Rajes Kumar, J.@mdashIn the present writ petition, the Petitioner is seeking the following reliefs:
(a) issue a writ, order or direction in the nature of certiorari quashing the notice dated March 5, 2002 (annexure 6) issued by the Assistant Commissioner of Income Tax, Najibabad, District Bijnor, Respondent No. 1.
(b) issue a writ, order or direction in the nature of certiorari quashing the notice dated September 27, 2002 (annexure 14) issued by the Assistant Commissioner of Income Tax, Najibabad, District Bijnor, Respondent No. 1.
(c) issue a writ, order or direction in the nature of prohibition restraining Respondent No. 1 from proceeding with reassessment proceeding u/s 148 of the Income Tax Act for the assessment year 1995-96.
(d) issue any other writ, order or direction which this hon''ble court may deem fit and proper in the circumstances of the case.
(e) award cost to the Petitioner.
2. The brief facts of the case giving rise to the present writ petition are that the Petitioner is a company incorporated under the Companies Act, 1956 and carried on the business of manufacture and sales of sugar and chemical, etc. The Petitioner had two sugar units in the State of U. P. The first sugar unit was situated at Dhampur, District Bijnor and the other unit was situated at Rouzagaon, District Barabanki.
3. For the assessment year 1995-96, the Petitioner filed a return on November 30, 1995, disclosing a loss of Rs. 20,61,04,870, which included the loss suffered in the assessment year 1995-96 to the extent of Rs. 69,80,314. Initially, the return of the Petitioner was processed u/s 143(1)(a) of the Income Tax Act (hereinafter referred to as the "Act"). Subsequently, the case of the Petitioner was selected for scrutiny and a notice u/s 143(2) of the Act was issued and the assessment u/s 143(3) of the Act had been completed on March 3, 1998. The assessing authority made an addition of Rs. 6,51,75,548 (Rs. 4,22,93,200 for the Dhampur unit and Rs. 2,28,82,348 for the Rouzagaon unit) on account of undervaluation of closing stock.
4. Being aggrieved by the assessment order, the Petitioner filed an appeal before the Commissioner of Income Tax (Appeals) (in short "CIT (Appeals)"). The Commissioner of Income Tax (Appeals), vide order dated February 1, 1999, allowed the appeal in so far as the addition was made on account of valuation of closing stock and deleted the addition. Later on, Respondent No. 1 has issued a notice dated March 5, 2002, u/s 148 read with Section 147 of the Act to reopen the assessment for the assessment year 1995-96. The Petitioner sought the reasons on the basis of which notice has been issued. Respondent No. 1, vide letter dated July 26, 2002, supplied the reasons. The reasons for issuing the notice are reproduced hereinbelow:
Office of the Assistant Commissioner of Income Tax, Najibabad
F. No. D-10 26th July, 2002
To,
M/s. Dhampur Sugar Mills Ltd.
Khampur.
Sub.: Reassessment proceeding u/s 147 of the Income Tax Act, 1961, the assessment year 1995-96. Reasons regarding.
With reference to your letter dated 15-3-2002 on the subject stated above, the reasons recorded for assessment are being supplied here under:
1. Perused of the profit and loss account reveals that you have debited a sum of Rs. 7,50,24,520 on account of excise duty has not been taken into consideration while valuing the closing stock. There was an increase of Rs. 1,91,838 quintals in closing stock, so, at the prevailing rate of excise duty i.e. at Rs. 85 quintals, value of closing stock should have been increased by Rs. 1,63,06,230.
2. The details of interest transferees that in the same case flat rate of interest has been applied, while in some other case product basis, has been applied, resulting in short computation.
Rs. in lakhs
(i) M/s. U. P. Straw Board and Agro Products Ltd., 8.49
Agwanpori
(ii) VLS Finance Ltd., New Delhi 15.41
(iii) Kotak Mahindra Finance, Bombay 7.15
Total 31.05
Further, as per Schedule 8 of the balance-sheet, Rs. 11.5 lakhs interest receivable and Rs. 5 lakhs interest recoverable were to be included in the taxable income.
The above amounts have escaped amount.
(Sd.)..........
26-7-2002.
