Vibrant Securities Private Limited, ] v. Shraddha Talekar, Ps_

Digitallysigned bySHRADDHASHRADDHAKAMLESHKAMLESHTALEKARTALEKARDate:2023.02.2315:09:46+0530 IN THE HIGH COURT OF JUDICATURE AT BOMBAYORDINARY ORIGINAL CIVIL JURISDICTION WRIT PETITION NO. 3307 OF 2022 Vibrant Securities Private Limited,]having its address at 103-A, Podar Chambers,]S.A. Brelvi Road, Fort, Mumbai 400 001.]Maharashtra, India]… PetitionerVersus1. Income-tax Offcer,]Ward No.4(2)(1), Mumbai,]Room No.644, 6[th] Floor, Aayakar Bhavan,]Maharishi Karve Road,]Mumbai 400 020, Maharashtra, India.]]]2. Additional/ Joint / Deputy / Assistant]Commissioner of Income-tax/ Income-tax]Offcer, National Faceless Assessment Centre,]Delhi.]]3. Principal Commissioner of Income-tax,]Mumbai-4, Room No. 629, 6[th] Floor, ]Aayakar Bhavan, Maharishi Karve Road,]Mumbai 400 020, Maharashtra, India.]]4. Union of India, ]Through the Secretary, Department of Revenue,]Ministry of Finance, Government of India,]North Block, New Delhi – 110 001.]..Respondents **** Mr.P.J. Pardiwalla, Senior Advocate with Mr.Madhur Agrawal,Mr.Fenil Bhatt and Mr.Upendra Lokegaonkar i/b Mint &Confreres, Advocate for petitioner. Mr.Suresh Kumar with Ms.Mohinee Chougule, Advocates forrespondents. ***** CORAM : DHIRAJ SINGH THAKUR &MADHAV J. JAMDAR, JJ. PRONOUNCED ON : 23[rd] FEBRUARY, 2023 J U D G M E N T PER DHIRAJ SINGH THAKUR, J. 1.The petitioner challenges the notice under section 148 of theIncome Tax Act, 1961 (‘the Act’) dated 31[st] Mach 2021 for theassessment year 2014-15 seeking to reopen the assessment for thesaid year on the ground that the Assessing Offcer had reasons tobelieve that income chargeable to tax for the assessment year2014-15 had escaped assessment within the meaning of section147 of the Act. The petitioner also challenges the order dated 8[th]February 2022 rejecting the objections of the petitioner to thevalidity of the notice under section 148 of the Act. 2.Briefy stated the material facts are as under : 2.1 The petitioner is stated to be engaged in the business ofstock broking services as well as Undertaking Stock Trades (Pro-Trade) on BSE and NSE in derivative and cash segments which constitutes its business activity. 2.2It is stated that the resultant Proft/Loss arising from suchPro-trade activity of the petitioner is offered to tax as ‘businessincome/loss’ in its return of income. It is stated that deliverybased transactions in the nature of purchase and sales of equityshares in the cash segment, as also the sales and purchase ofshares on Intra-day basis undertaken on the stock exchangesand sale of futures and options undertaken on the derivativesegments on BSE and NSE are subjected to Security TransactionTax (‘STT’) which is levied and recovered by the exchanges on adaily basis. 2.3Return of income was fled by the petitioner for theassessment year 2014-15 on 24[th] September 2014 declaring a totalincome of Rs.2,74,720/-. The case of the petitioner was selectedfor scrutiny assessment by issuing notice under section 143(2) ofthe Act, dated 28[th] August 2015. 2.4.By virtue of notice dated 7[th] July 2016 under section142(1) of the Act, the petitioner was asked to give details of thebusiness activity and fle the basic documents like computation ofincome, audit reports etc. which details, the petitioner claims were provided vide letter dated 22[nd] August 2016. 3.By virtue of notice under section 142(1) of the Act, dated 7[th]November 2016, the petitioner was asked to inter-alia fle the following details : (i) Reconciliation of TDS claimed as per certifcatesand the income offered in the proft and loss account. (ii) Statement refecting separately, trading accountof delivery based/non-delivery based sharetransactions and derivative transactionsof delivery based/non-delivery based sharetransactions and derivative transactions (iii) Complete details of STT along with the return. provided vide letter dated 22[nd] August 2016. 