Bombay High Court
Crompton Greaves Ltd vs Acit, Circle 6(2), Mumbai And 2 Ors on 22 December, 2014
Bench: M.S. Sanklecha
dss 1/14 JUDGMENT WP 224-07
IN THE HIGH COURT OF JUDICATURE AT BOMBAY
ORDINARY ORIGINAL CIVIL JURISDICTION
WRIT PETITION NO. 224 OF 2007
Crompton Greaves Ltd. .. Petitioner
versus
Assistant Commissioner of
Income-tax, Circle 6(2) & Ors. .. Respondents
Mr. S.E. Dastur, Sr. Advocate with Mr. Nishant Thakkar and Mr. Rajesh
Poojary i/b. Mulla and Mulla C.B. & C., for the Petitioner.
Mr. Suresh Kumar, for the Respondents.
ig CORAM: M. S. SANKLECHA, &
M. S. SONAK, JJ.
DATE : 22 DECEMBER, 2014.
ORAL JUDGMENT : (Per : M. S. Sonak, J.)
1] By this petition under Article 226 of the Constitution of
India, the petitioner questions the assumption of jurisdiction by the
Commissioner of Income Tax [Circle 6(2)], Mumbai under Sections 147
and 148 of the Income Tax Act, 1961 (hereinafter referred to as "the Act")
by issuing notice dated 29 March 2006 as well as the consequent
Reassessment Order dated 26 December 2006.
2] The brief factual matrix, in which the petition came to be
filed, is set out hereafter :
(A) The relevant Assessment Year is 1999-2000;
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(B) Vide a Scheme sanctioned by the Board of Industrial
and Financial Reconstruction (BIFR) on 16 April 1999,
Punjab Power Generation Machines Ltd. ("PPGM")
amalgamated with the petitioner with effect from 1 April
1997. The final accounts of the petitioner for the year ended
31 March 1998 were approved by its Board on 14 May 1999.
Similarly, the final accounts of PPGM were also approved by
the Board on 11 March 1999. PPGM also made necessary
declaration under Section 72A(1) of the Act for availing the
benefit of setting off and carrying forward of losses on 31
August 1999;
(C) The petitioner filed its return of income in terms of
Section 139(1) of the Act on 31 December 1999 and
thereafter, on 31 March 2000, a revised return of income
under Section 139(5) of the Act. In its return of income, the
petitioner made the necessary disclosures for determination
of MAT liability in terms of Section 115JA of the Act;
(D) Assessing Officer made an assessment order dated 21
March 2002 under Section 143(3) of the Act. In doing so,
the Assessing Officer clearly took into consideration the
disclosures made by the petitioner in its return of income
referred to herein above. On the said basis, the Assessing
Officer allowed the claim of the petitioner and set off the
loss of PPGM for the financial year 1998-99 against the
book profits of the petitioner for that financial year for the
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purposes of determining the petitioner's MAT liability under
Section 115JA of the Act;
(E) The impugned notice under Section 148 of the Act
was issued on 29 March 2006 (Exhibit-G to the petition),
which is admittedly after the expiry of four years from the
end of the relevant assessment year i.e. 1999-00 seeking to
reopen the assessment. Reasons in support of the impugned
notice were supplied to the petitioner only on 16 November
2006 even though the same were demanded by the
petitioner on 20 April 2006. The petitioner lodged its
objections on 22 November 2006 and the same were
disposed of by the Assessing Officer, on 21 December 2006;
(F) Soon thereafter, i.e., on 26 December 2006, the
Assessment Officer proceeded to complete the reassessment
proceedings and make reassessment order (Exhibit - M to
the petition).
3] This petition was filed on or about 25 January 2007. Rule
was issued on 26 March 2007 and by way of interim relief, the
respondents were restrained from taking any steps to recover any demand
raised in pursuance of the impugned notice dated 29 March 2006 and the
impugned reassessment order dated 26 December 2006.
