TaxTMI 
TaxTMI 
2015 (7) TMI 297
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.... convenience all these petitions can be bifurcated into two groups. One group in which the reopening has taken place beyond the period of 4 years from the end of the concerned / relevant assessment year and another group in which the reopening has taken place within the period of 4 years from the end of the concerned/relevant assessment year. The statement of particulars with respect to each petitioner falling under the first group and second group in the tabular form are as under: Reopening beyond the period of 4 years from the end of the relevant assessment year Sr. No. SCA No. Assessment Year Name (1) (2) (3) (4) 1 17773/2014 2007-08 Shree Khedut Sahkari Khand Udyog Mandli Ltd. 2 17870/2014 2007-08 Shree Chalthan Vibhag Khand Udyog Mandli Ltd. 3 18784/2014 2007-08 Shree Mahuva Pradesh Sahkari Udyog Mandli Ltd. 4 18785/2014 2007-08 Shree Sayan Vibhag Sahkari Khand Udyog Mandli Ltd. 5 18787/2014 2007-08 Shree Kamrej Vibhag Sahkari Khand Udyog Mandli Ltd. 6 18795/2014 2007-08 Shree Madhi Vibhag Sahkari Khand Udyog Mandli Ltd. 7 2638/2015 2007-08 Shree Maroli Vibhag Khand U....
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....the facts of Special Civil Application No.17870/2014 are narrated more particularly when the basic facts in each of the petitions are common / similar. [3.1] Facts leading to the Special Civil Application No.17870/2014 in nut-shell are as under: [3.2] That the petitioner - assessee is a co-operative society manufacturing sugar out of sugarcane supplied by its members and has been assessed to tax under the Act for last several years. That the assessee filed its return of income for AY 2007-08 on 23.10.2007 declaring NIL income after set off of brought forward business loss of Rs. 1,15,65,482/- and unabsorbed depreciation of Rs. 2,18,71,543/-. That the return income was accepted and NIL income assessed under Section 143(3) of the Act on 24.12.2009. [3.3] That thereafter beyond the period of 4 years from the end of the relevant assessment year AY 2007-08, the Assessing Officer has issued the impugned notice dated 27.03.2014 under Section 148 of the Act to reopen the assessment for the AY 2007-08 alleging inter alia that there has been escapement of income atleast of Rs. 44,90,71,133/-on account of the original assessment. [3.4] That immediately on receipt of the said notic....
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....n be said to be distributing the profits. It was further submitted that the co-operative sugar factories save the individual cane growers from the exploitation of the private sugar barons. It was further submitted that in the matter of assessee's own case for the AYs 1980-81 to 1990-91, learned CIT(Appeals) sent the matter back to the Assessing Officer to find out whether by making the payment to the crane growers in excess to the SMP declared by the Government under the Control Order whether the society had really passed on the profits to its members in the form of payment of final price and thereafter the Assessing Officer had held that there was no such passing of a profit. It was submitted that therefore even Rule of Constituency would also demand that the department in a later year should not somersault. It was also further submitted on behalf of the assessee that as such there was no failure on the part of the petitioner - assessee in not disclosing truly and fully all the necessary materials relevant for assessment and therefore, reopening of the assessment beyond the period of 4 years is not permissible and justified. [3.7] That vide letter dated 14.10.2014 the Asses....
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....e the reopening is beyond the period of 4 years [4.3] Shri J.P. Shah, learned Advocate appearing on behalf of some of the assessees has vehemently submitted that the impugned notices to reopen the concluded assessment beyond the period of 4 years is absolutely illegal, invalid and not justifiable. It is further submitted that the condition precedent for assumption of jurisdiction to reopen the completed assessment beyond the period of 4 years as provided under Section 147 of the Act is not satisfied at all. [4.4] It is submitted that as per proviso to Section 147 of the Act, only in a case where the Assessing Officer is of the opinion that there was any failure on the part of the assessee to disclose truly and fully all necessary material for assessment, the reopening of the assessment beyond 4 years is permissible. It is submitted that in none of the cases it is alleged in the notice that there was any failure on the part of the assessee to disclose fully or truly all necessary material for assessment. It is submitted that therefore the assumption of jurisdiction to reopen the assessment in the present case is wholly without jurisdiction. In support of his above submissio....
