PAPADMALJI AGRO FOODS PVT. LTD. V. UNION OF INDIA

CW/6399/2023

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Papadmalji Agro Foods Pvt. Ltd. challenged the validity of an order and notice issued under the Income Tax Act, 1961, alleging that the proceedings were initiated without jurisdiction based on outdated survey information. The petitioner argued that the survey conducted on 04.03.2020 could not be the basis for the reassessment as it occurred before the legal cut-off date of 01.04.2021. Additionally, the petitioner contested the valuation method used for issued shares, which was based on a chartered accountant's report rather than a merchant banker, as required post-24.05.2018. The respondents countered that the case was selected under a high-risk management strategy, not solely on the survey information, and that the valuation issue was a matter for the assessing officer to determine.

• Counselvise Citation: [2023] 140 COUNSELVISE.COM (IT) 686152 (HC-RAJASTHAN)
• Appeal Type: Others
• Pronouncement Date: 18-10-2023
• Assessment Year: misc
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Revenue
• Court: HIGH COURT
• Department Lawyers: K K BISSA; G S CHOUHAN
• Assessee Lawyers: ANIL BHANSALI
• Keywords: Escaped assessment; Jurisdiction; Reassessment; Risk management strategy; Risk management strategy; Survey; High risk case
• Section: 148; 133A; 11UA; 56(2)(viib); 148A(b); 148A(d)

