IT : In case of retrospective legislative amendment, rectification under section 154, as well as reopening of assessment under section 147 are permissible as they are not mutually exclusive
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[2013] 39 taxmann.com 107 (Delhi)
HIGH COURT OF DELHI
Ester Industries Ltd.
v.
Union of India*
S. RAVINDRA BHAT AND R.V.EASWAR, JJ.
REV. PETITION NO. 110 OF 2013
WP (C) NO. 7482 OF 2011
WP (C) NO. 7482 OF 2011
MARCH 1, 2013
I. Section 147, read with section 154 of the Income-tax Act, 1961 - Income escaping assessment - Non-disclosure of primary facts [General principles] - Assessment year 2004-05 - Whether retrospective legislative amendment constitutes tangible material permitting reopening of assessment - Held, yes - Whether retrospective amendment of law can even permit action for rectification of assessment on ground of mistake apparent from record - Held, yes - Whether, in case of retrospective amendment, sections 147 and 154 are not mutually exclusive and there could be overlapping of jurisdiction; and if jurisdictional preconditions are satisfied, action can be taken under appropriate section even though action could be taken under another section - Held, yes [Para 13] [In favour of revenue]
II. Section 129 of the Income-tax Act, 1961 - Income-tax authorities - Change of incumbent of an office - Assessment year 2004-05 - Assessee claimed that it had filed objections before a particular officer, while order rejecting those objections were passed by another officer, which was opposed to requirements of section 129 - Whether as there was no evidence to show that assessee requested successor-officer for de novo hearing, assessee's contention was not acceptable - Held, yes [Para 11] [In favour of revenue]
FACTS
| ■ | The assessee-company had filed a writ petition challenging the reassessment order passed by the Assessing Officer, which was accepted, and it was directed that question of jurisdiction to reopen assessment was to be considered first. | |
| ■ | Thereafter, a reassessment order was again passed, against which the assessee had filed a writ petition. The assessee was directed to file objections which were to be considered by revenue. | |
| ■ | The assessee's objection were rejected by an order which was challenged by a third writ petition. The writ petition was disposed of with costs. | |
| ■ | Instant review petition has been filed in the third writ petition, alleging that the Court omitted to consider certain arguments, claiming that sections 154 and 147 are different and distinct and cannot be invoked together. |
HELD-I
| ■ | The assessee has sought to file the review petition alleging that this Court omitted to consider certain arguments stated to have been advanced in the course of the hearing on 8-11-2012. It is first alleged that the argument that an audit objection was the basis for the reassessment notice was not considered and dealt with by this Court. On checking up records, it is not found that any such argument was taken by the assesseee when the matter was heard. [Para 10] | |
| ■ | The other argument stated to have been raised is the contention that though the objections of the assessee were heard by the predecessor-officer, the order thereon was passed by the successor-officer which is opposed to Section 129. In the absence of any evidence to show that the assessee did request the successor-officer for de novo hearing, the contention based on section 129 cannot be accepted. [Para 11] | |
| ■ | It is then alleged that in respect of three issues, out of the four that formed the reasons for the issue of the notice, the Revenue itself accepted that they cannot be valid grounds for reopening the assessment. It is contended that this aspect has not been noted in the impugned judgment and no decision has been rendered vis-à-vis the contention. The contention is inaccurate as it was dealt with in the order where it was specifically noticed that in respect of the three issues, the Revenue did not seriously dispute the contention. The sequitur is that the reopening cannot be sustained on these three grounds. It is, therefore, incorrect to say that the contention has not been dealt with in the impugned order. [Para 12] | |
| ■ | It is then alleged that so far as the issue regarding the constitutionality of the retrospective amendment to section 115JB by the Finance Act, 2008 with effect from 1-4-2001 is concerned, though the plea was rejected by this Court, but in doing so, this Court has wrongly placed reliance on the power of the Assessing Officer to rectify the assessment under section 154 based on a retrospective amendment as permitting the action under section 147 and to this extent the order is erroneous. It is contended that the scope of the two provisions, i.e., section 154 and section 147 are different and distinct. The allegation of the petitioner is wholly misconceived having regard to observations in the order. After noticing that the assessment was re-opened within four years from the end of the relevant assessment year and that the Assessing Officer has to show tangible material which could form the basis for his belief that income chargeable to tax has escaped assessment, this Court held that the retrospective amendment constitutes tangible material permitting the reopening of the assessment. The Court noticed that it was held by the Supreme Court inM.K. Venkatachalam v. Bombay Dyeing & Mfg. Co. Ltd. [1958] 34 ITR 143 that a retrospective amendment of law can even permit action for rectification of the assessment on the ground of mistake apparent from record. This Court held that just because action for rectification is permissible, it does not mean that no action can be taken for re-opening the assessment because the powers under section 147 and section 154 are not mutually exclusive and there could be some overlapping and so long as the conditions for the applicability of either of these sections are satisfied, the action taken thereunder has to be validated and 'it is no answer to say that action should be taken under another section'. Thus, the contention of the assessee has been dealt with. The assessee does not appear to have properly understood and appreciated the purport of the observations. It is this very misconception or misunderstanding that seems to run through the Review Petition. It appears that the assessee is of the impression that the decision was rendered on the premise that if action under section 154 is permissible, action under section 147 to reopen the assessment is automatically impermissible. This is not what was held; it was also pointed out that 'there could be overlapping of jurisdiction and so long as the jurisdictional pre-conditions are satisfied, action can be taken by the Assessing Officer under the appropriate section even though action could be taken under another section.' The argument of the assessee that action can only be taken under section 154 did not appeal to this Court, and was rejected. [Para 13] | |
| ■ | The assessee has also prayed for recalling the direction imposing cost. There is not merit in the same. The prayer is rejected. | |
| ■ | For the aforesaid reasons, there is no merit in the review petition which is dismissed with no order as to costs. [Para 14] |
CASES REFERRED TO
M.K. Venkatachalam v. Bombay Dyeing & Mfg. Co. Ltd. [1958] 34 ITR 143 (SC) (para 13).
