TaxTMI 
TaxTMI 
2021 (9) TMI 249
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....s referred to the Transfer Pricing Officer on 06.12.2012, which was cleared by the Transfer Pricing Officer and no adjustments were made. Finally, an order of assessment for the Assessment Year 2009-10 was passed, accepting the income declared by the petitioner and consequently, the tax assessed was also paid. 3. While so, a notice under Section 148 of the Act was issued, reopening the assessment, stating that the income chargeable to tax for Assessment Year 2009-10 has escaped assessment. The petitioner requested for reasons and reasons were furnished by the respondents. The petitioner submitted its objections in detail and the order impugned, disposing of the objections was communicated to the writ petitioner. Thus, the petitioner is constrained to move the present writ petition. 4. The learned counsel for the petitioner relied on the 12th Annual Report of the petitioner, wherein the Directors have opted for AS 11 (Accounting Standards) Amendment Rules, 2009, for accounting the difference arising on reporting of long term foreign currency monetary items effect of Exchange loss on ECB loans. As a result, there is a change in Accounting Policy, which is within in the statutor....
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.... to AS-11 as notified by Government of India as per Companies (Accounting Standards) Amendment Rules, 2009 there is a change in accounting policy and it is disclosed herewith in accordance with Para 32 of AS-5, Net Profit of Loss for the Period, Prior Period items and Changes in Accounting Policies." 7. The very same report has been taken into consideration for reopening of assessment. Thus, the reopening is based on change of opinion and not based on any new materials on record. 8. The return of income for the Assessment Year 2009-10 filed by the petitioner would reveal that the petitioner has furnished depreciation of plant and machinery. Additions for a period of less than 180 days in the previous year was also furnished. Citing the said depreciation column stated by the petitioner in its return, the learned counsel for the petitioner reiterated that the final assessment order was passed, considering all these facts and particulars provided by the writ petitioner and therefore, the reopening of assessment beyond the period of four years is untenable as it is reopened based on change of opinion. 9. The learned counsel for the petitioner drew the attention of this Court w....
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....t have reason to believe that income chargeable to tax has escaped assessment, and (2) he must have reason to believe that such income has escaped assessment by reason of the omission or failure on the part of the assessee (a) to make a return under Section 139 for the assessment year to the Income Tax Officer, or (b) to disclose fully and truly material facts necessary for his assessment for that year. Both these conditions must coexist in order to confer jurisdiction on the Income Tax Officer. It is also imperative for the Income Tax Officer to record his reasons before initiating proceedings as required by Section 148(2). Another requirement is that before notice is issued after the expiry of four years from the end of the relevant assessment years, the Commissioner should be satisfied on the reasons recorded by the Income Tax Officer that it is a fit case for the issue of such notice. We may add that the duty which is cast upon the assessee is to make a true and full disclosure of the primary facts at the time of the original assessment. Production before the Income Tax Officer of the account books or other evidence from which material evidence could with due diligence have bee....
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....cts. We would, therefore, uphold the view of the majority and dismiss the appeal with costs." 12. The learned counsel for the petitioner has emphasized that the reopening of assessment is not in consonance with the conditions stipulated in proviso clause cannot be sustained. The Apex Court of India, in unequivocal terms, held that the duty of the assessee in any case does not extend beyond making 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 not the responsibility of the assessee to advise the Income Tax Officer with regard to the inference, which he should draw for the primary facts. If an Income Tax officer draw an inference, which appears subsequently to be erroneous, mere change of opinion with regard to that inference does not justified for reopening of assessment. It is contended that applying the above principles laid down in the case of the petitioner also, the assessment officer has considered all these aspects and passed the final assessment order. The very same 12th Annual Report has been taken into consideration and the very same facts furni....
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.... of the Act, wherein the Apex Court has distinguished between the expressions "reasons to believe" and "opinion. The Apex Court had stated, "Assessing Officer has power to re-open, provided there is "tangible material" to come to the conclusion that there is an escapement of income from assessment. Reasons must have a live link with the formation of the belief. This being the principles laid down, in the present case, the petitioner assessee did not furnish fully and truly material facts necessary for the assessment for the Assessment Year. The learned Senior Standing Counsel reiterated that it is a reopening proceedings and therefore, the scope for the assessee to assail the reopening is limited. Once, the respondents are able to establish that the conditions stipulated under Section 147 are complied with, then they are empowered to continue the reopening proceedings and the assessee will be getting an opportunity for the purpose of defending their case and therefore, the writ petition is devoid of merits. 14a. In support of the contentions, the learned Standing counsel relied on the judgment of the Hon'ble Supreme Court in the case of Indi-Aden Salt Manufacturing Trading C....
