GAJANAND AGRO INDUSTRIES V. THE INCOME TAX OFFICER

SCA/20988/2018

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Gajanan Agro Industries challenged the notices issued by the Income Tax Officer under section 148 of the Income Tax Act, 1961, which sought to reopen their assessments for the years 2011-12 and 2012-13. The notices were based on the grounds that the cash withdrawals made by the firm were not commensurate with its reported business activities, suggesting potential income that had escaped assessment. The firm argued that the withdrawals did not constitute income and that the assessments had been previously scrutinized without any undisclosed material facts. The court agreed with the petitioner, noting that the reopening was beyond the four-year limit and lacked a foundational belief that income had escaped assessment.

• Counselvise Citation: [2019] 140 COUNSELVISE.COM (IT) 764054 (HC-GUJARAT)
• Appeal Type: Others
• Pronouncement Date: 18-11-2019
• Assessment Year: misc
• Other Referred Cases: Amaya Infrastructure P. Ltd. v. Income-Tax Officer and others
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Others
• Court: HIGH COURT
• Department Lawyers: MAUNA BHATT
• Assessee Lawyers: DARSHAN GANDHI; JIMMY PATEL
• Keywords: Assessment Reopening; Cash Withdrawals; Escaped assessment; Income Tax
• Section: 147; 148; 143(3); 142(1); 143(2); 131(1A)

