C/SCA/3023/2015 JUDGMENT IN HIGH COURT OF GUJARAT AT AHMEDABAD SPECIAL CIVIL APPLICATION NO. 3023 of 2015 FOR APPROVAL AND SIGNATURE: HONOURABLE MR.JUSTICE M.R. SHAH and HONOURABLE MR.JUSTICE S.H.VORA ================================================================ 1 Whether Reporters of Local Papers may be allowed to see judgment ? 2 To be referred to Reporter or not ? 3 Whether their Lordships wish to see fair copy of judgment ? 4 Whether this case involves substantial question of law as to interpretation of Constitution of India or any order made thereunder ? ================================================================ P C PATEL AND COMPANY....Petitioner(s) Versus DEPUTY CIT , GANDHIDHAM CIRCLE....Respondent(s) ================================================================ Appearance: MR VIVEK CHAVDA for MR SN DIVATIA, ADVOCATE for Petitioner(s) No. 1 MR PRANAV G DESAI, ADVOCATE for Respondent(s) No. 1 ================================================================ CORAM: HONOURABLE MR.JUSTICE M.R. SHAH and HONOURABLE MR.JUSTICE S.H.VORA Date : 06/05/2015 Page 1 of 14 HC-NIC Page 1 of 14 Created On Fri Feb 12 17:48:53 IST 2016 C/SCA/3023/2015 JUDGMENT ORAL JUDGMENT (PER : HONOURABLE MR.JUSTICE M.R. SHAH) 1. By way of this petition under Article 226 of Constitution of India to quash and set aside impugned notice dated 13.8.2013 (Annexure A) issued by respondent under section 148 of Income Tax Act (for short Act ) to reopen original assessment for AY 2010-11 as well as order of reassessment passed. 2. That petitioner filed return of income for AY 2010-11 on 5.10.2010 declaring total income of Rs.6,63,27,750/-. That said return of income was selected for scrutiny and Assessing Officer completed regular assessment under section 143(3) of Act after issuing/sending detailed questionnaire with notice under section 142(1) and after considering details submitted by petitioner in response to said notice. 2.1 That thereafter, respondent has issued impugned notice dated 13.8.2013 under section 148 of Act for AY 2010-11 to reassess total income. That in response to said notice, petitioner vide letter dated 22.8.2013 requested Assessing Officer to treat original return filed on 5.10.2010 as in response to impugned notice under section 148 of Act and also supplied copy of reasons recorded for reassessment. 2.2 That approximately, after period of 11 months, vide communication dated 8.7.2014, Assessing Officer supplied to petitioner assessee copy of reasons recorded. That Page 2 of 14 HC-NIC Page 2 of 14 Created On Fri Feb 12 17:48:53 IST 2016 C/SCA/3023/2015 JUDGMENT petitioner submitted objections against reopening of concluded and completed assessment, which came to be disposed of by Assessing Officer vide communication dated 13.1.2015. At this stage, petitioner has preferred present Special Civil Application under Article 226 of Constitution of India challenging impugned notice under section 148 of Act to reopen completed assessment for AY 2010-11. 2.3 As during pendendy of present petition, Assessing Officer has passed order of assessment under section 143(3) of Act read with section 147 of Act, petitioner has also challenged impugned order of assessment also. 3. Shri Vivek Chavda, for Shri SN Divetia, learned Advocate appearing on behalf of petitioner has vehemently submitted that reopening of assessment for AY 2010-11 is solely on basis of audit objection and/or audit objection by audit party and therefore, same is not permissible. It is submitted that therefore, forming opinion by Assessing Officer that income has escaped assessment has been vitiated. 3.1 It is vehemently submitted by Shri Chavda, learned Advocate appearing on behalf of petitioner that though in objections raised by petitioner against reopening of assessment, it was specifically stated that reopening of assessment is at instance of audit party and/or on audit objections raised by audit party only, Assessing Officer while disposing off objections has not Page 3 of 14 HC-NIC Page 3 of 14 Created On Fri Feb 12 17:48:53 IST 2016 C/SCA/3023/2015 JUDGMENT dealt with same at all. 3.2 It is further submitted that even in present Special Civil Application though petitioner has raised specific ground on aforesaid, in affidavit in reply, respondent has not dealt with same. Making above submissions and relying upon decision of Division Bench in case of Commissioner of Income-tax, Ahmedabad-IV vs. Shilp Gravures Ltd. reported in [2013]40 taxmann.com 309 (Gujarat) as well as in case of Rajrtan Metal Industries Ltd vs. Assistant Commissioner of Income Tax reported in [2014]49 taxmann.com 15 (Gujarat), it is requested to allow present Special Civil Application and quash and set aside impugned reopening of assessment for AY 2010-11. 4. Present petition is opposed by Shri Pranav G. Desai, learned Advocate appearing on behalf of Revenue. He has heavily relied upon affidavit in reply filed on behalf of respondent. 