Calcutta High Court
Swedish East Asia Co. Ltd. vs Inspecting Assistant Commissioner Of ... on 30 June, 1989
Equivalent citations: [1989]180ITR47(CAL)
JUDGMENT Susanta Chatterji, J.
1. The writ petitioner has obtained the present rule on August 13, 1979, challenging the impugned notice dated March 14, 1979 under Section 148 of the Income-tax Act, 1961, for the assessment years 1974-75 and 1975-76 by the Inspecting Assistant Commissioner of Income-tax, Range-II, Calcutta, and all proceedings pursuant thereto on the ground that there is no material and/or information in the possession of respondent No. 1 on which he has reason to believe that any income has escaped assessment in any of those two years and/or there is any omission or failure on the part of the petitioner to disclose fully and truly all material facts necessary for the assessment for the relevant years and, as such, the conditions precedent for the exercise of jurisdiction by the Inspecting Assistant Commissioner of Income-tax under Section 147 of the said Act do not exist. It is alleged that the power under Section 147 of the said Act has been sought to be utilised as a mere cloak or pretence for making a fishing and roving enquiry or investigation with the object of reopening the assessment and, as such, the conditions precedent necessary for the invoking of jurisdiction under the said section do not exist at all.
2. The contesting respondents have, however, produced the recorded reasons. The attention of the court has been drawn to the recorded reasons and a copy thereof has also been served upon the petitioner. It appears from the said recorded reasons that over a period of years prior to 1975-76 assessment, incomes of non-resident shipping companies including the assessee were being assessed by the application of Rule 10(ii) of the Income-tax Rules. In the course of the assessment for 1976-77, the Assessing Officer found that as a result of the assessments framed on the above basis, excess relief was given to the assessee for the earlier years. He, therefore, applied the provisions of Section 145(1) of the Act in framing the assessment for 1975-76. He was also of the view that it would be reasonable to hold that 1/6th of the gross earnings should be treated as the income embedded in the earnings. The Commissioner of Income-tax (Appeals) has also upheld the action of the officer invoking the provisions of Section 145(1) of the Act. Consequently, the income for this year has been under-assessed. For the said reasons, the Inspecting Assistant Commissioner of Income-tax, Range-II, Calcutta, believed that income chargeable to tax for the said year has escaped assessment and caused issuance of the impugned notice. It is also argued that such reasoning is not justified and there is lack of jurisdiction in issuing the impugned notice.
3. It is submitted on behalf of the contesting respondents that the acts done and/or caused to have been done by the respondents concerned in issuing the impugned notice are well justified in law. There is nothing contrary to and/or inconsistant with the provisions of law in this behalf. The petitioner may very well submit to the jurisdiction and place on record all relevant records which would be considered by the appropriate authority as the Income-tax Act is a complete code in itself and an abrupt visit to the writ court is an abuse of the process of law and it must be deprecated, if circumstances so demand.
4. Having heard the arguments advanced on behalf of the respective parties, this court finds from Section 147 of the said Act that if--
"(a) the Income-tax Officer has reason to believe that by reason of the omission or failure on the part of an assessee to make a return under Section 139 for any assessment year to the Income-tax Officer or to disclose fully and truly all material facts necessary for his assessment for that year, income chargeable to tax has escaped assessment for that year, or
(b) notwithstanding that there has been no omission or failure as mentioned in Clause (a) on the part of the assessee, the lncome-tax Officer has, in consequence of information in his possession, reason to believe that income chargeable to tax has escaped assessment for any assessment year, he may, subject to the provisions of sections 148 to 153, assess or reassess such income or recompute the loss or the depreciation allowance, as the case may be, for the assessment year concerned (hereafter in sections 148 to 153 referred to as the relevant assessment year)."
5. Thus, looking to the said provisions of law, it appears to this court that three yardsticks are relevant for the purpose of issuing the appropriate notice to reopen the matter where there is escapement of assessment of income as envisaged in Section 147 of the Act. First, there will be omission or failure on the part of the assessee, secondly, there is non-disclosure of relevant material facts fully and truly, and, thirdly, in the absence of any omission or failure, there will be information to the authorities concerned to hold or to believe that income chargeable to tax has escaped assessment. This is an age-old principle of law which remains without being disturbed that unless and until one of these three conditions is fulfilled, initiation of any proceeding for any extraneous purpose is unwarranted and uncalled for and if the same is challenged, courts will not hesitate to quash the same. In the instant case, it is to be considered by this court as to whether the reasons are well-founded according to the provisions of law. It appears from the recorded reasons that the Inspecting Assistant Commissioner of Income-tax, Range-II, has thought it fit to issue the impugned notice only on the ground that in the earlier year the order of assessment was made by application of Rule 10(ii) of the Income-tax Rules. In the subsequent -years, the provision of Section 145(1) of the Act was applied for the assessment year 1975-76 and the matter has yielded a higher realisation of tax.
