TaxTMI 
TaxTMI 
2016 (2) TMI 1061
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....sment order be made pursuant to the impugned notice till further orders. Background Facts 3. The background facts are that the Assessee, a public limited company, was incorporated in 1985 as a joint venture between Showa Corporation, Japan and Hero Group, India. It is engaged, inter alia, in the business of manufacture and sale of shock absorbers for vehicles. 4. For the previous year relevant to AY 2008-09, the Assessee filed a return of income at a total income of Rs. 25,10,74,700. The return was picked up for scrutiny. According to the Petitioner, after making exhaustive examination and proposing several disallowances a draft assessment order was passed by the Assessing Officer ('AO') under Section 143(3) of the Act on 28th November 2011. This was a draft assessment order since one of the issues examined concerned the determination of arm's length price ('ALP') of the international transaction entered into by the Assessee with its foreign associate. 5. It is significant that during the course of the assessment, notices under Section 143(2) and 142(1) were issued by the AO on 21st June 2011 requiring the Assessee to furnish the following information: (a) the detail....
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....or the aforementioned AY 2008-09. 12. On 17th September 2013, the Petitioner filed its legal objections to the reopening of the assessment. On 19th February 2014, an order was passed by the DCIT dismissing the objections raised by the Petitioner to the reopening of the assessment under Section 148 of the Act. Thereafter the present writ petition was filed. 13. In the 'reasons to believe' accompanying the notice dated 11th March 2013, it was stated that a perusal of the assessment record revealed that the Assessee had claimed substantial financial charges to the tune of Rs. 2,27,24,801 as compared to the interest outgo in the previous assessment year at Rs. 60,58,887. The increase in the interest cost was mainly on account of the short term investments made through Nova Scotia Bank and Kotak Mahindra Bank for transactions of mutual fund units. However, the cost of interest expenditure related to the investment was not shown by the Assessee as being related to the investment which was subject matter of the disallowance under Section 14A of the Act. It was further stated that although disallowance under Section 14A was made by the Assessee in terms of Rule 8D and was not....
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....t was evident that the Petitioner never had any intention of making long-term investment in the Growth Plan. The fact that the Assessee had earned dividend income meant that the Assessee would have made certain investment to have the same. However, the Assessee failed to make disallowance under Section 14A of the Act for the administrative and interest expenses incurred for earning of the said dividend of Rs. 8,46,024. From a perusal of Schedule 7 of the audited accounts of the Assessee, it is seen that the Assessee had invested both in growth funds as well as in the dividend plan of Birla Mutual Funds and Reliance Mutual Funds, and had earned the aforementioned dividend income of Rs. 8,46,024. This investment in the mutual funds was not declared in the original assessment. This amounted to not disclosing the full particular and complete details during the concerned AY. The declaration of cumulative interest expenses could not be considered as submitting the complete particulars. Also no break up of interest expenses in regard to investment from borrowed funds was disclosed. (iii) After the AO had passed the final assessment order on 6th July 2012, the CIT-II reviewed the file. ....
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....nel ('DRP') which confirmed the said disallowance. There was no new tangible material in the possession of the Respondents, which could have led to the formation of reasons to believe that income had escaped assessment. In fact, the reopening of the assessment was sought to be done only on the basis of change in opinion upon review of the existing material on record. Referring to the decision in CIT v. Kelvinator of India Ltd. (2010) 320 ITR 561 (SC) and CIT v. Usha International Ltd (2012) 25 Taxmann.com 200 (Del) (FB), it was submitted that this was impermissible in law. Mr. Vohra submitted that in respect of the disallowance under Section 14A of the Act, the challenge by the Petitioner to the disallowance was still pending before the ITAT when the impugned order was passed seeking to reopen the assessment. 21. Mr. Vohra further submitted that, even assuming without admitting that the entire funds borrowed from Nova Scotia Bank and Kotak Mahindra Bank were invested in mutual funds, since the investment was made in a Growth Plan which could not have yielded any exempt income, no disallowance could have been made under Section 14A of the Act read with Rule 8D of the Rules. Even ....
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....t the CBDT Instruction No. 3/2010, dated 23rd March 2010 could not possibly override the existing decisions of the Supreme Court and the High Court on the same issue. A reference is made to the decision in CCE v. Ratan Melting & Wire Industries (2008) 220 CTR (SC) 98. It is further submitted that if the CIT was of the view that the order of the AO was prejudicial to the interest of the Revenue, then it is possible to invoke the powers under Section 263 of the Act. Reliance was placed on the decisions in CIT v. DLF Power Ltd (2012) 17 taxmann.com 269(Del) and Lahmeyer Holding GMBH v. DDIT (2015) 376 ITR 70(Del). 24. Mr. Vohra further submitted that the ignorance of the AO could not be a ground for reopening the assessment. He submitted that notes to the accounts have to be read as part of the accounts which in turn were enclosed with the returns filed and therefore it could not be said that the material and true particulars were not disclosed by the Assessee. Reliance was placed on the decision in CIT v. Sain Processing and Wvg. Mills (P.) Ltd (2010) 325 ITR 565 (Del.). It was further submitted that the reasons for reopening the order had to be found in the order itself and canno....
