Larsen and Toubro Limited Vs. the State of Jharkhand and ors. - Court Judgment

M.Y. Eqbal, J.

1. In this application under Article 226 of the Constitution of India, the petitioner has prayed for issuance of a writ in the nature of certiorari for quashing the demand notice dated 4.3.2006 relating to assessment year 1991-92 issued by the Deputy Commissioner, commercial Taxes, Urban Circle, Jamshedpur, pursuant to the order dated 27.2.2006 passed under the provision of Section 19(2) of the Bihar Finance Act, 1981 and further for quashing the entire proceedings of reopening of the assessment proceedings on the basis of audit objection in respect of assessment which was completed in 1996.

2. The petitioner's case, inter alia, is that for the assessment year 1991-92, the petitioner filed returns under the Bihar Finance Act, 1981 as well as Central Sales Tax Act, 1956 and furnished all documents, books of accounts, turnover, etc before the Deputy Commissioner of Commercial Taxes, Jamshedpur. The assessment proceeding relating to the Bihar Finance Act was completed and the Assessing Officer passed order of assessment on 24.1.1996. As the petitioner already paid the admitted tax, no further demand of tax was raised by the respondents. It is stated that after the expiry of 5 years from the date of assessment, the petitioner received a notice dated 28.9.2000 issued under Section 19(1) of the State Act whereby a copy of the order of the audit objection was served upon the petitioner and was asked to show cause as to why an amount of Rs. 24,19,385/- be not levied on the basis of such audit objection. Pursuant to the aforesaid notice, the petitioner filed his show cause, but the matter was kept pending for about four years. On 23.12.2004, the petitioner was served with a notice for giving personal hearing and thereafter the impugned order dated 23.3.2006 by way of revised assessment order under Section 19(2) of the Act was passed and a fresh demand was raised.

3. In the counter affidavit filed by the respondents, it is stated that after the original assessment order was passed, an audit team of Accountant General, Bihar, audited the assessment order and found that the dealer was allowed exemption on Rs. 3,12,47,916/- being the amount of goods consumed by itself during the course of execution of works contract. Such goods were purchased on payment of tax but no declaration in Form-IX-C along with other evidence were submitted. The entire materials received from outside the State or purchased within the State without payment of tax is leviable to tax as specified under Section 12 of the Act It is stated that the petitioner never produced the books of account when the matter was heard on the ground that the same was dumped in its Head office after assessment was over. The respondents' further case is that the original assessment order was passed on 24.1.1996 and the proceeding of re-assessment was opened on 14.9.2000 within the limitation period of 8 years.

4. Mr. M.S. Mittal, leaned counsel appearing for the petitioner-assessee, assailed the impugned revised assessment order only on the ground that the assessment proceedings cannot be reopened on the basis of audit objection, as the same does not amount to an 'information' within the meaning of Section 19(1) of the Bihar Finance Act, 1981. Learned Counsel submitted that the impugned order amounts to change of opinion of the subsequent incumbent in the post of Deputy Commissioner of Commercial Taxes on the same set of facts and law which were available even at the time of passing the order of assessment. Learned Counsel submitted that the impugned order is, therefore, in gross violation of principle of natural justice and contrary to the scheme of Article 366 of the Constitution of India. Learned Counsel relied upon the decisions rendered in the cases of Eureka Forbes Ltd. v. State of Bihar and Ors. 2000(119) STC 460, Shree Bihariji Mills Ltd. and Anr. v. The State of Bihar and Anr. 1988(71) STC 293 and Bhimraj Madanlal v. State of Bihar and Anr. 1984(56) STC 273.

5. Mr. Jhunjhunwala, learned Counsel appearing for the Revenue, on the other hand, firstly submitted that the assessing authority has not revised the assessment only on the basis of audit report, rather rejected part of the audit opinion and applied his independent mind before passing the impugned order. Learned Counsel drew our attention to the explanation of Section 19 of the Finance Act and submitted that the impugned order is perfectly in accordance with law.

