Case Law Details
Dilip Gangaram Patil Vs ACIT (Bombay High Court)
Bombay High Court in Dilip Gangaram Patil vs. Assistant Commissioner of Income Tax (ACIT) ruled on the validity of reassessment proceedings initiated under Section 148 of the Income Tax Act, 1961. The petitioner, a real estate developer, challenged the notice for reassessment, asserting that the grounds for reopening the case were already examined in prior proceedings under Section 263. The court emphasized that reassessment cannot be based on issues already scrutinized unless new material facts emerge.
The case stemmed from discrepancies in the petitioner’s declared income for the assessment year 2013-14. The original assessment under Section 143(3) accepted the petitioner’s income declaration. Subsequently, proceedings under Section 263 were initiated by the Principal Commissioner of Income Tax (PCIT) to address discrepancies in income from house property and the sale of flats. A revised assessment was passed after inquiries, incorporating additions to the taxable income.
Despite these revisions, the Assessing Officer issued a reassessment notice under Section 148, alleging underreported income. The petitioner objected, arguing that the reassessment was invalid as it re-examined matters already addressed in Section 263 proceedings. The petitioner relied on judicial precedents, including CIT vs. Kelvinator of India Ltd. and Indian & Eastern Newspaper Society vs. CIT, which assert that reopening assessments based solely on a change of opinion is impermissible.
The court highlighted critical preconditions for valid reassessment under Section 147, including the requirement of new material evidence and the absence of full and true disclosure by the taxpayer. Noting that the original assessment order had already been superseded by the revised assessment under Section 263, the court found no valid basis for reopening the case. It cited multiple precedents, including ACIT vs. Marico Ltd. and HDFC Bank Ltd. vs. ACIT, to reinforce that reassessment cannot revisit previously settled issues.
The Bombay High Court quashed the reassessment notice, reiterating the principle that reopening an assessment must rest on substantial, fresh material rather than a mere change of opinion or review of issues previously addressed.
FULL TEXT OF THE JUDGMENT/ORDER OF BOMBAY HIGH COURT
1. Rule. By consent of the parties, since pleadings are completed, taken up for final disposal. By consent of the parties, both the writ petitions are disposed of by common order since the issue involved is identical. We propose to treat Writ Petition No.2771 of 2022 as a lead matter.
2. The petitioner challenges notice dated 25 March 2021 issued under Section 148 of the Income Tax Act, 1961 (‘the Act’) for the assessment year 2013-14.
Brief facts :
3. The petitioner is engaged in the business of real estate and has filed his return of income on 27 September 2013 declaring total income of Rs.54,91,960/-. On 31 December 2015, an assessment order under Section 143(3) of the Act came to be passed accepting the return income.
Proceedings u/s 263 :
4. On 29 November 2017, a notice under Section 263 of the Act came to be issued by the Commissioner of Income Tax on the ground that M/s. Orchid Builders and Developers has sold 6 flats on behalf of the petitioner for Rs.2,74,94,950/-. However, the same is not reflected in the profit and loss account for the year ending 31 March 2013. The notice further seeks to examine disallowance on account of interest payment and proposes to examine income from house property which was not offered for tax. The petitioner filed his reply to the said show cause notice vide letter dated 1 March 2018. On 16 March 2018, an order under Section 263 was passed by the Commissioner of Income-tax setting aside the assessment order with a direction to conduct proper inquiries, investigation and examine all the issues raised in 263 notice and pass a fresh order. Pursuant to the said direction, Assessing Officer on, 14 December 2018, passed an assessment order under Section 143 (3) read with Section 263 assessing income of the petitioner at Rs.57,06,250/- by making additions on account of notional rent under the head ‘income from house property.’
Proceedings u/s 148 :
5. On 25 March 2021, a notice under Section 148 of the Act was issued to the petitioner calling upon the petitioner to file his return of income for assessment year 2013-14 since the respondents proposed to reassess the income under Section 147 of the Act. The petitioner on 4 January 2022 filed his return of income in compliance with the said impugned notice. On a request being made by the petitioner, the reasons recorded for reopening the case were furnished on 22 March 2021. The petitioner vide letter dated 2 March 2022 objected to the reasons for reopening on the ground that the issue for which the reopening is sought was subject matter of 263 proceedings and, therefore, reopening is bad-in-law. The petitioner also raised objection with respect to there being no failure to disclose fully and truly all material facts and further challenged the sanction obtained from the Commissioner of Income Tax under Section 151 of the Act. On 11 March 2022, an order rejecting the objections came to be passed. In the said order, the reopening was justified on the grounds that, if in the original assessment, the income liable to tax has escaped assessment due to oversight, inadvertence or a mistake committed by the Assessing Officer, the assessment can be reopened on the basis of information obtained from the original assessment. In the said order, reliance was placed on the decision of the Supreme Court in the case of Kalyanji Mavji & Co. Vs. CIT1.
