Punjab & Haryana H.C : The petitioner filed a return for the asst. yr. 1991-92 declaring an income of Rs. 2,890. It claimed deduction under s. 80-I of the Act on the premise that it had set up a new industrial unit

High Court Of Punjab & Haryana

Gurera Gas Cylinders (P) Ltd. vs. CIT & ANR.

Sections 147, 148, Art. 226

Asst. Year 1991-92

G.S. Singhvi & Nirmal Singh, JJ.

Civil Writ Petn. No. 9208 of 1996

29th September, 2000

Counsel Appeared

A.K. Mittal, for the Petitioner : R.P. Sawhney with Rajesh Bindal, for the Respondents

JUDGMENT

G. S. Singhvi, J. :

This is a petition for quashing notice Annexure P-9, dt. 25th March, 1995, issued by the Addl. CIT, Special Range, Faridabad (respondent No. 2), under s. 148 of the IT Act, 1961 (for short, “the Act”), to the petitioner. The petitioner filed a return for the asst. yr. 1991-92 declaring an income of Rs. 2,890. It claimed deduction under s. 80-I of the Act on the premise that it had set up a new industrial unit. By an order passed under s. 143(1)(a) of the Act, the AO disallowed the deduction claimed by the petitioner and determined its taxable income at Rs. 3,94,890. An application filed by the petitioner under s. 154 was rejected by the AO vide order dt. 4th Sept., 1992. The CIT(A) reversed the order of the AO and accepted the petitioner’s claim for deduction. In the meanwhile, the AO passed a regular assessment order under s. 143(3) of the Act. He again disallowed the petitioner’s claim for deduction, but the CIT(A), Faridabad, accepted the appeal and allowed the petitioner’s claim for deduction under s. 80-I of the Act. For the asst. yr. 1992-93, the petitioner filed the return on 31st Dec., 1992, declaring an income of Rs. 2,41,850 and claimed deduction under s. 80-I. The AO disallowed the deduction and assessed the petitioner’s income at Rs. 8,58,327. However, on an application filed under s. 154, he passed the order Annexure P-7, dt. 30th March, 1993, allowing the deduction. In the regular assessment made under s. 143(3), the AO accepted the petitioner’s claim for deduction and finalised the assessment vide order dt. 31st Jan., 1994. After about three years, respondent No. 2 issued the impugned notice under s. 148 and called upon the petitioner to show cause against the proposed reassessment by observing that its income for the asst. yr. 1991-92 had escaped assessment within the meaning of s. 147 of the Act. On the petitioner’s demand, respondent No. 2 supplied detailed reasons which prompted him to initiate proceedings for reassessment. For the sake of convenience, notice Annexure P-9 and the reasons contained in Annexure P. 11 are reproduced below : “Notice Annexure P-11 Whereas I have reason to believe that your income in respect of which you are assessable chargeable to tax for the asst. yr. 1991-92 has escaped assessment within the meaning of s. 147 of the IT Act, 1961. I, therefore, propose to reassess the income for the said assessment year and I hereby require you to deliver to me within 30 days from the date of service of this notice, a return in the prescribed form of your income for the said assessment year.

This notice is being issued after obtaining the necessary satisfaction of the CIT….. the CBDT. Reasons recorded in Annexure P-11 From the perusal of assessment records for the asst. yr. 1991-92, it is observed that the assessee had claimed deduction under s. 80-I at Rs. 1,59,657. However, the assessee had nowhere disclosed that a separate unit had been set up by it during the year. Even the primary and material facts with regard to claim of deduction under s. 80-I, viz., date of setting up of unit, investment made and the items manufactured in the unit or the details of plant and machinery, whether new plant and machinery was purchased and if so when ; had been disclosed. Only the computation of income for the allowability of deduction under s. 80-I was annexed with the return. However, no separate P&L a/c or balance-sheet for the industrial undertaking was filed during the course of assessment proceedings. As a result it is not known how profit of Rs. 8,11,538 had been worked out. Since the assessee has not disclosed primary facts about setting up a separate industrial undertaking, it is not known whether all the conditions as envisaged under s. 80-I are satisfied and thus the assessee did not discharge onus laid down upon it for claim of deduction under s. 80-I.

4. A bare reading of the assessment order shows that deduction under s. 80-I had been allowed on the profits of the company and not on the profits of a separate industrial undertaking and that too before setting off of b/f losses. Apparently due to non-disclosure of material and primary facts with regard to setting up of a separate industrial undertaking on the profits of which the assessee sought to claim deduction under s. 80-I, income to the extent of deduction allowed (Rs. 4,11,380) has escaped assessment in terms of clauses (C)(iii) and (C)(iv) of Explanation to s. 147. It is also noticed that there is no mention in the assessment order dt. 28th June, 1993, about the facts relevant to setting up of a separate unit since the income as aforesaid has escaped assessment. Accordingly, issue notice under s. 148 of the IT Act, 1961.” The petitioner submitted representation dt. 30th May, 1996 (Annexure P-12) to the CIT, Rohtak, against the proposed reassessment and then filed this petition for quashing notice Annexure P-9 and consequential proceedings by contending that the impugned notice is ultra vires the provisions of s. 148 r/w s. 147 of the Act. It has averred that respondent No. 2 did not have any material before him on the basis of which he could believe that income of the petitioner had escaped assessment. The petitioner’s case is that while claiming deduction under s. 80-I, it had not suppressed any information from the AO and, therefore, there can be no justification for initiation of proceedings under s. 148.

