Mr. B v. Deputy Commissioner Of Income -Tax, Circle-7(3) And Ors

IN THE HIGH COURT OF JUDICATURE AT BOMBAYORDINARY ORIGINAL CIVIL JURISDICTIONWRIT PETITION NO. 314 OF 2014 Noshir Darabshaw Talati96D, Ground Floor, Villa ModernWorli Sea Face, Worli,Mumbai-400 018…PetitionerVersus 1.Deputy Commissioner of Income-tax, Circle-7(3), having his office at 6th Floor, Aaykar BhavanMaharshi Karve Road,Mumbai-400 020. 2.Commissioner of Income-tax-7having his office at 6th Floor, Aaykar BhavanMaharshi Karve Road,Mumbai-400 020.having his office at 6th Floor, Aaykar BhavanMaharshi Karve Road,Mumbai-400 020. 3.Union of IndiaThrough Ministry of Finance,North Block,New Delhi-110 001 …Respondents Mr. B.V.Jhaveri, with Mr. S. Sriram & Ms. Bhargavi Raval forPetitioner. Mr. Suresh Kumar for Respondents. CORAMK. R. SHRIRAM &NEELA GOKHALE, JJ.DATED:6th October 2023 JUDGMENT (Per Neela Gokhale, J.): 1.Petitioner assails notice dated 21[st] March 2013 issued byRespondent No.1 under Section 148 of the Income Tax Act, 1961(‘the Act’). 2.Petitioner is an individual, being assessed to income tax formore than three decades. He filed his return of income forAssessment Year 2006-07 on 26[th] October 2007 declaring totalincome of Rs.2,84,19,724/-. The return of income wasaccompanied by all the necessary documents. The return ofincome was taken up for scrutiny by Respondent No.1. TheAssessing Officer (‘AO’) completed the assessment under Section143(3) of the Act on 21[st] April 2008 determining the total incomeas Rs.2,84,19,720/-. 3.Petitioner received notice dated 21[st] March 2013 underSection 148 of the Act for AY 2006-07 pursuant to which he filedthe return of income accompanied by a letter dated 4[th] April 2013requesting the AO to furnish the reasons on the basis of which theimpugned notice was issued. By letter dated 10[th] September 2013,the AO served a copy of the reasons recorded by him for reopeningthe assessment of Petitioner for AY 2006-07. The reasons read asthus: ORDER SHEET "Date: 21/03/2013 "Reasons recorded for issuing notice u/s.147 of the I.T.Act,1961. In this case, the assessee has received during the year relevant to A.Y.2006-07 Rs.52,81,16,309/- from various parties as loanand advances. The following loans are from the companies inwhich the assessee is having substantial shareholdings asdetailed below: Since the applicability of provisions of Section 2(22)(e) was notverified as the share holding pattern of the assessee in theabove companies and the reserve and surplus of the abovecompanies are not on record. Since the loans and advancereceived by the assessee from the above companies is verysubstantial, the deeming provisions of Section 2(22)(e) ifapplied could result in substantial tax effect of more than Rs.1lac. The assessee has failed to disclose fully and truly all materialfacts necessary for his assessment for that assessment year asper proviso section 147 of the I.T.Act. Hence, I have reason tobelieve that the income has escaped assessment. Notice u/s.148is being issued separately. Sd/- (PRASOON KABRA)Dy. Commissioner of Income-tax-7(3) Mumbai" 4.Petitioner filed objections dated 3[rd] October 2013 to thereasons recorded by the AO for reopening the assessment ofincome for the assessment year under consideration. However,vide order dated 8[th] January 2014, the AO rejected the objections raised by Petitioner and proceeded to issue notice under Section142(1) of the Act on 10[th] January 2014. Petitioner replied to thesaid notice on 17[th] January 2014 once again reiterating that the‘reasons to believe’ for reopening the assessment are not tenable onthe ground that Petitioner had made full and true disclosure of allthe material facts at the time of his original assessment and thenotice under Section 148 of the Act reopening the assessment wasillegal and an arbitrary exercise of jurisdiction by the AO. It is thisnotice which is impugned in these proceedings. raised by Petitioner and proceeded to issue notice under Section142(1) of the Act on 10[th] January 2014. Petitioner replied to thesaid notice on 17[th] January 2014 once again reiterating that the‘reasons to believe’ for reopening the assessment are not tenable onthe ground that Petitioner had made full and true disclosure of allthe material facts at the time of his original assessment and thenotice under Section 148 of the Act reopening the assessment wasillegal and an arbitrary exercise of jurisdiction by the AO. It is thisnotice which is impugned in these proceedings. 