IN THE HIGH COURT OF JUDICATURE AT PATNA CIVIL WRIT JURISDICTION CASE No.3418 of 2010 =================================================== M/S Kumar Stores and P.O. Basantpur District-Siwan through proprietor Kishore Kumar Singh, son of Sri Arun Prasad Singh, resident of Basantpur, P.O. P.S. Basantpur, District- Siwan-- Petitioner. Versus 1. The Commissioner, Income Tax,at Bela Kothi,Bela Industrial Estate P.O. District Muzaffarpur, 2. The Income Tax Officer, Siwan Ward, At & P.O. Siwan, District- Siwan, Respondents ===================================================== APPEARANCE; For the petitioner : M/s. Nand Kishore Singh, Shailendra Kumar, Advocates For the respondent : M/s. Harshwardhan Prasad, Rishi Raj Sinha, Advocates ===================================================== CORUM : HONOURABLE THE CHIEF JUSTICE And HONOURABLE MR.JUSTICE JYOTI SARAN ORAL ORDER: (Per: HONOURABLE MR. JUSTICE JYOTI SARAN) 8. 20.05.2011. Heard learned counsel appearing on behalf of the petitioner and the learned counsel appearing on behalf of the respondents. With the consent of the parties, this matter has been taken up for disposal at the stage of admission itself. The sole question which arises for consideration before this Court is as to whether the impugned order of assessment passed by the respondent 2 Income Tax Officer in purported exercise of power vested under section 147 of the Income Tax Act, 1961, (hereinafter referred to as „the Act‟), on the reasons recorded under section 148 of the Act and the revisional order passed under section 264 of the Act, satisfies the parameters enabling such exercise. Shorn of unnecessary details, the facts leading to the present application filed under Article 226 of the Constitution of India is that the petitioner is engaged in a twin business of, (a) wholesale dealership of kerosene oil of the Indian Oil Corporation and (b) plying tank lorry under contract with the said oil company. The petitioner is being assessed to income tax every year in respect of his business of wholesale dealership of kerosene oil and he is also being assessed under the provisions of section 44AE of the Act in respect of his business of plying tank lorry. The petitioner filed his return of income for the assessment year 2001-2002 in respect of his income from oil business and also in respect of his business of plying tank lorry under section 44AE of the Act together with the agricultural income receipts, copy whereof has been placed at Annexure-1 of the writ petition. It is stated that although in terms of the law as it existed, the deemed income arising from plying 3 tanker lorry business would be at the rate of Rs.2000/- per month, i.e. Rs.24000/- per annum per tanker, the petitioner possessing one tanker, returned a higher income of Rs.35,500/-. The petitioner also filed proof of payment of advance tax of Rs.10000/- and certificate showing tax deducted at source of Rs.15,080/- on gross payment of Rs.6,85,149/-, received in respect of the tank lorry from the oil company. An assessment order was passed after going through the process of scrutiny under section 142(1) and 143(2) of the Income Tax Act. Upon examination of the papers, books of accounts etc, produced on behalf of the petitioner company, the total income was computed at Rs.1,83,630/-. The petitioner had claimed expenses of Rs.2,94,886/- in respect of several heads mentioned in the assessment order and which was accepted. The petitioner also had claimed expenses of Rs.1,81,226, which were not supported by proper vouchers. The Assessing Authority, after disallowing 5% of such expenses, not having the support of vouchers, added them to the assessee‟s income. The assessment order was passed by Sri B.D.Gupta, Income Tax Officer, Ward Siwan dated 24.6.2004 which is placed at Annexure-3 to the writ petition. As the matter rested, there was a change in the Assessing Officer, Ward Siwan and Shri B.D.Gupta was 4 succeeded by Sri Kumar Achyutam as the Income Tax officer, Siwan Ward. The change of the Assessing Officer saw issuance of notice under section 148 of the Act, dated 11.6.2007 (Annexure-7), recording the following reasons for reopening the assessment of the petitioner. 1. Payment of Rs.6,85,149/- received from I.O.C. Ltd. has not been credited in the P/L account filed along with the audited report, however, Driver expenses amounting to Rs.33,550/- is being debited, 2. Income of tank lorry is taken u/s 44 AE, however the numbers of Lorries are not mentioned 3. Income from tanker is being added in the proprietor‟s capital account annually, however, the value of the tanker is not included in his capital account.” The petitioner responded to the notice vide letter dated 6.7.2007 (Annexure-8). The notice under section 148 of the Act as contained in Annexure-7 was followed by another direction as contained in letter dated 31.8.2007 (Annexure-9) requiring the petitioner to appear before the Assessing Authority to respond to the reasons set out in the notice. The petitioner appeared through his representative, who also filed a written submission to the notice dated 