Vibrant Securities Private Limited v. Income-tax Officer & Ors.

4. On 31st March 2021, notice under section 148 of the Act was issued by the Assessing Offcer seeking to reopen the assessment for the assessment year 2014-15 on the ground that the income had escaped assessment for the said year. Reasons were furnished to the petitioner, which read as under: In this case, assessee has e-fled return on 24.09.2014 declaring total income at Rs. 274720/- and assessment u/s.143(3) was completed on 28.12.2016. In this case, information is received with regard to the fact that assessment has entered into sale/purchase of equity share with or without actual delivery in recognized stock exchange, the details are under: SL Information Code Description Amount (in Lakh ) 1 STT-01 Purchase of equity share in a recognized stock exchange

471.49 2 STT-02 Sale of equity share in recognized stock exchange 333.03 3 STT-03 Sale of equity share (otherwise than by actual delivery)in exchange 2257.78 4 STT-04 Sale of option in securities (derivative) in recognize stock exchange

483.38 Shraddha Talekar, PS 5/14 5 STT-05 Sale of Future (derivative) in exchange 1181.31 6 194A Interest other than interest on securities 57.53 7 194C Payment to contractors

0.75 8 194H Commission /Brokerage

0.14 9 194J Professional/ Technical service fee 0.60 In view of the above facts and after due application of mind after analyzing all the relevant information in the case of the assessee in totality, I have reason to believe that income of Rs.4786.01/-Lakh has escaped assessment for A.Y.2014-15 and the same is therefore required to be reopened for scrutiny assessment. A notice u/s.148 r.w.s. 147, is, therefore, being proposed to be issued to assessee such income and also any other income chargeable to tax which has escaped assessment which comes to notice subsequently in the course of the assessment proceedings.

5. Objections were fled on 30th December 2021 to the reopening which were rejected by virtue of order dated 8th February 2022.

6. Learned Senior Counsel for the petitioner challenges the Shraddha Talekar, PS 6/14 reassessment proceedings on the ground that the jurisdictional requirement for reopening had not been satisfed in the present case. It was urged that the Assessing Offcer having failed to state in the reasons recorded that there was any failure on the part of the assessee to disclose fully and truly the material facts necessary for assessment, could not have proceeded to reopen the assessment. This, it was stated, was the jurisdictional precondition, which has not been satisfed.

7. The second argument urged was that there was no new tangible material with the Assessing Offcer, based upon which, the Assessing Offcer could support his ‘reason to believe’. It was stated that the reassessment proceedings were nothing but ‘a change of opinion’ as the entire issue with regard to the transactions with regard to the stocks had been gone into by the Assessing Offcer during the scrutiny assessment, and therefore, reassessment could not be initiated in the absence of there being any new tangible material.

8. Reply affdavit has been fled which essentially reiterates the stand of the revenue in the reasons recorded. What has been stated in the counter affdavit is that the transactions refected in Shraddha Talekar, PS 7/14 the reasons recorded were not genuine and that no actual delivery had taken place in the recognized stock exchanges as per information received from the Investigation Wing of the department on 15th March 2021.

9. We have heard learned counsel for the parties.

10. It is settled law that the validity of reassessment proceedings have to be tested on the touchstone of the reasons recorded by the Assessing Offcer, which reasons can neither be added nor substituted by pleadings.

11. Admittedly, the assessment is sought to be reopened beyond the period of four years from the end of the relevant assessment year 2014-15. Since this is a case where an order under section 143(3) of the Act had been passed for the relevant assessment year, the Assessing Offcer, in addition to satisfying the jurisdictional conditions of ‘reason to believe’ that income chargeable to tax had escaped assessment, had to show that there was failure on the part of the petitioner to disclose fully and truly all material facts necessary for assessment during the original Shraddha Talekar, PS 8/14 assessment proceedings.

12. A reference to the reasons recorded would clearly show that not a whisper has been made by the Assessing Offcer that there was any such failure on the part of the assessee. The consequence is clear that the Assessing Offcer had not satisfed himself on this important jurisdictional aspect and therefore must be deemed to have arbitrarily proceeded to initiate the reassessment proceedings by issuing the notice impugned, which makes it unsustainable.

13. In Hindustan Lever Ltd. V/s. R. B. Wadkar, Assistant Commissioner of Income-Tax and Ors. 1, it was held: “…...The reasons recorded should be clear and unambiguous and should not suffer from any vagueness. The reasons recorded must disclose his mind. The reasons are the manifestation of the mind of the Assessing Offcer. The reasons recorded should be self-explanatory and should not keep the assessee guessing for the reasons. Reasons provide the link between conclusion and evidence. The reasons recorded must be based on evidence. The Assessing Offcer, in the event of challenge to the reasons, must be able to justify the same based on material available on record. He must disclose in the reasons as to which fact or material was not disclosed by the assessee fully and truly necessary for assessment of 1 2004 ITR 332 Vol.268. Shraddha Talekar, PS 9/14 that assessment year, so as to establish the vital link between the reasons and evidence. That vital link is the safeguard against arbitrary reopening of the concluded assessment.”

