M/S. Procon Financial And Investment Pvt. Ltd v. Commissioner Of Income Tax-8 And Anr

IN THE HIGH COURT OF JUDICATURE AT BOMBAYORDINARY ORIGINAL CIVIL JURISDICTION WRIT PETITION (L) NO.201 OF 2014 M/s. Procon Financial and Investment Pvt. Ltd....Petitioner.vs.Commissioner of Income Tax-8 and anr....Respondents. Mr. S. C.Tiwari along with Ms. Natasha Mangat for the Petitioner.Mr. Arvind Pinto for the Respondents. CORAM : MOHIT S. SHAH, C.J. AND M.S. SANKLECHA, J. 25 FEBRUARY 2014 DATE : PC: In this petition under Article 226 of the Constitution of India the petitioner challenges the notice dated 30 March 2013 issued by respondent No.2-ITO (Assessing Officer) under Section 148 of the Income Tax Act,1961 (“the Act”). The impugned notice seeks to reopen the assessment for assessment year 2006-07. The petitioner's objections to the reasons recorded for issuing impugned notice dated 30 March 2013 have been rejected by order dated 20 December 2013 of the Assessing Officer. 2)For assessment year 2006-07 the petitioner has filed its return of income declaring its total income at Rs.16.51 lacs. The petitioner's income was derived from business, house property and capital gains. The Assessing Officer by an order dated 28 November 2008 passed assessment order under Section 143(3) of the Act determining the petitioner's income at Rs.16.88 lacs. 3)The Assessing officer by impugned notice dated 30 March 2013 under Section 148 of the Act sought to reopen the petitioner's assessment for assessment year 2006-07 for reason to believe that income chargeable to tax has escaped assessment. On the petitioner's request the Assessing Officer furnished on 22 July 2013 a copy of the reasons recorded for issuing notice dated 30 March 2013 and the same reads as under:- “In this case, the return of income was e-filed on 30.11.2006 declaring total income at Rs.16,51,040/-. The order u/s. 143(3) was passed on 28.11.2008 determining the total income at Rs.16.88,210/- The assessee has claimed Short Term Capital Gain on sale of shares and Mutual Funds of Rs.21,60,073/-.On going through the details furnished it is seen that total purchase and sale of shares are Rs.2,09,03,808/- and Rs.2,75,51,850/- respectively. The total quantity of shares transacted is 314915. Further, on going through the details of breakup of income, it is noticed that major income is on account of profit on sale of investments of Rs.80,32,762/- which proves that assessee is trading in shares and securities. Looking at the voluminous nature of transactions and its frequency, it is evident that the assessee has traded in shares and the resultant gain arising out of trading in shares, ought to have been taxed as business income and not as Short Term Capital Gain. The tax to be levied on the income of 19,58,034/- is Rs.6,48,117/-. As per order u/s.143(3) of the Act, the tax has been computed under MAT at Rs.2,34,702/-. Thus tax effect is of Rs.4,13,415/- with consequential levy of interest u/s. 234B of the Act. Interest u/s. 244A of the Act has been granted at 1% instead of 0.5%. Thus there is excessive grant of interest u/s.244A of Rs.8,773/-. The assessed income has been wrongly computed at Rs.16,88,210 instead of Rs.19,58,034/- as the AO has not taken into account additions made on account of disallowance u/s.14A, provision for loss in derivative transaction and disallowance u/s.36(1)(iii) in all totalling to Rs.3,06,994/- In view of the above, I have reason to believe that in the case of the aforesaid assessees, income chargeable to tax has escaped assessment for A.Y. 2006-07 within the meaning of Section 148 of the Income Tax Act, 1961 and therefore it is a fit case for issue of notice u/s.148 of the Income Tax Act, 1961. This case is reopened after approval from the CIT-8, Mumbai. Issue notice u/s. 148 of the Income Tax Act, 1961.” The assessed income has been wrongly computed at Rs.16,88,210 instead of Rs.19,58,034/- as the AO has not taken into account additions made on account of disallowance u/s.14A, provision for loss in derivative transaction and disallowance u/s.36(1)(iii) in all totalling to Rs.3,06,994/- In view of the above, I have reason to believe that in the case of the aforesaid assessees, income chargeable to tax has escaped assessment for A.Y. 2006-07 within the meaning of Section 148 of the Income Tax Act, 1961 and therefore it is a fit case for issue of notice u/s.148 of the Income Tax Act, 1961. This case is reopened after approval from the CIT-8, Mumbai. Issue notice u/s. 148 of the Income Tax Act, 1961.” 4)On 7 August 2013, the petitioner by its communication objected to the reasons recorded for issuing the impugned notice dated 30 March 2013. In particular, the petitioner pointed out that there is no allegation of any failure on its part to disclose fully and truly all material facts necessary for assessment for assessment year 2006-07. Consequently, the impugned notice having been issued beyond the end of 4 years from the end of the assessment year 2006-07, the condition precedent is not satisfied. Besides the reasons as recorded by the Assessing Officer reflects a mere change of opinion in respect of assessment done under Section 143(3) of the Act. Thus, even on the above ground the impugned notice is without jurisdiction. 