TMI Blog2013 (11) TMI 70X X X X Extracts X X X X X X X X Extracts X X X X ..... d by the petitioner and it has already been held on facts that there was a full and true disclosure on the part of the petitioner. Therefore, the said decision in Dalmia Pvt. Ltd. (supra) would also not come to the aid of the respondents – Decided in favor of Assessee. - W.P.(C) 284/2013 - - - Dated:- 23-5-2013 - MR BADAR DURREZ AHMED AND MR VIBHU BAKHRU, JJ. For the Appellant: Mr. Nageswar Rao, Mr. Sandeep S. Karhail and Ms. Sayaree Basu Mallik For the Respondent : Mr. N.P. Sahni, with Mr. Ruchesh Sinha JUDGMENT Badar Durrez Ahmed J.- 1. The petitioner has challenged the reopening of assessment in respect of the assessment year 2005-06, which was initiated by virtue of a notice under section 148 of the Income-tax Act, 1961 (hereinafter referred to as "the Act"), on March 26, 2012. The point of challenge raised by the petitioner is that the reopening of assessment was sought to be done after a period of four years, therefore, the conditions stipulated in the proviso to section 147 of the Act would have to be complied with. One of the conditions was that a reopening could not be done until and unless there was failure on the part of the assessee to make a full ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is. Section 145 of the Income-tax Act, 1961, provides that income under the head 'Profits and gain of business or profession' is computed in accordance with the method of accounting regularly employed by the assessee. Where the assessee follows the mercantile system of accounting, the annual profits are worked out on due or accrual basis, i.e., after providing for all expenses for which a legal liability has arisen and taking credit for all receipts that have become due regardless of their actual receipt or payment. Only such expenses are allowable as deduction from a previous year's income as are relevant to that year. (i) It is found that the assessee pre-existing liability of Rs. 3,69,83,105 in respect of bonus payable (annexure VIII of the tax audit (3CD) report) against which the assessee had paid Rs. 6,34,63,086 during the year. Thus, the assessee had made payment of Rs. 2,64,79,981 relating to prior period, which was in excess of the pre-existing liability allowable under section 43B. Therefore, the payment of business in excess of pre-existing liability was required to be added back to the taxable income of the assessee. The omission in taking into account the inadmissibl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... business, is allowable as deduction in computation of the income chargeable under the head 'Profits and gains of business or profession'. (i) It is found that the assessee claimed and was allowed 100 per cent. revenue expenditure on the following computer/software related expenditure-(i) deduction of Rs. 3,37,81,547 on 'translation of courseware/software in local language', and (ii) deduction of Rs. 88,49,138 on design content and maintenance of website. Since this expenditure gave an enduring benefit to the assessee, it was required to be capitalized and the assessee was eligible for depreciation at 60 per cent. on these capital expenditure. The omission resulted in underassessment of income by Rs. 1,70,52,274 involving short levy of tax of Rs. 90,47,787 including interest under section 234B. 6. Section 37 of the Income-tax Act, 1961, provides that any expenditure, not being in the nature of capital expenditure, laid out wholly or exclusively for the purpose of business, is allowable as deduction in computation of the income chargeable under the head 'Profits and gains of business or profession'. (i) It is found that the assessee claimed and was allowed deduction of Rs. 88,5 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... een dealt with, by the Assessing Officer, in paragraph 4 of the said order dated November 12, 2012, which reads as under : "4. The objections raised by the assessee-company and the case law cited by it have been considered vis-a-vis Explanation 1 to section 147 which has been reproduced above. In view of the unambiguous meaning of Explanation 1, and the facts and circumstances of the case under which the reasons were recorded, the objections of the assessee are not acceptable and are, therefore, rejected." 5. According to the learned counsel for the petitioner, this manner of dealing with the objections is highly unsatisfactory and is not in accord with the decision of the Supreme Court in the case of GKN Driveshafts (India) Ltd. v. ITO [2003] 259 ITR 19 (SC). In that decision, the Supreme Court gave the following directions: "5. We see no justifiable reason to interfere with the order under challenge. However, we clarify that when a notice under section 148 of the Income-tax Act is issued, the proper course of action for the noticee is to file return and if he so desires, to seek reasons for issuing notices. The Assessing Officer is bound to furnish reasons ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d expenses details. 7. Exhibition expenses exceeding one lakh. 8. Advertisement expenses exceeding one lakh give separate details of expenses in foreign currency. 