Mr. J.d. Mistri, Senior Advocate I/B Mr. Dharan v. Oral Judgment : (Per : K.r. Shriram, J

IN THE HIGH COURT OF JUDICATURE AT BOMBAYPURTIPRASAD ORDINARY ORIGINAL CIVIL JURISDICTIONPARABDigitally signed byPURTI PRASADPARABDate: 2024.05.06WRIT PETITION NO. 3604 OF 2022 10:51:34 +0530 PIEM Hotels Limiteda company incorporated in India,having registered office at 90Vivanta President, Cuffe Parade,Mumbai – 400 005.….Petitioner V/s.1. Assistant Commissioner of Income Tax3(2)(2), Mumbai Room No. 608, Aaykar Bhavan, M.K. Road,Mumbai – 400 020. 2. Joint Commissioner of Income Tax,Range 3(2), Room No. 605, Aaykar Bhavan, M.K. Road,Mumbai – 400 020. 3. National Faceless Assessment Centre,2[nd] Floor, E-Ramp, Jawaharlal Nehru Stadium,Delhi – 110 003. 4. The Union of IndiaThrough the Secretary, Ministry ofFinance, Government of India,North Block, New Delhi – 110 001.…Respondents ---- Mr. J.D. Mistri, Senior Advocate i/b Mr. Dharan V. Gandhi for Petitioner.Mr. Akhileshwar Sharma for Respondents-Revenue. ---- CORAM : K.R. SHRIRAM & DR. NEELA GOKHALE, JJ. DATED : 30[th] APRIL 2024 ORAL JUDGMENT : (PER : K.R. SHRIRAM, J.) 1.Since the pleadings in the petition are completed, we havedecided to dispose the petition at the admission stage itself. 2.Rule. Rule made returnable forthwith. 3.Petitioner filed its return of income for Assessment Year (A.Y.)2016-17 and the assessment was finalized on 13[th] December 2018 underSection 143(3) of the Income Tax Act, 1961 (the Act) assessing petitioner’sincome at Rs.40,84,75,860/-. 4.Thereafter, Respondent No.1 issued a notice dated 30[th] March2021 under Section 148 of the Act which petitioner says they neverreceived. Mr. Sharma states it was delivered to petitioner. The reason tobelieve escapement of income from assessment was made available topetitioner alongwith the approval under Section 151 of the Act. Paragraph Nos. 2.1 to 2.4 of the reasons to believe read as under : 2.1 The assessee had filed the return of income on 29/11/2016declaring income at Rs. 40,62,06,850/-. The case was selected forCompulsory Manual Selection scrutiny. The assessment wascompleted u/s 143(3) on 13/12/2018 determining assessedincome of Rs.40,84,75,860/-. 2.2 On perusal of the records of the assessee, it is seen fromperusal of the notes to return of income for AY 2016-17 attachedwith the computation of income revealed that assessee had madeexpenses of Rs.99,83,000/- towards Designing fees which wascapitalised (as work in progress) in earlier year. Further, assesseecontended that since such expenditure was in nature of expansionof existing business and was claimed as revenue expenditure incurrent year. The said contention was accepted and expenses wasallowed by the department. 2.3 In this case, it is seen that assessee itself admitted that suchexpense was capitalised in the books of account, hence the samewas in nature of capital. It is pertinent to mention here that it wasassessees view that designing fees which was part of expansion ofassessees business was required to be taken as capital expense inbooks of account. Hence, in view of the provision of Section 37(1)of I.T. Act, such expenses was not to be allowed as revenue expense and should have been capitalised (to the respective head) andrequired to be disallowed and added back. 2.4 As per provisions of Section 37(1) of the Income Tax Act, anyexpenditure, not being in the nature of capital expenditure, laid outwholly or exclusively for the purpose of business, is allowable asdeduction in computation of income chargeable under the headProfits and gains of Business or Profession. Omission to disallowexpenses of Rs.99,83,000/- has resulted in under assessment ofincome of Rs.99,83,000/-. 5.From the reasons recorded it appears that the Assessing Officer (A.O.) had reason to believe escapement of income under two heads, i.e.,expenses of Rs.99,83,000/- towards designing fees which was capitalizedand a sum of Rs.4,98,00,000/- that assessee paid towards concession fee toPunjab Urban Development Authority (PUDA). 2.4 As per provisions of Section 37(1) of the Income Tax Act, anyexpenditure, not being in the nature of capital expenditure, laid outwholly or exclusively for the purpose of business, is allowable asdeduction in computation of income chargeable under the headProfits and gains of Business or Profession. Omission to disallowexpenses of Rs.99,83,000/- has resulted in under assessment ofincome of Rs.99,83,000/-. 5.From the reasons recorded it appears that the Assessing Officer (A.O.) had reason to believe escapement of income under two heads, i.e.,expenses of Rs.99,83,000/- towards designing fees which was capitalizedand a sum of Rs.4,98,00,000/- that assessee paid towards concession fee toPunjab Urban Development Authority (PUDA). 