IN THE HIGH COURT OF JUDICATURE AT BOMBAY
\nORDINARY ORIGINAL CIVIL JURISDICTION
\nWRIT PETITION NO. 2518 OF 2019
\nGateway Leasing Pvt. Ltd., ] \u2026 Petitioner.
\nA company incorporated under the ]
\nCompanies Act, 1956, having its ]
\nregistered office at 6W, 6th Floor, ]
\nMerchant Chamber -41, New Marine ]
\nLines, Mumbai -400 020. ]
\nV\/s.
\n1. Assistant Commissioner of ]
\nIncome Tax-1 (1)(2), Aayakar ]
\nBhavan, Maharshi Carve Marg, ]
\nMumbai -400 020. ]]
\n2. Deputy Commissioner of ]
\nIncome Tax 1(1) (2), Room No.533, ]
\nAayakar Bhavan, Maharshi Carve ]
\nMarg, Mumbai \u2013 400 020. ]]
\n3. Principal Commissioner of ]
\nIncome Tax -1 at Room No.387, ]
\n3rd Floor, Aayakar Bhavan, Maharshi ]
\nCarve Marg, Mumbai \u2013 400 020. ]]
\n4. Union of India, ]
\nthrough the Secretary, Dept. of ]
\nRevenue, Ministry of Finance, ]
\nNorth Block, New Delhi-110001 ]…Respondents.
\n—
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\nMr. Madhur Agarwal, Advocate a\/w. Mr. Jas Sanghavi i\/by
\nPDS Legal for the Petitioner.
\nMr. Suresh Kumar, Advocate for the Respondents.
\n—
\nCORAM : UJJAL BHUYAN AND
\nMILIND N. JADHAV, JJ.
\nDATE : MARCH 11, 2020.
\nORAL JUDGMENT :
\n1 Heard Mr. Madhur Agarwal, learned counsel
\nfor the Petitioner and Mr. Suresh Kumar, learned
\nstanding counsel, Revenue, for the Respondents.
\n2 By filing this petition under Article 226 of the
\nConstitution of India, Petitioner seeks quashing of
\nnotice dated 31.03.2019 issued under section 148 of
\nthe Income Tax Act, 1961 by the Assistant Commissioner
\nof Income Tax, Circle 1(1)(2), Mumbai i.e. Respondent
\nNo.1 as well as the order dated 26.08.2019 passed by
\nthe Deputy Commissioner of Income Tax, Circle 1(1)(2),
\nMumbai i.e. Respondent No. 2, rejecting the objections
\nraised by the Petitioner to re-opening of assessment
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\nunder section 147 of the Income Tax Act, 1961 (briefly
\n\u201cthe Act\u201d, hereinafter).
\n3 Case of the Petitioner is that it is a company
\nregistered under the Companies Act, 1956, engaged in
\nthe business of financing and investing activities, as a
\nnon-banking financial company registered with the
\nReserve Bank of India. It is an assessee under the Act.
\n4 For the assessment year 2012-13, Petitioner
\nfiled return of income on 20.09.2012 declaring total
\nincome of Rs. 90,630.00. Initially, the return of income
\nwas processed under section 143(1) of the Act.
\nPetitioner\u2019s case was however selected for scrutiny
\npursuant to which notices under section 143 (2) as well
\nas under section 142(1) were issued alongwith
\nquestionnaire. During the course of assessment
\nproceedings, details of income, expenditure, assets and
\nliabilities were called for and examined. Following reply
\nsubmitted by the Petitioner pursuant to such notices and
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\nafter examination of the details filed, Assessing Officer
\ncomputed the total income of the Petitioner at Rs.
\n90,630.00, vide the assessment order dated 28.03.2015
\npassed under section 143(3) of the Act.
\n5 On 31.03.2019 Respondent No. 1, who was in
\nthe meanwhile conferred jurisdiction to assess the
\nPetitioner\u2019s income, issued notice to the Petitioner under
\nsection 148 of the Act stating that he had reasons to
\nbelieve that Petitioner\u2019s income chargeable to tax for
\nthe assessment year 2012-13 had escaped assessment
\nwithin the meaning of section 147 of the Act.
\nProceeding to assess\/re-assess the income for the said
\nassessment year, Respondent No. 1 called upon the
\nPetitioner to submit return in the prescribed form for
\nthe said assessment year. It was further mentioned
\nthat said notice was issued after obtaining necessary
\nsatisfaction of the Principal Commissioner of Income
\nTax-1, Mumbai.
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\n6 Petitioner sought for the reasons for issuing
\nnotice under section 148 of the Act vide letter dated
\n09.04.2019, referring to the decision of the Supreme
\nCourt in the case GKN Driveshafts (India) Ltd., vs.
\nI.T.O., 259 ITR 19. Petitioner also filed return of
\nincome under section 148 of the Act, returning the
\nincome at Rs. 90,630.00 as originally assessed by the
\nAssessing Officer under section 143(3) of the Act.
