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TMI Blog2009 (9) TMI 27X X X X Extracts X X X X X X X X Extracts X X X X ..... nd legal. - Civil Misc. Writ Petn. No. 181 of 2004 - - - Dated:- 16-9-2009 - Hon'ble R. K. Agrawal, J. and Hon'ble Shashi Kant Gupta, J. Petitioner's Counsels - A. Upadhya Respondent's Counsel - S.C. , A.N. Mahajan , Ashok Kumar , Bharatji Agarwal , D. Awasthi , G.Krishna , R.K. Upadhaya and S Chopra JUDGMENT The judgment of the court was delivered by Hon'ble Shashi Kant Gupta, J. - This writ petition has been filed, inter alia, for the following reliefs; "(i) Issue a suitable writ, order or direction for quashing the notice under Section 148 of the Income Tax Act dated 10.07.2003 for the assessment year 2000-01. (ii) Issue a suitable writ, order or direction in the nature of writ of mandamus restraining Assessing Officer for taking any further proceeding in pursuance of notice under Section 148." 2. Brief facts as enumerated in the writ petition are as follows; The petitioner is a public limited company engaged in the manufacture of Hi-tech engineering equipments and machines especially Honing and Induction Heating Equipments which are used by automobile and other such industries, and has a registered office at C-37, Panki Industrial Area, Kanpu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... balance sheet, profit and loss account, tax Audit Report and other documents which were submitted before the Assessing Officer in arriving at the taxable income of the assessee. Even though, the Assessing Officer had noticed that Rs. 5,41,850/-, prior period of adjustment, was claimed as an expenditure and also that the interest receivable from M/s Track Parts of India was not shown as income in the profit and loss account, he did not assess the amount nor added the same to the income disclosed by the assessee for the purpose of assessment. 6. On the other hand, learned counsel for the respondent has submitted that the initiation of reassessment proceedings is permissible when it is found that certain items of income though chargeable to tax have escaped the notice of the Assessing Officer and no discussion of chargeability of the tax on the said items of income was made by the Assessing Officer in the assessment order, the same may be held to have been rendered without any application of mind. 7. Learned Standing Counsel has also taken through the provisions of Section 147 as it stood prior to April 1, 1989 and after April 1, 1989, and had tried to impress upon this Cou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Ltd. The company is following a mercantile system and on the basis of the same an interest of Rs. 8,34,720/- has accrued in respect of inter corporate deposit. The same should have been provided in the books of account in accordance with the method of accounting employed and should be offered as part of the assessable income. This has not been done by the company. As a result, an income of Rs. 8,34,720/- has further escaped assessment. Therefore, I have reason to believe that income of Rs. 13,76,570/- has escaped assessment and requires to be reassessed as per provisions of section 147. Issue Notice U/s 148 Sd/-(ACIT)" 10. The mere perusal of the reasons recorded by the Assessing Officer reveals that the prior period of adjustments amounting to Rs. 5,41,850/- was debited to profit and loss account. Since the company was following a mercantile system of accounting, as such any expenses relating to any earlier period or subsequent year can only be claimed/allowed as the deduction in the respective financial year to which it relates. Thus according to the Assessing Officer Rs. 5,41,850/- was not allowable deduction for assessment year 2000-01 and the other reason assign ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ough 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 under assessed; or (ii) such income has been made the subject of excessive relief under this Act; or (iii) such income has been made the subject of excessive relief under this Act; or (iv) excessive loss or depreciation allowance or any other allowance under this Act has been computed." 12. It has not been disputed by the learned counsel for the petitioner that while framing assessment under Section 143 (3) of the Act, the Assessing Officer did not discuss in the assessment order about the "Prior period of adjustment" amounting to Rs. 5,41,850/-and also did not deal with the actual interest of Rs. 8,34,720/- in respe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or adjudicating upon the issue raised by the petitioner. First of all, we would like to refer to the decision in Kalyanji Mavji Co. Vs. Commissioner of Income-Tax, West Bengal II (1976) 102 ITR 286 (S.C.). wherein the Apex Court observed as follows; "On a combined review of the decisions of this Court the following tests and principles would apply to determine the applicability of s. 34(1) (b) to the following categories of cases: (1) Where the information is as to the true and correct state of the law derived from relevant judicial decisions; (2) Where