IN THE H IGH COURT OF JUDICATURE AT MADRAS DATED: 20.04.2010 CORAM THE HONOURABLE Mr. JUSTICE T.RAJA W.P.No.10664 of 2009 and M.P.No.1 of 2009 M/s.Goldmine Investments, Rep. By its Partner, Dr.S.Devendra, No.2, Doraisamy Road, T.Nagar, Chennai – 600 017. ... Petitioner Vs. Deputy Commissioner of Income-tax Circle – I, Room No.309, 3rd Floor, New Block, 121, M.G.Road, Chennai – 600 034. ... Respondent PRAYER: Writ Petition filed under Article 226 of Constitution of India praying to issue Writ of certiorari to call for the records in GIR/PAN AAAFG4524D dated 01.05.2008 and P.A.N./GIR No.AAAFG4524D dated 25.05.2009 relating to the assessment year 1995-96 on the file of the respondent and quash the same. For Petitioner :Dr.Anitha Sumanth For Respondent :Mr.J.Narayanaswamy for Mr.K.Subramaniam ORDER The respondent issued a notice under Section 148 of the Income Tax Act proposing to reopen the assessment for the year 1995-96. Following the issuance of notice, the same was served on the petitioner on 09.05.2008, which required the petitioner to furnish a return of income for the assessment year 1995-96. As the petitioner had already filed a return of income for the assessment year 1995-96 on 29.02.1996, clearly admitting that there was no income, an order of assessment has been passed under Section 143(3) of the Income Tax Act on 31.03.1998, accepting the return filed by the petitioner. Since the notice was issued to the petitioner and as the petitioner had already filed return of income for the assessment year 1995-96 https://hcservices.ecourts.gov.in/hcservices/ on 29.02.1996 making absolutely clear that there was no escapement of income or change in the income, the return already filed by the petitioner to be treated as having been filed pursuant to the aforesaid notice only. Therefore, the petitioner submitted before the assessing authority that it has complied with the notice and relied on the decision of the Supreme Court in GKN Driveshafts (India) Ltd. Vs. Income Tax Officer (259 ITR 19), which mandates that the petitioner is entitled to be furnished a copy of the reasons recorded by the Assessing Authority before the issue of notice under Section 148. Subsequently, in view of the letter of the petitioner seeking a copy of the reasons recorded, the respondent also issued a letter dated 25.05.2009 informing the reasons for reopening of the assessment, stating that in the course of assessment proceedings of the assessment year 1996-97, it was noticed by the Assessing Officer that the assessee had received an amount of Rs.5,60,00,000/- from Ashok Leyland Finance Ltd. This amount was received based on a Memorandum of Understanding / Agreement for joint development dated 27.11.1994 between the assessee and Ashok Leyland Finance Limited and as per which the assessee had offered to surrender its share of development rights on the land purchased from one Mr.Mani Nagappa to Ashok leyland Finance Limited for a consideration of Rs.560 lakhs. But, the assessing officer did not accept the claim of the assessee and assessed the amount as profits from business for the assessment year 1996-97. But, in the order of the Commissioner of Income-Tax (Appeals), it was held that the amount to be treated only as an advance. Therefore, the addition made in the assessment was reversed subsequently. When a notice dated 25.05.2009 was issued under Section 143(2) of the Income Tax Act, which is in the nature of enquiry for completing the assessment, the respondent required the petitioner to attend the respondent's office and produce document, accounts or other evidence, which the petitioner may rely in respect of return filed by it. Therefore, the petitioner submitted before the respondent that the aforesaid notice is totally invalid and illegal, in so far as the assessment proceedings initiated is beyond the limitation and consequently, the proceedings are totally invalid. 2. In respect of the above submission, the petitioner also relied upon a judgment of the Supreme Court in GKN Driveshafts (India) Ltd. Vs. Income Tax Officer (259 ITR 19) , wherein the Apex Court has held that after communicating to the petitioner, the reasons recorded before the issue of notice under Section 148, the petitioner should be given as opportunity to make its objections to the said reasons and only after the objection is adjudicated by a speaking order only then any proceedings can be initiated for making an assessment. When this is the position, the respondent along with a letter dated 25.05.2009, communicating the reasons stated to have been recorded prior to the issue of notice, issued a notice under Section 143(2) proposing to make an assessment and for enquiry in https://hcservices.ecourts.gov.in/hcservices/ connection therewith. On the basis of the above judgment, it was further contended that the action of the respondent is totally illegal and violative of the procedure set out by the Supreme Court in the above said decision. 3. Learned counsel appearing for the petitioner further submits that the respondent has issued notice under Section 148 for reopening the assessment for the year 1995-96 on the ground that such notice is valid, since there was a finding by the Income Tax Appellate Tribunal that the assessment was made for the year 1995-96 and not for the year 1996-97. The proceedings are totally barred by limitation. Further, it was argued that though the Tribunal has got power to direct an income excluded from one year to be assessed for another year, neither explanation 2 to Sub Section (4) of Section 153 nor any other provisions of the Income Tax Act extends the limitation or waives the procedure for making such assessment for the simple reason that the proviso provides that no proceedings for reopening of an assessment in a year for which an assessment is originally completed under Section 143(3) shall be taken beyond four years from the end of the Assessment year. On that basis, it was prayed for quashing of the impugned order. 