Bombay High Court
Emkay Global Financial Services ... vs Assistant Commissioner Of Income Tax ... on 6 February, 2024
Author: K.R. Shriram
Bench: K. R. Shriram
Digitally
signed by
SHAMBHAVI
2024:BHC-OS:2097-DB
SHAMBHAVI NILESH
NILESH SHIVGAN
SHIVGAN Date:
2024.02.07 1/7 428-oswp-2770-2022.doc
18:49:56
+0530
IN THE HIGH COURT OF JUDICATURE AT BOMBAY
ORDINARY ORIGINAL CIVIL JURISDICTION
WRIT PETITION NO.2770 OF 2022
Emkay Global Financial Services Limited
7th Floor, The Ruby, Senapati Bapat Marg,
Dadar West, Mumbai 400028
PAN No.: AAACE0994L ...Petitioner
Versus
1 Assistant Commissioner of Income Tax
Circle 4(1)(1), Mumbai ...Respondents
R.No.640, 6th floor,
Aayakar Bhavan,
M.K.Road, Mumbai-400 020.
2 The National Faceless Assessment Centre
E Ramp, Jawaharlal Nehru Stadium,
Delhi 110 003.
3 Union of India,
Through the Secretary, Department of
Revenue, Ministry of Finance,
North Block, New Delhi - 110 001 ....Respondents.
Dr. K. Shivaram, Senior Advocate, with Mr. Rahul Hakani, for
Petitioners.
Mr. Suresh Kumar, for Respondents.
CORAM:
K. R. SHRIRAM &
KAMAL KHATA, JJ.
DATED: 6th February 2024
ORAL JUDGMENT:- (Per K.R. Shriram, J.)
1. By consent, Petition taken up for hearing at the stage of
admission itself. Therefore, Rule. Rule made returnable forthwith.
2. Petitioner is in the business of shares and stock broking.
Petitioner is challenging the action of Respondent No.1 of issuing
notice dated 31st March 2021 under Section 148 of the Income Tax
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Act, 1961 ("the Act") seeking to reassess Petitioner's income for
Assessment Year ("AY") 2015-16. Petitioner is also challenging an
order dated 26th February 2022 passed by Respondent No.2 rejecting
Petitioner's objections to the issuance of notice under Section 148 of
the Act.
3. Petitioner had filed on 29 th September 2015, its return of
income for AY 2015-16. Petitioner declared income of 'Nil'. An
assessment under Section 143(3) of the Act was made and an
assessment order dated 14th December 2017 came to be passed
determining Petitioner's total income at Rs.58,96,900/-.
4. Petitioner thereafter received the impugned notice dated 31 st
March 2021. Petitioner filed its objections vide letter dated 6 th
January 2021. Petitioner's objections came to be rejected by the
impugned order dated 25th March 2022.
5. Since in this case, the impugned notice under Section 148 of
the Act has been issued after expiry of more than four years from the
end of the relevant assessment year and an assessment under Section
143(3) of the Act having been made, the proviso to Section 147 of
the Act shall apply. As per the proviso, reassessment is impermissible
after expiry of four years from the end of the relevant assessment
year and where assessment under Section 143(3) of the Act has been
made unless there has been failure on the part of assessee to truly
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and fully disclose material facts during the assessment. A bare
perusal of the reasons recorded would show that there has been no
failure on the part of Petitioner to truly and fully disclose material
facts. Though the words 'failure on the part of assessee to disclose
fully and truly all material facts necessary for assessment' have been
used in the reasons recorded, those have been used only to get over
the fetters placed by the proviso to Section 147 of the Act. The
reasons for reopening read as under:
"The assesse has filed return of income for A.Y. 2015-16 on
29/09/2015 declaring income of Rs. NIL. The assessment u/s.
143(3) of the Act was completed on 14/12/2017 determining
total income at Rs. 58,96,900/-.
2.1 It was noticed from P & L A/c that assessee has
debited Rs.35,87,05,815/- exceptional item stating the reasons
in note-5 that loss occurred due to a manifest material mistake
on October 5, 2012 while executing the sale order on NSE as per
SAT orders of August, 2014. The same was added back in the
computation of income stating that the same was already
claimed in AY 2013-14 and finally the business income of Rs.
17,66,31,378 has been arrived which was set off fully from
business loss of previous year (AY 2013-14). It was further
noticed in the ITR that major carried forward business loss of
Rs.34,39,23,169 was pertaining to AY 2013-14. The loss arrived
in AY 2013-14 was due to the reasons as assessee has debited
Rs. 35,87,05,815 in the computation as Loss due to erroneous
trades.
2.2 Loss occurred as assessee has requested to NSE
regarding the trades executed on October 5, 2012 which
constitute material mistake in the trade and under Bye law 5(a)
framed by NSE, those trades are liable to be annulled. NSE
however, has rejected the claim on the ground that if the
appellant had complied with regulatory requirements by
installing prudent risk management and order management
system at the dealers terminal, no mistake could go unnoticed
and even if any order was erroneously punched remedial
measures could be taken before erroneous order went out of
dealers system and reached NSEs trading system and therefore
in the facts of present case, appellant beinggrossly negligent,
trades in question cannot be considered as material mistake in
the trade and consequently the said trades cannot be annulled.
Assessee has made appeal to SAT for relief but after hearing the
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SAT has ordered that the appeal does not succeed.
