Sh. Pradyot K. Misra v. Assistant Commissioner Of Income-Tax And Anr

* IN THE HIGH COURT OF DELHI AT NEW DELHI Decided On : 04.03.2014 +W.P.(C) 272/2013 & CM APPL. 560/2013 SH. PRADYOT K. MISRA..... Petitioner Through : Mr. Ajay Vohra, Ms. Kavita Jha& Ms. Bhoomika Choudhary, Advs. Versus ASSISTANT COMMISSIONER OF INCOME-TAX AND ANR. ..... RespondentsThrough:Ms.SuruchiAggarwal,Sr.Standing Counsel & Mr. Judy James, Advs. CORAM:HON'BLE MR. JUSTICE S. RAVINDRA BHATHON'BLE MR. JUSTICE R.V. EASWAR MR. JUSTICE S. RAVINDRA BHAT (OPEN COURT)% 1.In this proceeding under Article 226 of the Constitution of theIndia, the petitioner challenges a notice under Section 147/148 of theIncome Tax Act issued by the respondent – (hereafter referred to as“the revenue”) on 26.03.2012. 2.The facts briefly are that the petitioner is a retired CentralGovernment officer and had served the Income Tax Department invarious capacities, including as Chief Commissioner of Income Tax(CCIT) and Director General of Income Tax (Vigilance). He wasappointed as Income Tax Ombudsman and thereafter took voluntary retirement from that post on 19.11.2007. He had filed a regular returnof income for the Assessment Year 2005-06 on 09.08.2005. That wasprocessed and accepted under Section 143(1). After about 7 yearsfrom the end of the assessment year, he received the notice impugnedin this case, issued by the revenue, proposing to reassess his incomeunder Section 147/148 on the ground that income had escapedassessment due to his failure to disclose material facts. The impugnednotice was based upon a tax evasion Petition given to the Revenue bya serving Commissioner of Income Tax, then posted at Ranchi. 3.The petitioner alleges that this Tax Evasion Petition was issuedout of personal vendetta of the complainant who was known to usescandalous language and level false and baseless allegations and thathe had also launched frivolous litigation solely with a view to causeharassment. The Revenue, at the request of the petitioner, furnished acopy of the reasons to believe recorded under Section 147 of the Actto support the re-opening of assessment. The material portions of thereasons so recorded are extracted below: “The details of investment in immovable property whichhas not been declared in return of income and notincluded in the taxable income disclosed by theassessee, pertains to several assessment years beginningA.Y. 2004-2005 onwards. One specific investment inimmovable property being one single floor flat on a plotof about 300 sq. yards. At D-877, IInd floor, NewFriends Colony, New Delhi- 110065 was alleged to havebeen acquired by assessee during F.Y 2004 -2005relevant to A.Y. 2005-2006 and the value of the propertywas alleged to be in the region of 8-10 crores. It was alleged by the complainant that the assessee has madeinvestment in the said property out of his undisclosedincome and has not disclosed the investment andcorresponding income of that transaction in his returnsof income of the relevant assessment year and to thatextent there was concealment of income and evasion oftax by the assessee for A.Y 2005-2006 relevant for F.Y.2004-2005. Perusal of the returns of income of theassessee for A.Y. 2005-2006 as filed by it show that nodisclosure is made by the assessee about its linkage withthe said property for the source of the same or thesource of the investment in that property or the status ofthe property in the hands of the assessee as also in whatcapacity and for what authority, the assessee was usingthat property as his residence. alleged by the complainant that the assessee has madeinvestment in the said property out of his undisclosedincome and has not disclosed the investment andcorresponding income of that transaction in his returnsof income of the relevant assessment year and to thatextent there was concealment of income and evasion oftax by the assessee for A.Y 2005-2006 relevant for F.Y.2004-2005. Perusal of the returns of income of theassessee for A.Y. 2005-2006 as filed by it show that nodisclosure is made by the assessee about its linkage withthe said property for the source of the same or thesource of the investment in that property or the status ofthe property in the hands of the assessee as also in whatcapacity and for what authority, the assessee was usingthat property as his residence. It was informed by the complainant that the assessee hasfiled an affidavit before the Hon’ble High Court CWPNo. 