IN THE HIGH COURT OF GUJARAT AT AHMEDABAD SPECIAL CIVIL APPLICATION NO. 17402 of 2011 FOR APPROVAL AND SIGNATURE:
HONOURABLE MR.JUSTICE VIJAY MANOHAR SAHAI and HONOURABLE MR.JUSTICE N.V.ANJARIA ================================================================
1 Whether Reporters of Local Papers may be allowed to see the judgment ?
2 To be referred to the Reporter or not ?
3 Whether their Lordships wish to see the fair copy of the judgment ?
4 Whether this case involves a substantial question of law as to the interpretation of the constitution of India, 1950 or any order made thereunder ?
5 Whether it is to be circulated to the civil judge ?
================================================================ PRIYANKA GEMS Petitioner(s) Versus DY COMMISSIONER OF INCOME TAX Respondent(s) ================================================================ Appearance:
MR TEJ SHAH, ADVOCATE for the Petitioner(s) No. 1 MR SUDHIR M MEHTA, ADVOCATE for the Respondent(s) No. 1 ================================================================ CORAM: HONOURABLE MR.JUSTICE VIJAY MANOHAR SAHAI and
HONOURABLE MR.JUSTICE N.V.ANJARIA
Date : 09/08/2012 ORAL JUDGMENT (PER : HONOURABLE MR.JUSTICE VIJAY MANOHAR SAHAI)
1. Learned counsel for the parties stated that though this matter is listed for admission and since the affidavits have been exchanged, the Writ Petition may be finally decided on merit today. We have accepted the request and taken the Writ Petition for final hearing today.
2. Rule. Mr. Sudhir M. Mehta learned counsel for the respondent waives service of Rule.
3. The short question, which arises for consideration in this Writ Petition, is `whether after expiry of 4 years, Assessing Officer can reopen the assessment on the ground that income chargeable to tax had escaped assessment, in spite of the fact that query raised by Assessing Officer was replied by assessee, and thereafter the Assessing Officer passed an assessment order under section 143(3) of the Income Tax Act, 1961 (for short the 'Act').
4. The petitioner is a partnership firm, engaged in manufacturing and export of diamonds. The petitioner filed original return of income for the assessment year 2004- 05, declaring a total income during the assessment proceedings under section 139(1) of the Act. The Assessing Officer made queries, which are mentioned at item nos. 12, 13, 14 and 15, which were to the following effect.
“12. Furnish details of the secured loans obtained during the year along with the details of the securities/assets mortgaged furnished for obtaining such loans”.
“13. Please furnish the details of various types of bank loans obtained with nature of security pledged and hypothecation of stock offered in the following format”.
14. “If there are creditors or loan outstanding for more than 3 years, give the following details.
“15. Details of assets purchased during the year on which depreciation has been claimed along with copies of bills and mode and date of payment thereof .”
5. The petitioner submitted his reply to the queries on 14.08.2006, and informed the Assessing Officer through Chartered Accountant as under:
“That no new secured loan was obtained during the year.
Details of various type of bank loan with the details of security offered are filed herewith.
No creditor or loans outstanding for more than 3 years during the year.
Details of addition to fixed assets on which depreciation has been claimed with the xerox copies of bills and details with mode of payments are filed herewith”.
6. Alongwith reply dated 14.08.2006, the petitioner also submitted sanction letters from various officers. Thereafter, the Assessing Officer satisfied, and passed the assessment order under section 143(3) of the Act. After expiry of 4 years period, notice under section 148 of the Act to the petitioner which was received by him on 26.03.2011, by which, the Assessing Officer informed the petitioner that income chargeable to tax in respect of Assessment Year 2004-05 has escaped assessment within the meaning of section 147 of the Act, and therefore, he proposes to reopen the original assessment. Thereafter, the petitioner on 25.04.2011 requested the Assessing Officer to supply him a copy of the reasons recorded for assuming jurisdiction under section 147 of the Act. The Assessing Officer supplied a copy of the reasons recorded for re- opening of the assessment to the petitioner on 26.08.2011.
7. The reasons recorded under section 147 are extracted below :-
“REASONS FOR THE RE-OPENING OF THE ASSESSMENT A.Y. 2004-05 Name and address of the assessee Priyanka Gems, 1 Tapovan Estate, Opp: Gitanjali Cinema Varachha Road, Surat In this case, the assessment for A.Y. 2004-05 was completed u/s. 143(3) of the IT Act 1961 on 29.12.2006.
It was found that the sum debited as exchange rate difference in P & l A/c included a sum of Rs. 49,43,931/- being provision for exchange difference on PCFC loan and Rs. 2,10,29,132/- being provision for exchange difference on PSCFC loan. Both the expenses totaling to Rs. 2,59,73,063/- being a capital nature i.e. towards repayment / liability of loan amount, the expenses are not admissible under any provision of the Act, for arriving at the profit and gains of business. Therefore, the said expenses are required to be disallowed and added to the total income of the assessee.
Thus, there is reason to believe that the income chargeable to tax to the extent of Rs. 86,85,638/- has escaped assessment for A.Y. 2004-05. Accordingly, this case falls within the purview of provisions of Sec. 147 of the I.T. Act. Therefore, notice U/s 148 is issue in this case for A.Y. 2004-05.
(Sanjay V. Deshmukh)
Dy. Commissioner of Income-Tax Circle-9, Surat.
