M/S.goldmine Investments,Rep. By Its v. Deputy Commissioner Of Income-Taxcircle – I,Room

M/s.Goldmine Investments,Rep. By its Partner, Dr.S.Devendra,No.2, Doraisamy Road,T.Nagar, Chennai – 600 017. ... Petitioner Vs. Deputy Commissioner of Income-taxCircle – I,Room No.309, 3[rd] Floor,New Block, 121, M.G.Road,Chennai – 600 034. ... Respondent PRAYER: Writ Petition filed under Article 226 of Constitution ofIndia praying to issue Writ of certiorari to call for the records inGIR/PAN dated 01.05.2008 and P.A.N./GIR No.AAAFG4524Ddated 25.05.2009 relating to the assessment year 1995-96 on the fileof the respondent and quash the same. For Petitioner :Dr.Anitha SumanthFor Respondent :Mr.J.Narayanaswamy for Mr.K.Subramaniam ORDER The respondent issued a notice under Section 148 of the IncomeTax Act proposing to reopen the assessment for the year 1995-96.Following the issuance of notice, the same was served on thepetitioner on 09.05.2008, which required the petitioner to furnish areturn of income for the assessment year 1995-96. As the petitionerhad already filed a return of income for the assessment year 1995-96on 29.02.1996, clearly admitting that there was no income, an orderof assessment has been passed under Section 143(3) of the Income TaxAct on 31.03.1998, accepting the return filed by the petitioner.Since the notice was issued to the petitioner and as the petitionerhad already filed return of income for the assessment year 1995-96 https://hcservices.ecourts.gov.in/hcservices/ on 29.02.1996 making absolutely clear that there was no escapementof income or change in the income, the return already filed by thepetitioner to be treated as having been filed pursuant to theaforesaid notice only. Therefore, the petitioner submitted beforethe assessing authority that it has complied with the notice andrelied on the decision of the Supreme Court in GKN Driveshafts(India) Ltd. Vs. Income Tax Officer (259 ITR 19), which mandatesthat the petitioner is entitled to be furnished a copy of thereasons recorded by the Assessing Authority before the issue ofnotice under Section 148. Subsequently, in view of the letter ofthe petitioner seeking a copy of the reasons recorded, therespondent also issued a letter dated 25.05.2009 informing thereasons for reopening of the assessment, stating that in the courseof assessment proceedings of the assessment year 1996-97, it wasnoticed by the Assessing Officer that the assessee had received anamount of Rs.5,60,00,000/- from Ashok Leyland Finance Ltd. Thisamount was received based on a Memorandum of Understanding /Agreement for joint development dated 27.11.1994 between theassessee and Ashok Leyland Finance Limited and as per which theassessee had offered to surrender its share of development rights onthe land purchased from one Mr.Mani Nagappa to Ashok leyland FinanceLimited for a consideration of Rs.560 lakhs. But, the assessingofficer did not accept the claim of the assessee and assessed theamount as profits from business for the assessment year 1996-97.But, in the order of the Commissioner of Income-Tax (Appeals), itwas held that the amount to be treated only as an advance.Therefore, the addition made in the assessment was reversedsubsequently. When a notice dated 25.05.2009 was issued underSection 143(2) of the Income Tax Act, which is in the nature ofenquiry for completing the assessment, the respondent required thepetitioner to attend the respondent's office and produce document,accounts or other evidence, which the petitioner may rely in respectof return filed by it. Therefore, the petitioner submitted beforethe respondent that the aforesaid notice is totally invalid andillegal, in so far as the assessment proceedings initiated is beyondthe limitation and consequently, the proceedings are totallyinvalid. 2. In respect of the above submission, the petitioner alsorelied upon a judgment of the Supreme Court in GKN Driveshafts(India) Ltd. Vs. Income Tax Officer (259 ITR 19) , wherein the ApexCourt has held that after communicating to the petitioner, thereasons recorded before the issue of notice under Section 148, thepetitioner should be given as opportunity to make its objections tothe said reasons and only after the objection is adjudicated by aspeaking order only then any proceedings can be initiated for makingan assessment. When this is the position, the respondent along witha letter dated 25.05.2009, communicating the reasons stated to havebeen recorded prior to the issue of notice, issued a notice underSection 143(2) proposing to make an assessment and for enquiry in connection therewith. On the basis of the above judgment, it wasfurther contended that the action of the respondent is totallyillegal and violative of the procedure set out by the Supreme Courtin the above said decision. 