TaxTMI 
TaxTMI 
2021 (9) TMI 326
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....led its return of income under Section 139 (1) of the Income Tax Act, 1961 [hereinafter referred to as the 'Act'] on 16.11.2006 for the Assessment Year 2006-07, declaring a loss of Rs. 43,95,90,051/-. The petitioner states that the return of income was filed with true and adequate income of the petitioner along with the audited financial statements, Tax Audit Report as required under Section 44AB of the Act. The case of the petitioner was selected for scrutiny. Notice was issued. The petitioner submitted further documents, materials and answered the queries. The case of the petitioner was referred to Transfer Pricing Officer, who in turn, submitted a report on the Arm's length price. After completing the process of scrutiny, the assessment officer passed the final assessment order under Section 143(3) of the Act in order dated 01.03.2010. 4. While so, the respondent issued the impugned notice dated 29.03.2012 under Section 148 of the Act, which was received by the petitioner company on 03.04.2012. In response, the respondent company filed its return of income and requested to furnish reasons. The reasons were supplied to the petitioners. The initiation of reopening proce....
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....uch as "reasonable cause to believe" or "has reason to believe" are commonly found when a Legislature or law-making authority confers powers on a minister or official. As Lord Radcliffe said [1980] 2 WLR 1, 22 (HL) : "However read, they must be intended to serve in some sense as a condition limiting the exercise of an otherwise arbitrary power. (Nakkuda Ali v. Jayaratne [1951] AC 66, 77 (PC)". These words do not make conclusive the officer's own honest opinion that he had reasonable cause for the prescribed belief. The grounds on which the officer acted must be sufficient to induce in a reasonable person the required belief before he can validly reopen a completed assessment under s. 147(a). In England, the majority in Liversidge v. Anderson [1942] AC 206 (HL) held that the belief entertained by the officer was not justiciable. Lord Atkin dissented. Now, it had been held by the House of Lords in the recent tax decision of IRC v. Rossminster Ltd. [1980] 2 WLR 1, 49 (HL), that Lord Atkin was right and that the majority were wrong. Lord Diplock has said : "..... I think the time has come to acknowledge openly that the majority of this House in L....
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....ad to the conclusion that action cannot be taken for reopening assessment even if the information is wholly vague, indefinite, far-fetched and remote. The reason for the formation of the belief must be held in good faith and should not be a mere pretence. (Emphasis supplied)" In the long line of decisions of the Apex Court, it has been held that the power u/s 147 of the Act are not plenary and are subject to the judicial review. (d) The petitioner thus prays that if the reasons recorded are perused for the sake of convenience which are extracted hereinabove, it would be seen that; (i) The petitioner has disclosed the complete facts in the return of income/books of account/assessment proceedings and there is no allegation that the petitioner had failed to disclose fully and truly all material facts. Infact, admittedly, reasons to believe has been formed on the basis of the return of income/existing material, without any fresh tangible material. (ii) It is a case where the AO while framing assessment had considered all such material facts which are the basis for initiating the proceedings u/s 147 of the Act. It thus amounts to review as per the jud....
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....id tests as laid down by the Hon'ble Supreme Court (which holds good till date) when is applied, would show that the assumption of jurisdiction by the respondent to issue the notice and initiate the proceedings is outside the scope of the provisions of Section 147 of the Act. It had been held as above that before assuming jurisdiction both the conditions are to be satisfied namely:(i) there had to be omission or failure to disclose fully and truly all material facts; and (ii) that the AO is having a reason to believe. In the instant case both the conditions are not satisfied. Indeed even the reasons had not been recorded and also there had been no failure to disclose fully and truly all material facts. Without prejudice, even the reasons recorded and supplied to the petitioner shows that such reasons are merely based on change of opinion. The petitioner further submitted that in the said judgment of Calcutta Discount Co., Ltd., (Supra) at Pg.202-203, the Hon'ble Apex Court has held as under: "The only nondisclosure mentioned in the report is that the company had failed to disclose " the true intention behind the sale of the shares ". Mr. Choudhury contends that thi....
