ASIAN TILES LTD V. DEPUTY COMMISSIONER OF INCOME TAX CIRCLE 1

SCA/13933/2014

AI Insights

The case involves Asian Tiles Ltd., the petitioner, challenging a notice issued by the Deputy Commissioner of Income Tax under Section 148 of the Income Tax Act, which directed the petitioner to furnish a return of income for the assessment year 2007-08. The notice was based on a search operation conducted under Section 132 of the Act, which allegedly uncovered undisclosed sales. The petitioner argued that the notice was based on misconceived and baseless reasons, and that the entire sale transaction amount was wrongly included as income. The respondent defended the notice, asserting that the petitioner had not disclosed the sale transaction during the search, justifying the reopening of the assessment. The court, after examining the arguments and relevant legal provisions, concluded that the notice was invalid as it improperly sought to tax the entire sale transaction amount as income.

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 765768 (HC-GUJARAT)
• Appeal Type: Others
• Pronouncement Date: 08-07-2015
• Assessment Year: misc
• Other Referred Cases: Commissioner of Income Tax and others V/s. Chhabil Dass Agarwal, Vishwanath Engineers V/s. Assistant Commissioner of Income Tax, B G Exploration and Production India Limited & 1 V/s. State of Gujarat through Secretary and others, Mukesh Modi V/s. Deputy Commissioner of Income-tax, Central Circle-1, Jodhpur, Calcutta Discount Co.Ltd. V/s. Income-tax Officer, Parixit Industries (P.) Ltd. V/s. Assistant Commissioner of Police (OSD), Circle-5, Commissioner of Income Tax V/s. President Industries, I.D.Patel and Co.
• Laws Referred To: Income Tax Act
• Result in Favour of: Others
• Court: HIGH COURT
• Department Lawyers: M R BHATT; MAUNA BHATT
• Assessee Lawyers: S N SOPARKAR; JAIMIN DAVE; B S SOPARKAR
• Keywords: Alternative remedy; Income Tax; Jurisdiction; Reassessment; Suppressed Sale Transaction
• Section: 148; 142(1); 143(2); 132; 153(A)

Judgement Text

"C/SCA/13933/2014 JUDGMENT IN THE HIGH COURT OF GUJARAT AT AHMEDABAD SPECIAL CIVIL APPLICATION NO. 13933 of 2014 FOR APPROVAL AND SIGNATURE: HONOURABLE MR.JUSTICE A.J.DESAI sd/- and HONOURABLE MR.JUSTICE A.G.URAIZEE sd/- ========================================================== 1 Whether Reporters of Local Papers may be allowed to see the judgment ? No 2 To be referred to the Reporter or not ? No 3 Whether their Lordships wish to see the fair copy of the judgment ? No 4 Whether this case involves a substantial question of law as to the interpretation of the Constitution of India or any order made thereunder ? No ========================================================== ASIAN TILES LTD....Petitioner Versus DEPUTY COMMISSIONER OF INCOME TAX CIRCLE 1....Respondent ========================================================== Appearance: MR S.N.SOPARKAR, LD.SENIOR ADVOCATE WITH MR JAIMIN R. DAVE, LD.ADV. WITH MR B S SOPARKAR, LD.ADVOCATE for the Petitioner. MR M.R.BHATT, LD.SENIOR ADVOCATE WITH MRS MAUNA M BHATT, ADVOCATE for the Respondent. ========================================================== CORAM: HONOURABLE MR.JUSTICE A.J.DESAI and HONOURABLE MR.JUSTICE A.G.URAIZEE Date : 08/07/2015 ORAL JUDGMENT Page 1 of 12 C/SCA/13933/2014 JUDGMENT (PER : HONOURABLE MR.JUSTICE A.G.URAIZEE) 1. The petitioner has invoked jurisdiction of this Court under Article 226 of the Constitution of Indian to challenge the Notice dated 20/03/2014 issued by the respondent under Section 148 of the Income Tax Act (hereinafter referred to as “the Act” for short) directing the petitioner to furnish the Return of income for the assessment year 2007-08. 2. The facts giving rise to the present petition, are as under: That the petitioner is a limited company and is engaged in business of manufacturing Tiles. A search u/s.132 of the Act, was carried out in the Asian Group of Cases on 07/02/2008. A warrant of authorization u/s.132 of the Act was issued in the name of the petitioner/ assessee and, thereafter, the case of the petitioner was centralized with CIT, Ahmedabad II Circle. Notice dated 16/07/2008 u/s.153-A of the Act calling upon the petitioner to file Return of income was served upon the petitioner. The petitioner file its Return of income for the Assessment Year 2007-08 on 27/06/2009 declaring his total income as Rs.35,32,510/-. The case of the petitioner came to be selected for scrutiny and Notices u/s.142(1) and 143(2) were served on the petitioner. Thereafter, respondent issued impugned Notice u/s.148 of the Act dated 20/03/2014 for reopening the assessment for the assessment year 2007-08. Upon receipt of the impugned Notice, the petitioner made request to the respondent vide letter dated 27/03/2014 and 29/04/2014 to supply the reasons recorded for reopening of the assessment. The respondent vide order dated 07/05/2014 supplied the Page 2 of 12 C/SCA/13933/2014 JUDGMENT reasons recorded for reopening the assessment. It is the case of the petitioner that the reasons recorded for reopening of the assessment are misconceived and baseless. Therefore, the petitioner raised various objections to the impugned show cause notice on merits and requested the respondent to drop the reassessment proceedings vide letter dated 13/05/2014. The respondent vide order dated 11/08/2014 disposed of the said objections without dealing with the contention raised by the petitioner as being not acceptable. The petitioner having no other alternative efficacious remedy for redressal of the grievance with regard to the impugned notice except to challenge the impugned Notice before this Court under Article 226 of the Constitution of India. 