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2003 DIGILAW 195 (CAL)

IMC LTD. v. JOINT COMMISSIONER OF INCOME-TAX

2003-04-22

GIRISH CHANDRA GUPTA

body2003
GIRISH CHANDRA GUPTA, J. ( 1 ) THE subject matter of challenge in this writ petition comprises two several notices both dated February 12, 1999, issued under Section 10 of the Interest-tax Act, 1974, seeking to reopen the assessment of income for the assessment years 1993-94 and 1994-95 on the ground that the Joint Commissioner of Income-tax has reasons to believe that income from interest chargeable to tax for the aforesaid years escaped assessment within the meaning of Section 10 of the Interest-tax Act, 1974. The facts of the case briefly stated are as follows : income for the assessment year 1993-94 was assessed by Sri S. K. Biswas, Deputy Commissioner of Income-tax, under Section 143 (3) of the Income-tax Act, 1961, on March 19, 1996, holding, inter alia, as follows :"the assessee is an exporter of molasses and leather goods. Besides this the assessee has shown income from rent from storage tanks, handling charges, throughput, interest, etc. The return was processed under Section 143 (1) (a) and was subsequently selected for scrutiny. . . . . . The assessee is not an investment company and profit or loss arising out of share dealing is treated as speculation profit and loss. " ( 2 ) THE income for the assessment year 1994-95 was assessed by Sri P. D. Meena, Deputy Commissioner of Income-tax, on September 11, 1996, holding, inter alia, as follows :"the assessee-company is an exporter of molasses and leather goods. Besides these, the assessee-company has shown income from rent from storage tanks, handling charges, throughput, interest, dividend, profit on sale of fixed assets, shares speculation loss and also share of profit in A. V. R. and Company (Madras ). . . . . . . . The assessee is not an investment company and profit or loss arising out of share dealings is treated as speculation profit or loss. " ( 3 ) AFTER completion of regular assessment under Section 143 (3) of the Income-tax Act, 1961, for the aforesaid years Sri S. R. Sikdar, Joint Commissioner of Income-tax, issued the impugned notices under Section 10 of the Interest-tax Act, 1974. It is significant that within ten days thereafter the self-same Mr. " ( 3 ) AFTER completion of regular assessment under Section 143 (3) of the Income-tax Act, 1961, for the aforesaid years Sri S. R. Sikdar, Joint Commissioner of Income-tax, issued the impugned notices under Section 10 of the Interest-tax Act, 1974. It is significant that within ten days thereafter the self-same Mr. Sikdar assessed the income of the petitioner for the assessment year 1996-97 under Section 143 (3) of the Income-tax Act holding, inter alia, as follows :"it is noticed that the main business of the assessee was to export molasses abroad. In addition to molasses business, the assessee has shown income from leasing business, molasses handling, interest income, service charges, some dividend income and profit from sale of investment. " ( 4 ) THE petitioner challenged the aforesaid notices both dated February 12, 1999, seeking to reopen the assessment under Section 10 of the Interest-tax Act, 1974, inter alia, on the ground that condition precedent for exercise of power under that section does not exist and that the change of opinion is not a ground for reopening. The petition was moved on April 12, 1999, when an interim order was granted. ( 5 ) ON behalf of the Revenue, the same Mr. Sikdar has affirmed an affidavit, seeking to justify the impugned notices stating, inter alia, as follows :"in this case assessment for both the years, i. e. , for the assessment years 1993-94 and 1994-95 were completed under Section 143 (3) of the Income-tax Act, 1961, on March 19, 1996, and September 11, 1996, respectively, on the basis of returns filed and subsequently revised by the assessee. Thereafter, the Revenue audit raised objection after examining the income-tax assessment records that the assessee was liable to pay interest-tax under the Interest-tax Act, 1974. Since no interest-tax return was filed by the assessee and no assessments were made in respect of the assessment years there was a total loss of revenue amounting to Rs. 26. 32 lakhs. As instructed by the Central Board of Direct Taxes under Instruction No. 1928, dated August 7, 1995, remedial action has been initiated by issuing notice under Section 10 of the Interest-tax Act, 1974. 26. 32 lakhs. As instructed by the Central Board of Direct Taxes under Instruction No. 1928, dated August 7, 1995, remedial action has been initiated by issuing notice under Section 10 of the Interest-tax Act, 1974. " ( 6 ) THE instruction said to have been issued by the Central Board of Direct Taxes read, inter alia, as follows :"remedial action should invariably be initiated as a precautionary measure in respect of all audit objections, even if the objection is not accepted by the Commissioner of Income-tax. Where an objection is accepted, suitable remedial action should be initiated and completed expeditiously. " ( 7 ) THE audit objection, however, has not been disclosed. In the said affidavit two several reasons recorded prior to issuance of the aforesaid notices have also been disclosed which read as follows :" (a) In this case, it is found from the income-tax record that the assessment records of a closely held company for the assessment year 1993-94 revealed that the assessee's total income of Rs. 361. 25 lakhs included amount of Rs. 252. 