Goldmine Investments vs Dy. Commissioner of Income Tax

T. Raja, J.—The Respondent issued a notice u/s 148 of the Income Tax Act proposing to reopen the assessment for the year 1995-96.

Following the issuance of notice, the same was served on the Petitioner on 9-5-2008, which required the Petitioner to furnish a return of income

for the assessment year 1995-96. As the Petitioner had already filed a return of income for the assessment year 1995-96 on 29-2-1996, clearly

admitting that there was no income, an order of assessment has been passed u/s 143(3) of the Income Tax Act on 31-3-1998, accepting the

return filed by the Petitioner. Since the notice was issued to the Petitioner and as the Petitioner had already filed return of income for the

assessment year 1995-96 on 29-2-1996 making absolutely clear that there was no escapement of income or change in the income, the return

already filed by the Petitioner to be treated as having been filed pursuant to the aforesaid notice only. Therefore, the Petitioner submitted before the

assessing authority that it has complied with the notice and relied on the decision of the Supreme Court in GKN Driveshafts (India) Ltd. Vs.

Income Tax Officer and Others, which mandates that the Petitioner is entitled to be furnished a copy of the reasons recorded by the assessing

authority before the issue of notice u/s 148. Subsequently, in view of the letter of the Petitioner seeking a copy of the reasons recorded, the

Respondent also issued a letter dated 25-5-2009 informing the reasons for reopening of the assessment, stating that in the course of assessment

proceedings of the assessment year 1996-97, it was noticed by the assessing officer that the Assessee had received an amount of Rs. 5,60,00,000

from Ashok Leyland Finance Ltd. This amount was received based on a memorandum of understanding/agreement for joint development dated

27-11-1994 between the Assessee and Ashok Leyland Finance Ltd. and as per which the Assessee had offered to surrender its share of

development rights on the land purchased from one Mr. Mani Nagappa to Ashok Leyland Finance Ltd. for a consideration of Rs. 560 lakhs. But,

the assessing officer did not accept the claim of the Assessee and assessed the amount as profits from business for the assessment year 1996-97.

But, in the order of the Commissioner (Appeals), it was held that the amount to be treated only as an advance. Therefore, the addition made in the

assessment was reversed subsequently. When a notice dated 25-5-2009 was issued u/s 143(2) of the Income Tax Act, which is in the nature of

enquiry for completing the assessment, the Respondent required the Petitioner to attend the Respondents office and produce document, accounts

or other evidence, which the Petitioner may rely in respect of return filed by it. Therefore, the Petitioner submitted before the Respondent that the

aforesaid notice is totally invalid and illegal, insofar as the assessment proceedings initiated are beyond the limitation and consequently, the

proceedings are totally invalid.

In respect of the above submission, the Petitioner also relied upon a judgment of the Supreme Court in GKN Driveshafts (India) Ltd. v. ITO

(supra), wherein the Apex Court has held that after communicating to the Petitioner, the reasons recorded before the issue of notice u/s 148, the

Petitioner should be given an opportunity to make its objections to the said reasons and only after the objection is adjudicated by a speaking order

only then any proceedings can be initiated for making an assessment. When this is the position, the Respondent along with a letter dated 25-5-

2009, communicating the reasons stated to have been recorded prior to the issue of notice, issued a notice u/s 143(2) proposing to make an

assessment and for enquiry in connection therewith. On the basis of the above judgment, it was further contended that the action of the Respondent

is totally illegal and violative of the procedure set out by the Supreme Court in the abovesaid decision.

Learned Counsel appearing for the Petitioner further submits that the Respondent has issued notice u/s 148 for reopening the assessment for the

year 1995-96 on the ground that such notice is valid, since there was a finding by the Tribunal that the assessment was made for the year 1995-96

and not for the year 1996-97. The proceedings are totally barred by limitation. Further, it was argued that though the Tribunal has got power to

direct an income excluded from one year to be assessed for another year, neither Explanation 2 to Sub-section (4) of Section 153 nor any other

provisions of the Income Tax Act extends the limitation or waives the procedure for making such assessment for the simple reason that the proviso

provides that no proceedings for reopening of an assessment in a year for which an assessment is originally completed u/s 143(3) shall be taken

beyond four years from the end of the assessment year. On that basis, it was prayed for quashing of the impugned order.

