IT: Approval of Commissioner to suggestions given by audit party could not be taken as substantial compliance under section 151 for reopening of assessment after expiry of four years from end of relevant assessment year
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[2013] 35 taxmann.com 338 (Gujarat)
HIGH COURT OF GUJARAT
Adani Ports And Special Economic Zone Ltd.
v.
Deputy Commissioner of Income-tax*
AKIL KURESHI AND MS. SONIA GOKANI, JJ.
SPECIAL CIVIL APPLICATION NO. 17184 OF 2012
MAY 7, 2013
Section 151, read with section 148, of the Income-tax Act, 1961 - Income escaping assessment - Sanction for issue of notice [Conditions precedent] - Assessment year 2005-06 - Whether proviso to section 151(1) requires that no notice for reopening of assessment shall be issued after expiry of four years from end of relevant assessment year, unless Chief Commissioner or Commissioner is satisfied on reasons recorded by Assessing Officer, that it is a fit case for issue of such notice - Held, yes - Certain aspects of matter in case of assessee were brought to notice by audit party and suggestions with respect to remedial measures were also made by them - Whether, where Commissioner approved suggestions made by audit party, such approval could not be seen as substantial compliance of section 151(1) where notice for reopening was issued after period of four years from end of relevant assessment year - Held, yes [Paras 9,10 & 11] [In favour of assessee]
FACTS
| ■ | After completion of scrutiny assessment, notice was issued by the Assessing Officer for reopening of assessment beyond the period of four years from the end of relevant assessment year on ground that excess depreciation was allowed to the assessee in the relevant assessment year. | |
| ■ | The assessee filed the writ petition against the notice and contended that since the Assessing Officer had not obtained approval from the Chief Commissioner or the Commissioner before issuing of such notice, same was invalid. Also, notice for reopening was issued at the instance of the Audit Party. | |
| ■ | On the other hand, the revenue contended that the suggestions of the audit party with respect to the remedial measure were perused and approved by the Commissioner. Therefore, such action of the Commissioner should be taken as substantial compliance of the requirement of section 151. |
HELD
| ■ | Sub-section (1) of Section 151; as can be seen, requires that in a case where the assessment under section 143(3) or section 147 has been made for a particular assessment year, no notice shall be issued under section 148 by an Assessing Officer, who is below the rank of Assistant Commissioner or Deputy Commissioner, unless the Joint Commissioner is satisfied on the reasons recorded by such Assessing Officer that it is a fit case for the issuance of such notice. Proviso to sub-section (1) requires that no such notice, after the expiry of period of four years from the end of relevant assessment year, shall be issued unless the Chief Commissioner or the Commissioner is satisfied, on the reasons recorded by the Assessing Officer, that it is a fit case for the issue of such notice. [Para 8] | |
| ■ | The present being a case of issuance of notice after four years from the end of relevant assessment year, and therefore, proviso to sub-section (1) of Section 151 would apply. In such a case, irrespective of the level of Assessing Officer issuing notice for reopening a pre condition of the Chief Commissioner or the Commissioner being satisfied on the reasons recorded by the Assessing Officer that it is a fit case for issuance of such notice must be satisfied. This additional safe guard not only involves the application of mind on the part of the Chief Commissioner or the Commissioner but his satisfaction, which would be based on the reasons recorded by the Assessing Officer, and such satisfaction should be that it is a fit case for issuance of the notice. [Para 9] | |
| ■ | Admittedly, in the present case, these requirements have not been fulfilled. What the Revenue however argues is that when the Commissioner had perused the suggestions of the audit party, the same should be seen as substantial compliance of such a requirement. [Para 10] | |
| ■ | Such a contention cannot be accepted. Sub-section (1) of Section 151 is an important procedural safeguard against arbitrary exercise of power of issuing a notice for reopening of assessment previously framed after scrutiny. Proviso to sub-section (1) of Section 151 is applicable, where such notice is issued after expiry of four years from the end of relevant assessment year. In such a case, the requirement of satisfaction to be recorded is that of the Chief Commissioner or Commissioner. Such requirement cannot be seen as technical. Compliance of such requirement is therefore, necessary before issuance of notice under section 148. [Para 11] | |
| ■ | Under such circumstances, impugned notice is quashed. [Para 12] |
CASES REFERRED TO
CIT v. SPL's Sidhartha Ltd. [2012] 345 ITR 223/204 Taxman 115 (Mag.)/17 taxmann.com 138 (Delhi) (para 11).
