TMI Blog2014 (11) TMI 103X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee either to make a return under section 139 of the Act or in response to notice under sub-section (1) of section 142 of the Act or 148 of the Act or to disclose fully and truly all material facts necessary for its assessment for that AY. The assessment was sought to be reopened on the basis of the amendment brought in section 80HHC of the Act by Taxation Law (Amendment) Act, 2005 whereas the assessment was completed under section 143(3) of the Act on 19.7.2002 on the return filed on 31.10.2001 - at the time of filing the return, assessee cannot anticipate or visualize any future amendment which can be formed to be the basis for reopening assessment on the ground that income has escaped assessment by the reason of failure on the part of the assessee to disclose fully and truly all material facts necessary for its assessment - reopening on the basis of the amendment after a period of four years from the end of the AY is not possible – the order of the CIT(A) is upheld - Decided against revenue. Reopening of assessment u/s 147 - Assessment was reopened after expiry of four years - Held that:- The AO has rejected contentions of the assessee with regard to the validit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssment under section 147/143(3) of Income Tax Act, 1961, dated 05.12.2007 without appreciating the facts and circumstances of the case brought on record by the Assessing Officer. 2. That the Ld. Commissioner of Income Tax (Appeals)-II, Kanpur has erred in law and on facts in annulling the said assessment on the ground that there had been no failure on the part of the assessee to disclose truly and fully all material facts necessary for assessment, ignoring the detailed facts mentioned by the assessing officer, in the reasons recorded by him for issue of the notice u/s 148, showing that the assessee had consciously made wrong claim of deduction, etc. and that there had thus been failure on its part to disclose fully and truly all material facts necessary for its assessment. 3. That the Ld. Commissioner of Income Tax (Appeals)-II, Kanpur has erred in law and on facts in holding that the notice under section 148 was issued without any sanction of law without appreciating the fact that the assessee, during the course of assessment proceedings accepted that as far as the matter of jurisdiction of the Assessing Officer for issuing the above referred notice u/s 148 is concerned, we ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cessary for its assessment. He accordingly issued notice under section 148 of the Act on 26.3.2007 after getting the approval of the ld. Commissioner of Income-tax-1, Kanpur as prescribed under section 151(1) of the Act on 23.3.2007. 7. Thereafter notice under section 142(1) of the Act was issued on 1.11.2007, as the assessee failed to file return of income in response to the notice issued under section 148 of the Act. On 8.11.2007, the assessee filed a letter stating therein that the original return filed on 30.10.2001 may please be treated as return filed in compliance to notice dated 26.3.2007 issued under section 148 of the Act. Accordingly, the assessment was framed reducing the deduction under section 80HHC of the Act. 8. An appeal was preferred before the ld. CIT(A) raising a preliminary objection that the assessment was reopened after a period of four years from the end of the relevant assessment year on the basis of amendment brought in section 80HHC of the Act through Taxation Law (Amendment) Act, 2005 and without recording reasons that the income escaped assessment for the said assessment year by the reason of failure on the part of the assessee to disclose fully a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... passed the assessment order dated 08.08.2008. The objections with respect to the reopening have not been discussed even in the assessment order. Thus, non-compliance with the ruling of the Hon'ble Supreme Court in this regard would vitiate the entire assessment proceedings, and, therefore, the assessment is liable to be annulled. The other argument of the appellant in this regard (i.e. challenge to the reopening) is that in view of the proviso to Section 147, the act of issuance of notice beyond 04 years from the end of the relevant assessment year was illegal and void. For easy reference and better understanding, the impugned proviso to Section 147 is extracted as under: Provided that where an assessment under sub-section (3) of section 143 or this section has been made for the relevant assessment year, no action shall be taken under this section after the expiry of four years from the end of the relevant assessment year, unless 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 sect ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessment year. The first proviso to section 147 of the Act lays down that where an assessment under sub-section (3) of section 143 or the said section has been made for the relevant assessment year, no shall be taken under the section after expiry of four years from the end of the relevant assessment year, unless any income chargeable 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. Thus, for the purpose of invoking section 147 after the expiry of four year from the end of the relevant assessment year, the income chargeable to tax should have escaped assessment by reason of failure on the part of the assessee either (i) 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 (ii) to disclose fully and truly all material facts necessary for his assessment. In the facts of the present case is an undisputed position that there is no failure on the part of the assessee insofar as the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ld 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 not disclosed by the assessee fully and truly necessary for assessment of that assessment