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....easons do not show any nexus or connection with the allegation of under assessment, they fall in the realm of suspicion, surmises and conjectures. It is submitted that reasons to believe must have a rational connection and should be relevant for the formation of a belief regarding escapement of income and should not be extraneous or irrelevant, otherwise they will be considered as invalid since they do not meet the statutory preconditions/prerequisites. In support of his above submissions he has relied upon the following decisions of the Delhi High Court. 1. Commissioner of Income-tax-V v. Orient Craft Ltd. (2013) 354 ITR 536 (Del) 2. G.S. Engineering & Construction Corporation v. Deputy Director of Income-tax (International Taxation) & Ors. 357 ITR 335 (Del) [5.2] It is further submitted by Shri Soparkar, learned Advocate appearing on behalf of some of the petitioners that in the present case even the formation of opinion by the Assessing Officer that he has reason to believe that the income has escaped assessment is a borrowed satisfaction from another officer. It is submitted that a look at the provisions of Section 147 of the Act shows that prerequisite condition, whic....
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.... Ltd. 301 ITR 191 (Bombay) [5.5] It is further submitted by Shri J.P. Shah, learned Advocate appearing on behalf of some of the petitioners that infact there was no tangible material available with the Assessing Officer to form an opinion that the income chargeable to tax has escaped the assessment. It is submitted that infact solely on the basis that the concerned sugarcane growers are paid the prices in excess to the SMP fixed by the State Government under the Control Order, the amount paid in excess to the SMP is considered to be parting of the profits and/or distributing the profits and chargeable to tax. It is vehemently submitted that as such there was no material whatsoever before the Assessing Officer that what was the prevailing price paid to the cane growers by other co-operative societies at the relevant time and/or whether the price paid in excess to the SMP declared by the State under the Control Order was so exorbitant and/or too excessive which can be said to be passing of the profit and/or distributing the profits. It is submitted that any amount paid in excess to the SMP declared by the State under the Control Order ipso facto cannot be said to be passing of the....
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....eopen the concluded assessment. It is submitted that at the time of original assessment, inquiry was made and the issue was gone into detail and once having taken the facts and circumstances into consideration and formed an opinion and thereafter assessment was concluded, thereafter it is not open for the Assessing Officer to reopen the same due to change of opinion. It is submitted that when assessee's claim was processed at length and after calling for detail explanation same was accepted, merely because certain element or angle was not in the mind of Assessing Officer while accepting such a claim, could not be a ground for issuing notice under Section 148 of the Act for reassessment, where the Assessing Officer allowed the assessee's claim after making a detail inquiry, thereafter he cannot initiate reassessment proceedings on the basis of the same material, taking a view that the said claim was wrongly allowed. In support of above submissions, Shri Soparkar, learned Advocate appearing on behalf of some of the petitioners has relied upon the following decisions of this Court. 1. Cliantha Research Ltd. v. Deputy Commissioner of Incometax (2013) 35 taxmann.com 61 (Gujar....
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.... part of the assessee to disclose truly and fully all the materials necessary for assessment. It is submitted that even in the present case the reasons itself concede that there was full and true disclosure regarding the material fact with respect to the unabsorbed depreciation carried forward. It is submitted that in Special Civil Application No.17870/2014 in the matter of Shree Chalthan Vibhag Khand Udyog Sahakari Mandli Ltd., the reasons itself record "Scrutiny of statement of unabsorbed business loss and depreciation allowance revealed that the brought forward unabsorbed depreciation of Rs. 12,32,03,579/-(before set off from current year's profit) includes unabsorbed depreciation of Rs. 7,80,40,419/- pertaining to the period prior to AY 1997-98. Since the unabsorbed depreciation for the period prior to AY 1997-98 was allowed to be carry forward & set off for eight assessment years only, as per provisions of Income Tax Act, set off of the unabsorbed depreciation pertaining to the period prior to 1997-98 against the income of AY 2007-08 was incorrect and is required to be withdrawn". It is further submitted that in Special Civil Application No.2638/2015 in the matter of Shree....
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....ears is not permissible as the reopening is solely on mere change of opinion of the Assessing Officer. It is submitted that the issues / reasons on which the assessment is sought to be opened were as such considered in detail by the Assessing Officer while passing 143(3) assessment order in detail. Making above submissions and relying upon the above decisions, learned Advocates appearing on behalf of respective petitioners have requested to allow the present Special Civil Applications and quash and set aside the impugned notices under Section 148 of the Act to reopen the completed assessment of respective assessment years. [7.0] All these petitions are opposed by Shri Sudhir Mehta, learned Advocate and Shri K.M. Parikh, learned Advocate appearing on behalf of the Revenue in respective petitions. Learned Advocates appearing on behalf of the Revenue have vehemently submitted that in the facts and circumstances of the case and more particularly when the notices under Section 148 of the Act have been issued and the assessments have been reopened on recording the reasons and having satisfied that the income chargeable to tax has been escaped, it is requested not to entertain the pres....
