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Jay Shree Tea And Industries Ltd. v. Deputy Commissioner Of Income-Tax And Others
Structured Summary of the Provided Opinion
Factual and Procedural Background
The writ petitioner (a public limited company engaged in tea growing and manufacturing, chemicals and fertilisers manufacturing, plywood, shipping and warehousing) challenged a notice issued under section 148 of the Income Tax Act, 1961 by respondent No.1. The impugned notice was dated 30-9-1997 and sought reassessment for the assessment year 1990-91 (accounting period ending 31-3-1990).
For the assessment year 1990-91 the petitioner filed a return with tax audit report and claimed a deduction under section 32AB(5). The assessment under section 143(3) was completed on 22-3-1993. The assessing officer determined the income chargeable to tax from tea-growing and manufacturing as 40% amounting to Rs. 6,47,84,258, and allowed a deduction of Rs. 1,59,92,021 (stated as 40% of Rs. 3,99,80,053) in computing that taxable income.
After assessment, the assessing officer issued the section 148/147 notice alleging that the deduction under section 32AB(5) had been allowed in excess of the permissible amount, and thus income had escaped assessment. The petitioner moved this writ challenging the notice and praying for it to be quashed so that no reassessment steps be taken pursuant to the notice dated 30-9-1997.
Legal Issues Presented
- Whether a notice issued under section 148 after the expiry of four years from the end of the relevant assessment year is valid unless the assessing officer is satisfied that (a) income chargeable to tax has escaped assessment and (b) such escapement is by reason of the assessee's failure to disclose fully and truly all material facts necessary for assessment (i.e., whether both conditions required by the proviso to section 147 coexist).
- Whether, on the facts of this case and the assessment record (including the charts produced by both parties), there was any escapement of income or failure by the assessee to disclose fully and truly all material facts necessary for assessment.
- Whether a mere mistake in computation or calculation (if any) justifies initiation of reassessment proceedings under section 148, or whether such mistakes can be rectified under section 154 without invoking section 148.
- Whether the existence of alternate remedies (processing objections in reassessment, approaching the Commissioner and Tribunal) should preclude judicial interference at the notice stage.
Arguments of the Parties
Petitioner's Arguments
- The notice under section 148 was issued after four years from the end of the relevant assessment year; therefore the assessing officer was required, before issuing the notice, to satisfy himself that (i) income had escaped assessment and (ii) that such escapement was due to the assessee's failure to disclose fully and truly all material facts necessary for assessment (proviso to section 147).
- The petitioner contended that all materials required for assessment were disclosed fully and truly. Even if some income had escaped, because the materials were fully and truly disclosed the assessing officer had no jurisdiction to issue a notice under section 148.
- Counsel for the petitioner produced detailed charts showing the computation of composite tea-income, the deduction under section 32AB as allowed in the assessment, and how the final assessed figures were reached, arguing that ultimately the deduction allowed and the taxed income from tea were consistent and there was no escapement.
Department's (Respondent's) Arguments
- The department alleged that the assessee had claimed a deduction under section 32AB amounting to Rs. 3,99,80,053 and that the assessing officer had wrongly allowed that claim; therefore income had escaped assessment, justifying issuance of the section 148 notice.
- The department argued that if the assessee had grievances it could raise them in the reassessment proceedings and, subsequently, before the Commissioner and the Tribunal — implying that there was an alternate remedy and the court should not interfere at the notice-stage.
- The department filed a chart indicating (as per the assessment) the excess deduction allowed under section 32AB for each estate and an overall figure of excess deduction which, according to the department's chart, supported the claim of excess allowance.
