Madras Suspensions Limited v. Deputy Commissioner Of Income-Tax,Company Circle-I, Madurai – 625 002

IN THE HIGH COURT OF JUDICATURE AT MADRAS DATED: 11.10.2017 CORAM: THE HONOURABLE MR.JUSTICE T.S. SIVAGNANAM W.P.No.18411 of 2004and W.P.M.P.No.21928 of 2004 Madras Suspensions Limited,3, 3[rd] Cross Street, DSP Nagar,Madurai – 625 010. .. Petitioner Vs. Deputy Commissioner of Income-tax,Company Circle-I, Madurai – 625 002. .. Respondent Prayer :Writ Petition filed under Article 226 of theConstitution of India, praying for the issuance of writ ofcertiorarified mandamus calling for the records in the matter ofre-assessment of the petitioner under Section 147 read with 143(3) dated 30.03.2004 in file No.49-007-CV-3139 for theassessment year 1996-97 wherein the impugned re-assessment hasbeen made and quash the same. Heard, Mr.R.Srinivasan, learned counsel appearing for thepetitioner and Mr.A.P.Srinivas, learned Standing Counselappearing for the respondent. 2.The petitioner has filed this writ petitionchallenging the notice issued by the respondent under Section147 read with 143(3) of the Income- tax Act, 1961 dated30.03.2004 for re-assessing the petitioners income for theassessment year 1996-97. The impugned proceedings are challengedprimarily on three grounds, namely that the notice of re-assessment dated 26.03.2003, has been issued four years afterthe completion of the assessment and there is no failure on thepart of the assessee to disclose fully and truly primary factsand therefore, the impugned notice is barred by limitation. https://hcservices.ecourts.gov.in/hcservices/ petitioner has furnished all necessary information for makingthe assessment along with return of income during the originalassessment proceedings, which were considered by the assessingofficer, reopening of the assessment after expiry of four yearsfrom the end of the relevant assessment year is wholly withoutjurisdiction. 4.The third ground of challenge is by contending thatmere escapement of income is insufficient to justify initiationof action under Section 147 of the Act, after expiry of fouryears from the end of the assessment year and unless suchescapement was by reason of the failure on the part of theassessee to file a return referred to in the proviso or to trulyand fully disclose the material facts necessary for assessmentand unless the conditions in the proviso to Section 147 of theAct is satisfied, the assessing officer does not acquirejurisdiction to initiate proceedings under Section 147 of theAct, after expiry of four years from the end of the assessmentyear. Further, it is submitted that the impugned proceedings isa clear case of change of opinion and respondent has not beenable to place any record to show there were tangible materialavailable with the respondent after the completion of theoriginal assessment. 5.The respondent has filed counter affidavit inter-aliacontending that the petitioner company having three units, twounits at Madurai and one at Karnataka and the company is havingprofit from the units one and two and loss from unit three. Inthe return filed, the petitioner while claiming deduction underSection 80-HH and 80-I, the loss from unit three has not beenadjusted. It is further stated that while making deduction underSection 80-HH and 80-I, the assessing officer has not adjustedthe loss from unit three and therefore, it is a case, where theassessment has to be reopened under Section 147 of the Act.Thus, the reason for reopening being that the loss from unitthree has not been adjusted while, the petitioner claimeddeduction under Section 80-HH & 80-I in respect of the profitearned from unit one and two. The question would be, was thismaterial available with the assessing officer who completedoriginal assessment which is sought to be reopened after periodof four years from the end of the assessment year. 6.I have perused the return of income filed by thepetitioner for the assessment year 1996-97, in which thepetitioner has clearly reported the loss for the assessmentyear 1996-97. Thus, this material was very much available withthe assessing officer and the assessing officer while completingthe assessment vide order dated 12.03.1999, has considered thesame and arrived at permissibly deduction for unit one profit.Therefore, unless and untill the respondent was able to https://hcservices.ecourts.gov.in/hcservices/ establish that such claim for direction is the reason of thefailure on the part of the assessee to truly and fully disclosematerial facts, the question of reopening the assessment wouldnot arise. Both in the counter affidavit as well as in thereasons of reopening dated 07.06.2004 there is no allegationthat the petitioner has failed to truly and fully disclosematerial facts necessary for the assessment. In theFenner (India) Ltd., Deputy Commissioner of Income Tax, theCourt considered as to when the extended period of limitationfor reopening assessment could be invoked and it was held asfollows:- The pre-condition for the exercise ofthe power under section 147 in cases wherepower is exercised within a period of fouryears from the end of the relevant assessmentyear is the belief reasonably entertained bythe Assessing Officer that any incomechargeable to tax has escaped assessment forthat assessment year. However, when the poweris invoked after the expiry of the period offour years from the end of the assessmentyear, a further pre-condition for suchexercise is imposed by