M/S NATIONAL CONSTRUCTION CO. THRU PARTNER V. JT. COMMR. OF INCOME TAX JCIT (OSD) CIRCLE-GANDHIDHAM

SCA/2153/2022

AI Insights

The case involves M/S National Construction Co., a partnership firm, which challenged the notice issued by the Joint Commissioner of Income Tax for reopening their assessment for the Assessment Year 2013-2014. The notice was based on information regarding unexplained transactions in the bank account of one of the partners, Khimji Harji Patel. The petitioner argued that the reopening was unjustified as the original assessment had considered all relevant details and that the reopening was merely a change of opinion by the Assessing Officer. The court agreed with the petitioner, emphasizing that the conditions for reopening an assessment beyond four years were not met, and the reopening was based on materials that were already available during the original assessment.

• Counselvise Citation: [2022] 140 COUNSELVISE.COM (IT) 756089 (HC-GUJARAT)
• Appeal Type: Others
• Pronouncement Date: 06-09-2022
• Assessment Year: misc
• Other Referred Cases: CIT v. Kelvinator of India Ltd (2010) 320 ITR 561, Pr. CIT v. Vaishnodevi Refoils & Solvex (2018) 89 taxmann.com 80, CIT v. Pankaj Dyestuff Industries in Income Tax Reference No. 241 of 1993, Rajesh Jhaveri Stock Brokers P. Limited (291 ITR 500 SC), Raymond Woollen Mills Ltd (236 ITR 34 SC)
• Laws Referred To: Income Tax Act, 1961, Indian Partnership Act, 1932, Constitution of India
• Result in Favour of: Others
• Court: HIGH COURT
• Department Lawyers: NIKUNT RAVAL
• Assessee Lawyers: S N DIVATIA
• Keywords: Assessment Year 2013-2014; Change of opinion; Income Tax; Jurisdiction; Reassessment; Unexplained credits
• Section: 147; 148; 143(3); 151

Judgement Text

"C/SCA/2153/2022 JUDGMENT DATED: 06/09/2022 IN THE HIGH COURT OF GUJARAT AT AHMEDABAD R/SPECIAL CIVIL APPLICATION NO. 2153 of 2022 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 ? 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 ? ========================================================== M/S NATIONAL CONSTRUCTION CO. THRU PARTNER Versus JT. COMMR. OF INCOME TAX JCIT (OSD) CIRCLE-GANDHIDHAM ========================================================== Appearance: MR SN DIVATIA(1378) for the Petitioner(s) No. 1 MR NIKUNT RAVAL FOR MRS KALPANAK RAVAL(1046) for the Respondent(s) No. 1 ========================================================== CORAM:HONOURABLE MR. JUSTICE N.V.ANJARIA and HONOURABLE MR. JUSTICE BHARGAV D. KARIA Date : 06/09/2022 ORAL JUDGMENT (PER : HONOURABLE MR. JUSTICE BHARGAV D. KARIA) Page 1 of 24 C/SCA/2153/2022 JUDGMENT DATED: 06/09/2022 1.Heard learned advocate Mr. S.N. Divatia for the petitioner and learned advocate Mr. Nikunt Raval for learned advocate Mr. Kalpan Raval for the respondents. 2.Having regard to the controversy involved in this petition, with the consent of the learned advocates for the respective parties, the petition is taken up for final hearing. 3.Rule returnable forthwith. Learned advocate Mr. Nikunt Raval waives service of notice of rule for the respondents. 4.The petitioner has preferred this petition under Article 226 of the Constitution of India challenging the impugned notice dated 31.03.2021 issued under section 148 of the Income Tax Act, 1961 (For short “the Act”) proposing to reopen the assessment for the Page 2 of 24 C/SCA/2153/2022 JUDGMENT DATED: 06/09/2022 Assessment Year 2013-2014 and consequential order dated 20.12.2021 disposing of the objections raised by the petitioner against the notice for reassessment. 5.Brief facts of the case are that the petitioner is a partnership firm duly constituted under Indian Partnership Act, 1932 and is engaged in the business of Mining Contract work involving Hiring of Heavy Equipment and Machinery for excavating (including drilling in all kind of strata over burden), loading into tippers, transportation and unloading the excavated material and silt, dumping, dozing, scraping/ removal of bands, Mining contractor and letting out of Dumpers/Tippers/excavators. 5.1) The petitioner had filed its original return of income for the Assessment Year 2013-2014 on 22.03.2014 declaring loss Page 3 of 24 C/SCA/2153/2022 JUDGMENT DATED: 06/09/2022 of Rs.4,19,99.647/-. 