Jay Shree Tea and Industries Ltd. vs Deputy Commissioner of Income Tax and Others

Y.R. Meena, J.—By this writ petition, the writ petitioner has challenged the notice u/s 148 of the Income Tax Act, 1961 (hereinafter referred to as the "said Act"), by respondent No. 1 and has prayed that the notice be quashed and no steps be taken further for reassessment in pursuance of the impugned notice dated September 30, 1997, issued u/s 148 of the said Act.

The writ petitioner isa public limited company and derives its income from the business of growing and manufacturing tea in India, manufacturing chemicals and fertilisers and manufacturing plywoood, shipping and warehousing. For the assessment year 1990-91, the accounting period ending on March 31, 1990, the petitioner filed a return along with the tax audit report and claimed deduction u/s 32AB(5) of the said Act. The assessment was completed on March 22, 1993, u/s 143(3) of the said Act and the Assessing Officer determined the income chargeable to tax under the Act from growing and manufacturing of tea in India being 40 per cent, at Rs. 6,47,84,258. In computing the said taxable income from growing and manufacturing of tea in India, the deduction of Rs. 1,59,92,021 was allowed, being 40 per cent, of Rs. 3,99,80,053.

After completion of the assessment, the Assessing Officer had issued notice u/s 148 of the said Act, read with Section 147, being annexure B to the petition, dated September 30, 1997, asking the petitioner that its income had escaped as deduction u/s 32AB(5) allowed was more than the amount permissible u/s 32AB of the said Act.

The petitioner has challenged this notice on the ground that the notice has been issued after four years from the end of the relevant assessment year. Therefore, before issue of notice, the Income Tax Officer should satisfy whether any income has escaped and that the assessee has failed to disclose fully and truly all material facts necessary for the assessment.

Counsel for the petitioner submits that all materials required for assessment of income were disclosed fully and truly by the assessee. Therefore, even if some income had escaped, the materials being fully and truly disclosed, the Income Tax Officer had no jurisdiction to issue notice u/s 148 of the said Act.

The case of the Department is that the assessee has claimed the deduction u/s 32AB of the Act to the tune of Rs. 3,99,80,053. The Assessing Officer has wrongly allowed the claim. Therefore, income had escaped and there was justification for issuing notice u/s 148 of the said Act. If the assessee has any grievance then it can submit its case before the Assessing Officer in reassessment proceedings and even if it has any further grievance, the assessee can challenge that order before the Appellate Commissioner and thereafter before the Tribunal. Therefore, there is an alternative remedy and this court should not interfere at the notice stage.

Before I proceed, I would like to give some relevant facts to see whether deduction is allowed more than admissible u/s 32AB of the Act. Counsel for the petitioner has furnished the following chart :

Jay Shree Tea And Industries Ltd. 10, Camac Street, Calcutta-700 017.

Statement of income from tea growing and manufacturing business and deduction allowed u/s 32AB of the Income Tax Act, 1961, for the assessment year 1990-91 as per the assessment order

Composite income from tea as per asst. order Deduction u/s 32AB considered in the asst. year from composite tea income Composite tea income before deduction u/s 32AB 40 per cent. of the tea income char-gable to Income Tax before deduction u/s 32AB Deduction allowable u/s 32AB at 20 per cent. Net income chargeable to tax

Rs. Rs. Rs. Rs. Rs. Rs.

(1) (2) (3) (4) (5) (6) (7)

Sholayar 2,88,28,498 72,15,644 3,60,44,142 1,44,17,657 28,86,258 1,15,31,399

Merchiston 7,78,023 1,96,447 9,74,470 3,89,788 78,579 3,11,209

Dewan 5,53,78,317 1,36,88,658 6,90,66,975 2,76,26,790 54,75,463 2,21,51,327

Towkok 3,31,87,080 82,02,552 4,13,89,632 1,65,55,853 32,81,021 1,32,74,832

Meleng 1,01,15,045 24,38,245 1,25,53,290 50,21,316 9,75,298 40,46,018

Nahorhabi 58,05,562 13,70,314 71,75,875 28,70,350 5,48,125 23,22,225

Kalling 1,51,81,119 37,94,237 1,89,75,356 75,90,142 15,17,695 60,72,448

Jellapore 82,70,580 20,63,851 1,03,34,431 41,33,772 8,25,540 33,08,232

Tukvar 12,09,868 2,25,883 14,35,751 5,74,300 90,353 4,83,947

Risheehat 32,06,553

7,84,222

39,90,775

15,96,310

3,13,689

12,82,621

16,19,60,645

3,99,80,053

20,19,40,698

8,07,76,278

1,59,92,021

6,47,84,258

Counsel for the respondent also filed a chart indicating the total income deduction allowed u/s 32AB as per the Act and excess deduction allowed which reads as under :

JAYSHREE TEA AND INDUSTRIES LTD.

