Bombay H.C : Audit report being furnished along with return and return being assessed in scrutiny assessment, initiation of reassessment after 4 years would be barred

High Court Of Bombay

Talati & Panthaky Associated (P.) Ltd. vs. DCIT

Assessment Year : 2006-07

Section : 44AB, 148, 143

Mohit S. Shah, Cj. And M.S. Sanklecha, J.

Writ Petition No. 317 Of 2014

March  4, 2014

JUDGMENT

M.S. Sanklecha, J. – At the instance of the counsel, the petition is taken up for final hearing.

2. By this petition under article 226 of the Constitution of India, the petitioner challenges the impugned notice dated March 22, 2013, issued under section 148 of the Income-tax Act, 1961 (“the Act”). By the above impugned notice dated March 22, 2013, respondent No. 1-Assessing Officer is seeking to reopen the assessment for the assessment year 2006-07.

3. On November 28, 2006, the petitioner filed its return of income for the assessment year 2006-07, declaring a total income of Rs. 60.21 lakhs. On April 21, 2008, the Assessing Officer completed the assessment under section 143(3) of the Act determining the petitioner’s income at Rs. 62.21 lakhs.

4. Thereafter, the impugned notice was issued on March 22, 2013, under section 148 of the Act seeking to reopen the assessment for the assessment year 2006-07. In response to the petitioner’s request, the Assessing Officer on September 10, 2013, served a copy of the reasons recorded by him for issuing the impugned notice dated March 22, 2013. The reasons as recorded read as under :

“Date : 22-3-2013

Reasons recorded for issuing notice under section 147 of the Income-tax Act, 1961, Talati and Panthaky Associates P. Ltd.

Assessment year 2006-07

1. In this case, it is seen that in the computation of income net profit as per the profit and loss account was taken at Rs. 60,80,154 as against the actual profit of Rs. 1,27,40,620 thus income was considered less to the extent of Rs. 66,53,466.

2. Secondly, as per the details, under section 44AB furnished along with the return of income, it was seen that the following amounts were disallowable :

    Rs.
1 Provident fund and other amounts not paid by due date (section 2(24)(x)) 15,19,692
2. Expenditure at club 1,87,646
3. Under section 40(a) 1,48,82,417
4. Under section 41 54,317
5. Under section 43B 4,16,166
6. Prior period expenses 3,07,084
  Total 1,71,79,776
  Less : Amount disallowed under section 43B in the earlier year 45,76,728
  Net disallowable 1,26,03,048

 

The assessee has failed to disclose fully and truly all material facts necessary for his assessment for that assessment year as per the proviso to section 147 of the Income-tax Act. Hence, I have reason to believe that the income amounting to Rs. 1,92,56,514 has escaped assessment. Notice under section 148 is being issued separately.”

5. On September 20, 2013, the petitioner filed its objections to the above reasons recorded for issuing the impugned notice dated March 22, 2013. In particular, in its objections, the petitioner pointed out that all the facts which form the basis of the reasons for reopening as recorded were all disclosed by the petitioner during the original assessment proceedings leading to the assessment order dated April 21, 2008. Thus, the impugned notice dated March 22, 2013, itself is without jurisdiction as there was no failure to disclose all facts necessary for assessment. It was also pointed out that there is a mistake in the reasons as the computation of income as filed along with the return discloses the net profit at Rs. 1.27 crores and not at Rs. 60.80 lakhs as alleged. Besides, the details filed under section 44AB of the Act were reflected in the computation of income as disallowable expenditure and added to the income of Rs. 1.27 crores disclosed in the computation of income. There was no fresh tangible material to have a reasonable belief that income chargeable to tax has escaped assessment. In view of the above, it was prayed that the impugned notice be ordered to be withdrawn as being without jurisdiction.

6. The Assessing Officer by order dated January 8, 2014, rejected the objection of the petitioner to the reasons recorded for issuing notice under section 148 of the Act. The order dated January 8, 2014, merely recorded that the petitioner had failed to make a full and true disclosure of all material facts as the same were detected only as a consequence of full and further scrutiny of the documents already furnished by the petitioner. The other objection of the petitioner with regard to all the facts being already on record and the absence of fresh tangible material was not even dealt with. Accordingly, the petitioner’s objections were rejected.

7. Mr. B.V. Jhaveri, learned counsel appearing for the petitioner, in support of the petition submits as under :

(a)   The impugned notice dated March 22, 2013, is without jurisdiction as the reasons in support thereof do not indicate that there was any failure on the part of the petitioner to disclose fully and truly all material facts necessary for the assessment.

