TaxTMI 
TaxTMI 
2014 (11) TMI 103
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....5.12.2007 without appreciating the facts and circumstances of the case brought on record by the Assessing Officer. 2. That the Ld. Commissioner of Income Tax (Appeals)-II, Kanpur has erred in law and on facts in annulling the said assessment on the ground that there had been no failure on the part of the assessee to disclose truly and fully all material facts necessary for assessment, ignoring the detailed facts mentioned by the assessing officer, in the reasons recorded by him for issue of the notice u/s 148, showing that the assessee had consciously made wrong claim of deduction, etc. and that there had thus been failure on its part to disclose fully and truly all material facts necessary for its assessment. 3. That the Ld. Commissioner of Income Tax (Appeals)-II, Kanpur has erred in law and on facts in holding that the notice under section 148 was issued without any sanction of law without appreciating the fact that the assessee, during the course of assessment proceedings accepted that "as far as the matter of jurisdiction of the Assessing Officer for issuing the above referred notice u/s 148 is concerned, we have no objection to it". 4. That the Ld. Commissioner of In....
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....fter getting the approval of the ld. Commissioner of Income-tax-1, Kanpur as prescribed under section 151(1) of the Act on 23.3.2007. 7. Thereafter notice under section 142(1) of the Act was issued on 1.11.2007, as the assessee failed to file return of income in response to the notice issued under section 148 of the Act. On 8.11.2007, the assessee filed a letter stating therein that the original return filed on 30.10.2001 may please be treated as return filed in compliance to notice dated 26.3.2007 issued under section 148 of the Act. Accordingly, the assessment was framed reducing the deduction under section 80HHC of the Act. 8. An appeal was preferred before the ld. CIT(A) raising a preliminary objection that the assessment was reopened after a period of four years from the end of the relevant assessment year on the basis of amendment brought in section 80HHC of the Act through Taxation Law (Amendment) Act, 2005 and without recording reasons that the income escaped assessment for the said assessment year by the reason of failure on the part of the assessee to disclose fully and truly all material facts necessary for its assessment for that assessment year. A written submiss....
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....not been discussed even in the assessment order. Thus, non-compliance with the ruling of the Hon'ble Supreme Court in this regard would vitiate the entire assessment proceedings, and, therefore, the assessment is liable to be annulled. The other argument of the appellant in this regard (i.e. challenge to the reopening) is that in view of the proviso to Section 147, the act of issuance of notice beyond 04 years from the end of the relevant assessment year was illegal and void. For easy reference and better understanding, the impugned proviso to Section 147 is extracted as under: 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 sub-section (1) of section 142 or section 148 or to disclose fully and truly all material facts necessary for his assessment, for the ....
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....3 or the said section has been made for the relevant assessment year, no shall be taken under the section after expiry of four years from the end of the relevant assessment year, unless any income chargeable to tax has escaped assessment 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 sub-section (1) of section 142 or section 148 or to disclose fully and truly all material facts necessary for his assessment. Thus, for the purpose of invoking section 147 after the expiry of four year from the end of the relevant assessment year, the income chargeable to tax should have escaped assessment by reason of failure on the part of the assessee either (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. In the facts of the present case is an undisputed position that there is no failure on the part of the assessee insofar as the first condition is concerned. Insofar as the second condition, viz. failure on the part of the assessee to disclose fully and truly ....
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....st be based on evidence. The Assessing Officer, in the event of challenge to the reasons, must be able to justify the same based on material available on record. He must disclose in the reasons as to which fact or material was not disclosed by the assessee fully and truly necessary for assessment of that assessment year, so as to establish the vital link between the reasons and evidence. That vital link is the safeguard against arbitrary reopening of the concluded assessment. The reasons recorded by the Assessing Officer cannot be supplemented by filing an affidavit or making an oral submission, otherwise, the reasons which were lacking in the material particulars would get supplemented, by the time the matter reaches the court, on the strength of the affidavit or oral submissions advanced. In this fact of the matter, the proviso to section 147 comes to the aid of the appellant and would render the issue of notice u/s 148 after the expiry of 04 years as void and illegal. In coming to such conclusion, I am also fortified by the decision of the Hon'ble Gujarat High Court in the case of Sadbhav Engineering Ltd. v/s DCIT (date of order 20.07.2010, Spl. Civil Application No. 5846....
