Krishna Developers and Company v. Dy. Commissioner of Income-tax, Circle-7(2)
[Citation -2017-LL-0725-9]

Citation 2017-LL-0725-9
Appellant Name Krishna Developers and Company
Respondent Name Dy. Commissioner of Income-tax, Circle-7(2)
Court HIGH COURT OF GUJARAT AT AHMEDABAD
Relevant Act Income-tax
Date of Order 25/07/2017
Assessment Year 2012-13
Judgment View Judgment
Keyword Tags reopening of an assessment • period of limitation • cost of acquisition • sale consideration • validity of notice • issuance of notice • change of opinion • reason to believe • service of notice • issue of notice • recovery of tax • capital gain • sale of land • time barred
Bot Summary: Soon after the order of Commissioner, the Assessing Officer issued the impugned notice seeking to reopen the assessment of the assessee for the said assessment year 2012 2013. Notice for reopening of assessment issued within four years from the end of relevant assessment year was therefore valid. B) In case of United Phosphorus Ltd. v. Additional Commissioner of Income tax, the Court on facts held that in respect of items for which assessment is sought to be reopened has merged with the order of Commissioner and as such there is no independent existence of the assessment, the assessment therefore could not be reopened in respect of such items. Under the said provision, if the Assessing Officer has the reason to believe that any income chargeable to tax has escaped assessment, he may assess or reassess such an 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 assessment proceedings. Reopening of the assessment, if the Assessing Officer has the reason to believe that income chargeable to tax has escaped assessment, would be entirely permissible under section 147 of the Act. Supra), the Court was examining the validity of notice for reopening the assessment in a case where the original assessment was not framed after scrutiny but the return of the assessee was accepted under section 143(1) of the Act. In such a case, scope for reopening such assessment under section 147 of the Act as compared to an assessment which was previously framed under section 143(3) of the Act, whether beyond or within four years from the end of the relevant assessment year, is substantially wider.


C/SCA/8352/2017 JUDGMENT IN HIGH COURT OF GUJARAT AT AHMEDABAD SPECIAL CIVIL APPLICATION NO. 8352 of 2017 FOR APPROVAL AND SIGNATURE: HONOURABLE MR.JUSTICE AKIL KURESHI and HONOURABLE MR.JUSTICE BIREN VAISHNAV 1 Whether Reporters of Local Papers may be allowed to see judgment ? 2 To be referred to Reporter or not ? 3 Whether their Lordships wish to see fair copy of judgment ? 4 Whether this case involves substantial question of law as to interpretation of Constitution of India or any order made thereunder ? KRISHNA DEVELOPERS AND COMPANY....Petitioner(s) Versus DY. COMMISSIONER OF INCOME TAX, CIRCLE-7 (2)....Respondent(s) Appearance: DARSHAN R PATEL, ADVOCATE for Petitioner(s) No. 1 MRS MAUNA M BHATT, ADVOCATE for Respondent(s) No. 1 CORAM: HONOURABLE MR.JUSTICE AKIL KURESHI and HONOURABLE MR.JUSTICE BIREN VAISHNAV Date : 24,25/07/2017 Page 1 of 28 HC-NIC Page 1 of 28 Created On Tue Aug 01 10:10:51 IST 2017 C/SCA/8352/2017 JUDGMENT ORAL JUDGMENT (PER : HONOURABLE MR.JUSTICE AKIL KURESHI) 1. petitioner has challenged notice dated 8.2.2017 issued by respondent Assessing Officer to reopen petitioner's assessment for assessment year 2012 2013. 2. Facts are as under. petitioner, partnership firm, is engaged in business of selling, purchasing and developing land. As part of such activity, assessee purchased plot of land of paper mill in liquidation for consideration of Rs.6.56 crores. This purchase was made through auction conducted under order of High Court. petitioner incurred further expenditure towards stamp duty, registration charges, administrative costs etc. According to petitioner, total cost of acquisition of land in question came to Rs.17,64,61,557/ . petitioner sold said plot of land for consideration of Rs.35,44,70,594/ during financial year 2011 2012. In return that petitioner filed for assessment year 2012 2013, petitioner offered sum of Rs.14,49,48,233/ as long term capital gain. 3. return of assessee was taken in scrutiny by Assessing Officer by issuing notice on 23.9.2013 under section 143(2) of Income Tax Act, 1961 ( Act for short). According to department, such notice was Page 2 of 28 HC-NIC Page 2 of 28 Created On Tue Aug 01 10:10:51 IST 2017 C/SCA/8352/2017 JUDGMENT dispatched through Speed Post on 24.9.2013 and was also served on assessee before last date i.e. 30.9.2013. 4. Case of assessee is that no such notice was served on assessee at relevant time. Much later, Assessing Officer issued questionnaire to assessee on 16.3.2015 to explain why sale consideration should not be taxed as business income instead of capital gain. In response to same, assessee under its letter dated 9.3.2015 contended that no proceedings for assessment can be undertaken since notice of scrutiny assessment was never served before 30.9.2013. department thereupon conveyed to assessee that notice under section 143(2) of Act was issued on 23.9.2013 and was dispatched through Speed Post to assessee on 24.9.2013. assessee thereafter, responded to Assessing Officer's desire to tax income as business income and not capital gain. 5. Assessing Officer in detailed order of assessment dated 30.3.2015 dealt with both objections of assessee. Regarding non service of notice under section 143(2) of Act, Assessing Officer observed that proper notice was generated and issued on 23.9.2013 and dispatched for service through Speed Post on last known address of assessee on 24.9.2013. Regarding income, he held that assessee was in business of purchase and development of land; assessee had shown land as stock in trade and income earned by assessee through sale of land would be business income. Page 3 of 28 HC-NIC Page 3 of 28 Created On Tue Aug 01 10:10:51 IST 2017 C/SCA/8352/2017 JUDGMENT 6. assessee challenged order of assessment before Commissioner (Appeals). assessee raised ground of jurisdiction of Assessing Officer to make assessment without service of notice under section 143(2) of Act. assessee also questioned order on merits. 