HIMMATBHAI DHANJIBHAI DHOLAKIYA V. JOINT COMMISSIONER OF INCOME TAX(OSD)

SCA/10973/2018

AI Insights

The case involves Himmatbhai Dhanjibhai Dholakiya, who challenged a notice issued by the Joint Commissioner of Income Tax (OSD) to reopen his assessment for the year 2012-2013. The original assessment had been scrutinized, and minor additions were made to the returned income. The reopening was based on allegations that the assessee had improperly claimed deductions under section 80IB(10) of the Income Tax Act and had not disallowed certain expenditures related to exempt income under section 14A. The court examined whether there was a failure to disclose true particulars of income by the assessee, which would justify the reopening of the assessment beyond the normal period.

• Counselvise Citation: [2018] 140 COUNSELVISE.COM (IT) 690375 (HC-GUJARAT)
• Appeal Type: Others
• Pronouncement Date: 13-08-2018
• Assessment Year: misc
• Laws Referred To: Income Tax Act
• Result in Favour of: Others
• Court: HIGH COURT
• Department Lawyers: KALPANAK RAVAL
• Assessee Lawyers: B S SOPARKAR
• Keywords: Deduction under Section 80IB(10); Disallowance under Section 14A; Exempt income; Reopening of assessment; Failure to disclose true particulars of income
• Section: 147; 143(3); 14A; 80IB(10)

