Shrenik Sudhir Vimawala v. Assistant Commissioner Of Income Tax, Circle 3(1)(1),Ahmedabad

IN THE HIGH COURT OF GUJARAT AT AHMEDABAD R/SPECIAL CIVIL APPLICATION NO. 8256 of 2022 FOR APPROVAL AND SIGNATURE: HONOURABLE MR. JUSTICE J.B.PARDIWALA and HONOURABLE MS. JUSTICE NISHA M. THAKORE ========================================================== 1Whether Reporters of Local Papers may be allowed toYESsee the judgment ?2To be referred to the Reporter or not ?YES3Whether their Lordships wish to see the fair copy ofNOthe judgment ?4Whether this case involves a substantial question ofNOlaw as to the interpretation of the Constitution ofIndia or any order made thereunder ? ========================================================== SHRENIK SUDHIR VIMAWALA Versus ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE 3(1)(1),AHMEDABAD ==========================================================Appearance:MR SN SOPARKAR, SENIOR COUNSEL WITH MR B S SOPARKAR(6851)for the Petitioner(s) No. 1 MR MR BHATT, SENIOR COUNSEL WITH MR KARAN SANGHANI,ADVOCATE FOR M R BHATT & CO.(5953) for the Respondent(s) No. 1========================================================== CORAM:HONOURABLE MR. JUSTICE J.B.PARDIWALAand HONOURABLE MS. JUSTICE NISHA M. THAKORE Date : 02/05/2022 ORAL JUDGMENT (PER : HONOURABLE MR. JUSTICE J.B.PARDIWALA) India, the writ applicant has prayed for the following reliefs: “(a) quash and set aside the impugned notices and order at Annexure-A1, A2 and A3 to this petition. (b) pending the admission, hearing and final disposal of this petition, tostay implementation and operation of the order and notice at Annexure– A2 and A3 to this petition and stay further proceedings for assessmentfor A.Y. 2018-19; (c) any other and further relief deemed just and proper be granted inthe interest of justice. (d) to provide for the cost of this petition.” 2On 26[th] April 2022, this Court passed the following order: “1. We have heard Mr. Bandish Soparkar, the learned counselappearing for the writ applicant for quite some time. We seek assistanceof Mr. M.R.Bhatt, the learned Senior Counsel, who would be appearingfor the Revenue. 2. Prima facie, the case of the department appears to be that for theAssessment Year 2018-19, the writ applicant had not disclosed aboutthe transactions in his return of income connected with the Social Co-operative Bank Ltd.. In the reasons assigned, we find reference of threebank accounts maintained with the Social Co-operative Bank Ltd. andthree bank accounts maintained with the Union Bank of India. So far asthe Union Bank of India is concerned, there are hardly any transactionsbut, there are huge transactions so for as the Social Co-operative BankLtd. is concerned. Out of the three bank accounts, according to the writapplicant, one of the bank accounts maintained with the Social Co-operative Bank Ltd. is that of the HUF and the HUF is being assessedindependently. Even if one of the bank accounts is that of the HUF stillthe question is how do we determine whether in the original return allthe transactions connected with the Social Co-operative Bank Ltd. weredisclosed in the return. The argument is that in the return, the assesseeneed not disclose anything about his bank or the bank details. In thereturn, he has to show the transactions, the profit and loss account etc. 3. We would like to know from both, the assessee as well as theRevenue, whether all the transactions for the relevant Assessment Year2018-19 were with respect to only this particular bank or there are anyother accounts also of the writ applicant with other banks. 4. We request Mr. Bhatt, the learned Senior Counsel, to seekappropriate instructions in this matter and revert to us on 02.05.2022. 5. Post this matter on 02.05.2022. 6. One set of the entire paper book shall be furnished to Mr. Bhatt atthe earliest. 7. On the returnable date, notify this matter on top of the Board.” 3. We would like to know from both, the assessee as well as theRevenue, whether all the transactions for the relevant Assessment Year2018-19 were with respect to only this particular bank or there are anyother accounts also of the writ applicant with other banks. 4. We request Mr. Bhatt, the learned Senior Counsel, to seekappropriate instructions in this matter and revert to us on 02.05.2022. 5. Post this matter on 02.05.2022. 6. One set of the entire paper book shall be furnished to Mr. Bhatt atthe earliest. 7. On the returnable date, notify this matter on top of the Board.” 