Arvind Sahdeo Gupta v. Income Tax Officer, Ward –

IN THE HIGH COURT OF JUDICATURE AT BOMBAY,NAGPUR BENCH, NAGPUR. WRIT PETITION NO. 4793 OF 2021 Arvind Sahdeo Gupta,aged about 34 years,Residing at Plot No. J-4, MIDC Phase III,Akola – 444105, Maharashtra, India,Occ. Business. .....VERSUS..… 1.Income Tax Officer, Ward – 1,Akola, Aayakar Bhawan, Gorakshan Road,Akola, Maharashtra – 444001,Email : . Akola, Aayakar Bhawan, Gorakshan Road,Akola, Maharashtra – 444001,Email : . PETITIONER 2.Additional/ Joint/ Deputy/ Assistant Commissioner of Income Tax/Income-tax Officer, National Faceless Assessment Centre,Delhi, Email : . Income-tax Officer, National Faceless Assessment Centre,Delhi, Email : . 3.Pr. Commissioner of Income Tax – 1,Aayakar Bhawan, Civil Lines, Nagpur.Aayakar Bhawan, Civil Lines, Nagpur. 4.The Union of India,through its Secretary, Department of Revenue,Ministry of Finance, Government of India,New Delhi – 110002.through its Secretary, Department of Revenue,Ministry of Finance, Government of India,New Delhi – 110002. 5.Central Board of Direct Taxes,through its Chairman, Ministry of Finance,North Block, New Delhi – 110002.through its Chairman, Ministry of Finance,North Block, New Delhi – 110002. R ESPONDENTS Shri Kapil Hirani, Advocate for the petitioner. Shri Anand Parchure, Advocate for the respondents. CORAM : A. S. CHANDURKARAND MRS. VRUSHALI V. JOSHI,JJ. ARGUMENTS WERE HEARD ON : JUNE 27, 2023 JUDGMENT IS PRONOUNCED ON : AUGUST 8, 2023JUDGMENT:(PER : A.S. CHANDURKAR, J.) Rule. Rule made returnable forthwith and heard the learnedCounsel for the parties. 2]The challenge raised in this Writ Petition is to the noticedated 24/3/2020 that has been issued by the Income Tax Officer Ward –1, Akola under Section 148 of the Income Tax Act, 1961 (for short “Act of1961”). A further consequential prayer seeks quashing of the assessmentthat has been completed by virtue of order dated 29/9/2021. 3]The challenge raised to the notice issued under Section 148of the Act of 1961 is principally on the grounds that the said notice hasbeen issued on incorrect facts, no reasons have been given while decidingthe objections raised by the petitioner to the re-opening of theproceedings and the same have been decided without passing anyspeaking order. In addition, it is urged that the re-opening of theproceedings is without there being any independent application of mindand no reasons to believe have been indicated by the Income Tax Officer(for short “ITO”) in that regard. 4]The facts relevant for considering the challenge are that on24/3/2020, the ITO issued notice under Section 148 of the Act of 1961stating therein that he had reasons to believe that the income chargeableto tax for the Assessment Year 2013-14 had escaped assessment withinthe meaning of Section 147 of the Act of 1961. The petitioner was 4]The facts relevant for considering the challenge are that on24/3/2020, the ITO issued notice under Section 148 of the Act of 1961stating therein that he had reasons to believe that the income chargeableto tax for the Assessment Year 2013-14 had escaped assessment withinthe meaning of Section 147 of the Act of 1961. The petitioner was accordingly called upon to deliver a return in the prescribed form for thesaid Assessment Year within a period of thirty days from service of thenotice. The reasons for re-opening of the proceedings under Section 147of the Act of 1961 as indicated were that from the information receivedand enquiry as made, it was clear that the assessee – petitioner had madeinvestment in the purchase of shares and had earned profit from the saleof shares. The petitioner however had not offered for taxation the amountof income earned on the sale of shares of Rs.9,90,314/-. Thus, thepetitioner had failed to disclose his true and correct total income whilefiling the return of income for the said year. As period of more than fouryears had lapsed from the end of the Assessment Year, sanction to issuenotice under Section 148 of the Act of 1961 had been obtained from thePrincipal Commissioner of Income Tax under Section 151 of the Act of1961. On 23/2/2021, notice under Section 142(1) of the Act of 1961came to be issued calling upon the petitioner to furnish the details of thebank account and documents as referred to in the Annexure therein. Thebank account statement of the petitioner’s account maintained with theHDFC Bank for the period from 1/4/2012 to 31/3/2013 was sought bythe ITO. Thereafter, on 24/5/2021, similar notice under Section 142(1)of the Act of 1961 was issued seeking information with regard to eachdebit and credit entry exceeding Rs.50,000/- in the bank account of thepetitioner maintained with the HDFC Bank. The petitioner responded to the said notices and supplied the documents demanded. On 24/8/2021,further notice under Section 142(1) of the Act of 1961 was issued inwhich it was stated that after perusing the bank statement, it was