Court Upholds Reopening of Tax Assessment After Four Years, Citing Non-Disclosure of Key Facts

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Case Name:

PVP Ventures Ltd. Vs. Assistant Commissioner of Income Tax (High Court of Madras)

Writ Petition No.1626 and 2057 of 2015 And M.P.Nos.1 & 1 of 2015

Date: 11th June 2015

Key Takeaways:

• The court confirmed that an assessment can be reopened after four years if the taxpayer fails to disclose all material facts.
• The ruling reinforces the necessity for taxpayers to provide complete and accurate information during assessments.
• The decision clarifies the conditions under which the Assessing Officer can reopen assessments under Section 147 (of Income Tax Act, 1961).

Issue:

Can the Assessing Officer reopen an income tax assessment after four years if the taxpayer did not fully disclose all material facts during the original assessment?

Facts:

• The petitioner, PVP Ventures Ltd., filed its original return for the assessment year 2008-09, declaring a loss.
• The assessment was completed under Section 143(3) (of Income Tax Act, 1961), determining a significant total income.
• After four years, the Assessing Officer issued a notice under Section 148 (of Income Tax Act, 1961) to reopen the assessment, claiming that income had escaped assessment due to the company’s non-disclosure of unabsorbed depreciation and business losses.
• The petitioner argued that the reopening was invalid as it was beyond the four-year limit and claimed no failure to disclose occurred.

Arguments

• Petitioner’s Argument: The company contended that the reopening was unjustified as it had disclosed all relevant information during the original assessment. They argued that the notice was issued without tangible evidence of income escaping assessment.
• Respondent’s Argument: The Assessing Officer maintained that the reopening was valid because the petitioner failed to disclose crucial facts regarding unabsorbed depreciation and business losses, which justified the belief that income had escaped assessment.

Key Legal Precedents

• Section 147 (of Income Tax Act, 1961): This section allows the Assessing Officer to reopen assessments if they have reason to believe that income has escaped assessment.
• Section 149 (of Income Tax Act, 1961): This section outlines the time limits for issuing notices under Section 148 (of Income Tax Act, 1961), specifically stating that notices cannot be issued after four years unless certain conditions are met.
• CIT vs. A.V. Thomas Exports Ltd. (286 ITR 603): This case established that reopening assessments beyond four years requires proof of the taxpayer’s failure to disclose material facts.
• Vinod Dhudlal Shah vs. ACIT (362 ITR 345): This case emphasized that if the taxpayer fully disclosed all material facts during the original assessment, reopening would not be valid.

Judgement

The court ruled in favor of the Assistant Commissioner of Income Tax, stating that the reopening of the assessment was valid. The court reasoned that the petitioner had not fully disclosed all material facts necessary for the assessment, which justified the Assessing Officer’s belief that income had escaped assessment. The court upheld the issuance of the notice under Section 148 (of Income Tax Act, 1961) and confirmed the legality of the reassessment proceedings.

FAQs

Q1: What does this ruling mean for taxpayers?

A1: Taxpayers must ensure they fully disclose all relevant information during assessments, as failure to do so can lead to reopening of assessments even after four years.

Q2: Can the Assessing Officer reopen an assessment without evidence?

A2: No, the Assessing Officer must have a reasonable belief that income has escaped assessment due to the taxpayer’s failure to disclose material facts.

Q3: What happens if a taxpayer disagrees with a reassessment?

A3: The taxpayer can challenge the reassessment through the appropriate legal channels, including appeals to higher authorities.

Q4: How does this case impact future tax assessments?

A4: This case reinforces the importance of transparency in tax filings and sets a precedent for how the courts may view non-disclosure in future cases.

1. The petitioner company is a public limited company engaged in the business of infrastructure and development. It is assessed to Income Tax on the file of the respondents under PAN No.AAACS3101P. For the assessment year 2008-09, the petitioner company had filed its original return of income on 30.9.2008, declaring a loss of Rs.14,07,72,863/- and filed revised return on 26.3.2009, declaring a loss of Rs.17,45,251/-. According to the petitioner, since it was a loss of return, the petitioner did not claim the unabsorbed loss and depreciation of the earlier years. The said return was duly processed under Section 143(1) (of Income Tax Act, 1961). 1961 (in short, the Act) and it was selected for scrutiny and a notice under Section 143(2) (of Income Tax Act, 1961) was issued, calling for the details. Pursuant to the same, the petitioner filed all the details called for by the respondents from time to time. During the scrutiny of the assessment, having considered the materials placed before them, the respondents had completed the assessment under Section 143(3) (of Income Tax Act, 1961) on 31.12.2010, determining the total income at Rs.415,20,26,520/-.

