Gkn Sinter Metals Ltd v. Ms. R. Raghavan, Assistant Commissioner Of Income Tax

IN THE HIGH COURT OF JUDICATURE AT BOMBAYORDINARY ORIGINAL CIVIL JURISDICTION WRIT PETITION NO.2637 OF 2007 WITH WRIT PETITION NO.2638 OF 2007 GKN Sinter Metals Ltd....Petitioner.vs.Ms. R. Raghavan,Assistant Commissioner of Income Tax....Respondent. Mr. F.V. Irani along with Mr. Jitendra Jain i/by Atul Jasani for the Petitioner.None for the Respondent. CORAM : M. S. SANKLECHA AND S.C. GUPTE, JJ.DATE : 12 NOVEMBER 2014 DATE : PC: These two petitions challenge separate notices dated 13 March 2007 issued under Section 148 of the Income Tax Act, 1961 ("the Act") by the Assessing Officer seeking to reopen the assessments for Assessment Year 2000-01 and 2001-02 respectively. 2)In both these petitions the impugned notices have been issued beyond the period of 4 years from the end of the relevant assessment year. In view of the first proviso to Section 147 of the Act before issuing a notice beyond the period of 4 years from the end of the relevant assessment year there should have been a failure on the part of the petitioner to fully and truly disclose all material facts necessary for assessment for the assessment year being sought to be reopened. Keeping in mind the above well settled position in law we shall now examine the two petitions. 3)As the facts and law are identical in both the petitions we shall for the sake of convenience refer to the facts in W. P. No.2637 of 2007 which are as under:- a)On 26 February 2002, the petitioner filed its revised return of income for Assessment Year 2000-01 declaring the total income of Rs.13.10 crores. In its return of income, the petitioner had claimed deduction under Section 80IA of the Act in respect of two of its units aggregating to Rs.2.78 crores duly supported by a computation certified by the Chartered Accountant as well as detailed note on the basis of working of deduction and basis of apportionment of common expenses between different units. During the course of the scrutiny proceeding the Assessing Officer has raised various queries under Section 80 IA of the Act and the petitioner responded to the same by its letter dated 5 December 2002 furnishing detailed facts in support of its claim for deduction under Section 80IA in respect of the two units. It was only thereafter, that is, on 31 January 2003 the Assessing Officer passed an assessment order under Section 143(3) of the Act determining the petitioner's income at Rs.13.79 crores. b)On 14 March 2007, the impugned notice was issued seeking to reopen the assessment for Assessment Year 2000-01. In support of the impugned notice the Assessing Officer by letter dated 6 asn August 2007 communicated the reasons for reopening the assessment. The letter dated 6 August 2007 reads as under: “Sub:- Reopened assessment for 2000-01-Reg. Kindly refer to the above subject. “2Assessment in your case for A.Y. 2000-01 was originally completed u/s.,143(3) on 31.01.2003 at an income of Rs.13,79,33,840/-. In the said assessment, the Assessing Officer had asked you to furnish details in support of your claim of exemption u/s.80IA. You had furnished expenses as per which it has been observed that there is a disproportionate allocation of expenses between the various units eligible and those not eligible for deduction u/s. 80IA. IN view of the above,the Assessing Officer has reopened your proceedings u/s.148,the reasons for which are being provided to you as under: The assessee in this case filed Return of Income on27/11/200declaringincomeof Rs.13,09,27,170/-.The assessment was completed u/s. 143(3) on 31/1/2003, assessing the income at Rs.13,79,33,840/-. The assessed income was thereafter reduced to Rs.13,34,18,563/- after decision on assessee's appeal by CIT(A). The assessee company is engaged in the business of manufacturing and sale of sintered automotive parts, sintered bearings and parts,fittings and metal powders. The assessee in this case filed Return of Income on27/11/200declaringincomeof Rs.13,09,27,170/-.The assessment was completed u/s. 143(3) on 31/1/2003, assessing the income at Rs.13,79,33,840/-. The assessed income was thereafter reduced to Rs.13,34,18,563/- after decision on assessee's appeal by CIT(A). The assessee company is engaged in the business of manufacturing and sale of sintered automotive parts, sintered bearings and parts,fittings and metal powders. The assessee is claiming deduction u/s.80IA for its unit located at Ahmednagar for manufacturing (I) Bearing and Parts (year of commencement 1994-95) ad (ii) Metal Powder (year of commencement 1992-93). The comparative figures for the turnover and profit in respect of the assessee's 80IA units and non 80IA units is as per Annexure A enclosed herewith. Prima facie it appears that while preparing the accounts, the assessee has claimed most of its expenditure in the units which are not eligible for 80IA deduction, thereby inflating the profits of the units which are eligible for deduction. To highlight this fact,the following expenses are compared. If the above expenses are reallotted correctly in ratio of the respective units, turnover, then the assessee's claim of deduction u/s.88-IA will decrease and correspondingly the profits of non 80IA units would be increased as under: The profits of 80IA unit needs to be reduced by Rs.56,78,621/- and accordingly corresponding 80IA deduction @ 30% i.e. Rs.17,03,586/- needs to be reduced. In view of the above facts, I have reason to believe that the assessee's income has been escaped assessment and accordingly request for permission u/s.151(1) to issue notice u/s.148 in this case.” c)The petitioner by its letter dated 29 August 2007 objected to the impugned notice and inter alia pointed out that the reasons do not indicate any failure on the part of the petitioner to disclose truly and fully all material facts necessary for assessment. Moreover, during the regular assessment proceedings the petitioner had been asked to furnish details in support of its claim under Section 80IA of the Act and that the petitioner had reopened the same. Thus, it was submitted that the impugned notice is bad on the ground of not meeting the jurisdictional requirements for its issue. d)On 14 November 2007 the Assessing Officer rejected the petitioner's objection inter alia on the ground