5.2) The case of the petitioner was selected for scrutiny under CASS for verifying high ratio of refund and certificate under section 197 of the Act. 5.3) It is the case of the petitioner that the assessment proceedings took place between 03.09.2014 to 18.03.2016 during which the respondent called for various details, explanations and evidence relating to the issues under scrutiny and other items as per notices and order sheet entries. It is the case of the petitioner that the petitioner in the course of the assessment proceedings furnished all details including the ledger account of partners vide letter dated 07.01.2016 etc. 5.4) The respondent completed the regular Page 4 of 24 C/SCA/2153/2022 JUDGMENT DATED: 06/09/2022 assessment under section 143(3) of the Act on 18.03.2016 on the total income of Rs. 3,15,24,220/- after making additions/ disallowances aggregating to Rs. 7,35,23,871/-. 5.5) The respondent issued the impugned notice on 31.03.2021 under section 148 of the Act for the Assessment Year 2013-2014 proposing to re-assess the total income. 5.6) In response to the impugned notice the petitioner had uploaded return of income on 13.04.2021 with a copy of reply requesting to provide the copy of reasons recorded for reopening. 5.7) The respondent provided copy of reasons recorded on 15.5.2021 and the petitioner thereafter filed its objections against the reopening on 02.07.2021. The Page 5 of 24 C/SCA/2153/2022 JUDGMENT DATED: 06/09/2022 reasons recorded by the Assessing Officer for reopening the assessment under section 147 of the Act read as under : “2. Brief details of information collected/received by the AO: This office is in receipt of information with the case type \"High Risk CRIUVRU Information\" on Verification Module of the Insight Portal of the Income Tax Department, uploaded by the ADIT(Inv.), Gandhidham. As per the information, Shri Khimji Harji Patel is a partner of M/s National Construction Co, and has made various debit and credit transactions with the assessee le. M/s National Construction Co. during the F.Y. 2013- 14. Following bank accounts is reported in the information: Sl. No. Bank Account No. Bank name Account holder name 01 0411102000002738 IDBI Bank Limited Shri Khimj Harji Patel From the departmental inquiries conducted by the O/o ADIT (Inv.), Gandhidham, it is gathered that the Shri Khimji Harji Patel has failed to explain the credits and debits in the above referred account, therefore the transactions made by Shri Khimji Harji Patel with M/s. National Construction Company remain unexplained.” 5.8) The Assessing Officer has further recorded that partner of the petitioner firm Page 6 of 24 C/SCA/2153/2022 JUDGMENT DATED: 06/09/2022 Shri Khimji Harji Patel has not filed return of income from Assessment Year 2014-2015 onwards and has also not responded to the summons issued to him and the petitioner firm is closed since long time and therefore, no summons could be served upon the said partner of the petitioner firm. In absence of any material in form of computation of income, books of accounts etc., credits and debits in the bank account of Shri Khimji Harji Patel was treated as unexplained credits and debits and since Shri Khimji Harji Patel failed to explain the credits and debits which were found with the petitioner firm, therefore, such transaction by the petitioner was also considered as unexplained in the hands of the petitioner firm. The Assessing Officer has further observed as under: “8. Applicability of provisions of section 147/151 to the facts of the case: In this case a return of income was filed for the year under consideration and regular assessment Page 7 of 24 C/SCA/2153/2022 JUDGMENT DATED: 06/09/2022 u/s. 143(3) was made on 19.03.2016. It is seen that 4 years from the end of the relevant assessment year have expired in this case. It is pertinent to mention here that reasons to believe that income has escaped assessment for the year under consideration have been recorded above (refer paragraph 6 above). I have carefully considered the assessment records containing the submissions made by the assessee in response to various notices issued during the assessment proceedings and have noted that the assessee has not fully and truly disclosed the facts necessary for its assessment for the year under consideration thereby necessitating reopening u/s. 147 of the Act. It is true that the assessee has filed a copy of Annual Report and Audited Profit & Loss Account and Balance Sheet along with Return of Income where various information/ material were disclosed. However, the requisite full and true disclosure of all material facts necessary for assessment has not been made as noted above. It is pertinent