IDEAL SHEET METAL STAMPING AND PRESSING PVT. LTD. V. DINESH BADGUJAR, ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE-2(1)(1) OR HIS SUCCESSOR

SCA/18752/2019

AI Insights

The case involves Ideal Sheet Metal Stamping and Pressing Pvt. Ltd., which challenged the reopening of its income tax assessment for the year 2012-13 by the Assistant Commissioner of Income Tax. The reopening was based on alleged non-compliance with Section 40A(3) of the Income Tax Act, concerning cash payments exceeding Rs. 20,000 in a day. The petitioner argued that all relevant details were disclosed during the original assessment, and the reopening constituted a mere change of opinion by the Assessing Officer. The court examined whether the conditions for reopening under Section 147 were met, particularly focusing on the requirement that the assessee must have failed to disclose material facts fully and truly for reopening beyond the prescribed period.

• Counselvise Citation: [2022] 140 COUNSELVISE.COM (IT) 766084 (HC-GUJARAT)
• Appeal Type: Others
• Pronouncement Date: 26-07-2022
• Assessment Year: misc
• Other Referred Cases: Cadila Healthcare Limited Vs. DCIT, Commissioner of Income Tax Vs. Kelvinator of India Limited, Gujarat Power Corporation Ltd Vs. Assistant Commissioner Of Income Tax
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Others
• Court: HIGH COURT
• Department Lawyers: M R BHATT; KARAN SANGHANI
• Assessee Lawyers: S N DIVATIA
• Keywords: Assessment Year 2012-13; Cash payment; Income Tax; Reopening of assessment; Section 40A(3) violation
• Section: 147; 148; 143(3); 142(1); 40A(3)

Judgement Text

"C/SCA/18752/2019 JUDGMENT DATED: 26/07/2022 IN THE HIGH COURT OF GUJARAT AT AHMEDABAD R/SPECIAL CIVIL APPLICATION NO. 18752 of 2019 FOR APPROVAL AND SIGNATURE: HONOURABLE MR. JUSTICE N.V.ANJARIA and HONOURABLE MR. JUSTICE BHARGAV D. KARIA ========================================================== 1 Whether Reporters of Local Papers may be allowed to see the judgment ? Yes 2 To be referred to the Reporter or not ? Yes 3 Whether their Lordships wish to see the fair copy of the judgment ? No 4 Whether this case involves a substantial question of law as to the interpretation of the Constitution of India or any order made thereunder ? No ========================================================== IDEAL SHEET METAL STAMPING AND PRESSING PVT. LTD. Versus DINESH BADGUJAR, ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE-2(1)(1) OR HIS SUCCESSOR ========================================================== Appearance: MR SN DIVATIA(1378) for the Petitioner(s) No. 1 MR M R BHATT, SR.ADVOCATE with MR KARAN SANGHANI for M R BHATT & CO.(5953) for the Respondent(s) No. 1 ========================================================== CORAM:HONOURABLE MR. JUSTICE N.V.ANJARIA and HONOURABLE MR. JUSTICE BHARGAV D. KARIA Date : 26/07/2022 ORAL JUDGMENT (PER : HONOURABLE MR. JUSTICE N.V.ANJARIA) In the facts and circumstances of the case and having regard Page 1 of 11 C/SCA/18752/2019 JUDGMENT DATED: 26/07/2022 to the consent and request of the parties through their respective learned advocates, this petition was taken up for final consideration. 1.1 Rule, returnable forthwith. Learned advocate Mr.Karan Sanghani for the respondent waives service of rule. 2. The challenge in this petition filed under Article 226 of the Constitution is directed against notice dated 25.3.2019 under Section 148 of the Income Tax Act, 1961 in respect of the assessment year 2012-13. The said notice issued by the Assessing Officer seeks to reopen the assessment of income of the petitioner- assessee for the year under consideration stating that the Assessing Officer had reasons to believe that income chargeable to tax in respect of the assessment year 2012-13 had escaped assessment within the meaning of Section 147 of the Income Tax Act, 1961 (hereinunder referred to as ‘the Act’). 3. The facts briefly stated are inter alia that the petitioner is closely held private company incorporated under the Companies Act, 1956, which has been carrying on business of manufacturing of textile machinery, spare parts and automobile components. The petitioner filed its return of income for the assessment year 2012- 13 on 27.9.2012 declaring total income of Rs.3,33,93,720/-. The regular assessment under Section 143(3) of the Act was undertaken by the predecessor Assessing Officer. It was stated that in the said process detail inquiry and scrutiny of facts and documents were undertaken. The making of inquiry was evident from notices under Section 142(1) and 143(2) of the Act. The petitioner had replied to the said notices and ultimately the assessment was completed on 20.11.2014 on total income of Page 2 of 11 C/SCA/18752/2019 JUDGMENT DATED: 26/07/2022 Rs.3,51,62,350/- and assessment order under Section 143(3) was passed. 