ARDENT VENTURES LLP V. INCOME TAX OFFICER WARD 3(1)(3)

SCA/16129/2018

AI Insights

Ardent Ventures LLP challenged a notice issued by the Income Tax Officer under Section 148 of the Income Tax Act, 1961, seeking to reopen their income tax assessment for the assessment year 2011-12. The notice was based on information received from the DDIT (Inv.), Unit-1(1), Ahmedabad, during an investigation into Gujarat Natural Resources Ltd., which revealed that Ardent Ventures LLP had invested Rs. 52,50,000 in share application money. The Income Tax Officer requested details from Ardent Ventures LLP to substantiate the source of this investment, but the responses were deemed insufficient, leading to the reopening of the assessment. The High Court upheld the reopening, agreeing that the assessee had not fully disclosed material facts necessary for a proper assessment.

• Counselvise Citation: [2021] 140 COUNSELVISE.COM (IT) 762208 (HC-GUJARAT)
• Appeal Type: Others
• Pronouncement Date: 01-03-2021
• Assessment Year: misc
• Other Referred Cases: Krupesh Ghanshyambhai Thakkar Vs. DCIT, Raymond Woolen Mills Ltd. Vs. Income Tax Officer, Calcutta Discount Company Ltd. Vs. Income Tax Officer, Companies District I, Calcutta and Anr.
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Revenue
• Court: HIGH COURT
• Department Lawyers: VARUN PATEL
• Assessee Lawyers: VAIBHAVI PARIKH; TUSHAR HEMANI
• Keywords: Income tax assessment; Reopening of assessment; Share Application Money; Undisclosed income
• Section: 147; 148; 143(1)

Judgement Text

"C/SCA/16129/2018 ORDER IN THE HIGH COURT OF GUJARAT AT AHMEDABAD R/SPECIAL CIVIL APPLICATION NO. 16129 of 2018 ========================================================= ARDENT VENTURES LLP Versus INCOME TAX OFFICER WARD 3(1)(3) ========================================================== Appearance: MS VAIBHAVI K PARIKH(3238) for the Petitioner(s) No. 1 MR.VARUN K.PATEL(3802) for the Respondent(s) No. 1 ========================================================== ORAM: HONOURABLE MR. JUSTICE J.B.PARDIWALA and HONOURABLE MR. JUSTICE ILESH J. VORA Date : 01/03/2021 ORAL ORDER (PER : HONOURABLE MR. JUSTICE ILESH J. VORA) 1. By filing this writ application under Article 226 of the Constitution of India, the writ applicant seeks to challenge the Notice dated 28.03.2018 issued by the respondent under Section 148 of the Income Tax Act, 1961 (for short “The Act, 1961”) seeking to re- open the applicant’s income tax assessment for the A.Y 2011-12. 2. The brief facts giving rise to filing the present writ application are as follows: 2.1 The writ applicant Ardent Ventures LLP is a limited liability partnership firm. The writ applicant filed its return of income for the A.Y. 2011-12 on 13.02.2012 declaring total income at Rs.23,936/- and the same was processed under Section 143(1) of the Act without any scrutiny. Page 1 of 13 C/SCA/16129/2018 ORDER 2.2 The assessing officer reopened the assessment under Section 147 of the Act by issuing impugned notice under Section 148 of the Act. The assessee company had requested to the Revenue to treat the original return of income filed as return filed in pursuance to the impugned notice and vide letter dated 09.04.2018, requested to provide a copy of the reasons recorded, which has been provided by letter dated 13.04.2018. The reasons recorded reads thus : Reasons for re-opening :- “2. The DDIT, (Inv.), Unit-1(1), Ahmedabad vide Letter dated 19/03/2018 shared the information of the above mentioned assessee company consequent to inquiry in the case of Gujarat Natural Resources Ltd. The said information has been received through ITO, Ward,1(1) (3), Ahmedabad. The gist of the findings forwarded is as under: 2.1 During the course of investigation in the case of Gujarat Natural Resources Ltd. (GNRL), it came to light that company had received share application money, out of which during F.Y. 2010-11, it had received a sum of Rs.52,50,000/- from Ardent Ventures LLP (Formerly known as Ardent Ventures Pvt. Ltd). In order to carry out further investigations in the matter, summons’ were issued to Ardent Ventures Pvt. Ltd., by the Investigation wing requesting to furnish details regarding source of investment in GNRL by way of share capital and share premium during F.Y. 2010-11 and also to prove that the investment is made out of tax paid money. The summons could not be served in the known address in spite of several attempts. Therefore the source of money invested in GNRL is not proved and it is not ascertainable whether ti is out of tax paid money. Thereafter, as per directions of Pr. DIT (Investigation), the DDIT has shared the above information with a request to take necessary action as per relevant provisions of Income Tax Act, 1961. 