Bombay High Court
Vibrant Securities Pvt.Ltd vs Income-Tax Officer, Ward ... on 23 February, 2023
Bench: Dhiraj Singh Thakur, Madhav J. Jamdar
WP-3307-2022-J DST-MADHAV JAMDAR,JJ..doc
IN THE HIGH COURT OF JUDICATURE AT BOMBAY
ORDINARY ORIGINAL CIVIL JURISDICTION
WRIT PETITION NO. 3307 OF 2022
Digitally
signed by Vibrant Securities Private Limited, ]
SHRADDHA
SHRADDHA KAMLESH
KAMLESH TALEKAR
having its address at 103-A, Podar Chambers, ]
TALEKAR Date:
2023.02.23 S.A. Brelvi Road, Fort, Mumbai 400 001. ]
Maharashtra, India ]... Petitioner
15:09:46
+0530
Versus
1. Income-tax Offcer, ]
Ward No.4(2)(1), Mumbai, ]
Room No.644, 6th Floor, Aayakar Bhavan, ]
Maharishi Karve Road, ]
Mumbai 400 020, Maharashtra, India. ]
]
2. Additional/ Joint / Deputy / Assistant ]
Commissioner of Income-tax/ Income-tax ]
Offcer, National Faceless Assessment Centre, ]
Delhi. ]
]
]
3. Principal Commissioner of Income-tax, ]
Mumbai-4, Room No. 629, 6th Floor, ]
Aayakar Bhavan, Maharishi Karve Road, ]
Mumbai 400 020, Maharashtra, India. ]
]
4. Union of India, ]
Through the Secretary, Department of Revenue, ]
Ministry of Finance, Government of India, ]
North Block, New Delhi - 110 001. ]..Respondents
****
Mr.P.J. Pardiwalla, Senior Advocate with Mr.Madhur Agrawal,
Mr.Fenil Bhatt and Mr.Upendra Lokegaonkar i/b Mint &
Confreres, Advocate for petitioner.
Mr.Suresh Kumar with Ms.Mohinee Chougule, Advocates for
respondents.
Shraddha Talekar, PS 1/14
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*****
CORAM : DHIRAJ SINGH THAKUR &
MADHAV J. JAMDAR, JJ.
PRONOUNCED ON : 23rd FEBRUARY, 2023
JUDGMENT
PER DHIRAJ SINGH THAKUR, J.
1. The petitioner challenges the notice under section 148 of the
Income Tax Act, 1961 ('the Act') dated 31 st Mach 2021 for the
assessment year 2014-15 seeking to reopen the assessment for the
said year on the ground that the Assessing Offcer had reasons to
believe that income chargeable to tax for the assessment year
2014-15 had escaped assessment within the meaning of section
147 of the Act. The petitioner also challenges the order dated 8 th
February 2022 rejecting the objections of the petitioner to the
validity of the notice under section 148 of the Act.
2. Briefy stated the material facts are as under :
2.1 The petitioner is stated to be engaged in the business of
stock broking services as well as Undertaking Stock Trades (Pro-
Trade) on BSE and NSE in derivative and cash segments which
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constitutes its business activity.
2.2 It is stated that the resultant Proft/Loss arising from such
Pro-trade activity of the petitioner is offered to tax as 'business
income/loss' in its return of income. It is stated that delivery
based transactions in the nature of purchase and sales of equity
shares in the cash segment, as also the sales and purchase of
shares on Intra-day basis undertaken on the stock exchanges
and sale of futures and options undertaken on the derivative
segments on BSE and NSE are subjected to Security Transaction
Tax ('STT') which is levied and recovered by the exchanges on a
daily basis.
2.3 Return of income was fled by the petitioner for the
assessment year 2014-15 on 24th September 2014 declaring a total
income of Rs.2,74,720/-. The case of the petitioner was selected
for scrutiny assessment by issuing notice under section 143(2) of
the Act, dated 28th August 2015.
2.4. By virtue of notice dated 7th July 2016 under section
142(1) of the Act, the petitioner was asked to give details of the
business activity and fle the basic documents like computation of
income, audit reports etc. which details, the petitioner claims were
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provided vide letter dated 22nd August 2016.
3. By virtue of notice under section 142(1) of the Act, dated 7 th
November 2016, the petitioner was asked to inter-alia fle the
following details :
(i) Reconciliation of TDS claimed as per certifcates
and the income offered in the proft and loss account.
(ii) Statement refecting separately, trading account
of delivery based/non-delivery based share
transactions and derivative transactions
(iii) Complete details of STT along with the return.
(iv) Details of the information received through AIR
and the corresponding bank entries and
sources/utilization thereof.
Vide communication dated 21st November 2016, the
petitioner states that a response was fled giving the relevant
details. Vide communication dated 2nd December 2016, details of
STT and the reconciliation with the Annual Information Report
(AIR) were submitted.
Finally, the Assessing Offcer passed the order of assessment
on 28th December 2016 under section 143(3) accepting the income
disclosed by the petitioner.
