Maurya Realtors Pvt. Ltd. v. Union Of India And Others

1. Heard Mr. Vikash Jain for the petitioner and Mr. Harshvardhan Prasad as well as Ms. Archana Sinha for the respondents. Both the writ petitions raise common issues and are, therefore, being disposed of by a common order. C.W.J.C No. 4152 of 2009 is with respect to the assessment year 2000-01. It is directed against the notice dated June 27, 2008 (annexure 1), issued under the signature of respondent No. 3 in terms of section 148 of the Income-tax Act, 1961 (hereinafter referred to as “the Act”), informing the petitioner of initiation of reassessment proceedings and to submit return. It is also directed against the order dated October 13, 2008 (annexure 4), whereby respondent No. 3 has rejected the petitioner's objection to annexure 1, and has held that there is no defect in the notice and the reassessment proceedings has been rightly initiated. The petitioner also challenges the notice dated January 9, 2009 (annexure 5), issued by respondent No. 3, to produce documents/papers stated therein.

2. A brief statement of facts essential for disposal of this writ petition may be indicated. The petitioner is a company incorporated under the Companies Act, 1956, with its registered office in Patna. It had submitted its return for the assessment year 2000-01, under section 139 of the Act, which was accepted in terms of section 143(1) of the Act. Neither steps were taken for scrutiny in terms of section 143(2) of the Act nor appeal was filed.

3. Simultaneously, Sanjiv Kumar, one of the directors of the petitioner company, had also submitted his own returns for the block period/assessment year 1998-99 to 2004-05 (up to date of search on May 8, 2003). Aggrieved by the assessment order, Sanjiv Kumar had filed Appeal No. 168.A-1/05-06, which was disposed of by the Commissioner of Income-tax (Appeals)-I, Patna, by his order dated October 11, 2006 (annexure 2), whereby certain additions made by the learned Assessing Officer were deleted and were directed to be considered with respect to income of the petitioner-company. The relevant portion of the order of the Commissioner of Income-tax (Appeals)-I, Patna, is reproduced hereinbelow:

“The investments made in the names of the shareholders prima facie do not inspire much confidence therefore fit for being verified about the genuineness of these investments in shares by the alleged shareholders. However, this could be done in the hands of the company M/s. Maurya Realtors Pvt. Ltd. and not in the hands of Sri Sanjiv Kumar, the present appellant, who is only one director of the abovesaid company.

Section 68 is for the any sum found credited in the books of an assessee. In this case, the books wherein the share investments are recorded as per the seized books are that of M/s. Maurya Realtors Pvt. Ltd. and not of Sri Sanjiv Kumar individual. As such addition under section 68 on account of shareholdings could not be made in the hands of Sri Sanjiv Kumar.

In addition there is no evidence found in search to suggest that it is the funds of Sri Sanjiv Kumar which has been invested in the name of the alleged shareholders of M/s. Maurya Realtors Pvt. Ltd. As such the additions made of Rs. 15,63,180 (relating to the financial year 1998-99) and Rs. 27,99,800 (relating to investment in equity shares of M/s. Maurya Realtors Pvt. Ltd. during the financial year 1999-2000) are held not includible in the hands of the appellant-individual and this issue may be considered in the regular assessment/reopening of assessment of M/s. Maurya Realtors Pvt. Ltd. Since these investments were already disclosed in the pre-search returns filed by the company, M/s. Maurya Realtors Pvt. Ltd. as well as in Form No. 2 before the Registrar of Companies.”

4. In pursuance of the aforesaid directions, respondent No. 3 issued the aforesaid notice dated June 27, 2008 (annexure 1) to the petitioner in terms of section 148 of the Act to reopen the assessment proceedings. The petitioner appeared through counsel, had shown cause on July 28, 2008 (annexure 3), raising preliminary objections as to the validity of initiation of the proceedings under section 148 of the Act, inter alia, on the ground of limitation and various other grounds. The same has been rejected by the impugned order dated October 13, 2008 (annexure 4), inter alia, on the ground that the petitioner's cause is covered by the provisions of section 150(1) of the Act and, therefore, the proceedings have been validly initiated to give effect to the appellate order of the Commissioner of Income-tax (Appeals)-I, Patna.

5. We must at the outset note that we had, at the inception, given option to the learned counsel for the petitioner to withdraw the writ petition and appear before the learned Assessing Officer so that the matter is disposed of on the merits. It would, therefore, be open to the petitioner to raise the preliminary issues raised in the present proceedings before the superior authorities/courts, if the need arises to challenge the order of the learned assessing authority. Learned counsel for the petitioner has preferred to proceed with the present writ petitions.

