TMI Blog2011 (1) TMI 942X X X X Extracts X X X X X X X X Extracts X X X X ..... is no whisper, what to speak of any allegation, that the petitioner had failed to disclose fully and truly all material facts necessary for assessment and that because of this failure there has been an escapement of income chargeable to tax. Merely having a reason to believe that income had escaped assessment, is not sufficient to reopen assessments beyond the four year period. In favour of assessee. - Writ Petition (Civil) No. 5988/2008 - - - Dated:- 25-1-2011 - MR. JUSTICE SANJIV KHANNA, J. For Appellant: Mr. Prakash Kumar, Advocate. For Respondent: Ms. Prem Lata Bansal, Advocate. O R D E R The petitioner No. 1 Rose Serviced Apartments India Pvt. Ltd. has filed the present writ petition for quashing of the notice under Section 148 of the Income Tax Act, 1961 (Act for short) and the re-assessment proceedings. The petitioner No. 1 has also impugned the order dated 15th July, 2008 passed by the Assessing Officer dismissing the objections of the petitioner No. 1 to initiation of the reassessment proceedings. 2. The contention raised by the petitioner No. 1 is that the reassessment proceedings have been initiated on mere change of opinion as the issue; in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the parties to whom the loans were given, with date, rate of interest and amount of interest. The petitioner No. 1 in their reply dated 11th March, 2003 had stated :- You will kindly appreciate that the assessee company has received during the year a sum of Rs.52.29 lacs as interest on loans given to other parties as detailed in ANNEXURE-A to this reply. From the perusal of the aforementioned details it will be seen that the assessee had advanced a sum of Rs.3,47,83,959/- as on 31.3.2000 and a further sum of Rs.1,90,62,332/- was advanced during the year with inter-corporate entities against interest. Out of the aforesaid amounts Rs.1,00,81,763/- was received back and a balance sum of Rs.4,89,93,567/- was still invested by the company in inter-corporate loans. This activity shows that the assessee is regularly and consistently deploying its funds with inter-corporate entities for consideration of interest and the amount of interest received/receivable in this regard has been duly declared as business income of the assessee company during the under consideration. Similarly a sum of Rs.1,00,00,000/- was invested by the company in fixed deposits with Banks and during the year ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t ultimately huge surplus as income will be earned by the company. From the aforesaid it is evident that out of loans of Rs.14,27,16,407/- whether secured or unsecured raised by the company, have been totally invested by the company as detailed above for the furtherance of its business activities. In view of the aforesaid facts circumstances and the business activities of real estate as well as investments being carried on by the assessee, it is evident that the expenses claimed by the assessee have been incurred wholly exclusively for the purpose of business and therefore, are allowable business expenses.‖ 6. Along with the said letter, the petitioner No. 1 had enclosed details of parties from whom interest was received as well as full details of the investments with the amounts, the reasons for the purpose of investment and full details of loans and advances to corporate bodies with justification. The same were enclosed as Annexures A to D. 7. By another reply dated 26th March, 2003, the petitioner No. 1 justified their claim why interest paid to the banks should be treated as revenue expenditure and not capital expenditure. The petitioner No. 1 also answered th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reasons recorded for initiating proceedings under Section 147 of the Act. On 9th May, 2008, the petitioner No. 1 was provided with reasons for reopening of assessment. The reasons read:- Reasons for the belief that income has escaped assessment. On perusal of the assessment record, it reveals that the following income has escaped taxation within the meaning of Section 147 of the Act. These are : (i) Return declaring a loss of Rs.59,43,670/- filed on 31.10.2001 was assessed under the provisions of section 143(3) of the I.T. Act, 1961 at returned loss on 28.3.2003. (ii) Audit scrutiny pointed out that interest on loans advanced by assessee to companies was not charged though interest paid on loans taken was allowed which resulted in under assessment of the income to the tune of Rs.55.40 lacs. 10. Petitioner No. 1 filed detailed objections questioning and stating that the reassessment proceedings were not justified and amount to mere change of opinion. It was further stated that there was no failure on the part of the petitioner No. 1 to disclose fully and truly all material facts, which is a precondition for initiating of reassessment proceedings after a period of 4 year ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... taken was allowed as a deduction. It is clear from the correspondence exchanged, questionnaire raised and the answers given by the petitioner No.1 that the question of interest received as well as the charge was specifically examined by the Assessing Officer before passing of the first/original assessment order. This question did not escape the notice of the Assessing Officer. He raised the issue and applied his mind as is clear from the questionnaire and the answers given. He accepted the assessee s contention. (See paragraphs 4 to 7 quoted above, wherein the questionnaire, replies by the petitioner have been quoted and considered). We are not concerned and need not examine at this stage whether the original decision of the Assessing Officer was correct or incorrect. Incorrect decision by an Assessing Officer does not confer jurisdiction to reopen assessment even after the amendment of Section 147/148 of the Act with effect from 1st April, 1989. The said question is no longer res integra and was answered by Delhi High Court in the case of Jindal Photo Films Ltd. Vs. Commissioner Income Tax (1998) 234 ITR 170 , in which it has been held as follows:- ―The power to reopen an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sence