Madras High Court
The Commissioner Of Income Tax vs Shri Janak Shantilal Mehta on 16 December, 2020
Author: T.S.Sivagnanam
Bench: T.S.Sivagnanam, V.Bhavani Subbaroyan
T.C.A.No.273 of 2020
IN THE HIGH COURT OF JUDICATURE AT MADRAS
DATED : 16.12.2020
CORAM :
THE HON'BLE MR.JUSTICE T.S.SIVAGNANAM
AND
THE HON'BLE MRS.JUSTICE V.BHAVANI SUBBAROYAN
Judgment Reserved On Judgment Pronounced On
02.12.2020 16.12.2020
Tax Case Appeal No.273 of 2020
The Commissioner of Income tax,
Chennai. .. Appellant
-vs-
Shri Janak Shantilal Mehta,
No.3, Rajamanner Street,
T.Nagar, Chennai-600 017.
PAN: AACPM 7952R .. Respondent
Tax Case Appeal under Section 260A of the Income Tax Act, 1961
against the order dated 10.01.2018 made in I.T.A.No.1372/Mds/2017 on the
file of the Income Tax Appellate Tribunal 'C' Bench, Chennai for the
assessment year 2006-07.
1/17
https://www.mhc.tn.gov.in/judis/
T.C.A.No.273 of 2020
For Applicant : Ms.R.Hemalatha,
Senior Standing Counsel
For Respondent : Mr.Suhrit Parthasarathy
*******
JUDGMENT
T.S.Sivagnanam, J.
This appeal by the Revenue filed under Section 260A of the Income Tax Act, 1961 (hereinafter referred to as “the Act”) is directed against the order dated 10.01.2018 made in I.T.A.No.1372/Mds/2017 on the file of the Income Tax Appellate Tribunal 'C' Bench, Chennai (for brevity “the Tribunal”) for the assessment year 2006-07.
2.The Revenue has raised the following substantial questions of law for consideration of this Court:-
“1.Whether the Tribunal was right in granting relief to the assessee by holding that the reopening of assessment under Sec.147 was not proper especially 2/17 https://www.mhc.tn.gov.in/judis/ T.C.A.No.273 of 2020 when the original assessment framed did not deal with the issue of exemption of sale of agricultural land? and
2.Whether on the facts and in the circumstances of the case the Tribunal was right in holding that the reopening of the assessment was not proper?”
3.The assessee, an individual, filed his return of income for the assessment year under consideration 2006-07, on 20.08.2007 admitting a total loss of Rs.34,93,789/-. The return was processed under Section 143(1) of the Act, subsequently, the case was selected for scrutiny and assessment was completed under Section 143(3) of the Act, on 24.11.2008. Thereafter, the case was reopened by issuing a notice under Section 148 of the Act on 28.03.2013. The reason for reopening was on the ground that in the original assessment, the Assessing Officer has extended excessive and unnecessary relief to the assessee on wrong appreciation of facts. The assessee objected to the reopening and the reason for reopening of the assessment and in particular, that the reasons for reopening were not communicated to the assessee, in spite of specific request made by the assessee and therefore, the 3/17 https://www.mhc.tn.gov.in/judis/ T.C.A.No.273 of 2020 re-assessment done under Section 147 of the Act was invalid. Further, the assessee, on merits, contended that no new tangible material was brought on record by the Assessing Officer to reopen the assessment and it was a case of mere change of opinion, as the Assessing Officer had no reason to believe that income had escaped assessment. Furthermore, on merits, the assessee contended that the lands which were sold were agricultural lands and they are not liable for capital gains.
4.The Assessing Officer rejected the objections on the ground that the assessee had cooperated in the re-assessment proceedings and therefore, cannot object to the reopening. Several other reasons were also given by the Assessing Officer touching upon the merits of the case as to whether there was agricultural activity done in the lands or not and, as to how the claim of the assessee that the lands sold by them were agricultural land was incorrect.
