Rural Electrification Corp Ltd v. Badar Durrez Ahmed, J (Oral

THE HIGH COURT OF DELHI AT NEW DELHI %Judgment delivered on: 23.04.2013 +WP (C) 7943/2011 RURAL ELECTRIFICATION CORP LTD …Petitioner versus COMMISSIONER OF INCOME TAX-(LTU)AND ANOTHER…RespondentsAdvocates who appeared in this case:For the Appellant: Mr M. S. Syali, Sr Advocate with Mr Satyen Sethi,Mr Mayank Nagi and Mr A. T. PandaFor the Respondents: Mr Kiran Babu CORAM:-HON’BLE MR JUSTICE BADAR DURREZ AHMEDHON’BLE MR JUSTICE VIBHU BAKHRU JUDGMENT BADAR DURREZ AHMED, J (ORAL) 1.This writ petition pertains to the assessment year 2004-05.It is directed against the notice under Section 148 of the Income-tax Act, 1961(hereinafter referred to as ‘the said Act’) issued on 21.03.2011, whereby theassessment of the petitioner is sought to be reopened.The purportedreasons for believing that income had escaped assessment are as under:- “11.Reasons for the belief that income has escapedassessment. 1.In this case assessment under section 143(3) wascompleted on 24.2.2005 at an income of Rs.5,52,50,73,110/-.The assessee company is a public financial institution engagedin business of providing finance for rural electrifications and isnot an industrial undertaking. It has incurred an expenditure ofRs.5,34,20,000/- on account of issue of long term bond / debtinstrument. The expense was incurred for borrowing long termdebt instruments which give a benefit of enduring nature andhence the assessee should have capitalized the same. But theassessee claimed these expenses as revenue expense instead ofcapital expense. 2.InformationfromAddl.CIT,KarimnagarRange,Karimnagar was received that the assessee company hadadvanced a loan to M/s. The Cooperative Electrical supplySociety Ltd., Siricilla.This Society has created a corpus ofspecial fund amounting to Rs.10 crores.The society earnedinterest on this special fund but did not disclose it in its returnfor the reason that the money belonged to M/s. REC i.e.Assessee Company and any income earned was also on behalfofAssesseeCompany.TheITAT,Hyderabadinitsconsolidated order in ITA No. 1112 to 1115 & 1198 to 1199 of2005, 1635 of 2008 and 570 of 2009 dated 13.01.2010 forassessment year 1999-00 to 2006-07 had held that this incomewas not taxable in the hands of the society but ought to be taxedin the hands of the assessee company.The ACIT-Cir-1,Karimnagar has quantified such income at Rs.24,50,000/- onaccount of interest on REC Bonds & Rs.45,44,199/- on accountof interest from commercial banks. 3.I have therefore reasons to believe that income ofRs.6,04,14,199/- has escaped assessment within the meaning ofsection 147 which warrants issue of notice under section 148.” 2.It is an admitted position that the notice under Section 148 was issued beyond the period of four years from the end of the assessment year 2004-05, the same having been issued on 21.03.2011.As such, theconditions stipulated in the proviso to Section 147 would have to becomplied with. Mr Syali, the learned senior counsel appearing on behalf ofthe petitioner, submitted that one of the essential conditions stipulated inthe proviso to Section 147 was that there must be an allegation that theassessee had failed to disclose fully and truly all the material factsnecessary for his assessment and that because of such failure there has beenan escapement of income chargeable to tax. He submitted that it would beevident from the aforesaid purported reasons that there is no suchallegation. Consequently, relying on the decision of this court in the caseofHaryana Acrylic Manufacturing Company v. The Commissioner ofIncome Tax IV and Anr.:(2009) 308 ITR 38 (Delhi), he submitted thatthe impugned notice and all proceedings pursuant thereto are liable to be setaside. 3.The learned counsel for the revenue submitted that all the proceduralrequirements necessary for re-opening the assessment had been compliedwith by taking the necessary permission from the Commissioner before thenotice under Section 148 had been issued.He also submitted that thepetitioner had not shown the interest income mentioned in the ‘reasons’ in its return for the relevant year. The interest income in question arose out ofthe loan advanced by the petitioner to the Cooperative Electrical SupplySociety Limited (Siricilla). The circumstances in which the interest incomearose are indicated in the purported reasons which have been extractedabove. It was contended on behalf of the revenue that it was only