Ranjitsinh K Rathod Pro. M/S R.k. Traders v. Income Tax Officer, Ward-4

IN THE HIGH COURT OF GUJARAT AT AHMEDABAD R/TAX APPEAL NO. 325 of 2022 ===============================================================RANJITSINH K RATHOD PRO. M/S R.K. TRADERS Versus INCOME TAX OFFICER, WARD-4 ===============================================================Appearance:UMAIDSINGH BHATI(7973) for the Appellant(s) No. 1 for the Opponent(s) No. 1 =============================================================== CORAM:HONOURABLE MR. JUSTICE N.V.ANJARIAand HONOURABLE MR. JUSTICE BHARGAV D. KARIA Date : 29/06/2022 ORAL ORDER (PER : HONOURABLE MR. JUSTICE BHARGAV D. KARIA) Heard learned advocate Mr.Umaidsingh Bhati forthe appellant. 1.The appellant-assessee has preferred this Appealunder Section 260A of the Income Tax Act, 1961 (forshort ‘the Act, 1961’) challenging the order dated 4[th]January, 2022 passed by the Income Tax AppellateTribunal Ahmedabad “SMC” Bench, Ahmedabad (for short‘the Tribunal’) in ITA No.1496/Ahd/2018 forAssessment Year 2009-10. 2.The assessee has raised following proposedquestions as substantial questions of law : “(i) Whether on the facts and in thecircumstances of the case, the Tribunal was rightin law in upholding the validity of section 147 proceedings in Asst. Year 2009-10? (ii) Whether the Tribunal was justified in law inholding that reopening of assessment undersection 148 of the Act is valid and complies withall the mandatory conditions for reopening on thefacts and circumstance of the case? (iii) Whether on the facts and in thecircumstances of the case, the Tribunal was rightin law in holding that proceedings w/s.147 wererightly initiated based on incorrect reasonsrecorded?” 3.1. It is the case of the assessee that the assesseeis a Proprietor of M/s R.K.Traders engaged inbusiness of trading in packing material, packingtools and corrugated boxes. For the Assessment Year2009-10, the assesse filed the return of income whichwas accepted under Section 143(1) of the Act, 1961. 3.2. There was a search and seizure proceedings on18.12.2010 at the premises of Wonder PackagingIndustries by the Central Excise Department and itwas alleged by the Department that the said Companywas clearing goods i.e. corrugated boxes under thecover of two units i.e. Blue Star Packaging (the unitowned by the wife of the assessee) and M/sR.K.Traders, Proprietorship of the assessee. Basedupon the search and seizure conducted by the CentralExcise Department, a letter under Section 133 of the Act, 1961 was issued to the assessee which was notreplied by the assessee. 3.3. Thereafter, the notice under Section 148 of theAct, 1961 dated 26[th] March, 2016 was issued by theAssessing Officer with the prior approval of thePrincipal Commissioner of Income Tax, Gandhinagar ontwo counts, first with regard to the verification ofthe cash deposits as appearing in the saving bankaccounts of the appellant-assessee as per the annualinformation available with the Office of theAssessing Officer and second with regard to ascertainthe transaction of Rs.1,09,99,263/- pertaining to thesearch and seizure at M/s. Wonder PackagingIndustries Limited. The reasons recorded by theAssessing Officer are as under : “In this case, the assessee had filed return of income forthe A.Yr.2009-10 on 23.02.2011 declaring total income atRs.4,78,570/-. 3.3. Thereafter, the notice under Section 148 of theAct, 1961 dated 26[th] March, 2016 was issued by theAssessing Officer with the prior approval of thePrincipal Commissioner of Income Tax, Gandhinagar ontwo counts, first with regard to the verification ofthe cash deposits as appearing in the saving bankaccounts of the appellant-assessee as per the annualinformation available with the Office of theAssessing Officer and second with regard to ascertainthe transaction of Rs.1,09,99,263/- pertaining to thesearch and seizure at M/s. Wonder PackagingIndustries Limited. The reasons recorded by theAssessing Officer are as under : “In this case, the assessee had filed return of income forthe A.Yr.2009-10 on 23.02.2011 declaring total income atRs.4,78,570/-. As per AIR information received, assessee had made cashdeposit of Rs.13,27,954/- in the saving bank account ofAxis Bank Ltd. during the F.Y. 2008-09. The assessee didnot make any compliance in response to verification letterdtd. 08.02.2016 and 29.02.2016 in this regard, Further,Department has received information from Asstt.Commissioner (Preventive), Central Excise, Ahmedabad-Iff,Ahmedabad that R.K. Traders, situated at Mill KamdarSociety, Kalol which is the proprietary concern of ShriRanjitsinh Kanubhai Rathod, during the F.Y.2008-09 hasused the business premises of M/s Wonder Packaging, C/1/B/512/13, Phase-I, GIDC, Chatral and issued invoices ofRs.1,09,99,263/- to various concerns against sell ofcorrugated boxes. However, from the return of income filed by the assessee,it cannot be ascertained as whether the assessee has takenthe above transaction in his books or not. Therefore, itis believed that income to the extent of Rs.1,27,57,217/-is not offered to tax. The escapement has occurred on thepart of assessee and the income is required to be broughtto tax. In view of the above facts, I have reason to believe thatincome chargeable to tax is escaped assessment to theextent of Rs.1,27,57,217/-.” 