3.By virtue of notice under section 142(1) of the Act, dated 7[th]November 2016, the petitioner was asked to inter-alia fle the following details : (i) Reconciliation of TDS claimed as per certifcatesand the income offered in the proft and loss account. (ii) Statement refecting separately, trading accountof delivery based/non-delivery based sharetransactions and derivative transactionsof delivery based/non-delivery based sharetransactions and derivative transactions (iii) Complete details of STT along with the return. (iv) Details of the information received through AIRand the corresponding bank entries andsources/utilization thereof. and the corresponding bank entries andsources/utilization thereof. Vide communication dated 21[st] November 2016, thepetitioner states that a response was fled giving the relevantdetails. Vide communication dated 2[nd] December 2016, details ofSTT and the reconciliation with the Annual Information Report(AIR) were submitted. Finally, the Assessing Offcer passed the order of assessment on 28[th] December 2016 under section 143(3) accepting the incomedisclosed by the petitioner. 4.On 31[st] March 2021, notice under section 148 of the Act was issued by the Assessing Offcer seeking to reopen the assessmentfor the assessment year 2014-15 on the ground that the income had escaped assessment for the said year. Reasons were furnished to the petitioner, which read as under : In this case, assessee has e-fled return on24.09.2014 declaring total income at Rs.274720/- and assessment u/s.143(3) wascompleted on 28.12.2016. In this case, information is received withregard to the fact that assessment has enteredinto sale/purchase of equity share with orwithout actual delivery in recognized stockexchange, the details are under : In view of the above facts and after dueapplication of mind after analyzing all the relevantinformation in the case of the assessee in totality,I have reason to believe that income ofRs.4786.01/-Lakh has escaped assessment forA.Y.2014-15 and the same is therefore required tobe reopened for scrutiny assessment. A notice u/s.148 r.w.s. 147, is, therefore,being proposed to be issued to assessee suchincome and also any other income chargeable totax which has escaped assessment which comesto notice subsequently in the course of theassessment proceedings. 5.Objections were fled on 30[th] December 2021 to the reopening which were rejected by virtue of order dated 8[th]February 2022. 6.Learned Senior Counsel for the petitioner challenges the reassessment proceedings on the ground that the jurisdictionalrequirement for reopening had not been satisfed in the presentcase. It was urged that the Assessing Offcer having failed to statein the reasons recorded that there was any failure on the part ofthe assessee to disclose fully and truly the material factsnecessary for assessment, could not have proceeded to reopen theassessment. This, it was stated, was the jurisdictional pre-condition, which has not been satisfed. 7.The second argument urged was that there was no newtangible material with the Assessing Offcer, based upon which,the Assessing Offcer could support his ‘reason to believe’. It wasstated that the reassessment proceedings were nothing but ‘achange of opinion’ as the entire issue with regard to thetransactions with regard to the stocks had been gone into by theAssessing Offcer during the scrutiny assessment, and therefore,reassessment could not be initiated in the absence of there beingany new tangible material. 8.Reply affdavit has been fled which essentially reiterates thestand of the revenue in the reasons recorded. What has beenstated in the counter affdavit is that the transactions refected in 7.The second argument urged was that there was no newtangible material with the Assessing Offcer, based upon which,the Assessing Offcer could support his ‘reason to believe’. It wasstated that the reassessment proceedings were nothing but ‘achange of opinion’ as the entire issue with regard to thetransactions with regard to the stocks had been gone into by theAssessing Offcer during the scrutiny assessment, and therefore,reassessment could not be initiated in the absence of there beingany new tangible material. 8.Reply affdavit has been fled which essentially reiterates thestand of the revenue in the reasons recorded. What has beenstated in the counter affdavit is that the transactions refected in the reasons recorded were not genuine and that no actual deliveryhad taken place in the recognized stock exchanges as perinformation received from the Investigation Wing of thedepartment on 15[th] March 2021. 9.We have heard learned counsel for the parties. 