Gujarat H.C : Whether section 149 merely prescribes maximum time-limit for issuance of notice under section 148, based upon amount involved; this section does not in any manner override proviso to section 147 which lays down that no action shall be taken under section 147, after expiry of four years from end of relevant assessment year unless conditions stipulated thereunder are satisfied

High Court Of Gujarat

Sayaji Hotels Ltd. vs. ITO-Ward 4(3)

Assessment Year : 2003-04

Section : 147, 148, 149

Ms. Harsha Devani And H.B. Antani, JJ.

Special Civil Application No. 15148 Of 2010

January 11, 2011

JUDGMENT

1. Rule. Mr. K.M. Parikh, learned Standing Counsel waives service of rule on behalf of the respondent. Considering the controversy involved in the present case which lies in a narrow compass, the petition is taken up for hearing and final disposal today.

2. In this petition under article 226 of the Constitution of India, the petitioner has challenged the notice dated 24-3-2010 issued under section 148 of the Income-tax Act, 1961 (the Act) reopening the petitioner’s assessment for assessment year 2003-04.

3. The facts of the case stated briefly are that the petitioner, a limited Company filed return of income on 27-11-2003 declaring a loss of Rs. 1,46,546 which was accompanied by computation of total income in which tax was calculated according to section 115JB of the Act and no tax was payable under the said provision, hence, refund of tax deducted at source was claimed. Along with the computation, the status of carried forward unabsorbed business loss and depreciation and bifurcation of accumulated depreciation and accumulated loss as per books for the assessment year 2003-04 were also attached. An intimation under section 143(1) of the Act was passed accepting the return filed by the petitioner. Thereafter, a notice under section 154 of the Act came to be served on the petitioner requiring the petitioner to withdraw excess depreciation claimed and allowed to the petitioner on hotel building at the rate of 20 per cent as against 10 per cent admissible with effect from 1-4-2003 for assessment year 2003-04. The mistake apparent on record was corrected by an order dated 18-2-2005 made under section 154 of the Act. The depreciation was effectively reduced to Rs. 2,18,51,428 from Rs. 2, 99,86,870 and the net reduction was set off against the business loss of Rs. 81,35,442. Thereafter, notice was issued under section 142(1) of the Act. During the course of scrutiny assessment proceedings the Assessing Officer asked the petitioner to clarify the method of claiming depreciation pertaining to fixed assets for the project of Gandhidham and Indore vis-a-vis the method of claiming depreciation for the Baroda project, pursuant to which the petitioner submitted fresh computation of income pertaining to revised depreciation chart. After due scrutiny, the Assessing Officer framed assessment under section 143(3) of the Act by an order dated 29-3-2006. Subsequently, by the impugned notice dated 24-3-2010, the assessment for the year 2003-04 was sought to be reopened. In response to the notice the petitioner by a letter dated 16-4-2010 requested the respondent to treat its previous return as the return filed in response to the reassessment notice and asked for a copy of the reasons recorded. Upon receipt of a copy of reasons, the petitioner filed its objections thereto by a letter dated 18-10-2010. By an order dated 12-11-2010, the objection raised by the petitioner against reopening of the assessment came to be rejected. It is in the background of the aforesaid facts, that the petitioner has filed the present petition challenging the notice dated 24-3-2010 issued under section 48 of the Act.

4. In response to the notice, the respondent has filed an affidavit-in-reply dated 24-12-2010 denying the averments made in the petition.

5. Mr. M.J. Shah, learned advocate appearing on behalf of the petitioner has submitted that the assessment year under consideration is 2003-04, whereas the notice under section 148 of the Act has been issued on 24-3-2010 which is clearly beyond a period of four years after the expiry of the relevant assessment year and as such, in the absence of any failure on the part of the petitioner to disclose fully and truly all material facts necessary for its assessment for that assessment year, the assumption of jurisdiction under section 147 of the Act is invalid. Inviting attention to the reasons recorded for reopening the assessment, it is pointed out that according to the Assessing Officer, the assessee has wrongly calculated the book profit under section 115JB of the Act and that there is not even a whisper as regard any failure on the part of the assessee to disclose fully and truly all material facts necessary for its assessment. Inviting attention to the order rejecting the objections filed by the petitioner and more particularly paragraph 5 thereof, it is pointed out that according to the Assessing Officer some facts of the case slipped from the mind of the Assessing Officer while framing assessment order which is the reason why section 147 has been inserted in the Income-tax Act to protect the interest of the Revenue and to tax the escaped income. It is submitted that it appears that according to the respondent some of the facts slipping from the mind of the Assessing Officer is sufficient ground for reopening assessment. It is pointed out that apart from the fact that the reasons recorded do not indicate any failure on the part of the petitioner to disclose fully and truly all material facts, there is also nothing in the entire order rejecting the objections to indicate that there is any failure on the part of the petitioner to disclose fully and truly all material facts necessary for its assessment and as such, the impugned notice having been issued beyond a period of four years from the end of the relevant assessment year, is barred by limitation and is required to be quashed and set aside. The learned advocate has also advanced submissions on the merits of the case, however, considering the view that the Court is inclined to take in the matter, it is not necessary to set out the same in detail.