Table of Precedents Cited
| Precedent | Rule or Principle Cited For | Application by the Court |
|---|---|---|
| Calcutta Discount Co. Ltd. v. Income Tax Officer (1961) 41 ITR 191 (SC) | Where a notice is issued after four years, both conditions must coexist: (i) the Income Tax Officer must have reason to believe there has been under-assessment, and (ii) he must have reason to believe such under-assessment resulted from non-disclosure of material facts. | Cited to emphasise that for issuance of a section 148 notice beyond four years both the reason-to-believe of underassessment and reason-to-believe of non-disclosure must coexist; used to test the validity of the impugned notice. |
| Coca Cola Export Corpn. v. Income Tax Officer (1998) 231 ITR 200 (SC) | Illustrates limits of tax authority jurisdiction where other statutory/regulatory regimes are concerned; the Court held there was an inherent lack of jurisdiction in the Income Tax Officer to issue notices under section 148 in that case. | Cited for the proposition that an assessing officer may lack jurisdiction to issue reassessment notices in certain circumstances; the court noted the precedent's conclusion that notices in that case were without jurisdiction. |
| Indo-Aden Salt Mfg. & Trading Co. (P) Ltd. v. CIT, AIR 1986 SC 1857 | Mere production of evidence before the assessing officer is not enough; there may be an omission or failure to make true and full disclosure and where material is embedded in produced evidence, it is the duty of the assessee to bring it to the assessing authority's notice. | Relied upon to explain that the adequacy of disclosure depends on whether material facts were made apparent to the assessing officer and that a failure to bring embedded material to notice can amount to non-disclosure. |
| Central Provinces Manganese Ore Co. Ltd. v. Income Tax Officer (1991) 191 ITR 662 (SC) | If the true price has not been disclosed and there was under-invoicing, the prima facie conclusion is that there was failure to disclose fully and truly all material facts; both conditions for section 147(a) can be satisfied. | Cited to illustrate circumstances (e.g., under-invoicing) where non-disclosure is inferred and both conditions for reassessment beyond four years are held to be satisfied. |
| Sri Krishna (P) Ltd. v. Income Tax Officer, AIR 1996 SC 3409 | Explains the purport of provisions analogous to section 147: to confer jurisdiction beyond four years, the assessing officer must have reason to believe (i) income escaped assessment and (ii) that this was due to omission or failure of the assessee to disclose fully and truly all material facts; imposes a duty on the assessee to disclose fully and truly all material facts necessary for assessment. | Cited (including reproduction of Constitution Bench observations) to underline the duty of full and true disclosure and the dual-requirement for issuing notices after four years. |
| IAC v. V. I. P. Industries Ltd. (1991) 191 ITR 661 (SC) | Referenced among authorities dealing with the scope of reassessment and disclosure obligations (as relied upon by respondent counsel). | Cited by respondent counsel and noted in the opinion as part of the line of cases the court considered in relation to non-disclosure and reassessment jurisdiction. The opinion grouped it with other Supreme Court authorities on disclosure/non-disclosure. |
Court's Reasoning and Analysis
The court proceeded by examining the assessment records and the computation charts submitted by both parties to determine whether there was any escapement of income and whether such escapement (if any) resulted from failure by the assessee to disclose fully and truly all material facts.
Key steps in the court's analysis (as contained in the opinion):
- The court noted the statutory requirement (proviso to section 147) that where an assessment under section 143(3) has been made, no action under section 147/148 may be taken after four years unless income has escaped assessment by reason of failure to disclose fully and truly all material facts.
- The court reviewed the assessment figures: for example, for the Sholayar unit the composite income accepted in the order was Rs. 2,88,28,498; 40% of that is Rs. 1,44,17,657 and 20% of the 40% (i.e., deduction at 20% of 40% figure) roughly corresponds to Rs. 28,86,258; the assessing officer ultimately taxed the net figure of Rs. 1,15,31,399 for that unit. The court noted that there was no dispute over the assessed income figures.
- On comparing the charts supplied by the parties, the court found that the deduction allowable under section 32AB, on a perusal of both charts, was Rs. 1,59,92,021 (the figure ultimately allowed in assessment) and that the total taxable income as assessed remained Rs. 6,47,84,258.
- The court concluded that "there is hardly any case of escapement of income" on the facts and that the department failed to prove that the assessee had failed to disclose fully and truly all material facts necessary for assessment.
