2023 (12) TMI 407 - AT - Income Tax

Reassessment beyond four years valid when assessee failed to furnish Form 3CL under section 35(2AB) for eligible expenditure deduction

ITAT Cochin held that reassessment proceedings beyond four years were maintainable where the assessee failed to furnish Form 3CL quantifying eligible ... Reopening of assessment under section 147 - Reassessment beyond four years - True and full disclosure of all material facts - Explanation 1 to section 147 - Reason to believe - Primacy of Form 3CL for deduction under section 35(2AB)Reopening of assessment under section 147 - Reassessment beyond four years - True and full disclosure of all material facts - Primacy of Form 3CL for deduction under section 35(2AB) - Explanation 1 to section 147 - Reason to believe - Maintainability of reassessment proceedings for AY 2009-10 - HELD THAT: - The Tribunal examined whether non-furnishing of Form 3CL (which quantifies eligible expenditure for deduction under section 35(2AB)) amounted to failure by the assessee to disclose fully and truly all material facts so as to permit reassessment beyond four years under section 147. The court held that Form 3CL is a primary document quantifying the eligible deduction and that the assessee, being aware of the reduced figure in Form 3CL received on 30.11.2011, had the primary obligation to disclose that fact during assessment proceedings or to state reasons for persisting with its higher claim. Explanation 1 to section 147 reinforces that mere production of documents or their availability in voluminous records does not satisfy the duty of full and true disclosure; the assessee must bring material differences to the AO's notice. Given the substantial variance between the claim and Form 3CL, silence by the assessee could not be treated as proper disclosure and the AO had material to form a reason to believe escapement of income. Accordingly, initiation of reassessment for AY 2009-10 beyond four years was held sustainable. [Paras 5, 6, 7]Reassessment for AY 2009-10 was held maintainable; the Revenue's appeal in respect of this year succeeds.Reassessment beyond four years - True and full disclosure of all material facts - Reopening of assessment under section 147 - Disposition of proceedings for AY 2011-12 - HELD THAT: - The Tribunal noted that the notice under section 148 was within four years for AY 2011-12 and that the first appellate authority's finding on disclosure could not sustain for that year. The assessee's counsel conceded that the CIT(A)'s decision was invalid for AY 2011-12. Consequently, the Tribunal vacated the CIT(A)'s adjudication on that year and remitted the appeal to the CIT(A) to decide the quantum issues on merits after hearing both parties in accordance with law. [Paras 4, 7]The appeal in respect of AY 2011-12 is restored to the file of the CIT(A) for adjudication on quantum; the matter is remanded for fresh decision on merits.Final Conclusion: The Tribunal allowed the Revenue's appeals and the assessee's cross objections. For AY 2009 10 the reassessment was held maintainable because the assessee failed to disclose fully and truly the material fact constituted by the reduced figures in Form 3CL; for AY 2011 12 the matter was remitted to the CIT(A) for fresh adjudication on quantum. Issues Involved:1. Maintainability of reassessment proceedings under section 147 of the Income Tax Act, 1961.2. Obligation of the assessee to disclose Form 3CL during assessment proceedings.Summary of Judgment:1. Maintainability of Reassessment Proceedings:The primary issue in the appeals was the maintainability of reassessment proceedings under section 147 read with sections 143(3) and 144C of the Income Tax Act, 1961. The Commissioner of Income Tax (Appeals)-1, Kochi (CIT(A)) found the reassessment proceedings to be not maintainable due to the assessee's true and full disclosure of all material facts necessary for assessment, precluding reassessment beyond four years from the end of the relevant assessment year.2. Obligation to Disclose Form 3CL:The CIT(A) held that the non-submission of Form 3CL by the assessee did not amount to non-disclosure of all material facts during the assessment proceedings. The assessee had submitted Form 3CM containing details of all expenses incurred for R&D to the Assessing Officer (AO). The scheme of Rule 6(7A) regarding Form 3CL is such that the appellant submits the form to the Competent Authority at DSIR, which then sends the report in Form 3CL to the Principal Chief Commissioner of Income Tax or other relevant authorities. The CIT(A) opined that it was not the duty or responsibility of the appellant to file Form 3CL before the AO during assessment proceedings. Since DSIR forwarded Form 3CL on 30.11.2011, before the date of reopening of assessment under section 147, it was the AO's duty to obtain the same from the competent authority.3. Reassessment Beyond Four Years:For AY 2009-10, the reassessment was beyond four years from the end of the relevant assessment year. The CIT(A) found that the disclosure by the assessee was true and full, thus rendering the reassessment proceedings invalid. However, for AY 2011-12, the reassessment was within four years, and the CIT(A)'s decision was found invalid for that year. The Revenue succeeded for AY 2011-12, and the matter was restored to the CIT(A) for deciding it on quantum on merits.4. Legal Framework and Obligations:The judgment emphasized that the power under section 147 is wide but not plenary. Assumption of jurisdiction under section 147 must be based on materials justifying the inference of income escapement. The law becomes stringent for reassessment beyond four years, requiring a failure on the part of the assessee to disclose fully and truly all material facts necessary for assessment. The judgment highlighted that the assessee's obligation is to disclose primary facts, not to guide the AO on possible inquiries or verifications.5. Factual Analysis:The Tribunal found an incorrect assumption of facts by the CIT(A) for AY 2009-10, as Form 3CM does not contain details of expenditure, which is the subject matter of Form 3CL. The non-furnishing of Form 3CL quantifying eligible expenditure was regarded as non-disclosure within the meaning of the proviso to section 147. The Tribunal held that the assessee did not meet the requirement of a true and full disclosure of all material facts necessary for assessment.6. Case Law Consideration:The Tribunal considered various case laws, including the assessee's own case for AY 2012-13, and found that each item of expenditure claimed under section 35(2AB) is to be examined by the AO during assessment. The Tribunal concluded that the assessee's conduct did not meet the requirement of true and full disclosure, and the reassessment for AY 2009-10 was justified.7. Conclusion:The Tribunal allowed the Revenue's appeals and the assessee's cross objections, directing the CIT(A) to adjudicate the quantum adjustments in assessment after hearing the parties. The judgment was pronounced on November 30, 2023.