Chittewan v. Wp 3110-19.Doc

Digitallysigned byRAJESHRAJESHVASANTVASANTCHITTEWANCHITTEWANDate:2023.02.2314:56:38+0530 Chittewan IN THE HIGH COURT OF JUDICATURE AT BOMBAY ORDINARY ORIGINAL CIVIL JURISDICTION WRIT PETITION NO.3110 OF 2019 Kandoi Fabrics P. Ltd. }406, 4[th] Floor, 33A, Lotus House, }New Marine Lines, }Mumbai-400 020}…Petitioner Versus 1. The Assistant Commissioner of }Income-tax, Circle-4(2)(2),}having office at }Room No.640, 6[th] Floor,}Aayakar Bhavan, M.K. Road,}New Marine Lines,}Mumbai-400 020}2. The Pr. Commissioner of}Income-4, having office at }Room No.629, 6[th] Floor,}Aayakar Bhavan,}M.K. Road, }Mumbai-400 020.}3. Union of India}having its office at}2[nd] Floor, Aayakar Bhavan }Annexe, New Marine Lines, }Mumbai-400 020.}…Respondents *** Mr. Vipul Joshi a/w Ms. Dinkle Hariya i/b Ms. Rashmi Vyas for thePetitioner. Mr. Suresh Kumar for the Respondents. *** CORAM : DHIRAJ SINGH THAKUR & KAMAL KHATA, JJ. DATE : 9 FEBRUARY 2023 Per DHIRAJ SINGH THAKUR, J. . The Petitioner challenges the notice dated 29 March 2019issued under Section 148 of the Income Tax Act, 1961 (“the Act”)seeking to reopen the assessment on the ground that incomechargeable to tax for the assessment year 2012-13 had escapedassessment within the meaning of Section 147 of the Act. 2Briefly stated the material facts are as under : The Petitioner states that it is engaged in the business ofmanufacturing HDPE/PP woven sacks, bags, laminated,unlaminated fabrics etc. On 25 March 2010, the Petitioner claimsthat it subscribed to 7,50,000 redeemable preference shares of GRInfratech Private Limited (“GRIPL”) having face value of Rs.10each, for a total consideration of Rs.75,00,000/-. The paymentdone is stated to be shown through banking channel. 3During the relevant assessment year, on 10 August 2011, thePetitioner states that it sold these 7,50,000 redeemable preferenceshares to M/s Janitor Distributors Pvt. Ltd (“JDPL”). An amount of Rs.75,00,000/- was received on account of such sale on 11 August2011 through the banking channel. The Petitioner states that thistransaction was duly reflected by the Petitioner in its books andalso in the financial statements and tax audit report for theassessment year 2012-13. 4A return of income came to be filed by the Petitioner for thesaid assessment year on 2 September 2012, declaring a totalincome of Rs.7,36,85,670/-. The Petitioner’s case was selected forscrutiny. It is stated that the assessing officer during the scrutinyassessment issued a notice under Section 147(1) dated 10September 2014, requiring the Petitioner to produce inter alia thefollowing : “Details of other income, particulars/nature of income andamount. In case, the other income includes profit on sale ofinvestments/shares/capital assets, details and working ofcapital gain or such income along with the evidences are tobe submitted.” 5The Petitioner claimed that it sent a reply to the said notice, in which among others, the factum of redemption of preference sharesof GR Infratech Pvt. Ltd. was shown. Finally an Order under Section143(3) came to be passed on 2 January 2015. 6A notice under Section 148 of the Act dated 29[th] March 2019came to be issued by the assessing officer seeking to reopen the Chittewan assessment for the assessment year 2012-13 on the ground that hehad ‘reason to believe’ that income chargeable to tax for the saidassessment year had escaped assessment within the meaning ofSection 147 of the Act. 7The reasons recorded for reopening are as under : Reasons for reopening 5The Petitioner claimed that it sent a reply to the said notice, in which among others, the factum of redemption of preference sharesof GR Infratech Pvt. Ltd. was shown. Finally an Order under Section143(3) came to be passed on 2 January 2015. 6A notice under Section 148 of the Act dated 29[th] March 2019came to be issued by the assessing officer seeking to reopen the Chittewan assessment for the assessment year 2012-13 on the ground that hehad ‘reason to believe’ that income chargeable to tax for the saidassessment year had escaped assessment within the meaning ofSection 147 of the Act. 7The reasons recorded for reopening are as under : Reasons for reopening As per the information received in this office, it is seenthat high value cash was deposited in the bankaccounts to several individual/proprietorship concernlike Das Brother, Utsav Trader, Maa Kali Enterprises,Blosom Traders etc. which further transferimmediately to M/s Stylo Mania Fashion Pvt. Ltd., M/sIshwari Fashion Suppliers Pvt. Ltd., M/s LifeFashionwear Suppliers Pvt. Ltd. and subsequently theaccounts were closed in very short span of time(Opened of June, 2011 and closed on June, 2011)followed by immediate transfer to several other bankaccounts. These appear to be as pooling accounts forlayering and routing funds. 