Mehta Sulfites India Ltd , Mumbai vs Assessee

Mehta Sulfitesh India Ltd. Vs. Asst. Comm. Of Income Tax, A302 Golden Oak, Circle 10(2), Hiranandani Gardens, 4th Floor, Powai, Aaykar Bhavan, Mumbai - 400 076. Mumbai.

PAN/GIR No. AAACM3109R Appellant Respondent

Assessee By Shri M. Subramaniam Revenue By Shri Yogesh Kamat.

Date of hearing 18.05.2015 Date of pronouncement 29.5.2015 ORDER Per G.S. Pannu, AM

The captioned four appeals have been preferred by the assessee pertaining to assessment years 1999-2000 and 2001-02 to 2003-04. Since the appeals relate to the same assessee and involves a common issue, they have been heard together and a consolidated order is being passed for the sake of convenience and brevity. First, we shall take up the appeal of assessee in ITA No. 2028/Mum/2008 which is directed against the order of the Commissioner of Income Tax (Appeals) [hereinafter referred to as 'the CIT(A)'] dated 14.01.2008 2 Mehta Sulfitesh India Ltd.

which in-turn has arisen from an order passed by the Assessing Officer u/s 144 r.w.s 147 of the Income Tax Act, 1961( hereinafter referred to as 'the Act') dated 31.08.2006 pertaining to assessment year 1999-2000.

2. In this appeal, the pertinent point raised by the assessed is with regard to the validity of the proceedings initiated by issuance of notice u/s 148 of the Act, dated 13.03.2006. Since the aforesaid issue goes to the root of the matter, the same is being adjudicated at the threshold.

3. The appellant is a company incorporated under the provisions of Companies Act, 1956 and for the assessment year 1999-2000, it filed a return of income on 30.12.1999 declaring total income of 'Nil' under the normal provisions of the Act and Rs. 12,83,483/- in terms of section 115JA of the Act. The said return of income was subject to a scrutiny assessment and in an order passed u/s 144 of the Act dated 28.03.2002, total income of the assessee was assessed at Rs. 1,04,43,840/-. Subsequently, the assessment for the assessment year 1999-2000 was re-opened on the ground that certain income chargeable to tax had escaped assessment, and accordingly a notice was issued u/s 148 of the Act was issued on 13.03.2006. Pursuant thereto, an assessment order has been passed u/s 144 r.w.s 147 of the Act, dated 31.08.2006, wherein, claim of depreciation on plant and machinery amounting to Rs. 11,05,512/- was disallowed, which is the subject matter of dispute before us. Apart from assailing the merits of the disallowance, the plea of the assessee is that the issuance of notice u/s 148 of the Act dated 13.03.2006 is bad in law because the reasons recorded by the Assessing Officer were not sanctioned by the prescribed competent authority u/s 151 (2) of the Act.

4. In order to appreciate, the aforesaid, we may reproduce hereinafter the reasons recorded by the Assessing Officer to formulate a belief that certain income chargeable to tax has escaped assessment for the instant year on account of assessee's claim of depreciation on plant machinery. The reasons recorded read as under:-

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"It is seen from the records that in the block assessment in this group of cases, it was observed by the A.O. that assessee company had made non-genuine purchases and inflated cost of plant and machinery of Rs. 44.22 lacs. Assessee company claimed depreciation on this plant and machinery. However, Ld. CIT(A) deleted the addition made in block assessment on the ground that the action could be taken at the time of regular assessments. It is seen from the records that the depreciation has not been withdrawn on bogus addition to plant and machinery of Rs. 44.22 lacs. I have reason to believe that income chargeable to tax for A.Y. 1999- 2000 has escaped assessment for failure on the part of the assessee company to disclose fully and truly all the material facts for assessment for A.Y. 1999-2000"

5. The case set up by the assessee is that the sanction for issuance of notice u/s 148 of the Act was required to be obtained from the Joint Commissioner, whereas, in the present case, it is the Commissioner, who has granted the sanction, which is in violation of the requirements of section 151(2) of the Act. In support, reliance has been placed on the Judgment of Hon'ble Bombay High Court in the case of Ghanshyam K. Khabrani V. Assistant Commissioner of Income Tax and Others 346 ITR 443(Bom).

