JHANKIT CHANDULAL PRAJAPATI V. DY. COMMISSIONER OF INCOME TAX, CENTRAL CIRCLE 1(2)

SCA/15206/2018

AI Insights

The case revolves around the reopening of an income tax assessment for Jhankit Chandulal Prajapati concerning undisclosed cash payments made for the purchase of a flat from M/s J.P. Iscon Pvt. Ltd. Initially, a search under section 132 of the Income Tax Act, 1961, led to an assessment order adding Rs.3,00,000 as undisclosed investment, which was later deleted by the Commissioner (Appeals). However, following a subsequent search at J.P. Iscon Pvt. Ltd., new material suggested a larger cash payment, prompting the Income Tax Department to reopen the assessment. The petitioner challenged this reopening, arguing that the issue had already been adjudicated and was thus barred by the principle of merger and the third proviso to section 147 of the Act. The court agreed, noting that the income had already been assessed and was subject to appeal, making the reopening of the assessment legally impermissible.

• Counselvise Citation: [2019] 140 COUNSELVISE.COM (IT) 762411 (HC-GUJARAT)
• Appeal Type: Others
• Pronouncement Date: 11-02-2019
• Assessment Year: misc
• Other Referred Cases: National Dairy Development Board v. Deputy Commissioner of Income Tax, Anand Circle, United Phosphorus Ltd. v. Additional Commissioner of Income Tax
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Others
• Court: HIGH COURT
• Department Lawyers: MAUNA BHATT
• Assessee Lawyers: DARSHAN PATEL
• Keywords: Appeal; Assessment Order; Commissioner (Appeals); Income Tax; Reopening of assessment; Search and seizure; Undisclosed income
• Section: 147; 148; 143(3); 132; 153A; 69; 151

Judgement Text

"C/SCA/15206/2018 JUDGMENT IN THE HIGH COURT OF GUJARAT AT AHMEDABAD R/SPECIAL CIVIL APPLICATION NO. 15206 of 2018 FOR APPROVAL AND SIGNATURE: HONOURABLE MS.JUSTICE HARSHA DEVANI and HONOURABLE DR.JUSTICE A. P. THAKER ================================================================ 1 Whether Reporters of Local Papers may be allowed to see the judgment ? 2 To be referred to the Reporter or not ? 3 Whether their Lordships wish to see the fair copy of the judgment ? 4 Whether this case involves a substantial question of law as to the interpretation of the Constitution of India or any order made thereunder ? =============================================================== JHANKIT CHANDULAL PRAJAPATI Versus DY. COMMISSIONER OF INCOME TAX, CENTRAL CIRCLE 1(2) ================================================================ Appearance: MR DARSHAN R PATEL(8486) for the PETITIONER MRS MAUNA M BHATT(174) for the RESPONDENT ================================================================ CORAM: HONOURABLE MS.JUSTICE HARSHA DEVANI and HONOURABLE DR.JUSTICE A. P. THAKER Date : 11/02/2019 ORAL JUDGMENT (PER : HONOURABLE MS.JUSTICE HARSHA DEVANI) Page 1 of 14 C/SCA/15206/2018 JUDGMENT 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 case which lies in a very narrow compass and considering the fact this court has already heard the learned counsel for the respective parties at length, the matter is decided finally by this judgment. 3. The petitioner is an individual being as such. A search came to be conducted under section 132 of the Income Tax Act, 1961 (hereinafter referred to as “the Act”) in the case of Kalol Prajapati Group on 6.11.2012. On the basis of the material found during the course of search, proceedings under section 153A of the Act came to be initiated against the petitioner herein on 5.4.2013, which culminated into an assessment order dated 18.3.2015 under section 143(3) read with section 153A of the Act, whereby an amount of Rs.3,00,000/- came to be added under section 69 of the Act on the ground that the petitioner had made undisclosed investment in respect of Flat No.G-302 purchased from M/s J.P. Iscon Ltd. The petitioner carried the matter in appeal before the Commissioner (Appeals), who, by an order dated 11.8.2017 deleted the addition of Rs.3,00,000/-. Revenue did not prefer any appeal before the Income Tax Appellate Tribunal on account of low tax effect involved. 4. Thereafter, by the impugned notice dated 30.3.2018, assessment of the petitioner is sought to be reopened on the ground that Rs.3,00,000/- has escaped assessment towards undisclosed income in respect of Flat No.G-302 purchased Page 2 of 14 C/SCA/15206/2018 JUDGMENT from M/s J.P. Iscon Pvt. Ltd. By a letter dated 25.4.2018, the reasons recorded came to be furnished to the petitioner. By a communication dated 23.6.2018. the petitioner raised objections to the reasons recorded. By an order dated 20.8.2018, the respondent rejected the objections filed by the petitioner. Being aggrieved, the petitioner has filed the present petition challenging the impugned notice under section 148 of the Act as well as the order rejecting the objections raised by the petitioner. 