TaxTMI 
TaxTMI 
2013 (11) TMI 70
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....t was contended by the learned counsel for the petitioner that in the present case, this pre-condition was not satisfied inasmuch as (a)there is no mention or allegation that there was no full and true disclosure on the part of the assessee in the purported reasons behind the reopening of the assessment in respect of the assessment year 2005-06 ; and (b) in fact there was a full and true disclosure on the part of the assessee and even no inference could be drawn from the purported reasons that there was no such full and true disclosure. It was also contended by the learned counsel for the petitioner that this was also a case of a mere change of opinion and, therefore, in view of the settled principles of law, the attempt at reopening the assessment which had been completed under section 143(3) of the Act on December 24, 2008, was not supported by law. 2. The learned counsel for the petitioner drew our attention to the purported reasons which had been recorded prior to the issuance of the notice under section 148 of the Act. The said recorded reasons read as under : "Reasons recorded under section 147 of the Income-tax Act, 1961 1.....
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....d expenditure of Rs. 2,64,79,981 in respect of pre-existing liability involving short levy of income-tax of Rs. 1,40,50,046 including interest under section 234B. 3. Section 40A(7) of the Income-tax Act provides that no deduction is allowed in computing business income in respect of a mere provision made by the assessee in his books of account for the payment of gratuity to his employees. The provision made for the purpose of payment of sums by way of contribution towards the approved gratuity fund that has become payable during the previous year or for the purpose of making any payment on account of gratuity that has become payable during the previous years is, however, eligible for deduction. (i) It is that the assessee was allowed a deduction of Rs. 76,35,763 towards provision for payment of gratuity. However, this payment has been depicted as inadmissible expenditure in column 17(i) of the tax audit (3CD) report submitted by the assessee. Therefore, this expenditure is required to be added back to the taxable income of the assessee. The omission in taking into account the inadmissible expenditure resulted in allowance of excess deduction of Rs. 76,35,763 involving short levy ....
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....arketing strategy' and Rs. 4,54,41,136 (Rs. 3,61,60,538 + Rs. 92,80,598) on 'market research'. Since the expenditure on marketing intangibles gave an enduring benefit to the assessee, it was required to be capitalized and added back to the total income of the assessee. The omission resulted in underassessment of income by Rs. 5,42,91,977 involving levy of tax of Rs. 3336.69 lakhs including interest under section 234B. I, therefore, have reasons to believe that the income of Rs.12,17,91,668 has escaped assessment within the meaning of section 147 of the Income-tax Act, 1961, due to omission on the part of the assessee to include this sum into its income for the relevant previous year." 3. The petitioner filed its objections to the said reasons on May 10, 2012, whereby, the petitioner took the specific plea that since there was no allegation that the petitioner had not made a full and true disclosure of all the material facts necessary for its assessment, the invocation of the provisions of section 147 of the Act was itself not valid. The petitioner also raised the objection that the issues sought to be raised in the recorded reasons had been considered by the Assessing Officer at ....
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.... furnish reasons within a reasonable time. On receipt of reasons, the noticee is entitled to file objections to issuance of notice and the Assessing Officer is bound to dispose of the same by passing a speaking order. In the instant case, as the reasons have been disclosed in these proceedings, the Assessing Officer has to dispose of the objections, if filed, by passing a speaking order, before proceeding with the assessment in respect of the abovesaid five assessment years." 6. The learned counsel for the petitioner submitted that the Assessing Officer was bound to dispose of the objections by passing a speaking order. According to him, the order dated November 12, 2012, could not be considered as a speaking order at all, as none of the objections raised by the petitioner have been specifically dealt with by the Assessing Officer. The learned counsel for the petitioner placed reliance on the decision of this court in Rose Serviced Apartments P. Ltd. v. Deputy CIT [2012] 348 ITR 452 (Delhi) as also on another decision of this court in the case of Haryana Acrylic Manufacturing Co. v. CIT [2009] 308 ITR 38 (Delhi), which was also relied upon in Rose Serviced Apartments (supra). The ....
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.... account. 17. Explain purchase of furniture repair in new space occupied by the assessee and its availability. 18. Refer to annexure V of the tax audit report where these amounts have been debited in the profit and loss account. 19. Please explain why amounts in annexures VIII, IX, X and XI are not disallowed as per section 43B. Why prior period expenses as per the tax audit report be not disallowed. This letter may, please be treated as a part of notice under section 142(1) of the Income-tax Act, 1961. It may please be noted that failure to comply with this notice will invite the penal provisions under section 271(1)(b) of the Income-tax Act, 1961. 8. The learned counsel for the petitioner submitted that in items Nos. 12, 13, 18 and 19 of the questionnaire, there is specific reference to the tax audit report (Form 3 CD). He submitted that these issues had been considered and the petitioner had furnished replies in respect thereof at the time of the original assessment proceedings. The very same issues are sought to be raised by the Assessing Officer in the recorded reasons. Therefore, according to the learned counsel for the p....