Judgement Text

"[2023:RJ-JD:34551-DB] HIGH COURT OF JUDICATURE FOR RAJASTHAN AT JODHPUR D.B. Civil Writ Petition No. 6399/2023 Papadmalji Agro Foods Pvt. Ltd., Opp. Manav Bharti School, Gharsisar, Bikaner 334001 Rajasthan Through Its Director Jai Agarwal S/o Sri Roop Chand Agarwal, Aged About 42 Years, R/o Hanuman Gali, Rani Bazar, Bikaner. ----Petitioner Versus 1. Union Of India, Through Secretary, Department Of Revenue, Ministry Of Finance, Government Of India, New Delhi. 2. The Principal Commissioner Of Income Tax, Central Aaykar Bhawan, Statue Circle Jaipur 3. The Assistant Commissioner Of Income Tax, Central Circle, Bikaner Aaykar Bhawan, Rani Bazar Bikaner 334001 ----Respondents For Petitioner(s) : Mr Anil Bhansali For Respondent(s) : Mr K.K.Bissa Mr G.S.Chouhan HON'BLE MR. JUSTICE VIJAY BISHNOI HON'BLE MR. JUSTICE YOGENDRA KUMAR PUROHIT Judgment 18/10/2023 (Per Hon’ble Vijay Bishnoi,J.) 1. By way of this writ petition, the petitioner has challenged the validity of the order dated 31.03.2023 passed under Section 148A (d) of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’). The petitioner has also challenged the notice dated 05.04.2023 issued by the Assessing Officer under Section 148 of the Act. [2023:RJ-JD:34551-DB] (2 of 9) [CW-6399/2023] 2. Facts, necessary for adjudication, are that the petitioner, a private limited company is engaged in the business of manufacturing/trading of papad, namkeens, snacks and other associated derivatives of such products. 3. A notice dated 03.03.2023 was issued to the petitioner under Section 148(b) of the Act, whereby it was asked to show cause why a notice under Section 148 of the Act should not be issued on the basis of information available, which suggests that the income chargeable to tax has escaped assessment for the relevant assessment year 2019-20. The petitioner was required to file reply to the said notice on or before 13.03.2023. 4. The petitioner submitted its reply on 12.03.2023, however, requested to provide time to furnish further clarification/ information. The matter was adjourned to 20.03.2023 and thereafter the petitioner submitted further clarification by filing another reply dated 31.03.2023, however, after hearing the petitioner, the order dated 31.03.2023 under Section 148A(d) of the Act has been passed followed by notice under Section 148(b) of the Act. 5. Assailing the order dated 31.03.2023 passed under Section 148A(d) of the Act and the consequential reassessment notice issued under Section 148 of the Act, learned counsel for the petitioner has argued that the proceedings initiated against the petitioner are without jurisdiction. It is submitted that from the notice dated 03.03.2023 issued under Section 148A (b) of the Act, it is clear that basis of information, in the case of the petitioner, [2023:RJ-JD:34551-DB] (3 of 9) [CW-6399/2023] was a survey conducted on 04.03.2020 under Section 133A of the Act. It is submitted that Explanation-2 (ii) to Section 148 of the Act clearly defines expression ‘information’, on the basis of which, the assessing officer can proceed in the cases of escaped assessment. 6. It is contended that any information gathered during a survey conducted under Section 133A of the Act before 1st April, 2021, cannot be the basis for initiating proceedings against an assessee under Section 148 of the Act. It is argued that in the notice dated 03.03.2023 issued under Section 148A (b) as well as the order dated 31.03.2023 passed under Section 148A(d) of the Act, the assessing officer has mentioned that the basis of information with him which suggests the income chargeable to tax has escaped assessment, is the survey conducted on 04.03.2020 though he has no authority to take into consideration any information gathered during survey conducted prior to 1st of April, 2021. It is, therefore, argued that the order dated 31.03.2023 issued by the assessing officer under Section 148A (d) of the Act and consequential notice under Section 148 of the Act are without jurisdiction and are liable to be quashed and set aside. 7. Learned counsel for the petitioner has further argued that another ground for initiating proceedings against the petitioner was that the petitioner-company issued shares on the basis of valuation made by the accountant and not by the merchant banker. It is submitted that as per Section 56(2)(viib) of the Act and Rules 11UA of the IT Rules, the fair market value of unquoted shares are required to be determined by merchant banker from [2023:RJ-JD:34551-DB] (4 of 9) [CW-6399/2023] 24.05.2018. However, in the present case, the assessee had executed Share Subscription Agreement and Share Holders Agreement on 22.02.2018 in which all terms and conditions of allotment of shares are mentioned and in those agreements, the valuation report of the chartered accountant valuing the shares as on 15.02.2018 has already been given. The Rule 11UA as it stood on 15.02.2018 permitted the determination of fair market value of unquoted equity shares by chartered accountant. It is submitted that assessing authority, without considering or even without understanding the said aspect of the matter, has illegally passed the impugned order under Section 148A(d) and issued notice under Section 148 of the Act. 8. Learned counsel for the petitioner has, therefore, prayed that the impugned order passed under Section 148A(d) of the Act and the notice issued under Section 148 of the Act may kindly be quashed and set aside. 9. Per contra, learned counsel for the respondents has opposed the writ petition and argued that there is no illegality in the impugned order dated 31.03.2023 passed under Section 148A(d) of the Act and notice dated 31.03.2023 issued under Section 148 of the Act. 10. It is submitted that the case of the petitioner is selected pursuant to the Explanation 1(i) of Section 148 of the Act. It is argued that the case of the assessee for the relevant assessment year was selected under risk management strategy which is formulated by the Board on 20.02.2023. It is wrong to contend [2023:RJ-JD:34551-DB] (5 of 9) [CW-6399/2023] that the case of the assessee is selected on the basis of information collected during survey conducted on 04.03.2020 under Section 133A of the Act. Learned counsel has argued that in para 2 of the notice dated 03.03.2023 issued under Section 148(b) of the Act, it is clearly mentioned that case of the petitioner is selected on the basis of information flagged in insight under the head High Risk CRIU/VRU for assessment year 2019-20. The case is flagged as CRIU/VRU High Risk in Insight Portal in accordance with the risk management. Learned counsel for the respondents has, therefore, submitted that the challenge to the order dated 31.03.2023 passed under Section 148(d) of the Act and the notice dated 31.03.2023 issued under Section 148 of the Act is without any merit and the same is liable to be rejected. 