2013 (1) TMI 373 - HC - Income Tax

Unaccounted investments - survey u/s 133A - statement of confession on additional income from the Managing Partner - Jurisdiction power u/s 263 by CIT(A) as felt that the additional income disclosed for each each year should have been taken into account separately while making the assessment - set aside the assessment and directed the AO to re-frame the assessment afresh - reopening of assessment - Held that - There was a change of incumbent in the office of the Assistant Commissioner twice. The ACIT who conducted the survey, got transferred and the notice under Section 143(2) was issued by another Assistant Commissioner. He also got transferred out. The assessment was completed by his successor, the Deputy Commissioner of Income Tax. Moreover, it is stated that consequent to the survey, the assessee informed the ACIT of their willingness to offer additional income of Rs.1.5 Crores to cover up the unexplained investments and this offer was in addition of the projected income of Rs.1 Crore. There is no mention that it is subject to verification of accounts which is the case set up by the appellant now. The request was only that not to again tax the income in the hands of the partners and that the same should not result in complication in sales tax cases. Thereafter, a letter was issued by the appellant stating that the offer of additional income during the survey was mistaken and the correct investment would not exceed Rs.35 lakhs. It is also stated that the income has escaped assessment, in that, the disclosure made was neither considered by the new incumbent assessing officer, nor disclosed by the assessee in the return filed and there was failure to declare the true and full facts. The matter relates to the assessment year 2006-2007 where the assessment was completed on 22.12.2008. Ext.P6 impugned notice(reopening assessment) is dated 09.12.2011, i.e. issued after the expiry of four years from the end of the assessment year. As held in Sowdagar Ahmed Khan v. Income-Tax Officer, Nellore (1967 (11) TMI 10 - SUPREME COURT) the duty is not discharged by production of the books of account or other evidence and the assessee has a duty to bring to the notice of the officer the particular items in the books of account or the portions of the documents which are relevant. Established fact of escaped income, is not the legal requirement at the initiation stage as held by the Apex Court above. It is in the realm of subjective satisfaction.Therefore, it may not be justified in this proceedings to hold that Ext.P6 notice is without jurisdiction because the learned Single Judge has permitted the appellant to file objections to Ext.P6 notice and it is for the assessing officer to take a decision after considering the objections. It is not open for this court to veto further action pursuant to Ext.P6 on the basis of the Writ Petition filed by the appellant. This is a case where the appellant had not cared to file any objection to Ext.P6. It was in the exercise of discretionary jurisdiction that the Single Judge permitted the appellant to file objections. In fact, the stand of the the Revenue is that the objections will certainly be considered in such circumstances, we only observe that the objections which the appellant has filed must necessarily be considered and reasons must be given but do not deem it necessary that we should direct that a separate order must be passed.

Issues Involved:
1. Validity of reopening the assessment under Section 147 of the Income Tax Act after four years.
2. Jurisdictional challenge to the issuance of Ext.P6 notice.
3. Compliance with the procedural requirements laid down by the Supreme Court in GKN Driveshafts (India) Ltd. v. Income-Tax Officer And Others.

Detailed Analysis:

1. Validity of Reopening the Assessment Under Section 147 After Four Years:
The appellant, a partnership firm engaged in the jewellery business, was subjected to a survey by the Income Tax Department under Section 133A on 01.02.2006. During the survey, the Managing Partner admitted to irregularities and unaccounted investments, offering an additional income of Rs.1,50,00,000 for the assessment year 2006-2007. The assessment was completed under Section 143(3) on 28.12.2008. However, on 09.12.2011, Ext.P6 notice was issued under Section 147, stating that income chargeable to tax had escaped assessment. The appellant challenged this notice, arguing it was issued without jurisdiction and beyond the four-year limitation period.

The High Court observed that the proviso to Section 147 permits action if the assessee has not fully and truly disclosed all material facts necessary for the assessment. The Court cited the Supreme Court's decision in Sowdagar Ahmed Khan v. Income-Tax Officer, Nellore, emphasizing that merely producing books of account does not discharge the duty of full disclosure. The Court concluded that the initiation of proceedings under Section 147 was valid as it fell within the realm of subjective satisfaction of the assessing officer.

2. Jurisdictional Challenge to the Issuance of Ext.P6 Notice:
The appellant contended that Ext.P6 notice was issued without jurisdiction, relying on several precedents, including Paul Mathews And Sons v. Commissioner of Income-Tax and Commissioner of Income-Tax v. Kelvinator of India Ltd. The appellant argued that the notice was issued after the expiry of four years and was based on a mere change of opinion, which is not permissible.

The Court, however, held that the notice was not without jurisdiction. It noted that the assessment was completed by a different officer than the one who conducted the survey, and the offer of additional income was not considered in the original assessment. The Court emphasized that the duty to disclose fully and truly all material facts was not discharged by merely producing the books of account. The Court found that there was a prima facie reason to believe that income had escaped assessment, justifying the issuance of Ext.P6 notice.

3. Compliance with Procedural Requirements Laid Down by the Supreme Court in GKN Driveshafts (India) Ltd. v. Income-Tax Officer And Others:
The appellant argued that the learned Single Judge failed to follow the procedural requirements laid down by the Supreme Court in GKN Driveshafts (India) Ltd. v. Income-Tax Officer And Others. According to the appellant, the objections to the notice should have been disposed of by a speaking order before proceeding with the assessment.

The Court acknowledged the Supreme Court's directive in GKN Driveshafts, which mandates that upon receiving a notice under Section 148, the assessee should seek reasons for the notice, file objections, and the assessing officer must dispose of the objections by passing a speaking order. However, the Court noted that the appellant had not filed any objections to Ext.P6. The learned Single Judge had permitted the appellant to file objections, and the Revenue had assured that the objections would be considered. The Court observed that while reasons must be given for considering the objections, it was not necessary to direct a separate order.

Conclusion:
The High Court dismissed the Writ Appeal, upholding the validity of the reopening of the assessment under Section 147. The Court found that the issuance of Ext.P6 notice was not without jurisdiction and that the procedural requirements laid down by the Supreme Court in GKN Driveshafts were substantially complied with. The Court directed that the objections filed by the appellant must be considered, and reasons must be provided, but did not mandate a separate order.

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