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2015 (4) TMI 107 - BOMBAY HIGH COURT

2015 (4) TMI 107 - BOMBAY HIGH COURT - TMI - Reopening of assessment - assessee claimed set off of brought forward unabsorbed depreciation pertaining to 1997-98 to 1999-2000 against long term capital gain along with current year's losses - deduction of bad debts written off not an adjustment specified under section 115JB - Held that:- If the assessee has not made full and true disclosure of income and its particulars in the return or during the assessment proceedings, then, we do not see how .....

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failure on the part of the assessee to make full and true disclosure of income, then, what the Assessing Officer has in mind is the first proviso to section 147. That enables reassessment after expiry of four years from the end of the relevant assessment year if the income chargeable to tax has escaped assessment for such assessment year by reason of 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 s .....

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has reason to believe that income has escaped assessment and also in view of sub-clause (1) of clause (c) of Explanation-2. The Court cannot be called upon to indulge in guess work or speculate as to which reason has enabled the Assessing Officer to act in terms of this section. Thus entire approach of the Assessing Officer in the facts of the present case is misconceived. The assessment order in the present case has obviously taken into account the aspect of depreciation. The reasons offered b .....

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RDER : 1. Heard learned counsel for the parties. 2. Rule. Returnable forthwith. By consent the petition is taken up for final hearing at the stage of admission. 3. This petition is filed seeking writ of mandamus directing Respondent No.1 to withdraw and cancel the notice dated 18.11.2013 issued under section 148 of the Income Tax Act, 1961 and the order dated 4.2.2014 rejecting the objections of the Petitioner. The aforesaid impugned notice and order appears at Exhibit H and M of the petition. I .....

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ings including all long term capital gains, trial run expenses and bad debts during the course of original assessment proceedings. He further submitted that during the course of aforesaid proceedings, the Petitioner was called upon to submit the copies of Computation of Income, Balance Sheet, Profit and Loss Account and Audited books of account. After scrutinising the same, the Officer sought details of Long Term Capital Gains, trial run expenses and bad debts, all of which were furnished. 5. Ac .....

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he Assessing Officer had a change of mind. The material records evidence that no adverse inference could have been drawn against the Petitioner in the facts of the case. He submitted that the order under section 143(3) had been passed after due application of mind. There is no new or tangible material which would justify issuance of the impugned notice and the same is occasioned only as a result of change of opinion. 6. Mr.Gopal relied upon a decision of the Special Bench of the Mumbai Appellate .....

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learned counsel placed reliance on the CIT Vs. Kelvinator of India Ltd. (2010) 320 ITR 521 (SC) which lays down that reason to believe that income has escaped assessment must be recorded in writing. He submitted that in the facts of present case the Assessing Officer has not recorded any reason in writing causing him to believe that any income has escaped tax assessment. The Hon'ble Supreme Court had in the case of Kelvinator of India Ltd. the Court held that one needs to give a schematic i .....

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not arise as a result of change of opinion. He submitted that within a period of four years, it was permissible to reassess the earlier orders. He relied upon the decision of this Court in the case of Export Credit Guarantee Corporation of India Ltd. Vs. Additional Commissioner of Income Tax and Others wherein the Division Bench of this Court observed that within a period of four years if the Assessing Officer found reason to believe that the income has escaped assessment, it is within his powe .....

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issue impugned notice and reopen the assessment. 8. Having considered the rival contentions of the parties and having examined the facts we proceeded to consider the reasons adopted by the Assessing Officer for issuing the impugned notice dated 4.2.2015 which appears at Exhibit M of the petition. The assessment order dated 7.2.2011 records that the assessee had submitted the details required and called for during the course of assessment proceedings. The submissions of the assessee were recorded .....

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he same date, the petitioner also sought reasons recorded by the Assessing Officer for issuing notice under 9. In response to the said request, almost after 11 months the assessee's request for reasons, vide a letter of 10.10.2014, the Assessing Officer contended that on perusal of the records it was observed that the assessee has claimed set off of brought forward unabsorbed depreciation pertaining to assessment year 1997-98 and 1999-2000 amounting to ₹ 2,70,12,040/- alongwith Long Te .....

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nt of loss brought forward or unabsorbed depreciation whichever is less as per books of account amounting to ₹ 1,74,88,918/- from the Net profit of ₹ 3,83,53,319/- while computing income. According to the Assessing Officer, the claim of unabsorbed depreciation of ₹ 1,74,88,918/- in computation of book profit was not in order and the assessee had not made full and true disclosure of income and its particulars in the return or during assessment proceedings. Hence the Assessing Of .....

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vided while filing the return which found to be the basis of the assessing officer's proposed reopening of the assessment. It was contended that the proposed reopening only based on available records, there is no new material and that reopening under section 147 is bad in law. It was further pointed out that the Assessing Officer had used very same material provided during the assessment proceedings and has as an after thought, contended that income was under assessed. The Petitioner contend .....

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t. 12. Section 147 of the Income Tax, 1961 is entitled Income escaping assessment . That section reads as under : 147. 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 sec .....

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y 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 or to disclose fully and truly all material facts necessary for his assessment, for that assessment year; Provided further that nothing contained in the first proviso shall apply in a case where any income in relation to any asset (including financial .....

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discovered by the Assessing Officer will not necessarily amount to disclosure within the meaning of the foregoing proviso. Explanation 2 - For the purpose of this section , the following shall also be deemed to be cases where income chargeable to tax has escaped assessment, namely - (a) where no return of income has been furnished by the assessee although his total income or the total income of any other person in respect of which he is assessable under this Act during the previous year exceede .....