\n7 By letter dated 31.05.2019, Respondent No. 2
\nfurnished the reasons for re-opening of the assessment.
\nIt was stated that information was received from the
\nInvestigation Wing of the Income Tax Department that a
\nsearch and seizure action was carried out in the
\npremises of one Shri Naresh Jain which revealed that a
\nsyndicate of persons were acting in collusion and
\nmanaging transactions in the stock exchange, thereby
\ngenerating bogus long-term capital gains\/ bogus shortterm
\ncapital loss and bogus business loss entries for
\nvarious beneficiaries.
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\n8 From the materials gathered in the course of
\nthe said search and seizure action, it was alleged that
\nPetitioner had traded in the shares of M\/s. Scan Steel
\nLtd. and was in receipt of Rs. 23,98,014.00 which the
\nAssessing Officer believed had escaped assessment
\nwithin the meaning of section 147 of the Act. It was
\nalso alleged that Petitioner had failed to disclose fully
\nand truly all material facts necessary for its
\nassessment for the assessment year 2012-13 for which
\nnotice under section 148 of the Act was issued.
\n9 Petitioner submitted objections to reopening
\nof assessment proceedings on 26.06.2019. Referring to
\nthe reasons recorded and furnished, it was contended on
\nbehalf of the Petitioner that the original assessment
\nwas completed under section 143(3) of the Act where
\nall the details of purchase and sale of shares of M\/s.
\nScan Steels Ltd., also known as Clarus Infrastructure
\nRealties Ltd. (earlier known as Mittal Securities Finance
\nLtd.), were disclosed. While denying that the Petitioner
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\nhad any dealing with the parties whose names cropped
\nup during the search and seizure action, it was stated
\nthat purchase and sale of shares were done by the
\npetitioner through registered broker of Bombay Stock
\nExchange. Payment for the purchase of shares were
\nmade by cheque through the Bombay Stock Exchange,
\nthe price being as per prevailing market price. Thus
\nthere was no apparent reason to classify the receipt of
\nRs. 23,98,014.00 as having escaped assessment.
\nTherefore, it was contended that the decision to reopen
\nassessment was nothing but change of opinion, which
\nwas not permissible in law. That apart, it was
\ncontended that the impugned notice under section 148
\nof the Act was issued on 31.03.2019 and was received
\nby the Petitioner on 04.04.2019 i.e. beyond
\n31.03.2019. The notice was posted on 02.04.2019. On
\nthat basis it was contended that though the notice was
\ndated 31.03.2019 but the same was posted after
\nclosure of financial year and thus was barred by
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\nlimitation being beyond six years. Other grounds were
\nalso raised by the Petitioner.
\n10 Respondent No. 2 by his letter dated
\n26.08.2019 informed the Petitioner that its objections to
\nissuance of notice under section 148 of the Act was duly
\nconsidered but on the grounds and reasons mentioned
\ntherein, the same was rejected.
\n11 Aggrieved, present writ petition has been
\nfiled, seeking the reliefs as indicated above.
\n12 This Court by order dated 01.10.2019, prima
\nfacie, took the view that the impugned notice was
\ndispatched after 31.03.2019 which made the impugned
\nnotice beyond the statutory period of six years and
\nthus without jurisdiction. While granting time to
\nRespondents to file reply affidavit, interim stay was
\ngranted to the impugned notice dated 31.03.2019.
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\n13 Respondents have filed affidavit-in-reply
\ncontroverting the averments made in the writ petition.
\nIt is stated that the impugned notice was issued after
\nrecording reasons under section 148 (2) of the Act and
\nafter obtaining sanction of the Principal Commissioner
\nof Income Tax-I, Mumbai, as required under section
\n151(1) of the Act. It is stated that in response to the
\nnotice under section 148 Petitioner had furnished return
\nof income on 09.04.2019, declaring total income of Rs.
\n90,630.00 wherein Petitioner claimed TDS credit of Rs.
\n34,05,533.00 and sought refund of a sum of Rs.
\n34,05,533.00. It is stated that on scrutiny of the
\ncomputation made by the Assessing Officer, it was
\nfound that Petitioner had received refund of Rs.
\n26,13,268.00 with interest of Rs. 2,87,463.00 which was
\nreduced while determining the tax liability. In the
\nreturn of income tax filed, Petitioner did not reduce the
\namount of refund received by him which prima facie
\nresulted in excess claim of refund to the tune of Rs.
\n26,13,268.00, which refund was already granted. It is
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\nstated that furnishing of the details of purchase and
\nsale of shares of Mittal Securities Ltd., (Scan Steels
\nLtd.) did not amount to full and true disclosure of
\nmaterial facts before the Assessing Officer, who in his
\nassessment order totally relied upon the submissions
\nof the Petitioner and had accepted the same without
\ncross verification. It is further stated that the challenge
\nto the impugned notice is untenable. Besides, the Act
\nprovides for a host of remedial measures in the form of
\nappeals and revisions.
