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TMI Blog2008 (11) TMI 2X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessment year 1998-99. It is also directed against the order dated 02.03.2005 passed by the Assistant Commissioner of Income Tax, Central Circle-18, New Delhi on the objections filed by the petitioner. 2. The petitioner had filed its return of income on 30.11.1998 declaring nil income. In the course of the assessment proceedings the petitioner was required to submit certain information which included details with regard to the share application money received by the petitioner in the relevant year. By a letter dated 05.03.2001 (Annexure P-2) the petitioner submitted various details including bank statements, particulars of cheques received towards share application money and confirmation relating to the share application money received during the year from Hallmark Healthcare Limited. The assessment was completed on 07.03.2001 under Section 143 (3) of the said Act at nil income and the assessee was allowed to carry forward its unabsorbed depreciation of Rs 20,21,235/-. In the assessment order the Assessing Officer specifically noted that:- "In compliance to departmental notices assessee's representative Sh. V. K. Goel, C.A appeared from time to time. Details as required were ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the case, notice u/s. 148 of the I. T. Act is issued to the assessee. Sd/ 29.03.2004 ACIT, CC-18, NEW DELHI " At this juncture, it would be relevant to point out that the present case is one in which the notice under Section 148 of the said Act has been issued beyond four years from the end of the relevant assessment year, i.e., 1998-1999. Thus, it is an admitted position that the proviso to Section 147 would be applicable. As would be discussed in greater detail later in this judgment, action under Section 147 can be taken after the expiry of four years from the end of the relevant year only if any income chargeable to tax has escaped assessment for such assessment year by reason of the failure on the part of the assessee to:- (a) Make a return under Section 139 or in response to a notice under sub-section (1) of Section 142 or Section 148; or (b) to disclose fully and truly all material facts necessary for his assessment, for that assessment year. It is an admitted position that condition (a) referred to above, does not come into play in the present petition inasmuch as the assessee had made a return originally as well as in response to the Section 148 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the said Act. In this context, it was submitted that the issuance of the notice under Section 148 on the basis of the reasons recorded on 29.03.2004 was nothing but a mere change of opinion, which was not permissible under law. Another objection taken by the petitioner was that, in any event, all material facts had been truly and fully disclosed during the course of the assessment and there was no failure on the part of the assessee and as such the notice under Section 148 could not have been issued beyond the period of four years from the end of the relevant assessment year, i.e, 1998-1999. It was further submitted that the reasons recorded on 29.03.2004 and supplied to the petitioner did not contain any allegation that there was any failure on the part of the assessee to disclose all the material facts truly and fully. It was contended that in the absence of any such allegation, the issuance of the notice under Section 148 beyond the period of four years, which expired on 31.03.2003, was wholly without jurisdiction. There were other objections taken with which we need not concern ourselves. The petitioner, therefore, requested that the proceedings initiated under Section 148 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... imited v. Income Tax Officer and Others: (2003) 1 SCC 72 (= 259 ITR 19), wherein the Supreme Court directed as under:- "However, we clarify that when a notice under Section 148 of the Income Tax Act is issued, the proper course of action for the noticee is to file return and if he so desires, to seek reasons for issuing notices. The assessing officer is bound to furnish reasons within a reasonable time. On receipt of reasons, the noticee is entitled to file objections to issuance of notice and the assessing officer is bound to dispose of the same by passing a speaking order. In the instant case, as the reasons have been disclosed in these proceedings, the assessing officer has to dispose of the objections, if filed, by passing a speaking order, before proceeding with the assessment in respect of the abovesaid five assessment years." With regard to these directions given by the Supreme Court as to the proper course of action when a notice under Section 148 of the said Act is issued, two points need to be kept in mind. The first point is that the noticee has to file a return and the second is that, where the noticee seeks reasons for the issuance of the notice, the Assessing Of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g payment of interest and that it was for the Income Tax Officer to investigate and determine whether these documents were genuine or not. The Supreme Court noted that the respondent/ assessee could not be said to have failed to make a true and full disclosure of the material facts by not confessing before the Income Tax Officer that the hundis and the entries in the books of account produced by the respondent/ assessee were bogus. The Supreme Court held that there was no failure on the part of the respondent therein to disclose fully and truly all material facts necessary for its assessment and the condition for the applicability of Section 147(a) [as it stood at that time] was not satisfied. The Supreme Court also held that its earlier decision in the case of CIT v. Burlop Dealer's Limited: 79 ITR 609 (SC) fully applied even though the same had been rendered in the context of Section 34 (1) (a) of the Income Tax Act, 1922. 