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2019 (5) TMI 1061

..... ason to believe - quoting of reasons with notice - HELD THAT:-The Court cannot come to the conclusion that non quoting of the reasons by the Assessing Officer in the impugned notice will vitiate the entire proceedings. If such a proposition is adopted, then it would be certainly difficult for the executives to reopen the cases as per the provisions of the Act. The procedures are contemplated under the Act, enabling the assessee to avail the opportunity and defend their respective cases in accordance with the provisions contemplated. The exercise of judicial review in such matters regarding the initiation of the proceedings are to be exercised cautiously and in order to ensure that the taxations are done properly and the assessees are made to pay the income tax in accordance with the provisions of the Income Tax Act. The amended phraseology of “reason to believe" must be interpreted that the Assessing Officer on receipt of any such new material or materials in relation to the non furnishing of fact by the assessee has made out a prima facie opinion that it is the case for reopening of the assessment, then he can issue notice u/s 148 and thereafter, the procedure of furnis .....

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..... ioners are directed to submit their objections/explanations and the documents if any, within a period of four weeks from the date of receipt of the reasons from the Income Tax Department. The Assessing Officer shall adjudicate the matter by providing opportunity to all the parties concerned and take a decision and pass assessment orders on merits - W.P.Nos.12603, 12604 & 33239 of 2002 - 25-1-2019 - Mr. Justice S.M. Subramaniam For the Petitioner : Mr.A.L. Somayaji Senior Counsel for Mr.M.P.Senthil Kumar For the Respondents : M/s.A.P.Srinivas And A.N.R.Jayaprathap, Senior Standing Counsel for Income Tax. COMMON ORDER The notice issued under Section 148 of the Income Tax Act, 1961 is sought to be quashed in all these present writ petitions. 2. The learned Senior Counsel Sri.A.L Somayaji appearing on behalf of the writ petitioners, mainly relied on the grounds that the very issuance of notice by the respondents are without jurisdiction and they have no authority to issue the notice. This apart, the notice was issued after the expiry of the time limit prescribed under the statute and therefore, the notice impugned is liable to be scrapped on these grounds: To substantiate the above leg .....

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..... challenged in a routine manner by way of writ proceedings, however, when the factual details furnished by the writ petitioners reveal that the block assessment proceedings were also quashed and the returns filed by the assessee were also approved under Section 143(3) of the Income Tax Act. The very requirement contemplated under Section 147 is not satisfied and absolutely there is no reason to believe for the authorities to initiate reassessment proceedings under Sections 147 to 153. 4. In support of the said contentions, the learned Senior Counsel cited the judgments. The first case is Commissioner of Income Tax Versus ELGI Finance Limited (2006) 286 ITR 674. The substantial question of law raised in that case is "Whether, on the facts and circumstances of the case, the Tribunal was right in treating the reassessment under Section 147, as time barred?" The question of law has been answered by his lordship Justice P.P.S. Janarthana Raja, while speaking for the change as follows in paragraphs 9 and 10 of the judgment: "9. In the present case, the question is whether the assessee-company had disclosed fully and truly all the material facts necessary for the assessment .....

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..... 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 refer .....

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..... intainable. 6. Mr.Mistry, learned counsel for the petitioner, points out that the reasons given by the first respondent in his order dated 27.03.2006 are clearly based on the documents which the petitioner had already furnished, containing the accounts tendered by the petitioner. There is nothing new that has come to the notice of the Revenue at this point of time. It is only a different analysis which is now being done and the conclusion is being drawn that its income to the extent of ₹ 19.86 crores has escaped the assessment. In his submission, this is impermissible under the powers that are available to the Revenue under Section 147 of the Income Tax Act. It can only be where there is a failure on the part of the assessee to make a true return which is would be permissible after the expiry of four years. In the instant case, nothing of the kind has happened. 7. Mr.Kotangale, learned counsel for the respondents, has drawn our attention to a judgment of the Apex Court in Srikrishna (P) Ltd. v. ITO². In this case, what is held by the Apex Court is that where certain loan transactions were relied upon and which were subsequently discovered to be false, reassessment procee .....

