Gujarat High Court
Venus Infrastructure And Developers ... vs The Deputy Commissioner Of Income Tax, ... on 8 May, 2025
Author: Bhargav D. Karia
Bench: Bhargav D. Karia
NEUTRAL CITATION
C/SCA/4903/2022 JUDGMENT DATED: 08/05/2025
undefined
IN THE HIGH COURT OF GUJARAT AT AHMEDABAD
R/SPECIAL CIVIL APPLICATION NO. 4903 of 2022
FOR APPROVAL AND SIGNATURE:
HONOURABLE MR. JUSTICE BHARGAV D. KARIA
and
HONOURABLE MR.JUSTICE P. M. RAVAL
=============================================
Approved for Reporting Yes No
No
=============================================
VENUS INFRASTRUCTURE AND DEVELOPERS PRIVATE LIMITED
Versus
THE DEPUTY COMMISSIONER OF INCOME TAX, CENTRAL CIRCLE 1(1)
& ANR.
=============================================
Appearance:
MR TUSHAR HEMANI, LD.SR.ADV WITH MS VAIBHAVI K PARIKH(3238)
for the Petitioner(s) No. 1
MR.VARUN K.PATEL(3802) for the Respondent(s) No. 1,2
=============================================
CORAM: HONOURABLE MR. JUSTICE BHARGAV D. KARIA
and
HONOURABLE MR.JUSTICE P. M. RAVAL
Date : 08/05/2025
ORAL JUDGMENT
(PER : HONOURABLE MR. JUSTICE BHARGAV D. KARIA)
1. Heard learned Senior Advocate Mr.Tushar Hemani with learned advocate Ms.Vaibhavi Page 1 of 27 Uploaded by PALAK BRAHMBHATT(HC01391) on Wed Jun 04 2025 Downloaded on : Fri Jun 06 21:24:39 IST 2025 NEUTRAL CITATION C/SCA/4903/2022 JUDGMENT DATED: 08/05/2025 undefined Parikh for the petitioner and learned Senior Standing Counsel Mr.Varun K. Patel for the respondents.
2. Having regard to the controversy involved in the petition in narrow compass, with the consent of the learned advocates for the respective parties, the matter is taken up for hearing.
3. Rule, returnable forthwith. Learned Senior Standing Counsel Mr.Varun Patel waives service of notice of rule for and on behalf of the respondents.
4. By this petition under Article 226 of the Constitution of India, the petitioner has challenged the notice dated 31.03.2021 issued under Section 148 of the Income Tax Act, 1961 (for short 'the Act') to re-open Page 2 of 27 Uploaded by PALAK BRAHMBHATT(HC01391) on Wed Jun 04 2025 Downloaded on : Fri Jun 06 21:24:39 IST 2025 NEUTRAL CITATION C/SCA/4903/2022 JUDGMENT DATED: 08/05/2025 undefined the assessment for the Assessment Year 2017-18.
5. The brief facts of the case are as under:
5.1. The petitioner who is engaged in the business of construction and development, filed return of income under Section 139(1) of the Act on 27.10.2017 declaring total income of Rs.3,46,34,530/- for Assessment Year 2017-18.
5.2. The Assessing Officer issued the notice dated 11.10.2019 under Section 142(1) of the Act calling for various information and documents from the petitioner which was duly complied by the petitioner by reply dated 30.11.2019.Page 3 of 27 Uploaded by PALAK BRAHMBHATT(HC01391) on Wed Jun 04 2025 Downloaded on : Fri Jun 06 21:24:39 IST 2025
NEUTRAL CITATION C/SCA/4903/2022 JUDGMENT DATED: 08/05/2025 undefined 5.3. Thereafter, the Assessment Order under Section 143(3) of the Act was passed on 26.12.2019 determining the total income of Rs.14,80,16,806/-.
5.4. Thereafter, the order dated 26th February, 2020 was passed under Section 154 of the Act and the assessed income was recomputed to Rs.14,32,93,610/-. 5.5. Thereafter, the impugned notice dated 31.03.2021 was issued under Section 148 of the Act to re-open the assessment for Assessment Year 2017-18 after obtaining the approval under Section 151 of the Act by the respondent.
