M/S R.n. Gupta & Co. Ltd v. Assistant Commissioner Of Income Tax

CWP No. 13806 of 2010 -1- IN THE HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARH M/s R.N. Gupta & Co. Ltd. Versus Assistant Commissioner of Income Tax CWP No. 13806 of 2010 Date of Decision: 30.11.2010 ....Petitioner. ...Respondent. CORAM:-HON'BLE MR. JUSTICE ADARSH KUMAR GOEL.HON'BLE MR. JUSTICE AJAY KUMAR MITTAL. PRESENT: Mr. Akshay Bhan, Advocate for the petitioner. Mr. Rajesh Katoch, Advocate for the respondent. AJAY KUMAR MITTAL, J. 1.In this petition filed under Articles 226/227 of theConstitution of India, the petitioner seeks quashing of the impugnednotice dated 18.3.2010 (Annexure P-4) and order dated 16.6.2010(Annexure P-8) passed by the respondent under Section 148 of theIncome Tax Act, 1961 (in short “the Act”). 2.The brief facts for adjudication as narrated in this petitionare that the petitioner-company is manufacturer of steel forgings, rigsand accessories. It filed its return for the assessment year 2003-04 on28.11.2003 declaring an income of Rs.35,11,659/-. The return wasaccompanied by audit report under Section 44AB duly certified by theChartered Accountant. The case of the assessee was selected for scrutiny as per instructions of the Central Board of Direct Taxes. Thesale of scrap of Rs.1,42,59,989/- which formed part of the profit andloss account was treated as part of the turnover as well as profits of thebusiness. The Assessing Officer disallowed the deduction underSection 80HHC on account of DEPB export and computed thededuction at Rs.1,49,49,636/-. Feeling aggrieved, the assessee went inappeal and the Commissioner of Income Tax (Appeals) vide orderdated 28.7.2006 partly allowed the appeal. Thereafter, the AssistantCommissioner of Income Tax issued a notice dated 18.3.2010 underSection 148 of the Act to the assessee for reassessment. The reasonsrecorded for reopening of assessment reads thus:- “1.The assessee company filed its return of income on28.11.2003 at a taxable income of Rs.35,11,659/-. Thecase was assessed u/s 143(3) at a total income ofRs.1,84,61,300/-. The assessee has claimed deduction u/s80HHC of the Income Tax Act, 1961 on profits derived fromexport of goods. Perusal of the assessment records reveals that the figure oftotal sales as shown by the assessee includes scrap salesof Rs.1,42,59,989/- besides sale of scrap amounting toRs.4,73,895/- credited to machinery account. The totalscrap sales, therefore, amounts to Rs.1,47,33,864/-. Forthe purposes of computing deduction u/s 80HHC the totalscrap sales should be reduced from the profits of business.But the assessee has not done this resulting in anallowance of inadmissible deduction of Rs.19,69,371/- u/s 80HHC of the Income Tax Act, 1961. Keeping in view the above facts, I have reason to believethat income amounting to Rs.19,69,371/- has escapedassessment for Assessment Year 2003-04, I am of theopinion that it is a fit case for issue of notice u/s 148.” 3.The assessee filed its objection by way of reply dated18.5.2010 pleading that the reassessment cannot be made beyond aperiod of four years merely on the basis of change of opinion of theAssessing Officer. The Assessing Officer vide order dated 16.6.2010rejected the objections filed by the assessee holding that there isincome escaping assessment. Hence, the present writ petition. 4.We have heard learned counsel for the parties. 80HHC of the Income Tax Act, 1961. Keeping in view the above facts, I have reason to believethat income amounting to Rs.19,69,371/- has escapedassessment for Assessment Year 2003-04, I am of theopinion that it is a fit case for issue of notice u/s 148.” 3.The assessee filed its objection by way of reply dated18.5.2010 pleading that the reassessment cannot be made beyond aperiod of four years merely on the basis of change of opinion of theAssessing Officer. The Assessing Officer vide order dated 16.6.2010rejected the objections filed by the assessee holding that there isincome escaping assessment. Hence, the present writ petition. 4.We have heard learned counsel for the parties. 5.Learned counsel for the petitioner submitted that the re-assessment notice, Annexure P-4, issued under Section 147 of the Actbeing beyond the period of limitation of four years, was bad in law.According to the learned counsel, the assessee had disclosed all theparticulars along with the return with regard to sale of scarp and theAssessing Officer could have issued re-assessment notice within fouryears. In support of his submission, learned counsel for thepetitioner has relied upon the judgment of the Hon'ble Supreme Court inCommissioner of Income Tax v. Kelvinator of India Ltd., [2010] 320ITR 561 and the judgments of this Court in Duli Chand Singhania v.Assistant Commissioner of Income Tax, [2004] 269 ITR 192(P&H) and Ved Parkash Paliwal v. Assistant Commissioner ofIncome Tax Circle, Panipat and another, CWP No. 15730 of 2008decided on 12.12.2008 and other High Courts in CIT v. Baer Shoes CWP No. 13806 of 2010-4- (India) Pvt. Ltd., [2010] 6 Taxmann 113 (Mad) and AustinEngineering Co. Ltd. v. Joint Commissioner of Income-Tax [2009]312 ITR 70 (Guj). 