Rajeshkumar Chhanalal Patel v. Income Tax Officer Ward 1(3)(4

IN THE HIGH COURT OF GUJARAT AT AHMEDABAD R/SPECIAL CIVIL APPLICATION NO. 21825 of 2019 =============================================RAJESHKUMAR CHHANALAL PATEL Versus INCOME TAX OFFICER WARD 1(3)(4) ============================================= Appearance: MR B S SOPARKAR(6851) for the Petitioner(s) No. 1M R BHATT & CO.(5953) for the Respondent(s) No. 1============================================= CORAM:HONOURABLE MR. JUSTICE J.B.PARDIWALA and HONOURABLE MS. JUSTICE NISHA M. THAKORE Date : 05/04/2022ORAL ORDER (PER : HONOURABLE MR. JUSTICE J.B.PARDIWALA) 1.By this writ application under Article 226 of theConstitution of India, the writ applicant has prayed for thefollowing reliefs: “(a)quash and set aside the impugned notice dated30.03.2019 at Annexure – A to this petition; (b)pending the admission, hearing and final disposal of thispetition, to stay implementation and operation of the notice atAnnexure – A to this petition and stay further proceedings forassessment for A.Y. 2012-13; (c)any other and further relief deemed just and proper begranted in the interest of justice; (d)to provide for the cost of this petition.” 2.The subject matter of challenge is the Notice issued bythe Assessing Officer under Section 148 of the Income Tax Act,1961, dated 30.03.2019 seeking to reopen the assessment forthe Assessment Year 2012-13. The reasons assigned by theAssessing Officer for reopening are as under: “2.Brief details of information collected/received by the AO:Information received from ADIT(Inv.)-Unit-2(2), Ahmedabadduring F.Y. 2011-12, assessee has deposited cash in bank forRs.3,10,20,401/- The information received vide letter No.ADIT(Inv.)/Unit2(2)/Sol/RC/2018-19 dated 14.03.2019 as under: "On inquiry with the assessee about the cash deposits, theassessee stated that the customers who have purchased thegold bullion, preferred to deposit cash with our various bankaccounts. To verify the correctness of the cash deposit, theassessee was requested to furnish month-wise sales made incash as well credit. Accordingly, the assessee vide letter dated07/02/2019 furnished the details. On verification of the same, itis noticed that during the year the assessee has made total cashsales of Rs.3,81,79,67,410/-. Accordingly, the assessee wasrequested to reconcile the cash sales and cash deposited made.In response thereto, the assessee vide letter dated 08/02/2019furnished a reconciliation, a copy of the same is enclosedherewith for kind reference. On verification of the reconciliation,it can be seen that the assessee failed to reconcile the cashdeposits made entirely and an amount of Rs.2,89,23,857/-[3901475764-3872551907] found to be excess cash depositedwith bank. The assessee has no explanation for such excess cashdeposited. Apart from the above, while reconciling the cashdeposits, the assessee has shown an amount of Rs.1,40,81,396/-as advance from customers. However, on verification of the P&LA/c. for F.Y. 2011-12 relevant to A.Y. 2012-13, it is noticed thatthe assessee has shown advance from customers atRs.1,19,84,852/- This clearly shows that the assessee has shownexcess cash deposits of Rs.20,96,544/- (14081396-11984852) asadvance from customers. Thus, the total excess cash depositsworks out to Rs.3,10,20,401/- [28923857+2096544]. Theassessee failed to explain the excess cash deposit ofRs.3,10,20,401/- and the same is required to be taxed for A.Y.2012-13 as unexplained cash deposit in the bank account(s)maintained by the assessee." 3.Analysis of information collected/received: On the basis ofinformation received with respect to aforesaid assesses, duringF.Y. 2011-12 relevant to A.Y. 2012-13, analysis of informationavailable on ITBA portal on ITS and 360 degree profile of theassessee. The assessee has filed his return of income for A.Y.2012-13. The information and facts are found to be correct. Thesame has been analyzed and accordingly reasons recorded inpara. 6 below. 4.Enquiries made by the AO as sequel to informationcollected/received: The ITBA/ITD data available in this office isverified. (i) As per PAN data base the case of the assessee isfound to belong to the territorial jurisdiction this ward. (ii) Theassessee has filed return of income for F.Y. 2011-12. The totalamount of Rs.3,10,20,401/- has escaped assessment within themeaning of section 147 of the I.T. Act. 5.Findings of the AO: In view of the above facts, it isconcluded that assessee has filed return of income for A.Y. 2012- 13. The assessee had deposited cash in bank forRs.3,10,20,401/- during A.Y. 2012-13. 