ANIL SATYANARAYAN ROONGTA V. THE ASSISTANT COMMISSIONER OF INCOME TAX CIRCLE 1(3)

SCA/21016/2018

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The case involves Anil Satyanarayan Roongta, who filed a petition against the notice issued by the Assistant Commissioner of Income Tax for reopening his assessment for the Assessment Year 2013-2014. The reassessment was based on the grounds that there was a mistake in the computation of tax on the assessed income, which was allegedly lower than what was actually assessed. The petitioner argued that the reassessment was improper as the issue was already pending in appeal and that any computation errors should be rectified under section 154 of the Income Tax Act, not through reassessment under section 147. The respondent defended the reopening by claiming that the income had escaped assessment. The court, after examining the arguments and relevant legal provisions, ruled in favor of the petitioner, stating that the reassessment was not justified.

• Counselvise Citation: [2022] 140 COUNSELVISE.COM (IT) 747461 (HC-GUJARAT)
• Appeal Type: Others
• Pronouncement Date: 19-07-2022
• Assessment Year: misc
• Other Referred Cases: Radhawami Salt Works vs. Assistant Commissioner of Income Tax, Honda Siel Power Products Ltd. vs. Deputy Commissioner of Income Tax, Ester Industries Ltd. vs. Union of India, Hindustan Unilever Ltd. vs. Deputy Commissioner of Income-Tax 1(1) Mumbai
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Others
• Court: HIGH COURT
• Department Lawyers: KALPANAK RAVAL
• Assessee Lawyers: TUSHAR HEMANI; VAIBHAVI PARIKH
• Keywords: Computation Error; Escapement of income; Income Tax; Long Term Capital Loss; Reassessment
• Section: 147; 148; 143(3); 154

Judgement Text

"C/SCA/21016/2018 JUDGMENT DATED: 19/07/2022 IN THE HIGH COURT OF GUJARAT AT AHMEDABAD R/SPECIAL CIVIL APPLICATION NO. 21016 of 2018 FOR APPROVAL AND SIGNATURE: HONOURABLE MR. JUSTICE N.V.ANJARIA and HONOURABLE MR. JUSTICE BHARGAV D. KARIA ========================================================== 1 Whether Reporters of Local Papers may be allowed to see the judgment ? Yes 2 To be referred to the Reporter or not ? Yes 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 or any order made thereunder ? No ========================================================== ANIL SATYANARAYAN ROONGTA Versus THE ASSISTANT COMMISSIONER OF INCOME TAX CIRCLE 1(3) ========================================================== Appearance: Appearance: MR. TUSHAR HEMANI, SR. ADV. WITH MS VAIBHAVI K PARIKH(3238) for the Petitioner(s) No. 1 MRS KALPANAK RAVAL(1046) for the Respondent(s) No. 1 ========================================================== CORAM:HONOURABLE MR. JUSTICE N.V.ANJARIA and HONOURABLE MR. JUSTICE BHARGAV D. KARIA Date : 19/07/2022 ORAL JUDGMENT (PER : HONOURABLE MR. JUSTICE N.V.ANJARIA) In the facts and circumstances of the case and having regard to the Page 1 of 10 C/SCA/21016/2018 JUDGMENT DATED: 19/07/2022 request and consent of the learned advocates appearing for the respective parties, the petition was taken up for final consideration. 1.1 Rule, returnable forthwith. Learned advocate Mr. Nikunt Raval waives service of Rule on behalf of the respondent. 1.2 Heard learned senior advocate Mr. Tushar Hemani with learned advocate Ms. Vaibhavi Parikh for the petitioner and learned advocate for the respondent. 2. By filling this petition under Article 226 of the Constitution , the petitioner has prayed to set aside notice dated 30.3.2018 issued under section 148 of the Income Tax Act, 1961 in respect of Assessment Year 2013-2014 seeking to reopen the assessment stating that the Assessing Officer had reasons to believe that that the income of the petitioner chargeable to income tax for the Assessment Year under consideration had escaped assessment within the meaning of section 147 of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’). 3. The facts stated in brief are that during the Assessment Year 2013-14, the petitioner was engaged in business of trading in shares. Loss of Rs.4,55,72,791/- was incurred. The Petitioner filed his return of income for the year under consideration on 30.09.13 declaring total income to be Rs.51,36,060/- wherein such loss was duly reflected. The case was selected for scrutiny assessment. The then Assessing Officer framed assessment under section 143(3) of the Act by order dated 30.03.16 determining total income at Rs. 9,63,11,400/-. An addition of Rs. 4,55,56,032/- in respect of loss incurred by the petitioner was also made. Page 2 of 10 C/SCA/21016/2018 JUDGMENT DATED: 19/07/2022 3.1 The petitioner challenged the said Assessment Order before the Commissioner of Income Tax (Appeals). The appeal is pending. 3.2 The case of the petitioner came to be reopened on the count that there was a mistake in computation of tax on assessed income. 