VARDHMAN SPINNING AND GENERAL MILLS LTD VS INSPECTING ASSISTANT COMMISSIONER OF INCOME-TAX (ASSESSMENTS)
1999 P T D 3044
[229 I T R 277]
[Punjab and Haryana High Court (India)]
Before S. C. Malte, J
VARDHMAN SPINNING AND GENERAL MILLS LTD
Versus
INSPECTING ASSISTANT COMMISSIONER OF INCOME-TAX (ASSESSMENTS) and others
Civil Writ Petition No.2838 of 1980, decided on 29/05/1997.
(a) Income-tax---
----Reassessment---Jurisdiction to reassess---Concurrent jurisdiction conferred on I.A.C. and I. T. O. by order under S.125---Difference between an order under section 125 and one under S.127---Assessee need not be heard before order is passed under S.125---I.A.C. on whom jurisdiction has been conferred is competent to issue notice of reassessment---Indian Income Tax Act, 1961, Ss .125 & 148.
(b) Income-tax---
----Reassessment---Failure to disclose material facts necessary for assessment---Mere production of account books or other evidence before I.T.O. is not sufficient---Notice of reassessment on grounds that there had been under valuation of closing stock and excessive allowance of development rebate---Notice was valid---Indian Income Tax Act, 1961, Ss. 147(a) & 148.
(c) Income-tax---
----Reassessment---Writ---Sufficiency or adequacy of reasons for issuing notice under S.148 cannot be considered in writ proceedings---Indian Income Tax Act, 1961, Ss. 147 & 148---Constitution of India, Art.226.
(d) Income-tax---
----Reassessment---Writ---Limitation---High Court finding that notice of reassessment was valid---Question whether reassessment proceedings were barred by limitation could be considered by Assessing Authority---Question would not be considered in writ proceedings---Indian Income Tax Act, 1961, Ss. 147 & 148---Constitution of India, Art.226.
Section 125 of the Income Tax Act, 1961, empowers the Commissioner of Income-tax to confer powers on the Inspecting Assistant Commissioner in respect of any specified case or class of cases or of any specified person or class of persons. The proviso further states that the Commissioner shall not issue such orders in relation to certain sections including sections 147 and 148 of the Income-tax Act unless he has been thus, authorised to issue such orders by general or special orders issued by the Board (Central Board of Direct Taxes). Section 125 coupled with section 125-A of the Income-tax Act makes it quite clear that a concurrent jurisdiction can be conferred on the Inspecting Assistant Commissioner and the Income-tax Officer. While conferring such jurisdiction,, it is not obligatory that the assessee should be heard. Conferring of jurisdiction under sections 125 and 125-A of the Act, should not be confused with the, powers to transfer cases under section 127.
Section 147(a) indicates that the Income-tax Officer can initiate reassessment proceedings whenever he has reason to believe that income has escaped assessment by reason of the omission or failure on the part of the assessee (a) to make a return under section 139 of the Income Tax Act, or (b) to disclose fully and truly any material facts necessary for his assessment. The term "disclosure" mentioned in clause (a) of section 1:47 of the Income tax Act has been further, clarified as per Explanation 2. It clearly states that mere production before the Income-tax Officer of account books or other evidence from which material evidence could with due diligence have been discovered by the Income-tax Officer, will not necessarily amount to disclosure within the meaning of that section. In a case where the issue of show-cause notice itself is sought to be quashed, the only aspect to be seen is whether the show-cause notice is issued after the application of mind, and whether it was within the four corners of section 147 which authorises issuance of such show-cause notice.
The High Court when considering a writ petition challenging a reassessment does not sit in judgment over the adequacy or sufficiency of the reasons recorded.
A writ petition was filed against a notice of reassessment on the grounds that the issue of notice was by an authority having no jurisdiction to issue such notice. The second ground raised was that there were no reasonable grounds for issuance of such a notice for reopening of the assessment for the year 1975-76. It was further claimed that such reopening of the assessment was barred by limitation:
Held, dismissing the petition, (i) that a concurrent jurisdiction had been conferred on the Inspecting Assistant Commissioner (Assessment), Ludhiana, and the notice of reassessment had been issued by him. The notice was, therefore, issued by an authority who had jurisdiction;
(ii) that one of the reasons for issuing the notice of reassessment was that there had been under valuation of closing stock. The material on record showed that figures showing the quantity of the stock and the amount of its value were mentioned. It did not clarify as to the method by which the closing stock of the raw material had been valued. This was not a case of mere change of opinion but the action by the assessing authority was based on certain disclosure of the position which necessitated further consideration. The reopening of assessment was also based on excessive allowance of development rebate. Elaborate reasons had been given in respect of this. These reasons should be placed before the assessing authority for consideration, as that could not be a matter for adjudication in a writ petition. The notice could not be quashed;
(iii) that the question whether the notice was barred by limitation could be considered by the concerned assessing authority.
