2021 (9) TMI 249 - HC - Income Tax

Reopening of assessment u/s 147 - reopening proceedings beyond the period of four years - eligibility of reasons to believe - difference arising on reporting of long term foreign currency monetary items effect of Exchange loss on ECB loans - whether the assessee disclosed the material facts fully and truly necessary for the assessment? - HELD THAT - The petitioner / assessee is a company, adopting mercantile method of accounting. Thus, the findings in these aspects are of paramount importance for the purpose of making the assessment in a clear manner - assessment order did not speak anything regarding the actual payments and other details elaborately, then it paves way for reopening of assessment. In the present case, the first reason would show that there is a shortfall in assessment of income under Section 115JB by 390.96 lakhs. Thus, the Assessing Officer has 'reason to believe' that there was an under-assessment. When such an under assessment is identified and falling under the deemed cases, where income chargeable to tax has escaped assessment, then the conditions stipulated in the proviso clause that disclosure of material facts fully and truly became absent. Assessing Officer has 'reason to believe' for reopening of assessment. It is sufficient if any one of the conditions stipulated in Proviso clause to Section 147 is satisfied for reopening of assessment. Second reason furnished for reopening, wherein the respondent considered as per schedule 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 ₹ 59,72,380/- to be taxed U/s.115JB. The tax effect thereon is ₹ 8.96 lakhs. Third 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., ₹ 945.27 lakhs (₹ 4699.80-₹ 918.73 ₹ 3781.1 25 % ₹ 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 ₹ 321.39 lakhs. 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 stipulated are to be complied with. If these aspects are satisfied, such an objective satisfaction would be sufficient for the purpose of allowing the assessing authority to proceed with the reassessment proceedings and conclude the same by providing opportunity to the assessee. The sufficiency of the reasons need not be gone into by the High Court in a writ proceedings. Thus, if there is a prima facie case for the purpose of reopening of assessment, and the objective satisfaction is sufficient for the purpose of reopening of assessment. This Court could able to arrive a conclusion that the case of the petitioner is falling under Sub-Clause (c) to Explanation 2 of Section 147 of the Act as it is a deemed case, where income chargeable to tax has escaped assessment and if such deemed cases are traced out, then necessarily the Assessing authority has to draw an inference on certain factual aspects for forming such an opinion and such 'reason to believe' would be certainly falling under the condition that the assessee has not disclosed fully and truly material facts necessary for assessment. Thus, the Assessing Officer had 'reason to believe' that income chargeable to tax has escaped assessment. However, whether it is escaped assessment or not is the subjective adjudication, which is to be done by following the procedures as contemplated under the Act. WP dismissed.

Issues Involved:
1. Legality of reopening the assessment under Section 147/148 of the Income Tax Act, 1961.
2. Compliance with the conditions stipulated in the Proviso Clause to Section 147.
3. Application of the principles laid down by the Supreme Court in GKN Driveshafts (India) Ltd. v. ITO and other relevant cases.
4. Examination of whether the reopening was based on a change of opinion or new tangible material.
5. Analysis of the sufficiency and validity of reasons provided for reopening the assessment.
6. Assessment of the petitioner's compliance with disclosure requirements under Section 147.

Detailed Analysis:

1. Legality of Reopening the Assessment under Section 147/148:
The petitioner challenged the reopening of the assessment for the Assessment Year 2009-10 under Section 147/148 of the Income Tax Act, 1961. The petitioner argued that the reassessment was initiated beyond the period of four years, which is directly in violation of the proviso clause to Section 147 of the Act. The court examined whether the conditions for reopening were met and whether the reasons provided constituted a valid basis for reopening the assessment.

2. Compliance with the Conditions Stipulated in the Proviso Clause to Section 147:
The court analyzed the conditions under the Proviso Clause to Section 147, which requires that reopening beyond four years but within six years must be due to the assessee's failure to make a return, respond to a notice, or disclose fully and truly all material facts necessary for the assessment. The court found that the conditions were met, as the petitioner failed to disclose fully and truly all material facts necessary for the assessment.

3. Application of the Principles Laid Down by the Supreme Court:
The court referred to the principles laid down by the Supreme Court in the case of GKN Driveshafts (India) Ltd. v. ITO, which emphasized that the reopening of assessment must be based on tangible material and not merely on a change of opinion. The court also cited other relevant cases, including Income Tax Officer, I Ward, District VI, Calcutta v. Lakhmani Mewal Das and M/s. Kelvinator & Co., Ltd., which discussed the conditions for reopening and the necessity for tangible material to justify the reassessment.

4. Examination of Whether the Reopening Was Based on Change of Opinion or New Tangible Material:
The court found that the reopening was not based on a change of opinion but on new tangible material. The reasons for reopening were derived from the petitioner's 12th Annual Report, which indicated changes in accounting policies and discrepancies in the depreciation claimed. The court concluded that the reopening was based on new findings of fact, which were different from the issues dealt with in the original assessment.

5. Analysis of the Sufficiency and Validity of Reasons Provided for Reopening the Assessment:
The court examined the reasons provided for reopening the assessment, which included discrepancies in the depreciation claimed and the failure to add back certain expenses to the book profits. The court found that the reasons had a live link with the materials and were sufficient to form a belief that income chargeable to tax had escaped assessment. The court emphasized that the sufficiency of the reasons need not be scrutinized in detail at the stage of reopening, as the reassessment proceedings would provide the petitioner an opportunity to defend their case.

6. Assessment of the Petitioner's Compliance with Disclosure Requirements under Section 147:
The court assessed whether the petitioner had disclosed fully and truly all material facts necessary for the assessment. The court found that the petitioner had not met this requirement, as the original assessment order was cryptic and did not consider many details. The court concluded that the petitioner's failure to disclose fully and truly all material facts justified the reopening of the assessment.

Conclusion:
The court dismissed the writ petition, holding that the reopening of the assessment was justified based on new tangible material and the petitioner's failure to disclose fully and truly all material facts necessary for the assessment. The court directed the petitioner to cooperate with the reassessment proceedings and provided an opportunity to defend their case. The court emphasized that the sufficiency of the reasons for reopening need not be scrutinized in detail at this stage, as the reassessment proceedings would provide a platform for a comprehensive examination of the issues.

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