6. It is on the above backdrop that the petitioner is before us challenging the order rejecting the objections dated 11 March 2022 and notice under Section 148 of the Act dated 25 March 2021.
7. Ms. Pawar, learned counsel for the petitioner submits that in the absence of any failure to disclose fully and truly all material facts, the impugned proceedings cannot be initiated and for this submission, she placed reliance on the first proviso to Section 147 of the Act. She further relied upon the third proviso to Section 147 of the Act and submitted that since in the instant case an order under Section 263 of the Act was passed and there being no fresh material to reopen the case, the impugned proceedings were bad-in-law.
8. Ms. Pawar further submitted that the issue for which reopening is sought was subject matter of not only proceedings under Section 263 of the Act but also an order passed pursuant to the directions under Section 263 of the Act and, therefore, the impugned proceedings are based on change of opinion. She further submitted that the reliance placed by the respondent on the Supreme Court’s decision in the case of Kalyanji Mavji & Co. (supra) is no more a good law as per the decision of the Supreme Court in the case of Indian & Eastern Newspaper Society Vs. Commissioner of Income-tax2. Therefore, she submitted that the impugned notice should be quashed.
9. In support of her submissions, she relied upon the following case laws :-
i. ACIT, Circle 12(3)(2) Vs Marico Ltd. 3
ii. CIT, Delhi Vs Kelvinator of India Ltd. 4
iii. PCIT Vs State Bank of India 5
iv. State Bank of India Vs ACIT, Circle 2(2)(1), Mumbai6
v. ITO Vs Lakhmani Mewal Das 7
vi. Hindustan Lever Ltd. Vs R.B.Wadkar 8
vii. Chandra Global Finance Ltd. Vs ITO 9
viii. Saravana Stocks Investments (P.) Ltd Vs DCIT10
ix. Samet Estates (P.) Ltd. Vs CIT11
x. Tumkur Minerals (P.) Ltd. Vs JCIT12
xi. HDFC Bank Ltd. Vs ACIT13
10. Ms. Sharma, learned counsel for the respondent defended the impugned proceedings by relying upon the reasons recorded and the order rejecting the objections. He submitted and prayed that the petition be dismissed.
11. We have heard learned counsel for the petitioner and respondent and with their assistance have perused the documents on record.
12. Admittedly, the reopening is sought to be done beyond the period of 4 years from the end of the relevant assessment year. The reasons for reopening as furnished to the petitioner reads as under:-
shown at Rs. 1,66,88,066/- from which it can be presumed that out of total 38 flats only a few flats are remaining to be sold which has been shown as closing stock. From the above, it is clear that assessee has already sold out major portion of the flats out of 38 flats owned by him and receipt from remaining flats is not offered by the assessee.
Therefore, the receipts of Rs. 2,74,94,950/- should have been fully offered for taxation, since the assessee has not incurred any expenses on the same.
It is further observed that CIDCO had allotted plot of land No.63, Sector-14, Koparkhairne, Navi Mumbai admeasuring 2299 square meters to Shivshankar CHS Ltd. comprising 30 project affected persons of Village Koperkhairane, Navi Mumbai under 12.5% scheme. Assessee vide copy of unregistered Development Agreement cum sale dtd.27.02.2008 with Shivshankar CHS Ltd. for development of the said plot, the number of members in the society is mentioned as 31 instead of 30 as per original allotment by CIDCO to 30 PAPs. As per the said agreement the assessee agreed to pay Rs. 2,45,30,000/- to the members for the development rights but has paid only Rs. 1,22,00,000/-. No proof for the said payments is placed on record.
