Bombay High Court
Crystal Pride Developers vs The Assistant Commissioner Of Income ... on 27 February, 2025
Author: G. S. Kulkarni
Bench: G. S. Kulkarni
2025:BHC-OS:3206-DB WP (L) NO. 12546 OF 2022.DOC
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IN THE HIGH COURT OF JUDICATURE AT BOMBAY
ORDINARY ORIGINAL CIVIL JURISDICTION
WRIT PETITION (L) NO. 12546 OF 2022
Crystal Pride Developers
A Partnership Firm registered under the Indian Partnership
Act, 1932 and having its office at 403-A, Dalamal
Chambers, 29 New Marine Lines, Mumbai - 400 020
PAN No.: AAGFCT5051R
... Petitioner
Versus
1. The Assistant Commissioner of Income Tax
Circle - 22(1), Mumbai R. No.322,
3rd floor, Piramal Chamber, Lal Baug,
Parel, Mumbai - 400 012.
2. The National Faceless Assessment Centre,
E Ramp. Jawaharlal Nehru Stadium,
Delhi 110 003.
3. The Union of India,
Through the Secretary, Department of Revenue
Ministry of Revenue Ministry of Finance North
Block,
New Delhi - 110 001. ... Respondents
Mr. Rahul Hakani a/w Mr. Akash Singh, for the Petitioner.
Mr. Akhileshwar Sharma, for the Respondents-State.
_______________________
CORAM: G. S. KULKARNI &
ADVAIT M. SETHNA, JJ.
JUDGMENT RESERVED ON : 4 DECEMBER 2024
JUDGMENT PRONOUNCED ON : 27 FEBRUARY 2025
_______________________
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WP (L) NO. 12546 OF 2022.DOC
JUDGMENT (Per Advait M. Sethna, J.):
1. Rule, made returnable forthwith. Respondents waive service. Heard
finally with the consent of the parties.
A. Issue Before The Court:-
2. The pivotal issue for consideration is whether the assessment order
dated 29 March 2022 ("impugned order" for short) read with the notice under
Section 148 of the Income Tax Act, 1961 (" IT Act" for short) dated 27 March 2021
("impugned notice" for short), reopening the assessment of the petitioner under
Section 147 read with Section 144B of the IT Act for the Assessment Year 2014-2015
("A.Y. 2014-15" for short), are illegal, without jurisdiction, non-est as urged by the
petitioner.
3. The substantive prayers in the petition read thus:-
"(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 27th March, 2021 u/s 148 for A.Y.
2014-15 (Exh. A) and (ii) Assessment Order u/s 147 r.w. 143(3)
dated 29th March, 2022 being (Exh. "B") and after examining the
legality and validity thereof to quash and set aside the same;
(b) This Hon'ble Court be pleased to issue a Writ of Mandamus or a
Writ in the nature of Mandamus or any other appropriate Writ,
order or direction, directing the Respondents, its servants,
subordinates, agents and successors in office;
(i) To forthwith withdraw and/or cancel and/or quash the (i) Notice
dated 27th March, 2021 u/s 148 for A.Y. 2014-15 (Exh. A) and (ii)
Assessment Order u/s 147 r.w. 143(3) dated 29th March, 2022
being (Exh. "B");
WP (L) NO. 12546 OF 2022.DOC
(ii) To forthwith forbear from taking any steps whatsoever pursuant to
or in implementation of the (i) Notice dated 27th March, 2021 u/s
148 for Α.Υ. 2014-15 (Exh. A) and (ii) Assessment order u/s 147 r.w.
143(3) dated 29th March, 2022 being (Exh. "B")."
B. Factual Matrix:-
4. The petitioner is a registered partnership firm engaged in the business
of real estate development, having partners in the name of Mr. Mukesh Doshi and
Mrs. Harsha Doshi carrying on business of builders and developers of immovable
property. During the assessment year in question, i.e., A.Y. 2014-15. The assessee was
carrying on construction of residential project in Oshiwara with other two co-owners.
By a supplementary partnership deed dated 1 April 2010, it was mutually agreed
between the partners that no partner shall be charged interest on withdrawal by any
other partner.
5. The original return of income for the relevant assessment year being
A.Y. 2014-15 was filed on 27 November 2014, declaring loss of Rs. 5,53,822/-. The
return was duly acknowledged by the respondent. The petitioner also furnished copy
of its audited accounts along with the tax audit report filed under section 144B of IT
Act, both dated 1 September 2014. The Assessing officer respondent no. 1 issued a
notice to the petitioner dated 10 May 2016 under section 142 (1) of the IT Act
seeking details/documents qua the return of the petitioner. The petitioner filed its
reply dated 24 May 2016 to such notice, furnishing the information as sought by
respondent no. 1.
WP (L) NO. 12546 OF 2022.DOC
6. Thereafter, Respondent no.1 proceeded to issue a final show cause
notice dated 13 December 2016 under section 142(1) of the IT Act, inter alia stating
that the petitioner had taken loans of Rs. 105,77,68,368/- (Rs. 105.77 crores
approx.) and given loan of Rs. 75,64,24,189/- (Rs. 75.64 approx.) calling upon the
petitioner to show cause as to why the interest of Rs. 9,07,70,902/- (Rs 9.07 crores
approx.) on Rs. 75.64 crores at 12% should not be charged and added to the total
income of the petitioner. In response to the said notice dated 13 December 2016, the
petitioner filed a letter dated 19 December 2016. The petitioner clarified that the
sum of Rs. 75.64 crores (Supra) was the debit balance of one of his partners, Mr.
