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2015 (4) TMI 341 - KERALA HIGH COURT

2015 (4) TMI 341 - KERALA HIGH COURT - [2015] 379 ITR 66 (Ker) - Re-opening of assessments - proceedings under Section 147 initiated to reassess escaped income, beyond four years but within six years - assessee's failure to "fully and truly disclose all material facts" - whether the exemption claimed under Section 10A was applicable to the Company? - Held that:- The assessee having claimed such exemption on the first assessment year after incorporation and commencement of business, necessarily t .....

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is pursuant to a hearing held on 19.12.2005. The Revenue does not dispute the factum of the BCA being available in the files before the assessment was completed for the assessment year 2003-04 and the subsequent years beginning from assessment year 2004-05. Hence, there could be no contention raised as to there being no full and true disclosure of material facts.

If essential and basic documents which are to be necessarily examined before grant of exemption, if not gone into, then it .....

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ange of opinion or not, since the assessment of a subsequent year, which was challenged on the ground of exemption being disallowed, assailed as a mere change of opinion, has been declined consideration under Article 226 and the assessee relegated to the statutory remedy. This Court, hence, would not refer to the decisions on that aspect too. Any observation made on that count in this judgment is in the nature of a prima facie one; not binding on the statutory authorities who are to first consid .....

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153, since on facts it cannot be said that the grant of exemption, at least from the assessment year 2003-04, was in the absence of full and true disclosure by the assessee. - Decided in favour of assessee. - WP (C) No. 27373 of 2011 (V), 3786 of 2013-W & 7896 of 2013-J - Dated:- 20-3-2015 - K. Vinod Chandran, J. For the Petitioner : Sri E K Nandakumar, Sr. Adv. Sri K John Mathai, Sri P Benny Thomas, Sri P Gopinath, Sri Kuryan Thomas For the Respondents : Sri P K Ravindranatha Menon, Standing C .....

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f the IT Act permits assessment or re-assessment of income which has escaped assessment of any assessment year, if the Assessing Officer has reason to believe that any income chargeable to tax has escaped assessment or even recompute the loss or the depreciation allowance or any other allowance, as the case may be, for the relevant assessment year. The first proviso to Section 147 speaks of such reopening of assessment after expiry of four years from the end of a relevant assessment year. That c .....

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issued beyond six years from the relevant assessment year. 3. In the instant case, Section 147 of the IT Act is sought to be invoked after four years but within six years on the ground that the assessee has failed to disclose fully and truly all material facts. The exemption granted has to be withdrawn for absence of such disclosure and assessment made afresh of the income returned. 4. The petitioner is the Subsidiary Company of an International Business Services Group Private Limited, Thiruvana .....

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see's claim for exemption under Section 10A of the IT Act was admitted by the Assessing Officer in the assessment year 2001-02, by Exhibit P1 in W.P.(C).No.27373 of 2011. This is what is essentially sought to be revoked and assessment made afresh as escaped income. The exemption continued in the years 2002-03, 2003-04 and 2004-05, as evidenced by Exhibits P2, P3 and P4 in W.P.(C).No.27373 of 2011, and even thereafter. 5. W.P.(C).27373 of 2011 is against the re-opening made for the assessment .....

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e assessment year 2006-07 and the assessment order dated 14.12.2009 is produced at Exhibit P1. The notice issued under Section 148 is dated 29.03.2012 and is produced at Exhibit P7, with the order at Exhibit P11, dated 15.01.2013. 8. Essentially the contention of the Department is that the notice issued under Section 148, though beyond four years, is within the six year period and the same is sustainable, since the notice for reopening under Section 147 has been issued. The Assessing Officer has .....

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be treated as the return filed pursuant to the notice and also sought for detailed reasons on the basis of the decision of the Hon'ble Supreme Court in GKN Driveshafts (India) Ltd. v. I.T.O. [(2003) 259 ITR 19 (SC)]. The said reasons were supplied by the Income Tax Officer by the various communications produced in the writ petitions, which are similar, and Exhibit P8 in W.P.(C).No.27373 of 2011 is referred to herein. 10. The reason for issuing the notice under Section 147, according to the .....

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new business, of machinery or plant previously used for any purpose, the conditions under Section 10A(2) of the Act was found to be not satisfied and, hence, the exemption under Section 10A was not permissible. The grant of exemption was irregular and illegal and occurred only due to the assessee's failure to disclose all material facts, truly and fully; i.e., the non-production of the BCA. 11. The final orders referred to above, produced in the writ petitions too followed the very same rea .....

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ad not discussed the matter and consequently there is an escapement of income chargeable to tax in the assessment and the Assessing Officer has reason to believe that such escapement has occurred is sufficient for a re-opening to be effected within four years. The opening portion of the order also indicates that there only two conditions are required to be satisfied as per Section 147 that is escapement of chargeable tax and reason available with the Assessing Officer to believe that chargeable .....

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e Constitution is not with respect to the factual issue of whether the assessee is eligible or not, for such exemption, based on such Explanation, which would be an issue that could be considered in an appeal under the statute. The present petition under Article 226 could be maintained only on the ground that the proceedings initiated under Section 147 is hit by limitation, since the same is beyond four years and the Department cannot avail of the extended time till six years for reason of there .....

