MENA MANI INDUSTRIES LIMITED V. THE INCOME TAX OFFICER, WARD 2(1)(4)

SCA/21135/2019

AI Insights

Mena Mani Industries Limited challenged a notice issued by the Income Tax Officer under Section 148 of the Income Tax Act, 1961, seeking to reopen the income tax assessment for the assessment year 2012-13. The notice was based on information received from the DDIT(Inv), Mumbai, regarding suspicious transactions involving M/s. Chetan Enterprises, a non-filer and untraceable entity. The company argued that the transactions were merely recoveries of outstanding sales from a previous year and not independent transactions, thus not constituting escapement of income. The court found that the Assessing Officer had not adequately addressed the objections raised by the assessee and failed to provide a reasoned order, leading to the decision to remit the matter back for a fresh assessment.

• Counselvise Citation: [2021] 140 COUNSELVISE.COM (IT) 749776 (HC-GUJARAT)
• Appeal Type: Others
• Pronouncement Date: 26-03-2021
• Assessment Year: misc
• Other Referred Cases: GKN Divershaft (India) Ltd. Vs. Income tax Officer & Ors. [(2003) 259 ITR 19]
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Partly Allowed
• Court: HIGH COURT
• Department Lawyers: MAUNA BHATT
• Assessee Lawyers: VAIBHAVI PARIKH
• Keywords: Borrowed satisfaction; Escapement of income; Income tax reassessment; Interest income discrepancy
• Section: 148; 143(1); 131; 151