10.It is settled law that the validity of reassessment proceedingshave to be tested on the touchstone of the reasons recorded by theAssessing Offcer, which reasons can neither be added norsubstituted by pleadings. 11.Admittedly, the assessment is sought to be reopened beyondthe period of four years from the end of the relevant assessmentyear 2014-15. Since this is a case where an order under section143(3) of the Act had been passed for the relevant assessmentyear, the Assessing Offcer, in addition to satisfying thejurisdictional conditions of ‘reason to believe’ that incomechargeable to tax had escaped assessment, had to show that therewas failure on the part of the petitioner to disclose fully and trulyall material facts necessary for assessment during the original assessment proceedings. 12.A reference to the reasons recorded would clearly show thatnot a whisper has been made by the Assessing Offcer that therewas any such failure on the part of the assessee. The consequenceis clear that the Assessing Offcer had not satisfed himself on thisimportant jurisdictional aspect and therefore must be deemed tohave arbitrarily proceeded to initiate the reassessmentproceedings by issuing the notice impugned, which makes itunsustainable. 13.In Hindustan Lever Ltd. V/s. R. B. Wadkar, AssistantCommissioner of Income-Tax and Ors. [1], it was held : “…...The reasons recorded should be clearand unambiguous and should not sufferfrom any vagueness. The reasons recordedmust disclose his mind. The reasons are themanifestation of the mind of the AssessingOffcer. The reasons recorded should beself-explanatory and should not keep theassessee guessing for the reasons. Reasonsprovide the link between conclusion andevidence. The reasons recorded must bebased on evidence. The Assessing Offcer, inthe event of challenge to the reasons, mustbe able to justify the same based onmaterial available on record. He mustdisclose in the reasons as to which fact ormaterial was not disclosed by the assesseefully and truly necessary for assessment of that assessment year, so as to establish thevital link between the reasons and evidence.That vital link is the safeguard againstarbitrary reopening of the concludedassessment.” 14.This Court in the aforementioned judgment proceeded toallow the petition and set aside the notice impugned therein onlyon this ground that the jurisdictional requirement of proviso toSection 147 of the Act had not been complied with by theAssessing Offcer. In the judgment Supra, this Court had noticedthat the Assessing Offcer had nowhere stated that there wasfailure on the part of the assessee to disclose fully and truly allmaterial facts necessary of assessment for that assessment year. The notice impugned under section 148 of the Act isthus liable to be set aside on this ground alone. that assessment year, so as to establish thevital link between the reasons and evidence.That vital link is the safeguard againstarbitrary reopening of the concludedassessment.” 14.This Court in the aforementioned judgment proceeded toallow the petition and set aside the notice impugned therein onlyon this ground that the jurisdictional requirement of proviso toSection 147 of the Act had not been complied with by theAssessing Offcer. In the judgment Supra, this Court had noticedthat the Assessing Offcer had nowhere stated that there wasfailure on the part of the assessee to disclose fully and truly allmaterial facts necessary of assessment for that assessment year. The notice impugned under section 148 of the Act isthus liable to be set aside on this ground alone. 15.Apart from above, it is clear that the material which wasreferred to in the reasons recorded in the shape of transactions,securities, etc. do not refect that the said material was notavailable with the Assessing Offcer during the scrutinyassessment proceedings. The Assessing Offcer appears to haverelied solely upon the said information obtained from theInvestigation Wing of the department without, in the least, WP-3307-2022-J DST-MADHAV JAMDAR,JJ..doc verifying as to whether the said issue had been gone into ordisclosed by the assessee during the scrutiny assessmentproceedings. The petitioner, on the other hand, has placed onrecord details of notices and the replies submitted thereto, asreferred to in the preceding paragraphs which would show thatthe information with regard to all transactions had been soughtfor and supplied by the petitioner. 