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xemption was granted only for the default of the assessee in not having truly and fully disclosed the material facts, cannot be sustained. It was also pointed out that the exemption had been granted in the year 2001-02 and had been continued on all the subsequent years. The assessee has also relied on a number of decisions to buttress their alternate plea, that the present attempt, to decline exemption under Section 10A, is a mere change of opinion, which may not be relevant, as would be noticed .....

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T.O. [(1974) 97 ITR 476 (Mad.)], Iqbal Singh Atwal v. C.I.T. [(1984) 147 ITR 599 (Cal.)], Tiwari Kanhaiya Lal v. C.I.T. [(1985) 154 ITR 109 (Raj.)], CIT v. Kerala State Cashew Development Corpn. [(2006) 286 ITR 553 (Ker.)] and CIT v. Popular Vehicles & Service Ltd. [(2010) 191 Taxman 333 (Ker.)]. The decisions on the point of 'change of opinion', cited are not referred for reasons to be noticed later. 16. The learned Senior Counsel, on the basis of the aforesaid decisions, would asse .....

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licable, since the specific contention taken is that BCA was never produced before the Assessing Officer. If it were produced, from the terms, it could be discerned whether the assessee Company was formed by takeover of the infrastructure facilities and existing orders of the holding Company, which alone could have disentitled the assessee from claiming such exemption. The alternate contention as to the benefit of the Explanation under sub-section (2)(iii) of Section 10A also could have been ons .....

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ntitlement would not and could not be dismissed 'prima facie' as a mere change of opinion. 19. What is relevant for consideration of the aforesaid case is the issue whether there was a contumacious conduct on the part of the assessee; who could be deemed to have not fully and truly disclosed the material facts. A reference to Explanation 1 to Section 147, though not applicable, would be apposite. Explanation 1 takes in situations where the assessee, for example, does not disclose a charg .....

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the Company for three years was sought to be revised on the ground that the profits realised by the Company, by sale of shares were not assessed to tax. The reassessment was proposed on the ground that at the time of assessment, the assessee had stated that the sale of shares were casual transactions, in the nature of mere change of investments. However, it was later revealed that there were systematic transactions in shares carried on by the assessee and the true intention was not disclosed at .....

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d the factum of selling of shares having been disclosed, there can be no inference of deliberate omission to state the true intention behind the sale of the shares, was the finding. Such an omission could not be considered as a failure or omission to disclose any material fact within the meaning of section 34. 21. Considering Section 34 of the Income Tax Act, 1922, as amended in 1948, it was held that, to confer jurisdiction under the Section to issue notice in respect of assessments beyond the .....

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sion or failure on the part of an assessee to disclose fully and truly all material facts necessary for his assessment. 22. It was also held that what facts are material and necessary for assessment will differ from case to case. An Assessing Officer, from the primary facts in his possession, whether on disclosure by the assessee or discovered by him on the basis of the facts disclosed or otherwise, has to draw inferences as regards certain other facts; and..."ultimately, from the primary f .....

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rrounding circumstances. 23. The Revenue, in that case on a specific query made by the Court; as to which was the fact that was not disclosed, raised two contentions, one that the sale had not been disclosed and the other the Memorandum of Articles of Association of the Company had not been shown. The first contention was repelled on the claim made by the Income Tax Officer itself that the disclosure of sale of shares was made; but on the professed intention of change in form of investment. As t .....

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s squarely apply in the aforesaid case where it is the contention of the Revenue that the exemption was granted without looking at the constitution of the assessee; the BCA 24. The decisions relied on by the Revenue are the following: (a). (1970) 78 ITR 466 (SC) was a case in which the reopening of assessment was effected on the ground that the sale of assets of the assessee Company, being more than the written down value, was not disclosed. Neither was the said fact reflected in the profit and .....

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actually the sale price received amounted to profit; without merely drawing an inference that the Income Tax Officer had considered the relevant facts, on the mere disclosure of sale, (b). (2007) 291 ITR 500 (SC) deals with the concept of 'reason to believe' as contemplated in Section 147, which was held to be only a reasonable belief based on relevant material and not the established fact of escaped income. (1973) 87 ITR 618 (Cal.) and (1974) 97 ITR 476 (Mad.) are again on the aspect o .....

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iming such loans, in the Madras decision. The prior disclosure was found to be a reasonable ground to reopen, the adequacy of which would not be gone into by the High Court, was the finding. Herein the question is quite different for reason of the reopening having been attempted after four years. (c). (1984) 147 ITR 599 (Cal.) and (1985) 154 ITR 109 (Raj.) were on the issue of no return having been filed. In the former, on notice being issued under Section 148, the assessee contended that a dupl .....

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hat the liability of earlier years would not be entitled for deduction in a subsequent year. But the fact remained that, the liability of penal interest for non-payment of sales tax being of the previous year, was not disclosed by the assessee, though discernible from the books of account. (e). (1971) 82 ITR 555 (SC) is placed to refute the contention of the assessee that the exemption granted in the earlier years would stand against the reopening. No benefit can be claimed based on an erroneous .....

