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.
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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.
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C/SCA/5874/2022 JUDGMENT DATED: 22/04/2025
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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.
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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'),
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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
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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
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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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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
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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
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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-
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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
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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
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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
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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
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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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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
