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On Saturday, 7 December 2013, 11:50, Prarthana Jalan <prarthanajalan@ymail.com> wrote:
IT : Assessment without scrutiny would mandate reassessment beyond 4 years even if assessee made true disclosure
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[2013] 39 taxmann.com 116 (Gujarat)
HIGH COURT OF GUJARAT
Commissioner of Income-tax - III
v.
Kiranbhai Jamnadas Sheth (HUF)*
AKIL KURESHI AND MS. HARSHA DEVANI, JJ.
TAX APPEAL NOS. 1480 & 1481 OF 2011†
NOVEMBER 6, 2012
Section 147, read with sections 143 and 148 of the Income-tax Act, 1961 - Income escaping assessment - Non-disclosure of primary facts [General principles] - Assessment year 1999-2000 - Whether where original assessment of assessee was accepted under section 143(1) without any scrutiny, condition of income having escaped assessment due to failure on part of assessee to disclose truly and fully all material facts, is not necessarily required to be established and revenue can reopen assessment beyond four years under section 147 even otherwise - Held, yes [Paras 4 to 6] [In favour of revenue]
FACTS
| ■ | The assessee had filed a return of income on 29-6-1999. Subsequently, the assessee filed revised return which was processed under section 143(1) and no scrutiny assessment was undertaken. | |
| ■ | On 6-7-2004, Assessing Officer issued notice under section 148 for reopening the assessment and called upon the assessee to file return. | |
| ■ | In pursuance of the notice, the assessee replied that return already filed earlier should be treated as response to the notice. | |
| ■ | Thereafter, a notice under section 143(2) was issued and the Assessing Officer framed assessment on 27-3-2006. | |
| ■ | On appeal, the Commissioner (Appeals) partly allowed the assessee's appeal. | |
| ■ | On cross appeal, Tribunal struck down the reassessment on ground that: |
| - | The notice issued beyond period of four years from end of relevant assessment years since the escapement of income chargeable to tax is not attributable to failure on part of the assessee to disclose truly and fully all materials. | |
| - | The Assessing Officer had issued notice under section 148 without issuing notice under section 143(2). Once the original assessment had become time barred without issuing notice under section 143(2), the Assessing Officer would lose jurisdiction to make reassessment with respect to such return of income. |
| ■ | On revenue's appeal: |
HELD
| ■ | The first ground suffers from misapplication of statutory provisions. It is an admitted position that original assessment was accepted under section 143(1) without any scrutiny. That being the position, the requirement of proviso to section 147 that in order to reopen the assessment beyond period of four years from the end of relevant assessment year, the condition of income having escaped assessment due to the failure on part of the assessee to disclose truly and fully all material facts, was not required to be established. Revenue even beyond four years could have reopened the assessment without satisfying such a requirement when the original assessment was not made after scrutiny. So much is plainly clear from statutory provisions. Therefore, the Tribunal committed an error in striking down the reassessment merely on this ground. [Para 4] | |
| ■ | The other ground which appealed to the Tribunal was that notice under section 148 was issued without previously having issued notice under section 143(2) within the time available for framing the original assessment. Such bare conclusion is not borne out from the statutory provision. If the logic put forth by the Tribunal is accepted there would be no case in which there is no scrutiny assessment, reopening would be permissible. | |
| ■ | In Inductotherm (India) (P.) Ltd. v. M. Gopalan, Dy. CIT [2013] 356 ITR 481/36 taxmann.com 401 (Guj.), it was held that despite difference in the scheme between a return which is accepted under section 143(1) as compared to a return of which scrutiny assessment under section 143(3) is framed, the basic requirement of section 147 that the Assessing Officer has reason to believe that income chargeable to tax has escaped assessment is not done away with. Section 147 permits the Assessing Officer to assess, re-assess the income or re-compute the loss or depreciation if he has reason to believe that any income chargeable to tax has escaped assessment for any assessment year. This power to reopen assessment is available in either case, namely, while a return has been either accepted under section 143(1) or a scrutiny assessment has been framed under section 143(3). A common requirement in both the cases is that the Assessing Officer should have reason to believe that any income chargeable to tax has escaped assessment. [Para 5] | |
| ■ | On both the counts, therefore, the Tribunal had committed a legal error. [Para 6] | |
| ■ | Accordingly, the impugned judgment of the Tribunal was to be struck down. Since the Tribunal had not given any findings on the merits of rival contentions, both the appeals are to be restored before the Tribunal for fresh consideration on merits. [Para 7] |
CASE REVIEW
Inductotherm (India) (P.) Ltd. v. M. Gopalan, Dy. CIT [2013] 356 ITR 481/36 taxmann.com 401 (Guj.) (Para 5) followed.
