Wp/2816/2019 Of Kalpataru Plus Sharyans v. Deputy Commissioner Of Income Tax Central Circle 5 (3) And 2 Ors

IN THE HIGH COURT OF JUDICATURE AT BOMBAYORDINARY ORIGINAL CIVIL JURISDICTION WRIT PETITION NO. 2816 OF 2019 Kalpatatru Plus Sharyans)91, Kalpataru Synergy,)Opp. Grand Hyatt, Santacruz,)Mumbai – 400 055.).… PetitionerV/s.1. Deputy Commissioner of Income Tax)Central Circle–5(3), having his office)at Air India Building, Nariman Point,)Mumbai – 400021.))2. Pr. Commissioner of Income Tax,)Mumbai having his office at )Pr. Commissioner of Income Tax 19[th])Floor, Air India Building, Nariman Point, )Mumbai – 400021.))3. Union of India, through the)Secretary, Department of Revenue,)Ministry of Finance, North Block,)New Delhi – 110001. ).… Respondents ----Mr. P.J. Pardiwalla, Senior Advocate i/b Ms. Vasanti B. Patel forpetitioner. Mr. Suresh Kumar for respondents. ----CORAM : K.R.SHRIRAM &R.I. CHAGLA JJ.DATED : 30[th] SEPTEMBER, 2021 1Since pleadings are completed, we decided to dispose thispetition at the admission stage itself. 2Rule. Rule made returnable forthwith. 3Petitioner is engaged in the business of real estatedevelopment. Petitioner had filed its annual returns for assessmentyear 2012-13. As required under section 139 of the Income Tax Act1961 (the Act), petitioner being a company filed its audited profit andloss account and balance sheet and the auditor’s report with theannual returns. The annual returns was filed by the petitioner on27.09.2012 declaring total income of Rs.6,74,350/- under Section 139(1) of the Act. Petitioner’s case was selected for scrutiny assessmentfor the assessment year 2012-13. Respondent No.1 issued a noticedated 04.08.2014 under Section 142 (1)/143 (2) of the Act, callingupon the petitioner to furnish the documents mentioned as per theannexure to the notice. The items mentioned in the annexure are thecopy of return; audited account; tax audit report, balance sheet; profitand loss account etc.; copy of evidence of payment of tax and briefnote on business activity. By its letter dated 13.08.2014, petitioner submitted all the documents which are called for by respondent No.1and which included copy of income tax return; computation of taxabletotal income; audited annual financials as on 31.03.2012 (auditor’sreport, balance sheet, profit and loss account and notes to accounts);tax audit report in Form 3CB / 3CD; annual tax statement in form26AS u/s. 203AA of the Act and nature of business activity. 4Petitioner thereafter received the further notice dated09.10.2014 under Section 142(1) of the Act calling upon petitioner toprovide certain other details, one of which was “details of interestexpenses claimed under Section 57 of the Act”. These details wereprovided by the petitioner vide letter dated 24.12.2014. Since furtherclarification was sought for in course of assessing proceeding byrespondent No.1, petitioner by its letter dated 13.03.2015 providedthe same. 5Assessing Officer after making other enquiries andscrutinizing all the details furnished by petitioner and after applyinghis mind to all issues, passed an assessment order dated 17.03.2015u/s.143(A) of the Act. Respondent No.1 assessed the petitioner’sincome at Rs.6,74,353/-. 6After a period more than four years respondent No.1 issued notice dated 26.03.2019 under Section 148 of the Act statingthat whereas “I have reasons to believe that your income chargeableto Tax for the Assessment Year 2012-13 has escaped assessment withinthe meaning of Section 147 of the Income Tax Act, 1961.” 7Petitioner addressed a letter dated 29.03.2019 requestingthe respondent No.1 to provide it with the recorded reasons. Thepetitioner without prejudice to its rights and contentions filed itsreturn of income which is identical to the return earlier filed by it on07.09.2012. 8Respondent No.1 by its letter dated 28.05.2019 providedthe petitioner with the reasons recorded for reopening of theassessment. 6After a period more than four years respondent No.1 issued notice dated 26.03.2019 under Section 148 of the Act statingthat whereas “I have reasons to believe that your income chargeableto Tax for the Assessment Year 2012-13 has escaped assessment withinthe meaning of Section 147 of the Income Tax Act, 1961.” 7Petitioner addressed a letter dated 29.03.2019 requestingthe respondent No.1 to provide it with the recorded reasons. Thepetitioner without prejudice to its rights and contentions filed itsreturn of income which is identical to the return earlier filed by it on07.09.2012. 8Respondent No.1 by its letter dated 28.05.2019 providedthe petitioner with the reasons recorded for reopening of theassessment. 