6. In the above context, our attention was drawn to the communication of the Assessing Officer dated 3.3.2006 in the prescribed format seeking permission for issuance of notice u/s 148 of the Act. We have perused the said communication and find that the reasons for escapement have been duly recorded, as extracted above, and thereafter, it is the Commissioner who has recorded his satisfaction for issuance of notice u/s 148 of the Act. The foresaid factual position is not disputed, and it shows that the Commissioner has granted approval to the Assessing Officer for issuance of notice u/s 148 of the Act..

7. Section 151 of the Act, provides for sanction for issuance of notice u/s 148 of the Act. The Learned Representative referred to sub-section(2) of section 151 of the Act, which prescribes that no notice shall be issued u/s 148 by an Assessing Officer, who is below the rank of 'Joint Commissioner', after the expiry of four years from the end of the relevant assessment year, unless the Joint Commissioner is satisfied, on the reasons recorded by such Assessing Officer, that it is a fit case for the issue of such notice. Sub-section (2) of section 151 of

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the Act is applicable to cases other than those falling in sub-section (1) thereof. Sub-section (1) governs cases where an assessment under section 143(3) or section 147 has been made for the relevant assessment year.

8. In the case before us, it is undisputed that it shall be governed by the provisions of sub-section (2) of section 151 of the Act, inasmuch as the original assessment has not been made u/s 143(3) or u/s 147 of the Act. Thus, the provisions of sub-section (2) of section 151 of the Act get attracted. In the present case, the notice u/s 148 of the Act, has been issued on 13.03.2006, which is after the expiry of four years from the end of the relevant assessment year i.e. 1999-2000. The material on record also establishes without doubt that the Assessing Officer has not obtained the sanction of 'Joint Commissioner' and instead the sanction has been obtained from the Commissioner. Under an identical situation, the Hon'ble Bombay High Court in the case of Ghanshyam K. Khabrani (supra), held that the notice issued u/s 148 of the Act, was not a valid notice. In the present case, the Assessing Officer has forwarded the proposal to the Commissioner of Income Tax who has granted the approval for issuance of notice u/s 148 of the Act. Quite clearly, the provisions of section 151(2) of the Act mandate the satisfaction of a Joint Commissioner for the exercise of power by the Assessing Officer and ostensibly the same is missing in the present case. As a consequence, following the ratio laid down by the Hon'ble Bombay High Court , it has to be held that the notice u/s 148 of the Act, dated 13.03.2006 is contrary to law, and as a consequence, the impugned assessment finalized thereto is liable to be quashed. We hold so.

9. In the result, appeal of the assessee for assessment year 1999-2000 vide ITA No. 2028/Mum/2008 is allowed as above.

10. In so far as the other three appeals of the assessee are concerned, the Ld. Representative for the assessee has raised a common issue, whereby, the assessments made by the Assessing Officer have been assailed on the ground that the same were beyond the jurisdiction of the Assessing Officer. The proposition

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canvassed by the assessee is that the impugned assessments made by the Assessing Officer are lacking in jurisdiction because the incomes assessed were not referred to in the reasons recorded for issuance of notice u/s 148 of the Act, while the income referred to in the notices of re-assessment has not been assessed at all. In support of the said proposition, reliance has been placed on the Judgment of Hon'ble Bombay High Court in the case of Commissioner of Income-Tax Vs. Jet Airways (I) Ltd. 331 ITR 236 (Bom).

11. In order to appreciate the factual matrix, a reference be made to appeal for assessment year 2001-02, vide ITA No. 2029/Mum/2008. This appeal is directed against the order of the CIT(A) dated 14.01.2008 which in-turn has arisen from an order passed by the Assessing Officer u/s 144 r.w.s 147 of the Income Tax Act, 1961, dated 31.08.2006 pertaining to assessment year 2001-02.

12. In this case, assessee did not file a return of income u/s 139(1) of the Act. Subsequently, notice u/s 148 of the Act was issued on 29.03.2006. The reasons recorded by the Assessing Officer for re-opening of assessment, a copy of which is placed in the Paper Book at page 4, read as under:-

"It is seen from the records that in the block assessment in this group of cases, it was observed by the A.O. that assessee company had made non-genuine purchases and inflated cost of plant and machinery of Rs. 44.22 lacs. Assessee company claimed depreciation on this plant and machinery. However, Ld. CIT(A) deleted the addition made in block assessment on the ground that the action could be taken at the time of regular assessments.