year, so as to establish the vital link between the reasons and evidence. That vital link is the safeguard against arbitrary reopening of the concluded assessment. The reasons recorded by the Assessing Officer cannot be supplemented by filing an affidavit or making an oral submission, otherwise, the reasons which were lacking 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. In this fact of the matter, the proviso to section 147 comes to the aid of the appellant and would render the issue of notice u/s 148 after the expiry of 04 years as void and illegal. In coming to such conclusion, I am also fortified by the decision of the Hon ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... odern Tribotex India Ltd. v/s DCIT 212 ITR 496, at page 512 have observed: An assessee cannot be imputed with clairvoyance. When the return was filed, the assessee could not possibly have known that the decision on the basis of which cash compensatory support had been claimed as not amounting to the assessee's income ceased to be operative by reason of retrospective legislation. The Hon'ble Gujrat High Court, in the case of Doshion Ltd. Vs ITO (Guj.) 2012 has rejected the reopening the case of u/s.147 after 4 years in view of Retrospective amendment to the expl. to section 80IA by F (No.2) Act, 2009, w.e.f. 01/04/2000 (i.e. the assessing being Worker Contractor, not eligible for deduction u/s. 80IA) as there has been no failure on the part of the assessee to disclose truly and fully all material facts. The Hon'ble Bombay High court has also held the similar view in the case of CIT Vs. M/s. K.Mohan Co. (Exports) (Bom.), 2012 and rejected the reopening u/s.147 in view of retrospective amendment to section 80HHC by Taxation Laws (Amendments) Act, 2005, w.e.f. 01/04/98 as there has been no failure on the part of the assessee to disclose truly and fully all mate ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... scaped assessment by the reason of failure on the part of the assessee to disclose fully and truly all material facts necessary for its assessment. 10. The ld. counsel for the assessee, on the other hand, has placed a strong reliance upon the order of the ld. CIT(A). 11. Having carefully examined the orders of the lower authorities in the light of the rival submissions, we find that undisputedly assessment was reopened after expiry of four years from the end of the relevant assessment year i.e. assessment year 2001-02. As per proviso to section 147 of the Act, the assessment can only be reopened after the period of four years from the end of the relevant assessment year, if the Assessing Officer makes out a case that the income chargeable to tax has escaped assessment for such assessment year by the reason of failure on the part of the assessee either to make a return under section 139 of the Act or in response to notice under sub-section (1) of section 142 of the Act or 148 of the Act or to disclose fully and truly all material facts necessary for its assessment for that assessment year. For the sake of reference, we extract the proviso to section 147 of the Act as under:- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2. That the Ld. Commissioner of Income Tax (Appeals)-II, Kanpur has erred in law and on facts in holding that Assessing Officer had not passed any order disposing of the objections raised by the assessee to the reopening of its case, ignoring the fact that such objections had been duly considered by the Assessing Officer in his assessment order dated 27.11.2009 and had been found unacceptable for reasons discussed therein. 3. That the Ld. Commissioner of Income Tax (Appeals)-II, Kanpur has erred in law and on fact in holding that since in this case an assessment dated 27.03.2006 had earlier been made under section 144/147, by reason of the first proviso to Section 147 the case could not have been reopened, 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 failure on the part of the assessee to disclose truly and fully all material facts necessary for assessment. That in holding thus the Ld. CIT(A) has totally ignored the clarification given by the Assessing Officer in the assessment order, that in this case the earlier proceedings initiated under section 148, resulting in the assessmen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 3.2006 also became infructuous. Thus, only the processing of return under section 143(1) of the Act dated 31.3.2003 survives. 19. Subsequently on the basis of amendment in section 80HHC of the Act by the Taxation Law (Amendment) Act, 2005, the Assessing Officer formed a belief that income to the extent of ₹ 62,48,950/- has escaped assessment and he accordingly after recording reasons and also having obtained approval from the concerned authority, reopened the assessment and issued notice on 25.2.2009 under section 148 of the Act. In response to the notice under section 148 of the Act, assessee filed a written reply dated 23.3.2009 intimating that the return of income filed earlier under section 139(1) of the Act may be taken as the return filed in response to the notice under section 148 of the Act. Subsequently, a statutory notice under section 143(2) of the Act was also issued calling upon the assessee to make necessary compliance on the given date and time. In the meanwhile, assessee filed an objection against the initiation of reassessment proceedings which has been disposed of vide order dated 31.8.2009. The relevant observation of the Assessing Officer is extracted h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the pale of doubt or controversy, the provision is made that they will be deemed to be cases of escaped assessment so as to warrant the proceedings even beyond the said period of four years, since in that event, the case would fall in the enabling part of the proviso. Clause (b) deals with cases where no assessment is made and the AO notices that the income is understated or