Judgement Text

"C/SCA/10973/2018 ORDER IN THE HIGH COURT OF GUJARAT AT AHMEDABAD R/SPECIAL CIVIL APPLICATION NO. 10973 of 2018 ========================================================== HIMMATBHAI DHANJIBHAI DHOLAKIYA Versus JOINT COMMISSIONER OF INCOME TAX(OSD) ========================================================== Appearance: MR B S SOPARKAR(6851) for the PETITIONER(s) No. 1 MRS KALPANAK RAVAL(1046) for the RESPONDENT(s) No. 1 ========================================================== CORAM: HONOURABLE MR.JUSTICE AKIL KURESHI and HONOURABLE MR.JUSTICE B.N. KARIA Date : 13/08/2018 ORAL ORDER (PER : HONOURABLE MR.JUSTICE AKIL KURESHI) 1. The petitioner has challenged notice dated 9.1.2018 issued by the respondent Assessing Officer to reopen the petitioner's assessment for the assessment year 2012­ 2013. 2. Brief facts are as under. The petitioner is a propriety concern and is engaged in the business of constructing residential building. For the assessment year 2012­2013, the petitioner filed return of income declaring total income of Rs. 7.44 lacs (rounded off) on 28.9.2012. Return was taken in scrutiny. The Assessing Officer passed order under section 143(3) of the Act on 24.3.2015 making minor additions to the returned income. Substantial portion of the assessee's income was deducted under section 80IB(10) of the Income Tax Act. To reopen such assessment, the Page 1 of 6 C/SCA/10973/2018 ORDER Assessing Officer issued the impugned notice. Reasons recorded for issuing notice read as under : “On verification of the Profit & Loss Account, Balance Sheet, computation of income and further details available on record, it is noticed that the assessee has sold out two residential flats to one person, namely Shri Piyushbhai Patel B­203 & D­403). According to the provisions contained in Section 801B(10) of the IT Act, the assessee can claim deduction u/s.801B(10), if (a) not more than one residential unit in the housing project is allotted to any person not being an individual, (b) in a case where a residential unit in the housing project is allotted to a person being an individual, no other residential unit in such housing project is allotted to any of the following persons, namely: (i) the individual or the spouse or the minor children of such individual. (ii) the hindu undivided family in which such individuals is the karta. Since the deduction claimed by the assessee was not in accordance with the provisions of the Act, therefore, the claim of deduction of Rs.3,76,41,000/­ u/s. 8OIB(10)(f) of the Act is required to be disallowed and added to the total income of the assessee. Further, on verification of the case records, it is noticed that the assessee had claimed exempt income of Rs.6,90,95,192/­ u/s.10(2A) of the Act from M/s. Shri Harikrishna Exports, In which the assessee is one of the partners. As per the provisions of the Act, the expenditure in relation to exempt income is required to be disallowed u/s.14A of the Act. The working of disallowance as per Section 14A read with rule 80 is as under: Page 2 of 6 C/SCA/10973/2018 ORDER Particular Amount (In Rs.) Value of Total assets as on 31.03.2011 (as per ITR­4 for AY 2011­12) 41,86,55,266 (C) Average value of total assets 52,70,88,133 Disallowance u/s.14A read with rule 8D 0 (ii) (Interest expenditure x Average value of investments) Average value of total assets (A+B/C) 22,147 (iii) 0.5% of Average Investment (0.5% of Rs.15,29,63,231) 18,63,617 Disallowable as per audit u/s. 14A read with rule 8D(i)(ii)(iii) 18,85,764 Disallowed by assessee u/s.14A read with rule 8D 0 Total disallowable 18,85,764 (i) Direct Expense (Tax Free income generate) 0 (A) Interest expenses debited in the P&L Account 31,319 Value of investment as on 31.03.2012 (as per balance sheet of AY 2012­13 includes) 42,21,78,590 Value of investment as on 31.03.2011 (as per ITR­4 for AY 2011­12) 32,32,68,483 (B) Average value of investment 37,2723,536 Value of total assets as on 31.03.2012 (as per balance sheet) 63,54,88,000 In view of the above, interest of Rs.18,85,764/­ was required to be disallowed u/s.14A of the Act and added to the total income of the assessee. From the above facts, I have reason to believe that the income to the tune of Rs.3,95,213,764/(Rs.3,76,41,000 + Rs.18,85,764) chargeable to tax has escaped assessment due to failure on the part of the assessee to disclose true particulars of income. Therefore, I am satisfied that it is a fit case for reopening the case u/s.147 of the IT. Act.” Page 3 of 6 C/SCA/10973/2018 ORDER 3. The petitioner raised objections to the notice of reopening under communication dated 19.3.2018. Such objections were rejected by an order dated 23.4.2018 by the Assessing Officer. Hence this petition. 4. Counsel for the petitioner submitted that there was no failure on part of the assessee to disclose truly and fully all material facts. Reasons do not point out any such allegations. Notice for reopening issued beyond a period of four years from the end of relevant assessment year was therefore, not valid. Referring to the reasons recorded, counsel submitted that both the reasons lack validity. There was no double allotment of units to one single purchaser which would incur disqualification from claiming deduction under section 80IB(10) of the Act. Like­ wise, the assessee had not claimed any interest expenditure for his investments in partnership firm. Section 14A of the Act, therefore, did not apply. 5. On the other hand, learned counsel for the Revenue opposed the petition contending that the Assessing Officer had recorded proper reasons and thereafter issued notice for reopening of assessment. 6. Undoubtedly, notice for reopening has been issued beyond a period of four years from the end of relevant assessment year. Original assessment having been framed after scrutiny, the question of failure of the assessee to make full and true disclosures becomes relevant. In this context, we may notice that the Assessing Officer had two Page 4 of 6 C/SCA/10973/2018 ORDER objections to the assessee's return. First was that the assessee had claimed deduction under section 80IB(10) of the Act in relation to development of housing project. One of the conditions thereof being that no person shall be allotted more than one residential unit. According to the Assessing Officer, the assessee had breached this condition. Second objection of the Assessing Officer was that the assessee had earned income from a partnership firm which was exempt form tax. The assessee had made sizeable investments to earn such income. Expenditure for earning such income therefore, should be disallowed under section 14A of the Act. Reasons recorded however clearly refer to both these aspects to the returns filed by the assessee and documents accompanying such report. For example, reasons begin with the expression “On verification of Profit & Loss Account, Balance Sheet, computation of income and further details available on record, it is noticed that....”. In the later portion of the reasons, the Assessing Officer further records “ Further on verification of the case records, it is noticed that...”. Thus the Assessing Officer had gathered relevant facts for issuing notice of reopening the assessment from the assessment proceedings, principally, the return and the accompanying documents. There was thus no failure on part of the assessee to disclose necessary facts. On this ground itself, notice is required to be set aside. 7. Additionally, we also noted the assessee's contention that there was no irregularity in either claiming deduction under section 80IB(10) of the Act or not disallowing interest expenditure under section 14A of the Act. In the Page 5 of 6 C/SCA/10973/2018 ORDER context of the allotment of two units to the same person, the assessee had pointed out in his objections that the purchaser Shri Piyushbhai Patel was never allotted two units. He had vacated one of the two units which he had booked and had paid the sale consideration for one of them and accordingly, such unit was sold to him. The Assessing Officer merely brushed aside such objection stating that same is subject to verification which can be done only during the course of assessment. Like­wise the assessee had contended that no interest expenditure was claimed in the return. Question of disallowance under section 14A of the Act would not arise. Be that as it may, we have proceeded primarily on the ground that there was no failure on part of the assessee to disclose truly and fully all material facts. Notice for re­assessment beyond a period of four years therefore, was not valid. 8. Petition is allowed. Impugned notice is set aside. Petition is disposed of. (AKIL KURESHI, J) (B.N. KARIA, J) Raghu Page 6 of 6 "