The Commissioner of Income-tax,Tamil Nadu-I, Madras v. M/s.Tamil Nadu Transport Development Finance Corporation Limited

IN THE HIGH COURT OF JUDICATURE AT MADRASDATED : 06.07.2007Coram :THE HONOURABLE MR.JUSTICE P.D.DINAKARANANDTHE HONOURABLE MR.JUSTICE P.P.S.JANARTHANA RAJATax Case (Appeal) No.1029 of 2007The Commissioner of Income-tax,Tamil Nadu-I, Madras. ..Appellant/Appellant Vs.M/s.Tamil Nadu Transport Development Finance Corporation Limited, Tamil Nadu Tourism Complex IV Floor,Near Kalaivanar Arangam, Wallaja Road,Chennai-600 002. ..Respondent/RespondentAppeal under Section 260A of the Income-tax Act, 1961 againstthe order of the Income Tax Appellate Tribunal, Chennai Bench 'C',Chennai in I.T.A. No.1726/Mds/2004 dated 19.01.2007 for theassessment year 1997-98, against the order of the Commissioner ofIncome Tax (Appeals) III, 121, Mahatma Gandhi Road, Chennai 34dated 18.3.2004 in ITA.No.374/2003-07/A-III against the order ofthe Assistant Commissioner of Income Tax Company Circle III (1)Chennai dated 14.1.2004 and made in GIR.No.PAN 31020-T/AAACT 0747Lfor the assessment year 1997-98.For Appellant :Mr.J.Narayanaswamy, Standing Counsel forIncome-tax Department JUDGMENT(Judgment of the Court was delivered byP.P.S.Janarthana Raja, J.)This appeal is filed under Section 260A of the Income Tax Act,1961 by the Revenue, against the order of the Income Tax AppellateTribunal, Chennai Bench 'C', Chennai in I.T.A. No.1726/Mds/2004dated 19.01.2007, raising the following substantial question oflaw:- https://hcservices.ecourts.gov.in/hcservices/ "Whether on the facts and in the circumstancesof the case, the Income-tax Appellate Tribunalwas right in law in upholding the order of theCommissioner of Income-tax (Appeals) andaccordingly the reopening of the assessmentunder section 147 read with section 148 is heldas bad in law, even though the facts andcircumstances of the case fall within theexemption provided in Explanation 1 to section147 of the Income-tax Act, 1961?"2.The facts leading to the above substantial question oflaw are as under:-The assessee is a Company. It is a Government of IndiaUndertaking. The relevant assessment year is 1997-98 and thecorresponding accounting year ended on 31.03.1997. Regularassessment was completed on 30.03.1999 under Section 143(3) of theIncome-tax Act ("Act" in short), determining the income atRs.11,40,72,670/-. Subsequently it was noticed that the interestaccrued and receivable by the assessee company from anothercompany, viz., M/s.Tamil Nadu State Civil Construction CorporationLimited amounting to Rs.148.69 lakhs, was omitted to be brought totax. In view of the same, notice under Section 148 of the Act wasissued on 24.06.2003. The assessee had sent a reply stating thatReturn of income filed earlier could be treated as filed inresponse to the notice under Section 148 of the Act. Theinformation regarding interest accrued and receivable fromM/s.Tamil Nadu State Civil Construction Corporation Limited wasvery much available in the 22nd Annual Report of the assesseecompany, which was filed along with the original Return of income.The Assessing Officer completed the reassessment under Section 143(3) r/w Section 147 of the Act by including interest accrued andreceivable from M/s.Tamil Nadu State Civil Construction CorporationLimited. Aggrieved by the reopening of the assessment, theassessee filed an appeal to the Commissioner of Income-tax(Appeals). The C.I.T.(A) accepted the contention of the assesseeand allowed the appeal and held that reopening of the assessmentunder Section 148 is bad in law. Aggrieved, the Revenue filed anappeal to the Income-tax Appellate Tribunal ("Tribunal" in short).The Tribunal dismissed the Revenue's appeal and confirmed the orderof the C.I.T.(A). Hence the present appeal by the Revenue.3.Learned Standing Counsel appearing for the Revenuesubmitted that the interest accrued and receivable by the assesseecompany from another Government Company, Viz., M/s.Tamil Nadu StateCivil Construction Corporation Limited, amounting to Rs.148.69lakhs was omitted to be brought to tax. It is further submittedthat the mere statement in the Annual Report about the conversionof the interest into loan and recognition of interest does notamount to full disclosure of the materials at the time of https://hcservices.ecourts.gov.in/hcservices/ completing the assessment under Section 143(3) of the Income-taxAct. It is also further submitted that the present case would fallwithin the Explanation 1 to Section 147 of the Act. Hence theAssessing Officer is right in reopening the assessment. 