9911796707
TMI Blog2011 (1) TMI 942X X X X Extracts X X X X X X X X Extracts X X X X ..... made true and full disclosure of primary facts. And lastly, the assessing officer without application of mind and without verification has issued the reassessment notice on the basis of the audit report. 3. Petitioner No. 1 is a company and it is stated in the writ petition that it is in the business of trading of long term investments and real estate etc. For the assessment year 2001-02, a return declaring loss of Rs.59,43,670/- was filed on 31st October, 2001. On the income side, the petitioner No. 1 had declared income of Rs.52,29,039/- as interest on inter-corporate loans; and under the head of Expenditure' interest on loans from Body Corporate of Rs.34,09,398/-, interest paid to banks of Rs.80,90,541/- and interest to other third parties of Rs.2,83,359/- was claimed as a deduction. 4. The petitioner No. 1's return was selected for scrutiny and notice under Section 143(2) of the Act was served on it on 25th October, 2002. By a questionnaire dated 15th January, 2003, the Assessing Officer asked for detailed information with regard to interest paid and interest received by the petitioner No. 1. Points 14 and 15 raised in the said questionnaire read as under:- (14) From ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ome tax department being excess amount of tax or TDS or under the other various provisions of Tax Laws. From the amounts received and declared as business income of the assessee as aforesaid, it is further evident that all the aforesaid amounts represent return on investments made by the assessee. In these circumstances, the income received or receivable by the assessee is a business receipt and therefore, be assessed as income from business. It is further submitted that you have also observed and admitted in the query itself that these receipts are business receipts and in addition to this there is no business activity carried on by the company. It is, however to bring to your notice, that in addition to the investment business the assessee is also engaged in the real estate activity which is also the main business activity of the assessee and has made various investments in earlier as well as in the year under consideration for acquisition of properties as detailed in ANNEXURE B to this reply. There was a scheme for permitting broadcasting business by the Govt. to private entrepreneurs, specially incorporated for this purpose. In the broadcasting business huge investment is requ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2. With respect to your query on the rate of interest being charged on loans given @ 11.5% and 16% whereas, the interest is being paid @ 18% & 21% on loans raised, it is submitted that the assessee company had raised loans from Splender Finance Ltd. in earlier years @ 21% for payment of advances for acquisition of properties for real estate business. This loan was squared up during the year out of further loan raised from Bank @ 13% p.a.(average). Similarly, in the earlier years loan was raised from Supreme Holdings Ltd. @ 18% for business purposes. Part of this loan was also repaid by the company out of interest generation of income and efforts are being made to repay the balance immediately so that burden of interest on the company be reduced. The assessee company out of funds received from its shareholders or other inter-corporate bodies/directors etc., without any interest, paid the same against interest @ 16% p.a. to Energy Infrastructures India Limited. Such loans were also reduced during the year substantially. Another loan given during the year was to Asian Hotels Ltd. @ 11.50% p.a. This loan was in fact given on 28.3.2001 and as such no interest was accrued/recei ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ade to the questionnaire and the responses given by the petitioner No. 1 during the original assessment proceedings. 11. By order dated 15th July, 2008, the Assessing Officer rejected the objections raised by the petitioner No.1 and has recorded the following reasons for doing so:- ―1. Section 149/151(1) states that if there is a reason to believe that income of the assessee has escaped assessment, notice u/s 148 can be issued with the prior approval of CIT if four years but not more than six years have elapsed from the end of the relevant assessment year unless the income chargeable to tax which has escaped assessment amounts to or is likely to amount to one lakh rupees or more for that year. 2. In the instant case notice u/s 148 was issued on 28.03.2008 and sent through registered post on 28.03.2008. Another copy of the notice was served by hand on 31.3.2008 at 6.30 P.M. upon one Shri Raj Kumar of the assessee company. The service of the notice was therefore valid as it was served before the expiry of six years from the end of the relevant assessment year. 3. There was a reason to believe on the basis of information received from the audit scrutiny that your incom ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arose for decision in earlier proceedings. If that were not the legal position it would result in placing an unrestricted power of review in the hands of the assessing authorities depending on their changing moods.Reverting back to the case at hand, it is clear from the reasons placed by the Assessing Officer on record as also from the statement made in the counter affidavit that all that the Income-tax Officer has said is that he was not right in allowing deduction under section 80-I because he had allowed the deductions wrongly and, therefore, he was of the opinion that the income had escaped assessment. Though he has used the phrase ‗reason to believe' in his order, admittedly, between the date of the orders of assessments ought to be re-opened and the date of forming of opinion by the Income-tax Officer nothing new has happened. There is no change of law. No new material has come on record. No information has been received. It is merely a fresh application of mind by the same Assessing Officer to the same set of facts. While passing the original orders of assessment the order dated February 28, 1994, passed by the Commissioner of Income-tax (Appeals) was before the Assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nnot be per se reason to reopen. 