- The court observed that even if there were some calculation mistakes by either party, such mistakes do not equate to non-disclosure of material facts; calculation errors can be corrected under section 154 and do not justify issuing a notice under section 148.
- Applying the legal principles set out in the cited precedents (which require both reason to believe as to escapement and reason to believe as to non-disclosure before initiating reassessment after four years), the court found no justification for the assessing officer to assume jurisdiction by issuing the impugned section 148 notice in the circumstances of this case.
- Given that the notice itself was found to be bad in law (for lack of jurisdiction and absence of proved non-disclosure), the court saw no reason to permit continuation of reassessment proceedings and quashed the notice.
Holding and Implications
Holding:
IMPUGNED NOTICE UNDER SECTION 148 QUASHED.
Implications and direct consequences:
- The notice dated 30-9-1997 issued under section 148 (read with section 147) was quashed because the court found no sufficient basis to conclude that income had escaped assessment by reason of the assessee's failure to disclose fully and truly all material facts — a prerequisite to issuance of such a notice after four years from the end of the relevant assessment year.
- The court emphasised that mere arithmetic or calculation mistakes do not amount to non-disclosure of material facts and that such mistakes, if any, are amenable to rectification under section 154 rather than by initiation of reassessment under section 148.
- There will be no order as to costs (as expressly stated in the opinion).
- The opinion does not discuss broader doctrinal or systemic implications beyond the direct effect on the parties; it addresses the validity of the impugned notice on the facts and law applied in this case rather than announcing a new principle of law.
End of summary. This document reflects only information contained in the provided opinion and does not add or infer facts beyond that text.
By this writ petition, the writ petitioner has challenged the notice under section 148 of the Income Tax Act, 1961 (hereinafter referred to as 'the Act'), by the respondent No. 1 and has prayed that the notice be quashed and no steps be taken further for reassessment in pursuance of the impugned notice dated 30-9-1997, issued under section 148.
2. The writ petitioner is a pubic limited company and derives its income from the business of growing and manufacturing tea in India, manufacturing chemicals and fertilisers and manufacturing plywood, shipping and warehousing. For the assessment year 1990-91, the accounting period ending on 31-3-1990, the petitioner filed return along with tax audit report and claimed deduction under section 32AB(5) of the said Act. The assessment was completed on 22-3-1993, under section 143(3) of the Act and the assessing officer determined the income chargeable to tax under the Act from growing and manufacturing of tea in India, being 40 per cent at Rs. 6,47,84,258. In computing the said taxable income from growing and manufacturing of tea in India, the deduction of Rs. 1,59,92,021 was allowed, being 40 per cent of Rs. 3,99,80,053.
3. After completion of the assessment, the assessing officer had issued notice under section 148 read with section 147, being Annexure 'B' to the petition, dated 30-9-1997, asking the petitioner that its income had escaped as deduction under section 32AB(5) allowed more than the amount permissible under section 32AB of the said Act.
4. The petitioner has challenged this notice on the ground that the notice has been issued after four years from the end of the relevant assessment year. Therefore, before the issue of notice, the Income Tax Officer should satisfy whether any income has escaped and that the assessee has failed to disclose fully and truly all material facts necessary for the assessment.
5. The counsel for the petitioner submits that all materials required for assessment of income were disclosed fully and truly by the assessee. Therefore, even if some income had escaped, the materials being fully and truly disclosed, the Income Tax Officer had no jurisdiction to issue notice under section 148 of the said Act.
6. The case of the department is that the assessee has claimed the deduction under section 32AB of the Act to the tune of Rs. 3,99,80,053. The assessing officer has wrongly allowed the claim. Therefore, income had escaped and there was justification for isssuing notice under section 148 of the said Act. If the assessee has any grievance, then it can submit its case before the assessing officer in reassessment proceedings and even if it has any further grievance, the assessee can challenge that order before the Commissioner and thereafter before the Tribunal. Therefore, there is an alternative remedy and this court should not interfere at the notice-stage.
