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2016 (6) TMI 170
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....ts and in the circumstances of the case and in law, the Ld CIT(A) was justified in holding that the regular assessment made u/s.143(3) cannot be reopened u/s.147 merely on the basis of 'change of opinion' and accordingly erred in treating the proceedings initiated u/s.147 as invalid. 2. Whether on the facts and in the circumstances of the case and in law, the Ld.CIT(A) was justified in not following the judicial decisions in the cases viz. (1 )A.L.A. Firm Vs. CIT(Mad) 102 ITR 622. (2) Ess Kay Engineering Co. (P) Ltd. Vs. CIT(SC) 247 ITR 818. (3) Revathy C.P. Equipments Ltd. vs. DCIT & Ors.(Mad) 241 ITR 856. (4) EMA India Ltd. Vs. ACIT(All) 30 DTR 82 wherein it has been held that when there is no discussion on the issue in the assessment order and no details were called for by the Assessing Officer or filed by the assessee on the issue, no finding either positive or negative was arrived at during the course of the original assessment proceedings, there is no question of change of opinion. 3. Whether on the facts and in the circumstances of the case and in law, the Ld.CIT(A) was justified in holding that the issue of taxability of Rs. 1,37,19,684/- was alrea....
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....venue receipt and an amount of Rs. 1,37,19,684/- was transferred to capital reserve. The amount of Rs. 1,37,19,684/- is not offered by the assessee company considering it as capital receipt, neither it is brought under taxation in course of the assessment. As the money was received by the assessee company in the course of carrying on his business the same has become assessee company's own money, and relief on overdraft on the same should be treated as cessation of liability and taken as income of the previous year under consideration u/s 41......" The assessee company submitted before the AO in the re-assessment proceedings that section 41 of the Act has no application on this issue as the cessation and remission is not on account of a trading liability, and the amount transferred to capital reserve is on capital account and the amount was never claimed as deduction while computing total income in any earlier previous year. The contentions of the assessee company were rejected by the A.O., as in its Balance Sheet in 'Reserves and Surplus' at schedule B, there was an addition of Rs. 1,37,19,684/- in the Capital Reserves, while Rs. 2,06,82,471/- was credited under the head 'Exc....
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....nue receipts in the hands of the assessee company and hence the sum was added to the total income of the assessee company by the AO , vide assessment orders dated 30.08.2011 passed by the AO u/s. 143(3) read with Section 147 of the Act. 6. Aggrieved by the assessment orders dated 30.08.2011 passed by the A.O. u/s 143(3) read with Section 147 of the Act, the assessee company filed its first appeal before the learned CIT(A). 7. Before the learned CIT(A), the assessee company challenged the validity of the reopening of the assessment u/s 147/148 of the Act and contended that during the course of original assessment proceedings u/s 143(3) of the Act , the issue regarding one time settlement of Bank Loan liability and relief granted by the Bank to the assessee company was also raised by the A.O. and in response, the assessee company had vide submissions dated 11.11.2008 furnished entire particulars with respect to the one time settlement reached with the Bank and the accounting treatment as adhered to by the assessee company in its books of account. The various details regarding one time settlement with the Bank were filed before the A.O. including , bank statements for the last s....
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.... 28th March, 2006 confirming the settling of the bank account. The assessee company has shown capital receipt of Rs. 1,37,19,684 which was specifically made known to the A.O. . On the reliefs granted, the assessee company had transferred Rs. 2,06,82,471/- to its P&L account and Rs. 1,37,19,684/- to its capital reserve account. The AO after examining the various details and applying his mind on the materials and the submission made by the assessee company, had passed the original scrutiny assessment order u/s 143(3) of the Act on 24th November, 2008 , as nothing was withheld by the assessee company from the AO. No new tangible material has come into the possession of the A.O. which could indicate that income has escaped assessment. It was stated before the learned CIT(A) by the assessee company that the reopening of the concluded assessment was made due to the audit objections which is not permissible under law and the action of the A.O. is not justified . The assessee company submitted that the audit objections has persuasive or suggestive value and for acquiring jurisdiction u/s 147 of the Act, there has to be an independent reasons to believe based on possession of tangible mater....
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....eport and Notes to accounts by the Statutory Auditor, hence, there was no suppression of the material facts. There was no failure on the part of the assessee company to fully and truly disclose the material facts necessary for the assessment , was the contention of the assessee company before the learned CIT(A). The assessee company relied upon the following decisions:- 1. [2012] 252 CTR 78 (Bom) Monitor India P) Ltd. v. UOI and 2. [2012] 68 DTR 85 (Bom) NYX Line (India) Ltd. v. Dy CIT. The assessee company submitted that it is an undisputed fact that the assessee company had made true and full disclosure of all material facts at the time of assessment proceedings, hence, the action of the Revenue in reopening of the concluded assessment is not correct. To support this contention of the assessee company, the following case laws were relied upon:- 1. (2010)329 ITR 257 (Bom) 31 Infotech Ltd. v. Asst. CIT 2. (2009)314 ITR 275 (Bom) Cortini India Ltd. v. Addl. CIT The assessee company submitted that thus the reopening of the assessment based on change of opinion is not permissible. To support this contention, the assessee company relied upon th....
