Allowed

Shri Warana Sah. Dudh Utpadak Prakriya Sangh , Warananagar Ltd. v. the Assistant Commissioner of Income Tax (Special Range - I) and Ors.

Bombay HC12 Sept 2005WP/5636/2005

Case brief

AI extract

What is this about?

The High Court of Bombay held that a notice u/s 148 of Income Tax Act issued beyond four years was barred by limitation. The court concluded the revenue failed to record a clear finding that the assessee did not fully disclose material facts, rendering the reopening invalid.

What did the court decide?

Impugned notice dated 31st March, 2005 under section 148 is quashed and set aside. Petition allowed.

Shri Warana Sah. Dudh Utpadak Prakriya… — Constitutional and Fundamental Rights | Bombay HC (2005)

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IN THE HIGH COURT OF JUDICATURE AT BOMBAY

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CIVIL APPELLATE JURISDICTION

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WRIT PETITION NO. 5636 OF 2005

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Shri Warana Sahakari Dudh Utpadak Prakriya Sang, Kolhapur. ... Petitioner.

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V/s.

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The Assistant Commissioner of Income Tax, Kolhapur.

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The Commissioner of Income Tax, Kolhapur.

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Union of India. S.S.Patwardhan for the petitioner.

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... Respondents.

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A.S.Rao i/b.. S.S.Sarkar for the respondents.

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CORAM : V.C.DAGA AND J.P.DEVADHAR, JJ. DATED : 12th September, 2005.

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P.C. : ----

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. Rule, returnable forthwith. . Heard finally by consent of parties. 2. In this petition, the petitioner is challenging the notice dated 31st March, 2005, issued by respondent No.1 for reopening assessment for the assessment year 1998-99, under section 148 of the Income Tax Act, 1961 ("Act" for short).

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Facts :

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3.		The	petitioner	is a co-ope	rative society
registered		under	the		Maharashtra	Co-operative
Societies	Act,	1960.	It	carries	on business	of dairy

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and allied products at Warnanagar, taluka- Panhala, district- Kolhapur.

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4.	The	petitioner had filed its return of
income	for the	assessment year 1998-99. On	22nd
September,	2000,	the respondent No.1 issued	notice
under	section 143(2	) read with section 142(1)	of the
Act	calling upon	the petitioner to furnish	necessary
details.	The	petitioner, accordingly, supplied	all
details	asked for	and complied with the said	notice
dated 2	2nd September,	2000. The respondent No	.1 vide
assessment	order	dated 2nd January, 2001	concluded
the	assessment	after taking into consideration	all

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the relevant material sought by him and disclosed by

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the petitioner.

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The respondent No.1, on 31st March, 2005, issued notice under section 148 of the Act seeking to

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reopen the concluded assessment of the petitioner for

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the assessment year 1998-99.

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6.	The	petitioner vide its letter dated 16th
May, 2005	called u	pon the respondents	to disclos	e the
reasons	recorded	for reopening the	assessment	before
issuing not	ice under	section 148 of the	Act.	The
respondents	failed	to furnish	said	reasons.
Consequently,	left	with no other	alternative,	the

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petitioner invoked writ jurisdiction of this Court

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under Article 226 of the Constitution of India.

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On being noticed, the respondents appeared

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and filed their counter affidavit; wherein they disclosed the reasons recorded prior to issuing

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notice dated 31st March, 2005. The said reasons read as under:

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. Assessee is a co-operative society

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and engaged in procurement of milk and sale of milk & milk products. The assessee society purchases milk from primary co-op. societies and are paying regularly for the purchase of the milk from the supplier on the basis of fat content of the milk. The assessee in its Annual report for the F.Y.1997-98 relevant to A.Y.1998-99 has mentioned that it has made provision of Rs.7,69,40,091 for final bill of the purchase of milk. But it has not mentioned how it has arrived at the said provision of Rs.7,69,40,091. It appears that provision of final bill was out of profit and not as business consideration. Whether the payment was made on a/c of quality or quantity of milk or comparable market price of milk or whether there was sufficient cause to make higher payment to milk

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producers than actual market price is not clear. This fact was neither examined by then A.O. nor any details were filed by the assessee while assessment proceeding was going on.

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I have therefore reason to believe

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that amount of provision supposed to be paid to the producers is a mere division of profit rather than allowable business expenditure and hence the income chargeable to tax to the extent of Rs.7,69,40,091 has escaped assessment within the meaning of section 147 of the I.T.Act, 1961.

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Rival Contentions:

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The learned counsel for the petitioner

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contends	that	notice issued	un	der section	148 of	the
Act	is barred	by limitation	in	view of	proviso	to
section	147.	He further	sub	mits that no	where i	n the
reasons	recorded	it is		stated	that	the
petitioner-a	ssessee	had failed		to disclose	fully	and
truly	all materia	l facts n	ecess	ary for	the as	sessment
for	the assess	ment year	in	question, as	such	the
assessing	officer	did not	have	jurisdiction	to	reopen
the	concluded	assessment;	that	too after	expiry	of
four	years from	the last		day of	the	relevant
assessment	year	i.e.1998-99.		He, thus,	submits	that

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the notice under section 148 cannot be held to be

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within limitation and is liable to be set aside.

