2004-VIL-326-P&H-DT

Equivalent Citation: [2004] 270 ITR 290, 193 CTR 90

PUNJAB AND HARYANA HIGH COURT

Date: 29.05.2004

MAHAVIR SPINNING MILLS LTD.

Vs

COMMISSIONER OF INCOME TAX AND ANOTHER.

BENCH

Judge(s)  : N. K. SUD., S. S. GREWAL.

JUDGMENT

The judgment of the court was delivered by

N.K. Sud J. - Challenge in this writ petition is to the validity of notice under section 148 of the Income-tax Act, 1961 (for short "the Act"), by which proceedings under section 147 of the Act (annexure P16) have been initiated to reassess the income which is alleged to have escaped assessment for the assessment year 1995-96.

Before adverting to the dispute, the relevant facts may first be noticed.

The petitioner is a public limited company incorporated under the Companies Act, 1956, and is regularly assessed to income-tax under the Act. It filed its return of income for the assessment year 1995-96 on November 28, 1995, showing a total income of Rs. 23,85,28,960. The return was subsequently revised on July 16, 1996, showing an income of Rs. 24,24,63,910. In the return filed by the assessee, it had claimed exemption under section 10B of the Act in respect of profits and gains derived from one of its units, M/s. Annant Spinning Mills (Unit I), which was a 100 per cent, export oriented unit, amounting to Rs. 4,64,51,545. It also claimed deduction under section 80HHC of the Act amounting to Rs. 5,51,59,320. Assessment under section 143(3) of the Act was made on March 16, 1998, at an income of Rs. 25,06,29,080. The Assessing Officer allowed exemption under section 10B as claimed whereas deduction under section 80HHC was reduced to Rs. 5,29,90,077. The assessee preferred an appeal before the Commissioner of Income-tax (Appeals) who allowed certain deductions.

On March 30, 2001, the Assessing Officer issued the impugned notice under section 148 of the Act observing that income chargeable to tax for the assessment year 1995-96 had escaped assessment within the meaning of section 147 of the Act. The assessee was, therefore, required to furnish a return of income within 30 days from the service of that notice. The assessee complied with the said notice and filed the return on August 10, 2001, and also requested that a copy of the reasons recorded for initiation of proceedings under section 147 of the Act be supplied to it so that it may file objections against the same. Since the reasons recorded by the Assessing Officer were not supplied, a reminder to that effect was sent vide letter dated August 18, 2001. Getting no response from the Assessing Officer, the petitioner addressed a letter to the Commissioner of Income-tax, Ludhiana, dated August 24, 2001, bringing it to his notice that the Assessing Officer has neither supplied a copy of the reasons recorded nor allowed inspection of the record. Another reminder was sent to the Assessing Officer on August 29, 2001. Since no reasons were being supplied, the assessee approached this court by filing the present petition.

Written statement has been filed on behalf of respondent No. 2 along with which copy of the reasons recorded have been enclosed as annexure R1.

In replication, the petitioner has pointed out that a bare perusal of the reasons recorded shows that the assumption of jurisdiction was clearly bad as the pre-requisite conditions as provided in section 147 of the Act have not been fulfilled.

Mr. G.C. Sharma, learned counsel for the petitioner, pointed out that it is a case where assessment had been completed under section 143(3) of the Act and proceedings under section 147 are sought to be initiated after the expiry of four years from the end of the relevant assessment year. In such circumstances, it was not enough for the Assessing Officer to entertain a reason to believe that income had escaped assessment. He is further required to record satisfaction and entertain reason to believe that the escapement had resulted on account of failure on the part of the assessee to disclose fully and truly all material facts necessary for its assessment. No such satisfaction had been recorded in the reasons attached with the written statement as annexure R1. He relied on the judgment of this court in C.W.P. No. 4516 of 2003 decided on December 20, 2003 (Duli Chand Singhania v. Asst. CIT [2004] 269 ITR 192). He also placed reliance on the judgment of the Supreme Court in CIT v. Foramer France [2003] 264 ITR 566.

Mr. R.P. Sawhney, senior advocate, on the other hand, contended that the writ petition is not maintainable against notice under section 148 of the Act as the assessee shall have full opportunity to raise all legal objections before the Assessing Officer. For this purpose, he placed reliance on the judgment of the Supreme Court in GKN Driveshafts (India) Ltd. v. Income-tax Officer [2003] 259 ITR 19. He further stated that since the assessee had claimed double deductions by claiming exemption under section 10B as also deduction under section 80HHC in respect of Annant Spinning Mills (Unit I), it is clear that the assessee had failed to disclose truly and fully all material facts necessary for its assessment.

Mr. G.C. Sharma relied on the judgment of the Bombay High Court in Ajanta Pharma Ltd. v. Asst. CIT [2004] 267 ITR 200 in which notice under section 148 of the Act was quashed in a writ petition overruling the objection of the Revenue that in view of the judgment of the Supreme Court in the case of GKN Driveshafts (India) Ltd. [2003] 259 ITR 19, no writ petition against a notice under section 148 of the Act was maintainable. The High Court has observed as under:

