Ideal Sheet Metal Stamping And Pressing Pvt. Ltd v. Dinesh Badgujar, Assistant Commissioner Of Income Tax,Circle-2(1)(1) Or His Successor

IN THE HIGH COURT OF GUJARAT AT AHMEDABAD R/SPECIAL CIVIL APPLICATION NO. 18752 of 2019 FOR APPROVAL AND SIGNATURE: HONOURABLE MR. JUSTICE N.V.ANJARIA andHONOURABLE MR. JUSTICE BHARGAV D. KARIA ========================================================== 1 Whether Reporters of Local Papers may be allowed to see theYesjudgment ?2 To be referred to the Reporter or not ?Yes3 Whether their Lordships wish to see the fair copy of theNojudgment ?judgment ?2 To be referred to the Reporter or not ?Yes3 Whether their Lordships wish to see the fair copy of theNojudgment ? 4 Whether this case involves a substantial question of law as toNothe interpretation of the Constitution of India or any order madethereunder ? ==========================================================IDEAL SHEET METAL STAMPING AND PRESSING PVT. LTD. Versus DINESH BADGUJAR, ASSISTANT COMMISSIONER OF INCOME TAX,CIRCLE-2(1)(1) OR HIS SUCCESSOR ==========================================================Appearance:MR SN DIVATIA(1378) for the Petitioner(s) No. 1MR M R BHATT, SR.ADVOCATE with MR KARAN SANGHANI for M R BHATT & CO.(5953) for the Respondent(s) No. 1========================================================== CORAM:HONOURABLE MR. JUSTICE N.V.ANJARIA and HONOURABLE MR. JUSTICE BHARGAV D. KARIA Date : 26/07/2022 ORAL JUDGMENT (PER : HONOURABLE MR. JUSTICE N.V.ANJARIA) In the facts and circumstances of the case and having regard to the consent and request of the parties through their respectivelearned advocates, this petition was taken up for finalconsideration. 1.1Rule, returnable forthwith. Learned advocate Mr.KaranSanghani for the respondent waives service of rule. 2.The challenge in this petition filed under Article 226 of theConstitution is directed against notice dated 25.3.2019 underSection 148 of the Income Tax Act, 1961 in respect of theassessment year 2012-13. The said notice issued by the AssessingOfficer seeks to reopen the assessment of income of the petitioner-assessee for the year under consideration stating that theAssessing Officer had reasons to believe that income chargeable totax in respect of the assessment year 2012-13 had escapedassessment within the meaning of Section 147 of the Income TaxAct, 1961 (hereinunder referred to as ‘the Act’). 3.The facts briefly stated are inter alia that the petitioner isclosely held private company incorporated under the CompaniesAct, 1956, which has been carrying on business of manufacturingof textile machinery, spare parts and automobile components. Thepetitioner filed its return of income for the assessment year 2012-13 on 27.9.2012 declaring total income of Rs.3,33,93,720/-. Theregular assessment under Section 143(3) of the Act wasundertaken by the predecessor Assessing Officer. It was stated thatin the said process detail inquiry and scrutiny of facts anddocuments were undertaken. The making of inquiry was evidentfrom notices under Section 142(1) and 143(2) of the Act. Thepetitioner had replied to the said notices and ultimately theassessment was completed on 20.11.2014 on total income of Rs.3,51,62,350/- and assessment order under Section 143(3) waspassed. 3.1Subsequently notice under Section 148 of the Act came to beissued. The reasons for reassessment were supplied to the assesseeby communication dated 30.4.2019. The petitioner submitted itsobjections to the reopening of the concluded assessment by letterdated 16.5.2019. The respondent passed order dated 4.10.2019rejecting the objections. The said order dated 4.10.2019 disposingof and rejecting the objections is also prayed to be set aside. Rs.3,51,62,350/- and assessment order under Section 143(3) waspassed. 3.1Subsequently notice under Section 148 of the Act came to beissued. The reasons for reassessment were supplied to the assesseeby communication dated 30.4.2019. The petitioner submitted itsobjections to the reopening of the concluded assessment by letterdated 16.5.2019. The respondent passed order dated 4.10.2019rejecting the objections. The said order dated 4.10.2019 disposingof and rejecting the objections is also prayed to be set aside. 3.2The crux and the reasons applied for taking recourse to thereopening is that, as stated by the Assessing Officer, ‘The assesseehas failed in complying (with provisions) of Section 40A(3) of theAct regarding expenses paid in cash aggregating to Rs.3,39,706/-’. 