7. Before I proceed, I would like to give some relevant facts to see whether deduction is allowed more than admissible under section 32AB of the Act. The counsel for the petitioner has furnished the following chart :
JAY SHREE TEA & INDUSTRIES LTD.
10, Carnac Street , Calcutta-700017 Statement of income from tea growing and manufacturing business and deduction allowed under section 32AB of the Income Tax Act, 1961 for the assessment year 1990-91 as per the assessment order Composite income from tea as per asst. order Deduction under section 32AB considered in the assessment year from composite tea income Composite tea income before deduction under section 32AB 40% of the tea income chargeable to income-tax before deduction under section 32AB Deduction allowable under section 32AB at 20% Net income chargeable to tax Rs.
Rs.
Rs.
Rs.
Rs.
Rs.
Sholayar 2,88,28,498 72,15,644 3,60,44,142 1,44,17,657 28,86,258 1,15,31,399 Merchiston 7,78,023 1,96,447 9,74,470 3,89,788 78.579 3,11,209 Dewan 5,53,78,317 1,36,88,658 6,90,66,975 2,76,26,790 54,75,463 2,21,51,327 Towkok 3,31,87,080 82,02,552 4,13,89,632 1,65.55,863 32,81,021 1,32,74,832 Meleng 1,01,15,045 24,38,245 1,25,53,290 50,21,316 9,75,298 40,46.018 Nahorhabi 58,05,562 13,70,314 71,75,875 28,70,350 5,48,125 23,22,225 Kalling 1,51,81,119 37,94,237 1,89,75,356 75,90,142 15,17,695 60,72,448 Jellapoie 82,70,580 20,63,851 1,03,34,431 41,33,772 8,25,540 33,08,232 Tukvar 12,09,868 2,25,883 14,35,751 5,74,300 90,353 4,83,947 Risheehat 32,06,553 7,84,222 39,90,775 15,96,310 3,13,689 12,82,621 16,19,60,645 3,99,80,053 20,19,40,698 8,07,76,278 1,59,92,021 6,47,84,258
8. Counsel for the respondent also filed a chart indicating total income deduction allowed under section 32AB as per the Act and excess deduction allowed which reads as under:
JAY SHREE TEA & INDUSTRIES LTD.
ASST. YR. 1990-91 Statement of total income and deduction under section 32AB as allowed in the assessment order S.No.
Name of the estates Total income before deduction under section 32AB Deduction allowed under section 32AB in the assessment Deduction under section 32AB allowable as per Income Tax Act, 1961 Excess deduction allowed in the assessment Rs.
Rs.
Rs.
Rs.
1. Sholayer T.E.
3,60,44,142 72,15,644 28,86,258 43,29,386
2. Merchiston T.E.
9,74,470 1,96,447 78,529 1,17,868
3. Dewan T.E.
6,90,66,975 1,36,88,658 54,75,463 82,13,195
4. Towkok T.E.
4,13,89,632 82,02,552 32,81,021 49,21,531
5. Neleong T.E.
1,25,53,290 24,38,245 9,75,298 14,62,947
6. Nahorhabi T.E.
71,75,876 13,70,314 5,48,126 8,22,188
7. Kalling T.E.
1,89,75,356 37,94,237 15,17,695 22,76,542
8. Jellapore T.E.
1,03,34,431 20,63,851 8,25,540 12,38,311
9. Tukver T.E.
14,35,751 2,25,883 90,353 1,35,530
10. Risheehat T.E.
39,90,775 7,84,222 3,13,689 4,70,533 20,19,40,698 3,99,80,053 1,59,92,022 2,39,88,031 As per rule 8 : 40 per cent of Rs. 2,39,88,031 comes Rs. 95,95,212 There is no dispute that deduction allowable under section 32AB is Rs. 1,59,92,002 on a perusal of both the charts given by the counsel for the parties.
