TaxTMI 
TaxTMI 
2013 (10) TMI 101
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....rutiny assessment proceedings, a notice under section 142(1) of the Act was also issued accompanied by detailed questionnaire. The Assessing Officer also called for various explanations and clarifications which were furnished along with the supporting evidences by the assessee. On completing such scrutiny, the assessment came to be framed under section 143(3) of the Act on 28th November 2007. 2.2 The petitioner herein preferred appeal against such order before the Commissioner of Income-Tax (Appeals) at Ahmedabad, which decided the appeal vide order dated 24th March 2008 and allowed the appeal of assessee. 2.3 The Department, aggrieved by such order, challenged the same before the Income Tax Appellate Tribunal, Ahmedabad and cross objections were filed by the petitioner, which are pending as yet for adjudication. 2.4 In the meantime, the Assessing Officer reopened the assessment under section 147 of the Act, by issuing impugned notice under section 148 of the Act. 2.5 At the request of the petitioner, reasons recorded have been furnished to the petitioner, which read as under :- "It is noticed that Book profit in the case of assessee was shown at Rs. 6....
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....part of the assessee to disclose truly and fully any material fact and therefore, the very basis of impugned notice lacks validity. He further made a grievance that the decision of the Supreme Court rendered in case of GVK Driveshafts [India] Limited v. Income Tax Officer & Ors., reported in 259 ITR 19 [SC]was essentially with a view to act as a check-post to prevent arbitrary exercise of powers by the Assessing Officer and the Assessing Officer in the present case has failed to take note of the objections and he has mechanically disposed of the same without assigning the reasons as to why he holds a belief that there has been no true disclosure of all material facts. It is emphasized that after scrutiny assessment under section 143(3) of the Act, the assessment had been completed on 28th November 2007 and subsequently, the same had been challenged before the appellate forums as prescribed under the law, and therefore also, reopening of the assessment on the very same grounds is impermissible as it is nothing but a change of opinion. In this context, learned senior counsel sought to place reliance on the following decisions :- (a) Patel Alloys Steel (P.) L....
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....sp; (b) GVK Gautami Power Limited v. Assistant Commissioner of Income Tax [OSD] & Anr.,336 ITR 451 [AP]; (c) Dishman Pharmaceuticals & Chemicals v.Deputy Commissioner of Income Tax [OSD], 346 ITR 228 [Guj]; (d) Sun Pharmaceutical Industries Limited v.Deputy Commissioner of Income Tax,353 ITR 450 (e) Indo Aden Salt Mfg. & Trading Company Limited v. Commissioner of Income Tax,Bombay 159 ITR 624 (SC); (f) Phool Chand Bajrang Lal & Anr. v. Income Tax Officer & Anr., 203 ITR 456; 5.1 Learned counsel also has further addressed this Court on larger issues to which we shall come at a later stage in this judgment. He had, in a rejoinder, sought to place reliance upon the following authorities : (a) Calcutta Discount Co. Ltd. (supra) (b) Ketan B Mehta v. Assistant Commissioner of Income Tax, 346 ITR 254; (c) Parashuram Pottery Work Co. Ltd. v. ITO [1977] 106 ITR 1 (SC) (d) GKN Driveshafts (India) Ltd. (supra). 6. Upon thus hearing both the sides and on extensive examination....
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....urt, while dealing with this issue of reopening of the assessment beyond the period of four years in case of Kanak Fabrics (supra) has held that when the assessment is framed under section 143 (3) of the Act, the same can be reopened beyond the period of four years, only if the income chargeable to tax has escaped assessment by reason of failure on the part of the assessee to make a return under section 139 or in response to notice under sub-section (1) of section 142 or section 148 or to disclose fully and truly all material facts, necessary for such assessment. Relevant observations made in para 7 of the decision are aptly produced hereunder :- "7. Examining the facts of the present case in the light of the aforesaid legal position, a perusal of the reasons recorded shows that there is not even a whisper to the effect that income has escaped assessment on account of any failure on the part of the petitioner to disclose fully and truly all material facts necessary for its assessment. Even in the affidavit in reply filed by the respondent, there is no allegation of any such failure on the part of the petitioner. In the circumstances, it is apparent that th....
