DIVYA JYOTI DIAMONDS PRIVATE LIMITED V. INCOME TAX OFFICER

SCA/21121/2019

AI Insights

Divya Jyoti Diamonds Private Limited challenged a notice issued under Section 148 of the Income Tax Act, 1961, for the Assessment Year 2012-13, claiming it was illegal and without jurisdiction. The notice was based on information from the Investigation Wing regarding unexplained credit entries in the company's bank account. The AO had previously assessed the company but reopened the assessment citing undisclosed income. The High Court found that the AO had not adequately addressed the objections raised by the company against the reassessment, leading to the setting aside of the AO's order and a directive for a fresh assessment.

• Counselvise Citation: [2021] 140 COUNSELVISE.COM (IT) 763907 (HC-GUJARAT)
• Appeal Type: Others
• Pronouncement Date: 11-05-2021
• Assessment Year: misc
• Other Referred Cases: GKN Driveshafts (India) Ltd. vs. ITO, SABH Infrastructure Ltd Vs. ACIT
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Partly Allowed
• Court: HIGH COURT
• Department Lawyers: KALPANA RAVAL
• Assessee Lawyers: OMKAR DAVE
• Keywords: Income escape; Jurisdiction; Mechanical disposal; Reassessment; Speaking order
• Section: 148; 143(3); 151

