VIREN SURESHCHANDRA SHAH v. ASSISTANT COMMISSIONER OF INCOME TAX CIRCLE 1(1)(2)  & 1
[Citation -2015-LL-0507-1]

Citation 2015-LL-0507-1
Appellant Name VIREN SURESHCHANDRA SHAH
Respondent Name ASSISTANT COMMISSIONER OF INCOME TAX CIRCLE 1(1)(2)  & 1
Court HIGH COURT OF GUJARAT AT AHMEDABAD
Relevant Act Income-tax
Date of Order 07/05/2015
Assessment Year 2007-08
Judgment View Judgment
Keyword Tags reopening of assessment • special civil application • failure to disclose truly and fully all material facts • assessment reopened after four years from the relevant ay • escapment of income • deemed dividend • additional depreciation • condition precedent for assumption of jurisdiction
Bot Summary: Thatthereafter,theAOfinalizedtheassessmentandpassedthe assessment order under Section 143(3) of the Act on 30.11.2009 acceptingreturnofincomeofthepetitioner. Ltd.Itissubmittedthatduringtherelevant assessment year, the assessment of the petitioner M/s. Jivraj Tea LimitedandM/s. 4,85,93,639/ has escaped assessment within the meaning of Section147oftheITAct. Asperthe 1stprovisotosection147oftheAct,assessmentcanbereopened undersectionI47oftheActafterexpiryof4yearsonlyif(1)the assesseefailedtomakeareturnundersectionI39oftheActorin responsetonotice issuedundersection142(1) orundersection 148oftheAct,hefailedtodisclosetrulyandfullyallmaterial facts necessary for the assessment. 17.Oncethecaseoftheassesseeiscoveredbythe1st provisoto section147oftheAct,thereassessmentproceedingsbeyondthe period of4years from the end ofthe relevant assessment year wouldbewithoutanyjurisdictionandbadinlaw,ifallmaterial factsarefurnishedandthereremainednoomissionorfailureon the part of the assessee to disclose truly and fully all material facts. Onhis having a reason to believe that income chargeable to tax had escapedassessmentforanyassessmentyear,canassessorreassess suchincome andalsoanysuchotherincome chargeabletotax, which has escaped the assessment. No such action is permissible after lapse of 4 years from the end of the relevant assessment year unless income chargeable to tax has escaped assessment on account offailure on the partofthe assessee to disclosefullyandtrulyallmaterialfactsnecessaryforthepurpose of such assessment.


C/SCA/3862/2015 JUDGMENT




INTHEHIGHCOURTOFGUJARATATAHMEDABAD

SPECIALCIVILAPPLICATIONNO.3862of2015


FORAPPROVALANDSIGNATURE:

HONOURABLEMR.JUSTICEM.R.SHAHsd/
and
HONOURABLEMR.JUSTICES.H.VORAsd/
=========================================
1 WhetherReportersofLocalPapersmaybeallowedtoseethe NO
judgment?

2 TobereferredtotheReporterornot? NO

3 Whether their Lordships wish to see fair copy of NO
judgment?

4 Whetherthiscaseinvolvesasubstantialquestionoflawasto NO
theinterpretationoftheConstitutionofIndiaoranyorder
madethereunder?

=============================================
VIRENSURESHCHANDRASHAH....Petitioner(s)
Versus
ASSISTANTCOMMISSIONEROFINCOMETAXCIRCLE1(1)(2)&
1....Respondent(s)
=============================================
Appearance:
MRBSSOPARKAR,ADVOCATEforthePetitioner(s)No.1
MRSUDHIRMMEHTA,ADVOCATEfortheRespondent(s)No.2
MRSMAUNAMBHATT,ADVOCATEfortheRespondent(s)No.1
=============================================
CORAM:HONOURABLEMR.JUSTICEM.R.SHAH
and
HONOURABLEMR.JUSTICES.H.VORA
Date:07/05/2015
ORALJUDGMENT
(PER:HONOURABLEMR.JUSTICEM.R.SHAH)


1.0. BywayofthispetitionunderArticle226oftheConstitution
ofIndia,thepetitionerhasprayedforanappropriatewrit,directionand
ordertoquashandsetasidetheimpugnednoticeunderSection148of


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theIncomeTaxAct,1961(hereinafterreferredtoastheAct)dated
31.3.2014(AnnexureAtothepetition),bywhich,theassessmentforAY
200708isreopened.