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....ssessee company regarding the one time bank settlement and the assessee company had furnished the particulars with respect to the onetime settlement reached with the bankers. The accounting treatment as adhered by the assessee company in the books of account was also disclosed and the detailed submissions were made by the assessee company to the A.O. on 11th November, 2008 with respect to the relevant issue under consideration. The assessee company during the course of assessment proceedings u/s 143(3) read with Section 143(2) of the Act duly filed the bank statements for the last 6 years from 1st April 2000 to 31st March, 2006 , a letter from the bank showing the settlement dated 22nd December, 2005 and the bank certificate dated 28th March, 2006 settling the Bank Loan account. The assessee company has disclosed a sum of Rs. 1,37,19,684/- as capital receipt and Rs. 2,06,82,471/- as revenue receipt transferred to its P&L account. Thus it was held by the learned CIT(A), it is evident that the issue of taxability of Rs. 1,37,19,684/- was already discussed and deliberated upon by the A.O. at the time of original assessment proceedings u/s 143(3) read with Section 143(2) of the Act and....
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....ted. Thus, it could not be held that the A.O. had any fresh material or information in his possession on the basis of which he could believe that the income has escaped assessment. There was no failure on the part of the assessee company to disclose all materials facts. The assessment has been reopened only on the basis of change of opinion and thus the proceeding was held to be invalid by the learned CIT(A) vide appellate orders dated 20-09-2013 and the additions so made by the AO of Rs. 1,37,19,684/- vide orders dated 30.08.2011 passed u/s. 143(3) read with Section 147 of the Act was ordered to be deleted by the learned CIT(A) vide orders dated 20.09.2013. The assessee company also presented its detailed arguments on merit before the learned CIT(A), which are detailed by the learned CIT(A) in his appellate orders dated 20-09-2013. The learned CIT(A) considered the arguments of the assessee company on merit, however, since the reopening was held to be invalid and the reassessment order was annulled by the learned CIT(A), thus, the learned CIT(A) held that the ground of appeals on merits has become academic, hence, the learned CIT(A) considered it not necessary to adjudicate the....
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.... should be treated as cessation of liability and treated as income of the previous year u/s 41 of the Act . Thus the ld. Counsel submitted that assessee company was asked a query by the A.O. during the assessment proceedings whereby assessee company replied vide submission dated 11th November, 2008 and complete details regarding the onetime settlement and relief received from the bank were explained, the same are placed in paper book page 45-45C. The ld counsel pointed to the audit objection dated 24.09.2010(page 59B/paper book) whereby there is a mention of the letter dated 11.11.2008 of the assessee company based on which the audit objection was raised and it was submitted that the contention of Revenue to that extent are wrong that no query was raised by the AO during the original assessment proceedings which culminated into an assessment orders dated 24.11.2008 passed by the AO u/s 143(3) of the Act. It was submitted that the A.O. has passed the assessment order dated 24.11.2008 u/s. 143(3) of the Act after considering the reply of the assessee company. There was complete note given in the Audited Balance Sheet, Audited P&L account , notes to the accounts and in the Director's ....
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....nto an assessment orders dated 24.11.2008 passed u/s 143(3) of the Act. 11. The ld. D.R. in the rejoinder, submitted that there were no change of opinion by the A.O. as no opinion was formed at the time of original assessment u/s 143(3) of the Act vide orders dated 24.11.2008. The provisions of section 147 of the Act clearly stipulates that merely production before the A.O. of the books of accounts and other documents during the assessment proceedings are not sufficient . No information was called by the A.O. as nothing has been come in the assessment order that the AO called for this information and formed any opinion thereof. There is no discussion in the assessment order with respect to the relief's received by the assessee company with respect to one time settlement with the Bank. Thus, the A.O. has not considered the plea of the assessee company before finalizing the assessment order. The ld. D.R. relied upon the decision of the ITAT,Mumbai in the case of Arvee International v. ACIT, [2006] 101 ITD 495 (Mum), Hon'ble Supreme Court decision in the case of Ess Ess Kay Engineering Company Private Limited v. CIT (2002) 247 ITR 818 (SC), Hon'ble Madras High Court decision in the....