3.4. It is pertinent to note that the assessee neverraised any objection with regard to the reopening ofthe assessment and participated in the assessmentproceedings and ultimately, the Assessing Officerclaimed the assessment under Section 143(3) read withSection 147 of the Act, 1961 by order dated09.12.2016 assessing the total income ofRs.16,21,640/-. 3.5. The Assessing Officer considering the factadmitted by the assessee that corrugated boxesmanufactured by M/s. Wonder Packaging IndustriesLimited and sold to M/s. R.K.Traders were notrecorded in the record of M/s. Wonder PackagingIndustries Limited and not taken into account for thepurpose of calculating the aggregate value ofclearance of goods by M/s. Wonder PackagingIndustries Limited. The Assessing Officer consideredthe amount received by the proprietory concern of theassessee as sales receipts from manufacturing in jobwork charges and proposed to reject the books ofaccounts under Section 145(3) of the Act, 1961 so asto apply the gross profit at the rate of 15% to thetotal receipts of the assessee. In reply to the show-cause notice issued by the Assessing Officer, theassessee changed his stand and submitted that theassessee is not ready to accept the turnover ofRs.1,09,99,263/- and therefore, it is not included in his account and assessee is not maintaining any booksof accounts as perSection 44AD of the Act, 1961 andtherefore it is not reasonable to estimate the grossprofit at the rate of 15% but the same should beapplied at the rate of 9.5%. The Assessing Officerrejected the reply filed by the assessee and rejectedthe books of accounts invoking the provisions ofSection 145(3) of the Act, 1961 and estimated the GPrate of 9.5% on the total sales of Rs.1,44,36,717/-,making an addition of Rs.11,23,617/-. AssessingOfficer also made an addition of Rs.19,456/- towardsinterest income and as such, made a total addition ofRs.11,43,073/-. his account and assessee is not maintaining any booksof accounts as perSection 44AD of the Act, 1961 andtherefore it is not reasonable to estimate the grossprofit at the rate of 15% but the same should beapplied at the rate of 9.5%. The Assessing Officerrejected the reply filed by the assessee and rejectedthe books of accounts invoking the provisions ofSection 145(3) of the Act, 1961 and estimated the GPrate of 9.5% on the total sales of Rs.1,44,36,717/-,making an addition of Rs.11,23,617/-. AssessingOfficer also made an addition of Rs.19,456/- towardsinterest income and as such, made a total addition ofRs.11,43,073/-. 3.6. The assessee being aggrieved by the addition ofRs.11,43,073/- made by the Assessing Officer to thereturn income of Rs.4,78,570/- preferred Appealbefore the CIT (Appeals). The assessee never raisedany ground with regard to reopening of the assessmenteven before the CIT (Appeals). The CIT (Appeals) byorder dated 15[th] March, 2018, dismissed the Appeal ofthe assessee with regard to all the grounds. 3.7. The assessee therefore, preferred the Appealbefore the Tribunal including the ground with regardto challenge to the reopening of the assessment inaddition to challenge the addition sustained by theCIT (Appeals) on merits. 4.1. Learned advocate Mr.Umaidsingh Bhati for theappellant-assessee submitted that the questions of law are raised only qua reopening and the groundraised before the Tribunal was purely a question oflaw with regard to the reopening of the assessment,the same is maintainable and rightly considered bythe Tribunal in the impugned order. 4.2. It was submitted that the Tribunal committed anerror in dismissing the ground with regard to thereopening of the assessment and remanded the matterback to the Assessing Officer for the purpose ofapplying the GP rate on merit. 4.3. It was submitted by learned advocate Mr.Bhatithat the appellant has raised only questions withregard to the reopening of the assessment. It wassubmitted that the reasons recorded by the AssessingOfficer at the relevant point of time could not havebeen the basis for reopening of the assessment. Insupport of his submissions, reliance was placed onthe decision of this Court in case of Harikishan Sunderlal Virmani Versus Deputy Commissioner ofIncome Tax[1] . It was submitted that this Court in thefacts of the said case came to the conclusion that onperusal of the reasons recorded, there was noallegation that there was failure on the part of theassessee in not disclosing truly and fully materialfacts necessary for the assessment. It wasfurther submitted that while recording thereasons in the said case, this Court consideredthat there is no allegation that the assessment could be reopened considering the informationreceived by the Department and as such, theconclusion arrived at by the Assessing Officer toreopen the assessment from the information receivedfrom the external sources could not be the basis forreopening. 