Bansal (K.M.) v. CIT (1992) 195 ITR 247 (All.); Indo-Aden Salt Mfg. and Trading Co. (P.) Ltd. v. CIT (1986) 159 ITR 624 (SC); Mahajan (M.M.) v. GTO (1992) 194 ITR 184 (P & H) and V.K. Construction Works Ltd. v. CIT (1995) 215 ITR 26 (P & H) ref.
A.K. Mittal for Petitioner.
R.P. Sawhney Singh, Senior Advocate with Rajesh Bindal for Respondents.
JUDGMFNT
'The petitioner seeks the quashing of notice issued by the Inspecting Commissioner of Income-tax (Assessment), Ludhiana, under 148 of the Income-tax Act. As a consequential relief, he sought a direction to prevent the Inspecting Assistant Commissioner of Income-tax (Assessment) from deducting tax under that provision against the petitioner. The petitioner contends that the issuance of notice was by an authority having no jurisdiction to issue such notice The second ground raised by him is that there are no reasonable grounds for issuance of such a notice for reopening of the assessment of the income-tax for the year 1975-76, it was further claimed that such reopening of the assessment is barred by limitation. It was claimed that during the assessment of income-tax for the accounting year 1975-76, he had supplied full information regarding the financial position, and now there is no ground for reopening of the assessment. It is submitted that mere change of opinion of the subsequent Income-tax Assessing Officer would not justify reopening of the assessment.
On behalf of the respondents, it was submitted that by issuance of various orders in the form of a notification, the jurisdiction has been conferred on the officers as mentioned in the said orders and, therefore, the notice issued under section 147 of the Income-tax Act was quite proper and correct. It was submitted that the issuance of notice was under clause (a) of section 147 of the Income-tax Act, and not under section 147(b) as was wrongly assumed by the petitioner. My attention was also invited to the reasons that preceded the issuance of notice under section 147(a) of the Income-tax Act. It was submitted that after the assessment of the year 1975-76 was over, it came to the notice of the assessing authority that the petitioner had undervalued the closing stock of raw material, and thereby concealed the income. It was claimed that the assessee had adopted the method of average cost of the raw material ranging over the whole accounting year, whereas the average rate for the month of February and March should have been mentioned while showing the closing stock of the raw material. It was further claimed that the assessee had also misstated the factual position as regards the development rebate, and thereby secured excess development allowance.
The first question pertains to the jurisdiction of the authorities issuing notice under section 148 of the income-tax Act. The provisions of the Income-tax Act, as were enforced in the year 1980, when notice was issued, should be taken into consideration for the purpose of this petition. That notice (annexure P-11) is, dated March 28, 1980. It is issued by the Inspecting Assistant Commissioner of Income-tax (Assessment), Ludhiana. Counsel for the respondents brought to my attention various orders issued from time to time under section 125 of the Income-tax Act. Section 125 of the Income-tax Act empowers the Commissioner of Income-tax to confer powers on the Inspecting Assistant Commissioner in respect of any specified case or class of cases or of any specified person or class of persons. The proviso further states that the Commissioner shall not issue such orders under certain sections including sections 147 and 148 of the Income-tax Act unless he has been thus, authorised to issue such orders by general or special orders issued by the Board (Central Board of Direct Taxes). Pursuant to those powers, various orders were issued from time to time to confer jurisdiction. The copies of these are at Annexures R-3, R-4, R-5, R-6, R-8, R-9, R-10 and R-11. The last order (Annexure R-11) is, dated December 20, 1979, by which a concurrent jurisdiction has been conferred on the Inspecting Assistant Commissioner of Income-tax (Assessment), Ludhiana, over the cases assigned to the Income-tax Officer, Special Investigation Circle, Ludhiana. In view of those orders, notice was issued by the Inspecting Assistant Commissioner of Income-tax (Assessment), Ludhiana. It was contended that such orders cannot be issued without hearing the assessee affected thereby. I am unable to appreciate that submission. Section 125 coupled with section 125-A of the Income-tax Act makes it quite clear that a concurrent jurisdiction can be conferred on the Inspecting Assistant Commissioner and the Income-tax Officer. While conferring such jurisdiction, it is not obligatory that the assessee should be heard. The hearing of the assessee is contemplated only where as per subsection (3) of section 125-A of the Income-tax Act, instructions to be observed by the Income-tax Officer are issued. In that case such instructions prejudicial to the assessee shall not be issued without affording him an opportunity of being heard. In view of .the orders issued by the Income-tax Commissioner, I find that the Inspecting Assistant Commissioner has jurisdiction to issue the notice in question. In the context of it, it also be noted 'that conferring jurisdiction under sections 125 and 125-A of the Income-tax Act, should not be confused with the powers to transfer cases under section 127 of the Income-tax Act. In the present case, there is conferment of the jurisdiction, and not the transfer of a case. I, therefore, find no substance in the submission that the notice was by the authority having no jurisdiction.
