Surbhi Builders And Developers v. Assistat Commissioner Of Income

IN THE HIGH COURT OF JUDICATURE AT BOMBAY ORDINARY ORIGNAL CIVIL JURISDICTION WRIT PETITION NO. 2038 OF 2011 Surbhi Builders and Developers. .. Petitioner. versus Assistat Commissioner of Income Tax, Range 22(3) & Anr. .. Respondents. ..... Mr. P.P. Pandit with Mr. Prashant P. Prabhu for the Petitioner. Mr. Abhay Ahuja for the Respondents. ...... CORAM : DR.D.Y.CHANDRACHUD & A. A. SAYED, JJ. 10 JANUARY 2012. P.C. : Rule, by consent returnable forthwith. With the consent of Counsel and at their request the Petition is taken up for hearing and final disposal. 2.In these proceedings under Article 226 of the Constitution, the Petitioner has questioned the legality of a notice dated 25 March 2011 purporting to reopen an assessment for Assessment Year 2004-05 issued in exercise of power conferred by Section 148 of the Income Tax Act, 1961. Since the relevant year is AY 2004-05, the admitted position before the Court is that the reopening has taken place beyond a period of four years of the end of the relevant Assessment Year. 3.The assessee is a partnership firm carrying on business as builders and developers. The assessee had undertaken work of two projects at Sanpada and Navi Mumbai. On 16 February 2005 a survey was conducted under Section –133A of the Income Tax Act, 1961 by the Assessing Officer ITO 22(3)(3) in the case of a sister concern, Priyanka Home Builders and Developers. During the course of survey action, certain documentary material was recovered by the officers of the Income Tax Department. The documentary material was forwarded by the Assessing Officer who had conducted the survey under Section 133A on 1 June 2005 to the Assessing Officer who was conducting assessment proceedings of the –assessee, namely, ACIT 22(3). On 8 August 2005, theAssessing Officer issued a notice under Section 143 (2) read with Section 142 (1) to the assessee in the course of the assessment order for AY 2004-05. A questionnaire was served upon the assessee. The assessee submitted an explanation to the Assessing Officer during the course of the assessment proceedings (Exhibit D ). In the Reply that has been filed by‘ ’the Revenue, the letter at Exhibit D is not disputed. The‘ ’Assessing Officer passed an order of assessment under Section 143 (3) for AY 2004-05 on 28 December 2006. In the course of the assessment order, the Assessing Officer specifically adverted to the survey action conducted on 16 February 2005 in respect of the sister concern of the assessee and the recovery of a diary and other documentary material. Thereafter, the Assessing Officer purported to discuss the import of the documentary material that was impounded and accordingly framed an order of assessment. The income of the assessee was computed at Rs. 32.05 lacs. The assessment is sought to be reopened under Section 148 of the Income Tax Act, 1961 for the following reasons which have been furnished to the assessee on 19 July 2011. “In this case assessment u/s 143(3) of the IT Act,1961 has been completed on 28/12/2006 determining the total income at Rs.32,05,323/-. However as per the appellate order No. CIT(A)-XXOO/IT/146/07-08 dated 17/03/2009 for the AY 03-04 in the case of M/s Surabhi Builders and Developers the Ld CIT(A)-XXII, Mumbai has observed that the additions of Rs.56.87,000/- pertains to AY-2004-05 instead of AY 03-04. It is therefore reason to belief (sic) that the income of Rs.56,87,000/- has escaped assessment for AY 04-05. Therefore to bring that income under tax under the provision of section 147 of the IT Act, 1961, notice u/s 148 of the IT Act, 1961 needs to be issued for the AY 2004-05. ” “In this case assessment u/s 143(3) of the IT Act,1961 has been completed on 28/12/2006 determining the total income at Rs.32,05,323/-. However as per the appellate order No. CIT(A)-XXOO/IT/146/07-08 dated 17/03/2009 for the AY 03-04 in the case of M/s Surabhi Builders and Developers the Ld CIT(A)-XXII, Mumbai has observed that the additions of Rs.56.87,000/- pertains to AY-2004-05 instead of AY 03-04. It is therefore reason to belief (sic) that the income of Rs.56,87,000/- has escaped assessment for AY 04-05. Therefore to bring that income under tax under the provision of section 147 of the IT Act, 1961, notice u/s 148 of the IT Act, 1961 needs to be issued for the AY 2004-05. ” 4.Learned Counsel appearing on behalf of the assessee submits that the sole ground on which the assessment is sought to be reopened is that in deciding an appeal for AY 2003-04, the CIT (Appeals) had observed that an addition of Rs.56.87 lacs did not pertain to the assessment year under consideration in that appeal but that it pertains to AY 2004-05. The submission is that this cannot be regarded as a finding in relation to the order passed for AY 2003-04 since all that the CIT (Appeals) held was that the amount did not represent an income which shall accrue in AY 2003-04. In other words, the incidental finding that the amount represented income for AY 2004-05 is not a finding of CIT (Appeals) which in any event was not necessary for the decision in appeal for AY 2003-04. 