Wp/3491/2018 Of Hamilton Housewares Pvt. Ltd v. Dy. Commissioner Of Income-Tax Vapi Circle And 2 Ors

Priya Soparkar IN THE HIGH COURT OF JUDICATURE AT BOMBAY ORDINARY ORIGINAL CIVIL JURISDICTION WRIT PETITION NO.3491 OF 2018 Hamilton Housewares Pvt. Ltd.… Petitioner V/s. Deputy Commissioner of Income-tax and ors. … Respondents --- Mr.S.Sriram with Mr.B.V.Jhaveri with Mr. Mayank Thosar for thePetitioner.Mr.Sham Walve for Respondent Nos.1 and 2. --- CORAM : AKIL KURESHI AND M.S.SANKLECHA, JJ. DATE : MARCH 01, 2019. P.C.:- 1.Petitioner has challenged a notice of re-opening ofassessment dated 28[th] March, 2018 issued by the respondentNo.1-Assessing Officer to reopen the petitioner's assessment forthe assessment year 2013-14. Priya Soparkar 2.Brief facts are as under:- Petitioner is a private limited company. For the assessment year 2013-14, the petitioner had filed return of income on 26[th]September, 2013 declaring total income of Rs.12.88 crores(rounded off). Such return was taken in scrutiny by the AssessingOfficer. He passed order under section 143(3) of the Income TaxAct, 1961 (“the Act” for short) on 30[th] March, 2016. To reopensuch assessment, the Assessing Officer issued the impugned notice. In order to do so, he had recorded reasons, relevant portion ofwhich reads as under :- “1.Brief Details of the assessee:- The assessee Company i.e. M/s HamiltonHouseware Pvt. Ltd. is engaged in the business ofmanufacturing & trading of steel/plastic householdgoods and glassware/opal ware goods. The returnof income, for the A.Y. 2013-14, was filed on30/11/2013, declaring a total income ofRs.12,88,15,390/-. The said return of income wasprocessed under Section 143(1) of the Act. The casewas selected for scrutiny and assessment u/s143(3) of th I.T.Act was completed on 30/03/2016,assessing the total income at Rs.13,28,67,218/-. 2.Brief details of information collected/received by the AO :- During the period relevant to the A.Y. 2013-14,the assessee M/s Hamilton Houseware Pvt. Ltd.accepted a loan of Rs.1,02,00,000/- from M/sRupani Spinning Mills Private Limited, in which theshareholder of the assessee company, Shri Ajay D. Vaghani, was having 16% voting rights and wasalso having substantial interest of more than 20%in the share capital of assesse company (20.02%).Hence, all the condition mentioned in section 2(22)(e) were applicable in this case and deemeddividend to the extent of accumulated profits orloan received whichever is less was required to betaxed. 3.Analysis of information collected/received:-received:- Perusal of the details available on records revealedthat the assessee received Rs.1,02,00,000/- as loanfrom M/s Rupani Spinning Mills Private Limited inwhich the shareholder of the assessee company,Shri Ajay D.Vaghani, was having 16% votingrights. Shri Ajay Rupani was also having substantialinterest of more than 20% in the share capital ofthe assessee company (20.02%). Hence, thedeemed dividend of Rs.1,02,00,000/- was requiredto be taxed. 4.Enquiries made by the AO as sequel toinformation collected/received:-5.Findings of the AO:- It is seen from the above that the assessee receivedRs.1,02,00,000/- as loan from Rupani SpinningMills Private Limited in which the shareholder (ShriAjay D. Vaghani) was having 16% voting rightsand was also having substantial interest of morethan 20% in the share capital of assessee company(20.02%) . Hence, all the condition mentioned insection 2(22)(e) were applicable in this case andthe assessee was liable to be taxed on the deemeddividend to the extent of accumulated profits orloan received whichever is less. Also, assessee'scase is not covered by the exception clause (ii) toS.2(22) of the Act, as the substantial part ofassessee's business was not lending of loans butbusiness centre income. 6.Basis of forming reason to believe and details of escapement of income:- 6.Basis of forming reason to believe and details of escapement of income:- The assessee was required to be taxed on thedeemed dividend of Rs.1,02,00,000/- to the extentof accumulated profits or loan received whicheveris less, as per section 2(22)(e) of the I.T. Act. Theassessee therefore should have added back theamount of Rs.1,02,00,000/- to its total income ofthe A.Y. 2013-14, in the Computation of Totalincome. As the assessee failed to do so, I havereason to believe that the assessee has failed todisclose fully and truly all material facts necessaryfor its assessment within the meaning of section147 of the Act and assessee's income to the extentof Rs.1,02,00,000/- has escaped assessment.” 3. Upon being supplied such reasons, the assessee raisedobjections to the notice of reopening of assessment under acommunication dated 15[th] October, 2018. Such objections wererejected by an order dated 19[th] November, 2018. Hence, thispetition. 