Shraddha Talekar, PS 4/14
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4. On 31st March 2021, notice under section 148 of the Act was
issued by the Assessing Offcer seeking to reopen the assessment
for the assessment year 2014-15 on the ground that the income
had escaped assessment for the said year. Reasons were furnished
to the petitioner, which read as under :
In this case, assessee has e-fled return on
24.09.2014 declaring total income at Rs.
274720/- and assessment u/s.143(3) was
completed on 28.12.2016.
In this case, information is received with
regard to the fact that assessment has entered
into sale/purchase of equity share with or
without actual delivery in recognized stock
exchange, the details are under :
SL Information Description Amount
Code (in Lakh )
1 STT-01 Purchase of equity 471.49
share in a
recognized stock
exchange
2 STT-02 Sale of equity share 333.03
in recognized stock
exchange
3 STT-03 Sale of equity share 2257.78
(otherwise than by
actual delivery)in
recognized stock
exchange
4 STT-04 Sale of option in 483.38
securities
(derivative) in
recognize stock
exchange
Shraddha Talekar, PS 5/14
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5 STT-05 Sale of Future 1181.31
(derivative) in
recognized stock
exchange
6 194A Interest other than 57.53
interest on
securities
7 194C Payment to 0.75
contractors
8 194H Commission 0.14
/Brokerage
9 194J Professional/ 0.60
Technical service
fee
Total 4786.01
In view of the above facts and after due
application of mind after analyzing all the relevant
information in the case of the assessee in totality,
I have reason to believe that income of
Rs.4786.01/-Lakh has escaped assessment for
A.Y.2014-15 and the same is therefore required to
be reopened for scrutiny assessment.
A notice u/s.148 r.w.s. 147, is, therefore,
being proposed to be issued to assessee such
income and also any other income chargeable to
tax which has escaped assessment which comes
to notice subsequently in the course of the
assessment proceedings.
5. Objections were fled on 30th December 2021 to the
reopening which were rejected by virtue of order dated 8 th
February 2022.
6. Learned Senior Counsel for the petitioner challenges the
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reassessment proceedings on the ground that the jurisdictional
requirement for reopening had not been satisfed in the present
case. It was urged that the Assessing Offcer having failed to state
in the reasons recorded that there was any failure on the part of
the assessee to disclose fully and truly the material facts
necessary for assessment, could not have proceeded to reopen the
assessment. This, it was stated, was the jurisdictional pre-
condition, which has not been satisfed.
7. The second argument urged was that there was no new
tangible material with the Assessing Offcer, based upon which,
the Assessing Offcer could support his 'reason to believe'. It was
stated that the reassessment proceedings were nothing but 'a
change of opinion' as the entire issue with regard to the
transactions with regard to the stocks had been gone into by the
Assessing Offcer during the scrutiny assessment, and therefore,
reassessment could not be initiated in the absence of there being
any new tangible material.
8. Reply affdavit has been fled which essentially reiterates the
stand of the revenue in the reasons recorded. What has been
stated in the counter affdavit is that the transactions refected in
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the reasons recorded were not genuine and that no actual delivery
had taken place in the recognized stock exchanges as per
information received from the Investigation Wing of the
department on 15th March 2021.
9. We have heard learned counsel for the parties.
10. It is settled law that the validity of reassessment proceedings
have to be tested on the touchstone of the reasons recorded by the
Assessing Offcer, which reasons can neither be added nor
substituted by pleadings.
11. Admittedly, the assessment is sought to be reopened beyond
the period of four years from the end of the relevant assessment
year 2014-15. Since this is a case where an order under section
143(3) of the Act had been passed for the relevant assessment
year, the Assessing Offcer, in addition to satisfying the
jurisdictional conditions of 'reason to believe' that income
chargeable to tax had escaped assessment, had to show that there
was failure on the part of the petitioner to disclose fully and truly
all material facts necessary for assessment during the original
Shraddha Talekar, PS 8/14
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assessment proceedings.
12. A reference to the reasons recorded would clearly show that
not a whisper has been made by the Assessing Offcer that there
was any such failure on the part of the assessee. The consequence
is clear that the Assessing Offcer had not satisfed himself on this
important jurisdictional aspect and therefore must be deemed to
have arbitrarily proceeded to initiate the reassessment
proceedings by issuing the notice impugned, which makes it
unsustainable.
13. In Hindustan Lever Ltd. V/s. R. B. Wadkar, Assistant
Commissioner of Income-Tax and Ors. 1, it was held :
"......The reasons recorded should be clear
and unambiguous and should not suffer
from any vagueness. The reasons recorded
must disclose his mind. The reasons are the
manifestation of the mind of the Assessing
Offcer. The reasons recorded should be
self-explanatory and should not keep the
assessee guessing for the reasons. Reasons
provide the link between conclusion and
evidence. The reasons recorded must be
based on evidence. The Assessing Offcer, in
the event of challenge to the reasons, must
be able to justify the same based on
material available on record. He must
disclose in the reasons as to which fact or
material was not disclosed by the assessee
fully and truly necessary for assessment of
1 2004 ITR 332 Vol.268.
