TMI Blog2016 (8) TMI 1235X X X X Extracts X X X X X X X X Extracts X X X X ..... , it cannot be stated that income chargeable to tax had escaped assessment. If it is found that the notice itself is invalid being nonest or ab initio void, it would be no valid notice in eye of law, pursuant to which any valid assessment proceedings would initiate. For example, if the notice is issued by an authority who was simply not competent or was issued without the sanction of the Commissioner when so required, the notice would be void, nonest and having no effect in eye of law. Such a notice would not reopen an assessment, would not commence assessment proceedings and whenever so declared, such a declaration would relate back to the original issuance thereof. In such a situation, if the Revenue has issued a second notice for reopening, the same would not be rendered invalid. - SPECIAL CIVIL APPLICATION NO. 2827 of 2013 - - - Dated:- 10-8-2016 - MR. AKIL KURESHI AND MR. A.J. SHASTRI, JJ. FOR THE PETITIONER : MR SAURABH N SOPARKAR, SENIOR ADVOCATE WITH MR MONAAL J DAVAWALA AND MR B S SOPARKAR, ADVOCATE FOR THE RESPONDENT : MR KM PARIKH, ADVOCATE ORAL JUDGMENT (PER : HONOURABLE MR.JUSTICE AKIL KURESHI) 1. The petitioner has challenged a notice d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntrade' upto 31.03.04 into investment on 0104.2004. (iii) The assessee disclosed details of these relevant shares and securities held as stockintrade in respect of shares of Sun Pharmaceuticals Industries Ltd as on 31.3.04 as under : Quantity Value (1) Equity shares of ₹ 5 each in Sun Pharma Ind. Ltd 20,10,198 9,16,98,559/- (2) 6% Cumulative preferential 40,20,396 Reedemable shares of ₹ 1/-Each (received as bonus shares) in Sun Pharma Ind. Ltd. 40,20,396 0 (The copy of schedule of Accounts is enclosed, marked as AnnexureA) (iv) During the course of assessment proceedings for A.Yr.200-506, the assessing officer requested the assessee to furnish details of Transfer to capital Assets vide Q.No,6 of Questionnaire dated 15.10.2007. The assessee submitted its reply vide letter dated 17.11.07, at S.No.5 as under: 5. Detail of transfer of capital assets at ₹ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing the course of survey and post survey inquiries, the following facts were noticed. (1) The assessee received bonus equity shares numbered 20,10,198 from M/s. Sun Pharma Ind Ltd in the ratio of 1:1 on or after 29.05.2004 and therefore it can be conclusively said that on 1.04.2004, the assessee did not have 40,20,396 equity shares of M/s. Sun Pharma Ind Ltd which it claims to have converted into investment on 1.04.2004 (Copy of letter by M/s. Sun Pharma Ind Ltd to BSE dated 14.05.2004 downloaded from BSE website is enclosed as AnnexureC) (2) The assessee has wrongly claimed long terms capital gain in place of Business income in the case of 40,20,396 number of 6% redeemable presence shares of Sun Pharma Ind Ltd., though they have held as 'stockintrade'. M/s. Sun Pharma Ind. Ltd announced buy back of 6% cumulative redeemable preferential shares on 05.05.2004 and sent letter to BSE and NSE on 11.04.2004. Copy of letter downloaded from BSE website is enclosed, marked as AnnexureD (vii) From the facts. emerging because of survey proceedings in the case, the following conclusions can be drawn; (1) The profit on sale of redeemed preferential shares to be taxed as Busi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 51 ITR 557 (SC). 7. On the other hand, learned counsel Shri K.M.Parikh for the department opposed the petition contending that after recording reasons and issuing notice for reopening dated 11.1.2011, further materials came to the notice of the Assessing Officer demonstrating that the income chargeable to tax had escaped assessment and that same was due to failure on part of the assessee to disclose truly and fully all material facts. There is no bar in the Act for issuing second notice of reopening. The grounds mentioned in the reasons recorded for the present notice are entirely different from those mentioned in the earlier reopening. 8. Before dealing with rival contentions, we may record that by a separate judgement passed today in Special Civil Application No.10217/2011, we have set aside the notice of reopening by following the judgement of the Supreme Court in case of Kikabhai Premchand (supra), on the ground that transfer of shares from stockintrade to investment did not result into any immediate income accruing to the assessee which can be taxed in the assessment year 2005-2006. 