Bombay High Court

Parikh Petro-Chemical Agencies ... vs Asstt. Cit on 26 February, 2003

Equivalent citations: 2003 129 TAXMAN 574 Bom

Author: J Devadhar

JUDGMENT

J.P. Devadhar, J.

Rule returnable forthwith. Learned counsel for the respondents waives service. By consent of the parties, the petition is taken up for final hearing.

2. In this petition, the petitioner has challenged the notice issued under section 148 of the Income Tax Act, 1961 dated 31-5-2001 as well as the notice of hearing dated 15-6-2002 issued under section 143(2) of the Income Tax Act. The basic contention raised in this petition is that the notice under section 148 of the Income Tax Act issued for assessment year 1994-95, beyond the period of 4 years from the end of assessment year 1994-95 is without jurisdiction and hence is liable to be quashed and set aside.

3. The acts having bearing on the subject-matter of the present petition are as follows :

The petitioner is a private limited company and is engaged in the business of providing consultancy services in the field of petroleum products to a Russian Government owned Company, The petitioner is assessed as a company under the Income Tax Act.

4. In the assessment year 1994-95, the assessee had claimed deduction under section 80-O of the Income Tax Act at Rs. 1,06,00,610 calculated at the rate of 50 per cent of the Foreign Exchange of Rs. 2,12,01,220 received by the assessee as consultancy charges during the assessment year 1994-95. The assessment order was passed on 27-3-1997 declining to allow the deduction under section 80-O of the Income Tax Act on the ground that the remittances were not received within 6 months from the end of the previous year in which the services were rendered. Or appeal filed by the assessee, Commissioner (Appeals) by his order dated 28-11-1997 upheld the contention of the assessee that the consultancy charges fell due only when a credit note is issued to the bank by the Russian Government and therefore, even though the services were rendered in the earlier years, if the amount is repatriated to India within six months of the issue of credit note, the deduction under section 80-O will be available. Since the assessing officer had not ascertained the data on which the credit note was issued by the agency in Moscow, the Commissioner (Appeals) remitted the matter back with directions to the assessing officer to verify the date on which the credit note was issued and grant necessary deductions under section 80-O of the Income Tax Act if the amount was repatriated to India within 6 months of issue of such credit note. It was further directed that in case the payment is received beyond the period of 6 months, the assessee can be allowed such deduction only if the approval is obtained from the Chief Commissioner or, the Commissioner, as the case may be.

5. While giving effect to the order of Commissioner (Appeals) dated 28-11-1997, the assessing officer noticed that even in earlier assessment years the Commissioner (Appeals) had held that the amount received on account of technical services are liable to be taxed in the year in which it is received even though the services are rendered in earlier years. Accordingly, after verifying that the amounts were received within 6 months from the date of the issuance of the credit note. The assessing officer on 3-3-1998 allowed deduction under section 80-O of the Income Tax Act at Rs. 95,40,550 (sic) after deducting the estimated costs at 10 per cent (sic) of the total receipts (sic).

6. By the impugned notice dated 31-5-2001 issued under section 148 of the Income Tax Act the assessing officer sought to reopen the assessment for assessment year 1994-95. By the said notice, the petitioner was called upon to file return within 30 days from the date of service of the said notice. By a letter dated 6-6-2001, the petitioner objected to the notice issued under section 148 of the Income Tax Act inter alia on the ground that they have neither concealed any particulars of income nor furnished any inaccurate particulars of income and as such the notice issued beyond the period of four years from the end of assessment year 1994-95 was barred by limitation. Even though the petitioner sought reasons for reopening the assessment, the respondents failed to furnish the reasons for reopening of the assessment. Under the circumstances, on 29-6-2001, the petitioner filed the returns under protest. The petitioner also took up the matter with the Central Board of Direct Taxes (hereinafter referred to as the CBDT). However, as no relief could be obtained from CBDT and notice under section 143(2) of the Income Tax Act was issued by the assessing officer on 18-6-2001 calling upon the petitioner to attend the hearing pursuant to the notice issued under section 148, the petitioner has approached this court by filing the present writ petition.

7. In the affidavit in reply, the respondents have disclosed the reasons for reopening the assessment. From the recorded reasons it is seen that the reopening of the assessment is solely on the ground that for the services rendered in the financial year 1990-91 deduction under section 80-O will not be available in assessment year 1994-95 even though the amount was received in assessment year 1994-95. It is further recorded by the assessing officer that by allowing deduction under section 80-O, the assessee has been given excess relief of Rs. 95,40,550 and hence the assessment is required to be reopened.

8. Mr. Dastur, learned senior counsel appearing on behalf of the petitioner submitted that the fact that the amount of consultancy charges received by the petitioner in the assessment year 1994-95 was pertaining to the services rendered in the financial year 1990-91 was known to the assessing officer at the time of passing of the assessment order on 27-3-1997. The assessing officer disallowed the deduction under section 80-O of the Income Tax Act on the ground that the remittances were not received within 6 months from the end of the previous year in which the services were rendered. Mr. Dastur submitted that, on appeal, the Commissioner (Appeals) by his order dated 28-11-1997 categorically held that the assessee is entitled to the deduction under section 80-O in assessment year 1994-95 even if the services were rendered in 1990-91, provided that the repatriation of the amount was within 6 months of the Russian counterpart issuing the credit note. In the instant case, on verification, the claim of the assessee under section 80-O was allowed by the assessing officer in assessment year 1994-95 and hence there being no failure on the part of the petitioner to disclose fully and truly all material facts, the notice issued beyond the period of four years from end of the relevant assessment year is liable to be quashed and set aside. Mr. Dastur, relying upon the judgment of this court in the case of IPCA Laboratories Ltd. v. Gajanand Meena, Deputy Commissioner (2001) 251 ITR 416 (Bom) submitted that in the absence of any material to indicate failure on the part of the assessee to disclose fully and truly all material facts, notice issued beyond the period of 4 years from the end of the relevant assessment order is liable to be quashed and set aside.