9. During the year in the fixed asset schedule there are sales of assets which includes sale of vehicle and furniture please give details of persons to whom sales have been made and also inform if these purchasers are related to company. 10. Any impact on claim of depreciation in new of notes to account items. 11. During the year company has made various expenses in foreign currency as per details in notes to account give details and its purpose. 12. Details of assets written off as per item No. 14 of the tax audit report and item No. 17. 13. Considering disclaimer in column 17(f) of the tax audit report, explain how your accounts can be examined for compliance of provisions of section 40(9). 14. During the year vehicles were purchased give details of evidence of put to use of vehicles purchased in the month of March 2005. 15. Explain nature of foreign exchange fluctuation claimed in depreciation chart. 16. Details of contract with M. S. Decorators (P.) Ltd. and its account. 17. Explain purchase of f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... full and true disclosure of material facts which were necessary for its assessment. The learned counsel made detailed submissions with regard to each of point Nos. 1, 3, 4 and 5 of the recorded reasons to which we shall allude to below. He placed reliance on the decision of this court in the case of Dalmia P. Ltd. v. CIT [2012] 348 ITR 469 (Delhi). He also placed reliance on the decision of the Supreme Court in the case of Phool Chand Bajrang Lal v. ITO [1993] 203 ITR 456 (SC) and Raymond Woollen Mills Ltd. v. ITO [1999] 236 ITR 34 (SC). 11. Mr. Sahni placed particular emphasis on the provisions of section 147 of the Act and, in particular, on Explanation 1 thereunder. The said provisions, to the extent relevant, are set out herein below : "147. Income escaping assessment.-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 re-compute th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... penses or capital expenses. It is apparent that in so far as item No. 1 is concerned, it deals with campaign expenditure to the extent of Rs. 1,49,11,728. As per the recorded reasons, this expenditure was required to be capitalised and, therefore, ought to have been added back to the income of the assessee. Consequently, according to the recorded reasons, the omission resulted in allowance of inadmissible expenditure involving short levy of income-tax of Rs. 79,12,032 including interest under section 234B of the Act. In so far as this item is concerned, the learned counsel for the petitioner, had already drawn our attention to the questionnaire which we have reproduced above. Item No. 8 of that questionnaire specifically dealt with advertisement expenses exceeding Rs. 1 lakh. Referring to the details furnished by the petitioner, the learned counsel for the petitioner had drawn our attention to the reply to the questionnaire which was submitted by the petitioner on October 13, 2008. The reply, inter alia, reads as under : " 4. Details of advertisement expenses exceeding Rs 1 lakh During the subject year, MCIPL had incurred advertisement expenses amounting to Rs. 902, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essee, to take the view in the recorded reasons that the expenses were capital in nature, would clearly amount to a change of opinion. 16. In so far as the disclosure part is concerned, it is evident that the concept of full and true disclosure applies not only to the stage of filing of the return but to the entire process of assessment under section 143(3). This is also clear from the decision of this court in the case of Honda Siel Power Products Ltd. v. Deputy CIT [2012] 340 ITR 53 (Delhi) wherein this court held that "the term 'failure' on the part of the assessee" is not restricted to the income-tax return and the columns of the income-tax return or the tax audit report. The court held that the expression "failure to fully and truly disclose material facts" also relates to the stage of the assessment proceedings and that there can be omission and failure on the part of the assessee to disclose material facts fully and truly during the course of the assessment proceedings. Therefore, when the assessee furnishes details during the assessment proceedings, it cannot, at the subsequent stage of reopening be said that there was failure on the part of the assessee to disclose fully ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aspects where he needed greater clarity. 