6. The petition is opposed by Mr. K.M. Parikh, learned Standing Counsel appearing on behalf of the respondent. Referring to the reasons assigned for reopening the assessment, it is submitted that the assessee is found to have wrongly calculated the book profit under section 115JB of the Act. According to the learned counsel, wrong calculation amounts to failure to disclose fully and truly all material facts. It is accordingly submitted that the Assessing Officer was justified in reopening the assessment beyond a period of four years from the end of the relevant assessment year. Inviting attention to the provisions of section 149(1)(b) of the Act, it is submitted that in case where the income chargeable to tax which has escaped assessment amounts to or is likely to amount to rupees one lakh or more, it is permissible for the Assessing Officer to reopen the assessment after a period of four years but not more than six years. In the facts of the present case, the reopening is within a period of six years and as such, the same is legal and valid.

7. In rejoinder, Mr. M.J. Shah, learned advocate for the petitioner has invited attention to the decision of this High Court in case of Gujarat Carbon & Industrial Ltd. v. Jt. CIT [2008] 307 ITR 271/[2009] 179 Taxman 6. In the said case the successor Assessing Officer issued notice after recording reasons under section 148 of the Act for reopening the assessment on the ground that the value of excess stock of carbon black found during the search operation had escaped assessment. The Court upon consideration of the facts and circumstances of the case found that there was no failure on the part of the assessee to disclose fully and truly all material facts relevant for its assessment. At the most, it could be termed to be a case wherein the Assessing Officer had formed an incorrect opinion in the opinion of the successor Assessing Officer. In the circumstances, the Assessing Officer could not treat the assessee to be in default for non-disclosure of material facts, relevant for the assessment year. It is submitted that the said decision would be squarely applicable to the facts of the present case where according to the successor Assessing Officer the Assessing Officer who had framed the original assessment had committed a mistake in computing the amount of depreciation. Reliance is also placed upon a decision of this High Court in case of Austin Engg. Co. Ltd. v. Jt. CIT [2009] 312 ITR 70, where the Court has interpreted the provisions of Explanation 2 to section 147 of the Act, and held that :

“The language employed by the proviso itself indicates that the Legislature has consciously laid down a time frame within which reassessment proceedings in relation to escaped income can be initiated, and beyond the prescribed period of limitation, even if income has escaped assessment, if the required conditions enumerated in the proviso are not shown to exist, no action can be initiated under section 147 of the Act regardless of the fact that income may have escaped assessment.”

It is, accordingly, submitted that even if resort is made to the provisions of Explanation 2 to section 147, the requirement of the proviso to section 147 of the Act, namely that there should be failure on the part of the assessee to disclose fully and truly all materials facts necessary for its assessment, still has to be satisfied.

7. The undisputed facts of the case are that the assessment year is 2003-04 whereas the notice under section 148 has been issued on 24-3-2010, which is clearly after the expiry of a period of four years from the end of the relevant assessment year. In the circumstances, in the light of the first proviso to section 147 of the Act, the assessment can be reopened only in case where income chargeable to tax has escaped assessment for such assessment year and such escapement is by reason of the failure on the part of the assessee, (i) to make a return under section 139 or in response to a notice issued under sub-section (1) of section 142 or section 148; or (ii) to disclose fully and truly all material facts necessary for his assessment, for that assessment year. Insofar as escapement of income from assessment is concerned all that has been recorded in the reasons is that the assessee is found to have wrongly calculated the book profit under section 115JB of the Act. The Assessing Officer has also reproduced a table on the basis of which he has computed the book profit at a different figure than that computed by the Assessing Officer in the original assessment order. The said table is more or less bodily lifted from the table submitted by the petitioner along with its communication dated 24-3-2006 (Exhibit-H collectively). Thus, the reasons for reopening are based upon material furnished by the assessee, viz., the statement as given by the assessee during the course of assessment proceedings. A perusal of original assessment order under section 143(3) of the Act clearly shows that the Assessing Officer, at the relevant time has applied his mind to the issue in respect of which the assessment is sought to be reopened and thereafter worked out the book profit. In the circumstances, this is only a case of a successor Assessing Officer holding a different opinion as regards computation of book profit than that of the Assessing Officer who framed the original assessment. The reopening is, therefore, being based on a mere change of opinion and as such cannot be sustained.