6. Before appreciating the rival submissions made by the learned Counsels, it would be useful first to refer Section 19 of the Bihar Finance Act, 1981 which reads as under:

19. Turnover of registered dealer escaping assessment - (1) If upon information which has come into his possession, the prescribed authority is satisfied that reasonable grounds exist to believe that any turnover of a registered dealer or a dealer to whom grant of registration certificate has been refused under the third proviso to subsection (2) of Section 14, in respect of any period has, for any reason, escaped assessment or any turnover of any such dealer or a dealer assessed under Sub-section (5) of Section 17 has been under-assessed or assessed at a rate lower than that which was correctly applicable or any deductions therefrom has been wrongly made, the prescribed authority may, subject to such rules may, be made by the State Government under this part, and -

(a) within eight years from the date of the order of the assessment or reassessment where the said authority has reasons to believe that the dealer has concealed, omitted or failed to disclose willfully the particulars of such turnover or has furnished incorrect particulars of such turnover and thereby re turned figures below the real amount,

(b) within eight years' from the date of the order of the assessment or reassessment in any other case.

Serve on the dealer a notice containing all or any of the requirements which may be included in a notice under subsection (2) of Section 17 and proceed to assess or reassess the amount of tax due from the dealer in respect of such turnover, and the provisions of this part shall, so far as may be, apply accordingly as if the notice under this sub-section was a notice under Sub-section (2) of Section 17:

Provided that the amount of tax shall be assessed or reassessed after allowing such deductions as were permissible during the said period and at rates at which it would have been assessed had the turnover not escaped assessment or full assessment, as the case may be.

Explanation. - Production before the prescribed authority of accounts, registers or documents from which material facts could, with due diligence, have been discovered by the said authority, will not necessarily amount to full disclosure within the meaning of this section,

(2) (a) The prescribed authority shall, in a case falling under Clause (a) of Sub-section (1), direct that the dealer shall pay by way of penalty a sum not exceeding three times but not less than an amount equivalent to the amount of tax which is or may be assessed on the escaped turnover.

(b) The penalty imposed under Clause (a) shall be in addition to the amount of tax which is or may be assessed on the escaped turnover, and the order imposing penalty may precede the assessment of escaped turnover.

(c) For determining the amount of penalty under Clause (a), where the penalty precedes assessment under Clause (b) the prescribed authority shall quantify the amount of suppression and tax thereon provisionally in the prescribed manner.

(d) No order shall be passed under this sub-section without giving the dealer an opportunity of being heard in the prescribed manner.

(3) Any assessment or reassessment made and any penalty imposed under this section shall be without prejudice to any action which is or may be taken under Section 49.

7. This section corresponds to Section 18 of the 1959 Act which provides for reopening of a complete assessment so as to include therein any turnover which had escaped taxation in that assessment and to rectify the cases of under-assessment or application of wrong rate of tax. Sub-section (1) of Section 18 very clearly prescribes that the prescribed authority upon information if satisfied that reasonable ground exists to believe that any turnover of a registered dealer or dealer to whom grant of registration certificate has been refused in respect of any period has, for any reason, escaped assessment or any turnover of any dealer assessed under Section 17 has been under-assessed or assessed at a rate lower than that which was correctly applicable, may, within eight years from the date of order of assessment, proceed to assess or reassess the amount of tax in respect of such turnover. The word 'information' used in the aforesaid section is of the widest amplitude and comprehends variety of factors including information from external sources of any kind including discovery of new facts or information available in the record of assessment not previously noticed or investigated.

8. In the case of Eureka Forbes Ltd. (Supra), the fact was that the assessee M/s. Eureka Forbes Ltd. was doing business of selling of vacuum-cleaner. The assessment with regard to vacuum-cleaner for the period 1987-88 to 1990-91 were made by the assessing authority treating the vacuum-cleaner as machinery which was taxable at the rate of 8%. The assessment was already made for the aforesaid period. However, notices were issued in 1993 under Section 19(1) of the Bihar Finance Act asking the petitioner to show cause as to why reassessment for the aforesaid period be not done. The petitioner filed objection stating that reassessments were not permissible as it amounted to review of the earlier assessment, merely on the basis of change of opinion and not on the basis of any information and other documents. The Division Bench of Patna High Court noticed the fact that reassessment was made by the Revenue solely on the basis of audit report. The vacuum-cleaners which were originally assessed at the rate of 8% by the assessing authority treating the same as machinery. Subsequently, audit party while submitting audit report gave its opinion that vacuum-cleaners are electrical goods and for that assessment should have been done at the rate of 12%. It was on the basis of the opinion of the audit party, reassessment order was passed. It was argued in that case that audit report cannot constitute any information and on that basis, no proceeding for reassessment can be initiated. The Division Bench of Patna High Court following the earlier Full Bench judgment of that Court in, the case of Bhimraj Madanlal (supra) held that second thought or a mere change of the authority on the same set of facts and materials would not constitute information for the purpose of reassessment.

