ITO Vs Kayathwal Estate Private Limited (Supreme Court of India)
The Supreme Court dismissed the Special Leave Petition filed by the Revenue against the Gujarat High Court’s decision quashing the reassessment proceedings and notice issued under Section 148 of the Income Tax Act, 1961 in the case of Kayathwal Estate Pvt. Ltd. The Supreme Court held that, during the scrutiny assessment under Section 143(3), the Assessing Officer had specifically asked for details regarding the unsecured loan taken by the assessee, the assessee had furnished those details, and the Assessing Officer thereafter passed the assessment order. In these circumstances, the Supreme Court held that it could not be said that there was any suppression on the part of the assessee in not disclosing true and correct facts. The Supreme Court also noted that the reassessment proceedings had been initiated beyond four years and held that the High Court was absolutely justified in quashing the reassessment proceedings and notice under Section 148.
Read HC Judgment in this case: Gujarat HC Quashes Reopening Beyond Four Years Without Failure to Disclose Material Facts
Factual Background
Kayathwal Estate Pvt. Ltd., a Private Limited Company, filed its return of income for A.Y. 2012-13 on 24.09.2012. The return was initially processed under Section 143(1) and the case was thereafter selected for scrutiny assessment.
During the scrutiny proceedings, the Assessing Officer asked for details regarding the unsecured loan taken by the assessee during the year under consideration. The assessee furnished the details as called for. After perusing the details so furnished, the Assessing Officer passed an order dated 08.10.2014 under Section 143(3) of the Act by making addition and finally determining the income at Rs.3,62,200/-.
Reopening of Assessment
The Assessing Officer reopened the assessment under Section 147 by issuing the impugned notice dated 28.03.2019 under Section 148 of the Act.
The assessee filed its return of income on 16.04.2019 in response to the notice and, by letter dated 17.04.2019, requested the Revenue to supply a copy of the reasons for reopening. The reasons were supplied on 16.05.2019.
The recorded reasons referred to information received from the Office of the DGIT (Investigation), Mumbai concerning search and seizure proceedings carried out by the Investigation Wing, Mumbai, in the case of Shri Pravin Kumar Jain and his group on 01.10.2013. The reasons stated that the investigation had resulted in evidence and findings concerning accommodation entries, including bogus unsecured loans.
The reasons specifically stated that the assessee had taken an accommodation entry of unsecured loan of Rs.15,00,000/- from M/s Ramdev Share & Securities Pvt Limited, described therein as a paper concern managed and controlled by Shri Pravin Kumar Jain. The reasons further referred to interest expenditure of Rs.1,03,932/- and stated that income to the extent of Rs.16,03,932/- had escaped assessment.
Challenge before the Gujarat High Court
The assessee challenged the reopening by filing a writ application under Article 226 of the Constitution of India.
The assessee contended that the notice dated 28.03.2019 for A.Y. 2012-13 had been issued beyond four years from the end of the relevant year and that, in the absence of failure to disclose fully and truly all material facts, the assumption of jurisdiction under Section 147 was invalid.
It was specifically submitted that, during the original assessment proceedings, the Assessing Officer had called for various details, including details pertaining to unsecured loans, and the assessee had furnished those details by letter dated 15.04.2014. It was further submitted that the Assessing Officer had considered the material and did not make any addition in respect of the unsecured loan received from M/s Ramdev Shares and Securities Pvt. Ltd.
The assessee also contended that the information relied upon by the Revenue could not be regarded as fresh tangible material because the search in the case of Shri Pravin Jain had taken place on 01.10.2013, before the scrutiny assessment was concluded.
It was further submitted that reopening the assessment on the same facts amounted to a change of opinion and that the Assessing Officer had merely relied upon information received from the Investigation Wing without independently applying his mind.
Revenue’s Stand before the High Court
The Revenue submitted that the assessee had not disclosed true and correct details concerning the unsecured loan.
It was contended that the information received from the Department was not available to the Assessing Officer at the time of the original assessment and constituted tangible material. The Revenue further submitted that the transaction with M/s Ramdev Shares and Securities Pvt. Ltd. was an accommodation entry provided by a paper concern and that the amount of Rs.15 lakhs and interest expenses of Rs.1,03,932/- were liable to tax as escaped assessment.
Gujarat High Court’s Reasoning and Ruling
The Gujarat High Court considered the statutory provisions governing reassessment and, in particular, the first proviso to Section 147.
The Court observed that the assessee had disclosed the loan transactions in its books of accounts and return of income. During the scrutiny assessment proceedings, the assessee had furnished all the details called for, including bank statements of the parties from whom the loan was taken.
