High Court Of Bombay
Anil Radhakrishna Wani vs. ITO & Ors.
Section 147, proviso, 149(1)(b)
Asst. Year 2003-04
Dr. D.Y. Chandrachud & J.P. Devadhar, JJ.
Writ Petn. No. 163 of 2010
4th March, 2010
Counsel Appeared :
Sanjiv M. Shah with Ms. Supriya S. Devergudi i/b Mehul J. Shah, for the Petitioner : Vimal Gupta, for the
Dr. D.Y. Chandrachud, J. :
Rule, by consent made returnable forthwith. Counsel for respondents waives service. With the consent of counsel, petition is taken up for final hearing. The petitioner has challenged in these proceedings under Art. 226 of the Constitution the reopening of an assessment for asst. yr. 2003-04. In as much as the notice under s. 148 was issued on 31st March, 2009, it is beyond a period of four years from the end of the relevant assessment year.
2. The petitioner who is a solicitor and advocate, was a partner of Little & Co. He retired on 30th Sept., 2002. Upon his retirement, the petitioner has continued to practice as a lawyer as a partner of a firm by the name ANS Law Associates. On his retirement, the petitioner was entitled to the payment of an amount of Rs. 1,36,12,500 in eight instalments in pursuance of cl. 38 of the deed of partnership. In the relevant asst. yr. 2003-04, the petitioner received from the firm an instalment of Rs. 17,01,562. On 18th Dec., 2003, the petitioner filed his return of income for asst. yr. 200304. The return was processed under s. 143(1). Subsequently, the case of the petitioner was selected for scrutiny. An order of assessment was passed on 19th Aug., 2005 under s. 143(3). A notice was issued to the petitioner on 31st March, 2009 proposing to reopen the assessment for asst. yr. 2003-04. The reasons which have been recorded in support of the exercise of the jurisdiction under s. 147 r/w s. 148, stated that on his retirement, the petitioner received a certain amount from Little & Co. The reasons specifically contain a statement that the bank summary of Central Bank of India submitted by the petitioner reflects that an amount of Rs. 17,01,562 was shown to be received from Little & Co. during the asst. yr. 2003-04. The reasons also contain a statement to the effect that the capital account of the petitioner furnished with the return of income shows a receivable of Rs. 1,36,12,500 from Little & Co., on retirement. The case which is sought to be made out for reopening the assessment is that under cl. 35 of the deed of partnership, a partner who has retired voluntarily shall not, as long as the continuing or surviving partners shall carry on the business, solicit the clients of the firm for a period of three years from the date of his retirement. According to the AO, the amount payable to the petitioner was on account of a renunciation of his right to freely practice his profession for a period of three years and that the amount was consequently liable to “capital gains tax under s. 28(va)”. The reasons finally stated that the assessment was being reopened under s. 149(1)(b) within a period of six years. Two submissions have been urged on behalf of the petitioner. Firstly, it has been submitted that the assessment in the present case was beyond a period of four years and the condition precedent to the exercise of the jurisdiction to reopen an assessment has not been fulfilled. The petitioner, it is urged, had fully and truly disclosed all material facts during the course of assessment and this included the amount which was received and receivable from Little & Co. on account of his retirement. The attention of the Court was drawn to the fact that during the course of assessment, to the specific query raised by the AO, the petitioner furnished a detailed reply explaining the nature of the amounts received from Little & Co. on his retirement as a partner of the firm. In these circumstances, it was submitted that there was no failure on the part of the petitioner to disclose fully and truly all the material facts necessary for assessment for that assessment year. Secondly, it was sought to be submitted that cl. 35 of the deed of partnership merely provides that a retiring partner shall not solicit the clients of the firm for a period of three years and the inference which is sought to be drawn by the AO to the effect that the amount was paid to the petitioner on his retirement in consideration of a renunciation of his right to freely practice his profession is ex facie perverse. Counsel submitted that as a matter of fact the petitioner continued to practise as a lawyer upon retirement from Little & Co., as a partner in another firm, to which the attention of the AO was drawn. Clause 35 of the deed of partnership did not contain any covenant for renouncing the right to practise the profession of a lawyer.
An affidavit in reply has been filed in these proceedings by the AO. The affidavit in reply states that the original assessment was completed on 19th Aug., 2005. Though the petitioner had received an amount of Rs. 17,01,562 from Little & Co., this amount was not offered for taxation in the return of income that was filed on 18th Dec., 2003. No inquiry was according to the AO, made regarding the taxability of the amount received by the petitioner from Little & Co. during asst. yr. 2003-04. Consequently, the assessment has been sought to be reopened by the issuance of a notice under s. 148 on 31st Dec., 2009 and the reassessment has been completed on 31st Dec., 2009. It has been submitted that since the petitioner has availed of the remedy of an appeal before the CIT(A), a petition under Art. 226 ought not to be entertained.
