Alpeshkumar Dahyabhai Patel v. Income Tax Officer

C/SCA/17700/2017 JUDGMENT IN THE HIGH COURT OF GUJARAT AT AHMEDABAD R/SPECIAL CIVIL APPLICATION NO. 17700 of 2017 FOR APPROVAL AND SIGNATURE: HONOURABLE MR.JUSTICE AKIL KURESHI and HONOURABLE MR.JUSTICE B.N. 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 ?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 ? ==========================================================ALPESHKUMAR DAHYABHAI PATELVersusINCOME TAX OFFICER ==========================================================Appearance: DARSHAN R PATEL(8486) for the PETITIONER(s) No. 1MR.VARUN K.PATEL(3802) for the RESPONDENT(s) No. 1MRS MAUNA M BHATT(174) for the RESPONDENT(s) No. 1,2 ========================================================== CORAM: HONOURABLE MR.JUSTICE AKIL KURESHI andHONOURABLE MR.JUSTICE B.N. KARIA Date : 10/04/2018 ORAL JUDGMENT (PER : HONOURABLE MR.JUSTICE AKIL KURESHI) 1.Petitioner has challenged a notice dated 31.03.2017 issued by the respondent no.2-Assistant Commissioner of Income Tax (Circle 3(3)), Ahmedabad, seeking to reopen the petitioner's assessment for the assessment year 2010-11. 2.Brief facts are as under. 3.Petitioner is an individual and is partner of various firms, which firms are engaged in the activity of development of real estate and construction. For the assessment year 2010-11, the assessee had filed the return of income on 31.03.2011 declaring total income of Rs.14,33,540/-. Such return was taken in scrutiny by the Assessing Officer. He passed the order of assessment under section 143(3) of the Income Tax Act, 1961 ('the Act' for short) on 28.03.2013. To reopen such assessment, the impugned notice came to be issued, which as can be seen, was done beyond the period of four years from the end of relevant assessment year. In order to do so, the Assessing Officer had recorded following reasons: “The assessee has filed his return of income for A. Y. 2010-11 declaring total income at Rs.14,33,540/- on 31.3.2011. On scrutiny of case records of the assessee for A.Y. 2010-11, revealed that the assessee had shown the profit from the firm M/s.Satyam Gokul Corporation amounting to Rs.7,65,85,994/-. It is noticed that the income of the firm M/s.Satyam Gokul Corporation was Rs.32,00,25,630/- as such the share of the profit of the assessee being 20% comes to Rs.6,40,05,126/- against which the assessee claimed to have received Rs.7,65,85,993/- as his share of profit from thefirm.ConsequenttothisRs.1,25,80,867/-(Rs.7,65,85,994-Rs.6,40,05,126/-) was required to be added as income of assessee as unaccounted cash credit u/s.68 of the Act. 2.Further, it is also revealed that the share of profit received by the assessee from M/s. Satyam Associates on the basis of survey report mentioning as to receipt of share of profit by the assessee of Rs.26,00,028/- for F.Y. 2009-10 (A.Y. 2010-11). The assessee has shown only Rs.5,11,243/- as profit from the firm M/s. Satyam Associates for F.Y. 2009-10 (A.Y. 2010-11) and did not claimed exemption u/s. 10(2A) of the Act as the same was not taxed in the hands of the firm and has thus was required to be added as income of Rs.20,88,785/- (Rs.26,00,028 – Rs.5,11,243). 2.Further, it is also revealed that the share of profit received by the assessee from M/s. Satyam Associates on the basis of survey report mentioning as to receipt of share of profit by the assessee of Rs.26,00,028/- for F.Y. 2009-10 (A.Y. 2010-11). The assessee has shown only Rs.5,11,243/- as profit from the firm M/s. Satyam Associates for F.Y. 2009-10 (A.Y. 2010-11) and did not claimed exemption u/s. 10(2A) of the Act as the same was not taxed in the hands of the firm and has thus was required to be added as income of Rs.20,88,785/- (Rs.26,00,028 – Rs.5,11,243). 3.It is also noticed that the assessee individual has earned income by way of his share in the total income of the firm M/s. SatyamGokulCorp.amountingto Rs.7,65,85,994/- which is exempt u/s.10(2A) of the Act. However, the expenses in relation to the exempt income were not disallowed in terms of the provisions of section 14A of the Act read with Rule 8D of the Income-tax Rules. The amount required to be disallowed u/s.14A r.w.r. 8D of the Rules works out as under:- C/SCA/17700/2017 JUDGMENT Note since opening balance of investment and total assets were not available, the same was taken as nil. In view of the above, the expenses to the tune of Rs.14,57,636/- was required to be disallowed.” 4. Upon being supplied with such reasons, the assessee raised detailed objections to the notice of reopening under a communication dated 10.08.2017. Such objections were however rejected by the Assessing Officer by an order dated 21.08.2017, upon which, this petition came to be filed. 5.Taking us through the reasons recorded, counsel for the petitioner submitted that; (i)Original assessment was framed after scrutiny. Impugned notice has been issued beyond a period of four years from the end of relevant assessment year. There was no failure on the part of the assessee to disclose truly and fully all material facts. Impugned notice is therefore bad in law. (ii) The Assessing Officer has proceeded on erroneous factual premises to form a belief that income chargeable to tax has escaped assessment. (iii) In the present case, two separate and independent notices for reopening came to be issued. Initially, the assessee was served with a notice through E-mail. The department however has abandoned such notice and now is relying on the impugned notice. No reasons were recorded before issuance of the electronic notice. 6.On the other hand, learned counsel for the Revenue supported the action of the department contending that the Assessing Officer has recorded proper reasons before issuing notices. He submitted that there was no trace of the electronic notice stated to have been received by the assessee. Only notice issued by the department was one issued by the respondent no.2 herein. 