ASEFA ZOHAR MALAMPATTIWALA V. INCOME TAX OFFICER , WARD-1(2)(1)

SCA/4648/2022

AI Insights

The case involves multiple petitions filed by Asefa Zohar Malampattiwala and others against the Income Tax Officer, Ward-1(2)(1), challenging the notices issued under section 148 of the Income Tax Act, 1961, for reopening the assessment for the Assessment Year 2014-2015. The primary contention was that the reopening was based on an alleged transaction where the petitioners received an advance of Rs. 5,53,53,053/- for immovable properties, which was not disclosed in their income tax returns. The petitioners argued that no transfer of property occurred as no sale deed was executed, and possession was not handed over. The court found that the reopening was based on insufficient material and a mechanical application of mind by the authorities, leading to the conclusion that there was no escapement of income.

• Counselvise Citation: [2022] 140 COUNSELVISE.COM (IT) 746815 (HC-GUJARAT)
• Appeal Type: Others
• Pronouncement Date: 04-10-2022
• Assessment Year: misc
• Other Referred Cases: Raymond Woolen Mills Ltd vs ITO
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Others
• Court: HIGH COURT
• Department Lawyers: NIKUNT RAVAL; KALPANA RAVAL
• Assessee Lawyers: TUSHAR HEMANI; VAIBHAVI PARIKH
• Keywords: Assessment Year 2014-2015; Escapement of income; Section 148 notice; Income Tax Reopening; Section 147 Reopening
• Section: 147; 148; 143(3); 151

Judgement Text

"C/SCA/4648/2022 JUDGMENT DATED: 04/10/2022 IN THE HIGH COURT OF GUJARAT AT AHMEDABAD R/SPECIAL CIVIL APPLICATION NO. 4648 of 2022 With R/SPECIAL CIVIL APPLICATION NO. 5853 of 2022 With R/SPECIAL CIVIL APPLICATION NO. 6358 of 2022 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 ? 2 To be referred to the Reporter or not ? 3 Whether their Lordships wish to see the fair copy of the judgment ? 4 Whether this case involves a substantial question of law as to the interpretation of the Constitution of India or any order made thereunder ? ========================================================== ASEFA ZOHAR MALAMPATTIWALA Versus INCOME TAX OFFICER , WARD-1(2)(1) ========================================================== Appearance: MR TUSHAR HEMANI, SENIOR ADVOCATE WITH MS VAIBHAVI K PARIKH(3238) for the Petitioner(s) No. 1 MR NIKUNT RAVAL FOR MRS KALPANAK RAVAL(1046) for the Respondent(s) No. 1 NOTICE SERVED for the Respondent(s) No. 2 ========================================================== CORAM:HONOURABLE MR. JUSTICE N.V.ANJARIA and HONOURABLE MR. JUSTICE BHARGAV D. KARIA Page 1 of 21 C/SCA/4648/2022 JUDGMENT DATED: 04/10/2022 Date : 04/10/2022 ORAL JUDGMENT (PER : HONOURABLE MR. JUSTICE BHARGAV D. KARIA) 1.Heard learned Senior Mr. Tushar Hemani assisted by learned advocate Ms. Vaibhavi Parikh for the petitioners and learned advocate Mr. Nikunt Raval for learned advocate Mrs. Kalpana Raval for the respondent. 2.Having regard to the controversy involved in these petitions, with the consent of the learned advocates for the respective parties, the petitions are taken up for final hearing. 3.Since issues involved are common in all these petitions, they have been heard together and would be disposed of by this common judgment. Page 2 of 21 C/SCA/4648/2022 JUDGMENT DATED: 04/10/2022 4.Rule returnable forthwith in each petition. Learned advocate Mr. Nikunt Raval waives service of notice of rule for the respondent in each petition. 5.In all these petitions, the petitioners have challenged the impugned notice dated 31.03.2021 issued under section 148 of the Income Tax Act, 1961 (For short “the Act”) proposing to reopen the assessment for the Assessment Year 2014-2015. 6.For the sake of convenience, facts are recorded from Special Civil Application No.4648/2022 treating it as a lead matter. 7.Brief facts of the case are that the petitioner is an individual. During the year under consideration, the petitioner earned income being ‘profits and gains from business and profession' as well as ‘income from other Page 3 of 21 C/SCA/4648/2022 JUDGMENT DATED: 04/10/2022 sources'. 7.1) The petitioner filed return of income for the year under consideration on 17.03.2015 declaring total income at Rs.4,57,530/-. 7.2) The respondent issued the impugned notice dated 31.03.2021 under section 148 of the Act seeking to reopen the case of the petitioner. 7.3) In response to the impugned notice, the petitioner filed return of income on 30.04.2021 and further requested the respondent to supply a copy of reasons for reopening. 7.4) The respondent supplied the copy of reasons for reopening vide letter notice 02.07.2021. The reasons recorded by the Page 4 of 21 C/SCA/4648/2022 JUDGMENT DATED: 04/10/2022 Assessing Officer for reopening the assessment under section 147 of the Act read as under: “1. Brief details of the Assessee) In this case assessee has filed his return of income for the year under consideration as per provisions of the Act 1961. 