noticedthat an amount of Rs.10,00,000/- was credited in the petitioner’s accountand on the next day, an amount of Rs.9,90,314/- was debited towardsAA+ Commodities. The justification for the same was sought. Thepetitioner responded to the said query by stating that the amount ofRs.10,00,000/- had been received from Mayur Agro Trade Private Limitedand he had not purchased any shares from the said Company. On10/9/2021, yet another notice under Section 143(2) read with Section147 of the Act of 1961 was issued to the petitioner and the reasons for re-opening the case were indicated that amount of Rs.9,90,314/- being theamount of income earned on the sale of shares had not been offered fortaxation. On 13/9/2021, the petitioner responded to the said noticestating therein that the amount of Rs.9,90,314/- had not been credited inthe petitioner’s bank account but it was the amount of loss suffered by thepetitioner in commodity trading that had been duly shown in theaccounts for the Assessment Year 2012-13. On 17/9/2021, the objectionsraised by the petitioner on 13/9/2021 came to be disposed of by holdingthe said objections to be not acceptable/tenable. It is thereafter that theassessment order dated 29/9/2021 came to be passed and the income ofthe petitioner was assessed at Rs.1,55,30,950/-. 5]Shri Kapil Hirani, learned Counsel for the petitioner insupport of the challenge to the notice issued under Section 148 of the Actof 1961 submitted that : 5]Shri Kapil Hirani, learned Counsel for the petitioner insupport of the challenge to the notice issued under Section 148 of the Actof 1961 submitted that : a]the re-opening of the assessment was based on incorrectfacts and therefore the aforesaid notice was not sustainable. According tohim, the reason for re-opening of the proceedings as indicated on24/3/2020 was that according to the ITO, the petitioner had earnedprofit from the sale of shares. It was submitted that the petitioner hadsuffered loss of Rs.9,90,314/- and that amount had been debited in thepetitioner’s profit and loss account. Same was also included in thepetitioner’s return by showing it as a loss. The ITO on the incorrect factthat the said amount was towards profit from the sale of sharesproceeded to seek re-opening of the proceedings. Referring to thedecision in Tata Sons Limited Vs. Dy. Commissioner of Income Tax andOthers [Writ Petition No. 2545/2010 decided on 3/2/2022] at thePrincipal Seat it was submitted that since the re-opening of theassessment was based on incorrect facts, the notice for re-opening wasunsustainable. Reliance in that regard was also placed on the decisions inPunia Capital Pvt. Ltd. Vs. The Assistant Commissioner of Income Tax &Ors. [Writ Petition No. 1091/2022 decided on 15/2/2023] and Ankita A.Choksey Vs. Income Tax Officer – 19 (1)(1) & Ors. [(2019) 411 ITR207], both delivered at the Principal Seat. b]the objection raised to the notice was decided in a mannercontrary to the law as laid down in GKN Driveshafts (India) Ltd. Vs.Income Tax Officer & Ors. [(2003) 1 SCC 72]. By the said decision, theHon’ble Supreme Court has laid down that when objections are raised tothe issuance of notice under Section 148 of the Act of 1961, the AssessingOfficer is bound to furnish reasons for issuing the notice. On receivingsuch reasons, the noticee is entitled to file objections to the issuance ofnotice and the Assessing Officer is duty bound to dispose of the same bypassing a speaking order. Since the Assessing Officer disposed of theobjections raised by the petitioner without passing any speaking order,the same was contrary to the said directions. In addition to aforesaid, itwas submitted that no reasons whatsoever were indicated by the ITOwhile disposing of the objections. The transaction in question pertained tothe Assessment Year 2012-13 and not the Assessment Year 2013-14. Thisaspect went to the root of the matter but there was no consideration ofthe same. c]notice under Section 148 of the Act of 1961 could be issuedwhen there were reasons to believe that certain income had escapedassessment. In this regard, it was necessary for the ITO to independentlyapply his mind and thereafter consider as to whether the information onthe basis of which the re-opening was proposed constituted material tobelieve the same. The ITO proceeded mechanically to re-open the proceedings without there being any independent application of mind.Reference in that regard was made to the decisions in i) The Pr.Commissioner of Income Tax – 5 Vs. M/s. Shodiman Investments Pvt.Ltd. [(2020) 422 ITR 337]; ii) Akshar Builders and Developers Vs. Asstt.Commissioner of Income Tax – 28(1) Mumbai & Anr. [(2019) 411 ITR602]; and iii) Nivi Trading Limited Vs. Union of India & Anr. [(2015) 375ITR 308]. On this basis, it was urged that the notice issued underSection 148 of the Act of 1961 on 24/3/2020 was liable to be set aside.Though the assessment had been completed by passing order dated29/9/2021 and the petitioner had filed an appeal by way of abundantprecaution, the challenge in the present proceedings was restricted to thelegality of the notice issued under Section 148 of the Act of 1961. On this basis, it was urged that the notice issued underSection 148 of the Act of 1961 on 24/3/2020 was liable to be set aside.Though the assessment had been completed by passing order dated29/9/2021 and the petitioner had filed an appeal by way of abundantprecaution, the challenge in the present proceedings was restricted to thelegality of the notice issued under Section 148 of the Act of 1961. 