Case Law Details
Gujarat Natural Resources Limited Vs ACIT (Gujarat High Court)
Gujarat High Court held that details relating to share application money from the four entities was supplied by the assessee during regular assessment and AO was satisfied with the genuineness of the same. Hence reopening the assessment doubting the same entries on the basis of change of opinion is unsustainable.
Facts- The challenge in this Special Civil Application filed under Article 226 of the Constitution is directed against notice dated 26.3.2018 issued by AO to the petitioner company u/s. 148 of the Income Tax Act, 1961 for A.Y. 2011-2012 seeking to re-open the assessment. It is stated in the notice that AO had reasons to believe that income chargeable to tax for the year under consideration had escaped assessment within the meaning of section 147 of the Income Tax Act, 1961. The further prayer is to set aside order dated 5.10.2018 passed by AO whereby the objections raised by the petitioner to the re-opening of the assessment came to be disposed of and rejected.
Conclusion- Held that the ground of receipt of share application money from the four entities alleged to be unexplained by AO to proceed to exercise powers of reassessment, was the very issue considered by AO by calling for the relevant information in that regard in course of regular assessment undertaken for the year under consideration. As the details from record indicated, the assessee had supplied all the relevant material in the nature of accounting entries, resolution passed, names of the allottees and their addresses and PAN numbers, which had satisfied AO at the relevant time about the genuineness of the entities and the transactions. There was not reason to doubt the same at the subsequent juncture by seeking further inquiry on the basis of changed opinion.
FULL TEXT OF THE JUDGMENT/ORDER OF GUJARAT HIGH COURT
Heard learned advocate Mr. Manish Shah for the petitioner and learned senior advocate Mr. M. R. Bhatt for M. R. Bhatt & Co. for the respondent, at length.
2. The challenge in this Special Civil Application filed under Article 226 of the Constitution is directed against notice dated 26.3.2018 issued by the Assessing Officer to the petitioner company under section 148 of the Income Tax Act, 1961 for the Assessment Year 2011-2012 seeking to re-open the assessment. It is stated in the notice that the Assessing Officer had reasons to believe that income chargeable to tax for the year under consideration had escaped assessment within the meaning of section 147 of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’). The further prayer is to set aside order dated 5.10.2018 passed by the Assessing Officer whereby the objections raised by the petitioner to the re-opening of the assessment came to be disposed of and rejected.
3. Noticing the attendant facts, the petitioner, a limited company, engaged in the business of trading in oil products, filed its return of income for the assessment year 2011-2012 on 30.09.2011 declaring total income of Rs. 5,02,820/-. The Assessing Officer issued notice under section 143(2) dated 2.8.2012 and thereafter noticed under section 142(1) dated 1.7.2013 placing certain questionnaires, to which the petitioner submitted reply furnishing details and information by its letter dated 10.7.2013. The assessment order under section 143(3) came to be passed on 28.2.2014.
3.1 It was thereafter that the petitioner received notice dated 26.3.2018 under section 148 of the Act. The petitioner filed its response and requested the Assessing Officer to supply reasons recorded for reopening of the assessment. The reasons were provided by letter dated 23.8.2018. The petitioner submitted its detailed objections by communication dated 26.9.2018. The Assessing Officer passed order disposing of the objections to reject the same on 5.10.2018.
3.2 In the communication dated 23.8.2018, whereby the reasons for re-opening were supplied to the petitioner, it was stated inter alia that the office of the Assessing Officer had received information from the investigating wing by letter dated 19.3.2018 that the petitioner company had received large funds to the tune of Rs. 2.37 crores from different persons and entities. It was stated that upon analysing the details received, it was found that the petitioner company had received share application money from total eight persons during the financial year 2010-2011 relevant to Assessment Year 2011-2012. It was further stated that out of eight persons, four persons lacked creditworthiness and their whereabouts were not found.
