RAJENDRA SUGANCHAND SHAH V. ASST. COMMISSIONER OF INCOME TAX CIRCLE 1(3)

SCA/16999/2018

AI Insights

The case involves Rajendra Suganchand Shah, who challenged a notice issued by the Assistant Commissioner of Income Tax under Section 148 of the Income Tax Act, 1961, seeking to reopen his income tax assessment for the Assessment Year 2011-12. The notice was based on a transaction involving Rs. 6 Crore received as an advance for the sale of property, which was later alleged to be unexplained income. The petitioner argued that the reopening was beyond the permissible period and constituted a mere change of opinion without new tangible material. The court agreed with the petitioner, citing the Supreme Court's decision in Commissioner of Income-Tax vs. Kelvinator of India Ltd., which emphasized that reopening based on change of opinion is not permissible.

• Counselvise Citation: [2019] 140 COUNSELVISE.COM (IT) 769049 (HC-GUJARAT)
• Appeal Type: Others
• Pronouncement Date: 19-08-2019
• Assessment Year: misc
• Other Referred Cases: Commissioner of Income-Tax vs. Kelvinator of India Ltd.
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Others
• Court: HIGH COURT
• Department Lawyers: NOTICE SERVED
• Assessee Lawyers: VAIBHAVI PARIKH
• Keywords: Change of opinion; Income tax assessment; Re-opening of assessment; Unexplained income; Writ application
• Section: 147; 148; 143(3); 142(1)

