9911796707
TMI Blog2012 (5) TMI 133X X X X Extracts X X X X X X X X Extracts X X X X ..... ia, the writ-petitioner, an assessee under the Income Tax Act, 1961 ('the Act', for short) has prayed for issuance of mandamus to quash and set-aside the notice dated 29 th March 2011 issued under Section 148 of the Act (Annexure-A to the writ-application). It is also prayed for quashing and setting aside the order passed by the respondent dated 11 th November 2011, rejecting the objections raised by the writ-petitioner to the notice issued under Section 148 of the Act for the Assessment Year 2006-07 (Annexure-F to the writ-application). The facts leading to the filing of the above petition under Article 226 of the Constitution of India may be summed up thus: 1. The petitioner is a company engaged in the business of manufacturing ABS resins and SAN resins, trading of polycarbonate and wind power generation. 2. The petitioner filed return of income for the Assessment Year 2006-07 declaring the total income of Rs.28,56,42,112=00. The said return was accompanied by a statement of total income, Form No.1, 3CD and 3CD, audit report obtained under Section 44AB of the Act and the audited balance-sheet. 3. The Assessing Officer for the Assessment Year 2006-07 selected t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ied in paragraph 2 of the said Circular viz. (i) Cenvat credit debited to profit and loss account by claiming as expenditure and (ii) Maintaining the cenvat credit account which is subsequently utilized for the purpose of payment of duty. The profit and loss account was credited while taking credit of cenvat by reducing the material input value and, therefore, there is no foundation on which the impugned notice under Section 148 of the Act could have been issued. 3. According to the petitioner, the expression "reason to believe" contemplates existence of reasons on which the belief is founded and not merely a belief in the existence of reasons including such belief. 4. The respondent sought to reopen the assessment under Section 147 of the Act by issuing a notice under Section 148 of the Act notwithstanding the fact that there is no valid reason to issue such notice. 5. The reasons recorded for issue of notice under Section 148 of the Act indicate mere change of opinion of the Assessing Officer on the selfsame issue, which was processed in the original assessment. There was no failure on the part of the petitioner either in filing the return or full furnishing of the pa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it should not be included in the value of closing stock" and the petitioner gave elaborate replies dated 18 th August 2009 and 24 th August 2009, pointing out that as on 31 st March 2006 there was no cenvat credit outstanding and remaining adjusted in the profit and loss account. Mr.Shah points out that the Assessing Officer being satisfied, framed a favourable opinion and did not make any addition on account of accountability of unutilized cenvat credit. 4. According to Mr.Shah, therefore, there was no justification of issuing notice under Section 148 of the Act simply on the basis of change of opinion, which is not even borne out by the record. 5. That in the guise of reassessment, assessment made under Section 143(3) is sought to be reviewed. The respondent is seeking to apply his mind on the same set of facts which were already there at the time when the original assessment was made. No new fact or material has been brought on record for the formation of reason to believe that the income of the petitioner has escaped assessment. There was no material, which has nexus with the forming of the requisite belief. The writ-application is opposed by the Revenue by filing a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Relying on the decision of the Supreme Court in the case of CIT v/s. PVS Beedies Private Limited, reported in (1999) 237 ITR 13 (SC), it is submitted that reopening of assessment even on the basis of factual error pointed out by the internal audit party is valid and, therefore, the contentions of the petitioner are not tenable in law. He contended that the decision of the Supreme Court in the case of PVS Beedies (supra) holds the field and even the subsequent judgment of the Apex Court in the case of Kelvinator India Limited (supra) has not disturbed the ratio as laid down in PVS Beedies (supra). He lastly contended that the Assessing Officer had valid reason to believe that income has escaped assessment and, therefore, after formation of such belief the Assessing Officer recorded reasons and issued the impugned notice which cannot be said to be, in any manner, unjustifiable or illegal as there is no change of opinion. Therefore, the only question that arises for determination in this writ-application is, whether the Assessing Officer was justified in issuing the notice under Section 148 of the Act in the facts of the present case. In order to appreciate the question invol ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 from the end of the relevant assessment year, unless any income chargeable to tax has escaped assessment for such assessment year by reason of the failure on the part of the assessee to make a return under section 139 or in response to a notice issued under sub-section [1] of section 142 or section 148 or to disclose fully and truly all material facts necessary for his assessment, for that assessment year: Provided further that the Assessing Officer may assess or reassess such income, oth ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... following observations made by a three-judge-bench in the above matter by relying upon the majority view taken in an earlier decision of that court taken by a bench of five judges: "4. It was held by this Court in Calcutta Discount Co. Ltd. v. Income-tax Officer, (1961) 41 ITR 191 = (AIR 1961 SC 372) that the High Court in appropriate cases has power to issue an order prohibiting the Income-tax Officer from proceeding to reassess the income when the conditions precedent do not exist. At p. 207, K.C. Das Gupta, J., delivering the majority judgment of the Court observed: "It is well settled however that though the writ of prohibition or certiorari will not issue against an executive authority, the High Courts have power to issue in a fit case an order prohibiting an executive authority from acting without jurisdiction. Where such action of an executive authority acting without jurisdiction subjects or is likely to subject a person to lengthy proceedings and unnecessary harassment, the High Courts, it is well settled will issue appropriate orders or directions to prevent such consequences. The High Court may, therefore, issue a high prerogative writ prohibiting the Income- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... must be decided by the Income-tax Officer and not by the High Court. The Income-tax Officer alone is entrusted with the power to administer the Act; if he has information from which it may be said prima facie, that he had reason to believe that income chargeable to tax had escaped assessment, it is not open to the High Court, exercising powers under Article 226 of the Constitution, to set aside or vacate the notice for reassessment on a re-appraisal of the evidence. 