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2015 DIGILAW 376 (GUJ)

Pushpaben Chimanbhai Patel v. Income Tax Officer

2015-04-01

M.R.SHAH, S.H.VORA

body2015
JUDGMENT M.R. Shah, J. 1. Rule. Shri Nitin Mehta, learned advocate waives service of notice of Rule on behalf of respondent revenue. In the facts and circumstances of the case and with the consent of the learned advocates for the respective parties, petition is taken up for final hearing today. 2. By way of this petition under Article 226 of the Constitution of India, the petitioner-assessee has prayed for an appropriate writ, direction or order quashing and setting aside the impugned notice dated 28.3.2014 (Annexure A) issued by the respondent proposing to reopen the assessment of the petitioner -assessee for AY 2009-10 as well as order of re-assessment passed, if any, in consequence to the impugned proceedings. 2.1. The petitioner-assessee has also prayed for an appropriate writ, direction or order to quash and set aside the impugned order dated 29.9.2014 (Annexure B) passed by the respondent rejecting the objections of the petitioner and upholding the validity of the impugned re-assessment proceedings under Section 147 of the Income Tax Act (hereinafter referred to as the "Act") for AY 2009-10. 3. That the petitioner-assessee filed her E return of Income for AY 2009-10 on 25.3.2010 declaring total income at Rs. 9,44,090/- which consisted of property income of Rs. 24,990/- and interest income of Rs. 9,19,100/-. That according to the petitioner, she derived income by way of rent from letting out an immovable property and interest income from deposits placed with State Bank of Saurashtra and bonds with NHAI. That the petitioner also disclosed interest income from deposits with the State Bank of Saurashtra (now SBI) of Rs. 7,65,504/- and the interest income of Rs. 1,53,596/- on NHAI capital gains bonds. That the petitioner also claimed credit for the TDS aggregating to Rs. 2,20,452/- deducted from the aforesaid both interest income. The petitioner also computed NIL taxable capital gain arising on sale of open plot of land after considering the exemptions u/s. 54EC and 54F of the Act. That the AO finalized the assessment proceedings and passed an assessment order accepting the claims made by the assessee in her original return and granted deductions as claimed. 3.1. The petitioner also computed NIL taxable capital gain arising on sale of open plot of land after considering the exemptions u/s. 54EC and 54F of the Act. That the AO finalized the assessment proceedings and passed an assessment order accepting the claims made by the assessee in her original return and granted deductions as claimed. 3.1. That thereafter, the petitioner assessee has been served with the impugned notice dated 28.3.2014 under Section148 of the Act calling upon the assessee to submit/file return/revised return of income in the prescribed format submitting that he has reason to believe that her income chargeable to tax for the AY 2009-10 has escaped assessment within the meaning of Section 147 of the Act. Having served with the notice under Section 148 of the Act, the petitioner communicated to the AO vide letter dated 28.4.2014 to consider the return filed on 25.3.2014 as return in response to the impugned notice and also given the copy of reasons recorded for reopening. That respondent by letter dated 29.4.2014 intimated the reasons recorded for reopening of the assessment under Section 147 of the Act which reads as under: "As per AIR information, the assessee has purchased bonds/debenture of Rs. 50,00,000/- during the FY 2008-09 relevant to AY 2009-10. Also the assessee has claimed high value of refund for AY 2009-10 which requires to be verified." 3.2. That thereafter, by letter dated 12.5.2014, filed on 15.5.2014 with the respondent, the petitioner objected the validity of the impugned notice under Section 148 of the Act and proceedings initiated under Section 147 of the Act, contending inter alia that as per the reasons recorded which was communicated to the petitioner vide communication dated 29.4.2014, even according to the AO the claim made by the assessee with respect to investment in bonds/debenture of Rs. 50 lacs was to be verified. Therefore, it was submitted that the subjective satisfaction of the AO that any income chargeable to tax has escaped assessment has been vitiated. On merits also, it was submitted that the assessee had invested Rs. 50 lacs in NHAI Capital Gain Tax Bonds on 15.09.2008 to take benefit of Section 54EC of the Act, against the Capital Gain earned by her. Therefore, it was requested to drop the re-assessment proceedings. 3.3. On merits also, it was submitted that the assessee had invested Rs. 50 lacs in NHAI Capital Gain Tax Bonds on 15.09.2008 to take benefit of Section 54EC of the Act, against the Capital Gain earned by her. Therefore, it was requested to drop the re-assessment proceedings. 3.3. It appears that thereafter the respondent by letter dated 13.6.2014 informed the assessee that by office letter dated 29.4.2014, the first part of the paragraph of the reasons recorded for reopening was communicated whereas the second paragraph of the reasons recorded was inadvertently not communicated. Therefore, the second paragraph of the reasons recorded also came to be communicated to the assessee by the letter dated 13.6.2014. That the assessee by letter dated 1.8.2014 once again objected to reopening of the assessment and also the so-called omission to communicate the second para of reasons recorded. That thereafter, the respondent has passed the order on 22.09.2014 rejecting the objections raised by the petitioner - assessee to the reopening of the assessment. 