(Per
: HONOURABLE MR.JUSTICE RAJESH H.SHUKLA)
The
present petition has been filed by the Petitioner under Article 226
of the Constitution of India seeking a prayer or direction quashing
the impugned notice under Section 148 of the Income Tax Act
(hereinafter referred to as "the Act") (at Annexure-D)
and also seeking direction against the Respondents not to proceed
further in pursuance of the said notice.
The
facts of the case briefly summarized are that the Petitioner is a
public limited Company at Ahmedabad and the Respondent is Assessing
Officer, who is entitled under the Act to assess the income of the
petitioner for the relevant assessment year 1995-96. The petitioner
Company submitted the return of income for the assessment year
1995-96 as per the statement of total income, copy of which is at
Annexure-A. The petitioner filed return of income declaring total
loss of Rs.4,54,42,033/- and also computed the business loss of
Rs.11,29,45,200/- and depreciation of Rs.89,23,688/- to be carried
forward to the future years. A note was also annexed forming a part
of the return which is stated in detail in the memo of petition. It
is averred that the Assessing Officer has passed an assessment order
under Section 143(3) of the Act dated 23.3.1998 (at Annexure-B).
Thereafter the Assessing Officer did not accept the submission in
the note that the petitioner is not liable to tax in respect of the
sale of its undertaking and the claim for deduction was considered
by the Assessing Officer and he computed the gross total income of
Rs.5,24,06,934/- by deducting Rs.7,43,82,025/- of business loss from
Rs.12,67,88,959/- from the total capital gain of Rs.12,61,19,259/-
as well as income from other sources to the tune of Rs.6,69,700/-.
It is averred that the said gross total income of the petitioner to
the tune of Rs.5,24,06,934/- was a capital gain for which he gave
the deduction of unabsorbed depreciation from previous year of
Rs.2,06,01,400/- and the past unabsorbed depreciation of
Rs.88,41,290/-. The Assessing Officer passed the assessment order
and computed such unabsorbed loss to the tune of Rs.2,06,01,400/-
and gave a set off against the capital gain of Rs.5,24,06,934/-.
It
is against such order, the petitioner preferred appeal and the
CIT(A) passed the order.
After
a period of four years on 5.5.2000, the Respondent gave a notice
under Section 148 of the Act (Annexure-D) stating that he had a
reason to believe that the petitioner's income had escaped
assessment and therefore he proposed to reassess the said income and
required the petitioner to file the return. The petitioner replied
to the said letter asking for the copy of the reasons recorded for
reopening the assessment. It is averred that the petitioner was
replied that it is the policy of the Income Tax Department not to
furnish such reasons to the assessee in general and therefore the
present petition has been filed contending iner alia that the
impugned notice u/s 148 of the Act (Annexure-D) is beyond the
limitation because the provisions of proviso to Section 147 of the
Act clearly provide that the period of limitation is four years. It
is also contended that the petitioner had computed business loss and
unabsorbed depreciation and the Assessing Officer in his own
computed unabsorbed deprecation to the tune of Rs.2,06,01,400/- and
set off the same against the capital gain. It is therefore
contended that, in other words, even if any income has been under
assessed it is not because of the failure on the part of the
petitioner to disclose fully and truly all material facts necessary
for its assessment. It is therefore contended that it cannot be
said that any material fact necessary for the assessment has not
been fully and truly disclosed. Further, it is contended that
infact the allowance for unabsorbed depreciation against the capital
gain is permissible and therefore the unabsorbed depreciation under
Section 32(2) of the past year became the current depreciation for
the assessment year 1995-96 under Section 71(2) and could be set off
against the capital gain, for which reliance has been placed on the
judgment of this Court in case of C.I.T v/s Deepak Textile
Industries Limited, 168 ITR 773 and
also of the Hon'ble Apex Court in case of C.I.T. v/s
Virmani Industries Private Limited, 216 ITR 607.
