Full Judgment Text
2012:BHC-OS:1068-DB
VBC 1 wpl2784.11-24.1
IN THE HIGH COURT OF JUDICATURE AT BOMBAY
O. O. C. J.
WRIT PETITION (L) NO.2784 OF 2011
Sitara Diamond Pvt. Ltd. ...Petitioner.
Vs.
Dy. Commissioner of Income Tax,
Circle 8(3) & Ors. ...Respondents.
....
Mr.Percy J.Pardiwala, Senior Advocate with Mr.Pankaj Toprani for
the Petitioner.
Mr.Arvind Pinto for the Respondents.
.....
CORAM : DR.D.Y.CHANDRACHUD AND
M.S.SANKLECHA, JJ.
January 24, 2012 .
ORAL JUDGMENT (PER DR.D.Y.CHANDRACHUD, J.) :
Rule; with the consent of Counsel for the parties
returnable forthwith. With the consent of Counsel and at their
request the Petition is taken up for hearing and final disposal .
2. In these proceedings under Article 226 of the
Constitution, the Petitioner has challenged the validity of a notice
issued on 20 June 2011, under Section 148 of the Income Tax Act,
1961, by which an assessment for Assessment Year 200506 is
sought to be reopened.
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3. The Petitioner filed its return of income on 26 October
2005 for Assessment Year 200506 and claimed a deduction under
Section 10A in the amount of Rs.1.04 crores. The Assessing Officer
passed an order of assessment under Section 143(3) on 10
December 2008. The Assessing Officer in the course of the order
noted that the contention of the assessee “has been examined along
with the facts of the case”. The order noted that “the business
activity of the assessee is manufacturing of jewellery in a Special
Economic Zone.” However, the Assessing Officer came to the
conclusion that the Petitioner would not be entitled to the entire
deduction as claimed, having regard to the words “derived from”
used in Section 10A. The order of the Assessing Officer, the Court
has been informed by the Counsel appearing on behalf of the
Assessee, was carried in appeal to the CIT (Appeals) and the
quantification of the deduction was modified in the appeal. The
assessment for Assessment Year 200506 is now sought to be
reopened on the basis of an assessment order that was passed for
Assessment Year 200708. The reasons which have been furnished
to the assessee record that during the course of the scrutiny
proceedings for Assessment Year 200708, the claim of the assessee
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for exemption under Section 10A was examined and it was held
that the assessee merely acts as a facilitator for its parent company
and is not a manufacturer or exporter. The assessment proceedings
for Assessment Year 200506 are sought to be reopened purely on
the basis of the findings contained in the assessment order for
Assessment Year 200708.
4. Counsel appearing on behalf of the Petitioner submitted
that the reopening of the assessment is beyond a period of four
years from the end of the relevant assessment year. Consequently,
the jurisdictional condition which must be fulfilled is that there
must be a failure on the part of the assessee to disclose fully and
truly all material facts necessary for assessment for that assessment
year. The sole basis for reopening the assessment is the order of
assessment passed in Assessment Year 200708. The reasons do
not exfacie contain any elaboration of how the assessee is alleged
to have failed to disclose fully and truly all material facts necessary
for the assessment for Assessment Year 200506. As a matter of
fact, during the course of the assessment proceedings for
Assessment Year 200506, the Assessing Officer considered the
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facts of the case and entered a finding that the assessee carried on
a business activity of manufacturing jewellery in a Special
Economic Zone. Moreover, it was submitted that against the order
passed by the Assessing Officer for Assessment Year 200708, an
appeal was filed by the assessee before the CIT (Appeals), who
allowed the appeal by his order dated 5 July 2011. Counsel,
however, fairly drew the attention of the Court to the fact that the
order of the CIT (Appeals) allowing the appeal of the assessee for
Assessment Year 200708 and granting a deduction under Section
10A was passed after the assessment for Assessment Year 200506
was sought to be reopened.
5, On the other hand, it has been submitted on behalf of
the Revenue that the assessee had failed to disclose all material
facts for Assessment Year 200506, particularly in regard to the
relationship between the assessee and its parent company with
whom, according to the Revenue, the assessee has only a
facilitation agreement.
6. We have considered the rival submissions. By the
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impugned notice dated 20 June 2011, the assessment for
Assessment Year 200506 is sought to be reopened beyond a
period of four years of the end of the relevant assessment year.
