TMI Blog2015 (7) TMI 297X X X X Extracts X X X X X X X X Extracts X X X X ..... 43(3) of the Act after holding necessary inquiry by the Assessing Officer. It also appears that the inquiry was made and the issue was gone into detail. It is also required to be noted that in some of the cases the practice of paying more prices to the cane growers than the SMP declared by the Government has been consistently followed since many years and the same has been accepted and no objection has been raised at any point of time earlier. It appears that the reason to believe and/or formation of the opinion by the Assessing Officer that the income chargeable to tax has escaped assessment is on the ground that the assessee has paid more price than the price determined / declared by the Government and therefore, the same is nothing but distribution of profits and/or passing of profits on the basis of the decision of the Hon'ble Supreme Court in the case of Shri Satpuda Tapi Parishar SSK Ltd. (2010 (1) TMI 117 - SUPREME COURT ). However it is required to be noted that once at the time of original assessment under Section 143(3) of the Act the Assessing Officer after applying the mind accepted the return, thereafter reopening of the assessment can be said to be on mere change of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tution of India, the respective petitioner - Sugarcane Factory Societies have challenged the impugned notices under Section 148 of the Income Tax Act, 1961 (hereinafter referred to as Act ) issued by the concerned Assessing Officer to reopen the completed assessment of respective assessment years. [2.0] That for the sake of convenience all these petitions can be bifurcated into two groups. One group in which the reopening has taken place beyond the period of 4 years from the end of the concerned / relevant assessment year and another group in which the reopening has taken place within the period of 4 years from the end of the concerned/relevant assessment year. The statement of particulars with respect to each petitioner falling under the first group and second group in the tabular form are as under: Reopening beyond the period of 4 years from the end of the relevant assessment year Sr. No. SCA No. Assessment Year Name (1) (2) (3) (4) 1 17773/2014 2007-08 Shree Khedut Sahkari K ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2009-10 Shree Madhi Vibhag Sahkari Khand Udyog Mandli Ltd. 3 2368/2015 2009-10 Shree Chalthan Vibhag Khand Udyog Mandli Ltd. 4 2369/2015 2009-10 Shree Kamrej Vibhag Sahkari Khand Udyog Mandli Ltd. 5 2370/2015 2009-10 Shree Sayan Vibhag Sahkari Khand Udyog Mandli Ltd. 6 2371/2015 2009-10 Shree Coper Co op. Sugar Ltd. 7 2373/2015 2009-10 Shree Madhuva Pradesh Sahkari Khand Udyog Mandli Ltd. 8 2375/2015 2010-11 Shree Mahuva Pradesh Sahkari Khand Udyog Mandli Ltd. 9 2640/2015 2009-10 Shree Maroli Vibhag Khand Udyog Sahkari Mandli Ltd. 10 2641/2015 2009-10 Shree Sahkari Khand Udyog Mandli ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ded to reopen the assessment for AY 200708. [3.5] That thereafter vide communication dated 01.05.2014 the petitioner - assessee has been served with the copy of the reasons recorded for reopening the assessment for AY 2007-08 [reasons recorded for reopening the assessment shall be considered hereinafter]. [3.6] That on receipt of the copy of the reasons recorded for reopening the assessment for AY 2007-08, the petitioner - assessee immediately filed the objections with the respondent by a letter dated 30.06.2014, raising objections against reopening of the assessment for AY 200708 stating inter alia that at the time of original assessment proceedings, all the relevant facts were disclosed to the Assessing Officer who passed a regular assessment order under Section 143(3) of the Act; that on identical facts, similar/identical assessments have been made for past decades; that apart from the farmers, the petitioner - assessee has other two types of members being General Members and Nominal Members and the profit is to be distributed on the basis of shareholding and not on the basis of cane supplied by the cane growers; that the method of accounting of the assessee is the same fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 773/2014, 18784/2014, 18785/2014 18787/2014, 18795/2014, 2362/2015, 2364/2015, 2368/2015 to 2371/2015, 2373/2015, 2375/2015 and 2638/2015 to 2641/2015 and Shri B.S. Soparkar, learned Advocate has appeared on behalf of the petitioners - assessees in Special Civil Application Nos.3676/2015 to 3678/2015, 3682/2015 to 3684/2015 and 5009/2015 to 5011/2015. [4.1] Shri Sudhir Mehta, learned Advocate and Shri K.M. Parikh, learned Advocate have appeared on behalf of the Revenue - concerned Assessing Officers in respective Special Civil Applications. [4.2] At the outset it is required to be noted that as