Maruti Clean Coal & Power Ltd. Ward v. Assistant Commissioner Of Income Tax, Circle 1(1), Civil Lines,Raipur, Chhattisgarh

1 NAFR HIGH COURT OF CHHATTISGARH, BILASPUR Writ Petition (T) No. 346 of 2017 Maruti Clean Coal & Power Ltd. Ward No.42, Building No.14, CivilLines, Near Income Tax Colony, Raipur-492001, Chhattisgarh. ---- Petitioner Versus Assistant Commissioner of Income Tax, Circle 1(1), Civil Lines,Raipur, Chhattisgarh. ---- Respondent For PetitionerFor respondent :Shri Salil Kapoor, Ms. Soumya Singh and Shri Amrito Das, Advocates. :Smt. Naushina Afrin Ali, Advocate. SB: Hon'ble Shri Justice P. Sam Koshy JudgmentReserved on 12/12/2017Delivered on 03/01/2018 1.With the consent of the parties the matter was heard at motion stage. 2.The present petition under Article 226 of the Constitution of India hasbeen filed assailing the notice dated 28.03.2017 issued underSection 148 of the Income Tax Act, 1961 (in short, the Act) and alsothe order dated 25.09.2017 whereby the objections preferred by thepetitioner questioning the issuance of notice dated 28.03.2017 wasrejected. been filed assailing the notice dated 28.03.2017 issued underSection 148 of the Income Tax Act, 1961 (in short, the Act) and alsothe order dated 25.09.2017 whereby the objections preferred by thepetitioner questioning the issuance of notice dated 28.03.2017 wasrejected. 3.Brief facts relevant for adjudication of the present dispute is that, forthe assessment year 2010-11 the petitioner had filed its return on14.10.2010. Subsequently a notice under Section 143 (2) of the Actwas issued to the petitioner by the income tax department onthe assessment year 2010-11 the petitioner had filed its return on14.10.2010. Subsequently a notice under Section 143 (2) of the Actwas issued to the petitioner by the income tax department on 4. 12.09.2011 and finally the Assessing Officer after completing theassessment passed an assessment order under Section 143 (3) ofthe Act on 21.03.2013. However, after 4 years time, the income taxdepartment had issued a notice under Section 148 of the Act for re-opening of the assessment proceeding for the year 2010-11. Thepetitioner filed reply to the said notice and also requested for supplyof copy of reasons to believe recorded for issuance of the noticeunder Section 148 of the Act. On 03.08.2017 the petitioner wasserved upon a notice under Section 142 (1) of the Act giving reasonsto believe for re-opening assessment along with sanction for re-opening obtained under Section 151 of the Act. That, on 30.08.2017the petitioner filed an objection against issuance of notice underSection 148 of the Act and the reasons recorded. This objection wasfinally rejected vide impugned order dated 25.09.2017 leading tofiling of present petition. The contention of the petitioner is that, firstly the issuance of noticeunder Section 148 was per se illegal as the same was issued beyondthe prescribed period of limitation under the Act i.e. of four years.Secondly, the order rejecting the objections dealt with certain issueswhich were not the reasons assigned in the order dated 03.08.2017whereby the reasons to believe for re-opening assessment has beendisclosed. Thirdly, the reasons assigned are entirely baseless andthat there was absolutely no tangible material available with thedepartment for re-opening the assessment. According to thepetitioner, under no circumstances could the authorities have issued 5. 6. 7. a notice under Section 148 of the Act beyond the period of four yearsas the requirement under the law is that notice under Section 148 ofthe Act can be issued only within four years time from the end of therelevant assessment year. 5. 6. 7. a notice under Section 148 of the Act beyond the period of four yearsas the requirement under the law is that notice under Section 148 ofthe Act can be issued only within four years time from the end of therelevant assessment year. It was further the contention of the petitioner by referring documentdated 03.08.2017 which was a document whereby the reasons hasbeen recorded and the reason to believe that there was an escapedassessment, submitted that the findings or the reasons given arebaseless and incorrect. He further submitted that it is not a casewhere it was not disclosed to the department while return of theprevious years were being submitted and that there was absolutelyno new material which came to the notice of the department