Amiya Sales & Industries & Anr. v. Asstt. CIT & Ors. ()

INCOME TAX

--Reassessment----NOTICE UNDER SECTION 148Validity-- Held: As there was no omission or failure on the part of the assessee to disclose truly and fully all material facts in the return, and the AO sought to reopen the assessment due to wrong interpretation of accounts made by himself, the notices under section 148 were liable to be quashed.

Income Tax Act, 1961 s.147

Income Tax Act, 1961 s.148

CONSTITUTION OF INDIA

--Writ----MAINTAINABILITYExistence of alternative remedy-- Held: Alternative remedy under the IT Act is no bar for invoking the jurisdiction under article 226 of the Constitution of India.

Constitution of India, 1950 Article 226

Amiya Sales & Industries & Anr v. Asstt. CIT & Ors.

In The Calcutta High Court Soumitra Pal J.

W.P No. 291 of 2000 14 September 2004

Counsel :R. N. Dutta for the Petitioners Nizamuddin, for the Respondents.

JUDGMENT

Soumitra Pal J.

In the instant writ petition, the petitioners have challenged the notices dated 31-12-1998, issued by respondent No. 2, seeking to reopen the assessments for the assessment years 1992-93 and 1993-94 under section 148 of the Income Tax Act, 1961 (hereinafter referred to as 'the Act'). It is appropriate to set out paragraph 2 of the recorded reasons for such reopening, which is as under :

'As requested for I am intimating the recorded reasons for reopening of the assessments for the assessment years.mentioned above which is as under

Because of incorrect interpretation of accounts by the assessing officer the assessee got the benefit of loss of Rs. 34,40,715 for the assessment year 1992-93 which was carried forward to subsequent years and adjusted as below :

Since in the opinion of the then assessing officer the cases for the above assessment years were covered by Explanation 2 to clause (c) to section 147 which states that where an assessment has been made but income chargeable to tax has been underassessed, action under section 147 was initiated.'

In the affidavit in opposition, respondent No. 2 has annexed the proposal for reopening under section 148 of the Act for the said assessment years. I find the recorded reasons as noted above are virtually a verbatim reproduction of paragraph 3 of the proposal.

In the recorded reasons, it has been stated that action under section 147 of the Act has been initiated as there was an underassessment and the cases of the assessment years were covered by Explanation 2 to clause (c) to the said section.

The relevant portion of section 147 which deals with income escaping assessment is as follows:

147. If the assessing officer, has 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 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 section148 or to disclose fully and truly all material facts necessary for his assessment for that assessment year.

Explanation L- . . .

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 under assessed or

(ii) such income has been assessed at too low a rate 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.'

Thus, under section 147 of the Act, if the assessing officer has reason to believe that any income chargeable to tax has escaped assessment for any assessment year, he may, subject to the provisions contained in sections 148 to 153, assess or reassess such income or any other income chargeable to tax which has escaped assessment and comes to his notice subsequently in the course of the proceedings under section 147 or recompute the loss or the depreciation allowance or other allowance for the assessment year concerned. However, if an assessment has been made under section 143(3), the proviso to section 147 mandates that no action shall be taken under section 147 after the expiry of four years from the end of the relevant assessment year unless certain conditions are fulfilled-any income chargeable to tax escaped assessment 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 section 142(1) or section 148 or to disclose fully and truly all facts necessary for his assessment for that assessment year. Thus, in a case where assessments were made under section 143(3) and are sought to be reopened after the expiry of four years from the end of the relevant assessment year, in order to assume jurisdiction under section 147, one of the conditions precedent is that the recorded reasons should point out the failure on the part of the assessee to disclose fully and truly the material facts necessary for assessment. Once the assessing officer comes to a finding that there was failure or there was an improper disclosure on. the part of the assessee, he forms the belief which is recorded and assumes jurisdiction under section 147.