Thereafter, it appears that the petitioner filed a rectification application under Section 154 (of Income Tax Act, 1961) pointing out certain additions, viz., FBT, non-

allowing of brought forward losses, depreciation of earlier years, etc., which according to the petitioner, were the mistakes apparent from the records and accordingly, pleaded to the respondents to rectify the same. The second respondent vide order, under Section 154 (of Income Tax Act, 1961), dated 6.9.2011 was pleased to rectify his order and revised the total income of

the petitioner company at Rs.365,77,16,292/-, thereby allowing the unabsorbed loss and depreciation. It is stated that the petitioner had also filed an appeal against the assessment order passed under Section 143(3) (of Income Tax Act, 1961), dated 31.12.2010 before the CITA (A)-V in ITA No.605/13-14(A)-V. While so, after a period of four years, the respondent, by notice

dated 10.2.2013 issued under Section 148 (of Income Tax Act, 1961), sought to re-open the concluded assessment under Section 143(3) (of Income Tax Act, 1961), which according to the petitioner, without any tangible materials and without giving a finding that there is a failure on the part of the petitioner company to disclose fully and truly all the materials at the time of completion of the original assessment. It is seen that vide letter dated 19.12.2013, the petitioner company, requested the respondents to provide the reasons for re-opening of the assessment 2008-09 after a period of four years.

2. In the meanwhile, the CIT (A), vide order in ITA No.605/13-14 dated 27.3.2014 deleted the addition of Rs.377,71,78,316/- being on account of foreign direct investment (FD) and thus partly allowed the appeal filed by the petitioner company. Thereafter, vide order under Section 143(3) (of Income Tax Act, 1961) read with Section 254 (of Income Tax Act, 1961) dated 5.8.2014 gave effect to the order of the CIT(A)-V in ITA No.605/13-14 dated 27.3.2014 and revised the rectification order under Section 154 (of Income Tax Act, 1961), dated 6.9.2011 and

calculated the total taxable income at NIL and unabsorbed depreciation at

Rs.11,94,62,024/-. According to the petitioner, despite the rectification order under Section 154 (of Income Tax Act, 1961) and also giving effect order under Section 254 (of Income Tax Act, 1961), the respondents continued his parallel proceedings under Section 147 (of Income Tax Act, 1961) for the impugned assessment year and issued reasons for re-opening vide letter dated 8.12.2014 after the pronouncement of his own giving effect order dated 5.8.2014. The petitioner objected for re-opening the assessment proceedings under Section 147 (of Income Tax Act, 1961). However, according to the

petitioner, without deciding the jurisdictional issue, the respondent passed order, dated 12.1.2015, holding that the proceedings under Section 147 (of Income Tax Act, 1961) have been rightly initiated and rejected the objections raised by the petitioner.

3. It appears that along with the above said rejection order, dated 12.1.2015, the respondent had issued a show cause notice dated 12.1.2015, calling upon the petitioner to file their objections on or before 19.1.2015 to complete the re-assessment proceedings. Pursuant to the same, the petitioner filed its detailed reply on 19.1.2015 objecting to the

jurisdiction to reopen and also on merits of the case. A representative of the petitioner company appeared in person on 19.1.2015 before the respondent and requested for grant of time till 28.1.2015 to file additional submissions. Thereafter, according to the petitioner, since no re-assessment order was served on the petitioner, a writ petition was moved before this Court, however, later it came to know that the re-assessment order was

passed on 21.1.2015 and dispatched to the petitioner by speed post.

4. According to the petitioner, the respondent, without giving any opportunity of being heard, passed the impugned order on 20.1.2015 itself, whereas the notice of demand was issued on 21.1.2015, wherein, it was stated that the re-assessment was passed on 20.1.2015. The respondent dispatched the impugned order dated 10.1.2015 by speed post on 22.1.2015 at about 3.14 p.m. much after the petitioner company moved this Court. Therefore, the act of the respondent in completing the re-assessment is not in accordance with the principles of natural justice. Hence, the petitioner has come forward

with the present writ petitions.

5. Two separate counter affidavits have been filed on behalf of the respondent in these writ petitions, stating that after serving notice under Section 148 (of Income Tax Act, 1961), at the request of the petitioner, the reasons for reopening the assessment, were communicated to the petitioner. Pursuant to the same, the petitioner filed objections, which were considered and disposed of by a speaking order. Thereafter a show cause notice was issued, calling for explanation on the proposed additions. The petitioner has submitted the reply to the said show cause notice and after considering the same, the impugned order was passed. Therefore, before passing the impugned order, the petitioner was provided an opportunity. Since, there was a reason to believe that income has escaped assessment, the income chargeable to tax has escaped assessment within the meaning of Section 147 (of Income Tax Act, 1961), a notice under Section 148 (of Income Tax Act, 1961) was issued and the reasons were recorded

for reopening the assessment and the petitioner has participated in the said reassessment proceedings by filing objections and reply to the show cause notice. It is stated that though the assessment order was passed on 20.1.2015, the date on the demand notice was inadvertently mentioned as 21.1.2015 and there is no bar under the Act that the demand notice is also to be dated as that of the assessment order. It is only a typographical error which was set right by passing a corrigendum on 4.2.2015 and thereby denied that the order was ante dated as alleged by the petitioner. It is also stated that the impugned notice has merged with the re-assessment order, dated 20.1.2015 impugned in W.P.No.2057 of 2015 and hence, the writ petition in W.P.No.1626 of 2015 challenging the impugned show cause notice, dated 12.1.2015 is not maintainable since, it has become infructuous

virtually. As against the impugned orders, the petitioner is having efficacious alternative remedy under the Act and without exhausting the same, the petitioner has come forward with the present writ petition and hence, it is not maintainable.