R. Santhanam for the Appellant. Sanjeev Sabharwal for the Respondent.
ORDER
R.V. Easwar, J. - This review petition has been filed by the petitioner in the writ petition which was dismissed with costs by the judgment dated 28th January, 2013.
2. We have heard the counsel for the review petitioner. Several arguments have been raised in the review petition. However, after carefully considering them we find no merit in them as we shall presently show.
3. The petitioner is M/s. Ester Industries Ltd. The writ petition was directed against the notice issued on 6th March, 2009 under Section 148 of the Income Tax Act, 1961. The prayer was to quash the notice as also the order passed by the Assessing Officer on 23rd September, 2011, pursuant to the notice, rejecting the objections of the petitioner to the reasons recorded for reopening the assessment. The notice under Section 148 had been earlier challenged by the petitioner before this Court in WP(C) No. 13093/2009. Accepting the plea of the petitioner, this Court passed an order quashing the re-assessment order which has been passed by the respondent on 11th September, 2009 and directing the respondent to first decide the question whether he had jurisdiction to re-open the assessment and also to consider all other pleas taken by the petitioner. Thereafter, the respondent passed a re-assessment order on 28th December, 2010 against which the petitioner filed the second writ petition in WP(C) No. 321/2011. This writ petition was disposed of by this Court on 18th January, 2011 with a direction to the petitioner to file further objections before the respondent along with relevant case law in support of the objections and it was also directed that the respondent should deal with them in accordance with law. In this order, i.e., order dated 18th January, 2011, which is reproduced in the impugned judgment, it was specifically recorded that though a prayer was made in the writ petition to declare certain provisions of the Finance Act, 2008 to be unconstitutional, "yet in course of hearing Mr. R. Santhanam, learned counsel for the assessee-petitioner and Mr. Sanjeev Sabharwal, learned counsel for the Revenue have fairly stated that they have no objection if the assessment order dated 28th December, 2010 contained in Annexure-2 is quashed and the matter is remitted to the Assessing Officer to deal with the objection filed by the assessee-petitioner on a specific date and thereafter, proceed pin accordance with law and further the assessee-petitioner shall not press the issue of limitation."
4. Pursuant to the aforesaid order, the respondent took up the objections of the petitioner for fresh hearing and by order dated 23rd September, 2011, rejected all the contentions of the petitioner. It was this order of the respondent that was the subject matter of challenge before this Court in WP(C) No. 7482/2011, which was the third challenge by the petitioner to the re-assessment proceedings.
5. When the above writ petition was taken up for hearing by this Court on 8th November, 2012, the learned standing counsel for the Revenue fairly stated that with regard to three out of four grounds on the basis of which the notice under Section 148 was issued, he could not defend the notice. Thus, the only issue which survived was the ground regarding the deferred tax liability on the basis of retrospective amendment made to Section 115 JB by the Finance Act, 2008. The amendment had been made with retrospective effect and undisputedly it covered the assessment year 2004-2005 which was the year concerned in the writ petition. All these facts have been recorded in paragraphs 6&7 of the impugned order of this Court.
6. Counsel for the petitioner had, however, taken up the point that the notice issued under Section 148 was invalid as the sanction of the Joint Commissioner of Income Tax was not obtained as required by Section 151 (1) of the Act. This Court rejected the contention as it was found on a perusal of the statutory provision that the sanction was required only if the notice was issued by an officer who was below the rank of the Assistant Commissioner or Dy. Commissioner of Income Tax and that the notice was actually issued by the Dy. Commissioner of Income Tax and hence, no sanction was required. This was in paragraph 5 of the impugned order.