\n13.1 Regarding issuance of the impugned notice,
\nas alleged by the Petitioner to be beyond 31.03.2019, it
\nis stated that the notice was handed over to the postal
\nauthorities on 31.03.2019. The postal receipts to that
\neffect have been annexed.
\n13.2 Finally, Respondents have justified issuance
\nof the impugned notice and re-opening of the
\nassessment and in this connection a reference has
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\nbeen made to the report of the Investigation Wing as
\nper which the Petitioner had diluted its income by
\nadopting manufactured and pre-arranged transactions
\nwhich were never disclosed to the Assessing Officer.
\nSuch an action was nothing but a failure on the part of
\nthe Petitioner to make a full and true disclosure of all
\nmaterial facts. Petitioner\u2019s contention that all primary
\nfacts were disclosed by it have been disputed. That
\napart, it is contended that Principal Commissioner of
\nIncome Tax-1 had applied his mind and thereafter,
\ngranted approval to the issuance of notice under
\nsection 148 of the Act.
\n14 Petitioner has filed rejoinder affidavit. It is
\nstated that in the return of income filed pursuant to
\nthe impugned notice dated 31.03.2019, petitioner
\ncould not reduce the amount of refund already received
\nas the online ITBA system did not provide for any
\nseparate column for reduction of the said amount
\nalready refunded. In any event, the said amount of
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\nRs. 26,13,268.00 and interest were not the reasons for
\nreopening assessment. All details about the purchase
\nand sale of shares of Mittal Securities Ltd., were
\nfurnished; Assessing Officer was not required to give
\nfindings on each issue raised during the course of the
\nassessment proceedings. Assessing Officer had
\napplied his mind and granted relief to the petitioner in
\nthe assessment order. Normally when submission of
\nassessee is accepted, no finding is given in the
\nassessment order.
\n15 In the course of hearing, Mr. Agarwal, learned
\ncounsel for the Petitioner referred to the postal receipts
\nwhich indicate that the impugned notice was delivered
\nby Income Tax Department to the Petitioner through the
\npost office on 31.03.2019 at 3.34 p.m.. Therefore, he
\nsubmits that Petitioner would not press upon this
\nground as raised in the writ petition.
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\n15.1. Primary contention of Mr. Agarwal is that the
\nreasons given for re-opening assessment do not make
\nout a case for invoking jurisdiction under section 147 of
\nthe Act. The so called information allegedly received
\nby the Respondents were in-fact furnished by the
\nPetitioner in the course of the original assessment. It
\nis another matter that Assessing Officer did not refer
\nto all the primary facts placed before him by the
\nPetitioner in the assessment order but that cannot be a
\nground for re-opening assessment. He therefore
\nsubmits that at the most it can be construed to be reappreciation
\nof the materials already on record and in
\nthe circumstances, it would be a case of change of
\nopinion which is not permissible for re-opening of a
\nconcluded assessment. His further submission is that
\ngrounds as furnished by the Respondents for reopening
\nof the assessment and the averments made in
\nthe affidavit by the Respondents, justifying the reopening
\nof assessment, are at variance. His contention
\nis that the reasons given for re-opening of the
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\nassessment cannot be enlarged and improved upon by
\nway of affidavit filed subsequently. That apart, it is
\ncontended that Principal Commissioner of Income Tax-1
\nhad mechanically granted approval to Respondent
\nNo.1 to re-open the assessment which has vitiated the
\nimpugned notice.
\n16 On the other hand Mr. Suresh Kumar, learned
\nstanding counsel, Revenue, for the Respondents
\nsubmits that not only the impugned notice was
\nhanded over to the Petitioner by the Income Tax
\nDepartment on 31.03.2019 at about 3.34 p.m. but a
\ncopy of the same was served upon the Petitioner
\nbefore end of the day on 31.03.2019. He further
\nsubmits that the reasons furnished are good grounds
\nto justify re-opening of the assessment of the
\nPetitioner. Writ petition is premature inasmuch as it has
\nassailed the impugned notice; whereas the Act
\nprovides for a host of alternative remedies to the
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\nPetitioner which are adequate and efficacious.
\nTherefore, the writ petition should be dismissed.
\n17 Submissions made by learned counsel for the
\nparties have been considered. We have also perused
\nthe materials on record.
\n18 At the outset, we may advert to the reasons
\nfurnished by Respondent No.2 for re-opening of the
\nassessment. As already noticed above, reasons were
\nfurnished to the Petitioner vide letter dated
\n31.05.2019. The reasons furnished are extracted
\nhereunder :
\n\u201cThe return of income for the year, declaring
\ntotal income of Rs.90,630.00 was filed by the
\nassessee on 20.09.2012. The assessment was
\ncompleted on 28.03.2015 by accepting the
\nreturned income.
