Nayanaben Hasmukhbhai Patel & Ors. vs. Revenue [Special Civil Application No.14635 of 2024]

Background of the Case

A search and seizure operation conducted by the Income Tax Department at the premises of petitioner no. 3, Anandkumar Hasmukhbhai Patel. During the proceedings, jewellery worth Rs. 77.82 lakh was discovered, of which Rs. 42.86 lakh was accepted under CBDT Instruction No.1916 as belonging to his family members and not seized. However, the remaining jewellery worth Rs. 34.96 lakh along with Rs. 7 lakh in cash was seized under Section 132 of the Income Tax Act. Subsequently, the jewellery was subjected to scrutiny during the assessment for AY 2014–15. Though a partial relief of ₹15 lakh was granted, the Assessing Officer added Rs. 19.96 lakh to the taxable income of petitioner no. 3.

This addition was later deleted in full by the CIT(A) on 02.04.2019, a decision that reached finality as no appeal was filed by the department. Despite this, the Income Tax Department did not release the entire seized jewellery, prompting the petitioners to approach the Gujarat High Court under Article 226 of the Constitution.

Arguments by the Appellant

The appellant argued that once the addition had been deleted by the CIT(A), and the penalty amount under Section 271(1)(c) had been duly paid, there remained no outstanding tax liability for AY 2014–15. They contended that the Department’s continued retention of jewellery worth Rs. 16.33 lakh, especially after releasing a portion worth Rs. 18.63 lakh to petitioner no.1, was unjustified. It was also emphasized that the jewellery in question was not owned by petitioner no.3, but by his wife and mother, as evidenced by a joint affidavit submitted on 07.11.2024.

The petitioners invoked Section 132B of the Income Tax Act, asserting that the seized assets could only be retained against liabilities pertaining to the relevant assessment year, and not for future demands. Relying on both statutory provisions and precedents, they pleaded for the immediate release of the remaining seized jewellery and sought interest compensation for the undue retention.

Respondent’s Response

The respondent, Revenue argued that a substantial outstanding demand of Rs. 3.36 crore existed against petitioner no.3 for subsequent assessment years, and that the remaining jewellery was being rightfully retained to safeguard recovery of these dues. The Department took the stand that despite the relief granted for AY 2014–15, the assets were lawfully being adjusted against the petitioner’s overall liability. Thus, they sought validation of the order dated 12.11.2024, through which the partial release of jewellery had been made, while the remainder was retained as security for future recoveries.

Court Findings and Decision

The Gujarat High Court held that the Income Tax Department could not retain jewellery seized for one assessment year against liabilities arising from other assessment years, especially when the assessment in question had concluded without any outstanding demand. The Court noted that the CIT(A)’s order had attained finality and that there was no pending liability for AY 2014–15. Furthermore, the department’s reliance on general instructions could not override the specific statutory limitations of Section 132B as it stood at the relevant time. The Court directed the respondents to release the remaining jewellery and dismissed the justification for withholding the same against unrelated tax dues.

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M/s Sahil Total Infratech Pvt. Ltd vs. ACIT [ R/Special Civil Application 20804 of 2022]

Background of the Case

The Appellant, M/s Sahil Total Infratech Pvt. Ltd., had filed an application under the Direct Tax Vivad Se Vishwas Act, 2020 (DTVSV Act), seeking to settle a tax dispute. The designated authority approved the application, and an order was passed on 12 May 2022, directing a refund of Rs. 2.20 crore to the appellant. However, the refund was not processed promptly, leading to a delay of nearly 20 months.

Arguments by the Appellant

The appellant argued that it was entitled to interest on the delayed refund under the principles of natural justice and the Supreme Court’s ruling in Union of India v. Tata Chemicals Ltd. The appellant contended that the department’s retention of the refund amount for 20 months without valid reasons warranted compensation.

The appellant submitted that it had raised multiple grievances on the Income Tax portal and followed up with the department, but the refund was not processed until the court’s intervention.

Respondent’s Response

The respondent, IT department contended that the DTVSV Act does not provide for interest on refunds. It argued that the appellant was not entitled to interest under Section 244A of the Income Tax Act since the refund arose from the DTVSV scheme. The department claimed that the delay was caused by the appellant’s failure to validate its new bank account promptly.

