Dona Paula, Goa v. Assistant Commissioner Of

1 WP No.166 of 2007 Suchitra IN THE HIGH COURT OF BOMBAY AT GOA WRIT PETITION NO. 166 OF 2007 1. Audhut Timblo Indian Inhabitant, residing at La Marvel Colony, Dona Paula, Goa. 2. Anju Timblo Indian Inhabitant, residing at La Marvel Colony, Dona Paula, Goa. .... Petitioners Versus 1. Assistant Commissioner of Income Tax, Central Circle, Panaji, Goa, having his office at 2nd floor, Pundalik Niwas, Rua de Ourem, Panaji, Goa. 2. Joint Commissioner of Income Tax, Central Range, Panaji, Goa, having his office at 2nd floor, Pundalik Niwas, Rua de Ourem, Panaji, Goa. 3. Union of India, New Delhi, India. … Respondents Mr. S. S. Kantak, Senior Advocate along with Ms. V. Palienkar, Advocate for the Petitioners. Ms. S. Linhares, Standing Counsel for the Respondents. 2 WP No.166 of 2007 Coram:- M.S. SONAK & C. V. BHADANG, JJ. 27th November, 2019 Date:- ORAL JUDGMENT(Per M. S. Sonak, J.) Heard Mr. S. S. Kantak, Senior Advocate along with Ms. V.Palienkar, Advocate for the Petitioners and Ms. S. Linhares, StandingCounsel for Income Tax Department, for the Respondents. 2. Challenge in this petition is to the following:- a) Notice dated 18.10.2006 issued under Section 148 of the Income Tax Act, 1961 (I.T. Act) to the petitioners for theassessment year 2002-03.assessment year 2002-03. b) Order dated 31.01.2007 made by the Assistant Commissionerof Income Tax rejecting petitioners' objections to the reasonsrecorded for reopening of assessment in pursuance of theaforesaid notice dated 18.10.2006.of Income Tax rejecting petitioners' objections to the reasonsrecorded for reopening of assessment in pursuance of theaforesaid notice dated 18.10.2006. 3. Mr. Kantak, learned Senior Advocate for the petitioners submitsthat in the present case, there is overwhelming material available onrecord which establishes that no income had escaped assessment for theassessment year 2002-03. He submits that the income of `10.33 3 WP No.166 of 2007 Crores, which is alleged to have escaped assessment was the subjectmatter of the order dated 27.09.2002 made under Section 158 BC ofthe I.T. Act, in which, a block assessment was carried out and this veryincome was directed to be added to the income of the petitioners asunexplained cash credits. He points out that the order dated27.09.2002 was however set aside by the Commissioner (Appeals) videorder dated 13.07.2006. He points out that even for the assessmentyear 2002-03, regular assessment was undertaken and culminated inthe issuance of orders dated 21.03.2005 under Section 143(3) of theI.T. Act. In the course of these assessment proceedings as well,information was sought for in respect of this very income and uponfurnish of such information, the assessment orders came to be made.Mr. Kantak submits that in these circumstances, there was absolutelyno material on record for the assessing officer to have any reason tobelieve that this particular income had escaped assessment. In theabsence of any such material, the issuance of notice dated 18.10.2006is clearly in excess of jurisdiction and warrants interference. 4. Mr. Kantak relies upon the following decisions in support of theaforesaid contentions:- (a) Smt. Mira Ananta Naik and others vs. Deputy Commissionerof Income Tax (Investigation) and others – (2009) 183 TAXMAN0040 (Bom); 4 WP No.166 of 2007 (b) GKN Sinter Metals Ltd. vs. Ms. Ramapriya Raghavan,Assistant Commissioner of Income Tax and others – (2015) 232TAXMAN 0386 (Bom); and (c) Asian Paints Ltd. vs. Deputy Commissioner of Income Tax –(2009) 308 ITR 195 (Bom). 4. Mr. Kantak relies upon the following decisions in support of theaforesaid contentions:- (a) Smt. Mira Ananta Naik and others vs. Deputy Commissionerof Income Tax (Investigation) and others – (2009) 183 TAXMAN0040 (Bom); 4 WP No.166 of 2007 (b) GKN Sinter Metals Ltd. vs. Ms. Ramapriya Raghavan,Assistant Commissioner of Income Tax and others – (2015) 232TAXMAN 0386 (Bom); and (c) Asian Paints Ltd. vs. Deputy Commissioner of Income Tax –(2009) 308 ITR 195 (Bom). 5.Mr. Kantak, further submitted that after the institution of thepresent petition, the department's appeal, against order dated13.07.2006 made by the Commissioner (Appeals), also came to bedismissed by the Income Tax Appellate Tribunal (ITAT) vide orderdated 03.12.2009. Mr. Kantak submits that further, the parties towhom the amount of `10.33 Crores was owed, instituted arbitrationproceedings claiming such amount and secured an award in theirfavour. He points out that in pursuance of such award, the petitioners,after seeking permission from the Reserve Bank of India, remitted suchamount to such parties. Mr. Kantak submits that all these subsequentevents clearly established that the amount of `10.33 Crores, was not atall the petitioners' income, but it was only a liability, which wasdisclosed to the respondents from time to time and which liability, thepetitioners, have ultimately discharged in accordance with law. Mr.Kantak submits that these are additional reasons to strike down theimpugned notice dated 18.10.2006 and the impugned order dated31.01.2007. For all these reasons Mr. Kantak submits that thispetition may be allowed. 