66 lakhs on account of interest bills of exchange which attracted levy of interest-tax. However, the assessee did not file interest-tax return for the assessment year 1993-94. Issue notice under Section 10 of the Interest-tax Act, 1974. (b) In this case, it is found from the income-tax record that the assessment records of a closely held company for the assessment year 1993-94 revealed that the assessee's total income of Rs. 22. 93 lakhs included amount of Rs. 145. 45 lakhs on account of interest bills of exchange which attracted levy of interest-tax. However, the assessee did not file interest-tax return for the assessment year 1994-95, issue notice under Section 10 of the Interest-tax Act, 1974. 22. 93 lakhs included amount of Rs. 145. 45 lakhs on account of interest bills of exchange which attracted levy of interest-tax. However, the assessee did not file interest-tax return for the assessment year 1994-95, issue notice under Section 10 of the Interest-tax Act, 1974. " ( 8 ) THE factual position which emerges from the aforesaid narration of facts briefly stated is that income including income on account of interest was assessed to income-tax for the assessment year 1993-94 by Sri Biswas and for the assessment year 1994-95 by Sri Meena, holding that the petitioner was not an investment company and thereafter pursuant to (a) objection raised by the audit stating that "the assessee was liable to pay interest-tax under the Interest-tax Act, 1974" ; (b) instructions of the Central Board of Direct Taxes to take remedial measure wherever there is an audit objection, reasons were recorded by the Joint Commissioner of Income-tax for issuance of notice under Section 10 and notices in fact were issued by Mr. Sikdar. ( 9 ) MR. Saha, learned counsel appearing on behalf of the Revenue, submitted that the impugned notices were issued under Section 10 (b) of the Interest-tax Act, 1974, which provides as follows"10. If-- (b) notwithstanding that there has been no omission or failure as mentioned in Clause (a) on the part of the assessee, the Assessing Officer has in consequence of information in his possession, reason, to believe that chargeable interest assessable for any assessment year has escaped assessment or has been underassessed or has been the subject of excessive relief under this Act, he may, in cases falling under Clause (a) at any time, and in eases falling under Clause (b), at any time within four years of the end of that assessment year, serve on the assessee a notice containing all or any of the requirements which may be included in a notice under Section 7, and may proceed to assess or reassess, the amount chargeable to interest-tax, and the provisions of this Act shall, so far as may be, apply, as if the notice were a notice issued under that section. " ( 10 ) WITHOUT dilating it can at once be held that the impugned notice seeking to reopen the assessment for the assessment year 1993-94 is bad because it is out of time. " ( 10 ) WITHOUT dilating it can at once be held that the impugned notice seeking to reopen the assessment for the assessment year 1993-94 is bad because it is out of time. However, the validity of the notice seeking to reopen the assessment for the assessment year 1994-95 has got to be examined. ( 11 ) DR. Pal, the learned senior advocate, appearing for the petitioner, submitted that it was not open to the concerned officer to initiate reassessment proceedings on the basis of the objection raised by the audit that the income from interest was assessable under the Interest-tax Act, 1974. In support of his submission he has relied upon the case of Indian and Eastern Newspaper Society v. CIT, wherein their Lordships of the Supreme Court laid down the law as follows (page 1004) :"in the present case, an internal audit party of the income-tax Department expressed the view that the receipts from the occupation of the conference hall and rooms did not attract Section 10 of the Act and that the assessment should have been made under Section 9. While sections 9 and 10 can be described as law, the opinion of the audit party in regard to their application is not law. It is not a declaration by a body authorised to declare the law. That part alone of the note of an audit party which mentions the law which escaped the notice of the Income-tax Officer constitutes 'information' within the meaning of Section 147 (b); the part which embodies the opinion of the audit party in regard to the application or interpretation of the law cannot be taken into account by the Income-tax Officer. In every case, the Income-tax Officer must determine for himself what is the effect and consequence of the law mentioned in the audit note and whether in consequence of the law which has now come to his notice he can reasonably believe that income has escaped assessment. The basis of his belief must be the law of which he has now become aware. The opinion rendered by the audit party in regard to the law cannot, for the purpose of such belief, add to or colour the significance of such law. In short, the true evaluation of the law in its bearing on the assessment must be made directly and solely by the Income-tax Officer. The opinion rendered by the audit party in regard to the law cannot, for the purpose of such belief, add to or colour the significance of such law. In short, the true evaluation of the law in its bearing on the assessment must be made directly and solely by the Income-tax Officer. Now, in the case before us, the Income-tax Officer had, when he made the original assessment, considered the provisions of Sections 9 and 10. Any different view taken by him afterwards on the application of those provisions would amount to a change of opinion on material already considered by him. The Revenue contends that it is open to him to do so, and on that basis to reopen the assessment under Section 147 (b ). Reliance