Gujarat High Court
Shah Tobacco Trading Co vs Additional/Joint/Deputy/Assistant … on 28 October, 2024
Author: Bhargav D. Karia
Bench: Bhargav D. Karia
NEUTRAL CITATION
C/SCA/17208/2021 JUDGMENT DATED: 28/10/2024
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IN THE HIGH COURT OF GUJARAT AT AHMEDABAD
R/SPECIAL CIVIL APPLICATION NO. 17208 of 2021
FOR APPROVAL AND SIGNATURE:
HONOURABLE MR. JUSTICE BHARGAV D. KARIA
and
HONOURABLE MR.JUSTICE D.N.RAY
===============================================================
1 Whether Reporters of Local Papers may be allowed
to see the judgment ?
2 To be referred to the Reporter or not ?
3 Whether their Lordships wish to see the fair copy
of the judgment ?
4 Whether this case involves a substantial question
of law as to the interpretation of the Constitution
of India or any order made thereunder ?
===============================================================
SHAH TOBACCO TRADING CO.
Versus
ADDITIONAL/JOINT/DEPUTY/ASSISTANT COMMISSIONER OF INCOME
TAX & ANR.
===============================================================
Appearance:
MR DEEPAK R SHAH WITH MR TEJ SHAH(5743) for the Petitioner(s) No. 1
MR NIKUNT K RAVAL(5558) for the Respondent(s) No. 1
=======-========================================================
CORAM:HONOURABLE MR. JUSTICE BHARGAV D. KARIA
and
HONOURABLE MR.JUSTICE D.N.RAY
Date : 28/10/2024
ORAL JUDGMENT
(PER : HONOURABLE MR. JUSTICE BHARGAV D. KARIA)
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1. Heard learned advocate Mr. Deepak R. Shah for the
petitioner and learned senior standing counsel Mr. Karan
Sanghani for the respondent. Having regard to the controversy
involved in this matter, which is in a narrow compass, with
the consent of learned advocates for the respective parties, the
matter is taken up for hearing.
2. Rule returnable forthwith. Learned advocate Mr. Sanghani
waives service of notice of rule.
3. This Court passed the following order on 29.11.2021;
“1. The petitioner is a partnership firm carrying on the
business of processing and trading in tobacco. The case of
the petitioner was selected for scrutiny on 22.09.2019.
After issuance of notice and calling for the particulars, a
draft assessment order was proposed by the respondent
for making addition under Section 68 of the Income Tax
Act. A request also had been made by the petitioner for
providing Video Conferencing link by the petitioner. The
notice and draft assessment order proposing the variations
have been issued, which have been replied to by the
petitioner.
1.1 It is a grievance of the petitioner that the
respondent has passed the order adding the receipt of
loans under Section 68 of the Act in complete disregard
to the documents substantiated by the petitioner therein
proceedings. Assessment order has been passed on
28.09.2021 and that has aggrieved the petitioner, who
has approached this Court with following prayers.
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“6. The petitioner accordingly prays that this
Hon’ble Court may be pleased to issue a writ of
Certiorari or any other writ in the nature of
certiorari or a writ of Mandamus or any other writ
in the nature of Mandamus.
a. To quash and set aside the impugned order
dated 28.09.2021 and the demand notice at
“Annexure-I colly.”
b. Pending admission and final hearing, stay the
implementation of the impugned order dated 28-09-
2021 and the demand notice at “Annexure-I colly.”
2. We have heard the learned Advocate Mr. Tej Shah,
who depending on the pleadings & materials on record
has urged that once new addition of acceptance of the
loan to the tune of Rs.2.6 Crores (rounded off) had been
requested by the petitioner, nonrecognition of the
testimonials which had been furnished along with the
proceedings of hearing, would necessitate interference
from this Court.
He has relied upon the decision of this Court rendered in
Special Civil Application No.7662 of 2021 and also the
decision of the Bombay High Court in the case of Mantra
Industries Ltd. Vs. National Faceless Assessment Center
(NFAC Or NeAC) reported in [2021] 131 taxmann.com
165 (Bombay).
