M/S National Construction Co. Thru v. Jt. Commr. Of Income Tax Jcit (Osd) Circle-Gandhidham

IN THE HIGH COURT OF GUJARAT AT AHMEDABAD R/SPECIAL CIVIL APPLICATION NO. 2153 of 2022 FOR APPROVAL AND SIGNATURE: HONOURABLE MR. JUSTICE N.V.ANJARIA andHONOURABLE MR. JUSTICE BHARGAV D. KARIA ==========================================================1Whether Reporters of Local Papers may be allowedto see the judgment ?2To be referred to the Reporter or not ?3Whether their Lordships wish to see the fair copyof the judgment ?4Whether this case involves a substantial questionof law as to the interpretation of the Constitutionof India or any order made thereunder ? ========================================================== M/S NATIONAL CONSTRUCTION CO. THRU PARTNER Versus JT. COMMR. OF INCOME TAX JCIT (OSD) CIRCLE-GANDHIDHAM ==========================================================Appearance:MR SN DIVATIA(1378) for the Petitioner(s) No. 1MR NIKUNT RAVAL FOR MRS KALPANAK RAVAL(1046) for the Respondent(s) No. 1 ========================================================== CORAM:HONOURABLE MR. JUSTICE N.V.ANJARIAand HONOURABLE MR. JUSTICE BHARGAV D. KARIA Date : 06/09/2022 ORAL JUDGMENT (PER : HONOURABLE MR. JUSTICE BHARGAV D. KARIA) 1.Heard learned advocate Mr. S.N. Divatia forthe petitioner and learned advocate Mr.Nikunt Raval for learned advocate Mr. KalpanRaval for the respondents.the petitioner and learned advocate Mr.Nikunt Raval for learned advocate Mr. KalpanRaval for the respondents. 2.Having regard to the controversy involved inthis petition, with the consent of thelearned advocates for the respective parties,the petition is taken up for final hearing. 3.Rule returnable forthwith. Learned advocateMr. Nikunt Raval waives service of notice ofrule for the respondents.Mr. Nikunt Raval waives service of notice ofrule for the respondents. 4.The petitioner has preferred this petitionunder Article 226 of the Constitution ofIndia challenging the impugned notice dated31.03.2021 issued under section 148 of theIncome Tax Act, 1961 (For short “the Act”) proposing to reopen the assessment for the Assessment Year 2013-2014 and consequential order dated 20.12.2021 disposing of theobjections raised by the petitioner againstthe notice for reassessment. 5.Brief facts of the case are that thepetitioner is a partnership firm duly constituted under Indian Partnership Act,1932 and is engaged in the business of MiningContract work involving Hiring of HeavyEquipment and Machinery for excavating(including drilling in all kind of strata over burden), loading into tippers,transportation and unloading the excavatedmaterial and silt, dumping, dozing, scraping/removal of bands, Mining contractor andletting out of Dumpers/Tippers/excavators. 5.1) The petitioner had filed its original return of income for the AssessmentYear 2013-2014 on 22.03.2014 declaring loss of Rs.4,19,99.647/-. 5.2) The case of the petitioner was selected for scrutiny under CASS for verifying high ratio of refund andcertificate under section 197 of the Act. 5.3) It is the case of the petitioner that the assessment proceedings took placebetween 03.09.2014 to 18.03.2016 during whichthe respondent called for various details,explanations and evidence relating to theissues under scrutiny and other items as pernotices and order sheet entries. It is thecase of the petitioner that the petitioner inthe course of the assessment proceedingsfurnished all details including the ledger account of partners vide letter dated07.01.2016 etc. 5.4) The respondent completed the regular assessment under section 143(3) of the Act on18.03.2016 on the total income of Rs.3,15,24,220/-aftermakingadditions/disallowancesaggregatingtoRs.7,35,23,871/-. verifying high ratio of refund andcertificate under section 197 of the Act. 5.3) It is the case of the petitioner that the assessment proceedings took placebetween 03.09.2014 to 18.03.2016 during whichthe respondent called for various details,explanations and evidence relating to theissues under scrutiny and other items as pernotices and order sheet entries. It is thecase of the petitioner that the petitioner inthe course of the assessment proceedingsfurnished all details including the ledger account of partners vide letter dated07.01.2016 etc. 5.4) The respondent completed the regular assessment under section 143(3) of the Act on18.03.2016 on the total income of Rs.3,15,24,220/-aftermakingadditions/disallowancesaggregatingtoRs.7,35,23,871/-. 5.5) The respondent issued the impugnednotice on 31.03.2021 under section 148 of theAct for the Assessment Year 2013-2014proposing to re-assess the total income. 5.6) In response to the impugned noticethe petitioner had uploaded return of incomeon 13.04.2021 with a copy of reply requestingto provide the copy of reasons recorded forreopening. 