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www.taxpublishers.in Income Tax Act, 1961, Section 147 Reassessment--*Validity--AO proceeded on wrong facts to come to belief/conclusion that income chargeable to tax had escaped assessment* *Conclusion:* Where AO proceeded on fundamentally wrong facts to come to a belief/conclusion that income chargeable to tax had escaped assessment and even when the same was pointed out by assessee, the AO in his order disposing the objections did not deal with the factual position, reopening of assessment was not justified. AO issued notice under section 148 alleging that there were reasons to believe that assessee's income chargeable to tax for relevant assessment year had escaped assessment. Assessee filed objections to reopening, which came to be dismissed by an order. It was contended on behalf of assessee that reasons for reopening pertained to another entity, and not of assessee, because as per the reasons, the assessee filed return declaring total income of Rs. 24,19,30,640 and tax liability of Rs. 6,21,47,815, however, present assessee claimed Rs. 3,29,91,090 as refund and in its case, assessment order was passed accepting the return. It was further contended that assessment order referred to in reasons was dated 25-12-2018, whereas assessment order in assessee's case was passed on 27-12-2018. It was also contended that in order on objections, the AO not only failed to deal with errors in reasons recorded, but made further mistakes inasmuch as order on objections referred to reopening of assessment on the basis of determining deduction claimed under section 35(2AB) and the same did not even find a mention in reasons recorded. *Held:* Reasons recorded for reopening of assessment were based on incorrect facts. Further, no attempt was made to deal with those errors in order on objections and the order on objections in fact had more errors, which indicated total non-application of mind by AO. High Court in the case of Ankita A. Choksey v. ITO & Ors. (2019) 411 ITR 207 (Bom) : 2019 TaxPub(DT) 0723 (Bom-HC), held that condition precedent of reason to believe that income chargeable to tax has escaped assessment on correct facts must be satisfied by AO so as to have jurisdiction to issue the reopening notice. In instant case, AO proceeded on fundamentally wrong facts to come to a belief/conclusion that income chargeable to tax had escaped assessment and even when the same was pointed out by assessee, the AO in his order disposing the objections did not deal with the factual position. Therefore, there could be no reason for the AO to believe that income chargeable to tax had escaped assessment. Hence, notice under section 148 and order disposing the objections, were quashed and set aside. *Decision:* In assessee's favour *Relied:* Ankita A. Choksey v. ITO & Ors. (2019) 411 ITR 207 (Bom) : 2019 TaxPub(DT) 0723 (Bom-HC) IN THE BOMBAY HIGH COURT K.R. SHRIRAM & NEELA GOKHALE, JJ. Paranjape Schemes (Construction) Ltd. v. Dy. CIT Writ Petition No. 3459 of 2022 & Writ Petition No. 154 of 2024 11 March, 2024 Petitioner in WP/3459/2022 by: Harsh M. Kapadia. Petitioner in WP/154/2024 by: Harsh M. Kapadia & Atul K. Jasani. Respondents in WP/3459/2022 by: Suresh Kumar. Respondents-Revenue in WP/154/2024 by: N.C. Mohanty. PC W.P. No. 3459 of 2022 1. Petitioner carries on business, inter-alia, as real estate and property developer. Petitioner also lets out properties. 2. Respondent no. 1 is the assessing officer ( AO ), Respondent no. 2 had provided the sanction before issuing the impugned notice, Respondent no. 3 is the National Faceless Assessment Centre ( NFAC ), Delhi and Respondent no. 4 is the Union of India. 3. Petitioner filed its return of income on 29-11-2016 for assessment year ( AY ) 2016-17 declaring total income of Rs. 24,19,30,640 and a tax liability of Rs. 6,21,47,815. Against this liability, a credit of tax deducted at source of Rs. 7,76,38,841 and of advance tax of Rs. 1,75,00,000 was claimed. Petitioner sought a refund of Rs. 3,29,91,090. 4. Petitioner's case was selected for scrutiny assessment by Respondent no. 1. During the course of assessment proceedings, Petitioner was called upon to furnish various details/information/documents. Petitioner responded and finally an assessment Order dated 27-12-2018 came to be passed. No addition in respect of any matter was made and the return filed by Petitioner was accepted. 5. Petitioner thereafter received a notice dated 31-3-2021 issued under section 148 of the Income Tax Act, 1961 ( the IT Act ) alleging that there were reasons to believe that Petitioner's income chargeable to tax for assessment year 2016-17 has escaped assessment. Petitioner was provided with the reasons recorded for reopening and the same read as under: The assessee has filed its Return of Income on 28-9-2016 declaring income at Rs. 4,61,560. The case was selected for scrutiny and finalized under section 143(3) of the Act on 25-12-2018 after determining total income of Rs. 26,16,030. Information was received from ITO (I&CI), 2(3), Mumbai that the assessee M/s. Paranjape Properties & Investments (P) Ltd. has sold property at GAT No. 125, Village Mouje, Varve Khurd, Taluka Bhor, Dist. Pune, Maharashtra to M/s. Paranjape Schemes Construction (P) Ltd. (AACCP1941Q) on 15-10-2015 for a consideration of Rs. 11,16,22,850. However, this transaction has not been disclosed by the assessee to the Income Tax Department while filing return of income for assessment year 2016-17. 