TaxTMI 
TaxTMI 
2015 (1) TMI 1463
X X X X Extracts X X X X
X X X X Extracts X X X X
....titioner's income chargeable to tax for the assessment year 2009-10 has escaped assessment within the meaning of Section 147 of the Act. The other order which is impugned in this writ petition is the order passed by the 1st respondent dated 25.10.2016 rejecting the petitioner's objection for reopening. 2. As mentioned above, the assessment year is 2009-10. The petitioner filed the return of income on 26.09.2009 under Section 139(1) of the Act declaring loss. The return was selected for scrutiny and notices under Section 143 (2) and Section 142 (1) of the Act were issued. The petitioner would state that during the assessment proceedings, the case of the petitioner was referred to the Transfer Pricing Officer (herein after referred as 'TPO' for brevity) under Section 92 CA (1) of the Act, for determination of the arm's length price of international transaction done by the petitioner with its associated enterprises. 3. The petitioner participated in the assessment proceedings as well as in the proceedings before the TPO. The TPO vide order dated 27.12.2012 under Section 92 CA (3) of the Act accepted arm's length price of the international transactions don....
X X X X Extracts X X X X
X X X X Extracts X X X X
....erence was made to the notes under paragraph 13 to emphasize that it was clearly stated by the petitioner that there has been no production during the previous year ended 31.03.2010. It is further submitted that the Assessing Officer issued notice under Section 142(1) of the Act dated 29.10.2010, for which the petitioner submitted their reply dated 08.11.2012 along with five annexures of which annexure no.1 pertains to brief note on the nature of the business activity of the Company and submitted that in the said brief note, it has been stated that the Company has signed a Memorandum of Understanding with the Government of Tamil Nadu to set up a Truck manufacturing facility at SIPCOT, Oragadam over 398 acres of land. Further, the brief note refers to the in-house R&D facility activity for research and development of new products and variants towards supporting its manufacturing activity. 6. The learned senior counsel then referred to the order passed by the TPO dated 27.12.2012, wherein the officer has noted that the petitioner proposes to start commercial production in the year 2012. Further, it was pointed out that the details of the international transactions and the payment ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....r it was pointed out that from the reading of the reasons for reopening, it is evidently clear that the belief of the Assessing Officer is purely based on the existing information which was provided during the course of original assessment proceedings and based on the return of income filed for the subject assessment year. The assessee referred to several decision to support their contention that reassessment of income beyond four years is bad in law where the cumulative conditions stipulated under Section 147 of the Act are not satisfied; In the absence of fresh tangible material on record, reassessment is invalid; the mere change of opinion does not constitute reason to believe that income chargeable to tax has escaped assessment and reassessment merely on the basis of denial of deduction claimed in the subsequent year is invalid, as no fresh tangible material is available. The petitioner referring to the decision of the Hon'ble Supreme Court of India in the case of GKN Driveshafts (India) Limited. vs. ITO reported in 259 ITR 19 requested that a speaking order be passed on their objection, the respondents vide impugned order dated 25.10.2016 has rejected the petitioner's ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....mmercial production had not commenced not withstanding that the business of the petitioner being a composite one had been set up, expenses for setting up of the plant for manufacturing operations had been capitalized. The profit/loss from the business which had already been set up, notwithstanding that manufacturing activity had not commenced, was to be computed under the Head Profits and Gains from business or profession. Therefore, it is submitted that the present reassessment proceedings is merely an attempt to reappraise the materials and evidences already on record, predicated on mere change of opinion, which is impermissible. The following decisions were referred to support the propositions as framed by the learned senior counsel for the petitioner. (i).Reasons do not record failure on part of the assessee to disclose true and material facts-reassessment invalid: a.Fenner India Ltd.v.DCIT (Mad): 241 ITR 672 (Mad) b.Avtec Ltd. v. DCIT:395 ITR 434 (Del) (ii).Full and true disclosure - reassessment invalid: Karti P.Chidambaram v. ACIT: (2017) 88 taxmann.com 27 (Mad) (iii).Explanation 1 to section 147 - not applicable CIT v. Baer Shoes(India) (P.) Ltd:331 ITR 435 8....