Income Tax Appellate Tribunal - Delhi
Sarla Shreedharan vs Ito on 14 September, 2007
ORDER
P.N. Parashar, J.M.
1. This is an appeal filed by the assessee against the order of the learned Commissioner (Appeals), dated 24-3-2005 relating to assessment year 1996-97.
2. Ground Nos. 1 to 3 : Through these grounds the assessee has challenged the validity of the initiation of reassessment proceedings. These grounds are as under:
1. That having regard to facts and circumstances of the case, learned Commissioner (Appeals) has erred in law and on facts in confirming the action of learned assessing officer in upholding the validity of reassessment proceedings initiated under Section 147 vide notice dated 31-3-2003.
2. That having regard to facts and circumstances of the case, learned Commissioner (Appeals) has erred in law and on facts in upholding the validity of reassessment proceedings and reassessment order even though statutory conditions prescribed under Sections 147 to 151 were not complied with, moreso when reopening was done on the basis of mere change of opinion on the same set of facts.
3. In any view of the matter and in any case, learned Commissioner (Appeals) has erred in law and on facts in confirming the action of learned assessing officer in reopening the assessment and in any case, impugned reassessment was void ab initio.
3. The facts concerning this matter are as under:
3.1 The assessee was deriving income from export of readymade garments and trading of fabrics as also interest from partnership-firm. The assessee filed return of income on 2-121996 declaring total income at nil. The return was processed under Section 143(1)(a) on 4-12-1996. Subsequently, the case was selected for scrutiny and a notice under Section 143(2) was issued. The assessee had claimed deduction under Section 80HHC to the tune of Rs. 9,84,062. The assessing officer completed the assessment under Section 143(3) on 18-3-1999.
3.2 Thereafter, a notice under Section 148 was issued by the assessing officer on 28th March, 2001. A copy of this notice has been filed on p. 6 of the paper book. The assessee submitted reply to this notice vide letter dated 10th May, 2001. From the record made available to us it is not known as to whether the notice issued under Section 148 on 28-3-2001 was dropped or withdrawn or not. In absence of any such material brought on record, it is to be presumed that reassessment proceedings initiated on the basis of this notice continued.
3.3 Another notice under Section 148 of the Income Tax Act has been issued on 31-3-2003. A copy of this notice has been filed on p. 8 of the paper book. On perusal of the notice it is found that even the details of income escaping assessment have not been given in the notice. The assessee has submitted reply against that notice, a copy of which is available at pp. 10 and 11 of the paper book.
3.4 The assessment was completed under Section 143(3). The date of order has not been mentioned in the assessment order. The assessee filed appeal before the Commissioner (Appeals) against the assessment order and took ground No. 2 to challenge the validity of the initiation of reassessment proceedings. This ground is as under:
That having regard to facts and circumstances of the case learned assessing officer has erred in law and on facts in framing the assessment under Section 147 that too without recording valid reasons and has further erred in framing the assessment without serving notice under Section 148 and notice under Section 143(2) within prescribed time.
3.5. The learned Commissioner (Appeals) has rejected this ground merely by observing that the assessee is not taking (sic). The observations of the learned Commissioner (Appeals) are as under:
4. In ground No. 2, the assessee has contended that the assessing officer had erred in law as well as facts in framing the assessment under Section 147 that too without recording valid reasons and has further erred in framing the assessment without serving notice under Section 148 and notice under Section 143(2) within prescribed time. Perusal of the assessment order shows that the notice under Section 148 was issued to the assessee on 31-3-2003 in response to which the assessee filed return declaring nil income. In the paper book filed in appeal proceedings, the appellant has filed copy of the acknowledgement receipt of the return dated 9-7-2003 filed in response to notice under Section 148 per the index of the paper book. The assessing officer has mentioned that notice under Section 143(2) was served upon the assessee within the stipulated period. From the assessment order it appears no such contention was raised before the assessing officer in assessment proceedings. Therefore, in view of the above facts there appears no merit in the contention of the appellant and the same is rejected. In a submission filed in appeal proceedings (apparently dated 2-6-2004) the assessee has contended that 'notice under Section 148 dated 31-3-2003 is void as the proceedings already initiated vide notice under Section 148 dated 28-3-2001 were pending on the date of fresh intimation.' If such was the case the appellant would have pointed out before the assessing officer. However, no such plea was raised before the assessing officer. In the order under appeal the assessment was completed on basis of action taken under Section148 on 31-3-2003. The original assessment under Section 143(3) in the case was completed on 18-3-1999. Therefore, the notice issued under Section 148 was within four years from the end of the year, in which the original assessment was completed and was within the time specified in the main provision of Section 147 and as such was valid. Therefore, this contention of the appellant is also rejected.
