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TMI Blog2014 (6) TMI 444X X X X Extracts X X X X X X X X Extracts X X X X ..... Petitioner had failed to disclose fully and truly all material facts necessary for its assessment. In the present case, apart from making a bald assertion that there was a failure on the part of the Petitioner to disclose fully and truly all material facts, no details thereof were furnished in the reasons for re-opening the assessment under section 147 of the Act and hence, the initiation thereof was bad-inlaw. Secondly, the Petitioner had in fact disclosed fully and truly all material facts necessary for its assessment and hence the initiation of reassessment proceedings was in the teeth of the mandate of section 147 of the Act. Thirdly, for the A.Y. 2005-2006, the Petitioner's case was selected for scrutiny, and after considering all the relevant aspects of the matter, the Assessing Officer (Respondent No.1) passed the original assessment order dated 26th November 2007 under section 143(3) of the Act determining the total income of the Petitioner at Rs.Nil after granting exemption under section 11 of the Act. Hence, the purported re-opening was based merely on a "change of opinion" which was impermissible in law. 4. The briefs facts are as follows:- (a) The Petitioner ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r scrutiny by issuing a notice dated 17th September 2007 under section 142(1) of the Act. The Petitioner replied to the said notice vide its letters dated 4th October 2007, 17th October 2007 and 19th November 2007 answering all the queries raised by the Assessing Officer. (d) Thereafter, the Assessing Officer, under section 143(3) of the Act, passed his assessment order dated 26th November, 2007 determining the total income of the Petitioner at Rs.Nil after granting exemption under section 11 of the Act. (e) On 29th January, 2009 Respondent No.1 issued a Notice under section 154 of the Act stating that the assessment order for the A.Y. 2005-2006 required to be rectified/amended as there was a mistake apparent from the record. The said Notice also enclosed the audit objections raised wherein it was stated that (i) the provision for doubtful accounts of Rs.1,50,77,995/-, being only a provision, could not be treated as "income applied" to the objects of the Petitioner under section 11 of the Act; and (ii) the Audit Report filed under section 44AB of the Act stated that expenses of Rs.1.2 crores was inadmissible under section 40(a)(ia) of the Act. Accordingly, the Senior Audit Office ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 0,86,156 Annexure-1 Provision for Bad and Doubtful amount in Clearing House Account of the Exchange for balances in the general charges account and ready delivery account of the members maintained by the Clearing House not recoverable anymore 99,91,839 Annexure-2 Total 1,50,77,995 Both these amounts were claimed as application of income due to non recovery of the same and hence were written off. In view of the above it is submitted that there is no mistake apparent from records and hence the question of passing a rectification order does not arise." (g) Thereafter, Respondent No.1 issued the impugned notice dated 28th February, 2011 under section 148 of the Act and asked the Petitioner to file a return of income in the prescribed form. (h) In response thereto, the Petitioner, on 29th March, 2011 filed its return of income for the Assessment Year 2005-06, once again declaring it's total income at Rs.Nil. (i) Prior thereto, the Petitioner by its letter dated 15th March 2011, requested Respondent No.1 to furnish a copy of the reasons recorded by him for re-opening the assessment under section 147 of the Act for Assessment Year 2005-06. Respondent No.1, on 24th No ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssment 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) A perusal of the said proviso makes it clear that where an assessment under sections 143(3) or 147 has been carried out for the relevant assessment year, no action under section 147 can be taken after the expiry of four years from the end of the relevant assessment year unless income chargeable to tax had 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 section 142(1) or section 148, or to disclose fully and truly all material facts necessary for its assessment for that assessment year. 8. The present case relates to Assessment Year 2005-06. The return of income for Assessment Year 2005-06 was taken up for scrutiny which culminated in an Assessment Order dated 26th November, 2007 under section 143(3) of the Act. Thereafter, Respondent No.1 issued the impugned notice dated 28 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be made to those reasons. No inference can be allowed to be drawn based on reasons not recorded. It is for the Assessing Officer to disclose and open his mind through reasons recorded by him. He has to speak through his reasons. It is for the Assessing Officer to reach the conclusion as to whether there was failure on the part of the assessee to disclose fully and truly all material facts necessary for his assessment for the concerned assessment year. It is for the Assessing Officer to form his opinion. It is for him to put his opinion on record in black and white. The reasons recorded should be clear and unambiguous and should not suffer from any vagueness. The reasons recorded must disclose his mind. The reasons are the manifestation of the mind of the Assessing Officer. The reasons recorded should be self-explanatory and should not keep the assessee guessing for the reasons. Reasons provide the link between conclusion and evidence. The reasons recorded must be based on evidence. The Assessing Officer, in the event of challenge to the reasons, must be able to justify the same based on material available on record. He must disclose in the reasons as to which fact or material was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 44,889/-. Since this amount of Rs.25,44,889/- had already been claimed as application of income as per Statement 2, the same tantamounted to double deduction. (III) A sum of Rs.120 lacs had been treated as an inadmissible expense under section 40(a) of the Act as stated in clause 17(f) of the Audit Report under section 44AB filed alongwith the Petitioner's return of income and accordingly, the sum of Rs.120 lacs was also required to be reduced from the income applied to the objects of the trust. (IV) The Petitioner had claimed depreciation on fixed assets amounting to Rs.15,99,78,749/- in addition to allowance of capital expenditure to the tune of Rs.10,64,26,980/-. The Petitioner, having adopted the policy of claiming the capital expenditure as