5. Heard Sri R.R. Agrawal, learned Counsel for the Petitioner and Sri Shambhu Chopra, learned standing counsel.
6. Learned Counsel for the Petitioner submitted that the notice u/s 148 read with Section 147 of the Act has been admittedly issued on March 5, 2002 beyond the period of four years. For the assessment year 1995-96, the period of four years expired on March 31, 2000 while it was issued on March 5, 2002. He submitted that the proceeding u/s 147 of the Act can only be taken beyond the period of four years in case where there is failure on the part of the Assessee to disclose fully and truly all material facts necessary for his assessment, for that assessment year. He submitted that the Petitioner has disclosed fully and truly all material facts necessary for the assessment along with the return and during the course of the assessment proceeding and on consideration of such materials, the assessment order u/s 143(3) of the Act was passed. He submitted that in the reasons recorded, there is no whisper that the Petitioner failed to disclose fully and truly all material facts necessary for the assessment and, therefore, the initiation of the proceeding is patently barred by limitation. He further submitted that so far as ground No. 1 is concerned, the Petitioner has already furnished complete details relating to the valuation of closing stock for the units Dhampur and Rouzagaon Sugar Mills vide letter dated December 23, 1997. He submitted that as per the accounting policy Schedule 17 the excise duty has not been included in the stock as on March 31, 1995, inasmuch as the excise duty was payable at the time of removal of goods. He submitted that on a consideration of the complete details, which were available at the time of assessment proceeding, the assessing authority has enhanced the valuation of closing stock in the assessment order which has been deleted in appeal by the Commissioner of Income Tax (Appeals). Therefore, it is not open to the assessing authority to raise the issue relating to the valuation of closing stock and to reopen the proceeding on this ground. So far as the second ground is concerned, it is stated that, vide letter dated September 15, 1997, the Petitioner has filed the details of the interest received and receivable during the course of the assessment proceeding and the reconciliation chart reveals that an amount of Rs. 11,49,978 has already been charged to Income Tax. The interest was calculated on product basis. It was duly considered during the course of the assessment proceeding and in the assessment order and has been charged to tax. So far as ground No. 3 is concerned, it is submitted that the figure of rupees 5 lakhs interest recoverable is taken by mistake as there is no such amount in the balance-sheet as on March 31, 1995. He submitted that the notice u/s 148 of the Act has been issued merely on the basis of the audit objection and merely on account of change of opinion and without any material of escaped assessment. In support of the contention that the proceeding is barred by limitation inasmuch as it has been initiated beyond the period of four years, he relied upon the decision of this Court in the case of
7. Sri Shambhu Chopra, learned standing counsel submitted that Section 149 of the Act provides limitation for issue of notice. He submitted that the notice u/s 148 can be issued beyond the period of four years and within the period of six years in case if the escaped income exceeds rupees one lakh or more for that year. In the present case, the escaped income admittedly exceeds more than rupees one lakh, therefore, the notice issued even beyond the period of four years and within a period of six years in case where there is no failure on the part of the Assessee to disclose fully and truly all material facts necessary for the assessment is justified. Therefore, the notice issued on March 5, 2002, which was within the period of six years was within limitation. He submitted that there was sufficient material on record to show that there was escaped income and, therefore, the notice has been legally issued u/s 148 of the Act. He further submitted that mere production of books of account during the course of assessment proceeding does not amount to disclosure of all material facts in view of Explanation 1 to Section 147 of the Act. He placed reliance on the decision of the apex court in the case of
8. We have considered the rival submissions and gone through the records.
9. It would be useful to refer the relevant provisions of the Act.
147; If the Assessing Officer has reason to believe that any income chargeable to tax has escaped assessment for any assessment year, he may, subject to the provisions of Sections 148-153, assess or reassess such income and also any other income chargeable to tax which has escaped assessment and which comes to his notice subsequently in the course of the proceedings, under this Section, or recompute the loss or the depreciation allowance or any other allowance, as the case may be, for the assessment year concerned (hereinafter in this section and in Sections 148-153 referred to as the relevant assessment years):
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 four 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 u/s 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:
Provided further that the Assessing Officer may assess or reassess such income, other than the income involving matters which are the subject matters of any appeal, reference or revision, which is chargeable to tax and has escaped assessment.
Explanation 1.--Production before the Assessing Officer of account books or other evidence from which material evidence could with due diligence have been discovered by the Assessing Officer will not necessarily amount to disclosure within the meaning of the foregoing proviso.
