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ORDINARY ORIGINAL CIVIL JURISDICTION
WRIT PETITION NO.3423 OF 2022
Vibrant Securities Pvt. Ltd.
Having his address at 103-A, Podar Chambers, S.A.Brelvi Road, Fort, Mumbai 400001
Maharashtra, India.
…Petitioner
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
Officer, National Faceless Assessment Centre, Delhi.
3. Principal Commissioner of Income-tax, PCIT, 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 and /Mr. Upendra Lokegaonkar, i/b. Mint & Confreres, for
Petitioner.
Mr. Suresh Kumar, for Respondents-Revenue.
DATED: 18th March 2024
ORAL JUDGMENT
1. Petitioner, a member of the Bombay Stock Exchange (“BSE”) and the National Stock Exchange (“NSE”), is challenging a notice dated 31st March 2021 issued under Section 148 of the Income Tax Act, 1961 (“the Act”) for Assessment Year (“AY”) 2013-14 and an order dated 8th February 2022 passed by Respondent No.2 rejecting objections of Petitioner. According to Petitioner, the impugned notice is exfacie illegal, untenable, unreasonable and contrary to the provisions of the law.
2. Petitioner as a member of BSE and NSE is, inter alia, engaged in the business of providing stock broking services to its clients as well as Undertaking Proprietary Trade (“Pro-Trade”) on BSE and NSE in derivative and cash segments. Pro-Trade under cash segment includes delivery based and intra-day non-delivery based transactions. Intra-day transactions are referred to transactions where purchase and sale transactions are executed and settled on trade day itself.
3. Pro-Trade activity of Petitioner continues to be a business activity of Petitioner and not an investment activity. The resultant profit/loss arising from the Pro-Trade activity of Petitioner is offered to tax as business income/loss in its return of income (“ROI”). The delivery based transactions in the nature of purchase (STT-01) and sale (STT-02) of equity shares under cash segment and sale of equity shares on intra-day basis (STT-03) undertaken on BSE and NSE are subjected to Security Transaction Tax (“STT”), which is levied and recovered by the Exchanges on daily basis. There is no STT levy, however, on the purchase of equity shares undertaken on intra-day basis. In the petition, Petitioner has explained how its business is conducted.
4. For AY 2013-14, Petitioner filed, on 30th September 2013, its ROI declaring total income of Rs.57,070/- under the normal provisions of the Act.
5. Petitioner’s case was selected for scrutiny assessment and an assessment order dated 29th February 2016 came to be passed. During the course of assessment, Petitioner was issued notice dated 2nd July 2015 calling upon Petitioner to give details of the business activity and file documents. Petitioner complied with the requirements vide letter dated 16th July 2015. Respondent No.1 issued a notice dated 3rd September 2015 calling upon Petitioner to provide: (a) Details of profit and loss account in derivative segment along with global report; and (b) Details of profit and loss account in cash segment along with global report. Further other details were also called for, which Petitioner supplied vide its letter dated 20th October 2015. Further submissions were filed by Petitioner on 18th November 2018 giving the break-up, profits from derivative segment and cash segment. As per the statement showing details of profit segment-wise, Petitioner has shown profit of Rs.74.41 Lakhs from both the segments.
6. Petitioner filed further submissions dated 11th December 2015 in which it provided details with respect to transactions reported in the Individual Transaction Statement (“ITS”). All these are reflected in Petitioner’s record.
7. Thereafter, Petitioner received the impugned notice dated 31st March 2021 under Section 148 of the Act stating that income chargeable to tax for AY 2013-14 has escaped assessment. By its letter 22nd April 2021, Petitioner filed its objections and these objections came to be rejected by the impugned order. The reasons for reopening reads as under: “In this case, assessee has e-file NNEXURED.09.2013 declaring total income at Rs.57070/- and assessment u/s 143(3) was completed on 29.02.2016. In this case, information is received with regard to the fact that assessee has entered into sale/ purchase of equity share with or without actual delivery in recognized stock exchange, the details are under: SL Information Code Description Amount in Lakh 1 STT-01 Purchase of equity share in a recognized stock exchange
739.91 2 STT-02 Sale of equity share in 444.20 3 STT-03 Sale of equity share (otherwise than by actual delivery) in recognized stock exchange 7118.79
4. STT-04 Sale of option in securities (derivative) in recognized stock exchange 2772.63
5. STT-05 Sale of Future (derivative) in 3282.54 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.14358.07/-Lakh has escaped assessment for A.Y.2013-14 and the same is therefore required to be reopened for scrutiny assessment. In view of the "Taxation and other laws" (Relaxation of certain provisions) ordinance 2020 and Notification No. 35/2020 dated 24.06.2020. The applicability of provisions of sub section (2) of Section 151 of the I.T. Act, 1961 stands extended from 31.03.2020 to 31.03.2021, 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.”
8. The notice dated 31st March 2021 under Section 148 of the Act clearly indicates that it has been issued after the expiry of four years from the end of the relevant assessment year. Moreover, in the case of Petitioner for this assessment year, an assessment order under Section 143(3) of the Act has been passed. Therefore, the proviso to Section 147 of the Act shall apply under which reassessment is not permissible unless there has been failure to truly and fully disclose material facts.
