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2016 DIGILAW 858 (GUJ)

F. Studio Fashion Pvt. Ltd. v. Income Tax Officer

2016-04-19

G.R.UDHWANI, HARSHA DEVANI

body2016
JUDGMENT : Harsha Devani, J. 1. Rule. Mr. Sudhir Mehta, learned Senior Standing Counsel waives service of notice of rule on behalf of the respondent. 2. Having regard to the controversy involved in the present petition, which lies in a very narrow compass and with the consent of the learned counsel for the respective parties, the matter was taken up for final hearing today. 3. This petition under Article 226 of the Constitution of India is directed against the notice dated 24.03.2015 issued by the respondent under section 148 of the Income Tax Act, 1961 (hereinafter referred to as "the Act") whereby, he seeks to reopen the assessment of the petitioner for assessment year 2010-11. 4. The facts as appearing from the petition are that petitioner, a company, is engaged in the business of trading in dress material. The petitioner filed its return of income for assessment year 2010-11 on 14.10.2010, declaring total income at Rs. 10,33,540/-, which was processed under section 143(1) of the Act. The case was later on taken up for scrutiny and assessment came to be framed under section 143(3) of the Act whereby the total income of the petitioner was assessed at Rs. 12,06,671/-. Thereafter, impugned notice dated 24.03.2015 came to be issued under section 148 of the Act seeking to reopen the assessment of the petitioner for assessment year 2010-11. In response thereto, the petitioner asked the respondent to furnish the reasons recorded for reopening the assessment, which came to be duly furnished to the petitioner. Pursuant thereto, the petitioner filed its objections to the reasons recorded, which, however, came to be disposed of by a letter dated 24.07.2015. Since certain further points came to the knowledge of the petitioner as regards certain technicalities pertaining to the reopening, further objections came to be raised vide letter dated 12.08.2015. The petitioner also requested for certified copies of the order sheets of assessment for assessment year 2010-11. The petitioner also filed further letters raising objections against reopening. Ultimately, having been left with no other alternative, the petitioner has filed the present petition. 5. Mr. The petitioner also requested for certified copies of the order sheets of assessment for assessment year 2010-11. The petitioner also filed further letters raising objections against reopening. Ultimately, having been left with no other alternative, the petitioner has filed the present petition. 5. Mr. Tushar Hemani, learned advocate for the petitioner drew the attention of the court to the reasons recorded for reopening the assessment to point out that the assessment is sought to be reopened on the ground that during the assessment proceedings for assessment year 2012-13, the Assessing Officer had found that M/s. Glamour Sales Pvt. Ltd., from which the petitioner had claimed to have received share capital with premium, was not available at the given address and therefore, the identity and creditworthiness of that company and genuineness of the transaction could not be established. It was submitted that during the course of assessment proceedings, the then Assessing Officer found that the petitioner had received share application money from M/s. Glamour Sales Pvt. Ltd., hence, by a letter dated 26.11.2012, the Assessing Officer called for the information from M/s. Glamour Sales Pvt. Ltd. under section 133(6) of the Act in respect of the transactions entered into with the petitioner during the year under consideration. In response thereto, M/s. Glamour Sales Pvt. Ltd. duly furnished its reply dated 05.12.2012 wherein, it was categorically mentioned that it had applied for shares of the petitioner together with various annexures, viz., ledger copy of the petitioner, extract of bank statement, PAN, income tax return, trading and balance sheet etc. It was submitted that after considering the details and the explanation furnished by the petitioner, the assessment came to be framed under section 143(3) of the Act assessing the total income of the petitioner at Rs. 12,06,671/- without making any addition in respect of the share application money received from M/s. Glamour Sales Pvt. Ltd. 5.1 It was further submitted that in relation to assessment proceedings for assessment year 2012-13, the respondent issued a letter dated 05.02.2015, once again calling for information from M/s. Glamour Sales Pvt. Ltd. under section 133(6) in respect of the investment in shares in the petitioner company, which was duly served on M/s. Glamour Sales Pvt. Ltd. at the given address. That M/s. Glamour Sales