Calcutta H.C : The petitioner claims to carry on business of export inter alia of light engineering goods and marine products as sole proprietor of Raylon Industries and also of trading in inter alia textile goods as sole proprietor of Raylong Trading Company

High Court Of Calcutta

Anil Kumar Bhandari vs. JCIT & ORS.

Section 147, proviso, 148, 149

Asst. Year 1994-95

Indira Banerjee, J.

Writ Petn. No. 736 of 2001

13th November, 2006

Counsel Appeared :

R.N. Bajoria & J.P. Khaitan with Ms. Anupa Banerjee & C.S. Das, for the Petitioner : Tapas Hazra, for the Respondents

JUDGMENT

INDIRA BANERJEE, J. :

In this writ application the petitioner has, inter alia, challenged the initiation of proceedings under s. 147 of the IT Act, 1961, for the asst. yr. 1994-95, and the consequential issuance of a notice dt. 20th March, 2001 under s. 148 of the said Act, on the allegation that the respondent No. 1 had reasons to believe that the petitioner’s income, chargeable to tax for the aforesaid asst. yr. 199495, had escaped assessment.

2. The facts giving rise to the writ petition are very briefly enumerated hereinafter. The petitioner claims to carry on business of export inter alia of light engineering goods and marine products as sole proprietor of Raylon Industries and also of trading in inter alia textile goods as sole proprietor of Raylong Trading Company. According to the petitioner, the said two concerns of which the petitioner is proprietor, are independent of each other and the accounts of the said two concerns are separately prepared and audited. The petitioner filed his IT returns for the asst. yr. 1994-95, that is, the asst. yr. 1994-95, that is, the accounting year ending on 31st March, 1994 on 30th June, 1995, declaring his total income as Rs. 11,82,400. According to the petitioner, the petitioner duly filed along with his IT returns, inter alia, balance sheets, P&L a/c and tax audit reports for the two proprietorship concerns and certificate of chartered accountant under s. 80HHC of the IT Act, 1961 certifying the deductions under the said section, on account of exports profits was allowable. On 1st March, 1996, intimation under s. 143(1)(a) of the IT Act was issued by the respondent No. 1 determining a sum of Rs. 95,311 as refundable to the petitioner. Thereafter notice under s. 143(2) was issued for assessment under s. 143(3) of the IT Act. By an order of assessment dt. 29th March, 1996, the total income of the petitioner for the assessment year 1994-95 was assessed at Rs. 17,60,550. According to the petitioner, many of the expenses claimed by the petitioner had been disallowed. The respondent No. 1, however, allowed deductions of a sum of Rs. 26,35,82,267, being export profits, under s. 80HHC of the said Act. According to the petitioner, on or about 29th March, 2001 the petitioner received the notice dt. 20th March, 2001 under s. 148 of the said Act in respect of the asst. yr. 1994-95, which is under challenge in this writ petition, mainly on the ground that the action against the petitioner is barred by limitation.

3. Reference has, in this context, been made to the proviso to s. 147 of the IT Act which is extracted hereinbelow :

“147. If the AO has reason to believe that any income chargeable to tax has escaped assessment for any assessment year, he may, subject to the provisions of ss. 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 (hereinafter in this section and in ss. 148 to 153 referred to as the relevant assessment year) :

Provided that where an assessment under sub-s. (3) of s. 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 s. 139 or in response to a notice issued under sub-s. (1) of s. 142 or s. 148 or to disclose fully and truly all material facts necessary for his assessment, for that assessment year.” On behalf of the Revenue, however, it was argued that the notice was within limitation inasmuch as the amount of income chargeable to tax that had escaped assessment amounted to over Rs. 1 lakh. Counsel appearing on behalf of the Revenue referred to ss. 148 and 149 of the said Act and in particular, s. 149(1)(b) of the said Act. Secs. 148 and 149 are extracted hereinbelow for convenience : “148. (1) Before making the assessment, reassessment or recomputation under s. 147, the AO shall serve on the assessee a notice requiring him to furnish within such period, as may be specified in the notice, a return of his income or the income of any other person in respect of which he is assessable under this Act during the previous year corresponding to the relevant assessment year, in the prescribed form and verified in the prescribed manner and setting forth such other particulars as may be prescribed; and the provisions of this Act shall, so far as may be, apply accordingly as if such return were a return required to be furnished under s. 139. (2) The AO shall, before issuing any notice under this section, record his reasons for doing so. 149. Time-limit for notice.—(1) No notice under s. 148 shall be issued for the relevant assessment year(a) if four years have elapsed from the end of the relevant assessment year, unless the case falls under cl. (b); (b) if four years, but not more than six years, have elapsed from the end of the relevant assessment year unless the income chargeable to tax which has escaped assessment amounts to or is likely to amount to one lakh rupees or more for that year…”

6. It was emphatically argued on behalf of the Revenue that where the income chargeable to tax, that escaped assessment, exceeded Rs. 1 lakh, a notice might be issued after four years but not more than six years from the end of the relevant assessment year.

7. Significantly, Parliament has in its wisdom used the word ‘action’ in the proviso to s. 147 of the said Act but has used the word notice in s. 149(1) of the said Act.

8. Under s. 147 of the said Act, assessment might be reopened in the circumstances specified in the said section. Once however an assessment is made under s. 143(3) the assessment may not be reopened after expiry of four years from the end of the relevant assessment year, except in circumstances specified in the proviso to s. 147 of the said Act. However, once assessment is reopened it is incumbent upon the AO to give notice under s. 148 of the said Act to the assessee. Assessment, reassessment and/or recomputation would have to be done upon notice. The issuance of a notice under s. 148 is subject to the limitation prescribed in s. 149 of the said Act.