6]Shri Anand Parchure, learned Counsel for the respondentsat the outset raised an objection to the tenability of the Writ Petition onthe ground that the assessment having been completed, all grounds ofchallenge including the challenge to the notice dated 24/3/2020 could beraised in a statutory appeal preferred by the petitioner. Referring to thedecisions in i) Anshul Jain Vs. Principal Commissioner of Income-tax[(2022) 449 ITR 256]; ii) Commissioner of Income Tax & Ors. Vs.Chhabil Dass Agarwal [(2014) 1 SCC 603]; iii) Gian Castings (P.) Ltd. Vs. Central Board of Direct Taxes [(2022) 140 taxmann.com 319]; and iv)The State of Maharashtra & Ors. Vs. Greatship (India) Limited [CivilAppeal No. 4956/2022 decided on 20/9/2022] it was submitted that theWrit Petition did not deserve to be entertained. Without prejudice to theaforesaid, it was submitted that the re-opening of the proceedings waslegal and valid since the Assessing Officer had strong reasons to believethat the amount of Rs.9,90,314/- had escaped assessment. The objectionsto the re-opening had been decided after due application of mind and nofault with that adjudication could be found. Since there was nojurisdictional error, interference with the re-opening of the assessmentwas not warranted on the grounds urged by the petitioner. The validity ofthe assessment order could be determined on these very grounds in theappeal preferred by the petitioner. The Writ Petition was therefore liableto be dismissed. 7]In reply to the objection raised to the tenability of the WritPetition, it was submitted by the learned Counsel for the petitioner thatavailability of an alternate remedy was not a bar to entertain the WritPetition preferred under Article 226 of the Constitution of India.Referring to the decision in M/s Godrej Sara Lee Ltd. Vs. The Excise andTaxation Officer-cum-Assessing Authority & Ors. [Civil Appeal No.5393/2010 decided on 1/2/2023] it was submitted that since re-openingof the proceedings was sought on incorrect and non-existent facts, the challenge to the notice under Section 148 of the Act of 1961 ought to beentertained on merits. Reference was also made to the decision in M/sMagadh Sugar & Energy Ltd. Vs. The State of Bihar & Ors. [Civil AppealNo. 5728/2021 decided on 24/9/2021] to highlight the settled law inthat regard. 8]We have heard the learned Counsel for the parties at lengthand with their assistance, we have perused the documents on record. Wehave also given due consideration to the rival submissions. At the outset,it would be necessary to consider the objection raised by the respondentsto the maintainability of the Writ Petition on the ground that the order ofassessment having been passed, it could be challenged on all groundsincluding the invalidity of the notice issued under Section 148 of the Actof 1961 by availing the statutory remedy. The difference betweenentertainability and maintainability of a proceeding has been succinctlyexplained by the Hon’ble Supreme Court in M/s Godrej Sara Lee Ltd.(supra). While the objection to “maintainability” goes to the root of thematter and if such objection is found to be of substance, the Court wouldbe rendered incapable of receiving the lis for adjudication. On the otherhand, the question of “maintainability” is within the realm of discretion ofthe High Court since writ remedy is discretionary in nature. It has beenfurther observed that dismissal of Writ Petition on the ground that thepetitioner has not availed the alternate remedy without examining as to whether an exceptional case has been made out for such entertainmentwould not be proper. After referring to various earlier decisions, theexceptions on the basis of which a writ Court would be justified inentertaining a Writ Petition notwithstanding the availability of analternate remedy were indicated which includes the aspect where theproceedings are without jurisdiction or the order in that regard is withoutjurisdiction. If a jurisdictional issue is raised and the controversy is purelya legal one that does not involve any disputed question of fact, then theWrit Petition does not deserve to be thrown out at the threshold. Thedecision in M/s Magadh Sugar & Energy Ltd. (supra) has laid down thesaid principles in its decision dated 24/9/2021. In Chhabil Das Agarwal (supra) challenge to the order of assessment was entertained by the High Court. In that context theHon’ble Supreme Court held that when an equally efficacious alternateremedy was available to the petitioner, the High Court ought not to haveentertained the Writ Petition. In the present case, challenge is to thenotice issued under Section 148 of the Act of 1961 against which nostatutory remedy for challenging the same is available. 