HIGH COURT OF GUJARAT
Asian Silk Mills
versus
Deputy Commissioner of Income-tax
SPECIAL CIVIL APPLICATION NO. 18224 OF 2011
OCTOBER 29, 2012
JUDGMENT
N.V. Anjaria, J.
The petitioner, by presenting this petition under Article 226 of the Constitution, challenged notice dated 30.03.2011 issued by the respondent herein under section 148 of the Income Tax Act, 1961, seeking to reopen the assessment in petitioner’s case. It was also prayed to quash the decision reflected in communication dated 24.11.11, whereby the Assessing Officer rejected petitioner’s objections to reopening of the assessment.
2. Summarizing the necessary facts at the outset, the petitioner, a partnership firm engaged in the business of manufacture and sale of art silk fabrics, filed its return of income for the Assessment Year 2004-2005 in which it declared total loss of Rs. 35,89,715/-. The return was accompanied by a statement of total income, an audited annual accounts, audit report in the prescribed form as well as the audited balance-sheet. The case was selected for scrutiny assessment, and notice under section 142 (2) of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’ for sake of brevity) was issued on 19.06.2006 calling for various details. The details were supplied by the petitioner by letter dated 7.7.2006. Assessment order was passed under section 143(3) of the Act on 21.12.2006. After passage of five years, the respondent Assessing Officer exercised his powers under section 147 read with section 148 and issued the impugned notice. The petitioner filed its objections on 24.06.2011. The respondent rejected the same on 24.11.2011.
2.1 While issuing notice in the petition, this Court by an interim order directed the Assessing Officer not to pass final assessment order without permission of the Court, however, allowed the Assessing Officer to proceed with the assessment. It appeared that before the said interim order could be served, the respondent passed order of assessment under section 147 read with section 143(3) on 23.12.2011. By way of amendment, the petitioner incorporated those facts in the memorandum of petition.
3. The power to reopen the assessment may be exercised provided the conditions emanating from section 147 exist. As per that provision, if the Assessing Officer (i) has reason to believe (ii) that an income chargeable to tax has escaped assessment, and (iii) which comes to his notice subsequently in course of the proceedings, (iv) he may subject to provisions of section 148 to 153 assess or reassess such income. The First Proviso to section 147 puts limit on the power in respect of cases where assessment under section 143(3) has been made for the relevant assessment year and the action is sought to be taken after expiry of four years from the end of relevant assessment year. In other words, in a case where the power to reopen is exercised after four years, it is got to be established that the escapement of income was by reason of failure on part of the assessee to disclose fully and truly all material facts necessary for his assessment for that assessment year. In the instant case, the First Proviso to section 147 would come into operation as the reopening notice was issued after expiry of four years.
4. Learned advocate Mr. Deepak Shah holding the brief for learned advocate Mr. Tej Shah for the petitioner submitted that not only that the reopening was sought after expiry of four years, but the basic conditions contemplated under section 147(1) of the Act were also not satisfied. It was submitted that the Assessing Officer had no material, much less any tangible material and therefore, there was no reason to reopen the assessment. It was further submitted that the details regarding the opening stock, purchases, sales and closing stock were filed and disclosed during the original assessment proceedings. It was submitted that only ground on which the Income Tax Officer reopened the reassessment was that the unutilized CENVAT credit of Rs. 11,94,403/- was not credited to the profit & loss account. It was submitted that the assessee had produced a copy of account showing CENVAT receivable and its utilization, which was within the knowledge of the Assessing Officer. The learned advocate relied on the apex decision in CIT v. Kelvinator of India [2010] 320 ITR 561 for the proposition that the jurisdiction to reopen the assessment could not be assumed on a mere change of opinion or in order to review the original assessment.
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4.1 It was submitted that in any view of the matter, the alleged omission did not result in under assessment of income, because even if the alternative method of accounting was followed, it would not have resulted into any change of the total income. In support of that learned advocate relied on decisions in CIT v. Mahavir Aluminum Ltd. [2008] 297 ITR 77 and in CIT v. Mahalaxmi Glass Works (P.) Ltd. [2009] 318 ITR 116 (Bom.) submitting further that Mahavir Aluminum Ltd. (supra) was confirmed by the Apex Court and the SLP was dismissed. Learned advocate submitted that when all the facts were made available and there was no failure on part of the assessee to disclose fully the material facts, the conditions of the First Proviso to section 147 were not satisfied and assumption of jurisdiction under section 148 by the officer was not permissible in law.
4.2 On behalf of the respondent, learned advocate Mr. Manav Mehta submitted that the Assessing Officer during verification of the records found that the assessee was following mercantile system of accounting. On examination of the break-up of loans and advances given in the balance sheet, it was noticed that the assessee at the end of previous year ended on 31.03.2004 had to his credit unutilized CENVAT credit. Since the said amount was not shown in the profit & loss account by way of credit, in view of section 5(1) of the Act, which provides for inclusion of all income, read with provisions of section 145A of the Act, there was an omission to disclose the correct facts. According to his submission, it resulted into under assessment of income of Rs. 11,94,403/- involving short levy of income-tax of Rs. 4,28,492/-. The learned advocate relied on the affidavit-in-reply filed on behalf of the respondent and referred to the contentions therein to submit that the notice under section 148 was validly issued and there was a proper exercise of jurisdiction by the respondent Assessing Officer.
5. At this stage, the reasons for reopening recorded by the Assessing Officer may be usefully noticed, which are reproduced herein below.
“In this case return was filed on 30.10.2001 declaring loss of Rs. 35,89,715/- and assessment was completed u/s. 143(3) on 2.12.2006 determining the loss at Rs. 25,80,342/-.
Assessee followed mercantile system of accounting. On perusal of the break up of loans and advances in the balance sheet of the assessee, it was observed that the assessee had at the end of the P.Y. ending on 31.3.2004 unutilized Cenvat Credit of R. 11,94,403/-. However, as the assessee followed the exclusive method of accounting in respect of excise duty, the unutilized Cenvat Credit was not credited to the profit & loss accounting. In view of the provisions of section 5(1) of the Act which provide for inclusion of all income from whatever source in the total income and the inclusive provisions of section 145A of the Act, the unutilized Cenvat credit was required to be added to the total income even the assessee followed exclusive method of accounting. Omission resulted in under-assessment of income of Rs. 11,94,404/- involving short levy of potential IT as under :