4. Per contra, learned counsel appearing for the respondent submits that the respondent, by letter dated 25.05.2009, had duly communicated the reasons for reopening the assessment under Section 147 for the assessment year 1995-96, to the petitioner. By doing so, the respondent has duly complied with the procedure laid down by the Supreme Court in GKN Driveshafts' case (supra). When the notice under Section 143(2) was issued on 25.05.2009 posting the case for hearing on 08.06.2009 by specifically informing the petitioner in the above said notice that the petitioner was required to produce the documents, accounts or other evidence in support of the returns filed by the petitioner, the stand of the petitioner that the said notice was invalid is not correct on the ground that the assessment proceedings had been initiated beyond the period of limitation. Further it was submitted that the contention of the petitioner that the issue of notice under Section 148 was barred by limitation is totally incorrect, since the notice has been issued as per the direction of the Tribunal. Therefore, the petitioner ought to have sought remedy by way of appeal before the High Court, if the petitioner was aggrieved by the order of the Tribunal. 5. Heard the learned counsel appearing on either side and perused the materials available on record. 6. Admittedly, for reopening the assessment of the petitioner for the year 1995-96, a notice under Section 148 was issued by the respondent on 25.05.2009. This has been challenged by the petitioner on the ground that the impugned notice dated 25.05.2009 issued under Section 143(2) of the Income Tax Act and also impugned https://hcservices.ecourts.gov.in/hcservices/ proceedings dated 25.05.2009 relating to the assessment year 1995-96 has been admittedly issued after a period of 13 years. Therefore, it has to be seen whether the assessment sought to be made by the impugned order is barred by limitation. To answer this query, it is relevant to have a perusal of Section 149 of the Income Tax Act, which prescribes the time limit for issue of notice, as extracted below:- 149. (1)No notice under Section 148 shall be issued for the relevant assessment year:- a) if four years have elapsed from the end of the relevant assessment year, unless the case falls under clause (b); b) if four years, but not more than six years, have elapsed from the end of the relevant assessment year unless the income chargeable to tax which has escaped assessment amounts to or is likely to amount to one lakh rupees or more for that year. Explanation-- In determining income chargeable to tax which has escaped assessment for the purposes of this sub- section, the provisions of explanation 2 of Section 147 shall apply as they apply for the purposes of that section. (2) The provisions of sub-section(1) as to the issue of notice shall be subject to the provisions of section 151. (3) If the person on whom a notice under Section 148 is to be served is a person treated as the agent of a non- resident under Section 163 and the assessment, reassessment or recomputation to be made in pursuance of the notice is to be made on him as the agent of such non- resident, the notice shall not be issued after the expiry of a period of two years from the end of the relevant assessment year. The opening sentence of Section 149 leaves no room for any doubt. No notice under Section 148 shall be issued if four years have elapsed from the end of the relevant assessment year, unless the case falls under clause (b). If four years, but not more than six years, have elapsed from the end of the relevant assessment year, unless the income chargeable to tax which has escaped assessment amounts to or is likely to amount to one lakh rupees or more for that year. The explanation no.2 further states that the provisions of sub-section (1) as to the issue of notice shall be subject to the provisions of Section 151, which is extracted hereunder:- 151. (1) In a case where an assessment under sub- section (3) of Section 143 or Section 147 has been made for the relevant assessment year, no notice shall be https://hcservices.ecourts.gov.in/hcservices/ issued under Section 148 (by an Assessing Officer, who is below the rank of Assistant Commissioner (or Deputy Commissioner), unless the (joint) Commissioner is satisfied on the reasons recorded by such Assessing Officer that it is a fit case for the issue of such notice): Provided 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 Commissioner is satisfied, on the reasons recorded by the Assessing Officer aforesaid, that it is a fit case for the issue of such notice. (2) In a case other than a case falling under sub- section (1), no notice shall be issued under Section 148 by an Assessing Officer, who is below the rank of (joint) Commissioner, after the expiry of four years from the end of the relevant assessment year, unless the (joint) Commissioner is satisfied, on the reasons recorded by such Assessing Officer, that it is a fit case for the issue of such notice. As per Section 151, in a case where an assessment under sub- section (3) of Section 143 or Section 147 has been made for the relevant assessment year, it is absolutely made clear that no notice shall be issued under Section 148 by an assessing officer, who is below the rank of Assistant Commissioner or Deputy Commissioner, unless the Joint Commissioner is satisfied on the reasons recorded by such Assessing Officer that it is a fit case for the issue of such notice. It is further stated 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 Commissioner is satisfied, on the reasons recorded by the Assessing Officer aforesaid, that it is a fit case for the issue of such notice. 