3. Learned counsel appearing for the petitioner further submitsthat the respondent has issued notice under Section 148 forreopening the assessment for the year 1995-96 on the ground thatsuch notice is valid, since there was a finding by the Income TaxAppellate Tribunal that the assessment was made for the year 1995-96and not for the year 1996-97. The proceedings are totally barred bylimitation. Further, it was argued that though the Tribunal has gotpower to direct an income excluded from one year to be assessed foranother year, neither explanation 2 to Sub Section (4) of Section153 nor any other provisions of the Income Tax Act extends thelimitation or waives the procedure for making such assessment forthe simple reason that the proviso provides that no proceedings forreopening of an assessment in a year for which an assessment isoriginally completed under Section 143(3) shall be taken beyond fouryears from the end of the Assessment year. On that basis, it wasprayed for quashing of the impugned order. 4. Per contra, learned counsel appearing for the respondentsubmits that the respondent, by letter dated 25.05.2009, had dulycommunicated the reasons for reopening the assessment under Section147 for the assessment year 1995-96, to the petitioner. By doingso, the respondent has duly complied with the procedure laid down bythe Supreme Court in GKN Driveshafts' case (supra). When thenotice under Section 143(2) was issued on 25.05.2009 posting thecase for hearing on 08.06.2009 by specifically informing thepetitioner in the above said notice that the petitioner was requiredto produce the documents, accounts or other evidence in support ofthe returns filed by the petitioner, the stand of the petitionerthat the said notice was invalid is not correct on the ground thatthe assessment proceedings had been initiated beyond the period oflimitation. Further it was submitted that the contention of thepetitioner that the issue of notice under Section 148 was barred bylimitation is totally incorrect, since the notice has been issued asper the direction of the Tribunal. Therefore, the petitioner oughtto have sought remedy by way of appeal before the High Court, if thepetitioner was aggrieved by the order of the Tribunal. 5. Heard the learned counsel appearing on either side andperused the materials available on record. 6. Admittedly, for reopening the assessment of the petitionerfor the year 1995-96, a notice under Section 148 was issued by therespondent on 25.05.2009. This has been challenged by thepetitioner on the ground that the impugned notice dated 25.05.2009issued under Section 143(2) of the Income Tax Act and also impugned proceedings dated 25.05.2009 relating to the assessment year 1995-96has been admittedly issued after a period of 13 years. Therefore, ithas to be seen whether the assessment sought to be made by theimpugned order is barred by limitation. 5. Heard the learned counsel appearing on either side andperused the materials available on record. 6. Admittedly, for reopening the assessment of the petitionerfor the year 1995-96, a notice under Section 148 was issued by therespondent on 25.05.2009. This has been challenged by thepetitioner on the ground that the impugned notice dated 25.05.2009issued under Section 143(2) of the Income Tax Act and also impugned proceedings dated 25.05.2009 relating to the assessment year 1995-96has been admittedly issued after a period of 13 years. Therefore, ithas to be seen whether the assessment sought to be made by theimpugned order is barred by limitation. To answer this query, it is relevant to have a perusal ofSection 149 of the Income Tax Act, which prescribes the time limitfor issue of notice, as extracted below:-149. (1)No notice under Section 148 shall be issuedfor the relevant assessment year:- a) if four years have elapsed from the end of therelevant assessment year, unless the case falls underclause (b); b) if four years, but not more than six years, haveelapsed from the end of the relevant assessment yearunless the income chargeable to tax which has escapedassessment amounts to or is likely to amount to one lakhrupees or more for that year.Explanation-- In determining income chargeable to taxwhich has escaped assessment for the purposes of this sub-section, the provisions of explanation 2 of Section 147shall apply as they apply for the purposes of thatsection.