High Court Of Bombay
Sitara Diamond (P) Ltd. vs. DCIT & ORS.
Section. 147, proviso
Asst. year 2005-06
Dr. D.Y. Chandrachud & M.S. Sanklecha, JJ.
WP No. 2784 of 2011
24th January, 2012
Counsel appeared :
Percy J. Pardiwala with Pankaj Toprani, for the Petitioner : Arvind Pinto, for the Respondents
DR. D.Y. CHANDRACHUD, J. :
Rule; with the consent of counsel for the parties returnable forthwith. With the consent of counsel and at their request the petition is taken up for hearing and final disposal.
In these proceedings under Art. 226 of the Constitution, the petitioner has challenged the validity of a notice issued on 20th June, 2011, under s. 148 of the IT Act, 1961, by which an assessment for asst. yr. 2005-06 is sought to be reopened.
The petitioner filed its return of income on 26th Oct., 2005 for asst. yr. 2005-06 and claimed a deduction under s. 10A in the amount of Rs. 1.04 crore. The AO passed an order of assessment under s. 143(3) on 10th Dec., 2008. The AO in the course of the order noted that the contention of the assessee “has been examined along with the facts of the case”. The order noted that “the business activity of the assessee is manufacturing of jewellery in a Special Economic Zone.” However, the AO came to the conclusion that the petitioner would not be entitled to the entire deduction as claimed, having regard to the words “derived from” used in s. 10A. The order of the AO, the Court has been informed by the counsel appearing on behalf of the assessee, was carried in appeal to the CIT(A) and the quantification of the deduction was modified in the appeal. The assessment for asst. yr. 2005-06 is now sought to be reopened on the basis of an assessment order that was passed for asst. yr. 2007-08. The reasons which have been furnished to the assessee record that during the course of the scrutiny proceedings for asst. yr. 2007-08, the claim of the assessee for exemption under s. 10A was examined and it was held that the assessee merely acts as a facilitator for its parent company and is not a manufacturer or exporter. The assessment proceedings for asst. yr. 2005-06 are sought to be reopened purely on the basis of the findings contained in the assessment order for asst. yr. 2007-08.
Counsel appearing on behalf of the petitioner submitted that the reopening of the assessment is beyond a period of four years from the end of the relevant assessment year. Consequently, the jurisdictional condition which must be fulfilled is that there must be a failure on the part of the assessee to disclose fully and truly all material facts necessary for assessment for that assessment year. The sole basis for reopening the assessment is the order of assessment passed in asst. yr. 2007-08. The reasons do not ex facie contain any elaboration of how the assessee is alleged to have failed to disclose fully and truly all material facts necessary for the assessment for asst yr. 2005-06. As a matter of fact, during the course of the assessment proceedings for asst. yr. 200506, the AO considered the facts of the case and entered a finding that the assessee carried on a business activity of manufacturing jewellery in a Special Economic Zone. Moreover, it was submitted that against the order passed by the AO for asst. yr. 2007-08, an appeal was filed by the assessee before the CIT(A), who allowed the appeal by his order dt. 5th July, 2011. Counsel, however, fairly drew the attention of the Court to the fact that the order of the CIT(A) allowing the appeal of the assessee for asst. yr. 2007-08 and granting a deduction under s. 10A was passed after the assessment for asst. yr. 2005-06 was sought to be reopened.
On the other hand, it has been submitted on behalf of the Revenue that the assessee had failed to disclose all material facts for asst. yr. 2005-06, particularly in regard to the relationship between the assessee and its parent company with whom, according to the Revenue, the assessee has only a facilitation agreement.
We have considered the rival submissions. By the impugned notice dt. 20th June, 2011, the assessment for asst. yr. 2005-06 is sought to be reopened beyond a period of four years of the end of the relevant assessment year. The condition precedent to the exercise of the jurisdiction to reopen an assessment beyond a period of four years as spelt out in the proviso to s. 147 is that there ought to be a failure on the part of the assessee to disclose fully and truly all material facts necessary for assessment for that assessment year. In the present case, the sole basis on which the assessment proceedings were sought to be reopened is the order which has been passed on 5th July, 2011 for asst. yr. 2007-08. In that order, according to the Revenue, it has been held that the assessee acts as a mere facilitator and is not a manufacturer so as to entitle it to the deduction under s. 10A. The issue, however, before the Court, is as to whether that can form the basis of the reopening of the assessment beyond a period of four years. The reasons which have been disclosed by the AO do not set out as to what facts the assessee had failed to fully and truly disclose. Even a prima facie reference to the basis on which it is sought to be inferred that there was a failure to disclose all material facts has not been set out in the reasons. In that view of the matter, we are of the view that the primary jurisdictional requirement for reopening the assessment beyond a period of four years has not been fulfilled in this case. Since the order passed by the CIT(A) for asst. yr. 2007-08 has been passed after the assessment for asst. yr. 2005-06 has been sought to be reopened by the notice dt. 29th June, 2011, we have, for the purposes of this discussion, kept that circumstance out of consideration. We have come to the conclusion that the AO having failed to establish that there was a failure on the part of the assessee to disclose fully and truly all material facts for asst. yr. 2005-06, the reopening beyond a period of four years is clearly not valid. There was a finding of fact by the AO in the assessment order for asst. yr. 2005-06 that the business activity of the assessee is manufacturing of jewellery in a Special Economic Zone. That finding, as the assessment order notes, was based upon a consideration of the facts of the case and upon examining the contentions of the assessee.
For these reasons, the petition has to be allowed. Rule is accordingly made absolute by quashing and setting aside the impugned notice dt. 20th June, 2011. There shall be no order as to costs.
[Citation : 345 ITR 91]
