TaxTMI 
TaxTMI 
2008 (1) TMI 450
X X X X Extracts X X X X
X X X X Extracts X X X X
....notice, as issued by the AO under s. 148 and the reassessment so made in furtherance of such initiation is invalid and liable to be quashed. 5. That the AO has failed to record the reasons before the issue of notice under s. 148 as required under the law and accordingly the reassessment proceedings so framed are invalid and bad in law. 6. That the condition as laid down under sub-s. (1) of s. 151 of the IT Act for the issuance of notice under s. 148 has not been complied with by AO and accordingly the notice under s. 148 as issued by AO is without jurisdiction and consequently the reassessment so framed in furtherance of such notice is bad in law. 7. That there was a change of opinion on the part of succeeding AO, after the completion of original assessment, in relation to the taxation of lease equalization charges amounting to Rs. 12,84,381 debited to the P&L a/c, which is not permissible under the law to form 'reasons to believe' as contemplated under s. 147 of the IT Act and consequently the reassessment so framed after assumption of such invalid jurisdiction is not sustainable under the law. 8. That the addition of Rs. 12,84,381 being the lease equalization charges debited ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... ------------ Total income 6,55,622.19 Tax Payable 2,29,467.00 Less : MAT credit asst. yr. 1997-98 get off 1,12,852.00 ------------ &....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... AO vide letter dt. 1st July, 2005 are as under : "Original assessment in this case was completed under s. 143(3) on 22nd Aug., 2000 at a total income of Rs. 6,55,622. Subsequently it has come to notice that the assessee company has claimed lease equalization amount during the year at Rs. 12,84,381 as per computation of income enclosed with the return of income which was not allowable and which has resulted into under charge of tax at Rs. 6,76,145. Since the income to the extent of Rs. 12,84,381 has escaped assessment, therefore, I have reason to believe that on account of failure on the part of the assessee to disclose truly and fully all material facts necessary for its assessment for this year, the income chargeable to tax has escaped assessment within the meaning of s. 147 of the Act. Approval to issue notice under s. 148 may be granted accordingly." 5. After receiving reasons the assessee objected to the reassessment proceedings vide letter dt. 27th Oct., 2005 a copy of which is placed at pp. 25-28 of the paper book, wherein it was stated that during the year under consideration and also prior to that assessee has been engaged in the business of giving finance on lease basi....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ance on the guidelines issued by ICAI, however, it ignored the vital aspect as to declare the taxable income under IT Act and, thus, it was a deliberate act of the assessee and it cannot be held that there was true disclosure of material necessary for assessment. The AO relied on various decisions to reject the contention of the assessee that reassessment proceedings are not valid. 8. For the sake of completeness of the facts it may also be mentioned here that during the course of original assessment proceedings the AO had issued a questionnaire to the assessee vide letter dt. 2nd Dec, 1999 a copy of which is placed at pp. 18-19 of the paper book wherein the AO required the assessee to explain vide item No. 18 as under : "The company has deducted Rs. 21.16 lacs as 'Lease equalization account' charges from the income shown in the P&L a/c. Please give a brief note on lease equalization account." 9. This query of the AO was replied by the assessee vide letter dt. 10th Aug., 2000 a copy of which is placed at p. 20 of the paper book and the reply of the assessee with regard to query was as under : "The accounting of lease transactions is being on the basis of the accounting standard....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e primary facts except the opinion of the auditors and there was no evidence that at the time of filing of return, auditors' opinion about reasonableness of administrative charges was existing. Even otherwise reasonableness was held to be an inference of auditors. The AO had neither made best judgment assessment nor drawn any adverse inference against the assessee although opinion of auditors had not been supplied and it was held that assessee could not be said to have failed in disclosing fully and truly all basic facts. 11. Further, raising contention that reassessment proceedings are invalid as they are based merely on change of opinion, learned Authorised Representative relied on the following decisions : (1) Jindal Photo Films Ltd. v. Dy. CIT [1999] 154 CTR (Del) 355 : [1998] 234 ITR 170 (Del) wherein it was held that reassessment for withdrawing deduction under s. 80-1 on the ground that deduction had been wrongly allowed was without jurisdiction as it was based merely on change of opinion of AO and not on any fresh material or information. (2) CIT v. Kelvinator of India Ltd. [2002] 174 CTR (Del)(FB) 617 : [2002] 256 ITR 1 (Del)(FB) in which the observations of their Lords....
