KAVUMKAL ROAD BUILDERS, vs. THE INCOME TAX OFFICER,

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WP(C)/31020/2022HC KeralaKLHC01065843202216 January 2024Author: HONOURABLE MR. JUSTICE D. K. SINGH11 pages
AI SummaryDismissed

What did the High Court hold?

The High Court held that the order passed under Section 148A(d) was not merely based on a change of opinion, considering the facts and circumstances. The Court noted that the AO had formed an opinion that income chargeable to tax had escaped assessment for AY 2015-2016 after considering the reply submitted by the petitioner. The Court declined to interrupt the proceedings at this stage, directing the petitioner to file a reply to the notice under Section 148. The Court relied on the judgment in Anshul Jain v. Principal Commissioner of Income Tax, which held that the High Court should not interfere at the stage where proceedings have not yet been concluded by statutory authorities, and that the correctness of an order under Section 148A(d) cannot be challenged on factual premises if statutory remedies are available. The Court stated that if the assessment order is finalized, the petitioner would have a remedy to file an appeal. Therefore, the writ petition was dismissed, but the petitioner was granted 30 days to file their reply/return to the notice under Section 148, after which the AO was to proceed with the finalization of the assessment in accordance with law.

What were the facts?

The petitioner, Kavumkal Road Builders, is a partnership firm engaged in road and bridge construction. For Assessment Year 2015-2016, the petitioner did not file a return of income. The Assessing Officer (AO) re-opened the case under Section 147 of the Income Tax Act, 1961, issuing a notice under Section 148 on September 12, 2017. The petitioner filed a return on August 7, 2018, declaring income of Rs. 31,87,660. A survey under Section 133A was conducted on February 12, 2015, where income was offered at 8% of total contract receipts for earlier years. The initial assessment order was finalized on December 24, 2018, at an income of Rs. 41,47,200 under Section 143(3). Subsequently, a fresh notice under Section 148 was issued on June 22, 2021, for AY 2015-2016, citing reasons to believe income had escaped assessment. This led to proceedings under Section 148A, culminating in an order dated August 31, 2022, which is under challenge.

What were the issues?

1. Whether the order passed under Section 148A(d) of the Income Tax Act, 1961, is liable to be set aside as it is based on a 'change of opinion' by the Assessing Officer, contrary to the settled legal position? Assessee's Contention: The petitioner argues that the re-opening of the assessment finalized on December 24, 2018, is solely based on a 'change of opinion' and that the AO was satisfied with the explanations provided earlier. They rely on the principle that a mere change of opinion is not a valid ground for re-opening an assessment. Revenue's Contention: The respondent (Revenue) contends that the order under Section 148A(d) was passed after considering the petitioner's objections and that the High Court should not interfere at this stage, as statutory remedies are available. They cite the judgment in Anshul Jain v. Principal Commissioner of Income Tax, affirmed by the Supreme Court, which held that the correctness of an order under Section 148A(d) cannot be challenged on factual premises before the High Court when statutory remedies exist and the order is not beyond jurisdiction. The Revenue also argues that the reassessment is not merely a change of opinion given the specific discrepancies identified.

Which sections of the Income-tax Act were involved?

Section 147,Section 148,Section 143(2),Section 142(1),Section 133A,Section 143(3),Section 148A,Section 148A(d)