It argued that the refund could not be processed until the account was validated. The department denied any negligence on its part and argued that it had followed due process in handling the refund.  

Court Findings and Decision

The Gujarat High Court ruled in favor of the appellant, holding that the department was liable to pay interest on the delayed refund. The court held that the appellant was entitled to interest at 6% per annum for the period of 20 months amounted to Rs. 22.04 lakh. The court noted that the appellant had taken all necessary steps to validate the new bank account and had raised multiple grievances on the Income Tax portal. The delay was primarily due to the department’s failure to process the refund promptly.

The court relied on the Supreme Court’s decision in Union of India v. Tata Chemicals Ltd., which held that interest on delayed refunds is a form of compensation for the unauthorized retention of money by the government.

Gujarat High Court Orders Interest on Delayed Tax Refund

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GE Grid (Switzerland) GmbH vs. ACIT [W.P.(C) 1294/2022]

Background of the Case

The Appellant, GE Grid (Switzerland) GmbH, a Swiss company that supplies equipment and spare parts to Indian businesses. The company did not file income tax returns in India for the years in consideration, arguing that it had no Permanent Establishment (PE) in the country and therefore no taxable income.

Reopening of Assessment

The respondent, AO had initiated reassessment proceedings based on a survey conducted on 6-7 June 2019 on the Transmission and Distribution Division of GE in India. The survey allegedly revealed that GE had a Permanent Establishment (PE) in India and was earning taxable income. Based on these findings, the tax authorities issued reassessment notices under Section 148 of the Income Tax Act for the assessment years 2013-14 to 2017-18, claiming that income had escaped assessment.

Arguments by the Appellant

The appellant challenged the reassessment, arguing that the tax authorities had no fresh evidence specific to the earlier years and were merely relying on the 2019 survey findings. The appellant contended that the reassessment was invalid as it was based on a mere reappraisal of old facts and lacked any fresh or tangible material specific to the AYs in question. The petitioner also argued that the AO had failed to conduct an independent inquiry or establish a “live link” between the survey findings and the alleged escapement of income.

Court Findings and Decision

The Delhi High Court quashed the reassessment proceedings and held that the AO had failed to establish any fresh tangible material or conduct an independent inquiry to justify the reopening of assessments. The court emphasized that reassessment cannot be based on a mere reappraisal of old facts or extrapolation of findings from a later period. This judgment reinforces the legal principle that reassessment proceedings must be supported by specific and tangible material relevant to the AYs in question.

The court relied on its earlier decision in Grid Solutions OY (Ltd.) v. Assistant Commissioner of Income Tax, where similar reassessment proceedings were quashed. It also referred to the Supreme Court’s ruling in CIT v. Gupta Abhushan (P) Ltd., which held that survey findings from one period cannot be applied to other years without specific evidence.

Delhi High Court Quashes Reassessment Proceedings

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A writ petition had been filed challenging an order dated 12.09.2023, on the basis that the petitioner was not given a fair opportunity to contest the tax demand. The petitioner, who was involved in the buying and selling of vegetable oil, claims to have purchased a goods vehicle and applied for Input Tax Credit (ITC) in relation to the same. However, the order issued on 12.09.2023 rejected the petitioner’s ITC claim, citing that the purchase falls under sub-section (5) of Section 17 of the relevant GST laws.

The attorney representing the petitioner argued that the acquisition was made to advance the business. Given a chance, he asserted that the petitioner could prove that only eligible Input Tax Credit was utilized. As per instructions, he stated that the petitioner was willing to pay 10% of the contested tax amount as a requirement for reconsideration.

Mrs. K. Vasanthamala, an experienced Government Advocate, acknowledged the receipt of the notice on behalf of the respondent. She emphasized that the principles of natural justice were strictly followed through the issuance of Form ASMT 10, a show cause notice, and reminders for a personal hearing. Additionally, she highlighted that the petitioner’s response dated 21.03.2024 was received after the impugned order and was not acknowledged by the respondent.

