Anil Satyanarayan Roongta v. Oral Judgment

IN THE HIGH COURT OF GUJARAT AT AHMEDABADR/SPECIAL CIVIL APPLICATION NO. 21016 of 2018 FOR APPROVAL AND SIGNATURE: HONOURABLE MR. JUSTICE N.V.ANJARIA andHONOURABLE MR. JUSTICE BHARGAV D. KARIA ========================================================== 1Whether Reporters of Local Papers may be allowedYesto see the judgment ?2To be referred to the Reporter or not ?Yes3Whether their Lordships wish to see the fair copyNoof the judgment ?4Whether this case involves a substantial questionNoof law as to the interpretation of the Constitutionof India or any order made thereunder ? ========================================================== ANIL SATYANARAYAN ROONGTA Versus THE ASSISTANT COMMISSIONER OF INCOME TAX CIRCLE 1(3) ==========================================================Appearance:Appearance:MR. TUSHAR HEMANI, SR. ADV. WITH MS VAIBHAVI K PARIKH(3238) for the Petitioner(s) No. 1MRS KALPANAK RAVAL(1046) for the Respondent(s) No. 1 ========================================================== CORAM:HONOURABLE MR. JUSTICE N.V.ANJARIAandHONOURABLE MR. JUSTICE BHARGAV D. KARIA Date : 19/07/2022 ORAL JUDGMENT (PER : HONOURABLE MR. JUSTICE N.V.ANJARIA) In the facts and circumstances of the case and having regard to the request and consent of the learned advocates appearing for the respectiveparties, the petition was taken up for final consideration. 1.1Rule, returnable forthwith. Learned advocate Mr. Nikunt Ravalwaives service of Rule on behalf of the respondent. 1.2Heard learned senior advocate Mr. Tushar Hemani with learnedadvocate Ms. Vaibhavi Parikh for the petitioner and learned advocate forthe respondent. 2.By filling this petition under Article 226 of the Constitution , thepetitioner has prayed to set aside notice dated 30.3.2018 issued undersection 148 of the Income Tax Act, 1961 in respect of Assessment Year2013-2014 seeking to reopen the assessment stating that the AssessingOfficer had reasons to believe that that the income of the petitionerchargeable to income tax for the Assessment Year under considerationhad escaped assessment within the meaning of section 147 of the IncomeTax Act, 1961 (hereinafter referred to as ‘the Act’). 3.The facts stated in brief are that during the Assessment Year2013-14, the petitioner was engaged in business of trading in shares.Loss of Rs.4,55,72,791/- was incurred. The Petitioner filed his return ofincome for the year under consideration on 30.09.13 declaring totalincome to be Rs.51,36,060/- wherein such loss was duly reflected. Thecase was selected for scrutiny assessment. The then Assessing Officerframed assessment under section 143(3) of the Act by order dated30.03.16 determining total income at Rs. 9,63,11,400/-. An addition ofRs. 4,55,56,032/- in respect of loss incurred by the petitioner was alsomade. 3.1The petitioner challenged the said Assessment Order before theCommissioner of Income Tax (Appeals). The appeal is pending. 3.2The case of the petitioner came to be reopened on the count thatthere was a mistake in computation of tax on assessed income. 4.Learned senior advocate for the petitioner submitted that thereassessment could be invoked only if there was escapement of incomechargeable to tax and that reassessment could not be initiated where therewas any error in the computation of tax. Learned senior advocatethereafter referred to the reasons recorded for reopening to submit that theAssessing Officer while computing tax, took the assessed income in theassessment order at Rs. 5,06,45,370/-, instead of Rs. 9,63,11,400/-resulting an under-assessment of income of Rs.4,56,66,030/-. It wassubmitted that if there was a computation mistake, the provisions ofsection 154 of the Income Tax Act, 1961 was to be resorted to, however,the assessment cannot be reopened on that count. 4.Learned senior advocate for the petitioner submitted that thereassessment could be invoked only if there was escapement of incomechargeable to tax and that reassessment could not be initiated where therewas any error in the computation of tax. Learned senior advocatethereafter referred to the reasons recorded for reopening to submit that theAssessing Officer while computing tax, took the assessed income in theassessment order at Rs. 5,06,45,370/-, instead of Rs. 9,63,11,400/-resulting an under-assessment of income of Rs.4,56,66,030/-. It wassubmitted that if there was a computation mistake, the provisions ofsection 154 of the Income Tax Act, 1961 was to be resorted to, however,the assessment cannot be reopened on that count. 4.1Learned senior advocate for the petitioner further submitted thatwhen the issue was subject matter of appeal, the Assessing Officer couldnot have reopened the case of the assessee to examine the very issue inexercise of reassessment powers. He relied on the Third Proviso tosection 147 to submit that the principle of merger would be applicable.Learned senior advocate relied on the decision of the Division Bench ofthis court in Radhawami Salt Works vs. Assistant Commissioner ofIncome Tax [400 ITR 249 (Gujarat)] in which the principle was laiddown that since the question of correct taxability of receipt of income bythe assessee was at large before the Tribunal, it would not be permissiblefor the assessing officer to reopen the assessment in respect of a matterwhich was already a subject matter of appeal. 