such in all these petitions in which the reopening of the assessment is within 4 years or beyond 4 years from the end of the relevant assessment year, the common ground/reason to reopen the assessment is the difference between actual price paid to the cane growers and the SMP declared by the Government and the Assessing Officer is of the opinion that the difference between the actual price paid to the cane growers and the statutory minimum price is not the price of sugarcane but is distribution of profits and that the amount paid to the cane growers in excess to the SMP declared by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lal [1999] 238 ITR 1022 (Guj.) 4. Gujarat Lease Financing Ltd. v. Deputy Commissioner of Incometax 360 ITR 496 (Guj.) [5.0] Shri Soparkar, learned Advocate appearing on behalf of some of the petitioners - assessees in addition to the above has further submitted that in the present case the Assessing Officer has reopened the completed assessment on the basis of the subsequent judgment of the Hon'ble Supreme Court in the case of Deputy Commissioner of Income Tax v. Shri Satpuda Tapi Parishar SSK Ltd. reported in [2010] 326 ITR 42 (SC). It is vehemently submitted by Shri Soparkar, learned Advocate appearing on behalf of some of the assessees that there cannot be any reopening beyond the period of 4 years on the basis of the subsequent Supreme Court decision and that too without whisper of failure on the part of the assessee to truly and fully disclose all material facts. In support of his above submissions he has relied upon the following decisions of this Court. 1. Austin Engineering Co. Ltd. v. Joint Commissioner of Income Tax [2009]312 ITR 70 (Guj.) 2. Gujarat State Co-op. Agri. and Rural Development Bank Ltd. v. Deputy Commissioner of Income-tax 337 ITR 447 (Guj.) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssment proceedings, as it can be described to be borrowed satisfaction . In support of his above submissions, he has heavily relied upon the decision of the Rajasthan High Court in the case of Commissioner of Income-tax v. Shree Rajasthan Syntex Ltd. reported in [2009] 313 ITR 231 (Raj.). [5.3] It is submitted that in the instant group of petitions, in every reason to believe it is stated that the learned CIT(Appeals) pursuant to the order of Hon'ble Supreme Court came to the conclusion that (in that particular case that was before the Hon'ble Supreme Court and which was remanded back to him) it was the case where profits were appropriated in the guise of purchase price. It is submitted that in the present case the Assessing Officer has solely and simply reiterated that CIT(Appeals)'s findings in order to held in the case of the assessee before this Court that the income has escaped assessment in the case of these / present assessees. It is submitted that therefore such borrowed satisfaction in the absence of any application of mind and any real finding in the case of the assessee do not constitute valid reason to believe that the income has escaped assessment. It ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he mechanism while determining the SMP by the State. He has also vehemently submitted that as such the SMP declared by the State under the Control Order is the minimum price to be paid by the society to the concerned cane growers. It is submitted that therefore every payment or price paid to the cane growers in excess to the SMP cannot be said to be per se passing of the profits and/or distributing the profits and chargeable to tax as alleged by the Assessing Officer. [5.6] It is submitted that in any case without any allegation by the Assessing Officer that there was any failure on the part of the assessee in truly and fully disclosing the relevant materials for assessment, the reopening of the assessment beyond the period of 4 years is wholly without jurisdiction, impermissible and invalid. Submissions on behalf of the petitioners in cases where the reopening is within period of 4 years [6.0] Shri Shah, learned Advocate and Shri Soparkar, learned Advocate appearing on behalf of the respective assessees have vehemently submitted that as such the reopening of the assessment within 4 years is also absolutely illegal, impermissible and wholly without jurisdiction, as the sam ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... umber of decades, assessment came to be made accepting the higher price paid to the growers to be the purchase price and the same came to be done in Section 143(3) assessment. It is submitted that in other words, in original assessment what was accepted to be the price of sugarcane is alleged now as payment made in excess is on a change of opinion. It is submitted that in case of some of the sugar factories on identical facts, the earlier learned CIT(Appeals) had remanded the matter for AY 1980-81 to 