withwhich they could have issued notice under Section 148 of the Act.Further, there does not seem to have been any specific or strongcase made out by the department for re-opening the assessment. According to the petitioner, the reason to believe disclosed by theAssessing Authority was in respect of income of Rs.2,14,79,440/-under the head of income from other sources for the year 2010-11which according to the department, the petitioner had not disclosedwhile filing the return, and therefore, the same was treated asescaped assessment. The petitioner tried to bring to the notice of the court that thedepartment has totally failed to consider the previous years returnwhich would reveal that there was no change in the share capital ofthe company for the year 2009-10 and also 2010-11 and the 8. 9. petitioner had subsequently given this information of nil rise in thecapital during the year while submitting its return. All these facts havenot been scrutinized by the department and in a superficial mannerhas issued a notice under Section 148 of the Act and also in a similarmanner has rejected the objections which the petitioner had raised.He further states that there was no tangible material available withthe department which they have collected in the course of surveywhich was conducted on 26.09.2016. Counsel for the Department opposing the petition submits that thepetition is premature at this stage and is not maintainable for thereason that the petitioner has an alternative efficacious remedy ofpreferring an appeal against the impugned order. It is the contentionof the counsel for the Department that the petition on merits also isnot worth entertaining for the reason that the impugned order underchallenge i.e. the rejection of the objection filed by the petitioner andthe issuance of notice under Section 148 of the Income Tax Act areproper, legal and justified. That perusal of the order rejecting theobjection would clearly show that it is a reasoned order objectivelydealing with all the issues which were raised by the petitioner andsince it has been done in accordance with the provisions of law, thereis no scope for any judicial interference at this stage and thepetitioner may prefer an appeal as is envisaged under the provisionsof the Income Tax Act. So far as the issue of limitation is concerned, counsel for theDepartment referring to Section 151 of Income Tax Act submits that So far as the issue of limitation is concerned, counsel for theDepartment referring to Section 151 of Income Tax Act submits that proper sanction from the higher Authorities has been taken by theDepartment as is required and since the sanction as is requiredunder Section 151 of the Income Tax Act has been obtained from thePrincipal Commissioner, Income Tax, the issue of limitation of 4 yearsas is required for issuance of notice under Section 148 of the Actwould not come into play. Counsel for the department contendedthat it is only a notice under Section 148 of the Act which has beenissued by the authorities, the petitioner as such can still enterappearance before the authorities and can make all necessarysubmissions. According to the Department, it is a case where theground which necessitated the issuance of notice under Section 148was a survey which was conducted under Section 133A in thepremises of the petitioner in March, 2016 where it was found thatthere was a huge amount of income which had escaped assessmentas it was not disclosed by the petitioner while submitting his return forthe assessment year 2010-11. Since it was an escaped assessment,the Department with the sanction of the Principal Commissioner hadall the power and authority for issuance of the notice under Section148 of the Act for reopening the assessment. According to theDepartment, it is a case where the petitioner himself had deliberatelynot disclosed the secured loan that it had received from othersources during the said period. According to the Department, it was acase where new materials were found in the course of the surveyconducted under Section 133A. Since it was a case of new materials,it cannot be presumed that the reopening of assessment was on achange of opinion and for this reason also, the petition deserves to be rejected. 