1 wp1044-15 IN HIGH COURT OF JUDICATURE AT BOMBAY rt ORDINARY ORIGINAL CIVIL JURISDICTION WRIT PETITION (L) NO.1044 OF 2015 ou Bharat Jayantilal Patel ..Petitioner. V/s. C Union of India & Ors. ..Respondents. Mr.Percy Pardiwalla, Senior Advocate Ms.Aarti Sathe, Mr.Kalpesh h Turalkar, Mr.Nikhil J., Mr.Ashish Rao i/b. M and M Legal Ventures for petitioner. ig Mr.A.K.Malhotra with Mr.N.A.Kazi for respondents. H CORAM : S.C.DHARMADHIKARI AND A.K. MENON, JJ. DATED : 5TH MAY, 2015 y ORAL ORDER ba 1. Rule. Respondents waive service. By consent heard om finally. 2. By this Writ Petition under Article 226 of B Constitution of India, petitioner challenges notice under section 148 of Income Tax Act, 1961 (for short 'I.T. Act') dated 29th March, 2014 and order dated dated 27 th March, 2015 by which objections of petitioner-assessee to reasons recorded by assessing officer for reopening of assessment ::: Uploaded on - 22/05/2015 ::: Downloaded on - 13/02/2016 10:00:56 ::: 2 wp1044-15 came to be rejected. rt 3. assessee, petitioner before us is individual. He ou carries on business of share trading and investment in name and style depicted in cause title of these petitions. petitioner is member of Bombay Stock Exchange. He carries C on transactions in shares on behalf of his clients on which he receives brokerage that constitutes his income. In similar manner, h he functions as sub-broker on National Stock Exchange. ig petitioner has carried on share trading and speculation in shares from which activities, he has earned share trading profits and H speculation profit / loss. petitioner has made investments in shares on which he receives dividend and on sale of said y shares, he earns capital gains also. ba 4. He filed his return for assessment year 2007-08 declaring total income at `3,89,52,530/-, break-up of same om has been set out in para 3 of petition and annexure 'A' is copy of return filed in electronic form. B 5. After filing of return, petitioner states that petitioner's case was selected for scrutiny and notice under section 142(2) of I.T. Act dated 25 th August, 2008 was issued. petitioner appeared and filed all requisite details required ::: Uploaded on - 22/05/2015 ::: Downloaded on - 13/02/2016 10:00:56 ::: 3 wp1044-15 by third respondent. rt 6. By another notice dated 12 th August, 2009, ou assessing officer sought details and on points which have been set out in para 5 of writ petition. Annexure 'B' is copy of this notice issued by respondent No.3. C 7. petitioner has set out as to how notices were h complied with and tax audit report, balance sheet, profit and ig loss account along with schedules thereof and other documents came to be filed. There were further details submitted on 12 th H October, 2009. Thereafter, petitioner's representative appeared and tendered submissions. These were recorded in letter dated y 6th November, 2009. petitioner pointed out as to how he has ba received dividend income which is exempt under section 10(34) of I.T. Act. petitioner further submitted that he has earned long term capital gains and short term capital gains in sums om mentioned in para 8 of writ petition. petitioner pointed out as to how these amounts were offered to tax. Thus, there was B series of letters prior to assessment order dated 14th December, 2009 under which petitioner's income was determined at `4,45,57,283/-. There were certain disallowances made. However, treatment of gains arising to petitioner and shares held by him by way of investment as long term capital gains and ::: Uploaded on - 22/05/2015 ::: Downloaded on - 13/02/2016 10:00:56 ::: 4 wp1044-15 short term capital gains was accepted. working thereof has been set out in assessment order. rt ou 8. petitioner was not satisfied with this assessment order and preferred appeal to Commissioner of Income Tax (Appeals) and same was disposed of on 27 th September, 2010 C allowing certain grounds of petitioner. h 9. On 29th March, 2014 third respondent issued ig notice and which is impugned in present writ petition. Annexure 'H' is copy of this notice and same purports to H reopen assessment and for reasons recorded by assessing officer. y ba 10. On receipt of this notice, petitioner filed letter dated 28th April, 2014 and submitted that return of income filed by petitioner earlier be treated as return of income in om pursuance of notice under section 148 of I.T. Act and at same time, reasons recorded for reopening assessment be B supplied to petitioner. Annexure 'I' to writ petition is letter dated 28th April, 2014, 11. However, there was no response and once again petitioner reiterated demand by letter dated 16th July, 2014. ::: Uploaded on - 22/05/2015 ::: Downloaded on - 13/02/2016 10:00:56 ::: 5 wp1044-15 12. Thereafter, reasons recorded for reopening of rt assessment were supplied and furnished on 20 th August, 2014. ou Annexure 'K' is copy of this