Vildirect: IncomeTax-caselaws-1992-VIL-545-CAL-DT

1992-VIL-545-CAL-DT

Equivalent Citation: [1993] 204 ITR 435

CALCUTTA HIGH COURT

Date: 13.02.1992

EAST INDIA HOTELS LIMITED

DEPUTY COMMISSIONER OF INCOME-TAX AND OTHERS

BENCH

Judge(s) : SUHAS CHANDRA SEN

JUDGMENT

SUHAS CHANDRA SEN J.-In this writ petition, the petitioner has challenged the validity of a notice issued under section 148 of the Incometax Act, 1961. The notice has been issued for assessing escapement of income for the assessment year 1984-85. The date of the notice is August 13, 1991, which is beyond four years from the end of the assessment year in course of which the assessment proceedings were completed. The reasons for reopening the case as recorded by the Deputy Commissioner of Incometax on August 13, 1991, are as under :

" In the original return filed on December 12, 1984, the assessee claimed depreciation amounting to Rs. 11,25,934. In the revised return, there was no change so far as this claim is concerned. In the claim made in the return, the assessee claimed extra depreciation over and above the normal depreciation in the case of old as well as new plant and machinery. Apparently, this claim was made as per the terms of item III(iii) of Appendix I to the Income-tax Rules, 1962. Such extra depreciation was allowable in the case of a company using its premises as a hotel where such plant and machinery were installed provided that such hotels were approved by the Central Government for the purpose of section 33 of the Act.

From the above, it is clear that only when a hotel enjoys an approval for the purpose of grant of development rebate under section 33 of the Act, could it be also allowed extra depreciation on old as well as new plant and machinery installed in the hotel premises, the provision of development rebate was withdrawn automatically such approval could also be treated as withdrawn (sic). The Central Government Notification No. S. O. 2167, dated May 28, 1971 issued under sub-section (5) of section 33 of the Income-tax Act, 1961, provided for discontinuation of the grant of development rebate on plant and machinery with effect from June 1, 1974. The assessee is well aware of this provision. Yet it filed a return showing greater loss than what it actually incurred by loading the claim of depreciation with extra depreciation amounting to Rs. 47,19,913. Therefore, the return filed on March 17, 1987, did not disclose truly and fully the total income/loss of the assessee and there was a definite failure on the part of the assessee to disclose truly and fully all material facts necessary for completion of its assessment and determination of the correct income/loss in accordance with law.

Due to the aforesaid failure of the assessee to make a true and full declaration of its income, the assessment completed on March 1, 1980, resulted in an underassessment by an amount of Rs. 47,19,913. Issue notice under section 148 to the assessee.

(sd.) (A. K. Chatterjee) dated August 13, 1991, D. C. I. T. Spl. Range-13, Calcutta."

There is no dispute that the sanction of the Chief Commissioner or Commissioner of Income-tax was not obtained before issuance of this notice.

Two questions have been raised by Dr. Pal, appearing on behalf of the petitioner. The first is as to whether this notice is void inasmuch as the sanction of the Chief Commissioner or Commissioner of Income-tax was not obtained before issuance of the notice. The second point is as to whether there was any reason for issuance of the notice at all in view of the fact that the recorded reasons have not alleged any omission or failure on the part of the assessee to disclose any material fact which led to underassessment.

So far as the first point is concerned, section 151 of the Income-tax Act, 1961, lays down that, "151. Sanction for issue of notice-(1) In a case where an assessment under sub-section (3) of section 143 or section 147 has been made for the relevant assessment year, no notice shall be issued under section 148 by an Assessing Officer, who is below the rank of Assistant Commissioner, unless the Deputy Commissioner is satisfied on the reasons recorded by such Assessing Officer that it is a fit case for the issue of such notice:

Provided that, after the expiry of four years from the end of the relevant assessment year, no such notice shall be issued unless the Chief Commissioner or Commissioner is satisfied, on the reasons recorded by the Assessing Officer aforesaid, that it is a fit case for the issue of such notice.