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.... the return was filed, the assessee could not possibly have known that the decision on the basis of which cash compensatory support had been claimed as not amounting to the assessee's income ceased to be operative by reason of retrospective legislation." The Hon'ble Gujrat High Court, in the case of Doshion Ltd. Vs ITO (Guj.) 2012 has rejected the reopening the case of u/s.147 after 4 years in view of Retrospective amendment to the expl. to section 80IA by F (No.2) Act, 2009, w.e.f. 01/04/2000 (i.e. the assessing being Worker Contractor, not eligible for deduction u/s. 80IA) as there has been no failure on the part of the assessee to disclose truly and fully all material facts. The Hon'ble Bombay High court has also held the similar view in the case of CIT Vs. M/s. K.Mohan & Co. (Exports) (Bom.), 2012 and rejected the reopening u/s.147 in view of retrospective amendment to section 80HHC by Taxation Laws (Amendments) Act, 2005, w.e.f. 01/04/98 as there has been no failure on the part of the assessee to disclose truly and fully all material facts. The Hon'ble Madras High Court has also upheld the rejection of reopening u/s.147 in view of retrospective amendment ....
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....its assessment. 10. The ld. counsel for the assessee, on the other hand, has placed a strong reliance upon the order of the ld. CIT(A). 11. Having carefully examined the orders of the lower authorities in the light of the rival submissions, we find that undisputedly assessment was reopened after expiry of four years from the end of the relevant assessment year i.e. assessment year 2001-02. As per proviso to section 147 of the Act, the assessment can only be reopened after the period of four years from the end of the relevant assessment year, if the Assessing Officer makes out a case that the income chargeable to tax has escaped assessment for such assessment year by the reason of failure on the part of the assessee either to make a return under section 139 of the Act or in response to notice under sub-section (1) of section 142 of the Act or 148 of the Act or to disclose fully and truly all material facts necessary for its assessment for that assessment year. For the sake of reference, we extract the proviso to section 147 of the Act as under:- "Provided that where an assessment under sub-section (3) of section 143 or this section has been made for the relevant assessment ....
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....not passed any order disposing of the objections raised by the assessee to the reopening of its case, ignoring the fact that such objections had been duly considered by the Assessing Officer in his assessment order dated 27.11.2009 and had been found unacceptable for reasons discussed therein. 3. That the Ld. Commissioner of Income Tax (Appeals)-II, Kanpur has erred in law and on fact in holding that since in this case an assessment dated 27.03.2006 had earlier been made under section 144/147, by reason of the first proviso to Section 147 the case could not have been reopened, after the expiry of four years from the end of the relevant assessment year, unless income chargeable to tax had escaped assessment by reason of failure on the part of the assessee to disclose truly and fully all material facts necessary for assessment. That in holding thus the Ld. CIT(A) has totally ignored the clarification given by the Assessing Officer in the assessment order, that in this case the earlier proceedings initiated under section 148, resulting in the assessment dated 27.03.2006 under section 144, had been held null and void vide the Ld. ITAT's order dated 07.11.2008 in ITA No. 640(LUC)....
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....ently on the basis of amendment in section 80HHC of the Act by the Taxation Law (Amendment) Act, 2005, the Assessing Officer formed a belief that income to the extent of Rs. 62,48,950/- has escaped assessment and he accordingly after recording reasons and also having obtained approval from the concerned authority, reopened the assessment and issued notice on 25.2.2009 under section 148 of the Act. In response to the notice under section 148 of the Act, assessee filed a written reply dated 23.3.2009 intimating that the return of income filed earlier under section 139(1) of the Act may be taken as the return filed in response to the notice under section 148 of the Act. Subsequently, a statutory notice under section 143(2) of the Act was also issued calling upon the assessee to make necessary compliance on the given date and time. In the meanwhile, assessee filed an objection against the initiation of reassessment proceedings which has been disposed of vide order dated 31.8.2009. The relevant observation of the Assessing Officer is extracted hereunder:- "4. These provisions stipulate that no notice u/s 148 is to be issued after the expiry of the four year from the end of the releva....
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....ngs even beyond the said period of four years, since in that event, the case would fall in the enabling part of the proviso. Clause (b) deals with cases where no assessment is made and the AO notices that the income is understated or excessive loss deduction, allowance or relief is claimed in the return. These would be cases where the return is accepted without scrutiny and no formal assessment is made. Clause (c) would cover cases where in the assessment already made, income was underassessed or assessed too low or excessive relief is given or excessive loss or depreciation allowance or other allowance under the Act has been computed. In the aforesaid deemed cases of escapement of income, the AO can initiate the proceedings on finding or discovering such cases and no debate whether they constitute cases of escapement of income, would be permissible. As noted above, the provisions of section 147 require that the AO should have reason to believe that any income chargeable to tax has escaped assessment. The word 'reason' in the phrase 'reason to believe' would mean cause or justification. If the AO has a cause or justification to think or suppose that income had es....
