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M/s. PVP Ventures Limited Versus The Assistant Commissioner of Income Tax Corporate Circle 5 (2) and The Deputy Commissioner of Income Tax, Chennai

2015 (9) TMI 1124 - MADRAS HIGH COURT

Reopening of assessment - Held that:- As regards the contention that the reassessment based on audit report without independent application of mind by the Assessing Officer is not sustainable, is concerned, do not find any force in the said contention since the respondent has given cogent reasons in his speaking order, dated 12.1.2015 while rejecting the objections raised by the petitioner, for re-opening of the assessment and therefore, it cannot be stated that the respondent has not applied hi .....

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ng is permissible after audit party expresses on opinion on a question of law is now being considered by a larger Bench of the Supreme Court. There can be no dispute that the audit party is entitled to point out a factual error or omission in the assessment. Re-opening of the case on the basis of a factual error pointed out by the audit party is permissible under law. ..”

In view of above conclusion that the re-opening of the assessment resorted to by the respondent is valid in law, a .....

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missed. - Writ Petition No. 1626 and 2057 of 2015 And M.P. Nos. 1 & 1 of 2015 - Dated:- 11-6-2015 - MR. S.VAIDYANATHAN, J. For The Petitioner : Mrs.Nalini Chidambaram, in both WPs. SC for Mr.R.Sivaraman For The Respondents : Mr.Pramod Kumar Chopda in both W.Ps. Mr.Rajkumar Jabhak ORDER The petitioner company is a public limited company engaged in the business of infrastructure and development. It is assessed to Income Tax on the file of the respondents under PAN No.AAACS3101P. For the assessment .....

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and a notice under Section 143(2) was issued, calling for the details. Pursuant to the same, the petitioner filed all the details called for by the respondents from time to time. During the scrutiny of the assessment, having considered the materials placed before them, the respondents had completed the assessment under Section 143(3) of the Act on 31.12.2010, determining the total income at ₹ 415,20,26,520/-. Thereafter, it appears that the petitioner filed a rectification application unde .....

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the unabsorbed loss and depreciation. It is stated that the petitioner had also filed an appeal against the assessment order passed under Section 143(3) of the Act, dated 31.12.2010 before the CITA (A)-V in ITA No.605/13-14(A)-V. While so, after a period of four years, the respondent, by notice dated 10.2.2013 issued under Section 148 of the Act, sought to re-open the concluded assessment under Section 143(3), which according to the petitioner, without any tangible materials and without giving a .....

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account of foreign direct investment (FD) and thus partly allowed the appeal filed by the petitioner company. Thereafter, vide order under Section 143(3) read with Section 254 of the Income Tax Act, 1961 dated 5.8.2014 gave effect to the order of the CIT(A)-V in ITA No.605/13-14 dated 27.3.2014 and revised the rectification order under Section 154 of the Act, dated 6.9.2011 and calculated the total taxable income at NIL and unabsorbed depreciation at ₹ 11,94,62,024/-. According to the peti .....

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ng the jurisdictional issue, the respondent passed order, dated 12.1.2015, holding that the proceedings under Section 147 have been rightly initiated and rejected the objections raised by the petitioner. 3. It appears that along with the above said rejection order, dated 12.1.2015, the respondent had issued a show cause notice dated 12.1.2015, calling upon the petitioner to file their objections on or before 19.1.2015 to complete the re-assessment proceedings. Pursuant to the same, the petitione .....

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sed on 21.1.2015 and dispatched to the petitioner by speed post. 4. According to the petitioner, the respondent, without giving any opportunity of being heard, passed the impugned order on 20.1.2015 itself, whereas the notice of demand was issued on 21.1.2015, wherein, it was stated that the re-assessment was passed on 20.1.2015. The respondent dispatched the impugned order dated 10.1.2015 by speed post on 22.1.2015 at about 3.14 p.m. much after the petitioner company moved this Court. Therefore .....