8. Moreover, for the purpose of assuming jurisdiction under section 147 of the Act after the expiry of a period of four years from the end of the relevant assessment year, the requirements of the proviso thereto as referred to hereinabove are required to be satisfied. In the facts of the present case, it is an admitted position that the first situation does not exist. Insofar as the second situation is concerned, namely, that there should be failure on the part of the assessee to disclose fully and truly all material facts which are necessary for his assessment, a bare perusal of the reasons recorded indicates that there is no mention whatsoever in the said order that there is any failure on the part of the assessee to disclose fully and truly all material facts necessary for its assessment. Nor do the reasons recorded disclose any such failure.

9. Moreover in the petition, categorical averments have been made to the effect that the assessment has been reopened beyond a period of four years in a case of scrutiny assessment under section 143(3) of the Act and there is no failure on the part of the petitioner to disclose fully and truly all material facts necessary for its assessment, however, despite the fact that a detailed affidavit-in-reply has been filed by the respondent, there is no averment in the entire affidavit-in-reply to indicate that there is any failure on the part of the petitioner to disclose fully and truly all material facts necessary for its assessment. Thus, the said contention raised by the petitioner remains uncontroverted.

10. A contention has been taken in the affidavit-in-reply as well as by the learned counsel for the respondent that in the light of the provisions of section 149(1)(b) of the Act, reassessment beyond a period of four years up to the period of six years is valid as the income chargeable to tax which has escaped assessment is more than one lakh rupees. In this regard it would be germane to refer to the provisions of sub-section (1) of section 149 which read thus :

“149. Time-limit for notice.—(1) No notice under section 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 clause (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.

Explanation.—In determining income chargeable to tax which has escaped assessment for the purposes of this sub-section, the provisions of Explanation 2 of section 147 shall apply as they apply for the purposes of that section.”

11. The heading of the section clearly indicates that the same prescribes the limitation for issuance of notice. On a plain reading of the aforesaid provision, it is apparent that the same provides for the time-limit within which a notice under section 148 of the Act can be issued and lays down that in case falling under clause (b) viz., where the income chargeable to tax which has escaped assessment amounts to or is likely to amount to one lakh rupees or more then no notice can be issued after a period of six years from the end of the relevant assessment year and in cases other than those falling under clause (b) no notice under section 148 can be issued after a period of four years. In other words, in case where the amount of income escaping assessment is less than or is likely to amount to less than one lakh rupees, in no case notice can be issued beyond a period of four years from the end of the relevant assessment year. Thus, section 149 of the Act merely prescribes the maximum time-limit for issuance of notice under section 148 of the Act, based upon the amount involved. The said provision does not in any manner override the proviso to section 147 of the Act which lays down that no action shall be taken under section 147, after the expiry of four years from the end of the relevant assessment year unless the conditions stipulated thereunder are satisfied. The proviso to section 147 of the Act and sub-section (1) of section 149 operate in different fields and are independent from one another. Thus, in a case where the requirements of the proviso to section 147 of the Act are not satisfied, no notice under section 148 can be issued beyond a period of four years even if the amount of tax escaping assessment is more than or likely to be more than one lakh rupees, whereas, in a case where the amount of tax escaping assessment is not more than or not likely to be more than one lakh rupees, even if the requirements of the proviso to section 147 of the Act are satisfied, no notice can be issued beyond a period of four years. Thus, even in those cases falling under clause (b) of sub-section (1) of section 149 of the Act, if the notice under section 148 is issued beyond a period of four years but within a period of six years from the end of the relevant assessment year, for the purpose of invoking section 147 of the Act, the requirements of the proviso, namely that there should be failure on the part of the assessee to disclose fully and truly all material facts necessary for his assessment are still requires to be satisfied. The time-limit of six years provided by the said section is the maximum time-limit for issuance of notice under section 148 of the Act, beyond which even if the requirements of the proviso to section 147 of the Act are fulfilled, no notice under section 148 can be issued. In the circumstances the contention that the amount escaping assessment being more than one lakh rupees, reopening of assessment beyond a period of four years but within six years is valid even without satisfying the requirements of the proviso to section 147 of the Act being contrary to the provisions of the Act, is required to be stated to be rejected.

12. In the facts of the present case, the notice for reassessment has been issued after the expiry for a period of four years from the end of the relevant assessment year and as noted earlier, there is no failure on the part of the assessee to disclose fully and truly all material facts necessary for its assessment for the assessment year under consideration. In the circumstances, the assumption of jurisdiction under section 147 of the Act by issuance of notice under section 148 of the Act is invalid and as such, cannot be sustained.

13. For the foregoing reasons the petition succeeds and is accordingly allowed. The impugned notice dated 24-3-2010 issued under section 148 of the Act (Exhibit-L) to the petition is hereby quashed and set aside. Rule is made absolute accordingly with no order as to costs.

[Citation : 339 ITR 498]

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