5. Mr. Darshan Patel, learned advocate for the petitioner, assailed the impugned notice on the following grounds: - Inviting the attention of the court to the reasons recorded for reopening the assessment, it was submitted that the addition of Rs.3,00,000/- sought to be made by the respondent is without jurisdiction and the entire reopening proceedings are not tenable in the light of the principle of merger as explained by the third proviso to section 147 of the Act, since the income sought to be reassessed has already been assessed and was subject matter of appeal before the Commissioner (Appeals) and has already been adjudicated by him. - The Assessing Officer has assumed jurisdiction under section 147 of the Act on a borrowed belief without any independent application of mind, which is evident on a perusal of the appellate authority’s order in the original proceedings of the same assessment year. - Sanction under section 151 of the Act has not been granted in the present case and that even if the same has been granted, it has been mechanically granted and hence, the reopening of assessment beyond a period of four years is Page 3 of 14 C/SCA/15206/2018 JUDGMENT invalid. - When the issue in question has been thoroughly gone into at the time of assessment under section 143(3) read with section 153A of the Act, it is not permissible for the Assessing Officer to reopen the assessment on the same issue. 5.1 In support of his submissions, the learned advocate placed reliance upon an unreported decision of this court in the case of National Dairy Development Board v. Deputy Commissioner of Income Tax, Anand Circle, rendered on 24.3.2011 in Special Civil Application No.14449 of 2010, wherein the court has held that by virtue of the second proviso to section 147 of the Act, income involving matters which are subject matters of any appeal, reference or revision has expressly been taken out of the purview of the said section. Reliance was also placed upon an unreported decision of this court in the case of United Phosphorus Ltd. v. Additional Commissioner of Income Tax, rendered on 8.3.2011 in Special Civil Application No.3352 of 2001, wherein the court had held that where the assessment order in respect of the items for which assessment is sought to be reopened has merged with the order of Commissioner (Appeals), it had no independent existence and, therefore, the assessment could not be reopened in respect of the said items. It was, accordingly, urged that on the reasons recorded, the Assessing Officer could not have formed the belief that any income chargeable to tax has escaped assessment and that the assumption of jurisdiction on the part of the Assessing Officer under section 147 of the Act is without authority of law. Page 4 of 14 C/SCA/15206/2018 JUDGMENT 6. Vehemently opposing the petition, Mrs. Mauna Bhatt, learned senior standing counsel for the respondent, submitted that in this case the order under section 143(3) read with section 153A of the Act had been made based upon the search carried out at the premises of the petitioner-assessee, whereas the impugned notice under section 148 of the Act has been issued on the basis of the reasons recorded which are based upon the search carried out in the premises of M/s J.P. Iscon Pvt. Ltd. from whom the petitioner had purchased the property in question. 6.1 Referring to the reasons recorded for reopening the assessment, it was submitted that the Assessing Officer has recorded that on analysis of seized data, it is found that J.P. Iscon Pvt. Ltd. received total of Rs.61,45,000/- from Shri Jankit C. Prajapati for Unit/Flat G-302, out of which Rs.56,45,000/- was received by J.P. Iscon Pvt. Ltd. in cash and that the petitioner had paid such amount in cash to J.P. Iscon, but had not disclosed such cash payment in its return of income, profit and loss account and balance sheet for assessment year 2011- 12 to assessment year 2013-14 and hence, the source of such cash payment remained unaccounted and undisclosed in the hands of the assessee. 6.2 Strong reliance was placed upon paragraph 9(iii) of the reasons recorded, wherein the Assessing Officer has recorded thus: “In fact when assessee was confronted during assessment proceeding u/s. 153A of the I.T. Act for AY 2011-12 and during appellate proceedings with seized Page 5 of 14 C/SCA/15206/2018 JUDGMENT documents in his own search, assessee made false statements/submissions that he had only made initial booking of Flat/Unit with only cheque consideration of Rs.5,00,000/-. As has been found from the corroboration of seized material and statement under oath of Kalindi Shah (of J.P. Iscon group), the assessee had indeed made cash payment of Rs.56,45,000/- for Unit/Flat G-302. The strong evidences seized from searches at assessee’s premises on 06.11.2012 and admittance of with corroboration of seized material in case of J.P. Iscon group in search on 25.02.2016 clearly show that assessee had mislead the appellate authorities and made false submissions.” 