Sca/64/2022 Of Bachhraj Ghewarchand Begani v. Income Tax Officer Ward 1(1)(3)

IN THE HIGH COURT OF GUJARAT AT AHMEDABADR/SPECIAL CIVIL APPLICATION NO. 64 of 2022 FOR APPROVAL AND SIGNATURE: HONOURABLE MR. JUSTICE N.V.ANJARIA andHONOURABLE MR. JUSTICE BHARGAV D. KARIA ==========================================================1Whether Reporters of Local Papers may be allowedto see the judgment ?2To be referred to the Reporter or not ?3Whether their Lordships wish to see the fair copyof the judgment ?4Whether this case involves a substantial questionof law as to the interpretation of the Constitutionof India or any order made thereunder ?==========================================================BACHHRAJ GHEWARCHAND BEGANI VersusINCOME TAX OFFICER WARD 1(1)(3) ==========================================================Appearance:MR TUSHAR HEMANI,SENIOR ADVOCATE WITH MS VAIBHAVI K PARIKH(3238) for the Petitioner(s) No. 1MR NIKUNT RAVAL FOR MRS KALPANAK RAVAL(1046) for the Respondent(s) No. 1========================================================== CORAM:HONOURABLE MR. JUSTICE N.V.ANJARIAandHONOURABLE MR. JUSTICE BHARGAV D. KARIA Date : 27/09/2022 ORAL JUDGMENT (PER : HONOURABLE MR. JUSTICE BHARGAV D. KARIA) 1.Heard learned Senior Advocate Mr. TusharHemani for the petitioner assisted by learnedHemani for the petitioner assisted by learned advocate Ms. Vaibhavi Parikh for the petitioner and learned advocate Mr. Nikunt Raval for learned advocate Ms. Kalpana Ravalfor the respondents. 2.Having regard to the controversy involved inthis petition, with the consent of thethis petition, with the consent of the learned advocates for the respective parties,the petition is taken up for final hearing. 3.Rule returnable forthwith. Learned advocateMr. Nikunt Raval waives service of notice ofrule for the respondents. 4.The petitioner has preferred this petitionunder Article 226 of the Constitution of India challenging the impugned notice dated30.03.2021 issued under section 148 of theIncome Tax Act, 1961 (For short “the Act”)proposing to reopen the assessment for theAssessment Year 2013-2014. petitioner is an individual. During the yearunder consideration i.e. 2013-2014, the petitioner derived income from salary andincome from other sources and also earnedcertain income in the form of Annuity fromLIC. The petitioner also incurred interestexpenses of Rs.43,56,479/-. 5.1) The petitioner filed return of income for the year under consideration on29.03.2014 declaring total income atRs.1,15,37,670/-. It is the case of the petitioner that while computing income forthe year under consideration under the head ‘Income from other sources’, interestexpenses of Rs.43,56,479/- were deducted fromAnnuity from LIC which, in turn, resulted inNet loss under the head ‘Income from othersources’. Such loss was thereafter, set-offagainst the salary income. It is the case ofthe petitioner that the aforesaid facts arevery much evident form the computation oftotal income as well as the return of incomefiled in the prescribed form being Form ITR-2. 5.2) The case of the petitioner for theyear under consideration was selected forscrutiny. Various details were called for bythe then Assessing Officer from time to timeand the same were duly furnished by thepetitioner. The then Assessing Officer, videnotice dated 07.05.2015 issued under section142(1) of the Act called upon the petitionerto furnish various details. 5.3) The petitioner, vide letter dated14.08.2015, furnished various details ascalled for. 5.4) It is the case of the petitioner that the then Assessing Officer, afterperusing such details and information furnished by the petitioner from time totime, consciously chose not to disturb the claim of interest expenses while framingassessment under section 143(3) of the Actvide order dated 31.03.16. 5.3) The petitioner, vide letter dated14.08.2015, furnished various details ascalled for. 5.4) It is the case of the petitioner that the then Assessing Officer, afterperusing such details and information furnished by the petitioner from time totime, consciously chose not to disturb the claim of interest expenses while framingassessment under section 143(3) of the Actvide order dated 31.03.16. 5.5) Thereafter, the respondent issuedthe impugned notice dated 30.03.2021 under section 148 of the Act seeking to reopen thecase of the petitioner for the year underconsideration. 5.6) The petitioner, in response to the impugned notice, filed return of income on16.04.2021 and further requested therespondent to supply copy of reasons forreopening. 