AI-generated summary — verify with the full judgment below

Cause title — parties, addresses and appearances
IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT THE HONOURABLE MR. JUSTICE DINESH KUMAR SINGH TUESDAY, THE 16TH DAY OF JANUARY 2024 / 26TH POUSHA, 1945 W.P.(C) NO.31020 OF 2022 PETIT IONER: KAVUMKAL ROAD BUILDERS, CHEMBANOLI P.O., VECHOOCHIRA, PATHANAMTHITTA REPRESENTED BY ITS MANAGING PARTNER MR. SABU KURIAKOSE BY ADV. RAMESH CHERIAN JOHN RESPONDENT: THE INCOME TAX OFFICER, WARD 1 & TPS, VAISHNAVAM ARCADE, T.K. ROAD, THIRUVALLA COMING UNDER OFFICE OF THE JOINT COMMISSIONER OF INCOME TAX, RANGE 1, KOTTAYAM, PIN-689 101. SRI. JOSE JOSEPH, STANDING COUNSEL THIS WRIT PETITION (CIVIL) HAVING COME UP FOR ADMISSION ON 16.01.2024, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING: -2- W.P.(C) NO.31020 OF 2022 JUDGMENT Dated this the 16th day of January, 2024 Heard Sri. Joseph Markose, learned Senior Counsel assisted by Sri. Ramesh Cherian John, learned counsel for the petitioner and Sri. Jose Joseph, learned Senior Standing Counsel for the Income Tax Department on behalf of the respondents. 2. The petitioner is a partnership firm and is engaged in contract work relating to construction of roads and bridges. The petitioner is an assessee under the provisions of the Income Tax Act, 1961 ('the Act' for short). 3. The petitioner did not file return of income for the assessment year 2015-2016. As per the individual transaction statement available in AST system, in respect of the financial year 2014-2015, the petitioner had received Rs.1,80,04,141/- by way of contract receipt and other sources. The case of the petitioner was re-opened under Section 147 of the Act, after taking -3- W.P.(C) NO.31020 OF 2022 prior approval from the Additional Commissioner of Income Tax and notice under Section 148 was issued to the assessee on 12.09.2017. The petitioner, in response to the notice issued under Section 148 of the Act, filed its return of income on 07.08.2018, declaring total income at Rs.31,87,660/-. The petitioner was issued notice under Section 143(2) and further notice was issued under Section 142(1) of the Act. The details/information necessary for completing the assessment were called for from the petitioner. In response to the said notice, Sri. Iype John, FCA authorised representative of the assessee from M/s. Cherian & Cherian attended the case on 13.11.2018 and subsequent dates and filed Balance Sheet, Profit and Loss Account, copy of VAT return and bank statements. Vide order sheet entry dated 13.11.2018, the petitioner was asked to produce the confirmation from sundry creditors. Vide letter dated 21.11.2018, the petitioner furnished the confirmation from M/s. Kavumkal Granites Pvt. Limited, a sister concern of the petitioner. -4- W.P.(C) NO.31020 OF 2022 4. A survey under Section 133A of the Act was carried out at the business premises of the assessee firm on 12.02.2015. As a result of survey, income was offered at 8% of total contract receipts for the assessment years 2012-2013, 2013-2014 and 2014-2015. On verification of the details furnished by the assessee, it was noticed that the petitioner had incurred expenses to the tune of Rs.66,534/- only. The assessment order came to be finalised at income of Rs.41,47,200/- under Section 143(3) of the Act. 5. After the assessment order was finalised in Ext.P1 on 24.12.2018, notice under Section 148 was issued to the petitioner on 22.06.2021 on the ground that the assessing officer had a reason to believe that the petitioner's income, chargeable to tax for the assessment year 2015-2016, had escaped the assessment within the meaning of Section 147 of the Act. The petitioner challenged the said notice by filing W.P.(C) No.29442 of 2021. After the Honourable Supreme Court passed the judgment in Union of India vs Ashish Agarwal -5- W.P.(C) NO.31020 OF 2022 (2022 SCC Online SC 543), the proceedings taken under Section 148 before 01.04.2021, was not finalised and the same proceedings were directed to be initiated under Section 148A and therefore, the assessing authority had to proceed under the amended provisions of Section 148A of the Income Tax Act. Notice was issued to the petitioner under Section 148A(d) directing the petitioner to show cause within two weeks of receipt of the communication/letter dated 23.05.2022 as to why an order under Section 148A(d) should not be passed. Only it is a fit case for issuance of notice under Section 148 of the Act. 6. The petitioner filed a reply to the said notice dated 23.05.2022. The re-opening of the assessment finalised on 24.12.2018 would amount to a 'change of opinion' and such a course is not applicable to the assessing authority. 7.

The said facts were considered and the order under Section 148A(d) has been passed on 31.08.2022, which is under challenge before this Court. The decision to re-open the assessment based on two factors had -6- W.P.(C) NO.31020 OF 2022 mentioned in the show cause notice issued under Section 148A(d) of the Act and informing the opinion that the petitioner's income chargeable to tax had escaped the assessment. The two factors are as follows:- i) There appears to be a mismatch between the amount of Rs.2,45,57,271/- shown as sundry creditors in the books of the assessee and the amount of Rs.72,73,801/- shown as 'trade receivable in the books of the creditor' M/s. Kavumkal Granites Pvt. Ltd. Hence, the liability of Rs.2,45,57,271/- shown as sundry creditors in the Balance Sheet of the assessee stands unexplained. ii) Also in the P&L A/c, the assesee has debited an amount of Rs.21,77,996/- as VAT. An amount of Rs.5,34,279/- is shown as VAT deducted (TDS). As per the e-Annual VAT Return for the FY 2014-15 is an amount for Rs.5,32,652/- is seen as VAT due on contract of Rs.1,77,53,387/-. Hence, the nature of VAT dues amounting to Rs.21,77,996/- stands unexplained and is to be brought to tax.

8.

The petitioner could submit the document in respect of the mismatch in sundry creditors only for an amount of Rs.72,73,801/-. After considering the reply, the -7- W.P.(C) NO.31020 OF 2022 assessing authority was of the opinion that, on the basis of the material/information available on record, the assessing authority had a reason to believe that the income chargeable to tax had escaped the assessment in the assessment year 2015-2016 and it was a fit case for issuing notice under Section 148 of the Act. Accordingly, notice under Section 148 of the Act has been issued.