18. Now, coming back to the tax audit report and the question of admissibility of the provision made for gratuity, we find that Assessing Officer, in the questionnaire issued by him, specifically asked the petitioner to explain as to why the amounts mentioned in, inter alia, annexure (ix) should not be disallowed as per section 43B of the Act. This question would only have been raised if the Assessing Officer was satisfied that the provision for payment of gratuity was admissible on account of the fact that the gratuity fund was an approved fund. Upon such satisfaction, the next logical question for the Assessing Officer would be as to whether the payment had been made within the stipulated time as prescribed under section 43B of the Act and, that is exactly what the Assessing Officer did. Therefore, we feel that in so far as the question of provision of payment for gratuity is concerned, the issue had been specifically examined by the Assessing Officer and, therefore, the recorded reasons attempted to bring about a mere change in opinion. Apart from this, we also hold that there was full and true disclosure on the part of the petitioner ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o its income for the relevant previous years". What is to be seen is that the expression used by the Assessing Officer is "due to omission on the part of the assessee to include this sum into its income". The allegation is not that there was no disclosure on the part of the assessee but that the assessee had not included the said amount as part of its income. This expression needs to be read in the context of the earlier part of the recorded reasons where the reasons essentially recorded that expenses should have been shown as capital expenditure and not as revenue expenditure and that the provision for payment of gratuity was inadmissible etc. It is not a statement that the petitioner had failed to disclose fully and truly any particular piece of information which was necessary for the purpose of assessment. Furthermore, we also cannot infer any such belief on the part of the Assessing Officer that there was a failure to make a full and true disclosure of material facts on the part of the assessee. 21. For the sake of completeness, we shall now consider the decisions cited at the Bar. We shall first take up those decisions which were relied upon by the learned counsel for the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the material particulars would get supplemented, by the time the matter reaches the court, on the strength of the affidavit or oral submissions advanced. Having recorded our finding that the impugned notice itself is beyond the period of four years from the end of the assessment year 1996-97 and does not comply with the requirements of the proviso to section 147 of the Act, the Assessing Officer had no jurisdiction to reopen the assessment proceedings which were concluded on the basis of assessment under section 143(3) of the Act. On this short count alone the impugned notice is liable to be quashed and set aside." 22. A Division Bench of this court, in the case of Haryana Acrylic (supra), observed as under : "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 it was covered under the main provisions of section 147 of the said Act would not be material. Once the exception carved out by the proviso came into play, the case would fall outside the ambit of section 147. Examining the proviso [set out above], we find that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... facts, fully and truly. This is a necessary condition for overcoming the bar set up by the proviso to section 147. If this condition is not satisfied, the bar would operate and no action under section 147 could be taken." From the above, it is evident that merely having a reason to believe that income had escaped assessment is not sufficient for reopening the assessment beyond the four year period referred to above. It is essential that the escapement of income from assessment must be occasioned by the failure on the part of the assessee to, inter alia, disclose material facts, fully and truly. If this condition is not satisfied, there would be a bar to taking any action under section 147 of the said Act. 23. The above decision in Haryana Acrylic (supra) was relied upon by another Division Bench of this court in Rose Serviced Apartments (supra). Referring to Explanation 1 to section 147 of the said Act, this court, in the latter decision, observed as under : "17. Reading of Explanation 1 of the proviso makes it clear that mere production of books of account or other material from which the Assessing Officer could, with due diligence, have discovered escapement of i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and levied a penalty also cannot be stated to be a reason for reopening of assessment of the assessee as the said statement made is neither followed by the recording of a belief that the income escaped on that count or that the assessee has failed to disclose all relevant material, fully and truly, at the stage of the first assessment." 26. On the aspect of "mere change of opinion", this court had recently considered the Full Bench decision in CIT v. Usha International Ltd. [2012] 348 ITR 485 (Delhi) [FB] and, in particular, point No. (3) of the observations contained in paragraph 13 of the said decision, which, inter alia, reads as under: "13. It is, therefore, clear from the aforesaid position that : (1) Reassessment proceedings can be validly initiated in case return of income is processed under section 143(1) and no scrutiny assessment is undertaken. In such cases there is no change of opinion. (2) Reassessment proceedings will be invalid in case the assessment order itself records that the issue was raised and is decided in favour of the assessee. Reassessment proceedings in the said cases will be hit by principle of 'change of opinion'. (3) Reassessment pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... no such addition was made on that count, the Assessing Officer had considered and examined the position and held in favour of the petitioner-assessee. Therefore, we can safely conclude that, in the facts and circumstances of the present case, the Assessing Officer had, indeed, examined the issue at the time of the original assessment proceedings and had formed an opinion by not making any addition in respect thereof. Thus, the reopening of the assessment which had been concluded on March 13, 2006, would be nothing but a mere change of opinion." 