The
Affidavit in reply has been filed by the Respondent contending inter
alia that it is not necessary for the department to furnish the
assessee, the reasons recorded for reopening the assessment along
with its notice u/s 148 of the Act. It is also contended that the
notice u/s 148 of the Act has been issued after obtaining necessary
approval from the CIT, and as per the provisos of Section 149(ii)
and (iii), the notice could be issued within the time limit of 10
years, and therefore, it is very much within the time. It is also
stated that the petitioner could have availed of the alternative
remedy in respect of challenging the impugned notice by way of
present petition under Article 226 of the Constitution of India. It
is contended that the petitioner has right of a remedy by way of
appeal before the CIT(A) after the assessment is made. It is also
stated that the points raised by the petitioner before this Court in
this petition could also be raised before the CIT(A), as CIT(A) is
vested with all powers to strike off the reopening of the
assessment, and therefore, as the petitioner has right to go in
appeal, the present petition may not be entertained and, as he has
not exhausted the normal channels of remedies available under the
statute and therefore the Court may not entertain the present
petition.
It
is also contended that the petitioner - assessee Company has filed
its return of income on 29.11.1995 declaring loss of
Rs.4,54,42,033/-. In the said statement of income, the assessee
Company has shown total carry forward business loss of
Rs.11,25,45,200/- and unabsorbed depreciation loss to the tune of
Rs.89,23,688/-, which includes current business loss of
Rs.4,53,59,635/-, a detail of which is narrated in the reply
affidavit contending that the assessee Company had projected
unabsorbed business loss and depreciation as on the date of filing
of the return. It is therefore contended that:
It
is pertinent to note that the figures of loss or unabsorbed
depreciation adopted for assessment years 1988-89, 1989-90 and
1990-91 are based on the orders finalised after the filing of return
of income for assessment year 1995-96 and the same was reduced from
the total income without verifying the applicability of provisions
of Section 71(1) wherein the carry forward and set off of business
loss is dealt with. Thus the escapement of income is due to
omission on the part of the assessee.
It
is further contended that in case of escaped income the Assessing
Officer is having jurisdiction as per the provisions of Section 147
to 149 of the Act. Further, it is stated that with prior approval
of the superior, notice u/s 148 of the Act can be issued within the
period of 7 to 10 years from the end of the assessment year, and
therefore, the limitation period of four years is not a absolute
bar, and therefore, the petitioner cannot make a grievance that it
is not within the time limit. Again
a reference is made to Section 32 of the Act contending that
sub-Section (2) of Section 32 speaks about current depreciation and
remaining part which are not given full effect can
be added to the amount of allowance for depreciation for the
following years subject to the provisions of Section (2) of Sections
72 and sub Section (3) of Section 73. Therefore, it is contended
that;
Submission
of audited profit and loss account, balance sheet or notes to the
accounts is not sufficient for determination of correct taxable
income but the bifurcative details with all classification and
nature of expenditure and receipts is absolutely necessary, which
are lacking due to paucity of time available and cooperation of the
assessee in general.
Further-Affidavit-in-Reply
is also filed by the Respondent, again contending that the
petitioner - assessee Company sold its Spinning Mills to M/s Ashima
Syntex Limited as ongoing concern. However, the sale proceeds of
the same were not offered for taxation by the assessee in the
statement of total income. The assessee appended the note being the
note forming part of the return which is quoted in detail and which
is reproduced:
"The
assessee has transferred its undertaking being a spinning
mill to M/s. Ashima Syntex Ltd., as a going concern and on as is
where is and as it what is basis. It is submitted that the
undertaking is sold as a going concern as a whole and therefore
the sale consideration is not liable to tax and hence not
included in the above computation.
Without
prejudice to the above, it is submitted that even if the undertaking
as a whole is considered as a capital asset, no tax liability arises
as the indexed cost of acquisition is more than the sale
consideration."
Therefore
it is contended that the assessee has omitted the offer of sale
consideration for taxation as per the scheme of the Income Tax Act,
1961 under the head of "capital gain" and therefore it is
open to the Respondent to reopen the case. It is also stated that
when any asset is transferred, capital gain is attributed to it and
in the notice it has been stated that even if the undertaking as a
whole is considered as capital asset, no tax liability arise, as the
indexed cost of acquisition is more than the sale consideration. It
is therefore contended that it cannot be said that there is no
omission on part of the Petitioner Company and it is ill-founded.
