GYAN GEMS PVT. LTD. V. INCOME TAX OFFICER

SCA/21123/2019

AI Insights

In this case, Gyan Gems Pvt. Ltd., a private limited company, 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 received from the DDIT (Inv), Surat, regarding suspicious transactions linked to the company's bank accounts. The AO had initially framed an assessment under Section 143(3) but later reopened it based on new information suggesting that income had escaped assessment. The company contested the reopening, arguing that it was a mere change of opinion and that the necessary jurisdictional requirements were not met, particularly the lack of failure to disclose material facts. The High Court, after examining the objections and the AO's response, found that the AO had not adequately addressed the objections and had not provided a reasoned order, leading to the decision to set aside the AO's order and remit the matter for a fresh decision.

• Counselvise Citation: [2021] 140 COUNSELVISE.COM (IT) 770844 (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, Sahkari Khand Udhyog Mandal Ltd.
• 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 Tax; Jurisdiction; Mechanical disposal; Notice; Reassessment; Speaking order
• Section: 147; 148; 143(3); 151

Judgement Text

"C/SCA/21123/2019 ORDER DATED: 11/05/2021 IN THE HIGH COURT OF GUJARAT AT AHMEDABAD R/SPECIAL CIVIL APPLICATION NO. 21123 of 2019 ========================================================== GYAN GEMS PVT. LTD. 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 31.03.2019 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 its return of income on 30.09.2012, declaring the total income at Rs.3,70,330/-. On 17.11.2018, 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 writ applicant vide letter dated Nil (at page 62 to 67) had furnished various details like bank particulars, bank statements, purchase and sales ledgers, etc. The AO after considering the details furnished by the writ Page 1 of 9 C/SCA/21123/2019 ORDER DATED: 11/05/2021 applicant, framed the assessment under Section 143(3) of the Act. 3. Thereafter, the AO issued impugned notice dated 31.03.2019 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 its return of income and asked to provide reasons recorded for the reassessment. The revenue vide its communication dated 07.05.2019 furnished the reasons recorded, which reads as under:- Reasons for reopening :- “2. Please refer to your return of income filed for A.Y.2012-13 filed in response of Notice u/s 148 of the IT Act vice e-filing ack. No.468809351290419 filed on 29.04.2019. 2. In this connection, reason for re-opening of the case fo A.Y. 2012-13 are as under the assesses company filed its return of income for AY 2012-13 on 30.09.2012 declaring total income of Rs.3,70,330/.T: e assessment u/s 143(3) r.w.s was 147 was completed on 17.11.2018 3. In this case, an information was received from O/o the DDIT (Inv), Unit-3, Surat vide letter no. DDIT(Inv.)-3/SRT/10230229/2018-19 Dated: 20.09.2018 in respect of enquiry report in the case of M/s Gyan Gems Pvt Ltd. A sole proprietorship concern account bearing No. 505011026867 in the name of Mahima Exports was opened on 23rd September 2011 with Surat Branch by Mr. Bhagchand Sohanlal Jain. Copy of PAN (ACVPJ1097K), Certificate of registration issued by Central Board of Excise and Customs, ITR for the Year 2911-2012, Voter ID, Initial deposit of Indusind Bank Cheque No. 735352 for Rs.50000.00 (Account No. 0024-473635-001)were furnished as KYC documents at the tine of opening the account and Mr. Bhagchand Sohanlal Jain had declared that he is into tne activity of Maintenance or repair services with an estimated annual turnover of Rs.15 Crs. Customer had opened one more sole proprietorship account bearing No. 510011016605 on 16th sept.2004 in the name of Harshit Traders with the branch and both the accounts stand closed on 24.03.2015 and 23.04.2012 respectively. Consolidated summary of transactions from 01.04.2014 to till date of closure. Clearing Cheque deposits amounted to Rs.0.15Crs, RTGS/NEFT credits amounted to Rs.3.16 Crs, Internal Transfers Credits amounted to Rs.1.31 Crs. Against these credits, RTGS/NEFT debits amounted to Rs.0.30 Crs, Internal transfers debits amounted to Rs.1.08 Crs and 8 Direct Import remittances amounted to Rs.3.26 Crs were affected by the customer. Noticing high value internal transfer credits and RTGS/NEFT receipts which were immediately followed by direct import remittances, an AML alert was raised on the branch to carry out enhanced due diligence. The report is filled basing on the following suspicion: (1) RTGS/NEFT/internal Transfer credits were received and payments were made to entities Page 2 of 9 C/SCA/21123/2019 ORDER DATED: 11/05/2021 which are into different line of business that of our customer. it appears that the funds may have been routed through the account without any economic rationale and mainly for purpose of placement and layering and without any genuine underlying commercial activity. Major RTGS credits were received from M/s. Gyan Gems (totaled to Rs.2.11 Crs. A/c No.200000222882 held with Indian Bank) and amount totaled’ to Rs 0.13 Cr were remitted back by way of RTGS/NEFT. Internal transfer credits totaled to Rs.0.67 Crs were received from A/c No. 550011039103 of Gyan Gems and Rs. 0.76 Crs were remitted back. There is no economic rationale for such U-Turn transactions and reasons for routing such transactions are not known to Bank. (2) Eight Direct Import remittances amounted to Rs.3.26 Crs. were affected by the customer towards import of Rough Diamonds from Antwernpen, Belgium. Remittances were made in favor of Chintan Gems, Simplex Diam, Brinks globe Services, Diabex NV etc,. There is no reason for the customer who is into Maintenance or repair services to remit funds for import of above goods. Bank will forward copies of the Bill of Entries submitted by the customer in respect of Direct Remittances to Customs authorities to verify its genuineness. (3) Actual turnover is far in excess of turnover declared at the time of opening of account. Further no Payments towards utility bills, business expenses or taxes were noted in the account which is unlikely while running a commercial business.