Upon review of the impugned order, it was apparent that the tax proposal was related to the incorrect use of ITC for the purchase of a motor vehicle on August 31, 2018. The petitioner stated in the affidavit that this purchase was made to further their business. Considering these facts, it was reasonable and necessary to grant the petitioner an opportunity to dispute the tax claim based on its merits by imposing conditions.

Due to the aforementioned reasons, the order dated 12.09.2023 was overturned with the condition that the petitioner pays 10% of the disputed tax demand within two weeks of receiving a copy of this order. During this period, the petitioner was allowed to respond to the show cause notice. Once the payment was confirmed, the respondent must grant the petitioner a fair chance, including a personal hearing, and then issue a new order within three months of receiving the petitioner’s reply.

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[R/SPECIAL CIVIL APPLICATION NO. 9600 OF 2024]

The assessee was a cooperative society involved in offering credit services to its members. The assessee had been assigned PAN AAVFS6160N since 1992 and had submitted an income tax return seeking deduction under section 80P of the Act.

The assessee’s argument was that they were unable to claim a deduction under section 80P in the ITR-5 utility due to the fourth character in the PAN being ‘F’, indicating ‘Firm’ instead of ‘AOP’. This discrepancy made it challenging to e-file the income tax return while claiming the deduction under section 80P with the same PAN.

The assessee underwent a tax audit which mandated the electronic filing of the return. The assessee then sought assistance from the Central Processing Centre in Bangalore, only to be instructed to contact the Jurisdictional Assessing Officer. The Officer recommended the assessee to apply for a new PAN, and upon receiving it, surrender the old PAN.

The assessee accordingly vide letter addressed to the Income Tax Officer, requested to take note of the new PAN being AAPAS3755G and continue the usage of old PAN AAVFS6160N till the pending proceedings under the Act were completed.

Considering the facts, it was true that the assessee failed to submit an income tax return under the new “PAN AAPAS3755G” that was issued to them in 2020. Subsequently, the Assessing Officer, noting the absence of a return under the said PAN, issued a notice under section 148A(b) based on data from RMS – Non-Filing of Return – PAN Cases for AY 2017-18, as per the Risk Management Strategy devised by the Central Board of Direct Taxes.

The assessee provided details about filing of the return for AY 2017-18 under the old “PAN AAVFS6160N” along with intimation under section 143(1) issued by the Department for the AY 2017-18, wherein also deduction under section 80P was granted.

Upon reviewing the response provided by the assessee, the Assessing Officer issued the contested order under section 148A(d), deeming it appropriate to reopen the assessment as the assessee was unable to demonstrate that the information held by the Department had been disclosed in the income tax return submitted with the new PAN.

The Hon’ble High Court of Gujarat observed, it was clear that the Assessing Officer was made aware that the petitioner filed return for A.Y. 2017-18 under the old PAN. Thus, the Assessing Officer had misdirected himself by ignoring the fact that petitioner had filed the return for the A.Y. 2017-18 under old PAN AAVFS6160N and only on the ground that the petitioner did not file return in new PAN AAPAS3755G which was not in existence during the A.Y. 2017- 18, had passed the impugned order and the aforesaid impugned order being contrary to the facts the same was quashed and set aside.

Swastik Co-op Credit Society Ltd vs Income-tax officer

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Mrs. R. Chitra v. National Faceless Assessment Centre [W.P. NO. 15020 OF 2024]

The assessee did not file her income tax return as income was below the exemption limit. She acquired an immovable property in Thottipalayam Village, Tiruppur, for Rs.1.56 crore. Upon being informed about the said purchase, a show cause notice u/s 148A(b) of the Income Tax Act, 1961 was issued to the assessee. Following the assessee’s response, an order u/s 148A(d) was issued.

Being dissatisfied with such reply, a show cause notice on 17.02.2024 was issued calling upon the assessee to show cause as to why proposed variations in respect of the addition of a sum of Rs.1,56,96,000/- u/s 69A and a further sum of Rs.26,16,000/- u/s 56(2)(vii)(b) should not be imposed. After the assessee’s reply, the assessment order was issued on 13.03.2024.

The assessee’s Authorized representative argued that the immovable property was purchased from her husband’s funds directly to the vendor, and that she provided bank statements from her AXIS Bank account, which was noted in the order.