Assessment year 1990-91

Statement of total income and deduction u/s 32AB as allowed in the assessment order

S.No. Name of the estates Total income before deduction u/s 32AB Deduction allowed u/s 32AB in the assessment Deduction u/s 32AB allowable as per Income Tax Act, 1961 Excess deduction allowed in the assessment

Sholayar T. E. 3,60,44,142 72,15,644 28,86,258 43,29,386

Merchiston T.E. 9,74,470 1,96,447 78,529 1,17,868

Dewan T. E. 6,90,66,975 1,36,88,658 54,75,463 82,13,195

Towkok T. E. 4,13,89,632 82,02,552 32,81,021 49,21,531

Meleng T. E. 1,25,53,290 24,38,245 9,75,298 14,62,947

Nahorhabi T. E. 71,75,876 13,70,314 5,48,126 8,22,188

Kalling T. E. 1,89,75,356 37,94,237 15,17,695 22,76,542

Jellapore T. E. 1,03,34,431 20,63,851 8,25,540 12,38,311

Tukver T. E. 14,35,751 2,25,885 90,353 1,35,530

Risheehat T. E. 39,90,775

7,84,222

3,13,689

4,70,533

20,19,40,698

3,99,80,053

1,59,92,022

2,39,88,031

As per Rule 8 : 40 per cent, of Rs. 2,39,88,031 comes to Rs. 95,95,212.

There is no dispute that deduction allowable u/s 32AB is Rs. 1,59,92,002, on a perusal of both the charts given by counsel for the parties.

Counsel for the assessee, Dr. Pal, submits that though the deduction u/s 32AB is initially allowed on the total income from tea growing and manufacturing but ultimately deduction u/s 32AB allowed is Rs. 1,59,92,021, i.e., 20 per cent, of 40 per cent, of the total income. So instead of apportioning the total income first what the Assessing Officer has done is that he had allowed straightaway 20 per cent, deduction on the total income. Then he apportioned it between 60 and 40 ratio. But there is no dispute that the net taxable income from tea growing comes to 32 per cent. So either the deduction be allowed on 40 per cent, ineome or on the total income. If the deduction is allowed on the total income, it can be apportioned and thereafter, the taxable income from tea growing should be 32 per cent, of the total income from tea growing and manufacturing income.

Counsel for the petitioner places reliance on various decisions wherein the notices u/s 148 were issued and before issuing of notice u/s 148, the Income Tax Officer should be satisfied with the escapement of income and that the assessee has failed to disclose fully and truly all material facts for assessment of the income.

Proviso to Section 147 : "Provided that where an assessment under subsection (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."

Before issue of notice whether the Assessing Officer should be satisfied that there was escapement of income in the assessment order and that is on account of omission or failure to disclose fully and truly all material facts by the assessee. In Calcutta Discount Company Limited Vs. Income Tax Officer, Companies District, I and Another, , their Lordships observed as under (page 207) :

"The scheme of the law clearly is that where the Income Tax Officer has reason to believe that an underassessment has resulted from non-disclosure he shall have jurisdiction to start proceedings for reassessment within a period of eight years ; and where he has reason to believe that an underassessment has resulted from other causes he shall have jurisdiction to start proceedings for reassessment within four years. Both the conditions, (i) the Income Tax Officer having reason to believe that there has been underassessment, and (ii) his having reason to believe that such underassessment has resulted from non-disclosure of material facts, must co-exist before the Income Tax Officer has jurisdiction to start proceedings after the expiry of four years."

In The Coca-Cola Export Corporation Vs. Income Tax Officer and Another, their Lordships observed as under (page 214) :

"The assessments for the years 1971-72 to 1973-74 were already completed before the issuance of this letter. If any remittance of foreign exchange had been made in excess of the prescribed limit from January 1, 1969, that will be for the Reserve Bank or the Central Government to take action or to grant permission as may be provided under the Foreign Exchange Regulation Act, 1973. That, however, cannot be a ground for the income tax Officer to assume jurisdiction to start reassessment proceedings either u/s 147(a) or Section 147(b) of the Act on the ground that that will be ''in consequence of information'' in his possession in the shape of these two letters. Whatever amount be payable in respect of home office expenses or service charges by the Indian branch to its principal office abroad as allowed by the Income Tax authorities under the Income Tax Act, the remittance can only be permitted under the provisions of the Foreign Exchange Regulation Act by the Reserve Bank of India. Both Acts--the Income Tax Act and the Foreign Exchange Regulation Act-operate in different fields."

