2021 (4) TMI 1171 - HC - Income Tax

Reopening of assessment u/s 147 - petitioner had declared the loss of income from business - HELD THAT - In the assessment order dated 30.03.2006 passed under Section 143(3) of the Income Tax Act 1961 it has been merely stated that the petitioner company had been leased out to M/s.Paharpur Industries Ltd. and a lease rent charges has been treated as conversion charges and that the assessment was completed treating the conversion charges as rent and the expenditure relating to the manufacturing activity was reimbursed by M/s.Paharpur Industries Ltd. Thus the focus was only on the income derived from the said company. It was not on the method of computation of the income. There is no discussion on the issues relating to the computation of the loss. The said order aslo does not indicate as to whether there was any discussion regarding the reasons given for reopening of the assessment in a communication dated 30.06.2010 while passing the aforesaid assessment order. Correctness of the computation of net loss for the purpose of arriving at the book loss and for the purpose of Minimum Alternate Tax in contrast with the returns filed under Section 139 of the Income Tax Act in a refund cannot be tested under Article 226 of the Constitution of India. Scope of enquiry under Article 226 of the Constitution of India is limited. It is best left to the Assessing Officer/Authorities in the hierarchy prescribed under the provisions of the Income Tax Act 1961 to look into it. Mere declaration in the Auditors Report to the shareholders of the petitioner that as on 03.09.2003 the secured loans and the losses of the company have been understated to the extent of interest written back and the balance sheet and the profit and loss account dealt with in the said report were in compliance with the Accounting Standards referred to in Sub-Section (3C) of Section 211 of the Companies Act 1956 is not sufficient to conclude that there was true and full disclosure by the petitioner at the time of filing of income tax returns for the purpose of assessment. The computation of income as per the Companies Act 1956 seems to indicate that the petitioner had a whooping loss of 13, 99, 07, 652/- which was carried forward into the Assessment Year 2002-03 apart from the loss incurred during the financial year 2001-02 amounting to 3, 33, 28, 163/-. Therefore it is not clear as to how the petitioner is aggrieved by the impugned re-opening of the assessment vide notice dated 17.03.2010 and the impugned speaking order dated 03.09.2010. Even according to the petitioner the entire exercise was an academic exercise and a harassment as no additional tax was to be paid by the petitioner. It is therefore not clear why the petitioner is fighting shy from participating in the aforesaid proceedings. After all the speaking order merely shows a prima facie view of the Income Tax Department to justify the re-opening of the assessment. It is not conclusive and it is open for the petitioner to meet of the points before the respondent by participating in the proceeding and persuade the respondent Income Tax Officer to drop the proceedings.

Summary

Issues Involved:
1. Legality of re-opening the assessment for the Assessment Year 2003-2004.
2. Compliance with the disclosure requirements under Section 147 of the Income Tax Act, 1961.
3. Validity of the reasons provided for re-opening the assessment.
4. Petitioner's entitlement to carry forward the loss.
5. Scope of judicial review under Article 226 of the Constitution of India.

Detailed Analysis:

1. Legality of Re-opening the Assessment:
The petitioner challenged the re-opening of the assessment for the Assessment Year 2003-2004 via notice dated 17.03.2010 and the subsequent communication dated 03.09.2010. The petitioner argued that the re-opening was unwarranted as the original assessment was completed after a detailed scrutiny under Section 143(3) of the Income Tax Act, 1961, and all necessary information had been disclosed.

2. Compliance with Disclosure Requirements:
The petitioner submitted that all material facts were fully and truly disclosed at the time of the original assessment. The financial statements, including the auditor's report, were provided. The petitioner argued that there was no failure in disclosure, as required under the proviso to Section 147 of the Income Tax Act, 1961, for re-opening the assessment. The petitioner cited various case laws to support their argument, including Commissioner of Income Tax Vs. Eco Media (P.) Ltd., Principal Commissioner of Income-tax 6 Vs. Santech Solutions Pvt. Ltd., and others.

3. Validity of Reasons for Re-opening:
The respondent argued that the re-opening was justified as the petitioner filed a belated return and showed an amount of ?9,01,80,464/- as other income, which was not properly accounted for. The respondent contended that mere production of account books does not amount to full disclosure. The court noted that the original assessment order did not discuss the reasons for re-opening, indicating a lack of focus on the method of income computation.

4. Petitioner's Entitlement to Carry Forward the Loss:
The petitioner argued that the company was declared a Sick Company under Section 17 of the Sick Industrial Companies (Special Provisions) Act, 1985, and thus was entitled to carry forward the loss. The petitioner claimed that the entire issue was academic and no additional tax was due. The court observed that the computation of income as per the Companies Act indicated significant losses carried forward, questioning the petitioner's reluctance to participate in the re-assessment proceedings.

5. Scope of Judicial Review under Article 226:
The court emphasized that the scope of inquiry under Article 226 of the Constitution of India is limited. The correctness of the computation of net loss for the purpose of Minimum Alternate Tax and other related issues should be addressed by the Assessing Officer/Authorities under the provisions of the Income Tax Act, 1961. The court dismissed the writ petition, allowing the petitioner to make additional submissions to the respondent within thirty days and directed the respondent to pass appropriate orders on merits within ninety days.

Conclusion:
The court found no merit in the writ petition and dismissed it, providing the petitioner with the liberty to file additional submissions and participate in the re-assessment proceedings. The court directed the respondent to complete the process within ninety days, ensuring that the petitioner could be heard through video conference if desired.