Ardent Ventures Llp vs Income Tax Officer Ward 3(1)(3)
2021 Latest Caselaw 3602 Guj

         C/SCA/16129/2018                                        ORDER



            IN THE HIGH COURT OF GUJARAT AT AHMEDABAD

          R/SPECIAL CIVIL APPLICATION NO. 16129 of 2018
=========================================================
                      ARDENT VENTURES LLP
                              Versus
                INCOME TAX OFFICER WARD 3(1)(3)
==========================================================
Appearance:
MS VAIBHAVI K PARIKH(3238) for the Petitioner(s) No. 1
MR.VARUN K.PATEL(3802) for the Respondent(s) No. 1
==========================================================
   ORAM: HONOURABLE MR. JUSTICE J.B.PARDIWALA
         and
         HONOURABLE MR. JUSTICE ILESH J. VORA
                         Date : 01/03/2021
                          ORAL ORDER

(PER : HONOURABLE MR. JUSTICE ILESH J. VORA)

1. By filing this writ application under Article 226 of the Constitution

of India, the writ applicant seeks to challenge the Notice dated

28.03.2018 issued by the respondent under Section 148 of the

Income Tax Act, 1961 (for short "The Act, 1961") seeking to re-

open the applicant's income tax assessment for the A.Y 2011-12.

2. The brief facts giving rise to filing the present writ application are

as follows:

2.1 The writ applicant Ardent Ventures LLP is a limited liability

partnership firm. The writ applicant filed its return of income for

the A.Y. 2011-12 on 13.02.2012 declaring total income at

Rs.23,936/- and the same was processed under Section 143(1) of

the Act without any scrutiny.

   C/SCA/16129/2018                                                ORDER




2.2      The assessing officer reopened the assessment under Section

147 of the Act by issuing impugned notice under Section 148 of

the Act. The assessee company had requested to the Revenue to

treat the original return of income filed as return filed in

pursuance to the impugned notice and vide letter dated

09.04.2018, requested to provide a copy of the reasons recorded,

which has been provided by letter dated 13.04.2018. The reasons

recorded reads thus :

Reasons for re-opening :-

"2. The DDIT, (Inv.), Unit-1(1), Ahmedabad vide Letter dated 19/03/2018 shared the information of the above mentioned assessee company consequent to inquiry in the case of Gujarat Natural Resources Ltd. The said information has been received through ITO, Ward,1(1) (3), Ahmedabad. The gist of the findings forwarded is as under:

2.1 During the course of investigation in the case of Gujarat Natural Resources Ltd. (GNRL), it came to light that company had received share application money, out of which during F.Y. 2010-11, it had received a sum of Rs.52,50,000/- from Ardent Ventures LLP (Formerly known as Ardent Ventures Pvt. Ltd). In order to carry out further investigations in the matter, summons' were issued to Ardent Ventures Pvt. Ltd., by the Investigation wing requesting to furnish details regarding source of investment in GNRL by way of share capital and share premium during F.Y. 2010-11 and also to prove that the investment is made out of tax paid money. The summons could not be served in the known address in spite of several attempts. Therefore the source of money invested in GNRL is not proved and it is not ascertainable whether ti is out of tax paid money. Thereafter, as per directions of Pr. DIT (Investigation), the DDIT has shared the above information with a request to take necessary action as per relevant provisions of Income Tax Act, 1961.

3. The above information and data available on record are carefully considered. The refund income of the assessee company is Rs.23,936/-.

During the year, investment in utilized equities has increased by Rs.57,12,700/- the compared to the previous year. As per the information

C/SCA/16129/2018 ORDER

received from the investigation wing, it is seen that assessee has introduced share application money in GNRL to the tune of Rs.52,50,000/-. The details of investment are not available on records.

4. A non-statutory letter was issued to -assessee on 21.03.2018 by ITO, Ward 1(1) (3), Ahmedabad to submit the details of transaction made with Gujarat Natural Resources Ltd. during the F.Y. 2010-11 along with supporting documents to prove the same. It was also requested to submit the details of all investment made during the year along with source of investment. The assessee vides reply dated 22.3.2018 submitted return of income, statement of total income, audited accounts. The details of investment as per balance sheet are as under.