The assessee argued that Section 69A only applies to assessees who maintain books of account, as she does not maintain her books of accounts. The learned AR argued that the assessee’s reply, dated 30.01.2024, clearly stated that the property was purchased from her husband’s funds and is accounted for in her books. The AR also noted that the bank statements were uploaded.

The Departmental representative claimed that the assessee failed to submit their income tax return and only provided partial information on 16.10.2023. He argued that the assessing officer assumed tax evasion due to the assessee’s failure to provide ledger accounts and the relevant balance sheet. The counsel contends that the decision to include Rs.1,56,96,000/- and Rs.26,16,000/- in the assessment is justified, as the stamp duty was calculated based on the market value of Rs.1,83,12,000/- by the registering authority.

The Hon’ble High Court observed that clause u/s 69A pertains to unexplained money and requires taxpayers to provide a valid explanation if they fail to document relevant income or assets. Failure to do so will result in the funds or assets being considered as the taxpayer’s income. If a taxpayer not required to maintain financial records is found with unexplained funds, they must provide an explanation or face the same consequences. This is evident from the inclusion of the phrase “books of account, if any,” in Section 69A, which prevents taxpayers from evading consequences.

The assessing officer initially accepted the assessee’s explanation for the addition of Rs.1,56,96,000, but was concerned about the Rs.26,16,000 difference in values. The assessee provided a registered sale deed and bank statement to prove the source of funds, stating they were recorded in her husband’s financial records. She requested a chance to provide more details if needed. Bank statements highlighting payments made directly to the vendor were submitted. However, the assessee did not provide her husband’s income tax return or ledger account for the property purchase.

The assessee’s AR argued that the Income Tax Department did not request the documents, but it was still the assessee’s responsibility to prove the origin of the funds and show that the amount was accurately disclosed, and taxes were paid. The assessee had provided evidence that her husband financed the acquisition of the real estate. If he had disclosed this income and paid taxes, it would have led to double taxation.

Upon re-evaluation, it was found that the market value of the property was Rs.1,83,12,000/- instead of Rs.1,56,96,000/-. The difference of Rs.26,16,000/- was added to the assessee’s income. The assessee’s counsel argued that the wrong section was mentioned in the show cause notice, but upon examination, it was determined that the correct section was applied. Stamp duty was paid on the higher value, exceeding the thresholds specified in the relevant section. Ultimately, the mention of a different provision in the notice does not invalidate the order.

The assessment order was set aside for the addition of Rs.1,56,96,000 only.

The High Court ruled that the wife is not liable for additions

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The Petitioner received a demand notice for payment of INR 10,85,557, including penalties. The decision was made by the Proper Office in accordance with Section 73 of the Central Goods and Services Tax Act, 2017 (commonly referred to as the CGST Act).

The Ld. Counsel for the petitioner argued that after closing the business in 2020, the petitioner did not check the portal. The Show Cause Notice (SCN) was only posted on the portal and not communicated to the petitioner through other methods, leaving the petitioner unaware of any initiated proceedings. As a result, the petitioner was unable to provide a response to the SCN.

The argued order acknowledged that a demand was imposed ex-parte due to the taxpayer’s failure to respond or attend a “Personal Hearing”. Despite being given additional opportunities and reminders, the taxpayer did not provide a defense, leading to the ex-parte decision in accordance with the CGST/DGST Act and rules. The Proper Officer noted that the taxpayer did not submit a response online or appear in person or through a representative.

The Hon’ble High Court held that the petitioner was unable to access the portal due to business closure, leading to their inability to respond to the Show Cause Notice. The impugned order was passed solely based on this failure. The petitioner should be given a chance to respond, and the matter should be sent back to the Proper Officer for re-adjudication. As a result, the order dated 21.12.2023 was revoked, and the Show Cause Notice was reinstated on the record of the Adjudicating Authority.

Accordingly, the High Court instructed the Petitioner to file another reply to the Show Cause Notice within two weeks. Thereafter, the Proper Officer shall re-adjudicate the Show Cause Notice after giving an opportunity of personal hearing and shall pass a fresh speaking order in accordance with law within the period prescribed under Section 75 (3) of the Act.

