SATVA MERCHANDIZE PRIVATE LIMITED V. OFFICE OF THE INCOME TAX OFFICER WARD 4(1)(1)

SCA/20740/2019

AI Insights

Satva Merchandize Private Limited filed a petition under Article 226 of the Constitution of India challenging a notice dated 29.03.2019 issued under Section 148 of the Income Tax Act, 1961, which alleged that income for the Assessment Year 2012-13 had escaped assessment. The petitioner contested the reopening of the assessment, arguing that the basis for the reopening was unsustainable and lacked specific details linking the company to any alleged escapement of income. The respondent, the Income Tax Officer, defended the reopening by citing substantial bank transactions and a failure of the petitioner to adequately respond to summons for details. After extensive hearings and examination of materials, the petitioner chose to withdraw the petition, leading to its dismissal.

• Counselvise Citation: [2021] 140 COUNSELVISE.COM (IT) 763883 (HC-GUJARAT)
• Appeal Type: Others
• Pronouncement Date: 20-09-2021
• Assessment Year: misc
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Revenue
• Court: HIGH COURT
• Department Lawyers: MAUNA BHATT
• Assessee Lawyers: S UDHIR M EHTA; SHAILEE MEHTA
• Keywords: Assessment Year 2012-13; Bank transactions; Income escaped assessment; Reopening of assessment; Undisclosed income; Writ of Certiorari; Circular routing of funds
• Section: 148; 143(3); 142(1); 133(6); 131(1A); 115-JB

