Gujarat High Court
Asharam Ashram vs Income Tax Officer (Exemption) Ward on 20 July, 2016
Author: Akil Kureshi
Bench: Akil Kureshi, A.J. Shastri
C/SCA/4774/2016 ORDER
IN THE HIGH COURT OF GUJARAT AT AHMEDABAD
SPECIAL CIVIL APPLICATION NO. 4774 of 2016
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ASHARAM ASHRAM....Petitioner(s)
Versus
INCOME TAX OFFICER (EXEMPTION) WARD-1....Respondent(s)
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Appearance:
MR SN DIVATIA, ADVOCATE for the Petitioner(s) No. 1
MRS MAUNA M BHATT, ADVOCATE for the Respondent(s) No. 1
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CORAM: HONOURABLE MR.JUSTICE AKIL KURESHI
and
HONOURABLE MR.JUSTICE A.J. SHASTRI
Date : 20/07/2016
ORAL ORDER
(PER : HONOURABLE MR.JUSTICE AKIL KURESHI)
1. The petitioner has challenged a notice dated 31.3.2015 issued by the respondent Assessing Officer seeking to reopen the petitioner's assessment for the assessment year 20082009.
2. Brief facts are as under. The petitioner is a public charitable trust. For the assessment year 20082009, the petitioner had filed return of income which was processed under section 143(1) of the Act and was accepted without scrutiny. To reopen such assessment, the Assessing Officer issued the said notice. He had recorded the following reasons for issuing the notice :
Page 1 of 9HC-NIC Page 1 of 9 Created On Tue Jul 26 04:55:12 IST 2016 C/SCA/4774/2016 ORDER "The Surat Investigation Directorate has sent the commission u/s.131(1)(d) to the Ahmedabad Directorate to investigate the cases related to the Sant Shri Asharamji Ashram Ahmedabad based assessee. The DDlT(lnv.), Unit 2(2), Ahmedabad has issued the summons and served on 30/03/2015, asking the assessee to explain the documents which were received from the Surat authorities and the assessee was specifically asked to explain, if the investment of Reliance Mutual Fund of Rs. 25 lacs were recorded in the regular books of account and the sources were accounted for. However, the assessee neither appeared nor submitted the details as per summons issued.
In view of the above facts and circumstances, this office has received the information from the DDIT(lnv.), Unit2(2), Ahmedabad regarding the investment made of Rs.25,00,000/ in Reliance Mutual Fund on 28/01/2008 i.e. F .Y.20072008 in the above named assessee Sant Shri Asharamji Ashram, Motera, Sabarmati, Ahmedabad. The assessee has not attended nor submitted any details regarding the said transaction. Hence, the sources of investment remain unexplained and needs to be verified. The above points required to be examined in details, after obtaining evidence from the assessee.
I have therefore reason to believe that income chargeable to tax has escaped assessment for A.Y.200809 and intend to reassess such income and also any other income chargeable to tax which has escaped assessment and which comes to the notice subsequently in the course of the proceedings under this section.
As this is a fit case for reopening of assessment proceedings under section 147 of the incometax Act, 1961, kind approval may be accorded."
3. Upon being supplied with the reasons, the petitioner raised objections under communication dated 23.3.2016 in which besides other, he raised the following contentions :
Page 2 of 9HC-NIC Page 2 of 9 Created On Tue Jul 26 04:55:12 IST 2016 C/SCA/4774/2016 ORDER "That even the details which were called for vide the summons were in connection with the investment in Mutual Funds which had been duly reflected in the audited annual accounts filed by the ssessee along with its return. Thus even the facts to not require a reopening of the assessment that too when this information was being verified by the DDIT and not A.O. That when an assessee is summoned by an authority on any particular date, How another Authority being the A0 in the present case drafts a note bearing the reasons for reopening based on such summons. These facts highlights that the note is merely an afterthought. Also as the notice u/s 148 was received by the Assessee on 31st evening itself, it clearly goes to show that the notice was drafted much earlier and the note of reasons have been recorded thereafter only to complete the procedural requirement."