3. We have heard Mr.S.N.Soparkar, learned Senior advocate for the petitioner and Mr.M.R.Bhatt, learned senior advocate for the respondent. 4. Mr.M.R.Bhatt, learned Senior Advocate appearing for the respondent has raised preliminary contention regarding entitlement of the petition on the ground that the petitioner has wrongly and directly approached this Court before final adjudication take place. The petitioner has approached this Court at prematured stage and he can very well agitate his case on merits before appropriate authority. He has relied upon the judgement of the Hon’ble Supreme Court in the case of Commissioner of Income Tax and others V/s. Chhabil Dass Agarwal reported in [2013] 357 ITR 357 (SC) in support of the above submission and has submitted that on this ground alone, the petition deserves Page 3 of 12 C/SCA/13933/2014 JUDGMENT to be rejected and the petitioner may be relegated to exhaust the alternative remedy. 5. Mr.B.S.Soparkar, learned advocate appearing for the petitioner has submitted that there is no alternative remedy much less efficacious remedy to challenge the show cause notice. He would submit that inherently wrong and invalid reasons are recorded in the impugned notice and, therefore, this Court is not without power under Article 226 of the Constitution of India to examine the validity of the reasons recorded in the impugned notice to hold that the notice is invalid. He has relied upon the reported judgement of this Court rendered in the case of Vishwanath Engineers V/s. Assistant Commissioner of Income Tax reported in [2014] 45 taxmann.com 15 (Gujarat), wherein it is held that availability of efficacious remedy is not an absolute bar particularly when the petition is admitted and affidavit is filed. He has also relied upon the unreported decision of Division Bench of this Court in the case of B G Exploration and Production India Limited & 1 V/s. State of Gujarat through Secretary and others decided on 08/05/2015 as well as judgement rendered by the Rajasthan High Court in the case of Mukesh Modi V/s. Deputy Commissioner of Income-tax, Central Circle-1, Jodhpur reported in [2014] 224 TAXMAN 362/45 taxmann.com 468 (Rajasthan), wherein similar view is taken. Hon’ble Supreme Court in the case of Commissioner of Income-Tax and others V/s. Chhabil Dass Agarwal (supra) relied upon by learned advocate for Page 4 of 12 C/SCA/13933/2014 JUDGMENT the appellant, has held as under: “19. Thus, while it can be said that this court has recognized some exceptions to the rule of alternative remedy, i.e., where the statutory authority has not acted in accordance with the provisions of the enactment in question, or in defiance of the fundamental principles of judicial procedure, or has resorted to invoke the provisions which are repealed, or when an order has been passed in total violation of the principles of natural justice, the proposition laid down in Thansingh Nathmal’s case, Titagard Paper Mills’ case and other similar judgements that the High Court will not entertain a petition under article 226 of the Constitution if an effective alternative remedy is available to the aggrieved person or the statute under which the action complained of has been taken itself contains a mechanism for redressal of grievance still holds the field. Therefore, when a statutory forum is created by law for redressal of grievances, a writ petition should not be entertained ignoring the statutory dispensation.” It can be seen from the above observation of the Hon’ble Apex Court that exception to the rule of alternative remedy are cowed out and accordingly it is held that if statutory authority has not acted in accordance with the provisions of the enactment in question, or in defiance of the fundamental principles of judicial procedure, or has sought to Page 5 of 12 C/SCA/13933/2014 JUDGMENT invoke the provisions which are repealed, or when an order has been passed in total violation of the principles of natural justice, High Court is not without power to exercise the extra ordinary jurisdiction conferred under Article 226 of the Constitution and petition would not be entertained if the aforesaid parameters are not satisfied and statutory remedy is available and party litigant would be relegated to exhaust the statutory remedy available under the law. 4. In the case of B G Exploration and production India Limited & 1 (supra) relied upon Mr.Soparkar, learned senior advocate for the appellant, this Court held that where the very jurisdiction of the concerned authority is called in question and the petitions do not involve disputed questions of fact, the petitions cannot be dismissed on the singular ground of availability of alternative remedy. Similar view has been taken by the Rajasthan High Court in recent judgement delivered in the case of Mukesh Modi (supra) relied upon by Mr.Soparkar, learned advocate for the petitioner. 