communication under which reasons came to be supplied. C 13. petitioner responded to same by communication dated 11th September, 2014 and pointed out as to h how reasons supplied or furnished are inadequate and do not ig meet statutory requirements. petitioner pointed out that respondent No.3 was duty bound to dispose of objections H by speaking order. This was pointed out by petitioner by letter dated 8th December, 2014, copy of which is at annexure 'M'. y petitioner complains that by communication dated 5th March, ba 2015 objections raised by petitioner came to be rejected and without any speaking order. Annexure 'N' is copy of this communication from respondent No.3. om 14. Thereafter, petitioner communicated with B respondent No.3 by letter dated 12 th March, 2015 and now grievance raised is that on 27th March, 2015 assessment order came to be passed in pursuance of notice under section 148 of I.T. Act. ::: Uploaded on - 22/05/2015 ::: Downloaded on - 13/02/2016 10:00:56 ::: 6 wp1044-15 15. Thus, grievance raised is that assessing officer did not wait for requisite period to expire and namely, four rt weeks from date of communication of order rejecting ou objections and secondly, that said order not being in conformity with law laid down by this Court in case of Aroni C Commercials Limited V/s. Deputy Commissioner of Income Tax & Anr. in Writ petition No.137 of 2014 decided on 11th February, 2014 [reported in (2014) 362 ITR 403]. h Thirdly, it is urged that notice purportedly issued and invoking ig section 147 of I.T. Act does not satisfy statutory requirements. pre-conditions for reopening assessment are H that assessing officer must have reason to believe that income chargeable to tax has escaped assessment. If assessment is y sought to be reopened after four years from date of ba assessment, then, as in this case, reasons must disclose failure on part of assessee to fully and truly set out material facts om necessary for assessment for said assessment year. jurisdictional ingredients according to petitioner are not satisfied. Further, it is pointed out that whether petitioner is B investor or trader is matter examined at time of assessment order under section 143(3) of I.T. Act. petitioner's income has not escaped any assessment. declared long term capital gains and short term capital gains earned on sale of shares have been fully set out and disclosed. They form part ::: Uploaded on - 22/05/2015 ::: Downloaded on - 13/02/2016 10:00:56 ::: 7 wp1044-15 of order passed by assessing officer as well. In circumstances, when all requisite details were furnished, rt explanation offered in respect of this assessment and earning ou of share income by way of capital gains, then, requirement as set out in proviso to section 147 of I.T. Act has not been satisfied. C 16. These contentions have been reiterated before us by h Mr.Pardiwalla, learned senior counsel appearing on behalf of ig petitioner. He relied upon judgment of Division Bench of this Court in case of M/s.Aroni Commercials Ltd. (supra). That H was to support first contention. first contention, according to Mr.Pardiwalla, is on identical terms as dealt with by this Court in y M/s.Aroni Commercials Ltd. (supra). There as well assessing ba officer without waiting for period of four weeks had chosen to pass assessment order. That assessment order was, therefore, completely ignored by Division Bench and it proceeded to test om validity and legality of notice. B 17. On legality and validity of notice, Mr.Pardiwalla points out that there is circular No.4 of 2007 dated 15 th June, 2007 issued by revenue. That is on subject of distinction between shares held as stock-in-trade and shares held as investment. relevant and requisite steps have been laid down ::: Uploaded on - 22/05/2015 ::: Downloaded on - 13/02/2016 10:00:56 ::: 8 wp1044-15 so that assessing officer can assess income and in case of such assessee who have two portfolios, one may be investment rt portfolio comprising of securities which are to be treated as capital ou assets and trading portfolio comprising of stock-in-trade which are to be treated as trading assets. assessee may have earned income under both heads and how such income should be dealt C with by assessing officer is set out in this circular, according to Mr.Pardiwalla. Mr.Pardiwalla also submits that reopening of h assessment is not permissible merely because of change of ig opinion. He would submit that reasons furnished completely ignore fact that how income has been dealt with in H assessment order and if it is dealt with and discussed in particular manner, then, revisiting that conclusion or decision is not y permissible. That would amount to proceeding on change of ba opinion. He invites our attention to page 92 of paper-book and to submit that rather than recording reasons, assessing officer proposes to further pursue matter of petitioner's