4. Learned senior advocate for the petitioner submitted that the reassessment could be invoked only if there was escapement of income chargeable to tax and that reassessment could not be initiated where there was any error in the computation of tax. Learned senior advocate thereafter referred to the reasons recorded for reopening to submit that the Assessing Officer while computing tax, took the assessed income in the assessment order at Rs. 5,06,45,370/-, instead of Rs. 9,63,11,400/- resulting an under-assessment of income of Rs.4,56,66,030/-. It was submitted that if there was a computation mistake, the provisions of section 154 of the Income Tax Act, 1961 was to be resorted to, however, the assessment cannot be reopened on that count. 4.1 Learned senior advocate for the petitioner further submitted that when the issue was subject matter of appeal, the Assessing Officer could not have reopened the case of the assessee to examine the very issue in exercise of reassessment powers. He relied on the Third Proviso to section 147 to submit that the principle of merger would be applicable. Learned senior advocate relied on the decision of the Division Bench of this court in Radhawami Salt Works vs. Assistant Commissioner of Income Tax [400 ITR 249 (Gujarat)] in which the principle was laid down that since the question of correct taxability of receipt of income by the assessee was at large before the Tribunal, it would not be permissible for the assessing officer to reopen the assessment in respect of a matter which was already a subject matter of appeal. Page 3 of 10 C/SCA/21016/2018 JUDGMENT DATED: 19/07/2022 4.2 On behalf of the respondent-Assistant Commissioner of Income Tax, affidavit-in-reply was filed to contest the petition. On the basis of the contents of the said affidavit, it was contended by learned advocate for the respondent that while proceeding to reopen the assessment, the mechanism and procedure provided in law were observed. It was submitted that the Assessing Officer had reasons to believe that income had escaped the assessment and therefore, the impugned notice came to be issued. It was submitted that the assessee was a broker and director of a brokerage concern and was prima facie found to have created fictitious loss through the share market operations and the loss was disallowed and income was computed at Rs. 5,06,45,370/- while making the assessment under section 143(3) of the Act. 4.3 It was further contended that External Revenue Audit Party raised objections on 27.3.2017. The audit objections were quoted in the affidavit-in-reply in paragraph No. 6.1 and it was stated that the thrust of the audit objection was that the Assessing Officer disallowed the long term capital loss of Rs. 4,55,56,32/-, yet the said income had not been added in the return of income of the assessee. The Revenue was therefore of the opinion, it was contended, that the dis-allowance had not been properly given effect to. It was stated that on examination of the record, the assessee had claimed loss of Rs. 4,55,72,791/- including the long term capital loss of Rs. 4,55,56,032/- and thereafter the loss was adjusted against the income from partnership firm, house property income and income from other sources. It was contended that after disallowance of the business loss of Rs. 4,55,72,791/-, the assessed total income was arrived at Rs. 5,07,55,368/- and as per the revenue audit, the income had escaped the taxation to the said extent. It was submitted that preliminary information was gathered by the Assessing Officer, and notice under Page 4 of 10 C/SCA/21016/2018 JUDGMENT DATED: 19/07/2022 section 148 of the Act was issued to the petitioner assessee. 4.4 Learned advocate for the respondent then relied on two decisions of the Delhi High Court in support of his contentions. First was Honda Siel Power Products Ltd. vs. Deputy Commissioner of Income Tax [(2012) 340 ITR 53 (Delhi), in which the principle was laid down that non-disclosure of primary facts would entitle the Assessing Officer to reopen the assessment. It was observed in the facts of that case that even if notice under section 154 was issued, notice under section 147 or 148 of the Act would not be a bar. Another decision in Ester Industries Ltd. vs. Union of Insdia [(2014) 221 Taxman (Delhi)] was relied on to submit that the provisions of section 151 and 154 are not mutually exclusive or there could be overlapping of jurisdiction. What is held by the Delhi Court in Honda Siel Power Products Ltd. (supra) and in Ester Industries Ltd. (supra) could not apply in the facts of the present case when it was a crystal clear error of computation of tax only. 4.5 All the contentions raised in the affidavit-in-reply were sought to be controverted and answered by filling affidavit-in-rejoinder by the petitioner. 