Gateway Leasing Pvt. Ltd. Vs ACIT (Bombay High Court)
The issue under consideration is whether the re-opening of the assessment u/s 147 is justified in law?
In the present case, after referring to the information received following search and seizure action carried out in the premises of Shri Naresh Jain, it was stated that information showed that Petitioner had traded in the shares of M/s. Scan Steels Ltd., and was in receipt of Rs. 23,98,014.00 and therefore, Respondent concluded that he had reasons to believe that this amount had escaped assessment within the meaning of section 147 of the Act.
High Court states that, it would be evident from the materials on record that Petitioner had disclosed the above information to the Assessing Officer in the course of the assessment proceedings. All related details and information sought for by the Assessing Officer were furnished by the petitioner. Several hearings took place in this regard where-after the Assessing Officer had concluded the assessment proceedings by passing assessment order under section 143 (3) of the Act. Thus it would appear that Petitioner had disclosed the primary facts at its disposal to the Assessing Officer for the purpose of assessment. He had also explained whatever queries were put by the Assessing Officer with regard to the primary facts during the hearings. In such circumstances, it cannot be said that Petitioner did not disclose fully and truly all material facts necessary for the assessment. Consequently, Respondent could not have arrived at the satisfaction that he had reasons to believe that income chargeable to tax had escaped assessment. In the absence of the same, Respondent could not have assumed jurisdiction and issued the impugned notice under section 148 of the Act. Therefore, in the light of the discussions made above, HC are of the view that the attempt made by Respondent to reopen the concluded assessment is not at all justified and consequently the impugned notice cannot be sustained.
FULL TEXT OF THE HIGH COURT ORDER /JUDGEMENT
1. Heard Mr. Madhur Agarwal, learned counsel for the Petitioner and Mr. Suresh Kumar, learned standing counsel, Revenue, for the Repondents.
2. By filing this petition under Article 226 of the Constitution of India, Petitioner seeks quashing of notice dated 31.03.2019 issued under section 148 of the Income Tax Act, 1961 by the Assistant Commissioner of Income Tax, Circle 1(1)(2), Mumbai i.e. Respondent No.1 as well as the order dated 26.08.2019 passed by the Deputy Commissioner of Income Tax, Circle 1(1)(2), Mumbai i.e. Respondent No. 2, rejecting the objections raised by the Petitioner to re-opening of assessment under section 147 of the Income Tax Act, 1961 (briefly “the Act”, hereinafter).
3. Case of the Petitioner is that it is a company registered under the Companies Act, 1956, engaged in the business of financing and investing activities, as a non-banking financial company registered with the Reserve Bank of India. It is an assessee under the Act.
4. For the assessment year 2012-13, Petitioner filed return of income on 20.09.2012 declaring total income of Rs. 90,630.00. Initially, the return of income was processed under section 143(1) of the Act. Petitioner’s case was however selected for scrutiny pursuant to which notices under section 143 (2) as well as under section 142(1) were issued alongwith questionnaire. During the course of assessment proceedings, details of income, expenditure, assets and liabilities were called for and examined. Following reply submitted by the Petitioner pursuant to such notices and after examination of the details filed, Assessing Officer computed the total income of the Petitioner at Rs. 90,630.00, vide the assessment order dated 28.03.2015 passed under section 143(3) of the Act.
5. On 31.03.2019 Respondent No. 1, who was in the meanwhile conferred jurisdiction to assess the Petitioner’s income, issued notice to the Petitioner under section 148 of the Act stating that he had reasons to believe that Petitioner’s income chargeable to tax for the assessment year 2012-13 had escaped assessment within the meaning of section 147 of the Act. Proceeding to assess/re-assess the income for the said assessment year, Respondent No. 1 called upon the Petitioner to submit return in the prescribed form for the said assessment year. It was further mentioned that said notice was issued after obtaining necessary satisfaction of the Principal Commissioner of Income Tax-1, Mumbai.
6. Petitioner sought for the reasons for issuing notice under section 148 of the Act vide letter dated 09.04.2019, referring to the decision of the Supreme Court in the case GKN Driveshafts (India) Ltd., vs. I.T.O., 259 ITR 19. Petitioner also filed return of income under section 148 of the Act, returning the income at Rs. 90,630.00 as originally assessed by the Assessing Officer under section 143(3) of the Act.