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....s distribution of profit amongst the members. It is submitted that even the reopening of the assessment in case of some of the petitioners has been on the ground of unabsorbed business loss carried forward. It is submitted that the carried forward unabsorbed loss includes unabsorbed loss pertaining prior to AY 1997-98 and since the unabsorbed depreciation for the period prior to AY 1997-98 was allowed to be carried forward and set off for 8 assessment years only, as per the provisions of the Act, set off of the unabsorbed depreciation pertaining to period prior to 1997-98 is allowed and set off against the income of AY 1997-98, was incorrect and required to be withdrawn. It is submitted that failure to do so has resulted in incorrect carry forward of unabsorbed depreciation on which short levy of tax has been worked out and therefore, on the aforesaid reason/ground reopening the assessment is absolutely just and proper as the income chargeable to tax has escaped assessment. Making above submissions, it is requested to dismiss the present Special Civil Applications. [8.0] Heard learned Advocates appearing for respective parties at length. In all these petitions under Articl....
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....sment reads as under: REASONS RECORDED TO REOPEN THE ASSESSMENT "The assessee engaged in the manufacturing and selling of sugar and its bye products and Absolute alcohol filed its return of income for A.Y. 200708 on 23.10.2007 declaring NIL income after set off of brought forward Business Loss of Rs. 1,15,65,482/- and Unabsorbed depreciation of Rs. 2,18,71,543/- (Total Rs. 3,34,37,025/). The returned income was accepted and NIL income assessed u/s.143(3) of I.T. Act 1961 on 24.12.2009. The assessee claimed to carry forward of Unabsorbed depreciation of Rs. 10,13,32,036/. It was noticed from the statement of computation of income and statement showing the carry forward and set off of Business losses and Unabsorbed depreciation attached with the Return of Income that the assessee had set off Business loss of Rs. 1,15,65,482/- and Unabsorbed depreciation of Rs. 2,18,71,543/- (Total Rs. 3,34,37,025/-) against the current year income of Rs. 3,34,37,025/-. Scrutiny of statement of unabsorbed business loss and depreciation allowance revealed that the brought forward unabsorbed depreciation of Rs. 12,32,03,579/-(before set off from current year's profit) includes unabsorbed de....
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....ounting to Rs. 41,22,091/- debited to Production and Trading Account of Distilery Plant was not disallowed and added back. This resulted in under assessment of income to the extent of Rs. 41,22,091/- on which short levy of tax worked out to Rs. 12,33,627/- (Potential). The assessee is a co-operative society engaged in activity of manufacturing sugar from sugar cane purchased form its members, who are shareholders of the said co-operative society. It has come to notice during the course of assessment proceedings in the cases of sugarcane growers that the co-operative sugar factories of South Gujarat are following a practice of deciding the purchase price of sugarcane after finalization of its accounts and its profits in the financial year subsequent to procurement of sugarcane. Till the time of finalization of the purchase price, adhoc payments are distributed amongst the sugarcane farmers. The final purchase price is declared after arriving at the profits earned by the co-operative sugar factories during the year of procurement of sugar cane. Thus, the ad hoc payments and the final payments contain an element of profits of the co-operative sugar factories, which are distributed ....
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....ity. In this case, the amount to be paid to sugarcane suppliers is neither before the crushing season nor during the crushing season. This practice of deciding the cane price after the end of crushing season at the time of finalization of their accounts, was being followed by them so that these sugar factories comes to know of the profits earned by it in that crushing season by that time and so that the cane purchase price can be so adjusted that there would be no incidence of tax in the hands of the co-operative society or in the hands of their members. This was seen to have been done with the motive to substantially suppress the profits of the co-operative sugar societies by the distribution of profit as purchases from its members. The entire profits of the sugar factories, which otherwise would have been taxed in their hands, are distributed amongst its members, in the guise of 'cane price'. It is also noted that a sugar unit cannot pay purchase price for sugar cane below the SMP/FRP decided by the Central Government. Thus, it is reasonable to consider that in absence of any purchase price fixed by the co-operative sugar factories for sugar cane, it would be reasonable t....
