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Judgment
Honourable Mrs. Justice Chitra Venkataraman
W.P.Nos. 24476 to 24478 of 2009 relate to the assessment years 2002-03, 2003-04 and 2004-05. The assessee herein has come before this Court, challenging the notice of reassessment dated 19.03.2009 for the above-said assessment years issued by the first respondent u/s 148 of the Income Tax Act, 1961.
The petitioner herein is a company and an assessee on the file of the first respondent herein. The petitioner is engaged in the manufacture and sale of non-ferrous metals and telephone cables. The petitioner states that it obtained the licence for its industrial undertaking, at Chinchpada Unit (CCR Refinery) at Silvassa in the Union Territory of Dadra and Nagar, Haveli from the Chief Inspector of Factories of Silvassa on 07.06.1996 in Form No. 4, as prescribed under the Factories Act, 1948 to manufacture copper. As is evident from the Director''s report, forming part of the balance sheet and profit and loss account for the assessment year 1999-2000, the petitioner is stated to have commenced its commercial production of copper in the said Unit from 1st April 1998. Thus, for the first time, in the return filed for the assessment year 1999-2000, the petitioner claimed 100% deduction u/s 80IB of the Income Tax Act, 1961 in respect of the profits arising from the said manufacturing unit''s operations. Thus starting from the assessment year 1999-2000, the deduction u/s 80IB of the Income Tax Act, 1961, available at 100% for the first five assessment years was granted on the assessment made for the assessment years 2001-02, 2002-03 and 2003-04.
It is further seen from the averments in the affidavit filed before this Court that in respect of the Rakholi Unit, the assessee got the licence under the Factories Act on 18th March 1998. As the commercial production in respect of the Rakholi unit started only on 22nd February 1999, the assessee claimed deduction u/s 80IB of the Income Tax Act in the return filed for the assessment year 2000-01. Thus in respect of Chinchpada Unit, deduction u/s 80IB was claimed from the assessment year 1999-2000, it being the first year of commencement of commercial production and in respect of Rakholi Unit, the claim was made only from 2000-01. Accordingly, in respect of the claim for the assessment year 2002-03, the petitioner is said to have enclosed Form 10CCB and attached the calculation of book profit under Minimum Alternate tax as per Section 115JB and claimed an aggregate deduction of Rs. 325,72,69,199/- under Chapter VIA, out of which, the claim for deduction u/s 80IB in respect of the eligible Units at Chinchpada Unit and Rakholi Unit, was to the tune of Rs. 310,96,28,749/-. As regards the assessment year 2003-04, on the total aggregate claim on deduction under Chapter VIA of Rs. 417,67,25,823/-, the deduction u/s 80IB was to the tune of Rs. 404,42,59,243/-. For the assessment year 2004-05, on the total aggregate claim on deduction under Chapter VIA of Rs. 186,65,45,794/-, the deduction u/s 80IB was to the tune of Rs. 16,05,90,254/-. As the claim for deduction u/s 80IB for the assessment years 2002-03, 2003-04 and 2004-05 are well covered under the five year period, the petitioner claimed 100% deduction u/s 80IB. In the assessment orders passed u/s 143(3) of the Income Tax Act, in respect of assessment years 2002-03, 2003-04 and 2004-05 on 28.2.2005, 30.3.2006 and 28.12.2006 respectively, after verification of the materials called for and produced by the petitioner, the Assessing Officer granted the claim of the petitioner for 100% deduction. A perusal of the orders passed for the respective assessment years shows that the deduction claimed by the assessee for the said Units had been examined with reference to the certificate of the Chartered Accountant and materials produced pursuant to the notices issued by the Officer. Thus, for the assessment year 2002-03, the Chinchpada Unit was in the fourth year and the Rakholi Unit was in the third year for 100% relief; for the assessment year 2003-04, the Chinchpada Unit was in the fifth year and the Rakholi Unit was in the fourth year and for the assessment year 2004-05, the Rakholi Unit was in the fifth year.
While matters stood thus, in respect of the assessment made for the assessment year 2003-04, on 20.7.2006, the Assessing Officer initiated rectification proceedings u/s 154 of the Income Tax Act, proposing to rectify certain errors as apparent on the face of the records, which reads as follows:
Particulars of mistake proposed to be rectified: 115JB: To disallow claim u/s 80HHC.
Provision for bad debts and diminution of value of current investment and income tax debited.
143(3): (i) Share issue expenses and FRN issue expenses written off to be disallowed being capital in nature.
(ii) IT & WT debited in P & L A/c.
(iii) Mistake in ded. u/s. 80IB in Chinchpada and ACSR Rakholi Units.
The assessee filed its objections to the same. A perusal of the records produced before this Court shows that except for the initiation of the rectification proceedings and the assessee filing its objection, there was no further processing of the proceedings. It is a matter of interest to note that in the order passed on 13th October 2009, on the reply filed by the assessee, the first respondent pointed out that as the issues in question were not such mistakes apparent from the records requiring rectification u/s 154, proceedings u/s 147 was initiated.