1990-91 to ascertain whether any part of the price paid was not the price but was part of profit to the cane growers and the Assessing Officer in consequential orders for these years did not make any addition by disallowing part of the price, and therefore, for all the succeeding years also, the entire price paid came to be allowed in case of all sugar mills, the way it was allowed in all the years in past. It is submitted that therefore on the principle of Rule of Consistency the Assessing Officer is not justified in reopening the assessment on the aforesaid issue/ground/reasons. [6.3] Shri J.P. Shah, learned Advocate appearing on behalf of the petitioners of Special Civil Applicat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... so the reopening of the assessment is not permissible so far as aforesaid two Special Civil Applications are concerned. [6.4] Shri Shah, learned Advocate appearing on behalf of petitioners of Special Civil Application Nos.17875/2014 and 18787/2014 has submitted that the third reason for reopening of the assessment in the aforesaid two cases is with respect to wrong calculation under section 145A of the Act. It is submitted that in both the cases as such there was no failure on the part of the petitioner to disclose fully and truly any material facts necessary for assessment. It is submitted that even in the reasons recorded in Special Civil Application No.19785/2014, the Assessing Officer has stated that on verification of computation of income for the year under consideration, it is seen that the assessee has claimed loss of ₹ 5,22,21,804/- after adjustment u/s. 145A of the Act. In this case, the assessee society has wrongly calculated adjustment u/s.145A. The correct working u/s.145A is as under.. . It is submitted that therefore even the Assessing Officer concedes that all facts were on record but the Assessing Officer who passed under Section 143(3) assessment order c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... MP is nothing but sharing the profits and/or distributing the profits and therefore, the same is required to be included in the income of the assessee society. [7.2] It is further submitted that the Assessing Officer noticed that the petitioner society has a practice of deciding the purchase price of sugarcane after finalizing its account profits in the financial year subsequent to procurement of sugarcane and till the time of finalization of purchase price, adhoc payments are distributed amongst the sugarcane farmers. It is submitted that the sugar purchase price is declared after arriving at a profit earned by the society during the year of procurement of sugarcane. It is submitted that thus the adhoc payments and final payments contained the element of profit of the society, which has been distributed amongst the sugarcane growers in the guise, cane price without payment of any income tax on the profit so earned and therefore, the impugned reopened reassessment proceedings are absolutely just and proper. It is submitted that as respective societies failed to fully and truly disclose all material facts during the relevant assessment proceedings, the cases have been rightly r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . One group in which the reopening of the assessment for respective AYs is beyond the period of 4 years and second group in which the reopening of the assessment is within the period of 4 years. [8.2] Now, so far as the reopening of the assessment beyond the period of 4 years is concerned, at the outset it is required to be noted that the assessment can be reopened beyond the period of 4 years, if an only if the income chargeable to tax has escaped assessment by reason of failure on the part of assessee to disclose fully and truly all material facts necessary for its assessment for that assessment year, even if the Assessing Officer is authorized to make reassessment in the event of his having reasonable belief that any income chargeable to tax has escaped assessment for any assessment year. As per the first proviso to Section 147 of the Act, assessment can be reopened under Section 147 of the Act after expiry of 4 years only if the assessee had failed to make a return under Section 139 of the Act or in response to the notice issued under Section 142(1) or Section 148 of the Act, he failed to disclose truly and fully all material facts necessary for the assessment. Once all the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1997-98 against the income of A.Y. 2007-08 was incorrect and is required to be withdrawn. Failure to do so has resulted in incorrect carry forward of unabsorbed depreciation to the tune of ₹ 7,80,40,419/- on which short levy of tax works out to ₹ 2,34,09,125/- (Potential) as per working provided hereunder: Brought forward as on 01.04.2006 (A.Y. 2007-08) Business loss Unabsorbed