TMI Blog2012 (11) TMI 469X X X X Extracts X X X X X X X X Extracts X X X X ..... arried the file to the CIT(A) and on the very same day, rather the same moment in the presence of the AO, CIT(A) granted approval. As a matter of fact, while granting approval it was obligatory on his part to verify whether there was any failure on the part of the assessee to disclose full and true relevant facts in the return of income filed for the assessment of income of that assessment year. It was also obligatory on the part of the Commissioner to consider whether or not power to reopen is being invoked within a period of four years from the end of the assessment year to which they relate. None of these aspects have been considered by him which is sufficient to justify the contention raised by the petitioner that the approval granted suffers from non-application of mind. Thus re-assessment proceedings u/s 147 are treated as void ab initio - in favour of assessee. - IT APPEAL NOS. 4294 (MUM.) OF 2005 and 5030 & 5145 (MUM.) OF 2006 - - - Dated:- 21-9-2012 - R.S. SYAL AND AMIT SHUKLA, JJ. P.J. Pardiwala and Madhur Agarwal for the Appellant. Mahesh Kumar for the Respondent. ORDER Amit Shukla, Judicial Member - For the assessment year 1997-98, cross app ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... te entities as far as taxation in India is concerned. In assessment proceedings for A.Y. 1998-99, this issue was examined in detail and it was found that Banks Indian operation is receiving interest on funds placed by it with head office and foreign branches. The funds placed with H.O. and branches is the business fund of Indian P.E. (operations) of foreign bank. The said interest income is squarely covered under section 9(1)(a) of income tax Act as business income of Indian operations. Even in DTA, income from business operations in India is taxable in India, therefore, interest income received from H.O. and foreign branches is definitely liable for taxation in India. Even assessee has claimed interest cost against placing such deposits with H.O. it is also logical that where expenses are claimed, income has to be offered for taxation. Assessee took the plea in A.Y. 1998-99 that both foreign entity and Indian operations are same and, therefore, one cannot charge interest from oneself. This is absolutely wrong and misplaced since what is taxed in India is only the income earned by Indian PE and nothing more than this. For this purpose India PE and foreign H.O. are two separate enti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... alleged to have escaped assessment. In the light of this, he drew our attention to a copy of "computation of income" placed at Pages-1 and 2 of the paper book which was filed along with the return of income and submitted that the assessee has neither claimed the commission or interest as "Income" nor as "Expenditure" which is evident from the fact that the assessee has started the computation as per Profit Loss Account and thereby added back the commission and interest paid to the branches. He further pointed out that the interest received on Nostro account and from correspondent branches, the Assessing Officer has raised a specific query at the time of original assessment proceedings, (a copy of which is placed in the paper book at Page-4), and in response to which the assessee submitted a reply vide letter dated 25th November 1999, and gave detail submission before the Assessing Officer, which has been duly taken into congnizance. The Assessing Officer, after scrutinizing, each and every detail of computation of income has completed the assessment. He further drew our attention to Page-22 of the paper book, which is the computation made by the Assessing Officer in the assessmen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... examined by the Assessing Officer. He strongly relied upon the findings given by the Commissioner (Appeals), as given in Para-2.4 of the appellate order and drew our attention to various reasoning and the findings given by the Commissioner (Appeals) on this score. 7. We have carefully considered the rival contentions of the parties, perused the findings of the authorities below and the material placed on record. On perusal of the computation of income filed along with the return of income, it is seen that the assessee has given all the primary facts relating to commission and interest paid to the branches/correspondents and also other material facts with regard to these items appearing in the "reasons recorded". It is noticed that on the issue of commission of Rs. 3,86,797, received from the branches, the learned Commissioner (Appeals) has held that the Assessing Officer was not justified that this income has escaped assessment, however, with regard to payment of Rs. 18,93,305, by way of commission to various other branches and correspondents along with the sum of Rs. 2,57,312, by way of interest to overseas branches and correspondent, he has held that the Assessing Officer was j ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee has duly filed its return of income under Section 139. So far as the second condition whether there was any failure on the part of the assessee to disclose fully and truly all materials facts or not, one has to see from the "reasons recorded" itself. From the perusal of the "reasons recorded", as have been incorporated in foregoing paragraph, it is amply evident that the Assessing Officer has nowhere recorded his satisfaction that there was failure on the part of the assessee to disclose fully and truly all material facts relevant for the assessment. Such an assignment of failure in the "reasons recorded" is mandatory to acquire the jurisdiction under Section 147. It cannot be inferred from anywhere else or any other document. The "reasons recorded" must disclose that the assessee has failed to disclose fully and truly all material facts necessary for the purpose of assessment. The word 'failure' should not be inferred, it must be categorically spelled out. It is then the courts will examine whether there was any failure on the part of the assessee or not. 9. Insofar as disclosure of commission and interest paid to branches, it is seen that the assessee has disclosed th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rity what inferences, whether of facts or law, should be drawn. Indeed, when it is remembered that people often differ as regards what inferences should be drawn from given facts, it will be meaningless to demand that the assessee must disclose what inferences-whether of facts or law-he would draw from the primary facts." (ii) German Remedies Ltd. v. Deputy Commissioner of Income-tax reported in [2006] 287 ITR Pages 494 (Bombay High Court) - Having said so, it is necessary to consider two more submissions advanced on behalf of the petitioners. Firstly, the impugned notice is barred by limitation since it was issued beyond the period of four years from the end of the relevant assessment year. Failure on the part of the petitioners to disclose full and true material has not been alleged. In this case, power to reopen has been exercised after the expiry of four years from the end of the relevant assessment year to which they relate. In the circumstances, the impugned notice having been issued beyond four years from the last date of the relevant assessment year without alleging any failure to disclose full and true material facts is liable to be set aside. It is not in dispute