Nadi Fiance And Investment Pvt. Ltd v. The Assistant Commissioner Of Income Taxand Ors

IN THE HIGH COURT OF JUDICATURE AT BOMBAYORDINARY ORIGINAL CIVIL JURISDICTION WRIT PETITION NO.2662 OF 2007 Nadi Fiance and Investment Pvt. Ltd. ..Petitioner. vs. The Assistant Commissioner of Income Taxand ors...Respondents. Mr. R. Murlidhar i/by Mr. Atul K. Jasani for the Petitioner.Mr. Arvind Pinto for the Respondents. CORAM : M. S. SANKLECHA AND S.C. GUPTE, JJ. DATE : 12 NOVEMBER 2014 ORAL ORDER :( Per M. S. Sanklecha, J.) This petition assails notice dated 23 March 2007 issued under Section 148 of the Income Tax Act, 1961 (“the Act”). The impugned notice by the Assessing Officer seeks to reopen the assessment for Assessment Year 2000-01. 2)Briefly, the facts relevant to this petition are as under: a)On 28 November 2000, the petitioner filed its Return of Income for Assessment Year 2000-01 declaring a total income of ASN Rs.31,650/-. The Return of Income was accompanied by computation of income and audited balance sheet and profit and loss account . In its computation of income the petitioner had made a note that dividend income of Rs.2.28 crores is fully exempt under Section 10(33) of the Act. Besides in its Balance sheet and Profit and loss account the petitioner did indicate that shares and securities were its stock in trade and dividend received on these shares and securities aggregated to Rs.2.29 crores. During the course of assessment proceedings, the petitioner was called upon to give details of the dividend received as well as profit and/or loss incurred in share trading scrip wise. The petitioner responded to the same and the Assessing Officer being satisfied passed an order on 24 March 2003 under Section 143(3) of the Act specifically holding that its business is trading in shares and securities and dividend income of Rs.2.28 crores is exempted. The income was assessed as declared by the petitioner at Rs. 31,650/-; b)Thereafter, on 12 March 2004, the Assessing Officer issued a notice under Section 154 of the Act seeking to rectify the assessment order dated 24 March 2003 for Assessment Year 2000-01 on the ground that as the petitioner was trader in shares it is not entitled to exemption on the dividend received under Section 10(33) of the Act to the extent of Rs.2.28 crores. This on the ground that the dividend received should be considered as integral part of traded goods. The petitioner replied to the notice and pointed out that the exemption granted under Section 10(33) of the Act was proper and no rectification was called for. We are informed that the Assessing Officer has not passed any order on the rectification application; c)In the mean time consequent to a search action on 11 November 2003, the Assessing Officer passed a block assessment order under Section 158 BC of the Act for the block period 1 April 1991 to 6 April 2001. The claim of the petitioner in respect of dividend received from mutual fund under Section 10(33) of the Act was not disturbed but the loss booked on account of sale of mutual fund was disallowed as a dividend stripping exercise with a view to evade payment of tax. The order dated 11 November 2003 of the block period was carried in appeal to the Income Tax Appellate Tribunal (Tribunal); e) By an order dated 28 February 2006 the Tribunal following the decision of the Special Bench of the Tribunal in Walfort Shares and Stock Brokers v. I.T.O. 96 ITD 1 allowed the petitioner's appeal. It held that the petitioner was entitled to claim loss on these transactions prior to introduction of Section 94(7) of the Act w.e.f. 1 April 2002; f)Immediately after the above order of the Tribunal dated 28 February 2006, the Assessing Officer issued the impugned notice dated 23 March 2007 seeking to reopen the assessment proceeding for Assessment Year 2000-01.The reasons in support of the impugned notice as communicated to the petitioner read as under:- e) By an order dated 28 February 2006 the Tribunal following the decision of the Special Bench of the Tribunal in Walfort Shares and Stock Brokers v. I.T.O. 96 ITD 1 allowed the petitioner's appeal. It held that the petitioner was entitled to claim loss on these transactions prior to introduction of Section 94(7) of the Act w.e.f. 1 April 2002; f)Immediately after the above order of the Tribunal dated 28 February 2006, the Assessing Officer issued the impugned notice dated 23 March 2007 seeking to reopen the assessment proceeding for Assessment Year 2000-01.The reasons in support of the impugned notice as communicated to the petitioner read as under:- “The assessee has filed the return of income for A.Y.2000-01 declaring total income of Rs.31,650/-. In the assessment u/s. 143(3), the same total has been accepted by the Assessing officer. During the year, the assessee has earned total dividend income of Rs.2.28,93,858/- form the following companies and claimed exemption u/s.10(33) of the I.T. Act, 1961 and this has been allowed by the assessing Officer in the above mentioned assessment order u/s. 143(3) of the I.T. Act,1961. 