3.3The relevant part of the reasons recorded by AssessingOfficer are reproduced herein under. “ 2..... on verification of assessment records,scrutiny of P & L a/c for the FY 2011-12 it hasbeen noticed that the assessee had debited theamount of Rs. 3,12,48,270/- to P&L a/c onaccount of manufacturing expenses head.Further, scrutiny of manufacturing headrevealed that Rs. 92,94,508/- was paid towardsMFG labour charges. It was further noticed fromthe details of labour expense that payment of Rs.3,39,706/- was paid in cash exceeding rupeestwenty thousand in a day as shown below: Therefore, the cash payment of Rs. 3,39,706/-exceeding Rs. 20,000/- was required to bedisallowed as per the provisions of section 40A(3)of the Income Tax Act. 3. On the basis of above mentioned facts and afterproper investigation from the materials on record,it is substantiated that during the year underconsideration, the aforementioned amount of Rs.3,39,706/- has escaped assessment within themeaning of section 147 of the IT Act. Further, onperusal of record of original assessmentproceedings u/s 143(3) of the Act in assessee'scase for the year under consideration, it is seenthat inquiries on above matter has not beenconducted by the then Assessing Officer in theassessment completed earlier and there is failureon the part of the assessee to disclose fully andtruly material facts on above stated fact which wasnecessary for its assessment for the year underconsideration. 4. In view of the above facts, I have reason tobelieve that the cash payment exceeding Rs.20,000/- in a day made to persons as mentioned intable above in Para 2, aggregating to Rs.3,39,706/- has escaped assessment within themeaning of Section 147 of the Act. Therefore, it isa fit case for re-opening of the assessment byinvoking the provision of section 147 of the IncomeTax Act, 1961. Accordingly, it is a fit case forissuing notice u/s. 148 of the I.T. Act.” (i) The amount paid to persons exceedingRs.20,000 is specifically mentioned on the face ofthe ledger account of manufacturing labourexpenses submitted by letter dated 19 September2014 in response to question asked by noticeunder section 142(1) dated 20 August 2014 of theAO. Copies the letter dated 19 September 2014along with the ledger account of manufacturinglabour expenses and notice under section 142(1)dated 20 August 2014 was enclosed by theassessee. (ii) In course of assessment proceedings, theAssessing Officer had specifically asked details ofthe payments made in violation to section 40A(3)of the Act. It was confirmed by the assesse byletter dated 03 September 2014 that noexpenditure has been incurred in violation tosection 40A(3) of the Act. (iii) The reasons as recorded for the re-opening ofthe assessment also do not in any manner bringout or demonstrate that there has been any failureon the part of the assessee to disclose any materialfact. (ii) In course of assessment proceedings, theAssessing Officer had specifically asked details ofthe payments made in violation to section 40A(3)of the Act. It was confirmed by the assesse byletter dated 03 September 2014 that noexpenditure has been incurred in violation tosection 40A(3) of the Act. (iii) The reasons as recorded for the re-opening ofthe assessment also do not in any manner bringout or demonstrate that there has been any failureon the part of the assessee to disclose any materialfact. (iv) The reasons start with the words that "onverification of assessment records, scrutiny of P &L a/c for the FY 2011-12, it has been noticed thatthe assesse has debited the amount ofRs.3,12,48,270/- to P &L A/c on account ofmanufacturing expenses held. (v) Scrutiny of manufacturing head revealed thatRs.92,94,508/- was paid towards MFG labourcharges. It was further noticed from the details oflabour expenses that payment of Rs.3,39,706/- waspaid in cash exceeding rupees twenty thousand ina day......" which itself shows that there has beenno failure on the part of the assessee firm todisclose fully and truly all material facts.” 4.Heard learned advocate Mr.S.N.Divatia for the petitioner andlearned senior advocate Mr.M.R.Bhatt for M.R.Bhatt & Co. assisted by learned advocate for the respondent, at length. 5.The aspect could not be brushed aside that the originalassessment was furnished under Section 143(3) of the Act on20.11.2014, whereas the impugned notice under Section 148 of theAct came to be issued on 25.3.2019, which was beyond the periodof four years from the end of assessment year 2012-13. The casetherefore fell under the Proviso of Section 147 of the Act. It couldbe therefore submitted that the only ground on which thereopening should have been permitted by the Assessing Officer wasthe omission on part of the assessee to disclose the material factsfully and truly. 5.1The decision of this court in Cadila Healthcare Limited Vs.DCIT [41 DTR 145], it was observed that ‘in absence of anyaverment in the reasons recorded by the Assessing Officer forreopening the assessment that the petitioner had failed to disclosefully and truly any material facts necessary for assessment or anynew material or facts had come to fore which may led to conclusionthat the income had escaped assessment, it was held that thenecessary ingredient of Proviso of Section 147 would not besatisfied vitiating the entire exercise of powers. 