Per contra, learned Counsel appearing for the Respondent submits that the Respondent, by letter dated 25-5-2009, had duly communicated the

reasons for reopening the assessment u/s 147 for the assessment year 1995-96, to the Petitioner. By doing so, the Respondent has duly complied

with the procedure laid down by the Supreme Court in GKN Driveshafts case (supra). When the notice u/s 143(2) was issued on 25-5-2009

posting the case for hearing on 8-6-2009 by specifically informing the Petitioner in the abovesaid notice that the Petitioner was required to produce

the documents, accounts or other evidence in support of the returns filed by the Petitioner, the stand of the Petitioner that the said notice was

invalid is not correct on the ground that the assessment proceedings had been initiated beyond the period of limitation. Further it was submitted that

the contention of the Petitioner that the issue of notice u/s 148 was barred by limitation is totally incorrect, since the notice has been issued as per

the direction of the Tribunal. Therefore, the Petitioner ought to have sought remedy by way of appeal before the High Court, if the Petitioner was

aggrieved by the order of the Tribunal.

Heard the learned Counsel appearing on either side and perused the materials available on record.

Admittedly, for reopening the assessment of the Petitioner for the year 1995-96, a notice u/s 148 was issued by the Respondent on 25-5-2009.

This has been challenged by the Petitioner on the ground that the impugned notice dated 25-5-2009 issued u/s 143(2) of the Income Tax Act and

also impugned proceedings dated 25-5-2009 relating to the assessment year 1995-96 have been admittedly issued after a period of 13 years.

Therefore, it has to be seen whether the assessment sought to be made by the impugned order is barred by limitation.

To answer this query, it is relevant to have a perusal of Section 149 of the Income Tax Act, which prescribes the time-limit for issue of notice, as

extracted below:

(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.

The opening sentence of Section 149 leaves no room for any doubt. No notice u/s 148 shall be issued if four years have elapsed from the end of

the relevant assessment year, unless the case falls under Clause (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. The Explanation No. 2 further states that the provisions of Sub-section (1) as to the issue of notice shall be subject to the

provisions of Section 151, which is extracted hereunder:

(1) In a case where an assessment under Sub-section (3) of Section 143 or Section 147 has been made for the relevant assessment year, no

notice shall be issued u/s 148 by an assessing officer, who is below the rank of Assistant Commissioner or Dy. CIT, unless the Jt. CIT is satisfied

on the reasons recorded by such assessing officer that it is a fit case for the issue of such notice:

Provided that, after the expiry of four years from the end of the relevant assessment year, no such notice shall be issued unless the Chief CIT or

CIT is satisfied, on the reasons recorded by the assessing officer aforesaid, that it is a fit case for the issue of such notice.

(2) In a case other than a case falling under Sub-section (1), no notice shall be issued u/s 148 by an assessing officer, who is below the rank of Jt.

CIT, after the expiry of four years from the end of the relevant assessment year, unless the Jt. CIT is satisfied, on the reasons recorded by such

assessing officer, that it is a fit case for the issue of such notice.

As per Section 151, in a case where an assessment under Sub-section (3) of Section 143 or Section 147 has been made for the relevant

assessment year, it is absolutely made clear that no notice shall be issued u/s 148 by an assessing officer, who is below the rank of Assistant

Commissioner or Dy. CIT, unless the Jt. CIT is satisfied on the reasons recorded by such assessing officer that it is a fit case for the issue of such

notice. It is further stated that, after the expiry of four years from the end of the relevant assessment year, no such notice shall be issued unless the

Chief CIT or CIT is satisfied, on the reasons recorded by the assessing officer aforesaid, that it is a fit case for the issue of such notice.