6.Mr. Sharma submitted that the Assessment Order dated 13[th]December 2018 passed under Section 143(3) of the Act there is nodiscussion regarding these two items and hence it cannot be stated that itwas a subject of consideration. Mr. Sharma further states that the proposedreopening is within four years from the end of the relevant assessment yearand therefore the A.O. has to only make out a case of tangible materialwhich he has done in the reasons to believe. Therefore, the court shouldnot interfere. Mr.Sharma states that petitioner has also passed reassessmentorder under Section 143(3) of the Act and Assessment Order under Section147 read with Section 144B of the Act and an appeal has been preferredand petitioner should be directed to pursue the appeal. 6. 7.On this last submission of Mr. Sharma, Mr. Mistri submitted thatif the notice issued under Section 148 of the Act based on reasons to believedoes not constitute any justification to believe that income chargeable to taxhas escaped assessment, such a notice is bad in law and petitioner shouldnot be directed to pursue the appeal. 8.It is petitioner’s case that the reason to believe escapement ofincome chargeable to tax from assessment is based on change of opinionand therefore it does not constitute justification and/or reasons to believethat income chargeable to tax has escaped assessment. We will agree withMr. Mistri and we do not have to go too far to explain this finding. Thereasons made available itself shows that it was a clear case of change ofopinion. On the first item, i.e., expenses of Rs.99,83,000/- towardsdesigning fees, which was capitalized, the A.O. states “the said contentionwas accepted and expenses was allowed by the department”. In ParagraphNo. 2.3 it is stated “such expenses was not to be allowed as revenue expenseand should have been capitalized and required to be disallowed and addedback”. Therefore, it is a clear case of change of opinion. 9.So also for the amount of Rs.4,98,00,000/- paid towardsconcession fee to PUDA, in Paragraph No.3 it is stated that it is arising out ofthe contractual obligation between assessee company and PUDA, the samehad been claimed as deduction while computing income. The said deduction was accepted and deduction was allowed to assessee. In Paragraph No. 3.1it is stated that “…….. such expense was also required to be capitalized aswork in progress in the books of accounts of assessee and should have beendisallowed.” Therefore, this is also a clear case of change of opinion 10.Moreover, during the course of assessment proceedingspetitioner had also received a notice dated 16[th] October 2018 under Section142(1) of the Act calling upon to furnish various materials under differentheads including details of designing fees expense with copy of ledger andparty wise details as also details regarding concession paid to PUDA. By itsletter dated 29[th] October 2018 petitioner provided all the details. Therefore,these two items were also subject of consideration during the assessmentproceedings. 10.Moreover, during the course of assessment proceedingspetitioner had also received a notice dated 16[th] October 2018 under Section142(1) of the Act calling upon to furnish various materials under differentheads including details of designing fees expense with copy of ledger andparty wise details as also details regarding concession paid to PUDA. By itsletter dated 29[th] October 2018 petitioner provided all the details. Therefore,these two items were also subject of consideration during the assessmentproceedings. 11. As held by this Court in Aroni Commercials Limited v. DeputyCommissioner of Income Tax–2(1)[1] once a query is raised during theassessment proceedings and assessee has replied to it, it follows that thequery raised was a subject of consideration of the A.O. while completing theassessment. It is also not necessary that an assessment order should containreference and/or discussion to disclose its satisfaction in respect of thequery raised. Therefore, the reopening of the assessment, in our view, ismerely on the basis of change of opinion of the A.O. from that held earlier 1 (2014) 44 taxmann.com 304 (Bombay) during the course of assessment proceedings and this change of opiniondoes not constitute justification and/or reason to believe that incomechargeable to tax has escaped assessment. Paragraph No.14 of Aroni Commercials Limited (supra) reads as under : 1 (2014) 44 taxmann.com 304 (Bombay) during the course of assessment proceedings and this change of opiniondoes not constitute justification and/or reason to believe that incomechargeable to tax has escaped assessment. Paragraph No.14 of Aroni Commercials Limited (supra) reads as under : 14. We find that during the assessment proceedings thepetitioner had by a letter dated 9 July 2010 pointed out thatthey were engaged in the business of financing trading andinvestment in shares and securities. Further, by a letter dated 8September 2010 during the course of assessment proceedingson a specific query made by the Assessing Officer, thepetitioner has disclosed in detail as to why its profit on sale ofinvestments should not be taxed as business profits butcharged to tax under the head capital gain. In support of itscontention the petitioner had also relied upon CBDT CircularNo.4/2007 dated 15 June 2007. (The reasons for reopeningfurnished by the Assessing Officer also places reliance uponCBDT Circular dated 15 June 2007). It would therefore, benoticed that