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2016 (1) TMI 942 - MADRAS HIGH COURT

2016 (1) TMI 942 - MADRAS HIGH COURT - TMI - Reopening of assessment - addition u/s 69A - Held that:- There was true and full disclosure by the assessee of all material facts.

As that in the scrutiny assessment order, the Assessing Officer accepted the claim of the assessee under Section 69A and that however, after the expiry of four years, the Assessing Officer sought to reopen the proceedings contrary to the proviso to Section 147 and the reopening of assessment is contrary to law. .....

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araman, learned counsel for the appellant and Mr.Pramodkumar Chopda, learned Standing Counsel appearing for the respondent. 3. The appellant/assessee filed a Return of Income on 30.9.2008 declaring a loss of ₹ 14,07,72,863/-. Later they filed a Revised Return of Income on 26.3.2009 declaring a loss of ₹ 17,47,251/-. The case was selected for scrutiny and a notice under Section 143(2) and 142(1) was issued. 4. Six specific issues were taken up in the course of scrutiny proceedings. On .....

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he Order of Assessment dated 31.12.2010 that the assessee had income from undisclosed sources assessable under Section 69A. Consequently, the Assessing Officer treated the entire receipt of sale consideration of ₹ 31,07,20,000/- derived by the assessee from undisclosed sources assessable under Section 69A. 5. Subsequently, the Assessing Officer passed a rectification order on 6.9.2011 under Section 154 of the Act. This order was for the purpose of adjustment of losses under the head Unabso .....

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easons for the reopening of assessment. The reasons for reopening the assessment were communicated by a letter dated 8.12.2014. The letter reads as follows: "The scrutiny assessment was completed u/s 143(3) determining the total income at ₹ 415.20 crores after making an addition of ₹ 415.37 crores which included ₹ 408.78 crores made u/s 68 & 69A. The assessment was revised which interalia included to allow the assessee's claim for set off of unabsorbed depreciation .....

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another letter dated 15.12.2014. But overruling the objections, an order was passed on 12.1.2015. Simultaneously, a show cause notice was also issued on 12.1.2015, seeking to make additions. 9. The appellant submitted their detailed objections on 19.1.2015. On the very next day namely 20.1.2015, the Assessing Officer passed an order of assessment and directed the issue of demand notice. A demand notice dated 21.1.2015 was accordingly issued. 10. Aggrieved by the show cause notice dated 12.1.2015 .....

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r, but from the date, on which, the rectification application was filed. Therefore, the learned Judge held that the reopening of assessment was within the period of 4 years prescribed under Section 147. In the light of such a conclusion, the learned Judge held that the appellant should canvass the correctness of the order of assessment only before the First Appellate Authority in regular appeal. Aggrieved by the said common order of the learned Judge, the appellant is before us. 11. At the outse .....

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shall be taken under this section after the expiry of 4 years from the end of the relevant assessment year. The only exception to this Rule of Limitation is that if any income chargeable to tax has escaped assessment by reason of the failure on the part of the assessee to make a return under Section 139 or in response to a notice issued under Section 142(1) or Section 148 or to disclose fully and truly all material facts necessary for his assessment, the limitation of 4 years may not apply. 12. .....

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t endeavoured to contend before us that this is a case of failure on the part of the assessee to disclose fully and truly all material facts. In other words, the attempt of the learned Standing Counsel for the Department was to convince us that though the reopening of assessment was sought to be made beyond the period of limitation stipulated in the proviso to Section 147, the case is one of failure to disclose and it is a case of escapement of assessment within the purview of Explanation 2 to S .....

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ted in the letter dated 8.12.2014 were different from the reasons indicated in the show cause notice dated 12.1.2015 and hence, the order resulting therefrom is illegal. 16. The third contention of the learned counsel for the appellant is that this is not a case, which will fall either under the category of (i) failure to file return or (ii) failure to disclose fully and truly all material facts. Therefore, the period of limitation would operate in respect of the case on hand. 17. The last conte .....