Particulars                                 As on 31.03.2011     As on
                                                                 31.03.2010
Shares (Long Term At Cost)
Uniflex cables                              1,37,700             1,37,700
Kanha Cables Ltd.                           1,25,000             1,25,000/-
Lesha Energy Resources                      70,00,000            17,50,000
Mututal Fund (Long term At cost)
Axis Triple Adv. Fund                       2,00,000
Total                                       74,62,700            20,12,700

5. As per the audited accounts and details submitted, during the year assesses investment in Lesha Energy Resources Ltd. (Formerly known as Gujarat Natural Resources Ltd.) has increased by Rs.52,50,000/-. The assessee has provided certificate of incorporation consequent upon change of name to Lesha Energy Resources Ltd. Vide letter dated 21.3.2018, it was specifically asked by ITO, Ward (1) (1) (3), Ahmedabad to provide the source of investment made during the year. However, the sources of investments were not provided by the assessee. In view of this, source of investment to the tune of Rs. 52,50,000/- in Gujarat Natural Resources Ltd. stands unexplained as per I.T.Act. This being the case, the investment of Rs.52,50,000/- made is to be treated as income from undisclosed sources of the assessee.

6. In view of the above findings, I have reasons to believe that income chargeable to tax to the extent of Rs.52,50,000/- has escaped assessment in the case of Ardent Ventures Pvt. Ltd for the A.Y. 2011-12 within the meaning of section 147 of the I.T. Act and it is a fit case for issuing notice u/s 148 of the Act."

C/SCA/16129/2018 ORDER

2.3 The writ applicant filed its objections vide its communication

dated 02.05.2018 and the same came to be rejected by the

Revenue vide order dated 24.07.2018.

3. Being dissatisfied with the decision to reopen the assessment, the

writ applicant is here before this Court with the present writ

application.

4. The case of the revenue is that, during the course of investigation

in the case of Gujarat Natural Resources Ltd. (subsequently known

as Lesha Energy Resources Ltd.), it came to the notice that, the

Gujarat Natural Resources Ltd., had received Rs.52,50,000/- towards

share application money from the assessee during F.Y. 2010-11. The

assessee was thereafter requested to submit all the details of

investments along with sources of investment. The assessee failed

to provide the details of source of the investment and such

investment of Rs.52,50,000/- remains unexplained and needs to be

treated as undisclosed income and and accordingly, the revenue is

of the view that, the income of Rs.52,50,000/- chargeable to tax has

escaped assessment in the hands of the assessee.

5. The assessee had submitted its objections against re-opening of the

assessment, wherein, it was submitted that, the assessee has

disclosed all the income liable to be offered and to be brought to

tax in its return of income and further submitted that, the

transactions in question has been duly recorded in the audited

books of accounts of the assessee company. It has been specifically

C/SCA/16129/2018 ORDER

pleaded by the writ applicant that, at the relevant time, there was

sufficient funds at the beginning of the year represented by the

share capital and advances receivable and the same was the source

of investment in Gujarat Natural Resources Ltd., and therefore, all

the necessary facts and materials with regard to sources of

investment in the company having been disclosed before the

authority.

6. We have heard Mr. Tushar Hemani, the learned Senior Counsel

assisted by Ms. Vaibhavi K. Parikh, the learned counsel appearing

for the writ applicant and Mr. Varun K. Patel, the learned Standing

Counsel appearing for the Revenue.

7. Learned counsel appearing for the writ applicant has submitted the

following contentions :

(i) It was submitted that, the impugned notice is illegal, bad in law

and without jurisdiction because the conditions precedent for valid

reopening under Section 147 of the act is not satisfied.

(ii) It was pointed out that, the assessing officer can re-open the

case of an assessee within the prescribed time limit provided he

has reason to believe that, some income chargeable to tax has

escaped assessment in the hands of the assessee and such 'reason

to believe' must be based on tangible materials. In this regard, it

was argued that, the investment of Rs.52,50,000/- duly appeared in

the annual audit account of the assessee, which shows that, the

C/SCA/16129/2018 ORDER

assessee had funds at the beginning of the year which was invested

in the Gujarat Natural Resources Ltd., and such funds were the

source of investment in the alleged company. Therefore, in these

circumstances, it cannot be said that the sources of investment

were not disclosed by the writ applicant.

(iii) Relying on the case of Krupesh Ghanshyambhai Thakkar

Vs. DCIT, [(2017) 77 taxmann.com 293 (Guj.)], it was contended

that, reopening cannot be resorted to for a mere scrutiny or

further verification of any aspect. In this regard, it was further

pointed out that, the learned counsel submitted that, the

respondent has not at all established as to how investment in the

alleged company can be treated as undisclosed income of the writ

applicant and there was some suspicion in the mind of the

assessing officer with regard to escape of such income chargeable

to tax in the assessee's hand and accordingly, it is evident that the

respondent has initiated the proceedings for further verification of

the concerned transaction, which cannot permissible in law.

