Wp/2827/2022 Of Prabhat Properties Private Limited v. Asst. Commissioner Of Income Tax Central Circle 8(4), Mumbai And 2 Ors

IN THE HIGH COURT OF JUDICATURE AT BOMBAYORDINARY ORIGINAL CIVIL JURISDICTION WRIT PETITION NO. 2827 of 2022ALONG WITHWRIT PETITION NO. 3197 OF 2022 Prabhat Properties Private Limited]J-N-3, 14-5, Aashirwad CHS, Sector – 9,]Vashi, Navi Mumbai – 400 703]…Petitioner Versus1. Asst. Commissioner of Income]Tax – Central Circle 8(4), Mumbai,]R. No.658, 6[th] Floor, Aaykar Bhavan,]M K. Road, Mumbai – 400 020]2. Pr. Commissioner of Income-]Tax, Mumbai – 4, Aaykar Bhavan,]R. No.663, 6[th] Floor, M. K. Road,]Mumbai – 400 020]3. Union of India, through the,]Secretary, Ministry of Finance]North Block, New Delhi – 110 001] …Respondents Mr. Riyaz Padvekar a/w. Mr. Tanzil Padvekar for the petitioner inboth matters.. Ms. Suresh Kumar for the respondents. … CORAM : DHIRAJ SINGH THAKUR AND KAMAL KHATA, JJ. PRONOUNCED ON : 27TH JUNE, 2023 [PER: KAMAL KHATA, J.] 1.The above two Writ Petitions are for the assessment years(‘AYs’) 2015-16 and 2016-17 having common facts and can bedisposed of with a common order. For the sake of brevity weadvert to the facts stated in Writ Petition No. 2827 of 2022. 2.This Petition under Article 226 impugns notice undersection 148 of the Income-tax Act, 1961 (‘Act’) dated 31[st] March2021 issued by Respondent No.1 proposing to reassess the incomefor the AY 2015-16 and the order dated 24[th] January 2022,rejecting the objections raised by Petitioner challenging thevalidity of the said notice. 3.The reasons for opening are as under: “The assessee company filed its return of incomefor A.Y. 2015-16 on 28.09.2015. Further, thecase was selected for scrutiny and the assessmentwas completed under section 143(3) on15.11.2017 assessing total income at Rs. Nil.Subsequently, a credible information has beenreceived from ITO (I&CI) Unit 2(3) Mumbai, thatthe assessee i.e. Ms. PRABHAT PROPERTIESPRIVATE LIMITED has shown a total profit of Rs.2,07,33,019 from trading in shares in F &O/commodities/currency. The same was verifiedby I&CI in the course of verification made afterSEBI passed orders in cases of reversal tradesand accommodation entries. The assessee hastraded through two share brokers namely Master Capital Services Ltd & Skung Trade link Ltd. TheGlobal report of Skung Trade link Ltd. shows lossof Rs. 84,94,990 and though the assessee has notsubmitted further break up of other income, itappeared that the profit shown above was a netprofit taking into account transactions of both thebrokers and after setting of the loss from tradingin futures and option on BSE platform of Rs.94,90,000. This has reduced assessee’s net profitof the F.Y. 2014-15 to the tune of Rs.84,90,000.The assessment in the case of assessee for A.Y.2015-16 was completed under section 143(3) on15.11.2017. During the assessment proceedings,there is clear failure on part of the assessee tomake full and true disclosure of these materialfacts. In view of the above, since assessee has failed todisclose fully and truly all material factsnecessary during assessment, I have reason tobelieve that income amounting to Rs. 84,90,000/-chargeable to tax has escaped assessment.Accordingly, provisions of sub-clause(c)(i) ofExplanation 2 of section 147 of the Act are clearlyattracted.” 4.The Petitioner responded to the reasons giving all detailsand explanations. The relevant para is as under: In view of the above, since assessee has failed todisclose fully and truly all material factsnecessary during assessment, I have reason tobelieve that income amounting to Rs. 84,90,000/-chargeable to tax has escaped assessment.Accordingly, provisions of sub-clause(c)(i) ofExplanation 2 of section 147 of the Act are clearlyattracted.” 4.The Petitioner responded to the reasons giving all detailsand explanations. The relevant para is as under: “3. In the reasons for reopening , it is mentionedthat you have received the information fromITO(I&CI), Unit 2(3), Mumbai that the Assesseehas shown a total profit of Rs. 2,07,22,019/- fromtrading in shares in F&O/Commodities /Currency . The above profit was verified by I&CIin the course of verification made after SEBIpassed orders in case of reversal trades andaccommodation entries. The Assessee has tradedthrough two share brokers namely Master CapitalServices Ltd. and Skung Trade Link Ltd. TheGlobal Report of Skung Trade Link Ltd. shows lossof Rs. 84,94,990. It appeared that the profitshown above was not a net profit taking intoaccount transactions of both the brokers and aftersetting off the loss from trading in futures and option on BSE platform of Rs. 