2. Therefore, I have reason to believe that income chargeable to tax amounting to Rs. 11,16,22,850 has escaped assessment for assessment year 2016-17 within the meaning of section 147 of the Act. 3. It is evident from the above facts that the assessee had not truly and fully disclosed material facts necessary during the assessment proceedings for the year under consideration, thereby necessitating reopening under section 147 of the Act. 4. In this case more than four years have lapsed from the end of assessment year under consideration. Hence necessary sanction to issue notice under section 148 of the Act has been obtained as per the provisions of section 151 of the Income Tax Act, 1961. You can file your objection by 30-11-2021. 6. Petitioner filed objections to the reopening, which came to be dismissed by an Order dated 17-1-2022. 7. Mr. Kapadia submitted that: (a) The reasons recorded and the order on objections, which is impugned in the petition along with the notice to reopen, displayed total non-application of mind on the part of assessing officer. (b) The facts mentioned in the reasons for reopening pertain to another entity viz. M/s. Paranjape Properties and Investments Private Limited and not of Petitioner because, as stated in the petition, Petitioner had filed return of income declaring total income of Rs. 24,19,30,640 and the tax liability of Rs. 6,21,47,815. Petitioner had also claimed Rs. 3,29,91,090 as refund and an assessment order accepting the return of income has been passed under section 143(3) of the Act. (c) Moreover, the assessment order referred to in the reasons is dated 25-12-2018, whereas the assessment order in the case of Petitioner was passed on 27-12-2018. In Paragraph No. 4 of the reasons, the assessing officer says In this case, more than four years have lapsed .. , whereas it is less than four years. (d) As held in Ankita A. Choksey v. ITO & Ors. (2019) 411 ITR 207 (Bom) : 2019 TaxPub(DT) 0723 (Bom-HC), it is settled position in law that the assessing officer acquires jurisdiction to issue a reopening notice only when he has reason to believe that income chargeable to tax has escaped assessment. Further, the reasons to believe that income chargeable to tax has escaped assessment must be on correct facts and if the facts as recorded in the reasons are not correct and if assessee points out the same in its objections, then the order on objections must deal with it and prima-facie establish that the facts stated by it in its reasons as recorded, are correct. (e) In the order on objections, the assessing officer has not only failed to deal with the errors in the reasons recorded, he has made further mistakes inasmuch as the order on objections refers to reopening of assessment on the basis of determining deduction claimed under section 35(2AB) of the Act and that does not even find a mention in the reasons recorded for reopening. 8. No affidavit-in-reply has been filed opposing the petition though till date enough opportunity since 11-4-2022 was given to file reply. 9. We agree with Mr. Kapadia that the reasons recorded are based on incorrect facts. We also agree with Mr. Kapadia that no attempt has been made to deal with these errors in the order on objections and the order on objections in fact has more errors. All these indicate total non-application of mind and certainly adverse inference has to be drawn against the Revenue. 10. As held in Ankita A. Choksey (supra), the condition precedent of reason to believe that income chargeable to tax has escaped assessment on correct facts must be satisfied by the assessing officer so as to have jurisdiction to issue the reopening notice. 11. In the present case, the assessing officer has proceeded on fundamentally wrong facts to come to a belief/conclusion that income chargeable to tax has escaped assessment. Further, even when the same is pointed out by Petitioner, the assessing officer in his order disposing the objections does not deal with the factual position. 12. On the facts as found, therefore, there can be no reason for the assessing officer to believe that income chargeable to tax has escaped assessment. 13. In these circumstances, petition allowed in terms of prayer clause (a), which reads as under: (a) That this Hon'ble Court may be pleased to issue a Writ of Certiorari or a Writ in the nature of Certiorari or any other appropriate Writ, Order or Direction, calling for the records of the Petitioner's case and after going into the legality and property thereof, to quash and set aside the said notice dated 31-3-2021 and the Order dated 17-1-2022 and all other consequential notices issued by the Respondents. 14. Petition disposed. W.P. No. 154 of 2024: 1. Without going into the details, after the petition was heard for some time, Mr. Mohanty, in fairness, agreed that the assessing officer has missed the fact in the impugned Order dated 28-3-2023 passed under section 148A(d) of the Income Tax Act, 1961 ( the IT Act ) that Petitioner has replied on 28-3-2023 to the notice issued under section 148A(b) of the Act. 2. Therefore, in our view, the impugned order under section 148A(d) of the Act and the consequential notice under section 148 of the Act cannot survive. Both are hereby quashed and set aside. 3. Petition disposed. 4. All rights and contentions of parties are kept open.

