Wp/8010/2022 Of Deepak Marda v. The Income Tax Officer, Ward-1, Ichalkaranji And Ors

IN THE HIGH COURT OF JUDICATURE AT BOMBAYCIVIL APPELLATE JURISDICTIONWRIT PETITION NO. 8010 OF 2022 Finance, Room No. 128-A, North Block,]New Delhi – 110001]Email : ]National Faceless] … Mr. Mihir Naniwadekar a/w. Ms. Rucha Vaidya i/by Ms. FarzeenKhambatta for the petitioner. Mr. Suresh Kumar for the respondents. … CORAM : DHIRAJ SINGH THAKUR AND KAMAL KHATA, JJ.RESERVED ON : 18th JANUARY 2023.PRONOUNCED ON : 15TH FEBRUARY 2023. JUDGMENT: (PER KAMAL R. KHATA, J.) 1.This petition challenges the impugned notice under section (u/s)148 of the Income Tax Act, 1961 (“Act”) dated 31st March 2021 and theimpugned order on objection dated 10th June 2022 in addition to theimpugned reassessment proceedings for Assessment Year (A.Y.) 2014-15. Facts: 2.The petitioner was a director of Cinepolis India Pvt. Ltd., Gurgaonand was assessed to tax in Ichalkaranji, Kolhapur. In 2007 petitioner2/12 had collaborated with the Cinepolis Group to set up Cinepolis India andhad acquired certain shares and irrevocable vested rights to equity inCinepolis India. In Financial Year (F.Y.) 2013-14, the petitionertransferred the equity shares and rights in Cinepolis India forRs.33,55,12,980/- under a settlement agreement. The petitionerincurred an expense of Rs.1,31,87,400/- towards lawyers, CharteredAccountants, Escrow Agents etc. for the said transaction. The petitionerfiled his return of income for A.Y 2014-15 on 31st July 2014 wherebythe proceeds receipt from transfer of equity shares in Cinepolis Indiawas disclosed under the head “Capital Gains'' and claimed deduction oflegal expenses under the head “Cost of Improvement”, the said returnwas duly processed u/s. 143(1) of the Act. On 11th July 2016 a noticewas issued to the petitioner u/s. 142(1) for scrutiny in exercise of powerconferred u/s. 143(2) of the Act. By responses dated 23rd August 2013and 24th August 2013, the petitioner submitted required informationand documents with detailed explanation as regards the acquisition andtransfer of equity shares in Cinepolis India. The Assessment Officer (AO)accepted the explanation and on being satisfied with the informationand documents passed an order accepting the total income u/s. 143(3)of the Act. 3.On 31st March 2021, the petitioner was issued the impugnednotice u/s. 148 of the Act to reopen the assessment AY 2014-15. Thereasons recorded are as under : 2.Brief details of information collected/received by the AO:-The information has been received from the ACIT., Circle 1(1)Gurgaon vide Letter No. ACIT Circle.1/GGN/2288/2017-18 dated7/3/2018 has enclosed a letter from the CIT(A), /Gurgaon whereinit is mentioned that eduring the course of appellate proceedings inthe case of Milan Saini for A.Y 2014-15 that Shri Deepak Mardaand Shri Milan Saini were Directors in them/s Cinepolis India Pvt.Ltd. It was further seen that bothShri Deepak Marda and Shri MilanSaini received amount of 33,55,12,980/- each during the year₹under a settlement agreement. IN the case of Shri Milan Saini theappeal has since been decided by the CIT(A) Gurgaon the amountof 33,55,12,980/- received by Shri Milan Saini has been held to₹be taxable under the head Income from Salary. Thus amount of ₹33,55,12,980/- for A.Y. 2014-15 received by Shri Deepak Marda,the assessee is required to be tax under the head income fromSalary. 3. Analysis of information collected/received :- 3. Analysis of information collected/received :- The information received has been analysed. On verification ofthe information, it is found that during the course of appellateproceedings in the case of Milan Saini for A.Y. 2014-15 that ShriDeepak Marda and Shri Milan Saini were Directors in them/sCinepolis India Pvt. Ltd. It was further seen that both Shri DeepakMarda and Shri Milan Saini received amount of 33,55,12,980/-₹each during the year under a settlement agreement. In the case ofShri Milan Saini the appeal has since been decided by the CIT(A)Gurgaon the amount of . 33,55,12,980/- received by Shri Milan₹Saini has been held to be taxable under the head income fromSalary. Thus amount of ₹. 33,55,12,980/- for A.Y. 2014-15received by Shri Deepak Marda, the assessee is required to be taxunder the head income from Salary. 