application of income as well as depreciation on these capital assets as application of income, the same contravened the judgment of the Hon'ble Supreme Court in the case of Escorts Ltd. vs. CIT 199 ITR 43 wherein the Supreme Court had clearly held that a double deduction could not be allowed unless and until specifically provided by the Act. Thus income of the Petitioner had escaped the assessment in view of clause (c)(iv) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t entitled to claim both capital expenditure as application of income and also a depreciation on capital assets which would tantamount to a double deduction." (B) As far as the issue of doubtful accounts is concerned, the Division Bench in Writ Petition No.2467 of 2011 held as under:- "6. In so far as the first ground is concerned, it will be necessary to note that in the statement of income filed by the assessee, the income of the assessee was disclosed to be Rs.162.41 crores. The income applied for carrying out the objects of the trust under section 11(1)(a), as per Statement - 2 was reflected at Rs.113.94 crores. Statement - 2 in turn showed that the total expenditure as per the income and expenditure account was Rs.100.27 crores. The income and expenditure account clearly reflects a provision for doubtful accounts in the sum of Rs.1.60 crores. Therefore, ex facie, it is evident that there was no suppression of material facts by the assessee. The reasons for reopening in fact indicate that according to the Assessing Officer, the details of the amount applied for carrying out objects under section 11(1)(a) shows that this amount includes a provision for doubtful accounts ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that income had escaped assessment as contemplated under section 147 of the Act. It is further pertinent to note that in the reply filed by the Petitioner before the Assessing Officer dated 25th November 2011 objecting to the re-opening of the assessment, it was stated that after discussions, and having considered a similar issue of application of income in the past, the Assessing Officer had allowed the provision for doubtful accounts as an application of income for the A.Y. 2005- 2006. It was further stated that the provision for doubtful accounts consisted of three items viz. (i) general charges which could not be recovered from various members due to various reasons; (ii) amounts relating to valan account and (iii) general charges and valan account balance of members prior to 1996-97 which could not be recovered. This statement has not been controverted while disposing of the objections when the Assessing Officer passed his order on 30th November 2011. We therefore find that the initiation of reassessment proceedings on this ground is unsustainable. 13. Ground (II) set out above is with reference to an alleged double deduction for the sum of Rs.25,44,889/-. It is an admitted ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l of Schedule K to Income and Expenditure Account reveals that the assessee has reduced Rs.25,44,889/- being amount transferred to defaulters account from the income from investments and deposits." This, to our mind clearly establishes that the Assessing Officer had come to the conclusion that after perusal of the computation of income as well as the income and expenditure account that was originally filed on 30th October 2005, he had reason to believe that the Petitioner claimed a double deduction for the amount of Rs.25,44,889/-. This being the position, his belief was based merely on a "change of opinion" which was impermissible in law. We therefore find that the initiation of re-assessment proceedings on this ground also is unsustainable. 14. (A). Ground (III) set out above is with reference to the sum of Rs.120 lacs that was treated as an inadmissible expense under section 40(a) of the Act vide clause 17(f) of the Audit Report filed u/s 44AB. In FORM NO. 3CD being the statement of particulars required to be furnished under section 44AB of the Act it was stated as follows:- "17. Amounts debited to the profit and loss account, being:- (a) .............. (b) ............. (c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... scapement of income. During the course of the submissions, the attention of the Court has been drawn by the learned Counsel appearing on behalf of the assessee to the particulars of income and expenditure of the prior period, credited or debited to the profit and loss account. Appended to the statement are the following notes : (1) Based on the recommendations of the Institute of Chartered Accountants of India in its publication 'Guidance note on Tax Audit under section 44AB of Income-tax Act, 1961' at para 44.2 of edition September 1999, expenditure of earlier years means expenditure which arose or accrued in any earlier year and which excludes any expenditure of any earlier year for which the liability to pay has crystallized during the year. (2) Excess/short provision of earlier year and income and expenditure crystallized during the year though shown above has not been considered as prior period item. 15. These notes, according to the assessee are consistent with the Guidance Note issued by the Institute of Chartered Accountants on Tax Audit under section 44AB of the Act. By its note, the assessee has recorded that the expenditure of the earlier years means expenditu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ible at source under Chapter XVII-B and such tax has not been deducted or, after deduction, has not been paid on or before the due date specified in subsection (1) of section 139:" (emphasis supplied) It is clear that section 40 applies to deductions claimed in computing the income chargeable under the head "profit and gains of business and profession". In the present case, admittedly, the income of the Petitioner is exempted under section 11 of the Act. The Petitioner is not carrying on any business as held by the ITAT, Mumbai Bench in its order dated 22nd August 2006 in relation to Assessment Years 1991-92 to 1996-97. This order has not been challenged. In this view of the matter, we have no hesitation in holding that section 40(a)(ia) has no application to the facts of the present case and the impugned notice issued on the basis thereof was wholly misconceived. It is pertinent to note that in the reply dated 13th March 2009 filed by the Petitioner to the notice dated 29th January 2009 under section 154 of the Act, the Petitioner had clearly stated that it was only out of abundant caution that the Petitioner used to get its books of accounts audited under section 44AB of the Ac ..... X X X X Extracts X X X X X X X X Extracts X X X X
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