3.1 Subsequently notice under Section 148 of the Act came to be issued. The reasons for reassessment were supplied to the assessee by communication dated 30.4.2019. The petitioner submitted its objections to the reopening of the concluded assessment by letter dated 16.5.2019. The respondent passed order dated 4.10.2019 rejecting the objections. The said order dated 4.10.2019 disposing of and rejecting the objections is also prayed to be set aside. 3.2 The crux and the reasons applied for taking recourse to the reopening is that, as stated by the Assessing Officer, ‘The assessee has failed in complying (with provisions) of Section 40A(3) of the Act regarding expenses paid in cash aggregating to Rs.3,39,706/-’. 3.3 The relevant part of the reasons recorded by Assessing Officer are reproduced herein under. “ 2. .... on verification of assessment records, scrutiny of P & L a/c for the FY 2011-12 it has been noticed that the assessee had debited the amount of Rs. 3,12,48,270/- to P&L a/c on account of manufacturing expenses head. Further, scrutiny of manufacturing head revealed that Rs. 92,94,508/- was paid towards MFG labour charges. It was further noticed from the details of labour expense that payment of Rs. 3,39,706/- was paid in cash exceeding rupees twenty thousand in a day as shown below: Sr No. Party Name Date of Payment Amount 1 Sanjay Bhai 05.10.2011 48,320/- 2 Jagdish Bhai 05.10.2011 24,077/- 3 Ramchandra Bhai 05.10.2011 35,979/- Page 3 of 11 C/SCA/18752/2019 JUDGMENT DATED: 26/07/2022 4 Lalji Bhai 05.10.2011 35,355/- 5 Vijay Bhai 05.10.2011 31,368/- 6 Vasant Bhai 06.10.2011 44,443/- 7 Paresh Bhai 06.10.2011 31,060/- 8 Jagdish Bhai 06.10.2011 35,083/- 9 Lalji Bhai 06.10.2011 28,955/- 10 Bansilal 06.10.2011 25,066/- Total: 3,39,706/- Therefore, the cash payment of Rs. 3,39,706/- exceeding Rs. 20,000/- was required to be disallowed as per the provisions of section 40A(3) of the Income Tax Act. 3. On the basis of above mentioned facts and after proper investigation from the materials on record, it is substantiated that during the year under consideration, the aforementioned amount of Rs. 3,39,706/- has escaped assessment within the meaning of section 147 of the IT Act. Further, on perusal of record of original assessment proceedings u/s 143(3) of the Act in assessee's case for the year under consideration, it is seen that inquiries on above matter has not been conducted by the then Assessing Officer in the assessment completed earlier and there is failure on the part of the assessee to disclose fully and truly material facts on above stated fact which was necessary for its assessment for the year under consideration. 4. In view of the above facts, I have reason to believe that the cash payment exceeding Rs. 20,000/- in a day made to persons as mentioned in table above in Para 2, aggregating to Rs. 3,39,706/- has escaped assessment within the meaning of Section 147 of the Act. Therefore, it is a fit case for re-opening of the assessment by invoking the provision of section 147 of the Income Tax Act, 1961. Accordingly, it is a fit case for issuing notice u/s. 148 of the I.T. Act.” 3.4 The objections submitted by the petitioner were as under. Page 4 of 11 C/SCA/18752/2019 JUDGMENT DATED: 26/07/2022 (i) The amount paid to persons exceeding Rs.20,000 is specifically mentioned on the face of the ledger account of manufacturing labour expenses submitted by letter dated 19 September 2014 in response to question asked by notice under section 142(1) dated 20 August 2014 of the AO. Copies the letter dated 19 September 2014 along with the ledger account of manufacturing labour expenses and notice under section 142(1) dated 20 August 2014 was enclosed by the assessee. (ii) In course of assessment proceedings, the Assessing Officer had specifically asked details of the payments made in violation to section 40A(3) of the Act. It was confirmed by the assesse by letter dated 03 September 2014 that no expenditure has been incurred in violation to section 40A(3) of the Act. (iii) The reasons as recorded for the re-opening of the assessment also do not in any manner bring out or demonstrate that there has been any failure on the part of the assessee to disclose any material fact. (iv) The reasons start with the words that \"on verification of assessment records, scrutiny of P & L a/c for the FY 2011-12, it has been noticed that the assesse has debited the amount of Rs.3,12,48,270/- to P &L A/c on account of manufacturing expenses held. (v) Scrutiny of manufacturing head revealed that Rs.92,94,508/- was paid towards MFG labour charges. It was further noticed from the details of labour expenses that payment of Rs.3,39,706/- was paid in cash exceeding rupees twenty thousand in a day......\" which itself shows that there has been no failure on the part of the assessee firm to disclose fully and truly all material facts.” 4. Heard learned advocate Mr.S.N.Divatia for the petitioner and learned senior advocate Mr.M.R.Bhatt for M.R.Bhatt & Co. assisted Page 5 of 11 C/SCA/18752/2019 JUDGMENT DATED: 26/07/2022 by learned advocate for the respondent, at length. 