4] Mr. S.E. Dastur, the learned Senior Counsel for the petitioner
has basically questioned the assumption of jurisdiction to reassess the
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dss 4/14 JUDGMENT WP 224-07
petitioner's income for the Assessment Year 1999-2000, inter alia, on the
following grounds :-
(A) The notice dated 29 March 2006 under Section 148 of
the Act proposing to reassess the petitioner's income for the
Assessment Year 1999-00 has admittedly been issued
beyond the period of four years from the end of Assessment
Year 1999-00. Accordingly, the present case would be
governed by the proviso to Section 147 of the Act, which in
terms provides that no action shall be taken under Section
147 of the Act unless any income chargeable of tax has
escaped assessment by reason of the failure on part of the
Assessee to disclose fully and truly all material facts
necessary for his assessment, for that Assessment Year. In
the present case, it was submitted that there is neither any
allegation in the impugned notice dated 29 March 2006 nor
do the circumstances warrant any inference that there was
any failure on the part of the petitioner - Assessee to
disclose fully and truly all material facts necessary for
assessment. In fact, the circumstances would indicate that
there was not only full and true disclosure of all material
facts, with regard to its claim for MAT computation after
consideration of loss of PPGML. Further such disclosed
material facts were specifically taken into consideration by
the Assessing Officer in making the Assessment Order dated
21 March 2002 under Section 143(3) of the Act. Similarly
with regard to the second issue in the reasons viz. by
debiting capital expenditure to the profit and loss account
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dss 5/14 JUDGMENT WP 224-07
the net profit declared was defaulted, is on the basis of the
profit and loss account already filed and considered in the
regular proceedings. Therefore, it was urged, that in
absence of the fulfillment of such vital jurisdictional
parameter, the assumption of jurisdiction by the
Commissioner of Income Tax, was clearly ultra vires, null
and void;
(B) In the alternative, it was submitted that in any case,
with regard to the computation of MAT liability under
Section 115JA of the Act, the Assessing Officer has
considered the claim while passing the assessment order
dated 21 March 2002 under Section 143 (3) in regular
assessment proceedings. Therefore, it is a clear case of
change of opinion. Therefore, the impugned notice and
consequent reassessment order are without jurisdiction;
(C) The other ground mentioned in the reasons in support
of the impugned notice is the alleged debiting of excessive
and inadmissible capital expenditure to the profit and loss
accounts, thereby resulting in declaration of reduced net
profits and book profits under Section 115JA of the Act and
the consequent escapement of assessment upon the unstated
or understated income. This also was a subject of
examination and in view of the law laid down by this
Court in the case of Commissioner of Income Tax vs.
Veekaylal Investment Co. P. Ltd. 249 ITR 597, which
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provides that income from capital gains is to be included in
the book profits for the purposes of determining deemed
income under Section 115J of the Act, as a logical corollary,
it follows that capital loss, is also to be taken into
consideration for determination of deemed income under
Section 115J of the Act. The issue raised, is therefore, no
longer res integra. The reason, which the Commissioner has
relied upon, for reopening the assessment, constitutes no
reason at all in the eyes of law. Thus, there was no reason
to believe that income chargeable to tax has escaped
assessment. Thus this ground is also on basis of a mere
change of opinion, which is impermissible under the law;
(D) The impugned reassessment order was issued in great
haste and in violation of principles of natural justice and fair
play. The objections raised by the petitioner to the reopening
of the assessment were disposed of on 21 December 2006.
The period between 22 December 2006 to 25 December
2006 were not working days. On the immediate next date,
i.e., on 26 December 2006, the impugned reassessment
order has been made, in an attempt to present 'fait
accompli'. Such approach has been frowned upon by this
Court in case of Asian Paints vs. Dy. CIT - 296 ITR 90 and
the Assessing Officer have been directed to wait for four
weeks after disposal of the objection before commencing
reassessment proceedings.
