Bombay H.C : Where assessee filed a writ petition challenging initiation of reassessment proceedings by taking a new plea that loan taken from its directors and family members was nothing but margin money which stood reflected in Schedule VIII to balance sheet, since aforesaid plea was not raised in statements of objections filed before Assessing Officer matter was to be remanded back to Assessing Officer with a direction to consider said plea in course of reassessment proceedings

High Court Of Bombay

Crown Consultants (P.) Ltd. VS. CIT -4

Assessment Year : 2007-08

Section : 68, 147

Mohit S. Shah, Cj. And M.S. Sanklecha, J.

Writ Petition No. 2595 Of 2013

February  14, 2014

JUDGMENT

M.S. Sanklecha, J. – Rule, returnable forthwith. By consent of the parties petition is heard for final disposal.

2. This petition under Article 226 of the Constitution of India challenges a notice dated 28 September 2012 issued under Section 148 of the Income Tax Act, 1961 (“the Act”) seeking to reopen the assessment for assessment year 2007-08.

3. Brief facts leading to this petition are :

(a) The petitioner is engaged in the business of shares and stock brokers. On 30 October 2007 the petitioner filed its return of income for assessment year 2007-08 declaring its income at Rs.62.92 lacs. The Assessing Officer on 30 November 2009 completed the assessment under Section 143(3) of the Act arriving at total income of Rs.65.12 lacs.

(b) On 28 September 2012, the Assessing Officer issued a notice under Section 148 of the Act to the petitioner seeking to reopen the petitioner’s assessment for assessment year 2007-08 on a reasonable belief that the income chargeable to tax has escaped assessment within the meaning of Section 147 of the Act. Consequent to the demand of the petitioner the Assessing Officer on 10 October 2012 furnished to the petitioner a copy of the reasons recorded by her evidencing reasons for her belief that the income had escaped assessment. The reasons as disclosed read as follows:—

“The assessee has filed the return of income of AY 2007-08 on 13/10/2007 declaring income of Rs.6292090/-. The case was selected for scrutiny and order u/s. 143(3) passed on 30/11/2009 at Rs.6512090/-. The addition of Rs.2,20,000/- was made u/s. 40(a)(ia) on A/c of non-deduction of tax at source for the payment made to stock exchange in respect of VSAT charges. The assessee has preferred appeal against the said addition before the ld. CIT(A). Vide letter No. CIT(A)-9/Crown consultants/ 2010-11 dt. 28/03/2011 the CIT(A)-9 has directed to verify the investments made by family member and relatives of the directors in the company. During the course of verification done by the undersigned it is noticed that family member of the directors and their family members has given huge loan to the company during the F. Y. 06-07 relevant to the A. Y. 2007-08. The transaction of money taken was not reflected report in the financial statement as well as in the annual report. In the Col.No. 24(a)(b) of Form No.3CD the assessee has mentioned against those columns as not applicable. The Col.24(a) & (b) pertains to the amount of loan taken and repayment of loan respectively. The verification of the Bank a/c of directors & their family members shows huge amount of transfer of funds to company and vice versa. The assessee in the B/s shows the balance receivable/ payable to the company due to these transaction under the head of Margin Money. However the nature of share transaction executed by these family members reveals that there family members does not require to kept margin Money with the Company. Further the verification of Bank A/c of directors and their family member reveals that amount of Rs.11987479/- was deposited in their Bank accounts during the F.Y. 2006-07 relevant to A. Y. 2007-08 by cash. Out of Rs.11987479/-, an amount of Rs.11942900/- was transferred to the assessee by cheques. The assessee is not reporting these transaction in the financial statement. As per the information available, the assessee has not disclose fully and truly the facts relating to acceptance and repayment of loans particularly where the source of these loans are the cash deposit in the Bank A/c’s of directors and their family members. Due to non-reporting of the facts, the assessee tried to evade the verification of these transaction. In view of the facts I have reason to believe that the loan transaction between company and director & their family members running into crores have escaped assessment.”

(c) On 5 November 2012 the petitioner filed its objections to the reasons recorded by the Assessing Officer for reopening the assessment for assessment year 2007-08. In particular, the petitioner submitted that as the reopening of assessment for assessment year 2007-08 is beyond the period of 4 years from the end of the relevant assessment year, the reopening of assessment can only take place on satisfaction of two jurisdictional requirement namely there must be a reason to believe that income chargeable to tax has escaped assessment and that there has been a failure on the part of the petitioner to disclose fully and truly all material facts necessary for its assessment. It is submitted that there was no failure on the part of the petitioner to fully and truly disclose all material facts necessary for its assessment. Further, the petitioner pointed out that one of the reason for reopening of assessment is not disclosing in Column 24(a) and (b) of form 3CD loans taken and repayment thereof by describing them as not applicable was not sustainable. This is so as the same applies only where amounts received or paid in cash is in excess of the limits specified under Section 269SS and 269T of the Act which was not so in this case. Besides the balance sheet did disclose the money received by the company under the head margin money as the same was in fact taken in the course of petitioner’s business as share broker. The petitioner made no distinction between the family members and its constituent/customers placing orders upon it. So far as the amount of Rs.1.19 crores which was received by cheque by the petitioner from its directors and their family members was concerned, the petitioner responded to the same by stating there is no requirement in law for them to disclose the transactions of their directors and their family members, in the financial statements of the petitioner-company. In view of the above, it was requested that notice dated 28 September 2012 issued under Section 148 of the Act be withdrawn.