3.4. Hence, petitioner has preferred present Special Civil Application under Article 226 of the Constitution of India challenging the impugned re-assessment proceedings under Sections 147 and 148 of the Act. 4. Shri S.N. Divatia, learned advocate for the petitioner-assessee has vehemently submitted that the impugned re-assessment proceedings/opening of the re-assessment under Section 147 of the Act is absolutely illegal, most arbitrary and invalid. It is submitted that none of the conditions precedent for reopening of assessment under Section 147 of the Act are satisfied. 4.1. It is further submitted by Shri Divatia, learned advocate for the petitioner-assessee that Section 147 of the Act empowers the AO to assess or re-assess income chargeable to tax which he has reason to believe to have escaped assessment. It is further submitted that in order to validly reopen any assessment, under Section 147 of the Act, the AO must form on the basis of material a tentative or prima facie opinion that there is an underassessment or escapement of income. It is submitted that in the present case and even in the reasons recorded for reopening, the respondent had not formed even a prima facie belief of the income having escaped assessment. It is submitted that even in the reasons recorded it is stated that the "assessee had claimed high value of refund for AY 2009-10, which requires to be verified". It is submitted that even in the reasons recorded it is stated that the "assessee had claimed high value of refund for AY 2009-10, which requires to be verified". It is submitted that even according to the respondent the things were yet to be verified. It is submitted that therefore, as such there was no material on record for the AO to form such belief that the income had escaped any assessment. It is submitted that there has to be some material pointed out by the respondent on the basis of which he/she may entertain such belief, because there has to be a rational or intelligible nexus between the material and the belief of escapement of income. 4.2. It is further submitted by Shri Divatia, learned advocate for the petitioner-assessee that in order to confer jurisdiction under Section 147 of the Act, it is a condition precedent that the AO must have reason to believe that income chargeable to tax has escaped assessment. 4.3. It is further submitted by the Shri Divatia, learned advocate for the petitioner-assessee that in the present case the respondent has not disputed in the order disposing the objections of the petitioner having invested Rs. 50 lacs in NHAI capital gain bond on 15.09.2008 to avail the benefit of exemption under Section 54EC of the Act against the capital gain arising on sale of plot of land. It is submitted that on the contrary the reasons as reproduced in the communication dated 29.4.2014, the respondent desire to verify the purchase of said bonds. It is submitted that therefore, respondent has not even recorded his satisfaction to the effect that he believed the income to have escaped assessment. It is submitted that communication of so called paragraph 2 of the reasons recorded by the respondent vide letter dated 13.6.2014 appears to be suspicious. It is submitted that very fact that the said communication was given after about 1 month from filing the objections to the reopening by the petitioner, the same does not inspire any confidence. 4.4. It is further submitted by Shri Divatia, learned advocate for the petitioner that the impugned notice of reopening of the assessment is bad in law and without jurisdiction also on account of fact that reasons did not indicate whether any income had actually escaped assessment. 4.4. It is further submitted by Shri Divatia, learned advocate for the petitioner that the impugned notice of reopening of the assessment is bad in law and without jurisdiction also on account of fact that reasons did not indicate whether any income had actually escaped assessment. It is submitted that such reasons could not be said to be valid as the reopening was initiated to make inquiries and required further verification. In support of above submission, he has relied upon the decision of the Hon'ble Supreme Court in the case of Chhugamal Rajpa v. S.P. Chaliha & Ors reported in (1971) 79 ITR 603(SC) as well as decision of the Division Bench of this Court in the case of Shankarlal Nagji & Co & ors v. ITO reported in (2010) 322 ITR 90(Guj). It is submitted that in the case of Chhugamal Rajpa (supra) the AO had while recorded the reasons mentioned "hence proper investigation regarding these loans is necessary", the Hon'ble Supreme Court has held the re-assessment proceedings invalid. Making above submissions and relying upon above decisions, it is requested to allow the present Special Civil Application and quash and set aside the impugned re-assessment proceedings. 5. Shri Nitin Mehta, learned advocate for the revenue has opposed the present petition. He has relied upon the affidavit in reply justifying the reopening of the assessment. An additional affidavit in reply is also filed submitting that there was a mistake in not communicating second paragraph of the reasons recorded, in the earlier communication dated 29.4.2014. Therefore, it is requested to consider the communication dated 13.6.2014 (both paragraph mentioned in the said communication) as reasons recorded for reopening of assessment for AY 2009-10. 5.1. It is further submitted by Shri Mehta, learned advocate for the Revenue that in the facts and circumstances of the case, more particularly, when in the case of the assessee there was no assessment under Section 143(3) of the Act and no order under Section 143(3) of the had been passed and the AO formed an opinion that the income had escaped assessment, initiation of reopening of assessment is absolutely just and proper. 5.2. It is further submitted by Shri Mehta, learned advocate for the revenue that on considering the material on record the AO-respondent doubted the source of fund for investment in bonds and the claim of high value of refund. 