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petitioner filed objections, which were considered and disposed of by a speaking order. Thereafter a show cause notice was issued, calling for explanation on the proposed additions. The petitioner has submitted the reply to the said show cause notice and after considering the same, the impugned order was passed. Therefore, before passing the impugned order, the petitioner was provided an opportunity. Since, there was a reason to believe that income has escaped assessment, the income chargeable t .....

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mand notice is also to be dated as that of the assessment order. It is only a typographical error which was set right by passing a corrigendum on 4.2.2015 and thereby denied that the order was ante dated as alleged by the petitioner. It is also stated that the impugned notice has merged with the re-assessment order, dated 20.1.2015 impugned in W.P.No.2057 of 2015 and hence, the writ petition in W.P.No.1626 of 2015 challenging the impugned show cause notice, dated 12.1.2015 is not maintainable si .....

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refore, the petitioner is not entitled to set off and carry forward of losses as under Section 72 of the Act. This has been clarified by insertion of a specific section namely Section 115BBE. The above said aspect was not adjudicated in the assessment order and therefore, the question of change of opinion as contended by the petitioner is not valid and is only self service statement. It is also pertinent to note that the CIT (A) has upheld the addition under Section 69A made in the assessment un .....

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er to disclose fully and truly all material facts necessary for the assessment which is a precondition for reopening the assessment, which is untenable and that the notice merely stated that the Assessing Officer has reason to believe that the income chargeable to tax for the assessment year 2008-09 has escaped assessment and such ground is available only if the notice is within four years of the assessment year. According to learned senior counsel, reassessment notice is without jurisdiction si .....

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year years and carried forward loss against deemed income under Sections 68 and 69A. She has further contended that the impugned proceedings were initiated only based on the audit report and the respondent has not applied his mind and only in circumstances where the audit party expresses its opinion on a question of law, re-opening of assessment based on audit objection is permissible. Therefore, the impugned notice under Section 148 of the Act based on an audit objection, which is not a valid .....

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08-09 and hence, Section 115BBE will not apply to the facts of the present case. In support of her contentions, the learned senior counsel relied upon the following decisions, viz., i) CIT versus DRM Enterprises reported in (2015) 55 Taxmann.com 181 (Bombay) Once the audit party raised objections, one of which was not accepted, then, the Assessing Officer was expected and in the given facts and circumstances to record reasons for his belief. Those reasons have not been recorded, as is clear from .....

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elevant assessment year, two jurisdictional conditions have to be cumulatively satisfied: a) there must be reason to believe that income chargeable to tax has escaped the assessment and (b) such escapement of income should have arisen on account of failure on the part of the assessee to fully and truly disclose all material facts necessary for the assessment. The exercise of jurisdiction has to be examined on the basis of the reasons recorded at the time of issuing the notice. It is not open to .....

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ries which were fully answered by the assessee, such action of reopening cannot be sustained in such circumstances. iv) Jagat Jayantilal Parikh versus DCIT (2013) 355 ITR 400 v) Fenner (India) Ltd. Versus DCIT (2000)241 ITR 672 (Mad) Mere escape of income is insufficient to justify the initiation of action after the expiry of four years from the end of the assessment year. Such escapement must be by reason of the failure on the part of the assessee either to file a return referred to in the prov .....

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sonable 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. 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 wit .....

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imated in conformity the provision of Section 147 of the Act and after considering the objections raised by the petitioner, the impugned proceedings were issued. 9. A notice under Section 148 of the Act, dated 10.12.2013 has been issued to the petitioner proposing to re-assess the income for the assessment year 2008-09 by the respondent, since the respondent has reason to believe that the income in respect of the said assessment year has escaped assessment within the meaning of Section 147 of th .....

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e loss of 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 (3) of Section 143 or this section has been made for the relevant assessment year, no action shall be taken under this section after the expiry of four years from the end of the relevant assessment year, unless any income chargea .....

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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 assessee although his total income or the total income of any other person in respect of which he is assessable under this Act during the previous year exceeded t .....

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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. 148. Issue of notice where income has escaped assessment.-(1) Before making the assessment, reassessment or recomputation under Section 147, the Assessing Officer shall serve on the assessee a notice requiring him to furnish within such period, as may be specified in the notice, a return of his income or the income of any other person in .....

