PRINCIPAL COMMISSIONER OF INCOME TAX 5 vs. MANZIL DINESHKUMAR SHAH

TAXAP/458/2018HC GujaratGJHC24025292201807 May 2018Author: HONOURABLE MR. JUSTICE AKIL KURESHI,HONOURABLE MR. JUSTICE B.N. KARIA6 pages
AI SummaryDismissed

What did the High Court hold?

The High Court held that while it is settled law that even in cases of assessment without scrutiny, the AO must form a belief that income chargeable to tax has escaped assessment, and that reopening cannot be for a fishing or roving inquiry, the reasons recorded by the AO were crucial. In this case, the AO recorded that the information received 'needed deep verification'. This indicated that the notice was being issued for the purpose of such verification, rather than based on a formed belief that income had escaped assessment. The court found that accepting the Revenue's argument to read the reasons as a whole would require ignoring the explicit statement that 'it needs deep verification'. Therefore, the fundamental defect in the reasons recorded could not be cured by the later recitation of mandatory words. The court lamented potential revenue loss but upheld the ITAT's decision. The additional ground was not expressly decided upon, as the appeals were dismissed on the primary issue.

What were the facts?

The Revenue is in appeal against an order of the Income Tax Appellate Tribunal (ITAT) dated June 16, 2017. The assessee, an individual and proprietor of a trading firm, had his assessment for Assessment Year (AY) 2009-10 accepted without scrutiny. The Assessing Officer (AO) sought to reopen this assessment based on information from the VAT Department, Mumbai, indicating alleged bogus purchases of Rs. 3,21,74,262 by the assessee from a 'Hawala Dealer' during the Financial Year 2008-09 (AY 2009-10). The AO recorded reasons for reopening, stating the information 'needs deep verification' and that he had reason to believe income chargeable to tax had escaped assessment due to the assessee's failure to disclose material facts. The ITAT quashed the reassessment order, holding the notice invalid.

What were the issues?

1. Whether the Appellate Tribunal was right in law and on facts in admitting an additional ground challenging the reopening of assessment, which was not raised earlier in assessment proceedings or before the CIT(A), and therefore not emerging from the CIT(A)'s order? (Question of law and fact) 2. Whether the Appellate Tribunal was right in law and on facts in quashing the reassessment order? (Question of law and fact) Assessee's Contentions: Not recorded in the judgment. Revenue's Contentions: The Assessing Officer had sufficient material to form a belief that income chargeable to tax had escaped assessment. The AO, after verifying the information, was prima facie of the opinion that the assessee had shown purchases from Hawala dealers, meaning the purchases were bogus. The Tribunal erred in invalidating the reassessment proceedings. The Revenue urged the court to read the reasons as a whole and conclude that the AO had independently formed a belief that income had escaped assessment, despite the sentence 'it needs deep verification'. The Revenue relied on the judgment in Inductotherm (India) P. Ltd. v. M. Gopalan, Deputy Commissioner of Income-Tax reported in [2013] 356 ITR 481 (Guj).

Which sections of the Income-tax Act were involved?

Section 143(1),Section 143(3),Section 148

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Cause title — parties, addresses and appearances
C/TAXAP/451/2018 ORDER IN THE HIGH COURT OF GUJARAT AT AHMEDABAD R/TAX APPEAL NO. 451 of 2018 With R/TAX APPEAL NO. 457 of 2018 With R/TAX APPEAL NO. 458 of 2018 ========================================================== PRINCIPAL COMMISSIONER OF INCOME TAX 5 Versus MANZIL DINESHKUMAR SHAH ========================================================== Appearance: MRS MAUNA M BHATT(174) for the PETITIONER(s) No. 1 for the RESPONDENT(s) No. 1 ========================================================== CORAM: HONOURABLE MR.JUSTICE AKIL KURESHI and HONOURABLE MR.JUSTICE B.N. KARIA Date : 07/05/2018

COMMON ORAL ORDER (PER : HONOURABLE MR.JUSTICE AKIL KURESHI)

1.

These   Tax   Appeals   arise   out   of   common background,   we   may   record   facts   from   Tax   Appeal No.451 of 2018. 2. Revenue is in appeal against the judgment of the Income   Tax   Appellate   Tribunal   dated   16.06.2017 raising following questions for our consideration: “[A] Whether   the   Appellate   Tribunal   was right in law and on facts in admitting the additional ground challenging the reopening of as

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