M/S Susheelkumar Shankarlal vs. The Income Tax Officer

NEUTRAL CITATION NO. 2024:MPHC-IND:24134 -1- W.P. Nos.2036 & 6178 of 2007 IN THE HIGH COURT OF MADHYA PRADESH AT INDORE BEFORE HON'BLE SHRI JUSTICE VIVEK RUSIA & HON'BLE SHRI JUSTICE BINOD KUMAR DWIVEDI ON THE 20th OF AUGUST, 2024 WRIT PETITION No. 2036 of 2007 M/S SUSHEEL KUMAR SHANKARLAL Versus THE INCOME TAX OFFICER AND OTHERS Appearance: Shri P. M. Choudhari, learned Senior Counsel assisted by Shri Anand Prabhawalkar, learned counsel for the petitioner. Ms. Veena Mandlik, learned counsel for the respondents. WITH WRIT PETITION No. 6178 of 2007 M/S SUSHEELKUMAR SHANKARLAL Versus THE INCOME TAX OFFICER AND OTHERS Appearance: Shri P. M. Choudhari, learned Senior Counsel assisted by Shri Anand Prabhawalkar, learned counsel for the petitioner. Ms. Veena Mandlik, learned counsel for the respondents. O R D E R Per : Vivek Rusia, J Regard being had to the similitude of the controversy involved Signed by: RAVI PRAKASH Signing time: 24-08-2024 15:51:18 Signature Not Verified NEUTRAL CITATION NO. 2024:MPHC-IND:24134 -2- W.P. Nos.2036 & 6178 of 2007 inRegard being had to the similitude of the controversy involved in these cases, with the joint request of the parties, these petitions are analogously heard and being decided by this common order. Facts of W.P. No.2036 of 2007 are narrated hereunder. The petitioner has filed the present petition under Article 226 of the Constitution of India challenging the notice dated 30.03.2006 issued by respondent No.1 under Section 148 r/w 147 of the Income Tax Act, 1961 for the reopening of the assessment of the year 1999 – 2000. the petitioner is also challenging the order dated 15.12.2006 passed by respondent No.1 rejecting objections preferred by the petitioner. The petitioner is also challenging the consequential reassessment order dated 28.12.2006 passed by respondent No.1. 02. Facts of the case in short are as follows:- 2.1. The petitioner is a partnership firm duly constituted under the provisions of the Indian Partnership Act, 1932 and engaged in the business of purchase and sale of Mawa, Ghee etc. The petitioner is a regular assessee of the Income Tax Department. 2.2. An inspection was carried out of the business as well as residential premises belonging to the petitioner by the authority of the Commercial Department. According to the petitioner, before the preparation of the scrutiny report, it voluntarily filed the revised return disclosing the entire turnover before the Commercial Tax Authority and also paid the tax on the basis of the revised return. However, the Commercial Tax Authority assessed the petitioner and imposed a penalty under Section 69 of the Madhya Pradesh Commercial Tax Act which is the subject matter of W.P. Nos.348 of 2005 & 351 of 2005. 2.3. On the basis of the aforesaid assessment, the Commercial Tax Department informed the Income Tax Department requiring the Signed by: RAVI PRAKASH Signing time: 24-08-2024 15:51:18 Signature Not Verified NEUTRAL CITATION NO. 2024:MPHC-IND:24134 -3- W.P. Nos.2036 & 6178 of 2007 petitioner to file a return for both Assessment Year – 1999 – 2000 & 2000 – 2001. The petitioner filed the return for both years disclosing the income/loss on the basis of books of accounts maintained in the business. According to the petitioner, a separate computation sheet disclosing its profit in respect of the unrecorded transactions was also filed along with the return. The petitioner worked out gross profit on the unrecorded transactions @ 7.5% against the gross profit @ 12.5% in respect of recorded transactions. 2.4. The assessment of the petitioner was completed by respondent No.1 by passing detailed orders dated 11.03.2002 & 15.03.2002 respectively after examining the books of account and the details of the unrecorded transactions furnished by the petitioner. The petitioner explained and tried to justify the low GP rate in respect of unrecorded transactions during the aforesaid two financial years. After evaluating the entire material available on record, the assessing authority passed a final assessment order for both assessment years by applying a GP Rate @ 8% to the unrecorded sales. The petitioner accepted the aforesaid order and submitted the income tax. 2.5. The petitioner was served with a notice dated 30.03.2006 under Section 148 of the Income Tax Act for the reopening of assessments of both the assessment years by respondent No.1. The notice under Section 148 of the Income Tax Act for the Assessment Year – 1999 – 2000 is the subject matter of W.P. No.2036 of 2007 and notice issued for the Assessment Year – 2000 – 2001 is the subject matter of W.P. No.6178 of 2007. Since both the petitions have been on identical facts and grounds, therefore, both are being decided together. 