5 WP No.166 of 2007 6. Ms. Linhares, learned Standing Counsel for the Departmentsubmits that the subsequent events referred to by Mr. Kantak cannotbe taken into consideration for determining the validity of theimpugned notice dated 18.10.2006 and the impugned order dated31.01.2007. She submits that the validity of the impugned notice andimpugned order has to be judged from the material available on recordat the time when the impugned notice was issued or when theimpugned order was made. She therefore submits that the so calledsubsequent developments are clearly irrelevant for deciding the issuesraised in the present petition. 7. Ms. Linhares submits that in the present case, the relevantassessment year is 2002-03. She submits that the order dated27.09.2002 made under Section 158 BC of the I.T. Act admittedly,did not relate to this assessment year. She submits that even if certainamounts may not have qualified as income for the years for which theblock assessment was carried out, this amount of `10.33 Crorescertainly qualifies to be treated as income for the relevant assessmentyear 2002-03 for the reasons quite cogently set out in thecommunication addressed to the petitioners furnishing reasons. Shetherefore submits that the orders dated 27.09.2002 and 13.07.2006 arequite irrelevant and cannot form the basis for questioning theimpugned notice or the impugned order. 6 WP No.166 of 2007 8.Ms. Linhares submits that the precise character of the amount of`10.33 Crores needs to be investigated and full opportunity will beafforded to the petitioners to give their say consequent upon reopeningof the assessment proceedings. She therefore submits that the presentpetition may be dismissed since, the challenge in the petition is only tothe notice seeking to reopen assessment, which had clearly escapedassessment, in the facts and circumstances of the present case. For allthese reasons Ms. Linhares submits that this petition may be dismissed. 9.The rival contentions now fall for our determination. 6 WP No.166 of 2007 8.Ms. Linhares submits that the precise character of the amount of`10.33 Crores needs to be investigated and full opportunity will beafforded to the petitioners to give their say consequent upon reopeningof the assessment proceedings. She therefore submits that the presentpetition may be dismissed since, the challenge in the petition is only tothe notice seeking to reopen assessment, which had clearly escapedassessment, in the facts and circumstances of the present case. For allthese reasons Ms. Linhares submits that this petition may be dismissed. 9.The rival contentions now fall for our determination. 10.The petitioners have consistently claimed and even disclosed tothe petitioners that they had agreements with certain parties, in termsof which, they had accepted certain advances/booking amountstowards room nights for the period between October, 1994 toOctober, 1997 in some cases and 01.10.1997 to 31.05.2001 in someother cases. It was also the case of the petitioners that such agreementswere renewed from time to time however, for the present, we are notreally concerned with the issue of renewals. The total of such amountcame to approximately `10.33 Crores. 11.Some time in the year 2000, proceedings under Section 132 ofthe I.T. Act were undertaken and a search was made at the office and 7 WP No.166 of 2007 residential premises of the petitioners. In pursuance of the same, ablock assessment was carried out which resulted in the making of orderdated 27.09.2002 under Section 158 BC of the I.T. Act. By this order,an addition of `10.33 Crores was made to the income of thepetitioners as unexplained cash credits. 12.The petitioners, appealed against the order dated 27.09.2002 tothe Commissioner (Appeals), who, vide order dated 13.07.2006, setaside the order dated 27.09.2002, thereby deleting the addition of`10.33 Crores. On 13.09.2006, the respondents, appealed against theorder dated 13.07.2006 to the ITAT. 13.Soon thereafter i.e. on 18.10.2006, the respondents issued theimpugned notice invoking the provisions of Sections 147/148 of theI.T. Act stating that this very income of `10.33 Crores had escapedassessment and therefore reassessment or reopening of assessment wasproposed for assessment year 2002-03. On 02.11.2006, the petitionerssought for reasons, which were furnished on 28.11.2006. Theobjections raised by the petitioners were to the reopening of theassessment for assessment year 2002-03 were rejected by the firstrespondent vide the impugned order dated 31.01.2007. Hence thepresent petition questioning the impugned notice dated 18.10.2006and the impugned order dated 31.01.2007. 