IN THE HIGH COURT OF JUDICATURE AT MADRAS DATED : 04.08.2010 CORAM THE HONOURABLE MR. JUSTICE S.NAGAMUTHU W.P.Nos.2498 to 2500 of 2000 and W.P.M.P.Nos.3861, 3864 and 3866 M/s.Sri Sakthi Textiles Limited, Coimbatore Main Road, Pollachi 642 002. ..Petitioner in all Writ Petitions -Versus- 1. The Joint Commissioner of Income-Tax Special Range-I, No.67A, Race Course Road, Coimbatore -18. 2. The Assistant Commissioner of Income-Tax, Company Circle-I, Coimbatore. ..Respondents in all Writ Petitions Prayer in W.P.No.2498 of 2000:- Petition filed under Article 226 of the Constitution of India, for issuance of a Writ of Certiorari for for the records from the file of the 1st respondent in No.CV-9952/SR-I/CBE/99-2000, dated 17.01.2000 and the proceedings of the Assistant Commissioner of Income Tax in CV 9952/GI dated 05.09.1997 in respect of the assessment year 1991-1992 and quash the same. Prayer in W.P.No.2499 of 2000:- Petition filed under Article 226 of the Constitution of India, for issuance of a Writ of Certiorari for for the records from the file of the 1st respondent in No.CV-9952/SR-I/CBE/99-2000, dated 17.01.2000 and the proceedings of the Assistant Commissioner of Income Tax in CV 9952/GI 8, dated 05.09.1997 in respect of the assessment year 1992-1993 and quash the same. Prayer in W.P.No.2500 of 2000:- Petition filed under Article 226 of the Constitution of India, for issuance of a Writ of Certiorari for for the records from https://hcservices.ecourts.gov.in/hcservices/ the file of the 1st respondent in No.CV-9952/SR-I/CBE/99-2000, dated 17.01.2000 and the proceedings of the Assistant Commissioner of Income Tax in CV 9952 dated 08.07.1997 in respect of the assessment year 1993-1994 and quash the same. For petitioner in all : Mr.B.S.Gnana Desikan, writ petitions Senior Counsel for Mr.J.A.Selvakumar For respondents in all : M/s.T.Ravikumar & writ petitions K.Suresh Kumar COMMON ORDER Since common issues are involved in these writ petitions and the parties are same, they were heard together and they are disposed of by means of this common order. 2. The challenges in these writ petitions are to the notices issued under Section 148 of the Income Tax Act, 1961 [hereinafter referred to as "the Act"] for making reassessment of the income which have allegedly escaped from assessment during the assessment years 1991-92, 1992-93 and 1993-94 respectively. 3. The back ground facts of the cases are as follows:- The petitioner is a company engaged in the manufacture of textiles. For the assessment years 1991-92, 1992-93 and 1993-94, assessments were completed under Section 143 (3) of the Act on 28.03.1994, 21.03.1995 and 25.03.1996 respectively by the Deputy Commissioner / Assistant Commissioner. In the said assessment orders, replacement of assets to the tune of Rs.1,06,56,527/-, Rs.64,71,550/- and Rs.75,77,340/- respectively for the assessment years 1991-92, 1992-93 and 1993-94 were allowed treating the same as revenue expenditure. Similarly, a sum of Rs.2,73,012/-, Rs.15,96,179/- and Rs.2,29,567/- respectively for the above assessment years spent towards conversion of materials were also considered and allowed as revenue expenditure. These orders have become final. 4. While so, the 2nd respondent has issued the impugned notices U/s.148 of the Act to the petitioner on 05.09.1997 for the assessment years 1991-92 and 1992-93 respectively and on 08.07.1997 for the assessment year 1993-94 in order to reassess. Though initially, the notices were issued by the 2nd respondent, the jurisdiction was subsequently taken over by the 1st respondent and thus the same are now pending before the 1st respondent. In the said notices, the 2nd respondent has not stated under what account and for what purpose the same have to be reopened which were already assessed and completed. The petitioner, therefore, made a request in writing to give the reasons for reopening. The 1st respondent by his letter dated 17.01.2000 in all these matters indicated the https://hcservices.ecourts.gov.in/hcservices/ reasons for reopening the assessments by stating that he had proposed to complete the reassessment for the assessment years referred to above disallowing the claim of the petitioner for replacement of machineries and conversion materials as revenue expenditure and he had further proposed to treat the said expenditures as capital expenditure with an entitlement of only depreciation. The petitioner submitted his objections in writing stating that the expenditures towards replacement of machineries and conversion of materials would squarely fall within the head of revenue expenditure and, therefore, the earlier assessments made under Section 143 (3) of the Act do not require any reopening for reassessment under Section 147 of the Act. The petitioner has also contended before the 1st respondent that these notices are barred by limitation as provided in Section 149 of the Act. But, so far no final order has been passed in any of these matters by the 1st respondent. When things stand thus, the petitioner has rushed to this Court with these three writ petitions. 