Desai Brothers Limited, A Company ... vs The Deputy Commissioner Of Income ...
2004 Latest Caselaw 119 Bom

JUDGMENT

V.C. Daga, J.

THE FACTS

1. Petitioners are engaged in the business of manufacturing of bidis and sale thereof. The petitioners are challenging three notices issued under Section 148 of the Income Tax Act dated 14.3.1977 and 27/3/1997 in Writ Petition No. 2624 of 1997 seeking to reopen assessment for the assessment years 1986-87 to 1988-89; whereas in Writ Petition No. 3399 of 1997 petitioners are challenging the notices both dated 10/6/1997 directing the reopening of the petitioners assessment for the assessment years 1989-90 to 1991-92 respectively in exercise of powers under Section 147 of the Income Tax Act, 1961 ('the Act' for snort). The petitioners in pursuant to the said notices filed their returns for the respective years without prejudice to their right to challenge the said notices seeking to reopening of the concluded assessment for assessment years 1986-87 to 1989-90 and 1991-92.

2. On being noticed, the respondents appeared and riled their returns and disclosed the reasons recorded prior to the issuance of notices under Section 148 of the Act. The reasons are recorded in two sets. In one set; reasons are recorded for reopening assessments for the years 1986-87 to 1988-89; whereas in another set reasons for reopening assessments are recorded for the years 1989-90 and 1991-92, though the reasons recorded are more or less identical in substance. The relevant portion of reasons recorded is as under :-

"..The assessee company is procuring tobacco and tendu leaves, but on centralised basis ....... Every year new centers in different villages are opened.... There is a SAP objection regarding allowing Under Section 80HH, 80HHA AND 80I for the A.Y. 1990-91.... It is seen that new centres are nothing but new points through which the same business of bidi manufacturing is carried on. There is no commencement of any new business at the new centre. The same work is being distributed through the new centres. This aspect of allowability deduction under Section 80HH, 80HHA and 80I has not been looked into in the original assessment order dated 29.02.1988."

The aforesaid reasons were also pressed into service while advancing oral submissions to support the notices directing reopening of the assessments for the respective years.

SUBMISSIONS

3. The learned Counsel appearing for the petitioners contended that it is settled law that the respondents could initiate proceedings for reassessment under Section 147 of the Act for the assessment years 1986-87 or even for the subsequent years subject to satisfying the conditions mentioned therein. Those conditions are to be satisfied before the respondents can legally assume jurisdiction to issue a notice for reopening concluded assessments. In the submission of the learned Counsel none of the conditions of Section 147 of the Act are satisfied in the present petitions, as such the impugned notices are bad and illegal.

4. The learned counsel for the petitioners while reiterating her above submission went on to amplify the same and submitted that before the proceedings under Section 148 can be validly initiated certain preconditions which are enumerated hereinafter have to be complied with:

(i) the assessing officer must have reason to believe that income chargeable to tax has escaped assessment;

(ii) such escapement must be on account of a failure on the part of the assessee to disclose fully and truly all material facts necessary for its assessment for the said year provided that the proceedings have been initiated after a period of four years from the end of the assessment year to which they relate.

(iii) prior to the issuance of the notice under Section 148 the assessing officer has to record his reasons on the basis of which he farms an opinion that income chargeable to tax has escaped assessment?

(iv) the sanction of the appropriate authority is obtained on the basis of the reasons recorded by the assessing officer.

(v) the notice is validly issued and served on the assessee.

5. The learned counsel for the petitioners further submits that the aforesaid conditions are jurisdictional facts and required to be fulfilled prior to the initiation of the proceedings and if any of the said conditions are hot fulfilled the very initiation of the proceedings becomes bad in law. In her submission, in the present cases, all the aforesaid conditions have not been complied.

6. She further submits that the burden is on the assessing officer to establish that the jurisdictional conditions which are required to be satisfied, in order to validly initiate reassessment proceedings, have been fulfilled. She submits that respondent No. 1 has not discharged the said burden cast upon him, as such impugned notices are bad and i1legal.

7. Learned counsel for the, petitioners further submits that prior to the issuance of a notice under Section 148 the assessing officer must have reason to believe that income chargeable to tax has escaped assessment. She further submits that the grounds or reasons which lead to the formation of the belief contemplated by Section 147 must have a material bearing on the question of escapement of income of the assessee from assessment. The expression "reason to believe" does not mean a purely subjective satisfaction on the part of the assessing officer. The reasons must be held in good faith and cannot be a mere pretence which is not so in the present case. She reiterates that the belief must be formed on the basis of relevant material on record and the material is relied upon must have some live link and rational nexus with the formation of the belief. She submits that there are no objective facts or material on record so as to say that a person properly instructed could have ever formed a belief that the petitioner's income chargeable to tax has escaped assessment, as such impugned notices need to be set aside.

