Hiramoti Texchem Pvt. Ltd. Vs ITO (Gujarat High Court)
Summary: The Gujarat High Court allowed the writ petition filed by Hiramoti Texchem Pvt. Ltd. challenging the notice dated 28.03.2019 issued under Section 148 of the Income Tax Act, 1961 for AY 2012-13. The petitioner had filed its original return of income on 28.09.2012 declaring income of Rs.20,15,440/-. The return was subjected to scrutiny and an assessment under Section 143(3) was completed on 09.12.2014 determining total income at the same amount of Rs.20,15,440/-. Thereafter, the Assessing Officer issued the impugned reassessment notice on 28.03.2019 and supplied the reasons for reopening on 02.05.2019. The assessee objected to the reassessment proceedings, but its objections were disposed of by the respondent on 11.12.2019.
The reopening was premised on an investigation report of the ADIT (Investigation) concerning transactions with M/s. Manibhadra Textile Company, a proprietorship concern of Shri Bhavesh Sureshchandra Shah. According to the information available with the Department, the concern had received credits from three entities, including the petitioner, following which its proprietor had withdrawn amounts through self-cheques and cash. The petitioner had deposited Rs.95,26,354/- in the bank account of M/s. Manibhadra Textile Company, and the transaction was regarded as a high-value transaction which, according to the reasons for reopening, did not commensurate with the return of income.
The petitioner contended that the Assessing Officer had not independently applied his mind and had merely borrowed satisfaction from information received from the Investigation Wing. According to the petitioner, information received from the Investigation Wing could give rise to suspicion, but it was required to be examined in the light of the assessment records before a valid reason to believe that income had escaped assessment could be formed. It was further submitted that Rs.95,26,354/- represented payment to M/s. Manibhadra Textile Company towards purchase of cotton in the course of regular business transactions. The relevant transactions had already been disclosed through invoices during the original scrutiny assessment. The petitioner therefore contended that there was no failure to disclose fully and truly the material facts and no fresh tangible material which had not been available to the Assessing Officer during the original assessment.
The Revenue opposed the petition on the ground that M/s. Manibhadra Textile Company did not possess the creditworthiness to receive such substantial funds and that the amounts credited to its account had subsequently been withdrawn through self-cheques or other modes. It was submitted that the concern was not engaged in business activity and that the Investigation Wing’s information constituted relevant material available with the Assessing Officer. The Revenue also contended that the petitioner itself admitted having transactions with M/s. Manibhadra Textile Company and that questions concerning the sufficiency and correctness of the information could be examined during the subsequent stages of reassessment.
The High Court, however, found from the material before it that the petitioner had disclosed the transactions with M/s. Manibhadra Textile Company through invoices in the original scrutiny assessment. The petitioner had also explained in its objections that it regularly dealt with the concern and that the payment of Rs.95,26,354/- related to purchase of cotton. The invoices placed on record demonstrated the existence of business transactions between the petitioner and M/s. Manibhadra Textile Company, and the payment in question had already been subjected to scrutiny.
The Court consequently held that it could not be said that the petitioner had failed to disclose or had suppressed any material relating to these business transactions during the original assessment under Section 143(3). The reopening was therefore premised on a fishing and roving inquiry and amounted to a change of opinion. The Court found no valid reason to believe that income had escaped assessment because the ADIT (Investigation) report did not reveal any new tangible material that had escaped consideration during the original assessment. The mere fact that the proprietor of M/s. Manibhadra Textile Company subsequently withdrew amounts in cash was held insufficient to bring the petitioner within reassessment proceedings.
Accordingly, the Gujarat High Court held that the reassessment could not be sustained and allowed the writ petition. The notice dated 28.03.2019 issued under Section 148 of the Income Tax Act, 1961 was quashed and set aside.
FULL TEXT OF THE JUDGMENT/ORDER OF GUJARAT HIGH COURT
1. The present writ petition has been filed assailing the notice issued by the respondent under section 148 of the Income Tax Act, 1961 (for short “the Act”) dated 28.03.2019.
2. The petitioner filed original return of income of Assessment Year (AY) 2012-13 on 28.09.2012 disclosing income at Rs.20,15,440/-. Scrutiny was undertaken and the assessment order under section 143(3) of the Act was passed on 09.12.2014 determining total income at Rs.20,15,440/-. Thereafter, the respondent issued the impugned notice under section 148 of the Act dated 28.03.2019 reopening the assessment for the AY 2012-13. Reasons for reopening were supplied vide letter dated 02.05.2019. The assessee raised various objections on merits and requested the respondent to drop the reassessment proceedings vide letters dated 04.12.2019 and 06.12.2019. Thereafter, vide letter dated 11.12.2019 the respondent disposed of the objections.