5)By an order dated 20 December 2013, the Assessing Officer rejected the petitioner's objections dated 7 August 2013 to the reasons recorded for issuing the impugned notice dated 30 March 2013. The order dated 20 December 2013 rejected the objections on the ground that income chargeable to tax is deemed to have escaped assessment and therefore, the reopening of assessment is permissible. Besides the order also states that it is not the case of change of opinion as the assessment order dated 28 November 2008 originally passed did not deal with the issue of taxing profit on sale of shares either under the head business income or under the head capital gain. In that view of the matter, no opinion was formed earlier on the issue. Thus, it is open to the Assessing Officer to issue notice on the aforesaid ground as the same is not on account of change of opinion. 6)Mr. Tiwari, learned Counsel appearing on behalf of the petitioner submits as under :- a)Admittedly the impugned notice dated 30 March 2013 has been issued beyond the period of 4 years from the end of the relevant assessment year. Therefore, in the absence of any averments/allegations that there has been failure on the part of the petitioner to disclose fully and truly all material facts necessary for assessment it is not open to the Assessing Officer to reopen an assessment. This is a jurisdictional requirement provided under the first proviso to Section 147 of the Act. b)The reasons indicated for reopening of the assessment clearly evidence the fact that notice has been issued on the self same material which was available with the Assessing Officer at the time when he passed the assessment order on 28 November 2013. This further evidences that there has been no failure on the part of the petitioner to disclose fully and truly all material facts necessary for assessment which lead to an assessment order dated 28 November 2013. c)Besides it was submitted that all the aforesaid issues were very much present during the assessment proceeding leading to the order dated 28 November 2013. 7)As against the above, Mr. Pinto learned Counsel for the revenue supports the impugned order dated 20 December 2013 rejecting the objections. It is further submitted that the notice dated 30 March 2013 under Section 148 of the Act is valid and calls for no interference. petitioner to disclose fully and truly all material facts necessary for assessment which lead to an assessment order dated 28 November 2013. c)Besides it was submitted that all the aforesaid issues were very much present during the assessment proceeding leading to the order dated 28 November 2013. 7)As against the above, Mr. Pinto learned Counsel for the revenue supports the impugned order dated 20 December 2013 rejecting the objections. It is further submitted that the notice dated 30 March 2013 under Section 148 of the Act is valid and calls for no interference. 8)We have considered the rival submissions. It is undisputed position that the notice dated 30 March 2013 has been issued beyond the period of 4 years from the end of the relevant assessment year 2006-07. The jurisdictional requirement in such a case as provided under first proviso to Section 147 of the Act is that there must be failure on the part of the assessee to disclose fully and truly all material facts necessary for assessment. On perusal of the reasons for reopening of the assessment it is clear that the assessment for assessment year 2006-07 is sought to be reopened on the basis of the material which is already on record. This material was disclosed by the petitioner either along with its return or during the assessment proceeding. In fact, there is no averment also in the reasons for reopening the assessment that there has been any failure on the part of the petitioner to truly and fully disclose all material facts necessary for assessment. Therefore, the jurisdictional requirement for issuing a notice under Section 148 of the Act beyond the period of 4 years from the end of the relevant assessment year is in this case, not satisfied. Further, the order dated 20 December 2013 disposing of the petitioner's objection to the reasons for reopening does not meet the petitioner's objections and/or deal with the petitioner's objection that there has been no failure on the part of the petitioner to truly and fully disclose all material facts necessary for assessment. It must therefore, follow that the petitioner has disclosed fully and truly all material facts necessary for assessment during the original assessment proceeding leading to the assessment order dated 28 November 2008 for assessment year 2006-07. 9)Accordingly, the notice dated 30 March 2013 issued under Section 148 of the Act as well as the order dated 20 December 2013 of the Assessing officer rejecting the petitioner's objections are set aside as being not sustainable in law. 10) Accordingly, the petition is allowed. No order as to costs. CHIEF JUSTICE (M.S. SANKLECHA, J.)