31.8.2007 and which is placed as Annexure-10 to the writ petition. It was contended on behalf of the petitioner that as the tank lorry business is a separate 5 business under section 44AE of the Act, the same was not required to be shown in the balance sheet and for the same reasons, the income received from the Oil Company from the said business was not shown in the profit and loss account. It was also contended that the driver‟s expenses is not in relation to the lorry in question, rather it was in respect of other tankers carrying goods. As the petitioner had returned the income from the tanker lorry in excess of the amount prescribed under Section 44AE of the Act which was accepted upon scrutiny, the same could not be a subject matter of re-investigation. The Assessing Authority passed the assessment order under section 143(3)/147 of the Act on 18.12.2007 placed at Annexure-11 to the writ petition enhancing income returned by the petitioner by making the following additions: “(a) Estimated value of the tank lorry Rs.1,50,000/- (b) Truck Driver expenses claimed by the petitioner Rs.33,500/-.” The reasons assigned for making aforesaid additions can be found in paragraph nos.8 and 9 of the impugned order of re-assessment, relevant portion whereof is being quoted herein below for ready reference: “8.xxx Value of tanker is found missing in the balance sheet and as such inference may be drawn that the same might also 6 been not reflected in the books of account maintained by the firm under the name & style of M/s Kumar Stores Basantpur. Under the circumstances, I take the value of Tank Lorry at Rs.1,50,000/- on estimate basis as the assessee did not appear and produce papers in support of the value of tanker for assessment purpose and add back the same in the earlier assessed income. (Emphasis by me) 9.Since the assessee has taken the income from lorry u/s 44 AE, he should not have debited the P/L account of M/s Kumar Stores by Rs.33,500/- under a head relating to tanker plying. Shri Singh stated in his letter that driver expense was not in respect of the lorry covered by section 44AE and this was incurred i.r.o. other tankers carrying goods to the dealer’s shop from Patna for paying as khoraki to driver drivers as per the trade practice prevalent in Bihar. I find that it is the duty of the concerned oil company to supply product to the retail outlet F.O.R. (from of rail/road) and a dealer who is not also transporter in this trade is not bound to incur any expenses in respect of either the vehicle or its drivers/cleaners etc. In view of the explanation offered I do not take this sum of Rs.33,500/- shown as ‘Driver Expense’ as a genuine business expense and as such disallow this sum and add back in the income.” As according to the petitioner, the exercise of powers by the Assessing Authority was clearly beyond the scope and intent of the provisions underlying section 148 of the Act, hence, he chose to challenge the said order on the question of jurisdiction by filing a revision under section 264 of the Act. The revision of the petitioner was dismissed by the Commissioner, Income Tax vide order 7 dated 12.6.2009 placed at Annexure-15 to the writ petition. As no appeal lies against an order passed under Section 264 of the Act either before the statutory authority under the Act or before this Court under section 260A of the Act, hence, the present writ petition. Learned counsel appearing on behalf of the petitioner, relying upon a number of judgments passed by the Supreme Court, submitted that a bare perusal of the order of re-assessment, manifests that this is a case of mere change of opinion by the successor in the office of the Assessing Authority. He submits that the power vested under section 148 of the Act, cannot be exercised on mere presumption and/or upon having a different opinion on a given set of facts which existed even at the stage of passing of the original assessment order. Learned counsel for the petitioner submits that although the notice initially was issued by recording three reasons as is manifest from Annexure-7, but the Assessing Authority upon consideration of the matter did not choose to proceed with the reasons recorded by him in so far as it related to the income shown in the TDS certificate, as also the reasons as regarding the number of lorries not being reflected in the returns. He submits that the enhancement of income 8 by addition of the value of lorry on a presumptive basis, not only runs counter to the provisions of section 44AE of the Act but is also based on assumptions and presumptions. In so far as the rejection of the driver‟s expenses is concerned, learned counsel submitted that the same is a mere change of opinion by the successor in office, inasmuch as, the Assessing Authority at the stage of the original assessment had taken note of the expenses claimed by the petitioner and had reduced the same by 5% on estimate basis, adding the same to the income returned by the petitioner. He, thus, submitted that on either counts, the order passed by the Assessing Authority as contained