B. NANJI CONSTRUCTION PRIVATE LIMITED V. INCOME TAX OFFICER - WARD 1(2) - AHMEDABAD

SCA/8757/2014

AI Insights

The case involves B. Nanji Construction Private Limited, which filed Special Civil Applications challenging the reassessment notices issued by the Income Tax Officer for several assessment years. The notices were based on audit objections following a search and seizure operation. The petitioner argued that the reassessment was initiated solely on these audit objections without any independent verification or subjective satisfaction by the Assessing Officer. The court examined the files and found that the reassessment was indeed based solely on audit objections. Citing precedents, the court ruled in favor of the petitioner, quashing the reassessment notices.

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 761048 (HC-GUJARAT)
• Appeal Type: Others
• Pronouncement Date: 08-07-2014
• Assessment Year: misc
• Other Referred Cases: Commissioner of Income-tax, Ahmedabad \\u2013 IV Vs. Shilp Gravures Ltd., Vodafone West Ltd. Vs. Assistant Commissioner of Income-tax
• Laws Referred To: Income Tax Act
• Result in Favour of: Others
• Court: HIGH COURT
• Department Lawyers: MAUNA BHATT
• Assessee Lawyers: R K PATEL
• Keywords: Audit objections; Construction business; Income Tax; Reassessment
• Section: 147; 148; 143(3); 153A(1)(b)

