Sterlite Industries (India) Ltd. Vs. Assistant Commissioner of Income-tax and anr. - Court Judgment

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direct taxation - assessment - jurisdiction - sections 147 and 148 of income tax act, 1961 - assessing officer issued notice to appellant under section 148 of act - appeal - dismissed - hence, present petition - whether assessing officer has jurisdiction to issue notice under section 148 of act? - held, assessing officer has no reasons to believe that any income, profit or gain of appellant company was under assessed due to negligence or willful failure of appellant in disclosing material facts - in such circumstances, assessing officer has no jurisdiction to issue notice under section 148 of act relating to income escaped assessment under section 147 of act, beyond period of 4 years and with in period of 8 years - accordingly, appeal allowed and impugned order set aside - s.j. mukhopadhaya, j.1. though the miscellaneous petition is listed for disposal, by consent of learned counsel appearing for the parties, writ appeal itself is taken up for disposal.2. the appellant-m/s. sterlite industries (india) limited (hereinafter referred to as 'the company') preferred writ petition in w.p. no. 27780 of 2007, sterlite industries (india) ltd. v. asst. cit : [2008]302itr275(mad) challenging the notice dated march 27, 2007, issued by the second respondent-deputy commissioner of income-tax, company circle vi(4), chennai-34, under section 148 of the income-tax act, 1961 (for short, 'the act'), whereby, the second respondent decided to assess/reassess the income/recompute the loss/depreciation allowance for the assessment year 2000-01, on the ground that the income of the company which was assessed as being chargeable to tax, escaped assessment within the meaning of section 147 of the income-tax act, 1961 (for short 'the act').3. having upheld the said notice dated march 27, 2007, and the letter dated july 17, 2007, passed by the first respondent-assistant commissioner of income-tax, company circle vi(4), chennai-34, whereunder the reasons for reopening the assessment of the company for the assessment year 2000-01, have been set out, the learned single judge dismissed the writ petition in question, giving rise to the present writ appeal by the company. the assessment of the income of the company, relates to the assessment year 2000-01, for which, notice dated march 27, 2007, under section 148 of the act, was issued by the second respondent-deputy commissioner of income-tax to assess/reassess the income, which escaped assessment within the meaning of section 147 of the act, after the expiry of five years from the assessment year 2000-01.4. the grievance of the company is that before issuance of the said notice under section 148 of the act, the assessing officer must have reasons to believe that because of the omission or failure on the part of the assessee to disclose fully and truly all the material facts, the income has escaped the assessment within the meaning of section 147 of the act, which has not been followed in the present case. the assessing officer merely suggested to the commissioner of income-tax that from a report, it appears that the investigation is necessary and he has not formed any belief whatsoever that the income of the company escaped the assessment under section 147 of the act. it was the further case of the company that the assessing officer cannot assume the jurisdiction under section 147 of the act only for the purpose of making investigation, without even forming any belief whatsoever that the income of the company escaped the assessment by reasons of any omission or failure on the part of the company to disclose fully and truly all material particulars.5. mr. debi prasad pal, learned senior counsel appearing for the appellant-company submitted that the expression used in section 147 of the act is reason to believe the powers of the assessing officer to reopen the assessment, though wide are not plenary, but it cannot be reopened merely on suspicion or for the purpose of making some enquiries. on the basis of the materials before the assessing officer, he has to form a belief that a particular income escaped from the assessment for the relevant assessment year by reason of any omission or failure on the part of the assessee to disclose fully and truly all material facts for the relevant assessment year.7. the case of the appellant-company is that the assessing officer merely suggested to the commissioner of income-tax, as it appears from the report, that investigation is necessary and he has not formed any belief whatsoever that the income of the company had escaped the assessment.8. it was further submitted by learned senior counsel appearing for the appellant-company that the assessing officer cannot assume jurisdiction under section 147 of the income-tax act only for the purpose of making investigation without even forming any belief whatsoever that the income of the company escaped assessment by reasons of omission or failure on the part of the company to disclose all material particulars.9. according to learned senior counsel appearing for the company, the belief of the assessing officer cannot be substituted by the belief formed by the commissioner/chief commissioner of income-tax