M/S. Maredia Resorts Pvt. Ltd v. Income Tax Officer 6(3)-3 & Ors

IN THE HIGH COURT OF JUDICATURE AT BOMBAY ORDINARY ORIGNAL CIVIL JURISDICTION WRIT PETITION NO. 1666 OF 2011 M/s. Maredia Resorts Pvt. Ltd. .. Petitioner. versus Income Tax Officer 6(3)-3 & Ors. ..... .. Respondents. Mr. Pankaj R. Toprani with Ms. Kadambari Surve for Petitioner. Ms. Suchitra Kamble for the Respondents. ...... CORAM : DR.D.Y.CHANDRACHUD &A. A. SAYED, JJ. 09 DECEMBER 2011. P.C. : 1.Rule. Learned Counsel for the Respondents waives service. By consent taken up for final hearing on the request of learned Counsel for the parties. 2.By these proceedings under Article 226 of the Constitution, the Petitioner has sought to question the legality of a notice dated 22 March 2011 purporting to reopen the assessment for Assessment Year 2004-05 under Section 148 of the Income Tax Act, 1961. The assessee received prior to 31 March 2003 an amount of Rs. 1.66 crores which was reflected in the balance sheet for the year ending 31 March 2003. In the balance sheet for the year ending on 31 March 2004 the same amount was again reflected as an advance against share capital. The balance sheet for the year ending 31 March 2004 reflects this amount as an advance against share applications and that corresponds to the same amount for the previous year. 3.The reasons which have been disclosed to the assessee for reopening the assessment are to the following effect : “It is noticed from the balance sheet as on 31.03.04that the authorized share capital of the assessee company was Rs. 50 lakh and issued, subscribed and fully paid up capital was Rs. 9,60,000/-. The assessee was showing advance against share capital as Rs. 1,66,82,866/-. As the balance share capital remaining to be issued was only Rs. 40,40,000/- –(50,00,000 9,60,000) there is no question ofadvance of Rs. 1.67 crore against the remaining share capital of Rs. 40.40 lakh. As the nature of advance is not specified it is oblivious that this is a method adopted by the assessee to show the income received as advance against share capital to avoid tax resulting into tax effect involved is Rs.59,84,978/- excluding interest and penalty. In view”of the above facts, I have reason to believe, that income chargeable to tax to the extent of Rs.1,66,82,866/- has escaped assessment.” Hence, according to the Assessing officer, the authorised share capital of the assessee being Rs. 50 lakhs of which the issued and subscribed capital was Rs. 9.60 lakhs, the balance share capital remaining to be issued was Rs. 40.40 lakhs. Hence, according to the Assessing Officer an amount of Rs. 1.67 crores could not have been received as share application money when the remaining share capital for allotment was Rs. 40.40 lakhs. 4.Learned Counsel appearing on behalf of the assessee submitted that : (i)The condition precedent to the exercise of the jurisdiction under Section 147 is that the Assessing Officer has reason to believe that any income chargeable to tax has escaped assessment in any assessment year; (ii)The amount in the present case was received during the assessment year 2003-04 for which reassessment has become time barred on 31 March 2010. The amount of Rs. 1.67 crores was not received during the Assessment Year 2004-05 for which the assessment is sought to be reopened by the impugned notice under Section 148; (iii)While disposing of the objections of the assessee the Assessing Officer has raised a new ground with reference to Section 41 (1) which has not formed part of the reasons for reopening the assessment; and (iv)The Assessing Officer has no tangible material to reopen the assessment since ex facie the reopening of the assessment is only based on the disclosure made in the balance sheet. The balance sheet clearly discloses that an amount of Rs. 1.67 crores was carried forward from Assessment Year 2003-04 to Assessment Year2004-05. 2010. The amount of Rs. 1.67 crores was not received during the Assessment Year 2004-05 for which the assessment is sought to be reopened by the impugned notice under Section 148; (iii)While disposing of the objections of the assessee the Assessing Officer has raised a new ground with reference to Section 41 (1) which has not formed part of the reasons for reopening the assessment; and (iv)The Assessing Officer has no tangible material to reopen the assessment since ex facie the reopening of the assessment is only based on the disclosure made in the balance sheet. The balance sheet clearly discloses that an amount of Rs. 1.67 crores was carried forward from Assessment Year 2003-04 to Assessment Year2004-05. 5.On the other hand, learned Counsel appearing on behalf of the Revenue has relied upon the reasons as disclosed to the assessee on 6 April 2011 and reiterated in para 3 of the order dated 14 July 2011 disposing of the objections of the assessee. 6.In the present case, it is not in dispute that since there was no assessment under Section 143 (3), the time limit for issuing a notice under Section 148 was to expire on 31 March 2011 under Section 149 (1) (b). The reopening of the assessment is based on the disclosure made by the assessee in the balance sheet for AY 2004-05. The balance sheet for the Assessment Year clearly discloses that the amount of Rs. 1.67 crores was carried forward from 2003-04. The time limit for reopening the assessment for AY 2003-04 had admittedly expired. Assuming, therefore, that the amount of Rs. 1.67 crores represented income, there is merit in the contention of the learned Counsel appearing on behalf of the Petitioner that this is not an income which accrued in Assessment Year 2004-05. Hence, the condition precedent for the exercise of jurisdiction under Section 147 was not fulfilled. While disposing of the objections, the Assessing Officer has relied upon a reason which has not been set up in the reasons supplied while reopening the assessment. The Assessing Officer cannot support the reopening of the assessment under Section 148 by advancing fresh reasons other than those which form the foundation of a notice that is issued under Section 148. The Assessing Officer is required to consider the objections that may be raised by the assessee to the reopening of the assessment and to pass an order thereon in view of the directions of the Supreme Court in M/s. GKN Driveshafts (India) Ltd., vs. Income Tax Officer, [1]But while dealing with the objections of the assessee, the Assessing Officer cannot sustain the notice under Section 148 on the basis of reasons which were not indicated in the notice. The validity of the reopening of the assessment has to be determined on the basis of the reasons which were adduced in a notice under Section 148. If the Assessing Officer were permitted to do what he has done in the present case, the reasons which are furnished in the notice under Section 148 would lose sanctity. We are, therefore, of the view that there is merit in the contention of the learned Counsel appearing on behalf of the assessee that there was no tangible material on the basis of which the Assessing Officer could have come to the conclusion that income of the assessee for the assessment year in question had escaped assessment. The requirement that there must exist tangible material is now well settled in view of the judgment of the Supreme Court in Commissionerof Income Tax vs. Kelvinator of India Ltd. [1] 7.For these reasons, we make the Rule absolute by quashing and setting aside the impugned notice dated 22 March 2011. There shall be no order as to costs. (Dr. D.Y. Chandrachud, J.) (A. A. Sayed, J.)