7.In facts of the present case, we are not required to go into the question of one or more notices having been issued by the departmental authorities. We may straightway examine the validity of the reasons recorded by the Assessing Officer for issuing the notice. 8.Analysis of the reasons recorded would show that the Assessing Officer has pressed in service three separate reasons. In his first such reason, he points out that the assessee had shown profit from M/s.Satyam Gokul Corporation of Rs.7.65 crores (rounded off). Satyam Gokul Corporation had declared profit of Rs.32.00 crores (rounded off). The assessee's share being 20% thereof, the figure would come to Rs.6.40 crores (rounded off). As against this, since the assessee had claimed to have received Rs.7.65 crores by way of share of his profit from the said firm, the excess of Rs.1.25 crores (rounded off) is required to be added as the income of the assessee under section 68 of the Act. of the reasons recorded by the Assessing Officer for issuing the notice. 8.Analysis of the reasons recorded would show that the Assessing Officer has pressed in service three separate reasons. In his first such reason, he points out that the assessee had shown profit from M/s.Satyam Gokul Corporation of Rs.7.65 crores (rounded off). Satyam Gokul Corporation had declared profit of Rs.32.00 crores (rounded off). The assessee's share being 20% thereof, the figure would come to Rs.6.40 crores (rounded off). As against this, since the assessee had claimed to have received Rs.7.65 crores by way of share of his profit from the said firm, the excess of Rs.1.25 crores (rounded off) is required to be added as the income of the assessee under section 68 of the Act. 9.As against this, the assessee in the objections had pointed out that the assessee had received a total of Rs.7.65 crores by way of his share in two separate partnership firms i.e. Satyam Gokul Corporation, Ahmedabad and Satyam Gokul Corporation as under: C/SCA/17700/2017 JUDGMENT The Assessing Officer however, did not accept this objection. 10.The petitioner has also produced necessary matching documents to make good this contention. We notice that in the return that the petitioner filed, he is shown to have received a total amount of Rs.7.65 crores by way of share of the profit from firm Satyam Gokul Corporation, Ahmedabad. Thus, in this return, he had not given the break-up of the receipt from two different partnership firms. However, during the assessment proceedings, he had given the details in respect of the tax free income which was received from three separate firms as under: 11.The petitioner has also produced the returns of the said two firms Satyam Gokul Corporation, Ahmedabad and Satyam Gokul Corporation. The returns of both these firms show matching figures. For example, in case of Satyam Gokul Corporation, in return, the gross profit shown was Rs.32 crores. Profit after depreciation was shown at Rs.22.40 crores. This profit was distributed to the crores. This profit was distributed to thepartners in the proportion of their share. The assessee having 20% share, received Rs.4.47 crores. 12.Similarly, the return of income filed by Satyam Gokul Corporation, Ahmedabad, showed profit of Rs.23 crores. Profit after depreciation came to Rs.15.89 crores. The assessee having 20% share in the partnership business, received 3.17 crores out of the same. 13.Thus, the Assessing Officer's recording that the assessee had received sum of Rs.7.65 crores by way of a share of profit from Satyam Gokul Corporation is not correct. In fact, his assumption that assessee should have received 6.40 crores being 20% of the profit of Rs.32 crores of Satyam Gokul Corporation itself was erroneous. All in all, the assessee correctly points out that he had received a total of Rs.7.65 crores by way of share of profit from two separate partnership firms. 14.Coming to the second reason, the Assessing Officer believed that the assessee had received Rs.26 lakhs (rounded off) by way of his share of profit from M/s.Satva Associates. He had instead shown only a sum of Rs.5.11 lakhs for the current year. Therefore, the difference i.e. Rs.20.88 lakhs was required to be added. As against this, the assessee pointed out in the objections that the sum of Rs.26.00 lakhs was not received by him during the current year but was received in the previous year. In the current year, the assessee had only received Rs.5.11 lakhs which was shown in the return. In support of his contention, the assessee pointed out that the return of said Satva Associates was also scrutinized and after scrutiny, such distribution of the partner's profit for the assessment year 2009-10 has been accepted. 15.From the record, it emerges that the Assessing Officer has committed an error in drawing a presumption that the assessee received Rs.26 lakhs by way of share of profit from Satva Associates during the present year. The record suggests to the contrary. This reason is also therefore not valid. 16.The third reason cited by the Assessing Officer is of disallowance of expenditure in relation to earning tax exempt income. According to him, the income of assessee of Rs.7.65 crores was not taxable. The expenditure relatable to such income should be disallowed in terms of section 14A of the Act read with rule 8D. We are not on the validity of this contention of the Assessing Officer. Present is a case where the reopening of assessment is sought to be made beyond the period of four years. There being no element of failure of the assessee, disclosing full facts, reopening would not be permissible on this ground also. 17.In the result, impugned notice is set aside. Petition is disposed of. (AKIL KURESHI, J) (B.N. KARIA, J)