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TMI Blog2011 (3) TMI 1231X X X X Extracts X X X X X X X X Extracts X X X X ..... for the years 2003-04 to 2005-06. They filed a return of income for the assessment year 2004-05 showing the taxable income as "nil". The said return was taken up for scrutiny. The respondent issued notice under section 143(2) and 142(1) of the Act. In response the petitioner produced relevant information and records. The scrutiny was completed accepting the taxable income as "nil" as declared by the assessee with the advent of claiming exemption under section 10(23C) of the Act on the excess of income over expenditure. It appears that, during the enquiry, the respondent sought clarification with respect to certain transactions of the petitioner with M/s. Margadarsi Chit Funds (P) Ltd. (hereafter, chit fund). Vide their letter dated March 8, 2006, the petitioner submitted an explanation denying that it is "an investment". The petitioner took up the plea that it is a long-term liability, and not an investment or a deposit. 3. For the assessment year 2005-06, the return of income, filed by the petitioner declaring taxable income as "nil", was accepted after scrutiny, and an assessment order was passed under section 156 of the Act on August 28, 2006. For subsequent years 2006-0 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nding reassessment, the respondent could not review the earlier assessment order. The petitioner also raised the plea of limitation contending that the notice of reassessment, having been issued beyond the period of four years after the assessment, was unsustainable. In response to the objections filed by the petitioner, the impugned rejection order was passed. 5. The petitioner also stated that on January 19, 2006 they had made an application for renewal of exemption granted under section 80G of the Act; the respondent had directed them to furnish certain information for the purpose of granting renewal of exemption ; in the said communication dated May 1, 2006, additional information was sought with regard to the payments made to the chit fund during the periods ending March 31, 2003, March 31, 2004 and March 31, 2005, and they provided information where-after exemption under section 80G of the Act was renewed for the period from April 1, 2005 to March 31, 2008. The petitioner, therefore, alleges that all the relevant facts with regard to the payments made to the chit fund were before the Assessing Officer when he passed the original assessment orders and the present propo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fund entailed forfeiture of the benefit of exemption under section 11 of the Act in view of the decision in Priyadarshini. 8. It is further stated that the efforts of the petitioner for obtaining renewal of exemption under section 80G of the Act, and the respondent calling for further information in connection thereto, have no relevance to the validity of reopening the assessment. The respondent asserts that the proposals for considering exemption under section 80G or section 10(23C) of the Act do not form part of the assessment file. The proceedings under the said sections being distinct, the files are maintained independently. The Assessing Officer was not having information furnished by the petitioner under section 80G of the Act and, therefore, the allegation that such information had formed the basis for the change of opinion was not correct. Even if the entire material had come to the knowledge of the Assessing Officer during the course of the proceedings under section 80G of the Act, the same does not prevent reopening of the assessment under sections 147 and 148 of the Act, if such material had not been considered under section 143(3) of the Act on the touchstone of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not barred by limitation ; (ii) the previous scrutiny of the tax returns under sections 143(1) and (3) of the Act, for the assessment years 2004-05 and 2006-07, does not amount to a change of opinion. Mere acceptance of the return of income, after scrutiny under section 143(2) and 142(1) of the Act, is no indication that the Assessing Officer had applied his mind to the material disclosed by the assessee. At no point of time was the issue of contravention of section 11(5) of the Act, by making payments to a chit fund, considered by the Assessing Officer and, therefore, the condition precedent for exercising jurisdiction under section 147 of the Act very much exists in the case ; (iii)as on August 28, 2006, when the assessment orders were passed for the assessment years 2004-05 and 2005-06, the exemption under section 10(23C) of the Act was holding the field, and the Assessing Officer could not have gone into the question of investments at that point of time ; (iv)the subsequent decision of the Tribunal or the court itself can be a ground for reassessment under section 147 of the Act ; (v) the process of granting/renewing exemption under section 10(23C), and renewing exemption unde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e. We may however hasten to add that this cannot be a rigid norm. As rightly pointed out by the senior counsel for the Revenue, the issue whether or not income chargeable to tax escaped assessment generally or as contemplated under Explanation 2 to section 147 of the Act is a question of fact which would depend on the peculiarities of each case. If such an eventuality arises, the High Court may refuse even to review the jurisdictional questions, relegating the petitioner to the remedy of an appeal under the Act. 13. It is settled law that the writ jurisdiction, especially in tax matters, is not, ordinarily, exercised in view of elaborate appeal system provided by the statute itself. The authorities in this regard are galore. We would refer