Asian Paints Ltd. vs Deputy Commissioner of Income Tax and Another

Rule. Returnable forthwith. Heard finally by consent of parties.

The petitioner by this petition challenges the notice issued u/s 148 of the Income Tax Act, 1961, as also the order dated May 14, 2008, rejecting his objection to the notice issued u/s 148.

The facts that are relevant are that the petitioner is a company duly registered under the Companies Act, 1956, and is engaged in the business of manufacturing and sale of paints and related products. The petitioner is regularly assessed to Income Tax. This petition relates to the assessment year 2003-04. The petitioner had on November 20, 2003, filed returns of income declaring income of Rs. 227,72,31,850, inter alia, disclosing a provision for estimated liability of arrears of wages payable to workmen at its Ankleshwar plant and contribution by way of reimbursement of capital loss incurred by provident fund, gratuity and superannuation funds. On December 7, 2005, a notice-cum-questionaire was issued to the petitioner in the course of assessment proceedings investigating into the aforesaid issue. On December 15, 2005, the petitioner filed a reply to the said notice. On January 17, 2006, the petitioner submitted further information on the aforesaid two issues. On March 14, 2006, assessment order for the assessment year 2003-04 was passed in which deduction for the aforesaid two items of expenditure was allowed. On December 27, 2006, a notice u/s 148 was issued for the assessment year 2003-04. In the annexure accompanying the notice, it was stated that "It is seen that income chargeable to the tax has been under assessed by Rs. 254.30 lakhs plus Rs. 71.54 lakhs totalling at Rs. 325.84 lakhs for which the provisions of Explanation 2(c)(i) of Section 147 are applicable."

The notice u/s 148, therefore, related to the deduction allowed in relation to the two items of expenditure referred to above. The petitioner filed an objection to the notice issued u/s 148. It was stated in the objection that "The company had made a full and true disclosure of the material facts in the computation of income. Further, the Assessing Officer had during the course of assessment proceedings directed the company to show cause, vide letter dated December 7, 2005, why the provision of Rs. 71.34 lakhs being the estimated wage arrears liability should be allowed. Similarly, vide order sheet entry, the Assessing Officer had directed the company to show cause why the contributions to the provident, etc. funds towards reimbursement of capital loss suffered by them should not be disallowed. The company had, vide letters dated December 15, 2005, and January 17, 2006, provided detailed explanation on why the said two amounts deserved to be allowed and it was only thereafter that the Assessing Officer had passed the order allowing the company''s claim for the said expenditure. It was claimed that in this situation, therefore, notice u/s 148 has been issued only because the Assessing Officer had changed his opinion. It was claimed that the proceedings u/s 147 cannot be taken up merely because there is change of opinion.

The objection of the petitioner has been disposed of by a reasoned order passed by the Deputy Commissioner of Income Tax dated May 14, 2008. A perusal of that order shows that according to the Deputy Commissioner of Income Tax all the relevant information was called by the Assessing Officer before making the assessment order and all the information was available on record, but inadvertently that information was not taken into account while framing the assessment and, therefore, according to respondent No. 1, the Deputy Commissioner, he has reason to believe that the income has escaped assessment.

From the record, therefore, now it is clear that respondent No. 1 is invoking the power u/s 147 in reopening the assessment because, according to him, he inadvertently did not take into account the material information which was available on record, when he made the assessment order. The question is, can power u/s 147 be exercised in this situation.

We have heard the learned Counsel appearing for both sides. We have also gone through the judgments on which reliance was placed by the learned Counsel appearing for both sides.

In the order rejecting the objection filed by the petitioner to the notice u/s 148, respondent No. 1 has observed "verification of assessment record reveals that the said details were called for but inadvertently the same were not taken into account while framing the assessment and, therefore, it cannot be said that there is a change of opinion." According to respondent No. 1, thus, the relevant material was available on record, but he failed to apply his mind to that material in making the assessment order. The question is, can respondent No. 1 take recourse to the provision of Section 147 for his own failure to apply his mind to the material which, according to him, is relevant and which was available on record. We find that this situation has been considered by the Full Bench of the Delhi High Court in its judgment in the case of Commissioner of Income Tax Vs. Kalvinator of India Ltd., and the Full Bench has observed thus (page 19):

The said submission is fallacious. An order of assessment can be passed either in terms of Sub-section (1) of Section 143 or Sub-section (3) of Section 143. When a regular order of assessment is passed in terms of the said Sub-section (3) of Section 143 a presumption can be raised that such an order has been passed on application of mind. It is well known that a presumption can also be raised to the effect that in terms of Clause (e) of Section 114 of the Indian Evidence Act judicial and official acts have been regularly performed. If it be held that an order which has been passed purportedly without application of mind would itself confer jurisdiction upon the Assessing Officer to reopen the proceeding without anything further, the same would amount to giving a premium to an authority exercising quasi-judicial function to take benefit of its own wrong.

It is clear from the observations made above that the Full Bench of the Delhi High Court has taken a view that in a situation where according to the Assessing Officer he failed to apply his mind to the relevant material in making the assessment order, he cannot take advantage of his own wrong and reopen the assessment by taking recourse to the provisions of Section 147. We find, our self, in respectful agreement with the view taken by the Full Bench of the Delhi High Court.

It is further to be seen that the Legislature has not conferred power on the Assessing Officer to review its own order. Therefore, the power u/s 147 cannot be used to review the order. In the present case, though the Assessing Officer has used the phrase "reason to believe", admittedly between the date of the order of assessment sought to be reopened and the date of formation of opinion by the Assessing Officer, nothing new has happened, therefore, no new material has come on record, no new information has been received, it is merely a fresh application of mind by the same Assessing Officer to the same set of facts and the reason that has been given is that the some material which was available on record while assessment order was made was inadvertently excluded from consideration. This will, in our opinion, amount to opening of the assessment merely because there is change of opinion. The Full Bench of the Delhi High Court in its judgment in the case of Commissioner of Income Tax Vs. Kalvinator of India Ltd., referred to above, has taken a clear view that reopening of assessment u/s 147 merely because there is a change of opinion cannot be allowed. In our opinion, therefore, in the present case also, it was not permissible for respondent No. 1 to issue notice u/s 148.

In the result, therefore, petition succeeds and is allowed. Rule is made absolute in terms of prayer Clause (a) with no order as to costs.