Ashraf Alibhai Nathani, Mumbai v. Assistant Commissioner Of Income Tax Circle-22(1), Mumbai And Others

VISHALSUBHASHPAREKAR Digitally signedby VISHALSUBHASHPAREKARDate: 2022.02.1815:15:57 +0530 IN THE HIGH COURT OF JUDICATURE AT BOMBAYORDINARY ORIGINAL CIVIL JURISDICTION WRIT PETITION NO.550 OF 2022 Ashraf Alibhai Nathani, Mumbai ...Petitioner vs.Assistant Commissioner of Income TaxCircle-22(1), Mumbai and Others ...Respondents Mr. Hiro Rai a/w. Mr. Subhash Shetty i/b. Mr. Atul Jasani, for thePetitioner.Mr. Akhileshwar Sharma, for the Respondents CORAM :K.R. SHRIRAM &N. J. JAMADAR, JJ. DATE : FEBRUARY 16, 2022 P.C.: 1.On 27[th] January, 2022 time to file reply was given up to 10[th]February, 2022. No reply has been filed and therefore we areproceeding to dispose the Petition at this stage itself withoutwaiting for reply. 2.Petitioner along with other members of his family ownedshares in a company called Ruby Macons Limited. Petitioner held766200 shares out of 3331775 equity shares in the company.Petitioner and the other share holders entered into a sharepurchase agreement dated 19[th] October, 2012 under which theentire share holding of Petitioner and his family members wasacquired by a company MWV Wadco India Private Limited. Petitioner for his 766200 shares received a consideration of Rs.1,12,28,53,880/- under the share purchase agreement. 3.A search action under section 132 of the Income Tax Act,1961 (the Act) was conducted in the premises of Petitioner and hisfamily on 18[th] June, 2013. Petitioner filed his return of income forA.Y. 2013-2014 on 27[th] September, 2013 declaring a total income ofRs. 1,21,85,94,510/- including long term capital gains of Rs.1,11,40,59,040/- arising out of transfer of his share holding in RubyMacons Limited. The total tax payable therein of Rs. 26,16,22,522/-was also duly paid. The return of income was processed undersection 143(1) of the Act, accepting the returned income. 4. Thereafter, pursuant to the search mentioned earlier, a noticedated 7[th] September, 2015 under section 153A of the Act was issuedto Petitioner requiring him to file return of income for A.Y. 2013-2014 being one out of the six assessment years in respect of whichhe was assessable under the Act. In compliance with the notice,Petitioner, on 13[th] October, 2015, furnished his return of incomedeclaring the same total income of Rs. 1,21,85,94,510/-. 5. Later the case was selected for scrutiny and a notice under section 143(2) of the Act dated 2[nd] November, 2015 and anothernotice under section 142(1) of the Act dated 6[th] January, 2016along with questionnaire was issued to Petitioner. Scrutinyassessment of all the family members was also going onsimultaneously for A.Y. 2013-2014. Petitioner furnished allinformation including furnishing copies of the share purchaseagreement, valuation report, audited report etc. The notice alsoasked for details regarding expenses of Rs. 21,04,027/- claimedwhile computing capital gains. The details regarding exemptionfrom capital gains claimed under section 54EC in respect ofinvestment in prescribed bonds was also furnished. Thereafter,assessment order dated 19[th] February, 2016 was passed undersection 143(3) read with 153A of the Act accepting the total incomereturned by Petitioner at Rs. 1,21,85,94,510/-. 6.More than five years later, Petitioner received a notice dated23[rd] March, 2021 under section 148 of the Act stating thatRespondent No. 1 has reason to believe that income chargeable totax has escaped assessment for A.Y. 2013-2014. Petitioner was alsoprovided copy of the reasons recorded before the issuance ofimpugned notice under section 148 of the Act. Petitioner filed hisobjections vide letter 23[rd] August, 2021 which came to be rejected by an order dated 15[th] December, 2021 which is also impugned inthis Petition. 6.More than five years later, Petitioner received a notice dated23[rd] March, 2021 under section 148 of the Act stating thatRespondent No. 1 has reason to believe that income chargeable totax has escaped assessment for A.Y. 2013-2014. Petitioner was alsoprovided copy of the reasons recorded before the issuance ofimpugned notice under section 148 of the Act. Petitioner filed hisobjections vide letter 23[rd] August, 2021 which came to be rejected by an order dated 15[th] December, 2021 which is also impugned inthis Petition. 7.According to Mr. Rai appearing for Petitioner since thereopening is proposed more than four years after the expiry of therelevant assessment year and scrutiny assessment under section143(3) of the Act has been completed, proviso to section 147 of theAct shall apply. Mr. Rai submitted that, therefore, reopening isbarred unless Respondent is able to show that there was failure onthe part of the assessee to truly and fully disclose the material factsrequired for assessment and that failure has caused escapement ofincome. Mr. Rai submitted that reasons recorded does not indicateanywhere that there was failure on the part of the assessee to trulyand fully disclose material facts. Mr. Rai also submitted that theentire case for reopening is based on a clear case of change ofopinion when it is settled law that change of opinion can not formthe basis of assessment. Mr. Rai also submitted that no new tangiblematerial has been disclosed because jurisdictional Assessing Officerrelying upon a decision of Punjab & Haryana High Court which wasin existence much before passing of the assessment order.Jurisdictional Assessing Officer, who proposes to reopen, as held bythe Apex Court in Gemini Leather Stores vs. Income Tax Offcer, BWard, Agra and Others[1],could not take recourse to section 147 to remedy the error resulting from his own oversight. 