10. So far as the merits of the case is concerned, that has to be dealtwith by the statutory authority prescribed under the Act which in theinstant case would be the appellate authority. It was contended bythe Income Tax Department that what is required under Section 151is only a reason to believe that is to say that the Commissioner onlyneeds to be satisfied on the reasons recorded by the assessingofficer and it does not require concrete proof to be produced beforethe Commissioner while granting sanction. with by the statutory authority prescribed under the Act which in theinstant case would be the appellate authority. It was contended bythe Income Tax Department that what is required under Section 151is only a reason to believe that is to say that the Commissioner onlyneeds to be satisfied on the reasons recorded by the assessingofficer and it does not require concrete proof to be produced beforethe Commissioner while granting sanction. 11.So far as the judgments which have been relied upon by thepetitioner is concerned, it was contended by the counsel for theDepartment that the said judgments are all distinguishable on theirfacts itself and that the facts of the instant case cannot be equatedand compared with those cases. In the instant case, there werecertain substantial materials detected during the course of surveywhereby it was found that there was a huge amount incomeundisclosed by the petitioner. Thus, it had escaped assessment.Such is not the facts of the cases referred to by the counsel for thepetitioner and therefore those judgments are distinguishable on theirfacts. Counsel for the Department, in turn, relied upon the twodecisions of the Bombay High Courts. In addition the Departmentalso relied upon the decision of the Supreme Court in the case of“GKN DRIVESHAFTS (INDIA) LTD. VS. INCOME TAX OFFICERAND OTHERS” reported in (2003) 1 SCC 72 and in the case of“COMMISSIONER OF INCOME TAX AND OTHERS VS. CHHABILpetitioner is concerned, it was contended by the counsel for theDepartment that the said judgments are all distinguishable on theirfacts itself and that the facts of the instant case cannot be equatedand compared with those cases. In the instant case, there werecertain substantial materials detected during the course of surveywhereby it was found that there was a huge amount incomeundisclosed by the petitioner. Thus, it had escaped assessment.Such is not the facts of the cases referred to by the counsel for thepetitioner and therefore those judgments are distinguishable on theirfacts. Counsel for the Department, in turn, relied upon the twodecisions of the Bombay High Courts. In addition the Departmentalso relied upon the decision of the Supreme Court in the case of“GKN DRIVESHAFTS (INDIA) LTD. VS. INCOME TAX OFFICERAND OTHERS” reported in (2003) 1 SCC 72 and in the case of“COMMISSIONER OF INCOME TAX AND OTHERS VS. CHHABIL DASS AGARWAL” reported in (2014) 1 SCC 603. Thus, prayed fordismissal of the petition at this stage. DASS AGARWAL” reported in (2014) 1 SCC 603. Thus, prayed fordismissal of the petition at this stage. 12. Having heard the discussions made by either of the parties weproceed to delve with the issue of the limitation first, it is noteworthyto mention at this juncture the provision of Section 149, which debarsfrom issuance of notice under Section 148 after 4 years have lapsedfrom the end of the relevant assessment year. Likewise, it is alsopertinent to take note of Section 151 which envisages that no noticeunder Section 148 can be issued, unless the Commissioner issatisfied on the reasons recorded by the Assessing officer. At thesame time, the proviso to Section 151 also stipulates that if for anyreason the notice under Section 148 is being issued after the expiryof 4 years from the end of the relevant assessment year, no suchnotice shall be issued unless the Chief Commissioner or theCommissioner is satisfied on the reasons recorded by the Assessingofficer, that it is a fit case for the issuance of such a notice. Thus theproviso to Section 151 clearly envisages the requirement of reasonsto be specifically assigned showing the circumstances and groundswhich compels or which led to the Assessing officer for the issuanceof the notice under Section 148 beyond the period of 4 years. proceed to delve with the issue of the limitation first, it is noteworthyto mention at this juncture the provision of Section 149, which debarsfrom issuance of notice under Section 148 after 4 years have lapsedfrom the end of the relevant assessment year. Likewise, it is alsopertinent to take note of Section 151 