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of India Limited [(2010) 320 ITR 561 (SC)], that though the power to reopen assessment, after the Direct Tax Laws (Amendment) Act 1987, is much wider, one needs to give schematic interpretation to the words "reason to believe", failing which, Section 147 would give arbitrary powers to the Assessing Officer to reopen assessments on the basis of "mere change of opinion". The Court emphasised that the Assessing Officer has no power of review and that there is a conceptual differ .....

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y a three Member Bench and it was made long after the decision in Reymonds Woollen Mills Limited. 20. It is contended by Mr.T.Promodkumar Chopda, learned Standing Counsel for the Department that this is not a case of change of opinion. At the time when a scrutiny assessment was made, the Assessing Officer did not even form an opinion about the addition made under Sections 68 and 69A. Therefore, the reopening of assessment, according to the learned Standing Counsel, cannot be said to tantamount t .....

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d Sale of land: The assessee has declared an income of ₹ 14,31,19,916/- as Short Term Capital Gain (STCG) on sale of land. It was seen from the Fixed Schedule of the assessee company for the relevant previous year that no Land has been shown as disposed off (land value at the beginning and at the end of the relevant year quantified at ₹ 15,12,91,428/-). The Depreciation Statement of the assessee prepared for I.T. purposes also shows the same value at the beginning and at the end of t .....

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g Officer never formed an opinion at the time of scrutiny assessment and that therefore, the formation of opinion for the first time cannot tantamount to change of opinion. 23. Drawing our attention to the show cause notice dated 12.1.2015, it is next pointed out by the learned Standing Counsel for the Department that there were actually four different reasons for the reopening of assessment. Hence, it is contended that even if the issue relating to income from undisclosed sources assessable und .....

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tated therein, for justifying the reopening of assessment. 25. However, drawing our attention to Explanation 3 under Section 147, it is contended by Mr.T.Pramodkumar Chopda, learned Standing Counsel for the Department that the reassessment sought to be made under Section 148, need not be confined to the reasons stated in the proceedings under Section 148(2). In support of this contention, the learned Standing Counsel placed reliance upon a decision of the Punjab and Haryana High Court in Majinde .....

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made obliged to record his reasons for doing so under Sub-Section (2) of Section 148. 27. Keeping this in mind, let us see what Explanation 3 to Section 147 says, which reads as follows: "Explanation 3. - For the purpose of assessment or reassessment under this section, the Assessing Officer may assess or reassess the income in respect of any issue, which has escaped assessment, and such issue comes to his notice subsequently in the course of the proceedings under this section, notwithstan .....

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rds found in Explanation 3 are of importance. The word "subsequently" and the words "in the course of proceedings" clearly indicate that an issue other than the one mentioned in the order under Section 148(2) should have come to his notice, after the recording of reasons. It should have come to his notice "in the course of proceedings". The words "in the course of proceedings" are also of significance. As a matter of fact, in the decision of the Punjab and .....

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ome other additions were also liable to be made. Therefore, the said case is of no assistance to the Revenue. 29. Even the decision in Commissioner of Income Tax v. Mehak Finvest (P) Ltd. [(2014) 52 Taxmann.com 51] of the Punjab and Haryana High Court cannot go to the rescue of the Revenue. In that case, the Assessing Officer reopened the assessment, upon receipt of information that various finance companies managed and controlled by Chartered Accountants were involved in providing accommodation .....

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ections 147 and 148, the additions made subsequently in the course of the proceedings, have always been upheld by Courts. But, where the reopening of assessment cannot stand on the strength of the reasons recorded under Section 148(2), the Revenue cannot seek to justify the reopening, by finding some point or the other post-facto after the reopening of assessment. 31. Sub-Sections (1) and (2) of Section 148 and Explanation 3 under Section 147 contemplate two entry points or two gate ways. The fi .....

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. Once the Assessing Officer satisfies these three criteria, he is allowed entry through the outer gate or the first check-post. The moment he has gained entry lawfully through the first check-post, the proceedings for reassessment begin. In the course of those proceedings, if issues other than those, which triggered the formation of his opinion under Section 147, come to his notice, he would be permitted, by virtue of Explanation 3, to gain entry into all other check-posts located within the pr .....