5.7) The respondent supplied the copy ofreasons for reopening vide letter dated03.05.2021. The reasons recorded by theAssessing Officer for reopening the assessment under section 147 of the Act readas under : “1. Brief details of the assessee: The assesses company filed itsreturn of income for AY 2013-14 on29-03-2014 declaring total income ofRs.1,15,37,670/-.Assessmentu/s.143(3) of the Act finalized on31.03.2016 determining total incomeat Rs. 1,94,24,300/- 2. Brief Details of Informationcollected/ received by the AQ: In this case information wasreceived that assessee has receivedannuity from LIC of 20,04,193/-. Itwas further noticed that assesseehas shown expenditure on netinterest payment on loan of 43,56,479/-. This net interestexpenditure was adjusted againstannuity from LIC of 20,04,193/-. Theremaining amount of 23,52,286 wasadjusted against salary income. Theannuity from LIC falls under thehead income from other sources andfor computing income under this headexpenditure laid out or expendedwholly and exclusively for thepurpose of making or earning suchincome is allowable and therehappened to be no expenditure inrespect of earning of annuity noadjustment of interest expenditurewas allowable and income from othersources was to be determined at20,04,193 and also consequent tothis loss under this head claimedand adjusted against salary is notallowabletotheassessee.Therefore, the total of interestexpenses adjusted against the salaryincome and LIC annuity amounting toRs. 43,56,479/- was not allowable tothe assessee. 3 Analysis of information collected/received Information received has beenanalyzed and it is found that thetotal of interest expenses adjustedagainst the salary income and LICannuity amounting to Rs. 43,56,479/-is not allowable to the assessee. 4. Enquiries made by the AO assequeltoinformationcollected/received On receipt of the information, thecase records of the assesseealongwith the return of income hasbeen verified. On verification ofthe same it is found that theinformation that the assessee hasclaimed set off of income againstloss of interest with respect to LICannuity and Salary income againstinterest loss. 5 Findings of the AO As per the information received,analysesmadeandenquiriesconducted by verifying the caserecords and return of income, theinformation that the assessee hasclaimed setoff of income againstloss of interest with respect to LICannuity and Salary income againstinterest loss is found to becorrect. 6. Basis of forming reason tobelieve and details of escapement ofincome In this case information wasreceived that assessee has receivedannuity from LIC 20,04,193/-. It wasfurther noticed that assessee hasshown expenditure on net interestpayment on loan of 43,56,479/-. Thisnetinterestexpenditurewasadjusted against annuity from LIC of20,04,193/-. The remaining amount of23,52,286 was adjusted againstsalary income. The annuity from LICfalls under the head income fromother sources and for computing 6. Basis of forming reason tobelieve and details of escapement ofincome In this case information wasreceived that assessee has receivedannuity from LIC 20,04,193/-. It wasfurther noticed that assessee hasshown expenditure on net interestpayment on loan of 43,56,479/-. Thisnetinterestexpenditurewasadjusted against annuity from LIC of20,04,193/-. The remaining amount of23,52,286 was adjusted againstsalary income. The annuity from LICfalls under the head income fromother sources and for computing income under this head expenditurelaid out or expended wholly andexclusively for the purpose ofmaking or earning such income isallowable and there happened to beno expenditure in respect of earningof annuity, no adjustment ofinterest expenditure was allowableand income from other sources was tobe determined at 20,04,193 and alsoconsequent to this loss under thishead claimed and adjusted againstsalary is not allowable to theassessee. Therefore, the total ofinterest expenses adjusted againstthe salary income and LIC annuityamounting to Rs. 43,56,479/- is notallowable to the assessee. Theinformationwasanalyzedenquires were made by the assessingofficer by verifying the caserecords and return of income, theinformation that the assessee hasclaimed setoff of income againstloss of interest with respect to LICannuity and Salary income againstinterest loss is found to becorrect. In view of the above, I have reasonto believe that the incomechargeable to tax has escapedassessment to the tune of Rs.4656479/- in the case of theassessee for the A.Y. 2013-14 isrequired to be reopened u/s. 147 ofthe I. T. Act 7. Findings of AO on true and fulldisclosureofmaterialfacts necessary for assessment underProviso to section 147: The assesses company filed itsreturn of income for AY 2013-14 on29-03-2014 declaring total income ofRs. 1,15,37,670/-. Assessment u/s.143(3) of the Act finalized on31.03.2016 determining total incomeat Rs. 1,94,24,300/-. During thecourse of assessment proceedings theassessee failed to disclose the factregarding set off of income againstloss of interest with respect to LICannuity and salary income againstinterest loss is found to becorrect. Hence there is failure onthe part of the assessee to discloseall material and facts truly andfully necessary for its assessmentfor the year under consideration. 