2005 (3) TMI 63 - HC - Income Tax

Challenge to the notices issued under section 148, purportedly initiating a proceeding/action under section 147 thereof on the ground that the income of the assessees/writ petitioners as computed therein had escaped assessment - notices admittedly do not exhibit as to what material facts were not truly and fully disclosed by the assessees necessary for assessment - The returns admittedly mention about the cess on green leaves paid and deductions as permissible were allowed. In view of the exposition of law on the point mentioned hereinabove, the inescapable conclusion is that the impugned notices are also not sustainable being barred by time. - impugned notices being illegal and without jurisdiction are quashed.

Issues Involved:
1. Legality of notices issued under Section 148 of the Income-tax Act, 1961.
2. Validity of reassessment proceedings under Section 147 of the Income-tax Act.
3. Interpretation of the decision in Jorehaut Group Ltd. v. Agrl. ITO [1997] 226 ITR 622.
4. Full and true disclosure of material facts by the assessee.
5. Bar of limitation for issuing reassessment notices.

Analysis:

1. Legality of Notices Issued Under Section 148:
The petitions challenge the notices issued under Section 148 of the Income-tax Act, 1961, which purportedly initiate proceedings under Section 147 on the ground that the income of the assessees had escaped assessment. The notices, though differently dated and related to varying assessment years, share substantial homogeneity in the contextual background and raise common questions of law.

2. Validity of Reassessment Proceedings Under Section 147:
The assessees argued that they had made a full and true disclosure of all material facts necessary for assessment in their returns, including the amount debited on account of cess on green leaves. The Assessing Officer, after scrutinizing all relevant materials, had allowed the deduction in completing the assessment under Section 143(3). Therefore, it could not be construed as a case of income escaping assessment under Section 147. The court found that the respondent authority had misinterpreted and misread the decision in Jorehaut Group Ltd. [1997] 226 ITR 622, rendering the basis of the reassessment proceedings nonexistent.

3. Interpretation of the Decision in Jorehaut Group Ltd. v. Agrl. ITO [1997] 226 ITR 622:
The Revenue maintained that the cess payable on green leaves under the 1990 Act is to be deducted only from 60% of the composite income. The court clarified that the decision in Jorehaut Group Ltd. did not hold that the cess paid on green leaves was not an admissible deduction in working out the composite income. The court emphasized that the interpretation sought by the Revenue was incorrect and that the decision did not support the reassessment notices.

4. Full and True Disclosure of Material Facts by the Assessee:
The assessees contended that they had disclosed fully and truly all material facts necessary for assessment, including the cess paid under the 1990 Act. The court noted that the returns mentioned the cess paid, and deductions were allowed accordingly. The court held that the duty of the assessee does not extend beyond making a true and full disclosure of primary facts. The reasons cited in the reassessment notices did not reveal any material facts that had not been disclosed by the assessees.

5. Bar of Limitation for Issuing Reassessment Notices:
The court observed that the impugned notices in W.P.(C) No. 1163 of 2003 and W.P.(C) No. 1258 of 2003 were issued after the expiry of four years from the end of the relevant assessment year. The court held that these notices were barred by time, as there was no failure on the part of the assessees to disclose fully and truly all material facts necessary for assessment.

Conclusion:
The court concluded that the impugned notices were illegal and without jurisdiction. The reasons cited for reassessment were based on a misinterpretation of the decision in Jorehaut Group Ltd. The court quashed the reassessment notices and allowed the petitions, with each party bearing its own costs.

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