TaxTMI 
TaxTMI 
2013 (4) TMI 519
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..../-. Such order gave rise to appeal proceedings with respect to which we are not concerned. 3. It is this assessment which was framed after scrutiny that the Assessing Officer seeks to reopen under section 147 of the Act for which the impugned notice dated 25-2-2004 came to be issued. This is, therefore, a case where the assessment is sought to be reopened beyond a period of four years from the end of relevant assessment year. 4. At the request of the petitioner, the Assessing Officer supplied the reasons recorded by him for issuing the notice for reopening the assessment. Such reasons read as under:- Reasons for reopening the assessment U/s.147 of the I.T. Act I. The scrutiny assessment U/s. 143(3) was completed in this case on 26.03.2001. While scrutinizing the return of income for assessment of subsequent years, it is seen that the assessee's claims are not proper. It is seen that the assessee has submitted voluminous details along with the return of income which are not at all required to be filed along with the return of income. What is required is the Tax Audit Report, Profit and Loss Account and Balance Sheet, Other Statutory Reports pertaining to deductions U/s.8....
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....ated because the same is exempt u/s.80 IA, by giving more interest on overdue bills by Aditya Medisales Ltd. Aditya Medisales Ltd. has been given the task of distributing the formulation drugs produced by the units at Silvasa and Vapi of Sun Pharma Industries Ltd. It pays the interest @ 24% to the latter on the overdue bills which is much more than the prevailing market rate of interest in this line of business which varies from 15% to 18%. By adopting this modus operandi, the Sun Group has reduced the taxable profit of M/s. Aditya Medisales Ltd. and at the same time it has increased the profit of Silvasa Unit because the interest income is directly added to the sales figure, on which the deduction u/s 80 IA is available. These facts are not clear from the working of deduction u/s 80IA given by the assessee along with the return of the income. This is not permissible as per the provisions of Section 80IA (10) of the Act and the rate of interest payable to SPIL has to be restricted @ 15% to 18% which will automatically reduce the profits of units entitled for 80IA deduction and consequently the deduction u/s.80IA claimed by the assessee will be reduced. IV. In the assessment year....
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....ecorded by the Assessing Officer on 25-2-2004 in the present case, we may notice that similar reasons came up for consideration before us in the assessee's own case in Special Civil Application No. 12468/2004. By our judgment dated 31-7-2012, we had found that such reasons were not germane and would not give jurisdiction to the Assessing Officer to reopen the assessment on the basis of such reasons. Relevant observations of the said judgment read as under:- "18. Insofar as ground Nos. 1 and 2 are concerned, they overlap. We, therefore, discuss them together. In response to such reasons recorded, the petitioner had in connection with these grounds, specifically raised objections and pointed out that all figures tally and that there was no double deduction claimed. It was contended that there was no failure on the part of the assessee to fully and truly disclose all material facts. In particular, with respect to the claim of double deduction of the fixed assets and R & D expenses by way of depreciation and thereafter under section 35 of the Act, it was pointed out that the assessee had claimed deduction under section 35 of the Act towards R & D expenses. On such expenses, no depre....
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....2.61 172.61 3 R & D Expenses claimed in Income Tax Return [a]+[b] 620.96 [a] Deduction @ 100% on Deferred Revenue expenses as mentioned in above u/s 35(i) of the Income Tax Act, 1961 172.61 [b] Deduction @ 100% on Capital expenditure U/s. 35(i) of the Income Tax Act, 1961 448.35 Assessment Year : 1997-1998 Financial Year : 1996-1997 Reconciliation of Addition to Fixed Assets as per Working of Book Depreciation-[Schedule 5 of Annual Accounts] and as per Income Tax Depreciation workings and as per R & D additions as per Form No. 3CD: [1] Additions to Buildings as per Schedule 5 of Audited Annual Report: 711.15 Less Addition to R & D building as per Annexure No. III of the Form No. 3CD 302.63 Balance addition to Building which are considered in working of dep. As per Income Tax Act 408.52 Break up: ....
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....ar, with respect to double deduction on R & D expenditure by way of depreciation on fixed assets and deduction under section 35AB of the Act, even the Revenue could not point out how the same amount has been reflected in two separate claims. In fact, to the extent the R & D expenditure was presented before deduction under section 35AB of the Act, the same was reduced from the fixed assets drawing depreciation. More importantly and significantly, in the order that the Assessing Officer passed disposing of such objections, he did not dispute such reconciliation figures. He in fact stated as under : "On a deeper scrutiny of the schedule showing additions to the fixed assets, it is noticed that the depreciation has been claimed on a higher amount. As per Schedule-5 of Annual Accounts, the addition in plant and machinery is Rs.1157.65 lacs. As per 3 CD Report, addition of plant and machinery pertaining to R & D is Rs. 143.44 lacs. Hence, the depreciation u/s.32 should have been claimed on addition of plant and machinery worth Rs.1157.65 lacs (-) Rs. 143.44 lacs = Rs. 1014.21 lacs. However, in the depreciation chart as per Income-tax Act, the depreciation has been wrongly claimed on a....