2. In order to examine nature and creditworthiness oftransactions, summons was issued to the principalofficer of the above concerns. However, the summonswas returned un-served by the department of post.An inspector was also deputed to conduct spotenquiry about existence and business activity of theabove entity/companies. Summons was also issued toother intermediary companies but no reply againstthe same has been received. 3. On perusal of return filed by aboveentities/companies and intermediate companies, it islearnt that most are either non-filler or filled his ITRshowing meager income. Apparently the abovecompanies were running on papers only and their bank accounts were used for layering of funds.Accordingly, Cash Trail/Money Train was prepared. 4. On perusal of list of the beneficiaries, it is seen thatduring A.Y. 2012-13 (FY 2011-12) M/s Kandoi FabricsPvt. Ltd (AAACK3305M) is also a beneficiary of thisCash Trail/Money Trail; the details of which are givenbelow. 8Objections were filed to the reopening, in which it was urgedthat the assessing officer had issued the notice mechanically andthat the reasons did not reflect what was the information that wasnot disclosed by the assessee, which, thus, made the proceedingsunsustainable in law. It was also stated in the objections that theissue pertaining to Rs.75,00,000/- received by the Petitioner fromtransferee company, namely, M/s Janitor Distributors Pvt. Ltd. hadbeen gone into in the assessment proceedings under Section 143(3)and, therefore, it was urged that reopening of the assessment on asimilar ground would be nothing but a ‘change of opinion’, whichwas impermissible in view of the judgment of the Apex Court in thecase of Commissioner of Income-tax, Delhi Vs. Kelvinator of IndiaLtd.[1] 1[2010] 187 Taxman 312 (SC) 10The reopening is challenged by the Petitioner primarily on theground that the jurisdictional requirement for reassessment asprescribed under Section 147 had not been met with by theassessing officer. It was urged that the reasons recorded did not atall reflect that there has been any failure to disclose fully and trulyany material facts necessary for assessment during originalassessment proceedings. Secondly, it was urged that there was nobasis for the assessing officer for his ‘reason to believe’ that incomehad escaped assessment inasmuch as there was no tangiblematerial with the assessing officer and that the reopening wasnothing but a change of opinion. 1[2010] 187 Taxman 312 (SC) 10The reopening is challenged by the Petitioner primarily on theground that the jurisdictional requirement for reassessment asprescribed under Section 147 had not been met with by theassessing officer. It was urged that the reasons recorded did not atall reflect that there has been any failure to disclose fully and trulyany material facts necessary for assessment during originalassessment proceedings. Secondly, it was urged that there was nobasis for the assessing officer for his ‘reason to believe’ that incomehad escaped assessment inasmuch as there was no tangiblematerial with the assessing officer and that the reopening wasnothing but a change of opinion. 11In the reply filed by the revenue, it has not been denied at allthat the Petitioner had sold 7,50,000 redeemable preference sharesto JDPL as can be seen from a reply para 3.3 of the reply affidavit.Equally so, para 3.4 of the reply affidavit does not in any mannercontradict the fact that audited financial statements and tax auditreport of the Petitioner along with computation of income for theassessment year 2012-13 were on record and that the transactionswere duly recorded in its books. What is stated in reply is that“These facts are as per the return of income filed by the assesseeand based on facts available on record. Therefore, no comments are offered.” 12Section 147 of the Act authorizes the assessing officer toreopen the assessment, which falls broadly under two categoriesi.e. reopening within a period of four years from the end of therelevant assessment year and a reopening after four years from theend of the relevant assessment year. In so far as the reopeningwithin a period of four years from the end of the relevantassessment year is concerned, the A.O. can reopen if he has reasonto believe that income chargeable to tax has escaped assessment.Beyond the period of four years, where an assessment underSection 143(3) of the Act has taken place the A.O. has toadditionally be satisfied that the assessee had failed to disclose fullyand truly all material facts necessary for assessment during theoriginal assessment proceedings. 