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TMI Blog2015 (6) TMI 497X X X X Extracts X X X X X X X X Extracts X X X X ..... elates to the assessment year 2001-2002. The assessee is engaged in the business of manufacture of concrete mixtures, concrete pumps, concrete mixing plants components and software development. The assessee company had filed its return of income for the assessment year admitting a total income of Rs. 1,36,15,445/-. The return was processed under Section 143(1) of the Income Tax Act and subsequently assessment under Section 143(3) of the Income Tax Act was made by the Assessing Officer determining the total income at Rs. 1,40,40,250/-. Thereafter, the Assessing Officer had issued notice under Section 148 of the Income Tax Act for initiating proceedings under Section 147 of the Income Tax Act. In response to the said notice, the assessee filed a letter dated 16.4.2008 requesting to treat the original return filed as the return filed in response to the notice issued under Section 148 of the Income Tax Act. Thereafter, notice under Section 143(2) was issued to reopen the assessment. The assessee had asked for reasons for reopening the assessment and it appears the reasons were communicated to the assessee on the same day. In the return of income filed, the assessee had arrived the MODV ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ter hearing both sides, the Commissioner of Income Tax (Appeals) allowed the appeal in favour of the assessee holding as follows: "4.2. I have carefully considered the facts of the case and the submission of the ld. AR. I have also gone through the decisions relied on by the ld. AR. In this case return was filed on 29.10.2001. It was processed on 02.01.2003. Subsequently, assessment order u/s. 143(3) was passed on 31.03.2004. Notice for reopening the assessment u/s 148 has been issued on 28.03.2008. Thus it is clear that the notice was issued beyond four years from the end of the relevant assessment year. The appellant has claimed that the original assessment was completed after obtaining all the details required for the purpose of assessment. It is seen that the AO has reopened the assessment to disallow the excess claim made by the appellant in respect of MODVAT Credit. The appellant has stated that the details of MODVAT credit was given in Annexure 1(A) of the Tax Audit Report. Further, the appellant itself has disallowed the amount in computing the total income for the year. Therefore, the ld. AR has stated that the addition made by the AO actual tantamount to duplication of d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was part of Tax Audit Report annexed to the Balance sheet filed along with the return of income. The notice being beyond the period of four year was obviously time barred. The assessment flowing out of such time barred notice cannot stand and was therefore quashed. In view of the above precedents and the facts of the case, it is held that the reopening is not valid and hence the ground is allowed." 4. On the issue of disallowance of MODVAT credit on opening stock, the Commissioner of Income Tax (Appeals) held that it has become academic in nature, as he found that the reopening of assessment by the Assessing Officer was not valid. 5. Aggrieved by the said order of the Commissioner of Income Tax (Appeals), the Revenue pursued the matter before the Income Tax Appellate Tribunal. The Tribunal, after hearing both sides, concurred with the view of the Commissioner of Income Tax (Appeals), thereby, dismissed the appeal holding as follows: "11. We have heard both the sides and considered the material on record and find that the return of income for the year under consideration was filed on 29.10.2001, which was first processed under section 143(1) on 02.01.2003 and subsequently assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lance sheet and profit and loss account will not amount to disclosure within the meaning of first proviso to Section 147 of the Income Tax Act. He submitted that Explanation 1 and 2(c)(i) and (iii) to Section 147 of the Income Tax Act would get attracted to the facts of the case and hence, the Assessing Officer is correct in initiating re-assessment proceedings. 8. Heard Mr.T.Ravikumar, learned Standing Counsel appearing for the Revenue at length and perused the materials placed before this Court. 9. Before going into the merits of the case, for better appreciation, we first consider the scope of Section 147 and the first proviso. The said provision reads as follows: "Income escaping assessment. 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 section, or recompute the loss or the depreciation allowance or any other allowance, as the case may be, for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Admittedly, in the present case, the proceedings initiated is beyond the period of four years from the end of the relevant assessment year. It is not the case of the Department that the assessee has failed to file a return under Section 139 or failed to respond to the notice issued under Section 142 or Section 148 of the Income Tax Act . The only other issue is whether there was any failure on the part of the assessee to disclose fully and truly all material facts necessary for the assessment for that assessment year. 11. Before the Commissioner of Income Tax (Appeals), the assessee had argued and filed written submissions, which were extracted in the order of the Commissioner of Income Tax (Appeals). For better clarity, we extract the same hereunder: "a. The assessment was reopened after a lapse of four years from the end of the assessment year vide notice u/s 148 of the Act, dated 28th March, 2008. The appellant humbly submits that the initial assessment by the learned AO was completed after obtaining all details required for the purpose of assessment. Hence, the assessment cannot be reopened. b. In this regard, the appellant relates to the decision of jurisdictional High Cou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ind from the order of the Commissioner of Income Tax (Appeals) and the Tribunal and also on facts as has been culled out from the assessment order in question that there is no element of failure to disclose fully and truly all material facts necessary for assessment. 