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2016 (6) TMI 1045 - RAJASTHAN HIGH COURT

2016 (6) TMI 1045 - RAJASTHAN HIGH COURT - [2017] 393 ITR 264 - Reopening of assessment - claim of additional depreciation and also in respect of claim for grant of deduction under Section 80 IA - Held that:- The assessee had made true and full disclosure of all relevant facts relating to the claim of additional depreciation and also in respect of claim for grant of deduction under Section 80 IA. A separate audit report in the prescribed form 10CCB in support of the claim for deduction under Sec .....

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by the AO is that after scrutiny assessment, it was observed that assessee has made incorrect claim of additional depreciation on CPP whereas, the claim for additional depreciation on CPP was allowed by the AO while framing the assessment under Section 143(3) after conscious consideration of the material on record. It is not even the case of the Revenue that the formation of the belief regarding the escapement of the assessment by the AO is based on any new material coming on record. Apparently .....

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f opinion is patently illegal, cannot be faulted with. - The ITAT having arrived at the categorical finding that reopening of the completed assessment without any fresh material, merely on the basis of change of opinion of the AO, is without jurisdiction and erroneous, the appeal preferred by the Revenue has rightly been dismissed as having become infructuous. - Decided in favour of assessee - (D.B.INCOME TAX APPEAL 166/14) - Dated:- 20-5-2016 - MR. SANGEET LODHA AND MR. KAILASH CHANDRA SHAR .....

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(AO) for the assessment year 2005-06, on the change of opinion, the appeal preferred by the Revenue has been dismissed as having become infructuous. 2. The relevant facts are that the assessee filed its return of income for assessment year 2005-06, on 29.10.05, disclosing total income at ₹ 587,04,55,500/-, which was assessed under Section 143(3) by the AO on 26.12.07 at total income of ₹ 609,09,40,080/-. The order passed by the AO was appealed against by the assessee before the CIT ( .....

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n on CPP claimed by the assessee to the tune of ₹ 30,09,36,309/- and accordingly assessed the taxable income at ₹ 617,13,91,709/-. Aggrieved thereby, the assessee preferred an appeal before the CIT (A), Udaipur. It was contended on behalf of the assessee that the assessments completed after scrutiny assessment under Section 143(3), cannot be reopened under Section 147 merely on the basis of change of opinion. The CIT(A) arrived at the finding that the re-assessment proceeding initiat .....

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that the assessee has disclosed true and complete material facts before the AO and no new facts had come on record, justifying the action in initiating re-assessment proceedings. It was contended that the re-assessment proceeding initiated by the AO on the basis of change of opinion, is not sustainable in the eyes of law. As noticed hereinabove, the ITAT has allowed the Cross Objection filed on behalf of the assessee, consequently, the appeal preferred by the Revenue questioning the order of th .....

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l submitted that it is true that the assessment for assessment year 2005-06 was completed under Section 143(3) of the Act but the fact remains that the additional depreciation on CPP was allowed without examination and thus, it cannot be said that the reopening of the assessment is based on change of opinion. Learned counsel would submit that the ITAT has erred in dismissing the appeal of the Revenue without examination of the sustainability of the disallowance made by the AO, is ex facie errone .....

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tion of the belief that any income of the assessee chargeable to tax for the relevant assessment year has escaped assessment. As laid down by the Hon'ble Supreme Court, the belief entertained by the Assessing Officer must not be arbitrary or irrational, it must be reasonable and based on material on record. The assumption of jurisdiction by the Assessing Officer under the provisions of the Act pre-supposes due application of mind by the Assessing Officer on the material on record and formati .....

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s of Section 147 of the Act of 1961 explained the purports of Section 34 ,as under:- To confer jurisdiction under this section to issue notice in respect of assessments beyond the period of four years, but within a period of eight years, from the end of the relevant year two conditions have therefore to be satisfied. The first is that the Income-tax Officer must have reason to believe that income, profits or gains chargeable to income-tax have been underassessed. The second is that he must have .....

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beyond the period of four years, but within the period of eight years, from the end of the year in question. The Hon'ble Supreme court further observed that it is duty of every assessee to disclose fully and truly all material facts necessary for his assessment. But, his duty does not extend beyond this. The Hon'ble Supreme Court opined that once all primary facts are before the Assessing Authority, he requires no further assistance by way of disclosure . It is for him to decide what in .....

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or the Income-tax Officer to believe that there had been any non-disclosure as regards any fact, which could have a material baring on the question of under-assessment, that would be sufficient to give jurisdiction to the Income Tax Officer to issue the notice under section 34. Whether these grounds are adequate or not is not a matter for the court to investigate. In other words, the sufficiency of the grounds which induced the Income-tax Officer to act is not a justiciable issue. It is of cours .....

