Wp/27810/2018 Of N.s.srinivasan v. Assistant Commissioner Of Income Tax

IN THE HIGH COURT OF JUDICATURE AT MADRAS CORAM THE HONOURABLE MR.JUSTICE S.M.SUBRAMANIAM N.S.Srinivasan.. Petitioner Assistant Commissioner of Income Tax,Non-Corporate Circle 14(1), Chennai,No.121, Mahatma Gandhi Road,Nungambakkam, Chennai-600 034... Respondent Petition filed under Article 226 of the Constitution ofIndia praying for issuance of Writ of Certiorari to call for therecords on the file of the respondent in PAN: andquash the impugned notice in ITBA/AST/S/148/2017-18/1009542662(1) dated 29.03.2018 issued under Section 148 of the Income TaxAct, 1961 and the consequential proceedings dated 07.09.2018. The writ on hand is filed challenging the notice dated29.03.2018 issued by the respondent under Section 148 of theIncome Tax Act, 1961 (hereinafter referred to as 'the Act'). 2.The petitioner/assessee is an individual and a practisingChartered Accountant rendering his professional services asPartner of the firm, M/s.Venkat & Vasan, based out of Chennai.The assessee was assessed to income tax on the file of therespondent. The assessee filed his original return of income on30.09.2011, for the assessment year 2011-12. The return ofincome was processed under Section 143(1) of the Act. The casewas selected for scrutiny under Computer Aided ScrutinySelection (CASS) and accordingly, notice under Section 143(2)was issued on 02.08.2012. The respondent issued notices underSection 142(1) along with questionnaire and 143(2) read with https://hcservices.ecourts.gov.in/hcservices/ Section 129 of the Act on 15.07.2013, calling for variousdetails and granting opportunity to attend and explain theincome declared during the assessment year 2011-12. 3.The assessee states that he filed all the details calledfor by the Assessing Officer from time to time. Complete set ofdetails and relevant particulars were furnished to the AssessingOfficer along with explanations pertaining to the professionalfee receipts, purchase and sale of land etc. The AssessingOfficer, on satisfaction, passed the final assessment orderunder Section 143(3) of the Act on 20.01.2014. Shockingly aftera lapse of four years, the respondent issued the impugned noticeunder Section 148 of the Act on 29.03.2018. The assesseerequested for reasons for reopening of assessment on 26.04.2018.The reasons for reopening of assessment were furnished by therespondent in proceedings dated 07.05.2018. In response, theassessee submitted his detailed objections to the reasons forreopening of assessment, vide letter dated 12.05.2018, and thesaid objections were considered and an order dated 07.09.2018,was passed disposing of the objections by the respondent. 4.The learned counsel for the petitioner strenuouslycontended that the entire exercise of reopening of assessment isbeyond the jurisdiction and in violation of the Proviso clauseto Section 147 of the Act. The learned counsel, relying on theProviso clause to Section 147 of the Act, contended that forreopening the assessment beyond the period of four years, themandatory requirements contemplated are to be complied with. Inthe present case, the petitioner has fully and truly furnishedall the materials, informations etc., at the time of originalassessment. Thus, the reasons furnished for reopening ofassessment are absurd and not in consonance with the Provisoclause to Section 147 of the Act. 4.The learned counsel for the petitioner strenuouslycontended that the entire exercise of reopening of assessment isbeyond the jurisdiction and in violation of the Proviso clauseto Section 147 of the Act. The learned counsel, relying on theProviso clause to Section 147 of the Act, contended that forreopening the assessment beyond the period of four years, themandatory requirements contemplated are to be complied with. Inthe present case, the petitioner has fully and truly furnishedall the materials, informations etc., at the time of originalassessment. Thus, the reasons furnished for reopening ofassessment are absurd and not in consonance with the Provisoclause to Section 147 of the Act. 5.The learned counsel for the petitioner elaboratelyreferred to the informations and details furnished by thepetitioner before the Assessing Officer at the time of scrutinyof the return of income. The notice under Section 142(1) of theAct was issued on 15.07.2013 along with the questionnaire. Thepetitioner submitted his reply on 30.08.2013 wherein, he hasclearly stated that he sold his earlier residential houseproperty at New No.44, Old No.27, Parangusapuram Street,Kodambakkam, Chennai-600 024 and reinvested the capital gain inanother house property at No.46, Balakrishna Naicken StreetExtn., West Mambalam, Chennai-600 033. Thus, the assesseeclaimed exemption under Section 54 of the Act and he enclosedthe copies of the documents. During the year ended 31.03.2011,the assessee has redeemed and sold mutual funds as well asshares. The assessee enclosed statements from the mutual fundsas well as contract note from the broker in support of the same. Regarding the professional income, as Chartered Accountant, theassessee has stated that he was a partner of M/s.Venkat & VasanChartered Accountants, Chennai and he enclosed copy of theaudited income and expenditure account, balance sheet, partnerscapital accounts and current accounts, computation of totalincome and ITR-V of the said firm, which will explain thedetails of the remuneration drawn by the assessee from the firmduring the year, his share of profit from the firm and thetransactions through his capital account and current account. 