1 IN THE HIGH COURT OF JUDICATURE AT BOMBAY ORDINARY ORIGINAL CIVIL JURISDICTION WRIT PETITION NO.2097 OF 2009 M/s.Mistry Lalji Narsi Development Corporation, 10/D, Everest Building, Tardeo Road, Tardeo, Mumbai – 400 034 ....Petitioner. Versus 1. The Assistant Commissioner of Income Tax – 16(1), Room No.203, 2nd Floor, Matru Mandir, Tardeo Road, Mumbai – 400 007. 2. The Commissioner of Income Tax – XVI Room No205, 2nd Floor, Matru Mandir, Tardeo Road, Mumbai – 400 007. 3. Union of India, through the Secretary Ministry of Finance, North Block, New Delhi – 110 001. ....Respondents. Mr.S.E. Dastoor, Senior Advocate with Mr.Niraj Sheth with Mr.Atul K. Jasani for the petitioner. Mr.K.R. Chaudhari for the respondents. CORAM : Dr.D.Y. Chandrachud & J.P. Devadhar, JJ. DATE : 19th January, 2010. 2 ORAL JUDGMENT : (Per Dr.D.Y. Chandrachud, J.) 1. Rule. The learned counsel appearing on behalf of the respondents waives service. With the consent of the learned counsel, taken up for hearing and final disposal. 2. The challenge in these proceedings under Article 226 of the Constitution of India is to the validity of a notice issued by the Assistant Commissioner of Income Tax, 16(1), Mumbai seeking to reopen the assessment for assessment year 2003-04 in exercise of powers conferred by Section 148 of the Income Tax Act, 1961. 3. The assessee is a partnership firm, which is engaged in the business of development and construction. The assessee was carrying on development at Mistry Complex, J.B. Nagar, Andheri (East), Mumbai. For assessment year 2002-03, a deduction under Section 80-IB(10) was claimed and allowed to the assessee in respect of project IIA. The dispute before the Court in these proceedings pertains to assessment year 2003-04 in respect of which for project IIA and Project IIB, a deduction was sought under Section 80-IB(10). An assessment order was passed under Section 143(3) on 30th December 2005. The Assessing Officer, while allowing the deduction under Section 80-IB(10) in respect of projects IIA and IIB noted that no deduction has been claimed for phases I and III, which were outside the time period prescribed by the statutory provision. On 31st March 2009, a notice was issued to the assessee by the Assistant Commissioner of Income Tax, 16(1), Mumbai under Section 148 stating that there was reason to believe that the income 3 of the assessee in respect of which it was assessable to tax for assessment year 2003-04 has escaped assessment within the meaning of Section 147. Reasons were disclosed to the assessee for the reopening of the assessment on 28th April 2009 in pursuance of a request made on 20th April 2009. The sole ground which has been set up in the reasons disclosed to the assessee is that on 18th March 2009, the Joint Commissioner of Income Tax (CIB) – I & II, Mumbai had furnished an intimation that the claim of deduction under Section 80-IB was not correct since the commencement certificate had been issued by the Mumbai Municipal Corporation on 24th July 1993 whereas a deduction under the provision is permissible only when the undertaking has commenced construction after 1st October 1998. On the ground that there was a wrong allowance of a deduction under Section 80-IB(10), it was stated that there was reason to believe that the correct income chargeable to tax had escaped assessment. Objections were filed by the assessee with the Assistant Commissioner of Income Tax on 8th June 2009, stating that the commencement certificate dated 24th July 1993 upon which reliance has been placed by the revenue, pertained to an earlier project, in respect of which no deduction under Section 80-IB(10) has been claimed. This, it was noted, has also been acknowledged by the Assessing Officer in para 3 of the original order of assessment. The objections were disposed of by a speaking order furnished to the assessee on 17th September 2009. The order disposing of the objections of the assessee records that `the Assessing Officer got from CIB the commencement certificate issued by Bombay Municipal Corporation indicating the date prior to 1st October 1998’. On this ground, it has been held that the Assessing Officer had additional relevant material on the basis of which the Assessing Officer could justifiably arrived at a belief that the income had escaped assessment. The 4 commencement certificate issued by the Municipal Corporation was stated to be a crucial factor in determining the deduction under Section 80-IB(10) and it has been alleged that the assessee had furnished wrong information in the course of assessment proceedings. 4. In assailing the proceedings adopted by the Department to reopen the assessment for assessment year 2003-04, learned counsel appearing on behalf of the assessee submitted that: (1) During the course of the assessment proceedings a full disclosure was made by the assessee of all the material facts bearing on the deduction under Section 80-IB(10); (2) The assessee had disclosed that the deduction was being claimed only in respect of project II, for which commencement had taken place after 1st October 1998 and as a matter of fact there was no claim for deduction for projects I and II, which were not within the prescribed time period; (3) During the course of assessment, reliance was also placed upon a circular of the Central Board of Direct Taxes which clarifies that in an additional housing project an existing housing project site can qualify for deduction under Section 80-IB(10), provided it is taken up by a separate undertaking having separate books of accounts, so as