8. Applicability of the provisionsof section 147/151 to the facts ofthe case. The assesses company filed itsreturn of income for AY 2013-14 on29-03-2014 declaring total income ofRs.1,15,37,670/-.Assessmentu/s.143(3) of the Act finalized on31.03.2016 determining total incomeat Rs. 1,94,24,300/-. Since, 4 yearsfrom the end of the relevant yearhas expired in this case, therequirements to initiate proceedingu/s. 147 of the Act are reason tobelieve that income for the yearunder consideration has escapedassessment because of failure on thepart of the assessee to disclose fully and truly all material factsnecessary for its assessment for theassessment year under consideration.It is pertinent to mention here thatreasons to believe that income hasescaped assessment for the yearunder consideration have beenrecorded above (paragraph 3 to 6). Ihave carefully considered theassessment records containing thesubmissions made by the assessee inresponse to various notices issuedduring the assessment proceedingsand have noted that the assessee hasnot fully and truly disclosed thematerial facts necessary for itsassessment for the year underconsideration. It is evident from the above factsthat the assessee had not truly andfully disclosed material factsnecessary for his assessment for theyear under consideration therebynecessitating reopening u/s. 147 ofthe Act. It is evident from the above factsthat the assessee had not truly andfully disclosed material factsnecessary for his assessment for theyear under consideration therebynecessitating reopening u/s. 147 ofthe Act. It is pertinent to mention here thatthe requisite material facts asnoted above in the reasons forreopening were embedded in such amanner that material evidence couldnot be discovered by the AO,accordingly attracting provisions ofExplanation 1 of section 147 of theAct. It is evident from the abovediscussion that in this case, theissues under consideration werenever examined by the AO during the course of regular assessment. It isimportant to highlight here thatmaterial facts relevant for theassessment on the issue underconsideration were not filed duringthe course of assessment proceedingand the same may be embedded inannual report, audited P & L A/c:,balance sheet and books of accountin such a manner that it was notpossible by the AO to extract theseinformation. For aforesaid reasons,it is not a case of change ofopinion by the AO In this case more than four yearshave lapsed from the end ofassessment year under consideration.Hence necessary sanction to issuenotice u/s. 148 has been obtainedseparatelyfromPrincipalCommissioner of Income Tax as perthe provisions of section 151 of theAct.” 5.8) The petitioner, vide letter dated08.05.2021,raisedobjectionsagainst reopening of the assessment and requested todrop the reassessment proceedings. supply the copies of various documents pertaining to assessment carried out by therespondent Assessing Officer. 5.10) The respondent, vide order dated23.07.2021, disposed off such objections and,inter-alia, held that the action of reopeninginitiated for the year under consideration isjustified. 5.11) Being aggrieved by the impugnedaction of the respondent, the petitioner haspreferred the present petition. 6.Learned Senior Advocate Mr. Tushar Hemani forthe petitioner submitted that the impugnednotice is patently bad, illegal and contraryto law inasmuch as the assessment for theyear under consideration was framed undersection 143(3) of the Act and the same issought to be reopened beyond the period offour years from the end of the relevant assessment year. It was submitted that anassessment framed under section 143(3) of theAct can be reopened beyond the prescribedperiod of four years from the end of therelevant assessment year if and only if anincome chargeable to tax has escapedassessment by reason of failure on the partof the petitioner to file return undersection 139 or in response to the noticeissued under section 142(1) or section 148or to disclose fully and truly all materialfacts necessary for his assessment for thatAssessment Year 6.1) It was submitted that there is nofailure on the part of the petitioner todisclose fully and truly in relation to thethe interest expenses which is evident fromProfit & Loss account, Computation of income,Return of income, Notice dated 07.05.2015, Letter dated 14.08.2015 and Assessment Order dated 31.03.2016 and therefore, the impugnednotice issued by the respondent under section148 of the Act for the year underconsideration deserves to be quashed and setaside. 