pursuantto the Tribunal’s order that the notice under Section 148 had been issued.Therefore, according to the learned counsel for the respondent, it was onlycomplying with the directions given by the Tribunal. The learned counselfor the respondent / revenue also stated that the limitation prescribed inSection 149 would not, in any event, come in the way of the respondentinasmuch as the provisions of Section 150 would be applicable. He furthersubmitted that, apart from the question of the interest income escapingassessment, there was also the issue of the income escaping assessment onthe ground that the petitioner had claimed expenses as ‘revenue expenses’which were actually of a ‘capital’ nature. 4.We have considered the submissions made by the learned counsel forthe parties. Insofar as the plea of the learned counsel for the revenue withregard to Section 150 of the said Act is concerned, that issue standsconcluded by virtue of our decision in respect of the very same assessee in WP (C) No.7944/2011 and other connected writ petitions decided todayitself.We have concluded in those writ petitions that the provisions ofSection 150 would not be applicable. The very same conclusions wouldapply to the present case also. 5.As regards the plea taken by Mr Syali that there is no allegation withregard to the failure on the part of the petitioner to fully and truly discloseall the material facts necessary for the petitioner’s assessment, we find thatthis aspect is clearly covered in favour of the petitioner by virtue of ourdecision in Haryana Acrylic (supra).In that case, we had observed as under:- “29.In the reasons supplied to the petitioner, there is nowhisper, what to speak of any allegation, that the petitioner hadfailed to disclose fully and truly all material facts necessary forassessment and that because of this failure there has been anescapement of income chargeable to tax.Merely having areason to believe that income had escaped assessment, is notsufficient to reopen assessments beyond the four year periodindicated above. The escapement of income from assessmentmust also be occasioned by the failure on the part of theassessee to disclose material facts, fully and truly.This is anecessary condition for overcoming the bar set up by theproviso to Section 147. If this condition is not satisfied, the barwould operate and no action under Section 147 could be taken.We have already mentioned above that the reasons supplied tothepetitionerdoesnotcontainanysuchallegation. Consequently, one of the conditions precedent for removing thebar against taking action after the said four year period remainsunfulfilled.In our recent decision in Wel Intertrade PrivateLtd.[2009] 308 ITR 22 (Delhi) we had agreed with the viewtaken by the Punjab & Haryana High Court in the case of DuliChand Singhania [2004] 269 ITR 192 that, in the absence of anallegation in the reasons recorded that the escapement ofincome had occurred by reason of failure on the part of theassessee to disclose fully and truly all material facts necessaryfor his assessment, any action taken by the Assessing officerunder Section 147 beyond the four year period would be whollywithout jurisdiction. Reiterating our view-point, we hold thatthe notice dated 29.03.2004 under Section 148 based on therecorded reasons as supplied to the petitioner as well as theconsequent order dated 02.03.2005 are without jurisdiction asno action under Section 147 could be taken beyond the fouryear period in the circumstances narrated above.” 6.In the present case also, there is no whisper in the purported reasonsof the petitioner having failed to disclose fully and truly all the materialfacts necessary for its assessment. Therefore, the necessary ingredients of the provisions of Section 147 are not satisfied. In view thereof, the revenuecannot also raise the ground with regard to the expenses being of a ‘capital’ nature, whereas the petitioner had claimed it as ‘revenue expenditure’. 7.Therefore, in whichever way we look at this case, we find that theinitiation of reopening of the assessment pertaining to the assessment year 2004-05 did not have the backing of law.Consequently, the impugnednotice under Section 148 and all proceedings pursuant thereto, includingthe assessment order passed pursuant thereto are liable to be set aside. It isordered accordingly. The writ petition is allowed. There shall be no orderas to costs. BADAR DURREZ AHMED, J VIBHU BAKHRU, JApril 23, 2013dutt