4. Such objections were however rejected by the Assessing Officer by order dated 28.3.2016 in the following manner :
"The facts and submissions have been gone through. The Assessing Officer had issued notice u/s 147 after recording his satisfaction for issue of notice u/s 148 dated 31.03.15. In the meantime, the Investigation Wing Unit2(2), Ahmedabad who had territorial jurisdiction over the case of the assessee in his capacity had issued summons u/s 131 of the Act dated. 30.03.2105 to verify certain facts relating to the assessment year 200808. Both have independent jurisdiction over the case of the assessee. The Investigation Wing has jurisdiction with respect to the issues arising out of investigation on the basis of information he had. On the. other hand, the then Assessing Officer had exclusive jurisdiction over the case of the assessee to issue notice u/s 148 of the Act. Therefore, the objection that the reasons recorded are preposterous and unreasonable in nature are not tenable without any substance and as such rejected."Page 3 of 9
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5. Learned counsel for the petitioner submitted that the reasons recorded by the Assessing Officer would show that he had borrowed satisfaction of the investigation wing for issuing the notice and had not independently applied his mind. He further submitted that the reasons are vague and would not permit the Assessing Officer to reopen the assessment on such basis. For examining the details, the assessment cannot be allowed to be reopened. In short, the Assessing Officer cannot be stated to have reasons to believe that income chargeable to tax had escaped assessment.
Drawing our attention to the documents filed by the petitioner trust along with the return for the assessment year in question, he submitted that audited accounts included an entry of investment of Rs.25 lacs in Reliance Mutual Funds which is the bone of contention in the reasons recorded by the Assessing Officer. Thus verification of the records would have enabled the Assessing Officer to ascertain whether the investment was reflected in the books of assessee or not. Counsel further submitted that the notice under section 131A for production of evidence was issued on 30.3.2015 requiring the petitioner to remain present before the authority on 31.3.2015. This notice was served only at 5:20 in the evening and due to shortage of time, the representative of the petitioner could not remain present and on the next date without verifying the original records, impugned notice for reopening the assessment came to be issued. Counsel submitted that in the objections raised by the petitioner also, it was brought to the notice of the Assessing Officer that the said investment was duly Page 4 of 9 HC-NIC Page 4 of 9 Created On Tue Jul 26 04:55:12 IST 2016 C/SCA/4774/2016 ORDER reflected in the books of accounts. The Assessing Officer while disposing of such objections did not even advert to such a contention.
6. On the other hand, learned counsel Shri Manish Bhatt for the department submitted that besides doubtful investment of Rs. 25 lacs in Reliance Mutual Funds, there was other evidence collected by investigating wing suggesting various activities in the nature of financial irregularities. The original assessment was framed without scrutiny, reopening therefore, should be permitted.
7. It is by now well settled through series of judgements that validity of notice for reopening an assessment must be judged on the basis of reasons recorded by the Assessing Officer for issuing such notice. The action cannot be supported on the basis of materials outside of the reasons recorded. Division Bench of this Court in case of Dishman Pharmaceuticals and Chemicals Limited v. Deputy Commissioner of Incometax (OSD) (No.1) reported in (2012) 346 ITR 228 (Guj) has observed as under :
"8. From the above judicial pronouncements, following principles can be culled out : [i] To confer jurisdiction to the Assessing Officer to reopen the assessment under Section 147 of the Incometax Act, beyond four years from the end of assessment year, following two conditions must be satisfied [a] that the Assessing Officer must have reason to believe that the income chargeable to tax has escaped assessment; and that [b] same occasioned, on account of either failure on the part of the assessee to make a return of his income for that assessment year, or to disclose fully and truly all Page 5 of 9 HC-NIC Page 5 of 9 Created On Tue Jul 26 04:55:12 IST 2016 C/SCA/4774/2016 ORDER material facts necessary for assessment of that year. (ii) Both the above conditions are conditionprecedent and must be satisfied simultaneously before the Incometax Officer can assume jurisdiction to reopen assessment beyond four years of the end of assessment year. (iii) Such reasons must be recorded and if the reasons recorded by the Assessing Officer do not disclose satisfaction of these two conditions, reopening notice must fail. (iv) There is no set format in which such reasons must be recorded. It is not the language but the contents of such recorded reasons which assumes importance. In other words, a mere statement that the Assessing Officer had reason to believe that certain income has escaped assessment and such escapement of income was on account of nonfiling of the return by the assessee or failure on his part to disclose fully and truly all material facts necessary for assessment would not be conclusive. Nor, absence of any such statement would be fatal, if on the basis of reasons recorded, it can be culled out that there were sufficient grounds for the Assessing Officer to hold such beliefs. (v) Such reasons must emerge from the reasons recorded by the Assessing Officer and cannot be supplied through an affidavit filed before the Court. However, Gujarat High Court in the case of Aayojan Developers v. Income Tax Officer [Supra] has accepted the view that to elaborate such reasons already recorded, reference would be permissible to the affidavit filed by the Department before the Court.