9Respondent No.1 issued notice dated 14.06.2019 underSection 142(1) of the Act calling upon petitioner to provide furtherdetails/ information/ documents in order to proceed with thereassessment proceedings. Petitioner responded by its letter dated19.06.2019 filing its objections to reopening of the assessment.According to petitioner, there was no failure to truly and fully disclosematerial facts and in any case, it was a mere case of change ofopinion and there was no fresh tangible material for initiating reassessment proceedings. Respondent No.1 passed an order dated30.09.2019 with reference to the objections raised by the petitioner tothe issuance of notice under Section 148 of the Act, which isimpugned in this petition. According to Respondent No.1, (i) To confer jurisdiction under Section 147 (A), twoconditions were required to be satisfied, firstly theAssessing Officer must have reasons to believe thatincome, profits or gains chargeable to income tax hadescaped assessment, and secondly he must also havereason to believe that such escapement has occurred byreason of either omission or failure on the part of theassessee to disclose fully or truly all material factsnecessary for his assessment of that year. Both theseconditions had to be satisfied before the Assessing Officercould assume jurisdiction for issue of notice under Section148 read with Section 147 (a). But under the substitutedSection 147 existence of only the first condition suffices.In other words, if the Assessing Officer has reason tobelieve that income has escaped assessment, that wasenough to confer jurisdiction to reopen the assessment; (ii) Subsequent to the assessment proceedings, it wasnoticed that the assessee had wrongly claimed thededuction under Section 57 of the Act. Accordingly, theAssessing Officer formed reasons to believe for reopeningof the assessment. This issue went unnoticed by theAssessing Officer during the course of original assessmentproceedings for Assessment Year 2012-2013 andtherefore, the jurisdictional requirement under Section147 of the Act is fulfilled and reopening under Section147 of the Act cannot be challenged; (iii) The Assessing Officer had not made any discussion inrespect of those points on which assessment is reopened,thus it can be hardly stated that Assessing Officer hadformed an opinion on such points during originalassessment proceedings. The Supreme Court and variousHigh Courts have justified the reopening of theassessment where no opinion on certain points wasformed by the Assessing Officer during originalassessment proceedings and later on the assessment wasreopened on those points. Thus, the window of reopeningof assessment will remain open for Assessing Officer on those points where the Assessing Officer neither acceptsnor rejects such claim; (iii) The Assessing Officer had not made any discussion inrespect of those points on which assessment is reopened,thus it can be hardly stated that Assessing Officer hadformed an opinion on such points during originalassessment proceedings. The Supreme Court and variousHigh Courts have justified the reopening of theassessment where no opinion on certain points wasformed by the Assessing Officer during originalassessment proceedings and later on the assessment wasreopened on those points. Thus, the window of reopeningof assessment will remain open for Assessing Officer on those points where the Assessing Officer neither acceptsnor rejects such claim; (iv) Without prejudice to what is stated above, it is alsoimportant to mention that something which is tangibleneed not be something which is new. Even if the AssessingOfficer fails to apply his mind while framing originalassessment to the points on which assessment is sought tobe reopened, it can be said that the reasons for reopeningof the assessment under Section 147 comes within thejurisdiction. If there is an escapement of income inconsequence, the jurisdictional requirement of Section147 would be fulfilled on the formation of a reason tobelieve that income has escaped assessment; (v) The contention of the assessee that true and fulldisclosure of material fact with respect to interest incomewas made during the course of original assessmentproceedings is not correct as the assessee was fully awarethat it is settled position of law that the interest expensesincurred for the purpose of business cannot be set offagainst the interest income under the income from other sources. The disclosure of material facts with respect tothe setting off the interest expenses under Section 57 ofthe Act might be full but it cannot be considered as true.This is failure on the part of the assessee; (vi) Further, explanation 1 to Section 147 of the Actstipulates that mere production of books of accounts orother documents from which the Assessing Officer couldhave, with due diligence, inferred material facts, does notamount to full and true disclosure of material facts. 