4. Before us, the learned Counsel for the assessee submitted that since earlier notice issued under Section 148 on 28-3-2001 was not withdrawn or proceedings were not dropped, the proceedings continued on the basis of the said notice and therefore reopening of assessment during the time when proceedings were already pending, cannot be treated as valid reopening of the assessment. In support of this submission reliance has been placed on the ratio of decisions in the cases of Parimisetti Seetharamamma v. CIT , K. Adinaiayana Murty v. CIT , CIT v. Jaideo Jain & Co. , Ghanshyamdas v. Regional Asstt. CST and S.P. Kochhai v. ITO .
5. The learned Departmental Representative, on the other hand, supported the order of the learned Commissioner (Appeals).
6. The facts as submitted by the learned Counsel for the assessee have remained uncontroverted. In the case of CIT v. Ram Kishan Leela (2007) 207 CTR (Raj) 463, the Hon'ble Rajasthan High Court has considered similar issue and has held that second notice issued during the pendency of the proceedings cannot be treated to be legally justified. The observations of the Hon'ble High Court are as under:
Assessment years 1985-86 & 1986-87ReassessmentNotice under Section 148Second notice during pendency of proceedingsFirst reassessment proceedings which were initiated after the search at the premises of the assessee had not attained finality and were pending with the assessing officer as a result of orders of the appellate forumTwo parallel assessment proceedings cannot continue togetherOnce the reassessment proceedings are pending, the entire assessment is open and is not confined to scope of reasons recorded by the assessing officer before assuming jurisdictionThere cannot be second reassessment proceedings while the first reassessment proceedings are pending.
6.1 In view of the above decision and on the facts and circumstances of this case the argument of the learned Counsel for the assessee deserves to be accepted. Hence, on this basis itself the reopening of the assessment by the second notice cannot be justified and the assessment completed on the basis of such illegal notice does not have legal legs to stand. The assessment is, therefore, liable to be quashed on this ground.
7. The learned Counsel for the assessee further contended that the second notice issued under Section 148 on 31-3-2003 was beyond a period of four years from the end of the relevant assessment year and, therefore, the reassessment can be justified only if it is shown that the income chargeable to tax has escaped assessment due to failure on the part of the assessee to disclose fully and truly all material facts necessary for completion of assessment. It was submitted by the learned Counsel that in this case the assessee has disclosed all material facts and therefore the reopening after four years was not legally justified. In support of his contention the learned Counsel has placed reliance on various authorities including the decisions in the cases of CIT v. Kalvinatoi of India Ltd. (2002) 256 ITR 1 (Del)(FB); Assistant Commissioner v. Vindhya Telelinks Ltd. (2007) 107 TTJ (Jab-Trib)(TM) 149; Jindal Photo Films Ltd. v. Dy. CIT and Anr. and CIT v. Foiamei Fiance . He also placed reliance on the order of Tribunal, Pune Bench "A", dated 9-6-2006 rendered in ITA Nos. 503 to 505/Pn/2003 in the case of Ahmednagar Forgings Ltd. v. Assistant Commissioner; and the order of Tribunal, Delhi Bench 'F', dated 11-8-2006 rendered in ITA Nos. 1211 & 1212/Del/2004 in the case of C.P. Kukreja & Associates (P) Ltd. v. Dy. CIT. In the latter decision the Tribunal has considered the decision of the Hon'ble Delhi High Court in the case of Kalvinator of India Ltd. (supra) and has held that reassessment proceedings were resorted after a period of four years after the end of the relevant assessment year then requirement of law in terms of Section 147 is that income chargeable to tax should have escaped* assessment by reason of failure on the part of the assessee to disclose fully and truly all material facts, necessary for his assessment and since there was no failure on the part of the assessee, resort to reassessment proceedings being beyond the time laid down in Section 147, the order of reassessment is liable to be annulled.
