Section 147, read with section 148, of the Income-tax Act, 1961 - Income escaping assessment - Non-disclosure of primary facts - Assessment years 1990-91 to 1992-93 and 1994-95 - Whether Assessing Officer recording reasons under section 148(2) and Assessing Officer issuing notice under section 148(1) has to be same person; successor Assessing Officer cannot issue notice under section 148 on basis of satisfaction recorded by predecessor Assessing Officer, because reason to believe that income liable to tax for assessment year has escaped assessment within meaning of section 147 has to be of Assessing Officer concerned, viz., Assessing Officer issuing notice under section 148 - Held, yes - Whether where assessee had disclosed fully or truly all material facts necessary for his assessment and while framing assessment of assessee under section 143(3), Assessing Officer had allowed assessee’s claim for deduction under sections 80HH and 80-I stating that assessee was a manufacturing concern, reopening of said assessment beyond period of four years from end of relevant assessment year merely on change of opinion was invalid under law - Held, yes
Hynoup Food & Oil Industries Ltd. v. Assistant Commissioner of Income-tax
For the assessment years 1990-91 to 1992-93 the Assessing Officer framed the assessments of the assessee under section 143(3) wherein he allowed the claim of deduction under sections 32A, 80HH and 80-I stating that the assessee was to be treated as manufacturing concern in view of decision of the Commissioner (Appeals) given in the assessment years 1987-88 and 1989-90 where against no second appeal was filed. Subsequently, in course of the assessment proceedings for the assessment year 1994-95, the Assessing Officer on appraisal of the activities carried out by the assessee, i.e. refining of various oil, observed that the same did not amount to manufacture or production of article as per the requirement of provisions of sections 80HH and 80-I. He also observed that as per the rule prescribed in Appendix-I to rule 5, the motor bus and motor lorries not used in the business of running them on hire were included in block of machinery and plant on which depreciation under section 32 was admissible at the rate of 25 per cent from assessment year 1988-89 onwards, but the assessee had claimed depreciation at 40 per cent on transportation vehicles used in its own business and not in the business of running them on hire. Therefore, the Assessing Officer issued notices under section 148, which were challenged by the assessee by way of instant petitions.
After perusing the reasons recorded by the Assessing Officer, which were produced before the Court along with the affidavit dated 3-7-2008, the Court, in the case of the assessee for the assessment years 1990-91 and 1991-92, passed an order on 3-7-2008 observing that on going through the reasons recorded it was noticed that the reasons had been recorded and signature had been appended by one ‘R’, while the impugned notices under section 148 had been issued by one C. The Court, therefore, asked the revenue to verify the records and state whether the officer, who had issued the notice under section 148, had recorded his satisfaction as to escapement of income, or whether there was any noting to suggest that the successor officer had agreed with the reasons recorded by the predecessor officer. While issuing such directions, the Court observed that the aforesaid exercise was necessitated in light of the opening portion of section 147 which stipulates that action may be initiated if Assessing Officer has reason to believe that any income chargeable to tax has escaped assessment for any assessment year. When this provision is read in conjunction with section 148(2) which mandates that the Assessing Officer shall, before issuing any notice under section 148, record his reasons for issuing the notice, it is clear that the Officer recording the reasons under section 148(2) and the officer issuing notice under section 148(1) has to be the same person. The Court was, therefore, of the prima facie view that a successor officer cannot issue notice under section 148 on the basis of the satisfaction recorded by the predecessor officer because the reason to believe has to be of the officer concerned, viz., the officer issuing the notice under section 148. Nothing had come on the record to indicate that the officer, who had issued the notice under section 148 had recorded his satisfaction as to escapement of income. Therefore, so far as assessment years 1990-91 and 1991-92 were concerned, the Officer, who had issued the notices under section 148 was different than the officer, who had recorded the reasons and, hence, the notices for both those years were invalid and deserved to be quashed on that solitary ground. [Para 9]
The notices of reopening for assessment years 1990-91, 1991-92 and 1994-95 were issued beyond the period of four years from the end of the relevant assessment years. The proviso to section 147 is very clear, which says that where an assessment under sub-section (3) of section 143 has been made for the relevant assessment year, no action shall be taken under section 147 after the expiry of four years from the end of the relevant assessment year, unless the income chargeable to tax has escaped assessment for such assessment year by reason of the failure on the part of the assessee to disclose fully or truly all material facts, necessary for his assessment for that assessment year. From the facts found on record, it could hardly be believed that there was failure on the part of the assessee to disclose fully or truly all material facts. As far as the claim under section 80-I and 80HH was concerned, it had come on record that at the time of framing of the original assessment orders under section 143(3), the claim of deduction under sections 80HH and 80-I was allowed, stating that the assessee was treated as a manufacturing concern in view of the Commissioner (Appeals)’s decision given in the assessment years 1987-88 and 1989-90 and no second appeal was filed against the order of the Commissioner (Appeals) by the Department before the Tribunal. Even otherwise, from the reasons recorded, it appeared that during the course of assessment proceedings for the assessment year 1994-95, the Assessing Officer had come to knowledge that the assessee was not entitled to the relief under sections 80-I and 80HH; and that the assessee had claimed depreciation at a higher rate and, therefore, the reason were recorded on 26-3-1997 for assessment year 1992-93 and on 21-1-1998 for assessment years 1990-91 and 1991-92. Despite those facts, the claim of the assessee for depreciation was allowed by the Assessing Officer while framing the assessment for the assessment year 1994-95 on 31-3-1997. It, therefore, had become clear that there was no omission or failure on the part of the assessee to disclose all material facts fully and truly. At the most, it was merely a change of opinion which could not empower the Assessing Officer to issue the notice of reopening under section 148 beyond the period of four years. [Para 10]
Even with regard to depreciation, the reasons recorded by the Assessing Officer for the assessment years 1992-93 and 1994-95 contained factual errors as the assessee had not claimed depreciation at the rate of 40 per cent. The assessee had claimed the depreciation at the rate of 33.33 per cent, which was the relevant rate prescribed under the first schedule. Therefore, the reopening of the assessment beyond the period of four years from the end of the relevant assessment year was invalid under the law and deserved to be quashed. [Para 11]
So far as the assessment year 1992-93 was concerned, it was true that the notice was issued within a period of four years. However, the Assessing Officer had applied his mind at the time of framing of the original assessment and considering the earlier decision of the Commissioner (Appeals), the claim regarding sections 80HH and 80-I was allowed by him. He took different view only because of the fact that another Assessing Officer during the course of the assessment year 1994-95 made an inquiry and took a different view that the assessee was not entitled to the relief under section 80HH and 80-I. That would amount to a change of opinion on the same facts, which were available before the Assessing Officer. Such a change of opinion would not confer jurisdiction on the Assessing Officer to issue the notice under section 148. Even otherwise, ultimately, the assessee was entitled to claim depreciation equivalent to the costs of the article, where in a given year, the rate applicable was 25 per cent or 40 per cent. However, in the subsequent years, the depreciation could be allowed and I no case, more than 100 per cent depreciation would be allowed to the assessee. It was, therefore, clear that only for the limited purpose, if the notices were issued under section 148, their validity could not be upheld. Therefore, the reopening of assessment for the assessment year 1992-93 was also not valid. [Para 12]