8.Mr. Sharma justified the reopening and reiterated basicallywhat has been stated in the order rejecting the objections. 9.To confer jurisdiction under section 147 of the Act, twoconditions are required to be satisfied. First the Assessing Officermust have reason to believe that income, profits or gains chargeableto income tax had escaped assessment and secondly, he himself alsohas reason to believe that such escapement occurred by reasons ofeither omission or failure on the part of assessee to disclose fully ortruly all material facts necessary for his assessment of that year.When more than four years have expired from the end of relevantassessment year and there has been an assessment completedunder section 143(3) of the Act, both these conditions have to besatisfied before the Assessing Officer could assume jurisdiction toissue of notice under section 148 read with 147 of the Act. 10.We have considered the reasons recorded for reopening withthe assistance of Mr. Rai and Mr. Sharma. We are satisfied thatthere is nothing disclosed in the reasons recorded as to what wasnot disclosed by Petitioner during the relevant assessment 10.We have considered the reasons recorded for reopening withthe assistance of Mr. Rai and Mr. Sharma. We are satisfied thatthere is nothing disclosed in the reasons recorded as to what wasnot disclosed by Petitioner during the relevant assessment proceeding. The entire basis for reopening is that Petitioner sold hisshare holding in Ruby Macons Limited to MWV Wadco India PrivateLimited and declared the gains made from the sale as capital gainsand paid tax accordingly. But according to jurisdictional AssessingOfficer, as held by Punjab & Haryana High Court, in the case ofSumeet Taneja vs. CIT[2] such type of sale, purchase agreement ofshares is a business transaction and therefore the profit arising toshare holders is not capital gains but a business income. Hencethere has been an escapement of tax being 10% of the businessincome, i.e., difference between long term capital gains and the rateapplicable to assessee considering the quantum of income of theassessee. Since it is to be treated as a business income, even theexemption claimed under section 54EC of the Act, Rs. 50 lacs underthe head capital gains, also has to be rejected and to that extentthere is an escapement of income to the extent of an additionalincome of Rs. 50 lacs. 11. Mr. Sharma relied upon a judgment of this Court inCrompton Greaves Ltd. V/s. Assistant Commissioner of Income Tax,Circle 6 (2)[3]to submit that even if the reason for reopening does notspecifically state that there was any failure on the part of petitioner 2ITA No. 293 of 2012 Dt.22.08.20133(2015) 55 taxmann.com 59 (Bombay)3(2015) 55 taxmann.com 59 (Bombay) to disclose fully and truly all material facts necessary for itsassessment for the relevant assessment year, it will not be fatal tothe assumption of jurisdiction under Sections 147 and 148 of theAct. We would certainly agree with Mr. Sharma but as held inCrompton Greaves Ltd. (Supra), this is subject to the rider thatthere must be cogent and clear indication in the reasons supplied,that in fact there was failure on the part of the assessee to disclosefully and truly all the material facts necessary for its assessment. Ifthe factum of failure to disclose can be culled out from the reasonsin support of the notice seeking to reopen assessment, that willcertainly not be fatal to the assumption of jurisdiction underSections 147 and 148 of the Act. The Court held “However, if fromthe reasons, no case of failure to disclose is made out, then certainlythe assumption of jurisdiction under Sections 147 and 148 of theAct would be ultra vires, being in excess of the jurisdictionalrestraints imposed by the first proviso to Section 147 of the Act” . 12.One thing is very clear from the reasons recorded that thereis nothing to indicate that there was non disclosure by the assesseeof any material facts. Since the reasons do not indicate the failureon the part of assessee to disclose fully and truly all material facts,on this ground alone, the impugned notice dated 23[rd] March, 2021 has to be quashed and set aside. 13.Moreover, the Assessing Officer has issued notice beforepassing assessment order to which Petitioner has respondedproviding all documents including the share purchase agreementand the Assessing Officer has passed the assessment orderaccepting the returned income. Therefore, this issue has also beendiscussed and considered by the Assessing Officer before passingassessment order. To reopen an assessment based on the samematerial to take a different view, is not permissible as held time andagain by various Courts. has to be quashed and set aside. 13.Moreover, the Assessing Officer has issued notice beforepassing assessment order to which Petitioner has respondedproviding all documents including the share purchase agreementand the Assessing Officer has passed the assessment orderaccepting the returned income. Therefore, this issue has also beendiscussed and considered by the Assessing Officer before passingassessment order. To reopen an assessment based on the samematerial to take a different view, is not permissible as held time andagain by various Courts. 