Case Law Details
In a case where the proviso to section 147 of the said Act was applicable, it must be clearly indicated that the understatement of income was on account of the failure on the part of the assessee to fully and truly disclose all material facts necessary for the assessment. The purported reasons behind the issuance of the notice under section 148 of the said Act are reproduced below:-
” The assessment of M/s Global Signal Cables (India) Pvt. Ltd for the assessment year 2006-07 was completed after scrutiny in September 2008 determining an income of Rs. 1,06,25,5578/-. It is gathered that the assessee debited Rs. 81,30,819/- to profit and loss account on account of interest and financial charges. In the auditor‟s report it was stated that interest free loan upto the tune of Rs. 5,20,57,726/- had been given to other companies. Therefore, proportionate amount of expense on account of interest and financial charge should have been disallowed by the assessing officer. The mistake resulted in underassessment of income of Rs. 56,01,390/- involving short levy of tax of Rs. 24,32,200/- including interest.
On the basis of the facts as stated above, I have reasons to believe that income chargeable to tax exceeding `1 lac has escaped assessment, as the assessee has not disclosed fully and truly all material facts necessary for his assessment for the relevant assessment year. Hence, a notice u/s 147 read with section 148 for reopening of assessment is required to be issued in this case.”
It is evident that while the assessing officer mentioned that income had escaped assessment because of the failure on the part of the assessee to fully and truly disclose the material facts for assessment, he has not indicated as to which material fact had not been fully and truly disclosed by the petitioner/assessee.
The learned counsel for the petitioner placed reliance on a decision of this Court in the case of Haryana Acrylic Manufacturing Co. vs. Commissioner of Income-Tax and Another: [2009] 308 ITR 38 (Delhi). While considering the provisions of sections 147 and 148 of the said Act, in particular the first proviso thereof, this court observed as under:-
“29. In the reasons supplied to the petitioner, there is no whisper, what to speak of any allegation, that the petitioner had failed to disclose fully and truly all material facts necessary for assessment and that because of this failure there has been an escapement of income chargeable to tax. Merely having a reason to believe that income had escaped assessment, is not sufficient to reopen assessments beyond the four year period indicated above. The escapement of income from assessment must also be occasioned by the failure on the part of the assessee to disclose material facts, fully and truly. This is a necessary condition for overcoming the bar set up by the proviso to section 147. If this condition is not satisfied, the bar would operate and no action under section 147 could be taken. We have already mentioned above that the reasons supplied to the petitioner does not contain any such allegation. Consequently, one of the conditions precedent for removing the bar against taking action after the said four year period remains unfulfilled. In our recent decision in Wel Intertrade Private Ltd. [2009] 308 ITR 22 (Delhi) we had agreed with the view taken by the Punjab and Haryana High Court in the case of Duli Chand Singhania [2004] 269 ITR 192 that, in the absence of an allegation in the reasons recorded that the escapement of income had occurred by reason of failure on the part of the assessee to disclose fully and truly all material facts necessary for his assessment, any action taken by the Assessing Officer under section 147 beyond the four year period would be wholly without jurisdiction. Reiterating our view-point, we hold that the notice dated March 29, 2004, under section 148 based on the recorded reasons as supplied to the petitioner as well as the consequent order dated March 2, 2005, are without jurisdiction as no action under section 147 could be taken beyond the four year period in the circumstances narrated above.”
(underlining added)
The same principle is reiterated in Rural Electrification Corporation Ltd. vs. Commissioner of Income Tax: [2013] 355 ITR 356. Also in Microsoft Corporation (I) Pvt Ltd vs. Deputy Commissioner of Income Tax & Anr: [WP(C) 284/2013 decided on 23.05.2013] a Division Bench of this Court had observed as under:-
“From the above, it is evident that merely having a reason to believe that income had escaped assessment is not sufficient for reopening the assessment beyond the four year period referred to above. It is essential that the escapement of income from assessment must be occasioned by the failure on the part of the assessee to, inter alia, disclose material facts, fully and truly. If this condition is not satisfied, there would be a bar to taking any action under Section 147 of the said Act.”
