High Court Of Madras
T.C.V. Engineering Pvt. Ltd. (Rep. By Its Director, C. Mohan) vs. Assistant Commissioner Of Income Tax And Anr.
Section 147, 148
Asst. Year 1997-98
S.M. Subramaniam, J.
W.P.Nos.34676 & 34677 of 2003 and W.M.P.Nos. 42125 & 42126 of 2003
23rd November, 2018
Counsel Appeared:
M.P. Senthil Kumar for the Petitioner.: A.P.Srinivas for the Respondent.
COMMON ORDER
The notices issued under Section 148 of Income Tax Act, 1961 (hereinafter referred to as “the Act”) and the reassessment proceedings issued by the respondents in proceedings dat d 11.11.2003, are under challenge in these writ petitions.
The learned counsel for the petitioner states that the writ petitioner-company was engaged in the business of executing a civil contract works and assessed to income tax. The Income Tax Department initiated proceedings under Section 132-A of the Income Tax Act, 1961 in the case of Mr T.T V.D nakaran, a director of the petitioner company. The Income Tax Department, in the course of the said action, recovered certain documents relating to the petitioner-company and proposed to assess the petitioner under Section 158 BD of the Income Tax Act, 1961.
In response to the above said notice, the petitioner submitted a return admitting an income of Rs.1,41,04,160/-, based on its books and regularly main ained accounts which are duly audited. The petitioner had also claimed depreciation in calculation of income claimed at the rate of 40% on Bull dozers, Road Rollers, Jeep with trailer and other earth-moving equipments used in respect of its Civil Engineering Contracts.
The petitioner states that in computing the income under Section 148 BD, the amount of income declared for the assessment years 1994-1995 and 1995-1996, wherein the petitioner had claimed supervisory charges payable to M/s.T.C.V.Packers, amounting to Rs.24.68 lakhs for the assessment year 1994-1995 and Rs.33.67 lakhs for the assessment year 1995-1996. Based on the arrangement between the petitioner and M/s.T.C.V.Packers, the petitioner was liable to pay 10% of the gross income from their contracts M/s.T.C.V.Packers as supervisory charges. But no such supervisory charge was payable to the previous assessment year 1996-1997 and the petitioner did not make any such claim in respect of the assessment year 1996-1997.
The following break-up of the aforesaid income for the various assessment years was arrived at as follows:
Aggrieved by the order of Assistant Commissioner, Central Circle II(2) Chennai, the petitioner filed an appeal before the Income Tax Appellate Tribunal in IT (SSA) No.110/(Mds)/98, challenging the dis-allowance of depreciation on the equipments held by the petitioner, apart from challenging the correctness of the assessment on the various contentions including the disallowance relating to the supervisory charges.
The Income Tax Appellate Tribunal vide its order dated 20.11.2002, disposed of the appeal by deleting the additions from the block assessment on the ground that these items cannot be included in the block assessment.
While this being so, the petitioner received a notice Under section 148 of Income Tax Act from the respondent dated 18.02.2003, which was served on 21.02.2003, stating that the respondent had reason to believe that the income chargeable to assessment for the assessment year 1996-1997 has escaped the assessment within the meaning of Section 148 of the Income Tax Act 1961 and proposed to assess the income for the said assessment year.
In response to the notice issued under Section 148 of Act, the petitioner filed a letter stating that the return filed originally for the said assessment year 1996-1997 shall be treated as return in response to notice issued under Section 148 of the Act.
The learned counsel for the writ petitioner made a submission that the reopening of the assessment was beyond 4 years and therefore, the Assessing Officer has no jurisdiction to issue impugned notice under Section 148 of the Act.
The Assessing Officer has no reason to believe that the income had escaped assessment to reopen such assessment by exercising the jurisdiction under Section 147 of the Act.
Block assessment under Section 143 (3) read with Section 158 BD in support of the contention that the Assessing Authority had already gone through in detail on the issues, which they consider sufficient reason to believe that the income had escaped assessment in the reopened assessment.
The Assessing Authority has merely exercising the jurisdiction under Section 147 of the Act, to make rowing enquiries, which is not warranted under the provisions of Income Tax Act.
It is further contended that no authority under the rank of the Joint Commissioner can issue a notice under Section 148 after expiry of 4 years from the relevant Assessment Year unless the Joint Commissioner is satisfied under the reasons recorded by the Assessing Officer that it is a fit case for issue of such notice when the case is specifically covered by Section 151 (2) of Income Tax Act, 1961 and it does not fall within the provisions of Sub-section 1(i) of Section 151.