5.6. The petitioner filed return of income in response to the said notice on 29.04.2021 and requested the respondent to Page 4 of 27 Uploaded by PALAK BRAHMBHATT(HC01391) on Wed Jun 04 2025 Downloaded on : Fri Jun 06 21:24:39 IST 2025 NEUTRAL CITATION C/SCA/4903/2022 JUDGMENT DATED: 08/05/2025 undefined provide the reasons for re-opening of the assessment.
5.7. The respondent by letter dated 29.05.2021 provided the reasons for re- opening to the petitioner which read as under :
"2. Brief details of the information collected / received by the A.O.:
As per note no.14 of the balance sheet (non- current investment), it has been noticed that the assessee had made investments in unquoted shares and also have share in partnership firms which can earn exempt income, for the year under question. It is also noticed that the assessee company had earned an amount of Rs. 45,02,074/- as share of profit from partnership firm as Page 5 of 27 Uploaded by PALAK BRAHMBHATT(HC01391) on Wed Jun 04 2025 Downloaded on : Fri Jun 06 21:24:39 IST 2025 NEUTRAL CITATION C/SCA/4903/2022 JUDGMENT DATED: 08/05/2025 undefined per note 22 of profit and loss account for the year under consideration.
As per the CBDT's circular vide no.05/2014 dated: 11/02/2014, it has been clarified that rule 8D r.w.s.
14A of the Act provides for disallowance.of the expenditure even where taxpayer in a particular year has not earned any exempt income. Accordingly, it can be concluded that disallowance u/s. 14A is applicable to the case of the assessee company.
3. Analysis of the information collected/received:
On verification of P&L account and Balance Sheet of the assessee company for the year under question, it is noticed that the assessee Page 6 of 27 Uploaded by PALAK BRAHMBHATT(HC01391) on Wed Jun 04 2025 Downloaded on : Fri Jun 06 21:24:39 IST 2025 NEUTRAL CITATION C/SCA/4903/2022 JUDGMENT DATED: 08/05/2025 undefined company had made investments in unquoted shares and had share in partnership firms as mentioned below:-
Amount of Amount of
Sr. Nature of
Investment as on Investment as on
No. Investment
01.04.2016 31.03.2017
Investment in
unquoted
shares of
1 Rs.1,00,000/- Rs.1,00,000/-
D.R.V.
Builders Pvt.
Ltd.
Share in
partnership
2 Rs.7,82,60,531/- Rs.43,74,34,472/-
firm-Venus
Infrabuild
Share in
partnership
3 firm-Vivyan - Rs.8,03,27,343/-
Infraprojects
LLP
Total Rs.7,83,60,531/- Rs.51,78,61,815/-
The assessee company had also earned an amount of Rs.45,02,074/- as share of profit from partnership firm.
4. Enquiries made by the AO as sequel to information collected/received:Page 7 of 27 Uploaded by PALAK BRAHMBHATT(HC01391) on Wed Jun 04 2025 Downloaded on : Fri Jun 06 21:24:39 IST 2025
NEUTRAL CITATION C/SCA/4903/2022 JUDGMENT DATED: 08/05/2025 undefined Furthermore, CBDT vide circular no.05/2014 dated 11/02/2014, had clarified that rule 8D r.w.s. 14A of the Act provides for disallowance of the expenditure even where taxpayer in a particular year has not earned any exempt income. Accordingly, it can be concluded that disallowance u/s. 14A is applicable to the case of the assessee company and the amount of such disallowance as per Rule 8D r.w.s. 14A works out as under:-
Direct expenditure
relating to income
As per Rule
which does not form NIL
8D (2)(i)
part of total
income
Indirect
Expenditure-
Interest not
As per Rule
directly
8D(2)(ii)
attributable to any
particular income
or receipt
Page 8 of 27
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NEUTRAL CITATION
C/SCA/4903/2022 JUDGMENT DATED: 08/05/2025
undefined
Total
investment
which can
Rs.7,83,60,531/-
earn exempt
income as on
01.04.2016
Total
investment
which can
Rs. 51,78,61,815/-
earn exempt
income as on
31.03.2017
Average
value of
Rs.29,81,11,173/-
Investment
divided by 2
1% of the
average Rs.29,81,111/-
value of
Investment
Total Disallowance Rs.29,81,111/-
5. Findings of the A.O:
The assessee company, during the year under consideration, had made Page 9 of 27 Uploaded by PALAK BRAHMBHATT(HC01391) on Wed Jun 04 2025 Downloaded on : Fri Jun 06 21:24:39 IST 2025 NEUTRAL CITATION C/SCA/4903/2022 JUDGMENT DATED: 08/05/2025 undefined investments in unquoted shares and had share in partnership firms as mentioned in para 3. The total amount of such investments, as verified from the Balance Sheet and P&L Account of the assessee, works out to be Rs.7,83,60,531/- as on 01/04/2016 and Rs.51,78,61,815/- as on 31/03/2017. The average of the same works out to be Rs.29,81,11,173/-. The assessee company, as per CBDT guidelines, is not liable for disallowance u/s.14A and 1% of the average value of the investment such made is to be disallowed i.e. Rs. 29,81,111/-.