8 WP No.166 of 2007 14.At this stage it is also necessary to note that in respect of theregular assessment for assessment year 2002-03, the respondents, hadissued notice to the petitioners under Section 142 of the I.T. Act,seeking inter alia particulars and clarifications with regard to this veryincome of `10.33 Crores, which notices are dated 07.02.2005 and18.03.2005. The petitioners have placed on record that necessaryparticulars as well as clarifications were furnished by the petitioners inwriting and petitioners' representative even appeared before the firstrespondent on 18.03.2005 to explain the status and character of suchamounts. Based upon all this, orders were made under Section 143(3)of the I.E. Act by the first respondent assessing the income forassessment year 2002-03, in respect of both the petitioners. 15.From the aforesaid it is quite clear that on the date when theimpugned notice dated 18.10.2006 was issued by the respondentsseeking to reopen the assessment on the ground that the amount of`10.33 Crores had escaped assessment, the following orders hadalready been made:- a) Order dated 27.09.2002 under Section 158 BC of the I.T. Act, bywhich the amount of `10.33 Crores was directed to be added to theincome of the petitioners as unexplained cash credits; 15.From the aforesaid it is quite clear that on the date when theimpugned notice dated 18.10.2006 was issued by the respondentsseeking to reopen the assessment on the ground that the amount of`10.33 Crores had escaped assessment, the following orders hadalready been made:- a) Order dated 27.09.2002 under Section 158 BC of the I.T. Act, bywhich the amount of `10.33 Crores was directed to be added to theincome of the petitioners as unexplained cash credits; b) Order dated 13.07.2006 by which the Commissioner (Appeals) hadset aside the aforesaid order dated 27.09.2002 and deleted the addition 9 WP No.166 of 2007 of `10.33 Crores for the block assessment; c) Orders dated 21.03.2005 under Section 143(3) of the I.T. Actmaking regular assessment in the assessment year 2002-03, in which,the explanation had been furnished by the petitioners, in respect ofthis amount of `10.33 Crores. 16.From the aforesaid, it is quire clear that this was not at all a casewhere it could be said that the amount of `10.33 Crores had in factescaped assessment for assessment year 2002-03. In order to issuenotices under Section 147/148 of the I.T. Act proposing to reopen theassessment, the respondents, must have reason to believe that theincome has escaped assessment. With the aforesaid facts, it can neverbe said that the amount of `10.33 Crores had indeed escapedassessment. Record indicates that this amount had in fact beenassessed at two stages i.e. at the stage of block assessment in terms ofSection 158 BC of the I.T. Act and regular assessment for theassessment year 2002-03, in terms of the orders dated 21.03.2005made under Section 143(3) of the I.T. Act. The most importantjurisdictional parameter for issuance of impugned notice dated18.10.2006, being absent, the impugned notice cannot be sustainedand is liable to be interfered with. 17.In Smt. Mira Ananta Naik and others (supra), in somewhat 10 WP No.166 of 2007 similar circumstances, the division bench of this court held that theissuance of notices under Section 147/148 of the I.T. Act, was anexercise in excess of jurisdiction. In that case on 16.01.1997, theassessment officer passed a block assessment order dated 31.12.1997under Section 158 BC of the I.T. Act. The assessee howeverchallenged the said order and the said order was quashed by the ITATvide order dated 07.06.1999. On 20.12.1999, the petitioners wereserved with notice under Section 148 of the I.T. Act. Reasons werefurnished to the petitioners but the objections were ultimately rejected. 18.In the aforesaid circumstances, the Division Bench of this Court,held that there was no basis for issuance of notice under Section 148 ofthe I.T. Act merely because the orders for block assessment had beenreversed by the Tribunal. The relevant discussion on the aforesaid issueis to be found in paragraphs 22 and 23, which read as under:-“22. For the present petition, it is not necessary to consider anddetermine or decide any larger issues or controversy. The factualsituation in the present case is undisputed. The search andseizure proceedings culminated in block assessment, which blockassessment was subject-matter of challenge at the instance of thepetitioners. A perusal of the order of the Tribunal would revealthat the Tribunal was called upon to decide the contentions,which have been raised in para 2 of one of its orders. One of the 11 WP No.166 of 2007 11 WP No.166 of 2007 contentions raised was that the assessment extends to incomedisclosed in regular proceedings before the assessment officer.The Tribunal has permitted authorities to make detailedsubmissions and thereafter in para 12 of the order has gone intothe details of the search proceedings. Thereafter, it consideredthe law on the point and subsequently held that the assessmentcannot be sustained and the appeal challenging the search andseizure deserves to be allowed. Reasons are contained in paras12 to 18 of the order passed by the Tribunal. The search andseizure proceedings were commented upon and it is worthwhilenoting that the orders were delivered on 7[th] June, 1999 andsubsequently, the Department challenged them under s. 260A ofthe IT Act but even that challenge in this Court has failed. 