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
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
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.
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
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
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
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:
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
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
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
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
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
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
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.
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.
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
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
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
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.
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
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.
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
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
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
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,
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.
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
