TMI Blog2011 (3) TMI 1231X X X X Extracts X X X X X X X X Extracts X X X X ..... nst assessee. - WP NO 24241/10, WP NO 24242/10, WP NO 24243/10, WP NO 24244/10, WP NO 24245/10 - - - Dated:- 1-3-2011 - RAO V. V. S., RAMESH RANGANATHAN, JJ. Judgment: V. V. S. Rao J.- 1. These writ petitions are filed challenging the communication dated September 6, 2010 issued by the respondent. By the said communication, the objections raised by the petitioners to the notices dated March 30, 2010, under section 148 of the Income-tax Act, 1961 (the Act), proposing to reassess the income for five assessment years i.e., 2004-05 to 2007-08 were rejected. As all the matters are interconnected, they are being disposed of by this common order. 2. We will notice the factual background from W. P. No. 24241 of 2010. The petitioner is an educational institution registered under section 12A of the Act with effect from March 21, 2003. They were granted exemption under section 10(23C)(vi) of the Act vide orders dated October 28, 2005 passed by the Chief Commissioner of Income-tax, Visakhapatnam for the years 2003-04 to 2005-06. They filed a return of income for the assessment year 2004-05 showing the taxable income as "nil". The said return was taken up for scrutiny. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Academy v. Asst. CIT [2009] 123 TTJ Visakapatnam 195, to the effect that any investment made by an assessee, other than in the modes prescribed under section 11(5) of the Act, disentitled them from claiming under the head "Current liabilities" the benefit of exemption under section 11(1) of the Act. In response to the reasons furnished, the petitioner filed objections on July 20, 2010 explaining that in their balance-sheet for the year ending March 31, 2004, shows the amount due to the chit fund was shown, and that the liability was after various chits were auctioned and funds were realised by the society ; and that the payment to the chit fund was towards reducing the chit liability. The petitioner also pleaded that the decision of the Income-tax Appellate Tribunal in Priyadarshini was wrongly applied. The petitioner also submitted that the Assessing Officer enquired into the matter at the time of original assessment ; a reassessment could not be made on change of opinion ; and, in the garb of pending reassessment, the respondent could not review the earlier assessment order. The petitioner also raised the plea of limitation contending that the notice of reassessment, having been ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent year 2006-07 on the ground that the petitioner had violated section 11(5) of the Act, apart from submitting the application belatedly. The order has become final. By proceedings dated December 24, 2010, the Chief Commissioner revoked the approval granted under section 10(23C) of the Act for the assessment years 2003-04 to 2005-06 on the ground that the petitioner had violated section 11(5) of the Act by investing funds in a chit fund. 7. It is further stated by the respondent that there was no occasion for the Assessing Officer to consider the question of denial of exemption under section 13(1)(d) of the Act on the ground of violation of section 11(5) of the Act. Having come to know of the legal position, after the decision of the Income-tax Appellate Tribunal in Priyadarshini, the Assessing Officer had caused reopening of the assessment on March 26, 2010 duly recording reasons and securing the approval of the Commissioner clearly indicating that investment of surplus in a chit fund entailed forfeiture of the benefit of exemption under section 11 of the Act in view of the decision in Priyadarshini. 8. It is further stated that the efforts of the petitioner for obtaining ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ial before him, cannot reopen the assessment. The exercise of power is arbitrary and illegal. The counsel would then urge that the notices under section 148 of the Act for the assessment years 2003-04, 2004-05 and 2005-06 are time barred under section 147 of the Act as they are issued on March 30, 2010 after expiry of four years from the end of the relevant assessment year. Withdrawal of exemption, under section 10(23C) of the Act, is only an attempt to sustain the reassessment proceedings and is unsustainable. The counsel relied on Calcutta Discount Co. Ltd. v. ITO [1961] 41 ITR 191 (SC), CIT v. Kelvinator of India Ltd. [2002] 256 ITR 1 (Delhi) [FB], CIT v. Eicher Ltd. [2007] 294 ITR 310 (Delhi) and CIT v. Kelvinator of India Ltd. [2010] 320 ITR 561 (SC) ; [2010] 2 SCC 723. 11. The senior counsel for Income-tax, Mr. S. R. Ashok, made the following submissions : (i) In view of the proviso to section 147(1) read with section 149 of the Act, the reassessment proceedings are not barred by limitation ; (ii) the previous scrutiny of the tax returns under sections 143(1) and (3) of the Act, for the assessment years 2004-05 and 2006-07, does not amount to a change of opinion. Mere acc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... red together. Of course if, on a prima facie consideration, this court comes to the conclusion that the impugned action for reassessment of income is outside the scope of section 147 of the Act, any attempt of the respondent would suffer from inherent lack of jurisdiction or a jurisdictional error, as the case may be. If, prima facie, it is demonstrable that initiation of reassessment proceedings satisfies the jurisdictional issues, a deeper probe is not called for. In such an event, the petitioner can avail of the remedy of an appeal under section 246(1)(b) of the Act, and thereafter, remedy of an appeal under section 253(1) of the Act against which an appeal, on question of law, would lie to the High Court under section 260A of the Act. Of course against the notice of reassessment