14. In the order dated 15[th] December, 2021 order disposing theobjections which is impugned in the Petition, the jurisdictionalAssessing Officer states, in the original assessment, the AssessingOfficer has missed to take into consideration law laid down by thePunjab & Haryana High Court and there was nothing to show thatthis decision was brought to his notice. As held in Calcutta DiscountCo. Ltd. vs. Income Tax Offcer[4]there can be no doubt that duty ofdisclosing of primary facts relevant to the decision of the questionbefore the assessing authority lies on the assessee. The duty,however, does not extend beyond the full and true disclosure of all4(1961) 41 ITR 191 (SC) primary facts. Once, the primary facts are before the assessingauthority, he requires no further assistance by way of disclosure. Itis for him to decide what inference of facts can be reasonably drawnand what legal inference ultimately to be drawn. It is not forsomebody else to tell the assessing authority the inferenceswhether of facts or law should be drawn. The relevant portion of the Calcutta Discount Co. (supra) reads as under: Before we proceed to consider the materials on record tosee whether the appellant has succeeded ,in showing that theIncome-tax Officer could have no reason, on the materials beforehim, to believe that there had been any omission to disclosematerial facts, as mentioned in the section, it is necessary toexamine the precise scope of disclosure which the sectiondemands. The words used are " omission or failure to disclosefully and truly all material facts necessary for his assessmentfor that year ". It postulates a duty on every assessee to disclosefully and truly all material facts necessary for his assessment.What facts are material, and necessary for assessment willdiffer from case to case. In every assessment proceeding, theassessing authority will, for the purpose of computing ordetermining the proper tax due from an assessee, require toknow all the facts which help him in coming to the correctconclusion. From the primary facts in his Possession, whetheron disclosure by the assessee, or discovered by him on the basisof the facts disclosed, or otherwise-the assessing authority hasto draw inferences as regards certain other facts; andultimately, from the primary facts and the further facts inferredfrom them, the authority has to draw the proper legalinferences, and ascertain on a correct interpretation of thetaxing enactment, the proper tax leviable. Thus, when aquestion arises whether certain income received by an assesseeis capital receipt, or revenue receipt, the assessing authorityhas to find out what primary facts have been proved, what otherfacts can be inferred from them, and taking all these together, todecide what the legal inference should be. There can be no doubt that the duty of disclosing all theprimary facts relevant to the decision of the question before theassessing authority lies on the assessee. To meet a possiblecontention that when some account books or other evidence hasbeen produced, there is no duty on the assessee to disclosefurther facts, which on due diligence, the Income-tax Officermight have discovered, the Legislature has put in the There can be no doubt that the duty of disclosing all theprimary facts relevant to the decision of the question before theassessing authority lies on the assessee. To meet a possiblecontention that when some account books or other evidence hasbeen produced, there is no duty on the assessee to disclosefurther facts, which on due diligence, the Income-tax Officermight have discovered, the Legislature has put in the Explanation, which has been set out above., In view of theExplanation, it will not be open to the assessee to say, forexample-" I have produced the account books and thedocuments: You, the assessing officer examine them, and findout the facts necessary for your purpose: My duty is done withdisclosing these account-books and the documents". Hisomission to bring to the assessing authority's attention theseparticular items in the account books, or the particular portionsof the documents, which are relevant, amount to "omission todisclose fully and truly all material facts necessary for hisassessment." Nor will he be able to contend successfully that bydisclosing certain evidence, he should be deemed to havedisclosed other evidence, which might have been discovered bythe assessing authority if he had pursued investigation on thebasis of what has been disclosed. The Explanation to the section,gives a quietus to all such contentions; and the position remainsthat so far as primary facts are concerned, it is the assessee'sduty to disclose all of them-including particular entries inaccount books, particular portions of documents anddocuments, and other evidence, which could have beendiscovered by the assessing authority, from the documents andother evidence disclosed. Does the duty however extend beyond the full and truthfuldisclosure of all primary facts ? In our opinion, the answer tothis question must be in the negative. Once all the primary factsare before the assessing authority, he requires no furtherassistance by way of disclosure. It is for him to decide whatinferences of facts can be reasonably drawn and what legalinferences have ultimately to be drawn. It is not for somebodyelse-far less the assessee--to tell the assessing authority whatinferences-whether of facts or law should be drawn. Indeed,when it is remembered that people often differ as regards whatinferences should be drawn from given facts, it will bemeaningless to demand