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2020 (9) TMI 927 - HC - Income TaxReopening of assessment - non-availing of the procedure by the petitioner - Exemption u/s 10(15)(iv)(h) denied on interest received on tax free bonds - Revenue submits that the writ petition filed is not maintainable in as much as the procedure laid down in GKN Driveshafts (India) Limited Vs. Income Tax Officer 2002 (11) TMI 7 - SUPREME COURT has not been followed by the petitioner - HELD THAT - The present case is one were the impugned notice issued under section 148 of the Act is clearly beyond four years from the end of the assessment year in question. What is relevant to note is that AO must have or form reason to believe that any income of the petitioner chargeable to tax has escaped assessment by reason of the failure on the part of the petitioner to disclose fully and truly all material facts. Change of opinion cannot be a ground for re-opening concluded assessment. In the instant case, the impugned notice was issued on 30.03.2001 and the reasons were furnished by respondent No.1 to the petitioner on 04.12.2001; all before the judgment was rendered in GKN Driveshafts (India) Limited 2002 (11) TMI 7 - SUPREME COURT . Therefore, a view can be taken that since the impugned notice and furnishing of reasons had preceded the judgment in GKN Driveshafts (India) Limited, the later may not have applicability in the present case. As in the first Ajanta Pharma case i.e. 2003 (11) TMI 32 - BOMBAY HIGH COURT this Court after referring to the Constitution Bench judgment in Calcutta Discount Company Limited Vs. Income Tax Officer, 1960 (11) TMI 8 - SUPREME COURT held that Supreme Court in GKN Driveshafts (India) Limited (supra) nowhere lays down the law to the effect that the noticee is totally debarred from approaching the High Court under Article 226 of the Constitution of India when the exercise of power by the authority under section 148 of the Act ex-facie appears to be without jurisdiction. This writ petition was admitted for hearing by issuing rule way back on 27.06.2002. Having admitted the petition for hearing and such a long period having elapsed, it would neither be fair nor reasonable to relegate the petitioner to file objection to the reasons recorded before respondent No.1. This is more so because respondent No.1 has filed affidavits justifying the reasons recorded and issuance of the impugned notice. In other words, to direct the petitioner to file objection before respondent No.1 would be a mere formality, respondent No.1 having already disclosed his mind. We are unable to accept the preliminary objection raised on behalf of the revenue. Reason to believe that income of the petitioner chargeable to tax for the assessment year 1990-91 had escaped assessment by reason of failure on the part of the petitioner to disclose fully and truly all material facts necessary for assessment? - Assessee company was entitled to a rebate on the gross dividends and not on the net dividends i.e., not after deducting proportionate management expenses. Though section 14A was inserted in the Act by Finance Act, 2001 with retrospective effect from 01.04.1962, the same may not be of any assistance to the revenue in as much as the retrospective amendment of law would only negate the inference sought to be drawn of the failure to disclose material facts, which aspect was highlighted by this Court in DIL Limited 2012 (2) TMI 85 - BOMBAY HIGH COURT As a matter of fact, respondent No.1 has stated in the affidavit that its action of seeking to reopen the assessment is not based on section 14A of the Act. No reasonable view can be taken that there was failure on the part of the petitioner to disclose fully and truly all material facts necessary for its assessment for the assessment year 1990-91. If that be so then respondent No.1 could not have formed any reason to believe that any income of the petitioner chargeable to tax for the said assessment year had escaped assessment. Condition precedent for re-opening the concluded assessment of the petitioner is absent in the present case. In such circumstances, issuance of the impugned notice under section 148 of the Act is clearly without jurisdiction and is therefore illegal and invalid. - Decided in favour of assessee.
Issues Involved:
1. Validity of the notice issued under Section 148 of the Income Tax Act, 1961. 2. Alleged failure of the petitioner to disclose fully and truly all material facts necessary for assessment. 3. Applicability of Section 14A of the Income Tax Act, 1961. 4. Compliance with the procedure laid down in GKN Driveshafts (India) Limited Vs. Income Tax Officer. Issue-wise Detailed Analysis of the Judgment: 1. Validity of the Notice Issued under Section 148 of the Income Tax Act, 1961: The petitioner challenged the notice dated 30.03.2001 issued by the respondent under Section 148 of the Income Tax Act, 1961, seeking to reopen the assessment for the assessment year 1990-91. The court examined whether the assessing officer had "reason to believe" that income chargeable to tax had escaped assessment. The court emphasized that there must be a live link between the reasons recorded and the formation of the belief that income chargeable to tax had escaped assessment due to the failure of the assessee to disclose fully and truly all material facts necessary for assessment. The court found that the petitioner had disclosed all necessary details and that the assessing officer's belief was based on a change of opinion, which cannot be a ground for reopening a concluded assessment. Consequently, the court held that the issuance of the notice under Section 148 was without jurisdiction and thus illegal and invalid. 2. Alleged Failure of the Petitioner to Disclose Fully and Truly All Material Facts Necessary for Assessment: The court examined whether the petitioner had failed to disclose fully and truly all material facts necessary for its assessment for the assessment year 1990-91. The petitioner had provided detailed information regarding the interest claimed as exempt under various clauses of Section 10(15)(iv) of the Act. The court noted that the petitioner had made it clear that the claimed amount represented the gross interest earned and had furnished all relevant details during the assessment proceedings. The court concluded that there was no failure on the part of the petitioner to disclose all material facts necessary for assessment, and therefore, the condition precedent for reopening the assessment was absent. 3. Applicability of Section 14A of the Income Tax Act, 1961: Section 14A, inserted by the Finance Act, 2001 with retrospective effect from 01.04.1962, deals with the expenditure incurred in relation to income not includible in total income. The court noted that the Central Board of Direct Taxes (CBDT) had issued a circular directing that assessment proceedings which had attained finality before 01.04.2001 should not be reopened under Section 147 of the Act to disallow expenditure incurred to earn exempt income by applying Section 14A. The court found that the reopening of the assessment was not based on Section 14A, as clarified by the respondent in the affidavit. Therefore, Section 14A was not applicable in this case. 4. Compliance with the Procedure Laid Down in GKN Driveshafts (India) Limited Vs. Income Tax Officer: The respondent raised a preliminary objection regarding the non-availing of the procedure laid down by the Supreme Court in GKN Driveshafts (India) Limited, which requires the assessee to file a return, seek reasons for the notice, and file objections to the reasons provided by the assessing officer. The court noted that the impugned notice and the reasons furnished preceded the judgment in GKN Driveshafts (India) Limited. Furthermore, the court held that the availability of an alternative remedy does not bar the exercise of writ jurisdiction when the authority seeks to assume jurisdiction it does not possess or acts arbitrarily. Given that the writ petition had been admitted for hearing and a long period had elapsed, the court found it unreasonable to relegate the petitioner to file objections before the respondent. The court, therefore, rejected the preliminary objection raised by the respondent. Conclusion: The court concluded that the issuance of the notice under Section 148 of the Income Tax Act, 1961, was without jurisdiction and invalid. Consequently, the impugned notice dated 30.03.2001 and the subsequent notices issued under Sections 143(2) and 142(1) of the Act were set aside and quashed. The rule was made absolute, and there was no order as to costs.
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