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that assessment year, so as to establish the
vital link between the reasons and evidence.
That vital link is the safeguard against
arbitrary reopening of the concluded
assessment."
14. This Court in the aforementioned judgment proceeded to
allow the petition and set aside the notice impugned therein only
on this ground that the jurisdictional requirement of proviso to
Section 147 of the Act had not been complied with by the
Assessing Offcer. In the judgment Supra, this Court had noticed
that the Assessing Offcer had nowhere stated that there was
failure on the part of the assessee to disclose fully and truly all
material facts necessary of assessment for that assessment year.
The notice impugned under section 148 of the Act is
thus liable to be set aside on this ground alone.
15. Apart from above, it is clear that the material which was
referred to in the reasons recorded in the shape of transactions,
securities, etc. do not refect that the said material was not
available with the Assessing Offcer during the scrutiny
assessment proceedings. The Assessing Offcer appears to have
relied solely upon the said information obtained from the
Investigation Wing of the department without, in the least,
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verifying as to whether the said issue had been gone into or
disclosed by the assessee during the scrutiny assessment
proceedings. The petitioner, on the other hand, has placed on
record details of notices and the replies submitted thereto, as
referred to in the preceding paragraphs which would show that
the information with regard to all transactions had been sought
for and supplied by the petitioner.
16. In Aroni Commercials Ltd. Vs. Deputy Commissioner of
Income-tax-2(1)2, it was held :
"14..........We are of the view th at 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 Offcer while completing the
assessment. It is not necessary that an
assessment order should contained reference
and/or discussion to disclose its satisfaction in
respect of the query raised. If an Assessing
Offcer has to record the consideration
bestowed by him on all issues raised by him
during the assessment proceeding even where
he is satisfed then it would be impossible for
the Assessing Offcer to complete all the
assessments which are required to be
scrutinized by him under Section 143(3) of the
Act. Moreover, one must not forget that the
manner in which an assessment order is to be
drafted is the sole domain of the Assessing
Offcer and it is not open to an assessee to
insist that the assessment order must record all
the questions raised and the satisfaction in
2 [2014] 44 Taxmann.com 304 (Bombay)
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respect thereof of the Assessing Offcer. The
only requirement is that the Assessing Offcer
ought to have considered the objection now
raised in the grounds for issuing notice under
Section 148 of the Act, during the original
assessment proceedings. There can be no
doubt in the present facts as evidenced by a
letter dated 8 September 2012 the very issue of
taxability of sale of shares under the head
capital gain or the head profts and gains from
business was a subject matter of consideration
by the Assessing Offcer during the original
assessment proceedings leading to an order
dated 12 October 2010. It would therefore,
follow that the reopening of the assessment by
impugned notice dated 28 March 2013 is merely
on the basis of change of opinion of the
Assessing Offcer from that held earlier during
the course of assessment proceeding leading to
the order dated 12 October 2010. This change
of opinion does not constitute justifcation and/
or reasons to believe that income chargeable to
tax has escaped assessment."
17. Since an order under section 143(3) had been passed after
eliciting various information from the petitioner, which was
responded to by the petitioner, it must be presumed that the
Assessing Offcer, while passing the order under section 143(3) of
the Act, had considered all issues pertaining to the queries raised
as also issues in regard to which the information was sought and
therefore, if the matter is deemed to have been considered, any
subsequent reassessment on the same issue would be nothing
but a 'change of opinion'.
Shraddha Talekar, PS 12/14
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18. The Assessing Offcer in the reasons recorded was also
supposed to establish the live link between the information
received by him and the formation of his belief that income had
escaped assessment which is conspicuously missing in the
present case. What was held by the Supreme Court in
Commissioner of Income Tax V/s. Kelvinator of India Ltd. 3 is as
under :
" ....The Assessing Offcer has no power to review; he
has the power to reassess. But reassessment has to be
based on fulfllment of certain precondition and if the
concept of "change of opinion" is removed, as
contended on behalf of the Department, then, in the
garb of re-opening the assessment, review would take
place. One must treat the concept of "change of
opinion" as an in-built test to check abuse of power by
the Assessing Offcer. Hence, after 1-4-1989,
Assessing Offcer has 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 live link with the formation of the
belief."
19. In our opinion, the jurisdictional conditions have not been
met with in the present case and that reassessment proceedings
are nothing but a 'change of opinion', and therefore, would not
furnish a sound basis to the Assessing Offcer in the formation of
his belief that income had escaped assessment.
3 [ 320) ITR 561 SC
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20. Be that as it may, the present petition is allowed. Order
impugned, dated 8th February 2022 rejecting the objections so
also the impugned notice dated 31 st March 2021 under section 148
of the Act are held to be unsustainable and are accordingly set
aside. No order as to costs.
[ MADHAV J. JAMDAR , J. ] [DHIRAJ SINGH THAKUR, J.]
Shraddha Talekar, PS 14/14