X X X X Extracts X X X X
X X X X Extracts X X X X
....8 CTR (Del) 33 : [2007] 292 ITR 49 (Del), it was held that since enquiries had been initiated under s. 143(2), it became mandatory that they should have culminated in an order under s. 143(3). Since the return of income has been filed and since no order of assessment was made, there was no scope for invoking s. 147. Thus, it was held that initiation of proceedings under s. 147 was irregular and illegal. Thus, it was pleaded by learned Authorised Representative that reassessment proceedings have to be held invalid. 14. On the other hand, the learned Departmental Representative contended that according to Expln. 1 to s. 147 mere production before the AO of account books or other evidence from which material evidence could with due diligence have been discovered by the AO will not necessarily amount to disclosure within the meaning of the foregoing proviso. Thus he pleaded that according to Expln. 1 to the proviso to s. 147, the assessee cannot contend that there was a full disclosure in the terms of proviso to s. 147. He further referred to the order of CIT(A) to contend that reassessment proceedings were validly initiated under s. 147 of the Act. 15. He further referred to the rec....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ed on the decision in the case of Sri Krishna (P) Ltd. v. ITO [1996] 135 CTR (SC) 75 : [1996] 221 ITR 538 (SC). In this case it was held that disclosure of loans which was subsequently discovered to be false, reassessment was validly initiated. This case law was relied upon to contend that since the belief is that of ITO, the sufficiency of reasons for forming the belief is not for the Court to be judged but it is open to an assessee to establish that, in fact there existed no belief or that the belief was not at all a bona fide one or was based on vague, irrelevant and non-specific information. To that limited extent, the Court may look into the conclusion arrived at by the ITO and examine whether there was any material available on the record from which the requisite belief could be formed by the ITO and further whether that material had any rational connection or a live link for the formation of the requisite belief. In the said case the earlier decision of the Supreme Court in the case of Phool Chand Bqjrang Lal v. ITO [1993] 113 CTR (SC) 436 : [1993] 203 ITR 456 (SC) was followed. 17. The learned Departmental Representative further referred to the decision of Hon'ble Delhi Hi....
X X X X Extracts X X X X
X X X X Extracts X X X X
....it was held by AO that mere production of evidence by the petitioner before the ITO was not enough. Assessee was duty-bound to bring to the notice of AO all material and relevant facts which may lie embedded in the evidence produced by the assessee no matter the AO could have uncovered such facts but had not actually done so. Correctness of such order was challenged before the Hon'ble High Court in the said case. Reliance on behalf of the assessee was placed on the Full Bench decision of jurisdictional High Court in the case of CIT v. Kelvinator of India in support of the submission that an order of assessment must be presumed to have been passed by the concerned AO after due and proper application of mind and thus the reassessment is based on change of opinion. 19. On behalf of the Revenue it was pleaded that mere production of account books and other evidence relevant to the meaning (sic-making) of an assessment did not tantamount to disclosure within the meaning of s. 147 of the Act. It was pleaded that although the assessee had given the reply to the questionnaire and referred to the expenses claimed by way of deduction, there was nothing in the order of assessment to show tha....