2.0. That petitioner filed his returned of income for AY
200708on15.10.2007declaringtotalincomeatRs.39,70,710/.The
casewasselectedforscrutinyandthenoticesunderSection142(1)and
143(2)oftheActwereissuedandserveduponthepetitionerfromtime
totime.Thatthereafter,theAOfinalizedtheassessmentandpassedthe
assessment order under Section 143(3) of Act on 30.11.2009
acceptingreturnofincomeofthepetitioner.


2.1. That thereafter, respondent no.2 has issued impugned
notice under Section 148 of Act dated 31.3.2014 reopening the
assessmentforAY200708.Ontherequestmadebytheassessee,theAO
hasservedthereasonsrecordedforreopeningoftheassessmentvide
letter dated 16.4.2014. That on receipt of reasons recorded, the
petitioner raised various objections against reopening of the
assessmentforAY200708videletterdated19.08.2014andrequested
todropthereassessmentproceedings.


2.2. Thatvideletterdated24.2.2015,theAOhasdisposedofthe
saidobjectionsandhasnotacceptedtherequestmadebytheassesseeto
drop reassessment proceedings. Hence, petitioner has preferred
presentSpecialCivilApplicationfortheaforesaidreliefs.


3.0. ShriB.S.Soparkar,learnedadvocateforthepetitionerhas
vehementlysubmittedthatinthepresentcasereassessmentproceedings
havebeeninitiatedbeyondtheperiodoffouryearsfromtherelevant
assessmentyearandevenonthelastdayofthe6years.Itissubmitted


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thattherefore,unlessanduntiltherewasanyfailureonthepartofthe
petitionertotrulyandfullydisclosedallthematerialfactsreopeningthe
complete assessment is not permissible. It is submitted therefore
initiation of reassessment proceedings is absolutely illegal and
whollywithoutjurisdiction.Itissubmittedthatmerelyhavingareasons
tobelievethattheincomehadescapedtheassessmentisnotsufficientto
reopenanassessmentbeyondtheperiodoffouryears.Itissubmitted
thatescapementofincomemustalsobeoccasionedbyafailureonthe
partoftheassesseetodisclosefullyandtrulyallmaterialfacts.


3.1. ShriSoparkar,learnedadvocateforthepetitionerhasalso
madesubmissionsonmeritsbysubmittingthatassuchinthereasons
recordedtheAOisnotjustifiedinreopeningtheassessment.


3.2. ItisfurthersubmittedbyShriSoparkar,learnedadvocate
forthepetitionerthatevenatthetimeofpassingtheoriginalassessment
orderandduringtheoriginalassessmentproceedings,theAOdidraise
queryrelatedtoSection2(22)(e)oftheActanddeemeddividendinthe
caseofM/s.VestaEximPvt.Ltd.Itissubmittedthatduringtherelevant
assessment year, assessment of petitioner M/s. Jivraj Tea
LimitedandM/s.VestaEximPvt.LtdwaswiththesameAOandthe
assessmentordersinallthesecaseswerealsoservedonthesameday.It
is submitted that therefore, all information was available and
examinedbythesameindividualandassessments wereframed.Itis
submittedthattherefore,itisnotopentorespondentno.2toreopenthe
assessmentofthepetitionerafterfouryearsintheabsenceofanyfailure
todiscloseanymaterialfactsandmerelyfortherecomputationtaking
differentviewonthesamematerialsavailablewithhim.
Makingabovesubmissions,itisrequestedtoallowpresentSpecial
CivilApplicationandgrantthereliefasprayedfor.


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4.0. Present petition is opposed by Ms. Mauna Bhatt, learned
advocate for revenue. affidavit in reply is filed opposing the
presentpetition.


