GAJANAND AGRO INDUSTRIES vs. THE INCOME TAX OFFICER

Rule.   Mrs.   Mauna   Bhatt,   learned   senior standing   counsel,   waives   service   of   notice   of rule on behalf of the respondent.

Having regard to the controversy involved in the present cases, which lies in a very narrow compass   and   with   the   consent   of   the   learned counsel for the respective parties, the matters were taken up for final hearing today.

By these petitions under article 226 of the Constitution   of   India,   the   petitioner   has challenged the notices dated 29.03.2018 issued by the respondent under section 148 of the Income Tax Act, 1961 (hereinafter referred to as “the Act”)   seeking   to   reopen   the   assessment   of   the petitioner for the assessment years 2011­12 and 2012­13 respectively.

The   facts   stated   briefly   are   that   the petitioner, a partnership firm, filed its return of   income   for   the   assessment   year   2011­12   on 29.09.2011

Thereafter,   the  petitioner   received  summons dated 18.01.2018 under section 131(1A) of the Act for both the assessment years calling upon the petitioner   to   produce   certain   details,   in response to which, the petitioner, by its letter dated   06.02.2018,   submitted   such   details. Subsequently,   the   petitioner   received   the impugned   notices   dated   29.03.2018   issued   under section 148 of the Act for assessment years 2011­ 12 and 2012­13. In response to the said notices, the petitioner filed its returns of income for both the assessment years on 04.05.2018 and vide letters   dated   17.04.2018,   requested   the respondent   to   supply   a   copy   of   the   reasons recorded.

By   separate   letters   dated   18.06.2018,   the respondent   furnished   the   reasons   recorded. Thereafter, the petitioner received notices under sections 143(2) and 142(1) on various dates, in response   to   which,   the   petitioner   furnished various   details,   as   asked   for.   Thereafter,   the petitioner   received   show­cause   notices   dated 25.12.2018   proposing   to   make   huge   addition   of Rs.8,38,28,440/­ for assessment year 2011­12 and Rs.10,74,53,500/­ for assessment year 2012­13 and calling upon the petitioner to comply with the same   by   28.12.2018. Without   waiting   for   the objection   disposal   order   to   be   passed,   the petitioner approached this court by way of the present petitions.

During   the   pendency   of   the   petitions,   the respondent   passed   orders   dated   13.02.2019 disposing   of   the   objections   filed   by   the petitioner, copies whereof, have been placed on record.

By an order dated 28.12.2018, this court had issued notice and by way of ad­interim relief, had permitted the respondent to proceed further pursuant   to   the   impugned   notices;   but,   had restrained the respondent from passing the final orders without the permission of this court.

Mr. Darshan Gandhi, learned advocate for the petitioner, invited the attention of the court to the   reasons   recorded   for   reopening   the assessment, to submit that the sole reason for reopening the assessment is that the petitioner had made cash withdrawals from its bank, which are   not   commensurate   with   the   reported   profile and activity of the firm, namely, the oil mill. It was submitted that according to the Assessing Officer,   the   cash   withdrawal   of   Rs.5.14   crores during financial year 2010­11 and Rs.5.25 crores during   financial   year   2011­12   has   escaped assessment within the meaning of section 147 of the Act. It was contended that withdrawal of cash from the bank account of the petitioner can by no stretch of imagination, amount to income having escaped assessment.

1 It   was   submitted   that   in   these   cases,   the impugned   notices   dated   29.03.2018   have   been issued for assessment year 2011­12 and 2012­13, which is clearly beyond a period of four years from the end of the relevant assessment years. It was   submitted   that   since   there   were   scrutiny assessments under section 143(3) of the Act in respect   of   both   the   assessment   years,   in   the absence   of   any   failure   on   the   part   of   the petitioner   to   disclose   truly   and   fully   all material   facts,   the   requirements   of   the   first proviso   to   section   147   of   the   Act   are   not satisfied.

2 It was urged that the source of the amount can be doubted; however, there is no question of the   withdrawal   being   doubted.   It   was, accordingly,   urged   that   the   assumption   of jurisdiction on the part of the Assessing Officer under section 147 of the Act lacks validity and hence, the impugned notices under section 148 of the Act as well as all proceedings taken pursuant thereto, deserve to be quashed and set aside.

