Sopan Infrastructure (P.) Ltd. Vs. Income-tax Officer, Ward - 8(2)

IT: In absence of any tangible material available with Assessing Officer to form a belief that assessee had received on-money from sale of flat, during year under consideration, reopening of assessment beyond period of four years on basis of findings in a subsequent year was not permissible

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[2017] 78 taxmann.com 170 (Gujarat)

HIGH COURT OF GUJARAT

Sopan Infrastructure (P.) Ltd.

v.

Income-tax Office, Ward 8(2)*

M.R. Shah and B.N. Karia, JJ.

Special civil Application No. 1939 of 2013

JANUARY  18, 2017 

Section 69A, read with sections 143, 147 and 148, of the Income-tax Act, 1961 - Unexplained moneys (Immovable property) Assessment year 2005-06 - While framing assessment for assessment year 2007-08, Assessing Officer found that assessee had received on-money with respect to sale of flats - He presumed that assessee must have received on-money in assessment year 2005-06 - Hence, impugned notice under section 148 was issued - However, no further tangible materials were available with Assessing Officer to form a belief that flats were sold and/or any on-money received in relevant assessment year 2005-06 - Whether where original assessment for assessment year 2005-06 was completed under section 143(3) after scrutiny, merely on basis of observations made by another Assessing Officer with respect to assessment year 2007-08, reopening of assessment was not permissible beyond period of four years from relevant assessment year - Held, yes [Para 8] [In favour of assessee]

FACTS

 

 

The original assessment for assessment year 2005-06 was a scrutiny assessment under section 143(3) which was framed and finalized. Necessary particulars were asked before framing scrutiny assessment; including the flats sold by assessee and the gross profit earned by assessee, and thereafter only, the Assessing Officer framed the scrutiny assessment.

 

Thereafter, beyond the period four years from the relevant assessment year, the Assessing Officer had issued impugned notice under section 148 by which the assessment for year 2005-06 was sought to be reopened on the ground that the income chargeable to tax had escaped assessment due to non-disclosure of true and correct facts by the assessee.

 

The assessee raised objection against the reasons for reopening of the assessment. It was submitted that on the basis of the observation made in the subsequent assessment years with respect to flats sold in subsequent years, the finalized scrutiny assessment could not be opened. It was submitted that entire issue was gone into by the Assessing Officer while framing the scrutiny assessment. It was submitted that even on the basis on which the assessment was reopened, the addition made by the Assessing Officer on on-money with respect to flats sold in assessment year 2007-08, had been set aside by Commissioner (Appeals) and the appeal before the Tribunal was dismissed on the ground of low tax effect.

 

Thereafter, the Assessing Officer had disposed of the objections raised by the assessee. Hence, the assessee had preferred the present writ petition.

HELD

 

 

At the outset, it is required to be noted that in the present case, assessment for assessment year 2005-06 is sought to be reopened beyond the period of four years. Under the circumstances, unless and until conditions provided under proviso to section 147 are satisfied i.e., if it is found that the income chargeable to tax has escaped the assessment due to non disclosure of true and correct facts by the assessee, there cannot be any reopening of the assessment. [Para 6]

 

From the material available on record, it appears that with respect to flats sold in assessment year 2005-06, as a detailed questionnaire was asked by the Assessing Officer before framing the scrutiny assessment under section 143(3) which was supplied by the assessee and only thereafter, the Assessing Officer framed the scrutiny assessment for assessment year 2005-06. From the reasons recorded to reopen the assessment for assessment year 2005-06, it appears that the same is sought to be reopened by the Assessing Officer on the basis of observations made by Assessing Officer, while framing the assessment for assessment year 2007-08 with respect to the flats sold during the year under consideration, wherein it was found that the assessee had received on-money with respect to the flats sold and in the assessment year 2007-08 and therefore, the Assessing Officer while issuing the Notice for reopening has presumed and assumed that with respect to the flats sold in assessment year 2005-06, the assessee must have received on-money. From the record available, it appears that there is no further tangible material available with the Assessing Officer to form a belief that the assessee had received on-money with respect to the flats sold in assessment year 2005-06 and/or had received any on-money in the assessment year 2005-06. [Para 7]

 