3We have heard Mr. S. N. Soparkar, the learned Senior Counselappearing for the writ applicant and Mr. M. R. Bhatt, the learned SeniorCounsel assisted by Mr. Karan Sanghani, the learned counsel appearingfor the Revenue. 4As noted in our order dated 26[th] April 2022, the reason why theAssessing Officer wants to reopen the assessment for the relevant year2018-19 is that the writ applicant – assessee had not shown thetransactions with respect to the Social Cooperative Bank Limited. This isevident from para 3 of the notice issued under clause (b) of Section148A of the Income Tax Act, 1961 (for short, “the Act, 1961”), whereinthe following has been stated: The assessee had not shown the above transactions in his return ofincome so filed. Thus, there is an escapement of income to the tune ofRs.1,80,41,71,133/-. 1.In view of the above information(s) received and verified by this officeand in accordance with section 148A(b) of the IT Act, 1961, you are requestedto show cause as to why a notice under section 148 of the IT Act, 1961 shouldnot be issued on the basis of above mentioned information which suggests thatincome chargeable to tax amounting to Rs.1,80,41,71,133/- has escapedassessment in your case for A. Y. 2018-19.” 5To the aforesaid, the writ applicant filed a detailed reply in theform of his objections under clause (b) of Section 148A, wherein the writapplicant pointed out the following: “1.1 The assessee vehemently objects to above re-opening which isbased on incorrect facts and observations. It is submitted that alltransactions in bank accounts referred in the notice by your good selfbelong to assessee (except one which is discussed in detail hereunder)and related to its business and the same have been duly recorded inaudited books of account and effect has been given in the return ofincome filed by the assesse as well. The contention of assesse isexplained in detail hereunder. 2.Transactions of Rs.66,75,36,803/- carried out in the bankaccount with the Social Co-operative Bank Ltd. in account no.130002016000456 do not belong to the assesse 2.1Before dealing with the facts and other details of the presentcase, it is pertinent to mention that out various bank accounts referredby your good self, one of the bank accounts with "The Social Co-operative Bank Ltd." in "Account no. 130002016000456 wherein totaltransactions of Rs. 66,75,36,803/- are stated to be executed during theyear does not belong to the assesse, hence the assesse cannot be calledupon to explain details of such transactions. It is pertinent to mentionthat alleged bank account belong to the HUF of the assesse which is aseparate entity and assesse cannot be called upon in his individual 2.Transactions of Rs.66,75,36,803/- carried out in the bankaccount with the Social Co-operative Bank Ltd. in account no.130002016000456 do not belong to the assesse 2.1Before dealing with the facts and other details of the presentcase, it is pertinent to mention that out various bank accounts referredby your good self, one of the bank accounts with "The Social Co-operative Bank Ltd." in "Account no. 130002016000456 wherein totaltransactions of Rs. 66,75,36,803/- are stated to be executed during theyear does not belong to the assesse, hence the assesse cannot be calledupon to explain details of such transactions. It is pertinent to mentionthat alleged bank account belong to the HUF of the assesse which is aseparate entity and assesse cannot be called upon in his individual capacity to explain the same. It is pertinent to mention that such fact ismentioned in the bank statement as well. Copy of bank statement isenclosed herewith as Annexure-1 wherein it is mentioned that accountis in the name of HUF of the assesse. Without prejudice to the fact thatthe assesse cannot be called upon to explain transactions executed inthe bank account of the HUF of the assesse, it is submitted that alltransactions carried out in bank account are duly reflected in books ofHUF of the assesse. The Accounts of HUF are audited and it duly filesreturn of income. Copy of return of income and Tax audit report of HUFof the assesse along with Annual Accounts which is certified byindependent chartered accountant is enclosed as Annexure-2 andAnnexure-3 respectively for your honours immediate reference. It issubmitted that HUF of assesse is a separate entity and operates itsbusiness independently, hence transactions carried out in its bankaccount cannot be assessed in case of assesse. 2.2On perusal of above details and explanation, your honour willobserve that since transactions of Rs.66,75,36,803/- are not carried inthe bank account of assessee, no adverse view can be taken with respectto same in case of assessee (although such transactions are genuine andrelated to business of HUF of the assessee and duly recorded in itsbooks of accounts). 