Ghanshyam K. Khabrani v. Asstt. CIT

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The Tax Publishers2012 TaxPub(DT) 1843 (Bom-HC) : (2012) 346 ITR 0443 : (2012) 249 CTR 0370 : (2012) 070 DTR 0137 INCOME TAX ACT, 1961 --Reassessment--Reason to believeEscapement of income for preceding assessment year--In the proceeding under article 226 of the Constitution, the petitioner has questioned the legality of a notice issued on 30-3-2011 under section 148 proposing to reopen an assessment for assessment year 2004-05. The assessee is an Advocate. For assessment year 2003-04, he filed a return of income on 17-11-2003 declaring an income of Rs. 1.99 crores. A notice was issued under section 143(2) since the case was selected for scrutiny and an order was passed on 26-12-2005 accepting the return of income submitted by the assessee. The assessment for assessment year 2003-04 was reopened and a notice was issued under section 148 on 25-3-2010. Pursuant thereto, a fresh order of assessment was passed on 27-12-2010 by which the AO made an addition in the amount of Rs. 4.9 crores and determined the total assessed income at Rs. 6.89 crores. The AO, in his order of assessment, noted that an N.R.I. by the name of C.K. had advanced an amount of U.S. Dollars 7.3 million in 1995 to M/s. ABN. A criminal proceeding appears to have been instituted under the Indian Penal Code. The dispute was settled and the criminal case was withdrawn on 19-4-2003. The assessee, in his original return, had disclosed an amount of Rs. 2.00 crores as having been received by him for professional services rendered in connection with the criminal complaint filed by the creditor above named. The AO noted that the creditor had in a statement made before the Enforcement Directorate stated that an amount of Pound Sterling 6,050,000 was received in repayment of the loan. According to the AO, the record shows that the assessee received an amount of Pound Sterling 6,50,000 in his bank account at Zurich. The AO held that these payments which were received by the assessee abroad were on account of services rendered by him in connection with the settlement of the criminal case in India. The assessee had sought to set up the case that during 2003-04 he was employed in Dubai as Vice-President (Legal) for a company and had received a consideration of Pound Sterling 6,50,000 on account of his employment. The assessee claimed that his total stay during 2003-04 abroad was 220 days and for the purpose of income-tax he was an N.R.I. during that year. The AO rejected the case of the assessee noting that the so-called employer had no establishment at Dubai; that it had not sponsored any visa for the assessee for his employment and the assessee had resided out of India only by availing of a visitor's visa. On this count, the AO held that the assessee had received an amount of Pound Sterling 6,50,000 on account of professional services rendered in India, the value of which as on 31-3-2003 was Rs. 4.9 crores. The assessee had contended that the amount was not liable to tax in assessment year 2003-04 since it was received in the succeeding financial year. The AO held that as a matter of fact the amounts were deposited in the bank account of the assessee outside in India in the financial year 2003-04 but the assessee had intentionally received the amount in a foreign country in the next financial year to evade the payment of tax. Hence, the entire receipt corresponding to Pound Sterling 6,50,000 was taxed for assessment year 2003-04. The assessee filed his return of income for assessment year 2004-05 on 2-9-2004. An intimation was issued under section 143(1). On 30-3-2011, a notice was issued under section 148 purporting to reopen the assessment for assessment year 2004-05. The reasons which have been disclosed to the assessee in reopening the assessment are as follows : A letter being No. KYN/Addl. DIT (Inv.)/TEP/2009-10/284, dt. 11-3-2010 is received from Additional D.I.T. (Investigation) On going through the letter it is gathered that assessee has received roughly Rs. 10 crores during financial year 2002-03, i.e., assessment year 2003-04. On verification of record, it is observed that the Assessee has not offered this amount for taxation in R/I for assessment year 2003-04. The AO has passed assessment order under section 143(3) read with section 147 for assessment year 2003-04 by making an addition of Rs. 4.9 crores. Since, the income of Rs. 5.1 crores is remained to be taxed for assessment year 2004-05 as mentioned in para-1 above and therefore, there is reason to believe that the income of Rs. 5.1 crores chargeable to tax has escaped assessment for assessment year 2004-05. *Held:* Ex-facie, it is clear from the letter and from the reasons recorded that the case of the revenue is that an amount of Rs. 10 crores was received by the assessee in the previous year relevant to assessment year 2003-04. Moreover, the reasons note that the AO passed an order, having reopened the assessment for assessment year 2003-04, by making an addition of Rs. 4.9 crores. The balance of Rs. 5.1 crores which remained to be taxed for assessment year 2003-04 is brought to tax for assessment year 2004-05. It is evident on these admitted facts that no reasonable person duly informed in law could have formed a reason to believe that there was an escapement of income in assessment year 2004-05. The case of the Revenue is that an amount of Rs. 10 crores was received by the assessee during the Financial Year corresponding to assessment year 2003-04 but has not been brought to tax. That being the position, it is impossible to comprehend as to how the assessment for assessment year 2004-05 can be reopened. The proceedings for assessment year 2003-04 are pending in appeal. The revenue is at liberty to seek recourse to its legitimate powers available in law in relation to assessment year 2003-04 where the appeal is pending. The mandatory requirement of section 147 is that there must be a reason to believe that income has escaped assessment. Ex-facie, the reasons which were disclosed to the assessee cannot form the basis of a reason to believe that income has escaped assessment for assessment year 2004-05. Moreover, it is evident that even the letter dt. 11-3-2010 of the Additional DIT (Investigation) was much prior to the finalization of the assessment for assessment year 2003-04 on 27-12-2010. Therefore, this is not a case where there is any tangible material on the basis of which the assessment for assessment year 2004-05 can legitimately be opened. SUBSCRIBE FOR FULL CONTENT