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....Ltd. v. Income Tax Officer, Companies District-I, Calcutta & Anr. [(1961) 41 I.T.R. 191(SC). The case arose under Section 34 of the Income Tax Act [as amended in 1951]. In material particulars, the provisions in Section 34 were similar to those in Section 147. Having regard to the fact that it is the only Constitution Bench decision on the point, it is necessary to examine it in some detail. The Constitution Bench explained the purport of Section 34 in the following words: "To confer jurisdiction under this section to issue notice in respect of assessments beyond the period of four years, but within a period of eight years, from the end of the relevant year two condition have therefore to be satisfied. The first is that the Income-tax Officer must have reason to believe that income, profits or gains chargeable to income-tax have been under-assessed. The second is that he must have also reason to believe that such 'under-assessment' has occurred by reason of either (i) omission or failure on the part of an assessee to make a return of his income under section 22, or (ii) omission or failure on the part of an assessee to disclose fully and truly all material facts ne....
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....e has reasons to believe that the assessee had put forward certain bogus and false unsecured hundi loans said to have been taken by him from non-existent persons of his dummies, as the case may be, and that on that account income chargeable to tax has escaped assessment. According to him, this was false assertion to the knowledge of the assessee. The Income Tax Officer says that during the assessment relating to subsequent assessment year, similar loans [from some of these very persons] were found to be bogus. On that basis, he seeks to re-open the assessment. It is necessary to remember that we are at the state of re-opening only. The question is whether, in the above circumstances, the assessee can say, with any justification, that he had fully and truly disclosed the material facts necessary for his assessment for that year. Having created and recorded bogus entires or loans with what face can the assessee say that he had truly and fully disclosed all material facts necessary for his assessment for that year. True it is that Income Tax Officer could have investigated the truth of the said assertion which he actually did in the subsequent assessment year - but that does not relie....
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.... Officer and further whether that material had any rational connection or a live link for the formation of the requisite belief." 11. Learned counsel for the assessee, Sri Gupta placed strong reliance upon the decisions of this Court in Chhugamal Rajpal v. S.P. Chaliha & Ors [(1971) 79 I.T.R.603], Income Tax Officer, I Word, Dist. VI, Calcutta v. Lakhmani Mewal Das [(1976) 103 I.T.R.437] and Commissioner of Income Tax, Calcutta v. Burlop Dealers Limited [(1971) 79 I.T.R.609] as laying down propositions contrary to those laid down in Phool Chand Bajranglal. We cannot agree. The principle is wellsettled by Calcutta Discount and it is not reasonable to suggest that any different proposition was sought to be enunciated in the said decisions. Calcutta Discount emphasises repeatedly the assessee's obligation to disclose all material facts necessary for his assessment fully and truly in the context of the two requirements - called conditions precedent which must be satisfied before the Income Tax Officer gets the jurisdiction to re-open the assessment under Section 147/148. This obligation can neither be ignored nor watered down. Nor can anyone suggest that a false disclosure....
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....at apart, the appellant is stated to have submitted a note on the extraordinary item on February 8, 2000 stating that the said sum of Rs. 542 lakhs represents consideration as a restrictive trade covenant for not engaging in forex business. Reliance was placed upon a decision of this court in support of the said claim. In the letter written by the chartered accountant dated March 15, 2000 the appellant, however, admitted that the date of commencement of forex business was only on January 3, 1995 with the details of RBI license. Significantly, neither the copy of the agreement, nor the date of the agreement was disclosed at any time before the issuance of notice under section 148 of the Act, viz., December 20, 2003. In fact, even after the issuance of the notice under section 148 of the Act, copy of the agreement was not furnished before the Assessing Officer. By making a reference to the clarificatory letter dated February 8, 2000, the appellant wanted to contend that the assessment completed under section 143(3) ought not to have been reopened after the expiry of the period of four years." 15. As far as the cases cited above are concerned, in such cases, where there is a failur....
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....ith the time limit prescribed under Section 149 of the Act. 20. Proviso to Section 147 imposes certain restrictions for reopening of assessment beyond the period of four years, but within the period of six years. If the period of four years expired, then any one of the following three conditions must be satisfied:- (i) 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 (ii) in response to a notice issued under sub-section (1) of section 142 or section 148, or, (iii) to disclose fully and truly all material facts necessary for his assessment, for that assessment year. 21. Therefore, it is sufficient if any one of the ground is satisfied. It is not necessary that all the three conditions stipulated must be satisfied. If the Assessing Officer is satisfied with any one of the conditions under the Proviso Clause to Section 147 and has 'reason to believe' that the income chargeable to tax has escaped assessment, then jurisdiction is conferred on him for reopening of assessment. 22. The dispute arises, whether the assessee disclo....