The circumstance that a reassessment has been completed cannot be a ground to exclude the petitioner from seeking a recourse to the writ jurisdiction under Art. 226 of the Constitution. The basic question before the Court is as to whether the statutory requirement which is a condition precedent to the exercise of the jurisdiction to reopen an assessment has been fulfilled. If the Court comes to the conclusion that this requirement has been fulfilled, the petitioner would have to be relegated to the appellate remedy against the order of reassessment. On the other hand, if the statutory condition precedent for the exercise of the jurisdiction to reopen the assessment has not been fulfilled, the reopening of the assessment would have to be quashed with a consequential setting aside of all the subsequent proceedings. We may also note that by an interim order dt. 25th Jan., 2010 passed by this Court, the petitioner was permitted to file an appeal before the CIT(A) without prejudice to his rights and contentions in the petition. Hence, the filing of an appeal cannot oust the remedy of a petition under Art. 226. An appeal had to be filed to obviate the bar of limitation. The proviso to s. 147 of the IT Act, 1961 stipulates inter alia that, where an assessment under sub-s. (3) of s. 143 has been made, for the relevant assessment year, no action shall be taken under s. 147 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 disclose fully and truly all material facts necessary for his assessment, for that assessment year. The Revenue has relied upon s. 149(1)(b) under which no notice under s. 148 can be issued for the relevant assessment year after four years, but not more than six years have elapsed from the relevant assessment year, unless the income chargeable to tax which has escaped assessment amounts or is likely to amount to one lakh of rupees or more. The power to reopen an assessment beyond a period of four years but upto six years under s. 149 (1)(b) is subject to the requirement spelt out in the proviso to s. 147. Sec. 149(1)(b) does not lift the embargo under the proviso to s. 147 on reopening an assessment beyond a period of four years unless the conditions precedent are fulfilled. Sec. 149(1)(b) provides that a notice cannot be issued after four years, but not more than after six years have elapsed after the relevant assessment year, unless the income chargeable to tax which has escaped assessment is or is likely to amount to rupees one lakh or more. This provision has nothing to do with the condition precedent for reopening beyond four years, which has to be fulfilled in any event. Therefore, the basic question that needs to be addressed on facts is, as to whether there was any failure on the part of the petitioner, as the assessee, to disclose fully and truly all material facts necessary for the assessment.
7. The record before the Court shows that in the return of income which was filed on 18th Dec., 2003, the petitioner had by a note appended to the computation of income specifically disclosed that “during the year the assessee has retired w.e.f. 30th Sept., 2002 as a partner from Little & Co., Advocates and Solicitors and w.e.f. 1st Oct., 2002 has joined as a partner in ANS Law Associates, Advocates and Solicitors”. The capital account which was annexed to the return reflects receivables from Little & Co., on retirement, of Rs. 1,36,12,500. The balance sheet as on 31st March, 2003 shows receivables from Little & Co. of Rs. 1,19,10,937. The difference, being in the amount of Rs. 17,01,562.50 ps. was the amount which was received by the petitioner during the course of the previous year relevant to asst. yr. 2003-04. During the course of assessment proceedings, the AO had by a noting on the order sheet dt. 18th July, 2005 specifically called for a disclosure of details in respect of the amount received from Little & Co. By a letter dt. 30th July, 2005 addressed to the AO, the petitioner made the following disclosure :
“5. Amount receivable from Little & Co. represents the amount receivable on retirement from the firm. The same is receivable in instalments and there is no provision for payment of any interest thereon under the understanding.
8. On retirement, i.e. on 1st Oct., 2002 Rs. 1,36,12,500 was receivable from the firm Little & Co towards the share in the firm as partner. Such amount was to be paid by the firm in 8 instalments. In view of the same the balance as on 31st March represents the balance after accounting for the instalment received.” The bank summary was attached to the letter. The fact that the bank summary and the capital account were disclosed by the petitioner is also admitted in the reasons which have been recorded by the AO while reopening the assessment. 8. From the aforesaid narration of facts, it is evident that the petitioner made a full disclosure of all the material facts necessary for the assessment for asst. yr. 2003-04. The petitioner duly explained (i) His retirement from Little & Co.; (ii) The fact that an amount of Rs. 1,36,12,500 was receivable from Little & Co. on retirement; (iii) That during the course of the assessment year one instalment had been received and the balance as on 31st March represented the balance after accounting for the instalment received. There was no failure on the part of the petitioner to disclose fully and truly all the material facts necessary for the assessment for that assessment year. In these circumstances, the jurisdiction to reopen the assessment was not validly exercised since the condition precedent laid down by the statute for reopening of an assessment beyond a period of four years of the expiry of the relevant assessment year has not been fulfilled. The petitioner is, therefore, entitled to the relief that has been claimed in these proceedings. In the view which we have taken, it is not necessary to consider the second submission on merits.
9. The petition is made absolute in terms of prayer cl. (a) by setting aside the notice dt. 31st March, 2009 and consequently the order of assessment dt. 31st Dec., 2009. There shall be no
[Citation : 323 ITR 564]