C/SCA/16135/2018 JUDGMENT IN HIGH COURT OF GUJARAT AT AHMEDABAD R/SPECIAL CIVIL APPLICATION NO. 16135 of 2018 FOR APPROVAL AND SIGNATURE: HONOURABLE MR.JUSTICE J.B.PARDIWALA and HONOURABLE MR.JUSTICE A.C. RAO 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? NILAMBEN SANDIPBHAI PARIKH Versus ASSISTANT COMMISSIONER OF INCOME TAX CIRCLE 4(2) Appearance: MR SUDHIR M MEHTA(2058) for Petitioner(s) No. 1 MS SHAILEE S MEHTA(5873) for Petitioner(s) No. 1 MRS MAUNA M BHATT(174) for Respondent(s) No. 1 CORAM:HONOURABLE MR.JUSTICE J.B.PARDIWALA and HONOURABLE MR.JUSTICE A.C. RAO Date : 05/08/2019 ORAL JUDGMENT (PER : HONOURABLE MR.JUSTICE A.C. RAO) Page 1 of 14 Downloaded on : Thu Oct 10 15:31:47 IST 2019 C/SCA/16135/2018 JUDGMENT 1.00. RULE, returnable forthwith. Ms.Mauna Bhatt, learned Senior Standing Counsel appearing for revenue waives service of notice of rule on behalf of respondents. 1.01. In facts and circumstances of case and with consent of learned counsel appearing for respective parties, present petition is taken up for final hearing today. 2.00. By this writ petition under Article 226 of Constitution of India, petitioner has challenged impugned notice dated 27/03/2013 issued by respondent under section 148 of Income Tax Act, 1961 ( Act for short) (Annexure-A), seeking to reopen petitioner's assessment for A.Y. 2013-14 as well as order disposing objections dated 10/07/2018 (Annexure-H). 3.00. Facts leading to present petition, in nutshell are as under :- 3.01. petitioner filed its return of income for A.Y. 2013-14 on 30/09/2013 declaring total income of Rs.41,87,350/-. During assessment proceedings u/s.143(3), notice under section 142(1) was issued for information required vide letter dated 7/11/2014 by A.O. petitioner was called upon to furnish details. petitioner submitted reply dated 20/5/2015 and 24/6/2015 and Page 2 of 14 Downloaded on : Thu Oct 10 15:31:47 IST 2019 C/SCA/16135/2018 JUDGMENT submitted details including copy of sale deed, return of income for A.Y. 2014-15 and other relevant documents. Thereafter, assessment order under section 143(3) of Act passed on 13/7/2015. respondent issued notice under section 148 dated 27/3/2018 stating that income had escaped assessment for A.Y. 2013-14 and asked petitioner to file return. petitioner requested for copy of reasons recorded and thereafter respondent vide letter dated 14/5/2018 supplied copy of reasons to petitioner. petitioner raised objections to notice under section 148 through Chartered Accountant vide letter dated 25/6/2018 and 6/7.7.2018. However, respondent disposed of objections, vide order dated dated 10/07/2018, holding that reasons raised by petitioner are not acceptable and hence rejected same in totality. Hence, petitioner has preferred present writ petition. 4.00. Mr.Sudhir Mehta, learned counsel appearing for petitioner has vehemently submitted that property was sold in financial year 2012-13, but purchaser had not made payment in financial year 2012-13 and payment was made in financial year 2013-14. assessee also paid tax on consideration for return of income for A.Y. 2013-14. It is contended that this fact is already placed on record of A.O. and assessment order was passed under section 143(3) of Act on 13/7/2015 and therefore, not it is not open for A.O. to issue Notice under section 148 of Act stating that income had escaped for A.Y. 2013-14 and asking petitioner to file return. Page 3 of 14 Downloaded on : Thu Oct 10 15:31:47 IST 2019 C/SCA/16135/2018 JUDGMENT 4.01. Mr.Sudhir Mehta, further submitted that during course of regular assessment proceedings, detailed inquiry was conducted and petitioner had filed reply and during course of inquiry, petitioner disclosed fact of sale of property and had also submitted copy of sale deed and computation of total income for A.Y. 2014-15 wherein income from capital gain has been calculated on basis of amount received on 26/9/2013 and possession was handed over to purchaser. It is contended that thus, during inquiry carried out during original assessment, petitioner had disclosed fact of sale of property and A.O. was aware about same and therefore, notice u/s 148 of Act on basis of on verification of records is nothing but chance of opinion, which is not permissible. In support of above submission, Mr.Mehta, has relied upon decision of Surpeme Court in case of Income Tax Officer Vs. Tech Span India (P) Ltd. reported in [2018] 92 taxmann.com 361 (SC). 