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GARDEN SILK MILLS LTD Versus ASSISTANT COMMISSIONER OF INCOME TAX CIRCLE-1

2016 (8) TMI 513 - GUJARAT HIGH COURT

Validity of notice issued under Section 10 of the Interest Act, 1974 - Held that:- The notice issued upon the petitioner is bad in law; inasmuch as, the petitioner had also addressed a letter dated 28/11/1995 to the respondent informing that since the petitioner is not a credit institution, it is not liable to interest tax. Reliance placed upon a decision in case of Khurana Engineering Ltd. (2013 (2) TMI 128 - GUJARAT HIGH COURT ) is also relevant for this purpose because as held therein after t .....

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n whereupon only Section 5 of the said Act applies and therefore petitioner did not file the return. Thus, for the period of ten years nothing was turned up and suddenly the notice was issued, which in the opinion of this Court is bad in law. The act of reopening of notice is not within the period of limitation. - The petitions deserve to be allowed and the same are allowed. The impugned notice dated 09/03/2005 (ExhibitB to the petition) issued under Section 10 of the Interest Act, 1974 by t .....

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they are being heard and decided by this common oral judgment. 1.1 By way of this writ petitions, the petitioners have challenged the notice dated 09/03/2005 issued under Section 10 of the Interest Act, 1974 issued by the respondent. 2. The short facts of the case are that the petitioner filed its return upto assessment year 1993-94 under the Interest Tax Act. Thereafter, the petitioner on being advised that it was not a credit institution to which only Section 5 of the said Act applies, for the .....

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petitioner was given a notice dated 09/03/2005 under Section 10 of the Interest Act for the assessment year 1995-96. 2.1 It is the case of the petitioner that in response to the said notice, petitioner vide letter dated 25/04/2005 requested the respondent to supply the reasons, if any, recorded by respondent. Reasons were supplied to the petitioner inter alia stating that the interest income of the petitioner from various financial activities and from those financial activities, three types of i .....

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5 by his order by reproducing the reasons and hence the present petition is filed. 3. Learned Counsel for the petitioner has submitted that the notice issued under Section 10 of the Interest Tax Act is patently bad in law as also on the fact since the very basis of the reasons to believe omission or failure on the part of the petitioner itself patently faulty and therefore no jurisdiction under Section 10 of the Interest Tax Act was required to be invoked. 3.1 Learned Counsel for the petitioner .....

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also contended that the petitioner had already filed letter dated 28/11/1995 to the respondent pointing out that the petitioner was not liable under the Act, however the same was not considered and therefore also the impugned notice may be quashed and set aside. 3.4 In support of his submissions, learned Counsel for the petitioner has relied upon a decision of this Court in case of Khurana Engineering Ltd. v. Deputy Commissioner of Income-Tax (OSD) [2014] 364 ITR 600 (Guj) and relied upon paragr .....

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as envisaged under the scheme. The Supreme Court in the said decision observed as under: 14. Every scheme of amalgamation has to necessarily provide a date with effect from which the amalgamation/transfer shall take place. The scheme concerned herein does so provide viz. January 1, 1982. It is true that while sanctioning the scheme it is open to the Court to modify the said date and prescribe such date of amalgamation/transfer as it thinks appropriate in this facts and circumstances of the case. .....

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e has to be framed and such scheme has to contain a date of amalgamation/transfer. The proceedings before the Court may take sometime; indeed, they are bound to take some time because several steps provided by Sections 391 to 394A and the relevant Rules have to be followed and complied with. During the period the proceedings are pending before the Court, both the amalgamating units, i.e., the Transferor Company and the Transferee Company may carry on business, as has happened in this case but no .....

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date as the date of transfer/amalgamation. In such a situation, it would not be reasonable to say that the scheme of amalgamation takes effect on and from the date of the order sanctioning the scheme. We are, therefore, of the opinion that the notices issued by the Income-Tax Officer (impugned in the writ petition) were not warranted in law. The business carried on by the Transferor Company (Subsidiary Company) should be deemed to have been carried on for and on behalf of the Transferee Company .....

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of the Privy Council in Raghubar Dayal, v. Bank of Upper India Ltd., AIR 1919 PC 9. Counsel for the Revenue contended that if the aforesaid view is adopted then several complications will ensue in case the Court refuses to sanction the scheme of amalgamation. We do not see any basis for this apprehension. Firstly, an assessment can always be made and is supposed to be made on the Transferee Company taking into account the income of both the Transferor and Transferee Company. Secondly, and proba .....