At the outset, it is contended that the very notice issued by the authority under Section 148 of the Act, is without jurisdiction, the learned counsel for the petitioner is of an opinion that the procedures contemplated were not followed. This apart, there is no reason to believe f r reopening of the assessment for the year 1996-1997. The provision warrants the reasons to be recorded and to the knowledge of the petitioner, no such valid reason has been recorded before issuing the notice under Section 148 of the Income Tax Act. Thus, the notice itself is liable to be scrapped.
The learned counsel for the respondents, appearing on behalf of the Income Tax Department, reiterated the contentions by stating that under Section 147 of the Income Tax Act, the Assessing Officer is empowered to reopen the escaped assessment, if he has a reason to believe that any income chargeable to the tax has escaped assessment for the Assessment Year. Such officer may subject to the provisions of Sections 148 to 153 assessed or reassessed such income also be chargeable to tax has escaped assessment and subsequently in the course of the proceedings under this Section which formed the loss or depreciation allowance or any other allowance as the case may be for the assessment year concerned.
17. In respect of the contention of the writ petitioner that the notice issued under Section 148 of the Act, was issued without jurisdiction in view of the fact that the notice was not issued within the prescribed time limit of four years. It is contended by the respondents that the time limit for notice is contemplated under Section 149 of the Income Tax Act. Section 149 of the Income Tax Act, reads as under:
“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) or clause (c) ;]
[(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.]
[(c) if four years, but not more than sixteen years, have elapsed from the end of the relevant assessment year unless the income in relation to any asset (including financial interest in any entity) located outside India, chargeable to tax, has escaped assessment.]
Explanation : In determining income chargeable to tax which has escaped assessment for the purposes of this subsection, the provisions of Explanation 2 of Section 147 shall apply as they apply for the purposes of that section.
(2) The provisions of sub-section (1) as to the issue of notice shall be subject to the provisions of Section 151.
(3) If the person on whom a notice under Section 148 is to be served is a person tr ated as the agent of a non-resident under Section 163 and the assessment, reassessment or recomputation to be m de in pursuance of the notice is to be made on him as the agent of such non-resident, the notice shall not be issued after the expiry of a period of six years from the end of the relevant assessment year.
Explanation : For the removal of doubts, it is hereby clarified that the provisions of sub-sections (1) and (3), as amended by the Finance Act, 2012, shall also be applicable for any assessment year beginning on or before the 1st day of April, 2012.”
Section 149(a) is inapplicable to the case of the peti oner s the petitioner falls under the category of beyond one lakh. Thus Section 149(1)(b) of the Act, is applicable in respect of the case of the petitioner. Thus, the reopening of the assessment is to be done by the Assessing Officer within the period of six years from the assessment year. In the present case on hand, admittedly, the notice was issued within a period of six years. Thus, there is no infirmity, as such, in respect of issuing notice under Section 148 of the Income Tax Act is concerned.
With reference to the said objections by the respondents, the learned counsel for the petitioner has drawn the attention of this Court regarding Section 147 which reads that “Provided that where an assessment under sub-section (3) of Section 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 Section 139 or in response to a notice issued under sub-section (1) of Section 142 or Section 148 or to disclose fully and truly all material facts necessary for his assessment, for that assessment year”.
Relying on the said provision, the learned counsel for the petitioner states that the proviso to clause would be applicable to the case of the writ petitioner. Thus, the reopening of the assessment by the Assessing Officer itself is perverse and not in accord with the proviso clause to Section 147.
The learned counsel for the respondents objected the said contention raised on behalf of the writ petitioner by stating that all such material facts and the details are to be assessed by the Assessing Officer. Even if the petitioner is of an opinion that the initiation of the proceedings under Section 148 is not in accord with law, then also the petitioner has to submit his objections, enabling the Assessing Officer to consider all the materials and the facts and thereafter, take a decision in respect of the reopening of the closed assessment. However, the same cannot be raised in a writ petition, as the petitioner is bound to respond to the notice and submit all the materials and Assessment Officer has to consider the same independently, take a decision in accord with the provisions of the Act.
It is clarified by the learned counsel for the respondents that the case of the writ petitioner is not falling under Section 143 (3), which is merely procedural one. Even in the impugned order dated 11.11.2003, it is stated as follows: “However, the correct Section under which assessment passed, is under Section 158-BC (c), which goes as follows:
“The Assessing Officer, on determination of the undisclosed income of the block period in accordance with this Chapter, shall pass an order of assessment and determine the tax payable by him on the basis of such assessment”.
