RAJESHKUMAR CHHANALAL PATEL V. INCOME TAX OFFICER WARD 1(3)(4)

SCA/21825/2019

AI Insights

The case involves Rajeshkumar Chhanalal Patel, who challenged a notice issued by the Income Tax Officer under Section 148 of the Income Tax Act, 1961, seeking to reopen the assessment for the Assessment Year 2012-13. The notice was based on alleged unexplained cash deposits amounting to Rs.3,10,20,401. The petitioner argued that all material facts were disclosed and that the difference in reported sales and cash deposits was due to the VAT component, which was treated separately in the accounts. The Assessing Officer initially rejected these objections, leading to the writ application. The High Court found that the Assessing Officer did not adequately address the objections and remitted the matter for a fresh decision.

• Counselvise Citation: [2022] 140 COUNSELVISE.COM (IT) 767097 (HC-GUJARAT)
• Appeal Type: Others
• Pronouncement Date: 05-04-2022
• Assessment Year: misc
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Partly Allowed
• Court: HIGH COURT
• Department Lawyers: M R BHATT CO
• Assessee Lawyers: B S SOPARKAR
• Keywords: Reopening of assessment; Unexplained cash deposit; VAT component; Excess cash deposit
• Section: 147; 148

Judgement Text

"C/SCA/21825/2019 ORDER DATED: 05/04/2022 IN THE HIGH COURT OF GUJARAT AT AHMEDABAD R/SPECIAL CIVIL APPLICATION NO. 21825 of 2019 ============================================= RAJESHKUMAR CHHANALAL PATEL Versus INCOME TAX OFFICER WARD 1(3)(4) ============================================= Appearance: MR B S SOPARKAR(6851) for the Petitioner(s) No. 1 M R BHATT & CO.(5953) for the Respondent(s) No. 1 ============================================= CORAM:HONOURABLE MR. JUSTICE J.B.PARDIWALA and HONOURABLE MS. JUSTICE NISHA M. THAKORE Date : 05/04/2022 ORAL ORDER (PER : HONOURABLE MR. JUSTICE J.B.PARDIWALA) 1. By this writ application under Article 226 of the Constitution of India, the writ applicant has prayed for the following reliefs: “(a) quash and set aside the impugned notice dated 30.03.2019 at Annexure – A to this petition; (b) pending the admission, hearing and final disposal of this petition, to stay implementation and operation of the notice at Annexure – A to this petition and stay further proceedings for assessment for A.Y. 2012-13; (c) any other and further relief deemed just and proper be granted in the interest of justice; (d) to provide for the cost of this petition.” 2. The subject matter of challenge is the Notice issued by the Assessing Officer under Section 148 of the Income Tax Act, 1961, dated 30.03.2019 seeking to reopen the assessment for the Assessment Year 2012-13. The reasons assigned by the Assessing Officer for reopening are as under: Page 1 of 6 C/SCA/21825/2019 ORDER DATED: 05/04/2022 “2. Brief details of information collected/received by the AO: Information received from ADIT(Inv.)-Unit-2(2), Ahmedabad during F.Y. 2011-12, assessee has deposited cash in bank for Rs.3,10,20,401/- The information received vide letter No.ADIT (Inv.)/Unit2(2)/Sol/RC/2018-19 dated 14.03.2019 as under: \"On inquiry with the assessee about the cash deposits, the assessee stated that the customers who have purchased the gold bullion, preferred to deposit cash with our various bank accounts. To verify the correctness of the cash deposit, the assessee was requested to furnish month-wise sales made in cash as well credit. Accordingly, the assessee vide letter dated 07/02/2019 furnished the details. On verification of the same, it is noticed that during the year the assessee has made total cash sales of Rs.3,81,79,67,410/-. Accordingly, the assessee was requested to reconcile the cash sales and cash deposited made. In response thereto, the assessee vide letter dated 08/02/2019 furnished a reconciliation, a copy of the same is enclosed herewith for kind reference. On verification of the reconciliation, it can be seen that the assessee failed to reconcile the cash deposits made entirely and an amount of Rs.2,89,23,857/- [3901475764-3872551907] found to be excess cash deposited with bank. The assessee has no explanation for such excess cash deposited. Apart from the above, while reconciling the cash deposits, the assessee has shown an amount of Rs.1,40,81,396/- as advance from customers. However, on verification of the P&L A/c. for F.Y. 2011-12 relevant to A.Y. 2012-13, it is noticed that the assessee has shown advance from customers at Rs.1,19,84,852/- This clearly shows that the assessee has shown excess cash deposits of Rs.20,96,544/- (14081396-11984852) as advance from customers. Thus, the total excess cash deposits works out to Rs.3,10,20,401/- [28923857+2096544]. The assessee failed to explain the excess cash deposit of Rs.3,10,20,401/- and the same is required to be taxed for A.Y. 2012-13 as unexplained cash deposit in the bank account(s) maintained by the assessee.