(4) During the visit to customers business address, Bank officials notice that, premise was locked and no business activity noted. During the year under consideration, the assessee company/s Gyan Gems Pvt Ltd has shown total income of Rs.3, 70,330/-. 3. During the year under consideration, total credit entries in Account No 550011039103 (M/s Gyan Gems Pvt Limited) of Rs. 2,55,69.58.651/ remained unexplained as the assessee not furnished cogent documentary evidences in this regard. 4. After receiving the information, case record of the assessee has been verified and found that there is huge credits in the bank account of the assesseé and the assessee has shown very low Income compared to h 'ge turnover and there is very low expenses compared to turnover. On perusal of purchase register submitted by the assessee, it is found that the assessee has shown to have made purchase from Kailash Devi Singhavi (PAN 4JLPS4531L) of Rs 6,65.236/-. However, on perusal of Return of Income of Kailash Devi Singhavi it is found that she has filed her Return of Income in Sahaj Form and shown income from salary and income from other sources and no income from business was shown Therefore the purchase shown by the assessee from Kailash Devi Singhavi is not genuine. Further, during the course of verification by the DDIT( Inv), the assessee not submitted any cogent documents in respect of credit entries in his bank account. In view Of the above fact / have reason to believe that income of Rs 255,69,59,651/has escaped assessment in the hard of the assessee for A.Y.2012-13 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 Page 3 of 9 C/SCA/21123/2019 ORDER DATED: 11/05/2021 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 filly and truly all material facts necessary for his assessment for the assessment year under consideration. 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. 3. In view of the judgment of Hon'ble GHC in the case of Sahkari Khand Udhyog Mandal Ltd., it is expected from you to put your your say, if any, within 60 days of receipt of this letter containing reasons of re-opening n your case. ‘i) Once the Assessing Officer serves to an assessee a notice of reopening of assessment section 148 of the Income-tax Act, 1961, and within the time permitted in such Notice, the assessee files his return of income in response to such notice, the Assessing Officer shall supply the reasons recorded by him for issuing such notice within 30 days of the filing of the return by the assessee without waiting for the assessee to demand such reasons. ii) Once the assessee receives such reasons, he would be expected to raise his Objections, if he so desires, within 60 days of receipt of such reasons. iii) If objections are received by the Assessing Officer from the assessee within the lime permitted hereinabove, the Assessing Officer would dispose of the objections, as far as possible, within four month of date of receipt of the objection filed by the assessee. iv) This is being done in order to ensure that sufficient time is available with the assessing Officer to frame the assessment after carrying out proper scrutiny. The requirement and the time-frame for supplying the reasons without being demanded by the assessee would be applicable only if the assessee files his return of income within the period permitted in the notice for reopening. Likewise the time frame for the Assessing Officer to dispose of the objections would apply only if the assessee raises objections within the time provided hereinabove. This, however, would not mean that if in either case, the assessee misses the time limit, the procedure provided by the Supreme Court in the case of GKN Driveshafts (India) Ltd (Supra) would not apply. If only means _ that the time frame provided hereinabove would not apply in such cases. 4. In view of the above facts, you are requested to submit your say within permissible time limit as mentioned above for further Page 4 of 9 C/SCA/21123/2019 ORDER DATED: 11/05/2021 proceedings of the case” 4. The writ applicant raised various objections vide communication dated 03.07.2019, both on the ground of jurisdiction as well as on merits and requested the respondent to drop the reassessment proceedings. Same came to be rejected by the respondent vide order dated 26.08.2019, 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 5 of 9 C/SCA/21123/2019 ORDER DATED: 11/05/2021 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 31.03.2019 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 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 Page 6 of 9 C/SCA/21123/2019 ORDER DATED: 11/05/2021 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 objection of the assessee has been duly considered, but the same is not found acceptable on merits. 13. We are of the view that the AO failed to take note of various objections filed against the reasons recorded. The order 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 Page 7 of 9 C/SCA/21123/2019 ORDER DATED: 11/05/2021 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. 14. 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-44 to 56 to this writ application, have not been properly dealt with by the AO. The lapse is in clear violation of the 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. 15. In view of the above, this writ application succeeds in part. The order disposing of the objections filed by the assessee dated 26.08.2019 at Annexure – A, page-20 to 35 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. 16. 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 Page 8 of 9 C/SCA/21123/2019 ORDER DATED: 11/05/2021 otherwise also not do so as we are remitting the matter to the AO. 17. 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 four 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 9 of 9 "