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an insuperable problem inasmuch as assessment can always be made, on the available material, even without a balancesheet. In certain cases, bestjudgment assessment may also be resorted to. Be that as it may, we need not pursue this line of enquiry because it does not arise for consideration in these cases directly. 7. In view of the above concluded position of law, we have no hesitation in holding that the transferor company would no longer be amenable to assessment proceedings for the assessme .....

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isages 1st April 2009 as the appointed date unless, of course, any other date as may be approved by the High Court. In the present case, the High Court made no change in this respect. The appointed date for the said scheme, therefore, must be held to be 1.4.2009. 8. In the result, the petition is allowed. The impugned notice Annexure A is quashed. Rule is made absolute accordingly. 3.5 Reliance is also placed upon a decision in case of Rustagi Engineering Udyog (P.) Ltd. v. Deputy Commissioner o .....

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ily provide a date with effect from which the amalgamation/transfer shall take place. The court further observed that it is W.P. (C) Nos. 1289/1999, 1290/1999, 1291/1999, 1292/1999 & 1293/1999 Page 9 of 13 also open for a court to modify the appointed date as it thinks appropriate in the facts and circumstances of the case but in a case where the court does not do so, the date as specified in the scheme would be the date on which the amalgamation would take effect. In that case, the Supreme .....

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unal upholding the action of the assessing officer in framing an assessment in the name of an amalgamating company after the entity stood dissolved; this court held that the order of the Tribunal was unsustainable and framing an assessment on a dissolved company was not a procedural irregularity but a jurisdictional defect. Similarly, by an order dated 19th August, 2015, ITA 582 of 2015 (PCIT v. Images Credit and Portfolio Pvt. Ltd ), this Court held that the proceedings under Section 153C of th .....

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view, the impugned notices must also be set aside as the AO had no reason to believe that the income of the Assessee for the relevant assessment years had escaped assessment. Concededly, the AO had no tangible material in regard to any of the transactions pertaining to the relevant assessment years. Although the AO may have entertained a suspicion that the Assessee s income has escaped assessment, such ‟ suspicion could not form the basis of initiating proceedings under Section 147 of the .....

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-Tax Officer to reopen assessment though wide are not plenary. The words of the statute are "reason to believe" and not "reason to suspect". The reopening of the assessment after the lapse of many years is a serious matter. The Act, no doubt, contemplates the reopening of the assessment if grounds exist for believing that income of the assessee has escaped assessment. The underlying reason for that is that instances of concealed income or other income escaping assessment in a .....

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e satisfied." 22. It is also relevant to mention that the assessment order dated 27 th March, 1997 for the Assessment Year 1994-95, which formed the basis for initiation of reassessment proceedings and issuance of impugned notices, was set aside by Commissioner of Income Tax (Appeal). The Petitioner had contested the AO‟s finding that the transaction of purchase and lease of moulds in the year 1993-94 relevant to assessment year 1994-95 was a sham transaction. The Assessee had also re .....

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ieve that other transactions including which were accepted by the AO after due scrutiny in AY 1990-91 and 1991-92 in respect of which the AO has no material are also sham transactions. Thus, the impugned notices under Section 148 are also liable to be set aside for the foresaid reason. 24. In view of our aforesaid conclusion, it is not necessary to examine whether the impugned notices were approved by the competent authority as required under the Act. W.P. (C) Nos. 1289/1999, 1290/1999, 1291/199 .....

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which reads as under: Financial Company means a company, other than a company referred to in sub clause (1), (ii) or (iii) of clause (5A), being - i.*** ii.*** iv.*** v.*** (va). A residuary non banking company other than a financial company referred to in sub clause (i), (ii), (iii), (iv) or (v) that is to say, a company which receives any deposit under any scheme of arrangement, by whatever name called, in one lump sum or in installments by way of contributions of suscriptions or by sale of un .....

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same may be quashed and set aside. 4. On the other hand learned Counsel Mr.Sudhir Mehta for the department has contended that there is no infirmity in the impugned notice and he has taken us to the reply as well as the notice and contended that the notice issue was within the time limit and this Court may not interfere with the same. 5. Having heard the learned Counsel for the respective parties and having gone through the impugned notice as well as the reply of the petitioner, this Court is of .....

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