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dss 7/14 JUDGMENT WP 224-07
5] Mr. Suresh Kumar, the learned counsel for the Revenue
submitted that in this case the reassessment order has already been made
on 26 December 2006. As against the same, the petitioner can always
avail the ordinary remedies of appeal etc. under the Act. This Court,
therefore, ought not to exercise its extra ordinary jurisdiction in the
matter. Further, learned counsel pointed out that the mere absence of
statement in the impugned notice that there was no failure on the part of
the petitioner to disclose full and truly all material facts, was by no means
fatal to the assumption of jurisdiction under Sections 147 and 148 of the
Act, particularly since a holistic reading of the impugned notice, made out
a prima-facie case of failure to disclose. For these reasons, learned counsel
submitted that the petition as filed, is liable to be dismissed.
6] In order to evaluate the rival contentions, it is necessary to
advert to the relevant statutory provisions contained in Section 147(1) of
the Act and the first proviso thereto :
"147. If the [Assessing] Officer [has reason to believe)
that any income may, subject to the provisions of sections
148 to 153, assess or reassess such income and also any
other income chargeable to tax which has escaped
assessment and which comes to his notice subsequently in
the course of the proceedings under this section, or
recompute the loss or the depreciation allowance or any
other allowance, as the case may be, for the assessment
year concerned (hereinafter in this section and in sections
148 to 153 referred to as the relevant assessment year):
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
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dss 8/14 JUDGMENT WP 224-07
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."
7] From the aforesaid, it is clear that where the assessment
under sub section (3) of Section 143 of the Act has been made for the
relevant assessment year, no action can be taken under Section 147 of the
Act 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 assessment for that assessment year.
8] In the present case, there is no dispute that the impugned
notice dated 29 March 2012 seeking to reopen assessment has been issued
after the expiry of four years from the end of the relevant assessment year
i.e. 1999-00. Accordingly, there is no dispute whatsoever that the proviso
to Section 147 of the Act is clearly attracted. The jurisdictional issue with
which we are concerned is whether there was any failure on the part of
the petitioner to disclose fully and truly all the material facts necessary for
his assessment in the assessment year 1999-00.
9] The aforesaid issue shall have to be considered, in the context
of the reasons supplied by the respondents for the issuance of impugned
notice dated 29 March 2006. The reasons, which came to be supplied only
on 16 November 2006, read thus :
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dss 9/14 JUDGMENT WP 224-07
"On perusal of the case record, it is seen that the
assessee while computing the book profit deducted the loss
suffered by an industrial unit amalgamated with the
assessee company, in the previous year relevant to the
assessment year 1997-98. According to assessee's own
statement the accounts of the loss making company was
being published separately even after its amalgamation.
According to the MAT provisions the amount of profit of a
sick industrial company for the assessment year
commencing from the assessment year relevant to the
previous year in which the company has become a sick
industrial company and ending with the assessment year
during which the entire net worth of such company has
become equal to or exceeds the accumulated losses can only
be claimed as deduction for computing the book loss. The
net profit for this purpose is to be adopted from the
certified profit and loss account and then deduct the
business loss or deprecation which ever is less and as such
the assessee has reduced the book profit by
Rs.5,30,52,654/- instead of Rs.1,60,00,000/-. Further it is
observed that there was no book loss to be adjusted from
the net profit as per the certified accounts of the assessee
company. Hence the deduction of loss of the sick industrial
unit from the profit of the assessee company was not in
order as the assessee company was not a sick company. By
doing so, the assessee has under stated its income
amounting to Rs.1,11,15,796/- under the book profit u/s
115JA of the IT Act.
Further it is seen that the assessees were debiting
capital expenditure of various types such as loss on sale of
assets, etc. which were inadmissible as per the normal
provisions of the act and were added back for computing
the income under the normal provisions of the Act. By
debiting such excessive and inadmissible capital
expenditure to the profit and loss accounts, the assessees
succeeded in declaring less net profit and there by less book
profits. By doing so, the assessee has under stated its
income under the book profit u/s 115JA of the IT Act.