5.On the other hand, learned Counsel appearing on behalf of the Revenue submitted that the assessment has been sought to be reopened under Section 150 in order to give effect to the order passed by the CIT (Appeals). 6.Section 150 (1) provides that notwithstanding anything contained in Section 149, a notice under Section 148 may be issued at any timefor the purpose of making an assessment or reassessment or recomputation in consequence of or to give effect to any finding or direction contained in an order passed by any authority in any proceedings under the Act by way of appeal, reference or revision or by a Court in any proceedings under any other law. The effect of Section 150 (1) is to lift the bar of limitation which is contained in Section 149. Section 150 does not enlarge the powers of the Assessing Officer to reopen an assessment under Section 148 nor does it confer upon the Assessing Officer a jurisdiction which is wider than what is contemplated by Section 148. All that Section 150 puts in place is to lift the bar of limitation which Section 149 enacts where Section 148 is taken recourse to for the purpose of making an assessment or reassessment or recomputation in consequence of or to give effect to a finding or direction contained in an order passed by an authority in a proceeding under the Act by way of an appeal, reference or revision. 7.A Constitution Bench of the Supreme Court considered the provisions of Section 34 (3) of the Income Tax --Act, 1922 in IncomeTax Officer, AWard, Sitapur v. MurlidharBhagwan Das[1]. The second proviso to Section 34 (3) read as follows : “Provided further that nothing contained in this section limiting the time within which any action may be taken, or any order, assessment or reassessment may be made, shall apply to a reassessment made under section 27 or to an assessment or reassessment made on the assessee or any person in consequence of or to give effect to any finding or direction contained in an order under section 31, section 33, section 33A, section 33B, section 66 or section 66A. 7.A Constitution Bench of the Supreme Court considered the provisions of Section 34 (3) of the Income Tax --Act, 1922 in IncomeTax Officer, AWard, Sitapur v. MurlidharBhagwan Das[1]. The second proviso to Section 34 (3) read as follows : “Provided further that nothing contained in this section limiting the time within which any action may be taken, or any order, assessment or reassessment may be made, shall apply to a reassessment made under section 27 or to an assessment or reassessment made on the assessee or any person in consequence of or to give effect to any finding or direction contained in an order under section 31, section 33, section 33A, section 33B, section 66 or section 66A. The Supreme Court held that the provision only lifted the bar of limitation in respect of certain assessments made under certain provisions of the Act and the lifting of the bar could not be so construed as to increase the jurisdiction of the Tribunals under the relevant sections. While construing the expression finding , the Supreme Court held a finding of an“”appellate authority is only that which is necessary for the disposal of an appeal. Where an Assessing Officer holds that income does not belong to the relevant year, the finding that is rendered is to that effect for the year in question. If incidentally the Assessing Officer holds that income belongs to another year, that does not constitute a finding necessary for Dmt the disposal of the appeal for the year in question. In that context, the Supreme Court observed as follows : “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 under appeal. The finding in that context is that 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. ................. Therefore, the expression finding as well as the“”expression direction can be given full meaning,“” namely, that the finding is a finding necessary for giving relief in respect of the assessment of the year in question and the direction is a direction which the appellate or revisional authority, as the case may be, is empowered to give under the sections mentioned therein.” This judgment of the Supreme Court was followed by a Division Bench of this Court consisting of Hon ble Mr. Justice’H.L. Gokhale (as His Lordship then was) and Hon ble Mr.’Justice J.P. Devadhar in Lotus Investments Ltd. v.. G.Y. Wagh,-Assistant Commissioner of IncomeTax and others[1] in relation ,to a block assessment. 