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Commissioner of Income Tax, Faridabad Versus M/s. ITW India Ltd.

2015 (9) TMI 334 - PUNJAB & HARYANA HIGH COURT

Validity of reopening of assessment - as per revenue treatment of service income for the purpose of calculation of deduction u/s 80 HHC was not discussed at any prior stage, and the assessee had made no clear submission in this regard in earlier proceedings - ITAT held that reopening beyond 4 years from the assessment year was bad in law as the assessee has not failed to disclose truly and fully all material facts necessary for assessment - Held that:- Separate schedule had been appended with th .....

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or the Assessing Officer to draw the correct inference from the primary facts and not the responsibility of the assessee and there was no default on its part and the appeal filed by the revenue was dismissed.

The reason for reopening, thus, being merely a change of opinion on account of the subsequent judgment of in Commissioner of Income Tax, Delhi Vs. Kelvinator of India Ltd. [2010 (1) TMI 11 - SUPREME COURT OF INDIA] would not give the Assessing Officer the jurisdiction to reopen .....

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r K. Joshi, Adv. For the Respondent : Mr. Rohit Jain, Adv. JUDGMENT G. S. Sandhawalia, J. 1. The present judgment shall dispose of three appeals which are directed against the order dated 5.4.2013 passed by the Income Tax Appellate Tribunal pertaining to the assessment years 2002-03, 2003-04 and 2004-05. For decision of the appeals, the facts are being taken from Income Tax Appeal No. 208 of 2014 pertaining to the assessment year 2002-03. 2. The revenue has raised the following substantial quest .....

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hether ITAT was right in holding that Explanation 1 to Sec. 147 is not applicable to the facts of the present case, despite the fact that excessive deduction was given to the assessee u/s 80 HHC due to failure on its part to exclude service income from export profits. iii) Whether ITAT was right in ignoring Supreme Court's decisions in Calcutta Discount Co. Ltd. Vs. ITO (1961) 41 ITR 191(SC), CIT Vs. Chidambran Chettiar (1971) 80 ITR 467 (SC), Indo Aden Salt Mfg & Trading Co. Pvt. Ltd. V .....

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y might not. If there are primary facts from which reasonable belief could be formed that there was some non disclosure or failure to disclose fully and truly all material facts, reopening is attracted". v) Whether on the facts and in the circumstances of the case, ITAT was right in law in ignoring the provisions of clause (C)(iii) of Explanation 2 to the Section 147 of the I.T. Act." 3. The undisputed facts are that the respondent-assessee company had filed its return for the year in .....

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. The claim of benefit was reduced to ₹ 1,02,01,403/- after excluding the excise duty and the sales tax from the turnover and that point was within the knowledge of the Assessing Officer that the assessee had received the said service income and the claim of deduction was related to such service income and the income was then assessed at a sum of ₹ 24,86,85,407/- on 31.3.2005. 4. Thereafter, the re-assessment proceedings were initiated under Section 148 of the Act by issuing notice d .....

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mmissioner of Income-tax, Thiruvananthapuram v. K. Ravindranathan Nair (2007) 295 ITR 228 (SC). 5. Resultantly, the re-assessment order was passed by holding that the income derived by the assessing company pertaining to service income on which the deduction had been claimed could not be allowed. The plea of the assessee that four years time had lapsed from the end of the relevant assessment year and there was no fault on its part to disclose fully and truly all material facts necessary for re-a .....

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eld to be bad. While recording the finding, it was held that the primary facts had been disclosed and the factum of service income was separately shown along with the return of income. The reasoning that the Assessing Officer had to go through the voluminous material was rejected since he had dealt with the said issue and reduced the admissible deductions. In the notice, it had been stated that the reassessment proceedings were initiated for the failure on the part of the assessee to disclose fu .....

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on the validity of the proceedings initiated under Section 148 of the Act. The Tribunal dismissed the appeal filed by the revenue by recording the finding that separate schedule had been appended with the profit & loss statement showing the service income separately and it had been duly certified by the Auditor's Certificate in the requisite form. The interest on excise duty and the sales tax has been reduced from the said claim and the deduction had been modified and therefore, all the .....

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ult on its part and the appeal filed by the revenue was dismissed. The cross-appeal filed by the assessee, pertaining to the validity of the proceedings, was allowed by noticing that the re-assessment proceedings were initiated under Section 148 of the Act beyond the four years from the end of the relevant financial year and it was held invalid and unsustainable. 7. The issue of initiating proceedings under Section 147 was considered by this Court in Duli Chand Singhania Vs. Assistant Commission .....

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given, reads as under: "13. The entire thrust of the findings recorded by the Assessing Officer in his order dated 13-3-2003 is to justify his satisfaction about escapement of income. According to him, it was a clear case of escapement of income as defined in Explanation-2 to Section 147 as the assessee had been allowed excessive relief under Section 80-O of the Act. However, it is not necessary for us to go into the merits of this finding as the second requirement of the proviso has not be .....

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ing, which is a "sine quo non" for assuming jurisdiction under Section 147 of the Act in a case falling under the proviso thereto, makes the action taken by the Assessing Officer wholly without jurisdiction. As already observed, the learned counsel for the Revenue has conceded that neither in the reasons recorded nor in the order dated 13- 3-2003, has the assessee been charged with failure to disclose, fully and truly all material facts necessary for his assessment." 8. The said v .....

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t such escapement had occurred by reason of failure on the part of the assessee to disclose fully and truly all material facts necessary for its assessment. As held in Duli Chand Singhania's case, absence of this finding makes the action of the Assessing Officer wholly without jurisdiction. Since the illegality of notice under Section 148 of the Act is apparent from the reasons recorded for initiation of proceedings under Section 147 of the Act, it is a fit case for interference in the exerc .....

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mit him to reopen the assessment which had already been completed and had become barred by limitation. Accordingly, the notices issued under Section 148 were quashed. Relevant portion of the judgment reads as under: "14. The limitation of four years provided in the proviso to Section 147 has been made applicable only to cases where assessments have already been completed under Sub-section (3) of Section 143 or under Section 147. There is a specific purpose behind it. Where the return is pro .....

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ms necessary. In the present case, the assessment had been made under Section 143(3) of the Act and if the Assessing Officer was of the view that he required profit and loss account and depreciation charts of the assessment years 1995-96 and 1996-97 for examining the correctness of the claim under Section 80IA of the Act, he could have required the assessee to produce the same. Failure of the Assessing Officer to do so, cannot be treated at par with the failure of the assessee to disclose fully .....

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561 wherein it has been held that jurisdiction could not be conferred on the basis of mere change of opinion and it could not be a reason per se to reopen assessments which had been finalized and change of opinion was not relevant ground for reason to believe for issuance of notice under Section 147. Relevant observations read as under: "4. On going through the changes, quoted above, made to Section 147 of the Act, we find that, prior to Direct Tax Laws (Amendment) Act, 1987, re-opening co .....

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er, 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 re-open. We must also keep in mind the conceptual difference between power to review and power to re-assess. The Assessing Officer has no power to review; he has the power to re-assess. But re-assessment ha .....

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usion that there is escapement of income from assessment. Reasons must have a live link with the formation of the belief. Our view gets support from the changes made to Section 147 of the Act, as quoted hereinabove. Under the Direct Tax Laws (Amendment) Act, 1987, Parliament not only deleted the words "reason to believe" but also inserted the word "opinion" in Section 147 of the Act. However, on receipt of representations from the Companies against omission of the words " .....

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