It is seen from the records that the depreciation has not been withdrawn on bogus addition to plant and machinery of Rs. 44.22 lacs.

I have reason to believe that income chargeable to tax for A.Y. 1999-2000 has escaped assessment for failure on the part of the assessee company to disclose fully and truly all the material facts for assessment for A.Y. 1999-2000"

13. Ostensibly, the reasons recorded by the Assessing Officer are pari materia to those recorded by him while reopening the assessment for assessment year 1999-2000, which we have dealt with in the earlier paras. The reasons recorded

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show that the Assessing Officer formulated the belief of escapement of income on the ground that depreciation has not been withdrawn with respect to the non- genuine and inflated cost of plant and machinery.

14. In the ensuing assessment made u/s 144 r.w.s 147 dated 31.08.2006, the Assessing Officer has assessed an income of Rs. 25 lacs as income from other sources, whereas the business income has been accepted at Nil.

15. On the strength of the aforesaid, the Ld. Representative pointed out that it was beyond the jurisdiction of the Assessing Officer to make an addition of Rs. 25 lacs under the head income from other sources, because the income referred to in the notice of re-assessment has not been assessed, namely, withdrawal of depreciation on plant and machinery.

16. The Ld. DR appearing for the Revenue has contended that the assessee did not furnish the requisite material called for by the Assessing Officer in the course of assessment proceedings and, therefore, the impugned addition.

17. We have carefully considered the rival submissions. Section 147 of the Act, empowers the Assessing Officer to assess or re-assess an income which has escaped assessment for the relevant assessment year. The said section also permits the Assessing Officer to assess or re-assess any other income chargeable to tax which has escaped assessment and which comes to his notice subsequently in the course of proceedings under the said section. So, however, the latter income can be subjected to assessment or re-assessment only if the income contained in the notice of re-assessment has been assessed by him. The Hon'ble Bombay High Court in the case of Commissioner of Income-Tax Vs. Jet Airways (supra), has explained that the Assessing Officer has to assess or re-assess the income which escaped assessment and which was the basis of formation of his

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belief, that if he does so, only then he can also assess or re-assess any other income which has escaped assessment and which comes to his notice during the course of proceedings. However, if after issuing a notice u/s 148, he comes to a finding that the income, for which he has initially formed a belief that it had escaped assessment, as a matter of fact has not escaped assessment, then it is not open to him, instead to assess some other income. If he intends to do so, a notice u/s 148 would be necessary. In other words, in the context of the present controversy, where the Assessing Officer has passed an assessment order accepting the business income at Nil i.e. he accepted that the income had not escaped assessment qua the allowance of depreciation on plant & machinery, therefore, it was not open to him to instead assess Rs. 25 lacs under the head income from other sources and, that too, on an estimate basis. In our considered opinion, the fact situation in the case before us is fully covered by the ratio of Judgment of Hon'ble Bombay High Court in the case of Commissioner of Income- Tax Vs. Jet Airways (I) Ltd. (supra), and following thereto, we hold that there was no jurisdiction with the Assessing Officer to assess the impugned sum of Rs. 25 lacs as income from other source. The said action of the Assessing Officer is hereby set aside and the assessee succeeds.

18. In the result appeal of the assessee for assessment year 2001-02 is allowed, as above.

19. In so far as the appeals for assessment years 2002-03 and 2003-04 are concerned, the facts and circumstances therein are pari materia to those in the assessment year 2001-02, which has been considered by us in the earlier paras. Therefore, our decision in the appeal for assessment year 2001-02 will apply mutatis mutandis in the appeal for assessment years 2002-03 and 2003-04 also. Resultantly, the appeal for assessment years 2002-03 and 2003-04 are also allowed.

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20. In the result, captioned appeals of the assessee are allowed, as above.

Order pronounced in the open court on this 29th day of May 2015.

Sd/- Sd/-

(Sanjay Garg) (G.S. Pannu) (Judicial Member) (Accountant Member)

Mumbai dated 29 -05-2015 SKS Sr. P.S,

Copy to: 1. The Appellant 2. The Respondent 3. The concerned CIT(A) 4. The concerned CIT 5. The DR, "B" Bench, ITAT, Mumbai By Order

Assistant Registrar Income Tax Appellate Tribunal, Mumbai Benches, MUMBAI

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