Alapatt Jewells vs Assistant Commissioner of Income Tax

P.R. Ramachandra Menon, J.—Reopening of the assessment finalised under s. 143(3) of the IT Act (''Act'', in short) issuing notice under s. 148, referring to the escaped turnover beyond the statutory period of four years, is under challenge in this writ petition. The petitioner is a partnership firm engaged in the jewellery business. Admittedly, there was a survey under s. 133A by the IT authorities in the premises of the petitioner on 1st Feb., 2006, when the managing partner of the firm made some offer of Rs. 1.5 crores as additional investment in respect of the unexplained income and such other transactions. The assessment in respect of the asst. yrs. 2002-03 and 2003-04 was completed on 30th June, 2006 under s. 143(3), as borne by Exts. P3 and P4 assessment orders. Later, the assessment in respect of the year 2006-07 was also completed under the very same provision, as per Ext. P5 order dt. 22nd Dec, 2008. After about four years, the petitioner was served with Ext. P6 notice under s. 148, with intent to reopen the assessment, referring to the escaped turnover. On receipt of the said notice, the petitioner, referring to the law declared by the apex Court vide GKN Driveshafts (India) Ltd. Vs. Income Tax Officer and Others, as to the necessity to let know the reasons for issuing notice under s. 148, submitted Ext. P7 request on 7th Jan., 2012. Accordingly, the petitioner was reminded of the survey conducted on 1st Feb., 2006; the admission of the irregularities in the books of accounts and unaccounted investments; the offer to declare 1.5 crores as additional income for investments in the year 2006-07 and such other relevant particulars vide Ext. P8 reply dt. 25th April, 2012.

According to the petitioner, Ext. P5 is not correct or sustainable, either on facts or in law, more so, when the same is not having any statutory backing, having crossed the bar of four years. Further, there is no failure or lapse on the part of the petitioner/assessee in any manner as to disclosure of material facts fully and truly, as necessary for the assessment, more so, when all the materials in respect of the survey and the subsequent developments were very much available in the files of the assessing authority. It is also contended that, merely for ''change of opinion'', the assessment finalised under s. 143(3) is not liable to be reopened, issuing notice under s. 148. Reliance is sought to be placed on the decisions in Sitara Diamond Pvt. Ltd. Vs. Commissioner of Income Tax, Circle 8(3) and Others, , M/s Atma Ram Properties Private Limited Vs. D.C.I.T., and DIL Ltd. Vs. Asst. Commissioner of Income Tax, Circle 6(2) and Others, .

A statement has been caused to be filed from the part of the respondents pointing out that, the assessment proposed to be made is not barred by limitation. The sequence of events, particularly, with reference to the ''sworn statement'' given by the managing partner of the firm at the time of survey on 1st Feb., 2006 offering an additional income of Rs. 1.5 crores for the asst. yr. 2006-07, as borne by Ext. R(A) and the contents of Ext. R(B) letter dt. 3rd Feb., 2006 expressing willingness to offer additional 1.5 crores to cover the unexplained investments made by the partners in the business, however, requesting that the same should not result in complication in sales-tax assessments have been highlighted in the said statement. The assessee filed the return for the asst. yr. 2006-07 on 13th Oct., 2006, disclosing the taxable income of only Rs. 1,14,28,850 vide Ext. R(D). It is stated that the Asstt. CIT, who conducted the survey on 1st Feb., 2006 got transferred and the notice under s. 143(2) for the asst. yr. 2006-07 was issued by another Asstt. CIT. Since he also got transferred out, the assessment was completed by his successor, Dy. CIT. It was subsequent to the assessment finalised as per Ext. P5, that the AO noticed that the assessee had agreed to offer additional income of Rs. 1.5 crores and that the assessee had not disclosed the additional income in the return, as agreed to by the managing partner, It is asserted that the assessee did not disclose the full and true material facts necessary for the assessment. Referring to Ext. R(B) letter dt. 3rd Feb., 2006, It is pointed out that there was no mention by the assessee that the offer of additional income was ''subject to verification of accounts'', as now claimed in the writ petition. The only request of the assessee was not to again tax the income in the hands of the partners and that the same should not result in complication in the sales-tax assessments. The factual particulars in respect of the assessment for the years 2002-03 and 2003-04 have also been explained by the respondents in paras 5 and 6 of the statement, with specific reference to the concerned assessment orders produced as Exts. R(E) and R(F) respectively. It is also pointed out that the survey, disclosure and such other aspects were never caused to be brought to light and nothing was mentioned by the assessee in the return of income for 2006-07 or any of the statements regarding the survey or the additional income offered, which is discernible from the ''adjustment statement'' filed by the assessee along with the return produced as Ext. R(G). Based on the assertion that, there was failure on the part of the assessee to disclose the true and full material facts necessary for the assessment and that the present proceedings are being pursued after getting approval of the CIT, it is contended that the step taken to have assessment of the escaped turnover, issuing notice under s. 148, is perfectly within the four walls of law. The petitioner has filed a reply affidavit as well.

