(Per: HONOURABLE MS. JUSTICE HARSHA DEVANI) 1. By this petition under Article 226 of the Constitution of India, the petitioner has challenged the notice dated 24.03.2009 issued by the respondent under section 148 of the Income Tax Act, 1961 (hereinafter referred to as “the Act”) seeking to reopen the assessment of the petitioner for assessment year 2003-04.
2. The petitioner, a private limited company, which is engaged in the job work of dyeing and printing of art silk cloth, filed its return of income on 30.11.2003 for the assessment year 2003-04 along with the relevant documents declaring a loss of Rs. 16,41,500/-. The case of the petitioner came to be taken for scrutiny and ultimately assessment came to be framed under section 143(3) of the Act on 31.12.2004. Subsequently, by the impugned notice, the assessment is sought to be reopened. The petitioner requested the Assessing Officer to furnish the reasons recorded for reopening the assessment, which came to be supplied alongwith a notice under section 143(2) of the Act. The reasons recorded by the Assessing Officer for reopening the assessment read as under:
“1. The assessee derives its income from job work. During the year, the turnover was shown at Rs. 13,63,10,809/- as against Rs. 9,10,89,299 of the previous year. The increase is at 49.64%.
2. The raw material consumed is at Rs. 6,10,05,422 as against Rs. 3,66,37,892. The increase is at 66.50%. The increase in full consumption is also at about 66.50% whereas; the production was shown at 1,32,98,157 meters as against 90,06,923 meters of the previous year. The increase in production is at 49.64% only.
3. Though, the raw material and full consumption which are the main cost factors were consumed at 66.50% percentage but, the production was increased only at 49.64%. Considering the ratio or raw material consumed in the previous year, the production/turnover for the current year would be Rs. 15,16,71,966 as against Rs. 13,63,10,809/- shown by the assessee.
4. So, the assessee has under stated the turnover to the extent of Rs. 1,53,61,157/- which needs to be investigated in depth.
In view of the discussion in aforesaid paras, I am of the considered view that substantial income has escaped assessment in view of section 147 of the IT Act 1961, for which assessment need to be reopened.”
3. The petitioner filed its objections to the reasons for reopening on 29.04.2009, contending that the assessment cannot be reopened after the expiry of four years from the end of the relevant assessment year unless there is any failure on the part of the petitioner to disclose fully and truly all material facts necessary for its assessment. It was also contended that according to the Assessing Officer, the assessee had understated turnover of Rs. 1,53,61,157/- which needs to be investigated in depth. That for taking action under section 147 of the Act, there should be reason to believe that income chargeable to tax has escaped assessment, whereas in the present case, there no new information has been collected by the Assessing Officer and that assessment cannot be reopened for making roving inquiry or collecting new information. By an order dated 22.09.2009, the reasons came to be rejected, which has given rise to the present petition.
4. Mr. M. J. Shah, learned advocate for the petitioner vehemently assailed the action of the Assessing Officer in seeking to reopen the assessment of the petitioner for the assessment year under consideration by contending that the notice under section 148 has undisputedly been issued after the expiry of a period of four years from the end of the relevant assessment year without there being any failure on the part of the petitioner to disclose fully and truly all material facts necessary for its assessment, and as such the reopening of assessment under section 147 of the Act is without jurisdiction. Attention was invited to the return of income originally filed and documents annexed therewith and more particularly, to the notice dated 07.10.2004 issued by the Assessing Officer under section 142(1) of the Act calling upon the petitioner to furnish details of gross profit working for current and two preceding years and the reasons for fall in gross profit, if any. It was pointed out that in response to the said notice, the petitioner had submitted the break up in a chart annexed at page 52 to the present petition, giving all details regarding computation of the gross profit for the year under consideration as well as two previous years and that it was after taking the relevant material into consideration that the Assessing Officer, after due application of mind, had framed the assessment under section 143(3) of the Act. Referring to the reasons recorded, it was pointed out that the ground for reopening the assessment is based upon assumption as regards the production/turnover of the year under consideration and that the Assessing Officer is of the opinion that the turnover is understated and requires to be investigated in depth. Thus, what the Assessing Officer seeks to do is to make a roving inquiry and to ascertain as to whether any income chargeable to tax has escaped assessment. For taking action under section 147 of the Act, there should be reason to believe that any income chargeable to tax has escaped assessment and that assessment cannot be reopened for the purpose of making a roving inquiry or collecting information.
