TaxTMI 
TaxTMI 
2006 (10) TMI 126
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....on 147/148 of the Act for the assessment years 1992-93, 1993-94, 1994-95 and 1997-98. (iii) issue any other suitable writ, order or direction as this hon'ble court may deem fit and proper. (iv) Award cost of the petitioner to the petitioner." 2. Briefly stated, the facts giving rise to the present petition are as follows : 3. According to the petitioner, it has been incorporated as a private limited company under the provisions of the Companies Act, 1956. It is engaged in the business as a subscription agent of foreign technical and scientific journals and other information products. It mainly deals in the subscription business and does not store various foreign magazines and periodicals, etc. It merely receives commission through subscription of various types of magazines and journals. The petitioner filed its return of income for the assessment years 1992-93, 1993-94, 1994-95 and 1997-98 showing the income of Rs. 13,12,740, Rs. 12,35,820, Rs. 25,52,747 and Rs. 56,71,174, respectively. The Deputy Commissioner of Income-tax, Special Range II, Kanpur, who was the assessing authority of the petitioner, passed assessment orders for the assessment years 1992....
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.... entitled to get deduction under section 80-O of the Act and the wrongful claim has resulted into an escaped assessment to the extent of relief allowed in each of the assessment years. All the notices are under challenge in the present writ petition on the ground that the jurisdictional foundation for initiating the proceedings under section 147 which deals with the income escaping assessment, is totally absent. In the present case, it is merely a change of opinion by the subsequent assessing authority, which is not permissible under section 147 of the Act. The petitioner had disclosed all the primary facts which have direct bearing on the liability of income earned by him, which is the subject-matter of tax and the Assessing Officer came to the conclusion that it was entitled for the benefit of section 80-O of the Act and had allowed deduction accordingly and mere use of the phrase "reason to believe" would not be a sufficient ground to initiate proceeding under section 147 of the Act. No new material has come on record and, therefore, it is only a fresh application of mind by the assessing authority on the same set of facts and law which were in existence when the original assess....
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....rnished full details segregating the services rendered or agreed to be rendered outside India and within India. The claim having been wrongly allowed, the proceeding under section 147 of the Act have been initiated as the respondent had formed the reasonable belief that the deduction had been wrongly allowed and to that extent, the income had escaped assessment. The plea that the notices are barred by limitation has been denied taking recourse to the provisions of section 149/151 of the Act. 7. So far as the assessment year 1997-98 is concerned, it has been stated that the return of the income filed by the petitioner on November 27, 1997, has been processed on March 17, 1998, under the provisions of section 143(1)(a) of the Act. The claim of deduction under section 80-O of the Act has not been examined as the assessment was not made under section 143(3) of the Act. The proviso to section 147 is not applicable. The audit party has also raised an objection that the petitioner had wrongly been allowed deduction under section 80-O of the Act. The notices issued under section 148 of the Act as also the proceeding initiated under section 147 of the Act for all the assessment years hav....
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....uring the course of the assessment proceeding. Such a claim could not have been entertained at all in view of the decision of the apex court in the case of Goetze (India) Ltd. v. CIT [2006] 284 ITR 323. According to him if the claim itself was not admissible, the assessing authority had wrongly entertained and allowed it. On merits also, he submitted that if a deduction has been wrongly allowed or excessive deduction has been allowed then in view of clause (c) of Explanation 2 to section 147 of the Act, it would be treated that the income chargeable to tax has escaped assessment and the proceedings under section 147 of the Act can be taken. According to him, in the original assessment proceedings, the claim had not been fully examined and, in any event, the petitioner was not entitled for deduction under section 80-O of the Act as it was not rendering the services outside India to foreign enterprises. Thus, the respondent had reasons to believe on relevant material to come to the conclusion that the deduction has been wrongly allowed which has resulted in the income escaping assessment and the proceedings are, therefore, wholly in accordance with law and within jurisdiction. He has....