(v) It was pointed out that, the law is settled that the assessing

officer does not get jurisdiction to reopen an assessment unless he

records his over independent satisfaction to the effect that, income

chargeable to tax has actually escaped assessment. In the present

case, no satisfaction has been recorded by the respondent as the

Assessing officer has merely relied upon the information received

from the office of the DDIT (Inv.), Unit I, Ahmedabad for the

purpose of reopening of the assessment.

C/SCA/16129/2018 ORDER

8. In view of the aforesaid contentions, the learned counsel appearing

for the writ applicant submits that, the impugned notice is bad,

illegal, contrary to law and is required to be quashed and set aside,

9. On the other hand, Mr. Varun Patel, the learned Standing Counsel

appearing for the Revenue submitted that, having regard to the

reasons recorded for re-opening of the assessment, the Assessing

Officer has clearly recorded that there is a failure on the part of

the assessee to disclose its income fully and truly and therefore,

the reopening of the assessment beyond a period of four years

from the end of the relevant assessment year is valid and proper.

Relying on the case of Raymond Woolen Mills Ltd. Vs. Income Tax

Officer, (1999) 236 ITR 34 SC, it was argued that, the assessee failed

to furnish necessary details with regard to undisclosed income as

recorded in the reasons recorded by the assessing officer and at

that stage, the assessing officer should not have finally ascertained

the fact by legal evidence or conclusion. In view of the contentions

raised by the Revenue, Mr. Varun Patel prays that, there being no

merits in the writ application, the same may be rejected.

10. Having heard the learned counsel appearing for the parties and

having gone through the materials on record, the question for fall

our consideration is whether the Revenue is justified in reopening

the assessment beyond a period of four years under Section 147 of

the Act.

C/SCA/16129/2018 ORDER

11. We take notice of the fact that, the demand to reopen the

assessment is substantially on the ground that, the assessee

company had invested Rs.52,50,000/- in Gujarat Natural Resources

Ltd., towards share application money for which the assessee

company failed to provide the details of source of investment for

the year under consideration.

12. The law is settled that, Section 139 of the Act places an obligation

upon every person to furnish voluntarily a return of his/her total

income with statutory obligation to disclose all the material facts

necessary for his /her assessment for that year fully and truly. If at

any subsequent point of time, it is found that, either on account of

an omission or failure of the assessee to file the return fully and

truly all materials necessary for his assessment for that year,

income chargeable to tax has escaped assessment for that year, the

revenue is entitled to reopen the assessment in accordance with

the procedure as prescribed by the Act.

13. A constitutional Bench of the Supreme Court in Calcutta

Discount Company Ltd. Vs. Income Tax Officer, Companies

District I, Calcutta and Anr., [AIR 1961 SC 372], wherein, the

meaning of "true and full disclosure" has been explained. The

relevant observations made in paras 8, 9, 10 and 11 of the said

decision reads thus:

"(8) The words used are " omission or failure to disclose fully and truly all material facts necessary for his assessment for that year ". It postulates a duty on every assessee to disclose fully and truly all material facts necessary for his assessment. What facts

C/SCA/16129/2018 ORDER

are material, and necessary for assessment will differ from case to case. In every assessment proceeding, the assessing authority will, for the purpose of computing or determining the proper tax due from an assessee, require to know all the facts which help him in coming to the correct conclusion. From the primary facts in his Possession, whether on disclosure by the assessee, or discovered by him on the basis of the facts disclosed, or otherwise-the assessing authority has to draw inferences as regards certain other facts; and ultimately, from the primary facts and the further facts inferred from them, the authority has to draw the proper legal inferences, and ascertain on a correct interpretation of the taxing enactment, the proper tax leviable. Thus, when a question arises whether certain income received by an assessee is capital receipt, or revenue receipt, the assessing authority has to find out what primary facts have been proved, what other facts can be inferred from them, and taking all these together, to decide what the legal inference should be.

(9) There can be no doubt that the duty of disclosing all the primary facts relevant to the decision of the question before the assessing authority lies on the assessee. To meet a possible contention that when some account books or other evidence has been produced, there is no duty on the assessee to disclose further facts, which on due diligence, the Income-tax Officer might have discovered, the Legislature has put in the Explanation, which has been set out above., In view of the Explanation, it will not be open to the assessee to say, for example-" I have produced the account books and the documents: You, the assessing officer examine them, and find out the facts necessary for your purpose: My duty is done with disclosing these account-books and the documents". His omission to bring to the assessing authority's attention these particular items in the account books, or the particular portions of the documents, which are relevant, amount to " omission to disclose fully and truly all material facts necessary for his assessment." Nor will he be able to contend successfully that by disclosing certain evidence, he should be deemed to have disclosed other evidence, which might have been discovered by the assessing authority if he had pursued investigation on the basis of what has been disclosed. The Explanation to the section, gives a quietus to all such contentions; and the position remains that so far as primary facts are concerned, it is the assessee's duty to disclose all of them-including particular entries in account books, particular portions of documents and documents, and other evidence, which could have been discovered by the assessing authority, from the documents and other evidence disclosed.