\nAn information has been received from
\nthe Investigation Wing that a search and seizure
\naction was carried out on Shri Naresh Jain and
\nhis associates by the DIT (Inv.)-2, Mumbai on
\n19.03.2019 which was concluded on
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\n21.03.2019. The search action covered the
\nsyndicate of persons who were acting in
\ncollusion and executing managed transactions
\nin the stock exchange thus generating bogus
\nlong-term capital gains\/ bogus short-term
\ncapital loss\/ bogus business loss entries for
\nvarious beneficiaries. This search action
\nunraveled the workings of the syndicate and
\nbrought on record the make-believe nature of
\npaper work that is manufactured in order to
\nshow the arranged transactions as legitimate
\nmarket transactions. Statement of Shri Shirish
\nShah, recorded during the course of search
\naction u\/s 132 (4) of the Act in which he had
\nadmitted under oath that with the help of
\nvarious people, manipulated the share prices
\nof various scrips in order to provide bogus
\nentries of long term capital gain, short term
\ncapital loss and business loss. Evidence has
\nalso been gathered during the search action
\nestablishing the links between Naresh Jain \u2013
\nthe operator, promoters of various scrips,
\nshare brokers, exit providers and intermediaries
\nwho acted in collusion in order to facilitate the
\ntransactions on the exchanges. During the
\nyear, relevant to the A.Y. 2012-13, Shri Jain used
\nthe following scrips to provide bogus entries,
\nwhich are as under :
\nSr.No. Scrip Code Name
\n1. 504378 NYSSA Corporation Ltd.
\n2. 505343 Monotype India Ltd.
\n3. 508860 Diamant Infrastructure Ltd.
\n4. 511672 Scan Steels Ltd.
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\n5. 523810 Divine Multimedia (I) Ltd.
\n6. 531866 Aagam Capital Ltd.
\n7. 533427 VMS Industries Ltd.
\nShri Jain had also admitted that he had helped
\nShri Bhavesh Pabri and Hemant Sheth for front
\nrunning in the scrip of M\/s. Scan Steels Ltd.. The
\nbrokers who helped him for this are M\/s. Arcadia
\nShares and Stock Brokers P. Ltd., M\/s. SSJ Finance
\n& Securities P. Ltd., and M\/s. S.P. Jain Securities
\nP. Ltd. Perusal of information furnished shows
\nthat the assessee had traded in this share and
\nwas in receipt of Rs. 23,98,014\/-. Therefore, I
\nhave a reason to believe that this income had
\nescaped assessment within the meaning of
\nsection 147 of the Act.
\nIt is, therefore, inferred from the above
\ndiscussion that the assessee has failed to
\ndisclose fully and truly all material facts
\nnecessary for its assessment for the A.Y.2012-13.
\nTherefore, the issue could not be verified by the
\nA.O. during the course of assessment
\nproceedings. Even otherwise, it is pertinent to
\nmention that Explanation-1 to section 147
\nprovides that production before the Assessing
\nOfficer of account books or other evidence from
\nwhich material evidence could with due diligence
\nhave been discovered by the Assessing Officer
\nwill not necessarily amount to disclosure within
\nthe meaning of the proviso to the said section.
\nIn view of the above discussion, I have reason to
\nbelieve that income chargeable to tax
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\namounting to Rs. 23,98,014\/- has escaped
\nassessment within the meaning of section 147 of
\nthe Act read with the provisos thereto. Notice
\nu\/s. 148 of the Income Tax Act, 1961, is therefore,
\nissued to assess such income and also any
\nother income chargeable to tax which has
\nescaped assessment and which may come to
\nnotice subsequently in the course of the
\nproceedings under this section.\u201d
\n19 From the above, it is seen that according to
\nRespondent No. 2 information was received from the
\nInvestigation Wing about search and seizure action
\ncarried out in the premises of Shri Naresh Jain on
\n19.03.2019 which concluded on 21.03.2019. The
\nsearch action revealed that a syndicate of persons were
\nacting in collusion and had managed transactions in the
\nstock exchange, thereby generating bogus long-term
\ncapital gains, bogus short term capital gains and bogus
\nbusiness loss entries for various beneficiaries. The
\nsearch action unraveled the workings of the syndicate
\nand brought on record the make believe nature of
\npaper work that is manufactured in order to show the
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\narranged transactions as legitimate market
\ntransactions. Statements of various persons were
\nrecorded in the course of the search action. In his
\nstatement Shri Naresh Jain stated that during the
\nassessment year 2012-13, he had used scrips of seven
\nentities to provide bogus entries which included the
\nscrip of M\/s. Scan Steels Ltd.. Further, information
\nrevealed that the Petitioner had traded in the shares of
\nM\/s. Scan Steels Ltd., and was in receipt of Rs.
\n23,98,014\/-. Therefore, Respondent No. 2 stated that
\nhe had reasons to believe that this income had
\nescaped assessment within the meaning of section 147
\nof the Act.