(2) The provisions of sub-section(1) as to the issueof notice shall be subject to the provisions of section151.(3) If the person on whom a notice under Section 148is to be served is a person treated as the agent of a non-resident under Section 163 and the assessment,reassessment or recomputation to be made in pursuance ofthe notice is to be made on him as the agent of such non-resident, the notice shall not be issued after the expiryof a period of two years from the end of the relevantassessment year. The opening sentence of Section 149 leaves no room for anydoubt. No notice under Section 148 shall be issued if four yearshave elapsed from the end of the relevant assessment year, unlessthe case falls under clause (b). If four years, but not more thansix years, have elapsed from the end of the relevant assessmentyear, unless the income chargeable to tax which has escapedassessment amounts to or is likely to amount to one lakh rupees ormore for that year. The explanation no.2 further states that theprovisions of sub-section (1) as to the issue of notice shall besubject to the provisions of Section 151, which is extractedhereunder:- 151. (1) In a case where an assessment under sub-section (3) of Section 143 or Section 147 has been madefor the relevant assessment year, no notice shall be https://hcservices.ecourts.gov.in/hcservices/ issued under Section 148 (by an Assessing Officer, who isbelow the rank of Assistant Commissioner (or DeputyCommissioner), unless the (joint) Commissioner issatisfied on the reasons recorded by such AssessingOfficer that it is a fit case for the issue of suchnotice):Provided that, after the expiry of four years fromthe end of the relevant assessment year, no such noticeshall be issued unless the Chief Commissioner orCommissioner is satisfied, on the reasons recorded by theAssessing Officer aforesaid, that it is a fit case forthe issue of such notice.(2) In a case other than a case falling under sub-section (1), no notice shall be issued under Section 148by an Assessing Officer, who is below the rank of (joint)Commissioner, after the expiry of four years from the endof the relevant assessment year, unless the (joint)Commissioner is satisfied, on the reasons recorded bysuch Assessing Officer, that it is a fit case for theissue of such notice. As per Section 151, in a case where an assessment under sub-section (3) of Section 143 or Section 147 has been made for therelevant assessment year, it is absolutely made clear that no noticeshall be issued under Section 148 by an assessing officer, who isbelow the rank of Assistant Commissioner or Deputy Commissioner,unless the Joint Commissioner is satisfied on the reasons recordedby such Assessing Officer that it is a fit case for the issue ofsuch notice. It is further stated that, after the expiry of fouryears from the end of the relevant assessment year, no such noticeshall be issued unless the Chief Commissioner or Commissioner issatisfied, on the reasons recorded by the Assessing Officeraforesaid, that it is a fit case for the issue of such notice. 7. Therefore, the stand of the petitioner as well as therespondent will have to be tested on application of the aforesaidlegal principles. It is very clear from the facts that therespondent issued a notice under Section 148 of the Income Tax Act.Pursuant to the Income Tax Appellate Tribunal, proposing to reopenthe assessment of the petitioner for the year 1995-96, the noticewas served upon the petitioner on 09.05.08 requiring the petitionerto furnish a return of income for the assessment year 1995-96.Since the petitioner had already paid the return for the assessmentyear 1995-96 on 29.02.1996 admitting nil income and an order ofassessment had already been passed under Section 143(3) of theIncome Tax Act on 31.03.1998 accepting the petitioner's return, inthe above said circumstances, the present impugned notices wereissued, for which the petitioner submitted his explanation statingthat he had already submitted return of income for the assessmentyear 1995-96 on 29.02.1996. In so far as there was no escapement of income or a change in the income declared by the petitioner earlier,the return already filed by the petitioner was sought to be treatedas having been filed pursuant to the aforesaid notice. Further, thepetitioner submitted before the Assessing Authority that in so faras it had complied with the notice pursuant to the decision of theSupreme Court reported in GKN Drivesshafts (India) Ltd.'s case(supra), the petitioner is entitled to be furnished a copy of thereasons