At this stage, it is required to be noted that even with respect to addition made in respect of on-money received in assessment year 2007-08, the same has been subsequently set-aside by the Commissioner (Appeals), against which an appeal was preferred which has been dismissed on the ground of low tax effect. Considering the aforesaid facts and circumstances of the case and solely on the observations made by another Assessing Officer with respect to the subsequent assessment year i.e., 2007-08, the reopening was not permissible, more particularly in absence of any other tangible material available with the Assessing Officer that in the year 2005-06, the assessee had received any on-money. Under the circumstances, it was not open for the Assessing Officer to re-open the assessment for assessment year 2005-06, that too beyond the period of four years and more particularly when the original assessment was done under section 143(3). [Para 8]

 

In view of the above and for the reasons aforestated, this petition succeeds. Impugned notice issued under section 148 by the revenue is hereby quashed and set-aside. [Para 9]

S.N. Divatia, Adv.  for the Petitioner. Nitin K. Mehta, Adv.  for the Respondent.

JUDGMENT

 

M.R. Shah, J. - By way of this petition under Article 226 of the Constitution of India, the petitioner-assessee has prayed for issuance of writ or order, quashing and setting aside the impugned Notice dated 26th March 2012 issued under Section 148 of the Income-tax Act, 1961 [hereinafter referred to as, "the Act"] by which the Assessing Officer has sought to reopen the assessment for Assessment Year 2005-2006, which is beyond the period of four years from the relevant assessment year, alleging inter alia that the income chargeable to tax as escaped the assessment within the meaning of Section 147 of the Act on the part of the assessee not disclosing the true and correct facts.

2. The original assessment for AY 2005-2006 was a scrutiny assessment under Section 143 [3] of the Act which was framed and finalized as far back as on 13th December 2007. Necessary particulars/queries were asked before framing the scrutiny assessment; including the flats sold by the assessee and the gross profit earned by the assessee, and thereafter only, the Assessing Officer framed the scrutiny assessment under Section 143 [3] of the Act.

2.1 Thereafter, beyond the period four years from the relevant assessment year, the Assessing Officer has issued impugned Notice under section 148 of the Act by which the assessment for A.Y 2005-2006 is sought to be reopened on the ground that the income chargeable to tax has escaped assessment due to non disclosure of true and correct facts by the assessee. At the request made by the assessee, the petitioner has been served with the reasons recorded to reopen the assessment for AY 2005-2006, which reads as under :

"In this case on verification of case record for AY 2007-08, it is noticed that the modus operandi of the assessee was to receive on money which was not offered for taxation by the assessee and an addition of Rs. 5,81,223/= was made on account of such on money receipt which is approximately 40% of the value of property sold and shown in the P&L Account. It is further observed that as per the details available on record, the assessee had made sales during the P.Y 2004-2005 relevant to A.Y 2005-2006 was Rs. 44,68,522/=. Considering the modus operandi of collection 40% of value as on money, the estimated on-money from the property sold and shown in P&L Account would be worked out to Rs. 17,87,408/= @ 40% which assessee has not shown in P&L Account. Hence, income of the assessee of Rs. 17,87,408/= has been under-assessed. In view of the above, I have reason to believe that by reason of omission on the part of the assessee to disclose fully and truly all material relevant for the assessment, the income of Rs. 17,87,408/= of the assessee has escaped assessment within the meaning of Section 147 of the I.T Act, for A.Y 2005-2006."

2.2 That, the assessee raised objections against the reasons for reopening of the assessment. It was submitted that on the basis of the observations made in the subsequent assessment years with respect to the flats sold in the subsequent years, the finalized scrutiny assessment cannot be reopened. It was submitted that the entire issue was gone into by the Assessing Officer while framing the scrutiny assessment. It was submitted that even the basis on which the assessment is reopened i.e.., observations made for A.Y 2007-08, the addition made by the Assessing Officer on on-money with respect to the flats sold in A.Y 2007-08, have been set-aside by the learned CIT [A] and the Appeal before the learned Tribunal was dismissed on the ground of low tax effect. That thereafter, the Assessing Officer has disposed of the objections vide communication dated 11th January 2013 and has not agreed with the objections raised by the assessee. Hence, the assessee has preferred the present writ petition under Article 226 of the Constitution of India challenging impugned Notice and reopening of the assessment for A.Y 2005- 2006.