4.2On behalf of the respondent-Assistant Commissioner of IncomeTax, affidavit-in-reply was filed to contest the petition. On the basis ofthe contents of the said affidavit, it was contended by learned advocatefor the respondent that while proceeding to reopen the assessment, themechanism and procedure provided in law were observed. It wassubmitted that the Assessing Officer had reasons to believe that incomehad escaped the assessment and therefore, the impugned notice came tobe issued. It was submitted that the assessee was a broker and director ofa brokerage concern and was prima facie found to have created fictitiousloss through the share market operations and the loss was disallowed andincome was computed at Rs. 5,06,45,370/- while making the assessmentunder section 143(3) of the Act. 4.3It was further contended that External Revenue Audit Party raisedobjections on 27.3.2017. The audit objections were quoted in theaffidavit-in-reply in paragraph No. 6.1 and it was stated that the thrust ofthe audit objection was that the Assessing Officer disallowed the longterm capital loss of Rs. 4,55,56,32/-, yet the said income had not beenadded in the return of income of the assessee. The Revenue was thereforeof the opinion, it was contended, that the dis-allowance had not beenproperly given effect to. It was stated that on examination of the record,the assessee had claimed loss of Rs. 4,55,72,791/- including the longterm capital loss of Rs. 4,55,56,032/- and thereafter the loss was adjustedagainst the income from partnership firm, house property income andincome from other sources. It was contended that after disallowance ofthe business loss of Rs. 4,55,72,791/-, the assessed total income wasarrived at Rs. 5,07,55,368/- and as per the revenue audit, the income hadescaped the taxation to the said extent. It was submitted that preliminaryinformation was gathered by the Assessing Officer, and notice under section 148 of the Act was issued to the petitioner assessee. section 148 of the Act was issued to the petitioner assessee. 4.4Learned advocate for the respondent then relied on two decisionsof the Delhi High Court in support of his contentions. First was HondaSiel Power Products Ltd. vs. Deputy Commissioner of Income Tax[(2012) 340 ITR 53 (Delhi), in which the principle was laid down thatnon-disclosure of primary facts would entitle the Assessing Officer toreopen the assessment. It was observed in the facts of that case that evenif notice under section 154 was issued, notice under section 147 or 148 ofthe Act would not be a bar. Another decision in Ester Industries Ltd.vs. Union of Insdia [(2014) 221 Taxman (Delhi)] was relied on tosubmit that the provisions of section 151 and 154 are not mutuallyexclusive or there could be overlapping of jurisdiction. What is held bythe Delhi Court in Honda Siel Power Products Ltd. (supra) and in EsterIndustries Ltd. (supra) could not apply in the facts of the present casewhen it was a crystal clear error of computation of tax only. 4.5All the contentions raised in the affidavit-in-reply were sought tobe controverted and answered by filling affidavit-in-rejoinder by thepetitioner. 5.Looking at the reasons recorded in case of the assessee which weresupplied on 10.7.2018 to the petitioner, the following was stated,extracting the relevant portion, “ In this case, the assessee has filed his ROI for A.Y. 2013-14 on30.09.2019 declaring total income of Rs.51,36,060/-. The case wasselected for scrutiny under CASS. During the year under consideration,the assessee has derived salary, share trading income/loss, income frompartnerhip firm and income from house property. Scrutiny assessmenthas been completed by passing order under section 143(3) of the IT Acton 30.03.2016. The assessee had claimed loss of Rs 4,55,72,791/-whichwas adjusted against the income from partnership firm ofRs.73,07,884/-, house property income of Rs. 3,49,723/-, income from30.09.2019 declaring total income of Rs.51,36,060/-. The case wasselected for scrutiny under CASS. During the year under consideration,the assessee has derived salary, share trading income/loss, income frompartnerhip firm and income from house property. Scrutiny assessmenthas been completed by passing order under section 143(3) of the IT Acton 30.03.2016. The assessee had claimed loss of Rs 4,55,72,791/-whichwas adjusted against the income from partnership firm ofRs.73,07,884/-, house property income of Rs. 3,49,723/-, income from other source of Rs.1,46,535/- and LTCG of Rs. 3,76,64,312/-. The AOhad disallowed the long term capital loss. The income was assessed atRs.9,63,11,400/-. 