under section 148 of the Act, and the communication of reasons therefor, no appeal would lie. Therefore, to the limited extent of scrutinizing jurisdictional errors, a writ petition may lie. We may however hasten to add that this cannot be a rigid norm. As rightly pointed out by the senior counsel for the Revenue, the issue whether or not income chargeable to tax escaped assessment generally or as conte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t for the assessment years 1953-54 to 1960-61 should not be revised. Copies of the notices were sent to the addresses disclosed in the income-tax returns. On the date of hear-ing, none appeared for the assessee. The Commissioner set aside the orders and directed the Income-tax Officer to make fresh assessment after enquiry and investigation. Against the said order, the appellant moved the High Court of Calcutta by filing a writ petition. Holding that the notice under section 33B was not served on the assessee, the learned single judge set aside the order of the Commissioner. The Division Bench reversed the holding that notice was served. The Supreme Court dismissed the appeal and reiterated that when the Income-tax Act provides complete and self-contained machinery for redressal of grievances, no party can be allowed to invoke the extraordinary remedy under article 226 of the Constitution. The relevant observations are as follows (page 695). ". . . we deem it necessary once more to emphasize that the Income-tax Act provides a complete and self-contained machinery for obtaining relief against improper action taken by the Departmental authorities, and normally the party feeling h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... income, or (ii) omission or failure on the part of an assessee to disclose fully and truly all material facts necessary for his assessment for that year". The court also ruled that if there are some reasonable grounds for thinking that there had been any non A-disclosure that could have a material bearing on the question of underassessment and would be sufficient to give juris-diction to the Assessing Officer to issue notice of assessment. Whether such grounds and reasons are adequate or not for arriving at the conclusion that there was a non-disclosure of material facts would not be open for the court's investigation. In other words, to give special jurisdiction to the Income-tax Officer there should exist prima facie grounds for thinking that there had been some non-disclosure of material facts. 17. After repeal of the 1922 Act, section 34 was enacted as section 147 of the 1961 Act. There was no difference in the scope and purport of the provision to the extent of conferring jurisdiction on the Income-tax Officer or the method and manner of assessment/reassessment thereunder. Section 147 of the Act was amended by the Direct Tax Laws (Amendment) Act 1987 with effect from Apri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t no assessment has been made and it is noticed by the Assessing Officer that the assessee has understated the income or has claimed excessive loss, deduction, allowance or relief in the return ; (c) where an assessment has been made, but- (i) income chargeable to tax has been underassessed ; or (ii) such income has been assessed at too low a rate ; or (iii) such income has been made the subject of excessive relief under this Act ; or (iv) excessive loss or depreciation allowance or any other allowance under this Act has been computed. Explanation 3.-For the purpose of assessment or reassessment under this section, the Assessing Officer may assess or reassess the income in respect of any issue, which has escaped assessment, and such issue comes to his notice subsequently in the course of the proceedings under this section, notwithstanding that the reasons for such issue have not been included in the reasons recorded under sub-section (2) of section 148. 149. Time limit for notice.-(1) No notice under section 148 shall be issued for the relevant assessment year- (a) if four years have elapsed from the end of the relevant assessment year, unless the ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be an order of assessment . . . and there being no assessment the question of change of opinion does not arise. It was also observed that the intimation under section 143(1)(a) of the Act is deemed to be a demand notice under section 156 of the Act for the apparent purpose of making machinery proceedings relating to recovery of tax applicable. After noticing section 147 of the Act, as amended with effect from April 1, 1989, it was laid down that the Assessing Officer could have jurisdiction to issue notice under section 148 read with section 147(a) when he has reason to believe that the income has escaped assessment. The relevant observations are as follows (pages 511-12) : "The scope and effect of section 147 as substituted with effect from April 1, 1989, as also sections 148 to 152 are substantially different from the provisions as they stood prior to such substitution. Under the old provisions of section 147, separate clauses (a) and (b) laid down the circumstances under which income escaping assessment for the past assessment years could be assessed or reassessed. To confer jurisdiction under section 147(a) two conditions were required to be satisfied, firstly, the Assessin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on behalf of the Department, then, in the garb of reopening the assessment, review would take place. One must treat the concept of 'change of opinion' as an in-built test to check abuse of power by the Assessing Officer. Hence, after April 1, 1989, the Assessing Officer has power to reopen, provided there is 'tangible material' to come to the conclusion that there is escapement of income from assessment. Reasons