4.4. It was therefore submitted that in the facts ofthe case, the Tribunal while dismissing the groundfor reopening of the assessment, has committed agrave error in upholding the reasons recorded by theAssessing Officer wherein it is mentioned that M/s.R.K.Traders which is proprietary concern of theassessee had business dealing with M/s. WonderPackaging Industries Limited as the business premiseswas used by the assessee firm. It was also pointedout that the Tribunal recorded that the return filedby the assessee on 23.02.2011 did not mention theincome in the said return related to the transactioncarried out with the said M/s. Wonder PackagingIndustries Limited. It was therefore submitted thatthe reasons recorded by the Assessing Officer cannotbe the basis for reopening as there was no reason tobelieve for the assessing officer that income hasescaped assessment. 4.5. Learned advocate Mr.Bhati for the appellantfurther relied upon the decision of the Delhi HighCourt in case of Pr.Commissioner of Income Tax VersusG & G Pharma India Ltd[2]. 4.6. It was pointed out that in the facts of the saidcase the reasons recorded by the Assessing Officerheld to reopen the original assessment under Section143(3) of the Act, 1961, were held to be not tenableas the Assessing Officer had already considered theaspect of accommodation entry and more particularly,when the Assessing Officer as well as the CIT haveproceeded on the basis of reopening assessment wasvalid and as such, the Tribunal was not correct inlaw in considering the issue of reopening in thefacts of the said case. It was submitted that in thefacts of the present case also the reasons recordedfor reopening of the assessment do not justify thereason to believe on the part of the AssessingOfficer to come to the conclusion that there wasescapement of income for the year underconsideration. 4.7. Learned advocate Mr.Bhati further invited theattention of the Court to the findings recorded bythe Assessing Officer in the assessment order whichwas under challenge before the CIT (Appeals) withregard to the cash deposited in the saving account ofthe Axis Bank Limited and after verification of thedetails called from the Bank, it was found that theaccount was in the name of the assessee and onlyRs.7,24,647/- was deposited in the bank account forthe relevant year. 4.8. With regard to reconcile the receipt ofRs.1,09,99,263/- received by M/s.R.K.Traders which is reflected in the return of income, the AssessingOfficer after considering the reply of the assesseehas come to the conclusion that the receipt ofRs.1,43,48,198/- was sales receipt from manufacturingand job work of corrugated boxes during the relevantyear whereas the assessee has only shown the receiptto the tune of Rs.26,09,168/-. It was therefore,pointed out that the Assessing Officer has calculatedthe gross profit without there being any basis. Itwas pointed out that the Tribunal has remanded thematter back but the assessee has challenged thereopening only and has not challenged the issue withregard to the remand of the matter on the ground ofGP addition made by the Assessing Officer. 5.We have considered the submissions made by thelearned advocate for the appellant. It is pertinentto note that in the facts of the case, there was noregular assessment conducted under the provisions ofSub-section (3) of Section 143 of the Act, 1961 afterscrutiny but the returned income was accepted underthe provision of Section 143(1) of the Act, 1961. Theassessee neither raised any objection to the noticeissued under Section 148 of the Act, 1961 at therelevant point of time nor raised such issue orobjection even during the course of assessment andparticipated in the assessment proceedings by filingreply. Even before the CIT (Appeals), no ground israised with regard to the reopening of theassessment. The assessee for the first timechallenged the reopening before the Tribunal byraising the ground which the Tribunal decided after considering the materiel on record as under: considering the materiel on record as under: “8. We have heard both the parties and perused all therelevant materials available on record. It is pertinentto note that the reasons recorded on 21.03.2016 hascategorically mentioned that R.K. Traders is aproprietary concern of the assessee which has businessdealings with M/s. Wonder Packaging Industries as thebusiness premises of M/s. Wonder Packaging Industries isused by the assessee (his proprietary firm). The assesseehas filed return of income in the year 23.02.2011 but hasnot mentioned this particular issue/income in the saidreturn related to the transactions. In fact, in respectof notice under Section 148 of the Act, the assessedopted that the said earlier return filed in February 2011should be taken as it is. The reopening was done with theprior approval and proper satisfaction and the legalviable reasons. Therefore, the contention of the assesseethat the notice issued under Section 148 of the Actitself is bad in law and is not sustainable. Therefore,ground nos.2 & 3 are dismissed.” 