5.7) The respondent provided copy ofreasons recorded on 15.5.2021 and thepetitioner thereafter filed its objectionsagainst the reopening on 02.07.2021. The reasons recorded by the Assessing Officer forreopening the assessment under section 147 of the Act read as under : “2. Brief details of informationcollected/received by the AO: Thisoffice is in receipt of information withthe case type "High Risk CRIUVRUInformation" on Verification Module ofthe Insight Portal of the Income TaxDepartment, uploaded by the ADIT(Inv.),Gandhidham. As per the information, ShriKhimji Harji Patel is a partner of M/sNational Construction Co, and has madevarious debit and credit transactionswith the assessee le. M/s NationalConstruction Co. during the F.Y. 2013-14. Following bank accounts is reportedin the information: Sl. No.Bank Account No. Bank nameAccount holdername010411102000002738 IDBIBankShri Khimj HarjiLimited Patel Fromthedepartmentalinquiriesconducted by the O/o ADIT (Inv.),Gandhidham, it is gathered that the ShriKhimji Harji Patel has failed to explainthe credits and debits in the abovereferredaccount,thereforethetransactions made by Shri Khimji HarjiPatel with M/s. National ConstructionCompany remain unexplained.” recorded that partner of the petitioner firm Shri Khimji Harji Patel has not filed returnof income from Assessment Year 2014-2015onwards and has also not responded to thesummons issued to him and the petitioner firmis closed since long time and therefore, nosummons could be served upon the said partnerof the petitioner firm. In absence of anymaterial in form of computation of income,books of accounts etc., credits and debits inthe bank account of Shri Khimji Harji Patelwas treated as unexplained credits and debitsand since Shri Khimji Harji Patel failed toexplain the credits and debits which werefound with the petitioner firm, therefore,such transaction by the petitioner was alsoconsidered as unexplained in the hands of thepetitioner firm. The Assessing Officer hasfurther observed as under: “8. Applicability of provisions ofsection 147/151 to the facts of thecase: In this case a return ofincome was filed for the year underconsideration and regular assessment “8. Applicability of provisions ofsection 147/151 to the facts of thecase: In this case a return ofincome was filed for the year underconsideration and regular assessment u/s. 143(3) was made on 19.03.2016.It is seen that 4 years from the endof the relevant assessment year haveexpired in this case. It ispertinent to mention here thatreasons to believe that income hasescaped assessment for the yearunder consideration have beenrecorded above (refer paragraph 6above). I have carefully consideredthe assessment records containingthe submissions made by the assesseein response to various noticesissuedduringtheassessmentproceedings and have noted that theassessee has not fully and trulydisclosed the facts necessary forits assessment for the year underconsideration thereby necessitatingreopening u/s. 147 of the Act. It is true that the assessee hasfiled a copy of Annual Report andAudited Profit & Loss Account andBalance Sheet along with Return ofIncome where various information/material were disclosed. However,the requisite full and truedisclosure of all material factsnecessary for assessment has notbeen made as noted above. It ispertinent to mention here that theassessee has produced books ofaccounts, annual report, audited P&LA/c and balance sheet or otherevidence as mentioned above, therequisite material facts as notedabove in the reasons for reopeningwere embedded in such manner thatthough could have been discovered with due diligence, do not mean thattrue and full disclosure of facts ismade by the assessee. Accordingly,provisions of Explanation 1 ofsection 147 of the Act areattracted. It is evident from the abovediscussion that in this case, theissues under consideration werenever examined by the AO during thecourse of regular assessment. Thisfact is corroborated from thecontents of notices issued by the AOu/s. 143(2)/142(1) and order sheetentries on various dates recordedduring the 143(3) proceedings. It isimportant to highlight here thatmaterial facts relevant for theassessment on the issue underconsideration were not filed duringthe course of assessment proceedingsand the same may be embedded inannual report, audited P&L A/C,Balance Sheet and books of accountin such a manner that it wouldrequire due diligence by the AO toextract this information. Foraforestated reasons, it is not acase of change of opinion by theAO.” 5.9) The respondent thereafter has passedorder dated 20.12.2021 rejecting theobjections raised by the petitioner to there-opening of assessment. 