Jivraj Tea Ltd. Vs ACIT (Gujarat High Court)
In the given case the writ applicant seeks to challenge the impugned notice of reopening dated 26th March 2018 issued under Section 148 of the Income Tax Act, 1961 [for short, ‘the Act, 1961’] for the assessment year 2011-12 beyond the four years.
In the overall view of the matter, HC hold that the impugned notice under Section 148 of the Act, 1961 is not sustainable in law because, the notice under section 148 of the Income tax Act, 1961 has been issued on 26.03.2018 in relation to Assessment Year 2011-12, which is clearly beyond the period of four years from the end of relevant Assessment Year. Further, Referring to the reasons recorded for reopening the assessment, it was pointed out that in the entire reasons, there is not even a whisper as regards any failure on the part of the petitioner to disclose truly and fully all material facts relevant for its assessment. It was submitted that therefore, the first proviso to section 148 of the Act would be attracted and the assumption of jurisdiction on the part of the Assessing Officer under section 147 of the Act is invalid. Reliance was placed upon the judgment and order dated 19.07.2016 passed by this Court in the petitioner’s own case in Special Civil Application No.4005 of 2016 wherein on identical facts, the Court had set aside the identical notice.
As we are allowing this writ application, the impugned notice will have to be quashed. In the result, this writ application succeeds and is hereby allowed.
FULL TEXT OF THE HIGH COURT ORDER /JUDGEMENT
1. Rule returnable forthwith. Ms. Kalpanak Raval, the learned standing counsel waives service of notice of rule for and on behalf of the Revenue.
2. By this writ application under Article 226 of the Constitution of India, the writ applicant has prayed for the following reliefs:
“a. A writ of certiorari or any other writ, order or direction in the nature of certiorari quashing the impugned notice dated 26.03.2018 issued under Section 148 of the Act for the assessment year 2011-12.
b. Pending the admission, hearing and final disposal of this petition, restrain the respondent from passing the order of re-assessment.
c. Pass any other order (s) as this Hon’ble Court may deem fit and more appropriate in order to grant interim relief to the petitioner.
d. Any other and further relief deemed just and proper be granted in the interest of justice.
e. To provide for the cost of this petition.”
3. Thus, it appears that the writ applicant seeks to challenge the impugned notice of reopening dated 26th March 2018 issued under Section 148 of the Income Tax Act, 1961 [for short, ‘the Act, 1961’] for the assessment year 2011-12 beyond the four years.
4. The writ applicant filed his return of income for A.Y. 2011-12 declaring gross total income at Rs.11,89,58,848/-.
5. The case was selected for scrutiny. The assessee replied to the specific queries raised by the Assessing Officer. The scrutiny assessment was completed under Section 143(3) vide order dated 30th March 2014 assessing the income at Rs,15,07,12,217/- after making disallowance of Rs.5,77,70,489/- on different counts.
6. It appears that the writ applicant being dissatisfied with the aforesaid addition preferred an appeal before the Commissioner of Income Tax (Appeals). The CIT(A) deleted the disallowance made by the Assessing Officer. The Revenue preferred appeal against the CIT(A)’s order before the Income Tax Appellate Tribunal. The Tribunal dismissed the appeal preferred by the Revenue.
7. Later, the impugned notice under Section 148 of the Act, 1961 came to be issued for reassessing the income. The reasons assigned for reopening are as under:
“In the present case, assessment u/s. 143(3) of the Act was completed on 30.03.2014 for A.Y.2011-12 by determining total income of Rs. 15,07,12,212/-. On perusal of records, following facts of concealment of income are observed.
It was notice that the assessee company had engaged in two lines of business i.e. trading in tea and generations of electricity which generate from windmill division. Tea business is subjected to normal taxation and power generation business is eligible for deduction. It was also seen that the assessee has also distributed the relevant manufacturing expenses such as machine insurance charge, machinery operating, maintenance & repair charges, and the transmission, wheeling and operating charges, between the respective line of business. As per law, the expenses which have direct nexus with any line of business should be debited to such respective business, where the indirect expenditure needs to be split between the different line of business.
However regarding the administrative expenses it was found after analysis that the assessee had debited the sum of Rs.3,57,75,237/-on this account of which only 4,71,843/- (only 1.3%) has been debited to wind mills division claiming deduction u/s. 80IA. This expense of Rs.4,71,843/- also includes a amount of Rs.4,29,273/- on account of legal & professional charges relating to Jodha wind mill division which was sold off. Hence, the balance amount of administrative expenses shown for all four windmill division is only abut Rs.40,000/-. It was also seen that the assessee company has not debited a single rupee spent on Directors Remuneration the establishment expenses of the head office like electricity, vehicles, rates and taxes, rent Telephone, stationery etc and staff expenses. No expenses had been debited to the windmill divisions at Jodha and Chitradurvga.
The assessee company debited only direct expenses to wind mill division, where all the common expenses had been debited to the tea division, thereby artificially pumping its income eligible for deduction u/s 80IA, leading lower returned income and consequently lower taxes.
Hence, the common expenses, in nature of administrative expenses need to be allocated between both theline of business ni order to arrive at true picture. Since one line of business is a trading concern (tea division) and other is manufacturing concern (general of electricity), the ratio of turnover cannot be a correct ratio owning in the difference in their basic character. Turnover of a trading concern can be high, without requirement of higher capital and efforts, but the profit percentage is low, as compare to manufacturing concern. Hence the allocation of common cost, owning to difference is character of both lines of business, the average of profit of ratio and the gross assets ratio.
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