TaxTMI 
TaxTMI 
2024 (4) TMI 604
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....onsequential Notice dated 15.11.2019 [Annexure-N] in No. ITBA/AST/F/142/2019-20/102052558 5(1) issued under Section 142(1) of the IT Act calling upon the Petitioner to furnish certain documents and information. These impugned notices and order are for the Assessment Year 2012-2013, and the petitioner's grievance with these notices and order are in the backdrop of the circumstances outlined hereinafter. 2. The petitioner's case is that its primary income is from the totalisators i.e., the commission from the total amount waged on horse races organized by it, and it also earns from the income shared with the bookmakers, gate collections and license fee from bookmakers. The petitioner has summarized how the horses races are organized and its activities thus: a. The petitioner, as a Turf Authority, conducts thoroughbred horse racing and horses are registered with it by the owners^1 who are duly licensed by the Turf Authorities. b. The owner engages a licensed professional trainer to these horses which must be trained^2 and nourished. c. During the training and thereafter, the horses are stabled within the precincts of the racecourse owned by the petitio....
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....r's order dated 31.07.2019 is called in question before the Income Tax Appellate Tribunal, Bengaluru [ITAT] in S.P. No. 271/BNG/2019^5, and as of the date of this petition, the operation of the orders dated 27.03.2015 was stayed in the proceedings in S.P. No. 271/BANG/2019. The ITAT has allowed the petitioner's appeal [and the other appeal] by its Order dated 18.12.2020. The ITAT was considering the question whether the provisions of TDS are applicable to Stake Money being paid to the owners of the horses participating in the race. The ITAT has opined that that Stake Money paid by petitioner to the horse owners are not liable to TDS under Section 194 B or Section 194 BB of the IT Act, and therefore, the AO could not have disallowed under Section 40(a)(ia) of the IT Act. 7. In the meanwhile, the second respondent has issued notice dated 29.03.2019 under Section 148 of the IT Act proposing to reassess the income of the petitioner under Section 147 of the Act for the Assessment Year 2012-2013. The relevant portion of this Notice reads as under: "Whereas I have reasons to believe that your Income chargeable to tax for the Assessment Year 2012-13 has escaped Assessment withi....
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....that there is escapement of income approximately of Rs. 14.85 Cr within the meaning of Section 147." 9. The petitioner has filed its detailed objections 17.07.2019 to the aforesaid reasons contending inter alia that the said reasons do not constitute 'reasons to believe' as required under Section 148; that the proceedings are barred by limitation under first proviso to Section 149(1)(b) of the IT Act; and that the re-opening of the assessment would be academic in nature as the petitioner has not claimed expenditure in respect of the amounts paid to the trainers and jockeys, therefore, the same cannot be disallowed, etc. The second respondent by its order dated 15.11.2019 has rejected the objections filed by the petitioner, and the second respondent at the first instance has observed thus: The petitioner has failed to realize the fact that it is making payments of crores of rupees to horse trainers & jockeys for horse maintenance and as mount fee. These payments are not brought through profit & Loss account. The payments made to trainers & jockey require TDS thereon, and the same is not adhered to. The payments made to trainers, jockeys are not passed through Profit ....
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.... to balance sheet Hence, assessee has failed to declare true and correct data in Profit and Loss account. Based on new information, Assessing Officer has rightly re-opened the case. Hence, it is not change of opinion. The issue of notice under Section 148 at the fag end of the limitation period and without copy of reasons recorded is bad in-law: Income-Tax Act 1961 postulates the time limit on the amount of income which has escaped assessment as under: i. lf the income which has escaped assessment is up to Rs. one Lakh, then notice cannot be issued after 4 years from the end of relevant assessment year. ii. If the income which has escaped assessment is more than Rs. One Lakh, then notice cannot be issued after 6 years from the end of relevant assessment year. In view of the same, issuance of notice under section 148 is right and within the ambit of time limit prescribed by the Income Tax Act. 11. The petitioner has filed ROI on 20.12.2012, and the period of six [6] years from the end of the Assessment Year 2012 -13, as contemplated under Section 149 (1)(b) of the IT Act^6, ended on 31.03.2019 The second Respondent has issued notice un....