The facts of the present case are squarely covered by the decision of a Division Bench of this Court in M/s Swarovski India Pvt. Ltd. vs. Deputy Commissioner of Income Tax: W.P.(C) 1909/2013 decided on 08.08.2014 wherein the notice under section 148 of the said Act was quashed for being issued after the expiry of 4 years from the relevant assessment year wherein there was no specific mention of which material facts were not disclosed by the assessee in the course of its original assessment proceedings under section 143(3) of the said Act. The relevant paragraph is reproduced hereinbelow:-
“12 It is clear that the escapement of income by itself is not sufficient for reopening the assessment in a case covered by the first proviso to Section 147 of the said Act unless and until there is failure on the part of the assessee to disclose fully and truly all the material facts necessary for assessment. In the present case, it has not been specifically indicated as to which material fact or facts was/were not disclosed by the petitioner in the course of its original assessment under Section 143(3) of the said Act… .”
In the present case also, there exist no grounds for re opening the assessment after the expiry of 4 years from the relevant assessment year. The notice under section 148 of the said Act is based on re-appreciation of the same material on record. The respondent has not specifically indicated as to which material facts were not disclosed by the petitioner/ assessee in the course of the assessment proceedings under the said Act.
In view of the aforesaid discussion, the notice dated 28.03.2013 issued by the respondent under section 148 of the said Act is liable to be quashed. It is ordered accordingly. All proceedings pursuant to the notice dated 28.03.2013 also stands quashed.
In this connection , i have to draw your attention to Halsbury’s Laws of England (3rd Edn.),xxxiv,366, note(o)… ‘The ultra vires doctrine makes it very clear ,any authority cannot perpetuate any direct interferance with the right of individuals without specific legal authority;and in case of such municipal corporations as owed their ORIGIN to the ROYAL PREROGATIVE, IT was doubtful they could expend money SAVE in circumstances defined by Statute…. again refer CA Cross Principles of Local government Law(5th edn),3 -11 Hart’s introduction to the Law of the Local Government and Administration(9th edn.),chap.12;……;
Subordinate legislative instruments ,as well as administrative acts and decisions may be ultra vires on substantive as well as procedural grounds!
Right decision indeed.
it is clearly settled law under Stare decis due to jurisdiction such cases must result in quashing the AO’s bad in law notices at the first instance possible by any appellate authority, when AO makes a jurisdictional bad in law error. these kinds of bad in law error will become normal as AOs seem to be not understanding what is jurisdiction principle in procedural law or substantive law;
Any such jurisdictional error means it is nothing short of harassment of assesses and such harassment is not expected under doctrines of good governing principle under rule of law by any authority,whatsoever.
I would expect any public servant must know his duty of properly understanding the application of relative laws as a normal principle. Else such public servants are pain in the neck of government too.
It is again settled law citizens are sovereign of democratic government, so all Government Executives are titled as PUBLIC SERVANTS, as citizens are like Masters even on MPs, MLAs who form any government.
Government is no master of citizens in any way.that shd be loud and clear, governance means citizens are to be treated like any good customer to government.
In tax administration principle government cannot waste public funds in meaningless litigation. If done the government must be equally penalized by honorable courts as custodian of constitution.
Therefore, honorable courts or tribunals whenever they observe tax man’s notices are bad in law, court should summarily quash such notices that way honorable courts would facilitate unnecessary expenses of assessees at the earliest possible opportunity that would be good service of duty under constitutional tenets as we have a Part VI A on Duties .
so i believe that would help public servants are careful when issuing any notices,as it is a sensible responsibility of tax officials to several times check their Notices very very carefully.
Notices of taxman are not some cinema bit notices or some political parties.
So my submission is custodians onerous responsibility is to ensure least harassment on citizens under any law as such.
Hence honorable courts need to keep checklists to evaluate petitions of assesses, more importantly, to mnimize arbitrary behavior of public servants.
that way only House of Lords in 1880 said very correctly on ‘Ultra vires doctrine in ATT. GEN. V GREAT EASTERN RLY (1880) 5 APP. CAS,473,478;
india was a British colony and not a banana republic.
British system is the basic principle of administrative law. Britain respected individual tights of citizens.
Earlier india follows in administrative laws the better, of course the court decisions prevailing then and even today, as UK decisions are indeed very valid event today as far as india is concerned, as we inherited the British system of laws.