9. The counsel for the assessee, Dr. Pal, submits that though the deduction under section 32A is initially allowed on the total income from tea-growing and manufacturing, but ultimately deduction under section 32AB allowed is Rs 1,59,92,021, i.e., 20 per cent of 40 per cent of the total income. So instead of apportioning the total income first what the assessing officer has done is that he had allowed straightway 20 per cent deduction on the total income. Then he apportioned it between 60 to 40 ratio. But there is no dispute that the net taxable income from tea growing comes to 32 per cent. So either the deduction be allowed on 40 per cent income or on total income. If deduction is allowed on the total income, it can be apportioned and thereafter, the taxable income from tea-growing should be 32 per cent of total income from tea-growing and manufacturing income.
10. The counsel for the petitioner places reliance on various decisions, wherein the notices under section 148 were issued and before issuing of notice under section 148 the Income Tax Officer should be satisfied with the escapement of income and that the assessee has failed to disclose fully and truly all material facts for assessment of the income, Proviso to section 147.
"Provided that where an assessment under sub-section (3) of section 143 or this section has been made for the relevant assessment year, no action shall be taken under this section after the expiry of tour years from the end of the relevant assessment year, unless any income chargeable to tax has escaped assessment for such assessment year by reason of the failure on the part of the assessee to make a return under section 139 or in response to a notice issued under sub-section (1) of section 142 or section 148 or to disclose fully and truly all material facts necessary for his assessment, for that assessment year".
Proviso to section 147.
"Provided that where an assessment under sub-section (3) of section 143 or this section has been made for the relevant assessment year, no action shall be taken under this section after the expiry of tour years from the end of the relevant assessment year, unless any income chargeable to tax has escaped assessment for such assessment year by reason of the failure on the part of the assessee to make a return under section 139 or in response to a notice issued under sub-section (1) of section 142 or section 148 or to disclose fully and truly all material facts necessary for his assessment, for that assessment year".
11. Before issue of notice whether assessing officer should be satisfied that there was escapement of income in the assessment order and that is on account of omission or failure to disclose fully and truly all material facts by the assessee. In Calcutta Discount Co. Ltd. v. Income Tax Officer (1961) 41 ITR 191 (SC) their Lordships observed as under:
" .. The scheme of the law clearly is that where the Income Tax Officer has reason to believe that an under-assessment has resulted from non-disclosure he shall have jurisdiction to start proceedings for reassessment within a period of 8 years; and where he has reason to believe that an underassessment has resulted from other causes he shall have jurisdiction to start proceedings for reassessment within four years. Both the conditions, (i) the Income Tax Officer having reason to believe that there has been underassessment and (ii) his having reason to believe that such underassessment has resulted from non-disclosure of material facts, must coexist before the Income Tax Officer has jurisdiction to start proceedings after the expiry of 4 years. . ."
12. In Coca Cola Export Corpn. v. Income Tax Officer (1998) 231 ITR 200 (SC). Their Lordships observed as under :
" . The assessments for the years 1971-72 to 1973-74 were already completed before the issuance of this letter. If any remittance of foreign exchange had been made in excess of the prescribed limit from 1-1-1969, that will be for the Reserve Bank or the Central Government to take action or to grant permission as may be provided under the Foreign Exchange Regulation Act, 1973. That, however, cannot be a ground for the Income Tax Officer to assume jurisdiction to start reassessment proceedings either under section 147(a) or 147(b) of the Act on the ground that that will be "in consequence of information" in his possession in the shape of these two letters. Whatever amount be payable in respect of home office expenses or service charges by the Indian branch to its principal office abroad as allowed by the income-tax authorities under the Income Tax Act, the remittance can only be permitted under the provisions of the Foreign Exchange Regulation Act by the Reserve Bank of India. Both Actsthe Income Tax Act and the Foreign Exchange Regulation Act, operate in different fields."
13. Finally their Lordships held that there was inherent lack of jurisdiction in the Income Tax Officer to issue the notices under section 148.