9. As noted, for the assessment year 2005-2006, the Assessing Officer had issued fi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e of capital gain, long or short term, to the investment portfolio of the assessee may depend on the date of conversion of shares from stockintrade to investment. By showing the date of investment as 2.11.2002 and date of sale as 2.7.2004, the assessee cannot be stated to have disclosed true and full facts. Merely because such date of conversion was available in some other remote or obscure material would not satisfy the requirement of true and full disclosure. One may refer to explanation(1) to section 147 of the Act which provides that production before the Assessing Officer of account books or other evidence from which material evidence could with due diligence have been discovered by the Assessing Officer, will not necessarily amount to disclosure within the meaning of such provision. 12.Thus while claiming long term capital gain on sale of 40,20,396 shares of Sun Pharma, the assessee related to the date of investment of 2.11.2002 and the date of sale of 2.7.2004 completely withholding the fact that shares were transferred from stockintrade to investment only on 1.4.2004. On the ground of true and full disclosures therefore, notice cannot be quashed, nor can it be concluded ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of notice. Thus the validity of return was tied to the validity of the notice and viceversa. The Supreme Court held that even a return voluntarily filed would be a valid return and the notice for reassessment which was issued was improper because with the return already filed, there was neither an omission nor a failure on the part of the assessee, nor was there any question of assessment escaping. The notice and consequent assessments were therefore, invalid. It was held and observed as under : It is a little difficult to understand how the existence of a return can be ignored, once it has been filed. A return showing income below the taxable limit can be made even in answer to a notice under s.22(2). The notice under s.22(1) requires in a general way what a notice under s.22(2) requires of an individual. If a return of income below the taxable limit is a good return in answer to a notice under s. 22(2), there is no reason to think that a return of a similar kind in answer to a public notice is no return at all. The conclusion does not follow from the words of s.22(1). No doubt, under that subsection only those persons are required to make a return, whose income is above taxab ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se to ignore the return, and served on the assessee a notice under s.34(1). This notice was improper, because with the return already filed there was neither an omission nor a failure on the part of the assessee, nor was there any question of assessment 'escaping'. The notice under s.34(1) was, therefore, invalid and the consequent assessment equally so. We accordingly agree with the judgment under appeal. 15.This decision in case of Ranchhoddas Karsondas (supra), was referred to and relied upon in case of Estate of the Late A.M.K.M. Karuppan Chettiar (supra), in which it was observed as under : As we have already observed, Karuppan Chettiar submitted returns of his income in his individual capacity for the years 1950-51, 1951-52 and 1952-53 in response to the notice issued under Section 22(2). The Income-tax Officer purported to treat those returns made on behalf of the Hindu undivided family and to assess the Hindu undivided family in respect of that income. That order was set aside. The returns submitted by Karuppan Chettiar in his individual capacity were, therefore, never considered and no assessment was made of Karuppan Chettiar as an individual on those re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on for refund is a valid return and reassessment proceedings cannot be initiated so long as the assessment proceedings are not terminated. In the said case, Revenue had argued that Assessing Officer had recorded a note on his file on 10.11.1965, in which he had concluded the assessment proceedings before he initiated proceedings under section 147 of the Act. The Supreme Court observed that : It is settled law that unless the return of income already filed is disposed of notice for reassessments under Section 148 cannot be issued, i.e., no reassessment proceedings can be initiated so long as assessment proceedings pending on the basis of the return already filed are not terminated. According to the Revenue it is immaterial whether the order is communicated or not and that the only bar to the reassessment proceedings is that proceedings on the return already filed should have been terminated. In support of this contention reference was made to certain decisions of the High Courts and some observations made by this Court in a case, which we note as under....: 1. We may refer to the decisions of various High Courts. In case of Smt. Nilofer Hameed and another v. Income-tax offic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t be issued when the assessment proceedings are pending. 