or even by a court of law/statutory forum. the commissioner of income-tax has to either sanction or reject the case of the assessee for reopening/reassessment of the income, on the basis of the reasons recorded by the assessing officer, if it was found that the assessing officer has reported that it is a fit case for reassessment/reopening of the income of the assessee. the assessing officer cannot start a roving/fishing investigation by issuing the said notice under section 148 of the act and the said provision cannot be treated as a cloak for starting a roving/fishing investigation.10. the other submission of learned senior counsel appearing for the company is that the assessing officer, before issuance of the notice, must record the reasons for doing so, as the proviso to section 151(1) of the income-tax act, makes it mandatory 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 the commissioner is satisfied, on the reasons recorded by the assessing officer, that it is a fit case for issuance of such a notice.11. reliance was placed on the following decisions of the supreme court and the high courts:(i) madhya pradesh industries ltd. v. ito : [1965]57itr637(sc) ;(ii) smt. kantamani venkata satyavathi v. ito : [1967]64itr516(ap) ;(iii) siesta steel construction p. ltd. v. k.k. shikare : [1985]154itr547(bom) ; and(iv) rina sen v. cit : [1999]235itr219(patna) .12. it was further submitted by learned senior counsel appearing for the company that the assessing officer cannot improve upon his reasons recorded under section 148(2) of the income-tax act while sending his report to the commissioner/chief commissioner of income-tax for obtaining his sanction/approval. according to learned senior counsel, the commissioner of income-tax even failed to apply his mind, in view of the specific case of the assessing officer while sending his report that it was a case for investigation and the investigation cannot be started without issuing a notice under section 148 of the act.13. according to the respondent-revenue, the communication from the enforcement directorate, which was relied upon by the assessing officer, was not available with the officer at the time of passing the original assessment order, which has been disputed by the company on the ground that the assessing officer who had issued the notice while sending his report to the commissioner for sanction/approval, has himself stated that the information regarding the transaction between m/s. sterlite industries (i) ltd. (i.e., siil) and oasis international for fraudulent import of drawings and designing, was first received from the income-tax department in the year 1999 and, therefore, the assessing officer in making the original assessment, had the knowledge of the aforesaid alleged allegation, because, the original assessment was made on march 28, 2003. in spite of such knowledge, if the assessing officer did not pursue the matter any further, he cannot reopen/reassess the assessment under section 147 of the act after the expiry of more than five years from the assessment year 2000-01, as the alleged income has not escaped the assessment by reason of any omission or failure on the part of the company to disclose fully and truly all material facts.14. learned standing counsel appearing for the respondent-revenue, referring to the list of events, submitted that the notice under section 148 of the act was issued on march 27, 2007, calling the appellant-company for filing the 'return' and in response to the same, the company replied on april 5, 2007, that the 'return' filed on october 31, 2001, may be treated as the 'return' filed pursuant to the notice dated march 27, 2007, and the company further sought for the reasons for reopening/reassessing the assessment of the income of the company.15. it is also informed on behalf of the respondent-revenue that the learned single judge directed to specifically inform as to whether there was any approval/sanction under section 151 of the act and to submit the copies of the documents which were instrumental in initiating the reassessment proceedings and also to mention the assessment year, and the company was directed to attend the case on the date of hearing and, therefore, their representative attended the hearing. the letter dated august 31, 2007, containing the extract of the information relied on to initiate the reassessment proceedings, was placed before the court. the said information was received from the enforcement directorate regarding the transaction that has a bearing on the assessment year 2000-01 and in the said letter, the previous sanction of the commissioner of income-tax was taken as per section 151 of the act.16. learned standing counsel appearing for the respondent-revenue relied on the decision of the supreme court reported in gkn driveshafts (india) ltd. v. ito [2003] 259 itr 19, wherein the supreme court, while dismissing the assessee's appeal, held as follows (page 20 of 259 itr):we see no justifiable reason to interfere with the order under challenge. however, we clarify that when a notice under section 148 of the income-tax act is issued, the proper course of action for the noticee is to file a return and if he so desires, to seek reasons for issuing notices. the assessing officer is bound to furnish reasons within a reasonable