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ing so. 149. Time limit for notice.-(1) No notice under Section 148 shall be issued for the relevant assessment year,- (a) if four years have elapsed from the end of the relevant assessment year, unless the case falls under Clause (b); (b) if four years, but not more than six years, have elapsed from the end of the relevant assessment year unless the income chargeable to tax which has escaped assessment amounts to or is likely to amount to one lakh rupees or more for that year. Explanation.-In d .....

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computation to be made in pursuance of the notice is to be made on him as the agent of such non-resident, the notice shall not be issued after the expiry of a period of two years from the end of the relevant assessment year. 10. It is no doubt true that an assessment order once made is ordinarily final. Section 154 of the Act confers a power of rectification of mistakes apparent from the record. Section 147 of the Act empowers the Assessing Officer to assess or reassess the income in the circums .....

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e chargeable to tax has escaped assessment by reason of failure on the part of the assessee (i) to submit a return under Section 139, or (ii) to respond to the notices issued under Section 142(1), or (iii) to respond to the notices issued under Section 148, or (iv) to disclose fully and truly all material facts necessary for the assessment of the income for that assessment year. Explanation 1 to Section 147 lays down that mere production of the books of account or other evidence from which the A .....

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reason to believe that any income chargeable to tax has escaped assessment for the any assessment year. The expression "reason to believe" does not mean a purely subjective satisfaction on the part of the Assessing Officer. The reason must be held in good faith. It cannot be merely a pretence. It is open to the court to examine whether the reasons for the formation of the belief has a rational connection with or a relevant bearing on the formation of the belief and are not extraneous o .....

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ose fully and truly all the material facts necessary for his assessment of income for that year. 11. Therefore, it is clear that both the aforementioned conditions imposed must co-exist to confer jurisdiction on the Assessing Officer to reopen the assessment under Section 147. Sub-section (2) of Section 148 of the Act makes it imperative for the Assessing Officer to record his reasons before initiating proceedings. Where a notice under Section 147 of the Act is to be issued after the expiry of f .....

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rom the end of the relevant assessment year, power of the Assessing Officer is restricted by the limitations imposed under the proviso, as stated earlier. 13. Section 147 of the Act is the source of power of the Assessing Officer for reopening of the assessment. Section 148 contains procedural restrictions for issuance of a notice for exercise of the power of reopening of an assessment conferred under Section 147. Section 149 prescribes the time limit for issuance of a notice under Section 148. .....

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Section 148 is in addition to and not in derogation with the necessary conditions required to be satisfied under Section 147 of the Act. In other words, if the basic jurisdictional facts required for reopening of an assessment under Section 147 of the Act do not exist it would not be competent for the Assessing Officer to issue a notice under Section 148. Even where the jurisdictional facts prescribed under Section 147 exist and all conditions laid down under Section 147 and the proviso thereto .....

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on 147 of the Act for issuance of a notice under the proviso to Section 147. The restriction of four years would be applicable unless the income chargeable to tax has escaped assessment by reason of failure of the assessee to make a return under Section 139 or in response to a notice under Section 142 or 148 of the Act or the failure of the assessee to disclose fully and truly all material facts. If the reassessment is required to be made on account of the failure of the assessee to disclose ful .....

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r ₹ 1,00,000, as the case may be, is not to permit reopening of the assessment where the tax liability would not be significant as compared with the efforts that would be required for reopening of an assessment after a passage of seven or ten years, as the case may be. To repeat, the time-limit imposed under Section 149 of the Act for issuance of the notice is not in derogation of and is not for enlarging the time restriction imposed under the proviso to Section 147 of the Act but to put a .....

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Act for the year 2008-09 has been concluded on 31.12.2010 determining the total income at ₹ 415,20,26,520/- and the demand payable at ₹ 187,31,76,820/-. It is pertinent to note that in the original returns filed on 30.9.2008 as well as in revised returns on 26.3.2009, the petitioner had not disclosed the material regarding the unabsorbed depreciation and business loss of earlier years, which according to the petitioner, since it was a loss return, the petitioner did not claim the sam .....