5.2Now, there was no gainsaying that in course of the regularassessment by the Assessing Officer in notice dated 20.8.2014under Section 142 (1) of the Act, the Assessing Officer had soughtfor amongst other information, the details of manufacturing oflabour expenses of Rs.92.94 lakhs. The petitioner had furnished theledger account of manufacturing labour expenses by his letterdated 19.4.2014. In the reply it was pointed out, ‘manufacturinglabour of Rs.92.94 lakhs which amount pertains to labour work carried out for manufacturing process. As discussed in our letterdated 3.9.2014 we are engaged in manufacturing of textilemachinery spare parts. Mainly it is a press metal work that isblanking, piercing, cutting, notching etc. Being voluminoustransactions, we furnished herewith ledger from April 2011 to June2011.’ 5.3Furthermore, in the said notice at point No.31, detailsrelating to Section 40A (3) were sought stating that, ‘in absence ofdetails / evidence, the amount of expenditure inadmissible underthe said Section was not verifiable and in that view, assessee wasasked to submit complete details of all the expenses incurred inviolation of Section 40A(3) of the Act. The petitioner responded byletter dated 3.9.2014 stating that petitioner Company had notincurred any expenses in violation of Section 40A(3) of the Act. 5.3Furthermore, in the said notice at point No.31, detailsrelating to Section 40A (3) were sought stating that, ‘in absence ofdetails / evidence, the amount of expenditure inadmissible underthe said Section was not verifiable and in that view, assessee wasasked to submit complete details of all the expenses incurred inviolation of Section 40A(3) of the Act. The petitioner responded byletter dated 3.9.2014 stating that petitioner Company had notincurred any expenses in violation of Section 40A(3) of the Act. 5.4Thus, it was evident that the Assessing Officer had solicitedfrom the assessee the information relating to manufacturing labourexpenses and the assessee had responded to the details with thecopy of the ledger account. The issue was thus considered andexamined by the Assessing Officer. Once the assessment isconcluded and the Assessing Officer had formed an opinion thereof,it was not permissible for him to review his opinion, for, it wouldtantamount to exercise powers to reopen on the ground of changeof opinion the basis of facts which the Assessing Officer hadconsidered, examined and formed opinion to frame the assessment. 6.It is trite principle of law that powers to reopen theassessment could not be exercised on the ground of mere change ofopinion. In the present case it could also be stated that theassessee had not disclosed material facts truly and fully at the time of original assessment. 6.1In Commissioner of Income Tax Vs. Kelvinator of IndiaLimited, [(2010) 320 ITR 561 (SC)], the Apex Court dealt withthe concept of ‘change of opinion’ on part of the Assessing Officerto reopen the assessment does not stand obliterated aftersubstitution of Section 147 of the Act by Direct Tax Laws(Amendment) Acts, 1989. Emphasizing that there must be a‘tangible material’ available with the Assessing Officer for to cometo the conclusion that there was escapement of income fromassessment, reason must have a link with the formation of thebelief. 6.1.1The Supreme Court stated, “...prior to Direct Tax Laws (Amendment) Act,1987, re-opening could be done under above twoconditions and fulfillment of the said conditionsalone conferred jurisdiction on the AssessingOfficer to make a back assessment, but in section147 of the Act [with effect from 1st April, 1989],they are given a go-by and only one condition hasremained, viz., that where the Assessing Officerhas reason to believe that income has escapedassessment, confers jurisdiction to re- open theassessment. Therefore, post-1st April, 1989, powerto re-open is much wider. However, one needs togive a schematic interpretation to the words"reason to believe" failing which, we are afraid,Section 147 would give arbitrary powers to theAssessing Officer to re-open assessments on thebasis of "mere change of opinion", which cannot beper se reason to re-open. We must also keep inmind the conceptual difference between power toreview and power to re-assess. The AssessingOfficer has no power to review; he has the powerto re-assess. But re-assessment has to be based onfulfillment of certain pre-condition and if theconcept of "change of opinion" is removed, ascontended on behalf of the Department, then, inthe garb of re-opening the assessment, review would take place. One must treat the concept of"change of opinion" as an inbuilt test to checkabuse of power by the Assessing Officer. ” 6.2Following pertinent observations were made by this court inGujarat Power Corporation Ltd Vs. Assistant CommissionerOf Income Tax (350 