4.Heard the counsel. In the original assessmentproceedings the Assessing Officer had considered all the detailsfiled by the assessee and only thereafter, completed the assessmentunder Section 143 of the Act. Based on the same details and otherdocuments filed along with the Return, the assessment wascompleted. There is no failure on the part of the assessee todisclose fully and truly all material facts. The assessee hasfiled a copy of the 22nd Annual Report along with the Return ofincome. The C.I.T.(A), in his order, held as follows:-"I have carefully considered the above submission andperused the assessment records. The appellant has fileda copy of its 22nd Annual Report along with return ofincome. Para 3.0(a) page 28 of the Annual Report readsas under:-"The interest on the term loan granted toKeerapalayam Panchayat Union / TNSCC forconstruction of a bridge across Vellar Rivernear Sethiathope accounted for in the accountsupto 31.3.95 on consistent basis was Rs.224.82lakhs. The Government under G.O.Ms.No.77,Transport Department, dt.3.4.96 stated that outof the interest due of Rs.397 lakhs on theprincipal upto 31.3.95, Rs.100 lakhs should bewaived and should treat the balance amount ofRs.297 lakhs as a fresh loan with effect from1.4.95 at 12% simple interest repayable in fiveannual instalments. Even though Govt. havedirected to treat the interest of Rs.297 lakhsdue as loan since the borrower is a defaulterab initio as a prudent measure and as per theprudential norms on income recognition issuedby RBI the interest income received will betaken into account on realisation basis. Theamount not taken into account is Rs.72.18 lakhsbeing the difference in interest provided bythe Company and Rs.297 lakhs allowed by theGovernment and Rs.76.51 lakhs being interest at12% on Rs.297 lakhs for 1995-96 and 1996-97 andpenal interest. However a sum of Rs.15.39lakhs being the toll charges received from STUsduring the year 1995-96 has also been taken torevenue for 1996-97. As such the TNSCC amountnot taken into account is Rs.148.69 lakhs".The above information has been taken as a basis to hold that theincome of Rs.148.69 lakhs has escaped assessment. This informationwas available with the Assessing Officer in the course of original https://hcservices.ecourts.gov.in/hcservices/ assessment proceeding. He did not made any addition at the time ofcompleting the original assessment. In fact, in the present case,the assessee had disclosed all the material facts before theAssessing Officer. The Tribunal, in paragraph-5 of its order, heldas follows:-"The facts are undisputed. During the courseof hearing the ld Departmental Representativehas not controverted the fact that reopening isafter four years and also the reopening ofassessment is based on the 22nd Annual Reportwhich was filed along with the return ofincome. He only argued that the AssessingOfficer could not notice this interest accruedand receivable is on account of escapement ofincome. On a query from the Bench, the ldDepartmental Representative could not state anyfailure on the part of the assessee to discloseany material facts necessary for thisassessment. As the proviso to sec.147, is veryclear that where the assessment is made undersection 143(3) of the Act, then no action shallbe taken under this section after the expiry offour years from the end of relevant assessmentyear unless income chargeable to tax hasescaped assessment for the relevant assessmentyear by reason of failure on the part of theassessee to disclose fully and truly all thematerial facts necessary during the course oforiginal assessment proceedings. The conditionsas enumerated in the proviso in the presentcase are not met with by the Revenue, whileissuing notice under section 148 for reopeningof assessment under section 147 of the Act. Itis a fact that during the course of originalassessment proceedings the informationregarding interest accrued and receivable bythe assessee from another Government Companyi.e M/s.Tamil Nadu State Civil ConstructionCorporation Limited was very much available inthe 22nd Annual Report, which was filed with theoriginal return of income. In any case itcannot be said that the above income was notadded during course of original assessmentproceedings due to the failure on the part ofthe assessee to disclose fully and truly allmaterial facts necessary for assessment."Hence the finding by the authorities below is that the Revenuefailed to prove that there is a failure on the part of the assesseeto disclose any