ALPESHKUMAR DAHYABHAI PATEL vs. INCOME TAX OFFICER

Petitioner   has   challenged   a   notice   dated 31.03.2017   issued   by   the   respondent   no.2­Assistant Commissioner of Income Tax (Circle 3(3)), Ahmedabad, seeking to reopen the petitioner's assessment for the assessment year 2010­11. 2. Brief facts are as under.

Petitioner   is  an  individual  and   is  partner   of various   firms,   which   firms   are   engaged   in   the activity   of   development   of   real   estate   and construction.   For the assessment year 2010­11, the assessee had filed the return of income on 31.03.2011 declaring total income of Rs.14,33,540/­. Such return was taken in scrutiny by the Assessing Officer. He passed the order of assessment under section 143(3) of the Income Tax Act, 1961 ('the Act' for short) on 28.03.2013. To reopen such assessment, the impugned notice came to be issued, which as can be seen, was done beyond the period of four years from the end of relevant assessment year.   In order to do so, the Assessing Officer had recorded following reasons: “ The   assessee   has   filed   his   return   of income   for   A.   Y.   2010­11   declaring   total income at Rs.14,33,540/­ on 31.3.2011. On   scrutiny   of   case   records   of   the assessee for A.Y. 2010­11, revealed that the assessee had shown the profit from the firm M/s.Satyam   Gokul   Corporation   amounting   to Rs.7,65,85,994/­.     It   is   noticed   that   the income   of   the   firm   M/s.Satyam   Gokul Corporation   was   Rs.32,00,25,630/­   as   such the   share   of   the   profit   of   the   assessee being 20% comes to Rs.6,40,05,126/­ against which the assessee claimed to have received Rs.7,65,85,993/­ as his share of profit from the firm.

Further, it is also revealed that the share   of   profit   received   by   the   assessee from M/s. Satyam Associates on the basis of survey   report   mentioning   as   to   receipt   of share   of   profit   by   the   assessee   of Rs.26,00,028/­ for F.Y. 2009­10 (A.Y. 2010­ 11). The   assessee   has   shown   only Rs.5,11,243/­ as profit from the firm M/s. Satyam   Associates   for   F.Y.   2009­10   (A.Y. 2010­11) and did not claimed exemption u/s. 10(2A) of the Act as the same was not taxed in the hands of the firm and has thus was required   to   be   added   as   income   of Rs.20,88,785/­ (Rs.26,00,028 – Rs.5,11,243).

It   is   also   noticed   that   the   assessee individual has earned income by way of his share in the total income of the firm M/s. Satyam

Upon   being   supplied   with   such   reasons,   the assessee raised detailed objections to the notice of reopening   under   a   communication   dated   10.08.2017. Such   objections   were   however   rejected   by   the Assessing Officer by an order dated 21.08.2017, upon which, this petition came to be filed.

Taking us through the reasons recorded, counsel for the petitioner submitted that; (i) Original   assessment   was   framed   after scrutiny. Impugned notice has been issued beyond a period of four years from the end of relevant assessment year.   There was no failure on the part of the assessee to disclose truly and fully all   material   facts. Impugned   notice   is

On   the   other   hand,   learned   counsel   for   the Revenue   supported   the   action   of   the   department contending   that   the   Assessing   Officer   has   recorded proper reasons before issuing notices.  He submitted that   there   was   no   trace   of   the   electronic   notice stated to have been received by the assessee.  Only notice issued by the department was one issued by the respondent no.2 herein.

In   facts   of   the   present   case,   we   are   not required   to   go   into   the   question   of   one   or   more notices   having   been   issued   by   the   departmental authorities.  We may straightway examine the validity of the reasons recorded by the Assessing Officer for issuing the notice.

Analysis of the reasons recorded would show that the Assessing Officer has pressed in service three separate   reasons.     In   his   first   such   reason,   he points out that the assessee had shown profit from M/s.Satyam   Gokul   Corporation   of   Rs.7.65   crores (rounded off).  Satyam Gokul Corporation had declared profit   of   Rs.32.00   crores   (rounded   off).     The assessee's share being 20% thereof, the figure would come   to   Rs.6.40   crores   (rounded   off).     As   against this, since the assessee had claimed to have received Rs.7.65 crores by way of share of his profit from the said firm, the excess of Rs.1.25 crores (rounded off) is required to be added as the income of the assessee under section 68 of the Act.