It has been verified from the Balance Sheet and P&L Account of the assessee for the year under question that the assessee has not fully and truly disclosed the material facts necessary for his assessment for the year Page 10 of 27 Uploaded by PALAK BRAHMBHATT(HC01391) on Wed Jun 04 2025 Downloaded on : Fri Jun 06 21:24:39 IST 2025 NEUTRAL CITATION C/SCA/4903/2022 JUDGMENT DATED: 08/05/2025 undefined consideration. Hence, the amount of Rs.29,81,111/- as discussed in para 2,3,and 4 above has escaped assessment within the meaning of section 147 of the Income Tax Act, 1961." 5.8. The petitioner filed objections dated 2nd February, 2022 before the respondent-Assessing Officer explaining in detail that there is no exempt income during the year in which dis-allowance under Section 14A of the Act read with Rule 8D of the Rules is required to be made and therefore, the reasons recorded for re-
opening on the count that dis-allowance under Section 14A of the Act is to be made is without any basis.
5.9. It was further contended by the petitioner that as per the reasons recorded Page 11 of 27 Uploaded by PALAK BRAHMBHATT(HC01391) on Wed Jun 04 2025 Downloaded on : Fri Jun 06 21:24:39 IST 2025 NEUTRAL CITATION C/SCA/4903/2022 JUDGMENT DATED: 08/05/2025 undefined by the respondent, the re-opening is sought to be done on perusal of the balance-sheet and profit and loss account only which were already filed by the petitioner along with the original return of income. 5.10. The respondent-Assessing Officer by order dated 15th February, 2022 rejected the objections filed by the petitioner. Therefore, being aggrieved, the petitioner has preferred this petition. 6.1. Learned Senior Advocate Mr.Tushar Hemani for the petitioner submitted that the impugned notice is based upon the mere change of opinion and the respondent has acted illegally and without jurisdiction as the respondent-Assessing Officer could not have formed the reason to believe that Page 12 of 27 Uploaded by PALAK BRAHMBHATT(HC01391) on Wed Jun 04 2025 Downloaded on : Fri Jun 06 21:24:39 IST 2025 NEUTRAL CITATION C/SCA/4903/2022 JUDGMENT DATED: 08/05/2025 undefined income chargeable to tax has escaped assessment.
6.2. It was submitted that the case of the petitioner was selected for scrutiny and the issue of dis-allowance under Section 14A of the Act was examined during the regular assessment proceedings. Reliance was placed on the notice dated 11.10.2019 issued by the Assessing Officer and the reply, more particularly, the details sought by the Assessing Officer of all exempt income earned by the petitioner duly giving the nature, source, amount, date of receipt and details of investments from which exempt of all investments from which exempt income could be generated. 6.3. It was submitted that the Page 13 of 27 Uploaded by PALAK BRAHMBHATT(HC01391) on Wed Jun 04 2025 Downloaded on : Fri Jun 06 21:24:39 IST 2025 NEUTRAL CITATION C/SCA/4903/2022 JUDGMENT DATED: 08/05/2025 undefined petitioner by letter dated 30.11.2019 has replied that the petitioner received share of profit from the partnership of Rs.45,02,074/- which is disclosed in return of income as well as in Note No.22 of Notes forming part of financial statements namely "Other Income" as share of profit from the partnership firm in which the petitioner is a partner along with the details of investment in partnership firm submitted by the petitioner.
