Niti v. The Joint Commissioner Of Income Tax, Special Range, Panajiaayakar Bhavan, Plot

Niti IN THE HIGH COURT OF BOMBAY AT GOA WRIT PETITION NO.1089 OF 2019 CHOWGULE AND COMPANY PVT. LTD.Chowgule House, Mormugao Harbour,Goa 403803 (PAN : )Through its Constituted AttorneyMr. Chandrakant T. Gadkari….PETITIONER Versus 1. THE JOINT COMMISSIONER OF INCOME TAX, SPECIAL RANGE, PANAJIAayakar Bhavan, Plot No.5, EDC Complex, Patto Plaza, Panaji, Goa – 403 001. 2. THE UNION OF INDIAThrough the Principal Secretary,Department of Revenue, Ministry of Finance, Room No.128-B, North Block, New Delhi - 110001 ….RESPONDENTS Mr Firoze Andhyarujina, Senior Advocate with Mr ManekAdhjyarujina, Ms. Shreya Arur ad Ms. S. Kenny, Advocatesfor the Petitioner. Ms Amira Razaq, Standing Counselfor the Respondents. CORAM:M. S. SONAK &BHARAT P. DESHPANDE, JJ.Reserved on :5[th] DECEMBER 2022Pronounced on:6[th] DECEMBER 2022 JUDGMENT: (Per M.S. Sonak, J.) 1.Heard learned Counsel for the parties. 2.Rule. The rule is made returnable immediately with theconsent of and at the request of the learned Counsel for theparties. 3.The Petitioner challenges the reopening of the assessmentfor the Assessment Year (AY) 2012-13, inter alia, on the groundthat there was no failure on the part of the Petitioner to disclosefully and truly all material facts necessary for its assessment forthat Assessment Year, and, therefore, no notice for reopening theassessment could have been issued after the expiry of four yearsfrom the end of the relevant Assessment Year. 4.The Assessing Officer (AO) issued the impugned noticedated 29.03.2019 under Section 148 of the Income Tax Act,1961 (IT Act), seeking to reopen the assessment for AY 2012-13.Thus, the impugned notice was issued after the expiry of fouryears from the end of the relevant AY. Even Ms Razaq did notdispute that for the impugned notice to be sustained, therespondents would have to establish failure on the part of thePetitioner to disclose fully and truly all material facts necessary for its assessment for the relevant AY. Therefore, the main question inthis petition is whether there was any such failure. 5.Upon receipt of the impugned notice, the Petitioner soughtreasons recorded and such reasons came to be furnished byrespondent no.1 to the Petitioner on 23.11.2019. In response, thePetitioner filed detailed objections on 05.12.2019 to reopeningthe assessment. However, respondent no.1, by order dated07.12.2019, rejected the objections. Hence, the present petition. 6.As noted earlier, the reasons for reopening the assessmentwere furnished to the Petitioner on 23.11.2019, and the sameread as follows: “GOVERNMENT OF INDIA MINISTRY OF FINANCE INCOME TAX DEPARTMENT OFFICE OF THE ASSISTANT COMMISSIONER OF INCOME TAX AO AS SPL RANGE PANAJI _______________________________________ Sir/Madam/M/s, Subject: Reasons for re-opening of assessment proceedings forA.Y. 2012-13 — Reg With reference to your letter dated 05.11.2019 submitted through e-portal, the reasons for re-opening of assessment proceedings for theA.Y. 2012-13 in your own case is as under: “1. The assessee is a company carrying on Mining business,manufacture and sale of Iron Ore Pellets, Export of Ore, operation oftippers, transhipper and machinery hire, trading in cranes andshipbuilding. 2. As per the verification report received from O/o JDIT(I&Cl),Bangalore during the year an e-auction of Iron Ore (mining) has beenconducted by the monitoring committee appointed by the Hon’bleSupreme Court of India by the assessee and the total e-auctionedamount for the F. Y.2011-12 was determined as under : 3. To verify the above said transactions and whether the same hasbeen accounted or not a letter u/s 133(6) of the I.T. Act was issued tothe assessee on 13/12/2018 by the ITO(l&Cl), Panaji calling forvarious details in respect of the FY 2011-12 ( AY 2012-13). Theassessee had furnished information vide letter dated 02.01.2019. 2. As per the verification report received from O/o JDIT(I&Cl),Bangalore during the year an e-auction of Iron Ore (mining) has beenconducted by the monitoring committee appointed by the Hon’bleSupreme Court of India by the assessee and the total e-auctionedamount for the F. Y.2011-12 was determined as under : 3. To verify the above said transactions and whether the same hasbeen accounted or not a letter u/s 133(6) of the I.T. Act was issued tothe assessee on 13/12/2018 by the ITO(l&Cl), Panaji calling forvarious details in respect of the FY 2011-12 ( AY 2012-13). Theassessee had furnished information vide letter dated 02.01.2019. 