27. We have already expressed our opinion that the present case would also be a case of change of opinion inasmuch as specific queries had been raised by the Assessing Officer in the questionnaire and which had been addressed by the petitioner during the course of the original assessment proceedings. All the above decisions fortify the conclusions that we have arrived at earlier. 28. It is now time to consider the decisions referred to by the learned counsel for the respondents. The decision of the Supreme Court in Phool Chand Bajrang Lal (supra) is the earliest in point of time. The learned counsel for the respondents had placed relianc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d escaped assessment. The High Courts which have interpreted Burlop Dealer's case [1971] 79 ITR 609 (SC) as laying down law to the contrary fell in error and did not appreciate the import of that judgment correctly. We are not persuaded to accept the argument of Mr. Sharma that the question regarding truthfulness or falsehood of the transactions reflected in the return can only be examined during the original assessment proceedings and not at any stage subsequent thereto. The argument is too broad and general in nature and does violence to the plain phraseology of sections 147(a) and 148 of the Act and is against the settled law by this court. We have to look to the purpose and intent of the provisions. One of the purposes of section 147, appears to us to be, to ensure that a party cannot get away by wilfully making a false or untrue statement at the time of original assessment and when that falsity comes to notice, to turn around and say 'you accepted my lie, now your hands are tied and you can do nothing'. It would be travesty of justice to allow the assessee that latitude." 29. The said decision does not detract from the conclusions arrived at by us. On facts, we have held t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Ltd. (supra). In that decision, two points were considered. One was with regard to change of opinion and the other that the petitioner had not made a full and true disclosure. While addressing the first issue of change of opinion, the court held that the case before it was not one of change of opinion because a change of opinion would only arise when an Assessing Officer formed an opinion and decided not to make an addition and held that the assessee was correct. In that case, the Assessing Officer had asked specific and pointed queries with regard to the sundry creditors and had asked for confirmations, names, addresses and details of services rendered. In the original assessment order, there was no discussion, ground or reason why an addition was not made in spite of failure on the part of the assessee to furnish the confirmations and details. In that context, the court rejected the contention of the assessee that there was a change of opinion. In so far as the aspect of change of opinion is concerned, the observations of the Division Bench in Dalmia Pvt. Ltd. (supra) have been rendered in an entirely different and distinct factual matrix. It is apparent that the Assessing Office ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d that there was full and true disclosure by the petitioner-assessee. The second contention of the petitioner fails." The above observations would also not enable us to detract from the conclusions arrived at by us in the present case. As pointed out above, the decision in Dalmia Pvt. Ltd (supra) is clearly distinguishable as that was a case where the assessee had not furnished the details despite a request having been made by the Assessing Officer. It is in that context that the court observed that if there was no disclosure and details were not furnished, there cannot be full and true disclosure. In the present case, the situation is just the opposite. The information sought by the Assessing Officer had been supplied and furnished by the petitioner and it has already been held on facts by us that there was a full and true disclosure on the part of the petitioner. Therefore, the said decision in Dalmia Pvt. Ltd. (supra) would also not come to the aid of the respondents. 32. In view of the foregoing discussion, the petitioner is entitled to succeed. The impugned notice dated March 26, 2012, and all proceedings pursuant thereto including the order dated November 12, 2012, are se ..... X X X X Extracts X X X X X X X X Extracts X X X X
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