Yakub Ali Gopal Singh And Party vs Deputy Commissioner Of Income Tax … on 4 December, 2006

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Rajasthan High Court
Yakub Ali Gopal Singh And Party vs Deputy Commissioner Of Income Tax … on 4 December, 2006
Equivalent citations: (2007) 209 CTR Raj 136
Author: R Balia
Bench: R Balia, G K Vyas

JUDGMENT

Rajesh Balia, J.

1. Heard learned Counsel for the parties.

2. The appeal is directed against the judgment of learned Single Judge dt. 16th Jan., 2003 [reported as Yakub Ali Gopal Singh & Party v. Dy. CIT and Anr. (2003) 180 CTR (Raj) 104–Ed.]. The order of the learned Single Judge reads as under:

The controversy involved in this case is very narrow as the assessee has raised the grievance that the case has been reopened without giving the assessee the copy of reasons for reopening.

Without contesting the case, Shri Bhandawat, learned Counsel appearing the Revenue, has made a submission that the Revenue will supply the reasons for reopening to the petitioner and limitation for filing the return shall apply from the date of supplying the reasons.

In view of the statement made by Shri Bhandawat, nothing survives in this petition. The petition is, therefore, disposed of finally with the direction that the assessee may appear before the assessing authority, Bikaner by or on 23rd Jan., 2003 and the assessing authority is requested to supply him the reasons for reopening and the assessee shall have a right to file the return reckoning the period of limitation.

3. The petitioner has challenged the notice issued by the respondent No. 1 under Section 147 r/w Section 148 of the IT Act, 1961 for reassessment of the income of the assessee for the asst. yr. 1995-96. The impugned notice under challenge had been issued on 7th of June, 2001 that is to say after expiry of 4 years from the end of the asst. yr. 1995-96 in relation to which the reassessment was sought to be made.

4. The notice dt. 27th June, 2001 was a second notice issued under Section 148 by the respondent.

The brief facts leading to issuance of the second notice be noticed. The assessee had submitted his return for the asst. yr. 1995-96. The AO acting under Section 143(1) made certain adjustments in the return submitted by the assessee and raised additional demand by making enhancement in the returned income. No notice under Section 143(2) was served on the assessee within 12 months from this date of filing of the return. But assessee against the intimation had preferred application under Section 154 as per the remedy provided against such intimation made by the assessee without notice to him. Intimation about the reduced refund as claimed by the assessee had been sent to him in terms of Section 143(1) of the IT Act, 1961 after making certain adjustments in the return submitted by the assessee by disallowing certain claims of the assessee. Since the amount of refund was less than Rs. 1 lakh the assessee’s case did not come within the province of review of the regular scheme for making assessment under Section 143(3).

However, the assessee resorted to Section 154 by moving an application for rectification of the intimation reducing the refund claimed by the assessee.

The application moved by the assessee under Section 154 was allowed and the adjustment made by the AO were deleted and the assessment was restored to returned income.

However, since the notice under Section 143(2) for regular assessment under Section 143(3), was sent within time prescribed, notice under Section 148 was issued in the first instance on 14th May, 1997 relying on circular issued by the CBDT and regular assessment was made.

The assessment order framed in pursuance to the said notice was annulled by the CIT(A) on 5th June, 2000. The order of CIT(A) was subjected to appeal before the Tribunal by the Revenue.

While the appeal against the order of the CIT(A) dt. 5th June, 2000 was pending before the Tribunal, the respondent No. 1 resorted once again to issue the impugned notice dt. 7th June, 2001 under Section 147/148 of the IT Act as a protective measure in case the order of the CIT(A) is sustained by the Tribunal which the Tribunal ultimately did sustain vide order dt. 2nd Feb., 2005 passed during the pendency of this appeal. A copy of which has been submitted in appeal. Be that as it may, the validity of those proceedings are not before us.

5. Apparently one of the grounds raised while challenging the notice under Section 148 dt. 7th June, 2001 was that the initiation of proceedings under Section 148 was barred by time and AO had no jurisdiction to initiate the proceedings afresh after expiry of 4 years from the end of the relevant assessment year.

6. The reasons which led to the satisfaction of the AO about the necessary conditions giving him jurisdiction to initiate proceedings under Section 148 has to be recorded before issuance of notice. It provides the foundational material to judge whether the jurisdiction has been validly assumed by the AO or not. The scope of enquiry while considering the challenge to the notice under Section 148 is no more or no less. The AO has not supplied the copy of the reasons recorded by him when such assumption order was challenged though demanded by the assessee. Hence, when challenge to issue notice was made on the ground that condition precedent for issuing notice did not exist and the AO had no jurisdiction to issue impugned notice, it was the duty of the AO to place that material before the Court.

