THE HONOURABLE MR v. M/s.A.V.Thomas Exports Ltd

IN THE HIGH COURT OF JUDICATURE AT MADRASDATED : 08.06.2007Coram :THE HONOURABLE MR.JUSTICE P.D.DINAKARANANDTHE HONOURABLE MR.JUSTICE P.P.S.JANARTHANA RAJATax Case (Appeal) No.497 of 2007The Commissioner of Income-tax,Chennai. ..AppellantVsM/s.A.V.Thomas Exports Ltd.,60, Rukmani Lakshmipathy Salai,Egmore, Chennai-600 008. ..RespondentAppeal under Section 260A of the Income-tax Act, 1961 againstthe order of the Income Tax Appellate Tribunal, Chennai Bench"A", Chennai in I.T.A. No.567(Mds)/2003 dated 12.12.2005 for theassessment year 1990-91. Which has been preferred as against theorder dated 17.2.2003 made in ITA.No.Tv.130/2001-02/A-111 of theCommissioner of Income Tax (Appeals) III, Chennai against theorder of the Deputy Commissioner of Income Tax Company Circle IV(1) Chennai 6, dated 21.3.2001 for the Assessment year 1990-91with regard to PAN/GIR-458-A. For Appellant :Mr.J.Narayanaswamy,Standing Counsel forIncome-tax DepartmentJUDGMENT(Judgment of the Court was delivered byP.P.S.Janarthana Raja, J.)This appeal is filed under Section 260A of the Income TaxAct, 1961 by the Revenue, against the order of the Income TaxAppellate Tribunal, Chennai Bench "A", Chennai in I.T.A. No.567(Mds)/2003 dated 12.12.2005 raising the following substantialquestion of law:- https://hcservices.ecourts.gov.in/hcservices/ Whether in the facts and circumstances of thecase, the Tribunal was right in holding thatthe re-assessment beyond a period of 4 yearsfrom the end of the relevant assessment yearis time barred?2.The facts leading to the above substantial question oflaw are as under:The assessee is a domestic company in which the public aresubstantially interested. The assessee is engaged in themanufacture and export of garments. The relevant assessment yearis 1990-91 and the corresponding accounting year ended on31.03.1990. The original assessment was completed on 27.03.1992 on"Nil" income. In computation of total income, deduction from thegross total income under Section 80HHC was allowed to the extentof Rs.12,45,994/-. The balance of Rs.2,32,758/- was set offagainst the business loss. The total income was computed as"Nil". Later the assessment was reopened by the Assessing Officeron 19.08.1998 on the basis of Supreme Court decision reported in224 ITR 604, in the case of C.I.T. Vs. Kotagiri Industrial Co-operative Tea Factory Ltd. In that decision, the Supreme Courtheld that the unabsorbed income of earlier years are to be set offbefore allowing deduction under Chapter VI-A. The said decision,dated 05.03.1997, was not available at the time of completion ofthe assessment. Aggrieved by the order of reopening of theassessment, the assessee filed an appeal to the Commissioner ofIncome-tax (Appeals). The C.I.T.(A) dismissed the appeal andconfirmed the order of the the Assessing Officer. Aggrieved, theassessee filed an appeal to the Income-tax Appellate Tribunal("Tribunal" in short). The Tribunal allowed the appeal and setaside the order of the C.I.T.(A). Hence the present tax case isfiled by the Revenue. 3.Learned Standing Counsel appearing for the Revenuesubmitted that later, the Supreme Court laid down the law of theland and the reassessment has in effect brought the assessmentswithin the four corners of law and the extended period isavailable to the Revenue under the Act as the assessee had notdisclosed fully and truly all material facts necessary for theassessment. Further, it is submitted that there was excessivededuction under Section 80HHC of the Act which enabled the Revenueto reopen the assessment under the provision of law. 4.Heard the counsel. The original assessment wascompleted under Section 143(3) of the Act. The Assessing Officerapplied his mind and completed the said original assessment.There is no finding by the Assessing Officer that there is anyfailure on the part of the assessee resulting in the escapement ofincome. The Assessing Officer must give categorical finding forthe purpose of initiating reassessment under the proviso to https://hcservices.ecourts.gov.in/hcservices/ Section 147 of the Act. In this case the reassessment proceedingswere initiated after 31st March 1995 and hence the proceedingsinitiated by issue of notice under Section 148 is ab initio barredby limitation. In this case, the initiation of proceedings isafter a period of four years and the finding given by the Tribunalis that no income has escaped assessment by reason of failure onthe part of the assessee. Hence, there is no jurisdiction toreopen the assessment under the provision of Section 147 of theAct. The scope of the said provision has been considered by thisCourt in the case of Commissioner of Income-tax Vs. Elgi FinanceLtd., reported in 286 ITR 674, and the same reads 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 takenaway by the Amendment Act. Previously, the line ofdistinction was a limitation period of four years andthe limitation period exceeding four years. TheAssessing Officer would reopen a back assessment withina period of four years as long as he had reason tobelieve in consequence of any information, that incomehas been under-assessed or income has escapedassessment. In the case of limitation, providing for aperiod exceeding four years, there should have been afailure on the part of the assessee to disclose fullyand truly all material facts leading to the escapementof income. But as a result of the amendment broughtwith effect from April 1, 1989, the above