6. While assailing the validity of the impugned order, learned counsel for the petitioner has submitted that in view of the provisions of section 150(1) of the Act, the observations in the order of the learned appellate authority does not amount to a finding or direction so as to justify initiation of a proceeding under section 148 of the Act. In other words, in his submission, there has to be conclusive finding. He also submitted that initiation of proceeding is hit by the bar of limitation engrafted in section 149(1)(b) of the Act. The bar of six years commences on the last date of the end of the assessment year as a result of which the notice could have been issued up to March 31, 2007. He relied on the judgment of the Supreme Court in Rajinder Nath v. CIT, [1979] 120 ITR 14. He also fairly stated that in case it is held that the proceedings are covered by the provisions of section 150(1) of the Act, then the bar of limitation does not apply. He next submitted that the observations in the appellate order could have been made after notice to the petitioner. He relied on Explanation 3 to section 153(4) of the Act. He relied on the judgment of the Supreme Court in C.A Gulanikar, ITO v. Ram Narain Sons Pvt. Ltd., [1979] 119 ITR 83 (Bom) at page 86. He next submitted that the prescribed safeguards have not been followed before issuance of notice. Neither reasons have been recorded in terms of section 147(1) of the Act, nor satisfaction of the Joint Commissioner in terms of section 151(2) of the Act has been recorded. The question of limitation has also been overlooked. He also submitted that had reasons been recorded after application of the mind, the authorities could have realized that it is neither, income, nor escaped income. He alternatively submitted that, even if it is assumed for the sake of argument that the notice is not hit by the bar of limitation, yet it must meet the other safeguards. The expression “reasons to believe” has been discussed by the Supreme Court in ITO. v. Lakhmani Mewal Das, [1976] 103 ITR 437 (SC) at pages 445-448.

7. Learned counsel for the respondents has submitted that the writ petition is premature and not maintainable on various other grounds. She has relied on the judgment of the Calcutta High Court in ITO v. Shree Bajrang Commercial Co. P. Ltd., [2004] 269 ITR 338. They next submitted that the present proceeding is covered by section 150(1) of the Act which has overriding effect. Reliance has been placed on a Division Bench judgment of the Madhya Pradesh High Court in Sukhdayal Pahwa v. CIT, [1983] 140 ITR 206. Once section 150(1) is attracted, the bar of limitation or the requirements of sanction are waived. It has been lastly submitted that the decisions cited by the petitioner were with respect to cases after contest and orders had been passed with respect to preliminary issues as well as on the merits, whereas the present case is at the notice stage.

8. Learned counsel for the petitioner has in reply submitted that the writ petition is maintainable. He relied on the judgment of the Supreme Court in Whirlpool Corporation v. Registrar of Trade Marks, (1998) 8 SCC 1.

9. We have perused the materials on record and considered the submissions of learned counsel for the parties. It appears to us that the power to reopen a concluded assessment order under the Act has been made available to the authorities under certain circumstances. The returns filed by an assessee can be approved by the Assessing Officer in terms of section 143 of the Act. It is open to the Assessing Officer to subject the same to a detailed scrutiny in terms of section 143(2) of the Act. Section 148 vests the authorities with the power to issue notice where income has escaped assessment. Exercise of powers is hedged with certain conditions. It can be done within the period of limitation prescribed under section 149 of the Act. The concerned authority should have reasons to believe that there is income escaping assessment which can justify reopening of the proceedings. Section 151 provides that it cannot be reopened unless the Joint Commissioner is satisfied on the reasons recorded by such Assessing Officer that it is fit case for issue of such notice. Explanation 3 to section 153(4) of the Act provides that it can be reopened in order to give effect to any finding or direction contained in the said order, provided such other person was given an opportunity of being heard before the said order was passed, section 150 is an overriding power to reopen concluded assessment proceedings or to give effect to any finding or direction contained in an order passed by any authority in a proceeding under this Act by way of appeal, reference or revision or by a court in a proceeding under any other law. Section 150 is reproduced hereinbelow:

“150. Provision for cases where assessment is in pursuance of an order on appeal, etc.—(1) Notwithstanding anything contained in sec tion 149, the notice under section 148 may be issued at any time for 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 proceeding under this Act by way of appeal, reference or revision or by a court in any proceeding under any other law.