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....me-tax Officer who, by the way, was a successor to the officers who had made the original assessments, was not merely changing his opinion as to facts previously known, but was taking notice of a new fact." (Emphasis supplied) The petitioner submitted that Section 34 of Income Tax Act, 1922, which is pari-materia to section 147 of the Income Tax Act only provides special jurisdiction. In the Income Tax Act, there is no concept of any other assessment other than the assessment or reassessment and that too on specified pre-requisite of Section 147 of the Act. (g) Explanation (1) to Section 147 of the Act is inapplicable: It is submitted that in the present case, complete facts in respect of production bonus was disclosed in the books of account and also in the original assessment proceedings and as such, Explanation -1 of section 147 cannot be invoked. It is submitted that in fact, in the original assessment proceedings query in respect of difference between the amount of production bonus claimed and stated in statement was raised which was duly explained in the reply of the petitioner and after being satisfied with the reply/evidence, no adverse view was f....
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....rs fully disclosing all the materials for the purpose of assessment." iii. Asianet Star Communications (P) Ltd. Vs. Assistant Commissioner of Income-Tax [2020] 422 ITR 47 (Madras) "Where benefit of proviso is claimed by revenue, it would first have to satisfy condition under proviso and validate assumption of jurisdiction beyond four years and only thereafter revenue can seeks application of Explanation to Section 147." iv. MBI Kits International Vs. Income Tax Officer [2018] 408 ITR 1 (Madras) "18. Every non disclosure of material facts will not or cannot be a justifiable reason for reopening sustainable under judicial scrutiny. On the other hand, such non disclosure of a material fact must be of such nature that, but for such non disclosure, the income, relatable to such material fact, would not have escaped assessment. In other words, it should lead to an irrebuttable conclusion that by the conduct of the assessee, either by providing wrong or incorrect particulars or by not providing the full and correct particulars, he should have made the Assessing Officer not to bring a particular income to tax, which is otherwise liable to be taxed. If th....
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.... vii. Commissioner of Income-tax vs. Sonitpur Solves Ltd., 352 ITR 305 (Gau) viii. SAK Industries (P) Ltd., Vs. Deputy Commissioner of Income Tax (Judgment of Hon'ble Delhi High Court in WP(C).No.1884/2012 dated 16.07.2012) para 9-13(Del) ix. Ranbaxy Laboratories Ltd., Vs. Deputy Commissioner of Income-tax [2013] 351 ITR 23 (Delhi) x. SMCC Construction India ltd., Vs. Assistant Commissioner of Income-tax [2014] 220 Taxman 125 (Delhi) (MAG) xi. Canon India Private Limited Vs. ACIT WP(C).No.2768/2012 dated 31.07.2012 HC Delhi. (h) Change of opinion: The petitioner further submitted that though a statutory amendment had been made in section 148 of the Income Tax Act w.e.f.01.04.1989, however, the Apex Court in 320 ITR 561, while affirming the judgment of Delhi High Court in the case of CIT Vs. Kelvinator of India Ltd., reported in 256 ITR 1 (FB) held as under: "On going through the changes, quoted above, made to Section 147 of the Act, we find that, prior to the Direct Tax Laws (Amendment) Act, 1987, reopening could be done under the above two conditions and fulfilment of the said conditions alone conferred jurisdiction on....
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....ing of the expression, 'reason to believe' had been explained in a number of court rulings in the past and was well settled and its omission from Section 147 would give arbitrary powers to the Assessing Officer to reopen past assessments on mere change of opinion. To allay these fears, the Amending Act, 1989, has again amended Section 147 to reintroduce the expression 'has reason to believe' in the place of the words 'for reasons to be recorded by him in writing, is of the opinion'. Other provisions of the new Section 147, however, remain the same." (emphasis supplied) (i) The petitioner however adds that the Division Bench of High Court of Delhi in its judgment reported in 256 ITR 1 had held as under: "We, however, may hasten to add that if "reason to believe" of the Assessing Officer is founded on an information which might have been received by the Assessing Officer after the completion of assessment, it may be a sound foundation for exercising the power under section 147 read with section 148 of the Act. We are unable to agree with the submission of Mr. Jolly to the effect that the impugned order of reassessment cannot be faulted as the same ....