5. Looking at the reasons recorded in case of the assessee which were supplied on 10.7.2018 to the petitioner, the following was stated, extracting the relevant portion, “ In this case, the assessee has filed his ROI for A.Y. 2013-14 on 30.09.2019 declaring total income of Rs.51,36,060/-. The case was selected for scrutiny under CASS. During the year under consideration, the assessee has derived salary, share trading income/loss, income from partnerhip firm and income from house property. Scrutiny assessment has been completed by passing order under section 143(3) of the IT Act on 30.03.2016. The assessee had claimed loss of Rs 4,55,72,791/-which was adjusted against the income from partnership firm of Rs.73,07,884/-, house property income of Rs. 3,49,723/-, income from Page 5 of 10 C/SCA/21016/2018 JUDGMENT DATED: 19/07/2022 other source of Rs.1,46,535/- and LTCG of Rs. 3,76,64,312/-. The AO had disallowed the long term capital loss. The income was assessed at Rs.9,63,11,400/-. 2.On verification of the case records, it is observed that in the Assessment Order the Assessing Officer has determined total income at Rs.9,63,11,400/-. The AO has stated that the assessee had himself managed the Long Term Capital Loss through its broker, wherein he was a Director. Hence, the Assessing Officer, in his conclusion, stated that the Long Term Capital Loss of Rs. 4,55,56,032/-claimed by the assessee was not allowable and therefore; added Rs. 4,55,56,032/-to the total income. Thus, the total taxable income was assessed at Rs.9,63,11,400/- for A.Y. 2013-14 and tax leviable thereon. However, it was noticed from computation statement and demand notice that there was a mistake in computation of tax computed on assessed income. While computing tax, the assessed income was taken at Rs. 5,06,45,370/- instead of Rs. 9,63,11,400/- as computed in assessment order. Thus, it has been resulted into underassessment of income of Rs.4,56,66,030/-. 3. In this case a return of income was filed for the year under consideration and regular assessment under section 143(3) was made on 30.03.2016. Since, 4 years from the end of the relevant year has not expired in this case, the only requirement is to initiated the proceedings under section 147 is reason to believe which has been recorded above para-2”. 5.1 From the facts and contentions, controversy which stands revealed is that the income which was assessed by the Assessing Officer for the year under consideration was Rs. 9,63,11,400/- and not Rs. 5,06,45,370/-. This was evident from the order of Assessment. For the purpose of computation of income tax however, less amount was adopted. The case of the petitioner assessee was sought to be re-opened on the basis of the audit objection stating that the assessed income was worked out at Rs. 9,62,11,400/- but while computing the tax the assessed income was taken as Rs. 5,06,45,370/- and that thus it resulted into escapment of income chargeable to tax. The crux was that the less income was applied for computation of tax instead the actual assessed Page 6 of 10 C/SCA/21016/2018 JUDGMENT DATED: 19/07/2022 income by the Assessing Officer. 5.2 The sine qua non for justifying the action of reassessment is that there must be an income which has escaped the assessment of tax. A mistake in computation of tax on the assessed income cannot result into escapment of income chargeable to tax. The reasons recorded for reopening was a mistake in computation of tax on the assessed income. The approach of the Assessing Officer in resorting to provisions of Section 147 of the Act was indeed erroneous in law. Unless there was escapment of income chargeable to tax, the reassessment proceedings could not be initiated. 5.3 A mere error in computation of tax cannot be a ground to initiate the reassessment. The concept of ‘income’ and the ‘tax’ are two separate terms. The reassessment powers could be invoked only when the ‘income’ is escaped, which was chargeable to tax in the hands of the assessee and not on the count of some error in computation of tax. The two aspects could not have been mixed-up by the Assessing officer. When admittedly there was no escapment of income and where there existed a simple error of computation of tax, the impugned notice under section 148 of the Act was rendered untenable in eye of law. 6. In Hindustan Unilever Ltd. vs. Deputy Commissioner of Income-Tax 1(1) Mumbai [(2010) 325 ITR 102 (Bombay), the Bombay High Court dealt with a case where assessee was having the plantation business and was carrying on composite activity of tea leaves which was then utilised for manufacturing and selling of dry tea leaves. For the relevant assessment year, the assessee incurred loss in the plantation division. According to the assessee in terms of Rule 8 of the Income Tax Rules, 1962, 60% of the loss which was sustained as a result Page 7 of 10 C/SCA/21016/2018 JUDGMENT DATED: 19/07/2022 of its composite operations, was liable to be attributable to agricultural activity and balance 40% was to be attributable to business activity and should be set off against the normal business profit. The assessment was completed accepting the returned income of the assessee. Thereafter, the Assessing Officer issued impugned notice under section 148 of the Act to reopen the assessment on the ground that the provisions of Rule 8 were applicable only in case of income and the claim of the assessee to set off 40% of loss against the normal business profit could not be allowed. 