HARAKCHAND SOHANLAL JAIN V. INCOME TAX OFFICER WARD 2(3)(7)

SCA/22183/2019

AI Insights

The case involves Harakchand Sohanlal Jain, the writ applicant, who challenged a notice issued under Section 148 of the Income Tax Act, 1961, for the Assessment Year 2012-13. The notice was based on information received from the ADIT (Inv.) Unit-3, Surat, indicating unexplained credit entries totaling Rs.135,76,68,454 in the assessee's bank account. The AO initially framed an assessment under Section 143(3) of the Act, but later sought to reopen the assessment, claiming that the income had escaped assessment due to non-disclosure of material facts by the assessee. The High Court found that the AO had not adequately addressed the objections raised by the assessee against the reassessment, leading to the setting aside of the AO's order and remitting the matter for a fresh decision.

• Counselvise Citation: [2021] 140 COUNSELVISE.COM (IT) 749761 (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: 147; 148; 143(3)

Judgement Text

"C/SCA/22183/2019 ORDER DATED: 11/05/2021 IN THE HIGH COURT OF GUJARAT AT AHMEDABAD R/SPECIAL CIVIL APPLICATION NO. 22183 of 2019 ========================================================= HARAKCHAND SOHANLAL JAIN Versus INCOME TAX OFFICER WARD 2(3)(7) ========================================================== 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 individual assessee 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 individual assessee filed his return of income on 30.09.2012, declaring the total income at Rs.6,67,900/-. On 07.03.2015, 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 writ applicant vide letter dated 12.01.2015 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.7,42,900/-, Page 1 of 8 C/SCA/22183/2019 ORDER DATED: 11/05/2021 making addition of Rs.75,000/-. 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 23.11.2019 furnished the reasons recorded, which reads as under:- Reasons for reopening :- “2. Brief details of information collected/received by the AO:- Information in this case has been received from ADIT ( Inv.)Unit-3, Surat, Vide letter dated 15.03.2019 from which it is revealed that assessee having bank account bearing no. 561011016425 wherein total credit entries of Rs.135,76,68,454/- were observed. To verify the genuineness of the said credit entries, summons was issued to assessee but assessee has not made compliance of the summons. Hence, same remained unexplained in the hands of assessee. 3. Analysis of the information collected/received: On verification of information received, it is noticed that credit entries of Rs. 135,76,68,454/are unexplained in the hands of assessee. The assessee was engaged in bogus sale-purchase during the year under consideration. Further, on perusal of return of income filed by the assessee for the year under consideration, it has been observed that the assessee has shown income of Rs. 7,67,197/- in his return of income. 4. Analysis of information collected/ received & Enquiries made by the AO as sequel to information collected/received: Information has been analysed and consciously considered. The database of this office/available has also been perused. At the same time, the information so received is also found to be from a reliable source, specific and directly relevant to assessee’s case. It comes to surface that impugned assessee have made the credit entries of Rs. 135,76,68,454/- in his bank account no.561011016425. As the assessee failed to comply with the summons thereby failed to justify the nature and genuineness of the credit entries. Therefore, the said credit entries are unexplained/undisclosed. In view of such specific and pointing discovery of investigation wing, there is a clear case of escapement of income in the hands of the assessee (since the assessee did not disclose true and full facts related to this transaction before the Department even during Page 2 of 8 C/SCA/22183/2019 ORDER DATED: 11/05/2021 assessment proceedings u/s. 143(3) of the I.T. Act). 5 & 6. Findings of the AO &Basis of forming reason to believe and details of escapement of income: In this case, specific information was received from Investigation Wing, Surat that assessee had credit entries to the tune of Rs.135,76,68,454/- in his bank account and failed to comply with the summons thereby failed to justify the nature and genuineness of the credit entries. Therefore, the said credit entries are unexplained / undisclosed. From the above facts. It is clear that credit entries of Rs.135,76,68,454/- are nothing else but unexplained / undisclosed Further, the assessee on perusal of assessment records, it has been observed that the assessee has not disclosed true and full facts related to this transaction before the Department. Therefore, I have reason to believe that the income of Rs.135,76,68,454/-chargeable to tax has escaped assessment for the A.Y. 2012-13 by reason of failure on the part of the assessee to disclose fully and truly all material facts necessary for the assessment for A.Y.2012-13 and therefore it is a fit case to reopen u/s 147 of the Act. 7.Seventh paragraph will include escapement of income chargeable to tax in relation to any assets (including financial interest in any entity) located outside India: Not applicable. 