Gujarat High Court
Psp Projects And Proactive ... vs Assistant Commissioner Of Income ... on 22 April, 2025
Author: Bhargav D. Karia
Bench: Bhargav D. Karia
NEUTRAL CITATION
C/SCA/5874/2022 JUDGMENT DATED: 22/04/2025
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IN THE HIGH COURT OF GUJARAT AT AHMEDABAD
R/SPECIAL CIVIL APPLICATION NO. 5874 of 2022
FOR APPROVAL AND SIGNATURE:
HONOURABLE MR. JUSTICE BHARGAV D. KARIA
and
HONOURABLE MR.JUSTICE D.N.RAY
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Approved for Reporting Yes No
No
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PSP PROJECTS AND PROACTIVE CONSTRUCTIONS PRIVATE LIMITED
Versus
ASSISTANT COMMISSIONER OF INCOME TAX,CIRCLE-3(1)(1) & ANR.
===============================================================
Appearance:
MR TUSHAR HEMANI, LD.SR.ADV WITH MS VAIBHAVI K PARIKH(3238)
for the Petitioner(s) No. 1
MS MAITHILI D MEHTA(3206) for the Respondent(s) No. 1,2
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CORAM:HONOURABLE MR. JUSTICE BHARGAV D. KARIA
and
HONOURABLE MR.JUSTICE D.N.RAY
Date : 22/04/2025
ORAL JUDGMENT
(PER : HONOURABLE MR. JUSTICE BHARGAV D. KARIA) Heard learned Senior Advocate Mr.Tushar Hemani with learned Senior Standing Counsel Ms.Maithili D. Mehta for the respondents. Page 1 of 15 Uploaded by PALAK BRAHMBHATT(HC01391) on Fri May 02 2025 Downloaded on : Sat May 03 10:50:40 IST 2025
NEUTRAL CITATION C/SCA/5874/2022 JUDGMENT DATED: 22/04/2025 undefined
1. Rule returnable forthwith. Learned Senior Standing Counsel Ms. Maithili Mehta for the respondents waives service of notice of rule for and on behalf of the respondents.
2. By this petition under Article 226 of the Constitution of India, the petitioner has challenged the notice dated 28th March, 2021 issued under Section 148 of the Income Tax Act, 1961 for Assessment Year 2016-17.
3. The brief facts of the case are as under :
3.1. During the year under consideration, the petitioner-Company was engaged in the business of construction activities and had shown income from contracts of Rs.20,61,81,780/- (upto 2nd RA Bill) for development of structure work of project named World Trade Centre GIFT Gandhinagar. Page 2 of 15 Uploaded by PALAK BRAHMBHATT(HC01391) on Fri May 02 2025 Downloaded on : Sat May 03 10:50:40 IST 2025
NEUTRAL CITATION C/SCA/5874/2022 JUDGMENT DATED: 22/04/2025 undefined 3.2. It is the case of the petitioner that the petitioner raised 3rd RA Bill of Rs.4,51,63,722/- on 07.04.2016 (i.e. in subsequent year) for the month of March, 2016, however, the amount of the said Bill was not recognized since the said Bill was not certified by the party and hence, sum of Rs.4,43,71,188/- was shown as Work In Progress (for short 'WIP') and closing stock was shown at Rs.60,77,207/- which are evident from the Annual Accounts. The petitioner also filed return of income for the year under consideration on 30.09.2016 declaring total income at NIL owing to loss.
3.3. Thereafter, the case of the petitioner was selected for scrutiny and the then Assessing Officer, vide notice dated 13.08.2018 issued under section 142(1) of the Income Tax Act, 1961 (for short 'the Act'), Page 3 of 15 Uploaded by PALAK BRAHMBHATT(HC01391) on Fri May 02 2025 Downloaded on : Sat May 03 10:50:40 IST 2025 NEUTRAL CITATION C/SCA/5874/2022 JUDGMENT DATED: 22/04/2025 undefined called upon the petitioner to furnish various details with respect to purchases, sales, month-wise details of stock and method of valuation of closing stock and the petitioner, vide letters dated 21.08.2018 and 07.09.2018 furnished various details as called for along with acknowledgment of return of income and computation of income, tax audit report, statutory audit report.
3.4. It is the case of the petitioner that the then Assessing Officer, vide notices dated 25.09.2018 and 08.10.2018 issued under section 142(1) of the Act, called upon the petitioner to furnish various details including the details of certain points of earlier notice dated 13.08.2018 and the petitioner, vide letters dated 01.10.2018 and 15.10.2018 furnished various details including details of earlier notice with respect to the month-wise Page 4 of 15 Uploaded by PALAK BRAHMBHATT(HC01391) on Fri May 02 2025 Downloaded on : Sat May 03 10:50:40 IST 2025 NEUTRAL CITATION C/SCA/5874/2022 JUDGMENT DATED: 22/04/2025 undefined opening stock, purchases consumption, closing stock, agreement for contract and details of contract.