in the original assessment the income liable to tax has escaped assessment due to oversight, in advertence or a mistake committed by the Income-tax officer. This is obviously based on the principle that the tax-payer would not be allowed to take advantage of an oversight or mistake committed by the Taxing Authority; (3) Where the information is derived from an external source of any kind. Such external source would include discovery of new and important matters or knowledge of fresh facts which were not present at the time of the original assessment; (4) Where the information may be obtained even from th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ewspaper Society (supra), subsequently came up for consideration before a three Judges Bench of the Apex Court in the case of A. L. A. Firm Vs. Commissioner of Income Tax (1991) 189 ITR 285, and the Apex Court explained the effect and implication of the principles laid down in Kalyanji Mavji Co. Vs. Commissioner of Income-Tax, West Bengal II (supra) and Indian and Eastern Newspaper Society Vs. Commissioner of Income-Tax, New Delhi (supra), and observed as follows; "We have pointed out earlier that Kalyanji Mavji [1976] 102 ITR 287 (SC) outlines four situations in which action under S.34(1)(b) can be validly initiated. The Indian Eastern Newspaper Society's [1979] 119 ITR 996 (SC) case has only indicated that proposition (2) outlined in this case and extracted earlier may have been somewhat widely stated; it has not cast any doubt on the other three propositions set out in Kalyanji Mavji's case. The facts of the present case squarely fall within the scope of propositions 2 and 4 enunciated in Kalyanji Mavji's case. Proposition (2) may be briefly summarised as permitting action even on a "mere change of opinion". This is what has been doubted in the IENS case (supra) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... widely expressed as to include also cases in which the I.T.O., having considered all the facts and law, arrives at a particular conclusion, but reinitiates proceedings because, on a reappraisal of the same material which had been considered earlier and in the light of the same legal aspects to which his attention had been drawn earlier, he comes to a conclusion that an item of income which he had earlier consciously left out from the earlier assessment should have been brought to tax. In other words, as pointedout in IENS case, it also ropes in cases of a "bare or mere change of opinion" where the I.T.O. (very often a successor officer) attempts to reopen the assessment because the opinion formed earlier by himself (or, more often, by a predecessor I.T.O.) was, in his opinion, incorrect. Judicial decisions had consistently held that this could not be done and the IENS case (supra) has warned that this line of cases cannot be taken to have been overruled by Kalyanji Mavji (supra). The second paragraph from the judgment in the IENS case earlier extracted has also reference only to this situation and insists upon the necessity of some information which make the ITO realise that he has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... research into facts or law." still holds goods and the facts of the present case clearly indicates that certain items of income though chargeable to tax had escaped the notice of the assessing officer and no discussion of chargeability of the tax on the said items of income was made by the Assessing Officer in the order. Therefore, in the light of the judgment of the Apex Court in A. L. A. Firm (supra) the initiation of proceedings under Section 147 of the Act is in accordance with law and no fault can be found with the approach adopted by the Assessing Officer. 19. Now, let us consider the decision of Delhi High Court in the case of Commissioner of Income Tax Vs. Kelvinator of India Ltd (supra) in the light of the decision of Apex Court as noticed hereinabove. With deep respect to the learned Judges who decided the aforementioned case of Kelvinator of India Ltd (supra), we regret our inability to agree with the view taken by the Delhi High Court in the said case for the following reasons; (i) Firstly, as we have noticed hereinbefore that the proposition laid down in the case of Kalyanji Mavji (supra) was not completely overruled in the case of Indian Eastern Newspaper Soci ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... endered without any application of mind. 22. In this context, at this juncture, it is useful to refer to the decision of Gujarat High Court in Praful Chunilal Patel Vs. M. J. Makwana/Assistant Commissioner of Income-Tax (1999) 236 832; "it will thus be seen that in the proceedings taken under section 147, the Assessing Officer may make an assessment or reassessment, or recomputation, as the case may be. The word 'assess' refers to a situation where the assessment was not made in the normal manner while the word 'reassess' refers to a situation where an assessment is already made, but it is sought to be reassessed on the basis of this provision. In cases where the Assessing Officer has not made an assessment