6.The petitioner has further explained that in his 26ASstatement, fees receipts from Brakes India Ltd., and TurboEnergy Ltd., as well as TDS recoveries therefrom are reflected.Right from the inception, these companies have been retainingthe assessee in his personal name and paying professional feesin his personal name every month. Since all his professionalpractice is only through the firm M/s.Venkat & Vasan, theseprofessional fees are also included in the professional feesreceipts of the firm M/s.Venkat & Vasan Chartered Accountantsand they are only claiming credit for the corresponding TDSrecovery. Further, the assessee enclosed copies of the housingloan statement of account of State Bank of India as well asIndia Bulls Housing Finance Ltd., in support of the claim fordeduction for housing loan interest against income fromproperty. 7.The learned counsel for the petitioner, furnishing allthese details, made a submission that the documents,informations and details were looked into by the AssessingOfficer and the final order of assessment was passed. Thus, theinitiation of reopening proceedings beyond the period of fouryears is untenable. Even after issuance of notice under Section148, the petitioner provided all the documents and informationsto the Assessing Officer for dropping of the proceedings.However, the respondent, without considering any of thesedocuments and informations as well as the assessment orderpassed originally, continued the proceedings based on change ofopinion and therefore, the impugned order is liable to be setaside. 7.The learned counsel for the petitioner, furnishing allthese details, made a submission that the documents,informations and details were looked into by the AssessingOfficer and the final order of assessment was passed. Thus, theinitiation of reopening proceedings beyond the period of fouryears is untenable. Even after issuance of notice under Section148, the petitioner provided all the documents and informationsto the Assessing Officer for dropping of the proceedings.However, the respondent, without considering any of thesedocuments and informations as well as the assessment orderpassed originally, continued the proceedings based on change ofopinion and therefore, the impugned order is liable to be setaside. 8.The learned counsel for the petitioner relied on theparticulars given by the petitioner, which were also endorsed bythe respondent in the order dated 07.05.2018, reasons forreopening of assessment under Section 148 of the Act. 9.The learned Standing Counsel appearing for the respondentopposed the contentions raised on behalf of the petitioner bystating that the Assessing Officer has reason to believe toreopen the assessment beyond the period of four years and withinsix years in the present case. The assessee, during the course of original assessment, had failed to furnish informations trulyand fully. The Assessing Officer has material to establish thatthe assessee has not furnished the informations truly and fullyand therefore, the reopening of proceedings initiated is wellwithin the scope of Proviso clause to Section 147 of the Act andthus, the writ petition is liable to be rejected. 10.To substantiate the said ground, the learned StandingCounsel solicited the attention of this Court with reference tothe reasons furnished for reopening of assessment in proceedingsdated 07.05.2018. Undoubtedly, the petitioner has furnishedinformations. However, certain other particulars, which all arerequired to be furnished, were not furnished during the originalassessment and the learned Standing Counsel referred to thereasons provided in Clause III of the reasons for reopeningdated 07.05.2018, which reads as hereunder:- “III. Investment in pursuance of house property The above said property was purchased on16.02.2011 for Rs.3,05,20,240 including the stampduty and registration fee and availed exemptionu/s-54 for the property sold on 18.02.2011 forRs.3,30,00,000. The payment for purchase of thesaid new property was made prior to the existingproperty sold as follows:- The source for the above payment for purchaseof the new house property was not explained. Theincome admitted was Rs.15,92,960/- only. Eventaking into account the above receipt ofRs.8,88,468 for contract as per 26 AS, thebalance of Rs.2,00,18,572 has to be explained.Under the above circumstances, the unexplainedinvestment in the new house property for claimingexemption u/s.54 has to be brought to tax u/s 69of the ACT.Rs.2,00,18,572/-” 11. The learned Standing Counsel referred to the disposal ofthe objections by the Assessing Officer in proceedings dated07.09.2018. It is contended that the earlier proceedings madein the case of the assessee was limited scrutiny on the questionof taxability of sale property. The issue considered in thelimited scrutiny was only the funds received by the assessee byway of sale proceeds and taxability under the head "capital https://hcservices.ecourts.gov.in/hcservices/ gains on sale of property.” The initiation of reopeningproceedings relates to outgoing of funds in the form ofinvestment in property and mutual funds. Since such issue wasnot discussed in the original assessment proceedings, no opinionwas formed on these issues in such proceedings and hence, thereis no change of opinion. https://hcservices.ecourts.gov.in/hcservices/ gains on sale of property.” The initiation of reopeningproceedings relates to outgoing of funds in the form ofinvestment in property and mutual funds. Since such issue wasnot discussed in the original assessment proceedings, no opinionwas formed on these issues in such proceedings and hence, thereis no change of opinion. 