TaxTMI 
TaxTMI 
2022 (6) TMI 1057
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.... had disclosed fully and truly all material facts necessary for his assessment and there was no failure on the part of the Appellant in this regard. 2. Without prejudice to Ground no. 1, the CIT(A) erred in upholding the disallowance of Rs. 3,03,42,451 in respect of expenditure incurred on long term incentive plan under section 40A(9) as well as under section 37(1) of the Act as against the Appellant's contention that the said amount is deductible under section 37(1) of the Act. 2. Brief facts of the case are that the assessee-company is engaged in asset management for pooled funds (MF) and for segregated funds (Portfolio management Service) filed its return of income on 29.09.2008 declaring total income of Rs. 10,52,80,172/-. The scrutiny assessment u/s.143(3) r.w.s 144C(13) of the Income tax Act, 1961 was completed on 30.01.2012 determining income of Rs. 13,71,73,770/-. 3. Assessee acts as investment Manager for HSBC Mutual fund of India. The assessee manages the investment portfolio and provides various administrative services to the fund. The assessee is also engaged in providing portfolio management services to high net worth individuals. 4. On perusal of the....
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....rded, the assessee raised objections on the reopening of the scrutiny assessment vide its letter dated 23/02/2015. This case has been received on transfer from DCIT 1(1)(2), Mumbai on 7/12/2015 consequent to order u/s. 127(2) of the Act passed by the Pr. CIT -4, Mumbai vide order dt. 02/12/2015. Accordingly, notice u/s. 142(1) r.w.s 129 was issued on 07/12/2015 due to change in incumbent. 8. The objections raised by the assessee on the reopening of the assessment are elaborately discussed and disposed off vide a speaking order passed u/s. 147 of the I.T. Act, vide dt. 04/01/2016, this is served on assessee on 05/01/2016. 9. The objections raised by the assessee are as under through its letter to the ld. AO dated 16.02.2015 filed on 23.02.2015: "We received Your Good self's captioned notice on December 29, 2014 without the reasons recorded for such re-opening. After that, we filed our letter dated January 20. 201 requesting to Your Good-self furnish to us the reasons recorded for re-opening the assessment u/s 147 for the captioned Assessment Year and also requested your to treat our Original Return of Income as that filed in pursuance of the captioned notice. ....
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.... well known that a presumption can also be raised to the effect that in terms of clause (e) of section 114 of the Indian Evidence Act judicial and official acts have been regularly performed. If it be held that an order which has been passed purportedly without application of mind would itself confer jurisdiction upon the Assessing Officer to reopen the proceeding without anything further, the same would amount to giving a premium to an authority exercising quasi-judicial function to take benefit of its own wrong. Hence, it is clear that section 147 of the Act does not postulate conferment of power upon the Assessing Officer to initiate reassessment proceedings upon mere change of opinion." (e) The aforesaid decision in the case of CIT vs. Kelvinator has now been affirmed by the Supreme Court (320 ITR 561) with the following observations: "We must keep in mind the conceptual difference between power to review and power to re-assess. The Assessing Officer has no power to review; he has the power to reassess. But re-assessment has to be based on fulfilment of certain pre- condition and if the concept of "change of opinion" is removed, as contended on behalf of the, ....
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.... interference." Reliance is also placed on the decision of Delhi High Court in case of S Pradyot K Misra Vs. ACIT (2014-TIOL-615-HC-DEL-IT) (W.P (C) No. 272/2013). (h) In the recent decision of Jurisdictional High Court in case of National Bank of Agriculture and Rural Development vs. Dy. Cit (Writ Petition No. 1497 of 2013, order dated April 16, 2014) wherein it is held that it is now well settled that the reasons which are recorded by the AO for reopening an assessment, are the only reasons which can be considered. No substitution or deletion is permissible. On reading the reasons, we find a complete absence of even an allegation that there was any failure on the part of the Petitioner to disclose any material fact whatsoever. It is not enough merely to state that there was a failure on the part of the Petitioner to disclose fully and truly all material facts. It is equally important that Respondent clearly sets out what fact or other material was not disclosed by the Petitioner that had led to the income escaping assessment as contemplated u/s 147. No failure on the part of the Petitioner to disclose fully and truly all material facts as contemplated under the ....
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....e has been excessively claimed by the Assessee, Where assessment is completed u/s. 143(3) of the Act and the assessee claims to have disclosed all the material facts during proceedings, no action can be taken beyond four years. Assessee had submitted all the information for claiming deduction u/s. 80HHC of the Act and also the claim of the depreciation was also deliberated upon by the AO. By the reasons recorded for reopening it is apparent that no fresh material has come into the procession of the AO for framing the belief that any part of the income had escaped the assessment allowance had been granted to the Assessee, Thus, there was merely a change of opinion and there being no failure on the part of the Assessee to disclose the material facts and hence reopening was not justified. II. Notice can be issued beyond four years from the end of assessment year [when the original assessment was completed under section 143(3) of the Act] only where there was a failure on part of the assessee to disclose fully and truly all material facts necessary for assessment: a) Our original assessment for the captioned year was completed Ws 143(3) read with section 144C of the A....