6.Basis of forming reasons to believe and details ofescapement of income: The fact remains that the assessee hasmade excess cash deposit in bank for Rs.3,10,20,401/- and filedthe return of income for A.Y. 2012-13 As per discussion in Para.2.The assessee has failed to explain the cash deposit ofRs.3,10,20,401/-despite of filling the return of income for A.Y.2012-13. In view of this fact I have strong reasons to believe thatincome of Rs.3,10,20,401/- is the amount which is chargeable totax and has escaped assessment within the meaning of section147 of the I.T.Act.” 3.To the aforesaid, the writ applicant filed his objectionsessentially stating as under: “4.2 No failure to disclose fully and truly all material facts. It is submitted that there is not failure on the part of theAssessee to truly and fully disclose all material facts. It issubmitted that the report of investigation team is based on theinquiries made with the Assessee only. It is submitted that thereis no fresh tangible material available with either theinvestigation team or the Assessing Officer to come to a newfinding that the disclosure made by the Assessee wasincomplete. It is submitted that the assessee only gave all thedetails to the investigation team which was part of the accountsonly. It is therefore submitted that in absence of any failure onthe part of the Assessee to truly and fully disclose all materialfacts, completed assessment can not be reopened beyond theperiod of four years form the end of the Assessment year.(Details of communication with the investigation team isattached herewith as Annexure B); 4.3No income has escaped assessment. It is submitted that there is no escapement of income. It issubmitted that the difference between cash deposited and salesshown arises due to the VAT component in the cash depositedthat is not part of Sales but shown separately as liability. It issubmitted that the purchaser of gold purchases gold at a priceinclusive of VAT but the Assessee is following exclusive methodof accounting where VAT component is not part of sales but keptseparate as liability. It is therefore submitted that the differencearises and in fact there is no income that has escapedassessment. It is submitted that the investigation team had notinquired further with the Assessee therefore the Assessee did notprovide the same. (A copy of the complete reconciliationbetween the cash deposited and the cash sales shown in thebooks of accounts along with Tax Audit report and monthly VATledger is attached herewith as Annexure C).” 4.The aforesaid objections came to be disposed of by theAssessing Officer vide order dated 02.12.2019 stating as under: 4.The aforesaid objections came to be disposed of by theAssessing Officer vide order dated 02.12.2019 stating as under: “3.4 The assessee further on merits of his case, has stated thatthe difference between cash deposited and sales shown arisesdue to the VAT component in the cash deposited that is not partof sales but shown separately as liability. However, thiscontention of the assessee is not found to be acceptable as thisis not the appropriate time to discuss the genuineness oftransactions on merits. Without prejudice to the same, it is tomention that the same was not verifiable from the return ofincome and the assessment proceedings finalized. Further, theassessee in the above referred objection letter has alsosubmitted the same was not provided to the Investigation Wingas the same was not inquired further with the assessee. Theonus was upon the assessee to provide the completereconciliation to the Investigation Wing though the same was notcalled for. However, the assessee failed to furnish the same andnow, raising the objections which is not incorrect and valid.Notwithstanding to the same, it is to mention that at the time ofrecording of reasons for reopening the assessment, theAssessing Officer is expected to form only a prima facie opinionor belief.” 5.We have heard Mr. B.S. Soparkar, the learned counselappearing for the writ applicant and Mr. M.R. Bhatt, the learnedSenior Counsel appearing for the Revenue. 