TMI Blog2013 (4) TMI 479X X X X Extracts X X X X X X X X Extracts X X X X ..... VEERABHADRAPPA, AND SHRI AMIT SHUKLA, JJ Appellant by: Mr. Rajan R. Vora Respondent by: Mr. M. Murali O R D E R PER AMIT SHUKLA (J.M.) : This appeal has been filed by the assessee against the order dated 27-3-2006, passed by the CIT(A) Central-VIII, Mumbai for the quantum of assessment passed under Section 143(3) read with Section 147 for the assessment year 1996-1997. 2. In the grounds of appeal, the assessee has challenged the preliminary issue of validity of reopening under Section 147, confirmation of addition made under Section 2(22)(e) and disallowance in deductions under Section 80M. Besides this, additional grounds have also been filed challenging the validity of reopening of assessment under proviso to Section 147, being initiated beyond the period of four years and disallowance under Section 80M. Since the additional grounds raised are purely legal ground and do not require any investigation of facts, the same are therefore, admitted for adjudication. 3. The preliminary issue of validity of reopening of assessment under Section 147 which goes to the very jurisdiction of the 148 proceedings are being taken up first for adjudication. The rele ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the information gathered on record, it is seen that the assessee company has received loans from following three group companies. A. M/s Family Investment Pvt. Ltd B. M/s Bonnaire Exports Pvt. Ltd. C. M/s Virtuous Finance Pvt. Ltd. 2. All these loans are hit by the provisions of section 2(22)(e) and taxable in the hands of the assessee company as deemed dividend. The assessee company has not shown these deemed dividends in the return of income. In these circumstances I have reasons to believe that income of rupees more than 1 lac has escaped assessment. Therefore, this case need to be reopened to be completed u/s. 147 of the I.T.Act. Sd/- DY.COMMISSIONER OF INCOME TAX, CENTRAL CIRCLE 32, MUMBAI 4.1 Before the Assessing Officer, the aforesaid reasons recorded and the validity of reopening of the assessment was objected for the second time. The objections of the assessee has been summarized at page 2 of the impugned assessment order dated 26-3-2004. The Assessing Officer rejected the said objections on the ground that there are sufficient reasons to believe that the income chargeable to tax has escaped assessment, as the assessee has received loans and ad ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and beneficial shareholders, provisions of deemed dividend will not be attracted. In this case the assessee is not a beneficial or registered shareholder in the other group companies. 7. On the other hand, learned CIT DR submitted that simply because the information has been passed from the CIT(A), the reopening cannot be held to be invalid as what has to be looked into is the nature of information and the reasons recorded . In the reasons recorded , there is no mention about the office note of CIT(A). Hence, the office note cannot be read into the reasons recorded . At the time of recording the reasons , what has to be seen is whether, there is any prima facie belief of the Assessing Officer that income chargeable to tax has escaped assessment or not which herein in this case has been dealt with by the learned CIT(A). On merits of the decision, he relied upon the finding given by the CIT(A) as well as by the Assessing Officer. 8. We have carefully considered the rival submissions and perused the material placed on record. As stated in the foregoing paragraphs, the reopening of the assessment was done in the first round vide notice dated 7-3-2000 issued under section 148 o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 47, no action can be taken after the expiry of four years from the end of the relevant assessment year, unless twin conditions are satisfied, firstly, 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 and secondly, there is failure on the part of the assessee to disclose fully and truly all materials facts necessary for the assessment, for that assessment year. 8.2 Adverting to the instant case, the first condition given in the proviso is admittedly not applicable as the 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 4, 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... can be reasonably drawn and what legal inferences have ultimately to be drawn. It is not for 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. (201) (ii) Parashuram Pottery Works Co. Ltd. Vs. Income Tax Officer, Circle-I, Ward A, Rajkot (SC)reported in (1977) 106 ITR 1. It would appear from what has been discussed above that one of the essential requisites for proceeding under clause (a) of section 147 of the Act of 1961 is that the income chargeable to tax should escape assessment because of the omission or failure on the part of the assessee to disclose fully and truly all material facts necessary for his assessment. The present is not a case where the assessee had omitted or failed to file the return. Question then arises as to what has been omission or failure on the part of the assessee to make a full and true disclosure. There is no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... satisfied, the Assessing Officer does not acquire jurisdiction to initiate any proceeding under section 147 of the Act after the expiry of four years from the end of the assessment year. Thus in cases where the initiation of the proceedings is beyond the period of four years from the end of the assessment year, the Assessing Officer must necessarily record not only his reasonable belief that income has escaped assessment but also the default or failure committed by the assessee. Failure to do so would vitiate the notice and the entire