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to visit restaurants, dutyfree shops etc., before boarding the flight. His access to the facilities inside the airport is dependent upon his right of entry into the airport. This is how Sub-Sections (1) and (2) of Section 148 and Explanation 3 to Section 147 have to be understood. 32. Therefore, any number of reasons indicated in the show cause notice, cannot justify the reopening of assessment. The justification for reopening of assessment has to be tested only on the strength of the order rec .....

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ed. 33. That takes us to the next question as to whether this case would fall under the category of failure on the part of the assessee to disclose fully and truly all material facts necessary for his assessment. 34. This question becomes one of importance in view of the admitted position and in view of our finding that the reopening has obviously taken place after the expiry of four years from the end of the relevant assessment year. Under the proviso to Section 147, there must be a failure on .....

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hing that the assessee has failed to disclose fully and truly. What was shown by the assessee as income from undisclosed sources assessable under Section 69A was not only available, but was very clearly taken note of by the Assessing Officer both in the order of scrutiny assessment dated 31.12.2010 and the order under Section 154 dated 6.9.2011. The record of reasons under Section 148(2), made on 8.12.2014 does not disclose what are the material facts that the appellant/assessee failed to disclo .....

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turn and that claim is found to be legally untenable, the same would tantamount to a failure to disclose truly and fully all material facts. In other words his contention is that if an assessee has claimed an addition or allowance under a particular provision though he is not entitled to the same in law, he would be taken to be guilty of failure to disclose fully and truly according to the learned Standing Counsel, the assessee made a claim under Section 68 and 69A though he was not entitled to .....

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Section 147. 38. In Fenner (India) Limited v. Deputy Commissioner of Income Tax [(2000) 241 ITR 672], R.Jayasimha Babu, J (as he then was) explained this position as follows:- "21. The duty of an assessee is limited to fully and truly disclose all the material facts. The assessee is not required thereafter to prepare a draft assessment order. If the details placed by the assessee before the AO was in conformity with the requirements of all applicable laws and known accounting principles, an .....

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case, it is clear that the escapement of income if any on this account is not on account of any failure on the assessee's part to disclose the material facts fully and truly. The notice issued by the AO in exercise of his power under s.147, therefore, cannot be sustained." 39. Similarly, in Assistant Commissioner of Income Tax v. ICICI Securities Primary Dealership Limited [(2012) 348 ITR 299], the Supreme Court held that when all details with respect to the stocks and shares and the in .....

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computation of depreciation, an attempt to reopen the assessment was made on the ground that depreciation was claimed and allowed at an higher rate. This Court held that when all material facts had been disclosed truly and fully, the question as to the correct rate of depreciation to be allowed cannot be a reason for reopening after four years. Incidentally this decision also arose under identical circumstances where there was a scrutiny assessment followed by an order of rectification under Sec .....

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In Indian Hume Pipe Co. Limited v. Assistant Commissioner of Income tax [(2011) 16 taxmann.com 190], the Bombay High Court held that the full and true disclosure contemplated by statute must be judged in the context of Explanation 1 to Section 147. The Court also held that the mere production of account books or other evidence from which material evidence could have been discovered, if the Assessing Officer had exercised due diligence, would not tantamount to a true and full disclosure. The sai .....

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[2011 (14) Taxmann.com 106], relied upon by the learned Standing Counsel for the Department, would not also advance the case of the Department. This is for the reason that in that case, the re-assessment proceedings were initiated on the basis of audit note and the Assessing Officer called for complete details and confirmations from sundry creditors. The assessee was able to provide confirmation only for part of the amount. But, the assessee contended that in the original proceedings, the Asses .....

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assessee. Therefore, the Court held that there was no formation of opinion in the first instance, so as to enable the assessee to contend that the reopening of assessment was merely a change of opinion. In contrast to the said case before the Delhi High Court, the Assessing Officer, in the case on hand, had all material facts on hand in the course of scrutiny assessment and also applied his mind to the claim, as seen from paragraph 4 of the scrutiny assessment order. Therefore, the decision in D .....

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