2025 (4) TMI 1628 - HC - Income Tax

Validity of reassessment proceedings - period of limitation - excess deduction claimed by the assessee u/s 80IB - whether the date of claim of deduction u/s 80IA/IB would be proper or whether the assessments for the periods 2002-03 2003-04 and 2004-05 required to be re-visited u/s 148? HELD THAT - As far as the first two assessment years are concerned reassessment proceedings have been initiated beyond the period of four years from the end of the relevant assessment year thus attracting the application of proviso to Section 147 of the Act which we will presently advert to. For assessment year 2004-05 the re-opening is within the period of 4 years from the end of the relevant assessment year. Hence as far as assessment years 2002-03 and 2003-04 are concerned an additional condition that is cast upon the revenue is as set out under the proviso to Section 147 requiring that the Department should establish that the assessee has not made a full and true disclosure of all material aspects in its returns of income at the initial stage. It is only upon this burden being discharged that the Department would be in a position to avail the extended period of limitation from 4 to 6 years. The income tax returns are full and complete in that there is no omission of the material particulars in regard to deduction under Section 80IA/IB. In fact the very trigger for these proceedings is a Certificate issued by the Chartered Accountant in respect of the years in question where the Chartered Accountant has in column 8 in Form 10 CCB stated that the commencement of production of business was on 18.03.1998. In column 9 of Form10 CCB annexed to the return the initial year of claim is shown to be 2000-01. The assessee has explained that the date of commencement of production ought not to have been 18.03.1998 as that was the date on which the Licence to Work had been granted to operate the Rakholi factory. We find merit in the contention that it is only when the Licence to Work had been granted would the assessee proceed to install machinery and thereafter commence manufacture. Hence the date of grant of Licence can never normally be the date of commencement of business. Hence there is a clear error in the date set out in column 8 of Form 10 CCB where the date of commencement of production has been is shown to be the date on which the Licence to Work had been granted. It is nobody s case that the date stipulated in error was motivated. In fact had it been the intention of the assessee to suppress information or to obtain a benefit that it was not eligible for it would have ensured that there was no mismatch between the particulars in columns 8 and 9 of Form 10 CCB as the very next column i.e. column 9 reveals the initial year of claim as 2000-01. Hence it is evident that the date 18.03.1998 in column 8 was only an error and nothing more. The same error repeats itself as far as the Chinchpada unit is concerned except that in column 8 in Form 10 CCB relating to Chinchpada unit the date of commencement of production is shown as 07.06.1996 which is the date on which the Licence to Work had been granted. Column 9 for that unit reveals the initial year of claim as 1999- 2000. The same explanation as set out for the Rakholi unit has been furnished for the Chinchpada unit as well and the conclusions of the Court supra would apply equally as far as this unit too is concerned. As pointed out by learned Senior Counsel the use of the word true in the proviso to Section 147 is a charge upon the assessee to have intended to provide false information at the first instance. Hence the use of the word true as understood in common parlance would carry with it the requirement that the department must establish animus or the intention to suppress material to the assessee s advantage. The Court agrees that there is no intention to suppress information to obtain a benefit to which it was disentitled. On the other hand the information supplied has been erroneous to its disadvantage. At best it may be said that the assessee has been remiss. However this by itself would not establish falsity of the material particulars provided at the initial stage. A perusal of the orders indicates detailed reference to the discussions that were had qua the officer and the assessee. In conclusion the officer has carefully and consciously recorded that as far as deduction under Chapter VI A is concerned in the order of assessment for assessment year 2000-01 the year of claim for Rakholi unit was the first year and for the Chinchpada unit was the second year. The law requires the assessing officer to specifically record in each assessment year the year for which the claim of the assessee u/s 80IA/IB was being considered. It is in compliance of this that the assessing officer has been careful and conscious enough to set out the year of claim in the assessment order itself. It is also relevant that those assessment orders for the previous years i.e. 2000-01 and 2001-02 remain undisturbed even at this point of time. We hence find that the action of the Assessing Officer to have cherry-picked the assessments for assessment years 2002-03 2003-04 and 2004-05 alone to disturb the sequence of claim as being wholly misconceived and without any basis whatsoever. Thus as far as the first two years are concerned the assessing officer has availed the benefit of larger limitation of 6 years which he is not entitled to since there has been no untrue or incomplete disclosure by the assessee at the first instance. As far as assessment year 2004-05 is concerned we find that the grant of deduction is based on the records. There is absolutely no material available to indicate that the original order of assessment is liable to be re-opened. In Kelvinator India Ltd 2010 (1) TMI 11 - SUPREME COURT which is a matter relating to reassessment within 4 years the Supreme Court has categorically emphasised the difference between proceedings for re-assessment and proceeding for review holding that the department officer has the power only to re-assess and not review on the same facts. Writ appeal dismissed.

