Wp/2961/2019 Of Neetaa Suneel Shah v. Income Tax Officer

IN THE HIGH COURT OF JUDICATURE AT MADRAS Reserved on : 14.10.2019Delivered on : 18.10.2019 CORAM THE HON'BLE MR.JUSTICE K.RAVICHANDRABAABU Smt.Neetaa Suneel ShahD/o.Ramesh Bhai Doshi ..Petitioner The Income Tax OfficerNon-Corporate Ward - 5(2) Income Tax Office - BSNL TowerNo.16, Greams Road,Chennai-600 006. ..Respondent Writ Petition filed under Article 226 of the Constitution ofIndia praying to issue a Writ of Certiorari to call for therecords in PAN : dated 31.12.2018 on the file of therespondent and quash the same. The challenge made in this writ petition is against theassessment order dated 31.12.2018 made under Section 143(3) r/wSection 254 of the Income Tax, Act, 1961. The petitioner is an individual Assessee. The relevantassessment year is 2010-2011. The assessment of the petitionerwas reopened by issuing a notice under Section 148 of the IncomeTax, Act, 1961, (for brevity "IT Act"). The reasons forreopening is that the Assessee had evaded tax through the clientmodification mode with regard to brokers in futures and options Writ Petition filed under Article 226 of the Constitution ofIndia praying to issue a Writ of Certiorari to call for therecords in PAN : dated 31.12.2018 on the file of therespondent and quash the same. The challenge made in this writ petition is against theassessment order dated 31.12.2018 made under Section 143(3) r/wSection 254 of the Income Tax, Act, 1961. The petitioner is an individual Assessee. The relevantassessment year is 2010-2011. The assessment of the petitionerwas reopened by issuing a notice under Section 148 of the IncomeTax, Act, 1961, (for brevity "IT Act"). The reasons forreopening is that the Assessee had evaded tax through the clientmodification mode with regard to brokers in futures and options business. The petitioner had objected to the reopening andhowever, the objections were rejected by the Assessing Officer,by order dated 29.08.2016. During the course of assessmentproceedings, the petitioner had stated that she is consistentlyreporting her income/loss on sale of shares under the headCapital Gains. The assessment was completed by order dated15.09.2016 under Section 143(3) r/w 147 of the IT Act. In thesaid assessment order, the Assessing Officer confirmed theassessment by making an addition of a sum of Rs.25,05,304/- asShort Term Capital Gains. Therefore, the Assessing Officer hasaccepted that the income has to be assessed under the headCapital Gains and consequently, made the addition as statedsupra. The petitioner filed an appeal before the CIT(A) and thesame was dismissed on 22.06.2017. The petitioner preferredfurther appeal before the Income Tax Appellate Tribunal,questioning the erroneous addition of Rs.25,05,304/- as ShortTerm Capital Gains. The entire issue in the appeal was only inrelation to the sole addition of Rs.25,05,304/- as Short TermCapital Gains and no other dispute in respect ofcharacterization of the heads of income of the petitioner. TheTribunal, by order dated 10.10.2017, remanded the sole issue inappeal to the file of the Assessing Officer, as it has foundthat there was violation of principles of natural justice.After remand, the Assessing Officer, without issuing any noticeof personal hearing and in complete violation of the order ofthe Tribunal, completed the assessment by order dated 31.12.2018and enhanced the total income of the Assessee. The entireincome of the Assessee, which was accepted in the reopening ofthe assessment under the head Capital Gains, is now beingassessed under the head Profits and Gains from the business andprofession. Thus, the enhanced income of the petitioner bymaking new addition of Rs.60,48,161/- is without any notice ofhearing. While the Assessing Officer has allowed the claim ofBrought/Forward losses in the assessment order dated 15.09.2016,under Section 143(3) r/w 147 of the IT Act, has now, chosen toreject the claim of set off brought/forward without capitalloss. The said act would amount to change of opinion. Theaddition of Rs.25,05,304/- which was made in the reopening ofthe assessment as Short Term Capital Gains is now, being addedas income from Undisclosed Sources under Section 68 of the ITAct. Thus, the present impugned order enhancing the income ofthe petitioner pursuant to the order of the remand made by theIncome Tax Appellate Tribunal, is wholly without jurisdiction,as the other issues dealt with by the Assessing Officer is notthe subject matter appeal or issues raised in appeal. Since theimpugned order was passed without jurisdiction and in violationof principles of natural justice, the present writ petition ismaintainable, even though the appellate remedy is availableagainst the order impugned. 