M/S. Alfa Investments,Rep.by Its v. The Income Tax Officer,Non-Corporate Ward -1 (1),Room

IN THE HIGH COURT OF JUDICATURE AT MADRAS Date of Reserving the OrderDate of Pronouncing the Order27.10.201731.10.2017 CoramThe Hon'ble Mr.Justice T.S.Sivagnanam Writ Petition Nos.27549 and 27550 of 2017 andW.M.P.No.29473 & 29474 of 2017 M/s. Alfa Investments,rep.by its Partner, Shri. Ahamed Shakir. ...Petitioner in both W.Ps. Vs. The Income Tax Officer,Non-Corporate Ward -1 (1),Room No.305, III Floor,Wanaparthy Block,121, Mahatma Gandhi Road,Chennai - 600 034. ...Respondent in both W.Ps. Prayer in W.P.No.27549 of 2017Writ Petition, filed under Article 226 of the Constitutionof India, for issuance of Writ of Certiorari to call forrecords in AATFA1690D/NCW1(1) 2017-18, dated 11.10.2017 on thefile of the respondent, relating to the A.Y.No.2010-11 and toquash the same. Prayer in W.P.No.27550 of 2017Writ Petition, filed under Article 226 of the Constitutionof India, for issuance of Writ of Certiorari to call forrecords in AATFA1690D/NCW1(1) 2017-18, dated 27.09.2017 on thefile of the respondent, relating to the A.Y.No.2011-12 and toquash the same. For Petitioner : Mr.M.P.Senthil Kumar For Respondent : Mrs. Hema Murali Krishnan Senior Standing Counsel COMMON O R D E R Heard Mr. M. P. Senthil Kumar, the learnedcounsel appearing for the petitioner and Mrs. Hema Murali https://hcservices.ecourts.gov.in/hcservices/ Krishnan, the learned Senior Standing Counsel, accepting noticeon behalf of the respondent. Since the issue involved and theparties in both the Writ Petitions are one and the same, withthe consent of the learned counsel appearing on either side, theWrit Petitions are taken up together for disposal. 2.The petitioner is an assessee on the file of therespondent, under the provisions of Income Tax Act, 1961(hereinafter, referred to as 'the Act') and the petitioner hasfiled these Writ Petitions, challenging the proceedings of therespondent for re-opening of the assessment for the assessmentyears 2010-11 and 2011-12. 3.The facts, which are necessary for the disposal of theWrit Petitions are as follows:- i)The petitioner was formed as a Partnership Firm andregistered with the Registrar of Firms. They are engaged in thebusiness of commercial and trading activities, includinginvesting, acquiring and holding shares, stocks, assets andother securities. ii)For the assessment year 2012-13, the petitioner filedreturns of income on 27.07.2013, admitting NIL income. Thecase was selected for scrutiny, and the petitioner offered theirexplanation to the Assessing Officer. The assessment wascompleted under Section 143 (3) of the Act, 1961, by addingRs.108,35,05,000/-, as 'unexplained credit' under Section 68 ofthe Act, and computed the total assessed income atRs.108,35,05,000/- against the NIL returns filed by thepetitioner. The petitioner challenged the assessment order, byfiling Appeal before the Commissioner of Income Tax (Appeals)-2, Chennai, (hereinafter, referred to as CIT (A). The Appealfiled by the petitioner was allowed, by an order, dated13.10.2016. Challenging the same, the Revenue preferred Appealto the Income Tax Appellate Tribunal (ITAT), which wasdismissed, by order, dated 18.09.2017. iii) During the pendency of the Appeal filed by theRevenue before ITAT, the respondent issued a notice underSection 148 of the Act, dated 19.01.2017, stating that, he hasreasons to believe that the income chargeable to tax for therelevant assessment year has escaped assessment within themeaning of Section 147 of the Act. Therefore, the respondentproposed to assess/re-assess the income for the said assessmentyear, and requested the petitioner to file returns in theprescribed form. The petitioner, in response to the saidnotice, filed its returns on 25.01.2017, and sought reasons forre-opening the assessment proceedings. The respondent, bycommunication, dated 07.06.2017, furnished reasons, after which,the petitioner filed their objections through a Chartered https://hcservices.ecourts.gov.in/hcservices/ Accountant on 11.09.2017. The objections have been disposedof/rejected, by orders, dated 27.09.2017. These are impugned inthese Writ Petitions. 