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....ing officer any opinion on the questions that are raised in the proposed reassessment proceedings. Every attempt to bring to tax, income that has escaped assessment, cannot be absorbed by judicial intervention on an assumed change of opinion even in cases where the order of assessment does not address itself to a given aspect sought to be examined in the reassessment proceedings".(Emphasis supplied) (k) The Apex Court in its judgment in the case of ACIT Vs. ICICI Securities Primary Dealership Ltd., reported in 348 ITR 299 at Pg.301 has while upholding the judgment of Bombay High Court which reads as under: "In the facts of the present case, there is nothing new which has come to the notice of the Revenue. The accounts had been furnished by the petitioner when called upon. Thereafter the assessment was completed under Section 143(3) of the Income Tax Act. Now, on a mere relook, the officer has come to the conclusion that the income has escaped assessment and he is of course justified in his analysis. In our view, this is not something which is permissible under the proviso to Section 147 of the Income Tax Act which speaks about a failure on the part of the assessee....
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....easons to believe, the respondent is of the view that the petitioner was entitled to the deduction only to the extent of Rs. 20,32,78,482/- and thus, the assessee had claimed excessive liability on bonus in the AY 2006-07 to the extent of Rs. 13,63,05,582/-. It is submitted that the petitioner in the objections as well as in the present writ petition have provided the facts relating to the claim of the production bonus. In fact, during the course of the assessment proceedings under section 143(3) of the Act, a specific query regarding the claim of production bonus of Rs. 33 crores as against the sum of Rs. 10.67 crore debited in the profit and loss account was raised. The petitioner in response to the aforesaid query filed its explanation and clarified the basis of such claim. The respondents being satisfied by the explanation, and books of account, accepted the aforesaid claim. As such, there is no failure to disclose any material facts. In fact, proceedings have not even been initiated on the ground that there was any failure on the part of the petitioner to disclose fully and truly all material facts but has been initiated merely on the ground that petitioner has been allowed ex....
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....ttled law, the Assessing Officer can issue a notice of reopening of assessment provided he has reason to believe that income chargeable to tax has escaped assessment. The Assessing Officer cannot proceed mechanically and also on erroneous information that may have been supplied to him. In fact, we note that in the present case the Assessing Officer had issued a notice to a wrong person. The impugned notice is, therefore, set aside." ii. Ankita A.Choksey Vs. ITO W.P.3344 of 2018 dated 10.01.2019 HC (Bom) "7. Thus, we are of the view that even in cases where the return of income has been accepted by processing under Section 143(1) of the Act, re-opening of an assessment can only be done when the Assessing Officer has reason to believe that income chargeable to tax has escaped assessment. The mere fact that the return has been processed under Section 143(1) of the Act, does not give the Assessing Officer a carte blanc to issue a re-opening notice. The condition precedent of reason to believe that income chargeable to tax has escaped assessment on correct facts, must be satisfied by the Assessing Officer so as to have jurisdiction to issue the re-opening notice. In th....