7. It is trite to say that adequacy and sufficiency of reasons and the material on the basis of which satisfaction has been recorded is not the subject-matter of judicial review. If there is some relevant material having nexus to the formation of the satisfaction holding the belief that income of the assessee has escaped assessment, the AO has jurisdiction to act under Section 147. Further the limitation on the power of exercising jurisdiction is that if the satisfaction about such escapement of income from assessment is that such escapement is as a result of failure on the part of assessee to file return of his income for the relevant assessment year in terms of Section 139 or other relevant provisions or where the assessee has failed to disclose truly and fully all facts necessary for assessment, the period of limitation for initiating process extend beyond the expiry of 4 years from the end of the relevant assessment year which is to be reassessed and to be reinitiated. The period of limitation in such case depends upon the quantum of income that is estimated to have escaped assessment. However, where the escapement of income from the assessment is not attributable to any failure on the part of the assessee, the AO does not get jurisdiction to initiate proceedings after the expiry of 4 years from the end of relevant assessment year. Proviso to Section 147 which was substituted w.e.f. 1st April, 1989 is apposite to notice here, reads as under:

Provided that where an assessment under Sub-section (3) of Section 143 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 assessee to make a return under Section 139 or in response to a notice issued under Sub-section (1) of Section 142 or Section 148 or to disclose fully and truly all material facts necessary for his assessment, for that assessment year.

8. Sub-section (2) of Section 148 mandates that the AO shall, before issuing any notice under this section, record his reasons for doing so. Section 149 provides limitation within which notice under Section 148 be issued in cases not covered by proviso to Section 147. Therefore, key to adjudge the validity of assumption of jurisdiction within the time frame depends on the reasons which have been recorded by the AO before issuing notice under Section 148 . The reasons recorded by the AO are, therefore, necessary to be looked into before one can embark on adjudicating on the question of validity by the assessee.

9. Apparently when assessee has challenged the notice issued on 7th June, 2001 on the ground that the AO has acted beyond jurisdiction and inherently lacked jurisdiction on the date, the minimum expectation of the respondent was to place the reasons before the Court and then to seek adjudication.

10. In the aforesaid circumstances, the respondent’s counsel instead of disclosing the reasons to the Court offered to disclose to the assessee himself. Apparently, this would not help the adjudication of the cause which was brought by the assessee before the Court and, therefore, in our opinion, the learned Single Judge was not right in directing the disclosure of the reasons to the assessee and then filing a return without resorting to his right to challenge the very assumption of jurisdiction by the AO which would render the whole assessment proceedings, if on the basis of reasons recorded by the AO, to be void ab initio.

11. It is in these circumstances, the appellant has preferred this appeal.

12. The reasons recorded by the AO before issuing notice under Section 148 on 7th June, 2001 has been placed before us. A bare perusal of the reasons goes to show that the AO has recorded his reasons only on the basis of his opinion about the net profit rate which ought to provide the correct result of the profit of the liquor business. We are constrained to say that what is in the opinion of the AO should be the correct profit has no nexus with formation of any opinion that there has been any failure on the part of assessee to disclose truly and fully all material facts necessary for the assessment. If the AO while making the assessment has an opinion that the books of accounts are maintained in such a manner that it is not possible to compute the income correctly, it may reject the books of accounts and resort to best judgment assessment. But that cannot be termed as a case of failure on the part of assessee to disclose fully and truly all material facts necessary for the assessment. It becomes a matter of opinion held by AO that what should be the reasonable rate of profit arrived from the business of the assessee on any estimated basis. Holding such opinion is neither a material to hold a further belief, nor has any nexus with the formation of belief, that there has been failure on the part of the assessee to disclose fully and truly all material facts necessary for the assessment in question. Apparently, the AO was labouring under an illusion that what he thinks to be correct the result of the assessee’s business amounts to non-disclosure of fully and truly all facts necessary for the assessment of assessee on the part of the assessee. The assessee’s duty ends with disclosure of full and true all material facts necessary for the purpose of assessment. His duty does not go further to instruct AO to draw any particular inference from such facts. The assessee’s duty also does not extend to declare income at a figure which tallies with the estimated rate of profit that commends to the AO. What inferences are drawn from facts disclosed by the assessee is a question of difference of the opinion and it cannot have any attribution to failure on the part of assessee to disclose all necessary facts. Nothing has been stated that what relevant fact or material, if any, was not disclosed by the assessee.

13. We may invite attention to the scope of subjective satisfaction. It is. tritely stated that subjective satisfaction may be arrived at by the AO, it cannot be founded on the material which has no nexus with the formation of the requisite belief, or on non-existent material.

14. The attention may be invited to the decision of the Supreme Court in Barium Chemicals Ltd. and Anr. v. Company Law Board .

15. Present is a case in which from the reading of the reasons recorded by the AO before issuing notice under Section 148 reveals that there was no material before the AO to reach oven subjective satisfaction that there was any failure on the part of the assessee to disclose fully and truly all necessary facts necessary for the assessment for the relevant year 1995-96, on account of which income of the assessee had escaped assessment. That being the position, the assumption of the jurisdiction by the AO after expiry of 4 years from the end of asst. yr. 1995-96 that is to say after 31st March, 2000 to reopen the assessment for asst. yr. 1995-96 was wholly without jurisdiction and could not have fructified in any valid proceedings.

16. Accordingly, the appeal is allowed. The judgment under appeal is set aside. The writ petition is allowed. The impugned notices under Section 148 dt. 7th June, 2001 and 27th June, 2001 are quashed. Consequently any proceedings in furtherance of such notices, if any, also stand quashed.

17. This is without prejudice to merit of the order passed under reassessment proceedings in pursuance of the first notice under Section 148 and the remedial measures for that may be taken against the order passed by the Tribunal by the aggrieved party.

No orders as to costs.

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