Explanation 2.--For the purpose of this section, the following shall also be deemed to be cases where income chargeable to tax has escaped assessment, namely:-
(a) where no return of income has been furnished by the Assessee although his total income or the total income of any other person in respect of which he is assessable under this Act during the previous year exceeded the maximum amount which is not chargeable to Income Tax ;
(b) where a return of income has been furnished by the Assessee but no assessment has been made and it is noticed by the Assessing Officer that the Assessee has understated the income or has claimed excessive loss, deduction, allowance or relief in the return ;
(c) where an assessment has been made, but--
(i) income chargeable to tax has been underassessed ; or
(ii) such income has been assessed at too low a rate ; or
(iii) such income has been made the subject of excessive relief under this Act; or
(iv) excessive loss or depreciation allowance or any other allowance under this Act has been computed.
Explanation 3.--For the purpose of assessment or reassessment under this section, the Assessing Officer may assess or reassess the income in respect of any issue, which has escaped assessment, and such issue comes to his notice subsequently in the course of the proceedings under this section, notwithstanding that the reasons for such issue have not been included in the reasons recorded under Sub-section (2) of Section 148.
148. Issue of notice where income has escaped assessment.--
(1) Before making the assessment, reassessment or recomputation u/s 147, the Assessing Officer shall serve on the Assessee a notice requiring him to furnish within such period, as may be specified in the notice, a return of his income or the income of any other person in respect of which he is assessable under this Act during the previous year corresponding to the relevant assessment year, in the prescribed form and verified in the prescribed manner and setting forth such other particulars as may be prescribed ; and the provisions of this Act shall, so far as may be, apply accordingly as if such return were a return required to be furnished u/s 139:
Provided that in a case--
(a) where a return has been furnished during the period commencing on the 1st day of October, 1991, and ending on the 30th day of September, 2005, in response to a notice served under this section, and
(b) subsequently a notice has been served under Sub-section (2) of Section 143 after the expiry of twelve months specified in the proviso to Sub-section (2) of Section 143, as it stood immediately before the amendment of the said Sub-section by the Finance Act, 2002 (20 of 2002), but before the expiry of the time limit for making the assessment, reassessment or recomputation as specified in Sub-section (2) of Section 153, every such notice referred to in this Clause shall be deemed to be a valid notice:
Provided further that in a case--
(a) where a return has been furnished during the period commencing on the 1st day of October, 1991, and ending on the 30th day of September, 2005, in response to a notice served under this Section, and
(b) subsequently a notice has been served under Clause (ii) of Sub-section (2) of Section 143 after the expiry of twelve months specified in the proviso to Clause (ii) of Sub-section (2) of Section 143, but before the expiry of the time limit for making the assessment, reassessment or recomputation as specified in Sub-section (2) of Section 153, every such notice referred to in this Clause shall be deemed to be a valid notice.
Explanation.--For the removal of doubts, it is hereby declared that nothing contained in the first proviso or the second proviso shall apply to any return which has been furnished on or after the 1st day of October, 2005, in response to a notice served under this section.
(2) The Assessing Officer shall, before issuing any notice under this section, record his reasons for doing so.
149. Time limit for notice.--(1) No notice u/s 148 shall be issued for the relevant assessment year--
(a) if four years have elapsed from the end of the relevant assessment year, unless the case falls under Clause (b) ;
(b) if four years, but not more than six years, have elapsed from the end of the relevant assessment year unless the income chargeable to tax which has escaped assessment amounts to or is likely to amount to one lakh rupees or more for that year.
Explanation.--In determining income chargeable to tax which has escaped assessment for the purposes of this Sub-section, the provisions of Explanation 2 of Section 147 shall apply as they apply for the purposes of that section.
(2) The provisions of Sub-section (1) as to the issue of notice shall be subject to the provisions of Section 151.
(3) If the person on whom a notice u/s 148 is to be served is a person treated as the agent of a non-resident u/s 163 and the assessment, reassessment or recomputation to be made in pursuance of the notice is to be made on him as the agent of such non-resident, the notice shall not be issued after the expiry of a period of two years from the end of the relevant assessment year.
