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2015 (7) TMI 54 - MADRAS HIGH COURT

2015 (7) TMI 54 - MADRAS HIGH COURT - [2015] 378 ITR 547 - Validity of reopening of assessment - Held 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. On the contrary, it was the Assessing Officer, who failed to consider the materials placed before him at the time of regular assessment .....

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the appeal filed by the assessee, the appellant/Revenue is before this Court by filing the present appeal. Vide order dated 24.10.07, this Court, while admitting the appeal, framed the following substantial question of law for consideration :- "Whether in the facts and circumstances of the case, the Tribunal was right in holding that the reopening of assessment is bad in law and setting aside the reassessment proceedings?" 2. The facts, in a nutshell, are as hereunder :- The responden .....

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According to the department, the assessee company purchased software package and the expenses incurred in this regard was claimed as revenue deduction, which is contrary to Section 37 of the Income Tax Act, whereas the said deduction should have been allowed under Section 35D of the Act. This amount, according to the department, is capital in nature. Insofar as project appraisal fee paid to ITCOT is concerned, claim for revenue deduction was totally allowed, though one-tenth of the expenditure a .....

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necessary for his assessment and action taken under Section 147 r/w Section 148 of the Act has been taken in this case after expiry of four years from the end of the relevant assessment year despite the fact that the original assessment was filed under Section 143 (3) of the Act. Further, the Tribunal held that it was never the case of the Revenue that there was failure on the part of the assessee to disclose fully and truly all material facts necessary for the assessment for the relevant asses .....

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ong. It is further submitted that in the original assessments, the Assessing Officer had no occasion to consider the issue of disallowance in respect of the amount paid to ITCOT towards integrated system package. The Tribunal failed to appreciate that Explanation 1 to Section 147 is applicable to the facts of the present case. On the above contentions, learned standing counsel for the Revenue prayed for setting aside the order of the Tribunal. 5. Heard the learned standing counsel appearing for .....

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tions 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 the assessment year concerned (hereafter in this section and in sections 148 to 153 referred to as the relevant assessment year) : Provided that where an assessment under sub-section .....

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sment. Explanation 1. Production before the Assessing Officer of account books or other evidence from which material evidence could with due diligence have been discovered by the Assessing Officer will not necessarily amount to disclosure within the meaning of the foregoing proviso. Explanation 2. For the purposes 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 .....

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sment has been made, 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." (emphasis supplied) 7. A plain reading of the above provision reveals that if the Assessing Officer had reason to believe that income chargeable to tax had escaped ass .....

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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. 8. A cursory look at the order of the Tribunal reveals that the Tribunal has taken into consideration all the aspects surrounding the invocation of proceeding under Section 147 r/w 148 of the Income Tax Act and has arrived at its finding. Assuming for the moment that the c .....

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ficer has not considered the same at the time of passing an order under Section 143(3) of the Income Tax Act, the assessee cannot be fastened with any liability for the same. Therefore, Explanation (1) Section 147 does not get attracted to this case. In this case, we find that the finding of the Tribunal is that the Proviso to Section 147 of the Income Tax Act does not get attracted since it is clear from the order of the Tribunal that it was failure on the part of the Assessing Officer to consi .....

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stand is further fortified by the decision of this Court in TCA No.217/2015 dated 2.6.2015, wherein in a similar matter, this Court has held as under :- "16. Our view is fortified by the decision of the Full Bench of the Delhi High Court in the case of Commissioner of Income Tax V. Kelvinator of India Ltd. reported in [2002] 256 ITR 1 (Del), wherein, the Delhi High Court held as follows: We are unable to agree with the submission of Mr. Jolly to the effect that the impugned order of reasse .....

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that only because in the assessment order, detailed reasons have not been recorded an analysis of the materials on the record by itself may justify the Assessing Officer to initiate a proceeding under section 147 of the Act. The said submission is fallacious. An order of assessment can be passed either in terms of sub-section (1) of section 143 or sub-section (3) of section 143. When a regular order of assessment is passed in terms of the said sub-section (3) of section 143 a presumption can be .....

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remium to an authority exercising quasi-judicial function to take benefit of its own wrong. 17. The above said decision of the Full Bench of the Delhi High Court was upheld by the Supreme Court in the decision reported in [2010] 320 ITR 561 (SC) Commissioner of Income-Tax - Vs - Kelvinator of India Ltd., wherein the Supreme Court held that the concept of "change of opinion" on the part of the Assessing Officer to reopen the assessment did not stand obliterated after the substitution of .....

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be done under the above 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 .....

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o 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 of " change of opinion" as an in-built test to check abuse of power by the Assessing Officer. Hence, after 1st April, 1989, the Assessing Officer has power to reopen, provided there is " tangible material" to come to the con .....

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quot; reason to believe", Parliament reintroduced the said expression and deleted the word " opinion" on the ground that it would vest arbitrary powers in the Assessing Officer. We quote hereinbelow the relevant portion of Circular No. 549 dated October 31, 1989 ([1990] 182 ITR (St.) 1,29), which reads as follows : "7.2 Amendment made by the Amending Act, 1989, to reintroduce the expression ' reason to believe' in section 147. A number of representations were received .....

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, 1989, has again amended section 147 to reintroduce the expression ' has reason to believe' in place of the words ' for reasons to be recorded by him in writing, is of the opinion' . Other provisions of the new section 147, however, remain the same." (emphasis supplied) 18. Similar view has been taken by this Court in the decision reported in [2009] 309 ITR 110 (Mad) Commissioner of Income-Tax - Vs - Cholamandalam Investment and Finance Co. Ltd., wherein it was held as foll .....

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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 .....

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within a period of four years from the end of the relevant assessment year is the belief reasonably entertained by the Assessing Officer that any income chargeable to tax has escaped assessment for that assessment year. However,when the power is invoked after the expiry of the period of four years from the end of the assessment year, a further pre-condition for such exercise is imposed by the proviso namely, that there has been a failure on the part of the assessee to make a return under sectio .....

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eyond the period of four years from the end of the assessment year, the Assessing Officer must necessarily record not only his reasonable belief that income has escaped assessment but also the default or failure committed by the assessee. Failure to do so would vitiate the notice and the entire proceedings. The relevant words in the proviso are, . . . . unless any income chargeable to tax has escaped assessment for such assessment year by reason of the failure on the part of the assessee ... . . .....

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sued without recording the reasons for his belief that income escaped assessment, it cannot be presumed in law that there is also a failure on the part of the assessee to file the returns referred to in the proviso or a failure to fully and truly disclose the material facts. The reasons referred to in the main paragraph 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 .....

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essing Officer, it is for the Assessing Officer to reach such conclusions as he considered was warranted from such data and any failure on his part to do so cannot be regarded as the assessee s failure to furnish the material facts truly and fully. Any lack of comprehension on the part of the Assessing Officer in understanding the details placed before him cannot confer a justification for reopening the assessment, long after the period of four years had expired. On the facts of this case, it is .....

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otice of this court such errors are capable of being corrected by this court in exercise of the court s powers under article 226 of the Constitution of India. The Supreme Court in the case of CIT v. Progressive Engineering [1993] 200 ITR 231 (sic), held that when all the relevant facts were before the court and the law is clear on the subject, it is the duty of the High Court to interfere. That was also a case where the proceedings were sought to be initiated against the assessee under section 1 .....

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