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On merits learned counsel for the

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petitioner	submit	s t	hat all	the	rel	evant	evidence
with	material	facts	necessary	for	asse	ssment for	the
assessment	year	in	question	were	fully	and	truly
disclosed	to	the	assessing	officer.		He	further
submits	that	along	with	return,		documents	or
information	as	sought	were f	urnished	so	as to	enable

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the assessing officer to complete the assessment

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under section 143(3) of the Act.

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Learned counsel for the petitioner in

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support of his submission relied upon various judgments of this Court like Hindustan Lever Ltd. v. V.K.Pandey, Joint C.I.T. , (2001) 251 ITR 209 and

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Caprihans India Ltd. v. Prakash Chandra , (2002) 256

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ITR 721.

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11.

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Per contra, Mr.Rao appearing for the

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Revenue	tr	ied	to	contend	that alternat	e remedy	is
open	to	the	petiti	oner;	wherein th	e petitioner	can
raise	objectio	ns	before	the	assessing	officer and	the
assessing		officer	c	an be	directed to	decide	those
objections	r	aised	by	the	petitioner	before proc	eeding
with	the	asse	ssment.	He	further su	bmits that so	far
as	merits	of	the	case are	concerned,	the same can	be
dealt	with	b	y the	assessing	officer.	As such	the

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petitioner	be	directed to app	ear	before	the	assessing
officer	with	liberty to raise		objections	as	canvassed
hereinabove.		Mr.Rao sought	to	place	reliance	on the
judgment	of	the Apex Court	in	the	case	of GKN

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Driveshafts (India) Ltd. v. I.T.O. , (2003) 259 ITR

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19 (SC).

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12.	In re	joinder,	lear	ned coun	sel for	the
petitioner	placed	relian	ce	on	the	judgment	of	this
Court in	the cas	e o	f	Ador	Te	chnopack	Ltd.	v.
Dr.Zakir	Hussein,	Dy.C.I.	T.,	(2004)	271	ITR	50	to
contend	that the	petiti	oner	shou	ld	not be		relegated
to the	alternate	remedy		conside	ring	the a	dmitted	fact
that the	notice	under		section	148	is	(a	dmittedly)
beyond	the period	of	lim	itation.		He, thus	,	submits

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that no useful purpose would be served by relegating

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the petitioners to the alternate remedy.

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Consideration :

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13.		Having hear	d riva	l parties	, we ar	e of th	e
opinion	that	this petitio	n	can	be	disp	osed	of	on the
first	contention	raised	b	y	the		petiti	oner.	The
petitioner	has	contended		that		fro	m	the	reasons
recorded	it	is evident	that	the	re	was	no	failu	re on
the	part	of the ass	essee	to	di	sclose	fu	lly	and truly

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all	materia	l f	acts and, th	erefore,	the	reopenin	g	of
the	assessment	beyo	nd the peri	od of	four	years	is	bad
in	law.	If	there is no	failure	on the	part	of	the
assessee	to		disclose fully	and	truly	all		material
facts,	then,	under	proviso to	section	147	of	the	Act,

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the assessment cannot be reopened beyond the period

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of four years.

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The petitioner has rightly relied upon the

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judgment of this Court in the case of Hindustan Lever

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Ltd. v. R.B.Wadkar , 2004 (3) Mh.L.J. 517; wherein

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this Court has held as under:

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	"It is for the Assessing Officer to reach
to t	he conclusion as to whether there was
failure	on the part of the assessee to
disclose	fully and truly all material
facts	necessary for his assessment for
the	concerned assessment year. It is for
the	Assessing Officer to form his
opinion .	It is for him to put his
opinion	on record in black and white.
The	reasons recorded should be clear and
unambig	uous and should not suffer from
any	vagueness. The reasons recorded must
disclose	his mind. Reasons are the
manifest	ation of mind of the Assessing
Officer.	The reasons recorded should be
self-expl	anatory and should not keep the
assessee	guessing for the reasons.
Reasons	provide link between conclusion
and	evidence. The reasons recorded must
be	based on evidence. The Assessing
Officer,	in the event of challenge to the
reasons,	must be able to justify the same
based	on material available on record.
He	must disclose in the reasons as to
which	fact or material was not disclosed
by	the assessee fully and truly necessary

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for	assessment	of that assessment	year,
so as	to estab	lish vital link betw	een the
reasons	and eviden	ce . That vital	link is
the	safeguard	against arbitrary	reopening
of the	concluded	assessment. The	reasons
recorded	by	the Assessing Officer	cannot
be	supplemented	by filing affidavit	or
making	oral	submission, otherwise,	the
reasons	which	were lacking in	the
material	particul	ars would	get
supplemented	, by	the time the	matter
reaches	to the	Court, on the stre	ngth of
affidavit	or	oral submissions	advanced.
Impugned		notice	quashed."

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(Emphasis supplied)

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The aforesaid observations of this Court

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while	interpreting the	provi	so to s	e	c	tion 1	47	of the
Act	is fully applicable	to	the case		a	t ha	nd.	The
impugned	notice is	admit	tedly beyon	d		the	peri	od of
limitation	prescribed	unde	r the p	r	o	viso to		section
147	of the Act and	in	the absence			of any		material to
show	that there was	f	ailure on th	e		part		of the
assessee	to disclose	fully	and tru	l	y	all		materials,
such	notice must be	held	to be			barred	by	limitation.
The	same is, therefore,	li	able to	b	e	quash	ed	and set
aside.	On this gro	und	alone the			petition		succeeds.
Since	the petitioner is	e	ntitled to			succeed	on	this