10Mr. Pardiwalla, learned Senior Counsel for petitioner hasrelied upon the judgment dated 14.09.2021 passed by this DivisionBench in Writ Petition No.2814 of 2019 in Ananta Landmark Pvt. Ltd.vs. Deputy Commissioner of Income Tax Central Circle 5 (3) andothers. He has submitted that by the said judgment this DivisionBench disposed of the Writ Petition No.2814 of 2019 and set aside asimilar notice dated 26.03.2019 issued by respondent No.1 u/s.148 ofthe Act as well as an almost identical order dated 30.09.2019 rejectingthe objections of the petitioner to the reopening of the assessment. Hehas submitted that by the said notice and order, the respondent No.1had sought to reopen the assessment for the assessment year 2012-13. This is for the same assessment year as in the present case. He hassubmitted that the impugned order dated 30.09.2019 in AnantaLandmark Pvt. Ltd. bears the same date as the impugned order in thepresent case and was passed by the same Assessing Officer. He hassubmitted that the reasons given in the impugned order for rejectingthe objections raised by the petitioner are the same reasons given inthe order dated 30.09.2019 which order was quashed and set aside inAnanta Landmark Pvt. Ltd. He has submitted that the findings of thisDivision Bench in Ananta Landmark Pvt. Ltd. will apply in the presentcase. The impugned notice dated 26.03.2019 and impugned orderdated 30.09.2019 in the present case also requires to be quashed andset aside. This is for the same assessment year as in the present case. He hassubmitted that the impugned order dated 30.09.2019 in AnantaLandmark Pvt. Ltd. bears the same date as the impugned order in thepresent case and was passed by the same Assessing Officer. He hassubmitted that the reasons given in the impugned order for rejectingthe objections raised by the petitioner are the same reasons given inthe order dated 30.09.2019 which order was quashed and set aside inAnanta Landmark Pvt. Ltd. He has submitted that the findings of thisDivision Bench in Ananta Landmark Pvt. Ltd. will apply in the presentcase. The impugned notice dated 26.03.2019 and impugned orderdated 30.09.2019 in the present case also requires to be quashed andset aside. 11Mr. Suresh Kumar, learned Counsel appearing forrespondents has relied upon the affidavit-in-reply of Shri Ankit Verma,Deputy Commissioner of Income Tax Central Circle-5(3), dated18.11.2019. He has placed reliance upon the impugned order dated30.09.2019 and the reasons given in the impugned order for rejectingthe objections raised by the petitioner for reopening of assessment byissuance of notice u/s.148 of the Act. However, there is no disputethat the impugned order in the present case is almost identical to theimpugned order which had been quashed and set aside in Ananta 12We have considered the submissions. It does appear thatthe impugned notice dated 26.03.2019 is similar and impugned orderdated 30.09.2019 is almost identical to the notice and order bearingthe same dates which were quashed and set aside in AnantaLandmark Pvt. Ltd.by this Division Bench vide judgment dated14.09.2021. The present case was considered with a batch of casesincluding Ananta Landmark Pvt. Ltd. and upon so consideringrespondent No.1 had passed virtually identical orders in these casesrejecting the objection to reopening of the assessment under Section147 of the Act. 13In Ananta Landmark Pvt. Ltd. this Court had held that thepetitioner had truly and fully disclosed all material facts for thepurpose of assessment. Not only material facts were disclosed bypetitioner truly and fully but they were carefully scrutinized andfigures of income as well as deduction were reworked carefully by theAssessing Officer. In the reasons for reopening, the Assessing Officerhas in fact relied upon the audited accounts to say that the claim ofdeduction under Section 57 of the Act was not correct. The figuresmentioned in the reasons for reopening of assessment are also found in the audited accounts of petitioner. In the reasons for reopening,there was not even a whisper as to what was not disclosed. It wasthus held in Ananta Landmark Pvt. Ltd.that the Assessing Officer hadadmitted that all details are fully disclosed. This was not a case wherethe assessment is sought to be reopened on the reasonable belief thatincome had escaped assessment on account of failure of the assesseeto disclose truly and fully all material facts that were necessary forcomputation of income but this is a case wherein the assessment issought to be reopened on account of change of