\n20 Thus what is discernible is that the main
\nground on which assessment is sought to be re-opened
\nis that Petitioner had traded in the shares of Scan Steels
\nLtd., and was in receipt of Rs. 23,98,014\/-, which the
\nPetitioner failed to disclose fully and truly before the
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\nAssessing Officer and which Respondent No.2 believed
\nhad escaped assessment.
\n21 Before adverting to the initial assessment
\norder passed under section 143(3) of the Act dated
\n28.03.2015, it would be apposite to advert to the
\naverments made by the Respondents in the affidavit in
\nreply, more particularly the reasons given to justify reopening
\nof the assessment. In para 3.3 of the
\naffidavit in reply, it is stated that the Petitioner had
\ndisclosed TDS credit of Rs. 34,05,533.00 and claimed
\nrefund of the said amount. On perusal of the tax
\nassessment form prepared and issued by the Assessing
\nOfficer alongwith the assessment order, it was noticed
\nthat Petitioner was issued a refund of Rs. 26,13,268.00
\nalongwith interest of Rs. 2,87,463.00 which was
\nreduced while determining the tax liability which
\nthereafter stood at \u2018NIL\u2019. But in the return filed,
\nPetitioner had not reduced the amount of refund
\nalready received by him, which prima facie, resulted in
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\nexcess claim of refund to the tune of Rs. 26,13,268.00
\nbeing refund already granted. However, this was not
\nthe ground for reopening the assessment as per the
\nreasons furnished to the Petitioner on 31.05.2019 viz.,
\nthat petitioner had traded in the shares of M\/s. Scan
\nSteels Ltd. and was in receipt of Rs. 23,98,014.00 which
\nRespondent No. 2 stated that he had reasons to believe
\nhad escaped assessment. Thus, this contention of the
\nRespondents is beyond the reasons furnished for reopening
\nof the assessment.
\n22 In para 3.4 of the affidavit in reply it is stated
\nthat though the Petitioner had furnished details
\nrelating to purchase and sale of shares of Mittal
\nSecurities Ltd., (now Scan Steels Ltd.,), but that did not
\namount to full and true disclosure of all material facts
\nunless true and real facts are disclosed before the
\nAssessing Officer. Assessing Officer had not discussed
\nin the assessment order about the genuineness or
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\ncamouflage nature of the transactions of purchase and
\nsale of shares of Mittal Securities Ltd. by the Petitioner.
\n23 From the above, it is seen that what
\nRespondent No. 2 contends is that though Petitioner
\nhad disclosed details of the transactions pertaining to
\npurchase and sale of shares of Mittal Securities Ltd.,
\n(now Scan Steels Ltd.), Petitioner did not disclose the
\nreal colour \/ true character of such transactions and
\ntherefore, he did not make a full and true disclosure of
\nall material facts which was also overlooked by the
\nAssessing Officer.
\n24 Reverting back to the original assessment
\nproceeding, we find from the materials on record that
\nafter the Petitioner had filed the initial return of income
\non 20.09.2012, Assessing Officer had issued notice to
\nthe Petitioner under section 142(1) of the Act dated
\n07.08.2013, calling upon the Petitioner to produce the
\nfollowing documents :-
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\n\u201c1. Reasonably detailed note on the nature of
\nbusiness including details of addresses, phone
\nnumber of all premises \u2013 Office, Branch,
\nGodown, Workshop etc..
\n2. Complete set of audited accounts, Tax
\nAudit Report u\/s. 44AB with all schedules,
\ncomputation of income and income tax and hard
\ncopies of returns.
\n3. Any other details and \/or documents for
\nthe purpose of assessment.\u201d
\n24.1 By another notice of even date, Petitioner
\nwas informed by the Assessing Officer that there were
\ncertain points in connection with the return of income
\nsubmitted by the Petitioner about which he would like
\nsome further information. Accordingly, Petitioner was
\nasked to appear before the Assessing Officer and to
\nproduce any documents, accounts and any other
\nevidence on which it relied upon in support of the
\nreturn filed.
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\n25 On 10.06.2014 Assessing Officer issued
\nanother notice under section 142(1) of the Act, calling
\nupon the Petitioner to submit the particulars mentioned
\ntherein including the details regarding increased
\nauthorized share capital with the list of the shareholders
\nand details of purchase of equity shares of Rs.
\n7,04,92,390.44 with details of payment. Petitioner has
\nstated that in response to such notice, all relevant
\ndetails were furnished to the Assessing Officer. Finally,
\nAssessing Officer issued another notice under section
\n142 (1) of the Act on 19.03.2015, calling upon the
\nPetitioner to furnish in writing the details party-wise
\nwith name, address and PAN with supporting evidence
\nwho had subscribed for security premium reserve or
\nhow it was created and details of statement \/
\ntransactions mentioned at serial no. 2 which stated that
\nin case of capital gain\/ loss, it should provide a
\ncomprehensive chart with regard to sale and purchase
\nof securities\/shares quoted\/ unquoted as well as
\ndividend received. It was further stated that in case of
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\ncapital loss whether the loss was adjusted after
\ndividends in terms of section 94(7) of the Act. In his
\nresponse, Petitioner informed the Assessing Officer on
\n19.03.2015 itself that there was no increase in the
\nsecurity premium reserve during the said assessment
\nyear. No capital gains were earned during the said
\nyear by the Petitioner. It had not received any
\ndividend income during the said year too. Hence,
\nquestion of applicability of section 94(7) did not arise.