It is seen from the documents placed before this Court that the first respondent herein issued notice u/s 148 on 19.03.2009 to reopen the assessment in respect of the assessment years 2002-03, 2003-04 and 2004-05. It was alleged by the Assessing Officer that he had reasons to believe that the income chargeable to the above assessment years had escaped assessment within the meaning of Section 147 of the Act and that he proposed to reassess the income for the said years and required the petitioner to file a return of income within 30 days from the date of receipt of the notice. The assessee filed its reply objecting to the noting and stated that the returns originally filed u/s 139 of the Income Tax Act might be treated as a return filed pursuant to the notice issued u/s 148 of the Income Tax Act. On the reasons sought for by the assessee, the first respondent herein intimated the same vide letter dated 11.5.2009. The reasons given in the notice issued u/s 147 of the Income Tax Act in respect of the assessment year 2003-04 and u/s 154 proceedings originally initiated, are one and the same. The reasons for reopening of assessment u/s 148 in respect of the assessment year 2003-04 were given as follows:
i. Assessee has claimed 100% deduction in respect of Rakholi Unit of Rs. 13.22 crores and Chinchpada unit of Rs. 404.42 crores and was also allowed whereas the assessee is eligible for 30% deduction only since as per 10CCB filed for AYs 2003-04 in respect of Rakholi Unit, date of commencement of operation is 18.03.1998 (Previous Year 1997-98 and initial year 1998-99 and hence current being 6th year). Similarly, in respect of Chinchpada unit, date of commencement of operation was 07.06.1996 (PY 1996-97 & initial year being 1997-98 and hence current being 7th year). Hence, the assessee is eligible for 30% deduction only. Excess deduction allowed to be brought to tax.
ii. In the P & L account for Chinchpada Unit, assessee has credited interest income of Rs. 7,01,50,976/- and miscellaneous income of Rs. 26,43,366/-. Assessee has netted a sum of Rs. 9,34,01,802/- being interest received. Since these incomes do not form part of income from manufacturing unit, these are not eligible for deduction u/s. 80IB.
iii. In the P&L account of Rakholi unit assessee has credited interest income of Rs. 6,067/- and miscellaneous income of Rs. 67,87,792/-. Since these incomes do not form part of income from manufacturing unit, these are not eligible for deduction u/s. 80IB.
iv. Provision for Bad debts of Rs. 67,17,311/-, provision for diminishing value of investments of Rs. 1,17,362/- and income tax of Rs. 11,59,66,487/- debited to Profit and Loss account and added to the total income under normal computation was omitted to be added to the net profit u/s. 115JB as unascertained liability.
v. Wrong claim of 80HHC u/s 115JB as no deduction is allowable u/s 80HHC as per section 80IA(9).
vi. Under normal computation:
a) Share issue expenses written off of Rs. 40,74,600/- and FRN issue expenses written off of Rs. 54,61,569/- debited to Profit and Loss account as per column 17(a) of Form 3CD to be disallowed being capital in nature.
b) Wealth of Rs. 10,89,940/- debited in Profit and Loss account as per clause 17(f) of From 3CD to be disallowed.
c) Mistake in deduction u/s. 80IB in Chinchpada and ACSR Rakhali unit i.e., by wrongly allowing deduction u/s. 80IB in relation to the interest and miscellaneous income allowed as eligible for deduction u/s. 80IB.
As far as the assessment year 2002-03 is concerned, the reasons given for the notice issued u/s 148 of the Income Tax Act stated that, taking the date of commencement of operation as 07.06.1996, the deduction in respect of Chinchpada Unit was wrongly granted at 100%. The claim being in the sixth year, the petitioner assessee was entitled to 30% deduction only.
The notice issued also referred to the other income credited in the Profit and Loss Account, viz., for Chinchpada Unit; that the assessee had credited interest income of Rs. 3,26,64,158/-, which was not derived from manufacturing activity. Since these incomes did not form part of the income from the manufacturing unit, these were viewed as not eligible for deduction u/s 80IB of the Act.
Thus for the assessment year 2004-05, under notice dated 19.3.2009, the deduction given in respect of Rakholi Unit at 100% was sought to be withdrawn as in the case of Chinchpada Unit. The notice also referred to the other income being included in the deduction granted u/s 80IB. Thus, except for the alleged wrong claim u/s 80HHC and Section 115JB raised in the reassessment proceedings in respect of assessment year 2003-04, the notice in respect of all the three assessment years u/s 148 of the Act are more or less on identical grounds, particularly with reference to the grant of relief u/s 80IB in respect of the Chinchpada Unit as well as Rakholi Unit.
Immediately on receipt of the reasons for reopening, the petitioner filed its objections on 24.07.2009. While questioning the jurisdiction of the respondent as hit by the limitation of four years as provided for u/s 148(1), the petitioner contended that in the absence of any material to show that there was failure on the part of the assessee petitioner to disclose truly and fully, material facts in making the claim for deduction, the initiation of the proceedings u/s 148 to reopen the assessments for the assessment years 2002-03, 2003-04 and 2004-05 after the expiry of four years, is bad in law. The petitioner contended that the notice did not disclose any material based on which the satisfaction for assumption of jurisdiction was arrived at, to reopen the assessments. Thus in the absence of any materials disclosed, on which the Officer is stated to have formed a prima facie view that by reason of any omission or failure on the part of the assessee to disclose fully and truly all material facts, the income of the assessee had escaped assessment, there could be no valid assumption of jurisdiction for the assessment years under consideration. Thus the notice issued after the expiry of four years, hit by the limitation provided therefore u/s 147, there could be no assumption of jurisdiction. Thus, the notices issued are under challenge on the ground of want of jurisdiction, both from the angle of limitation as well as from the absence of materials, disclosing the causal connection on the alleged escapement of tax.
