Monarch & Qureshi Builders Vs Union of India (Bombay High Court)
Summary: The Bombay High Court considered a writ petition filed by M/s. Monarch & Qureshi Builders challenging the reopening of its income tax assessment for Assessment Year 2012-13. The petitioner, a real estate developer, had been following the project completion method of accounting until AY 2011-12. Following a survey under Section 133A of the Income-tax Act, 1961 on 10 December 2012, the petitioner offered income at 9% of incremental work-in-progress. A revised return filed on 30 March 2013 declared total income of Rs. 80,44,900. During the original scrutiny proceedings, the Assessing Officer examined Individual Transaction Statement data, including AIR and CIB transactions relating to 55 flats aggregating to Rs. 60,02,95,478. The petitioner explained that only 29 flats involving Rs. 42,30,22,051 had actually been sold, while the entries relating to the remaining 26 flats were repetitions of transactions already accounted for. The Assessing Officer accepted this explanation and completed the assessment without making an addition on this account.
Subsequently, on 31 March 2019, the Assessing Officer issued a notice under Section 148 of the Income-tax Act, alleging that income had escaped assessment because the petitioner had not disclosed turnover of Rs. 60,02,95,478. The recorded reasons were based on the same ITS information concerning the flats that had been examined in the original scrutiny assessment. The petitioner filed its return in response to the notice and sought the reasons recorded for reopening. After receiving those reasons, it objected to the reassessment proceedings on 22 July 2019. The Assessing Officer rejected the objections on 13 November 2019 and supplied a copy of the sanction obtained from the Principal Commissioner. The petitioner challenged the reopening notice, subsequent notices under Sections 143(2) and 142(1), rejection of objections and sanction granted under Section 151 by invoking Article 226 of the Constitution.
The petitioner argued that the proposed reopening represented nothing more than a change of opinion. It submitted that all material facts relating to the flat sales, AIR and CIB transaction data, and its accounting method had been fully disclosed and examined during the original assessment. The petitioner relied upon the Supreme Court’s decision in CIT Vs Kelvinator of India Ltd., which recognised that the Assessing Officer could not reopen an assessment merely because of a subsequent change of view. The Revenue defended the reassessment by contending that the recorded reasons were self-explanatory and that the Assessing Officer had wrongly accepted the petitioner’s offer of income at 9% of incremental work-in-progress. It further submitted that the petitioner could present its case during reassessment and that judicial interference at the notice stage was unnecessary.
The High Court examined the original assessment records, particularly the petitioner’s reply dated 10 February 2015 and its annexures relating to ITS, AIR and CIB transaction details and the method of accounting. The Court found that the Assessing Officer had expressly sought explanations concerning the very transactions forming the basis of the reopening and had accepted the explanations after applying his mind. There was no tangible material indicating escapement of income that justified reassessment. The Court further observed that the assessment was sought to be reopened after more than four years. Relying on Ananta Landmark (P.) Ltd. Vs Deputy Commissioner of Income Tax, it reiterated that reassessment beyond four years could not be sustained on a mere change of opinion where the assessee had fully and truly disclosed the primary material facts necessary for assessment.
The Court also referred to Aroni Commercial Limited Vs Deputy Commissioner of Income Tax and Marico Ltd. Vs Assistant Commissioner of Income Tax, which supported the proposition that an Assessing Officer could not reopen a concluded scrutiny assessment on the same material after having already considered the relevant issue. In the circumstances, the High Court held that the reopening was impermissible because it amounted to a review of the Assessing Officer’s earlier opinion rather than a valid exercise of reassessment jurisdiction. Accordingly, it quashed the notice under Section 148 dated 31 March 2019, notice under Section 143(2) dated 10 June 2019, notice under Section 142(1) dated 13 November 2019, the communication disposing of objections dated 13 November 2019 and the sanction granted by the Principal Commissioner. The writ petition was allowed and Rule was made absolute.
Cases Discussed
- Ananta Landmark (P.) Ltd. Vs Deputy Commissioner of Income Tax (Bombay High Court) – (2021) 131 taxmann.com 52 (Bombay). Relied upon for the principle that reassessment beyond four years is not justified where the assessee fully and truly disclosed all primary facts and the Assessing Officer merely seeks to form a different opinion on material previously considered.