5.Mr. B. V. Jhaveri, learned Counsel appears for Petitioner andcontests the said notice on the ground that firstly, the notice isissued beyond a period of four years from the end of the relevantassessment year and hence without jurisdiction inasmuch asPetitioner made true and full disclosure at the time of the originalassessment; secondly, no income has escaped assessment as allegedin the reasons recorded by the AO since Petitioner had disclosedcomplete information in respect of loans taken by him from fivecompanies as referred to in the reasons; thirdly, the five companiesfrom whom Petitioner had taken loans do not have accumulatedprofits and hence the question of taxing deemed dividend underSection 2(22)(e) of the Act does not arise and finally, the saidloans were in fact not availed during the previous year relevant toAY 2006-07. Mr. Jhaveri also drew our attention to a letter dated7[th] April 2008 of S.S.Khasgiwala and Company, the CharteredAccountants of Petitioner addressed to the assessing officer, whichindicates that all details relating to loan confirmations, balancesheet, bank statements of four banks of Petitioner etc., were sharedwith the AO. The said letter was accompanied by copies of the bank statements of Petitioner in respect of Vijaya Bank, UnionBank of India and H.D.F.C. Bank comprising of details of the savingas well as current accounts, the balance sheet as on 31[st] March2006 and the loan confirmation of as many as 17 parties includingthe five companies in which Petitioner has share holding. Thedetails in the letter and documents annexed thereto were inresponse to an oral request made by the AO. Hence, the AO wasvery much seized of all the relevant details of Petitioner at the timeof the original assessment itself. For all these reasons, Mr. Jhaveriurges us to quash the impugned notice as the same is issuedwithout application of mind and is wholly unsustainable 6.Mr. Suresh Kumar appearing for Respondents fairly concedesthat Petitioner had submitted a list containing names of partiesfrom whom he had availed unsecured loans with thecorresponding amounts and also a list of shares which included thenames of all the companies in which Petitioner had a shareholding.He, however, says that the percentage of Petitioner’s shareholdingwas not mentioned and hence, applicability of provisions ofSection 2(22)(e) of the Act was not verified for want ofinformation relating to the shareholding pattern of the companies.He further contends that had the AO been apprised of thatinformation, the deeming provision of Section 2(22)(e) of the Act,if applied, could have resulted in substantial tax effect. On thisground alone, Mr. Suresh Kumar justifies the impugned notice andalleges that relevant material was concealed by Petitioner. 7.Heard both the Counsels and perused the documents onrecord with their assistance. 7.Heard both the Counsels and perused the documents onrecord with their assistance. 8.Admittedly, the impugned notice under Section 148 of theAct has been issued more than four years after the expiry of therelevant assessment year and the assessment under Section 143(3)of the Act was completed. It is trite that the AO can reopen anassessment if he has ‘reason to believe’ that undisclosed incomehas escaped assessment. But where the notice under Section 148 ofthe Act is issued after expiry of four years of the relevantassessment year, the proviso to Section 147 of the Act would applyand it specifically provides for its application only if the assesseefails to make a true and full disclosure of material facts at the timeof assessment. Thus, the proviso to Section 147 of the Act willapply in this case and there is a bar in reopening of assessmentunless there is a failure to truly and fully disclose material facts.The notice under Section 147 of the Act dated 21[st] March 2013itself contains the details available with the AO as provided byPetitioner regarding his shareholding in the five companies. It isonly because the AO failed to verify the applicability of provisionsof Section 2(22)(e) of the Act that it was deemed necessary toreopen the assessment. This is the only reason recorded in thenotice. 9.This Court in its decision in the matter of CitiusTechHealthcare Technology Pvt. Ltd. v. Deputy Commissioner of IncomeTax, Circle-I(2)(1) and Ors.[1]in Paragraph 15 has held as under: 1. Writ Petition No.1796 of 2022, dated 23[rd] September 2023. “15.There can be no doubt that the duty of disclosing allthe primary facts relevant to the decision of the questionbefore the assessing authority lies on an assessee. Does theduty however extend beyond the full and truthful disclosureof all primary facts? In our opinion, the answer to thisquestion 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. It is not forsomebody else – least of all an assessee – to tell the AO whatinferences should be drawn. Indeed, when it is rememberedthat people often differ as regards what inferences should bedrawn from given facts, it will be meaningless to demand thatan assessee must disclose what inferences – whether of factsor law – he would draw from the primary facts. On this aspectwe draw strength from the decision of the Apex Court in thematter of New Delhi Television Ltd v. Deputy Commissioner ofIncome Tax where the Apex Court, relying upon a decision ofits Constitutional Bench in the matter of Calcutta DiscountCompany Ltd v. Income Tax Officer, Companies District I,Calcutta has held that it is the duty of the assessee to disclosefull and truly all material facts termed as primary facts andnon-disclosure of other facts which may be termed assecondary facts is not necessary.” 