16.In Aroni Commercials Ltd. Vs. Deputy Commissioner ofIncome-tax-2(1)[2], it was held : “14……….We are of the view th at once a queryis raised during the assessment proceedingsand the assessee has replied to it, it follows thatthe query raised was a subject of considerationof the Assessing Offcer while completing theassessment. It is not necessary that anassessment order should contained referenceand/or discussion to disclose its satisfaction inrespect of the query raised. If an AssessingOffcer has to record the considerationbestowed by him on all issues raised by himduring the assessment proceeding even wherehe is satisfed then it would be impossible forthe Assessing Offcer to complete all theassessments which are required to bescrutinized by him under Section 143(3) of theAct. Moreover, one must not forget that themanner in which an assessment order is to bedrafted is the sole domain of the AssessingOffcer and it is not open to an assessee toinsist that the assessment order must record allthe questions raised and the satisfaction in respect thereof of the Assessing Offcer. Theonly requirement is that the Assessing Offcerought to have considered the objection nowraised in the grounds for issuing notice underSection 148 of the Act, during the originalassessment proceedings. There can be nodoubt in the present facts as evidenced by aletter dated 8 September 2012 the very issue oftaxability of sale of shares under the headcapital gain or the head profts and gains frombusiness was a subject matter of considerationby the Assessing Offcer during the originalassessment proceedings leading to an orderdated 12 October 2010. It would therefore,follow that the reopening of the assessment byimpugned notice dated 28 March 2013 is merelyon the basis of change of opinion of theAssessing Offcer from that held earlier duringthe course of assessment proceeding leading tothe order dated 12 October 2010. This changeof opinion does not constitute justifcation and/or reasons to believe that income chargeable totax has escaped assessment.” 17.Since an order under section 143(3) had been passed aftereliciting various information from the petitioner, which wasresponded to by the petitioner, it must be presumed that theAssessing Offcer, while passing the order under section 143(3) ofthe Act, had considered all issues pertaining to the queries raisedas also issues in regard to which the information was sought andtherefore, if the matter is deemed to have been considered, anysubsequent reassessment on the same issue would be nothingbut a ‘change of opinion’. 18.The Assessing Offcer in the reasons recorded was alsosupposed to establish the live link between the informationreceived by him and the formation of his belief that income hadescaped assessment which is conspicuously missing in thepresent case. What was held by the Supreme Court inCommissioner of Income Tax V/s. Kelvinator of India Ltd.[3] is as under : “ ….The Assessing Offcer has no power to review; hehas the power to reassess. But reassessment has to bebased on fulfllment of certain precondition and if theconcept of “change of opinion” is removed, ascontended on behalf of the Department, then, in thegarb of re-opening the assessment, review would takeplace. One must treat the concept of “change ofopinion” as an in-built test to check abuse of power bythe Assessing Offcer. Hence, after 1-4-1989,Assessing Offcer has power to reopen, provided thereis “tangible material” to come to the conclusion thatthere is escapement of income from assessment.Reasons must have a live link with the formation of thebelief.” 19.In our opinion, the jurisdictional conditions have not beenmet with in the present case and that reassessment proceedingsare nothing but a ‘change of opinion’, and therefore, would notfurnish a sound basis to the Assessing Offcer in the formation of his belief that income had escaped assessment. 20. Be that as it may, the present petition is allowed. Orderimpugned, dated 8[th] February 2022 rejecting the objections soalso the impugned notice dated 31[st] March 2021 under section 148of the Act are held to be unsustainable and are accordingly setaside. No order as to costs. [ MADHAV J. JAMDAR , J. ] [DHIRAJ SINGH THAKUR, J.]