- Marico Ltd. Vs Assistant Commissioner of Income Tax (Bombay High Court) – (2019) 111 taxmann.com 53. Relied upon in support of the principle that an assessment cannot be reopened simply because the Assessing Officer subsequently changes his opinion on the same material.
- Aroni Commercial Limited Vs Deputy Commissioner of Income Tax (Bombay High Court) – (2014) 362 ITR 403. Relied upon for holding that an issue examined during original scrutiny assessment cannot ordinarily be reopened without fresh material merely because the Assessing Officer seeks to take another view.
- Commissioner of Income Tax Vs Kelvinator of India Ltd. (Supreme Court) – (2010) 228 CTR 488; (2010) 320 ITR 561 (SC). Relied upon for the fundamental distinction between reassessment and review, holding that a mere change of opinion cannot justify reopening and that tangible material is necessary to establish reason to believe that income escaped assessment.
FULL TEXT OF THE JUDGMENT OF BOMBAY HIGH COURT
1. Rule. Rule made returnable forthwith.
2. By way of present Petition under Article 226 of Constitution of India, Petitioner is challenging notice dated 31/03/2019 issued under Section 148 of Income Tax Act, 1961 (hereinafter referred as ‘the said Act’), notice dated 10/06/2019 under Section 143(2) of the said Act, notice dated 13/11/2019 under Section 142(1) of the said Act, communications dated 13/11/2019 rejecting objections of Petitioner and sanction granted under Section 151 of the said Act by Respondent No.3.
3. Petitioner who is a real estate developer, offered his income on the basis of project completion method up to AY 2011-12. On 10/12/2012, a survey under Section 133A of the said Act was conducted at the premises of Petitioner wherein Respondent No.2 accepted offer of Petitioner to offer income @ 9% of incremental work-in-progress. Accordingly, a revised return was filed by Petitioner on 30/03/2013 for AY 2012-13 declaring total income of Rs.80,44,900/-.
4. Petitioner’s case was thereafter selected for scrutiny by issuing notice under Section 143(2) of the said Act. During the assessment proceeding, details of Individual Transaction Statement (ITS) data in the form of AIR & CIB transactions of 55 flats amounting to Rs.60,02,95,478/- were sought by Respondent No.2. Petitioner, in response, submitted aforesaid details by stating that 29 flats amounting to Rs.42,30,22,051/- were sold and remaining 26 flats shown in AIR transactions were repetitive of aforesaid 29 flats. Respondent No.2 being satisfied with the submissions of Petitioner, did not make any additions to the total income of Petitioner.
5. Respondent No.2, on 31/03/2019, issued a notice under Section 148 of the said Act stating that he had reason to believe that the income of Petitioner had escaped assessment. Petitioner, in response to the said notice, filed his return of income for AY 2012-13 on 24/04/2019 and further requested to supply copy of the ‘reason to believe’ recorded for re-opening of assessment.
6. Respondent No.2 thereafter issued another notice dated 10/06/2019 and called upon Petitioner to give details in relation to income for AY 2012-13.
7. Respondent No.2, vide letter dated 14/06/2019, provided copy of ‘reason to believe’ to Petitioner. As per the ‘reasons to believe’ supplied to Petitioner, Respondent No.2 formed his opinion on the basis of ITS data wherein flats amounting to Rs.60,02,95,478/- appeared to have been sold but it was alleged that Petitioner had not shown any turnover during the year at the time of filing of original returns or at the time of filing of revised returns and therefore, Petitioner had not disclosed turnover of Rs.60,02,95,478/- resulting into escapement of income within the meaning of clause (b) of Explanation 2 of Section 147 of the said Act.
8. Petitioner, by letter dated 22/07/2019, objected to re-opening of assessment and ‘reason to believe’ recorded for re-opening of assessment. Respondent No.2, on 13/11/2019, rejected the objections / request of Petitioner to drop re-assessment proceedings. Respondent No.2, on 13/11/2019 itself, provided copy of sanction obtained from Respondent No.3; however, details on which reliance was placed by Respondent No.2 was not supplied.
9. Petitioner has, therefore, challenged re-assessment proceedings by way of present Petition. This Court, on 06/12/2019, granted time to the Advocate for Respondent to file Affidavit-in-Reply and in the meantime granted ad-interim stay to the impugned notices for AY 2012-13. Though the matter appeared on board on 20/02/2020 and 29/10/2021, Respondents have not filed their Affidavit-in-Reply opposing the Petition.
