AKSHAR BUILDERS AND DEVELOPERS vs. ASSTT. COMMISSIONER OF INCOME TAX, CIRCLE 28(1) AND ANR

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WP/14490/2018HC BombayHCBM01057617201817 January 2019Author: HON'BLE SHRI JUSTICE M.S. SANKLECHA,HON'BLE SHRI JUSTICE AKIL KURESHI7 pages
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What did the High Court hold?

The High Court held that the Assessing Officer (AO) had failed to apply his mind to the material before him, leading to a lack of tangible material to form a belief that income had escaped assessment in the hands of the petitioner, Akshar Builders and Developers (AB&D). The court noted that the information from the investigation wing suggested cash payments to AD, while the notice of reopening was issued against AB&D. The AO's attempt to bridge this gap by suggesting that AD and AB&D were the same entity was not supported by the fact that both entities had distinct identities, different partners, and separate PAN numbers, which the revenue did not dispute. The court found that the AO had issued the notice to a wrong person, demonstrating a total lack of application of mind and reliance on erroneous information. Consequently, the impugned notice of reopening was set aside. The court reiterated that even when an assessment is accepted under Section 143(1), the AO must have a genuine reason to believe income has escaped assessment and cannot proceed mechanically or on incorrect information. The petition was disposed of accordingly.

What were the facts?

The petitioner, Akshar Builders and Developers (AB&D), a partnership firm, challenged a notice dated March 29, 2018, issued by the Assessing Officer (AO) to reopen its assessment for Assessment Year (AY) 2011-12. The AO's reasons for reopening were based on information from a survey conducted on M/s. Mudra Finvest (Guj) Ltd. (Mudra), which revealed digital data indicating cash payments from Mudra Real Estate Private Ltd. (Mudra Real Estate), a group entity, to M/s. Akshar Developers (AD) amounting to Rs. 3,54,82,000/- during FY 2010-11. The AO believed this income had escaped assessment as AB&D had filed a NIL return for AY 2011-12. AB&D filed objections, which were rejected. The petitioner argued that the information pertained to AD, not AB&D, and that both entities had distinct identities, partners, and PAN numbers. The AO had also issued a reassessment order in Mudra's case without making additions related to these payments.

What were the issues?

1. Whether the Assessing Officer had valid reasons to believe that income chargeable to tax had escaped assessment for AY 2011-12 in the case of the petitioner, Akshar Builders and Developers (AB&D), under Section 147 of the Income Tax Act, 1961. Assessee's contentions: The petitioner argued that the material relied upon by the AO, which indicated cash payments from Mudra Real Estate to Akshar Developers (AD), did not pertain to the petitioner (AB&D). The petitioner emphasized that AB&D and AD are distinct entities with different partners and PAN numbers. Furthermore, the petitioner noted that the reassessment order in Mudra's case did not include any additions related to these alleged payments, suggesting the department did not rely on them. The petitioner contended that the AO acted on erroneous information and lacked tangible material to form a belief of escaped income. Revenue's contentions: The revenue argued that the initial assessment was accepted under Section 143(1) without scrutiny, granting the AO a wider scope to reopen. The revenue relied on the Supreme Court's decision in ACIT vs. Rajesh Jhaveri Stock Brokers (P) Ltd. (2007) 291 ITR 500, asserting that the sufficiency of material for reopening should not be scrutinized by the Court at this stage. The revenue maintained that the AO possessed sufficient material to form a belief of escaped assessment.

Which sections of the Income-tax Act were involved?

Section 147,Section 148,Section 151,Section 131,Section 143(1)

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Cited by 4 judgments on BharatTax

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Uday S. Jagtap 14490-18-WP-901=.doc IN THE HIGH COURT OF JUDICATURE AT BOMBAY CIVIL APPELLATE JURISDICTION WRIT PETITION NO. 14490 OF 2018

Akshar Builders and Developers .. Petitioner v/s. Asstt. Commissioner of Income Tax­28(1) Mumbai & Anr. .. Respondents Ms. Ritika Agarwal I/b ACE Legal for the petitioner Mr. N.C. Mohanty for the respondents

CORAM : AKIL KURESHI &

M.S. SANKLECHA, J.J.