7. Another point which was argued by the counsel for the petitioner was based on Section 129 of the Act. It was his contention that the objections to the notice were filed before a particular officer but the orders rejecting those objections were passed by another officer, which was opposed to the requirement of Section 129. This Court dealt with the contention in paragraph 10 of the Order. It was held that even according to Section 129, it was for the assessee to ask for an opportunity that the succeeding officer should hear him before passing orders. It was noted that "no attempt was made before us to show that such a demand was made by the petitioner before the successor-officer". In this view of the mater, the contention based on Section 129 was also rejected.
8. Thereafter, counsel for the petitioner sought to challenge the vires of the amendment made to Section 115JB of the Act by the Finance Act, 2008 with retrospective effect from 1.4.2001. This Court dealt with this challenge in paragraphs No. 7 to 9 of the impugned order. In paragraph 8, it was noted that in the order passed by this Court on 18th January, 2011, the petitioner had given up the challenge to the vires of the retrospective amendment. Even so, this Court proceeded to examine the challenge and dealt with the authorities cited by the counsel for the petitioner and found that they were not applicable to the case.
9. This Court thus dealt with all the arguments that were raised by the counsel for the petitioner in the course of the hearing on 8th November, 2012.
10. Yet, it is unfortunate that the petitioner has sought to file the review petition running into ten pages alleging that this Court omitted to consider certain arguments stated to have been advanced in the course of the hearing on 8th November, 2012. It is first alleged that the argument that an audit objection was the basis for the re-assessment notice was not considered and dealt with by this Court. We have checked up our records but we do not find that any such argument was taken by the petitioner when the matter was heard on 8th November, 2012.
11. The other argument stated to have been raised is the contention that though the objections of the assessee were heard by the predecessor-officer, the order thereon was passed by the successor-officer which is opposed to Section 129. We have, as noted earlier, considered the argument and held that in the absence of any evidence to show that the petitioner did request the successor-officer for de novo hearing, the contention based on Section 129 cannot be accepted.
12. It is then alleged that in respect of three issues, out of the four that formed the reasons for the issue of the notice, the counsel for the Revenue himself accepted that they cannot be valid grounds for reopening the assessment. It is contended that this aspect has not been noted in the impugned judgment and no decision has been rendered vis-a-vis the contention. The contention is inaccurate as it has been dealt with in paragraph 6 of our order where it has been specifically noticed that in respect of the three issues, the learned standing counsel for the Revenue did not seriously dispute the contention. The sequitur is that the reopening cannot be sustained on these three grounds. It is, therefore, incorrect to say that the contention has not been dealt with in the impugned order.
13. It is then alleged in the Review Petition that so far as the issue regarding the constitutionality of the retrospective amendment to Section 115JB by the Finance Act, 2008 w.e.f. 1.4.2001 is concerned, though the plea was rejected by this Court, but in doing so, this Court has wrongly placed reliance on the power of the Assessing Officer to rectify the assessment under Section 154 based on a retrospective amendment as permitting the action under Section 147 and to this extent the order is erroneous. It is contended that the scope of the two provisions, i.e., Section 154 and Section 147 of the Income Tax Act are different and distinct. The allegation of the petitioner is wholly misconceived having regard to our observations in paragraph 9 of our order. After noticing that the assessment was re-opened within four years from the end of the relevant assessment year and that the assessing officer has to show tangible material which could form the basis for his belief that income chargeable to tax has escaped assessment, this Court held that the retrospective legislative amendment constitutes tangible material permitting the re-opening of the assessment. The Court merely noticed that it was held by the Supreme Court in M.K. Venkatachalam v. Bombay Dyeing & Mfg. Co. Ltd. [1958] 34 ITR 143 that a retrospective amendment of law can even permit action for rectification of the assessment on the ground of mistake apparent from record. This Court then proceeded to consider the argument of the petitioner that just because action for rectification is permissible, it does not follow that action for re-opening under Section 147 is also permissible. This Court held that just because action for rectification is permissible, it does not mean that no action can be taken for re-opening the assessment because the powers under Section 147 and Section 154 are not mutually exclusive and there could be some overlapping and so long as the conditions for the applicability of either of these sections are satisfied, the action taken there under has to be validated and "it is no answer to say that action should be taken under another Section." Thus, the contention of the petitioner has been dealt with. The petitioner does not appear to have properly understood and appreciated the purport of our observations in paragraph 9. It is this very misconception or misunderstanding that seems to run through paragraph 7 of the Review Petition. It appears that the petitioner is of the impression that our decision was rendered on the premise that if action under Section 154 is permissible, action under Section 147 to re-open the assessment is automatically permissible. This is not what we have held; we have only pointed out that "there could be overlapping of jurisdiction and so long as the jurisdictional pre conditions are satisfied, action can be taken by the assessing officer under the appropriate section even though action could be taken under another Section." The argument of the petitioner that action can only be taken under Section 154 did not appeal to this Court, and was rejected.
14. The petitioner has also prayed for recalling the direction imposing cost. We do not find any merit in the same. The prayer is rejected.
For the aforesaid reasons, we find no merit in the review petition which is dismissed with no order as to costs.
Regards
Prarthana Jalan
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