of material and hence the absence of jurisdiction in the Assessing Officer to initiate the proceedings under section 147/148 of the Act. 14. The said reasoning was affirmed and adopted by a Full Bench of Delhi High Court in Commissioner of Income Tax Vs. Kelvinator of India Ltd. (supra). This decision of the Delhi High Court was approved by the Supreme Court in Commissioner of Income Tax Vs. Kelvinator of India Limited (2010) 2 SCC 723, elucidating the law and observing as follows:- 5. On going through the changes, quoted above, made to Section 147 of the Act, we find that, prior to Direct Tax Laws (Amendment) Act, 1987, re-opening could be done under above two conditions and fulfillment of the said conditions alone conferred jurisdiction on the Assessing Officer to make a back assessment, but in Section 147 of the Act [with effect from 1-4-1989], they are given a go-by and only one condition has remained, viz., that where the Assessing Officer has reason to believe that income has escaped assessment, confers jurisdiction to re-open the assessment. Therefore, post-1-4-1989, power to re-open is much wider. However, one needs to give a schematic interpretation to the word ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... `for reasons to be recorded by him in writing, is of the opinion'. Other provisions of the new Section 147, however, remain the same. 15. In the present case there is also no allegation that there was fault or failure on the part of the assessee to disclose true and full facts. The questionnaire and answers given have been mentioned above. True and full facts were given and furnished to the Assessing Officer. In the present case notice of reassessment was issued after end of four years from the end of the assessment year, therefore, the first proviso to Section 147 applies. The said section and its proviso read as under:- ―If the Assessing Officer has reason to believe that any income chargeable to tax has escaped assessment for any assessment year, he may, subject to the provisions of sections 148 to 153, assess or reassess such income and also any other income chargeable to tax which has escaped assessment and which comes to his notice subsequently in the course of the proceedings under this section, or recompute the loss or the depreciation allowance or any other allowance, as the case may be, for the assessment year concerned (hereafter in this section and in sections ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of facts or law-he would draw from the primary facts. .. The scheme of the law clearly is that where the Income-tax Officer has reason to believe that an underassessment has resulted from non-disclosure he shall have jurisdiction to start proceedings for reassessment within a period of eight years ; and where he has reason to believe that an under- assessment has resulted from other causes he shall have jurisdiction to start proceedings for reassessment within four years. Both the conditions, (i) the Income-tax Officer having reason to believe that there has been underassess- ment and (ii) his having reason to believe that such under assessment has resulted from non-disclosure of material facts, must co-exist before the Income-tax Officer has jurisdiction to start proceedings after the expiry of four years. The argument that the court ought not to investigate the existence of one of these conditions, viz., that the Income-tax Officer has reason to believe that underassessment has resulted from non-disclosure of material facts, cannot therefore be accepted. 18. Following this judgment in Income Tax Officer, Calcutta and Ors. Vs. Lakhmani Mewal Das (1976) 103 ITR 437 (SC) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ce. It is open to the Court to examine whether the reasons for the formation of the belief have a rational connection with or a relevant bearing on the formation of the belief and are not extraneous or irrelevant for the purpose of the section. To this limited extent, the action of the Income-tax Officer in starting proceedings in respect of income escaping assessment is open to challenge in a Court of law (see observations of this Court in the case of Calcutta Discount Co Ltd. v. Income-tax Officer [1961]41ITR191(SC) and Narayanappa v. Commissioner of Income-tax. [1967]63ITR219(SC) while dealing with corresponding provisions of the Indian Income-tax Act. 1922). 19. The decision above holds good even after the amendment with effect from 1st April, 1989 as has been observed by a Division Bench of this Court in IPCA Laboratories Ltd. Vs. Gajanand Meena (2001) 251 ITR 461 wherein it has been observed as under:- ―The position of law after 1st April, 1989, is not in dispute. By virtue of a proviso to Section 147, no action can be taken for reopening after four years unless the AO has reason to believe that income has escaped assessment by reason of the failure on the part of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ction (1) of Section 142 or Section 148. This is clearly not the case here because the petitioner did file the return. Since there was no failure to make the return, the escapement of income cannot be attributed to such failure. This leaves us with the escapement of income chargeable to tax which arises out of the failure on the part of the assessee to disclose fully and truly all material facts necessary for his assessment for that assessment year. If it is also found that the petitioner had disclosed fully and truly all material facts necessary for its assessment, then no action under Section 147 could have been taken after the four year period indicated above. So, the key question is whether or not the petitioner had made a full and true disclosure of all material facts. In the reasons supplied to the petitioner, there is no whisper, what to speak of any allegation, that the petitioner had failed to disclose fully and truly all material facts necessary for assessment and that because of this failure there has been an escapement of income chargeable to tax. Merely having a reason to believe that income had escaped assessment, is not sufficient to reopen assessments beyond the ..... 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