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....im of deduction under section 80-O we may be advised accordingly." 16. The assessing authority referred to section 80-O of the Act and dealt with the claim in the following words : "7.1 Section 80-O as it exists for this relevant assessment year was inserted by the Finance (No. 2) Act, 1991, with effect from April 1, 1992. In the assessee' s context the relevant portion of section 80-O would read as under : ' Where the gross total income of an assessee, being an Indian company . . . includes any income by way of royalty, commission . . . received by the assessee from the Government of foreign State or a foreign enterprise in consideration for the use outside India of any information concerning industrial commercial or scientific know ledge . . . made available or provided to such Government or enterprises by the assessee . . . and such income is received in convertible foreign exchange in India . . . there shall be allowed . . . a deduction of an amount equal to fifty per cent. of the income so received in or brought into India, in computing the total income of the assessee.' Viewed with reference to the above provisions of law, the asses s....
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....ust have been made in the return. 19. In respect of the assessment year 1997-98, no assessment has been made under section 143(3) of the Act and only an intimation has been sent under section 143(1)(a) of the Act. The respondent had recorded reasons for forming his belief that the claim of the petitioner under section 80-O of the Act was not admissible and the wrongful claim has resulted into an escaped assessment. The reasons recorded for the assessment year 1992-93 is reproduced below : "Assessment year 1992-93 1. The assessee-company is a subscription agent of foreign technical and scientific journals and information products. The assessee- company is mainly dealing in the subscription business of foreign magazines/periodicals and it does not have its own stock of magazines/periodicals. The return of income of the assessment year 1992-93 was filed on November 30, 1993, declaring total income of Rs. 13,12,740. The return was processed under section 143(1)(a) of the Income-tax Act, on January 28, 1993, on Rs. 13,12,740. The assessment was completed under section 143(3) on October 28, 1993, at Rs. 9,24,590. 2. Perusal of case records reveals that the a....
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....nt year concerned (hereafter in this section and in sections 148 to 153 referred to as the relevant assessment year) : Provided that where an assessment under sub-section (3) of section 143 or this section has been made for the relevant assessment year, 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 fore going 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, nam....
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....escaped assessment. Under clause (c) where an assessment has been made but income chargeable to tax has been underassessed or it has been assessed at too low a rate or it has been made the subject of excessive relief under the Act or excessive loss or depreciation allowance or any other allowance under the Act has been computed, such cases have been deemed where the income chargeable to tax has escaped assessment. The present case is one where excessive allowance has been computed in the assessment. Thus, if an allowance which was not admissible under the Act, has been allowed, it would be deemed to be a case where the income chargeable to tax has escaped assessment. 24. In the case of Jindal Photo Films Ltd. [1998] 234 ITR 170 the Delhi High Court has held that if an expenditure or deduction was wrongly allowed while computing the income of the assessee chargeable to tax, the same could not be brought to tax by reopening the assessment merely on account of the Assessing Officer subsequently forming an opinion that earlier he had erred in allowing the expenditure or the deduction. The Delhi High Court was considering a case of deduction allowed under section 80-I of the Act. The....
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....e civil appeals filed by the Commissioner of Income-tax against the judgment and order in the case of Foramer v. CIT [2001] 247 ITR 436 wherein this court has held that the assessment could not be reopened under section 147 of the Act on a mere change of opinion and this position remains the same even after the amendment of section 147 by the Direct Tax Laws (Amendment) Act, 1987, with effect from April 1, 1989. 28. In the case of Parikh Petrol Chemical Agencies P. Ltd. [2004] 266 ITR 196, the Bombay High Court was considering reopening of the assessment under section 147/148 of the Act in respect of the assessment year 1994-95. In that connection, the Bombay High Court has held that the original assessment order for the assessment year 1994-95 has been passed under section 143(3) of the Act on March 27, 1997, the notice under section 148 was issued after four years from the end of the assessment year 1994-95. Under section 147 of the Act, the assessment for the assessment year 1994-95 could be reopened after four years with the approval of the Chief Commissioner of Income-tax or the Commissioner of Income-tax only if there was failure on the part of the assessee to disclose ful....