9. Mr. Desai, learned senior counsel appearing on behalf of the revenue, on the other hand, submitted that there is inordinate delay on the part of the petitioners in approaching this court. Mr. Desai brought to our notice that the notice under section 148 of the Income Tax Act dated 31-5-2001 was served upon the petitioner on 1-6-2001 and notice for hearing under section 143(2) of the Income Tax Act was issued on 18-6-2002 and the petition has been filed belatedly on 20-8-2002 and in fact moved this court for interim orders only in February, 2003. Under these circumstances, according to Mr. Desai, in view of the inordinate delay on the part of the petitioners in moving this court for relief, the petition is liable to be dismissed on the ground of delay and laches. So far as the merits of the case is concerned, Mr. Desai submitted that the reasons recorded by the assessing officer for reopening the assessment on account of deduction under section 80-O are totally different from the reasons for disallowing the claim under section 80-O at the time of the original assessment. According to Mr. Desai,, the claim under section 80-O was originally disallowed on the ground that the amount of consultancy charges was not received within 6 months from the end of the previous year in which the services were rendered whereas the reasons recorded for reopening the assessment was that the services were not rendered in the assessment year 1994-95 and hence the amount received in assessment year 1994-95 for services rendered in earlier years cannot be allowed. Mr. Desai submitted that by wrongly granted deductions under section 80-O of the Income Tax Act, there was excess relief granted to the assessee, which as per the Explanation 2 to section 147 of the Income Tax Act could be a ground for reopening of the assessment. Accordingly, Mr. Desai submitted that in the interest of justice, the respondents must be permitted to adjudicate the notice issued under section 148 of the Income Tax Act and if the decision of the assessing officer is adverse, then the petitioner has statutory remedy of filing appeal, as provided under the Act. Accordingly, it was submitted that no interference is called for in a Writ jurisdiction under article 226 of the Constitution of India.

10. We have heard learned counsel on both the sides and perused the record placed before us, including the reasons recorded for reopening the assessment as well as the approval of the Commissioner for initiating action under section 148 of the Income Tax Act. There is no dispute that the original assessment order for assessment year 1994-95 was passed under section 143(3) of the Income Tax Act on 27-3-1997. Admittedly, the notice under section 148 is issued after 4 years from the end of assessment year 1994-95. Therefore, under section 147 of the Income Tax Act the assessment for assessment year 1994-95 could be reopened after 4 years with the approval of CCIT or Commissioner only if there was failure on the part of the assessee to disclose fully and truly all material facts at the time of original assessment. Although under Explanation 2 to section 147, grant of excess relief could be a ground for reopening the assessment, unless the grant of excess relief is on account of failure on the part of the assessee to disclose fully and truly all material facts, concluded assessments cannot be reopened. Neither in the affidavit in reply nor in the reasons recorded for reopening the assessment, the respondents have stated that there was any failure on the part of the assessee to disclose fully and truly all material facts necessary for the assessment. On the contrary, the original assessment order as well as the order of Commissioner (Appeals) for assessment year 1994-95 clearly shows that the assessing officer at the time of original assessment disallowed deduction under section 80-O only on the ground that the amount received in assessment year 1994-95 was for the services rendered in financial year 1990-91. However, the Commissioner (Appeals), in the facts of this case came to the conclusion that the amount for services rendered became payable only when the credit note was issued by the Russian Agencies in Moscow. The Commissioner (Appeals) had directed the assessing officer to allow deduction under section 80-O only if the amount was brought to India within 6 months from the issuance of the credit note by the Russian Government. Accordingly, the assessing officer on verification had allowed the claim of the assessee. The assessing officer also noted that even in assessment year 1989-90 the deduction under section 80-O was allowed on receipt basis irrespective of the year in which the service was rendered by the assessee.

11. Under these circumstances when the deduction under section 80-O was allowed in assessment year 1994-95 knowing fully well that the amount receive was for services rendered in the financial year 1990-91, the reopening of the assessment to deny deduction under section 80-O on the same ground that the services were rendered in the financial year 1990-91 cannot be permitted. There is no merit in the contention of Mr. Desai that the reasons recorded for reopening the assessment are different from the reasons for disallowing the claim at the time of original assessment. In fact, the deduction was denied on the very same ground at the time of original assessment. In any event, there is no material whatsoever on record to show that there was any failure on the part of the petitioner to disclose fully and truly all material facts necessary for the assessment. In this view of the matter, the decision of this court relied upon by Mr. Dastur, in the case of IPCA Laboratories Ltd. (supra) is squarely applicable to the present case wherein it is held that, if there is no failure on the part of the assessee to disclose fully and truly all material facts, then the deeming provision contained in Explanation 2 to section 147 has no application. In the present case, admittedly, the assessment is sought to be reopened after four years from the end of assessment year 1994-95 and since the conditions set out in under section 147 of the Income Tax Act are not fulfilled, the notice issued for reopening the assessment must be held to be invalid and without jurisdiction. Under the circumstances, when the notice impugned in the petition itself is without jurisdiction, the plea of the revenue that the petition suffers from delay and laches cannot be sustained.

12. Accordingly, the petition succeeds and the impugned notice dated 31-5-2001 (Exhibit H to the petition) and notice dated 18-6-2002 (Exhibit P to the petition) are quashed and set aside. Rule is made absolute in terms of prayer (a) with no order as to costs.