3. The above information and data available on record are carefully considered. The refund income of the assessee company is Rs.23,936/-. During the year, investment in utilized equities has increased by Rs.57,12,700/- the compared to the previous year. As per the information Page 2 of 13 C/SCA/16129/2018 ORDER received from the investigation wing, it is seen that assessee has introduced share application money in GNRL to the tune of Rs.52,50,000/-. The details of investment are not available on records. 4. A non-statutory letter was issued to -assessee on 21.03.2018 by ITO, Ward 1(1) (3), Ahmedabad to submit the details of transaction made with Gujarat Natural Resources Ltd. during the F.Y. 2010-11 along with supporting documents to prove the same. It was also requested to submit the details of all investment made during the year along with source of investment. The assessee vides reply dated 22.3.2018 submitted return of income, statement of total income, audited accounts. The details of investment as per balance sheet are as under. Particulars As on 31.03.2011 As on 31.03.2010 Shares (Long Term At Cost) Uniflex cables 1,37,700 1,37,700 Kanha Cables Ltd. 1,25,000 1,25,000/- Lesha Energy Resources 70,00,000 17,50,000 Mututal Fund (Long term At cost) Axis Triple Adv. Fund 2,00,000 Total 74,62,700 20,12,700 5. As per the audited accounts and details submitted, during the year assesses investment in Lesha Energy Resources Ltd. (Formerly known as Gujarat Natural Resources Ltd.) has increased by Rs.52,50,000/-. The assessee has provided certificate of incorporation consequent upon change of name to Lesha Energy Resources Ltd. Vide letter dated 21.3.2018, it was specifically asked by ITO, Ward (1) (1) (3), Ahmedabad to provide the source of investment made during the year. However, the sources of investments were not provided by the assessee. In view of this, source of investment to the tune of Rs. 52,50,000/- in Gujarat Natural Resources Ltd. stands unexplained as per I.T.Act. This being the case, the investment of Rs.52,50,000/- made is to be treated as income from undisclosed sources of the assessee. 6. In view of the above findings, I have reasons to believe that income chargeable to tax to the extent of Rs.52,50,000/- has escaped assessment in the case of Ardent Ventures Pvt. Ltd for the A.Y. 2011-12 within the meaning of section 147 of the I.T. Act and it is a fit case for issuing notice u/s 148 of the Act.” Page 3 of 13 C/SCA/16129/2018 ORDER 2.3 The writ applicant filed its objections vide its communication dated 02.05.2018 and the same came to be rejected by the Revenue vide order dated 24.07.2018. 3. Being dissatisfied with the decision to reopen the assessment, the writ applicant is here before this Court with the present writ application. 4. The case of the revenue is that, during the course of investigation in the case of Gujarat Natural Resources Ltd. (subsequently known as Lesha Energy Resources Ltd.), it came to the notice that, the Gujarat Natural Resources Ltd., had received Rs.52,50,000/- towards share application money from the assessee during F.Y. 2010-11. The assessee was thereafter requested to submit all the details of investments along with sources of investment. The assessee failed to provide the details of source of the investment and such investment of Rs.52,50,000/- remains unexplained and needs to be treated as undisclosed income and and accordingly, the revenue is of the view that, the income of Rs.52,50,000/- chargeable to tax has escaped assessment in the hands of the assessee. 5. The assessee had submitted its objections against re-opening of the assessment, wherein, it was submitted that, the assessee has disclosed all the income liable to be offered and to be brought to tax in its return of income and further submitted that, the transactions in question has been duly recorded in the audited books of accounts of the assessee company. It has been specifically Page 4 of 13 C/SCA/16129/2018 ORDER pleaded by the writ applicant that, at the relevant time, there was sufficient funds at the beginning of the year represented by the share capital and advances receivable and the same was the source of investment in Gujarat Natural Resources Ltd., and therefore, all the necessary facts and materials with regard to sources of investment in the company having been disclosed before the authority. 