High Court Of Gujarat
Vinod Dhudalal Shah Vs. ACIT
Assessment Year : 2006-07
Section : 45, 28(i), 147
Akil Kureshi And Ms. Sonia Gokani, Jj.
Special Civil Application No. 763 Of 2014
February Â 11, 2014
Ms. Sonia Gokani, J.Â – Present petition is preferred challenging the notice under section 148 dated 13.2.2013 in the following factual background:â
1.1Â Assessee is the Director of M/s. S. Vinodkumar Diamonds Pvt. Ltd., engaged in the business of diamond. Interest is earned by the assessee from the income under the head income from other sources and capital gain from sale of shares. For the Assessment Year 2006-07 the return of income declared by the assessee was at Rs.1.51 lakhs (rounded off). The Assessing Officer in scrutiny assessment issued notice under section 143(2) of the Income Tax Act, 1961(“the Act” for short) calling for information. Specific query was raised with regard to treatment accorded to the activities of investment in shares as investment and not as business in the table shown below:â
|Name of Scrip/Units||Quantity (Units) holding||Purchase date & quantity||Purchase amount||Sale date and quantity||Sale amount||Dividend received if any||Dividend date||STCG/STCL|
|(d)||Reasoning behind the treatment of activities as investment and not as business.|
2.Â In reply to the said notice, the petitioner on 12.11.2008 specified that the share investment in the books of account has been treated as investment and not as stock-in-trade. In reply to the other queries, the assessee answered that the activity of purchase and sale is not a trading activity but investment activity, and therefore, the gain on sale of such shares is capital gain and not business profit.
3.Â In the assessment order passed on 28.11.2008 the nature of the business is shown as dealing in shares as the Director and the taxable income of the assessee for such year was computed after above discussion of the said income. It would be profitable to reproduce relevant portion of the said order :â
4. The assessee is a director M/s. S Vinodkumar Diamonds Pvt Ltd, engaged in the business of diamond. During the year, the assessee has shown interest income under income from other sources and exempted long-term capital gain from the sale of shares. Also short-term capital gain has been shown on account of sales of shares.
5. Perusing all the facts on record as well as considering the position of law, total income of the assessee is being accepted as under:â
Computation of Income
The taxable income of the assessee for the assessment year 2006-07 is being computed as follows:-
|Total Taxable Income||Rs. 1,51,31,103|
4.Â On 13.2.2013 notice of reopening under section 148 of the Act for the Assessment Year 2006-07 has been issued under section 148 of the Act by the Assessing OfficerÂ inter aliaÂ stating that he has reason to believe that income chargeable to tax for the Assessment Year 2006-07 has escaped assessment within the meaning of section 147. The petitioner called for supply of detailed reasons recorded by the Assessing Officer and vide communication dated 1.8.2013 the Assessing Officer supplied the reasons for reopening.
5.Â The petitioner responded to such notice by furnishing his reply dated 28.10.2013, strongly objecting to such reopening by urging that his case was taken up in scrutiny assessment in the original assessment and the very issue had been examined by the Assessing Officer in the original assessment proceedings. He, therefore, had urged that any notice of reopening beyond the period of four years from the end of the relevant assessment year was invalid. Relying on various decisions, it was urged that the reopening of the assessment is erroneous and bad in law and needed to be terminated.
6.Â On considering the objections raised by the petitioner, the Assessing Officer disposed of the same vide its order dated 2.12.2013 by holding that there was failure on the part of the assessee to disclose truly and fully all material facts, and therefore, such notice of reopening was valid.
7.Â Aggrieved by such order of rejection of request of non-proceeding with the impugned notice and consequent proceedings present petition is preferred seeking following reliefs:â
|“a.||A Writ of Certiorari or any other writ, order or direction in the nature of certiorari quashing the impugned notice dated 13/02/2013 issued under section 148 of the act for the assessment year 2006-07;|
|b.||Pending the admission, hearing and final disposal of this petition, restrain the respondent from passing the order of re-assessment;|
|c.||Pass any other order (s) as this Hon’ble Court may deem fit and more appropriate in order to grant interim relief to the petitioner;|
|d.||Any other and further relief deemed just and proper be granted in the interest of justice;|
|e.||To provide for the cost of this petition.”|
8.Â We have heard learned counsel Mr. Hardik Vora for the petitioner, who has strenuously urged that in the impugned notice dated 13.2.2013 for reopening of the assessment concerns previously framed assessment after scrutiny, there is not even a suggestion, according to the learned counsel, of any failure on the part of the petitioner to disclose fully and truly all material facts necessary for the assessment in the said notice and therefore, such notice of reopening beyond the period of four years is without jurisdiction. He further pointed out from the material on record that the very issue was closely examined and finally adjudicated upon and hence, the notice impugned is nothing but a change of mind and hence, on jurisdictional aspect alone, the notice must fail.
9.Â Per contra, learned counsel Mr. Sudhir Mehta appearing for the revenue has defended the issuance of the said notice by pointing out that during the original assessment when the queries were raised, the same were dealt with very briefly. It cannot be said that the petitioner had fully and truly disclosed all the materials. He has further urged that the petitioner had made various transactions in the purchase and sale of the shares which clearly indicate that his was a business activity, and therefore, his claim of eligibility for long-term capital gain was wrongly allowed as deduction under section 10(38) of the Act when in fact, shares held by him was a part of his business stock, as his main activity was of share trading. Such disclosure, if would have come on the record, clearly there was no question of allowing the benefit of long-term capital gain in the original assessment.