7. Commissioner (Appeals) by order dated 8.12.2016 allowed appeal of assessee on ground that there was no proof of service of notice under section 143(2) of Act. In opinion of CIT (Appeals), not mere issuance of notice but service thereof was important. Since there was no evidence of service of notice on assessee before due date, order of assessment was invalid and he quashed same. In that view of matter, with respect to assessee's grievance of Assessing Officer having changed head of income, he rendered no decision. 8. Soon after order of Commissioner (Appeals), Assessing Officer issued impugned notice seeking to reopen assessment of assessee for said assessment year 2012 2013. In order to do so, he had recorded following reasons : assessee has filed its return of income on 29.09.2012 declaring total income of Rs.11,49,48,233/ . assessment u/s 143(3) was finalised on 30.03.2015 determining total income at Rs.17,80,09,040/ . assessee preferred appeal before Ld. CIT(A). Ld. CIT(A), Ahmedabad has passed order vide No. CIT(A) 7/87/2015 16 dated 08.12.2016 has deleted addition on ground that notice u/s. 143(2) was not served Page 4 of 28 HC-NIC Page 4 of 28 Created On Tue Aug 01 10:10:51 IST 2017 C/SCA/8352/2017 JUDGMENT upon assessee. 2. In this case, information received from I & CI, Ahmedabad that assessee has sold non agriculture land. assessee has declared long term capital gain in response to sale of transaction. details of which are as under : Sr. Particu Qty Sale Date/ Sale Cost Index cost Index gain Book gain No. lar cost date value value index 1 Land 1 30.07.11 35447 70955 101089332 253338126 283514897 0594 697 2 28.07.07 785/551 2 Land 1 2011 12 0 14000 188832 188 832 140000 31.03.09 0 785/582 3 Land 1 2011 12 0 97070 1205695 1205695 970700 31.03.09 0 785/632 4 Land 1 2011 12 0 23597 28040862 28040862 25397520 31.03.11 520 5 Land 1 2011 12 0 78997 78997640 78997640 78997640 30.06.11 640 785/785 35447 17646 144948233 17800 9037 0594 1557 Total Net Capital Gain Rs.144948233/ 3. In this regard, it is found that land under question was purchased by partnership firm from liquidator of company namely; Associated Pulp & Paper Ltd under order of Hon'ble Court dated 11.08.2006 and sale document was executed on 24/08/2007. assessee being partnership firm had purchased this property with intention of developing said land for business purpose. said land was also held as stock in trade as per return of income for AY 2011 12. partnership firm was formed on 20/08/2007 and as per partnership deed, main business of firm was sale/purchase of land and building, construction, organizer and developer as mentioned page 2 under Page 5 of 28 HC-NIC Page 5 of 28 Created On Tue Aug 01 10:10:51 IST 2017 C/SCA/8352/2017 JUDGMENT clause 3 of partnership deed. Thus, profit and gain arising on sale of such property in hands of partnership firm is required to be taxed as income from business & professional instead of Long Term Capital Gain as declared by assessee firm. benefit of indexation claimed by assessee is not allowable to firm. However, various expenses incurred subsequent to purchase of said land is required to be allowed after verification. 3.1 On verification of records, assessee is entitled to claim following deduction in respect of opening stock and expenses incurred for purpose of land. Stock in Trade as on 9,74,63,917 01/04/2011 Land sale Banakhat Right 6,75,00,000 Matipuran Expenses 1,14,97,640 3.2 total sale consideration of land is of Rs.35,44,70,594/ and after deducting above expenses of Rs.17,64,61,557/ , Net Chargeable Income under Head of Business & Profession works out to RS.17,80,09,037/ . tax payable on above income works out to Rs.5,50,04,793/ as against tax on capital gain paid by assessee of RS.2,98,59,336/ . Hence, there would be tax evasion of Rs.2,51,45,457/ (Rs.55004793 29859336). Therefore, case is also covered under deemed escaped assessment as income chargeable to tax has also been assessed at too low rate as per explanation 2 of section 147 of IT Act, 1961. Issue notice u/s. 148 of Act. 9. Two things can be immediately seen from record. notice of reopening has been issued within period of four years from end of relevant assessment year and that Page 6 of 28 HC-NIC Page 6 of 28 Created On Tue Aug 01 10:10:51 IST 2017 C/SCA/8352/2017 JUDGMENT same is founded on single issue of treatment that sale proceeds of land sold by assessee should receive. 