3.3 The details regarding the said four persons/entities were mentioned thus, (i) From Milan Grafitech Pvt. Ltd., the petitioner company had received Rs. 2,62,50,000/- towards share application money and though summons was issued, information was not furnished in that regard by the petitioner, (ii) similarly Rs. 52,50,000/- was the amount of share application money received by the petitioner from one Ardent Ventures Pvt. Ltd.. In this case, it was stated the summons was not served as the house was locked and the neighbors had no idea about the company and that there was no name plate of the company in the building, (iii) from one Shivance Esatae Pvt. Ltd. an amount of Rs. 1,31,25,000/- was stated to have been received towards the share application money. It was stated in this regard that creditworthiness of this entity was not found satisfactory from the return of income furnished by the petitioner in the year under consideration, (iv) an amount of Rs. 4,29,625/- received by the petitioner towards share application money from one Infinium Natural Resources Investment Pvt. Ltd., but the source of amount invested was required to be verified.
3.4 The Assessing Officer further stated that he searched in the assessment records from the various notices issued during the original assessment proceedings and the replies filed by the petitioner who was specifically asked to furnish copies of the share application forms of all the applicant, but no details in the above regard were furnished. It was recorded therefore that the petitioner had not fully and truly disclosed materiel facts in respect of the source of funds received, which according to the Assessment Officer was necessary for assessment for the year under consideration and thereby, it constituted the facts for the purpose of reopening of the assessment. It was stated that total amount of share application money Rs. 4,50,54,625/- had escaped assessment in the Assessment Year 2011-2012.
3.6 The petitioner filed its objections against the re-opening. In the communication raising objections to the re-opening, it was inter auia pointed out that notice under section 148 of the Act was issue beyond four years from the end of the relevant Assessment Year, that is 20112012. Therefore, the Proviso to section 147 would apply. It was submitted that there was no failure on the part of the petitioner in disclosing fully and truly all material facts necessary for the assessment when the original assessment took place in respect of the year under consideration. It was the case of the assessee that during the original assessment proceedings, the details relating to allotment of shares and other relevant information in that regard were made available to the Assessing Officer and the Assessing Officer acting upon the same passed the final order.
4. Assailing the impugned notice of reopening and the order, learned advocate for the petitioner made the following submissions,
(i) The issue with regard to allotment of share was explained in course of original assessment proceedings. The petitioner had supplied all the details called for by the Assessing Officer, and the assessment order dated 28.2.2014 was passed. The Assessing Officer had been acting on the basis of change of opinion only.
(ii) The reopening of the assessment was initiated after the scrutiny assessment section 143(3) of the Act, which was over prior to four years. In another words, the reassessment was proposed beyond four years, which cast burden on the Assessing Officer to prove that there was omission on part of the petitioner to disclose fully and truly all material facts necessary for assessment.
(iii) The notice for reassessment was in the nature of fishing inquiry on the basis of the information from the investigation wing. The Assessing Officer himself for the reasons recorded stated that “source of amount invested are required to be verified”. Therefore, he wanted to make a roving inquiry.
(iv) While total amount of Rs. 7 crores received from the companies in lieu of allotment of shares which were later termed as bogus companies, part of the amount was received in the Assessment Year 2010-2011 and the remaining was received in the Assessment Year 2011-2012, that is in the year under consideration. Therefore, the Assessing Officer treated the companies to be creditworthy in the previous assessment year, but changed his stance in respect of year under consideration to reopen of the assessment on such misconceived basis.
(v) The proposed move to reopen the assessment was based on mere change of opinion which was not permissible in law.
(vi) The re-opening sought to be carried out was merely on verification basis to all the facts which were already placed and considered by the Assessing Officer.
(vii) The decision of the Supreme Court in Commissioner of Income Tax vs. Kelvinator of India Ltd. [(2010) 320 ATR 561 O(SC)] was pressed into service to submit that concept of change of opinion was in-built test to check whether power exercised for reassessment was properly exercised or was abuse of powers. The decision of the Division Bench of this court in Orient News Prints Ltd. vs. Deputy Commissioner of Income Tax, Circle 3(1) [(2017) 393 ITR 527 (Gujarat) was pressed into service to further the submissions about impermisibility of fishing inquiry
4.1 On the other hand, learned senior advocate for the respondent relied on the contents of the affidavit-in-reply filed on behalf of the respondent to canvass the contentions on that basis. It was submitted that information was received from the investigating wing of the department on 19.3.2018 that the petitioner assessee company had received share application money form eight persons/entities out of which four parties named (i) Milan Grafitech Pvt. Ltd., (ii) Ardent Ventures Pvt. Ltd., (iii) Shivance Esatae Pvt. Ltd. and (iv) Infinium Natural Resources Investment Pvt. Ltd. had no creditworthiness and their whereabouts were not known. It was submitted that the assessing officer based its findings in view of the said information available and formed reasons to believe that income chargeable to tax to the extent of Rs. 4,50,54,625/- in the nature of share application money received had escaped assessment for the reason that the petitioner had not disclosed fully and truly all facts necessary for assessment at the relevant time. According to the case of the respondent department, there was a live linkage between formation of belief, and that no details were available with regard to the creditworthiness and genuineness of transactions.