The matter was argued in detail by Sri Anil D. Nair, the learned counsel for the petitioner, while the stand of the respondents was made clear by Sri P.K. Ravindranatha Menon, the learned senior standing counsel for Government of India (Taxes). The learned counsel for the petitioner submits that, all the relevant materials including the survey and the alleged disclosure were available in the files of the AO and as such, there is no point in attributing lapse/failure on the part of the petitioner/assessee in disclosing the full and true particulars. The attempt to reopen the assessment after four years, that too, on the basis of a ''change in opinion'' of the officer concerned, is not correct or sustainable, submits the learned counsel, with reference to the law declared by the apex Court on the point in Commissioner of Income Tax, Delhi Vs. Kelvinator of India Limited, . The learned counsel also submits that, even otherwise, the statement given in the course of 133A proceedings does not have any binding effect, unlike a statement under s. 133(4) and that the failure of the Departmental officials, if any, in considering the materials available on record cannot be branded as a failure on the part of the assessee in effecting the full and true disclosure. Existence of the ingredients as contemplated under s. 147 has to be proved by the Department, as held by the Single Bench in Pala Marketing Co-operative Society Ltd. Vs. State of Kerala and Another, , which is confirmed by the Division Bench in Deputy Commissioner of Income Tax (Assessment) Vs. Pala Marketing Co-operative Society Ltd. and Another, .

Sri P.K. Ravindranatha Menon, the learned senior standing counsel appearing on behalf of the Department submits that, there is no dispute with regard to the statutory provisions or the binding judicial precedents, as cited from the part of the petitioner, while, the question to be considered is whether there was any failure on the part of the assessee in effecting the ''full and true disclosure''. The tact remains that the assessment was completed not by the officer; who effected the survey. After the assessment, the concerned officer also got transferred out. Prima facie, nothing is seen from Ext. P5 assessment order as to the course and events in relation to the survey conducted on 1st Feb., 2006 and the subsequent developments including the disclosure made by the managing partner as to the additional investment of 1.5 crore to be included as part of the turnover. The learned Senior Counsel submits that, verification of the books of accounts and the discussion stated as made with the Authorised Representative of the petitioner as referred to in Ext. P5, is only in respect of the entries in the books of accounts, while unaccounted investments cannot naturally find a place in the accounts. It is also pointed out that, absolutely no opinion was formed by the concerned officer, while passing Ext. P5, with reference to the survey and disclosure on 1st Feb., 2006 and as such it cannot be said that, there is any change in opinion. Reliance is sought to be placed on the decision rendered by the apex Court in Raymond Woollen Mills Ltd. Vs. Income Tax Officer and Others, ; Assistant Commissioner of Income Tax Vs. Rajesh Jhaveri Stock Brokers Pvt. Ltd., and also Sowdagar Ahmed Khan (Deceased) (By his Legal representatives) Vs. Income Tax Officer, Nellore, , to contend that the issue is premature and no interference is, warranted at the ''notice stage''. After hearing both the sides, this Court finds, whether there was any lapse failure on the part of the petitioner/assessee in having effected full and true disclosure of the particulars necessary for the assessment for the year 2006-07 is a matter, which is to be looked into and decided with reference to the materials on record, more so, when the managing partner of the petitioner had admittedly given a statement on 1st Feb. 2006. pursuant to the survey, to have an additional investment to the extent of Rs. 1.5 crores in respect of the, unexplained income. Whether the offer was "subject to verification of accounts", as now projected in para 1, of the writ petition. when there is no such mention in this regard in Ext. R(B) letter dt. 3rd Feb., 2006, is also a matter to be looked into, to ascertain the probative value of the said statement. This is more so, when there is no dispute for the petitioner as to the fact that Ext. P5 order was passed by another officer and not by the officer who conducted the survey and further when, there is no reference or discussion as to the course and events in relation to the survey held on 1st Feb., 2006 or as to the disclosure made by the managing partner as to the offer of additional investment to an extent of Rs. 1.5 crores. This Court does not want to express anything on merits at this stage, lest it should adversely affect either of the parties concerned. This Court is of the firm view that, these are matters, which require to be elicited and established in the course of proceedings, pursuant to Ext. P6 notice. Admittedly, the proceedings are only at the ''notice stage'' and the petitioner has been let known the reasons for issuing notice under s. 148, as borne by Ext. P8. It is for the petitioner to submit objections, if any and it will be for the concerned respondent to take the proceedings to a logical conclusion, by passing appropriate orders in accordance with law, after considering the objections.

In the above circumstances, interference is declined and the writ petition is dismissed. However, since the time for submitting the objections is already over, the petitioner is granted a further period of ''one month'' to submit the same. The proceedings shall be finalised in accordance with law, as expeditiously as possible, at any rate, within three months thereafter.