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....ion 80IA of the Act by Rs. 95,70,508/-. As against this, in the original assessment, the Assessing Officer disallowed only Rs. 50,01,146/-. Thus, the assessee got excess deduction under section 80IA of the Act to the tune of Rs. 45,69,362/-. 8. In our opinion, the reason recorded itself clearly demonstrates that all facts and figures were available on the record. The Assessing Officer while processing the return during the original assessment, in fact, scrutinised the claim and disallowed part of the claim of deduction under section 80IA of the Act. This was, therefore, not a case where the assessee can be stated to have failed to disclose truly and fully all material facts. The Assessing Officer has not referred to any new material on the basis of which he could be stated to have reason to believe that excess deduction under section 80IA of the Act was granted. More importantly, the assessee had disclosed all facts in the original return. Such claim was scrutinised and even partly disallowed. In our opinion, therefore, assessment previously framed after scrutiny could not be reopened beyond a period of four years from the end of the relevant assessment year. This ground also, t....
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....at interest was not on higher side looking to the fact that the debt was unsecured and the Company was exposing itself to higher risk. It was lastly contended that even if the interest was charged at a higher rate, the resultant income earned by the assessee was offered to tax. 26. Such objections of the petitioner were disposed of by the Assessing Officer in following manner : "2.3 Regarding the claim of higher deduction u/s.80IA by recovering higher interest from M/s. Aditya Medisales Ltd., it is stated that all the details are on record and there is no non-disclosure on this account. However, this is not correct. M/s. Aditya Medisales Ltd., a group concern, had paid interest @24% on the overdue bills, which is much more than the prevailing market rate of interest in in this line of business which varies from 15% to 18%. By adopting this modus operandi, the taxable profits of M/s. Aditya Medisales Ltd. on the one hand has been reduced and the profits of 'Silvasa Unit' of M/s. Sun Pharmaceuticals Industries Ltd. has been inflated which is exempt u/s.80-IA. This is a clear cut violation of section 80-IA(10) of the Act. The fact that M/s. Aditya Medisales Ltd. had paid interes....
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....ay that the eligible profit for deduction under section 80IA of the Act was exaggerated, it was within the power of the Assessing Officer while computing the deduction to take amount of profit as may be reasonably deemed to have derived from such dealing. In exercise of such powers, therefore, when the Assessing Officer finds that there is exaggeration of income by an assessee, which is eligible for deduction 80IA of the Act dealing with closely associated entity, he would make necessary adjustments in this regard. 27. Thus, it cannot be said that belief of the Assessing Officer that income chargeable to tax had escaped assessment is baseless. As noted, at this stage, it is not necessary for this Court to ascertain whether such addition would ultimately succeed or not. Sufficiency of the reason on which the Assessing Officer forms such belief is also not for the Court to decide. 28. In the case of Sri Krishna Pvt. Ltd. v. I.T.O., 221 ITR 538, the Apex Court reiterated the ratio laid down in the case of Phool Chand Bajrang Lal and observed that inquiry at the stage of finding out whether the reassessment notice is valid is only to see whether there are reasonable grounds for t....
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....other words, at the initiation stage, what is required is reason to believe, but not the established fact of escapement of income. At the stage of issue of notice, the only question is whether there was relevant material on which a reasonable person could have formed a requisite belief. Whether the materials would conclusively prove the escapement is not the concern at that stage. This is so because the formation of belief by the Assessing Officer is within the realm of subjective satisfaction (see ITO v. Selected Dalurband Coal Co. Pvt. Ltd. [1996 (217) ITR 597 (SC)]; Raymond Woollen Mills Ltd. v. ITO [1999 (236) ITR 34 (SC)]." 32. In the case of Phool Chand Bajrang Lal (supra), the Apex Court observed as under : "From a combined review of the judgments of this Court, it follows that an Income-tax Officer acquires jurisdiction to reopen assessment under S. 147(a) read with S. 148 of the Income-tax Act, 1961 only if on the basis of specific, reliable and relevant information coming to his possession subsequently, he has reasons which he must record, to believe that by reason of omission or failure on the part of the assessee to make a true and full disclosure of all material ....
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....tain that the petitioner received interest from Aditya Medisales which was higher than the normal rate of interest. Three essential facts, namely, that the petitioner received interest on overdue payments from Aditya Medisales, that Aditya Medisales was a sister concern of the petitioner Company and that such interest was charged at the rate of 24% per annum, were not discernible from the record at all. 34. Under the circumstances, from the material on record, it was not possible for the Assessing Officer to make adjustment under section 80IA(10) even if it was required. It may be that the petitioner did give the total figure of interest received. However, from such figures, it was not possible for the Assessing Officer to ascertain these vital facts. Section 147 of the Act, explanation 1 provides that "production before the Assessing Officer of account books or other evidence from which material evidence could with due diligence have been discovered by the Assessing Officer will not necessarily amount to disclosure within the meaning of foregoing proviso". In the present case, even from the account books and other evidence which the assessee had produced, even after due diligen....
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....etitioner sought to make a distinction. On the basis of an additional affidavit dated 11-8-2012, he contended that even assuming that there was initial failure on the part of the assessee to disclose material facts in this regard before the Assessing Officer, during the course of the assessment proceedings, such material had come on record and that therefore also, reopening should not be permitted. In such affidavit, it is averred that in case of the sister concern i.e. Aditya Medisales, the Assessing Officer had issued notice under section 142(1) of the Act for the assessment year 1998-99. Various details asked by the Assessing Officer were provided under letter dated 14-3-2001. Such details included the interest paid by Aditya Medisales to the petitioner and the rate at which such interest was paid. Alongwith such affidavit, the petitioner has also produced a communication dated 14-3-2001 made by Aditya Medisales to the Assessing Officer supplying various details during the course of the assessment for the year 1998-99 in which at item No. 8 appears "Details of interest paid is as per Annexure - 4". Counsel for the petitioner took us to such annexure in which at Sr. No.8, the fol....