income. om If assessee is doing business of earning income, both as investor and as share broker, then, requisite details were fully B and truly disclosed. There is nothing by which assessing officer could have reason to believe that income of more than one lakh rupees chargeable to tax has escaped assessment in case of assessee for assessment year 2007-08. Further, what are material facts and relevant to assessment which are not ::: Uploaded on - 22/05/2015 ::: Downloaded on - 13/02/2016 10:00:56 ::: 9 wp1044-15 fully and truly disclosed have not been set out in impugned notice. He, therefore, submits that notice be quashed and set rt aside. ou 18. On other hand, it has been pointed out by Mr. Malhotra that petitioner is trader and not investor. If this C Court was to entertain this writ petition now, it would be considering disputed questions of fact. Such course is h impermissible in writ jurisdiction. Mr.Malhotra heavily relied upon ig assessment order which is passed pursuant to notice under section 148 of I.T. Act on 27 th March, 2015. For all these H reasons, he would submit that writ petition be dismissed. y 19. For properly appreciating rival contentions, we must ba at once refer to undisputed factual position. In present case, earlier / original assessment order under sub-section (3) of section 143 of I.T. Act was passed on 14 th December, 2009. om notice under section 148 of I.T. Act is dated 29 th March, 2014. petitioner by letter addressed to assessing officer B sought reasons for reopening assessment and reasons recorded were supplied / furnished along with communication dated 20th August, 2014. 20. reasons recorded would be referred little later. ::: Uploaded on - 22/05/2015 ::: Downloaded on - 13/02/2016 10:00:56 ::: 10 wp1044-15 21. For first contention of Mr.Pardiwalla to be rt considered, it is material to note that on 11 th September, 2014 ou petitioner addressed detailed communication setting out his objections to recorded reasons. These objections which are elaborate run into about 9 pages. Thereafter, petitioner pointed C out on 8th December, 2014 that he was required to attend office of Deputy Commissioner of Income Tax on 9 th December, 2014. h He pointed out as to how reasons were supplied and how they ig have been dealt with and objected to by him. petitioner specifically requested assessing officer not to proceed with H scheduled hearing till objections raised to reasons have been disposed of by speaking order. y ba 22. On 5th March, 2015 communication was addressed to petitioner which purported to reject his objections. objections have not been referred to in detail but what has been om stated is that case has not been reopened merely on basis of change of opinion. fact that came to light during B assessment proceedings for assessment year 2011-12 are basis for reopening case pertaining to assessment year 2007-08. Since petitioner is stated to have filed new return of income, he was called upon to attend office with information required on 13th March, 2015. petitioner addressed letter on ::: Uploaded on - 22/05/2015 ::: Downloaded on - 13/02/2016 10:00:56 ::: 11 wp1044-15 12th March, 2015 and pointed out that communication dated 5 th March, 2015 was received on 12th March, 2015, but no speaking rt order has been passed rejecting objections and which is ou required by law laid down in case of GKN Driveshaft (India) Ltd. V/s. Income Tax Officer reported in (2003) 259 ITR 19 and Asian Paints Ltd. V/s. Deputy Commissioner of C Income Tax & Anr. reported in (2009) 308 ITR 195 (Bom). petitioner specifically invited attention of assessing officer h to directions in case of Asian Paints (supra) and to effect ig that if assessing officer does not accept objections to reopening of assessment or reasons recorded, he shall not H proceed further in matter within period of four weeks from date of receipt or service of said order on assessee. Since y order dated 5th March, 2015 is stated to be rejecting ba objections, then, assessee prayed that for period of four weeks from that order, no steps should be taken. om 23. However, as has been rightly contended by Mr. Pardiwalla, ignoring this mandate in decisions of this Court and B Hon'ble Supreme Court which has been further reiterated in M/s.Aroni Commercials Ltd. (supra), impugned assessment order has been passed, that is dated 27 th March, 2015. That is clearly within period of four weeks from 5th March, 2015. first contention of Mr.Pardiwalla, therefore, deserves acceptance as ::: Uploaded on - 22/05/2015 ::: Downloaded on - 13/02/2016 10:00:56 ::: 12 wp1044-15 nothing contrary to same has been placed before us. rt 24. However, we will not rest our conclusion only on ou first contention. Suffice it to state that we have observed and held that first contention deserves acceptance only to hold that we are not bound by assessment order passed on 