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....nbsp; 10. In addition to above conclusions, that there was no failure on the part of the assessee to disclose truly and fully all material facts, we also find that during the original assessment proceedings, the Assessing Officer had examined the claim in detail. Various queries were raised which were duly answered by the petitioner-assessee. May be that the specific angle of the depreciation earlier claimed to be set off against the income of the current year of the eligible business may not have been in the mind of the Assessing Officer. Nevertheless, the entire claim of the assessee for deduction under Section 80IA of the Act was before the Assessing Officer and such claim was also processed." 6.6 In the case of Reckitt Benckiser Healthcare India Ltd. (supra), the notice for reopening was quashed, when it was noticed that the first ground of reopening lacked validity. In the words of the Bench; "7. From the above, it emerges that insofar as the first ground is concerned the petitioners case all throughout has been that the amount in question was never treated as revenue expenditure. Such ground, thus, lacks validity. Such contention raised in the objec....
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....ee to issue notice of reopening of assessment beyond a period of four years, two conditions are required to be simultaneously satisfied. Such conditions are that the Assessing Officer must have reason to believe that income, profits or gains chargeable to income tax have been under assessed and the second is that he must also have reason to believe that such underassessment has occurred by reason of either omission or failure on part of the assessee to make return of his income or omission or failure on part of the assessee to disclose fully and truly all material facts necessary for his assessment for that year. Both these conditions are conditions precedent to be satisfied before the taxing officer could have jurisdiction to issue notice for the assessment or reassessment beyond a period of four years. It was further observed that such duty would not extend beyond true and full disclosure of material facts. Once such primary facts are before the Assessing Officer, he requires no further assistance by way of disclosure. It is for him to decide what inferences of facts can be reasonably drawn and what legal inferences have ultimately to be drawn. It is not for the assessee to tell ....
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....; 7. In the present case, with respect to requirement of deducting tax at source on prepaid SIM-cards and recharge voucher, petitioners case is two fold. Firstly, it is contended that in fact tax was deducted at source and duly deposited with the Government. In the objections raised opposing notice for reassessment, such contention was pointedly taken. The Assessing Officer however, while disposing of such objections did not dispute this averment of the petitioner. Further in the petition also on oath the petitioner has stated that on such payments, tax was deducted at source. This important averment has not been denied in the affidavit in reply filed by the respondent. Even before us during the course of oral submissions, counsel for the Revenue was unable to dispute this factual aspect." 6.8 The Constitution Bench of Supreme Court in case of Calcutta Discount Co. Ltd. (supra) held that in case of reopening of assessment beyond a period of four years, what is essential is to fulfil two conditions, simultaneously, where the Income Tax Officer must have a reason to believe that the income, profits' or gains chargeable to income-tax have been under assessed and suc....
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....primary facts relevant to the decision of the question before the assessing authority lies on the assessee. To meet a possible contention that when some account books or other evidence has been produced, there is no duty on the assessee to disclose further facts, which on due diligence, the Income-tax Officer might have discovered, the Legislature has put in the Explanation, which has been set out above., In view of the Explanation, it will not be open to the assessee to say, for example-"I have produced the account books and the documents: You, the assessing officer examine them, and find out the facts necessary for your purpose: My duty is done with disclosing these account-books and the documents". His omission to bring to the assessing authority's attention these particular items in the account books, or the particular portions of the documents, which are relevant, amount to "omission to disclose fully and truly all material facts necessary for his assessment." Nor will he be able to contend successfully that by disclosing certain evidence, he should be deemed to have disclosed other evidence, which might have been discovered by the assessing authority if he had pursued investi....
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....he taxing enactment, the proper tax leviable see Calcutta Discount Co. v. Income-tax Officer (2) as further observed in that case: "Does the duty, however, extend beyond the full and truthful disclosure of all primary facts ? In our opinion, the answer to this question must be in the negative. Once all the primary facts are before the assessing authority, he requires no further assistance by way of disclosure. It is for him to decide what inferences of facts can be reasonably drawn and what legal inferences have ultimately to be drawn. It is not for somebody else far less the assessee to tell the assessing authority what inferences, whether of facts or law, should be drawn. Indeed, when it is remembered that people differ as regards what inferences should be drawn from given facts, it will be meaningless to demand that the assessee must disclose what inferences - whether of facts or law - he would draw from the primary facts." Keeping in view the principles enunciated above, we may deal with the contention advanced on behalf of the appellant that the present is not a case in which action could be taken under section 147(a) of the Act of 1961. This content....
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....on and makes a mistake in doing so, we fail to understand as to how responsibility for that mistake can be ascribed to an omission or failure on the part of the assessee. It also cannot be disputed that initial depreciation in respect of items of capital assets in the shape of new machinery, plant and building installed or erected after the 31st day of March 1945 and before the 1st day of April 1956 is normally claimed and allowed. It seems that the Income-tax Officer in working 'the figures of depreciation for certain items of capital assets lost sight of the fact that the aggregate of the depreciation, including the initial depreciation, allowed under different heads could not exceed the original cost to the assessee of those items of capital assets. The appellant cannot be held liable because of this remissness on the part of the Income-tax officer in not applying the law contained in clause (c) of the proviso to section 10(2)(vi) of the Act of 1922. As observed by Shah J. in Commissioner of Income-tax v. Bhanji Lavji, (1) section 34(1)(a) of the Act of 1922 (corresponding to section 147'(a) (1)79 I,T.R. 582. S.C. 101 of the Act of 1961) does not cast a duty upon the assessee to....