15. The reliance placed by the learned Standing Counsel appearing for the Revenue on Explanation (1) to Section 147 of the Income Tax Act cannot be pressed into service by the Department in the instant case, because the details of such claim has been revealed in the Tax Audit Report and apparently, the same has been considered by the Assessing Officer at the time of passing an order under Section 143(3) of the Income Tax Act. Therefore, Explanation (1) does not get attracted to this case. Explanation (2)(c)(i) and (iii) to Section 147 of the Income Tax Act, which is sought to be invoked in the present case, can arise only in a case where the Department is able to establish that there is income escaping assessment and the proviso to Section 147 gets attracted. In this case, we find that the finding of the Commissioner of Income Tax (Appeals) and the Tribunal is that the Proviso to Section 147 of the Income Tax Act did ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... two conditions and fulfilment of the said conditions alone conferred jurisdiction on the Assessing Officer to make a back assessment, but in section 147 of the Act (with effect from 1st April, 1989), they are given a go-by and only one condition has remained, viz., that where the Assessing Officer has reason to believe that income has escaped assessment, confers jurisdiction to reopen the assessment. Therefore, post-1st April, 1989, power to reopen is much wider. However, one needs to give a schematic interpretation to the words " reason to believe" failing which, we are afraid, section 147 would give arbitrary powers to the Assessing Officer to reopen assessments on the basis of " mere change of opinion", which cannot be per se reason to reopen. We must also keep in mind the conceptual difference between power to review and power to reassess. The Assessing Officer has no power to review ; he has the power to reassess. But reassessment has to be based on fulfilment of certain preconditions and if the concept of " change of opinion" is removed, as contended on behalf of the Department, then, in the garb of reopening the assessment, review would take place. One must treat the concept ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... riginal assessment order has called for all the details regarding the case where 100 per cent. depreciation were claimed and the assessee had furnished the invoices for purchase of assets on which 100 per cent. depreciation were claimed, there was no failure on the part of the assessee and if at all there was any failure, according to the Commissioner of Income-tax (Appeals), it was on the part of the Assessing Officer, who made the original assessment without going behind the nature of the transactions accepting the details furnished by the assessee. The Tribunal also extracted that portion of the order and found on the fact that there was no fault on the part of the assessee so as to enable the Department to reopen the assessment as the proviso to section 147 of the Income-tax Act would squarely apply to the case of the assessee. We find no infirmity in the order passed by the Tribunal. Hence, the appeal is dismissed." 19. In an identical circumstance, a learned single Judge of this Court had considered the issue in the decision reported in [2000] 241 ITR 672 (Mad) FENNER (INDIA) LTD. v. DEPUTY COMMISSIONER OF INCOME-TAX, wherein, it was observed as follows: " The pre-condition ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aragraph of section 147 would, in cases where the proviso is attracted, include reasons referred to in the proviso and it is necessary for the Assessing Officer to record that any one or all the circumstances referred to in the proviso existed before the issue of notice under section 147. After an assessment has been made, in the normal circumstances, there would be no reason for anyone to doubt that the assessment has been made on the basis of all relevant facts. If the Assessing Officer chooses to entertain the belief that the assessment has been made in the background of the assessee s failure to disclose truly and fully all material facts, it is necessary for him to record that fact, and in the absence of a record to that effect, it cannot be held that a notice issued without recording such a fact is capable of being regarded as a valid notice. As to whether the material facts disclosed by the assessee are full and true is always a question of fact and unless the facts disclosed had been examined in relation to the extent of failure if any on the part of the assessee, it is not possible to form the opinion that there had been a failure on the assessee s part to truly and fully ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of course justified in his analysis. In our view, this is not something which is permissible under the proviso to section 147 of the Income Tax Act which speaks about a failure on the part of the assessee to make a proper return. In the present case, no such case is made out on the record. 8. In the circumstances, we allow this petition in terms of prayer (a) and quash and set aside the notice dated 27th March 2006 directing reopening of the assessment for the year 1999-2000." 21. The above-said view of the Bombay High Court was affirmed by the Supreme Court in Civil Appeal No.5960 of 2012. 22. In the light of the above, we hold that when the Assessing Officer had failed to record anywhere his satisfaction or belief that the income chargeable to tax had escaped assessment on account of the failure of the assessee to disclose truly and fully all material facts necessary for assessment, the notice issued under Section 147 of the Income Tax Act beyond the period of four years was wholly without jurisdiction and cannot be sustained. 23. Hence, we have no hesitation in holding that reopening is bad. Accordingly, we uphold the findings of the Tribunal that it is a case of mere change ..... X X X X Extracts X X X X X X X X Extracts X X X X
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