1. Dividend from M/s. Pentafor 2. Dividend from M/s. Satyam Computer 3. Dividend from units of Mutual Fund 'Chole Mandalam' Rs.1.21,479/-Rs.6,300/- -Rs.2,27,66,079/Rs.2,28,93,858/- But, it is observed that the assessee is trading in shares. The dividend income received is integral part of traded goods and cannot be segregated from the cost of the shares. Appendix “F” of the Guidance Note on the Audit of Accounts of Members of Stock Exchange issued by the Institute of Chartered Accountants of India also supports this view. Therefore, I have reasons to believe that in view of sub clause “C” of explanation 2 of Section 147 of the I.T. Act, 1961 the income chargeable to tax amounting to Rs.2,28,93,858/- has escaped assessment for the A.Y.2001-02.” g)The petitioner by letter dated 3 November 2007 objected to the impugned notice on the following grounds:- (a)Material facts had been fully and truly disclosed during the regular assessment proceedings for A.Y. 2000-01.Consequently the 1[st] proviso to Section 147 would not be applicable; (b)The Assessing Officer had applied his mind to the Dividend received by the petitioner and its claim for exemption under Section 10(33) of the Act while passing the assessment order dated 24 March 2003 under Section 143(3) of the Act. Thus the impugned notice is on a mere change of opinion; and (c )The Assessing officer had no reason to believe that income chargeable to tax has escaped assessment in view of the decision of the Tribunal in petitioner's own case and the Special Bench decision in Walfort Share and Stock Brokers P. Ltd. (supra) .The petitioner also pointed out that there appears to be no Appendix F to the Guidance Note on the Audit of Accounts of Members of Stock Exchange issued by the Institute of Chartered Account of India which is relied upon in the notice. 3)The Assessing Officer by an order dated 5 December 2007 rejected the petitioner's objections holding that mutual funds came to his notice subsequent to completion of assessment and in support relied upon the reasons recorded. Besides, so far as reason to believe that income chargeable to tax has escaped assessment is concerned, it was held that in the block assessment proceeding what was being disallowed was a claim for loss on account of dividend stripping prior to introduction of Section 94(7) of the Act. In this case, it was the claim for exemption which was being disallowed. 4) Mr. Murlidharan, learned Counsel for the petitioner repeats 3)The Assessing Officer by an order dated 5 December 2007 rejected the petitioner's objections holding that mutual funds came to his notice subsequent to completion of assessment and in support relied upon the reasons recorded. Besides, so far as reason to believe that income chargeable to tax has escaped assessment is concerned, it was held that in the block assessment proceeding what was being disallowed was a claim for loss on account of dividend stripping prior to introduction of Section 94(7) of the Act. In this case, it was the claim for exemption which was being disallowed. 4) Mr. Murlidharan, learned Counsel for the petitioner repeats and reiterates the objections filed with the Assessing Officer challenging the impugned notice. It is submitted that the order disposing of the objections has not dealt with the objections. It is submitted that the impugned notice is without jurisdiction and needs to be set aside. It was also pointed out that the decision of the Special Bench of the Tribunal in Walfort Shares and Stock Brokers Ltd. (supra) has been upheld by the Apex Court in CIT vs. Walfort Shares and 5)Mr. Arvind Pinto the learned Counsel for the Revenue supports the action of the authorities and submits that no interference is called for. 6)It is settled law in respect of reopening of assessment under the income Tax Act that the jurisdiction to reopen an assessment will only arise when the Assessing Officer himself has reason to believe that income chargeable to tax has escaped assessment. This reason to believe cannot be on the basis of change of opinion, i.e. where the issue was considered by the Assessing Officer in regular assessment proceedings and a particular view was taken (though not expressed/mentioned in the order). Moreover if the issue is concluded by an order of an higher forum, then there would be no reason to believe that income chargeable to tax has escaped assessment. Besides, where an assessment is sought to be reopened beyond a period of four years from the end of the relevant Assessment Year there should have been failure to fully and truly disclose all material facts necessary for assessment. Thus, where this condition is not satisfied then even if income has escaped assessment, the Assessing Officer will have no jurisdiction. ASN 7) The impugned notice has admittedly been issued beyond the period of 4 years from the end of the relevant assessment year i.e. A.Y. 2000-01. In terms of the first proviso to Section 147 of the Act condition precedent to acquire jurisdiction to issue a notice beyond the period of 4 years from the end of the relevant assessment year is failure on the part of the assessee to fully and truly disclose all material facts necessary for assessment. We find that in the computation of income the petitioner had specifically put in a note that the claim of exemption under Section 10(33) of the Act on the dividend income of Rs.2.28 crores is made. The aforesaid claim of dividend income was also reflected in the petitioner's balance sheet filed along with return of income. In particular, the petitioner had shown shares and securities as investment i.e. stock in trade in Schedule F to its Balance sheet. In Schedule L to its Profit and Loss Account the petitioner has disclosed dividend income of Rs.2.28 crores. Moreover, the fact that assessee is