proceedings. The relevant words in the proviso are, ..unless any income chargeable to tax has escaped assessment for such assessment year by reason of the failure on the part of the assessee . Mere escape of income is insufficient to justify the initiation of action after the expiry of four years from the end of the assessment year. Such escapement must be by reason of the failure on the part of the assessee either to file a return referred to in the proviso or to truly and fully disclose the material facts necessary for the assessment. Whenever a notice is issued by the Assessing Officer beyond a period of four years from the end of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 its, in fact, conceded vide para 3 of the affidavit-in-reply dated March 13, 2001. The reasons do not spell out failure on the part of the assessee to disclose fully and truly all-material facts. In the circumstances, the deeming provision in Explanation 2 to section 147 has no application to the fact of the present case. Section 148 only prescribes the time limit for giving notice. We are required in this case to look into the facts in order to ascertain whether the pre-condition for the issue of a valid notice under section 148 has been fulfilled or not. We are satisfied on the facts of the present case that reopening is sought on the basis of change of opinion. Further, oven in the reasons, there is nothing to indicate that reopening is sought on the ground of the failure on the part of the petition to disclose fully and truly all-material facts. (419) (v) Oil and Natural Gas Corporation Ltd. vs. Dy. CIT Ors. (Uttaranchal) reported in (2003) 262 ITR page 648. The proviso to section 147 of the In ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re the Income-tax Officer of the account books 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 not 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 assessments . The principles laid down squarely apply to the facts of the instant case and on the pretext that there was no conscious consideration of the pointed facts at the time of the assessment, reopening of the assessment is not legally permissible by virtue of the proviso to section 147 of the Act. In McDermott Internation Inc. v. Addl. CIT (2003) 259 ITR 138 (Uttaranchal) to whi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dly there was no failure on the part of the assessee to disclose fully and truly all material facts for assessment; (vii) Caprihans India Ltd. vs. Tarun Seem, Dy. CIT Others, (Bombay) reported in (2004) 266 ITR page 566 ...That on receipt of reasons, the noticee has to file objections to the issuance of notice and thereupon the Assessing Officer has to dispose of the same by passing a speaking order. It is true that the assessee should have filed its return pursuant to the notice under section 148 and, on that basis, the assessee should have sought reasons for issuing such notice as laid down by the Supreme Court in the above judgment reported in GKN Driveshafts (India) Ltd. vs. ITO (2003) 259 ITR 19. That was not done. We would have rejected the petition on this ground. However, in the peculiar facts and circumstances of this case, we are not inclined to dismiss the petition in limine because the reasons now disclosed by the Assessing Officer, on the face of it, show that there is nothing in the reasons to indicate failure on the part of the assessee to disclose fully and truly all material facts necessary for assessment. In the case of IPCA Laboratories Ltd. (2001) 251 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of disallowance did not arise. In the circumstances, we are not inclined to dismiss the petition. (572 573) (viii) Vikas Printery Vs Asstt.Director of Income-Tax (Investigation) and another reported in (2004) 270 ITR 68 (Gujarat H.C) It is an admitted position that for the assessment years 1982-83 to 1985-86, the notices under section 148 of the Act dated January 28, 1991, have been issued beyond the period of four years and hence, unless and until the Revenue is in a position to show that there has been escapement of any income due to failure or omission on the part of the assessee to disclose truly and fully all material facts for the purposes of his assessment, reopening cannot be resorted to. In the present case, as the facts on record show, there is no failure or omission on the part of the petitioner either to make a return as required or any failure or omission in relation to any material fact necessary for the purposes of assessment as required under the proviso to section 147 of the Act. Therefore, the Revenue having failed to discharge the onus under the proviso to section 147 of the Act, no case is made out for the assessment years 1982-83 to 1985-86 bein ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lling within the ambit of the proviso to section 147 and notices issued after January 31, 2001, were clearly barred by time. Thus, the Assessing Officer had no jurisdiction to issue the notices. (158) (xi) German Remedies Ltd. Vs 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 that the Assessing Officer on September 15, 2003, had himself carried the file to the Commissioner of Income-tax and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 obtained the necessary sanction for issuance of the notice as required under section 151 of the Act. Such notice is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y 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) xxx xxx xxx xxx 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. (113) xxx xxx xxx xxx In our opinion, a subsequent decision of a court cannot justify the reopening of an assessment after a p ..... X X X X Extracts X X X X X X X X Extracts X X X X
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