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... of rejoinder of the submission, the learned senior standing counsel for the Revenue referred to the decision of the Hon'ble Supreme Court of India in Sowdagar Ahmed Khan Vs. ITO, reported in 1968 (70) ITR 79 (SC) and pointed out that the assessee does not discharge his duty to disclose fully and truly the material facts by merely producing the books of account or other evidences. 11. Heard, the learned counsel for the parties and perused the materials placed on record. 12. Before, I proceed to consider the factual aspects, it would be necessary for this Court to first note the legal position with regard to the exercise of powers by the first respondent under Section 147 of the Act. For this purpose, I would refer to one of the earliest decisions on the issue namely, the decision of the Hon'ble Supreme Court in Calcutta Discount Company Limited Vs. ITO, reported in 1961 (41) ITR 191 (SC). The said appeal was against the decision of the Division Bench of the Calcutta High Court, which reversed the order passed by the Single Bench under Article 226 of the Constitution of India, pertaining to reopening of the assessment under Section 34 of the Income Tax Act, 1948. The l....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... When power is invoked under Section 147 after the expiry of four years from the end of the assessment year, further pre-condition for such exercise is imposed by the proviso namely that there has been failure on the part of the assessee to disclose fully and truly all material facts necessary for his assessment for that assessment year. Mere escape of income is insufficient to justify the initiation of action after the expiry of four years. Such escapement must be by reason of the failure on the part of the assessee to truly and fully disclose the material facts necessary for the assessment. The duty of an assesee is limited to fully and truly disclosing all the material facts and is not required to prepare a draft assessment order. 14. Bearing the above legal principle in mind, we may look into the factual scenario in the case on hand. As pointed out the reasons for reopening, the Assessing Officer would admit that he has referred to the details mentioned in the annexure to the return filed by the assessee for the assessment year 2009-10. Thus, there was no independent material to come to the conclusion that there has been no full and true disclosure made by the assessee. In s....
X X X X Extracts X X X X
X X X X Extracts X X X X
....tion of the belief. Our view gets support from the changes made to Section 147 of the Act, as quoted hereinabove. Under the Direct Tax Laws (Amendment) Act, 1987, Parliament not only deleted the words ''reason to believe'' but also inserted the word ''opinion'' in section 147 of the Act. However, on receipt of representations from the companies against omission of the words ''reason to believe'', parliament reintroduced the said expression and deleted.'' 16. In the light of the above legal position, the impugned proceedings are liable to be set aside for the sole reason that there was no tangible material available with the Assessing Officer except that which was disclosed in the return of income filed by the petitioner for the relevant assessment year. This has been held to be not a sound foundation for exercising power under Section 147 read with Section 148 of the Act. This would be sufficient to set aside the impugned proceedings. However, since elaborate submissions were made on either side, touching upon the factual issues only to test whether reopening was justified or whether it was a change of opinion. I proposed t....
X X X X Extracts X X X X
X X X X Extracts X X X X
....suming the Assessing Officer did not look into the Form No. 3 CEB. he is bound to look into the order passed by the TPO, as he is required to see any other additions have been made. This is so because the order passed by the TPO is binding on the Assessing Officer. Thus, I have no hesitation to hold that the materials disclosed by the assessee were available with the Assessing Officer and it is from such material, the present impugned reopening proceedings have been initiated. Thus, the respondent had initiated proceedings purely based on existing information which was provided by the assessee in the course of original assessment and based on the return of income filed by the assessee for the relevant year. The petitioner before the Assessing Officer placed the profit and loss account and the balance sheet and the relevant annexures and notes to the financial statements. The notes are important material because it would disclose the details pertaining to various entries in the profit and loss account and balance sheet and explain the stand taken by the assessee. So far as the fixed assets is concerned in the balance sheet, the petitioner has indicated that the capital work is in pr....