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....e of the assessee. Thus, on the facts of the case, the undersigned is also reasonably satisfied and has the relevant reasons to believe that there has been escapement of income at least of Rs. 44,90,71,133/- on account of original assessment. Therefore, on the facts of the case, the case of your concern for A.Y. 2007-08 has been reopened for reassessment of such income to tax, which has escaped assessment." [8.4] In the case of Aayojan Developers v. Income-Tax Officer reported in (2011) 335 ITR 234, where no foundation was laid in the reasons for reopening assessment that there was failure on the part of the assessee to disclose fully and truly all material facts and nothing was brought on record and by filing of affidavit in reply for the first time such escapement was indicated, the Division Bench of this Court has held that notice of reopening beyond 4 years must fail. "5.06. Identical question came to be considered by the Division Bench of this Court in the case of Niko Resources Ltd. (supra) and while considering the scope and ambit of powers to be exercised under section 147 of the Income Tax Act by the Assessing Officer, while reopening the assessment beyond the per....
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..... on his having a reason to believe that income chargeable to tax had escaped assessment for any assessment year, can assess or reassess such income and also any such other income chargeable to tax, which has escaped the assessment. However, no such action is permissible after lapse of 4 years from the end of the relevant assessment year unless income chargeable to tax has escaped assessment on account of failure on the part of the assessee to disclose fully and truly all material facts necessary for the purpose of such assessment. The onus is on the assessee to reveal the primary facts and to draw the inferential facts would be the responsibility of the Assessing Officer. Once having revealed from the record that the assessee disclosed full and complete facts and on scrutiny, at the time of original assessment all these details are examined, no change of opinion is permissible merely because there was some error earlier on the part of the Assessing Officer himself or because he choose not to opine on the issue or even when he changes his mind and interprets the material or law otherwise than what was done by him. 5.07. Applying the decision of the Division Bench of this Court i....
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.... Hon'ble Supreme Court in the case of Shri Satpuda Tapi Parishar SSK Ltd. (Supra). However it is required to be noted that once at the time of original assessment under Section 143(3) of the Act the Assessing Officer after applying the mind accepted the return, thereafter reopening of the assessment can be said to be on mere change of opinion of the Assessing Officer and as per the catena of decisions of the Hon'ble Supreme Court as well as this Court mere on change of opinion of the Assessing Officer, reassessment proceedings are not permissible. [9.1] If any decisions are required to be referred to on the point, they are the decision of the Hon'ble Supreme Court in the case of Kelvinator of India Ltd. (Supra), decisions of this Court in the case of Cliantha Research Ltd. (Supra), Sarla Raj Verma (Supra) and Niko Resources Ltd. (Supra). In the case of Kelvinator of India Ltd. (Supra), the Hon'ble Supreme Court in para 6 has held as under: "6. On going through the changes, quoted above, made to section 147 of the Act, we find that, prior to the Direct Tax Laws (Amendment) Act, 1987, reopening could be done under the above two conditions and fulfillment of the ....
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....sing Officer. It was pointed out the meaning of the expression, 'reason to believe' had been explained in a number of court rulings in the past and was well settled and its omission from section 147 would give arbitrary powers to the Assessing Officer to reopen past assessments on mere change of opinion. To allay these fears, the Amending Act, 1989, has again amended section 147 to reintroduce the expression 'has reason to believe' in place of the words 'for reasons to be recorded by him in writing, is of the opinion'. Other provisions of the new section 147, however remain the same." [9.2] Even otherwise it is required to be noted that the reasons to believe must necessarily show, indicate and communicate why and on what grounds / cause any income has escaped assessment. Reasons recorded must be germane, prudent and disclose prima facie belief that income has escaped assessment. Even for formation of the opinion and/or reason to believe that any income has escaped assessment, there must be some tangible new material available with the Assessing Officer on the basis of which the reassessment proceedings are permissible. In the present case as such except ....
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....anner in which the business works, resolutions of the State Government, the modalities and the manner in which SAP and SMP are decided, the timing difference which will arise on account of the difference in the accounting years etc. Therefore, while considering the aforesaid question, number of questions are required to be examined by the Assessing Officer, before even forming an opinion and/or a reason to believe that the income chargeable to tax has escaped assessment. Mere payment of any amount of cane price / purchase price in excess to SAP / SMP per se cannot be said to be distribution of profits. For which a detailed inquiry is required to be conducted by the Assessing Officer. In the present case no such inquiry has been done and/or conducted by the Assessing Officer before having a reasonable belief and/or forming an opinion that the income chargeable to tax has escaped assessment on the aforesaid ground. [9.3] At this stage it is required to be noted that in some of the cases the Assessing Officer has formed an opinion on the basis of the order passed by the learned CIT (Appeals) which were pursuant to the order of Hon'ble Supreme Court in the case of Shri Satpuda T....