In the instant case, the'assessments for both the assessment years were made under section 143(3). There is no dispute that the notices under section 147 of the Act were issued beyond four years from the end of the relevant assessment years. Thus, in order to initiate action under section 147 after the expiry of four years from the end of the relevant assessment years, there should have been either failure or non-disclosure on the part of the assessee. From the recorded reasons as aforestated, 1 find that the assessing officer is seeking to reopen the assessments since there was an 'incorrect interpretation of accounts by the assessing officer' and for that 'the assessee got the benefit of loss' for the assessment year 1992-93 which was carried forward to the subsequent years. Mr. R. N. Dutta, learned counsel appearing for the petitioner, submitted that the recorded reasons do not speak about any omission or failure on the part of the assessee to warrant the assessing officer to assume jurisdiction under section 147. Relying on the judgment of the Apex Court in Calcutta Discount Co. Ltd. v. Income Tax Officer (1961141 ITR 191 it was submitted that tests have been laid down by the Supreme Court and the same should be followed while reopening an assessment beyond four years. Mr. Dutta also relied on the judgments of Ajanta Pharma Ltd. v. Asstt. CIT (2004) 267 ITR 200 (Bom) and Hindustan Lever Ltd. v. R.B. Wadkar, (Asst. CIT) (No. 1) (2004) 268 ITR 332 (Bom) in support of his contentions.

In the judgment of Calcutta Discount (1961) 41 ITR 191 the Supreme Court dealing with section 34(1) of the Indian Income Tax Act, 1922, held as follows (page 207) :

'Both the conditions, (i) the Income Tax Officer having reason to believe that there has been under-assessment and (ii) his having reason to believe that such under- assessment has resulted from nondisclosure of material facts, must co-exist before the Income Tax Officer has jurisdiction to start proceedings after the expiry of four years.'

In the case in hand, it has nowhere been recorded that there was failure or improper disclosure on the part of the assessee. However, the assessing officer, as already noted, sought to reopen the assessments as there was 'incorrect interpretation of accounts by the assessing officer.' The recorded reasons do not speak of any omission or failure on the part of the assessee. Thus, admittedly there was no failure on the part of the assessee to disclose fully and truly all material facts in the assessments. In my view, incorrect interpretation of accounts by the assessing officer cannot confer jurisdiction on the assessing officer to issue notices under section 148 for ,reopening the assessments as sought to be made in the instant case.

Moreover, I accept the submission of Mr. Datta that incorrect interpretation of accounts by the assessing officer cannot be a ground for issuing a notice under section 148 since the Supreme Court in Parashuram Pottery Works Co. Ltd. v. ITO (1977) 106 ITR 1, while dealing with the action of the assessing officer to rectify a mistake and seeking to recompute and reassess the depreciation which was allowed in excess of the permissible

limit, held as follows (page 9) : 1

'When an Income Tax Officer relies upon his own records for cleternuining 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 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 CIT v. Bhanji Lavji (1971) 79 ITR 582 (SC), section 34(1) (a) of the Act of 1922 (corresponding to section 147(a) of the Act of 1961) does not cast a duty upon the assessee to instruct the Income Tax Officer on questions of law.'

Therefore, the Supreme Court held that where the assessing officer relies on his own records and commits mistakes, the same cannot be attributed to be the omission or failure on the part of the assessee.

The judgment in the case of Parashuram Pottery (19771106 ITR 1 (SC) also considered the judgment of the five-judge Bench of the Apex Court in the case of Calcutta Discount Co. Ltd. (1961) 41 ITR 191. Thus, wrong interpretation of accounts by the assessing officer and grant of excess benefit cannot be a ground for reopening. The ratio of the judgment in Parashuram Pottery (1977) 106 ITR 1 (SC) equally applies in the case in hand. The reasons recorded, as noted, do not warrant assumption of jurisdiction by the assessing officer to issue notices under section 148.