4.Appearing for the petitioner learned counsel Shri Sriramraised following contentions:- (i)The ground on which the impugned notice has been issuedwas examined by the Assessing Officer during the original scrutinyassessment. Priya Soparkar 57 wp 3491-18-o (ii)The Assessing Officer relies on an order of the SupremeCourt making reference to the Larger Bench. As on today the lawlaid down by the Supreme Court in case of Commissioner ofIncome Tax Vs.Madhur Housing and Development Company[1]continues to hold the field. (iii)The Assessing Officer has acted under the insistence of theaudit party and issued the impugned notice which is clearly badin law. 5.On the other hand, the learned counsel Shri Walve opposedthe petition contending that during the scrutiny assessment thequestion of applicability of Section 2(22)(e) of the Act was notexamined in relation to the loan transaction in question on thebasis of which the impugned notice is issued. He furthersubmitted that the notice has been issued within the period offour years from the end of the relevant assessment year by theAssessing Officer after recording proper reasons. The petitionmay therefore be dismissed. Priya Soparkar 67 wp 3491-18-o 6.Having heard learned counsel for the parties, perusal of the reasons would show that the Assessing Officer wishes to invokethe provisions of Section 2(22)(e) of the Act, in relation to a loanof Rs.1.02 crores (rounded off) received by the assessee duringthe relevant accounting period from one M/s Rupani SpinningMills Private Limited. The Assessing Officer has referred to theshareholding patterns of the two companies in this context. 7.With this background, we may refer to the exchangebetween the Assessing Officer and the Petitioner during thescrutiny assessment. In response to the queries raised by theAssessing Officer, the petitioner had in a communication dated24[th] November, 2015, besides others supplied following details:- 8.Further information was supplied under letter dated 10[th] December, 2015, which included the following:- Priya Soparkar 7.With this background, we may refer to the exchangebetween the Assessing Officer and the Petitioner during thescrutiny assessment. In response to the queries raised by theAssessing Officer, the petitioner had in a communication dated24[th] November, 2015, besides others supplied following details:- 8.Further information was supplied under letter dated 10[th] December, 2015, which included the following:- Priya Soparkar 48DetailsofDebtors/Creditorshavingoutstanding balance more than Rs.1 Lakhs, inthe Format Specified by your goodself.A statement showing details of Debtors andCreditors of which an amount of Rs.1 Lakh ormore is outstanding as on 31.03.2013 is attachedherewith and enclosed as Asnnexure #3 to thissubmission as per the format specified by yourgoodself.outstanding balance more than Rs.1 Lakhs, inthe Format Specified by your goodself.A statement showing details of Debtors andCreditors of which an amount of Rs.1 Lakh ormore is outstanding as on 31.03.2013 is attachedherewith and enclosed as Asnnexure #3 to thissubmission as per the format specified by yourgoodself.59Please furnish the details of capitalsubsidy/MODVAT received during the yearunder consideration in acquisition of fixedasset. Also explain whether the amountreceived has been reduced from the cost ofacquisition fixed assets for claimingdepreciation. A statement showing details of capitalsubsidy/MODVAT received during the yearunder consideration on acquisition of fixed assetsis attached herewith as Annexure #4 to thisSubmission. Further, MODVAT availed on capitalgoods have been reduced from the cost ofacquisition of fixed assets.subsidy/MODVAT received during the yearunder consideration in acquisition of fixedasset. Also explain whether the amountreceived has been reduced from the cost ofacquisition fixed assets for claimingdepreciation. A statement showing details of capitalsubsidy/MODVAT received during the yearunder consideration on acquisition of fixed assetsis attached herewith as Annexure #4 to thisSubmission. Further, MODVAT availed on capitalgoods have been reduced from the cost ofacquisition of fixed assets. 9.Yet again on 29[th] February, 2016 the petitioner wrote to the Assessing Officer supplying following further details:- “1.Q#13- Details of unsecured loan alongwiththe ledger copies of all parties from whomunsecured loan outstanding on the first day ofthe previous year. We request your goodself to kindly refer Annexure# 5 to submission # 2 dated 24[th] November, 2015,for the details of unsecured loan outstanding as on31 March 2013. As required by your goodself theledger copies of parties from whom unsecuredloan was taken and outstanding as on the first day of previous year relating to current assessment yearare enclosed as Annexure # 1 to this submission foryour kind perusal. 3. Q #30- Please furnish the share holdings pattern as on 01.04.2012 to 31.03.2013 nameand address of shareholders and furnish thename and address of the directors copies ofledger accounts of all the directors andshareholders alngwith narration of eachtransactions and copies of I.T. return alongwithannexure and bank account details for theconsidering year. We request your goodself to refer Annexure#10(for the names, address of shareholders andshareholding pattern) and Annexure #11 (fornames and address of directors) to Submission #2dated 24[th] November, 2015, along with it yourgoodself has asked for the copies of ledger accountsand bank details. We request your goodself to alsorefer annexure #5 to Submission #4 dated 25[th]February, 2016, in the cases of directors and /orshareholders where the assessee company hasentered into any transaction viz. loan, interest,remuneration and other expenses, and a statementshowing bank details. We request your goodself to refer Annexure#10(for the names, address of shareholders andshareholding pattern) and Annexure #11 (fornames and address of directors) to Submission #2dated 24[th] November, 2015, along with it yourgoodself has asked for the copies of ledger accountsand bank details. We request your goodself to alsorefer annexure #5 to Submission #4 dated 25[th]February, 2016, in the cases of directors and /orshareholders where the assessee company hasentered into any transaction viz. loan, interest,remuneration and other expenses, and a statementshowing bank details. Further as required by your goodself the ledgercopies of the shareholders along with theacknowledgement of Return of Income and astatement showing bank details is attached andmarked as Annexure #3 to this Submission.” 