TaxTMI 
TaxTMI 
2021 (2) TMI 1162
X X X X Extracts X X X X
X X X X Extracts X X X X
....the Act for the relevant Assessment year or to disclose fully and truly material facts necessary for that assessment year. In this regard it is pertinent to mention that the Apex Court has laid in the case of Sri Krishna P. Ltd. Vs. ITO (221 ITR 538) that what is required is a full and true disclosure of all material facts necessary for making an assessment for that year. Further still, Supreme Court has also held in the case of Indo Aden Salt Mfg Co. & Trading Co. P. Ltd. V CIT (159 ITR 624) that 'mere production of evidence before the Assessing Officer is not enough. There may be omission or failure to make a true and full disclosure, if some material for the assessment lay embedded in the evidence which the assessee could have uncovered but did not, then it is the duty of the assessee to bring it to the notice of the assessing authority. The assessee knows all the material and relevant facts and the assessment authority may not. In respect of failure of disclosure, the omission to disclose may be deliberate or inadvertent. That is immaterial. But if there is omission to disclose the material facts, then jurisdiction to reopen is attracted" The words 'omission or failure to....
X X X X Extracts X X X X
X X X X Extracts X X X X
....corporate* fees vide two agreements, i.e., for Rs. 75 crores and Rs. 2.5 crores dated 17/08/2002, was only revenue expenditure and it is made only for restriction for a short period of 2 years and 5 years respectively and no permanent advantage or enduring benefit was obtained. The Assessing Officer has after hearing the arguments has accepted the claim. However, it is seen from the agreement for payment of Rs. 2.5 crores that portion of it was for non-competition and a portion of it as per clause 2.4 for licence granted perpetually for right to manufacture products and also for right to sell products anywhere in world. The clause 2.4 was intended to override the restriction of period of licence and right to sell products contemplated as per collaboration agreement between the C.P. group and company entered into on 07/11/1997. Hence a portion of it is for purchase of licence and right to manufacture and sale. Hence it is capital in nature. The agreement copy though file before the Assessing Officer, the assessee did not point this out in the written reply and kept silent on this clause. The Assessing Officer was not aware of this aspect as is evident from his note on the file. So e....
X X X X Extracts X X X X
X X X X Extracts X X X X
....er Section 143(2) of the Income Tax Act, 1961 was issued to the petitioner on 25.08.2004, the petitioner gave a detailed reply on 25.01.2005 and it is only thereafter the assessment was completed and the assessment order was passed on 28.03.2005. 6. The learned counsel for the petitioner submits that the Assessing Officer examined the Annual Report for the financial year 2002-2003 and the agreements was called for during the scrutiny under Section 143(2) of the Income Tax Act, 1961 before passing the Assessment Order dated 28.03.2005. 7. The learned counsel for the petitioner further submits that in the Assessment Order dated 28.03.2005 for the Assessment Year 2003-2004, it has been concluded that the petitioner company was an affiliate company incorporated under the provisions of the Companies Act, in the year 1977 and it was in the business of manufacture and sale of Drills and it was an affiliate of the U.S. based company Chicago Pneumatic Tool Company (CP) and Atlas Copco India Ltd. (both are known as C.P. Group). It is submitted that the Assessment Order dated 28.03.2005 states that "after going through the details filed, discussion with the assessee's representation and per....
X X X X Extracts X X X X
X X X X Extracts X X X X
....d. In this connection, the learned counsel for the petitioner drew my attention to the following cases:- Heads Case Laws Where a particular issue is examined by the Assessing Officer in scrutiny proceedings, reopening on same issue is illegal and untenable; especially if a query on the same is raised and answered by the Assessee. i. Commissioner of Income Tax Vs. Rubix Trading (P.) Ltd., (2019) 108 taxmann.com 177 (SC). ii. Deputy Commissioner of Income-tax Vs. Sun Pharmaceutical Industries Ltd., (2020) 117 taxmann.com 116 (SC). iii. Commissioner of Income-tax, Trichy Vs. City Union Bank Ltd., (2019) 106 taxmann.com 311 (Madras). iv. Commissioner of Income-tax-LTU Vs. Hyundai Motor India Ltd., (2019) 110 taxmann.com 460 (Madras). v. International Flavours Fragrances India (P.) Ltd. Vs. Joint Commissioner, (2020) 118 taxmann.com 494 (Madras). vi. Deputy Commissioner of Income Tax Vs. Visvas Promoters (P.) Ltd., (2019) 105 taxmann.com 65 (Madras). Duty of assessee is limited to fully and "truly disclose all material facts" failure of AO to reach warranted conclusion could not confer jurisdiction for reopening assessment. i. Calcutta Discount Co. Ltd. Vs. Income Tax Officer....