\" 3. Analysis of information collected/received: On the basis of information received with respect to aforesaid assesses, during F.Y. 2011-12 relevant to A.Y. 2012-13, analysis of information available on ITBA portal on ITS and 360 degree profile of the assessee. The assessee has filed his return of income for A.Y. 2012-13. The information and facts are found to be correct. The same has been analyzed and accordingly reasons recorded in para. 6 below. 4. Enquiries made by the AO as sequel to information collected/received: The ITBA/ITD data available in this office is verified. (i) As per PAN data base the case of the assessee is found to belong to the territorial jurisdiction this ward. (ii) The assessee has filed return of income for F.Y. 2011-12. The total amount of Rs.3,10,20,401/- has escaped assessment within the meaning of section 147 of the I.T. Act. 5. Findings of the AO: In view of the above facts, it is concluded that assessee has filed return of income for A.Y. 2012- Page 2 of 6 C/SCA/21825/2019 ORDER DATED: 05/04/2022 13. The assessee had deposited cash in bank for Rs.3,10,20,401/- during A.Y. 2012-13. 6. Basis of forming reasons to believe and details of escapement of income: The fact remains that the assessee has made excess cash deposit in bank for Rs.3,10,20,401/- and filed the return of income for A.Y. 2012-13 As per discussion in Para.2. The assessee has failed to explain the cash deposit of Rs.3,10,20,401/-despite of filling the return of income for A.Y. 2012-13. In view of this fact I have strong reasons to believe that income of Rs.3,10,20,401/- is the amount which is chargeable to tax and has escaped assessment within the meaning of section 147 of the I.T.Act.” 3. To the aforesaid, the writ applicant filed his objections essentially stating as under: “4.2 No failure to disclose fully and truly all material facts. It is submitted that there is not failure on the part of the Assessee to truly and fully disclose all material facts. It is submitted that the report of investigation team is based on the inquiries made with the Assessee only. It is submitted that there is no fresh tangible material available with either the investigation team or the Assessing Officer to come to a new finding that the disclosure made by the Assessee was incomplete. It is submitted that the assessee only gave all the details to the investigation team which was part of the accounts only. It is therefore submitted that in absence of any failure on the part of the Assessee to truly and fully disclose all material facts, completed assessment can not be reopened beyond the period of four years form the end of the Assessment year. (Details of communication with the investigation team is attached herewith as Annexure B); 4.3 No income has escaped assessment. It is submitted that there is no escapement of income. It is submitted that the difference between cash deposited and sales shown arises due to the VAT component in the cash deposited that is not part of Sales but shown separately as liability. It is submitted that the purchaser of gold purchases gold at a price inclusive of VAT but the Assessee is following exclusive method of accounting where VAT component is not part of sales but kept separate as liability. It is therefore submitted that the difference arises and in fact there is no income that has escaped assessment. It is submitted that the investigation team had not inquired further with the Assessee therefore the Assessee did not provide the same. (A copy of the complete reconciliation between the cash deposited and the cash sales shown in the books of accounts along with Tax Audit report and monthly VAT ledger is attached herewith as Annexure C).” 4. The aforesaid objections came to be disposed of by the Assessing Officer vide order dated 02.12.2019 stating as Page 3 of 6 C/SCA/21825/2019 ORDER DATED: 05/04/2022 under: “3.4 The assessee further on merits of his case, has stated that the difference between cash deposited and sales shown arises due to the VAT component in the cash deposited that is not part of sales but shown separately as liability. However, this contention of the assessee is not found to be acceptable as this is not the appropriate time to discuss the genuineness of transactions on merits. Without prejudice to the same, it is to mention that the same was not verifiable from the return of income and the assessment proceedings finalized. Further, the assessee in the above referred objection letter has also submitted the same was not provided to the Investigation Wing as the same was not inquired further with the assessee. The onus was upon the assessee to provide the complete reconciliation to the Investigation Wing though the same was not called for. However, the assessee failed to furnish the same and now, raising the objections which is not incorrect and valid. Notwithstanding to the same, it is to mention that at the time of recording of reasons for reopening the assessment, the Assessing Officer is expected to form only a prima facie opinion or belief.” 