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but - (i) income chargeable to tax has been underassessed; or (ii) such income has been assessed at too low a rate; or (iii) such income has been made the subject of excessive relief under this Act; or( iv) excessive loss or depreciation allowance or any other allowance under this Act has been computed. (d) where a person is found to have any asset (including financial interest in any entity located outside India. Explanation 3.- For the purpose of assessment or reassessment under this section, .....

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applicable for any assessment year beginning on or before the 1st day of April, 2012. 13. In the instant case, the notice under section 148 has not been issued after the expiry of four years, but within four years. Therefore, the assessee must have reason to believe that income chargeable to tax has escaped assessment and which alone will enable him to assess or reassess such income and also any other income chargeable to tax which has escaped assessment and which comes to his notice subsequentl .....

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d show that assessment has been made but income chargeable to tax has been underassessed or such income has been assessed at too low a rate. There is also reference made to excessive loss or depreciation allowance or any other allowance which has been computed under this Act. Therefore, the argument of Mr. Suresh Kumar is that there are reasons to believe that income chargeable to tax has escaped assessment. He would also submit that in the light of Explanation- 2 and the deeming fiction therein .....

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he two conditions which have been noted in the case of Commissioner of Income Tax vs. Kelvinator of India Limited (2010) 320 ITR 561, but in section 147 of the Act from 1st April, 1989, they were given a go-by and one condition has remained viz. that where the Assessing Officer has reason to believe that income has escaped assessment he has jurisdiction to reopen the assessment. Though the power to reopen is much wider, but the interpretation that the words reason to believe must receive an inte .....

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, a Division Bench of this Court in the case of Titanor Components Limited, Goa vs. Assistant Commissioner of Income Tax, Panaji, Goa and Ors. 2011 (5) Mh.LJ 141, referred to the amended section 147 after 1st April, 1989 and all its provisions and explanation and held as under : 4. According to the learned Counsel, the Revenue is entitled to issue such a notice if the Assessing Officer has reason to believe that income chargeable to tax has escaped assessment by reason of the failure on the part .....

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ry for assessment. This submission can be considered only with reference to the reasons put forth by the Respondents for issuing the notice. The letter dated 27-1-2005, inter alia, states that the Assessment Officer has reason to believe that income has escaped assessment because the Petitioner has wrongly claimed deduction under section 80IA in respect of income which was not derived from the income of the Petitioner's Unit of Kundaim. Further, that long term capital gains have been wrongly .....

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assessment made earlier unless the mistake in the assessment so made is the result of the failure of the assessee to fully and truly disclose all material facts necessary for assessment. Indeed, where the assessee has fully disclosed all the material facts, it is not open for the Assessing Officer to reopen the assessment on the ground that there is a mistake in assessment. Moreover, it is necessary for the Assessing Officer to first observe whether there is failure to disclose fully and truly .....

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claimed certain deductions which he was not entitled to. There is a well known difference between a wrong claim made by an assessee after disclosing all the true and material facts and a wrong claim made by the assessee by withholding the material facts fully and truly. It is only in the latter case that the Assessing Officer would be entitled to proceed under section 147. We are supported in this view by a decision of a Division Bench of this Court in Hindustan Lever Limited vs. R.B. Wadkar, A .....

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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. 15. In the present case, the order dated 4th February, 2015, Annexure M proceeds on the footing that the case records indicate that the issues involved in reassessment proceedings were never examined by the Assessing Officer. The Assessing Officer without looking into the issues allowed the claim which i .....

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-98 to 1999-2000 amounting to ₹ 2,70,12,040/- against long term capital gain along with current year's losses of ₹ 6,81,54,185/-. This was the position emerging from the return filed on 29th September, 2009, which was thereafter selected for scrutiny and an assessment order was passed under section 143(3) on 7th December, 2011. The reasons disclose that the Assessing Officer was of the opinion that this unabsorbed depreciation of more than eight years old could not have been set .....

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32(2) of the Income Tax Act, in assessment year 2002-03. The omission has resulted in incorrect set off of unabsorbed depreciation thereby leading to short levy of tax. 17. Then, there is a reference to deduction of bad debts written off and even with regard thereto, what we find is that the bad debts written off and to the tune of ₹ 36,72,286/- is also not an adjustment specified under section 115JB of the Income Tax Act. This has resulted in understatement of book profits to the extent .....

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ing assessment proceedings. This contradiction and inconsistency in the reasons would indicate that the necessary satisfaction in terms of statutory provision has not been recorded at all. This would be further clear if one refers to the other reason viz. that the income has escaped assessment and also in view of sub-clause (I) of clause (c) of Explanation-2 to section 147 of the Act if income chargeable to tax has been underassessed. Such recording of reasons can never be termed as satisfactory .....

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e of income, then, what the Assessing Officer has in mind is the first proviso to section 147. That enables reassessment after expiry of four years from the end of the relevant assessment year if the income chargeable to tax has escaped assessment for such assessment year by reason of 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 necessa .....

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n view of sub-clause (1) of clause (c) of Explanation-2. The Court cannot be called upon to indulge in guess work or speculate as to which reason has enabled the Assessing Officer to act in terms of this section. If more than one reason is assigned as in this case then the Court can sustain the notice only if it is of the opinion that an erroneous reference to a statutory provision has been made but still there is an income chargeable to tax which has escaped assessment and on account of which i .....

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