As far as the proposal to withdraw 100% deduction in respect of Chinchpada Unit and Rakholi Unit is concerned, the petitioner pointed out that as per Section 80IB, the five years'' period for claiming 100% deduction has to be considered from the date of commencement of production. Given the fact that Chinchpada Unit and Rakholi Unit had their licence granted only on 7th June 1996 and 18th March 1998 respectively, the benefit for five assessment years has to be worked out from the date of commencing of commercial production -1st April, 1998 being the date of commercial production for the Chinchpada Unit and for the Rakholi Unit, from 22nd February 1999. Thus taking note of the materials produced, when the original assessment rightly considered the claim and thus was found fully satisfied, the question of withdrawal of the benefit did not arise.
The petitioner pointed out that the relief u/s 80IB of 100% was granted by the Officer after fully satisfying himself as to the date of commencement of commercial production. Thus the petitioner pointed out that the view of the first respondent that the relief had to be granted from the date of the licence i.e., from 18.03.1998 in respect of the Rakholi Unit and from 07.06.1996 in the case of Chinchpada Unit, is contrary to the provisions of Section 80IB of the Act. The petitioner further pointed out that the entire reassessment proceedings, in fact, rested on the view taken by the Assessing Officer that deduction should be made only from the date when the experimental production was started and not when the commercial production had started. Thus, except for the audit objection, there are no materials which led him to form a belief that the income had escaped assessment, to warrant assumption of jurisdiction u/s 147 of the Act. The assessee also referred to Form 10CCB which was required to be filed for claiming deduction u/s 80IB of the Act - a requirement introduced for the first time by Income Tax (23rd Amendment) Rules, 2002, with effect from 6.9.2002, which gave the details of commercial production of copper in Chinchpada Unit and Rakholi Unit.
As regards the other income which were not stated to have been derived from the manufacturing activity, particularly relating to the first two assessment years, the petitioner made its objection that there was no omission or failure on the part of the assessee from disclosing fully and truly, all material facts. The petitioner pointed out that the interest income earned related to the belated payment from its purchaser as well as sundry items and the claim is supported by the decision of the High Court. As regards the share issue expenses, the same was reflected as capital expenditure debited to the Profit and Loss Account in the Tax Audit Report u/s 44AB of the Act. As regards the income tax and wealth tax debited in the Profit and Loss Account, there was never a claim made for deduction.
As regards the computation u/s 115JB of the Act with reference to the claim u/s 80 HHC, the petitioner contended that the provision u/s 115JB has an overriding effect over the other provision. The amount of profit eligible for deduction u/s 80HHC could not form part of the book profit as per the Section. For the purpose of Explanation (iii) to Section 115JB, it is not the actual deduction u/s 80HHC that is relevant, but what is relevant is the eligible profit for deduction u/s 80HHC of the Act. As regards the provision for bad debts, it was contended that the same was towards ascertained identified liability and a provision was made in the books of accounts. The amount, though added in the regular computation of the total income, was not added while computing book profit u/s 115JB of the Act. So too the diminution in the value of current investment. The assessee contended that the above claims were considered by the Assessing Officer after making verification with the records of the petitioner. As such, the question of alleging failure on the part of the assessee from disclosing true and full facts, did not arise. Therefore, the question of granting relief of more than what had been laid down, did not arise.
In the reply filed for the assessment year 2003-04, the petitioner specifically pointed out to Section 154 proceedings that on the admitted fact that the proceedings were on account of the alleged mistake on the face of the record, the proceedings taken u/s 147, read with Section 148, alleging that there was failure on the part of the assessee to disclose any material facts truly and fully, fails. Thus there could be no simultaneous assumption of jurisdiction under Sections 148 and 154 on the self same issues. The petitioner further pointed out that on an application made under the Right to Information Act, 2005, the petitioner was supplied with all the details as regards the view of the audit party on the relief granted to the petitioner u/s 80IB of the Act. In the circumstances, the petitioner contends that the reopening of assessment based on audit objection suffers from legal infirmity and hence, the proceedings are liable to be quashed.
