Maruti Center for Excellence and Another vs Income Tax Officer (E)

Ravindra Bhat, J.—In this writ petition, the petitioner-assessee (hereafter ""assessee""), which is a society registered under the Societies

Registration Act, seeks a writ in the nature of certiorari or any other writ, order or direction quashing the order dated 21.12.2011 passed by the

Income Tax Officer (E) (hereafter ""revenue""). It also prays quashing of the notice issued u/s 148, Income Tax Act, 1961 (hereafter ""the Act"") and

all further proceedings taken pursuant thereto. The assessee filed its returns for the assessment year 2004-05 on 01.11.2004 declaring its income

as NIL inter alia claiming exemption u/s 11 of the Act. During the assessment proceedings, the AO through letter dated 01.08.2006 sought from

the assessee a copy of its certificate of registration u/s 12A along with certain other details in respect of claim of exemption u/s 11. These were

provided by the assessee by letters dated 10.08.2006 and 18.08.2006. Its return was processed u/s 143(3) where the AO by order dated

30.08.2006 accepted the income declared. On 23.03.2011, notice u/s 148 of the Act was issued. The petitioner through letter dated 06.04.2011

sought the reasons recorded for reopening the assessment, and also submitted that the original return of income be treated as its return filed in

response to the notice. The relevant portion therefrom is reproduced hereunder:

The assessee was granted registration u/s. 12 vide order No. 1601 dated 25.02.2003. Subsequently it was found that the assessee has infringed

the provisions of sec. 13(3) and benefits u/s. 11 & 12 were denied. In view of this, the Ld. DIT? vide notice dated 24.08.2010 required the

assessee to show cause as to why the registration granted u/s. 12A vide order dated 25.02.2002 should not be withdrawn. The ld. DIT? vide

order dated 22.02.2011 cancelled the registration granted u/s. 12A to the society since inception.

During the year the assessee has received interest of Rs. 48,883/- and corpus donation of Rs. 10,00,49,883/-. Since the registration u/s. 12A of

the Act was withdrawn, the assessee will not be entitled to get benefits u/s. 11 and 12 of the Act. This would result in denying of exemption to the

tune of Rs. 10, 00,49,883/-.

Therefore, I have reason to believe that the amount of Rs. 10,00,49,883/- has escaped assessment for the year under consideration.

By the impugned order, the assessee''s objections were rejected; thus, the writ petition.

During the hearing, the assessee''s counsel presented three main arguments. First, that the reopening was barred u/s 149 of the Act. Counsel

pointed out that the notice was issued on 23.03.2011, it was served on the assessee on 26.03.2011, and the reasons recorded for reopening

assessment were issued on 01.12.2011 and served on the assessee on 07.12.2011. It was contended that the proceedings initiated u/s 147 of the

Act cannot be regarded as having been validly initiated unless reasons recorded for initiating the proceedings are served on the assessee within the

period of limitation prescribed in Section 149. In the present case the time limit of 6 years was not met, as the assessment year was 2004-05. In

support of this contention, counsel placed reliance on the decision in Haryana Acrylic Manufacturing Company Vs. The Commissioner of Income

Tax IV and Another, .

Secondly, that since the notice u/s 148 was served after the expiry of 4 years, the requirement of the first Proviso had to be met; this being a

case where the returns were filed, the assessment could have been reopened only if income had escaped assessment due to the assessee''s failure

to disclose truly and fully all material facts. However, even this allegation is missing in the reasons recorded. This alone, it was contended, was

sufficient for issuance of notice to be held bad in law. In this regard counsel placed reliance on the decision of this Court in Haryana Acrylic

(supra), Kaira District Co-operative Milk Producers Union Ltd. Vs. Asstt. Commissioner of Income Tax (No. 1), , Fenner (India) Ltd. Vs.

Deputy Commissioner of Income Tax, , Dulichand Singhania v. Assistant Commissioner of Income Tax 269 ITR 182 (P&H) and Hindustan Lever

Ltd. Vs. R.B. Wadkar, Assistant Commissioner of Income Tax and Others (No. 1), . Furthermore, it was independently contended that the

assessee had not, in fact, failed to disclosed truly and fully all material facts. He submitted that it disclosed all material facts under its return and the

two letters dated 10.08.2006 and 18.08.2006 all the primary facts had been disclosed. He took support from the decision in Calcutta Discount

Company Limited Vs. Income Tax Officer, Companies District, I and Another, .

Thirdly, it was argued that the reassessment was due to a mere change of opinion, and therefore, impermissible. He placed reliance on the

decision in Commissioner of Income Tax, Delhi Vs. Kelvinator of India Limited, . It was contended that it is essential that the AO should

substantiate his satisfaction on ""tangible material""; since the reasons recorded disclose no more than a change in opinion, the proceedings are liable

to be quashed. Counsel further urged that the subsequent cancellation of registration u/s 12A is not a valid ground. In this connection he placed

reliance on the decision of this Court in Commissioner of Income Tax v. SIL Investments Ltd., ITA 700/2010 and 701 of 2010.