that the assessee must disclose whatinferences-whether of facts or law-he would draw from theprimary facts. If from primary facts more inferences than one could bedrawn, it would not be possible to say that the assessee shouldhave drawn any particular inference and communicated it tothe assessing authority. How could an assessee be charged withfailure to communicate an inference, which he might or mightnot have drawn? It may be pointed out that the Explanation to the sub- sectionhas nothing to do with " inferences " and deals only with thequestion whether primary material facts not disclosed couldstill be said to be constructively disclosed on the ground thatwith due diligence the Income-tax Officer could have discoveredthem from the facts actually disclosed. The Explanation has notthe effect of enlarging the section, by casting a duty on theassessee to disclose " inferences "-to draw the proper inferencesbeing the duty imposed on the Income-fax Officer. We have therefore come to the Conclusion that while the duty ofthe assessee is to disclose fully and truly all primary relevantfacts, it does not extend beyond this. \\ It may be pointed out that the Explanation to the sub- sectionhas nothing to do with " inferences " and deals only with thequestion whether primary material facts not disclosed couldstill be said to be constructively disclosed on the ground thatwith due diligence the Income-tax Officer could have discoveredthem from the facts actually disclosed. The Explanation has notthe effect of enlarging the section, by casting a duty on theassessee to disclose " inferences "-to draw the proper inferencesbeing the duty imposed on the Income-fax Officer. We have therefore come to the Conclusion that while the duty ofthe assessee is to disclose fully and truly all primary relevantfacts, it does not extend beyond this. \\ The position, therefore, is that if there were in fact somereasonable grounds for thinking that there had been any non-disclosure as regards any primary fact, which could have amaterial bearing on the question of "under assessments thatwould be sufficient to give jurisdiction to the Income-tax Officerto issue the notice under Section 34. Whether these groundswere adequate or not for arriving at the conclusion that therewas a non disclosure of material facts would not be open for thecourt's investigation. In other words, all that is necessary togive this special jurisdiction is that the Income- tax officer hadwhen he assumed jurisdiction some prima facie grounds forthinking that there had been some non- disclosure of materialfacts. ..............… Both the conditions, (i) the Income-tax Offcer havingreason to believe that there has been under assessment and (ii)his having reason to believe that such under assessment hasresulted from nondisclosure of material facts, must co-existbefore the Income-tax Offcer has jurisdiction to startproceedings after the expiry of 4 years. The argument that theCourt ought not to investigate the existence of one of theseconditions, viz., that the Income-tax Officer has reason tobelieve that under assessment has resulted from non-disclosure of material facts, cannot therefore be accepted. (emphasis supplied) 15.Moreover, as held in Gemini Leather Stores (supra), even fora moment, we accept that the Assessing Officer has missed to takenote of the law laid down by the Punjab & Haryana Court, still thatcannot be a reason to take recourse to reopen to remedy the errorresulting from this oversight. Relevant portion of Gemini Leather Stores (supra) reads as under: “.......... In the case before us the assessee did not disclose thetransactions evidenced by the drafts which the Income- TaxOfficer discovered. After this discovery the Income-tax Officerhad in his possession all the primary facts, and it was for himto make necessary enquiries and draw proper inferences as to whether the amounts invested in the purchase of the draftscould be treated as part of the total income of the assesseeduring the relevant year. This the Income-tax officer did notdo. It was plainly a case of oversight, and it cannot be said thatthe income chargeable to tax for the relevant assessment yearhad escaped assessment by reason of the omission or failure onthe part of the assessee to disclose fully and truly all materialfacts. The Income tax officer had all the material facts beforehim when he made the original assessment. He cannot nowtake recourse to Section 147 (a) to remedy the error resultingfrom his own oversight.” 16. In the circumstances, we have no hesitation in holding that the impugned notice dated 23[rd] March, 2021 requires to be quashed and set aside. 17.Petition disposed accordingly in terms of prayer clause (a)which reads as under: 16. In the circumstances, we have no hesitation in holding that the impugned notice dated 23[rd] March, 2021 requires to be quashed and set aside. 17.Petition disposed accordingly in terms of prayer clause (a)which reads as under: (a) That this Court be pleased to issue a writ ofcertiorari or any other writ, order or directionunder Article 226 of the Constitution of Indiacalling for the records of the case leading to theissue of the impugned notice and passing of theimpugned order and after going through the sameand examining the question of legality thereofquash, cancel and set aside the impugned notice(Exhibit G) dated 23[rd] March, 2021 and impugnedorder (Exhibit M) dated 15[th] December, 2021. 18.No order as to costs. (N. J. JAMADAR, J.) (K. R. SHRIRAM, J.)