6. It is also stated that the additions made under Section 68 (of Income Tax Act, 1961) and 69A are deemed income of the petitioner and fall under Chapter VI of the Act and not under any of the head of income specified in Chapter IV of the Act and therefore, the petitioner is not entitled to set off and carry forward of losses as under Section 72 (of Income Tax Act, 1961). This has been clarified by insertion of a specific section namely Section 115BBE (of Income Tax Act, 1961). The above said aspect was not adjudicated in the assessment order and therefore, the question of change

of opinion as contended by the petitioner is not valid and is only self service statement. It is also pertinent to note that the CIT (A) has upheld the addition under Section 69A (of Income Tax Act, 1961) made in the assessment under Section 143(3) (of Income Tax Act, 1961). With these averments, the respondent sought for dismissal of the writ petitions.

7. Mrs. Nalini Chidambaram, learned senior counsel appering for the petitioner would contend that after four years of the assessment year 2008-09, the respondent issued notice dated 10.12.2013 under Section 148 (of Income Tax Act, 1961), seeking to reopen the assessment, without any tangible materials and without a finding that income chargeable to tax has escaped assessment by reason of failure on the part of the petitioner to disclose fully and truly all

material facts necessary for the assessment which is a precondition for reopening the assessment, which is untenable and that the notice merely stated that the Assessing Officer has ‘reason to believe’ that the income chargeable to tax for the assessment year 2008-09 has escaped assessment and such ground is available only if the notice is within four years of the assessment year. According to learned senior counsel, reassessment

notice is without jurisdiction since it has not been issued within the time limit of 4 years as prescribed under Section 149 (of Income Tax Act, 1961). She has further contended that reassessment notice was issued based on an audit report without independent application of mind of the assessing officer and hence, it is not sustainable. She contended that parallel proceedings under Section 154 (of Income Tax Act, 1961) and 147 of the Act cannot be undertaken simultaneously and that the

Assessing Officer ought not to have refused to set of unabsorbed depreciation of the year years and carried forward loss against deemed income under Sections 68 (of Income Tax Act, 1961) and 69A. She has further contended that the impugned proceedings were initiated only based on the audit report and the respondent has not applied his mind and only in circumstances where

the audit party expresses its opinion on a question of law, re-opening of assessment based on audit objection is permissible. Therefore, the impugned notice under Section 148 (of Income Tax Act, 1961) based on an audit objection, which is not a valid ground to reopen a concluded assessment under Section 147 (of Income Tax Act, 1961). She pointed out that the Assessing Officer has refused to set of unabsorbed depreciation of earlier years and carried forward losses

against income computed under Sections 68 (of Income Tax Act, 1961), 69 and 69A of the Act by relying upon Section 115BBE (of Income Tax Act, 1961), which was introduced by Finance Act, 2012 with effect from 01.04.2013 which cannot operate prospectively and since the issue under consideration in the present case is pertaining to assessment year 2008-09 and hence, Section 115BBE (of Income Tax Act, 1961) will not apply to the facts of the present case. In support of her contentions, the learned senior counsel relied upon the following decisions, viz.,

i) “CIT versus DRM Enterprises” reported in (2015) 55 Taxmann.com 181

(Bombay)

“Once the audit party raised objections, one of which was not accepted,

then, the Assessing Officer was expected and in the given facts and

circumstances to record reasons for his belief. Those reasons have not

been recorded, as is clear from the material placed before the Tribunal.

Despite sufficient opportunity, the reasons for reopening the assessment

having not been placed on record and as such, it was held that the appeals

preferred by the Revenue do not raise any substantial question of law.”

ii) “Allanasons Ltd. Versus DCIT and others” reported in (2014) 369 ITR

648 (Bom)

”In terms of the proviso to section 147 (of Income Tax Act, 1961), where

any assessment is sought to be opened beyond a period of four years from

the end of relevant assessment year, two jurisdictional conditions have to

be cumulatively satisfied: a) there must be reason to believe that income

chargeable to tax has escaped the assessment and (b) such escapement of

income should have arisen on account of failure on the part of the assessee

to fully and truly disclose all material facts necessary for the assessment.