13In the present case, admittedly the assessment is sought to bereopened beyond the period of four years from the end of therelevant assessment year, i.e. 2012-13. Therefore, bothjurisdictional conditions had to be satisfied by the assessing officer. 14It is settled law that the validity of the reassessment proceedings have to be decided at the touchstone of the reasonsrecorded, which can be neither added to nor substitutedsubsequently by way of reply affidavit. 15On a reading of the reasons recorded, it is clear that not evena murmur has been made by the assessing officer regarding anyfailure on the part of the Petitioner to disclose fully and truly anymaterial facts necessary for assessment, which if disclosed, wouldprevent the escapement of income. In Hindustan Lever Ltd. Vs.R.B. Wadkar, Assistant Commissioner of Income-Tax[2], it has held as under : “…...The reasons recorded should be clear andunambiguous and should not suffer from any vagueness.The reasons recorded must disclose his mind. The reasonsare the manifestation of the mind of the Assessing Officer.The reasons recorded should be self-explanatory andshould not keep the assessee guessing for the reasons.Reasons provide the link between conclusion andevidence. The reasons recorded must be based onevidence. The Assessing Officer, in the event of challengeto the reasons, must be able to justify the same based onmaterial available on record. He must disclose in thereasons as to which fact or material was not disclosed bythe assessee fully and truly necessary for assessment ofthat assessment year, so as to establish the vital linkbetween the reasons and evidence. That vital link is thesafeguard against arbitrary reopening of the concludedassessment. 16In the aforementioned case, the assessing officer had notmentioned in the reasons recorded the fact that there was anyfailure to disclose fully and truly any material facts by the assessee and the Court without touching upon any other ground, proceededto allow the Petition and set aside the notice impugned thereinholding that the jurisdictional requirement of proiviso to Section147 of the Act had not been complied with by the assessing officer. 17In the present case also, the assessing officer has not recordedthat there was any failure on the part of the assessee to disclosefully and truly the material facts, which were otherwise necessaryfor assessment. Therefore, the jurisdictional conditions for exerciseof power of reassessment under Section 147 of the Act beyond theperiod of four year had not been satisfied by the assessing officer.The proceedings impugned are, therefore, liable to be set aside onthis ground alone. 18Notwithstanding the above, the assessing officer could haveproceeded to reopen the assessment proceedings only if he had‘reason to believe’ that income had escaped assessment. InCommissioner of Income-tax Vs. Kelvinator of India Ltd[3], theSupreme Court held that while the assessing officer has power toreopen, he had no power to review and that the reassessment has tobe based on fulfillment of certain pre-conditions and that if concept3[2010] 320 ITR 561 (SC) of ‘change of opinion’ is removed, then in the garb of reopening ofthe assessment, review would take place. It was further held thatthe assessing officer has the power to reopen, provided there was atangible material to come to the conclusion that income hadescaped assessment and further that reasons must have live linkwith the formation of the belief. 19Since an Order under Section 143(3) had been passed,pursuant to a query raised, which was responded to, it must bepresumed that the Order under Section 143(3) had considered allissues notwithstanding the fact that no specific mention is made inthat regard in the Order of assessment. 20In Aroni Commercials Ltd. Vs. Deputy Commissioner ofIncome-tax-2(1)[4], it was held : “14……….We are of the view that once a query is raisedduring the assessment proceedings and the assesseehas replied to it, it follows that the query raised was asubject of consideration of the Assessing Officer whilecompleting the assessment. It is not necessary thatan assessment order should contained reference and/or discussion to disclose its satisfaction in respect ofthe query raised. If an Assessing Officer has to recordthe consideration bestowed by him on all issues raisedby him during the assessment proceeding even wherehe is satisfied then it would be impossible for theAssessing Officer to complete all the assessmentswhich are required to be scrutinized by him under 20In Aroni Commercials Ltd. Vs. Deputy Commissioner ofIncome-tax-2(1)[4], it was held : “14……….We are of the view that once a query is raisedduring the assessment proceedings and the assesseehas replied to it, it