that whenever a notice has been issued beyond a period of 4 years from the end of the Assessment year it is always implicit in such a notice that there has been failure on the part of the petitioner to disclose fully and truly all necessary facts for assessments. The objection with regard to the impugned notice being issued only on account of change of opinion was not dealt with. 4)The facts in Writ Petition No.2638 of 2007 relating to A.Y. 2001-02 are identical so far as reasons in support of the impugned notice, the objection of the petitioner and the manner in which the objections have been dealt with by the Assessing Officer in his order also dated 14 November 2007. d)On 14 November 2007 the Assessing Officer rejected the petitioner's objection inter alia on the ground that whenever a notice has been issued beyond a period of 4 years from the end of the Assessment year it is always implicit in such a notice that there has been failure on the part of the petitioner to disclose fully and truly all necessary facts for assessments. The objection with regard to the impugned notice being issued only on account of change of opinion was not dealt with. 4)The facts in Writ Petition No.2638 of 2007 relating to A.Y. 2001-02 are identical so far as reasons in support of the impugned notice, the objection of the petitioner and the manner in which the objections have been dealt with by the Assessing Officer in his order also dated 14 November 2007. 5)In terms of Section 147 of the Act whenever the Assessing Officer seeks to reopen an assessment beyond the period of 4 years from the end of the relevant assessment year not only he must have reason to believe that income chargeable to tax has escaped assessment but there is a failure on the part of the assessee to disclose fully and truly all material facts necessary for assessment for that assessment year. In this case, as is evident from the letter dated 6 August 2007 containing the reasons, it is clear that even according to the Assessing officer the petitioner had furnished the details in support of its claim under Section 80IA of the Act and the same were subject of examination before passing assessment order dated 31 January 2003 under Section 143(3) of the Act. In the circumstances, according to the Assessing Officer himself there was due application of mind on the part of the Assessing officer while passing an order under Section 143(3) of the Act and seeking to reopen the assessment on the same facts would amount to change of opinion. Moreover, the other condition precedent as found in the first proviso to Section 147 of the Act viz. failure to disclose truly and fully all material facts necessary for assessment is not satisfied in asn this case is clear by virtue of letter dated 6 August 2007 in which the reasons which were communicated specifically refer to the material having been furnished and examined by the Assessing officer while passing the assessment order in regular proceedings. Moreover, the reasons as incorporated in the letter dated 6 August 2007 when read as a whole do not indicate any failure on the part of the petitioner to disclose truly and fully all material facts necessary for assessment and when this was pointed out in the objections to the reasons, the Assessing Officer in his order dated 14 November 2007 disposing of the petitioner's objection by recording the following:- “........Regarding the contention of your counsel that it was mandatory to also record that there was failure on the part of the assessee to fully and truly disclose all material facts relevant to its assessment, the same (contention) is implicit in the fact, that the notice has been issued for a period exceeding four years after the assessment year. Section 151(1) provides that for a notice u/s.148 to be issued in a case where an assessment made u/s. 143(3) has been made, and reopening is to be done four years beyond the assessment year, permission of the Commissioner of Income Tax is necessary.” 6)We are unable to understand on what basis the Assessing Officer states that whenever a notice beyond the period of 4 years from the end of the relevant Assessment Year is issued, it is implicit in such a notice that there was failure on the part of the assessee to fully and truly disclose all material facts necessary for assessment. The condition precedent to issue a notice beyond the period of 4 years is prima facie satisfaction on the part of the Assessing Officer that there has been asn 6)We are unable to understand on what basis the Assessing Officer states that whenever a notice beyond the period of 4 years from the end of the relevant Assessment Year is issued, it is implicit in such a notice that there was failure on the part of the assessee to fully and truly disclose all material facts necessary for assessment. The condition precedent to issue a notice beyond the period of 4 years is prima facie satisfaction on the part of the Assessing Officer that there has been asn failure to disclose truly and fully all material facts necessary for assessment. Thus, it requires application of mind by the Assessing officer before he issues notice for reopening the assessment which is done after recording his reasons. It is the reasons which indicate not only the application of mind but also the basis for issuing the impugned notice. These reasons must be explicit. Nothing is to be implied in the reasons recorded. It is on the basis of recorded reasons that the objections to the same are filed and in the absence of it being recorded it would be impossible for the assessee to object to it. Besides not furnishing explicit reasons would enable addition to reasons recorded on the ground that it is implicit in the reasons recorded. Revenue officers would do well to always remember that reopening of an assessment cannot be done in such casual manner. A reopening notice carries grave consequence for the assessee of subjecting him to reassessment proceeding and also leading to uncertainty in respect of the completed assessments. 7) In view of the above reasons, the two impugned notices dated 14 March 2007 issued under Section 148 of the Act for Assessment Year 200-01 and 2001-02 are respectively quashed and set aside. 8)Petition is allowed. No order as to costs. . ( S. C. GUPTE, J.) (M.S. SANKLECHA, J.)