9. In the case of Shree Bihariji Mills Ltd. (supra), the Single Bench of Patna High Court following the decision of the same High Court in the case of Bhimraj Madanlal (supra) held that order of reassessment on the basis of same materials which were already on the record, will amount to change of opinion of the other assessing officer which the respondents were not entitled to do in law. In the Full Bench of the Patna High Court rendered in the Bhimraj Madanlal (supra), the question was answered by the Court was 'Should the information which has come into his possession', as envisaged by Section 18(1) of the Bihar Sales Tax Act, 1959, for purposes of reassessment, necessarily spring from a source external to the original record? In that case, petitioner / firm was registered dealer under the Act and was engaged in manufacturing various kinds of pulses. For this purpose, it purchases whole grains from the producers as well as registered dealers for sale of its products within the State as also outside the State through its agents as well as in the course of inter-State trade and commerce. In 1973, petitioner was served with a notice under Section 18(1) of the Act with respect to all the assessment years 1968-89 to 1970-71 calling upon it to appear with the documents for starting reassessment proceedings on the ground that petitioner-firm was allowed certain deduction in the original assessment order which was not legal or permissible under Section 7(2)(b) of the Act and the proviso thereto. After considering various decisions, the Full Bench held that:

Having held as above that 'information' under Section 18(1) of the Act may well stem from the original assessment record itself, the question would still remain as to what truly constitutes such an 'information'. I do not propose to launch on an exhaustive dissertation as to what may well fall within the ambit of such 'information' from the record and what would, be necessarily outside the same. It, however, seems apt and indeed necessary to notice that it follows from the binding precedents that a mere change of opinion or having second thoughts about it by the prescribed authority on the same set of facts and materials on the record does not constitution 'information' for the purposes of the Act. This indeed seems to be so well-settled by all the judgments on the point that it would be wholly unnecessary to consider the question on principle. In this context it is apt to recall that even in Maharaj Kumar Kamal Singh's case : [1959]35ITR1(SC) the contention was raised on behalf of the revenue that it would be open to the Income-tax Officer to act under Section 34(1)(b) of the Income-tax Act, 1922, even if he merely changed his mind without any information from an external source and came to the conclusion that in a particular case he had erroneously allowed an assessee's income to escape assessment. This contention, however, was left open became it did not pointedly arise in that case. However, subsequent decisions of the final court have categorically rejected any such proposition. In Bankipur Club Ltd. V. Commissioner of income-tax, Bihar and Orissa : [1971]82ITR831(SC) their Lordships particularly took the view that in the original assessment the Income-tax officer having taken the view that the amount received by the club from its members as guest charges was not taxable income, he could not on the same materials later take the view that it was taxable and reopen the assessment on the score of having come into possession of information under Section 34(1)(b) of the Income-tax Act, 1922. In a way this was nothing more than a mere change of opinion by the Income-tax officer on identical materials with regard to the taxability or otherwise of the guest charges. Later in Income-tax Officer, income-tax-cum-Wealth Tax Circle II, Hyderabad v. Nawab Mir Barkat Ali Khan Bahadur, Hyderabad : [1974]97ITR239(SC) their Lordships had concluded as under:...Having second thoughts on the same material does not warrant the initiation of a proceeding under Section 147 of the Income-tax Act, 1961.

