NILAMBEN SANDIPBHAI PARIKH V. ASSISTANT COMMISSIONER OF INCOME TAX CIRCLE 4(2)

SCA/16135/2018

AI Insights

The case involves Nilamben Sandipbhai Parikh challenging a notice under section 148 of the Income Tax Act, 1961, which sought to reopen her assessment for the assessment year 2013-14. The petitioner argued that the property sale, which triggered the reassessment, was disclosed during the original assessment, and thus, reopening based on the same facts constituted a mere change of opinion. The revenue contended that the income had escaped assessment as the capital gain was not reported in the return for the relevant assessment year. The court examined whether the reopening was justified under the law, particularly focusing on the principles established in previous Supreme Court and High Court decisions regarding the reopening of assessments.

• Counselvise Citation: [2019] 140 COUNSELVISE.COM (IT) 683578 (HC-GUJARAT)
• Appeal Type: Others
• Pronouncement Date: 05-08-2019
• Assessment Year: misc
• Other Referred Cases: Income Tax Officer Vs. Tech Span India (P) Ltd., Commissioner of Income-tax Versus Kelvinator of India, Priyanka Gems Versus Assistant Commissioner of Income-tax, Giriraj Steel Versus Deputy Commissioner of Income Tax
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Others
• Court: HIGH COURT
• Department Lawyers: MAUNA BHATT
• Assessee Lawyers: S UDHIR M EHTA; SHAILEE MEHTA
• Keywords: Change of opinion; Income escaping assessment; Reassessment; Tangible material
• Section: 148; 143(3)

Judgement Text

"C/SCA/16135/2018 JUDGMENT IN THE HIGH COURT OF GUJARAT AT AHMEDABAD R/SPECIAL CIVIL APPLICATION NO. 16135 of 2018 FOR APPROVAL AND SIGNATURE: HONOURABLE MR.JUSTICE J.B.PARDIWALA and HONOURABLE MR.JUSTICE A.C. RAO ========================================================== 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 ? ========================================================== NILAMBEN SANDIPBHAI PARIKH Versus ASSISTANT COMMISSIONER OF INCOME TAX CIRCLE 4(2) ========================================================== Appearance: MR SUDHIR M MEHTA(2058) for the Petitioner(s) No. 1 MS SHAILEE S MEHTA(5873) for the Petitioner(s) No. 1 MRS MAUNA M BHATT(174) for the Respondent(s) No. 1 ========================================================== CORAM: HONOURABLE MR.JUSTICE J.B.PARDIWALA and HONOURABLE MR.JUSTICE A.C. RAO Date : 05/08/2019 ORAL JUDGMENT (PER : HONOURABLE MR.JUSTICE A.C. RAO) Page 1 of 14 C/SCA/16135/2018 JUDGMENT 1.00. RULE, returnable forthwith. Ms.Mauna Bhatt, learned Senior Standing Counsel appearing for the revenue waives the service of notice of the rule on behalf of the respondents. 1.01. In the facts and circumstances of the case and with the consent of the learned counsel appearing for the respective parties, present petition is taken up for final hearing today. 2.00. By this writ petition under Article 226 of the Constitution of India, the petitioner has challenged the impugned notice dated 27/03/2013 issued by the respondent under section 148 of the Income Tax Act, 1961 (“the Act” for short) (Annexure-A), seeking to reopen the petitioner's assessment for the A.Y. 2013-14 as well as the order disposing the objections dated 10/07/2018 (Annexure-H). 3.00. Facts leading to the present petition, in nutshell are as under :- 3.01. The petitioner filed its return of income for the A.Y. 2013-14 on 30/09/2013 declaring total income of Rs.41,87,350/-. During the assessment proceedings u/s.143(3), notice under section 142(1) was issued for information required vide letter dated 7/11/2014 by the A.O. The petitioner was called upon to furnish the details. The petitioner submitted reply dated 20/5/2015 and 24/6/2015 and Page 2 of 14 C/SCA/16135/2018 JUDGMENT submitted the details including copy of the sale deed, return of income for the A.Y. 2014-15 and other relevant documents. Thereafter, assessment order under section 143(3) of the Act passed on 13/7/2015. The respondent issued notice under section 148 dated 27/3/2018 stating that income had escaped assessment for the A.Y. 2013-14 and asked the petitioner to file the return. The petitioner requested for copy of the reasons recorded and thereafter respondent vide letter dated 14/5/2018 supplied copy of the reasons to the petitioner. The petitioner raised objections to the notice under section 148 through Chartered Accountant vide letter dated 25/6/2018 and 6/7.7.2018. However, the respondent disposed of the objections, vide order dated dated 10/07/2018, holding that the reasons raised by the petitioner are not acceptable and hence rejected the same in totality. Hence, the petitioner has preferred present writ petition. 