the proviso namely,that there has been a failure or the part ofthe assessee to make a return under section139 or in response to a notice issued undersection 142 or section 148 or failure on thepart of the assessee to disclose fully andtruly all material facts necessary for hisassessment for that assessment year. Unless,the condition in the proviso is satisfied,the Assessing Officer does not acquirejurisdiction to initiate any proceeding undersection 147 of the Act after the expiry offour years from the end of the assessmentyear. Thus, in cases where the initiation ofthe proceedings is beyond the period of fouryears from the end of the assessment year,the Assessing Officer must necessarily recordnot only his reasonable belief that incomehas escaped assessment but also the defaultor failure committed by the assessee. Failureto do so would vitiate the notice and theentire proceedings. The relevant words in theproviso are, “....unless any income chargeable to taxhas escaped assessment for such assessmentyear by reason of the failure on the part ofthe assessee....”Mere escape of income is insufficient to “....unless any income chargeable to taxhas escaped assessment for such assessmentyear by reason of the failure on the part ofthe assessee....”Mere escape of income is insufficient to justify the initiation of action after theexpiry of four years from the end of theassessment year. Such escapement must be byreason of the failure on the part of theassessee either to file a return referred toin the proviso or to truly and fully disclosethe material facts necessary for theassessment.Whenever a notice is issued by theAssessing Officer beyond a period of fouryears from the end of the relevant assessmentyear, such notice being issued withoutrecording the reasons for his belief thatincome escaped assessment, it cannot bepresumed in law that there is also a failureon the part of the assessee to file thereturns referred to in the proviso or afailure to fully and truly disclose thematerial facts. The reasons referred to inthe main paragraph of section 147 would, incases where the proviso is attracted, includereasons referred to in the proviso and it isnecessary for the Assessing Officer to recordthat any one or all the circumstancesreferred to in the proviso existed before theissue of notice under section 147.After an assessment has been made, inthe normal circumstances, there would be noreason for anyone to doubt that theassessment has been made on the basis of allrelevant facts. If the Assessing Officerchooses to entertain the belief that theassessment has been made in the background ofthe assessee's failure to disclose truly andfully all material facts, it is necessary forhim to record that fact, and in the absenceof a record to that effect, it cannot be heldthat a notice issued without recording such afact is capable of being regarded as a validnotice. As to whether the material factsdisclosed by the assessee are full and trueis always a question of fact and unless thefacts disclosed had been examined in relationto the extent of failure if any on the partof the assessee, it is not possible to formthe opinion that there had been a failure onthe assessee's part to truly and fullydisclose the material facts. A notice issuedwithout a record of the Assessing Officer'sreasonable belief that there was such failure on the part of the assessee would beindicative of a failure on the part of theAssessing Officer to apply his mind tomaterial facts, and on that ground also thenotice issued would be vitiated.The reasons actually recorded and as setout by the officer in the counter affidavitare such that even after close scrutiny theydo not establish even prima facie a failureon the part of the c to fully and trulydisclose the material facts for theassessment. 7.The above referred decision applies with full force tothe case on hand and going by the records placed before thisCourt, it is evidently clear that there is no allegation againstthe petitioner to make full and true disclosure of materialfacts necessary for the assessment. Thus, I am of the clear viewthat the impugned reopening of the assessment is unsustainablein law and it is a clear case of change of opinion as therespondent has miserably failed to point out as to what is thereason to believe that any income chargeable to tax has escapedassessment. Thus it is a case where on suspicion the impugnedreopening proceedings have been initiated. At the relevant pointof time, the decision of the Hon'ble Division Bench SupremeCourt in case of GKN DRIVE SHAFTES (259 ITR 19) was not renderedby the Hon'ble Supreme Court and therefore, the petitioner didnot seek for furnishing the reason for reopening which resultedin passing of the impugned assessment order. It is onlythereafter, the petitioner sought for the reasons and thepresent writ petition has been filed. 8.In the light of the above discussion, the petitioneris entitled to succeed in the writ petition. Accordingly, thewrit petition is allowed and the notice issued for reopening theassessment and consequent assessment order dated 30.03.2004 arequashed. Consequently, the connected Miscellaneous Petition isclosed. No Cost. Sub Assistant Registrar AT To The Deputy Commissioner of Income-tax,Company Circle-I, Madurai – 625 002. +2cc to Mr.R.SRINIVASAN Advocate, S.R.No. 73456 +1cc to Mr.A.P.SRINIVAS Advocate, S.R.No. 73472 RSI (CO) TR(22/11/2017) W.P.No.18411 of 2004 and W.P.M.P.No.21928 of 2004