VASUDEV FATANDAS SAWLANI V. SANTOSH KUMAR, INCOME TAX OFFICER WARD 1(3)(4)

SCA/16719/2018

AI Insights

The case involves Vasudev Fatandas Sawlani, the petitioner, who challenged a notice of re-opening issued by the Income Tax Officer, Santosh Kumar, for the Assessment Year 2013-14. The notice was based on the grounds that the petitioner had received a loan from M/s. Shantai Exim Ltd., a company where he held significant shareholding and directorship, which was not disclosed in his original tax return. The court examined whether the conditions for re-assessment under Section 147 of the Income Tax Act were met, particularly focusing on the applicability of Section 2(22)(e) concerning deemed dividends and the threshold of voting rights versus shareholding.

• Counselvise Citation: [2018] 140 COUNSELVISE.COM (IT) 750877 (HC-GUJARAT)
• Appeal Type: Others
• Pronouncement Date: 29-10-2018
• Assessment Year: misc
• Laws Referred To: Income-tax Act, 1961
• Result in Favour of: Others
• Court: HIGH COURT
• Assessee Lawyers: KETAN SHAH; AMAN SHAH
• Keywords: Income escaping assessment; Loan from company; Re-assessment; Shareholding; Voting rights
• Section: 147; 143(3); 2(22)(e); 151

