THE HIGH COURT OF DELHI AT NEW DELHI
% Judgment delivered on: 23.04.2013
+ WP (C) 7943/2011
RURAL ELECTRIFICATION CORP LTD ... Petitioner
versus
COMMISSIONER OF INCOME TAX-(LTU)
AND ANOTHER ... Respondents
Advocates who appeared in this case:
For the Appellant : Mr M. S. Syali, Sr Advocate with Mr Satyen Sethi,
Mr Mayank Nagi and Mr A. T. Panda
For the Respondents : Mr Kiran Babu
CORAM:-
HON'BLE MR JUSTICE BADAR DURREZ AHMED
HON'BLE MR JUSTICE VIBHU BAKHRU
JUDGMENT
BADAR DURREZ AHMED, J (ORAL)
1. This writ petition pertains to the assessment year 2004-05. It is
directed against the notice under Section 148 of the Income-tax Act, 1961
(hereinafter referred to as `the said Act') issued on 21.03.2011, whereby the
assessment of the petitioner is sought to be reopened. The purported
reasons for believing that income had escaped assessment are as under:-
"11. Reasons for the belief that income has escaped
assessment.
WP (C) No.7943/11 Page 1 of 7
1. In this case assessment under section 143(3) was
completed on 24.2.2005 at an income of Rs.5,52,50,73,110/-.
The assessee company is a public financial institution engaged
in business of providing finance for rural electrifications and is
not an industrial undertaking. It has incurred an expenditure of
Rs.5,34,20,000/- on account of issue of long term bond / debt
instrument. The expense was incurred for borrowing long term
debt instruments which give a benefit of enduring nature and
hence the assessee should have capitalized the same. But the
assessee claimed these expenses as revenue expense instead of
capital expense.
2. Information from Addl. CIT, Karimnagar Range,
Karimnagar was received that the assessee company had
advanced a loan to M/s. The Cooperative Electrical supply
Society Ltd., Siricilla. This Society has created a corpus of
special fund amounting to Rs.10 crores. The society earned
interest on this special fund but did not disclose it in its return
for the reason that the money belonged to M/s. REC i.e.
Assessee Company and any income earned was also on behalf
of Assessee Company. The ITAT, Hyderabad in its
consolidated order in ITA No. 1112 to 1115 & 1198 to 1199 of
2005, 1635 of 2008 and 570 of 2009 dated 13.01.2010 for
assessment year 1999-00 to 2006-07 had held that this income
was not taxable in the hands of the society but ought to be taxed
in the hands of the assessee company. The ACIT-Cir-1,
Karimnagar has quantified such income at Rs.24,50,000/- on
account of interest on REC Bonds & Rs.45,44,199/- on account
of interest from commercial banks.
3. I have therefore reasons to believe that income of
Rs.6,04,14,199/- has escaped assessment within the meaning of
section 147 which warrants issue of notice under section 148."
2. It is an admitted position that the notice under Section 148 was
issued beyond the period of four years from the end of the assessment year
WP (C) No.7943/11 Page 2 of 7
2004-05, the same having been issued on 21.03.2011. As such, the
conditions stipulated in the proviso to Section 147 would have to be
complied with. Mr Syali, the learned senior counsel appearing on behalf of
the petitioner, submitted that one of the essential conditions stipulated in
the proviso to Section 147 was that there must be an allegation that the
assessee had failed to disclose fully and truly all the material facts
necessary for his assessment and that because of such failure there has been
an escapement of income chargeable to tax. He submitted that it would be
evident from the aforesaid purported reasons that there is no such
allegation. Consequently, relying on the decision of this court in the case
of Haryana Acrylic Manufacturing Company v. The Commissioner of
Income Tax IV and Anr.: (2009) 308 ITR 38 (Delhi), he submitted that
the impugned notice and all proceedings pursuant thereto are liable to be set
aside.
3. The learned counsel for the revenue submitted that all the procedural
requirements necessary for re-opening the assessment had been complied
with by taking the necessary permission from the Commissioner before the
notice under Section 148 had been issued. He also submitted that the
petitioner had not shown the interest income mentioned in the `reasons' in
WP (C) No.7943/11 Page 3 of 7
its return for the relevant year. The interest income in question arose out of
the loan advanced by the petitioner to the Cooperative Electrical Supply
Society Limited (Siricilla). The circumstances in which the interest income
arose are indicated in the purported reasons which have been extracted
above. It was contended on behalf of the revenue that it was only pursuant
to the Tribunal's order that the notice under Section 148 had been issued.
