Tax Management India. Com
Law and Practice  :  Digital eBook
Research is most exciting & rewarding


  TMI - Tax Management India. Com
Follow us:
  Facebook   Twitter   Linkedin   Telegram

TMI Blog

Home

2016 (5) TMI 804

X X   X X   Extracts   X X   X X

→ Full Text of the Document

X X   X X   Extracts   X X   X X

..... t from this the P&L account of the Assessee showed that she has claimed a loss on account of the bad debt of the firm. The central submission of Assessee that the above reason to believe had to be based on some new tangible material cannot be accepted in light of the legal position explained hereinbefore. At the same time, the Court does not consider to express any opinion at this stage on the AO's reason to believe except to hold that it cannot be said to have been based on a mere „change of opinion‟. The other objections of the Assessee to the reopening are left open to be urged before the AO in the assessment proceedings in accordance with law. By the order dated 26th November 2002 the Court had directed that the assessment proceedings would go on before the AO but no final order would be passed. The Court now vacates the said interim order and directs that the AO will now pass a final order within eight weeks from today, after affording the Petitioner one opportunity of being heard. - W.P.(C) 1393/2002 - - - Dated:- 18-5-2016 - S. MURALIDHAR VIBHU BAKHRU JJ. For the Appellant: Mr. Prem Nath Monga with Mr. Manu Monga, Advocates For the Respondent: Mr. .....

X X   X X   Extracts   X X   X X

→ Full Text of the Document

X X   X X   Extracts   X X   X X

..... le 6G (1) (b) in Form 3CB was furnished with the return. 6. Simultaneously, a separate return was filed by the firm M/s. Rangwala Enterprises on 21st December 1999 for the period 1st April 1998 to 30th November 1998 relating to AY 1999-2000 showing a loss of ₹ 6,25,770. The said return was filed along with the statement of accounts, audit report etc. 7. The Petitioner s return was processed under Section 143 (1) of the Act by an order dated 29th May 2001 by the AO, Circle 16 (2), New Delhi. In the said order/intimation, the loss declared by the Petitioner in the return along with its statement of accounts, computation sheet, audit report etc. was accepted and the amount as claimed by the Petitioner was refunded to the Petitioner. A copy of the said order under Section 143 (1) of the Act issued by the AO on 29th May 2001 has been enclosed with the petition as Annexure P-7. 8. It must be noticed this was a time when the centralized computer system was not in vogue. The AO had the discretion whether to pick up a return for scrutiny. As far as the firm s return was concerned, it was processed by the Deputy Commissioner of Income Tax (DCIT), Circle 16 (2). An order/inti .....

X X   X X   Extracts   X X   X X

→ Full Text of the Document

X X   X X   Extracts   X X   X X

..... aiming refund ₹ 1,80,066. While going through the return, it was found that the Assessee has declared properly income of ₹ 9,62,957 as rental income from property situated at GF-4, Arunachal, 19, Barakhamba Road, New Delhi. This property is jointly owned by the Assessee with her husband. She has also shown loss from firm Rangwala Enterprises (RF) at ₹ 3,12,885 and loss of ₹ 12,94,055 from the same concern converted into proprietary concern. While going through the profit and loss account of these concerns, it was found that up to 30th November 1998 it was a partnership concern and thereafter it was taken over by the Assessee as proprietor for the rest of the period. While going through and comparing the profit and loss account of the two periods, the following situation emerges:- Period Sales (Rs.) G.P. (Rs.) G.P. Rate Net Profit/ loss 1.4.97 to 31.3.98 1,34,43,289 18,75,770 13.95% 31.574 (Profit) 1.4.97 to 31.11.98 .....

X X   X X   Extracts   X X   X X

→ Full Text of the Document

X X   X X   Extracts   X X   X X

..... with an ulterior motive reduced the income from the property by setting off loss according to the firm. Apart from this the P L account of the Assessee reveals that she has claimed a loss of ₹ 12,94,055 from the income property includes a bad debt if ₹ 9,63,598.70 as against sales of ₹ 7,86,195. A scrutiny of the return shows that this bad debt belong to the registered firm and not to the Assessee and again the income from property has been reduced by the amount of loss with an ulterior motive and with the intention to defraud the revenue. 14. It was further pointed out by the ITO that there were revenue receipts or sale of ₹ 7,86,195 in the relevant period. The bad debt of ₹ 9,63,598 was much more than the revenue receipts. It was accordingly concluded that the Petitioner had resorted to and adopted ways and means to avoid declaring the correct income thereby resulting in the escapement of taxable income. Submissions of counsel for the Petitioner 15. It is submitted by Mr. Prem Nath Monga, learned counsel appearing for the Petitioner that Section 148 was not a substitute for Section 143 (2) of the Act in terms of which a return had to .....

