Mseb Holding Company Ltd v. Dy. C.i.t., Circle 1(2)(2) & Ors

IN THE HIGH COURT OF JUDICATURE AT BOMBAYO.O.C.J. WRIT PETITION NO. 3642 OF 2018 MSEB Holding Company Ltd..Petitioner Versus Dy. C.I.T., Circle 1(2)(2) & Ors...Respondents ................... Mr. Jehangir Mistry, Senior Counsel a/w Mr. Niraj Sheth and Mr.Jitendra Singh for the Petitioner Mr. Jehangir Mistry, Senior Counsel a/w Mr. Niraj Sheth and Mr.Jitendra Singh for the Petitioner Mr. Suresh Kumar for Respondent Nos. 1 and 2Mr. Suresh Kumar for Respondent Nos. 1 and 2 ................... CORAM : AKIL KURESHI & M.S. SANKLECHA, JJ. DATE : JANUARY 25, 2019. P.C.: 1.At the request of the learned counsel for the parties,the petition is being heard finally at the stage of admission. 2.This petition under Article 226 of the Constitution ofIndia challenges a notice dated 26.3.2018 issued byrespondent No. 1 - Assessing OfÏcer under Section 148 of theIncome Tax Act, 1961 ("the Act" for short). The impugnednotice seeks to reopen the assessment for the assessmentyear 2011-12. 3.The facts giving rise to this petition are as under:- (a) On 30.9.2011, the petitioner filed its return of incomedeclaring a loss of Rs. 256.39 crore for the subjectassessment year 2011.12. In the return of income, thepetitioner had interalia claimed as income an amount of Rs.1.84 crore earned on fixed deposits. The above amount ofRs. 1.84 crore was credited to the profit and loss account andtreated by the petitioner as a part of its business income. (b) The Assessing OfÏcer took up the above return ofincome for scrutiny assessment. After detailed examination,the Assessing OfÏcer disallowed the the claim of loss onaccount of business, this on the ground that it did not carryout any business. This resulted in disallowing its claim forbusiness expenditure. Thus, passing an order dated30.3.2014 under Section 143(3) of the Act, resulting inassessing only the petitioner's rental income under the head,'Income from House Property'. Thus assessing the petitionerto taxable income of Rs. 25.86 crore. (c) Thereafter, the impugned notice was issued on26.3.2018 seeking to reopen the assessment for theassessment year 2011-12. The reasons recorded by theAssessing OfÏcer in support of the impugned notice read asunder:- "1. Brief details of the assessee : The assessee company filed itsReturn of income on 30.9.2011 declaring loss at Rs.2,56,39,72,850/-. The case was selected for scrutiny for AY2011-12. The assessment was completed on 30.3.2014determining total income at Rs. 25,89,04,729/-. Return of income on 30.9.2011 declaring loss at Rs.2,56,39,72,850/-. The case was selected for scrutiny for AY2011-12. The assessment was completed on 30.3.2014determining total income at Rs. 25,89,04,729/-. The assessee company is one of the successor companies tothe erstwhile Maharashtra State Electricity Board (MSEB) whollyowned Government company and is incorporated on 31.05.2005on the demerger / unbundling of the said MSEB. 2. Brief details of information collected / received by the AO :Information collected was as a result of examination of records.Assessee company credited rental income of Rs. 38,43,52,860/-and interest on fixed deposit of Rs. 1,84,86,795/- along with Rs.10,52,198/- as other misc. Receipts. Information collected was as a result of examination of records.Assessee company credited rental income of Rs. 38,43,52,860/-and interest on fixed deposit of Rs. 1,84,86,795/- along with Rs.10,52,198/- as other misc. Receipts. The assessee company is one of the successor companies tothe erstwhile Maharashtra State Electricity Board (MSEB) whollyowned Government company and is incorporated on 31.05.2005on the demerger / unbundling of the said MSEB. 2. Brief details of information collected / received by the AO :Information collected was as a result of examination of records.Assessee company credited rental income of Rs. 38,43,52,860/-and interest on fixed deposit of Rs. 1,84,86,795/- along with Rs.10,52,198/- as other misc. Receipts. Information collected was as a result of examination of records.Assessee company credited rental income of Rs. 38,43,52,860/-and interest on fixed deposit of Rs. 1,84,86,795/- along with Rs.10,52,198/- as other misc. Receipts. 