The revenue, in response, contended that firstly, the writ petition was not maintainable as there was alternate remedy of statutory appeal

available with the assessee. He placed reliance on Jagdish Preshad Gupta Vs. Joint Commissioner of Income Tax, . Secondly, he argued that the

reassessment proceedings were valid as the certificate of registration u/s 12A had been cancelled since inception; and therefore the assessee was

not entitled to any exemption under Sections 11 and 12 of the Act. It was pointed out that the Director of Income Tax (Exemptions) had found in

its order dated 22.02.2011 that the assessee was not involved in charitable activities as defined u/s 2(15) to be eligible for registration u/s 12A.

Lastly, it was urged that the reassessment proceedings were valid as it had been in compliance with the observations of the Supreme Court in

GKN Driveshafts (India) Ltd. Vs. Income Tax Officer and Others, .

This Court has considered the submissions. At the outset, it is noted that the assessment year was 2004-05. The notice u/s 148 was issued on

23.03.2011. Thus, the requirement of the proviso to Section 147 would set in. In this case, there is no dispute about the assessee having filed its

return. Thus, the condition that the assessee had failed to fully and truly disclose all material facts must be shown to be met. The ground for

reassessment, as discernible from the reasons recorded, is that the assessee''s certificate of registration was cancelled from inception. It is also

noted that the reasons recorded does not contain even a whisper of an allegation that the assessee had failed to disclose fully and truly all material

facts. This alone is ground for reassessment proceedings to be set aside in view of the decisions of this Court Wel Intertrade Private Limited

(formerly Wel Intertrade Limited) and Another Vs. Income Tax Officer, . The assessee''s contention in this regard is therefore accepted.

A bench of this Court in WelIntertrade (supra) observed as follows:

9... In the present case, the question of making of a return is not in issue and the only question is with regard to the second portion of the proviso,

which relates to failure on the part of the assessee to disclose fully and truly all material facts necessary for assessment. Insofar as this pre-condition

is concerned, there is not a whisper of it in the reasons recorded by the Assessing Officer. In fact, as indicated above, the Assessing Officer could

not have made this a ground because the Assessing Officer had required the petitioner to furnish details with regard to loss occasioned by foreign

exchange fluctuation which the petitioner did by virtue of the reply dated 05.02.2002. Since the petitioner had fully and truly disclosed all the

material facts necessary for the assessment, the pre-condition for invoking the proviso to Section 147 of the said Act had not been satisfied.

In this connection, it may be relevant to note one decision, although there are several others. The said decision is that of the Punjab and

Haryana High Court in the case of Duli Chand Singhania v. Assistant Commissioner of Income Tax. In the said decision, the High Court of Punjab

and Haryana was faced with a similar situation. The court noted that there was not even a whisper of an allegation that the escapement in income

had occurred by reason of failure on the part of the assessee to disclose fully and truly all material facts necessary for his assessment. The court

observed that absence of this finding, which is the sine qua non for assuming jurisdiction u/s 147 of the Act in a case falling under the proviso

thereto, makes the action taken by the Assessing Officer wholly without jurisdiction. We agree with these observations of the Punjab and Haryana

High Court and are of the view that in the present case also, the Assessing Officer has acted wholly without jurisdiction.

These observations were followed in Haryana Acrylic where the Court held:

In the reasons supplied to the petitioner, there is no whisper, what to speak of any allegation, that the petitioner had failed to disclose fully and

truly all material facts necessary for assessment and that because of this failure there has been an escapement of income chargeable to tax. Merely

having a reason to believe that income had escaped assessment, is not sufficient to reopen assessments beyond the four year period indicated

above. The escapement of income from assessment must also be occasioned by the failure on the part of the assessee to disclose material facts,

fully and truly. This is a necessary condition for overcoming the bar set up by the proviso to Section 147. If this condition is not satisfied, the bar

would operate and no action u/s 147 could be taken. We have already mentioned above that the reasons supplied to the petitioner does not

contain any such allegation. Consequently, one of the conditions precedent for removing the bar against taking action after the said four year period

remains unfulfilled.

Therefore, we notice that the fundamental pre-condition to exercise of jurisdiction to issue notice u/s 148 was not met. The High Court under

Article 226 certainly has power to quash such reassessment proceedings. The mere presence of an alternate remedy by way of appeal and revision

before the tax authorities is not necessarily an efficacious remedy. This Court can definitely issue appropriate writs to afford effective and

meaningful relief to the assessee. Reference is made to a decision of this Court in Basu Distributors Pvt. Ltd. Vs. Income Tax Officer, . For the

above reasons, we are of the opinion that the petition has to succeed; the same is accordingly allowed. It is clarified that this order will not prevent

the DIT from carrying out its enquiry in order to decide whether the benefit of registration u/s 12A is warranted; however, the petitioners''

assessment, which has been completed in respect of the relevant year in question, i.e. 2004-05, cannot be reopened.