27th March, 2015. C We are, therefore, not inclined to accept contention of Mr. Malhotra that there are statutory remedies available to assail h assessment order and petitioner must avail of same. ig 25. We are not deciding any disputed questions of fact in H our limited jurisdiction. assessment is sought to be reopened for assessment year 2007-08. assessment order was y passed on 14th December, 2009. impugned notice is dated 29 th ba March, 2014. Therefore, requirement in law is that assessing officer must have reason to believe that any income chargeable to tax has escaped assessment for relevant om assessment year and in this case on account of failure of assessee-petitioner to disclose fully and truly all material facts B necessary for assessment for that assessment year. Thus, argument is that assessment cannot be reopened on mere change of opinion. We find in present case that reasons for reopening assessment indicate that electronic return was filed and for said assessment year 2007-08. short term ::: Uploaded on - 22/05/2015 ::: Downloaded on - 13/02/2016 10:00:56 ::: 13 wp1044-15 capital gains are disclosed. scrutiny assessment under section 143(3) has been completed on total income of Rs.4,47,57,283/- rt after making additions on account of disallowance under section ou 14A of I.T. Act. disallowance under section 40(a)(ia) of I.T. Act and for business promotion and motor cars. reasons disclosed as to how income from house property, income from C business or profession, income from speculation business and income from long term capital gains and income from short term h capital gains and income from other sources was set out. ig reasons furnished to petitioner and in support of reopening of assessment refer to figures. reasons conclude that H assessee is earning from business or profession. He has also earned income from capital gains. petitioner-assessee was investor y or trader but he is required to be examined on certain grounds and ba which are indicated in detail. grounds inter alia are that correct characterization of securities in books of assessee in balance sheet and stock-in-trade or investment has to be om examined. This aspect though relevant is not conclusive. shares held as investment may be treated as stock-in-trade B because of extensive dealing and other circumstances of case, then, substantial nature of transaction, magnitude of purchase and sale and ratio between purchase and sale, holding of share is taken as price to determine nature of transaction. All these aspects and which have been set out in ::: Uploaded on - 22/05/2015 ::: Downloaded on - 13/02/2016 10:00:56 ::: 14 wp1044-15 reasons disclose that revenue intends to revisit conclusion in assessment order. They are also sought to be revisited, rt without reference to order passed by Commissioner of ou Income Tax (Appeals) on 27th September, 2010. That may be appeal preferred by petitioner-assessee aggrieved by assessment order and on some points and issues. However, we do C not find any reference being made to this appellate order. Further, if from record it is evident that assessee has earned interest h income amounting to `14,67,288/-, then, how that interest income ig has to be treated and assessed in law is matter which cannot be gone into and in such details after assessment order was H passed. If these facts have not been examined while passing assessment order, then, it is clear change of opinion on part of y respondents. Nothing prevented assessing officer from ba treating income and in manner suggested in these reasons. reasons recorded do not indicate as to what aspects of case could not be examined or were not examined for failure on om part of assessee to fully and truly disclose material facts relevant to assessment and for assessment year concerned. B In that regard, Mr.Pardiwalla has rightly placed reliance upon proviso and which we have also referred above. He has brought to our notice that at page 38 of paper-book is copy of communication dated 10th August, 2009, rather it is notice under section 142 of I.T. Act calling upon petitioner-assessee to ::: Uploaded on - 22/05/2015 ::: Downloaded on - 13/02/2016 10:00:56 ::: 15 wp1044-15 remain present and produce or sought to be produced accounts, documents specified in said notice. item-wise rt details which have been sought pertain to books of account and ou related documents and papers. They also refer to stock valuation methods. Then, petitioner complied with this on 24 th August, 2009 and produced tax audit report, balance-sheet, C profit and loss account along with schedules, TDS certificates and copy of tax payment challans. h 26. ig On 12th October, 2009 petitioner pointed out details of office and residential address. petitioner has also H invited attention of assessing officer to nature of his business and income that he earned. At page 41 of paper-book y and