4.1 Shri Desai, learned advocate appearing on behalf of Revenue has vehemently submitted that impugned reopening proceedings to reopen assessment for AY 2010- 11 is absolutely just and proper and in consonance with Section 147 of Act. It is vehemently submitted that in present case, after forming independent opinion though petitioner was entitled for normal rate of depreciation i.e. 15%, petitioner availed higher rate of depreciation at 30%. It is submitted that higher rate of depreciation at 30% is admissible on motor vehicles only if they are used for Page 4 of 14 HC-NIC Page 4 of 14 Created On Fri Feb 12 17:48:53 IST 2016 C/SCA/3023/2015 JUDGMENT business of hiring. It is submitted that petitioner is not engaged in business of vehicle hiring and therefore, was/is not entitled for depreciation at 30%. It is submitted that therefore, having formed independent opinion, that amount of Rs.3,26,65,256/- (depreciation being restricted to 15% as against 30% as claimed) has escaped assessment, Assessing Officer has rightly reopened assessment and has rightly issued notice under section 148 of Act. 4.2 It is further submitted by Shri Desai, learned advocate appearing on behalf of revenue that now when reassessment order is already passed under section 143(3) r/w section 147 of Act, it is requested not to entertain present petition and relegate petitioner to avail remedy by way of appeal before learned CIT (Appeals) and if aggrieved, in that case, before learned Tribunal. 4.3 Relying upon para 6 of communication by Assessing Officer to higher authority while seeking approval to initiate reassessment proceedings and relying upon reasons recorded by Assessing Officer while issuing notice under Section 148 of Act, Shri Desai, learned Advocate appearing on behalf of petitioner has vehemently submitted that Assessing Officer had formed independent opinion that income of Rs.3,26,65,256/- had escaped assessment. It is submitted that therefore this is not case where assessment is reopened solely at instance of audit party and/or audit objection raised by audit party. It is submitted that therefore decisions upon which reliance has been placed by learned advocate appearing on behalf of petitioner shall not be applicable to Page 5 of 14 HC-NIC Page 5 of 14 Created On Fri Feb 12 17:48:53 IST 2016 C/SCA/3023/2015 JUDGMENT facts of case on hand and/or shall not be of any assistance to petitioner. 4.4 Relying upon decision of Hon ble Supreme Court in case of Commissioner of Income Tax v. P.V.S. Beedies Pvt. Ltd. reported in 237 ITR 13 (SC) and decision of Division Bench of this Court in case of N.K. Industries Ltd. v. Income Tax Officer (OSD) reported in 362 ITR 502 (Guj), it is vehemently submitted by Shri Desai, learned Advocate appearing on behalf of Revenue that as observed by Hon ble Supreme Court in aforesaid decision and Division Bench of this Court, on basis of information given by audit party and/or objection raised by audit party, reopening of assessment is permissible. It is submitted that therefore even in case where assessment is reopened on basis of objection raised by audit party and on information received by Assessing Officer pursuant to audit memo and/or objections raised by audit party, after forming opinion, reopening of assessment proceedings is permissible. Making above submissions and relying upon above decisions it is requested to dismiss present petition. 5. Heard learned advocates appearing on behalf of respective parties at length. At outset it is required to be noted that what is challenged in present Special Civil Application is impugned notice under section 148 of Act by which assessment for AY 2010-11 has been reopened. reasons recorded for reopening of assessment proceedings for AY 2010-11 reads as under: Page 6 of 14 HC-NIC Page 6 of 14 Created On Fri Feb 12 17:48:53 IST 2016 C/SCA/3023/2015 JUDGMENT assessee firm had filed return of income of Rs.6,63,27,750/- for AY 2010-11 on 5.10.2010. case was selected for scrutiny and assessment was completed u/s 143(3) of IT Act with total income assessed at Rs.7,88,27,750/-. assessee firm is engaged in business of construction and mining contractor. For AY 2010-11, assessee firm has claimed depreciation @ 30% on dumpers, lorries etc. amounting to Rs.6,53,30,512/-, assessee firm is primarily contractor and income received is towards civil works executed & from contract works. higher rate of depreciation @ 30% is admissible on motor vehicles only if they are used for business of hiring. In other cases, normal rate of depreciation i.e. @ 15% only is allowable. assessee firm being contractor and income received is from earthwork and contract income, and is not in business of transportation. above fact was not brought course of assessment proceedings, therefore, assessee has failed to disclose fully and truly all material facts necessary for assessment. Consequently, amount of Rs.3,26,65,256/- (depreciation being restricted to 15% as against 30% as claimed) has escaped assessment. 