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....or the assessment lay embedded in the evidence which the Revenue could have uncovered but did not, then it is the duty of the assessee to bring it to the notice of the assessing authority. The assessee knows all the material and relevant facts - the assessing authority might not. In respect of the failure to disclose, the omission to disclose may be deliberate or inadvertent. That is immaterial. But if there is omission to disclose material facts, then, subject to other conditions, jurisdiction to reopen is attracted." 6.12 The Court noted that the assessee did not disclose either by its valuation report or by a statement before the Income Tax authority as to what portion of the assets consist of earth work and that of masonry work. This was held to be a material fact for the purpose of calculating depreciation. Excess depreciation had been allowed considering the entire work to be masonry work and the income tax thus was had to be under-assessed, the Apex Court held that the I.T.O had a reasonable belief and sufficient material to hold that there was no true and full disclosure. In the words of the Apex Court : "... The assessee's contention is that the ....
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.... sister concern at the rate higher than the relevant market rate in order to inflate profits for the purpose of Section 80IA (10) of the Act. The facts since were found not to be ascertainable by the Assessing Officer, although necessary details and documents were available with him, the Court held that the petitioner though gave total figure of interest receipt, it was not discernible after due diligence to discover the vital facts that it did receive interest higher than the market rate. The Court on extensively examining various case laws upheld the notice of reassessment. Relevant findings are necessary to be produced hereunder :- "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 dil....
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.... or failure on the part of the assessee to make a return under Section 139 for any assessment year, or (ii) the assessee's failure to disclose fully and truly all material facts necessary for his assessment, income has escaped assessment, must be fulfilled if the case falls within the ambit of the first proviso to Section 147. (Rajesh Jhaveri). (v). The first proviso to Section 147 is attracted only in cases where an assessment, under Section 143(3) or Section 147, has been made for the relevant assessment year. (vi) Section 148(2) of the Act requires the assessing officer, before issuing notice under Section 148(1), to record his reasons. If reasons are recorded, before the notice under Section 148(1) is issued, the requirement of Section 148(2) must be held to have been complied with. (vii) The limitation for issuing a notice under Section 148, in cases where the income which has escaped assessment is more than one lakh rupees, is six years under Section 149(1)(b) of the Act. (viii) The assessing officer has no power to review. He has the power only to re-assess. The concept of & quot; change of opinion....
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.... material fact attracts the jurisdiction of the ITO under Section 147. (Sri Krishna Pvt. Ltd. 19). (xvii) The expression & quot; material facts & quot; refers only to primary facts which the assessee is duty bound to disclose. There is no duty cast on the assessee to indicate or draw the attention of the ITO to the inferences which can be drawn from the primary facts disclosed. (Calculated Discount Co. Ltd.1; Associated Stone Industries (Kotah) Ltd.). (xviii) What facts are material, and necessary for assessment, will differ from case to case. (Calcutta Discount Co. Ltd.). (xix) The duty of disclosing all primary facts, relevant to the decision on the question before the assessing authority, lies on the assessee. It is the assessee's duty to disclose all primary facts which could have been discovered by the assessing authority from the documents and other evidence disclosed. (Calcutta Discount Co. Ltd.). (xx) The assessee's obligation, to disclose all material facts necessary for his assessment fully and truly, is in the context of the two requirements -called conditions preceden....
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....averi). (xxix) 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 him, and further whether that material had any rational connection or a live link for the formation of the requisite belief. (Phool Chand Bajrang Lal). (xxx) The Court can examine whether the reasons are relevant, and have a bearing on matters in regard to which the ITO is required to entertain the belief before he can issue notice under Section 147. If there is no rational and intelligible nexus between the reasons and the belief so that, on such reasons, no one properly instructed on facts and law could reasonably entertain the belief, the conclusion would be inescapable that the ITO could not have reason to believe that any part of the income of the assessee had escaped assessment. (S. Ganga Saran & Sons (P) Ltd.). (xxxi) As the formation of belief by the ITO is essentially within his subjective satisfaction, (Selected Dalurband Coal Co. Pvt. Ltd.18), at the initiation stage the Court has only to see whether....
