GANESH VALABHAI FAMILY TRUST vs. DY COMMISSIONER OF INCOME TAX

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SCA/9600/1995HC GujaratGJHC24020393199527 February 2008Author: HONOURABLE MR. JUSTICE D.A.MEHTA,HONOURABLE MR. JUSTICE Z.K.SAIYED7 pages
AI SummaryAllowed

What did the High Court hold?

The High Court held that the impugned Notice seeking to reopen the completed assessment for Assessment Year 1983-84 under Section 143(3) could not be permitted to operate. The court reiterated the well-settled position that for reopening an assessment beyond four years from the end of the assessment year, the revenue must prima facie establish that income has escaped assessment due to the assessee's omission or failure to fully and truly disclose material particulars. Examining the reasons recorded, the court found that the basis was the TDS certificate, where column 4 states 'amount credited or paid in pursuance of the contract'. However, the reasons conflated this with 'work done'. The court clarified that the TDS certificate does not reflect the work actually done, and the obligation to deduct tax arises at the time of payment or credit. The facts showed that the work done in the relevant year was Rs. 1,98,800/-, not Rs. 20 lacs and odd. Therefore, there was no basis to infer that the entire amount was payment for work done. Consequently, the reopening was not permissible in law due to the absence of evidence showing the assessee's failure or omission to disclose relevant particulars. The impugned Notice dated March 31, 1994, was quashed and set aside. The petition was allowed.

What were the facts?

The petitioner, Ganesh Valabhai Family Trust, an association of persons engaged in building and development, filed its return of income for Assessment Year 1983-84 showing Nil income. The original assessment order was framed on March 31, 1986, under Section 143(3) of the Income Tax Act, 1961, determining a total income of Rs. 1,37,930/-. Subsequently, a Notice dated March 31, 1994, under Section 148 of the Act was issued to reopen the assessment. The reasons recorded for reopening indicated a discrepancy between the amount paid to the assessee for work done as per a tax deduction certificate (Rs. 20,57,903/-) and the work done shown in the return (Rs. 1,98,800/-). The notice was issued beyond four years from the end of the assessment year.

What were the issues?

1. Whether the Notice dated March 31, 1994, issued under Section 148 of the Income Tax Act, 1961, for reopening the assessment for Assessment Year 1983-84, is valid in law, considering it was issued beyond four years from the end of the assessment year? Assessee's Contentions: The petitioner argued that the impugned Notice was bad in law as there was no omission or failure on its part to fully and truly disclose all material particulars. The profit and loss account, balance sheet, and ledger account clearly showed that the receipt towards work done was Rs. 1,93,800/-, while Rs. 20,66,303/- was an advance received. The original assessment order under Section 143(3) had already considered this aspect. Reliance was placed on Calcutta Discount Co. Ltd. vs. Income Tax Officer, Income Tax Officer vs. Lakhmani Mewal Das, Parashuram Pottery Works Co. Ltd. vs. Income Tax Officer, and Krishna Metal Industries vs. H.M. Algotar. Revenue's Contentions: The respondent contended that the reopening was justified based on a tax deduction at source certificate (Form No. 26C) under Section 194C, which reflected Rs. 20,51,903/- credited or paid in pursuance of the contract. The assessee had failed to disclose this amount as income, thus failing to furnish full and true particulars. The revenue also referred to a communication dated January 8, 1991, stating that the TDS certificate was filed with the return for the subsequent year, justifying the belief that income had escaped assessment.

Which sections of the Income-tax Act were involved?

Section 148,Section 143(3),Section 194C,Section 147

AI-generated summary — verify with the full judgment below

SCA/9600/1995 1/7 IN THE HIGH COURT OF GUJARAT AT AHMEDABAD SPECIAL CIVIL APPLICATION No. 9600 of 1995 For Approval and Signature: HONOURABLE MR.JUSTICE D.A.MEHTA

HONOURABLE MR.JUSTICE Z.K.SAIYED ====================================== 1 Whether Reporters of Local Papers may be allowed to see the judgment ? NO 2 To be referred to the Reporter or not ?NO 3 Whether their Lordships wish to see the fair copy of the judgment ? NO 4 Whether this case involves a substantial question of law as to the interpretation of the constitution of India, 1950 or any order made thereunder ? NO 5 Whether it is to be circulated to the civil judge ? NO ====================================== GANESH VALABHAI FAMILY TRUST - Petitioner(s) Versus DY COMMISSIONER OF INCOME TAX - Respondent(s) ====================================== Appearance : MR SN SOPARKAR, SENIOR ADVOCATE WITH MR VARUN PATEL for Petitioner(s) : 1, NOTICE SERVED for Respondent(s) : 1, MR MANISH R BHATT for Respondent(s) : 1, ========================================= = CORAM : HONOURABLE MR.JUSTICE D.A.MEHTA and HONOURABLE MR.JUSTICE Z.K.SAIYED

SCA/9600/1995 2/7 Date : 27/02/2008 ORAL JUDGMENT (Per : HONOURABLE MR.JUSTICE D.A.MEHTA) 1 This petition challenges Notice dated 31.03.1994 (Annexure 'A') issued u/s. 148 of the Income Tax Act, 1961 (the Act). 2 The petitioner is an association of persons, carrying on business as builder and developer. For Assessment Year 1983- 84 return of income came to be filed originally on 18.07.1984 showing total income at Nil. This was revised on 18.02.1986 declaring total income at Nil. The Assessment Order came to be framed on 31.03.1986 u/s. 143(3) of the Act on a total income of Rs.1,37,930/-. 3 As the Notice issued u/s. 148 of the Act is beyond the period of four years from the end of the Assessment Year upon Notice being issued, the respondent has placed on record copy of reasons recorded on 31.03.1994 which reads as under : “As per tax deduction certificate filed, the total amount paid to assessee for work done is stated of Rs.20,57,903/- instead the work done is shown in the return of income amounting to Rs.1,98,800/-