Therefore, according to the learned counsel for the respondent, it was only
complying with the directions given by the Tribunal. The learned counsel
for the respondent / revenue also stated that the limitation prescribed in
Section 149 would not, in any event, come in the way of the respondent
inasmuch as the provisions of Section 150 would be applicable. He further
submitted that, apart from the question of the interest income escaping
assessment, there was also the issue of the income escaping assessment on
the ground that the petitioner had claimed expenses as `revenue expenses'
which were actually of a `capital' nature.
4. We have considered the submissions made by the learned counsel for
the parties. Insofar as the plea of the learned counsel for the revenue with
regard to Section 150 of the said Act is concerned, that issue stands
concluded by virtue of our decision in respect of the very same assessee in
WP (C) No.7943/11 Page 4 of 7
WP (C) No.7944/2011 and other connected writ petitions decided today
itself. We have concluded in those writ petitions that the provisions of
Section 150 would not be applicable. The very same conclusions would
apply to the present case also.
5. As regards the plea taken by Mr Syali that there is no allegation with
regard to the failure on the part of the petitioner to fully and truly disclose
all the material facts necessary for the petitioner's assessment, we find that
this aspect is clearly covered in favour of the petitioner by virtue of our
decision in Haryana Acrylic (supra). In that case, we had observed as
under:-
"29. In the reasons supplied to the petitioner, there is no
whisper, what to speak of any allegation, that the petitioner had
failed to disclose fully and truly all material facts necessary for
assessment and that because of this failure there has been an
escapement of income chargeable to tax. Merely having a
reason to believe that income had escaped assessment, is not
sufficient to reopen assessments beyond the four year period
indicated above. The escapement of income from assessment
must also be occasioned by the failure on the part of the
assessee to disclose material facts, fully and truly. This is a
necessary condition for overcoming the bar set up by the
proviso to Section 147. If this condition is not satisfied, the bar
would operate and no action under Section 147 could be taken.
We have already mentioned above that the reasons supplied to
the petitioner does not contain any such allegation.
WP (C) No.7943/11 Page 5 of 7
Consequently, one of the conditions precedent for removing the
bar against taking action after the said four year period remains
unfulfilled. In our recent decision in Wel Intertrade Private
Ltd.[2009] 308 ITR 22 (Delhi) we had agreed with the view
taken by the Punjab & Haryana High Court in the case of Duli
Chand Singhania [2004] 269 ITR 192 that, in the absence of an
allegation in the reasons recorded that the escapement of
income had occurred by reason of failure on the part of the
assessee to disclose fully and truly all material facts necessary
for his assessment, any action taken by the Assessing officer
under Section 147 beyond the four year period would be wholly
without jurisdiction. Reiterating our view-point, we hold that
the notice dated 29.03.2004 under Section 148 based on the
recorded reasons as supplied to the petitioner as well as the
consequent order dated 02.03.2005 are without jurisdiction as
no action under Section 147 could be taken beyond the four
year period in the circumstances narrated above."
6. In the present case also, there is no whisper in the purported reasons
of the petitioner having failed to disclose fully and truly all the material
facts necessary for its assessment. Therefore, the necessary ingredients of
the provisions of Section 147 are not satisfied. In view thereof, the revenue
cannot also raise the ground with regard to the expenses being of a `capital'
nature, whereas the petitioner had claimed it as `revenue expenditure'.
7. Therefore, in whichever way we look at this case, we find that the
initiation of reopening of the assessment pertaining to the assessment year
WP (C) No.7943/11 Page 6 of 7
2004-05 did not have the backing of law. Consequently, the impugned
notice under Section 148 and all proceedings pursuant thereto, including
the assessment order passed pursuant thereto are liable to be set aside. It is
ordered accordingly. The writ petition is allowed. There shall be no order
as to costs.
BADAR DURREZ AHMED, J
VIBHU BAKHRU, J
April 23, 2013
dutt
WP (C) No.7943/11 Page 7 of 7
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