1 IN HIGH COURT OF JUDICATURE AT MADRAS Date of Reserving Order Date of Pronouncing Order 27.10.2017 31.10.2017 Coram Hon'ble Mr.Justice T.S.Sivagnanam Writ Petition Nos.27549 and 27550 of 2017 and W.M.P.No.29473 & 29474 of 2017 M/s. Alfa Investments, rep.by its Partner, Shri. Ahamed Shakir. ...Petitioner in both W.Ps. Vs. Income Tax Officer, Non-Corporate Ward -1 (1), Room No.305, III Floor, Wanaparthy Block, 121, Mahatma Gandhi Road, Chennai - 600 034. ...Respondent in both W.Ps. Prayer in W.P.No.27549 of 2017 Writ Petition, filed under Article 226 of Constitution of India, for issuance of Writ of Certiorari to call for records in AATFA1690D/NCW1(1) 2017-18, dated 11.10.2017 on file of respondent, relating to A.Y.No.2010-11 and to quash same. http://www.judis.nic.in 2 Prayer in W.P.No.27550 of 2017 Writ Petition, filed under Article 226 of Constitution of India, for issuance of Writ of Certiorari to call for records in AATFA1690D/NCW1(1) 2017-18, dated 27.09.2017 on file of respondent, relating to A.Y.No.2011-12 and to quash same. For Petitioner : Mr.M.P.Senthil Kumar For Respondent : Mrs. Hema Murali Krishnan Senior Standing Counsel COMMON O R D E R Heard Mr. M. P. Senthil Kumar, learned counsel appearing for petitioner and Mrs. Hema Murali Krishnan, learned Senior Standing Counsel, accepting notice on behalf of respondent. Since issue involved and parties in both Writ Petitions are one and same, with consent of learned counsel appearing on either side, Writ Petitions are taken up together for disposal. 2. petitioner is assessee on file of respondent, under provisions of Income Tax Act, 1961 (hereinafter, referred to as 'the Act') and petitioner has filed these Writ Petitions, challenging http://www.judis.nic.in 3 proceedings of respondent for re-opening of assessment for assessment years 2010-11 and 2011-12. 3. facts, which are necessary for disposal of Writ Petitions are as follows:- i) petitioner was formed as Partnership Firm and registered with Registrar of Firms. They are engaged in business of commercial and trading activities, including investing, acquiring and holding shares, stocks, assets and other securities. ii) For assessment year 2012-13, petitioner filed returns of income on 27.07.2013, admitting NIL income. case was selected for scrutiny, and petitioner offered their explanation to Assessing Officer. assessment was completed under Section 143 (3) of Act, 1961, by adding Rs.108,35,05,000/-, as 'unexplained credit' under Section 68 of Act, and computed total assessed income at Rs.108,35,05,000/- against NIL returns filed by petitioner. petitioner challenged assessment order, by filing Appeal before Commissioner of Income http://www.judis.nic.in 4 Tax (Appeals) -2, Chennai, (hereinafter, referred to as CIT (A). Appeal filed by petitioner was allowed, by order, dated 13.10.2016. Challenging same, Revenue preferred Appeal to Income Tax Appellate Tribunal (ITAT), which was dismissed, by order, dated 18.09.2017. iii) During pendency of Appeal filed by Revenue before ITAT, respondent issued notice under Section 148 of Act, dated 19.01.2017, stating that, he has reasons to believe that income chargeable to tax for relevant assessment year has escaped assessment within meaning of Section 147 of Act. Therefore, respondent proposed to assess/re-assess income for said assessment year, and requested petitioner to file returns in prescribed form. petitioner, in response to said notice, filed its returns on 25.01.2017, and sought reasons for re-opening assessment proceedings. respondent, by communication, dated 07.06.2017, furnished reasons, after which, petitioner filed their objections through Chartered Accountant on 11.09.2017. objections have been disposed of/rejected, by orders, dated 27.09.2017. These are impugned in these Writ Petitions. http://www.judis.nic.in 5 4. learned counsel appearing for petitioner has submitted that, Assessing Officer, in reasons assigned in impugned orders for re-opening assessment has stated, as if, there is direction issued by CIT (A), while allowing petitioner's Appeal, by order, dated 13.10.2016, and grossly erred in re-opening assessment, merely by treating observation in said order, dated 13.10.2016, as direction issued under Section 150 (1) of Act to re-open assessment. 5. It is further submitted that, mere observation of CIT (A) that Assessing Officer can take cognizance of matter, by way of initiating suitable proceedings, cannot be interpreted as direction issued under Section 150 (1) of Act, to initiate re-assessment proceedings under Section 147 of Act. It is further submitted that, re-opening of assessment by respondent is case of change of opinion, as petitioner has filed all relevant details, in respect of introduction of capital by Partners in Firm during assessment years 2010-11 and 2011-12, in course of assessment proceedings in respect of year 2012-13, and Assessing Officer considered entire material, and after due enquiry into facts, treated same as unexplained credit under http://www.judis.nic.in 6 Section 68 of Act for assessment year 2012-13, and therefore, power under Section 148 of Act cannot be exercised. 