Finally, their Lordships held that there was inherent lack of jurisdiction in the Income Tax Officer to issue the notices u/s 148 of the Act.

Counsel for the respondent placed reliance on Indo-Aden Salt Mfg. and Trading Co. Pvt. Ltd. Vs. Commissioner of Income Tax, Bombay, ; Central Provinces Manganese Ore Co. Ltd. Vs. I.-T.O., Nagpur, and Sri Krishna Private Ltd. Etc. Vs. I.T.O., Calcutta and Others, In Indo-Aden Salt Mfg. and Trading Co. Pvt. Ltd. Vs. Commissioner of Income Tax, Bombay, their Lordships observed that mere production of evidence before the Income Tax Officer was not enough, that there may be omission or failure to make a true and full disclosure, if some material for the assessment lay embedded in the evidence which the Revenue could have uncovered but did not, then, it is the duty of the assessee to bring it to the notice of the assessing authority. In the case of Central Provinces Manganese Ore Co. Ltd. Vs. I.-T.O., Nagpur, , their Lordships observed as under (page 667) :

"If the true price has not been disclosed and there was under-invoicing, the logical conclusion prima facie is that there has been failure on the part of the appellant to disclose fully and truly all material facts before the Income Tax Officer. We are, therefore, satisfied that both the conditions required to attract the provisions of Section 147(a) have been complied with in this case."

In Sri Krishna Private Ltd. Etc. Vs. I.T.O., Calcutta and Others, their Lordships reproduced the observations of the Constitution Bench which read as under (page 546) :

"In material particulars, the provisions in Section 34 were similar to those in Section 147. Having regard to the fact that it is the only Constitution Bench decision on the point, it is necessary to examine it in some detail. The Constitution Bench explained the purport of Section 34 in the following words (page 199) :

''To confer jurisdiction under this section to issue notice in respect of assessments beyond the period of four years . . . under assessed. The second is that he must have reason to believe ... income u/s 22, or (ii) omission or failure on the part of an assessee to disclose .. . for that year. It postulates a duty on every assessee to disclose fully and truly all material facts necessary for his assessment''."

Considering the observations of their Lordships before issue of notice u/s 148, if he wants to issue notice after four years from the assessment year, the Income Tax Officer has to be satisfied that there was an escapement of income to tax in the assessment order and, secondly, that the assessee has failed to disclose fully and truly all material facts for assessment of his income. Admittedly, the notice u/s 148 has been issued after the expiry of four years from the end of the relevant assessment year.

Again, we come to the chart indicating the total income disclosed, assessed and deduction u/s 32AB allowed by the Assessing Officer.

If we see the assessment order and take the figure of Unit Sholayar composite income from tea as per order is Rs. 2,88,28,498. That has been accepted and there is no dispute of income computed. The dispute is only on the deduction u/s 32AB of the Income Tax Act as done. He straightaway allowed Rs. 71,12,106 instead of Rs. 28,86,258 but finally he has allowed only Rs. 28,86,258. If we see from the assessment order he assessed the composite income from tea which comes to Rs. 2,88,28,498. 40 per cent of Rs. 2,88,28,498 comes to Rs. 1,44,17,657 but finally he taxed the income only to Rs. 1,15,31,399 and if we take 20 per cent of Rs. 1,44,17,657 that roughly comes to Rs. 28,86,258. So the net taxable income comes to Rs. 1,15,31,399 and that he has taxed. Therefore, the total taxable income from all these units comes to Rs. 6,47,84,258. There is no dispute on this assessed income.

If we look into the assessment order as well as the chart produced by both counsel there is hardly any case of escapement of income. Secondly, the Department has failed to prove that the assessee has failed to disclose fully and truly all material facts required for assessment of its income.

Assuming but not accepting that there is some mistake in calculation either on the part of the assessee or on the part of the Income Tax Officer that does not mean that the assessee has not disclosed fully and truly the material facts regarding his income. If some calculation mistake has been committed for the deduction under a particular section that can be rectified u/s 154 of the Act, but on that ground no notice u/s 148 of the Act can be issued.

When the notice itself is bad in law, there is no reason to carry on with the futile exercise of completion of reassessment proceedings. Therefore, on both the counts I find no case or justification to issue the notice u/s 148 of the Act particularly when the Income Tax Officer cannot assume jurisdiction to issue notice u/s 148 of the Act as per the provisions of the Act and the facts of this case.

In the result, the impugned notice issued is quashed. There will be no order as to costs.

All parties are to act on a signed xeroxed copy of the judgment on the usual undertaking.