6.3 It was submitted that the Assessing Officer has come to the conclusion that the petitioner had made cash payment of Rs.56,45,000/- for the unit/flat in question and, therefore, the assessment has been reopened as Rs.56,45,000/- which was paid in cash has escaped assessment and that on the basis of search carried out in the case of the petitioner, income chargeable to tax which has escaped assessment was only Rs.3,00,000/-. It was submitted that the Assessing Officer seeks to reopen the assessment under section 147 of the Act on the basis of the material that was seized during the course of search in the case of J.P. Iscon Pvt. Ltd. which revealed further facts in respect of the purchase of Flat G-302. It was submitted that during the course of assessment proceedings under section 153A of the Act, the material which is now before the Assessing Officer on account of the search carried out at the premises of J.P. Iscon Pvt. Ltd. was not in his possession and, therefore, such material could not be Page 6 of 14 C/SCA/15206/2018 JUDGMENT considered by the Assessing Officer at the time of framing assessment under section 143(3) read with section 153A of the Act, and by the Commissioner (Appeals) while passing the appellate order. 6.4 The learned counsel further reiterated the averments made in the affidavit-in-reply filed on behalf of the respondent. It was, accordingly, urged that the Assessing Officer on the basis of the material found during the course of search in the case of J.P. Iscon Pvt. Ltd., has after duly applying his mind to the facts of the case, found that income chargeable to tax has escaped assessment and that formation of such opinion being based on material found during the course of search, there is no warrant for interference by this court. 6.5 As regards the contention regarding lack of sanction under section 151 of the Act, the learned counsel referred to the contents of paragraph 8 of the affidavit-in-reply filed by the respondent, to submit that he has categorically stated therein that notice under section 148 of the Act was issued after taking prior approval of the authority as required under the provisions of the Act. It was submitted that in the light of the fact that the assessment is sought to be reopened on the basis of fresh material which has been recovered during the course of search carried out at the premises of J.P. Iscon Pvt. Ltd., the contention of the petitioner with regard to the principle of merger would not be applicable to the facts of the present case. It was, accordingly, urged that the petition being devoid of merits, deserves to be dismissed. 7. The facts are not in dispute. A search under section 132 of Page 7 of 14 C/SCA/15206/2018 JUDGMENT the Act came to be conducted in the case of Kalol Prajapati Group on 6.11.2012. A warrant of authorization was also issued in the case of the petitioner pursuant to which proceedings under section 153A came to be instituted against the petitioner. From the material seized during the course of search, the Assessing Officer found that the total area of Flat G-302 purchased by the petitioner – Jhankit Chandulal Prajapati was 2285 square feet and at the rate of Rs.3,000/- per square feet, the total consideration for the flat works out at Rs.68,55,000/-. The Assessing Officer further found that out of such amount, Rs.5,00,000/- was paid by way of cheque on 23.5.2011, whereas an amount of Rs.56,45,000/- had been paid in cash by the petitioner from unaccounted sources. The Assessing Officer also carried out inquiries with J.P. Iscon Pvt. Ltd. and found that they had received payment of only Rs.5,00,000/- from the petitioner. On behalf of the assessee, it had been stated that the booking had been cancelled in June, 2012. The Assessing Officer, however, did not accept such contention and found that the assessee had made investment of Rs.3,00,000/- in assessment year 2011-12; Rs.47,00,000/- in assessment year 2012-13 and Rs.6,45,000/- in assessment year 2013-14, which was unexplained and made an addition of Rs.3,00,000/- under section 69 of the Act in respect of the year under consideration, that is, assessment year 2011-12. The assessee carried the matter in appeal before the Commissioner (Appeals), who has deleted the addition. 