distinctionhad been obliterated and the Assessing Officer couldreassess the income as long as he had reason to believethat income chargeable had escaped assessment. The newlaw has inserted a proviso to section 147 in thefollowing words: "Provided that where an assessment undersub-section(3) of section 143 or this sectionhas been made for the relevant assessmentyear, no action shall be taken under thissection after the expiry of four years fromthe end of the relevant assessment year,unless any income chargeable to tax hasescaped assessment for such assessment year byreason of the failure on the part of theassessee to make a return under section 139 orin response to a notice issued under sub-section (1) of section 142 or section 148 orto disclose fully and truly all material factsnecessary for his assessment for thatassessment year."In addition to the time-limits provided for undersection 149, the law has provided another limitation of https://hcservices.ecourts.gov.in/hcservices/ four years under the proviso to section 147. As far asthe above 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 offailure on the part of the assessee to disclose fullyand truly all material facts necessary for theassessment."5.The Tribunal has applied the correct principle of lawand held as follows:-"But whether recourse to section 147 could be madebeyond four years is the real question in the presentappeal. Circumstances for extending limitation beyondfour years do not exist in the facts of the presentcase. As such on the ground of limitation assumption ofjurisdiction under section 147 is bad. In the case ofCIT Vs. Foramer France 264 ITR 566 (S.C.), it was heldthat if there is no failure to file return or todisclose fully and truly all material facts, issuance ofnotice beyond the period of four years is barred bylimitation. In the case of CIT Vs. Annamalai FinanceLtd., 273 ITR 451 (Mad) it was held that section 147 ofthe Act does not postulate conferment of power upon theAssessing Officer to initiate reassessment proceedingsupon a mere change of opinion. It is incumbent on theAssessing Officer to prove that there was a failure todisclose material facts necessary for the assessment forthe issuance of notice beyond the period of four years.11. It is true that the Apex Court does not make the lawfrom the date it is pronounced but from ab initio. Thistheory is based on the principle of ACTUS CURIE NEMINEMGRAVIBIT (An act of the court shall prejudice no man).The party ought not to be prejudiced by the delay, butshould be allowed to enter up his judgmentretrospectively to meet the ends of justice. Whenhighest court of the land declares a principle of law,it should be assumed as if this was the law for alltime. But law is not an antique to be abroad, dustedand put back on the shelf. It is dynamic in nature. Itis often difficult to describe with exactitude thecorrect position of law at a given point of time. Tillthe time apex body determines the correct positionthings go as per the interpretation of law made bycompetent courts. At time there may arise cleavage ofjudicial opinion. But matter gets settled when SupremeCourt adjudicates it. Inability to anticipate the viewto be taken by the apex court cannot be termed asfailure on the part of the assessee. Previous knowledgenever becomes non existent it goes on developing in thelap of time. Human knowledge is always improving and https://hcservices.ecourts.gov.in/hcservices/ progressing. The world was assumed to be flat until itbecame known that the would is found. That does notmean that gravitation did not exist before Newton'sdiscovery of the law of gravitation. Human knowledge isnever static. Theory of evolution of Darwin does notmake the previous knowledge non existent. Humanknowledge, as we have mentioned, is always progressing.So relativity was always there but we became aware onlyafter Einstein. This is the basic difference betweendiscovery and invention. The information about the lawon the basis of which 147 proceedings were initiated,was not there until the Supreme Court says it to be so.Therefore, what the Orissa High Court has held at thattime was a relevant judicial interpretation as to thelaw. In the circumstances it cannot be said that incomeescaped assessment by reason of failure on the part ofthe assessee."From a reading of the above, it is clear that the Tribunal hadgiven a categorical finding by applying the law enunciated by theSupreme Court judgment in the case of Commissioner of Income-taxVs. Foramer France, reported in 264 ITR 566, as well as this Courtjudgment cited supra and come to the correct conclusion. Hence wedo not find any error or legal infirmity in the order of theTribunal so as to warrant interference. Under thesecircumstances, no substantial question of law arises forconsideration of this Court and accordingly the tax case isdismissed. No costs. kmSd/Asst.Registrar/true copy/Sub Asst.RegistrarTo1. The Assistant Registrar, Income-tax Appellate Tribunal, Chennai Bench "A", Chennai.2. The Asst Registrar, Income Tax Appellate Tribunal, Rajaji Bhavan, Bensand Nagar, Chennai(5 Copies) 3. The Secretary, Central Board of Direct Taxes, New Delhi. https://hcservices.ecourts.gov.in/hcservices/

4. The Commissioner of Income-tax (Appeals)III, Chennai-600 034.5. The Deputy Commissioner of Income-tax, Company Circle-IV(1), Chennai-600 006.+ 1 cc to Mrs. Pushyasitaraman, Sr Standing Counsel for Income Tax(33544)PPV(CO)SR/20.6.2007 T.C.(A) No.497 of 2007