Judgement Text

"C/SCA/20988/2018 ORDER IN THE HIGH COURT OF GUJARAT AT AHMEDABAD R/SPECIAL CIVIL APPLICATION NO. 20988 of 2018 With R/SPECIAL CIVIL APPLICATION NO. 20991 of 2018 ========================================================== GAJANAND AGRO INDUSTRIES Versus THE INCOME TAX OFFICER ========================================================== Appearance: MR DARSHAN B GANDHI(9771) with MR JIMMY PATEL for the Petitioner(s) No. 1 MRS MAUNA M BHATT(174) for the Respondent(s) No. 1 ========================================================== CORAM: HONOURABLE MS.JUSTICE HARSHA DEVANI and HONOURABLE MS. JUSTICE SANGEETA K. VISHEN Date : 18/11/2019 ORAL ORDER (PER : HONOURABLE MS.JUSTICE HARSHA DEVANI) 1. Rule. Mrs. Mauna Bhatt, learned senior standing counsel, waives service of notice of rule on behalf of the respondent. 2. Having regard to the controversy involved in the present cases, which lies in a very narrow compass and with the consent of the learned counsel for the respective parties, the matters were taken up for final hearing today. 3. By these petitions under article 226 of the Constitution of India, the petitioner has challenged the notices dated 29.03.2018 issued by Page 1 of 13 C/SCA/20988/2018 ORDER the respondent under section 148 of the Income Tax Act, 1961 (hereinafter referred to as “the Act”) seeking to reopen the assessment of the petitioner for the assessment years 2011­12 and 2012­13 respectively. 4. The facts stated briefly are that the petitioner, a partnership firm, filed its return of income for the assessment year 2011­12 on 29.09.2011 declaring total income at Rs.1,01,830/­. The case of the petitioner was, thereafter, selected for scrutiny assessment, which culminated into an order dated 28.02.2014 passed under section 143(3) of the Act assessing the total income of the petitioner at Rs.5,58,810/­. For assessment year 2012­13, the petitioner filed its return of income on 28.09.2012 declaring total income of Rs.1,25,560/­. The case was selected for scrutiny assessment and notice dated 13.08.2013 came to be issued under section 143(2) of the Act. Subsequently notices dated 16.08.2013 and 22.07.2014 came to be issued under section 142(1) of the Act, in response to which the petitioner filed its replies. Thereafter, the Assessing Officer passed assessment order under section 143(3) of the Act assessing the total income of the petitioner for assessment year 2012­13 at Rs.2,01,880/­. Page 2 of 13 C/SCA/20988/2018 ORDER 5. Thereafter, the petitioner received summons dated 18.01.2018 under section 131(1A) of the Act for both the assessment years calling upon the petitioner to produce certain details, in response to which, the petitioner, by its letter dated 06.02.2018, submitted such details. Subsequently, the petitioner received the impugned notices dated 29.03.2018 issued under section 148 of the Act for assessment years 2011­ 12 and 2012­13. In response to the said notices, the petitioner filed its returns of income for both the assessment years on 04.05.2018 and vide letters dated 17.04.2018, requested the respondent to supply a copy of the reasons recorded. 6. By separate letters dated 18.06.2018, the respondent furnished the reasons recorded. Thereafter, the petitioner received notices under sections 143(2) and 142(1) on various dates, in response to which, the petitioner furnished various details, as asked for. Thereafter, the petitioner received show­cause notices dated 25.12.2018 proposing to make huge addition of Rs.8,38,28,440/­ for assessment year 2011­12 and Rs.10,74,53,500/­ for assessment year 2012­13 and calling upon the petitioner to comply with the same by 28.12.2018. Without waiting for the Page 3 of 13 C/SCA/20988/2018 ORDER objection disposal order to be passed, the petitioner approached this court by way of the present petitions. 7. During the pendency of the petitions, the respondent passed orders dated 13.02.2019 disposing of the objections filed by the petitioner, copies whereof, have been placed on record. 8. By an order dated 28.12.2018, this court had issued notice and by way of ad­interim relief, had permitted the respondent to proceed further pursuant to the impugned notices; but, had restrained the respondent from passing the final orders without the permission of this court. 9. Mr. Darshan Gandhi, learned advocate for the petitioner, invited the attention of the court to the reasons recorded for reopening the assessment, to submit that the sole reason for reopening the assessment is that the petitioner had made cash withdrawals from its bank, which are not commensurate with the reported profile and activity of the firm, namely, the oil mill. It was submitted that according to the Assessing Officer, the cash withdrawal of Rs.5.14 crores during financial year 2010­11 and Rs.5.25 crores during financial year 2011­12 has escaped Page 4 of 13 C/SCA/20988/2018 ORDER assessment within the meaning of section 147 of the Act. It was contended that withdrawal of cash from the bank account of the petitioner can by no stretch of imagination, amount to income having escaped assessment. 9.1 It was submitted that in these cases, the impugned notices dated 29.03.2018 have been issued for assessment year 2011­12 and 2012­13, which is clearly beyond a period of four years from the end of the relevant assessment years. It was submitted that since there were scrutiny assessments under section 143(3) of the Act in respect of both the assessment years, in the absence of any failure on the part of the petitioner to disclose truly and fully all material facts, the requirements of the first proviso to section 147 of the Act are not satisfied. 9.2 It was urged that the source of the amount can be doubted; however, there is no question of the withdrawal being doubted. It was, accordingly, urged that the assumption of jurisdiction on the part of the Assessing Officer under section 147 of the Act lacks validity and hence, the impugned notices under section 148 of the Act as well as all proceedings taken pursuant thereto, deserve to be quashed and set aside. Page 5 of 13 C/SCA/20988/2018 ORDER 10. Opposing the petitions, Mrs. Mauna Bhatt, learned senior standing counsel, invited the attention of the court to the events that have taken place. It was pointed out that the impugned notices under section 148 of the Act have been issued on 29.03.2018. In response thereto, the petitioner filed its returns of income on 04.05.2018. The reasons recorded came to be furnished to the petitioner on 18.06.2018. Thereafter, notices under sections 143(2) and 142(1) of the Act came to be issued. It was submitted that the final show cause notices came to be issued on 25.12.2018, and it is only thereafter that the petitioner had filed its objections. It was submitted that therefore, the petitioner had acquiesced with the jurisdiction of the Assessing Officer and that the present petitions are in the nature of an afterthought, and at this stage, the court may not entertain the petitions. 