12.The learned Standing Counsel relied on Explanation 1 toSection 147 of the Act and contended that mere production ofdetails and books of accounts before the Assessing Officer atthe time of original assessment is immaterial, as far as thereopening of proceedings initiated under Section 148 of the Actis concerned. Thus, the writ petition is liable to be rejected. 13.This Court is of the considered opinion that perusal ofthe assessment order as well as the objections raised by thepetitioner reveal that undoubtedly, the petitioner had furnishedthe details regarding the sale and purchase of property throughthe capital gains. The petitioner has furnished details anddocuments pertaining to the sale and purchase of the properties.The questionnaire issued by the Assessing Officer during theoriginal assessment was complied with and the petitioner hasfurnished all the details which were considered by the AssessingOfficer. However, this Court has to consider whether thereopening of proceedings in the case on hand is sustainable withreference to the Proviso clause to Section 147 of the Act. Ifthe Assessing Officer has reason to believe that any incomechargeable to tax has escaped assessment and the reopening is tobe done beyond the period of four years and within six years,then the Assessing Officer must have materials to establish thatthe assessee had not disclosed fully and truly all materialfacts necessary for his assessment. Thus, disclosure ofmaterial facts fully and truly is the pre-condition forreopening of proceedings under Section 147 of the Act beyond theperiod of four years and within a period of six years. 14.Let us examine, whether the mandatory requirements havebeen complied with in the present case or not. 15.Perusal of the reply/objections by the petitioner, it isseen that the petitioner has given details regarding the queriesraised by the Assessing Officer. However, the reasons forreopening would reveal that mere information provided by theassessee in the present case was not full and true disclosure inrespect of investment and purchase of house property. Thereasons furnished in proceedings dated 07.05.2018 would revealthat the source for the above payment for purchase of new houseproperty was not explained. The income admitted wasRs.15,92,960/- only. Even taking into account the above receiptof Rs.8,88,468/- for contract as per 26AS, the balance of 14.Let us examine, whether the mandatory requirements havebeen complied with in the present case or not. 15.Perusal of the reply/objections by the petitioner, it isseen that the petitioner has given details regarding the queriesraised by the Assessing Officer. However, the reasons forreopening would reveal that mere information provided by theassessee in the present case was not full and true disclosure inrespect of investment and purchase of house property. Thereasons furnished in proceedings dated 07.05.2018 would revealthat the source for the above payment for purchase of new houseproperty was not explained. The income admitted wasRs.15,92,960/- only. Even taking into account the above receiptof Rs.8,88,468/- for contract as per 26AS, the balance of Rs.2,00,18,572/- has to be explained. Under the abovecircumstances, the unexplained investment in the new houseproperty for claiming exemption under Section 54 has to bebrought to tax under Section 69 of the Act. The totalincome/investment escaped assessment was calculated asRs.2,34,27,280/-. Therefore, certain intricacies with referenceto the informations and details provided by the assessee at thetime of original assessment were culled out and the AssessingOfficer has reason to believe that the said informations werenot furnished truly and fully by the assessee at the time oforiginal assessment. Thus, he has formed an opinion that theincome/investment escaped assessment is Rs.2,34,27,280/-. Withthese reasons, the Assessing Officer considered the objectionsand passed an order dated 07.09.2018, disposing of theobjections wherein also, he has stated that it is a limitedscrutiny, which was done earlier and the proceedings arereopened now regarding the outgoing of funds in the form ofinvestment in property and mutual funds. The said position inthe order is substantiated by way of counter affidavit and it isrelevant to extract paragraphs 16, 17, 18, 19 and 20 of thecounter affidavit, which all are extracted hereunder:- “16.It is submitted that as far as the meritsof the issue is considered it is found as a factamong others that during the original assessmentproceedings notice under section 143(2) r.w.s 129dated 15.7.2013 was issued. Later notice underSection 142(1) was issued calling for detailswhich were general in nature and details withrespect to sale and purchase of immovable andmovable properties only in relation to the issueof capital gains were called for. The case wasselected for scrutiny by computer aided scrutinysystem and the scrutiny assessment was initiatedand completed. The purpose of scrutiny assessmentwas only to scrutinize and assess the capitalgains from the sale of property. 