5.2. It is further submitted by Shri Mehta, learned advocate for the revenue that on considering the material on record the AO-respondent doubted the source of fund for investment in bonds and the claim of high value of refund. It is submitted that since no assessment under Section 143(3) of the Act had been completed in the case of petitioner assessee the issue of examining the source of funds for investment in bonds and the claim of high value of refund had escaped examination. It is submitted that therefore, AO is justified in reopening the assessment. Making above submissions and relying upon the first affidavit in reply as well as second affidavit in reply of the respondent, it is requested to dismiss the present Special Civil Application. 6. Heard the learned advocates for the respective parties at length. At the outset, it is required to be noted that by way of this petition under Article 226 of the Constitution of India, the petitioner has challenged the initiation of impugned re-assessment proceedings/reopening of the assessment for AY 2009-10 in exercise of powers under Section 147 of the Act. When the petitioner -assessee asked the reasons recorded vide communication dated 29.4.2014 the assessee was served with following reasons recorded for reopening the assessment under Section 147 of the Act. "As per AIR information, the assessee has purchased bonds/debenture of Rs. 50,00,000/- during the FY 2008-09 relevant to AY 2009-10. Also the assessee has claimed high value of refund for AY 2009-10 which requires to be verified." 6.1. However, after the petitioner- assessee submitted the objections against the aforesaid reasons recorded petitioner was communicated vide communication 29.4.2014 that "only the first paragraph of the reasons recorded" for reopening the assessment was communicated, however "second paragraph of the reasons recorded" was inadvertently not communicated in the said letter. Therefore, second paragraph of the reasons recorded as mentioned in the communication dated 13.6.2014 is as under: "Considering the facts of the case, I have reason to believe that assessee's income to the extent of investment in bonds/debentures has escaped assessment for AY 2009-10, within the meaning of Section 147 of the Act. Therefore, this is a fit case to initiate proceedings u/s. 147 of the Income Tax Act, 1961, issue notice u/s. 148 of the Act." 6.2. Therefore, this is a fit case to initiate proceedings u/s. 147 of the Income Tax Act, 1961, issue notice u/s. 148 of the Act." 6.2. Considering the additional affidavit in reply and on considering the original file we believe the case on behalf of the revenue/respondent that second paragraph of the reasons recorded was inadvertently not communicated. Thus, both the aforesaid paragraphs be treated and considered as reasons recorded for reopening of the assessment for AY 2009-10. 7. Having heard the learned advocates for the parties and considering the aforesaid reasons recorded for reopening of the assessment for AY 2009-10 and even considering the affidavit in reply it appears that even as per AO investment made by the assessee in certain bonds as well as high value of refund sought by her required deeper verification. If that be so and in that case, subjective satisfaction and/or belief of the AO while reopening the assessment that the income chargeable to tax has escaped assessment has been vitiated. Even according to the respondent and in the reasons recorded for reopening of assessment, the aforesaid was required to be verified. Therefore, as such the condition precedent for reopening of the assessment under Section 147 of the Act are not satisfied. As per the catena of decisions while exercising the powers under Section 147 of the Act and while reopening of any assessment, the AO must form, on the basis of tangible material a tentative or prima facie opinion that there is an underassessment or escapement of income. As per the catena of decisions, a computed assessment cannot be reopened to make inquiry or further verification of the claim. After due verification and inquiry when AO forms prima facie opinion that income chargeable to tax has escaped assessment in that case only the reopening of assessment under Section 147 of the Act is permissible. The things which are yet to be verified, on that the AO cannot have a subjective satisfaction that income chargeable to tax has escaped assessment. That will be putting a cart before horse. Under the circumstances, when condition precedent for initiation of reopening of assessment under Section 147 of the Act are not satisfied, the impugned re-assessment proceedings under Section 147 of the Act are invalid and therefore, this is a fit case to exercise the powers under Article 226 of the Constitution of India. That will be putting a cart before horse. Under the circumstances, when condition precedent for initiation of reopening of assessment under Section 147 of the Act are not satisfied, the impugned re-assessment proceedings under Section 147 of the Act are invalid and therefore, this is a fit case to exercise the powers under Article 226 of the Constitution of India. At this stage, it is required to be noted that even in the affidavit in reply in para 3(II) it is specifically stated that "reasons for reopening clearly stated that the investment made by the petitioner in certain bonds as well as the high value of refund sought by her require deeper verification". Under the circumstances, the impugned notice under Section 148 of the Act and the impugned re-assessment proceedings deserves to be quashed and set aside. 8. In view of the above and for the reasons stated above, present petition succeeds. The impugned re-assessment/reopening of the assessment for AY 2009-10 by impugned notice dated 28.3.2014 as well as impugned communication dated 29.4.2014 passed by the respondent rejecting the objection of the petitioner against the reopening of the assessment for AY 2009-10 are hereby quashed and set aside solely on the ground that the condition precedent for initiation of proceedings under Section 147 of the Act are not satisfied. Rule is made absolute to the aforesaid extent. No costs.