Mukesh Doshi. It was further submitted that payment was made to partner from
interest free loans received by the petitioners. The petitioner also set out the details of
loan confirmation of all parties from whom the interest free loan were received by the
petitioner. Detailed document/account in support of such material was also enclosed
by the petitioner to the said letter dated 19 December 2016. This was followed by
another letter of the petitioner where the petitioner clarified that out of loans of Rs.
105.77 crores (Supra), unsecured interest free loans were to the extent of Rs. 89.60
crores and secured interest-bearing loans of Rs. 16,17,68,368 (Rs.16.17 crores
approx.) It was also pointed out that there were no fresh withdrawals by the partners
during the year instead capital was introduced by the partner of the firm during the
said A.Y. 2014-15. The petitioner clarified that drawings by one of the partners Mr.
Mukesh Doshi is out of interest-free funds available with the petitioner and not the
interest-bearing funds.
WP (L) NO. 12546 OF 2022.DOC
7. Further to the above the respondent no. 1 issued a demand notice
dated 29 June 2016 under section 156 of the IT Act to the petitioner for the A.Y.
2014-15 by which the petitioner's income was assessed as NIL. The respondent no. 1
proceeded to then issue an impugned notice dated 27 March 2021 under section 148
of IT Act for A.Y. 2014-15. It appears that the said notice was issued beyond period
of 4 years from the relevant assessment year being A.Y. 2014-15. In response to such
notice under section 148 of IT Act the petitioner filed its return of income dated 26
April 2021.
8. The respondent no. 1 then issued a notice to the petitioner dated 9
December 2021 under section 143(2) read with 147 of the IT Act for the A.Y. 2014-
15 recording reasons for reopening of the assessment, calling upon the petitioner to
respond to such notice by 24 December 2021, according to which the income
escaping tax was stated to be Rs.7,64,17,217 (Rs. 7.67 approx.).
9. The respondent no. 2, thereafter issued a notice under section 142(1)
of the IT Act dated 24 December 2021, calling upon the petitioner to submit
accounts and documents on or before 30 December 2021. As the petitioner was
unable to adhere to the above timeline of 30 December 2021 to submit the
documents as per notice dated 24 December 2021 (Supra) the petitioner addressed a
letter dated 12 January 2022 to the respondent no. 1 requesting for a copy of the
recorded reasons. Pursuant to such response the respondent no. 2 issued notice dated
2 February 2022 under section 142(1) of the IT Act supplying copy of the recorded
WP (L) NO. 12546 OF 2022.DOC
reasons inter-alia suggesting that interest debited to work-in-process (WIP) of Rs.
1,19,91,000/-, had also escaped assessment.
10. The petitioner filed detailed objection to such reopening of the
petitioner's assessment for the A.Y. 2014-15 by the respondents by a letter dated 18
February 2022, annexing several documents, partnership deed, supplementary
partnership deed, audited reports, audited balance sheets, notice issued by the
respondents. Pursuant thereto, the respondent no. 2 without passing separate order
disposing such objection by the petitioner on reopening of the assessment of the
petitioner for the A.Y. 2014-15, issued a draft assessment order dated 24 March 2022
under section 147 read with 144B of the IT Act confirming that the income of Rs.
7.64 crores (Supra) had escaped assessment and liable to be brought to tax as income
from other sources.
11. The petitioner filed its objections to the draft assessment order dated
28 March 2022, along with the explanation, requesting the respondents for a
personal hearing to be given before passing the final assessment order.
C. Rival Contentions:-
The case of the Petitioner :
12. Mr. Hakani learned counsel for the petitioner would assail the
impugned notice dated 27 March 2021 issued under Section 148 of the IT Act read
with the impugned assessment order dated 29 March 2022 premised on the
following substantial grounds; (a) Notice issued by the respondent no. 1 under
WP (L) NO. 12546 OF 2022.DOC
Section 148 of the IT Act is bad in law as it is beyond the mandatory period of four
years as provided under first proviso to Section 147 of the IT Act for the reason that
there was no failure on the part of the petitioner to truly and fully disclose the
material facts; (b) Reopening of the petitioner for the A.Y. 2014-15 in the facts of the
present case tantamounts to change of opinion of the assessing officer, which is
legally impermissible to reopen the assessment; (c) Reopening of assessment for the
A.Y. 2014-15 in the present case is based on an internal audit which is contrary to
law. Moreover, the objections to reopening by the petitioner are neither disposed off
by a separate order nor done so in the same impugned assessment order dated 29
March 2022.
13. Mr. Hakani would next submit that the reopening of the petitioner's
assessment for A.Y. 2014-15 is illegal and without jurisdiction inasmuch as it is hit by
the first proviso to Section 147 of the IT Act, being reopened after the stipulated
period of four years from the relevant A.Y. 2014-15. Further such reopening of the
petitioner's assessment by notice dated 27 March 2021 was based on internal audit
without disposing the petitioner's objection raised by a letter dated 18 February
2022. Thus, according to Mr. Hakani, the fact that the objections to reopening of the
petitioner were not disposed of separately, nor in the impugned assessment order,
would run contrary to the decision of the Supreme Court in the case of GKN
Driveshafts (India) Ltd v. Income Tax Officer .1
1 2003 1 SCC 72
WP (L) NO. 12546 OF 2022.DOC
14. Mr. Hakani on certain relevant facts would submit that the petitioner
received copy of the recorded reasons from the jurisdictional assessing officer vide
notice dated 9 December 2021 under section 143(3) read with section 147 of the IT
Act, after about nine months from the issuance of impugned notice dated 27 March
2021 under section 148 of the IT Act, requiring the petitioner to reply to such
notice, on or before 24 December 2021. On such date, the petitioner received
another notice under Section 142(1) of the IT Act from Respondent No. 2 without
waiting for the petitioner to file its objections to the reopening of petitioner's
assessment, by the respondent. The petitioner thereby once again asked for a copy of
the recorded reasons vide reply dated 12 January 2022 from respondent No. 1 which
was provided to the petitioner on 2 February 2022. On receipt of the same the
petitioner have the earliest opportunity filed its objection on 18 February 2022.