11. Learned counsel for the respondents has further submitted that the shares issued by the assessee are to be analysed in two tranches i.e. before 24.05.2018 and after 24.05.2018. It is submitted the petitioner has issued 206185 shares at the rate of Rs.388 during the year and total valuation of which comes to Rs.7,99,99,780/-. It is also submitted that out of these 206185 shares, the petitioner issued 1,03,093 shares after 24.05.2018 However, as per Section 56(2) (viib) and Rule 11UA, the fair market value of unquoted shares should be determined by merchant banker from 24.05.2018, whereas the assessee has issued shares on the basis of valuation report of BKA Associates, who is an accountant. 12. Learned counsel has further submitted that the contention of the petitioner that the shares’ price already quoted in the [2023:RJ-JD:34551-DB] (6 of 9) [CW-6399/2023] agreement dated 22.02.2018 is not accepted. It is submitted that all the details regarding issuance of shares need to be communicated to Ministry of Corporate Affairs in the form of MGT- 14 at MCA website. It was observed that the petitioner filed MGT- 14 on 13.03.2018 with 25772 shares in MCA Portal, however, vide letter dated 04.08.2022 and uploaded on ITBA Portal on 06.08.2022, the assessee submitted MGT-14 of 257732 shares and the form was also bearing the same digital signature, date and time. Noting this fact, the petitioner was specifically asked why it submitted forged MGT-14 of 257732 shares but the response of the petitioner was not satisfactory. 13. Learned counsel has submitted that from the above facts and circumstances of the case, it is clear that sufficient reasons or material was available with the assessing officer for reopening the case of the petitioner. Learned counsel for the respondents has, therefore, submitted that there is no merit in this petition and the same is liable to be dismissed. 14. Heard learned counsel for the parties. 15. The petitioner is contending that as per Explanation 2(ii) of Section 148 of the Act, the respondents have illegally initiated the proceedings of reassessment against the petitioner because the only information with the assessing officer was collected during a survey conducted under Section 133A of the Act on 04.03.2020, whereas the Explanation-2(ii) of Section 148 of the Act clearly provides that the information received in a case of survey under Section 133A of the Act after 01.04.2021 can only be taken into [2023:RJ-JD:34551-DB] (7 of 9) [CW-6399/2023] consideration. On the other hand, the respondents are contending that since the case of the petitioner is selected as high risk case in the Risk Management Strategy as per Explanation-1(i) of Section 148 of the Act, the proceedings are initiated. 16. Explanation-1(i) of Section 148 of the Act reads as under:- “(i) any information in the case of the assessee for the relevant assessment year in accordance with the risk management strategy formulated by the Board from time to time;” whereas, Explanation-2(ii) of Section 148 of the Act speaks thus; “(ii) a survey is conducted under section 133A, other than under sub-section (2A) of that section, on or after the 1st day of April, 2021, in the case of the assessee.” 17. In the notice dated 03.03.2023 issued to the petitioner under Section 148A(b), it is clearly mentioned that case of the petitioner is flagged in the insight under the head High Risk CRIU/VRU for assessment year 2019-20. The case is flagged as CRIU/VRU High Risk in Insight Portal in accordance with the risk management. The order passed by the assessing officer under Section 148A(d) also speaks that case of the petitioner is flagged as CRIU/VRU High Risk case in Insight Portal in accordance with the risk management. 18. In view of the above, we found that the assessing officer has not initiated the proceedings under Section 148 of the Act against the petitioner on the basis of information collected during survey under Section 133A conducted on 04.03.2020 but for the [2023:RJ-JD:34551-DB] (8 of 9) [CW-6399/2023] reason that the case of the petitioner is selected under the risk management strategy. 19. So far as second contention of the petitioner to the effect that it issued shares on the basis of valuation made by the accountant and not by the merchant banker is concerned, we found that though in the Shares Subscription Agreement and the Share Holders Agreement executed on 22.02.2018, the valuation report of the CA valuing the shares as on 15.02.2018 had already been given but admittedly the shares had been issued by the petitioner prior and after 24.05.2018, whereas as per Section 56(2)(viib) of the Act and Rule 11UA of the IT Rules, after 24.05.2018, valuation of the shares is required to be determined by the merchant banker. 20. Apart from that, in the facts and circumstances of the case, we are of the opinion that with regard to the question of issuance of shares without valuation by the merchant banker is concerned, the question would be matter of enquiry by the assessing officer that whether the valuation made by the accountant before 24.05.2018 is sufficient as per the requirement of law or not. 21. In exercise of jurisdiction under Article 226 of the Constitution of India, once this Court finds that the impugned order does not suffer from any procedural error and the same has been passed after giving an opportunity of hearing, it is advisable to restrain from interfering in the matter and left it [2023:RJ-JD:34551-DB] (9 of 9) [CW-6399/2023] open for the petitioner to raise all the grounds as raised in this petition to explain the transaction regarding issuance of shares in the assessment proceedings. 22. After going through the material available on record, we are satisfied that prima facie material was available with the department to proceed against the petitioner. Hence, we do not find any case to interfere in the matter at this stage. 23. The writ petition is dismissed accordingly. 24. Stay petition also stands dismissed. 25. There will be no order as to costs. (YOGENDRA KUMAR PUROHIT),J (VIJAY BISHNOI),J masif/-D.R. "