(2) In a case other than a case falling under sub-section (1), no notice shall be issued under section 148 by an Assessing Officer, who is below the rank of Deputy Commissioner, after the expiry of four years from the end of the relevant assessment year, unless the Deputy Commissioner is satisfied, on the reasons recorded by such Assessing Officer, that it is a fit case for the issue of such notice. "

This section clearly contemplates two types of cases (i) where notices are issued before the expiry of four years from the end of the relevant assessment year, and (ii) where notices are issued beyond the period off our years from the end of the relevant financial year. In the first category of cases, the notices may be issued by an Assessing Officer below the rank of the Assistant Commissioner of Income-tax with prior approval of the Deputy Commissioner, if he is satisfied that this is a fit case for issue of such a notice. The "Assessing Officer" has been defined by section 2(7A) of the Income-tax Act to mean :

"(7A) 'Assessing Officer' means the Assistant Commissioner or the Income-tax Officer who is vested with the relevant jurisdiction by virtue of directions or orders issued under sub-section (1) or sub-section(2) of section 120 or any other provision of this Act, and the Deputy Commissioner who is directed under clause (b) of sub-section (4) of that section to exercise or perform all or any of the powers and functions conferred on, or assigned to, an Assessing Officer under this Act. "

Therefore, the Assessing Officer, under the provisions of this Act, may include the Assistant Commissioner or the Income-tax Officer or even the Deputy Commissioner of Income-tax, who is suitably empowered.

Section 116 has classified the income-tax authorities for the purpose of the Act as under :

" 116. Income-tax authorities. -There shall be the following classes of income-tax authorities for the purposes of this Act, namely :-

(a) The Central Board of Direct Taxes constituted under the Central Boards of Revenue Act, 1963 (54 of 1963),

(b) Directors-General of Income-tax or Chief Commissioners of Income-tax,

(d) Deputy Directors of Income-tax or Deputy Commissioners of Income-tax or Deputy Commissioners of Income-tax (Appeals),

(e) Assistant Directors of Income-tax or Assistant Commissioners of Income-tax,

(f) Income-tax Officers,

(g) Tax Recovery Officers, and

(h) Inspectors of Income-tax."

Therefore, if any officer below the rank of an Assistant Commissioner of Income-tax, e.g., Income-tax Officer, initiates a proceeding for reopening of any assessment, he has to record his reasons for doing so, and also to obtain the approval of the Deputy Commissioner of Incometax before issuance of a notice under section 147. This has changed the earlier law with effect from April 1, 1990, to a certain extent. Before April 1, 1990, it was not necessary to obtain the sanction of any higher authority for the Income-tax Officer or the Assessing Officer to issue a notice for reopening of an assessment made within a period of four years. Sanction was needed only for the purpose of issuance of a notice under section 148, if it was issued beyond the period of four years from the end of the relevant assessment year.

But, in the second category of cases, where the notice is being issued after the expiry of four years from the end of the relevant assessment year, the law is that no such notice shall be issued unless the Chief Commissioner or the Commissioner is satisfied on the reasons recorded by the Assessing Officer that it is a fit case for the issue of such notice. Therefore, even if the Deputy Commissioner who is an "Assessing Officer", as defined in section 2(7A) records the reasons for issuance of notice under section 148, the sanction of the Chief Commissioner or the Commissioner of Income-tax is necessary, in case such notice is issued after the expiry off our years from the end of the relevant assessment year.

Mr. Bhattacharjee, appearing for the Department, has argued that the section uses the expression "on the reasons recorded by the Assessing Officer as aforesaid" which can only mean the reasons recorded by the Officer below the rank of Assistant Commissioner, as has been specifically mentioned in sub-section (1) of section 151. I am unable to uphold this contention. Section 151(1) clearly recognises that the notice can be issued by an Assessing Officer below the rank of Assistant Commissioner or an officer who is of the rank of Assistant Commissioner or above. If the reasons are recorded by the Assessing Officer, who is below the rank of Assistant Commissioner, then only the sanction of the Deputy Commissioner will be necessary before issuance of the notice under section 148 of the Act. But if the reasons are recorded by the Assistant Commissioner or the Deputy Commissioner within the period of four years after the end of the relevant assessment year, the sanction of any higher authority for issuance of notice under section 148 would not be necessary. The expression "Assessing Officer" has not been used in a limited sense of an officer below the rank of the Assistant Commissioner in section 151.