3.Analysis of information collected / received : AssesseeCompany credited rental income of Rs. 38,43,52,860/- andinterest on fixed deposit of Rs. 1,84,86,795/- along with Rs.10,52,198/- as other misc. Receipts. Assessee also claimedexpenditure of Rs. 2,64,27,57,147/- against the above saidincomes. At the time of scrutiny, department disallowed allclaimed expenditure of Rs. 2,64,27,57,147/- with a view thatassessee has not earned any business income during the year.Department also disallowed all brought forward losses asCompany credited rental income of Rs. 38,43,52,860/- andinterest on fixed deposit of Rs. 1,84,86,795/- along with Rs.10,52,198/- as other misc. Receipts. Assessee also claimedexpenditure of Rs. 2,64,27,57,147/- against the above saidincomes. At the time of scrutiny, department disallowed allclaimed expenditure of Rs. 2,64,27,57,147/- with a view thatassessee has not earned any business income during the year.Department also disallowed all brought forward losses as considering the view that the assets & liabilities reflected in thebooks as on 31.3.2011 (include balance as on 6.6.2015) havebeen accounted in the financial statement pursuant toProvisional Transfer Scheme which has not attained its finalityfor the claim of brought forward losses. Therefore, departmentconsidered only rental income as taxable under the income fromHouse Property by disallowing all expenditures and broughtforward losses due to the said reason. Further, it was also noticed that assessee earned income fromfixed deposit amounting to Rs. 1,84,86,795/- (credited to P & LA/c), however, the same has not been accounted by departmentfor taxability purposes. From the assessee's balance sheet, it isobserved that assessee has maintained bank balance of Rs.47,43,69,419/- out of that an amount of Rs. 18,83,45,563/- asdeposit accounts under the head cash and bank balance(Schedule F). Thus, interests on FD of Rs. 1,84,86,795/- fromthe deposited amounts were required to be taxed as incomefrom other sources. This omission resulted in underassessment of income of Rs. 1,84,86,795/- leading to short levyof tax of Rs. 61,40,851/-. 4.Finding of the AO: Assessee Company credited rentalincome of Rs. 38,43,52,860/- and interest on fixed deposit ofRs. 1,84,86,795/- along with Rs. 10,52,198/- as other misc.receipts. 5.Basis of forming reason to believe and details ofescapement of income : Assessee Company credited rentalincome of Rs. 38,43,52,860/- and interest on fixed deposit ofRs. 1,84,86,795/- along with Rs. 10,52,198/- as other misc.Receipts. Assessee also claimed expenditure of Rs.2,64,27,57,147/- against the above said income. At the time ofscrutiny, department disallowed all claimed expenditure of Rs. 2,64,27,57,147 with a view that assessee has not earned anybusiness income during the year. Department also disallowedall brought forward losses as considering the view that theassets and liabilities reflected in the books as on 31.3.2011. Interest on FD of Rs. 1,84,86,795/- from the deposited amountswere required to be taxed as income from other sources. Thisomission resulted in under assessment of income of Rs.1,84,86,795/- leading to short levy of tax of Rs. 61,40,851/-. 2,64,27,57,147 with a view that assessee has not earned anybusiness income during the year. Department also disallowedall brought forward losses as considering the view that theassets and liabilities reflected in the books as on 31.3.2011. Interest on FD of Rs. 1,84,86,795/- from the deposited amountswere required to be taxed as income from other sources. Thisomission resulted in under assessment of income of Rs.1,84,86,795/- leading to short levy of tax of Rs. 61,40,851/-. 6. Escapement of income chargeable to tax in relation to anyassets (including financial interest in any entity) locatedoutside India: Not Applicable 7.Findings of the AO on true and full disclosure of thematerial facts necessary for assessment under Proviso toSection 147: Findings on examination of records andverification thereof revealed that the assessee had notdisclosed full and truly all material facts necessary for hisassessment or that the facts of the case are covered by theexplanation 1 to section 147 of the Act. 8. Applicability of the provisions of Section 147/151 to thefacts of the case: In this case, a return of income was filed for the year underconsideration and regular assessment u/S. 143(3) was made on30.3.2014. Since, 4 years from the end of the relevant year hasexpired in this case, the requirement to initiate proceedingsu/S. 147 of the Act are reason to believe that income for theyear under consideration has escaped assessment because offailure on the part of the assessee to disclose fully and truly allmaterial facts necessary for his assessment for the assessmentyear under consideration. It is pertinent to mention thatreasons to believe that income has escaped assessment for the year under consideration have been recorded above (referparagraphs 2, 3 & 5). I have carefully considered theassessment records containing the submissions made by