10.The Apex Court in its decision in the matter of New DelhiTelevision Ltd. v. Deputy Commissioner of Income Tax,[2] has heldthat it is the duty of the assessee to disclose full and truly allmaterial facts termed as ‘primary facts’ and non-disclosure of otherfacts which may be termed as ‘secondary facts’ is not necessary. 11.This Court in the matter of Ananta Landmark Pvt. Ltd. v.Deputy Commissioner of Income Tax & Ors.[3] has also held asunder: “….that when the primary facts necessary for assessment arefully and truly disclosed, the assessing officer is not entitledon change of opinion to commence proceedings for 2 2020 SCC OnLine SC 446. 3 (2021) 131 taxmann.com 52 Bombay. reassessment and where on consideration of material onrecord, one view is conclusively taken by the assessingofficer, it would not be open to reopen the assessment basedon the very same material with a view to take another view.” 11.This Court in the matter of Ananta Landmark Pvt. Ltd. v.Deputy Commissioner of Income Tax & Ors.[3] has also held asunder: “….that when the primary facts necessary for assessment arefully and truly disclosed, the assessing officer is not entitledon change of opinion to commence proceedings for 2 2020 SCC OnLine SC 446. 3 (2021) 131 taxmann.com 52 Bombay. reassessment and where on consideration of material onrecord, one view is conclusively taken by the assessingofficer, it would not be open to reopen the assessment basedon the very same material with a view to take another view.” 12.The facts of this case clearly indicate that Petitioner hasfurnished all the details and relevant documents to the AO at thetime of original assessment. The notice of ‘reasons to believe’ itselfreveals information and material which was available with the AO.Despite relevant information being available with the AO, if the AOchooses not to deal with the same, it cannot be presumed that it isPetitioner, who has not made a complete and full disclosure. Wehave perused in detail the letter dated 7[th] April 2008 of theChartered Accountants of the Petitioner providing exhaustivedetails accompanied by all relevant documents to the AO. It isclear from all the documents on record including the noticerecording reasons for reopening of assessment itself that there isno failure to disclose on the part of Petitioner. It is evident that theoriginal assessment order was passed based on all the necessaryinformation already available at the time of original assessment.The order dated 8[th] January 2014 rejecting the objections ofPetitioner in fact supports the contention of Petitioner in respect ofhim furnishing all documents and relevant information, but simplydiscards the same by stating that even if there is no fresh material,but the information placed on record is such that it is difficult to bedetected. The rejection order further cites a number of precedentsof various Courts which are wholly inapplicable to the facts of thepresent case, being on a justification as to how the facts in thepresent case do not suggest a ‘change of opinion’ The reasons for rejection of the objections raised by petitioner are without anysubstance and hence untenable. 13.In view of the foregoing, we are firmly of the view that thereis no failure on the part of Petitioner in making full and truedisclosure to the AO during the original assessment leading to apossibility of application of the provisions of Section 2(22)(e) ofthe Act resulting in a substantial tax effect. The impugned noticedated 21[st] March 2013 is thus quashed and set aside. Rule is, thus,made absolute in terms of prayer clause (a) which reads as under: “(a)That this Hon’ble Court may be pleased to issue a writof certiorari or a writ in the nature of certiorari or any otherappropriate writ, order or directions under Article 226 of theConstitution of India calling for the records of the case leadingto issue of the notice under Section 148 of the Act, dated 21[st]March 2013 being Exhibit ‘D’ hereto and after going throughthe same and examining the question of legality thereof toquash, cancel and set aside the impugned notice dated 21[st]March 2013 being Exhibit ‘D’ hereto.” 14.There shall be no order as to costs. (NEELA GOKHALE, J.) (K. R. SHRIRAM, J.)