4. Enquiries by the Assessing Officer as sequel to informationcollected as received:- On verification of the ITBA data, it is found that the assessee hasfiled returned income for AY 2014-15 on 31.07.2014 declaringtotal income of ₹ 32,78,25,700/- It is further seen that the4/12 assessee’s case has been completed u/s143(3) on 8.12.2016accepting the returned income. 5.Findings of the Assessing Officer:- The assessee has filed return of income on 31/07/2014 declaringtotal income of 32,78,25,700/- for AY 2014-15. Assessment has₹been completed on 8/12/2016 u/s/143(3) determining total incomeof 32,78,25,700/-. The CIT(A) ₹Gurgaon wherein it is mentionedthat during the course of appellate proceedings in the case of MilanSaini for A.Y. 2014-15 that Shri Deepak Marda and Shri Milan Sainiwere Directors in them/s Cinepolis India Pvt. Ltd. It was further seenthat both Shree Deepak Marda and Shri Milan Saini receivedamount of 33,55,12,980/- each during the year under a settlement₹agreement. In the case of Shri Milan Saini the appeal has since beendecided by the CIT (A), Gurgaon the amount of 33,55,12,980/-₹received by Shri Milan Saini has been held to be taxable under thehead Income from Salary. Thus amount of . 33,55,12,980/- received₹for A.Y. 2014-15 by Shri Deepak Marda the assessee is required to betax under the head income from Salary. 6. Basis of forming reason to believe and details of escapement ofIncome:- In view of the facts mentioned in para no 2 to 5 above andinformation as available on record of this office, I have reason tobelievethat the income chargeable to tax which has escapeassessment amounts to or is likely amount to one lakh rupee or morefor A.Y. 2014-15 has escaped assessment as per section 147 of the ITAct. I am, therefore, satisfied that it is a fit case for initiating theproceedings u/s 147 of the IT Act, 1961. to assess the escapedincome and to assess any other income which may come to thenotice during the assessment proceedings u/s 147 of the IT Act,1961. 4.By letters dated 7th April 2021, 10th April 2021 and 6th May 2021 the petitioner filed his objections inter alia on the ground that theimpugned notice was issued on borrowed satisfaction of another AOwas issued beyond period of four years from the completion of theregular assessment without demonstrating any failure on the part of the petitioner to disclose any material facts truly and fully. On 21st April2021 and 22nd April 2021, the respondent no.1 disposed of theobjections of the petitioner stating that the assessee is required to betaxed under the head income from salary and should have disclosed theincome under the head income from salary. With regard to the objectionbased on sanction for issuance of the impugned notice in terms ofSection 149(1)(b) and Section 151 of the IT Act, the order stated thatsection 151 (1) was applicable and necessary approval of the PCIT hadbeen taken online. The order however, failed to demonstrate any failureon the part of the petitioner to disclose material facts. petitioner to disclose any material facts truly and fully. On 21st April2021 and 22nd April 2021, the respondent no.1 disposed of theobjections of the petitioner stating that the assessee is required to betaxed under the head income from salary and should have disclosed theincome under the head income from salary. With regard to the objectionbased on sanction for issuance of the impugned notice in terms ofSection 149(1)(b) and Section 151 of the IT Act, the order stated thatsection 151 (1) was applicable and necessary approval of the PCIT hadbeen taken online. The order however, failed to demonstrate any failureon the part of the petitioner to disclose material facts. 5.On 3rd May 2021, the PAN of the petitioner was unilaterallytransferred from the jurisdiction of respondent no.1 to respondent no.2without giving any hearing before affecting the said transfer. Thepetitioner was intimated about the said transfer by respondent no.1letter dated 18th June 2021. By the said letter the petitioner alsoinformed that the objections’ dated 26th May 2021 was pending onaccount of the transfer of PAN to respondent no.2. The petitionerpreferred Civil Writ Petition no. 3707 of 2022 challenging the order onobjection as well as the impugned notice. By an order dated 13th April2022, this Court quashed the order on objections and remanded the matter directing the Jurisdictional Assessing Officer (JAO) to pass areasoned order dealing with objections of the petitioner and alsodirected the respondent no.1 to provide the letter dated 7th March 2018,copy of the settlement agreement and