Ultimately, the assessment stood completed by order dated 26.03.2014. Challenging the same, the assessee preferred appeal before the Commissioner of Income Tax (Appeals)-2, Chennai (for brevity “the CIT(A)”). By order 4/17 https://www.mhc.tn.gov.in/judis/ T.C.A.No.273 of 2020 dated 31.03.2017, the appeal was dismissed. Challenging the same, the assessee filed appeal before the Tribunal. The Tribunal allowed the assessee's appeal on the ground that reasons for reopening were not communicated to the assessee and despite opportunities, the Revenue was not able to produce any evidence to show that the reasons recorded for reopening had been provided to the assessee as requested by them in their letter. The Tribunal relied upon the decision of the High Court of Bombay in the case of CIT vs. Videsh Sanchar Nigam Ltd. [(2012) 340 ITR 66 (Bom.)] and the decision of this Court in Jayanthi Natarajan v. Assistant Commissioner of Income Tax [W.P.No.1905 of 2017 dated 14.09.2017]. Aggrieved by such order, the Revenue is before us by way of this appeal.
5.Ms.R.Hemalatha, learned Senior Standing Counsel appearing for the appellant/Revenue submitted that though the reasons for reopening were known to the assessee, the assessee did not raise any objection on the ground of non-communication of the reasons for reopening and he cooperated in the assessment and the same was completed by the Assessing Officer and the 5/17 https://www.mhc.tn.gov.in/judis/ T.C.A.No.273 of 2020 Tribunal erred in interfering with the order of the Assessing Officer as confirmed by the CIT(A) on the ground that the reasons for reopening were not communicated. Further, it is submitted that in terms of Section 292BB of the Act, the re-assessment proceedings had been validly conducted and that the Assessing Officer, at the time when the original assessment was completed, failed to undertake the assessment by applying his mind and there is no discussion in the original assessment order with regard to the claim of exemption in respect of the sale of land by the assessee. Further, the land in question was not put to use for any agricultural activity for eight years and there was discrepancy in the chitta and adangal extracts produced by the Tahsildar and those produced by the assessee and these were all factors which were noted by the Assessing Officer in the re-assessment proceedings. The correctness of the order passed by the Assessing Officer was tested by the CIT(A), who after considering all aspects, confirmed the assessment and the Tribunal erroneously interfered in the order on the ground that the reasons for reopening were not communicated.
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6.The learned counsel referred to the recent decision of the Hon'ble Supreme Court in State of U.P. vs. Sudhir Kumar Singh [Civil Appeal No.3498 of 2020, dated 16.10.2020] and submitted that the role of audi alteram partem, part of natural justice, is not an inflexible tool in the hands of the Court, but must yield when no prejudice is caused and that this Court may determine whether or not prejudice has been caused and if the same is considered, it will be clear that no prejudice was caused to the respondent/assessee merely on the ground that the reasons for reopening were not communicated to the assessee.
7.Resisting the argument of the Revenue, Mr.Suhrit Parthasarathy, learned counsel appearing for the respondent/assessee submitted that the re- assessment proceedings was a clear case of change of opinion and this is apparent from the finding rendered by the CIT(A), who confirmed the finding of the Assessing Officer by stating that the Assessing Officer, at the time of original assessment, failed to undertake the assessment with proper 7/17 https://www.mhc.tn.gov.in/judis/ T.C.A.No.273 of 2020 application of mind and due diligence; there has been no discussion with regard to the claim of exemption in respect of the sale of land by the assessee; and the original assessment was without appreciating the material evidence in the proper perspective. Thus, it is submitted that the above will clearly show that there was no failure on the part of the assessee to fully and truly disclose all details and if the Assessing Officer has not looked into the details, which were already available on record, it is nothing but a clear case of change of opinion.