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....hich comes to his notice subsequently in the course of the proceedings under this section, or re-compute the loss or the depreciation allowance or any other allowance, as the case may be, for the assessment year concerned (hereafter in this section and in sections 148 to 153 referred to as the relevant assessment year) : Provided that where an assessment under sub-section (3) of section 143 or this section has been made for the relevant assessment year, no action shall be taken under this section after the expiry of four years from the end of the relevant assessment year, unless any income chargeable to tax has escaped assessment for such assessment year by reason of the failure on the part of the assessee to make a return under section 139 or in response to a notice issued under subsection (1) of section 142 or section 148 or to disclose fully and truly all material facts necessary for his assessment, for that assessment year: Explanation 1.-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 th....
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.... "4. Details of advertisement expenses exceeding Rs 1 lakh During the subject year, MCIPL had incurred advertisement expenses amounting to Rs. 902,649,399. Detail of the advertisement expenses exceeding Rs 1 lakhs has been enclosed as annexure 4 and detail of advertisement expenses incurred in foreign currency exceeding Rs 1 lakh has been enclosed as annexure 4A." 14. Annexure 4 referred to above, contained details of advertising expenses exceeding Rs. 1 lakh incurred during the assessment year 2005-06. One of the items mentioned there was campaign expenditure for launch of new products to the extent of Rs. 1,49,11,728 which is the very same item mentioned in item No. 1 of the recorded reasons. At this juncture, we may also refer to the expenses for consultancy for the development of marketing strategy which were also given as details of advertising expenses. The said item was for an amount of Rs. 88,50,841 which is the same as referred to in item No. 6 of the recorded reasons. Under the same details, market research expenses to the extent of Rs. 3,61,60,538 have also been shown which is also the subject matter of item No. 6 of the recorded reasons. Furthermore, the said details ....
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....essment proceedings, it cannot, at the subsequent stage of reopening be said that there was failure on the part of the assessee to disclose fully and truly all material facts necessary for his assessment. If there is a full and true disclosure in the course of the assessment proceedings, that will have to be regarded as a disclosure for the purpose of the proviso to section 147 of the said Act. Therefore, in so far as items Nos. 1, 5 and 6 of the recorded reasons are concerned, we find that there was no failure to disclose full and true material facts necessary for the assessment. Moreover, it is also a case of a mere change in opinion. 17. In so far as recorded reason No. 3 is concerned, it pertains to the provision made for payment of gratuity to the extent of Rs. 76,35,763. It is noted in the recorded reasons that this payment had been depicted as inadmissible expenditure in column 17(i) of the tax audit report (3CD) submitted by the petitioner. Therefore, according to the belief of the Assessing Officer, the expenditure was required to be added to the taxable income of the assessee and that the omission in taking into account the inadmissible expenditure had resulted in allowa....
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....d to bring about a mere change in opinion. Apart from this, we also hold that there was full and true disclosure on the part of the petitioner inasmuch as this item had been specifically mentioned in the tax audit report as item No. 17(i) and in annexure (ix) as also in the details furnished by the petitioner subsequent to the questionnaire. 19. This leaves us with the consideration of recorded reason No. 4 which pertains to depreciation on ITG networking equipment. It is contended in the recorded reasons that though the assessee had claimed depreciation on the said equipment at 60 per cent., the Assessing Officer had allowed depreciation only at 25 per cent. However, while doing so, the Assessing Officer made a computational error and due to that excess depreciation to the extent of Rs. 14,19,945 involving a short levy of tax of Rs. 7,53,410 including interest under section 234B of the Act had resulted. In other words, in so far as this item is concerned, it was merely a computational error on the part of the Assessing Officer. We feel that such computational error could have easily been corrected by the Assessing Officer under section 154 of the Act. In fact, the Assessing Offic....
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.... For the sake of completeness, we shall now consider the decisions cited at the Bar. We shall first take up those decisions which were relied upon by the learned counsel for the petitioner. In Hindustan Lever Ltd. (supra), a Division Bench of the Bombay High Court, while considering the argument that, even if the words "failure to disclose fully and truly all material facts relevant for assessment for the assessment year" were absent in the reasons recorded, still such reasons could be inferred from the text of the reasons recorded, observed as under : "The reasons recorded by the Assessing Officer nowhere state that there was failure on the part of the assessee to disclose fully and truly all material facts necessary for the assessment of that assessment year. It is needless to mention that the reasons are required to be read as they were recorded by the Assessing Officer. No substitution or deletion is permissible. No additions can be made to those reasons. No inference can be allowed to be drawn based on reasons not recorded. It is for the Assessing Officer to disclose and open his mind through reasons recorded by him....