Shri Kiranbhai Jamnadas Sheth HUF (Small) v. Asstt. CIT [2011] 12 taxmann.com 238/47 SOT 101 (Rajkot) (URO)reversed.
CASES REFERRED TO
Asstt. CIT v. Malli Chand Baid [2008] 19 SOT 1 (Nag.) (URO) (para 3) and Inducotherm (India) (P.) Ltd. v. M. Gopalan, Dy. CIT [2013] 356 ITR 481/36 taxmann.com 401 (Guj.) (para 5).
Pranav G. Desai for the Appellant.
JUDGMENT
Akil Kureshi, J. - These appeals involve same assessee and arise out of a common impugned judgment of Income Tax Appellate Tribunal ("the Tribunal" for short) dated 17.6.2011. Following substantial question of law has been raised for our determination :
"Whether the Income Tax Appellate Tribunal was justified in declaring the reassessment of assessment invalid?"
2. Brief facts are as follows :
2.1 The respondent assessee had for the assessment year 1999-2000, filed a return of income on 29.6.1999 declaring a total income of Rs.13,30,948/-. Subsequently, revised return was filed on 12.10.1999 declaring total income of Rs. 1,8,27,162/-. Such return was processed under section 143(1) of the Act. No scrutiny assessment was undertaken. Subsequently, however, the Assessing Officer issued notice under section 148 of the Act on 6.7.2004 for reopening the assessment calling upon the assessee to file return. The assessee vide his letter dated 10.7.2004 requested that return already filed earlier be treated as one filed in response to such notice. Thereafter, notice under section 143(2) of the Act was issued. Hearing took place from time to time. The Assessing Officer framed assessment on 27.3.2006 computing total income at Rs. 1,04,41,320/-. The assessee carried such assessment order in appeal before the Commissioner (Appeals). The Commissioner (Appeals) partly allowed the assessee's appeal vide his order dated 28.3.2007. Such appellate order gave rise to two cross appeals before the Tribunal being Appeal No.352/2007 filed by the assessee and Appeal No.368/2007 filed by the Revenue. Both these appeals were consolidated and disposed of by the Tribunal by common impugned judgment dated 17.6.2011. In such order, the Tribunal touched only one aspect of the matter namely of the validity of the reopening proceedings. The Tribunal struck down the reopening and held that same was invalid on two grounds. Firstly, on the ground that notice which was issued beyond a period for four years from the end of relevant assessment year was not sustainable since the escapement of income chargeable to tax is not attributable to failure on part of the assessee to disclose truly and fully all materials.
3. The other ground on which the Tribunal allowed the assessee's appeal was that the Assessing Officer issued notice under section 148 without issuing notice under section 143(2) of the Act. In this context Tribunal referred to and relied upon decision of Nagpur Bench in case of Asstt. CIT v. Malli Chand Baid [2008] 19 SOT 1 (Nag.) (URO). In such decision portion of which was reproduced by the Tribunal apparently it was held that once the original assessment had become time barred without issuing notice under section 143(2) of the Act, the Assessing Officer would lose jurisdiction to make reassessment with respect to such return of income.
4. We are of the opinion that both the grounds recorded by the Tribunal are wholly unsustainable. The first ground suffers from misapplication of statutory provisions. It is an admitted position that original assessment was accepted under section 143(1) of the Act without any scrutiny. That being the position, the requirement of proviso to section 147 that in order to reopen the assessment beyond period of four years from the end of relevant assessment year, the condition of income having escaped assessment due to the failure on part of the assessee to disclose truly and fully all material facts, was not required to be established. Revenue even beyond four years could have reopened the assessment without satisfying such a requirement when the original assessment was not made after scrutiny. So much is plainly clear from statutory provisions. The Tribunal in our opinion therefore, committed an error in striking down the reassessment merely on this ground.
5. The other ground we may recall which appealed to the Tribunal was that notice under section 148 was issued without previously having issued notice under section 143(2) of the Act within the time available for framing the original assessment. To our mind, such bare conclusion is not borne out from the statutory provision. If the logic putforth by the Tribunal is accepted there would be no case in which there is no scrutiny assessment, reopening would be permissible. In a recent decision dated 6.8.2012 passed in Special Civil Application No.858/2006 in case of Inductotherm (India) (P.) Ltd. v. M. Gopalan, Dy. CIT [2013] 356 ITR 481/36 taxmann.com 401 (Guj.) we had examined a similar contention of the counsel for the assessee which was recorded as under :
"The counsel contended that the assessment proceedings cannot be reopened to circumvent time limit for issuing the notice under section 143(2) of the Act. He submitted that time-limit provided in the proviso to section 143(2) of the Act, must be given its due weightage. If the Assessing Officer for any reason failed to issue such a notice within the time-limit, he cannot proceed under section 147 for taking such a return in scrutiny."