DATED  : 17th JANUARY, 2019 P.C.

1.

The petitioner has challenged a notice of reopening of assessment dated 29th  March, 2018 under which the respondent no.1­ Assessing Officer has reopened the petitioner's assessment for A.Y. 2011­12. In order to issue the notice, the Assessing Officer had recorded following reasons :­ “1. In this case return of income for A.Y. 2011­12 has been filed on 25.3.2013 declaring total income at Rs. NIL/­.     The assessee is a builder and developer.

2.

A   detailed   investigation   report   has   been   forwarded   by Directorate   of   Investigation,   Unit­1(2),   Ahmedabad   regarding survey action conducted on M/s. Mudra Finvest (Guj) Ltd. On 8.12.2016. The entity is involved in the jewellery business.

3.

Four hard disk which contain digital data were impounded from the premises, 6 ground floor, revdi bazaar, Ahmedabad 1 of 7

Uday S. Jagtap 14490-18-WP-901=.doc during survey.      On examination of these disks it is seen that M/s. MUDRA REAL ESTATE PRIVATE LTD is a group entity who has   constructed   and   developed   project   “4­D   SQUARE”   in Ahemdabad – Gandhi Nagar road.

3.

1 The tally data from the disk, contained ledgers of various parties cash book, trial balance, P/I account and balance sheet of M/s. Mudra Real Estate Private Ltd. For F.Y. 2010­11. On perusal of the same it is seen that huge amount was paid in cash to   various   entities.       The   name   of   AKSHAR   BUILDER   AND DEVELOPER PAN : AANFA3072H appears as one of these entities and is JV PARTNER in the development and construction of '4­D SQUARE'.    A cash amount of Rs.3,54,82,000/­ was paid to M/s. Akshar Builder and Developers on different dates.   The ledger account   retrieved   from   the   disks   of   the   period   1.4.2010   to 31.3.2011 showing cash entries paid to M/s. Akshar Builders and Developers along with other information is forwarded to the undersigned.

4.

Specific information has been passed in the case of M/s. Akshar Builders and Developers regarding cash payments made by M/s. Mudra Real Estate Pvt. Ltd. Ahmedabad to M/s. Akshar Builders and Developers.  The assessee firm M/s. Akshar Builders and Developers has filed Nil return of income for the A.Y. 2011­

12.

The   information   received   from   DGIT   (Inv)   Unit   1(2), Ahmedabad is credible information.   The cash amount received amounting to Rs.3,54,82,000/­ is not accounted for and not offered for taxation.

5.

It   is   worth   mentioning   that   the   statement   of   Shri. Sanjaykumar Hundia Director of M/s. MUDRA REAL ESTATE PRIVATE LTD was recorded u/s 131 of the IT Act on 25.1.2018. He   has   admitted   to   knowing   M/s.   Akshar   Builders   and Developers who is co­developer of the project '4­D Square'.   The cash book of M/s. Mudra Real Estate Pvt. Ltd. Ahmedabad which is enclosed also reflects the amount paid to M/s. Akshar Builder and Developer.

6.

The analysis of the return of income filed does not reflect these transactions in the accounts or income.     The return of income   for   AY   2011­12   does   not   reflect   any   of   the   above transaction.   The statement by the director of M/s. Mudra Real Estate Pvt. Ltd. the cash book,ledger account reveal that the assessee is having cash income of Rs.3,54,82,000/­ for FY 2010­ 11   for   FY   2010­11   relevant   to   A.Y.   2011­12   which   is   not 2 of 7

Uday S. Jagtap 14490-18-WP-901=.doc accounted for or disclosed for taxation.

7.

In view of the above, I have reason to believe that income chargeable to tax which has escaped assessment to the tune of Rs.3,54,82,000/­ (Rs. Three Crore fifty four lakhs eighty two thousand   only)   chargeable   to   tax   within   the   meaning   of Explanation 2(b) of Section 147 of the I.T. Act, 1961. As such it is a fit case for issuance of notice u/s 148 of the Income Tax Act, 1961. 8. In this case, since more than four years have lapsed from the end of assessment year under consideration, hence necessary sanction to initiate proceedings u/s 147 and to issue notice u/s 148 of the I.T. Act may be accorded as per provisions of Section 151 of the Income Tax Act.”