ITR 266) in para 42. would take place. One must treat the concept of"change of opinion" as an inbuilt test to checkabuse of power by the Assessing Officer. ” 6.2Following pertinent observations were made by this court inGujarat Power Corporation Ltd Vs. Assistant CommissionerOf Income Tax (350 ITR 266) in para 42. “42. Bearing in mind these conflicting interests, ifwe revert back to central issue in debate, it canhardly be disputed that once the Assessing Officernotices a certain claim made by the assessee in thereturn filed, has some doubt about eligibility ofsuch a claim and therefore, raises queries, extractsresponse from the assessee, thereafter in whatmanner such claim should be treated in the finalorder of assessment, is an issue on which theassessee would have no control whatsoever.Whether the Assessing Officer allows such a claim,rejects such a claim or partially allows and partiallyrejects the claim, are all options available with theAssessing Officer, over which the assessee beyondtrying to persuade the Assessing Officer, wouldhave no control whatsoever. Therefore, whileframing the assessment, allowing the claim fully orpartially, in what manner the assessment ordershould be framed, is totally beyond the control ofthe assessee. If the Assessing Officer, therefore,after scrutinizing the claim minutely during theassessment proceedings, does not reject such aclaim, but chooses not to give any reasons for sucha course of action that he adopts, it can hardly bestated that he did not form an opinion on such aclaim. It is not unknown that assessments of largercorporations in the modern day, involve largenumber of complex claims, voluminous material,numerous exemptions and deductions. If theAssessing Officer is burdened with theresponsibility of giving reasons for several claimsso made and accepted by him, it would evenotherwise cast an unreasonable expectation whichwithin the short frame of time available under lawwould be too much to expect him to carry. 6.2.1The Court proceeded to observe, “Irrespective of this, in a given case, if theAssessing Officer on his own for reasons bestknown to him, chooses not to assign reasons fornot rejecting the claim of an assessee afterthorough scrutiny, it can hardly be stated by therevenue that the Assessing Officer can not be seento have formed any opinion on such a claim. Such acontention, in our opinion, would be devoid ofmerits. If a claim made by the assessee in thereturn is not rejected, it stands allowed. If such aclaim is scrutinized by the Assessing Officer duringassessment, it means he was convinced about thevalidity of the claim. His formation of opinion isthus complete. Merely because he chooses not toassign his reasons in the assessment order wouldnot alter this position. It may be a non-reasonedorder but not of acceptance of a claim withoutformation of opinion. Any other view would givearbitrary powers to the Assessing Officer. 6.2.2 It was finally stated in para 43, “.... in a situation where the Assessing Officerduring scrutiny assessment, notices a claim ofexemption, deduction or such like made by theassessee, having some prima facie doubt raisesqueries, asking the assessee to satisfy him withrespect to such a claim and thereafter, does notmake any addition in the final order of assessment,he can be stated to have formed an opinionwhether or not in the final order he gives hisreasons for not making the addition.” 6.3When the issue was considered by Assessing Officer but inrelation thereto he might not have expressed the elaboratedreasons and may not have given reasons at all, it would stillconstitute a ground to change of opinion to proceed with reopeningof assessment. “.... in a situation where the Assessing Officerduring scrutiny assessment, notices a claim ofexemption, deduction or such like made by theassessee, having some prima facie doubt raisesqueries, asking the assessee to satisfy him withrespect to such a claim and thereafter, does notmake any addition in the final order of assessment,he can be stated to have formed an opinionwhether or not in the final order he gives hisreasons for not making the addition.” 6.3When the issue was considered by Assessing Officer but inrelation thereto he might not have expressed the elaboratedreasons and may not have given reasons at all, it would stillconstitute a ground to change of opinion to proceed with reopeningof assessment. 6.4For the foregoing reasons and discussion, the petitioner isentitled to succeed. As a result, notice dated 25.3.2019 issued bythe respondent Under Section 148 of the Income Tax Act, 1961 to reopen the completed assessment of the assessee for the year2012-13, as well as order dated 4.10.2019 rejecting the objectionsof the petitioner to the reopening, are hereby set aside. 7.The petition stands allowed. Rule is made absolute. (N.V.ANJARIA, J) Manshi (BHARGAV D. KARIA, J)