9. Mr. Pardiwalla for Petitioner submitted that: (a) There is not even an allegation that there was failure to truly and fully disclose material facts. (b) Even though in Crompton Greaves Ltd v. Assistant Commissioner of Income-Tax, Circle 6(2) & Ors.,[1] the Court has held that if the factum of failure to disclose can be culled down from the reasons in support of the notice seeking to reopen assessment, that will certainly not be fatal to the assumption of jurisdiction under Sections 147 and 148 of the Act, the reasons does not indicate anything cogent or clear that in fact there was failure on the part of Assessee to disclose truly and fully all material facts necessary for its assessment.
(c) In any event, the issue regarding information from security transaction tax return was a subject of consideration in the assessment proceedings and, therefore, this reopening is purely based on change of opinion.
10. Mr. Suresh Kumar reiterated what is stated in the affidavit in reply and in the order of objections and submitted that even if these transactions may have been reflected in the ITS, the information was these transactions were not genuine and no actual delivery had taken place in any recognized Stock Exchange. This information was received by the Investigating Wing of the Department.
11. On Mr. Suresh Kumar’s submissions we have to note that except for a bald statement in the reasons to believe escapement of income that assessee had entered into sales/purchase of equity shares with or without actual delivery in recognized Stock Exchange, there are no details provided. The source of information or what the information itself is, has not been made available to assessee.
12. Having considered the pleadings we are satisfied that this was a subject of consideration during the assessment proceedings. Even though it is not reflected in the assessment order dated 29th February 2016, the fact that queries were raised and replies were sent itself indicates, as held in Aroni Commercials Limited v. Deputy Commissioner of Income Tax–2(1),[2] once a query is raised during the assessment proceedings and assessee has replied to it, it follows that the query raised was a subject of consideration of the AO while completing the assessment. It is also not necessary that an assessment order should contain reference and/or discussion to disclose its satisfaction in respect of the query raised. Therefore, the reopening of the assessment, in our view, is merely on the basis of change of opinion of the AO from that held earlier during the course of assessment proceedings and this change of opinion does not constitute justification and/or reason to believe that income chargeable to tax has escaped assessment.
13. Further, the AO in the reasons recorded does not even make an allegation that there was failure on the part of assessee to truly and fully disclose material facts. From the reasons as reproduced earlier, 2 (2014) 44 taxmann.com 304 (Bombay). we are unable to cull down the factum of failure to disclose. The reason, in our view, does not indicate anything cogent or clear that in fact there was failure on the part of Assesee to truly and fully disclose all material facts necessary for its assessment.
14. The AO in the reasons recorded was also supposed to establish a live link between the information received by him and formation of his belief that income had escaped assessment which is conspicuously missing in the present case. In Commissioner of Income Tax v. ICICI, it was held:
15. It is also settled law that a reason to suspect is not the same as reason to believe. There has to be a rational connection and live link between the material coming to the notice of the AO and the formation of belief regarding escapement of income. The Apex Court in the matter Sheo Nath Singh v. AACIT[5] has held as under: “….There can be no manner of doubt that the words ‘reasons to believe’ suggests that the belief must be that of an honest and reasonable person based upon reasonable grounds that the Income Tax Officer may act on direct or circumstantial evidence but not on mere suspicion, gossip or rumour. The Income Tax Officer would be acting without jurisdiction if the reason for his belief that the conditions are satisfied does not exist or is not material or relevant to the belief required by the section. The Court can always examine this aspect though the declaration or sufficiency of reasons for the belief cannot be investigated by the Court.”
16. This Court in Neetu M Chandaliya v. Income Tax Officer-14(2) (3) has also held that while the Court cannot investigate into the adequacy or sufficiency of reasons, the Court can certainly examine whether the reasons are relevant and have a bearing on the matter in regard to which the AO is required to entertain the belief before he can issue notice under Section 148 of the Act. The reasons cannot be based on a suspicion subject to a case of fishing enquiry.
17. The Apex Court in the case of Income Tax Officer, I Ward, Distt.VI, Calcutta and Ors. v. Lakhmani Mewal Das[6] has held as 5 (1971) 82 ITR 147 (SC). 6 [1976] 103 ITR 437 (SC) follows: “…….the reasons for the formation of the belief must have a rational connection with or relevant bearing on the formation of the belief. Rational connection postulates that there must be a direct nexus or live link between the material coming to the notice of the Income-tax Officer and the formation of his belief that there has been escapement of the income of the assessee from assessment in the particular year because of his failure to disclose fully and truly all material facts. It is not doubt true that the court cannot go into the sufficiency or adequacy of the material and substitute its own opinion for that of the Income-tax Officer on the point as to whether action should be initiated for reopening assessment. At the same time we have to bear in mind that it is not any and every material, howsoever vague and indefinite or distant, remote and far-fetched, which would warrant the formation of the belief relating to escapement of the income of the assessee from assessment…....”
18. Thus, for the reasons discussed above and upon perusal of the reasons to believe escapement of income from assessment as well as the order rejecting Petitioner’s objections impugned herein, we have no hesitation in holding that there is no live link, which is a sine qua non between the material before the AO in the present case and the belief which he has to form regarding escapement of income.
19. In these circumstances, we are satisfied that the jurisdictional conditions have not been met and the reassessment proceedings are nothing but a ‘change of opinion’. This ‘change of opinion’ does not constitute justification and/or reasons to believe that income chargeable to tax has escaped assessment.
20. Petition disposed. No order as to costs. (DR.
NEELA GOKHALE, J.) (K. R. SHRIRAM, J.)