Sea Glimpse Investments Pvt. Ltd. Vs DCIT (Bombay High Court)
The petitioner challenged the notice dated 31.03.2019 issued under Section 148 of the Income Tax Act, 1961 for Assessment Year 2014-15 and the order dated 14.10.2019 rejecting its objections to the reopening. The principal grounds urged were non-application of mind while granting sanction under Section 151 and incorrect facts recorded in the reasons for reopening.
The petitioner submitted that the Assessing Officer could issue a reopening notice only upon having reason to believe that income chargeable to tax had escaped assessment and that such belief must be founded on correct facts. The Court examined the recorded reasons and noted that they referred to approval of the Additional Commissioner of Income Tax but did not mention the date of the approval letter. The Court further noted that the reasons incorrectly recorded that the petitioner had e-filed its return on 27.10.2016, whereas the assessment order itself showed that the return had been filed on 25.11.2014 and that the scrutiny assessment under Section 143(3) had been completed on 27.10.2016. The Court observed that recording the filing of the return and completion of scrutiny assessment on the same date demonstrated non-application of mind by both the Assessing Officer and the sanctioning authority.
The Court also observed that the reasons incorrectly stated that the petitioner held 0.01%, i.e., 10 shares, in itself. It noted that the petition had explained the shareholding position before and after amalgamation and had asserted that the recorded change in shareholding pattern was erroneous. As these assertions were not denied in the affidavit-in-reply, the Court held that the reasons to believe must be based on correct facts and that, where factual errors are pointed out, the Assessing Officer must establish the correctness of the recorded facts.
Relying on Ankita A. Choksey vs. Income-Tax Officer And Others, the Court reiterated that the Assessing Officer acquires jurisdiction to reopen an assessment only when there is reason to believe, based on correct facts, that income chargeable to tax has escaped assessment, irrespective of whether the original return was processed under Section 143(1) or assessed under Section 143(3). The Court also relied on German Remedies Ltd. vs. Deputy Commissioner of Income Tax, observing that while granting approval, the Principal Commissioner of Income Tax was required to verify whether there had been any failure by the assessee to disclose fully and truly all relevant facts in the return.
Holding that the impugned notice and the order disposing of the objections were unsustainable, the High Court quashed the notice dated 31.03.2019 issued under Section 148 and the order dated 14.10.2019 rejecting the objections. The petition was accordingly allowed and disposed of.
Cases Discussed
- Ankita A. Choksey vs. Income-Tax Officer And Others (Bombay High Court), [2019] 411 ITR 207 (BOM)
- Principal CIT v/s. Shodimen Investments P. Ltd. (Bombay High Court), [2018] (93) taxmann.com 153 (Bom)
- Asst. Commissioner of Income Tax v/s. Rajesh Jhaveri Stock Brokers (P) Ltd. (SC), [2007] 291 ITR 500 (SC)
- German Remedies Ltd. vs. Deputy Commissioner of Income Tax (Bombay High Court), [2006] 287 ITR 494 (BOM)
FULL TEXT OF THE JUDGMENT/ORDER OF BOMBAY HIGH COURT
1. Petitioner is impugning the notice dated 31st March, 2019 issued by first respondent under Section 148 of the Income Tax Act, 1961 (the Act) for A.Y. 2014-15 and also the order dated 14th October, 2019 rejecting the objections raised by petitioner to the proposed re-opening.
2. Various grounds have been raised in the petition. The primary ground being (a) there has been non application of mind while granting the sanction under Section 151 of the Act; and (b) the facts as recorded in the reasons are not correct.
3. Ms. Hariya submitted that it is the settled position in law that the Assessing Officer acquires jurisdiction to issue re-opening notice only when he has reason to believe that income chargeable to tax has escaped assessment and the reasons to believe that income chargeable to tax has escaped assessment must be on correct facts. If the facts as recorded in the reasons are not correct re-opening notice could not be issued.
4. The reasons to re-open is annexed to the petition. In paragraph it says necessary approval of the Additional Commissioner of Income Tax …….. has been obtained ……… . vide letter No. ………. dated , 2019. This is one lacuna that Ms. Hariya pointed out.
Secondly, Ms. Hariya submitted that the assessee had filed its e-return of income on 25th November, 2014 as could be seen in the assessment order dated 27th October, 2016 but in the reasons for re-opening it is stated that assessee e-filed its return on 27th October, 2016 and scrutiny assessment was completed under Section 143(3) of the Act on 27th October, 2016. This ground itself would show non application of mind not only by the Assessing Officer but also the authority which sanctioned the proposal of re-opening the assessment. Any one reading the first paragraph in the reasons for reopening would wonder how the filing of return of income and scrutiny assessment under Section 143(3) of the Act can be completed on the same date. It is therefore, clear that the sanction has been granted without application of mind.
