Mohanlal Champalal Jain v. The Income Tax Ofïcer - Ward 1(2), Thane& Ors

R.M. AMBERKAR (Private Secretary) IN THE HIGH COURT OF JUDICATURE AT BOMBAYO.O.C.J. WRIT PETITION NO. 3629 OF 2018 Mohanlal Champalal Jain..Petitioner Versus The Income Tax OfÏcer - Ward 1(2), Thane& Ors...Respondents ................... Mr. Devendra H. Jain for the Petitioner Mr. Devendra H. Jain for the Petitioner •Mr. Sham Walve for Respondent Nos. 1 and 2 ................... CORAM : AKIL KURESHI & M.S. SANKLECHA, JJ. DATE : JANUARY 31, 2019. P.C.: 1.The petitioner has challenged a notice of reopening ofassessment dated 28.3.2018 issued by respondent No. 1 -Income Tax OfÏcer. 2.Brief facts are as under:- (a). The petitioner is a senior citizen. During the periodrelevant to the assessment year 2011-12, the petitioner hadtraded in Commodity Exchange. On the premise that he hadno taxable income, the petitioner had not filed return for thesaid assessment year 2011-12. TheAssessingOfÏcer, however, was of the opinion that the petitioner had enteredinto franchises of Rs. 18.82 crore in Commodity Exchange.The Assessing OfÏcer further noticed that the petitioner hadnot filed return of income for the said assessment year. Hetherefore, issued the impugned notice to re-assess thepetitioner's income chargeable to tax. In order to do so, hehad recorded the following reasons:- "REASONS FOR REOPENING OF ASSESSMENT U/S 147 OF THEI.T. ACT, 1961 1.Details of assessee The assessee is an individual. It is seen from ITD system that the assessee has not filed the return of income for AY 2011-12. 2.Details of information received In this case, information as per NMS data and ITS details hasindicated that the assessee has made transactions of Rs.18,82,26,100/- in National / Multi Commodity Exchange. Ongoingthrough the details, it is seen that the assessee has not filed hisreturn of income for the A.Y. 2011-12. 3.Analysis of information received From the analysis of information as per NMS date and ITSdetails, it is seen that during the F.Y. 2010-11, the assessee hasentered into contract of Rs. 18,82,26,100/- in the Commoditiesexchange, however, no return of income has been filed for A.Y. 2011-12. As such, profit / gain on commodity exchange remainsunexplained and also the source of investment in these transactionsremains unexplained. 4.Enquiries made as sequel to information received A letter for verification of above information was issued toassessee requesting to comply. However, there is no responsereceived from the assessee. As per information received from thesystem, it is seen that the assessee has not filed his return ofincome. As such, from the above information, Profit / Loss earnedfrom Commodity transactions of Rs. 18,82,26,100/- remainsunexplained. As such, the income exceeding Rs. 1 Lakh or morehas escaped assessment. 5.Findings Analysis of information received and the enquiries maderevealed that :- (i) The assessee has transacted in Commodities Market atRs. 18,82,26,100/- during the A.Y. under consideration.Rs. 18,82,26,100/- during the A.Y. under consideration. (ii) No return of income has been filed by the assessee for AY2011-12.2011-12. (iii) The Profit/Loss earned from Commodity transactionsremains unexplained and this income exceeding Rs. 1Lakh or more has escaped assessment since it has notbeen disclosed by the assessee as no return is filed byhim.remains unexplained and this income exceeding Rs. 1Lakh or more has escaped assessment since it has notbeen disclosed by the assessee as no return is filed byhim. 6.Basis of forming reason to believe and details ofescapement of income In view of the above, I have reason to believe that the incomechargeable to tax of more than Rs. 1 Lakh for AY 2011-12 hasescaped assessment within the meaning of provisions of Section 147of the Income Tax Act, 1961 as no return of income has been filed bythe assessee for AY 2011-12. (iii) The Profit/Loss earned from Commodity transactionsremains unexplained and this income exceeding Rs. 1Lakh or more has escaped assessment since it has notbeen disclosed by the assessee as no return is filed byhim.remains unexplained and this income exceeding Rs. 1Lakh or more has escaped assessment since it has notbeen disclosed by the assessee as no return is filed byhim. 6.Basis of forming reason to believe and details ofescapement of income In view of the above, I have reason to believe that the incomechargeable to tax of more than Rs. 1 Lakh for AY 2011-12 hasescaped assessment within the meaning of provisions of Section 147of the Income Tax Act, 1961 as no return of income has been filed bythe assessee for AY 2011-12. 