In my view, the law laid down by the Supreme Court interpreting section 147 is clear. If there is no failure on the part of the assessee to disclose fully and truly the material facts, wrong interpretation of accounts by the assessing officer leading to excessive relief cannot be a ground for reopening and thus cannot confer jurisdiction on the assessing officer. Explanation 2 cannot be read in isolation of section 147 of the Act. It should be read in conjunction with the provisions in the section. The words 'for the purpose of this section' appearing in Explanation 2 show that the conditions precedent for reopening assessments as laid down in section 147 have to be complied with. In this regard, I am in agreement with the principle of law laid down in McDermott International Inc. v. Addl. CIT (2003) 259 ITR 138 (Uttaranchal), relied on by Mr. Datta.

Mr. Nizamuddin, learned counsel for the revenue, relying on the judgment of the Apex Court in GKN Driveshafts (India) Ltd. v. ITO (2003) 259 ITR 19 submitted that the petitioner instead of challenging the notices in the writ jurisdiction should have availed itself of the alternative remedy under the Act.

In my view, the judgment of GKN Driveshafts (India) Ltd. v. ITO (2003) 259 ITR 19 (SC) is distinguishable as in the case in hand, the assessments are sought to be reopened on the incorrect interpretation of accounts by the assessing officer which is not permissible in view of the law laid down in the judgment of the Supreme Court in Parashuram Pottery (1977) 106 ITR 1. Moreover, in Calcutta Discount Co. (1961) 41 ITR 191 (SC) it has been held as follows (page 207)

'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 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.'

Besides in the judgments in CESC Ltd. v. Deputy CIT (No. 2) (20031 263 ITR 402 (Cal) ; Vijay Mallaya v. Asst. CIT (20031263 ITR 41 (Cal) and Ajanta Pharma Ltd. v. Asstt. CIT (2004) 267 ITR 200 (Bom), it has been held that the alternative remedy under the Act is no bar for invoking the jurisdiction under article 226 of the Constitution of India. Moreover, on the point of maintainability besides the judgments as noted above and relied on by Mr. Datta, reliance was also placed on a recent judgment of this court in Berger Paints India Ltd. v. Asstt. CIT (2004) 266 ITR 462 where the court while entertaining the writ petition challenging the notices under section 148 of the Act held as follows (page 466) :

'It is the settled position of the law that in exercise of extraordinary power under article 226 of the Constitution of India, the court will not interfere with any proceedings of a quasi-judicial nature particularly, when this is initiated under expressed provision of the statute and which in its turn provides for a complete code for adjudicating machinery provided of course such action is initiated in lawful and proper exercise of jurisdiction.'

In the case in hand, as already noted, since the conditions for assumption of jurisdiction under. Section 147 were not fulfilled, the notices under section 148 of the Act were uncalled for and warrant interference by appropriate orders. In my view, if an authority assumes jurisdiction illegally which is not vested under the law it would be fit and proper for the writ court to intervene.

In the instant case, as there was no omission or failure on the part of the assessee to disclose truly and fully all material facts in the return, as the assessing officer sought to reopen the assessments due to wrong interpretation of accounts by the assessing officer which was not permissible under section 147 of the Act to assume jurisdiction and in view of the settled position of law laid down by the Apex Court in Calcutta Discount Co. Ltd. (1961) 41 ITR 191 and Parashuram Pottery (1977) 106 ITR 1 (SC), the writ petitioner was justified in invoking the writ jurisdiction.

Moreover, since the writ petition was entertained, has been pending and as affidavits have been exchanged, it would be iniquitous to relegate the petitioner to alternative remedy under the Act.

Thus, the writ application succeeds. The notices dated 31-12-1998, under section 148 of the Act being annexures B and F to the writ petition are set aside and quashed and consequently, if any orders of assessments have been made during the pendency of the writ petition, the same are also quashed.

No order as to costs.

Urgent xerox certified copy of this judgment and order be given to the appearing parties, if applied for, on priority basis.

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