appeal memorandum and theorder passed by the Ld. CIT(A) in the case of Milind Saini all of whichwere relied upon by the respondent no.1. On 6th May 2022, thepetitioner filed detailed objections having received all the documentsfrom the respondent no.1 in Mr. Milind Saini’s case. In the saidresponse, the petitioner raised grounds that the assessment could not bereopened beyond three years in absence of failure to disclose materialfacts and also challenged the unilateral from respondent No.1 torespondent no.2 without granting a hearing to the petitioner. Despitethe explanation given at the personal hearing as well as detailedobjections raised the respondent no.2 passed the impugned order dated10th June 2022 holding that there was a failure on the part of thepetitioner to disclose material facts and therefore, the reopening ofassessment for year 2014-15 was warranted. 6.Mr. Naniwadekar learned counsel for the petitioner submittedthat the reopening of the assessment vide impugned notice dated 31stMarch 2021 is made beyond four years from the end of the relevant assessment year 2014-15 without demonstrating any failure on the partof the petitioner, to disclose material facts and consequently is vitiated interms of the first proviso to section 147. He submitted that the statutoryrequirements under the section 147 i.e. the assessee failed to disclose,truly and fully, any material facts necessary for the assessment is notestablished inasmuch as no such allegation is made either in theimpugned notice or in the reasons recorded. On the contrary, theAssessment Order dated 8th December 2016 u/s 143 (3) of the Actexplicitly mentions the acceptance of the total income disclosed by thepetitioner in the return after due verification and examination of theinformation furnished. He submitted that the reopening was initiatedsolely on the basis of information received from the ACIT, Gurgaonwithout application of mind. He submitted that no new material ismentioned in the notice apart from the purported information from theACIT, Gurgaon. He accordingly prayed that the petition be madeabsolute. 7.Mr. Kumar learned counsel for the respondents raised apreliminary objection submitted that the petitioner should have madethe concerned AO i.e. ITO Wd.I (4), Gurugram a party to this petitionsince the JAO Gurugram has passed an order dated 10 June 2022 7.Mr. Kumar learned counsel for the respondents raised apreliminary objection submitted that the petitioner should have madethe concerned AO i.e. ITO Wd.I (4), Gurugram a party to this petitionsince the JAO Gurugram has passed an order dated 10 June 2022 instead of ITO Ward.1 Ichalkaranji. He submitted that the expression“reason to believe” cannot be read to mean that the AO should havefinally ascertained the fact by evidence or conclusion. At the stage ofissue of notice, the only question was with the relevant material areasonable person could have formed a requisite belief of escapement ofincome and been satisfied. He submitted that the initial agreement dated6th October 2007 was not furnished by the petitioner and was noticedonly during the appellate proceedings in the case of Shri Milan Sainianother director who also received a similar consideration from thesame company. He submitted that the AO has analyzed the recordsalong with additional information received from the order of CIT(A),Gurugram. In support of his contentions, he placed reliance on thejudgment in the case of Phool Chand Bajrang Lal v ITO1. It wassubmitted that the petition deserved to be dismissed. Conclusion: 8.We agree with Mr. Naniwadekar, that it is a clear case of changeof opinion. The Supreme Court in Kelvinator of India Ltd. (Supra) hadupheld the Full Bench decision of Delhi High Court in Commissioner ofIncome-tax Vs. Kelvinator of India Ltd..In the said judgment, a FullBench of Delhi High Court has held : 1 [1993] 203 ITR 456 (S.C) “We also cannot accept submission of Mr. Jolly to the effectthat only because in the assessment order, detailed reasonshave not been recorded on analysis of the materials on therecord by itself may justify the Assessing Officer to initiate aproceeding under section 147 of the Act. The said submissionis fallacious. An order of assessment can be passed either interms of sub-section (1) of Section 143 or Sub-section (3) ofSection 143. When a regular order of assessment is passed interms of the said sub-section (3) of section 143 a presumptioncan be raised that such an order has been passed onapplication of mind. It is well known that a presumption canalso be raised to the effect that in terms of clause (e) of section114 of the Indian Evidence Act the judicial and official actshave been regularly performed. If it be held that an orderwhich has been passed purportedly without anything further,the same would amount to giving premium to an authorityexercising quasi- judicial function to take benefit of its ownwrong.” 