10. Admittedly, the notice u/s 148 issued on March 5, 2002, was beyond the period of four years. There is no whisper in the reason recorded that there was failure on the part of the Assessee to disclose the material fact for the purposes of assessment. We have perused the assessment order which reveals that the Petitioner had furnished the complete details of closing stock and on consideration of such details, the value of the closing stock was enhanced and an addition was made towards the closing stock, which has been subsequently deleted in appeal. The issue relating to undervaluation has been considered in the assessment order in paragraph 11. So far as ground No. 2 relating to interest is concerned, the assessing authority has considered it in paragraph 23 of the assessment order in detail. In paragraph 23, the assessing authority has assessed the interest and dividend income as income from other sources which included the interest received from intercorporate loans at Rs. 1,07,39,953. The details of Rs. 1,73,00,000 are annexure B to the balance-sheet wherein under the head "Details of interest" the interest received on intercorporate loans of Rs. 1,07,39,953 is shown. The details include the interest received for Rs. 7,08,904 and Rs. 12,329 from VLS Finance Limited, New Delhi on product basis, interest of Rs. 8,01,279 from M/s. U. P. Straw Board and Agro Product Limited on product basis, and a sum of Rs. 9,18,357 from M/s. Kotak Mahindra Finance Limited, Bombay on product basis. Therefore, it cannot be said that the complete details of interest along with return and during the course of assessment proceeding were not filed. Such interest has also been considered in the assessment order and has been assessed to tax. So far as the third objection is concerned, namely, "as per Schedule 8 of the balance-sheet Rs. 11.5 lakhs interest receivable and Rs. 5,00,000 interest recoverable were to be included in the taxable income" is concerned, as per the assessing authority''s own observation, such details had been obtained from the balance-sheet which was furnished by the Assessee. Moreover, in paragraph 23 of the writ petition, it is stated, that the figure of Rs. 5,00,000 towards interest recoverable, appears to have been mistakenly mentioned. There is no such amount for that head in the balance-sheet as on March 31, 1995, of the Petitioner. This paragraph has been replied by paragraph 12 of the counter-affidavit filed by Shri Rama Kant Shukla, Income Tax Inspector, wherein it is stated that the contents of paragraph 23 of the writ petition are not admitted as stated and it is submitted that the figure of Rs. 5,00,000 has been inadvertently mentioned as interest receivable in letter dated July 26, 2002. This is actually "claims recoverable" amounting to Rs. 27,35,365. In this view of the matter so far as ground No. 3 is concerned, the amount has been inadvertently mentioned. Therefore, it is not the case of failure on the part of the Assessee to disclose fully and truly all material facts necessary for the assessment.
11. It is also pertinent to refer to some paragraphs of the writ petition, which have not been specifically denied in the counter-affidavit.
23. That regarding third objection, figure of Rs. 5 lakhs of interest recoverable, it appears that they have mistakenly mentioned it as there is no such amount or head in the balance-sheet as on March 31, 1995, of the Petitioner.
26. That the Petitioner had disclosed the matter fully and truly at the time of regular assessment proceedings. It had also furnished the details regarding closing stock specifically asserting that no provision of excise duty/liability in respect of goods manufactured and held in stock as on March 31, 1995 was made and valuation of the closing stock of both the units were furnished.
27. That the Petitioner also furnished details of interest received in case of U. P. Straw Board and Agro Product Ltd., M/s. V. L. S. Finance Ltd. and Kotak Mahindra Finance Ltd. and the list of interest charged showing the basis of charging interest, whereas at the time of proceeding it imposed interest on year end basis.
28. That the third objection was also dealt with as per Schedule 8 of the balance-sheet, which was furnished by the assessing authority. Thus, the Petitioner had disclosed the matter fully and truly and the material facts necessary for assessment in course of the regular assessment proceeding u/s 143(3) of the Income Tax Act. Therefore, Explanation 1 to the proviso to Section 147 of the Act is not applicable, and accordingly, issuance of notice u/s 148 of the Act is wholly illegal, without jurisdiction and liable to be quashed.
12. In view of the above, we are of the view that the present is not a case of failure on the part of the Assessee to disclose the material facts. All the material facts relating to the valuation of closing stock and interest had been disclosed along with the return and during the course of the assessment proceeding which have been duly examined by the assessing authority while passing the assessment order. Further, it is not the case of failure on the part of the Assessee to make a return u/s 139, issued under Sub-section (1) of Section 142 or Section 148.