\nPetitioner did not make any investment nor was there
\nany inventory of shares; no dividend was earned during
\nthe year. Alongwith the said letter relevant
\ndocumentary evidence in respect of the concerned
\ntransactions were enclosed.
\n26 Thereafter, assessment order was passed on
\n28.03.2015, wherein Assessing Officer had noted that
\nduring the course of scrutiny details of income,
\nexpenditure, assets and liabilities were called for,
\nexamined and placed on record. After perusing all
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\ndetails and after examination of those and upon
\ndiscussion, total income was computed in terms of the
\nreturn filed by the Petitioner. As already noted above,
\nthe assessment order was passed under section 143(3)
\nof the Act. It was mentioned therein that representative
\nof the Petitioner had attended the assessment
\nproceedings from time to time and had filed details
\nwith explanations.
\n27 At this stage, we may briefly refer to the
\nrelevant legal provisions.
\n28 Section 147 of the Act deals with \u201cincome
\nescaping assessment\u201d. Section 147 says that if the
\nAssessing Officer has reason to believe that any
\nincome chargeable to tax has escaped assessment
\nfor any assessment year, he may, subject to the
\nprovisions of sections 148 to 153, assess or reassess
\nsuch income and also any other income chargeable to
\ntax which has escaped assessment and which comes to
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\nhis notice subsequently in the course of the
\nproceedings under section 147 of the Act.
\n28.1 The first proviso to section 147 is important.
\nAs per this proviso, where an assessment under subsection
\n(3) of section 143 or section 147 has been
\nmade for the relevant assessment year, no action shall
\nbe taken under section 147 after the expiry of four
\nyears from the end of the relevant assessment year,
\nunless any income chargeable to tax has escaped
\nassessment for such assessment year by reason of the
\nfailure on the part of the assessee to make a return
\nunder section 139 or in response to a notice issued
\nunder sub-section (1) of section 142 or section 148 or to
\ndisclose fully and truly all material facts necessary for
\nhis assessment, for that assessment year.
\n28.2 Section 149 deals with time limit for notice
\nunder section 148. As per clause (a) of sub-section (1),
\nno notice under section 148 shall be issued for the
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\nrelevant assessment year, if four years have
\nelapsed from the end of the relevant assessment year
\nunless the case falls under clause (b) or clause (c).
\nClause (b) says that no notice shall be issued if four
\nyears have elapsed but not more than six years have
\nelapsed from the end of the relevant assessment year
\nunless the income chargeable to tax which has
\nescaped assessment amounts to or is likely to amount
\nto one lakh rupees or more for that year. Clause (c)
\ndeals with a situation where limitation is extended
\nupto sixteen years but the escaped income must
\nrelate to any asset located outside India.
\n29 Insofar the present case is concerned, the
\nassessment year is 2012-13. The assessment year ends
\non 31.03.2013. In this case impugned notice under
\nsection 148 of the Act was issued on 31.03.2019.
\nTherefore, it is a case of re-opening of assessment under
\nsection 149 (1) (b) of the Act after expiry of four years
\nbut before expiry of six years.
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\n29.1. Of course the limitation point though pleaded
\nin the writ petition, has been given up by the Petitioner
\nfollowing filing of affidavit by the Respondents which
\nclearly shows that the re-opening notice was issued
\nwithin the limitation period of six years.
\n30 In such a case, the first condition for invoking
\nsection 147 is that the Assessing Officer must have
\nreason to believe that income chargeable to tax has
\nescaped assessment for the relevant assessment year.
\nThe second condition is that the Assessing Officer must
\narrive at the satisfaction that income chargeable to tax
\nhas escaped assessment for the said assessment year
\nby reason of the failure on the part of the assessee to
\nmake a return under section 139 or to respond to a
\nnotice under section 142(1) or section 148 or due to the
\nfailure on the part of the assessee to disclose fully and
\ntruly all material facts necessary for his assessment for
\nthat assessment year.
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\n31 The key or crucial expressions appearing in
\nsection 147 are \u201creason to believe\u201d and \u201cfailure to
\ndisclose fully and truly all material facts necessary for
\nassessment\u201d.
