Unitech Limited v. Deputy Commissioner Of Income Tax,Circle-27(1), New Delhi

$~21 *IN THE HIGH COURT OF DELHI AT NEW DELHI +W.P. (C) 12324/2015 UNITECH LIMITED ..... Petitioner Through:Mr. Salil Aggarwal and Mr. MadhurAggarwal, Advocates. versus DEPUTY COMMISSIONER OF INCOME TAX,CIRCLE-27(1), NEW DELHI ..... Respondent Through:Mr. Zoheb Hossain, Senior StandingCounsel. CORAM:JUSTICE S.MURALIDHARJUSTICE PRATHIBA M. SINGH O R D E R24.07.2017 % Prathiba M. Singh, J. 1. This is yet another case in the ever increasing number of cases filedbefore this Court challenging the issuance of notice under Section 148 of theIncome Tax Act, 1961 (hereinafter referred to as ‘the Act’). Brief Facts 2. The Petitioner filed its return of income for the Assessment Year (‘AY’)2008-09 declaring an income of Rs.1334,87,70,381/-. Its case was pickedup for scrutiny and notice was issued to it under Section 143 (2) of the Act.As part of the scrutiny, a questionnaire dated 20[th]October, 2009 was issuedto the Petitioner by the Assessing Officer (‘AO’) raising various queries.This was duly replied by the Petitioner on 29[th]October, 2009. Further W.P.(C) No. 12324/2015 documents were also submitted on 17[th]November, 2009 by the Petitioner.An assessment order under Section 143 (3) of the Act was passed by the AOon 30[th]December, 2009. 3. Thereafter, two notices under Section 148 of the Act came to be issuedon 31[st]May, 2012 and 28[th]March, 2013 for the AY 2008-09. Both thesenotices came to be challenged by the Petitioner in W.P.(C) Nos. 446/2014and 4631/2014 which were disposed of by this Court by a common order on3[rd]September, 2014. The said order reads as under: “ These writ petitions are being disposed of togetherinasmuch as they pertain to the same very petitioner andrelate to the same assessment year 2008-09. In thesepetitions, the notices issued under Section 148 on31.05.2012 and 28.03.2013 are impugned. We haveheard the parties at length. We need not set out all thearguments in detail. It would suffice to say that the saidnoticesdonotmeettherequirements oflaw.Consequently, the notices under Section 148 dated31.05.2012 and28.03.2013 are set aside and allproceedings pursuant thereto are quashed. Quashingofthenoticesdated31.05.2012and28.03.2013, however, does not preclude the AssessingOfficer from issuing a fresh notice under Section 148 ofthe Income Tax Act, 1961 in relation to the assessmentyear 2008-09, if the Assessing Officer has reason tobelieve that income chargeable to tax has escapedassessment, having regard to the first proviso to Section147 and other applicable provisions of the said Act. Weare also making it clear that we have not expressed anyopinion on the merits of the matter which includes thequestion as to whether there was mere change of opinionand/ornofreshmaterialhassurfacedafterthe completion of the assessment under Section 143(3). W.P.(C) No. 12324/2015 The writ petitions are allowed to the aforesaid extent.There shall be no order as to costs.” 4. Pursuant to the said order, a fresh notice was issued to the Petitioner on16[th]July, 2015 under Sections 147/148 of the Act for the same AY viz.,2008-09. The two reasons for reopening the assessment read as under: “2.1 Disallowance u/s 14-A r.w. Rule 8-D of the IT Act,1961; ...... 2.2 Complex web of subsidiaries & colourable device oftransferring shares instead of substantial transfer oflanded properties. ”........ 5. The Petitioner filed its objections to the reopening of the assessment on28[th]July, 2015. The said objections were rejected on 9[th]November, 2015.The Petitioner thereafter filed the present writ petition seeking the quashingof the notice under Section 148 of the Act dated 4[th]March, 2015 and orderdated 9[th]November, 2015 rejecting the Petitioner’s objections thereto. Petitioner’s Submissions “2.1 Disallowance u/s 14-A r.w. Rule 8-D of the IT Act,1961; ...... 2.2 Complex web of subsidiaries & colourable device oftransferring shares instead of substantial transfer oflanded properties. ”........ 