theassessee in response to various notices issued during theassessment / reassessment proceedings and have noted thatthe assessee has not fully and truly disclosed the followingmaterial facts necessary for his assessment for the year underconsideration: Assessee Company credited rental income of Rs.38,43,52,860/- and interest on fixed deposit of Rs. 1,84,86,795/-along with Rs. 10,52,198/- as other misc. Receipts. Interest onFixed Deposit of Rs. 1,84,86,795/- were required to be taxed onincome from other sources. It is evident from the above facts that the assessee had not trulyand fully disclosed material facts necessary for his assessmentfor the year under consideration thereby necessitatingreopening u/S. 147 of the Act. It is true that the assessee has filed a copy of annual report andaudited P & L A/c. and balance sheet along with return ofincome where various information / material were disclosed.However, the requisite full and true disclosure of all materialfacts necessary for assessment has not been made as notedabove. It is pertinent to mention here that even though theassessee has produced books of accounts, annual report,audited P & L a/c. and balance sheet or other evidence asmentioned above, the requisite material facts as noted above inthe reasons for reopening were embedded in such a mannerthat material evidence could not be discovered by the AO andcould have been discovered with due diligence, accordingly,attracting provisions of Explanation 1 of Section 147 of the Act.It is evidence from the above discussion that in this case, theissues under consideration were never examined by the AOduring the course of regular assessment / reassessment. Thisfact is corroborated from the contents of notices issued by the AO u/s. 143(2)/142(1) and order sheet entries dated 23.5.2013to 3.1.2014 recorded during the 143(3) proceedings. It isimportant to highlight here that material facts relevant for theassessment on the issue(s) under consideration were not filedduring the course of assessment proceedings and the samemay be embedded in annual report, audited P & L A/c, balancesheet and books of account in such a manner that it wouldrequire due diligence by the AO to extract these information.For afore stated reasons, it is not a case of change of opinion bythe AO. In view of the above facts, I am satisfied that the assessee'sincome of Rs. 1,84,86,795/- or above has escapedassessment for the A.Y. 2011-12 within the meaning ofSection 147 of the Act. In this case, more than four years have lapsed from the end ofassessment year under consideration. Hence, necessarysanction to issue notice u/S. 148 has been obtained separatelyfrom Principal Commissioner of Income Tax as per theprovisions of Section 151 of the Act. 4.We have heard the learned counsel for the parties. Undisputedly, the impugned notice dated 26.3.2018 hasbeen issued beyond the period of four years from the end ofrelevant assessment year i.e 2011-12. The regularassessment was completed under Section 143(3) of the Act.Thus, in view of the clear mandate of the first proviso toSection 147 of the Act, reopening notice on the above factscan only be sustained if there has been a failure on the partof the assessee to truly and fully disclose all material facts necessary for assessment. 5.Bare reading of the reasons in support of the impugnednotice would make it evident that there has been a completedisclosure of all material facts on the part of the petitioner inthe regular assessment proceedings under Section 143(3) ofthe Act. This is so as the basis of the notice as indicted inthe reasons is information collected from the examination ofthe records. Undisputedly, there is no new tangible materialreceived by the Assessing OfÏcer that has triggered theimpugned notice. Moreover, these reasons, further, recordthat the interest on fixed deposit amounting to Rs. 1.84crore have been credited to profit and loss account and havebeen offered to tax by the petitioner as part of its businessincome, however, the same was not accepted by theAssessing OfÏcer on the ground that the petitioner did notcarry out any business. Be that as it may, the impugnednotice is clearly hit by the first proviso to Section 147 of theAct as there has been no failure on the part of the petitionerto disclose truly and fully all material facts necessary forassessment in the proceedings leading to an order under Section 143(3) of the Act. 6.In the above view, the impugned notice is withoutjurisdiction. Therefore, the same is quashed and set aside. 7.In the result, the petition is allowed in the above terms. [ M.S. SANKLECHA, J. ] [ AKIL KURESHI, J ]