6. We have heard Mr. Tushar Hemani, the learned Senior Counsel assisted by Ms. Vaibhavi K. Parikh, the learned counsel appearing for the writ applicant and Mr. Varun K. Patel, the learned Standing Counsel appearing for the Revenue. 7. Learned counsel appearing for the writ applicant has submitted the following contentions : (i) It was submitted that, the impugned notice is illegal, bad in law and without jurisdiction because the conditions precedent for valid reopening under Section 147 of the act is not satisfied. (ii) It was pointed out that, the assessing officer can re-open the case of an assessee within the prescribed time limit provided he has reason to believe that, some income chargeable to tax has escaped assessment in the hands of the assessee and such ‘reason to believe’ must be based on tangible materials. In this regard, it was argued that, the investment of Rs.52,50,000/- duly appeared in the annual audit account of the assessee, which shows that, the Page 5 of 13 C/SCA/16129/2018 ORDER assessee had funds at the beginning of the year which was invested in the Gujarat Natural Resources Ltd., and such funds were the source of investment in the alleged company. Therefore, in these circumstances, it cannot be said that the sources of investment were not disclosed by the writ applicant. (iii) Relying on the case of Krupesh Ghanshyambhai Thakkar Vs. DCIT, [(2017) 77 taxmann.com 293 (Guj.)], it was contended that, reopening cannot be resorted to for a mere scrutiny or further verification of any aspect. In this regard, it was further pointed out that, the learned counsel submitted that, the respondent has not at all established as to how investment in the alleged company can be treated as undisclosed income of the writ applicant and there was some suspicion in the mind of the assessing officer with regard to escape of such income chargeable to tax in the assessee’s hand and accordingly, it is evident that the respondent has initiated the proceedings for further verification of the concerned transaction, which cannot permissible in law. (v) It was pointed out that, the law is settled that the assessing officer does not get jurisdiction to reopen an assessment unless he records his over independent satisfaction to the effect that, income chargeable to tax has actually escaped assessment. In the present case, no satisfaction has been recorded by the respondent as the Assessing officer has merely relied upon the information received from the office of the DDIT (Inv.), Unit I, Ahmedabad for the purpose of reopening of the assessment. Page 6 of 13 C/SCA/16129/2018 ORDER 8. In view of the aforesaid contentions, the learned counsel appearing for the writ applicant submits that, the impugned notice is bad, illegal, contrary to law and is required to be quashed and set aside, 9. On the other hand, Mr. Varun Patel, the learned Standing Counsel appearing for the Revenue submitted that, having regard to the reasons recorded for re-opening of the assessment, the Assessing Officer has clearly recorded that there is a failure on the part of the assessee to disclose its income fully and truly and therefore, the reopening of the assessment beyond a period of four years from the end of the relevant assessment year is valid and proper. Relying on the case of Raymond Woolen Mills Ltd. Vs. Income Tax Officer, (1999) 236 ITR 34 SC, it was argued that, the assessee failed to furnish necessary details with regard to undisclosed income as recorded in the reasons recorded by the assessing officer and at that stage, the assessing officer should not have finally ascertained the fact by legal evidence or conclusion. In view of the contentions raised by the Revenue, Mr. Varun Patel prays that, there being no merits in the writ application, the same may be rejected. 10. Having heard the learned counsel appearing for the parties and having gone through the materials on record, the question for fall our consideration is whether the Revenue is justified in reopening the assessment beyond a period of four years under Section 147 of the Act. Page 7 of 13 C/SCA/16129/2018 ORDER 11. We take notice of the fact that, the demand to reopen the assessment is substantially on the ground that, the assessee company had invested Rs.52,50,000/- in Gujarat Natural Resources Ltd., towards share application money for which the assessee company failed to provide the details of source of investment for the year under consideration. 