3. The respondent filed a counter affidavit, wherein, it isstated as follows: 3. The respondent filed a counter affidavit, wherein, it isstated as follows: The writ petition is liable to be dismissed on the ground ofavailability of the statutory appellate remedy against theimpugned order. It is not in dispute that the client codemodifications had taken place in the case of the petitioner.This modification facility is used by some brokers to transfergains/losses from one individual to another by modifying clientcodes in the guise of rectifying a genuine error. It isgenerally done by buying or selling stocks so as to say,consciously incur a loss and use that for tax offset. This isnormally done in the fag end of the financial year so as toincur an artificial loss, which would enable an Assessee toreduce his tax liability. In the present case, the client modemodified in the case of the petitioner are that of oneShri.Lalchand Misirimal (PAN: ) and Ms.Padmaja V.Ramana( ), both are not fitting to the situations asexplained in detail in the impugned order. It was to disallowsuch an artificial loss created in the books, the petitioner'scase was reopened. The allegations that the assessment was madein violation of principles of natural justice and that theTribunal has remanded the issue in appeal to the AssessingOfficer for re-adjudication for the limited purpose of verifyingthe client code modifications are wrong and denied. TheTribunal has remanded the issue, as the petitioner had notprovided all the details at the time of assessment and alsodirected the respondent to verify the client code modificationswith the broker. The assessment was completed by taking intoconsideration the material already submitted by the petitionerin the reassessment proceedings. No new material was reliedupon. Since the Tribunal has remitted the issue back to theAssessing Officer for re-adjudication after verification of thedetails of the client code modifications, it is not correct tostate that it was remitted only for the limited purpose. Theassessment order is absolutely within the jurisdiction of therespondent and there has been no violation of principles ofnatural justice. 4. The reply to the counter affidavit is filed by therespondent, wherein, the petitioner has reiterated thecontentions already raised in the affidavit filed in support ofthe writ petition. 5. The learned counsel for the petitioner submitted asfollows: The only dispute raised by the petitioner as against theorder of assessment dated 15.09.2016 made under Section 143(3) 4. The reply to the counter affidavit is filed by therespondent, wherein, the petitioner has reiterated thecontentions already raised in the affidavit filed in support ofthe writ petition. 5. The learned counsel for the petitioner submitted asfollows: The only dispute raised by the petitioner as against theorder of assessment dated 15.09.2016 made under Section 143(3) r/w 147 of the IT Act, is in respect of the addition ofRs.25,05,304/- made under the head Short Term Capital Gainsother than under Section 111A of the IT Act. The petitionerchallenged the said addition before the first AppellateAuthority. Though the said appeal was dismissed, the petitionerpreferred further appeal before the Tribunal, which in turnremanded the sole issue raised in the appeal to the file of theAssessing Officer for re-adjudication. Therefore, the AssessingOfficer is bound to confine only the issue raised before theTribunal, which was remitted back to him viz., the addition ofRs.25,05,304/- as Short Term Capital Gains and not in respect ofother heads viz., income from Short Term Capital Gains underSection 111A and Brought/Forward losses of previous assessmentyears, which were accepted by the Assessing Officer in the orderof assessment dated 15.09.2016. However, after remand, theAssessing Officer has gone beyond the scope of the remand orderand expanded the scope of the adjudication by making newadditions, which were already accepted by him at the time of theoriginal assessment. The Assessing Officer has now, treated theShort Term Capital Gains amounting to Rs.59,56,614/- as businessincome without notice. Equally, the Assessing Officer now,denied the Brought/Forward losses for a sum of Rs.56,96,224/-.Even in respect of the issue remanded, the Assessing Officer haschanged the head from Short Term Capital Gains to UndisclosedSources under Section 68 of the IT Act. This again, is withoutnotice to the petitioner. 