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

Facts

The petitioner, Kapadia Money Changers Pvt. Ltd., an authorized foreign exchange dealer, filed its return of income for Assessment Year 2013-2014 declaring a total income of Rs. 2,61,670. During the original assessment proceedings under Section 143(3) of the Income Tax Act, 1961, the Assessing Officer sought details of expenses, including salary and bonus. The petitioner provided the requested information. Subsequently, a survey under Section 133A was conducted on September 14-15, 2016. Based on this survey, a notice dated March 30, 2018, under Section 148 was issued to reopen the assessment for AY 2013-2014, alleging escapement of income. The petitioner filed objections, which were rejected by the Assessing Officer. The petitioner then filed a Special Civil Application challenging the notice under Section 148.

Held

The High Court held that the impugned notice issued under Section 148 of the Income Tax Act, 1961, was without jurisdiction and liable to be quashed and set aside. The Court found that the Assessing Officer had failed to apply his mind to the objections filed by the petitioner. The reasons recorded for reopening were based on incorrect facts, particularly by considering only the salary register of the Navsari unit and ignoring the reconciliation provided by the petitioner regarding the Bardoli unit. The Court noted that the salary expenditure was scrutinized during the original assessment, and the reopening was based on a mere change of opinion, which is not permissible. The Assessing Officer's rejection of objections was considered an 'eyewash' as the justification and reconciliation provided by the petitioner were not even referred to. The Court emphasized that the procedure for filing objections is not an empty formality but an opportunity for the assessee to explain that there is no escapement of income. Therefore, the petition was allowed, and the notice was quashed.

Key Issues

1. Whether the notice for reopening of assessment under Section 148 of the Income Tax Act, 1961, for AY 2013-2014 is valid and legal, considering the reasons recorded by the Assessing Officer and the objections raised by the assessee? Assessee's contentions: The assessee argued that the reopening was based on a mere change of opinion, as the salary expenditure was already scrutinized during the original assessment. The objections filed by the assessee were not properly considered by the Assessing Officer, who adopted a 'pedantic, robotic approach' and rejected them without appreciating the reconciliation provided. The reasons recorded for reopening were based on incorrect facts and a discrepancy that was explained by the assessee. The assessee relied on the principle laid down in GKN Driveshafts India Ltd. regarding the proper consideration of objections. Revenue's contentions: The revenue contended that a discrepancy was found during the survey between the salary debited in the profit and loss account and the amount recorded in the salary register for FY 2012-13 (relevant to AY 2013-14). The director failed to explain this discrepancy. The salary register impounded during the survey showed a payment of Rs. 4,40,295, while the P&L account debited Rs. 9,17,675. This indicated a failure on the part of the assessee to disclose material facts truly and fully, justifying the reopening.