The exercise of jurisdiction has to be examined on the basis of the reasons

recorded at the time of issuing the notice. It is not open to the Revenue to

substitute or make addition to the reasons recorded at the time of issuing

the notice.”

iii) “Vinod Dhudlal Shah versus ACIT” (2014) 362 ITR 345 (Guj)

“Beyond the period of four years, if any notice of reopening of assessment

is issued in the absence of any failure on the part of the assessee to

disclose fully and truly all the material facts, it would have no validity. In the original assessment proceedings, if the Assessing Officer, had

examined the claim in detail after raising queries which were fully

answered by the assessee, such action of reopening cannot be sustained in

such circumstances.”

iv) “Jagat Jayantilal Parikh versus DCIT” (2013) 355 ITR 400

v) Fenner (India) Ltd. Versus DCIT (2000)241 ITR 672 (Mad)

”Mere escape of income is insufficient to justify the initiation of action

after the expiry of four years from the end of the assessment year. Such

escapement must be by reason of the failure on the part of the assessee

either to file a return referred to in the proviso or to truly and fully disclose the material facts necessary for the assessment.”Unless, the condition in the proviso is satisfied, the Assessing Officer does not acquire jurisdiction to initiate any proceeding under Section 147 (of Income Tax Act, 1961) after the expiry of four years from the end of the assessment year. Thus, in cases where the initiation of the proceedings is beyond the period of four years from the end of the assessment year, the Assessing Officer must necessarily record not only his reasonable belief that income has escaped assessment but also the default or failure committed by the assessee. Failure to do so would vitiate the notice and the entire proceedings. If the Assessing Officer chooses to entertain the belief that the assessment has been made in the background of the assessee's failure to disclose truly and fully all material facts, it is necessary for him to record that fact, and in the absence of a record to that effect, it cannot be held that a notice issued without recording such a fact is capable of being regarded as a valid notice.”

vi) CIT versus A.V.Thomas Exports Ltd.” (286 ITR 603 (Mad)

vii) CIT versus Elgi Ultra Industries Ltd.”(296 ITR 573 (Mad)

viii) Elforge Ltd versus DCIT (83 CCH 066)

8. On the other hand, the learned standing counsel appearing for the

respondent/revenue would contend that though while issuing the impugned notice, no reasons were mentioned to reopen the assessment, however, later on request of the petitioner, reasons were intimated in conformity the provision of Section 147 (of Income Tax Act, 1961) and after considering the objections raised by the petitioner, the impugned proceedings were issued.

9. A notice under Section 148 (of Income Tax Act, 1961), dated 10.12.2013 has been issued to the petitioner proposing to re-assess the income for the assessment year 2008-09 by the respondent, since the respondent has reason to believe that the income in respect of the said assessment year has escaped assessment within the meaning of Section 147 (of Income Tax Act, 1961). It is relevant to extract Sections 147 to 149 of the Act, which read as under:

"147. If the Assessing Officer has reason to believe that any 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 and also any other income chargeable to tax which has

escaped assessment and which comes to his notice subsequently in the

course of the proceedings under this section, or re-compute the loss of

or the depreciation allowance or any other allowance, as the case may

be, for the assessment year concerned (hereafter in this section and in

Sections 148 to 153 referred to as the relevant assessment year) :

Provided that where an assessment under Sub-section

(3) of Section 143 (of Income Tax Act, 1961) or this section has been made for the

relevant assessment year, no action shall be taken under

this section after the expiry of four years from the end of

the relevant assessment year, unless any income

chargeable to tax has escaped assessment for such

assessment year by reason of the failure on the part of

the assesses to make a return under Section 139 (of Income Tax Act, 1961) or in

response to a notice issued under Sub-section (1) of

Section 142 (of Income Tax Act, 1961) or Section 148 (of Income Tax Act, 1961) or to disclose fully and truly

all material facts necessary for his assessment for that

assessment year."

“Explanation 1.--Production before the Assessing Officer of account

books or other evidence from which material evidence could, with due

diligence, have been discovered by the Assessing Officer will not

necessarily amount to disclosure within the meaning of the foregoing

proviso.

Explanation 2.--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 no return of income has been furnished by the

assessee although his total income or the total income of

any other person in respect of which he is assessable

under this Act during the previous year exceeded the

maximum amount which is not chargeable to income-

tax;

(b) where a return of income has been furnished by the

assessee but no assessment has been made and it is

noticed by the Assessing Officer that the assessee has

understated the income or has claimed excessive loss,

deduction, allowance or relief in the return;

(c) where an assessment has been made, but

(i) income chargeable to tax has been under assessed; or

(ii) such income has been assessed at too low a rate; or

(iii) such income has been made the subject of excessive

relief under this Act; or

(iv) excessive loss or depreciation allowance or any

other allowance under this Act has been computed.

“148. Issue of notice where income has escaped

assessment.--(1) Before making the assessment,

reassessment or recomputation under Section 147 (of Income Tax Act, 1961), the

Assessing Officer shall serve on the assessee a notice

requiring him to furnish within such period, as may be

specified in the notice, a return of his income or the

income of any other person in respect of which he is

assessable under this Act during the previous year

corresponding to the relevant assessment year, in the

prescribed form and verified in the prescribed manner

and setting forth such other particulars as may be

prescribed ; and the provisions of this Act shall, so far as

may be, apply accordingly as if such return were a

return required to be furnished under Section 139 (of Income Tax Act, 1961).

