TaxTMI 
TaxTMI 
2025 (11) TMI 1678
X X X X Extracts X X X X
X X X X Extracts X X X X
....Income Tax Appellate Tribunal was right in law in confirming the action of the Assessing Officer of re-opening of the assessment under Section 147 of the Income-tax Act, 1961? 2) Whether in the facts and circumstances of the case, the Income Tax Appellate Tribunal was right in law in not allowing the special deduction under section 42 of the Income-tax Act, 1961 to the assessee for the years under consideration?" 4. Brief facts of the case are that the appellant assessee filed return of income for the Assessment Year 1998-1999 declaring total loss of Rs. 10,92,27,877/- on 30.11.1998. Same was processed under section 143(1) of the Act on 15.03.2000. Thereafter revised return was submitted by the appellant on 16.03.2000 declaring loss of Rs. 4,09,24,063/-. Case of the appellant assessee was selected for scrutiny and notice under section 143(2) of the Act was issued on 27.09.1999 which was served on assessee on 4.10.1999. The assessment order under section 143(3) of the Act was finalised on 29.03.2001 with assessed loss of Rs. 4,08,35,802/-. 5. Thereafter case of the assessee was reopened under section 147 of the Act by issuing notice under section 148 of the Act on 24.....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... should be in relation to various specific nature as mentioned in Sub Clause (a), (b) and (c) of Section 42(1). Out of these allowances, allowances which are specified in the agreement only those allowances are to be allowed under Sub Clause (b) which are in respect of drilling or exploration activities or services. 4. As no such allowance has been specified in the agreement and in absence of any allowance being specified in the agreement, no additional allowance can be allowed to be deducted by virtue of Section 42 over and above the normal allowance allowable under the other section of the Act. This point further gets fortified from the fact that not only these allowances should be specified in the agreement but even the computation of such allowance has to be made in the manner specified in the agreement. It is undisputed fact that nowhere in the agreement, computation of such allowance has been specified, no such allowance u/s 42 can be computed in absence of manner of computation being specified in the agreement. 5. Therefore, the assessee's claim for deduction u/s. 42 of the I.T. Act in respect of expenditure incurred at Bhandut, Hazira, Cambay, Baroda a....
X X X X Extracts X X X X
X X X X Extracts X X X X
....tion of claim under section 42 of the Act. 9. The appellant preferred an appeal before the Tribunal mainly challenging the reopening of the assessment under section 147 of the Act to be treated as invalid. 10. The Tribunal confirmed the order of CIT(Appeals) holding as under: "15. It is clear from the above that claim of deduction under section 42 is allowable if the following three conditions are fulfilled:- (i) There should be an agreement of the assessee with the Central Government. (ii) Only those allowances which are specified in relation to various specific nature as mentioned in sub-clauses (a), (b) & (c) of section 42 are allowable. Such allowances shall be computed and made in the manner specified in the agreement. There is no dispute about the fact that the agreement between assessee and Central Government was neither filed by the assessee along with the return of income nor during the original assessment proceedings. This fact was admitted by Ld. Counsel of the assessee during the course of hearing before us, when specific query was raised by the Bench in this respect. In view of the admitted failure on the part of the a....
X X X X Extracts X X X X
X X X X Extracts X X X X
....2 of the Act. 12. Learned advocate Mr. Soparkar for the appellant invited the attention of the Court to para no. 4.2 of the order of the CIT(Appeals) wherein the submission of the appellant is recorded to the effect that appellant has disclosed fully and truly all material facts necessary for assessment. It was submitted that there is no requirement to furnish the details of agreement entered into by the appellant and therefore, the reopening of the assessment under section 147 of the Act is invalid in view of proviso to section 147 of the Act. It was submitted that reopening is merely based on the change of opinion of the Assessing Officer which is not permissible. 13. Learned advocate Mr. Soparkar for the appellant assessee submitted that deduction under section 42 of the Act was claimed by the appellant assessee for previous year 1998-1999 of Rs. 195,26,261/- in respect of projects at five places. It was submitted that reassessment was made on the basis of the disallowance of deduction under section 42 of the Act for the subsequent years in absence of any failure on part of the petitioner to fully and truly disclose all material facts. In support of his submissions, relian....
