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2014 Supreme(Bom) 1149
IN THE HIGH COURT OF JUDICATURE AT BOMBAY
S.J. VAZIFDAR & B.P. COLABAWALLA, JJ.
Bombay Stock Exchange Ltd. – Petitioner
Versus
Deputy Director of Income Tax, (Exemption)-1(2), Mumbai and others – Respondents
Writ Petition No. 2468 of 2011
Decided on : 12.6.2014
Mr. S.E. Dastoor, Sr. Counsel with Mr. B.V. Jhaveri for Petitioner.
Mr. Vimal Gupta, Sr. Counsel i/b Mr. Suresh Kumar for Respondents.
The main legal point established in the judgment is that the initiation of re-assessment proceedings based on a 'change of opinion' and without the failure to disclose fully and truly all material facts necessary for assessment is impermissible in law.
Headnote:
Income Tax - Assessment Year 2005-06 - Section 148 of the Income Tax Act 1961 - Section 11 - Section 40(a)(ia) - Section 44AB - Section 147 - Section 139 - Failure to disclose fully and truly all material facts - Re-assessment proceedings - Change of opinion - Bad-in-law initiation of re-assessment proceedings
Fact of the Case:
The Petitioner sought quashing of the notice dated 28th February 2011 issued by Respondent No.1 under section 148 of the Income Tax Act 1961 in relation to Assessment Year 2005-06. The Petitioner had disclosed fully and truly all material facts necessary for its assessment and the initiation of reassessment proceedings was in the teeth of the mandate of section 147 of the Act. The Petitioner's case was selected for scrutiny, and the Assessing Officer passed the original assessment order determining the total income of the Petitioner at Rs. Nil after granting exemption under section 11 of the Act.
Finding of the Court:
The court found that the initiation of re-assessment proceedings was based merely on a 'change of opinion' which was impermissible in law. The court also found that there was no justification on the part of Respondent No.1 for issuing the impugned notice under section 148 of the Act. The court held that the initiation of reassessment proceedings was unsustainable on various grounds including failure to disclose fully and truly all material facts necessary for assessment and change of opinion.
Issues: The issues included the validity of the notice issued under section 148 of the Income Tax Act 1961, the failure on the part of the Petitioner to disclose fully and truly all material facts necessary for its assessment, and the impermissibility of initiating re-assessment proceedings based on a 'change of opinion'.
Ratio Decidendi: The court held that the initiation of re-assessment proceedings was unsustainable due to failure to disclose fully and truly all material facts necessary for assessment, impermissibility of initiating re-assessment proceedings based on a 'change of opinion', and the unsustainable nature of the grounds for re-opening the assessment.
Final Decision: The court made the rule absolute and granted the Petition in terms of prayer clauses (a) and (c) without any order as to costs.
B.P. COLABAWALLA, J.
1. Rule. By consent of parties, made returnable forthwith and heard finally.
2. By this petition, under Article 226 of the Constitution of India, the Petitioner seeks quashing of the notice dated 28th February 2011 (impugned notice) issued by Respondent No.1 under section 148 of the Income Tax Act 1961 (the Act) in relation to Assessment Year 2005-06.
3. There are three principal grounds of challenge. Firstly, as more than four years had elapsed from the end of the relevant Assessment Year 2005- 06, Respondent No.1 could not have issued the impugned notice without coming to the conclusion that he had reason to believe that income had escaped assessment by virtue of the fact that the Petitioner had failed to disclose fully and truly all material facts necessary for its assessment. In the present case, apart from making a bald assertion that there was a failure on the part of the Petitioner to disclose fully and truly all material facts, no details thereof were furnished in the reasons for re-opening the assessment under section 147 of the Act and hence, the initiation thereof was bad-in-law. Secondly, the Petitioner had in fact disclosed fully and truly all material facts necessary for its assessment and hence the initiation of reassessment proceedings was in the teeth of the mandate of section 147 of the Act. Thirdly, for the A.Y. 2005-2006, the Petitioner's case was selected for scrutiny, and after considering all the relevant aspects of the matter, the Assessing Officer (Respondent No.1) passed the original assessment order dated 26th November 2007 under section 143(3) of the Act determining the total income of the Petitioner at Rs. Nil after granting exemption under section 11 of the Act. Hence, the purported re-opening was based merely on a “change of opinion” which was impermissible in law.
4. The briefs facts are as follows:-
(a) The Petitioner was earlier known as the Stock Exchange, Mumbai and was a Company for the purposes of the Income Tax Act 1961 as per the order of the CBDT dated 3rd March 1962 passed in exercise of the powers granted under section 2(5A) of the Income Tax Act, 1922. The Stock Exchange, Mumbai was registered with the Director of Income Tax (Exemption) under section 12A(a) vide No.TR-28663 dated 30th July 1993 with effect from 1st April 1989. The income of the Petitioner was exempted from tax under section 10(23)(iv) of the Act upto Assessment Year 1989-90. Thereafter, the income of the Petitioner is exempted under section 11 of the Act as the objects of the Exchange are charitable. On 8th August, 2005 the Stock Exchange, Mumbai was incorporated as the Bombay Stock Exchange Ltd. (the Petitioner) and it took over all the assets and liabilities of the Stock Exchange, Mumbai under the scheme of Corporatisation and demutualisation as approved by SEBI on 19th August, 2005.
(b) The Petitioner filed its return of income for the Assessment Year 2005-06 on 30th October 2005 declaring its total income at Rs. Nil. The return of income was accompanied by the audited balance-sheet, profit and loss account and schedules forming part of the audited accounts as well as a statutory Audit Report under section 44AB of the Act. In Note 4 to Schedule O of the audited profit and loss account of the Petitioner it was stated as under:-
“No provision for taxation for the year ended 31st March 2005 has been made in the accounts as the management is of the opinion that the appeals before the Income Tax Tribunal in respect of earlier years will be disposed off in the Exchange's favour and the Exchange will be granted exemption under sections 11 and 10(23C)(iv) of the Income Tax Act 1961. However, in the event that such exemption is not granted, there would be estimated tax liability of Rs.270.10 Million for the year (31.3.2004 – Rs.228.70 Million). The total cumulative income tax liability not provided for is estimated at Rs.774.40 Million (excluding the amounts referred to in Note 2(a) above) (31.3.2