must have a live link with the formation of the belief. Our view gets support from the changes made to section 147 of the Act, as quoted hereinabove. Under the Direct Tax Laws (Amendment) Act, 1987, Parliament not only deleted the words 'reason to believe' but also inserted the word 'opinion' in section 147 of the Act. However, on receipt of representations from the companies against omission of the words 'reason to believe', Parliament reintroduced the said expression and deleted the word 'opinion' on the ground that it would vest arbitrary powers in the Assessing Officer." (emphasis supplied) 20. The condition precedent for exercising jurisdiction under section 147 of the Act is "the reason to believe that income chargeable to tax had escaped assessment". When is inc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ounts to or is likely to amount to one lakh rupees or more for that year. The notices under section 148 of the Act were issued on March 29, 2010 well within the time prescribed under section 149 of the Act and on that ground the petitioner may not succeed. 23. Reverting to the issue of inherent lack of jurisdiction, we may notice the admitted facts. The petitioner is an educational society constituted under the memorandum of association dated April 25, 1984. They obtained registration under section 12A of the Act with effect from March 21, 2003. The petitioner obtained necessary exemption by order dated May 30, 2003 entitling the petitioner to qualify for exemption under section 80G(5)(vi) of the Act for the period from March 21, 2003 to March 31, 2005. The petitioner then applied for approval for the purpose of section 10(23C)(vi) of the Act, which was granted vide order dated October 28, 2005 passed by the Chief Commissioner of Income-tax, Visakhapatnam. The petitioner filed "nil" return for the assessment years 2003-04 to 2007-08 claiming deduction under section 10(23C)(vi) of the Act. During the scrutiny of the returns for the assessment years 2004-05 and 2006-07 under sect ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessment year, no action shall be taken under section 147 of the Act after expiry of four years from the end of the relevant assessment year. The second part of the proviso, however, dilutes this ; if the escapement was occasioned due to failure on the part of the assessee to file a return or due to failure of the assessee to disclose fully and truly all material facts necessary for the assessment pursuant to a notice under section 142(1) or section 148 of the Act. Whether there is a failure on the part of the assessee to disclose fully and truly all material facts for the purpose of assessment for the relevant assessment year is an altogether different aspect from initiating reassessment proceedings under section 147 of the Act. In response to a notice under section 148 of the Act, for the purpose of reassessment under section 147 of the Act, an assessee may have an objection on such a ground. It is, however, always a question of fact whether such disclosure was reason enough to bar reassessment. Initial plea that an assessee disclosed fully and truly all material facts cannot, by itself, be a ground to deny jurisdiction to the Assessing Officer under section 147 of the Act. 25. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... were passed, the approval under section 10(23C) of the Act granted on October 28, 2005 for the years 2003-04, 2004-05 and 2005-06 corresponding to three assessment years, in which orders under section 143(3) of the Act were passed, was operative. Therefore, the respondent was disabled forbidden from asking any questions. For the assessment years 2006-07 and 2007-08, by order dated September 21, 2007, the Commissioner refused approval under section 10(23C) of the Act on the ground that the petitioner made investments in contravention of section 11(5) of the Act. Presumably for this reason, for the two assessment years, i.e., 2006-07 and 2007-08, the petitioner claimed deduction under section 11 of the Act which could not have been allowed if only it was considered by the Assessing Officer regarding the nature of investments/deposits made by the petitioner with the chit fund. Further-more, it is now on record that, by proceedings dated December 24, 2010, the Chief Commissioner has withdrawn the approval granted to the petitioner earlier on October 28, 1995. In so far as the two assessment years 2006-07 and 2007-08 are concerned, intimation under section 143(1) of the Act was sent and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ven if the respondent processed the application for exemption and asked for clarification pursuant to the instructions of the higher authority, the same does not bar the proceedings under section 147 of the Act. In Miss Esther P. Carvalho [1999] 237 ITR 549 (Bom) the Bombay High Court held that (page 555) : "it is immaterial whether the Income-tax Officer at the time of making the original assessment could or could not have found out the facts himself. If on the basis of the subsequent information, the Income-tax Officer arrives at a conclusion after satisfying the twin conditions pre-scribed under section 147(a) of the Act that the assessees had not made the full and true disclosure of the material facts at the time of the original assessment and therefore income chargeable to tax had escaped assessment, it would be open to him to initiate proceedings for reassessment under section 147(a) of the Act . . . The fact that the Assessing Officer could have found out the correct position by further probing the matter not exonerate the assessee from his duty to make a full and true dis-closure of the material facts. Explanation 2 to section 147 of the Income-tax Act, 1961, makes the posi ..... 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