14. This Court in the aforementioned judgment proceeded to allow the petition and set aside the notice impugned therein only on this ground that the jurisdictional requirement of proviso to Section 147 of the Act had not been complied with by the Assessing Offcer. In the judgment Supra, this Court had noticed that the Assessing Offcer had nowhere stated that there was failure on the part of the assessee to disclose fully and truly all material facts necessary of assessment for that assessment year. The notice impugned under section 148 of the Act is thus liable to be set aside on this ground alone.

15. Apart from above, it is clear that the material which was referred to in the reasons recorded in the shape of transactions, securities, etc. do not refect that the said material was not available with the Assessing Offcer during the scrutiny assessment proceedings. The Assessing Offcer appears to have relied solely upon the said information obtained from the Investigation Wing of the department without, in the least, Shraddha Talekar, PS 10/14 verifying as to whether the said issue had been gone into or disclosed by the assessee during the scrutiny assessment proceedings. The petitioner, on the other hand, has placed on record details of notices and the replies submitted thereto, as referred to in the preceding paragraphs which would show that the information with regard to all transactions had been sought for and supplied by the petitioner.

16. In Aroni Commercials Ltd. Vs. Deputy Commissioner of Income-tax-2(1)2, it was held: “14……….We are of the view th at once a query is raised during the assessment proceedings and the assessee has replied to it, it follows that the query raised was a subject of consideration of the Assessing Offcer while completing the assessment. It is not necessary that an assessment order should contained reference and/or discussion to disclose its satisfaction in respect of the query raised. If an Assessing Offcer has to record the consideration bestowed by him on all issues raised by him during the assessment proceeding even where he is satisfed then it would be impossible for the Assessing Offcer to complete all the assessments which are required to be scrutinized by him under Section 143(3) of the Act. Moreover, one must not forget that the manner in which an assessment order is to be drafted is the sole domain of the Assessing Offcer and it is not open to an assessee to insist that the assessment order must record all the questions raised and the satisfaction in 2 [2014] 44 Taxmann.com 304 (Bombay) Shraddha Talekar, PS 11/14 respect thereof of the Assessing Offcer. The only requirement is that the Assessing Offcer ought to have considered the objection now raised in the grounds for issuing notice under Section 148 of the Act, during the original assessment proceedings. There can be no doubt in the present facts as evidenced by a letter dated 8 September 2012 the very issue of taxability of sale of shares under the head capital gain or the head profts and gains from business was a subject matter of consideration by the Assessing Offcer during the original assessment proceedings leading to an order dated 12 October 2010. It would therefore, follow that the reopening of the assessment by impugned notice dated 28 March 2013 is merely on the basis of change of opinion of the Assessing Offcer from that held earlier during the course of assessment proceeding leading to the order dated 12 October 2010. This change of opinion does not constitute justifcation and/ or reasons to believe that income chargeable to tax has escaped assessment.”

17. Since an order under section 143(3) had been passed after eliciting various information from the petitioner, which was responded to by the petitioner, it must be presumed that the Assessing Offcer, while passing the order under section 143(3) of the Act, had considered all issues pertaining to the queries raised as also issues in regard to which the information was sought and therefore, if the matter is deemed to have been considered, any subsequent reassessment on the same issue would be nothing but a ‘change of opinion’. Shraddha Talekar, PS 12/14

18. The Assessing Offcer in the reasons recorded was also supposed to establish the live link between the information received by him and the formation of his belief that income had escaped assessment which is conspicuously missing in the present case. What was held by the Supreme Court in Commissioner of Income Tax V/s. Kelvinator of India Ltd.[3] is as under: “ ….The Assessing Offcer has no power to review; he has the power to reassess. But reassessment has to be based on fulfllment of certain precondition and if the concept of “change of opinion” is removed, as contended on behalf of the Department, then, in the garb of re-opening the assessment, review would take place. One must treat the concept of “change of opinion” as an in-built test to check abuse of power by the Assessing Offcer. Hence, after 1-4-1989, Assessing Offcer has power to reopen, provided there is “tangible material” to come to the conclusion that there is escapement of income from assessment. Reasons must have a live link with the formation of the belief.”

19. In our opinion, the jurisdictional conditions have not been met with in the present case and that reassessment proceedings are nothing but a ‘change of opinion’, and therefore, would not furnish a sound basis to the Assessing Offcer in the formation of his belief that income had escaped assessment. 3 [ 320) ITR 561 SC Shraddha Talekar, PS 13/14

20. Be that as it may, the present petition is allowed. Order impugned, dated 8th February 2022 rejecting the objections so also the impugned notice dated 31st March 2021 under section 148 of the Act are held to be unsustainable and are accordingly set aside. No order as to costs. [ MADHAV J. JAMDAR, J. ] [DHIRAJ SINGH THAKUR, J.] Shraddha Talekar, PS 14/14