Judgement Text

"C/SCA/20740/2019 ORDER DATED: 20/09/2021 IN THE HIGH COURT OF GUJARAT AT AHMEDABAD R/SPECIAL CIVIL APPLICATION NO. 20740 of 2019 ========================================================== SATVA MERCHANDIZE PRIVATE LIMITED Versus OFFICE OF THE INCOME TAX OFFICER WARD 4(1)(1) ========================================================== Appearance: MR SUDHIR M MEHTA(2058) for the Petitioner(s) No. 1 MS SHAILEE S MEHTA(5873) for the Petitioner(s) No. 1 MRS MAUNA M BHATT(174) for the Respondent(s) No. 1 ========================================================== CORAM: HONOURABLE MS. JUSTICE SONIA GOKANI and HONOURABLE MR. JUSTICE RAJENDRA M. SAREEN Date : 20/09/2021 ORAL ORDER (PER : HONOURABLE MS. JUSTICE SONIA GOKANI) 1. This is a petition preferred under Article 226 of the Constitution of India seeking to challenge the reopening of the assessment of the notice which is impugned herein dated 29.03.2019 issued under Section 148 of the Income Tax Act, 1961 (hereinafter ‘the said Act’) with the following prayers: - “(A) Your Lordships may be pleased to admit and allow this petition. (B) Your Lordships may be pleased to issue a writ of certiorari or a writ in the nature of certiorari or any other appropriate writ, order or direction for quashing and setting aside the impugned notice dated 29.03.2019 u/s 148 of the Income Tax Act, 1961 at Annexure-A and the order dated 18.09.2019 disposing the objections at Annexure-H. (C) Pending admission, hearing and final disposal of the present petition, be pleased to stay the Page 1 of 8 C/SCA/20740/2019 ORDER DATED: 20/09/2021 implementation, operation and execution of the impugned notice dated 29.03.2019 u/s 148 of the Income Tax Act, 1961 at Annexure-A and the order dated 18.09.2019 disposing the objections at Annexure-H. (D) Your Lordships may be pleased to grant any other and further relief which may be deemed fit and proper in the interest of justice.” 2. The brief facts leading to the present petition are as follows: - 2.1. The petitioner is a Private Limited Company being assessed to tax for last several years under the said Act. The respondent is the Assessing Officer (hereinafter referred to as ‘AO’) who had issued the impugned notice under Section 148 of the said Act for the Assessment Year 2012-13 stating that income for that year has escaped assessment and asking the petitioner company to file its return of income. 2.2. The company declared its income in the return of income on 28.09.2012 declaring the same to be Rs. 11,28,100/- and book profit of Rs. 11,34,539/- under Section 115(JB) of the said Act. The statement of total income accompanying the return and audit report along with the relevant part of 3DC report are also placed on record. 2.3. It is averred by the petitioner that during the pending proceedings under Section 143(3), the notice under Section Page 2 of 8 C/SCA/20740/2019 ORDER DATED: 20/09/2021 142(1) was issued for information required by letter dated 04.07.2014, where the points were as under: - (i) The details of bank account of the petitioner as well as copy of the bank statement; (ii) The details of the trade payable of Rs. 61,48,17,135/-; (iii) The details of trade receivables of Rs. 61,50,98,703/-; (iv) Copy of ledger account of Excise Duty/VAT account of Rs. 10,10,69,972/-; (v) The details of month wise purchase and sales; (vi) The production of books of accounts, bills and vouchers for verification. 2.4. The petitioner submitted its reply on 22.07.2014. A further reply also came to be filed on 06.08.2014 giving more details. During the course of assessment proceedings under Section 143(3) of the said Act, the AO issued notice to M/s. Satva Merchandise Private Limited for calling for above such details. The notice was issued under Section 133(6) as also under Section 142(1) of the said Act. 2.5. After considering all the details, the assessment under Section 143(3) was ordered on 07.11.2014 and the income was determined as mentioned hereinabove. 2.6. On 03.12.2018, summons was issued for hearing on Page 3 of 8 C/SCA/20740/2019 ORDER DATED: 20/09/2021 12.12.2018 which was not served upon the petitioner due to change of address. Fresh summons was issued on 21.01.2019 and thereafter the respondent issued a notice on 29.03.2019 under Section 148 of the said Act stating that the income had escaped assessment for the Assessment Year 2012-2013 and asked the petitioner to file the return. The respondent was also supplied a copy of the reasons recorded which had been objected to. 2.7. According to the petitioner, the only basis of the reason is the credible information, however, the AO has not mentioned the source of information. The base of this allegation is unsustainable according to the petitioner because merely having financial transaction between one or more entities by bank and also knowing the nature of business in which the parties doing trading of chemicals, detergent raw materials and computer hardware would not amount to escapement of any income from the net of the tax. 2.8. The objections were filed by letter dated 12.07.2019. According to the petitioner it is a different company than the company where the directors are Mr. Fenil B. Shah, Mr. Bharat Rasiklal Shah and Smt. Geetaben B. Shah . They had never been the directors in the petitioner company or the Page 4 of 8 C/SCA/20740/2019 ORDER DATED: 20/09/2021 company has no relation to M/s. Ardor International Pvt. Ltd. The CBI investigation of Ardor Internation Pvt. Ltd. would have no connection nor any direct or indirect nexus, therefore, the reopening of assessment is not justifiable and hence, this petition. 3. On issuance of notice and grant of interim relief of not to further proceed with the proceedings pursuant to the impugned notice, the other side appeared and filed his affidavit-in-reply denying all the allegations. 3.1. According to the respondent, the information had been received in relation to Rajkot Nagrik Sahkari Bank Limited and Axis Bank Limited. The assessee company had credited Rs. 1,48,70,52,060/- in current account No. 38/3385 with Rajkot Nagrik Sahkari Bank Limited and Rs. 15,54,73,416/- in the current account No. 910020027703814 with Axis Bank Limited. In order to ascertain how bank transaction treated in books of account, the DDIT(Investment) issued summons under Section 131(1A) of the said Act to the assessee company on various dates calling for the details. However, the assessee company failed to comply with the summons and did not explain the nature and sources of amounts credited in the said bank accounts. Page 5 of 8 C/SCA/20740/2019 ORDER DATED: 20/09/2021 3.2. According to the respondent, the fact of assessee being involved as a medium for circuitous transaction of rotation of undisclosed income of directors of certain companies and was noticed subsequently upon verification of information. No details in relation to nature and source of the credits were verified at the original assessment stage and therefore, the case was reopened under Section 147 of the said Act after verification of the case record and upon verification of information received from Deputy Director of the Income Tax (investment), Unit-2(1), Ahmedabad by the AO. The AO with independent application of mind and satisfaction has reason to believe with regard to escapement of income after referring and correlating the material on record for the year under consideration. There has been a failure on the part of the assessee to disclose fully and truly all material facts necessary for assessment and the AO must have a reason to believe and satisfy with the reasons so necessary for being the core ingredients having been fulfilled in the instant case, there is no illegality as alleged. 3.3. The assessment was reopened, according to the respondent and the notice under Section 148 of the said Act and on dated29.03.2019, it was duly served upon the assessee Page 6 of 8 C/SCA/20740/2019 ORDER DATED: 20/09/2021 company. In response to the said notice, assessee company had filed its return of income on 29.04.2019 and declared the same income as filed in the original return of income show in the assessment year on 2012-2013. The reasons recorded for reopening of the assessment were provided to the assessee company on 18.07.2019. 3.4. According to the respondent, Central Bank of India, Ahmedabad has lodged a criminal complaint with CBI regarding fraud, cheating and other offences committed by M/s Ardor International Private Limited, Mr. Fenil B. Shah, Mr. Bharat Rasiklal Shah, Smt. Geetaben B. Shah (Director of assessee company M/s. Satva Merchandise Private Limited) in respect of various credit facilities extended by the Central Bank of India, Ahmedabad. The CBI, Mumbai has filed FIR against the directors of the assessee company and M/s Ardor International Private Limited in which it was stated that modus operandi was a circular routing of funds among inter related parties having common management and address. This information also emphasized that the income chargeable to tax has escaped assessment. The AO with independent application of mind has reopened and the instant proceeding under Section 147 have been initiated after deriving at a satisfaction by the AO. He has also recorded the reasons in Page 7 of 8 C/SCA/20740/2019 ORDER DATED: 20/09/2021 writing with independent application of mind. He is expected to form only a prima facie opinion or belief and therefore, according to the respondent, presently no interference is desirable. 4. The rejoinder affidavit is also filed denying all these aspects and also calling various decisions. 5. The Court has heard extensively both the sides and also examined the material on record. It also called for the details of the FIR filed by the CBI. 6. Since the Court was disinclined to entertain this petition, learned advocate Mr. Mehta has, on instruction, chosen to withdraw this petition. 7. Accordingly, the petition stands disposed of as withdrawn. Notice is discharged. Interim relief stands vacated. (SONIA GOKANI, J) (RAJENDRA M. SAREEN,J) Bhoomi Page 8 of 8 "