X X X X Extracts X X X X
X X X X Extracts X X X X
....Officer. 17. On the other hand learned Senior Standing Counsel Mr. Karan Sanghani appearing for the respondent submitted that as per the provisions of section 42, agreement between the appellant assessee and the Central Government is primary fact for claiming deduction. It was therefore, submitted that the appellant assessee has admittedly not produced such agreement along with return or before the Assessing Officer at the time of original assessment proceedings to process the claim of deduction under section 42 of the Act and its bifurcation. 18. Learned Senior Standing Counsel Mr. Sanghani also referred to relied upon the orders of CIT(Appeals) as well as Tribunal, wherein findings of facts are recorded to the effect that the appellant assessee did not produce any agreement between the assessee and the Central Government. It was also pointed out that as per audit report in Form-3CD expenditure incurred for drilling of KG block was included on the basis of certification given by the Head Office and not upon the agreement with the Central Government. It was therefore, submitted that the Tribunal has rightly held that in absence of agreement, there is no full and true disclosu....
X X X X Extracts X X X X
X X X X Extracts X X X X
....er has categorically held that the case was reopened due to failure on part of the appellant assessee to fully and truly disclose all material facts pertaining to deduction under section 42 of the Act. 24. On perusal of the reasons recorded, it is discernible that the Assessing Officer has categorically recorded that the assessee has not disclosed whether deduction under section 42(1) of the Act was mentioned in the agreement entered into with the Central Government and therefore, has rightly formed the reason to believe that income has escaped assessment for failure on part of the assessee to disclose fully and truly all material facts necessary for the purpose of assessment. CIT(Appeals) and the Tribunal have recorded concurrent finding of facts for failure on part of the assessee to disclose fully and truly all material facts. 25. In view of concurrent finding of facts, the decisions relied upon on behalf of the appellant assessee are not applicable in the facts of the case as the findings of fact recorded by the Tribunal is to be accepted and cannot be ignored unless the same is shown to be perverse. The Tribunal has referred to and relied upon section 42 of the Act which....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... part of the assessee to disclose fully and truly all material facts necessary for assessment and further whether such income escaped assessment and whether such' escapement or underassessment has been caused as a result of the failure or omission on the part of the assessee to disclose fully and truly all material facts. What facts are material facts would depend upon the facts and circumstances of a particular case. This follows from the scheme of the section and is well settled by the authorities of this Court. 6. It is the admitted position that the assessee had not disclosed either by valuation report or by statement before the ITO as to what portion or what proportion consisted of earth work and what portion or proportion consisted of masonry work. For the purpose of calculating depreciation that indubitably was a material fact. If over depreciation has been allowed on that basis, ie., that the entirety of the work consisted of masonry work, income might have escaped assessments or might have been underassessed. The ITO can reasonably be said to have material to form that belief. That position is also well settled by the scheme of the section, and concluded by th....
X X X X Extracts X X X X
X X X X Extracts X X X X
....n of Mr Joshi for the revenue that this was not a case where two views were possible, the Assessing Officer took one view and the Revenue has issued a notice under Section 148 of the Act for taking another view. A perusal of the provisions of Section 49(2) are too crystal clear to admit of any doubt. No Assessing Officer acting honestly and bona fide would have ever assessed the capital loss suffered by the petitioner on the basis of the market price of the shares in the amalgamated Company (Garden Silk) as on 31.3.1988 - the basis for computation of capital loss all along adopted by the petitioner. We are unable to accept the contention urged on behalf of the assessee that whatever may be the reasons which might have weighed with the Assessing Officer in accepting the computation made by the petitioner for computing the capital loss at Rs.1.07 Crores (approx.) as against Rs. 5.6 lacs (approx.) which is the capital loss proposed to be assessed by the respondent in the impugned notice under Section 148 of the Act, this Court must interfere with the impugned notice under Section 148 of the Act only on the ground that in one of the statements sent by the petitioner to the Assessing Of....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ions are clearly applicable to the facts of the instant case and in exercise of its extraordinary prerogative and discretionary writ jurisdiction under Article 226 of the Constitution, this Court would be loath to interfere with the impugned notice under Section 148 of the Act when the assessee had all along adopted the market price of the shares of the amalgamated Company (Garden Silk) for working out the capital loss at Rs.1.07 Crores (approx.), as against the capital loss which could have been worked out at only Rs.5.6 lacs (approx.) on the basis of the cost of acquisition of shares in the amalgamating Company (Vareli Textiles) as on 6.4.1987 (which date was not disclosed earlier) as per the provisions of Section 49(2) of the Act, which computation made by the assessee could never have been accepted by any officer acting bona fide. We are of the view that from the material presently available on record with the respondent, the respondent could form a belief that by not disclosing 6.4.1987 as the date of acquisition of 3,75,150 shares in Vareli Textiles (amalgamating Company) and by showing 1989-90 as the year of acquisition of the said shareholding in question, the peti....
