Income‑tax‑‑‑

‑‑‑‑Reassessment‑‑‑Notice‑‑‑Failure to disclose material facts necessary for assessment‑‑‑Primary facts necessary for claiming special deduction not disclosed at time of original‑ assessment for years 1983‑84 to 1988‑89 excluding 1984‑85‑‑‑Material facts disclosed only during assessment proceedings for 1989‑90‑‑‑Notice for reassessment was valid‑‑‑Indian Income Tax Act, 1961, Ss.80‑1, 147 & 148.

Section 147 of the Income Tax Act, 1961, deals with the income escaping assessment. Before a notice under section 148 of the Act can be issued, all further requirements of section 147 of the Act must be fully met. The time limit specified in section 149 of the Act is not a substitute for what has been stated in section. 147 of the Act. Section 149 of the Act merely stipulates the time limits within which action can be taken under section 147 of the Act and a notice issued under section 148 of the Act. In other words, where a notice issued under section 148 of the Act is after the expiry of a period of four years after the end of the relevant assessment year, the conditions set out in the proviso to section 1‑47 of the Act must be satisfied. Such a notice also should conform to the time limits and the monetary limits set .out in section 149 of the Act. There is no option given to the Assessing Officer to comply with either section 149 of the Act or the proviso to section 147 of the Act. Both of them are to be simultaneously complied with and the requirements therein are to be fulfilled before a valid notice can be issued under section 148.

The duty that is cast upon the assessee is to disclose the primary facts on the basis of which the Assessing Officer can decide as to whether the assessee is entitled to the deduction claimed or not. The mere fact that the Income‑tax Officer had reached some conclusions and had allowed the deduction does not necessarily imply that the Income‑tax Officer had been provided with the primary facts required for making a decision as to whether the deduction claimed was allowable in terms of the relevant statutory provisions:

Held, that, in the instant case, the assessment orders for the years 1983‑84 to 1988‑89 excluding 1984‑85 did not indicate that the primary facts required for claiming the relief under section 80‑1 of the Act had been disclosed, at the time the assessment orders were made. The assessee has not placed any materials de hors those assessment orders which would indicate such knowledge on the part of the Assessing Officer. It was only in the assessment order for the year 1989‑90, alongwith the material facts, the reasons relevant to the allowability or otherwise of the assessee's claim for deduction under section 80‑I of the Act had been set out. The facts stated therein would constitute information for the purpose of section 147 of the Act and would provide grounds for the reasonable belief which the Assessing Officer is required to entertain before initiating proceedings under that section. The notices of re‑assessment were valid.

It was observed that the references made in the order to the contents of the assessment order for the assessment year 1989‑90 were not to be treated as preventing the assessee from challenging the correctness of the contents of that assessment order. It was open to the assessee to urge all, its contentions before the Assessing Officer.

A.L.A Firm v. CIT (1991) 189 ITR 285 (SC); Arving Boards and Paper Products Ltd. v. Keshruwala (M.T.), ITO (1980) 124 ITR 626 (Guj.); ITO v. Lakhmani Mewai Das (1976) 103 ITR 437 (SC) and Indian and Eastern Newspaper Society v. CIT (1979) 119 ITR 996 (SC) ref.

V. 1 Ramachandran for K. Mani, Mallika Srinivasan and N. Balasubramaniam for Petitioner.

Mrs. Chitra Venkataraman for Respondent

JUDGMENT

The assessee is aggrieved by the notices, dated June 19, 1.992, issued' under section 1,48 of the Income Tax Act, 1961, calling upon the assessee to submit a return of its income for the assessment year 1983‑84, as the Assessing Officer had reason to believe that the income in respect of which the assessee was chargeable to tax for the years 1983‑84 to 1988‑89 excluding 1984‑85 has escaped assessment within the meaning of section 147 of the Income Tax Act, 1961. According to the assessee, it had fully disclosed all the material facts necessary at the time the original assessments were made and, therefore, the notices issued beyond the period of ‑four years from the end of the relevant assessment years were wholly illegal.

