STERLITE INFRA LTD,CHENNAI vs. ACIT 2(3), MUMBAI

We have heard the ld. Authorized Representative (AR) of assessee and the ld. Departmental Representative (DR) for the Revenue and gone through the orders of authorities below. The ground No. 1 & 2 relates to the validity of re-opening proceeding u/s 147 r.w. section 148 of the Act. The Ld. AR of the assessee argued that during the assessment proceeding for Ay 2008-09, the assessment of AY 2004- 05 was re-opened. The return of income for relevant AY under consideration filed on 3 & 7221/M/2012 M/s Sterlite Infra Ltd. 31.10.2004. The return of income was processed u/s 143(1) of the Act on 16.02.2005. Four years period from the end of relevant AY was completed on 31.03.2009. The notice u/s 148 was issued on 23.03.2011. The notice was issued beyond the four years from the end of relevant AY. The ld. AR of the assessee further argued that AO has not recorded his satisfaction about failure on the part of assessee to disclose fully and truly all material fact necessary for his assessment or for that Assessment Year. In support of submission that assessment was reopened beyond the four years of end of relevant AY. The ld. AR for assessee in alternative argued that permission for re-opening from competent person as required u/s 151 of the Act, was not obtained by AO. The ld. AR of the assessee further argued that necessary permission should have been obtained from JCIT as provided u/s151(2). In support of alternative submission, the ld. AR of the assessee relied upon the decision of Hon’ble jurisdictional High Court in D S J Communication vs. DCIT (2014) 41 taxmann.com 151 (Bom), decision of Delhi High Court in CIT vs. SPL’S Siddhartha Ltd. (2012) 17 taxmann.com138 (Del.) and in Shri Ghanshyam K. Khabrani vs. ACIT (2012) 20 taxmann.com 716 (Bom). On the other hand, ld. DR for the Revenue argued that the four years condition as prescribed under the proviso of section 147 is in respect of assessment order passed u/s 143(3) only and not for the return of income processed u/s 143(1).

We have considered the rival contention of the parties and gone through the orders of authorities below. The AO while making the assessment for AY 2008-09 recorded the following reasons for re-opening of assessment for AY 2004-05. “1. In this case, return of income was filed on 31.10.2004, declaring loss at Rs. 24,08,211/-. No assessment was passed in this case. It is seen from the records the assessee has filed a loss of Rs.24,08.211/- . During course of assessment proceedings for AY.2008-09, the assessee has confirmed before the AO, the business of the assessee was stopped in the year 1997. It is held by the Apex court in the case of CIT Vs. Lahore Electric Supply Co. Ltd 60 ITR 1 has held that loss relating to any business or professions discontinued before the commencement of previous year should not be allowed.

The perusal of reasons for re-opening revealed that AO has not recorded its satisfaction that income chargeable to tax has escaped assessment for any failure on the part of assessee to disclose fully and truly all material facts necessary for his assessment in that AY. The notice u/s 148 dated 23.03.2011 was issued wherein the AO has recorded “This notice is being issued after obtaining necessary satisfaction of the CIT”. The Hon’ble jurisdictional High Court in case of Shri Ghanshyam K. Khabrani (supra), while discussing the similar ground with regard to the permission /approval for re-opening from competent person held that approval of Commissioner is of no consequence in any event, if the said approval is contrary to the provisions of section 151 of the Act. The Hon’ble jurisdictional High Court after discussing the provision of section 151 of the Act held as under: 6. The second ground upon which the reopening is sought to be challenged is that the mandatory requirement of Section 151 (2) has not been fulfilled. Section 151 requires a sanction to be taken for the issuance of a notice under Section 148 in certain cases. In the present case, an assessment had not been made under Section 143(3) or Section 147 for A.Y. 2004-05. Hence, under sub section 2 of Section 151, no notice can be issued under Section 148 by an Assessing Officer who is below the rank of Joint Commissioner after expiry of 4 years from the end of the relevant Assessment Year unless the Joint Commissioner is satisfied, on the reasons recorded by such Assessing Officer, that it is a fit case for the issue of such notice. The expression 'joint Commissioner" is defined in Section 2(28C) to mean a person appointed to be a Joint Commissioner of Income Tax or an Additional Commissioner of Income Tax under Section 117(1). In the present case, the record before the Court indicate that the Assessing Officer submitted a proposal on 28 March 2011 to the CIT(1) Thane through the Additional Commissioner of Income Tax Range (l) Thane. On 28 March 2011, the Additional CIT forwarded the proposal to the CIT and after recording a gist of the communication of the Assessing Officer stated that: ''As requested by the A.O. Necessary approval for issue of notice u/s, 148 may kindly be granted in the case, if approved." On this a communication was issued on 29 March 2011 from the office of the CIT (1) conveying approval to the proposal submitted by the Assessing officer. There is merit in the contention raised on behalf of the Assessee that the requirement of Section 151 (2) could have only been fulfilled by the satisfaction of the Joint Commissioner that this is a fit case for the issuance of a notice under Section 148. Section 151(2) mandates that the satisfaction has to be of the Joint Commissioner. That expression has a distinct meaning by virtue of the definition in Section 2 (28C). The Commissioner of Income Tax is not a Joint Commissioner within the meaning of Section 2(28C). In the present case, the Additional Commissioner of Income Tax forwarded the proposal submitted by the Assessing Officer to the Commissioner of Income Tax. The approval which has been granted is not by the Additional Commissioner of Income Tax 5 & 7221/M/2012 M/s Sterlite Infra Ltd. but by the Commissioner of Income Tax. There is no statutory provision here under which a power to be exercised by an officer can be exercised by a superior officer. When the statute mandates the satisfaction of particular functionary for the exercise of a power, the satisfaction must be of that authority. Where a statute requires something to done in a particular manner, it has to be done in that manner. In a similar situation the Delhi High Court in Commissioner of Income Tax Vs. SPL’S Siddhartha Ltd. (ITA No.836 of 2011 decided on 14th September 2011) held that powers which are conferred upon a particular authority have to be exercised by that authority and satisfaction which the statute mandates of a distinct authority cannot be substituted by the satisfaction of another. We are in respectful agreement with the judgment of the Delhi High Court.

The above referred decision of Shri Ghanshyam K. Khabrani (supra) was further followed by Hon’ble Bombay High Court in D S J Communication (supra). The Hon’ble Allahabad High Court in CIT vs. P. N. Sharma 2014 taxman.com 131(Allahabad) held that without passing the assessment order, there is no occasion to pass re-assessment order u/s 147 of the Act. And further the Third Member decision of Mumbai Tribunal in case of Telco Dadajee Dhacklee Ltd. vs. DCIT 2010(5)TMI 690 ITAT Mumbai held that in absence of reason to believe that income chargeable to tax has escaped assessment is bad-in-law and the assessment made in pursuance thereof is liable to be cancelled as invalid, even if the assessment was completed originally u/s 143(1) of the Act.

Thus, from the above discussion, we may conclude that there was no new material before the AO for re-opening of the concluded assessment. The re-opening was made beyond the four year from the end of relevant assessment year. Moreover, there was no proper sanction from the competent authority for issue of notice as provided u/s 151 of the Act. Thus, in view of the above discussion, the re-opening of assessment u/s 147 is bad-in-law. We hold accordingly.

In the result, Ground Nos. 1 & 2 raised in the present appeal are allowed.

Since we have allowed the Ground Nos. 1 & 2 and re-assessment order passed u/s 143(3) r.ws. 147 is held as invalid. Thus, the discussion on other grounds of appeal became academic. In the result, appeal of the assessee for AY 2004-05 is allowed.