6.4. It was submitted that after considering the reply of the petitioner, the Assessment Order dated 26.12.2019 was passed under Section 143(3) of the Act without making any addition for dis- allowance under Section 14A of the Act. Page 14 of 27 Uploaded by PALAK BRAHMBHATT(HC01391) on Wed Jun 04 2025 Downloaded on : Fri Jun 06 21:24:39 IST 2025
NEUTRAL CITATION C/SCA/4903/2022 JUDGMENT DATED: 08/05/2025 undefined 6.5. It was therefore submitted that there is no new tangible material with the respondent after framing the assessment and the re-opening is sought to be made mainly on the basis of the perusal of the profit and loss account which is evident from the reasons recorded for re-opening. 6.6. It was therefore submitted that the respondent could not have assumed the jurisdiction on basis of the mere change of opinion on the same set of facts, more particularly, when an opinion at the regular assessment stage has already been formed and therefore, it is not open to re- open the assessment on the mere change of opinion and take a different stand based on the very same set of facts and information. Page 15 of 27 Uploaded by PALAK BRAHMBHATT(HC01391) on Wed Jun 04 2025 Downloaded on : Fri Jun 06 21:24:39 IST 2025
NEUTRAL CITATION C/SCA/4903/2022 JUDGMENT DATED: 08/05/2025 undefined 6.7. It was further submitted that in absence of any new tangible material which has come to the knowledge of the respondent after framing of the regular assessment which could have enabled him to have reason to believe that the income chargeable to tax has escaped assessment in the hands of the petitioner, it transpires that the case of the petitioner has been re-opened on the basis of the audit objections raised by the audit party. It was submitted that the assessment cannot be re-opened based on the audit objection and therefore, the impugned notice being without jurisdiction is liable to be quashed and set aside.
7.1. Per-contra, learned Senior Standing Counsel Mr.Varun K. Patel for the respondents submitted that the petitioner Page 16 of 27 Uploaded by PALAK BRAHMBHATT(HC01391) on Wed Jun 04 2025 Downloaded on : Fri Jun 06 21:24:39 IST 2025 NEUTRAL CITATION C/SCA/4903/2022 JUDGMENT DATED: 08/05/2025 undefined has an alternative efficacious remedy to challenge the reassessment order before the CIT (Appeals) and thereafter to the Tribunal as per the provisions of the Act and therefore, the impugned notice may not be interfered with while exercising the extra-ordinary jurisdiction under Article 226 of the constitution of India. 7.2. It was submitted that the respondent-Assessing Officer has formed a prima facie reason to believe on the basis of the assessment record which clearly indicates that the petitioner has understated the income by not making dis- allowance as per Section 14A of the Act read with Rule 8D of the Rules. 7.3. It was further submitted that Page 17 of 27 Uploaded by PALAK BRAHMBHATT(HC01391) on Wed Jun 04 2025 Downloaded on : Fri Jun 06 21:24:39 IST 2025 NEUTRAL CITATION C/SCA/4903/2022 JUDGMENT DATED: 08/05/2025 undefined sufficiency of reason cannot be questioned before the Court and therefore to examine the validity of the re-opening and impugned notice cannot be considered on the basis of the likely final outcome of the reassessment proceedings. It was therefore submitted that at the time of re-opening, the Assessing Officer is not required to establish escapement of income but he has only to form a reason to believe that the income has escaped the assessment. 7.4. It was further submitted that the impugned notice is based on the prima facie reasonable belief of the Assessment Officer that the petitioner has made investment in the unquoted shares and also has share in the partnership firm which can earn exempt income for the year under consideration as Page 18 of 27 Uploaded by PALAK BRAHMBHATT(HC01391) on Wed Jun 04 2025 Downloaded on : Fri Jun 06 21:24:39 IST 2025 NEUTRAL CITATION C/SCA/4903/2022 JUDGMENT DATED: 08/05/2025 undefined the petitioner-Company has shown income from partnership firm of Rs.45,02,074/- as per the Note No.22 of the profit and loss account for the year under consideration and therefore, the petitioner-Company ought to have provided for dis-allowance of the expenditure under Section 14A of the Act. 7.5. It was submitted that considering such reasons for re-opening, it cannot be said that the Assessing Officer has formed reason to believe that the income has escaped assessment only on mere change of opinion, more particularly, when the aspect of dis-allowance under Section 14A has not been considered in the impugned Assessment Order passed under Section 143(3) of the Act.