Though the notices do not set out the reasons, in the counter affidavit of the Deputy Commissioner of Income‑tax, Coimbatore, at paragraph 5, the reasons for the issuance of those notices have been set out as under:

It has been found during the course of the assessment proceedings for the assessment year 1989‑90, that the material evidence relevant for the allowability of deduction under section 80‑1 of the Act during the assessment year 1983‑84 was neither produced by the petitioner nor examined by the Assessing Officer. Thus, the materials relevant for the claim of deduction under section 80‑1 of the Act was never considered from the beginning, but only the quantum of relief was questioned. It is only in the assessment year 1989‑90, that the Deputy Commissioner of Income‑tax has gone into the assessee's eligibility to the relief under section 80‑1 on a consideration of the relevant materials furnished at the instance of the Deputy Commissioner of Income‑tax. Thus, it was not a question of change of opinion on the same set of fact, since the facts were never considered in the first instance..."

In the order of assessment for the year 1989‑90, the Assessing Officer has with regard' to the assessee's claim for deduction under section 80‑I of the Act noted that in response to his question to the assessee as to when the industrial undertaking in question was established, the assessee had claimed that no industrial undertaking was commissioned in the calendar year 1982; that it has claimed deduction under section 80‑I of the Act from 1983‑84; that the licensed capacity of the assessee remained at 100 from the assessment years 1980‑81 to 1989‑90, while the installed capacity increased from 10 to 20 in 1983‑84; that the production increased from 4 in the year 1980‑81 to 52 in the year 1989‑90 (21 months period); that the assessee was incorporated on May 30, 1979; that the industrial licence pursuant to which the industrial undertaking was established was issued on January 22,.1977; that the assessee was engaged in the manufacture of blast hold and water well drilling rigs; that the assessee‑company in the assessment year 1983‑84 constructed a new production bay with a dimension larger than the existing one and capable of taking up manufacture of 10" sized drills which were till that point of time being imported that the new bay was commissioned in 1984, when commercial production began in the newly constructed bay and that new machineries have been installed at a total cost of Rs.18.76 lakhs.

In the assessment orders for the years for which notices have been issued under section 148 of the Act, there is no indication that any material was produced before the Assessing Officer for the relevant years and that the Assessing Officer was fully aware of all the materials at the time the assessment were made.

Learned counsel for the assessee, Mr. V. Ramachandran, submitted that the assessee could not possibly be expected to furnish materials which the form of return did not require; that the Assessing Officer for all these assessment years had made a details computation of the amounts to be allowed as deduction under section 80‑I of the Act, which would prima facie indicate that he had applied his mind as to the eligibility of the assessee for relief under section 80‑I and that, therefore, the present notices are only to be regarded as the result of a change of opinion. It was further submitted that the assessee had made a full and true disclosure of all the relevant material facts necessary for the assessment during all these years.

I‑earned counsel referring to sections 147 and 159 of the Act, submitted that where the Assessing Officer wishes to reopen an assessment after the expiry of four years from the end of the relevant assessment year, the conditions set out in the proviso to section 147 of the Act must be satisfied in addition to the action being initiated within the time limit set out in section 149 of the Act, having regard to the extent income alleged to have escaped tax. Learned counsel placed reliance on the concluding part of the main proviso to section 147 of the Act which refers to the disclosure of all the relevant material facts fully and truly for assessment for the assessment year. It was submitted that the proceedings had been initiated in all these cases only in June, 1992, long after the expiry of four years froth the end of the relevant assessment year.

Counsel for the Revenue relied upon the assessment order for the assessment year 1989‑90 as well as the contents of the counter‑affidavit. Counsel further asserted that notwithstanding the proviso to section 147 of the Act, notice could be issued under section 148 of the Act, if it is permissible to do so in terms of any of the clauses of section .149 of the Act and that, therefore, it was not necessary for a finding that there had been failure on the part of the assessee to fully and truly disclose all the material facts at the tithe of reassessment.

Section 147 of the Act deals with the Income escaping assessment. Before a notice under section 148 of the Act can be issued, all further requirements of section 147 of the Act must be fully met. The time limit specified in section 149 of the Act is not a substitute for what has been stated in section 147 of the Act. Section 149 of the Act merely stipulates the time limits within which action can be taken under section 14'/ or the Act and a notice issued under section 148 of the Act. In other words, where a notice issued under section 148 of the Act 'is after the expiry of a period of four years from the end of the relevant assessment year, the

conditions set out in the proviso to section 147 of the Act must be satisfied. Such a notice also should conform to the time limits and the monetary limits set, out in section 149 of the Act. There is no option given to the Assessment Officer to comply with either section 149 of the Act or the proviso to section 147 of the Act. Both of them are to be simultaneously complied with and the requirements therein are to be fulfilled before a valid notice can be issued under section 148 of the Act.