Pvt. Ltd. vide letter dated 24.02.2015 furnished its PAN, balance sheet, income tax acknowledgment and income tax returns for assessment years 2011-12 and 2012-13 as well as the copies of the bank statement for financial year 2011-12 showing the transaction with the petitioner and bank book, as desired by the then Assessing Officer. It was submitted that the petitioner in response to the show cause notice dated 19.02.2015 had brought to the notice of the respondent the fact that M/s. Glamour Sales Pvt. Ltd. had furnished the requisite details to the respondent by placing on record postal receipt evidencing the fact as to furnishing of information by M/s. Glamour Sales Pvt. Ltd. to the respondent. It was submitted that in the light of the reply furnished by M/s. Glamour Sales Pvt. Ltd. and the petitioner, no addition was made in assessment year 2012-13 in respect of the share application money received by the petitioner from the said party. However, subsequently by the impugned notice, the assessment of the petitioner is sought to be reopened. It was submitted that in the assessment proceedings under section 143(3) of the Act, the Assessing Officer had looked into the share application money received by the petitioner from M/s. Glamour Sales Pvt. Ltd. and had examined the issue at length, hence, the reopening of the assessment is nothing but a change of opinion. 5.2 Referring to the order rejecting the objections filed by the petitioner, it was pointed out that the Assessing Officer has travelled much beyond the reasons recorded while rejecting the application made by the petitioner objecting to the reopening. Referring to the said order, it was submitted that it is nowhere stated therein that in the original proceedings, this issue was not gone into. It was pointed out that on the contrary, he has recorded that as no conscious consideration of the material is made and a mistake is committed, it would not create an embargo or ban on the competent authority to exercise powers under the amended section 147. It was pointed out that on the contrary, he has recorded that as no conscious consideration of the material is made and a mistake is committed, it would not create an embargo or ban on the competent authority to exercise powers under the amended section 147. Reference was made to paragraph 5(iii) of the said order, to point out that the respondent has noted the argument of the assessee that the notice under section 133(6) issued from that office, was duly served and complied with and therefore, the identity of the company is proved, but has held that the argument of the petitioner is baseless and it cannot be said that a particular company is genuine even if the investor company is having PAN, filing income tax returns, having bank account and accounts are audited. It was pointed out that in connection with the submission of the petitioner that M/s. Glamour Sales Pvt. Ltd. had in pursuance of the notice under section 133(6) of the Act, submitted the details called for during the course of assessment proceedings for assessment year 2012-13, in paragraph 17 of the affidavit-in-reply, the respondent has taken a stand that no such details are found on record. It was submitted that thus, contradictory stands have been adopted by the Assessing Officer. It was argued that the reasons recorded are only qua not finding M/s. Glamour Sales Pvt. Ltd. at the given address and hence, since the company was available at that address, the reasons must fall. It was submitted that in any case, the entire aspect was gone into in the assessment under section 143(3) of the Act and hence, the reopening being based upon a mere change of opinion, the assumption of jurisdiction on the part of the Assessing Officer is without authority of law. 5.3 In support of his submissions, the learned counsel placed reliance upon the decision of this court in the case of Gujarat Power Corporation Ltd. v. Assistant Commissioner of Income Tax, (2013) 350 ITR 266, for the proposition that once the Assessing Officer examines a certain claim of the assessee in the original assessment proceedings, raises queries, receives replies, but thereafter makes no additions or disallowances, without giving reasons, it would not be permissible to reopen the assessment even within four years on the very same grounds. Reliance was also placed upon the decision of this court in the case of Dishman Pharmaceuticals & Chemicals Ltd. v. Deputy Commissioner of Income Tax (OSD) (No. 2), (2012) 346 ITR 245 (Guj.), for the proposition that it is settled legal position that if the reopening of assessment fails on account of non-existence of reasons for such reopening, the revenue cannot either sustain such reopening or bring within the assessment proceedings any other head of escaped income not mentioned in the reasons for reopening. It was, accordingly, urged that the petition deserves to be allowed by setting aside the impugned notice. 