2006 (9) TMI 174 - HC - Income Tax

Reassessment invalid where assessing officer relied on matters not specified in reasons under s.148(2); s.143(2) timelines barred fresh enquiry

TRAVANCORE CEMENTS LTD. Versus ASSISTANT COMMISSIONER OF INCOME-TAX AND ANOTHER

HC held the reassessment invalid insofar as the Assessing Officer proceeded on matters not specified in the reasons for reopening under s.148(2); items in ... Validity of the reopening of assessment u/s 147 - escaped assessment - compliance with the statutory notification issued under sections 143(2) and 142(1) - Jurisdiction of the Assessing Officer to reassess income not connected to the reasons recorded for reopening the assessment - Maintainability of the writ petition under Article 226 - HELD THAT:- It is evident that the reasons stated under sub-section (2) of section 148 only. In exhibit P6 those reasons are unconnected with the reasons stated in exhibit P8. The assessing authority has, therefore, no jurisdiction to proceed with the items covered by exhibits P7 and P8 due to non-compliance with sub section (2) of section 48. The Punjab and Haryana High Court had occasion to consider an identical issue in Vipan Khanna v. CIT [2000 (7) TMI 2 - PUNJAB AND HARYANA HIGH COURT]. That was a case where proceedings under section 147 were initiated. The question arose as to whether the Assessing Officer was justified in launching an inquiry into the issues which were not connected with the issue of depreciation. The court held that the assessee can claim credit in respect of items finally concluded in the original assessment and the letter dated July 30, 1998, issued by the Assessing Officer in so far as it relates to matters unconnected with the issue of depreciation and also the directions issued by the Deputy Commissioner under section 144A cannot be sustained. We are in agreement with the reasoning given in Vipan Khanna v. CIT. We find, vide exhibits P7, P8 and P12, that the Assessing Officer is requiring the petitioner to furnish explanation on issues which are totally unconnected with the is of non-inclusion of excise duty (16 per cent.) in the valuation of closing stock for the assessment years 2000-01, 2001-02 and also for not adding back the bad debts on the basis of which proceedings were initiated under section 148. There is no allegation on the part of the Revenue of any escapement or underassessment of income with regard to issues raised in exhibit P8 either in the reason disclosed in exhibit P6 or the same came to his knowledge in the course of proceeding under section 147 of the Act. The assessing authority has followed the provisions of sub-section (2) of section 148 only in respect of points referred to in exhibit P6 Sub-section (2) of section 148 was not followed in respect of the points referred to in exhibits P7 and P8. No fresh enquiry can be initiated in respect of the points mentioned in exhibits P7 and P8, since the date of completing the regular assessment under section 143(2) had already expired on March 31, 2003. We also reject the contention of the Revenue that the writ petition is not maintainable. In a case where the petitioner can establish that the Assessing Officer has no jurisdiction to proceed under exhibit P7, P8 and exhibit P12, remedy under article 226 of the Constitution of India is always available, a position settled by the decisions of the apex court in Gursahai Saigal v. CIT [1962 (8) TMI 66 - SUPREME COURT], GKN Driveshafts (India) Ltd.'s case [2002 (11) TMI 7 - SUPREME COURT] and also the decision of the Gujarat High Court in Garden Finance Ltd. v. Asst. CIT [2004 (2) TMI 750 - GUJARAT HIGH COURT]. We, therefore, hold that the writ petition is maintainable. Issues Involved:1. Validity of the reopening of assessment under Section 147 of the Income-tax Act, 1961.2. Legality of notices issued under Sections 143(2) and 142(1) of the Income-tax Act.3. Jurisdiction of the Assessing Officer to reassess income not connected to the reasons recorded for reopening the assessment.4. Maintainability of the writ petition under Article 226 of the Constitution of India.Detailed Analysis:1. Validity of the reopening of assessment under Section 147 of the Income-tax Act, 1961:The petitioner, a state-owned company, challenged the reopening of its assessment for the assessment year 2000-01. The original return, filed on November 28, 2000, and revised on January 5, 2001, was accepted under Section 143(1) on January 31, 2002. The regular assessment under Section 143(3) was not completed by the deadline of March 31, 2003. Subsequently, a notice under Section 148 was issued on March 28, 2005, on the grounds that excise duty (16%) was not included in the valuation of closing stock. The court held that the Department's issuance of Exhibit P3 under Section 148 and the subsequent communication of reasons (Exhibit P6) were valid. However, the court emphasized that the reasons for reopening must be recorded before issuing the notice, as mandated by Section 148(2).2. Legality of notices issued under Sections 143(2) and 142(1) of the Income-tax Act:The petitioner received notices under Sections 143(2) and 142(1) directing it to produce various documents and information. The court found that these notices (Exhibits P7 and P8) were issued for reasons unrelated to the initial grounds for reopening the assessment. The court noted that the Assessing Officer cannot conduct a roving inquiry under the guise of reassessment, especially when the regular assessment period under Section 143(3) had expired. The court referred to the Supreme Court's ruling in GKN Driveshafts (India) Ltd. v. ITO, which requires the Assessing Officer to furnish reasons for reopening the assessment within a reasonable time.3. Jurisdiction of the Assessing Officer to reassess income not connected to the reasons recorded for reopening the assessment:The court held that the Assessing Officer could only reassess income that was connected to the reasons recorded for reopening the assessment. In this case, the reasons recorded (non-inclusion of excise duty in closing stock) were unrelated to the additional issues raised in Exhibits P7 and P8 (e.g., provision for shortage of lime-shell stock). The court emphasized that the Assessing Officer must comply with Section 148(2) for each separate issue of escaped income, particularly when the issues are unconnected. The court cited the Punjab and Haryana High Court's decision in Vipan Khanna v. CIT, which supports this view.4. Maintainability of the writ petition under Article 226 of the Constitution of India:The Revenue argued that the writ petition was not maintainable and that the petitioner should seek alternate remedies under the Income-tax Act. However, the court held that when the petitioner can establish that the Assessing Officer lacks jurisdiction, the remedy under Article 226 is available. The court referred to several precedents, including Gursahai Saigal v. CIT and GKN Driveshafts (India) Ltd., to support the maintainability of the writ petition.Conclusion:The court allowed the writ petition, quashing Exhibit P12 (the order directing compliance with statutory notices) and the notices issued under Sections 143(2) and 142(1) (Exhibits P7 and P8). The court concluded that the Assessing Officer had no jurisdiction to proceed with the reassessment on issues unconnected with the initial grounds for reopening the assessment.