However, no notice was issued by the respondent No. 2 calling for any details and or
giving hearing to the petitioner on its objections to the reopening of its assessments.
The Respondent No. 2 instead, proceeded to issue the draft assessment order dated
24 March 2022. In response to the same, the petitioner filed its reply within four
days i.e. 28 March 2022, submitting that the reassessment proceedings initiated
under Section 147 of the IT Act were without jurisdiction, being initiated beyond the
period of four years and also contrary to the decision of the Supreme Court in GKN
Driveshafts (Supra). Despite such position being specifically pointed out by the
petitioner to the respondents, Respondent No.2 did not pass a separate order
disposing of the petitioner's objection dated 18 February 2022 filed along with
relevant annexures. Such objections were never dealt with in the impugned
WP (L) NO. 12546 OF 2022.DOC
assessment order dated 29 March 2022, much less not even adjudicated and/or
disposed of.
15. Mr. Hakani would also refer to the decision of this Court in the case of
KSS Petron Private Limited V/s The Assistant Commissioner of Income Tax Circle
10(2)2. This was in support of his submission to the effect that non disposal of the
objections of the petitioner by the assessing officer is a jurisdictional issue, which goes
to the root of the matter as held by the Supreme Court in GKN Driveshaft (Supra). A
failure on the part of the respondent to act in such manner vitiates the impugned
order rendering it illegal.
16. Mr. Hakani would point out that the notice dated 10 May 2016 issued
under Section 142(1) of the IT Act seeking various details from the petitioners was
responded to by the petitioner vide letter dated 24 May 2016. Thereafter, notice
dated 13 December 2016 was issued under Section 142(1) by Respondent No. 1
wherein it was specifically stated that the petitioner had taken loan of Rs. 105.77
crores and given loan of Rs. 75.64 crores. Therefore, the petitioner was asked to show
cause why interest of Rs.9.07 crores on principal amount of Rs. 75.64 crores (approx)
at 12% should not be chargeable to tax. In response to the said notice the petitioner
filed its response dated 19 December 2016 wherein it stated that Rs. 75.64 crores
(approx) was debit balance of its partner, Mr. Mukesh Doshi. It was further submitted
that payment was made to the partner from interest free amount received by the
petitioner. The petitioner further filed loan confirmation of the parties from whom
2 2016 SCC Online Bom 13550
WP (L) NO. 12546 OF 2022.DOC
interest free loan were received by the petitioner. Thereafter, the petitioner further
pointed that out of the loans of Rs.105.77 (approx) unsecured interest free loan were
Rs. 89.60 crores (approx), and secured interest bearing loan were Rs. 16.17 crores.
Also there were no fresh withdrawals by any of the partners during the year, capital
was in fact introduced by the partner during the year and drawings by the partner Mr.
Mukesh Doshi were out of interest free funds available with the petitioner and not
out of the interest bearing funds. According to Mr. Hakani, this is a case where the
assessment order dated 29 June 2016 was passed after considering various details
filed by the petitioner as also on the basis of submission made by the petitioner
during the assessment proceedings. Mr. Hakani would therefore submit that no
change of opinion by the respondents was warranted in the given facts and
circumstances.
17. Mr. Hakani, would next submit that in the original assessment
proceedings the assessing officer vide notices under Section 142(1) of the IT Act
dated 10 May 2016 and 13 December 2016 verified the figures of the partner capital
accounts interest on secured and unsecured loan. The assessing officer specifically
asked the petitioner to show cause as to why the interest ought not to be taxed on the
partner's debit balance. The reason so recorded by the respondents would make it
clear that the assessing officer passed the original assessment order only after
verifying the issue of taxability of interest of the petitioner to be charged on the debit
balance of its partner. Mr. Hakani would at this juncture clarify that the notice dated
13 December 2016 issued under Section 142(1) of the IT Act was titled as final show
WP (L) NO. 12546 OF 2022.DOC
cause notice calling upon the petitioner to show cause as to why the interest of Rs.
9.07 Crore (approx) at 12% on Rs. 75.64 Crores (approx) ought not to be charged
and be added to the total income of the petitioner. The petitioner filed an elaborate
response to the said show cause notice by letter dated 19 December 2016 setting out
all details as required by the respondent including the loan confirmations from
various parties, schedule of capital account and balance sheet to show that no interest
is charged to profit and loss account and that the debit balance of partner is on
account of the interest free amount received.
18. Mr. Hakani would submit that the reasons recorded in the subsequent
notice dated 2 February 2022 would further demonstrate that the exercise of
reopening was undertaken on the basis of an internal audit. According to him, the
notice dated 27 March 2021 issued under Section 148 of the IT Act pursuant to the
reopening to the petitioner's assessment under Section 147 which itself is illegal, also
making the said notice being issued without authority of law.
19. Mr. Hakani in support of the above would place reliance on the
decision of the Supreme Court in Commissioner of Income-Tax v. Kelvinator of India
Ltd 3 to contend that where the assessing officer adopted one possible view then he
cannot adopt a completely different view on the same material before him as that
would tantamount to change of opinion, in violation of the scheme/ framework of
the IT Act.