which envisages that no noticeunder Section 148 can be issued, unless the Commissioner issatisfied on the reasons recorded by the Assessing officer. At thesame time, the proviso to Section 151 also stipulates that if for anyreason the notice under Section 148 is being issued after the expiryof 4 years from the end of the relevant assessment year, no suchnotice shall be issued unless the Chief Commissioner or theCommissioner is satisfied on the reasons recorded by the Assessingofficer, that it is a fit case for the issuance of such a notice. Thus theproviso to Section 151 clearly envisages the requirement of reasonsto be specifically assigned showing the circumstances and groundswhich compels or which led to the Assessing officer for the issuanceof the notice under Section 148 beyond the period of 4 years. 13. The fact that it has been inserted by a proviso so far as therequirement of special reasons to be recorded by the Assessingofficer for the issuance of a notice under Section 148 beyond theperiod of 4 years, means, it is in addition to what is envisaged andrequired under the substantive provision of Section 151. With thisrequirement of special reasons to be recorded by the Assessingofficer for the issuance of a notice under Section 148 beyond theperiod of 4 years, means, it is in addition to what is envisaged andrequired under the substantive provision of Section 151. With this statutory provision, if we look into the notice under Section 148 whichhas been issued as Annexure P/5 with the writ petition. For readyreference, the contents of notice under Section 148 is reproducedherein as under:- “Whereas I have reasons to believe that your Incomechargeable to Tax for the Assessment Year 2010-11has escaped Assessment within the meaning ofsection 147 of the Income Tax Act, 1961.chargeable to Tax for the Assessment Year 2010-11has escaped Assessment within the meaning ofsection 147 of the Income Tax Act, 1961. I, therefore, propose to assess/re-assess the income/loss for the said Assessment Year and I hereby requireyou to deliver to me within 30 days from the service ofthis notice, a return in the prescribed form for the saidAssessment Year. loss for the said Assessment Year and I hereby requireyou to deliver to me within 30 days from the service ofthis notice, a return in the prescribed form for the saidAssessment Year. “Whereas I have reasons to believe that your Incomechargeable to Tax for the Assessment Year 2010-11has escaped Assessment within the meaning ofsection 147 of the Income Tax Act, 1961.chargeable to Tax for the Assessment Year 2010-11has escaped Assessment within the meaning ofsection 147 of the Income Tax Act, 1961. I, therefore, propose to assess/re-assess the income/loss for the said Assessment Year and I hereby requireyou to deliver to me within 30 days from the service ofthis notice, a return in the prescribed form for the saidAssessment Year. loss for the said Assessment Year and I hereby requireyou to deliver to me within 30 days from the service ofthis notice, a return in the prescribed form for the saidAssessment Year. This notice is being issued after obtaining the necessarysatisfaction of the additional Commissioner/Commissioner of Income Tax/ Chief Commissioner ofIncome Tax.”satisfaction of the additional Commissioner/Commissioner of Income Tax/ Chief Commissioner ofIncome Tax.” 14.Further, in reference to the demand made by the petitioner forproviding the reasons to believe for issuance of notice under Section148, the Income Tax Authorities vide their response dated 03.08.2017intimated the petitioner the reasons to belief and vide the saiddocument it had been specifically intimated by the department thatthe Income Tax assessment for the assessment year 2010-11 wascompleted on 21.03.2013. It was submitted that a survey wasconducted under Section 133A on 26.09.2016 and where it wasfound that there was some fresh unsecured loans ofRs.11,20,07,504/- from different body corporate during the relevantyear and so far as the reasons to believe is concerned, the relevantendorsement by the Assessing officer is reproduced herein asunder:- “Keeping-in-view the above facts and materials availableon record and also in order to lift the corporate veil, Ion record and also in order to lift the corporate veil, I have formed an honest belief that the income ofRs.2,14,79,440/- on account of bogus credit shouldhave been chargeable to tax under the head “Incomefrom Other Sources” for the relevant A.Y. 2010-11 inthe hands of the assessee namely, Maruti Clean Coal& Power Ltd. But has, in fact, escaped assessment.Thus, the assessee has failed to disclose entirely allmaterial facts necessary for assessment. In order torope into the escaped income and to assess suchincome, recourse to the provisions of section 148 to153 is to be taken subject to approval from Hon'ble Pr.CIT-1, Raipur.” 