opinion of theAssessing Officer about the manner of computation of the deductionunder Section 57 of the Act. 14In the present case the findings in Ananta Landmark Pvt.Ltd. apply. The reasons for reopening of the assessment u/s. 147 ofthe Act reveal that the audited accounts filed by the petitioner wasrelied upon by the Assessing Officer to state that “Hence, interest paidto HDFC bank amounting Rs.11,46,38,381/- was not an allowablededuction u/s.57 of the Act as claimed by assessee against interestincome treated as other income.” There is not a whisper in thepresent case as to what was not disclosed. Further, the AssessingOfficer had admitted that all details were fully disclosed. Thus, thepresent case is not a case where the assessment is sought to be 14In the present case the findings in Ananta Landmark Pvt.Ltd. apply. The reasons for reopening of the assessment u/s. 147 ofthe Act reveal that the audited accounts filed by the petitioner wasrelied upon by the Assessing Officer to state that “Hence, interest paidto HDFC bank amounting Rs.11,46,38,381/- was not an allowablededuction u/s.57 of the Act as claimed by assessee against interestincome treated as other income.” There is not a whisper in thepresent case as to what was not disclosed. Further, the AssessingOfficer had admitted that all details were fully disclosed. Thus, thepresent case is not a case where the assessment is sought to be reopened on the reasonable belief that income had escapedassessment on account of failure of the assessee to disclose truly andfully all material facts that were necessary for computation of income.Here too the assessment is sought to be reopened on account ofchange of opinion of the Assessing Officer about the manner ofcomputation of the deduction u/s.57 of the Act. 15This Division Bench in Ananta Landmark Pvt. Ltd. hasconsidered the various decisions of the Supreme Court as well as thisCourt in matters concerning reopening of assessment u/s.147 andproviso thereto of the Act. It is clear from the settled law that where aperiod of four years has been lapsed from the end of the relevantassessment year, the Assessing Officer has to mention what was thetangible material to come to the conclusion that there is escapementof income from assessment and that there has been a failure todisclose fully and truly material facts as per the requirement stipulatedin the proviso to Section 147 of the Act, prior to amendment, which isapplicable in the present case. After a period of four years even if theAssessing Officer has some tangible material to come to the conclusionthat there is an escapement of income from assessment, he cannotexercise the power to reopen unless he discloses what was thematerial fact which was not truly and fully disclosed by the assessee. In the reasons for reopening in the present case as well as in the caseof Ananta Landmark Pvt. Ltd. except stating that income which waschargeable to tax has escaped assessment by reason of failure on thepart of the assessee to disclose fully and truly all material factsnecessary, there is nothing else in the reasons. 16The Supreme Court in Calcutta Discount Co. Ltd. vs.Income Tax Officer,1 has held that there can be no doubt that the dutyof disclosing all primary facts relevant to the decision of the questionbefore the assessment authority lies on the assessee. To meet allpossible contentions that when some account books or other evidencehave been produced, there is no duty to of the assessee to disclosefurther facts which on due diligence, the Income Tax Officer mighthave discovered, the legislature has put in explanation to Section34(1). The duty, however, does not extend beyond the full andtruthful disclosure of all primary facts before the assessing authority.He requires no further assistance by way of disclosure. It is for himdecide what inferences of facts can be reasonably drawn and whatlegal inferences have ultimately to be drawn. It is not for somebodyelse, far less the assessee, to tell the assessing authority whatinferences, whether of facts or law should be drawn. The relevant portion of Calcutta Discount Co. Ltd. (Supra) reads as under : The relevant portion of Calcutta Discount Co. Ltd. (Supra) reads as under : “Before we proceed to consider the materials on record to seewhether the appellant has succeeded ,in showing that the Income-tax Officer could have no reason, on the materials before him, tobelieve that there had been any omission to disclose materialfacts, as mentioned in the section, it is necessary to examine theprecise scope of disclosure which the section demands. The wordsused are "omission or failure to disclose fully and truly allmaterial facts necessary for his assessment