The Tax Publishers2012 TaxPub(DT) 1843 (Bom-HC) : (2012) 346 ITR 0443 : (2012) 249 CTR 0370 : (2012) 070 DTR 0137

INCOME TAX ACT, 1961

--Reassessment--Reason to believeEscapement of income for preceding assessment year--In the proceeding under article 226 of the Constitution, the petitioner has questioned the legality of a notice issued on 30-3-2011 under section 148 proposing to reopen an assessment for assessment year 2004-05. The assessee is an Advocate. For assessment year 2003-04, he filed a return of income on 17-11-2003 declaring an income of Rs. 1.99 crores. A notice was issued under section 143(2) since the case was selected for scrutiny and an order was passed on 26-12-2005 accepting the return of income submitted by the assessee. The assessment for assessment year 2003-04 was reopened and a notice was issued under section 148 on 25-3-2010. Pursuant thereto, a fresh order of assessment was passed on 27-12-2010 by which the AO made an addition in the amount of Rs. 4.9 crores and determined the total assessed income at Rs. 6.89 crores. The AO, in his order of assessment, noted that an N.R.I. by the name of C.K. had advanced an amount of U.S. Dollars 7.3 million in 1995 to M/s. ABN. A criminal proceeding appears to have been instituted under the Indian Penal Code. The dispute was settled and the criminal case was withdrawn on 19-4-2003. The assessee, in his original return, had disclosed an amount of Rs. 2.00 crores as having been received by him for professional services rendered in connection with the criminal complaint filed by the creditor above named. The AO noted that the creditor had in a statement made before the Enforcement Directorate stated that an amount of Pound Sterling 6,050,000 was received in repayment of the loan. According to the AO, the record shows that the assessee received an amount of Pound Sterling 6,50,000 in his bank account at Zurich. The AO held that these payments which were received by the assessee abroad were on account of services rendered by him in connection with the settlement of the criminal case in India. The assessee had sought to set up the case that during 2003-04 he was employed in Dubai as Vice-President (Legal) for a company and had received a consideration of Pound Sterling 6,50,000 on account of his employment. The assessee claimed that his total stay during 2003-04 abroad was 220 days and for the purpose of income-tax he was an N.R.I. during that year. The AO rejected the case of the assessee noting that the so-called employer had no establishment at Dubai; that it had not sponsored any visa for the assessee for his employment and the assessee had resided out of India only by availing of a visitor's visa. On this count, the AO held that the assessee had received an amount of Pound Sterling 6,50,000 on account of professional services rendered in India, the value of which as on 31-3-2003 was Rs. 4.9 crores. The assessee had contended that the amount was not liable to tax in assessment year 2003-04 since it was received in the succeeding financial year. The AO held that as a matter of fact the amounts were deposited in the bank account of the assessee outside in India in the financial year 2003-04 but the assessee had intentionally received the amount in a foreign country in the next financial year to evade the payment of tax. Hence, the entire receipt corresponding to Pound Sterling 6,50,000 was taxed for assessment year 2003-04. The assessee filed his return of income for assessment year 2004-05 on 2-9-2004. An intimation was issued under section 143(1). On 30-3-2011, a notice was issued under section 148 purporting to reopen the assessment for assessment year 2004-05. The reasons which have been disclosed to the assessee in reopening the assessment are as follows : A letter being No. KYN/Addl. DIT (Inv.)/TEP/2009-10/284, dt. 11-3-2010 is received from Additional D.I.T. (Investigation) On going through the letter it is gathered that assessee has received roughly Rs. 10 crores during financial year 2002-03, i.e., assessment year 2003-04. On verification of record, it is observed that the Assessee has not offered this amount for taxation in R/I for assessment year 2003-04. The AO has passed assessment order under section 143(3) read with section 147 for assessment year 2003-04 by making an addition of Rs. 4.9 crores. Since, the income of Rs. 5.1 crores is remained to be taxed for assessment year 2004-05 as mentioned in para-1 above and therefore, there is reason to believe that the income of Rs. 5.1 crores chargeable to tax has escaped assessment for assessment year 2004-05. Held: Ex-facie, it is clear from the letter and from the reasons recorded that the case of the revenue is that an amount of Rs. 10 crores was received by the assessee in the previous year relevant to assessment year 2003-04. Moreover, the reasons note that the AO passed an order, having reopened the assessment for assessment year 2003-04, by making an addition of Rs. 4.9 crores. The balance of Rs. 5.1 crores which remained to be taxed for assessment year 2003-04 is brought to tax for assessment year 2004-05. It is evident on these admitted facts that no reasonable person duly informed in law could have formed a reason to believe that there was an escapement of income in assessment year 2004-05. The case of the Revenue is that an amount of Rs. 10 crores was received by the assessee during the Financial Year corresponding to assessment year 2003-04 but has not been brought to tax. That being the position, it is impossible to comprehend as to how the assessment for assessment year 2004-05 can be reopened. The proceedings for assessment year 2003-04 are pending in appeal. The revenue is at liberty to seek recourse to its legitimate powers available in law in relation to assessment year 2003-04 where the appeal is pending. The mandatory requirement of section 147 is that there must be a reason to believe that income has escaped assessment. Ex-facie, the reasons which were disclosed to the assessee cannot form the basis of a reason to believe that income has escaped assessment for assessment year 2004-05. Moreover, it is evident that even the letter dt. 11-3-2010 of the Additional DIT (Investigation) was much prior to the finalization of the assessment for assessment year 2003-04 on 27-12-2010. Therefore, this is not a case where there is any tangible material on the basis of which the assessment for assessment year 2004-05 can legitimately be opened.