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Income Tax Act, 1961, Section 147

Reassessment--Validity--AO proceeded on wrong facts to come to belief/conclusion that income chargeable to tax had escaped assessment

Conclusion: Where AO proceeded on fundamentally wrong facts to come to a belief/conclusion that income chargeable to tax had escaped assessment and even when the same was pointed out by assessee, the AO in his order disposing the objections did not deal with the factual position, reopening of assessment was not justified.

AO issued notice under section 148 alleging that there were reasons to believe that assessee's income chargeable to tax for relevant assessment year had escaped assessment. Assessee filed objections to reopening, which came to be dismissed by an order. It was contended on behalf of assessee that reasons for reopening pertained to another entity, and not of assessee, because as per the reasons, the assessee filed return declaring total income of Rs. 24,19,30,640 and tax liability of Rs. 6,21,47,815, however, present assessee claimed Rs. 3,29,91,090 as refund and in its case, assessment order was passed accepting the return. It was further contended that assessment order referred to in reasons was dated 25-12-2018, whereas assessment order in assessee's case was passed on 27-12-2018. It was also contended that in order on objections, the AO not only failed to deal with errors in reasons recorded, but made further mistakes inasmuch as order on objections referred to reopening of assessment on the basis of determining deduction claimed under section 35(2AB) and the same did not even find a mention in reasons recorded. Held: Reasons recorded for reopening of assessment were based on incorrect facts. Further, no attempt was made to deal with those errors in order on objections and the order on objections in fact had more errors, which indicated total non-application of mind by AO. High Court in the case of Ankita A. Choksey v. ITO & Ors. (2019) 411 ITR 207 (Bom) : 2019 TaxPub(DT) 0723 (Bom-HC), held that condition precedent of reason to believe that income chargeable to tax has escaped assessment on correct facts must be satisfied by AO so as to have jurisdiction to issue the reopening notice. In instant case, AO proceeded on fundamentally wrong facts to come to a belief/conclusion that income chargeable to tax had escaped assessment and even when the same was pointed out by assessee, the AO in his order disposing the objections did not deal with the factual position. Therefore, there could be no reason for the AO to believe that income chargeable to tax had escaped assessment. Hence, notice under section 148 and order disposing the objections, were quashed and set aside.