3. Notice for final disposal returnable on 14.12.2021.
3.1 Interim relief in terms of para 6(b) is granted till
returnable date.”
4. The brief facts of the case are as under;
The petitioner, a partnership firm, is engaged in the
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business of manufacture and sale of Tobacco. The petitioner
filed the Return of Income for the Assessment Year 2018-19 on
02.10.2018 declaring income of Rs.4,10,940/-.
4.1 The case of the petitioner was selected for scrutiny and
Notice u/s.142(1) of the Income Tax Act, 1961 (for short, “the
Act”) was issued on 17.01.2020 seeking various details, which
was followed by further Notice dated 20.01.2021. The
petitioner filed reply dated 01.02.2021 in response to the
Notice.
4.2 The petitioner, thereafter, received Notice dated
19.03.2021 in the form of a Draft Assessment Order proposing
to make an addition of Rs.1,16,98,952/- u/s.68 of the Act on
the ground that the petitioner had repaid the loan during the
year under consideration.
4.3 The petitioner, by reply dated 23.03.2021, submitted
documents in respect of each of the deposits / loan accounts
where fresh funds were received / repaid, which contained
details of (i) confirmation with PAN No. (ii) copy of ledger
account from the books (iii) copy of bank statements of
respective parties from where the funds have been received
and where the payments are credited and (iv) copy of ITR for
A.Y. 2018-19 in cases where the respective person has filed the
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Return of Income.
4.4 The petitioner was also given an opportunity of hearing
through Video Conferencing by the respondent Assessing
Officer. The petitioner filed further reply on 08.04.2021 during
the course of Video Conferencing.
4.5 The respondent, thereafter, issued another show-cause
Notice dated 15.04.2021 to show cause as to why assessment
should not be completed as per the Draft Assessment Order.
Thereafter, Notice dated 20.08.2021 was issued to show cause
as to why proposed variation of Rs.3,09,65,450/- should not be
made, comprising of loan amount paid of Rs.1,02,72,952/-
from the unsecured loan and the amount received of
Rs.2,06,92,496/-. The petitioner filed reply dated 16.09.2021
wherein it was stated that all details with regard to receipt of
loans during the year under consideration have been provided
along with the reply dated 23.03.2021 which contained the
identity, genuineness and creditworthiness of the persons who
had advanced the unsecured loans to the petitioner.
4.6 During the course of proceedings, the petitioner had also
filed an application dated 07.09.2021 u/s.144A of the Act
before the JCIT, Vadodara for a direction to the Assessing
Officer for completing the assessment. However, the said
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application was not entertained and the respondent Assessing
Officer passed an assessment order on 28.09.2021 by making
an addition of Rs.2,06,92,496/-. In paragraphs 3 to 5 of the
order, it was observed as under;
“3. Further, the assessee has furnished the submission
on 08/04/2021 stating that “…. the firm has also
received loan funds of Rs.2,06,92,496/- and the proposed
addition of Rs.1,16,98,852/- is much less than the funds
received. The funds received as loan are already accepted
to be genuine by your honor and based on this fact, the
source fully stands explained”. On perusal of the
documents furnished by the assessee, it is noticed that
the assessee has received unsecured loans during the year
amounting to Rs.2,06,92,496/- and no substantial
document is furnished to prove the genuineness and
creditworthiness of the unsecured loans received.
4. As per the principles of natural justice, a show
cause notice incorporating draft assessment order was
issued to assessee on 20.08.2021 wherein it was requested
to submit the reply on or before 25/08/2021. In response
to this, the assessee has not furnished any documentary
evidences and requested for a video conference which
was scheduled on 30/08/2021. The assessee did not
attend the video conference due to technical reasons as
stated by the assessee vide response dated 04/09/2021.
Further, the assessee requested for rescheduling the video
conference and adjournment of 5 days for submitting the
response to the show cause notice. On assessee’s request
video conference was re-scheduled on 16/09/2021, which
was conducted successfully. In the video conference, the
AR of the assessee has attended and discussed the same
submission which was already made earlier.