5.10) The petitioner apprehends that there-assessment may be finalized within shorttime and huge demand wound be raised withoutallowingsufficientopportunityandtherefore, the petitioner has approached thisCourt by filing the present petition. 6.Learned advocate Mr. Divatia submitted that the impugned notice as well as order disposing of the objections raised by thepetitioner are without jurisdiction becausecondition precedent for reopening theassessment under section 147 of the Actbeyond the period of four years from the endof relevant assessment year is not satisfied. 6.1) It was further submitted that theassessment order under section 143(3) of theAct for the Assessment Year 2013-2014 was passed on 18.03.2016 and therefore, the case of the petitioner would fall under proviso tosection 147 of the Act and there is noomission or failure on part of the petitionerto disclose full and true material factsnecessary for assessment. 6.2) It was submitted that merely becausethe partner of the petitioner firm did notrespond to the summons issued by theinvestigation officer, the same would notempowertherespondenttoinitiatereassessment under section 147 of the Act incase of the petitioner. 6.1) It was further submitted that theassessment order under section 143(3) of theAct for the Assessment Year 2013-2014 was passed on 18.03.2016 and therefore, the case of the petitioner would fall under proviso tosection 147 of the Act and there is noomission or failure on part of the petitionerto disclose full and true material factsnecessary for assessment. 6.2) It was submitted that merely becausethe partner of the petitioner firm did notrespond to the summons issued by theinvestigation officer, the same would notempowertherespondenttoinitiatereassessment under section 147 of the Act incase of the petitioner. 6.3) It was also pointed out that theimpugned notice is without jurisdiction as itis a case of change of opinion on the part ofthe respondent Assessing Officer with regardto source of deposits made in the account.Reliance was placed on the decision of theApex Court in case of CIT v. Kelvinator of India Ltd reported in (2010) 320 ITR 561 insupport of his submission. 6.4) Learned advocate Mr. Divatia invitedthe attention of the Court to thequestionnaire dated 21.05.2015 issued by theAssessing Officer during the course ofregular assessment wherein at serial no. 21,the details were called for with regard tothe bank statement for capital introduction during the year, capital account of thepartners etc. and the petitioner hadfurnished all the details with reply dated7.01.2016 along with complete details of modeof receipt, source of fund and transfer tothe petitioner firm. The respondent AssessingOfficer had completed the assessmentproceedings after considering the reply ofthe petitioner and materials produced beforehim with regard to the amount credited in thecapital account of the partners. It was therefore, submitted that the impugned noticefor reopening the assessment is nothing but amere change of opinion. 6.5) It was further submitted that thepetitioner firm is not obliged to explain thesource of source in respect of credits incapital account of the partnership firm andfailure to explain source by the partnercannot be considered as an unexplained credit in the hands of the partnership firm.Reliance was placed on the decision of thisCourt in case of Pr. CIT v. VaishnodeviRefoils & Solvex reported in (2018) 89taxmann.com 80. It was submitted that theApex Court has also rejected SLP against thesaid judgmnet of this Court. It was submittedthat this Court has held that when theassessee firm has furnished the details withregard to source of capital introduced in thefirm and the concerned partner had confirmed such contribution, then the assessee firmwould discharge the onus cast upon it andthereafter, if the Assessing Officer was not convinced about the creditworthiness of the partner who had made capital contribution,the inquiry had to be made at the hands ofthe partner and not against the partneship firm. It was submitted that facts of the present case are squarely covered by the decision of this Court in case of CIT v. Pankaj Dyestuff Industries in Income TaxReference No. 241 of 1993. Nikunt Raval for the Assessing Officer submitted that the petition is at a pre- mature stage inasmuch as reasonable opportunity would be provided to the assesseewhilefinalisingthereassessment proceedings. It was submitted that though itis true that the petitioner has filed copy of annual report and audited profit and lossaccount and balance sheet along with returnof income, requisite full and true disclosureof all material facts necessary forassessment has not been made as noted in thereasons for reopening. 