4.02. Mr.Mehta, further submitted that for reopening for purpose of making fresh / roving inquiry, there is no new material. It is submitted that reopening of completed assessment is impermissible to merely carry out fishing and roving inquiry. 4.03. Mr.Mehta, further submitted that Assessing Officer has power to reopen assessment, provided there is tangible material to come to conclusion that there is escapement of income from assessment. reasons must have live link with formation of belief. In support of his Page 4 of 14 Downloaded on : Thu Oct 10 15:31:47 IST 2019 C/SCA/16135/2018 JUDGMENT above submission, he has relied upon decision of Supreme Court in case of Commissioner of Income-tax Versus Kelvinator of India, reported in [2010] 320 ITR 561 (SC). Relying upon decision in case of Priyanka Gems Versus Assistant Commissioner of Income-tax, reported in [2014] 46 taxmann.com 376 (Gujarat), it is submitted that in absence of any new tangible material available with A.O., it is not open to A.O. to change his opinion by issuing notice of re-assessment. 4.04. Mr.Mehta, further contended that there is nothing to indicate that AO has independently applied his mind to record case to ascertain as to whether there is escaped assessment and reopening is on basis of conjectures and surmises. 4.05. Mr.Mehta, further contended that as per settled law merely having reason to believe that income had escaped assessment is not sufficient to reopen assessment. It is further contended that for issuance of notice under section 148, AO must record his satisfaction that income has escaped assessment and such assessment must be based on reason to believe that some income has escaped assessment. However, such satisfaction in absence of any application of mind and any real finding in case of assessment do not constitute valid reason to believe that income has escaped assessment. It is contended that therefore, impugned notice u/s.148 is illegal, bad in law and cannot sustain. Page 5 of 14 Downloaded on : Thu Oct 10 15:31:47 IST 2019 C/SCA/16135/2018 JUDGMENT 4.06. Relying upon decision in of this court in case of Giriraj Steel Versus Deputy Commissionerof Income Tax, reported in [2018] 91 taxmann.com 342 (Gujarat), Mr.Mehta, submitted that reopening of assessment being based on mere change of opinion, assumption of jurisdiction on part of A.O. lacks validity and notice u/s 148 of Act cannot be sustained. Making above submissions and relying upon above decisions, it is requested to allow present petition. 5.00. Ms.Mauna Bhatt, learned Senior Standing Counsel appearing for revenue has vehemently opposed present petition. She contended that in return of income filed for A.YH. 2013-14, petitioner assessee has not shown capital gain arising out of sale of property and therefore, petitioner is liable to pay capital gain of Rs.25,07,732/- and assessment u/s.143(3) of Act passed on 13/7/2015 determining total income at Rs.43,85,390/-. It is contended that thus, income has escaped assessment for A.Y. 2013-14. 5.01. Ms.Bhatt, further contended that property in question was sold on 7/12/2012 as per sale deed dated 6/12/2012 registered with Sub-registrar, SRO, Ahmedabad-9, Bopal and as per sale deed Rs.67,82,500 was paid to be paid by purchaser within 16 days towards full and final sale consideration and said amount must have been paid to petitioner within 16 days within financial year 2012-13 and therefore, it is established that property was sold during Page 6 of 14 Downloaded on : Thu Oct 10 15:31:47 IST 2019 C/SCA/16135/2018 JUDGMENT financial year 2012-13 and therefore, capital gain earned for sale of property is to be considered for A.Y. 2013-14 and not 2014-15. Ms.Bhatt, further contended that A.O. has issued notice u/s. 148 after completing required procedure and he has jurisdiction to issue such notice and no error has been committed by A.O. in issuing notice u/s.148. She contended that as income escaped assessment, notice u/s.148 is rightly issued. 5.02. Ms.Bhatt further contended that present petition is pre-mature, as only notice u/s 148 rw.s. 147 has been issued and there is alternative efficacious remedy available with petitioner by way of appeal before CIT(A). Submitting accordingly, it is requested to dismiss present petition. 