8. Escapement of Income: In view of the above facts, it is established that the assessee has not disclosed the correct and full material facts for the year under consideration and hence, | have reason to believe that credit entries of Rs.135,76,68,454/- chargeable to tax has escaped assessment because of non disclosure of true and correct material fact necessary for assessment for A.Y.2012-13. Therefore I have reason to believe that this is a fit case for invoking the provisions of section 147 of the Income tax Act. 9. Applicability of the provisions of section 147/151 to the facts of the case: In this case a return of Income was filed for the ear under consideration and regular assessment u/s. 143 (3) was made on 15.03.2015 Since, 4 years from the end of the relevant year has expired in this case, the requirements to initiate proceedings u/s. 147 of the Act 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 its 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 as above. I have carefully considered the assessment records containing the submissions made b the assessee in response Page 3 of 8 C/SCA/22183/2019 ORDER DATED: 11/05/2021 to various notices issued during the assessment proceedings and have noted that the assesse has not fully and truly disclosed the facts regarding the transaction which was necessary for. its assessment for the year under consideration. It is evident from the above facts that the assessee had not truly and fully disclosed material facts necessary for its assessment for the year under consideration thereby necessitating reopening u/s. 147 of the IT Act. It is true that the assessee has filed a copy of audited P&L A/c. and balance sheet along with return of income where various information/ material were disclosed. However, the requisite full and true disclosure of all material facts necessary for assessment has not been made as noted above. It is pertinent to mention here that even though the assessee has furnished annual report, audited P&L A/c. and balance sheet or other evidence, however, the requisite material facts as noted above in the reasons for reopening that material evidence could not be discovered by the AO and could have been discovered with due diligence, accordingly attracting provisions of Explanation 1 of section 147 of the IT Act. 8. It is evident from the above discussion that in this case, the issues under consideration were never examined by the AO during the course of regular assessment. This fact is corroborated from the contents of notices issued by the AO u/s. 143(2)/142(1) and order sheet entries recorded during the 143(3) proceedings. It is important to highlight here that material facts relevant for the assessment on the issue(s) under consideration were not filed during the course of assessment proceeding and the same may be embedded in audited P&L A/c., balance sheet and books of account in such a manner that it would require due diligence by the AO to extract these information. For aforestated reasons, it is not a case of change of opinion by the AO. 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 is being obtained from Pr. CIT-2, Surat as per the provisions of section 151 of the Act.” 4. The writ applicant raised various objections vide communication dated 05.09.2019, 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 15.11.2019, holding that the assessment is valid and within jurisdiction. 5. Being aggrieved by the impugned notice as well as the order disposing of Page 4 of 8 C/SCA/22183/2019 ORDER DATED: 11/05/2021 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. 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 Page 5 of 8 C/SCA/22183/2019 ORDER DATED: 11/05/2021 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 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. Page 6 of 8 C/SCA/22183/2019 ORDER DATED: 11/05/2021 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, have not properly dealt with the objections. We take notice of the fact that, while disposing the objections, the AO has concluded that the he has carefully considered the assessee's submissions and found that, the grounds raised by the assessee against the reopening of assessment is not tenable on the account of following reasons and in the context of the decision of the Supreme Court in the various cases. We have examined para 3 of the order, wherein, no reasons having been assigned, as mentioned in the impugned order. 13. We are of the view that the AO failed to take note of various objections filed against the reasons recorded. Para-3 of the order as 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 Page 7 of 8 C/SCA/22183/2019 ORDER DATED: 11/05/2021 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 55 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 15.11.2019 at Annexure – A, page-18 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 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 8 of 8 "