10. In this background, we have heard learned counsel for parties at length. Learned advocate Shri R.K. Patel for petitioner raised following contentions : i) entire issue of income being capital gain or business income was examined by Assessing Officer in original order of assessment. same cannot be reexamined by reopening assessment. ii) order of assessment dated 30.3.2015 was carried in appeal by assessee. Commissioner(Appeals) had set aside order. assessment order therefore, merged in that of Commissioner (Appeals) by virtue of proviso to section 147 of Act. Therefore, no reopening would be permissible. iii) Even otherwise action of Assessing Officer is impermissible in law. original assessment having failed on ground of non issuance of mandatory notice for scrutiny, Assessing Officer cannot resort to process of reopening of assessment to cure defect or to save limitation which had already lapsed. iv) In support of his contentions, counsel relied on following decisions to which we would make further reference at later stage : Page 7 of 28 HC-NIC Page 7 of 28 Created On Tue Aug 01 10:10:51 IST 2017 C/SCA/8352/2017 JUDGMENT a) In case of Radhawami Salt Works v. Asst. Commissioner of Income TA (Special Civil Application No.16644/2012 and connected matter, judgment dated 14.6.2017). b) In case of United Phosphorus Ltd. v. Additional Commissioner of Income tax (Special Civil Application No.3352/2001 judgment dated 8.3.2011). c) In case of National Dairy Development Board v. Deputy Commissioner of Income Tax Anand Circle (Special Civil Application No.14449/2010 judgment dated 24.3.2011). d) In case of State of Gujarat v. Doshi Printing Press ( Tax Appeal No.87/2015 and connected matters judgment dated 9.2.2015). e) In case of Commissioner of Income Tax Ahmedabad V v. Sukhini P. Modi (Tax Appeal No.1353/2007 and connected matters judgment dated 10.3.2014). f) Decision of Madras High Court in case of Tanmac India v. Deputy Commissioner of Income tax, Circle I, Pondicherry. g) Decision of Allahabad High Court in case of Manoo Lal Kedarnath v. Union of India reported in (1978) 114 ITR 884 (Allahabad). Page 8 of 28 HC-NIC Page 8 of 28 Created On Tue Aug 01 10:10:51 IST 2017 C/SCA/8352/2017 JUDGMENT h) Decision of Jharkhand High Court in case of Commissioner of Income tax, Jamshedpur v. Pradeep Iron Industries (P) Ltd. reported in (2014) 45 taxmann. Com 64 (Jharkhand). 11. On other hand, learned counsel for Revenue Shri Manish Bhatt opposed petition contending that original assessment was set aside by Commissioner on grounds of non service of notice. order of assessment having been invalidated, there remains no assessment in eye of law. issues examined by Assessing Officer in such assessment proceedings cannot take character of scrutinised issues. Commissioner did not set aside additions made by Assessing Officer on merits. principle of merger with its limited applicability under section 147 of Act, would therefore, not apply. He further contended that Assessing Officer had formed bona fide belief that income chargeable to tax had escaped assessment, for which he had tangible material at his command. Notice for reopening of assessment issued within four years from end of relevant assessment year was therefore valid. Counsel relied on following decisions : a) In case of Nirma Industries Ltd. v. Deputy Commissioner of Income tax reported in (2006) 283 ITR 402 (Guj). b) In case of Raja Mechanical Co.(P) Ltd. v. Commissioner of Central Excise reported in (2012) 345 ITR 356 (SC). Page 9 of 28 HC-NIC Page 9 of 28 Created On Tue Aug 01 10:10:51 IST 2017 C/SCA/8352/2017 JUDGMENT c) In case of G Group Corporation v. Harsh Prakash reported in (2013) 353 ITR 158 (Guj). d) In case of Inductotherm (India) P.Ltd. v. M. Gopalan, Deputy Commissioner of Income tax reported in (2013) 356 ITR 481 (Guj). e) In case of Principal Commissioner of Income tax 2 Vadodara v. Sagar Developers reported in (2016) 72 taxmann. Com 321 (Gujarat) 12. Facts of case are simple, undisputed but somewhat peculiar. We may summarise such facts. Assessing Officer wanted to scrutinise return for assessment year 2012 2013 for which notice under section 143(2) of Act was issued on 23.9.2013 and dispatched for service on 24.9.2013. position which is concluded by virtue of order of Appellate Commissioner is such notice was not served on assessee before 30.9.2013. assessee raised such contention before Assessing Officer and also participated in assessment. Assessing Officer rejected ground of non service of notice and taxed proceeds out of sale of land as business income. In appeal, CIT(Appeals) held that assessment was invalid since it was carried out without notice under section 143(2) of Act. In that view of matter, CIT(Appeals) did not examine assessee's contention regarding additions made by Assessing Officer. This order of CIT(Appeals) has become final. After this order was passed, Assessing Officer issued Page 10 of 28 HC-NIC Page 10 of 28 Created On Tue Aug 01 10:10:51 IST 2017 C/SCA/8352/2017 JUDGMENT impugned notice for reopening which was done within period of four years from end of relevant assessment year. 13. In light of such facts, we need to test assessee's contentions. Regarding nature of income having been scrutinised in original assessment, we cannot accept stand of assessee. We may recall, counsel for assessee had argued that issues having been examined in original assessment, same cannot form basis for reopening assessment. Had scrutiny assessment resulted into opinion different from one now propounded by Assessing Officer in reasons recorded, this would be case of change of opinion. However, in present case, Assessing Officer proceeded to pass order of assessment discarding assessee's objection of non service of notice and in which he held that income generated from sale of land was business income. When such order was set aside on ground of invalidity, having been passed without service of notice, order does not survive in eye of law. There is thus no original assessment. There is no opinion of Assessing Officer on record. There is no question of assessee's return having been scrutinised. There is therefore, no change of opinion. 