TMI Blog2012 (12) TMI 456X X X X Extracts X X X X X X X X Extracts X X X X ..... ssment proceedings. That is precisely the “tangible material” which have to exist on the record for the “reasons” (to believe” bearing a “live link with the formation of the belief” The notice, under proviso to Section 147, and consequent reassessment proceedings, are beyond jurisdiction. - Decided in favor of assessee. - WP(C) 7677/2011 - - - Dated:- 6-12-2012 - MR. S. RAVINDRA BHAT AND MR. R.V. EASWAR JJ. Petitioner: Mr. Ajay Vohra Ms. Kavita Jha, Advoctes Respondents: Mr. Sanjeev Sabharwal, Sr. Standing counsel with Mr. Puneet Gupta, Jr. Standing Counsel MR. JUSTICE S.RAVINDRA BHAT 1. The petitioner (hereinafter referred to as assessee ) by these writ proceedings claims a direction for quashing the impugned notice dated 23.07.2010 issued by the first respondent under Section 148 of the Income Tax Act proceedings as well as further orders including the order dated 07.09.2011 dismissing its objections. The assessee filed its income tax return for assessment year 2004-2005 declaring a loss of Rs.83,36,69,556/- under the normal provisions of the Act, it declared a book loss under Section 115 JB to the tune of Rs..99,53,40,660/-. The assessee had computed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... crap sales amounting to Rs.11,94,474 and Rs.4,64,24,305 had to be reduced from the eligible income derived from the EOU, the total of those two amounts worked out to Rs..4,76,18,779/- which was disallowed from the deductions under Section 10B. The book profit was assessed at Rs.141,56,63,623/-. 5. After completion of assessment, on 23.07.2010, the assessee was issued with a notice under Section 148 by the first respondent stating that he had reasons to believe that the assessee s income had escaped assessment and consequently, proposed to re-assess the income. The petitioner requested that its revised return of income filed earlier on 30.03.2006 could be treated as return in response to the notice under Section 148 and further requested for a copy of the reasons recorded by the first respondent to reopen the assessment. On 27.06.2011 the first respondent furnished a copy of the reasons recorded under Section 147, for re-opening the assessment. The reasons are as follows: i) While making the assessment order under section 143 (3) the income from other sources and short term capital gains of Rs.8,54,39,339/- was not added in the total income. The mistake resulted in over ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hich had profits. Since third Unit at 66, Udyog Vihar, Greater Noida had suffered losses, no deduction under Sections 10A/10B of the Act was admissible nor claimed in respect of such units. The factum that the assessee had three units which were eligible for deduction u/s 10A/10B of the Act, the fact of deduction being awaited qua profits of two units only, without setting off the losses suffered in the third unit, was duly disclosed in the return of income. It has further been submitted by the AR of the assessee that even assuming for the sake of the argument, though not conceding that the profits of the eligible units have to be set off by the losses suffered in the third eligible unit and deduction under sections 10A/10B of the Act quantified with reference to the aggregate profit of all the units, it was not the duty of the assessee to suggest, the inference to be drawn from the primary facts, viz. that the assessee had three units eligible for deduction under section 10A/10B of the Act, out of which two units had derived profits while the third unit had suffered losses. It is also been submitted that while claiming deduction qua this stand alone profits of the eligible unit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re issuance of Section 148 notice dated 23.07.2010. As far as the second reason goes, the Assessing Officer at the time of the original assessment was fully aware that NIL deduction was claimed in respect of the Udyog Vihar Unit therefore re-opening of assessment on that ground is bad in law. The Petitioner submitted that at the time of the original assessment the Petitioner submitted the return of income wherein Petitioner had claimed deductions u/s 10A/10B in respect of two units whereas NIL deduction was claimed in respect of the third unit. Further, the return of income was accompanied by Form 56F/56G wherein the Petitioner had specifically claimed deduction u/s 10A/10B in respect of profits of two units whereas NIL deduction for the third unit. Further, in a note dated 12.01.2005, (filed along with the return), the Petitioner specifically disclosed at Point 1(c) that, 1. Claim of benefit u/s 10A/10B of the Income-tax Act, 1961 ( the Act ) (c) 66, Udyog Vihar, Greater Noida- The said unit is registered as a 100% Export Oriented Unit (on November 28, 2001) and is accordingly eligible for claiming tax-holiday benefits u/s 10B of the Act. No deduction u/s 10B of the Act ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rgeable to tax has escaped assessment 