X X X X Extracts X X X X
X X X X Extracts X X X X
....REL or employ any key employee of REL for a specific period. 14. He submits that Clause 2.4 of the II Agreement dated 17.08.2002 signed between the petitioner and two affiliate companies contemplated not only the payment of amount towards non-compete fee for a period of two years but also amounts towards the license granted by Chicago Pneumatic Tool Co. Ltd. to the petitioner under a Collaboration Agreement dated 07.11.1977. It is submitted that the right conferred therein were perpetual and enduring in nature and the petitioner was free to license the right to manufacture and/or sell the specified products and/or disclose, impart and supply the know how received by it under the collaboration agreement to any person. It is therefore submitted that there was no restriction on manufacture and/or sale of the specified products in any part of the world by the petitioner. The Clause 2.4 of the said Agreement is reproduced below:- 2.4. Notwithstanding anything contained in the agreement dated 7th November, 1977 entered into between CP and REL (the petitioner) under which CP has inter alia granted to REL a license and know how to manufacture and sell the Specified Products ("Coll....
X X X X Extracts X X X X
X X X X Extracts X X X X
....sment". Nor will he be able to contend successfully that by disclosing certain evidence, he should be deemed to have disclosed other evidence, which might have been discovered by the assessing authority if he had pursued investigation on the basis of what has been disclosed. The Explanation to the section, gives a quietus to all such contentions; and the position remains that so far as primary facts are concerned, it is the assessee's duty to disclose all of them - including particular entries in account 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. 17. It is submitted that in the facts of the case, the respondents directed the petitioner to disclose the particulars. However, there was no clarity in the reply given by the petitioner to the notice issued under Section 143(2) of the Income Tax Act, 1961. 18. By way of rejoinder, the learned counsel for the petitioner submits that the decision of the Hon'ble Supreme Court in Calcutta Discount Co. Ltd. Vs. Income Tax Officer, (1961) 41 ITR 191 (SC) has also answered the issue as follows:- 20....
X X X X Extracts X X X X
X X X X Extracts X X X X
....For that would undoubtedly amount to nondisclosure of a material fact. 23. It must therefore be held that the Income Tax Officer who issued the notices had not before him any non-disclosure of a material fact and so he could have no material before him for believing that there had been any material non-disclosure by reason of which an under-assessment had taken place. 19. I have considered the arguments advanced by the learned counsel for the petitioner and the learned standing counsel for the respondents. 20. This is the case where the petitioner had claimed that it had paid a sum of Rs. 10 crores vide two agreements dated 17.08.2002 signed between the petitioner and its affiliate companies, namely, Atlas Copco India Limited and Chicago Pneumatic Tool Company (a company organized under the laws of the State of New Jersey, one of the United States of America). 21. In the first agreement, the petitioner had paid a sum of Rs. 7.5 Crores as non compete fees for a period of two years to the Atlas Copco India Limited and in the second agreement, it had paid a sum of Rs. 2.5 Crores to the same Company. It is not clear as to why two tripartite agreements were signed. Clause 2 of the ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....her assistance for the manufacture, production, assembly, design, marketing and sale of the Product in the Territory and in the event any know how, technology, design, drawings or other assistance for manufacture, production, assembly, design, marketing and sale of the Specified Products outside the Territory is provided, it will be on the condition that the Specified Products cannot be sold in India during the said five year period; (c) for a period of five years from the date hereof, assist any competitor of REL in carrying on or developing any Specified Products or Business which may in any way be the same or similar to and in competition with the Business in the Territory. 2.2. To the extent legally permissible to do so CP Group agrees and undertakes to and in favour of REL that they will, and will cause their Affiliates to, for a period of five years from the date hereof, not sell any Specified Products outside the Territory to any person which the CP Group knows or has reason to believe that the Specified Products sold will be resold in the Territory in any manner directly or indirectly CP Group shall discontinue any future sales of any Specified Products if REL brings....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... dated 17.08.2002 was not made. 25. That apart, as per the decision of the Hon'ble Supreme Court in Calcutta Discount Co. Ltd. Vs. Income Tax Officer, (1961) 41 ITR 191 (SC), "it is not open to an assessee to say, I have produced account books and documents: You, the Assessing Officer, examine them, and find out the facts necessary particular for the purpose: My duty is done with disclosing these account-books and the documents". His omission to bring to the assessing authority's attention these particular items in the account books, or the particular portions of the documents, which are relevant, amount to "omission to disclose fully and truly all material facts necessary for his assessment". 26. Passages from paragraph Nos.20 to 23 extracted above of the above decision were made in the context of facts and peculiar to the case in Calcutta Discount Co. Ltd. Vs. Income Tax Officer, (1961) 41 ITR 191 (SC). Therefore, they cannot be relied upon. 27. However, though it was submitted that the Indian Company, namely Atlas Copco India Limited had paid a sum of Rs. 15 Crores to the petitioner, it is noticed from the Annual Report filed for the financial year ending on 31.03.2005 th....