Opposing   the   petitions,   Mrs.   Mauna   Bhatt, learned   senior   standing   counsel,   invited   the attention of the court to the events that have taken place. It was pointed out that the impugned notices under section 148 of the Act have been issued   on   29.03.2018. In   response   thereto,   the petitioner   filed   its   returns   of   income   on 04.05.2018. The   reasons   recorded   came   to   be furnished   to   the   petitioner   on   18.06.2018. Thereafter,   notices   under   sections   143(2)   and 142(1)   of   the   Act   came   to   be   issued.   It   was submitted that the final show cause notices came to   be   issued   on   25.12.2018,   and   it   is   only thereafter   that   the   petitioner   had   filed   its objections. It was submitted that therefore, the petitioner had acquiesced with the jurisdiction of   the   Assessing   Officer   and   that   the   present petitions are in the nature of an afterthought, and at this stage, the court may not entertain the petitions.

1 In  support  of  such  submission,  the  learned senior standing counsel placed reliance upon the decision of the Bombay High Court in the case of Amaya   Infrastructure   P.   Ltd.   v.   Income­Tax Officer   and   others,   [2016]   383   ITR   498   (Bom), wherein the court has observed that the power of the   High   Court   under   article   226   of   the Constitution of India is plenary. Therefore, the court would exercise the same whenever it is of the view that interest of justice would require its exercise. The court further held that having of jurisdiction does not make it obligatory upon the   court   to   exercise   extraordinary   writ jurisdiction   without   reference   to   the   facts before it. It was held that where the petitioners had participated in the proceedings under the Act before the Assessing Officer and thereafter, had filed the writ petition on the ground that the authority   had   no   jurisdiction,   the   court   would not   normally   entertain   the   petition,   more particularly,   when   an   effective   alternative remedy is available under the Act to set aside the   orders   passed   by   the   authority,   which   the petitioners claim was without jurisdiction. The court held that the provisions of sections 147 and 148 of the Act empower the Assessing Officer to   issue   notice   for   reopening   the   assessment, subject to satisfaction of the parameters set out therein. It is open to the assessee to challenge the order of the Assessing Officer under the Act on the ground that the conditions precedent for its   exercise   are   not   satisfied.   This   could   be done either by challenging it under article 226 of the Constitution of India or by challenging it before the authorities under the Act. Therefore, where a party submits itself to the jurisdiction of the Assessing Officer and challenges the issue of   his   jurisdiction   during   the   course   of proceedings of reassessment, the court would not normally

2 The learned senior standing counsel submitted that the facts of the present case are similar to the   facts   of   the   case   before   the   Bombay   High Court, wherein notices under sections 142(1) and 143(2)   of   the   Act   had   been   issued   and   the petitioners   therein   had   participated   in   the assessment proceedings. It was submitted that in the   light   of   the   principles   enunciated   in   the above decision, it is not open for the petitioner to now object to the proceedings, and hence, the petitions deserve to be dismissed leaving it open for the petitioner to avail of the alternative statutory   remedy   available   to   it   in   case   any adverse   orders   are   passed   in   the   proceedings under section 148 of the Act.

This   court   has   considered   the   submissions advanced   by   the   learned   advocates   for   the respective   parties.   Before   adverting   to   the merits   of   the   rival   contentions,   the   reasons recorded   for   reopening   the   assessment   may   be referred to: “In   this   case   as   per   ITD/ITBA   data   the assessee has filed the return of income for A.Y.2011­12   on   29.9.2011. On   the   basis   of information received from the Office of the ADIT   (Inv.),   Mehsana   report,   it is  noticed that   the   assessee   M/s.   Gajanan   Agro Industries,  engaged  in  the  business  of  oil mill.   As   reported   in   STR,   the   credit   and debit   turnover   of   M/s.   Gajanan   Agro Industries   during   F.Y.2010­11   was   Rs.12.84 crores. The firm withdrew cash Rs.5.14 crores during the F.Y.2010­11. Relevant extracts of the report on the FIU­ IND STR No.10000062974 are as under: “The   firm   withdrew   cash   Rs.5.14   crores during   last   F.Y.   i.e.   2010­11   and   Rs.5.25 crores   during   current   financial   year   2011­

Almost 50% of the total  debits  are by way of cash withdrawals. The cash withdrawal are   varied   and   range   from   Rs.1.20   lacs   to Rs.25 Lacs. The withdrawing of huge cash is not   commensurate   with   the   reported   profile and activity of the firm i.e. Oil Mill.” On   going   through   the   report,   it   is ascertained   that   in   such   kind   of   business there is no need of huge cash withdrawals. Further the modus operandi of whole business is to suppress the sale and to avoid income tax liability. Therefore, it is need to go through such heavy cash transactions. Hence, cash withdrawal of Rs.5.14 crores has escaped assessment within the meaning of section 147 of the I.T.Act.”