2.3 As the above trade and transaction was not validated
and not considered as regular business transaction either by NSE
or by SAT and hence for income tax purpose also the loss arises
out of it is required to be treated as not generated from regular
business transaction. Hence, the loss was required to be treated
as speculation loss in the AY 2013-14 and not to be allowed to
be set off against business income of the current year. Incorrect
allowance of set off of losses resulted in under assessment of
income of Rs. 35,87,05,815/-.
3.1 Further, it was noticed that the business income of Rs.
17,66,31,378 has been arrived which was set off fully from
business loss of previous year (AY 2013-14). The loss arrived in
AY 2013-14 was due to the reasons as assessee has debited Rs.
35,87,05,815/- in the computation as Loss due to erroneous
trades.
3.2 Each assessment year is distinct and separate and
hence in every year normal income or loss as well as MAT
income is mandatorily required to be simultaneously computed
and whichever is higher to be offered for tax. It was however
noticed in this case that in the AY 2013-14 as the assesse has
debited Rs. 35,87,05,815 in the computation for normal income
as 'Loss due to erroneous trades', the same was also required to
be considered for computation for MAT, which was not done.
However just to cover up that mistake, the adjustment of the
same was done and that loss was debited in books for MAT as
exceptional item in the AY 2015-16 which may not be allowable.
That debit should have been done in AY 2013-14 and not in AY
2015-16, therefore income under MAT of Rs. 19,79,92,443
before exceptional item is required to be taken in AY 2015-16
and offered to tax. Omission to tax the same has resulted in
under assessment of the same.................................."
6. In paragraph 2.1 of the reasons, it says " It was noticed from
P&L A/c that assessee has debited..........stating the reasons in note 5
that loss occurred due to a............. The same was added back in the
computation of income stating that the same was.................. It was
further noticed in the ITR that major carried forward business
loss...............".
Paragraph 3.1 of the reasons, it says " Further it was noticed
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that the business income............has been arrived which was set off
fully from business loss........".
Paragraph 3.2 of the reasons, it says " .............It was however
noticed.......in the computation for normal income......................,
the same was also required to be considered for computation for
MAT, which was not done..............and that loss was debited in
books for MAT as exceptional item........,which may not be
allowable......".
7 Therefore, it is absolutely clear that the entire basis for forming
a reason to believe there was escapement of income is from the
records filed by Petitioner with return of income.
8 Moreover, admittedly, as stated in the affidavit in reply filed by
one Keshav M. Dixit, Deputy Commissioner of Income Tax-4(1)(1),
affirmed on 8th September 2022, the issue involved as noted in the
reasons for reopening were examined at the time of original
assessment. Therefore, it is a clear case of change of opinion which
does not constitute justification and/or reasons to believe that
income chargeable to tax has escaped assessment. After admitting
that the issues involved as noted in the reasons for reopening were
examined at the time of original assessment proceedings, it is stated
that the factual error came to the notice of the Assessing Officer
("AO") subsequently, on the basis of which belief was formed that
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income chargeable to tax has escaped assessment. The Apex Court in
Gemini Leather Stores v. ITO1 held that the assessment cannot be
reopened by reason of the omission or failure on the part of the
assessee to disclose fully and truly all material facts as the Income
Tax Officer had material facts before him when he made the original
assessment. The Court held that the Assessing Officer cannot take
recourse to open to remedy the error resulting from his oversight in
the assessment proceeding.
9. Moreover, as held by the Apex Court in Calcutta Discount Co.
Ltd. v. ITO2, the duty of assessee does not extend beyond the full and
truthful disclosure of all primary facts. Once all the primary facts are
before him, he requires no further assistance by way of disclosure. It
is for him to decide what inferences of facts can be reasonably drawn
and what legal inferences have ultimately to be drawn. If from
primary facts, more inferences than one could be drawn, it would not
be possible to say that the assessee should have drawn any particular
inference and communicated it to the assessing authority. The Court
held, Explanation to the sub-section has nothing to do with
"inferences" and deals only with the question whether primary
material facts not disclosed could still be said to be constructively
disclosed on the ground that with due diligence the Income-tax
Officer could have discovered them from the facts actually disclosed.
1 [1975] 100 ITR 1 (SC)
2 [1961] 41 ITR 191 (SC)
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The Explanation has not the effect of enlarging the section, by casting
a duty on the assessee to disclose "inferences" to draw the proper
inferences being the duty imposed on the Income-tax Officer. The
Court held that the duty of the assessee is to disclose fully and truly
all primary relevant facts and it does extend beyond that.
10. In the circumstances, in the case at hand, we are satisfied that
there has been no failure on the part of assessee to truly and fully
disclose primary facts. Therefore, Rule made absolute. Petition is
allowed in terms of prayer clause (a), which reads as under:
"(a) that this Hon'ble Court may be pleased to issue a
Writ of Certiorari or a Writ in the nature of Certiorari or
any other appropriate Writ, order or direction, calling for
the records of the Petitioner's case and after going into the
legality and propriety thereof, to quash and set aside the
said (i) Notice dated 31/3/2021 u/s 148 for A.Y. 2015-16,
(ii) the impugned order dated 26/3/2022 (iii) Notice for
proposed variation dated 27/3/2022 and (iv)
consequential Assessment Order u/s 147 along with
Demand Notice u/s 156 and Penalty Notice u/s 271(1)(c)
[if passed] and after examining the legality and validity
thereof to quash and set aside the same."
11. No order as to costs.
(KAMAL KHATA, J.) (K. R. SHRIRAM, J.)
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