to two of them. In C. A. Abraham v. ITO [1961] 41 ITR 425 (SC) ; AIR 1961 SC 609, a Division Bench of the Supreme Court considered this aspect. The case arose out of a show-cause notice issued by the Assessing Officer for imposing penalty under section 28 of the Indian Income-tax Act, 1922 (1922 Act). The show-cause notice was followed by an order imposing penalty against which an appeal was unsuccessfully filed. When certiorari proceedin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... we deem it necessary once more to emphasize that the Income-tax Act provides a complete and self-contained machinery for obtaining relief against improper action taken by the Departmental authorities, and normally the party feeling himself aggrieved by such action cannot be permitted to refuse to have recourse to that machi-nery and to approach the High Court directly against the action . . . A writ of certiorari is discretionary ; it is not issued merely because it is lawful to do so. Where the party feeling aggrieved by an order of an authority under the Income-tax Act has an adequate alternative remedy which he may resort to against the improper action of the authority and he does not avail of himself of that remedy the High Court will require a strong case to be made out for entertaining a petition for a writ. Where the aggrieved party has an alternative remedy the High Court would be slow to entertain a petition challenging an order of a taxing authority, which is ex facie with jurisdiction. A petition for a writ of certiorari may lie to the High Court, where the order is on the face of it erroneous or raises question of jurisdiction or of infringement of fundamental rights o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t of the provision to the extent of conferring jurisdiction on the Income-tax Officer or the method and manner of assessment/reassessment thereunder. Section 147 of the Act was amended by the Direct Tax Laws (Amendment) Act 1987 with effect from April 1, 1989. After such amendment, the relevant sections read as under. 147. Income escaping assessment.-If the Assessing Officer has reason to believe that any income chargeable to tax has escaped assessment for any assessment year, he may, subject to the provisions of sections 148 to 153, assess or reassess such income and also any other income chargeable to tax which has escaped assessment and which comes to his notice subsequently in the course of the proceedings under this section, or recompute the loss or the depreciation allowance or any other allowance, as the case may be, for the assessment year concerned (hereafter in this section and in sections 148 to 153 referred to as the relevant assessment year) : Provided that where an assessment under sub-section (3) of section 143 or this section has been made for the relevant assessment year, no action shall be taken under this section after the expiry of four years fro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ch issue have not been included in the reasons recorded under sub-section (2) of section 148. 149. Time limit for notice.-(1) No notice under section 148 shall be issued for the relevant assessment year- (a) if four years have elapsed from the end of the relevant assessment year, unless the case falls under clause (b) ; (b) If four years, but not more than six years, have elapsed from the end of the relevant assessment year unless the income chargeable to tax which has escaped assessment amounts to or is likely to amount to one lakh rupees or more for that year. Explanation.-In determining income chargeable to tax which has escaped assessment for the purposes of this sub-section, the provisions of Explanation 2 of section 147 shall apply as they apply for the purposes of that section. (2) The provisions of sub-section (1) as to the issue of notice shall be subject to the provisions of section 151. (3) If the person on whom a notice under section 148 is to be served is a person treated as the agent of a non-resident under sec-tion 163 and the assessment, reassessment or re-computation to be made in pursuance of the notice is to be made ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to such substitution. Under the old provisions of section 147, separate clauses (a) and (b) laid down the circumstances under which income escaping assessment for the past assessment years could be assessed or reassessed. To confer jurisdiction under section 147(a) two conditions were required to be satisfied, firstly, the Assessing Officer must have reason to believe that income, profits or gains chargeable to income-tax have escaped assessment, and, secondly, he must also have reason to believe that such escapement has occurred by reason of either omission or failure on the part of the assessee to disclose fully or truly all material facts necessary for his assessment of that year. Both these conditions were conditions precedent to be satisfied before the Assessing Officer could have jurisdiction to issue notice under section 148 read with section 147(a) but under the substituted section 147 existence of only the first condition suffices. In other words if the Assessing Officer for whatever reason has reason to believe that income has escaped assessment it confers jurisdiction to reopen the assessment. It is, however, to be noted that both the conditions must be fulfilled if the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reintroduced the said expression and deleted the word 'opinion' on the ground that it would vest arbitrary powers in the Assessing Officer." (emphasis supplied) 20. The condition precedent for exercising jurisdiction under section 147 of the Act is "the reason to believe that income chargeable to tax had escaped assessment". When is income said to have escaped assessment ? In Maharaj Kumar Kamal Singh v. CIT [1959] 35 ITR 1 (SC) ; AIR 1959 SC 257, the Supreme Court held that one cannot put "a very narrow and artificial limitation on the meaning of the word 'escape'". If the Assessing Officer comes to know subsequently about such "escape", subject to sections 148 to 153 of the Act, proceedings can be initiated for reassessment. Explanation 2 to section 147 of the Act enumerates the illustrative cases where income chargeable to tax had escaped assessment. These are : (i) when no return of income has been furnished by the assessee though his income during the previous year is assessable to tax ; (ii) where return of income has been furnished but assessment has not been made and it is noticed that the assessee claimed excessive loss, deduction, allowance or relief in the return ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... )(vi) of the Act, which was granted vide order dated October 28, 2005 passed by the Chief Commissioner of Income-tax, Visakhapatnam. The petitioner filed "nil" return for the assessment years 2003-04 to 2007-08 claiming deduction under section 10(23C)(vi) of the Act. During the scrutiny of the returns for the assessment years 2004-05 and 2006-07 under section 143(1) of the Act, the Assessing Officer sought clarification with regard to the current liability, schedule showing the chit liability to chit fund. Denying that it was an investment made, the petitioner submitted that the payments made to the chit fund are towards reducing the chit liability. The Assessing Officer passed orders for the assessment years 2004-05 and 2005-06 on August 28, 2006. The assessment order for the assessment year 2006-2007 was passed on May 6, 2008. These three assessment orders were passed under section 143(3) of the Act accepting the deduction claimed by the petitioner presumably in view of the sanction/approval under section 10(23C)(vi) of the Act, which was effective at that time. Further, in relation to the return of income for the assessment years 2003-04 and 2007-08, intimation under section 143 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n 147 of the Act, an assessee may have an objection on such a ground. It is, however, always a question of fact whether such disclosure was reason enough to bar reassessment. Initial plea that an assessee disclosed fully and truly all material facts cannot, by itself, be a ground to deny jurisdiction to the Assessing Officer under section 147 of the Act. 25. Secondly, the exemption under section 11(1) of the Act is subject, inter alia, to the condition that a charitable institution/trust shall invest or deposit only in the forms and modes as mandated by section 11(5) of the Act. The contravention thereof would attract section 13(1)(d) of the Act and a trust or a charitable institution either investing or depositing the funds otherwise than in any one of the forms or modes specified in section 11(5) of the Act shall not be entitled to claim exemption under section 11(1) of the Act. Any institution, which obtains sanction under section 10(23C)(vi) of the Act as an institution established for charitable purposes, is also required to comply with section 11(5) of the Act as per the third proviso to section 10(23C) of the Act. Thus, so as to avail of the benefit of exemption or deductio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... deposits made by the petitioner with the chit fund. Further-more, it is now on record that, by proceedings dated December 24, 2010, the Chief Commissioner has withdrawn the approval granted to the petitioner earlier on October 28, 1995. In so far as the two assessment years 2006-07 and 2007-08 are concerned, intimation under section 143(1) of the Act was sent and, as held by the Supreme Court in Rajesh Jhaveri [2007] 291 ITR 500 (SC), it is no assessment at all and the question of change of opinion does not arise. 27. Fourthly, the exercise for reassessment is also based on the decision of the Tribunal in Priyadarshini wherein it was held that contribution to a chit scheme is not in accordance with section 11(5) of the Act and, therefore, section 13(1)(d) of the Act bars the assessee from claiming any exemption. Whether a decision having effect on the assessment which is subsequent to the assessment order under section 143(3) of the Act or a decision which was not within the knowledge of the Assessing Officer can itself a ground for issuing a notice under section 148 of the Act for the purpose of reassessment ? This is no more res integra. In A. L. A. Firm [1991] 189 ITR 28 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ld be open to him to initiate proceedings for reassessment under section 147(a) of the Act . . . The fact that the Assessing Officer could have found out the correct position by further probing the matter not exonerate the assessee from his duty to make a full and true dis-closure of the material facts. Explanation 2 to section 147 of the Income-tax Act, 1961, makes the position abundantly clear". 29. Further, after amendment of section 147 of the Act with effect from April 1, 1989, the disclosure or non-disclosure of facts is neither material nor a condition precedent for exercising jurisdiction under section 147 of the Act. It is only relevant when the question of limitation arises as per the proviso to section 147 of the Act. If the Income-tax Officer has reason to believe that income had escaped assessment, as clarified in Explanation 2 to section 147 of the Act, proceedings can be initiated for reassessment. We have already noticed that claim of excess deduction/allowance in a case of non-assessment, or excessive relief having been granted where assessment has been made also amounts to escapement. 30. The scope of the judicial review, when a notice under sectio ..... X X X X Extracts X X X X X X X X Extracts X X X X
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