SCA/9600/1995 3/7 by the assessee. Illegible. GANESH VALABHAI FAMILY TRUST A.Y. 1983-84. The assessee has wrongly shown the contract receipt at Rs.1,93,800/- while as per the T.D.S. Certificate, the work done is shown at Rs.20,51,903/-. Thus the assessee has not furnished fully and truly all particulars necessary for computation of its income and furnished inaccurate particulars of its income. I have, therefore, reason to believe that the income chargeable to tax has escaped assessment for Assessment Year 1983-84. Sd/-Illegible. “ 4 Mr. S.N. Soparkar, learned Senior Advocate appearing on behalf of the petitioner contended that the impugned Notice was bad in law as there was no omission or failure on part of the assessee to fully and truly disclose all material particulars necessary for the purpose of assessment. That in fact the profit and loss account, the balance sheet and the ledger account of the society i.e. Mayur Mala Co.operative Housing Society Limited clearly reflect that the receipt towards the work done during the accounting period relevant to the Assessment Year in question was only Rs.1,93,800/-, while the amount of Rs.20,66,303/- was advance received from the said society. That in fact the original assessment order framed u/s. 143(3) of SCA/9600/1995 4/7 the Act has specifically considered this aspect of the matter as could be seen from paragraph No.7 of the said Assessment Order, and therefore, the reasons for reopening are not germane and did not reflect that there is any omission or failure on part of the petitioner-assessee. In support of the submissions made reliance has been placed on the following decisions : [1] Calcutta Discount Co. Ltd. Vs. Income Tax Officer – (1961) 41 ITR 191. [2] Income Tax Officer Vs. Lakhmani Mewal Das – (1976) 103 ITR 437. [3] [4] Krishna Metal Industries Vs. H.M. Algotar – (1997) 225 ITR 853. 5 On behalf of the respondent-revenue learned Senior Standing Counsel Shri M.R.Bhatt submitted that the reopening was based on certificate issued for tax deducted at source in form No.26C as required by Provisions of Section 194C of the Act. That the copy of the said certificate dated 29.11.1982 specifically reflected in column No.4 that an amount of Rs.20,51,903/- was credited or paid in pursuance of the contract and therefore once the payment was pursuant to the contract the assessee was duty bound to disclose the same as income. The assessee having failed to do so the reopening

SCA/9600/1995 5/7 was justified in light of the provisions of section 147 of the Act. That the assessee had failed to furnish fully and truly all particulars necessary for computation of its income. He has also invited attention to communication dated 08.01.1991 to point out that the respondent authority had recorded in paragraph No. 2 of the said communication that the certificate for deduction of tax at source had been filed along with return of income for Assessment Year 1984-85 i.e. the subsequent year, and hence the Assessing Officer was justified in having a reason to believe that income had escaped assessment. 6 Having heard the learned Advocates appearing for the respective parties, it is apparent that the impugned Notice seeking to reopen completed assessment for Assessment Year 1983-84 u/s. 143(3) of the Act cannot be permitted to operate. The position is well settled that in the event an assessment is sought to be reopened beyond a period of four years from the end of the Assessment Year in question revenue has to prima facie establish that income has escaped assessment, and such escapement of income is as a result of omission or failure on part of the assessee to fully and truly disclose all material particulars necessary for assessing such income. If the reasons recorded are examined it becomes clear that the basis is the SCA/9600/1995 6/7 certificate of tax deduction at source. As already noticed hereinbefore, column No. 4 of the prescribed form reads “amount credited or paid in pursuance of the contract”. However, in the reasons recorded the respondent has stated that as per T.D.S. certificate the work done is shown at Rs.20,51,903/- while in the return of income the work done is shown at Rs. 1,98,800/-. The certificate of tax deduction at source does not speak of the work done. In fact u/s. 194C of the Act the obligation to deduct tax arises either at the time of payment or at the time of crediting the account of the payee. The form i.e. form No.26C does not reflect that the payment or the credit is in relation to the work actually done. In both the situations, viz. at the time of credit to the account of the payee, or in case of actual payment, it is bound to be in pursuance of the contract and hence, from the same it is not possible to draw an inference that the credit/payment is for the work actually done. As the facts of the present case show, the work done pursuant to the contract in the year under consideration is to the tune of Rs.1,98,800/- and not sum of Rs.20 lacs and odd as suggested by the respondent authority in the reasons recorded. In fact, on facts, there is no basis for recording such a decision that the total amount of Rs.20,51,903/- is payment for work done.

SCA/9600/1995 7/7 In the aforesaid set of facts and circumstances of the case, the reopening is not permissible in law considering the fact that Notice u/s. 148 of the Act has been issued after a period of four years from the end of Assessment Year in question in absence of any evidence to show any failure or omission on the part of the assessee to disclose truly and fully all relevant particulars of income in the return of income.

Accordingly impugned Notice dated 31.03.1994 (Annexure 'A') is hereby quashed and set aside. The petition is allowed accordingly. Rule made absolute. There shall be no order as to costs. (D.A. Mehta, J.) (Z.K. Saiyed, J.) M.M.BHATT

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