TaxTMI 
TaxTMI 
2001 (6) TMI 52
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.... reopened on the score of income escaping assessment under section 147 of the Act of 1961 after the expiry of four years from the end of the assessment year unless there be omission or failure on the part of the assessee to disclose fully and truly all material facts necessary for the assessments" This approach is propounded by the apex court in the case of Parashuram Pottery Works Co. Ltd. v. ITO [1977] 106 ITR 1, 10. We may examine the present petition in the light of this proposition laid down by the apex court. The petitioner is a registered partnership firm. The relevant assessment years are 1990-91, 1991-92 and 1992-93. As the facts for all the three years are similar, at the request of both the sides all the three petitions were heard together and are being disposed of accordingly by this common judgment. For assessment year 1990-91, the relevant previous year ended on March 31, 1990. On October 29, 1990, the return of income declaring total income of Rs. 3 6,4 1,000 was filed by the petitioner firm, and after scrutiny an assessment was framed under section 143(3) of the Act, on March 25, 1991, on a total income of Rs. 36,42,600. It appears that thereafter revisionary pr....
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....f assessment should be produced by the respondent. We shall advert to the facts in this regard in detail a little later. The Income-tax Act, 1961, provides for the machinery in Chapter XIV under sections 147 to 153 for the assessment of escaped income in certain circumstances. The fundamental underlying these provisions of the Act is to see that the entire income of an assessee assessable in respect of a particular assessment year is subjected to one single assessment for that particular year. Income which is assessable in one assessment year cannot be brought to tax in another assessment year for any reason. The Act does not contemplate piecemeal assessment ; one assessment in relation to a portion of the income and another in respect of another portion. However, it is possible that no assessment for a particular year has been completed by the Assessing Officer on the assessee within the period of limitation resulting into escapement of income. Moreover, even where assessment has been made on an assessee, it is found that certain income has escaped assessment therefrom. In order to bring such escaped income to tax, the completed assessment is required to be reopened and it has t....
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...., this aspect has been explained from a different perspective in a recent decision rendered by the Gujarat High Court in the case of Desai Brothers. v. Dy. CIT [ 1999] 240 ITR 12 1, the necessity of recording reasons has been elaborately explained in the following terms: "The requirement of recording of reasons before issuance of notice is to provide a safeguard against the arbitrary action that may be taken by reopening a completed assessment time and again on irrelevant considerations. Recording of reasons unfolds the process by which the Assessing Officer was led to the formation of his belief about escapement of income. If the action of the Assessing Officer is founded on some material or ground that has no nexus to the formation of reason to believe or is not founded on any existing material the same is liable to be interfered with. The correctness of his tentative opinion is not to be tested on the anvil of the final decision which may be reached after considering rival contentions and weighing them through the process of reasoning. But at the same time, if it appears from the reasoning which has been adopted by the Assessing Officer that no inference of escapement of income....
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....t to the subjective process both the formation of opinion and also the existence of circumstances on which it is to be founded. It is also not reasonable to say that the clause permitted the authority to say that it has formed the opinion on circumstances which in its opinion exist and which in its opinion suggest an intent to defraud or a fraudulent or unlawful purpose. It is equally unreasonable to think that the Legislature could have abandoned even the small safeguard of requiring the opinion to be founded on existent circumstances which suggest the things for which an investigation can be ordered and left the opinion and even the existence of circumstances from which it is to be formed to a subjective process ... If it is shown that the circumstances do not exist or that they are such that it is impossible for any one to form an opinion therefrom suggestive of the aforesaid things, the opinion is challengeable on the ground of non-application of mind or perversity or on the ground that it was formed on collateral grounds and was beyond the scope of the statute'." His Lordship Mr. Justice Hidayathullah (as his Lordship then was) in his concurring opinion stated : "No doubt t....
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....ling with such a situation, the court referred to and applied the ratio of the Supreme Court decision in the case of Indian and Eastern Newspaper Society v. CIT [1979] 119 ITR 996 and emphasised : "More importantly, the court said : ... in every case, the Income-tax Officer must determine for himself what is the effect and consequence of the law mentioned in the audit note and whether in consequence of the law which has now come to his notice he can reasonably believe that income has escaped assessments The basis of his belief must be the law of which he has now become aware. The opinion rendered by the audit party in regard to the law cannot, for the purpose of such belief, add to or colour the significance of such law. The true evaluation of the law in its bearing on the assessment must be made directly and solely by the Income-tax Officer." After extracting the relevant portion from the apex court decision, this court has referred to the facts in detail. Thereafter, the court went on to deal with the Central Board of Direct Taxes instructions as under : "Notwithstanding this clear position of law emerging from the decision of the Supreme Court, the instructions of the Board ....