10.Â Upon hearing both the sides, and examination of the material on record, it could be noticed, at the outset, that notice of reopening is beyond the period of four years, and therefore, it is incumbent upon the Assessing Officer to have the reasonable belief that there was failure on the part of the assessee to fully and truly disclose all material facts necessary for the purpose of assessment.
11.Â Beyond the period of four years, if, any notice of reopening of assessment is issued in absence of any failure on the part of the assessee to disclose fully and truly all material facts, the same would have no validity. In the original assessment proceedings, the Assessing Officer, if has examined the claim in detail after raising the queries fully answered by the assessee, such action of reopening cannot be sustained in such circumstances. It can be seen from the reasons recorded and as rightly contended on behalf of the petitioner that there is nothing in the notice to indicate that the petitioner had failed in any manner to disclose fully and truly all material facts. From the notice itself, it becomes very clear that the Assessing Officer, on perusal of the case records, had formed his belief that the petitioner had been involved in the business of share trading by verifying the trading account, profit and loss account and balance-sheet. Assessing Officer formed the belief that the petitioner had made the transactions in the purchase and sale of shares, which is the business activity of the petitioner. It further gets culled out from the notice impugned that the very question which was raised at the time of original assessment has led him to issue the notice on the ground that the benefit of long-term capital gain as requested by the petitioner was wrongly availed and deduction under section 10(38) of the Act was not permissible.
12.Â It is eloquent from the record that during the course of original assessment proceedings, the question was query (sic) raised while calling for the information in question and the same, had been replied to in specific terms by the assessee respondent. There is no ambiguity in the reply that was furnished nor is it the case of the revenue nor the same had led to subsequent query. On supply of the material on 12.11.2008, the same culminated into the assessment order on 28.11.2008, where such version of the assessee that he had invested in the share and the same was not a part of his business activity had been accepted.
13.Â As emerging clearly from the reasons recorded while issuing the notice of reopening, no mention is made to the fact that on the basis of any new material, the Assessing Officer had any reason to believe that the petitioner had not fully and truly disclosed all material facts. In other words, such notice is based on the material which was very much available before the Assessing Officer and he had examined the very issue threadbare while framing original assessment.
14.Â This Court in the case ofÂ Sun Pharmaceutical Industries Ltd.Â v.Â Dy. CITÂ  353 ITR 450/216 Taxman 41/29 taxmann.com 262 (Guj.)Â was examining the validity of notice of reassessment issued after the expiry of period of four years, where it held that the notice of reopening of an assessment must be adjudged on the basis of the reasons recorded while issuing the notice. If a new ground occurs to the Assessing Officer after he has recorded the reasons for reopening the assessment and issue notice for this purpose, the same cannot be ground to support the notice of reopening. Reasons other than those on the basis of which notice was issued cannot be considered while examining the validity of such notice and the same essentially and materially requires to be dealt on the basis of recorded reasons.
15.Â In the case ofÂ Gujarat Lease Financing Ltd.Â v.Â Dy. CITÂ  360 ITR 496/219 Taxman 70/36 taxmann.com 359 (Guj.)Â has elaborately discussed all judicial pronouncement on the issue of reopening of assessment beyond the period of four years. It is well settled position of law that the assessee is required to disclose fully and truly all material facts necessary for the purpose of his assessment and any omission or failure to disclose all material facts necessary for his assessment amounts to failure on the part of the assessee. What facts are material would differ in each case. The assessee is to disclose primary facts and not inferential facts. From the primary facts and other facts inferred from material, proper legal conclusion is to be drawn by the authority. As held over the period of time by the Courts that the object is to ensure that no harassment is meted out to the assessee by mechanically reopening the assessment.
16.Â The Apex Court in the case ofÂ Calcutta Discount Co. Ltd.Â v.Â ITOÂ  41 ITR 191Â has held that in a case of reopening of the assessment beyond the period of four years, two conditions are required to be fulfilled. Simultaneously (1) Whether the Income Tax Officer must have reason to believe that income from profit and gains chargeable to tax have been under-assessed (2) Such under-assessment has occurred on account of omission or failure on the part of the assessee to make the return of his income or disclose fully and truly all material facts necessary for assessment for that particular year. For fulfillment of such conditions which are conditions precedent, jurisdiction is conferred upon the Assessing Officer for issuance of notice under section 148. All material facts are necessary to be disclosed by the assessee and what are the material facts necessary for the purpose of determining assessment would differ in each case as discussed hereinabove.
17.Â In the facts and circumstances of the case, having found that there was no failure of the assessee in furnishing the information at the time of original assessment, where the transactions were treated in the nature of capital gain after making the detailed inquiry and when all facts necessary for the purpose of assessment were before the Assessing Officer, in absence of any failure of disclosure of fully and truly of all the material facts on the part of the petitioner assessee, we are of the opinion that issuance of notice of reopening under section 148 of the Act is not sustainable. Petition, is accordingly, allowed quashing the very notice and subsequent proceedings undertaken pursuant to such notice.
[Citation :Â 362 ITR 345]