14. We may test petitioner's contention regarding merger. Section 147 of Act, as is well known, permits Assessing Officer to assess or reassess income chargeable to tax which has escaped assessment. proviso to section 147 of Act however provides that Page 11 of 28 HC-NIC Page 11 of 28 Created On Tue Aug 01 10:10:51 IST 2017 C/SCA/8352/2017 JUDGMENT Assessing Officer may assess or reassess such income, other than income involving matters which are subject matters of any appeal, reference or revision, which is chargeable to tax and has escaped assessment. essence of this proviso is that income involving matters which are subject matters of appeal, reference or revision, cannot be subject matter of reopening of assessment. In other words, on same subject matter, there cannot be parallel consideration by Assessing Officer in reopened assessment and by higher officer or authority in appeal, reference or revision. For applicability of this proviso and principle of merger flowing from such proviso, what is necessary is that there has to be income involving matter which is subject matter of any appeal, reference or revision and in such case, it would not be open for Assessing Officer to make any assessment or reopening with respect to such income. stress here is on income involving matters which are subject matter of further proceedings. 15. In case on hand, assessee had raised two contentions before Commissioner(Appeals). First was with respect to validity of assessment framed by Assessing Officer without service of notice and second was with respect to merits of additions made by him in such order of assessment. Commissioner (Appeals) confined his comments only to first of his contentions and declared that assessment was invalid since it was framed without service of notice. In that view of matter, he refused to comment on assessee's contention on merits of additions. Essentially, therefore, order of Page 12 of 28 HC-NIC Page 12 of 28 Created On Tue Aug 01 10:10:51 IST 2017 C/SCA/8352/2017 JUDGMENT Commissioner (Appeals) dealt with only one part of assessee's appeal and refused to enter into other part. order of Commissioner, therefore, was confined to ground of invalidity of assessment per se and not on merits of additions made. reopening is based on belief of Assessing Officer that sale proceeds should be taxed as business income and not as capital gain. This subject matter was not part of order of Commissioner (Appeals). Commissioner (Appeals) having entertained only part of assessee's appeal, principle of merger as flowing from proviso to section 147 of Act would not apply. 16. In this context, we may refer to decision of Supreme Court in case of Raja Mechanical Co.(P) Ltd. (supra). It was case where assessee had challenged adjudication order passed by authority. Such appeal was rejected on ground that appeal was filed beyond period of delay which appellate authority could not condone. Further appeal of assessee was rejected by Tribunal, upon which, assessee preferred application for rectification urging Tribunal to decide issues on merits and not only on limitation, which was rejected by Tribunal. assessee approached High Court and sought reference. High Court refused to call for reference. Supreme Court confirmed view rejecting assessee's contention that order of adjudicating authority having merged with that of appellate authority, Tribunal should have examined issue on merits. Page 13 of 28 HC-NIC Page 13 of 28 Created On Tue Aug 01 10:10:51 IST 2017 C/SCA/8352/2017 JUDGMENT 17. We may now refer to decisions cited by learned counsel for petitioner of this Court in support of his contention regarding merger. a) Radhawami Salt Works v. Asst. Commissioner of Income TA (Special Civil Application No.16644/2012 and connected matter, judgment dated 14.6.2017), was case where issue on which Assessing Officer wanted to reopen assessment was pending in appeal before Commissioner. It was in this context, it was observed that there cannot be two separate considerations to same subject matter relatable to income, one by appellate authority or forum and another by Assessing Officer in fresh assessment. b) In case of United Phosphorus Ltd. v. Additional Commissioner of Income tax (Special Civil Application No.3352/2001 judgment dated 8.3.2011), Court on facts held that in respect of items for which assessment is sought to be reopened has merged with order of Commissioner (Appeals) and as such there is no independent existence of assessment, assessment therefore could not be reopened in respect of such items. c) In case of National Dairy Development Board v. Deputy Commissioner of Income Tax Anand Circle (Special Civil Application No.14449/2010 judgment dated 24.3.2011), on facts, Court applied principle of merger to prevent Assessing Officer from carrying out reassessment. Page 14 of 28 HC-NIC Page 14 of 28 Created On Tue Aug 01 10:10:51 IST 2017 C/SCA/8352/2017 JUDGMENT d) In case of State of Gujarat v. Doshi Printing Press (Tax Appeal No.87/2015 and connected matters judgment dated 9.2.2015), Court applied principle of merger finding that against order of assessment, assessee had filed appeal and appellate authority had modified order of assessment. 