15.Now, when we look at the endorsement made by the Commissioner granting sanction under Section 151, the endorsement made by the Commissioner while granting sanction reads as under:- “Yes, I am satisfied that this is a fit case for reopeningunder expl. 2(c) of Section 147 of the Act. Accordingly,sanction is given u/s. 151(1) of the Act for issue ofnotice u/s. 148 of the Act.” 16.It would clearly reveal that there does not seem to have been anyreference while the Assessment officer was recording the reasons, sofar as reopening of the assessment being after 4 years neither does itanywhere reflect that specific sanction as is required under theproviso to Section 151(1) has been obtained for issuance of noticeunder Section 148. Admittedly, when the assessment was completeon 21.03.2013 and the notice under Section 148 being issued on28.03.2017, it apparently is beyond 4 years period as is requiredunder Section 149. 17.So far as the two Bombay High Court’s judgments cited by thedepartment, both these judgments were cases where notice underSection 148 was issued within the prescribed period of 4 years and itwas this which was taken note of by the Bombay High Court whiledeciding the judgment in favour of the department. 18.The Bombay High Court in the case of “Hindustan Liver of India 17.So far as the two Bombay High Court’s judgments cited by thedepartment, both these judgments were cases where notice underSection 148 was issued within the prescribed period of 4 years and itwas this which was taken note of by the Bombay High Court whiledeciding the judgment in favour of the department. 18.The Bombay High Court in the case of “Hindustan Liver of India vs. R.B. Wadkar” (2004) 268 ITR 332, in paragraph 29 whiledeciding the case in favour of assessee has held as under:-deciding the case in favour of assessee has held as under:- “It is needless to mention that the reasons are requiredto be read as they were recorded by the AssessingOfficer. No substitution or deletion is permissible. Noadditions can be made to those reasons. No inferencecan be allowed to be drawn based on reasons notrecorded. It is for the Assessing Officer to discloseand open his mind through reasons recorded by him.xxxxxxxxxxxxxxxx. It is for the Assessing Officer toform his opinion it is for him to put his opinion onrecord in black and white. The reasons recordedshould be clear and unambiguous and should notsuffer from any vagueness. The reasons recordedmust disclose his mind.”to be read as they were recorded by the AssessingOfficer. No substitution or deletion is permissible. Noadditions can be made to those reasons. No inferencecan be allowed to be drawn based on reasons notrecorded. It is for the Assessing Officer to discloseand open his mind through reasons recorded by him.xxxxxxxxxxxxxxxx. It is for the Assessing Officer toform his opinion it is for him to put his opinion onrecord in black and white. The reasons recordedshould be clear and unambiguous and should notsuffer from any vagueness. The reasons recordedmust disclose his mind.” 19.Likewise, the Delhi High Court in the case of “PrincipalCommissioner Income-tax-6 vs. Meenakshi Overseas (P.) Ltd.”(2017) 82 taxmann.com 300 (Delhi)” in paragraph No.24 has heldas under:-Commissioner Income-tax-6 vs. Meenakshi Overseas (P.) Ltd.”(2017) 82 taxmann.com 300 (Delhi)” in paragraph No.24 has heldas under:- “The reopening of assessment under Section 147 is apotent power not to be lightly exercised. It certainlycannot be invoked casually or mechanically. The heartof the provision is the formation of belief by the AOthat income has escaped assessment. The reasons sorecorded have to be based on some tangible materialand that should be evident from reading the reasons.”potent power not to be lightly exercised. It certainlycannot be invoked casually or mechanically. The heartof the provision is the formation of belief by the AOthat income has escaped assessment. The reasons sorecorded have to be based on some tangible materialand that should be evident from reading the reasons.” 