7. By letter dated 31.05.2019, Respondent No. 2 furnished the reasons for re-opening of the assessment. It was stated that information was received from the Investigation Wing of the Income Tax Department that a search and seizure action was carried out in the premises of one Shri Naresh Jain which revealed that a syndicate of persons were acting in collusion and managing transactions in the stock exchange, thereby generating bogus long-term capital gains/ bogus short- term capital loss and bogus business loss entries for various beneficiaries.
8. From the materials gathered in the course of the said search and seizure action, it was alleged that Petitioner had traded in the shares of M/s. Scan Steel Ltd. and was in receipt of Rs. 23,98,014.00 which the Assessing Officer believed had escaped assessment within the meaning of section 147 of the Act. It was also alleged that Petitioner had failed to disclose fully and truly all material facts necessary for its assessment for the assessment year 2012-13 for which notice under section 148 of the Act was isued.
9. Petitioner submitted objections to reopening of assessment proceedings on 26.06.2019. Referring to the reasons recorded and furnished, it was contended on behalf of the Petitioner that the original assessment was completed under section 143(3) of the Act where all the details of purchase and sale of shares of M/s. Scan Steels Ltd., also known as Clarus Infrastructure Realties Ltd. (earlier known as Mittal Securities Finance Ltd.), were disclosed. While denying that the Petitioner had any dealing with the parties whose names cropped up during the search and seizure action, it was stated that purchase and sale of shares were done by the petitioner through registered broker of Bombay Stock Exchange. Payment for the purchase of shares were made by cheque through the Bombay Stock Exchange, the price being as per prevailing market price. Thus there was no apparent reason to classify the receipt of Rs. 23,98,014.00 as having escaped assessment. Therefore, it was contended that the decision to reopen assessment was nothing but change of opinion, which was not permissible in law. That apart, it was contended that the impugned notice under section 148 of the Act was issued on 31.03.2019 and was received by the Petitioner on 04.04.2019 i.e. beyond 31.03.2019. The notice was posted on 02.04.2019. On that basis it was contended that though the notice was dated 31.03.2019 but the same was posted after closure of financial year and thus was barred by limitation being beyond six years. Other grounds were also raised by the Petitioner.
10. Respondent No. 2 by his letter dated 26.08.2019 informed the Petitioner that its objections to issuance of notice under section 148 of the Act was duly considered but on the grounds and reasons mentioned therein, the same was rejected.
11. Aggrieved, present writ petition has been filed, seeking the reliefs as indicated above.
12. This Court by order dated 01.10.2019, prima facie, took the view that the impugned notice was dispatched after 31.03.2019 which made the impugned notice beyond the statutory period of six years and thus without jurisdiction. While granting time to Respondents to file reply affidavit, interim stay was granted to the impugned notice dated 13.03.2019.
13. Respondents have filed affidavit-in-reply controverting the averments made in the writ petition. It is stated that the impugned notice was issued after recording reasons under section 148 (2) of the Act and after obtaining sanction of the Principal Commissioner of Income Tax-I, Mumbai, as required under section 151(1) of the Act. It is stated that in response to the notice under section 148 Petitioner had furnished return of income on 09.04.2019, declaring total income of Rs. 90,630.00 wherein Petitioner claimed TDS credit of Rs. 34,05,533.00 and sought refund of a sum of Rs. 34,05,533.00. It is stated that on scrutiny of the computation made by the Assessing Officer, it was found that Petitioner had received refund of Rs. 26,13,268.00 with interest of Rs. 2,87,463.00 which was reduced while determining the tax liability. In the return of income tax filed, Petitioner did not reduce the amount of refund received by him which prima facie resulted in excess claim of refund to the tune of Rs. 26,13,268.00, which refund was already granted. It is stated that furnishing of the details of purchase and sale of shares of Mittal Securities Ltd., (Scan Steels Ltd.) did not amount to full and true disclosure of material facts before the Assessing Officer, who in his assessment order totally relied upon the submissions of the Petitioner and had accepted the same without cross verification. It is further stated that the challenge to the impugned notice is untenable. Besides, the Act provides for a host of remedial measures in the form of appeals and revisions.
13.1 Regarding issuance of the impugned notice, as alleged by the Petitioner to be beyond 31.03.2019, it is stated that the notice was handed over to the postal authorities on 31.03.2019. The postal receipts to that effect have been annexed.
13.2 Finally, Respondents have justified issuance of the impugned notice and re-opening of the assessment and in this connection a reference has been made to the report of the Investigation Wing as per which the Petitioner had diluted its income by adopting manufactured and pre-arranged transactions which were never disclosed to the Assessing Officer. Such an action was nothing but a failure on the part of the Petitioner to make a full and true disclosure of all material facts. Petitioner’s contention that all primary facts were disclosed by it have been disputed. That apart, it is contended that Principal Commissioner of Income Tax-1 had applied his mind and thereafter, granted approval to the issuance of notice under section 148 of the Act.