10. The learned counsel for the petitioner also submitted that the reasons which had been supplied to the petitioner did not contain any allegation that material facts had not been truly and fully disclosed by the assessee at the time of assessment. Rel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for the belief that income has escaped assessment. Original assessment in this case was completed on 07.03.2001 u/s. 143 (3). There was failure on the part of the assessee to disclose fully and truly all material facts relating to accommodation entries raised from the one of the companies of Sh. Sanjay Rastogi to the extent of Rs 5 lacs. Therefore, I have reasons to believe that income to the extent of Rs 5 lacs has escaped assessment. (SATPAL SINGH) Asstt. Commissioner of Income Tax Central Circle-18, New Delhi" It is apparent by comparing these purported reasons with the reasons extracted earlier and which had been supplied to the petitioner that the two are different. While in the reasons supplied to the petitioner there is no mention of the allegation that there was a failure on the part of the assessee to disclose fully and truly all material facts, in the reasons shown in the said form in Annexure-A to the counter-affidavit, there is a specific allegation that there was failure on the part of the assessee to disclose fully and truly all material facts relating to accommodation entries raised from one of the companies of Sh. Sanjay Rastogi to the extent of Rs 5, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erial at all available with the Income-tax Officer which could have enabled the Income-tax Officer to entertain any reason to believe that the income of the assessee had escaped assessment for the relevant assessment year. In Phool Chand (supra) it was further observed in the context of the Burlop decision (supra) that an assessment order for the subsequent year could not by itself lead to any inference, much less to the formation of a reasonable belief that income chargeable to tax had escaped assessment in the previous year, on account of the failure on the part of the assessee to make a true and full disclosure of the primary facts during the proceedings of the concluded assessment. In this background, the Supreme Court observed:- "The judgment in Burlop Dealers' case cannot be understood as laying down any such proposition that even where the Income-tax Officer gets some fresh information which was not available at the time of the original assessment, subsequent to the conclusion of the original assessment proceedings, which enables him to form a reasonable belief that the income of the assessee had escaped assessment because of the omission or failure of the assessee to disc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of omission or failure on the part of the assessee to make a true and full disclosure of all material facts necessary for his assessment during the concluded assessment proceedings, any part of his income, profits or gains chargeable to income-tax has escaped assessment. He may start re-assessment proceedings either because some fresh facts had come to light which were not previously disclosed or some information with regard to the facts previously disclosed comes into his possession which tends to expose the untruthfulness of those facts. In such situations, it is not a case of mere change of opinion or the drawing of a different inference from the same facts as were earlier available but acting on fresh information. Since the belief is that of the Income-tax Officer, the sufficiency of reasons for forming the belief is not for the court to judge but it is open to an assessee to establish that there in fact existed no belief or that the belief was not at all a bona fide one or was based on vague, irrelevant and non-specific information. To that limited extent, the court may look into the conclusion arrived at by the Income-tax Officer and examine whether there was any material av ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. Explanation 1.— 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. It is evident that the provisions of section 147, pre and post the 1989 amendment are different. Whether anything turns upon this difference, is discussed later in this judgment. 15. It was further contended on behalf of the respondents that though the assessee had disclosed the factum of the share application money of Rs 5,00,000/- received from Hallmark Healthcare Ltd, the same was not ?truly? declared and, therefore, the Assessing Officer had validly invoked the provisions of section 147 and had correctly issued the notice under section 148 of the said Act. 16. Mrs Bansal also submitted that this was n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ision. It carves out an exception to the main provision to which it has been enacted as a proviso and to no other." 11. Lord Macmillan in Madras and Southern Maharatta Railway Co. v. Bezwada Municipality [(1944) LR 71 IA 113, 122] laid down the sphere of a proviso as follows: The proper function of a proviso is to except and deal with a case which would otherwise fall within the general language of the main enactment, and its effect is confined to that case. Where, as in the present case, the language of the main enactment is clear and unambiguous, a proviso can have no repercussion on the interpretation of the main enactment, so as to exclude from it by implication what clearly falls within its express terms.? The territory of a proviso therefore is to carve out an exception to the main enactment and exclude something which otherwise would have been within the section. It has to operate in the same field and if the language of the main enactment is clear it cannot be used for the purpose of interpreting the main enactment or to exclude by implication what the enactment clearly says unless the words of the proviso are such that that is its necessary effect. (Vide also C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... material facts necessary for his assessment for that assessment year Condition (a) is admittedly satisfied inasmuch as the original assessment was completed under section 143(3) of the said Act. Condition (b) deals with a special kind of escapement of income chargeable to tax. The escapement must arise out 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. This is clearly not the case here because the petitioner did file the return. Since there was no failure to make the return, the escapement of income cannot be attributed to such failure. This leaves us with the escapement of income chargeable to tax which arises out of the failure on the part of the assessee to disclose fully and truly all material facts necessary for his assessment for that assessment year. If it is also found that the petitioner had disclosed fully and truly all material facts necessary for its assessment, then no action under section 147 could have been taken after the four year period indicated above. So, the key question is whether or not the petitioner had made a full and true disclosure of a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the said form clearly carries the allegation that 'there was failure on the part of the assessee to disclose fully and truly all material facts relating to accommodation entries'. This being the case, it was submitted, the bar of taking action within four years would not apply and, consequently, the notice under section 148 was valid. 