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..... ies Limited reported in (2015) 378 ITR 547, the Division Bench of this Court held as follows referring to the judgment rendered in the case of Fenner (India) Limited and the relevant paragraph is prescribed here: "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 paragraph 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 under section 147... The duty of an assessee is limited to fully and truly disclosing all the material facts. The assessee is not required thereafter to prepare a draft assessment order. If the details placed by the assessee before the Assessing Of .....

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..... s, if filed, by passing a speaking order, before proceeding with the assessment in respect of the above said five assessment years. 12. Relying on the judgments cited supra, the learned Senior Counsel argued that the present case and its facts are squarely falling under the legal principles settled by the High Court of Madras as well as the Supreme Court of India so also the High Court of Allahabad. In the present case, the notice was issued beyond the period of limitation of 4 years, even there is no reason to believe, which is a precondition for invoking Section 147. In case, the A.O proposes to reopen the assessment beyond the period of 4 years then he must possess any additional material to establish that the assessee had not furnished any information which all are required to be furnished or suppressed any material facts at the time of filing original assessment. Both the conditions are not satisfied in respect of the facts and circumstances of the present writ petitions. Thus, the impugned notices are liable to be scrapped as not maintainable. 13. The learned Senior Central Government Standing Counsel appearing on behalf of the Income Tax Department disputed the entire conten .....

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..... s that the legal position has been changed and now the assessees are entitled for reasons and the department is ready and willing to provide the reasons. Therefore, the reply given in proceedings dated 13.08.2002 need not to be relied upon on account of efflux of time and now after a lapse of 15 years, the law in this subject has been changed and the writ petitioners are entitled for the reasons and the competent authorities/Assessing Officer is bound to furnish the reasons for reopening of the assessment with reference to Sections 147 to 153 of the Income Tax Act. Therefore, the respondents are ready to furnish the reasons. On receipt of such reasons, the writ petitioners are entitled to submit their objections/explanation and file documents and that the adjudication process is to be undertaken by the Assessing Officer and thereafter, a decision would be taken by the authorities competent by passing the final assessment order. This being the procedure contemplated and now being followed by the Income Tax Department, the present writ petitions deserve no merit consideration and accordingly liable to be rejected. 15. In support of the said contentions, the learned Senior Standing Co .....

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..... cision in the case of GKN Driveshafts (India) Ltd. 16. The learned Senior Standing counsel referred another judgment of this Court dated 23.11.2018 passed in W.P.Nos.34676 and 34677 of 2003 and the said judgment was delivered by myself (Honorable Mr.Justice S.M.Subramaniam). The relevant paragraphs are extracted here under: 26. The learned counsel for the petitioner has drawn the attention of this Court regarding the judgment of the Hon'ble Supreme Court of India in the case of GKN Driveshafts (India) Ltd. vs. Income Tax Officer And Others [(2003) 1 SCC 72], in paragraph-5, held as follows:- 5. 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 noticee 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 noticee 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. In the instant case, as the reasons have been disclosed in .....

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..... ess of investigation. On receipt of such materials or informations from various other sources, in such circumstances, the authorities must be in a position to reopen the assessment and impose tax. In the absence of any such lucid provision, enabling the Department reopening a case, there is a possibility of escapement of payment of tax by large number of Assessees. The very nature of the Act is to ensure that the informations and the materials collected or received from various other sources are also dealt with by the Department of Income Tax appropriately and with reference to the provisions of the Act. 97. The power of reopening of the assessment is certainly wide in nature. If it is restricted, then the very purpose and object of the Income Tax Act will be defeated. The wide power provided to the authorities competent to reopening of the assessment and to ensure that all external materials and the informations received from various sources should also be dealt in accordance with the provisions of Law. Thus, it does not mean that the Income Tax Authorities may reopen at any point of time. In order to protect the Assessees a definite time limit has been provided under the Act itse .....

