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Jivraj Tea Company Versus Asstt. Commissioner of Income Tax

2015 (10) TMI 2382 - GUJARAT HIGH COURT

Re-opening of assessment - interest free loan to the partners who were also partners of Gujarat Tea Limited - Held that:- From the material on record and even show cause notice / queries / questionnaires and the reply of the asssessee, it appears that as such there was no inquiry and / or application of mind by the AO with respect to interest free loan to the partners and / or any query with respect to the interest on the amount advance to the partners, more particularly, with respect to reasons .....

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ate of 12% p.a. on the amount advance to the partners. Under the circumstances, it cannot be said that reopening of the assessment for AY 2009-10 is mere change of opinion of the AO. It is required to be noted that reopening of the assessment is within the period of four years. Having reasons to believe that assessee had used interest bearing funds for non business purpose by giving interest free loans to its partners and therefore, interest expenses corresponding to the interest chargeable on t .....

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see. - Special Civil Application No. 1715 of 2015 - Dated:- 12-6-2015 - M. R. Shah And S. H. Vora, JJ. For the Petitioner : Mr Hardik V Vora, Adv For the Respondent : Mr Sudhir M Mehta, Adv JUDGMENT ( Per : Honourable Mr. Justice M. R. Shah ) 1.0. By way of this petition under Article 226 of the Constitution of India, the petitionerassessee Jivraj Tea Company has prayed for an appropriate writ, direction and order to quash and set aside the impugned notice under Section 30.3.2014 (Annexure C) is .....

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d in the business of trading of tea, sugar & milk powder, letting out of property on hire and generation of electricity. That the assessee filed return of income for AY 2009-10 declaring total income at ₹ 30,75,229/-. That the case was selected for scrutiny assessment by issuing notice under Section 143(2) of the Act. That thereafter, and after detailed questionnaire, AO finalized the assessment for AY 2009-10 and made the addition of ₹ 2,56,52,410/- and assessed the income at &# .....

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.4.2014 asked for / requested for copy of the reasons recorded to reopen the assessment and also requested the respondent to treat original income as return of income in response to the above notice. That vide communication dated 16.5.2014, the petitioner-assessee has been served with the copy of reasons recorded for reopening of the assessment for AY 2009-10. 2.2. That the petitioner submitted objections vide communication / letter dated 12.09.2014 raising objections against reopening of the as .....

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otice under Section 148 of the Act and reopening of the assessment for AY 2009-10 is absolutely illegal and contrary to Section 147 of the Act. It is vehemently submitted that assumption of jurisdiction by the respondent authority to reopen concluded and completed assessment for AY 2009-10 is absolutely illegal, arbitrary and contrary to the provision and statute, which cannot be sustained and same deserves to be quashed and set aside. 3.1. It is vehemently submitted by Shri Vora, learned advoca .....

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case the AO passed original order of assessment after holding due inquiry and after questionnaires which were replied by the petitioner assessee and thereafter AO has made addition of ₹ 2,56,52,410/- and had determined the assessed income at ₹ 2,87,27,710/-. It is submitted that after the petitioner-assessee filed return of income the case was selected for scrutiny assessment under Section 143(2) of the Act. The AO thereafter and during the scrutiny proceedings, inquiry in detail, e .....

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ners and on the other side, firm has paid the interest on interest bearing fund available with it. It is submitted that during the scrutiny proceedings, the AO has inquired in detail each and every aspect of the said claim. 3.5. It is submitted that vide reply dated 14.11.2011 to notice dated 28.10.2011 assessee has replied vide point no.2 as, "in respect of your query as why capital is shown under "application of funds" we would like to submit that since partner's closing cap .....

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tion and to the query of assessing officer vide reply dated 17.11.2011 assessee has replied as, "in regards to the non charging of interest on the negative capital of partners, we have to submit that our deed of partnership dated 1.10.2005 does not contain any enabling clause to charge the the interest on the debit balances of the partners. It is submitted that in view of the above fact, it is requested that your goodselfs proposal for charging interest on the debit balances of the partners .....

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d in the any previous year you have not paid any interest on it. It is submitted that then what was the need to pay interest to the creditors on his outstanding payment when you have not paid the interest in any earlier year's outstanding. Therefore, you are requested to show cause why the interest paid to Jivraj Tea Limited should not be disallowed. 3.9. It is submitted that however after considering the reply of the assessee dated 16th December 2011, AO has accepted the claim of assessee a .....

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efore, now issuing any notice under Section 148 of the Act with an intention to reopen the already concluded assessments would beyond the shadow of any doubt, tantamount to "change of opinion" for which AO is not at all empower to reopen the concluded assessments. It is submitted that therefore, assumption of jurisdiction by the AO to reopen the concluded assessment for AY 2009-10 while issuing impugned notice under Section 148 of the Act is absolutely illegal and same shall be wholly .....