Decision: In assessee's favour

Relied: Ankita A. Choksey v. ITO & Ors. (2019) 411 ITR 207 (Bom) : 2019 TaxPub(DT) 0723 (Bom-HC)

IN THE BOMBAY HIGH COURT

K.R. SHRIRAM & NEELA GOKHALE, JJ.

Paranjape Schemes (Construction) Ltd. v. Dy. CIT

Writ Petition No. 3459 of 2022 & Writ Petition No. 154 of 2024

11 March, 2024

Petitioner in WP/3459/2022 by: Harsh M. Kapadia.

Petitioner in WP/154/2024 by: Harsh M. Kapadia & Atul K. Jasani.

Respondents in WP/3459/2022 by: Suresh Kumar.

Respondents-Revenue in WP/154/2024 by: N.C. Mohanty.

W.P. No. 3459 of 2022

1. Petitioner carries on business, inter-alia, as real estate and property developer. Petitioner also lets out properties.

2. Respondent no. 1 is the assessing officer ( AO ), Respondent no. 2 had provided the sanction before issuing the impugned notice, Respondent no. 3 is the National Faceless Assessment Centre ( NFAC ), Delhi and Respondent no. 4 is the Union of India.

3. Petitioner filed its return of income on 29-11-2016 for assessment year ( AY ) 2016-17 declaring total income of Rs. 24,19,30,640 and a tax liability of Rs. 6,21,47,815. Against this liability, a credit of tax deducted at source of Rs. 7,76,38,841 and of advance tax of Rs. 1,75,00,000 was claimed. Petitioner sought a refund of Rs. 3,29,91,090.

4. Petitioner's case was selected for scrutiny assessment by Respondent no. 1. During the course of assessment proceedings, Petitioner was called upon to furnish various details/information/documents. Petitioner responded and finally an assessment Order dated 27-12-2018 came to be passed. No addition in respect of any matter was made and the return filed by Petitioner was accepted.

5. Petitioner thereafter received a notice dated 31-3-2021 issued under section 148 of the Income Tax Act, 1961 ( the IT Act ) alleging that there were reasons to believe that Petitioner's income chargeable to tax for assessment year 2016-17 has escaped assessment.

Petitioner was provided with the reasons recorded for reopening and the same read as under:

The assessee has filed its Return of Income on 28-9-2016 declaring income at Rs. 4,61,560. The case was selected for scrutiny and finalized under section 143(3) of the Act on 25-12-2018 after determining total income of Rs. 26,16,030. Information was received from ITO (I&CI), 2(3), Mumbai that the assessee M/s. Paranjape Properties & Investments (P) Ltd. has sold property at GAT No. 125, Village Mouje, Varve Khurd, Taluka Bhor, Dist. Pune, Maharashtra to M/s. Paranjape Schemes Construction (P) Ltd. (AACCP1941Q) on 15-10-2015 for a consideration of Rs. 11,16,22,850. However, this transaction has not been disclosed by the assessee to the Income Tax Department while filing return of income for assessment year 2016-17.

2. Therefore, I have reason to believe that income chargeable to tax amounting to Rs. 11,16,22,850 has escaped assessment for assessment year 2016-17 within the meaning of section 147 of the Act.

3. It is evident from the above facts that the assessee had not truly and fully disclosed material facts necessary during the assessment proceedings for the year under consideration, thereby necessitating reopening under section 147 of the Act.

4. In this case more than four years have lapsed from the end of assessment year under consideration. Hence necessary sanction to issue notice under section 148 of the Act has been obtained as per the provisions of section 151 of the Income Tax Act, 1961.

You can file your objection by 30-11-2021.