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open to the court to examine whether the reasons for the belief have a rational connection or a relevant bearing to the formation of the belief and are not extraneous or irrelevant to the purpose of the section. To this limited extent, the action of the Income-tax Officer in starting proceedings under section 34 of the Act is open to challenge in a court of law. (Emphasis supplied) 8. In the matter of 'Income Tax Officer, I Ward Distt VI, Calcutta Vs. Lakhmani Mewal Das', (1976) 103 ITR .....

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e assessee to advice the Income-tax Officer with regard to the inference which he should draw from the primary facts. If an Income-tax Officer draws an inference which appears subsequently to be erroneous, mere change of opinion with regard to that inference would not justify initiation of action for reopening assessment. The grounds or reasons which lead to the formation of the belief contemplated by section 147 (a) of the Act must have a material bearing on the question of escapement of income .....

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n to the assessee to contend that the Income-tax Officer did not hold the belief that there had been such non-disclosure. The existence of the belief can be challenged by the assessee but not the sufficiency of the reasons for the belief. The expression reason to believe does not mean a purely subjective satisfaction on the part of the Income-tax Officer. The reason must be held in good faith. It cannot be merely a pretense. It is open to the court to examine whether the reasons for the formatio .....

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aring on the formation of the belief. Rational connection postulates that there must be a direct nexus or live link between the material coming to the notice of the Income -tax Officer and the formation of his belief that there has been escapement of the income of the assessee from assessment in the particular year because of his failure to disclose fully and truly all material facts. (emphasis supplied) 9. In the matter of 'M/s. S.Ganga Saran & Sons (Pvt.) Ltd., Calcutta vs. Income Tax .....

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the part of the assessee to disclose fully and truly all material facts necessary for his assessment. If either of these conditions is not fulfilled, the notice issued by the Income Tax Officer would be without jurisdiction. The important words under Section 147 (a) are has reason to believe and these words are stronger than the words is satisfied . The belief entertained by the Income Tax Officer must not be arbitrary or irrational. It must be reasonable or in other words it must be based on re .....

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, on such reasons, no one properly instructed on facts and law could reasonably entertain the belief, the conclusion would be inescapable that the Income Tax Officer could not have reason to believe that any such escapement was by reason of the assessee had escaped assessment and such escapement was by reason of the omission or failure on the part of the assessee to disclose fully and truly all material facts and the notice issued by him would be liable to be struck down as invalid. (emphasis su .....

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disclose fully and truly all material facts necessary for his assessment for that year, income has escaped assessment. The existence of the reason(s) to believe is intended to be a check, a limitation, upon his power to reopen the assessment. Section 148(2) imposes a further check upon the said power, viz., the requirement of recording of reasons for such reopening by the Income-tax Officer. Section 151 imposes yet another check upon the said power, viz., the Commissioner or the Board, as the c .....

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protection avails only to those assessees who disclose all material facts truly and fully. Every disclosure is not and cannot be treated to be true and full disclosure. A disclosure may be a false one or a true one. It may be a full disclosure or it may not be. A partial disclosure may very often be a misleading one. What is required is a full and true disclosure of all material facts necessary for making assessment for that year. All the requirements stipulated by section 147 must be given due .....

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e was any material available on the record from which the requisite belief could be formed by the Income-tax Officer and further whether that material had any rational connection or a live link for the formation of the requisite belief. (emphasis supplied) 11. In the matter of CIT vs. Kelvinator of India Ltd. , (2010) 320 ITR 561 (SC), the Hon'ble Supreme Court held: However, one needs to give a schematic interpretation to the words 'reason to believe', failing which section 147 woul .....

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f the department, then in the garb of reopening the assessment, review would take place. One must treat the concept of 'change of opinion' as an in-built test to check abuse of power by the Assessing Officer. Hence, after 1-4-1989, the Assessing Officer has power to reopen, provided there is 'tangible material' to come to conclusion that there is escapement of income from assessment. Under the Direct Tax Laws (Amendment) Act, 1987, the Parliament not only deleted the words 'r .....

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nt of deduction under Section 80 IA. A separate audit report in the prescribed form 10CCB in support of the claim for deduction under Section 80IA/80IB was also duly submitted. The assessee had also submitted reply pursuant to all queries made by AO during the assessment proceedings under Section 143(3) of the Act. In this view of the matter, the contention sought to be raised by the Revenue about non-disclosure on the basis of the failure on the part of the assessee in mentioned bifurcated amou .....

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