the very ground on which the notice dated 28March 2013 seeks to reopen the assessment for assessmentyear 2008-09 was considered by the Assessing Officer whileoriginally passing assessment order dated 12 October 2010.This by itself demonstrates the fact that notice dated 28 March2013 under Section 148 of the Act seeking to reopenassessment for A.Y. 2008-09 is based on mere change ofopinion. However, according to Mr.Chhotaray, learnedCounsel for the revenue the aforesaid issue now raised has notbeen considered 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 raised during theassessment proceedings and the assessee has replied to it, it followsthat the query raised was a subject of consideration of theAssessing Officer while completing the assessment. It is notnecessary that an assessment order should contain referenceand/or discussion to disclose its satisfaction in respect of the queryraised. If an Assessing Officer has to record the considerationbestowed by him on all issues raised by him during the assessmentproceeding even where he is satisfied then it would be impossiblefor the Assessing Officer to complete all the assessments which arerequired to be scrutinized by him under Section 143(3) of the Act.Moreover, one must not forget that the manner in which anassessment order is to be drafted is the sole domain of theAssessing Officer and it is not open to an assessee to insist that theassessment order must record all the questions raised and thesatisfaction in respect thereof of the Assessing Officer. The onlyrequirement is that the Assessing Officer ought to have consideredthe objection now raised in the grounds for issuing notice underSection 148 of the Act, during the original assessment proceedings.There can be no doubt in the present facts as evidenced by a letter dated 8 September 2012 the very issue of taxability of sale ofshares under the head capital gain or the head profits and gainsfrom business was a subject matter of consideration by theAssessing Officer during the original assessment proceedingsleading to an order dated 12 October 2010. It would therefore,follow that the reopening of the assessment by impugned noticedated 28 March 2013 is merely on the basis of change of opinion ofthe Assessing Officer from that held earlier during the course ofassessment proceeding leading to the order dated 12 October 2010.This change of opinion does not constitute justification and/orreasons to believe that income chargeable to tax has escapedassessment.” dated 8 September 2012 the very issue of taxability of sale ofshares under the head capital gain or the head profits and gainsfrom business was a subject matter of consideration by theAssessing Officer during the original assessment proceedingsleading to an order dated 12 October 2010. It would therefore,follow that the reopening of the assessment by impugned noticedated 28 March 2013 is merely on the basis of change of opinion ofthe Assessing Officer from that held earlier during the course ofassessment proceeding leading to the order dated 12 October 2010.This change of opinion does not constitute justification and/orreasons to believe that income chargeable to tax has escapedassessment.” 12.Since the reasons to believe itself indicate as noted above thatthe reopening is based purely on change of opinion, as held in AroniCommercials Limited (supra) this change of opinion does not constitutejustification and/or reasons to believe that income chargeable to tax hasescaped assessment. 13.In the circumstances, we are not inclined to direct petitioner topursue the appeal. Further, if petitioner wants a stay of the proceedings hemay have to deposit part of the tax payable on the allegedly escapedincome. That would certainly cause hardship to petitioner when thereopening itself is unjustified. 14.In the circumstances, we make Rule absolute in terms of prayer clause – (a) which reads as under : (a) that this Hon’ble Court may be pleased to issue a Writ ofCertiorari or a Writ in the nature of Certiorari or any otherappropriate Writ, Order or direction, calling for the records of thePetitioner’s case and after going into the legality and proprietythereof, to quash and set aside the said notice under section 148 ofthe Act dated 30 March 2021 (“Exhibit D”), the impugnedCertiorari or a Writ in the nature of Certiorari or any otherappropriate Writ, Order or direction, calling for the records of thePetitioner’s case and after going into the legality and proprietythereof, to quash and set aside the said notice under section 148 ofthe Act dated 30 March 2021 (“Exhibit D”), the impugned assessment order passed under section 143(3) read with section147 and 144 B of the Act dated 30 march 2022 (Exhibit P1) andthe impugned notice of demand dated 30 March 2022 (Exhibit P2)as well as the impugned show-cause notice for levy of penaltydated 30 March 2022 (“Exhibit P3”). 15.The consequential notice of demand and proceedings are also quashed and set aside. 16.Petition disposed. 17.Petitioner’s undertaking to apply to withdraw the appeal within two weeks is accepted. (DR. NEELA GOKHALE, J.) (K.R. SHRIRAM, J.)