The petitioner Company has furnished wrong facts alongwith the
statement of total income by stating that the sale of ongoing
concern is not taxable as capital gain, and further contending that,
if the undertaking is treated as a whole and is considered as
capital asset, no tax liability arises as the indexed cost of
acquisition is more than the sale consideration, which is misleading
and not borne out of the records.
Learned
Counsel Mr. J.P.Shah referred to the averments made in the petition
with Annexures, the reply affidavit and also the provisions of
Section 147, and submitted that the notice issued under Section 148
(Annexure-D) is beyond the period of limitation. He further
emphasized that proviso to Section 147 of the Act clearly provide
that no action shall be taken under this Section after expiry of
period of four years from the end of the relevant assessment years.
He further submitted that unless any income chargeable to tax has
escaped assessment for such assessment year by reason of the failure
on part of the assessee to make return under Section 139 or in
response to notice issued under sub-Section (1) of Section 142 or
Section 148 of the Act or
to disclose fully and truly all
material facts necessary for his assessment, for that assessment
year
, therefore, learned Counsel Mr. J.P.Shah submitted that
can it be said that the petitioner - assessee Company is guilty of
not disclosing fully and truly all the material and relevant record.
He further emphasized referring to the affidavit in reply and
submitted that as stated in the affidavit in reply filed by the
Respondent it is stated that;
Submission
of audited profit and loss account, balance sheet or notes to the
accounts is not sufficient for determination of correct taxable
income but the bifurcative details with all classification and
nature of expenditure and receipts is absolutely necessary, which
are lacking due to paucity of time available and cooperation
of the assessee in general.
Learned
Counsel Mr. Shah pointedly emphasized this aspect and submitted that
admittedly the audited accounts were submitted with the notes which
clearly reflect and disclose about transfer of an undertaking with
unabsorbed depreciation of the claim made. Therefore, it cannot be
said that there was withholding of any material fact or could not
have noticed. However, due to paucity of time or for whatever
reason, it could not be handled to cause harassment to the
petitioner and therefore the present petition has been filed.
Learned Counsel Mr. J.P.Shah strenuously submitted that when the law
provides about the manner or subject to the fulfillment of the
criteria, the powers could be exercised, and when such ground does
not exist, the purported exercise of power for issuance of notice is
bad and illegal and without jurisdiction, and therefore, the present
petition may be allowed.
Learned
Counsel Mr. J.P.Shah has emphasized referring to the reply affidavit
as referred to herein above that, can it be said to be withholding
of non-disclosure of any material fact. He empahsized and submitted
that as it can be seen from the note, which has been quoted, it is
clear that the petitioner assessee has clearly stated about the fact
that the assessee has transferred its undertaking being Spinning
Mills to M/s Ashima Syntex Limited as a ongoing concern on "as
is where is basis". He further submitted that when this note
was appended, there is no question of any kind of surreptitious way
of putting it or hiding anything as sought to be canvassed. The
Assessing Officer had all the opportunity and had every occasion to
verify this note along with the accounts and it could have noticed
on this aspect. He also referred to Section Section 32 as well as
sub-Section (2) and sub-Section (3) of Section 72, which speaks
about the current depreciation and the fact about the allowance for
depreciation for the following years.