time. on receipt of reasons, the noticee is entitled to file objections to issuance of notice and the assessing officer is bound to dispose of the same by passing a speaking order. in the instant case, as the reasons have been disclosed in these proceedings, the assessing officer has to dispose of the objections, if filed, by passing a speaking order, before proceeding with the assessment in respect of the abovesaid five assessment years.17. it was also submitted on behalf of the revenue that in view of the fact that the reasons for reassessment of the income, have already been furnished in the present case, the writ petition in question was not maintainable and the dismissal of the writ petition in question by the learned single judge does not call for any interference.18. reliance was also placed by learned standing counsel appearing for the revenue, on the decision of the kerala high court reported in g. sukesh v. deputy cit : [2001]252itr230(ker) , wherein the kerala high court held as follows (page 232 of 252 itr):when an assessee makes a declaration of his income, and verifies particularly to its correctness, he has to stand by the same, and cannot object to the department pointing out that from the materials collected, there appears to be an error in the returns. the sanctity of a return becomes susceptible to acid tests when the assessing officer stumbles on materials indicating that the returns were not true as is claimed. an opportunity is given for making a clean breast of affairs, and one need not be apprehensive unless he has skeletons in his cupboard.19. learned standing counsel appearing for the revenue also relied upon the decision of the supreme court reported in phool chand bajrang lal v. ito : [1993]203itr456(sc) , wherein the supreme court held as follows (at page 478 of 203 itr):one of the purposes of section 147 appears to us to be to ensure that a party cannot get away by wilfully making a false or untrue statement at the time of original assessment and when the falsity comes to notice, to turn around and say 'you accepted my lie, now your hands are tied and you can do nothing'. it would be a travesty of justice to allow the assessee that latitude.20. we have heard learned counsel appearing for the parties and noticed their rival contentions.21. the question required for determination in this case is as to whether the assessing officer while issuing notice under section 148 of the act, was satisfied with the conditions that: (i) he had reason to believe that any income had escaped assessment, and (ii) such escapement of income is on account of any omission or failure on the part of the assessee to disclose fully and truly all material facts necessary for the assessment of that year.22. for determination of such issues, it is necessary to notice the relevant provisions relating to the income escaping assessment, i.e., section 147 of the act, which reads as follows:147. income escaping assessment.- if the assessing officer has reason to believe that any income chargeable to tax has escaped assessment for any assessment year he may, subject to the provisions of sections 148 to 153, assess or reassess such income and also any other income chargeable to tax which has escaped assessment and which comes to his notice subsequently in the course of the proceedings under this section, or recompute the loss or the depreciation allowance or any other allowance, as the case may be, for the assessment year concerned (hereafter in this section and in sections 148 to 153 referred to as the relevant assessment year):provided that where an assessment under sub-section (3) of section 143 or this section has been made for the relevant assessment year, no action shall be taken under this section after the expiry of four years from the end of the relevant assessment year, unless any income chargeable to tax has escaped assessment for such assessment year by reason of the failure on the part of the assessee to make a return under section 139 or in response to a notice issued under sub-section (1) of section 142 or section 148 or to disclose fully and truly all material facts necessary for his assessment, for that assessment year:provided further that the assessing officer may assess or reassess such income other than the income involving matters which are the subject-matter of any appeal, reference or revision, which is chargeable to tax and has escaped assessment.explanation 1.- production before the assessing officer of account books or other evidence from which material evidence could with due diligence have been discovered by the assessing officer will not necessarily amount to disclosure within the meaning of the foregoing proviso.explanation 2.