The law is quite clear. If the notice is to be issued after the expiry of four years, then the Chief Commissioner or the Commissioner of Incometax must be satisfied with the reasons recorded by the Assessing Officer that it is a fit case for reopening. Therefore, the satisfaction of the Chief Commissioner or the Commissioner is a sine qua non before issuance of a notice under section 148 by the Assessing Officer. The Assessing Officer may be of the rank of an Income-tax Officer or the Assistant Commissioner or the Deputy Commissioner, but when such notice is to be issued after the expiry of four years after the end of the relevant assessment year, the sanction of the Chief Commissioner or the Commissioner is a pre-condition.

In that view of the matter, I am of the view that the notice issued under section 148 of the Income-tax Act beyond four years after the end of the relevant assessment year is bad in law inasmuch as the sanction of the Chief Commissioner or the Commissioner was not obtained before issuance of the notice.

In view of the aforesaid, I do not have to really decide the second issue. But, as the second point was argued at some length, I am expressing my views on this matter. Reopening cannot be done unless there is failure on the part of the assessee to make a return under section 139 or in response to notice under section 142(1) or section 148 or failure to disclose truly and fully all material facts about the income or loss necessary for assessment in respect of any assessment year. The allegation in this case is that the assessee has not disclosed fully and truly all material facts necessary for assessment for the relevant assessment year. In claiming depreciation allowance, the assessee had disclosed all the facts on the basis of which the depreciation allowance was allowed. The only fact that has come to the knowledge of the Income-tax Department after the assessment was completed is that, while filing the return, the assessee had not mentioned about discontinuation of the development rebate.

It cannot be said that the Department has come into possession of any fresh fact on the basis of which the respondent proposed to reopen the assessment. If the assessee wrongly understood the implication of the Central Government Notification dated May 28, 1971, or its discontinuance, then, at the highest, it may be said that the assessee has wrongly understood the import of the notification. But, the notification is part of the law of the land. It should have been known to the assessee as well as to the Department. If the assessee has wrongly understood the law, then it cannot be said that there was "suppression of material fact necessary for his assessment". What should be the legal implication of the notification should have been known to the Department. At the highest, it may be said that the assessee has erred in law in claiming depreciation in the manner it did but that is not a case of omission or failure on the part of the assessee to disclose all material facts. There is no allegation in the recorded reasons that the assessee has suppressed any fact which was material for proper assessment.

It has been urged on behalf of the respondents that when excessive depreciation allowance was given by the Income-tax Officer, that will be treated as escapement of income within the meaning of Explanation 2 to section 147 of the Act. But that does not resolve the dispute. The Explanation by itself will not turn every case of excessive depreciation allowance into a case of omission or failure to disclose fully and truly all material facts. If the reopening is to be done after the prescribed period of four years, failure to disclose fully and truly material fact by the assessee has to be established. Merely because an underassessment has taken place because excessive depreciation was allowed on a wrong understanding of law will not make it a case of omission to disclose fully and truly all material facts.

Therefore, I am of the view that the writ petition must succeed. There will be orders in terms of prayers (a), (b) and (c) of the petition.

It is recorded that the petitioner has not filed any affidavit-in-reply to the affidavit-in-opposition and the petitioner does not admit the allegations made in the affidavit-in-opposition.

On the prayer of the Department operation of this order is stayed for three weeks. However, the Department will not take any further steps pursuant to the notice issued under section 148 or pursuant to any assessment, if already made pursuant to the said notice till further orders of this court.

There will be no order as to costs.

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