"If one reads the decision of the apex court in GKN's case [2003] 259 ITR 19, as rightly submitted by the learned advocate for the petitioners, it nowhere lays down the law to the effect that the party is totally debarred from approaching this court under article 226 of the Constitution of India when the exercise of powers by the authority under section 148 of the said Act ex facie appears to be without jurisdiction. Undoubtedly, whether such an exercise is with or without jurisdiction will have to be revealed from the notice and reasons on the face thereof. At the same time, it is also well settled and the decision of the Constitution Bench of the apex court in Calcutta Discount Co.'s case [1961] 41 ITR 191 is very clear on the point that mere availability of an alternative

relief can be no bar for exercise of a writ jurisdiction when the authorities seek to assume jurisdiction which they do not possess or act in a totally arbitrary manner. The decision in GKN's case [2003] 259 ITR 19 (SC) certainly reminds the assessee that when a notice under section 148 is issued, the proper course of action is to file a reply with his objections including those in relation to the absence of jurisdiction. However, it does not lay down the law to the effect that when such an objection is in relation to absence of jurisdiction and the same is revealed ex facie or apparent on the face of a notice or reasons in support thereof, the assessee has compulsorily to invite an order from the Assessing Officer in relation to the absence of jurisdiction. It is another case that when certain facts are to be ascertained or various other materials are to be gone through to arrive at a finding about the absence of jurisdiction, in which case, certainly, the assessee will have to approach the Assessing Officer. It is so because, the jurisdiction under article 226 of the Constitution of India, being an extraordinary jurisdiction cannot be allowed to be availed of as a matter of course. In order to decide an issue of jurisdiction, findings of the authority on the factual aspect may be necessary. In that case, certainly primarily the assessee will have to approach the Assessing Officer. That does not mean that the assessee is invariably bound to approach the Assessing Officer in each and every case. There can be the cases, like the one in hand, where he may be entitled to approach the court directly under article 226 of the Constitution of India."

We are in agreement with the above observations.

Before issuing the impugned notice under section 148 of the Act, the Assessing Officer had recorded the following reasons as required under sub-section (2) of section 148 of the Act:

"Return in this case was filed on November 28, 1995, showing total income of Rs. 23,85,28,960 and subsequently revised on July 16, 1996, at Rs. 24,24,63,910. Revised return of income processed under section 143(1)(a) on August 22,1996, at an income of Rs. 24,24,63,910. Assessment under section 143(3) was made on March 16,1998, at Rs. 25,06,29,080. The learned Commissioner of Income-tax (Appeals) allowed certain relief vide his order in Appeal No. 89/IT/98-99, dated June 2,1998, and income reduced to Rs. 23,43,21,480. The Department as well as the assessee filed appeals in the Income-tax Appellate Tribunal which are pending. The assessee's income determined at Rs. 24,10,65,297 vide order under section 154, dated December 29, 1999.

During the course of assessment proceedings for the assessment year 1998-99, it came to the notice of the undersigned that the assessee had been claiming exemption under section 10B in respect of the income of its 100 per cent. EOU named as Annant Spinning Mills (Unit I) for the assessment years 1995-96 to 1999-2000. At the same time, it has also been claiming deduction under section 80HHC in respect of export sales of the said unit resulting into double relief under sections 10B and 80HHC on the same export sales. This double relief (exemption under section 10B and deduction under section 80HHC) is not allowable under the H provisions of the Act to an 100 per cent. EOU. This issue has been discussed in detail in the assessment order under section 143(3) dated March 30, 2001, for the assessment year 1998-99. After taking into consideration, the assessee's reply and arguments on the said issue, it has been held that the assessee is not entitled to claim deduction under section 80HHC on export sales of an 100 per cent. EOU, in respect of income of which, exemption has been claimed under section 10B of the Act.

A scrutiny of the assessment records of the assessment year 1995-96 reveals that the assessee had claimed exemption under section 10B of the Act in respect of income of Rs. 4,64,51,545 relating to its 100 per cent. EOU named as Annant Spinning Mills Unit I. Simultaneously, it had also claimed deduction under section 80HHC in respect of export sales of the said unit which were included in the total export turnover of Rs. 50,13,80,068 on which deduction has been claimed under section 80HHC. The said deduction under section 80HHC was allowed wrongly by the Assessing Officer in his order under section 143(3) dated March 16, 1998, though the deduction under section 80HHC was not allowable in respect of export turnover of its 100 per cent. EOU as it had already claimed exemption of its income under section 10B. In view of the facts and circumstances discussed above, I have reasons to believe that excessive deduction under section 80HHC has been allowed to the assessee under section 80HHC to the extent of deduction allowed in respect of export turnover of the said 100 per cent. EOU and income to that extent which was chargeable to tax has escaped assessment for the assessment year 1995-96. This escaped income is proposed to be reassessed now under section 147. It is, therefore, requested that permission may kindly be allowed to issue notice under section 148 read with section 150(1) of the Income-tax Act."

A bare perusal of the above shows that the entire thrust of the observations recorded by the Assessing Officer is to justify his satisfaction about escapement of income. There is not even a whisper of an allegation that such escapement had occurred by reason of failure on the part of the assessee to disclose fully and truly all material facts necessary for its assessment. As held in Duli Chand Singhania's case [2004] 269 ITR 192 (P & H), absence of this finding makes the action of the Assessing Officer wholly without jurisdiction. Since the illegality of notice under section 148 of the Act is apparent from the reasons recorded for initiation of proceedings under section 147 of the Act, it is a fit case for interference in the exercise of our writ jurisdiction. Sending the petitioner back to the Assessing Officer to raise these objections and requiring him to pass an order thereon would be prolonging the proceedings unnecessarily.

In view of the above, we are satisfied that the impugned notice under section 148 of the Act is without jurisdiction and is, accordingly quashed. The writ petition stands allowed. However, in the circumstances of the case, there shall be no order as to costs.

 

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