- for the purposes of this section, the following shall also be deemed to be cases where income chargeable to tax has escaped assessment, namely:(a) where no return of income has been furnished by the assessee although his total income or the total income of any other person in respect of which he is assessable under this act during the previous year exceeded the maximum amount which is not chargeable to income-tax;(b) where a return of income has been furnished by the assessee but no assessment has been made and it is noticed by the assessing officer that the assessee has understated the income or has claimed excessive loss, deduction, allowance or relief in the return;(c) where an assessment has been made, but(i) income chargeable to tax has been underassessed; or(ii) such income has been assessed at too low a rate; or(iii) such income has been made the subject of excessive relief under this act; or(iv) excessive loss or depreciation allowance or any other allowance under this act has been computed.23. similar question fell for consideration before a constitution bench (five-judges) of the supreme court reported in calcutta discount co. ltd. v. ito : [1961]41itr191(sc) and in the said case, the notice under section 34 of the indian income-tax act (xi of 1922), which is similar to notice under section 147 of the income-tax act, 1961, was challenged on the ground of jurisdiction, notice having been issued after the expiry of more than five years from the relevant assessment year. the relevant portion of the judgment reads as follows (page 199 of 41 itr):to confer jurisdiction under this section to issue notice in respect of assessments beyond the period of four years, but within a period of eight years, from the end of the relevant year two conditions have therefore to be satisfied. the first is that the income-tax officer must have reason to believe that income, profits or gains chargeable to income-tax have been underassessed. the second is that he must have also reason to believe that such 'underassessment' has occurred by reason of either (i) omission or failure on the part of an assessee to make a return of his income under section 22, or (ii) omission or failure on the part of an assessee to disclose fully and truly all material facts necessary for his assessment for that year. both these conditions are conditions precedent to be satisfied before the income-tax officer could have jurisdiction to issue a notice for the assessment or reassessment beyond the period of four years, but within the period of eight years, from the end of the year in question.24. the aforesaid decision was reiterated by the supreme court in the decision reported in coca-cola export corporation v. ito : [1998]231itr200(sc) , wherein the supreme court observed that, 'we, however, think that it is not necessary for us to refer to any of those decisions as law is well-settled on the subject starting from calcutta discount co. ltd. v. ito : [1961]41itr191(sc) .'25. in the decision reported in union of india v. rai singh deb singh bist : [1973]88itr200(sc) , the supreme court, while dealing with section 34(1)(a) of the indian income-tax act, 1922 (now equivalent to section 147 of the income-tax act, 1961), observed as follows (at page 202 of 88 itr):before an income-tax officer can issue a statutory notice under section 34(1)(a), he must have reason to believe that by reason of omission or failure on the part of an assessee to disclose fully and truly all material facts necessary for his assessment for the years in question, income, profits or gains chargeable to income-tax have escaped assessment during those years. further, before doing so, he must have recorded his reasons for acting under section 34(1)(a) and the central board of revenue must have been satisfied on those reasons that it is a fit case for the issue of the notice. the recording of the reasons in support of the belief formed by the income-tax officer and the satisfaction of the central board of revenue on the basis of the reasons recorded by the income-tax officer that it is a fit case for issue of notice under section 34(1)(a) are extremely important circumstances to find out whether the income-tax officer had jurisdiction to proceed under section 34(1)(a).26. in the decision of this court reported in fenner (india) ltd. v. deputy cit : [2000]241itr672(mad) , it was held that if the notice has been issued after the expiry of four years, the income-tax officer not only has to form the belief that income has escaped assessment, but also has to form the belief that income has escaped assessment by reason of any omission or failure committed by the assessee and failure to do so, would vitiate the notice and the entire proceedings.27. the same view has been taken by a division bench of the bombay high court in the decision reported in ajanta pharma ltd. v. asst. cit : [2004]267itr200(bom) .28. the present case relates to the assessment year 2000-01. from the records, it appears that the second respondent-deputy commissioner of income-tax, wrote a letter dated march 16, 2007, to the commissioner of income-tax requesting to accord approval for reopening the assessment under section 147 of the act for issuing the notice under section 148 of the act for the assessment year 2000-01. from the grounds shown therein, it is important to decide the issue and the relevant portion of the aforesaid letter dated march 16, 2007, is quoted hereunder:sub.: income-tax assessment - reopening under section 147 - in the case of m/s. sterlite industries (india) ltd. - approval by the commissioner of income-tax under section 151(1) - proposal - assessment year 2000-01 - reg.1. kindly refer to the above.2. in this case, the assessment was originally completed under section 143(3) on march 28, 2003, by the assistant commissioner of income-tax, circle-2(3), mumbai. the total income as per chapter iv-d as well as under section 115ja was