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TMI Blog2013 (10) TMI 101X X X X Extracts X X X X X X X X Extracts X X X X ..... S. Soparkar. For the Respondent : M.R. Bhatt and Ms. Mauna M. Bhatt. JUDGMENT:- PER : Mrs. Sonia Gokani This writ petition, preferred under Article 226 of the Constitution of India, challenges a Notice dated 10th February 2012 issued by the respondent under Section 148 of the Income Tax Act, 1961 ("Act" for short) seeking to reopen the petitioner's income-tax assessment for the A.Y 2005-06. 2. Brief facts necessary for adjudicating the issue raised in this petition are as follows :- 2.1 The petitioner is a limited company, which was originally engaged in the business of leasing and financing. Later on, however, company ceased its operation. The petitioner filed its return of income under section 139(1) of the Act on 28th October 2005 declaring the total income at Rs. NIL. On 18th October 2006, the notice under section 143(2) of the Act was issued. During the scrutiny assessment proceedings, a notice under section 142(1) of the Act was also issued accompanied by detailed questionnaire. The Assessing Officer also called for various explanations and clarifications which were furnished along with the supporting evidences by the assessee. On completing such scrutiny, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... inal disposal of this petition. 4. Learned senior counsel Shri S.N Soparkar appearing for the petitioner has fervently submitted that the impugned notice is given beyond the period of four years from the end of relevant assessment year as this concerns A.Y 2005-06 and the reasons furnished by the respondent indicate nowhere that there is any failure on the part of the assessee to disclose truly and fully all facts which were necessary to be disclosed. He emphasized that the reasons also indicate that from the very record available with the Assessing Officer, the information has been extracted and on the strength thereof, reopening of the assessment is sought for. He urged further that at the behest of the petitioner, the reasons have been furnished and neither of the reasons is indicative of the failure on the part of the assessee to disclose truly and fully any material fact and therefore, the very basis of impugned notice lacks validity. He further made a grievance that the decision of the Supreme Court rendered in case of GVK Driveshafts [India] Limited v. Income Tax Officer Ors., reported in 259 ITR 19 [SC]was essentially with a view to act as a check-post to prevent arbitr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... which such challenge is made to the impugned notice and the Court may not expect reassessment in case of petitioner as that may also give rise to the allegations of the Assessing Officer having pre-judged the entire issue. He further urged that the regular channel would be available to the petitioner, if in case he is aggrieved by the order of assessment and therefore also, at this stage of issuance of the notice, the Court may not interfere. On the scope of Article 226 of the Constitution also, particularly in a case for reopening of assessment, he at length addressed this Court. Learned counsel placed reliance on the following authorities, which are (a) Calcutta Discount Co. Ltd. v. ITO [1961] 41 ITR 191 (SC). (b) GVK Gautami Power Limited v. Assistant Commissioner of Income Tax [OSD] Anr.,336 ITR 451 [AP]; (c) Dishman Pharmaceuticals Chemicals v.Deputy Commissioner of Income Tax [OSD], 346 ITR 228 [Guj]; (d) Sun Pharmaceutical Industries Limited v.Deputy Commissioner of Income Tax,353 ITR 450 (e) Indo Aden Salt Mfg. Trading Company Limited v. Commissioner of Income Tax,Bombay 159 ITR 624 (SC); (f) Phool Chand Bajrang Lal Anr. v. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... notice during the course of proceedings under this section. However, proviso provided that no action shall be taken after expiry of four years from the end of relevant assessment year unless income chargeable to tax has escaped assessment for such assessment year on account of failure on the part of the assessee to make a return under section 139 or in response to a notice under sub-section (1) of Section 142 or Section 148 or he has failed to disclose fully and truly all material facts necessary for such assessment. 