9]We may indicate that the challenge raised in the WritPetition is to the notice issued under Section 148 of the Act of 1961 dated24/3/2020 as well as the consequential order of assessment that has been completed vide order dated 29/9/2021. The learned Counsel for thepetitioner has restricted his challenge only to the legality of the saidnotice dated 24/3/2020 and has urged that there is no alternate remedyavailable for challenging the same. He submitted that the order ofassessment is not intended to be challenged in the present proceedingsand by way of abundant precaution, a statutory appeal has been filed. Ifthe challenge to the notice dated 24/3/2020 is not found to beacceptable, the petitioner would then pursue the appeal that has beenpreferred for challenging the order of assessment. 10]Considering the grounds of challenge that have been putforth by the petitioner namely that the re-opening of the assessment isbased on incorrect facts rendering the notice to be unsustainable, theobjections raised to the notice being decided in a manner contrary to thedecision in GKN Driveshafts (India) Ltd. (supra) coupled with otherancillary challenges, it is found that such challenge can be examined sincethe same go to the root of the matter. The legal position as regards theeffect of such challenge is settled by various decisions of the Hon’bleSupreme Court and this Court. On the limited touchstone based on thedecisions referred to hereinabove, we are inclined to consider suchchallenge subject to an exceptional case being made out. The order ofassessment is not being examined in the present proceedings. Theconditions specified in Section 147 of the Act of 1961 have been held to be jurisdictional in nature in Cedric De Souza Faria Vs. DeputyCommissioner of Income Tax [(2018) 400 ITR 30]. The distinctionbetween a jurisdictional error and error of law/fact within jurisdiction hasbeen referred to by the Hon’ble Supreme Court in Anshul Jain (supra).The decision in Chhabil Dass Agarwal (supra) has been considered by theDivision Bench in Ajay Ajit Tanna Vs. Union of India & Ors. [Writ PetitionNo. 5098/2022 decided on 8/3/2023] and by referring to the exceptionto rule of alternate remedy, it has been held that if the StatutoryAuthority has not acted in accordance with the provisions of theenactment in question, extraordinary jurisdiction could be exercised. Inthe said decision, failure on the part of the Assessing Officer to complywith the directions of the Hon’ble Supreme Court was one of the reasonsfor entertaining challenge to the notice issued under Section 148 of theAct of 1961 in writ jurisdiction. In Greatship (India) Limited (supra), theHon’ble Supreme Court held that challenge to an assessment order couldnot have been entertained in exercise of writ jurisdiction. Ratio of thisdecision therefore would not apply to the facts of the present case. 11]Coming to the challenge as raised to the notice issued underSection 148 of the Act of 1961, it is seen that pursuant to the notice dated24/3/2020, reasons for re-opening the case under Section 147 of the Actof 1961 were furnished by the Assessing Officer. According to theAssessing Officer, the petitioner had made investment in the purchase of WP-4793-202113Judgmentshares and had earned profit from the sale of shares. An amount ofRs.9,90,314/- was stated to be credited to the bank account of thepetitioner but he had not offered the said amount during the FinancialYear 2012-13 pertaining to the Assessment Year 2013-14 for taxation. Inthis regard, when the objection raised by the petitioner is considered, it isseen that the said amount is towards loss suffered by the petitioner incommodity trading pertaining to the Financial Year 2011-12, AssessmentYear 2012-13. The said amount was stated to be paid to M/s AA+Commodities on 31/3/2012. It thus becomes clear that the said amountrelates to the Assessment Year 2012-13 and not the Assessment Year2013-14 as indicated in the notice. Further amount of Rs.9,90,314/- hasbeen shown as amount of loss sustained by the petitioner which wasdebited in his account and not credited as mentioned in the notice. Thesaid amount was also included in the return filed by the petitioner. 12]The effect of re-opening the assessment based on wrongfacts or conclusions has been considered in Tata Sons Limited (supra). Ithas been held that if the reasons for re-opening the assessment are basedon incorrect facts or conclusions, the notice issued for re-opening cannotbe sustained. A similar view has been taken in Punia Capital Pvt. Ltd.