Learned senior counsel appearing for the petitioner made detailed submissions on Section 147 of the Act, in particular, with reference to the assessments made based on the materials produced and verified by the Assessing Officer. Making particular reference to the proceedings u/s 154 as regards the assessment year 2003-04, he submitted that when once the Officer had assumed jurisdiction u/s 154 of the Act to rectify the errors apparent on the face of the record, the question of further issuance of notice u/s 147 of the Act, alleging that the petitioner had not made a true and full disclosure of facts, did not arise. Placing reliance on the decision reported in (1994) Commissioner of Income Tax Vs. Premier Automobiles Ltd., he submitted that Section 154 and Section 147 operated on different fields. Even though the first respondent had communicated that there were some inherent difficulties in sustaining the proceedings u/s 154, the fact remains that as of today, there are no orders passed on the objections made. Hence, the assessee is entitled to assume the proceedings as still pending. Pointing out to the date of commercial production in respect of the two units and the materials produced at the time of assessment and examined by the Income Tax Officer, learned senior counsel relied on the decision reported in Calcutta Discount Company Limited Vs. Income Tax Officer, Companies District, I and Another, I and another, followed in a series of decisions, the latest decision being Commissioner of Income Tax, Delhi Vs. Kelvinator of India Limited, and pointed out to the consistent view of the Apex Court that in the name of reopening the assessment, there cannot be a review of an assessment made based on the materials. He pointed out that the assumption of jurisdiction u/s 147 presupposes the existence of materials to form the view that by reason of the failure on the part of the assessee from disclosing the full and true facts, there had been an escapement of income, necessitating the reopening of assessment. Thus on a mere point of law as to whether the relief u/s 80IB has to be granted from the year of operation or the year of commercial production, there could be no assumption of jurisdiction u/s 147 of the Act. When the notice does not disclose the reasons or the materials, the assumption of jurisdiction is bad and it is also hit by the four years'' time limit given in the substantive part of Section 147 of the Act. Given the fact that the notice discloses absolutely no materials to provide the link to the assumption of jurisdiction that there had been escapement of income from assessment, the scope of Explanation (1) to Section 147 is no different from what one would have to apply in understanding the scope of Section 147 sub section (1). Learned senior counsel submitted that the reasons disclosed does not disclose any material to come to a conclusion that there existed facts necessary to confer jurisdiction on the Officer to proceed u/s 147 of the Act. He further pointed out that even in the backdrop of the Explanation to Section 147(1), one cannot find any material having a bearing on the question of under-assessment, warranting a re-assessment in this case. Making particular submission that the deduction u/s 80IB is with reference to the date of commercial production, learned senior counsel relied on the decisions reported in Commissioner of Income Tax Vs. Elgi Finance Ltd., Commissioner of Income Tax, Poona Vs. Hindustan Antibiotics Ltd., and Additional Commissioner of Income Tax Vs. Southern Structurals Ltd., and submitted that on the erroneous view taken as to the scope of Section 80IB of the Act, the proceedings taken to reopen the assessment must fail. He pointed out that the claim of the petitioner originally made and accepted by the respondents as starting from 1998-99 in respect of Chinchpada Unit and from 2000-2001 in respect of the Rakholi Unit, must not suffer an abortive end, consequent on the erroneous view taken by the Assessing Officer on the provision of law u/s 80IB to revise the assessment u/s 148 for the assessment years 2002-03, 2003-04 and 2004-05.
Learned senior counsel also referred to the decision reported in Sunil Kumar Jain Vs. The Income Tax Officer, The Commissioner of Income Tax and The Commissioner of Income Tax, on the aspect of availability of alternative remedy that when the materials required for assumption of jurisdiction is not there, the petitioner is justified in invoking this Court''s jurisdiction. Hence, no exception could be taken in this matter.
On notice, the first respondent has filed the counter affidavit before this Court. Raising the issue on the availability of alternative remedy, the counter affidavit supported the proceedings taken u/s 147 of the Act, particularly with reference to Section 80IB of the Act, that when the petitioner had been granted excessive relief, the assessment is liable to be reopened u/s 147 of the Act. Learned Senior Standing Counsel appearing for the respondents placed heavy reliance on Explanation (1) to Section 147(1) of the Act and submitted that even though the assessee had placed fully and truly the facts before the Officer, yet, when they had not received due consideration which is required of and the relief had been granted in excess of what is contemplated under the provisions of the Act, the Officer was entitled to assume jurisdiction u/s 147 of the Act. Making particular reference to limitation, he once again referred to Explanation (1) that production of other evidence, by itself, would not amount to disclosure within the meaning of the proviso to Section 147 of the Act. In the circumstances, when there are sufficient remedies available under the Act, the petitioner should have exhausted the same, instead of approaching this Court. He further pointed out that the proceedings u/s 154 of the Act could not be pursued further, as is evident from the communication received by the petitioner, on account of certain inherent difficulties in proceeding further in processing the said application. Hence, it could not be presumed that the first respondent could not proceed further with the issuance of notice u/s 154, or the same would oust the jurisdiction u/s 147 of the Act.
In support of his contention, he relied on the decision reported in Commissioner of Income Tax Vs. P.V.S. Beedies Pvt. Ltd., referred to in the unreported decision of the Delhi High Court dated 26.9.2011 in W.P.No. 6205 of 2010 Dalmia Pvt. Ltd. Vs. commissioner of Income Tax, Delhi and another, which also dealt with the scope of Explanation (1) to Section 147 of the Act in the context of the various decisions of the Apex Court on the scope of Section 147 of the Act.
Reiterating the stand taken in the counter affidavit, particularly with reference to Section 80IB of the Act, learned Senior Standing Counsel appearing for the Revenue pointed out that the claim is not sustainable in law. As regards the miscellaneous income, particularly when there are no discussions as to whether they are derived from the industrial undertaking, rightly proceedings were taken by the first respondent by issuing notice u/s 147 of the Act.
Heard learned senior counsel appearing for the petitioner and the learned Senior Standing Counsel appearing for the Revenue and perused the materials placed on record.