6.3 This Court, while dealing with this issue of reopening of the assessment beyond the period of four years in case of Kanak Fabrics (supra) has held that when the assessment is framed under section 143 (3) of the Act, the same can be reopened beyond the period of four years, only if the income chargeable to tax has escaped assessment by reason of failure on the part of the assessee to make a return under section 139 or in response to notice under sub-section (1) of section 142 or section 148 or to disclose fully and truly all material facts, necessary for such assessment. Relevant observations made in para 7 of the decision are aptly produced hereunder :- "7 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... luding the audited accounts. The assessment records of the earlier year 2002-03 and 2004-05 were very much available to the Assessing Officer. It is not even the case of the Revenue that in such return necessary details were not supplied. Merely because while framing assessment for the subsequent year 2007-08, the Assessing Officer noticed certain irregularity in the claim by itself would not be sufficient to satisfy the requirements of the proviso to Section 147 of the Act. 10. In addition to above conclusions, that there was no failure on the part of the assessee to disclose truly and fully all material facts, we also find that during the original assessment proceedings, the Assessing Officer had examined the claim in detail. Various queries were raised which were duly answered by the petitioner-assessee. May be that the specific angle of the depreciation earlier claimed to be set off against the income of the current year of the eligible business may not have been in the mind of the Assessing Officer. Nevertheless, the entire claim of the assessee for deduction under Section 80IA of the Act was before the Assessing Officer and such claim was also processed." 6.6 In the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g to such statutory change, the book profit under section 115JB had to be reworked. 5. To our mind, none of the reasons would permit the Assessing Officer to reopen the assessment beyond a period of four years. 6. In case of Calcutta Discount Co. Ltd. v. Income-Tax Officer reported in 41 ITR 191, the Constitution Bench of Supreme Court held and observed that to confer jurisdiction on assessee to issue notice of reopening of assessment beyond a period of four years, two conditions are required to be simultaneously satisfied. Such conditions are that the Assessing Officer must have reason to believe that income, profits or gains chargeable to income tax have been under assessed and the second is that he must also have reason to believe that such underassessment has occurred by reason of either omission or failure on part of the assessee to make return of his income or omission or failure on part of the assessee to disclose fully and truly all material facts necessary for his assessment for that year. Both these conditions are conditions precedent to be satisfied before the taxing officer could have jurisdiction to issue notice for the assessment or reassessment beyond a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e the Income Tax Officer gets jurisdiction to re-open the assessment under Section 147/148. This obligation can neither be ignored nor watered down. (Sri Krishna Pvt. Ltd. (1996) 221 ITR 538(SC). 7. In the present case, with respect to requirement of deducting tax at source on prepaid SIM-cards and recharge voucher, petitioners case is two fold. Firstly, it is contended that in fact tax was deducted at source and duly deposited with the Government. In the objections raised opposing notice for reassessment, such contention was pointedly taken. The Assessing Officer however, while disposing of such objections did not dispute this averment of the petitioner. Further in the petition also on oath the petitioner has stated that on such payments, tax was deducted at source. This important averment has not been denied in the affidavit in reply filed by the respondent. Even before us during the course of oral submissions, counsel for the Revenue was unable to dispute this factual aspect." 6.8 The Constitution Bench of Supreme Court in case of Calcutta Discount Co. Ltd. (supra) held that in case of reopening of assessment beyond a period of four years, what is essential is to fulfil ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts can be inferred from them, and taking all these together, to decide what the legal inference should be. There can be no doubt that the duty of disclosing all the primary facts relevant to the decision of the question before the assessing authority lies on the assessee. To meet a possible contention that when some account books or other evidence has been produced, there is no duty on the assessee to disclose further facts, which on due diligence, the Income-tax Officer might have discovered, the Legislature has put in the Explanation, which has been set out above., In view of the Explanation, it will not be open to the assessee to say, for example-"I have produced the account books and the documents: You, the assessing officer examine them, and find out the facts necessary for your purpose: My duty is done with disclosing these account-books and the documents". His omission to bring to the assessing authority's attention these particular items in the account books, or the particular portions of the documents, which are relevant, amount to "omission to disclose fully and truly all material facts necessary for his