3. Learned advocate Mr. Soparkar appearing for the petitioner has submitted that the respondent has not applied any independent mind of his and borrowed satisfaction entirely on the basis of information received from the Assistant Director of Income Tax (Investigation) (for short “the ADIT(Inv.)”) and the same is not permissible under the law. It is submitted that the information received from the Deputy Director of Income Tax (Investigation) (for short “the DDIT (Inv)”) can certainly raise suspicion but the same is required to be examined in light of the records available with the Assessing Officer and the same are required to be then evaluated to form a valid reason to believe that in income has escaped assessment. It is submitted that in the present case, the assessee has paid Rs.95,26,354/- to M/s. Manibhadra Textile Company, and there is no other evidence adduced to infer that the assessee could not have paid this money. It is submitted that there is not failure on the part of the assessee to truly and fully disclose all material facts. It is submitted that in the case of the assessee, there was an assessment framed originally under section 143(3) of the Act. It is submitted that the reasons are based on the information already in possession of the Assessing Officer and there is no fresh tangible material which was not available with the Assessing Officer originally.
4. Learned advocate Mr.Soparkar has further submitted that there is no escapement of income. He has submitted that the assessee has paid M/s.Manibhadra Textile Company for the purchase of cotton and thus, the assessee is having long business transactions with M/s.Manibhadra Textile Company and in such business relations, the payment has been made. Thus, it is urged that the present writ petition may be allowed.
5. Opposing the present writ petition and the submissions advanced by the learned advocate appearing for the petitioner, learned Senior Standing Counsel Mr.Patel appearing for the respondent has submitted that as far as failure to disclose fully and truly all material facts is concerned, as per the information M/s.Manibhadra Textile Company does not have any creditworthiness to receive huge funds, furthermore, the same funds have been withdrawn by self-cheque or any other mode. It is submitted that since M/s.Manibhadra Textile Company is not engaged in any business activity, it is not justified why the assessee has paid such huge amount to the said concern. He has further submitted that the assessee has made allegation that reopening of assessment is for making roving inquiry however, the Assessing Officer has relevant material i.e. information shared by DDIT (Inv.). Moreover, he has submitted that the assessee itself in its replies and objection has accepted that he has made transaction with M/s.Manibhadra Textile Company which is corroborative evidence itself. It is further submitted that as far as the sufficiency and correctness of the information and cause and justification is concerned, the same will be considered at further stages of assessment proceedings. In such circumstances, it is urged that the present writ petition may not be entertained.
6. We have heard the learned advocates appearing for the respective parties and also perused the documents, as pointed out by them.
7. The established facts from the pleadings are that the petitioner filed his return of income for the AY 2012-13 on 28.09.2012 disclosing income at Rs.20,15,440/-, which was subjected to scrutiny assessment and finally an order under Section 143(3) of the Act was passed on 09.12.2014, assessing the total income at Rs.20,15,440/-. However, thereafter, the impugned notice under Section 148 of the Act was issued on 28.03.2019, seeking reopening of the assessment. The reopening is premised on the investigation report of ADIT (Inv.), raising suspicion about the cash withdrawal done by the assessee of M/s.Manibhadra Textile Company i.e. proprietorship firm of Shri Bhavesh Sureshchandra Shah. It is alleged that on verification of the bank account statements of M/s.Manibhadra Textile Company, it has been noticed that it has received credits from three concerns including the petitioner, and thereafter, Shri Bhavesh Shah had withdrawn the amount through self-cheque and cash. Thus, it is alleged that the petitioner, who deposited an amount of Rs.95,26,354/- in the bank account of M/s.Manibhadra Textile Company, which is of high-value transaction, does not commensurate with the return of income.
8. It is not in dispute that the petitioner had disclosed the entire income and the transactions with M/s.Manibhadra Textile through invoices in the scrutiny assessment. The petitioner, in his objection to the notice, had categorically pointed out that it is dealing with M/s.Manibhadra Textile Company regularly, and the petitioner had paid Rs.95,26,354/- to M/s.Manibhadra Textile Company relating to purchase of cotton transactions. Thus, from the invoices which are placed on record, we find that the petitioner is having business transactions with M/s.Manibhadra Textile Company, and for such business relations, the payment has been made, which was already subjected to scrutiny.
9. Thus, it cannot be said that the petitioner has not disclosed or suppressed any material relating to the business transactions with M/s.Manibhadra Textile in the scrutiny assessment under Section 143(3) of the Act. Hence, it appears that reopening is premised on fishing and roving inquiry and is nothing but change of opinion. We find that there is no valid reason to believe that any income has escaped assessment, as ADIT(Inv.) does not reveal any new tangible material, which has escaped the assessment. There has been full disclosure of the income by the petitioners and the transaction with M/s.Manibhadra Textile Company, and mere withdrawal of amount in cash by its proprietor, is not sufficient ground to rope the petitioner in re-assessment proceedings.
10. Hence, the writ petition succeeds. The impugned notice issued by the respondent under section 148 of the Act dated 28.03.2019 is hereby quashed and set aside.
