Commissioner of Income Tax vs Elgi Ultra Industries Ltd.

P.P.S. Janarthana Raja, J.—This appeal is filed u/s 260A of the Income Tax Act, 1961, by the revenue, against the order of the Income Tax Appellate Tribunal, Bench "D", Chennai in I.T.A. No. 1147(Mds)/2005 4-8-2006, raising the following substantial question of law:

Whether, in the facts and circumstances of the case, the Tribunal was right in holding that reassessment made u/s 143(3) read with Section 147 is bad in law ?

The facts leading to the above substantial question of law are as under:

The assessee is a company. The relevant assessment year is 1999-2000 and the corresponding accounting year ended on 31-3-1999. The assessing officer completed the assessment u/s 143(3) of the Income Tax Act (herein after referred to as "the Act") on 27-3-2002. The assessee had disclosed all material facts necessary for the assessment and the assessing officer had considered the same and completed the assessment u/s 143(3) of the Act. Notice u/s 148 was issued on 28-7-2004 and served on the assessee on 3-8-2004. Later, the assessment was completed u/s 143(3) read with Section 147 on 27-8-2004.

Aggrieved by the order of the reopening of the assessment, the assessee filed an appeal to the Commissioner (Appeals). The Commissioner (Appeals) held that reopening of the assessment is not in accordance with law and hence allowed the appeal. Aggrieved, the revenue filed an appeal to the Income Tax Appellate Tribunal (herein after referred to as "Tribunal"). The Tribunal dismissed the appeal filed by the revenue and confirmed the order of the Commissioner (Appeals). Hence, the present appeal is filed by the revenue.

Learned standing counsel appearing for the revenue submitted that the deduction claimed by the assessee is found to be excessive and hence the reassessment proceedings was initiated by the assessing officer on the ground that there was escapement of income because of the said excess relief. Hence the reopening of the assessment is in accordance with law.

Heard the counsel. In this case, notice was issued u/s 148 of the Act and served on the assessee on 3-8-2004, i.e., after four years from the end of the assessment year 1999-2000. The assessment was made u/s 143(3) of the Act. Both the Tribunal as well as the first appellate authority have followed the Supreme Court judgment reported in the case of Commissioner of Income Tax and Another Vs. Foramer France (through constituted attorneys), and held that there is no failure on the part of the assessee to disclose material facts and hence reassessment proceedings after the expiry of four years is not possible in view of the provisions of Section 147 of the Act. Admittedly, the reassessment proceedings are initiated after a period of four years. The scope of the said proviso to Section 147 of the Act has been considered by this Court in the case of Commissioner of Income Tax Vs. Elgi Finance Ltd., , and the same reads as follows:

The law relating to the reassessment has undergone a change from 1-4-1989. The change was brought in by the Direct Tax Laws (Amendment) Act, 1987. Two sets of provisions were available u/s 147 in Clause (a) and Clause (b). This distinction has now been taken away by the Amendment Act. Previously, the line of distinction was a limitation period of four years and the limitation period exceeding four years. The assessing officer would reopen a back assessment within a period of four years as long as he had reason to believe in consequence of any information, that income has been underassessed or income has escaped assessment. In the case of limitation, providing for a period exceeding four years, there should have been a failure on the part of the assessee to disclose fully and truly all material facts leading to the escapement of income. But as a result of the amendment brought with effect from 1-4-1989, the above distinction had been obliterated and the assessing officer could reassess the income as long as he had reason to believe that income chargeable had escaped assessment. The new law has inserted a proviso to Section 147 in the following words:

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 assessee to make a return u/s 139 or in response to a notice issued under subsection (1) of Section 142 or Section 148 or to disclose full) and truly all material facts necessary for his assessment for that assessment year.

In addition to the time-limits provided for u/s 149, thelaw has provided another limitation of four years under the proviso tosection 147. As far as the above proviso to Section 147 is concerned,the law prescribes a period of four years to initiate reassessment proceedings, unless the income alleged to have escaped assessment wasmade out as a result of failure on the part of the assessee to disclosefully and truly all material facts necessary for the assessment.

In the present case, the Tribunal had considered the above proviso to Section 147 of the Act and held as follows:

Even now, before us, the revenue could not contend that the reassessment is framed on submission of new material or information. Admittedly, the reassessment proceedings are initiated after four years as provided under the proviso to Section 147 of the Act. There is no charge that income chargeable to tax has escaped from assessment by reason of the failure on the part of the assessee to disclose fully and truly material facts necessary for assessment. The Hon''ble Apex Court in the case of Commissioner of Income Tax and Another Vs. Foramer France (through constituted attorneys), has clearly laid down the principle that where there is no failure on the part of the assessee to disclose material facts, the reassessment proceedings after the expiry of four years is not possible in view of the provisions of Section 147 of the Act. Respectfully, following the judgment of the hon''ble apex court, we uphold the order of the Commissioner (Appeals) and accordingly the revenue''s appeal is dismissed.

In the result, both the appeals filed by the revenue stand dismissed.

In case where the assessment is completed u/s 143(3) of the Income Tax Act, the reopening of the assessment u/s 148 beyonfl the period of four years at the end of the relevant assessment year can be sustained only if it is established that there is a failure on the part of the assessee to disclose fully and truly all material facts. In this case, there is no finding that there is failure on the part of the assessee to disclose fully and truly all material facts. Further, all the material facts are available at the time of making original assessment. The Tribunal has correctly followed the principles enunciated in the Supreme Court judgment reported in Commissioner of Income Tax and Another Vs. Foramer France (through constituted attorneys), , as well as in this Court judgment reported in the case of Commissioner of Income Tax Vs. Elgi Finance Ltd., and came to the correct conclusion.

Under these circumstances, we do not find any error or legal infirmity in the order of the Tribunal so as to warrant any interference. In view of the same, no substantial questions of law arise for consideration of this Court and accordingly the tax case is dismissed. Consequently, M.P. No. 1 of 2007 is closed. No costs.