6. In respect of his contention that the Assessing Officeris not entitled to expand the scope of the assessmentproceedings beyond the issue remanded, the learned counsel forthe petitioner relied on the following decisions:(i) (1982) 145 ITR 255 (All), S.P.Kochhar Vs. Income TaxOfficer, Dehradun, (ii) (2009) 309 ITR 434 (SC), Mcorp Global P. Ltd., Vs.CIT.(iii) (2008) 302 ITR 126 (Guj), Saheli Synthetics P. Ltd.,Vs. CIT. (iv) An unreported judgement in T.C.(Appeal) No.885 of 2008dated 04.04.2018, M/s.Sanmar Speciality Chemicals Limited Vs.The Income Tax Officer. (v) (1995) 213 ITR 502 (Mad), Raja DV Seetharamaya Vs. WTO. 7. Per contra, the learned counsel for the Revenue submittedas follows: The Assessing Officer has not exceeded the scope of theremand. All the three issues are interlinked with each otherand therefore, the petitioner is not justified in contendingotherwise. The Tribunal has remitted the matter with specificdirections for re-adjudication, after verifying the details ofthe client code modifications, also by granting liberty to the Assessing Officer to have the verification of the sharetransactions with the stock brokers. Therefore, the issues,which are dealt with by the Assessing Officer, interlinked witheach other, are in relation to the factual dispute, which haveto be gone into and decided only by the next fact findingauthority viz., the Appellate Authority. Therefore, thepetitioner has to agitate the issue only by way of filingregular appeal and not by filing the present writ petition.There is no violation of principles of natural justice in thiscase, as alleged by the petitioner. 8. Heard both sides and perused the materials placed beforethis Court. Assessing Officer to have the verification of the sharetransactions with the stock brokers. Therefore, the issues,which are dealt with by the Assessing Officer, interlinked witheach other, are in relation to the factual dispute, which haveto be gone into and decided only by the next fact findingauthority viz., the Appellate Authority. Therefore, thepetitioner has to agitate the issue only by way of filingregular appeal and not by filing the present writ petition.There is no violation of principles of natural justice in thiscase, as alleged by the petitioner. 8. Heard both sides and perused the materials placed beforethis Court. 9. The petitioner, an individual Assessee, has chosen tochallenge the order of the assessment made under Section 143(3)r/w 254 of the IT Act. Though a statutory appellate remedy isavailable against the impugned order, this writ petition issought to be maintained on the ground that the Assessing Officerhas exceeded his jurisdiction and enlarged the scope of theremand order passed by the Income Tax Appellate Tribunal. It isalso the contention of the petitioner that by enlarging thescope of the remand, the Assessing Officer, in effect reopenedthe issues which were not put to challenge by the petitioner norit was the case of the Revenue before the Appellate Forum.Therefore, it is contended that this Court can exercise itsjurisdiction under Article 226 of the Constitution of India anddecide as to whether the above contentions are true and if so,whether the impugned order is liable to be interfered with onthose reasons. 10. There is no dispute to the fact that the presentimpugned order was passed as a compliance of the order passed bythe Tribunal. 11. The following facts and circumstances would show as tohow the present impugned order came to be passed: (a) The relevant assessment year is 2010-2011. Theassessment of the petitioner for the relevant assessment yearwas reopened by issuing the notice dated 22.04.2015 underSection 148 of the IT Act. (b) The reasons for reopening the assessment was that theAssessing Officer had information that the Assessee had evadedthe tax through client code modifications with regard to brokersin futures and options business to the tune of Rs.25,05,304/-.Though the petitioner filed the objections against reopening andthe reasons given for the same, such objections were rejectedand consequently, the assessment was completed by passing theorder dated 15.09.2016 under Section 143(3) r/w 147 of the ITAct. The Assessing Officer in the said order has computed the total income at Paragraph No.9 of the order as follows:"The total income is computed as under:Income from House Property as admittedRs. 