10.Perusal of such information would clearly establish that theloan transaction in question was specifically brought to the noticeof the Assessing Officer during the various communications made Priya Soparkar107 wp 3491-18-oby the petitioner. Ordinarily, it may be possible for the AssessingOfficer to argue that despite such disclosures the Assessing Officerhad no occasion to examine the applicability of Section 2(22)(e)of the Act. However, for two reasons such stand would not bevalid in the present case. Firstly, in addition to supplyingnecessary details of the loan transactions of the assessee, in theletter dated 29[th] February, 2016 the assessee was responding tothe demand of the Assessing Officer for furnishing shareholdingpattern as on 1[st] April, 2012 to 31[st] March, 2013, name andaddress of the shareholders and name and address of theDirectors with copies of ledger accounts of all Directors andshareholders alongwith narration of each transaction and copies ofincome tax return and the bank account details. Thus, the onlyangle or element in raising such a question could be to testwhether any of the loans taken by the assessee during the yearunder consideration would be covered by the provisions of Section2(22)(e) of the Act. This is more so since the very AssessingOfficer in the immediately preceding assessment year, hadexamined the loan transaction between the petitioner and thesaid M/s Rupani Spinning Mills Private Limited with special focus 117 wp 3491-18-o of Section 2(22)(e) of the Act. By separate order passed today inWrit Petition No.3447 of 2018, we had occasion to examine thesedocuments in the context of the petitioner's challenge to thenotice of reopening of assessment of the said assessment year.In the scrutiny assessment, the Assessing Officer in the saidassessment year had at length collected materials in the contextof the possible applicability of Section 2(22)(e) of the Act.Under the circumstances, in facts of the present case, we have nohesitation to come to the conclusion that this issue was dulyscrutinized by the Assessing Officer in the original scrutinyassessment. 11.There is one more ground on which the impugned noticemust be quashed. We may recall, the counsel for the petitionerhad argued that the Assessing Officer was acting at the behestof the audit party. Such a ground was not taken in the petition.However, we had permitted the petitioner to raise the same inthe rejoinder and provided sufficient time to the revenue torespond. This being a pure question of examination ofcontemporaneous documents, we had requested the counsel 11.There is one more ground on which the impugned noticemust be quashed. We may recall, the counsel for the petitionerhad argued that the Assessing Officer was acting at the behestof the audit party. Such a ground was not taken in the petition.However, we had permitted the petitioner to raise the same inthe rejoinder and provided sufficient time to the revenue torespond. This being a pure question of examination ofcontemporaneous documents, we had requested the counsel Priya Soparkar127 wp 3491-18-ofor the revenue to make available for our perusal the originalfile of the department, which he had so done. The perusal of thefile would clearly show that the audit party had brought to thenotice of the Assessing Officer the possibility of invoking Section2(22)(e) of the Act in relation to the loan transaction in question.The Assessing Officer under a detailed reply dated 9[th] June, 2015had opposed any such invocation of Section 2(22)(e) of the Act.He had given reasons why in his opinion Section 2(22) (e) ofthe Act was inapplicable. Despite this, upon further insistence bythe audit party, impugned notice came to be issued. It is wellsettled through series of judgments that the decision to reopenthe assessment must be on the basis of the belief found by theAssessing Officer. It may be open for the audit party to bring therelevant aspect to the notice of the Assessing Officer. However,thereafter it must be the independent decision of the AssessingOfficer to reopen the assessment upon formation of his belief thatincome chargeable to tax had escaped assessment. Reference inthis respect can be made to a decision of this Court in case ofCommissioner of Income-Tax Vs. Ranjan N. Aswani[1]. 1(2018) 403 ITR 30(Bom) Priya Soparkar 12.Under the circumstances, we do not go into othercontentions raised by the counsel for the petitioner. Impugnednotice is quashed. Petition allowed and disposed of accordingly. (M.S.SANKLECHA,J.) (AKIL KURESHI,J.)….