It is an admitted fact that the assessee herein has eligible industrial undertakings, one at Chinchpada Unit (CCR Refinery) at Silvassa in the Union Territory of Dadra and Nahar, Haveli and the other at Rakholi. The first respondent does not deny, as a matter of fact, that the licensing Authority granted the licence for the Chinchipada Unit to start the business operations on 7th June 1996 and for the Rakholi Unit, on 18th March 1998. It is not disputed by the respondents that the commencement of the operation, as by way of commercial production in respect of these Units, was from 1st April 1998 and 22nd February 1999 respectively. It is not denied by the Revenue that the assessee made no claim for deduction u/s 80IB in respect of the Chinchpada Unit and the Rakholi Unit in the assessment years 1997-98 and 1998-99, relevant to the year in which the licence was granted. To a specific question put to the first respondent as to the first year of granting the relief of 100% u/s 80IB, the first respondent does not deny, as a matter of fact, that as per the provision u/s 80IB, the relief of 100% was granted from the year in which the commercial production started. As already pointed out, in respect of Chinchpada Unit, the commercial production started on 1st April 1998 and in respect of Rakholi Unit, the commercial production started on 22nd February 1999. Given the fact that the assessee is entitled to 100% deduction for the first five years starting from the initial assessment year of the date of commercial production, the petitioner had had the benefit of 100% deduction granted for the first time from the assessment year 1999-2000 and 2000-2001 in respect of Chinchpada Unit and Rakholi Unit respectively.
The contention of the first respondent herein that there was a wrong relief granted at 100% in respect of the assessment years 2002-03 2003-04 and 2004-05, is not legally correct.
Learned Senior Standing Counsel appearing for the Revenue pointed out that the notice to reopen the assessment was given only to bring the relief granted to be in tune with the date of commencement of operation and hence, the relief granted was in excess of what was available to the assessee.
Section 80IB(14)(c)(iii) defines "initial assessment year" as follows:
(c) "initial assessment year" -..........
(iii) in the case of an undertaking engaged in the business of commercial production or refining of mineral oil referred to in sub-section (9), means the assessment year relevant to the previous year in which the undertaking commences the commercial production or refining of mineral oil;
Going by the above definition that the criteria for determining the period of deduction and the percentage of deduction is based on the industrial undertaking beginning to manufacture or produce things, I do not find any legal basis in the contention of the Revenue that the relief has to be worked out from the date of the licence. It may be noted that getting a licence to set up an industrial undertaking is a stage anterior to the commencement of production and hence, the date of licence and the date of commercial production cannot be a simultaneous happening. In the circumstances, I hold that the very basis for initiating the reassessment proceedings suffers from legal infirmity arising from the wrong understanding of a clear provision u/s 80IB of the Act. On the admitted fact as regards the date of the licence and the date of commercial production, the relief granted from the initial assessment year taken from the date of commercial manufacture must enure for a period of five years thereafter.
Thus with Section 80IB laying stress on the date of commercial production as the year from which the relief should be worked out, I agree with the learned senior counsel appearing for the petitioner that the decisions reported in Additional Commissioner of Income Tax Vs. Southern Structurals Ltd., , Commissioner of Income Tax Vs. Elgi Finance Ltd., Commissioner of Income Tax, Poona Vs. Hindustan Antibiotics Ltd., Commissioner of Income Tax Vs. Nestor Pharmaceuticals Limited support the case of the assessee and consequently, the proceedings taken now must fail. In fact, in the decision reported in Additional Commissioner of Income Tax Vs. Southern Structurals Ltd., while considering Section 84 as it stood then, which is a percusor to Section 80J and on its deletion from the statute, the present provision in Section 80IB, this Court pointed out that even a production of a prototype is not a production of an article as such and that would not be enough to show that the assessee had begun to manufacture or produce articles. This Court pointed out that "The manufacture or production of articles must be in commercial sense." Thus, apart from the issue raised as to the absence of materials available with the Assessing Officer to assume jurisdiction to reopen the assessment, I agree with the contention of the petitioner that going by the purport of Section 80IB, on the admitted facts as to the date of commercial production, there could be no denial of the relief.
As already pointed out, in respect of the assessment year 2003-04, the first respondent herein issued notice u/s 154 on 20.7.2006, wherein, the Officer proposed to disallow the claim u/s 80HHC, provision for bad debts and diminution of value of current investment and income tax debited in respect of Section 115JB assessment and on the regular assessment u/s 143(3) in respect of the alleged mistake in granting deduction u/s 80IB, for income tax and wealth tax debited in the profit and loss account and the share issue expenses and FRN issue expenses written off to be disallowed, being capital in nature.
A reading of the notice u/s 154 of the Act and the reassessment notice dated 11th May 2009 shows that there is absolutely no material difference on the issues sought to be considered under these notices, except the fact that while in the proceedings u/s 154, the notice is based on the view that there was a mistake apparent on the face of the record warranting a rectification, the proceedings u/s 147 alleged that by reason of the untrue and incorrect particulars given by the assessee, there had been an escapement of tax. Given the fact that the area of operation of both these provisions are on totally different fields, the simultaneous assumption of jurisdiction under Sections 154 and 147 on the self same issue, plainly shows the contradiction in the reasoning of the second respondent and as without logic or reason.