13. The proviso to Section 147 clearly provides 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 four 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 u/s 139 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. Therefore, in a case where the assessment has been made u/s 143(3) of the Act, the limitation is only four years, unless the case falls under the exceptions mentioned in the proviso itself. No case has been made out that the case falls under the exception. In the reason recorded also there is no mention that there was a failure on the part of the Assessee to disclose fully and truly all material facts necessary for his assessment and it could not be because, as stated above, the Assessee has furnished complete details relating to valuation of closing stock and interest, which have been duly examined in detail by the assessing authority in the assessment order. The assessing authority has made an addition on account of undervaluation of stock, which has been deleted in the appeal on the ground that the Assessee has followed the same method of valuing the stock, which had been followed in the earlier years. Moreover, the apex court has held that excise duty is payable at the time of removal of goods and, therefore, the excise duty cannot be included in the closing stock.
14. We do not find any substance in the argument of the learned standing counsel that where the escaped income exceeds rupees one lakh the limitation to issue notice is six years u/s 149 of the Act, whether the case falls under the exception of the proviso to Section 147, or not.
15. In our view, both Sections 147 and 149 of the Act are to be read together. The proviso to Section 147 of the Act specifically provides the limitation for taking action under the said section within four years and only in the exceptional case mentioned therein, namely, where there is failure on the part of the Assessee to disclose fully and truly all material facts necessary for assessment for the assessment year, the proceeding can be initiated beyond the period of four years. Thus, the proviso to Section 147 completely prohibits to take action beyond four years unless the case is covered under the exception mentioned in the proviso itself. Section 149 provides limitation for the issue of notice u/s 148. Section 149(1)(a) provides general limitation for issue of notice of four years. Section 149(1)(b) provides six years limitation for issue of notice in case escaped income exceeds rupees one lakh. Section 149(1)(a) and (b) read with the proviso to Section 147 of the Act clearly provides that where the case falls under the exception mentioned in the proviso to Section 147 of the Act the proceeding can be taken beyond the period of four years, but within six years if the escaped income exceeds rupees one lakh and in for all other cases, the limitation for issue of notice remains four years meaning thereby that if the income chargeable the tax which has escaped assessment is less than rupees one lakh, the limitation to issue notice u/s 148 of the Act is only four years even if the case falls under the exception mentioned in the proviso to Section 147 and six years limitation is applicable only in the case where escaped income chargeable to tax exceeds rupees one lakh and the case falls under the exception, namely, there is a failure on the part of the Assessee to disclose fully and truly material facts. Therefore, where there is a case of failure to disclose fully and truly all material facts on the part of the Assessee, the action can be taken beyond the period of four years but if the escaped income chargeable the tax is less than rupees one lakh, the period of limitation for the issue of notice is only four years and where the escaped income exceeds rupees one lakh the limitation to issue the notice u/s 148 is up to six years. The object fixing such limitation appears to be that where the escaped income is less than one lakh, the tax incidence may be small the action u/s 147 should not be taken beyond the period of four years in any case.
16. Thus, on the plain reading of Section 147 and Section 149 the legal position in respect of limitation emerges as follows:
(i) In view of the proviso to Section 147 no action can be taken u/s 147 beyond the period of four years if there is no case of failure on the part of the Assessee to disclose fully and truly all material facts which are necessary for assessment for the year of assessment.
(ii) If the case falls under the exception mentioned in the proviso to Section 147, namely, there is failure on the part of the Assessee to disclose fully and truly all material facts which are necessary for assessment for the year of assessment then action can be taken beyond four years subject to the issue of notice u/s 148 within the period of limitation provided u/s 149 of the Act.
(iii) Where the case falls under the exception to the proviso to Section 147 and escaped income exceed rupees one lakh the notice u/s 148 can be issued beyond the period of four years but within six years u/s 149(1)(b).
(iv) In a case when the escaped income is less than rupees one lakh the limitation to issue the notice u/s 148 is only four years, even if, the case falls under the exception of the proviso to Section 147.
17. It may be mentioned here that our above view is supported by the decisions of the Bombay High Court in the case of
18. In view of the above, we are of the view that the impugned notice issued u/s 148 of the Act is barred by limitation being issued beyond the period of limitation inasmuch as no case of failure on the part of the Assessee to disclose fully and truly material facts necessary for assessment for the assessment year is made out.
19. In view of the above, it is not necessary to deal with the other submissions of learned Counsel for the Petitioner.
20. In the result, the writ petition is allowed and notice dated March 5, 2002 issued u/s 148 of the Act for the assessment year 1995-96 is hereby quashed.