18. This brings us to last contention of counsel for assessee that Assessing Officer could not have issued notice of reopening to bypass or circumvent statutory period for issuance of notice under section 143(2) of Act. argument was that power of reopening assessment cannot be exercised to overcome situation where scrutiny assessment is not possible, for want of service of notice under section 143(2) of Act within statutory time period. As is well known section 143 of act pertains to assessment. Sub section (1) of section 143 provides manner in which Assessing Officer would process return filed by assessee. Sub section(2) of section 143 provides that where return has been filed and Assessing Officer considered it necessary or expedient to ensure that assessee has not understated income or has not computed excessive loss or has not underpaid tax, he shall serve on assessee notice requiring him on specified date to attend his office or to produce or cause to be produced any evidence on which assessee may rely in support of return. This notice under sub section(2) of section 143 of Act before scrutiny assessment can be undertaken and assessee's returned income can be questioned, is held to be mandatory in nature. Proviso to sub section(2) of section Page 15 of 28 HC-NIC Page 15 of 28 Created On Tue Aug 01 10:10:51 IST 2017 C/SCA/8352/2017 JUDGMENT 143 lays down time limit within which such notice can be issued. 19. On other hand, section 147 of Act pertains to income escaping assessment. Under said provision, if Assessing Officer has reason to believe that any income chargeable to tax has escaped assessment, he may 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 course of assessment proceedings. Exercise of jurisdiction under section 147 of Act for reopening of assessment therefore requires formation of belief on part of Assessing Officer that income chargeable to tax has escaped assessment. Such belief should be formed bona fide and on basis of tangible material on record. If these requirements are satisfied, it would be open for Assessing Officer to assess or reassess income of assessee after issuing notice under section 148 of Act. 20. Nothing contained in language of section 147 would permit us to hold that even if all parameters to enable Assessing Officer to assess or reassess income by reopening assessment are present, same may not be permitted in cases where original assessment framed by Assessing Officer has failed on any technical ground, such as in present case i.e. want of service of notice under section 143(2) of Act. Once original assessment is declared as invalid as having been completed without service of notice on Page 16 of 28 HC-NIC Page 16 of 28 Created On Tue Aug 01 10:10:51 IST 2017 C/SCA/8352/2017 JUDGMENT assessee within statutory period, there would be thereafter no assessment in eye of law. situation therefore, be akin to where return of assessee has been accepted without scrutiny. Reopening of assessment, if Assessing Officer has reason to believe that income chargeable to tax has escaped assessment, would be entirely permissible under section 147 of Act. Merely on ground that reasons recorded by Assessing Officer proceeded on same basis on which Assessing Officer initially desired to make additions but which failed on account of setting aside order of assessment, would not preclude Assessing Officer from carrying out exercise of reopening of assessment. In present case, facts are peculiar. It is not as if Assessing Officer after noticing certain discrepancies in return of assessee, slept over his right to undertake scrutiny assessment. scrutiny assessment was initiated by issuance of notice under section 143(2) of Act on 23.9.2013. It was also dispatched for service to assessee on 24.9.2013 by Speed Post on last known address. Commissioner (Appeals) however, held that there was no proof of service of notice and since section 143(2) requires service of notice, assessment was framed without complying with mandatory requirements. 21. We may refer to some of decisions on point. In case of G Group Corporation (supra), Court noticed that at one point Revenue had reopened assessment of assessee. However, such assessment failed on ground that reasons were not recorded by Page 17 of 28 HC-NIC Page 17 of 28 Created On Tue Aug 01 10:10:51 IST 2017 C/SCA/8352/2017 JUDGMENT Assessing Officer for issuing such notice. On same ground, Revenue issued fresh notice of reopening which was challenged before High Court. High Court held that when earlier order stood annulled on ground of lack of fulfillment of basic requirement under section 147 of Act, there was no bar against reopening assessment once again on same grounds after following due procedure in accordance with law. 22. In case of Inductotherm (India) P.Ltd.(supra), Court was examining validity of notice for reopening assessment in case where original assessment was not framed after scrutiny but return of assessee was accepted under section 143(1) of Act. One of contentions raised was that notice for reopening cannot be issued in such case where return was accepted without scrutiny and time limit for issuing notice for scrutiny had lapsed. This contention was rejected. Court held that even for reopening assessment which was not framed after scrutiny, basic requirement of section 147 that Assessing Officer has reason to believe that income chargeable to tax has escaped assessment would apply, but further observed that : 10. This brings us to second limb of petitioner's challenge namely, that power under section 147 of Act cannot be exercised to circumvent proceedings under section 143(3) of Act because notice under section 143(2) of Act has become time barred and further that in any case, reasons recorded would not permit Assessing Officer to reopen assessment. 