6. Opposing the petition, Mr. Sudhir Mehta, learned Senior Standing Counsel for the respondent reiterated the averments made in the affidavit-in-reply filed by the respondent. It was submitted that during the course of assessment proceedings for assessment year 2012-13, the notice under section 133(6) of the Act was issued on 05.02.2015 to M/s. Glamour Sales Pvt. Ltd. through Speed Post Service of the Postal Department calling upon it to furnish various details within seven days from receipt of the notice. However, no such details were made available by M/s. Glamour Sales Pvt. Ltd. to prove the genuineness of the transactions with the assessee company. Hence, after recording the reasons, notice was issued to the petitioner under section 148 of the Act. It was submitted that it is the case of the petitioner company that M/s. Glamour Sales Pvt. Ltd. has submitted details in pursuance of the notice issued under section 133(6) of the Act during the course of assessment proceedings for assessment year 2012-13. However, on a perusal of the case record, it appears that no such details are available therein. It was contended that while assessment was completed under section 143(3) of the Act for the year under consideration, on a verification of the assessment order, it is noticed that the Assessing Officer had not discussed the issue of share application money in the assessment order. It was submitted that in the light of the fact that the issue was not gone into at the stage of framing assessment under section 143(3) of the Act, the question of change of opinion would not arise. It was submitted that in the light of the fact that the issue was not gone into at the stage of framing assessment under section 143(3) of the Act, the question of change of opinion would not arise. Reliance was placed upon the decision of Delhi High Court in the case of Commissioner of Income Tax v. Nova Promoters & Finlease (P) Ltd., (2012) 342 ITR 169, wherein the court held that the ratio of the Supreme Court in the case of Lovely Exports would not be applicable where the Assessing Officer is in possession of material that discredits and impeaches the particulars furnished by the assessee and also establishes the link between self-confessed "accommodation entry providers", whose business it is to help assessees bring into their books of account their unaccounted monies through the medium of share subscription, and the assessee. It was, accordingly, urged that the Assessing Officer on the basis of tangible material which came to be discovered during the course of the assessment proceedings for assessment year 2012-13, has sought to reopen the assessment and hence, no case has been made out so as to warrant intervention by this court. 7. Before adverting to the merits of the rival submissions, it may be germane to refer to the reasons recorded for reopening the assessment for assessment year 2010-11, which read as follows: "In this case, the return of income was filed on 14.10.2010 declaring total income of Rs. 10,33,540/- and the same was assessed under section 143(3) of the I.T. Act, be accepting the same. 2. The assessee has claimed to have received share capital with premium from the following alleged investor company of Kolkatta: Sr. No. Name of the Investor Company No. of Shares Share Capital @ Rs. 10 Share Capital including share premium 1 Glamour Sales Pvt. Ltd. 4, Fairlie Place Mazzanine Floor Kolkatta 12500 1,25,000 12,50,000 3. During the assessment proceedings for A.Y. 2012-13, the materials gathered on record are verified and on analyzing the materials available with the undersigned, it is unearthed that the above investor company is not existing at the given address and therefore, identity and creditworthiness of that company and genuineness of the transaction could not be established. Therefore, the share capital and share premium amounting to Rs. 12,50,000/- is non-genuine. 4. Therefore, the share capital and share premium amounting to Rs. 12,50,000/- is non-genuine. 4. in view of the above facts and material, I have reason to believe that income of the assessee to the extent of Rs. 12,50,000/- has escaped assessment within the meaning of section 147 of the Act for A.Y. 2011-12 on account of failure on part of the assessee to disclose all material facts in the return of income fully and truly and therefore, the case of the assessee needs to be reopened under section 147 of the Act." 8. In the reasons recorded, reference is made to assessment year 2011-12, which according to the Assessing Officer is a typographical error and that the actual year is assessment year 2010-11. Therefore, after recording the above reasons, the Assessing Officer has issued the notice under section 148 of the Act for reopening the assessment for assessment year 2010-11. 