Case Law Details
Rama Devi Sabat Vs DCIT (Orissa High Court)
Contending that the initiation of the reassessment proceedings was based merely on a change of opinion, the present petition has been filed.
A perusal of the reasons mentioned above for reopening of the assessment reveals that there was no new material available with department.
It is also evident that AO had applied his mind to the documents and records produced before him by the Assessee. This included the balance sheet, P & L Accounts and other relevant documents. It is plain, therefore, that the reopening of the assessment was not based on any new material.
Recently, this Court in similar circumstances in a judgment dated 26th October, 2021 in W.P.(C) No.14603 of 2014 (M/s. Sri Jagannath Promoters & Builders v. Deputy Commissioner of Income Tax) quashed the notice issued under Section 148 of the IT Act.
The facts of the present case being more or less similar, the impugned notice is hereby quashed.
FULL TEXT OF THE JUDGMENT/ORDER OF ORISSA HIGH COURT
1. The challenge in this writ petition is to a notice dated 16th September, 2013 issued by the Deputy Commissioner of Income Tax, Berhampur Circle, Berhampur (Opposite Party No.1) to the Petitioner under Section 148 of the Income Tax Act, 1961 (IT Act) seeking to reopen the assessment for the assessment year (AY) 2009-10.
2. While issuing notice in the petition on 7th August, 2014, this Court directed that reassessment proceeding shall remain stayed till the disposal of the writ petition.
3. The background facts are that the Petitioner is a proprietorship concern, dealing with retail sales of IMFL, mobile phone recharge vouchers business in the name of M/s. Sandeep Enterprises and execution of works contract in the name of R.D. Constructions. The Petitioner filed her return under Section 139 of the IT Act on 30th September, 2009 disclosing total income of Rs.15,30,040/-. The return was picked up as scrutiny and notices were issued under Section 143 (1) and 142 of the IT Act by the Assessing Officer (AO). The AO passed the assessment order on 22nd November, 2011 under Section 143 (3) of the IT Act computing the taxable income at Rs.19,68,310/-. The AO estimated the income from the IMFL business at Rs.15,95,138/-, for M/s. Sandeep Enterprises in the sum of Rs. 2 lakh and R.D. Constructions in the sum of Rs.2,59,000/-.
4. On 16th September, 2013, the impugned notice was issued to the Petitioner Assessee by Opposite Party No.1 under Section 148 of the IT Act stating that he had reason to believe that the income chargeable to tax for AY 2009-10 has escaped assessment. In response to the said notice, the Petitioner sought the reasons for reopening. By a letter dated 3rd July, 2014, Opposite Party No.1 disclosed the reasons, which read as under:
“On verification of records show that during the previous year relevant to the assessment year 2009-10, the assessee has shown to have received rebate and discount of Rs.4,16,123/- from IMFL business and commission of Rs.1,45,057/- from R.C.I.L. and Reliance Company Ltd. from Mobile phone recharge voucher business. These rebate and discount and commission income have not been included in the total income of the assessee while computing its total income in the assessment proceeding u/s 143(3) of the Income Tax Act, 1961.
Further, during the year the assessee has also shown to have received gross contract receipt of Rs.37,00,000/- from execution of civil contract works. However, the assessee has not furnished any details in this regard such as, the name and address of the contractee(s), PAN and TAN etc. It has also not furnished copy of works statement and TDS certificates etc. in the absence of such details/particulars, specifically when there is no identity of the contractee (s), it cannot be said that the gross contract receipt shown at Rs.37,00,000/- by the assessee is genuine. Hence, the entire amount of Rs.37,00,000/- shown to have received from execution of civil contract work is required to be added to the total income of the assessee as income from undisclosed sources.”
5. Contending that the initiation of the reassessment proceedings was based merely on a change of opinion, the present petition has been filed.
6. Despite notice having been issued to the Department by this Court on 7th August, 2014 itself , till date no reply has been filed.
7. A perusal of the reasons mentioned above for reopening of the assessment reveals that there was no new material available with Opposite Party No.1. The reasons begin with the sentence “On verification of records….” In other words, it is the same statement of accounts already filed by the Petitioner during the original assessment proceedings under Section 143 (3) of the IT Act that have been revisited by Opposite Party No.1.
8. In respect of each of the lines of business of the Petitioner in the original assessment order, the AO estimated the business-wise profit by observing as under:
“IMFL Business
During the course of assessment proceedings the assessee filed Trading Profit & Loss account of IMFL Off shop showing sales at Rs.3,98,78,474/- and net profit from such business was disclosed at Rs.12,13,236/-. The assessee has claimed huge expenses under different heads, but could not produce any bills and vouchers or cash book, ledger etc; to substantiate the net profit. Under the above circumstances and keeping in view the nature and volume of business, the net profit is reasonably estimated @ 4% on gross sales which comes to Rs.15,95,138/- [Rs.3,98,78,474/- x 4%]
M/s. Sandeep Enterprises
The assessee also deals with Mobile Phone Recharge vouchers of Reliance Communications and had received commission. The assessee could not produce any bills and vouchers or books of account in support of the expenses claimed. In absence of regular books of account, the net profit shown from this business cannot be relied upon and the net profit is reasonably taken at Rs.2,00,000/- as against net profit shown by the assessee at Rs.1,68,825/-.