is placed on Kalyanji Mavji and Co. v. CIT, where a Bench of two learned judges of this court observed that a case where income had escaped assessment due to the 'oversight, inadvertence or mistake' of the Income-tax Officer must fall within Section 34 (1) (b) of the Indian Income-tax Act, 1922. It appears to us, with respect, that the proposition is stated too widely and travels farther than the statute warrants in so far as it can be said to lay down that if, on reappraising the material considered by him during the original assessment, the Income-tax Officer discovers that he has committed an error in consequence of which income has escaped assessment, it is open to him to reopen the assessment. In our opinion, an error discovered on a reconsideration of the same material (and no more) does not give him that power. That was the view taken by this court in Maharaj Kumar Kamal Singh v. CIT ; CIT v. A. Raman and Co. and Bankipur Club ltd. v. CIT and we do not believe that the law has since taken a different course. Any observations in Kalyanji Mavji and Co. v. CIT suggesting the contrary do not, we say with respect, lay down the correct law. " ( 12 ) MR. Sana, the learned advocate appearing for the Revenue, submitted that the audit does have power to point out a fact which has been overlooked by the Income-tax Officer. Any observations in Kalyanji Mavji and Co. v. CIT suggesting the contrary do not, we say with respect, lay down the correct law. " ( 12 ) MR. Sana, the learned advocate appearing for the Revenue, submitted that the audit does have power to point out a fact which has been overlooked by the Income-tax Officer. In support of his submission he relied on the case of CIT v. P. V. S. Beedies Pvt. Ltd. That was a case wherein the apex court opined that a factual mistake overlooked by the Income-tax Officer can be pointed out by the audit and the Income-tax Officer can act upon that because that would not be a case of information on a question of law. ( 13 ) THE submission made by Mr. Saha is correct but does not apply to the facts of this case because in the present case according to the affidavit of Mr. Sikdar the audit has opined that the income from interest was taxable under the Interest-tax Act, 1974. Therefore, it is a legal opinion which they have given and on the basis thereof the taxing authorities have acted in issuing the impugned notices. ( 14 ) THERE is another reason why I am of the view that the notices are bad because it is a clear case of change of opinion based on the opinion of the audit. Change of opinion does not authorise initiation of proceedings for reopening the assessment. Reference in this regard can be made to the case of ITO v. Lakhmani Mewal Das, wherein their Lordships held as follows (page 445) :"it would appear from the perusal of the provisions reproduced above that two conditions have to be satisfied before an Income-tax Officer acquires jurisdiction to issue notice under Section 148 in respect of an assessment beyond the period of four years but within a period of eight years from the end of the relevant year, viz. , (1) the Income-tax Officer must have reason to believe that income chargeable to tax has escaped assessment, and (2) he must have reason to believe that such income has escaped assessment by reason of the omission or failure on the part of the assessee (a) to make a return under Section 139 for the assessment year to the Income-tax Officer, or (b) to disclose fully and truly material facts necessary for his assessment for that year. Both these conditions must co-exist in order to confer jurisdiction on the Income-tax Officer. It is also imperative for the Income-tax Officer to record his reasons before initiating proceedings as required by Section 148 (2 ). Another requirement is that before notice is issued after the expiry of four years from the end of the relevant assessment years, the Commissioner should be satisfied on the reasons recorded by the Income-tax Officer that it is a fit case for the issue of such notice. We may add that the duty which is cast upon the assessee is to make a true and full disclosure of the primary facts at the time of the original assessment. Production before the Income-tax Officer of the account books or other evidence from which material evidence could with due diligence have been discovered by the Income-tax Officer will not necessarily amount to disclosure contemplated by law. The duty of the assessee in any case does not extend beyond making a true and full disclosure of primary facts. Once he has done that his duty ends. It is for the Income-tax Officer to draw the correct inference from the primary facts. It is no responsibility of the assessee to advise the Income-tax Officer with regard to the inference which he should draw from the primary facts. If an Income-tax Officer draws an inference which appears subsequently to be erroneous, mere change of opinion with regard to that inference would not justify initiation of action for reopening assessment," ( 15 ) I also have my reservations as to the legality of the instructions issued by the Central Board of Direct Taxes the relevant portion whereof has been quoted hereinabove. However, I am not called upon to decide this issue because this was not urged on behalf of the petitioner. ( 16 ) FOR the aforesaid reasons, the impugned notices are quashed. There will be no order as to costs. However, I am not called upon to decide this issue because this was not urged on behalf of the petitioner. ( 16 ) FOR the aforesaid reasons, the impugned notices are quashed. There will be no order as to costs. ( 17 ) PRAYER for stay of operation of this judgment and order is considered and rejected.