5. Hon’ble Supreme Court in leading case of Calcutta Discount Co.Ltd. V/s. Income-tax Officer reported in [1961] 41 ITR 191 (SC) as well as this Court in the case of Parixit Industries (P.) Ltd. V/s. Assistant Commissioner of Police (OSD), Circle-5, reported in [2012]20 taxmann.com 750 (Gujarat), wherein notice was challenged without exhausting alternative remedy. This Court also expressed similar view that when there is infraction of principle of natural justice or fundamental rights or the authority has acted without jurisdiction or has exceeded the Page 6 of 12 C/SCA/13933/2014 JUDGMENT jurisdiction vested in it, this Court is not powerless to exercise the jurisdiction under Article 226 of the Constitution of India. In view of the above principle regarding by passing statutory appeal to approach this Court under Article 226 of the Constitution of India, we have to examine as to whether the petitioner has made out the case to entertain this petition under Article 226 of the Constitution of India. It is an undisputed fact that search u/s.132 of the Act was carried out in the Asian Group of Industries on 07/02/2008 and, thereafter, Notice u/s.153 A was issued on 16/07/2008 calling upon the petitioner to file return of income for the assessment year 2007-08. In response to the notice, the petitioner filed Return on 29/06/2009 declaring his income at Rs.35,32,510/-. Thereafter, the petitioner has been served with the Notice u/s.132 of the Act and also u/s.241 of the Act, calling for details from the petitioner. Thereafter, the petitioner has submitted his reply to the Notices but the respondent was not convinced and did not accept the reply and issued the impugned notice on the ground that the sale amount to the tune of Rs.7,98,68,610/- was not disclosed by the petitioner. It is specific case of the petitioner that books of accounts were available for perusal of the respondent authority and at the time of hearing also, details were provided. Assessing Officer was having all the details regarding suppressed sale transaction and, therefore, it cannot be said that the petitioner has not made disclosure truly and fully. In the background of this peculiar facts and the fact that the petition has already been entertained by this Court and as held by Hon’ble Apex Court and this Court in catena of decisions, once the petition is admitted, the petitioner cannot be non-suited on the ground of availability of Page 7 of 12 C/SCA/13933/2014 JUDGMENT alternative remedy and, therefore, we do not find any substance in the objection raised by Mr.M.R.Bhatt, learned senior advocate appearing for the respondent. 6. Now so far as merits of the petition are concerned, Mr.Soparkar, learned advocate for the petitioner submits that as per u/s.147 of the Act in respect of income escaped assessment year, Assessing Officer is empowered to reopen the assessment within four years of the relevant assessment year. It is his further contention that assessing officer can reopen the case beyond four years but within six years, if the income which is escaped is more than one lac for the relevant year. In the present case, Assessing Officer has reopened the assessment beyond four years and, therefore, Notice is inherently invalid. It is further contention that Assessing Officer has already recovered income tax on the undisclosed income of Rs.2,08,45,708/- at G.P. rate of 26.10% of suppressed sale transaction to the tune of Rs.7,98,68,610/- and now the respondent wants to include Rs.7,98,68,610/- as earned disclosed amount and assessed tax accordingly. Reliance is placed on the decision rendered in the case of Kanak Fabrics V/s. Income Tax Officer reported in [2014]49 taxmann.com 108 (Gujarat) to content that Assessing Officer has not recorded any satisfaction for reopening the case and, therefore, assumption of jurisdiction under section 147 of the Act is invalid. In the present case, we find that while assessment u/s.153 read with 143(3) was finalised and income of Rs.2,08,45,708/- was added to the income declared by the petitioner on the basis of G.P. rate of 26.10% of suppressed sale value of Rs.7,98,68,610/- therefore, Page 8 of 12 C/SCA/13933/2014 JUDGMENT now the respondent cannot contend that the petitioner had not made disclosure fully and truly to assess the income on the entire amount of sale value of Rs.7,98,68,610/-. Therefore, impugned notice is illegal, invalid and without jurisdiction. 