8.Further, it is submitted that Section 292BB of the Act can have no application to the facts and circumstances of the case. Further, it is submitted that the assessee has sought for the reasons for reopening, which were not furnished in spite the Assessing Officer having received the letter requesting for communication of reasons for the reopening. This issue was specifically raised by the assessee before the CIT(A), which was not considered. In support of his contention, the learned counsel placed reliance on the decisions in Calcutta Discount Co. Ltd. vs. ITO [(1961) 41 ITR 121]; CIT vs. 8/17 https://www.mhc.tn.gov.in/judis/ T.C.A.No.273 of 2020 Kelvinator of India Limited [(2010) 2 SCC 723]; Sona Builders vs. Union of India [(2001) 10 SCC 280]; Haryana Acrylic Manufacturing Co. vs. CIT [(2009) 308 ITR 38]; Videsh Sanchar Nigam Ltd. (supra); Jayanthi Natarajan (supra); KSS Petron Private Limited vs. Assistant Commissioner of Income Tax [Income Tax Appeal No. 224 of 2014 (Bombay) dated 03.10.2016]; and CIT v. Fomento Resorts and Hotels Ltd. [Tax Appeal No.71/2006 (Bombay) dated 27.11.2006].
9.Heard Ms.R.Hemalatha, learned Senior Standing Counsel for the appellant/Revenue and Mr.Suhrit Parthasarathy, learned counsel for the respondent/assessee.
10.Before we test the correctness of the submission of the learned Senior Standing Counsel that the assessee was not put to prejudice on account of the non-communication of the reasons for reopening and therefore, the assessment cannot be declared as invalid, we will first consider as to the argument of the learned Senior Standing Counsel based upon Section 292BB 9/17 https://www.mhc.tn.gov.in/judis/ T.C.A.No.273 of 2020 of the Act. The said provision deals with cases where notices issued under the Act are deemed to be valid in certain circumstances. This provision was inserted by Finance Act, 2008 (18/2008) with effect from 01.04.2008. The said provision states that if the assessee has appeared in any proceeding, or cooperated in any enquiry relating to an assessment or re-assessment, it shall be deemed that any notice under any provision of this Act, which is required to be served upon him, has been duly served upon him in time in accordance with the provisions of the Act and such assessee shall be precluded from taking any objection in any proceeding or enquiry under the Act that the notice was (a) not served upon him; or (b) not served upon him in time; or (c) served upon him in an improper manner. The proviso states that nothing contained in Section 292BB of the Act shall apply where the assessee has raised such objection before the completion of such assessment or re- assessment. Therefore, if an assessee has participated in a proceeding and cooperated in the enquiry relating to an assessment or re-assessment, it is deemed that he has been served with notice, which is required to be served and he would be estopped from objecting that the notice was not served upon 10/17 https://www.mhc.tn.gov.in/judis/ T.C.A.No.273 of 2020 him or was served upon him in an improper manner or was not served upon him in time. However, the proviso carves out an exception that the assessee can raise objection in the reply to the notice before the completion of the assessment or re-assessment.
11.It has been held in CIT vs. Shri.M.Hemanathan [(2016) 384 ITR 177 (Madras)] that once the nature of the proceedings made known and understood by the assessee, he should not be allowed to take advantage of certain procedural defects.
12.What is important to note is that Section 292BB of the Act is not a cure when there is total absence of notice. In this regard, it would be beneficial to refer to the decision in the case of CIT vs. Laxman Das Khandelwal [(2019) 417 ITR 325 (SC)]. Therefore, the provisions of Section 292BB of the Act will not be applicable to a case where the assessee questions the issuance of the notice itself, because non-issuance of notice would result in lack of jurisdiction. Firstly, the necessity to communicate the 11/17 https://www.mhc.tn.gov.in/judis/ T.C.A.No.273 of 2020 reasons for reopening is not contained anywhere in the Income Tax Act. The Hon'ble Supreme Court in GKN Driveshafts (India) Ltd. vs. ITO [(2003) 259 ITR 19 (SC)] had laid down this rule so that the assessee gets an opportunity to know the reasons based on which the re-opening has been done. The assessee on receipt of the reasons for reopening is entitled to submit his objection which is required to be disposed of by the Assessing Officer by passing a reasoned order and this order, if against the assessee, is justiciable under Article 226 of the Constitution of India. Therefore, the non-service of the reasons for reopening as mandated in GKN Driveshafts (India) Ltd., (supra) would not be covered within the scope and ambit of Section 292BB of the Act. What is important to note from the said decision is that there is a duty cast upon the Assessing Officer to dispose of the objections placed to the reopening of the assessment by passing a speaking order. If the Assessing Officer fails to do so, the re-assessment proceedings is liable to be set aside. The procedure, which has been carved out by the Hon'ble Supreme Court in GKN Driveshafts (India) Ltd., (supra) binds the assessee as well as the Revenue. Therefore, the procedure cannot be done away with especially 12/17 https://www.mhc.tn.gov.in/judis/ T.C.A.No.273 of 2020 when, the assessee has made a request in writing for furnishing the reasons for reopening, which was received by the Assessing Officer and there is no document produced by the Revenue to prove that reasons were communicated to the assessee. The assessee having made a request for furnishing copy of the reasons for reopening, which was received by the Assessing Officer, would clearly be put to prejudice on account of non-communication. Therefore, the decision of the Hon'ble Supreme Court in Sudhir Kumar Singh (supra) cannot be made applicable to the facts and circumstances of the case. Therefore, the Tribunal was well justified in holding that the re- assessment proceedings were invalid.