to mention here that the assessee has produced books of accounts, annual report, audited P&L A/c and balance sheet or other evidence as mentioned above, the requisite material facts as noted above in the reasons for reopening were embedded in such manner that though could have been discovered Page 8 of 24 C/SCA/2153/2022 JUDGMENT DATED: 06/09/2022 with due diligence, do not mean that true and full disclosure of facts is made by the assessee. Accordingly, provisions of Explanation 1 of section 147 of the Act are attracted. It is evident from the above discussion that in this case, the issues under consideration were never examined by the AO during the course of regular assessment. This fact is corroborated from the contents of notices issued by the AO u/s. 143(2)/142(1) and order sheet entries on various dates recorded during the 143(3) proceedings. It is important to highlight here that material facts relevant for the assessment on the issue under consideration were not filed during the course of assessment proceedings and the same may be embedded in annual report, audited P&L A/C, Balance Sheet and books of account in such a manner that it would require due diligence by the AO to extract this information. For aforestated reasons, it is not a case of change of opinion by the AO.” 5.9) The respondent thereafter has passed order dated 20.12.2021 rejecting the objections raised by the petitioner to the re-opening of assessment. Page 9 of 24 C/SCA/2153/2022 JUDGMENT DATED: 06/09/2022 5.10) The petitioner apprehends that the re-assessment may be finalized within short time and huge demand wound be raised without allowing sufficient opportunity and therefore, the petitioner has approached this Court by filing the present petition. 6.Learned advocate Mr. Divatia submitted that the impugned notice as well as order disposing of the objections raised by the petitioner are without jurisdiction because condition precedent for reopening the assessment under section 147 of the Act beyond the period of four years from the end of relevant assessment year is not satisfied. 6.1) It was further submitted that the assessment order under section 143(3) of the Act for the Assessment Year 2013-2014 was passed on 18.03.2016 and therefore, the case Page 10 of 24 C/SCA/2153/2022 JUDGMENT DATED: 06/09/2022 of the petitioner would fall under proviso to section 147 of the Act and there is no omission or failure on part of the petitioner to disclose full and true material facts necessary for assessment. 6.2) It was submitted that merely because the partner of the petitioner firm did not respond to the summons issued by the investigation officer, the same would not empower the respondent to initiate reassessment under section 147 of the Act in case of the petitioner. 6.3) It was also pointed out that the impugned notice is without jurisdiction as it is a case of change of opinion on the part of the respondent Assessing Officer with regard to source of deposits made in the account. Reliance was placed on the decision of the Apex Court in case of CIT v. Kelvinator of Page 11 of 24 C/SCA/2153/2022 JUDGMENT DATED: 06/09/2022 India Ltd reported in (2010) 320 ITR 561 in support of his submission. 6.4) Learned advocate Mr. Divatia invited the attention of the Court to the questionnaire dated 21.05.2015 issued by the Assessing Officer during the course of regular assessment wherein at serial no. 21, the details were called for with regard to the bank statement for capital introduction during the year, capital account of the partners etc. and the petitioner had furnished all the details with reply dated 7.01.2016 along with complete details of mode of receipt, source of fund and transfer to the petitioner firm. The respondent Assessing Officer had completed the assessment proceedings after considering the reply of the petitioner and materials produced before him with regard to the amount credited in the capital account of the partners. It was Page 12 of 24 C/SCA/2153/2022 JUDGMENT DATED: 06/09/2022 therefore, submitted that the impugned notice for reopening the assessment is nothing but a mere change of opinion. 