Golden Tobacco Limited v. The Assistant Commissioner Of Income Tax-8(1), Mumbai And Another

VISHALSUBHASHPAREKAR Digitally signed byVISHAL SUBHASHPAREKARDate: 2022.01.1014:30:41 +0530 IN THE HIGH COURT OF JUDICATURE AT BOMBAYORDINARY ORIGINAL CIVIL JURISDICTION WRIT PETITION NO.2818 OF 2008 Golden Tobacco Limited ...Petitioner vs.The Assistant Commissioner of IncomeTax-8(1), Mumbai and Another ...Respondents Mr. Dharan Gandhi, for the Petitioner.Mr. Suresh Kumar, for the Respondents. CORAM :K.R. SHRIRAM &N. J. JAMADAR, JJ. DATE :JANUARY 06, 2022(THROUGH VIDEO CONFERENCING) P.C.: 1.The Petitioner is a company engaged in the business ofmanufacture and trading of tobacco products. Petitioner received anotice dated 26[th] March, 2008 under section 148 of the Income TaxAct, 1961(the Act) for reopening the assessment for assessmentyear 2003-2004. Petitioner filed its objections which came to berejected by an undated order passed by respondent No. 1. 2.According to Petitioner, respondent No. 1 has raised fiveissues which according to him represent the income which hasescaped assessment. None of these five issues give him jurisdictionto reopen the assessment because not only Petitioner has made full and true disclosure of all material facts but there has also been fullapplication of mind by respondent No. 1 at the stage of passingoriginal assessment order under section 143(3) of the Act. 3.In respect of the assessment year 2003-2004 Petitioner hadfiled return of income on 27[th] November, 2003 in which petitionerdisclosed a total loss of Rs. 24,08,76,434/-. With the said returnPetitioner filed statement of income, profit and loss account,balance sheet and its schedules, annual report, tax audit report inForm 3CA and Form 3CD. Petitioner received a notice dated 17[th]February, 2006 from respondent No. 1 under section 142 of the Acttogether with a questionnaire also dated 17[th] February, 2006 bywhich Petitioner was called upon to furnish details and explanationrelating to number of issues. In response to the questionnaire,Petitioner addressed two communications, one dated 7[th] March,2006 and the other dated 13[th] March, 2006 by which it providedexhaustive information relating to each of the issues raised byrespondent No. 1. Subsequently, respondent No 1 passedassessment order dated 17[th] March, 2006 in which, after makingseveral additions and disallowances, Petitioner’s total loss wascomputed at Rs. 22,00,24,880/-. Thereafter petitioner receivedimpugned notice dated 26[th] March, 2008 to which it filed objections and the objections came to be rejected. It is this notice under section148 of the Act dated 26[th] March, 2008 and the undated orderdisposing objections are impugned in this petition. Of course,Petitioner is also impugning two notices received in between undersections 142(1) and 143(2) of the Act. 4.Mr. Gandhi, submitted that there can be no reason to believethat no income was given to assessment and the entire approachhas been on mere change in opinion which cannot constitute reasonto believe. Mr. Gandhi submitted that each of the five issues raisedin the reasons for reopening were raised during the assessmentproceeding. Inquiries were made by Assessment Officer in thecourse of assessment proceeding and Petitioner has replied to eachof these queries in detail. Mr. Gandhi submitted that once a queryraised was the subject of consideration of the Assessment Officerwhile completing the assessment, it is not permissible on the sameset of facts to reopen the assessment to take another view. Mr.Gandhi submitted that the change of opinion does not constitutejustification and/or reasons to believe that income chargeable to taxhas escaped assessment. 5.We have considered the reasons for reopening the assessment with the assistance of Mr. Gandhi and Mr. Suresh Kumar. 5.We have considered the reasons for reopening the assessment with the assistance of Mr. Gandhi and Mr. Suresh Kumar. 6.The assessment is proposed to be opened within four yearsfrom the end of relevant assessment year and therefore the provisoto section 147 of the Act then in force would not apply. TheAssessment Officer has to only show that there was some tangiblematerial that give reasons to believe that income chargeable toincome tax has escaped assessment, but at the same time,assessment cannot be reopened on mere change of opinion. 