17.It is submitted that the case was selectedfor limited scrutiny to enquire the only issue of“AO to examine taxability of sale of property.Hence the scrutiny assessment was limited only tothe issue of capital gains on sale of property.Therefore, the issues such as source for purchaseof new immovable property, whether all receiptsare treated as income etc., were not examinedduring the course of original assessment. 18.It is submitted that the first issue inthe reasons for re-opening is non-disclosure ofincome from three parties as fee for technical 17.It is submitted that the case was selectedfor limited scrutiny to enquire the only issue of“AO to examine taxability of sale of property.Hence the scrutiny assessment was limited only tothe issue of capital gains on sale of property.Therefore, the issues such as source for purchaseof new immovable property, whether all receiptsare treated as income etc., were not examinedduring the course of original assessment. 18.It is submitted that the first issue inthe reasons for re-opening is non-disclosure ofincome from three parties as fee for technical services. Petitioner claims that he has furnishedexplanations for the same during the course oforiginal assessment proceedings. A look at thenotice u/s 143(2) and 142(1) with annexure dated15.07.2013 annexed clearly reveals that AO neverrequired the petitioner to clarify on this issue.No other notice was issued to the petitionerduring the course of original assessmentproceedings seeking clarification on the issue.Even the order sheet notings annexed reflectingsubsequent hearings does not show AO making anyrequirement regarding claiming reconciliation ofthese receipts. Even otherwise, claiming creditfor TDS on these receipts in the hands ofpetitioner where income there from was claimed tobe offered in the hands of another entity isclear violation of sec. 199 of the I.T.Act. 19.It is submitted that second and thirdissue also, petitioner claims that the same wereexplained during the course of originalassessment proceedings. However, AO did notrequire the petitioner to explain these aspectsduring the course of original assessmentproceedings as evident from evidence as record.Hence there was omission and failure on the partof the petitioner to disclose material factsnecessary for assessment during the course oforiginal assessment proceedings. Hence reopeningof assessment u/s 147 is valid. 20.It is submitted that the initiation ofreassessment proceedings relates to the outgoingof funds in the form of investment in propertyand mutual funds and also the professionalreceipts of the assessee which were never thesubject matter of the original assessment. Thepresent reassessment proceedings is made inaccordance with law as per the full benchdecision reported in 248 ITR 485 (DEL).” 16.This Court is of the considered opinion that when thereare certain discrepancies with reference to the informationsprovided and the Assessing Officer has reason to believe thatcertain informations were not furnished truly and fully inrespect of the informations provided at the time of assessmentthen also, the authority competent is empowered to reopen theproceedings. In this regard, it is relevant to considerExplanation 1 to Section 147 of the Act, which states thatproduction before the Assessing Officer of account books orother evidence from which material evidence could due diligencehave been discovered by the Assessing Officer will not 16.This Court is of the considered opinion that when thereare certain discrepancies with reference to the informationsprovided and the Assessing Officer has reason to believe thatcertain informations were not furnished truly and fully inrespect of the informations provided at the time of assessmentthen also, the authority competent is empowered to reopen theproceedings. In this regard, it is relevant to considerExplanation 1 to Section 147 of the Act, which states thatproduction before the Assessing Officer of account books orother evidence from which material evidence could due diligencehave been discovered by the Assessing Officer will not necessarily amount to disclosure within the meaning of theforegoing proviso. Even Explanation 2 to Section 147 providesvarious circumstances under which reopening of assessment shallbe done. Where assessment has been made, but income chargeableto tax has been under-assessed, then also re-assessment can bemade. There are numerous circumstances, which all arecontemplated for the purpose of reopening of assessment andonce, the Assessing Officer has reason to believe that theincome chargeable to tax has escaped assessment on account ofthe fact that the assessee has not disclosed fully and truly allmaterial facts necessary for his assessment, then initiationunder Section 147 shall be made beyond the period of four yearsand within six years. This being the scope of Section 147 forreopening of assessment, this Court do not find any acceptablereason for the purpose of interfering with the reopeningproceedings initiated by the authorities competent and it is forthe petitioner to participate in the assessment/re-assessmentproceedings and defend his case in the manner known to law. Therespondent is directed to complete the assessment asexpeditiously as possible without causing any undue delay. With the above observations and directions, this writpetition stands dismissed. No costs. Consequently, connectedmiscellaneous petition is closed. //True Copy// abr To The Assistant Commissioner of Income Tax,Non-Corporate Circle 14(1), Chennai,No.121, Mahatma Gandhi Road,Nungambakkam, Chennai-600 034. +1cc to M/s.Hema Muralikrishnan, Advocate, S.R.No.30782 NRL(CO)HS(02/08/2021)