6. We must also 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 re-assess. But re-assessment has to be based on fulfillment of certain pre-condition and if the concept of "change of opinion" is removed, as contended on behalf of the Department, then, in the garb of re-opening the assessment, review would take place. 7. One must treat the concept of "change of opinion" as an in-built test to check abuse of power by the Assessing Officer. Hence, after 1-4-1989, Assessing Officer has power to re-open, provided there is "tangible material" to come to the conclusion that there is escapement of income from assessment. Reasons must have a live link with the formation of the belief. Our view gets support from the changes made to Section 147 of the Act, as quoted hereinabove. Under the Direct Tax Laws (Amendment) Act, 1987, Parliament not only deleted the words "reason to believe" but also inserted the word "opinion" in Section 147 of the Act. However, on receipt of representations from the Companies against omission of the words "reason to belie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessment year, no action shall be taken under this section after the expiry of four years from the end of the relevant assessment year, unless any income chargeable to tax has escaped assessment for such assessment year by reason of 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 to disclose fully and truly all material facts necessary for his assessment, for that assessment year: Provided further that the Assessing Officer may assess or reassess such income, other than the income involving matters which are the subject matters of any appeal, reference or revision, which is chargeable to tax and has escaped assessment. 16. The aforesaid first proviso has to be read with explanation 1 to Section 147, which reads as under:- "Explanation 1.-Production before the Assessing Officer of account books or other evidence from which material evidence could with due diligence have been discovered by the Assessing Officer will not necessarily amount to disclosure within the meaning of the foregoing proviso. 17. Reading of the explanation 1 of the proviso makes it clear t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ant assessment years, the Commissioner should be satisfied on the reasons recorded by the Income-tax Officer that it is a fit case for the issue of such notice. We may add that the duty which is cast upon the assessee is to make a true and full disclosure of the primary facts at the time of the original assessment. Production before the Income-tax Officer of the account book or other evidence from which material evidence could with due diligence have been discovered by the Income-tax Officer will not necessarily amount to disclosure contemplated by law. The duty of the assessee in any case does not extend beyond making a true and full disclosure of primary facts. Once he has done that his duty ends. It is for the Income-tax Officer to draw the correct inference from the primary facts. It is no responsibility of the assessee to advise the Income-tax . Officer with regard to the inference which he should draw from the primary facts. If an Income-tax Officer draws an inference which appears subsequently to be erroneous, mere change of opinion with regard to that inference would not justify initiation of action for reopening assessment. 8. The grounds or reasons which lead to t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... closed indicate that the Department has purported to reopen the assessment only on the basis of change of opinion. This position is, in fact, conceded vide para 3 of the affidavit-in-reply dt. 13th march, 2001. The reasons also do not spell out failure on the part of the assessee to disclose fully and truly all material facts.... We are satisfied on the facts of the present case that reopening is sought on the basis of change of opinion. Further, even in the reasons, there is nothing to indicate that reopening is sought on the ground of the failure on the part of the Petitioner to disclose fully and truly all material facts. 20. In Haryana Acrylic Manufacturing Company Vs. The Commissioner of Income-tax IV and Anr. (2009) 308 ITR 38 it has been observed :- ―Viewed in this light, the proviso to Section 147 of the said Act, carves out an exception from the main provisions of Section 147. If a case were to fall within the proviso, whether or not it was covered under the main provisions of Section 147 of the said Act would not be material. Once the exception carved out by the proviso came into play, the case would fall outside the ambit of Section 147. Examining the proviso [s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to disclose material facts, fully and truly. This is a necessary condition for overcoming the bar set up by the proviso to Section 147. If this condition is not satisfied, the bar would operate and no action under Section 147 could be taken. 21. The Supreme court in Assistant Commissioner of Income-tax v. Rajesh Jhaveri Stock Brokers P. Ltd. (2007) 291 ITR 500 has expounded and explained :- ―The scope and effect of section 147 as substituted with effect from April 1, 1989, as also sections 148 to 152 are substantially different from the provisions as they stood prior to such substitution. Under the old provisions of section 147, separate clauses (a) and (b) laid down the circumstances under which income escaping assessment for the past assessment years could be assessed or reassessed. To confer jurisdiction under section 147(a) two conditions were required to be satisfied : firstly the Assessing Officer must have reason to believe that income, profits or gains chargeable to income tax have escaped assessment, and secondly he must also have reason to believe that such escapement has occurred by reason of either omission or failure on the part of the assessee to disclose ful ..... X X X X Extracts X X X X X X X X Extracts X X X X
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