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Judgment
K.A. Puj, J.—The Petitioner-Assessee has filed this petition under Article 226 of the Constitution of India praying for quashing and setting aside the impugned notice dated 7-4-2000 issued u/s 148 of the Income Tax Act, 1961 for the assessment year 1993-94.
This Court has admitted the petition and rule was issued on 16-8-2000. At the time of issuance of notice this Court has observed that the question of taxability of the whole amount of Rs. 68,66,673 received as a result of cancellation of forward exchange contract, which is said to include the disputed amount of interest, is the subject-matter of a pending Tax Appeal No. 140 of 1999 between the same parties. The Court, therefore, directed. that the hearing of the petition would be linked with the hearing of Tax Appeal No. 140 of 1999. The court has granted interim stay whereby the Petitioner was directed to participate in reassessment proceedings initiated by the impugned notice, but in the event of final order of reassessment any demand towards tax is raised, it would not be enforced against the Petitioner until Tax Appeal No. 140 of 1999 and the present petition are finally decided by this Court.
At the time of hearing of this petition, Mr. J.P. Shah, learned Counsel appearing for the Petitioner has pointed out that Tax Appeal No. 140 of 1999 has already been disposed of by this Court vide its order dated 18-2-2009 wherein it is held that on none of the grounds pleaded can it be stated that the impugned order of the Tribunal suffers from a legal error so as to warrant intervention. The Court, therefore, answered the question in favour of the Assessee and against the department. The view taken by the Tribunal that sum of Rs. 68,66,673 received by the Assessee upon cancellation of foreign exchange contract was a capital receipt, was upheld by this Court.
It is in the above background of the matter, the present petition is taken up for hearing.
Mr. J.P. Shah, learned Counsel appearing for the Petitioner has submitted that the present petition relates to assessment year 1993-94 and during the previous year relating to this year, the Petitioner cancelled a forward exchange liability against the import of machinery used by it in production of goods manufactured and sold by it and received thereon an amount of Rs. 68,66,673. The Petitioner claimed in its return that this amount is capital receipt which is not liable to income tax. During the course of assessment the Petitioner wrote a letter to the assessing officer on 18-3-1994 pointing out that the amount has been credited to P&L a/c. It is further pointed out that the proceeds on cancellation of the foreign exchange contract credited to P&L a/c would not be liable to tax in the case of the Petitioner. The said amount being a capital receipt on capital account is not amounting to transfer within the meaning of Section 2(47) and would not be liable to tax either as business profit or as capital gain. The assessing officer upheld the contention of the Petitioner in his assessment order passed u/s 143(3) of the Act on 15-4-1994 wherein, after detailed discussion, he held that sum of Rs. 68,66,673 is not liable to be taxed.
Subsequent to this, the assessing officer issued notice u/s 148 of the Act on 3-2-1995 for this very assessment year, inter alia, in respect of amount of Rs. 68,66,673. The said notice was challenged by way of writ petition being Special Civil Appln. No. 1190 of 1995 before this Court and this Court vide its order dated 26-6-1996 quashed and set aside the said notice and it is specifically held that there is nothing to indicate that there was failure on the part of the Assessee to make a return of its income and to disclose fully and truly all material facts necessary for his assessment.
The earlier notice of reopening was issued by the assessing officer within a period of 4 years from the end of the assessment year and this Court has quashed the said notice on identical facts as they are in the present petition. Not only this, the departments SLP filed before the apex court against the judgment of this Court was also dismissed by the apex Court.
After the above notice came to be quashed by this Court, the CIT exercised his power u/s 263 of the Act for revising the assessment and issued a notice dated 20-3-1997 taking the position that the amount of Rs. 68,66,673 is a taxable revenue receipt. The CIT passed his order u/s 263 of the Act on 27-3-1997 holding that the said receipt is revenue profit and if it is not revenue profit it is taxable capital gain.
Being aggrieved by the said order the Petitioner preferred an appeal before the Tribunal and the Tribunal vide order dated 26-10-1998 held that it is neither revenue receipt nor capital gain liable to tax, as it is a capital receipt. Thereafter, on 7-4-2000 i.e. after about 6 years from the end of the assessment year the Respondent has issued notice u/s 148 of the Act. Though the Petitioner has asked for copy of reasons recorded, as per prevailing practice, copy was not supplied to the Petitioner and hence the Petitioner approached this Court by way of present petition.
Mr. Shah has submitted that the impugned notice is issued by the Respondent beyond the period of 4 years from the end of assessment year and, therefore, the revenue is required to discharge the onus that the Petitioner is guilty of not disclosing fully and truly all material facts necessary for its assessment. He has further submitted that from the facts on record, it cannot be said that the Petitioner has failed to disclose fully and truly all material facts necessary for assessment of said amount of Rs. 68,66,673. He has further submitted that the Petitioner disclosed the receipt in the return, put up a claim of non-taxability, the assessing officer gave show-cause notice in respect thereof, thereafter, in a scrutiny assessment the assessing officer allowed the claim of the Petitioner and notice for reopening was issued within 4 years on 3-2-1995 which was quashed by this Court and SLP filed against the decision of this Court was also dismissed. The Section 263 proceedings were initiated in respect of this very amount and the order passed on that basis was also quashed and set aside by the Tribunal and now the order of the Tribunal is confirmed by this Court dismissing the tax appeal. In this view of the matter, he has submitted that the Petitioner has not failed to disclose the primary facts of the receipt of the above amount and all the relevant facts. He has, therefore, submitted that the notice is patently without jurisdiction and it is required to be quashed and set aside.