23. It is also disputed before us that the block assessment wascarried out and the block assessment was the subject-matter ofthe proceedings. Therefore, the notices which merely state thatthere is reason to believe that the income chargeable to tax forthe relevant assessment year has escaped assessment withoutanything more, cannot be said to be something which wouldenable the authorities to invoke s. 147 of the IT Act in thepeculiar facts of this case. The notices are identical and neitherany details of the income chargeable to tax are disclosed in the 12 WP No.166 of 2007 notice nor it has been set out as to how that can be termed ashaving escaped assessment within the meaning of s. 147. Thereasons supplied are recorded in an order sheet for the years inquestion. The reasons in the order-sheets and the same beingsupplied only after reminders to the Department. There ismuch substance in the contentions of Shri Nadkarni that thesearch having resulted in block assessment and the Departmenthaving resorted to s. 158BA to s. 158BC of the IT Act, it cannotbe said that the income escaped assessment. In theseproceedings the income was assessed and taxed after it wasbrought to the notice of the AO. Merely because the blockassessment was not upheld by the authorities under the IT Act,it cannot be reason enough in this case to invoke s. 147 of thesame. The income has not escaped assessment in the admittedfactual position. We are of the view that even the order sheetdoes not meet the requirement in law. The same merely sets outthat the seized material and inquiries with the assessee at thetime of search, reveal that the income as per particulars isunaccounted in the books of the seizure. Therefore, there isreason to believe that the income has escaped assessment. Thereasons clearly show that there is no reference to any blockassessment or the proceedings pursuant thereto.” 13 WP No.166 of 2007 19.According to us, the ruling in Smt. Mira Ananta Naik andothers (supra), completely supports the contentions raised by and onbehalf of the petitioners and on the basis of reasoning reflected therein,in this case as well, the impugned notice dated 18.10.2006 and theimpugned order dated 31.01.2007 deserve to be quashed. In this caseas well, block assessment orders have been made treating this amountas income vide order dated 27.09.2002. This order was howeverreversed by the Commissioner (Appeals) on 13.07.2006 and soonthereafter the respondents, proceeded to issue impugned notice dated18.10.2006, even though, there was really no material to suggest thatany income had escaped assessment. 13 WP No.166 of 2007 19.According to us, the ruling in Smt. Mira Ananta Naik andothers (supra), completely supports the contentions raised by and onbehalf of the petitioners and on the basis of reasoning reflected therein,in this case as well, the impugned notice dated 18.10.2006 and theimpugned order dated 31.01.2007 deserve to be quashed. In this caseas well, block assessment orders have been made treating this amountas income vide order dated 27.09.2002. This order was howeverreversed by the Commissioner (Appeals) on 13.07.2006 and soonthereafter the respondents, proceeded to issue impugned notice dated18.10.2006, even though, there was really no material to suggest thatany income had escaped assessment. 20.Though, it is true that the developments which have taken placeduring the pendency of the present petition should not ordinarily betaken into consideration for determining the validity or otherwise ofthe impugned orders, in the present case, it is necessary to note thateven the appeal of the respondents against the order dated 13.07.2006made by the Commissioner (Appeals), was dismissed by the ITAT videJudgment and Order dated 03.12.2009. The petitioners have alsoplaced on record material in the form of awards of Arbitral Tribunaland permission from Reserve Bank of India to repatriate the amount of`10.33 Crores in foreign currency to the parties to whom the same wasfound to be due and payable in terms of the awards. Though, we have 14 WP No.166 of 2007 really not taken into consideration all this material, we are onlyreferring to this material to indicate that even otherwise, this amountwas never treated as income by the petitioners. 