Gujarat H.C : Where Assessing Officer instead of giving effect to order of Commissioner (Appeals) had sought to reopen assessment on ground that giving effect to order of Commissioner (Appeals) would result in escapement of income, provisions of section 150 were not applicable

High Court Of Gujarat

Harsiddh Specific Family Trust vs. JCIT

Assessment Year : 1989-90

Section : 150, 148

Ms. Harsha Devani And Ms. Bela Trivedi, JJ.

Special Civil Application No. 278 Of 2001

April 1, 2011

JUDGMENT

Ms. Harsha Devani, J. -By this petition under article 226 of the Constitution of India, the petitioner has challenged the notice dated December 12, 2000, issued by the respondent under section 148 of the Income-tax Act, 1961 (“the Act”) reopening the petitioner’s assessment for the assessment year 1989-90.

2. The petitioner, a trust, had filed its return of income for the assessment year 1989-90 declaring an income of Rs. 6,21,28,550. However, vide an order of assessment dated March 31, 1992, under section 143(3) of the Act certain additions were made to the returned income and the petitioner was assessed at a much higher income. The said additions were the subject-matter of appeal, however, the said proceedings do not have any bearing in the matter.

3. Thereafter, the petitioner received the impugned notice dated December 12, 2000, pursuant to which, it submitted its objections, vide letter dated December 16, 2000. Since the respondent did not drop the proceedings, the petitioner has filed the present petition challenging the said notice.

4. Mr. S.N. Soparkar, learned senior advocate appearing on behalf of the petitioner, submitted that the impugned notice has been issued on December 12, 2000, in relation to the assessment year 1989-90, which is clearly beyond a period of four years from the end of the relevant assessment year and, as such, in the light of the proviso to section 147 of the Act, in the absence of any failure on the part of the petitioner to disclose fully and truly all material facts necessary for its assessment, the assumption of jurisdiction of the Assessing Officer, is invalid.

5. Inviting attention to the reasons recorded, it was submitted that according to the Assessing Officer giving effect to the order of the Commissioner (Appeals) would amount to income escaping assessment, hence, the very basis for reopening the assessment itself is misconceived. Referring to the affidavit-in-reply filed by the respondent, it was submitted that the respondent has placed reliance upon the provisions of section 150 of the Act, which would not be applicable to the facts of the present case, inasmuch as to give effect to the order of the Commissioner (Appeals) it is not necessary to reopen the assessment, the Assessing Officer is only required to pass an order giving effect to the said order. It was submitted that in the circumstances, the impugned notice having been issued beyond a period of four years from the end of the relevant assessment year, deserves to be quashed and set aside on the ground that the very assumption of jurisdiction of the Assessing Officer, is invalid.

6. On the other hand, Mr. M. R. Bhatt, learned senior advocate appearing on behalf of the respondent, has placed reliance upon the averments made in the affidavit-in-reply filed by the respondent wherein reliance has been placed on the provisions of section 150 of the Act, to contend that under the said provision notice under section 148 can be issued at any time to give effect to any finding or direction contained in any order passed by any authority in any proceeding under the Act by way of appeal, reference or revision or by a court in any proceeding under law. According to the learned counsel, in the light of the said provision the contention that the notice is time barred is not correct. It was submitted that the Assessing Officer has rightly exercised jurisdiction under section 147 of the Act and as such there is no warrant for any intervention by this court.

7. In the present case, admittedly, the assessment is sought to be reopened after the expiry of a period of four years from the end of the relevant assessment year. In the circumstances, in the ordinary course the first proviso to section 147 of the Act would be attracted and the two conditions precedent would be required to be satisfied before the Assessing Officer can reopen the assessment, viz., that income chargeable to tax has escaped assessment and that such escapement is by reason of omission or failure on the part of the petitioner to disclose fully and truly all material facts necessary for his assessment for that assessment year. However, according to the respondent, the first proviso to section 147 of the Act would not be attracted as this is a case which falls under section 150 of the Act whereby the assessment has been reopened to give effect to the order made by the Commissioner (Appeals). In the circumstances, the court is not required to examine as to whether or not the conditions precedent for exercise of powers under section 147 of the Act in the light of the proviso thereto are satisfied. The only aspect which is required to be considered is as to whether, in the facts and circumstances of the case, the provisions of section 150 of the Act would be attracted.

8. In the aforesaid premises, it would be necessary to refer to the provisions of section 150 of the Act which in so far as the same is relevant for the present purpose reads thus :

150. Provision for cases where assessment is in pursuance of an order on appeal, etc.-(1) Notwithstanding anything contained in section 149, the notice under section 148 may be issued at any time for the purpose of making an assessment or reassessment or recomputation in consequence of or to give effect to any finding or direction contained in an order passed by any authority in any proceeding under this Act by way of appeal, reference or revision or by a court in any proceeding under any other law.”