8. We have carefully considered the entire material on record and the rival, submissions. Following facts are undisputed. Subsequent notice under Section 148 was issued on 31-3-2003. The assessment pertains to the assessment year 1996-97. Notice issued on 31-3-2003 was therefore, after the expiry of four years from the end of the assessment year as the fourth year expired on 31-3-2001. Proviso to Section 147 runs as under:
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.
8.1 In view of-the above proviso to Section 147 of the Income Tax Act, no action can be taken for reassessment 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.
8.2 In the instant case as pointed out by the learned Counsel for the assessee, the assessee has disclosed all the facts relating to deduction under Section 80HHC during the original assessment. In the case of Site World Travels (India) Ltd. v. CIT and Anr. , the Hon'ble Delhi High Court has observed as under:
Held, allowing the petition, that from the original assessment orders as well as the order made by the appellate authority, it was clear that the assessing officer was well aware of the primary facts, namely, the claim made by the assessee, the circumstances under which the claim was made and the provisions of law which could be applied while granting the benefits. A decision may be right or wrong but that was none of the concern of the subsequent officer. If the primary facts were not available or there was concealment or there was no application of mind at all, then a case of reopening the assessment could be made out. But, when all the facts were placed before the assessing officer and the assessing officer consciously considered the facts and arrived at a decision, then it could not be reopened merely because subsequently he changes his mind.or some other officer takes a different view. Hence, this was a case of wrongful assumption of jurisdiction and as such the notices, the speaking orders and the assessment orders made in pursuance of the notices were quashed.
8.3 The ratio of the decision is fully applicable to the facts of the present case and, therefore, on the facts and circumstances of this case, it cannot be said that there was any failure on the part of the assessee in disclosing material facts. On the other hand, as pointed out above, the assessee had disclosed all material facts relating to deduction under Section 80HHC claimed in the original return and the assessing officer in the original assessment proceedings preferred to accept the claim of the assessee.
8.4 The Hon'ble Supreme Court of India in a very recent decision in the case of Asstt. CIT v. Rajesh Jhaveri Stock Brokers (P) Ltd. has considered about the scope and effect of Section 147 as substituted with effect from 1-4-1989. The Hon'ble court has observed as under:
The scope and effect of Section 147(a) substituted with effect from 1-4-1989, as also Sections 148 to 152 are substantially different from the provisions as they stood prior to such substitution. Under the old provisions of Section 147, seperate Clauses (a) and (b) laid down the circumstances under which income escaping assessment for the past assessment years could be assessed or reassessed. To confer jurisdiction under Section 147(a) two conditions were required to be satisfied : firstly, the assessing officer must have reason to believe that income, profits or gains chargeable to income-tax have escaped assessment, and secondly, he must also have reason to believe that such escapement has occurred by reason of either omission or failure on the part of the assessee to disclose fully or truly all material facts necessary for his assessment of that year. Both these conditions were conditions precedent to be satisfied before the assessing officer could have jurisdiction to issue notice under Section 148 read with Section 147(a). But, under the substituted Section 147 existence of only the first condition suffices. In other words, if the assessing officer for whatever reason has reason to believe that income has escaped assessment it confers jurisdiction to reopen the assessment. It is, however, to be noted that both the conditions must be fulfilled if the case falls within the ambit of the proviso to Section 147. The case at hand is covered by the main proviso and not the proviso.
8.5 It may be pointed out that since the instant case is covered by the proviso both the conditions are required to be satisfied. As the assessee had disclosed the material facts in the instant case, the second condition is not satisfied.
