2010 (8) TMI 449 - HC - Income Tax

Reopening - Income escaping assessment - Capital or revenue expenditure - Maintainability of writ petition - Petition was pending for 10 years - if such defences are rejected and an adverse order is passed surely the same will not be in the interest of justice. The failure on the part of the 2nd respondent to record the reasons in the impugned proceedings to the effect that he has reasons to believe that the escapement was due to failure of the petitioner to make true and full disclosure of the income itself is sufficient to quash the proceedings in respect of the assessment years 1991-92 and 1992-93 in view of the judgements which I have cited earlier. - it is not open for the respondents to raise a contention before this Court for the first time that there was such a failure on the part of the assessee. - notices in respect of the assessment years 1991-92 and 1992-93 are liable to be quashed. Notice in respect of the assessment year 1993-94 - issued within 4 years - This case falls within the sweep of the main provision of Section 147 and not within the proviso to Section 147 of the Act. Hence there is no need to satisfy the second legal requirement - it is not necessary for the assessing officer to record as to whether the escapement of chargeable income from tax assessment was due to the failure of the assessee to make true and full disclosure of the income. It would be suffice if the assessing officer had recorded the reasons for his belief that there had been escapement of taxable income from assessment. Change of opinion - It is only out of the available materials the 2nd respondent has found the reasons to believe that there has been escapement of chargeable income from assessment since instead of treating the expenditure in question as capital expenditure the then assessing officer has treated the same as revenue expenditure. - would not amount to either change of opinion or reviewing the earlier assessment order. Capital or revenue expenditure - it is for the 1st respondent to decide the question as to whether the expenditure on replacement of machinery and conversion of materials or any part of the same would fall within the ambit of capital expenditure or revenue expenditure so as to make reassessment accordingly if it is so warranted.

Issues Involved:
1. Validity of notices issued under Section 148 of the Income Tax Act, 1961.
2. Whether the reassessment proceedings are barred by limitation as per Section 149 of the Act.
3. Whether the reassessment constitutes a mere change of opinion by the assessing officer.

Detailed Analysis:

1. Validity of Notices Issued Under Section 148 of the Income Tax Act, 1961

Petitioner's Arguments:
- The notices did not indicate the reasons for believing that income had escaped assessment, which is a prerequisite under Section 148.
- The reasons provided later by the respondents were merely a change of opinion by the subsequent assessing officer regarding the classification of expenditures as capital instead of revenue.
- The petitioner had fully and truly disclosed all material facts necessary for assessment during the original proceedings, thus the reassessment notices were unwarranted.

Respondents' Arguments:
- The petitioner has an alternative remedy to submit explanations before the assessing officer, making the writ petitions non-maintainable.
- The reasons for the belief that income had escaped assessment were recorded in the file, satisfying the legal requirements under Section 147.
- There is no legal requirement to state these reasons in the notice itself; it suffices if they are provided upon request.

Court's Analysis:
- The court highlighted that the writ jurisdiction under Article 226 is broad and can be exercised even if an alternative remedy exists, especially if the proceedings are without jurisdiction or barred by limitation.
- The court found that the reasons recorded by the assessing officer did not meet the mandatory requirement of stating that the escapement was due to the failure of the assessee to fully and truly disclose all material facts.

2. Whether the Reassessment Proceedings Are Barred by Limitation as per Section 149 of the Act

Assessment Years 1991-92 and 1992-93:
- The notices were issued beyond four years but within six years from the end of the relevant assessment year.
- For the notices to be valid under the proviso to Section 147, it was necessary to record that the escapement was due to the failure of the assessee to disclose fully and truly all material facts.

Court's Analysis:
- The court found that the reasons recorded by the assessing officer did not satisfy the second condition required under the proviso to Section 147.
- Consequently, the notices for the assessment years 1991-92 and 1992-93 were held to be without jurisdiction and quashed.

Assessment Year 1993-94:
- The notice was issued within four years, falling under the main provision of Section 147, which only requires the first condition to be satisfied.

Court's Analysis:
- The reasons recorded by the assessing officer for the 1993-94 assessment year satisfied the requirement of having a reason to believe that income had escaped assessment.
- The court held that the notice for the assessment year 1993-94 was within jurisdiction and not barred by limitation.

3. Whether the Reassessment Constitutes a Mere Change of Opinion by the Assessing Officer

Petitioner's Arguments:
- The reassessment was based on a mere change of opinion by the subsequent assessing officer regarding the classification of expenditures.
- There were no new materials to justify the reassessment.

Court's Analysis:
- The court referred to various judgments, including the Supreme Court's ruling in Commissioner of Income-Tax v. Kelvinator of India Limited, which stated that reassessment cannot be based on a mere change of opinion.
- However, the court noted that if there are tangible materials, even from the original assessment records, the assessing officer can form a belief that income has escaped assessment.
- The court concluded that the reasons recorded for the 1993-94 assessment year were based on tangible materials and not merely a change of opinion.

Result:
- W.P.Nos.2498 and 2499 of 2000: Allowed, and the impugned notices for the assessment years 1991-92 and 1992-93 were quashed.
- W.P.No.2500 of 2000: Dismissed, with liberty to the petitioner to submit an explanation to the impugned notice before the first respondent and work out remedies in accordance with law. The petitioner is to submit further explanations within four weeks, and the first respondent is to pass final orders within eight weeks.

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