1,56,762 Income from Short Term Capital Gains - other than u/s 111A as discussed in para 8 aboveRs.25,05,304 (b) The reasons for reopening the assessment was that theAssessing Officer had information that the Assessee had evadedthe tax through client code modifications with regard to brokersin futures and options business to the tune of Rs.25,05,304/-.Though the petitioner filed the objections against reopening andthe reasons given for the same, such objections were rejectedand consequently, the assessment was completed by passing theorder dated 15.09.2016 under Section 143(3) r/w 147 of the ITAct. The Assessing Officer in the said order has computed the total income at Paragraph No.9 of the order as follows:"The total income is computed as under:Income from House Property as admittedRs. 1,56,762 Income from Short Term Capital Gains - other than u/s 111A as discussed in para 8 aboveRs.25,05,304 12. Perusal of the above computation would show that theAssessing Officer has made only the addition to the tune ofRs.25,05,304/- as an income from Short Term Capital Gains otherthan the income from Short Term Capital Gains under Section111A. Therefore, it is evident that in respect of the otherheads viz., Income from House Property, income from Short TermCapital Gains under Section 111A, income from other sources, theBrought/forward losses for the assessment years 2006-2007 to2009-2010 as admitted by the Assessee in her return wereaccepted by the Assessing Officer as such. In other words,after reopening, the Assessing Officer has passed the assessmentorder under Section 143(3) r/w 147 of the IT Act, only by makingan addition of Rs.25,05,304/- as an income from Short TermCapital Gains other than under Section 111A of the said Act.Disputing such addition, the petitioner went on appeal beforethe First Appellate Authority, who in turn by order dated22.06.2017 dismissed the appeal, thereby confirming the additionof Rs.25,05,304/- towards client code modifications as ShortTerm Capital Gains over and above the Short Term Capital Gainsof Rs.59,56,614/- under Section 111A. The Assessee filedfurther appeal before the Income Tax Appellate Tribunal. Theonly dispute that was raised before the First AppellateAuthority as well as the Income Tax Appellate Tribunal is withregard to the addition made to the tune of Rs.25,05,304/- asShort Term Capital Gains over and above the Short Term Capital Gains under Section 111A, as admitted by the Assessee to thetune of Rs.59,56,614/-. Gains under Section 111A, as admitted by the Assessee to thetune of Rs.59,56,614/-. 13. Therefore, it is evident that only issue traveled allalong from the Assessing Officer to the Appellate Tribunal iswith regard to the addition made to the tune of Rs.25,05,304/-as income from Short Term Capital Gains other than the incomefrom Short Term Capital Gains under Section 111A. In otherwords, admitted income from Short Term Capital Gains underSection 111A taken as such and assessed by the AssessingOfficer, is not the issue either raised by the petitioner or bythe Revenue before the Appellate Authorities. Likewise, theBrought/Forward losses shown by the Assessee and accepted by theAssessing Officer to the tune of Rs.56,96,224/-, is also not thedispute raised before the Appellate Authorities. When suchbeing the factual position, the Tribunal, after considering theissue with regard to the addition of Rs.25,05,304/- representingShort Term Capital Gains in respect of the share transactions onwhich client code modifications had been done, found that thesaid issue has not been properly assimilated nor the factsrelevant for deciding the said issue were produced by theAssessee. Therefore, the Tribunal by partly allowed the appealrestored the said issue to the file of the Assessing Officer forre-adjudication after verifying the details of the client codemodifications. At this juncture, it is relevant to note thatthe Tribunal consciously restored only that issue to the file ofthe Assessing Officer for re-adjudication viz.,addition of Rs.25,05,304/- and not for re-adjudication inrespect of all the issues that were considered by the AssessingOfficer under various heads while passing the order ofassessment. 