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5. In light of the submissions furnished by the
assessee, it is noticed that, the assessee has received
unsecured loan from 14 different parties amounting to
Rs.2,06,92,496/-. During the financial year, the assessee
has filed his return of income declaring total income of
Rs.4,10,940/- and in earlier financial year i.e. 2016-17, it
was declared at Rs.39,738/-. The income declared by the
assessee does not commensurate with the amount of
unsecured loans squared-off during the year. On this
scenario, from the documents available on record and the
submission furnished by the assessee, it is observed that
the assessee is receiving unsecured loans and making
repayment of unsecured loans. From this, it is observed
that the assessee is circulating the money between
different parties. Further, the assessee was unable to
provide the documentary evidences to substantiate the
genuineness & creditworthiness of the parties from which
the unsecured loan is taken during the financial year
amounting to Rs.2,06,92,496/-.”
4.7 During the course of hearing, the jurisdictional officer
was joined as party respondent by order dated 21.12.2021
passed by this Court.
5. During the course of further hearing of this petition,
learned advocate for the petitioner furnished paper-book of the
documents submitted during the assessment proceedings, which
contains the documents for loan / deposits submitted during
the assessment proceedings, the transcript of Video Conference
hearing and the order dated 24.11.2022 of withdrawal of
appeal filed by the petitioner before the CIT (Appeals)
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challenging the impugned assessment order.
6. Learned advocate Mr. Shah for the petitioner submitted
that the respondent Assessing Officer, without considering the
documents furnished by the petitioner during the course of
assessment proceedings and those which were pointed out
during the course of Video Conference hearing, has not given
any findings and by a cursory observation that no substantial
documents are furnished by the petitioner to prove the
genuineness or creditworthiness of the unsecured loans received
by the petitioner during the year, has made an addition u/s.68
of the Act. It was further submitted that the Assessing Officer
has changed the entire basis of making addition by observing
that the assesse is circulating money between different parties
without there being any prima facie evidence on record. It
was, therefore, submitted that the impugned order passed by
the Assessing Officer making huge addition of Rs.2,06,92,496/-,
by ignoring the documents placed on record, has resulted into
violation of the principles of natural justice and the petitioner
has suffered severe hardship because of such huge addition and
hence, the impugned assessment order is required to be
quashed and set aside.
7. On the other hand, learned advocate Mr. Sanghani for
the respondent Assessing Officer submitted that the petitioner
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has availed the alternative efficacious remedy by preferring an
appeal before the CIT (Appeals), which was withdrawn by the
petitioner during the pendency of this petition and therefore,
this petition does not deserve to be entertained. It was
submitted that the petitioner was provided with ample
opportunities of hearing and after taking into consideration the
replies filed by the petitioner from time to time, the Assessing
Officer has passed the impugned assessment order. It was
submitted that if the Assessing Officer has committed any error
by not considering the reply, the same ought to have been
agitated by the petitioner before the CIT (Appeals) and the
non-consideration of reply cannot be treated as a breach of
natural justice so as to invoke the extra-ordinary jurisdiction
under Article 227 of the Constitution of India.
8. In support of his submissions, learned advocate Mr.
Sanghani referred to and relied upon the following averments
made in the affidavit in reply filed on behalf of the respondent
Assessing Officer;
“7. With reference to paras 3.3 and 3.4, the respondent
denies each and every allegation, averment and
contention raised therein.
It is submitted that in the present case, in show cause
notice dated 19.03.2021, the Faceless Assessing Officer
(FAO) has proposed the addition of Rs.1,16,98,952/-
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being the unsecured loans paid off during the year which
was challenged by the assessee in its reply dated
23.03.2021. Later, another show cause notice dated
06.04.2021 was issued for addition u/s.68, in response to
the same the assessee submitted reply dated 08.04.2021,
key points of which are reproduced below:
As submitted in reply to show cause, the firm has
also received loan funds of Rs.2,06,92,496/-and the
proposed addition of Rs.1,16,98,852/- is much less
than the funds received. The funds received as loan
are already accepted to be genuine by your honor
and based on this fact, the source fully stands
explained.