Summary

1. ISSUES PRESENTED and CONSIDERED

The core legal questions considered by the Court in these appeals are:

• Whether the Writ Petitions challenging notices issued under Section 148 of the Income Tax Act, 1961 (Act) for reassessment of income for Assessment Years (AY) 2002-03, 2003-04, and 2004-05 were maintainable, given that reassessment proceedings had been completed at the time of filing.
• Whether the procedure prescribed under the Act and elucidated by the Supreme Court in GKN Driveshafts (India) Ltd v Income Tax Officer was properly followed, including issuance of reasons for reassessment, filing and disposal of objections, and issuance of statutory notices under Section 143(2).
• Whether the reassessment proceedings initiated under Section 148 and finalized under Section 147 were valid, particularly in light of limitation provisions and the requirement of full and true disclosure of material facts by the assessee.
• Whether the assessee was entitled to claim deductions under Section 80IB of the Act for the relevant assessment years, considering the dates of commencement of production and the nature of income eligible for deduction.
• Whether the assessing officer was justified in reopening the assessments beyond four years from the end of the relevant assessment years, invoking the proviso to Section 147, which requires establishment of failure to make full and true disclosure of material facts.
• Whether the reassessment proceedings constituted a review of the original assessments or a valid reassessment within the scope of the Act.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Maintainability of Writ Petitions Challenging Section 148 Notices

Legal Framework and Precedents: The procedure for reassessment under the Income Tax Act was clarified by the Supreme Court in GKN Driveshafts (India) Ltd v Income Tax Officer, which mandates that upon receipt of a notice under Section 148, the assessee must file a return and may seek reasons for reassessment. The assessing officer must disclose reasons, and the assessee may file objections challenging jurisdiction. The officer must dispose of such objections by a speaking order before proceeding on merits. Further, the Supreme Court in Assistant Commissioner of Income Tax v Rajesh Jhaveri Stock Brokers (P) Ltd emphasized that factual appreciation should not be undertaken under Article 226 writ jurisdiction.

Court's Interpretation and Reasoning: In the present case, the reassessment orders had been finalized on 13.10.2009, the same date on which objections were rejected. However, the Writ Petitions were filed challenging only the notices under Section 148, not the assessment orders themselves. The Court observed that since the objections had been disposed of and reassessment orders finalized, the appropriate remedy was to challenge the assessment orders by statutory appeals, not by writ petitions.

Key Evidence and Findings: The Court noted that the procedure of furnishing reasons, filing objections, and rejecting objections was followed. However, no notice under Section 143(2) was issued before finalizing reassessment, violating principles of natural justice.

Application of Law to Facts: Given the absence of statutory notice under Section 143(2), the Court held that the Writ Petitions were maintainable on grounds of violation of natural justice. Further, since no disputed facts were involved, the Court declined to relegate the assessee to statutory appeal, especially considering the petitions pertained to years 2002-03 to 2004-05 and were filed in 2009.

Treatment of Competing Arguments: The appellants contended that writ petitions were premature and not maintainable, but the Court found merit in the assessee's contention regarding procedural lapses.

Conclusion: The Writ Petitions challenging Section 148 notices were held maintainable due to procedural irregularities, specifically non-issuance of Section 143(2) notice prior to reassessment finalization.

Issue 2: Validity of Reassessment Proceedings under Section 147 and Limitation

Legal Framework and Precedents: Section 147 empowers the Assessing Officer to reassess escaped income, subject to limitation periods under the proviso to Section 147. For assessments reopened beyond four years from the end of the relevant AY, the Department must establish failure by the assessee to disclose fully and truly all material facts. The Supreme Court in Calcutta Discount Co., Ltd v Income Tax Officer and others, and Income Tax Officer v Lakhmani Mewal Das underscored the necessity of establishing such failure to invoke extended limitation.

Court's Interpretation and Reasoning: The reassessments for AYs 2002-03 and 2003-04 were reopened beyond four years, thus attracting the proviso to Section 147. The Court found that the returns filed were complete, supported by requisite Forms and Chartered Accountant certificates, disclosing material particulars including dates of commencement and initial year of claim. The error in dates was found to be inadvertent and not motivated by intention to suppress facts.

Key Evidence and Findings: The returns were accompanied by Form 10CCB, which erroneously stated the date of commencement of production as the date of grant of Licence to Work, but the initial year of claim was correctly stated. The Court noted that the error was to the assessee's disadvantage and not an attempt to mislead. Earlier assessments for AYs 2000-01 and 2001-02, which were scrutinized and finalized, accepted the claims and dates of commencement as per the assessee's submissions.

Application of Law to Facts: Since there was no failure to disclose fully and truly all material facts, the Department was not entitled to invoke the extended limitation period of six years for reassessment. The reassessment notices for AYs 2002-03 and 2003-04 were therefore barred by limitation.

Treatment of Competing Arguments: The Department argued that the reassessment was justified due to excess deduction claimed and errors in dates of commencement. The Court rejected these arguments, emphasizing the absence of any intention to suppress or misrepresent facts.

Conclusion: Reassessment proceedings for AYs 2002-03 and 2003-04 were invalid as barred by limitation, given the absence of failure to make full and true disclosure by the assessee.