6.Controverting the aforesaid submissions, learned counselfor the revenue by relying upon the decision of Allahabad High Court inEMA India Ltd. v. Assistant Commissioner of Income Tax [2009]226 CTR (All) 659 submitted that in view of Explanation I to Section 147there was non-disclosure as mere production of books of accounts andother evidence from which material evidence could with due diligencehave been discovered by the assessing authority will not necessarilyamount to disclosure within the meaning of proviso to Section 147.According to the learned counsel, in such a situation, the reassessmentproceedings were initiated within limitation and the period of four yearsas suggested by the learned counsel for the assessee had noapplication. 7.We have given our thoughtful consideration to therespective submissions of the learned counsel for the parties and do notfind merit in the contention of learned counsel for the assessee. 8.The question that arises for determination in this petition iswhether the assessee is entitled to challenge validity of initiation ofreassessment proceedings under Section 147 of the Act after expiry offour years on the ground of lack of jurisdiction with the AssessingOfficer even where the assessee had produced the entire materialduring assessment proceedings though there was no specific referenceto that material during original assessment proceedings. 9.In our opinion, the answer to the said question is in the negative. The legislature by Direct Tax Laws (Amendment) Act, 1987effective for 1.4.1989 had substituted Section 147 of the Act. Theprovisions contained in Explanation I now were earlier underExplanation 2. There has been transposition without any materialchange. 10.It would be appropriate to reproduce Section 147 along withExplanation I which reads thus:- 9.In our opinion, the answer to the said question is in the negative. The legislature by Direct Tax Laws (Amendment) Act, 1987effective for 1.4.1989 had substituted Section 147 of the Act. Theprovisions contained in Explanation I now were earlier underExplanation 2. There has been transposition without any materialchange. 10.It would be appropriate to reproduce Section 147 along withExplanation I which reads thus:- “147. Income escaping assessment.-If the AO hasreason to believe that any income chargeable to taxhas escaped assessment for any assessment year,he may, subject to the provisions of ss. 148 to 153,assess or reassess such income and also any otherincome chargeable to tax which has escapedassessment and which comes to his noticesubsequently in the course of the proceedings underthis section, or recompute the loss or thedepreciation allowance or any other allowance, asthe case may be, for the assessment year concerned(hereinafter in this section and in ss. 148 to 153referred to as the relevant assessment year): Provided that where an assessment under sub-s. (3)of s. 143 or this section has been made for therelevant assessment year, no action shall be takenunder this section after the expiry of four years fromthe end of the relevant assessment year, unless anyincome chargeable to tax has escaped assessment for such assessment year by reason of the failure onthe part of the assessee to make a return under s.139 or in response to a notice issued under sub-s. (1)of s. 142 or s. 148 or to disclose fully and truly allmaterial facts necessary for his assessment, for thatassessment year. Explanation 1- Production before the AO of accountbooks or other evidence from which materialevidence could with due diligence have beendiscovered by the AO will not necessarily amount todisclosure within the meaning of the foregoingproviso.“ 11.Section 147 of the Act empowers the Assessing Officer toassess or reassess income chargeable to tax where he has reason tobelieve that income for any assessment year has escaped assessment.However, the said provision does not authorize the Assessing Officer totake recourse to reassessment proceedings where after having adopteda particular opinion during original assessment proceedings, on secondthought, he wishes to conclude otherwise. In other words, change ofopinion is no ground for initiating reassessment proceedings. Accordingto the explanation, the duty cast upon assessee to disclose truly andfully all material facts does not get discharged by mere production of theaccount books or other documents. Even where, the Assessing Officercould have with due diligence deduced the truth if he had beencircumspect, still it will amount to non-disclosure of material facts withinthe meaning of Section 147 of the Act. The fiction created by the said explanation is to ensure that the Assessing Officer who is to act fairlyand reasonably for the public exchequer as well as the tax payerscannot be imputed knowledge and consciousness to the entire bulkyrecord produced by the assessee during assessment proceedingsunless there has been conscious deliberations with regard to such anissue in the assessment order. 