9.

The learned counsel for the petitioner submits that the impugned order dated 31.08.2022 passed under Clause d of Section 148A is based on the change of opinion. It is further submitted that these facts were presented before the assessing authority and the assessing authority having been satisfied with the explanation offered by the petitioner, computed the income of the petitioner and passed the assessment order in Ext.P1 order dated 24.12.2018. The learned counsel for the petitioner further submits that the issue regarding the re-opening of the assessment order is based solely on a mere change of opinion is no longer res integra and therefore, the impugned order is liable to be set aside.

-8- W.P.(C) NO.31020 OF 2022

10.

On the other side, Sri. Jose Joseph, learned Senior Standing Counsel submits that the sundry creditors is petitioner's sister concern and when the books of accounts of the sister concern were looked into, it was found that, except for 72,00,000/-, no other credit was due of the said sister concern against the petitioner. When the petitioner's assessment order was finalised, the books of accounts of the sister concern were produced before the assessing authority. It is further submitted that once the order has been passed after considering the objection/reply of the assessee under Section 148A(d) of the Act, the challenge to the said order cannot be made before this Court in exercise of its jurisdiction under Article 226 of the Constitution of India. The petitioner should participate in the assessment proceedings by filing the return of notice under Section 148 of the Act.

11.

Sri. Jose Joseph, learned Standing Counsel placed reliance on the judgment of Punjab and Haryana High Court in Anshul Jain v. Principal Commissioner of Income Tax and Another [(2022) 449 ITR 251

-9- W.P.(C) NO.31020 OF 2022 (P&H)], in which challenge to the order passed under Section 148A(d) was repelled on the ground that High Court should not interfere at the stage where the proceedings have not yet been concluded by the statutory authorities. It was further held that, if the authority has jurisdiction and the order passed is not beyond the jurisdiction, the correctness of the order under Section 148A(d) cannot be challenged on the factual premise. There is a well settled distinction between the jurisdictional error and the error of law and facts within the jurisdiction. For rectification of the error, and the law and facts, statutory remedy has been provided however, the writ is not a proper remedy in respect of an error of law and fact, if there is such a remedy provided under the statute. The said judgment has been affirmed by the Supreme Court in Anshul Jain case (supra).

12.

Considering the aforesaid aspect of the matter that the order under Section 148A(d) had been passed after considering the reply submitted by the petitioner and taking into consideration the fact and circumstances of the -10- W.P.(C) NO.31020 OF 2022 case, the assessing authority formed an opinion that the income chargeable to tax has escaped assessment in the assessment year 2015-2016. At this stage, this Court would not like to interrupt the proceedings, and the petitioner should file reply the return of income in response to the notice issued under Section 148 of the Act. If the assessment order is finalised, the petitioner would have a remedy to file an appeal under the provisions of the Income Tax Act, but at this stage, I am of the view that the order under Section 148A(d) is not merely based on the change of opinion in the facts and circumstances stated above. Thus, the writ petition is dismissed, however, the petitioner is granted 30 days' time to file reply/return to the notice under Section 148 and thereafter, the assessing authority shall proceed to finalise the assessment in accordance with law. DINESH KUMAR SINGH JUDGE bpr

-11- W.P.(C) NO.31020 OF 2022

Appendix — schedule of exhibits
APPENDIX OF WP(C) 31020/2022 PETITIONER'S EXHIBITS Exhibit P1 TRUE COPY OF THE ORDER OF ASSESSMENT DATED 24.12.2018 WITH TYPED LEGIBLE COPY OF ORDER WITHOUT COMPUTATION STATEMENT AND NOTICE OF DEMAND Exhibit P2 A TRUE COPY OF THE ORDER OF ASSESSMENT DATED 28.12.2018 COMPLETED U/S. 143 (3) R.W.S. 147 OF THE ACT Exhibit P3 TRUE COPY OF THE NOTICE DATED 22.06.2021 ISSUED U/S. 148 OF THE ACT Exhibit P4 A TRUE COPY OF THE SAID INTERIM ORDER DATED 20.12.2021 IN W.P.C NO. 29422 OF 2021 Exhibit P5 A TRUE COPY OF THE SAID NOTICE DATED 23.05.2022 ISSUED UNDER SECTION 148 A(B) OF THE ACT Exhibit P6 TRUE COPY OF THE REPLIES FILED BY THE PETITIONER DATED 01.06.2022 Exhibit P6(a) TRUE COPY OF THE REPLIES FILED BY THE PETITIONER DATED 16.07.2022 Exhibit P7 A TRUE COPY OF THE PROCEEDINGS DATED 31.08.2022 COMPLETED U/S 148 A (D) OF THE ACT Exhibit P8 A TRUE COPY OF THE NOTICE U/S. 148 OF THE ACT DATED 31.08.2022

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