M/S. SWASTIK ENTERPRISES v. UNION OF INDIA [W.P.(C) 5938/2024 & CM APPL. 24687/2024]

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The present case aims to nullify the Assessment Order dated May 22, 2024, which was issued by DCIT, in accordance with Section 143(3) of Income Tax for the AY 2022–23. Additionally, the petition under review challenges the Demand Notice issued by DCIT u/s 156 as well as the notices u/s 274 of the Income Tax Act of 1961.

According to the petitioner company’s learned AR, the notices were sent out following the learned National Company Law Tribunal’s (NCLT) order dated December 06, 2021, which approved the Resolution Plan for the company’s revival and restructuring. They argued that the contested order and notification dated May 23, 2024, is legally unsound and violates the Insolvency and Bankruptcy Code 2016 (“IBC”), which calls for the company to be reorganized and resolved on a “clean slate basis.”

Delhi High Court noted that the Ld. NCLT vide order dated August 29, 2019, allowed the petitioner to initiate CIRP (Corporate Insolvency Resolution Process) against the petitioner company and moratorium u/s 14 of IBC, 2016 came into force. Later, the CIRP of the petitioner concluded in a successful manner, where the revitalization and reorganization of the company of the petitioner was proposed and approved by the Committee of Creditors on September 13, 2021.

The Hon’ble HC further observed that after the adoption of the resolution plan, new management assumed control of the petitioner-company to implement the Resolution Plan in accordance with IBC.

It was a settled proposition of law that once a Resolution Plan was duly approved by the adjudicating authority u/s 31(1) of IBC, 2016, the claims as provided in the Resolution Plan shall stand frozen and it will be binding on the corporate debtor and its employees, members, creditors, including the Central Government, any State Government or any local authority, guarantors and other stake holders.

The High Court relied on the Supreme Court’s Judgement in the case of Ghanashyam Mishra & Sons (P) Ltd. v. Edelweiss Asset Reconstruction Co. Ltd, wherein it was held that “after the authority approved the resolution plan, all such claims that are not part of the resolution plan expire and no one had the right to initiate or continue proceedings in respect of a claim that is not part of the resolution plan.”

It should be noted that the principle of a clean slate had been repeatedly reiterated and confirmed both in the Supreme Court and in this court. Therefore, if the resolution plan or sale is accepted as operative and is duly approved by the adjudicating authority, the previous obligations and claims of all debtors of the company will cease to exist.

According to the above order it clearly showed that once the resolution plan is approved by the COC, it was binding on all concerned. As a result of the above, the impugned assessment order dated 22nd May 2024 and notification dated 23rd May 2024 cannot be in the eye of the law and set aside.

The National Sewing Thread Co. Ltd vs DCIT and Others

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Pr. Commissioner of Income Tax-1, Chandigarh v. M/s I.A. Hydro Energy (P) Limited [ITA No.4 of 2024]

The respondent-assessee is engaged in the business of Generation and Distribution of Hydro Electricity in the State of Himachal Pradesh. The assessee had issued 2.25 crores equity shares with face value of Rs.10/- per share for a premium of Rs.90/- per share to M/s Shri Bajrang Power & Ispat Ltd. and Shri Bajrang Energy Private Ltd.

In its reply to the Notices issued u/s 143 of the Act, the assessee stated that prior to 23.02.2017, both the share subscribers were partners in the assessee-firm and the balances were showing as Partners Capital Account. The assessee-company was having opening balance of unsecured loans as on 01.04.2017, which were converted into share capital as per agreement.

According to the assessee, the shares have been valued as per Discounted Cash Flow Method, prescribed in Rule 11UA of the Income Tax Rules and a Certificate was also obtained from the Chartered Accountant, as required under the Income Tax Rules.

The AO argued that the shares were distributed to loan creditors at a premium of Rs 90/-per share whose balance were still due in the books. The AO rejected the Discounted Cash Flow (DCF) value on the grounds that it was fraudulent and had no bearing on the company’s real operations and passed the order u/s 143(3) r.w.s 143(3A) & 143(3B) of Act by making an addition of Rs.202.50 crores under the Head ‘Income from Other Sources’ under Section 56(viib) of the Act, on account of excess amount per share paid as premium.