5. In these writ petitions , the following common grounds have been raised:- (i) The notices issued under Section 148 of the Act by the 2nd respondent which are impugned in these writ petitions do not indicate the reasons which made the 2nd respondent to believe that there have been chargeable tax escaped from assessment. In the absence of reasons in the notice itself, the respondents should not proceed further on the basis of such defective notices. In the reply dated 17.01.2000, for the first time, the 2nd respondent has stated the reasons in legal sense for reopening under Section 147 of the Act. But, the so-called reasons stated in the notices do not constitute the reasons for reopening the assessments which were already completed. It is nothing but change of opinion on the part of the subsequent officer in respect of expenditures on replacement of machineries and conversion of materials. According to the original assessing officer, who assessed during the relevant years, these expenditures would fall within the sweep of revenue expenditure. Whereas, now, there is a change of opinion on the part of the subsequent assessing officer viz., the 2nd respondent to say that it is only capital expenditure with an entitlement of depreciation. Such a change of opinion, according to the petitioner cannot be a reason for reopening the assessments under Section 147 of the Act. https://hcservices.ecourts.gov.in/hcservices/ (ii) Since there was no failure on the part of the petitioner to disclose fully and truly all material facts which were necessary for the assessment for the relevant assessment years, these cases would not fall within the ambit of the proviso to Section 147 of the Act. Therefore, in any event, the reopening should have been done within four years from the end of the relevant assessment year. Thus, the limitation provided in Section 149(1) (a) of the Act bars the notices in respect of the assessment years 1991-92 and 1992- 93. (iii) Insofar as the assessment year 1993- 94 is concerned, it falls under main provision of Section 147 of the Act. Since there is no reason stated either in the notice or reply notice dated 07.01.2000 issued by the 2nd respondent to the effect that there are reasons to believe that chargeable tax has escaped from assessment to satisfy the requirement of Section 147 of the Act, this notice, though issued within four years from the end of the assessment year, is without jurisdiction. 6. The learned senior counsel appearing for the petitioner would take me through the relevant provisions of the Act and the original records in order to substantiate all the above contentions. He would also rely on a few judgements of the Hon'ble Supreme Court as well as various High Courts about which I would make reference during the course of this order. 7. No counter has been filed by the respondents. The original files have been produced for perusal. However, the learned counsel appearing for the respondent would vehemently oppose all these writ petitions on the following grounds:- (i) The petitioner has got alternative remedy to submit his explanations before the 1st respondent and such a remedy is more efficacious. When such an alternative remedy is available for the petitioner, these writ petitions are not maintainable and, therefore, the same are liable to be dismissed. (ii) The 2nd respondent has recorded the reasons in the file to substantiate his belief that there was chargeable tax escaped from assessment during the relevant assessment years and such a recording would satisfy the legal https://hcservices.ecourts.gov.in/hcservices/ requirements as required under Section 147 of the Act. (iii) There is no legal requirement that such reasons which made the 2nd respondent to believe that there have been escapement of chargeable tax to be mentioned in the notices issued under Section 148 of the Act. And, it would be suffice , if such reasons for the belief are furnished to the petitioner as soon as the same is required by the petitioner for the purpose of submitting his explanation. In the cases on hand, reasons for the belief have been duly furnished to the petitioner in the reply notices dated 17.01.2000. Thus, the basic mandatory legal requirement as provided in Section 147 of the Act has been complied with. (iv) The notices in respect of the assessment years 1991-92 and 