4. As per the verification report, the assessee had filed its return ofincome for the AY 2012-13 on 05.09.2012 declaring an income ofRs.5.83 crore. The details of income declared by the assessee wasexamined and it is found that the e-auctioned amount of iron ore forthe year 2011-12 was of Rs. 64.92 crore has not been offered to tax.In reply to the show cause notice issued by the ITO (I&CI), Panajidated 10.01.2019, the assessee replied that “the iron ore of thecompany was e-auctioned on 03.12.2011 as stated in Annexure 3.During the FY 2011-12, 20,961 tons were e-auctioned by the MC.However no portion of the sale proceeds were received by theCompany during the FY 2011-12. The same were received during FY2013-14 and accounted in that year. The extract of account ofMonitoring Committee for these transaction accounted in FY 2013-14 is enclosed herewith as Annexure-B” 5. Further, as per report in respect of e-auction of iron ore by themonitoring committee appointed the Supreme Court of India that thesaid e-auction took place in the financial year 2011-12 and the samehas to be accounted in the same financial year. As the companymaintain its account as per Mercantile system and hence revenue/salesdetermined (e-auctioned amount) in the FY 2011-12 ( A.Y. 2012-13)has to be accounted in the same year. Hence, the assessee’s commentsas, “amount were received by us in the year 2013-14 and hence weaccounted in AY 2014-15” is not acceptable. 6.Hence, the e-auctioned amount of Rs.64,92,00,000/-determined by the monitoring committee appointed by the Hon'bleSupreme Court of India is taxable in the year of e-auctioned tookplace and amount determined i.e. FY 2011-12 (AY 2013-13).” HIREMATH BASAVARAJ MALLAYA AO AS SPL RANGE PANAJI” 7.Significantly, the reasons furnished do not even allege thatthere was a failure to disclose fully and truly all material factsnecessary for the Petitioner’s assessment for AY 2012-13. Such failure is an essential jurisdictional parameter that must befulfilled before any notice can be issued for reopening theassessment proceedings after the expiry of four years from the endof the relevant AY. In the absence of any such allegation or a plainstatement about compliance with this jurisdictional parameter,the impugned notice cannot be ordinarily sustained. 8.Ms Razaq, however, contended that even though thereasons may not have alleged failure to disclose fully and truly allmaterial facts in so many words, if, factually, such failure isestablished, then the impugned notice should not be interferedwith. 9.A contention similar to the one now raised by Ms Razaq was rejected in Hindustan Lever Ltd. V/s. R.B. Wadkar[1]. Therelevant discussion in paragraph 20 reads as follows : “20. The reasons recorded by the AssessingOfficer nowhere state that there was failure onthe part of the assessee to disclose fully and trulyall material facts necessary for the assessment ofthat assessment year. It is needless to mentionthat the reasons are required to be read as theywere recorded by the Assessing Officer. Nosubstitution or deletion is permissible. Noadditions can be made to those reasons. No 9.A contention similar to the one now raised by Ms Razaq was rejected in Hindustan Lever Ltd. V/s. R.B. Wadkar[1]. Therelevant discussion in paragraph 20 reads as follows : “20. The reasons recorded by the AssessingOfficer nowhere state that there was failure onthe part of the assessee to disclose fully and trulyall material facts necessary for the assessment ofthat assessment year. It is needless to mentionthat the reasons are required to be read as theywere recorded by the Assessing Officer. Nosubstitution or deletion is permissible. Noadditions can be made to those reasons. No inference can be allowed to be drawn based onreasons not recorded. it is for the AssessingOfficer to disclose and open his mind throughreasons recorded by him. He has to speakthrough his reasons. It is for the AssessingOfficer to reach