The condition precedent to the exercise of the jurisdiction to
reopen an assessment beyond a period of four years as spelt out
in the proviso to Section 147 is that there ought to be a failure on
the part of the assessee to disclose fully and truly all material facts
necessary for assessment for that assessment year. In the present
case, the sole basis on which the assessment proceedings were
sought to be reopened is the order which has been passed on 5 July
2011 for Assessment Year 200708. In that order, according to the
Revenue, it has been held that the assessee acts as a mere
facilitator and is not a manufacturer so as to entitle it to the
deduction under Section 10A. The issue, however, before the
Court, is as to whether that can form the basis of the reopening of
the assessment beyond a period of four years. The reasons which
have been disclosed by the Assessing Officer do not set out as to
what facts the assessee had failed to fully and truly disclose. Even
a prima facie reference to the basis on which it is sought to be
inferred that there was a failure to disclose all material facts has
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not been set out in the reasons. In that view of the matter, we are
of the view that the primary jurisdictional requirement for
reopening the assessment beyond a period of four years has not
been fulfilled in this case. Since the order passed by the CIT
(Appeals) for Assessment Year 200708 has been passed after the
assessment for Assessment Year 200506 has been sought to be
reopened by the notice dated 29 June 2011, we have, for the
purposes of this discussion, kept that circumstance out of
consideration. We have come to the conclusion that the Assessing
Officer having failed to establish that there was a failure on the
part of the assessee to disclose fully and truly all material facts for
Assessment Year 200506, the reopening beyond a period of four
years is clearly not valid. There was a finding of fact by the
Assessing Officer in the assessment order for Assessment Year
200506 that the business activity of the assessee is manufacturing
of jewellery in a Special Economic Zone. That finding, as the
assessment order notes,was based upon a consideration of the facts
of the case and upon examining the contentions of the assessee.
7. For these reasons, the Petition has to be allowed. Rule is
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accordingly made absolute by quashing and setting aside the
impugned notice dated 20 June 2011. There shall be no order as to
costs.
( Dr.D.Y.Chandrachud, J.)
( M.S.Sanklecha, J. )
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IN THE HIGH COURT OF JUDICATURE AT BOMBAY
O. O. C. J.
WRIT PETITION (L) NO.2784 OF 2011
Sitara Diamond Pvt. Ltd. ...Petitioner.
Vs.
Dy. Commissioner of Income Tax,
Circle 8(3) & Ors. ...Respondents.
....
Mr.Percy J.Pardiwala, Senior Advocate with Mr.Pankaj Toprani for
the Petitioner.
Mr.Arvind Pinto for the Respondents.
.....
CORAM : DR.D.Y.CHANDRACHUD AND
M.S.SANKLECHA, JJ.
January 24, 2012 .
ORAL JUDGMENT (PER DR.D.Y.CHANDRACHUD, J.) :
Rule; with the consent of Counsel for the parties
returnable forthwith. With the consent of Counsel and at their
request the Petition is taken up for hearing and final disposal .
2. In these proceedings under Article 226 of the
Constitution, the Petitioner has challenged the validity of a notice
issued on 20 June 2011, under Section 148 of the Income Tax Act,
1961, by which an assessment for Assessment Year 200506 is
sought to be reopened.
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3. The Petitioner filed its return of income on 26 October
2005 for Assessment Year 200506 and claimed a deduction under
Section 10A in the amount of Rs.1.04 crores. The Assessing Officer
passed an order of assessment under Section 143(3) on 10
December 2008. The Assessing Officer in the course of the order
noted that the contention of the assessee “has been examined along
with the facts of the case”. The order noted that “the business
activity of the assessee is manufacturing of jewellery in a Special
Economic Zone.” However, the Assessing Officer came to the
conclusion that the Petitioner would not be entitled to the entire
deduction as claimed, having regard to the words “derived from”
used in Section 10A. The order of the Assessing Officer, the Court
has been informed by the Counsel appearing on behalf of the
Assessee, was carried in appeal to the CIT (Appeals) and the
quantification of the deduction was modified in the appeal. The
assessment for Assessment Year 200506 is now sought to be
reopened on the basis of an assessment order that was passed for
Assessment Year 200708. The reasons which have been furnished
to the assessee record that during the course of the scrutiny
proceedings for Assessment Year 200708, the claim of the assessee
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for exemption under Section 10A was examined and it was held
that the assessee merely acts as a facilitator for its parent company
and is not a manufacturer or exporter. The assessment proceedings
for Assessment Year 200506 are sought to be reopened purely on
the basis of the findings contained in the assessment order for
Assessment Year 200708.