3 [2010] 320 ITR 561 (SC)
WP (L) NO. 12546 OF 2022.DOC
20. Mr. Hakani in support of his submissions to assail the impugned order
would submit that the addition of Rs. 7.64 crores (approx) under section 56(2)(v) of
the IT Act is patently erroneous as section 56(2)(v) can have no application to the
facts of the case. He would further submit that when the petitioner has not received
any interest income, notional interest income cannot be foisted on such assessee.
Further, as the loan given to Mr. Mukesh Doshi was out of interest free funds, no
addition of notional interest can be made in the hands of the petitioner. The
supplementary partnership deed prohibits charging and payment of interest to
partners. Furthermore, the Income Tax Department cannot sit on the armchair of the
businessman and decide whether interest is to be charged or not contrary to the
partnership deed. Also, according to Mr Hakani the decision of the respondents on
reopening of the assessement for earlier assessment years will have no application to
the present proceedings. He would state that in any event, there is an appeal filed by
the petitioner in regard to reopening of the earlier assessment for the A.Y. 2013-2024
for which all such details are available with the respondent no.2.
Submissions of the Respondents:-
21. On the contrary, Mr. Akhileshwar Sharma, the learned counsel for the
respondents would place reliance on an affidavit in reply dated 30 November 2022
filed by one Jaibhim T. Narnaware, Assistant Commissioner of Income Tax, which is
on record. Taking recourse thereto, Mr. Sharma would raise a preliminary objection
to the maintainability of the petition. He would submit that the respondents have an
alternate, efficacious statutory remedy against the impugned assessment order dated
WP (L) NO. 12546 OF 2022.DOC
29 March 2022, by challenging it before the Commissioner Appeals under the IT
Act. He would submit that instead of resorting to such statutory alternate remedy, the
petitioner jumped the gun and rushed to this Court by filing a writ petition, which is
therefore not maintainable which is the settled law of the land.
22. In the above context, Mr. Sharma would rely on a decision in the case
Commissioner of Income Tax and Others v. Chhabil Dass Agarwal 4 and Assistant
Collector, Central Excise v. Dunlop India Pvt Ltd 5, to submit that the IT Act
provides for a remedy in form of appeal under section 246A and revision under
section 264 of the IT Act. In view thereof, no writ shall lie. In the alternative, on
merits he would submit that merely stating that the debit balance is out of the
petitioner's interest free funds without providing any supporting evidence in this
regard, to does not tantamount to full and true disclosure under the provisions of
section 148 of the IT Act. Mr. Sharma would further contend that the Supreme
Court and various High Courts have justified the reopening of the assessment in such
facts and circumstances. Consequently, the window of reopening of assessment will
remain open for assessing officer on those points where the assessing officer neither
accepts nor rejects such claim.
23. Mr. Sharma would then place reliance on the decision of the Gujarat
High Court in the case of Gujarat Power Corporation Ltd v. Assistant Commissioner
of Income Tax6 to infer that no opinion was formed by the assessing officer, it will be
4. (2013) 357 ITR 357
5. 1985 (19) ELT 22
6. 2012 SCC OnLine Guj 4293
WP (L) NO. 12546 OF 2022.DOC
far-fetched to assume that a change in that opinion was being effected. Further, he
would submit that the safest and surest guide to ascertaining whether any such
opinion was formed at the original assessment is to look to the assessment order itself.
Mere silence on a particular issue or absence of discussion in the original order on
that issue, does not imply that the assessment officer adjudicated upon the same one
way or the other. Therefore, Mr. Sharma would submit the averment made by the
petitioner that the reopening is based on change of opinion is based on surmises and
conjectures and is hence untenable.
24. According to Mr. Sharma, the submission of the petitioner that the
satisfaction recorded by respondent no. 2 is mechanical and without application of
mind is neither correct nor acceptable. This is so because the respondent no. 2 while
approving the proposal of reopening submitted by jurisdictional assessing officer
thoroughly considered all aspects and thereafter, the approval under section 151 of
the IT Act was provided by respondent no. 2, to issue notice under section 148 of the
IT Act.
25. Mr. Sharma would next submit that in the instant case, the assessee was
supplied the copy of reasons recorded for reopening on 9 December 2021 and the
assessee filed its objection on 18 February 2022, i.e., after a lapse of about two
months. Even if the objection filed by the assessee was considered and disposed of by
way of speaking order, the department would have been in no position to complete
the assessment proceedings within time limit, i.e., 31 March 2022 as the finalization
of assessment proceedings is a time consuming process.
WP (L) NO. 12546 OF 2022.DOC
26. According to Mr. Sharma, the delay in filing objection against the
reopening proceedings is attributable to the petitioner in this case and due to this
delay the assessing officer was not in the position to dispose of the objection
separately leading to non-finalizing of the said assessment proceedings which were
getting barred on 31 March 2022. Thus, to save limitation the petitioner has
approached this Court to circumvent statutory remedy of appeal under the IT Act.
27. Mr. Sharma would urge that the issue raised by the audit constitutes
information which the assessing officer can legitimately rely upon to examine the
aspect of income escaping tax assessment. Once the assessing officer is satisfied based
upon the information received by audit that income chargeable tax has escaped
assessment, the action of the assessing officer is to reinitiate reassessment is free from
doubt. Mr. Sharma would submit that the issue raised by the audit was not disclosed
by the petitioner in its return of income and also not disclosed during the course of
original assessment proceedings. In vie thereof, such reopening was just legal and
proper in the given facts.