be 'nil'.3. subsequently, the case is transferred to this office and now information has been received in this office from the enforcement directorate (through proper channel) that the assessee had given some orders of import but they failed to produce the original bills of entry. the available information is extracted below.transaction between m/s. siil and oasis international (uk) for fraudulent import of drawings and designs-information was first received from the income-tax department in 1999 and standard chartered bank reported in 2002 that siil have failed to file the bills of entry for three remittances totalling usd 70,20,000. the charges have been corroborated by examining the bills of lading from bpt which prove that imports were not lifted by the party and were auctioned by bpt for a paltry amount of rs. 150. statements of employees of m/s. jm bakshi and co. and a ca indirectly corroborate it.it has come to our notice that standard chartered bank had reported another 10 pending import bills in 2003 pertaining to the period 1992 to 2000 for non-submission of original exchange control copies of bills of entry.rbi had reported another 39 bills pertaining to bnp paribas, scotia bank, ceylon bank, abn amro bank, canara bank where sil had asked for waiver of submission of original exchange copy of bill of entries as they have submitted ca certificates. these pertain to 1996 to 2001.4. as per the information thus received from the enforcement directorate it appears that there is every chance of booking inflated expenditure on account of import. but the transactions relate to the financial year 1992 onwards. even though, no action is possible for the assessment years up to the assessment year 1999-2000, action can be initiated under section 147 for the assessment year 2000-01.5. on verification of the assessment order for the assessment year 2000-01 it is seen that this issue had not been considered in the assessment.6. in the absence of necessary details from the enforcement directorate the amount of concealment, if any, and income that has escaped assessment cannot be quantified. on the basis of the information available, it appears that the tax effect will be more than rs. 1 lakh.7. further investigation can be done only if the assessment is reopened under section 147. however, such reopening is to be done before march 31, 2007, since the period of six years from the assessment year 2000-01 elapse by this date.8. since an assessment had already been completed under section 143(3) and also since four years have elapsed from the end of the relevant assessment year statutory approval of the commissioner of income-tax under section 151(1) of the income-tax act is required for reopening the assessment.9. the case is accordingly submitted for the kind consideration of the commissioner of income-tax with a request to accord kind approval for reopening the assessment under section 147 and for issuing the notice under section 148 for the assessment year 2000-01.29. on march 23, 2007, the commissioner of income-tax, chennai-hi, chennai, on the basis of the reasons recorded by the assessing officer, approved under section 151(1) of the act, the issuance of notice under section 148 of the act for the assessment year 2000-01 and the commissioner of income-tax, chennai-iii, made the following endorsement:i am satisfied on the reasons recorded by the assessing officer that it is a fit case for issue of notice under section 148.30. learned senior counsel appearing for the appellant-company submitted that the reasons recorded by the assessing officer is ambiguous and vague, as nowhere, it was stated that the income escaped assessment due to failure on the part of the assessee to disclose fully and truly all the material particulars.31. on the other hand, learned standing counsel appearing for the revenue submitted that the report was received regarding the transaction between m/s. siil (the appellant-company) and m/s. oasis international (uk) for fraudulent import of drawings and designs and the information was first received from the income-tax department in 1999 and standard chartered bank reported in 2002 that siil failed to file the bills of entry for three remittances totalling usd 70,20,000 and the charges have been corroborated by examining the bills of lading from bpt which prove that imports were not lifted by the party and were auctioned by bpt for a paltry amount of rs. 150. it has also been brought to the notice of the authority that standard chartered bank reported to the authority relating to another 10 pending import bills in 2003 pertaining to the period 1992 to 2000 for non-submission of original exchange control copies of bills of entry.32. in the present case, we are not supposed to decide whether there is evidence on record to show that the appellant-company escaped assessment in the assessment year 2000-01. we are only supposed to notice (i) whether the assessing officer has reason to believe that the income, profits or gains chargeable to income-tax, have been under assessed, and (ii) whether the assessing officer have also a reason to believe that such underassessment has occurred by reason of either: (a) omission or failure on the part of the assessee to make a return of his income, or (b) omission or failure on the part of the assessee to disclose fully and truly all material facts necessary for its assessment for the year.33. from the letter dated march 16, 2007, as quoted above, it is clear that the assessing officer had noticed the following facts:(i) the assessee had given some orders for import, but they failed to produce the original bills of entry.