12.Applying the aforesaid tests to the facts of the presentcase, it cannot be held that there was true and full disclosure made bythe assessee. A perusal of the assessment order, no where suggeststhat the Assessing Officer had dealt with the issue of sale of scrap whiledetermining the quantum of deduction admissible to the assessee underSection 80HHC of the Act. 13.Similar issue arose before the Allahabad High Court inEMA India Ltd's case (supra). It was held as under:- 12.Applying the aforesaid tests to the facts of the presentcase, it cannot be held that there was true and full disclosure made bythe assessee. A perusal of the assessment order, no where suggeststhat the Assessing Officer had dealt with the issue of sale of scrap whiledetermining the quantum of deduction admissible to the assessee underSection 80HHC of the Act. 13.Similar issue arose before the Allahabad High Court inEMA India Ltd's case (supra). It was held as under:- “3.2. Explanation 1 to proviso to s. 147 is explicit and clearon the point. The Explanation gives a quietus to contentionthat where account books or other evidence has beenproduced, there is no duty on the assessee to disclosefurther facts, which on due diligence could be discovered bythe AO. Nor will the assessee be able to contendsuccessfully that by disclosing certain evidence, he shouldbe deemed to have disclosed other evidence, which mighthave been discovered by the assessing authority if he hadpursued investigation on the basis of what has beendisclosed. The position remains that so far as the primaryfacts are concerned, it is the assessee's duty to disclose all of them including particular entries in account books,particular portions of documents, and documents, and otherevidence which could have been discovered by theassessing authority, from the document and other evidencedisclosed. 3.3In other words, the mere production of evidencebefore the AO is not enough and there may be an omissionor failure to make a full and true disclosure if some materialfor the assessment lies embedded in that evidence whichthe assessee can uncover but does not. However, if it bemerely a question of interpretation of evidence, theassessee cannot be subjected to s. 147, merely becausethe AO miscarried in his interpretation of evidence. 3.4To put it differently, if material evidence is not writlarge on the document but is embedded in somevoluminous records/books of account requiring a carefulscrutiny and delving deep into it to notice the necessarymaterial, it is quite possible that having regard to the natureof the documents, material evidence cannot be discoveredfrom such records despite due diligence and the casewould attract application of the said Expln. 1 to hold thatmere production of the books of account or the documents,etc. without pointing out the relevant entries therein, doesnot amount to disclosure within the meaning of s. 147(a) ofthe Act [See, Rakesh Aggarwal vs. Asstt. CIT (1997) 137CTR (Del) 65: (1996) 221 ITR 492 (Del) 499]. 3.5The assessee does not discharge his duty by merelyproducing the books of account or other evidence. He hasto further bring to the notice of the AO particular items inthe books of account or portions of document which arerelevant. Even if it is assumed that, from the booksproduced, the AO could have found out the truth, he is noton that account precluded from exercising the power toreassess the escaped income [see, Kantamani VenkataNarayana & Sons vs. Addl. ITO (1967) 63 ITR 638 (SC);Sowdagar Ahmed Khan vs. ITO (1968) 70 ITR 79 (SC);ITO & Ors. vs. Lakhmani Mewal Das 1976 CTR (SC) 220:(1976) 103 ITR 437 (SC), 445]. 3.6.The fact that the AO could have found out the correctposition by further probing the matter does not exoneratethe assessee from the duty to make a full and truedisclosure of the material facts.” 14.Once it is held that mere production of account books andthe documents where from the Assessing Officer could have gatheredthe details of sale of scrap, would not amount to true and full disclosurewithin the meaning of Section 147 of the Act, necessarily, it is to be heldthat the action taken by the Assessing Officer in the present case shallbe within limitation. 3.6.The fact that the AO could have found out the correctposition by further probing the matter does not exoneratethe assessee from the duty to make a full and truedisclosure of the material facts.” 14.Once it is held that mere production of account books andthe documents where from the Assessing Officer could have gatheredthe details of sale of scrap, would not amount to true and full disclosurewithin the meaning of Section 147 of the Act, necessarily, it is to be heldthat the action taken by the Assessing Officer in the present case shallbe within limitation. 15.Reference is now made to the judgments relied upon by thelearned counsel for the assessee. There is no dispute with theprinciples of law enunciated therein. However, they do not advance thecase of the assessee. The Hon'ble Apex Court in Kelvinator of India Ltd's case (supra) was not considering the effect of insertion ofExplanation 1 to Section 147 of the Act. Similarly, in the judgments ofthis Court and of the other High Courts, either Explanation 1 was notunder consideration or the same was held not to be applicable to thefacts of those cases. 16.In view of the above, there is no merit in this writ petitionand the same is hereby dismissed. (AJAY KUMAR MITTAL) JUDGE November 30, 2010(ADARSH KUMAR GOEL)gbsJUDGE