Bombay High Court
Parinee Realty Pvt. Ltd vs Assistant Commissioner Of Income ... on 19 January, 2022
Bench: K.R. Sriram, R. N. Laddha
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PURTI
PRASAD
PARAB
Digitally signed by
PURTI PRASAD
IN THE HIGH COURT OF JUDICATURE AT BOMBAY
PARAB
Date: 2022.01.21
ORDINARY ORIGINAL CIVIL JURISDICTION
15:42:13 +0530
WRIT PETITION NO. 3638 OF 2021
Parinee Realty Pvt. Ltd.
102 & 103, Smag House,
Plot No.157-A, Sarojini Road Extension,
Vile Parle, Mumbai - 400 056. ....Petitioner
V/s.
1. Assistant Commissioner of Income Tax
Central Circle - 2(3)
Room No.803, 8th Floor,
Pratishtha Bhavan, Old CGO,
M.K. Road, Mumbai - 400 020.
2. The Union of India
Through the Secretary,
Government of India,
Ministry of Finance,
New Delhi - 110 001. ...Respondents
----
Mr. Nishant Thakkar a/w Mr. Hiten Chande i/b Lumiere Law Partners for
Petitioner.
Mr. Suresh Kumar for Respondents-Revenue.
----
CORAM : K.R. SHRIRAM &
R.N. LADDHA, JJ.
DATED : 19th JANUARY, 2022
ORAL JUDGMENT : (PER : K.R. SHRIRAM, J.)
1. Petitioner is impugning a notice dated 30 th March, 2021 issued
under Section 148 of the Income Tax Act, 1961 (the Act) seeking to re-open
the assessment for A.Y. 2017-18 and the order dated 22 nd June, 2021
rejecting petitioner's objections.
2. The re-opening is proposed to be made within four years of the
end of the relevant assessment year. In such a situation even though proviso
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to Section 147 of the Act would not apply, and the Assessing Officer has to
only make out availability of tangible material, it is settled law that if the re-
opening is based on mere change of opinion, the notice issued under Section
148 of the Act has to be set aside. Paragraph No.12 of the judgment dated
23rd November, 2021 Reserve Bank Officers Co-operative Credit Society Ltd.
vs. The Income Tax Officer - 17(3)(1) and Ors. 1 (unreported) reads as
under:
12. Section 147 enables the Assessing Officer to assess
or reassess any income chargeable to tax which he has reason
to believe has escaped assessment for an assessment year.
The proviso to section 147 imposes additional requirements
where an assessment is sought to be reopened beyond a
period of four years from the end of the relevant assessment
year. In the present case, the exercise of power is within a
period of four years and, therefore, the requirements of the
proviso are not attracted. Where the Assessing Officer
purports to exercise power under section 147 within a period
of four years of the end of the relevant assessment year, the
condition precedent to the exercise of the power, is the
existence of a reason to believe that any income chargeable
to tax has escaped assessment. We must keep in mind the
conceptual difference between power to review and power to
reassess. The Assessing Officer has no power to review; he
has the power to reassess. The reassessment has to be based
on the fulfillment of certain conditions. It is settled law that if
the concept of change of opinion is removed, then in the
guise of reopening the assessment, the review would take
place. The concept of change of opinion has been built in the
statute to check abuse of power by the Assessing Officer. The
Assessing Officer has the power to reopen only when there is
tangible material to come to the conclusion that there is
escapement of income from the original assessment. The test
of "tangible material" has been enunciated in a judgment of
the Supreme Court in CIT v. Kelvinator of India Ltd. 1 held
thus (page 564):
"... one needs to give a schematic
interpretation to the words 'reason to believe'
failing which, we are afraid, section 147
would give arbitrary powers to the Assessing
Officer to reopen assessments on the basis of
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'mere change of opinion', which can-not be
per se reason to reopen. We must also keep in
mind the conceptual difference between
power to review and power to reassess. The
Assessing Officer has no power to review; he
has the power to reassess. But reassessment
has to be based on the fulfillment of certain
pre-conditions. If the concept of 'change of
opinion' is removed, as contended on behalf
of the Department, then the review would
take place in the garb of reopening the
assessment. One must treat the concept of
'change of opinion' as an in-built test to check
abuse of power by the Assessing Officer.
Hence, after April 1, 1989, the Assessing
Officer has the power to reopen, provided
there is 'tangible material' to come to the
conclusion that there is escapement of income
from assessment. Reasons must have a link
with the formation of the belief..."