2. Brief details of information collected/ received: The assessee has filed his return of income under consideration as per provisions of the IT. Act, 1961. There is an Information/records available with this office in relation to concealment of the income by the assessee. 3&4. Analysis of information collected received: / Enquiries made by the AO as sequel to information collected/ received: On analyzing of the information based on the documentary evidences it is noticed that the assessee entered into agreement to sell four immovable properties to proposed purchaser Shri Kiritbhal Vrajlal Makadiya. However the assessee after receiving initial amount of Rs. 5,53,53,053/- in cash ran away from the deal & cheated the purchasers. The assessee did not accounted huge amount of Rs. 5,53,53,053/- nor did he show the same in his ROI for the year. Page 5 of 21 C/SCA/4648/2022 JUDGMENT DATED: 04/10/2022 5&6 Findings of the AO:/Basis of forming reason to believe and details of escapement of Income: In view of the above, transaction amounting to Rs. 5,53,53,053/-lead to definite conclusion that of escapement of income, therefore, there is income escaping assessment as per explanation 2(a) of the section 147 of the Income- tax Act, 1981. In view of the above facts and material, I have reason to believe that the income chargeable to tax to the extent of Rs. 5,53,53,053/- accruing to the credit of the assessee has escaped for the AY 2014-15. Therefore, this is a fit case for invoking the provisions of section 147 of the Income-tax Act, 1961. 7. Seventh paragraph will include escapement of income chargeable to tax in relation to any assets (including financial interest in any entity) located outside India Not applicable 9. Applicability of the provisions of section 147/151 to the facts of the case: In this case a return of income was filed for the year under consideration, but, no scrutiny assessment U/s 143(3) of the Act was made. Accordingly, in this case, the only requirement to initiate proceeding us 147 is reason to believe which has been recorded above. Page 6 of 21 C/SCA/4648/2022 JUDGMENT DATED: 04/10/2022 It is pertinent to mention here that in this case the assessed has filed the return of income for the year under consideration, but no assessment as stipulated us 2(40) of the Act was made and the return of Income was only processed U/s 143(3) of the Act. In view of the above, the provisions of clause (b) of Explanation 2 to section 147 are applicable to facts of this case and the assessment year under consideration is deemed to be a case where income chargeable to tax has escaped assessment. In this case more than 4 years have lapsed from the end of assessment year under consideration. Hence necessary sanction to issue notice u/s 148 of the Act is being obtained from Principal Commissioner of Income Tax-1. Surat as per the provisions of section 151 of the Act.” 7.5) The petitioner, vide letter dated 12.01.2021, raised objections against reopening the assessment. 7.6) The respondent, vide order dated 19.01.2022, disposed of such holding that reopening is justified. Page 7 of 21 C/SCA/4648/2022 JUDGMENT DATED: 04/10/2022 7.7) The petitioner, vide letter dated 16.02.2022, raised further objections against reopening. 7.8) The respondent, vide order dated 22.02.2022, disposed of such objections holding that reopening is justified. 7.9) Being aggrieved by the impugned action of the respondent, the petitioner has preferred the present petition. 8.Learned Senior Advocate Mr. Tushar Hemani for the petitioner submitted that the condition precedent for resorting to reopening proceedings under the provisions of section 147 of the Act is that there must be escapement of any income chargeable to tax. In the absence of escapement of any income chargeable to tax, it is not open for the department to reopen the case of an assessee. Page 8 of 21 C/SCA/4648/2022 JUDGMENT DATED: 04/10/2022 On this short count, the impugned notice deserves to be quashed. 8.1) Learned Senior Advocate Mr.Hemani invited the attention of this Court to the facts of the case by stating that Shri Kiritkumar V. Makadiya has claimed to have given advance of Rs.5,53,53,053/- to the petitioner and other co-owners. The immovable properties in question have not been sold by the petitioner and other co-owners to Shri Kiritkumar V. Makadiya till date by execution of the sale deed. Even as on date, the immovable properties in question are registered in the name of the petitioner and the other co-owners. Even possession of properties in question is with the petitioner and other co-owners. 8.2) It was submitted that as per section 2(47) of the Act, transfer of an immovable Page 9 of 21 C/SCA/4648/2022 JUDGMENT DATED: 04/10/2022 property takes place upon execution of sale deed or handing over possession pursuant to ATS. It was submitted that in the present case, neither the sale deed has been executed nor possession has been given pursuant to ATS. Thus, no transfer has taken place on account of the transaction referred to in reasons for reopening and even if any advance is claimed to have been paid to petitioner, then also the same cannot be brought to tax since there is no transfer of any capital asset. 