B.S. Soparkar for the Petitioner. Mrs. Mauna M. Bhatt for the Respondent.
ORDER
Akil Kureshi, J. - Heard learned counsel for the parties for final disposal of the petition.
Petitioner has challenged a notice dated 21st March 2012 [Annexure "A" to the petition] issued by the respondent-Assessing Officer under Section 148 of the Income-tax Act, 1961 ["Act" for short]. The petition arises in the following background.
2. The petitioner is a company registered under the Companies Act, 1956. For the Assessment Year 2005-06, the petitioner had filed its return of income on 30th October 2005 declaring its total income at "NIL". Such return was accompanied by documents, such as Tax Audit report under section 44AB of the Act, etc.
Such return was taken by the Assessing Officer in scrutiny. He framed scrutiny assessment under section 143 (3) of the Act on 2nd April 2007. It is this scrutiny assessment which the respondent desires to reopen beyond the period of four years from the end of relevant assessment year.
3. At the request of the petition, respondent supplied the reasons recorded by him for issuing such a notice. Such reasons read as under :-
"It is also noticed that during the previous year the assessee company has purchased one Ship/Tug called "MV Dolphin" valued at Rs. 20,66,76,400/- and Rs. 5,16,69,100/- [@ 25% on Rs. 206676400/-]. On verification of the invoice bill and Customs Bill of entry no. 468 dated 11-11-2004. It has revealed that bill of entry was presented to Customs authority on 11-11-2004 for clearance of Tug and the relevant customs duty was debited in the DFCLC Lie No. 0810042703 dated 12.10.2004. This clearly indicates that the assessee company got custody to Tug in November 2004 and thereafter, it was put to use for business. Thus, the assessee was eligible to get 50% depreciation [12.5%] on Tug which was cleared from Customs authority in November 2004. This has resulted in excess allowance of depreciation of Rs. 25834550/- [50% of 51669100/-]."
4. Upon receipt of the reasons, the petitioner under a communication dated 8th November 2012, raised detailed objections before the Assessing Officer. Such objections were, however, dismissed by an order dated 19th November 2012. Hence, this petition.
5. Learned counsel for the petitioner raised following contentions :
| (i) | that there was no failure on the part of the assessee to declare truly and fully all material facts. The notice for reopening issued beyond the period of four years from the end of the relevant assessment year was therefore without jurisdiction; | |
| (ii) | The Assessing Officer was acting under the directions of the audit party. The notice for reopening was issued at the instance of audit party, and therefore also, the same was bad in law; | |
| (iii) | He lastly contended that in terms of proviso to sub-section (1) of Section 151 of the Act, the Assessing Officer had not obtained approval from the Chief Commissioner or Commissioner before issuing the notice, and therefore also, notice was invalid. |
6. On the other hand, learned counsel Ms. Mauna Bhatt appearing for the Department opposed the petition and raid the following contentions :
| (i) | There was no true and full disclosure on the part of the petitioner with respect to purchase of the Ship/Tug called "M.V Dolphin" particularly in context of the petitioner's claim for full depreciation of Rs. 5,16,69,100/- @ 25% of the total value. | |
| (ii) | She pointed out that from the Invoice bills from the Customs Department, it was revealed that the bill of entry was presented on 11th November 2004 for the clearance of Tug and the relevant customs duty was debited on 12th October 2004, which would indicate that the petitioner got the custody of Tug only in the month of November 2004 and that therefore, full depreciation @ 25% could not have been claimed during the year under consideration. She submitted that these facts were not emerging from the return or other documents produced during the course of assessment. The Assessing Officer having independently examined the issue was convinced that the assessment was required to be reopened. Merely because certain aspects of the matters were brought to his notice by the audit party would not per se mean that he was acting under the directions of the audit party. | |
| (iii) | The suggestions of the audit party with respect to the remedial measures that could be taken, was perused and approved by the Commissioner. It was thereupon that the Assessing Officer, after recording his reasons, issued a notice for reopening. She, therefore, submitted that the foundational grounds for issuing the notice for reopening being common, the action of the Commissioner in approving the proposal for reopening the assessment should be seen as substantial compliance of the requirement of Section 151 (1) of the Act. |
7. In the present case, we are inclined to decide only the question of necessary approval to be obtained for issuance of notice. Section 151 (1) of the Act pertains to sanction for issuance of notice and reads as under :-
"151. Sanction for issue of notice - (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 under section 148 by an Assessing Officer who is below the rank of Assistant Commissioner or Deputy Commissioner, unless the Joint Commissioner 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 Commissioner or Commissioner 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 under section 148 by an Assessing Officer, who is below the rank of Joint Commissioner, after the expiry of four years from the end of relevant assessment year, under the Joint Commissioner is satisfied, on the reasons recorded by such Assessing Officer, that it is a fit case for the issue of such notice."