By doing so, the assessee understated the income
under the book profit u/s 115JA of the IT Act to the above
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dss 10/14 JUDGMENT WP 224-07
extent. I am, therefore, satisfied that this is a fit case to be
re-opened u/s. 147 of the IT Act, 1961. Since, assessment
u/s. 143(3) has been completed and a period of four years
from the end of the relevant assessment year has lapsed,
hence, the case needs to be approved by the Commissioner
of Income tax, City-6, Mumbai under the provisions of
section 151(1) of the I.T. Act, 1961. Therefore, the case is
submitted for approval so that notice u/s. 148 of the IT Act
may be issued."
10] It is significant to note that neither the impugned notice
dated 29 March 2006 nor the reasons supplied in support thereof
specifically state that there was any failure on the part of the petitioner to
disclose fully and truly all the material facts necessary for its assessment
for the relevant assessment year. No doubt, Mr. Suresh Kumar is right in
his submission that the mere failure to incant the words or phrases
employed in the statute with regard to failure to disclose fully and truly
all material facts, is not necessarily fatal to the assumption of jurisdiction
under Sections 147 and 148 of the Act. However, this is subject to the
rider that there must be cogent and clear indication in the reasons
supplied, that in fact there was failure on the part of the Assessee to
disclose fully and truly all the material facts necessary for its assessment.
If the factum of failure to disclose can be culled down from the reasons in
support of the notice seeking to reopen assessment, then the mere failure
to repeat words or phrases of the statute is certainly not fatal to the
assumption of jurisdiction. However, if from the reasons, no case of failure
to disclose is made out, then certainly the assumption of jurisdiction
under Sections 147 and 148 of the Act would be ultra vires, being in
excess of the jurisdictional restraints imposed by the first proviso to
Section 147 of the Act.
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dss 11/14 JUDGMENT WP 224-07
11] Further, as has been held by this Court in the case of
Hindustan Lever Ltd. vs. R. B. Wadkar, Assistant Commissioner of
Income Tax & Ors. (No. 1) 268 ITR 332, it is necessary whilst
supplying the reasons for the issuance of notices under Sections 147 and
148 of the Act to communicate as to which fact or material was not
disclosed by the Assessee fully and truly, that has resulted in the income
escaping assessment. It is for the Assessing Officer to disclose and open his
mind through the reasons recorded by him. The reasons so recorded must
be clear and unambiguous and not suffer from any vagueness. Reasons
recorded should be self explanatory and should not keep the Assessee
guessing as to the facts or materials , which he may not have fully or truly
disclosed for the purposes of assessment of his income. In fact the record
of reasons and their disclosure is a vital safeguard against arbitrary
reopening of concluded assessment. The reasons so recorded and
disclosed, cannot even be supplemented by filing affidavits or making oral
submissions.
12] In the context of the reasons recorded, it is to be noted that
in the present case apart from there being no allegation therein that there
was any failure on the part of the petitioner to fully and truly disclose all
material facts necessary for assessment, even otherwise, the reasons as
recorded give no clue whatsoever as to the alleged failure on the part of
the petitioner in disclosing fully and truly, the material facts necessary for
its assessment. The reasons as recorded, in any case, do not disclose any
particular fact or material that was allegedly not disclosed by the
petitioner during the regular assessment proceedings under Section
143(3) of the Act. Clearly, therefore, the jurisdictional parameter, for
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dss 12/14 JUDGMENT WP 224-07
invoking the provisions of Section 147 of the Act is absent, in the present
case on both the grounds mentioned in the reasons in support of the
impugned notice. In fact, in the revised return of income filed by the
petitioner on 31 March 2000 alongwith the profit and loss account are
perused, it is evident that full and true disclosures were indeed made by
the petitioner, in the matter of determination of MAT liability under
Section 115JA of the Act with regard to the loss of PPGM and also
debiting of capital loss to its profit and loss account. Further, the Assessing
Officer, in the assessment order dated 21 March 2002 under Section
143(3) of the Act in regular proceedings has specifically considered
disclosures in respect of loss of PPGML made by the petitioner. Such
consideration is reflected in the assessment order itself, the relevant
portion of which, reads thus :
" Note - 1 : The assessee Company has filed a revised
return of income wherein it has been stated that, "as per
Sec. 115JA MAT will be payable when total income as
computed under the Act is less than 30% of its book
profits. In our case the adjusted total (PPGML + CGL)
Book profits calculated as per the provisions of the Act is
a loss. But in the both returns of income we have ignored
the loss of PPGML, inadvertently. We request your honour
to consider this mistake while calculating the MAT
liability". This submission of the assessee Company has
been considered."
