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2015 (11) TMI 1306 - ITAT MUMBAI

2015 (11) TMI 1306 - ITAT MUMBAI - [2016] 48 ITR (Trib) 132 - Reopening of assessment - Held that:- A perusal of the 'Reasons’ would clearly reveal that these have been recorded by the AO on the basis of examination done by the AO of the existing assessment records of the assessee-company. On none of the issues we could find reference to any fresh tangible material in the possession of the AO to make a belief about escapement of income. In our considered view, the law in this regard is now well .....

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oes not give powers to the AO to reopen an assessment carried out u/s 143(3) after the expiry of four years unless the AO is able to demonstrate that there was failure on the part of the assessee in disclosure of material facts - Decided in favour of assessee - ITA No. 5858/Mum/2012, ITA No. 5859/Mum/2012 - Dated:- 28-10-2015 - Shri Saktijit Dey, JM and Shri Ashwani Taneja, For The Appellant : Shri S.C.Gupta (AR) For The Respondent: Shri Vachaspati Tripathi (DR) ORDER Per Ashwani Taneja (AM) : I .....

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the assessee on the legal ground itself. Therefore, we shall first dispose the legal ground raised by the assessee. 2. At the outset, it was pointed out by the learned Counsel that there was a delay on the part of the assessee in filing of the appeal by 16 days. The learned Counsel has drawn our attention on the petition for condonation of delay in filing of appeal and affidavit filed along with that. 3. We have heard both the parties on this issue. No serious objection has been raised by the le .....

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ed for adjudication on its merits. 4. In Ground No.1, the assessee-company has challenged the reopening of the assessment. It has been argued that in this case original assessment was done u/s 143(3) of the Income-tax Act, 1961 (in short the Act ). Subsequently, notice has been issued u/s 148, after the expiry of four years from the end of the assessment year. It is submitted that there is no allegation in the reasons about any failure on the part of the assessee in disclosure of material facts, .....

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the assessment. Reliance has been placed; in this case, on the judgment of Mumbai Bench of the Tribunal in the case of Motilal R.Todi and various cases discussed and relied in the said judgment. For the purpose of taking benefit of first proviso to section 147, reliance has been placed by the learned Counsel on the judgment of the Hon ble Bombay High Court in the case of Titanor Components Limited in writ petition No.71 of 2005, order dated 9th June, 2011, Hindustan Lever Ltd. v. ACIT 268 ITR 33 .....

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ted that the reopening should be held as valid. In response to our query that whether there was any failure on the part of the assessee in disclosure of material facts or whether there was any fresh material coming into the possession of the Assessing Officer, the learned Departmental Representative was not able to put forth any factual material to controvert the arguments of the learned Counsel of the assessee. 6. We have considered the facts and circumstances of the case as well as judgments r .....

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filed its return of income and asked for the Reasons for reopening of the assessment, which was furnished by the AO to the assessee. For the sake of ready reference these reasons are reproduced here under:- In this case, the assessee filed Return of Income for the A.Y. 2005-06 on 28/10/2005, declaring total income at ₹ 1811/-. Assessment u/s. 143(3) was completed on 28/12/2007, determining total income at NIL after set off of brought forward unabsorbed business losses and depreciation. I. .....

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3,991/-. II. Incorrect computation of taxable income: While computing the taxable income, the assessee had taken profit as per Profit & Loss Account at ₹ 30,39,015/0 which included income on account of exceptional items of ₹ 6,09,98,126/-. The exceptional items (net) comprised of adjustment of account of liabilities, no longer required and expenses on account of loans & advances and sundry debtors. Further, it is seen that in computation statement, the assessee had reduced in .....

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)Concession in interest on bank borrowings / debentures, etc. written back consequent to settlement reached as the same was disallowed u/s. 43B, and as such, not claimed as expenditure in earlier assessment (considered by statutory Auditor while computing income chargeable u/s. 41(1) 11,94,70,524 Add Income chargeable u/s. 41(1) on account of concession in interest on bank borrowings / debentures etc., written back consequent to settlement reached, as the same was claimed as expenditure in earli .....

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7,60,865/- Exceptional Items 6,09,98,126/- From the above, it is clear that the assessee had reduced an amount of ₹ 5,84,72,398/- from profit instead of making an addition of ₹ 10,72,88,467/- u/s. 41(1) to it, as quantified by statutory Auditor. The same is accepted by the Department. The mistake resulted in under assessment of income of ₹ 16,57,60,865/- (5,84,72,398 + 10,72,88,467). Alternatively, it is seent that exceptional items (net) of ₹ 6,09,98,126/- in the Profit .....

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of R.16,57,60,865/- In view of the above, I have reasons to believe that, on the above two issues, the income amounting to ₹ 17,34,44,856/- (Rs.76,83,991 + 16,57,60,865), chargeable to tax, has escapement within the meaning of section 147 of the I.T. Act. Therefore, the case is re-opened by issue of notice u/s. 148 of the I.T. Act, after obtaining the prior approval from the Hon ble CIT - 8, Mumbai vide her office letter dated 31.03.2011. Issue notice u/s. 148 of the I.T.Act, 1961. 6.1 Th .....