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.... that where an assessment has been made, but - (i) income chargeable to tax has been underassessed; or (ii) such income has been assessed at too low a rate; or (iii) such income has been made the subject of excessive relief under this Act ; or (iv) excessive loss or depreciation allowance or any other allowance under this Act has been computed. 26. Thus various instances are provided. The cases may fall under deemed cases, where income chargeable to tax has escaped assessment. Therefore, in such cases, where the income chargeable to tax has escaped assessment under deemed cases, then reopening is permissible as 'reasons to believe' as contemplated under Section 147 of the Act is deemed to be satisfied. 27. To make it more clear, in cases, where the Assessing authority found income chargeable to tax has been under-assessed, then such under assessment is falling under the deemed cases, where income chargeable to tax has escaped assessment. In such cases, where under-assessment is identified, then the Assessing Officer has 'reason to believe' for reopening of assessment. Therefore, Sub Clause (c) of Explanation 2 to Section 147....
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....is clear from the notes to accounts that there has been no actual repayment during the current year made by the assessee and therefore the claim of Rs. 390.96 lakhs on account of depreciation in the current year is higher. This should have been added back to the book profits as per the clause iia of explanation 1 of section 115 JB. Thus, there is a shortfall in assessment of income U/S 155 JB by 390.96 lakhs. The tax effect thereon is Rs. 59 lakhs. 2. As per schedule 18 of the profit and loss account the following expenses have been debited. (i) Assets discarded Rs. 31,18,028/- (ii) Exchange loss of capital Goods purchased Rs. 28,54,362/- Total Rs. 59,72,380/- As per clause I & J of Explanation of section 115JB both the above items are to be added back to the book profits. Thus, there is escapement of Rs. 59,72,380/- to be taxed U/s.115JB. The tax effect thereon is Rs. 8.96 lakhs. 3. As already stated there is revaluation of assets in the depreciation schedule which goes to increase the claims for depreciation under normal provisions by 25% i.e., Rs. 945.27 lakhs (Rs. 4699.80-Rs. 918.73=Rs. 3781.1 25 %=Rs. 945.27). This s....
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....ase of the petitioner, the respondents have stated that where an assessment has been made but income chargeable to tax has been under-assessed or such income has been made the subject of excess relief under this Act or excessive allowance under the Act has been computed. 31. The respondents arrived a conclusion that the case of the petitioner is falling within the ambit of Explanation 2(c) to Section 147 of the Act. 32. No doubt, the petitioner would have produced the materials. However, Explanation 1 to Section 147 enumerates that submission of materials, account books not necessarily be a ground for exoneration from reopening proceedings. Even in cases, where such books of accounts or materials are produced and if the conditions stipulated in the Proviso clause deemed or the cases are established, then the jurisdiction is conferred on the Assessing Officer to reopen the assessment. 33. The first reason furnished relating to Section 43A of the Income Tax Act. Section 43A contemplates special provisions consequential to changes in rate of exchange of currency. With reference to the said section, the reasons are furnished by stating that the revaluation of any asset purchas....
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....hedule 18 of the profit and loss account, expenses have been debited. With reference to the said expenses, it is stated that as per clause I & J of Explanation of section 115JB both the above items are to be added back to the book profits. Thus, there is escapement of Rs. 59,72,380/- to be taxed U/s.115JB. The tax effect thereon is Rs. 8.96 lakhs. The thid reason stated is that there is revaluation of assets in the depreciation schedule which goes to increase the claims for depreciation under normal provisions by 25% i.e., Rs. 945.27 lakhs (Rs. 4699.80-Rs. 918.73=Rs. 3781.1 25 %=Rs. 945.27). This should have been added back in the normal computation of income as per provisions section 43A of the IT Act. There tax effect thereon is Rs. 321.39 lakhs. 36. This Court is of the considered opinion that High Court is not an expert body, so as to go into the details of the accounting system and find out the arithmetic errors, if any. What is to be considered in a writ petition mainly with reference to the cases of reopening of assessment is the 'reason to believe' for reopening of assessment. The reasons furnished should have live link with the materials and the conditions stipu....
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....onnotes the technical and contextual meaning, so as to inject life to the purpose and object of the reopening proceedings under Section 147 of the Act. 39. The Courts are expected to be cautious in such circumstances, where the assessee may broadly establish before the Court of law that he has furnished all the materials truly and fully and it is the Assessing officer, who has committed fault in not considering certain aspects and they cannot reopen on the basis of change of opinion. No doubt, change of opinion is a ground to set aside the reopening proceedings. But what amount to change of opinion must be carefully dealt with as the conditions stipulated under Section 147 and the deemed cases under Explanation 2 are to be looked into for the purpose of examining the case of reopening of assessment. 40. In this context, this Court is of an opinion that the petitioner has produced all the material facts and evidences. However, the Assessing Officer in the original assessment order dated 08.02.2013, not considered many such details and passed an assessment order in a cryptic manner. From and out of such an assessment order, the respondent could able to trace out certain under a....