6. Petitioner filed objections to the reopening, which came to be dismissed by an Order dated 17-1-2022.

7. Mr. Kapadia submitted that:

(a) The reasons recorded and the order on objections, which is impugned in the petition along with the notice to reopen, displayed total non-application of mind on the part of assessing officer.

(b) The facts mentioned in the reasons for reopening pertain to another entity viz. M/s. Paranjape Properties and Investments Private Limited and not of Petitioner because, as stated in the petition, Petitioner had filed return of income declaring total income of Rs. 24,19,30,640 and the tax liability of Rs. 6,21,47,815. Petitioner had also claimed Rs. 3,29,91,090 as refund and an assessment order accepting the return of income has been passed under section 143(3) of the Act.

(c) Moreover, the assessment order referred to in the reasons is dated 25-12-2018, whereas the assessment order in the case of Petitioner was passed on 27-12-2018. In Paragraph No. 4 of the reasons, the assessing officer says In this case, more than four years have lapsed .. , whereas it is less than four years.

(d) As held in Ankita A. Choksey v. ITO & Ors. (2019) 411 ITR 207 (Bom) : 2019 TaxPub(DT) 0723 (Bom-HC), it is settled position in law that the assessing officer acquires jurisdiction to issue a reopening notice only when he has reason to believe that income chargeable to tax has escaped assessment. Further, the reasons to believe that income chargeable to tax has escaped assessment must be on correct facts and if the facts as recorded in the reasons are not correct and if assessee points out the same in its objections, then the order on objections must deal with it and prima-facie establish that the facts stated by it in its reasons as recorded, are correct.

(e) In the order on objections, the assessing officer has not only failed to deal with the errors in the reasons recorded, he has made further mistakes inasmuch as the order on objections refers to reopening of assessment on the basis of determining deduction claimed under section 35(2AB) of the Act and that does not even find a mention in the reasons recorded for reopening.

8. No affidavit-in-reply has been filed opposing the petition though till date enough opportunity since 11-4-2022 was given to file reply.

9. We agree with Mr. Kapadia that the reasons recorded are based on incorrect facts. We also agree with Mr. Kapadia that no attempt has been made to deal with these errors in the order on objections and the order on objections in fact has more errors. All these indicate total non-application of mind and certainly adverse inference has to be drawn against the Revenue.

10. As held in Ankita A. Choksey (supra), the condition precedent of reason to believe that income chargeable to tax has escaped assessment on correct facts must be satisfied by the assessing officer so as to have jurisdiction to issue the reopening notice.

11. In the present case, the assessing officer has proceeded on fundamentally wrong facts to come to a belief/conclusion that income chargeable to tax has escaped assessment. Further, even when the same is pointed out by Petitioner, the assessing officer in his order disposing the objections does not deal with the factual position.

12. On the facts as found, therefore, there can be no reason for the assessing officer to believe that income chargeable to tax has escaped assessment.

13. In these circumstances, petition allowed in terms of prayer clause (a), which reads as under:

(a) That this Hon'ble Court may be pleased to issue a Writ of Certiorari or a Writ in the nature of Certiorari or any other appropriate Writ, Order or Direction, calling for the records of the Petitioner's case and after going into the legality and property thereof, to quash and set aside the said notice dated 31-3-2021 and the Order dated 17-1-2022 and all other consequential notices issued by the Respondents.

14. Petition disposed.

W.P. No. 154 of 2024:

1. Without going into the details, after the petition was heard for some time, Mr. Mohanty, in fairness, agreed that the assessing officer has missed the fact in the impugned Order dated 28-3-2023 passed under section 148A(d) of the Income Tax Act, 1961 ( the IT Act ) that Petitioner has replied on 28-3-2023 to the notice issued under section 148A(b) of the Act.

2. Therefore, in our view, the impugned order under section 148A(d) of the Act and the consequential notice under section 148 of the Act cannot survive. Both are hereby quashed and set aside.

3. Petition disposed.

4. All rights and contentions of parties are kept open.