Judgement Text

"C/SCA/21135/2019 ORDER DATED: 26/03/2021 IN THE HIGH COURT OF GUJARAT AT AHMEDABAD R/SPECIAL CIVIL APPLICATION NO. 21135 of 2019 ========================================= ================ MENA MANI INDUSTRIES LIMITED Versus THE INCOME TAX OFFICER, WARD 2(1)(4) ============================================= ============= Appearance: MS VAIBHAVI K PARIKH(3238) for the Petitioner(s) No. 1 MRS MAUNA M BHATT(174) for the Respondent(s) No. 1 ============================================= ============= CORAM: HONOURABLE MR. JUSTICE J.B.PARDIWALA and HONOURABLE MR. JUSTICE ILESH J. VORA Date : 26/03/2021 ORAL ORDER (PER : HONOURABLE MR. JUSTICE ILESH J. VORA) 1. By filing this writ application under Article 226 of the Constitution of India, the writ applicant seeks to challenge the Notice dated 30.03.2019 issued by respondent No.1 under Section 148 of the Income Tax Act, 1961 (for short “the Act, 1961”) seeking to reopen the writ applicant’s income tax assessment for the A.Y. 2012-13. 2. Briefly stated the facts are that, the writ applicant – Mena Mani Industries Ltd. being a private limited company, was earlier known as ‘M/s. Anar Industries Ltd.’ and prior to that, it was known as ‘Enrich Industries Ltd.’, filed its return of income on 25.09.2012 declaring its total income at Rs.Nil and the same was processed under Section 143 (1) of the Act. For the year under consideration i.e. 2012-13, the writ applicant received Rs.1,23,89,040/- from M/s. Chetan Enterprise, which was non filer of return of income for the year under consideration and also not traceable on the registered address. The assessee had received interest income of Rs.11,17,084/- for the year under consideration. However, the company had shown interest income only Rs.5,58,542/- in the return of income. Under the circumstances, the assessment for the Page 1 of 8 C/SCA/21135/2019 ORDER DATED: 26/03/2021 year 2012-13 of the assessee was sought to be reopened by the revenue by issuing impugned notice dated 30.03.2019 under Section 148 of the Act. 3. The writ applicant filed its return of income in response to the notice issued by the revenue and requested to supply the copy of the reasons recorded for reopening. The same was supplied vide communication dated 12.09.2019. The writ applicant vide letter dated 19.09.2019 raised objections, which came to be disposed of by the revenue vide order dated 04.10.2019. The assessing officer before issuing the aforesaid notice, has recorded the reasons for reopening which reads as under: Reasons recorded :- “1. The assessee company had filed its return of income for A.Y. 2012-13 on 25.09.2012 declaring income of Rs Nil. The return of income was processed U/s 143(1) of the Income tax Act on 14.03.2013 at the total income of Rs Nil. 2. In this case, information was also received from DDIT(Inv), Unit-5(4), Mumbai on 28.03.2019 that in the case of M/s Chetan Enterprises on perusal of the bank account number 912020001029167 of Axix bank Limited, a sudden high value transfer credits and debits were observed between 08.02.2012 to 13.02.2012 and thereafter no transactions were observed in the said account. 2.1 In this connection, during the enquiry proceedings summons u/s. 131 of the Act were issued to M/s. Chetan Enterprises but it is found not traceable. Further, on perusal of the bank account it is found that the amount of Rs. 1,48,81,070/- was transferred from M/s. Bhavesh Trading Co to M/s Chetan Enterprises which also found non filer of return of income for A.Y. 2012-13 and also not traceable on given address. Further, on perusal of the account of M/s Chetan Enterprises an amount of Rs 1,23,89,040/- transferred to the assessee company M/s Anar Industris Limited ( now known as M/s. Mena Mani Industries Ltd). 3. On analysis from the retum of income and ITS data of the assessee company, it is found that the assessee company has received interest income of Rs 11,17,084/- as per 26 As for F.Y. 2011-12 relevant to A.Y. 2012-13 where as it has disclosed only an interest income of Rs. 5,58,542/-. Further, during the course of investigation proceedings by the DDIT (Inv) a summons was also issued to the assessee company with a request to explain the said transaction entered into with M/s Chetan Enterprises. In response to the same it has submitted by the assessee compan that no transaction was made with M/s Chetan enterprises but not filed any supporting evidence to justify the same with copy of bank statement etc. Therefore, in view of the above all the transaction made with the above concern are not genuine. In view of Page 2 of 8 C/SCA/21135/2019 ORDER DATED: 26/03/2021 the above, | have reason to believe that there is escapement of income of Rs. 1,29 47,582/- for A.Y. 2012-13, Therefore, it is a fit case for issuing notice U/s 148 of the Income tax Act. 4. In this case a return of income was filed for the year under consideration but no scrutiny assessment U/s 143(3) of the I.T. Act was made. Accordingly, in this case only requirement to initiate proceedings U/s 147 is reason to believe which has been recorded above. 5. It is pertinent to mention here that in this case the assessee has filed its return of income for the year under consideration but no assessment as stipulated U/s 2(40) of the Act was made and the return of income was only processed U/s 143(1) of the Act . In view of the above, provision of clause (b) of explanation 2 section 147 are applicable to facts of the case and the assessment year under consideration is deemed to be a case where income chargeable to tax has escaped assessment. : 6. Further, in this case more than} four year have lapsed from end of the assessment year under consideration. Hence necessary sanction to issue notice U/s 148 is requested for approval from the Pr: Commissioner of Income tax as per the provisions of section 151 of the Act.” 4. The writ applicant raised the objections against the issuance of impugned notice and the intention of proceedings mainly on the following grounds: (i) No escapement of income chargeable to tax; (ii) No difference between ‘interest income’ reflected in Form 26AS and ‘interest income’ disclosed by the writ applicant; (iii) Reasons lacked validity; (iv) Sanction in terms of Section 151 of the Act has not been obtained in correct perspective (v) Reopening is based on borrowed satisfaction. 5. Being aggrieved by the impugned notice as well as the order of disposing of the objections, the writ applicant has come up before this Court with the present writ application. 6. We have heard Mr. Tushar Hemani, the learned Senior Counsel assisted by Ms. Vaibhavi Parikh, the learned counsel appearing for the writ Page 3 of 8 C/SCA/21135/2019 ORDER DATED: 26/03/2021 applicant and Mrs. Mauna Bhat, the learned Sr. Standing Counsel assisted by Mr. Karan Sanghani, the learned counsel appearing for the Revenue. 