\n31.1 Before dilating on these two expressions, it
\nwould be apposite to refer to section 148 of the Act,
\nwhich deals with issue of notice where income has
\nescaped assessment. As per sub-section (1), before
\nmaking the assessment, re-assessment or recomputation
\nunder section 147, a notice in the
\nprescribed form is required to be served upon the
\nassessee by the Assessing Officer, calling upon him to
\nfile return of income in terms of such notice within the
\nperiod specified and in such event the return so filed
\nwould be construed to be a return filed under section
\n139. As per sub-section (2) of the said section, the
\nAssessing Officer shall before issuing any notice under
\nsection 148, record his reasons for doing so.
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\n31.2 In GKN Driveshafts (India) Ltd. (supra),
\nSupreme Court held that when a notice under section
\n148 of the Act is issued, the proper course of action for
\nthe assessee is to file the return and if he so desires,
\nto seek the reasons for issuing the notice. If sought for,
\nAssessing Officer is bound to furnish the reasons
\nwithin a reasonable time. On receipt of reasons, the
\nnoticee is entitled to file objections to the notice in
\nwhich event the Assessing Officer would be under an
\nobligation to dispose off the same by passing a
\nspeaking order.
\n32 Reverting back to the two expressions as
\nnoticed above, we may mention that these two
\nexpressions were examined and interpreted in great
\ndetail by the Supreme Court in Income Tax Officer
\nvs. Lakhmani Mewal Das, reported in 103 ITR 437.
\nThat was also a case where notice under section 148
\nof the Act was put to challenge. Though provisions of
\nsection 147 of the Act as it existed then have since
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\nbeen reconstructed and have undergone change, the
\ntwo key expressions continue to retain their relevance
\nin so far section 147 of the Act is concerned. It may
\nfurther be noticed that in Lakhmani Mewal Das
\n(supra), Supreme Court was considering validity of
\nnotice under Section 148 in respect of an assessment
\nbeyond the period of four years but within a period of
\neight years from the end of the relevant year. Supreme
\nCourt observed that in such a case, two conditions
\nwould have to be satisfied before an Income Tax Officer
\nacquires jurisdiction to issue notice. These two
\nconditions are –
\n1. He must have reason to believe that income
\nchargeable to tax has escaped assessment; and
\n2. He must have reason to believe that such
\nincome has escaped assessment by reason of the
\nomission or failure on the part of the assessee to
\nmake a return under section 139 for the asessment
\nyear under consideration or to disclose fully and
\ntruly all material facts necessary for his
\nassessment for that year.
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\n32.1 Both the two conditions must co-exist in
\norder to confer jurisdiction on the Income Tax Officer.
\nSupreme Court observed that duty is cast upon the
\nassessee to make a true and full disclosure of the
\nprimary facts at the time of the original assessment.
\nProduction before the Income Tax Officer the books of
\naccounts or other evidence from which material
\nevidence with due diligence could have been
\ndiscovered by the Income Tax Officer will not
\nnecessarily amount to disclosure contemplated by law
\nbut the duty of the assessee in any case does not
\nextend beyond making a true and full disclosure of
\nprimary facts. Once he has done that, his duty ends.
\nIt is for the Income Tax Officer to draw the correct
\ninference from the primary facts. If the Income Tax
\nOfficer draws an inference, which appears
\nsubsequently to be erroneous, it would amount to
\nchange of opinion and mere change of opinion with
\nregard to that inference would not justify initiation of
\naction for re-opening assessment.
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\n32.2 The grounds or reasons which led to
\nformation of the belief that income chargeable to tax
\nhas escaped assessment must have a material bearing
\non the question of escapement of income of the
\nassessee from assessment because of his failure or
\nomission to disclose fully and truly all material facts.
\nOnce there exists reasonable grounds for the Income
\nTax Officer to form the above belief that would be
\nsufficient to clothe him with jurisdiction to issue notice.
\nHowever, sufficiency of the grounds is not
\njusticeable. The expression \u201creason to believe\u201d does
\nnot mean a purely subjective satisfaction on the part
\nof the Income Tax Officer. The reason must be held in
\ngood faith. It cannot be merely a pretence. It is open
\nto the court to examine whether the reasons for the
\nformation of the belief have a rational connection
\nwith or a relevant bearing on the formation of the
\nbelief and are not extraneous or irrelevant. To this
\nlimited extent, initiation of proceedings in respect of
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\nincome escaping assessment is open to challenge in
\na court of law.
\n32.3 Dilating further, Supreme Court held that
\nreasons for formation of the belief must have a
\nrational connection with or relevant bearing on the
\nformation of the belief. Rational connection postulates
\nthat there must be a direct nexus or live link between
\nthe material coming to the notice of the Income Tax
\nOfficer and the formation of his belief that there has
\nbeen escapement of the income of the assessee from
\nassessment in the particular year because of his
\nfailure to disclose fully and truly all material facts. But
\nit has to be borne in mind that it is not any and every
\nmaterial howsoever vague and indefinite or distant,
\nremote and far-fetched which would warrant formation
\nof the belief relating to escapement of income.