for that year ". Itpostulates a duty on every assessee to disclose fully and truly allmaterial facts necessary for his assessment. What facts arematerial, and necessary for assessment will differ from case tocase. In every assessment proceeding, the assessing authority will,for the purpose of computing or determining the proper tax duefrom an assessee, require to know all the facts which help him incoming to the correct conclusion. From the primary facts in hisPossession, whether on disclosure by the assessee, or discoveredby him on the basis of the facts disclosed, or otherwise-theassessing authority has to draw inferences as regards certain otherfacts; and ultimately, from the primary facts and the further factsinferred from them, the authority has to draw the proper legalinferences, and ascertain on a correct interpretation of the taxingenactment, the proper tax leviable. Thus, when a question ariseswhether certain income received by an assessee is capital receipt,or revenue receipt, the assessing authority has to find out whatprimary facts have been proved, what other facts can be inferredfrom them, and taking all these together, to decide what the legalinference should be. There can be no doubt that the duty of disclosing all the primaryfacts relevant to the decision of the question before the assessingauthority lies on the assessee. To meet a possible contention thatwhen some account books or other evidence has been produced,there is no duty on the assessee to disclose further facts, which ondue diligence, the Income-tax Officer might have discovered, theLegislature has put in the Explanation, which has been set outabove., In view of the Explanation, it will not be open to theassessee to say, for example-" I have produced the account booksand the documents: You, the assessing officer examine them, andfind out the facts necessary for your purpose: My duty is donewith disclosing these account-books and the documents". Hisomission to bring to the assessing authority's attention theseparticular items in the account books, or the particular portions of the documents, which are relevant, amount to "omission todisclose fully and truly all material facts necessary for hisassessment." Nor will he be able to contend successfully that bydisclosing certain evidence, he should be deemed to havedisclosed other evidence, which might have been discovered bythe assessing authority if he had pursued investigation on thebasis of what has been disclosed. The Explanation to the section,gives a quietus to all such contentions; and the position remainsthat so far as primary facts are concerned, it is the assessee's dutyto disclose all of them-including particular entries in accountbooks, particular portions of documents and documents, andother evidence, which could have been discovered by theassessing authority, from the documents and other evidencedisclosed. of the documents, which are relevant, amount to "omission todisclose fully and truly all material facts necessary for hisassessment." Nor will he be able to contend successfully that bydisclosing certain evidence, he should be deemed to havedisclosed other evidence, which might have been discovered bythe assessing authority if he had pursued investigation on thebasis of what has been disclosed. The Explanation to the section,gives a quietus to all such contentions; and the position remainsthat so far as primary facts are concerned, it is the assessee's dutyto disclose all of them-including particular entries in accountbooks, particular portions of documents and documents, andother evidence, which could have been discovered by theassessing authority, from the documents and other evidencedisclosed. Does the duty however extend beyond the full and truthfuldisclosure of all primary facts ? In our opinion, the answer to thisquestion must be in the negative. Once all the primary facts arebefore the assessing authority, he requires no further assistance byway of disclosure. It is for him to decide what inferences of factscan be reasonably drawn and what legal inferences haveultimately to be drawn. It is not for somebody else-far less theassessee--to tell the assessing authority what inferences-whetherof facts or law should be drawn. Indeed, when it is rememberedthat people often differ as regards what inferences should bedrawn from given facts, it will be meaningless to demand that theassessee must disclose what inferences-whether of facts or law-hewould draw from the primary facts. If from primary facts more inferences than one could be drawn, itwould not be possible to say that the assessee should have drawnany particular inference and communicated it to the assessingauthority. How could an