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..... ed further that the Assessing Officer may assess or reassess such income, other than the income involving matters which are the subject matters of any appeal, reference or revision, which is chargeable to tax and has escaped assessment . This also provides various circumstances enabling the Assessing Officer to assess or reassess such income other than the income involving the matters which are the subject matters of any appeal, reference or revision. The wideness of the power has been further clarified in the said proviso clause. 101. Explanation 2 sub-clause (b) to Section 147 also provides power to the Assessee 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. 102. The circumstances are narrated wherein certain materials and informations are provided by the Assessee at the time of filing of the returns and if the same has not been assessed by the Assessing Officer during the relevant assessment year and if it is subsequently noticed, then also the Assessing Officer is empower .....

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..... of the Act itself. Thus, the very arguments advanced in this regard by the writ petitioner deserve no merit consideration. 111. In case of M/S. Phool Chand Bajrang Lal vs Income-Tax Officer And Another [1993 203 ITR 456], it has been held as follows:- "One of the purposes of Section 147, appears to us to be, to ensure that a party cannot get away by wilfully making a false or untrue statement at the time of original assessment and when that falsity comes to notice, to turn around and say "you accepted my lie, now your hands are tied and you can do nothing". It would be travesty of justice to allow the assessee that latitude." 112. On careful consideration of all the judgments, cited supra, this Court is of an undoubted opinion that if the Assessing Officer has reason to believe that income has escaped assessment, it confers jurisdiction to reopen the assessment. It is however, to be noted that the conditions stipulated in the Act must be fulfilled if the case falls within the ambit of Section 147. 113. Considering the fact that there are some materials on record and the informations with the Department of Income Tax, the reopening of the assessment in the writ .....

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..... th reference to the documents and materials produced by the writ petitioner and also the documents and materials available with the Income Tax Department. The Assessing Officer is empowered to consider the issue relating to jurisdiction, time limit and all other legal grounds raised by the writ petitioner at the time of passing the final orders. 32. Under these circumstances, this Court has no hesitation in coming to the conclusion that the writ petitioner is entitled to submit all his objections and legal grounds and materials, enabling the Assessing Officer to consider the same and pass an assessment order under the provisions of the Income Tax Act, 1961, without causing any undue delay. 33. With the above observations, the writ petitions stand dismissed. However, there shall be no order as to costs. Consequently, connected miscellaneous petitions are also dismissed. 17. Considering the arguments of the learned Senior Counsel for the petitioners as well as the leaned Senior Standing Counsel for the respondents, this Court is of an opinion that the legal principles in this regard are settled in the case of Dayanidhi Maran vs The Assistant Commissioner of Income Tax also. 18. Issua .....

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..... provisions contemplated. 23. Certain aspects which are all contemplated under the provisions of the Act, cannot be interpreted, so as to defeat the purpose for which such a provisions were enacted by the Legislators. Constructive interpretation of the Statutes and the rules are of paramount importance. The rule of constructive interpretation requires that the possible object and the purpose to be achieved is met out by adopting not only the balancing approach, but also by providing all reasonable opportunities to the persons, who are all connected or aggrieved. 24. The purpose of Income Tax Act, more specifically, Sections 147 and 148 of the Act, is to ensure that the assessees, who have suppressed the fact are not provided the information at the time of filing of the returns or if the Department is in possession of certain new materials in respect of assessment of a particular year, then the assessee must be informed about the decision taken by the Department to reopen the assessment and after such information is provided, the procedures contemplated must be followed for the purpose of concluding the reassessment by reopening the proceedings. 25. Admittedly, in the present writ pe .....

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..... certain materials available with the Income Tax Department and on receipt of the notice, the assessee has got every right to seek for the reasons from the Department and the Department is bound to provide reasons, enabling the assessee to submit his explanations/objections in order to defend his case in the manner known to law. 28. In the present cases, as contended by the learned Senior Counsel, further, on receipt of the notices impugned, the writ petitioners had filed their respective returns. They are requested to furnish the reasons for reopening of the assessment which were finalized. However, the Department rejected the application during the year 2002. 29. However, the learned Senior Standing Counsel, now fairly made a submission that in view of the judgment of the Supreme Court in the case of GKN Driveshafts (India) Ltd. vs. Income Tax Officer & others, now the Department is bound to provide the reasons for reopening the assessment and in the present case also the Assessing Officer will provide the same to the writ petitioners, soon after the disposal of the writ petitions and on receipt of the reasonings, the assessees/writ petitioners are entitled to submit their exp .....

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