1992-93 do not fall within the main provision of Section 147 of the Act. Instead, it would fall only within the proviso to Section 147 of the Act. For reopening the assessments under Section 147 of the Act and for issuance of notices under Section 148 of the Act, the period of limitation as provided in Section 149(1)(b) of the Act is six years. In respect of notices for the assessment years 1991- 92 and 1992-93, they have been issued within six years from the end of the relevant assessment year. Thus , the notices in respect of reopening of the assessment in respect of the assessment years 1991-92 and 1992-93 are not barred by limitation as provided in Section 149 (1)(b) of the Act. (v) Insofar as notice relating to the assessment year 1993-94 is concerned, it falls within the ambit of main provision of Section 147 of the Act, for which, the period of limitation provided in Section 149 (1)(a) of the Act is four years. Admittedly, the notice was issued on 08.07.1997 which was within four years from the end of the assessment year 1993-94. Thus, the said notice is also not barred by limitation. (vi) The expenditure made towards replacement of machinery and conversion of materials would fall only within the ambit of capital expenditure with an entitlement of https://hcservices.ecourts.gov.in/hcservices/ depreciation. But, by mistake, they were treated as revenue expenditure by the then assessing officer for the purpose of assessment. When this was noticed by the subsequent assessing officer viz., the 2nd respondent, he has rightly issued notices under Section 148 of the Act after recording reasons. It cannot, therefore, be contended that the expenditures incurred towards replacement of machinery and conversion of materials would fall within the ambit of revenue expenditure as claimed by the petitioner. (vii) There is no legal requirement that the formation of belief based on reasons to the effect that the income chargeable to tax has escaped from assessment, need to be based on any fresh materials collected subsequent to the original assessment. Even from the materials collected during the original assessment, if such escapement is noticed by the subsequent officer that itself can be the ground to reopen the assessment under Section 147 of the Act. And, it cannot be stated that the impugned notices have been issued merely based on a change of opinion as it is claimed by the petitioner. But, it is based on materials on record which formed the basis for reasons to believe that there have been chargeable income-tax escaped from assessments. 8. The learned counsel appearing for the respondents has taken me through the original files to substantiate his contentions and he has also placed reliance on a number of judgements of the Hon'ble Supreme Court as well as various High Courts including this Court about which also I would make reference at the appropriate places of this judgement. Maintainability:- 9. Let me now proceed to analyse the contentions of the rival parties. The first and foremost contention is with regard to the maintainability of the writ petitions. 10. Indisputably, the petitioner has got an alternative remedy of approaching the 1st respondent with an appropriate reply to the show cause notices to place all his defences. For any reason, if such defences are rejected and an adverse order is passed, surely, he has got remedies before the appellate authority under the Act itself. When such an alternative mechanism is very much available under the Act, according to the respondents, these writ petitions cannot be entertained. In this regard, I may state that the writ jurisdiction https://hcservices.ecourts.gov.in/hcservices/ of this Court under Article 226 of the Constitution of India is so wide and it is not circumscribed by any limitation by any of the provisions of the Constitution of India. But, in due course of time, while exercising such power, the Courts have evolved certain restrictions which are only self-imposed. One such restriction is to decline to entertain a writ petition in a case where there is an alternative remedy available to the party which is more efficacious to workout. It is only on the basis of such self-imposed restriction, the High Courts have been declining to entertain the writ petitions by directing the aggrieved to work out the remedy available under the alternative mechanism. But, it is also well settled that in a case where, if the court is of the opinion that either the alternative remedy available would not be efficacious or the same cannot be secured without undue delay or in a case where the entire proceeding is wholly without jurisdiction or barred by limitation and allowing the authority to go ahead further with the proceeding will only be a wasteful exercise, in such a case, it would be very appropriate for this Court to come out of the self-imposed restriction and to entertain the writ petition to render justice to the aggrieved who knocks at the doors of the Writ Court. It has also been well settled by the Hon'ble Supreme Court that having entertained a writ petition, if the same is dismissed after several years on the ground of availability of alternative remedy, it would not be in the interest of justice. [ Vide Calcutta Discount Company Limited v. Income-Tax Officer, 1961 (41) ITR 191 SC]. 