X X   X X   Extracts   X X   X X

→ Full Text of the Document

X X   X X   Extracts   X X   X X

..... leep Shivpuri, learned counsel for the Revenue that the recent decision of the Supreme Court in Deputy Commissioner of Income-tax v. Zuari Estate Development Investment Co. Ltd. (2015) 373 ITR 661 (SC) settled the legal position that where the return had been processed under Section 143 (1) of the Act, there was no assessment‟ as such and therefore, the question of change of opinion did not arise. He referred to the order dated 10th February 2016 passed by the High Court of Judicature at Bombay in Writ Petition No. 3027 of 2015 ( Khubchandani Healthparks Pvt. Ltd. v. Income Tax Officer 6 (3) (4) Mumbai) where the above legal position was further explicated. 19. Mr Shivpuri pointed out that in Zuari Estate Development and Investment Co. Ltd . (supra) the Supreme Court was only reiterating the earlier decision in Assistant Commissioner of Income-tax v. Rajesh Jhaveri Stock Brokers P. Ltd. (2007) 291 ITR 500 (SC). It is submitted that the conditionality attached to reopening of an assessment which was originally made under Section 143 (3) of the Act would not apply to reopening of the assessment where initially it was only an intimation under Section 143 ( .....

X X   X X   Extracts   X X   X X

→ Full Text of the Document

X X   X X   Extracts   X X   X X

..... ying if any tax or interest found is due on the basis of the return filed after adjustment of any tax deducted at source ( TDS ), any advance tax paid or any amount paid otherwise by way of tax or interest. Further, the first proviso to Section 143 (1) (a) permitted the Department to make adjustments on account of any arithmetical errors, any loss carried forward, deduction, etc. in the income or loss declared in the return. While the AO could pick up the return under this provision, he had no authority to make adjustments or adjudicate upon any issue arising from the return. The second point to be noted is that, notwithstanding the fact that an intimation to the Assessee which was deemed to be a notice of demand under Section 156 of the Act, the AO could proceed to issue notice under Section 143 of the Act. Thirdly, the sending of an intimation under Section 143 (1) (a) of the Act was mandatory. The legislature was careful not to use the word assessment' in the proviso to Section 143 (1) (a) of the Act. In other words, a distinction was made between making of an assessment by the AO after affording the Assessee an opportunity to explain the queries that arose from the retu .....

X X   X X   Extracts   X X   X X

→ Full Text of the Document

X X   X X   Extracts   X X   X X

..... showing of a debt of ₹ 1,285.72 lakhs as bad debts, the AO reopened the assessment on the ground that he had reason to believe that income assessable to tax had escaped assessment within the meaning of Section 147 of the Act. 24.2 In response to the notice, the Assessee filed its return of income on 31st May 2004 declaring the loss in the original income. The Assessee raised a protest on various grounds relating to jurisdiction and the merits of reopening the assessment. When the reopening was challenged by the Assessee by way of writ petition, the High Court of Gujarat relied on its decision in Adani Export v. ACIT (1999) 240 ITR 224 (Guj) and allowed the writ petition. 24.3 An appeal was filed before the Supreme Court in which the Revenue pointed out that the decision in Adani Export (supra) had no application since the return in that case had been final after an adjustment under Section 143 (3) of the Act whereas in the case before the Supreme Court the return had been accepted by processing it under Section 143 (1) of the Act. It is above in the background that the Supreme Court discussed the entire legislative history of Section 143 (1) of the Act. The Supreme .....