in business of trading of share and securities was also disclosed by the petitioner to the Assessing Officer and the same is reflected in the order dated 24 March 2003 passed under Section 143(3) of the Act wherein the Assessing Officer has recorded the fact that the Petitioner is trader in shares and securities. All these facts would indicate that the petitioner had fully and truly disclosed all the facts relevant to assessment viz. that it was in business of trading in shares and securities as well as the fact that the dividend received by them is claimed as exempted under Section 10(33) of the Act. When the aforesaid fact of full disclosure was pointed out to the Assessing Officer in the objection filed before him, the same was negatived by merely stating that the material facts had come to the notice of the Assessing Officer subsequent to assessment. However, no particulars are given as to when, where, how and what material did he receive warranting the issue of impugned notice. In the order disposing of the objections, a bald reference to meet the above objection is made to the reasons recorded. On perusal of the reasons in support of the impugned notice we do not find any reason which indicates any failure on the part of the petitioner to disclose fully and truly all material facts necessary for assessment. Consequently, on the above ground itself, the impugned notice is without jurisdiction. 8) Besides, in the present facts, we find that during the course of regular scrutiny assessment proceedings, the petitioner in response to the queries of the Assessing Officer by replies dated 18 December 2002 and 28 January 2003 had filed details of the scrip-wise dividend received as well as profit and loss scrip-wise incurred in share trading, the period of holding of the shares and units in Mutual Funds were also disclosed. On consideration of the petitioner's response to the queries made during the scrutiny proceeding the Assessing Officer in the assessment order dated 24 March 2003 has specifically held the dividend income of Rs.2.08 crores to be exempt, while arriving at the petitioner's income chargeable to tax. Thus, there was a clear examination done by the Assessing Officer of the nature of the dividend being claimed to be exempt under Section 10(33) of the Act. Therefore, the impugned notice is bad as it proceeds on a clear change of opinion. On the above ground also the impugned notice is not sustainable. 9) We have recorded the facts of this case in some details in view of the fact that the manner in which the respondent revenue has acted in this particular case clearly shows that they were determined to deny the benefit of exemption under Section 10(33) of the Act to the petitioner on one or the other ground. The Assessing Officer after having passed the assessment order on 24 March 2003 has issued notice for rectification dated 12 March 2004 under Section 154 of the Act on the ground that exemption under Section 10(33) of the Act to the dividend received by the petitioner is not available as dividend is integral part of the traded case. When the petitioner pointed out that benefit of Section 10(33) of the Act has been correctly given and there is no mistake in the assessment order dated 24 March 2003, the Assessing Officer did not pass any order on the notice dated 12 March 2004 under Section 154 of the Act withdrawing or confirming the notice. This non disposal of rectification application under Section 154 of the Act is inexplicable for over 10 years and no explanation is forth coming. It must therefore, be held that the Revenue has given up/withdrawn its claim for rectification in view of the present proceedings for reopening of assessment. 10) Mr. Murlidharan, learned Counsel for the petitioner submits that in the block assessment proceeding this very contention as raised in the reasons in support of the impugned notice was raised i.e. not entitled to the benefit of Section 10(33) of the Act on the dividend received and the Tribunal negatived the contention of the revenue by its order dated 28 February 2006. The contention of the Revenue is that the benefit of the exemption to dividend was not disallowed in the block assessment proceedings but loss on the sale of shares was disallowed. In any case, for the present purpose, there is no reason to examine the above contest as in any view the impugned notice as pointed out herein above is completely without jurisdiction. 10) Mr. Murlidharan, learned Counsel for the petitioner submits that in the block assessment proceeding this very contention as raised in the reasons in support of the impugned notice was raised i.e. not entitled to the benefit of Section 10(33) of the Act on the dividend received and the Tribunal negatived the contention of the revenue by its order dated 28 February 2006. The contention of the Revenue is that the benefit of the exemption to dividend was not disallowed in the block assessment proceedings but loss on the sale of shares was disallowed. In any case, for the present purpose, there is no reason to examine the above contest as in any view the impugned notice as pointed out herein above is completely without jurisdiction. 11)Accordingly, for the reasons indicated above, the impugned notice dated 23 March 2007 is quashed and set aside. Accordingly, for the reasons indicated above, the 12)Petition is allowed. No order as to costs. ( S. C. GUPTE, J.) (M.S. SANKLECHA, J.)