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....11.05.2004. If the date of filing of the counter-affidavit in this writ petition is taken as the date of communication of the reasons which forms part of the said form, a copy of which is Annexure-A to the counter-affidavit, then the date of supply of reasons, based on this argument, would be 05.11.2007. This immediately makes it clear that the Assessing Officer, who was bound to furnish his reasons within a reasonable time, did not do so. The period which elapsed between 11.05.2004, when the petitioner made the request for communicating the reasons, and 05.11.2007, the date when the counter-affidavit was filed, can certainly not be regarded as a reasonable period of time. In a case, where the notice has been issued within the said period of six years, but the reasons have not been furnished within that period, in our view, any proceedings pursuant thereto would be hit by the bar of limitation inasmuch as the issuance of the notice and the communication and furnishing of reasons go hand-in-hand. The expression "within a reasonable period of time" as used by the Supreme Court in GKN Driveshafts (supra) cannot be stretched to such an extent that it extends even beyond the si....
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.... before issuing notice under Section 148(1), to record his reasons for doing so. If reasons are recorded, the requirement of Section 148(2) must be held to have been complied with. Further the time limit for issuing a notice under Section 148, in cases where the income which has escaped assessment is more than one lakh rupees, is six years under Section 149(1)(b) of the Act. The limitation prescribed therein is merely for issuance of notice under Section 148, and not for passing a re-assessment order. The judgment of the Delhi High Court, in Haryana Acrylic, runs contrary to the plain language of Section 147, 148 and 149 of the Act. The Supreme Court, in GNK Driveshafts (India) Ltd, did not hold that the period of limitation should be reckoned on the date of communication of reasons by the ITO. The observations of the Delhi High Court, in Haryana Acrylic, are contended to be a logical consequence of the law laid down in GKN Driveshafts (India) Ltd. Observations of Courts are neither to be read as Euclids theorems nor as provisions of a statute, and that too taken out of their context." 15. As per this decision what is crucial is reasons for initiating re-assessment must be assig....
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....to be furnished within the period of six [6] years, and in any event, as seen from the original file, the reasons are recorded for re-assessment before issuance of notice. As such, the submissions by Sri Y V Raviraj on behalf of the respondents on this ground must be accepted, but then, there can be reassessment during the period between four and six years from the end of the relevant assessment year^7^ only if income chargeable to tax has escaped either by reason of: [i] the failure on the part of the assessee to make a return under section 139 or in response to a notice issued under sub-section (1) of section 142 or section 148 or [ii] the failure to disclose fully and truly all material facts necessary for his assessment. 19. This takes this Court to the second question. Sri S S Naganand submits that the petitioner has adequately complied with all requests for information and documents throughout the various stages of assessment proceedings for the Assessment Year 2012-13, and the learned Senior Counsel, relying upon the following circumstances, contends that there cannot be any allegation of failure to disclose fully and truly all material facts,: ....
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.... Asst. CIT 2020 SCC OnLine Bom 943. The expressions "reason to believe" and "failure on the part of the assessee to disclose fully and truly all material facts" have been subjected to numerous judicial pronouncements, and it is not necessary to burden this judgment by making reference to the long line of judicial precedents. Suffice it to say that there must be a live link between the reasons recorded and formation of the belief that income chargeable to tax has escaped assessment because of failure on the part of the assessee to disclose fully and truly all material facts necessary for assessment which must not be fanciful or based on suspicion. Both the conditions must co-exist in order to confer jurisdiction on the Assessing Officer. Of course, the assessee is required to make a true and full disclosure of the primary facts at the time of the original assessment. Production before the Assessing Officer books of account or other materials from which the required evidence with due diligence could have been discovered by the Assessing Officer would not necessarily amount to disclosure contemplated by law. But the duty of the assessee in any case does not extend beyond maki....
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....is set-aside. It follows from these circumstances that the petitioner has disclosed the primary facts i.e., the receipt on behalf of the horse -owners and the debits affected on their instructions disclosing that the financials are prepared from the primary accounts and without claiming any expenditure in the regard. As such, there cannot be any allegation of failure to truly and fully disclose material facts. 25. The second respondent despite the above circumstances, has offered the following as the reason for the initiation of the re-assessment proceedings: As discussed above, it is confirmed that assessee had not declared gross revenue in profit & Loss account but only 12.5% of gross collection as its revenue. The payments made to trainers jockeys ..etc were directly setoff with owners accounts without passing through Profit & loss account. Assesses had failed to comply with the TDS provision. It is confirmed that assessee has not disclosed full & truly all material facts in the return, of income. Hence, I have reason to believe that there is escapement of income approximately of Rs. 14.85 Cr within the meaning of section 147. The second respondent, while deciding....