6274 of 2008 titled Sh. S.K. Srivastava Vs. CVC &others wherein he has given property No. D-877, IIndFloor, New Friends Colony, New Delhi – 110 065 as hisaddress. A copy of affidavit filed by the assessee beforethe High Court was provided by the complainant thatdiscloses property NO. D-877, IInd Floor, New FriendsColony as his address and residence and thereforeprima facie, the link between the property at D-877, IIndFloor, New Frieds Colony, New Delhi- 110 065, whichwas disclosed as residence of assessee before Hon’bleDelhi High Court on affidavit and the assessee standscorroborated and there being as disclosure about thestatus of the said property in the returns of income forA.Y 2005 – 2006 relevant for F.Y. 2004-2005 as filed bythe assessee or in any assessment year thereafter orprior to that, the source of investment in the saidproperty needs to be enquired into as to what was the status in the hands of the assessee as this was notdisclosed by the assessee and in what capacity theasseesee was using this property as his residence. The enquiries conducted by this office reveal thatproperty is owned by one Sh. K.K.Khanna in therecords of MCD it has further been alleged by thecomplainant that the aforesaid flat has been acquiredthrough power of attorney during F.Y. 2004 – 2005relevant to A.Y. 2005-2006 out of concealed income ofthe assessee which has not been offered to tax and onwhich no tax has been either paid or collected by thedepartment although the same is payable. It has furtherbeen alleged that one MTNL landline telephone wasinstalled at Flat NO. 877, IInd Floor, New FriendsColony, New Delhi – 110 065 which was surrendered bySh. P.K. Misra after the complainant found out that Sh.P.K. Misra had invested his unaccounted incomeconcealed from tax in the said flat. Since there is nodisclosure about any link between Sh. P.K. Misra andthe property and the said property is admitted onaffidavit sworn by the assessee and filed before Hon’bleDelhi High Court as his address & residence and thecost of property or the rent of the property as may be thecase,exceedsthelimitprescribedU/s147forassumption of jurisdiction to re-openthe assessment,this is considered to be a fit enough case for initiation ofproceedings U/s 147 and issue of notice U/s 148 ofIncome Tax Act, 1961, The complainant has alleged that during the periodbeginning 01.04.2004 i.e. F.Y. 2004-2005 relevant toA.Y. 2005 – 2006, the assessee has constructed abungalow on 175, Green Woods, Government Officers, Co-operative Housing Society, Sector – Omega, GreaterNoida, Uttar Pradesh at a cost of about Rs.1.50 crores.Perusal of the return of income does not disclose anyinvestment in the property at Greater Noida. Thealleged investment in the property exceeds the limitprescribed in section 147 for assumption of jurisdictionU/s 147. It is therefore considered to be a fit case forinitiation of proceedings U/s 147/148 of the Income TaxAct, 1961 on this ground as well.” The complainant has alleged that during the periodbeginning 01.04.2004 i.e. F.Y. 2004-2005 relevant toA.Y. 2005 – 2006, the assessee has constructed abungalow on 175, Green Woods, Government Officers, Co-operative Housing Society, Sector – Omega, GreaterNoida, Uttar Pradesh at a cost of about Rs.1.50 crores.Perusal of the return of income does not disclose anyinvestment in the property at Greater Noida. Thealleged investment in the property exceeds the limitprescribed in section 147 for assumption of jurisdictionU/s 147. It is therefore considered to be a fit case forinitiation of proceedings U/s 147/148 of the Income TaxAct, 1961 on this ground as well.” 4.The petitioner objected to assumption of jurisdiction underSection 147/148, stating that the reasons so recorded were factuallyincorrect and could not be construed as legitimate grounds for re-opening the reassessment. It was also urged that the materials couldnot be said to constitute fresh or tangible admissible evidence withinthe meaning of that expression. Apparently, prior to the assumption ofjurisdiction in respect of one of the items, i.e. the New Friends Colonyproperty, the statement had been recorded of one Mr. K.K. Khanna.The said Mr. Khanna was shown to be the owner of the property. Itwas urged that the materials on record in the form of Mr. K.K.Khanna’s affidavit and deposition clearly demonstrated that the firstallegation made against the petitioner, i.e. the alleged ownership of theNew Friends Colony property, was entirely false. The petitioner reliesupon the statement of Mr. K.K. Khanna in this regard; it was recordedon oath on 24.05.2011. 5.The petitioner also alleges in his objections to the assumption ofjurisdiction made on 22.06.2012 that as far as the second itemrequiring reassessment, i.e. Green Woods property at Greater Noidawas concerned, there was no material to suggest that he had not declared his income. He had urged that the construction of theproperty was concluded only in 2008 and not during the relevantassessment year which concerned reassessment proceedings. Theobjections given by the petitioner were rejected by the Revenue on29.10.2012. It is in these circumstances that the present writ petitionunder Article 226 has been preferred. 