Rejoinder of the Petitioner:-
28. Mr. Hakani would reiterate his submissions recorded above inter alia
asserting that the assessment proceedings were commenced without disposing the
objections of the petitioner or without giving further time to petitioner to file its
objections. Further, the rejoinder clarifies that the petitioner specifically asked for a
copy of the recorded reasons on 12 January 2022 and the same were supplied to the
petitioner on 2 February 2022, after which the petitioner filed its objections on 18
WP (L) NO. 12546 OF 2022.DOC
February 2022. Hence, the allegation of the respondent that petitioner did not file
objections to reopening in a reasonable time is not only contrary to the given facts
but also a perverse finding indicating non-application of mind, vitiating the
impugned assessment order dated 29 March 2022.
D. Analysis and Conclusion:-
29. We have heard learned counsel for the parties. With their assistance we
have perused the record. At the very outset, we note that the present proceedings
challenge the notice dated 27 March 2021 issued under Section 148 of the IT Act by
the Respondent No. 1 coupled with the impugned order issued by the Respondent
No. 2 dated 29 March 2022 passed under Section 147 read with 144B of the IT Act.
The issue revolves around the validity, legality of the reopening of assessment under
Section 147 of the IT Act by the respondent on the premise that the income of the
petitioner had escaped assessment for the A.Y. 2014-15. In this context, the relevant
provision being Section 147 of the IT Act as it stood by the relevant time read thus:-
" Income Escaping Assessment
147. If the [Assessing] Officer [has reason to believe] that any
income chargeable to tax has escaped assessment for any
assessment year, he may, subject to the provisions of sections
148 to 153, assess or reassess such income and also any other
income chargeable to tax which has escaped assessment and
which comes to his notice subsequently in the course of the
proceedings under this section, or recompute the loss or the
depreciation allowance or any other allowance, as the case may
be, for the assessment year concerned (hereafter in this section
and in sections 148 to 153 referred to as the relevant assessment
year):
WP (L) NO. 12546 OF 2022.DOC
Provided that where an assessment under sub-section (3) of
section 143 or this section has been made for the relevant
assessment year, no action shall be taken under this section after
the expiry of four years from the end of the relevant assessment
year, unless any income chargeable to tax has escaped
assessment for such assessment year by reason of the failure on
the part of the assessee to make a return under section 139 or in
response to a notice issued under sub-section (1) of section 142
or section 148 or to disclose fully and truly all material facts
necessary for his assessment, for that assessment year:
[Provided further that nothing contained in the first proviso
shall apply in a case where any income in relation to any asset
(including financial interest in any entity) located outside India,
chargeable to tax, has escaped assessment for any assessment
year:]
[Provided [also] that the Assessing Officer may assess or reassess
such income, other than the income involving matters which are
the subject matters of any appeal, reference or revision, which is
chargeable to tax and has escaped assessment.]
Explanation 1.-Production before the Assessing Officer of
account books or other evidence from which material evidence
could with due diligence have been discovered by the Assessing
Officer will not necessarily amount to disclosure within the
meaning of the foregoing proviso.
Explanation 2.-For the purposes of this section, the following
shall also be deemed to be cases where income chargeable to tax
has escaped assessment, namely :-
(a) where no return of income has been furnished by the
assessee although his total income or the total income of any
other person in respect of which he is assessable under this Act
during the previous year exceeded the maximum amount which
is not chargeable to income-tax;
(b) where a return of income has been furnished by the assessee
but no assessment has been made and it is noticed by the
Assessing Officer that the assessee has understated the income
or has claimed excessive loss, deduction, allowance or relief in
the return;
WP (L) NO. 12546 OF 2022.DOC
[(ba) where the assessee has failed to furnish a report in respect
of any international transaction which he was so required under
section 92E;]
(c) where an assessment has been made, but-
(1) income chargeable to tax has been underassessed; or
(ii) such income has been assessed at too low a rate; or
(iii) such income has been made the subject of excessive relief
under this Act; or
(iv) excessive loss or depreciation allowance or any other
allowance under this Act has been computed;]
[(d) where a person is found to have any asset (including
financial interest in any entity) located outside India.]
[Explanation 3.-For the purpose of assessment or reassessment
under this section, the Assessing Officer may assess or reassess
the income in respect of any issue, which has escaped
assessment, and such issue comes to his notice subsequently in
the course of the proceedings under this section,
notwithstanding that the reasons for such issue have not been
included in the reasons recorded under sub-section (2) of
section 148.]
[Explanation 4.-For the removal of doubts, it is hereby clarified
that the provisions of this section, as amended by the Finance
Act, 2012, shall also be applicable for any assessment year
beginning on or before the 1 day of April, 2012.]"
On a plain reading of the above provision it is discernible that the
present proceedings pertain to A.Y. 2014-15. The impugned notice dated 27
March 2021 issued under Section 148 of the IT Act, would reveal that this is a
case falling within the first proviso to Section 147 of the IT Act (as the period of
four years from the end of the relevant assessment year expired on 1 April
2018). Thus, where an assessment is made under Section 143(3) read with
Section 147 for the relevant assessment year, no action shall be taken under the
WP (L) NO. 12546 OF 2022.DOC
said provision after expiry of four years from the end of the relevant assessment
year unless any income chargeable to tax escaped assessment for such
assessment year.
30. In the context of the issues involved in the present petition, some of
the undisputed facts are required to be noted. For the assessment year in question,
i.e., A.Y. 2014-15 the petitioner had initially filed its return declaring loss of Rs.
