Nishith Madanlal Desai vs Commissioner of Income Tax

In this petition, the challenge is to the notice dated February 29, 2012, issued under section 148 of the Income-tax Act, 1961 ("the Act"), seeking to reopen the assessment for the assessment year 2005-06. The assessment proceeding for the assessment year 2005-06 was originally completed under section 142(1) of the Act. The impugned notice dated February 29, 2012, was issued to the petitioner for the assessment year 2005-06, i.e., beyond the period of four years from the end of the relevant assessment year. The reasons recorded for issuing of the impugned notice as communicated to the petitioner are as under:

"1. On verification of the case records, it is observed that the assessee has claimed deduction under section 57 as ''Interest paid to HDFC as Rs. 53,65,251. During the course of the assessment proceedings in the case of the assessee for the assessment year 2009-10, various loan documents, including loan application from the assessee and sanction letter by the HDFC Ltd. was called for. From these, it is observed that the assessee had taken this loan in the financial year 2002-03 but that this loan was a home loan (under adjusted rate home loan scheme-ARHL)'' taken from for the purpose of purchasing a residential property. In the loan application form, the assessee has ticked the check boxes indicating ''home loan (ARHL)'' in ''type of loan'' segment and ''purchase'' in ''purpose of loan'' segment.

The case records for the assessment year 2005-06 contain a certificate from HDFC Ltd. (which the assessee has attached), giving his statement of interest (Rs. 53,65,251) and principal (Rs. 16,81,065) paid from April 1, 2004, to March 31, 2005. In this certificate, the following two things are noted:

(a) The certificate states: This is to certify that Mr. Nishith Desai (Loan Account No. HO/1323564) has/have been granted a housing loan of Rs. 7,00,00,000 at 8.25 per cent per annum in respect of the following property.

''Flat No. 51, NCPA Residential Apartments, Sir Dorabji Tata Road, Nariman Point, Bombay.''

Thus, this is clearly a housing loan taken for the purpose of purchasing the aforementioned property. But the balance-sheet of the assessee as on March 31, 2005, does not indicate this property as an asset of the assessee, which indicates that the assessee has not purchased this property during the year. Though section 24(b) provides for deduction upon interest paid for loan taken to purchase/construct residential property since the loan has not been utilised to purchase the aforementioned property during the year, the interest expense claimed on it cannot be claimed as deduction even under section 24(b).

(b) In the certificate for interest payment, under the heading ''notes to the borrower'', it states that This certificate is issued in order to enable you to claim the deduction from taxable income under section 24(b) of the Income-tax Act, 1961, whereas the assessee has claimed the deduction for the same interest under section 57.

Section 57 provides for deduction for expenses in earning ''Income from other sources'', whereas the interest expense borne by the assessee is interest paid on a housing loan to HDFC Ltd. for which deduction under section 24(b) for earning ''Income from house property has been provided in the Income-tax Act. Section 24(b) provides for deduction upon interest paid for loan taken to purchase/construct residential property, whereas section 57 says that the expenditure should be laid out or expended wholly or exclusively for the purpose of making or earning such income. Thus, this interest expense on loan from HDFC Ltd. cannot be claimed as deduction under section 57 as the loan has been issued for purchase of residential property and is not linked to earning any Income from other sources''.

Thus, the interest expense of Rs. 53,65,251 cannot be allowed as a deduction to the assessee either under section 24(b) or under section 57.

In view of all the above, I have reason to believe that income assessable to tax has escaped assessment.

Hence, the assessment is reopened under section 148 as per the provisions of the Income-tax Act with prior approval of CIT-11, Mumbai, vide letter No. CIT-11/reopening under section 147/2011-12 dated February 23, 2012."

The petitioner objected to the above reasons by communication dated April 16, 2012, to the reopening of the assessment for the assessment year 2005-06. The petitioner pointed out that as the impugned notice seeks to reopen an assessment beyond the period of four years from the end of the relevant assessment year, the jurisdiction to reopen an assessment can only arise if there has been no failure to fully and truly disclose all material facts necessary for assessment on the part of the petitioner. It was submitted that all facts were known to the Revenue and there was no failure to disclose truly and fully all material facts on the part of the petitioner in the first place. On the merits, it was submitted that the deduction allowed under section 57 of the Act as to arrive at compute the income under the head "Income from other sources" was appropriate in law. Thus, it was submitted that the impugned notice for reopening of assessment is not based on any fresh tangible material but on the basis of the verifying the record already on record before the Assessing Officer. In the circumstances, prayed for withdrawal of the impugned notice.

On January 8, 2013, the Assessing Officer by order dismissed the petitioner''s objections to the reasons for reopening of assessment for the assessment year 2005-06. The order dated January 8, 2013, held that no full and true disclosure has been made while filing the return of income for the assessment year 2005-06 and that there was no application of mind to the return filed by the petitioner as the same was processed under section 142(1) of the Act.