6.It is argued on behalf of the writ petitioner that the principalallegations, i.e. acquisition of the Second floor of D-877, New FriendsColony and consequent non-disclosure to the extent of about ₹ 10 crore is devoid of any material. In this regard, reliance is placed uponthe statement of Mr. Khanna, the owner. It is also submitted that thematerial on record suggested that the petitioner’s statement, i.e. thatimmediately upon his ceasing to be a Central Government employee,since he was not in possession of any residential property in Delhi, heleased-out the New Friends Colony property which belonged to Mr.Khanna, is not only substantiated but completely established. It isargued in this regard that the relevant records, i.e. the municipal taxrecords, the title deeds etc. clearly established that the owner of theproperty, i.e. Mr. Khanna and that the petitioner had leased theproperty for period till 2009. The rent paid was ₹ 33,000/- per month. All these are matters of record. The Revenue’s contention in thisregard, which led to the reopening of the assessment, was based uponthe allegations received in the tax evasion Petition that the real ownerof the property was none other than the writ petitioner and that thetruth of this was substantiated because a telephone connection in hisname was found at the address. Learned counsel emphasized that since the petitioner lived in the said premises for about two years, it was butinevitable that a telephone connection was in his name for that period;it could not point to ownership of the entire property. There was infact absolutely no material to substantiate the continuance of theproceedings based upon the tax evasion Petition. the petitioner lived in the said premises for about two years, it was butinevitable that a telephone connection was in his name for that period;it could not point to ownership of the entire property. There was infact absolutely no material to substantiate the continuance of theproceedings based upon the tax evasion Petition. 7.Learned counsel argued that so far as the second allegationswith respect to construction of the Green Woods, Greater Noidaproperty goes, the plot was allotted to the petitioner in 1997.Possession of the plot was taken on 21.04.2000. It was further arguedthat a membership agreement was entered into between the petitionerandtheGreenWoodsGovernmentOfficersWelfareSociety(GWGOWS, i.e “the society”); copies of these were placed on recordand also made available to the Revenue. Learned counsel emphasizedthat investment in the property was made by the petitioner partly outof the final withdrawal from the General Provident Fund (GPF)Account on 09.05.1997 and partly out of the loan arranged by thesociety from the Housing Development Finance Corporation (HDFC)through a loan agreement of 27.01.1998. The loan amount wasdirectly disbursed by the HDFC to the society on demands beingissued by the latter. In these circumstances, stated counsel, during theconcerned year, i.e. the previous year corresponding to A.Y. 2005-06,the writ petitioner did not incur any expenditure and made noinvestment in regard to the construction of the Greater Noida property.Reliance is placed on the loan agreement dated 27.01.1998 betweenthe HDFC and the petitioner. Learned counsel also relies upon a letterof 09.12.2005 from the Society, asking the members/allottees to begin construction of their properties on the plots allotted to them. Havingreceived this in December, urges counsel, it would be preposterous toassume that the property had been constructed and completed duringthe year. In fact, it was urged that the construction commenced inApril 2006 and was completed around December 2008. Therefore, theallegation that the petitioner constructed the bungalow in the A.Y.2005-06 was entirely baseless. 8.Learned counsel relied upon several judgments, including theone delivered by this Court in Shipra Srivastava v. ACIT 319 ITR 221;ITO v. Selected Dalur Band Coal Company 217 ITR 597; AyojanDevelopers v. ITO 335 ITR 234 and CIT v. Atul v. Vinita Jain 299 ITR383, for the proposition that the material should be one on the basis ofwhichthereasonablepleaandnotacompletelyabsurdorunreasonable one can be entertained with respect to evasion ofincome. It was argued that these decisions also establish that meresuspicion is not sufficient unless it is based upon reasonable facts.Underlining that the entire materials on record did not justifyreopening of the assessment as no tax evasion was in fact shown butthat the allegations made by the complainant were driven by vendetta,learned counsel submitted that they required to be quashed on accountof malafides. 