3. We have considered the reasons recorded and communicated to
petitioner on 19th April, 2021. The reasons indicate that the Jurisdictional
Assessing Officer (JAO) has proceeded on incorrect facts and also he has
proceeded on pure change of opinion. We say incorrect facts because the
assessment order under Section 143(3) of the Act was passed on 21 st
December, 2019 determining total income of Rs.1,20,89,790/-. The JAO
however states "Subsequently, an information was received on 20.01.2019
in this case from Investigation Directorate, Mumbai ........... During the
course of survey, it was found that assessee has taken interest bearing loan
from various institutions in market and advanced part of loan so taken to
group companies either at low interest rate or at NIL interest rate."
Therefore, the information on which reliance has been placed was received
before the assessment order dated 21st December, 2019 was passed. On this
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ground alone, we can safely conclude that the conditions precedent to the
exercise of the powers to re-assessment, i.e., existence of a reason to believe
that income chargeable to tax has escaped assessment has not been met.
4. We have to also note that after the information on 20 th January,
2019 was received, as noted in the assessment order dated 21 st December,
2019 five notices were issued by the Assessing Officer under Section 142(1)
of the Act. In the notice dated 1 st October, 2019 a specific query has been
raised by which petitioner was called upon to provide party wise details
alongwith address of the parties to whom loan and advances were given and
details of interest received on such loans and also furnish the nature of the
loans/advances. Petitioner responded by its letter dated 8 th November, 2019
and 14th November, 2019. In the reply dated 14 th November, 2019 at Item
No.4, petitioner has provided party wise details alongwith address of the
parties to whom loans and advances were given, interest received on such
loans and the nature of the loans/advances. The list includes all the names
given in paragraph no.3 of the reasons for re-opening.
These have been considered in the assessment order because in
the assessment order there is reference to five notices issued under Section
142(1) of the Act and it is also noted that the assessee has filed details
through ITBA Module in response to the notices issued from time to time
which are placed on record.
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5. Mr. Suresh Kumar submits that these cannot be said to have
been subject of consideration of the Assessing Officer because the
assessment order does not contain reference and/or discussion. We will
have to reject the submissions of Mr. Suresh Kumar since this court has time
and again held that once a query is raised during the assessment
proceedings and the assessee has replied to it, it follows that the query
raised was a subject of consideration of the Assessing Officer while
completing the assessment. It is not even necessary that an assessment
order should contain reference and/or discussion to disclose its satisfaction
in respect of the query raised. [Aroni Commercials Ltd. vs. Deputy
Commissioner of Income-tax 2(1)2 ].
It is also settled law that change of opinion does not constitute
justification and/or reasons to believe that income chargeable to tax has
escaped assessment.
6. There can be no doubt in the facts of the present case that the
issue of loan being given to group companies either at low interest rate or
no interest rate was a subject matter of consideration by the Assessing
Officer during the original assessment proceedings. It would therefore,
follow that the re-opening of the assessment is merely on the basis of
change of opinion of JAO from that held during the course of assessment
proceedings leading to the assessment order dated 21 st December, 2019.
2 [2014] 44 taxmann.com 304 (Bombay)
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This change of opinion does not constitute justification and/or reason to
believe that income chargeable to tax has escaped assessment.
7. According to the JAO, survey report submitted by DDIT
investigation indicate that interest should be charged at 12% per annum on
loan given to sister concern totaling to Rs.4,17,04,380/- and therefore
income chargeable to tax has been under assessed by the said amount.
According to the JAO this interest income of Rs.4,17,04,380/- has escaped
assessment. We find it rather strange that such an opinion is formed by the
JAO. It is an accepted position that petitioner has in fact not received any
interest in respect of the loans/advances given to seven of its group
companies in the assessment order 2017-18. When no income is received
there is no question of paying any tax on income which respondent think
should have been received but was in fact not received. Income which
accrues to a person is taxable in his hands but we have not seen any
provision of law which says that income which he could have earned but he
has not earned is taxable as income accrued to him. It will be useful to
reproduce paragraph no.7 of the judgment of this court in India Finance &
Construction Co. (P.) Ltd. vs. B.N. Panda, Deputy Commissioner 3 . The same
reads as under :
7. The second transaction on the basis of which notice
under section 148 is issued relates to a transaction entered
into in May, 1982, under which the assessee-company
advanced to M/s. C. R. Developers (P) Ltd. a sum of Rs.15
lakhs purporting to be an advance for the purpose of
construction of a hotel. The advance is in the nature of a loan
3 [1993] 200 ITR 710 (Bombay)
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and no interest is being charged on this account. The
respondents contend that the assessee-company should have
received an interest income worth approximately income
worth approximately Rs. 3 lakhs if interest had been charged
on this advance. Hence, this interest income of approximately
Rs. 3 lakhs has escaped assessment. Once again the reason
which is recorded is beyond the scope of section 147. It is an
accepted position that the assessee-company has in fact not
received any interest in respect of this advance from M/s. C.