9. Mr. Bajoria argued and in my view, rightly, that an assessment could be reopened under s. 147. Where, however an order of assessment had been made, there was an express bar to initiation of action after expiry of four years from the relevant assessment year except in the circumstances stated in the proviso to s. 147. Sec. 149(1)(b) pertains to time-limit for issuance of notice where assessment had been made under s. 143(3). Action might, however, be initiated within the time-limit of four years from the end of the relevant assessment year. Notice under s. 148 would also have to be issued within four years except where the income chargeable to tax which had escaped assessment was likely to be rupees one lakh or more, in which case notice might be issued after four but within six years. A Division Bench of this Court, has, in the case of Simplex Concrete Piles (India) Ltd. vs. Dy. CIT & Ors. (2003) 183 CTR (Cal) 47 : (2003) 262 ITR 605 (Cal) held as follows : “A combined reading of these provisions, which are integral part of each other governing cases under s. 147 makes it clear that no action shall be taken after the expiry of four years unless any of the four conditions contained in the proviso to s. 147 is in existence. When issuing a notice under s. 148, reasons are to be recorded by the AO before issuing such notice and no such notice under s. 148 can be issued after the expiry of four years under s. 149(1)(a) unless the case falls under sub-cl. (ii) or sub-cl. (iii). Thus, s. 149(1)(a)(i) creates a four years’ embargo except in respect of cases mentioned in sub-cl. (ii) or (iii) where any of the four conditions provided in the proviso to s. 147 exists. Sec. 147 has been made subject to ss. 148 to 153. Therefore, the provision contained in s. 147 is to be qualified by the provision of s. 149. But that qualification cannot mutilate the provisions of s. 147 altogether. Sec. 147 is definitely subject to s. 149. But that cannot be meant to eclipse the proviso to s. 147 altogether. On the other hand, the proviso restricts action after the expiry of four years except in cases coming under any of the four conditions provided therein. These exceptions are subject to s. 149. Sec. 149 governs cases provided for in the exception clause relating to assessment after the four years from the end of the assessment year.”

10. In view of the aforesaid judgment of the Division Bench I cannot but hold that the impugned action against the petitioner is barred by limitation, such action not having been initiated within four years from the end of the relevant assessment year. Action under s. 147 being barred by limitation, the impugned notice is liable to be set aside. The impugned notice does not disclose any reasons for reopening reassessment. Reasons have, however, subsequently been disclosed to the petitioner. The reasons disclosed are as follows : “…Scrutiny of calculation of deduction under s. 80HHC reveals that an amount of Rs. 8,93,27,508, Rs. 72,85,890 and Rs. 24,000 were credited in the P&L a/c under the head Licence sales, Interest and hire charges, respectively of M/s. Raylon Industries. As per Expln. (baa) of s. 80HHC(4A), 90 per cent of licence sales, interest and hire charges should be deducted from the “profit of the business”. Due to wrong calculation of deduction under s. 80HHC, excess deduction was allowed to the tune of Rs. 2,37,18,764 in the assessment for the year. Under the above circumstances, I have reason to believe that there was underassessment within the meaning of s. 147 as deduction under s. 80HHC for asst. yr. 1994-95 was wrongly allowed. I have, therefore, reason to believe that income to the tune of Rs. 2,37,18,764 escaped assessment for the assessment year 1994-95.”It appears that the same calculations had all been filed along with the IT returns. The concerned respondents have not struck upon any new material not disclosed earlier. Mr. Bajoria has demonstrated that there was no error of calculation. On the basis of materials which were there with the concerned authorities at the material time, when assessment order was passed, a decision has now been taken not (sic) to disallow certain expenses, deduction of which had earlier been allowed. In the case of India Steamship Co. Ltd. vs. Jt. CIT & Ors. (2005) 194 CTR (Cal) 386 : (2005) 275 ITR 155 (Cal), cited by Mr. Bajoria, this Court held that assessment could not be reopened by reason of mere change of opinion of the assessing authority on the same facts. The same view has been taken by this Court in the case of Mercury Travels Ltd. vs. Dy. CIT (2003) 179 CTR (Cal) 314 : (2002) 258 ITR 533 (Cal). In this case too, the assessing authority has purported to reopen assessment upon change of opinion on the same facts. Significantly, the Revenue has in its affidavit-in-opposition purported to take yet another ground, that is, benefit of s. 80HHC could not be allowed unless export sale proceeds were received in convertible foreign exchange. As rightly pointed out on behalf of the petitioner by Mr. Bajoria there could be no question of the deduction of export profits being allowed in the first place, unless the petitioners had been able to demonstrate that the sale proceeds were received in convertible foreign exchange. It was never the case of the Revenue, not even at the time of reopening of assessment, that the proceeds were not received in convertible foreign exchange. In any case, it is well established that the Revenue cannot by way of affidavit improve upon reasons initially disclosed for reopening of the assessment. As held by a Division Bench of the Bombay High Court in the case of Hindustan Lever Ltd. vs. R.B. Wadkar (2004) 190 CTR (Bom) 166 : (2004) 268 ITR 332 (Bom), reasons recorded by the assessing authority cannot be supplemented or substituted either by affidavit or by oral arguments. The writ application is, therefore, allowed. The impugned notice dt. 20th March, 2001, is set aside and quashed.

[Citation : 294 ITR 222]

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