4.The learned counsel appearing for the petitioner hassubmitted that, the Assessing Officer, in the reasons assignedin the impugned orders for re-opening the assessment has stated,as if, there is a direction issued by CIT (A), while allowingthe petitioner's Appeal, by order, dated 13.10.2016, and grosslyerred in re-opening the assessment, merely by treating theobservation in the said order, dated 13.10.2016, as a directionissued under Section 150 (1) of the Act to re-open theassessment. 5. It is further submitted that, mere observation of theCIT (A) that the Assessing Officer can take cognizance of thematter, by way of initiating suitable proceedings, cannot beinterpreted as a direction issued under Section 150 (1) of theAct, to initiate re-assessment proceedings under Section 147 ofthe Act. It is further submitted that, re-opening of theassessment by the respondent is a case of change of opinion, asthe petitioner has filed all the relevant details, in respect ofintroduction of capital by Partners in the Firm during theassessment years 2010-11 and 2011-12, in the course ofassessment proceedings in respect of the year 2012-13, and theAssessing Officer considered the entire material, and after dueenquiry into the facts, treated the same as unexplained creditunder Section 68 of the Act for the assessment year 2012-13, andtherefore, power under Section 148 of the Act cannot beexercised. 6. The learned Senior Standing Counsel for the Revenue haspointed out that, the reasons given by the respondent forrejecting/disposing of the objections filed by the petitionerare clear, and there were certain facts, which never came beforethe Assessing Officer while he completed the assessment earlier,and therefore, it is submitted that, the impugned order isneither a change of opinion, nor a case, where, there was anyreason to believe that income chargeable to tax has escapedassessment and therefore, the objections raised by thepetitioner were rejected. Hence, the Assessing Officer shouldbe allowed to complete the assessment, after which, it is opento the petitioner to exhaust the Appellate remedy availableunder the Act. 7. The CIT (A), while allowing the petitioner'sAppeals, made an observation in para No. 7 of his order, dated13.10.2016. The relevant portions of the observation are asfollows:- 7. The CIT (A), while allowing the petitioner'sAppeals, made an observation in para No. 7 of his order, dated13.10.2016. The relevant portions of the observation are asfollows:- " From the facts on record, it isclear that the contention of the appellantthat no fresh capital whatsoever wasintroduced during the FY 2011-12 relevant tothe AY 2012-13, which is the AY in question,in the books of the appellant-Firm iscorrect. Thus, the claim of the appellantthatthesumofRs.108,35,05,000/-represents the opening balance of capital inthe books of the appellant, is found to becorrect. In other words, the amount ofRs.108,35,05,000/-whichhasbeendisallowed/added back as unexplained creditu/s 68 by the Assessing Officer representsthe opening balance in the capital accountas on 01.04.2011. "Since the Capital was introduced inthe earlier two FYs i.e., FY 2009-10 & FY2010-11, the Assessing Officer can only takecognizance of the matter by way ofinitiating suitable proceeding for AYs.2010-11 & 2011-12.Hence, the Assessing Officer wasnot justified in disallowing/adding back the'capital introduced' of Rs.108,35,05,000/-,by treating the same as unexplained creditu/s. 68. Since there was no introduction offresh capital whatsoever during A.Y.2012-13, the addition made in the hands of theappellant-firm for A.Y.2012-13 is held to beunwarranted, and is therefore deleted." 8. The above finding of the CIT (A) has been affirmed bythe ITAT, though subsequently. 