11. It is undoubtedly true that proviso to section 143(2) of Page 18 of 28 HC-NIC Page 18 of 28 Created On Tue Aug 01 10:10:51 IST 2017 C/SCA/8352/2017 JUDGMENT Act prescribes time limit within which such notice could be issued. It is equally well settled that such notice is mandatory and in absence of notice under section 143(2) of Act within time permitted, scrutiny assessment under section 143(3) cannot be framed. However, merely because no such notice was issued, to contend that assessment cannot be reopened, is not backed by any statutory provisions. Counsel for petitioner did not even stretch his contention to that extent. case of petitioner as we understand is that in guise of reopening of assessment, Assessing Officer cannot try to scrutinize return. This aspect substantially overlaps with later contention of petitioner that reasons recorded by Assessing Officer were not germane and were not sufficient to permit reopening. 12. We must recall that return filed by petitioner was not taken in scrutiny. No assessment, thus, took place. Assessing Officer without any assessment, merely issued intimation under section 143(1) of Act accepting such return. In that view of matter, it cannot be stated that Assessing Officer formed any opinion with respect to any of aspects arising in such return. In such case, scope for reopening such assessment under section 147 of Act as compared to assessment which was previously framed under section 143(3) of Act, whether beyond or within four years from end of relevant assessment year, is substantially wider. Apex Court in case of Assistant Commissioner of Income Tax v. Rajesh Jhaveri Stock Brokers P. Ltd., (supra) noticed such distinction and noted that scheme of sections 143(1) and 143(3) of Act is entirely different. It was noticed that after 1.4.1989, provisions contained in section 143 underwent substantial changes. It was noticed that intimation under section 143(1) of Act is given without prejudice to provisions of section 143(3) of Act and though technically intimation would be deemed to be demand notice under section 156, that did not per se Page 19 of 28 HC-NIC Page 19 of 28 Created On Tue Aug 01 10:10:51 IST 2017 C/SCA/8352/2017 JUDGMENT preclude right of Assessing Officer to proceed under section 143(2)(a) of Act. Apex Court observed that word intimation as substituted for assessment carried different concepts. It was observed that while making assessment, Assessing Officer is free to make any addition after granting opportunity to assessee. Apex Court observed that, It may be noted above that under first proviso to newly substituted section 143(1), with effect from June 1, 1999, except as provided in provision itself, acknowledgment of return shall be deemed to be intimation under section 143(1) where (a) either no sum is payable by assessee, or (b) no refund is due to him. It is significant that acknowledgment is not done by any Assessing Officer, but mostly by ministerial staff. Can it be said that any assessment is done by them? reply is emphatic no. intimation under section 143(1)(a) was deemed to be notice of demand under section 156, for apparent purpose of making machinery provisions relating to recovery of tax applicable. By such application only recovery indicated to be payable in intimation became permissible. And nothing more can be inferred from deeming provision. Therefore, there being no assessment under section 143(1)(a), question of change of opinion, as contended, does not arise. . 13. Despite such difference in scheme between return which is accepted under section 143(1) of Act as compared to return of which scrutiny assessment under section 143(3) of Act is framed, basic requirement of section 147 of Act that Assessing Officer has reason to believe that income chargeable to tax has escaped assessment is not done away with. Section 147 of Act permits Assessing Officer to assess, re assess income or re compute loss or depreciation if he has reason to believe that any income chargeable to tax has escaped assessment for any assessment year. This power to reopen assessment is available in either case, namely, while return has been either accepted under section Page 20 of 28 HC-NIC Page 20 of 28 Created On Tue Aug 01 10:10:51 IST 2017 C/SCA/8352/2017 JUDGMENT 143(1) of Act or scrutiny assessment has been framed under section 143(3) of Act. common requirement in both of cases is that Assessing Officer should have reason to believe that any income chargeable to tax has escaped assessment. 23. In case of Commissioner of Income tax III v. Kiranbhai Jamnadas Sheth (HUF) reported in (2013) 39 taxmann. Com 116, this issue directly came up for consideration. Relying on judgment in case of Inductotherm (India) P.Ltd.(supra), view of Tribunal that notice under section 148 could not have been issued without previously having issued notice under section 143(2) of Act within time available for framing original assessment was reversed. 