Judgement Text

"C/SCA/21121/2019 ORDER IN THE HIGH COURT OF GUJARAT AT AHMEDABAD R/SPECIAL CIVIL APPLICATION NO. 21121 of 2019 ========================================================== DIVYA JYOTI DIAMONDS PRIVATE LIMITED Versus INCOME TAX OFFICER ========================================================== Appearance: MR OMKAR C DAVE(2003) for the Petitioner(s) No. 1 MRS KALPANAK RAVAL(1046) for the Respondent(s) No. 1 ========================================================== CORAM: HONOURABLE MR. JUSTICE J.B.PARDIWALA and HONOURABLE MR. JUSTICE ILESH J. VORA Date : 11/05/2021 ORAL ORDER (PER : HONOURABLE MR. JUSTICE ILESH J. VORA) 1. By filing this petition under Article 226 of the Constitution of India, the writ applicant being a Private Limited Company has challenged the Notice dated 30.03.2019 issued under Section 148 of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’ for short), in respect of Assessment Year 2012-13 by the Assessing Officer, on the ground that same is illegal, without jurisdiction, as prescribed under the Act. 2. Briefly stated the facts of the case are that the writ applicant being a Private Limited Company filed his return of income on 29.09.2012, declaring the total income at Rs.1,97,814/-. On 25.03.2015, the assessment was framed under Section 143(3) of the Act. During the assessment proceedings various details were called for by the AO including the details pertaining to the bank entries and various transactions made during the year under consideration. The Page 1 of 8 C/SCA/21121/2019 ORDER writ applicant vide letter dated 01.08.2014 and dated NIL (page-52 to 56) had furnished various details like bank particulars, bank statements, purchase and sales ledgers, etc. The AO after considering the details furnished by the writ applicant, framed the assessment under Section 143(3) of the Act, determined the total income at Rs.2,61,725/-, making addition of Rs.63,915/-. 3. Thereafter, the AO issued impugned notice under Section 148 of the Act for reopening of the assessment for the year 2012-13. In response to the notice, the writ applicant filed his return of income and asked to provide reasons recorded for the reassessment. The revenue vide its communication dated 19.06.2019 furnished the reasons recorded, which reads as under:- Reasons recorded: “1. The assesses company filed its return of income for AY 2012­13 on 29.09.2012 declaring total income of Rs.1,97,814/­. The assessment u/s 143(3) was completed on 25.03.2015 determining total income at Rs.2,61,725/­ after making addition of Rs.63,915/­. 2. In this case, an information has been received from Investigation Wing, Surat vide letter No.SRT/ITO(Inv)/STR/AJS/Report/2018­19 dated 07.03.2019 in relation to huge credit transaction of Rs.149,73,00,000/­ into the Bank A/c.No.018010200032081 of Axis Bank during the F.Y. 2011­12. As per report, in this case, summons 131(1) was issued to the assessee company on 22.02.2019, the summons could not be served as the premises of the company found locked. Axis Bank had identified an Account No.91100023511711 in the name of M/s Rashmi Diamond Pvt Ltd wherein frequent high value RTGS and transfer credits followed by transfer and RTGS debits are observed. Instances of outward remittances are also observed. The total turnover of the account in span of 7 months is over Rs.79.44 Crores. As declared by the customer, company is in trading of diamonds and the transactions pertains to business. Transfer transaction are seen between account of M/s Rashmi Diamond Pvt Ltd and assessee company’s bank account. Instances of outward remittances are observed in the account of M/s Divya Jyoti Diamonds Pvt Ltd (A/c No.:018010200032081). The origin of funds and rationale behind routing such huge and multiple transactions is not very clear. It seems that account was opened for rotation of funds. Based on the nature of transactions, the intent of the subject is suspected. Further, a summons was issued to the Branch Page 2 of 8 C/SCA/21121/2019 ORDER Manager of the Axis Bank on 29.11.2018 of all the related bank accounts calling for the required detail. In response to the summons, the said Bank has furnished the bank statement of the subject from 01.04.2011 to 31.03.2018. Moreover, despite having such a huge substantial credit entries in the said Bank Account, the assessee has filed Return of income at minimal at Rs.1,97,814/­ only. In view of above facts and non compliance, the transaction made in the said account stands unexplained. From these facts, it is also clear that the assessee has not shown true income in its return of income and has evaded the tax on his unaccounted income. 3. After receiving the information case record of the assessee has been verified and it is found that during the year under consideration the assessee has shown total sales of Rs. 97.77 Crore however in the bank account of the assessee total credit entries comes to Rs. 149.73 Crore. As the credit entries in the bank account does not commensurate with the sales shown by the assessee during the year consideration. This shows that the credit entries of Rs. 51.96 Crore in the bank account of the assessee is found unexplained. 4. Therefore keeping in view of the above fact I have reason to believe that income of Rs. 51,96,00,000/has escaped assessment in the hand of the assessee for A. Y.2012­13 within the meaning of section 147 of the I.T. Act. 5. In this case a return of income was filed for the year under consideration and regular assessment u/s.143(3) of the was made on 25.03.2015. Since, 4 years from the end of the relevant year has expired in this case, the requirement to initiate proceedings u/s. 147 are reason to believe that income for the year under consideration has escaped assessment because of failure on the part of the assessee to disclose fully and truly all material facts necessary for his assessment for the assessment year under consideration. As the credit entries in the bank account of the assessee more than Rs 51.96 Crore than the sales shown by the assessee during the year under consideration which is its unexplained credit entries and the assessee is beneficiaries of these credit entries which proves that the assessee has not disclosed all material fact necessary for assessment fully and truly. It is pertinent to mention here that reasons to believe that income has escaped assessment for the year under consideration have been recorded above (refer paragraphs 2 to 4 above). In this case more than four years have lapsed from the end of assessment year under consideration. Hence necessary sanction to issue notice u/s. 148 has been obtained separately from Principal Commissioner of Income Tax as per the provisions of section 151 of the Act. ” 4. The writ applicant raised various objections vide communication dated 30.07.2019, both on the ground of jurisdiction as well as on Page 3 of 8 C/SCA/21121/2019 ORDER merits and requested the respondent to drop the reassessment proceedings. Same came to be rejected by the respondent vide order dated 05.09.2019, holding that the assessment is valid and within jurisdiction. 5. Being aggrieved by the impugned notice as well as the order disposing of the objections, the writ applicant came up with present writ application. 6. We have heard the learned Senior Advocate Mr. Sunit Shah, assisted by Mr. Omkar Dave, the learned advocate appearing for the writ applicant and Mrs. Kalpana Raval, the learned Standing Counsel assisted by Mr. Nikunt Raval, the learned advocate appearing for the revenue. 