(2) The provisions of sub-section (1) shall not apply in any case where any such assessment, reassessment or recomputation as is referred to in that sub-section relates to an assessment year in respect of which an assessment, reassessment or recomputation could not have been made at the time the order which was the subject-matter of the appeal, reference or revision, as the case may be, was made by reason of any other provision limiting the time within which any action for assessment, reassessment or recomputation may be taken.”

10. The scope and ambit of section 150 was considered by a Division Bench of the Madhya Pradesh High Court in Sukhdayal Pahwa v. CIT, [1983] 140 ITR 206. On a consideration of the relevant provisions of law including those indicated hereinabove, the Madhya Pradesh High Court held as follows (page 210):

“Relevant provisions of the Act have been reproduced. The arguments have to be examined in the light of the provisions mentioned above and in the light of the finding of the Tribunal that the assessment was reopened and the order for reassessment was passed by the Income-tax Officer in pursuance of the directions of the Appellate Assistant Commissioner, vide his order dated August 31, 1970, in an appeal against the original assessment. Section 149(2) refers to section 151. Section 151, therefore, cannot be read in isolation or de hors section 149. Section 149(1) prescribed the time limit for a notice under section 148. Sub-section (2) imposes a further restriction on the Income-tax Officer so that before issuing a notice, compliance with the conditions laid down under section 151 is also necessary. If a notice under section 148 has to be issued within the time limit prescribed under section 149(1) sanction has to be obtained from the Board or the Commissioner in accordance with sub-section (1) or (2) of section 151 of the Act, as the case may be.

Section 150(1) of the Act is an exception to the provisions of section 149 because it starts with a non obstante clause notwithstanding anything contained in section 149. Thus, when a notice under section 148 is issued at any time for the purposes for making an assessment or reassessment in consequence of or to give effect to any finding or direction contained in an appellate order, the provisions of section 149 as a whole will not be applicable. Sub-section (2) of section 149, which makes provisions of sub-section (1) subject to the provisions of section 151, will also not be applicable in view of the clear language of section 150(1). In fact, in the instant case, it was not necessary for the Income-tax Officer to obtain the sanction either of the Commissioner or of the Board under section 151 of the Act because the case was fully covered by section 150(1).”

11. It has thus been held that the provisions of section 150(1) of the Act opens with a non obstante clause and overrides every other provision of the Act including sections 147, 149, 151, etc. It is thus evident that if circumstances exist so as to justify initiation of proceedings under section 150(1) of the Act, then other circumstances indicated in section 147 and the allied provisions of the Act are not required to be complied with.

12. We have noticed the observations in the appellate order against Sanjiv Kumar, a director of the petitioner-company. It is evident that certain items have been deleted from the assessed income of Sanjiv Kumar and have been directed to be considered in the petitioner's case. This is to give effect to the appellate order of an authority contemplated by section 150(1) of the Act. We are, therefore, of the view that this is clearly covered by the provisions of section 150(1) of the Act which has been interpreted by the Madhya Pradesh High Court in Sukhdayal Pahwa v. CIT, [1983] 140 ITR 206 (MP). We accordingly hold that it is open to the authorities to reopen the concluded assessment proceedings with respect to the petitioner for the assessment year 2000-01.

13. In view of the foregoing discussion, the remaining issues raised by the learned counsel for the petitioner do not arise for consideration. The Assessing Officer shall proceed with the proceedings in accordance with the notice dated June 27, 2008 (annexure 1), read with the notice dated January 9, 2009 (annexure 5). We must at this stage clarify that the notice dated June 27, 2008 (annexure 1) was issued in terms of section 148 of the Act, whereas the impugned order dated October 13, 2008 (annexure 4) has been rejected on the ground that the proceedings have been initiated in terms of section 150(1) of the Act. We are of the view that misdescription of a provision of law, if any, will not adversely affect the merits of the proceedings on this count. Law is well settled that making reference of an inapplicable or irrelevant provision of law by itself does not render the proceedings illegal. The substance of the issues raised is important. In any case, the issue has now been clarified in the impugned order, and the parties will proceed accordingly. C.W.J.C No. 4152 of 2009 is accordingly dismissed. C.W.J.C No. 4169 of 2009 raises identical issues with the difference that the same relates to the assessment year 1999-2000. The same is also dismissed for the reasons assigned hereinabove.

14. In the result, C W.J.C No. 4152 of 2009, and C.W.J.C No. 4169 of 2009, are hereby dismissed.