24. In case of Commissioner of Income tax v. Vishal Gupta reported in (2012) 22 taxmann.com 82(Delhi), issue very similar to case on hand came up for consideration. It was case where assessment for assessment years 1995 1996 and 1996 1997 were quashed by Tribunal on ground that statutory notice under section 143(2) of Act was not served on assessee within stipulated period. Assessing Officer thereafter recorded his reasons and issued notice for reopening of assessment. orders of such assessment were set aside by Tribunal on ground that original assessment was set aside; for want of service of notice under section 143(2) of Act, reopening could not have been done. Reversing decision of Tribunal, Delhi High Court observed as under : Page 21 of 28 HC-NIC Page 21 of 28 Created On Tue Aug 01 10:10:51 IST 2017 C/SCA/8352/2017 JUDGMENT 11. facts elucidated above clearly show that tribunal has quashed/set aside original proceedings on technical ground that statutory notice under Section 143(2) was not served on respondent assessee within stipulated period of 12 months from month in which return was filed. 12. Assessing Officer thereafter had recorded fresh reasons and issued notice under Section 147/148 of Act. reasons to believe now recorded have to stand on their own legs and are separate from reasons to believe, which were recorded earlier before initiation of re assessment proceedings, which abated. said reasons to believe and issue of notice under Section 147/148 of Act cannot be faulted and rejected on ground that in earlier/original assessment or re assessment proceedings, notice under Section 143(2) was not served on assessee within statutory time/period. This was valid ground to quash first/original assessment/re assessment order, but it cannot be ground to quash re assessment proceedings, which have been initiated afresh after recording reasons to believe. In R. Kakkar Glass and Crockery House Vs. Commissioner of Income tax, [2002] 254 ITR 273 (P&H), it has been held: "10. .......When notice is quashed on some technical ground, it would be in order to issue fresh notice under Section 148 provided all other legal requirements of law have been complied with. For instance, if notice under Section 148 is quashed on ground that no reasons had been recorded, second notice shall be in order after recording reasons. Similarly, if notice is quashed on ground that it has been issued without requisite sanction of higher authority, fresh notice can be issued after obtaining necessary sanction. Such instances can be multiplied. However, if notice under Section 148 is quashed after examination of material relied on by Assessing Officer and after recording finding that on Page 22 of 28 HC-NIC Page 22 of 28 Created On Tue Aug 01 10:10:51 IST 2017 C/SCA/8352/2017 JUDGMENT basis of such material additional income cannot be said to have escaped assessment, then it shall not be permissible for Assessing Officer to issue fresh notice on basis of same material in respect of same item of income. However, in case some fresh material comes into possession of Assessing Officer subsequently suggesting escapement of income under same head or some other head, we see no fetters on his power to issue fresh notice under Section 148. Needless to emphasise that all such subsequent notices have to conform to parameters prescribed under law including provision regarding limitation." 25. Similar issue came once again before Delhi High Court in case of Biotech International Ltd. v. Assistant Commissioner of Income tax reported in (2010) 230 CTR 533 (Delhi). It was case where assessee company filed return of income for assessment year 2001 2002. Assessing Officer passed order of assessment under section 143(3) of Act. Such order was challenged on ground that notice under section 143(2) of Act was not served on company within statutory time frame. CIT(Appeals) having rejected such contention, assessee approached Tribunal. Tribunal upheld contention and quashed order of assessment. After this, Assessing Officer issued notice under section 147 of Act to reopen assessment. Such notice was challenged before High Court on ground that Assessing Officer could not have issued notice once original assessment was set aside. High Court held that once assessment was held to be nullity, it would imply that there was no assessment in eye of law. High Court referred to decision of Supreme Court in case of Assistant Commissioner of Income tax v. Rajesh Page 23 of 28 HC-NIC Page 23 of 28 Created On Tue Aug 01 10:10:51 IST 2017 C/SCA/8352/2017 JUDGMENT Jhaveri Stock Brokers (P) Ltd. reported in (2007) 291 ITR 500 (SC) and made following observations : 8. From facts which are narrated above, it would become apparent that first and foremost issue which needs determination with regard to assessment order made under section 143(3) of Act, as pointed out above. This assessment was rendered invalid and was set aside on ground that foundation for initiation of proceedings namely, issuance of notice under section 143(2) of Act was vitiated by law. question that arises is as to whether such assessment under section 143(3) of Act would only be irregular/illegal or it would be nullity in eyes of law. 26. We may now refer to decisions cited by counsel for petitioner on this part: a) Decision of this Court in case of Commissioner of Income Tax Ahmedabad V v. Sukhini P. Modi (Tax Appeal No.1353/2007 and connected matters judgment dated 10.3.2014) merely reiterates settled position that notice under section 143(2) of Act is mandatory before scrutiny assessment can be framed. b) Decision of Madras High Court in case of Tanmac India v. Deputy Commissioner of Income tax, Circle I, Pondicherry, reported in (2017) 78 taxmann.com 155 (Madras) was rendered in different factual background. return filed by assessee was accepted under section 143(1) of Act without scrutiny. Later on notice for reopening was issued on basis of material already on record. Court considered question whether Page 24 of 28 HC-NIC Page 24 of 28 Created On Tue Aug 01 10:10:51 IST 2017 C/SCA/8352/2017 JUDGMENT Assessing Officer could have, having taken cognizance of return but not having scrutinised it, could thereafter, issue notice for reopening based on same material that had been available to him. Court answered question in negative placing heavy reliance on decision in case of CIT v. Orient Craft Ltd. reported in (2013) 354 ITR 536. This issue directly does not arise in present case. In any case, we are not in agreement with view expressed in judgment. In our view, such proposition would be opposed to decision of Supreme Court in case of Rajesh Jhaveri Stock Brokers (P) Ltd.