7.In this case, more than for years have escaped from the endof the assessment year under consideration. Hence, proposal forgrant of necessary sanction to issue notice u/S. 148 of the IncomeTax Act, 1961 in the above case for AY 2011-12 is submitted to the Pr. Commissioner of Income Tax, Range - 1, Thane for kindapproval." (b). Upon being supplied the reasons, the petitioner raisedobjections under letter dated 26.10.2018. In such objections,the petitioner contented that he had earned no income out oftrading in Commodity Exchange . He pointed out that thepetitioner's sales turnover was Rs. 16.82 lacs (rounded off)and he actually suffered a loss of Rs. 1.61 lacs. (c). The Assessing OfÏcer, however, rejected the objectionsby order dated 28.11.2018. With respect to the petitioner'scontention of no taxable income, he stated that the samewould be subject to verification and further inquiry. 3.Appearing for the petitioner, the learned counselsubmitted that the petitioner had not filed return of incomesince he had no chargeable income for the said year. TheAssessing OfÏcer has proceeded on wrong premise that thepetitioner had not responded to his query. He pointed outthat the petitioner was required to reply electronically, hehad therefore, conveyed to the Assessing OfÏcer that noreturn was filed since he had no taxable income. He further submitted that the Assessing OfÏcer has referred to anentirely incorrect figure of the transaction of 18.82 crore.The correct figures are that the petitioner had madepurchases worth Rs. 16.84 crore and sold commodities worthRs. 16.82 crore and thereby suffered a loss. The AssessingOfÏcer did not examine this aspect though brought to hisnotice in the objections. 4.On the other hand, learned counsel Mr. Walve relied onthe reasons recorded by the Assessing OfÏcer and contendedthat despite the activity of purchase and sale of commoditiesof sizable value, the petitioner had not filed return of income.Whether he had earned substantial income or not from suchactivity can be examined only during the assessment. 5.Having heard the learned counsel for the parties andhaving perused the documents on record, firstly we mayrecord that the Assessing OfÏcer has proceeded on wrongpremise that even when called upon to state why thepetitioner had not filed return of income, he had notresponded to the said query. The petitioner did 4.On the other hand, learned counsel Mr. Walve relied onthe reasons recorded by the Assessing OfÏcer and contendedthat despite the activity of purchase and sale of commoditiesof sizable value, the petitioner had not filed return of income.Whether he had earned substantial income or not from suchactivity can be examined only during the assessment. 5.Having heard the learned counsel for the parties andhaving perused the documents on record, firstly we mayrecord that the Assessing OfÏcer has proceeded on wrongpremise that even when called upon to state why thepetitioner had not filed return of income, he had notresponded to the said query. The petitioner did communicate to the Department that he had no taxableincome and therefore, there was no requirement to file thereturn. The Assessing OfÏcer did not carry out any furtherinquiry before issuing the impugned notice. In the reasons,one more error pointed out by the petitioner is that theAssessing OfÏcer referred to the sum of Rs. 18.82 crore astotal transaction in the commodities. In the petition as wellas in the objections raised before the Assessing OfÏcer, thepetitioner pointed out that his sales were to the tune of Rs.16.82 crore against purchases of 16.84 crore and thereby, hehad actually suffered a loss. The Assessing OfÏcer has notdiscarded these assertions. Importantly, if the AssessingOfÏcer had access to the petitioner's sales in commodities,he could as well have gathered the information of hispurchases. Either on his own or by calling upon thepetitioner to provide such details, the Assessing OfÏcer couldand ought to have verified at least prima facie that theincome in the hands of the petitioner chargeable to tax hadescaped assessment. In the present case, what theAssessing OfÏcer aiming to do so is to carry out fishinginquiry. In fact, even when the assessee brought such facts and figures to his notice, the Assessing OfÏcer refused tolook into it. 6.We are conscious that the petitioner not having filedreturn of income and consequently there being no scrutinyassessment, the Assessing OfÏcer would have much widerlatitude to reopen the assessment. However, in such a casealso, the primary requirement of the Assessing OfÏcer havinga reason to believe that the income chargeable to tax hadescaped assessment would apply. 7. In the result, the impugned notice is quashed and setaside. 8.The petition is allowed in the above terms. [ M.S. SANKLECHA, J. ] [ AKIL KURESHI, J ]