assessee be charged with failure tocommunicate an inference, which he might or might not havedrawn? It may be pointed out that the Explanation to the sub- section hasnothing to do with " inferences " and deals only with the questionwhether primary material facts not disclosed could still be said tobe constructively disclosed on the ground that with due diligencethe Income-tax Officer could have discovered them from the factsactually disclosed. The Explanation has not the effect of enlargingthe section, by casting a duty on the assessee to disclose "inferences "-to draw the proper inferences being the duty imposedon the Income-fax Officer. We have therefore come to the Conclusion that while the duty ofthe assessee is to disclose fully and truly all primary relevant facts,it does not extend beyond this. The position, therefore, is that if there were in fact somereasonable grounds for thinking that there had been any non-disclosure as regards any primary fact, which could have amaterial bearing on the question of "under assessments thatwould be sufficient to give jurisdiction to the Income-tax Officerto issue the notice under Section 34. Whether these grounds wereadequate or not for arriving at the conclusion that there was anon disclosure of material facts would not be open for the court'sinvestigation. In other words, all that is necessary to give thisspecial jurisdiction is that the Income-tax officer had when heassumed jurisdiction some prima facie grounds for thinking thatthere had been some non-disclosure of material facts. ..............… -Both the conditions, (i) the Incometax Officer having reason tobelieve that there has been under assessment and (ii) his havingreason to believe that such under assessment has resulted fromnondisclosure of material facts, must co-exist before the Income-tax Officer has jurisdiction to start proceedings after the expiry of4 years. The argument that the Court ought not to investigate theexistence of one of these conditions, viz., that the Income-taxOfficer has reason to believe that under assessment has resultedfrom non-disclosure of material facts, cannot therefore beaccepted.” ..............… -Both the conditions, (i) the Incometax Officer having reason tobelieve that there has been under assessment and (ii) his havingreason to believe that such under assessment has resulted fromnondisclosure of material facts, must co-exist before the Income-tax Officer has jurisdiction to start proceedings after the expiry of4 years. The argument that the Court ought not to investigate theexistence of one of these conditions, viz., that the Income-taxOfficer has reason to believe that under assessment has resultedfrom non-disclosure of material facts, cannot therefore beaccepted.” 17In the present case there is no failure on the part of theassessee to truly and fully, disclose all primary facts necessary for thepurpose of assessment. It cannot be stated that the conditionprecedent to the reopening of the assessment beyond the period offour years has been fulfilled. The statement in the reasons forreopening “I have reasons to believe that income of Rs.11,46,38,381/-which was chargeable to tax has escaped assessment by reason offailure on the part of the assessee to disclose fully and truly allmaterial facts necessary and, therefore, this is a fit case for reassessment within the meaning of Section 147 of the I.T. Act and theassessment for assessment year 2012-13 needs to be reopened u/s.148of the Act,” is clearly made only as an attempt to take the case out ofthe restrictions imposed by the proviso to Section 147 of the Act. Theother reason given in the reason for reopening of the assessment isthat the assessee had shown 35 constructed units valuing atRs.14,04,35,511/- as on 31.03.2012. However, no income under thehead income from House Property has been offered by the assesseeduring the year under consideration. This reason is not mentioned inthe reasons to believe that the income has escaped assessment byreason of failure on the part of the assessee to disclose fully and trulyall material facts. Thus, this reason too cannot be considering asfulfilling the condition precedent to the reopening of assessmentbeyond the period of four years as per the applicable proviso toSection 147 of the Act. 18Consequently, the petition is allowed. The notice dated26.03.2019 issued by respondent No.1 under Section 148 of the Actseeking to reopen the assessment for the assessment year 2012-13 andthe order dated 30.09.2019 are quashed and set aside. 19 Petition is disposed of with no order as to costs. Digitallysigned byWAISHALIWAISHALISUSHILSUSHILWAGHMARE(R.I. CHAGLA, J.)WAGHMAREDate:2021.10.1305:08:55+0530 (K.R. SHRIRAM, J.)