3. Shri SN Divatia, learned advocate appearing on behalf of the petitioner-assessee has vehemently submitted that the impugned notice issued by the Assessing Officer to reopen the assessment for A.Y 2005-06 is bad in law and contrary to the provisions of Section 147; more particularly, proviso to Section 147 of the I.T Act. It is vehemently submitted by learned advocate Shri Divatia that as such there is not tenable material available with the Assessing Officer to come to the conclusion that the income chargeable to tax has escaped the assessment in A.Y 2005-2006. It is submitted that merely on the basis of some observations made by another Assessing Officer for A.Y 2007-2008 to the effect that the assessee had taken some on-money with respect to the flats sold in the said assessment year viz., AY 2007-2008, it is not open for the A.O to reopen the assessment for A.Y 2005-2006 on the assumption and presumption that even with respect to the flats sold in the year 2005-2006, the assessee must have taken on-money.

3.1 It is further submitted by learned advocate Shri Divatia that as such, the entire issue with respect to the flats sold in AY 2005-2006 was gone into by the Assessing Officer, while framing the scrutiny assessment, and therefore, the subsequent reopening can be said to be a change of opinion by the subsequent/another Assessing Officer, which is not permissible. It is submitted that there was no non- disclosure on the part of the assessee in not disclosing the true and correct facts. It is, therefore, submitted that the assumption of jurisdiction to reopen the assessment beyond the period of four years is bad in law and deserves to be quashed and set-aside.

4. The present petition is vehemently opposed by Shri Nitin Mehta, learned advocate appearing on behalf of the Revenue. It is submitted that the flats which were sold in AY 2005-2006 and the flats which were sold in AY 2007-2008 were out of the same scheme floated by the very assessee. It is submitted that when in the subsequent assessment year with respect to the flats sold in AY 2007-2008, it was found by the Assessing Officer that the assessee used to take on- money, and therefore, on the basis of such material available with the Assessing Officer, when he formed an opinion that the assessee had not disclosed true and correct facts with respect to the on-money receipts by selling the flats in AY 2005-2006, it cannot be said that the Assessing Officer has committed any error which calls for interference by this Court under Article 226 of the Constitution. Making the above submissions, it is requested to dismissed the present petition.

5. Heard learned advocates appearing on behalf of the respective parties at length.

6. At the outset, it is required to be noted that in the present case, assessment for A.Y 2005-2006 is sought to be reopened beyond the period of four years. Under the circumstances, unless and until conditions provided under proviso to Section 147 of the Act are satisfied i.e., if it is found that the income chargeable to tax has escaped the assessment due to non disclosure of true and correct facts by the assessee, there cannot be any reopening of the assessment.

7. From the material available on record, it appears that with respect to flats sold in AY 2005-2006, as a detailed questionnaire was asked by the Assessing Officer before framing the scrutiny assessment under section 143(3) of the Act which was supplied by the assessee and only thereafter, the Assessing Officer framed the scrutiny assessment for AY 2005-2006. From the reasons recorded to reopen the assessment for A.Y 2005-2006, it appears that the same is sought to be reopened by the Assessing Officer on the basis of observations made by Assessing Officer, while framing the assessment for A.Y 2007-2008 with respect to the flats sold during the year under consideration, wherein it was found that the assessee had received on-money with respect to the flats sold and in the A.Y 2007-2008 and therefore, the Assessing Officer while issuing the Notice for reopening has presumed and assumed that with respect to the flats sold in AY 2005-2006, the assessee must have received on-money. From the record available, it appears that there is no further tangible material available with the Assessing Officer to form a belief that the assessee had received on-money with respect to the flats sold in A.Y 2005-2006 and/or had received any on-money in the AY 2005-2006.

8. At this stage, it is required to be noted that even with respect to addition made in respect of on-money received in A.Y 2007-2008, the same has been subsequently set-aside by the learned CIT [A], against which an appeal was preferred which has been dismissed on the ground of low tax effect. Considering the aforesaid facts and circumstances of the case and solely on the observations made by another Assessing Officer with respect to the subsequent assessment years i.e., 2007-2008, the reopening was not permissible, more particularly in absence of any other tangible material available with the Assessing Officer that in the year 2005-2006, the assessee had received any on-money. Under the circumstances, it was not open for the Assessing Officer to re-open the assessment for A.Y 2005-2006, that too beyond the period of four years and more particularly when the original assessment was done under Section 143 (3) of the I.T Act.

9. In view of the above and for the reasons aforestated, this petition succeeds. Impugned notice dated 26th March 2012 issued under Section 148 of the Income-tax Act, 1961 by the Revenue is hereby quashed and set-aside. Rule nisi made absolute. No costs.

sb

 

 

*In favour of assessee.