Shivshankar CHS Ltd. vide letter dtd. 30.10.2009 sought permission of Jt. Registrar of Co-op. Society for holding Special General Body Meeting for calling tender for sale/transfer of the Plot No. 63, Sector-14, Koparkhairne. Finally, the tender was given to M/s. Orchid Builders & Developers being the highest bidder for a consideration of Rs.2,50,00,000/-. Vide final transfer order dtd.23.02.2010, CIDCO transferred the plot in favour of Orchid Builders & Developers. The assessee raised an objection against the said transfer vide letter dtd.27.02.2010 and claimed his rights upon the said plot of land and included one more name in the list of members and shown as 31 nos instead of 30. Thereafter, vide Deed of Settlement of Dispute between M/s. Rahul Builders & Developers (the assessee-Investor) and M/s. Orchid Builders & Developers(Builder) and ShivShankar CHS dtd.29.03.2010, M/s. Orchid Builders & Developers(Builder) agreed to pay a sum of Rs.2,30,00,000/- in terms of monetary consideration as well as 50% share in the newly constructed building. As per the said agreement, the builder M/s. Orchid Builders & Developers has to incur all expenses related to development viz. Municipal charges payment to architect, materials, sub-contractor and after related construction expenses. It is pertinent to note that inspite of the fact that all expenses are being incurred by M/s. Orchid Builders & Developers(Builder), the assessee has claimed various expenses against the receipts in the P&L account. Moreover, the assessee has also claimed plot
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13. At the outset, the reasons recorded seek to reopen the assessment which was made under Section 143(3) of the Act on 31 December 2015. It is important to note at this stage that, this order of 31 December 2015 was set aside by the PCIT in revisional proceedings under Section 263 of the Act vide order dated 16 March 2018. The assessing officer passed a fresh assessment order pursuant to the direction issued under Section 263 of the Act on 14 December 2018. Therefore, the original assessment dated 31 December 2015 which is sought to be reopened did not exist on the date of recording the reasons and, therefore, on this ground itself the proceedings are bad in law. The assessing officer glossed over the assessment order passed under Section 143(3) read with Section 263 of the Act on 14 December 2018 which was the order in existence on the date of recording reasons and sought to reopen the assessment order which was not in existence.
14. In any event, the issues raised in the reasons recorded for reopening are identical to the reasons for which revisional proceedings under Section 263 of the Act were initiated by the PCIT on 29 November 2017. The said revisional order under Section 263 of the Act was passed on 16 March 2018 directing the assessing officer to examine the issues raised in the revisional proceedings and pass a fresh order. Therefore, on the same ground the assessing officer is not justified to reopen the case, moreso, after a period of 4 In our view, even the approving authority should not have given his approval after he himself having passed the order under Section 263 of the Act. Therefore, even on this ground since the issues were subject matter of 263 proceedings, the impugned proceedings are barred by 3rd proviso of Section 147 of the Act.
15. The reasons recorded initially states that there has been no disclosure of material facts necessary in the assessment but, what were the material facts which were not disclosed has not been stated. On perusal of the reasons recorded it is observed that the officer himself has recorded that it is based on the perusal of records and verification of records that reopening proceedings are initiated. In our view, on this ground also the pre-condition required of failure to disclose truly and material facts necessary for the assessment is not satisfied and therefore, the proceedings are bad in law as per the proviso of Section 147 of the Act.
16. It is important to note that in the order rejecting the objections, the officer states that the reopening is permissible if in the original assessment the Assessing Officer has through inadvertence oversight given relief. In our view, if that be the case, then, certainly no proceedings could have been initiated by the respondent by virtue of first proviso to Section 147 of the Act because according to the respondent, it is the mistake of the predecessor Officer and, therefore, the issue of any failure to disclose fully and truly all necessary facts for the assessment by the petitioner would not arise. In any case, pursuant to the direction under Section 263 of the Act, the Assessing Officer examined all the issues which are also subject matter of the present proceedings and passed the assessment order on 14 December 2018. Therefore, any attempt now to re-agitate the issues which were already examined while passing the assessment order pursuant to directions in 263 proceedings would be based on change of opinion and review of the earlier order which is not permissible.
17. The learned counsel for the petitioner is justified on relying upon the decision in the case of Samet Estates (P.) Ltd. (Supra) where on very similar ground where 263 proceedings were initiated, reopening was quashed by Co-ordinate bench of this Court. The learned counsel for the petitioner is justified in stating that the decision in the case of Kalyanji Mavji & Co. (Supra) relied upon by the respondent is no more a good law post the decision of the Supreme Court in the case of Indian Express Newspaper (Supra).
18. In view of the above, the impugned notice under Section 148 of the Act for the assessment year 2013-14 dated 25 March 2021 is quashed and set aside. The Rule is made absolute in the above terms.
Writ Petition No.2021 of 2022 :-
19. For the reasons recorded in Writ Petition No.2771 of 2022 the notice under Section 148 of the Act dated 25 March 2021 for the assessment year 2014-15 is also quashed and set aside.
20. Both the petitions are disposed of.
Notes:
1 (1976) 102 ITR 287 (SC)
2 (1979) 2 Taxman 197 (SC)
3 (2021) 133 taxmann.com 122 (SC)
4 (2010) 187 Taxman 312 (SC)
5 (2022) 145 taxmann.com 33 (SC)
6 (2019) 103 taxmann.com 164 (Bombay)
7 (1976) 103 ITR 437 (SC)
8 (2004) 137 Taxman 479 (Bombay)
9 (2024) 168 taxmann.com 182 (Delhi)
10 (2021) 133 taxmann.com 315 (Madras)
11 (2022) 140 taxmann.com 342 (Bombay)
12 (2022) 145 taxmann.com 397 (Bombay)
13 (2022) 136 taxmann.com 69(Bombay)
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