M/s. R. D. Constructions
The assessee apart from the above two business, executes civil contract works and had received gross contract receipts of Rs.37,00,000/- and disclosed net profit from such business at Rs.2,33,810/-. The assessee could not produce Cash Book, ledger and bills and vouchers in support of the expenses claimed in the profit and loss account. Hence, I have no other alternative but to estimate the income by rejecting the book result shown by the assessee. Therefore, the net profit from such business is reasonably estimated @7% on gross contract receipt shown by the assessee which comes to Rs.2,59,000/- [Rs.37,00,000/- x 7%= Rs.2,59,000/-]”
9. The above analysis reveals that the AO had applied his mind to the documents and records produced before him by the Assessee. This included the balance sheet, P & L Accounts and other relevant documents. It is plain, therefore, that the reopening of the assessment was not based on any new material.
10. The law in relation to the reopening of the assessment, particularly after the original assessment was a scrutiny assessment under Section 143 (3) of the IT Act, has been explained in detail in a number of decisions of the Supreme Court of India. Section 147 of the Act itself has undergone changes over the years. The legal position emerging on an analysis of the decisions and the legislative changes has been summarized succinctly by the Supreme Court of India in Commissioner of Income Tax, Delhi v. Kelvinator of India Limited (2010) 2 SCC 723 as under:
“6. On going through the changes, quoted above, made to Section 147 of the Act, we find that, prior to Direct Tax Laws (Amendment) Act, 1987, reopening could be done under above two conditions and fulfillment of the said conditions alone conferred jurisdiction on the Assessing Officer to make a back assessment, but in Section 147 of the Act [with effect from 1st April, 1989], they are given a go-by and only one condition has remained, viz., that where the Assessing Officer has reason to believe that income has escaped assessment, confers jurisdiction to re-open the assessment. Therefore, post-1st April, 1989, power to re-open is much wider. However, one needs to give a schematic interpretation to the words “reason to believe” failing which, we are afraid, Section 147 would give arbitrary powers to the Assessing Officer to re-open assessments on the basis of “mere change of opinion”, which cannot be per se reason to re-open. We must also keep in mind the conceptual difference between power to review and power to re-assess. The Assessing Officer has no power to review; he has the power to re-assess. But reassessment has to be based on fulfillment of certain precondition and if the concept of “change of opinion” is removed, as contended on behalf of the Department, then, in the garb of re-opening the assessment, review would take place. One must treat the concept of “change of opinion” as an in-built test to check abuse of power by the Assessing Officer. Hence, after 1st April, 1989, Assessing Officer has power to re-open, provided there is “tangible material” to come to the conclusion that there is escapement of income from assessment. Reasons must have a live link with the formation of the belief. Our view gets support from the changes made to Section 147 of the Act, as quoted hereinabove. Under the Direct Tax Laws (Amendment) Act, 1987, Parliament not only deleted the words “reason to believe” but also inserted the word “opinion” in Section 147 of the Act. However, on receipt of representations from the Companies against omission of the words “reason to believe”, Parliament re-introduced the said expression and deleted the word “opinion” on the ground that it would vest arbitrary powers in the Assessing Officer. We quote herein below the relevant portion of Circular No.549 dated 31st October, 1989, which reads as follows:
“7.2 Amendment made by the Amending Act, 1989, to reintroduce the expression ‘reason to believe’ in Section 147.–A number of representations were received against the omission of the words ‘reason to believe’ from Section 147 and their substitution by the ‘opinion’ of the Assessing Officer. It was pointed out that the meaning of the expression, ‘reason to believe’ had been explained in a number of court rulings in the past and was well settled and its omission from section 147 would give arbitrary powers to the Assessing Officer to reopen past assessments on mere change of opinion. To allay these fears, the Amending Act, 1989, has again amended Section 147 to reintroduce the expression ‘has reason to believe’ in place of the words ‘for reasons to be recorded by him in writing, is of the opinion’. Other provisions of the new Section 147, however, remain the same.”
11. Recently, this Court in similar circumstances in a judgment dated 26th October, 2021 in W.P.(C) No.14603 of 2014 (M/s. Sri Jagannath Promoters & Builders v. Deputy Commissioner of Income Tax) quashed the notice issued under Section 148 of the IT Act.
12. The facts of the present case being more or less similar, the impugned notice is hereby quashed. The writ petition is allowed in the above terms, but in the circumstances, with no order as to costs. An urgent certified copy of this order be issued as per Rules.