12. The law is settled that, Section 139 of the Act places an obligation upon every person to furnish voluntarily a return of his/her total income with statutory obligation to disclose all the material facts necessary for his /her assessment for that year fully and truly. If at any subsequent point of time, it is found that, either on account of an omission or failure of the assessee to file the return fully and truly all materials necessary for his assessment for that year, income chargeable to tax has escaped assessment for that year, the revenue is entitled to reopen the assessment in accordance with the procedure as prescribed by the Act. 13. A constitutional Bench of the Supreme Court in Calcutta Discount Company Ltd. Vs. Income Tax Officer, Companies District I, Calcutta and Anr., [AIR 1961 SC 372], wherein, the meaning of “true and full disclosure” has been explained. The relevant observations made in paras 8, 9, 10 and 11 of the said decision reads thus: “(8) The words used are \" omission or failure to disclose fully and truly all material facts necessary for his assessment for that year \". It postulates a duty on every assessee to disclose fully and truly all material facts necessary for his assessment. What facts Page 8 of 13 C/SCA/16129/2018 ORDER are material, and necessary for assessment will differ from case to case. In every assessment proceeding, the assessing authority will, for the purpose of computing or determining the proper tax due from an assessee, require to know all the facts which help him in coming to the correct conclusion. From the primary facts in his Possession, whether on disclosure by the assessee, or discovered by him on the basis of the facts disclosed, or otherwise-the assessing authority has to draw inferences as regards certain other facts; and ultimately, from the primary facts and the further facts inferred from them, the authority has to draw the proper legal inferences, and ascertain on a correct interpretation of the taxing enactment, the proper tax leviable. Thus, when a question arises whether certain income received by an assessee is capital receipt, or revenue receipt, the assessing authority has to find out what primary facts have been proved, what other facts can be inferred from them, and taking all these together, to decide what the legal inference should be. (9) There can be no doubt that the duty of disclosing all the primary facts relevant to the decision of the question before the assessing authority lies on the assessee. To meet a possible contention that when some account books or other evidence has been produced, there is no duty on the assessee to disclose further facts, which on due diligence, the Income-tax Officer might have discovered, the Legislature has put in the Explanation, which has been set out above., In view of the Explanation, it will not be open to the assessee to say, for example-\" I have produced the account books and the documents: You, the assessing officer examine them, and find out the facts necessary for your purpose: My duty is done with disclosing these account-books and the documents\". His omission to bring to the assessing authority's attention these particular items in the account books, or the particular portions of the documents, which are relevant, amount to \" omission to disclose fully and truly all material facts necessary for his assessment.\" Nor will he be able to contend successfully that by disclosing certain evidence, he should be deemed to have disclosed other evidence, which might have been discovered by the assessing authority if he had pursued investigation on the basis of what has been disclosed. The Explanation to the section, gives a quietus to all such contentions; and the position remains that so far as primary facts are concerned, it is the assessee's duty to disclose all of them-including particular entries in account books, particular portions of documents and documents, and other evidence, which could have been discovered by the assessing authority, from the documents and other evidence disclosed. Page 9 of 13 C/SCA/16129/2018 ORDER (10) Does the duty however extend beyond the full and truthful disclosure of all primary facts ? In our opinion, the answer to this question must be in the negative. Once all the primary facts are before the assessing authority, he requires no further assistance by way of disclosure. It is for him to decide what inferences of facts can be reasonably drawn and what legal inferences have ultimately to be drawn. It is not for somebody else-far less the assessee--to tell the assessing authority what inferences-whether of facts or law should be drawn. Indeed, when it is remembered that people often differ as regards what inferences should be drawn from given facts, it will be meaningless to demand that the assessee must disclose what inferences-whether of facts or law-he would draw from the primary facts. (11) If from primary facts more inferences than one could be drawn, it would not be possible to say that the assessee should have drawn any particular inference and communicated it to the assessing authority. How could an assessee be charged with failure to communicate an inference, which he might or might not have drawn ?” 