3.Transactions of Rs.101,95,67,398/- is carried out in the bankaccount with the Social Co-operative Bank Ltd. In account no.130002011011039 which is related to business of the assessee. 3.1 It is submitted that transactions in aforementioned bank accountis related to business of the assesse carried out in its proprietaryconcern being "Shree Trading Co.” and duly reflected in the books ofaccount of the proprietary concern. It is submitted that all transactionsexecuted in the above bank account is related to business of the assesse.Source of credit in bank account includes receipt from customers,receipt of unsecured loan, etc which are related to business operationand duly recorded in books of account and debit in bank accountincludes payment to suppliers for goods and repayment of unsecuredloans, etc which are also recorded in audited books of accounts. Copy ofannual accounts along with tax audit report is enclosed as Annexure-4which is audited by independent chartered accountant which provesthat all transactions are verified and reported in annual accounts.Hence argument that transactions executed in bank account is notreflected in return of income is incorrect and proceedings cannot bereopened on the basis of same. In order to explain the details of abovetransaction, the assesse hereby encloses explanation of all transactionsexecuted in above bank account vide Annexure-5 wherein details oftransactions are mentioned.” 6While passing the final order under clause (d) of Section 148A ofthe Act, 1961, all that the Assessing Officer has stated in paras 7 and 8resply is as under: 6While passing the final order under clause (d) of Section 148A ofthe Act, 1961, all that the Assessing Officer has stated in paras 7 and 8resply is as under: “7. The submission filed by the assessee has been duly considered andthe same is not found acceptable. Having considered the submission ofthe assessee, it is found that the requisite documentary evidences havenot been submitted by the assessee. Therefore reply of the assessee donot explain the fact that income arising from the impugned transaction/transaction itself has been duly disclosed and relevant income arisingthere from has been offered for taxation for the relevant assessmentyear. 8. Therefore, in the light of the above reasons, information and materialavailable on record, I am of the considered view that the assessee hasfailed to explain the above-mentioned transactions and income earned/derived there from, during the year under consideration and the sameremained unexplained and unsubstantiated as per the relevantprovisions of the Act. Hence, on the basis of material available onrecord which establish that the income chargeable to tax in respect ofabove mentioned transactions of Rs.1,80,41,71,133/- has escapedassessment for FY 2017 18 and therefore, this is a fit case for issuanceof notice u/s 148 of the Act for Assessment Year 2018-19.” 7Mr. Soparkar is justified in his submission that nothing of whatwas pointed by the writ applicant – assessee in his objections could besaid to have been taken into consideration by the Assessing Officer in itstrue sense. When the assessee offers his reply by way of objections, thenthere is a staturoy obligation on the part of the Assessing Officer toconsider the objections and deal with those in accordance with the truespirit and intent of the provisions of Section 148A of the Act, 1961.Section 148A of the Act, 1961 reads thus: “Conducting inquiry, providing opportunity before issue of notice undersection 148. 148A.The Assessing Officer shall, before issuing any notice under section 148,— (a) conduct any enquiry, if required, with the prior approval ofspecified authority, with respect to the information which suggests thatthe income chargeable to tax has escaped assessment; (b) provide an opportunity of being heard to the assessee, with theprior approval of specified authority, by serving upon him a notice toshow cause within such time, as may be specified in the notice, beingnot less than seven days and but not exceeding thirty days from thedate on which such notice is issued, or such time, as may be extendedby him on the basis of an application in this behalf, as to why a noticeunder section 148 should not be issued on the basis of informationwhich suggests that income chargeable to tax has escaped assessment inhis case for the relevant assessment year and results of