MAYUR DYECHEM INTERMEDIATES LIMITED V. DEPUTY COMMISSIONER OF INCOME TAX CIRCLE 2(1)(1), AHMEDABAD

SCA/18206/2021

AI Insights

The case involves Mayur Dychem Intermediates Limited, which challenged a notice issued by the Deputy Commissioner of Income Tax for reopening its assessment for the year 2013-2014. The notice alleged that the company had received a fictitious loan of Rs. 40 lakhs from M/s Dishman Carbogen Amics Ltd., based on findings from a search operation on the Dishman group, which revealed transactions of bogus loans. The company contested the notice, arguing that no such transaction occurred and that even if it did, it would not affect the tax liability under the Minimum Alternate Tax (MAT) provisions. The court examined the foundational facts for reopening the assessment and found them insufficient, leading to the quashing of the notice and the subsequent order.

• Counselvise Citation: [2022] 140 COUNSELVISE.COM (IT) 746821 (HC-GUJARAT)
• Appeal Type: Others
• Pronouncement Date: 28-09-2022
• Assessment Year: misc
• Other Referred Cases: Amar Jewellers Ltd. versus Deputy Commissioner of Income-tax, Giraben Atulbhai Shah versus Office of the Assistant Commissioner of Income Tax, Central Circle 1(2), Ahmedabad
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Others
• Court: HIGH COURT
• Department Lawyers: VARUN PATEL
• Assessee Lawyers: B S SOPARKAR
• Keywords: Fictitious loan; MAT provisions; Non application of mind; Reopening of assessment; Tax Evasion
• Section: 148; 143(3); 143(2); 143(1); 69A; 115JB; 151

