KOMALKANT FAIKIRCHAND SHARMA vs. DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE 1

Facts

The petitioner, Komalkant Faikirchand Sharma, an individual engaged in real estate, transportation, and ship-breaking, filed his income tax return for Assessment Year 2011-12 on September 29, 2011, declaring a total income of Rs. 20,49,590. The return was accepted without scrutiny. A search was conducted at the petitioner's premises on February 17, 2012, following which the petitioner applied to the Settlement Commission under Section 245C of the Income-tax Act, 1961. The Settlement Commission admitted the application and passed an order under Section 245D(4) on January 12, 2015. Subsequently, the Deputy Commissioner of Income Tax issued a notice dated March 31, 2018, under Section 148 of the Act, proposing to reopen the assessment for AY 2011-12. The petitioner objected to the reopening, but the objections were rejected by the respondent. The petitioner then filed a Special Civil Application challenging the notice.

Held

The High Court held that while the reasons recorded for reopening the assessment, when considered with the appraisal report and affidavit-in-reply, might suggest sufficient material for the Assessing Officer to form a belief that income chargeable to tax had escaped assessment, the Assessing Officer had no jurisdiction to reopen the assessment for Assessment Year 2011-12. This was because an order of the Settlement Commission under Section 245D(4) had already been passed in relation to that assessment year. Therefore, the impugned notice under Section 148 of the Act could not be sustained. The Court quashed and set aside the notice. However, it was open for the Revenue to approach the Settlement Commission for appropriate relief, such as a declaration that the previous order under Section 245D(4) was void, by setting out the relevant facts and circumstances. Any such application by the Revenue would be decided on its merits. The principle established is that an assessment settled by the Settlement Commission cannot be reopened by the Assessing Officer, irrespective of the sufficiency of the reasons for reopening.

Key Issues

1. Whether the reasons recorded by the Assessing Officer for reopening the assessment under Section 147 of the Income-tax Act, 1961, are vague, suffer from borrowed satisfaction, and lack independent application of mind, especially considering the reopening is beyond four years from the end of the relevant assessment year and there is no mention of failure by the petitioner to disclose material facts fully and truly? 2. Whether the respondent-Revenue can supplement the reasons recorded for reopening the assessment by filing an affidavit-in-reply or through oral submissions, or whether the validity of the reopening must be judged solely on the recorded reasons? Assessee's Contentions: - The reasons for reopening are vague and do not indicate any escaped income or failure to disclose material facts. The reopening is beyond four years and appears to be based on borrowed satisfaction without independent application of mind. - The Assessing Officer failed to conduct independent inquiry and establish a correlation or link between the information received and the formation of the belief that income had escaped assessment. - The respondent cannot supplement the recorded reasons by filing an affidavit-in-reply, citing decisions in Hindustan Lever Limited v. R.B. Wadkar and Prashant S. Joshi v. Income Tax Officer. - The assessment for the relevant year was already settled by an order of the Settlement Commission under Section 245D(4), which bars the Assessing Officer from reopening the assessment. Revenue's Contentions: - The reasons recorded, when read in conjunction with the appraisal report and the affidavit-in-reply, demonstrate sufficient material for the Assessing Officer to form a belief that income had escaped assessment. - The affidavit-in-reply can be used to explain or elaborate on the recorded reasons, provided new grounds or materials are not introduced.