The respondents have raised an objection to the maintainability of the writ petition on the ground that the petitioner has failed to avail of the alternative remedies available to it. According to them, the petitioner can file a reply to the show-cause notice and convince respondent No. 2 against the proposed reassessment and if the said respondent passes an adverse order, then it can avail of the remedies of appeal and reference. On the merits, they have controverted the petitioner’s assertion about the new unit set up for manufacturing sheet metal components. According to them, the petitioner did not produce any evidence to substantiate its claim for deduction under s. 80- I and when the true facts came to the notice of respondent No. 2, he issued notice under s. 148. Shri A. K. Mittal argued that the impugned notice should be declared illegal and quashed because it amounts to an abuse of the power vested in respondent No. 2 to reopen the proceedings of assessment. He submitted that no material was available before respondent No. 2 on the basis of which he could believe that income of the petitioner had escaped assessment. Shri Mittal pointed out that the petitioner had placed all the documents before the AO in the proceedings under ss. 143 and 154 of the Act and, therefore, it cannot be said that there was any concealment of the relevant facts from the AO resulting in escapement of income. Shri R. P. Sawhney reiterated the objection raised to the maintainability of the writ petition and argued that the same should be dismissed because the petitioner has failed to avail of the statutory alternative remedies. He further argued that the reasons assigned by respondent No. 2 for forming a belief that the petitioner’s income had escaped assessment do not suffer from any legal infirmity. Shri Sawhney submitted that at this stage, the Court cannot go into the merits of the reasons assigned by respondent No. 2 and if the petitioner feels aggrieved by the ultimate order which may be passed by the competent authority, then it can avail of the remedies available under the statute.

We have given serious thought to the respective arguments. In our opinion, the petitioner has failed to make out a case for quashing the impugned notice on the ground of non-application of mind or on the ground that no material was available before respondent No. 2 which could be relied upon for forming a belief that income of the petitioner had escaped assessment or that the benefit could not have been given to it under s. 80-I of the Act. It is settled law that the High Court cannot quash the notice issued under s. 148 unless it comes to the conclusion that the competent authority did not have any material whatsoever before him on the basis of which he could form a belief that the income of the assessee had escaped assessment. In Phool Chand Bajrang Lal vs. ITO (1993) 113

CTR (SC) 436 : (1993) 203 ITR 456 (SC), their Lordships of the Supreme Court interpreted s. 147 of the Act and observed as under “From a combined review of the judgments of this Court, it follows that an ITO acquires jurisdiction to reopen an assessment under s. 147(a) r/w s. 148 of the IT Act, 1961, only if on the basis of specific, reliable and relevant information coming to his possession subsequently, he has reasons, which he must record, to believe that, by reason of omission or failure on the part of the assessee to make a true and full disclosure of all material facts necessary for his assessment during the concluded assessment proceedings, any part of his income, profits or gains chargeable to income-tax has escaped assessment. He may start reassessment proceedings either because some fresh facts had come to light which were not previously disclosed or some information with regard to the facts previously disclosed comes into his possession which tends to expose the untruthfulness of those facts. In such situations, it is not a case of mere change of opinion or the drawing of a different inference from the same facts as were earlier available but acting on fresh information. Since the belief is that of the ITO, the sufficiency of reasons for forming the belief is not for the Court to judge but it is open to an assessee to establish that there in fact existed no belief or that the belief was not at all a bona fide one or was based on vague, irrelevant and non- specific information. To that limited extent, the Court may look into the conclusion arrived at by the ITO and examine whether there was any material available on the record from which the requisite belief could be formed by the ITO and further whether that material had any rational connection or a live link for the formation of the requisite belief. It would be immaterial whether the ITO, at the time of making the original assessment, could or could not have found by further enquiry or investigation, whether the transaction was genuine or not if, on the basis of subsequent information, the ITO arrives at a conclusion, after satisfying the twin conditions prescribed in s. 147(a) of the Act, that the assessee had not made a full and true disclosure of the material facts at the time of original assessment and, therefore, income chargeable to tax had escaped assessment. … One of the purposes of s. 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 a travesty of justice to allow the assessee that latitude.” [Emphasis, italicised in print, is ours]

In Raymond Woollen Mills Ltd. vs. ITO (1999) 152 CTR (SC) 418 : (1999) 236 ITR 34 (SC), their Lordships of the Supreme Court rejected the challenge to the notice issued for reassessment by observing that at that stage, the Court can only consider whether there is a prima facie case for reassessment and reopening of the proceedings cannot be struck down by going into the sufficiency or correctness of the material relied upon by the assessing authority for that purpose. A perusal of the reasons recorded by respondent No. 2 shows that he had applied his mind to the relevant material and formed a belief that the petitioner had not disclosed complete facts which could enable it to claim deduction under s. 80-I and, therefore, its income had not been properly assessed. At this stage, the Court can neither go into the sufficiency or adequacy of the reasons recorded by respondent No. 2 nor can it interfere with the notice simply because on an overall reappraisal of material, a different opinion may be formed. For the reasons mentioned above, we hold that the petitioner has failed to make out a case for quashing the impugned notice. Hence, the writ petition is dismissed.

[Citation : 258 ITR 170]

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