14. After remand, the Assessing Officer in this case, goneinto the issue with regard to the Short Term Capital Gains underSection 111A to the tune of Rs.59,56,614/- as well and given afinding that the Assessee has included profit/loss earned fromtrading in both the Equity and Derivatives segment under thehead Short Term Capital Gains. Likewise, in respect of Set offof Capital Losses, the Assessing Officer has found that theincome tax does not allow loss under the head Capital Gains tobe set off against any income from other heads and that this canbe only set off within the Capital Gains head. He also foundthat Long Term Capital Loss can be set off only against LongTerm Capital Gains and Short Term Capital losses are allowed tobe set off against both Long Term Gains and Short Term Gains.In other words, the Assessing Officer by observing so, has alsotaken the issue with regard to the brought/forward losses to thetune of Rs.56,96,224/- originally accepted by him at the time oforiginal assessment, and reconsidered the same also andconsequently, made the addition of Rs.60,48,161/-. In my considered view, the above two issues taken up for considerationby the Assessing Officer were not the issues either raisedbefore or considered by the Tribunal while remitting the matteras discussed supra and therefore, this Court is of the view thatreconsideration of those two issues by taking advantage of theremand order, cannot be sustained legally. Hence, this Courtfinds that the Assessing Officer exceeded his jurisdiction overthe issues which are not remitted to him, by reconsidering thesame and thus, the present writ petition is maintainable againstsuch order. It is further seen that the Assessing Officer hasnot given an opportunity of hearing to the petitioner beforepassing the impugned order and thus, violated the principles ofnatural justice. On that ground as well, the writ ismaintainable. 15. At this juncture, it is useful to refer to the decisionsrelied on by the learned counsel for the petitioner as follows: 15. At this juncture, it is useful to refer to the decisionsrelied on by the learned counsel for the petitioner as follows: (a) In (1982) 145 ITR 255 (All), S.P.Kochhar Vs. Income TaxOfficer, Dehradun, the Division Bench of the Allahabad HighCourt has observed that when the Tribunal set aside theassessment and remands the case for making a fresh assessment,the power of the Income Tax Officer is confined to the subjectmatter of appeal before the Tribunal and that he cannot take upthe questions which were not the subject matter of appeal beforethe Tribunal, even though no specific direction has been givenby the Tribunal. The relevant observation is extractedhereunder: "When the Tribunal set aside theassessment and remands the case for making afresh assessment, the power of the IncomeTax Officer is confined to the subjectmatter of appeal before the Tribunal. Hecannot take up the questions which were notthe subject matter of appeal before theTribunal, even though no specific directionhas been given by the Tribunal". (b) In (2008) 302 ITR 126 (Guj), Saheli Synthetics P. Ltd.,Vs. CIT, the Division Bench of the Gujarat High Court hasobserved that even where an assessment is set aside simpliciter,without any enhancement proposal, it is always in the context ofthe appeal against an order of assessment and cannot be read tomean that the Appellate Authority granted powers to theAssessing Officer in relation to items of assessment which neverformed part of the appeal before the Appellate Authority. (c) In T.C.(Appeal) No.885 of 2008 dated 04.04.2018, theDivision Bench of this Court has observed that the Tribunal hasno power under the Income Tax Act to enhance the assessment inan appeal. Equally, it cannot be done on an order of remandbeing passed by the Tribunal to the Assessing Officer. (d) In (1995) 213 ITR 502 (Mad), Raja DV Seetharamaya Vs.WTO, similar view was expressed by this Court that thejurisdiction of the Assessing Officer, after remand, woulddepend upon the terms of the remand order and he would not beentitled to go beyond them. The relevant observation madetherein is extracted hereunder:"If the facts of these petitions areconsidered in the context of the aforesaidprinciple of law, it would be clear that theAssessing Officer has gone beyond the remandorder and has treated the whole matter as atlarge before him. This was not intended bythe remand order passed by the AppellateAuthority. He has thus reopened even thematter in relation to the years where theassessment orders had not been challenged inappeal and had become final. There is,therefore, a patent illegality in theimpugned notices as also the assessmentorders justifying issuance of a writ ofcertiorari in the matter". 