7. The High Court in this case was apparently of the view that the information in consequence of which proceedings for reassessment were intended to be started, could have been gathered by the Income-tax Officer in charge of the assessment in the previous years from the disclosures made by the two Hindu undivided families. But that, in our judgment, is wholly irrelevant. Jurisdiction of the Income-tax Officer to reassess income arises if he has in consequence of information in his possession reason to believe that income chargeable to tax has escaped assessment. That information must, it is true, have come into possession of the Income-tax Officer after the previous assessment, but even if the information be such th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e respondent had omitted or failed to disclose fully and truly all material facts and consequently had no jurisdiction to reopen the assessments for the four years in question. Having second thoughts on the same material does not warrant the initiation of a proceeding under Section 147 of the Income-tax Act 1961." (Emphasis supplied). At this stage, we may rather aptly refer to a latest three-judge-bench decision of the Supreme Court in the case of Commissioner of Income Tax v/s. Kelvinator of India Limited, reported in (2010) 2 SCC 723, where the said court after taking into consideration the effect of Direct Tax Laws (Amendment) Act, 1987 on section 147 made the following observations while dismissing the appeals preferred by the Revenue: "5. On going through the changes, quoted above, made to Section 147 of the Act, we find that, prior to the Direct Tax Laws (Amendment) Act, 1987, reopening could be done under the above two conditions and fulfillment of the said conditions alone conferred jurisdiction on the assessing officer to make a back assessment, but in Section 147 of the Act (with effect from1-4-1989), they are given a go-by and only one condition has remained ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 147 would give arbitrary powers to the Assessing Officer to reopen past assessments on mere change of opinion. To allay these fears, the Amending Act, 1989, has again amended Section 147 to reintroduce the expression 'has reason to believe' in the place of the words 'for reasons to be recorded by him in writing, is of the opinion'. Other provisions of the new Section 147, however, remain the same." (emphasis supplied) 9. For the aforestated reasons, we see no merit in these civil appeals filed by the Department, hence, dismissed with no order as to costs." (Emphasis given by us). Bearing in mind the aforesaid principles, we now propose to consider the case before us. After hearing the learned counsel for the parties and after going through the aforesaid materials on record, we find that the main reason for opening the assessment is that the assessee company followed mercantile system of accounting . Purchase, sales and closing stock were accounted net of excise duty and CA's report in Form 3CD disclosed the details of cenvat credit availed on raw materials and utilized by the company during the previous year relevant to the Assessment Year 2006-07, showing that t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... opinion based on the same material that the petitioners have unaccounted sum of Rs.2,92,81,496=00 towards unutilized cenvat creit. In the case of CIT v/s. Eicher Ltd., reported in (2007) 294 ITR 310 (Delhi), which was also the subject-matter of appeal before the Supreme Court in the case of Kelvinator of India Limited (supra), the Delhi High Court dealt with the similar point as would appear from the following observations quoted below: "Applying the principles laid down by the Full Bench of this court as well as the observations of the Punjab and Haryana High Court, we find that if the entire material had been placed by the assessee before the Assessing Officer at the time when the original assessment was made and the Assessing Officer applied his mind to that material and accepted the view canvassed by the assessee, then merely because he did not express this in the assessment order, that by itself would not give him a ground to conclude that income has escaped assessment and, therefore, the assessment needed to be reopened. On the other hand, if the Assessing Officer did not apply his mind and committed a lapse, there is no reason why the assessee should be made to suff ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e because in the original assessment donations made on body known as "PVS Memorial Charitable Trust" was held by the Income Tax Officer to be eligible for deduction under Section 80G of the Act. However, subsequently, it was pointed out by the internal audit party that recognition which had been granted to the PVS Memorial Charitable Trust had expired on 22 nd September 1972, suggestive of the fact that it had expired before 1 st April 1973. Therefore, in the relevant years of account the charitable trust was not a recognized charitable trust. Therefore, the donations to PVS Memorial Charitable Trust did not qualify for deduction under Section 80G of the Act as a donation made to a recognized charitable trust. The Supreme Court in this factual background took the view that the Tribunal and the High Court were in error in holding that the information given by the internal audit party could not be treated as information within the meaning of Section 147(b) of the Act. The Supreme Court took the view that the audit party merely pointed out the facts which were overlooked by the Income Tax Officer in the assessment. The Supreme Court also noticed the fact that recognition granted to th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as 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 from the end of relevant assessment year, unless any income chargeable to tax has escaped assessment for such assessment year by reason of the failure on the part of the assessee to make a return under section 139 or in response to a notice issued under sub-section (1) of section 142 or section 148 or to disclose fully and truly all material facts necessary for his assessment, for that assess ..... 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