3.5. Thereafter the Petitioner vide letter dated 22.10.2018 submitted the reconciliation of income offered in return of income as well as income as per Form 26AS and also furnished details pertaining to 3rd RA Bill raised on 07.04.2016 and underlying amount being shown as Work In Progress.
3.6. It is the case of the petitioner that thereafter, the then Assessing Officer, vide notice dated 18.11.2018 issued under section 142(1) of the Act, called upon the petitioner to furnish copies of RA Bills 1, 2 and 3 and the petitioner, vide letter dated 26.11.2018 furnished copies of RA Bills 1, 2 and 3. 3.7. The then Assessing Officer thereafter Page 5 of 15 Uploaded by PALAK BRAHMBHATT(HC01391) on Fri May 02 2025 Downloaded on : Sat May 03 10:50:40 IST 2025 NEUTRAL CITATION C/SCA/5874/2022 JUDGMENT DATED: 22/04/2025 undefined vide show-cause notice dated 08.12.2018, called upon the Petitioner to show cause as to why income should not be recognized based on the principle of revenue recognition model and the petitioner vide letter dated 14.12.2018 furnished detailed justification in relation to revenue recognition.
3.8. It is the case of the petitioner that eventually, assessment was framed under Section 143(3) of the Act vide order dated 18.12.2018 whereby, no addition was made in respect of closing stock or Work In Progress. However, the respondent issued the impugned notice dated 28.03.2021 under Section 148 of the Act seeking to reopen the case of the petitioner. Pursuant to such notice, the petitioner filed return of income on 02.04.2021 and requested for reasons recorded for reopening.
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NEUTRAL CITATION C/SCA/5874/2022 JUDGMENT DATED: 22/04/2025 undefined 3.9. It is the case of the petitioner that the respondent, vide notice dated 21.10.2021 supplied copy of reasons for reopening which reveals that the case has been reopened broadly on the count that closing/WIP has been understated and the case of the respondent is that on verification of P&L account, it was found that Rs.60,77,207/- was shown as closing stock. However, as per RA Bill No.3, progressive recovery is shown at Rs.3,77,10,187/- and thus, as per 3rd RA Bill, unutilized material at site was Rs.3,10,94,615/-.
3.10. It is the case of the petitioner that the petitioner had considered value of 3rd RA Bill of Rs.4,43,71,188/- as WIP, however, in the same manner, closing stock of unutilized/unbilled material at site on which Page 7 of 15 Uploaded by PALAK BRAHMBHATT(HC01391) on Fri May 02 2025 Downloaded on : Sat May 03 10:50:40 IST 2025 NEUTRAL CITATION C/SCA/5874/2022 JUDGMENT DATED: 22/04/2025 undefined the petitioner had claimed material advance of Rs.3,10,94,615/- as per the 3rd RA bill was not shown as closing balance of unutilized material WIP. Thus, closing stock/WIP is understated in the accounts by a sum of Rs.2,50,17,408/- (Rs.3,10,94,615-Rs.60,77,207) and in view of the same, the respondent has reason to believe that income of Rs.2,50,17,408/- has escaped assessment and hence, the case of the petitioner has been reopened.
3.11. The petitioner raised objections against reopening vide letters dated 01.11.21, 26.11.21 and 27.11.21 wherein various factual as well as legal submissions were raised by the petitioner, however, the respondent, vide order dated 25.02.2022 disposed off such objections inter-alia holding that the reopening is justified. Therefore, being Page 8 of 15 Uploaded by PALAK BRAHMBHATT(HC01391) on Fri May 02 2025 Downloaded on : Sat May 03 10:50:40 IST 2025 NEUTRAL CITATION C/SCA/5874/2022 JUDGMENT DATED: 22/04/2025 undefined aggrieved and dis-satisfied with the impugned notice dated 28.03.2021 issued under Section 148 of the Act, the petitioner has preferred this petition.
4.1. Learned Senior Advocate Mr.Tushar Hemani for the petitioner submitted that the petitioner has shown the Work in Progress as Inventory amounting to Rs.4,43,71,188/- which is reflected in the audited profit and loss account read with Note No.12 thereto. It was further pointed out that the petitioner had explained in objections raised on receipt of the reasons recorded that Material Advance of Rs.3,10,94,615/- claimed in RA Bill No.3 was not shown in closing stock of unutilised material of Work In Progress in the accounts as it was an advance which was received by the petitioner in the Month of April, 2016 to purchase material in the Assessment Year 2017- Page 9 of 15 Uploaded by PALAK BRAHMBHATT(HC01391) on Fri May 02 2025 Downloaded on : Sat May 03 10:50:40 IST 2025 NEUTRAL CITATION C/SCA/5874/2022 JUDGMENT DATED: 22/04/2025 undefined 18. 4.2. It was further pointed out that the petitioner has explained that the claim of Material Advance in RA Bill No.3 does not represent the stock in hand and has no relevance in the Assessment Year 2016-17. It was therefore submitted that the reasons recorded by the respondent-Assessing Officer are based upon the material which is available on record and without considering the explanation given by the petitioner in the objections raised, the respondent has disposed of the objections.