5. We have heard Mr. B.S. Soparkar, the learned counsel appearing for the writ applicant and Mr. M.R. Bhatt, the learned Senior Counsel appearing for the Revenue. 6. The principles governing the reopening of the assessment under Section 147 of the Act may be summarized as under: “[i] To confer jurisdiction to the Assessing Officer to reopen the assessment under Section 147 of the Income-tax Act, beyond four years from the end of assessment year, following two conditions must be satisfied; [a] that the Assessing Officer must have reason to believe that the income chargeable to tax has escaped assessment; and that ; [b] same occasioned, on account of either failure on the 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 assessment of that year. (ii) Both the above conditions are condition-precedent and must be satisfied simultaneously before the Income-tax Officer can assume jurisdiction to reopen assessment beyond four years of the end of assessment year. Page 4 of 6 C/SCA/21825/2019 ORDER DATED: 05/04/2022 (iii) Such reasons must be recorded and if the reasons recorded by the Assessing Officer do not disclose satisfaction of these two conditions, re-opening notice must fail. (iv) There is no set format in which such reasons must be recorded. It is not the language but the contents of such recorded reasons which assumes importance. In other words, a mere statement that the Assessing Officer had reason to believe that certain income has escaped assessment and such escapement of income was on account of non-filing of the return by the assessee or failure on his part to disclose fully and truly all material facts necessary for assessment would not be conclusive. Nor, absence of any such statement would be fatal, if on the basis of reasons recorded, it can be culled out that there were sufficient grounds for the Assessing Officer to hold such beliefs. (v) Such reasons must emerge from the reasons recorded by the Assessing Officer and cannot be supplied through an affidavit filed before the Court. However, Gujarat High Court in the case of Aayojan Developers v. Income Tax Officer [Supra] has accepted the view that to elaborate such reasons already recorded, reference would be permissible to the affidavit filed by the Department before the Court. (vi) What would amount to true and full disclosure of all material facts must depend on each case and no strait-jacket formula of universal application can be provided. It can however safely be stated that the duty of the assessee is to disclose primary facts and it is not his duty to lead the Assessing Officer to any particular inference of fact or of law on the basis of such primary disclosures. In other words, once the assessee discharges his duty of stating all the primary facts, what inferences and conclusions should be drawn is the duty of the Assessing Officer. (vi) At the time of ascertaining whether the notice was validly issued, what could be the probable conclusion of fresh assessment if re-opening is permitted, is not the inquiry of the Court. In other words, the merits of the proposed action, through opening of the assessment, cannot be gone into by the court beyond prima facie stage.” 7. We are of the view that we should remit the matter to the Assessing Officer for fresh consideration of the objections raised by the writ applicant. We are not convinced with the manner in which the Assessing Officer has dealt with the objections raised by the writ applicant – assessee. The writ applicant in so many words has tried to explain that the difference between the cash deposited and the sales shown is due to the VAT component in the cash deposited. According to Page 5 of 6 C/SCA/21825/2019 ORDER DATED: 05/04/2022 the writ applicant, it is not a part of sales but shown separately as a liability. Whatever may be the worth of the explanation put forward by the writ applicant, it is expected of the Assessing Officer to apply his mind and decide the same accordingly. All that the Assessing Officer has said while disposing of the objections is that it is not an appropriate time to discuss the genuineness of the transactions on merits. 8. In view of the aforesaid, we partly allowed this writ application. The impugned notice and the order disposing of the objections are hereby quashed and set aside. The matter is remitted to the Assessing Officer for fresh consideration of the objections. The Assessing Officer shall give an opportunity of hearing to the writ applicant – assessee and proceed to pass a fresh order dealing with the objections in accordance with law. Let this exercise be undertaken and completed within a period of two months from today. (J. B. PARDIWALA, J) (NISHA M. THAKORE,J) NEHA Page 6 of 6 "