enquiryconducted, if any, as per clause (a); (c) consider the reply of assessee furnished, if any, in response to theshow-cause notice referred to in clause (b); (d) decide, on the basis of material available on record including replyof the assessee, whether or not it is a fit case to issue a notice undersection 148, by passing an order, with the prior approval of specifiedauthority, within one month from the end of the month in which thereply referred to in clause (c) is received by him, or where no suchreply is furnished, within one month from the end of the month inwhich time or extended time allowed to furnish a reply as per clause(b) expires: Provided that the provisions of this section shall not apply in a casewhere,— (a) a search is initiated under section 132 or books of account, other documents or any assets are requisitioned under section 132A in thecase of the assessee on or after the 1st day of April, 2021; or (d) decide, on the basis of material available on record including replyof the assessee, whether or not it is a fit case to issue a notice undersection 148, by passing an order, with the prior approval of specifiedauthority, within one month from the end of the month in which thereply referred to in clause (c) is received by him, or where no suchreply is furnished, within one month from the end of the month inwhich time or extended time allowed to furnish a reply as per clause(b) expires: Provided that the provisions of this section shall not apply in a casewhere,— (a) a search is initiated under section 132 or books of account, other documents or any assets are requisitioned under section 132A in thecase of the assessee on or after the 1st day of April, 2021; or (b) the Assessing Officer is satisfied, with the prior approval of thePrincipal Commissioner or Commissioner that any money, bullion,jewellery or other valuable article or thing, seized in a search undersection 132 or requisitioned under section 132A, in the case of anyother person on or after the 1st day of April, 2021, belongs to theassessee; or (c) the Assessing Officer is satisfied, with the prior approval of thePrincipal Commissioner or Commissioner that any books of account ordocuments, seized in a search under section 132 or requisitioned undersection 132A, in case of any other person on or after the 1st day ofApril, 2021, pertains or pertain to, or any information containedtherein, relate to, the assessee. Explanation.—For the purposes of this section, specified authoritymeans the specified authority referred to in section 151.” 8The plain reading of clause (d) of Section 148A referred to abovewould indicate that the Assessing Officer is obliged in law to decide onthe basis of the materials available on record including the reply of theassessee, whether or not it is a fit case to issue a notice under Section148 by passing an order with the prior approval of the specifiedauthority within one month from the end of the month in which thereply is received by him. 9Thus, there is an obligation cast upon the Assessing Officer inaccordance with clause (d) of Section 148A of the Act, 1961 to considerthe case not only on the basis of the materials available on record, butalso the reply of the assessee. If the reply of the assessee has not been considered, then passing of the order under clause (d) of Section 148Acould be said to be an empty formality. The new regime of Section 148Ashould be strictly followed so as to make it meaningful. 10This Court in the case of Divya Jyoti Diamonds (P) Ltd. vs. IncomeTax Officer reported in [2021] 439 ITR 471 (to which one of us J. B.Pardiwala, J. was a party) had the occasion to consider Section 148 ofthe Act for the purpose of reopening of assessment. We quote therelevant observations made by this Court as under: 9Thus, there is an obligation cast upon the Assessing Officer inaccordance with clause (d) of Section 148A of the Act, 1961 to considerthe case not only on the basis of the materials available on record, butalso the reply of the assessee. If the reply of the assessee has not been considered, then passing of the order under clause (d) of Section 148Acould be said to be an empty formality. The new regime of Section 148Ashould be strictly followed so as to make it meaningful. 