9. As is evident on a plain reading of the reasons recorded, according to the Assessing Officer, the assessee had claimed to have received share capital with premium from M/s. Glamour Sales Pvt. Ltd. of a sum of Rs. 12,50,000/-. According to the Assessing Officer, during the assessment proceedings of assessment year 2012-13, it was unearthed that the investor company does not exist at the given address and therefore, identity and creditworthiness of that company and genuineness of the transaction could not be established and hence, the share capital and share premium amounting to Rs. 12,50,000/- is non-genuine. He has, therefore, formed a belief that income to the extent of Rs. 12,50,000/- has escaped assessment within the meaning of section 147 of the Act. 10. A perusal of the record of the case reveals that at the time when assessment came to be framed under section 143(3) of the Act, the Assessing Officer by a communication dated 26.11.2012, had called upon M/s. Glamour Sales Pvt. Ltd. to furnish information/documents mentioned therein for the period from 01.04.2009 to 31.03.2010 relevant to assessment year 2010-11. 10. A perusal of the record of the case reveals that at the time when assessment came to be framed under section 143(3) of the Act, the Assessing Officer by a communication dated 26.11.2012, had called upon M/s. Glamour Sales Pvt. Ltd. to furnish information/documents mentioned therein for the period from 01.04.2009 to 31.03.2010 relevant to assessment year 2010-11. In response thereto, M/s. Glamour Sales Pvt. Ltd., by a communication dated 05.12.2012, submitted the details required by the Assessing Officer, which included the nature of the transaction with date and amount, mode of payment/receipt with date, copy of accounts of the petitioner as appearing in its books for the financial year 2009-10, copy of the bank statement reflecting the payment given/received during the said period, details of its income tax assessment, that is, PAN number, Ward/Circle where it is assessed. A request was also made to furnish copies of total income, trading account and balance sheet for assessment year 2010-11. All the above details came to be furnished by M/s. Glamour Sales Pvt. Ltd. and after considering such details, the Assessing Officer, by an order dated 26.03.2013, framed assessment for assessment year 2010-11 under section 143(3) of the Act assessing the total income of the petitioner at Rs. 12,06,671/- without making any addition in respect of the share capital money received from M/s. Glamour Sales Pvt. Ltd. Now, the Assessing Officer seeks to reopen the assessment on the ground that during the course of assessment proceedings of assessment year 2012-13, it is found that M/s. Glamour Sales Pvt. Ltd. is not found at the given address and therefore, income to the tune of Rs. 12,50,000/- has escaped assessment. 11. Thus, it is evident that at the time of framing assessment under section 143(3) of the Act, the Assessing Officer had examined this very issue and had called for all details from M/s. Glamour Sales Pvt. Ltd. under section 133(6) of the Act in response to which, M/s. Glamour Sales Pvt. Ltd. had furnished the necessary details. It, therefore, appears that during the year under consideration, M/s. Glamour Sales Pvt. Ltd. had duly responded to the notice under section 133(6) of the Act and was very much in existence at the address furnished by the petitioner. In the subsequent year, according to the Assessing Officer, M/s. Glamour Sales Pvt. Ltd. was not found at the said address. It, therefore, appears that during the year under consideration, M/s. Glamour Sales Pvt. Ltd. had duly responded to the notice under section 133(6) of the Act and was very much in existence at the address furnished by the petitioner. In the subsequent year, according to the Assessing Officer, M/s. Glamour Sales Pvt. Ltd. was not found at the said address. This is based upon the fact that M/s. Glamour Sales Pvt. Ltd. had not responded to the notice under section 133(6) of the Act during the course of the assessment proceedings for assessment year 2012-13. It may be noted that it is the specific case of the petitioner in the petition, which is supported by certain documents placed on record, that M/s. Glamour Sales Pvt. Ltd. had responded to the notice under section 133(6) of the Act issued during the course of assessment proceedings for assessment year 2012-13. Be that as it may, even if M/s. Glamour Sales Pvt. Ltd. may not have responded to the notice under section 133(6) of the Act for assessment year 