[Emphasis supplied]
13] From the aforesaid, it is apparent that not only was there no
failure on the part of the petitioner to disclose fully and truly all the
material facts in relation to the determination of MAT liability under
Section115JA of the Act, but further such disclosed material facts were
duly considered by the Assessing Officer in making the Assessment Order
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dss 13/14 JUDGMENT WP 224-07
dated 21 March 2002 under Section 143(3) of the Act. The jurisdictional
parameter imposed by the proviso to Section 147 in matter of reopening
of assessment was, thus, clearly not fulfilled. The issuance of impugned
notice and the consequent assessment order is therefore in excess of
jurisdictional restraint imposed upon the Assessing Officer by the proviso
to Section 147 of the Act. The impugned notice dated 29 March 2006 and
the second reassessment order dated 26 December 2006 are therefore
liable to be quashed on this ground alone.
14] There is no necessity to adjudicate upon the other grounds
urged by Mr. Dastur, primarily because this petition can be disposed of on
the ground that there was no failure on the part of the petitioner to
disclose fully and truly all material facts necessary for assessment for the
relevant assessment year. This is applicable to both the grounds
mentioned in the reasons furnished in support of the impugned notice.
15] In so far as the objection based upon the availability of
alternative remedy is concerned, it is necessary to note that this petition
was lodged on or about 25 January 2007 and admitted on 26 March
2007. At the stage when the petition was filed, the reassessment order
dated 26 December 2006 had already been passed. This is not a case
where the petitioner has already preferred an appeal questioning the
reassessment order. The issues raised, do not involve any disputed
questions of fact. Besides, in this case though the impugned notice under
Section 148 of the Act was issued on 29 March 2006, the reasons in
support thereof were furnished to the petitioner only on 16 November
2006. This is despite the fact that the petitioner, by letter dated 20 April
2006 had requested for the supply of the same. The objections lodged,
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were disposed off by letter dated 21 December 2006 and within a period
of five days thereafter i.e. on 26 December 2006, the impugned
reassessment order came to be made. Incidentally, the petitioner has
pointed out that the period between 22 and 25 December 2006 were
holidays and 26 December 2006 was the very next working day on which
reassessment order was made. The impugned reassessment order was
served upon the petitioner on 3 January 2007 and as noted earlier, this
petition was lodged on 25 January 2007. This is a case where Assessing
Officer has not adhered to the jurisdictional restraints imposed by proviso
to Section 147(1) of the Act and further there is violation of principles of
natural justice. If all such circumstances are cumulatively considered, we
do not deem it appropriate to reject the present petition on the ground of
availability of alternate remedy.
16] Accordingly, Rule is made absolute in terms of prayer clause
(a), which reads thus :
(a) That this Court be pleased to issue a Writ of Certiorari
or any other writ order or direction under Article 226 of the
Constitution of India calling for the records of the case
leading to the issue of the Impugned Notice (Exhibit 'G' to
the petition) and the Impugned Order (Exhibit "M" to the
petition) and after going through the same and examining
the question of legality thereof to quash, cancel and set aside
the Impugned Notice (Exhibit 'G' to the petition) and the
Impugned Order (Exhibit 'M' to the petition)";
17] In the facts and circumstances of the present case, there shall
be no order as to costs.
(M. S. SONAK, J.) (M. S. SANKLECHA, J.)
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