Further, the proposed addition of repayment cannot
be made u/s. 68 of the Act since the provisions of
Sec. 68 deals with sum found credited and not sum
found debited. Under such circumstances, it is
important for the assessee to understand as to how
your honor is proposing to invoke provisions of
Sec.68 for repayment of loans.
It is submitted that in the show cause dated 20.08.2021,
the Faceless Assessing Officer (FAO) proposed addition on
account of loan fund received of Rs. 2,06,92,496/- and
unsecured loans paid off to Sh. Shroff Ranchodbhai
Zaveribhai Patel at Rs.1,02,50,000/- and Ms. Jeevabehen
Nathabhai Patel at Rs.22,952/- totalling Rs. 1,02,72,952/-.
Thus, total addition of Rs 3,09,65,448/-, is proposed as
‘Unexplained Cash Credits’ u/s.68 of the Income Tax Act,
1961 in absence of authenticity, genuineness & credit
worthiness proved by the assessee.
Further, the assessee replied the show cause notice vide
letter dated 16.09.2021 where it challenged both the
additions, most notably addition u/s. 68 on account ofPage 10 of 16
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repayment of loan. The second limb of the objection was
accepted by the Faceless Assessing Officer (FAO), as
evident from the final order passed where the Faceless
Assessing Officer (FAO) has restricted the addition to
Rs.2,06,92,496/-.
It is submitted that without going into the merit of the
case, aforesaid sequence of the show cause notices and
replies of the assessee shows that there is no violation of
any provision of the Act as stated by the assessee.
8. With reference to para 3.6, the respondent denies
each and every allegation, averment and contention
raised therein. It is further submitted that in the present
case,as per the order sheet there is only reference for the
application u/s.144A on 07.09.2021 (page 15 of order
sheet) with the following remark:
Sir, We have made an application u/s.144A to
Jt.Commissioner of Income Tax. We request your
Honour to kindly not to pass any order till the
disposal of application u/s 144A of the Act. For
your reference we herewith attached copy of
application submitted to Jt. Commissioner of Income
Tax.
It is submitted that the remark clearly shows that the
assessee has requested the Faceless Assessing Officer not
to pass order till the application is disposed off by the
JCIT. There is no request to forward the same to the
JCIT. Therefore, the allegation is totally wrong.
It is further submitted that although the assessment under
consideration was pending with NFAC but the assessee
filed application u/s.144A on 07.09.2021 to the
jurisdictional range office i.e. Addl. CIT Range 1(1),
Vadodara through speed post. The, Addl. CIT Range 1(1),Page 11 of 16
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Vadodara vide letter dated 15.09.2021, has categorically
stated that his office is not the competent authority in
this matter and accordingly advised him to make
correspondence with the NFAC, Delhi. Further, the
assessee raised query to the jurisdictional range head
office, for non-awareness regarding the procedure for
filing 144A application to NFAC. This query was
responded vide letter dated
20.09.2021.
It is submitted that as the data is available with NFAC
(Delhi), the details regarding disposal of the application
u/s 144A has been sought from them vide letter dated
12.01.2022 after getting approval from Pr.CIT-1
Vadodara. In response to which vide email dated
31.01.2022, ACIT, NaFAC-1(1)(1), Delhi submitted that —
It to be noted that provisions of section 144A of the
Income-tax Act, 1961 is not applicable to Faceless
Assessment because Faceless Assessment is
completed by a Unit consisting of Addl/Jt.CIT and
DCIT/ACIT/ITO simultaneously functioning as
Assessing Officers. As the assessment is being
completed by Addl./Jt.CIT concurrently with the
DCIT/ACIT/ITO there is no requirement of invoking
the provisions of section 144A of the Act. The
situation is akin to an assessment being completed
by the Addl Jt.CIT in pre-faceless assessment times
ia which section 144A was not applicable.
Moreover, the Faceless Assessment Scheme (S.O
3265(E) dated 12.09.2019) which is the pre-cursor of
Faceless Assessment provisions specifically
excepted / modified the provisions of section 144A
of the Act in respect of Faceless Assessments.