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NEUTRAL CITATION C/SCA/4903/2022 JUDGMENT DATED: 08/05/2025 undefined 7.6. It was pointed out by learned Senior Standing Counsel Mr.Varun Patel that on detailed examination, it was not ascertainable that whether the petitioner has rightly offered the income at the time of filing original return of income and according to the respondent, the income chargeable to tax has escaped from assessment in absence of dis-allowance under Section 14A of the Act.
8. Having heard the learned advocates for the respective parties and having considered the facts of the case and documents placed on record , it is not in dispute that at the time of original assessment proceedings the details were sought by the Assessing Officer regarding the exempt income earned by the petitioner Page 20 of 27 Uploaded by PALAK BRAHMBHATT(HC01391) on Wed Jun 04 2025 Downloaded on : Fri Jun 06 21:24:39 IST 2025 NEUTRAL CITATION C/SCA/4903/2022 JUDGMENT DATED: 08/05/2025 undefined along with the investment from which the exempt income to be generated. The petitioner-Company by reply dated 30.11.2019 has provided such details and has also stated that the petitioner has earned Rs.45,02,074/- as a share from the partnership firm which is disclosed in the return of income as well as in the Note No.22 of the Notes forming part of the financial statements namely "Other Income".
9. Thus, the information which is sought to be relied upon by the respondent for assumption of jurisdiction to re-open the assessment proceedings was duly processed during the regular assessment proceedings and no dis-allowance was made under Section 14A of the Act.
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NEUTRAL CITATION C/SCA/4903/2022 JUDGMENT DATED: 08/05/2025 undefined
10. Hence, the impugned notice issued on the basis of the verification of the profit and loss account and the balance-sheet of the petitioner-Company for the year under consideration, in absence of any fresh new tangible material available with the respondent, cannot be sustained as the reasons recorded by the Assessing Officer to assume the jurisdiction to re-open the assessment clearly depict that the re- opening is sought to be done only on the basis of mere change of opinion. Even the respondent while rejecting the objections raised by the petitioner has not dealt with the submissions on the ground that the petitioner filed the reply beyond the period of sixty days as per the directions given by this Court in case of Sahkari Page 22 of 27 Uploaded by PALAK BRAHMBHATT(HC01391) on Wed Jun 04 2025 Downloaded on : Fri Jun 06 21:24:39 IST 2025 NEUTRAL CITATION C/SCA/4903/2022 JUDGMENT DATED: 08/05/2025 undefined Khand Udhyog Mandli Limited Versus State of Gujarat.
