Thiagarajar Mills (P) Ltd. vs Dy. Commissioner of Income Tax

P.P.S. Janarthana Raja, J.—The writ petition is filed to quash the notice in P.A. No. 47-022-CN-9955 dated nil issued u/s 148 of the Income Tax Act, 1961 and forbear the respondent from making any reassessment on the petitioner for the assessment year 1996-97 in pursuance of the impugned notice.

The petitioner is a limited company registered under the Indian Companies Act, 1913 carrying on business in the manufacture and sale of yarn. The petitioner company is an assessee under the Income Tax Act. The relevant assessment year is 1996-97 and the corresponding accounting year ended on 31-3-1996. The assessee has filed its return of income on 30-10-1996 admitting an income of Rs. 56,97,570. The return was processed u/s 143(1)(a) of the Income Tax Act, 1961 and the same was accepted on 21-4-1997. Later, the assessing officer issued a notice u/s 143(2) of the Income Tax Act, 1961 for detailed enquiry and the petitioner also filed all the required details. The assessing officer completed the regular assessment u/s 143(3) of the Income Tax Act, 1961 on 19-2-1999 determining the total income of Rs. 95,08,340. Subsequently, the respondent issued a notice u/s 148 of the Act on 26-4-2003 requiring the petitioner to file a return of income in the prescribed form within 30 days of receipt of the said notice on the ground that the assessing officer has reason to believe that the income of the petitioner chargeable to tax had escaped assessment u/s 147 of the Act. Challenging the same, the petitioner has filed the mpresent writ petition.

The learned Counsel appearing for the petitioner-assessee submitted that reopening of assessment for the assessment year 1996-97 is barred by limitation and relied on the proviso to Section 147 of the Act and further relied on the decision of this Court in the case of Commissioner of Income Tax Vs. Elgi Finance Ltd., in support of his contention and seeks to quash the impugned order.

The learned Counsel appearing for the revenue submitted that the notice issued u/s 148 of the Act is valid in law and the reopening of assessment is within the limitation period and seeks to dismiss the writ petition.

Heard the learned Counsel appearing on either side and perused the materials available on record.

In the present case, the assessment year is 1996-97. The period for reopening of assessment ended on 31-3-2001. Notice was issued u/s 147 of the Act with "nil" date. Subsequently, the assessing officer, in the reference column of the another letter dated 2-7-2003, has mentioned that notice u/s 148 dated 16-4-2003. The learned Counsel appearing for the respondent produced the file in which it is stated that the notice was sent on 28-3-2003. Due date prescribed for reopening of the assessment under proviso to Section 147 of the Act is on or before 31-3-2001. Therefore, it is clear that notice was beyond the period of four years. Even though there is a dispute regarding the actual date of notice, but considering both the dates viz., 6-4-2003 and 28-3-2003, they are barred by limitation. Further, it is also seen from the records that there is no specific finding by the assessing officer that income has escaped assessment due to failure on the part of the assessee to disclose fully or truly all material facts necessary for the assessment. There is no dispute that the assessing officer has not given any finding that there is an escapement of income due to failure on the part of the assessee to disclose fully or truly all material facts necessary for the assessment. In the case of CIT v. Elgi Finance Ltd. (supra), the Division Bench of this Court has held as follows:

Heard the counsel appearing for both the sides. 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 under-assessed 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 had 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 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.

In addition to the time-limits provided for u/s 149, the law has provided another limitation of four years under the proviso to Section 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 was made out as a result of failure on the part of the assessee to disclose fully and truly all material facts necessary for the assessment.

In the present case, the question is whether the assessee company had disclosed fully and truly all the material facts necessary for the assessments and with particular reference to computation of depreciation allowance. The assessee company had filed full set of accounts before the assessing officer comprising of P&L a/c, balance sheet and schedules thereto. The assessee company had furnished the details regarding the acquisition of various machineries and assets and the details regarding the leasing out of those machineries and items to other parties. The assessee had also furnished the details of lease rent received out of those lease agreements. The assessee had also furnished the detailed computation of depreciation mentioning therein the WDV of machineries and assets before and after claiming the depreciation allowance for the impugned assessment years. It is a factual finding by the Tribunal that the assessee company had fully and truly disclosed all material facts necessary for working out the quantum of depreciation allowance and completed the assessment accordingly. The Tribunal is right in following the judgment of the learned Single Judge of this Fenner (India) Ltd. Vs. Deputy Commissioner of Income Tax, . In the said judgment, the learned Single Judge considered the scope of proviso to Section 147 of the Income Tax Act in detail and held as follows:

The pre-condition for the exercise of the power u/s 147 in cases where power is exercised within a period of four years from the end of the relevant assessment year is the belief reasonably entertained by the assessing officer that any income chargeable to tax has escaped assessment for that assessment year. However, when the power is invoked after the expiry of the period of four years from the end of the assessment year, a further pre-condition for such exercise is imposed by the proviso namely, that there has been a failure on the part of the assessee to disclose fully and truly all material facts necessary for his assessment for that assessment year. Unless, the condition in the proviso is satisfied, the assessing officer does not acquire jurisdiction to initiate any proceeding u/s 147 of the Act after the expiry of four years from the end of the assessment year. Thus, in cases where the initiation of the proceedings is beyond the period of four years from the end of the assessment year, the assessing officer must necessarily record not only his reasonable belief that income has escaped assessment but also the default or failure committed by the assessee. Failure to do so would vitiate the notice and the entire proceedings. The relevant words in the proviso are, ''unless any income chargeable to tax has escaped assessment for such assessment year by reason of the failure on the part of the assessee

Mere escape of income is insufficient to justify the initiation of action after the expiry of four years from the end of the assessment year. Such escapement must be by reason of the failure on the part of the assessee either to file a return referred to in the proviso or to truly and fully disclose the material facts necessary for the assessment.

Whenever a notice is issued by the assessing officer beyond a period of four years from the end of the relevant assessment year, such notice being issued without recording the reasons for his belief that income escaped assessment, it cannot be presumed in law that there is also a failure on the part of the assessee to file the returns referred to in the proviso or a failure to fully and truly disclose the material facts. The reasons referred to in the main para of Section 147 would, in cases where the proviso is attracted, include reasons referred to in the proviso and it is necessary for the assessing officer to record that any one or all the circumstances referred to in the proviso existed before the issue of notice u/s 147.

After an assessment has been made, in the normal circumstances, there would be no reason for anyone to doubt that the assessment has been made on the basis of all relevant facts. If the assessing officer chooses to entertain the belief that the assessment has been made in the background of the assessee''s failure to disclose truly and fully all material facts, it is necessary for him to record that fact, and in the absence; of a record to that effect, it cannot be held that a notice issued without recording such a fact is capable of being regarded as a valid notice. As to whether the material facts disclosed by the assessee are full and true is always a question of fact and unless the facts disclosed had been examined in relation to the extent of failure if any on the part of the assessee, it is not possible to form the opinion that there had been a failure on the assessee''s part to truly and fully disclose the material facts. A notice issued without a record of the assessing officer''s reasonable belief that there was such failure on the part of the assessee would be indicative of a failure on the part of the assessing officer to apply his mind to material facts, and on that ground also the notice issued would be vitiated.''

So, when the factual finding is that the assessee company had fully and truly disclosed all material facts necessary for computing the depreciation allowance in the course of the original assessments completed u/s 143(3) itself, the period of limitation applicable to the reopening for these two years would be a period of four years prescribed in the proviso to Section 147 of the Income Tax Act, 1961. For the said two years, notice u/s 148 had been issued after the expiry of four years from the end of the assessment years 1992-93 and 1993-94. In respect of the assessment year 1992-93, notice if at all necessary, should have been issued on or before 31-3-1997, whereas in fact the notice was issued only on 17-7-1998. For the assessment year 1993-94, notice u/s 148 should have been issued on or before 31-3-1998, whereas in fact, the notice was issued only on 17-7-1998. So, notice u/s 148 for both the assessment years were issued after the expiry of four years from the respective assessment years. Therefore, any notice issued after the expiry of four years from the end of the relevant assessment year, is illegal and is without jurisdiction. Hence the assessment years completed, are barred by limitation and they are liable to be set aside.

In these circumstances, it is clear that the notice has been issued u/s 148 of the Act after expiry of four years from the end of the assessment year, which is illegal and without jurisdiction and clearly barred by limitation and there is no specific finding by the assessing officer that income has escaped assessment due to failure on the part of the assessee to disclose fully or truly all material facts necessary for the assessment. In these circumstances, the impugned order is liable to be set aside and accordingly, the same is set aside.

The writ petition is allowed. No costs. Consequently WPMP No. 43314 of 2003 is closed.