4. Counsel appearing on behalf of the Petitioner submitted
that the reopening of the assessment is beyond a period of four
years from the end of the relevant assessment year. Consequently,
the jurisdictional condition which must be fulfilled is that there
must be a failure on the part of the assessee to disclose fully and
truly all material facts necessary for assessment for that assessment
year. The sole basis for reopening the assessment is the order of
assessment passed in Assessment Year 200708. The reasons do
not exfacie contain any elaboration of how the assessee is alleged
to have failed to disclose fully and truly all material facts necessary
for the assessment for Assessment Year 200506. As a matter of
fact, during the course of the assessment proceedings for
Assessment Year 200506, the Assessing Officer considered the
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facts of the case and entered a finding that the assessee carried on
a business activity of manufacturing jewellery in a Special
Economic Zone. Moreover, it was submitted that against the order
passed by the Assessing Officer for Assessment Year 200708, an
appeal was filed by the assessee before the CIT (Appeals), who
allowed the appeal by his order dated 5 July 2011. Counsel,
however, fairly drew the attention of the Court to the fact that the
order of the CIT (Appeals) allowing the appeal of the assessee for
Assessment Year 200708 and granting a deduction under Section
10A was passed after the assessment for Assessment Year 200506
was sought to be reopened.
5, On the other hand, it has been submitted on behalf of
the Revenue that the assessee had failed to disclose all material
facts for Assessment Year 200506, particularly in regard to the
relationship between the assessee and its parent company with
whom, according to the Revenue, the assessee has only a
facilitation agreement.
6. We have considered the rival submissions. By the
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impugned notice dated 20 June 2011, the assessment for
Assessment Year 200506 is sought to be reopened beyond a
period of four years of the end of the relevant assessment year.
The condition precedent to the exercise of the jurisdiction to
reopen an assessment beyond a period of four years as spelt out
in the proviso to Section 147 is that there ought to be a failure on
the part of the assessee to disclose fully and truly all material facts
necessary for assessment for that assessment year. In the present
case, the sole basis on which the assessment proceedings were
sought to be reopened is the order which has been passed on 5 July
2011 for Assessment Year 200708. In that order, according to the
Revenue, it has been held that the assessee acts as a mere
facilitator and is not a manufacturer so as to entitle it to the
deduction under Section 10A. The issue, however, before the
Court, is as to whether that can form the basis of the reopening of
the assessment beyond a period of four years. The reasons which
have been disclosed by the Assessing Officer do not set out as to
what facts the assessee had failed to fully and truly disclose. Even
a prima facie reference to the basis on which it is sought to be
inferred that there was a failure to disclose all material facts has
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not been set out in the reasons. In that view of the matter, we are
of the view that the primary jurisdictional requirement for
reopening the assessment beyond a period of four years has not
been fulfilled in this case. Since the order passed by the CIT
(Appeals) for Assessment Year 200708 has been passed after the
assessment for Assessment Year 200506 has been sought to be
reopened by the notice dated 29 June 2011, we have, for the
purposes of this discussion, kept that circumstance out of
consideration. We have come to the conclusion that the Assessing
Officer having failed to establish that there was a failure on the
part of the assessee to disclose fully and truly all material facts for
Assessment Year 200506, the reopening beyond a period of four
years is clearly not valid. There was a finding of fact by the
Assessing Officer in the assessment order for Assessment Year
200506 that the business activity of the assessee is manufacturing
of jewellery in a Special Economic Zone. That finding, as the
assessment order notes,was based upon a consideration of the facts
of the case and upon examining the contentions of the assessee.
7. For these reasons, the Petition has to be allowed. Rule is
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accordingly made absolute by quashing and setting aside the
impugned notice dated 20 June 2011. There shall be no order as to
costs.
( Dr.D.Y.Chandrachud, J.)
( M.S.Sanklecha, J. )
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