2.On verification of the case records, it is observed that in theAssessment Order the Assessing Officer has determined total income atRs.9,63,11,400/-. The AO has stated that the assessee had himselfmanaged the Long Term Capital Loss through its broker, wherein hewas a Director. Hence, the Assessing Officer, in his conclusion, statedthat the Long Term Capital Loss of Rs. 4,55,56,032/-claimed by theassessee was not allowable and therefore; added Rs. 4,55,56,032/-to thetotal income. Thus, the total taxable income was assessed atRs.9,63,11,400/- for A.Y. 2013-14 and tax leviable thereon. However, itwas noticed from computation statement and demand notice that therewas a mistake in computation of tax computed on assessed income.While computing tax, the assessed income was taken at Rs.5,06,45,370/- instead of Rs. 9,63,11,400/- as computed in assessmentorder. Thus, it has been resulted into underassessment of income ofRs.4,56,66,030/-. 3.In this case a return of income was filed for the year underconsideration and regular assessment under section 143(3) was made on30.03.2016. Since, 4 years from the end of the relevant year has notexpired in this case, the only requirement is to initiated the proceedingsunder section 147 is reason to believe which has been recorded abovepara-2”. 3.In this case a return of income was filed for the year underconsideration and regular assessment under section 143(3) was made on30.03.2016. Since, 4 years from the end of the relevant year has notexpired in this case, the only requirement is to initiated the proceedingsunder section 147 is reason to believe which has been recorded abovepara-2”. 5.1From the facts and contentions, controversy which stands revealedis that the income which was assessed by the Assessing Officer for theyear under consideration was Rs. 9,63,11,400/- and notRs. 5,06,45,370/-. This was evident from the order of Assessment. Forthe purpose of computation of income tax however, less amount wasadopted. The case of the petitioner assessee was sought to be re-openedon the basis of the audit objection stating that the assessed income wasworked out at Rs. 9,62,11,400/- but while computing the tax the assessedincome was taken as Rs. 5,06,45,370/- and that thus it resulted intoescapment of income chargeable to tax. The crux was that the lessincome was applied for computation of tax instead the actual assessed income by the Assessing Officer. 5.2The sine qua non for justifying the action of reassessment is thatthere must be an income which has escaped the assessment of tax. Amistake in computation of tax on the assessed income cannot result intoescapment of income chargeable to tax. The reasons recorded forreopening was a mistake in computation of tax on the assessed income.The approach of the Assessing Officer in resorting to provisions ofSection 147 of the Act was indeed erroneous in law. Unless there wasescapment of income chargeable to tax, the reassessment proceedingscould not be initiated. 5.3A mere error in computation of tax cannot be a ground to initiatethe reassessment. The concept of ‘income’ and the ‘tax’ are two separateterms. The reassessment powers could be invoked only when the‘income’ is escaped, which was chargeable to tax in the hands of theassessee and not on the count of some error in computation of tax. Thetwo aspects could not have been mixed-up by the Assessing officer.When admittedly there was no escapment of income and where thereexisted a simple error of computation of tax, the impugned notice undersection 148 of the Act was rendered untenable in eye of law. 6.In Hindustan Unilever Ltd. vs. Deputy Commissioner ofIncome-Tax 1(1) Mumbai [(2010) 325 ITR 102 (Bombay), theBombay High Court dealt with a case where assessee was having theplantation business and was carrying on composite activity of tea leaveswhich was then utilised for manufacturing and selling of dry tea leaves.For the relevant assessment year, the assessee incurred loss in theplantation division. According to the assessee in terms of Rule 8 of theIncome Tax Rules, 1962, 60% of the loss which was sustained as a result of its composite operations, was liable to be attributable to agriculturalactivity and balance 40% was to be attributable to business activity andshould be set off against the normal business profit. The assessment wascompleted accepting the returned income of the assessee. Thereafter, theAssessing Officer issued impugned notice under section 148 of the Act toreopen the assessment on the ground that the provisions of Rule 8 wereapplicable only in case of income and the claim of the assessee to set off40% of loss against the normal business profit could not be allowed. 6.1.While holding that the assessee was lawfully entitled to adjust theloss which arose as a result of business activity under Rule 8 of the Actre-opening of the assessment on that ground was not justified. TheBombay High Court held reading section 147 with section 154 of the Actthat power to rectify the order of assessment under section 154(1) wasadequate and available to meet a mistake or error in order of assessment.It was held that in case of mistake, the Assessing Officer would have totake recourse to that power as opposed to the wider power of reopeningof the assessment. 