9.The respondent Revenue, in its counter affidavit and alsothrough the submissions of the learned counsel urges that thesufficiency and adequacy of the material and the reasons based upon itcannot be the subject matter of proper enquiry under Article 226.Being invested with statutory power, the Assessing Officer (AO) has 9.The respondent Revenue, in its counter affidavit and alsothrough the submissions of the learned counsel urges that thesufficiency and adequacy of the material and the reasons based upon itcannot be the subject matter of proper enquiry under Article 226.Being invested with statutory power, the Assessing Officer (AO) has to form the opinion where the allegations prima facie make out a casefor reopening of a completed assessment. Highlighting that in thepresent case, the original assessment was completed under Section143(1), it was argued that the Revenue has considerable latitude evenupon being informed about some material with respect to tax evasion,to form the opinion that reassessment is warranted. It was submittedthat even though the Supreme Court in G.K.N. Drive Shafts IndiaLimited v. ITO 2003 (179) CTR (SC) 11 mandated that the AO shouldgive opportunity to the assessee to represent against the reopening ofassessment, yet the final word or the final opinion whether to proceedwith reassessment notice or drop it is that of the AO himself and noneother. In the present case, concededly, the opportunity mandated bythe Supreme Court judgment was given to the petitioner. Herepresented against the notice; the AO made a speaking order rejectingthe objections and decided to proceed ahead with the reassessment. Itwas submitted that even though the statement of Mr. Khannaapparently was in favor of the petitioner, yet the existence oftelephone connection was not disputed. Furthermore, submittedlearned counsel, the Tax Evasion Petition had alleged that thepetitioner was the real owner of the New Friends Colony property. Allthis required investigation; especially, the complainant needed anopportunity to rebut the writ petitioner’s submissions. Likewise,argued learned counsel for the Revenue, the non-declaration of incomeor its concealment on account of construction of the Greater Noidaproperty was a matter which required investigation in reassessment proceedings. For these reasons, it was submitted that this Court shoulddesist from granting the relief in this proceeding. 10.The considerable latitude given to the revenue to reopen asettled assessment is premised on the entertainment of the AssessingOfficer’s opinion (“reasons to believe”), based on objective materials,which he is subsequently made aware of, which can possibly lead toconclusion that income had escaped assessment, due to non-disclosureof material facts by the assessee. The seemingly wide power to reopena settled assessment is therefore hedged with conditions, i.e opinionformation based on some materials (necessarily fresh or “tangible”a.ka. Commissioner of Income Tax v Kelvinator India Ltd 2010 (320)ITR 561 (SC)) pointing to possible income escaping taxation, becauseof the assessee’s omission to disclose a material fact. The judgmentsrelied on, particularly Shipra Srivastava are authorities for theproposition that the power to re-open an assessment ought to beexercised on the basis of an appreciation of materials throughapplication of mind, reasonably. This Court had, in that decision,quashed the reassessment notice, inter alia, observing that: “ reasons which have been recorded seeking reopeningof the assessment, and as reproduced above show thatthere is no application of mind by the Assessing Officerwhich can be said to be the mind of a reasonable personto arrive at a conclusion, which has been arrived at inview of the reasons recorded.” Likewise, there must be a reasonable nexus between the fresh materialand its nature, for a sustainable opinion on the part of the ITO to re-open an assessment. “ reasons which have been recorded seeking reopeningof the assessment, and as reproduced above show thatthere is no application of mind by the Assessing Officerwhich can be said to be the mind of a reasonable personto arrive at a conclusion, which has been arrived at inview of the reasons recorded.” Likewise, there must be a reasonable nexus between the fresh materialand its nature, for a sustainable opinion on the part of the ITO to re-open an assessment. 