Learned
Counsel Mr. M.R.Bhatt appearing for the Respondent again referred to
and relied upon the affidavit-in-reply and
further-affidavit-in-reply and submitted that since it was a case of
transfer of an undertaking, the income had escaped and therefore,
with the approval of the higher authorities, the notice has been
issued as required under the law. For that purpose, he referred
again to the provisions of Section 147 of the Act and submitted that
there is no total bar that after period of four years, notice cannot
be issued. He further emphasized and submitted that in certain
contingencies, subject to the approval of higher authorities, notice
could be issued and that is done in the present case also. He
emphasized that as provided in proviso to Section 147 of the Act,
when there is failure to disclose fully and truly all material facts
necessary for the assessment, again he submitted that though the
petitioner assessee may have filed the return with the audited
account and the notes, the real crux of the matter is the disclosure
made and he referred to the part of the note, which is quoted in the
petition with regard to the disclosure and submitted that it was a
case with regard to transfer of an undertaking being the Spinning
Mills to M/s Ashima Syntex Limited, and therefore, since it was a
transfer of an undertaking, it would invite liability of tax as
capital gain. He submitted that the petitioner assessee has omitted
the offer of sale consideration of taxation as per the scheme of the
Act under the head "capital gain". He submitted that
before the CIT(A), it was also referred to as "the liability
for the short term capital gain". Learned
Counsel Mr. Bhat submitted that the claim made by the petitioner
asessee that,
even if the undertaking as a whole is considered as a capital asset,
no tax liability arises as the indexed cost of acquisition is more
than the sale consideration,
is misleading as there is no material made available for the
same. He therefore submitted that the Hon'ble Apex Court has held
that when a business undertaking is transferred, it is a capital
asset, for which, he placed reliance on the judgment referred to in
the reply affidavit. Therefore it was submitted that the assessee
will have all the opportunity to satisfy the authorities, and
therefore, the Court may not entertain the present petition at this
stage. He emphasized and submitted that the petitioner assessee
Company will have all the opportunity to give the explanation which
could be considered, and the department cannot be denied the right
for reopening, when there is escapement of the income.
Learned
Senior Standing Counsel Mr. Manish R. Bhatt also referred to and
relied upon the judgment of the Hon Apex Court in case of Indo-Aden
Salt MFG. & Trading Co. P. Ltd. v. Commissioner of Income Tax,
Bombay, 159 ITR 624 and emphasized the observations made
therein;
It
is well settled that the obligation of the assessee is to disclose
only primary facts and not inferential facts. If some material for
the assessment lay embedded in the evidence which the Revenue could
have uncovered but did not, then it is the duty of the assessee to
bring it to the notice of the assessing authority.
..................................
Referring
to these observations, he submitted that the submissions made by
full and true disclosure have to be considered in context of these
observations that even if some other details are given, but it is
for the assessee to draw the attention and bring it to the notice of
the Assessing Authority with regard to transfer of undertaking,
which he has not done, and therefore, the present petition may not
be entertained.
In
view of the rival submissions, it is required to be considered
whether the present petition can be entertained or not.
Before
the rival submissions are appreciated and considered, few admitted
facts are required to be mentioned that the impugned notice under
Section 148 of the Act has
been issued after the period of four years. It is also an admitted
fact that the petitioner Company has submitted the return of
income tax along with necessary record; like audited accounts as
well as notes which is also quoted in the petition as well as in the
reply affidavit. Therefore perusal of provisions of Section 147 of
the Act would make it clear from the language in which it is
couched, that after the period of four years, normally when the
assessment under Section 143(3) of the Act has been made, it would
not be allowed to be reopened. However, the word "unless"
is used for the purpose of referring to some contingency where it
could be reopened subject to fulfillment of the necessary
requirement as stated therein. In other words, normally, when the
assessment u/s 143(3) of the Act has been made, it would not be
allowed to be reopened unless the criteria provided for allowing
such reopening is fulfilled. Thus, from the perusal of the Section,
it is very clear that as a general rule, normally the assessment is
not permitted to be reopened after the period of four years and at
the same time, the department is not totally deprived of its right
and the absolute ban has not been imposed, but such a right to
reopen is further qualified subject to the fulfillment of the
conditions referred to therein. Therefore, an exception is carved
out to enable the department to have this recourse of reopening
after four years subject to fulfillment of the required conditions
or the criteria laid down. One of the conditions or the criteria is
failure to disclose fully and truly all material facts which has
been emphasized by both the sides. Again, whether there was any
such failure to disclose fully and truly all material facts will
depend upon facts of each case and there cannot be any set norms or
the parameters to decide and it will have to decided with reference
to the facts and material in each case depending upon the sound
discretion to be exercised by the authority concerned. At the same
time, while exercising such discretion, if it is resorted
subjectively, without any basis or foundation or the material, it
will be subject to the scrutiny and liable to be set aside. In
other words, before such power of reopening beyond the period of
four years could be resorted to, it is obligatory for the authority
or the Assessing Officer to justify by providing a basis or
foundation for exercise of such power which has been qualified by
the statute itself. The legislature, being conscious of this
aspect, has therefore, while balancing the right of the assessee on
the one hand and the department on the other hand, specifically used
the word unless (emphasis supplied), which again provide that
unless these conditions are specified, the powers of reopening
cannot be resorted. Therefore, making it imperative that before
such powers could be resorted to, the criteria or the conditions
have to be fulfilled namely the foundation on the basis of some
material facts have to be established prima facie with regard to the
fact that there was a failure to disclose fully and truly all the
material facts. It is only in such circumstances, the exercise of
power would be justified. The word unless as provided in the
Stroud's Judicial Dictionary
is defined as under:
[ Unless
the contrary is shown (R.S.C., Ord. 10, r.1(3)(a)). These words
shall be given their full meaning and not restricted to mean only
unless the contrary is shown by the defendant (Abu Dhabi
Helicopters v. International Aeradio [1986] 1 All E.R. 395; Hodgson
and Another v. Hart District Council [1986] 1 All E.R. 400).]
