ANIL HASSANAND GAJWANI V. INCOME TAX OFFICER

SCA/3342/2014

AI Insights

The case involves Anil Hassanand Gajwani, the petitioner, who challenged the notice for reopening of his income tax assessment for the assessment year 2006-07, issued under Section 148 of the Income Tax Act, 1961, by the Income Tax Officer, the respondent. The original assessment was completed after scrutiny, and the income from the sale of shares and mutual funds was assessed as capital gains. However, the reassessment notice was issued beyond the four-year period, alleging that the income had escaped assessment. The petitioner argued that the reopening was based on a mere change of opinion and not on any failure to disclose material facts, which is required for reopening beyond the four-year period. The court agreed with the petitioner, citing precedents that mere change of opinion does not justify reopening of assessments beyond the stipulated period.

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 695967 (HC-GUJARAT)
• Appeal Type: Others
• Pronouncement Date: 06-08-2014
• Assessment Year: misc
• Other Referred Cases: MAPS Enzymes Limited vs. Deputy Commissioner of Income Tax, CIT vs. Kelvinator of India Ltd., Gujarat Power Corporation Ltd. vs. Assistant Commissioner of Income Tax
• Laws Referred To: Income Tax Act
• Result in Favour of: Others
• Court: HIGH COURT
• Department Lawyers: NITIN MEHTA
• Assessee Lawyers: MANISH SHAH
• Keywords: Business income; Capital Gains; Change of opinion; Income Tax; Reopening of assessment
• Section: 148; 143(3); 143(2)