to ensure that correct profits can be ascertained for the purposes of the Section; (4) The Assessing Officer had during the course of the original order of assessment under Section 143(3) appreciated the facts and circumstances arising out of the deduction claimed under Section 80-IB(10); and (5) There was no failure on the part of the assessee to disclose all the material facts relating to the claim for deduction under Section 80-IB(10) and consequently there was no basis for the exercise of the jurisdiction under Section 148 of the Act. 5 5. On the other hand it has been urged on behalf of the respondents that subsequent to the order of assessment, the first respondent had come in possession of certificates issued by the Municipal Corporation, which indicated that the projects in question had commenced before 1st October 1998 and thereby beyond the period prescribed under Section 80-IB(10). The affidavit in reply which has been filed on behalf of the respondents states that the Joint Commissioner of Income Tax by his letter dated 18th March 2009 submitted information to the first respondent in respect of the claim of the assessee under Section 80-IB. The affidavit states that the Office of CIB submitted to the Assessing Officer relevant copies of the commencement certificates issued by the Municipal Corporation by a letter dated 23rd September 2009. Based on this information received by the Assessing Officer on 18th March 2009 and 23rd September 2009, it was observed that the assessee had wrongly claimed the benefit of Section 80-IB(10) on the basis of wrong information provided during the assessment proceedings. It was on the basis of this that the first respondent claims to have formed a belief that the income had escaped assessment for assessment year 2003-04 and accordingly a notice was issued under Section 148. 6. Section 147 provides that 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 in the course of the proceedings under the section. The proviso to Section 148 however stipulates interalia that where an assessment under sub-section (3) of section 143 has been made, no action shall be taken after 6 the expiry of four years from the end of the relevant assessment year, unless any income chargeable to tax has escaped assessment by reason of the failure on the part of the assessee to disclose fully and truly all material facts necessary for his assessment, for that assessment year. In the present case, it is common ground that the notice for re- assessment under Section 148 was issued on 31st March 2009. This is after the expiry of four years from the end of assessment year 2003-04. The validity of the notice would, therefore, have to be depend on whether any income chargeable to tax had escaped assessment for assessment y ear 2003-04 by reason of the failure of the assessee to disclose fully and truly all material facts necessary for his assessment, for that assessment year. 7. Now it is an admitted position before the Court that the assessee has been granted the benefit of a deduction under Section 80-IB(10) for assessment year 2002-03 in respect of project IIA. As already noted earlier, no claim for deduction was made in respect of project I since the initiation of the project was prior to 1st October 1998, which is the cut off date prescribed by Section 80-IB(10). For assessment year 2003-04, in the return filed by the assessee seeking a deduction under Section 80-IB(10) in respect of projects IIA and IIB, the net profit in respect of these two projects was disclosed as Rs.77.77 lacs and an audit report of a Chartered Account under Section 80-IB was furnished. The audit report contains inter alia a disclosure in Form 10CCB. Item 8 of the form refers to the date of commencement of operation by the undertaking as 20th December 1999 and 4th March 2002. Under Item 18Q, the date of approval by the local authority is 7 referred to as 20th December 1999 and 4th March 2002. During the course of assessment proceedings, the assessee filed with the Assessing Officer copies of the commencement certificates issued by the Municipal Corporation. Item 18Q of Form 10CCB requires the assessee to attach copies of the approval by the local authority and in pursuance thereof, the commencement certificates of the Municipal Corporation were disclosed. During the course of hearing, learned counsel appearing on behalf of the respondents has informed the Court that the commencement certificates were duly disclosed to the Assessing Officer. The Assessing Officer, while passing the original order under section 143(3), inter alia made the following observations : “The assessee-firm a partnership firm is engaged in the business of development and building construction. The assessee has claimed deduction u/s.80IB in respect of Phase-II of the project in respect of buildings being made at Mistry Complex, J B Nagar, Andheri (E), Mumbai. No deduction u/s. 80IB has been claimed for Phase-I and III which are outside the prescribed time period. During the year, sales have been made in Project-IIA and IIB (Shivam). While construction activities have taken place in Project-IIB (Shashi) and Project-III and WIP has been shown.” 