8. Thereafter, search came to be carried out at the premises of J.P. Iscon Group and on the basis of the material seized during the course of search, the respondent – Assessing Officer recorded reasons for reopening the assessment and issued the Page 8 of 14 C/SCA/15206/2018 JUDGMENT impugned notice under section 148 of the Act. 9. From the reasons recorded, it emerges that on analysis of the data seized during the course of search carried out at the premises of J.P. Iscon Group, the Assessing Officer found that J.P. Iscon Pvt. Ltd. received a total of Rs.61,45,000/- from Shri Jankit C. Prajapati for Unit/Flat G/302, out of which, Rs.56,45,000/- was received by J.P. Iscon Pvt. Ltd. in cash; the assessee had not disclosed such cash payment in its return of income, profit and loss account and balance sheet for assessment year 2011-12 to assessment year 2013-14 and hence, the source of such cash payment remained unaccounted and undisclosed in the hands of the assessee. The Assessing Officer further found that on verification of the return of income filed by the assessee, it was noticed that the assessee had shown total income of Rs.Nil only for assessment year 2011-12 and had not offered the amount of Rs.3,00,000/- (being undisclosed and unaccounted cash paid to M/s J.P. Iscon Pvt. Ltd. in financial year 2010-11) as income and hence, the assessee had understated his income to the extent of Rs.3,00,000/-. According to the Assessing Officer, therefore, the source of the cash payment of Rs.3,00,000/- paid by assessee to M/s J.P. Iscon Pvt. Ltd. constitutes income of the assessee from undisclosed source which is not offered in his return of income and hence, remained untaxed. The Assessing Officer further noticed that in the order dated 18.3.2015 made under section 143(3) read with section 153A(1)(b) of the Act, the Assessing Officer had made an addition of Rs.3,00,000/- as unaccounted investment; however, the same had been deleted by the Commissioner (Appeals) vide appellate order dated 10.8.2017, holding that the notings on the seized pages 1 to 5 Page 9 of 14 C/SCA/15206/2018 JUDGMENT referred to therein were schedule of payment and not actually paid. He further noted that the department had not filed further appeal before the Income Tax Appellate Tribunal due to low tax effect for assessment year 2011-12 and assessment year 2013-14. The Assessing Officer has, accordingly, recorded that source of cash payment of Rs.3,00,000/- paid by the assessee in financial year 2010-11 to M/s J.P. Iscon Pvt. Ltd. constitutes income of the assessee from undisclosed source which is not offered in his return of income and hence, remained untaxed. Such fact was not disclosed by the assessee during the assessment proceeding under section 153A of the Income Tax Act for assessment year 2011-12, and hence, in respect of such untaxed income which escaped assessment, there is failure on the part of the assessee to disclose fully and truly all material facts necessary for his assessment, for the assessment year 2011-12. Considering the above facts, the Assessing Officer has recorded that he has reason to believe that income to the extent of Rs.3,00,000/- had escaped assessment as per the provisions of section 147 of the Act and that the assessee has failed to disclose fully and truly all material facts necessary for his assessment for assessment year 2011-12. 10. Thus, while the Assessing Officer, on the basis of the seized material, has recorded that the assessee had made cash payment of Rs.56,45,000/- to J.P. Iscon Pvt. Ltd., he has found that in respect of the year under consideration, such amount was Rs.3,00,000/- and has, accordingly, formed the belief that Rs.3,00,000/- has escaped assessment under section 147 of the Act. Page 10 of 14 C/SCA/15206/2018 JUDGMENT 11. From the facts as emerging from the record, it is evident that from the material found during the course of search carried out at the premises of the petitioner, the Assessing Officer had found that cash payment of Rs.56,45,000/- was made by the assessee in cash to J.P. Iscon Pvt. Ltd. towards purchase of Flat G-302, out of which Rs.3,00,000/- was paid in cash in the year under consideration. Accordingly, the assessment had been framed for assessment year 2011-12 under section 143(3) read with section 153A of the Act making addition of Rs.3,00,000/- under section 69 of the Act for the year under consideration. 