Reference to Section 143(3) is merely procedural. There are various Sections in the Act under which assessment are completed like Section 147, Section 158-BC etc. But in the assessment order, along with Section 147/Section 158-BC, Section 143(3) is also referred. Similarly to give effect to C.I.T’s order under Section 263 or 264 or C.I.T.(A)’s order under Section 251 or I.T.A.T. Order under Section 254, Section 143(3) is used as “Read with Section”. In this case, the core Section under which the assessment is completed under Chapter XIVB is under Section 158-BC(c) r.w.s. 158-BD. There has been so many decisions wherein the Courts have held that regular assessments under Chapter XIV and Block assessment under Chapter XIV-B are parallel and can be proceeded simultaneously and independently. In this case for the Assessment Year 199697 and 1997-98 no regular assessment has been completed under Section 143(3) or 147 earlier and therefore as mentioned in my last letter dated 28.10.2003, Your case is covered under Sect on 15 (2) of the I.T. Act, 1961. Your objection that notice is beyond jurisdiction is therefore rejected.”
23. In respect of the facts and the grounds submitted by the respective part es, this Court is of an opinion that certain mixed question of facts and law cannot be decided in favour of the petitioner nor depriving the department to probe the matter further and formulate an opinion with reference to the p ovisions of the Act and pass orders. Whenever mixed question of law and facts are posed before this Court, then the High Court must exercise restraint from interfering with the notice issued under Section 148.
However, it is made clear that in the event of change of an opinion by the Assessing Officer, the same cannot constitute ground for reopening of the assessment beyond th period of 4 years under Section 147 of the Income Tax Act. However, while deciding the case, the Assessing Officer is bound to consider the materials available on record and the reasons recorded for the purpose of reopening the closed assessment. Thus, this Court is of an opinion that the present case on hand is one that of the mixed question of law and facts and therefore, the Assessment Officer has to consider all these aspects, including the objections submitt d by the writ petitioner for the purpose of passing an assessment order under the provisions of the Income Tax Act, 1961. This Court cannot come to the conclusion that the notice under Section 148 was issued beyond the period of lim tation with reference to Section 149(1)(b) of the Act.
The learned counsel for the petitioner states that he is entitled for the benefit of proviso clause to Section 147 of the Act. However, the said provisions are to be considered only with reference to the facts and the materials available on record before the Assessing Officer and the said exercise cannot be done by the High Court in a writ jurisdiction under Article 226 of Constitution of India.
The learned counsel for the petitioner has drawn the attention of this Court regarding the judgment of the Hon’ble Supreme Court of India in the case of GKN Driveshafts (India) Ltd. vs. Income Tax Officer And Others [(2003) 1 SCC 72], in paragraph-5, held as follows:
“5. We see no justifiable reason to interfere with the order under challenge. However, we clarify that when a notice under Section 148 of the Income Tax Act is issued, the proper course of action for the noticee is to file return and if he so desires, to seek reasons for issuing notices. The assessing officer is bound to furnish reasons within a reasonable time. On receipt of reasons, the noticee is entitled to file objections to issuance of notice and the assessing officer is bound to dispose of the same by passing a speaking order. In the instant case, as the reasons have been disclosed in these proceedings, the assessing officer has to dispose of the objections, if filed, by passing a speaking order, before proceeding with the assessment in respect of the abovesaid five assessment years.”
The procedures prescribed by the Supreme Court of India in G.K.N.Driveshafts (India) Limited case, are to be followed by the Competent Authorities scrupulously.
The learned counsel for the respondents also has not disputed the proposition and reiterated that the Authorities Competent are following the principles laid down by the Apex Court and with reference to the present writ petition on hand, the same procedure has been followed.
This Court has elaborately considered the Legal principles in the case of South Asia FM Ltd., reported in [2018] 98 taxmann.com 200 (Madras). The relevant paragraphs are extracted hereunder:
“95. The very concept of income tax assessment is that the Assessee is taxed by the Department based on the returns filed by the Assessee. Section 2 of the Act provides “definitions”. Section 2(8) defines “assessment includes reassessment”. Thus the very meaning of the assessment provided under the Act includes reassessment also. Thus, the reassessment is not a separate concept and it is included within the meaning of the assessment under Section 2(8) of the Act. Thus, an assessment and reassessment are part and parcel of the procedures and therefore, there cannot be any doubt in respect of the power of reassessment provided under the Act.