4.00. Mr.Sudhir Mehta, learned counsel appearing for the petitioner has vehemently submitted that the property was sold in the financial year 2012-13, but the purchaser had not made the payment in the financial year 2012-13 and payment was made in the financial year 2013-14. The assessee also paid tax on the consideration for the return of income for the A.Y. 2013-14. It is contended that this fact is already placed on record of the A.O. and the assessment order was passed under section 143(3) of the Act on 13/7/2015 and therefore, not it is not open for the A.O. to issue Notice under section 148 of the Act stating that income had escaped for the A.Y. 2013-14 and asking the petitioner to file the return. Page 3 of 14 C/SCA/16135/2018 JUDGMENT 4.01. Mr.Sudhir Mehta, further submitted that during the course of regular assessment proceedings, detailed inquiry was conducted and the petitioner had filed reply and during the course of the inquiry, the petitioner disclosed the fact of sale of the property and had also submitted copy of the sale deed and computation of total income for the A.Y. 2014-15 wherein the income from capital gain has been calculated on the basis of the amount received on 26/9/2013 and possession was handed over to the purchaser. It is contended that thus, during the inquiry carried out during the original assessment, the petitioner had disclosed the fact of sale of the property and the A.O. was aware about the same and therefore, the notice u/s 148 of the Act on the basis of “on verification of records” is nothing but a chance of opinion, which is not permissible. In support of the above submission, Mr.Mehta, has relied upon the decision of the Surpeme Court in the case of Income Tax Officer Vs. Tech Span India (P) Ltd. reported in [2018] 92 taxmann.com 361 (SC). 4.02. Mr.Mehta, further submitted that for reopening for the purpose of making a fresh / roving inquiry, there is no new material. It is submitted that reopening of completed assessment is impermissible to merely carry out fishing and roving inquiry. 4.03. Mr.Mehta, further submitted that Assessing Officer has power to reopen the assessment, provided there is “tangible material” to come to the conclusion that there is escapement of income from assessment. The reasons must have a live link with the formation of belief. In support of his Page 4 of 14 C/SCA/16135/2018 JUDGMENT above submission, he has relied upon the decision of the Supreme Court in the case of Commissioner of Income-tax Versus Kelvinator of India, reported in [2010] 320 ITR 561 (SC). Relying upon the decision in the case of Priyanka Gems Versus Assistant Commissioner of Income-tax, reported in [2014] 46 taxmann.com 376 (Gujarat), it is submitted that in absence of any new tangible material available with the A.O., it is not open to the A.O. to change his opinion by issuing the notice of re-assessment. 4.04. Mr.Mehta, further contended that there is nothing to indicate that the AO has independently applied his mind to record the case to ascertain as to whether there is escaped assessment and the reopening is on the basis of conjectures and surmises. 4.05. Mr.Mehta, further contended that as per settled law merely having a reason to believe that income had escaped assessment is not sufficient to reopen the assessment. It is further contended that for issuance of notice under section 148, the AO must record his satisfaction that income has escaped assessment and such assessment must be based on a reason to believe that some income has escaped assessment. However, such satisfaction in absence of any application of mind and any real finding in the case of the assessment do not constitute valid reason to believe that income has escaped assessment. It is contended that therefore, the impugned notice u/s.148 is illegal, bad in law and cannot sustain. Page 5 of 14 C/SCA/16135/2018 JUDGMENT 4.06. Relying upon the decision in of this court in the case of Giriraj Steel Versus Deputy Commissionerof Income Tax, reported in [2018] 91 taxmann.com 342 (Gujarat), Mr.Mehta, submitted that reopening of assessment being based on a mere change of opinion, the assumption of jurisdiction on the part of the A.O. lacks validity and the notice u/s 148 of the Act cannot be sustained. Making above submissions and relying upon above decisions, it is requested to allow the present petition. 5.00. Ms.Mauna Bhatt, learned Senior Standing Counsel appearing for the revenue has vehemently opposed the present petition. She contended that in the return of income filed for the A.YH. 2013-14, the petitioner assessee has not shown the capital gain arising out of the sale of the property and therefore, the petitioner is liable to pay capital gain of Rs.25,07,732/- and assessment u/s.143(3) of the Act passed on 13/7/2015 determining total income at Rs.43,85,390/-. It is contended that thus, the income has escaped assessment for the A.Y. 2013-14. 