6.The principles governing the reopening of theassessment under Section 147 of the Act may be summarizedas under: “[i]To confer jurisdiction to the Assessing Officer to reopen theassessment under Section 147 of the Income-tax Act, beyondfour years from the end of assessment year, following twoconditions must be satisfied; [a] that the Assessing Officer must have reason to believethat the income chargeable to tax has escaped assessment;and that ; [b] same occasioned, on account of either failure on the partof the assessee to make a return of his income for thatassessment year, or to disclose fully and truly all materialfacts necessary for assessment of that year. (ii)Both the above conditions are condition-precedent andmust be satisfied simultaneously before the Income-tax Officercan assume jurisdiction to reopen assessment beyond four yearsof the end of assessment year. (iii)Such reasons must be recorded and if the reasonsrecorded by the Assessing Officer do not disclose satisfaction ofthese two conditions, re-opening notice must fail. (iv)There is no set format in which such reasons must berecorded. It is not the language but the contents of such recordedreasons which assumes importance. In other words, a merestatement that the Assessing Officer had reason to believe thatcertain income has escaped assessment and such escapement ofincome was on account of non-filing of the return by the assesseeor failure on his part to disclose fully and truly all material factsnecessary for assessment would not be conclusive. Nor, absenceof any such statement would be fatal, if on the basis of reasonsrecorded, it can be culled out that there were sufficient groundsfor the Assessing Officer to hold such beliefs. (v)Such reasons must emerge from the reasons recorded bythe Assessing Officer and cannot be supplied through an affidavitfiled before the Court. However, Gujarat High Court in the case ofAayojan Developers v. Income Tax Officer [Supra] has acceptedthe view that to elaborate such reasons already recorded,reference would be permissible to the affidavit filed by theDepartment before the Court. (v)Such reasons must emerge from the reasons recorded bythe Assessing Officer and cannot be supplied through an affidavitfiled before the Court. However, Gujarat High Court in the case ofAayojan Developers v. Income Tax Officer [Supra] has acceptedthe view that to elaborate such reasons already recorded,reference would be permissible to the affidavit filed by theDepartment before the Court. (vi)What would amount to true and full disclosure of allmaterial facts must depend on each case and no strait-jacketformula of universal application can be provided. It can howeversafely be stated that the duty of the assessee is to discloseprimary facts and it is not his duty to lead the Assessing Officer toany particular inference of fact or of law on the basis of suchprimary disclosures. In other words, once the assesseedischarges his duty of stating all the primary facts, whatinferences and conclusions should be drawn is the duty of theAssessing Officer. (vi)At the time of ascertaining whether the notice was validlyissued, what could be the probable conclusion of freshassessment if re-opening is permitted, is not the inquiry of theCourt. In other words, the merits of the proposed action, throughopening of the assessment, cannot be gone into by the courtbeyond prima facie stage.” 7.We are of the view that we should remit the matter to theAssessing Officer for fresh consideration of the objectionsraised by the writ applicant. We are not convinced with themanner in which the Assessing Officer has dealt with theobjections raised by the writ applicant – assessee. The writapplicant in so many words has tried to explain that thedifference between the cash deposited and the sales shown isdue to the VAT component in the cash deposited. According to the writ applicant, it is not a part of sales but shown separatelyas a liability. Whatever may be the worth of the explanationput forward by the writ applicant, it is expected of theAssessing Officer to apply his mind and decide the sameaccordingly. All that the Assessing Officer has said whiledisposing of the objections is that it is not an appropriate timeto discuss the genuineness of the transactions on merits. 8.In view of the aforesaid, we partly allowed this writapplication. The impugned notice and the order disposing ofthe objections are hereby quashed and set aside. The matter isremitted to the Assessing Officer for fresh consideration of theobjections. The Assessing Officer shall give an opportunity ofhearing to the writ applicant – assessee and proceed to pass afresh order dealing with the objections in accordance with law.Let this exercise be undertaken and completed within a periodof two months from today. (J. B. PARDIWALA, J) (NISHA M. THAKORE,J) NEHA