PCIT Vs Sheetal Dushyant Chaturvedi (Supreme Court)
Summary: The dispute concerned reassessment proceedings for AY 2006-07 against Sheetal Dushyant Chaturvedi. The assessee’s return filed under Section 139 was processed under Section 143(1), after which notice under Section 148 was issued and reassessment resulted in Rs.5.81 crore being treated as business income. Before the Bombay High Court, the Revenue challenged the ITAT’s decision quashing the reassessment and also questioned the Tribunal’s reliance on Rule 27 of the Income Tax (Appellate Tribunal) Rules, 1963. The High Court rejected the Rule 27 objection because the assessee had challenged the legality and jurisdiction of the reopening before both the Assessing Officer and CIT(A). On reassessment, the High Court held that jurisdiction under Section 147 crystallised in the reasons supplied by the Assessing Officer. Those reasons merely referred to verification of documents and failed to establish the necessary link with the belief that income had escaped assessment. Information not contained in the recorded reasons could not subsequently be added to sustain reopening. The High Court, noting that the Tribunal had followed Nivi Trading Limited, held that its conclusion that reopening was without jurisdiction was neither perverse nor illegal and dismissed the Revenue’s appeal. The Revenue thereafter approached the Supreme Court. In its brief order, the Supreme Court found no case for interference with the High Court judgment under Article 136 of the Constitution and dismissed the Special Leave Petition, with pending applications also disposed of.
Reassessment Proceedings for AY 2006-07
The Respondent-Assessee filed regular Return of Income under Section 139 of the Income Tax Act, 1961 on 22 March 2007 declaring total income of Rs.11,47,240/-. The Return of Income was processed under Section 143(1) of the Income Tax Act on 12 July 2007. Thereafter, a notice under Section 148 of the Income Tax Act was issued on 11 May 2010. The notice was objected to and Reasons were provided to the Respondent-Assessee, but the Respondent-Assessee filed Return of Income. The Assessing Officer carried out the assessment on 29 December 2011 and Rs.5,81,63,820/- was treated as business income. The penalty proceedings were initiated separately.
The Respondent-Assessee filed an Appeal before the Commissioner of Income Tax (Appeals), Nagpur. Before the Commissioner of Income Tax (Appeals), the Respondent-Assessee challenged the re-assessment proceedings under Section 147 of the Income Tax Act and also merits of the assessment. The Commissioner of Income Tax (Appeals) partly allowed the Appeal by order dated 19 October 2012 against which the Appellant-Revenue filed an appeal bearing I.T.A. No.16/Nag/2013, which was dismissed by the impugned order dated 20 June 2017.
Questions Raised by Revenue Before Bombay High Court
The Revenue challenged the ITAT order dated 28 June 2017 in Income Tax Appeal No.16/Nag/2013 pertaining to Assessment Year 2006-07 and pressed the following substantial questions of law:
“i) Whether on the facts and circumstances of the case and in law, the Hon’ble ITAT is justified in quashing the assessment proceedings, holding that the AO had failed to record ‘reasons to believe that the income has escaped assessment’ within the meaning of Section 147 read with Section 148 of the Income Tax Act, 1961?
ii) Whether on the facts and circumstances of the case and in law, the Hon’ble ITAT is justified in quashing the assessment proceedings, even when the assessing officer on the basis of tangible material (information by investigation wing) had a reason to believe that the income had escaped assessment before reopening the assessment.
iii) Whether in the facts and circumstances of the case and in law, the unique methodology adopted by the ITAT can be set to be legal and valid by taking recourse to Rule 27 of the ITAT Rules which would be completely contrary to the mandatory provisions of Civil Procedure Code, 1908 particularly Order 41 Rule 33?”