5.01. Ms.Bhatt, further contended that the property in question was sold on 7/12/2012 as per the sale deed dated 6/12/2012 registered with Sub-registrar, SRO, Ahmedabad-9, Bopal and as per the sale deed Rs.67,82,500 was paid to be paid by the purchaser within 16 days towards full and final sale consideration and said amount must have been paid to the petitioner within 16 days within financial year 2012-13 and therefore, it is established that the property was sold during Page 6 of 14 C/SCA/16135/2018 JUDGMENT the financial year 2012-13 and therefore, the capital gain earned for the sale of the property is to be considered for the A.Y. 2013-14 and not 2014-15. Ms.Bhatt, further contended that the A.O. has issued the notice u/s. 148 after completing required procedure and he has jurisdiction to issue such notice and no error has been committed by the A.O. in issuing notice u/s.148. She contended that as the income escaped assessment, the notice u/s.148 is rightly issued. 5.02. Ms.Bhatt further contended that the present petition is pre-mature, as only notice u/s 148 rw.s. 147 has been issued and there is alternative efficacious remedy available with the petitioner by way of appeal before the CIT(A). Submitting accordingly, it is requested to dismiss the present petition. 6.00. Heard Mr.Sudhir Mehta, learned counsel for the petitioner and Ms.Mauna Bhatt, learned Senior Standing counsel appearing for the revenue at length and considered the material on record. 6.01. Short question which arises for determination in this petition is, whether the concept of “change of opinion” stands obliterated with effect from 1st April, 1989, I.e., after substitution of Section 147 of the Income Tax Act, 1961 by Direct Tax Laws (Amendment) Act, 1987? Page 7 of 14 C/SCA/16135/2018 JUDGMENT 6.02. To answer the above question, we need to note the changes undergone by Section 147 of the Income Tax Act, 1961 [for short, “the Act”]. Prior to Direct Tax Laws (Amendment) Act, 1987, Section 147 reads as under: “147.Income escaping assessment.-- If- [a] the Income-tax Officer has reason to believe that, by reason of the omission or failure on the part of an assessee to make a return under section 139 for any assessment year to the Income-tax Officer or to disclose fully and truly all material facts necessary for his assessment for that year, income chargeable to tax has escaped assessment for that year, or [b] notwithstanding that there has been no omission or failure as mentioned in clause (a) on the part of the assessee, the Income-tax Officer has in consequence of information in his possession reason to believe that income chargeable to tax has escaped assessment for any assessment year, he may, subject to the provisions of sections 148 to 153, assess or reassess such income or recompute the loss or the depreciation allowance, as the case may be, for the assessment year concerned (hereafter in sections 148 to 153 referred to as the Page 8 of 14 C/SCA/16135/2018 JUDGMENT relevant assessment year).” 6.02.1. After enactment of Direct Tax Laws (Amendment) Act, 1987, I.e., prior to 1st April, 1989, Section 147 of the Act, reads as under: “147. Income escaping assessment.-- If the Assessing Officer, for reasons to be recorded by him in writing, is of the opinion that any income chargeable to tax has escaped assessment for any assessment year, he may, subject to the provisions of Sections 148 to 153, assess or reassess such income and also any other income chargeable to tax which has escaped assessment and which comes to his notice subsequently in the course of the proceedings under this section, or recompute the loss or the depreciation allowance or any other allowance, as the case may be, for the assessment year concerned (hereafter in this section and in Sections 148 to 153 referred to as the relevant assessment year).” 6.02.3. After the Amending Act, 1989, Section 147 reads as under: “Income escaping assessment. 147. If the Assessing Officer has reason to believe that any income chargeable to tax has escaped assessment for any assessment year, he may, Page 9 of 14 C/SCA/16135/2018 JUDGMENT subject to the provisions of sections 148 to 153, assess or reassess such income and also any other income chargeable to tax which has escaped assessment and which comes to his notice subsequently in the course of the proceedings under this section, or recompute the loss or the depreciation allowance or any other allowance, as the case may be, for the assessment year concerned (hereafter in this section and in sections 148 to 153 referred to as the relevant assessment year).” 