Judgement Text

"C/SCA/18206/2021 ORDER DATED: 28/09/2022 IN THE HIGH COURT OF GUJARAT AT AHMEDABAD R/SPECIAL CIVIL APPLICATION NO. 18206 of 2021 ================================================== MAYUR DYECHEM INTERMEDIATES LIMITED Versus DEPUTY COMMISSIONER OF INCOME TAX CIRCLE 2(1)(1), AHMEDABAD ================================================== Appearance: MR B S SOPARKAR(6851) for the Petitioner(s) No. 1 for the Respondent(s) No. 1 NOTICE SERVED BY DS for the Respondent(s) No. 1 ================================================== CORAM:HONOURABLE THE CHIEF JUSTICE MR. JUSTICE ARAVIND KUMAR and HONOURABLE MR. JUSTICE ASHUTOSH J. SHASTRI Date : 28/09/2022 ORAL ORDER (PER : HONOURABLE THE CHIEF JUSTICE MR. JUSTICE ARAVIND KUMAR) [1] Though the matter is listed for admission, by consent of learned advocates appearing for the parties, it is taken up for final disposal. [2] We have heard the arguments of Shri B. S. Soparkar, learned counsel appearing for the petitioner and Shri Varun K. Patel, learned counsel appearing for the respondent - assessee. Page 1 of 11 C/SCA/18206/2021 ORDER DATED: 28/09/2022 [3] The short issue which arises for consideration in this petition is whether the notice dated 30.03.2021 (Annexure-A) issued under Section 148 deserves to be quashed or set aside for any reason whatsoever? [4] BRIEF - BACKGROUND OF THE CASE: Petitioner is a limited company, engaged in the business of manufacturing exports and trading of Dyes Intermediates. For the assessment year of 2013 - 2014 filed its return of income on 17.09.2013 and revised return of income was filed on 21.09.2013, which was processed under Section 143(1) of the Income Tax Act, 1961 (hereinafter referred as to the \"Act\") and on returns being selected for scrutiny, notice under Section 143(2) of the Act was issued to petitioner and assessment order came to be passed under 143(3) of the Act on 21.03.2016. It is thereafter i.e. on 30.03.2021 impugned notice came to be issued for reopening the assessment on the ground that Assessing Officer had reason to believe that income chargeable to tax had escaped to tax. On being called upon by the assessee to furnish Page 2 of 11 C/SCA/18206/2021 ORDER DATED: 28/09/2022 the reasons which had been recorded for reopening of such assessment order, same was furnished to petitioner on 17.05.2021 which was objected to by the petitioner by filing objections on 27.05.2021 (Annexure-F). Thereafter, Assessing Officer considered the said objection and rejected the same or disposed of the objections by not accepting it on 11.11.2021(Annexure-G). Hence, this petition. [5] The prime argument of Shri S. N. Soparkar, learned counsel appearing for petitioner is that in the noticed issue for reopening it is alleged that 40 lakhs loan was obtained by the petitioner from M/s Dishman Carbogen Amics Ltd. (Dishman Pharmaceuticals and Chemicals Ltd. earlier) which was a fictitious loan and he would contend that as a matter of fact petitioner had not obtained any loan from the said company and therefore, giving equal amount of cash to said company of M/s Dishman did not arise. He would elaborate his submission by contending that without even examining this plea raised in its objections filed for reopening of the assessment, same had been disposed of in perfunctory manner and there has been total non- Page 3 of 11 C/SCA/18206/2021 ORDER DATED: 28/09/2022 application of mind. He would submit that even otherwise the assessee being a company had filed Nil return and had paid tax on book profit computed under MAT provision and even if the said component of Rs.40 lakhs is proposed to the addition, it would not change the tax implication, as the assessee would still continue to be governed under the provisions of MAT, namely, Section 115JB and as such there would be no excess tax liability even under MAT provision and as such there is no escapement of tax and therefore reassessment does not arise. He would also contend that no sanction has been obtained as required under Section 151 of the Act, prior to issuance of notice under Section 148 and in the absence of any satisfaction being recorded by the higher authority, impugned notice could not have been issued. Hence, he would contend that impugned notice (Annexure-A) and consequential order disposing of the objections filed to the said notice by overrulling the same on 11.11.2021 (Annexure-G) are liable to be quashed. [6] Per contra, Shri Varun K. Patel, learned standing counsel appearing for the assessee would support the impugned notice Page 4 of 11 C/SCA/18206/2021 ORDER DATED: 28/09/2022 and the consequential order dated 11.11.2021 passed orverruling the objections of the petitioner. [7] Having heard the learned advocates appearing for the parties and on perusal of the records, it would emerge from the record and proceedings of this Court that at the time of issuing the notice on this Special Civil Application and after hearing the learned counsel appearing for the petitioner, it came to be recorded as under:- \"2. We have heard the learned advocate, Mr.Bandish Soparkar, who has drawn our attention to the fact that in case of these very Assessee for the subsequent Assessment Years 2014-2015 and 2015-2016 the petitions have been filed being Special Civil Application Nos.18207 and 18204 of 2021. He has further urged that for the Assessment Year 2013-2014 there has been no transaction with Dishman Pharmaceuticals and Chemicals Ltd. For the subsequent Assessment Years 2014-2015 & 2015-2016 the petitioner has paid the commission to Dishman Pharmaceuticals and Chemicals Ltd. 3. Before we even seek to consider the matter further, we would request the learned senior counsel, Mr.Bhatt to call for the papers from the department and to assist the cause.