10This Court in the case of Divya Jyoti Diamonds (P) Ltd. vs. IncomeTax Officer reported in [2021] 439 ITR 471 (to which one of us J. B.Pardiwala, J. was a party) had the occasion to consider Section 148 ofthe Act for the purpose of reopening of assessment. We quote therelevant observations made by this Court as under: “12.Having heard the learned counsel appearing for the respectiveparties and having gone through the materials on record, we are of theview that the AO while disposing off the preliminary objections filed bythe writ applicant against the reasons recorded for reassessment, hasnot properly dealt with the objections. We take notice of the fact that,while disposing the objections, the AO has concluded that theobjections made by the assessee are duly considered and notacceptable. In para-4 of the order, the AO has observed that thetransactions made by the assessee company with Rashmi Diamond werebogus entries and the fact of difference in respect of credit entries in thebank account were not brought into knowledge of the AO during thecourse of assessment proceedings. We are of the view that the AO failedto take note of various objections filed against the reasons recorded.Para-4 of the order as referred to above does not reflect the properapplication of mind to the objections raised by the applicant and itcould not be said that the objections having been disposed of by passingreason order. In the case of GKN Driveshaft (supra), the Supreme Courthas laid down the procedure as to the manner of dealing with theobjections raised against the notice under Section 148 of the Act. TheSupreme Court has held that when a notice under Section 148 of theAct is issued, the proper course of action for the noticee is to file returnand if he so desires, to seek reasons for issuing notice. It was furtherheld that the AO is bound to furnish reasons within a reasonable timeand upon receipt of reasons, the noticee is entitled to file an objectionto issuance of notice and AO is bound to dispose of the same byspeaking order. In the case of SABH Infrastructure Ltd (supra), theDelhi High Court, has held that the exercise of considering theassessee’s objections to the reopening of the assessment is not amechanical ritual. It is a quasi judicial function. The order disposing ofthe objection should deal with each objection and give proper reasonfor conclusion. The order should reflect proper application of mind. 13. Applying the dictum as laid down by the Supreme Court in the caseof GVK Driveshaft (supra), we are of the view that disposing of theobjections raised by the assessee against the reasons recorded beforeissuance of notice under Section 148 of the Act, though not part of thestatutory requirement, as prescribed under the Act, however, same isguided by the directions issued by the Apex Court. The specificobjections raised by the writ applicant, produced on record at page-33to 45 to this writ application, have not been properly dealt with by theAO. The lapse is in clear violation of the decision of the Apex Court. Weare of the view that the AO has passed the order mechanically andwithout application of his mind. In other words not in a meaningfulmanner.” 11The principle of law, as explained by the Supreme Court, in thecase of GKN Driveshaft (India) Ltd vs. ITO [2003] 259 ITR 19 (SC), isnow a statutory provision in the form of new Section 148A of the Act. 11The principle of law, as explained by the Supreme Court, in thecase of GKN Driveshaft (India) Ltd vs. ITO [2003] 259 ITR 19 (SC), isnow a statutory provision in the form of new Section 148A of the Act. 12In view of the aforesaid, we are of the view that we should quashand set aside the order passed under clause (d) of Section 148A as wellas the notice issued under Section 148 of the Act, 1961 and remit thematter to the Assessing Officer for fresh consideration of the objectionsfiled by the writ applicant. 13In the result, this writ application succeeds in part. The impugnedorder dated 7[th] April 2022 passed by the Assessing Officer and the noticeissued under Section 148 of the Act, 1961 are hereby quashed and setaside. The matter is remitted to the Assessing Officer for freshconsideration of all the objections raised by the writ applicant. This timethe Assessing Officer shall apply his mind and pass an appropriate orderunder clause (d) of Section 148A dealing with all the objections in itstrue sense. The order that may be ultimately passed under clause (d) ofSection 148A should reflect proper application of mind and inconsonance with spirit and objection of clause (d) of Section 148A of theAct, 1961 referred to above. Let this exercise be undertaken at theearliest and completed within a period of three months from the date of receipt of the writ of this order. 14With the aforesaid, this writ application stands disposed of. (J. B. PARDIWALA, J) CHANDRESH (NISHA M. THAKORE,J)