5.1 aforesaid reopening of assessment/re- assessment proceedings has been challenged mainly on ground that reopening of assessment is solely on basis of objection raised by audit party and/or audit objection and formation of opinion by Assessing Officer that income of Rs.3,26,65,256/- has escaped Page 7 of 14 HC-NIC Page 7 of 14 Created On Fri Feb 12 17:48:53 IST 2016 C/SCA/3023/2015 JUDGMENT assessment has been vitiated inasmuch as there is no independent formation of opinion by Assessing Officer on escapement of income from assessment. 5.2 It is required to be noted that though in objections raised by petitioner against reopening of assessment proceedings, petitioner specifically raised above ground, Assessing Officer while disposing off objections has not dealt with same. Even in petition said ground is raised, however same has not been dealt with in affidavit in reply. In affidavit in reply it is case on behalf of Revenue that while recording reasons for reopening of assessment and/or while reopening of assessment for AY 2010-11, Assessing Officer has formed opinion that income of Rs.3,26,65,256/- had escaped assessment. However, nothing has been mentioned with respect to any objections raised by audit party and/or any audit objection. Be that as it may, to satisfy ourselves whether reopening of assessment proceedings is solely on basis of audit objection raised by audit party and/or at instance of audit party only and/or whether there is any independent formation of opinion by Assessing Officer that income has escaped assessment, we called upon Revenue to produce relevant file/s and Shri Desai, learned Advocate appearing on behalf of Revenue has produce file/s before this Court for perusal. 5.3 From file, it appears that case was audited by revenue audit party. audit party issued LAR 2497, para 3. It also appears that same was sent to Assessing Page 8 of 14 HC-NIC Page 8 of 14 Created On Fri Feb 12 17:48:53 IST 2016 C/SCA/3023/2015 JUDGMENT Officer and Asst. Commissioner of Income Tax, Gandhidham and audit objection was brought to notice of Assessing Officer. However, Asst. Commissioner of Income Tax, Gandhidham raised objection against audit objection and justified his action of allowing depreciation at 30% by submitting that assessee had executed agreement of hiring of heavy earth moving machinery for excavation work with GMDC and Rajasthan Government and therefore, higher depreciation was eligible to assessee. It appears from file that explanation given by Assessing Officer was not accepted by audit party. 5.4 From file, it appears that thereafter, Commissioner of Income Tax, Rajkot on 8.8.2013 communicated to Joint Commissioner of Income Tax, Gandhidham that audit objection raised are acceptable and therefore, proceedings to reopen cases under section 147 of Act may be initiated, in prescribed manner in view of CBDT instructions on matter. From file, it appears that thereafter, Deputy Commissioner of Income Tax sent report in prescribed proforma to Commissioner of Income Tax so as to reopen assessment under section 147 of Act. Even proforma report on draft audit para No.1 LAR 2497, Deputy Commissioner of Income Tax continued to maintain that audit pointed out are not acceptable, however, case has been reopened under section 147 of Act to safeguards of revenue. Only thereafter, at instance of audit objection raised by audit party and instruction given by Commissioner of Income Tax to reopen assessment for AY 2010-11, Assessing Officer has issued notice under section 148 of Page 9 of 14 HC-NIC Page 9 of 14 Created On Fri Feb 12 17:48:53 IST 2016 C/SCA/3023/2015 JUDGMENT Act in proforma report while not allowing that and/or accepting audit objection, Deputy Commissioner of Income Tax/ Assessing Officer has stated as under: (i)Assessee-firm is engaged in business of providing equipments, motor Vehicles on hire, same fact has been duly stated by auditors in form No.3CD. Further, claim of assessee is also supported by Circular No.652 dated 14.06.1993. Since, basic nature of business of assessee itself is providing equipments and motor vehicles on hire, hirer rate of depreciation is admissible. ii) fact that nature of business is that of HIRING OF EQUIPMENTS/ MOTOR VEHICLES is established on basis of copies of tender for allotment of contract. reliance is also placed on CIT V. Madan & Co. (2002) 254 ITR 445(MAD) which is applicable to case under consideration, Here it was held that when vehicles are not used for purpose of owner, it is covered under word HIRE. In this case vehicles are not used for purpose of owner and hence it is appropriate to conclude that same has been HIRED TO THIRD PARTY. Once vehicles are established as having been given on hire, higher Claim of depreciation can be claimed. However, case was reopened u/ 5.147 of Act, to safeuards of revenue. 