The Court noted that the scrutiny assessment was concluded on 08.10.2014, whereas the search action in the case of Mr. Pravinkumar Jain had been carried out on 01.10.2013. The reasons recorded did not mention the date on which the information was received by the Department.
On this basis, the High Court held that the information mentioned in the reasons recorded could not be termed tangible material because, at the time of the scrutiny assessment, it was already available with the Department.
The High Court further noted that the assessee had furnished details relating to the loan transactions by letters dated 15.04.2014 and 23.05.2014, along with acknowledgements of returns of income and bank statements of the parties from whom the loan was taken. Despite disclosure of the materials, the Assessing Officer did not make any addition in respect of the transaction.
The High Court held that a completed assessment could not be reopened unless the Assessing Officer received fresh tangible material subsequent to the framing of the assessment. It concluded that the information relied upon was not tangible material and that the attempt to reopen the assessment was a change of opinion based on the same facts.
Four-Year Limitation and Disclosure of Material Facts
The High Court found that the reopening was admittedly beyond four years from the end of the relevant assessment year.
It held that the assessee had disclosed fully and truly the material facts concerning the loan transaction as well as the interest paid on the loan. The Court also noted that the loan was paid by the assessee on 21.08.2014 with interest after deducting TDS thereon.
The High Court therefore held that the conditions precedent for exercise of power under Section 147 after expiry of four years were not satisfied. It concluded that assumption of jurisdiction by the Assessing Officer beyond four years was invalid and without jurisdiction.
Consequently, the impugned notice dated 28.03.2019 was quashed and set aside and the writ application was allowed.
Challenge before the Supreme Court
The Revenue challenged the Gujarat High Court’s decision before the Supreme Court.
The Supreme Court judgment/order records that it heard Shri Balbir Singh, learned ASG, and considered the facts and circumstances of the case, particularly the position prevailing at the time of the scrutiny assessment under Section 143(3).
Principal Consideration before the Supreme Court
The Supreme Court specifically considered that, at the time of scrutiny assessment under Section 143(3), the Assessing Officer had asked for details regarding the unsecured loan taken by the assessee.
The assessee had furnished the details as asked for, following which the Assessing Officer, after perusing those details, passed an order under Section 143(3) of the Act.
Supreme Court Reasoning
The Supreme Court held that, in these circumstances, it could not be said that there was any suppression on the part of the assessee in not disclosing true and correct facts.
The Supreme Court further noted that the reassessment proceedings had been initiated beyond the period of four years.
In these circumstances, the Supreme Court held that the Gujarat High Court was absolutely justified in quashing the reassessment proceedings and the notice under Section 148 of the Income Tax Act.
Final Ruling
The Supreme Court held that no interference was called for in exercise of powers under Article 136 of the Constitution of India.
Accordingly, the Special Leave Petition was dismissed.
Pending application(s), if any, were directed to stand disposed of.
Effect of the Supreme Court Decision on the Underlying Judgment/Order
The Supreme Court’s dismissal of the Special Leave Petition left the Gujarat High Court’s decision undisturbed.
The Gujarat High Court’s quashing of the reassessment proceedings and notice dated 28.03.2019 issued under Section 148 therefore remained in effect.
The Supreme Court’s stated reason for declining interference was that the Assessing Officer had specifically sought details regarding the unsecured loan during the scrutiny assessment, the assessee had furnished the details, and therefore there could be no suppression on the part of the assessee in not disclosing true and correct facts. The Supreme Court also expressly noted that the reassessment proceedings had been initiated beyond four years.
FULL TEXT OF THE SUPREME COURT JUDGMENT/ORDER
Having heard Shri Balbir Singh, learned ASG and in the facts and circumstances of the case more particularly at the time of Scrutiny Assessment under Section 143(3), the Assessing Officer had asked for the details regarding the unsecured loan taken by the Assessee during the year under consideration and the Assessee furnished the details as asked for and thereafter, after perusing the details so furnished by the Assessee, the Assessing Officer passed an order under Section 143(3) of the Act. Therefore, it cannot be said that there was any suppression on the part of the Assessee in not disclosing true an correct facts. It is required to be noted that even the re-assessment proceeding were initiated beyond the period of four years. Under the circumstances, the High Court is absolutely justified in quashing the re-assessment proceedings and the notice under Section 148 of the Income Tax Act. No interference of this Court is called for in exercise of powers under Article 136 of the Constitution of India.
With this, the Special Leave petition stands dismissed. of.
Pending application(s), if any, shall stand disposed of.
