Shree Krishna Silk Industries Ltd v. Deputy Commissioner Of Income Tax And Ors

ASN IN THE HIGH COURT OF JUDICATURE AT BOMBAYORDINARY ORIGINAL CIVIL JURISDICTION WRIT PETITION NO.3317 OF 2004 Shree Krishna Silk Industries Ltd...Petitioner. vs. Deputy Commissioner of Income Tax and ors...Respondents. Mr. P. J. Pardiwala, Senior Counsel along with S.G.Dalal i/by S.G. Lakhani for the Petitioner.Mr. Suresh Kumar for the Respondent. CORAM : M. S. SANKLECHA AND N.M. JAMDAR, JJ.DATE : 25 AUGUST 2014 DATE : PC: The challenge in this petition under Article 226 of the Constitution of India is to the notice dated 23 March 2003 issued by the Assessing Officer under Section 148 of the Income Tax Act, 1961 (“the Act”) seeking to reopen the assessment for A.Y 1995-96. 2)On 30 November 1995, the petitioner filed its return of income for A.Y. 1995-96 disclosing the total income of Rs.6.18 lacs. In its Return of Income the petitioner claimed deduction under Section 80M of the Act to the extent of Rs.20.50 lacs out of Rs.23.67 lacs received as dividend. This was as dividend paid out by the petitioner was Rs.20.50 lacs. The deduction as dividend received was capped to the extent of the dividend paid under Section 80M of the Act. 3)On 1 August 1996, the petitioner's premises were subjected to search under Section 132 of the Act. Consequent to the search the petitioner filed Return of Income for the block assessment period commencing from 1 April 1986 to 1 August 1996. 4)On 22 August 1997, the Assessing Officer framed the assessment for block period and held that the petitioner was not entitled to deduction under Section 80M of the Act to the extent of Rs.20.50 lacs as claimed. This was on the ground that the petitioner had not paid the aforesaid amount of Rs.20.50 lacs as dividend prior to the due date i.e. the date of the filing of the return which was 30 November 1995. Being aggrieved the petitioner had preferred an appeal to the Income Tax Appellate Tribunal (Tribunal) against the order dated 22 August 1997 of the Assessing Officer relating to the block period. 5)In the mean time, pending the disposal of the petitioner's appeal from the order dated 22 August 1997 for the block period by the Tribunal, the Assessing officer on 3 March 1998 passed an assessment order under Section 143(3) of the Act in regular assessment for Assessment Year 1995-96. In the Assessment Order the Assessing officer reached a conclusion that the petitioner were entitled to deduction of Rs.20.50 lacs under Section 80M of the Act as claimed. 6)On 25 October 2002, the Tribunal allowed the petitioner's appeal from block assessment order dated 22 August 1997.The Tribunal held that for the Assessment Year 1995-96, the deduction claimed of Rs.20.50 lacs under Section 80M of the Act was allowable. The Tribunal took on board the order passed by the Assessing Officer under Section 143(3) of the Act in regular assessment proceedings allowing deduction of Rs.20.50 lacs under Section 80M of the Act. The Tribunal held that the petitioner i.e. appellant before it had brought evidence on record to indicate that the dividend had been paid by the petitioner before 30 November 1995. In view of the above, addition of Rs.20.50 lacs made by the Assessing Officer for the block period was deleted. 7)On 26 March 2003, the impugned notice was issued seeking to reopen the assessment for Assessment Year 1996-96.The reasons for reopening the assessment as furnished to the petitioner were as under:-M/S. SHREE KRISHNA SILK INDUSTRIESA.Y. 1995-96 A search & seizure action u/s. 132 of the I. T. Act, 1961 was conducted on M/s. Shree Krishna Silk Industries Ltd. on 01.08.1996. The assessee had filed nil return for the block period in response to notice u/s.158BC. The block assessment in this case was completed on 30.09.1997 estimating the total undisclosed income of Rs.20,50,000/- for the block period for A. Y. 1995-96. 