assessment." Nor will he be able to contend successfully that by dis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... acts and the further facts inferred from them, the authority has to draw the proper legal inferences, and ascertain on a correct interpretation of the taxing enactment, the proper tax leviable see Calcutta Discount Co. v. Income-tax Officer (2) as further observed in that case: "Does the duty, however, extend beyond the full and truthful disclosure of all primary facts ? In our opinion, the answer to this question must be in the negative. Once all the primary facts are before the assessing authority, he requires no further assistance by way of disclosure. It is for him to decide what inferences of facts can be reasonably drawn and what legal inferences have ultimately to be drawn. It is not for somebody else far less the assessee to tell the assessing authority what inferences, whether of facts or law, should be drawn. Indeed, when it is remembered that people differ as regards what inferences should be drawn from given facts, it will be meaningless to demand that the assessee must disclose what inferences - whether of facts or law - he would draw from the primary facts." Keeping in view the principles enunciated above, we may deal with the contention advanced on behalf of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s stand has not been controverted. When an Income-tax officer relies upon his own records for determining the amount of depreciation and makes a mistake in doing so, we fail to understand as to how responsibility for that mistake can be ascribed to an omission or failure on the part of the assessee. It also cannot be disputed that initial depreciation in respect of items of capital assets in the shape of new machinery, plant and building installed or erected after the 31st day of March 1945 and before the 1st day of April 1956 is normally claimed and allowed. It seems that the Income-tax Officer in working 'the figures of depreciation for certain items of capital assets lost sight of the fact that the aggregate of the depreciation, including the initial depreciation, allowed under different heads could not exceed the original cost to the assessee of those items of capital assets. The appellant cannot be held liable because of this remissness on the part of the Income-tax officer in not applying the law contained in clause (c) of the proviso to section 10(2)(vi) of the Act of 1922. As observed by Shah J. in Commissioner of Income-tax v. Bhanji Lavji, (1) section 34(1)(a) of the Act ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the assessee is to disclose only primary facts and not inferential facts. If some material for the assessment lay embedded in the evidence which the Revenue could have uncovered but did not, then it is the duty of the assessee to bring it to the notice of the assessing authority. The assessee knows all the material and relevant facts - the assessing authority might not. In respect of the failure to disclose, the omission to disclose may be deliberate or inadvertent. That is immaterial. But if there is omission to disclose material facts, then, subject to other conditions, jurisdiction to reopen is attracted." 6.12 The Court noted that the assessee did not disclose either by its valuation report or by a statement before the Income Tax authority as to what portion of the assets consist of earth work and that of masonry work. This was held to be a material fact for the purpose of calculating depreciation. Excess depreciation had been allowed considering the entire work to be masonry work and the income tax thus was had to be under-assessed, the Apex Court held that the I.T.O had a reasonable belief and sufficient material to hold that there was no true and full disclosure. In the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessment truly and fully. The question concerned receipt of interest from the sister concern at the rate higher than the relevant market rate in order to inflate profits for the purpose of Section 80IA (10) of the Act. The facts since were found not to be ascertainable by the Assessing Officer, although necessary details and documents were available with him, the Court held that the petitioner though gave total figure of interest receipt, it was not discernible after due diligence to discover the vital facts that it did receive interest higher than the market rate. The Court on extensively examining various case laws upheld the notice of reassessment. Relevant findings are necessary to be produced hereunder : "34. Under the circumstances, from the material on record, it was not possible for the Assessing Officer to make adjustment under section 80IA(10) even if it was required. It may be that the petitioner did give the total figure of interest received. However, from such figures, it was not possible for the Assessing Officer to ascertain these vital facts. Section 147 of the