6.00. Heard Mr.Sudhir Mehta, learned counsel for petitioner and Ms.Mauna Bhatt, learned Senior Standing counsel appearing for revenue at length and considered material on record. 6.01. Short question which arises for determination in this petition is, whether concept of change of opinion stands obliterated with effect from 1st April, 1989, I.e., after substitution of Section 147 of Income Tax Act, 1961 by Direct Tax Laws (Amendment) Act, 1987? Page 7 of 14 Downloaded on : Thu Oct 10 15:31:47 IST 2019 C/SCA/16135/2018 JUDGMENT 6.02. To answer above question, we need to note changes undergone by Section 147 of Income Tax Act, 1961 [for short, Act ]. Prior to Direct Tax Laws (Amendment) Act, 1987, Section 147 reads as under: 147.Income escaping assessment.-- If- [a] Income-tax Officer has reason to believe that, by reason of omission or failure on part of assessee to make return under section 139 for any assessment year to Income-tax Officer or to disclose fully and truly all material facts necessary for his assessment for that year, income chargeable to tax has escaped assessment for that year, or [b] notwithstanding that there has been no omission or failure as mentioned in clause (a) on part of assessee, Income-tax Officer has in consequence of information in his possession reason to believe that income chargeable to tax has escaped assessment for any assessment year, he may, subject to provisions of sections 148 to 153, assess or reassess such income or recompute loss or depreciation allowance, as case may be, for assessment year concerned (hereafter in sections 148 to 153 referred to as Page 8 of 14 Downloaded on : Thu Oct 10 15:31:47 IST 2019 C/SCA/16135/2018 JUDGMENT relevant assessment year). 6.02.1. After enactment of Direct Tax Laws (Amendment) Act, 1987, I.e., prior to 1st April, 1989, Section 147 of Act, reads as under: 147. Income escaping assessment.-- If Assessing Officer, for reasons to be recorded by him in writing, is of opinion that any income chargeable to tax has escaped assessment for any assessment year, he may, subject to provisions of Sections 148 to 153, 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 proceedings under this section, or recompute loss or depreciation allowance or any other allowance, as case may be, for assessment year concerned (hereafter in this section and in Sections 148 to 153 referred to as relevant assessment year). 6.02.3. After Amending Act, 1989, Section 147 reads as under: Income escaping assessment. 147. If Assessing Officer has reason to believe that any income chargeable to tax has escaped assessment for any assessment year, he may, Page 9 of 14 Downloaded on : Thu Oct 10 15:31:47 IST 2019 C/SCA/16135/2018 JUDGMENT subject to provisions of sections 148 to 153, 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 proceedings under this section, or recompute loss or depreciation allowance or any other allowance, as case may be, for assessment year concerned (hereafter in this section and in sections 148 to 153 referred to as relevant assessment year). 6.03. Considering above, Apex Court in case of Kelvinator of India Ltd. (supra) observed and held in para 4 as under :- 4. On going through changes, quoted above, made to Section 147 of Act, we find that, prior to Direct Tax Laws (Amendment) Act, 1987, re- opening could be done under above two conditions and fulfillment of said conditions alone conferred jurisdiction on Assessing Officer to make back assessment, but in section 147 of Act [with effect from 1st April, 1989], they are given go-by and only one condition has remained, viz., that where Assessing Officer has reason to believe that income has escaped assessment, confers jurisdiction to re- open assessment. Therefore, post-1st April, 1989, power to re-open is much wider. However, one needs to give Page 10 of 14 Downloaded on : Thu Oct 10 15:31:47 IST 2019 C/SCA/16135/2018 JUDGMENT schematic interpretation to words reason to believe failing which, we are afraid, Section 147 would give arbitrary powers to Assessing Officer to re-open assessments on basis of mere change of opinion , which cannot be per se reason to re-open. We must also keep in mind conceptual difference between power to review and power to re-assess. Assessing Officer has no power to review; he