8.3) It was submitted that the reasons recorded for reopening are absolutely vague, scanty and non-specific. No escapement of income chargeable to tax emanates from reasons for reopening and hence, reopening is not justified. It was submitted that there is no clarity on either of the following aspects in the reasons recorded for Page 10 of 21 C/SCA/4648/2022 JUDGMENT DATED: 04/10/2022 reopening: i) Date of receipt of information. ii) Details as to source of information. iii) Description of properties alleged to have been sold. iv) Date of execution of so called agreement to sale. v) Date of receipt of advance in question. 8.4) It was therefore, submitted that it can be inferred that the case of the petitioner has been reopened in a mechanical manner, there is no independent application of mind at the end of the respondent and there is no prima facie belief as to escapement of income chargeable to tax. 8.5) It was submitted that the jurisdictional requirement for reopening the case of an assessee is that the Assessing Page 11 of 21 C/SCA/4648/2022 JUDGMENT DATED: 04/10/2022 Officer concerned must have reason to believe that any income chargeable to tax has escaped assessment. In order to have such reason to believe, it is very much essential that the Assessing Officer concerned must be aware of the very transaction based on which it is sought to be alleged that some income chargeable to tax has escaped assessment. In the present case, the respondent is not aware about the very basic details pertaining to the transactions in question and in absence of such basic details, it is not possible for any person to have reason to believe that income chargeable to tax has escaped assessment. 8.6) Learned Senior Advocate Mr. Hemani submitted that as per section 151 of the Act, no notice shall be issued under section 148 of the Act after the expiry of a period of four years from the end of the relevant Page 12 of 21 C/SCA/4648/2022 JUDGMENT DATED: 04/10/2022 assessment year unless the Principal Chief Commissioner or Chief Commissioner or Principal Commissioner or Commissioner is satisfied, on the reasons recorded by the Assessing officer, that it is a fit case for the issue of such notice. Thus, in case of reopening beyond a period of four years from the end of the relevant assessment year, it is mandatory on the part of the Assessing Officer to obtain sanction from the Principal Chief Commissioner or Chief Commissioner or Principal Commissioner or Commissioner. Such a sanction should not be merely mechanical in nature. The concerned Principal Chief Commissioner or Chief Commissioner or Principal Commissioner or Commissioner must record satisfaction in a detailed manner after perusing the entire material on record which has been made the basis by the Assessing officer for reopening the case of an assessee. Mere endorsement of the view Page 13 of 21 C/SCA/4648/2022 JUDGMENT DATED: 04/10/2022 taken by the concerned Assessing Officer would not meet the requirement of the provisions of section 151 of the Act. It was submitted that in the present case, reopening is beyond a period of four years from the end of the relevant assessment year and hence, sanction of Principal Chief Commissioner or Chief Commissioner or Principal Commissioner or Commissioner is to be mandatorily obtained. However, there is no application of mind at the end of the Principal Chief Commissioner or Chief Commissioner or Principal Commissioner or Commissioner while sanctioning the issuance of notice under section 148 of the Act and rather, reopening has been sanctioned merely in a mechanical manner which is not permissible in the eye of law. 8.7) It was submitted the respondent has acted illegally and without jurisdiction in Page 14 of 21 C/SCA/4648/2022 JUDGMENT DATED: 04/10/2022 issuing the impugned notice. Statutory notice under section 148 can be issued if and only if an Assessing Officer has reason to believe that any income chargeable to tax has escaped assessment. It implies that an Assessing Officer himself must be satisfied that some income chargeable to tax has escaped assessment. Such satisfaction must be of the concerned Assessing Officer himself. It was submitted that in the present case, no such satisfaction has been recorded by the respondent himself. In fact, the respondent has merely relied upon the information received from an external source for the purpose of reopening the assessment in the case of the petitioner. The respondent has not at all applied his mind independently so as to reach a conclusion that any income has escaped assessment and in absence of any such exercise at the end of the respondent, it becomes clear that the assessment has been Page 15 of 21 C/SCA/4648/2022 