in Annexure-11, is contrary to the express provisions of section 148 of the Act and the legislative intent flowing there from. Learned counsel for the petitioner, in support of his submission, as regarding the scope and intent for exercise of powers vested under section 148 of the Act, relied upon an unreported judgment of the Supreme Court rendered in the case of the Commissioner of Income Tax, Delhi Vrs. M/s Kelvinator of India Limited, Dated 18.1.2010. Learned counsel, in support of his submission that having second thoughts on same set of facts and on the same material, would not warrant a proceeding 9 under section 147 of the Act, has relied upon a judgment of the Supreme Court reported in [AIR 1975 SC 703] ITO, Hyderabad Vs. Barkat Ali. The writ petition was contested by Mr. Rishi Raj Sinha, learned counsel appearing on behalf of the respondent department. Mr. Sinha, in respect of the assessment order, submitted that undoubtedly, the principles for exercise of powers under section 148 of the Act stands well settled by series of judgments passed by this Court and the Supreme Court, but the exercise of such powers has to be examined in the back drop of each case and there is no strait jacket formula. He submits that the explanation to section 147 of the Act also takes notice of the nature of cases like the one in hand. He submits that in the present case, the notice under section 148 of the Act was issued after obtaining approval of the Commissioner of Income tax which was granted on 20.3.2007. Learned counsel submitted that non inclusion of the value of the tanker in the balance sheet and debiting the amount against the driver‟s expenses were sufficient reasons for the exercise of powers under section 148 of the Act. He submits that this court would not enter into the issue of sufficiency of materials leading to exercise of powers under section 148 of the Act and the moment any material comes within the 10 knowledge of the Assessing Authority, he is well within his jurisdiction to exercise powers vested in him under section 148 of the Act. Learned counsel appearing on behalf of the department, in support of his submission, relied upon the following judgments of the Supreme Court reported in [203 ITR 456 (SC)] Phool Chand Bajrang Lal and another Vs. Income Tax Officer and Another, and [236 ITR 34 (SC)] Raymond Woollen Mills Ltd. Vs. Income Tax Officer and others. Learned counsel further submitted that the petitioner‟s petition to challenge the findings of the Assessing Authority under revision was not maintainable and in support of which, he relied upon a judgment of the Madras High Court reported in [243 ITR 861] Kadri Mills (Coimbatore) Ltd. Vrs. Commissioner of Income Tax. Learned counsel for the petitioner in response to the submissions of the counsel for the department, submitted that there is no dispute as regarding the powers of re-assessment vested in the Assessing Authority but while doing so, the Assessing Authority has to satisfy that the same is based on the information of a definite, specific and reliable nature and not being a mere change of opinion. He referred to the judgment of the Supreme Court on the issue reported in [AIR 1975 SC 1268] 11 Gemini Leather Stores V. The Income Tax Officer ‘B’ Ward Agra and others. We have heard learned counsel appearing for the respective parties at length and have also considered the materials available on the records of the proceedings. The fact that the petitioner was engaged in the business of wholesale dealership of kerosene oil of the Indian Oil Corporation and was being assessed to tax from year to year, is not in dispute. It is also not in dispute that the petitioner was also having income from the business of plying tank lorry under contract with the said oil company and which was being assessed under section 44AE of the Act since past years. The provisions of section 44AE of the Act begins with a non-obstante clause and over rides the provisions contained in section 28 to 43C of the Act, subject to the stipulations provided. This special provision is relatable to computation of profits and gains of business from plying, hiring or loading of goods carriages. The provisions proceeds on the principles of deemed income arising from the activities mentioned therein. A uniform income has been designed under the said provision to be computed arithmetically as per the carriages owned by the assessee returning his income under this provision. Sub-section (2) thereof provides the 12 rate at which the profits and gains would be calculated from each goods carriage. It has been stated and not controverted that the rate of calculation of profits and gains from each goods carriage during the relevant assessment year was Rs.2000 each month or part of the month. Sub-section (3) further provides that any deduction allowable under the provision of section 30 to 38 of the Act would be deemed to have been given effect to and no further deductions would be allowed except that where the assessee is a firm, the salary and interest paid to its partners shall be deducted subject