2.6. It is stated in the notice that the petitioner's assessment has been reopened on the ground that respondent No.1 has a reason to believe the Signed by: RAVI PRAKASH Signing time: 24-08-2024 15:51:18 Signature Not Verified NEUTRAL CITATION NO. 2024:MPHC-IND:24134 -4- W.P. Nos.2036 & 6178 of 2007 income chargeable to the tax has escaped assessment. The petitioner was called upon to furnish a return within thirty days from the date of service of notice. The petitioner submitted an application to supply the reasons for the reopening of the assessment. According to the petitioner, the assessing authority is bound to furnish the reasons within a reasonable time and after receipt of the reasons, the noticee is entitled to file an objection. According to the petitioner, the aforesaid notice has been issued after the expiry of four years from the relevant assessment year. The petitioner was supplied the reasons to show that the assessing authority reopened the assessment only on the ground that the Gross Profit Rate in respect of unrecorded transactions, which has been estimated @ 8% on such sales ought to have been estimated @ 12.5% equal to the GP Rate shown by the assessee on its recorded sale. After receipt of such reasons, the petitioner immediately submitted a detailed objection on 30.09.2006 in respect of both the assessment years. The assessing authority has passed the impugned order for both assessment years, hence, these two writ petitions are before this Court. 03. On 13.04.2007, this Court raised an objection with regard to the maintainability of the writ petition due to the availability of alternative remedies. On 14.05.2007, after hearing the learned counsel for the petitioner, the issue of alternative remedy was kept open to be decided after hearing both sides. Vide order dated 06.07.2007, the operation of the impugned orders was stayed by this Court. Vide order dated 05.10.2007, the writ petition was admitted for final hearing and the interim order was continued. Now after the lapse of 14 – 15 years, these petitions are coming for a final hearing, therefore, the objection taken by the respondents with regard to the maintainability of the writ petitions cannot be decided to relegate the petitioner to file an appeal Signed by: RAVI PRAKASH Signing time: 24-08-2024 15:51:18 Signature Not Verified NEUTRAL CITATION NO. 2024:MPHC-IND:24134 -5- W.P. Nos.2036 & 6178 of 2007 before the appellate authority. SUBMISSION OF PETITIONER'S COUNSEL 04. Shri P. M. Choudhary, learned Senior counsel appearing for the petitioner submitted that as per the provisions of Section 147 of the Income Tax Act, the assessing authority must have a reason to believe that the income has escaped assessment for reopening or reassessment of the Income Tax Return. Though the Court cannot go to the sufficiency and adequacy of the material for the formation of belief, the Court can certainly see whether there exists any material for the formation of such belief. 4.1. It is further submitted that the petitioner has disclosed all unrecorded sales by producing the books of account and the assessing authority has decided the profit @ 8%. Therefore, to enhance the rate of profit, reassessment cannot be done. No income escaped assessment for any of the financial year. Hence, the impugned notice and final order are liable to be quashed. 4.2. Shri Choudhary, learned Senior Counsel has placed reliance upon a judgment delivered by the Apex Court in the case of Commissioner of Income Tax v/s Kelvinator of India Limited & Another reported in (2010) 320 ITR 561 (SC), in which it has been held that there is conceptual difference between power to review and power to reassess. The Assessing Officer has no power to review; he has the power to reassess. But reassessment has to be based on the fulfilment of certain preconditions and if the concept of 'change of opinion' is removed, as contented on behalf of the Department, then in the garb of reopening, the review would take place. 4.3. Learned Senior Counsel has also placed reliance passed by the Apex Court in the case of Assistant Commissioner of Income-Tax & Signed by: RAVI PRAKASH Signing time: 24-08-2024 15:51:18 Signature Not Verified NEUTRAL CITATION NO. 2024:MPHC-IND:24134 -6- W.P. Nos.2036 & 6178 of 2007 Others v/s CEAT Limited reported in (2022) 449 ITR 171 (SC), in which assessment was sought to be reopened beyond the period of four years. The reassessment was on a change of opinion and there was no allegation of suppression of material fact. In such circumstances, the reopening notice issued under Section 148 of the Income Tax Act was set aside. 