TaxTMI 
TaxTMI 
2003 (6) TMI 24
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....titioner vide the "Oil and Natural Gas Commission (Transfer of Undertaking and Repeal) Act, 1993" with effect from February 1, 1994. The assessment for the relevant assessment years were completed under section 143(3) of the Act. The Assessing Officer made a disallowance of 10 per cent. of the tax free interest earned on bonds on the ground that it relates to the expenditure incurred by the petitioner in earning the said interest. The petitioner's appeal was decided by the Commissioner (Appeals) partly in its favour for the assessment years 1991-92, 1992-93 and 1993-94 and fully for the assessment year 1994-95. The Department preferred appeal before the Income-tax Appellate Tribunal. The impugned notices were issued on a mere change of opinion that a larger sum ought to have been disallowed under the original assessment. The case of the petitioner is that it has huge capital reserves and profits out of which it makes the investment in tax free bonds and no part of the borrowed funds was utilised in the said investments. The interest on the said bonds is fully exempted from tax. The Assessing Officer in making the assessment for the relevant years was of the view that as the income....
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....r, 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 that assessment year. 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. Explanation 2.--For the purposes of this section, the following shall also be deemed to be cases where income chargeable to tax has escaped assessment, namely:-- (a) where no return of income has been furnished by the assessee although his total income or the total income of any other person in respect of which he is assessable under this Act during the previous year exceeded the maximum amount which is not chargeable to inco....
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....ence was made to the notice under section 148 of the Act, annexure 2 to the counter affidavit, also reproduced in the petition by the petitioner. For all the assessment years similar notices were given. We find it expedient to reproduce the same here: "Reasons for issue of notice under section 148 in the case of Oil and Natural Gas Commission for the assessment year 1991-92 The assessee filed its return of income of Rs. 439,49,86,580 and assessment under section 143(3) was completed at income of Rs. 812,37,78,325. It was noticed from the computation of income that the assessee has earned interest from tax free PSU bonds which has been claimed exempt under section 10(15)(iv)(h) at Rs. 152,30, 68,966. On the other hand the assessee has claimed deduction on account of interest on loans from the Government of India/banks and others. In order to earn the tax free interest the assessee has invested substantial amount in PSU bonds for which assessee had to use borrowed funds at higher rate of interest. If the ONGC had not invested into the PSU bonds, there would not have been that much necessity for such borrowings. This view finds support from the ratio of the judgment of the Allahaba....
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....ion before the Income-tax Officer of the account books or other evidence from which material evidence could with due diligence have been discovered by the Income-tax Officer will not necessarily amount to disclosure contemplated by law. The duty of the assessee in any case does not extend beyond making a true and full disclosure of primary facts. Once he has done that his duty ends. It is for the Income-tax Officer to draw the correct inference from the primary facts. It is no responsibility of the assessee to advise the Income-tax Officer with regard to the inference which he should draw from the primary facts. If an Income-tax Officer draws an inference which appears subsequently to be erroneous, mere change of opinion with regard to that inference would not justify initiation of action for reopening assessments". The principles laid down squarely apply to the facts of the instant case and on the pretext that there was no conscious consideration of the pointed facts at the time of the assessment, reopening of the assessment is not legally permissible by virtue of the proviso to section 147 of the Act. In McDermott International Inc. v. Addl. CIT [2003] 259 ITR 138 (Uttaranchal)....
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....s also reproduced below: Details of cash profits, free reserves and investment in PSU bonds as at the end of financial periods (Rupees in crores) ------------------------------------------------------------------------------------------------- Financial Assessment Cash profits Free reserves Total of cash Balance of invest year year profits and ments in tax free &....
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....rm had sufficient funds to cover advance the presumption drawn was that the advance had been made with firm's own funds. In the case of Shree Digvijay Cement Co. Ltd. v. CIT [1982] 138 ITR 45, the Gujarat High Court held that where the material on record showed that the assessee had a common fund it cannot be predicated that the money lent came only out of borrowed funds. Considering that the petitioner-company had huge cash profits and reserves it has to be accepted that no part of the borrowed funds has in fact been invested in PSU bonds. The reported decision also fortifies this conclusion. Learned counsel for the petitioner has submitted that even on the merits the impugned action has no legal sanctity as there was no bar against the allowance of expenditure incurred on tax free income and in support thereof reliance was placed on the decisions of the apex court in CIT v. Indian Bank Ltd. [1965] 56 ITR 77 and Rajasthan State Warehousing Corporation v. CIT [2000] 242 ITR 450. In the first mentioned case the assessee-bank was held entitled to claim the deduction of the entire interest paid by it on fixed deposits and whereas in the later case it had been held that if the assesse....