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....The disclosure made in the audited report was ambiguous and could not be understood clearly. Therefore, the said amount had to be added back to the return. In terms of Circular No. 3 of 2010, the Assessee was duty bound to declare the inadmissible loss in the return filed by it. It did not do so. Even the tax audit report declared the expenditure in this account as nil. Note No. 2(a) of Schedule 22 of the Final Accounts contained an admission by the auditor of the deviation from the previous year's policy. However, in the tax audit report, a false statement was made that there was no change in the accounting method. 28. Mr. Manchanda submitted that any disclosure made in the financial accounts or any other document during the course of the assessment proceedings was not disclosure unless "it is appropriately mentioned at the appropriate place in the return of income". Thus the Assessee had deliberately concealed and furnished inadequate particulars of income with a view to evade taxes. Discussion and Reasons 29. The two questions that the Court proposes to examine is whether the Assessee had made complete disclosure during the assessment proceedings and whether there was a....
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....ing wholly without jurisdiction, was a nullity". 33. In CIT v. SPL's Siddhartha Ltd. [2012] 345 ITR 223 (Del), it was observed as under: "7. Section 116 of the Act also defines the Income Tax Authorities as different and distinct Authorities. Such different and distinct authorities have to exercise their powers in accordance with law as per the powers given to them in specified circumstances. If powers conferred on a particular authority are arrogated by other authority without mandate of law, it will create chaos in the administration of law and hierarchy of administration will mean nothing. Satisfaction of one authority cannot be substituted by the satisfaction of the other authority. It is trite that when a statute requires, a thing to be done in a certain manner, it shall be done in that manner alone and the Court would not expect its being done in some other manner. .... 8. Thus, if authority is given expressly by affirmative words upon a defined condition, the expression of that condition excludes the doing of the Act authorised under other circumstances than those as defined. It is also established principle of law that if a particular autho....
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....p in mind the conceptual difference between power to review and power to re-assess. The Assessing Officer has no power to review; he has the power to re-assess. But re-assessment has to be based on fulfillment of certain pre-condition and if the concept of "change of opinion" is removed, as contended on behalf of the Department, then, in the garb of re-opening the assessment, review would take place. One must treat the concept of "change of opinion" as an in-built test to check abuse of power by the Assessing Officer. Hence, after 1st April, 1989, Assessing Officer has power to re-open, provided there is "tangible material" to come to the conclusion that there is escapement of income from assessment. Reasons must have a live link with the formation of the belief." 36. In CIT v. Usha International Ltd [2012] 348 ITR 485(Del) a Full Bench of this Court observed that there could be instances where an AO may not have raise a query during the original assessment proceedings but may have examined the subject matter because the aspect or question may have been too apparent and obvious. In Swarovski India Pvt. Ltd. v. Deputy Commissioner of Income Tax 368 ITR 601 (Del), it was held that....
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....nt was in mutual funds and made under the growth plan scheme that did not yield any exempt income. The income accrued by appreciation in the net value of the units held. Where the investors redeems such units before the expiry of twelve months from the date of their purchase/acquisition, then capital gains are chargeable in the hands of the investor at the maximum marginal rate prescribed under Section 111A of the Act. The Assessee made a disclosure in Schedule 15 of the profit and loss ('P&L') account, under the head "Other Income" of the dividend earned during the relevant previous year. The financial expenses incurred by the Petitioner were reported in Schedule 20 to the P&L account. Of the total financial expenses of Rs. 2,27,24,801, the interest charges paid to the bank were Rs. 65,09,921, the interest paid to the others was in the sum of Rs. 1,51,28,845 and the bank charges amount was Rs. 10,86,035. Specific queries were raised by the AO during the course of the original assessment proceedings as regards the interest expenses. The AO rejected the contention of the Petitioner regarding low interest expense having been incurred and made a disallowance of Rs. 59 which was questi....
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....ps more elaborate and informative than the reasons recorded under Section 148(2) in the sense that it also states one more reason for initiating re- assessment proceedings, namely, that there is a difference between the profit before tax (Rs.42,79,340/-) and the amount declared in the VDIS (Rs.7,23,490/). The reasons recorded however are not so explicit and do not refer to this fact. We are to be guided only by the reasons recorded for re-assessment and not by the reasons or explanation given by the Assessing Officer at a later stage in respect of the notice of re-assessment. ........... The ratio laid down in all these cases is that, having regard to the entire scheme and purpose of the Act, the validity of the assumption of jurisdiction under Section 147 can be tested only by reference to the reasons recorded under Section 148(2) of the Act and the Assessing Officer is not authorised to refer to any other reason even if it can be otherwise inferred and/ or gathered from the records. He is confined to the recorded reasons to support the assumption of jurisdiction. He cannot record only some of the reasons and keep the others up his sleeves to be disclosed before ....
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....of fixed asset. (iv) Forward exchange contracts not intended for trading or speculation purposes The premium or discount arising at the inception of forward exchange contracts is amortised as expense or income over the life of the contract. Exchange differences on such contracts are recognised in the statement of profit and loss in the year in which the exchange rates change. Any profit or loss arising on cancellation or renewal of forward exchange contract is recognised as income or as expense for the year. (v) Forward Exchange Contracts for trading or speculation purposes A gain or loss on such forward exchange contracts is computed by multiplying the foreign currency amount of the forward exchange contract by the difference between the forward rate available at the reporting date for the remaining maturity of the contract and the contracted forward rate (or the forward rate last used to measure a gain or loss on that contract for an earlier year). The gain or loss so computed is recognised in the statement of profit and loss for the period. The premium or discount on the forward exchange contract is not recognised separately." 43. The submission of Mr. Manch....