to the conclusion as to whetherthere was failure on the part of the assessee todisclose fully and truly all material factsnecessary for his assessment for the concernedassessment year. It is for the Assessing Officer toform his opinion. It is for him to put hisopinion on record in black and white. Thereasons recorded should be clear andunambiguous and should not suffer from anyvagueness. The reasons recorded must disclosehis mind. Reasons are the manifestation of mindof the Assessing Officer. The reasons recordedshould be self-explanatory and should not keepthe assessee guessing for the reasons. Reasonsprovide link between conclusion and evidence.The reasons recorded must be based onevidence. The Assessing Officer, in the event ofchallenge to the reasons, must be able to justifythe same based on material available on record.He must disclose in the reasons as to which factor material was not disclosed by the assesseefully and truly necessary for assessment of thatassessment year, so as to establish vital linkbetween the reasons and evidence. That vitallink is the safeguard against arbitrary reopeningof the concluded assessment. The reasonsrecorded by the Assessing Officer cannot besupplemented by filing affidavit or making oralsubmission, otherwise, the reasons which werelacking in the material particulars would get supplemented, by the time the matter reaches tothe Court, on the strength of affidavit or oralsubmissions advanced.” 10.Similarly, in Bajaj Allianz Life Insurance Company Ltd.V/s. Deputy Commissioner of Income Tax, Circle1(1)[2],another Division Bench quashed the notice issued after the expiryof four years from the end of the relevant AY, inter alia, on theground that in the reasons furnished, there was not even anallegation of failure on the part of the Assessee to truly and finallydisclose all material facts necessary for assessment. Moreover, theDivision Bench held that mentioning this requirement in thereasons is not an empty formality because it shows that theAssessing Officer is aware of the jurisdictional requirement. 11.In M/s. Anand Developers V/s. Assistant Commissionerof Income Tax Circle 2(1), Goa, Commissioner of IncomeTax[3], the Division Bench held that in the reasons furnished to theAssessee if there is no reference to the alleged failure to disclosematerial facts, the impugned notice issued beyond four years orafter the expiry or from the end of the four years of the relevantAY will not sustain. 2 (2020) 113 taxmann.com 238 (Bombay) 3 2020 (2) TMI 995 (Bombay) 12.Thus, in the present case, the impugned notice wouldordinarily have to be set aside because the reasons furnished to theAssessee do not even allege any failure to disclose truly and fullythe material facts necessary for assessing AY 2012-2013. 11.In M/s. Anand Developers V/s. Assistant Commissionerof Income Tax Circle 2(1), Goa, Commissioner of IncomeTax[3], the Division Bench held that in the reasons furnished to theAssessee if there is no reference to the alleged failure to disclosematerial facts, the impugned notice issued beyond four years orafter the expiry or from the end of the four years of the relevantAY will not sustain. 2 (2020) 113 taxmann.com 238 (Bombay) 3 2020 (2) TMI 995 (Bombay) 12.Thus, in the present case, the impugned notice wouldordinarily have to be set aside because the reasons furnished to theAssessee do not even allege any failure to disclose truly and fullythe material facts necessary for assessing AY 2012-2013. 13.Besides, given Ms Razak’s contention, even if some latitudeis extended to the Revenue by overlooking the absence ofallegation about failure to disclose material facts, the record bearsout that the Petitioner made complete disclosures in the presentcase. Consequently, even on facts, the Revenue failed to establishany failure to disclose truly and fully all material facts necessaryfor its assessment for AY 2012-13. 