TMI Blog2012 (9) TMI 16X X X X Extracts X X X X X X X X Extracts X X X X ..... r years from the end of the relevant assessment year, is substantially wider. The intimation under section 143(1)(a) was deemed to be a notice of demand under section 156, for the apparent purpose of making machinery provisions relating to recovery of tax applicable. By such application only recovery indicated to be payable in the intimation became permissible. And nothing more can be inferred from the deeming provision. Therefore, there being no assessment under section 143(1)(a), the question of change of opinion, as contended, does not arise. Central as well as the State Sales Tax and other income in the net profit would not qualify for deduction under section 80HHC and debit entry for warranty expenses out of which only an amount of Rs.1,05,48,633/- was incurred during the financial year under consideration - such reason would permit the AO to reopen the assessment - not find that the notice for reopening is invalid or lacks jurisdiction - against assessee. - SPECIAL CIVIL APPLICATION No. 858 of 2006 - - - Dated:- 6-8-2012 - MR.JUSTICE AKIL KURESHI, MS.JUSTICE HARSHA DEVANI, JJ. MR RK PATEL for Petitioner MR MANISH BHATT for Respondent ORAL JUDGMEN ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Assessing Officer supplied the reasons recorded under his communication dated 8.11.2005. Such reasons read as under : In this case, the assessee company has filed its return of income for A.Y. 2002-03 on 28th October, 2002 showing total income at Rs.7,23,29,973/-. The case was processed under section 143(1) on 16th January, 2003. On perusal of the case records, it is noticed that there is escapement of income chargeable to tax on the following points. [1] The assessee company has claimed deduction under section 80HHC at Rs.59,86,965/-. The involvement of CST ST in the total turnover and other income in the net profit should not be allowable for the purpose of deduction under section 80HHC calculation relying on the decision in the case of Sterling Foods Ltd. [2] Admissibility of bad debts written off at Rs.74,73,003/- is to be verified. [3] The assessee had debited warranty expenses at Rs.1,43,48,347/- to the P L Account, out of which an amount of Rs.1,05,48,633/- has actually incurred during the financial year under consideration. Therefore, the remaining amount of Rs.37,99,714/- is not allowable expenses under the I. T. Act. [4] Admissibility of Royalty claimed at ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t which was framed under section 143(3) of the Act pursuant to a notice under section 143(2) which was served beyond the period of limitation prescribed under the proviso, was not a valid assessment. [b] In case of Assistant Commissioner of Income Tax and another v. Hotel Blue Moon, reported in (2010) 321 ITR 363 wherein the Apex Court held that notice under section 143(2) of the Act was mandatory even in the block assessment proceedings if the Assessing Officer desired to complete such assessment under section 143(3) of the Act. [c] In case of Kanubhai M. Patel (HUF) v. Hiren Bhatt or His Successors to Office and others, reported in (2011) 334 ITR 25 (Guj.), wherein a Division Bench of this Court had the occasion to interpret the term to issue the notice in context of the provisions contained under sections 147, 148 and 149 of the Act. [3] The third contention of the counsel was that the reasons recorded by the Assessing Officer were not germane. Such reasons only recorded that the Assessing Officer wanted to verify certain claims made by the assessee. Counsel submitted that for a fishing inquiry or for mere verification of the claims made, reopening cannot be permitted ev ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ecording of the reasons before issuance of notice. It is undoubtedly true that to re-open an assessment, the Assessing Officer must record his reasons before issuing notice for re-opening. In that view of the matter, the question of such reasons having been recorded before issuance of notice assume significance. As noted, counsel for the petitioner contended that such reasons were not recorded before issuance of notice. For this purpose, he highlighted that such reasons were not supplied immediately though the petitioner demanded the same. Such reasons when produced before the Court showed that they do not carry any date. 6. We have perused the original file in context of this controversy. The file reveals that the reasons recorded by the Assessing Officer and signed by himself are found at page 324 which is immediately after page 323 which is the notice for reopening of the assessment. Immediately after the reasons recorded at page 325, is the acknowledgment receipt of service of the notice dated 20.12.2004 issued under section 148 of the Act. Further we find that the Assessing Officer had drawn a note-sheet in which on 20.12.2004, he recorded that, Notice u/s 148 issued after ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fidavit in-reply filed by the respondent would convince us that in exercise of writ jurisdiction, it would not be open for us to hold that reasons were not recorded by the Assessing Officer before issuance of notice. 