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. It is argued that in this case there was no failure on the part of the Petitioner to disclose fully and truly all material facts therefore no reassessment of income of Petitioner is permissible after expiry of 4 years from the end of the relevant assessment year. 10. It was contended that in the present case all material facts were disclosed and the Petitioner submitted various documents relating to the deductions available under Section 10A/10B. The Petitioner submitted that: i. The return of income wherein deduction was claimed from two units and NIL deduction was claimed from the third unit (Udyog Vihar unit). ii. Form 56F/56G was also submitted along-with the return of income. In the forms the Petitioner had specifically claimed deduction u/s 10A/10B in respect of profits of two units whereas NIL deduction for the third unit. iii. In a Note dated 12.0 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... inferences - whether of facts or law - he would draw from the primary facts. 12. If from primary facts more inferences than one could be drawn, it would not be possible to say that the assessee should have drawn any particular inference and communicated it to the assessing authority. How could an assessee be charged with failure to communicate an inference, which he might or might not have drawn? 12. Further, Section 147 does not allow reopening of a completed assessment merely on change on opinion. The Assessing Officer does not have the power to review the previous assessment order. The Assessing Officer has to have reason to believe that the income has escaped assessment. In this connection, reliance was placed on the judgment of the Supreme Court in Income tax Officer, Calcutta and Ors. Vs. Lakhmani Mewal Das (AIR 1976 SC 1753) to the following effect: 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... contended on behalf of the Department, then, in the garb of re-opening the assessment, review would take place. 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 1st April, 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 believe", Parliament re-introduced the said expression and deleted the word "opinion" on the ground that it would vest arbitrary powers in the Assessing Officer. We quote herein below the relevant portion of Circular No. 549 dated 31st October, 1989, which reads as follows: 7.2 Amendment made by the Amending Act, 1989, to reintroduce the expressi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... profits of such eligible unit. It was contended that this view was supported by the decisions relied on by the AO, i.e. CIT vs. Himatasingike Seide Ltd. 286 ITR 0255 and of the Chennai Bench of the Tribunal in Sword Global (I) P Ltd Vs. ITO 306 ITR (AT) 286. Therefore, the assessee was not correct in not setting off of losses of one eligible unit against the profits of another eligible unit, which is contrary to the scheme of Section 10B. This clearly constituted failure on the part of the assessee to make full and true disclosure, which necessitated re-opening of assessment, under Sections 147/148. 16. The primary duty of the AO, while invoking his power under Sections 147/148 is to be satisfied, on the basis of something on the record ( reasons to believe ) that the assessee had withheld particulars, which led to income escaping assessment. The AO s reasoning appears to be that the assessee acted incorrectly in not setting off losses of one eligible unit against the profits of another eligible unit. However, the reasons to believe note, which initiated the reassessment proceeding, is silent as to what were the materials which persuaded the revenue to invoke the extraordinary ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mitted. 18. In the above background of facts, when there was intensive examination in the first instance in respect of the issue, which was the basis for re-opening of assessment, it was necessary for the AO to indicate, what other material, or objective facts, constituted reasons to believe that the assessee had failed to disclose a material fact, necessitating reassessment proceedings. That is precisely the tangible material which have to exist on the record for the reasons (to believe bearing a live link with the formation of the belief as spelt out in Kelvinator. When the assessment is completed, as in the present instance, under Section 143 (3), after the AO goes through all the necessary steps of inquiring into the same issue, the reasons for concluding that reassessment is necessary, have to be strong, compelling, and in all cases objective tangible material. This court discerns no such tangible materials which have a live link that can validate a legitimate formation of opinion, in this case. It is not enough that the AO in the previous instance followed a view which no longer finds favour, or if the latter view is suitable to the revenue; those would squarely be c ..... X X X X Extracts X X X X X X X X Extracts X X X X
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