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....fall within the proviso, whether or not it was covered under the main provisions of section 147 of the said Act would not be material. Once the exception carved out by the proviso came into play, the case would fall outside the ambit of section 147. Examining the proviso [set out above], we find that no action can be taken under section 147 after the expiry of four years from the end of the relevant assessment year if the following conditions are satisfied : (a) an assessment under sub-section (3) of section 143 or this section has been made for the relevant assessment year ; and (b) unless any income chargeable to tax has escaped assessment for such assessment year by reason of the failure on the part of the assessee : (i) to make a return under section 139 or in response to a notice issued under sub-section (1) of section 142 or section 148 ; or (ii) to disclose fully and truly all material facts necessary for his assessment for that assessment year. Condition (a) is admittedly satisfied inasmuch as the original assessment was completed under section 143(3) of the said Act. Condition (b) deals with a special kind of escapement of income chargeable to tax. The escapement mus....
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....f the said Act, this court, in the latter decision, observed as under : "17. Reading of Explanation 1 of the proviso makes it clear that mere production of books of account or other material from which the Assessing Officer could, with due diligence, have discovered escapement of income, does not bar reassessment proceedings. Yet at the same time if the proviso applies and the assessee has fully and truly disclosed all the material facts necessary for assessment for that assessment year, reassessment proceedings cannot be initiated." 24. In the context of this decision, we may point out that, in the present case, the said Explanation 1 would not come in the aid of the respondents inasmuch as the Assessing Officer was diligent and had closely examined the Tax Audit Report and raised questions and sought information on the aspects where he needed greater clarity. Furthermore, and, in any event, as observed in Rose Serviced Apartments (supra), where the assessee has fully and truly disclosed all the material facts necessary for assessments, reassessment proceedings cannot be initiated. 25. Recently, this Bench in the case....
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....initiated in case return of income is processed under section 143(1) and no scrutiny assessment is undertaken. In such cases there is no change of opinion. (2) Reassessment proceedings will be invalid in case the assessment order itself records that the issue was raised and is decided in favour of the assessee. Reassessment proceedings in the said cases will be hit by principle of 'change of opinion'. (3) Reassessment proceedings will be invalid in case an issue or query is raised and answered by the assessee in original assessment proceedings but thereafter the Assessing Officer does not make any addition in the assessment order. In such situations it should be accepted that the issue was examined but the Assessing Officer did not find any ground or reason to make addition or reject the stand of the assessee. He forms an opinion. The reassessment will be invalid because the Assessing Officer had formed an opinion in the original assessment, though he had not recorded his reasons (underlining added)." Paragraph 39 of the Full Bench decision in Usha International Ltd. (supra) was also considered. The same was to the following effect: &nb....
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....ised by the Assessing Officer in the questionnaire and which had been addressed by the petitioner during the course of the original assessment proceedings. All the above decisions fortify the conclusions that we have arrived at earlier. 28. It is now time to consider the decisions referred to by the learned counsel for the respondents. The decision of the Supreme Court in Phool Chand Bajrang Lal (supra) is the earliest in point of time. The learned counsel for the respondents had placed reliance on the following observations of the Supreme Court : "From a combined review of the judgments of this court, it follows that an Income-tax Officer acquires jurisdiction to reopen an assessment under section 147(a) read with section 148 of the Income-tax 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 facts necessary for his assessment during the concluded assessment proceedings, any part of his income, ....
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..... We have to look to the purpose and intent of the provisions. One of the purposes of section 147, appears to us to be, to ensure that a party cannot get away by wilfully making a false or untrue statement at the time of original assessment and when that falsity comes to notice, to turn around and say 'you accepted my lie, now your hands are tied and you can do nothing'. It would be travesty of justice to allow the assessee that latitude." 29. The said decision does not detract from the conclusions arrived at by us. On facts, we have held that the petitioner had not made a false or an untrue statement at the time of the original assessment. Therefore, the question of reopening the assessment on the ground that the same was being done when the falsity came to notice does not at all arise in the present case. We fail to see as to how the said decision comes to the aid of the respondents, particularly when, in the present case, on facts we have held that the petitioner had made a full and true disclosure of the material facts at the time of the original assessment. The next decision which was relied upon by the learned counsel for the petitioner (respondent ?) is that of the Supreme ....
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....ions, names, addresses and details of services rendered. In the original assessment order, there was no discussion, ground or reason why an addition was not made in spite of failure on the part of the assessee to furnish the confirmations and details. In that context, the court rejected the contention of the assessee that there was a change of opinion. In so far as the aspect of change of opinion is concerned, the observations of the Division Bench in Dalmia Pvt. Ltd. (supra) have been rendered in an entirely different and distinct factual matrix. It is apparent that the Assessing Officer had asked for specific information and confirmations and that the same had not been supplied by the assessee therein at the time of assessment. In the present case, the petitioner had furnished all the information which was sought by the Assessing Officer in the questionnaire and, therefore, the fact situation in the present case is entirely different from that which obtained in Dalmia Pvt. Ltd. (supra). As regards the second question with regard to full and true disclosure of material facts, the Division Bench in Dalmia Pvt. Ltd (supra), inter alia, observed as under : &....