20.A similar view has again been taken by the Delhi High Court in thecase of “Sabh Infrastructure Ltd. vs. Assistant CommissionerIncome Tax” WPC No. 1357/2016, decided on 25.09.2017, 398ITR 198 Delhi H.C.case of “Sabh Infrastructure Ltd. vs. Assistant CommissionerIncome Tax” WPC No. 1357/2016, decided on 25.09.2017, 398ITR 198 Delhi H.C. 21.When we refer to Section 151(1) the proviso therein, specificallydeals with the Chief Commissioner or the Commissioner to besatisfied on the reasons recorded by the Assessing officer fordeals with the Chief Commissioner or the Commissioner to besatisfied on the reasons recorded by the Assessing officer for 23. 20.A similar view has again been taken by the Delhi High Court in thecase of “Sabh Infrastructure Ltd. vs. Assistant CommissionerIncome Tax” WPC No. 1357/2016, decided on 25.09.2017, 398ITR 198 Delhi H.C.case of “Sabh Infrastructure Ltd. vs. Assistant CommissionerIncome Tax” WPC No. 1357/2016, decided on 25.09.2017, 398ITR 198 Delhi H.C. 21.When we refer to Section 151(1) the proviso therein, specificallydeals with the Chief Commissioner or the Commissioner to besatisfied on the reasons recorded by the Assessing officer fordeals with the Chief Commissioner or the Commissioner to besatisfied on the reasons recorded by the Assessing officer for 23. issuance of a notice after the expiry of 4 years from the end of therelevant assessment year. It is this what is missing in the instantcase. There can be no dispute as regards the requirement of Act tobe strictly complied with. In the absence of the non-compliance ofthe statutory requirement as is required for issuance of a noticeunder Section 148, particularly when it is being issued beyond theperiod of 4 years, then the notice and the proceedings initiatedstands vitiated for want of specific sanction as is required under theproviso to Section 151(1). Since from the facts, it is evidently clear that the condition precedentnecessary under Section 151(1) for issuance of a notice underSection 148 is not available or is reflected that from the proceedings,it is then that the principles laid down by the Constitutional Bench ofHon’ble Supreme Court in the case of “Calcutta Discount CompanyLtd. vs. Income Tax Officer” AIR 1961 S.C. 372 other similarjudgments come into play envisaging the writ Courts having thepower to exercise the power of issuance of writ, prohibiting theIncome Tax officer from the proceedings with reassessment whenpatently it appears that the proceedings are in contravention to theprovisions of the Income Tax Act So far as the writ Court having jurisdiction in questioning thereassessment proceedings initiated under Section 148 is concerned,the said issue has already been dealt with elaboratly by this Courtin(2017) 397 ITR 197 (Chhattisgarh) in the case of “Kamla Ojha vs.Income Tax Officer (One). The said decision again was based upon the recent decision of the Hon'ble Supreme Court in the case of“Jeans Knit (P) Ltd. Bangalore vs. Deputy Commissioner,Income Tax, Bangalore” MANU/SC/1691/2016, wherein the Hon'bleSupreme Court taking note of the decision of the Hon'ble SupremeCourt in the case of Chhabil Das Agrawal's case has held that thewrit petitions are maintainable questioning the issuance of noticeunder Section 148, if prima facie it is established that initiation iscontrary to the provisions of the Income Tax Act. Thus, these twoauthoritative decisions of the Hon'ble Supreme Court in the case of“Calcutta Discount” (supra) as also in the case of “Jeans Knit” (supra)clearly negates the preliminary objections raised by the Income TaxDepartment. 24.Since this Court finds that issuance of notice under Section 148 atthe first instance itself was without a proper sanction as is requiredunder the proviso to Section 151(1) of the Income Tax Act. We neednot go into the veracity and merits of the case any further at thisstage. Leaving open the issue on merits, the present notice underSection 148 stands set-aside/quashed only on account of non-fulfillment of the condition precedent as is envisaged under the of theproviso to section 151(1) of the Income Tax Act. The writ petitionstands allowed only on this ground alone. 25.As a result, the impugned notice under Section 148 stands set-aside /quashed consequence to follow.aside /quashed consequence to follow. Sd/- (P. Sam Koshy) Judge