11. In the cases of hand, the writ petitions were admitted in the year 2000. Having entertained the same and having kept the same pending for 10 years on the file of this Court without disposal, if they are dismissed at this length of time on the ground of availability of alternative remedy thereby driving the aggrieved to go and avail the alternative remedy, in my considered opinion and as laid down by the Hon'ble Supreme Court in Calcutta Discount Company Limited v. Income-Tax Officer, 1961 (41) ITR 191 SC], surely, the same will not be in the interest of justice. Apart from that, when it is contended by the petitioner that all the proceedings impugned in these writ petitions are either barred by limitation as provided in Section 149 of the Act, or wholly without jurisdiction, it will also be in tune with the interest of justice to examine the said questions in these writ petitions. For all these reasons, I hold that these writ petitions are maintainable and,therefore, the objection raised by the learned counsel for the respondents regarding the maintainability of these writ petitions is rejected. Whether the impugned notices are without jurisdiction:- 12. Admittedly, the impugned notices in respect of the assessment years 1991-92 and 1992-93 were issued after the expiry of four years from the end of the relevant assessment year, but within six years. It is needless to state that in no case, such notice https://hcservices.ecourts.gov.in/hcservices/ under Section 148 of the Act could be issued beyond six years from the end of the relevant assessment year. If the cases fall within the main provision of Section 147 of the Act, the period of limitation as provided in Section 149(1)(a) of the Act is four years from the end of the relevant assessment year. Whereas, if the cases fall within the proviso to Section 147 of the Act, then, it will fall within the limitation as provided in Section 149 (1)(b) of the Act [i.e.,] six years. Therefore, in these cases, it is to be seen whether the impugned notices fall within the scope of the proviso to Section 147of the Act or main provision of Section 147 of the Act. Regarding this question, there is no controversy between the learned counsel on either side. It is stated by the respondents that the notices in respect of the assessment years 1991-92 and 1992-93 fall within the proviso to Section 147 of the Act; whereas the impugned notice in respect of the assessment year 1993-94 falls within the scope of the main provision of Section 147 of the Act. 13. Assessment year 1991-92 and 1992-93:- Let me now, at first, take up the notices for the assessment years 1991-92 and 1992- 93. In order to fall within the proviso to Section 147 of the Act, apart from stating that there were reasons for the authority to believe that there had been escapement of chargeable income, it should have also been recorded that such escapement was due to the failure of the assessee to disclose fully and truly all material particulars necessary for his assessment for that assessment year. Such a recording is absolutely mandatory as per the provision and as laid down in various judgements. In this regard, I may refer to some of the judgements relied on by the learned counsel appearing on either side. The earliest judgement on this point is a judgement rendered by a Constitution Bench of the Hon'ble Supreme Court in Calcutta Discount Company Limited v. Income-Tax Officer, 1961 (41) ITR 191 SC wherein while dealing with Section 34 of the Indian Income-Tax Act, 1922 [ in pari materia to Section 147 of the Income- Tax Act, 1961], the Hon'ble Supreme Court has held as follows:- " ........ 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 under-assessed. The second is that he must have also reason to believe that such "under- assessment" 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 https://hcservices.ecourts.gov.in/hcservices/ 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." 