5. The aspect could not be brushed aside that the original assessment was furnished under Section 143(3) of the Act on 20.11.2014, whereas the impugned notice under Section 148 of the Act came to be issued on 25.3.2019, which was beyond the period of four years from the end of assessment year 2012-13. The case therefore fell under the Proviso of Section 147 of the Act. It could be therefore submitted that the only ground on which the reopening should have been permitted by the Assessing Officer was the omission on part of the assessee to disclose the material facts fully and truly. 5.1 The decision of this court in Cadila Healthcare Limited Vs. DCIT [41 DTR 145], it was observed that ‘in absence of any averment in the reasons recorded by the Assessing Officer for reopening the assessment that the petitioner had failed to disclose fully and truly any material facts necessary for assessment or any new material or facts had come to fore which may led to conclusion that the income had escaped assessment, it was held that the necessary ingredient of Proviso of Section 147 would not be satisfied vitiating the entire exercise of powers. 5.2 Now, there was no gainsaying that in course of the regular assessment by the Assessing Officer in notice dated 20.8.2014 under Section 142 (1) of the Act, the Assessing Officer had sought for amongst other information, the details of manufacturing of labour expenses of Rs.92.94 lakhs. The petitioner had furnished the ledger account of manufacturing labour expenses by his letter dated 19.4.2014. In the reply it was pointed out, ‘manufacturing labour of Rs.92.94 lakhs which amount pertains to labour work Page 6 of 11 C/SCA/18752/2019 JUDGMENT DATED: 26/07/2022 carried out for manufacturing process. As discussed in our letter dated 3.9.2014 we are engaged in manufacturing of textile machinery spare parts. Mainly it is a press metal work that is blanking, piercing, cutting, notching etc. Being voluminous transactions, we furnished herewith ledger from April 2011 to June 2011.’ 5.3 Furthermore, in the said notice at point No.31, details relating to Section 40A (3) were sought stating that, ‘in absence of details / evidence, the amount of expenditure inadmissible under the said Section was not verifiable and in that view, assessee was asked to submit complete details of all the expenses incurred in violation of Section 40A(3) of the Act. The petitioner responded by letter dated 3.9.2014 stating that petitioner Company had not incurred any expenses in violation of Section 40A(3) of the Act. 5.4 Thus, it was evident that the Assessing Officer had solicited from the assessee the information relating to manufacturing labour expenses and the assessee had responded to the details with the copy of the ledger account. The issue was thus considered and examined by the Assessing Officer. Once the assessment is concluded and the Assessing Officer had formed an opinion thereof, it was not permissible for him to review his opinion, for, it would tantamount to exercise powers to reopen on the ground of change of opinion the basis of facts which the Assessing Officer had considered, examined and formed opinion to frame the assessment. 6. It is trite principle of law that powers to reopen the assessment could not be exercised on the ground of mere change of opinion. In the present case it could also be stated that the assessee had not disclosed material facts truly and fully at the time Page 7 of 11 C/SCA/18752/2019 JUDGMENT DATED: 26/07/2022 of original assessment. 6.1 In Commissioner of Income Tax Vs. Kelvinator of India Limited, [(2010) 320 ITR 561 (SC)], the Apex Court dealt with the concept of ‘change of opinion’ on part of the Assessing Officer to reopen the assessment does not stand obliterated after substitution of Section 147 of the Act by Direct Tax Laws (Amendment) Acts, 1989. Emphasizing that there must be a ‘tangible material’ available with the Assessing Officer for to come to the conclusion that there was escapement of income from assessment, reason must have a link with the formation of the belief. 6.1.1 The Supreme Court stated, “...prior to Direct Tax Laws (Amendment) Act, 1987, re-opening could be done under above two conditions and fulfillment of the said conditions alone conferred jurisdiction on the Assessing Officer to make a back assessment, but in section 147 of the Act [with effect from 1st April, 1989], they are given a go-by and only one condition has remained, viz., that where the Assessing Officer has reason to believe that income has escaped assessment, confers jurisdiction to re- open the assessment. Therefore, post-1st April, 1989, power to re-open is much wider. However, one needs to give a schematic interpretation to the words \"reason to believe\" failing which, we are afraid, Section 147 would give arbitrary powers to the