Judgement Text

"C/SCA/3342/2014 CAV JUDGMENT IN THE HIGH COURT OF GUJARAT AT AHMEDABAD SPECIAL CIVIL APPLICATION NO. 3342 of 2014 FOR APPROVAL AND SIGNATURE: HONOURABLE MR.JUSTICE M.R. SHAH ­ sd/­ and HONOURABLE MR.JUSTICE K.J.THAKER ­ sd/­ ============================================= A Whether Reporters of Local Papers may be allowed to see the judgment ? NO 2. To be referred to the Reporter or not ? NO 3. Whether their Lordships wish to see the fair copy of the judgment ? NO 4. Whether this case involves a substantial question of law as to the interpretation of the constitution of India, 1950 or any order made thereunder ? NO 5. Whether it is to be circulated to the civil judge ? NO ============================================= ANIL HASSANAND GAJWANI....Petitioner(s) Versus INCOME TAX OFFICER....Respondent(s) ============================================= Appearance: MR MANISH J SHAH, ADVOCATE for the Petitioner(s) No. 1 MR NITIN K MEHTA, ADVOCATE for the Respondent(s) No. 1 ============================================= CORAM: HONOURABLE MR.JUSTICE M.R. SHAH and HONOURABLE MR.JUSTICE K.J.THAKER Date : 06/08/2014 CAV JUDGMENT (PER : HONOURABLE MR.JUSTICE M.R. SHAH) 1.0. By way of this petition under Article 226 of the Constitution of India, the petitioner has challenged the impugned notice for reopening of the assessment issued under Section 148 of the Income Tax Act (hereinafter referred to as the “Act”) which has been issued beyond the period of four years from the end of the assessment year. Page 1 of 7 C/SCA/3342/2014 CAV JUDGMENT 2.0. It is the case on behalf of the petitioner that petitioner filed return of income for the assessment year 2006­07 showing the total income of Rs.76,67,256/. It is the case on behalf of the petitioner after filing the return of income, the petitioner received a notice dated 19.06.2008 calling for certain details. That another notice under Section 143(2) of the Act dated 25.08.2008 was received by the petitioner and in response to the said notice, the petitioner filed his reply on 11.08.2008 with the details called for. That another notice under Section 143(2) dated 25.08.2008 was issued to that also the petitioner filed letter in response to the above facts and asked for some time to file further details which had been called for. It is the case on behalf of the petitioner that thereafter the petitioner through another letter dated 13.10.2008 submitted all the details called for by the respondent, which pertain to investments made by the petitioner for investments in India and Capital Gain statement duly certified by Portfolio Manager, M/s. Kotal Securities Limited for Assessment year 2006­07. That thereafter, the Assessing Officer passed scrutiny assessment order under Section 143(3) dated 22.12.2008 wherein he specifically dealt with the issue of capital gains, interest and dividend income declared by the petitioner and made a small disallowance of Rs.9676/­ viz. NSDL charges claimed by the petitioner. That thereafter, the petitioner has been served with the notice dated 26.12.2012 issued by the Assessing Officer under Section 148 of the Act informing the petitioner that he had reason to believe that income had escaped assessment and asked the petitioner to file the return within 30 days of the receipt of the said notice as he proposed to assess escaped income. On demand by the petitioner, the Assessing Officer has supplied reasons for reopening vide his communication dated 15.10.2013. That prior thereto vide communication dated 24.01.2013, the petitioner clarified that the original return be considered to be a return filed in response to Section Page 2 of 7 C/SCA/3342/2014 CAV JUDGMENT 148 notice and asked for the reasons of reopening which were supplied on 15.10.2013. That thereafter, the petitioner has received notice under Section 143(2) of the Act on 24.1.2014. That the petitioner submitted elaborate objection on 30.1.2014 through his power of attorney holder. That thereafter, the Assessing Officer has passed an order dated 17.2.2014 disposing of the objections raised by the petitioner against the reopening of the scrutiny assessment. Hence, the petitioner has preferred present Special Civil Application under Article 226 of the Constitution of India. 3.0. Shri Manish Shah, learned advocate appearing on behalf of the petitioner has vehemently submitted that initiation of reassessment proceedings beyond the period of four years is absolutely illegal and as such beyond the scope of Section 147/ 148 of the Act. It is submitted that in the present case the impugned notice has been issued beyond the period of four years from the relevant assessment year. It is submitted that therefore, unless and until it is alleged and / or suggested that the income chargeable to tax is escaped assessment for the reasons that the assessee failing to disclose fully or truly all material facts, reopening of assessment is not permissible. It is submitted by Shri Shah, learned advocate for the petitioner that in the present case in the reasons recorded by the AO there is no suggestion that the income chargeable to tax escaped assessment for the reasons that the assessee failing to disclose truly and fully all material facts. 3.1. It is further submitted by Shri Shah, learned advocate for the petitioner that as such the original assessment was framed after scrutiny and sale of shares was the sole source of income of the assessee during the year under consideration and the assessee claimed that such receipt was in the nature of capital gain. It is submitted that as such the Page 3 of 7 C/SCA/3342/2014 CAV JUDGMENT AO in the original assessment scrutinized the claim of the assessee and to small extent,when he found the same was not allowable, also made disallowance. It is submitted that therefore, when AO assessed the income from sale of shares, mutual funds etc. as income from “Capital Gains” thereafter to reopen the assessment on the ground that the income received from the petitioner from the sale of shares, mutual funds etc. as business income would therefore, be mere change of opinion. It is submitted that on the mere change of opinion, the reopening original assessment which was framed after scrutiny, beyond the period of four years from the relevant assessment year is not permissible, and therefore, it is requested to quash and set aside the impugned notice for reopening the assessment as well as order disposing of the objection. In support of his above prayer, Shri Shah, learned advocate for the petitioner has heavily relied upon the decision of this Court in the case of MAPS Enzymes Limited vs. Deputy Commissioner of Income Tax reported in (2014) 41 Taxman.com 527(Gujarat). 