Relevant extract of the notification is reproduced
below:
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S.O. 3265(E) dated 12th September, 2019.
1. The provisions of clause (7A) of section 2,
section 92CA, section 120, section 124, section 127,
section 129, section 131, section 133, section 133A,
section 133C, section 134, section 142, section
142A, section 143, section 144A, section 144BA
section 144C and Chapter XXI of the Act shall apply
to the assessment made in accordance with the said
Scheme subject to the following exceptions,
modifications and adaptations, namely: –
In view of the above, it is submitted that section
144A of the Income-tax Act, 1961 is not applicable
to Faceless Assessment.
It is submitted that in view of the aforesaid reply
received, it is clear that the provisions of section 144A
are not applicable in case of the assessment proceedings
under Faceless regime.”
9. Having heard the learned advocates for the respective
parties and considering the facts of the case emerging from the
documents placed on record, it appears that the petitioner has
furnished all the relevant documents containing the copy of the
ledger account from its audited books, confirmation of
respective depositor with PAN Number, copy of its bank
statements, copy of the ITR filed by the respective depositors,
copy of the bank statements of respective depositors from
where the funds were provided, which is evident from the
paper-book filed by the petitioner in this petition as it containsPage 13 of 16
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the documents submitted during the assessment proceedings. It
is pertinent to note that no dispute has been raised by the
respondent with regard to submission of the aforesaid
documents by the petitioner during the assessment proceedings.
10. In view of the above, the observations made by the
Assessing Officer in the impugned order, more particularly, in
paragraph Nos.3 and 5 reproduced hereinabove, are nothing
but vague observations and are contrary to the facts on record.
The Assessing Officer has, without any reference to any of the
documents placed on record, observed that “…no substantial
document is furnished to prove the genuineness and
creditworthiness of the unsecured loans received” . Such
observation made by the Assessing Officer, without reference to
the documents placed on record or without doing any analysis,
is nothing but a breach of the principles of natural justice, as
the documents filed by the petitioner have been ignored. The
Assessing Officer was required to consider the identity and
creditworthiness of the depositors on the basis of the
documents placed on record and by adopting further inquiry, if
the Assessing Officer was not satisfied by such evidence.
Moreover, in the facts of the case, the Assessing Officer has
made observations which, in turn, are different from the
record.
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11. In paragraph 5 of the order, the Assessing Officer has
observed that “From this, it is observed that the assessee is
circulating the money between different parties. Further, the
assessee was unable to provide the documentary evidences to
substantiate the genuineness and creditworthiness of the parties
from which the unsecured loan is taken during the financial
year amounting to Rs.2,06,92,496/-“. The above observations
are also contrary to the documents placed on record as the
Assessing Officer has not referred to any of the documents
which are forming part of the paper-book placed before us.
12. We are conscious about the settled legal position that
extra-ordinary jurisdiction under Article 227 of the Constitution
of India is required to be exercised sparingly and a self-
restraint is required to be maintained on the entertainment of
a writ challenging the orders where alternative efficacious
remedy is available. However, in the gross facts of the present
case, we are constrained to exercise our extra-ordinary
jurisdiction as the Assessing Officer has not considered the
documents placed on record and without referring to the same,
has made vague observations, which are not tenable in the
eyes of law and therefore, we are left with no other option
but to entertain this petition in the facts of the case. In view
of the aforesaid undisputed facts, this Court is of the view that
the impugned assessment order has been passed without
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considering the documents placed on record and therefore, the
same is not tenable in the eyes of law.
13. In view of the foregoing reasons, the impugned
assessment order dated 28.09.2021 is quashed and set aside.
The matter is remanded to the Assessing Officer to consider
the documents filed during the assessment proceedings and to
pass a fresh assessment order, after considering the replies and
documents in detail, within a period of Twelve Weeks from the
date of receipt of a copy of this order. Rule is made absolute
to the above extent with no order as to costs.
(BHARGAV D. KARIA, J)
(D.N.RAY, J)
PRAVIN KARUNAN
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