(supra) as reiterated in later judgment in case of Deputy Commissioner of Income tax and another v. Zuari Estate Development and Investment Company Ltd. reported in (2015) 373 ITR 661 (SC). It would also be opposed to logic adopted by Court in case of Inductotherm (India) P.Ltd.(supra). This decision of Delhi High Court in case of Orient Craft Ltd. (supra) came up for consideration before this Court in case of Olwin Tiles India Pvt. Ltd. v. Deputy Commissioner of Income tax reported in (2016) 382 ITR 291 (GUJ). It was opined as under : 9. In case of Orient Craft Ltd. (supra), heavily relied upon by Shri Shah, Division Bench of Delhi High Court, in context of reopening of assessment, which was originally accepted under Section 143(1) of Act, reiterated that requirement of 'reason to believe' would apply even in such case and that such requirement cannot be different in case of 143(1) and 143(3) assessment. On this aspect, we have no disagreement at all. In fact, this was substantially what was held in judgment of this Court Page 25 of 28 HC-NIC Page 25 of 28 Created On Tue Aug 01 10:10:51 IST 2017 C/SCA/8352/2017 JUDGMENT in Inductotherm (India) P. Ltd. (supra). However, in later portion of judgment in para 18, which is reproduced hereinabove, Court went further and observed that there was no whisper in reasons recorded, of any tangible material which came to possession of assessing officer subsequent to issue of intimation. Court was, therefore, of opinion that it reflects arbitrary exercise of power conferred under section 147 of Act. Heavy reliance was placed on decision of Supreme Court in case of CIT Vs. Kelvinator of India Ltd., reported in 320 ITR, page No.561. We are unable to persuade ourselves to take such strong line. decision of Supreme Court in case of Kelvinator of India Ltd. (supra) was rendered in background of case of reopening of assessment which was previously framed after scrutiny. observations of Supreme Court of requirement of reason to believe even after amendment in Section 147 of Act therefore, must be seen in background of such facts. We are afraid, Supreme Court never meant to convey that to reopen assessment, which was accepted under Section 143(1) of Act, there must be some tangible material, which is alien to record. Delhi High Court itself in case of Indu Lata Rangwala v. Deputy Commissioner of Income tax reported in (2016) 384 ITR 337 (Delhi) had explained judgment in case of Orient Craft Ltd. (supra). Referring to decisions of Supreme Court in case of Rajesh Jhaveri Stock Brokers (P) Ltd.(supra) and Zuari Estate Development and Investment Company Ltd., and taking note of judgment of this Court in case of Olwin Tiles India Pvt. Ltd.(supra), Court summarized legal position as under : 35.5 As explained by Supreme Court in Rajesh Page 26 of 28 HC-NIC Page 26 of 28 Created On Tue Aug 01 10:10:51 IST 2017 C/SCA/8352/2017 JUDGMENT Jhaveri Stock Brokers P. Ltd. (supra) and reiterated by it in Zuari Estate Development and Investment Co. Ltd. (supra) intimation under section 143(1)(a) cannot be treated to be order of assessment. There being no assessment under section 143(1)(a), question of change of opinion does not arise. 35.9 decisions of this Court and other courts to extent inconsistent with above decisions of Supreme Court cannot be said to reflect correct legal position. c) Decision of Allahabad High Court in case of Manoo Lal Kedarnath v. Union of India reported in (1978) 114 ITR 884 (Allahabad) also was rendered in different factual background. proceedings of reopening undertaken by ITO were set aside in appeal by Tribunal. However, before decision of Tribunal, Assessing Officer issued second notice of reopening in respect of some items which were subject matter of earlier reassessment proceedings. It was held that fresh reassessment proceedings were initiated without application of mind. same was quashed. d) Decision of Jharkhand High Court in case of Income tax, Jamshedpur v. Pradeep Iron Industries (P) Ltd. reported in (2014) 45 taxmann. Com 64 (Jharkhand) was case in which time limit for completion of assessment was to expire on 31.3.1990. Assessing Officer issued notice for reopening assessment only 22 days before expiry of such period. Tribunal opined that notice was issued merely to get extension of period of limitation for completing assessment. view of Page 27 of 28 HC-NIC Page 27 of 28 Created On Tue Aug 01 10:10:51 IST 2017 C/SCA/8352/2017 JUDGMENT Tribunal was upheld by Jharkhand High Court. 27. In result, petition is dismissed. (AKIL KURESHI, J.) (BIREN VAISHNAV, J.) raghu Page 28 of 28 HC-NIC Page 28 of 28 Created On Tue Aug 01 10:10:51 IST 2017 Krishna Developers and Company v. Dy. Commissioner of Income-tax, Circle-7(2)
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