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....ment u/s. 143(3) of the Act has been sought to be re-opened u/s 147/148 of the Act in the instant case by the Revenue within four years from the end of the relevant assessment year by issuance and serving of the notice u/s 148(1) of the Act dated 28-03-2011, after recording of the reasons u/s 148(2) of the Act for re-opening of the assessment u/s 147/148 of the Act. The said reasons recorded for re-opening of the concluded assessment was duly supplied by the Revenue to the assessee company. We have observed that the assessee company has entered into one-time settlement agreement with the Bombay Mercantile Co-operative Bank Limited ("the Bank"), whereby the assessee company has been given relief/waiver of Rs. 3.44 crores on one time settlement of loan liability with the Bank . Out of relief of Rs. 3.44 crores received by the assessee company from the Bank on one time settlement of loan liabilities, the assessee company transferred Rs. 2.07 crores to the Profit and Loss account and offered the same for taxation , while the balance amount of the relief being Rs. 1.37 crores loan liability waiver by the Bank was the amount outstanding to be payable of Rs. 1.37 crores as on 31-03-2006 b....
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....d by the assessee company before the AO did find mention in the audit objection letter dated 24-09-2010 issued by Senior Audit Officer/LAP-IX, which was the basis for re-opening of the concluded assessment . Thus , the contentions of the revenue that no such query relating to one time settlement with the banker and consequent relief / waiver obtained by the assessee company , was ever raised by the AO during the original assessment proceedings u/s. 143(3) read with Section 143(2) of the Act and no such reply dated 11.11.2008 was ever given by the assessee company during the original assessment proceedings u/s 143(3) read with Section 143(2) of the Act because nothing has been discussed by the AO about this one time settlement with the banker and the relief so obtained by the assessee company in his assessment order u/s 143(3) of the Act dated 24.11.2008 , the afore-stated contentions of the ld. DR are not correct and are devoid of any merit and are hereby rejected based on the facts as emerging from the records as set out above. Nothing contrary has been brought on record by the Revenue to substantiate the bald contentions of the ld DR nor any affidavit has been filed by the Revenu....
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....s dated 24.11.2008 framed by the AO u/s 143(3) of the Act. Thus, the opinion was clearly formed by the A.O. as per the facts emerging from the records that the said amount of capital relief of Rs. 1.37 crores is not exigible to tax , while the AO also accepted the contentions of the assessee company that Rs. 2.07 crores is exigible to tax as revenue receipts. However, later on the Revenue re-opened u/s 147/148 of the Act , the concluded assessment u/s 143(3) of the Act based on the audit objections by the audit team vide letter of Senior Audit Officer/LAP-IX dated 24-09-2010 that income has escaped assessment as the assessee company has not offered to tax Rs. 1.37 crores being relief received by the assessee company on one time settlement with the bankers which is exigible to tax as the amount was received by the assessee company in the course of carrying on its business , the same amount became the assessee company money , the same should be treated as cessation of the liability and be exigible to tax u/s 41 of the Act , vide audit objection dated 24-09-2010. On merits also it is the say of the assessee company that the proceeds of the bank overdraft account had been utilized by t....
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....he assessment has been re-opened u/s 147/148 of the Act within four years from the end of the assessment year which can no doubt be re-opened if it could be shown either that there was failure or omission on the part of the assessee company in full and complete disclosure before the AO to show that the opinion is formed by the AO based on the facts which were not correctly stated or placed by the assessee company before the AO and hence opinion formed by the AO on the appreciation of wrong facts presented by the assessee company gets vitiated and hence the Revenue becomes eligible to re-open u/s 147/148 of the Act the concluded assessment u/s. 143(3) of the Act while no such averments has been made by the Revenue that incorrect or wrong facts were presented by the assessee company during the course of assessment proceedings which led to formation of an opinion by the AO which is a vitiated opinion. Rather, it is the contentions of the Revenue that the income has escaped assessment as the same is chargeable to tax u/s 41 of the Act as waiver money has become asssessee company's own money and is a cessation of liability exigible to tax. Secondly, the assessment can be re-opened by th....
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....sess or re-assess the income which has escaped assessment , but not to review the assessment's based on the change of opinion by the AO . The audit team undertake the audit functions which are not judicial functions and the audit team certainly has powers to furnish the information to bring to the notice of the A.O. with respect to the income having escaped assessment, but they cannot come to the conclusions that income has escaped assessment based on a different interpretation of the law on the same set of facts and material as are available before the AO while framing original assessment and then make the recommendations to the AO for re-opening of the assessment based on their different interpretation of law on the same set of facts and material which was already with the AO as the audit team does not discharge judicial functions to oversee the functioning and working of the AO unless the course adopted by the AO is completely an impressible and impossible course which is against the provisions of law , while the A.O. being the quasi judicial authority also discharge the judicial functions involving interpretation of law and accordingly frame an opinion on the subject matter whi....