In other
words, normally, the power of reopening would not be exercised after
4 years as a rule unless the contrary is shown based on the material
or the basis as fulfillment of the conditions provided in Section
143(3). Unless such criteria or conditions are fulfilled, the
powers cannot be resorted to.
It
is admittedly stated that audited books of accounts like profit and
loss balance sheet along with the notice were submitted and
what was necessary was the bifurcative details with all
classification and nature of expenditure and receipts, which could
have been called for by the Assessing Officer, and therefore,
without calling for such record, when there is a specific disclosure
in the form of note regarding transfer of an undertaking,
specifically stated that the petitioner cannot be said to be guilty
of not making full and true disclosure as sought to be canvassed.
Reliance placed by Mr. Bhatt on the observations of the Hon'ble
Apex Court in case of Indo-Aden Salt MFG. & Trading
Co. P. Ltd. v. Commissioner of Income Tax, Bombay (supra),
is also misconceived as the facts
were totally different. In that case what was sought to be
claimed was the depreciation on the masonry work, salt work and the
depreciation for the salt work is higher than the masonry work which
was sought to be added to the same for getting the benefit of higher
depreciation and in that context, the observations have been made
that if some material for the assessment lay embedded in the
evidence which the Revenue could have uncovered but did not, then it
is the duty of the assessee to bring it to the notice of the
assessing authority. In the facts of the case that is not so as
there was no evidence
required with regard to the disclosure made for transfer of an
undertaking and if any clarification was required, thereof with
regard to any bifurcation or classification, the Assessing Officer
could have called for the said clarification once the assessee had
made the declaration. Therefore, in the facts of this case, it
cannot be said that after such disclosure the Assessing Authority
may not have noticed the necessary material and relevant facts.
Further, it cannot be said that there was no disclosure of primary
facts which has caused the escapement of the income.
The
another facet of the argument with regard to the alternative remedy
being available, is also required to be appreciated. Though the
contention has been raised that the petitioner has a remedy by way
of an appeal before the CIT(A) where all points could be considered,
is also misconceived in light
of the fact that if the purported exercise or jurisdiction of the
authority is bad in law, then the availability of the alternative
remedy is no bar to invoke the jurisdiction of this Court. If this
is accepted, it would amount to accepting the exercise of power
under Section 147 of the Act and issuance of notice u/s 148 of the
Act as valid justification of contention between the parties. In
other words if the petitioner is relegated
to the alternative remedy, it would validate the exercise of
authority or jurisdiction in issuance of notice under Section 148 of
the Act (at Annexure-D) and what it talks about, is
further procedure, or the opportunity could be afforded to the
petitioner assessee, but the notice would remain valid which is
challenged in the present petition in light of the provisions of the
statute. Therefore, this submission is also misconceived.
In the
circumstances, we are of the opinion that the present petition
deserves to be allowed and accordingly stands allowed.
The notice
at Annexure-D issued in exercise of powers under Section 148 of the
Act is hereby quashed ad set aside. Rule is made absolute
accordingly. No order as to costs.
(K.A.Puj,J)
(Rajesh H.
Shukla,J)
Jayanti*
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