(d) The Assessing Officer by an order dated 30 September 2013 rejected the petitioner’s objections to the grounds for reopening assessment for assessment year 2007-08 by notice dated 28 September 2012. The order dated 30 September 2013 rejecting the objections records the fact that an amount of Rs.1,19,42,900/- transferred to the petitioner from its Directors and their family members is not disclosed in the financial statement filed by the petitioner along with its return of income. On the above ground it was held that the income chargeable to tax has escaped assessment as the petitioner had failed to disclose fully and truly all material facts necessary for assessment.

4. Mr. Tiwari, learned Counsel for the petitioner in support of the petition submits that there has been no failure on the part of the petitioner to make a full and true disclosure necessary for its assessment for assessment year 2007-08. Consequently there was no jurisdiction in terms of the first proviso under Section 147 of the Act to issue notice under Section 148 of the Act to reopen the assessment for assessment year 2007-08. There has been a full and true disclosure as it evident from the following:—

‘(i) The response of “Not applicable” in column 24(a) and (b) of Form 3CD was correct disclosure. The column 24(a) and (b) of Form 3CD in the context of taking of loans/deposits or repayment of loan/deposits exceeding the specified limits provided under Section 269 SS and 269T of the Act for being visted with penalty. The columns were not applicable to the petitioner’s case;

(ii) The margin money received by it from its Directors and their family members have in fact been disclosed in its financial statement as reflected in Schedule 8 appended to the balance sheet for the year ending 31 March 2007; and

(iii) So far as the loan of Rs.1,19,42,900/- received by the petitioners from its directors and their family members is concerned it is submitted that the same was not a loan but the amounts received by way of margin money. These amounts as margin money were reflected in Schedule 8 appended to the balance sheet of the year ending 31March 2007.’

In view of the above, it was submitted that the reasons for reopening do not disclose a reasonable belief that income chargeable to tax has escaped assessment. In any event, there has been no failure on the part of the petitioner to make a full and true disclosure for the purpose of assessment.

5. As against the above, Shri. Suresh Kumar, learned Counsel for the revenue seeks to sustain the notice dated 28 September 2012 issued under Section 148 by placing reliance on one of the reasons for reopening the assessment i.e. on verification of the accounts the petitioner’s directors and their family members it was revealed that an amount of Rs.1,19,42,900/- was received by the petitioner and the same has not been disclosed by the petitioner in its financial statement. Thus, there has been a failure on the part of the petitioner to truly and fully disclose all facts necessary for assessment. It is this further information which would have to be examined during the reassessment proceeding.

6. Mr. Suresh Kumar invites our attention to the petitioner’s objections dated 5 November 2012 to the grounds for reopening of the assessment. The petitioner in its objection has not categorically stated that the amount of Rs.1,19, 42,900/- which the Assessing Officer calls an undisclosed loan was in fact margin money and reflected as part of Schedule 8 to the balance sheet. It is being urged for the first time in the petition. The response in the petitioner’s objections to the above ground is that it is not required to furnish details of the accounts of its directors and their family members in its return of income. Therefore, it was submitted that the aforesaid reason for reopening an assessment has gone unchallenged before the Assessing Officer. In the circumstances, the Assessing Officer was correct in rejecting the petitioner’s objection for reopening the assessment for assessment year 2007-08.

7. We have considered the rival contentions. The notice dated 28 September 2012 seeks to reopen assessment beyond the period of 4 years i.e. beyond the period of four years from assessment year 2007-08. The case of the revenue argued before us is limited to its ground that the assessee has not reported a loan of Rs.1,19,42,900/- received from its directors and their family members in the financial statement filed along with return of income. Thus, there was a failure to truly and fully disclose all material facts necessary for assessment. The petitioner’s contention before us is that the alleged loan transaction has in fact been reflected in their financial statement as margin money which they had received from its directors and their family members while carrying on its business of share and stock broker. This margin money was reflected in Schedule 8 to the balance sheet for the year ending 31 March 2007. However, we find that this submission is being made before us for the first time as in their objections to the reasons for reopening filed on 5 November 2012 the petitioner did not state that the loan amount mentioned in the reasons for reopening is nothing but margin money which stands reflected as margin deposits in Schedule 8 of the balance sheet. The response of the petitioner in its objection was that they are not obliged to disclose in their return of income and financial statement the transaction of its directors and their family members. Just as the revenue cannot improve upon its case for reopening before the Court and but must stand or fall by the reasons recorded for reopening the assessment, the same test would be applicable in case of an assessee i.e. it must stand or fall by its objection to the grounds for reopening of assessment. It is not open to the assessee to urge fresh objections before the Court which the Assessing Officer had no occasion to deal with, unless of course the notice to reopen is ex-facie without jurisdiction not requiring consideration of any argument such as beyond limitation. In view of the above, we find substance in the submissions on behalf of the revenue that the Assessing Officer had tangible material to come to prima facie view that income chargeable to tax has escaped assessment.

8. It is very likely that during the course of reassessment proceeding the petitioner would be able to satisfy the Assessing Officer that the amount of Rs.1,19,42,900/- received in cheque by the petitioner from its directors and family members is nothing but margin money and stands reflected in Schedule 8 to the balance sheet. However, this would be a subject matter of reassessment proceeding. At this stage, we are only to examine whether or not there was a reasonable belief on the part of the Assessing officer to come to a prima facie view that the income chargeable to tax has escaped assessment. We find that no sufficient explanation was offered by the petitioner in its objection dated 5 November 2012 to the reasons for reopening of assessment for assessment year 2007-08.

9. In the aforesaid circumstances, we see no reason at this stage to interfere with the notice dated 28 September 2012 issued to the petitioner under Section 148 of the Act.

10. Accordingly, the petition is dismissed with no order as to costs.

[Citation : 362 ITR 368]