8. On merits, learned Counsel contended that during the course of assessment for all the assessment years in question, the copies of the audited profit and loss accounts, balance sheets detailed statements, manner of computation of income and details in respect of locations of each Centre in the areas eligible for deduction under Sections 80HH, 80HHA and 80I and 80IA were duly and truly disclosed. The first respondent after considering all the above facts has passed the assessment orders under Section 143(3) of the Act for the assessment years in question. In her submission, all these notices have been issued merely on a change of opinion, as such notices are without jurisdiction and unsustainable in law.

9. The learned Counsel for the petitioners in support of her submissions relied upon the Judgment of the Allahabad High Court in the case of Foramer v. Commissioner of Income Tax and Anr. [247 ITR 436 (All.)], wherein the Allahabad High Court had observed notice issued under Section 147 and 148 on the basis of mere change of opinion by the Income Tax authorities is not valid as held by the Supreme Court in Indian and Eastern Newspaper Society v. C.I.T. , Gemini Leather Stores v. I.T.O. and Ors. (1975) 100 ITR 996 (S.C.) and Delhi High Court in Jindal Photo Films Ltd. v. Dy. C.I.T. 1998 (234) ITR 170 and ruled that the law that the assessment could not be reopened on a change of opinion was the same before and after the amendment by Direct Tax Laws (Amendment) Act, 1987.

10. The Supreme Court has upheld the above judgment of the Allahabad High Court in Commissioner if Income-Tax and Anr. v. Foramer France in brief Judgment with the words "We have heard learned Counsel for the parties and considered the facts of the case. We see no reason to interfere with the decision of the High Court. Accordingly, the Civil appeals are dismissed with costs."

11. The learned Counsel for the petitioners also pressed into service the Division Bench of this Court in the case of Commissioner of Income-TAX V. Maharashtra Sugar Mills Ltd.[263 ITR 180], to which one of us (Devadhar, J.) is party, wherein the Division Bench of this Court held that in absence of allegations leading to the failure on the part of the assessee to disclose fully and truly all materials facts necessary for the assessment for that assessment year, no reopening can be ordered after expiry of the period of 4 years from the end of the relevant assessment year.

12. Per contra, Mr. R.V. Desai, learned Senior Counsel appearing for the Revenue contended that it was obligatory on the part of the assessee to disclose in the returns of each assessment year all materials facts with respect to the location of bidi manufacturing centres so as to consider their entitlement to claim deduction under the various provisions of the Act. Since no such information truly and fully was furnished, it was open to the Income-tax Officer to issue notices for reopening assessment of the assessment years in question, even after expiry of period of 4 years from the end of the relevant assessment year. As such notices under challenge are not only legal and valid but they are well with the prescribed limitation. He, thus, prayed for dismissal of the petition with costs.

13. In rejoinder, learned Counsel for the petitioners brought to our notice the material disclosed in the returns for all these years and submitted that prior and subsequent to the assessment years in question, all the deductions claimed by the petitioners under Section 80HH, 80HHA and 80I were allowed on the basis of similar quality of disclosures made by the petitioners. She further submitted that the assessments for the assessment years i.e. 1990-91 and 1992-93 have become final and conclusive. The orders passed by the CIT(A) for the assessment years 1993-94, 1994-95 and even for subsequent years right upto 1999-2000 have become final and conclusive and for all these years the claims under Section 80HH, 80HHA and 80I have been allowed. The same are confirmed by the Income Tax appellate Tribunal. Revenue did not challenge any of the orders allowing deductions on these counts. If that be so, in the submission of the learned Counsel, impugned notices cannot stand to the scrutiny of law.

CONSIDERATION

14. Having examined the rival submissions, it is not in dispute that the reasons recorded prior to the issuance of notices under Section 148 of the Act, failure on the part of the petitioners to disclose fully and truly material facts for assessment has not been alleged. In these cases, admittedly the reopening has been ordered after expiry of the period of 4 years from the end of the assessment years to which they relate. The assessments for the relevant years were completed under Section 143(3) after detailed investigation. The reliefs under Section 80HH, 80HHA and 80I were granted for those years on the basis of the particulars furnished by the assessee. In the reasons recorded for reopening the assessment, no new materials have been set out so as to deny the benefit under Section 80HH, 80HHA and 80I of the Act. The reasons recorded do not allege any failure on the part of the assessee to disclose fully and truly all material facts required for assessments in question. Under these circumstances, the basic requirements for reopening of the assessments beyond the period of 4 years from this end of the relevant assessment years viz. failure on the part of the assessee to disclose fully and truly all material facts are not satisfied, as such impugned anotices are liable to be quashed and set aside on this count alone.

15. It is not in dispute that for all the subsequent years, the claims of the petitioners under the relevant Sections 80HH, 80HHA and 80I have been upheld by the Tribunal and those orders have become final and absolute. In the above view of the matter, petitioners are liable to succeed in both the petitions.

16. In the result, both petitions are allowed. The impugned notices issued under Section 148 of the Act are quashed and set aside. Rule in both the petitions is made absolute in terms of prayer Clause (a) with no order as to costs.

C.C. expedited.