10. This brings us to the second limb of the petitioner's challenge namely, that the power under section 147 of the Act cannot be exercised to circumvent the proceedings under section 143(3) of the Act because the notice under section 143(2) of the Act has become time barred and further that in any case, reasons recorded would not permit the Assessing Officer to reopen the assessment. 11. It is undoubtedly true that proviso to section 143(2) of the Act prescribes a time limit within which such notice could be issued. It is equally well settled that such notice is mandatory and in absence of notice under section 143(2) of the Act within the time permitted, scrutiny assessment under section 143(3) cannot be framed. However, merely because no such notice was issued, to contend that the assessment cannot be reopened, is not backed by any statutory provisions. Counsel for the petitioner did not even stretch his contention to that extent. The case of the petitioner as we ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ial staff. Can it be said that any assessment is done by them? The reply is an emphatic no. The intimation under section 143(1)(a) was deemed to be a notice of demand under section 156, for the apparent purpose of making machinery provisions relating to recovery of tax applicable. By such application only recovery indicated to be payable in the intimation became permissible. And nothing more can be inferred from the deeming provision. Therefore, there being no assessment under section 143(1)(a), the question of change of opinion, as contended, does not arise. . 13. Despite such difference in the scheme between a return which is accepted under section 143(1) of the Act as compared to a return of which scrutiny assessment under section 143(3) of the Act is framed, the basic requirement of section 147 of the Act that the Assessing Officer has reason to believe that income chargeable to tax has escaped assessment is not done away with. Section 147 of the Act permits the Assessing Officer to assess, re-assess the income or re-compute the loss or depreciation if he has reason to believe that any income chargeable to tax has escaped assessment for any assessment year. This power to reop ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f he has reason to believe that income for any assessment year has escaped assessment. The word reason in the phrase reason to believe would mean cause or justification. If the Assessing Officer has cause or justification to know or suppose that income had escaped assessment, it can be said to have reason to believe that an income had escaped assessment. The expression cannot be read to mean that the Assessing Officer should have finally ascertained the fact by legal evidence or conclusion. The function of the Assessing Officer is to administer the statute with solicitude for the public exchequer with an inbuilt idea of fairness to taxpayers. As observed by the Delhi High Court in Central Provinces Manganese Ore Co. Ltd. v. ITO [1991 (191) ITR 662], for initiation of action under section 147(a) (as the provision stood at the relevant time) fulfillment of the two requisite conditions in that regard is essential. At that stage, the final outcome of the proceeding is not relevant. In other words, at the initiation stage, what is required is reason to believe, but not the established fact of escapement of income. At the stage of issue of notice, the only question is whether there was r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... th respect to other two grounds, however, we find that the Assessing Officer had some material at his command to form a belief that income chargeable to tax had escaped assessment. Ground No.1 pertained to the claim of deduction under section 80HHC of the Act and the Assessing Officer was of the opinion that the Central as well as the State Sales Tax and other income in the net profit would not qualify for deduction under section 80HHC of the Act. It may be that he referred to the decisions of the Apex Court in the case of Sterling Foods Ltd., however, mere wrong reference to a judgement would not invalidate the ground if otherwise was valid in law. Equally, in the third ground, the Assessing Officer noted that the assessee had debited warranty expenses of Rs.1,43,48,347/- to the P L Account, out of which an amount of Rs.1,05,48,633/- was incurred during the financial year under consideration. He was, therefore, of the opinion that remaining amount of Rs.37,99,714/- is not allowable expenditure. We are of the opinion that such reason also would permit the Assessing Officer to reopen the assessment. The Assessing Officer has found that a claim not arising during the year under con ..... X X X X Extracts X X X X X X X X Extracts X X X X
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