excessive loss deduction, allowance or relief is claimed in the return. These would be cases where the return is accepted without scrutiny and no formal assessment is made. Clause (c) would cover cases where in the assessment already made, income was underassessed or assessed too low or excessive relief is given or excessive loss or depreciation allowance or other allowance under the Act has been computed. In the aforesaid deemed cases of escapement of income, the AO can initiate the proceedings on finding or discovering such cases and no debate whether they constitute cases of escapement of income, would be permissible. As noted above, the provisions of section 147 require that the AO should have reason to believe that any income chargeable to tax has escaped assessment. The word 'reason' in the phr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Thus the amount of income escaped is determined at ₹ 62,48,950/-. 6. Therefore, the contention of the assessee that the A.O. was not having valid reason before the initiation of instant proceedings does not hold good and is accordingly rejected. It is further brought on record that the assessee has not contested the proposed additions on merits and in his detailed written reply the assumption of jurisdiction u/s 147 has been challenged. Though verbal arguments were made on 20.11.2009 reiterating the arguments made in the written reply dated 20.10.2009 filed before the undersigned on 03.11.2009. The copy of the aforesaid written reply running into six pages is enclosed herewith as Annexure-A and forms part of this order. Therefore, it is concluded that the facts highlighted in the reasons recorded u/s 147 of the Income Tax Act, 1961 are absolute in the case of the assessee and accordingly the income of ₹ 59,28,221 had escaped assessment within the meaning of Section 147 of the Income Tax Act, 1961. 20. Having disposed of the objection, the Assessing Officer assessed the income at ₹ 1,39,11,790/- under section 147/143 of the Act. 21. Aggrieved, the assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vani Exports vs. CIT (supra) are also extracted hereunder for the sake of reference:- Although in taxing statute laxity is permissible and after giving a benefit to the assessee based on some specific conditions, such benefit can definitely be curtailed out, the same must be effective from a future date and not from an earlier point of time. If after inducing a citizen to arrange his business in a manner with a clear stipulation that if the existing statutory conditions are satisfied, in that event, he would get the benefit of taxation and thereafter, the revenue withdraws such benefit and imposes a new condition which the citizen at that stage is incapable of complying whereas if such promise was not there, the citizen could have arranged his affairs in a different way to get similar or at least some benefit, such amendment must be held to be arbitrary and if not, an ingenious artifice opposed to law. In the instant case, the object of the amendment, as it appears from the statements of the Finance Minister while moving the bill, is to get rid of the alleged wrong decision of the Tribunal interpreting the then provision of the statute in a way beneficial to the assessee, which ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... [Para 22] The instant case is not one where the executive has failed to carry out the object of the Parliament necessitating exercise of control by retrospective amendment what the executive ought to have achieved. In the instant case, according to the Finance Minister presenting the Bill, a valid piece of legislation has been wrongly interpreted by the Tribunal. According to the existing law, if a valid piece of legislation is wrongly interpreted by the Tribunal, the aggrieved party should move higher judicial forum for correct interpretation. The impugned amendment granting benefit restricting it to a class of assessee whose turnover is less than ₹ 10 crore is permissible prospectively but the way it has been enacted, it takes away an enjoyed right of a class of citizens who availed of the benefit by complying with the requirements of the then provisions of law. [Para 25] On consideration of the entire materials on record, there is substance in the contention of the petitioners that the impugned amendment is violative for its retrospective operation in order to overcome the decision of the Tribunal, and at the same time, for depriving the benefit earlier granted to a cla ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... earlier been made and hence, by reason of the first proviso to section 147 the case could not have been reopened, 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 failure on the part of the assessee to disclose truly and fully all material facts necessary for assessment. That, in holding thus, the Ld. Commissioner of Income Tax (Appeals), has grossly overlooked the fact that the notice u/s 147, in respect of A.Yr. 2003-04, had been issued on 04.08.2006; i.e. well before the stipulated period of four years from expiry of the assessment year, and hence the first proviso was not at all applicable in this case. 3. That the Ld. Commissioner of Income Tax (Appeals)-II, Kanpur, has erred in law and on facts in as much as, in his decision and discussion and decision at pages 12 to 17 of the impugned appellate order, without at all applying his mind to the facts of the present case, he has reproduced verbatim the facts and reasoning given in his appellate order dated 23.03.2012 in the same appellant's case for A.Yr. 2001-02, even though such facts and reasoning have no bearing on the p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... done consequent to the amendment deserves to be quashed. 