5,53,822/- on 27 November 2014. In the original assessment proceeding the
assessing officer vide notices dated 10 May 2016 and 13 December 2016 issued
under Section 142(1), verified all details of the petitioner firms capital account,
interest on secured and unsecured loans. The assessing officer issued notice u/s
142(1) dated 13/12/2016 wherein it was specifically stated that Assessee has taken
loans of Rs.105.77 crores and given loans of Rs.75.64 crores and asked as to why
interest of Rs 9,07,70,902/- on Rs.75.64 crores @12% should not be charged to tax.
In response to said notice, the petitioner filed its letter dated 19 December, 2016
wherein it was mentioned that Rs.75,64,24,189/- was debit balance of partner Mr
Mukesh Doshi
31. The petitioner then filed replies dated 24 May 2016 and 19 December
2016. The assessing officer thereafter passed the original assessment order dated 29
June 2016 upon duly verifying the issue of taxing the interest on the debit balance of
the partner. Thereafter, the petitioner received a copy of such recorded reasons from
the jurisdictional assessing officer on 9 December 2021, i.e., after 7 months, directing
the petitioner to file reply by 24 December 2021. However, on 24 December 2021
WP (L) NO. 12546 OF 2022.DOC
itself the petitioner received a notice under Section 142(1) from Respondent No. 2
without even waiting for the petitioner to file its objection. For this reason, the
petitioner once again asked the respondents to furnish a copy of such recorded
reasons so as to enable it to file its objection. Such reasons were provided only on 2
February 2022 after which the petitioner promptly filed its objection, reply dated 18
February 2022. After such date no notice was issued by Respondent No. 2 calling
for any further or information details from the petitioner. It was on 24 March 2022
that a draft assessment order was issued to the petitioner. In its response dated 28
March 2022 to the draft assessment order, the petitioner, inter-alia, referred to the
procedure prescribed in GKN Driveshafts (Supra) being not followed. Despite this
being pointed out, the respondent No. 2 neither passed a separate order disposing of
the petitioner's objections filed on 18 February 2022 nor were such objections were
dealt with much less decided in the impugned assessment order dated 29 March
2022.
32. A perusal of the reasons for the reopening for the petitioner's case,
reveals that the assessing officer has not made out any case to the effect that the
petitioner failed to disclose fully and truly all material facts necessary for assessment.
The impugned order does not in any manner attribute such reasoning stipulated
under proviso to Section 147 of the IT Act, to the petitioner in any manner
whatsoever. In fact, the reasons for reopening of the assessment are itself based on the
records provided, by the petitioner like the books of account, documents, loan
WP (L) NO. 12546 OF 2022.DOC
confirmation details from various parties which were furnished by the petitioner
during the course of the assessment proceedings.
33. The fact of complete disclosure by the petitioner of all details necessary
for assessment were duly disclosed by the petitioner in its letter dated 19 December
2016 (supra) along with all details, annexures in specific response to the final show
cause notice dated 13 December 2016 issued by the respondents for the A.Y. 2014-
15. It is such material which formed the basis of reopening of the assessment as is
evident from the impugned assessment order dated 29 March 2022. There appears to
be no fresh tangible material before the respondents to form its own/independent
opinion in regard to reopening of the petitioner assessment for the A.Y. 2014-15,
under Section 147 of the IT Act. This would be clearly indicative of change of
opinion on part of the respondents in the facts of this case which is not permissible
under the statutory scheme of Act read with the judgments in this regard, as further
discussed below.
34. We may observe that the mandatory procedure postulated under
Section 144B of the IT Act is also not followed by the respondents. This is in as
much as the petitioner's objection dated 18 February 2022 to the reasons recorded
for reopening of the assessment by the respondent dated 9 December 2021 were
neither considered, dealt with, much less disposed of by the respondents. Further the
reply of the petitioner to the draft assessment order dated 24 March 2022 was filed
by the petitioner on 28 March 2022, mainly pointing out that the reassessment
proceedings were contrary to the provisions of section 147 of the IT Act read with
WP (L) NO. 12546 OF 2022.DOC
the decision of the Supreme Court in GKN Driveshaft (Supra). The respondent
failed to even consider these vital aspects which embrace the requirement of
reasonable opportunity to be given to the petitioner, rushed to pass the impugned
assessment order on 29 March 2022 i.e., just within a day after receiving a reply
dated 28 March 2022 from the petitioner to the draft assessment order. No
opportunity of being heard/hearing was given to the petitioner despite the variations
prejudicial to the petitioner were unilaterally proposed by the respondents, nor were
the objections raised by the petitioner separately disposed of by the respondents.
Thus, the impugned assessment order runs contrary to the intrinsic principles of
natural justice inbuilt and ingrained under Section 144B of the IT Act rendering the
impugned order patently illegal. Such view on similar facts has taken by a coordinate
bench of this Court to which one of us (G.S. Kulkarni, J.) was a member in the case
of Teerth Developers and Teerth Realties v. Additional/Joint/Deputy/Assistant
Commissioner of Income Tax/Income Tax Officer and Ors7.
35. To add to the above, in our considered view, the impugned assessment
order passed inter alia u/s 147 of the IT Act is wholly without jurisdiction. This is as
much as it runs contrary to the decision of the Supreme Court in GKN Driveshafts
(Supra) wherein it was categorically held that on receipt of reasons from the assessing
officer the assessee is entitled to file objections. The assessing officer is bound to
dispose such objections by a speaking order. This would be a proper course to be
adopted by the respondent when a notice is issued under section 147 of IT Act.
