CWP No. 13806 of 2010 -1- IN THE HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARH CWP No. 13806 of 2010 Date of Decision: 30.11.2010 M/s R.N. Gupta & Co. Ltd. ....Petitioner. Versus Assistant Commissioner of Income Tax ...Respondent. CORAM:- HON'BLE MR. JUSTICE ADARSH KUMAR GOEL. HON'BLE MR. JUSTICE AJAY KUMAR MITTAL. PRESENT: Mr. Akshay Bhan, Advocate for the petitioner. Mr. Rajesh Katoch, Advocate for the respondent. AJAY KUMAR MITTAL, J. 1. In this petition filed under Articles 226/227 of the Constitution of India, the petitioner seeks quashing of the impugned notice dated 18.3.2010 (Annexure P-4) and order dated 16.6.2010 (Annexure P-8) passed by the respondent under Section 148 of the Income Tax Act, 1961 (in short “the Act”). 2. The brief facts for adjudication as narrated in this petition are that the petitioner-company is manufacturer of steel forgings, rigs and accessories. It filed its return for the assessment year 2003-04 on 28.11.2003 declaring an income of Rs.35,11,659/-. The return was accompanied by audit report under Section 44AB duly certified by the Chartered Accountant. The case of the assessee was selected for CWP No. 13806 of 2010 -2- scrutiny as per instructions of the Central Board of Direct Taxes. The sale of scrap of Rs.1,42,59,989/- which formed part of the profit and loss account was treated as part of the turnover as well as profits of the business. The Assessing Officer disallowed the deduction under Section 80HHC on account of DEPB export and computed the deduction at Rs.1,49,49,636/-. Feeling aggrieved, the assessee went in appeal and the Commissioner of Income Tax (Appeals) vide order dated 28.7.2006 partly allowed the appeal. Thereafter, the Assistant Commissioner of Income Tax issued a notice dated 18.3.2010 under Section 148 of the Act to the assessee for reassessment. The reasons recorded for reopening of assessment reads thus:- “1. The assessee company filed its return of income on 28.11.2003 at a taxable income of Rs.35,11,659/-. The case was assessed u/s 143(3) at a total income of Rs.1,84,61,300/-. The assessee has claimed deduction u/s 80HHC of the Income Tax Act, 1961 on profits derived from export of goods. Perusal of the assessment records reveals that the figure of total sales as shown by the assessee includes scrap sales of Rs.1,42,59,989/- besides sale of scrap amounting to Rs.4,73,895/- credited to machinery account. The total scrap sales, therefore, amounts to Rs.1,47,33,864/-. For the purposes of computing deduction u/s 80HHC the total scrap sales should be reduced from the profits of business. But the assessee has not done this resulting in an allowance of inadmissible deduction of Rs.19,69,371/- u/s CWP No. 13806 of 2010 -3- 80HHC of the Income Tax Act, 1961. Keeping in view the above facts, I have reason to believe that income amounting to Rs.19,69,371/- has escaped assessment for Assessment Year 2003-04, I am of the opinion that it is a fit case for issue of notice u/s 148.” 3. The assessee filed its objection by way of reply dated 18.5.2010 pleading that the reassessment cannot be made beyond a period of four years merely on the basis of change of opinion of the Assessing Officer. The Assessing Officer vide order dated 16.6.2010 rejected the objections filed by the assessee holding that there is income escaping assessment. Hence, the present writ petition. 4. We have heard learned counsel for the parties. 5. Learned counsel for the petitioner submitted that the re- assessment notice, Annexure P-4, issued under Section 147 of the Act being beyond the period of limitation of four years, was bad in law. According to the learned counsel, the assessee had disclosed all the particulars along with the return with regard to sale of scarp and the Assessing Officer could have issued re-assessment notice within four years. In support of his submission, learned counsel for the petitioner has relied upon the judgment of the Hon'ble Supreme Court in Commissioner of Income Tax v. Kelvinator of India Ltd., [2010] 320 ITR 561 and the judgments of this Court in Duli Chand Singhania v. Assistant Commissioner of Income Tax, [2004] 269 ITR 192 (P&H) and Ved Parkash Paliwal v. Assistant Commissioner of Income Tax Circle, Panipat and another, CWP No. 15730 of 2008 decided on 12.12.2008 and other High Courts in CIT v. Baer Shoes CWP No. 13806 of 2010 -4- (India) Pvt. Ltd., [2010] 6 Taxmann 113 (Mad) and Austin Engineering Co. Ltd. v. Joint Commissioner of Income-Tax [2009] 312 ITR 70 (Guj). 