JUDGMENT DATED: 04/10/2022 reopened merely based on borrowed satisfaction as against the statutory requirement of independent satisfaction. Therefore, the action of reopening is not justified in the eye of law. 9.On the other hand, learned advocate Mr. Nikunt Raval for the respondent submitted that the information was received that the assessee has entered into an agreement to sale of immovable properties against which the assessee had received an amount of Rs.5,53,53,053/- from the buyer. At the time of recording reasons for re-opening, the Assessing Officer had in his hands sufficient tangible material such as copy of agreement for sale of properties wherein the assessee had also signed the document and copy of FIR filed against the owner of the properties. Further, the assessee had not disclosed the said amount in his return of income. Page 16 of 21 C/SCA/4648/2022 JUDGMENT DATED: 04/10/2022 Therefore, the contention of the petitioner that there is no escapement of income chargeable to tax is not true. 9.1) It was submitted that without prejudice to the contentions of the Revenue, even if the transfers of such properties had not taken place, the amount under consideration has been alleged to be paid to the assessee. Therefore, the taxability of such an amount is under question for the year under consideration. 9.2) Learned advocate Mr. Raval relied upon the judgment in case of Raymond Woolen Mills Ltd vs ITO reported in 236 ITR 34 wherein the Hon'ble Apex Court has held that at the time of recording the reasons for satisfaction of the Assessing Officer, there should be prima facie some material on the basis of which the department could re-open Page 17 of 21 C/SCA/4648/2022 JUDGMENT DATED: 04/10/2022 the case. The sufficiency or correctness of the material is not a thing to be considered at this stage. It will be open to the assessee to prove that the assumption of the fact made in the notice was erroneous at the time of assessment proceedings. 9.3) It was submitted that the approval of the specified authority has been obtained before proceeding with the assessment and therefore, reopening of the assessment by the Assessing Officer is after following the due procedure and application of mind, which requires no interference by this Court. 10. Considering the submissions made by the learned advocates on both the sides, it appears that the impugned notice under section 148 of the Act is issued only on the ground that the assessee did not account an amount of Rs.5,53,53,053/- nor did he show Page 18 of 21 C/SCA/4648/2022 JUDGMENT DATED: 04/10/2022 the same in his ROI for the year and therefore, there is escapement of income chargeable to tax. 11. It appears that the case of the petitioner has been reopened on the basis of Tax Evasion Petition filed by one Shri Kirtikumar V. Makadiya. Shri Kirtikumar V. Makadiya had made a bogus sauda chitthi dated 12.03.2014 against the purchase of an immovable property situated at Surat wherein he has claimed to have paid an amount of Rs. 5,53,53,053/- as advance to Asefa Zoher Malampattiwala (petitioner of SCA No.4648/2022), Naseem Zuzar Haji (petitioner of SCA No.5853/2022) Fatema Abdulhussain Malampattiwala (petitioner of SCA No.6358/2022) and one Zoher Abdulhussain Malampattiwala. The said sauda chitthi is neither on a stamp paper nor registered nor notarized and is on a plain paper. Page 19 of 21 C/SCA/4648/2022 JUDGMENT DATED: 04/10/2022 12. From the record, it appears that the immovable property has not been sold by the petitioners and other co-owners to Shri Kiritkumar V. Makadiya by execution of sale deed and the immovable properties are registered in the name of the petitioners and also the possession of the properties is with the petitioner and other co-owners. Thus there is no income accrued on account of transfer of a capital asset either by way of sale deed or handing over possession pursuant to agreement to sell. It is well settled that the Assessing Officer must have reason to believe that income chargeable to tax has escaped assessment. In the present case, there is no escapement of any income chargeable to tax due to failure on part of the assessee to disclose truly and fully all material facts as all the relevant records were produced on record. In absence of any Page 20 of 21 C/SCA/4648/2022 JUDGMENT DATED: 04/10/2022 escapement of income chargeable to tax, it is not open for the department to reopen the case of the present assessee. 13. In view of foregoing reasons, considering the facts of the case, impugned notices under section 148 of the Act, 1961 dated 31.03.2021 are not tenable in law and are accordingly quashed and set aside and consequently the orders disposing of the objections raised by the petitioners against the notice for reopening are also quashed and set aside. 14. Rule is made absolute to the aforesaid extent in each petition. No order as to costs. (N.V.ANJARIA, J) (BHARGAV D. KARIA, J) RAGHUNATH R NAIR Page 21 of 21 "