9. The reasons for re-opening the assessment, which wasfurnished to the petitioner, by communication dated 07.06.2017are as follows: " On further appeal, the Ld. CIT (A)-2, vide her order in ITA No.119 CIT (A)2/2015-16, dated 13.10.2016, had struck downthe addition on the count that the additionsu/s. 68 cannot be undertaken in the year whenno capital is introduced. It should beundertaken only in the year of entry of thefunds to the credit of the capital account.Therefore, a direction under Section 150 (1)was issued by the Ld.CIT (A) to re-open theassessment correspondent to the FinancialYear, during which, the Capital was introduced. In the case of the assesseeFirm, for the A.Y.2010-11, no return ofincome is filed. The capital introducedduring the year is a sum of Rs.64 crores.The Ld. CIT (A) had not provided relief tothe assessee firm based on the finding onthe genuineness of the source of credit, butonly on the aspect of the year ofintroduction of the said credit. " 10. The petitioner submitted their objections dated11.09.2017, in which, it is stated that, that CIT (A) nowhere,directed the Assessing Officer to consider the Partner's capitalin the subject assessment years, and there was not even apassing observation to the said effect. Therefore, theassumption on the part of the respondent that the CIT (A) hasdirected him to re-open the assessment is factually incorrect,and the very basis, on which, the notice under Section 148 hasbeen issued is incorrect. The respondent/Assessing Officer,while dealing with the objections filed by the petitioner haspointed out certain aspects, which, in the opinion of this Courtare material. That is to say that the petitioner did not filereturns of income for the assessment years 2010-2011 and 2011-2012, so there was no opportunity to verify the assessee'stransactions claimed to have been made in those years; theassessee did not have any bank account and did not furnish anyproof to establish the link between the capital introduced andits withdrawals for the purpose of investments. The abovefactual position would clearly show that there can be no changeof opinion in the instant cases, as there was no opinion formedby the Assessing Officer on the said issue for the relevantassessment years. 11. The petitioner's/assessee's contention is that,there was no specific direction issued by CIT (A) to re-open theassessment, and it is a misreading of the order passed by CIT(A), dated 13.10.2016. I do not agree with the said submissionin the light of the language and observations made by CIT (A) inhis order, dated 13.10.2016 (quoted above). The reasons fordeleting the addition made in the hands of the assessee-Firm forthe year 2012-13, is because, the capital was required to beintroduced in the course of earlier two financial years, i.e. FY2009-10 and F Y 2010-11. The CIT (A) did not stop with thisobservations, but made further observation by stating that, theAssessing Officer can only take cognizance of the matter, by wayof initiating suitable proceedings for the assessment years2010-11 and 2011-12. The petitioner seeks to interpret theword 'Can' by stating that, it cannot be construed as direction,but the petitioner should read the word 'Can' along with nextword 'Only. 12. The CIT(A) has pointed out that the AssessingOfficer can only take cognizance of the matter, by way ofinitiating suitable proceedings for the assessment years 2010-11and 2011-12. In such circumstances, it cannot be taken, as if,the observation contained in the order passed by CIT(A) is of noconsequence. Such plea cannot be raised by thepetitioner/assessee, as it would be fatal to their case,because, it is only on account of such observations, they gotrelief before CIT (A). The above observations were affirmed byITAT. Even assuming for the sake of arguments that, there is nospecific direction, in the order passed by CIT (A) yet, theAssessing Officer was entitled to exercise his powers underSection 148 of the Act, as there was no opportunity to verifythe transactions claimed to have made in those years.Therefore, it is not a case of change of opinion. Consequently,the challenge to the impugned proceedings has to necessarilyfail. 13. Accordingly, the Writ Petitions are dismissed,leaving it open to the Assessing Officer to complete theassessment in accordance law, and thereafter, the petitioner isat liberty to workout the remedy available under the Income TaxAct, 1961. No costs. Consequently, connected Writ MiscellaneousPetitions are closed. -s/d- Assistant Registrar(CS-IV) True Copy sdTo Sub-Assistant Registrar The Income Tax Officer,Non-Corporate Ward -1 (1),Room No.305, III Floor,Wanaparthy Block,121, Mahatma Gandhi Road,Chennai - 600 034. +1 Cc to Mrs. Hema Murali Krishnan, Advocate sr 77434.+2 Ccs to Mr.G. Baskaranm Advocate sr 77034. Writ Petition Nos.27549 and 27550 of 2017 SP(02/11/2017)