Issue 3: Entitlement to Deduction under Section 80IB and Date of Commencement of Production

Legal Framework and Precedents: Section 80IB provides deduction for profits derived from specified industrial undertakings, subject to conditions including the period of eligibility measured from the date of commencement of production. The Supreme Court decisions in Pandian Chemicals Ltd, Liberty India, Saraf Exports, and others deal with the scope of deductions and the meaning of income "derived from" manufacturing activity.

Court's Interpretation and Reasoning: The assessing officer's reasons for reassessment centered on the contention that the assessee claimed 100% deduction for units beyond the permissible period (six years), and included non-manufacturing income such as interest and miscellaneous income in the deduction claim. The Court examined the dates of commencement of production as per Form 10CCB and found that the dates recorded were actually dates of grant of Licence to Work, not actual commencement of commercial production.

Key Evidence and Findings: The Court found that the date of grant of Licence to Work cannot be equated with the date of commencement of business, which involves installation of machinery and actual production. The assessee had consistently disclosed the initial year of claim correctly in Form 10CCB. Earlier assessments accepted the claims and dates of commencement as stated by the assessee. The Court also noted that the assessing officer had not identified any other material suppressed by the assessee.

Application of Law to Facts: The Court held that the assessee was entitled to claim deduction under Section 80IB based on the actual date of commencement of production, not the date of grant of Licence. The inclusion of interest and miscellaneous income in the deduction claim was not accepted by the Department, but the Court's decision focused primarily on the validity of reassessment rather than merits of those claims.

Treatment of Competing Arguments: The Department relied on certificates and documents to argue that deductions were wrongly claimed beyond the eligible period and included non-manufacturing income. The Court distinguished these issues from the procedural and jurisdictional questions before it and emphasized that the reassessment was invalid on limitation grounds.

Conclusion: The assessee's claim for deduction under Section 80IB was not liable to reassessment on the ground of erroneous date of commencement, as the error was inadvertent and not motivated by suppression. The date of commencement must be the actual date of production, not the date of Licence grant.

Issue 4: Distinction Between Reassessment and Review

Legal Framework and Precedents: The Supreme Court in Commissioner of Income Tax v Kelvinator of India Ltd clarified that reassessment proceedings under the Act are distinct from review proceedings. Reassessment must be based on discovery of new material or income escaping assessment, not a re-examination of the same facts.

Court's Interpretation and Reasoning: The Court observed that the reassessment in the present case was effectively a review of the original assessment years 2002-03 to 2004-05, attempting to disturb the sequence of claims accepted in earlier years. No new material was brought forth to justify reassessment.

Key Evidence and Findings: The earlier assessments for 2000-01 and 2001-02 were finalized accepting the assessee's claims, and the reassessment targeted only the subsequent years without any fresh material.

Application of Law to Facts: The Court held that the reassessment was impermissible as it amounted to a review of earlier assessments rather than a valid reassessment based on escaped income or failure to disclose material facts.

Treatment of Competing Arguments: The Department argued that reassessment was justified due to excess deductions and errors. The Court rejected this, emphasizing the absence of new material or failure to disclose.

Conclusion: The reassessment proceedings were invalid as they constituted impermissible review rather than lawful reassessment.

3. SIGNIFICANT HOLDINGS

"We see no justifiable reason to interfere with the order under challenge. However, we clarify that when a notice under section 148 of the Income Tax Act is issued, the proper course of action for the notice is to file return and if he so desires, to seek reasons for issuing notices. The Assessing Officer is bound to furnish reasons within a reasonable time. On receipt of reasons, the notice is entitled to file objections to issuance of notice and the Assessing Officer is bound to dispose of the same by passing a speaking order."

"Insofar as there is no violation of the principles of natural justice, the Writ Petitions are maintainable."

"The use of the word 'true' in the proviso to Section 147 is a charge upon the assessee to have intended to provide false information at the first instance... there is no intention to suppress information to obtain a benefit to which it was disentitled."

"The action of the Assessing Officer to have cherry-picked the assessments for assessment years 2002-03, 2003-04 and 2004-05 alone to disturb the sequence of claim as being wholly misconceived and without any basis whatsoever."

"The reassessment proceedings for AYs 2002-03 and 2003-04 are barred by limitation as the Department has failed to establish failure to make full and true disclosure of all material facts."

"The date stipulated in error in Form 10CCB as date of commencement of production is the date of grant of Licence to Work and cannot be equated with actual commencement of business."

"The Department is not entitled to invoke the extended limitation of six years under Section 147 proviso in the absence of suppression or failure to disclose material facts."

"The reassessment proceedings amounted to a review of original assessments and are therefore invalid."

The Court dismissed the appeals, holding that the reassessment proceedings initiated under Section 148 and finalized under Section 147 were invalid on grounds of limitation and lack of failure to disclose material facts, and that the Writ Petitions challenging the notices were maintainable due to procedural irregularities including non-issuance of statutory notices under Section 143(2). The assessee was entitled to claim deductions under Section 80IB based on actual commencement of production, and the reassessment attempts to disturb accepted claims without new material were impermissible.