X X X X Extracts X X X X
X X X X Extracts X X X X
....Hon'ble Supreme Court that reassessment proceedings were validly initiated. He contended that in the present case no material fact disclosed by the assessee is found to be false rather disallowance is made on the basis of change of opinion. 23. With regard to the decision of Hon'ble Delhi High Court in the case of CIT v. Highgain Finvest (P) Ltd. it was submitted by the learned counsel that assessment in the said case was framed under s. 143(1)(a) of the Act and in that circumstances it was held by the Hon'ble Delhi High Court that the assessee did not disclose the true source and nature of the receipt and thus no true and full disclosure was made. He contended that in the present case there is material on record to show that query was raised by the AO and the reply was given by the assessee. Thus he contended that this case is also not applicable. Referring to the decision of Hon'ble Delhi High Court in the case of Consolidated Photo & Finvest Ltd. v. Asstt. CIT he pleaded that this case was later on considered by Hon'ble Delhi High Court in the case of CIT v. Eicher Ltd. He contended that their Lordships have observed as under : "11. Learned counsel for the Revenue relied upon ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ally concluded that since the view expressed by the Division Bench cannot be reconciled with the view of the Full Bench, it must be held that the Division Bench did not lay down the correct law. Following the view expressed in KLM Royal Dutch Airlines' case, we are of the view that it would not be correct on our part to overlook the decision of the Full Bench in Kelvinator of India Ltd.'s case and rely upon the decision of the Division Bench in Consolidated Photo & Finvest Ltd.'s case. That would be subversive of judicial discipline. 15. In Hari Iron Trading Co. v. CIT [2003] 183 CTR (P&H) 228 : [2003] 263 ITR 437 (P&H), a Division Bench of Punjab & Haryana High Court observed that an assessee has no control over the way an assessment order is drafted. It was observed that generally, the issues which are accepted by the AO do not find mention in the assessment order and only such points are taken note of on which the assessee's explanations are rejected and additions/disallowances are made. We agree. 16. Applying the principles laid down by the Full Bench of this Court as well as the observations of the Punjab & Haryana High Court, we find that if the entire material had been pla....
X X X X Extracts X X X X
X X X X Extracts X X X X
...., therefore, not permissible in law. Secondly, reassessment proceedings are invalidly initiated as according to proviso to s. 147 reassessment proceedings can be validly initiated beyond the period of 4 years from the end of assessment year only in the circumstances where there is failure on the part of the assessee to disclose fully and truly all material facts necessary for the assessment. 26. The following facts are not in dispute : (i) Assessee filed its return of income on a sum of Rs. 6,55,622 on 26th Oct., 1998; (ii) Assessment under s. 143(3) of the Act was completed vide order dt. 22nd Aug., 200 (sic) assessing the income of assessee at a sum of Rs. 6,55,622; (iv). A notice dt. 7th March, 2005 was issued by the AO under s. 148 initiating reassessment proceedings for the year under consideration; (v) The reassessment was completed vide order dt: 31st Oct., 2005 in which an amount of Rs. 12,84,381 was added on account of lease equalization fund; (vi) During the course of original assessment proceedings the AO issued questionnaire to the assessee dt. 2nd Dec, 1999 and vide item No. 18 AO had asked assessee to give brief note on lease equalization act (sic-fund). The rel....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ta Discount Co. Ltd. v. ITO in which it has been held that duty of the assessee is to make full and true disclosure of all primary facts and once it is done, it is for the assessing authority to decide what inference of fact or law could be drawn therefrom and where the assessee disclosed income from sale of investment, and on assessee's representation that the transactions were casual and mere change of investments, the ITO did not assess the same treating the assessee an investment company; subsequent reopening of assessment by the ITO on the ground that the assessee had failed to disclose the true intention behind the sale of the shares was not justified as while assuming jurisdiction under s. 34, the ITO did not have in mind non-disclosure of material facts by the assessee. It is further held that: "Where the conditions for reopening assessment are not fulfilled, it no more remains a question of limitation but is a question of jurisdiction and where an action of an executive authority acting without jurisdiction subjects or is likely to subjects a person to lengthy proceedings and unnecessary harassment, the High Courts will issue appropriate orders or directions to prevent s....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ome of the assessee and a view was formed by AO which has not been shown to be a view which was unsustainable in law. Here according to the decision of Hon'ble jurisdictional High Court in the case of CIT v. Eicher Ltd. where the facts were before the AO at the time of framing the original assessment and later a different view was taken by him or his successor on the same facts, it was observed that it clearly amounts to change of opinion which cannot form the basis for permitting the AO or his successor to reopen the assessment of the assessee. It has further been observed by their Lordships that in a situation where the assessee had placed all the material before AO and where there was a doubt, even that was clarified by the assessee in its letter, in that situation, if AO while passing the original assessment order, chose not to give any finding in this regard, that cannot give him or his successor in office a reason to reopen the assessment of the assessee or to contend that because facts were not considered in the assessment order, a full and true disclosure was not made. The relevant observations of their Lordships from the said decision are as under : "Insofar as the presen....