5. The Petitioner filed its objections to the reopening of the assessment on28[th]July, 2015. The said objections were rejected on 9[th]November, 2015.The Petitioner thereafter filed the present writ petition seeking the quashingof the notice under Section 148 of the Act dated 4[th]March, 2015 and orderdated 9[th]November, 2015 rejecting the Petitioner’s objections thereto. Petitioner’s Submissions 6. Mr. Salil Aggarwal, learned counsel for the Petitioner, submitted that thereasons recorded by the AO do not satisfy the requirement of law in terms ofSections 147/148 of the Act. There is no failure by the Petitioner to disclosefully and truly all the material facts necessary for the assessment and neitheris such a failure recorded in the reasons. 7. Mr. Aggarwal further submitted that the order dated 3[rd]September, 2014passed by this Court in the earlier round gave a clear mandate to theRevenue that a fresh notice under Section 148 of the ITA could be issued ifthe AO has reason to believe that the income chargeable to tax has escapedassessment "having regard to the first proviso to Section 147 of the ITA andother applicable provisions of the said Act". Thus, the direction of the Courtdid not mean that a fresh notice could be issued if the same wasimpermissible in law. Mr. Aggarwal further submitted that the two reasonsfor the reopening of the assessment are unsustainable inasmuch as, all theinformation regarding the said two issues already stood submitted to the AO.This was duly brought to the AO’s notice in the objections filed by thePetitioner. 8. Mr. Aggarwal further submitted that in view of the ratio of the decision ofthe Supreme Court in Commissioner of Income Tax, Delhi v. Kelvinator ofIndia Limited (2010) 2 SCC 723, the same material cannot be looked intofor opening the assessment. The reasons recorded by the AO do not satisfythe legal requirement under the first proviso to Section 147 of the Act. Mr.Aggarwal further submitted that the Petitioner has already gone through tworounds of enquiry, inasmuch as, it was also issued a notice under Section263 of the Act on 30[th]December, 2011 for the very same AY. Mr. Aggarwalalso relied upon the decision in Agya Ram v. Commissioner of Income Tax,Delhi, (2016) 386 ITR 545 (Del). Mr. Aggarwal thus submitted that this isnothing but a case of change of opinion on the same material, which isimpermissible in law. W.P.(C) No. 12324/2015 Respondent’s Submissions 9. Mr. Zoheb Hossain, learned Senior Standing Counsel for the Revenue,submitted that the earlier two notices issued to the Petitioner were within thefour year period and the present notice, having been issued pursuant to theorder dated 3rd September 2014 of this Court, was nothing but acontinuation of the said earlier notices. This was permitted by the Court inits order dated 3[rd]September, 2014. Mr. Hossain further submitted that thesaid order merely required the AO to issue a fresh notice if any income hadescaped assessment. There is no need to satisfy the conditions for reopeningan assessment beyond the four-year period. It is Mr. Hossain’s submissionthat the impugned order has to be treated as a notice issued within the fouryear period. The mentioning of the first proviso to Section 147 in the orderdated 3[rd]September, 2014 of this Court was, according to Mr. Hossain, onlyin the context of Section 143 (3) of the Act. 10. Without prejudice to the above submissions, Mr. Hossain furthersubmitted that the Petitioner has failed to make a full and true disclosure ofall the material facts, inasmuch as, the Petitioner has deliberately shown theincome under an incorrect head. It is clear from the order rejecting theobjection of the Petitioner and hence this is a fit case for dismissal of thewrit petition. 10. Without prejudice to the above submissions, Mr. Hossain furthersubmitted that the Petitioner has failed to make a full and true disclosure ofall the material facts, inasmuch as, the Petitioner has deliberately shown theincome under an incorrect head. It is clear from the order rejecting theobjection of the Petitioner and hence this is a fit case for dismissal of thewrit petition. 