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....e other facts relied upon by the revenue are the proceedings before the DRP and facts subsequent to the assessment order, and we have already dealt with the same while deciding Issue No. 1. However, that cannot lead to the conclusion that there is non-disclosure of true and material facts by the assessee." ii. Tractors & Farm Equipment Ltd., Vs. ACIT Reported in [2018] 409 ITR 369 (Madras) iii. S.P.Mani & Mohan Diary Vs. ACIT [2019] 418 ITR 703 (Madras) iv. Bharti Infratel Ltd., Vs. DCIT [2019] 101 Taxmann.com 285 (Delhi) v. CIT Vs. City Union Bank Ltd., [2019] 264 Taxman 204 (Mad) (HC) vi. PCIT Vs. L & T Ltd, [2020] 268 Taxman 390 (SC) (p) The petitioner submitted that on identical facts in the case of petitioner alone for the AY 2002-03 on identical reason, the Hon'ble Madras High Court by its judgment dated 29.10.2011 (pg.32-43 of case law compilation) had quashed the initiation of proceedings inter-alia on the ground that there had been no omission or failure to disclose fully and truly all material facts and otherwise too, the initiation of proceedings under Section 147 of the Act was beyond jurisdiction. That further, ....
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.... Court i.e., Calcutta Discount Co., Ltd., Vs. ITO reported in 41 ITR 191, CIT Vs. Kelvinator of India Ltd., 320 ITR 561 and ACIT Vs. ICICI Securities Primary dealership Ltd., reported in 348 ITR 299, New Delhi Television Ltd., Vs. DCIT (2020) 424 ITR 607 and ITO vs. Techspan India Pvt Ltd., reported in 404 ITR 10 are sufficient to establish and beyond doubt that in the instant case jurisdiction has been assumed without authority of law and is in excess of jurisdiction of the respondent. The petitioner submitted that in the instant case, for the reasons stated above as there is a complete lack of jurisdiction, it is not the requirement of law that once the respondent had issued a notice under Section 148 of the Act, he was in law obliged to frame assessment before he culminate the proceeding. In fact, he ought to have dropped the proceeding instead of having chosen to continue with the proceedings. 6. The learned Senior Standing counsel objected the said contentions raised on behalf of the petitioners by stating that the judgments relied on by the petitioners cannot be disputed. Admittedly, the Hon'ble Supreme Court of India laid down the principles on all these aspects. Howe....
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.... of oil exploration. For the AY 2006-07, in the scrutiny assessment completed u/s 143(3), the total income of the assessee was determined at a loss of Rs. 23,07,81,802/-. However, the books profit of Rs. 197,41,29,836 was taxed u/s.115JB. In the Profit & Loss Account for the year ended March 31, 2006, under Operating Expenses, the assessee debited a sum of Rs. 10,67,96,247/- towards production bonus. According to the assessee, the detail of production bonus was as under:- Name of the Party Amount Rs. ONGC (for Ravva blocks) 9,21,14,449 Tata Pettrodyne Limited (CBOS/2 Block) 1,46,81,798 Total 10,67,96,247 In the statement of computation of income for the AY 2006-07, against the profit as per the Profit & Loss Account, the assessee, interalia, made the following additions and deduction towards bonus with narrations as under: Add: In admissible Production bonus for the year admissible on payment basis as per clause 17.5(b) of the Ravva Production sharing Contract : Rs. 9,21,14,449 Less: Admissible Expenses Ravva production bonus paid during the year claimed as per clause 17.5 (b) of the Ravva pr....
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....irmed only after verifying various details/factors during the assessment proceedings. 4.4 As regards the change of opinion, it is submitted that the change of opinion arises when the assessing officer forms an opinion that decides not to make an addition and holds that the assessee is correct. The reassessment proceedings under section 147 is pending and the issue can be examined during the course of proceedings only. The submission of the assessee company is incorrect and misleading. This view is supported by the Delhi High Court decision in the case of Dalmia Pvt Ltd., Vs. CIT in which the court has held that "despite specific and pointed queries in section 143(3) assessment, the Assessing officer cannot be said to have formed any opinion if explicit opinion not recorded." 10. In view of the fact that the competent authority made a finding that the submission of the assessee company is incorrect and misleading, the case of the petitioner falls under the proviso clause to Section 147 of the Act as the conditions that the assessee must disclose fully and truly is not satisfied. 11. This Court is of the considered opinion that based on the return of income filed by th....