7.It is also settled law, as held in First Source Solutions Ltd. vs.Assistant Commissioner of Income tax 12(2)(1), Mumbai[1], thatreasons for reopening an assessment has to be tested/examinedonly on the basis of reasons recorded at the time of assessing noticeunder section 148 of the Act seeking reopening the assessment.These reasons cannot be impugned and/or supplemented much lesssubstituted by affidavit and/or oral submissions. 8.Five points which have been raised in the reasons forreopening the assessment are:- (a) Depreciation of propertySharing Residential Units amounting to Rs. 1,87,21,654/- cannot beallowed; (b) Assessee cannot write off an amount of Rs.1[2021] 132 taxmann.com 121(Bombay) 1,51,11,785/- that could not be recovered from the parties to whomequity shares of joint stock companies were sold; (c) Bad debtswritten off in support of two companies where arbitration awardhas been given in favour of the assessee, the amount to Rs.24,61,372/- cannot be written off; (d) Deduction in the amount ofRs. 83,65,499/- being liability for increase in the value of thirdparty securities under settlement is not allowable and (e) Claim ofbad debts in the sum of Rs. 31,40,96,154/- which has been writtenoff are not allowable to be written off. 9.We have considered the documents annexed to the petitionand we are satisfied that on each of these five items, query wasraised by the Assessing Officer in the notice dated 17[th] February,2006 issued under section 142(1) of the Act and for each of theseitems, explanation has been given by petitioner in its letter dated7[th] March, 2006. In fact, in the assessment order, the AssessingOfficer records the fact that the notice under section 142(1) alongwith the questionnaire was issued to Petitioner on 17[th] February,2006 and response was filed thereto. In fact, items No. 1, 3 and 5 ofthe reopening noted above has been discussed in the assessmentorder dated 17[th] March, 2006. As regards the items No. 2 and 4which does not find mention in the assessment order, the effect of non mention has been discussed by this Court in Aroni Commercials Ltd. vs. Deputy Commissioner of Income-Tax -2(1)[2]where paragraph no. 14 reads as under: non mention has been discussed by this Court in Aroni Commercials Ltd. vs. Deputy Commissioner of Income-Tax -2(1)[2]where paragraph no. 14 reads as under: 14) We find that during the assessment proceedings thepetitioner had by a letter dated 9 July 2010 pointed outthat they were engaged in the business of financingtrading and investment in shares and securities. Further,by a letter dated 8 September 2010 during the course ofassessment proceedings on a specific query made by theAssessing Officer, the petitioner has disclosed in detail asto why its profit on sale of investments should not betaxed as business profits but charged to tax under thehead capital gain. In support of its contention thepetitioner had also relied upon CBDT Circular No.4/2007dated 15 June 2007. (The reasons for reopening furnishedby the Assessing Officer also places reliance upon CBDTCircular dated 15 June 2007). It would therefore, benoticed that the very ground on which the notice dated 28March 2013 seeks to reopen the assessment forassessment year 2008-09 was considered by theAssessing Officer while originally passing assessmentorder dated 12 October 2010. This by itself demonstratesthe fact that notice dated 28 March 2013 under Section148of the Act seeking to reopen assessment for A.Y.2008-09 is based on mere change of opinion. However,according to Mr. Chhotaray, learned Counsel for therevenue the aforesaid issue now raised has not beenconsidered earlier as the same is not referred to in theassessment order dated 12 October 2010 passed for A.Y.2008-09. We are of the view that once a query is raisedduring the assessment proceedings and the assessee hasreplied to it, it follows that the query raised was a subjectof consideration of the Assessing Officer while completingthe assessment. It is not necessary that an assessmentorder should contain reference and/or discussion todisclose its satisfaction in respect of the query raised. Ifan Assessing Officer has to record the considerationbestowed