TaxTMI 
TaxTMI 
2011 (7) TMI 728
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....t this fact has been disputed by the assessee. In view of aforesaid facts, the Assessing Officer came to the conclusion that the aforesaid income chargeable to tax escaped assessment within the meaning of section 147. In this connection, he referred to the decision of Hon'ble Supreme Court in the case of Calcutta Discount Co. Ltd. v. ITO [1961] 41 ITR 191, to the effect that if some material for the assessment lies embedded in the evidence, then it is the duty of the assessee to bring it to the notice of the Assessing Officer because the assessee knows all the material and relevant facts about which the Assessing Officer may not know. In other words, the ratio is that passive disclosure in respect of material facts is not enough and it is the duty of the assessee to bring all material facts to the notice of the Assessing Officer. In the light of this decision, a prima facie opinion was formed that income of Rs. 505,33,63,209/- had escaped assessment. Accordingly, reasons were recorded for reopening the assessment u/s 147, which reads as under:- "The original return of income was filed on 29-10-2004 showing Nil income under normal provisions and u/s 115JB (MAT) the income was claim....
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....ious year relevant to the assessment year under consideration. The Jurisdictional Hon'ble High Court of Delhi while examining the applicability of the provisions contained u/s 147 of the Income-tax Act, 1961 in Consolidated Photo & Finvest Ltd. v. ACIT reported in (2006) 151 Taxman 41 has laid down as under:- "We have given our anxious consideration to the submission made at the bar and perused the record. Chapter XIV of the Act describes the procedure for assessment. While sections 139 to 145, inter-alia, provide for filing of returns, issue of permanent account numbers self-assessment, refund, inquiry before assessment, best judgment assessments and method of accounting etc., section 147 deals with Income escaping assessment. A careful reading of section 147 of the Act makes it clear that If the Assessing Officer has reason to believe that any income chargeable to tax has escaped assessment, he may, subject to the provisions of sections 148 to 153, assessee or reassess such income and also any other income chargeable to tax which has escaped assessment and which comes to his notice in the course of proceedings under the said provisions. The Assessing Officer can, while doing so....
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....he Assessing Officer that the assessee has understated the income or has claimed excessive loss, deduction, allowance or relief in the return: (c) Where an assessment has been made, but- (i) income chargeable to tax has been under-assessed; or (ii) such income has been assessed at too low a rate; or (iii) such income has been made the subject of excessive relief under this Act; or (iv) excessive loss or depreciation allowance or any other allowance under this Act has been computed." The above would show the cases falling in clause (c) of Explanation (2) (supra) in which income chargeable to tax has been under-assessed or assessed of too low rate or cases in which income has been made the subject to excessive relief under the Act or where excessive loss or depreciation allowance or any other allowance under the Act has been computed, would constitute cases of income escaping assessment. There is considerable authority for the proposition that the jurisdiction of the Assessing Officer to initiate proceedings would depend upon whether he has reasons to believe that any income chargeable to tax has escaped assessment. The case of the assessee is, therefore, squ....
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.... deleted w.e.f. 01.04.1989, therefore, the same is not applicable to the proceedings of this year. In view thereof, no adjustment was required to be made to the book profits. In other words, the amount was includible in the total income of the assessee. 2.1 Aggrieved by this order, the assessee is in appeal before us. The assessee has challenged the reopening of the assessment as well as including profit on sale of investment in the total income. The withdrawal of interest paid u/s 244A and charging of interest u/ss 234B and 234D has also been challenged. But such grounds are only consequential in nature. The decision on such grounds follows from the main ground. 3. Before us, the learned counsel for the assessee submitted that facts narrated in the reasons recorded by the Assessing Officer are incorrect inasmuch as the profit on sale of investments was credited to the profit and loss account and it was not directly credited to the general reserve account. The assessee has been carrying on general insurance business and is governed by Insurance Act, 1938. The Act provides that the authority shall cancel the registration of an insurer either wholly or in so far as it relates to a ....
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....r by way of appreciation or by way of realization and simultaneously all types of losses on investments whether by way of appreciation or by way of realization are to be disallowed. Accordingly, the loss as aforesaid had been disallowed in computing the income. This discussion shows that the Assessing Officer had applied his mind to both the issues of profit and loss on sale etc. of investments. As the matter had been discussed and decided, the assessment cannot be reopened on account of change of opinion. 4. In reply, the learned CIT-DR submitted that the instant assessment pertains to assessment year 2004-05. The notice u/s 148 was issued on 28.11.2006, i.e., in a period of less than 4 years from the end of the relevant assessment year. Therefore, the controversy is governed by main provision contained in section 147. In other words, proviso to this section regarding establishment of failure on the part of the assessee is not applicable. Under the main provision, the only precondition is that the Assessing Officer should have reason to believe that any income chargeable to tax has escaped assessment. The assessee is a General Insurance Company and its assessment is governed by t....
