Gujarat High Court
Krupesh Ghanshyambhai Thakkar vs Deputy Commissioner Of Income Tax on 8 August, 2017
Author: Akil Kureshi
Bench: Akil Kureshi, Biren Vaishnav
C/SCA/12778/2017 ORDER
IN THE HIGH COURT OF GUJARAT AT AHMEDABAD
SPECIAL CIVIL APPLICATION NO. 12778 of 2017
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KRUPESH GHANSHYAMBHAI THAKKAR....Petitioner(s)
Versus
DEPUTY COMMISSIONER OF INCOME TAX....Respondent(s)
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Appearance:
MS VAIBHAVI K PARIKH, ADVOCATE for the Petitioner(s) No. 1
MRS MAUNA M BHATT, ADVOCATE for the Respondent(s) No. 1
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CORAM: HONOURABLE MR.JUSTICE AKIL KURESHI
and
HONOURABLE MR.JUSTICE BIREN VAISHNAV
Date : 08/08/2017
ORAL ORDER
(PER : HONOURABLE MR.JUSTICE AKIL KURESHI)
1. The petitioner has challenged a notice dated 27.03.2017 issued by the respondentAssessing Officer to reopen the petitioner's assessment for the assessment year 201011. To issue such notice, the Assessing Officer had recorded following reasons:
" As per information available with this office, the assessee has made financial transactions in the nature of loans with M/s Rushil Decor ltd. a private company during the year.
Upon verification of the above information and analysis of the facts of the case, it is noticed that the assessee was holding 21.87% shares in the company M/s Rushil Decor Ltd.Page 1 of 6
HC-NIC Page 1 of 6 Created On Sun Aug 20 15:02:22 IST 2017 C/SCA/12778/2017 ORDER and the assessee had received Rs.4,17,65,430/ from the company during the year in the form of loans. The fact that the above mentioned receipts are in the nature of loan from the company can be seen from the Auditor's report in the case of company where under the head, "related party transaction"
the amount of loans received by the assessee from the company are mentioned.
The company M/s Rushil Decor Ltd. was a closely held company during the year and assessee was holding more than 10% shares of the company during the F.Y. 200910. The company M/s Rushil Decor Ltd. got listed as a public ltd company by way of IPO during the F.Y. 201112 and it was a Pvt. Ltd. company during the F.Y. 200910 relevant to A.Y. 210
11. The assessee being a substantial shareholder having more than 10% shareholding in a closely held company had received payments by way of loans from the company, these loan transactions between the assessee and company fall within the definition of section 2(22)(e) of the I.T. Act, 1961. As per the provisions section 2(22)(e) of the I.T. Act, 1961 the amount of Rs.4,17,65,430/ received as loans by the assessee from M/s Rushil Decor Ltd. was to be treated as dividend in the hands of the assessee and should have been included in the total taxable income of the assessee. But this amount has escaped from being taxed. Return of income filed by the assessee for the A.Y. 201011 on 15/10/2010 declaring income of Rs.20,58,540/ was processed u/s 143(1) of the I.T. Act, 1961.
The case of the assessee is covered under the provisions of Explanation 2(b) of the section 147 of the I.T. Act, 1961 as for the A.Y. 201011 the assessee has filed his return of income but no assessment has been made u/s 143(3) of the Act. As per the above mentioned facts it is clearly seen that the Page 2 of 6 HC-NIC Page 2 of 6 Created On Sun Aug 20 15:02:22 IST 2017 C/SCA/12778/2017 ORDER assessee has understated his income by not treating the loans received from the company as dividend and not including the same in his income.
Moreover, in part ABS of the ITR for 201011 the assessee has not shown any unsecured loans or deposits from any source. Thus, the loan received by the assessee from the company has not even been declared in the ITR.
In view of above facts, I have reason to believe that income of Rs.4,17,65,430/ has escaped assessment due to failure on part of the assessee in making true and full disclosure of all material facts relevant for assessment. And therefore, the case needs to be reopened for reassessment by issue of notice u/s 148 of the I.T.Act, 1961."
2. Upon being supplied with the reasons recorded by the Assessing Officer, the assessee raised detailed objections under a communication dated 01.06.2017. Such objections were however rejected by an order dated 14.06.2017. At that stage, this petition came to be filed.
3. We may notice that the return filed by the petitioner was accepted under section 143(1) of the Act without scrutiny. In that view of the matter, the grounds for challenging the notice for reopening, would undoubtedly be limited. However, counsel for the petitioner submitted that the reasons recorded by Page 3 of 6 HC-NIC Page 3 of 6 Created On Sun Aug 20 15:02:22 IST 2017 C/SCA/12778/2017 ORDER the Assessing Officer lack validity since the Assessing Officer proceeds on completely wrong factual parameter. He pointed out that the Assessing Officer wishes to invoke section 2(22)(e) of the Act with respect to a certain sum of Rs.4.17 crores (rounded off) allegedly received by the assessee from M/s.Rushil Decors Limited by way of a loan. In the objections raised by the petitioner as well as in the present petition, it is stated and demonstrated that the loan was not received by the petitioner from the said company but the said sum was advanced by the petitioner to the company. That being the position, section 2(22)(e) of the Act would not apply.
4. The Assessing Officer has passed an order disposing of the objections. He has also filed affidavit in reply in the present petition. However, in neither of these two documents, he has dealt with the factual assertion made by the petitioner viz. that the sum in question was advanced by the petitioner to the company and was not received by the petitioner from the company by way of a loan. The petitioner has produced the audited accounts in the balancesheet which we have perused. The amount in question is Page 4 of 6 HC-NIC Page 4 of 6 Created On Sun Aug 20 15:02:22 IST 2017 C/SCA/12778/2017 ORDER shown as a demand to the said company. Loan is an advance made by the petitioner to the said company. The stand taken by the Assessing Officer in the reasons recorded that such sum was received by the petitioner from the company by way of a loan, is thus even otherwise not correct. We have therefore proceeded on such basis. If that be so, the reason for reopening the assessment completely lacked validity. The sole ground to reopen the assessment was that the loan received by the petitioner from private company should be treated as a deemed dividend in terms of section 2(22)(e) of the Act. When on facts the petitioner is able to show that the amount in question was advanced by the petitioner to the company and was not received by the company by way of a loan, section 2(22)(e) of the Act would have no applicability. The impugned notice dated 27.03.2017 is set aside. Petition is allowed and disposed of.
(AKIL KURESHI, J.) (BIREN VAISHNAV, J.) Page 5 of 6 HC-NIC Page 5 of 6 Created On Sun Aug 20 15:02:22 IST 2017 C/SCA/12778/2017 ORDER ANKIT Page 6 of 6 HC-NIC Page 6 of 6 Created On Sun Aug 20 15:02:22 IST 2017