This was challenged by the assessee-company before the CIT(Appeals), National Faceless Assessment Centre. The CIT(Appeals) deleted the additions made by the AO, in its order. The assessee contended that the addition lacked jurisdiction since the assessee had the authority to select the DCF or NAV approach.

The CIT(Appeals) held that the right to select the method of valuation (NAV or DCF), is vested with the assessee, and the AO erred in substituting the assessee’s method of valuation, i.e. DCF, with his own method of valuation, i.e. NAV method, and had acted completely beyond his jurisdiction, and thus deleted the additions made by the AO.

The Revenue Department challenged this order before the Income Tax Appellate Tribunal, Bench ‘A’, Chandigarh.

The Tribunal went on to note that the AO is not permitted to select a specific method for the valuation of shares because the assessee has the option to do so under Rule 11UA(2) of the Income Tax Rules. The AO is only permitted to confirm the method of valuation chosen by the assessee and cannot replace it with a different method, such as the NAV method, once the assessee has exercised the option for the DCF valuation method.

The AO erred in rejecting the DCF technique and using the NAV method to value the shares merely on the ground that there was a significant discrepancy between the anticipated figures and the actual results available for a few years, the Hon’ble Tribunal found. It cited the Mumbai Income Tax Appellate Tribunal’s ruling in the Creditalpha Alternative Investment Advisors (Pvt.) Ltd. case as support.

The Ld Judges at the Himachal Pradesh High court while agreeing with such reasoning as well as the fact that there was no receipt of consideration during the year, dismissed the appeal of the department. Both the Tribunal and the CIT(Appeals) have held that the AO had no jurisdiction to substitute the NAV method of assessing the valuation of shares, once the assessee had exercised option of a DCF valuation method as per Rule 11UA(2) of the Income Tax Rules

The law is fairly settled that the addition regarding the share capital can be made only if there is actual receipt of consideration and not otherwise. Furthermore, the assessee issuing shares has the choice to value the shares using the DCF or NAV methods. Accordingly, the appeal failed and was dismissed.

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M. Trade Links vs Union of India [WP(C) No. 31559 of 2019]

The petitioners who were registered dealers under the provisions of the CGST Act and SGST Act, 2017 are not being allowed to claim input tax credit even though they have a valid tax invoice, evidence that they had paid the value of the goods and the applicable GST components to the relevant suppliers, and proof that they had received the goods. It is said that in certain instances, the relevant supplier has remitted the tax (GST), but for technical reasons it did not appear in their GSTR return.

On behalf of the respondents, it is submitted that under the GST laws, the tax collected must be assigned to the jurisdiction where the consumption takes place. Therefore, ITC passes through the state during inter-state supplies. If the inter-state supplier does not pay tax (SGST+CGST) and the inter-state supplier is allowed to take credit on his invoice, the originating State Government will have to transfer amounts it never received in the tax periods in a financial year to the destination States. This would cause damage to the state to the extent that the originating state would have to transfer the amount without receiving it, and this scenario would violate the entire tax system in the absence of Section 16(2)(c).

The Kerala High Court recognized the difficulties faced during the initial rollout of the GST system in the financial years 2017-2018 and 2018-2019. The government acknowledged these issues and issued Circulars No. 183/15/2022-GST and 193/05/2023-GST to address genuine claims and errors from that period. These circulars cover the period from the start of GST until Section 16(2)(aa) was introduced on January 1, 2022.

Recipients can claim Input Tax Credit (ITC) for valid scenarios listed in the circulars if they provide proof of payment to the government by the supplier. Petitioners who couldn’t benefit from these circulars within the prescribed time limit can approach the GST authority within 30 days to claim their benefits. The GST authorities will review and grant applicable relief to eligible dealers based on these circulars.

Before the 2022 amendment, the deadline for filing returns for September under Section 39 was September 30. The amendment extended this deadline to November 30 to ease initial compliance difficulties.

Therefore, if a dealer filed their return after September 30 but before November 30 from July 1, 2017, to November 30, 2022, their ITC claim should be processed if they are otherwise eligible. This procedural amendment is given retrospective effect due to the initial challenges in implementing GST. The challenge to the constitutional validity of Sections 16(2)(c) and 16(4) is rejected.

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