(2) The Assessing Officer shall, before issuing any notice

under this section, record his reasons for doing so.

“149. Time limit for notice.--(1) No notice under

Section 148 (of Income Tax Act, 1961) shall be issued for the relevant assessment

year,-

(a) if four years have elapsed from the end of the

relevant assessment year, unless the case falls under

Clause (b);

(b) if four years, but not more than six years, have

elapsed from the end of the relevant assessment year

unless the income chargeable to tax which has escaped

assessment amounts to or is likely to amount to one lakh

rupees or more for that year.

Explanation.--In determining income chargeable to tax

which has escaped assessment for the purposes of this

sub-section, the provisions of Explanation 2 to Section

147 shall apply as they apply for the purposes of that

section.

(2) The provisions of Sub-section (1) as to the issue of

notice shall be subject to the provisions of Section 151 (of Income Tax Act, 1961).

(3) If the person on whom a notice under Section 148 (of Income Tax Act, 1961) is

to be served is a person treated as the agent of a non-

resident under Section 163 (of Income Tax Act, 1961) and the assessment,

reassessment or recomputation to be made in pursuance

of the notice is to be made on him as the agent of such

non-resident, the notice shall not be issued after the

expiry of a period of two years from the end of the

relevant assessment year.”

10. It is no doubt true that an assessment order once made is ordinarily final. Section 154 (of Income Tax Act, 1961) confers a power of rectification of mistakes apparent from the record. Section 147 (of Income Tax Act, 1961) empowers the Assessing Officer to assess or reassess the income in the circumstances mentioned therein. The power to reopen an assessment under Section 147 (of Income Tax Act, 1961) is in the nature of an exception to the general principle that an assessment order once made would be final. The power to reopen an assessment is not unbridled or unrestricted and it is subject to the proviso embodied in the section itself.

The proviso prescribes restrictions on the power of reopening the assessment by limiting the time period to four years from the end of the relevant assessment year, unless any income chargeable to tax has escaped assessment by reason of failure on the part of the assessee (i) to submit a return under Section 139 (of Income Tax Act, 1961), or (ii) to respond to the notices issued under Section 142(1) (of Income Tax Act, 1961), or (iii) to respond to the notices issued under Section 148 (of Income Tax Act, 1961), or (iv) to disclose fully and truly all material facts necessary for the assessment of the income for that assessment year. Explanation 1 to Section 147 (of Income Tax Act, 1961) lays down that mere production of the books of account or other evidence from which the Assessing Officer could, with due diligence, have discovered certain facts would not amount to disclosure within the meaning of the provision. Explanation 2 to Section 147 (of Income Tax Act, 1961) enumerates cases where it would

presume that income chargeable to tax has escaped assessment. If the assessment is to be reopened after the expiry of four years from the end of the relevant assessment year, under the proviso to Section 147 (of Income Tax Act, 1961), following conditions must exist, viz.,

(i) The Assessing Officer must have a reason to believe that any

income chargeable to tax has escaped assessment for the any

assessment year. The expression "reason to believe" does not mean a

purely subjective satisfaction on the part of the Assessing Officer. The

reason must be held in good faith. It cannot be merely a pretence. It is

open to the court to examine whether the reasons for the formation of

the belief has a rational connection with or a relevant bearing on the

formation of the belief and are not extraneous or irrelevant for the

purpose of the section. To this extent, action of an Assessing Officer in

starting the proceedings under Section 147 (of Income Tax Act, 1961) in respect of income

escaping assessment is open to challenge in a court of law.

(ii) The Assessing Officer must have a reason to believe that

such income had escaped assessment by reason of failure on the part

of the assessee (a) to make a return under Section 139 (of Income Tax Act, 1961) ; or (b) to

respond to the notice issued under Section 142(1) (of Income Tax Act, 1961) or 148 of the Act, or

(c) to disclose fully and truly all the material facts necessary for his

assessment of income for that year.

11. Therefore, it is clear that both the aforementioned conditions

imposed must co-exist to confer jurisdiction on the Assessing Officer to

reopen the assessment under Section 147 (of Income Tax Act, 1961). Sub-section (2) of Section

148 of the Act makes it imperative for the Assessing Officer to record

his reasons before initiating proceedings. Where a notice under Section

147 of the Act is to be issued after the expiry of four years from the

end of the relevant assessment year, the Commissioner or the Joint

Commissioner, as the case may be, should be satisfied on the reasons

recorded by the Assessing Officer that it is a fit case for issue of such

notice.

12. The power of reassessment conferred under Section 147 (of Income Tax Act, 1961) of

the Act can be exercised within a period of four years from the end of

the relevant assessment year without restrictions imposed by the

proviso to that section. However, after the expiry of four years

from the end of the relevant assessment year, power of the

Assessing Officer is restricted by the limitations imposed under

the proviso, as stated earlier.

13. Section 147 (of Income Tax Act, 1961) is the source of power of the

Assessing Officer for reopening of the assessment. Section 148 (of Income Tax Act, 1961)

contains procedural restrictions for issuance of a notice for exercise of

the power of reopening of an assessment conferred under Section 147 (of Income Tax Act, 1961).