6. learned Senior Standing Counsel for Revenue has pointed out that, reasons given by respondent for rejecting/disposing of objections filed by petitioner are clear, and there were certain facts, which never came before Assessing Officer while he completed assessment earlier, and therefore, it is submitted that, impugned order is neither change of opinion, nor case, where, there was any reason to believe that income chargeable to tax has escaped assessment and therefore, objections raised by petitioner were rejected. Hence, Assessing Officer should be allowed to complete assessment, after which, it is open to petitioner to exhaust Appellate remedy available under Act. 7. CIT (A), while allowing petitioner's Appeals, made observation in para No. 7 of his order, dated 13.10.2016. relevant portions of observation are as follows:- http://www.judis.nic.in 7 " From facts on record, it is clear that contention of appellant that no fresh capital whatsoever was introduced during FY 2011-12 relevant to AY 2012-13, which is AY in question, in books of appellant-Firm is correct. Thus, claim of appellant that sum of Rs.108,35,05,000/- represents opening balance of capital in books of appellant, is found to be correct. In other words, amount of Rs.108,35,05,000/- which has been disallowed/added back as unexplained credit u/s 68 by Assessing Officer represents opening balance in capital account as on 01.04.2011. "Since Capital was introduced in earlier two FYs i.e., FY 2009-10 & FY 2010-11, Assessing Officer can only take cognizance of matter by way of initiating suitable proceeding for AYs. 2010-11 & 2011-12. Hence, Assessing Officer was not justified in disallowing/adding back 'capital introduced' of Rs.108,35,05,000/-, by treating same as unexplained credit u/s. 68. Since there was no introduction of fresh capital whatsoever during A.Y.2012-13, addition made in hands of appellant-firm for A.Y.2012-13 is held to be unwarranted, and is therefore deleted." http://www.judis.nic.in 8 8. above finding of CIT (A) has been affirmed by ITAT, though subsequently. 9. reasons for re-opening assessment, which was furnished to petitioner, by communication dated 07.06.2017 are as follows: " On further appeal, Ld. CIT (A) -2, vide her order in ITA No.119 CIT (A) 2/2015-16, dated 13.10.2016, had struck down addition on count that additions u/s. 68 cannot be undertaken in year when no capital is introduced. It should be undertaken only in year of entry of funds to credit of capital account. Therefore, direction under Section 150 (1) was issued by Ld.CIT (A) to re-open assessment correspondent to Financial Year, during which, Capital was introduced. In case of assessee Firm, for A.Y.2010-11, no return of income is filed. capital introduced during year is sum of Rs.64 crores. Ld. CIT (A) had not provided relief to assessee firm based on finding on genuineness of source of credit, but only on aspect of year of introduction of said credit. " http://www.judis.nic.in 9 10. petitioner submitted their objections dated 11.09.2017, in which, it is stated that, that CIT (A) nowhere, directed Assessing Officer to consider Partner's capital in subject assessment years, and there was not even passing observation to said effect. Therefore, assumption on part of respondent that CIT (A) has directed him to re-open assessment is factually incorrect, and very basis, on which, notice under Section 148 has been issued is incorrect. respondent/Assessing Officer, while dealing with objections filed by petitioner has pointed out certain aspects, which, in opinion of this Court are material. That is to say that petitioner did not file returns of income for assessment years 2010-2011 and 2011-2012, so there was no opportunity to verify assessee's transactions claimed to have been made in those years; assessee did not have any bank account and did not furnish any proof to establish link between capital introduced and its withdrawals for purpose of investments. above factual position would clearly show that there can be no change of opinion in instant cases, as there was no opinion formed by Assessing Officer on said issue for relevant assessment years. http://www.judis.nic.in 10 11. petitioner's/assessee's contention is that, there was no specific direction issued by CIT (A) to re-open assessment, and it is misreading of order passed by CIT (A), dated 13.10.2016. I do not agree with said submission in light of language and observations made by CIT (A) in his order, dated 13.10.2016 (quoted above). reasons for deleting addition made in hands of assessee-Firm for year 2012-13, is because, capital was required to be introduced in course of earlier two financial years, i.e. FY 2009-10 and F Y 2010-11. CIT (A) did not stop with this observations, but made further observation by stating that, Assessing Officer can only take cognizance of matter, by way of initiating suitable proceedings for assessment years 2010-11 and 2011-12. petitioner seeks to interpret word 'Can' by stating that, it cannot be construed as direction, but petitioner should read word 'Can' along with next word 'Only. 12. CIT(A) has pointed out that Assessing Officer can only take cognizance of matter, by way of initiating suitable proceedings for assessment years 2010-11 and 2011-12. In such circumstances, it cannot be taken, as if, observation contained in order passed by http://www.judis.nic.in 11 CIT(A) is of no consequence. Such plea cannot be raised by petitioner/assessee, as it would be fatal to their case, because, it is only on account of such observations, they got relief before CIT (A). above observations were affirmed by ITAT. Even assuming for sake of arguments that, there is no specific direction, in order passed by CIT (A) yet, Assessing Officer was entitled to exercise his powers under Section 148 of Act, as there was no opportunity to verify transactions claimed to have made in those years. Therefore, it is not case of change of opinion. Consequently, challenge to impugned proceedings has to necessarily fail. 13. Accordingly, Writ Petitions are dismissed, leaving it open to Assessing Officer to complete assessment in accordance law, and thereafter, petitioner is at liberty to workout remedy available under Income Tax Act, 1961. No costs. Consequently, connected Writ Miscellaneous Petitions are closed. sd 31.10.2017 Speaking Order/Non speaking order Index : yes/no http://www.judis.nic.in 12 To Income Tax Officer, Non-Corporate Ward -1 (1), Room No.305, III Floor, Wanaparthy Block, 121, Mahatma Gandhi Road, Chennai - 600 034. http://www.judis.nic.in 13 T.S.Sivagnanam, J. sd Pre-delivery order in Writ Petition Nos.27549 and 27550 of 2017 31.10.2017 http://www.judis.nic.in 14 http://www.judis.nic.in Alfa Investments v. Income-tax Officer, Non-Corporate Ward -1 (1), Chennai