recorded by the Assessing Authority before the issue ofnotice under Section 148, because as per the judgment of the SupremeCourt, the Assessing Officer is under a mandate to dispose of suchpreliminary objection by passing speaking order, before proceedingwith the assessment in respect of the assessment year for which suchnotice has been issued. Since the Assessing Officer has notfollowed the above said mandate of the Apex Court in GKNDrivesshafts (India) Ltd.'s case (supra), the notices issued underSection 143(3) proposing to make an assessment and for enquiry inconnection therewith is totally illegal and violative of theprocedure set out by the Supreme Court in the above said decision. 8. The second argument of the learned counsel appearing for thepetitioner is that the impugned notices issued by the respondent aretotally contrary to the judgment of the Supreme Court in GKNDrivesshafts (India) Ltd.'s case (supra), wherein the position oflaw is well settled: After a notice for reassessment has been issued, anassessee is required to file the return and seek reasonsfor issuance of such notice. The assessing Officer isthen bound to supply the reasons within a reasonabletime. On receipt of reasons, the assessee is entitled tofile preliminary objections to issuance of notice and theAssessing Officer is under a mandate to dispose of suchpreliminary objections by passing a speaking order,before proceeding with the assessment in respect of theassessment year for which such notice has been issued. 9. In the above said background and the settled legal position,let me look at the impugned notice issued by the Deputy Commissionerof Income-tax / respondent dated 01.05.2008. The said notice saysthat the respondent has reason to believe that the income chargeableto tax for the assessment year 1995-96 has escaped assessmentfalling within the meaning of Section 147 of the Income Tax Act,1961. Therefore, he proposed to reassess the income for the saidassessment year and on that basis informed the petitioner to deliverwithin 30 days from the date of service of this notice, a return inthe prescribed form of his income for the said assessment year.Again, another impugned notice dated 25.05.2009 also says that theIncome-Tax Appellate Tribunal has directed the Assessing Officer toexclude the petitioner's income in the assessment for the assessmentyear 1996-97, and assess the same in the assessment year 1995-96.In view of that, the respondent has further stated in his impugned notice that he had reason to believe that income chargeable to taxfor assessment year 1995-96 has escaped assessment. 10. The above said two notices has not complied with thecommand of Section 151, which clearly rules that no notice shall beissued under Section 148, by an Assessing Officer, unless, the JointCommissioner is satisfied on the reasons recorded by such assessingofficer that it is a fit case for the issue of such notice. Whenthere is no such communication by the Assessing Officer, certifyingthat it is a fit case for the issue of such notice, the JointCommissioner without satisfying the reasons recorded by theAssessing Officer, should not have issued the impugned notice, whichis totally contrary to Section 151 of the Income Tax Act. Further,the proviso under Section 151 also makes position very clear thatafter the expiry of 4 years from the end of relevant assessmentyear, no such notice shall be issued unless the Chief Commissioneror Commissioner is satisfied, on the reasons recorded by theAssessing Officer, that it is a fit case for the issue of suchnotice. Again, when there is no such reasons recorded by theAssessing Officer, certifying that it is a fit case for the issue ofnotice after the expiry of 4 years from the end of the relevantassessment year, the impugned notices dated 01.05.2008 and25.05.2009 issued by the respondent, being totally contrary to theSection 151 as well as barred by limitation under Section 149 ofthe Income Tax Act, i.e., barred by delay of 13 years from the dateof assessment year 1995-96, the impugned notices are legallyunsustainable and accordingly, the same are set aside. In result, the writ petition is allowed. No Costs.Consequently, connected M.P.No.1 of 2009 is closed.rkmSd/-Asst. Registrar //True Copy// Sub Asst. Registrar ToThe Deputy Commissioner of Income-taxCircle – I,Room No.309, 3[rd] Floor,New Block, 121, M.G.Road,Chennai – 600 034. + 1 cc to Dr.Anita Sumanth, Advocate SR No.25988 + 1 cc to Mr. K. Subramaniam, Advocate SR No.25827 RV(CO)SR/26.4.2010SR/26.4.2010 Order inW.P.No.10664/2009W.P.No.10664/2009