6.2) It is submitted that the respondenthas stated in reasons for reopening that thecase has been reopened based on someinformation received by the respondent.However, though the petitioner specificallyrequested for copy of such information, therespondent has not provided copy of the same.Had it been the case that there was someinformation, the same would have beenprovided to the petitioner. This shows thatthere is no new information based on which,it can be said that there is escapement ofincome chargeable to tax. 6.3) It was submitted that in the order Letter dated 14.08.2015 and Assessment Order dated 31.03.2016 and therefore, the impugnednotice issued by the respondent under section148 of the Act for the year underconsideration deserves to be quashed and setaside. 6.2) It is submitted that the respondenthas stated in reasons for reopening that thecase has been reopened based on someinformation received by the respondent.However, though the petitioner specificallyrequested for copy of such information, therespondent has not provided copy of the same.Had it been the case that there was someinformation, the same would have beenprovided to the petitioner. This shows thatthere is no new information based on which,it can be said that there is escapement ofincome chargeable to tax. 6.3) It was submitted that in the order disposing off the objections, it is statedthat when the petitioner has failed todisclose material facts necessary forassessment, it is a new material in the handsof the Assessing Officer which is good enoughfor the Assessing Officer to reopen the caseof the petitioner. It was submitted that suchan observation in the order disposing off theobjections shows that there is no informationat all based on which, the case has beenreopened. 6.4) Learned Senior Advocate Mr. Hemanisubmitted that the condition precedent forthe purpose of resorting to reopeningproceedings under the provisions of section147 of the Act is that there must beescapement of any income chargeable to tax.In absence of escapement of any incomechargeable to tax, it is not open for theDepartment to reopen the case of an assessee. In the present case, the petitioner hadincurred interest expenses on borrowed fundswhich were utilized for the purposes ofinvestment in shares. Hence, set-off of suchinterest expenses against income of thepetitioner is very much allowable, as hasbeen done by the petitioner. It was thereforesubmitted that even on merits, the claim ofinterest expenses of the petitioner isjustified in the eye of law. 6.5) It was submitted that as per section151 of the Act, no notice shall be issuedunder section 148 of the Act after the expiryof a period of four years from the end of therelevant assessment year unless the PrincipalChief Commissioner or Chief Commissioner or Principal Commissioner or Commissioner issatisfied, on the reasons recorded by theAssessing officer, that it is a fit case forthe issue of such notice. Thus, in case of reopening beyond a period of four years fromthe end of the relevant assessment year, itis mandatory on the part of the AssessingOfficer to obtain sanction from the PrincipalChief Commissioner or Chief Commissioner orPrincipal Commissioner or Commissioner. Sucha sanction should not be merely mechanical in nature. The concerned Principal ChiefCommissioner or Chief Commissioner orPrincipal Commissioner or Commissioner mustrecord satisfaction in a detailed mannerafter perusing the entire material on recordwhich has been made the basis by theAssessing officer for reopening the case ofan assessee. For that purpose, it is verymuch essential that there is application ofmind at the end of the concerned theconcerned Principal Chief Commissioner orChief Commissioner or Principal Commissioneror Commissioner. Mere endorsement of the viewtaken by the concerned Assessing Officer would not meet the requirement of theprovisions of section 151 of the Act. It wassubmitted that in the present case, reopeningis beyond a period of four years from the endof the relevant assessment year and hence,sanction of Principal Chief Commissioner orChief Commissioner or Principal Commissioner or Commissioner is to be mandatorily would not meet the requirement of theprovisions of section 151 of the Act. It wassubmitted that in the present case, reopeningis beyond a period of four years from the endof the relevant assessment year and hence,sanction of Principal Chief Commissioner orChief Commissioner or Principal Commissioner or Commissioner is to be