9.We have no hesitation to hold that there was no failure on thepart of the assessee to disclose fully and truly the material facts, northere was any tangible material with the A.O. which would haveotherwise justified the reopening of the assessment by issuing the notice impugned. In the case of South Yarra Holdings vs Income Tax Officer16(1)(1)(4), Mumbai2 this court held: “It is settled position in law that re-opening of an assessment hasto be done by an AO on his own satisfaction. It is not open to anAO to issue a reopening notice at the dictate and/or satisfactionof some other authority. Therefore, on receipt of anyinformation which suggests escapement of income, the AO mustexamine the information in the context of the facts of the case 2 [2019] 104 taxmann.com 216/ [2019] 263 Taxman 594 (Bombay) and only on satisfaction leading to a reasonable belief thatincome chargeable to tax has escaped assessment, that re-opening notice is to be issue.” impugned. In the case of South Yarra Holdings vs Income Tax Officer16(1)(1)(4), Mumbai2 this court held: “It is settled position in law that re-opening of an assessment hasto be done by an AO on his own satisfaction. It is not open to anAO to issue a reopening notice at the dictate and/or satisfactionof some other authority. Therefore, on receipt of anyinformation which suggests escapement of income, the AO mustexamine the information in the context of the facts of the case 2 [2019] 104 taxmann.com 216/ [2019] 263 Taxman 594 (Bombay) and only on satisfaction leading to a reasonable belief thatincome chargeable to tax has escaped assessment, that re-opening notice is to be issue.” 10.In the present case, the AO has not specifically mentioned in theorder, what was the tangible material, to conclude that there was anescapement of income. The AO has also failed to aver what material factthe assessee has failed to disclose fully and truly. It is evident that basedon the case of Milan Saini who had disclosed his income under the head‘income from salary’ that the AO sought to reopen the case of theassessee. Apart from different heads on which the assessees’ have offeredtheir income to be taxed i.e. there is no other ground based on which theAO is seeking to reopen. It is clearly the very same material on which adifferent view is being taken. The case of Phool Chand Bajrang Lal(supra) relied upon by Mr. Kumar can be differentiated on the facts, inas much as the managing director of the Calcutta company Mr. Suranahad made a confession about his business activity being that of a namelender and had not advanced any loan to the assessee in that case.However, in the present case there is a full and true disclosure by thepetitioner, which transaction has been accepted under the head claimedby the petitioner. Consequently, merely because another director of thesame company had disclosed the income received differently, cannot bea ground for reopening and the same is evidently a change of opinion not only based on conjectures and surmises but also a case of blindlyrelying on information and borrowed satisfaction which is notpermitted for reopening. As observed in Aroni Commercials Ltd. vDCIT-2(1)3 6.It is axiomatic that the law declared by this Court is bindingon all authorities functioning within the jurisdiction of this Court. It isnot open to the Assessing Officer to feign ignorance of the law declaredby this Court and pass orders in defiance of the law laid down by thisCourt. It is an imperative duty of the authorities to be updated with thelaw and to apply it to the case at hand before taking decisions andpassing orders. Feigning ignorance of law by authorities only increasesthe burden of the Courts. 11.In view of the above, petition is allowed. The impugned noticedated 31st March 2021 and order dated 10th June 2022 are set asidewith no order as to costs. (KAMAL KHATA, J.) (DHIRAJ SINGH THAKUR, J.) 3 [2014] 44 taxmann.com 304 (Bombay)/[2014] 224 Taman 13 (Bombay) 12/12