3. In case of KLM Royal Dutch Airlines v. Assistant Director of Income-tax reported in (2007) 292 ITR 49 (Del), Division Bench of Delhi High Court also held that when inquiry initiated under section 143(2) of the Act was pending, notice for reopening was invalid. It was observed that where an assessment has not been framed at all, it is not possible to posit that income has escaped assessment. It was held and observed as under : 15. Applying this line of decisions to the facts of the present case, the inescapable conclusion that would have to be reached is that while assessment proceedings remain inchoate, no 'fresh evidence or material' could possibly be unearthed. If any such material or evidence is available, there would be no restrictions or constraints on its being taken into consideration by the AO for framing the then current assessment. If the assessment is not framed before the expiry of the period of limitation for a particular AY, it would have to be assumed that since proceedings had not been opened under Section 143(2), the Return had been accepted as correct. It may be argued that thereafter rec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... considered a case where the proceedings pursuant to first notice under section 148 of the Act against the petitioner was pending before the authority when second notice again under section 148 of the Act was issued. The second notice was challenged in a writ petition. In this context, the Court observed as under : It cannot be doubted that, if the assessing authority has come to know some facts which led him to believe that some part of the income of the assessee has been left to be assessed, he can always issue another notice under Section 148. Only because the earlier notice has been issued, that by itself in law cannot bar him from issuing the second notice under suction 148. This will depend on the facts of each case. 4. In the decision of the Division Bench of Allahabad High Court in case of Sukhlal Ice and Cold Storage Company v. Income Tax officer and another reported in (1993) 1999 ITR 129 (All), the petitioner was served with a notice under section 148 of the Act on 28.1.1985 for the assessment year 1982-1983. The assessment order thereon was passed on 31.7.1989. In the Second Appeal before the Tribunal, the assessee argued that the notice itself was without juri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... case of Acorus Unitech Wireless P. Ltd and another v. Deputy Commissioner of Income-tax reported in (2012) 345 ITR 228 (Delhi), the Division Bench of Delhi High Court considered an issue whether when the time for issuance of notice under section 143(2) of the Act had not expired, could the Assessing Officer issue notice under section 148 of the Act? It was observed that it was not possible to accept the broad universal affirmative submission that notice under section 147/148 of the Act could not be issued when Assessing Officer could have issued notice under section 143(2) of the Act. This would depend upon the facts of each case. 6. In our case, the situation is during the pendency of first notice of reassessment, the Assessing Officer recorded separate reasons and issued a fresh notice for reassessment. Though this is not a case where the original assessment itself was pending when the notice for reopening was issued and in this context, as noted, some of the High Courts have drawn a distinction, in our opinion, there would be no material change. As long as assessment was at large by virtue of the first notice of reopening, the question of issuing second notice for the same ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g or after withdrawing the first notice to issue a fresh notice which would be beyond a period of four years and thereby sacrifice the reasons already recorded, which would not sustain the test of failure on part of the assessee to disclose truly and fully all material facts. However, such difficulty in making a choice, would not govern the interpretation of statutory provisions or would permit us to enlarge the scope of reassessment by holding that the second notice of reopening pending reassessment would also be permissible. We do not discern any concept of alternative or protective notice of reassessment. In the result, impugned notice of reopening is bad in law. This is despite the fact that the first notice came to be quashed on the ground that on the basis of reasons recorded, it cannot be stated that income chargeable to tax had escaped assessment. 9. To this conclusion, we may however add a caveat. In a given case, if it is found that the notice itself is invalid being nonest or ab initio void, it would be no valid notice in eye of law, pursuant to which any valid assessment proceedings would initiate. For example, if the notice is issued by an authority who was simply n ..... X X X X Extracts X X X X X X X X Extracts X X X X
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