at serial No.7, petitioner has set out script wise details of ba purchase and sale of shares. They were enclosed with letter which has been addressed by petitioner on 12 th October, 2009. petitioner clarified that explanation to section 73 is not om applicable as assessee is individual and not company. He also mentioned that profit is earned on sale of shares, B hence explanation is not applicable. stock exchange membership, card and complete details of payment made to persons specified under section 40A(2a)(b) of I.T. Act are given in annexure 'D' auditor's report, stock details were also furnished. petitioner also pointed out as to how investment ::: Uploaded on - 22/05/2015 ::: Downloaded on - 13/02/2016 10:00:56 ::: 16 wp1044-15 in shares has been made for which he received dividend and capital gain income. What we find and further material for our purpose is rt details which have been forwarded on 6 th November. 2009 ou along with letter annexure 'E', page 43. There petitioner explained details of rent received, earnings by way of long term capital gains, complete details giving names of script, C purchase quantity, amount, sale quantity, amount and profits earned have been enclosed to this letter. Similar details with h regard to short term capital gains and shares are also set out (item ig Nos. 10 & 11 on page 44 of paper-book). Thus, everything that was relevant, according to petitioner and for purpose of H assessment came to be disclosed and prior to assessment order. Our attention has also been invited to pages 45 & 46 of y paper-book, particularly response to queries of assessing ba officer as to why income from assessment could not treated as business income. In that regard, petitioner replied as under:- om With reference to your honour's query as to why income from investment should not be treated as 'business income', we are to submit that assessee has not taken any loans whatsoever for making investments in shares. Hence B investment was made entirely out of assessee's own funds only. assessee has offered income as STCG only in respect of 11 scripts which is held for investment. shares on which such STCG has been earned hold for more than three months in all cases. investment made in such shares has been shown as 'investment' in Balance sheet ::: Uploaded on - 22/05/2015 ::: Downloaded on - 13/02/2016 10:00:56 ::: 17 wp1044-15 year to year. Hence profit earned on sale of such Investments has correctly been classified as Income from capital gain. rt 27. We find similar response at item Nos.13.3, 13.4, so also ou 13.5. legal position has been summarised that capital gains earned by assessee should be assessed as such and not as C business income. Thus, each of queries which have been raised came to be replied and, then, there is further communication on 11th December, 2009 under which petitioner furnished h details of profits on share credit and calculated in manner set ig out in this communication. share transactions on which H short term capital gains and long term capital gains were computed were thus available. In assessment order and copy of which is at annexure 'G' at page 52 of paper-book, we find reference y being made to membership of petitioner of Stock ba Exchange and gains which have been declared so also total income. There is further reference to all communications from om petitioner. We find that issues and which are subject matter of impugned notice have been examined and duly considered from paras 4.3 to 4.7 of assessment order. issue of B disallowance under section 40(a)(ia) of I.T. Act has been dealt with from para 6.1 onwards. In circumstances, we do not find as to on what basis assessment could have been reopened. If not only main contention and stand of assessee has been dealt with but even alternate contention and there is reference to ::: Uploaded on - 22/05/2015 ::: Downloaded on - 13/02/2016 10:00:56 ::: 18 wp1044-15 all details which were supplied, then, there was no reason at all for reopening assessment. We have also been shown details rt in books of account. break-up of income is extensively ou referred even in assessment order. Thus, present one is clear case of reopening of assessment on mere change of opinion and that such course is impermissible in law is by now C well settled. h 28. We do not, therefore, find that reasons which have ig been recorded for reopening assessment meet and satisfy statutory pre-conditions. Those having not being satisfied, there is H no alternative but to quash and set aside impugned notice and assessment order following same. y ba 29. As result of above discussion, writ petition succeeds. Rule is made absolute in terms of prayer clause (a). There will be not order as to costs. om (A.K.MENON, J.) (S.C.DHARMADHIKARI, J.) B ::: Uploaded on - 22/05/2015 ::: Downloaded on - 13/02/2016 10:00:56 ::: Bharat Jayantilal Patel v. Union of India & Or