11. Mr. Hossain relied upon the decision in Chennai Properties andInvestments Limited, Chennai v. Commissioner of Income Tax CentralIII, Tamil Nadu, (2015) 14 SCC 793 and urged that the AO at this stage hadonly to see whether there was some material to reopen the case. The W.P.(C) No. 12324/2015 Page 5 of 10 sufficiency or correctness of the material was not to be examined. Analysis 12. There are a large number of cases that have been decided by this Courtwith respect to reopening of assessments under Sections 147/148 of the Act.After a period of four years under the first proviso to Section 147 of the Act,for re-assessment proceedings to be initiated, the following pre-conditionshave to be satisfied: The original assessment had to be completed under Section 143(3) of the ActThe original assessment had to be completed under Section 143(3) of the Act More than four years have lapsed from the end of the relevantAYMore than four years have lapsed from the end of the relevantAY The income chargeable to tax has escaped assessmentThe income chargeable to tax has escaped assessment Due to failure of the Assessee to make a return under Section139, or139, or In response to a notice under sub-section 1 of Section 142, orIn response to a notice under sub-section 1 of Section 142, or Due to a failure on the part of the Assesseeto disclose fully andtruly all material facts necessary for the assessmentfor therelevant assessment order.Due to a failure on the part of the Assesseeto disclose fully andtruly all material facts necessary for the assessmentfor therelevant assessment order. 13. The wording of this provision makes it clear that reopening ofassessments after a period of four years, ought to be an exception and not therule. The purpose of this provision is to ensure that there is some finalitywhich is attached after the period of four years, for assessments which havebeen completed under Section 143 (3) of the Act. The AO has to necessarilyrecord that there has been a failure on the part of the Assessee to disclose W.P.(C) No. 12324/2015 Page 6 of 10 fully and truly all material facts necessary for his assessment, failing whichthe reopening of the assessment cannot be triggered. 14. In the facts of the present case, the reasons stated by the AO do notsatisfy the mandatory legal requirement for reopening the assessment sincethey failed to record the failure on the part of the Assessee to disclose fullyand truly all material facts necessary for the assessment. 15. For the AY 2008-09, the Assessee's return has been subjected to multiplescrutinies; (i) under Section 143 (3) of the Act; (ii) under Section 263 of the Act; (iii) under Sections 147/148 of the Act which was challenged in the writproceedings and was set aside. 16. The Revenue has had more than sufficient opportunity to carefullyscrutinize the returns of the Petitioner. In the circumstances of the case ahigher burden is placed on the Revenue to sustain the impugned notices. Aninteresting feature of the impugned notice dated 4[th]March, 2015, is that thereasons contained therein are a verbatim reproduction of the reasons whichwere recorded in the notice dated 28[th]March, 2013 which came to be setaside by this Court on 3[rd]September, 2014. The re-issuance of the quashednotice in identical terms could not have been the purpose of the order dated3[rd]September, 2014 passed by this Court. The said impugned notice dated28[th]March, 2013 was set aside and proceedings pursuant to the said noticestood quashed. The direction to issue fresh notice keeping in mind the first W.P.(C) No. 12324/2015 W.P.(C) No. 12324/2015 proviso of Section 147 of the Act clearly meant that the Revenue had tosatisfy the rigors of the said proviso. 17.Further, a perusal of the reply submitted by the Petitioner to thequestionnaire, which was issued on 29[th]October, 2009 by the AO as part ofthe proceedings under Section 143 (3) of the Act, clearly reveals that thedividend income was fully disclosed in the reply dated 17[th]November, 2009.The questionnaire having been duly replied to and the assessment orderhaving been passed under Section 143 (3) of the Act on 30[th]December2009, it cannot be said that AO did not form an opinion on the issue. Thequestionnaire specifically sought details of several incomes, which weresubmitted by the Assessee. 