16. In view of the above stated position of law, this Courtis of the view that the Assessing Officer in this case hastraveled beyond the scope of the remand order of the Tribunaland reconsidered the issues with regard to the income from ShortTerm Capital Gains under Section 111A and Brought/forward lossesof previous assessment years and thus, exceeded his jurisdictionover and above the issue which was remanded. In other words,the Assessing Officer himself has enlarged the scope of theremand without confining himself to the issue which was remandedby the Tribunal. As rightly pointed out by the learned counselfor the petitioner under the guise of passing fresh order inpursuant to the order of remand, the Assessing Officer has ineffect reopened the uncontested issues and passed fresh order onthose issues as well, which were not the intent of the Tribunal,while remitting the matter back to the Assessing Officer. Infact, as rightly pointed out by the learned counsel for thepetitioner, what the Assessing Officer could not have achievedby reopening the assessment under Section 148 of the IT Act, inview of lapse of time, sought to achieve the same under theguise of passing fresh order of assessment in pursuant to theremand by the Tribunal. Certainly, the above act of theAssessing Officer is impermissible under law and consequently,cannot be justified or sustained. No doubt, the learned counselfor the Revenue contended that all the issues are interlinked.I do not find any pleading to that effect in the counter filedherein or advancement of argument before the Tribunal. Hence,such contention is liable to be rejected. 17. Thus, this Court is of the view that the assessment madeby the Assessing Officer in respect of those two issues viz.,income from Short Term Capital Gains under Section 111A andBrought/Forward losses for the assessment years 2006-2007 to2009-2010 cannot be sustained as valid in law, since suchexercise was beyond the scope of the order of remand. 18. However, while considering the issue which was agitatedby the Assessee before the Appellate forums viz., "Income fromShort Term Capital Gains other than under Section 111A andconsequential addition of Rs.25,05,304/-" is concerned, it isthe specific case of the petitioner that the Assessing Officerhas changed the head from "Short Term Capital Gains" to"Undisclosed Sources under Section 68", without putting thepetitioner on notice and hearing them. It is not in disputethat before passing the impugned order, the petitioner was notput on notice and given an opportunity of hearing as well. Sinceit is seen that the disputed addition of Rs.25,05,304/- wasreiterated by the Assessing Officer, however, taxing the same asincome on a different head viz., from Undisclosed Sources underSection 68, instead of Short Term Capital Gains other than oneunder Section 111A, without issuing notice to the petitioner tothat effect, this Court is of the view that the said issue canbe considered by the Assessing Officer once again, however, byputting the petitioner on notice. 19. Accordingly, this Writ petition is allowed and theimpugned assessment order is set aside. Consequently, thematter is remitted back to the Assessing Officer to redo theassessment only in respect of the issue relegated by theTribunal while remitting the matter viz., income from Short TermCapital Gains other than under Section 111A and consequentialaddition of Rs.25,05,304/-, after giving a notice and anopportunity of hearing to the petitioner. Such exercise shallbe done by the Assessing Officer within a period of six weeksfrom the date of receipt of a copy of this order. No costs.Consequently, connected miscellaneous petitions are closed. s/d- Assistant Registrar(CS VIII) True Copy Sub-Assistant Registrar mk To 19. Accordingly, this Writ petition is allowed and theimpugned assessment order is set aside. Consequently, thematter is remitted back to the Assessing Officer to redo theassessment only in respect of the issue relegated by theTribunal while remitting the matter viz., income from Short TermCapital Gains other than under Section 111A and consequentialaddition of Rs.25,05,304/-, after giving a notice and anopportunity of hearing to the petitioner. Such exercise shallbe done by the Assessing Officer within a period of six weeksfrom the date of receipt of a copy of this order. No costs.Consequently, connected miscellaneous petitions are closed. s/d- Assistant Registrar(CS VIII) True Copy Sub-Assistant Registrar mk To The Income Tax OfficerNon-Corporate Ward - 5(2)Income Tax Office - BSNL TowerNo.16, Greams Road, Chennai-600 006.Non-Corporate Ward - 5(2)Income Tax Office - BSNL TowerNo.16, Greams Road, Chennai-600 006. +1 CC to Mr. Sandeep Bagmar, Advocate sr 87082. +1 CC to M/s. Hema Muralikrishnan, Advocate sr 87060. W.P.No.2961 of 2019 VGII(CO)SP(13/11/2019)