Judgement Text

"C/SCA/16719/2018 ORDER IN THE HIGH COURT OF GUJARAT AT AHMEDABAD R/SPECIAL CIVIL APPLICATION NO. 16719 of 2018 ========================================================== VASUDEV FATANDAS SAWLANI Versus SANTOSH KUMAR, INCOME TAX OFFICER WARD 1(3)(4) ========================================================== Appearance: MR KETAN H SHAH(2705) for the PETITIONER(s) No. 1 MR. AMAN K SHAH(9992) for the PETITIONER(s) No. 1 for the RESPONDENT(s) No. 1 ========================================================== CORAM: HONOURABLE MR.JUSTICE AKIL KURESHI and HONOURABLE MR.JUSTICE UMESH TRIVEDI Date : 29/10/2018 ORAL ORDER (PER : HONOURABLE MR.JUSTICE AKIL KURESHI) 1. The petitioner has challenged a Notice of re­ opening dated 30.03.2018 issued by the respondent­Assessing Officer seeking to re­assess the petitioner’s assessment for the Assessment Year 2013­14. 2. Brief facts are as under; The petitioner is an individual. For the Assessment Year 2013­14, the petitioner had filed the Return of Income on 23.11.2013 showing total income of Rs.17,870/­. The Assessing Officer took Page 1 of 8 C/SCA/16719/2018 ORDER the Return in scrutiny and passed the order of assessment under Section 143(3) of the Income­tax Act, 1961 (for short, “the Act”) on 18.03.2016 assessing the total income at Rs.18,23,340/­. To re­open such assessment, Notice came to be issued, which, as can be seen, was issued within a period of four years from the end of relevant Assessment Year. In order to issue the Notice, the Assessing Officer had recorded the following reasons; “Brief details of the Assessee: The assessee has filed return of income for A.Y. 2013­14 on 23.11.2013 declaring total income of Rs.17,870/­. The assessee is a partner in M/s. Shantai Developers and Director in M/s. Shantai Exim Ltd. and M/s. Shantai Realty (India) Ltd. During the year under consideration, the assessee derives income from business and income from other sources. The case was selected under scrutiny through CASS. The assessment order u/s.143(3) has been passed on 18.03.2016 determining total income of Rs.18,23,340/­ after making disallowance of interest expenses of Rs.16,95,292/­. 2. Brief details of information collected / received / found by the A.O.: In this case, an information has been received from DCIT, Circle­2(1)(2), Surat on 10.10.2017. As per information received in this office, the assessment proceedings in the case of M/s. Shantai Exim Limited for A.Y. 2013­14 have been finalized on 31.03.2017. The assessee, Shri Vasudev F. Savlani, is one of the Director of the company M/s. Shantai Exim Page 2 of 8 C/SCA/16719/2018 ORDER Ltd. and he is holding shares of company M/s. Shantai Exim Ltd. in excess of 10% when shareholding is combined to his individual capacity as well as Karta of HUF. During the year under consideration, the loan of Rs.1,57,86,986/­ was given to assessee. 3. Enquiries made by the A.O as sequel to information collected / received and findings of the A.O.: On verification of record / balance sheet as on 31.03.2013 (for A.Y. 2013­14), it is found that the assessee has taken unsecured loan of Rs.15,78,698/­ from M/s. Shantai Exim Ltd. in which the assessee is a Director and holds shares in excess of 10% when shareholding is combined to his individual capacity as well as Karta of HUF. Further, M/s. Shantai Exim Ltd. has sufficient accumulated profit required for invoking provisions of Section 2(22)(e) of the Act. Section 2(22)(e) of the Act says that dividend includes – any payment by a company, not being a company in which the public are substantially interested of any sum (whether as representing a part assets of the company or otherwise) [made after the 31st day of May, 1987, by way of advance or loan to shareholder, being a person who is the beneficial owner of shareholding not less than ten per cent of the being power, or to any concern in which such shareholder is a member or a partner and in which he has a substantial interest (hereafter in this clause referred to as the said concern)] or any payment by any such company on behalf, or for the individual benefit, of any such shareholder to the extent to which the company in either case possesses accumulated profits. 4. Basis of forming reasons to believe and details of escapement of income: In this Page 3 of 8 C/SCA/16719/2018 ORDER case, the Company M/s. Shantai Exim Ltd. has shown Income for A.Y. under consideration of Rs.1,41,70,520/­ under normal provisions and of Rs.1,49,69,026/­ under Section 115JB of the Act. The assessee company is having accumulated profit of RS.3,73,92,978/­ as on 31.03.2012, i.e. on the first day of period under assessment proceedings. The assessee is having 912410 shares of the company M/s. Shantai Exim Ltd., i.e. 10.32% and HUF of the assessee is having 2309922 shares of the Company M/s. Shantai Exim Ltd. i.e. 26.13% shareholding. The asessee being a shareholder in the individual capacity and in the capacity of Karta of HUF, is having more than 10% of voting rights in the capacity of Individual and Karta of HUF. By virtue of Section 2(22)(e) of the Act, the assessee is required to offer the income received in the form of loans and advances, which in the instant case, comes to Rs.1,57,86,986/­ which has not been shown in his return of income and not disclosed during assessment proceedings. In view of the above, there was some income escaping assessment as per provisions of section 147 of the Income Tax Act, 1961. Therefore, it is a failure on the part of the assessee to disclose truly and fully particulars of the income necessary for assessment. Considering the above facts, I have reason to believe that an amount of Rs.1,57,86,986/­ has escaped assessment for the year under consideration. I am satisfied that the case of the assessee is a fit case for taking action u/s.147 of the Act for the year under consideration. 5. Applicability of the provision 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 assessment order passed on 18.03.2016 since 4 years from the end of relevant Assessment Page 4 of 8 C/SCA/16719/2018 ORDER Year has not expired in this case. The only requirement to initiate proceedings u/s.147 is reasons to believe which has been recorded above (refer paras 2 to 4 mentioned above). It is pertinent to mention here that in this case an assessment was made as stipulated u/s.2(40) of the Act. However, as discussed, there is reason to believe in this case that income chargeable to tax has been under assessed by an amount of Rs.1,57,86,986/­. In view of the above, provisions of clause (c) of explanation 2 to Section 147 are applicable to the facts of this case and the Assessment Year under consideration is deemed to be a case where income chargeable to tax has escaped assessment. This case is within four years from the end of the Assessment Year under consideration. Hence, necessary sanction to issue the Notice u/s.148 has been separately from the Joint Commissioner of Income­tax as per the provisions of Section 151 of the Act.” 3. The petitioner raised detailed objections to the Notice of re­opening under letter dated 20.06.2018. Such objections were, however, rejected by the Assessing Officer by an order dated 24.09.2018. Hence, this petition. 4. The Notice of re­opening is passed on one ground, namely, of the proposed additions, which the Assessing Officer seeks to make on the basis Page 5 of 8 C/SCA/16719/2018 ORDER of Section 2(22)(e) of the Act. He has recorded detailed reasons for invocation of the said provision. The assessee contests the Notice on following grounds, (i) that, for invocation of the said provision, what is required is not less than 10% of the voting rights in a company and not mere shareholding. There is a difference between shareholding percentage and voting rights (ii) in case of the petitioner, he is holding only 08.32% of the shareholding. 02.00% belongs to his son. Even if the petitioner can be stated to have been holing such shares by way of beneficial interest, he would not acquire voting rights and (iii) the petitioner had made full disclosures. The petitioner did not have the onus of disclosing its shareholding pattern to enable the Assessing Officer to examine the applicability of Section 2(22)(e) of the Act. 5. We may recall, the impugned Notice has been issued within a period of four years from the date of end of relevant Assessment Year. The question of true and full disclosure, therefore, would not be applicable, unless, of course, the Department relies on lack of full disclosures. It is not even the case of the petitioner that during the original assessment proceedings, this issue was examined by the Assessing Officer and that therefore, the principle of change of Page 6 of 8 C/SCA/16719/2018 ORDER opinion would apply. In absence of any scrutiny on this issue in the original assessment, the Asesssing Officer cannot be estopped from examining this question provided, of course, that he had reason to believe that income chargeable to tax had escaped assessment. In this context, he had cited reasons why, prima facie, applicability of Section 2(22)(e) of the Act arises. It would be for the assessee to contest the additions during the course of assesment proceedings. At this stage, we would not examine the merits or demerits of any proposed additions, which would be in the realm of assessment. As is well settled, at the stage of Notice for re­ assessment, the Assessing Officer only has to demonstrate formation of a reasonable belief on the basis of the material on record that income chargeable to tax had escaped assessment. He does not have to establish beyond dispute that invariably, the addition would be made. The scrutiny of the Court, at that stage also, is limited. 6. The petitioner’s contention that even if he may be holding more than 10% of the shares of the Company, he did not have less than 10% voting rights, can be examined in the assessment proceedings, for which, we are not inclined to quash the Notice itself. Page 7 of 8 C/SCA/16719/2018 ORDER 7. In the result, the petition is dismissed. (AKIL KURESHI, J) (UMESH TRIVEDI, J) PRAVIN KARUNAN Page 8 of 8 "