18. Even the proceedings under Section 263 of the Act did not raise theissue of disallowance of expenditure incurred for earning exempt incomeunder Section 14-A of the Act. Under Section 263 of the Act, the Revenuehad an opportunity to revisit the assessment order insofar if it was incorrectand prejudicial to the interests of the Revenue.However, even in theSection 263 proceedings this issue was not raised. 19. In view of the fact, that there was a full disclosure by the Assessee of allthe material facts relating to the exempt income it cannot be said that thecondition for reopening of the assessment is satisfied on this count. 20. Even the second reason is a mere reproduction of the earlier notice dated28[th]March, 2013. The nature of business of the Petitioner has always been W.P.(C) No. 12324/2015 Page 8 of 10 known to the Revenue year after year. Even in this reason there is not evena whisper of the failure by the Petitioner to make a full and true disclosure ofall the material facts necessary for the assessment. 21. Thus, the impugned notice does not satisfy the rigors of Sections147/148 of the Act as there has been no non-disclosure of the material factsby the Petitioner. In fact, even the reasons accompanying the impugnednotice do not even say that there is any failure by the Petitioner to disclosefully and truly all the material facts. 22. The Supreme Court in Kelvinator (supra) held that: “6. ...However, one needs to give a schematicinterpretation to the words "reason to believe"failing which, we are afraid, Section 147 wouldgive arbitrary powers to the Assessing Officer tore-open assessments on the basis of "mere changeof opinion", which cannot be per se reason to re-open. We must also keep in mind the conceptualdifference between power to review and power tore-assess. The Assessing Officer has no power toreview; he has the power to re-assess. But re-assessment has to be based on fulfillment ofcertain pre-condition and if the concept of "changeof opinion" is removed, as contended on behalf ofthe Department, then, in the garb of re-opening theassessment, review would take place. One musttreat the concept of "change of opinion" as an in-built test to check abuse of power by the AssessingOfficer. Hence, after 1st April, 1989, AssessingOfficer has power to re-open, provided there is"tangible material" to come to the conclusion thatthere is escapement of income from assessment.Reasons must have a live link with the formation of W.P.(C) No. 12324/2015 the belief. ...” 23. This Court in HCL Technologies Ltd. v. Deputy Commissioner ofIncome Tax (W.P.(C.) 8164/2010 decided on 20/7/2017) has held asfollows: W.P.(C) No. 12324/2015 the belief. ...” 23. This Court in HCL Technologies Ltd. v. Deputy Commissioner ofIncome Tax (W.P.(C.) 8164/2010 decided on 20/7/2017) has held asfollows: “16. The AO has not made the effort of disclosing,in the reasons, what according to him constitutedthe failure by the Assessee to make a full and truedisclosure. A mere reproduction of the language ofthe provision will not suffice. Also, althoughmaking such an averment either in the orderrejectingtheobjectionsoftheAssesseeorsubsequently in the counter-affidavit in the answerto a writ petition will not satisfy the requirement ofthe law. The reasons will have to speak forthemselves. For complying with the jurisdictionalrequirement under the first proviso to Section 147of the Act, the reasons would have to show in whatmanner the Assessee had failed to make a full andtrue disclosure of all the material facts necessaryfor the assessment. The failure to do so would notbe a mere irregularity. It would render thereopening of the assessment after four years”vulnerable to invalidation. (emphasis supplied) 23.For the reasons stated above, the writ petition is allowed and theimpugned notice dated 4[th]March, 2015 and order dated 9[th]November, 2015are hereby quashed. PRATHIBA M. SINGH, J JULY 24, 2017dk W.P.(C) No. 12324/2015 S.MURALIDHAR, J