8.6 On the controversy relating to failure on the part of the assessee to make disclosure of facts, application of mind by the assessing officer and non-expression of opinion on the relevant point by the assessing officer as well as on the issue relating to change of opinion, we may make reference to a latest decision of Hon'ble Delhi High Court rendered in the case of CIT v. Eicher Ltd., ITA No. 309/Del/2006, dated 22-5-2007. In that case the assessment was completed under Section 143(3) on 7-12-1995 and subsequently, the assessing officer reopened the assessment by issuing the notice dated 30-3-2000 under Section 148. The reason for reopening the assessment was to tax the waiver of interest allegedly not offered to tax by the assessee. On receipt of the notice, it was contended by the assessee that the reopening was based on the change of opinion and not because that the assessee had not fully and truly disclosed the material facts. In support of this contention, reference was made to letter dated 8-11-1995, wherein it was pointed out that the assessee had approached the banks and financial institutions for finance to pay interest arrears and principals upon which the banks agreed to the same and the principal and the interest thereupon was re-scheduled and the interest arrears were treated as fresh interest bearing loans. It was submitted that as such the entire arrear of interest upto the relevant year was treated as having been paid to the bank and financial institutions. According to the assessee all these facts were before the assessing officer who chose not to give a finding on them but accepted the contention of the assessee and did not treat the interest amount that has been waived as income of the assessee.
8.7 The assessing officer rejected the contention but on appeal, the Commissioner (Appeals) held that there assessment was based on change of opinion. This view was upheld by the Tribunal who dismissed the appeal of the revenue. The Hon'ble Delhi High Court dismissed the appeal of the revenue and upheld the order of the Tribunal by observing as under:
17. Insofar as the present appeal is concerned, we find that the assessee had placed all the material before the assessing officer and where there was a doubt, even that was clarified by the assessee in its letter dated 8-11-1995. If the assessing officer, while passing the original assessment order, chose not to give any finding in this regard, that cannot give him or his successor in office a reason to reopen the assessment of the assessee or to contend that because the facts were not considered in the assessment order, a full and true disclosure was not made. Since the facts were before the assessing officer at the time of framing the original assessment, and later a different view was taken by him or his successor on the same facts, it clearly amounts to a change of opinion. This cannot form the basis for permitting the assessing officer or his successor to reopen the assessment of the assessee.
8.8 It may be pointed out that in the abovementioned case, the Hon'ble Delhi High Court, besides others, has considered the decision in the case of KLM Royal Dutch Airlines v. Assistant Director of TT (2007) 208 CTR (Del) 33 and also the decision in the case of Hari Iron Trading Co. v. CIT .
8.9 The relevant observation of the Hon'ble court in this regard is as under:
16. Applying the principles laid down by the Full Bench of this Court as well as the observations of the Punjab and Haryana High Court, we find that if the entire material had been placed by the assessee before the assessing officer at the time when the original assessment was made and the assessing officer applied his mind to that material and accepted the view canvassed by the assessee, then merely because he did not express this in the assessment order, that by itself would not give him a ground to conclude that income has escaped assessment and, therefore, the assessment needed to be reopened. On the other hand, if the assessing officer did not apply his mind and committed a lapse, there is no reason why the assessee should be made to suffer the consequences of that lapse.
8.10 In view of the above latest authority the issue stands fully covered in favour of the assessee and following the said decision, we hold that in this case also the assessment has been made only on the basis of change of opinion.
8.11 In view of the above legal position the reassessment made in this case after the expiry of four years from the end of the relevant assessment year cannot be justified in law because the department has not been able to bring out any material to show that there was any failure on the part of the assessee to disclose material facts truly and fully to the assessing officer during the assessment proceedings. Thus, in view of the proviso to Section 147, the reopening of the assessment cannot be justified and consequently the notice issued under Section 148 is held to be invalid. The entire reassessment proceedings are therefore, found to be null and void and on this basis the assessment order is liable to be quashed. We, therefore, set aside the order of the learned Commissioner (Appeals) and quash the reassessment. Accordingly, grounds raised by the assessee in this appeal stand allowed.
8.12 In view of our findings on the above legal grounds, we are not required to dispose of the other grounds raised by the assessee on merits.
9. Assessee's appeal stands allowed accordingly.