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....the Hon'ble Bombay High Court, being jurisdictional High Court in our case, in the case of Bhavesh Developers & Others (188 Taxman 123) (Bom), wherein the facts of the case were similar in so far as that the assessee had made a full and true disclosure of its income in its ROI,-and there was no new information/material found by the AO for reopening the proceedings under section 147 of the Act. In light of the same, it was held that recourse to the power under section 147 cannot be sustained on a mere change of opinion, if there is no failure of the assessee to disclose fully and truly, all material facts necessary for assessment. e) Similar view has been consistently taken in the following decisions: > IPCA Laboratories Ltd. vs. DCIT (2001) (251 ITR 416) (Bom); > Parikh Petrol Chemical Agencies P. Ltd. vs. ACIT (266 ITR 196) (Bom); > Caprihans India Ltd. vs. DCIT (266 ITR 566) (Bom); > Bhor Industries Ltd. vs. ACIT (267 ITR 161) (Bom). f) Further, attention is invited to the decision of the Hon'ble Bombay High Court, being jurisdictional High Court in our case, in the case of ICICI Bank Ltd. Vs. K. J. Rao and Another (268 ITR 20....
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....ruly disclose all material facts necessary for assessment for that assessment year consequent upon which income chargeable to tax had escaped assessment. That had not been fulfilled. In the instant case, in the absence of the existence of the jurisdictional condition precedent, the assessment could not be reopened beyond a period of four years after the expiry of the relevant assessment year. i) Attention is also invited to the decision of the Hon'ble Bombay High Court, being jurisdictional High Court in our case in the case of Bombay Presidency Golf Club Ltd. Vs. ITO (332 ITR 226) (Bom.) wherein it was held that, although the AO had recorded reasons to the effect that the assessee had failed to disclose fully and truly all material facts, nothing was brought to notice which would suggest that there was any failure on the part of the assessee to disclose fully and truly all material facts. As per section 147 of the Act, the assessment beyond four years from the end of the relevant assessment year can be reopened only if there is failure on the part of the assessee to disclose fully and truly all material facts necessary for the assessment. j) We, therefore, humbly....
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....e had escaped assessment then the reopening of assessment is bad and quash. The extract of the decision are as under: "Insofar as the assessment year 2004-05 was concerned, though the reopening of the assessment had taken place within a period of four years from the expiry o that assessment ear yet it was apparent that the Assessing Officer did not have before him an additional material at all to form a belief that income had escaped assessment. The assessee had, admittedly, placed on record before the Assessing Officer for the assessment year 2003-04 the circumstances under which the plans gad been approved for the building on 12-9-1988. There was no material before the Assessing Officer that would lead to a formation of belief that the income had escaped assessment. " (Underlined for Emphasis) . e) In the case of ICICI Home Finance Co. Ltd. Vs, ACIT (WP No. 430 of 2012), the Hon'ble Bombay High Court, being the jurisdictional High Court in our case, has held that re-opening of an assessment based on an audit objection, in the absence of any new/fresh material received by the AO is illegal and must be struck down. This was the case where the re-opening w....
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....rial to show that some income escaped assessment. Further, there was no new information/material found by the AO for reopening the proceedings w/s. 147 of the Act and, therefore, the reasons recorded for reopening reflect a mere change in opinion by the AO. k) The Hon'ble Mumbai Tribunal in the case of Aipita Marketing Pvt. Ltd. Vs. ITO (21 SOT 302) has held that | in the absence of any new material, the AO is not empowered to reopen an assessment irrespective of whether it made under section 143(1) or 143(3)of the Act. l) We, therefore, submit that reopening under section 147 of the Act on same material available on record and in absence of change in law is void-ab-initio and bad in law. IV. Reassessment based on audit objections is bad in law: a) In our case, there was an audit objection from the Audit Wing of the Income Tax department on the purported underpayment of tax on the LTIP expenditure debited to the Profit & Loss Account. The relevant Audit Query was handed' over to us on November 21, 2013 and we had provided our submissions to the then AO. b) The language of the foregoing Audit Query, our submissions and the reasons for reo....
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....ly in those authorities which are specifically authorized to exercise adjudicatory functions." > In IL&FS Investment Managers V. ITO (2008) (298 ITR 32) (Bom.), the Hon'ble Bombay High Court has held that claims allowed disagreeing with the audit objections and therefore issuance of notice under section 148 subsequently was not valid. > In the case of ICICI Home Finance Co. Ltd. vs. ACIT (2012) (210 Taxman 67) (Bom.)), the Hon'ble Bombay High Court, being the jurisdictional High Court in our case, has held that the re-opening of an assessment based on an audit objection, in the absence of any new/fresh material received by the AO is illegal and must be struck down. This was the case where the re-opening was within 4 years from the end of the assessment year concerned. c) Hence, when we have disclosed fully and truly all material facts necessary for assessment and on the basis of which assessment is made, then the exercise of powers under section 148 of the Act contemplates that the reasons recorded must show the application of mind of the Assessing Officer. Reasons should not be based merely on the objection of another person as has been held in the above....
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....ding notices issued under section 148 of the Act, objections raised by the assessee against this notice, response of ld. AO against the objections raised by the assessee and consequent order passed. It clearly emanates from all the records mentioned (supra), there is no allegation on assessee of failure on its part to disclose true and material facts. 11. Since all the materials/facts were available on record with regard to the expenses claimed in the return of income filed for the captioned AY, a presumption can be raised that such an order based on return filed with true and full disclosure of the facts has been passed on application of mind by the concerned AO. The AO has no power to review his own order; he has the power to re-assess only. But re-assessment has to be based on fulfilment of certain preconditions. Change of opinion or borrowed belief is not permissible as in this case, re-opening has been done based on audit query. The reasons for the notice under section 148 of the Act nowhere mentioned that the Revenue came up with any other fresh material, not disclosed by the assessee warranting re-opening of assessment. The primary function of audit in relation to assessm....