TMI Blog2011 (5) TMI 608X X X X Extracts X X X X X X X X Extracts X X X X ..... 010 - - - Dated:- 31-5-2011 - DIPAK MISRA, SANJIV KHANNA, JJ. Salil Aggarwal and Prakash Kumar for the Petitioner. Deepak Chopra for the Respondent. JUDGMENT Sanjiv Khanna, J. The petitioner is engaged in the business of manufacture and sale of industrial generators and allied products. By the present writ petition, the petitioner impugns reassessment proceedings initiated under section 147/148 of the Income-tax Act, 1961 (Act, for short), vide notice dated 31-3-2010 for the assessment year 2003-04 and the order dated 1-11-2010, passed by the Assessing Officer rejecting its objections against the initiation of the reassessment proceedings. 2. The petitioner's case is predicted on two grounds (i) change of opinion; and (ii) that the petitioner had made full and true disclosure of material facts. Therefore, the reassessment proceedings that have been initiated after four years suffer from lack of 'inherent' jurisdiction. 3. The reasons recorded by the Assessing Officer for reopening, as communicated to the petitioner vide letter dated 2-8-2010, read as under : "Reasons for reopening the case under section 148. Return of income was filed on 2-12-2003 de ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... med under the said section was in respect of two units and the amount claimed. It records : "During the year the assessee has claimed deduction under section 80-IB for profit earned in respect of the two units at Silvassa to the tune of Rs. 13,19,53,499. It is seen that the profit computed from manufacturing/trading was shown at Rs. 13,53,83,449." 6. The Assessing Officer considered whether the interest earned on FDRs was income derived from qualifying business as referred to in section 80-IB. It was held that this interest income cannot be considered as profit derived from eligible business. Thereafter, the Assessing Officer re-computed the deduction under section 80-IB and the same was reduced to Rs. 12,57,29,939.58. 7. The aforesaid addition was made subject matter of the appeal before the Commissioner of Income-tax (Appeals), with substantial success and disallowance of Rs. 62,23,560 and other miscellaneous disallowances under section 80-IB were deleted. Revenue preferred an appeal before Income-tax Appellate Tribunal which was allowed and the disallowance stands restored. 8. It is well settled that an Assessing Officer cannot reopen or re-examine under section 147, as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... levant 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." [Emphasis supplied] 12. In the present case there is an original assessment order under section 143(3) dated 20-3-2006. The question is whether there was a failure on the part of the petitioner to disclose, fully and truly, all material facts necessary for reassessment for that year at the time of the first/original assessment. There is no such allegation or statement in the reasons recorded. This contention was specifically raised by the petitioner in their objections to the reassessment proceedings. The objection has been rejected in the order dated 1-11-2010 recording as under : "Objection No . 1. The assessee has objected that since there is no failure on the part of the assessee to disclose full and true all necessary material facts for assessment under section 147 of the Act, proceedings a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 939 was not verifiable and hence, not allowable to the assessee. The escapement of income has been on account of failure on the part of the assessee to truly disclose all the material facts necessary for assessment. In view of the above, I have reason to believe that an amount of Rs. 12,57,29,939 has escaped assessment within the meaning of section 147 of the Income-tax Act, 1961. From above, it is clear that the objection of the assessee on this ground is not valid." (Emphasis supplied) 13. The aforesaid reasoning of the Assessing Officer refers to the failure of the assessee to submit separate profit and loss accounts of two units and it is stated that the assessee had worked out eligible profits on the basis of ratio of sale and profit of the whole business. It records that the assessee had not maintained or furnished separate books of account in respect of each unit. Therefore, correctness of the claim and deduction allowed was not verifiable. 