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....the law mentioned in the audit note and whether, in consequence of the law which has now come to his notice, he can reasonably believe that income has escaped assessment. The basis of his belief must be the law of which he has now become aware. The opinion rendered by the audit party in regard to the law cannot, for the purpose of such belief, add to or colour the significance of such law. The true evaluation of the law in its bearing on the assessment must be made directly and solely by the ITO. In this case of Indian and Eastern Newspaper Society(supra), the ITO had, when he made the original assessment, considered the provisions of sections 9 and 10. Any different view taken by him afterwards on the application of those provisions would amount to a change of opinion on material already considered by him. An error discovered on a reconsideration of the same material does not empower the ITO to reopen the assessment under section 147(b). Plainly, the statutory provision envisages that the ITO must have information in his possession, and then, in consequence of such information, he must have reason to believe that income has escaped assessment. The realisation that income has escap....
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....Act , as per the facts emerging from the records placed before us . The AO has in an stereo typed mechanical manner merely accepted the recommendations of the audit team without any application of mind and proceeded to reopen the concluded assessment u/s 143(3) of the Act by recording the same reasons as were suggested by the audit team on a stereo typed mechanical manner based on audit objections and issuing notice u/s 148(1) of the Act, without recording his own independent satisfaction to re-open the otherwise concluded assessment u/s 143(3) of the Act.Thus, in our considered view and based on the factual matrix of the case as set out above , this act of an AO in reopening of the assessment u/s 147/148 of the Act of the concluded assessment u/s. 143(3) of the Act is not sustainable under the law and the reopening is held to be bad in law and is hereby quashed. In view of our above discussions and reasoning as set out above, the reopening of the assessment u/s 147/148 of the Act of the otherwise concluded assessment u/s 143(3) of the Act in the instant case of the assessee company is held to be bad in law and the appeal filed by the Revenue is dismissed. We did not find any infir....
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....e has escaped assessment while in the instant case there was no fresh tangible material before the AO leading to the conclusion that income has escaped assessment rather it is the audit objection which is on interpretation of law with respect to Section 41 of the Act on the same set of facts and material which were before the AO, that the audit team came to a different conclusions, which is not permissible. Thus, this case is distinguishable vis-à-vis facts in the instant appeal. (c) Hon'ble Madras High Court decision in the case of ALA Firm v. CIT (1976) 102 ITR 622(Mad.) - In this case , the Hon'ble Madras High Court has upheld that re-assessment is not possible based on change of opinion but if no opinion is formed in the original assessment proceedings, then re-assessment is justified based on tangible material which may come to the notice of the AO after the conclusion of the original assessment, in the instant case under appeal we have based on the appreciation of facts concluded that the AO did form an opinion while framing original assessment orders u/s 143(3) of the Act dated 24.11.2008.Thus, this case relied upon by the ld DR is distinguishable as to the facts i....
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...., rather based on the same facts and material on record , the audit team has interpreted that waiver/relief of the bank loan under one time settlement with the Bank to have become the assessee company's own money and is a cessation of liability chargeable to tax u/s 41 of the Act, while the AO has already on the basis of same facts and material before him formed an opinion that the said capital relief is not exigible to tax.The assessee comapny has also fully and truly disclosed all material facts before the AO during the course of original assessment proceedings u/s. 143(3) of the Act with respect to one time settlement with the bank and relief /waiver obtained by the assessee company from the Bank. g) Hon'ble Supreme Court in the case of ACIT v. Rajesh Jhaveri Stock Brokers Private Limited (2007) 161 Taxman 316(SC) . In this case also, the Hon'ble Supreme Court has laid down that the AO can re-open the concluded assessment if he has reasons to believe that income has escaped assessment. Section 147 authorises and permits the AO to assess or reassess income chargeable to tax if he has reason to believe that income for any assessment year has escaped assessment. Thus, again it c....
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....aped assessment. The basis of his belief must be the law of which he has now become aware. The opinion rendered by the audit party in regard to the law cannot, for the purpose of such belief, add to or colour the significance of such law. The true evaluation of the law in its bearing on the assessment must be made directly and solely by the ITO. In this case of Indian and Eastern Newspaper Society(supra), the ITO had, when he made the original assessment, considered the provisions of sections 9 and 10. Any different view taken by him afterwards on the application of those provisions would amount to a change of opinion on material already considered by him. An error discovered on a reconsideration of the same material does not empower the ITO to reopen the assessment under section 147(b). Plainly, the statutory provision envisages that the ITO must have information in his possession, and then, in consequence of such information, he must have reason to believe that income has escaped assessment. The realisation that income has escaped assessment is covered by the words reason to believe, and it follows from the "information" received by the ITO. The information is not the realisation....