11.In the present case, so far as the New Friends Colony propertyis concerned, the statement of Shri. Khanna reveals that he is itsowner; the petitioner was his lessee for about two years, payingmonthly rent of ₹ 33,000/-. Moreover, the assessee was a public servant, who lived in official residences and had no premises of hisown when he left public service. He also got a telephone installed inthe rented premises; this fact can be reasonably assumed evenotherwise. The complainant in the tax evasion petition alleged that inan affidavit sworn at that time and filed in the High Court, the assesseedisclosed his address to be the New Friends Colony property. Theallegations of ownership stood rebutted through the sworn depositionof Shri Khanna and the documents, which unequivocally showed hisownership and not that of the assessee, whose connection with it wasas a tenant for about two years. Naturally, the assessee had a telephoneinstalled in the premises during that period. That he disclosed hisaddress as the New Friends Colony property is but natural, because helived there at that time. This court is astonished, to say the least thatafter becoming aware of these facts, the AO persisted – and stillpersists in submitting that there is some reasonable or credible basis tomaintain the reassessment proceedings. This court can only surmisethat either the AO is driven by fear, or is party to what thecomplainant ultimately wishes- in either case, his persistence withreassessment proceedings being devoid of any legal sanction. Suchinsistence – one may even add obdurate insistence- is the hallmark ofwhimsicality and a far cry from the reasonable basis for exercise of power under Section 147/148 which the court would be bound touphold. 12.As far as the allegations leveled with respect to construction ofthe Greenwoods property goes, the assessee clearly revealed all thefacts, which unequivocally point out to the circumstance thatconstruction was not taken up or completed on that plot, during theassessment year. The plot was allotted by the society in 1997; partlyfinanced by the assessee’s provident fund accumulations and partlythrough advances arranged by the society, from HDFC. Possession ofthe plot was taken in 2000 and the assessee was asked to take upconstruction in 2005. These facts were revealed to the AO. He madeno attempt to say that the materials revealed were false, or incomplete;in any case, there was no material, save an unsubstantiated allegationby the complainant that the assessee had acquired the property andconcealed all facts relating to it, during the assessment year inquestion. 13.The declaration of law in G.K.N. Drive Shafts India Limited andthe opportunity mandated to the assessee to put forth his or her pointof view was aimed at a meaningful process whereby the AO couldevaluate whether the opinion formed to reassess income, continued tobe relevant, in the light of the explanation furnished. Whilst a courtunder Article 226 would judge the opinion and the reasons to believe,nevertheless a reasonable explanation which might clear doubts of theAO, would have to be dealt with in a reasonable manner. G.K.N. DriveShafts affords a chance to the AO to take a second look at thefeasibility or justification for proceeding with Section 148 notice. 13.The declaration of law in G.K.N. Drive Shafts India Limited andthe opportunity mandated to the assessee to put forth his or her pointof view was aimed at a meaningful process whereby the AO couldevaluate whether the opinion formed to reassess income, continued tobe relevant, in the light of the explanation furnished. Whilst a courtunder Article 226 would judge the opinion and the reasons to believe,nevertheless a reasonable explanation which might clear doubts of theAO, would have to be dealt with in a reasonable manner. G.K.N. DriveShafts affords a chance to the AO to take a second look at thefeasibility or justification for proceeding with Section 148 notice. Otherwise, the opportunity mandated in G.K.N. Drive Shafts is a mereritual. In the present circumstances, this Court is of opinion thathaving been given the explanations, the AO acted unreasonably inpersisting with the reassessment notice, which also could not be saidto have been based on tangible material, given the statement of ShriKhanna and lack of any tangible material supporting the allegations.Sustaining the notice and reassessment proceedings would amount tocondoning what is clearly oppression and harassment. 14.In view of the above conclusions, the impugned reassessmentnotice dated 26.03.2012 and all further proceedings thereto arewithout legal authority; they are accordingly quashed. The petition hasto succeed and is accordingly allowed. No costs. S. RAVINDRA BHAT(JUDGE) MARCH 04, 2014 R.V. EASWAR(JUDGE)