6. The attention of the court has been drawn to the case reported as CIT v. Simon Carves Ltd. . It has been found by the apex court of this country that there is necessarily an element of error in cases of income escaping assessment mentioned in Section 147(b) of the Act of 1961. Such error resulting in income escaping assessment becomes manifest in the light of information coming subsequently into the possession of the Income-tax Officer. Where the order of making the original assessment was a legally correct order and was not vitiated by any error, the case would not be one which would fall within the ambit of Section 147(b) of the Act of 1961 or Section 34(1)(b) of the Act of 1922. The Income-tax Officer ordering reassessment does not sit as a court of appeal over the Income-tax Officer making the original assessment; nor is it open to the Income-tax Officer ordering reassessment to substitute his own opinion regarding the method of computing the income for that of the Income-tax Officer who made the original assessment, especially when the method of computation adopted at the time of original assessment was permissible in law. The fact that the adoption of a different method of computation would have resulted in a higher yield of tax would not, in such a case, justify the reopening of the assessment. In the instant case, with all anxiety, this court has scrutinised the recorded reasons to find out whether the issuance of the notice under Section 148 of the Act is well-founded as per the provisions of the statute or for something else. It will be clear by looking to the relevant recorded reasons which permitted respondent No. 1 to issue the impugned notice that for the earlier years there is application of rule 10(ii) of the Rules and in the subsequent years there is application otherwise although it is strongly argued on behalf of the petitioner that if the appropriate assessment of earlier years is referred in the proper perspective, it will convince the authorities that there is no application of any erroneous rule and there is nothing wrong to find out that by any of the application of the provision of law, there is less realisation or there is escapement of such income for the purpose of assessment. On the contrary, it will appear that the previous year's assessment and the subsequent year's assessment are consistent and there is no variance in this regard. Apart from such consideration, this court has to consider whether, by application of law, if any assessment is made and, subsequently, if it is found that it is not correctly made by application of law, whether it will justify the authorities concerned to initiate proceedings as contemplated under sections 147 and 148 of the said Act. None of the provisions as envisaged under Section 147 authorises the authority concerned to initiate such proceedings and that is the clear finding of the Supreme Court in this regard as would be found in the case of CIT v. Simon Carves Ltd. [1976] 105 ITR 212. The attention of the court has also been drawn to the case Kalyanji Mavji and Co. v. CIT , and particularly to, page 296 of the said decision where it has been observed that "an analysis of this case would clearly show that the information as contained in Section 34(1)(b) must fulfil the following conditions :
(1) the information may be derived from an external source concerning facts or particulars as to law relating to a matter bearing on the assessment;
(2) that the information must come after the previous or the original assessment was made. In fact, the words 'in consequence of information' as used in Section 34(1)(b) clearly postulate that the information must be subsequent to the original assessment sought to be reopened, and (3) that the information may be obtained even on the basis of the record of the previous assessment from an investigation of the materials on the record, or the facts disclosed thereby or from other enquiry or research into facts or law.
These categories are in addition to the categories laid down by this court in Maharaj Kumar Kamal Singh's case which has been consistently followed in several decisions of this court as shown above".
7. An argument has also been advanced on behalf of the respondent-authorities that there is a recent change in the concept of the Revenue jurisprudence inasmuch as the court should see that the relief should not be denied to the Revenue looking to the background of the infrastructure of the economy of the country amassing black money in the hands of some people. It is very often said that courts are blind but that is only to be justified in the proper perspective.
8. By looking to the provisions of law as such and looking to the materials produced before this court, this court does not appreciate that by any mechanical process, an attempt should be made to reopen the assessment of tax by issuing the impugned notice. There must be a pragmatic approach to the reopening of assessment proceeding if the situation so demands within the provisions of law and by strictly complying with the provisions of law as stipulated and provided under Section 147 of the Act. By applying the test laid down by the apex court of the country and by looking to the statute straightaway, this court finds that the recorded reasons do not justify respondent No. 1 in issuing the impugned notice in the instant case.
9. For the foregoing reasons, this court does not find any bar and/or impediment to grant the reliefs prayed for. The writ petitions are, accordingly, allowed and the rules are made absolute. The impugned notices and the proceeding relating thereto are quashed and/or set aside.
10. There will be no order as to costs.
11. This order will govern the other two cases, namely, C. R. Nos. 9410-9411 (W) of 1979.
12. There will be stay of operation of this order for a period of two weeks from date as prayed for.