6.1.While holding that the assessee was lawfully entitled to adjust theloss which arose as a result of business activity under Rule 8 of the Actre-opening of the assessment on that ground was not justified. TheBombay High Court held reading section 147 with section 154 of the Actthat power to rectify the order of assessment under section 154(1) wasadequate and available to meet a mistake or error in order of assessment.It was held that in case of mistake, the Assessing Officer would have totake recourse to that power as opposed to the wider power of reopeningof the assessment. 6.2In the facts of the present case also, since there was clear error ofcomputation of tax only, the Assessing Officer could have taken recourseto the provisions of section 154 of the Act. The act of seeking reopeningthe assessment was not justified. There was no element ofescapment of income. The actual income was assessed by the AssessingOfficer to particular extent, however, the tax was assessed on a differentfigure. 6.3It was a curable aspect and an error which ought to have have beendealt with by exercising powers under section 154 of the Act only. Theentire gamut of reopening of assessment was not justified, for, the essential requirements for reopening did not exist. The rectificationproceedings under section 154 of the Act was to be the proper course ofaction to be adopted by the tax authority in such circumstances. 6.4In addition to above, there is yet another attendant aspect that theappeal against the assessment order was also pending. As per the ThirdProviso to section 147 of the Act, the Assessing Officer may assess orreassess such income other than the income involving matters which aresubject matter of any appeal, reference or revision which is chargeable totax and that it has escaped assessment. What is clearly suggested is thatthe Assessing Officer cannot reopen the case of the assessee to examinean issue which is already pending before the appellate authority and is asubject matter of appeal. 6.5In the present case, against the addition of Rs. 4,55,56,032/- madeby the Assessing Officer in the income of the assessee, the appeal came tobe preferred before the Commissioner of Income Tax (Appeals) by theassessee and the said appeal is pending. The doctrine of merger wouldcome into play in such circumstances rendering the recourse to reopeningimpermissible. 6.6This view is fortified by the decision of this court in RadhawamiSalt Works (surpa). The assessee was given land on lease by the stategovernment for production of salt. The principle was stated that therecould not be two considerations to the same subject matter relatable to theincome. It was observed, “Yet another reason on which we cannot permit reopening on thegrounds stated in the reasons is that the assessee carried the issue inappeal before the Appellate Commissioner and canvassed that to tax theincome as capital gain was wrong. The Commissioner having dismissedthe appeal, the issue is pending before the Tribunal in assessee's appeal.Section 147 of the Act as is well known, empowers the Assessing Officer to reopen the assessment, subject to certain conditions. 34proviso to section 147 however provides that the Assessing Officer mayassess or reassess such income other than the income involving thematters which are the subject matters of any appeal, reference orrevision, which is chargeable to tax and has escape assessment. Whenthe subject matter viz. the receipt of transfer of rights in land and theincome relatable to such matter was the subject matter of appeal andthereafter second appeal, the principle of merger would apply. Therecannot be two separate considerations to the same subject matterrelatable to the income. One by the appellate authority or forum andanother by the Assessing Officer in fresh assessment” Officer to reopen the assessment, subject to certain conditions. 34proviso to section 147 however provides that the Assessing Officer mayassess or reassess such income other than the income involving thematters which are the subject matters of any appeal, reference orrevision, which is chargeable to tax and has escape assessment. Whenthe subject matter viz. the receipt of transfer of rights in land and theincome relatable to such matter was the subject matter of appeal andthereafter second appeal, the principle of merger would apply. Therecannot be two separate considerations to the same subject matterrelatable to the income. One by the appellate authority or forum andanother by the Assessing Officer in fresh assessment” 7.For all the above reasons and discussion, the impugned noticedated 30[th] March, 2018 issued by the Assessing Officer under section 148of the Act against the petitioner assessee in relation to Assessment Year2013-2014 stands unjustified in law and and is illegal. The same ishereby set aside. The petition is allowed. Rule is made absolute. (N.V.ANJARIA, J) C.M. JOSHI (BHARGAV D. KARIA, J)