mandatorily obtained. However, there is no application ofmind at the end of the Principal ChiefCommissioner or Chief Commissioner orPrincipal Commissioner or Commissioner whilesanctioning the issuance of notice undersection 148 of the Act. Rather, reopening hasbeen sanctioned merely in a mechanical mannerwhich is not permissible in the eye of law. 7.On the other hand learned advocate Mr. NikuntRaval for the respondent submitted that onRaval for the respondent submitted that on perusal of records, it was seen that the assessee had deducted interest expenses on loan of Rs. 43,56,479/- from Annuity from LICof Rs. 20,04,193/-, which in turn resulted innet loss from Income from other sources ofRs. 23,52,286/-. Such loss under Income fromother sources was set off against salaryincome, but, the assessee has only providedgeneral details during the course of regularassessment proceedings. It was submitted thatassessing officer while recording reasons forreopening has formed reason to believe thatfor computing income under the head ‘Incomefrom other sources, expenditure laid out orexpended wholly and exclusively for thepurpose of making or earning such income isallowable and there happened to be noexpenditure in respect of earning of annuity,so no adjustment of interest expenditure wasallowable and also consequent adjustment fromsalary income was also not allowable. It wassubmitted that the assessee has neverdisclosed the above fact before the Assessing Officer during the course of regularassessment proceedings. 7.1) It was submitted that the assesseehas never provided details with regard toquestion no. 13 which was asked videquestionnaire issued under section 142(1) ofthe Act on 31.08.2015 with respect to nexusof LIC annuity income of Rs. 20,04,193/- andinterest payment expenses of Rs. 43,56,479/-.It was therefore, submitted that there was aclear failure on the part of the petitionerto disclose fully and truly facts necessaryfor assessment. 7.2) It was submitted that the prime criteria for reopening the case for theassessing Officer is that he should besatisfied that the income chargeable to taxhas escaped assessment. In the present case,the Assessing Officer from the case records, had information in his hands that an amountof Rs. 43,56,479/- has escaped assessment.The Assessing Officer has analyzed the caserecords and made enquires which werenecessary on the basis of material availableon records and then arrived at reason tobelieve that income has escaped assessment.Thereafter, after recording the reasons and obtaining approval from the competentauthority, the Assessing Officer issuednotice under section 148 of the Act. It wassubmitted that the merits of the case are notto be discussed at this stage and the samemay be submitted by the assessee during theassessment proceedings. In support of suchsubmission, reliance is placed on decision ofthe Hon’ble Apex Court in the case of RaymondWoolen Mills Ltd vs ITO reported in 236 ITR34 wherein it is held that at the time ofrecording the reason for satisfaction of theassessing Officer, there should be prima facie some material on the basis of which thedepartment could re-open the case. Thesufficiency or correctness of the material isnot a thing to be considered at this stage.It will be open to the assessee to prove thatthe assumption of the fact made in the noticewas erroneous at the time of assessmentproceedings. facie some material on the basis of which thedepartment could re-open the case. Thesufficiency or correctness of the material isnot a thing to be considered at this stage.It will be open to the assessee to prove thatthe assumption of the fact made in the noticewas erroneous at the time of assessmentproceedings. 7.3) Learned advocate Mr. Raval submittedthat the issue of notice under section 148of the Act and terms of section 151 of theAct are done on systems and unless theappropriate approving authority is notsatisfied with the reasons recorded and doesnot approve the issue of notice under section148 of the Act, the Assessing Officer cannotissue the notice for reopening the assessmentunder section 148 of the Act, as per theexisting system. It was submitted that thesanction/approvaloftheappropriate authority was sought before issuance ofnotice under section 148 of the Act and theapproval so accorded was on merits post theauthority satisfying itself as to thecorrectness of the reopening. 8.Having heard the learned advocates for therespective parties and having considered the facts and materials on record as well assubmissions made by learned advocates forboth the sides, it appear that it is not indispute that the Assessing Officer issued theimpugned notice under section 148 of the Actfor the Assessment Year 2013-2014 beyond theperiod of four years as the regularassessment order under section 143(3) of theAct was passed on 31.03.2016 afterconsidering the relevant details, documents,explanation, certification etc. by the Assessing Officer. 