X X X X Extracts X X X X
X X X X Extracts X X X X
....o disclose further facts, which on due diligence, the Income-tax Officer might have discovered, the Legislature has put in the Explanation. His omission to bring to the assessing authority's attention these particular items in the account books, or the particular portions of the documents, which are relevant, will amount to "omission to disclose fully and truly all material facts necessary for his assessment." Nor will he be able to contend successfully that by disclosing certain evidence, he should be deemed to have disclosed other evidence, which might have been discovered by the assessing authority if he had pursued investigation on the basis of what has been disclosed." 19. As already stated hereinabove, there is nothing on record to show that the assessee had indicated that the shares in the amalgamating Company were acquired by the petitioner on 6.4.1987. On the contrary, an attempt was made to show that the petitioner has acquired the shares in question in the year 1989-90 i.e. after the date of amalgamation of the Vareli Textiles (the amalgamating Company) into the Garden Silks (the amalgamated Company). Therefore, there was omission to disclose fully and truly....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e claim of deduction in the audit report and the return of income would not be sufficient, more particularly, when the provision of the Act provides for deduction on the basis of agreement with the Central Government. 30. In view of the foregoing reasons, we are of the opinion that the Tribunal was justified in upholding the orders of the Assessing Officer and CIT(Appeals) wherein the reassessment proceedings were held to be valid. 31. So far as issue of deduction under section 42 of the Act is concerned, the same is not allowable to the assessee in view of decision in case of assessee's own case for subsequent year in Tax Appeal No. 270 of 2009 wherein it is held as under: "18. Having heard the learned advocates for the respective parties and considering the facts of the case, so far as question no.1 is concerned, i.e. whether the assessee is entitled for special deduction under section 42 of the Act for the year under consideration or not, same is no more res integra in view of decision of Hon'ble Apex Court in case of Joshi Technologies International Inc reported in (2015) 57 taxmann.com 290 (SC) wherein Hon'ble Apex Court regarding the issue of deduction under se....
X X X X Extracts X X X X
X X X X Extracts X X X X
....t we intend to convey is that the Assessing Officer is supposed to focus on Section 42 of the Act on the basis of which he is to decide as to whether deductions mentioned in the said provision are admissible to the assessee who is claiming those deductions. In other words, the Assessing Officer is supposed to find out as to whether the assessee fulfills the eligibility conditions in the said provision to be entitled to such deductions. We have already reproduced the language of Section 42, which deals with special provisions of deductions in the case of business for prospecting, etc. for mineral oil. Since, the appellant herein, in its income tax returns for the assessment year in question, i.e., Assessment Year 2005-06, had claimed the deductions mentioned in Section 42(1)(b) and (c) of the Act, we should take note of the nature of these deductions. Section 42(1)(b) provides for deductions of expenditure incurred in respect of drilling or exploration activities or services or in respect of physical assets used in that connection, except for those assets on which allowance for depreciation is admissible under Section 32. Section 42(1) (c) speaks of allowances pertaining to the depl....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... have granted these allowances/deductions to the assessee in the absence of such stipulations, a mandatory requirement, in the PSCs. 41. The appellant is conscious of this position. It is for this reason the attempt of the appellant was to read the provisions of MPSC into the agreement. That bring us to the second issue. 42. Answer to question no. (ii) - Endeavour of Mr. Ganesh, on this aspect, was to show that the bids were invited on the basis of terms stated in the MPSC which specifically mentioned about deductions under Section 42 of the Act. He also endeavored to demonstrate that the appellant had submitted its bid keeping in view such a categorical stipulation in the MPSC. He also pointed out that on MPSC, opinion of Law Ministry was solicited vide Memo dated 22-06-1992 and that the Ministry of Law gave its opinion dated 21-07-1997 opining that benefit of both Sections 293(A) and Section 42 of the Act should be extended to the foreign companies in order to make their participation in these oil fields viable. As per the appellant, it was also made abundantly clear by the Ministry of Law that it was in relation to "foreign companies to be engaged in exploratio....
X X X X Extracts X X X X
X X X X Extracts X X X X
....this Contract shall operate or be construed as a waiver of any other obligations or defaults whether of a like or of a different character. 32.4 The provisions of this Contract shall inure to the benefit of and be binding upon the Parties and their permitted assigns and successors in interest. 32.5 In the event of any conflict between any provisions in the main body of this Contract and any provision in the Appendices, the provision in the main body shall prevail. 32.6 The headings of this Contract are for convenience of reference only and shall not be taken into account in interpreting the terms of this Contract." 44. Intention behind the aforesaid clauses is more than apparent, namely, not to look into any other document or correspondence which took place between the parties prior to the signing of this agreement. Not only this, even the so-called "understanding" between the parties is to be ignored as well. It is, therefore, impermissible for the appellant to take the aid of MPSC or the clauses contained therein while construing the terms of PSCs. Therefore, it was not even open to the Income Tax Authorities to go beyond the stipulations conta....