14. The only difference between the old Act and the present Act is that in the old Act the maximum period of limitation was eight years; whereas the same is six years in the present Act. Except the above, both the provisions viz., Section 34 of the Indian Income-Tax Act, 1922 and Section 149 of the Income-Tax Act, 1961 are verbatim the same. Thus, the aforesaid judgement of the Hon'ble Supreme Court holds the field. A reading of the above judgement would make it clear that unless the above twin conditions are satisfied , the notice issued under Section 148 of the Act is without jurisdiction and on that ground alone the notice is liable to be quashed. 15. The learned counsel for the respondent would rely on a recent judgement in Assistant Commissioner of Income-Tax v. Rajesh Jhaveri Stock Brokers Private Limited, [2007] 291 ITR 500 (SC), wherein reiterating the very same legal position after the amendment of Section 147 of the Act w.e.f. 01.04.1989, the Hon'ble Supreme Court has held as follows:- "16. Section 147 authorises and permits the Assessing Officer to assess or reassess income chargeable to tax if he has reason to believe that income for any assessment year has escaped assessment. The word "reason" in the phrase "reason to believe" would mean cause or justification. If the Assessing Officer has cause or justification to know or suppose that income had escaped assessment, it can be said to have reason to believe that an income had escaped assessment. The expression cannot be read to mean that the Assessing Officer should have finally ascertained the fact by legal evidence or conclusion. The function of the Assessing Officer is to administer the statute with solicitude for the public exchequer with an inbuilt idea of fairness to taxpayers. As observed by the Delhi High Court in Central Provinces Manganese Ore Co. Ltd. v. ITO [1991 (191) ITR 662], for initiation of action under section 147(a) (as the provision stood at the relevant time) fulfilment of the two requisite conditions in that regard is essential. At that https://hcservices.ecourts.gov.in/hcservices/ stage, the final outcome of the proceeding is not relevant. In other words, at the initiation stage, what is required is "reason to believe", but not the established fact of escapement of income. At the stage of issue of notice, the only question is whether there was relevant material on which a reasonable person could have formed a requisite belief. Whether the materials would conclusively prove the escapement is not the concern at that stage. This is so because the formation of belief by the Assessing Officer is within the realm of subjective satisfaction (see ITO v. Selected Dalurband Coal Co. Pvt. Ltd. [1996 (217) ITR 597 (SC)] ; Raymond Woollen Mills Ltd. v. ITO [ 1999 (236) ITR 34 (SC)]. 17. The scope and effect of section 147 as substituted with effect from April 1, 1989, as also sections 148 to 152 are substantially different from the provisions as they stood prior to such substitution. Under the old provisions of section 147, separate clauses (a) and (b) laid down the circumstances under which income escaping assessment for the past assessment years could be assessed or reassessed. To confer jurisdiction under section 147(a) two conditions were required to be satisfied firstly the Assessing Officer must have reason to believe that income profits or gains chargeable to income tax have escaped assessment, and secondly he must also have reason to believe that such escapement has occurred by reason of either (i) omission or failure on the part of the assessee to disclose fully or truly all material facts necessary for his assessment of that year. Both these conditions were conditions precedent to be satisfied before the Assessing Officer could have jurisdiction to issue notice under section 148 read with section 147(a) But under the substituted section 147 existence of only the first condition suffices. In other words if the Assessing Officer for whatever reason has reason to believe that income has escaped assessment it confers jurisdiction to reopen the assessment. It is however to be noted that both the conditions must be fulfilled if the case falls within the ambit of the proviso to https://hcservices.ecourts.gov.in/hcservices/ section 147. The case at hand is covered by the main provision and not the proviso. [Emphasis supplied] 18. So long as the ingredients of section 147 are fulfilled, the Assessing Officer is free to initiate proceeding under section 147 and failure to take steps under section 143(3) will not render the Assessing Officer powerless to initiate reassessment proceedings even when intimation under section 143(1) had been issued. 16. From the above judgements, it could be understood that it is the settled position of law that in order to bring the case within the ambit of proviso to Section 147 of the Act, the above two conditions are