4.2 Learned senior advocate for the respondent next submitted that the issue under consideration was never examined by the Assessing Officer in course of the scrutiny assessment. It was harped that the Assessing Officer did not form any opinion on the issue under consideration. He submitted that concept of change of opinion could be applied only when the Assessing Officer had raised the queries and the same was answered by the assessee satisfactorily. It was submitted that on the contrary the assessee had failed to supply the share application forms of all the applicants and the details in the nature of names etc.. were not furnished. It was further submitted that even otherwise as per explanation-1 to the Proviso of section 147 of the Act, mere production of Books of Accounts or other documents from which material evidence could have been discovered by the Assessing Officer, would not necessarily amount to disclosure within the meaning of the Proviso.
4.3 Learned senior advocate for the respondent relied on the decision of the supreme court in Phool Chand Bajranglal vs. Income Tax Officers (1993) 4 SCC 77 to submit that the loan transaction was found to be a bogus transaction. The transaction was disclosed at the time of original assessment proceedings, however, it was held that the discloser could not be said to be true and full and the reopening of the assessment was permissible. Yet another decision of this court in Kottex Industries (P.) Ltd. vs. Assistant Commissioner of Income Tax, circle 1(1)(2) [437 ITR 211 (Gujarat) was pressed into service in which the decision of the supreme court in Phool Chand Bajranglal (supra) was relied on. In Kottex Industries (P.) Ltd. (supra), the Assessing Officer proceeded on the ground that the assessee had received share application money from the shell entities and the said assessee failed to establish that the said entities had been carrying on any actual business, under such circumstances, reopening was held to be justified.
5. It would be relevant to notice the information collected by the Assessing Officer in course of the regular assessment for the year under consideration which culminated into order dated 28.2.2014 under section 143(3) of the Act. In respect of the assessment conducted for the assessment year 2011-2012, notice dated 1.7.2013 was issued by the income tax authorities, in which the petitioner company was asked to furnish the complete details. The balance sheet reflected additional subscribed capital of Rs. 14,28,52,850/-. In that light the assessee was called upon to furnish the details in that regard including the names and addresses of the persons, their PAN number, number of shares applied for, face value of the shares, premium if any, total amount, mode of payment received of all share holders.
5.1 In response to the aforesaid notice dated 1.7.2013, the queries raised were answered by the petitioner by its communication dated 7.10.2013, the relevant part thereof is extracted herein,
“2. Shareholding Pattern : We are submitting shareholding pattern as submitted to Stock Exchange as required under Clause 35 of Listing Agreement as on 31.03.2011 since this is listed company, number of shareholders are many and therefore it is not possible and rather not practicable to submit Ledger account of all the shareholders.
3. Details of Allottment : Company had allotted 8571000 equity shares of Rs. 10/- each on conversion of share warrants and 5714285 equity shares of Rs. 10/- each to holder of optionally fully convertiblwe deobentures on conversion of such debentures aggregating to 14285285 euqity sahres during the year and their detials enclosed as an Annexure-I.
All equity shares allotted during the year are issued at premium of Rs. 25/- per share.
4. Share Premium : The company has received Share Premium of 25/- per share on allotment of 14285285 equaty shares aggregating to Rs. 357132125/- during the year and there is opening balance of of Rs. 76201320/- in share premium account thus Closing balance of share Premium comes to Rs. 433333445/-. Issue price of share warrants and optionally convertible debentures was determined as per SEBI Guidelines on Preferential basis. We are submitting board resolution, members resolution and certificate regarding pricing for your perusal”
5.1.1 In the list of allottees submitted with the said reply, names of the said entities (i) Milan Grafitech Pvt. Ltd., (ii) Ardent Ventures Pvt. Ltd., (iii) Shivance Esatae Pvt. Ltd. and (iv) Infinium Natural Resources Investment Pvt. Ltd. were mentioned alongwith other allottees of share together with details of their addresses, PAN number, number of shares allotted and the amount received. It was also shown that the amount in case of the said four entities were received by cheque or through mode of RTGS.