6.03. Considering the above, the Apex Court in the case of Kelvinator of India Ltd. (supra) observed and held in para 4 as under :- “4. On going through the changes, quoted above, made to Section 147 of the Act, we find that, prior to Direct Tax Laws (Amendment) Act, 1987, re- opening could be done under above two conditions and fulfillment of the said conditions alone conferred jurisdiction on the Assessing Officer to make a back assessment, but in section 147 of the Act [with effect from 1st April, 1989], they are given a go-by and only one condition has remained, viz., that where the Assessing Officer has reason to believe that income has escaped assessment, confers jurisdiction to re- open the assessment. Therefore, post-1st April, 1989, power to re-open is much wider. However, one needs to give a Page 10 of 14 C/SCA/16135/2018 JUDGMENT schematic interpretation to the words “reason to believe” failing which, we are afraid, Section 147 would give arbitrary powers to the Assessing Officer to re-open assessments on the basis of “mere change of opinion”, which cannot be per se reason to re-open. We must also keep in mind the conceptual difference between power to review and power to re-assess. The Assessing Officer has no power to review; he has the power to re-assess. But re-assessment has to be based on fulfillment of certain pre-condition and if the concept of “change of opinion” is removed, as contended on behalf of the Department, then, in the garb of re-opening the assessment, review would take place. One must treat the concept of “change of opinion” as an in- built test to check abuse of power by the Assessing Officer. Hence, after 1st April, 1989, Assessing Officer has power to re-open, provided there is “tangible material” to come to the conclusion that there is escapement of income from assessment. Reasons must have a live link with the formation of the belief. Our view gets support from the changes made to Section 147 of the Act, as quoted hereinabove. Under the Direct Tax Laws (Amendment) Act, 1987, Parliament not only deleted the words “reason to believe” but also inserted the word “opinion” in Section 147 of the Act. However, on receipt of representations from the Companies against omission of the words “reason to believe”, Parliament re-introduced the said expression and deleted the word “opinion” on Page 11 of 14 C/SCA/16135/2018 JUDGMENT the ground that it would vest arbitrary powers in the Assessing Officer. We quote hereinbelow the relevant portion of Circular No.549 dated 31st October, 1989, which reads as follows: “7.2. Amendment made by the Amending Act, 1989, to reintroduce the expression `reason to believe’ in Section 147. A number of representations were received against the omission of the words `reason to believe’ from Section 147 and their substitution by the `opinion’ of the Assessing Officer. It was pointed out that the meaning of the expression, `reason to believe’ had been explained in a number of court rulings in the past and was well settled and its omission from section 147 would give arbitrary powers to the Assessing Officer to reopen past assessments on mere change of opinion. To allay these fears, the Amending Act, 1989, has again amended section 147 to reintroduce the expression `has reason to believe’ in place of the words `for reasons to be recorded by him in writing, is of the opinion’. Other provisions of the new section 147, however, remain the same.” For the afore-stated reasons, we see no merit in these civil appeals filed by the Department, hence, dismissed with no order as to costs.” Page 12 of 14 C/SCA/16135/2018 JUDGMENT 6.04. Even this Court in the case of Giriraj Steel (supra) has held that reopening of assessment being based on a mere change of opinion, the assumption of jurisdiction on the part of the A.O. lacks validity and the notice u/s 148 of the Act cannot be sustained. 6.05. The Assessing Officer has power to reopen the assessment, provided there is “tangible material” to come to the conclusion that there is escapement of income from assessment and the reasons must have a live link with the formation of belief. In the present case, there is no tangible material. The issuance of the impugned notice u/s.148 is nothing but mere change of opinion. In absence of any new tangible material available with the A.O., it is not open to the A.O. to change his opinion by issuing the notice of re- assessment. 6.06. From the reasons recorded it can be said that the original assessment is sought to be reopened in exercise of powers under section 147/148 of the Act on change of opinion by the AO, which is not permissible more particularly when the original assessment is sought to be reopened after a period of four years from the end of the assessment year. Under the circumstances, the conditions stipulated under first proviso to section 147 are not satisfied and therefore, on the aforesaid ground alone, the impugned notice deserves to be quashed and set aside. 7.00. In view of the above and applying the ratio laid Page 13 of 14 C/SCA/16135/2018 JUDGMENT down in the decisions referred to hereinabove and for the reasons stated above, present petition succeeds and the impugned notice dated 27/3/2018 issued by the respondent under section 148 of the Act is held to be illegal, without jurisdiction, bad in law and deserves to be quashed and set aside and is, accordingly, quashed and set aside. Consequently, the order dated 10/7/2018 disposing of the objections is also quashed and set aside. The Rule is made absolute to the aforesaid extent. In the facts and circumstances of the case, there shall be no order as to costs. (J. B. PARDIWALA, J) (A. C. RAO, J) RAFIK.. Page 14 of 14 "