X X   X X   Extracts   X X   X X

→ Full Text of the Document

X X   X X   Extracts   X X   X X

..... om the deeming provision. Therefore, there being no assessment under Section 143 (1) (a), the question of change of opinion, as contended, does not arise. 24.4 The Supreme Court in Assistant Commissioner v. Rajesh Jhaveri Stock Brokers P. Ltd. (supra) then discussed Sections 147 and 148 of the Act. It observed that Section 147 of the Act substituted with effect from 1st April 1989 empowered the AO to assess or reassess income chargeable to tax if the AO has reason to believe that income for any AY has escaped assessment. To confer the jurisdiction under Section 147 (a), the two conditions have to be fully satisfied: (i) the AO must have reason to believe that income, profits or gains chargeable to income tax have escaped assessment and (ii) if the reopening of assessment was after four years from the end of the relevant assessment year, the AO must also have reason to believe that such escapement had occurred by reason of either omission or failure on the part of the Assessee to disclose fully or truly all material facts necessary for his assessment of that year. 24.5 It was concluded by the Supreme Court in Assistant Commissioner v. Rajesh Jhaveri Stock Brokers .....

X X   X X   Extracts   X X   X X

→ Full Text of the Document

X X   X X   Extracts   X X   X X

..... pra) , a decision that was relied upon by the Revenue, that even where proceedings under Section 147 are sought to be taken with reference to an intimation framed under Section 143 (1), the ingredients of Section 147 have to be fulfilled, the ingredient is that there should exist reason to believe‟ that income chargeable to tax has escaped assessment. This judgment, contrary to what the Revenue would have us believe, does not give a carte blanche to the Assessing Officer to disturb the finality of the intimation under Section 143 (1) at his whims and caprice; he must have reason to believe within the meaning of the Section. 26.3 The Court in Orient Craft Ltd. (supra) then discussed extensively the meaning and content of the expression reasons to believe‟ under Section 147 of the Act. The Court relied upon the earlier decisions of the Supreme Court in A.N. Lakshman Shenoy v. ITO (1958) 34 ITR 275 (SC), S. Narayanappa v. CIT (1967) 63 ITR 219 (SC), Sheo Nath Singh v. Appellate Assistant CIT (1971) 82 ITR 147 (SC), ITO v. Lakhmani Mewal Das (1976) 103 ITR 437 (SC). The Court has also discussed the decision of the Supreme Court in CIT v. Kelvinator of Indi .....

X X   X X   Extracts   X X   X X

→ Full Text of the Document

X X   X X   Extracts   X X   X X

..... plain Rajesh Jhaveri Stock Brokers (P) Ltd. (supra) and point out that the difference between an assessment and an intimation did not mean that the strict requirements of Section 147 could be compromised. It was pointed out in Orient Craft Ltd. (supra) that in Rajesh Jhaveri Stock Brokers (P) Ltd. (supra) the Court reiterated that so long as the ingredients of Section 147 are fulfilled an intimation issued under Section 143 (1) can be subjected to proceedings for reopening. The Court in Orient Craft Ltd. (supra) then reiterated that: It is nobody s case that an intimation cannot be subjected to Section 147 proceedings; all that is contended by the Assessee, and quite rightly, is that if the Revenue ants to invoke Section 147 it should play by the rules of that Section and cannot bog down. In other words, the expression reason to believe‟ cannot have two different standards or sets of meaning, one applicable where the assessment was earlier made under Section 143 (3) and another applicable where an intimation was earlier issued under Section 143 (1). It follows that it is open to the Assessee to contend that notwithstanding that the argument of chang .....

X X   X X   Extracts   X X   X X

→ Full Text of the Document

X X   X X   Extracts   X X   X X

..... ble material that created the reason to believe that income had escaped assessment. Rather, the reassessment proceedings amount to a review or change of opinion carried out in the earlier AY 2005-06, which amounts to an abuse of power and is impermissible. It was further noted that even the order of the AO for the AY 2007-08, converting the STCG into business income, has been reversed by the CIT (A) and that order had been affirmed by the ITAT. 28. In Commissioner of Income Tax-Central I v. Indo Arab Air Services (supra) , the return filed was processed under Section 143(1) of the Act. Subsequently, on the basis of the information received from the Enforcement Directorate that in the books of the Assessee there were huge cash deposits, notice was issued by the AO to the Assessee under Section 148 of the Act. The Court relied on the decision in Orient Craft Limited (supra) and held that while the AO had in the reasons for reopening the assessment set out the information received from the ED, he had failed to examine if that information provided the vital link to form the reason to believe that income of the Assessee had escaped assessment for the AY in question. The AO had .....

