TMI Blog2004 (3) TMI 22X X X X Extracts X X X X X X X X Extracts X X X X ..... - Dated:- 31-3-2004 - Judge(s) : V. C. DAGA., J. P. DEVADHAR. JUDGMENT The judgment of the court was delivered by V.C. DAGA J. - This petition is directed against the notice dated 28th March, 2003 issued under section 148 of the Income-tax Act, 1961 (the "Act" for short) and the proceedings initiated pursuant to the said notice. The facts: The facts giving rise to the present petition, in a nut shell, are as under: The petitioner is a public limited company having its registered office at Mumbai and factory at Nasik (hereinafter referred to as "the assessee" for short). On November 29, 1996, the assessee filed a return of income for the assessment year 1996-97 and claimed depreciation at 25 per cent, in its tin packaging unit. The assessee, during the assessment proceedings, filed bills showing purchases of raw material backed by the certificate of the chartered engineer certifying such purchases. Respondent No. 1 issued notice under section 143(2) of the Act. In response thereto, all material documents with necessary information together with relevant evidence in support of the claim of depreciation in "tin packaging unit" at 25 per cent, was tendered to the Asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d notice dated March 28, 2003. The assessee, after receipt of the aforesaid notice under section 148 of the Act, through its representative; vide letter dated April 28, 2003, requested for the reasons recorded under section 147 before issuing notice under section 148. No reasons were furnished by the Assessing Officer in spite of written request. The assessee, therefore, issued a reminder vide its letter dated May 8, 2003. In spite of this reminder, no reasons were furnished. On the contrary, respondent No. 1 issued notice under sections 143(3) and 142(1) to complete the assessment for the pending assessment. Consequently, third time request for reasons was made, renewed and reiterated by another letter dated August 18, 2003. In spite of a series of repeated reminders respondent No. 1 failed to furnish reasons; which compelled the assessee to invoke the extraordinary writ jurisdiction of this court under articles 226 and 227 of the Constitution of India through this petition. On being noticed, the respondents appeared through their counsel and disclosed reasons recorded under section 147 prior to the issuance of notice under section 148, which read as under: "Notice under sec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o invoke jurisdiction under sections 147 and 148 to claim an extended period of limitation to complete pending assessment. Mr. Pandit, learned counsel for the petitioner further contends that, during the pendency of the assessment proceedings, the Assessing Officer could not have any reason to believe that the income for the assessment year 1996-97 has escaped assessment. He submits that income for that assessment year could not be said to have escaped assessment within the meaning of section 147 if the assessment proceedings in respect of that income are pending for determination. He, thus, submits that the impugned notice is not only without jurisdiction and without authority of law but it also suffers from legal malice. Mr. Pandit placed reliance on the judgment of the apex court in the case of Ghanshyamdas v. Regional Assistant Commissioner of Sales Tax [1964] 51 ITR 557 and on the case of S.P. Kochhar v. ITO [1984] 145 ITR 255 (All) to contend that notice issued under section 148 read with section 147 including reasons recorded in support thereof are ab initio null and void. Mr. Pandit, at the cost of repetition, reiterated that in the initial assessment proceedings, the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the respondents in their reply as such the averments made by the petitioner in this behalf should be treated as having been admitted by the respondents. It should be treated as admission on the part of the respondents for want of their denial in their counter affidavit. In the above view of the submissions, learned counsel for the petitioner submits that the impugned notice including reasons recorded in support thereof are liable to be quashed and set aside. Per contra: Mr. Desai, learned senior counsel appearing for the Revenue contends that the present petition is premature. He submits that in view of the disclosure of reasons, now the petitioner should be directed to raise all objections before the Assessing Officer as per the decision of the apex court in GKN Driveshafts (India) Ltd. v. ITO [2003] 259 ITR 19. Mr. Desai further submits that on a true and proper interpretation of sections 147 and 263 of the Act, the order which was passed by the Commissioner of Income-tax under section 263 does not have any effect on the powers of the Assessing Officer to invoke the provisions of sections 147 and 148 of the Act. Both powers are independent. They can be exercised independ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o return of income has been furnished by the assessee although his total income or the total income of any other person in respect of which he is assessable under this Act during the previous year exceeded the maximum amount which is not chargeable to income-tax; (b) where a return of income has been furnished by the assessee but 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 under assessed; 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. 148. Issue of notice where income has escaped assessment. - (1) Before making the assessment, reassessment or recomputation under section 147, the Assessing Officer shall serve on the assessee a notice requiring him to furnish within such period, as may be specified in the notice, a return of his income or the incom ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to such matters as had not been considered and decided in such appeal. (2) No order shall be made under sub-section (1) after the expiry of two years from the end of the financial year in which the order sought to be revised was passed. (3) Notwithstanding anything contained in sub-section (2), an order in revision under this section may be passed at any time in the case of an order which has been passed in consequence of, or to give effect to, any finding or direction contained in an order of the Appellate Tribunal, the High Court or the Supreme Court. Explanation. - In computing the period of limitation for the purposes of sub-section (2), the time taken in giving an opportunity to the assessee to be reheard under the proviso to section 129 and any period during which any proceeding under this section, is stayed by an order or injunction of any court shall be excluded." Issues: The submissions advanced by the rival parties give rise to the following issues: (1) Whether, in the facts and circumstances of the case, the Assessing Officer is denuded of his powers under sections 147 and 148 of the Act when the order setting aside the assessment with order of remand has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and also any other income chargeable to tax which has escaped assessment and which comes to his notice subsequently in the course of the proceedings under section 147 or recompute the loss or the depreciation allowance or any