Act, Explanation 1 provides that "production before the Assessing Officer of account books or othe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on or failure on the part of the assessee to make a return under Section 139 for any assessment year, or (ii) the assessee's failure to disclose fully and truly all material facts necessary for his assessment, income has escaped assessment, must be fulfilled if the case falls within the ambit of the first proviso to Section 147. (Rajesh Jhaveri). (v). The first proviso to Section 147 is attracted only in cases where an assessment, under Section 143(3) or Section 147, has been made for the relevant assessment year. (vi) Section 148(2) of the Act requires the assessing officer, before issuing notice under Section 148(1), to record his reasons. If reasons are recorded, before the notice under Section 148(1) is issued, the requirement of Section 148(2) must be held to have been complied with. (vii) The limitation for issuing a notice under Section 148, in cases where the income which has escaped assessment is more than one lakh rupees, is six years under Section 149(1)(b) of the Act. (viii) The assessing officer has no power to review. He has the power only to re-assess. The concept of quot; change of opinion quot; must be treated as an in-built test to check a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is duty bound to disclose. There is no duty cast on the assessee to indicate or draw the attention of the ITO to the inferences which can be drawn from the primary facts disclosed. (Calculated Discount Co. Ltd.1; Associated Stone Industries (Kotah) Ltd.). (xviii) What facts are material, and necessary for assessment, will differ from case to case. (Calcutta Discount Co. Ltd.). (xix) The duty of disclosing all primary facts, relevant to the decision on the question before the assessing authority, lies on the assessee. It is the assessee's duty to disclose all primary facts which could have been discovered by the assessing authority from the documents and other evidence disclosed. (Calcutta Discount Co. Ltd.). (xx) The assessee's obligation, to disclose all material facts necessary for his assessment fully and truly, is in the context of the two requirements -called conditions precedent - which must be satisfied before the ITO gets jurisdiction to re-open the assessment under Section 147/148. This obligation can neither be ignored nor watered down. (Sri Krishna Pvt. Ltd.). (xxi) Finality of proceedings is certainly a consideration but that avails one who ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a bearing on matters in regard to which the ITO is required to entertain the belief before he can issue notice under Section 147. If there is no rational and intelligible nexus between the reasons and the belief so that, on such reasons, no one properly instructed on facts and law could reasonably entertain the belief, the conclusion would be inescapable that the ITO could not have reason to believe that any part of the income of the assessee had escaped assessment. (S. Ganga Saran amp; Sons (P) Ltd.). (xxxi) As the formation of belief by the ITO is essentially within his subjective satisfaction, (Selected Dalurband Coal Co. Pvt. Ltd.18), at the initiation stage the Court has only to see whether there was some prima facie material on the basis of which the Department could reopen the case. (Raymond Woollen Mills Ltd.). (xxxii) Since the belief is that of the ITO the adequacy or sufficiency of reasons for forming the belief is not for the Court to investigate or judge. (Phool Chand Bajrang Lal; S. Ganga Saran Sons (P) Ltd.). (xxxiii) Even if the reasons furnished by the ITO to the assessee does not, ex- facie, disclose his satisfaction of the basic facts ess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ch Limited and therefore, the Assessing Officer was of the opinion that the amount of Rs. 2.3 Crores ought to be treated as "deemed dividend" as per the provision of Section 2 (22)(e) of the Income Tax Act, and therefore according to him, the income chargeable to tax for the concerned assessment year as escaped assessment. The Court held that from the return filed and the documents annexed with the return, nowhere could it be assessed what is holding of the assessee in the SDBL. By simply stating that the assessee is holding certain shares in SDBL, its duty to truly and fully disclose all material facts necessary for assessment of income was not discharged. 