Wp(Md)/7894/2016 Of K.p.s.enterprises A v. Income Tax Officer

BEFORE THE MADURAI BENCH OF MADRAS HIGH COURT DATED: 09.03.2021 THE HONOURABLE MR.JUSTICE G.R.SWAMINATHAN K.P.S.Enterprises a partnership firm,represented by its partner,Shri.K.P.Alagarsamy, 184/2, Bye Pass Road, Madurai 625016. ...Petitioner in both W.Ps.-Vs- Income Tax Officer,Non Corporate Ward 2(3),Madurai 625002. Prayer in W.P.(MD)No.7894 of 2016:Petition filed under Article 226of the Constitution of India to issue a Writ of Certiorari, tocall for the records in the matter of assessment of the petitionerfor the assessment year 2007-08 in file No.AAKFK1539J and quash thenotice under Section 148, dated 31.03.2014 and consequentialassessment order dated 31.03.2016 of the respondent under Section143(3) read with Section 147 of the Income-Tax Act, 1961 as withoutjurisdiction and ab initio void. Prayer in W.P.(MD)No.7895 of 2016:Petition filed under Article 226of the Constitution of India to issue a Writ of Certiorari, to callfor the records in the matter of assessment of the petitioner forthe assessment year 2008-09 in file No.AAKFK1539J and quash thenotice under Section 148, dated 31.03.2014 and consequentialassessment order dated 31.03.2016 of the respondent under Section143(3) read with Section 147 of the Income-Tax Act, 1961 as withoutjurisdiction and ab initio void. COMMON ORDER Heard the learned counsel for the petitioner and the learnedSpecial Government Pleader for the respondent. 2.K.P.S.Enterprises is a partnership firm that is assessed byhttps://hcservices.ecourts.gov.in/hcservices/ the respondent. The case on hand pertains to the assessment years2007-08 & 2008-09. In response to the notice issued on 31.03.2010under Section 148 of the Income Tax Act, 1961, the petitioner filedreturns and after scrutiny, for the assessment year 2007-08, theassessment order was passed on 30.12.2010, while for the subsequentyear, the assessment order was passed on 21.12.2011. The petitioneris said to have paid all the taxes in terms of the aforesaidassessment orders. While so, the impugned notices were issuedunder Section 147 of Income Tax Act, 1961. The petitioner submittedhis reply in response to the said notices. The petitioner hadspecifically challenged the very jurisdiction of the authority toissue the said notices. Rejecting the stand of the petitioner, there-assessment orders were passed on 31.03.2016. They are underchallenge in these writ petitions. 3.The respondent has filed a counter affidavit stating that therespondent is very much having the jurisdiction under Section 147 ofthe Act to initiate action for re-assessment. It is also submittedthat without exhausting the appeal remedy, these writ petitions havebeen directly filed before this Court. ThelearnedStandingCounsel would call upon this Court to dismiss both the writpetitions by upholding the stand set out in the counter affidavit. 4.I carefully considered the rival contentions and went throughthe materials on record. The cases on hand pertain to theassessment years 2007-08 and 2008-09. There is also no doubt thatthe original orders of assessment in respect of those two assessmentyears were passed and finalised under Section 143 of the Act afterscrutiny. The notices under Section 147 of the Act were issuedonly on 31.03.2014. A mere look at the proviso to Section 147 ofthe Act would make it clear that no action shall be taken underSection 147 of the Act after the expiry of four years from the endof the relevant assessment years, unless the authority can bring theimpugned action under exceptional circumstances set out in provisoitself. It is beyond cavil that the impugned action was takenafter the expiry of four years from the end of the relevantassessment years. Therefore, the respondent is obliged to show thatthe present case would fall under the exceptional category. Theexceptional categories read as under:- Provided that where an assessment under sub-section (3) ofSection 143 of this section has been made for the relevantassessment year, no action shall be taken under this sectionafter the expiry of four years from the end of the relevantassessment year, unless any income chargeable to tax has escapedassessment for such assessment year by reason of the failure onthe part of the assessee to make a return under Section 139 orin response to a notice issued under sub section (1) of section142 or section 148 or to disclose fully and truly all materialfacts necessary for his assessment, for that assessment year:Provided further that nothing contained in the first provisohttps://hcservices.ecourts.gov.in/hcservices/shall apply in a case where any income in relation to any asset (including financial interest in any entity) located outsideIndia, chargeable to tax, has escaped assessment for anyassessment year: Provided also that the Assessing Officer may assess orreassess such income, other than the income involving matterswhich are the subject matters of any appeal, reference orrevision, which is chargeable to tax and has escapedassessment.” 