of any item of income chargeable to tax while passing the assessment order in the relevant assessment year, it cannot be said that such income was subjected to an assessment. In the assessment proceedings, the Assessing Officer would ascertain on consideration of all relevant circumstances the amount of tax chargeable to a given taxpayer. The word 'assessment' would mean the ascertainment of the amount of taxable income and of the tax payable thereon. In other wor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the proviso. Clause (b) deals with cases where no assessment is made and the Assessing Officer notices that the income is understated or excessive loss, deduction, allowance or relief is claimed in the return. These would be cases where the return is accepted without scrutiny and no formal assessment is made. Clause (c) would cover cases where in the assessment already made, income was underassessed or assessed too low or excessive relief is given or excessive loss or depreciation allowance or other allowance under the Act has been computed. In the aforesaid deemed cases of escapement of income, the Assessing Officer can initiate the proceedings on finding or discovering such cases and no debate whether they constitute cases of escapement of income, would be permissible................. "The cases of underassessment or excessive relief which are deemed cases of escapement of income leave no scope for an argument that they are not cases of income having escaped assessment. If the Assessing Officer prima facie finds or discovers that the case falls in any of the clauses of Explanation 2 , then those cases will be deemed cases of income that has escaped assessment and without any ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on came from any extraneous source on which the ITO could base his belief that the income has escaped assessment and on that ground held that the reopening in the instant case was invalid. The reassessment was accordingly cancelled. This conclusion of the Tribunal appears to be erroneous. The law as laid down by the Supreme Court is that an ITO can obtain information from materials already on record and it is lawful for him to reopen assessments on the basis thereof." 27. The Apex Court in the case of A. L. A. Firm (supra) has also taken into consideration, the two decisions of the Madaras High Court namely Salem Provident Fund Society Ltd. Vs. CIT [1961] 42 ITR 547 and in CIT Vs. Rathinasabapathy Mudaliar [1964] 51 ITR 204. 28. In this connection, reference may be made to Salem Provident Fund (supra), where it has been observed by the Madras High Court as follows; "We are unable to accept the extreme proposition that nothing that can be found in the record of the assessment, which itself would show escape of assessment or under-assessment, can be viewed as information which led to the belief that there has been escape from assessment or under-assessment. Suppo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g 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 under assessed; or (ii) such income has been made the subject of excessive relief under this Act; or (iii) such income has been made the subject of excessive relief under this Act; or (iv) excessive loss or depreciation allowance or any other allowance under this Act has been computed." 31. Thus from the perusal of aforesaid Explanation 2 to section 147 of the Act it is clear that it enacts certain deeming provisions where in any of the circumstances stated above, income is deemed to have escaped assessment giving jurisdiction to the Assessing Officer to act under Section 147 (See, VXL India Ltd. Vs. Assistant CIT (1995) 215 ITR 295 and Birla VXL Ltd. Vs. Assistant CIT (1996) 217 ITR 1 (Gujarat). 32. "Explanation 1 to provis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssumed that, from the books produced, the Assessing Officer could have found out the truth, he is not on that account precluded from exercising the power to re-assess the escaped income [See, Kantamani Venkata Narayana Sons v. Addl. ITO 1967 63 ITR 638 (SC); Sowdagar Ahmed Khan v. ITO, (1968) 70 ITR 79 (SC); ITO v. Lakhmani Mewal Das, (1976) 103 ITR 437, 445, 445 (SC).] 36. The fact that the Assessing Officer could have found out the correct position by further probing the matter does not exonerate the assessee from the duty to make a full and true disclosure of the material facts. 37. It is also relevant to refer to the decision of the Apex Court in Maharaj Kumar Kamal Singh Vs. Commissioner of Income-Tax, Bihar and Orissa reported in 1958 (1959)35 ITR 1 SC. The Supreme Court examined the provisions of Section 34 (1)(b) of the Income Tax Act, 1922 and observed as follows:- The next question that remains to be considered is in regard to the other conditions prescribed by section 34(1)(b). When can income be said to have escaped assessment? ........We see no justification for holding that case of income escaping assessment must always be cases where ..... X X X X Extracts X X X X X X X X Extracts X X X X
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