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....t year. 6.16 In the matter before the Division Bench, it was the case of the Revenue that for the assessment year in question i.e., A.Y 2003-04, the Company called M/s. Schutz Dishman Biotech Limited ("SDBL" for short) had given an amount of Rs. 2.3 Crores (rounded off) to the assessee by way of loan. While framing the assessment for the assessment year 2003-04, the Assessing Officer learnt that the SDBL had also given loan in the assessment year 2006-07. When asked to produce the accounts for the earlier year, it was revealed that the assessee was holding 22.3% of the shareholding of M/s. Schutz Dishman Biotech Limited and therefore, the Assessing Officer was of the opinion that the amount of Rs. 2.3 Crores ought to be treated as "deemed dividend" as per the provision of Section 2 (22)(e) of the Income Tax Act, and therefore according to him, the income chargeable to tax for the concerned assessment year as escaped assessment. The Court held that from the return filed and the documents annexed with the return, nowhere could it be assessed what is holding of the assessee in the SDBL. By simply stating that the assessee is holding certain shares in SDBL, its duty to truly and fully....
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.... issue against an executive authority, the High Courts have power to issue in a fit case an order prohibiting an executive authority from acting without jurisdiction. Where such action of an executive authority acting without jurisdiction subjects or is likely to subject a person to lengthy proceedings and unnecessary harassment, the High Courts, it is well settled, will issue appropriate orders or directions to prevent such consequences. 28. Mr. Sastri mentioned more than once the fact that the company would have sufficient opportunity to raise this question viz., whether the Income-tax Officer had reason to believe that under assessment had resulted from non-disclosure of material facts, before the Income-tax Officer himself in the assessment proceedings and if unsuccessful there before the appellate officer or the appellate tribunal or in the High Court under section 66 (2) of the Indian Income Tax Act. The existence of such alternative remedy is not however always a sufficient reason for refusing a party quick relief by a writ or order prohibiting an authority acting without jurisdiction from continuing such action." 7.1 It is thus the discretion of t....
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....cting the objections or by way of affidavit of the Assessing Officer, then also, the revenue has failed to point out as to in what manner there has been non-disclosure on the part of the assessee. 11. It needs to be emphasized that reiteratively queries were put to the respondents during the course of hearing as to on what basis and on which of the materials, such belief has been formed by the Assessing Officer leading him to believe that the income chargeable to tax has been under assessed. It is amply clear that the details mentioned in the reasons recorded on 11th January 2013 is the only material available with the Department and therefore, this is nothing but a different angle from which the Assessing Officer has examined the issue. It is argued emphatically and rightly on the petitioner's side that the very factual basis is misconceived and incorrect. It would be interesting to note how in the objections raised against the reopening of assessment, this aspect is explained by the assessee. "Without prejudice to the above, on the merits and on the cost of repetition, the assessee company here by submits the detailed working as to show how the said adj....
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....setting off the brought forward loss and further reducing the dividend income of Rs. 21,865/=, the taxable profit was shown at NIL. The Revenue has not been able to point out as to how amount was required to be reduced from the taxable book profit under section 115JB of the Act and secondly, when complete details were available with the Revenue at the time of original assessment and when the petitioner had made claim, as indicated in the aforementioned chart and he was eligible for adjustment of unabsorbed depreciation allowance, we fail to endorse the belief of the Assessing Officer that the income chargeable to tax has escaped assessment on account of non-disclosure of material facts fully and truly by the assessee. 14. Assuming that there is a different angle that needed to be examined by the Assessing Officer from the material which was already existing on the record, as held in case of Jivraj Tea & Industries Ltd. (supra), here also we find that specific angle of depreciation earlier claimed; if was not in the mind of the Assessing Officer, nevertheless, when entire details were already made available at the time of original assessment, this ground cannot be validated. 15. A....
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....ch were already on record. Moreover, this very issue has been thoroughly examined in the original assessment; after due scrutiny, and therefore, this should amount to only a change of opinion. Therefore, it needs to be concluded that not only there is absence of such averment in the notice under section 148 of the Act but in fact, there is complete absence of any material to satisfy the requirement that there was any failure on the part of the assessee to disclose truly and fully material facts leading the income escaping the assessment and thus when both the conditions necessary for reopening of assessment beyond the period of four years do not get satisfied, re-assessment proceedings on the jurisdictional power of the Assessing Officer can be quashed. 17. As a parting note, we need to specifically make a mention of certain submissions made during the course of hearing. One vital ground raised by the petitioner was that in response to the notice issued for re-assessment, pursuant to the ratio laid down in GKN Driveshafts (India) Ltd. (supra), the Assessing Officer failed to deal with the objections raised by the petitioner and mechanically disposed of the same. According to the R....