14.After the Petitioner filed its return, by communicationdated 13.12.2018, the Petitioner was informed that the Revenuewas in possession of information regarding the E-auction of ironore conducted by the Monitoring Committee appointed by theHon’ble Supreme Court of India. The communication referred tothe information available with the Revenue about the Petitioner’siron ore that was E-auctioned during AY 2012-13. In thiscontext, the Petitioner was required to furnishinformation/documents, which included a brief note aboutbusiness activities carried out by the Petitioner, details of miningleases held by the Petitioner and the details of iron ore E- auctioned by the Monitoring Committee for AY 2012-13 in theformat which was prescribed. 15.The Petitioner filed a response on 31.12.2018, in whichcomplete disclosures were made. In particular, the Petitionerdisclosed that its iron ore was E-auctioned on 03.12.2011 asdetailed in Annexure 3 to the communication. The Petitionerfurther informed the Revenue that during AY 2012-13, 209,961tons of ore was E-auctioned by the Monitoring Committee. ThePetitioner pointed out that the Petitioner received no portion ofthe sale proceeds during AY 2012-13. The sale proceeds wereultimately received during AY 2013-14, which was dulyaccounted for during the said year. Even the extract of theaccount of the Monitoring Committee for such transactionsaccounted during AY 2013-14 was enclosed as Annexure 8. 16.The Petitioner also pointed out that the E-auctionedamount of iron ore for AY 2012-13 was of ₹64.92 crores, but thesame was not offered to tax because the Petitioner never receivedthis amount during AY 2012-13. Further, there was uncertaintyabout the status of this amount, given the orders made by theHon’ble Supreme Court on this subject from time to time.Finally, the Petitioner pointed out that no sooner than thisamount of ₹64.92 crores was received in the following AY, the same was offered for tax. The Revenue assessed this offer andtaxed the Petitioner at a higher rate of 34% when the tax rate forAY 2012-13 would have been only 32%. 17.Based upon the above disclosures, the Petitioner’s returnwas duly assessed, and no additions were ordered. Therefore, thefact that the assessment order makes no explicit reference to thedisclosures is hardly relevant. From the above-undisputed material on record, it is 18.From the above-undisputed material on record, it isapparent that the Petitioner did not fail to disclose fully and trulyall material facts necessary for its assessment for the relevant AY2012-13. The impugned notice, therefore, cannot sustain. Ms Razaq, however, contended that since the Petitioner was same was offered for tax. The Revenue assessed this offer andtaxed the Petitioner at a higher rate of 34% when the tax rate forAY 2012-13 would have been only 32%. 17.Based upon the above disclosures, the Petitioner’s returnwas duly assessed, and no additions were ordered. Therefore, thefact that the assessment order makes no explicit reference to thedisclosures is hardly relevant. From the above-undisputed material on record, it is 18.From the above-undisputed material on record, it isapparent that the Petitioner did not fail to disclose fully and trulyall material facts necessary for its assessment for the relevant AY2012-13. The impugned notice, therefore, cannot sustain. Ms Razaq, however, contended that since the Petitioner was 19.Ms Razaq, however, contended that since the Petitioner wasfollowing the mercantile system of accounting, even the amountsthat were accrued to the Petitioner ought to have been offered totax irrespective of whether the Petitioner actually received thesame or not. Since such an amount of ₹64.92 crores was notoffered for assessment during AY 2012-13, even though accordingto her this amount was accrued to the Petitioner, there was failureto disclose fully and truly all material facts. 20.As noted earlier, the Petitioner had fully and fully disclosedall material facts regarding this amount of ₹64.92 crores. Basedon the same, the Assessing Officer could have taken the view thateven the amount of ₹64.92 crores warrants tax payment becausethe same was accrued to the Petitioner during the AY 2012-13.Further, perhaps the Revenue could have explored the possibilityof reopening the assessment within four years from the end of therelevant AY. However, for any attempt to reopen the assessmentafter four years from the end of the relevant AY, the Revenue hadto establish failure on the part of the Assessee to disclose fully andtruly all material facts necessary for its assessment for that relevantAY. In the absence of this jurisdictional parameter, the impugnednotice seeking to reopen the assessment four years after the end ofthe relevant AY would not sustain. 