96. The Income Tax Department may not be aware of the income of the individual Assessees. They are assessing the tax based on the returns filed by the respective Assessees. Thus, the very concept of ssessment is that the Officer who is scrutinising the returns did not aware of the income of an individual. For this r ason only Act provides adequate power to deal with the cases, where there is evasion or suppression or otherwise by the Assessees. The very source of assessment is the returns filed by the Assessee concerned. Only after the filing of the returns, the Department of Income Tax came to understand the income of the person concerned. Thus, the reassessment may arise on several occasions and on several grounds. The Income Tax Department may receive informations from many other sources. The Income Tax Department may get some external materials as well as from various other ources. It is the process of investigation. On receipt of such materials or informations from various other sources, in such circumstances, the authorities must be in a position to reopen the assessment and impose tax. In the absence of any such lucid provision, enabling the Department reopening a case, there is a possibility of escapement of payment o tax by large number of Assessees. The very nature of the Act is to ensure that the informations and the mate ials collected or received from various other sources are also dealt with by the Department of Income Tax appropriately and with reference to the provisions of the Act.
The power of reopening of the assessment is certainly wide in nature. If it is restricted, then the very purpose and object of the Income Tax Act will b defeated. The wide power provided to the authorities competent to reopening of the assessment and to ensure that all external materials and the informations received from various sources should also be dealt in accordance with the provisions of Law. Thus, it does not mean that the Income Tax Authorities may reopen at any point of time. In order to protect the Assessees a definite time limit has been provided under the Act itself. Thus in the event of receiving any informations or materials from any other sources can be a ground for reopening of the assessment and the period of limitation is four years and six years respectively and in respect of the present writ petitions, it is six years.
The procedure of reopening of the assessment is contemplated under Sections 148 to 153 of the Act. Once again looking into the spirit of Section 147, it is unambiguously enumerated that “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”.
The language employed in Section 147(1) of the Act is that “which comes to his notice subsequently in the course of the proceedings under the Section”. Thus even after initiation of reopening of assessment proceedings under Section 147 of the Act, if during the course of the proceedings if any materials or informations are received by the Assessing Officer that also can be taken into consideration for the purpose of reassessment. It is crystal clear that the reasons recorded before the initiation of the reopening of the assessment alone need not be a ground for reassessment. Even after reopening of the assessment if any materials or informations are received by the Assessing Officer that also shall be included part and parcel of the proceedings and sufficient explanations shall be called for from the Assessee and accordingly a reassessment order can be passed. Thus, two circumstances arise after the conclusion of the assessment. Firstly, if the assessment is finalised, the reopening in respect of the escaped assessments can be made if any new materials or suppression of materials are identified. On such reopening of the assessment and during the course of the proceedings, if the Assessing Officer noticed any other materials or informations in respect of escaped assessment and the same also can be treated as part and parcel of the reassessment proceedings which is reopened.
On going through the said ingredients of the Section 147, this Court has no hesitation to conclude that the Assessing Officer has got wider power in respect of covering the escaped assessments for the purpose of reopening the assessment. The proviso to Section 147 states that “provided further that the Assessing Officer may assess or reassess such income, other than the income involving matters which are the subject matters of any appeal, reference or revision, which is chargeable to tax and has escaped assessment”. This also provides various circumstances enabling the Assessing Officer to assess or reassess such income other than the income involving the matters which are the subject matters of any appeal, reference or revision. The wideness of the power has been further clarified in the said proviso clause.
Explanation 2 sub-clause (b) to Section 147 also provides power to the Assessee where a return of income has been furnished by the Assessee but no assessment has been made and it is noticed by the Assessing Officer that the Assessee has understated the income or has claimed excessive loss, deduction, allowance or relief in the return.
The circumstances are narrated wherein certain materials and info mations are provided by the Assessee at the time of filing of the returns and if the same has not been assessed by the Assessing Officer during the relevant assessment year and if it is subsequently noticed, then also the Assessing Officer is empowered to reopen the assessment in respect of the escaped assessments.
On a perusal of various circumstances incorporated und r Section 147 of the Act, for reopening of the escaped assessment, this Court is of an opinion that it is certainly flexible and wider power has been provided, enabling the Assessing Officer to reopen the assessment in the interest of revenue and to ensure that the Assessees pay the correct tax with reference to the provisions of the Act
This Court is of a firm opinion that where certain doubts in respect of the reasons or otherwise have been raised by the Assessee, such benefit of doubt should be held in favour of the revenue and not in favour of the taxpayer. Contrariness is to be established by the Assessee, while scrutinising the materials available with the Assessing Officer.