Judgement Text

"C/SCA/8754/2014 JUDGMENT IN THE HIGH COURT OF GUJARAT AT AHMEDABAD SPECIAL CIVIL APPLICATION NO. 8754 of 2014 With SPECIAL CIVIL APPLICATION NO. 8755 of 2014 TO SPECIAL CIVIL APPLICATION NO. 8757 of 2014 FOR APPROVAL AND SIGNATURE: HONOURABLE MR.JUSTICE M.R. SHAH and HONOURABLE MR.JUSTICE K.J.THAKER ====================================== 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, 1950 or any order made thereunder ? 5 Whether it is to be circulated to the civil judge ? ====================================== B. NANJI CONSTRUCTION PRIVATE LIMITED....Petitioner(s) Versus INCOME TAX OFFICER - WARD 1(2) - AHMEDABAD & 1....Respondent(s) ====================================== Appearance: MR RK PATEL, ADVOCATE for the Petitioner(s) No. 1 MRS MAUNA M BHATT, ADVOCATE for the Respondent(s) No. 1 - 2 ====================================== CORAM: HONOURABLE MR.JUSTICE M.R. SHAH and HONOURABLE MR.JUSTICE K.J. THAKER Page 1 of 7 C/SCA/8754/2014 JUDGMENT Date : 08/07/2014 ORAL JUDGMENT (PER : HONOURABLE MR.JUSTICE M.R. SHAH) 1. RULE. Ms. Mauna Bhatt, learned advocate waives service of notice of rule on behalf of the respondents in each of the petitions. 2. In the facts and circumstances of the case and with the consent of the learned advocates appearing on behalf of the respective parties, the present petitions are taken up for final hearing today. 3. As common question of law and facts arise in these group of petitions and as such are between the same parties but with respect to different Assessment Years and different notices are issued for reassessment, all these petitions are decided and disposed of by this common judgment and order. 3.1. Special Civil Application No.8754/2014 has been preferred by the petitioner-assessee to quash and set aside the impugned notice dated 30/03/2014 issued under Section 148 of the Income Tax Act alongwith preliminary order dated 10/06/2014 for the Assessment Year 2007-08. 3.2. Special Civil Application No.8755/2014 has been preferred by the petitioner-assessee to quash and set aside the impugned notice dated 30/03/2014 issued under Section 148 of the Income Tax Act alongwith preliminary order dated 10/06/2014 for the Assessment Year 2008-09. Page 2 of 7 C/SCA/8754/2014 JUDGMENT 3.3. Special Civil Application No.8756/2014 has been preferred by the petitioner-assessee to quash and set aside the impugned notice dated 20/02/2014 issued under Section 148 of the Income Tax Act alongwith preliminary order dated 10/06/2014 for the Assessment Year 2009-10. 3.4. Special Civil Application No.8757/2014 has been preferred by the petitioner-assessee to quash and set aside the impugned notice dated 18/03/2014 issued under Section 148 of the Income Tax Act alongwith preliminary order dated 10/06/2014 for the Assessment Year 2010-11. 4. As the original Assessment Orders were sought to be reopened under Sections 147 and 148 of the Income Tax Act (hereinafter referred to as ‘the Act’) with respect to different Assessment Years on the very ground, the facts with respect to the Assessment Year 2007-08 in Special Civil Application No.8754/2014 are considered. 4.1. The assessee, who was engaged in the construction business filed his return of income for the Assessment year 2007-08 on 05/05/2011 declaring ‘NIL’ income. Thereafter order under Section 143(3) read with Section 153A(1)(b) of the Act was passed on 30/12/2011 and the returned income was accepted. It appears that search action was carried out in the case of the assessee on 04/03/2010 and subsequently notice under Section 143 of the Act was issued. After the assessment order was passed, the Assessing Officer issued the notice under Section 148 of the Act to reopen the assessment proceedings for the Assessment Year 2007-08. The petitioner asked for the reasons for reopening of the assessment and the Page 3 of 7 C/SCA/8754/2014 JUDGMENT Assessing Officer furnished the reasons recorded for reopening of the assessment, which reads as under; “The assessee Company has filed its return of income for above assessment year on 05/05/2011 declaring ‘NIL’ income and order under Section 143(3) read with Section 153A(1)(b) of the Income Tax Act was passed on 30/12/2011 and returned income was accepted. The assessee is engaged in construction business. A search action was carried out in the case of assessee on 04/03/2010 and subsequently notices under Section 153A was issued and served on 07/03/2010 for the Assessment year 2007-08. In response to the notice, the assessee filed its return of income on 05/05/2011 declaring ‘NIL’ income. The same was assessed under Section 143(3) read with Section 153(1)(b) of the Act on 30/12/2011 accepting the returned income. Scrutiny of computation of income exhibited in return of income, assessments order and P/L attached with auditor’s report revealed that the assessee had taken operating gloss figure at Rs.8,07,104/- in computation of income. It was further noticed that there was credit of prior period income of Rs.11,44,000/- which was included in income of assessee. As such, the assessee had current year income of Rs.3,36,896/-. This amount was adjudged against carried forward book losses of earlier year. It was however noticed from return of this year and earlier year that there was no carry forward of earlier year losses under the Income Tax Act. As such set off of Page 4 of 7 C/SCA/8754/2014 JUDGMENT item of income account in this year against non available carry forward of losses of proviso year was irregular. This has resulted in user assessment of income of Rs.3,36,396/-. In view of the above, I have as above reasons to believe that the income of the assessee company to the above extent of Rs.3,36,396/- has escaped assessment and the case is therefore, required to be reopened under Section 147 of the Income Tax Act by way of issuing notice under Section 148 of the Income Tax Act.” 4.2. The assessee raised various objections on merits as well as on the ground that the reassessment proceedings have been initiated on the audit objections and, therefore, it was requested to drop the reassessment proceedings. Thereafter, vide separate orders dated 10/06/2014 the Assessing Officer has disposed of the said objections. The petitioner was thereafter called upon to show-cause as to why the amount of Rs.3,36,896/- for the Assessment Year 2007-08, Rs.38,60,208/- for the Assessment Year 2008-09, Rs.71,95,619/- for the Assessment Year 2009-10 and Rs.2,50,000/- for the Assessment Year 2010-11 should not be added to the total income for the Assessment Years under consideration and the petitioner was also informed that if the petitioner fails to comply with the said notices the assessment will be finalized on merits. At that stage, the common petitioner has preferred the present Special Civil Applications under Article 226 of the Constitution of India challenging the initiation of the reassessment proceedings for the Assessment Years under consideration. Page 5 of 7 C/SCA/8754/2014 JUDGMENT 5. Shri Patel, learned advocate appearing on behalf of the petitioner has vehemently submitted that the initiation of the reassessment proceedings for the Assessment Years under consideration is absolutely illegal and bad in law. It is submitted that as such the reassessment proceedings have been initiated solely on the audit objections raised by the audit party and, therefore, the same is colourable exercise of jurisdiction by the Assessing Officer. It is submitted that as such the reassessment proceedings cannot be initiated merely on the basis of the audit objections, more particularly, when the Assessing Officer has no subjective satisfaction. Relying upon the decisions of the Division Bench of this Court in the case of Commissioner of Income-tax, Ahmedabad – IV Vs. Shilp Gravures Ltd. reported in [2013] 40 Taxmann 309 (Gujarat) and in the case of Vodafone West Ltd. Vs. Assistant Commissioner of Income-tax reported in [2013] 37 Taxmann 158 (Gujarat), it is requested to allow the present Special Civil Applications and quash and set aside the reassessment proceedings. 6. To satisfy ourselves whether the reassessment proceedings have been initiated solely at the instance of the audit part and solely on the audit objections, we called for the original file from the office of the Assessing Officer. Ms. Bhatt, learned advocate appearing on behalf of the revenue has produced the relevant files from the office of the Assessing Officer. On perusal of the files and the notings and the relevant documents, it appears that the reassessment proceedings have been initiated at the instance of the audit party solely on audit objections. Under such factual aspects, Page 6 of 7 C/SCA/8754/2014 JUDGMENT the present petitions are required to be considered. 8. The issue involved in the present Special Civil Applications is squarely covered by the decision of the Division Bench of this Court in the case of Shilp Gravures Ltd. (Supra) and in the case of Vodafone West Ltd. (Supra) by which a view is taken that if the reassessment proceedings are initiated merely and solely at the instance of the audit party and there was no independent application of mind by the Assessing Officer with respect to subjective satisfaction for initiation of the reassessment proceedings, the impugned notices cannot be sustained and the same deserves to be quashed and set aside. 7. In view of the above and for the reasons stated hereinabove, all these petitions succeed and the impugned notices in each of the petitions 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. (M.R. SHAH, J.) (K.J. THAKER, J.) Siji Page 7 of 7 "