6.The submissions made on behalf of the appellant-assessee are to be considered in the light of thefacts emerging on the record and as found by theTribunal for rejecting the grounds to challengereopening raised by the assessee. The Tribunal hasconsidered that the information which formed basis ofthe reasons recorded on 21.03.2016 categoricallymentioned that M/s.R.K.Traders as the proprietoryconcern of the assessee had business dealing withM/s.Wonder Packaging Industries and the businesspremises was also used by the assessee. It was alsofound by the Tribunal that in the return of income,the assessee has not mentioned the income arising outof the transactions with M/s. Wonder PackagingIndustries Limited. 7.Even on perusal of the reasons recorded which is reproduced hereinabove, at this stage of consideringthe Second Appeal under Section 260(A) of the Act,1961, it would not be possible as to verify andjustify with regard to the sufficiency of the reasonswhich even otherwise could not have been consideredby the Court while exercising extra-ordinaryjurisdiction under Article 226 of the Constitution ofIndia. 8.Reliance placed by the learned advocate for theappellant-assessee on the decision of this Court incase of Harikishan Sunderlal Virmani (Supra) is notapplicable to the facts of the case as in the saidcase notice under Section 148 of the Act, 1961 wasissued when the scrutiny assessment was made underSection 143(3) of the Act, 1961 and in that contextit was held that after considering information /material received from other source, AssessingOfficer is required to consider the material onrecord in case of the assessee and thereafter isrequired to form an independent opinion on the basisof the material on record that the income has escapedassessment. Without forming such an opinion, solelyand mechanically relying upon the informationreceived from other sources, there cannot be anyreassessment for the verification. In suchcircumstances, the notice for reopening issued underSection 148 of the Act, 1961 was held to be notsustainable. However, in the facts of the case, onperusal of the reasons recorded, it emerges that onbasis of the information received by the Assessing Officer, more particularly when there was no scrutinyassessment, the Assessing Officer has formed anopinion that from the return of income filed by theassessee it was not possible to ascertain whether theassessee has taken the transaction with M/s. WonderPackaging Industries Limited in his books or not. Officer, more particularly when there was no scrutinyassessment, the Assessing Officer has formed anopinion that from the return of income filed by theassessee it was not possible to ascertain whether theassessee has taken the transaction with M/s. WonderPackaging Industries Limited in his books or not. 9.Similarly,in the decision in case of G & GPharma India Ltd (Supra) of the Delhi High Court,there was a scrutiny assessment under Section 143(3)of the Act, 1961 and after relying upon the decisionin case of ACIT Versus Dhariya Construction Company[3],Delhi High Court held that the the issue ofaccommodation entry was processed under Section143(3) of the Act, 1961 and without forming a prima-facie opinion on the basis of the material andwithout application of mind to the information, ifany collected, it was not possible for the AssessingOfficer to have concluded that the assessing companyintroduced its own unaccounted money in its Bank byway of accommodation entries. Whereas, in the factsof the case, the Assessing Officer has considered thematerial by applying his mind to the informationcollected from the Central Excise Departmentpreferring to the return of income furnished by theassessee, wherein it was not possible to ascertain asto whether the assessee has taken the transactionwhich is disclosed during the course of search ofM/s. Wonder Packaging Industries Limited or not, andtherefore, has rightly come to the opinion that he C/TAXAP/325/2022 ORDER DATED: 29/06/2022 has reason to believe that income chargeable to taxhas escaped assessment. 10.In view of the foregoing reasons, we do not findany legal infirmity in the impugned order of theTribunal with regard to any question of law much lessany substantial question of law which are proposed orotherwise and accordingly, the Appeal standsdismissed. (N.V.ANJARIA, J) (BHARGAV D. KARIA, J) PALAK