Gujarat High Court
Vareli Weavers Pvt. Ltd. vs Deputy Commissioner Of Income Tax on 24 November, 1998
Equivalent citations: [1999]240ITR77(GUJ)
Author: A.R. Dave
Bench: A.R. Dave
JUDGMENT
BY THE COURT
1. All these special civil applications, list of which is annexed as schedule to this order, raise a common issue in similar set of facts relating to each case, hence they are being heard and decided together by a common order.
2. The dispute in each case relates to initiation of proceedings for reopening assessment for the asst yr. 1984-85/1985-86 by issuing notice under s. 148 in March, 1991 and the principal contention raised in all these cases is whether the proceedings have been initiated within the period prescribed under the Act. It is urged by Mr. J. P. Shah, learned counsel for the petitioner assessees in all these cases, that there has been no failure on the part of the assessee to make a return under s. 139 or failure to make a return in response to the notice issued under sub-s. (1) to s. 142 or under s. 148 nor there is any failure on the part of the assessee to disclose fully and truly all material facts necessary for the assessment for the assessment years in question. That being so, assessment for these assessment years having been duly completed, proceedings for reassessment, if any, could not have been initiated, after the expiry of 4 years from the end of relevant assessment year. Asst. yr. 1984-85 closes on 31st March, 1985 and asst. yr. 1985-86 closes on 31st March, 1986. Notices issued in March, 1991, are clearly beyond four years from the end of the relevant assessment year of which proceedings for reassessment are sought to be initiated in each of these cases.
3. In pursuance of notice, no reply has been furnished on behalf of the Revenue. However, the copies of reasons recorded as required before issuance of notice has been placed on record, which for all these cases are in identical terms. As a matter of illustration, we reproduce the reasons recorded in the case of Verili Weavers (P) Ltd. for the asst. yr. 1984-85 :
"On going through the income-tax case records of the assessee for the assessing year 1985-86 it is noticed that an amount of Rs. 68,44,752 was claimed by the assessee from gross income to arrive at net taxable income under a claim of the assessee that the said amount was claimable as a deduction in the computation of net taxable income under the assessee's perception of ratio in the case of Lakhanpal National Ltd. vs. ITO (1987) 162 ITR 240 (Guj) : TC 10R.221, decided by Hon'ble High Court of Gujarat and it was not disallowed by the AO while completing the assessment under s. 143(3) of the IT Act under assessment order dt. 14th November, 1986 perhaps for the reason that due diligence was not exercised by the AO. The claim of above exemption of the assessee was prima facie wrong and by reason of the said unsustainable claim of deduction put forward by the assessee and its not disallowance by the AO has resulted in escapement of income from tax to the extent of the above said amount of Rs. 68,44,752 in above said assessment year. In fact recently Hon'ble Supreme Court of India has held in the case of CIT vs. British Paints India Ltd. (1991) 188 ITR 44 (SC) : TC 2R.113, that profit of a trade is a question of fact and it must be ascertained, as all facts must be ascertained, with reference to the evidence, and not on doctrine or theories.
In view of the above facts and circumstances of the case, I am satisfied that an amount of Rs. 68,44,752 has escaped assessment on account of unsustainable claim of deduction for the above said amount put forward by the assessee, which did not form part of the audited P&L a/c of the assessee, and allowance of said claim of deduction for lack of application of due diligence on the part of the AO, in the abovesaid assessment year and therefore, the assessment is required to be reopened under s. 147 of the IT Act to tax the escaped income and accordingly notice under s. 148 of the IT Act is being issued.
Since a period of 4 years from the end of relevant assessment year has expired, the reasons for reopening the assessment are being submitted to the CIT, Surat for perusal and necessary approval."
4. A bare perusal of the reason recorded by the AO discloses that reason attributed for escapement of tax according to his belief is non-exercise of due diligence by the AO. The reason which led the AO to believe that income of the petitioner has escaped assessment does not attribute any failure on the part of assessee to disclose truly and fully all material facts necessary for assessment either by not-filing the return or not furnishing the requisite information. In fact from the perusal of the petition, the facts mentioned which have not been disputed, clearly goes to show the assessee did made a claim for deduction of Rs. 18,61,987 from the computation of his total income, with reference to proviso to s. 43B. His claim was that, the customs duty deduction can be claimed only on the basis of actual payment and not on the basis of its accrual, consideration of liability to pay customs which has gone in considering value of closing stock which needs be allowed on the basis of liability already discharged. This question drew attention of the AO. A query was made, assessee made reply and on considering that reply, the claim of the assessee was accepted. Neither there is any whisper in the reasons about failure on the part of the assessee to disclose truly and fully all material facts, nor from the facts admitted, it can be said that there has been any failure on the part of the assessee to disclose truly and correctly material facts relevant to holding belief by the AO about escapement of income chargeable to tax the amount referred to in reasons recorded on the basis of which the belief about failure on the part of the assessee could be entertained by the AO.
5. Proviso to s. 147 reads as under :
"Provided that where an assessment under sub-s. (3) of s. 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 s. 139 or in response to a notice issued under sub-s. (1) of s. 142 or s. 148 or to disclose fully and truly all material facts necessary for his assessment, for that assessment year."
6. We have no hesitation in coming to the conclusion in the facts stated above, and in view of reasons disclosed by the AO that the proviso is applicable to the facts of these petitions, and the notices issued in each of the case, after expiry of four years from the end of relevant asst. yrs. 1984-85/1985-86 are beyond the period of four years from the end of that assessment year as envisaged under the aforesaid proviso and the AO had no jurisdiction to issue notice under s. 147 in these cases after 31st March, 1989 in the case of asst. yr. 1984-85 and after 31st March, 1990 in the case of asst. yr. 1985-86. The initiation of action in each case under s. 147 is clearly barred by time.
Accordingly these petitions succeed. Notices under s. 148 r/w s. 147 in each of the cases above are quashed.
Rule is made absolute. There shall be no order as to costs.