4.1. It is vehemently submitted by Ms. Mauna Bhatt, learned
advocatefortherevenuethatassubsequentlyitwasnoticedthatthough
theassesseefulfilledalltheconditionsstipulatedunderSection2(22)(e)
oftheAct,ithasnotdeclareddividendincomereceivedbyhimtothe
tuneofRS.4,85,93,639/fortaxation.Itissubmittedthatprovisionsof
Section2(22)(e)oftheActareapplicableandfreereservesofRs.4,86
croresistobebroughttotaxationundertheprovisionsofSection2(22)
(e)oftheActinthehandsoftheassessee,Itissubmittedthattherefore,
theimpugnedreassessmentproceedingsareabsolutelyjustandproper
and in consonance with provision of Section 147 of Act and
noticeissuedforreopeningdated31.3.2014isvalidandlegal.


5.0. Heard learned advocates for respective parties at
length.


5.1. At outset, it is required to be noted that what is
challengedin present Special Civil Application bythe petitioner
assesseeisthereopeningoftheassessmentfortheA.Y.20072008and
initiation of reassessment proceedings for A.Y. 20072008, in
exerciseofthepowersundersection147readwithsection148ofthe
Income Tax Act. It is required to be noted that in present case
initiation of reassessment proceedings is beyond 4 years from the
assessmentyear.Therefore,unlessanduntilitis observedandfound
thattheincomehasescapedassessmentduetothefailureonthepartof
assessee to disclose truly and fully all material facts for the
assessment,theAssessingOfficerisnotauthorizedtomakereassessment


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even in event of his having reasonable belief that any income
chargeabletotaxhasescapedassessmentforanyassessmentyear.As
perthefirstprovisotosection147,assessmentcanbereopened under
section147afterexpiryof4yearsonlyif(1)assesseefailedtomakea
return under section 139 or in response to notice under section
142(1)orundersection148andhefailedtodisclosetrulyandfullyall
materialfactsnecessaryfortheassessment.Oncethecaseoftheassessee
iscoveredbythefirstprovisotosection147,reassessmentproceedings
beyondtheperiodoffouryearsfromtheendoftherelevantassessment
yearwouldbewithoutjurisdictionandbadinlaw.Ifallmaterialfacts
arefurnishedbytheassesseeandthereremainsnoomissionorfailure
onthepartoftheassesseetodisclosetrulyandfullyallmaterialfacts
necessaryfortheassessmentwithrespecttotheadditionaldepreciation
claimed,initiationofreassessmentproceedingsbeyondtheperiodof4
yearsisnotpermissionandshallbewhollywithoutjurisdiction.


5.2. Now, in backdrop of above legal provision,
challengetotheimpugnedreassessmentproceedingsarerequiredtobe
considered.


5.3. Inthepresentcase,reassessmentproceedingsundersection
147oftheActforA.Y.200708areinitiatedbeyondtheperiodoffour
years. reasons recorded for reopening of assessment for A.Y.
20072008, which are communicated to petitioner assessee vide
communicationdated8/7/2014areasfollows:
Reasons for reopening of Assessment in case of above
mentionedassessee;
TheprovisionsofSection2(22)(e)oftheActstipulatethatany
payment by company not being company in which
publicaresubstantiallyinterested bywayofadvance orloan
shallbetreatedasdeemeddividendifthefollowingconditions
arefulfilled:


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(c). Suchpaymentofadvanceorloanismadetoanyequity
shareholderpossessingmorethan10%ofthevotingright;
OR
(d). Suchpaymentofadvanceorloanismadetoanyconcern
orcompanyinwhichtheshareholderreferredtoin(a)above,is
havingasubstantialinteresti.e.20%ormorevotingright;
It is also stipulated that addition on account of deemed
dividendshallbesubjecttotheextentandavailabilityofprofits
withthelendingcompany.Inotherwords,suchadditionshall
berestrictedtotheextentofaccumulatedprofitpossessedbythe
company.
As per information available with undersigned,
assesseeisashareholderisM/s.JivrajTeaLimitedaswellasin
Vesta Exim Pvt Ltd and both companies are not being
companiesinwhichthepublicaresubstantiallyinterested.The
assessee, Shri Viren Shah is holding more than 10%
shareholding (voting power) in M/s. Jivraj Tea Limited and
also having more than 20% shareholding (voting power) in
M/s.VestaEximPvtLtd.Thusthefirstandbasicprerequisiteis
satisfied.Thesupportingdocumentsinthisregardareenclosed
asAnnexures1and2.
Further, examination of Audit Report of M/s. Jivraj Tea
Limited for period relevant to Asst. Year 200708 shows
that M/s. Jivraj Tea Limited has given loan of
Rs.7,14,99,000/ to M/s. Vesta Exim Pvt Ltd. Further to
corroboratethisfact,M/s.JivrajTeaLimitedhasalsoearned
interest ofRs.26,79,767/ from M/s. Vesta Exim Pvt Ltd.
Thus,thesecondconditionisalsosatisfied.Therelevantpageof
theAuditreportisenclosedasAnnexure3.
ItisalsoseenthatM/s.JivrajTeaLimitedpossesssesGeneral
ReservestothetuneofRs.2,64,28,121/andhasregistereda
profitofRs.2,21,65,518/therebytotalingtoRs.4,85,93,639/
fortheperiodrelevanttoAY200708.Thus,thethirdcondition
issatisfied.TherelevantpageofthereturnofincomeofM/s.
JivrajTeaLimitedforAY200708isenclosedasAnnexure4.
Thus,Section2(22)(e)oftheActisattractedinthehandsof
Shri Viren S. Shah shall be subject to total accumulated
profits of Rs.4,85,93,639/ possessed by M/s. Jivraj Tea
Limited.
Inviewoftheabovefacts,theprovisionofsection2(22)(e)of
theI.T.Actareclearlyapplicableinthecaseoftheassesseeand
theloangivenbyM/s.JivrajTeaLimitedtoM/s.VestaExim
Pvt Ltd is to be brought to taxation under provisions of
Section 2(22)(e) of Act in hands of Shri Virn
SureshbhaiShah.
TheomissiontodosohasresultedinunderassessmentofRs.
4,85,93,639/asborneoutfromtheassessmentrecordsofthe



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assessee for AY 200708. It is also clear from records
pertainingtotherelevantassessmentyearthattheincomethus
chargeable totaxhasescaped assessment for AY 200708 by
reasonoffailureonthepartoftheassesseetodisclosefullyand
truly all material facts necessary for his assessment for that
assessmentyear.
After detailed analysis and comprehension of all
material information available on record and after due
application of mind on all facts, circumstances, statutory
provisionsandthepositionoflawinthisregard,Ihavereason
tobelievethattheincome oftheassessee totheextentofRs.
4,85,93,639/ has escaped assessment within meaning of
Section147oftheITAct.Thus,itisafitcaseforissueofnotice
undersection148oftheI.T.Act.


5.4. Consideringthematerialonrecord,itcannotbesaidthat
therewasanyfailureonthepartoftheassesseetodisclosefullyand
trulyallmaterialfactsnecessaryforthatassessmentyear.Therefore,the
condition precedent for assumption of jurisdiction for initiation of
proceedings,reassessmentproceedingsunderSection147oftheActis
notsatisfied.


5.5. Thereasonsforreopeningoftheassessmentasmentioned
in communication dated 8/7/2014 is nothing but change of
opinionoftheA.O.andthattoo,withoutanynewmaterial,whichisnot
permissible.



5.6. Identical question came to be considered by Division
BenchofthisCourtinthecaseofNikoResourcesLtd.(supra)andwhile
consideringthescopeandambitofpowerstobeexercisedundersection
147oftheIncomeTaxActbytheAssessingOfficer,whilereopeningthe
assessment beyond period of 4 years, Division Bench of this
Court while considering its decisions in case of Gujarat Lease
FinancingLimited(supra),hasobservedandheldinparagraphNos.16,
17and27asunder:


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16.TheAssessingOfficerisauthorizedtomakereassessmentin
eventofhishavingreasonablebeliefthatanyincomechargeable
totaxhasescapedassessmentforanyassessmentyear.Asperthe
1stprovisotosection147oftheAct,assessmentcanbereopened
undersectionI47oftheActafterexpiryof4yearsonlyif(1)the
assesseefailedtomakeareturnundersectionI39oftheActorin
responsetonotice issuedundersection142(1) orundersection
148oftheAct,hefailedtodisclosetrulyandfullyallmaterial
facts necessary for assessment. Once all primary facts are
beforetheassessingauthority,nofurtherassistanceisrequiredby
wayofdisclosure.Allinferencesoffactsandlegalinferenceneed
tobedrawnbytheAssessingOfficer.Itisnotforanyonetoguide
Assessing Officer in respect of inference "factual or legal",
whichrequirestobedrawnbyhimalone.
17.Oncethecaseoftheassesseeiscoveredbythe1st provisoto
section147oftheAct,thereassessmentproceedingsbeyondthe
period of4years from end ofthe relevant assessment year
wouldbewithoutanyjurisdictionandbadinlaw,ifallmaterial
factsarefurnishedandthereremainednoomissionorfailureon
part of assessee to disclose truly and fully all material
facts.ThisCourt,afterextensivelydiscussinglawontheissuein
caseofGujaratLeaseFinancingLtd.(supra),hasheldthus:
"l0.Itcanbeclearlynotedfromthereasonsrecordedthat
thereisnomentionatalloftheassesseehavingnotdisclosed
fully or truly material facts which were necessary for
purposeofcomputingtheincomeoftheassessee.Assuming
that in notice for reopening. such wordings are not
specificallymentionedandtheycanbesupplementedeither
while rejecting theobjections orbywayofaffidavitofthe
AssessingOfficer,thenalso,therevenuehasfailedtopoint
outastoinwhatmannertherehasbeennondisclosureon
thepartoftheassessee."

27.Fromtheratiothatcanbeculledoutfromallthesedecisions,
itisamplyclearthattheAssessingOfficer,whoisauthorizedto
issuenoticeundersection148oftheActforreassessment.onhis
having reason to believe that income chargeable to tax had
escapedassessmentforanyassessmentyear,canassessorreassess
suchincome andalsoanysuchotherincome chargeabletotax,
which has escaped assessment. However, no such action is
permissible after lapse of 4 years from end of relevant
assessment year unless income chargeable to tax has escaped
assessment on account offailure on partofthe assessee to
disclosefullyandtrulyallmaterialfactsnecessaryforthepurpose
of such assessment. onus is on assessee to reveal
primary facts and to draw inferential facts would be


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responsibilityoftheAssessingOfficer.Oncehavingrevealedfrom
therecordthattheassesseedisclosedfullandcompletefactsand
onscrutiny,atthetimeoforiginalassessmentallthesedetailsare
examined, no change of opinion is permissible merely because
therewassomeerrorearlieronthepartoftheAssessingOfficer
himselforbecause hechoose nottoopine ontheissue oreven
when he changes his mind and interprets material or law
otherwisethanwhatwasdonebyhim.


5.7. ApplyingthedecisionoftheDivisionBenchofthisCourtin
case of Niko Resources Ltd. (supra) as well as Gujarat Lease
Financing Limited (supra), to facts of case on hand and as
observedhereinabove,theredoesnotappeartobefailureonthepartof
theassesseetodisclosetrulyandfullyallmaterialfactsnecessaryfor
assessmentwithrespecttothedeemeddividentunderSection2(22)(e)
of Act, initiation of impugned reassessment proceedings
whichareinitiatedbeyondtheperiodoffouryears,arenotpermissible
andthesamecannotsustainandonthatgroundalone,theimpugned
reassessmentproceedingsdeservetobequashedandsetaside.


6.0. In view of above and for reasons stated, on the
aforesaid ground alone and not on merits with respect to deemed
dividend under Section 2(22)(e) of Act and as it is found that
conditionprecedentforassumptionofjurisdictionunderSection147of
theActarenotsatisfied,theimpugnednoticeunderSection148ofthe
Act and consequently reassessment proceedings for AY 200708 are
herebyquashedandsetaside.Ruleismadeabsolutetotheaforesaid
extent.
sd/
(M.R.SHAH,J.)

sd/
(S.H.VORA,J.)
Kaushik




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