One more fact which appears from the reasons for re-opening that exposes total non application of mind by the sanctioning authority and also the person recording the reasons is it says that the assessee holds 0.01% i.e., 10 shares in itself. How can a company hold its own shares? This erroneous statement of fact in the reasons itself should have made the authority granting sanction to refuse granting the sanction. Moreover, in the petition, position before amalgamation and post amalgamation has been mentioned which is at variance with what is given in the reasons for reopening. It is also alleged in the petition that change in shareholding pattern as recorded in the reasons for re-opening is erroneous. That has not been denied in the affidavit in reply. The reason to believe that income chargeable to tax has escaped assessment must be on correct fact. If the facts as recorded in the reasons are not correct, it is for the Assessing Officer to establish that the facts stated by him in the reason as recorded are correct. The Division Bench of this court in Ankita A. Choksey vs. Income-Tax Officer And Others1 in paragraph no. 6 and 7 has held as under :
6. It is a settled position in law that the Assessing Officer acquires jurisdiction to issue a reopening notice only when he has reason to believe that income chargeable to tax has escaped Assessment. This basic condition precedent is applicable whether the return of income was processed under Section 143(1) of the Act by intimation or assessed by scrutiny under Section 143(3) of the Act. [See Asst. Commissioner of Income Tax v/s. Rajesh Jhaveri Stock Brokers (P) Ltd., [2007] 291 ITR 500 (SC) and Principal CIT v/s. Shodimen Investments P. Ltd. [2018] (93) taxmann.com 153 (Bom). Further, the reasons to believe that income chargeable to tax has escaped Assessment must be on correct facts. If the facts, as recorded in the reasons are not correct and the assessee points out the same in its objections, then the order on objection must deal with it and prima facie, establish that the facts stated by it in its reasons as recorded are correct. In the absence of the order of objections dealing with the assertion of the assessee that the correct facts are not as recorded in the reason, it would be safe to draw an adverse inference against the Revenue.
7. Thus, we are of the view that even in cases where the return of income has been accepted by processing under Section 143(1) of the Act, reopening of an assessment can only be done when the Assessing Officer has reason to believe that income chargeable to tax has escaped assessment. The mere fact that the return has been processed under Section 143(1) of the Act, does not give the Assessing Officer a carte blanche to issue a reopening notice. The condition precedent of reason to believe that income chargeable to tax has escaped assessment on correct facts, must be satisfied by the Assessing Officer so as to have jurisdiction to issue the reopening notice. In the present case, the Assessing Officer has proceeded on fundamentally wrong facts to come to the reasonable belief/conclusion that income chargeable to tax has escaped assessment. Further, even when the same is pointed out by the Petitioner, the Assessing Officer in his order disposing of the objection does not deal with factual position asserted by the Petitioner. Thus, it would be safe to conclude that the Revenue does not dispute the facts stated by the Petitioner. On the facts as found, there could be no reason for the Assessing Officer to believe that income chargeable to tax has escaped assessment.
5. It is settled law as held by the Division Bench of this court in German Remedies Ltd. vs. Deputy Commissioner of Income Tax2 that while granting approval it was obligatory on the part of the Principal Commissioner of Income Tax to verify whether there was any failure on the part of the assessee to disclose full and true relevant facts in the return of income filed for the assessment of income of that assessment order.
6. In view of the above, the impugned notice and consequential order justifying reasons recorded are unsustainable. The same are liable to be quashed and set aside. Hence, petition is allowed. Rule made absolute in terms of prayer clause – (a) and (b) which reads as under :
a. that this Hon’ble Court may be pleased to issue under Article 226 of the Constitution of India an appropriate direction, order or a writ, including a writ in the nature of ‘Certiorari’, calling for the records of the case and after satisfying itself as to the legality thereof quash and set aside the notice dated 31.03.2019 issued by the First Respondent under section 148 of the Income Tax Act, 1961, being Ex. – ‘G’ hereto ;
b. that this Hon’ble Court may be pleased to issue under Article 226 of the Constitution of India an appropriate direction, order or a writ, including a writ in the nature of ‘Certiorari’, calling for the records of the case and after satisfying itself as to the legality thereof quash and set aside the order dated 14.10.2019, Ex. – ‘L’ herein, passed by the First Respondent, purportedly disposing of the objections raised by the Petitioner against the initiation of the reassessment proceeding by the First Respondent.
7. Petition disposed.
Notes:
1 [2019] 411 ITR 207 (BOM)
2 [2006] 287 ITR 494 (BOM)