6. Controverting the aforesaid submissions, learned counsel for the revenue by relying upon the decision of Allahabad High Court in EMA India Ltd. v. Assistant Commissioner of Income Tax [2009] 226 CTR (All) 659 submitted that in view of Explanation I to Section 147 there was non-disclosure as mere production of books of accounts and other evidence from which material evidence could with due diligence have been discovered by the assessing authority will not necessarily amount to disclosure within the meaning of proviso to Section 147. According to the learned counsel, in such a situation, the reassessment proceedings were initiated within limitation and the period of four years as suggested by the learned counsel for the assessee had no application. 7. We have given our thoughtful consideration to the respective submissions of the learned counsel for the parties and do not find merit in the contention of learned counsel for the assessee. 8. The question that arises for determination in this petition is whether the assessee is entitled to challenge validity of initiation of reassessment proceedings under Section 147 of the Act after expiry of four years on the ground of lack of jurisdiction with the Assessing Officer even where the assessee had produced the entire material during assessment proceedings though there was no specific reference to that material during original assessment proceedings. 9. In our opinion, the answer to the said question is in the CWP No. 13806 of 2010 -5- negative. The legislature by Direct Tax Laws (Amendment) Act, 1987 effective for 1.4.1989 had substituted Section 147 of the Act. The provisions contained in Explanation I now were earlier under Explanation 2. There has been transposition without any material change. 10. It would be appropriate to reproduce Section 147 along with Explanation I which reads thus:- “147. Income escaping assessment.-If the AO has reason to believe that any income chargeable to tax has escaped assessment for any assessment year, he may, subject to the provisions of ss. 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 (hereinafter in this section and in ss. 148 to 153 referred to as the relevant assessment year): Provided that where an assessment under sub-s. (3) of s. 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 CWP No. 13806 of 2010 -6- for such assessment year by reason of the failure on the part of the assessee to make a return under s. 139 or in response to a notice issued under sub-s. (1) of s. 142 or s. 148 or to disclose fully and truly all material facts necessary for his assessment, for that assessment year. Explanation 1- Production before the AO of account books or other evidence from which material evidence could with due diligence have been discovered by the AO will not necessarily amount to disclosure within the meaning of the foregoing proviso.“ 11. Section 147 of the Act empowers the Assessing Officer to assess or reassess income chargeable to tax where he has reason to believe that income for any assessment year has escaped assessment. However, the said provision does not authorize the Assessing Officer to take recourse to reassessment proceedings where after having adopted a particular opinion during original assessment proceedings, on second thought, he wishes to conclude otherwise. In other words, change of opinion is no ground for initiating reassessment proceedings. According to the explanation, the duty cast upon assessee to disclose truly and fully all material facts does not get discharged by mere production of the account books or other documents. Even where, the Assessing Officer could have with due diligence deduced the truth if he had been circumspect, still it will amount to non-disclosure of material facts within the meaning of Section 147 of the Act. The fiction created by the said CWP No. 13806 of 2010 -7- explanation is to ensure that the Assessing Officer who is to act fairly and reasonably for the public exchequer as well as the tax payers cannot be imputed knowledge and consciousness to the entire bulky record produced by the assessee during assessment proceedings unless there has been conscious deliberations with regard to such an issue in the assessment order. 