8. Hence, the above observations of the Assessing Officer would establish his awareness of the fact that the claim of deduction under section 80-IB by the assessee was in respect of phase II of the Project and that no deduction in respect of Phases I and III have been claimed on the ground that they were “outside the prescribed time period”. The Assessing Officer noted that during the year sales had been made in project IIA and IIB. The record before the Court also shows that during the course of assessment proceedings, the assessee had relied upon a circular of the Central Board of Direct Taxes dated 4th May 2001 clarifying that any additional housing project on an existing housing project site can qualify for 8 deduction under Section 80-IB(10), subject to the fulfillment of certain conditions. For the purposes of the present case, it is not necessary for the Court to inquire into the merits of the claim for deduction. The question that arises for consideration is as to whether the conditions precedent to the exercise of the jurisdiction to reopen the assessment have been duly established. That in turn would depend upon whether there was a failure on the part of the assessee to disclose fully and truly all necessary facts necessary for the assessment for the assessment year in question. 9. The Notice under section 148 and the reasons which have been disclosed to the assessee proceed on the basis that on 18th March 2009 the Joint Commissioner of Income Tax had furnished an intimation to the Assessing Officer that since the commencement certificates have been issued by the Municipal Corporation on 24th July 1993, the claim for deduction under section 80- IB was not correct. While disposing of the objections of the assessee, once again the only material upon which reliance is placed is a copy of the commencement certificate issued by the Municipal Corporation. Now it is an admitted position before the Court that the commencement certificates issued by the Municipal Corporation were produced before the Assessing Officer during the course of the assessment proceedings. This has been accepted by Counsel for the revenue in the course of his submissions. The primary material consisting of the commencement certificates was, therefore, within the knowledge of the Assessing Officer. The contention of the assessee has been that though the original commencement certificates were dated 24th July 1993 and 12th February 1994, no claim of deduction has been made in respect of phase I of the Project, which relates to the commencement of construction activity prior to 1st October 1998. The case of the 9 assessee was that he was entitled to a deduction under Section 80-IB(10) in respect of that part of the construction, which commenced after 1st October 1998 and that this would constitute a separate project for the purposes of the Section as clarified by the circular of the Central Board of Direct Taxes. The order of the Assessing Officer under Section 143(3) clearly reflects an awareness of the primary facts relating to the case. Para 3 of the assessment order, which has been extracted in the earlier part of the judgment records that the assessee had claimed a deduction in respect of phase II of the Project in respect of the building being constructed on the land in question and that no deduction under the provision has been claimed for phases I and III `which are outside the prescribed time period’. Therefore, there was a disclosure by the assessee of all the primary facts relating to the claim for deduction under Section 80-IB(10). There was an awareness on the part of the Assessing Officer of the circumstance that the claim for deduction was not made in respect of the construction which had commenced prior to October 1, 1998 which is the time prescribed by Section 80-IB(10). Hence, the jurisdictional condition precedent to the exercise of powers to reopen an assessment beyond a period of four years namely, the failure of the assessee to disclose fully and truly all material facts necessary for the assessment has not been established. Significantly, the reasons which have been recorded by the Assessing Officer for reopening the assessment show that reliance is placed on a commencement certificate which it is now common ground before the Court was already on record before the Assessing Officer when the original order under Section 143(3) was passed. The reasons disclosed to the assessee state that copies of the commencement certificates were made available by the Joint Commissioner of Income Tax subsequent to the order of assessment under section 143(3). Since the documents on the basis of which 10 assessment was sought to be reopened had already been furnished to the Assessing Officer in the course of the proceedings under Section 143(3), it cannot possibly be contended that the assessee had failed to disclose documents or the material facts. 10. Moreover, it is also common ground before the Court that a deduction has been granted under section 80-IB(10) to the assessee for assessment year 2002-2003. This statement of fact by the counsel appearing on behalf of the assessee has not been controverted by counsel for the revenue during the course of submissions. 11. We would, while concluding once again clarify that in the present case, we are not concerned with the question as to whether a deduction under Section 80-IB(10) was validly granted since the only question that falls for consideration is whether a case is made out for reopening of the assessment under the powers conferred by Section 148. 12. For the reasons aforementioned, we are of the view that recourse to the provisions of Section 148 read with Section 147 cannot be sustained. The petition would, therefore, have to be allowed. Rule is accordingly made absolute in terms of prayer clause (a) by setting aside the notice dated 31st March 2009. There shall be no order as to costs. (J.P. Devadhar, J.) (Dr.D.Y. Chandrachud, J.)