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vs. Deputy Commissioner of Income Tax, Ahmedabad Circle-I reported in (2013) 35 Taxmann. Com 61(Guj). Making above submissions and relying upon the above decisions, it is requested to allow present Special Civil Application and quash and set aside the impugned notice under Section 148 of the Act and consequently to quash and set aside the impugned reopening of the assessment for AY 2009-10. 4.0. Present petition is opposed by Shri Sudhir Mehta, learned advocate for the revenue. An affidavit in r .....

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AY 2009-10 is neither illegal nor without jurisdiction as sought to be contended on behalf of the petitioner. It is vehemently submitted that reopening of the assessment for AY 2009-10 is not on a mere change of opinion by and of the AO as sought to be contended on behalf of the petitioner. 4.2. It is submitted that as income chargeable to tax has been escaped from assessment for AY 2009-10 and thereafter after recording the reasons as required and after obtaining the requisite approval from the .....

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ny assessment proceedings there were no queries by the AO with respect to amount advanced to the partners and non charging of the interest on the said advances, by the assessee from the said partners. 4.4. It is submitted that while issuing the impugned notice under Section 148 of the Act the AO has observed and noticed that during AY 2009-10, the assessee had paid interest at the rate of 12% to the tune of ₹ 62,82,192/- and the assessee had paid interest bearing funds for non business pur .....

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n reflected in the books under the guise of sundry credit balance. It is submitted that said loan has been diverted to partners for their personal purpose. Hence, interest borrowing fund have been utilized for non business purpose. It is submitted that moreover, the partners of assessee firm are share holders of M/s. Jivraj Tea Ltd and they could not have taken loans from the company directly as that would have attracted provision of Section 2(22)(e) i.e. Deemed Dividend. It is submitted that to .....

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me were with respect to interest paid to the Jivraj Tea Limited and even in the communication / notice dated 5.12.2011 the petitioner assessee was called upon to show cause as to why the interest paid to Jivraj Tea Ltd should not be disallowed. It is submitted that as such no question was asked at all with respect to interest free loan paid to the partners and in fact there was no application of mind by the AO with respect to issues / reasons recorded while reopening of the assessment for AY 200 .....

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hat what is challenged in the present Special Civil Application under Article 226 of the Constitution of India is the notice issued by the respondent, under Section 148 of the Act to reopen the assessment for AY 2009-10. The reasons recorded to reopen the assessment for AY 2009-10, reads as under:- "In this case, the assessee filed its return of income for AY 2009-10 declaring total income at ₹ 30,75,299/- on 31.08.2009. Assessment u/s 143(3) of the Act was completed on 26.12.2011 and .....

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ting to ₹ 82,28,679/- to M/s. Jivraj Tea Ltd, its sister concern on the credit balance of ₹ 7,02,45,077/- It was noticed that the assessee is having huge credit balance against M/s. Jivraj Tea Limited on continuous basis for number of years and interest is paid @ 12% per annum as given below: FY Capital Credit Balance of Jivraj Tea Ltd as on 31st March Interest Paid Amount advanced to partners as on 31st March Cumulative debit balance in capital account as on 31st March 2007-08 18,59 .....

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Ltd is actually and interest bearing loan, which has been reflected in the books under the guise of sundry credit balance. This loan has been diverted to partners for their personal purpose. Moreover, the partners of the assessee firm are share holders of M/s. Jivraj Tea Ltd and they could not have taken loans from the company directly for avoiding legal complications. To circumvent such legal requirements, arrangement has been made to route the funds from the company to the directors through as .....

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is required to be disallowed @ 12% per annum, as shown below: Name of the partner Opening Balance as on 1.4.2008 Closing Balance as on 31.3.2009 Rate of Interest Amount of Interest Shri Viren S Shah 62,73,975/- 2,38,54,760/- 12% 42,07,724/- Shri Vijay S Shah 1,97,06,045/- 1,48,68,428/- 12% 20,74,468/- Total 62,82,192/- In view of the above, I have reason to believe that the assessee had used interest bearing funds for non business purpose by giving interest free loans to its partners. Therefore .....

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t a change of opinion by / or the AO and therefore, reopening of the assessment for AY 2009-10 is not permissible. It is the case on behalf of the petitioner that after original return of income was filed, the case was selected for scrutiny and notice under Section 143(2) of the Act and thereafter inquiry was held by the AO with respect to claim made by the assessee and after specific queries and questionnaires, AO passed the order of assessment and assessed the income at ₹ 2,87,27,710/- a .....

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Y 2009-10 is reopened with respect to interest free loan to the partners who were also partners of Gujarat Tea Limited. From the material on record and even show cause notice / queries / questionnaires and the reply of the asssessee, it appears that as such there was no inquiry and / or application of mind by the AO with respect to interest free loan to the partners and / or any query with respect to the interest on the amount advance to the partners, more particularly, with respect to reasons r .....

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