9.On perusal of the reasons recorded, it isapparent that there is no new independentmaterial available with the Assessing Officerwhich is relied upon to issue the impugnednotice under section 148 of the Act. Theimpugned notice is issued only on analysis of the materials made available by the petitioner assessee during the course ofregular assessment. The issue with regard toannuity income from LIC amounting toRs.20,04,193/- is already disclosed by theassessee as income in the return of incomeand interest amount of Rs.43,56,479/- isclaimed as expenditure which was consideredduring the course of the regular assessment.Reasons recorded also discloses it is as perthe information received, analysis made andinquiry conducted by the Assessing Officer onthe basis of verification of case record andreturn of income. Thus, there is no new material available with the Assessing Officerand therefore, analysing the material whichis available on record would amount to changeof opinion on part of the Assessing Officerand therefore, in facts of the case, theAssessing Officer could not have assumed anyjurisdiction to reopen the assessment beyondthe period of four years when the assesseehas disclosed truly and fully all materialfacts relevant for the assessment as perproviso to section 147 of the Act. 10.The Apex Court in case of Commissioner of Income tax v. Kelvinator of India Ltd. reported in (2010) 320 ITR 561(SC) has heldas under: “2. A short question which arises fordetermination in this batch of civilappeals is, whether the concept of"change of opinion" stands obliteratedwith effect from 1st April, 1989, i.e.,after substitution of Section 147 ofthe Income Tax Act, 1961 by Direct TaxLaws (Amendment) Act, 1987? xxxx 10.The Apex Court in case of Commissioner of Income tax v. Kelvinator of India Ltd. reported in (2010) 320 ITR 561(SC) has heldas under: “2. A short question which arises fordetermination in this batch of civilappeals is, whether the concept of"change of opinion" stands obliteratedwith effect from 1st April, 1989, i.e.,after substitution of Section 147 ofthe Income Tax Act, 1961 by Direct TaxLaws (Amendment) Act, 1987? xxxx 6. …………prior to Direct Tax Laws(Amendment) Act, 1987, re-opening couldbe done under above two conditions andfulfillment of the said conditionsalone conferred jurisdiction on theAssessing Officer to make a backassessment, but in section 147 of theAct [with effect from 1st April, 1989],they are given a go-by and only onecondition has remained, viz., thatwhere the Assessing Officer has reasonto believe that income has escapedassessment, confers jurisdiction to re-open the assessment. Therefore, post-1st April, 1989, power to re-open ismuch wider, However, one needs to givea schematic interpretation to the words"reason to believe" failing which, weare afraid, Section 147 would givearbitrary powers to the AssessingOfficer to re-open assessments on thebasis of "mere change of opinion",which cannot be per se reason to re-open. We must also keep in mind theconceptual difference between power toreview and power to re-assess. TheAssessing Officer has no power toreview; he has the power to re-assess.But re-assessment has to be based onfulfillment of certain pre-conditionand if the concept of "change ofopinion" is removed, as contended onbehalf of the Department, then, in thegarb of re-opening the assessment,review would take place. One must treatthe concept of "change of opinion" asan in-built test to check abuse ofpower by the Assessing Officer…..” 11.The Assessing Officer issued noticeunder section 148 of the Act only to make aroving inquiry into the facts which werealready considered by the Assessing Officerat the time of framing the originalassessment under section 143(3) of the Act.It appears that the Assessing Officer nowwants to re-verify the facts which is notpermissible to be an acceptable ground forexercising powers to reopen the assessment. 12.For the foregoing reasons, the impugnednotice dated 30.03.2021 issued under section148 of the Act by the respondent exercisingthe powers to reopen the assessment for theAssessment Year 2013-2014 is illegal and hereby quashed and set aside. As aconsequence, order dated 23.07.2021 of theAssessing Officer disposing of the objections of the petitioner against the impugned notice is also quashed and set aside. 13.The petition succeeds and is allowed.Rule is made absolute to the aforesaidextent. No order as to costs. (N.V.ANJARIA, J) RAGHUNATH R NAIR (BHARGAV D. KARIA, J)