Section 149 (of Income Tax Act, 1961) prescribes the time limit for issuance of a notice under

Section 148 (of Income Tax Act, 1961). Therefore, the conditions laid down under Section 147 (of Income Tax Act, 1961) of

the Act for the purposes of reopening the assessment must be satisfied

before the notice can be issued. The conditions laid down in Section

147 are the jurisdictional facts necessary for the purpose of exercise of

the power under Section 147 (of Income Tax Act, 1961). The jurisdictional facts prescribed under

Section 147 (of Income Tax Act, 1961) must exist before a notice under Section 148 (of Income Tax Act, 1961) can be

issued. The time limit prescribed under Section 149 (of Income Tax Act, 1961) for

issuance of a notice under Section 148 (of Income Tax Act, 1961) is in addition to and not in

derogation with the necessary conditions required to be satisfied under

Section 147 (of Income Tax Act, 1961). In other words, if the basic jurisdictional facts

required for reopening of an assessment under Section 147 (of Income Tax Act, 1961)

do not exist it would not be competent for the Assessing Officer to

issue a notice under Section 148 (of Income Tax Act, 1961). Even where the jurisdictional facts

prescribed under Section 147 (of Income Tax Act, 1961) exist and all conditions laid down under

Section 147 (of Income Tax Act, 1961) and the proviso thereto are satisfied, the notice under

Section 148 (of Income Tax Act, 1961) can be issued only after the Assessing Officer has

recorded his reasons for doing so under Sub-section (2) of Section 148 (of Income Tax Act, 1961)

and has further obtained the necessary sanction for issuance of the

notice as required under Section 151 (of Income Tax Act, 1961). Such notice is also

required to be issued within the time limit prescribed under Section

149 of the Act. In fact, Section 149 (of Income Tax Act, 1961), does not relax the

restriction of four years prescribed in the proviso to Section 147 (of Income Tax Act, 1961) of the

Act for issuance of a notice under the proviso to Section 147 (of Income Tax Act, 1961). The

restriction of four years would be applicable unless the income

chargeable to tax has escaped assessment by reason of failure

of the assessee to make a return under Section 139 (of Income Tax Act, 1961) or in

response to a notice under Section 142 (of Income Tax Act, 1961) or 148 of the Act or the

failure of the assessee to disclose fully and truly all material

facts. If the reassessment is required to be made on account of the

failure of the assessee to disclose fully and truly all material facts

necessary for his assessment, obviously, the restriction of four years

put under the proviso to Section 147 (of Income Tax Act, 1961) would not be applicable and

notice can be issued after the expiry of a period of four years, but

within the time limit of 7 or 10 years, as the case may be, prescribed

under Section 149 (of Income Tax Act, 1961). The object of Section 149 (of Income Tax Act, 1961) in imposing

the restriction of seven years or ten years where the income likely to

have escaped assessment is less than Rs.50,000 or Rs.1,00,000, as

the case may be, is not to permit reopening of the assessment where

the tax liability would not be significant as compared with the efforts

that would be required for reopening of an assessment after a passage

of seven or ten years, as the case may be. To repeat, the time-limit

imposed under Section 149 (of Income Tax Act, 1961) for issuance of the notice

is not in derogation of and is not for enlarging the time

restriction imposed under the proviso to Section 147 (of Income Tax Act, 1961)

but to put an additional time restriction even where there is no

restriction of time for reopening of the assessment on account

of failure of the assessee to disclose fully and truly all material

facts.

14. In the present case, it is not in dispute that the petitioner

filed returns of income for the assessment year 2008-09, declaring

loss of income at Rs.14,07,72,863/- and later on 26.3.2009, revised

returns were filed declaring loss of 17,47,251. Thereafter, the

assessment under Section 143(3) (of Income Tax Act, 1961) for the year 2008-09 has

been concluded on 31.12.2010 determining the total income at

Rs.415,20,26,520/- and the demand payable at Rs.187,31,76,820/-. It

is pertinent to note that in the original returns filed on 30.9.2008 as

well as in revised returns on 26.3.2009, the petitioner had not

disclosed the material regarding the unabsorbed depreciation and

business loss of earlier years, which according to the petitioner, since

it was a loss return, the petitioner did not claim the same. It is only on

25.1.2011, a petition was moved under Section 154 (of Income Tax Act, 1961),

seeking rectification on the ground that there were mistakes apparent

from records relating to certain additions such as Fringe benefit

tax(FBT), non-allowing of brought forward losses and depreciation of

earlier years. By proceedings, dated 6.9.2011, rectification order under

Section 154 (of Income Tax Act, 1961) has been passed by the respondent, raising

demand of Rs.164,97,15,480/- as against original demand for

Rs.187,31,76,820/-. Later, a notice under Section 148 (of Income Tax Act, 1961),

dated 10.12.2013 has been issued by the respondent proposing to

reopen the assessment. It is to be noted that by proceedings, dated

8.12.2014, the respondent has narrated and communicated the

reasons for re-opening the assessment under Section 147 (of Income Tax Act, 1961)

for the assessment year 2008-09, which are extracted hereunder:

“The scrutiny assessment was completed under

Section 143(3) (of Income Tax Act, 1961) determining the total income at

Rs.415.20 crores after making an addition of Rs.415.37

crores which included Rs.408.78 crores made under

Section 68 (of Income Tax Act, 1961) & 69 A. The assessment was revised which

interalia included to allow the assessee’s claim for set off

of unabsorbed depreciation aggregating to Rs.45.18

crores relating to assessment year 2004-05 and

unabsorbed business loss of Rs.4.15 crores relating to

assessment year 2005-06. The above addition under

Section 68 (of Income Tax Act, 1961) & 69 A is deemed income of the assessee and

does not come under any heads of income specified in

Chapter IV of the Income-tax Act, 1961 and hence

brought forward business loss and depreciation cannot

be set off against this as per Section 72 (of Income Tax Act, 1961).”

15. Therefore, a perusal of the above, it indicates that the

Assessing Officer has a reason to believe that the income, viz.,

unabsorbed depreciation and business loss and depreciation, which

was allowed to be set off by the respondent in revision proceedings,

dated 6.9.2011, has escaped assessment within the meaning of

Section 147 (of Income Tax Act, 1961) and accordingly, the respondent has rightly

initiated the proceedings. It is to be noted that pursuant to the above

notice and communication of reasons, the petitioner has raised

objections which were duly considered by the respondent and rejected

by proceedings dated 12.1.2015. Thereafter, the respondent

proceeded with the reopening of the assessment, wherein, it is not in

dispute that the petitioner had participated in the said proceedings and

by proceedings, dated 12.01.2015, the respondent has issued

impugned show cause notice by way of a final opportunity, calling for

explanation as to why the additions made under Sections 68 (of Income Tax Act, 1961) and 69A

of the Act, should not be taxed separately without giving benefit of

setting off the deemed income under Section 69A (of Income Tax Act, 1961) with brought forward

business loss and unabsorbed depreciation.

16. The main contention of the petitioner is that there is no

failure on the part of the petitioner in not disclosing fully and truly all

materials facts necessary for the assessment year under consideration

and in the absence of the same, the assumption of jurisdiction by the

respondent under Section 147 (of Income Tax Act, 1961), after expiry of four years

from the end of the relevant assessment year, is illegal and invalid and

thereby, the impugned proceeds cannot be sustained. This contention

raised on behalf of the petitioner, in my considered opinion, is

fallacious and has no force at all. It is curious enough to note that as

observed above, in the original returns filed by the petitioner on

30.09.2008, the petitioner had not at all disclosed fully or truly all

material facts regarding the income, viz., unabsorbed depreciation and

business loss and depreciation, which the Assessing Officer has reason

to believe that the same has escaped assessment within the meaning

of Section 147 (of Income Tax Act, 1961). Therefore, when admittedly, the material

which is the subject matter of the proceedings under Section 147 (of Income Tax Act, 1961) was

not disclosed in the original returns filed by the petitioner on

30.09.2008, it cannot be construed that the reopening of the

assessment is beyond four years. In fact, the petitioner has, for the

first time, has disclosed the subject material, viz., unabsorbed

depreciation and business loss of earlier years, only on 25.1.2011 in

the form of rectification petition under Section 154 (of Income Tax Act, 1961), seeking

rectification, wherein, a rectification order has been passed by the

respondent on 6.9.2011. In such circumstances, since the original

returns filed by the petitioner got merged with the rectification order,

dated 6.9.2011, the period of four years has to be calculated not from

the end of the relevant assessment year, but should be from the date

on which, the petitioner has filed a rectification petition under Section

154 of the Act, i.e. on 25.1.2011 wherein, as already stated, for the

first time, brought the subject material, viz., unabsorbed depreciation

and business loss of earlier years. Then, the reopening of the

assessment is well within the period of four years and it cannot be

construed that the respondent has proceeded to reassess the income

for the assessment year 2008-09 beyond four years since the notice

under Section 148 (of Income Tax Act, 1961) has been issued on 10.12.2013.

Therefore, once it is clear that the reassessment was proposed within

the period of four years, the present case does not fall under proviso

of the Section 147 (of Income Tax Act, 1961), which makes an embargo on the

assessing officer to make reassessment beyond four years on the

account of failure on the part of the assessee to fully and truly disclose

all material facts necessary for assessment. Hence, the issuance of the

impugned proceedings, viz., show cause notice under Section 148 (of Income Tax Act, 1961) of

the Act, dated 10.12.2013 and the reassessment order, dated

20.1.2015 by the respondent on the ground that he has reason to

believe that the income, which is chargeable to tax for the assessment

year 2008-09 has escaped assessment, in my opinion, are well within

the jurisdiction of the respondent and legally sustainable and I do not

find any arbitrariness in such reopening of the assessment. In such

view of the matter, the reliance placed on the decisions, cited supra,

by the learned senior counsel, would not any way help the petitioner

since they dealt with the issue of matter wherein, the reassessment

has been resorted beyond the period of four years.