Bombay High Court on Rule 27 of ITAT Rules
As regards the question of law raised based on Rule 27 of the Income Tax (Appellate Tribunal) Rules, 1963, the learned Counsel for the Appellant-Revenue relied on the decision of the Division Bench of the Bombay High Court in the case of Commissioner of Income-Tax-4 v. Jamnadas Virji Shares & Stock Brokers (P) Ltd.1 and submitted that it was not permissible for the Tribunal to entertain the additional ground of challenge regarding the legality of notice under Sections 147 and 148 of the Income Tax Act.
The High Court did not accept the Revenue’s submission as it was factually incorrect. The Respondent-Assessee had challenged the legality and jurisdiction in respect of notice under Sections 147 and 148 before the Assessing Officer as well as the Commissioner of Income Tax (Appeals). The CIT(A) had rejected the said ground and allowed the appeal on merits. The High Court held that Rule 27 permits the respondent, though it may not have appealed, to support the order on any of the grounds decided against it.
Recorded Reasons Did Not Establish Reason to Believe
As regards ground Nos.1 and 2, the Revenue contended that all facts had been considered by the Assessing Officer, the order disposing of objections gave sufficient reasons and information had been received from the investigation wing pursuant to which notices were issued. It was further contended that the Tribunal’s finding regarding change of opinion was perverse.
The High Court held that the jurisdiction of the Assessing Officer to resort to Section 147 of the Income Tax Act crystallised in the reasons supplied. The Tribunal had rightly observed that the reasons referred only to a need to verify the documents and there was no link between the statement that there was reason to believe that income had escaped assessment and the rest of the reasons supplied.
The High Court further held that it was not permissible to add to the recorded reasons. The contention regarding information received could not support reopening when that information was not included in the reasons.
The Tribunal had followed the jurisdictional High Court decision dated 7 April 2015 in Nivi Trading Limited in Writ Petition No.2314 of 2015. The High Court held that the Tribunal’s conclusion that reopening was without jurisdiction could not be characterised as perverse or illegal. Accordingly, no question of law arose and the Revenue’s appeal was dismissed.
Supreme Court Dismisses Revenue’s SLP
The Revenue carried the Bombay High Court judgment dated 26 February 2021 in ITA No.106/2017 to the Supreme Court through Petition for Special Leave to Appeal (C) No.13935/2021.
The Supreme Court, comprising Hon’ble Mr. Justice M.R. Shah and Hon’ble Mr. Justice A.S. Bopanna, heard the matter on 17 September 2021.
The Supreme Court passed the following order:
No case is made out to interfere with the impugned judgment and order passed by the High Court in exercise of powers under Article 136 of the Constitution of India..
Hence, the Special Leave Petition is dismissed.
Pending application (s), if any, shall stand disposed of.
Thus, the Supreme Court declined to interfere with the Bombay High Court judgment and dismissed the Revenue’s Special Leave Petition. The Supreme Court’s short order does not contain any independent discussion of the merits or additional reasoning on the reassessment controversy.
Cases Discussed
- Commissioner of Income-Tax-4 v. Jamnadas Virji Shares & Stock Brokers (P) Ltd., [2012] 21 taxmann.com 27 (Bombay High Court) — Relied upon by the Revenue to contend that the Tribunal could not entertain the jurisdictional challenge under Rule 27. The Bombay High Court rejected the contention on the facts because the assessee had already challenged the legality and jurisdiction of the Sections 147 and 148 notice before the Assessing Officer and CIT(A).
- Nivi Trading Limited v. Union of India, Writ Petition No.2314 of 2015, decided on 07/04/2015 (Bombay High Court) — Followed by the Tribunal while holding that the reopening was without jurisdiction. The Bombay High Court found no perversity or illegality in the Tribunal’s view.
FULL TEXT OF THE SUPREME COURT ORDER
No case is made out to interfere with the impugned judgment and order passed by the High Court in exercise of powers under Article 136 of the Constitution of India..
Hence, the Special Leave Petition is dismissed.
Pending application (s), if any, shall stand disposed of.