10.1 In support of such submission, the learned senior standing counsel placed reliance upon the decision of the Bombay High Court in the case of Amaya Infrastructure P. Ltd. v. Income­Tax Officer and others, [2016] 383 ITR 498 (Bom), wherein the court has observed that the power of the High Court under article 226 of the Page 6 of 13 C/SCA/20988/2018 ORDER Constitution of India is plenary. Therefore, the court would exercise the same whenever it is of the view that interest of justice would require its exercise. The court further held that having of jurisdiction does not make it obligatory upon the court to exercise extraordinary writ jurisdiction without reference to the facts before it. It was held that where the petitioners had participated in the proceedings under the Act before the Assessing Officer and thereafter, had filed the writ petition on the ground that the authority had no jurisdiction, the court would not normally entertain the petition, more particularly, when an effective alternative remedy is available under the Act to set aside the orders passed by the authority, which the petitioners claim was without jurisdiction. The court held that the provisions of sections 147 and 148 of the Act empower the Assessing Officer to issue notice for reopening the assessment, subject to satisfaction of the parameters set out therein. It is open to the assessee to challenge the order of the Assessing Officer under the Act on the ground that the conditions precedent for its exercise are not satisfied. This could be done either by challenging it under article 226 of the Constitution of India or by challenging it before the authorities under the Act. Therefore, where a party submits itself to the jurisdiction Page 7 of 13 C/SCA/20988/2018 ORDER of the Assessing Officer and challenges the issue of his jurisdiction during the course of proceedings of reassessment, the court would not normally exercise jurisdiction, more particularly, when the petitioners are not remediless and can challenge the order of the Assessing Officer before the appellate authority under the Act and secure the same ultimate relief. 10.2 The learned senior standing counsel submitted that the facts of the present case are similar to the facts of the case before the Bombay High Court, wherein notices under sections 142(1) and 143(2) of the Act had been issued and the petitioners therein had participated in the assessment proceedings. It was submitted that in the light of the principles enunciated in the above decision, it is not open for the petitioner to now object to the proceedings, and hence, the petitions deserve to be dismissed leaving it open for the petitioner to avail of the alternative statutory remedy available to it in case any adverse orders are passed in the proceedings under section 148 of the Act. 11. This court has considered the submissions advanced by the learned advocates for the respective parties. Before adverting to the Page 8 of 13 C/SCA/20988/2018 ORDER merits of the rival contentions, the reasons recorded for reopening the assessment may be referred to: “In this case as per ITD/ITBA data the assessee has filed the return of income for A.Y.2011­12 on 29.9.2011. On the basis of information received from the Office of the ADIT (Inv.), Mehsana report, it is noticed that the assessee M/s. Gajanan Agro Industries, engaged in the business of oil mill. As reported in STR, the credit and debit turnover of M/s. Gajanan Agro Industries during F.Y.2010­11 was Rs.12.84 crores. The firm withdrew cash Rs.5.14 crores during the F.Y.2010­11. Relevant extracts of the report on the FIU­ IND STR No.10000062974 are as under: “The firm withdrew cash Rs.5.14 crores during last F.Y. i.e. 2010­11 and Rs.5.25 crores during current financial year 2011­ 12. Almost 50% of the total debits are by way of cash withdrawals. The cash withdrawal are varied and range from Rs.1.20 lacs to Rs.25 Lacs. The withdrawing of huge cash is not commensurate with the reported profile and activity of the firm i.e. Oil Mill.” On going through the report, it is ascertained that in such kind of business there is no need of huge cash withdrawals. Further the modus operandi of whole business is to suppress the sale and to avoid income tax liability. Therefore, it is need to go through such heavy cash transactions. Hence, cash withdrawal of Rs.5.14 crores has escaped assessment within the meaning of section 147 of the I.T.Act.” Page 9 of 13 C/SCA/20988/2018 ORDER 12. On a perusal of the reasons recorded, it is evident that the sole ground on which the Assessing Officer seeks to reopen the assessment is that the petitioner has made huge cash withdrawals from its bank accounts. On this sole basis, the Assessing Officer has formed the opinion that cash withdrawal of Rs.5.14 crores has escaped assessment within the meaning of section 147 of the Act. 13. Section 147 of the Act can be invoked where the Assessing Officer has reason to believe that any income chargeable to tax has escaped assessment for any assessment year. Therefore, the basic requirement for reopening an assessment is that income chargeable to tax has escaped assessment. In the present case, it is not the case of the Assessing Officer that the amount deposited in the bank accounts of the petitioner is unaccounted money or that the source is not explained. The Assessing Officer has termed the cash withdrawals from the bank accounts of the petitioner as escapement of income chargeable to tax. In the opinion of this court, when the source of the amounts which were deposited in the banks has not doubted by the Assessing Officer, mere withdrawal of the tax paid amounts from the bank accounts of the petitioner, can by no means be termed as escapement of income within the Page 10 of 13 C/SCA/20988/2018 ORDER meaning of such expression as envisaged in section 147 of the Act. Under the circumstances, the basic requirement of reopening the assessment, namely that income chargeable to tax has escaped assessment, has not been satisfied. In the absence of any material to form the belief that income chargeable to tax has escaped assessment, the reopening of assessment under section 147 of the Act lacks validity. 14. Besides, it is an admitted position that the assessment is sought to be reopened beyond a period of four years from the end of the relevant assessment years. On a perusal of the reasons recorded for reopening the assessment for both the assessment years in their entirety, it is evident that there is not even a whisper therein to show that the petitioner has failed to disclose fully and truly all material facts necessary for its assessment. Since in these cases, earlier in respect of both the assessment years, assessment has been framed under section 143(3) of the Act, in the absence of any failure on the part of the petitioner to disclose fully and truly all material facts, the assumption of jurisdiction on the part of the Assessing Officer under section 147 of the Act beyond a period of four years from the end of the relevant assessment years, is invalid. Page 11 of 13 C/SCA/20988/2018 ORDER 15. While it is true that the petitioner had participated in the proceedings before the Assessing Officer pursuant to the impugned notices and had raised objections at a subsequent stage, having regard to the fact that the basic requirement for reopening the assessment, namely material to form the requisite belief that income chargeable to tax has escaped assessment, is not satisfied, it would not be just and proper to call upon the petitioner to face the assessment proceedings and thereafter, challenge the same before the appellate authorities. While in a given case, the court may be inclined to ask the petitioner to avail of the alternative remedy by facing the assessment proceedings, as held by the Bombay High Court in the case of Amaya Infrastructure P. Ltd. v. Income­Tax Officer (supra), having regard to the facts of the present case, where, from the reasons recorded, the formation of belief by the Assessing Officer that income chargeable to tax has escaped assessment, is itself without any foundation, the court is not inclined to relegate the petitioner to face the re­assessment proceedings and then avail of the alternative remedy. 16. In the light of the above discussion, the petitions succeed and are, accordingly, allowed. Page 12 of 13 C/SCA/20988/2018 ORDER The impugned notices dated 29.03.2018 issued by the respondent under section 148 of the Act reopening the assessment of the petitioner for the assessment years 2011­12 and 2012­13 respectively, and all proceedings pursuant thereto are hereby quashed and set aside. Rule is made absolute accordingly with no order as to costs. (HARSHA DEVANI, J) (SANGEETA K. VISHEN,J) PRAVIN KARUNAN Page 13 of 13 "