22. This argument suffers from several infirmities. First of all, the respondents cannot be permitted to gloss over the fact that the reasons which were supplied to the petitioner were different from the reasons purportedly recorded in the said form on which they now seek to rely. If the reasons in the said form were the 'actual' reasons, why were they not communicated to the petitioner Why was nothing said about these reasons (noted in the form) when the petitioner filed its objections to the reasons which were supplied to it' It must be remembered that in its objections, the petitioner took the specific plea that in the absence of any allegation that the petitioner had failed to disclose fully and truly all material facts necessary for assessment, the Assessing Officer had no jurisdiction to issue the notice under section 148 and initiate actio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y carried forward this mandatory requirement by directing that the reasons which are recorded be communicated to the assessee within a reasonable period of time so that at that stage itself the assessee may point out any objections that he may have with regard to the initiation of action under Section 147 of the said Act. The requirement of recording the reasons, communicating the same to the assessee, enabling the assessee to file objections and the requirement of passing a speaking order are all designed to ensure that the Assessing Officer does not reopen assessments which have been finalized on his mere whim or fancy and that he does so only on the basis of lawful reasons. These steps are also designed to ensure complete transparency and adherence to the principles of natural justice. Thus, a deviation from these directions would entail the nullifying of the proceedings. Assuming as we have done that the 'actual' reasons were those as noted in the said form, it is obvious that the reasons were never communicated to the petitioner and it is only for the first time in the course of the present writ petition that those 'reasons' have surfaced. Therefore, if he proceeded on the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h his reasons within a reasonable time, did not do so. The period which elapsed between 11.05.2004, when the petitioner made the request for communicating the reasons, and 05.11.2007, the date when the counter-affidavit was filed, can certainly not be regarded as a reasonable period of time. Apart from this, we must not forget the provisions of Section 149 which prescribes the time limit for a notice under Section 148. Section 149 (1) (b) stipulates the outer limit of six years from the end of the relevant assessment year where the income chargeable to tax which has escaped assessment amounts to or is likely to amount to rupees one lakh or more for that year. This means that a notice under Section 148, in the present case, could not, in any event, have been issued after six years from the end of the assessment year 1998-99, i.e., after 31.03.2005. In whichever way we look at it, a notice under Section 148 without the communication of the reasons therefor is meaningless inasmuch as the Assessing Officer is bound to furnish the reasons within a reasonable time. In a case, where the notice has been issued within the said period of six years, but the reasons have not been furnished wi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that notwithstanding that there had been no omission of failure as mentioned in clause (a) on the part of the assessee, if the Income-tax Officer had in consequence of information in his possession, reason to believe that income chargeable to tax had escaped assessment, he could initiate reassessment proceedings. Thus, reassessment proceedings could be initiated if the conditions specified in either clause (a) or clause (b) were satisfied. It must also be noted that prior to 1989, the time limit for issuance of notice under Section 149 was also different. In cases falling under clause (a) of Section 147, the limitation was eight years from the end of the relevant assessment year unless the income chargeable to tax, which had escaped assessment, amounted to or was likely to amount to Rs 50,000/- or more for that year, in which case the period was 16 years. In respect of cases falling under clause (b) of Section 147, the period of limitation for issuing a notice under Section 148 was four years from the end of the relevant assessment year. Thus, the time limit for issuing a notice under Section 148 where the Income-tax Officer merely had information in his possession to believe that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cer. The only requirement is that the Assessing Officer has to have reason to believe that income chargeable to tax has escaped assessment. The proviso is by way of an exception to this provision. The proviso also does not speak of any 'information'. This discussion makes it clear that the ratio in Phool Chand (supra) would not be strictly applicable to this case which relates to the provisions of Section 147 after the amendment of 1989. 27. In the present case, what is to be seen is whether the petitioner failed to make a full and true disclosure of all the material facts necessary for his assessment for the assessment year 1998-99. Explanation I to Section 147 also makes it clear that mere 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 said proviso. This explanation, however, does not mean that production of account books and other evidence from which material evidence could with due diligence have been discovered by the Assessing Officer will not 'in any event' amount to disclosur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 9. 28. For all the above reasons, we allow the writ petition. The impugned notice dated 29.03.2004 under Section 148 of the said Act as also the impugned order dated 02.03.2005 are set aside. All proceedings pursuant to the said notice are also set aside. The parties shall bear their own costs. This writ petition and all pending applications stand disposed of. BADAR DURREZ AHMED, J RAJIV SHAKDHER, J November 03, 2008 SR/HJ/dutt 1 Section 147 as it stood then was as follows:- "147. Income escaping assessment.--If— (a) the Income-tax Officer has reason to believe that, by reason of the omission or failure on the part of an assessee to make a return under section 139 for any assessment year to the Income-tax Officer or to disclose fully and truly all material facts necessary for his assessment for that year, income chargeable to tax has escaped assessment for that year, or (b) notwithstanding that there has been no omission or failure as mentioned in clause (a) on the part of the assessee, the Income-tax Officer has in consequence of information in his possession reason to believe that income chargeable to tax has escaped assessment for any assessment year, he may, ..... X X X X Extracts X X X X X X X X Extracts X X X X
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