depreciation A.Y. Amount (Rs.) A.Y. Amount (Rs.) 2006-07 1,15,65,482/- Prior to 1997-98 7,80,40,419/- 1999-2000 31,13,019/- 2004-05 1,03,99,994/- 2006-07 3,16,90,147/- 12,32,03,579/- Set off in A.Y. 2007-08 1,15,65,482/- Set off in A.Y. 2007-08 2,18,71,54 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ve society. It has come to notice during the course of assessment proceedings in the cases of sugarcane growers that the co-operative sugar factories of South Gujarat are following a practice of deciding the purchase price of sugarcane after finalization of its accounts and its profits in the financial year subsequent to procurement of sugarcane. Till the time of finalization of the purchase price, adhoc payments are distributed amongst the sugarcane farmers. The final purchase price is declared after arriving at the profits earned by the co-operative sugar factories during the year of procurement of sugar cane. Thus, the ad hoc payments and the final payments contain an element of profits of the co-operative sugar factories, which are distributed amongst the sugar cane growers in the guise of 'cane price', without payment of any income tax on the profits so earned. Payment of sugarcane prices by sugarcane factories to sugarcane growers is governed by 'The Sugarcane (Control) Order (SCO), 1966' made by the Central Government, by virtue of the powers vested with it under 'The Essential Commodities Act, 1955'. By this order, fixation of a Statutory Minimum ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted that there would be no incidence of tax in the hands of the co-operative society or in the hands of their members. This was seen to have been done with the motive to substantially suppress the profits of the co-operative sugar societies by the distribution of profit as purchases from its members. The entire profits of the sugar factories, which otherwise would have been taxed in their hands, are distributed amongst its members, in the guise of 'cane price'. It is also noted that a sugar unit cannot pay purchase price for sugar cane below the SMP/FRP decided by the Central Government. Thus, it is reasonable to consider that in absence of any purchase price fixed by the co-operative sugar factories for sugar cane, it would be reasonable to adopt the SMP/FRP as the purchase price. The case of the assessee for the year under consideration was also perused from this angle. It was seen that the assessee has purchased 1049359.71 Metric tons of sugarcane during the year. The average sugarcane purchase price of the assessee for the year is ₹ 1332.15 per M.T., as against the MSP/FRP of ₹ 982.5/- per M.T. declared by the Central Government. All the sugarcane is purc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t. [8.4] In the case of Aayojan Developers v. Income-Tax Officer reported in (2011) 335 ITR 234, where no foundation was laid in the reasons for reopening assessment that there was failure on the part of the assessee to disclose fully and truly all material facts and nothing was brought on record and by filing of affidavit in reply for the first time such escapement was indicated, the Division Bench of this Court has held that notice of reopening beyond 4 years must fail. 5.06. Identical question came to be considered by the Division Bench of this Court in the case of Niko Resources Ltd. (supra) and while considering the scope and ambit of powers to be exercised under section 147 of the Income Tax Act by the Assessing Officer, while reopening the assessment beyond the period of 4 years, the Division Bench of this Court while considering its decisions in the case of Gujarat Lease Financing Limited (supra), has observed and held in paragraph Nos.16, 17 and 27 as under :- 16. The Assessing Officer is authorized to make reassessment in the event of his having reasonable belief that any income chargeable to tax has escaped assessment for any assessment year. As per the 1st pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ailure on the part of the assessee to disclose fully and truly all material facts necessary for the purpose of such assessment. The onus is on the assessee to reveal the primary facts and to draw the inferential facts would be the responsibility of the Assessing Officer. Once having revealed from the record that the assessee disclosed full and complete facts and on scrutiny, at the time of original assessment all these details are examined, no change of opinion is permissible merely because there was some error earlier on the part of the Assessing Officer himself or because he choose not to opine on the issue or even when he changes his mind and interprets the material or law otherwise than what was done by him. 5.07. Applying the decision of the Division Bench of this Court in the case of Niko Resources Ltd. (supra) as well as Gujarat Lease Financing