\nMoreover, powers of the Income Tax Officer to reopen
\nassessment, though wide are not plenary. The words
\nof the statute are \u201creason to believe\u201d and not \u201creason
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\nto suspect\u201d. Reopening of assessment after the lapse
\nof many years is a serious matter.
\n33 It may be mentioned here that the
\nproposition of law enunciated in Lakhmani Mewal
\nDas (supra) has withstood the test of time and is
\nbeing consistently applied while examining challenge
\nto a notice issued under section 148 of the Act.
\n34 In Prashant S. Joshi -vs- ITO, 324 ITR
\n154, this Court observed that the basic postulate which
\nunderlines section 147 is formation of the belief by the
\nAssessing Officer that any income chargeable to tax has
\nescaped assessment for any assessment year. In other
\nwords, the Assessing Officer must have reason to
\nbelieve that income chargeable to tax for a particular
\nassessment year has escaped assessment for the
\nrelevant assessment year before he proceeds to issue
\nnotice under section 148. The reasons which are
\nrecorded by the Assessing Officer for re-opening an
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\nassessment are the only reasons which can be
\nconsidered when the formation of the belief is
\nimpugned. Recording of reasons distinguishes an
\nobjective from a subjective exercise of power and is a
\ncheck against arbitrary exercise of power. The reasons
\nwhich are recorded cannot be supplemented
\nsubsequently by affidavits. The question as to whether
\nthere was reason to believe within the meaning of
\nsection 147 that income has escaped assessment must
\nbe determined with reference to the reasons recorded
\nby the Assessing Officer. Even in a case where only an
\nintimation is issued under section 143(1), the touchstone
\nto be applied is as to whether there was reason to
\nbelieve that income had escaped assessment.
\n35 Having discussed the above, we may once
\nagain revert back to the reasons furnished by
\nRespondent No. 2 for re-opening of assessment under
\nsection 147 of the Act. After referring to the information
\nreceived following search and seizure action carried out
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\nin the premises of Shri Naresh Jain, it was stated that
\ninformation showed that Petitioner had traded in the
\nshares of M\/s. Scan Steels Ltd., and was in receipt of
\nRs. 23,98,014.00 and therefore, Respondent No. 2
\nconcluded that he had reasons to believe that this
\namount had escaped assessment within the meaning
\nof section 147 of the Act.
\n36 First of all it would be evident from the
\nmaterials on record that Petitioner had disclosed the
\nabove information to the Assessing Officer in the
\ncourse of the assessment proceedings. All related
\ndetails and information sought for by the Assessing
\nOfficer were furnished by the petitioner. Several
\nhearings took place in this regard where-after the
\nAssessing Officer had concluded the assessment
\nproceedings by passing assessment order under section
\n143 (3) of the Act. Thus it would appear that Petitioner
\nhad disclosed the primary facts at its disposal to the
\nAssessing Officer for the purpose of assessment. He
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\nhad also explained whatever queries were put by the
\nAssessing Officer with regard to the primary facts
\nduring the hearings.
\n37 In such circumstances, it cannot be said that
\nPetitioner did not disclose fully and truly all material
\nfacts necessary for the assessment. Consequently,
\nRespondent No. 2 could not have arrived at the
\nsatisfaction that he had reasons to believe that income
\nchargeable to tax had escaped assessment. In the
\nabsence of the same, Respondent No. 2 could not have
\nassumed jurisdiction and issued the impugned notice
\nunder section 148 of the Act.
\n38 That apart, Respondents have tried to
\ntraverse beyond the disclosed reasons in their
\naffidavit which is not permissible. The same cannot be
\ntaken into consideration, while examining validity of
\nnotice under section 148. As has been held in
\nPrashant S. Joshi (supra), the reasons which are
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\nrecorded by the Assessing Officer for re-opening an
\nassessment are the only reasons which can be
\nconsidered when the formation of the belief is
\nimpugned; such reasons cannot be supplemented
\nsubsequently by affidavit (s).
\n39 Therefore, in the light of the discussions made
\nabove, we are of the view that the attempt made by
\nRespondent No.2 to reopen the concluded assessment
\nis not at all justified and consequently the impugned
\nnotice cannot be sustained.
\n40 Accordingly, we allow the Writ Petition by
\nsetting aside the impugned notice dated 31.03.2019
\nissued under section 148 of the Act and also the
\nimpugned order dated 26.08.2019. However, there
\nshall be no order as to costs.
\n(MILIND N. JADHAV, J.) (UJJAL BHUYAN, J.)
\n\u2026..
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In para 3.4 of the affidavit in reply it is stated that though the Petitioner had furnished details relating to purchase and sale of shares of Mittal Securities Ltd., (now Scan Steels Ltd.,), but that did not amount to full and true disclosure of all material facts unless true and real facts are disclosed before the Assessing Officer. Assessing Officer had not discussed in the assessment order about the genuineness or camouflage nature of the transactions of purchase and sale of shares of Mittal Securities Ltd. by the Petitioner<\/p>\n