R. Developers (P) Ltd. in the assessment year 1988-89. When
no income is received there is no question of paying any tax
on income which the respondents think, should have been
received but was in fact not received. In the case of CIT v. A.
Raman and Co. [1968] 67 ITR 11, the Supreme Court said
that the law does not oblige a trader to make the maximum
profit that he can out of his trading transactions. Income
which accrues to a trader is taxable in his hands. Income
which he could have but has not earned, is not made taxable
as income accrued to him. The Court also said that the High
Court exercising Jurisdiction under article 226 of the
Constitution has power to set aside a notice issued under
section 147(b) if the condition precedent for the exercise of
jurisdiction does not exist. It is open to the court to ascertain
whether the ITO had in his possession any information and
whether from the information the ITO have reason to believe
that the income chargeable to tax has escaped assessment. In
the present case, the reasons which are recorded clearly show
that there is no material at all on the basis of which the
Assessing Officer could have reason to believe that any
interest income had escaped assessment. No such income had
accrued during the assessment year in question.
8. It will also be useful to reproduce paragraph nos.5, 6 and 7 of
the judgment of the High Court of Delhi in Shivnandan Buildcon (P.) Ltd. vs.
Commissioner of Income-tax4 .
5. On going through the said decision, it can be discerned
that the Guwahati High Court held that there was nothing to
show that the assessee had, in fact, received interest or that
the company to whom the loan was given had, in fact, paid
interest to the assessee. There was also nothing on record to
show that the alleged interest was not reflected in the
accounts. The only finding recorded was that the assessee
"ought to" have charged interest. Referring to an earlier
4 [2015] 60 taxmann.com 347 (Delhi)
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decision of the Guwahati High Court, in Highways
Construction Co. (P.) Ltd. v. CIT [1993] 199 ITR 702, the
Court observed that their attention had not been invited to
any provision of the Income-Tax Act empowering the income-
tax authorities to include in the income, interest which was
not due or not collected.
6. In similar vein, when we asked Mr Sahni, who is
appearing for the respondent to point out some provision of
the Income Tax Act, whereunder such 'notional' interest could
be made the subject matter of tax, the only reference he
made was to Section 144 of the said Act. However, we are
clear that Section 144 does not at all apply to the present
proceedings because the present proceedings originate from
an assessment under Section 143(3) of the said Act.
7. In the absence of any specific provision under which the
so called notional income on advances, could be brought to
tax, we do not see as to how the impugned orders passed by
the Commissioner of Income Tax can be sustained.
9. As held by the Apex Court in the case of Indian & Eastern
Newspaper Society, New Delhi vs. Commissioner of Income Tax, New Delhi 5,
even if it is an error that the Assessing Officer discovered, still an error
discovered on a re-consideration of the same material does not given him
power to re-open. When the primary facts necessary for assessment are
fully and truly disclosed, the Assessing Officer is not entitled on change of
opinion to commence proceedings for reassessment. Even if the Assessing
Officer, who passed the assessment order, may have raised too many legal
inferences from the facts disclosed, on that account the Assessing Officer,
who has decided to reopen assessment, is not competent to reopen
assessment proceedings. Where on consideration of material on record, one
view is conclusively taken by the Assessing Officer, it would not be open to
5 119 ITR 996 (SC)
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reopen the assessment based on the very same material with a view to take
another view.
10. In the circumstances, petition is allowed. The impugned notice
dated 30th March, 2021 issued under Section 148 of the Act and the order
dated 22nd June, 2021 rejecting petitioner's objections are quashed and set
aside.
11. Petition disposed with no order as to costs.
(R.N. LADDHA, J.) (K.R. SHRIRAM, J.)
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