14. A careful analysis of the above judgment, it is settled that it is duty of the assessee to disclose fully and truly all material facts which it term as primary facts and non disclosure of other facts may be termed as secondary fact is not necessary. In light of the settled principles as propounded by the Constitutional Bench, we shall now deal with the facts of the present case. 15. We take the notice of the fact that, after receiving the impugned notice dated 28.03.2018, the assessee company vide letter dated 09.04.2018, requested to treat the original return of income as its return of income in response to the notice and also filed a copy of the audited annual accounts including the audited balance-sheet, which is on record. Page 10 of 13 C/SCA/16129/2018 ORDER 16. We have carefully examined the reasons recorded for re-opening of the assessment, wherein, the assessing officer has observed that, as per the audited accounts and details submitted by the assessee, the sources of investment made during the year were not provided by the assessee and the amount of Rs.52,50,000/- invested in the Gujarat Natural Resources Ltd. stands unexplained, which is to be treated as income from the undisclosed source of assessee. 17. Considering the reasons recorded and the law laid down by the Apex Court in the case of Calcutta Discount Companies (Supra), we are of the view that, the assessee has failed to explain the sources of the investment made in the Gujarat Natural Resources Ltd. We have examined the letter dated 09.04.2018, wherein, it was not brought to the notice of the respondent that the company having surplus funds at the beginning of the year represented by share capital and advances receivable and the same was the source of investment in the alleged company. Therefore, in our view, it is the omission on the part of the assessee company not to point out this specific particular items of the balance-sheet to show that, the surplus funds was being utilized for the investment. Therefore, failure to highlight specifically the relevant items of the account books or the particular portion of the balance-sheet to the respondent could be said to be an omission on the part of the assessee to disclose fully and truly all the material facts necessary for its assessment. Thus, we hold that, the assessee has failed to disclose the primary facts with regard to the sources of investment. Page 11 of 13 C/SCA/16129/2018 ORDER 18. It is an admitted fact that, the original return was processed under Section 143 (1) of the Act without scrutiny assessment. It is pertinent to note that, the explanation 1 to Section 147 of the Act clearly says that, the production before the assessing officer of account books or other evidence could with due diligence have been discovered by the assessing officer will not amount to disclosure. 19. In view of the aforesaid discussions and considering the facts and circumstances of the case, we hold that, in absence of primary facts with regard to the sources of investment, the assessing officer has rightly recorded that the assessee has not furnished the details with regard to the sources of investment and therefore, there is a cause or justification for him to believe that, the unexplained investment chargeable to tax has escaped assessment. 20. Thus, in the overall view of the matter, it cannot be said that, there was no tangible material before the assessing officer to re-open the assessment and that he has proceeded mechanically based only on the information received from the Investigation DDIT (Inv.) I, Ahmedabad and therefore, the impugned notice is without jurisdiction and contrary to Section 147 of the Act. 21. For the foregoing reasons, no case is made out and accordingly, present writ application deserves to be dismissed and is hereby Page 12 of 13 C/SCA/16129/2018 ORDER dismissed. Notice is discharged. Interim relief, granted earlier, stands vacated. (J. B. PARDIWALA, J) (ILESH J. VORA,J) SUCHIT Page 13 of 13 "