5.5 From aforesaid, it appears that even while sending proposal/proforma report to higher authority to grant approval for reopening assessment, Assessing Officer continued to maintain that audit objection raised by audit party is not acceptable and only with view to protect Page 10 of 14 HC-NIC Page 10 of 14 Created On Fri Feb 12 17:48:53 IST 2016 C/SCA/3023/2015 JUDGMENT revenue and/or safeguards interest of revenue, it was proposed to reopen assessment under section 147 of Act. There is no independent formation of opinion by Assessing Officer that amount of Rs.3,26,65,256/- has escaped assessment. complete assessment has been reopened only at instance of audit party and/or on audit objection raised by audit party, which is not permissible. Therefore, in facts and circumstances of case, formation of opinion by Assessing Officer while reopening completed assessment and his reason to believe that income as escaped assessment has been vitiated and therefore, reopening assessment proceedings for AY 2010-11 is not valid and permissible. 5.6 In case of Shilp Gravures Ltd. (Supra) after considering decision of Division Bench of this Court in case of Adani Exports v. Dy. CIT reported in [1999] 240 ITR 224 (Guj.) and decision of Division Bench of this Court in case of Cadila Healthcare Ltd. v. Asstt. CIT dated 14.12.2011 in Special Civil Application No.15566/2011, it is held that any reassessment proceeding initiated at instance of audit party objection without Assessing Officer himself having reason to believe that income chargeable to tax has escaped assessment must fail. Similar view has been taken by Division Bench of this Court in case of Raajratna Metal Industries Ltd. (Supra). 5.7 Now, so far as reliance placed upon decision of Hon ble Supreme Court in case of P.V.S. Beedies Pvt. Ltd. (Supra) and decision of Division Bench of this Court in case of N.K. Industries Ltd. (Supra) by Shri Page 11 of 14 HC-NIC Page 11 of 14 Created On Fri Feb 12 17:48:53 IST 2016 C/SCA/3023/2015 JUDGMENT Desai, learned Advocate appearing on behalf of Revenue is concerned, it is true that information given by audit party and/or on audit objection, can be used for purpose of reopening of assessment. However, for that there must be formation of opinion by Assessing Officer and/or Assessing Officer independently has reason to believe that income chargeable to tax has escaped assessment. Even in given case it may happen that initially Assessing Officer might have opposed audit objection by giving reply to audit party on audit objection as normally it is human tendency to stick to what is held and/or decided. However, subsequently, there can be formation of opinion by Assessing Officer on rethink of entire issue and even considering audit objection and may form independent opinion and/or may have reason to believe independently that income chargeable to tax has escaped assessment. However, in case like this where even while sending proposal to higher authority to grant approval for initiation of reassessment proceedings, Assessing Officer still maintain that audit objection raised by audit party is not valid and/or correct. Therefore, as such it cannot be said that Assessing Officer had independently formed opinion and/or had reason to believe independently that income chargeable to tax has escaped assessment. From correspondence between Assessing Officer and higher authority it appears that though Assessing Officer maintains that audit objection raised by audit party is not correct, however as amount involved is very high as mentioned by audit party and to safeguard interest of Revenue and guidelines issued reassessment proceedings have been initiated. Therefore, as Page 12 of 14 HC-NIC Page 12 of 14 Created On Fri Feb 12 17:48:53 IST 2016 C/SCA/3023/2015 JUDGMENT such formation of opinion by Assessing Officer that income chargeable to tax has escaped assessment has been vitiated and therefore, impugned reopening of assessment cannot be sustained and same deserves to be quashed and set aside. 5.8 Now, so far as submission of Shri Desai, learned advocate appearing on behalf of revenue that as now, order of assessment/reassessment under section 143(3) r/w section 147 has been passed and therefore, present petition may not be entertained is concerned, it is required to be noted that as such, reassessment proceeding has been passed during pendency of present petition. Even otherwise, when reopening of assessment is found to be invalid and not justifiable and same is solely based on audit objection raised by audit party, this is fit case to exercise powers under Article 226 of Constitution of India. 6. In view of above and for reasons stated above, present petition succeeds. Impugned notice dated 13.8.2013 issued under section 148 of Income Tax Act to reopen assessment for AY 2010-11 is hereby quashed and set aside and consequently reassessment proceedings for AY 2010- 11 are hereby quashed and set aside and consequential reassessment order dated 13.1.2015 passed under section 147 for AY 2010-11 is hereby quashed and set aside.. Rule is made absolute accordingly. However, in facts and circumstances of case, there shall be no order as to costs. (M.R.SHAH, J.) Page 13 of 14 HC-NIC Page 13 of 14 Created On Fri Feb 12 17:48:53 IST 2016 C/SCA/3023/2015 JUDGMENT (S.H.VORA, J.) shekhar Page 14 of 14 HC-NIC Page 14 of 14 Created On Fri Feb 12 17:48:53 IST 2016 P C Patel And Company v. Deputy CIT, Gandhidham Circle