94,90,000/-. Thishas reduced assessee’s net profit of the FinancialYear 2014-15 to the tune of Rs. 84,90,000/-.4. In this respect we submit that the assessee hasdone the transaction on the Stock Exchange inderivative transactions and earned profit on thesetransactions during the to the tune of Rs.1,98,74,269/- and Profit of Rs. 8,58,750/- fromIntraday Trading. The same was declared as Profit/ Loss from Trading In Intraday / Futures /Options of Shares / Commodities / Currenciesunder the head Other Income Profit & LossAccount of Rs. 2,07,33,019./-. The same can beverified from Note No. 17 of profit and lossaccount forming part of the Financial Statementsfor the year ended 31-03-2015 and Part A-P&L inincome tax return. Copy of computation of incomeand extract of financial statement enclosed-”herewith at Annexure1. 5.The Original Assessment was completed u/s 143(3) of theAct by passing order of assessment on 15[th] November 2017. ThePetitioner was subjected to detail enquiries in respect of all issuesand the reasons recorded, do not suggest, any failure on the partof the Petitioner to disclose truly and fully all the material facts forcompleting assessment and passing order. 6.Notice u/s 148 was issued after four years on 31[st] March2021 and response thereto was filed on 20[th] December 2021. TheRespondent No. 1 rejected the objections on 24[th] January 2022and hence the Petitioner was constrained to file this Petition on14[th] March 2022. its reopening by stating: “4.2 Merely not mentioning the year-wise amountand exact amount in the reasons for reopeningdoes not change the character of non-genuinetransactions as genuine. During the saidassessment proceeding, the assessee filed anobjection dated 20.12.2021 stating all thistransaction undertaken by the assessee areshown in books of accounts and profit of Rs.2,07,33,019/- truly & fully disclosed in the returnof income. However, nowhere in the objection hasthe assessee given any details of dates andamou8onts of transactions in stock options onBSE which were the subject matter of orderpassed by SEBI. Despite knowing that the casewas reopened on the basis of findings of I&CI andSEBI, the assessee did not submit any details ofactual transactions to prove its own case.” 8.The Respondent No. 1 placed reliance on the judgments ofthe Supreme Court in the case of Raymond Woollen Mills (1999)236 ITR 34 (S.C) and Rajesh Jhaveri Stock Brokers P. Ltd[1] tocontend that sufficiency or correctness of material is not a thing tobe considered at the stage of re-opening of assessment. 8.The Respondent No. 1 placed reliance on the judgments ofthe Supreme Court in the case of Raymond Woollen Mills (1999)236 ITR 34 (S.C) and Rajesh Jhaveri Stock Brokers P. Ltd[1] tocontend that sufficiency or correctness of material is not a thing tobe considered at the stage of re-opening of assessment. 9.An identical issue was decided by this Court in the case ofTilak Ventures Ltd. v ITO -11(3)(1)[2]where the notice was quashedand set aside as there was failure to disclose anything that couldbe remotely termed as ‘reasons to believe income has escapedassessment.’ 1 291 ITR 500 2 Writ Petition No. 2574 of 2021 decided on 21[st] February 2022 10.The criteria for reopening of assessment after a period offour years are no longer res integra in view of the judgment of thisCourt in the case of Ananta Landmark P. Ltd v Dy. CIT whereinthis Court held that, where assessment was not sought to bereopened on the ‘reasonable belief’ that income had escapedassessment on account of failure of assessee to disclose truly andfully all material facts that were necessary for computation ofincome, but was a case wherein assessment was sought to bereopened on account of ‘change of opinion’ of AO the reopeningwas not justified. It is also held that where primary factsnecessary for assessment are fully and truly disclosed the AO isnot entitled to reopen the assessment on a change of opinion. It isheld that while considering the material on record, when one viewis conclusively taken by AO, it would not be open for the AO toreopen the assessment based on the very same material and takeanother view. 11.The Supreme Court in the case of ITO vs Lakhmani MewalDas[3] has held that: “… the reasons for the formation of the belief musthave a rational connection with or relevantbearing on the formation of the belief. Rationalconnection postulates that there must be a directnexus or live link between the material coming tothe notice of the Income-tax Officer and theformation of his belief that there has beenescapement of the income of the assessee from the assessment in the particular year because of hisfailure to disclose fully and truly all materialfacts. “The live link or close nexus which should bethere between the material before the Income-taxOfficer.” 