4.4. Reliance has also been placed upon the judgment delivered in the case of Financial Software & Systems (P.) Limited v/s Deputy / Assistant Commissioner of Income-Tax reported in (2022) 145 taxmann.com 36 (Mad.), in which it has been held that since at the time of original assessment under Section 143 of the Income Tax Act specific queries were raised by the Assessing Officer which were answered by assessee and thereafter, the assessment order was passed. It was not possible for the revenue to reopen the assessment proceedings on the same issue merely on the basis of a change of opinion. 4.5. Lastly, Shri Choudhary, learned Senior Counsel placed reliance upon a judgment passed by the Bombay High Court in the case of State Bank of India v/s Assistant Commissioner of Income-Tax & Others reported in (2019) 418 ITR 485 (Bom), in which it has been held that the mandatory requirement of income chargeable to tax has escaped assessment due to failure on the part of the assessee to disclose truly and fully all the material facts and what interference in law should be made on the basis of such facts is within the jurisdiction of the Assessing Officer. In such circumstances, the learned Senior Counsel prays for the quashement of the impugned notice as well as a final order. SUBMISSIONS OF RESPONDENTS' COUNSEL 05. Per contra, Ms Veena Mandlik, learned counsel for the Signed by: RAVI PRAKASH Signing time: 24-08-2024 15:51:18 Signature Not Verified NEUTRAL CITATION NO. 2024:MPHC-IND:24134 -7- W.P. Nos.2036 & 6178 of 2007 respondents / Department submitted that as per Clause (c) of Explanation – 2 appended to Section 147 of the Income Tax Act, where an assessment has been made, but the income chargeable to tax has been under assessed, or such income has been assessed at too low a rate it shall be deemed to be a case where the income chargeable to tax has escaped assessment. Therefore, the authority has rightly issued notice under Section 148 of the Income Tax Act to the petitioner. Learned counsel has placed reliance upon a judgment passed by the Apex Court in the case of Commissioner of Income Tax & Others v/s Chhabil Dass Agrawal reported in (2013) 357 ITR 357, in which the Apex Court has held that the Writ Court ought not to have entertained the writ petition filed by the assessee, wherein he has only questioned the correctness or otherwise of the notice issued under Section 148 of the Income Tax Act. 5.1. Ms Veena Mandlik learned counsel has also placed reliance upon a judgment delivered by the Apex Court in the case of Phool Chand Bajrang Lal & Another v/s Income Tax Officer & Another reported in (1993) 203 ITR 456 (SC), which it has been held that the notice issued on the basis of subsequent information not mere the change on opinion. It is held that one of the purposes of Section 147 is to ensure that the party cannot get away by willfully making a false or untrue statement at the time of the original assessment. 5.2. Learned counsel for the respondent further placed reliance in the cases of Income-Tax Officer, Cuttack & Others v/s Biju Patnaik reported in (1991) 188 ITR 247 & GKN Driveshafts (India) Limited v/s Income Tax Officer & Others reported in (2003) 259 ITR 19. Learned counsel has also placed reliance upon several judgments delivered by this Court in the cases of Triple A Trading & Investment Signed by: RAVI PRAKASH Signing time: 24-08-2024 15:51:18 Signature Not Verified NEUTRAL CITATION NO. 2024:MPHC-IND:24134 -8- W.P. Nos.2036 & 6178 of 2007 Private Limited v/s Assistant Commissioner of Income Tax & Another (Writ Petition No.942 of 1993), Sundarlal Jain & Others v/s Union of India & Others reported in (2017) 293 CTR Reports 249 and Neeraj Mandloi v/s Assistant Commissioner of Income Tax & Another reported in (2017) 293 CTR (MP) 245. 