4.3. It was further pointed out by learned Senior Advocate Mr.Tushar Hemani that the issue was also considered under the regular course of assessment and invited the attention of the Court to the reply dated 15.10.2018 Page 10 of 15 Uploaded by PALAK BRAHMBHATT(HC01391) on Fri May 02 2025 Downloaded on : Sat May 03 10:50:40 IST 2025 NEUTRAL CITATION C/SCA/5874/2022 JUDGMENT DATED: 22/04/2025 undefined filed by the petitioner providing the details in response to the notice issued under Section 142(1) of the Act.
4.4. It was also pointed out that by reply dated 22nd October, 2018, during the course of regular assessment, the petitioner has also reconcile the Tax Deducted at Source (TDS) as per the Form 26AS and in such reconciliation, the Work In Progress was shown as Rs.4,43,71,188/-. It was therefore submitted that the respondent-Assessing Officer could not have assumed the jurisdiction for re- opening of the assessment on the basis of the Material Advance received by the petitioner as per the prevailing practice which is adjusted in the subsequent RA Bill.
4.5. It was also pointed out from the RA Bill placed on record at page No.64 that the Page 11 of 15 Uploaded by PALAK BRAHMBHATT(HC01391) on Fri May 02 2025 Downloaded on : Sat May 03 10:50:40 IST 2025 NEUTRAL CITATION C/SCA/5874/2022 JUDGMENT DATED: 22/04/2025 undefined petitioner has received Material Advance in RA Bill No.2 from the RA Bill No.3 and as such, only the difference of advance which was received subsequently was accounted, which would not result into any closing stock and therefore, there is no escapement of income on part of the petitioner.
5.1. On the other hand, learned Senior Standing Counsel Ms.Maithili Mehta for the respondent-Assessing Officer submitted that the petitioner has received the Material Advance as per the RA Bill No.3 relevant for the period ending on 31.03.2016 and in the said RA Bill, the petitioner has shown the Material Advance received of Rs.3,10,94,615/- towards the raw material whereas, the petitioner has shown the closing stock of Rs.60,77,207/- and as such, there is under statement of closing stock amounting to Page 12 of 15 Uploaded by PALAK BRAHMBHATT(HC01391) on Fri May 02 2025 Downloaded on : Sat May 03 10:50:40 IST 2025 NEUTRAL CITATION C/SCA/5874/2022 JUDGMENT DATED: 22/04/2025 undefined Rs.2,50,17,408/-. It was therefore submitted that the Assessing Officer was justified in assumption of jurisdiction to reopen the assessment on account of the escapement of the income to the extent of understated closing stock of Rs.2,50,17,408/- (Rs.3,10,94,615- Rs.60,77,207).
5.2. It was further submitted that the petitioner has admittedly understated the closing stock resulting into the escapement of income and therefore, the Assessing Officer has rightly assumed the jurisdiction to re- open the assessment.
6. Considering the submissions made by the learned advocates for the respective parties and on perusal of the material available on record, it appears that the respondent- Assessing Officer has formed reason to believe Page 13 of 15 Uploaded by PALAK BRAHMBHATT(HC01391) on Fri May 02 2025 Downloaded on : Sat May 03 10:50:40 IST 2025 NEUTRAL CITATION C/SCA/5874/2022 JUDGMENT DATED: 22/04/2025 undefined only on the ground that there is a difference in the Material Advance and the amount of closing stock of raw material disclosed in the profit and loss account by the petitioner.
7. On perusal of the RA Bill No.3, it appears that the petitioner has received the Material Advance of Rs.3,10,94,615/- being the 75% of Average Product Procure Rate which was accounted for in the RA Bill by setting of the similar Material Advance received in the RA Bill No.2 amounting to Rs.2,46,05,994/-. Thus, by considering the Material Advance, the respondent-Assessing Officer has jumped to the conclusion that there is understatement of the closing stock which otherwise also would be an opening stock for the subsequent assessment year and can never result into any escaped income.
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NEUTRAL CITATION C/SCA/5874/2022 JUDGMENT DATED: 22/04/2025 undefined
8. On perusal of the reasons recorded, we are of the opinion that the respondent-Assessing Officer could not have assumed the jurisdiction to re-open the assessment on the basis of the information which is already available on record and considered during the regular course of assessment by the then Assessing Officer by wrongly interpreting the material advanced equivalent to the closing stock of the raw materials.
9. The petition therefore succeeds and accordingly allowed. Impugned notice dated 28th March, 2021 is hereby quashed and set aside. Rule is made absolute to the aforesaid extent. No orders as to cost.
(BHARGAV D. KARIA, J) (D.N.RAY,J) PALAK Page 15 of 15 Uploaded by PALAK BRAHMBHATT(HC01391) on Fri May 02 2025 Downloaded on : Sat May 03 10:50:40 IST 2025