7)On 26 March 2003, the impugned notice was issued seeking to reopen the assessment for Assessment Year 1996-96.The reasons for reopening the assessment as furnished to the petitioner were as under:-M/S. SHREE KRISHNA SILK INDUSTRIESA.Y. 1995-96 A search & seizure action u/s. 132 of the I. T. Act, 1961 was conducted on M/s. Shree Krishna Silk Industries Ltd. on 01.08.1996. The assessee had filed nil return for the block period in response to notice u/s.158BC. The block assessment in this case was completed on 30.09.1997 estimating the total undisclosed income of Rs.20,50,000/- for the block period for A. Y. 1995-96. In the assessment order, the A. O. disallowed the deduction claim of the assessee u/s. 80M on the ground that the same was distributed beyond the due date and also on the ground that the explanation of the assessee was not convincing and treated the same as undisclosed income of the assessee. Being aggrieved, the assessee went in first appeal before the Hon. ITAT against the above assessment order. The Hon. ITAT while giving relief to the assessee has stated that “in view of these facts and for the detailed discussion in IT (SS) A. No.226/Mum/97, we are of opinion that the dis-allowances of deduction claimed u/s.80M was beyond the power of the AO under Chapter XIVB”. Its order No. IT(SS)A. No.226/Mum/97, the Hon. ITAT has given relief to the assessee on various judicial pronouncements viz: 1.CIT v/s. Vinod D. Ghodawat (163 CTR 432) (Bom). 2.CIT v/s. Dr. M. K. E. Memon (112 Taxmen 96) (Bom). 3.DCIT v/s. Shaw Wallace & Co., (248 ITR 81) (Cal.).(Cal.). 4.CIT v/s. Rajendra Prasad Gupta (248 ITR 350) (Raj.). 5.Bhagwat Prasad Kedia v/s. CIT (248 ITR 562) (Cal.). 6.CIT v/s. Ravi Kant Jain (250 ITR 141)(Del.). 7.Vrsihali Hotels Pvt. Ltd. v/s. ACIT (66 TTJ 693) (ITAT, Pune). 8.Ravi Prakash Agarwal v/s. ACIT (67 TTJ 234) (ITAT, Delhi). The Hon. ITAT has also given a clear cut finding that: “the rate at which depreciation is permissible on a particular asset is a matter to be considered in the regular assessment. Even if the assessee has claimed higher depreciation than what is permissible, the same can not be said to be undisclosed income for the purpose of the block assessment.” which is applicable in the present case of the assessee for 80M dis-allowance of Rs.20,50,000/-. Keeping in view the provisions of section 153(3)(ii), Explanation 2, it is proposed to re-open the assessment of the assessee for A. Y. 1995-96 u/s. 148 of the I.T. Act 1961 as income of Rs.20,50,000/- for A.Y. 1995-96 has escaped assessment. In this regard, a letter dated 11.03.03 has been put up requesting CIT(A)-III's sanction u/s. 151. CIT(C)-III has accorded his approval for issuance of notice u/s. 148 vide letter dated 24.03.03. Accordingly, notice u/s.148 is issued.”M/S. SHREE KRISHNA SILK INDUSTRIESA.Y. 1995-96 A search & seizure action u/s. 132 of the I. T. Act, 1961 was conducted on M/s. Shree Krishna Silk Industries Ltd. on 01.08.1996. The assessee had filed nil return for the block period in response to notice u/s.158BC. The block assessment in this case was completed on 30.09.1997 estimating the total undisclosed income of Rs.20,50,000/- for the block period for A. Y. 1995-96. In the assessment order, the A. O. disallowed the deduction claim of the assessee u/s. 80M on the ground that the same was distributed beyond the due date and also on the ground that the explanation of the assessee was not convincing and treated the same as undisclosed income of the assessee. Being aggrieved, the assessee went in first appeal before the Hon. ITAT against the above assessment order. The Hon. ITAT while giving relief to the assessee has stated that “ in view of these facts and for the detailed discussion in IT (SS) A.No.226/Mum/97, we are of opinion that the disallowances of deduction claimed u/s.80M was beyond the power of the AO under Chapter XIVB”. In the assessment order, the A. O. disallowed the deduction claim of the assessee u/s. 80M on the ground that the same was distributed beyond the due date and also on the ground that the explanation of the assessee was not convincing and treated the same as undisclosed income