33. Having heard the rival submissions and from a careful perusal of the orders of the lower authorities, we find that the assessment was reopened on the basis of the amendment in section 80HHC of the Act brought through the Taxation Law (Amendment) Act, 2005 within a period of four years from the end of the impugned assessment year i.e. assessment year 2003-04 by issuing notice under section 148 of the Act on 4.8.2006. Before the Assessing Officer, the assessee has joined assessment proceedings and the assessment was completed and deduction under section 80HHC of the Act was worked out as per amended provisions. Before the ld. CIT(A), first time the validity of reopening was assailed and the ld. CIT(A) following his decision for assessment years 2001-02 and 2002-03 annulled the assessment. During the course of hearing, our attention was invited to the judgment of the Hon ble Gujarat High Court in the case of Avani Exports vs. CIT (supra), in which retrospective amendment was quashed and held to be unsustainable by the Hon'ble High Court. Therefore, the assessment cannot be reopened on the basis of retrospective amend ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cts brought on record by the Assessing Officer and without giving any cogent reasons for making such restriction. 5. The Ld. Commissioner of Income Tax (Appeals)-II, Kanpur has erred in law and on facts in restricting the disallowance of ₹ 2,23,506/-, on account of Car and telephone expenses, to ₹ 1,50,000/-, without appreciating the facts brought on record by the Assessing Officer and without giving any cogent reason for making such restriction. 6. The Ld. Commissioner of Income Tax (Appeals)-II, Kanpur has erred in law and on facts in deleting the additions/disallowances of ₹ 10,08,379/-, on account of manufacturing expenses, miscellaneous expenses, repair of furniture fixture, building repair expenses and foreign travel expenses, without appreciating the facts brought on record by the Assessing Officer. 7. That the order of the Ld. Commissioner of Income Tax (Appeals)- II, Kanpur, dated 23.03.2012 needs to be quashed and the order passed by the Assessing Officer dated 30.11.2006 to be restored. 36. With regard to ground No.1, it is noticed from the orders of the lower authorities that while raising the claim for deduction under section 80HHC of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of Taxation Law (Amendment) Act, 2005 and retrospective amendment has been quashed by the Hon ble Gujarat High Court in the case of Avani Exports vs. CIT (supra), therefore, this ground requires to be re-examined in the light of the judgment of the Hon ble Gujarat High Court in the case of Avani Exports vs. CIT (supra) and compute the deduction under section 80HHC of the Act following the principle laid down by the Hon'ble Apex Court in the case of Topman Export vs. CIT [2012] 342 ITR 49 (SC). Accordingly the order of the ld. CIT(A) in this regard is set aside and the matter is restored the file of the Assessing Officer to re-adjudicate the issue afresh in terms indicated above after affording opportunity to the assessee. 42. Ground No.4 relates to the restriction of addition of ₹ 1 lakh on account of fall in G.P. to ₹ 50,000/-. The addition of ₹ 1 lakh was made on ad hoc basis. Later on the ld. CIT(A) reduced it to ₹ 50,000/-. We, therefore, find no infirmity in the reduction of addition made on ad hoc basis. Accordingly we confirm the same. 43. Ground No.5 relates to the disallowance of ₹ 2,23,506/- on account of Car and Telephone expenses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Income Tax (Appeals)-II, Kanpur has erred in law and on facts in deleting the addition of ₹ 3,95,440/-, on account of disallowance of expenses which were capital in nature, without appreciating the fact that the capital nature of the same had been admitted by the assessee during the course of assessment proceedings. 4. The Ld. Commissioner of Income Tax (Appeals)-II, Kanpur has erred in law and on facts in restricting the addition of ₹ 2,00,000/-, on account of fall in G.P., to ₹ 1,00,000/-, without appreciating the facts brought on record by the Assessing Officer and ignoring the fact that the assessee had agreed to the addition during the assessment proceedings. 5. The Ld. Commissioner of Income Tax (Appeals)-II, Kanpur has erred in law and on facts in restricting the addition of ₹ 77,570/-, on account of fooding and lodging expenses, to ₹ 38,785/-, without appreciating the facts brought on record by the Assessing Officer and ignoring the fact that assessee had -agreed to the disallowance during the assessment proceeding. 6. That the order of the ld. CIT(A)-II, Kanpur dated 23.3.2012 needs to be quashed and the order passed by the Assessing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... zers Power Ltd., 221 CTR 435 (Bom.), 2009, and S.A.Builders, 288 ITR 1 (SC), 2007. Hence ground No. 2 is allowed. 51. Aggrieved, the Revenue has preferred an appeal before the Tribunal and has placed reliance upon the order of the Assessing Officer. Whereas the ld. counsel for the assessee has submitted that at the relevant point of time assessee had surplus interest free funds, therefore, it cannot be held that the borrowed funds were diverted for investment in the purchase of land and construction of factory building. 52. Having carefully examined the orders of the lower authorities, we find that at the relevant point of time, assessee was having surplus interest free funds, therefore, no borrowed funds were diverted for purchase of land and construction of factory building thereon in order to capitalize interest. Accordingly we subscribe the order of the ld. CIT(A) on this issue and reject the ground of the Revenue. 53. Apropos ground No.3, it is noticed that the Assessing Officer has made disallowance of expenditure of expenditure incurred on purchase of Knives and Blades, having held it to be capital expenditure. 54. In appeal, the ld. CIT(A) deleted the additio ..... X X X X Extracts X X X X X X X X Extracts X X X X
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