\" Page 5 of 11 C/SCA/18206/2021 ORDER DATED: 28/09/2022 [8] Perusal of the above order would indicate this Court in order to satisfy itself for issuance of notice to the respondents had called upon the standing counsel appearing for the department, to call for the papers from the department and to assist the cause. As such the records are said to have been produced before Court on 10.12.2021. However, the order- sheet does not reflect of such record having been tendered before the Court or same having been perused by Court. Be that as it may. The standing counsel who is present before the Court today would submit that along with the present appeal two other appeals were also filed and in respect of all the three appeals, the Court intended to look into the records and accordingly, the records were secured and tendered before Court which came to be perused by the Court and on being satisfied, notice came to be issued to the respondent Deputy Commissioner of Income-tax on 10.12.2021 at which point of time, the assessee withdrew the connected two appeals which were for the assessment years of 2014 - 2015 and 2015 - 2016 on 07.12.2021. This fact is not disputed by the learned counsel appearing for the assessee. Page 6 of 11 C/SCA/18206/2021 ORDER DATED: 28/09/2022 [9] Be that as it may. The foundational facts for reopening of an assessment is to be discerned from the reasons assigned for such reopening. In the instant case, the return of income which was filed by petitioner was for the assessment year 2013 - 2014 based on which the assessment came to be framed on 21.03.2016 and same is sought to be reopened by issuance of impugned notice on the ground that search was conducted in the case of M/s Dishman group of Ahmedabad on 19.12.2019 and it was found that said group had indulged in huge transactions of bogus loans and advances and the ADIT's note concluded that loans and advances are received by the assessee, namely, the present writ applicant from the said M/s Dishman company as such it implies the assessee had given equal cash to M/s Dishman and was of the view that such transactions are to be construed from the angle of applicability of Section 69A apart from being treated as unexplained credits, wherever applicable. It is this fact which persuaded the Assessing Officer to issue the notice stating thereunder that accommodation entry of Rs.40 lakhs in the form of fictitious loan was reflected from Page 7 of 11 C/SCA/18206/2021 ORDER DATED: 28/09/2022 M/s Dishman Pharmaceuticals to the assessee. The assessee not only in its objections statement filed to the reopening of the assessment has stated that there was no such transaction and even the books of accounts which formed part and parcel of the assessment order passed under Section 143(3) did not disclose any such loan transaction for the assessment year 2013 - 2014 insofar as the assessee is concerned. In the absence of any foundational facts, the reasons recorded for reopening of the assessment on the premises that Assessing Officer had reason to believe that income had escaped to assessment and thereby there is tax evasion has to be necessarily held as a myth and it cannot be countenanced and without any foundation. Thus, without due application of mind, the Assessing Officer could not have issued the impugned notice. On this short ground itself, the impugned notice is liable to be quashed. [10] Under similar circumstances, the co-ordinate Bench in the case of Amar Jewellers Ltd. versus Deputy Commissioner of Income-tax reported in (2018) 405 ITR 561 has held to the following effect:- Page 8 of 11 C/SCA/18206/2021 ORDER DATED: 28/09/2022 \"8. A plain reading of the reasons recorded for reopening the assessment xxx has escaped assessment. Consequently, once there is no foundation for such belief, the reasons based thereupon have no legs to stand, hence, on the reasons recorded, the Assessing Officer could not have formed the belief that any income chargeable to tax has escaped assessment. Therefore, the assumption of jurisdiction on the part of the Assessing Officer under section 147 of the Act to reopen the assessment by issuing the impugned notice under section 148 of the Act is without authority of law, which renders the impugned notice unsustainable.\" [11] Yet another co-ordinate bench in the matter of Giraben Atulbhai Shah versus Office of the Assistant Commissioner of Income Tax, Central Circle 1(2), Ahmedabad in Special Civil Application No.26 of 2022 disposed of on 28.01.2022 has opined:- \"6. We find merit in the contention raised by Mr. Dave that the reasons assigned by the Assessing Officer for reopening of the assessment for the relevant year are factually incorrect. This is apparent from page : 35 of the paper book, which is a part of the return of income filed by the writ applicant. In column No.8 of the same, we find reference of Rs.52 Lakh towards full value of Page 9 of 11 C/SCA/18206/2021 ORDER DATED: 28/09/2022 consideration. Although Mr. Bhatt tried to say something as regards the cost of acquisition with indexation, yet we are of the view that factually there is no foundation for the Revenue to reopen the assessment on the ground as alleged in the reasons assigned to the writ applicant – assessee.\" The principles laid down in aforesaid cases are squarely applicable to facts on hand. [12] Hence, for the reasons aforestated, we find that in the instant case there is no foundation in the notice which formed the basis on which the Assessing Officer proposed to reopen the assessment for the assessment year 2013 - 2014. Hence, point formulated hereinabove deserves to be answered in favour of the petitioner - assessee. [13] Thus, we proceed to pass the following O R D E R (i) Special Civil Application is allowed. (ii) The notice dated 30.03.2021 (Annexure-A) Page 10 of 11 C/SCA/18206/2021 ORDER DATED: 28/09/2022 and order disposing of the objections dated 11.11.2021 (Annexure-G) are hereby quashed. (iii) No order as to costs. (ARAVIND KUMAR, C.J.) (ASHUTOSH J. SHASTRI, J.) DHARMENDRA KUMAR Page 11 of 11 "