13.Further, with regard to the validity of the reopening proceedings, we find that the reopening was made based on the facts, records and documents, which were available on the file of the Assessing Officer when the original assessment was completed. The Assessing Officer miserably failed to establish that the assessee had failed to disclose fully and truly all material facts necessary for the assessment for that year. The CIT(A) states that the 13/17 https://www.mhc.tn.gov.in/judis/ T.C.A.No.273 of 2020 Assessing Officer during the original assessment did not properly appreciate the documents. As held by the Hon'ble Supreme Court in Calcutta Discount Co. Ltd. (supra), it is not for the assessee to tell as to how the Assessing Officer has to complete his assessment. The duty of the assessee is to disclose fully and truly all material particulars and it is not for him to advice the Assessing Officer to how he has to go about with the assessment proceedings.
14.In Kelvinator of India Limited (supra), the Hon'ble Supreme Court pointed out the conceptual difference between power to review and power to re-assess; the Assessing Officer has no power to review; he has the power to re-assess, but re-assessment has to be based on fulfilment of certain pre- condition and if the concept of “change of opinion” is removed, then, in the garb of reopening the assessment, review would take place. Therefore, the concept of “change of opinion” must be treated as an in-built test to adjudicate abuse of power by the Assessing Officer. After 01.04.1989, the Assessing Officer has power to re-open, provided there is “change of 14/17 https://www.mhc.tn.gov.in/judis/ T.C.A.No.273 of 2020 material” to come to the conclusion that there is escapement of income from assessment. Reasons must have live link with the formation of the belief. The Tribunal rightly relied on the decision in Videsh Sanchar Nigam Ltd., (supra) wherein, it was held that since the reasons recorded for re-opening of the assessment were not furnished to the assessee till the completion of the assessment, the re-assessment order cannot be upheld.
15.In the case of Jayanthi Natarajan (supra), re-assessment proceedings were held to be invalid, as the objection filed by the assessee therein for reopening was not disposed of.
16.Thus, considering the factual position in the instant case and having noted that the assessee, at the first instance, sought for furnishing the reasons for reopening, would clearly show that non-furnishing of reasons has put him to prejudice. As noted above, the Revenue could not produce any evidence to show that the reasons recorded were provided to the assessee in spite of opportunity having been granted by the Tribunal. Thus, we find that the 15/17 https://www.mhc.tn.gov.in/judis/ T.C.A.No.273 of 2020 Tribunal was right in allowing the assessee's appeal and quashing the re- assessment proceedings.
17.In the result, this tax case appeal is dismissed and the substantial questions of law are answered against the Revenue. No costs.
(T.S.S., J.) (V.B.S., J.)
16.12.2020
Index : Yex/No
Speaking Order/Non-Speaking Order
abr
To
The Income Tax Appellate Tribunal 'C' Bench, Chennai. 16/17 https://www.mhc.tn.gov.in/judis/ T.C.A.No.273 of 2020 T.S.Sivagnanam, J.
and V.Bhavani Subbaroyan, J.
(abr) Pre-delivery Judgment made in T.C.A.No.273 of 2020 16.12.2020 17/17 https://www.mhc.tn.gov.in/judis/