17. As regards the contention that the reassessment based on audit

report without independent application of mind by the Assessing

Officer is not sustainable, is concerned, I do not find any force in the

said contention since the respondent has given cogent reasons in his

speaking order, dated 12.1.2015 while rejecting the objections raised

by the petitioner, for re-opening of the assessment and therefore, it

cannot be stated that the respondent has not applied his mind and

solely resorted to based on the audit report. In fact, the audit party is

entitled to point out a factual error or omission in the assessment and

it is settled law that re-opening of the case on the basis of a factual

error pointed out by the audit party is permissible under law. It has

been held so in the case of “CIT versus P.V.S.Beedis” reported in (237

ITR 13), wherein, the Hon’ble Supreme Court has held as under:

“The dispute as to whether reopening is permissible after

audit party expresses on opinion on a question of law is

now being considered by a larger Bench of the Supreme

Court. There can be no dispute that the audit party is

entitled to point out a factual error or omission in the

assessment. Re-opening of the case on the basis of a

factual error pointed out by the audit party is permissible

under law. ..”

18. In view of my above conclusion that the re-opening of the

assessment resorted to by the respondent is valid in law, all the other

grounds raised on behalf of the petitioner, such as, unabsorbed

depreciation of earlier years and carried forward losses can be set off

against income computed under Sections 68 (of Income Tax Act, 1961), 69 and 69A of the Act,

applicability of Section 115BBE (of Income Tax Act, 1961) and parallel proceedings under Sections

154 and 147 cannot be undertaken simultaneously, etc., in my

opinion, are the subject matter of the appeal inasmuch as, as against

the impugned proceedings, the petitioner is having an efficacious

remedy. In this regard, it is worthwhile to refer to the decision of the

Hon’ble Supreme Court, reported in CIT v. Chhabil Dass Agarwal,

(2014) 1 SCC 603, at page 611, wherein, it has been held as under:

“15. Thus, while it can be said that this Court has

recognised some exceptions to the rule of alternative

remedy i.e. where the statutory authority has not acted

in accordance with the provisions of the enactment in

question, or in defiance of the fundamental principles of

judicial procedure, or has resorted to invoke the

provisions which are repealed, or when an order has

been passed in total violation of the principles of natural

justice, the proposition laid down in Thansingh Nathmal

case22, Titaghur Paper Mills case3and other similar

judgments that the High Court will not entertain a

petition under Article 226 of the Constitution if an

effective alternative remedy is available to the aggrieved

person or the statute under which the action complained

of has been taken itself contains a mechanism for

redressal of grievance still holds the field. Therefore,

when a statutory forum is created by law for redressal of

grievances, a writ petition should not be entertained

ignoring the statutory dispensation.

16. In the instant case, the Act provides complete

machinery for the assessment/reassessment of tax,

imposition of penalty and for obtaining relief in respect

of any improper orders passed by the Revenue

Authorities, and the assessee could not be permitted to

abandon that machinery and to invoke the jurisdiction of

the High Court under Article 226 of the Constitution

when he had adequate remedy open to him by an appeal

to the Commissioner of Income Tax (Appeals). The

remedy under the statute, however, must be effective

and not a mere formality with no substantial relief. In

Ram and Shyam Co. v. State of Haryana40this Court has

noticed that if an appeal is from “Caesar to Caesar’s

wife” the existence of alternative remedy would be a

mirage and an exercise in futility.

17. In the instant case, neither has the writ petitioner

assessee described the available alternate remedy under

the Act as ineffectual and non-efficacious while invoking

the writ jurisdiction of the High Court nor has the High

Court ascribed cogent and satisfactory reasons to have

exercised its jurisdiction in the facts of the instant case.

In light of the same, we are of the considered opinion

that the writ court ought not to have entertained the writ

petition filed by the assessee, wherein he has only

questioned the correctness or otherwise of the notices

issued under Section 148 (of Income Tax Act, 1961), the reassessment

orders passed and the consequential demand notices

issued thereon.”

19. In view of the above discussion, the Writ Petitions fail and

they are dismissed. The petitioner is permitted to move the appeal by

approaching the appellate authority in accordance with law and on

such approach, the concerned appellate authority is directed to

consider the same without insisting upon the limitation aspect.

Generally, this Court is not inclined to give such direction to the

statutory authorities to ignore the limitation aspect since it is the

discretionary exercise of the authority under the statute, however,

considering peculiar circumstances of this case, wherein, the petitioner

has been pursuing the matter before this Court under the bona fide

impression that the reopening of the assessment itself resorted to by

the respondent is not valid beyond four years, which was answered in

negative, this Court feels it appropriate to direct the authority as

above. No costs. Consequently, connected MPs are closed.

S.VAIDYANATHAN, J.

COMMON ORDER

11-06-2015