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TMI Blog2003 (12) TMI 23X X X X Extracts X X X X X X X X Extracts X X X X ..... o reassess the income which is alleged to have escaped assessment. Before adverting to the dispute, the relevant facts may first be noticed. The petitioner is an advocate and is practising as a legal advisor to various multinational corporations, assisting his clients on negotiations with regard to joint ventures, technology transfer agreements and other related legal/technical matters. His main source of income, therefore, is legal/professional fees received from his foreign clients. He filed his return of income for the assessment year 1995-96 on October 16, 1995, declaring an income of Rs. 10,36,147. The return was accompanied by the statutory audit report and the audited statements of account. In the profit and loss account statement, professional income had been declared at Rs. 3,53,08,960. While computing the taxable income, deduction under section 80-O of the Act was claimed at Rs. 1,76,54,480, i.e., at the rate of 50 per cent, of the total professional income of Rs. 3,53,08,960. The return was processed under section 143(1)(a) of the Act and the necessary intimation dated July 18,1996, issued to the assessee. Thereafter, the case was selected for scrutiny and requisite ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aimed by the assessee. The case of the assessee was that the claim for deduction had duly been examined while making the assessment under section 143(3) of the Act. Thus, the reassessment proceedings were being initiated merely on a change of opinion on the same facts, which is not permissible under the Act after the expiry of four years from the end of the relevant assessment year. For this purpose, reliance was placed upon the judgment of the Calcutta High Court rendered in Mercury Travels Ltd. v. Deputy CIT [2002] 258 ITR 533 and of the Delhi High Court rendered in Jindal Photo Films Ltd. v. Deputy CIT [1998] 234 ITR 170. Reliance was also placed on various other judicial pronouncements. A copy of the news item published in the Economic Times, New Delhi, dated December 26, 2002, was also enclosed with this letter, wherein it has been reported that the Bombay High Court in the case of CIT v. Asian Cables Corporation Ltd. (No. 1) [2003] 262 ITR 535 had held that the deduction under section 80-O of the Act was allowable on the gross income and not on the net income. The assessee addressed a further letter to the Assessing Officer, dated March 6, 2003, requesting him to first dispos ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t income has escaped assessment. According to him, the assessee's case was covered under sub-clauses (i) and (iii) of clause (c) of the aforesaid Explanation, which provides that cases where income chargeable to tax has been under assessed or where such assessed income has been made subject to excessive relief under this Act, are also deemed to be cases where income chargeable to tax has escaped assessment for the purpose of section 147 of the Act. Mr. A. K. Mittal, learned counsel for the petitioner, contended that a perusal of the reasons recorded as also the order passed by the Assessing Officer dated March 13, 2003, clearly shows that there is no allegation against the assessee that he had failed to disclose fully and truly all material facts necessary for his assessment. Thus, according to him, in the absence of such a finding, the proceedings under section 147 of the Act could not be initiated after the expiry of four years from the end of the assessment year 1995-96. Dr. N. L. Sharda, learned counsel for the Revenue, supported the order of the Assessing Officer. He, however, on a pointed query from the Bench fairly conceded that in the reasons recorded by the Assessing O ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... - Production before the Assessing Officer of account books or other evidence from which material evidence could, with due diligence, have been discovered by the Assessing Officer will not necessarily amount to disclosure within the meaning of the foregoing proviso. Explanation 2. -For the purposes of this section, the following shall also be deemed to be cases where income chargeable to tax has escaped assessment, namely: - (a) where no return of income has been furnished by the assessee although his total income or the total income of any other person in respect of which he is assessable under this Act during the previous year exceeded the maximum amount which is not chargeable to income-tax ; (b) where a return of income has been furnished by the assessee but no assessment has been made and it is noticed by the Assessing Officer that the assessee has understated the income or has claimed excessive loss, deduction, allowance or relief in the return ; (c) where an assessment has been made, but- (i) income chargeable to tax has been underassessed ; or (ii) such income has been assessed at too low a rate ; or (iii) such income has been made the subject of excessive r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Act shall be wholly without jurisdiction. This position is also evident from the Departmental Circular No. 549, dated October 31, 1989, wherein the Board itself has explained the scope of the proviso in para. 7.1, which reads as under: "(iv) A proviso to the new section provides that an assessment, which has been completed under section 143(3) or 147, i.e., a scrutiny assessment, can be reopened after the expiry of four years from the end of the relevant assessment year only if income has escaped assessment due to the failure on the part of the assessee to file a return of income or to disclose fully and truly all material facts necessary for his assessment." Section 148 deals with the requirement of issue of notice: Sections 149 and 150 deals with the time within which a notice under section 148 can be issued: Section 151 deals with the requirements of sanction of a statutory authority before issue of notice: Section 152 provides for rates applicable for levy of tax and section 153 prescribes the time-limit for completion of assessment and reassessment under section 147 of the Act. Thus, sections 148 to 153 come into play only after the Assessing Officer assumes valid jur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Madras High Court and it has been held as under: "The precondition for the exercise of the power under section 147 in cases where power is exercised within a period of four years from the end of the relevant assessment year is the belief reasonably entertained by the Assessing Officer that any income chargeable to tax has escaped assessment for that assessment year. However, when the power is invoked after the expiry of the period of four years from the end of the assessment year, a further precondition for such exercise is imposed by the proviso namely, that there has been a failure on the part of the assessee to make a return under section 139 or in response to a notice issued under section 142 or section 148 or failure on the part of the assessee to disclose fully and truly all material facts necessary for his assessment for that assessment year. Unless, the condition in the proviso is satisfied, the Assessing Officer does not acquire jurisdiction to initiate any proceeding under section 147 of the Act after the expiry of four years from the end of the assessment year. Thus, in cases where the initiation of the proceedings is beyond the period of four years from the end of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ars 1989-90, 1990-91 and 1991-92 vide issue of notices under section 148 in September, 1996, which was after the expiry of four years. The reassessment proceedings had been initiated almost on identical grounds as in the present case. In the reasons recorded, it was mentioned that the deduction under section 80HHD was allowable on total profit of the business by multiplying by ratio of total receipt of convertible foreign exchange to total receipt of whole business carried on by the assessee. However, to calculate total receipt of the business, the assessee had taken gross receipt of foreign exchange plus net receipt of domestic business in respect of commission/ service charges. Thus, it was claimed that the assessee had claimed excess deduction under section 80HHD. The High Court observed that where expressly deduction under section 80HHD was claimed and it was examined and granted by the assessing authority, there could be no omission or failure on the part of the assessee to disclose any material fact necessary for the assessment. It has been further observed that in the reasons for reopening the assessments, it had not been alleged that there had been any omission or failure o ..... X X X X Extracts X X X X X X X X Extracts X X X X
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