There is abject failure on the part of respondent no. 2 to comply with such
7. 2024 SCC OnLine Bom 3621
WP (L) NO. 12546 OF 2022.DOC
jurisdictional requirements ingrained under section 147 of the IT Act. To make
matters worse, the petitioner despite pointing this aspect out in its response/reply
dated 28 March 2022 to the draft assessment order passed by respondent no. 2 dated
24 March 2022, it was glossed over by the respondents.
36. The aforesaid decision of the Supreme Court was subsequently
followed by this court in the case of KSS Petron Pvt Ltd (Supra), wherein the court
observed as:
"8. We note that once the impugned order finds the Assessment
Order is without jurisdiction as the law laid down by the Apex
Court in GKN Driveshafts (supra) has not been followed, then
there is no reason to restore the issue to the Assessing Officer to
pass a further/fresh order. If this is permitted, it would give a
licence to the Assessing Officer to pass orders on reopening notice,
without jurisdiction (without compliance of the law in accordance
with the procedure), yet the only consequence, would be that in
appeal, it would be restored to the Assessing Officer for fresh
adjudication after following the due procedure. This would lead to
unnecessary harassment of the Assessee by reviving stale/ old
matters."
Considering the facts in the given case, the above decision is applicable
and in light of such settled legal principles we see no reason to take a different view as
Mr. Sharma would want us to. The impugned order cannot be given any effect to as it
is eclipsed by the observations and ratio of such judgments.
37. Further, at this juncture it is apposite to refer to a decision of the
Supreme Court in Kelvinator of India Ltd (Supra), where the court was pleased to
hold thus:-
WP (L) NO. 12546 OF 2022.DOC
"6. However, 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 "mere change of opinion", which
cannot 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. Hence, after 1st April, 1989, the Assessing
Officer 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. Our view gets support from the changes made to section
147 of the Act, as quoted hereinabove. Under the Direct Tax Laws
(Amendment) Act, 1987, Parliament not only deleted the words
"reason to believe" but also inserted the word "opinion" in section
147 of the Act."
Applying the above principles to the given facts, it is discernible
that there is no fresh tangible material placed on record by the respondents to
justify reopening of the assessment for A.Y. 2014-15 by a notice under section
148 dated 27 March 2021. In fact, the petitioner had disclosed all such material
which was available with the assessing officer, during the course of the
assessment proceedings. It appears that the assessing officer by the impugned
assessment order sought to review the decision already taken during assessment
which is impermissible. Also the impugned assessment order clearly brings out a
change of mind/ opinion of the assessing officer in reopening the assessment of
the petitioner for A.Y. 2014-15 cannot be camouflaged under 'reason to believe'
which would be in the teeth of and contrary to the settled legal principles, as
noted above.
38. We now advert to a judgment of a coordinate Bench of this Court to
which one of us (G.S. Kulkarni, J.) was a member in the case of Saraswat Co-
WP (L) NO. 12546 OF 2022.DOC
operative Bank Ltd v. Assistant Commissioner of Income Tax 8 , operative portion of
which reads thus :-
"20. The reasons recorded by the Assessing Officer nowhere state
that there was failure on the part of the assessee to disclose fully and
truly all material facts necessary for the assessment of that
assessment year. It is needless to mention that the reasons are
required to be read as they were recorded by the Assessing Officer.
No substitution or deletion is permissible. No additions can be
made to those reasons. No inference can be allowed to be drawn
based on reasons not recorded. It is for the Assessing Officer to
disclose and open his mind through reasons recorded by him. He
has to speak through his reasons. It is for the Assessing Officer to
reach to the conclusion as to whether there was failure on the part
of the assessee to disclose fully and truly all material facts necessary
for his assessment for the concerned assessment year. It is for the
Assessing Officer to form his opinion. It is for him to put his
opinion on record in black and white. The reasons recorded should
be clear and unambiguous and should not suffer from any
vagueness. The reasons recorded must disclose his mind. Reasons
are the manifestation of mind of the Assessing Officer. The reasons
recorded should be self-explanatory and should not keep the
assessee guessing for the reasons. Reasons provide link between
conclusion and evidence. The reasons recorded must be based on
evidence. The Assessing Officer, 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 that assessment year, so as to establish vital link
between the reasons and evidence. That vital link is the safeguard
against arbitrary reopening of the concluded assessment. The
reasons recorded by the Assessing Officer cannot be supplemented
by filing affidavit or making oral submission, otherwise, the reasons
which were lacking in the material particulars would get
supplemented, by the time the matter reaches to the Court, on the
strength of affidavit or oral submissions advanced."
In light of the above, juxtaposing it to this case, the impugned notice
dated 27 March 2021, was issued beyond the four-year period from the end of the
A.Y. 2014-15 which runs contrary to the mandate as set out in the proviso to section
8. 2024 SCC OnLine Bom 2772
WP (L) NO. 12546 OF 2022.DOC
147 of the IT Act. The assessing officer lacked the jurisdiction to reopen the
assessment proceedings, which had been already been concluded under section
143(3) of the IT Act.