As rightly pointed out by the learned senior counsel appearing for the petitioner placing reliance on the decision reported in Commissioner of Income Tax Vs. Premier Automobiles Ltd., , when once the assessment order has been the subject matter of rectification u/s 154, the self same issue cannot be the subject matter of reassessment by taking recourse to Section 147 of the Act. Thus, on the facts that are available today, as far as the assessment year 2003-2004 is concerned, there are two proceedings, one u/s 154 and another u/s 147 of the Act. The jurisdiction given under both the Sections thus operating on different fields, (as far as this assessment year is concerned), and with the doubt in the mind of the Officer as to which direction he has to go, I have no hesitation in holding that the notice lacks the very basis for assumption of jurisdiction u/s 147 of the Act. For the reasons that there cannot be two parallel proceedings on the self same issue as one based on the view that there were materials available on record which warranted exercise of jurisdiction u/s 154 and the other initiated u/s 147 that there was escapement of income from tax on account of the failure of the assessee from disclosing the full and correct particulars, I have no hesitation in quashing the notice on reassessment.
Learned senior standing counsel appearing for the Revenue pointed out that the issue as regards the interest income being a matter of excessive relief u/s 80IB and the provision for bad debts and provision for diminution in value of current investment, to be considered u/s 115JB, had not received due consideration at the time of assessment. Consequently, the same warranted assumption of jurisdiction u/s 147. As already seen, as far as the reassessment for the assessment year 2003-04 is concerned, the said issue is also the subject matter of Section 154 proceedings. For the reasons already given in the preceding paragraph, I do not find any justifiable ground to accept the contention of the Revenue to uphold the reassessment proceedings.
As regards the writ petitions relating to the assessment years 2002-2003 and 2004-2005, the issue on the grant of relief u/s 80IB under the reassessment notices are no different from what had been adopted for the assessment year 2002-2003. Learned senior counsel appearing for the petitioner made particular reference that there cannot be a reassessment proceedings on the mere change of opinion, particularly on the scope of Section 80IB of the Act. He particularly laid stress on the language of Section 147, that in the context of the decision of the Apex Court reported in Calcutta Discount Company Limited Vs. Income Tax Officer, Companies District, I and Another, , followed by Commissioner of Income Tax Vs. Eicher Ltd., and the decision reported in Commissioner of Income Tax, Delhi Vs. Kelvinator of India Limited, even to fall back on Explanation (1) to Section 147, the Revenue must have materials to form a prima facie view that there had been non-disclosure of material facts. Thus when all the facts relating to the various claims were placed before the Assessing Officer in the questionnaire sent and the petitioner had participated in the enquiry, there could be no assumption of jurisdiction by the Assessing Officer u/s 147 of the Act.
The case of the Revenue is that even if the assessee had placed the materials before the Assessing Officer at the time of original assessment, Explanation (1) to Section 147 gives the necessary jurisdiction required for reopening the assessment, for, under the Explanation, the production of Books of Accounts and other material will not necessarily amount to "disclosure" within the meaning of the Section if the Assessing Officer does not draw the right inferences, which he should have otherwise drawn. Quite apart, he also placed reliance on Section 147 Explanation 2(c) that when excess relief had been granted to the assessee u/s 80IB, the same is liable to be revised.
As for the contention of the Revenue based on the Explanation, it is no doubt true that if one goes by Explanation (1) to Section 147 of the Act, the mere production of account books or other evidence at the time of original assessment would not be a good defence to an assessee to contend that the failure to draw the correct inference would not confer jurisdiction u/s 147 of the Act.
Contentions such as the one raised by the Revenue based on the Explanation to Section 147 of the Act was considered by the Apex Court in the decision reported in Calcutta Discount Company Limited Vs. Income Tax Officer, Companies District, I and Another, I and another. To a specific question as to how could an assessee be charged with failure to communicate an inference which he might or might not have drawn, the Apex Court pointed out as follows:
There can be no doubt that the duty of disclosing all the primary facts relevant to the decision of the question before the assessing authority lies on the assesses. To meet the possible contention that when some account books or other evidence has been produced, there is no duty on the assessee to disclose further facts, which on due diligence, the income tax Officer might have discovered, the Legislature has put in the Explanation...
His omission to bring to the assessing authority''s attention those particular items in the account books, or the particular portions of the documents, which are relevant, amount to "omission to disclose fully and truly and truly all material facts necessary for his assessment.
It may be pointed out that the Explanation to the sub-section has nothing to do with "inferences" and deals only with the question whether primary material facts not disclosed could still be said to be constructively disclosed on the ground that with due diligence the income tax Officer could have discovered them from the facts actually disclosed. The Explanation has not the effect of enlarging the section, by casting a duty on the assessee to disclose "inferences" -to draw the proper inferences being the duty imposed on the income tax Officer.
We have therefore come to the conclusion that while the duty of the assessee is to disclose fully and truly all primary relevant facts, it does not extend beyond this.
The position therefore is that if there were in fact some reasonable grounds for thinking that there had been any non-disclosure as regards any primary fact, which could have a material bearing on the question of "under-assessment" that would be sufficient to give jurisdiction to the income tax Officer to issue the notices u/s 34.
(Emphasis supplied)
The Apex Court further held as follows:
Once all the primary facts are before the assessing authority, he requires no further assistance by way of disclosure. It is for him to decide what inferences of facts can be reasonably drawn and what legal inferences have ultimately to be drawn. It is not for somebody else -far less the assessee -to tell the assessing authority what inferences, whether of facts or law, should be drawn. Indeed, when it is remembered that people often differ as regards what inferences should be drawn from given facts, it will be meaningless to demand that the assessee must disclose what inferences -whether of facts or law -he would draw from the primary facts.
