TMI Blog2015 (12) TMI 305X X X X Extracts X X X X X X X X Extracts X X X X ..... f the AO noting in the original order of assessment under Section 143(3) of the Act, passed by the AO on 10th July 1997, that the Assessee had produced the books of accounts which had been checked by the AO. The AO also noted that the Assessee was dealing in shares and securities. The fact that Mr. R.R. Modi, the Director of the Assessee was also the person who floated PPL, could not by itself have constituted 'tangible material' for forming 'reasons to believe' when viewed in the context of the fact that the value of the closing stock of shares had been computed on the basis of the quotation in the Gauhati Stock Exchange which was at ₹ 2 per share. Further, both the CIT (A) and the ITAT have concurrently found as a fact that the Assessee had consistently followed the said method of valuation of shares at cost or at market price whichever is lower and that this method had been accepted by the Revenue for the earlier AYs. Clearly, therefore, the legal requirement that "the reason to believe must be predicated on tangible material or information" and that "the belief must be rational and bear a direct nexus to the material on which such a belief is based" was not fulfilled i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed by the Assessee in respect of shares purchased and sold or held as stock-in-trade. The Court by the said judgment dated 30th April 2015 decided the said question in favour of the Revenue and against the Assessee for those AYs. 5. The background facts leading to the filing of the present appeals is that the Assessee is a non-banking finance company registered as such with the Reserve Bank of India ( RBI ). Its objects are investments in shares and providing loans and advances. The Assessee s shares are listed in Delhi Stock Exchange. 6. For AY 1995-96, the Assessee filed a return of income on 29th November 1995 declaring an income of ₹ 6,23,880. The return was picked up for scrutiny and by an assessment order dated 10th July 1996 under Section 143(3) of the Act, the Assessing Officer ( AO ) determined the taxable income of the Assessee at ₹ 6,83,130. In the course of the assessment proceedings, the Assessee filed details of the shares held by it as stock-in-trade and claimed a share loss of ₹ 1,35,17,125. The Assessee disclosed an opening stock of 18,30,000 shares of M/s. Purbanchal Prestressed Ltd. ( PPL ) of the value of ₹ 1,83,00,000 (Rs.10 per sh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that an amount of ₹ 3,95,77,133 relating to AY 1996-97 was an unexplained credit under Section 68 of the Act. The reopening of the assessment for AY 1996-97 was held to be invalid by the ITAT by an order dated 19th October 2004 since in the ultimate order of reassessment the sum of ₹ 3,95,77,133 was not discussed. Only an observation was made that the proceedings were opened for assessing the above sum. 11. Against the order dated 19th October 2004 passed by the ITAT allowing the Assessee s appeal, the Revenue filed ITA No. 450/2005 in this Court. Initially, by order dated 5th October 2010, the Court dismissed the said appeal of the Revenue. The reason was that it had become infructuous since in the meanwhile in the remand ordered by the ITAT in respect of AYs 1997-96 to 1999-2000, the AO had held the transactions to be genuine. The Supreme Court, however, set aside this Court's order dated 5th October 2010. In its order dated 27th August 2012 in Civil Appeal No. 6058/2012 (Commissioner of Income Tax v. M/s. Visisth Chay Vyapar Limited), the Supreme Court noted that for AY 1996-97, the question concerning validity of the reopening of the assessment for AY 1996 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat the appellate order was passed by the CIT (A) in the absence of the Assessee. Also before the ITAT, the Assessee specifically urged the ground regarding validity of the assumption of jurisdiction under Section 147 of the Act since it was beyond the period of four years from the end of the relevant AY. Since this aspect of the matter was not urged and, therefore, not decided by the CIT (A), the appeal was restored to the file of the CIT (A) for a fresh disposal. 17. On remand, the CIT (A) held, by the order dated 3rd August 2007, that the reopening of the assessment was illegal and without jurisdiction. Inter alia it was held that in the reasons recorded for reopening the assessment there was no allegation that there was any omission or failure on the part of the assessee to disclose fully and truly all facts. In the absence of the recording of the above reason, the reopening which was initiated after a period of four years after the end of the relevant AY could not be sustained. Nevertheless, the CIT (A) also commented on the merits of the reopening which concerned the valuation of the closing stock of the shares of PPL. It was noted that the rate at which the shares of PP ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ecord for the two AYs 1995-6 and 1997-98 were before the AO when the reasons for reopening the assessment were recorded. For both the said AYs, 1995-96 and 1997-98, the losses claimed by the Assessee on account of the valuation of the shares of PPL calculated on the closing stock, was disallowed by the AO and the said order of the AO had been affirmed by the CIT (A). This was the reason for the AO affirming the reason to believe that even for AY 1995-96 the losses had been wrongly claimed and, therefore, income had escaped assessment. He also submitted that the Assessee failed to raise any objections to the reasons recorded by the AO either before the AO or before the CIT (A) in the first round of the appeal before the CIT (A). He accordingly submitted that there was a failure by the Assessee to disclose the material facts and that the reopening of the assessment was, therefore, justified. 