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and a reference is made to Exhibit P1 in W.P.(C).No.27373 of 2011. Assessment year 2001-02, was the first year in which the exemption was claimed. Exhibit P1, being the assessment completed under Section 143(3) of the Act, indicates that the assessee had claimed exemption under a notification as also under Section 10A. The assessee having submitted an application for registration as 100% export oriented undertaking and the same having been accepted by the Government of India, the benefit of tax .....

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tion was allowed without looking at the BCA, which is the essential document with respect to its constitution. It is also not clear as to what are the documents which the Assessing Officer had looked into, as produced by the assessee, to grant such exemption. Unlike an income chargeable to tax available in the books of accounts, which was not disclosed by the assessee, herein there is an affirmative action on the part of the Assessing Officer to grant exemption. It was the alternative claim made .....

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tion claimed towards interest paid, without noticing that there was diversion of interest-free loans to sister concerns. Hence, the reopening was proposed to disallow proportionate interest attributable to interest-free loans granted to sister concerns. The appeal filed by the assessee before the C.I.T. (Appeals) was allowed and the challenge made to it by the Revenue before the Tribunal was rejected. The Division Bench specifically noticed that there was no discussion in the assessment order, b .....

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P.)Ltd. [(2007) 291 ITR 500]. The Hon'ble Supreme Court had held that the amendment introduced with effect from 01.04.1989 to Section 147 has brought out substantial difference in the meaning and content of the Section and, hence, the finding of the Delhi High Court that the amendment was inconsequential was overruled. On the facts of the aforesaid case, it was found that the Tribunal had wrongly assumed that re-assessment was completed beyond four years from the end of the relevant assessme .....

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nt and (ii) the belief, of the Assessing Officer, grounded on reasons. This was a fact on which the contention of the assessee that there was mere change of opinion was refused to be accepted. That would be a valid contention to be urged when the reopening is attempted within four years. Herein, admittedly the reopening was made belatedly. Hence, the said decision would not apply to the facts of the present case. 28. The learned Senior Counsel for the Revenue would also rely on the judgment of t .....

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essee did not refute seriously the absence of full and true disclosure. Hence, this Court does not find the denial of exercise of discretion, to be a binding precedent, looking at the distinguishable facts. 29. The first notice issued is dated 23.03.2011, just prior to the expiry of six years from the relevant assessment year, being 2004-05. Till the issuance of such notice, the exemption was granted. In all the aforesaid assessment years, one Ms. R.Dolly, Deputy Commissioner of Income-tax, Circ .....

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the assessment carried out in the case of the assessee Company. Exhibit P4 is the assessment order of the assessee Company for the year 2004-05 dated 27.12.2006 and Exhibit P5 is the assessment order of the Holding Company for the very same assessment year dated 26.12.2006. The assessment of both the assessee and the Holding Company were carried out by the very same Assessing Officer, Ms.R.Dolly. True a wrong assessment made with respect to the Holding Company cannot be relied on by the Subsidia .....

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e learned Senior Counsel for the Revenue would assert that it is not the non-disclosure of a particular year which is relevant; but the fact remains that there is nothing to show that the assessee had produced the BCA in the first assessment year, to support the claim of exemption, i.e., in 2001-02. This Court is not convinced that the same is a sustainable argument. If the true and full disclosure had not been made for the year 2001-02, then the proceedings under Section 147 for that year had t .....

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ion of the assessment for the previous assessment year, i.e., 2003-045, the BCA was perused and exemption granted. There is no discussion in the assessment order of the terms in BCA. But when it was available in the records, that too produced in the midst of hearing, there could be no absence of full and true disclosure alleged. 32. The document produced by the assessee, in fact, refutes the specific contention of the Revenue in the statement filed on 25.07.2013, where it is contended that the B .....

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the assessment year 2004-05 can only be a default of the Assessing Officer and there could be no allegation of lack of full and true disclosure of material facts. The Department also admits in its statement that the assessment years from 2001-02 to 2003-04 were not reopened for reason of it being beyond the six year period provided under Section 153. 33. We are not concerned with the earlier assessment years, in which the exemption was claimed and allowed. Nor is it permissible for the Departmen .....

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er. The adequacy of the reasons or the eligibility to deduction cannot be gone into by this Court. But the ground of absence of full and true disclosure of material facts stands demolished. 34. Even with respect to the grant of exemption for the earlier years, this Court is unable to find any absence of full and true disclosure as is contemplated under the provision, since an exemption claimed cannot be granted for the mere asking. It was the duty of the Assessing Officer to examine whether the .....

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granted such exemption merely for the asking and without looking at the constitution of the Company; the formation of which in the previous year of the assessment year 2001-02 is the basic factor that had to be examined for granting the exemption which, as is stated before, was an affirmative action on the part of the Assessing Officer. 35. De hors that, for the assessment year 2003-04, it has been unequivocally established that the BCA was before the Assessing Officer even before completion of .....

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