7.1) It was further submitted that thereis enough material on record which has beenperused and after due application of mind andafter analysing the documents on record, the Pankaj Dyestuff Industries in Income TaxReference No. 241 of 1993. Nikunt Raval for the Assessing Officer submitted that the petition is at a pre- mature stage inasmuch as reasonable opportunity would be provided to the assesseewhilefinalisingthereassessment proceedings. It was submitted that though itis true that the petitioner has filed copy of annual report and audited profit and lossaccount and balance sheet along with returnof income, requisite full and true disclosureof all material facts necessary forassessment has not been made as noted in thereasons for reopening. 7.1) It was further submitted that thereis enough material on record which has beenperused and after due application of mind andafter analysing the documents on record, the Assessing Officer has arrived at theconclusion that there is reason to believethat such escapement has occurred by reasonof omission and failure on part of thepetitioner to disclose fully and truly allmaterial facts. Reliance was placed on thedecision of the Supreme Court in case ofRajesh Jhaveri Stock Brokers P. Limitedreported in 291 ITR 500 (SC) and in case of Raymond Woollen Mills Ltd reported in 236 ITR 34 (SC) in support of his submissions. 7.2) It was submitted that capitalaccount of the partner Shri Khimji HarjiPatel with IDBI Bank limited does not matchwith the capital account furnished by theassessee during the course of the assessment proceedings and as such, there is discrepancy in both the accounts and there is adifference between the entries in bankstatement as well as copy of capital account furnished by the petitioner. It wastherefore, submitted that the transactionmade by the petitioner with Shri Khimji HarjiPatel have not been disclosed at the time ofregular assessment proceedings and in thatview of the matter, the impugned notice isissued by the Assessing Officer afterconsidering the information and documentsgathered by the investigating wing which arecompletely new and never disclosed by the petitioner at the time of assessmentproceedings and the Assessing Officer had nooccasion to verify the same during theassessment proceedings. It was therefore,submitted that the issue on which theimpugned notice is issued for reopening theassessment is completely based on freshmaterial available with the Assessing Officerwith supporting evidence and therefore, thereis sufficient reason to believe that incomehas escaped assessment within the meaning ofsection 147 of the Act for failure on part ofthe assessee to disclose all material factsfully and truly. 8.Having heard the learned advocates for therespective parties and having considered thematerials produced on record, it is not indispute that the petitioner has submitted allthe details called for by the AssessingOfficer in response to the notice issued under section 142(1) of the Act dated21.05.2015 vide reply dated 7.01.2016 moreparticularly, the details with regard to Serial no. 21 and 22 being the detailed explanation of the source and copy of bank statement for capital introduction and details regarding withdrawal from the capitalaccount by the partners of the petitionerfirm. 9.It also emerges from the record that afterperusal of the details furnished by thepetitioner, the Assessing Officer has passedregular assessment order under section 143(3) of the Act on 18.01.2016 by making total addition of Rs.7,35,23,871/- and assessingtotal income at Rs.3,15,24,220/- after givingset of of loss of Rs. 4,19,99,647/-. 10.On perusal of the reasons recorded, it appears that the impugned notice under under section 142(1) of the Act dated21.05.2015 vide reply dated 7.01.2016 moreparticularly, the details with regard to Serial no. 21 and 22 being the detailed explanation of the source and copy of bank statement for capital introduction and details regarding withdrawal from the capitalaccount by the partners of the petitionerfirm. 9.It also emerges from the record that afterperusal of the details furnished by thepetitioner, the Assessing Officer has passedregular assessment order under section 143(3) of the Act on 18.01.2016 by making total addition of Rs.7,35,23,871/- and assessingtotal income at Rs.3,15,24,220/- after givingset of of loss of Rs. 4,19,99,647/-. 10.On perusal of the reasons recorded, it appears that the impugned notice under section 148 of the Act is issued only becauseone of the partner of the petitioner firmShri Khimji Harji Patel who did not respondto the summons issued by the InvestigatingWing of the department and therefore, inspiteof the fact that entire material was producedby the petitioner firm during the course ofassessment proceedings, the impugned noticeis issued on the basis of bank statement ofpartner Shri Khimji Harji Patel from AccountNo. 