Income-tax---

----Reassessment---Information that income has escaped assessment---Original assessment made without investigation because assessment would become time-barred---Reassessment not valid---Reassessment on the basis of additions to income in a subsequent year---Additions deleted by Tribunal---Reassessment not valid---Indian Income Tax Act, 1961, S.147(b)---Constitution of India, Art.226:

Held, that it was admitted by the Inspecting Assistant Commissioner, that he had passed the assessment order without investigating the matter more deeply only on the ground that the assessment proceedings were becoming time barred. When all the facts were disclosed by the assessee before the Assessing Officer and the Assessing Officer had passed an order without investigating the matter in detail, by no stretch of imagination could it be said that the assessee had concealed or suppressed any material so as to warrant a reopening of the assessment. Moreover the Inspecting Assistant Commissioner had stated that because of information which he had received from the assessment proceedings for the assessment year 1980-81, he had reason to believe that income chargeable to tax had escaped assessment for the assessment year 1978-79 and 1979-80. Additions had been made to the income of the assessee but the Tribunal had deleted the additions because it found that the additions were based purely on conjectures and surmises. In view of the aforesaid findings given by the Tribunal with regard to the assessment proceedings for the years 1980-81 to 1983-84, the reasons recorded by the Inspecting Assistant Commissioner (Assessment) for issuing notices under section 147(b) of the Income Tax Act, 1961, for the assessment years 1978-79 and 1979-80 were without any substance or basis. Hence, the notices were required to be quashed and set aside.

J.P. Shah for Petitioner.

B.J. Shelat instructed by M.R. Bhatt of R.P. Bhatt & Co. for Respondent.

JUDGMENT

M.B. SHAH, J.---The petitioner, Adarsh Chemicals and Fertilizers Limited, Udhana, has challenged the notices dated March 30, 1983 (Annexures "D-1" and "D-2"), issued by the respondent under section 147(b) of the Income Tax Act, 1961 ("the Act", for short). The said notices are issued for reopening the assessments for the assessment years 1978-79 and 1979-80, respectively.

It is the contention of the petitioner that the aforesaid notices are on the face of them illegal, arbitrary and without authority of law. It is contended that for the assessment year 1978-79, assessment was made by an order dated March 31, 1981 (Annexure "A"), under section 143(3) read with section 144B of the Act. For the assessment year 1979-80, the assessment came to be made by the Inspecting Assistant Commissioner of Income-tax (Assessment) by an order dated March 30, 1982 (Annexure "B"), under section 143(3) of the Act. It is the further contention of the petitioner that, when an order is passed under section 143(3) read with section 144B of the Act, it is required to be presumed that the assessment was made after careful investigation of the matter as distinguished from the assessment being made on the return being accepted under section 143(1) of the Act. It is also pointed out that the petitioner is a manufacturer of super phosphate (fertilizer), one of the raw materials of which is rock phosphate. For the assessment year 1979-80, the respondent examined the question of shortage in rock phosphate purchased by the petitioner and for this purpose it has produced on record the correspondence which transpired between the petitioner and the respondent indicating that the question of shortage was examined by the respondent. It is, therefore, contended that the notices under section 147(b) are on the face of them illegal and arbitrary because no new information was in the possession of the respondent.

At the time of admission of this matter, the Court had granted interim relief and at that time the respondent has produced the reasons recorded by the Inspecting Assistant Commissioner (Assessment); Surat, for issuing the said notices under section 147(b) of the Act. In paragraph 3 of the said reasons, it is mentioned that in the course of assessment proceedings for the assessment year 1980-81, it was found that the assessee's explanation of transit loss for rock phosphate given in the assessment year 1979-80 was precisely false on the facts and, in this view of the matter, the assessment proceedings for the assessment year 1980-81 have given him sufficient information and material so as to have reasons to believe that income chargeable to tax has escaped assessment for the assessment years 1978-79 and 1979-80.

In the affidavit-in-reply, the Inspecting Assistant Commissioner who had issued the notices has stated that for the assessment year 1979-80, as it was time-barring assessment, there was no further time to investigate the matter deeper. Hence, the statement of the assessee regarding the aforesaid discrepancies was believed and was relied upon and the time-barring assessment for the assessment year 1979-80 was completed, vide order dated March 30, 1982 under section 143(3) of the Act.

In view of the aforesaid statement from the affidavit-in-reply, it is apparent that there was no suppression or concealment on the part of the assessee. As admitted by the Inspecting Assistant Commissioner who has issued the notices, he had passed the assessment order without investigating the matter deeper only on the ground that the assessment proceedings were becoming time barred. In our view, when all the facts were disclosed by the assessee before the Assessing Officer and the Assessing Officer had passed an order without investigating the matter in detail, by no stretch of imagination can it be said that the assessee has concealed or suppressed any material so as to warrant reopening the assessment.

Further, Mr. Shah, learned counsel for the petitioner, has rightly pointed out that the foundation for reopening the assessment is knocked out by the decision of th6 Income-tax Appellate Tribunal in Income-tax Appeals Nos.533 to 535 of 1983, for the assessment years 1980-81 to 1983-84. He pointed out that as per the reasons recorded by the Inspecting Assistant Commissioner, Surat, because of information which he had received from the assessment proceedings for the assessment year 1980-81, he had reason to believe that income chargeable to tax has escaped assessment for the assessment years 1978-79 and 1979-80. In paragraph 2 of the said reasons, it is mentioned that the consumption of rock phosphate as indicated m the stock register was in excess of the actual consumption of rock phosphate as recorded in the plant production register. The quantity of rock phosphate reflected "as consumed" in the stock register was inflated by making arbitrary and bogus entries on two or three days of the accounting period and thereby the consumption of rock phosphate was inflated to reduce the taxable profits. As such, this finding given by the Assessing Officer for the assessment years 1980-81 to 1983-84 was not accepted by the appellate authority. The Commissioner of Income-tax (Appeals) had ordered deletion of the addition made by the Assessing Officer on account of shortage of rock phosphate treating the same as false inflation of manufacturing expenses. Against that order, the Department preferred the aforesaid appeals before the Tribunal. The Tribunal after considering all the facts arrived at the conclusion that it would, therefore, not be proper for the Department even to indirectly allege that the consumption of rock phosphate is excessive and what in fact was consumed is not entirely rock phosphate but diluent. The Tribunal observed that: "on an appraisal of the evidence on record which was filed in the form of two paper books, we are of the view that the Department has made out no case for making the additions. The additions are based purely on conjectures and surmises and such additions cannot be upheld". .

In view of the aforesaid findings given by the Tribunal with regard to the assessment proceedings for the years 1980-81 to 1983-84, in our view, the reasons recorded by the Inspecting Assistant Commissioner (Assessment), Surat, for issuing notices under section 147(b) of the Act are without any substance or basis. Hence, the notices are required to be quashed and set aside.

In the result, the petition is allowed. The impugned notices dated March 30, 1984 (Annexures "D-1" and "D-2"), are quashed and set aside. The respondents are directed not to proceed further on the basis of the said notices. Rule made absolute to the aforesaid extent with no order as to costs.

M.B.A./1.069/FPetition allowed.