7. Mr. Tushar Hemani, the learned Sr. Counsel appearing for the writ applicant submitted that, the impugned notice is absolutely illegal and bad in law and against the provisions of the statute, more particularly Section 147/148 of the Act. It was further submitted that, during the A.Y. 2011-12, the writ applicant made sales amounting to Rs.1,20,46,250/- to M/s. Harsh Enterprise and the amount was debited to the party’s account and the same was reflected in annual accounts of the assessee. In this context, it was submitted that, for the year under consideration, the writ applicant received Rs.1,23,89,040/- from M/s. Chetan Enterprises on behalf of M/s. Harsh Enterprise from whom the assessee company was to recover Rs.1,26,48,563/- on account of sales made in the earlier A.Y 2011-12 and the same had not credited to the account of M/s. Harsh Enterprise. Drawing attention to the ledger copies of M/s. Harsh Enterprise and annual account of the assessee, it was submitted that the writ applicant had not entered into any independent transaction with M/s. Chetan Enterprises and money received from M/s. Chetan Enterprise was merely on behalf of M/s. Harsh Enterprises. Thus, for the year under consideration, the assessee company had received the amount of outstanding sales consideration, which was already offered for tax in preceding year and therefore, no taxing event has taken place during A.Y. 2012-13 and therefore, question of escapement of any income does not arise at all. Under such circumstances, it was humbly submitted that, there is no escapement of income chargeable to tax as contained in the reasons recorded while issuing the impugned notice and the reasons lacked validity and the revenue is not justified to reopen the assessment for the year under consideration. Page 4 of 8 C/SCA/21135/2019 ORDER DATED: 26/03/2021 8. It was also submitted that, reason to believe is bad in law as the assessing officer recorded his satisfaction only on the basis of the information received from the investigating wing without carrying out his independent enquiries and hence, he assumed jurisdiction only on borrowed satisfaction, which is impermissible in law. 9. As regards the interest income of Rs.11,17,084/-, it was submitted that the amount as per Form 26AS is factually incorrect and interest income of Rs.5,58,542/- as reflected in Form 26AS had not disclosed. Therefore, there is no difference between interest income reflected in Form 26AS and interest income disclosed by the assessee company. 10.In view of the aforesaid contentions, learned Sr. Counsel for the writ applicant submitted that reopening of the assessment is therefore without jurisdiction and hence, the impugned notice deserves to be quashed and set aside. 11.On the other hand, Mrs. Mauna Bhatt, the learned Sr. Standing Counsel appearing for the Revenue vehemently opposed the writ application contending that the case of the assessee was reopened on the basis of the information shared by DDIT (Inv.), Mumbai and after receiving the information, the assessing officer made independent enquiries and it was found that the assessee company received an amount of Rs.1,23,89,040/- from M/s. Chetan Enterprises, which is non filer of the income tax returns and its whereabouts also not known. Under the circumstances, it was submitted that the reasons recorded for reopening are clear and reflected proper application of mind on the part of the assessing officer and the assessing officer himself was satisfied with regard to the information and came to the conclusion that the income received from M/s. Chetan Enterprises and the deficit interest income has escaped income. Under the circumstances, the action taken by the assessing Page 5 of 8 C/SCA/21135/2019 ORDER DATED: 26/03/2021 officer is just, legal and proper and does not warrant any interference. 12.Mrs. Mauna Bhatt, the learned Sr. Standing Counsel appearing for the revenue submits that, there being no merits in the writ application, the same deserves to be dismissed. 13.A plain reading of the reasons recorded, reveals that the case of the assessee sought to be reopened mainly on the ground that (i) the assessee company had received Rs.1,23,89,040/- from M/s. Chetan Enterprises and transaction was not genuine (ii) the assessee company had received interest amount of Rs.11,17,084/- as per Form 26AS for A.Y. 2012-13, whereas, the interest income of Rs.5,58,542/- had not disclosed. 14.Considering the submissions advanced by learned counsel for the respective sides and perusing the materials on record, we are of the view that while disposing off the preliminary objections filed by the writ applicant against the reasons recorded for reassessment have not been properly dealt with by the Assessing Officer. We take the note of the fact that, while submitting the objections, the writ applicant had specifically taken a stand that the alleged amount of Rs.1,20,46,250/- received from M/s. Chetan Enterprises on behalf of M/s. Harsh Enterprises from whom the writ applicant was to recover Rs.1,26,48,563/- on account of sales made to the said parties in the year 2011-12 and the same had been credited to the account of M/s. Harsh Enterprises during A.Y. 2012-13 and there was no any independent transaction with M/s. Chetan Enterprises. 15.Record indicates that the writ applicant had responded to the summons issued under Section 131 of the Act, inter alia, stating that no any independent transaction being made with M/s. Chetan Enterprises. It appears from the record that while submitting the objections, the writ Page 6 of 8 C/SCA/21135/2019 ORDER DATED: 26/03/2021 applicant had submitted copies of the ledger account of M/s. Harsh Enterprises in the year 2010-11 and 2011-12, the bank statement of Axis Bank Ltd. for the year 2011-12 to show the entries of receipt of money to the tune of Rs.1,23,89,040/- as well as the copy of the balance-sheet and audited accounts. 16.We have examined para 6.1 of the order disposing off the objections, wherein, no reasons having been assigned so far as the issues raised by the writ applicant with regard to the alleged transaction is concerned. We are of the view that, the Assessing Officer failed to take note of the various objections filed against the reasons recorded. Para 6.1 of the order of disposing off the objections does not reflect proper application of mind to the objections raised by the writ applicant and it could not be said that the objections having been disposed off by passing a reasoned order. 17.In view of the judgment of the Apex Court in the case of GKN Divershaft (India) Ltd. Vs. Income tax Officer & Ors. [(2003) 259 ITR 19], while disposing off the objections against the notice issued under Section 148 of the Act, it is an obligatory on the part of the Assessing Officer to deal with the issues raised therein and pass speaking 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. 18.In the case on hand, specific objections raised by the writ applicant Page 7 of 8 C/SCA/21135/2019 ORDER DATED: 26/03/2021 produced on record at Page 37 of the writ application having not been properly dealt with by the Assessing Officer. The lapses is in clear violation of the Apex Court. Thus, it appears that the Assessing Officer has passed the order disposing of the objections mechanically and without application of mind. In other words, not in a meaningful manner. We are conscious that, disposing off 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. 19.In view of the above, this writ application succeeds in part. The order disposing off the objections filed by the assessee, dated 04.10.2019 at Annexure – H, page-55 to 61 to this writ application is hereby set aside and the matter is remitted to the Assessing Officer. The Assessing Officer shall take into consideration the objections raised by the assessee and pass a fresh speaking order in accordance with law. 20.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 Assessing Officer. 21.In the event, if the order that the Assessing Officer 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) SUCHIT Page 8 of 8 "