Judgement Text

"C/SCA/16999/2018 ORDER IN THE HIGH COURT OF GUJARAT AT AHMEDABAD R/SPECIAL CIVIL APPLICATION NO. 16999 of 2018 ============================================= RAJENDRA SUGANCHAND SHAH Versus ASST. COMMISSIONER OF INCOME TAX CIRCLE 1(3) ============================================= Appearance: MS VAIBHAVI K PARIKH(3238) for the Petitioner(s) No. 1 NOTICE SERVED(4) for the Respondent(s) No. 1 ============================================= CORAM: HONOURABLE MR.JUSTICE J.B.PARDIWALA and HONOURABLE MR.JUSTICE A.C. RAO Date : 19/08/2019 ORAL ORDER (PER : HONOURABLE MR.JUSTICE J.B.PARDIWALA) 1. The respondent although served with the notice issued by this Court, yet has chosen not to remain present before this Court either in person or through an advocate and oppose this writ application. 2. By this writ application under Article 226 of the Constitution of India, the writ applicant has prayed for the following reliefs : “(a) quash and set aside the impugned notice at ANNEXURE “A” to this petition; (b) pending the admission, hearing and final disposal of this petition, to stay the implementation and operation of the notice at ANNEXURE “A” to this Page 1 of 11 C/SCA/16999/2018 ORDER petition and stay the further proceedings for the Asst. Year 2011-12; (c) any other and further relief deemed just and proper be granted in the interest of justice; (d) to provide for the cost of this petition.” 3. It appears from the materials on record that the writ applicant seeks to challenge the notice dated 28.03.2018 issued by the respondent under Section 148 of the Income Tax Act, 1961 (for short “the Act, 1961) seeking to re-open the writ applicant’s income tax assessment for the Assessment Year 2011-12. 4. The writ applicant is engaged in the business of running petrol pumps. The writ applicant also has a proprietary concern namely, “M/s. Shasan Corporation” from which, according to the writ applicant, no business activities are being conducted. The writ applicant received a sum of Rs.6 Crore on 04.04.2006 i.e. Financial Year 2006-07 relevant to the Assessment Year 2007-08 by an account payee cheque from M/s. Pushti Enterprise Pvt. Ltd. (now known as M/s. Reliance Progressive Traders Pvt. Ltd.) towards the advance for the sale of a property. It is the case of the writ applicant that the said deal however, came to be cancelled and the amount referred to above was repaid by the writ applicant Page 2 of 11 C/SCA/16999/2018 ORDER during the Financial Year 2010-11 vide cheque drawn from the ICICI Bank Account No.005205002647 held by the writ applicant in the name of his proprietary concern by borrowing an equivalent sum from one Shri Mitul J. Shah from the Financial Year 2010-11. Thus, prima facie it appears that for the purpose of purchasing the property the writ applicant borrowed a particular amount. Later, to re-pay the borrowed amount, he once again borrowed a particular amount from a different person. The writ applicant filed his return of income for the Assessment Year 2011-12 on 30.03.2012 declaring his total income at Rs.36,88,730/-. The case of the writ applicant was selected for scrutiny assessment. It is not in dispute that various information and details were called for by the then Assessing Officer and the same was duly furnished by the writ applicant. 5. It is pertinent to note that the then Assessing Officer vide notice dated 07.10.2013 issued under Section 142(1) of the Act, had called upon the writ applicant to furnish the following information : • Confirmations for unsecured loans / advances along with name, PAN, address, assessment details and various such information; Page 3 of 11 C/SCA/16999/2018 ORDER • Account number, bank name, branch and address of all bank accounts for the concern as well as proprietor / partner; 5.1 The Assessing Officer upon due consideration of all the necessary details and information furnished by the writ applicant thought fit not to make any addition in respect of the transaction as to the receipt of Rs.6 Crore as well as re- payment of the same while framing the assessment under Section 143(3) of the Act vide order dated 24.01.2014. It appears that thereafter the impugned notice dated 28.03.2018 came to be issued under Section 148 of the Act seeking to re- open the case of the writ applicant for the year under consideration. The reasons assigned for the re-opening under Section 147 of the Act, 1961 are as under : “3. During investigation it was ascertained that te amount credited in the account of M/s Shashan Corporation was received from the account of Shri Mitul J. Shah on 27.01.2011 and on the very same day the amount of Rs.6 Crores was transferred to M/s Reliance Progressive Traders Pvt. Ltd. On perusal of the books of accounts of Shri Rajendra Shah there was no mention of any advance of Rs.6,00,00,000/- nor there was any mention in the audit report in this aspect. Thus the said amount of Rs.6,00,00,000/- remained unsubstantiated. The assessee was not in a Page 4 of 11 C/SCA/16999/2018 ORDER position to substantiate or produce any details or explain mode of receipt of advance amounting to Rs.6 crores. Thus it is very certain that the amount of Rs.6,00,00,000/- remained unexplained. 4. The assessee contended that the said amount of Rs.6,00,00,000/- was received as advance against sale of mall premise however, no documentary evidence could be furnished by the assessee with regard to the said contention. The said amount was stated to be advanced in the year 2006 and till date no interest was paid on the same amount by the assessee. Thus, the assessee could not substantiate the nature of such transfer with supporting evidence, hence the same remained unexplained. In view of failure of the assessee to explain the nature of such advance received and also in view of failure to reflect the same in his books of accounts as advance received in 2006, the said amount of Rs.6 crores is income from unexplained sources which has escaped assessment. Thus, income to the tune of Rs.6,00,00,000/- or more has escaped assessment in the case of the assessee attracting the provisions of Income-tax Act.” 6. Mr. Tushar Hemani, the learned senior counsel appearing for the writ applicant has canvassed the following submissions : (1) It is submitted that the amount in question was received in the Assessment Year 2007-08 and in such circumstances, the respondent could not have re-opened the Assessment Year Page 5 of 11 C/SCA/16999/2018 ORDER 2011-12 for taxing such amount; (2) The re-opening is beyond the period of four years and there is no failure on the part of the writ applicant as to full and true disclosure; (3) It is submitted that the re-opening is based on mere change of opinion; (4) It is also submitted that the reasons for re-opening lack validity as there is no “reason to believe” that the income chargeable to tax has escaped assessment; (5) It is also submitted that re-opening is not permissible for undertaking a roving or a fishing inquiry or investigation without there being a specific finding as to the escape of income; (6) It is also submitted that there is no cause and effect relationship between the reasons recorded for re-opening and the income escaping assessment; (7) In the last, it is submitted that the re-opening is based on “borrowed satisfaction”. 7. Having heard Mr. Tushar Hemani, the learned senior counsel appearing for the writ applicant and having gone through the materials on record, we find substance in two submissions : the first submission that the transaction cannot Page 6 of 11 C/SCA/16999/2018 ORDER be examined under the Assessment Year 2011-12 as the amount is said to have been received in the year 2006 and the second submission that it appears to be a case of change of opinion. 7.1 In Commissioner of Income-Tax vs. Kelvinator of India Ltd. reported in (2010) 320 ITR 561 (SC), the Supreme Court had observed as under : “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, reopening 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 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 reopen. We must also keep in mind the conceptual difference between power to review and power to reassess. The Assessing Officer has no power to review; he has the power to reassess. But re- Page 7 of 11 C/SCA/16999/2018 ORDER 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 reopening 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 reintroduced the said expression and deleted the word “opinion” on 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, ([1990] 182 ITR (St.) 1, 29) 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’ Page 8 of 11 C/SCA/16999/2018 ORDER 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.” 7.2 The then Assessing Officer, vide notice dated 07.10.2013 issued under Section 142(1) of the Act, called upon the writ applicant to furnish various details including the followings : • Confirmations for unsecured loans / advances alongwith name, PAN, address, assessment details and such other information; • Account number, bank name, branch and address of all bank accounts for the concern as well as proprietor / partner; 7.3 The writ applicant, vide letter dated 17.10.2013, had furnished various information including the details of all the bank accounts maintained by the writ applicant in his personal capacity and also in the name of the business. Such Page 9 of 11 C/SCA/16999/2018 ORDER bank details also included the details of the current account being the Account No.5205002647 maintained with the ICICI bank Ltd. 7.4 The writ applicant, vide letter dated 06.01.2014, had further stated and submitted as follows : • The writ applicant has not maintained personal books of accounts; Photo copy of wealth tax return for the Assessment Years 2009-10 and 2010-11 were furnished; • Confirmations of loan account in the personal bank account were filed. The same included the confirmation as well as the acknowledgment of return of income of Mitul J. Shah from whom, the writ applicant had received a sum of Rs.6 crore during the year under consideration; 7.5 The then Assessing Officer, after due consideration of the details and information furnished by the writ applicant from time to time, consciously chose not to make any addition in respect of the transactions as to the receipt of Rs.6 crore as well as the repayment of the same while framing the assessment under Section 143(3) of the Act. Thus, the issue on hand had been minutely scrutinized by the then Assessing Page 10 of 11 C/SCA/16999/2018 ORDER Officer at the stage of the original assessment. Now, the respondent is looking forward to touch the very same issue by re-opening the writ applicant’s case which is nothing but change of opinion. The action of re-opening the writ applicant’s case under Section 147 merely based on change of opinion is not tenable in the eye of law. 8. In the result, this petition succeeds and is hereby allowed. The impugned notice at Annexure “A” to this petition is hereby quashed and set aside. Consequently, all proceedings undertaken, if any, pursuant to the issue of notice also stands terminated. (J. B. PARDIWALA, J) (A. C. RAO, J) Dolly Page 11 of 11 "