(b)   The reasons itself indicate an apparent error as it proceeds on the basis that the net profit as per the profit and loss account was taken by the petitioner at Rs. 60.87 crores instead of the actual profit is Rs. 1.27 crores. The computation of income filed along with the return of income indicates that the net profit has indeed been taken at Rs. 1.27 crores and not Rs. 60.87 lakhs as alleged in the reasons in support of the impugned notice.

(c)   All details as indicated in the reasons were furnished during the assessment proceedings under section 44AB of the Act along with the return of income. The computation of income filed along with the return filed by the petitioner indicate that the amounts of expenditure which are sought to be added as disallowed were either furnished in the computation of income itself or subject of information sought for during the course of assessment proceedings as evidenced by letter dated March 27, 2008. In view of the above, it was submitted that the present notice has been issued on a mere change of opinion.

8. Per contra, Mr. Ahuja, learned counsel appearing for the respondent, supports the impugned notice dated March 22, 2013, as well as the order dated January 8, 2014, rejecting the petitioner’s objection to the reasons recorded for issuing the impugned notice. In support, it is submitted as under :

(a)   That there was a failure on the part of the petitioner to fully and truly disclose all material facts necessary for assessment. According to him, full scrutiny of the record was required to be done so as to detect facts which were not recorded/presented in a manner to invite the attention of the Assessing Officer. Thus, there was a failure to disclose facts fully and truly on the part of the petitioner. In the circumstances, the Revenue is entitled to reopen the assessment for the assessment year 2006-07.

(b)   So far as the disallowance of various expenditure recorded in the reasons for issuing the notice is concerned, the same would be a subject matter of examination during the reassessment proceeding. The explanation offered by the petitioner in respect of items being disallowed would be considered during the relevant proceeding.

9. It is an undisputed position that the impugned notice dated March 22, 2013, has been issued beyond the normal period of four years from the end of the relevant assessment year, i.e., 2006-07. The first proviso to section 147 of the Act which would apply provides that where an assessment is done under section 143(3) of the Act then no action for reassessment will be taken after the end of four years from the end of the relevant assessment year unless there has been failure on the part of the assessee to fully and truly disclose all material facts necessary for assessment. From the reasons recorded for issuing the impugned notice dated March 22, 2013, it is evident that all material on the basis of which the Assessing Officer formed the reasonable belief that income has escaped assessment were on record during the assessment proceedings, leading to the assessment order dated April 21, 2008. It is, therefore, clear that there has been no failure on the part of the petitioner to disclose fully and truly all material facts necessary for assessment. In fact, the order dated January 8, 2014, rejecting the objection for reopening the assessment does not dispute that facts were disclosed. The reasons for reopening is that the facts could be detected only on full and detailed scrutiny. In the present case, the assessment order dated April 21, 2008, has been passed under section 143(3) of the Act, i.e., scrutiny proceedings. Therefore, the Assessing Officer would have had ample occasion to consider and detect all the material disclosed by the petitioner during the proceedings under section 143(3) of the Act. Besides, from the reasons recorded for reopening of the assessment, it is very clear that the same has been issued on examination of the computation of the income and details furnished under section 44AB of the Act. In fact, the reason proceeded on the basis that the computation of income was presented by the petitioner along with its return of income. Similarly, it is not denied that the details under section 44AB of the Act were furnished along with the return of income. Therefore, it cannot be said that there was a failure on the part of the petitioner to disclose material facts necessary for assessment proceeding during the original proceedings leading to the assessment order dated April 21, 2008. On the basis of the above, we find that there has been no failure on the part of the petitioner to disclose fully and truly all material facts necessary for assessment during the original assessment proceeding leading to assessment order dated April 21, 2008. Thus, the impugned notice dated March 22, 2013, is unsustainable.

10. In view of our above finding, there is no occasion to consider the petitioner’s other contention that there is no reason to believe that income chargeable to tax has escaped assessment as the present proceeding initiated by the impugned notice dated March 22, 2013, is mere change of opinion.

11. In the above circumstances, we hold that the impugned notice dated March 22, 2013, is an order without jurisdiction, as the requirement of the first proviso to section 147 of the Act is not satisfied. Accordingly, the impugned notice dated March 22, 2013, issued under section 148 of the Act is quashed and set aside. The consequent order dated January 8, 2014, of the Assessing Officer rejecting the petitioner’s objection to the reasons recorded for issuing impugned notice dated March 22, 2013, under section 148 of the Act also does not survive.

12. The petition is allowed in the above terms, with no order as to costs.

[Citation : 362 ITR 362]

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