The grievance of the petitioner to the impugned notice dated February 29, 2012, and to the grounds for issue of the same are as under:

(a) the impugned notice was issued beyond the period of four years from the end of the relevant assessment year 2005-06 did not satisfy the jurisdictional requirement for its issue, viz., failure on the part of the petitioner to disclose fully and truly all necessary material facts for assessment. It is the case of the petitioner that all facts have been disclosed along with the return of income;

(b) the principle of consistency was urged in support of its submission that in any case all facts were to the knowledge of the Department as the same were considered during the assessment proceedings for the earlier assessment years 2003-04 and 2004-05 and even subsequent assessment years 2006-07, 2007-08 when the orders for assessment were passed under section 143(3) of the Act. Thus, it is submitted that an opinion was formed.

The Supreme Court in Assistant Commissioner of Income Tax Vs. Rajesh Jhaveri Stock Brokers Pvt. Ltd., has held that even in case where assessment is completed under section 143(1) of the Act a notice for reopening can be issued under section 148 of the Act. However, the defence of change of opinion for the purpose of challenging the notice for reopening under section 148 of the Act is not available as no opinion had been formed by the Assessing Officer while completing the assessment under section 143(1) of the Act. Nevertheless, the other requirement for issuing the notice, viz., reason to believe that income chargeable to tax has escaped assessment must be satisfied even to reopen an assessment beyond a period of four years from the end of the relevant assessment year as in this case.

On a perusal of the reasons we find that the reasons for reopening very categorically state that it is only during the assessment proceeding for the assessment year 2009-10 that various documents including the loan application and sanction letter of HDFC Ltd. were called for. It is on receipt of the same, the Assessing Officer realised that loan which was taken for the purposes of residential property was utilised to purchase debentures. Mr. Andhyarujina, learned senior counsel for the petitioner in support of his contention that reassessment notice is not referring to any fresh material but referring to material already disclosed during the original assessment, places reliance upon the decision of the Delhi High Court in Commissioner of Income Tax-XVI Vs. Shri Atul Kumar Swami, . The aforesaid decision to our mind is completely distinguishable from the present facts for the reason that in the notice under section 148 of the Act issued in the case of Atul Kumar Swami (supra) did not disclose any fresh material warranting reopening of assessment. In the present case the grounds for reopening specifically point out that fresh material was received by the Assessing Officer during the course of assessment proceeding for the assessment year 2009-10. Therefore, from the above facts, it prima facie appears that the Assessing Officer on the basis of the information obtained during the assessment proceeding for the assessment year 2009-10 came to the reasonable belief that income chargeable to tax has escaped assessment.

So far as the other objection, viz., the theory of consistency is concerned, we are of the view that each assessment is a separate assessment for an assessment year. The obligation of the assessee to comply with the provisions of the Act have to be complied with in each assessment year. Each assessment year is separate and distinct and the assessee is assessed to tax on the basis of the facts as existing therein. The principle of res judicata would not strictly apply in tax matters. However, it may be open to an assessee in a given case to satisfy the authorities that facts are so identical in the earlier years and subsequent years assessments and decision is taken therein on consideration of the facts are such that the Revenue is obliged to follow the same. This would, if at all, be a matter to be considered by the Assessing Officer and it is not to be examined in a proceeding challenging the jurisdiction to issue a notice. This is particularly so when the Revenue is pointing out features which would possibly militate against taking the above view. In any case the assessment proceeding for the earlier years, i.e., 2003-04 and 2004-05 are concerned, Mr. Suresh Kumar invited our attention to letters addressed to the Assessing Officer during those assessment proceedings wherein the petitioner had pointed out that he had taken loan from HDFC and in support produced the bank statement and not HDFC certificate stating that the loan from HDFC was for housing purposes. Nor any statement was made that the loan from HDFC Ltd. for housing purpose was utilised for debenture purchases. In any case, this issue whether or not the information disclosed during the earlier or subsequent assessment year is sufficient to attribute a forming of an opinion on the part of the Assessing Officer is best to be considered during the reassessment proceedings. At this stage, we see no reason to interfere with the impugned notice as the reasons for reopening referred to material obtained during the assessment proceedings for the assessment year 2009-10.

The reasons for reopening indicate prima facie that the interest deduction claimed under the head "Income from other sources" could not have been claimed as the loan was obtained for the purpose of residential property and the claim for interest under section 24 of the Act could not be granted as no property was purchased from the loan taken. Thus, it cannot be said at this stage that there was no reason to believe in the mind of the Assessing Officer that income chargeable to tax has escaped assessment for the purpose of issuing the impugned notice dated February 29, 2012.

It is likely that the petitioner may have complete answer to all the issues raised in the reopening notice. The petitioner may be able to satisfy the Assessing Officer that reopening of the assessment was not justified in law in the present facts. However, the reasons as recorded by the Assessing Officer do indicate that there was prima facie evidence before the Assessing Officer to form a reasonable belief that income chargeable to tax for the assessment year 2005-06 is escaped assessment. We are not inclined to entertain the present petition.

We make it clear that our observations in this order are only prima facie observations for the purpose of deciding whether or not we should exercise our extraordinary writ jurisdiction. These observations should not in any manner influence the Assessing Officer while considering the petitioner''s submissions on issue of jurisdiction to issue the impugned notice and also on the merits of the petitioner''s claim with regard to the availability of deduction under the head "Income from other sources". Accordingly, the petitions are dismissed. No order as to costs.