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.... of instant proceedings does not hold good and is accordingly rejected. It is further brought on record that the assessee has not contested the proposed additions on merits and in his detailed written reply the assumption of jurisdiction u/s 147 has been challenged. Though verbal arguments were made on 20.11.2009 reiterating the arguments made in the written reply dated 20.10.2009 filed before the undersigned on 03.11.2009. The copy of the aforesaid written reply running into six pages is enclosed herewith as Annexure-A and forms part of this order. Therefore, it is concluded that the facts highlighted in the reasons recorded u/s 147 of the Income Tax Act, 1961 are absolute in the case of the assessee and accordingly the income of Rs. 59,28,221 had escaped assessment within the meaning of Section 147 of the Income Tax Act, 1961." 20. Having disposed of the objection, the Assessing Officer assessed the income at Rs. 1,39,11,790/- under section 147/143 of the Act. 21. Aggrieved, the assessee preferred an appeal before the ld. CIT(A) mainly on the issue that the assessment was reopened after expiry of four years from the end of the assessment year i.e. assessment year 2002-03 on....
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....specific conditions, such benefit can definitely be curtailed out, the same must be effective from a future date and not from an earlier point of time. If after inducing a citizen to arrange his business in a manner with a clear stipulation that if the existing statutory conditions are satisfied, in that event, he would get the benefit of taxation and thereafter, the revenue withdraws such benefit and imposes a new condition which the citizen at that stage is incapable of complying whereas if such promise was not there, the citizen could have arranged his affairs in a different way to get similar or at least some benefit, such amendment must be held to be arbitrary and if not, an ingenious artifice opposed to law. In the instant case, the object of the amendment, as it appears from the statements of the Finance Minister while moving the bill, is to get rid of the alleged wrong decision of the Tribunal interpreting the then provision of the statute in a way beneficial to the assessee, which according to the Finance Minister, was never the intention of the legislature. If such be the position, the revenue has definitely right to challenge the decision of the Tribunal as a wrong one b....
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.... to have achieved. In the instant case, according to the Finance Minister presenting the Bill, a valid piece of legislation has been wrongly interpreted by the Tribunal. According to the existing law, if a valid piece of legislation is wrongly interpreted by the Tribunal, the aggrieved party should move higher judicial forum for correct interpretation. The impugned amendment granting benefit restricting it to a class of assessee whose turnover is less than Rs. 10 crore is permissible prospectively but the way it has been enacted, it takes away an enjoyed right of a class of citizens who availed of the benefit by complying with the requirements of the then provisions of law. [Para 25] On consideration of the entire materials on record, there is substance in the contention of the petitioners that the impugned amendment is violative for its retrospective operation in order to overcome the decision of the Tribunal, and at the same time, for depriving the benefit earlier granted to a class of the assessees whose assessments were still pending although such benefit will be available to the assessees whose assessment have already been concluded. In other words, in this type of substant....
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.... chargeable to tax had escaped assessment by reason of failure on the part of the assessee to disclose truly and fully all material facts necessary for assessment. That, in holding thus, the Ld. Commissioner of Income Tax (Appeals), has grossly overlooked the fact that the notice u/s 147, in respect of A.Yr. 2003-04, had been issued on 04.08.2006; i.e. well before the stipulated period of four years from expiry of the assessment year, and hence the first proviso was not at all applicable in this case. 3. That the Ld. Commissioner of Income Tax (Appeals)-II, Kanpur, has erred in law and on facts in as much as, in his "decision" and "discussion and decision" at pages 12 to 17 of the impugned appellate order, without at all applying his mind to the facts of the present case, he has reproduced verbatim the facts and reasoning given in his appellate order dated 23.03.2012 in the same appellant's case for A.Yr. 2001-02, even though such facts and reasoning have no bearing on the present case. 4. That the Ld. Commissioner of Income Tax (Appeals)-II, Kanpur, has erred in law and on facts in annulling the assessment under section 147/143(3) of the Income Tax Act, 1961, dated 05.12....
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....ned on the basis of the amendment in section 80HHC of the Act brought through the Taxation Law (Amendment) Act, 2005 within a period of four years from the end of the impugned assessment year i.e. assessment year 2003-04 by issuing notice under section 148 of the Act on 4.8.2006. Before the Assessing Officer, the assessee has joined assessment proceedings and the assessment was completed and deduction under section 80HHC of the Act was worked out as per amended provisions. Before the ld. CIT(A), first time the validity of reopening was assailed and the ld. CIT(A) following his decision for assessment years 2001-02 and 2002-03 annulled the assessment. During the course of hearing, our attention was invited to the judgment of the Hon'ble Gujarat High Court in the case of Avani Exports vs. CIT (supra), in which retrospective amendment was quashed and held to be unsustainable by the Hon'ble High Court. Therefore, the assessment cannot be reopened on the basis of retrospective amendment. In the foregoing paragraphs, we have categorically held that on the basis of retrospective amendment, the assessment cannot be reopened. We, accordingly, following the same again hold in this appeal....
