The basic condition precedent of ‘reason to believe’ applies even to s. 143(1) intimations.
Conclusion in Short:
The mere fact that the return is processed u/s 143(1) does not give the AO a carte blanche to issue a reopening notice. The basic condition precedent of ‘reason to believe’ applies even to s. 143(1) intimations. If the assessee claims the facts recorded in the reasons are not correct, the order on objection must deal with them. Otherwise an adverse inference can be drawn against the Revenue
IN THE HIGH COURT OF JUDICATURE AT BOMBAY
ORDINARY ORIGINAL CIVIL JURISDICTION
WRIT PETITION NO. 3344 OF 2018
Ankita A. Choksey .. Petitioner.
Income Tax Officer19 (1)(1) & Others .. Respondents.
Mr. Jitendra Jain with Mr. Sameer Dalal, for the Petitioner.
Mr. Sham Walve, for the Respondents.
CORAM: AKIL KURESHI & M.S.SANKLECHA, JJ.
DATE : 10th JANUARY, 2019.
With the consent of the parties, this Petition which challenges
a reopening notice under the Income Tax Act, 1961 (the Act), is being
taken up for final disposal at the stage of admission.
2 This Petition under Article 226 of the Constitution of India,
challenges a notice dated 27th March, 2018 issued by the Assessing
Officer under Section 148 of the Income Tax Act, 1961 (the Act). The
impugned notice seeks to reopen the Assessment for Assessment Year
3 Briefly, the facts leading to this Petition are as under:
(i) The Petitioner held 10% shares in one M/s. Samuel Dracup and
Sons India Private Limited (the Limited Company) .
(ii) On 18th October, 2010, the Limited Company decided to voluntarily
wind up and liquidate its business. This by the Limited Company passing resolution at the General Body Meeting of its share holders. It was resolved that the assets (including immovable property) remaining after paying of the liabilities, would be distributed between its share holders in proportion to their share
(iii) Pursuant to the above, on 27th December, 2010, the Limited
Company executed a sale deed, transferring the immovable
property i.e. a flat in “Geetanjali” situated in Mumbai (said flat) in
favour of the Petitioner and her mother – Mrs. Priti Choksey to the
extent their shares holding i.e. 10% and 90% in the Limited
(iv) On 30th June, 2011, this Court ordered the dissolution of the
Limited Company. This, while indicating the share holding of the
Limited Company at 90% in the hands of Ms. Priti Choksey and
10% in the hands of the Petitioner. The above order of dissolution
was passed after the RespondentRevenue gave its no objection to
(v) On 30th June, 2011, the Petitioner filed its return of income for the
Assessment Year 201112, returning an income of Rs.6.34 lakhs. In
its return of income the Petitioner had disclosed under Section 46 of
the Act, the receipt of 10% interest in the said flat received from the
company on account of its liquidation i.e. 10% of Rs.3.79 Crores
(being value of flat). This to arrive at her capital gains. The
return of income was processed under Section 143(1) of the Act by
way of intimation.
(vi) Thereafter on 27th March, 2018, the impugned notice under
Section 148 of the Act was issued, seeking to reopen the
Assessment for Assessment Year 201112. The reasons recorded in
support of the impugned notice dated 27th March, 2018 is as
“1. In the above case, the assessee has filed the return of
income for A.Y. 201112 on 30.07.2011 declaring total income
of Rs.6,34,580/. The return was processed u/s. 143(1) of the
Act on 17.12.2012. The assessee is having income from Salary
and income from other Sources.
2. Information has been received from the ITO 1(3)(2),
Mumbai vide letter dated 27.12.2013 that during the course of
assessment proceedings of the company M/s. Samuel Dracup &
Sons (I) Pvt. Ltd., (PAN: AAHCS6649D) for A.Y. 201112, it
was noticed that the assessee company was liquidated by the
order of Hon’ble Bombay High Court. Consequently, the assets in
the hands on company were transferred to the shareholders in
the ratio of their holdings. One of the shareholders in the ratio
of their holdings. One of the shareholders Ms. Ankita Amit
Choksey, PAN: AFXPC9692J is assessed to tax with this charge
and the consideration arising out of liquidation of the assets is
charged in the hands of the assessee Ms. Ankita Amit Choksey.
3. On analysis of the information received and on the
verification of the ITS details from ITD system, it is revealed that
the assessee Ms. Ankita Amit Choksey has received consideration
to the tune of Rs.3,79,63,000/ from the sale of immovable
property of the company M/s. Samuel Dracup and Sons Pvt Ltd.
The same was not offered for tax and not reflected in the books
of account. The nature/ source of the same transactions
4. In view of the above facts and circumstances of the case
and after application of my mind, I have reason to believe that
the income of the assessee Ms. Ankita Amit Choksey, chargeable
to tax for the A.Y. 201112 amounting to Rs.3,79,63,000/ has
escaped assessment due to failure of the assessee to disclose fully
and truly all material facts necessary for the assessment in this
case in terms of provisions of Section 147 of the I.T. Act.