by him on all issues raised by him during theassessment proceeding even where he is satisfied then itwould be impossible for the Assessing Officer to completeall the assessments which are required to be scrutinizedby him under Section 143(3)of the Act. Moreover, onemust not forget that the manner in which an assessment order is to be drafted is the sole domain of the AssessingOfficer and it is not open to an assessee to insist that theassessment order must record all the questions raisedand the satisfaction in respect thereof of the AssessingOfficer. The only requirement is that the Assessing Officerought to have considered the objection now raised in thegrounds for issuing notice under Section 148of the Act,during the original assessment proceedings. There can beno doubt in the present facts as evidenced by a letterdated 8 September 2012 the very issue of taxability ofsale of shares under the head capital gain or the headprofits and gains from business was a subject matter ofconsideration by the Assessing Officer during the originalassessment proceedings leading to an order dated 12October 2010. It would therefore, follow that thereopening of the assessment by impugned notice dated 28March 2013 is merely on the basis of change of opinion ofthe Assessing Officer from that held earlier during thecourse of assessment proceeding leading to the orderdated 12 October 2010. This change of opinion does notconstitute justification and/or reasons to believe thatincome chargeable to tax has escaped assessment. 10.Therefore once a query is raised during the assessmentproceeding and the assessee has replied to it, it follows that thequery raised was a subject for consideration of the AssessmentOfficer while completing the assessment. It is not necessary that anassessment order should contain reference and/or discussions todisclose its satisfaction in respect of the query raised. There can beno doubt that in the present facts, the five points mentioned above,was a subject matter of consideration by the Assessing Officerduring the original assessment proceeding leading to an orderdated 17[th] March, 2006. It would, therefore, follow that thereopening of the assessment by the impugned notice dated 26[th] March, 2008 is merely on the basis of change of opinion of theAssessing Officer from that held earlier during the course ofassessment proceeding leading to the order dated 17[th] March, 2006.This change of opinion does not constitute justification and/orreasons to believe that the income chargeable to tax has escapedassessment. 11.We have to also add that item No. 5 in the reasons noted aboveincludes item No. 3 mentioned earlier. Moreover, in the assessmentorder a sum of Rs. 57,16,601/- out of Rs. 31,40,96,154/- has alreadybeen added to petitioner’s income. Therefore, to say in the reasonsfor reopening that the assessee's claim of bad debts of Rs.31,40,96,154/- was not allowable and that has resulted inescapement of income of the said amount shows non application ofmind. On this count alone, it can be held that the Assessment Officershould not have formed the reasons to believe that incomechargeable to tax has escaped assessment. 12.In view of the discussion above, we set aside the undatedorder rejecting petitioner’s objections. We also hold that there wasno reason for the Assessing Officer to have a reasonable belief thatincome chargeable to tax has escaped assessment. 13.Accordingly, we allow the petition in terms of prayer clause (a) and the same read as under: (a) This Court may be pleased to issue a writ ofcertiorari or a writ in the nature of certiorari or anyother appropriate writ, order or direction underArticle 226 of the Constitution of India calling for therecords of the petitioner’s case and after examiningthe legality and validity thereof quash and set asidethe notice dated 26[th] March, 2008 issued byrespondent No. 1 under section 148 of the Act toreopen the assessment for the assessment year 2003-2004 together with the consequential notices dated 4[th]December, 2008 under sections 142(1) and 143(2) ofIncome Tax Act, 1961(Exh. G and I) and the orderdated Nil purportedly dealing with the petitioner’sobjections (Exh.K). 14.Petition disposed. 15.No order as to costs. (N. J. JAMADAR, J.) (K. R. SHRIRAM, J.)