Techman Buildwell P. Ltd. vs Assistant Commissioner of Income Tax

The present petition challenges the notice dated March 20, 2012, issued under section 148 of the Income-tax Act, 1961, by the respondent (hereinafter called "the Income-tax Department") proposing to reopen the assessment in respect of the assessment year 2007-08. The petitioner also seeks for an appropriate writ calling for the relevant records in respect of the assessment year 2007-08 and consequential direction to quash the demands claimed by the Income-tax Department through its impugned order dated March 25, 2013. The brief facts necessary for deciding the petition are that the assessee reported, through its income-tax return dated October 29, 2007, a total income of Rs. 58,73,098. On September 27, 2008, during the course of finalisation of the assessment a notice was issued under section 143(2) of the Income-tax Act, 1961, seeking certain clarifications and the return was thus taken up for scrutiny. Eventually the assessment was made by an order dated November 18, 2009, and a demand for Rs. 60,04,860 was raised by the Income-tax Department. While matters stood thus, on March 20, 2012, the assessee was issued with the impugned notice proposing reassessment proceedings. The assessee stood by its return filed originally and said so on April 9, 2012.

The petitioner complains that the respondent did not furnish any reason as to why its representation was turned down or rejected. The reason recorded for issuing the notice seeking to reopen the assessment provide as follows:

"The assessee filed the ITR dated October 29, 2007, declaring a total income of Rs. 58,73,098. The case was selected for scrutiny and assessment was completed under section 143(3) of the Income-tax Act, 1961, at Rs. 60,04,860 on November, 2009.

On a perusal of records it reveals that the assessee made and was allowed other provisions amounting to Rs. 1,28,18,673. As the provision towards an unascertained liability is not allowable under the Act, it should have been disallowed and taxed. The omission resulted in underassessment of income by Rs. 1,28,18,673. As the provision towards and unascertained liability is not allowable under the Act, it should have been disallowed and taxed. The omission resulted in underassessment of income by Rs. 1,28,18,673 with consequent tax effect of Rs. 56,95,490.

Therefore, I have reason to believe that the income of Rs. 1,28,18,673 has escaped assessment on account of the assessee not disclosing fully and truly all material facts necessary of the assessment proceedings at the time of assessment under section 143(3). Hence, the assessment proceedings need to be reopened under section 147 of the Income-tax Act."

The petitioner resisted the assumption of jurisdiction to reassess the income contending that it adopted the accounting practice regularly in the preceding years and said so in response. It also relied on the ruling in Commissioner of Income Tax, Delhi Vs. Kelvinator of India Limited, The reassessment order was finalised on March 21, 2013, and a demand of Rs. 60,83,817 was made. It is contended by the petitioner''s counsel "who reiterates the grounds urged in respect of these proceedings" that the rationale of issuing notice under section 148 was illegal, having regard to the decision cited supra. He specifically relies upon Kelvinator (supra) to show that the power to reopen is premised upon the existence of objective "tangible material" made available to the Assessing Officer after the finalisation of the initial assessment. It was emphasised that in the present case the assumption of jurisdiction of the Assessing Officer cannot be justified on the limits defined by law. It is submitted that there is nothing in the notice to indicate what triggered the Assessing Officer''s intention to issue notice under section 148.

Counsel for the Revenue submitted that the impugned notice in this case was valid. It was submitted that the Assessing Officer had acted within his rights in retaining the assessment on the basis of an examination of the existing materials on record which clearly indicated that certain disallowances had been wrongly made which led to underassessment of income of Rs. 1,28,18,673 with the consequent tax effect of Rs. 56,95,490. It was also submitted that the Revenue is unable to comply with the original records. The learned counsel submitted in this context that the original records and the relevant documents appear to have been misplaced and stolen and were the subject matter of two police complaints dated February 10, 2013, and November 26, 2013.

We have considered the submissions and also gone through the record. Kelvinator (supra) is the clearest declaration of law as to what constitutes "reasons to believe". The Supreme Court there had an occasion to deal with the law existed prior to the amendment of 1989 in comparison of the present state of law. The court was of the opinion that even though the statute is apparently wider, the controlling expression, i.e., "reasons to believe" necessarily refers to some objective set of circumstances. In other words, the material or objective facts should pertain to something discovered by or made known to the Assessing Officer subsequent to the original assessment made. It was emphasised by the Supreme Court in its judgment that to accept the Revenue''s contention based upon a purely textual interpretation of the provision would in fact result in a disguised review of the power which is clearly beyond the intent of Parliament. In fact such exercise of power was characterised by the Supreme Court as amounting to abuse of power.

In the present case, the "reasons to believe" extracted above nowhere highlight what, if at all, was the material which the Assessing Officer came up or became aware of subsequent to the original assessment. In other words, what triggered the Assessing Officer''s curiosity to impel him to reexamine the files and documents pertaining to a completed assessment is unknown. Nor does the materials placed in the assessment show that the petitioner had unjustifiably suppressed valid or relevant information which was otherwise available. The advertence to the disallowance of a provision for an unascertained liability points to the Assessing Officer indulging in what amounts to nothing but a masked review. What appears to have excited the Assessing Officer''s mind was that the original assessment order was not framed properly as it overlooked certain materials which led to loss of revenue. The Assessing Officer in the first instance did not perform his job properly for which the assessee cannot be faulted with. In Calcutta Discount Company Limited Vs. Income Tax Officer, Companies District, I and Another, the Supreme Court had pointedly observed that the assessee is required to fairly disclose what is expected of him "the primary facts" while submitting the returns. It is up to the Assessing Officer to draw the necessary inferences. In the present case, the Assessing Officer''s omission appears to have been the sole basis for issuing the reassessment notice and, consequently, proceeding to make the impugned demand.

In the light of the above discussion, this petition has to succeed.

The impugned notice dated March 20, 2012, and the demands arising consequent to it through the notice dated October 3, 2012, and November 9, 2012, are hereby quashed. The writ petition is allowed in the above terms.