5.1.2 As averred by the petitioner in the petition, as also the record of the petition reveals, the petitioner furnished to the Assessing Officer at the relevant time the details which included the resolution of the board meeting held on 15th February, 2011 regarding allotment of shares to the Optionally Fully Convertible Debenture holders as well as Warrant Holders. Also made available was the certificate regarding pricing of the allotment for shares made during year under consideration. The other and further details furnished pursuant to the requirements of the Assessing Officer were the extract of minutes of Extraordinary General Meeting of the members held on 18th August, 2009 which considered the the issue of shares to eight companies, which included all the aforementioned four entities. The copy of the share premium account reflected the amount towards Preferential Share Warrant, and towards Optionally Fully Convertible Debentures.
5.2 Thus, the assessee had furnished all material information truly and fully. The assessment was sought to be reopened after four years. Based on all the above information made available to the Assessing Officer, the order of assessment for the year under consideration was passed on 28.2.2014 wherein in para No.2, it was recorded thus, which indeed reflected application of mind by the Assessing Officer to the material produced by the assessee in course of the assessment,
“In response to the notices issued, Shri Pankaj K. Shah, C.A. attended on bhealf of the assesswee from time to time and furnished the details/evidences as called for which are perused and placed on record. The case was discussed with the A. R. Present.”
5.3 Now, in view of the facts emanating regarding the information collected by the Assessing Officer and supplied by the petitioner-assessee in course of the regular assessment, the case turns out to be one of the clear change of opinion by the Assessing Officer, for, as highlighted in the preceeding paragraphs, the details about the share application money, the receipt thereof, the details of the parties were called for by the Assessing Officer pursuant to the notice issued in course of the regular assessment and all the information detailed above, were supplied by the assessee.
5.4 It is trite principle that powers under section 147 read with section 148 of the Act to reopen the concluded assessment cannot be exercised merely because the Assessing Officer develops a change of opinion on his part. When the issue and aspect on the basis of which the reassessment was sought to be acted upon, were considered in course of the regular assessment and the details were supplied by the assessee in that regard, the entire onus would shift on the department to examine the details in light of the income tax law to be applied to ensure that those details were properly offered for tax. When such material was considered and the assessment was concluded resulting into assessment order, reopening was not permissible in law on the basis of similar or same information. There has to be tangible material becoming specifically available with the Assessing Officer to justify exercise of powers to reopen, of which there was a total dearth in the present case.
5.5 In Commissioner of Income Tax vs. Kelvinator of India Ltd. [(2010) 320 ATR 561 O(SC)], the supreme court observed that concept of change of opinion was an inbuilt test and it did not stand obliterated after substitution of section 147 in the Act by the Direct Tax Laws (Amendment) Act, 1987 and 1989. The Apex Court stated,
“…prior to Direct Tax Laws (Amendment) Act, 1987, re-opening could be done under above two conditions and fulfillment of the said conditions alone conferred jurisdiction on the Assessing Officer to make a back assessment, but in section 147 of the Act with effect from 1st April, 1989, they are given a go-by and only one condition has remained, viz., that where the Assessing Officer has reason to believe that income has escaped assessment, confers jurisdiction to re-open the assessment. Therefore, post-1st April, 1989, power to re-open is much wider. However, one needs to give a schematic interpretation to the words “reason to believe” failing which, we are afraid, section 147 would give arbitrary powers to the Assessing Officer to re-open assessments on the basis of “mere change of opinion”, which cannot be per se reason to re-open. We must also keep in mind the conceptual difference between power to review and power to re-assess. The Assessing Officer has no power to review; he has the power to re-assess. But re-assessment has to be based on fulfillment of certain pre-condition and if the concept of “change of opinion” is removed, as contended on behalf of the Department, then, in the garb of re-opening the assessment, review would take place. One must treat the concept of “change of opinion” as an in-built test to check abuse of power by the Assessing Officer.”
5.5.1 This court in Garden Silk Mills Ltd. vs. CIT (No.2) [(1996) 222 ITR 68 (Guj.)] reiterated the view that powers to reopen the assessment could not have the basis of the same facts and that change of opinion on the part of the Assessing Officer would not provide a ground to reopen the concluded assessment.