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31,76,820/-. Later, a notice under Section 148 of the Act, dated 10.12.2013 has been issued by the respondent proposing to reopen the assessment. It is to be noted that by proceedings, dated 8.12.2014, the respondent has narrated and communicated the reasons for re-opening the assessment under Section 147 of the Act for the assessment year 2008-09, which are extracted hereunder: The scrutiny assessment was completed under Section 143(3) determining the total income at ₹ 415.20 crores after .....

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r any heads of income specified in Chapter IV of the Income-tax Act, 1961 and hence brought forward business loss and depreciation cannot be set off against this as per Section 72. 15. Therefore, a perusal of the above, it indicates that the Assessing Officer has a reason to believe that the income, viz., unabsorbed depreciation and business loss and depreciation, which was allowed to be set off by the respondent in revision proceedings, dated 6.9.2011, has escaped assessment within the meaning .....

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.01.2015, the respondent has issued impugned show cause notice by way of a final opportunity, calling for explanation as to why the additions made under Sections 68 and 69A of the Act, should not be taxed separately without giving benefit of setting off the deemed income under Section 69A with brought forward business loss and unabsorbed depreciation. 16. The main contention of the petitioner is that there is no failure on the part of the petitioner in not disclosing fully and truly all material .....

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e original returns filed by the petitioner on 30.09.2008, the petitioner had not at all disclosed fully or truly all material facts regarding the income, viz., unabsorbed depreciation and business loss and depreciation, which the Assessing Officer has reason to believe that the same has escaped assessment within the meaning of Section 147 of the Act. Therefore, when admittedly, the material which is the subject matter of the proceedings under Section 147 was not disclosed in the original returns .....

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l returns filed by the petitioner got merged with the rectification order, dated 6.9.2011, the period of four years has to be calculated not from the end of the relevant assessment year, but should be from the date on which, the petitioner has filed a rectification petition under Section 154 of the Act, i.e. on 25.1.2011 wherein, as already stated, for the first time, brought the subject material, viz., unabsorbed depreciation and business loss of earlier years. Then, the reopening of the assess .....

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ond four years on the account of failure on the part of the assessee to fully and truly disclose all material facts necessary for assessment. Hence, the issuance of the impugned proceedings, viz., show cause notice under Section 148 of the Act, dated 10.12.2013 and the reassessment order, dated 20.1.2015 by the respondent on the ground that he has reason to believe that the income, which is chargeable to tax for the assessment year 2008-09 has escaped assessment, in my opinion, are well within t .....

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ion of mind by the Assessing Officer is not sustainable, is concerned, I do not find any force in the said contention since the respondent has given cogent reasons in his speaking order, dated 12.1.2015 while rejecting the objections raised by the petitioner, for re-opening of the assessment and therefore, it cannot be stated that the respondent has not applied his mind and solely resorted to based on the audit report. In fact, the audit party is entitled to point out a factual error or omission .....

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the audit party is entitled to point out a factual error or omission in the assessment. Re-opening of the case on the basis of a factual error pointed out by the audit party is permissible under law. .. 18. In view of my above conclusion that the re-opening of the assessment resorted to by the respondent is valid in law, all the other grounds raised on behalf of the petitioner, such as, unabsorbed depreciation of earlier years and carried forward losses can be set off against income computed un .....

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ld as under: 15. Thus, while it can be said that this Court has recognised some exceptions to the rule of alternative remedy i.e. where the statutory authority has not acted in accordance with the provisions of the enactment in question, or in defiance of the fundamental principles of judicial procedure, or has resorted to invoke the provisions which are repealed, or when an order has been passed in total violation of the principles of natural justice, the proposition laid down in Thansingh Nath .....

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ng the statutory dispensation. 16. In the instant case, the Act provides complete machinery for the assessment/reassessment of tax, imposition of penalty and for obtaining relief in respect of any improper orders passed by the Revenue Authorities, and the assessee could not be permitted to abandon that machinery and to invoke the jurisdiction of the High Court under Article 226 of the Constitution when he had adequate remedy open to him by an appeal to the Commissioner of Income Tax (Appeals). T .....

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