Bombay H.C : The petitioner, a partnership firm, carrying on business as a job contractor, i.e., supply of skilled, semi-skilled and unskilled labourers abroad, has challenged the notice dated March 2, 1984

High Court Of Bombay

Mahesh Chandra Overseas Corporation vs. S.K. Shrivastav, Income Tax Officer & Ors.

Sections 147, 147(b), 148

Asst. Year 1978-79

T.D. Sugla, J.

Writ Petn. No. 1855 of 1984

15th March, 1990

Counsel Appeared

Bhujli & V.H. Patil, for the Petitioner : Dr. V. Balasubramanian, J.P. Deodhar & Miss S.G. Shah, for the Respondents


By this petition under Art. 226 of the Constitution of India, the petitioner, a partnership firm, carrying on business as a job contractor, i.e., supply of skilled, semi-skilled and unskilled labourers abroad, has challenged the notice dated March 2, 1984, issued by the First ITO, GA-Ward, Piramal Chambers, Bombay, under s. 148 of the IT Act, 1961, for the asst. yr. 1978-79. The assessment was originally completed under s. 144 on March 31, 1981. It was reopened under s. 146 on April 8, 1981. Fresh assessment was made under s. 143(3) r/w s. 144B on June 18, 1981.

2. After the assessment was completed, the internal audit of the IT Department raised a number of objections and made general observations regarding the petitioner’s above assessment. On the basis thereof, the ITO, in the first instance, felt that the assessment required to be rectified under s. 154/155 of the IT Act, 1961. Accordingly, he issued a notice dated January 28, 1982, and forwarded the objections raised and the general observations made by the internal audit to the petitioner calling for its explanation. An explanation was filed on February 8, 1982. Nothing happened between February 8, 1982, and February 12, 1984, when the impugned notice under s. 148 was issued requiring the petitioner to file a return in response thereto.

The notice having been issued beyond a period of four years after the assessment year, it has to be taken that the notice, if it is to be valid, must have been issued under s. 148 r/w s. 147(a).

The petition was admitted on September 3, 1984, when rule was issued and interim relief in terms of prayer (c) was granted. However, no affidavit-in-reply has yet been filed on behalf of the Department. In the circumstances, having particular regard to the averments made in the petition which remain unrebutted, it is only proper to assume that being of the view that rectification under s. 154/155 might not be possible because of the disputed questions involved, the notice must have been issued by the ITO on the basis of audit objections.

5. It is submitted by Shri Bhujle, learned counsel for the petitioner, that the audit objections make it clear that the internal audit has reappraised the evidence and other material in the assessment records and expressed its own views about the manner in which the assessment should have been made. He took the Court through the audit objections and general observations at pages 25 to 30 of the paper book and the petitioner’s reply thereto at pages 31 to 37 to show that each and every objection or observation made by the internal audit was wrong and without any basis. That apart, it merely amounted to a change of opinion on questions which, to say the least, were mixed questions of fact and law. In support of the contention that audit objections could not be a valid basis for reopening of the assessment, Shri Bhujle relied on the Supreme Court decision in Indian and Eastern Newspaper Society vs. CIT (1979) 119 ITR 996.

Dr. V. Balasubramanian, learned counsel for the Department, on the other hand, stated that the audit objections pertained to facts and not to law. As held by the Supreme Court in the decision relied upon by counsel for the petitioner, the information as to fact could be given by anybody including the internal audit. In this context, he referred to the certificate obtained by the petitioner from the Reserve Bank of India some time in February, 1978, to show that its other receipts as claimed may not be from the contract business. The fact that the petitioner was paying salaries to number of persons is, according to him, undisputed. If that is so, the petitioner was bound to deduct tax under s. 192 of the Act. This was not done. These facts, according to Dr. Balasubramanian, constituted good material for reopening the assessment. The petitioner, according to him, was not going to be prejudiced as, in the event of the petitioner’s filing an appropriate explanation, the proceedings could as well be dropped.

In my opinion the notice issued under s. 148 in this case requires to be quashed. It may not be out of place to mention that, on going through the audit objections, there remains no doubt that the internal audit has expressed its opinion as to the manner in which the assessment should have been made. No doubt it has made reference to certain facts, but having regard to the explanation filed by the petitioner in reply to the notice under s. 154/155, the facts noted by the internal audit are wrong. For instance, the internal audit says that the petitioner was allowed to change its previous year without any application of mind (by the ITO). This objection is obviously wrong as the ITO had passed a separate and specific order running into two typed pages under s. 3(4) of the Act. The audit has referred to one certificate from the Reserve Bank of India in respect of a contract in February, 1978. The petitioner’s explanation thereto was categorical. For each and every contract, the petitioner was stated to have taken the Reserve Bank’s permission. It was only by way of illustration that one letter of permission from the Reserve Bank was filed. The next important objection is that the petitioner should have deducted tax out of the salaries paid to all skilled, unskilled, semi-skilled labourers supplied by the petitioner. Here again, the concerned employees admittedly working outside and not in India, to say the least, it is debatable whether the tax should have been deducted out of the salaries payable to them. In any event, all these questions are certainly not pure questions of fact. These are questions where law is to be applied to the facts. Therefore, the case squarely falls within the ratio of the Supreme Court decision in Indian and Eastern Newspaper Society vs. CIT (supra). The internal audit was not competent to express its opinion on such questions. Their opinion could not constitute information for the formation of a belief that income has escaped assessment. It is not in the circumstances necessary to consider whether the other condition necessary for the purpose is satisfied.

In the above view of the matter, the notice issued under s. 148 was without jurisdiction and is, accordingly, quashed. Rule is made absolute in terms of prayer (a). No order as to costs.

[Citation : 185 ITR 336]

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