10. Their Lordships finally concluded and answered as under:

(i) The answer to the question posed at the very outset is rendered in the negative and it is held that 'information' envisaged by Section 18(1) of the Act for purposes of reassessment need not necessarily spring from a source external or extraneous to the original record.

(ii) That having second thoughts or a mere change of opinion by the prescribed authority on the same set of facts and materials on the record would not constitute 'information' under Section 18(1) of the Act for the purposes of reassessment.

(iii) That with deference Satya Narainji Mills v. State of Bihar (C.W.J.C. No. 1400 of 1973 decided on 13th August, 1976 - Patna High Court) does not lay down the law correctly and is hereby overruled.

11. In the case of The Commissioner of Income-tax, Gujarat v. A. Raman and Co. : [1968]67ITR11(SC) , the Supreme Court in this case under Section 147(1)(b) of the Income-tax Act has discussed the meaning of 'information' and observed:

The condition which invests the Income-Tax Officer with jurisdiction has two branches: (i) that the Income-tax Officer has reason to believe that income chargeable to tax has escaped assessment; and (ii) that it is in consequence of information which he has in his possession and that he has reason so to believe. Since the learned Judges of the High Court have concentrated their attention upon the second branch of the condition and have reached their conclusion in favour of the assesses on that branch, it would be appropriate to deal with the correctness of that approach. The expression 'information ' in the context in which it occurs must, in our judgment, mean instruction or knowledge derived from an external source concerning facts or particulars, or as to law relating to a matter bearing on the assessment. If as a result of information in his possession the Income-Tax Officer has reason to believe that income chargeable to tax had escaped assessment, the Income-tax officer has jurisdiction to assess or reassess income under Section 147(1)(b) of the Income-Tax Act, 1961. Information in his possession that income chargeable to tax has escaped assessment furnishes a starting point for assessing or re-assessing income. If he has that information, the Income-tax officer may commence proceedings for assessment or reassessment: To commence the proceeding for reassessment it is not necessary that on the materials which came to the notice of the Income-tax officer, the previous order of assessment was vitiated by some error of fact or law.

The High Court exercising jurisdiction under Article 226 of the Constitution has power to set aside a notice issued under Section 147 of the Income-tax Act, 1961, if the condition precedent to the exercise of the jurisdiction does not exist. The court may, in exercise of its powers, ascertain whether the Income-tax Officer had in his possession any information: the court may also determine whether from that information the Income-tax Officer may have reason to believe that income chargeable to tax had escaped assessment. But the jurisdiction of the Court extends no further. Whether on the information in his possession he should commence a proceeding for assessment or reassessment, must be decided by the Income-tax Officer and not by the High Court. The Income-tax Officer alone is entrusted with the power to administer the Act; if he has information from which it may be said prima facie, that he had reason to believe that income chargeable to tax had escaped assessment, it is not open to the High Court, exercising powers under Article 226 of the Constitution, to set aside or vacate the notice for reassessment on a re-appraisal of the evidence.

12. In the case of Anandji Haridas and Co. (P) Ltd. v. S.P. Kasture and Ors. : [1968]1SCR661 , the Constitution Bench of the Supreme Court considered a similar matter. The fact of the case was that the appellants were a private limited company carrying on business of steel materials having more than one place of business. They were required to submit quarterly returns of turnover. They did till April, 1942 and thereafter no returns was submitted. In 1955, the assessing authority issued notices calling upon the appellants to show cause as to why action should not be taken against them on account of their failure to furnish returns. The appellant objected to the said notice on various grounds. The question that fell for consideration before the Supreme Court was whether the word 'information' used in Section 11(A) of the C.P. and Berar Sales Tax Act need necessarily be from the outside agency. Answering the question, their Lordships held:

This takes us to the next question whether in the instant case the assessing authority can be said to have been satisfied about the escapement of the assessment as a consequence of any information which had come into his possession. From the notices issued in 1955 as well as later on, it is clear that the assessing authorities were satisfied about the escapement of the assessment due from the appellants. But the real question is whether they were so satisfied in consequence of any information which had come into their possession'. The assessing authorities knew that the appellants had neither submitted their returns nor treasury challans in proof of the payment of the tax due from them. From that circumstance it is reasonable to hold that in consequence of the information that the appellants had not submitted their returns as well as the treasury challans the assessing authority should have been satisfied about the escapement of the assessment. It was urged on behalf of the revenue that 'information' contemplated by Section 11A should be from some outside source and not something that could be gathered by the assessing authority from his own records. According to the revenue in the instant case there was not information from any outside source, therefore, it cannot be said that the assessing authority was satisfied about the escapement of tax in consequence of any information which has come into its possession. In our view, this contention is untenable. In : [1959]35ITR1(SC) THIS court held that the word 'information' in Section 34(1)(b) of the Income-tax Act, 1922 includes information as to the true and correct state of the law and so would cover information as to the relevant, judicial decisions. It was laid down therein that the information need not be about any fact; it may be even as to the legal position. In other words, the term 'information' in Section 34(1)(b) of the Income-tax Act, 1922 really means knowledge. In Salem provident Fund Society Ltd. v. Commissioner of Income-Tax, Madras : [1961]42ITR547(Mad) a division bench of the Madras High Court interpreting the scope of the words 'information which has come into his possession found in Section 34 of the Indian Income Tax Act, observed thus:

We are unable to accept the extreme proposition that nothing that can be found in the record of the assessment which itself would show escape of assessment or under-assessment, can be viewed as information which led to the belief that there has been escape from assessment or under-assessment. Suppose a mistake in the original order of assessment is not discovered by the Income-tax Officer himself on further scrutiny but it is brought to his notice by another assesses or even by a subordinate or a superior officer, that would appear to be information disclosed to the Income-tax Officer. If the mistake itself is not extraneous to the record and the informant gathered the information from the record, the immediate source of information to the Income-tax Officer in such circumstances is in one sense extraneous to the record. It is difficult to accept the position that while what it is seen by another in the record is 'information' what is seen by the Income-tax Officer himself is not information to him. In the latter case he just informs himself. It will be information in his possession within the meaning of Section 34. In such cases of obvious mistakes apparent on the face of the record of assessment, that record itself can be a source of information, if that information leads to a discovery or belief that there has been an escape of assessment under-assessment.'In our judgment, the knowledge of the fact that the appellants had not submitted their quarterly returns as well as the treasury challans, constituted an information to the assessing authority from which it could be satisfied and in fact it was satisfied that the turnovers with which we are concerned in this case had escaped assessment.

13. In the instant case a audit team of the Accountant General, Bihar, audited the assessment order and found that the dealer was allowed exemption on Rs. 3,12,47,916=00 being the amount of goods consumed by itself during the course of execution of works contract. The assessing authority presuming that such goods were purchased on payment of tax and without noticing that no declaration in Form IX-C along with other evidences were submitted by the assessee, allowed exemption. When this fact came to the notice of the assessing authority, a proceeding for reassessment was initiated.

14. There is no dispute that in terms of Section 4 of 1981 Act, every dealer is liable to pay tax under Section 3 of the Act in respect of the goods purchased in the circumstances in which no sale tax is payable or has been paid on the sale price of such goods and either consumed such goods and the manufacture of other goods for sale or otherwise or disposed of such goods in any manner other than by way of sale. It will appear from the impugned order of reassessment that the assessing authority has not agreed with some observation made by the audit team regarding levy of purchased tax on certain items like Camp equipments, electrical equipments tools, shuttering materials for personal use at work site for labourers and workers. It can, therefore, be safely concluded that the impugned order of reassessment has not been passed mainly on the basis of audit objection.

15. Having regard to the facts and circumstances of the case, 1 am of the considered opinion that impugned order has not been passed only on the basis of audit report, rather re-assessment was made when it came to the notice of the Assessing Authority that the petitioner was wrongly allowed exemption in respect of the goods consumed by it during the execution of works contract. Such goods were purchased on payment of tax, but no declaration in Form-IX 'C' were submitted. Moreover, the petitioner never produced the books of accounts when the matter was heard. In that circumstances, the impugned order cannot be held to be erroneous and violative of principles of natural justice.

16. For the aforesaid reasons, I do not find any merit in this case and the same is accordingly dismissed.