HC surprised with reasons recorded for reopening & hoped for better reasons

Nirmal Bang Securities Pvt Ltd Vs ACIT (Bombay High Court)

In this case reasons quoted were bereft of any material as AO quoted that search information is received with regard to accommodation entry But  does not indicate what address was searched, from whom such information was received, what date the search happened, what date the information was received, what was the information etc. Admittedly a copy of the information received also has not been provided to petitioner to enable petitioner to effectively deal with the reasons.

Petitioner filed its objection by a communication dated 12^th August, 2021 and same were rejected by an order dated 13^th January 2022

Admittedly the notice for reopening has been issued four years after the expiry of the relevant assessment year. Therefore, reopening is barred unless respondent is able to show that petitioner had failed to disclose fully and truly all material facts for assessment.

Having seen the reasons, no case of failure to disclose is made out. The factum of failure to disclose cannot be culled from the reasons in support of the notice seeking to reopen the assessment. Therefore, certainly it will be fatal to the assumption of jurisdiction under Sections 147 and 148 of the Act.

We also have to observe that the reason recorded for reopening as   noted earlier, is bereft of any material or information. We wonder what prompted the jurisdictional Assessing Officer to write such a bald and toothless reason. Certainly the reasons, as recorded, cannot even indicate anywhere or by no stretch of imagination can it be concluded that any income has escaped assessment. We are also surprised that by reading these reasons, approval under Section 151 has been granted, which also indicates clear non-application of mind by the authority which granted the approval.

We only hope that respondents’ officers will record better reasons for reopening and the authority granting approval will also apply their mind sincerely before granting an approval.

FULL TEXT OF THE JUDGMENT/ORDER OF BOMBAY HIGH COURT

1. No reply has been filed and by consent of the parties taken up for admission/disposal, at this stage itself.

2. Prayer clause (a) of the petition reads as under:

“(a) that this Hon’ble Court may be pleased to issue a Writ of Certiorari or a Writ in the nature of Certiorari or any other appropriate Writ, order or direction, calling for the records of the Petitioner’s case and after going into the legality and propriety thereof, to quash and set aside the said (i) Notice u/s 148 dated 31^st March, 2021 (Exh.”A”), (ii) the impugned order dated 13/1/2022 being (Exh.”B”) and (iii) Notice u/s 142(1) dtd.20/1/2022 being (Exh.”C”).”

3. Petitioner is a stockbroking firm and returned an income of Rs.1,03,30,630/- for Assessment Year 2013-2014. During the course of assessment proceedings, Assessing Officer issued notice dated 13^th July 2015 under Section 142(1) of the Income Tax Act, 1961 (“the Act”) asking for various details. The assessment of petitioner for Assessment Year 2013-2014 was completed under Section 143(3) of the Act assessing total income at Rs.9,10,95,756/-. Thereafter, assessment was reopened under Section 147 vide notice dated 30^th March 2018 under Section 148 as information about large value cash transaction was received. Upon considering the submissions made as well as the documents submitted by petitioner no addition was made and income was assessed as per order dated 19^th April, 2018 passed in appeal under Section 250 against the original assessment order.

4. The assessment of petitioner is now again proposed to be reopened by issuing notice dated 31^st March 2021 under Section 148 of the Act. The reasons supplied to petitioner for reopening are as under:-

“In this case, search information is received with regard to accommodation entry, STR etc in which assessee is beneficiary, the details of which are as under:

In view of the above facts and after due application of mind after analyzing all the relevant information in the case of assessee in totality, I have reason to believe that income of Rs.7,08,54,623/- has escaped assessment for A.Y.2013- 14 and the same is therefore required to be reopened for scrutiny assessment.”

5. As could be seen from the reasons quoted above, it is bereft of any material. It does not indicate what address was searched, from whom such information was received, what date the search happened, what date the information was received, what was the information etc. Admittedly a copy of the information received also has not been provided to petitioner to enable petitioner to effectively deal with the reasons.

6. Notwithstanding receiving these reasons, without any details available, petitioner filed its objection by a communication dated 12^th August, 2021. Petitioner objected to the reopening on the following grounds:

(i) There was no failure on the part of petitioner to disclose fully and truly all material facts necessary for assessment and recorded reasons do not record such failure.

(ii) Reopening is done without own satisfaction of respondent no.1.

(iii) There is no live nexus between the material and formation of belief about escapement of income.

(iv)The reasons are vague and factually incorrect. Based on the decisions of the Courts, the proposed notice issued for reopening of assessment is without jurisdiction, hence, the reopening is bad in law.

(v) The reopening notice was issued on the ground of factually incorrect basis which is bad in law.

7. These objections were rejected by an order dated 13^th January 2022 without dealing with any of the objections of petitioner on factual aspects of the issues involved. It is this order dated 13^th January 2022, which is also impugned in this petition.

8. Admittedly the notice for reopening has been issued four years after the expiry of the relevant assessment year. Therefore, reopening is barred unless respondent is able to show that petitioner had failed to disclose fully and truly all material facts for assessment.

9. Mr. Walve relied upon a judgment of this Court in Crompton Greaves Ltd. V/s. Assistant Commissioner of Income Tax,Circle 6 (2) 4¹ to submit that even if the reason for reopening does not specifically state that there was any failure on the part of petitioner to disclose fully and truly all material facts necessary for its assessment for the relevant assessment year, it will not be fatal to the assumption of jurisdiction under Sections 147 and 148 of the Act. We would certainly agree with Mr. Walve but as held in Crompton Greaves Ltd. (Supra), this is subject to the rider that there must be cogent and clear indication in the reasons supplied, that in fact there was failure on the part of assessee to disclose fully and truly all the material facts necessary for its assessment. If the factum of failure to disclose can be culled from the reasons in support of the notice seeking to reopen assessment, that will certainly not be fatal to the assumption of jurisdiction under Sections 147 and 148 of the Act. The Court held “However, if from the reasons, no case of failure to disclose is made out, then certainly the assumption of jurisdiction under Sections 147 and 148 of the Act would be ultra vires, being in excess of the jurisdictional restraints imposed by the first proviso to Section 147 of the Act”.

10. Having seen the reasons, no case of failure to disclose is made out. The factum of failure to disclose cannot be culled from the reasons in support of the notice seeking to reopen the assessment. Therefore, certainly it will be fatal to the assumption of jurisdiction under Sections 147 and 148 of the Act.

11. On this ground alone, the prayer clause (a) as quoted above is hereby granted.

12. We also have to observe that the reason recorded for reopening as   noted earlier, is bereft of any material or information. We wonder what prompted the jurisdictional Assessing Officer to write such a bald and toothless reason. Certainly the reasons, as recorded, cannot even indicate anywhere or by no stretch of imagination can it be concluded that any income has escaped assessment. We are also surprised that by reading these reasons, approval under Section 151 has been granted, which also indicates clear non-application of mind by the authority which granted the approval.

13. We only hope that respondents’ officers will record better reasons for reopening and the authority granting approval will also apply their mind sincerely before granting an approval.

14. Petition disposed with no order as to costs.