11. The Hon'ble Apex Court in case of Commissioner of Income Tax Versus Kelvinator of India Limited reported in (2010) 320 ITR 561 (SC) has held as under :
"6. Ongoing through the changes, quoted above, made to Section 147 of the Act, we find that, prior to Direct Tax Laws (Amendment) Act, 1987, re-opening could be done under above two conditions and fulfillment of the said conditions alone conferred jurisdiction on the Assessing Officer to make a back assessment, but in section 147 of the Act [with effect from 1st April, 1989], they are given a go-by and only one condition has remained, viz., that where the Assessing Officer has reason to believe that income has escaped assessment, confers jurisdiction to re- open the assessment. Therefore, post-1st April, 1989, power to re-open is much wider. However, one needs to give a schematic interpretation to the words "reason to believe" failing Page 23 of 27 Uploaded by PALAK BRAHMBHATT(HC01391) on Wed Jun 04 2025 Downloaded on : Fri Jun 06 21:24:39 IST 2025 NEUTRAL CITATION C/SCA/4903/2022 JUDGMENT DATED: 08/05/2025 undefined which, we are afraid, Section 147 would give arbitrary powers to the Assessing Officer to re-open assessments on the basis of "mere change of opinion", which cannot be per se reason to re-open. We must also keep in mind the conceptual difference between power to review and power to re-assess. The Assessing Officer has no power to review; he has the power to re-assess. But re- assessment has to be based on fulfillment of certain pre-condition and if the concept of "change of opinion" is removed, as contended on behalf of the Department, then, in the garb of re- opening the assessment, review would take place. One must treat the concept of "change of opinion" as an in-built test to check abuse of power by the Assessing Officer. Hence, after 1st April, 1989, Assessing Officer has power to re-open, provided there is "tangible material" to come to the conclusion that there is escapement of income from assessment. Reasons must have a live link with the formation of the belief. Our view gets support from the changes made to Section 147 of the Act, as quoted hereinabove. Under the Direct Tax Laws (Amendment) Act, 1987, Parliament not only deleted the words "reason to believe" but also inserted the word Page 24 of 27 Uploaded by PALAK BRAHMBHATT(HC01391) on Wed Jun 04 2025 Downloaded on : Fri Jun 06 21:24:39 IST 2025 NEUTRAL CITATION C/SCA/4903/2022 JUDGMENT DATED: 08/05/2025 undefined "opinion" in Section 147 of the Act. However, on receipt of representations from the Companies against omission of the words "reason to believe", Parliament re-introduced the said expression and deleted the word "opinion" on the ground that it would vest arbitrary powers in the Assessing Officer. We quote hereinbelow the relevant portion of Circular No.549 dated 31st October, 1989, which reads as follows:
"7.2 Amendment made by the Amending Act, 1989, to reintroduce the expression `reason to believe' in Section 147.--A number of representations were received against the omission of the words `reason to believe' from Section 147 and their substitution by the `opinion' of the Assessing Officer. It was pointed out that the meaning of the expression, `reason to believe' had been explained in a number of court rulings in the past and was well settled and its omission from section 147 would give arbitrary powers to the Assessing Officer to reopen past assessments on mere change of opinion. To allay these fears, the Amending Act, Page 25 of 27 Uploaded by PALAK BRAHMBHATT(HC01391) on Wed Jun 04 2025 Downloaded on : Fri Jun 06 21:24:39 IST 2025 NEUTRAL CITATION C/SCA/4903/2022 JUDGMENT DATED: 08/05/2025 undefined 1989, has again amended section 147 to reintroduce the expression `has reason to believe' in place of the words `for reasons to be recorded by him in writing, is of the opinion'. Other provisions of the new section 147, however, remain the same."
For the afore-stated reasons, we see no merit in these civil appeals filed by the Department, hence, dismissed with no order as to costs."
12. In view of the above settled legal position, the respondent-Assessing Officer could not have assumed the jurisdiction to re-open the assessment on mere change of opinion as it would amount to review the Assessment Order passed under Section 143(3) of the Act on the same set of facts which is not permissible.
13. In view of the foregoing reasons, the petition succeeds and accordingly, allowed. Page 26 of 27 Uploaded by PALAK BRAHMBHATT(HC01391) on Wed Jun 04 2025 Downloaded on : Fri Jun 06 21:24:39 IST 2025
NEUTRAL CITATION C/SCA/4903/2022 JUDGMENT DATED: 08/05/2025 undefined The impugned notice dated 31.03.2021 as well as the order dated 15.02.2022 are hereby quashed and set aside. Rule is made absolute. No orders as to cost.
(BHARGAV D. KARIA, J) (P. M. RAVAL, J) PALAK Page 27 of 27 Uploaded by PALAK BRAHMBHATT(HC01391) on Wed Jun 04 2025 Downloaded on : Fri Jun 06 21:24:39 IST 2025