Shrenik Kumar N. Baldota v. Deputy Commissioner of Income Tax Circle – 1(2)(1), Mumbai & Ors.

2. Interest from PPF Accounts: Rs. 2,47,715/-

3. Interest from PF Accounts: Rs. 1,25,43,340/-

4. Interest from THE GREATER BOMBAY CO-OPERATIVE BANK

4. Interest from THE GREATER BOMBAY CO-OPERATIVE BANK:: Rs. 1,01,27,269/- Rs. 1,01,27,269/-

5. Interest from PRAGATI GRAMIN BANK:

5. Interest from PRAGATI GRAMIN BANK: Rs. 5,48,720/- Rs. 5,48,720/-

6. Interest-Others: Rs. 2,54,942/-

1. Out of these interest receipts, interest from PPF of Rs. 2,47,715/-

1. Out of these interest receipts, interest from PPF of Rs. 2,47,715/and PF of Rs. 1,25,43,340/- totaling to Rs. 1,27,91,055/- are non and PF of Rs. 1,25,43,340/- totaling to Rs. 1,27,91,055/- are non taxable income, therefore rightly excluded from the computation of taxable income, therefore rightly excluded from the computation of income. But no explanation has been submitted for non exclusion income. But no explanation has been submitted for non exclusion of interest from Pragati Gramin Bank of Rs. 5,48,720/-. Even there of interest from Pragati Gramin Bank of Rs. 5,48,720/-. Even there is a difference in the "interest - others' shown in the computation is a difference in the "interest - others' shown in the computation and capital account. In capital account interest - others is Rs. and capital account. In capital account interest - others is Rs. 2,54,942/-where as in computation interest - others is Rs. 2,54,942/-where as in computation interest - others is Rs. 6,68,159/-. In absence any bifurcation, it is not clear whether 6,68,159/-. In absence any bifurcation, it is not clear whether interest of Rs. 2,54,942/- is part of interest - others shown in the interest of Rs. 2,54,942/- is part of interest - others shown in the computation. computation.

2. From the above discussion, it can be concluded that interest

2. From the above discussion, it can be concluded that interest from Pragati Gramin Bank of Rs.5,48,720/- and interest - others of from Pragati Gramin Bank of Rs.5,48,720/- and interest - others of Rs 2,54,942/- has not been included in the computation of income Rs 2,54,942/- has not been included in the computation of income by the assesse. The AO has accepted the computation submitted by by the assesse. The AO has accepted the computation submitted by the assesse in the assessment order. This resulted in under the assesse in the assessment order. This resulted in under assessment of Rs. 8,03,662/- involving tax effect of Rs. 2,73,165/assessment of Rs. 8,03,662/- involving tax effect of Rs. 2,73,165/- (excluding interest u/s 234A, 234B and 234C). (excluding interest u/s 234A, 234B and 234C).

3. Further it was seen that the assesse had submitted vide letter

3. Further it was seen that the assesse had submitted vide letter dated 25.09.2017 that he had borrowed funds of Rs. dated 25.09.2017 that he had borrowed funds of Rs. 20,74,59,584/- from Pragati Gramin Bank, Hospet and advanced 20,74,59,584/- from Pragati Gramin Bank, Hospet and advanced loans amounting to Rs. 1,77,39,11,205/- The assessee further loans amounting to Rs. 1,77,39,11,205/- The assessee further submitted that interest of Rs. 1,75,52,396/- was paid to Pragati submitted that interest of Rs. 1,75,52,396/- was paid to Pragati Gramin Bank. On perusalof the details available on the records, it Gramin Bank. On perusalof the details available on the records, it is seen that the assessee has received interest only from loans is seen that the assessee has received interest only from loans advanced to MSPL Gases Ltd. In his submission dated 25.10.2017, advanced to MSPL Gases Ltd. In his submission dated 25.10.2017, the assessee had given details of loans borrowed from the bank and the assessee had given details of loans borrowed from the bank and loan advanced to M/s MSPL Gases Ltd. from these details, it is loan advanced to M/s MSPL Gases Ltd. from these details, it is observed that though the loan amount from the Gramin Bank has observed that though the loan amount from the Gramin Bank has been increased from Rs. 14,81,16,106/-as on 31.03.2014to Rs. been increased from Rs. 14,81,16,106/-as on 31.03.2014to Rs. 20,74,59,583/- as on 31.03.2015, whereas loan advanced to MSPL 20,74,59,583/- as on 31.03.2015, whereas loan advanced to MSPL Gases Ltd has been decreased from Rs. 57,80,37,737/- as on Gases Ltd has been decreased from Rs. 57,80,37,737/- as on 31.03.2014 to Rs. 51,93,87,961/- as on 31.03.2015. It is pertinent 31.03.2014 to Rs. 51,93,87,961/- as on 31.03.2015. It is pertinent to mention that on perusal of loan confirmation of MSPL Gases Ltd, to mention that on perusal of loan confirmation of MSPL Gases Ltd, it is seen that no fresh loan was advanced by the assessee to the it is seen that no fresh loan was advanced by the assessee to the company during the financial year 2014-15. Therefore the company during the financial year 2014-15. Therefore the increased amount of loan taken from Pragati Gramin Bank of Rs. increased amount of loan taken from Pragati Gramin Bank of Rs. 5,93,43,477/- cannot be said to have been utilized for giving loans 5,93,43,477/- cannot be said to have been utilized for giving loans to MSPL Gases Itd by the assessee. The AO should not have been to MSPL Gases Itd by the assessee. The AO should not have been allowed proportionate interest of Rs. 50,20,834/- on the amount of allowed proportionate interest of Rs. 50,20,834/- on the amount of Rs. 5,93,43,477/- as deduction u/s 57(iii) of the act. Rs. 5,93,43,477/- as deduction u/s 57(iii) of the act.