(supra) as well as in Ankita A. Choksey (supra). In paragraph 6 thereof, ithas been observed that the reasons to believe that income chargeable totax has escaped must be based on correct facts and if the facts as recorded in the reasons are not correct and the assessee points out the same in hisobjections then the order on objections must deal with the same andprima facie establish that the facts stated in its reasons as recorded arecorrect. If the Assessing Officer has proceeded on fundamentally wrongfacts to form reasonable belief that income chargeable to tax has escapedassessment and the Assessing Officer while disposing of the objectionsdoes not deal with the factual position asserted by the petitioner, it wouldbe safe to conclude that the Revenue does not dispute the facts stated bythe petitioner. On such facts, there could be no reason for the AssessingOfficer to believe that income chargeable to tax has escaped assessment. in the reasons are not correct and the assessee points out the same in hisobjections then the order on objections must deal with the same andprima facie establish that the facts stated in its reasons as recorded arecorrect. If the Assessing Officer has proceeded on fundamentally wrongfacts to form reasonable belief that income chargeable to tax has escapedassessment and the Assessing Officer while disposing of the objectionsdoes not deal with the factual position asserted by the petitioner, it wouldbe safe to conclude that the Revenue does not dispute the facts stated bythe petitioner. On such facts, there could be no reason for the AssessingOfficer to believe that income chargeable to tax has escaped assessment. 13]In the aforesaid context, if the order deciding the objectionsis perused, the same does not state that the facts mentioned by thepetitioner were incorrect. In fact, no reasons whatsoever have beenassigned and it is reiterated that the petitioner failed to declare anyprofit/ loss in the income tax return and hence the amount ofRs.9,90,314/- was treated as profit on the sale of shares. As stated above,despite specific objection that the said amount had been debited in thebank account of the petitioner and it pertained to the losses sustained incommodity trading having been shown in the accounts for the FinancialYear 2011-12, Assessment Year 2012-13, it becomes clear that theobjections have been decided without due application of mind. As held bythe Hon’ble Supreme Court in GKN Driveshafts (India) Ltd. (supra), the objections as raised have to be disposed of by a speaking order that couldindicate due application of mind. As stated above, there are no reasonswhatsoever assigned for turning down the objections and the facts statedin the notice dated 24/3/2020 are reiterated. It is seen that alongwith theobjections dated 13/9/2021 copy of the account statement for theFinancial Year 2011-12 was also attached. Same has not even beenreferred to while disposing of the objections on 17/9/2021. In M/s.Shodiman Investments Pvt. Ltd. (supra), it is held that application ofmind has to be indicated while forming reasons to believe that incomechargeable to tax has escaped assessment. 14]It is also to be noted that by issuing subsequent notice, theITO has sought further information from the petitioner which informationdoes not form the basis of the reasons assigned for re-opening theproceedings. This is clear from the notice dated 24/8/2021. The DivisionBench in Nivi Trading Limited (supra) has held that if further details aresought or some verification is proposed by the officer, same cannot be asubstitute for the reasons that have led the Assessing Officer to believethat an income chargeable to tax has escaped assessment. 15]From the aforesaid, it is clear that the notice dated24/3/2020 issued under Section 148 of the Act of 1961 seeking re-opening of the assessment is based on incorrect facts. The objections raised by the petitioner pointing out the relevant facts including theproper Assessment Year to which the said transaction pertained beingAssessment Year 2012-13 coupled with the fact that the amount ofRs.9,90,314/- that was stated to be the amount being profit from the saleof shares having been explained to be the amount of loss, the objectionshaving been decided without any speaking order and not dealing with theundisputed factual aspects leads to the conclusion that the re-opening ofthe assessment is without there being any reason to believe that theincome has escaped assessment. In these facts, the notice dated24/3/2020 suffers from fundamental factual errors. An exceptional casethus having been made out to interfere in exercise of writ jurisdiction, theimpugned notice dated 24/3/2020 issued under Section 148 of the Act of1961 is quashed and set-aside. Consequentially, further steps taken by therespondents based on said notice would no longer survive.