14. Counsel for the respondent placed reliance on Indo-Aden Salt Mfg. & Trading Co. (P) Ltd. v. CIT AIR 1986 SC 1857, IAC v. V. I. P. Industries Ltd. (1991) 191 ITR 661 (SC) and Sri Krishna (P) Ltd. v. Income Tax Officer AIR 1996 SC 3409. In Indo-Aden Salt Mtg. & Trading Co. (P) Ltd. v. CIT (supra) their Lordships observed that mere production of evidence before the Income Tax Officer was not enough. That there may be omission or failure to make a true and full disclosure. 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 case of Central Provinces Manganese Ore Co. Ltd. v. Income Tax Officer (1991) 191 ITR 662 (SC) their Lordships observed as under:
".. If the true price has not been disclosed and there was under-invoicing, the logical conclusion prima facie is that there has been failure on the part of the appellant to disclose fully and truly all material facts before the Income Tax Officer. We are, therefore, satisfied that both the conditions required to attract the provisions of section 147(a) have been complied with in this case."
15. In Sri Krishna (P) Ltd.'s case (supra) in para 8 their Lordships reproduced the observations of the Constitution Bench which read as under:
"In material particulars, the provisions in section 34 were similar to those in section 147. Having regard to the fact that it is the only Constitution Bench decision on the point, it is necessary to examine it in some detail. The Constitution Bench explained the purport of section 34 in the following words :
"To confer jurisdiction under this section to issue notice in respect of assessment beyond the period of four years under assessed. The second is that he must have reason to believe ... income under section 22 or (ii) Omission or failure on the part of an assessee to disclose for the year. It postulates a duty on every assessee to disclose fully and truly all material facts necessary for his assessment'."
16. Considering the observations of their Lordships before issue of notice under section 148, if he wants to issue notice after 4 years from the assessment years, the Income Tax Officer has to satisfy himself that there was an escapement of income to tax in the assessment order and secondly, that the assessee has failed to disclose fully and truly all material facts for assessment of his income. Admittedly, the notice under section 148 has been issued after the expiry of 4 years from the end of the relevant assessment years.
17. Again, we come to the chart indicating the total income disclosed, assessed and deduction under section 32AB allowed by the assessing officer.
18. If we see the assessment order and take the figure of Unit Sholayar, composite income from tea as per order is Rs. 2,88,28,498. That has been accepted and there is no dispute of income computed. The dispute is only on the deduction under section 32AB of the Income Tax Act as done. He straightway allowed Rs. 71,12,106 instead of Rs, 28,86,258 but finally he has allowed only Rs. 28,86,258. If we see from the assessment order, he assessed the composite income from tea which comes to Rs. 2,88,28,498. 40 per cent of Rs. 2,88,28,498 comes to Rs. 1,44,17,657 but finally he taxed the income only to the extent of Rs. 1,15,31,399 and if we take 20 per cent of Rs. 1,44,17,657, that roughly comes to Rs. 28,86,258. So the net taxable income comes to Rs. 1,15,31,399 and that he has taxed. Therefore, the total taxable income from all these units comes to Rs. 6,47,84,258. There is no dispute on this assessed income.
19. If we look into the assessment order as well as the chart produced by both the counsels, there is hardly any case of escapement of income. Secondly, the department has failed to prove that the assessee has failed to disclose fully and truly all material facts required for assessment of its income.
20. Assuming but not accepting that there is some mistake in calculation either on the part of the assessee or on the part of the Income Tax Officer, that does not mean that the assessee has not disclosed fully and truly the material facts regarding his income. If some calculation mistake has been committed for the purpose of deduction under a particular section, that can be rectified, under section 154 of the Act, but on that ground no notice under section 148 can be issued.
21. When the notice itself is bad in law, there is no reason to carry on with the futile exercise of completion of reassessment proceedings. Therefore, on both the counts I find no case or justification to issue the notice under section 148, particularly when the Income Tax Officer cannot assume jurisdiction to issue notice under section 148 as per the provisions of the Act and the facts of this case.
22. In the result, the impugned notice issued is quashed.
23. There will be no order as to costs.
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