7. The contention of Mr.M.R.Bhatt, learned senior counsel for the respondent is that the Assessing Officer has recorded the reasons for giving the impugned notice to the petitioner. It is his further contention that at the time of search/raid, the petitioner had not disclosed the sale transaction of Rs.7,98,68,610/- and, therefore, there was suppression on the part of the petitioner, which is evident from verification of books of accounts. The books of account did not reflect the said sale transaction. Therefore, the authority has rightly exercised his power u/s.147 of the Act. He has relied upon reported decision rendered in the case of I.D.Patel and Co. reported in [2012]246 tax man 207 (Gujarat) wherein it is held that it is sufficient to issue notice if the failure can be inferred and when there is a prima facie material justifying the issue of notice, this Court would not quash the notice. It is his further contention that when the petitioner has failed to disclose the sale transaction of Rs.7,98,68,610/-, he can put up his case before assessing officer and assessing officer is satisfied with the explanation of the petitioner, he cannot subject the entire transaction to the income and, therefore, it is his submission that this Court may not quash the impugned notice. 8. On the other hand, it is contention of Mr.Soparkar, learned advocate for the petitioner that Assessing Officer Page 9 of 12 C/SCA/13933/2014 JUDGMENT himself has detected undisclosed sale transaction at the time of search/ raid and as it evident from the reasons for reopening the assessment, earning of the profit G.P. at the rate of 26.10% as taxable income from the suppressed sale transaction. Assessing Officer had detected suppressed sale transaction. It is his further contention that this very fact was disclosed by the Assessing Officer himself in the assessment order. Hence, he has submitted that the impugned notice is inherently invalid and the same deserves to be quashed. 10. Undisputed fact is that search operation was carried out by the respondent authority and during this search operation, undisclosed suppressed sale transaction to the tune of Rs.7,98,68,610/- was detected. It is also undisputed fact that gross profit at the rate of 26.10% on the aforesaid suppressed sale transaction was assessed and the tax was accordingly levied. Now, the department by impugned notice wants to levy tax on the whole amount of suppressed sale transaction to the tune of Rs.7,98,68,610/- and not on gross profit earned by the assessee on the sale transaction. This Court had an occasion to examine the issue as to whether entire sale transaction can be added to the income or not. In the case of Commissioner of Income Tax V/s. President Industries (supra) relied upon by Mr.Soparkar, learned advocate, wherein it is observed as under: “Having perused the assessment order made by the Assessing Officer, the order made by the Commissioner of Income-tax (Appeals) and the Income-tax Appellate Tribunal, we are satisfied that the Tribunal was justified in rejecting the application Page 10 of 12 C/SCA/13933/2014 JUDGMENT under section 256(1). It cannot be matter of an argument that the amount of sales by itself cannot represent the income of the assessee who has not disclosed the sales. The sales only represented the price received by the seller of the goods for the acquisition of which it has already incurred the cost. It is the realisation of excess over the cost incurred that only forms part of the profit included in the consideration of sales. Therefore, unless there is a finding to the effect that investment by way of incurring the cost in acquiring the goods which have been sold has been made by the assessee and that has also not been disclosed. In the absence of such finding of fact the question whether the entire sum of undisclosed sale proceeds can be treated as income of the relevant assessment year answers by itself in the negative. The record goes to show that there is no finding nor any material has been referred about the suppression of investment in acquiring the goods which have been found subject of undisclosed sales.” Thus, it is eminently clear from the above observation of this Court that entire sale transaction cannot be taken as income. By the impugned notice though the department has subjected GP at the rate of 26.10% on the suppressed sale transaction, now, the entire suppressed sale transaction is sought to be brought under the net of income tax, which is not permissible. 11. In view of this settled legal propositions, we are of Page 11 of 12 C/SCA/13933/2014 JUDGMENT the opinion that the respondent could not have issued impugned notice to the petitioner subject to suppressed sale transaction to income. In our opinion, impugned notice is inherently illegal and invalid and, therefore, it cannot be sustained for the aforesaid reasons. We are inclined to accept this petition and accordingly the petition succeeds and is hereby allowed. The impugned notice dated 20/03/2014 issued by the respondent is hereby quashed and set aside. Rule is made absolute. No order as to costs. [A.J.DESAI, J.] [A.G.URAIZEE,J.] *dipti Page 12 of 12 "