12.In the present case, the Respondent No. 1 has receivedinformation from ITO (I & CI) Unit 2(3) Mumbai, that SEBI passedorders in cases of reversal trades and accommodation entries.However, even though the Petitioner has explained thetransactions done, through note No. 17 submitted along with theProfit and Loss Account and other supporting documents, theRespondents have mindfully taken a stand, that at this stage, theyare not required to look into the sufficiency and correctness of theinformation and can consequently reopen the case. 13.As per section 103 of the Evidence Act, the burden of proofas to any particular fact lies on that person who wishes the Courtto believe in its existence, unless it is provided by any law that theproof of the fact shall lie on any particular person. This sectionamplifies the general rule in section 101 that the burden of prooflies on the person who asserts the affirmative of the issue. It laysdown that if a person wishes the court to believe in the existenceof a particular fact, the onus of proving the fact, is on him, unless the burden of proving it is cast by any law on any particularperson. 13.As per section 103 of the Evidence Act, the burden of proofas to any particular fact lies on that person who wishes the Courtto believe in its existence, unless it is provided by any law that theproof of the fact shall lie on any particular person. This sectionamplifies the general rule in section 101 that the burden of prooflies on the person who asserts the affirmative of the issue. It laysdown that if a person wishes the court to believe in the existenceof a particular fact, the onus of proving the fact, is on him, unless the burden of proving it is cast by any law on any particularperson. 14.In our view, once the Petitioner provided the all the details,explanations and documents against the reasons for reopening.The AO considering the principle of ‘shifting of onus’ under theevidence act, must necessarily carefully examine the material andthen give particulars and reason/s to disbelieve the assessee,whilst rejecting the objections, to shift the onus on the assessee, asfailure to do so, does not discharge the onus shifted upon him (AO)by the assessee by submitting all documents and explanations,and provides no reason for the Court to disbelieve the assessee. 15.The Supreme Court in the case of R V E VenkatachalaGounder v Arulmigu Vishwesaraswami & V. P. Temple & anr.[4]relying on A Raghavamma v A Chenchamma[5] held that there is anessential distinction between burden of proof and onus of proof:burden of proof lies upon a person who has to prove the fact andwhich never shifts. Onus of proof shifts. Such a shifting of onus is acontinuous process in the evaluation of evidence. 4 (2003) 8 SCC 752 5 AIR 1964 Supreme Court 136 16.The Delhi High Court in the case of PCIT v RMG Polyvinly (I) Ltd,[6] held that: “Where information was received frominvestigation wing that assessee was beneficiaryof accommodation entries but no further inquirywas undertaken by Assessing Officer, saidinformation could not be said to be tangiblematerial per se and, thus, reassessment on saidbasis was not justified.” 17.Similar view was expressed by Delhi High Court in the case of CIT vs Sfil Stock Broking Ltd. where it held that: “Where on the basis of information given by theDy. Director of Income-tax (Inv.) AssessingOfficer reopened assessment and from so-calledreasons, it was not at all discernible as to whetherAssessing Officer had applied his mind toinformation and independently arrived at a beliefthat, on basis of material which he had beforehim, income had escaped assessment, reopeningof assessment was not justified.” 18.Upon examination of response/objections to the notice it isevinced that there is no live link or nexus with the alleged orderspassed by SEBI as alleged by the Respondent. Besides theRespondent has failed to aver the particulars of the informationavailable which has led to the belief that income has escapedassessment. There appears no new tangible material available onrecord to conclude that income had escaped assessment. In ourview it is clearly a ‘change of opinion’. 6 83 taxmann.com 348 19.We, therefore pass the following order- i.The impugned notices dated 31[st] March 2021 and theorder dated 24[th] January 2022, issued by Respondent No.1for AY 2015-16 & 2016-17 are quashed and set aside; ii.Rule made absolute in above terms. No costs. (KAMAL KHATA, J.) (DHIRAJ SINGH THAKUR, J.)