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of the aforesaid Reasons would clearly reveal that these have been recorded by the AO on the basis of examination done by the AO of the existing assessment records of the assessee-company. On none of the issues we could find reference to any fresh tangible material in the possession of the AO to make a belief about escapement of income. In our considered view, the law in this regard is now well settled. As relied upon by the learned Counsel also, recently Hon ble Mumbai Bench of the Tribunal in .....

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Tupperware India Pvt. Ltd. (ITA No.415 of 2015, order dated 10.08.2015). The relevant parts of this judgment are reproduced here under for the sake of ready reference :- 6.6 . In the present case, it was noticed by us that the case of the assesse is that there was no fresh tangible material in the possession of AO at the time of recording of impugned reasons. A perusal of the Reasons recorded by the AO in this case reveals that at the time of recording of these Reasons the AO had examined origin .....

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s judgments coming from various courts that availability of fresh tangible material in the possession of AO at the time of recording of impugned reasons is a sine qua none, before the AO can record reasons for reopening of the case. We begin with the judgment of Hon ble Supreme Court in the case of CIT vs. Kelvinator India Ltd. 320 ITR 561 (SC), laying down that for reopening of the assessment, the AO should have in its possession tangible material . The term tangible material has been understoo .....

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t even in the case of original assessment order having been passed u/s 143(1), it is mandatory for the AO to have in its possession, fresh tangible material before reopening of the case. 6.9 In the case of Bombay Stock Exchange Ltd. (writ petition no.2468 dt. 12.06.2014) (89 CCH 118), Hon ble Bombay High Court observed as under: 5. It is pertinent to note that Respondent No.1 has not set out in the reasons which fact or other material was not disclosed by the Petitioner that led to income escapi .....

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iced...... in the impugned notice. 6.10. In the case of CIT vs. Orient Craft Ltd. 354 ITR 536, it was observed by Hon ble Delhi High Court that in the said case, Reasons for reassessment disclosed that AO reached belief that there was escapement of income "on going through the return of income" filed by assessee after he accepted return u/s. 143(1) without scrutiny, and nothing more. In these facts, it was held by the Hon ble High Court that it was nothing but review of earlier proceed .....

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18/2014 dated 21-04-2014, Hon ble Delhi High Court observed as under: This Court is of the opinion that no fault can be found with the Tribunal s order. It is well settled that in order to issue a valid reassessment notice, the AO has to be satisfied on the basis of tangible material or information subsequently available to him that the assessee had not made full and true disclosure which led to income escaping assessment at the stage when the original assessment was completed. Short of that a r .....

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ellip;..Reopening of assessment is valid if it is based on tangible material to justify conclusion that there was escapement of income-In instant case note forming part of return clearly mentioned and described nature of the receipt under a non-compete agreement- Reasons for issuance of notice u/s 147 nowhere mentioned that revenue came up with any other fresh material warranting reopening of assessment-Mere conclusion of proceedings u/s 143(1) ipso facto does not bring invocation of powers for .....

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foundation of the AO s jurisdiction and the raison d etre of a reassessment notice are the reasons to believe . Now this should have a relation or a link with an objective fact, in the form of information or facts external to the materials on the record. Such external facts or material constitute the driver, or the key which enables the authority to legitimately re-open the completed assessment. In absence of this objective trigger , the AO does not possess jurisdiction to reopen the assessment .....

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] and Orient Craft Ltd [(2003)354 ITR 536 (Delhi)] followed, Usha International [(2012)348 ITR 485 (Del) (FB)] referred) 6.15. In the case of CIT vs Jyoti Devi 218 CTR 264, Hon ble Rajasthan High Court held that since Revenue could not point out any information or material which had subsequently come to the notice of the AO to enable him to form the requisite belief that any income liable to be assessed had escaped assessment, therefore, the initiation of reassessment proceedings was not valid. .....

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as not justified in reopening the assessment in the absence of any new material. Hon ble Bench has relied upon third member judgment from Mumbai Bench of ITAT in the case Telco Dadajee Dhackjee Ltd vs DCIT ( ITA No 4613/Mumbai/2013 dt 12-5-2010), in support of this view. 6.18. Similar view has been expressed by Hon ble Delhi Bench of ITAT in the case of M/s Nexgen School of Business Vs. Deputy Commissioner of Income Tax, [ITA No. 5609/DEL/2010] holding that the Assessing Officer was not justifie .....

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on the issue being decided here. The issue that in absence of any fresh material, whether AO can proceed to record Reasons, was not before Hon ble High Court, therefore Hon ble High court had decided the issue of Change of opinion in that case. In the case before us, as discussed above, we are not going into that issue. In our considered opinion, at this stage, we need not go into the other aspect i.e. whether there was change of opinion or not. This issue has been aptly clarified by Hon ble Hi .....