Mr. B.B. Naik, learned senior counsel appearing for the revenue, on the other hand, has submitted that the Petitioner has failed to disclose in the return of income the primary facts in the sense that once the Petitioner has claimed the receipt of Rs. 68,66,673 as a capital receipt as a natural corollary, the said amount has to be deducted from the block of assets while making computation of income with reference to the adjustment of claim for depreciation on such assets to which such capital receipts were linked. He has further submitted that the Assessee has also not disclosed primary facts with reference to interest element at assessment stage, therefore, such income part in the forward contract which could not be less than 12 per cent of the entire receipt, although such details have been deliberately concealed, has escaped assessment due to failure of the Assessee to disclose true nature of the receipts with reference to the interest elements embedded therein chargeable to tax was wrongly excluded. He has, therefore, submitted that the income of Rs. 8,24,000 by way of interest and Rs. 15,10,668 by way of depreciation chargeable to tax has escaped assessment for failure of the Assessee to furnish true and correct material facts relevant to the assessment years in question. He has further submitted that in all previous proceedings this aspect was not considered at all and hence it cannot be said that in earlier notice of reopening or u/s 263 proceeding the issue raised by the Petitioner in present petition is already covered.
Mr. Naik has further submitted that it is the primary duty of the Petitioner to disclose all material facts in the return of income. Since it has not been done, the assessing officer is justified in issuing the notice of reopening of assessment. He has further relied on proviso to Section 147 of the Act which clearly states that, where any income chargeable to tax has escaped assessment for such assessment year, by reason of the failure on the part of the Assessee to disclose fully and truly all material facts necessary for his assessment, notice for reopening can be issued even beyond the period of 4 years. It is submitted that the Petitioner has neither made any correspondence or in the present petition has made any submission to the effect that the amount received by the Petitioner was deducted from the worth of the assets nor it was pointed out that how much amount formed part of the interest computed on the said receipt. In that view of the matter, the challenge to the notice of reopening is quite unsustainable and hence the petition deserves to be dismissed.
We have heard the learned Counsel appearing for the parties at great length and considered their rival submissions in light of the facts found on record and the relevant statutory provisions. The facts on record clearly reveal that this is the third round of litigation in respect of the same subject-matter. Initially the Petitioners claim regarding the nature of this receipt being capital receipt was accepted by the assessing officer while framing original assessment u/s 143(3) of the Income Tax Act. Thereafter, within the period of 4 years, a notice of reopening was issued, which having been challenged before this Court, was quashed and set aside and SLP preferred against that was also dismissed by the Supreme Court. On completion of this round of litigation, the CIT initiated Section 263 proceeding in respect of this very receipt. The order passed by the CIT was challenged before the Tribunal which was quashed by the Tribunal. An appeal thereagainst filed before this Court is also dismissed by this Court. While dismissing this appeal the court has considered the entire facts and circumstances of the case and also taken note of the previous proceeding initiated u/s 148 of the Act. The court has observed in respect of the reassessment proceeding that while framing original assessment the assessing officer has considered the entire material and was satisfied about factual and legal aspects and, thereafter, applied the judgments of the apex court in favour of the Assessee. Thus, it can be said that though the reassessment proceedings were quashed and set aside, the court had taken note of the basic facts, which remain the same even today. The court has also considered the interest component and observed that undue emphasis on behalf of the revenue by picking up one sentence out of the entire order and trying to build a case thereon to submit that at least some portion of the surplus was relatable to interest and thus on revenue account does not merit acceptance. In the concluding para of the judgment the court has categorically held that the Tribunal was justified in law in holding that the surplus received on cancellation of forward foreign exchange contract was a capital receipt not liable to tax.
After the second round of litigation in the form of Section 263 proceeding was over and after the Tribunal has quashed and set aside the order passed by the CIT u/s 263 of the Act the assessing officer has issued notice on 7-4-2000. Before issuing the notice for reopening, reasons were recorded wherein it is clearly stated that the assessing officer without applying his mind, in this aspect of the issue, accepted the claim of the Assessee. If the material facts are disclosed by the Petitioner truly and fully and if the assessing officer did not apply his mind it is not fault of the Petitioner which can lead the assessing officer to issue notice of reopening within the period of 4 years. The reasons recorded further reveal that the assessing officer had not deducted the said capital receipt from the block of assets while making computation of income. Here also it is not alleged that there is failure on the part of the Assessee to disclose all material facts truly and fully and if the mistake is committed by Assessee (sic-assessing officer), on this basis notice of reopening cannot be issued, especially when all throughout all necessary facts are on record and several proceedings were initiated in the past in respect of the same subject-matter. It is also relevant to observe here that even with regard to the interest the revenue has preferred miscellaneous application before the Tribunal which was rejected by the Tribunal on the ground that it amounts to review of order rather than mistake apparent on record. The court also finds substance in the argument of Mr. Shah that receipt of Rs. 68,66,673 can be considered as independent capital receipt and, therefore, it is not required to be reflected in the block of assets nor any adjustment on this count is required to be made in computation/assessment of income. Had it been case of regular assessment, all these questions can be gone into. However, in reassessment proceeding initiated after the period of more than 6 years from the end of assessment year it is not open for the revenue to allege that the Assessee has not disclosed all facts truly and fully relevant to the assessment year in question.
Considering the entire facts and circumstances of the case, the action of the assessing officer in issuing the notice of reopening, in the background of all previous proceedings initiated by the revenue, is not justified, we are of the view that the notice of reopening is bad in law and the jurisdiction assumed by him after issuance of the notice is uncalled for and hence the said notice is hereby quashed and set aside.
The petition is accordingly allowed without any order as to costs.