KAPADIA MONEY CHANGERS PVT. LTD vs. THE ASST. COMMISSIONER OF INCOME TAX

Facts

The assessee, Kapadia Money Changers Pvt. Ltd., is challenging a notice dated March 28, 2018, issued by the Assistant Commissioner of Income Tax for reopening the assessment for Assessment Year 2011-2012 under Section 148 of the Income Tax Act, 1961. The original assessment for AY 2011-2012 was completed under Section 143(3) on January 31, 2014. Subsequently, a survey under Section 133A was conducted on September 14-15, 2016. During the survey, a discrepancy was noted between the salary debited in the Profit and Loss account and the amount recorded in the salary register for FY 2010-11 (relevant to AY 2011-12). The Director of the company failed to provide an explanation for this discrepancy. The Assessing Officer issued the reopening notice more than two years and nine months after the original assessment.

Held

The High Court held that the impugned notice issued under Section 148 of the Income Tax Act, 1961, for reopening the assessment for AY 2011-2012, is liable to be quashed and set aside. The Court found that the Assessing Officer had already considered the salary expenditure during the original assessment proceedings by issuing notices under Section 142(1) and examining the details provided by the assessee. The reasons for reopening, which stemmed from a survey conducted more than two years after the original assessment, were based on an alleged discrepancy in salary payments. However, the Court noted that the Assessing Officer had previously sought and received explanations regarding salary payments, including those to related parties, and had passed an assessment order. Therefore, the reopening was based on a mere change of opinion, which is not permissible in law. The Court also observed that the Assessing Officer's order rejecting the assessee's objections was perfunctory and did not properly consider the assessee's submissions. The Court concluded that there was no escapement of income and the assessee had made a full and true disclosure of material facts during the original assessment.

Key Issues

1. Whether the reopening of assessment for AY 2011-2012 under Section 148 of the Income Tax Act, 1961, is valid, considering the reasons recorded by the Assessing Officer are based on a survey conducted more than two years after the original assessment was completed under Section 143(3)? Assessee's Contention: The assessee argued that the reopening is based on a mere change of opinion, as the Assessing Officer had already scrutinized the salary expenditure during the original assessment proceedings by issuing notices under Section 142(1) and calling for information. The assessee contended that all material facts were disclosed fully and truly during the original assessment, and there was no suppression or misrepresentation of income. The assessee also argued that the Assessing Officer's order rejecting their objections was an eyewash, as it failed to consider the explanations provided. Revenue's Contention: The revenue's contention, as reflected in the reasons recorded, is that a discrepancy was found during the survey between the salary debited in the P&L account (Rs. 8,49,818) and the actual payment recorded in the salary register (Rs. 2,78,700 for FY 2010-11, relevant to AY 2011-12). The Director's failure to explain this discrepancy led the Assessing Officer to believe that income had escaped assessment.