to the conditions and limits provided under section 40(b) of the Act. Sub-section (4) further provides that the written down value of any asset used for the purpose of business shall be deemed to have been calculated as if it was claimed and allowed. Another provision which would be relevant for the present purpose would be found under section 69C which relates to unexplained expenditure during any financial year. It is manifest from the notice issued under section 148 of the Act as contained in Annexure-7 that the reasons recorded by the successor in office of the Assessing Authority raises three issues. The Assessing Authority, passing the impugned order of Assessment under Section 147 while has 13 accepted the explanation offered on behalf of the assessee as regarding non-mention of the income as reflected in the T.D.S, received from the oil company in relation to the tanker lorry in his books of account as also the answer that the assessee possessed only one tanker lorry, but he yet has proceeded to enhance the returned income of the petitioner by addition of the estimated value of the oil tanker at Rs.1,50,000/- and by disallowing the driver‟s expenses of Rs.33,500/-. Section 148 of the Act is not designed for correction of errors. It has a definite purpose and has to be undertaken with a specific object of netting escaped income. The foundation of such exercise has to be in the shape of information or materials which are definite in nature and not presumptuous or imaginary. The exercise of powers of special nature cannot be on mere suspicion or doubt in the minds of an Assessing Authority that certain income might have escaped notice at the stage of original assessment proceedings by the act of the assessee. The Supreme Court in the case of M/s Kelvinator Ltd. (supra), has held that there has to be “tangible material” for an Assessing Authority to reopen a case and to come to a conclusion that there is a escapement of income from assessment and that 14 the reasons so assigned must have a live link with the formation of the belief. I find that the reasons assigned by the Assessing Authority in justification of reopening of the assessment and for enhancement of the income returned by the assessee, does not satisfy the parameters set out for exercise of such powers and oft repeated in the judicial pronouncement. The Assessing Authority on the two issues, has simply mentioned that the value of the tanker is not included in the capital account and that the expenses of Rs.33,500/- was wrongly debited. Not being satisfied by the explanation given by the petitioner, the Assessing Authority proceeded to make an estimated value of the tanker lorry and added the same to the income returned by the petitioner. In my opinion, the Assessing Authority would not have done so without first giving a conclusive finding as to the information for formation of such belief. A perusal of the reasons in context with the valuation of the tanker lorry as set out in para-8 of the impugned order of the assessment manifests that the enhancement is sans any material, any document or any information in the possession of the Assessing Authority, of a definite nature. On the contrary, the order itself shows that the same has 15 been estimated on an inference being drawn presumptuously. Whether or not the assessee was noticed to explain the expenditure under section 69C of the Act at any stage, is nowhere discussed especially when the petitioner has been returning his income from the plying of oil tanker since past years. In absence of these important prerequisites to an exercise of power under section 148/147 of the Act, the formation of belief by the Assessing Authority on an inference drawn by him does not satisfy the test of there being any definite material or information coming within his possession for drawing such a conclusion and cannot be upheld. The second issue of enhancement is upon rejection of the claim of the petitioner towards the driver‟s expenses. I find from perusal of the order of assessment passed under section 143 of the Act and placed at Annexure-3 of the writ petition that the then Assessing Authority did take note of the expenses claimed by the petitioner upon verification of the papers, books of accounts etc; and after disallowing 5% of the such expenses, added the amount towards his income. Thus, the claim towards driver‟s expenses was within the knowledge of the Assessing Authority and also subject matter of consideration at the stage of the original assessment order. The finding of the successor in 16 office ignoring the findings of the predecessor on the issue and disallowing the same in its entirety, is undoubtedly a case of change of opinion on the same set of facts and cannot be permitted. For the reasons aforesaid, the impugned order of assessment dated 18.12.2007 as contained in Annexure-11 and the order passed on the revision dated 12.6.2009 as contained in Annexure-15, are set aside. The writ petition is allowed, but without any order as to costs. (Jyoti Saran,J) R.M.Doshit, CJ. I agree. (R.M.Doshit, CJ) ahk