10. We have heard Mr. Naresh Jain for Petitioner and Mr. Arvind Pinto for Respondents.
11. Mr. Jain, learned Counsel for Petitioner, submitted that the impugned notice under Section 148 of the said Act is merely a change of opinion as Petitioner has fully and truly disclosed all the material in the original assessment. He submitted that in the original assessment, Petitioner had filed detailed response with respect to ITS data as found in AIR & CIB transactions and also method of accounting. Respondent No.2, after being duly satisfied with the response of Petitioner, made no addition on the account of Petitioner for AY 2012-13. He, therefore, submitted that in view of Judgment of Hon’ble Apex Court in the case of CIT Vs. Kelvinator of India Ltd.1, the re-opening of assessment is not permissible when it is a case of mere change of opinion.
12. Mr. Pinto, learned Counsel for Respondents, supported the impugned action of re-assessment proceedings by submitting that the reasons for re-opening of assessment at page 87 to 89 of the Petition are self-explanatory. He submitted that the Assessing Officer, in the original assessment, was not justified in accepting offer of income of Petitioner @ 9% incremental work-in-progress. He, therefore, submitted that Petitioner will have opportunity to present his case in detail before Respondent No.2 and interference at this stage is not necessary.
13. On careful scrutiny of the documents placed on record, particularly reply at Exh.B dated 10/02/2015 along with its annexures giving details in respect of data pertaining to ITS as found in AIR & CIB transactions and also method of accounting, we are satisfied that this is a case of mere change of opinion as there was no tangible material to come to the conclusion that there is escapement of income from assessment. From the record, it is clear that Assessing Officer had raised a query and the Petitioner had responded to the same by giving explanation which is at Exh.B. Assessing Officer had applied his mind and passed order of final assessment.
14. It is not in dispute that the assessment is sought to be reopened after a period of 4 years. The criterion for reopening of assessment after a period of 4 years are no longer res-integra in view of the Judgment of Division Bench of this Court in the case of Ananta Landmark (P.) Ltd. vs Deputy Commissioner of Income Tax2 wherein this Court held that where assessment was not sought to be reopened on reasonable belief that income had escaped assessment on account of failure of assessee to disclose truly and fully all material facts that were necessary for computation of income but was a case wherein assessment was sought to be reopened on account of change of opinion of Assessing Officer about manner of computation of deduction under section 57, reopening was not justified. It is also held that when the primary facts necessary for assessment are fully and truly disclosed, the Assessing Officer is not entitled to a change of opinion for commencing proceedings for re-assessment. It is also held that when on consideration of the material on record, one view is conclusively taken by the Assessing Officer, it would not be open for the Assessing Officer to reopen assessment based on the very same material and to take another view.
15. In the facts of the present case, in view of reply filed by Petitioner (Exh.B), it is clear that the Assessing Officer was aware of the issue of AIR and ITS data. Once the Assessing Officer had applied his mind in regular assessment proceeding of Petitioner having sold 29 flats, it is not open for Assessing Officer to reopen the assessment in absence of material to show escapement of income. This Court, in Aroni Commercial Limited Vs. Dy. CIT3 and in Marico Ltd. Vs. Assistant Commissioner of Income Tax4 had taken a similar view.
16. We are, therefore, satisfied that the Assessing Officer is re-opening the assessment merely on the basis of change of opinion which is not permissible and hence could not have issued a notice of re-opening of assessment to Petitioner.
17. We, therefore, pass the following order.
ORDER
The impugned notice under Section 148 of the Income Tax Act, 1961 dated 31/03/2019 issued by the Respondent No.2, impugned notice under Section 143(2) of the said Act dated 10/06/2019, impugned notice under Section 142(1) dated 13/11/2019, letter of disposal of objection dated 13/11/2019 and the impugned sanction granted by Respondent No.3 are quashed and set aside.
18. Rule is made absolute in the above terms.
Notes:
1 [(2010 228 CTR 488)]
2 (2021) 131 taxmann.com 52 (Bombay)
3 (2014) 362 ITR 403
4 (2019) 111 Taxmann.com 53