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.... disallowance of Rs. 2,23,506/-, on account of Car and telephone expenses, to Rs. 1,50,000/-, without appreciating the facts brought on record by the Assessing Officer and without giving any cogent reason for making such restriction. 6. The Ld. Commissioner of Income Tax (Appeals)-II, Kanpur has erred in law and on facts in deleting the additions/disallowances of Rs. 10,08,379/-, on account of manufacturing expenses, miscellaneous expenses, repair of furniture & fixture, building repair expenses and foreign travel expenses, without appreciating the facts brought on record by the Assessing Officer. 7. That the order of the Ld. Commissioner of Income Tax (Appeals)- II, Kanpur, dated 23.03.2012 needs to be quashed and the order passed by the Assessing Officer dated 30.11.2006 to be restored. 36. With regard to ground No.1, it is noticed from the orders of the lower authorities that while raising the claim for deduction under section 80HHC of the Act, the assessee has moved an application for extension of time before the competent authority (Canara Bank) for realization of export sale invoice till 31.5.2005. In the absence of any evidence with regard to the grant of extension ....
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....e Gujarat High Court in the case of Avani Exports vs. CIT (supra) and compute the deduction under section 80HHC of the Act following the principle laid down by the Hon'ble Apex Court in the case of Topman Export vs. CIT [2012] 342 ITR 49 (SC). Accordingly the order of the ld. CIT(A) in this regard is set aside and the matter is restored the file of the Assessing Officer to re-adjudicate the issue afresh in terms indicated above after affording opportunity to the assessee. 42. Ground No.4 relates to the restriction of addition of Rs. 1 lakh on account of fall in G.P. to Rs. 50,000/-. The addition of Rs. 1 lakh was made on ad hoc basis. Later on the ld. CIT(A) reduced it to Rs. 50,000/-. We, therefore, find no infirmity in the reduction of addition made on ad hoc basis. Accordingly we confirm the same. 43. Ground No.5 relates to the disallowance of Rs. 2,23,506/- on account of Car and Telephone expenses which was reduced to Rs. 1.50 lakhs by the ld. CIT(A). Since this disallowance was made on ad hoc basis which was reduced by the ld. CIT(A), therefore, we find no infirmity in the reduction of the disallowance and accordingly we confirm the order of the ld. CIT(A) in this re....
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.... assessment proceedings. 4. The Ld. Commissioner of Income Tax (Appeals)-II, Kanpur has erred in law and on facts in restricting the addition of Rs. 2,00,000/-, on account of fall in G.P., to Rs. 1,00,000/-, without appreciating the facts brought on record by the Assessing Officer and ignoring the fact that the assessee had agreed to the addition during the assessment proceedings. 5. The Ld. Commissioner of Income Tax (Appeals)-II, Kanpur has erred in law and on facts in restricting the addition of Rs. 77,570/-, on account of fooding and lodging expenses, to Rs. 38,785/-, without appreciating the facts brought on record by the Assessing Officer and ignoring the fact that assessee had -agreed to the disallowance during the assessment proceeding. 6. That the order of the ld. CIT(A)-II, Kanpur dated 23.3.2012 needs to be quashed and the order passed by the Assessing Officer dated 18.12.2008 to be restored. 49. Apropos grounds No.1 and 2, it is noticed that the Assessing Officer has made disallowance of interest on the ground that the assesseefirm has diverted its funds to the tune of Rs. 1,43,52,850/- on account of purchase of land for Bhanthar unit of the factory and cons....
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.... time assessee had surplus interest free funds, therefore, it cannot be held that the borrowed funds were diverted for investment in the purchase of land and construction of factory building. 52. Having carefully examined the orders of the lower authorities, we find that at the relevant point of time, assessee was having surplus interest free funds, therefore, no borrowed funds were diverted for purchase of land and construction of factory building thereon in order to capitalize interest. Accordingly we subscribe the order of the ld. CIT(A) on this issue and reject the ground of the Revenue. 53. Apropos ground No.3, it is noticed that the Assessing Officer has made disallowance of expenditure of expenditure incurred on purchase of Knives and Blades, having held it to be capital expenditure. 54. In appeal, the ld. CIT(A) deleted the addition after treating it to be revenue expenditure, having observed that the assessee-firm is running a tannery and it has to replace the old and worn out blades/knives. Thus, these are in the nature of consumable stores and to be replaced frequently. 55. Aggrieved, the Revenue has preferred an appeal before the Tribunal and simply placed r....