of the assessee. Being aggrieved, the assessee went in first appeal before the Hon. ITAT against the above assessment order. The Hon. ITAT while giving relief to the assessee has stated that “ in view of these facts and for the detailed discussion in IT (SS) A.No.226/Mum/97, we are of opinion that the disallowances of deduction claimed u/s.80M was beyond the power of the AO under Chapter XIVB”. Its order No.IT(SS)A. No.226/Mum/97, the Hon.ITAT has given relief to the assesee on various judicial pronouncements viz: 1CIT v/s. Vinod D. Ghodawat (163 CTR 432) (Bom).2CIT v/s. Dr. M. K. E. Memon (112 Taxmen 96) 2CIT v/s. Dr. M. K. E. Memon (112 Taxmen 96) (Bom). 3DCIT v/s. Shaw Wallace & Co., (248 ITR 81) (Cal.).4CIT v/s. Rajendra Prasad Gupta (248 ITR 350)(Raj.).4CIT v/s. Rajendra Prasad Gupta (248 ITR 350)(Raj.).5Bhagwat Prasad Kedia v/s. CIT (248 ITR 562)(Cal.).6CIT v/s. Ravi Kant Jain (250 ITR 141)(Del.).7Vrsihali Hotels Pvt. Ltd. v/s. ACIT (66 TTJ 693)(ITAT, Pune).(Cal.).6CIT v/s. Ravi Kant Jain (250 ITR 141)(Del.).7Vrsihali Hotels Pvt. Ltd. v/s. ACIT (66 TTJ 693)(ITAT, Pune).8Ravi Prakash Agarwal v/s. ACIT (67 TTJ 234) (ITAT, Delhi). The Hon. ITAT has also given a clear cut finding that: “the rate at which depreciation is permissible on a particular asset is a matter to be considered in the regular assessment. Even if the assessee has claimed higher depreciation than what is permissible, the same can not be said to be undisclosed income for the purpose of the block assessment.” which is applicable in the present case of the assessee for 80M disallowance of Rs.20,50,000/-. Keeping in view the provisions of section 153(3)(ii), Explanation 2, it is proposed to re-open the assessment of the assessee for A. Y. 1995-96 u/s. 148 of the I.T. Act 1961 as income of Rs.20,50,000/- for A.Y. 1995-96 has escaped assessment. In this regard, a letter dated 11.03.03 has been put up requesting CIT(A)-III's sanction u/s. 151. CIT(C)-III has accorded his approval for issuance of notice u/s. 148 vide letter dated 24.03.03. Accordingly, notice u/s.148 is issued. 8)The petitioner filed its objection to the reasons communicated in support of the impugned notice by its letter dated 23 November 2005. In its objections, the Petitioner submitted that the impugned notice dated 23 March 2003 is beyond the period of limitation provided under Section 149 of the Act and not extended by Section 150 of the Act. The Assessing Officer by order dated 6 December 2004 dismissed the petitioner's objection inter alia on the ground that the Tribunal had given finding in respect of depreciation which would be applicable even to dis-allowance of deduction of earned dividend under Section 80M of the Act. It was reiterated that the Tribunal in its order dated 25 October 2002 had rendered a finding which made it incumbent upon the Assessing officer to issue the impugned notice dated 23 March 2003 to reopen the assessment for Assessment Year 1995-96. Assessing officer to issue the impugned notice dated 23 March 2003 to reopen the assessment for Assessment Year 1995-96. 9)The grievance of the petitioner is that the reopening notice is beyond the period of limitation as provided under Section 149 of the Act and not extended by Section 150 of the Act. This is for the reason that there is no finding given in the order of the Tribunal dated 25 October 2002 that deduction claimed on account of dividend of Rs.20.50 lacs is not available under Section 80M of the Act. Further, it is submitted that the assessment order passed on 3 March 1998 in regular assessment under Section 143(3) of the Act had allowed the petitioner's claim for deduction under Section 80M of the Act to the extent of Rs.20.50 lacs and the same was accepted by the Tribunal. Consequently the present impugned notice is mere change of opinion on the part of the Assessing Officer. Moreover, it is submitted that there is no allegation of any failure to disclose truly and fully all material facts necessary for assessment on the part of the petitioner. On all the aforesaid three grounds, it is submitted that the impugned notice needs to be quashed and set aside. 