21.Ms. Linhares, in the course of her arguments, had placed relianceupon decision of the Hon'ble Supreme Court in the case ofCommissioner of Income Tax, Madurai vs. M/s. T.V. SundaramIyengar & Sons Ltd. - (1996) 6 SCC 294 to submit that theimpugned notice was issued by applying the principles laid down inthis decision. In this case, the Hon'ble Supreme Court has held that ifan amount is received in course of trading transaction, even though itis not taxable in the year of receipt as being of revenue character, theamount changes its character when the amount becomes the assessee'sown money because of limitation or by any other statutory orcontractual right, so the amount should be treated as income of theassessee. 22.According to us, the principle in the case of M/s. T.V. SundaramIyengar & Sons Ltd. (supra), was not attracted in the facts andcircumstances of the present case. This is because the reasonsfurnished to the petitioners stated that the contracts with the partiesexpired on 31.05.2001 and the amount of `10.33 Crores was soughtto be assessed as income for the assessment year 2002-03 i.e. well 15 WP No.166 of 2007 within the period of limitation during which the opposite parties couldhave as well recovered the amount. Besides, this is a case where thepetitioners, had consistently, indicated the said amount as a liabilityand further, made full disclosure to the respondents. The respondentshad also assessed these amounts ,both in the course of block assessmentas also in the course of regular assessment, for the assessment year2002-03 itself. In such circumstances, it really cannot be held that thisamount, had escaped assessment. 15 WP No.166 of 2007 within the period of limitation during which the opposite parties couldhave as well recovered the amount. Besides, this is a case where thepetitioners, had consistently, indicated the said amount as a liabilityand further, made full disclosure to the respondents. The respondentshad also assessed these amounts ,both in the course of block assessmentas also in the course of regular assessment, for the assessment year2002-03 itself. In such circumstances, it really cannot be held that thisamount, had escaped assessment. 23.In GKN Sinter Metals Ltd. (supra), this Court has held that thelaw on re-opening of an assessment under the Act, is fairly settled. Anassessment once made, is final. The Assessing Officer can re-open anassessment only in accordance with the express provisions provided inSection 147/148 of the Act. This is for the reason that there is afinality/sanctity attached to an assessment order. It is only on theAssessing Officer strictly satisfying the provisions of Section 147 of theAct, that it acquires jurisdiction to re-open an assessment. Section 147of the Act, clothes the Assessing Officer with jurisdiction to re-open anassessment on satisfaction of the following: (a) The Assessing Officer must have reason to believe that (b) Income chargeable to tax has escaped the assessment and (c) In cases where the assessment sought to be re-opened isbeyond the period of four years from the end of the relevantbeyond the period of four years from the end of the relevant 16 WP No.166 of 2007 assessment year, then an additional condition is to be satisfiedviz: there must be failure on the part of the Assessee to fully andtruly disclose all material facts necessary for assessment. 24.Since, in the present case there was full disclosure and in fact, theamount had even become the subject matter of the assessment bothunder Section 158 BC and Section 143(3) of the I.T. Act, there couldhave been no reason to believe that the income chargeable to tax hadindeed escaped assessment. 25.In Asian Paints Ltd. (supra) this Court had held that in asituation where according to the assessing officer he failed to apply hismind to relevant material in making assessment order, he cannot takeadvantage of his own wrong and reopen assessment by taking recourseto provisions of section 147/148 of the I.T. Act. 26.In the present case, the assessing officer in the course of regularassessment had in fact asked for information in relation to this veryamount of Rs.10.33 Crores. This information was duly furnished bythe petitioners. Only thereafter, the assessing officer made orders dated21.03.2005 under Section 143(3) of the I.T. Act. In thesecircumstances, it was no longer open for the respondents to issue theimpugned notice under Section 147/148 of the I.T. Act. 17 WP No.166 of 2007 27.For all the aforesaid reasons, we quash and set aside theimpugned notice dated 18.10.2006 and the impugned order dated31.01.2007 and make the Rule in this petition, absolute in terms ofprayer clauses (a) and (b) of this petition. 28. In the facts and circumstances of the present case, there shall beno order as to costs. C. V. BHADANG, J. M. S. SONAK, J. ss