5.The learned counsel for the petitioner would state that thereasons assigned by the respondents for re-opening the assessmentare as follows:- 1) the assessee firm had computed the income from houseproperty as that from business which led to claim of excessivededuction of expenses.2) Difference in the value of the property assessed andregistered with SRO. 6.A mere look at both the reasons would show that they wouldnot fall under any of the exceptional categories mentioned above.The learned counsel for the petitioner places reliance on thedecision reported in (1999) 155 CTR Mad 165 (Fenner (India) Ltd.,Deputy Commissioner of Income Tax). In the said decision, theHon'ble High Court held that the precondition for the exercise ofthe power under Section 147 in cases where power is exercised withina period of four years from the end of the relevant assessment yearis the belief reasonably entertained by the AO that any incomechargeable to tax has escaped assessment for that assessment year.However, when the power is invoked after the expiry of the period offour years from the end of the assessment year, a furtherprecondition for such exercise is imposed by the proviso namely thatthere has been a failure on the part of the assessee to make areturn under Section 139 or in response to a notice issued underSection 142 or Section 148 or failure on the part of the assessmentto disclose fully and truly all material facts necessary for hisassessment for that assessment year. Unless the condition in theproviso is satisfied, the AO does not acquire jurisdiction toinitiate any proceeding under Section 147 of the Act after theexpiry of four years from the end of the assessment year. 7.It was further held in the aforesaid decision as follows:-“21.The duty of an assessee is limited to fully and trulydisclose all the material facts. The assessee is not requiredthereafter to prepare a draft assessment order. If the detailsplaced by the assessment before the AO was in conformity withthe requirements of all applicable laws and known accountingprinciples, and materials details has been exhibited before theAO, it is for the AO to reach such conclusions as he consideredwas warranted from such data and any failure on his part to doso cannot be regarded as assessee's failure to furnish thehttps://hcservices.ecourts.gov.in/hcservices/ 7.It was further held in the aforesaid decision as follows:-“21.The duty of an assessee is limited to fully and trulydisclose all the material facts. The assessee is not requiredthereafter to prepare a draft assessment order. If the detailsplaced by the assessment before the AO was in conformity withthe requirements of all applicable laws and known accountingprinciples, and materials details has been exhibited before theAO, it is for the AO to reach such conclusions as he consideredwas warranted from such data and any failure on his part to doso cannot be regarded as assessee's failure to furnish thehttps://hcservices.ecourts.gov.in/hcservices/ material facts truly and fully. Any lack of comprehension onthe part of the AO in understanding the details placed beforehim cannot confer a justification for reopening the assessment,long after the period of four years had expired. On the factsof this case, it is clear that the escapement of income if anyon this account is not on account of any failure on theassessee's part to disclose the material facts fully and truly.The notice issued by the AO in exercise of his power underSection 147, therefore, cannot be sustained. 22.As the error here is one of jurisdiction, it is notnecessary for the assessee to take recourse for the remedies byway of appeal, revision, etc., It is well settled that when ajurisdictional error is brought to the notice of this Courtsuch errors are capable of being corrected by this Court inexercise of the powers conferred under Article 226 of theConstitution of India. The Supreme Court in the case of CITVs. Progressive Engineering and another 200 ITR 321 (sic) heldthat when all the relevant facts were before the Court and thelaw is clear on the subject, it is the duty of the High Courtto interfere. That was also a case where the proceedings weresought to be initiated against the assessee under Section 147of the Act.” 8.It is not the case of the respondent that there was anysuppression on the part of the assessee. The assessee had chosento make full disclosure and make a certain claim on that basis. Thepetitioner's claim was accepted by the then Assessing Officer. Thesubsequent officer has chosen to take a different view. The learnedcounsel for the petitioner placed reliance on the decision reportedin (2010) 320 ITR 521(CIT Vs. Kelvinator of India Ltd.,) for theproposition that change of opinion on the part of the subsequentassessing officer cannot be a ground to reopen a concludedassessment. 9.I am fully in agreement with the aforesaid contention of thelearned counsel for the petitioner. The orders impugned in the writpetitions have been passed without jurisdiction. They are quashed.These Writ Petitions are allowed. No costs. Consequently,connected miscellaneous petitions are closed. Note : In view of the present lock down owing toCOVID-19 pandemic, a web copy of the order may behttps://hcservices.ecourts.gov.in/hcservices/ utilized for official purposes, but, ensuring thatthe copy of the order that is presented is thecorrect copy, shall be the responsibility of theadvocate/litigant concerned. ToIncome Tax Officer,Non Corporate Ward 2(3),Madurai 625002.+1 CC to M/s.R.SRINIVASAN, Advocate ( SR-9883[F] dated 10/03/2021 )+1 CC to M/s.S.SRIMATHY, Advocate ( SR-9960[F] dated 10/03/2021 )Income Tax Officer,Non Corporate Ward 2(3),Madurai 625002.+1 CC to M/s.R.SRINIVASAN, Advocate ( SR-9883[F] dated 10/03/2021 )+1 CC to M/s.S.SRIMATHY, Advocate ( SR-9960[F] dated 10/03/2021 )