C/SCA/16129/2018 ORDER

(10) Does the duty however extend beyond the full and truthful disclosure of all primary facts ? In our opinion, the answer to this question must be in the negative. Once all the primary facts are before the assessing authority, he requires no further assistance by way of disclosure. It is for him to decide what inferences of facts can be reasonably drawn and what legal inferences have ultimately to be drawn. It is not for somebody else-far less the assessee--to tell the assessing authority what inferences-whether of facts or law should be drawn. Indeed, when it is remembered that people often differ as regards what inferences should be drawn from given facts, it will be meaningless to demand that the assessee must disclose what inferences-whether of facts or law-he would draw from the primary facts.

(11) If from primary facts more inferences than one could be drawn, it would not be possible to say that the assessee should have drawn any particular inference and communicated it to the assessing authority. How could an assessee be charged with failure to communicate an inference, which he might or might not have drawn ?"

14. A careful analysis of the above judgment, it is settled that it is duty

of the assessee to disclose fully and truly all material facts which it

term as primary facts and non disclosure of other facts may be

termed as secondary fact is not necessary. In light of the settled

principles as propounded by the Constitutional Bench, we shall

now deal with the facts of the present case.

15. We take the notice of the fact that, after receiving the impugned

notice dated 28.03.2018, the assessee company vide letter dated

09.04.2018, requested to treat the original return of income as its

return of income in response to the notice and also filed a copy of

the audited annual accounts including the audited balance-sheet,

which is on record.

C/SCA/16129/2018 ORDER

16. We have carefully examined the reasons recorded for re-opening

of the assessment, wherein, the assessing officer has observed that,

as per the audited accounts and details submitted by the assessee,

the sources of investment made during the year were not provided

by the assessee and the amount of Rs.52,50,000/- invested in the

Gujarat Natural Resources Ltd. stands unexplained, which is to be

treated as income from the undisclosed source of assessee.

17. Considering the reasons recorded and the law laid down by the

Apex Court in the case of Calcutta Discount Companies (Supra), we

are of the view that, the assessee has failed to explain the sources

of the investment made in the Gujarat Natural Resources Ltd. We

have examined the letter dated 09.04.2018, wherein, it was not

brought to the notice of the respondent that the company having

surplus funds at the beginning of the year represented by share

capital and advances receivable and the same was the source of

investment in the alleged company. Therefore, in our view, it is the

omission on the part of the assessee company not to point out this

specific particular items of the balance-sheet to show that, the

surplus funds was being utilized for the investment. Therefore,

failure to highlight specifically the relevant items of the account

books or the particular portion of the balance-sheet to the

respondent could be said to be an omission on the part of the

assessee to disclose fully and truly all the material facts necessary

for its assessment. Thus, we hold that, the assessee has failed to

disclose the primary facts with regard to the sources of investment.

C/SCA/16129/2018 ORDER

18. It is an admitted fact that, the original return was processed under

Section 143 (1) of the Act without scrutiny assessment. It is

pertinent to note that, the explanation 1 to Section 147 of the Act

clearly says that, the production before the assessing officer of

account books or other evidence could with due diligence have

been discovered by the assessing officer will not amount to

disclosure.

19. In view of the aforesaid discussions and considering the facts and

circumstances of the case, we hold that, in absence of primary

facts with regard to the sources of investment, the assessing officer

has rightly recorded that the assessee has not furnished the details

with regard to the sources of investment and therefore, there is a

cause or justification for him to believe that, the unexplained

investment chargeable to tax has escaped assessment.

20. Thus, in the overall view of the matter, it cannot be said that, there

was no tangible material before the assessing officer to re-open

the assessment and that he has proceeded mechanically based only

on the information received from the Investigation DDIT (Inv.) I,

Ahmedabad and therefore, the impugned notice is without

jurisdiction and contrary to Section 147 of the Act.

21. For the foregoing reasons, no case is made out and accordingly,

present writ application deserves to be dismissed and is hereby

C/SCA/16129/2018 ORDER

dismissed. Notice is discharged. Interim relief, granted earlier,

stands vacated.

(J. B. PARDIWALA, J)

(ILESH J. VORA,J) SUCHIT