It is for the Assessee to convince the Assessing Officer in respect of all such escaped assessments, informations and materials available and submit the returns. This being the legal principles to be followed, the provisions are to be interpreted to achieve its purpose and the object and therefore the wider powers provided under Section 147 of the Act, for reopening of the escaped assessments can never be restricted by imposing certain conditions on the Assessing Officer.
110. In the present cases on hand, the request made by the writ petitioner had been complied with and the reasons for reopening of the escaped assessment had been communicated to the writ petitioner. The said propositions are very well recognised by the Supreme Court of India in the case of GKN Driveshafts (India) Ltd. Thus the very provision stating that the Assessing Officer should record the reasons does not mean that the same should be communicated along with the notice itself. The provision is incorporated in order to ensure that the Assessing Officers act with responsibility and make sure that they are reopening the assessment only based on some reasons and the materials available on record. Such provisions provided to avoid the arbitrariness on the part of the Assessing Officer cannot be taken advantage by the Assessee by contemplating the procedures that the reasons so recorded by the Assessing Officer should be communicated to the Assessee along with the notice issued under Section 148 (1) of the Act. Such a proposition cannot be appreciated and that is not the intention of the Act itself. Thus, the very arguments advanced in this regard by the writ petitioner deserve no merit consideration.
111. In case of M/S. Phool Chand Bajrang Lal vs Income-Tax Officer And Another [1993 203 ITR 456], it has been held as follows:
“One of the purposes of Section 147, appears to us to be, to ensure that a party cannot get away by wilfully making a false or untrue statement at the time of original assessment and when that falsity comes to notice, to turn around and say “you accepted my lie, now your hands are tied and you can do nothing”. It would be travesty of justice to allow the assessee that latitude.”
On careful consideration of all the judgments, cited supra, this Court is of an undoubted opinion that if the Assessing Officer has reason to believe that income has escaped assessment, it confers jurisdiction to reopen the assessment. It is however, to be noted that the conditions stipulated in the Act must be fulfilled if the case falls within the ambit of Section 147.
Considering the fact that there are some materials on record and the informations with the Department of Income Tax, the reopening of the assessment in the writ petitions with reference to Sections 147 to 153 of the Act, is in accordance with law and there is no infirmity, as such. Thus, the writ petitioner is bound to respond to the Assessing Officer for the purpose of arriving a conclusion and for taking a decision. In the event of passing an order of assessment or reassessment, then the writ petitioner is entitled to prefer an appeal contemplated under the provisions of the Act. Contrarily, based on the preliminary informations gathered by the Assessing Officer, the notices issued for the purpose of reopening of the assessment would not provide a cause of action for filing of the present writ petitions and this Court has no hesitation in holding that the writ petitions are not only premature, even on merits the writ petitioner has failed to establish any acceptable reason to grant the relief, as such, sought for”.
The learned counsel for the respondents further contented that the writ petitioner has raised several grounds, including the point of jurisdiction and with reference to the returns filed by him during the assessment year 1996-1997 and also for the assessment year 1997-1998. All the legal grounds and the factual circumstances submitted by the writ petitioner are to be considered by Assessing Officer, while taking a final decision and at the time of passing the assessment order under the provisions of the Income Tax Act, 1961.
It is brought to the notice of this Court that the writ petitioner had already submitted an application, seeking the reasons recorded by the Assessing Officer and the reasons were already provided to the writ petitioner. On receipt of the reasons for issuance of the reopening of assessment under Section 147 of the Act, the writ petitioner also had submitted his objections in respect of the notic as well as the reasons communicated by the Department.
Further, it is contended that the Assessing Officer had passed an order, rejecting the objections submitted by the writ petitioner. Therefore, the Assessing Officer has to complete the process of assessment and accordingly, take a decision and pass final orders by providing further opportunity to the assessee concerned. The writ petitioner, who is an assessee, is entitled to submit all his further objections, documents or materials available with him, enabling the Assessing Officer to consider his case independently and with reference to the documents and materials produced by the writ petitioner and also the documents and materials available with the Income Tax Department. The Assessing Officer is empowered to consider the issue relating to jurisdiction, time limit and all other legal grounds raised by the writ petitioner at the time of passing the final orders.
Under these circumstances, this Court has no hesitation in coming to the conclusion that the writ petitioner is entitled to submit all his objections and legal grounds and materials, enabling the Assessing Officer to consider the same and pass an assessment order under the provisions of the Income Tax Act, 1961, without causing any undue delay.
33. With the above observations, the writ petitions stand dismissed. However, there shall be no order as to costs. Consequently, connected miscellaneous petitions are also dismissed.
[Citation : 413 ITR 319]