4. This resulted in total under assessment of income by Rs.

4. This resulted in total under assessment of income by Rs. 58,24,496/- (Rs. 8,03,662+ Rs. 50,20,834/-). 58,24,496/- (Rs. 8,03,662+ Rs. 50,20,834/-).

5. Thus I have reason to believe that income in excess of Rs.

5. Thus I have reason to believe that income in excess of Rs. 1,00,000/- chargeable to tax has escaped assessment in this case, 1,00,000/- chargeable to tax has escaped assessment in this case, for the assessment year 2014-15. The word reason in the phrase for the assessment year 2014-15. The word reason in the phrase 'reason to believe' would mean cause or justification. If the 'reason to believe' would mean cause or justification. If the Assessing Officer has cause or justification to know or suppose the Assessing Officer has cause or justification to know or suppose the income had escaped assessment, it can be said to have reason to income had escaped assessment, it can be said to have reason to believe that the income had escaped assessment. The expression believe that the income had escaped assessment. The expression cannot be read to mean that the Assessing Officer should have cannot be read to mean that the Assessing Officer should have finally ascertained the fact by legal evidence or conclusion, finally ascertained the fact by legal evidence or conclusion, objectively. In the present case, since the assessee has failed to objectively. In the present case, since the assessee has failed to substantiate its payments towards interest on loan taken from the substantiate its payments towards interest on loan taken from the banks, it leads-to-enough cause for forming of belief by the banks, it leads-to-enough cause for forming of belief by the undersigned regarding of income during the year under undersigned regarding of income during the year under consideration. consideration.

6.

6. The reason for re-opening the assessment u/s. 148 is enclosed The reason for re-opening the assessment u/s. 148 is enclosed herewith for your information. You are requested to file your herewith for your information. You are requested to file your objection if any, within 15 days from the receipt of this mail, objection if any, within 15 days from the receipt of this mail, otherwise it will be considered as accepted by you.” otherwise it will be considered as accepted by you.”

4. The Petitioner vide letter dated 22 July 2021 filed his The Petitioner vide letter dated 22 July 2021 filed his objections which were disposed of vide order dated 11 February 2022. objections which were disposed of vide order dated 11 February 2022. Since the order rejected the objections raised by the Petitioner, the Since the order rejected the objections raised by the Petitioner, the Petitioner is before us challenging the impugned proceedings. Petitioner is before us challenging the impugned proceedings.

5. Mr. Mr. Mody, learned counsel for the Petitioner, submits that Mody, learned counsel for the Petitioner, submits that there is no allegation of any failure to disclose fully and truly any there is no allegation of any failure to disclose fully and truly any material facts necessary for the assessment as mandated by first proviso material facts necessary for the assessment as mandated by first proviso to Section 147 of the said Act and, therefore, the jurisdictional to Section 147 of the said Act and, therefore, the jurisdictional condition is not satisfied. He further submits that on a perusal of the condition is not satisfied. He further submits that on a perusal of the reasons recorded, it clearly demonstrates that reasons are based on reasons recorded, it clearly demonstrates that reasons are based on what was filed during the course of the regular assessment proceedings. what was filed during the course of the regular assessment proceedings. He further submits that the successor Assessing Officer is seeking to re- He further submits that the successor Assessing Officer is seeking to reopen on the ground that the predecessor officer has not computed the open on the ground that the predecessor officer has not computed the assessed income correctly. Mr. Mody, therefore, submits that the assessed income correctly. Mr. Mody, therefore, submits that the proceedings are without jurisdiction and bad in law. proceedings are without jurisdiction and bad in law.

6. Mr. Suresh Kumar, learned counsel for the Respondents placed Mr. Suresh Kumar, learned counsel for the Respondents placed reliance on the order rejecting the objections and the affidavit-in-reply reliance on the order rejecting the objections and the affidavit-in-reply dated 27 June 2023. He states that the re-opening is done based on the dated 27 June 2023. He states that the re-opening is done based on the audit objections and, therefore, that constitutes new and tangible audit objections and, therefore, that constitutes new and tangible information for assuming jurisdiction. He vehemently opposed the information for assuming jurisdiction. He vehemently opposed the submissions made by the Petitioner. submissions made by the Petitioner.