8. Sub-section (1) of Section 151; as can be seen, requires that in a case where the assessment under section 143 (3) or section 147 has been made for a particular assessment year, no notice shall be issued under section 148 by an Assessing Officer, who is below the rank of Assistant Commissioner or Deputy Commissioner, unless the Joint Commissioner is satisfied on the reasons recorded by such Assessing Officer that it is a fit case for the issuance of such notice. Proviso to sub-section (1) requires that no such notice, after the expiry of period of four years from the end of relevant assessment year, shall be issued unless the Chief Commissioner or the Commissioner is satisfied, on the reasons recorded by the Assessing Officer, that it is a fit case for the issue of such notice.
9. The present being a case of issuance of notice after four years from the end of relevant assessment year, and therefore, proviso to sub-section (1) of Section 151 would apply. In such a case, irrespective of the level of Assessing Officer issuing notice for reopening, a pre-condition of the Chief Commissioner or the Commissioner being satisfied on the reasons recorded by the Assessing Officer that it is a fit case for issuance of such notice must be satisfied. This additional safe-guard not only involves the application of mind on the part of the Chief Commissioner or the Commissioner but his satisfaction, which would be based on the reasons recorded by the Assessing Officer, and such satisfaction should be that it is a fit case for issuance of the notice.
10. Admittedly, in the present case, these requirements have not been fulfilled. What the Revenue however argues is that when the Commissioner had perused the suggestions of the audit party, the same should be seen as substantial compliance of such a requirement.
11. We are afraid, such a contention cannot be accepted. Sub-section (1) of Section 151 of the Act is an important procedural safeguard against arbitrary exercise of power of issuing a notice for reopening of assessment previously framed after scrutiny. Proviso to sub-section (1) of Section 151 is applicable, where such notice is issued after expiry of four years from the end of relevant assessment year. In such a case, the requirement of satisfaction to be recorded is that of the Chief Commissioner or Commissioner. Such requirement cannot be seen as technical. Compliance of such requirement is therefore, necessary before issuance of notice under section 148 of the Act. Delhi High Court in case of CIT v. SPL's Sidhartha Ltd. [2012] 345 ITR 223/204 Taxman 115 (Mag.) 17 taxmann.com 138 (Delhi) held and observed as under :-
"Thus, if authority is given expressly by affirmative words upon a defined condition, the expression of that condition excludes the doing of the Act authorised under other circumstances than those as defined. It is also established principle of law that if a particular authority has been designated to record his/her satisfaction on any particular issue, then it is that authority alone who should apply his/her independent mind to record his/her satisfaction and further mandatory condition is that the satisfaction recorded should be "independent" and not "borrowed" or "dictated" satisfaction. Law in this regard is now well-settled. In Sheo Narain Jaiswal v. Income-tax Officer [1989] 176 ITR 352 (Patna), it was held :
"Where the Assessing Officer does not himself exercise his jurisdiction under section 147 but merely acts at the behest of any superior authority, it must be held that assumption of jurisdiction was bad for non-satisfaction of the condition precedent."
12. Under the circumstances, only on this ground, impugned notice dated 21st March 2012 is quashed. We express no opinion on the other two contentions of the petitioner.
Petition stands disposed of accordingly.
Regards
Prarthana Jalan
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