06. We have heard the learned counsel for the parties at length and perused the record. APPRECIATION & CONCLUSION 07. Admittedly, the petitioner filed the return for the Assessment Year – 1999, 2000 & 2001 disclosing its income/loss on the basis of books of account maintained regularly. The petitioner submitted a separate computation sheet disclosing its profit despite unrecorded transactions. The petitioner claimed gross profit @ 7.5% on such unrecorded transactions and 12.5% gross profit in respect of recorded transactions. After considering all the materials, that the mawa mainly which is to be sold on the same day, being a fast decaying edible item, the profit cannot be claimed @ 12.5% and the assessing authority assessed the profit @ 8%, calculated the income and issued the demand notice. The order was passed on 15.12.2006 and after four years a notice under Section 148 of the Income Tax Act was issued for re-opening of assessment of both the years. Upon demand, the petitioner was supplied the reasons for issuance of notice under Section 148 of the Income Tax Act to the effect that GP Rate @ 12.5% should have been levied instead of 8% on estimated unrecorded sales of Rs.83,00,000/-. It is not the case of the Revenue Department that the petitioner suppressed any material in respect of unrecorded sales. The petitioner claimed the profit GP @ 7.5% but the authority has assessed @ 8%. 08. As per Section 147 of the Income Tax Act, if the Assessing Signed by: RAVI PRAKASH Signing time: 24-08-2024 15:51:18 Signature Not Verified NEUTRAL CITATION NO. 2024:MPHC-IND:24134 -9- W.P. Nos.2036 & 6178 of 2007 Officer has reason to believe that any income chargeable to tax has escaped assessment for any Assessment Year or any other income chargeable to tax which has escaped the assessment, as per Proviso, wherein assessment under sub-Section (3) of Section 148 of the Income Tax Act or this section has been made for the relevant Assessment Year, no action shall be taken under this Section after the expiry of four years unless any income chargeable to tax has escaped assessment for such Assessment Year by reason of the failure on part of the assessee to make a return under Section 139 of Income Tax Act, therefore, the Assessing Officer has to record the reasons that it was a failure on part of the assessee to disclose the income chargeable to tax has escaped. 09. As stated above, there is no allegation that the petitioner suppressed the income or did not disclose the income from unrecorded sales, the petitioner disclosed all his income and all unrecorded transactions and claimed the income by way of gross profit @ 7.2%, but the authority was of the opinion that it should be 8% which the petitioner accepted and paid the taxes. Now, the Assessing Officer in the exercise of power under Sections 147 and 148 of the Income Tax Act cannot reopen that in its opinion, the 8% rate is on the lower side. The Explanation – 2 as relied on by learned counsel appearing for the Income Tax Act Department cannot be read in isolation, it has to be read along with the Proviso of Section 147 of the Income Tax Act. Explanation – 2 says that the following cases shall be deemed to be cases where the income chargeable to tax has escaped assessment where the income chargeable to tax has been under- assessed and such income has been assessed at a too-low rate, but for which there has to be a failure on part of the assessee to make a return under Section 149 of Income Tax Act to disclose fully or truly all material facts necessary for assessment for the relevant Assessment Year. Signed by: RAVI PRAKASH Signing time: 24-08-2024 15:51:18 Signature Not Verified NEUTRAL CITATION NO. 2024:MPHC-IND:24134 -10- W.P. Nos.2036 & 6178 of 2007 10. For the sake of repetition, the petitioner had disclosed all his undisclosed sale transactions of both years, but the Assessing Authority has assessed the gross profit @ 8%, thus, there was no failure on the part of the petitioner which can give reasons to believe to the Assessing Officer to reopen the assessment, hence, relying on a judgment passed by the Hon’ble Apex Court in case of Kelvinator of India (supra) that Section 147 of Income Tax Act would give arbitrary power to the Assessing Officer to reopen the assessment on the basis of mere change of opinion which cannot be per se reasons to reopen. A similar view has been taken in the case of CEAT Ltd. (supra) and well as in Financial Software & Systems (supra). 11. In view of the above, these petitions succeed, and the impugned notice dated 30.03.2006 issued by respondent No.1 under Section 148 of the Income Tax Act as well as the final assessment order for the Assessment Year – 1999 – 2000 and Assessment Year – 2000 – 2001 are hereby set aside. 12. With the aforesaid, Writ Petitions stand allowed. Let a copy of this order be kept in the connected petition also. (VIVEK RUSIA) J U D G E (BINOD KUMAR DWIVEDI) J U D G E

Ravi Signed by: RAVI PRAKASH Signing time: 24-08-2024 15:51:18 Signature Not Verified