12. Now, on the basis of the material found during the course of search carried out in the case of J.P. Iscon Pvt. Ltd., wherein similar facts are revealed, viz., that the petitioner had paid Rs.56,45,000/- in cash, out of which an amount of Rs.3,00,000/- was paid during the year under consideration, the Assessing Officer seeks to reopen the assessment under section 147 of the Act. 13. Section 147 of the Act provides that if the Assessing Officer has reason to believe that any income chargeable to tax has escaped assessment for any assessment year, he may, subject to the provisions of section 148 to 153, assess or reassess such income and also any other income chargeable to tax which has escaped assessment and which comes to his notice subsequently in the course of the proceedings under the section, or recompute the loss or the depreciation allowance or any other allowance, as the case may be, for the assessment year under consideration. Page 11 of 14 C/SCA/15206/2018 JUDGMENT 14. Thus, for the purpose of assuming jurisdiction under section 147 of the Act, the Assessing Officer should have reason to believe that the income chargeable to tax has escaped assessment. 15. In the facts of the present case, insofar as unexplained cash payment of Rs.3,00,000/- made to M/s J.P. Iscon Pvt. Ltd. as revealed during the course of search in the case of M/s J.P. Iscon Pvt. Ltd. is concerned, the very same Rs.3,00,000/- was subject matter of the earlier proceedings under section 143(3) read with section 153A of the Act, wherein on the basis of the material seized during the course of search on the premises of the petitioner, it was found that the petitioner had paid Rs.3,00,000/- in cash for the assessment year under consideration to M/s J.P. Iscon Pvt. Ltd. Upon conclusion of those proceedings, an assessment was framed under section 143(3) read with section 153A of the Act, whereby the amount of Rs.3,00,000 had been added under section 69 of the Act. Therefore, the very same Rs.3,00,000/- in respect of which the Assessing Officer seeks to reopen the assessment for the year under consideration, has already been taxed under the order dated 18.3.2015 made under section 143(3) read with section 153A of the Act. Therefore, Rs.3,00,000/- has been held to be income chargeable to tax in the proceedings under section 143(3) read with section 153A of the Act and has been added to the income of the petitioner under section 69 of the Act, the very same income thereafter cannot be said to be income which has escaped assessment, inasmuch as such income has already been assessed. Therefore, on the reasons recorded, the Assessing Officer could not have formed the belief that income chargeable to tax has escaped assessment, inasmuch Page 12 of 14 C/SCA/15206/2018 JUDGMENT as such income has already been assessed under section 143(3) read with section 153A of the Act. The assumption of jurisdiction under section 147 of the Act on the part of the Assessing Officer therefore, lacks validity and hence, cannot be sustained. 16. Another relevant aspect of the matter is that as noted hereinabove, earlier an assessment order under section 143(3) read with section 153A(1)(b) of the Act had been made making an addition of Rs.3,00,000/- under section 69 of the Act. Against the said order, the petitioner went in appeal before the Commissioner (Appeals), who by an order dated 11.8.2017, held in favour of the petitioner insofar as the addition of Rs.3,00,000/- made under section 69 of the Act is concerned. Thus, the order of the Assessing Officer insofar as the issue in respect of which the assessment is sought to be reopened, has merged with the order passed by the Commissioner (Appeals). The third proviso to section 147 of the Act postulates that the Assessing Officer may assess or re-assess such income, other than the income involving matters which are the subject matters of any appeal, reference or revision, which is chargeable to tax or escaped assessment. Thus, the third proviso to section 147 of the Act permits the Assessing Officer to assess or re-assess only such income which was not subject matter of appeal, reference or revision. In the present case, the Assessing Officer seeks to reopen the assessment in respect of income involving a matter which was subject matter of appeal before the Commissioner (Appeals). The reopening of assessment by the impugned notice under section 148 of the Act is, therefore, also hit by the third proviso to section 147 of the Act and is not permissible in law. Page 13 of 14 C/SCA/15206/2018 JUDGMENT 17. For the foregoing reasons, the petition succeeds and is, accordingly, allowed. The impugned notice dated 30.3.2018 issued under section 148 of the Income Tax Act, 1961 seeking to reopen the assessment of the petitioner for assessment year 2011-12, is hereby quashed and set aside. Rule is made absolute accordingly, with no order as to costs. (HARSHA DEVANI, J) (A. P. THAKER, J) B.U. PARMAR Page 14 of 14 "