21.The question in such matters is not whether the amounthad indeed accrued to the Petitioner during the AY 2012-13. Atbest, in the facts of the present case, that would be a debatableissue. However, the main issue is whether the Petitioner had fullydisclosed all material facts concerning the transaction of E-auction by the Monitoring Committee, the sale of ore, and thesale of 209,961 tons of ore by the Monitoring Committee. Onceit is established that all material facts were fully and truly disclosed, the Revenue would not be entitled to reopen theassessment after four years from the end of the relevant AY. 22.InTitanor Components Ltd. V/s. AssistantCommissioner of Income Tax[4], the Division Bench of thisCourt pointed out that there is a well-known difference between awrong claim by an Assessee after disclosing the true and materialfacts and the wrong claim made by the Assessee by withholdingmaterial facts fully and truly. Only in the latter case would theAssessing Officer be entitled to reopen the assessment after fouryears. 23.Therefore, the question is not whether the Petitioner wasright in not offering the amount of ₹64.92 crores to tax duringAY 2012-13, but the question is whether the Petitioner haddisclosed, fully and truly all material facts concerning this amountof ₹64.92 crores, which, incidentally, was never received by thePetitioner during AY 2012-13. Moreover, the Petitioner disclosedthis material fact and explained why this amount was not broughtto tax during AY 2012-13. Apparently, this explanation foundfavour with the Assessing Officer; therefore, this amount was notadded to the returned income for the relevant AY. 4 (2012) 20 taxmann.com 805 (Bombay) 23.Therefore, the question is not whether the Petitioner wasright in not offering the amount of ₹64.92 crores to tax duringAY 2012-13, but the question is whether the Petitioner haddisclosed, fully and truly all material facts concerning this amountof ₹64.92 crores, which, incidentally, was never received by thePetitioner during AY 2012-13. Moreover, the Petitioner disclosedthis material fact and explained why this amount was not broughtto tax during AY 2012-13. Apparently, this explanation foundfavour with the Assessing Officer; therefore, this amount was notadded to the returned income for the relevant AY. 4 (2012) 20 taxmann.com 805 (Bombay) 24.As noted earlier, the record also bears out that the Petitionerduly accounted for the above amount for the following AY 2013-14, and appropriate tax was paid thereon. Moreover, the AO forAY 2013-2014 did not object to this amount of Rs.64.92 croresbeing offered to tax in AY 2013-2014 or not being offered to taxin AY 2012-2013. 25.Thus, for all the above reasons, we are satisfied that theimpugned notice exceeds the prescribed jurisdictional parameters.The impugned notice is accordingly quashed and set aside. 26.The rule is made absolute in terms of prayer clauses (a),(b)and (c), which read as follows: (a) Declare that the Impugned Notice issuedunder Section 148 of the Act dated 29 March2019 (Exhibit A) and the Impugned Order onobjections dated 07 December 2019 (Exhibit D)and the impugned reassessment proceedings for AY2012-13 are wholly without jurisdiction, illegal,arbitrary and liable to be quashed; (b) Issue a Writ of Certiorari or a Writ in thenature of Certiorari or any other appropriate Writ,order or direction under Article 226 of theConstitution of India, quashing the ImpugnedNotice issued under Section 148 of the Act dated29 March 2019 (Exhibit A) and the ImpugnedOrder on objections dated 07 December 2019 (Exhibit D) and the impugned reassessmentproceedings for AY 2012-13 as being whollywithout jurisdiction, illegal and arbitrary; (c) Issue a Writ of Mandamus or a Writ in thenature of Mandamus or any other appropriateWrit, order or direction, directing the Respondentsto refrain from making any reassessment in thePetitioner’s case for AY 2012-13. 27.There shall be no order for costs. BHARAT P. DESHPANDE, J.NITI K Digitally signed by NITI K HALDANKAR HALDANKARDate: 2022.12.06 14:48:11 +05'30' M. S. SONAK, J.