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....e case and submissions made before us. We find that the return of income was filed on 29.10.2004 declaring nil income, pursuant to section 139(1). Original assessment was completed on 30.01.2006 at total income of Rs. 35,87,12,674/-. However, tax was levied under the provisions of section 115JB on book profit of Rs. 391,45,36,826/-. In the return of income, the assessee had claimed deduction of an amount of Rs. 505,33,63,209/-, representing profit on sale of investments. In the assessment, there is no discussion about this claim, although, there is a discussion about the loss occurring to the assessee on account of depreciation in the value of assets, which had been disallowed. It has been informed by the learned counsel that this part of the order stands reversed in appeal. It may be mentioned here that in the case of the assessee itself, the question of taxation of profit on sale of investments had arisen earlier in assessment years 1982-83 to 1986-87, 1995-96 and 1997-98. In the decision rendered on 29.09.2004 by the Tribunal, this matter had been decided against the assessee. It was inter alia held that if the intention of the legislature was to exempt profits on sale of invest....
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.... in this section and in sections 148 to 153 referred to as the relevant assessment year." 5.4 We may also reproduce the provision contained in Rule 5 of Schedule-I:- "The profits and gains of any business of insurance other than life insurance shall be taken to be the balance of the profits disclosed by the annual accounts, copies of which are required under the Insurance Act, 1938 (4 of 1938), to be furnished to the Controller of Insurance, subject to the following adjustments:- (a) subject to the other provisions of this rule, any expenditure or allowance including any amount debited to the profit and loss account either by way of a provision for any tax, dividend, reserve or any other provision as may be prescribed which is not admissible under the provisions of section 30 to 43B in computing the profits and gains of a business shall be added back; (b) ** ** ** (c) such amount carried over to a reserve for un-expired risks as may be prescribed in this behalf shall be allowed as a deduction." 5.5 On perusal of the Rule, it may be seen that there is no provision in it for excluding from the book profits any profit accruing on account of sale of investments. Therefo....
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....e in possession of some further information from CPWD, which showed that the amount of Rs. 1,40,552/-, shown in the accounts as secured advance, had been adjusted through the bills on 31.03.1986. Although, the assessee objected to the correctness of this information, the Hon'ble Court held that what is to be seen at the stage of recording reasons is whether there is material on record on the basis of which the assessment is sought to be reopened. The Court cannot go into the correctness or otherwise of the material. In other words, the decision is that the question of escapement of income as to be seen on a prima facie basis while deciding whether assessment has been validly reopened. At this stage, the Assessing Officer does not have to prove conclusively that the income had escaped assessment. Further, in the case of Bawa Abhai Singh v. Dy. CIT [2001] 117 Taxman 12/[2002] 253 ITR 83 (Delhi), the Assessing Officer had accepted the computation made by the assessee under the head "capital gains", in respect of some properties. Before completing the assessment, reference had been made to District Valuation Officer for valuing the properties. When the valuation officer called upon the....
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....s possession after completion of original assessment. In other words, if escapement of income comes to the notice of the Assessing Officer by examining the existing record or in the course of assessment of any subsequent year, can it be said that facts exist on record, which lead to the inference that income has escaped assessment? The statutory language leads to the conclusion that the material may be existing on record or it may come in the possession of the Assessing Officer from external sources. These two situations do not make any difference in his power to come to the conclusion that the income has escaped assessment. Therefore, we are of the view that facts exist on record which clearly lead to an inference that income had escaped assessment. The facts on record have live nexus with the formation of opinion. In this connection, minor errors in recording facts do not really alter the situation for the simple reason that the net effect is the same, namely, that profit on sale of investment had not been assessed to tax although it was liable to be taxed on a prima facie basis as per statutory provisions. With these findings, we now come to the issue of "change of opinion". 5.....
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....TR 310/163 Taxman 259 (Delhi), the facts are that the assessee had placed all facts before the Assessing Officer and where there was a doubt even that was clarified in letter dated 08.11.1995. The Assessing Officer did not choose to give any finding in the matter. The Hon'ble Court held that such failure does not grant to him or his successor in office to reopen the assessment. It may be mentioned that the assessment was sought to be reopened after lapse of more than 4 years from the end of relevant assessment year. In rebuttal, the learned DR relied on the decision in the case of Asstt. CIT v. Rajesh Jhaveri Stock Brokers (P.) Ltd. [2007] 161 Taxman 316/291 ITR 500 (SC). In that case, the return for assessment year 2001-02 was processed u/s 143(1)(a) and thereafter a notice was issued u/s 148 on the ground that the claim of bad debts was not acceptable. The Hon'ble Court distinguished between the assessment and the processing of a return of income. Further, the provisions contained in section 147 before its amendment and after its amendments were considered. The provisions contained in section 147 were also considered in so far as those related to the meaning of the expression "in....
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.... of assessment u/s 143(3) is the same as processing of return u/s 143(1)(a) on this issue. On the other hand, the case of the learned counsel is that the Assessing Officer had examined the issue regarding loss occurring on account of depreciation in the value of investments. In view thereof, it can be said that both the issues were considered by him. We are unable to accept either of the positions. There is a qualitative difference between processing of a return u/s 143(1)(a) and an assessment made u/s 143(3). The latter is made after scrutiny of return and in the process the Assessing Officer is expected to call for information on all such matters, as deemed fit by him. On the other hand, an inquiry into the loss on account of depreciation in the value of investments does not mean that inquiry has also been made into the issue of profit arising on sale of investment. It is an admitted position and although the loss as aforesaid was disallowed by the Assessing Officer, the assessee obtained a relief in appellate proceedings. This means that treatment meted out to the profit, which is not supported at all by the statutory language contained in Rule 5 of Schedule-1 is different from ....