6.5) It was further submitted that the petitioner firm is not obliged to explain the source of source in respect of credits in capital account of the partnership firm and failure to explain source by the partner cannot be considered as an unexplained credit in the hands of the partnership firm. Reliance was placed on the decision of this Court in case of Pr. CIT v. Vaishnodevi Refoils & Solvex reported in (2018) 89 taxmann.com 80. It was submitted that the Apex Court has also rejected SLP against the said judgmnet of this Court. It was submitted that this Court has held that when the assessee firm has furnished the details with regard to source of capital introduced in the firm and the concerned partner had confirmed Page 13 of 24 C/SCA/2153/2022 JUDGMENT DATED: 06/09/2022 such contribution, then the assessee firm would discharge the onus cast upon it and thereafter, if the Assessing Officer was not convinced about the creditworthiness of the partner who had made capital contribution, the inquiry had to be made at the hands of the partner and not against the partneship firm. It was submitted that facts of the present case are squarely covered by the decision of this Court in case of CIT v. Pankaj Dyestuff Industries in Income Tax Reference No. 241 of 1993. 7.On the other hand, learned advocate Mr. Nikunt Raval for the Assessing Officer submitted that the petition is at a pre- mature stage inasmuch as reasonable opportunity would be provided to the assessee while finalising the reassessment proceedings. It was submitted that though it is true that the petitioner has filed copy of Page 14 of 24 C/SCA/2153/2022 JUDGMENT DATED: 06/09/2022 annual report and audited profit and loss account and balance sheet along with return of income, requisite full and true disclosure of all material facts necessary for assessment has not been made as noted in the reasons for reopening. 7.1) It was further submitted that there is enough material on record which has been perused and after due application of mind and after analysing the documents on record, the Assessing Officer has arrived at the conclusion that there is reason to believe that such escapement has occurred by reason of omission and failure on part of the petitioner to disclose fully and truly all material facts. Reliance was placed on the decision of the Supreme Court in case of Rajesh Jhaveri Stock Brokers P. Limited reported in 291 ITR 500 (SC) and in case of Raymond Woollen Mills Ltd reported in 236 ITR Page 15 of 24 C/SCA/2153/2022 JUDGMENT DATED: 06/09/2022 34 (SC) in support of his submissions. 7.2) It was submitted that capital account of the partner Shri Khimji Harji Patel with IDBI Bank limited does not match with the capital account furnished by the assessee during the course of the assessment proceedings and as such, there is discrepancy in both the accounts and there is a difference between the entries in bank statement as well as copy of capital account furnished by the petitioner. It was therefore, submitted that the transaction made by the petitioner with Shri Khimji Harji Patel have not been disclosed at the time of regular assessment proceedings and in that view of the matter, the impugned notice is issued by the Assessing Officer after considering the information and documents gathered by the investigating wing which are completely new and never disclosed by the Page 16 of 24 C/SCA/2153/2022 JUDGMENT DATED: 06/09/2022 petitioner at the time of assessment proceedings and the Assessing Officer had no occasion to verify the same during the assessment proceedings. It was therefore, submitted that the issue on which the impugned notice is issued for reopening the assessment is completely based on fresh material available with the Assessing Officer with supporting evidence and therefore, there is sufficient reason to believe that income has escaped assessment within the meaning of section 147 of the Act for failure on part of the assessee to disclose all material facts fully and truly. 8.Having heard the learned advocates for the respective parties and having considered the materials produced on record, it is not in dispute that the petitioner has submitted all the details called for by the Assessing Officer in response to the notice issued Page 17 of 24 C/SCA/2153/2022 JUDGMENT DATED: 06/09/2022 under section 142(1) of the Act dated 21.05.2015 vide reply dated 7.01.2016 more particularly, the details with regard to Serial no. 21 and 22 being the detailed explanation of the source and copy of bank statement for capital introduction and details regarding withdrawal from the capital account by the partners of the petitioner firm. 9.It also emerges from the record that after perusal of the details furnished by the petitioner, the Assessing Officer has passed regular assessment order under section 143(3) of the Act on 18.01.2016 by making total addition of Rs.7,35,23,871/- and assessing total income at Rs.3,15,24,220/- after giving set of of loss of Rs. 4,19,99,647/-. 