2.

Upon being supplied the reasons, the petitioner filed objections to the notice of reopening under communication dated 28th  November, 2018. Such objections were however rejected by the Assessing Officer by order dated 14th December, 2018. 3. The   petitioner   is   a   partnership   firm,   Akshar   Builders   and Developers ("AB&D" for  short).     For  Assessment  Year  2011­12,  the petitioner had filed its return of income which was accepted under Section   143(1)   of   the   Income   Tax   Act,   1961   ("the   Act"   for   short) without scrutiny.    To reopen such assessment the impugned notice has been issued.  The main ground of challenge raised by the Counsel for the petitioner is that there was no tangible material available with the Assessing Officer to form a belief that the income chargeable to tax has 3 of 7

Uday S. Jagtap 14490-18-WP-901=.doc escaped assessment.   She pointed out that the Assessing Officer relies on the documents seized during the survey operation against one M/s. Mudra Real Estate Pvt. Ltd. ("Mudra" for short) which recorded certain cash   payments   to   one   M/s.   Akshar   Developers   ("AD"   for   short). Counsel submitted that the petitioner AB&D, a partnership firm, has distinct identity and different partners from AB, another partnership firm having different set of partners.     She pointed out that both the partnership firms have different PAN numbers.  The Assessing Officer, therefore, acted on a material prima facie showing payments by Mudra to AD and reopened the assessment in case of the present petitioner. Counsel further submitted that the reassessment in case of Mudra has now   been   done   by   the   Assessing   Officer,   passing   order   on   31st December, 2018 in which also there is no addition in relation to the said   alleged   payments   by   Mudra   to   AD.       In   other   words,   the Department in the assessment in case of Mudra has not relied on the payments in question.

4.

On the other hand, learned Counsel for the Department opposed the petition contending that previously assessment was not framed after scrutiny.  The Assessing Officer therefore would have much wider scope to reopen the assessment.   In this regard, he relied upon the decision of 4 of 7

Uday S. Jagtap 14490-18-WP-901=.doc AB&D.  However, the document supplied by the Assessing Officer which is a copy of the ledger account of AD in the books of Mudra, at best suggests that such cash payment was made to AD and not to the AB&D, 5 of 7

Uday S. Jagtap 14490-18-WP-901=.doc whereas notice of reopening of assessment is issued against AB&D i.e. the present petitioner.   To cover this mismatch, it is now sought to be suggested by the Assessing Officer that Investigation Wing informed him that the two entities are one and the same and AB&D is popularly referred to as AD.    However, this being the question of two entities being  separate,   having   different   partners  and  having  distinct     PAN numbers.  These aspects are not disputed by the Revenue either while disposing of the objections raised by the petitioner to the notice of reopening or in the affidavit filed in response to the present petition. We, therefore, proceeded on such basis.

6.

It is thus emerges from the record that the Assessing Officer has merely   acted   upon   the   information   submitted   to   him   by   the investigation wing that there is material to suggest that Mudra had paid cash amount to AB&D whereas, the material collected during the survey against Mudra  prima faice  suggests such cash payment to AD.     This would demonstrate total lack of application of mind on the part of the Assessing Officer.   If he had perused the material supplied to him by the   investigation   wing,   he   would   have   immediately   noticed   that material referred would suggest cash payment to AD and not AB&D i.e. the present petitioner. 6 of 7

Uday S. Jagtap 14490-18-WP-901=.doc

7.

Even in a case where the return filed by the assessee is accepted without scrutiny, as per the settled law, the Assessing Officer can issue a notice of reopening of assessment provided he has reason to believe that income chargeable to tax has escaped assessment.  The Assessing Officer cannot proceed mechanically and also on erroneous information that may have been supplied to him.     In fact, we note that in the present  case   the   Assessing   Officer  had  issued  a  notice   to   a  wrong person.   The impugned notice is, therefore, set aside.

8.

Petition is disposed of accordingly. (M.S. SANKLECHA, J.) (AKIL KURESHI, J.)

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