10)As against the above, Mr. Suresh Kumar learned Counsel appearing for the revenue repeats and reiterates the grounds in support of the impugned notice. 11)The normal period of limitation for issuing a notice for reopening an assessment is four years and is extended to six years in case the income chargeable to tax which has escaped assessment is likely to be more than Rs. 1 lac. The four/six years limitation gets extended, if the reopening notice has been issued consequent to or to give effect to any finding or direction of the appellate or revisional authority. We find that in the order of the Tribunal dated 25 October 2002 there is no finding that deduction of dividend claimed at Rs.20.50 lacs under Section 80M of the Act is not available to the petitioner. On the contrary, the order of the Tribunal dated 25 October 2002 records the fact that regular assessment order dated 3 March 1998 passed under Section 143(3) of the Act the benefit of deduction under Section 80M of the Act is granted. In fact the Tribunal while reversing the order dated 22 August 1997 passed in block assessment and deleting the addition of Rs.20.50 lacs records that the petitioner has brought evidence on record that the dividend has been distributed by the petitioner on 25 November 1995 i.e. before the due date 30 November 1995. Thus, there is no finding given by the Tribunal in the order dated 25 October 2002 which could justify the issuing impugned notice beyond the period of six years. The Supreme Court in ITO vs. Murlidhar B. Deo 52 ITR 335 has ruled with regard to the meaning of the word “Finding” as under: “A finding, therefore, can be only that which is necessary for the disposal of an appeal in respect of an assessment of a particular year. The Appellate Assistant Commissioner may hold, on the evidence, that the income shown by the assessee is not the income for the relevant year and thereby exclude that income from the assessment of the year appeal. The finding in that context is that income does not belong to the relevant year. He may incidentally find that the income belongs to another year, but that is not a finding necessary for the disposal of an appeal in respect of the year of assessment in question.” “A finding, therefore, can be only that which is necessary for the disposal of an appeal in respect of an assessment of a particular year. The Appellate Assistant Commissioner may hold, on the evidence, that the income shown by the assessee is not the income for the relevant year and thereby exclude that income from the assessment of the year appeal. The finding in that context is that income does not belong to the relevant year. He may incidentally find that the income belongs to another year, but that is not a finding necessary for the disposal of an appeal in respect of the year of assessment in question.” 12)In view of the above, the impugned notice is not saved by Section 150 of the Act and is barred by limitation as having been issued beyond the prescribed period under Section 149 of the Act. Besides the impugned notice having been issued almost almost 7 years after the end of the relevant assessment year does not indicate any failure on the part of the petitioner to disclose truly and fully all material facts necessary for assessment. Moreover, the assessment order passed in the regular assessment proceedings under Section 143(3) of the Act passed on 3 March 1998 was passed by the Assessing officer subsequent to the block assessment order passed on 22 August 1997 and after considering all the facts had allowed the deduction under Section 80M of the Act. In the above view, the grounds/reasons communicated to the petitioner in support of the impugned notice dated 23 March 2003 is a clear case of change of opinion and would thus be without jurisdiction. 13)Accordingly, for all the above reasons, the petition is allowed. No order as to costs. ( N. M. JAMDAR, J.) (M.S. SANKLECHA, J.)