12. Applying the aforesaid tests to the facts of the present case, it cannot be held that there was true and full disclosure made by the assessee. A perusal of the assessment order, no where suggests that the Assessing Officer had dealt with the issue of sale of scrap while determining the quantum of deduction admissible to the assessee under Section 80HHC of the Act. 13. Similar issue arose before the Allahabad High Court in EMA India Ltd's case (supra). It was held as under:- “3.2. Explanation 1 to proviso to s. 147 is explicit and clear on the point. The Explanation gives a quietus to contention that where account books or other evidence has been produced, there is no duty on the assessee to disclose further facts, which on due diligence could be discovered by the AO. Nor will the assessee be able to contend successfully that by disclosing certain evidence, he should be deemed to have disclosed other evidence, which might have been discovered by the assessing authority if he had pursued investigation on the basis of what has been disclosed. The position remains that so far as the primary facts are concerned, it is the assessee's duty to disclose all CWP No. 13806 of 2010 -8- of them including particular entries in account books, particular portions of documents, and documents, and other evidence which could have been discovered by the assessing authority, from the document and other evidence disclosed. 3.3 In other words, the mere production of evidence before the AO is not enough and there may be an omission or failure to make a full and true disclosure if some material for the assessment lies embedded in that evidence which the assessee can uncover but does not. However, if it be merely a question of interpretation of evidence, the assessee cannot be subjected to s. 147, merely because the AO miscarried in his interpretation of evidence. 3.4 To put it differently, if material evidence is not writ large on the document but is embedded in some voluminous records/books of account requiring a careful scrutiny and delving deep into it to notice the necessary material, it is quite possible that having regard to the nature of the documents, material evidence cannot be discovered from such records despite due diligence and the case would attract application of the said Expln. 1 to hold that mere production of the books of account or the documents, etc. without pointing out the relevant entries therein, does not amount to disclosure within the meaning of s. 147(a) of the Act [See, Rakesh Aggarwal vs. Asstt. CIT (1997) 137 CTR (Del) 65: (1996) 221 ITR 492 (Del) 499]. CWP No. 13806 of 2010 -9- 3.5 The assessee does not discharge his duty by merely producing the books of account or other evidence. He has to further bring to the notice of the AO particular items in the books of account or portions of document which are relevant. Even if it is assumed that, from the books produced, the AO could have found out the truth, he is not on that account precluded from exercising the power to reassess the escaped income [see, Kantamani Venkata Narayana & Sons vs. Addl. ITO (1967) 63 ITR 638 (SC); Sowdagar Ahmed Khan vs. ITO (1968) 70 ITR 79 (SC); ITO & Ors. vs. Lakhmani Mewal Das 1976 CTR (SC) 220: (1976) 103 ITR 437 (SC), 445]. 3.6. The fact that the AO could have found out the correct position by further probing the matter does not exonerate the assessee from the duty to make a full and true disclosure of the material facts.” 14. Once it is held that mere production of account books and the documents where from the Assessing Officer could have gathered the details of sale of scrap, would not amount to true and full disclosure within the meaning of Section 147 of the Act, necessarily, it is to be held that the action taken by the Assessing Officer in the present case shall be within limitation. 15. Reference is now made to the judgments relied upon by the learned counsel for the assessee. There is no dispute with the principles of law enunciated therein. However, they do not advance the case of the assessee. The Hon'ble Apex Court in Kelvinator of India CWP No. 13806 of 2010 -10- Ltd's case (supra) was not considering the effect of insertion of Explanation 1 to Section 147 of the Act. Similarly, in the judgments of this Court and of the other High Courts, either Explanation 1 was not under consideration or the same was held not to be applicable to the facts of those cases. 16. In view of the above, there is no merit in this writ petition and the same is hereby dismissed. (AJAY KUMAR MITTAL) JUDGE November 30, 2010 (ADARSH KUMAR GOEL) gbs JUDGE