Place : Surat Date : 23.3.2011”
8. We have heard Mr. Deepak Shah, learned counsel for the petitioner, and Mr. Sudhir Mehta, learned counsel for the respondent.
9. After receiving the notice, petitioner filed objection under section 148 of the Act, which was rejected by the Assessing Officer on 09.11.2011. The petitioner has challenged the order of the Assessing Officer dated 09.11.2011, as well as notice issued under section 148 of the Act for the assessment year 2004-05 by filing this Writ Petition.
10. Learned counsel for the petitioner has urged that there was no failure on the part of the assessee to disclose fully and truly all material facts necessary for assessment of the relevant year, and therefore, in view of the first proviso to section 147, the notice issued after four years was without jurisdiction, and no action could be taken against the petitioner beyond the period of four years.
11. Mr. Sudhir Mehta has urged that in the original assessment order, the Assessing Officer has not given any reason for explaining the provisions for exchange difference on PCFC loan, being exchange difference on PSCFC loan. Therefore, he urged that income chargeable to tax has escaped assessment and the Assessing Officer was justified in the reopening the assessment in view of Explanation 1 to section 147 of the Act.
12. It is not disputed by learned counsel for the Revenue that the original assessment order is sought to be re-opened after the expiry of period of four years from the end of the relevant assessment order, i.e. 2004-05. From the record it is showed that the provisions for exchange difference on PCFC loan, and provisions for exchange difference on PSCFC loan were mentioned in the balance sheet of the petitioner. The Assessing Officer has raised specific queries with regard to the aforesaid two items, which were replied by the assessee along with other necessary evidence. The Assessing Officer had considered the reply to the queries given by the petitioner. If the Assessing Officer has not mentioned in the said assessment order as having considered the reply of the assessee, it will not make the assessment order illegal nor the Court can infer that the income chargeable to that has escaped assessment, and the assessee has failed to disclose material facts necessary for assessment.
13. The Apex Court in the case of Commissioner of Income Tax Delhi Vs. Kelvinator of India Ltd. (320 ITR 561) held :
“Prior to the Direct Tax Laws (Amendment) Act, 1987, reopening could be done under two conditions. Viz, if (a) assessee to make a return under section 139 for any assessment year to the ITO or to disclose fully and truly all material facts necessary for his assessment for that year, income chargeable in his possession reason to believe that income chargeable to tax had escaped assessment for any assessment year. The fulfilment of the said conditions along conferred jurisdiction on the Assessing Officer to make a back assessment, but in section 147 with effect from 1.4.1989 those conditions are given a go-by and only one condition has remained, vis, where the Assessing Officer has reason to believe that income has escaped assessment, the section confers jurisdiction to reopen the assessment. Therefore, post 1-4-1989, power to re-open is much wider. However, one needs to give a schematic interpretation to the words 'reason to believe,. Failing which section 147 would give arbitrary powers to the Assessing Officer to reopen assessments on the basis of 'mere change of opinion; which cannot be per se the reason to reopen. One must also keep in mind the conceptual difference between power to review and power to reassess. The Assessing Officer has no power to review; he has the power to reassess, but the re- assessment has to be based on fulfillment of certain pre-conditions and if the concept of 'change of opinion' is removed as contended on behalf of the department, then in the garb of reopening the assessment, review would take place. One must treat the concept of 'change of opinion' as in-built test to check abuse of power by the Assessing Officer. Hence, after 1-4-1989, the Assessing Officer has power to reopen, provided there is 'tangible material' to come to conclusion that there is escapement of income from assessment. Under the Direct Tax Laws (Amendment) Act, 1987, the Parliament not only deleted the words 'reason to believe' but also inserted the word 'opinion' in section 147. However, on receipt of representations from the companies against omission of the words 'reason to believe; the Parliament re-introduced the said expression and deleted the word 'opinion' on the ground that it would vest arbitrary powers in the Assessing Officer.”
14. In view of the aforesaid decision, the law is clear that it is not open to the Assessing Officer to change his opinion, unless there is some new tangible material available with him, on the basis of which, he has reason to believe that income chargeable to tax has escaped assessment so as to review his original assessment order, which is not permissible. So far as the argument of learned counsel for the Revenue that Explanation 1 to section 147 would apply to the facts of this case, and therefore, the Assessing Officer was justified in re-opening the assessment is concerned, we have gone through Explanation 1 to section 147 of the Act, and we find that the argument of learned counsel for the Revenue has no substance. The provisions of Explanation 1 cannot apply to the facts of this case as the Assessing Officer has made specific queries from the assessee, which were replied by the assessee along with evidence. The reply to the queries given by the assessee had been considered by the Assessing Officer. Merely because of the fact that it has not been mentioned by the Assessing Officer in the original assessment order that he has considered the reply given by the assessee, it could not be treated to be the income chargeable to tax having escaped assessment and material evidence after due diligence could not be discovered by the Assessing Officer.
15. For the aforesaid reasons we are of the considered opinion that the reasons given by the Assessing Officer for reopening the assessment are wholly illegal and based on change of opinion. Therefore, the notice issued under section 148 of the act is liable to be set aside and the order passed by Assessing Officer whereby objection of the petitioner was rejected by the Assessing Officer is also quashed. In the result the order passed by Assessing Officer dated 09.11.2011, as well as the notice dated 23.03.2011 under section 148 of the Income Tax Act, 1961 are quashed.
16. For the reasons given, this Petition succeeds and is allowed. Rule made absolute.
(V.M.SAHAI, J.) (N.V.ANJARIA, J.) sndevu