5.5.2 In the Proviso to section 147 the phrase “material facts” occurs, which connotes primary facts necessary for assessment in relation to the year of assessment. The said expression “material facts” was considered by the Apex Court in the context of section 34(1) (a) of the Income Tax Act, 1922 in Associated Stone Industries (Kotah) Ltd. vs. CIT [(1997) 224 ITR 560 (SC)].
5.5.3 The decision of the supreme court in Associated Stone Industries (Kotah) Ltd. (supra) was relied on by this court in Kalpataru Sthapatya Pvt. Ltd. vs. Income Tax Officer Ward being Special Civil Appreciation No. 16872 of 2011 decided on 28.09.2012 (2012 AIJEL_HC 228944), in which it was observed thus in para 7,
“The nature of duty on the part of the assessee to disclose the necessary facts, and the Assessing Officer’s enjoinment towards the facts disclosed are thus well settled in law. Applying the primary facts disclosed, the assessing officer may draw inferences. He may deduce certain other facts from the facts disclosed. He may even call for certain additional facts as may be required by him for the purpose of his assessment for the assessee. The task of the assessing officer is to apply those facts in accordance with legal provisions of assessment. The petitioner was not expected to disclose the facts in a manner so as to indicate how those facts will fit in for his claim. It really explain the process of assessment to be undertaken by the Assessing Officer on the basis of facts before him.”
5.5.4 Equally the principle applicable is that the purported exercise of powers to reopen the concluded assessment, the Assessing Officer is not permitted to just proceed to re-verify the facts or to undertake a fishing inquiry into the issues examined and concluded in the original assessment. Such kind of exercise of powers would partake abuse of powers to reopen the assessment
5.5.5 This proposition is fortified from the decision of this court in Orient News Prints Ltd. vs. Deputy Commissioner of Income Tax, Circle 3(1) [(2017) 393 ITR 527 (Gujarat). In that case, in order to prove genuineness of share transactions, the assessee had produced relevant facts such as names, address and PAN numbers of the applicants and it was held that the duty was thereupon cast upon the Assessing Officer to obtain separate conformation from the concerned parties, if required. The Assessing Officer having failed to do so, it was held that the reopening of the assessment could not have been adverted to. This judgment came to be confirmed by the supreme court in Deputy Commissioner of Income Tax, Circle 3(1) vs. Orient News Prints Ltd. [(2018) 100 taxmann.com 69 (SC)].
5.5.6 The decisive facts in Phool Chand Bajrangla (supra), are absent in the present case, which were that the asseessee was found to have been willfully made a false and untrue statement at the time of original assessment. It was observed that when the falsity came to the notice to the Assessing Officer, it was not permissible for the assessee to turn around to bind the hands of the Assessing Officer not to reopen the case. Such is not the case here. Similarly in, Kottex Industries (P.) Ltd. (supra) the assessee companies were actually found to be non-existent companies. There is no such finding or material available in the present case.
6. Recollecting the relevant facts and aspects of this case as highlighted above, the ground of receipt of share application money from the four entities alleged to be unexplained by the Assessing Officer to proceed to exercise powers of reassessment, was the very issue considered by the Assessing Officer by calling for the relevant information in that regard in course of regular assessment undertaken for the year under consideration. As the details from record indicated, the assessee had supplied all the relevant material in the nature of accounting entries, resolution passed, names of the allottees and their addresses and PAN numbers, which had satisfied the Assessing Officer at the relevant time about the genuineness of the entities and the transactions. There was not reason to doubt the same at the subsequent juncture by seeking further inquiry on the basis of changed opinion.
6.1 The exercise undertaken seeking to reopen the assessment and issue of notice under section 148 of the Act and the decision to reject the objections of the assessee, both render unacceptable in law, liable to be set aside as illegal. As a result of above reasons and discussions, the present petition deserves to be allowed.
7. The impugned notice dated 26.3.2018 issued under section 148 of the Income Tax Act, 1961 seeking to reopen the assessment in respect of the assessment year 2011-2012 is hereby set aside. The order of the Assessing Officer dated 5.10.2018 disposing of and rejecting the objections of the assessee to the reassessment also stands set aside. The petition is allowed. Rule is made absolute.
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