X X   X X   Extracts   X X   X X

→ Full Text of the Document

X X   X X   Extracts   X X   X X

..... d (supra) [decision dated 10th August 2015] the Court's attention was not drawn to the decision rendered by the Supreme Court four months earlier on 17th April 2015 in Deputy Commissioner of Income tax v. Zuari Estate Development Investment Co. Ltd. (supra). The decision in Zuari Estate Development 32.1 The Supreme Court in Zuari Estate Development Investment Co. Ltd . (supra) was dealing with an appeal by the Revenue against the decision of the Bombay High Court in Zuari Estate Development Investment Co. (P) Limited v. J.R. Kankar, Dy. CIT (2004) 139 Taxman 209 (Bom). 32.2 The facts in brief were that the Assessee filed its return for the AY 1991-92 which was accepted under Section 143 (1) of the Act. Subsequently, the AO came to learn that there was a sale agreement dated 19th June 1984 entered into between the Assessee and Bank of Maharashtra to sell a building on the condition that the sale would be completed only after the five years but before expiration of sixth year at the option of the purchaser, the purchaser could rescind the sale for a certain consideration. 32.3 The transaction could not be completed even after 30th September 1993 .....

X X   X X   Extracts   X X   X X

→ Full Text of the Document

X X   X X   Extracts   X X   X X

..... ourt in Writ Petition No. 3027 of 2015 (Khubchandani Healthparks Pvt. Ltd. v. Income tax office 6(3)(4), Mumbai). By an interim order dated 10th February 2016, the Bombay High Court noted that the Supreme Court in Zuari Estate Development and Investment Co. Ltd. (supra) had not dealt with the issue of reason to believe that income chargeable to tax has escaped assessment on the part of the Assessing Officer in cases where regular assessment was completed by Intimation under Section 143 (1) of the Act . Therefore the court observed as under: it would not be wise for us to infer that the Supreme Court in Zuari Estate Development and Investment Co. Ltd. (supra) has held that the condition precedent for the issue of reopening notice namely, reason to believe that income chargeable to tax has escaped assessment, has no application where the assessment has been completed by intimation under Section 143 (1) of the Act. The law on this point has been expressly laid down by the Apex Court in the case of Rajesh Jhaveri Stock Brokers P. Ltd. (supra) and the same would continue to apply and be binding upon us. Thus, even in cases where no assessment order is passed and assessment is .....

X X   X X   Extracts   X X   X X

→ Full Text of the Document

X X   X X   Extracts   X X   X X

..... four years from the end of the relevant assessment year. In other words, the requirement in the first proviso to Section 147 of there having to be a failure on the part of the Assessee to disclose fully and truly all material facts does not at all apply where the initial return has been processed under Section 143 (1) of the Act. 35.3 As explained in Rajesh Jhaveri Stock Brokers (P) Ltd. (supra) an intimation issued under Section 143 (1) can be subjected to proceedings for reopening , so long as the ingredients of Section 147 are fulfilled . 35.4 Explanation 2 (b) below Section 147 states that for the purposes of Section 147, where a return of income has been furnished by the Assessee but no assessment has been made and it is noticed by the AO that the Assessee has understated the income and claimed excessive loss, deduction, allowance and relief in the return then that shall also be deemed to be a case where the income chargeable to tax has escaped assessment . 35.5 As explained by the Supreme Court in Rajesh Jhaveri Stock Brokers P. Ltd. (supra) and reiterated by it in Zuari Estate Development and Investment Co. Ltd. (supra) an intimation under Section 14 .....

X X   X X   Extracts   X X   X X

→ Full Text of the Document

X X   X X   Extracts   X X   X X

..... cern. Thus it was after comparing the profit and loss account for the two periods, i.e., prior to the Assessee taking over the partnership firm and thereafter it was noticed that the Assessee had wrongly claimed share of loss from the firm which was impermissible in terms of Section 10 (2A) of the Act. The AO was of the view that the Assessee had 'artificially and with an ulterior motive' reduced the income from the property by setting off loss accruing to the firm. Apart from this the P L account of the Assessee showed that she has claimed a loss on account of the bad debt of the firm. 37. The central submission of Mr. Monga, learned counsel for the Assessee that the above reason to believe had to be based on some new tangible material cannot be accepted in light of the legal position explained hereinbefore. At the same time, the Court does not consider to express any opinion at this stage on the AO's reason to believe except to hold that it cannot be said to have been based on a mere change of opinion‟. The other objections of the Assessee to the reopening are left open to be urged before the AO in the assessment proceedings in accordance with law. Conc .....

X X   X X   Extracts   X X   X X

→ Full Text of the Document

X X   X X   Extracts   X X   X X

 

 

 

 

Quick Updates:Latest Updates