Such contention was rejected in the following manner :
'10. This brings us to the second limb of the petitioner's challenge namely, that the power under section 147 of the Act cannot be exercised to circumvent the proceedings under section 143(3) of the Act because the notice under section 143(2) of the Act has become time barred and further that in any case, reasons recorded would not permit the Assessing Officer to reopen the assessment.
11. It is undoubtedly true that proviso to section 143(2) of the Act prescribes a time limit within which such notice could be issued. It is equally well settled that such notice is mandatory and in absence of notice under section 143(2) of the Act within the time permitted, scrutiny assessment under section 143(3) cannot be framed. However, merely because no such notice was issued, to contend that the assessment cannot be reopened, is not backed by any statutory provisions. Counsel for the petitioner did not even stretch his contention to that extent. The case of the petitioner as we understand is that in guise of reopening of an assessment, the Assessing Officer cannot try to scrutinize the return. This aspect substantially overlaps with the later contention of the petitioner that the reasons recorded by the Assessing Officer were not germane and were not sufficient to permit reopening.
12. We must recall that the return filed by the petitioner was not taken in scrutiny. No assessment, thus, took place. The Assessing Officer without any assessment, merely issued an intimation under section 143(1) of the Act accepting such return. In that view of the matter, it cannot be stated that the Assessing Officer formed any opinion with respect to any of the aspects arising in such return. In such a case, scope for reopening such assessment under section 147 of the Act as compared to an assessment which was previously framed under section 143(3) of the Act, whether beyond or within four years from the end of the relevant assessment year, is substantially wider. The Apex Court in case of Assistant Commissioner of Income Tax v. Rajesh Jhaveri Stock Brokers P. Ltd., (supra) noticed such distinction and noted that the scheme of sections 143(1) and 143(3) of the Act is entirely different. It was noticed that after 1.4.1989, the provisions contained in section 143 underwent substantial changes. It was noticed that the intimation under section 143(1) of the Act is given without prejudice to the provisions of section 143(3) of the Act and though technically the intimation would be deemed to be demand notice under section 156, that did not per se preclude the right of the Assessing Officer to proceed under section 143(2)(a) of the Act. The Apex Court observed that the word "intimation" as substituted for assessment carried different concepts. It was observed that while making an assessment, the Assessing Officer is free to make any addition after granting an opportunity to the assessee. The Apex Court observed that, "It may be noted above that under the first proviso to the newly substituted section 143(1), with effect from June 1, 1999, except as provided in the provision itself, the acknowledgement of the return shall be deemed to be an intimation under section 143(1) where (a) either no sum is payable by the assessee, or (b) no refund is due to him. It is significant that the acknowledgement is not done by any Assessing Officer, but mostly by ministerial staff. Can it be said that any assessment is done by them? The reply is an emphatic no. The intimation under section 143(1)(a) was deemed to be a notice of demand under section 156, for the apparent purpose of making machinery provisions relating to recovery of tax applicable. By such application only recovery indicated to be payable in the intimation became permissible. And nothing more can be inferred from the deeming provision. Therefore, there being no assessment under section 143(1)(a), the question of change of opinion, as contended, does not arise."
13. Despite such difference in the scheme between a return which is accepted under section 143(1) of the Act as compared to a return of which scrutiny assessment under section 143(3) of the Act is framed, the basic requirement of section 147 of the Act that the Assessing Officer has reason to believe that income chargeable to tax has escaped assessment is not done away with. Section 147 of the Act permits the Assessing Officer to assess, re-assess the income or re-compute the loss or depreciation if he has reason to believe that any income chargeable to tax has escaped assessment for any assessment year. This power to reopen assessment is available in either case, namely, while a return has been either accepted under section 143(1) of the Act or a scrutiny assessment has been framed under section 143(3) of the Act. A common requirement in both of cases is that the Assessing Officer should have reason to believe that any income chargeable to tax has escaped assessment.'
6. On both the counts, therefore, Tribunal committed a legal error.
7. On 25.9.2012, noticing this prima facie aspect of the matter, we had issued notice for final disposal of the appeal. Accordingly these appeals are disposed of striking down the impugned judgment of the Tribunal. The question is answered in favour of the Revenue and against the assessee. Since the Tribunal had not given any findings on the merits of rival contentions, both the appeals are restored before the Tribunal for fresh consideration on merits.
8. Appeals are disposed of.
Regards
Prarthana Jalan
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