(ii) so far as the belief of the assessing officer that the income, profits and gains chargeable to income, have been underassessed, is concerned, no specific finding has been given, except a doubt has been raised, by stating that, as per the information thus received from the enforcement directorate it appears that there is every chance of booking inflated expenditure on account of import (emphasis supplied). in the said letter, nowhere it has been mentioned that (i) the income of the assessee had been underassessed, and (ii) such underassessment has occurred by reason of either (a) omission or failure on the part of the assessee to make a return of his income, or (b) omission or failure on the part of the assessee to disclose fully and truly all material facts necessary for its assessment for the year. on the other hand, from paragraph 5 of the said letter dated march 16, 2007, it appears that the blame of failure has been put on the department, wherein, it is stated that, 'on verification of the assessment order for the assessment year 2000-01 it is seen that this issue had not been considered in the assessment'. from paragraph 6 of the very same letter dated march 16, 2007, it further appears that no definite opinion has been formed on behalf of the assessing officer to believe that the income, profits or gains chargeable to income-tax, have been underassessed and it is only mentioned in paragraph 6 that, 'in the absence of necessary details from the enforcement directorate the amount of concealment, if any, and income that has escaped assessment cannot be quantified. on the basis of the information available, it appears that the tax effect will be more than rs. 1 lakh'. from paragraph 7 of the said letter dated march 16, 2007, it further appears that, 'further investigation can be done only if the assessment is reopened under section 147. however, such reopening is to be done before march 31, 2007, since the period of six years from the assessment year 2000-01 elapse by this date.34. from the records, it is clear that the revenue failed to satisfy that the assessing officer had reasons to believe that (i) the income, profits and gains, chargeable to income-tax, have been under assessed, and (ii) the assessing officer had also reason to believe that such underassessment had occurred by reason of either (a) omission or failure on the part of the assessee to make a return of his income, or (b) omission or failure on the part of the assessee to disclose fully and truly all material facts necessary for its assessment for the year. all the aforesaid conditions having been not satisfied by the assessing officer, we hold that the assessing officer had no jurisdiction to issue the notice under section 148 of the act, relating to the income escaping assessment under section 147 of the act, for the assessment or reassessment beyond the period of four yeas, but within the period of eight years from the end of the year in question.35. the revenue had taken one of the grounds that the appellant-company had submitted before the revenue regarding the income escaping assessment and, therefore, should not have moved before this court. but such submission cannot be accepted, as from the records, it appears that the company, by its letter dated august 16, 2007, while acknowledging the notice, sought for certain records and by the said letter dated august 16, 2007, the company objected for reopening of the assessment, but the notice under section 148 of the act having not been withdrawn by the revenue, the company had to move before this court.36. though the aforesaid facts seem to have been brought to the notice of the learned single judge, it appears that the learned single judge, without discussing the question (s) of law, refused to grant the relief prayed for in the writ petition in question, merely on the basis of the allegations as made by the revenue and highlighted before the learned single judge. in this regard, we have already mentioned that this court is not supposed to satisfy itself as to whether the income, profits or gains chargeable to income-tax, have been underassessed or such underassessment has occurred either due to omission or failure on the part of the assessee to make a return of his income or omission or failure on the part of the assessee to disclose fully and truly all material facts necessary for its assessment for the year. it was for the assessing officer/income-tax officer to satisfy those aspects, but he failed to satisfy those conditions in the present case.37. we accordingly set aside the impugned order dated march 12, 2008, passed by the learned single judge in writ petition no. 27780 of 2007 and the notice dated march 27, 2007, issued by the second respondent and the consequential proceedings dated july 17, 2007, issued by the first respondent.38. the writ appeal is allowed. but, in the facts and circumstances of the case, there shall be no order as to costs. miscellaneous petition no. 1 of 2008 is closed.