On a perusal of the reasons recorded, it is evident   that   the   sole   ground   on   which   the Assessing Officer seeks to reopen the assessment is   that   the   petitioner   has   made   huge   cash withdrawals from its bank accounts. On this sole basis,   the   Assessing   Officer   has   formed   the opinion   that   cash   withdrawal   of   Rs.5.14   crores has   escaped   assessment   within   the   meaning   of section 147 of the Act.

Section 147 of the Act can be invoked where the Assessing Officer has reason to believe that any   income   chargeable   to   tax   has   escaped assessment   for   any   assessment   year.   Therefore, the basic requirement for reopening an assessment is   that   income   chargeable   to   tax   has   escaped assessment. In the present case, it is not the case   of   the   Assessing   Officer   that   the   amount deposited in the bank accounts of the petitioner is unaccounted money or that the source is not explained. The Assessing Officer has termed the cash withdrawals from the bank accounts of the petitioner as escapement of income chargeable to tax.   In   the   opinion   of   this   court,   when   the source of the amounts which were deposited in the banks has not doubted by the Assessing Officer, mere withdrawal of the tax paid amounts from the bank accounts of the petitioner, can by no means be   termed   as   escapement   of   income   within   the meaning   of   such   expression   as   envisaged   in section 147 of the Act. Under the circumstances, the   basic   requirement   of   reopening   the assessment, namely that income chargeable to tax has escaped assessment, has not been satisfied. In the absence of any material to form the belief that   income   chargeable   to   tax   has   escaped assessment,   the   reopening   of   assessment   under section 147 of the Act lacks validity.

Besides, it is an admitted position that the assessment   is   sought   to   be   reopened   beyond   a period of four years from the end of the relevant assessment   years.   On   a   perusal   of   the   reasons recorded   for   reopening   the   assessment   for   both the   assessment   years   in   their   entirety,   it   is evident that there is not even a whisper therein to   show   that   the   petitioner   has   failed   to disclose   fully   and   truly   all   material   facts necessary   for   its   assessment.   Since   in   these cases, earlier in respect of both the assessment years, assessment has been framed under section 143(3) of the Act, in the absence of any failure on the part of the petitioner to disclose fully and truly all material facts, the assumption of jurisdiction on the part of the Assessing Officer under section 147 of the Act beyond a period of four   years   from   the   end   of   the   relevant assessment years, is invalid.

While   it   is   true   that   the   petitioner   had participated   in   the   proceedings   before   the Assessing   Officer   pursuant   to   the   impugned notices and had raised objections at a subsequent stage, having regard to the fact that the basic requirement for reopening the assessment, namely material to form the requisite belief that income chargeable to tax has escaped assessment, is not satisfied,   it   would   not   be   just   and   proper   to call upon the petitioner to face the assessment proceedings   and   thereafter,   challenge   the   same before   the   appellate   authorities.   While   in   a given case, the court may be inclined to ask the petitioner to avail of the alternative remedy by facing the assessment proceedings, as held by the Bombay   High   Court   in   the   case   of  Amaya Infrastructure   P.   Ltd.   v.   Income­Tax   Officer (supra),   having   regard   to   the   facts   of   the present case, where, from the reasons recorded, the formation of belief by the Assessing Officer that   income   chargeable   to   tax   has   escaped assessment, is itself without any foundation, the court is not inclined to relegate the petitioner to   face   the   re­assessment   proceedings   and   then avail of the alternative remedy.

In   the   light   of   the   above   discussion,   the petitions succeed and are, accordingly, allowed. The impugned notices dated 29.03.2018 issued by the   respondent   under   section   148   of   the   Act reopening   the   assessment   of   the   petitioner   for the   assessment   years   2011­12   and   2012­13 respectively,   and   all   proceedings   pursuant thereto are hereby quashed and set aside. Rule is made   absolute   accordingly   with   no   order   as   to costs. (HARSHA DEVANI, J) (SANGEETA K. VISHEN,J) PRAVIN KARUNAN