7. Prior to adverting to the facts, one vital issue that requires a specific mention at this stage is the power under Article 226 of the Constitution and whether the writ jurisdiction is required to be exercised in view of availability of alternative channel under the statute. The issue had been long ago settled by the Apex Court in case of Calcutta Discount Co. Ltd. (supra). It was argued before the Supreme Court that the question whether Income-tax Officer has a reason to believe that by a reason of non-disclosure of materia ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ad resulted from non-disclosure of material facts, before the Income-tax Officer himself in the assessment proceedings and if unsuccessful there before the appellate officer or the appellate tribunal or in the High Court under section 66 (2) of the Indian Income Tax Act. The existence of such alternative remedy is not however always a sufficient reason for refusing a party quick relief by a writ or order prohibiting an authority acting without jurisdiction from continuing such action." 7.1 It is thus the discretion of the High Court to entertain the writ petition and grant relief by appropriate order or direction in appropriate cases under Article 226 where the revenue authority acts without jurisdiction and such action of executing authority when jeopardizes seriously the interest of the subjects and tantamount to harassment to them by an elongated procedures. 8. In the instant case, therefore, both the conditions for assuming the jurisdiction shall need to be fulfilled - as to whether there has been under assessment as per the belief of the Assessing Officer and whether such belief is formed on the basis of non-disclosure of the material facts on the part of the assessee. Onc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... but a different angle from which the Assessing Officer has examined the issue. It is argued emphatically and rightly on the petitioner's side that the very factual basis is misconceived and incorrect. It would be interesting to note how in the objections raised against the reopening of assessment, this aspect is explained by the assessee. "Without prejudice to the above, on the merits and on the cost of repetition, the assessee company here by submits the detailed working as to show how the said adjustment is justified for or unabsorbed loss or unabsorbed depreciation, whichever is less as per books of account A.Y 2005-06: AY Loss/Profit Amount transf- erred from General Reserve Loss/ (Profit) before adjustment against General Reserve Depreciation Loss excluding Depreciation/(Profit) Loss or Deprec- iation whichever is lower 1 2 3 4=2+3 5 6=4+5 7 1999-2000 5843.55 2247.84 8091.39 6386.41 1704.98 1704.98 2000-20001 18851.35 100 18951.35 9315.85 9635.5 9315.85 Total quantum availabl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... chart and he was eligible for adjustment of unabsorbed depreciation allowance, we fail to endorse the belief of the Assessing Officer that the income chargeable to tax has escaped assessment on account of non-disclosure of material facts fully and truly by the assessee. 14. Assuming that there is a different angle that needed to be examined by the Assessing Officer from the material which was already existing on the record, as held in case of Jivraj Tea Industries Ltd. (supra), here also we find that specific angle of depreciation earlier claimed; if was not in the mind of the Assessing Officer, nevertheless, when entire details were already made available at the time of original assessment, this ground cannot be validated. 15. As far as second ground raised in the reassessment notice, this concerns waiver of interest amount of Rs. 9938.98 lakhs, this very issue was examined at the time of original assessment that the amount of Rs. 9938.98 lakhs being interest waived by various banks should not be included in the computation of book profit under section 115JB of the Act. It needs to be reiterated at this stage that the original assessment had been concluded after scrutiny as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ly and fully material facts leading the income escaping the assessment and thus when both the conditions necessary for reopening of assessment beyond the period of four years do not get satisfied, re-assessment proceedings on the jurisdictional power of the Assessing Officer can be quashed. 17. As a parting note, we need to specifically make a mention of certain submissions made during the course of hearing. One vital ground raised by the petitioner was that in response to the notice issued for re-assessment, pursuant to the ratio laid down in GKN Driveshafts (India) Ltd. (supra), the Assessing Officer failed to deal with the objections raised by the petitioner and mechanically disposed of the same. According to the Revenue, re-assessment order is not desired at that stage and he is expected to only dispose of the objections and not to write the order of re-assessment. Without further dilating the issue, suffice to state that the stage of raising objections against reopening proceedings contemplated by the decision of GNK Driveshaft (India) Limited (Supra) is neither an empty formality nor an ordeal to be completed, but, an effective safeguard to check the jurisdictional error. S ..... X X X X Extracts X X X X X X X X Extracts X X X X
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