other allowance, as the case may be, for the assessment year concerned. The proviso to section 147 lays down that where an assessment under section 143(3) or section 147 has been made for the relevant assessment year no action can be taken under section 147 after the expiry of four years from the end of the relevant assessment year, unless any income chargeable to tax has escaped assessment for such assessment year by reason of the failure on the part of the assessee to make a return under section 139 or in response to a notice issued under section 142(1) or section 148 or to disclose fully and truly all material facts necessary for his assessment, for that assessment year. Section 148 contemplates notice to be issued by the Assessing Officer to the assessee requiring him to furnish return of his income within a prescribed period. Section 263 provides for revision of the order prejudicial to the interests of the Revenue; wherein the Commissioner is given p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... der, in this case, has affected only that portion of the order to the extent underassessment was noticed and to the extent order is set aside. Once the order of assessment to the extent it relates to under-assessment of an item is set aside and the proceedings are remanded to the Assessing Officer, then, the assessment proceedings in respect of that item are treated as pending so long as the final assessment does not take place. Now the moot question is: whether, during the pendency of the assessment proceedings, one can have "reason to believe" that the income has escaped assessment. In order to answer this question, one has to understand the meaning and concept of the words "reason to believe". The words "reason to believe" suggest honest belief of a reasonable man based on direct or circumstantial evidence held in good faith; not a mere pretence. Belief must not be arbitrary or irrational. It must be reasonable or, in other words, it must be based on reasons which are relevant and material. It must be found on reasonable grounds. The words "reason to believe" occurring in section 147 of the Act received judicial recognition over the period of time. The apex court in the case of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing to the assessee, it cannot be said that the income has escaped assessment. When the reassessment proceedings pursuant to the order of the Commissioner of Income-tax are pending and the Assessing Officer is entitled to examine all the aspects of the matter on the issue of allowance of depreciation, the question of income escaping assessment does not arise and, consequently, the question of reopening the assessment on the ground that the Assessing Officer has reason to believe that the income chargeable to tax has escaped assessment does not arise at all. Turning to the facts of the present case on hand, when the order of assessment, though in part was set aside and the finding that the underassessment was required to be enquired into and reassessment is required to be done has become final and conclusive, the question of entertaining reasonable belief that the income chargeable to tax has escaped assessment, in our considered opinion, does not arise much less when the assessment proceedings are still pending. Thus, it was not open for the Assessing Officer to invoke powers under sections 147 and 148 of the Act. In other words, so long as the assessment proceeding in respect of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... notice served on the court receiver under section 22(2) and the returns submitted by him were valid. Even if it were assumed that the returns were invalid that would not authorise the Income-tax Officer to initiate proceedings under section 34. This could not be regarded as a case where no return had been filed by the assessee or that his income had escaped assessment. The proceedings under section 34 were, therefore, not valid. If a valid return of the income has been submitted by the assessee within the period fixed under section 139(4) for submission of return, section 147 will not apply during the pendency of the return is a settled law laid down by the apex court in State of Assam v. Deva Prasad Barua [1970] 75 ITR 18; CIT v. S. Raman Chettiar [1965] 55 ITR 630 (SC); CIT v. Ranchhoddas Karsondas [1959] 36 ITR 569 (SC). Considered from another angle, the function of the Assessing Officer is to administer the Income-tax Act with solicitude for public treasury and with fairness to the tax payers. He is necessarily armed with necessary powers. Up to four years an assessment is open to his unreserved consideration on his formation of the requisite belief. If he has such reason, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Act can reopen assessment on account of income having escaped assessment. Sections 147 and 148 can be pressed into service to reopen assessment so long as the proceedings under section 263 are not finally terminated. In other words, during the pendency of such proceedings, the powers under sections 147 and 148 to reopen assessment can always be exercised. But once the assessment in so far as it is prejudicial to the interests of the Revenue is set aside by the Commissioner of Income-tax and the Assessing Officer is directed to make a fresh assessment regarding grant of depreciation after examining all the aspects, the question of income escaping assessment would arise only when the reassessment order is passed by the Assessing Officer. In the present case, admittedly, reassessment pursuant to the order of the Commissioner of Income-tax has not yet been finalised. Therefore, during the pendency of the reassessment proceedings it is not open to the Assessing Officer to presume that the income has escaped assessment. The decision of the Madhya Pradesh High Court in the case of Gulam Rasool [1997] 225 ITR 904 does not support the contention of the Revenue. In that case, notice under s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ulated. Relevant evidence in support of data as to when the machinery was installed after September 30,1995, so as to justify its claim for depreciation at 50 per cent, which was allowable in the original order of assessment by the Assessing Officer, was also disclosed. The hearing was attended by the representative of the assessee from time to time. In the circumstances, no failure on the part of the assessee to disclose all materials fully and truly can be attributed. If the Assessing Officer has taken a wrong decision that by itself cannot be a ground to reopen the assessment that too beyond the period of four years. In this case, no reasons are to be found alleging any failure on the part of the assessee to fully and truly disclose all material for the assessment. On this count also, invocation of the powers under section 147 and issuance of notice under section 148 are absolutely bad in law. In the result, the impugned notice dated March 28, 2003, issued by the Assessing Officer under section 148 of the Act and the reasons recorded in support thereof under section 147 are quashed and set aside. The petition is allowed. Rule is made absolute in terms of prayer clauses (a) and ..... X X X X Extracts X X X X X X X X Extracts X X X X
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