t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ction 148. In our opinion, the conditions laid down under section 147 of the Act for the purposes of reopening the assessment must be satisfied before the notice can be issued. The conditions laid down in section 147 are the jurisdiction facts necessary for the purpose of exercise of the power under section 147. The jurisdictional facts prescribed under section 147 must exist before a notice under section 148 can be issued. The time limit prescribed under section 149 of the Act for issuance of a notice under section 148 is in addition to and not in derogation with the necessary conditions required to be satisfied under section 147 of the Act. In other words, if the basic jurisdictional facts required for reopening of an assessment under section 147 of the Act do not exist it would not be competent for the Assessing Officer to issue a notice under section 148. Even where the jurisdictional facts prescribed under section 147 exist and all conditions laid down under section 147 and the proviso thereto are satisfied, the notice under section 148 can be issued only after the Assessing Officer has recorded his reasons for doing so under sub-section (2) of section 148 and has further obta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... income by way of incorrect certificate which means failure on the part of the assessee to disclose fully and truly all material facts required for the assessment, income of Rs. 6,10,10,272 had escaped assessment" The said statement is clearly made only as an attempt to take the case out of the restriction imposed by the proviso to section 147 of the Act. (111 to 113) ** ** ** As laid down by the Supreme Court in the case of ITO v. Lakhmani Mewal Das [1976] 103 ITR 437, the phrase "reason to believe" does not mean purely subjective satisfaction on the part of the Assessing Officer and the belief that income has escaped assessment by reason of failure of the assessee to disclose all material facts must be held in good faith and not merely as a pretence. It is open to a court to examine whether the relevant facts on which the opinion has been formed, have a bearing on the formation of the belief and to that limited extent the opinion is open to challenge in the court of law. Paragraph Nos.2 and 3 of the reasons recorded by the Income-tax Officer state the reason for the belief of the Assessing Officer that income had escaped assessment. (1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hereby dismissed and the assessee's appeal is treated as allowed. 12. In the result, assessee's appeal is allowed and the Revenue's appeal is dismissed. We now take up Revenue's appeal ITA no. 4294/Mum./2005, for assessment year 1993-94. 13. In the present appeal also the assessee has challenged the validity of proceedings under section 147, besides raising grounds on merits of the additions. 14. Briefly stated the facts of the case are that the assessee has filed its original return of income under section 139(1) of the Act on 30th December 1993, declaring income of Rs. 13,18,86,610. Later on, the said return of income was revised on 8th February 1995, at an income of Rs. 12,85,47,380. The only reason for revising the return of income was withdrawal of claim of interest by the Reserve Bank of India for a sum of Rs. 35,14,969. In the computation of income filed along with return of income, the assessee has proceeded with the profit shown in the Profit Loss account and disclosed all the necessary details for the computation of income including that of interest and commission paid to branches and head office, which was added back to the profit. The interest earned from the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y Indian PE and nothing more than this. For this purpose India PE and foreign H.O. are two separate entities and payment to each other cannot be said as payments made to self-considering these fact, it is clear that assessee has wrongly reduced the income earned from H.O./Branches on deposits placed by it by not disclosing material facts regarding the taxability of the same and also the cost relating to same claimed by India branches. Compliance of legal requirements for reopening assessment:- 3. In view of the Para-2 above, the assessee was allowed deduction for interest received from H.O. and branches Rs. 26,48,802. As per section 147 of the I.T. Act, for reopening the assessment, Assessing Officer should have reason to believe that any income chargeable to tax has escaped assessment. In view of the factual and legal position mentioned in earlier paras, I have strong reasons to believe that substantial income chargeable to tax has escaped assessment. As per explanation 2 to section 147, if income has been made the subject of excessive relief under this Act, the same will be deemed to be the case where income chargeable to tax has escaped assessment. This is as per explanat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . 17. In the rejoinder, learned Sr. Advocate submitted that even though the Assessing Officer has mentioned the word "that the escapement of income is by way of failure on the part of the assessee to disclosed fully and truly all material facts necessary for the assessment", however, as per facts on record, such an allegation is wholly incorrect. What the Assessing Officer has mentioned in Para-2 is that these interest and commission are deemed income under section 9(1) of the Act, which means that the assessee should have informed the Assessing Officer at the time of assessment as to what legal inference should be drawn by him. Insofar as the assessee is concerned, all the details and facts were disclosed along with the return of income and also at the time of assessment. Lastly, he submitted that the learned Commissioner (Appeals) has not even referred to the proviso of section 147, and as to why such proviso is not applicable. 18. We have carefully considered the rival contentions of the parties, perused the findings of the learned Commissioner (Appeals) and also the material available on record. As pointed out by the learned Sr. Advocate, it is seen from the perusal of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... somebody else-far less the assessee-to tell the assessing authority what inferences, whether of facts or law, should be drawn. Indeed, when it is remembered that people often differ as regards what inferences should be drawn from given facts, it will be meaningless to demand that the assessee must disclose what inferences-whether of facts or law-he would draw from the primary facts." 19. Thus, in view of the above proposition, we hold that in the present case, there is no failure on the part of the assessee to disclose fully and truly all material facts necessary for its assessment. The reasons and the findings given in the appeal for assessment year 1997-98 applies mutatis mutandis in this year also. Therefore, in view of the reasons given therein, the re-assessment proceedings under section 147, initiated by notice dated 31st May 2001, under section 148, are treated as void ab initio and consequently, the assessment order dated 27th March 2003, passed under section 147, r/w section 143(3) stands quashed. As the assessment itself has been quashed on the point of jurisdiction, therefore, the other grounds on merits have been rendered purely academic and, therefore, the same is no ..... X X X X Extracts X X X X X X X X Extracts X X X X
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