(vi) What would amount to true and full disclosure of all material facts must depend on each case and no strait jacket formula of universal application can be provided. It can however safely be stated that the duty of the assessee is to disclose primary facts and it is not his duty to lead the Assessing Officer to any particular inference of fact or of law on the basis of such primary disclosures. In other words, once the assessee discharges his duty of stating all the primary facts, what inferences and conclusions should be drawn is the duty of the Assessing Officer. (vi) At the time of ascertaining whether the notice was validly issued, Page 6 of 9 HC-NIC Page 6 of 9 Created On Tue Jul 26 04:55:12 IST 2016 C/SCA/4774/2016 ORDER what could be the probable conclusion of fresh assessment if reopening is permitted, is not the inquiry of the Court. In other words, the merits of the proposed action, through opening of the assessment, cannot be gone into by the court beyond prima facie stage."
8. In context of reopening of an assessment where original assessment is made without scrutiny and return is accepted under section 143(1) of the Act, it is recognised in several judgements including in case of Assistant Commissioner of Income tax v. Rajesh Jhaveri Stock Brokers P. Ltd reported in (2007) 291 ITR 500 (SC) that the Assessing Officer enjoys considerable latitude in reopening such assessment. The underlying principle being that when there has been no scrutiny assessment, the Assessing Officer cannot be stated to have formed any opinion and that therefore, the principle of change of opinion in such cases would not apply. However, even in such a case, the requirement of the Assessing Officer having some material at his command to enable him to form a belief that income chargeable to tax has escaped assessment, would apply. In case of Inductotherm (India) P. Ltd. v. M. Gopalan, Deputy Commissioner of Income tax reported in (2013) 356 ITR 481(Guj), Division Bench of this Court observed as under :
"13. Despite such difference in the scheme between a return which is accepted under section 143(1) of the Act as compared to a return of which scrutiny assessment under section 143(3) of the Act is framed, the basic requirement of section 147 of the Act that the Assessing Officer has reason to believe that income chargeable to tax has escaped assessment is not done away with. Section 147 of the Act permits the Assessing Officer to assess, reassess Page 7 of 9 HC-NIC Page 7 of 9 Created On Tue Jul 26 04:55:12 IST 2016 C/SCA/4774/2016 ORDER the income or recompute the 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 a return has been either accepted under section 143(1) of the Act or a scrutiny assessment has been framed under section 143(3) of the Act. A common requirement in both of cases is that the Assessing Officer should have reason to believe that any income chargeable to tax has escaped assessment."
9. Bearing in mind these principles, if we revert back to the case on hand, all that the Assessing Officer in the reasons recorded has referred to is the notice issued to assessee for production of details regarding investment of Rs.25 lacs made in Reliance Mutual Funds; that the assessee did not attend or submit the details regarding the transaction. He was therefore, of the opinion that investment remained unexplained and needed to be verified. Such points are required to be examined in detail after obtaining evidence from the assessee and it was for this purpose that the Assessing Officer resorted to reopening of the assessment.
10. In a given case it may be possible for the Assessing Officer to reopen the assessment on the ground that the assessee failed to cooperate with the notice for inquiry which would prima facie establish that there was some material suggesting escapement of income chargeable to tax. In the present case, however, it is not necessary to examine this fine legal issue. This is because of the following reasons. The petitioner was granted just about 12 hours of time to respond to the notice for production of material and upon the petitioner failing to do so, the Assessing Officer presumed that such investment required Page 8 of 9 HC-NIC Page 8 of 9 Created On Tue Jul 26 04:55:12 IST 2016 C/SCA/4774/2016 ORDER further investigation. Further as pointed out by the counsel for the assessee, such investment was very much part of the books of audited accounts of the assessee. If the Assessing Officer had perused such accounts, his anxiety that such investment may not have been reflected in the books would have been taken care of. Even when the petitioner pointed out this fact to the Assessing Officer in the letter of objection, the Assessing Officer did not advert to this issue while disposing of such objections. Surely, having once issued the notice for reopening, it was not impermissible for the Assessing Officer to drop the same if through objections the assessee pointed out that the reasons for which the notice was issued are completely erroneous. Even in such a case, the Assessing Officer were to stick to his original position, the entire formula provided by the Supreme Court in case of GKN Driveshafts (India) Ltd. v. Incometax officer and others reported in (2003) 259 ITR 19 (SC) would fail. The contention that there was sufficient other materials suggesting money laundering or other financial irregularities, has not come in the reasons recorded and such ground therefore, cannot be examined to support the notice for reopening.
11. For such reasons, the impugned notice dated 31.3.2015 is set aside. Petition is disposed of.
(AKIL KURESHI, J.) (A.J. SHASTRI, J.) raghu Page 9 of 9 HC-NIC Page 9 of 9 Created On Tue Jul 26 04:55:12 IST 2016