0411102000002738 held with IDBI Bank Ltd.with the petitioner firm. 11.We are of the opinion that to conferjurisdiction to the Assessing Officer toreopen the assessment under section 147 ofthe Act beyond four years from the end ofrelevant assessment year, the two conditionsmust be satisfied namely, that the AssessingOfficer must have reason to believe that theincome chargeable to tax has escaped assessment and that the same was occasionedon account of either failure on part of theassessee to make a return of his income forthat assessment year or to disclose fully andtruly all material facts necessary for thatassessment year. In the present case, theentire material was available with theAssessing Officer during the originalassessment and therefore, there was nofailure on part of the assessee to disclosetruly and fully all material facts necessaryfor assessment and based upon such materialsupplied by the petitioner, the AssessingOfficer passed the original assessment order.Further, it appears that the notice forreopening is based upon the investigationreport and there is nothing on record tosuggest that such reopening is made onaccount of new tangible material available onrecord. It is, therefore, apparent that thereis change of opinion by the Assessing Officer to reopen the assessment for the AssessmentYear 2013-2014, more particularly, when theissue raised in the reopening assessment isalready considered during the originalassessment proceedings. The Assessing Officercannot assume any jurisdiction to issue thenotice under section 148 of the Act, 1961 forreopening the assessment for the year underconsideration more particularly, when theassessment is sought to be reopened beyond aperiod of four years as held by the SupremeCourt in case of Commissioner of Income taxv. Kelvinator of India Ltd. reported in(2010) 320 ITR 561(SC) as under: “2. A short question which arisesfor determination in this batch ofcivil appeals is, whether theconcept of "change of opinion"stands obliterated with effectfrom 1st April, 1989, i.e., aftersubstitution of Section 147 of theIncome Tax Act, 1961 by Direct TaxLaws (Amendment) Act, 1987? xxxx “2. A short question which arisesfor determination in this batch ofcivil appeals is, whether theconcept of "change of opinion"stands obliterated with effectfrom 1st April, 1989, i.e., aftersubstitution of Section 147 of theIncome Tax Act, 1961 by Direct TaxLaws (Amendment) Act, 1987? xxxx 6. …………prior to Direct Tax Laws(Amendment) Act, 1987, re-openingcould be done under above twoconditions and fulfillment of thesaid conditions alone conferredjurisdiction on the AssessingOfficer to make a back assessment,but in section 147 of the Act[with effect from 1st April,1989], they are given a go-by andonly one condition has remained,viz., that where the AssessingOfficer has reason to believe thatincome has escaped assessment,confers jurisdiction to re- openthe assessment. Therefore, post-1st April, 1989, power to re-openis much wider, However, one needsto give a schematic interpretationto the words "reason to believe"failing which, we are afraid,Section 147 would give arbitrarypowers to the Assessing Officer tore-open assessments on the basisof "mere change of opinion", whichcannot be per se reason to re-open. We must also keep in mindthe conceptual difference betweenpower to review and power to re-assess. The Assessing Officer hasno power to review; he has thepower to re-assess. But re-assessment has to be based onfulfillment of certain pre-condition and if the concept of"change of opinion" is removed, ascontended on behalf of theDepartment, then, in the garb ofre-opening the assessment, reviewwould take place. One must treatthe concept of "change of opinion"as an in-built test to check abuseof power by the AssessingOfficer…..” 12.The Assessing Officer issued noticeunder section 148 of the Act only to make aroving inquiry into the facts which werealready considered by the Assessing Officerat the time of framing the originalassessment under section 143(3) of the Act.It appears that the Assessing Officer nowwants to re-verify the facts which is notpermissible to be an acceptable ground forexercising powers to reopen the assessment. 13.For the foregoing reasons, the impugnednotice dated 31.03.2021 issued under section148 of the Act by the respondent exercisingthe powers to reopen the assessment for theAssessment Year 2013-2014 is illegal and hereby quashed and set aside. As aconsequence, order dated 20.12.2021 of theAssessing Officer disposing of the objections of the petitioner against the impugned notice is also quashed and set aside. 14.The petition succeeds and is allowed.Rule is made absolute to the aforesaidextent. No order as to costs. (N.V.ANJARIA, J) RAGHUNATH R NAIR (BHARGAV D. KARIA, J)