As against this, the assessee in the objections had   pointed   out   that   the   assessee   had   received   a total of Rs.7.65 crores by way of his share in two separate   partnership   firms   i.e.   Satyam   Gokul Corporation, Ahmedabad and Satyam Gokul Corporation as under: i) Profit from M/s. Satyam Gokul Corporation (Ahmedabad ) Rs.3,17,86,000.00 ii) Profit from M/s. Satyam Gokul Corporation Rs.4,47,99,993.37 TOTAL (Rs.) Rs.7,65,85,993.37 The Assessing Officer however, did not accept this objection.

The   petitioner   has   also   produced   necessary matching documents to make good this contention.  We notice that in the return that the petitioner filed, he   is   shown   to   have   received   a   total   amount   of Rs.7.65 crores by way of share of the profit from firm Satyam Gokul Corporation, Ahmedabad.   Thus, in this return, he had not given the break­up of the receipt   from   two   different   partnership   firms. However,   during   the   assessment   proceedings,   he   had given the details in respect of the tax free income which   was   received   from   three   separate   firms   as under: NAME OF FIRM AMOUNT Profit From Satva Associates 511243.8 Profit From M/s. Satyam Gokul Corporation (Ahd.) 31786000 Profit From M/s. Satyam Gokul Corporation 44799993.37 TOTAL 77097237.17

The petitioner has also produced the returns of the   said   two   firms   Satyam   Gokul   Corporation, Ahmedabad and Satyam Gokul Corporation.  The returns of   both   these   firms   show   matching   figures.     For example,   in   case   of   Satyam   Gokul   Corporation,   in return,   the   gross   profit   shown   was   Rs.32   crores. Profit   after   depreciation   was   shown   at   Rs.22.40 crores. This   profit   was   distributed   to   the partners   in   the   proportion   of   their   share.     The assessee having 20% share, received Rs.4.47 crores.

Similarly, the return of income filed by Satyam Gokul Corporation, Ahmedabad, showed profit of Rs.23 crores.   Profit after depreciation came to Rs.15.89 crores.     The   assessee   having   20%   share   in   the partnership business, received 3.17 crores out of the same.

Thus, the Assessing Officer's recording that the assessee had received sum of Rs.7.65 crores by way of a share of profit from Satyam Gokul Corporation is not correct.   In fact, his assumption that assessee should   have   received   6.40   crores   being   20%   of   the profit of Rs.32 crores of Satyam Gokul Corporation itself   was   erroneous.     All   in   all,   the   assessee correctly points out that he had received a total of Rs.7.65 crores by way of share of profit from two separate partnership firms.

Coming   to   the   second   reason,   the   Assessing Officer believed that the assessee had received Rs.26 lakhs (rounded off) by way of his share of profit from M/s.Satva Associates.  He had instead shown only a   sum   of   Rs.5.11   lakhs   for   the   current   year. Therefore,   the   difference   i.e.   Rs.20.88   lakhs   was required to be added.  As against this, the assessee pointed   out   in   the   objections   that   the   sum   of Rs.26.00   lakhs   was   not   received   by   him   during   the current year but was received in the previous year. In the current year, the assessee had only received Rs.5.11   lakhs   which   was   shown   in   the   return.     In support of his contention, the assessee pointed out that   the   return   of   said   Satva   Associates   was   also scrutinized and after scrutiny, such distribution of the partner's profit for the assessment year 2009­10 has been accepted.

From the record, it emerges that the Assessing Officer   has   committed   an   error   in   drawing   a presumption that the assessee received Rs.26 lakhs by way of share of profit from Satva Associates during the   present   year.     The   record   suggests   to   the contrary.  This reason is also therefore not valid.

The third reason cited by the Assessing Officer is   of   disallowance   of   expenditure   in   relation   to earning   tax   exempt   income.     According   to   him,   the income of assessee of Rs.7.65 crores was not taxable. The expenditure relatable to such income should be disallowed in terms of section 14A of the Act read with rule 8D.   We are not on the validity of this contention of the Assessing Officer.   Present is a case where the reopening of assessment is sought to be made beyond the period of four years.  There being no   element   of   failure   of   the   assessee,   disclosing full   facts,   reopening   would   not   be   permissible   on this ground also.

In   the   result,   impugned   notice   is   set   aside. Petition is disposed of. (AKIL KURESHI, J) (B.N. KARIA, J) ANKIT SHAH