material facts necessary for assessment. Hencethey have rightly come to the conclusion that when the assessmentis made under Section 143(3) of the Act, no action shall be taken https://hcservices.ecourts.gov.in/hcservices/ under Section 147 of the Act after the expiry of four years fromthe end of relevant assessment year unless there is a failure onthe part of the assessee to disclose fully and truly all materialfacts necessary for assessment. This Court also considered thescope of proviso to Section 147 of the Act in a number ofjudgments. In the case of Commissioner of Income-tax Vs. ElgiFinance Ltd., reported in 286 ITR 674, this Court considered thescope of proviso to Section 147 of the Act and held as follows:-"The law relating to the reassessment has undergone achange from April 1, 1989. The change was brought in bythe Direct Tax Laws (Amendment) Act, 1987. Two sets ofprovisions were available under section 147 in clause (a)and clause (b). This distinction has now been taken awayby the Amendment Act. Previously, the line ofdistinction was a limitation period of four years and thelimitation period exceeding four years. The AssessingOfficer would reopen a back assessment within a period offour years as long as he had reason to believe inconsequence of any information, that income has beenunder-assessed or income has escaped assessment. In thecase of limitation, providing for a period exceeding fouryears, there should have been a failure on the part ofthe assessee to disclose fully and truly all materialfacts leading to the escapement of income. But as aresult of the amendment brought with effect from April 1,1989, the above distinction had been obliterated and theAssessing Officer could reassess the income as long as hehad reason to believe that income chargeable had escapedassessment. The new law has inserted a proviso tosection 147 in the following words: "Provided that where an assessment under sub-section(3) of section 143 or this section hasbeen made for the relevant assessment year, noaction shall be taken under this section afterthe expiry of four years from the end of therelevant assessment year, unless any incomechargeable to tax has escaped assessment forsuch assessment year by reason of the failureon the part of the assessee to make a returnunder section 139 or in response to a noticeissued under sub-section (1) of section 142 orsection 148 or to disclose fully and truly allmaterial facts necessary for his assessment forthat assessment year."In addition to the time-limits provided for under section149, the law has provided another limitation of fouryears under the proviso to section 147. As far as theabove proviso to section 147 is concerned, the lawprescribes a period of four years to initiatereassessment proceedings, unless the income alleged tohave escaped assessment was made out as a result of https://hcservices.ecourts.gov.in/hcservices/ failure on the part of the assessee to disclose fully andtruly all material facts necessary for the assessment."In the present case, the assessment year is 1997-98 and theAssessing Officer issued notice for reopening under Section 148 on24.06.2003, which is beyond four years after the end of theassessment year. Hence it is clearly barred by limitation underproviso to Section 147 of the Act. Following the above principle,the Tribunal is correct in its conclusion that reopening is bad inlaw. The concurrent finding given by both the authorities below isbased on valid materials and evidence. In the case of Commissionerof Income-tax Vs. P.Mohanakala [2007] 291 ITR 278 (SC), the SupremeCourt held that whenever there is a concurrent finding by theauthorities below, no interference should be called for by the HighCourt. Under these circumstances, we do not find any error orlegal infirmity in the order of the Tribunal so as to warrantinterference. 5.In view of the foregoing reasons, no substantial questionof law arises for consideration of this Court and accordingly, thetax case is dismissed. No costs. kmSd/Asst.Registrar/true copy/Sub Asst.RegistrarTo1. The Assistant Registrar, Income-tax Appellate Tribunal, Chennai Bench 'C', Chennai.2. The Commissioner of Income-tax (Appeals) III, Chennai-600 034.3. The Assistant Commissioner of Income-tax, Company Circle III(1), Chennai-34.4. The Commissioner of Income Tax, Tamil Nadu I, Madras.5. The Assistant Registrar, the Income Tax Appellate, Rajaji Bhavan III Floor, Besant Nagar, Chennai 90.+ 1 cc to M/s. Pushyasitarman, Advocate SR No. 41070BV(CO)SR/25.7.2007 T.C.(A) No.1029 of 2007