If from primary facts more inferences than one could be drawn, it would not be possible to say that the assessee should have drawn any particular inference and communicated it to the assessing authority. How could an assessee be charged with failure to communicate an inference, which he might or might not have drawn ?
Thus the Apex Court held that the Explanation would cover cases where the Income Tax Officer had reasonable grounds for thinking that there had been a non-disclosure as regards the primary fact, which could have a material bearing on the question of under-assessment; he shall have jurisdiction to start proceedings for reassessment within a period of eight years and where he has reason to believe that an under-assessment has resulted from other causes, he shall have jurisdiction to start proceedings for reassessment within four years.
The Apex Court pointed out that two conditions must co-exist, namely, (i) the income tax Officer having reason to believe that there has been under-assessment and (ii) his having reason to believe that such under-assessment has resulted from non-disclosure of material facts, before the income tax Officer has jurisdiction to start proceedings after the expiry of four years.
Reiterating the above view, in the decision reported in Income tax Officer, Calcutta and Others Vs. Lakhmani Mewal Das, the Apex Court held that the reasons for formation of the belief contemplated u/s 147A of the Act must have a rational connection or relevant bearing on the formation of the belief. Rational connection postulates that there must be a direct nexus or live link between the material coming to the notice of the Income Tax Officer and the formation of the belief that there has been an escapement of income of the assessee from assessment in the particular year, because of the assessee''s failure to disclose fully and truly, all material facts.
Dealing with the position of law post-amendment to Section 147 under the Direct Tax Laws Amendment Act, 1987, in the decision reported in Commissioner of Income Tax, Delhi Vs. Kelvinator of India Limited, the Apex Court pointed out that post 1st April 1989, under the amended provision, the power to reopen is much wider.
Sounding a note of caution that one has to give a schematic interpretation of the words "reason to believe" u/s 147, the Apex Court pointed out that there can be no reopening of an assessment just on the basis of change of opinion. The Apex Court observed as follows:
We must also keep in mind the conceptual difference between power to review and power to re-assess. The Assessing Officer has no power to review; he has the power to re-assess. But re-assessment has to be based on fulfilment of certain pre-conditions and if the concept of "change of opinion" is removed, as contended on behalf of the Department, then, in the garb of re-opening the assessment, review would take place. One must treat the concept of "change of opinion" as an in-built test to check abuse of power by the Assessing Officer. Hence, after 1st April, 1989, the Assessing Officer has power to re-open, provided there is "tangible material" to come to the conclusion that there is escapement of income from assessment. Reasons must have a live link with the formation of the belief. Our view gets support from the changes made to Section 147 of the Act, as quoted hereinabove. Under the Direct Tax Laws (Amendment) Act, 1987, Parliament not only deleted the words "reason to believe" but also inserted the word "opinion" in Section 147 of the Act. However, on receipt of representations from the companies against omission of the words "reason to believe", Parliament re-introduced the said expression and deleted the word "opinion" on the ground that it would vest arbitrary powers in the Assessing Officer. We quote herein below the relevant portion of Circular No. 549 dated October 31, 1989 ( [1990] 182 ITR St. 1, 29), which reads as follows:
7.2 Amendment made by the Amending Act, 1989, to reintroduce the expression ''reason to believe'' in Section 147.--A number of representations were received against the omission of the words ''reason to believe'' from Section 147 and their substitution by the ''opinion'' of the Assessing Officer. It was pointed out that the meaning of the expression, ''reason to believe'' had been explained in a number of court rulings in the past and was well settled and its omission from Section 147 would give arbitrary powers to the Assessing Officer to reopen past assessments on mere change of opinion. To allay these fears, the Amending Act, 1989, has again amended Section 147 to reintroduce the expression ''has reason to believe'' in place of the words ''for reasons to be recorded by him in writing, is of the opinion''. Other provisions of the new Section 147, however, remain the same.
Thus applying the law laid down by the Apex Court to the facts herein as disclosed in the notice of reopening, I find that as far as the claim u/s 80IB is concerned, except to the stand taken by the Revenue that the relief u/s 80IB should be calculated from the date of the licence, a stand which I had already rejected, there is absolutely no material disclosed in the notice for forming a belief that there was escapement of income on account of the failure on the part of the assessee in disclosing fully and truly, material facts relating to the claim.
In the light of the above-said enunciation of law on Section 147 of the Act, which is relevant even today after the amendment in 1998, which had already been considered in the decision reported in Commissioner of Income Tax, Delhi Vs. Kelvinator of India Limited, , as rightly pointed out by the learned senior counsel appearing for the petitioner, a perusal of the notices issued for all the years under consideration reveals that the notices do not disclose any such material which formed the basis of a reasonable view that there was an escapement of income on account of the failure of the assessee in disclosing fully and truly, the facts.
As already pointed out, as far as the assessment for the assessment year 2003-04 is concerned, with Section 154 proceedings already taken up, there cannot be an assumption of jurisdiction under the self same facts u/s 147 of the Act.
As far as the assessment years 2002-03 and 2004-05 are concerned, the notices do not even touch on the primary materials disclosing the causal link to believe that there was escapement of income from assessment on account of the failure of the assessee from disclosing the true and full facts. Thus apart from the above, going by the period of limitation provided for u/s 147 proviso, in the absence of any materials to support the assumption of jurisdiction within the four year limitation period prescribed therein, the proceedings initiated after the expiry of four years from the assessment year, suffer from lack of jurisdiction on the part of the first respondent in proceeding further in this matter.