4.0. Shri Nitin Mehta, learned advocate for the revenue has tried to oppose the present Special Civil Application by submitting that in the reasons recorded it has been specifically alleged that escapement of income by virtue of omission or failure on the part of the petitioner to disclose fully and truly all material facts necessary for its assessment. It is submitted that therefore, the impugned notice for reopening of the assessment beyond the period of four years from the relevant assessment years is just and proper. It is further submitted that even the objection raised by the petitioner against the reopening of the assessment has been dully considered by the AO. 4.1. It is further submitted that on going through the records, it is seen that the petitioner during original assessment proceedings had Page 4 of 7 C/SCA/3342/2014 CAV JUDGMENT not produced general power of attorney through which all the transactions were entered by the assessee. It is further submitted that even before this Court also the petitioner has not disclosed the power to attorney who conducts its transactions in India, since he is a NRI. It is further submitted that looking to the volume of transactions, the income received by the petitioner through sale of share, mutual funds etc. can never be assessed as income from capital gain and is required to be income from business. Therefore, it is submitted that reopening of the assessment cannot be termed as mere change of opinion. It is submitted that ample opportunity was given to the petitioner to prove his case for reopening of the proceedings. Therefore, it is requested to dismiss the present Special Civil Application. 5.0. Heard the learned advocates for the respective parties at length. At the outset, it is required to be noted that original assessment was framed by the AO after scrutiny. It is required to be noted that the impugned notice has been issued beyond the period of four years from the relevant assessment year. Under the circumstances, unless and until it is suggested and / or alleged that the income chargeable to tax as escaped assessment for the reasons that the assessee failing to disclose fully or truly all material facts , reopening of assessment is not permissible. In the present case, it appears that the assessee claimed the income from sale of shares, mutual funds etc. as income from capital gain and to that the petitioner was called upon to furnish the necessary details etc. and thereafter after due consideration the AO framed the assessment order and treated the income from sale of shares, mutual funds etc. as income from capital gain. It is also required to be noted that the AO in the original assessment scrutinized the claim of the assessee and to small extent, when he found the same was not allowable, also made disallowance. From the reasons recorded by the Page 5 of 7 C/SCA/3342/2014 CAV JUDGMENT AO for issuing present notice for reopening of the assessment, it appears that now it is the case on behalf of the AO that income derived by the assessee from sale of shares, mutual funds etc. was required to be assessed as income from business and not as income from capital gain. Under the circumstances, now attempt on the part of the AO now to tax the receipt as a business income would therefore, be a mere change of opinion. As per the catena of decisions, it is held that on mere change of opinion by the AO, the reopening of the assessment beyond the period of four years from the relevant assessment year is not permissible. In the case of MAPS Enzymes Limited (supra) the Division Bench of this Court after considering the decision of CIT vs. Kelvinator of India Ltd. reported in (2010) 320 ITR 561 (SC) and the decision of the Division Bench of this Court in the case of Gujarat Power Corporation Ltd. vs. Assistant Commissioner of Income Tax reported in (2013) 350 ITR 266 (Gujarat) has observed and held that on mere change of opinion by the AO subsequently, initiation of reassessment proceedings is not valid. Considering the aforesaid decisions and applying the same to the facts of the case on hand and when it appears that reopening of the assessment is on mere change of opinion by the AO subsequently and reassessment is beyond the period of four years from the relevant years, reopening proceedings are bad in law and therefore, same deserves to be quashed and set aside. 6.0. In view of the above and for the reasons stated above, petition succeeds. The impugned notice for reopening the assessment issued under Section 148 of the Act (Annexure I) and the order disposing of the objection (Annexure O) are hereby quashed and set aside. However, it is observed and made it clear that reopening of the assessment proceedings are held to be bad in law and are quashed and set aside on the aforesaid ground alone and not on merits whether Page 6 of 7 C/SCA/3342/2014 CAV JUDGMENT income derived by the assessee from the sale of shares, mutual funds, etc. is required to be assessed as income from capital gain or income from business. Rule is made absolute to the aforesaid extent. In the facts and circumstances of the case, there shall be no order as to costs. sd/­ (M.R.SHAH, J.) sd/­ (K.J.THAKER, J) Kaushik Page 7 of 7 "