HC-NIC Page 7 of 9 Created On Tue Jan 24 02:40:34 IST 2017 C/SCA/16551/2010 JUDGMENT the reasons recorded to reopen the assessable it appears that on the same ground on which the audit party raised the objection, the assessment for AY 200607 is sought to be reopened. From the material on record more particularly from the information received by the assessee, under the Right to Information Act, it appears that even subsequent to the issuance of the impugned notice under Section 148 of the IT Act, by communication dated 30.11.2010 addressed to the Deputy Accountant General, Rajkot, the Assessing Officer has by a detailed communication objected to the audit objections raised by the audit party and thereafter requested to drop the audit objection. Thus, even after the initiation of the impugned reassessment proceedings, the Assessing Officer was of the opinion that audit objections raised by the audit party (on which the impugned reassessment proceedings are initiated) are required to be dropped.
[5.2] Under the circumstances, learned Counsel appearing on behalf of the petitioner - assessee is justified in submitting that the Assessing Officer on the date of issuance of the notice under Section 148 of the IT Act could not have formed a belief that any income has escaped the assessment. Under the circumstances, on the aforesaid ground alone i.e. on the ground that the impugned reassessment proceedings are initiated solely on the audit objections raised by the audit party to which the Assessing Officer was not agreeable, the impugned reassessment proceedings deserves to be quashed and set aside. In a given case it may happen that the Assessing Officer may form an independent opinion / belief that the income has escaped the assessment, on considering the audit objections raised by the audit party. However, when the Assessing Officer specifically does not agree with the audit objections and infact he communicate with the audit party that the audit objections are required to be dropped and thereafter when the reassessment proceedings are initiated on the very ground on which the audit objections are raised, it Page 8 of 9 HC-NIC Page 8 of 9 Created On Tue Jan 24 02:40:34 IST 2017 C/SCA/16551/2010 JUDGMENT can be said that the reassessment proceedings are initiated solely on the basis of the audit objection raised by the audit party and/or under the pressure of the audit party and it cannot be said that there is any independent formation of opinion / belief by the Assessing Officer that any income has escaped assessment. Under the circumstances, on the aforesaid ground alone and without touching any other aspect, the impugned reassessment proceedings deserves to be quashed and set aside.
[6.0] In view of the above and for the reasons stated above, present Special Civil Application succeeds. The impugned notice dated 04.10.2010 (Annexure AII) issued under Section 148 of the IT Act for reassessment of the AY 200607 and the impugned reassessment proceedings are hereby quashed and set aside. Rule is made absolute to the aforesaid extent. In the facts and circumstances of the case, there shall be no order as to costs.
Sd/ (M.R. SHAH, J.) Sd/ (B.N. KARIA, J.) Ajay Page 9 of 9 HC-NIC Page 9 of 9 Created On Tue Jan 24 02:40:34 IST 2017