follows that the query raised was asubject of consideration of the Assessing Officer whilecompleting the assessment. It is not necessary thatan assessment order should contained reference and/or discussion to disclose its satisfaction in respect ofthe query raised. If an Assessing Officer has to recordthe consideration bestowed by him on all issues raisedby him during the assessment proceeding even wherehe is satisfied then it would be impossible for theAssessing Officer to complete all the assessmentswhich are required to be scrutinized by him under Section 143(3) of the Act. Moreover, one must notforget that the manner in which an assessment orderis to be drafted is the sole domain of the AssessingOfficer and it is not open to an assessee to insist thatthe assessment order must record all the questionsraised and the satisfaction in respect thereof of theAssessing Officer. The only requirement is that theAssessing Officer ought to have considered theobjection now raised in the grounds for issuing noticeunder Section 148 of the Act, during the originalassessment proceedings. There can be no doubt in thepresent facts as evidenced by a letter dated 8September 2012 the very issue of taxability of sale ofshares under the head capital gain or the head profitsand gains from business was a subject matter ofconsideration by the Assessing Officer during theoriginal assessment proceedings leading to an orderdated 12 October 2010. It would therefore, follow thatthe reopening of the assessment by impugned noticedated 28 March 2013 is merely on the basis of changeof opinion of the Assessing Officer from that heldearlier during the course of assessment proceedingleading to the order dated 12 October 2010. Thischange of opinion does not constitute justificationand/or reasons to believe that income chargeable totax has escaped assessment.” 21Testing the facts of the present case on the touchstone of thelaw as discussed hereinabove, it can be seen that during the courseof the earlier proceedings under Section 143(3), the Petitioner in itsNote 10 annexed with the Auditor's report dated 24 August 2012,had shown Rs.75,00,000/- on account of redemption of preferenceshares of G.R. Infratech Pvt. Ltd. 22The assessing officer in his notice issued under Section 142(1)dated 10 September 2014 required the Petitioner to submit various details, which included profit on sale of investments/shares/capitalassets, details and working of capital gain or such income alongwith the evidences. In response to the said notice, the Petitionersubmitted its reply giving details of the investments and statedtherein that during the year, there was no purchase and sale of theshares, except redemption of preference shares of M/s G.R.Infratech Pvt. Ltd. It, thus, appears to be clear that the issuepertaining to redemption of preference shares must be deemed tohave been considered while passing the Order of assessment underSection 143(3) by the assessing officer. 23In fact, the Supreme Court in Kelvinator of India Ltd (supra)had upheld the Full Bench decision of Delhi High Court inCommissioner of Income-tax Vs. Kelvinator of India Ltd.[5]. In thesaid judgment, the Full Bench of Delhi High Court held : 23In fact, the Supreme Court in Kelvinator of India Ltd (supra)had upheld the Full Bench decision of Delhi High Court inCommissioner of Income-tax Vs. Kelvinator of India Ltd.[5]. In thesaid judgment, the Full Bench of Delhi High Court held : “ We also cannot accept submission of Mr. Jollyto the effect that only because in the assessmentorder, detailed reasons have not been recorded onanalysis of the materials on the record by itself mayjustify the Assessing Officer to initiate a proceedingunder Section 147 of the Act. The said submission isfallacious. An order of assessment can be passedeither in terms of sub-section (1) of Section 143 orsub-section (3) of Section 143. When a regular orderof assessment is passed in terms of the said sub-section (3) of Section 143 a presumption can be raisedthat such an order has been passed on application ofmind. …………………..” Chittewan 24Be that as it may, the issue with regard to source ofRs.75,00,000/- having been explained as redemption of preferenceshares and having been considered at the time of scrutinyassessment under Section 143(3) of the Act, the reassessmentproceedings in the present case would be nothing but a change ofopinion, and, therefore, without jurisdiction. 25For the reasons mentioned above, the Petition is allowed.Notice dated 29 March 2019 issued by Respondent No.1 underSection 148 of the Act, as also the Order dated 4 October 2019 andfurther communication dated 5 November 2019 are quashed andset aside. (KAMAL KHATA, J.) (DHIRAJ SINGH THAKUR, J.)