14. It is not possible to accept the contention that the aforesaid reasoning discloses or shows that the petitioner had failed to disclose fully and truly all material facts. It is incorrectly recorded and stated that it was "now" ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... profit as shown in the profit and loss appropriation account from which inadmissible expenses were subtracted. Expenses disallowed under sections 43B, 36(1)(va) etc., are also subtracted. Thereafter, the income credited to the profit and loss account but not considered as a part of business income, was computed and not included for consideration for the purpose of deduction under section 80-IB. The Assessing Officer then has computed income of the two units for deduction under section 80-IB, recording as under : "Sales of Silvassa Unit-I 26,287,287.00 Sales of Silvassa Unit-II 1,919,621,444.00 Add: Installation charge received 596,867.00 Sales of DG Set transferred from Silvassa Unit-II but included in sales of Delhi unit 4,950.674.00 1,925,168,985.00 Sales of Delhi Unit 11,785,378.05 DG Set sales (Inc. installation erection) 97,283,825.00 109,069,203.05 Less: Sales of D.G. Set transferred from Silvassa Unit-II 4,950,674,00 104,118,529.05 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d other material from which the Assessing Officer could with due diligence, have discovered escaped income, does not bar reassessment proceedings. This does not amount to disclosure. The aforesaid explanation does not help the Revenue in the present case. As noticed above, the material facts were fully and truly disclosed. Further inference, or new discovery of facts by exercise of due diligence, is not the error or ground made out by the Revenue. The alleged error or mistake pointed out by the Revenue is the failure to apply the law, i.e., provision of sub-section (13) to section 80-IB, to the known and accepted facts. The Assessing Officer, as per the Revenue, did not examine and consider whether there was compliance or violation of section 80-IB(13) and Rule 18BBB of the Rules, inspite of known and accepted facts recorded in the first/original assessment order. The petitioner was not required to "disclose" the law. The proviso and explanation draws out a distinction between law and disclosure of facts and this is not obliterated. As noticed above, Revenue has pleaded and stated that the Assessing Officer had overlooked and disregarded the said provisions and therefore it is not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ome-tax Officer has reason to believe that underassessment has resulted from non-disclosure of material facts, cannot therefore be accepted." 21. Following this judgment in ITO v. Lakhmani Mewal Das [1976] 103 ITR 437 (SC), it was observed as follows : "7. ..Another requirement is that before notice is issued after the expiry of four years from the end of the relevant 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t in dispute. By virtue of a proviso to section 147, no action can be taken for reopening after four years unless the Assessing Officer has reason to believe that income has escaped assessment by reason of the failure on the part of the assessee to disclose fully and truly all material facts necessary for assessment. In the present case, the affidavit and the reasons disclosed 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 dated 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. 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 i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... x has escaped assessment for such assessment year by reason of the failure on the part of the assessee : (i) 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) to disclose fully and truly all material facts necessary for his assessment for that assessment year. Condition (a) is admittedly satisfied inasmuch as the original assessment was completed under section 143(3) of the said Act. Condition (b) deals with a special kind of escapement of income chargeable to tax. The escapement must arise out 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. 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 pe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ll not necessarily amount to disclosure within the meaning of the said proviso. This explanation, however, does not mean that production of account books and other evidence from which material evidence could with due diligence have been discovered by the Assessing Officer will not in any event amount to disclosure within the meaning of the said proviso. The said explanation only stipulates that such evidence will not necessarily "amount to disclosure" within the meaning of the said proviso. However, we need not labour on this aspect any further inasmuch as we find that in this case, the Assessing Officer had made specific queries, inter alia, with regard to the share application money of Rs. 5 lakhs received from Hallmark Healthcare Limited. The petitioner had supplied, in the course of the original assessment proceedings all the relevant documents such as the share application money form, confirmation from the applicant and the bank statement relating to the receipt of the Cheque No. 201845 dated 17-10-1997 from Hallmark Healthcare Limited. It is only thereafter that the assessment was completed by the Assessing Officer on 7-3-2001. We have already noted above that in the assessme ..... X X X X Extracts X X X X X X X X Extracts X X X X
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