2012-13, the record clearly shows that in response to such notice issued during the proceedings under section 143(3) of the Act for the year under consideration, M/s. Glamour Sales Pvt. Ltd. had responded to the notice under section 133(6) of the Act and had furnished the necessary details. While in the assessment order, there is no discussion as regards the share capital including the share premium of Rs. 12,50,000/- received from M/s. Glamour Sales Pvt. Ltd., the record of the case clearly shows that the Assessing Officer had called for such details and thereafter, did not make any addition in the assessment order. This court in the case of Gujarat Power Corporation Ltd. v. Assistant Commissioner of Income Tax (supra), has held that once the Assessing Officer examines a certain claim of the assessee in the original assessment proceedings, raises queries, receives replies, but thereafter makes no additions or disallowances, without giving reasons, it would not be permissible to reopen the assessment even within four years on the very same grounds. In the present case, the Assessing Officer has examined the claim and not made any additions and has not discussed anything therein. However, once he has examined such claim, it is not permissible to reopen the assessment even within four years on the very same grounds. In the present case, the Assessing Officer has examined the claim and not made any additions and has not discussed anything therein. However, once he has examined such claim, it is not permissible to reopen the assessment even within four years on the very same grounds. It is evident that the Assessing Officer has, therefore, formed an opinion on the issue in question though not reflected in the assessment order passed under section 143 of the Act. Thus, reopening of the assessment to examine the very same claim is, therefore, clearly based upon a change of opinion. The assumption of jurisdiction on the part of the Assessing Officer by issuance of notice under section 148 of the Act on a mere change of opinion is, therefore, clearly without jurisdiction. The impugned notice under section 148 of the Act, therefore, cannot be sustained. 12. It may be also noted that while in the reasons recorded, it has been stated that M/s. Glamour Sales Pvt. Ltd. is not existing at the given address and therefore, the identity and creditworthiness and genuineness of the transaction could not be established, whereas in the order disposing of the objections, the Assessing Officer has travelled much further and observed that M/s. Glamour Sales Pvt. Ltd. of Kolkatta is a fictitious entity just created to give accommodation entries to beneficiaries on commission basis; that the above investor company is not actual one but it is a paper company created for giving benefit to the beneficiaries; that any transaction with such bogus company is considered to be non-genuine and therefore, the share capital with share premium received from the so called bogus company is nothing but the assessee's own fund circulated through M/s. Glamour Sales Pvt. Ltd. via its bank accounts. In this regard, it is by now well settled that the validity of the reopening has to be examined on the basis of the reasons recorded and the reasons recorded cannot be supplemented either by the order disposing of the objection or by filing an affidavit in that regard. As held by this court in the case of Dishman Pharmaceuticals & Chemicals Ltd. v. Deputy Commissioner of Income Tax (OSD) (No. 2) (supra), if the reopening of assessment fails, on account of non-existence of reasons for such reopening, the same cannot be sustained on other grounds. As held by this court in the case of Dishman Pharmaceuticals & Chemicals Ltd. v. Deputy Commissioner of Income Tax (OSD) (No. 2) (supra), if the reopening of assessment fails, on account of non-existence of reasons for such reopening, the same cannot be sustained on other grounds. In the present case, the reopening being based upon a mere change of opinion, viz., the then Assessing Officer had gone into this very issue at the time of framing assessment under section 143(3) of the Act, the Assessing Officer cannot seek to sustain the same on the basis of further grounds stated in the order rejecting the objections. As regards the decision of the Delhi High Court in Commissioner of Income Tax v. Nova Promoters & Finlease (P) Ltd. (supra), this court is of the view that the same would have no applicability to the facts of the present case. 13. For the foregoing reasons, the petition succeeds and is, accordingly, allowed. The impugned notice dated 24th March, 2015 issued by the respondent under section 148 of the Act is hereby quashed and set aside. Rule is made absolute accordingly with no order as to costs.