22. In reply to the above submissions, Mr. Ajay Vohra, learned Senior counsel appearing for the Assessee, submitted that the very basis for reopening the assessment for AY 1995-96 was the order of the AO passed for AYs 1996-97 and 1997-98. As far as AY 1996-97 is concerned, the said order of r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent for that year, income chargeable to tax has escaped assessment for that year or alternatively notwithstanding that there has been no omission or failure as mentioned above on the part of the assessee, the ITO has in consequence of information in his possession reason to believe that income chargeable to tax has escaped assessment for any assessment year. Unless the requirements of cl. (a) or cl. (b) of S. 147 are satisfied, the ITO has no jurisdiction to issue a notice under S. 148. 25. In ACIT v. Dhariya Construction Co.(2010)328 ITR 515 (SC) the Supreme Court in a short order held as under: Having examined the record, we find that in this case, the Department sought reopening of the assessment based on the opinion given by the DVO. Opinion of the DVO per se is not an information for the purposes of reopening assessment under s. 147 of the IT Act, 1961. The AO has to apply his mind to the information, if any, collected and must form a belief thereon. In the circumstances, there is no merit in the civil appeal. The Department was not entitled to reopen the assessment. 26. The decision of the Supreme Court in CIT v. Kelvinator of India Ltd.: [2010] 320 ITR 561 (SC ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... year . It postulates a duty on every assessee to disclose fully and truly all material facts necessary for his assessment. What facts 'are material and necessary for assessment will differ from case to case. In every assessment proceeding, the assessing authority will, for the purpose of computing or determining the proper tax due from an assessee, require to know all the facts which help him in coming to the correct conclusion. From the primary facts in his possession whether on disclosure by the assessee, or discovered by him on the basis of the facts disclose, or otherwise, the assessing authority has to draw inferences as regards certain other facts; and ultimately, from the primary facts and the further facts inferred from them, the authority has to draw the proper legal inferences, and ascertain on a correct interpretation of the taxing enactment, the proper tax leviable. 29. The said decision was referred to in CIT v. Burlop Dealers Ltd. AIR 1971 SC 1635 where it was held that: mere production of the books of account or other evidence from which material facts could with due diligence have been discovered does not necessarily amount to disclosure within the mea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1) of Section 142 or Section 148. This is clearly not the case here because the petitioner did file the return. Since there was no failure to make the return, the escapement of income cannot be attributed to such failure. This leaves us with the escapement of income chargeable to tax which arises out of the failure on the part of the assessee to disclose fully and truly all material facts necessary for his assessment for that assessment year. If it is also found that the petitioner had disclosed fully and truly all material facts necessary for its assessment, then no action under Section 147 could have been taken after the four year period indicated above. So, the key question is whether or not the petitioner had made a full and true disclosure of all material facts. 20. In the reasons supplied to the petitioner, there is no whisper, what to speak of any allegation, that the petitioner had failed to disclose fully and truly all material facts necessary for assessment and that because of this failure there has been an escapement of income chargeable to tax. Merely having a reason to believe that income had escaped assessment is not sufficient to reopen assessments beyond the fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... required the AO to have a reason to believe that (a) the income of the Assessee has escaped assessment and (b) that such escapement is by reason of omission or failure on the part of the Assessee to file a return or to disclose fully and truly all material facts necessary for his assessment for that year. After the amendment, only one singular requirement is to be fulfilled under Section 147(a) and that is, that the AO has reason to believe that income of an Assessee has escaped assessment. However, the proviso to Section 147 of the Act provides a complete bar for reopening an assessment, which has been made under Section 143(3) of the Act, after the expiry of four years. However, this proscription is not applicable where the income of an Assessee has escaped assessment on account of failure on the part of the Assessee to make a return or to disclose fully and truly all material facts necessary for his assessment. Thus, in order to reopen an assessment which is beyond the period of 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 cert ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e assessment for 1995-96, there was no fresh material to enable him to form reasons to believe that income on account of share loss had escaped assessment. Importantly, despite the fact that the reopening was sought to be made after the expiry of four years after the end of the AY 1995-96, no mention was made by the AO of the failure by the Assessee to make a full and true disclosure of all material facts in the original assessment. This is significant in the context of the AO noting in the original order of assessment under Section 143(3) of the Act, passed by the AO on 10th July 1997, that the Assessee had produced the books of accounts which had been checked by the AO. The AO also noted that the Assessee was dealing in shares and securities. 38. The fact that Mr. R.R. Modi, the Director of the Assessee was also the person who floated PPL, could not by itself have constituted 'tangible material' for forming 'reasons to believe' when viewed in the context of the fact that the value of the closing stock of shares had been computed on the basis of the quotation in the Gauhati Stock Exchange which was at ₹ 2 per share. Further, both the CIT (A) and the ITAT h ..... X X X X Extracts X X X X X X X X Extracts X X X X
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