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 22.03.2019 issued by the Income Tax Officer, Ward 2(1)(3) under Section 148 of the Income-tax Act, 1961 for Assessment Year 2014-15.
The petitioner had filed its original return of income on 19.11.2014 declaring income of Rs.26,24,120/-. The return was subjected to scrutiny and an assessment order under Section 143(3) was passed on 30.09.2016 determining total income at Rs.26,24,120/-. Subsequently, the respondent issued the impugned notice under Section 148 on 22.03.2019 seeking to reopen the assessment. The reasons for reopening were supplied on 02.05.2019. The assessee raised objections and requested that the reassessment proceedings be dropped, following which the objections were disposed of by the respondent on 11.12.2019.
Before the High Court, the petitioner contended that the Assessing Officer had not independently applied his mind and had merely borrowed satisfaction from information received from the Assistant Director of Income Tax (Investigation). According to the petitioner, information received from the Investigation Wing could raise suspicion but had to be examined against the records available with the Assessing Officer and evaluated before a valid reason to believe that income had escaped assessment could be formed.
The petitioner further submitted that it had not made any payment to M/s.Manibhadra Textile Company during AY 2014-15. According to the petitioner, the amount of Rs.14,14,883/- referred to in the reasons for reopening represented the opening balance in the ledger of M/s.Manibhadra Textile Company. It was therefore contended that there was no failure to truly and fully disclose material facts and that the reasons were based on information already available to the Assessing Officer, without any fresh tangible material.
The petitioner also submitted that there was no escapement of income. It stated that payments to M/s.Manibhadra Textile Company for purchase of cotton had been made in an earlier year and that the parties had long-standing business transactions. In the absence of any payment to M/s.Manibhadra Textile Company during the year under consideration, the petitioner urged that the writ petition be allowed.
The Revenue opposed the petition. It submitted that, according to the information available, M/s.Manibhadra Textile Company did not have the creditworthiness to receive substantial funds and that the funds were subsequently withdrawn through self-cheques or other modes. It was further submitted that M/s.Manibhadra Textile Company was not engaged in any business activity and that the assessee’s payment of such a substantial amount to the concern was therefore not justified. The Revenue also contended that the Assessing Officer possessed relevant material in the form of information shared by the DDIT (Investigation). It submitted that the assessee itself had accepted in its replies and objections that it had transacted with M/s.Manibhadra Textile Company, which, according to the Revenue, constituted corroborative evidence. The Revenue further submitted that the sufficiency and correctness of the information and the cause and justification would be considered at subsequent stages of assessment proceedings.
After hearing the parties and perusing the documents, the High Court recorded the established facts concerning the original scrutiny assessment and the subsequent reopening. The Court noted that the reopening was premised on the investigation report of the ADIT (Investigation), which raised suspicion regarding cash withdrawals from the account of M/s.Manibhadra Textile Company, a proprietorship firm of Shri Bhavesh Sureshchandra Shah.
The Court noted the allegation that M/s.Manibhadra Textile Company had received credits from three concerns, including the petitioner, after which Shri Bhavesh Shah had withdrawn amounts through self-cheque and cash. The petitioner was alleged to have deposited Rs.14,14,883/- in the bank account of M/s.Manibhadra Textile Company, which was treated as a high-value transaction not commensurate with the petitioner’s returned income.
However, the Court found that the petitioner had categorically pointed out in its objection to the notice that it had not made any payment to M/s.Manibhadra Textile Company during the year under consideration and that the amount of Rs.14,14,883/- represented the opening balance. Significantly, the Court recorded that this fact was not disputed by the respondent.
On that basis, the High Court held that the reopening was based on incorrect facts and was therefore not permissible in law. Since there had been no payment to M/s.Manibhadra Textile Company during the relevant year, the Court held that there arose no question of any escapement of income.
Consequently, the writ petition succeeded and the notice dated 22.03.2019 issued under Section 148 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 22.03.2019.
2. The petitioner filed original return of income of Assessment Year (for short ‘AY’) 2014-15 on 19.11.2014 disclosing income at Rs.26,24,120/-. Scrutiny was undertaken and the assessment order under Section 143(3) of the Act was passed on 30.09.2016 determining total income at Rs.26,24,120/-. Thereafter, the respondent issued the impugned notice under Section 148 of the Act dated 22.03.2019 reopening the assessment for the AY 2014-15. 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 letter dated 04.12.2019. Thereafter, vide letter dated 11.12.2019 the respondent disposed of the objections.
3. Learned advocate Mr.B.S. 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 not paid any money to M/s.Manibhadra Textile Company during the year under consideration (AY 2014-15). The amount of Rs.14,14,883/- as referred in the reasons for reopening represents the opening balance in the ledger of M/s.Manibhadra Textile Company. 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 had paid M/s.Manibhadra Textile Company for the purchase of cotton in earlier year and thus, the assessee is having long business transactions with M/s.Manibhadra Textile Company and in such business relations, the payment had been made in earlier year. Thus, in absence of any payment at all to M/s.Manibhadra Textile Company during the year under consideration, 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.Dev 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 2014-15 on 19.11.2014 disclosing income at Rs.26,24,120/-, which was subjected to scrutiny assessment and finally an order under Section 143(3) of the Act was passed on 30.09.2016, assessing the total income at Rs.26,24,120/-. However, thereafter, the impugned notice under Section 148 of the Act was issued on 22.03.2019, 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.14,14,883/- 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. The petitioner, in his objection to the notice had categorically pointed out that it has not made any payment to M/s.Manibhadra Textile Company during the year under consideration and the amount of Rs.14,14,883/- represents the opening balance. Such fact is not disputed by the respondent. Thus, the reopening is based on incorrect facts, which is not permissible in the eyes of law. In absence of any payment to M/s.Manibhadra Textile Company, there arises no question of any escapement of income.
9. Hence, the writ petition succeeds. The impugned notice issued by the respondent under Section 148 of the Act dated 22.03.2019 is hereby quashed and set aside.
