2019 (11) TMI 1192 - HC - Income Tax

Reopening of assessment u/s 147 - Income escaping assessment - disallowance made u/s 14A - HELD THAT - In this case, there is no failure on the part of the assessee. On the other hand, there appears to be a failure on the part of the assessing officer to make an appropriate determination of the amount of expenditure in terms of Section 14A. In such a case, the remedy for the Revenue is elsewhere and not in assuming jurisdiction under Section 147 of the Act. That would amount to exercising the power of review which the statute has not conferred on the authority. This is particularly because the attempt to reopen is made after the expiry of 4 years from the end of the assessment year and the original assessment was made under Section 143(3). The authority cannot take advantage of their own wrong. If they failed to perform their statutory duty, the consequence of default cannot fall on the assessee. The other reason cited by the authority is also not sufficient. It is beyond dispute that the census figures for the year 2011 were made available only a few years later. The assessee could not have peeped into the future while submitting its return of income. One can have the benefit of hindsight but nature has not endowed the assessees with prophetic abilities. Lex non cogit ad impossibilia (Law does not compel a man to do that which he cannot possibly perform) is a well known legal maxim. There is also no substance in the contention that writ remedy under Article 226 of the Constitution of India is not available for the petitioner. The petitioner has demonstrated that the conditions precedent to the exercise of jurisdiction u/s 147 did not exist and the first respondent had therefore no jurisdiction to issue the impugned notice in respect of the assessment year 2011-12 after the expiry of 4 years. When the issue touches on the jurisdiction of the authority, the existence of alternative remedy is no ground to deny relief to the petitioner. The divergent stand of the parties revolves around Section 14 A of the Act. The true object, scope and meaning of Section 14 A of the Income Tax Act has been authoritatively laid down by the Hon'ble Supreme Court in the decision in Maxopp Investment Limited vs. Commissioner of Income Tax 2018 (3) TMI 805 - SUPREME COURT This judgment also deals with the decision reported in Principal Commissioner of Income Tax Vs. State Bank of Patiala 2017 (2) TMI 125 - PUNJAB AND HARYANA HIGH COURT . For the foregoing reasons, the impugned proceedings are liable to be quashed. They are accordingly quashed. This writ petition is allowed

Issues Involved:
1. Validity of reopening the assessment under Section 147 of the Income Tax Act, 1961.
2. Alleged failure of the assessee to disclose fully and truly all material facts.
3. Applicability of the limitation period for issuing notice under Section 148.
4. Jurisdiction of the court under Article 226 of the Constitution of India to quash the impugned notice and order.

Detailed Analysis:

1. Validity of Reopening the Assessment under Section 147 of the Income Tax Act, 1961:
The core issue is whether the first respondent is justified in reopening the assessment for the assessment year 2011-12. The reasons cited for reopening were twofold: the disallowance under Section 14 A was not computed as per the prescribed method, and the assessee did not use the 2011 census figures for determining the status of rural branches for bad debt provisioning. The court emphasized that Section 147 allows the Assessing Officer to reassess income if there is a reason to believe it has escaped assessment. However, this power is conditional and cannot be used merely for a change of opinion. The court held that the Assessing Officer failed to determine the amount of expenditure correctly, which cannot be a ground for reopening the assessment.

2. Alleged Failure of the Assessee to Disclose Fully and Truly All Material Facts:
The respondents argued that the assessee did not disclose all material facts, particularly regarding the expenditure towards earning income exempt from tax. The court, however, found that the assessee had provided all relevant account books and documents. The duty to determine the expenditure correctly lies with the Assessing Officer. The court concluded that there was no failure on the part of the assessee to disclose material facts.

3. Applicability of the Limitation Period for Issuing Notice under Section 148:
The notice under Section 148 was issued beyond four years from the end of the assessment year, which is beyond the permissible limit unless there is a failure on the part of the assessee to disclose material facts. The court referred to the first proviso to Section 147, which restricts reopening after four years unless there is such a failure. Since the court found no failure on the part of the assessee, the reopening was deemed invalid.

4. Jurisdiction of the Court under Article 226 of the Constitution of India:
The respondents contended that the writ petition was not maintainable as the petitioner did not challenge the order dated 29.11.2018, which rejected their objections to reopening. The court, however, held that when the issue pertains to the jurisdiction of the authority, the existence of an alternative remedy does not bar the petitioner from seeking relief under Article 226. The court found that the conditions precedent for exercising jurisdiction under Section 147 did not exist, and thus the notice and order were invalid.

Conclusion:
The court quashed the impugned notice dated 09.03.2018 and the order dated 08.11.2018, allowing the writ petition. The court emphasized that the failure to determine the expenditure correctly by the Assessing Officer cannot be a ground for reopening the assessment and that the reopening was beyond the permissible period without any failure on the part of the assessee. The court also highlighted the importance of adhering to legal maxims and ensuring that the exercise of power is not arbitrary.

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