By Ajay R. Singh
Advocate
8. Gateway
Leasing Pvt. Ltd. vs. ACIT (1)(2) & Ors. [Writ Petition No. 2518 of 2019] A.Y.: 2012-13 Date of order: 11th March, 2020 (Bombay High Court)
[Appellate
Tribunal in I.T.A. No. 5535/Mum/2014; Date of order: 11th January,
2017; A.Y.: 2003-04; Bench ‘F’ Mum.]
Reopening of assessment – Beyond four years
– Information from Investigation Wing – Original assessment completed u/s
143(3) – Primary facts disclosed – Reasons cannot be substituted
The petitioner is a company registered under
the Companies Act, 1956 engaged in the business of financing and investing
activities as a non-banking financial company registered with the Reserve Bank
of India.
Through this petition, the petitioner sought
quashing of the notice dated 31st March, 2019 issued u/s 148 of the
Act by the ACIT Circle 1(1)(2), Mumbai as well as the order dated 26th
August, 2019 passed by the DCIT Circle 1(1)(2), Mumbai, rejecting the
objections raised by the petitioner to the re-opening of its assessment.
For the A.Y. 2012-13 the petitioner had
filed return of income on 20th September, 2012 declaring total
income of Rs. 90,630. Initially, the return was processed u/s 143(1) of the
Act. But the case was later selected for scrutiny. During the course of
assessment proceedings, details of income, expenditure, assets and liabilities
were called for and examined. After examination of these details, the A.O.
passed an order u/s 143(3).
On 31st March, 2019 the A.O.
issued a notice u/s 148 stating that he had reasons to believe that the
petitioner’s income chargeable to tax for the A.Y. 2012-13 had escaped
assessment within the meaning of section 147. The petitioner sought the reasons
for issuing the said notice. It also filed return of income u/s 148, returning
the income at Rs. 90,630 as originally assessed by the A.O. u/s 143(3). By a
letter dated 31st May, 2019, the A.O. furnished the reasons for
re-opening of the assessment.
It was stated that information was received
from the Investigation Wing (I/W) of the Income Tax Department that a search
and seizure action was carried out on the premises of one Mr. Naresh Jain which
revealed that a syndicate of persons was acting in collusion and managing
transactions in the stock exchange, thereby generating bogus long-term capital
gains / bogus short-term capital loss and bogus business loss entries for
various beneficiaries.
From the materials gathered in the course of
the said search and seizure action, it was alleged that the petitioner had traded
in the shares of M/s Scan Steel Ltd. and was in receipt of Rs. 23,98,014 which
the A.O. believed had escaped assessment within the meaning of section 147. It
was also alleged that the petitioner had failed to disclose fully and truly all
material facts necessary for the assessment for the A.Y. 2012-13 for which the
notice u/s 148 was issued.
The petitioner submitted objections to
re-opening of assessment proceedings on 26th June, 2019. Referring
to the reasons recorded, it was contended on behalf of the petitioner that the
original assessment was completed u/s 143(3) where all the details of purchase
and sale of shares of M/s Scan Steels Ltd., also known as Clarus Infrastructure
Realties Ltd. (earlier known as Mittal Securities Finance Ltd.), were disclosed.
While denying that the petitioner had any dealing with the parties whose names
cropped up during the said search and seizure action, it was stated that the
purchase and sale of shares were done by the petitioner through a registered
broker of the Bombay Stock Exchange. Payment for the purchase of the shares was
made by cheque through the BSE at the then prevailing market price. Thus, there
was no apparent reason to classify the receipt of Rs. 23,98,014 as having
escaped assessment. Therefore, it was contended that the decision to re-open
assessment was nothing but change of opinion, which was not permissible in law.
The A.O. by his letter dated 26th
August, 2019 rejected the objections raised by the petitioner and stated that
the petitioner had furnished the details of purchase and other material facts
before the A.O. and the latter, in his assessment order, had totally relied on
the said submissions and accepted the same without cross-verification. It was
further stated that the challenge to the impugned notice was untenable.
Besides, the Act provided for a host of remedial measures in the form of
appeals and revisions. Finally, the Department justified issuance of the
impugned notice and re-opening of the assessment and made a reference to the
report of the I/W. As per the I/W, the petitioner had diluted its income by
adopting manufactured and pre-arranged transactions which were never disclosed
to the A.O. Such action was a failure on the part of the petitioner to make
full and true disclosure of all material facts. The petitioner’s contention
that all primary facts were disclosed were thus disputed. That apart, it was
contended that the Pr. CIT-1 had applied his mind and thereafter granted
approval to the issuance of notice u/s 148.
In its rejoinder, the petitioner submitted
that all details about the purchase and sale of shares of Mittal Securities
Ltd. were furnished. The A.O. was not required to give findings on each issue
raised during the course of the assessment proceedings. The A.O. had applied
his mind and granted relief to the petitioner in the assessment order.
Normally, when the submission of an assessee is accepted, no finding is given in
the assessment order.
The Hon’ble Court, after referring to
various decisions, observed that the grounds or reasons which led to formation
of the belief that income chargeable to tax has escaped assessment must have a
material bearing on the question of escapement of income of the assessee from
assessment because of his failure or omission to disclose fully and truly all
material facts. Once there exist reasonable grounds for the ITO to form the
above belief that would be sufficient to clothe him with jurisdiction to issue
notice.
However, sufficiency of the grounds is not
justifiable. The expression ‘reason to believe’ does not mean a purely
subjective satisfaction on the part of the ITO. The reason must be held in good
faith. It cannot be merely a pretence. It is open to the Court to examine
whether the reasons for the formation of the belief have a rational connection
with or a relevant bearing on the formation of the belief and are not
extraneous or irrelevant. To this limited extent, initiation of proceedings in
respect of formation of the belief that income chargeable to tax has escaped
assessment must have a material bearing on the question of escapement of income
of the assessee from assessment because of his failure or omission to disclose
fully and truly all material facts.
The Court further observed that it would be
evident from the material on record that the petitioner had disclosed the above
information to the A.O. in the course of the assessment proceedings. All
related details and information sought by the A.O. were furnished. Several
hearings took place in this regard after which the A.O. had concluded the
assessment proceedings by passing the assessment order u/s 143 (3). Thus it
would appear that the petitioner had disclosed the primary facts at its
disposal for the purpose of assessment. He had also explained whatever queries
were put to it by the A.O. with regard to the primary facts during the
hearings.
In such circumstances, it cannot be said that the petitioner did not
disclose fully and truly all material facts necessary for the assessment.
Consequently, the A.O. could not have arrived at the conclusion that he had
reasons to believe that income chargeable to tax had escaped assessment. In the
absence of the same, the A.O. could not have assumed jurisdiction and issued
the impugned notice u/s 148 of the Act. That apart, the A.O. has tried to
traverse beyond the disclosed reasons in the affidavit which is not
permissible. The same cannot be taken into consideration while examining the validity
of the notice u/s 148. The reasons which are recorded by the A.O. for re-opening an
assessment are the only reasons which can be considered when the formation of
the belief is impugned; such reasons cannot be supplemented subsequently by
affidavit(s). Therefore, in the light of the discussions, the attempt by the
A.O. to re-open the concluded assessment is not at all justified and
consequently the impugned notice cannot be sustained and the impugned order
dated 26th August, 2019 is also quashed.
