TaxTMI 
TaxTMI 
2016 (10) TMI 96
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....s and claimed exemption under Section 10B of the Income Tax Act, 1961 (`the Act' for short) of Rs. 40.74 crores. This return was taken in scrutiny by the Assessing Officer. He passed the order of assessment under Section 143(3) of the Act on 29.5.2009 and computed assessee's total income of Rs. 14.61 crores. In other words, except for disallowance of a sum of Rs. 1.25 lacs under Section 14A of the Act, he accepted the assessee's other declaration of income as per the return. 2.2 To reopen such assessment, the Assessing Officer issued the impugned notice. In order to do so, he had recorded the following reasons: "The assessee had filed its return of income for AY 2007-08 on 31/10/2007 declaring total income of Rs. 14,60,63,367/- followed by a revised return dated 02/11/2007 declaring the same total income of Rs. 14,60,63,367/-. The case of the assessee was selected for scrutiny and order u/s 143(3) was passed on 29/05/2009 making disallowance of Rs. 1,25,015/- on account of S14A. The assessee had claimed exemption u/s10B in relation to its Export Orientated Unit at Kheda amounting to Rs. 40,74,91,927/-. The assessee has been claiming deduction u/s10B since AY....
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....ct. According to the officer, such exemption was not available, yet claimed. 3. Drawing our attention to the reasons recorded and other documents on record, counsel for the petitioner raised following contentions: (1) The impugned notice has been issued beyond a period of four year from the end of relevant assessment year. There was no failure on the part of the assessee to disclose truly and fully all material facts. (2) With respect to FDR interest of Rs. 1.25 lacs, counsel submitted that this was very much part of the assessee's return and accompanying documents. If the Assessing Officer during the assessment, was of the opinion that it cannot form part of exemption under Section 10B of the Act, the same could have been disallowed. However, reopening beyond four years would not be permissible on such ground. (3) Regarding non-charging of interest by the Directors, the counsel submitted that full facts were placed on record. The fact that two directors had advanced sizeable loans to the company formed part of the audited accounts of the company. Whether thereafter interest was paid to such directors or not was not a material fact. The assessee th....
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....at claim was examined by the Assessing Officer during original assessment is beyond doubt. Beyond a period of four years at least and perhaps even within a period of four years, it may not have been possible for the Assessing Officer to reopen the assessment on such ground. 6. The other reason however needs a closer scrutiny. We may recall that the Assessing Officer while carrying out the assessment of the company for the assessing year 2011-12, noticed that two of its directors Shri Navnit M Shah and Smt.Chandrikaben N Shah had advanced huge amounts of interest free funds to the assessee company which ran into crores of rupees since beginning of the production in the eligible unit. According to him, by not charging interest on such advances the profit eligible for exemption was artificially increased. While further scrutinizing the assessment for the assessment year 2011-12, he could ascertain that the total interest forgone by the said two directors for the assessment year 2007-08 was close to Rs. 46.65 lacs. According to him, therefore by not paying interest on borrowed funds, the profit of the eligible unit under Section 10B of the Act was artificially inflated. 7. Before....
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....ch eligible business for the purpose of deduction would take the amount of profits as may be reasonably deemed to have been derived therefrom. 10. The fact that the petitioner company borrowed sizeable amount from the said two directors is not in dispute. During the year under consideration, Mrs.Chandrikaben Shah had advanced sum of Rs. 50.65 lacs to the assessee and the maximum loan balance during the said period was Rs. 1.51 crores. Likewise, Mr.N.M.Shah the other director of the company had advanced a sum of Rs. 2.71 crores during the same period with a maximum loan balance of Rs. 5.12 crores. Since the directors were closely connected with the petitioner-company, sub-section (10) of Section 80IA would certainly apply allowing the Assessing Officer to modulate the profit of the company for the purpose of exemption under Section 10B of the Act appropriately. The contention of Shri Soparkar that the company not having paid the interest and the directors not having charged the interest, the Assessing Officer cannot reduce the profit of the assessee, therefore, cannot be accepted. 11. The crucial question is could the notice for reopening have been issued beyond a period of fo....
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....lled is of the income chargeable to tax escaping assessment for the failure of the assessee to disclose truly and fully all material facts. Explanation 1 to Section 147 reads as under: "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 the foregoing proviso. 14. In the context of such provisions, interestingly but not surprisingly both sides relied on the decision of the Supreme Court in case of Calcutta Discount Co.Ltd. V/s Income-Tax Officer, Companies District Calcutta and Another reported in 41 ITR 191. The Constitution Bench of the Supreme Court in the said case held that to confer jurisdiction on the Assessing Officer to issue notice for assessment beyond four years two conditions had to be satisfied. First was that Income Tax Officer must have reason to believe that income, profits or gains chargeable to tax had been under assessed. Second was that he must also have a reason to believe that such underassessment had occurred by reason of either (1) omission or fa....
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.... (i) To confer jurisdiction to the Assessing Officer to reopen the assessment under section 147 of the Income-tax Act beyond four years from the end of the assessment year, the following two conditions must be satisfied (a) that the Assessing Officer must have reason to believe that the income chargeable to tax has escaped assessment; and (b) that the same was occasioned, on account o feither failure on the part of the assessee to make a return of his income for that assessment year, or to disclose fully and truly all material facts necessary for assessment of that year; (ii) both the above conditions are conditions precedent and must be satisfied simultaneously before the Income-tax Officer can assume jurisdiction to reopen the assessment beyond four years of the end of the assessment year; (iii) such reasons must be recorded and if the reasons recorded by the Assessing Officer do not disclose satisfaction of these two conditions, reopening notice must fail; (iv) there is no set format in which such reasons must be recorded. It is not the language but the contents of such recorded reasons which assumes importance. In other words, a mere statement that the Assessing Officer h....
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....assessee's duty to disclose all of them-including particular entries in the accoount books, particular portions of documents, and documents and other evidence which could have been discovered by the assessing authority, from the documents and other evidence disclosed. In other words, the mere production of evidence before the Assessing Officer is not enough and there may be an omission or failure to make a full and true disclosure, if some material for the assessment lies imbedded in that evidence which the assessee can uncover but did not. Or to put it differently, the fact that the Assessing Officer could have found out the correct position by further probing the matter does not exonerate the assessee from the duty to make a full and true disclosure of the material facts. Explanation 2 makes the position abundantly clear. (Indo-Aden Salt Mfg. And Trading Co.P.Ltd. v.CIT [1986] 159 ITR 624 (SC))." 18. The contention of true and full disclosures would have to be appreciated bearing in mind the above judicial pronouncements. Such requirement flowing from the provisions of Section 147 would have to be appreciated bearing in mind explanation 1 which as noted provides that produ....