10. On perusal of the reasons recorded, it appears that the impugned notice under Page 18 of 24 C/SCA/2153/2022 JUDGMENT DATED: 06/09/2022 section 148 of the Act is issued only because one of the partner of the petitioner firm Shri Khimji Harji Patel who did not respond to the summons issued by the Investigating Wing of the department and therefore, inspite of the fact that entire material was produced by the petitioner firm during the course of assessment proceedings, the impugned notice is issued on the basis of bank statement of partner Shri Khimji Harji Patel from Account No. 0411102000002738 held with IDBI Bank Ltd. with the petitioner firm. 11. We are of the opinion that to confer jurisdiction to the Assessing Officer to reopen the assessment under section 147 of the Act beyond four years from the end of relevant assessment year, the two conditions must be satisfied namely, that the Assessing Officer must have reason to believe that the income chargeable to tax has escaped Page 19 of 24 C/SCA/2153/2022 JUDGMENT DATED: 06/09/2022 assessment and that the same was occasioned on account of either failure on part of the assessee to make a return of his income for that assessment year or to disclose fully and truly all material facts necessary for that assessment year. In the present case, the entire material was available with the Assessing Officer during the original assessment and therefore, there was no failure on part of the assessee to disclose truly and fully all material facts necessary for assessment and based upon such material supplied by the petitioner, the Assessing Officer passed the original assessment order. Further, it appears that the notice for reopening is based upon the investigation report and there is nothing on record to suggest that such reopening is made on account of new tangible material available on record. It is, therefore, apparent that there is change of opinion by the Assessing Officer Page 20 of 24 C/SCA/2153/2022 JUDGMENT DATED: 06/09/2022 to reopen the assessment for the Assessment Year 2013-2014, more particularly, when the issue raised in the reopening assessment is already considered during the original assessment proceedings. The Assessing Officer cannot assume any jurisdiction to issue the notice under section 148 of the Act, 1961 for reopening the assessment for the year under consideration more particularly, when the assessment is sought to be reopened beyond a period of four years as held by the Supreme Court in case of Commissioner of Income tax v. Kelvinator of India Ltd. reported in (2010) 320 ITR 561(SC) as under: “2. A short question which arises for determination in this batch of civil appeals is, whether the concept of \"change of opinion\" stands obliterated with effect from 1st April, 1989, i.e., after substitution of Section 147 of the Income Tax Act, 1961 by Direct Tax Laws (Amendment) Act, 1987? xxxx Page 21 of 24 C/SCA/2153/2022 JUDGMENT DATED: 06/09/2022 6. …………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 would take place. One must treat the concept of \"change of opinion\" as an in-built test to check abuse of power by the Assessing Officer…..” Page 22 of 24 C/SCA/2153/2022 JUDGMENT DATED: 06/09/2022 12. The Assessing Officer issued notice under section 148 of the Act only to make a roving inquiry into the facts which were already considered by the Assessing Officer at the time of framing the original assessment under section 143(3) of the Act. It appears that the Assessing Officer now wants to re-verify the facts which is not permissible to be an acceptable ground for exercising powers to reopen the assessment. 13. For the foregoing reasons, the impugned notice dated 31.03.2021 issued under section 148 of the Act by the respondent exercising the powers to reopen the assessment for the Assessment Year 2013-2014 is illegal and hereby quashed and set aside. As a consequence, order dated 20.12.2021 of the Assessing Officer disposing of the objections of the petitioner against the impugned notice Page 23 of 24 C/SCA/2153/2022 JUDGMENT DATED: 06/09/2022 is also quashed and set aside. 14. The petition succeeds and is allowed. Rule is made absolute to the aforesaid extent. No order as to costs. (N.V.ANJARIA, J) (BHARGAV D. KARIA, J) RAGHUNATH R NAIR Page 24 of 24 "