The next point raised pertains to the legality and propriety of issuance of notice under section 148 of the Income-tax Act. Such notice is issued in view of section 147 which makes provision for reopening the assessment for the purpose of assessment of the income which had escaped assessment for certain reasons mentioned in that section. For ready reference it would be convenient to reproduce that section as it stood at the relevant time. It is as follows:
" 147. If---
(a) the Income-tax Officer has reason to believe that, by reason of the omission or failure on the part of an assessee to make a return under section 139 for any assessment year to the Income-tax Officer, or to disclose fully and truly all material facts necessary for his assessment for that year, income chargeable to tax has escaped assessment for that years or
(b) notwithstanding that there has been no omission or failure as mentioned in clause (a) on the part of the assessee, the Income-tax Officer has in consequence of information in his possession reason to believe that income chargeable to tax has escaped assessment for any assessment year,
He may subject to the provisions of sections 148 to 153, assess or reassess such income or recompute the loss or the depreciation allowance, as the case may be, for the assessment year concerned (hereafter in sections 148 to 15 1 referred to as the relevant assessment year).
Explanation 1.---For the purposes of this section, the following shall also be deemed to be cases where income chargeable to tax has escaped assessment, namely:---
(a) where income chargeable to tax has been under-assessed; or
(b) where such income has been assessed at too low a rate; or
(c) where such income has been made the subject of excessive relief under this Act or under the Indian Income-tax Act, 1922 (11 of 1922); or
(d) where excessive loss or depreciation allowance has been computed.
Explanation 2.---Production before the Income-tax Officer of account books or other evidence from which material evidence could with due diligence have been discovered by the Income-tax Officer will not necessarily amount to disclosure within the meaning of this section. "
Counsel for the petitioner vehemently submitted that unless the assessing authority comes into possession of some information that leads to believe that income has escaped assessment, no such notice can be issued. According to him at the time of initial assessment in 1975-76 he had produced before the assessing authority all the relevant books of account and information. In that connection, my attention was invited to Annexure P-2, which pertains to the notice, dated May 7, 1977, from the Income-tax Officer to the petitioner, whereby he was called upon to supply details in respect of various items including the full details of the finished goods, raw material and goods in process as on March 31, 1975, alongwith the value, and the basis for such valuation. In response to. that the petitioner replied, vide Annexure P-3, dated July 23, 1977. In respect of the details regarding the closing stock referred to above, he has stated that lie has attached details by separate Annexure. These details are at Annexure P-4. While giving the details of such closing stock he has mentioned by way of caption to the details that the basis of valuation is on cost price or market price whichever is lower. Figures showing the quantity of the stock and the amount of its value are mentioned. Pertinent to notice' that it does not clarify as to the method by which the closing, stock of the raw material has been valued as mentioned in Annexure P-4. ion-disclosure on such aspect was found to be one of the reasons for issuance of notice: Annexure R-1 attached with the written statement consists of reasons for reopening of assessment under section 147(a) of the Income-tax Act. While assigning reasons in respect of reopening, of the assessment on the ground of under valuation of closing stock it has been elaborately stated that valuation of the opening stock has been shown at the annual average rate of the cotton purchased during 1975-76 which was found to be far less than the average of the raw cotton purchased during February and March of the said year. A show-cause notice under section 148 of the Income-tax Act was issued. In response to that, the petitioner had appeared, and had given a reply. The Inspecting Assistant Commissioner of Income-tax (Assessment), Ludhiana., has made a reference to these submissions made by the petitioner in response to the notice under section 148 of the Income-tax Act. In the concluding portion of Annexure R-1, lie has stated that during the course of assessment proceedings for the assessment year 1977-78, the petitioner by his letter, dated March 20, 1980, has sought to explain the difference of valuation of the closing stock as per the bank account, and as per the books of account. It is at that time that it came to light that the petitioner had adopted a yearly average basis for valuing raw material. It was claimed by him that such a method of accounting the assessee was consistently following, and was accepted by the Department in the past. Whether the accounting method adopted by the petitioner is in keeping with the recognised method of costing, or it should be some-what different as per the view of the assessing authority, is a matter to be adjudicated by the concerned assessing authority. In a case where the issue of show-cause notice itself is sought to be quashed, the only aspect to be seen is whether the show-cause notice is issued after due application ref mind, and whether it was within the four corners of section 147 which authorises issuance of such show-cause notice.