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w or change of opinion arises. In other words, if there are no new tangible materials , then there would be no reasons to believe , and consequently reopening would be an impermissible review. Under these circumstances there would not arise any need to go the next stage to examine the next question, i.e., whether there was review or change of opinion . The condition with respect to availability of new tangible material is step anterior to the condition of no change of opinion or review . 6.20 Th .....

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n view of the above discussion by the Hon ble Bench, we find that the issue stands squarely covered with the judgment of Hon ble Bombay High Court, Hon ble Delhi High Court and other Courts. Therefore, reopening is held invalid for want of availability of requisite conditions for exercising the jurisdiction of reopening by the Assessing Officer. 7. The other argument taken up by the learned Counsel was that there was no allegation in the Reasons about failure on the part of the assessee in discl .....

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on the part of the assessee in disclosure of material facts. In this regard, we feel it appropriate to reproduce hereunder the first proviso to section 147 of the Act:- 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 chargeable to tax has escaped assessment for such assessm .....

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failure on the part of assessee in disclosure of material facts. Thus these Reasons are apparently contrary to law. 7.1.8 Further, as has been rightly contended by the learned AR that this issue is no more res integra. Hon ble Bombay High Court in many judgments has held that in those cases where the first proviso to section 147 is applicable, the reopening cannot be done unless there is allegation in the reasons that there was failure on the part of the assessee in disclosure of material facts. .....

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. It is not just facts but material facts. The word material in the context means important, essential, relevant concerned with the matter, not the form of reasoning (see Oxford Dictionary Concise Eighth Edition). Just as disclosure of every fact would not suffice but for proceeding under section 147 non disclosure ought to be of a material fact. 7.2 We also rely upon the judgment of the Hon ble Bombay High Court in the case of Titanor Components Limited, supra, and CIT v. Shri Shailesh S.Shah, .....

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rely on the ground that in view of the retrospective amendment to provisions of section 80IA, the assessee was not entitled to deduction granted earlier under said section. Thus, even in such cases, when there was a retrospective amendment in the law, the Hon ble Supreme Court has approved the order of the Hon ble High Court, upholding the view that no reopening can be done after the expiry of four years unless there was failure on the part of the assessee in disclosure of material facts. It is .....

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4. Although the Assessees in both the appeals are different, the issue involved in both cases is similar, i.e., whether the reopening of the assessment under Section 147/148 of the Act is valid? 5. Apart from the fact that the impugned order of the ITAT suffers from no legal infirmity, the court is of the view that on the face of it, the reasons for reopening of the assessment in both the cases did not satisfy the basic requirement of the law, in at least in two aspects. One was that the reopeni .....

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reopening of assessment is beyond four years from the end of the relevant assessment year the condition that there has been a failure on the part of the Assessee to truly and fully disclose all material facts must be concluded with certain level of certainty. 6. Secondly, the Court finds that at lease in respect of one of the issues, viz., payment of interest on fixed deposits, the Assessees drew the attention of the Assessing Officer ( AO ) to the fact that the amount has already been offered .....

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of the Assessee. 8. The Court would have been inclined to impose heavy costs on the Revenue for filing such frivolous appeals but declines to do so since the appeals are being dismissed ex parte. However, the court directs the Revenue through the Principal Chief Commissioner of Income Tax (Pr CIT) to issue instructions to the AOs to strictly adhere to the law explained in various decisions of the Supreme Court and the High Court in regard to Sections 147/148 of the Act and make it mandatory for .....

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e judgments of the Hon ble jurisdictional High Court and Hon ble Supreme Court of India, and therefore, reopening is held to be invalid on this ground as well. 7.5 Thus, ground with regard to reopening is allowed and reassessment order is quashed, and therefore, other grounds with respect to merits and other legal issues are not being adjudicated. ITA No.5859/Mum/2012 : Asst.Year 2006-2007 8. In this appeal, there is delay of 16 days in filing of appeal by the assessee, similar to that in A.Y. 2 .....

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ithin four years from the expiry of the relevant assessment year. Thus, the only difference is that this case has been reopened within the period of four years, and therefore, the assessee shall not get the benefit of proviso to section 147 of the Act. 9. The Reasons recorded by the AO are reproduced here under for the sake of ready reference :- In this case, the assessee filed Return of income for the A.Y. 20906-07 on 28/11/2006, declaring total income at ₹ 8,31,753/- Assessment u/s 143(3 .....

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98, as such, the assessee is not eligible for depreciation either under the category of intangible assets or other. Omission to disallow the same has resulted into underassessment of ₹ 57,62,993/-. In view of the above, I have reasons to believe that, on the above issue, the income chargeable to tax of ₹ 57,62,993/- on account of depreciation, has escapement assessment within the meaning of section 147 of the I.T.Act. Therefore, the case is reopened by issue of notice u/s 148 of the .....

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, following our order of assessment year 2005-2006, we hold that the Reasons are not valid in the eyes of law on this ground, i.e., the Reasons have been recorded without there being any fresh tangible material coming into the possession of the AO after the framing of the original assessment u/s 143(3). 11. Further, the learned Counsel has taken one more argument, i.e., in this case the reopening has been done on the basis of change of opinion by the AO. It was argued by him that the issue of de .....

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