9. On a plain reading of section 150 of the Act, it is apparent that the same provides that a notice under section 148 of the Act may be issued at any time for the purpose of making an assessment or reassessment or recomputation to give effect to any finding or direction contained in an appellate order or revisional order, etc. Examining the reasons recorded in the light of the aforesaid statutory provisions, a perusal of the reasons recorded indicates that initially the Assessing Officer had framed assessment on March 31, 1992, under section 143(3) of the Act allowing the deduction under section 32AB of the Act in excess of allowance of deduction under the said provision. The assessment was, therefore, reopened and an order under section 143(3) read with section 147 of the Act came to be passed to bring to tax the income that had escaped assessment on account of excess deduction under section 32AB of the Act. The addition made on this account amounted to Rs. 35,32,705 (2,54,28,435 – 2,16,95,730). The matter was carried in appeal before the Commissioner (Appeals) who confirmed the said addition holding that the deduction under section 32AB would be available at the prescribed rate of 20 per cent. of such reduced profit. At the time of giving effect to the order of the Commissioner (Appeals), the Assessing Officer, while working out the deduction under section 80-I of the Act was of the view that while making the order under section 143(3) read with section 147 of the Act, Rs. 1,90,89,529 had not been deducted from the qualifying profit. He, therefore, vide order dated April 12, 1994, took the same into account while giving effect to the order dated March 31, 1994, of the Commissioner (Appeals). Being aggrieved, the petitioner went in appeal to the Commissioner (Appeals) who by an order dated December 3, 1999, directed the Assessing Officer to comply with the directions of the Commissioner (Appeals) in his earlier order and allow deduction on interest income of Rs. 62,61,091 and held that the action of the Assessing Officer excluding the expenses debited to the account of the trust of Rs.1,90,89,590 from the profit of Patel Detergents while computing the deduction under section 80-I in the order giving effect to the order of the Commissioner (Appeals) was not in order. He, therefore, directed the Assessing Officer to set right his aforesaid action.

10. Pursuant to the aforesaid order passed by the Commissioner (Appeals), the Assessing Officer has issued the impugned notice reopening the assessment of the petitioner. Though it has been contended on behalf of the respondent that the assessment has been reopened to give effect to the aforesaid order of the Commissioner (Appeals) the reasons speak otherwise. The second and concluding paragraph of the reasons recorded says that : “If at all effect is given to the present order of the Commissioner of Income-tax (Appeals), i.e., deduction under section 80-I is granted on the above amount, it will tend to escapement to say an amount of (Rs. 1,90,89,590 x 20%) = 38,17,918 will escapement of assessment. In view of the above, I have reason to believe that the excess deduction under section 80-I of Rs. 38,17,918 is allowed. Therefore, notice under section 148 is issued”.

11. A plain reading of the aforesaid portion of the reasons recorded makes it evident that the assessment has not been reopened to give effect to the order of the Commissioner (Appeals), but because, according to the Assessing Officer, giving effect to the order made by the Commissioner (Appeals) will result into escapement of income of Rs. 38,17,918. Thus, in effect and substance the Assessing Officer is sitting in appeal over the order made by the Commissioner (Appeals) and has reopened the assessment on the ground that giving effect to the order of the Commissioner (Appeals) will give rise to escapement of income. Thus, the very premise for reopening the assessment is misconceived. In case the Revenue is aggrieved by the order made by the Commissioner (Appeals), the same has to be challenged in appropriate proceedings. In the present case, the Assessing Officer instead of giving effect to the order of the Commissioner (Appeals) has sought to reopen the assessment on the ground that giving effect to the said order would result in escapement of income. What section 150 of the Act permits is to reopen assessment in consequence of or to give effect to any finding or direction contained in an order passed by any authority in any proceeding under the Act by way of appeal, reference or revision (without application of the time limit prescribed under section 149). In the present case, evidently the assessment has not been reopened to give effect to the order of the Commissioner (Appeals). On the contrary by reopening the assessment the Assessing Officer appears to be sitting in appeal over the decision of the Commissioner (Appeals). In the circumstances, the ingredients for invoking section 150 of the Act are clearly not satisfied. Moreover, apart from the fact that the basic premise on which the assessment is sought to be reopened is erroneous, it is not even the case of the respondent that the assessment is sought to be reopened on account of any failure on the part of the petitioner to disclose fully and truly all material facts necessary for his assessment. Hence, the reopening of assessment is clearly time barred.

12. In the light of the aforesaid discussion, in the opinion of this court the very formation of belief that income chargeable to tax has escaped assessment is fallacious and there is no material on the basis of which the Assessing Officer could have formed such a belief. Moreover, there is no material on record to indicate any omission or failure on the part of the petitioner to disclose fully and truly all material facts necessary for his assessment. In the circumstances, neither of the two conditions precedent for exercise of powers under section 147 of the Act after the expiry of a period of four years from the end of the relevant assessment year is satisfied. Hence, the very assumption of jurisdiction on the part of the Assessing Officer is invalid.

13. For the foregoing reasons, the petition succeeds and is accordingly allowed. The impugned notice dated December 12, 2000, seeking to reopen the assessment of the petitioner for the assessment year 1989-90 (annexure A to the petition) is hereby quashed and set aside. Rule is made absolute accordingly with no order as to costs.

[Citation : 353 ITR 500]

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