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....ome to light subsequently in the course of reassessment proceedings. If the aforesaid principles are applied to the facts of the present case it becomes amply clear that the impugned notices have been issued without jurisdiction, the Revenue having failed to establish the jurisdictional fact of there being any omission or failure on the part of the petitioner-assessee in disclosing full and true particulars of income necessary for the assessment of the assessment year under consideration. The petitioner was granted deduction of Rs. 24,95,064 in the aggregate under sections 80HH and 80-1 of the Act in the assessment framed on March 25, 1991. Thereafter, vide order dated March 24, 1993, the said assessment was set aside directing the Assessing Officer to carry out the necessary enquiry/ verification and frame the assessment afresh on the merits according to law after affording due opportunity to the assessee of being beard. We may note that the revisional proceedings initiated under section 263 of the Act were for the reasons which may be reproduced from the Commissioner's order dated March 24, 1993. "2. On examination of the case records, it has been found that the Assessing Offic....
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....6, and the Board's Circular No. 484 (para. 4), dated May 1, 1987, it is noticed that Bhavnagar Urban Agglomeration is excluded from the list of eligible backward areas for deduction under section 80HH. Therefore, the incorrect allowance of deduction has caused underassessment to the extent of Rs. 12,47,512. Reopening of assessment on the basis of factual error pointed out by the audit was held to be valid as reported in CIT v. P. V. S. Beedies Pvt. Ltd. [1999] 237 ITR 13 (SC); CIT v. Hindustan Teleprinters Ltd. [1999] 239 ITR 60 (Mad) ; CIT v. Assembly Rooms [2000] 242 ITR 64 (Mad) and Smt. Indira Devi v. CIT [ 1994] 210 ITR 537 (Mad)." In the affidavit-in-reply the respondent has vide para. 4 stated that the petitioner had overlooked the provisions of section 147, in its entirety and thereafter Explanation 1 to section 147 has been reproduced and it is stated : "Thus, in the present case, the Assessing Officer has not been able to detect from material on record that the assessee's production unit is located in an area which is not industrially backward and vide notification read with the circular mentioned above the assessee was not eligible for deduction under section 80HH of ....
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.... petitioner, it was not open to the Revenue to take a different view on reappraisal of the same material. It was in this context when it was pointed out to the court that the annexures annexed to the affidavit-in-reply formed part of the petitioner's written submissions before the Assessing Officer (and this was prima facie shown from the paging/numbering which tallied) that the original file of assessment proceeding was called for. At the time of hearing, on May 1, 2001, learned standing counsel for the Revenue, Mr. Akil Qureshi, very fairly stated that the say of the petitioner was factually correct inasmuch as the annexures which formed part of the affidavit-in-reply were originally forming part of the enclosures to the written submissions made on behalf of the petitioner before the Assessing Officer when the assessment proceedings in the wake of the revisional order were taken on hand, and hence it could not be stated that the petitioner had not put forth its claim in the proper perspective after full and true disclosure of all material facts. As can be seen from, the assessment order dated November 29, 1994, vide para. 2 the Assessing Officer has recorded that in response to ....
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.... that notwithstanding the aforesaid notification, all areas specified in the Eighth Schedule will continue to enjoy the benefit of section 80HH in respect of an industrial undertaking which begins to manufacture or produce articles before September 10, 1986, or in respect bf the business of a hotel which starts functioning before September 10, 1986." Thus, it can be seen that an undertaking which begins to manufacture or produce articles before September 10, 1986, 6ven if it falls within excluded area would be entitled to continue to claim deduction under section 80HH of the Act. The facts as they existed on record are that the petitioner had started production during the financial year relevant to the assessment year 1983-84, and hence it was an industrial undertaking which began to manufacture before September 10, 1986. Thus, the petitioner had correctly claimed the deduction under section 80HH of the Act. However, the limited controversy before us was not as to whether the petitioner was entitled to deduction or not but whether there had been any omission or failure on the part of the petitioner to disclose fully and truly ail material facts necessary for the assessment year u....
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....ume jurisdiction to reopen the completed assessment. The facts as they exist on record are otherwise and we strongly deprecate the attempt on behalf of the Revenue to support an action which is otherwise not defendable at ail. The action of the respondent in referring to the notification, etc., as if it was pointed out by the internal revenue audit party is to say the least, an attempt to mislead the court and is not expected from an officer of the rank of Joint Commissioner of Income-tax. At this juncture we may reiterate the settled legal position as regards the role of the Assessing Officer : (i) Though the Income-tax Officer is not a court, and he is not bound to follow the procedure of a court yet he is to some extent party or judge in his own case and hence is required to proceed in a judicial spirit and come to a judicial conclusion upon properly ascertained facts. (Harmukhrai Dulichand v. CIT [1928] 3 ITC 198 (Cal)). (ii) The fact that the Income-tax Officer is "a judge in his own cause" has at times and amongst certain sections of the general public caused uneasiness and anxiety is felt lest the possession of such autocratic powers by officials of a Department may some....