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....closure of all material facts necessary for his assessment during the concluded assessment proceedings, any part of his income, profits or gains chargeable to Income-tax has escaped assessment. He may start reassessment proceedings either because some fresh facts had come to light which were not previously disclosed or some information with regard to the facts previously disclosed comes into his possession which tends to expose the untruthfulness of those facts. In such situations, it is not a case of mere change of opinion or the drawing of a different inference from the same facts as were earlier available but acting on fresh information. 31. In the case of VXL India Ltd. v. Asst. CIT [1995] 215 ITR 295 the Gujarat High Court has held as follows (page 297) : "The essential requirement for initiating proceedings under section 148 of the Act is that the Assessing Officer must have reason to believe that any income chargeable to tax has escaped assessment for any assessment year. Explanation 2 to section 147 of the Act as appended to newly substituted section 147 makes certain provisions where, in certain circumstances, the income is deemed to have escaped assessment giv....
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....caped assessment for any assessment year, he may, subject to the provisions of sections 148 to 153, assess or reassess such income and also any other income chargeable to tax which has escaped assessment. The new section not only merges clauses (a) and (b) of the pre-amended section 147 but also brings about a significant change in the preliminary requirement of certain mandatory conditions before reassessment proceedings could be initiated under the old section. Under the old section 147(a), the Assessing Officer could initiate reassessment proceedings if he had reason to believe that income chargeable to tax had escaped assessment by reason of : (a) omission or failure on the part of an assessee to make a return under section 139 for any assessment year, or (b) to disclose fully and truly all material facts necessary for his assessment for that year. As is evident from the amended section, in contradistinction to the original unamended section, requiring fulfilment of twin conditions spelt out in clause (a) of section 147 or in clause (b) of the said section, as conditions precedent for issuing notice under section 148 of the Income-tax Act, it is not so in the amended section an....
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....rs, the proviso would be attracted and no action can be taken under this section unless such income has escaped assessment by reason of the failure on the part of the asses see to make a return under section 139 or in response to a notice under section 142(1) or section 148 of the said Act, to disclose fully and truly all material facts for his assessment for that assessment year. Therefore, it is only when the case falls under the proviso that the question of non-disclosure of materials facts would become relevant. In such cases, if the assessee has made full disclosure on record, then even if such income has escaped assessment, no action can be initiated by the Assessing Officer under the section. Where, however, the said period of four years has not expired, the conduct of the assessee regarding disclosure of material facts need not be the basis for initiating the proceedings and they can be commenced if the Assessing Officer has reason to believe that the income has escaped assessment notwithstanding that there was full disclosure of material facts on record. The assessee in such cases cannot defend the initiation of action on the ground that the facts were already placed on re....
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....eding satisfying the conditions therefor where the income has escaped assessment. There is nothing either in section 143 or in section 147 that can support such a view. The pro visions of a tax statute should be interpreted in a manner leading to the result that everybody pays his due tax . . . . In our view, a return after its acceptance, whether in a summary manner or after scrutiny, may itself lead to reassessment proceedings provided the conditions for reassessment under section 147 exist . . . . It is not the summary acceptance of the return under section 143(1)(a) that can operate as a bar against reassessment. It is, rather, the further disclosure made by the assessee in the course of proceedings under section 143(3) whereby the assessee may take out his case from the mischief of section 147. Therefore, the scope for initiating reassessment proceedings in an assessment made under section 143(1)(a) is far wider than in an assessment under section 143(2) read with section 143(3). In our view, the power that can be exercised under section 143(2) to correct the assessment made under section 143(1) does not exclude the power of the Assessing Officer to reopen the assessment under....
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....d. 38. Applying the aforesaid principles to the facts of the present case, we find that in respect of the assessment years 1992-93, 1993-94 and 1994-95 the notices under section 148 of the Act have been issued on October 25, 2001, i.e., much after the expiry of the period of four years from the end of the relevant assessment year. It can be justified only if there has been failure on the part of the petitioner to disclose fully and truly all material facts necessary for that assessment year. It is not in dispute that the petitioner had in its letter dated October 7, 1993, filed during the course of the assessment proceedings for the assessment year 1992-93, had made a claim under section 80-O of the Act by stating that it is also extending its service to several customers outside India and earning commission from foreign publishers in convertible foreign exchange for such service. The assessing authority apart from finding that the petitioner had received commission from foreign enterprises for services rendered outside India, had also found that it had specialised in marketing scientific and technical knowledge and has developed several database with the help of advance compute....