7. We have considered the rival submissions and perused the We have considered the rival submissions and perused the records. Admittedly, the impugned notice is issued after a period of four records. Admittedly, the impugned notice is issued after a period of four years from the end of the relevant assessment year and proviso to years from the end of the relevant assessment year and proviso to Section 147 is attracted. Section 147 is attracted.

8. In this case, the assessment order under Section 143(3) of the In this case, the assessment order under Section 143(3) of the said Act was passed on 9 November 2017. Therefore, first proviso to said Act was passed on 9 November 2017. Therefore, first proviso to Section 147 is clearly attracted, whereby the Assessing Officer has to Section 147 is clearly attracted, whereby the Assessing Officer has to satisfy the jurisdictional condition that there was failure on the part of satisfy the jurisdictional condition that there was failure on the part of the assessee to disclose fully and truly all material facts necessary for the assessee to disclose fully and truly all material facts necessary for the assessment. On a reading of the reasons for re-opening, we could the assessment. On a reading of the reasons for re-opening, we could not find any allegations as contemplated under the first proviso to not find any allegations as contemplated under the first proviso to Section 147 of the said Act indicating that there was any failure on the Section 147 of the said Act indicating that there was any failure on the part of the assessee to disclose fully and truly all material facts part of the assessee to disclose fully and truly all material facts necessary for the assessment. Based on the reasons recorded, it is necessary for the assessment. Based on the reasons recorded, it is apparent that the information has been culled out from the documents apparent that the information has been culled out from the documents and submissions made in the course of the regular assessment and submissions made in the course of the regular assessment proceedings. The reasons recorded admits that the predecessor officer proceedings. The reasons recorded admits that the predecessor officer has not assessed the income correctly. In our view, based on the reasons has not assessed the income correctly. In our view, based on the reasons as recorded the jurisdictional condition contemplated by the first as recorded the jurisdictional condition contemplated by the first proviso to Section 147 cannot be said to have been satisfied and, proviso to Section 147 cannot be said to have been satisfied and, therefore, the impugned proceedings are required to be quashed. therefore, the impugned proceedings are required to be quashed.

9. We may also observe that the Petitioner in its objections had We may also observe that the Petitioner in its objections had raised the jurisdictional objections which is required to be satisfied raised the jurisdictional objections which is required to be satisfied before re-opening the case. None of these objections has been rebutted before re-opening the case. None of these objections has been rebutted by the Assessing Officer while disposing the order rejecting the by the Assessing Officer while disposing the order rejecting the objections. The order rejecting objections merely reproduces various objections. The order rejecting objections merely reproduces various judgments. In our view, in the absence of any rebuttal to the objections judgments. In our view, in the absence of any rebuttal to the objections raised by the Petitioner, it shall be presumed that the Respondents have raised by the Petitioner, it shall be presumed that the Respondents have accepted the objections raised by the Petitioner and, therefore, the accepted the objections raised by the Petitioner and, therefore, the impugned proceeding is liable to be quashed. impugned proceeding is liable to be quashed.

10. Lastly, in the reply filed to this petition, Respondents have Lastly, in the reply filed to this petition, Respondents have relied on the audit objections to justify the re-opening. It is settled relied on the audit objections to justify the re-opening. It is settled position that the jurisdiction of re-opening has to be tested on the position that the jurisdiction of re-opening has to be tested on the touchstone of the reasons as recorded and nothing can be added or touchstone of the reasons as recorded and nothing can be added or subtracted thereform. Neither in the reasons recorded nor in the order subtracted thereform. Neither in the reasons recorded nor in the order deciding the objections it is stated that the re-opening is done on the deciding the objections it is stated that the re-opening is done on the basis of audit objections and, therefore, the contentions raised on this basis of audit objections and, therefore, the contentions raised on this count is also to be rejected. count is also to be rejected.

11. For the above reasons, For the above reasons, Rule is made absolute in terms of Rule is made absolute in terms of prayer clause (a) which reads as under:prayer clause (a) which reads as under:- “(a) Declare that the impugned notice under section 148 of the Act “(a) Declare that the impugned notice under section 148 of the Act dated 27 March, 2021 (Exhibit F) and the impugned order dated dated 27 March, 2021 (Exhibit F) and the impugned order dated 11 February, 2022 (Exhibit J) are wholly without jurisdiction, 11 February, 2022 (Exhibit J) are wholly without jurisdiction, illegal, arbitrary and liable to be quashed;” illegal, arbitrary and liable to be quashed;”

12. This Petition is disposed of with no order as to costs. This Petition is disposed of with no order as to costs. (Jitendra S. Jain, J.) (M. S. Sonak, J.) Designation: PA To Honourable Judge