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Judgment
This petition under Article 226 of the Constitution of India challenges the Notice dated 20 March 2014 issued by the Assistant Commissioner of Income Tax under Section 148 of the Income Tax Act, 1961 (the Act). By the impugned Notice the Assessing Officer is seeking to reopen the assessment of the Petitioner for the year 2007-2008.
The Petitioner-trust (since dissolved) was established in 1978. By a Deed of Dissolution dated 28 February 2007, the discretionary trust was dissolved. On 23 July 2007, the Petitioner filed its Return of income for the year 2007-2008 and in its Return of Income, the Petitioner had declared that the trust stands dissolved as per the Deed of Dissolution dated 28 February 2007. The Petitioner''s return of Income was processed under Section 143(1) of the Act on 25 March 2009.
On 20 March 2014, the impugned Notice was issued. The reasons in support of the impugned notice as communicated to the Petitioner read as under -
''On verification of the case record of the assessee Trust i.e. SANT TRUST for A.Y. 2007-08, it is seen that assessee has not offered any income arisen by way of transfer of capital asset on dissolution of Sant Trust for taxation.
Section 45(4) of Income Tax Act says -"the profits and gains arising from transfer of capital asset by way of distribution of capital asset on dissolution of Association of Persons, Body of Individual or Otherwise shall by chargeable to tax as income of the firm, association or body, of the previous year in which such transfer takes place and for the purpose of sec.48 fair market value of asset on the date of transfer shall be deemed to be the full value of consideration received on accruing as a result of transfer."
In the light of the above, the assessee failed to discharge true picture of its income arisen by way of transfer of capital asset on dissolution of the trust. Hence, income charge-able to tax amounting to more than Rs. One lakh has escaped assessment by reason of failure on the part of the assessee to disclose fully and truly all material facts necessary for assessment for that A.Y.2007-08.
From the above facts, I have reason to believe that the income chargeable to tax amounting to more than Rs. One lakh has escaped assessment coming within the meaning of Sec.147 of the I.T. Act, 1961. Hence, permission to issue notice u/s148 may kindly be accorded so as to bring to tax the income which has escaped assessment to the extent of an amount mentioned above.''
The Petitioner filed it''s objection to the Notice. However the same was rejected by the Assessing officer.
Mr. Toprani, learned counsel appearing for the Petitioner submits that the notice is without jurisdiction on the following grounds -
a) The Notice dated 20 March 2014 is without jurisdiction as it is issued by an Assistant Commissioner of Income Tax on a sanction of the Commissioner of Income Tax. This is not permitted as in such cases the sanction in terms of Section 151(2) of the Act has to be that of Joint Commissioner of Income Tax.
b) It was submitted that the original Return of Income tax filed by the Petitioner was processed under Section 143(1) of the Act but beyond the period of limitation provided under Section 143(1) of the Act. Thus there cannot be reopening of assessment while the Petitioner''s Return is still pending assessment with the Assessing Officer. Further all material facts have been truly and fully disclosed in its regular return of Income. Thus the notice beyond a period of four years does not satisfy the jurisdictional requirement of the proviso to Section 147 of the Act.
c) The Assessing Officer while recording reasons has not independently applied his mind and has merely acted upon the information / directions received from the Assessing officer of the beneficiaries of the Petitioner-trust; and
d) The issue of charge-ability to tax under Section 45(4) of the Act on a transfer done by a trust stands concluded by the decision of this Court in favour of the Assessee by virtue of decision of this Court in L.R. Patel Family Trust Vs. Income Tax Officer and Others, . It has been held that Section 45(4) of the Act will not apply in case of transfer of an asset. Thus the Assessing Officer could have no reason to believe that income charge-able to tax has escaped amount.
As against the above, Mr. Malhotra learned counsel for the Revenue in support of the impugned Notice submits as under -
a) The sanction to the reasons recorded by the Assessing Officer was in fact granted by the Joint Commissioner of Income Tax (which includes by definition even the Addl. Commissioner of Income Tax). In support thereof our attention is invited to the order dated 20 February 2014 issued by Central Board of Direct Taxes, wherein the Joint Commissioner / Additional Commissioner who has granted sanction had been promoted to the rank of the Commissioner. However the order itself provides that he will continue to discharge functions which he was performing till then, i.e. of the Joint Commissioner. Therefore, the sanction was appropriately obtained of the Joint Commissioner.
b) The intimation under Section 143(1) is within the period of limitation as provided thereunder, as is evident from the intimation which has been annexed by the Respondent to its reply. Consequently, there is no pending assessment which would prohibit the Assessing Officer from issuing the impugned Notice. Further the fact that there was true and full disclosure in terms of the proviso to Section 147 of the Act is disputed by the Revenue.
c) The decision of this Court in L.R. Patel Family is not applicable in the present case as it rendered in respect of fixed trust and not a discretionary trust as is the present facts.
We have considered the submissions. The primary contention of Mr. Toprani, is that the sanction was not accorded by the Joint Commissioner but by officer superior in rank to the Joint Commissioner and therefore, the sanction is invalid. In support he also placed reliance on the decision of this Court in Shri. Ghanshyam K. Khabrani Vs. Assistant Commissioner of Income Tax, Circle-1,Thane and Others, , wherein in similar circumstances this Court held that where a sanction for Notice is required to be given by a particular officer, then grant of that sanction by an officer superior to the officer designated to give sanction would not meet the requirements of the section and said sanction would have no validity in law. However in the present case the facts are distinguishable in as much as the Joint Commissioner who was promoted as a Commissioner and has granted the sanction, was directed by the Board to so discharge duties of Joint Commissioner in the communication dated 20 February 2014. This fact was not present in Ghanshyam K.Khabrani. The above communication intimated not only his promotion but also directed him to continue to discharge the functions which he was discharging till then as Joint Commissioner / Additional Commissioner. Thus the CBDT has in terms of Section 120(2) of the Act authorised Commissioner to exercise / or perform functions of an Income Tax authority sub-ordinate to him i.e. of Joint / Addl. Commissioner. Consequently, the impugned Notice cannot be said to be without jurisdiction on account of lack of sanction.
So far as the reasons recorded by the Assessing Officer in support of the impugned Notice is concerned, we find that it clearly indicates that the information leading to the impugned notice was received from the Assessing Officer of the beneficiaries. However it is also recorded in the Notice itself that the same was issued after verification of the information. Thus, we do not accept Mr. Toprani''s submission that the Assessing Officer failed to apply his mind independently before issuing the impugned Notice.
As far as the issue with regard to the Intimation under Section 143(1) of the Act being beyond the period of time provided is concerned or that all material facts have been truly and fully disclosed would all require adjudication of factual dispute between the parties. Similarly, issue with regard to the applicability of the decision of this Court in L.R. Patel Family would also require debate. These all issues can be decided and adjudicated upon by Assessing Officer during reassessment proceedings. These are not issues which go to the root of the jurisdiction in view of the disputed position between the parties.
In these circumstances, we are of the view that the impugned Notice has been issued on a prima facie view which would require consideration and adjudication. Therefore, we see no reasons to interfere with the impugned Notice. However, it is made clear that it would be open to the Petitioner to raise all contentions before Assessing Officer who shall consider the same on it''s own merits during the proceedings before him without being influenced in any manner by observations made herein.
Petition dismissed. No order as to costs.