5. Opposing the petition, Mr. Sudhir Mehta, learned senior standing counsel for the respondent, placed reliance upon the reasons recorded for reopening the assessment as well as the order passed by the Assessing Officer rejecting the objections raised by the petitioner. It was submitted that after completing the assessment under section 143(3) of the Act, the Assessing Officer, upon perusal of the record, noticed that the petitioner had understated the turnover to the tune of Rs. 1.53 crores and odd which means that the petitioner did not disclose the correct turnover. In other words, the petitioner had not shown the correct income for the year under consideration which tantamounts to failure on the part of the petitioner to disclose fully and truly all material facts necessary for its assessment. The reopening of assessment, after the expiry of four years from the end of the relevant assessment year, is, therefore, well within the authority and jurisdiction of the Assessing Officer.
6. From the facts noted hereinabove, indubitably the impugned notice has been issued after the expiry of a period of four years from the end of the relevant assessment year and as such, for the purpose of invoking jurisdiction under section 147 of the Act, the Assessing Officer has to form a belief that income chargeable to tax has escaped assessment and that such escapement is by reason of failure on the part of the petitioner to disclose fully and truly all material facts. The formation of belief that there is such failure on the part of the petitioner should be reflected in the reasons recorded for reopening the assessment.
7. A perusal of the reasons recorded shows that there is nothing whatsoever to indicate that there is any failure on the part of the petitioner to disclose fully and truly all material facts. The Assessing Officer, on an arithmetical calculation of the turnover of the previous years and raw material consumed as against raw material consumed in the year under consideration, has come to the conclusion that considering the ratio of raw material consumed in the previous year and in the current year, the turnover should be higher than that stated by the petitioner. Thus, the Assessing Officer has not formed any belief that any income chargeable to tax has escaped assessment but is of the view that the turnover to the extent the Assessing Officer believes that the assessee had understated the same, needs to be investigated in depth. It is, therefore, apparent that neither of the two contingencies necessary for invoking jurisdiction under section 147 of the Act after the expiry of a period of four years from the end of the relevant assessment year exists in the present case. As noted earlier, the reasons recorded do not in any manner, either explicitly or by implication, indicate that income chargeable to tax has escaped assessment. Under the circumstances, the first condition precedent itself is not satisfied in the facts of the present case in as much as the only belief formed by the Assessing Officer is that the understatement of turnover needs to be investigated. It is settled legal position that section 147 of the Act cannot be exercised for making a roving inquiry and that the Assessing Officer, before reopening the assessment has to form a belief that income chargeable to tax has escaped assessment. Besides, as noticed earlier, the assessment is sought to be reopened after the expiry of a period of four years from the end of the relevant assessment year. Apart from the fact that there is no allegation to the effect that there was any failure to disclose true and correct facts on the part of the petitioner, from the material on record, it is apparent that the petitioner had placed all relevant material on record and it is on the basis of the very same material which the petitioner has placed on record that the Assessing Officer seeks to reopen the assessment. Under the circumstances, it is apparent that there is no failure on the part of the petitioner to disclose fully and truly all material facts necessary for its assessment for the assessment year under consideration and as such, the assumption of jurisdiction by the Assessing Officer under section 148 of the Act after the expiry of a period of four years from the end of the assessment year under consideration is bad in law. Consequently the impugned notice under section 148 of the Act is rendered unsustainable.
8. For the foregoing reasons, the petition succeeds, and is, accordingly allowed. The impugned notice dated 24.03.2009 issued by the respondent under section 148 of the Act is hereby quashed and set aside. Rule is made absolute accordingly with no order as to costs.
[AKIL KURESHI, J.] [HARSHA DEVANI, J.] JYOTI