As rightly pointed out by the petitioner, a reading of the assessment orders for the above-said years shows that the deduction claimed under Chapter VI A was examined with reference to the certificates of the Chartered Accountant and the submission made in that regard. So too the claim u/s 115JB. As far as the computation u/s 115JB is concerned, the assessee claimed that there was never a claim made on account of income tax debited in the computation of the book profits, to go for a reconsideration u/s 147 proceedings. So too the other claims. In the light of decisions of the Apex Court referred to in the preceding paragraph as to the total absence of materials disclosed to form the belief on the escapement of income, the decisions relied on by the Revenue, including the decision of the Delhi High Court, do not, in any manner, support their case.
Learned Senior Standing Counsel appearing for the respondents made a strong plea as regards the availability of an alternative remedy to challenge the re-assessment proceedings. I do not think such plea merits acceptance to reject the writ petitions. In the decision reported in Calcutta Discount Company Limited Vs. Income Tax Officer, Companies District, I and Another, I and another, the Apex Court pointed out that the existence of an alternative remedy is not, however, always a sufficient reason for refusing a party quick relief by a writ or order, prohibiting an authority acting without jurisdiction from continuing such action.
On the very same aspect, the Allahabad High Court considered a series of decisions of various Courts and that of the Supreme Court and held in the decision reported in Sunil Kumar Jain Vs. The Income Tax Officer, The Commissioner of Income Tax and The Commissioner of Income Tax, , that Article 226 of the Constitution of India confers on all the High Courts, a very wide power in the matter of issuing writs. However, the remedy of writ is an absolutely discretionary remedy. If the Court is satisfied that there is total want of jurisdiction, the High Court has always the discretion to refuse to grant any writ and hence, alternative remedy shall not be a bar to consider the claim of an aggrieved party.
In a recent decision reported in Union of India (UOI) and Others Vs. Tantia Construction Pvt. Ltd., on the issue of maintainability of a Writ Petition, in the face of the alternative remedy available under the Act, the Apex Court held that the presence of an alternative remedy is not an absolute bar in entertaining a Writ Petition. In so holding, the Apex Court considered the decisions reported in Harbanslal Sahnia and Another Vs. Indian Oil Corpn. Ltd. and Others, Modern Steel Industries vs. State of U.P., (2001) 10 SCC 491 (Hindustan Petroleum Corporation Limited and Ors. V. Super Highway Services and Anr.; National Sample Survey Organisation and Another Vs. Champa Properties Ltd. and Another, as well as Whirlpool Corporation Vs. Registrar of Trade Marks, Mumbai and Others, and held that the rule of exclusion of writ jurisdiction by availability of an alternative remedy, is a rule of discretion and not one of compulsion and there could be contingencies wherein the High Court exercised its jurisdiction in spite of availability of an alternative remedy.
I agree with the submission of the learned senior counsel appearing for the petitioner that the existence of an alternative remedy by way of appeal, would not stand in the way of this Court granting the relief under Article 226, particularly on the admitted fact as regards the date of commercial production taken up for consideration for the purpose of granting 100% relief in the first year of assessment namely, 1999-2000 and 2000-2001 in respect of Chinchpada Unit and Rakholi Unit respectively. As already pointed out, as far the assessment year 2003-2004 is concerned, there cannot be a parallel proceedings u/s 147 and Section 154 on the self same issues. As far as assessment years 2002-2003 and 2004-2005 are concerned, apart from the reasons given on the claim u/s 80IB, in the absence of any materials shown as having causal connection with the allegation of escapement of tax on account of the assessee furnishing untrue and incomplete details, I have no hesitation in quashing the notices of reassessment and thereby allowing the writ petitions.
Learned senior standing counsel appearing for the Revenue placed before this Court an unreported decision of the Delhi High Court dated 26.9.2011 in W.P.No. 6205 of 2010 Dalmia Pvt. Ltd. Vs. commissioner of Income Tax, Delhi and another as regards the scope of Explanation (1) to Section 147 of the Act. In view of the decision reported in Commissioner of Income Tax, Delhi Vs. Kelvinator of India Limited, which had followed the decision of the Constitutional Bench reported in Calcutta Discount Company Limited Vs. Income Tax Officer, Companies District, I and Another, , I and another, I do not find any ground in the said judgment to support the case of the Revenue.
At this juncture, it is relevant to point out to the submission of the learned senior counsel appearing for the petitioner on the information obtained under the Right to Information Act for the reassessment issue, made only based on the audit objection. A perusal of the file shows the report of the Office of the Commissioner. The approval made no reference at all to the audit objection to lead to the assumption of jurisdiction u/s 147 of the Act. In the circumstances, I do not find any justification to accept the plea of the petitioner that the re-assessment is based on audit objection. In any event, it is not necessary for me to go into the question in depth, considering the fact that on the merits of reopening u/s 147 of the Act, I have already given my decision agreeing with the contention of the learned senior counsel appearing for the petitioner.
In the light of what had been stated above, I have no hesitation in allowing the writ petitions. Accordingly, the above writ petitions stand allowed. Connected M.P.Nos. 1, 1 and 1 of 2009 stand closed. No costs.