Limited (supra), to the facts of the case on hand and as observed hereinabove, there does not appear to be failure on the part of the assessee to disclose truly and fully all material facts necessary for assessment with respect to the additional depreciation claimed, the initiation of the impugned reassessment proceedings which are ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the Hon'ble Supreme Court as well as this Court mere on change of opinion of the Assessing Officer, reassessment proceedings are not permissible. [9.1] If any decisions are required to be referred to on the point, they are the decision of the Hon'ble Supreme Court in the case of Kelvinator of India Ltd. (Supra), decisions of this Court in the case of Cliantha Research Ltd. (Supra), Sarla Raj Verma (Supra) and Niko Resources Ltd. (Supra). In the case of Kelvinator of India Ltd. (Supra), the Hon'ble Supreme Court in para 6 has held as under: 6. On going through the changes, quoted above, made to section 147 of the Act, we find that, prior to the Direct Tax Laws (Amendment) Act, 1987, reopening could be done under the above two conditions and fulfillment 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... xpression '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. [9.2] Even otherwise it is required to be noted that the reasons to believe must necessarily show, indicate and communicate why and on what grounds / cause any income has escaped assessment. Reasons recorded must be germane, prudent and disclose prima facie belief that income has escaped assessment. Even for formation of the opinion and/or reason to believe that any income has escaped assessment, there must be some tangible new material available with the Assessing Officer on the basis of which the reassessment proceedings are permissible. In the present case as such except the allegation that cane price / price has been paid to the cane growers more than the purchase price determined / declared by the Government under the Control Order and therefore, the difference between the same is distributing the profits and therefore, the income liable to tax has escaped assessment. However, mere payment of cane price paid in excess to the SMP cannot by ipso facto and/or per se can be s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... believe that the income chargeable to tax has escaped assessment. Mere payment of any amount of cane price / purchase price in excess to SAP / SMP per se cannot be said to be distribution of profits. For which a detailed inquiry is required to be conducted by the Assessing Officer. In the present case no such inquiry has been done and/or conducted by the Assessing Officer before having a reasonable belief and/or forming an opinion that the income chargeable to tax has escaped assessment on the aforesaid ground. [9.3] At this stage it is required to be noted that in some of the cases the Assessing Officer has formed an opinion on the basis of the order passed by the learned CIT (Appeals) which were pursuant to the order of Hon'ble Supreme Court in the case of Shri Satpuda Tapi Parishar SSK Ltd. (Supra). However, it is required to be noted that on the basis of the order passed by the learned CIT(Appeals) in the case of some other assessee the satisfaction of the Assessing Officer and formation of opinion in the case of present assessee cannot be sustained and the same can be said to be a borrowed satisfaction from another officer. Such borrowed satisfaction in absence of any a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ces under Section 148 of the Act to reopen the proceedings beyond 4 years and within 4 years on the aforesaid ground i.e. on the ground that the payment of purchase price in excess to the SMP has escaped the assessment cannot be sustained and the same deserves to be quashed and set aside. [10.0] Now, so far as the reopening of the assessment on other grounds viz. 1) unabsorbed depreciation permitted to be carried forward beyond a period of 8 years raised in Special Civil Application Nos.17870/2014 and 2638/2015; 2) wrong adjustment u/s.145A of the Act raised in Special Civil Application Nos.17875/2014, 18787/2014 and 2369/2015 and 3) with regard to section 43B of the Act raised in Special Civil Application Nos.2364/2015 and 2373/2015 are concerned, considering the respective assessment orders it appears that at the relevant time after due inquiry the same was allowed by the Assessing Officer and therefore, the reopening on the aforesaid reasons/grounds can be said to be change of opinion which is not permissible. [11.0] In view of the above and for the reasons stated above, on the aforesaid ground alone and without expressing any opinion on merits / on the issue whether any a ..... X X X X Extracts X X X X X X X X Extracts X X X X
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