39. We would at this juncture refer to a recent judgment of a co-ordinate
bench of this court in the case of Imperial Consultants and Securities Ltd. v. Deputy
Commissioner of Income Tax, Circle-6(1)(2) & Ors.9 where we had the occasion to
consider and deal with a similar issue of reopening of assessment which was
examined in light of jurisdictional requirements and settled legal position. In this
context the court re-visited the judgments rendered in Andhra Bank Ltd v. CIT10 ;
Siemens Information System Ltd v. Assistant Commissioner of Income-Tax & Ors 11;
NYK Line (India) Ltd v. Deputy Commissioner of Income-Tax 12 ; Income Tax
Officer, Ward No. 16(2) v. Techspan India Private Ltd & Anr 13 ; GKN Sinter Metals
Ltd v. ACIT14. In the said case of Imperial Consultants (Supra) Justice G.S. Kulkarni
speaking for the Division Bench considering of reopening of assessment beyond the
period of four years, observed thus:-
"Adverting to the principles of law as the aforesaid decisions lay
down to the facts of the present case, we may observe that the
Assessing Officer in issuing the impugned notice under Section
148 of the IT At has clearly acted without jurisdiction. This firstly
for the reason that the Assessing Officer was reopening an
assessment beyond the period of four years and in such context the
9. Writ Petition (OS) No. 1783 of 2022
10. (1997) 225 ITR 447
11. 2007 SCC OnLine Bom 1292
12. 2012 SCC OnLine Bom 195
13. (2018) 6 SCC 685
14. 55 taxmann.com 438 (Bom)
WP (L) NO. 12546 OF 2022.DOC
first proviso to Section 147 was strictly applicable inter alia to the
effect that when the petitioner/assessee had not defaulted in fully
and truly disclosing all material facts necessary for his assessment
for the assessment year in question, the Assessing Officer would not
have jurisdiction to reopen the concluded assessment. Secondly, the
reasons as furnished to the petitioner, in no manner whatsoever
make out a case on the failure on the part of the petitioner to fully
and truly disclose all the materials. This apart, the reasons
demonstrate that the entire basis for such reopening is on the
materials which was already available with the Assessing Officer, in
finalizing the petitioner's assessment under Section 143(3) of the
IT Act. If this be so, the Assessing Officer was acting on a complete
change of opinion on the same material and / or intending to have a
review of the assessment order passed by him. This was certainly
not permissible applying the settled principles of law as discussed
by us hereinabove. Thus, on both the counts namely on failure of
the Assessing Officer in adhering to the mandate as contained in
the first proviso to Section 147, and on exceeding his jurisdiction as
conferred by the said provision by forming an opinion on the same
material, which was available with him in the course of assessment
proceedings, was wholly an impermissible exercise of jurisdiction,
to issue the impugned notice. This is writ large from the plain
reading of the reasons for reopening as furnished to the petitioner.
We have already observed that there was substantive
correspondence between the petitioner and the Assessing Officer
on all materials and subject matter of reopening and all such
materials had formed part of the disclosure by the petitioner. It was,
hence, clearly not permissible for the Assessing Officer to reopen
the assessment on the very material on which the assessment order
was passed. The law does not permit such course of action and if
permitted, it would not only fall foul of the mandate of the first
proviso below Section 147 but also it would amount to manifest
arbitrariness and illegality resulting in drastic and unwarranted
consequences being brought about to unsettle settled/concluded
assessments, which the law would certainly not recognize"
Based on the above, it is pertinent to note that the entire basis for
reopening of the assessment in the given case is on the materials which were already
available with the assessing officer, in finalizing the petitioner's assessment under
Section 143(3) the IT Act. It is thereby evident that the assessing officer acted on a
complete change of opinion on the same material available with him with an intent
WP (L) NO. 12546 OF 2022.DOC
to review the assessment already done. This is certainly not permissible, applying the
settled principles of law as discussed by us hereinabove.
40. In light of the foregoing discussion, we are unable to accept the
contention urged on behalf of Mr. Sharma that the petition should not be entertained
in light of availability of alternate remedy of appeal to the petitioner under the IT
Act, considering that the impugned assessment order lacks jurisdiction and suffer
from patent illegality. When an action is ex facie without jurisdiction and thus, illegal,
it is not just, fair and/or legal to relegate the petitioner to such alternate remedies in a
situation as this, in the peculiar facts and circumstances.
41. In the above backdrop, even on merits we are unable to concur with
Mr. Sharma in connection with his submission as also recorded in the affidavit in
reply of the respondents. This is case where there is no fresh tangible material on the
basis of which the assessing officer decided to reopen the petitioner's assessment for
the impugned A.Y. 2014-15. Mr. Sharma, fell short of justifying the violation of the
procedure mandated under Section 144B, of the IT Act, which for the reasons noted
(Supra) has an inbuilt requirement of compliance to the principles of natural justice.
In the present case Mr. Sharma fairly does not dispute that the objections filed by the
petitioner dated 18 February 2022 to the reasons recorded for reopening of
assessment vide letter dated 2 February 2022 of the respondents, were neither
separately disposed of nor has it been dealt with/adjudicated upon in the impugned
assessment order. Further, from a perusal of the reply affidavit of the respondents it
appears that the respondents have sought to justify their conduct in not following the
WP (L) NO. 12546 OF 2022.DOC
mandate of the statutory provisions under Sections 147 and 144B of the IT Act to
save such assessment from being barred by limitation. However, such justification is
legally untenable in light of the clear statutory provisions and the settled law referred
to (Supra) and hence cannot be countenanced.
42. For the reasons set out above, the impugned assessment order fails to
consider that the assessment cannot be reopened beyond a period of four years from
the relevant assessment year A.Y. 2014-15 in terms of the first proviso to section 147
of the IT Act. Such action would stare in non compliance of jurisdictional
requirements, and is therefore, non-est in law. We cannot be oblivious to the fact that
the impugned notice dated 27 March 2021 issued under Section 148 for the A.Y.
2014-15 would transgress the statutory requirement of four years. Thus, the said
notice is ex-facie without jurisdiction and has no legs to stand on.
43. In light of the above discussion writ petition is bound to succeed.
44. Rule made absolute in terms of prayer clauses (a) & (b). No costs.
(ADVAIT M. SETHNA, J.) (G. S. KULKARNI, J.)