Therefore, the stand of the Petitioner as well as the Respondent will have to be tested on application of the aforesaid legal principles. It is very

clear from the facts that the Respondent issued a notice u/s 148 of the Income Tax Act. Pursuant to the Tribunal, proposing to reopen the

assessment of the Petitioner for the year 1995-96, the notice was served upon the Petitioner on 9-5-2008 requiring the Petitioner to furnish a

return of income for the assessment year 1995-96. Since the Petitioner had already paid (sic) the return for the assessment year 1995-96 on 29-2-

1996 admitting nil income and an order of assessment had already been passed u/s 143(3) of the Income Tax Act on 31-3-1998 accepting the

Petitioners return, in the abovesaid circumstances, the present impugned notices were issued, for which the Petitioner submitted his explanation

stating that he had already submitted return of income for the assessment year 1995-96 on 29-2-1996. Insofar as there was no escapement of

income or a change in the income declared by the Petitioner earlier, the return already filed by the Petitioner was sought to be treated as having

been filed pursuant to the aforesaid notice. Further, the Petitioner submitted before the assessing authority that insofar as it had complied with the

notice pursuant to the decision of the Supreme Court reported in GKN Drivesshafts (India) Ltd. s case (supra), the Petitioner is entitled to be

furnished a copy of the reasons recorded by the assessing authority before the issue of notice u/s 148, because as per the judgment of the Supreme

Court, the assessing officer is under a mandate to dispose of such preliminary objection by passing speaking order, before proceeding with the

assessment in respect of the assessment year for which such notice has been issued. Since the, assessing officer has not followed the above said

mandate of the Apex Court in GKN Driveshqfts (India) Ltd.s case (supra), the notice issued u/s 143(2) proposing to"" make an assessment and for

enquiry in connection therewith is totally illegal and violative of the procedure set out by the Supreme Court in the abovesaid decision;

The second argument of the learned Counsel appearing for the Petitioner is that the impugned notices issued by the Respondent are totally

contrary to the judgment of the Supreme Court in GKN Driveshafts (India) Ltd.s case (supra), wherein the position of law is well settled:

After a, notice for reassessment has been issued, an Assessee is required to file the return and seek reasons for issuance of such notice. The

assessing officer is then bound to supply the reasons within a reasonable time. On receipt of reasons, the Assessee is entitled to file preliminary

objections to issuance of notice and the assessing officer is under a mandate to dispose of such preliminary objections by passing a speaking order,

before proceeding with the assessment in respect of the assessment year for which such notice has been issued.

In the abovesaid background and the settled legal position, let me look at the impugned notice issued by the Dy. CIT/Respondent dated 1-5-

2008. The said notice says that the Respondent has reason to believe that the income chargeable to tax for the assessment year 1995-96 has

escaped assessment falling within the meaning of Section 147 of the Income Tax Act,1961. Therefore, he proposed to reassess the income for the

said assessment year and on that basis informed the Petitioner to deliver within 30 days from the date of service of this notice, a return in the

prescribed form of his income for the said assessment year. Again, another impugned notice dated 25-5-2009 also says that the Tribunal has

directed the assessing officer to exclude the Petitioners income in the assessment for the assessment year 1996-97, and assess, the same in the

asst. yr. 1995-96. In view of that, the Respondent has further stated in his impugned notice that he had reason to believe that income chargeable to

tax for assessment year 1995-96 has escaped assessment.

The abovesaid two notices have not complied with the command of Section 151, which clearly rules that no notice shall be issued u/s 148, by

an assessing officer, unless the Jt. CIT. is satisfied on the reasons recorded by such assessing officer that it is a fit case for the issue of such notice.

When there is no such communication by the assessing officer, certifying that it is a fit case for the issue of such notice, the Jt. CIT without satisfying

the reasons recorded by the assessing officer, should not have issued the impugned notice, which is totally contrary to Section 151 of the Income

Tax Act. Further, the proviso u/s 151 also makes position very clear that after the expiry of 4 years from the end of relevant assessment year, no

such notice shall be issued unless the Chief CIT or CIT is satisfied, on the reasons recorded by the assessing officer, that it is a fit case for the issue

of such notice. Again, when there are no such reasons recorded by the assessing officer, certifying that it is a fit case for the issue of notice after the

expiry of 4 years from the end of the relevant assessment year the impugned notices dated 1-5-2008 and 25-5-2009 issued by the Respondent,

being totally contrary to the Section 151 as well as barred by limitation u/s 149 of the Income Tax Act, i.e., barred by delay of 13 years from the

date of assessment year 1995-96, the impugned notices are legally unsustainable and accordingly, the same are set aside.

In result, the writ petition is allowed. No costs. Consequently, connected Misc. Petn. No. 1 of 2009 is closed.