8.Section 153 provides for time limits for completion of assessments and reassessments. Clause (ii) of sub-section (3) of Section 153 refers to situations where an assessment, reassessment or recomputation is made in consequence of or to This judgment of the Supreme Court was followed by a Division Bench of this Court consisting of Hon ble Mr. Justice’H.L. Gokhale (as His Lordship then was) and Hon ble Mr.’Justice J.P. Devadhar in Lotus Investments Ltd. v.. G.Y. Wagh,-Assistant Commissioner of IncomeTax and others[1] in relation ,to a block assessment. 8.Section 153 provides for time limits for completion of assessments and reassessments. Clause (ii) of sub-section (3) of Section 153 refers to situations where an assessment, reassessment or recomputation is made in consequence of or to give effect to any finding or direction contained inter alia in an order under Sections 250, 254, 260, 262, 263 or 264. Explanation 2 has stipulated that where, by an order referred to in clause (ii) of sub-section (3) any income is excluded from the total income of the assessee for an assessment year, then, an assessment of such income for another assessment year shall, for the purposes of section 150 and section 153, be deemed to be one made in consequence of or to give effect to any finding or direction contained in the said order. The provisions of Explanation 2 to Section 153 (1) to a certain extent detract from the position which prevailed under the 1922 Act and which was noticed in the judgment of the Supreme Court in Murlidhar Bhagwan Das’s case. This aspect has beenrecognised in a recent judgment of the Gujarat High Court in Kalyan Ala Barot vs. M.H. Rathod[1] (See in this context para 19 of the judgment). This aspect of the case, does not, however, assume any significance because in the present case the reopening has, in any event, taken place within a period of six years and consequently there is no occasion to apply either the provisions of Section 150 or Explanation 2 to Section 153 for lifting the bar of limitation. 9.The CIT (Appeals) while hearing an appeal of the assessee for Assessment Year 2003-04 observed in his order dated 17 March 2009 that certain items of income in respect of transactions mentioned in pages 22A and 22B of the note book which were impounded were not of Assessment Year 2003-04. That constitutes the finding of the CIT (Appeals) for Assessment Year 2003-04. Moreover, as the record before the Court indicates, the Assessing Officer when he passed the order of assessment under Section 143 (3) on 28 December 2006 for Assessment Year 2004-05, had before him the material which was impounded from the sister concern of the assessee during the course of the survey action on 16 February 2005. The assessee had in his Reply before the Assessing Officer (Exhibit ‘ ’D to the Petition) specifically dealt with both the diarieswhich were impounded during the course of the survey action and furnished an explanation regarding pages 22A and 22B. In these circumstances, all necessary facts for assessment for Assessment Year 2004-05 were before the Assessing Officer. The material which was seized from the sister concern was transmitted to the Assessing Officer. The explanation of the assessee was called for by the Assessing Officer who issued a notice under Section 143 (2) on 18 July 2006 and the assessee has furnished its explanation in regard to the impounded documents. It was thereafter that an order of assessment was passed under Section 143 (3). Consequently the jurisdictional condition for reopening an assessment after four years has not been fulfilled. There is no failure on the part of the assessee to disclose fully and truly all material facts necessary for assessment for Assessment Year 2004-05. 10.For these reasons, we are of the view that the reopening of the assessment cannot be sustained on the basis of which the Assessing Officer had issued a notice under Section 148. Rule is accordingly made absolute by setting aside the notice dated 25 March 2011. There shall, in the circumstances, be no order as to costs. (Dr. D.Y. Chandrachud, J.) (A. A. Sayed, J.)