The petitioner claims that the issuance of show-cause notice fails under clause (b) of section 147, and in the absence of information coming into the possession of the authorities, no such notice can be issued. A brief reference to clauses (a) and (b) of section 147 of the Income-tax Act reproduced above clearly shows that these two clauses operate in different circumstances. The notice in this case is under section 147(a) of the Income tax Act. A perusal of that section indicates that whenever the income-tax officer has reason to believe that the income has escaped assessment by reason of the omission or failure on the part of the assessee (a) to rake return under section 139 of the Income-tax Act, or (b) to disclose fully and truly all material facts necessary for his assessment (sic). The term "disclosure" mentioned in clause (a) of section 147 of the Income-tax Act has been further clarified as per Explanation 2. It clearly states that mere production before the Income-tax Officer of account books or other evidence from which material evidence could with due diligence have been discovered by the Income-tax Officer will not necessarily amount to disclosure within the meaning of that section. In view of that it is obvious that the petitioner cannot say that the issuance of notice under section 148 was bad in law because he has placed the account books and information before the Income tax Officer. In the context of this my attention was invited to Indo-Aden Salt Mfg. and Trading Co. (P.) Ltd. v. CIT (1986) 159 ITR 624 (SC). In that case, their Lordships, while repelling the contention that the Income-tax Officer could have found out the position by further probing against books, have further observed that in view of Explanation 2 to section 147 of the Income-tax Act, mere production of evidence before the Income-tax Officer was not, enough. There may be omission or failure to make a true and full disclosure, if some material for the assessment lay embedded in the evidence. In that case, it becomes the duty of the assessee also to bring to the notice of the assessing authority, certain aspects which would clarify the position shown in the account books or the record. Counsel for the petitioner has claimed that reopening has been done merely because of change of opinion by the subsequent assessing authority. That does not seem to be correct. It is not a mere change of opinion but the action of the assessing authority is based on certain disclosure of the position which necessitates further consideration. The material that has come to light has been sufficiently discussed by the assessing authority while assigning reasons as per Annexure R-1. Needless to state in respect of reasons for reopening of assessments, this Court would not sit in an appeal or judgment. In this view, I am supported by ruling in the case of K.M. Barisal v. CIT (1992) 195 ITR 247 (All). In that case, the Division Bench of the Allahabad High Court has observed that the High Court in writ jurisdiction challenging reassessment does not sit in judgment over the adequacy or sufficiency of reasons recorded. Besides that, in the case of M.M. Mahajan v. GTO (1992; 194 ITR 184 (P & H), the Division Bench of this Court observed while dealing with a case of gift-tax, that adequacy of notice under section 16(1)(a of the Gift-tax Act in respect of reassessment could not be a matter of writ jurisdiction because there is an adequate alternative remedy under the Act. A similar view has been expressed in a case of V.K. Construction Works Ltd v. CIT (1995) 215 ITR 26 (P & H), in which a similar point arose in respect of a notice under section 154 of the Income-tax Act.
Annexure R-1 also indicates that elaborate reasons have been given in respect of reopening of the assessment of the ground of excessive allowance of development rebate. May be, the assessee has some reply to satisfy the assessing authority. All the same, these reasons should be placed before the assessing authority for consideration, as that cannot be a matter for adjudication in this writ petition. The examination of the development rebate involves elaborate examination of factual position with the help of accounts and papers, and that is an exercise within the jurisdiction of the assessing authority.
Counsel for the petitioner further contended that the issuance of notice would be barred by limitation under section 149 of the Income-tax Act. A perusal of section 149 indicates that question also can be gone into by the concerned assessing authority.
I, thus, find that there is no substance in this writ petition, and it is dismissed with costs.
M.B.A./3086/FCPetition dismissed.