In all these cases the notices have been issued after the expiry of the period of four years. The notices can be sustained only if it can be held that there had been failure on the part of the assessee to disclose fully and truly all material facts that were necessary for the assessment for three assessment years.

In the case of ITR v. Lakhmani Mewal Das (1976) 103 ITR 437, the Supreme Court observed in the context of section 148 of the Act that (page 445): "We may add that the duty which is cast upon the assessee is to make a true and full disclosure of the primary facts at the time of the original assessment. Production before the Income‑tax Officer of the account books or other evidence front which material evidence could with due diligence have been discovered by the Income‑tax Officer will not necessarily amount to disclosure contemplated by law."

It is thus clear that the assessee cannot take shelter under the plea that the return did not require a particular fact to be set out and, therefore, the failure to disclose the fact will provide immunity to the assessee from any notice being issued under section 148 of the, Act after a period of four years. The duty that is cast upon the assessee is to disclose the primary facts on the basis of which the Assessing Officer can decide as to whether the assessee is entitled to the deduction claimed or not. The mere fact that the Income‑tax Officer had reached some conclusions and had allowed the deduction does not necessarily imply that the Income‑tax Officer had been provided with the primary facts required for making a decision as to whether the decision claimed was allowable in terms of the relevant statutory provisions.

The assessment orders for all these years do not indicate that the primary facts required for claiming the relief under section 80‑1 of the Act had been disclosed, at the time the assessment orders were made. The assessee has not placed any materials de hors those assessment orders which would indicate such knowledge on the part of the Assessing Officer.

It is only in the assessment order for the year 1989‑90, alongwith the material facts, the reasons relevant to the allowability or otherwise of the assessed's claim for deduction under section 80‑1 of the Act have been set out. The facts stated therein would constitute information for the purpose of section 147 of the Act and would provide grounds for the reasonable belief which the Assessing Officer is required to entertain before initiating proceedings under that section.

Learned counsel for the assessee relied on a Division Bench judgment of the Gujarat High Court in Arvind Boards and Paper Products Ltd. v. M. T. Keshruwala; ITO, (1980) 124 ITR 626, in support of his submission that the assessee had disclosed all the facts and all that the Assessing Officer had now done is to‑change his opinion thereon. The decision relied upon turned on the special facts in that case. The Court therein that found that there was no warrant for holding that the assessee therein had failed to disclose the relevant material facts.

The Supreme Court in A.L.A. Firm v. CIT (1991) 189 ITR. 285, elaborately considered the circumstances in which assessments can be re opened. The apex Court set out four situations in which notices under section 34(1)(b) of the Indian Income‑tax Act, 1922, which corresponds to section 147 of the 1961 Act could be validly issued. The Court also noticed the fact that in the case of Indian and Eastern Newspaper Society (1979) 119 ITR 996 (SC), it was emphasised that the Income‑tax Officer must have some information which makes him realise that he has committed an error in the earlier assessment and such information need not necessarily be extraneous to the record. It would be enough if the material on the basis of which the re assessment proceedings are sought to be_ initiated came to the notice of the Income‑tax Officer subsequent to the original assessment.

Applying the law laid down by the apex Court in A.L.A. Firm's case (1991) 189 ITR 285, the only conclusion possible on the facts of these cases is that the notices issued to the assessee under section 148 of the Act do not suffer from any infirmity, as they are based on the information contained in the assessment order for the year 1989‑90 which information, though material and concerned the primary facts, had not been placed by the assessee at the time of assessment for the relevant assessment years for re‑opening which those notices had been issued.

The writ petitions, therefore, fail and they are dismissed. No costs. All the connected writ miscellaneous petitions are also dismissed. However, the references made in the earlier part of this order with regard to the contents of the assessment order for the assessment year 1989‑90 are not to be treated as preventing the assessee from challenging the correctness of the contents of that assessment order. It is open to the assessee to urge all his contentions before the Assessing Officer.

M.B.A./655/FCPetitions dismissed.