5 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 proceedings u/s. 147 is reason to believe
which has been recorded above.
6. It is pertinent to mention here that in this case the
assessee has filed return of income for the year under
consideration but no assessment as stipulated u/s. 2(40) of the
Act was made and the return of income was only processed u/s.
143(1) of the Act. In view of the above, provisions of clause (b)
of explanation 2 of 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
(vii) On 5th October, 2018, the Petitioner filed its objection to the
impugned reopening notice and the reasons in support thereof. In
particular, the Petitioner pointed out that the reasons in support of
the impugned notice erroneously proceed on the basis that the
Petitioner received a consideration of Rs.3.79 Crores for the sale
of the said flat and that this fact was not disclosed. In fact, it was
pointed out in the objection that the said flat had not been sold
by the Petitioner as she continues to be in possession of the same.
Besides, it was pointed out that Petitioner had disclosed the
amount of 10% of Rs.3.79 Crores i.e. Rs.38.07 lakhs as being the
full value of consideration received on extinguishment of its share
holding in the Limited Company in its return of income. Thus, it
was the Petitioner’s contention that if correct and relevant facts were to be considered, there can be no reason to believe that
income chargeable to tax has escaped assessment. Therefore, the
Petitioner prayed that the impugned notice dated 27th March, 2018
(viii) By an order dated 18th October, 2018, the Assessing Officer rejected
the Petitioner’s objection. However, the assertions on facts made by
the Petitioner were not disputed in the order dated 18th October,
2018. This even when it is contrary to the facts recorded in the
reasons in support of the impugned notice. The only basis for
sustaining the impugned notice dated 27th March, 2018 in the order
was that the Return of Income for the subject Assessment Year had
not been subjected to any scrutiny assessment, as it was only
processed by an intimation under Section 143(1) of the Act.
4 Mr. Jain, the learned Counsel for the Petitioner on the above
facts points out absence of any reason to believe that income chargeable
to tax has escaped Assessment. Thus, he submits that the impugned notice
is completely without jurisdiction and should be quashed.
5 Mr. Walve, learned Counsel appearing for the Revenue and
supporting the impugned notice dated 27th March, 2018, adopts the
reasoning of the order dated 18th October, 2018 i.e. there was no scrutiny
assessment. Thus, no occasion to examine the claim made by the
Petitioner. Therefore, it is submitted that at this stage, the Court should
not interdict the reassessment proceedings. This, if the claim of the
Petitioner is correct, the same would be accepted in the reassessment
order and there would be no cause for grievance.
6 It is a settled position in law that the Assessing Officer
acquires jurisdiction to issue a reopening notice only when he has reason
to believe that income chargeable to tax has escaped Assessment. This
basic condition precedent is applicable whether the return of income was
processed under Section 143(1) of the Act by intimation or assessed by
scrutiny under Section 143(3) of the Act. [See Asst. Commissioner of
Income Tax v/s. Rajesh Jhaveri Stock Brokers (P) Ltd., (SC) 291 ITR 500
and PCIT v/s. M/s. Shodimen Investments (Bombay) 2018 (93)
Further, the reasons to believe that income chargeable
to tax has escaped Assessment must be on correct facts. If the facts, as
recorded in the reasons are not correct and the assessee points out the
same in its objections, then the order on objection must deal with it and
prima facie, establish that the facts stated by it in its reasons as recorded are correct. In the absence of the order of objections dealing with the assertion of the Assessee that the correct facts are not as recorded in the reason, it would be safe to draw an adverse inference against the
7 Thus, we are of the view that even in cases where the return
of income has been accepted by processing under Section 143(1) of the
Act, reopening of an assessment can only be done when the Assessing
Officer has reason to believe that income chargeable to tax has escaped
assessment. The mere fact that the return has been processed under
Section 143(1) of the Act, does not give the Assessing Officer a carte blanc
to issue a reopening notice.
The condition precedent of reason to believe
that income chargeable to tax has escaped assessment on correct facts,
must be satisfied by the Assessing Officer so as to have jurisdiction to issue
the reopening notice. In the present case, the Assessing Officer has
proceeded on fundamentally wrong facts to come to the reasonable belief
conclusion that income chargeable to tax has escaped assessment.
Further, even when the same is pointed out by the Petitioner, the Assessing Officer in its order disposing off the objection does not deal with factual position
asserted by the Petitioner. Thus, it would safe to conclude that the
Revenue does not dispute the facts stated by the Petitioner. On the facts
as found, there could be no reason for the Assessing Officer to believe that
income chargeable to tax has escaped assessment.
8 Therefore, in the above view, as the impugned notice is
without jurisdiction, it is quashed and set aside.
9 Petition allowed in the above terms.
(M.S.SANKLECHA,J.) (AKIL KURESHI,J.)