6.1. While holding that the assessee was lawfully entitled to adjust the loss which arose as a result of business activity under Rule 8 of the Act re-opening of the assessment on that ground was not justified. The Bombay High Court held reading section 147 with section 154 of the Act that power to rectify the order of assessment under section 154(1) was adequate and available to meet a mistake or error in order of assessment. It was held that in case of mistake, the Assessing Officer would have to take recourse to that power as opposed to the wider power of reopening of the assessment. 6.2 In the facts of the present case also, since there was clear error of computation of tax only, the Assessing Officer could have taken recourse to the provisions of section 154 of the Act. The act of seeking reopening the assessment was not justified. There was no element of escapment of income. The actual income was assessed by the Assessing Officer to particular extent, however, the tax was assessed on a different figure. 6.3 It was a curable aspect and an error which ought to have have been dealt with by exercising powers under section 154 of the Act only. The entire gamut of reopening of assessment was not justified, for, the Page 8 of 10 C/SCA/21016/2018 JUDGMENT DATED: 19/07/2022 essential requirements for reopening did not exist. The rectification proceedings under section 154 of the Act was to be the proper course of action to be adopted by the tax authority in such circumstances. 6.4 In addition to above, there is yet another attendant aspect that the appeal against the assessment order was also pending. As per the Third Proviso to section 147 of the Act, the Assessing Officer may assess or reassess such income other than the income involving matters which are subject matter of any appeal, reference or revision which is chargeable to tax and that it has escaped assessment. What is clearly suggested is that the Assessing Officer cannot reopen the case of the assessee to examine an issue which is already pending before the appellate authority and is a subject matter of appeal. 6.5 In the present case, against the addition of Rs. 4,55,56,032/- made by the Assessing Officer in the income of the assessee, the appeal came to be preferred before the Commissioner of Income Tax (Appeals) by the assessee and the said appeal is pending. The doctrine of merger would come into play in such circumstances rendering the recourse to reopening impermissible. 6.6 This view is fortified by the decision of this court in Radhawami Salt Works (surpa). The assessee was given land on lease by the state government for production of salt. The principle was stated that there could not be two considerations to the same subject matter relatable to the income. It was observed, “Yet another reason on which we cannot permit reopening on the grounds stated in the reasons is that the assessee carried the issue in appeal before the Appellate Commissioner and canvassed that to tax the income as capital gain was wrong. The Commissioner having dismissed the appeal, the issue is pending before the Tribunal in assessee's appeal. Section 147 of the Act as is well known, empowers the Assessing Page 9 of 10 C/SCA/21016/2018 JUDGMENT DATED: 19/07/2022 Officer to reopen the assessment, subject to certain conditions. 34 proviso to section 147 however provides that the Assessing Officer may assess or reassess such income other than the income involving the matters which are the subject matters of any appeal, reference or revision, which is chargeable to tax and has escape assessment. When the subject matter viz. the receipt of transfer of rights in land and the income relatable to such matter was the subject matter of appeal and thereafter second appeal, the principle of merger would apply. There cannot be two separate considerations to the same subject matter relatable to the income. One by the appellate authority or forum and another by the Assessing Officer in fresh assessment” 7. For all the above reasons and discussion, the impugned notice dated 30th March, 2018 issued by the Assessing Officer under section 148 of the Act against the petitioner assessee in relation to Assessment Year 2013-2014 stands unjustified in law and and is illegal. The same is hereby set aside. The petition is allowed. Rule is made absolute. (N.V.ANJARIA, J) (BHARGAV D. KARIA, J) C.M. JOSHI Page 10 of 10 "