7. Mr. Sunit Shah, the learned Senior Advocate has raised various contentions as mentioned in the petition. Referring to the reasons recorded and order disposing the objections raised by the writ applicant, it was contended that the AO had mechanically disposed of the preliminary objections. Relying on the decision of GKN Driveshafts (India) Ltd, (2003) 259 ITR 19, it was submitted that the AO should have dealt with each objection and should have assigned cogent reasons for its conclusion, by passing a speaking order. In this context, it was submitted that in the case on hand, although various objections were raised against the impugned notice, yet the AO failed to take note of the objections and mechanically disposed of the same without assigning the reasons on the issues. Therefore, it was submitted that the impugned notice as well as the order disposing the objections are required to be set aside. Page 4 of 8 C/SCA/21121/2019 ORDER 8. Mr. Sunit Shah, the learned Senior counsel relying upon the case of SABH Infrastructure Ltd Vs. ACIT, (2018) 99 Taxmann.com 409 (Delhi), further contended that there is a clear violation of the directions issued by the Delhi High Court. It was submitted that at the time of providing the reasons recorded for the reassessment, the respondent failed to provide the necessary approval accorded by the Competent Authority and other documents which may form the basis of reasons and enquiry conducted by the AO. 9. It was submitted by the learned counsel Mr. Sunit Shah for the writ applicant that in the previous assessment proceedings, the writ applicant had furnished all the details and based on the details provided, the AO had framed the assessment order under Section 143(3) of the Act, and now on the same material, the AO sought to reopen the assessment which is nothing but a change of opinion and therefore, mere change of opinion, the reopening of concluded assessment is not permissible in law. 10. It was submitted by the learned counsel for the writ applicant that the impugned notice has been issued on 30.03.2019 in relation to AY 2012-13, which clearly beyond the period of 4 years from the end of the relevant assessment year and as such in absence of any failure on the part of the applicant to disclose fully and truly all material facts, the assumption of jurisdiction by the AO under Section 147 of the Act is invalid. 11. On the other hand, learned Senior Standing Counsel Mrs. Kalpana Raval appearing for the revenue, reiterating the stand adopted by the Page 5 of 8 C/SCA/21121/2019 ORDER revenue in affidavit in reply as well as in the order of disposing of the objections, submitted that the action taken by the AO is just, legal and proper and does not warrant any interference. It was further submitted that the AO has assigned cogent and sound reasons while disposing the preliminary objections filed by the writ applicant. It was further submitted that the impugned notice has been rightly issued by invoking Section 147 of the Act as writ applicant failed to disclose the truly and fully material facts with regard to credit entries as referred by the AO in the reasons recorded for the reassessment. It was submitted that the principle of change of opinion would not be applicable in the present case as the information received after framing of the assessment order which clearly shows that the assessee failed to disclose the material, which is incorrect and was not available at the time of previous assessment proceedings. 12. Having heard the learned counsel appearing for the respective parties and having gone through the materials on record, we are of the view that the AO while disposing off the preliminary objections filed by the writ applicant against the reasons recorded for reassessment, has not properly dealt with the objections. We take notice of the fact that, while disposing the objections, the AO has concluded that the objections made by the assessee are duly considered and not acceptable. In para-4 of the order, the AO has observed that the transactions made by the assessee company with Rashmi Diamond were bogus entries and the fact of difference in respect of credit entries in the bank account were not brought into knowledge of the AO during the course of assessment proceedings. We are of the view that the AO failed to take note of various objections filed against the reasons recorded. Para-4 of the order as Page 6 of 8 C/SCA/21121/2019 ORDER referred to above does not reflect the proper application of mind to the objections raised by the applicant and it could not be said that the objections having been disposed of by passing reason order. In the case of GKN Driveshaft (supra), the Supreme Court has laid down the procedure as to the manner of dealing with the objections raised against the notice under Section 148 of the Act. The Supreme Court has held that when a notice under Section 148 of the Act is issued, the proper course of action for the noticee is to file return and if he so desires, to seek reasons for issuing notice. It was further held that the AO is bound to furnish reasons within a reasonable time and upon receipt of reasons, the noticee is entitled to file an objection to issuance of notice and AO is bound to dispose of the same by speaking order. In the case of SABH Infrastructure Ltd (supra), the Delhi High Court, has held that the exercise of considering the assessee’s objections to the reopening of the assessment is not a mechanical ritual. It is a quasi judicial function. The order disposing of the objection should deal with each objection and give proper reason for conclusion. The order should reflect proper application of mind. 13. Applying the dictum as laid down by the Supreme Court in the case of GVK Driveshaft (supra), we are of the view that disposing of the objections raised by the assessee against the reasons recorded before issuance of notice under Section 148 of the Act, though not part of the statutory requirement, as prescribed under the Act, however, same is guided by the directions issued by the Apex Court. The specific objections raised by the writ applicant, produced on record at page-33 to 45 to this writ application, have not been properly dealt with by the AO. The lapse is in clear violation of the Page 7 of 8 C/SCA/21121/2019 ORDER decision of the Apex Court. We are of the view that the AO has passed the order mechanically and without application of his mind. In other words not in a meaningful manner. 14. In view of the above, this writ application succeeds in part. The order disposing of the objections filed by the assessee dated 18.11.2019 at Annexure – A, page-18 to this petition is hereby set aside and the matter is remitted to the AO. The AO shall take into consideration the objections raised by the assessee and pass a fresh speaking order in accordance with law. 15. Let this exercise be undertaken within a period of six weeks from the date of the receipt of this order. We may clarify that we have otherwise not expressed any opinion on the merits of the case and we should otherwise also not do so as we are remitting the matter to the AO. In the event, if the order that the AO may pass a fresh, is adverse in any manner to the assessee, then, it shall be open for him to challenge the same before the appropriate forum in accordance with law. However, in the event, if the order is adverse, then at-least a period of 04 weeks shall be granted to the assessee to take recourse of the remedy available to him in law. (J. B. PARDIWALA, J) (ILESH J. VORA,J) P.S. JOSHI Page 8 of 8 "