7. Therefore, the stand of the petitioner as well as the respondent will have to be tested on application of the aforesaid legal principles. It is very clear from the facts that the respondent issued a notice under Section 148 of the Income Tax Act. Pursuant to the Income Tax Appellate Tribunal, proposing to reopen the assessment of the petitioner for the year 1995-96, the notice was served upon the petitioner on 09.05.08 requiring the petitioner to furnish a return of income for the assessment year 1995-96. Since the petitioner had already paid the return for the assessment year 1995-96 on 29.02.1996 admitting nil income and an order of assessment had already been passed under Section 143(3) of the Income Tax Act on 31.03.1998 accepting the petitioner's return, in the above said circumstances, the present impugned notices were issued, for which the petitioner submitted his explanation stating that he had already submitted return of income for the assessment year 1995-96 on 29.02.1996. In so far as there was no escapement of https://hcservices.ecourts.gov.in/hcservices/ income or a change in the income declared by the petitioner earlier, the return already filed by the petitioner was sought to be treated as having been filed pursuant to the aforesaid notice. Further, the petitioner submitted before the Assessing Authority that in so far as it had complied with the notice pursuant to the decision of the Supreme Court reported in GKN Drivesshafts (India) Ltd.'s case (supra), the petitioner is entitled to be furnished a copy of the reasons recorded by the Assessing Authority before the issue of notice under Section 148, because as per the judgment of the Supreme Court, the Assessing Officer is under a mandate to dispose of such preliminary objection by passing speaking order, before proceeding with the assessment in respect of the assessment year for which such notice has been issued. Since the Assessing Officer has not followed the above said mandate of the Apex Court in GKN Drivesshafts (India) Ltd.'s case (supra), the notices issued under Section 143(3) proposing to make an assessment and for enquiry in connection therewith is totally illegal and violative of the procedure set out by the Supreme Court in the above said decision. 8. The second argument of the learned counsel appearing for the petitioner is that the impugned notices issued by the respondent are totally contrary to the judgment of the Supreme Court in GKN Drivesshafts (India) Ltd.'s case (supra), wherein the position of law is well settled: After a notice for reassessment has been issued, an assessee is required to file the return and seek reasons for issuance of such notice. The assessing Officer is then bound to supply the reasons within a reasonable time. On receipt of reasons, the assessee is entitled to file preliminary objections to issuance of notice and the Assessing Officer is under a mandate to dispose of such preliminary objections by passing a speaking order, before proceeding with the assessment in respect of the assessment year for which such notice has been issued. 9. In the above said background and the settled legal position, let me look at the impugned notice issued by the Deputy Commissioner of Income-tax / respondent dated 01.05.2008. The said notice says that the respondent has reason to believe that the income chargeable to tax for the assessment year 1995-96 has escaped assessment falling within the meaning of Section 147 of the Income Tax Act, 1961. Therefore, he proposed to reassess the income for the said assessment year and on that basis informed the petitioner to deliver within 30 days from the date of service of this notice, a return in the prescribed form of his income for the said assessment year. Again, another impugned notice dated 25.05.2009 also says that the Income-Tax Appellate Tribunal has directed the Assessing Officer to exclude the petitioner's income in the assessment for the assessment year 1996-97, and assess the same in the assessment year 1995-96. In view of that, the respondent has further stated in his impugned https://hcservices.ecourts.gov.in/hcservices/ notice that he had reason to believe that income chargeable to tax for assessment year 1995-96 has escaped assessment. 10. The above said two notices has not complied with the command of Section 151, which clearly rules that no notice shall be issued under Section 148, by an Assessing Officer, unless, the Joint Commissioner is satisfied on the reasons recorded by such assessing officer that it is a fit case for the issue of such notice. When there is no such communication by the Assessing Officer, certifying that it is a fit case for the issue of such notice, the Joint Commissioner without satisfying the reasons recorded by the Assessing Officer, should not have issued the impugned notice, which is totally contrary to Section 151 of the Income Tax Act. Further, the proviso under Section 151 also makes position very clear that after the expiry of 4 years from the end of relevant assessment year, no such notice shall be issued unless the Chief Commissioner or Commissioner is satisfied, on the reasons recorded by the Assessing Officer, that it is a fit case for the issue of such notice. Again, when there is no such reasons recorded by the Assessing Officer, certifying that it is a fit case for the issue of notice after the expiry of 4 years from the end of the relevant assessment year, the impugned notices dated 01.05.2008 and 25.05.2009 issued by the respondent, being totally contrary to the Section 151 as well as barred by limitation under Section 149 of the Income Tax Act, i.e., barred by delay of 13 years from the date of assessment year 1995-96, the impugned notices are legally unsustainable and accordingly, the same are set aside. In result, the writ petition is allowed. No Costs. Consequently, connected M.P.No.1 of 2009 is closed. rkm Sd/- Asst. Registrar //True Copy// Sub Asst. Registrar To The Deputy Commissioner of Income-tax Circle – I, Room No.309, 3rd Floor, New Block, 121, M.G.Road, Chennai – 600 034. https://hcservices.ecourts.gov.in/hcservices/ + 1 cc to Dr.Anita Sumanth, Advocate SR No.25988 + 1 cc to Mr. K. Subramaniam, Advocate SR No.25827 RV(CO) SR/26.4.2010 Order in W.P.No.10664/2009 https://hcservices.ecourts.gov.in/hcservices/