Assessing Officer to re-open assessments on the basis of \"mere change of opinion\", which cannot be per se reason to re-open. We must also keep in mind the conceptual difference between power to review and power to re-assess. The Assessing Officer has no power to review; he has the power to re-assess. But re-assessment has to be based on fulfillment of certain pre-condition and if the concept of \"change of opinion\" is removed, as contended on behalf of the Department, then, in the garb of re-opening the assessment, review Page 8 of 11 C/SCA/18752/2019 JUDGMENT DATED: 26/07/2022 would take place. One must treat the concept of \"change of opinion\" as an inbuilt test to check abuse of power by the Assessing Officer. ” 6.2 Following pertinent observations were made by this court in Gujarat Power Corporation Ltd Vs. Assistant Commissioner Of Income Tax (350 ITR 266) in para 42. “42. Bearing in mind these conflicting interests, if we revert back to central issue in debate, it can hardly be disputed that once the Assessing Officer notices a certain claim made by the assessee in the return filed, has some doubt about eligibility of such a claim and therefore, raises queries, extracts response from the assessee, thereafter in what manner such claim should be treated in the final order of assessment, is an issue on which the assessee would have no control whatsoever. Whether the Assessing Officer allows such a claim, rejects such a claim or partially allows and partially rejects the claim, are all options available with the Assessing Officer, over which the assessee beyond trying to persuade the Assessing Officer, would have no control whatsoever. Therefore, while framing the assessment, allowing the claim fully or partially, in what manner the assessment order should be framed, is totally beyond the control of the assessee. If the Assessing Officer, therefore, after scrutinizing the claim minutely during the assessment proceedings, does not reject such a claim, but chooses not to give any reasons for such a course of action that he adopts, it can hardly be stated that he did not form an opinion on such a claim. It is not unknown that assessments of larger corporations in the modern day, involve large number of complex claims, voluminous material, numerous exemptions and deductions. If the Assessing Officer is burdened with the responsibility of giving reasons for several claims so made and accepted by him, it would even otherwise cast an unreasonable expectation which within the short frame of time available under law would be too much to expect him to carry. 6.2.1 The Court proceeded to observe, Page 9 of 11 C/SCA/18752/2019 JUDGMENT DATED: 26/07/2022 “Irrespective of this, in a given case, if the Assessing Officer on his own for reasons best known to him, chooses not to assign reasons for not rejecting the claim of an assessee after thorough scrutiny, it can hardly be stated by the revenue that the Assessing Officer can not be seen to have formed any opinion on such a claim. Such a contention, in our opinion, would be devoid of merits. If a claim made by the assessee in the return is not rejected, it stands allowed. If such a claim is scrutinized by the Assessing Officer during assessment, it means he was convinced about the validity of the claim. His formation of opinion is thus complete. Merely because he chooses not to assign his reasons in the assessment order would not alter this position. It may be a non-reasoned order but not of acceptance of a claim without formation of opinion. Any other view would give arbitrary powers to the Assessing Officer. 6.2.2 It was finally stated in para 43, “.... in a situation where the Assessing Officer during scrutiny assessment, notices a claim of exemption, deduction or such like made by the assessee, having some prima facie doubt raises queries, asking the assessee to satisfy him with respect to such a claim and thereafter, does not make any addition in the final order of assessment, he can be stated to have formed an opinion whether or not in the final order he gives his reasons for not making the addition.” 6.3 When the issue was considered by Assessing Officer but in relation thereto he might not have expressed the elaborated reasons and may not have given reasons at all, it would still constitute a ground to change of opinion to proceed with reopening of assessment. 6.4 For the foregoing reasons and discussion, the petitioner is entitled to succeed. As a result, notice dated 25.3.2019 issued by the respondent Under Section 148 of the Income Tax Act, 1961 to Page 10 of 11 C/SCA/18752/2019 JUDGMENT DATED: 26/07/2022 reopen the completed assessment of the assessee for the year 2012-13, as well as order dated 4.10.2019 rejecting the objections of the petitioner to the reopening, are hereby set aside. 7. The petition stands allowed. Rule is made absolute. (N.V.ANJARIA, J) (BHARGAV D. KARIA, J) Manshi Page 11 of 11 "