has power to re-assess. But re-assessment has to be based on fulfillment of certain pre-condition and if concept of change of opinion is removed, as contended on behalf of Department, then, in garb of re-opening assessment, review would take place. One must treat concept of change of opinion as in- built test to check abuse of power by Assessing Officer. Hence, after 1st April, 1989, Assessing Officer has power to re-open, provided there is tangible material to come to conclusion that there is escapement of income from assessment. Reasons must have live link with formation of belief. Our view gets support from changes made to Section 147 of Act, as quoted hereinabove. Under Direct Tax Laws (Amendment) Act, 1987, Parliament not only deleted words reason to believe but also inserted word opinion in Section 147 of Act. However, on receipt of representations from Companies against omission of words reason to believe , Parliament re-introduced said expression and deleted word opinion on Page 11 of 14 Downloaded on : Thu Oct 10 15:31:47 IST 2019 C/SCA/16135/2018 JUDGMENT ground that it would vest arbitrary powers in Assessing Officer. We quote hereinbelow relevant portion of Circular No.549 dated 31st October, 1989, which reads as follows: 7.2. Amendment made by Amending Act, 1989, to reintroduce expression `reason to believe in Section 147. number of representations were received against omission of words `reason to believe from Section 147 and their substitution by `opinion of Assessing Officer. It was pointed out that meaning of expression, `reason to believe had been explained in number of court rulings in past and was well settled and its omission from section 147 would give arbitrary powers to Assessing Officer to reopen past assessments on mere change of opinion. To allay these fears, Amending Act, 1989, has again amended section 147 to reintroduce expression `has reason to believe in place of words `for reasons to be recorded by him in writing, is of opinion . Other provisions of new section 147, however, remain same. For afore-stated reasons, we see no merit in these civil appeals filed by Department, hence, dismissed with no order as to costs. Page 12 of 14 Downloaded on : Thu Oct 10 15:31:47 IST 2019 C/SCA/16135/2018 JUDGMENT 6.04. Even this Court in case of Giriraj Steel (supra) has held that reopening of assessment being based on mere change of opinion, assumption of jurisdiction on part of A.O. lacks validity and notice u/s 148 of Act cannot be sustained. 6.05. Assessing Officer has power to reopen assessment, provided there is tangible material to come to conclusion that there is escapement of income from assessment and reasons must have live link with formation of belief. In present case, there is no tangible material. issuance of impugned notice u/s.148 is nothing but mere change of opinion. In absence of any new tangible material available with A.O., it is not open to A.O. to change his opinion by issuing notice of re- assessment. 6.06. From reasons recorded it can be said that original assessment is sought to be reopened in exercise of powers under section 147/148 of Act on change of opinion by AO, which is not permissible more particularly when original assessment is sought to be reopened after period of four years from end of assessment year. Under circumstances, conditions stipulated under first proviso to section 147 are not satisfied and therefore, on aforesaid ground alone, impugned notice deserves to be quashed and set aside. 7.00. In view of above and applying ratio laid Page 13 of 14 Downloaded on : Thu Oct 10 15:31:47 IST 2019 C/SCA/16135/2018 JUDGMENT down in decisions referred to hereinabove and for reasons stated above, present petition succeeds and impugned notice dated 27/3/2018 issued by respondent under section 148 of Act is held to be illegal, without jurisdiction, bad in law and deserves to be quashed and set aside and is, accordingly, quashed and set aside. Consequently, order dated 10/7/2018 disposing of objections is also quashed and set aside. Rule is made absolute to aforesaid extent. In facts and circumstances of case, there shall be no order as to costs. (J. B. PARDIWALA, J) (A. C. RAO, J) RAFIK.. Page 14 of 14 Downloaded on : Thu Oct 10 15:31:47 IST 2019 Nilamben Sandipbhai Parikh v. Assistant Commissioner of Income-tax Circle 4(2)