14. Petitioner has filed rejoinder affidavit. It is stated that in the return of income filed pursuant to the impugned notice dated 03.2019, petitioner could not reduce the amount of refund already received as the online ITBA system did not provide for any separate column for reduction of the said amount already refunded. In any event, the said amount of Rs. 26,13,268.00 and interest were not the reasons for reopening assessment. All details about the purchase and sale of shares of Mittal Securities Ltd., were furnished; Assessing Officer was not required to give findings on each issue raised during the course of the assessment proceedings. Assessing Officer had applied his mind and granted relief to the petitioner in the assessment order. Normally when submission of assessee is accepted, no finding is given in the assessment order.
15. In the course of hearing, Mr. Agarwal, learned counsel for the Petitioner referred to the postal receipts which indicate that the impugned notice was delivered by Income Tax Department to the Petitioner through the post office on 31.03.2019 at 3.34 p.m.. Therefore, he submits that Petitioner would not press upon this ground as raised in the writ petition.
15.1. Primary contention of Mr. Agarwal is that the reasons given for re-opening assessment do not make out a case for invoking jurisdiction under section 147 of the Act. The so called information allegedly received by the Respondents were in-fact furnished by the Petitioner in the course of the original assessment. It is another matter that Assessing Officer did not refer to all the primary facts placed before him by the Petitioner in the assessment order but that cannot be a ground for re-opening assessment. He therefore submits that at the most it can be construed to be re- appreciation of the materials already on record and in the circumstances, it would be a case of change of opinion which is not permissible for re-opening of a concluded assessment. His further submission is that grounds as furnished by the Respondents for re- opening of the assessment and the averments made in the affidavit by the Respondents, justifying the re- opening of assessment, are at variance. His contention is that the reasons given for re-opening of the assessment cannot be enlarged and improved upon by way of affidavit filed subsequently. That apart, it is contended that Principal Commissioner of Income Tax-1 had mechanically granted approval to Respondent No.1 to re-open the assessment which has vitiated the impugned notice.
16. On the other hand Mr. Suresh Kumar, learned standing counsel, Revenue, for the Respondents submits that not only the impugned notice was handed over to the Petitioner by the Income Tax Department on 31.03.2019 at about 3.34 p.m. but a copy of the same was served upon the Petitioner before end of the day on 31.03.2019. He further submits that the reasons furnished are good grounds to justify re-opening of the assessment of the Writ petition is premature inasmuch as it has assailed the impugned notice; whereas the Act provides for a host of alternative remedies to the Petitioner which are adequate and efficacious. Therefore, the writ petition should be dismissed.
17. Submissions made by learned counsel for the parties have been considered. We have also perused the materials on record.
18. At the outset, we may advert to the reasons furnished by Respondent No.2 for re-opening of the assessment. As already noticed above, reasons were furnished to the Petitioner vide letter dated 05.2019. The reasons furnished are extracted hereunder :
“The return of income for the year, declaring total income of Rs.90,630.00 was filed by the assessee on 20.09.2012. The assessment was completed on 28.03.2015 by accepting the returned income.
An information has been received from the Investigation Wing that a search and seizure action was carried out on Shri Naresh Jain and his associates by the DIT (Inv.)-2, Mumbai on 19.03.2019 which was concluded on 21.03.2019. The search action covered the syndicate of persons who were acting in collusion and executing managed transactions in the stock exchange thus generating bogus long-term capital gains/ bogus short-term capital loss/ bogus business loss entries for various beneficiaries. This search action unraveled the workings of the syndicate and brought on record the make-believe nature of paper work that is manufactured in order to show the arranged transactions as legitimate market transactions. Statement of Shri Shirish Shah, recorded during the course of search action u/s 132 (4) of the Act in which he had admitted under oath that with the help of various people, manipulated the share prices of various scrips in order to provide bogus entries of long term capital gain, short term capital loss and business loss. Evidence has also been gathered during the search action establishing the links between Naresh Jain – the operator, promoters of various scrips, share brokers, exit providers and intermediaries who acted in collusion in order to facilitate the transactions on the exchanges. During the year, relevant to the A.Y. 2012-13, Shri Jain used the following scrips to provide bogus entries, which are as under :
