TMI Blog2020 (2) TMI 737X X X X Extracts X X X X X X X X Extracts X X X X ..... ent order passed under Section 143 (3) of the Income Tax Act, 1961 and that subsequent decision of the Hon ble Supreme Court reversing the legal position prevailing at the time of regular assessment cannot be called an omission or failure on the part of the assessee in disclosing fully and truly the material facts necessary for relevant assessment. Writ Petition is allowed and the impugned proceeding under Section 147 and notices dated March 26, 2014 under Section 148 of the Income Tax Act, 1961 are quashed.- Decided in favour of assessee. - W. P. No. 719 of 2014 - - - Dated:- 14-2-2020 - Hon ble Mr. Justice Md. Nizamuddin For the Petitioner : Mr. J.P. Khaitan, Sr. Adv.Mr. Prasanta Kr. Dutta, Adv. Mr. Agnibesh Sengupta, Adv. Mr. Susanta Kr. Dutta, Adv For the Respondent : Mr. P. K. Bhowmick, Adv ORDER MD. NIZAMUDDIN, J. Heard Learned Counsel appearing for the parties. The petitioner has challenged the initiation of impugned reassessment proceeding under Section 147 and notices dated 26th March, 2014 under Section 148 of the Income Tax Act, 1961 relating to assessment years 2007-08 and 2008-09. The issue required to be adjudicated in this Writ Pet ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ccepting the petitioner s claim of interest on fixed deposits and did not subject the interest income of ₹ 1,13,56,044/- to tax. On March 26, 2014 the Assessing Officer issued notices under Section 148 of the Income Tax Act, 1961, relating to assessment years 2007-08 and 2008-09 respectively by saying that he had reason to believe that income chargeable to tax has escaped assessment within the meaning of Section 147 of the Income Tax Act. The petitioner by a letter dated April 19, 2014 objected to the aforesaid impugned notices under Section 148 and requested the respondents for furnishing the copies of the recorded reasons and which were furnished to the petitioner on June 2nd, 2014. It appears from the recorded reasons by the Assessing Officer that the reopening of assessment of the relevant assessment years are based on a subsequent judgment dated 14th January, 2013, of the Hon ble Supreme Court in the case of M/s Bangalore Club -vs- Commissioner of Income Tax Anr. reported in (2013) 350 ITR 509 (SC) holding that income earned by way of interest from corporate members of a club is taxable income and does not come under the ambit of the mutuality principle, theref ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reported in 157 ITR page 127, where the Hon ble Patna High Court has considered the judgment of the Hon ble Supreme Court (supra). The computation sheet contains a note stating that the return is being revised considering the judgments of the various H.C. and ITAT where it has been held that interest income of Club from deposits of Surplus Funds is exempt on the Principle of Mutuality. Accordingly the Bank FD interest and security deposit with CESC totalling to ₹ 65,17,692/- has been claimed as exempt income and shown in Schedule EI of ITS 6 at page 25. The .. Therefore, in view of the order passed by Hon ble Supreme Court, it is held that the income of assessee has escaped assessment to the tune of ₹ 65,17,692/- while passing order u/s. 143 (3) dt. 13.12.2009. Considering the above facts, I have reasons to believe that the case is required to be reopened u/s 147 of the I.T Act 1961.) Factual and legal position as appears on perusal of relevant records including recorded reason and various judicial precedents relied upon by the petitioner which were existing at the time of passing the assessment order under Section 143 (3) of the Income Tax A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (b) Titanor Components Ltd. vs Assisstant Commissioner of Income Tax, (2012) 343 ITR 183 (Bom). He further contended that at the time when the petitioner s assessment was completed, the law as declared by this Hon ble Court and some other High Courts was that such interest income was to be excluded from taxation. Even in December 2010 (the same month in which the petitioner s assessment for the assessment year 2008-09 was completed), the Hon ble Delhi High Court in CIT vs Delhi Gymkhana Club Ltd., (2011) 339 ITR 525 (Del) took the same view. Such view was squarely reversed by the judgment of the Hon ble Supreme Court in Bangalore Club s case (supra). He submitted that the subsequent reversal of the legal position by the judgment of the Hon ble Supreme Court does not authorise the Department to reopen the assessment, which stood closed on the basis of the law as it stood at the relevant time. In such case, there cannot even be an allegation of failure to disclose fully and truly any material fact necessary for assessment and in support of his contention has relied upon the judgment of the Hon ble Supreme Court in the case of Deputy Commissioner of Income Tax vs Simplex Conc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rs on the basis of doctrine of mutuality and by accepting this doctrine, the assessee has been given exemption from paying income tax on the income from their members. In the assessment year which is in question, i.e., 2003- 04, a question arose as to whether the assessee would be entitled to claim exemption even in respect of income generated by investing the surplus funds. The case of the assessee was that the income from FDRs in bank, dividend income, income from Government securities and profit on sale of invest, etc. would also attract the doctrine of mutuality and therefore, no tax was payable thereupon. The Assessing Officer (AO) as well as Commissioner of Income Tax (Appeals) did not accept this submission of the assessee. However, the assessee succeeded before the Income Tax Appellate Tribunal (hereinafter referred to as the Tribunal ), as by the impugned order dated 30.09.2009, the Tribunal has allowed the appeal of the assessee holding that the doctrine of mutuality shall apply even on the aforesaid income. After hearing the learned counsel for both the parties at length, we are of the opinion that the aforesaid finding of the Tribunal is correct on facts and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l material facts necessary for assessment. Indeed, where the assessee has fully disclosed all material facts, it is open for the Assessing Officer to reopen the assessment on the ground that there is a mistake in assessment. Moreover, it is necessary for the Assessing Officer to first observe whether there is a failure to disclose fully and truly all material facts necessary for assessment and having observed that there is such a failure to proceed under Section 147. It must follow that where the Assessing Officer does not record such a failure he would not be entitled to proceed under Section 147. As observed earlier, the Assessing Officer has not recorded the failure on the part of the petitioner to fully and truly disclose all material facts necessary for assessment year 1997-98. What is recorded is that the petitioner has wrongly claimed certain deductions which he was not entitled to. There is a well known difference between a wrong claim made by an assessee after disclosing all the true material facts and a wrong claim made by the assessee by withholding the material facts fully and truly. It is only in the latter case that the Assessing Officer would be entitled to proceed u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the allegations made in the Writ Petition and could not substantiate the same with any material and it appears that there are bare denial of the allegations made by the petitioner in the Writ Petition and have no answer to the legal issues as well as admitted facts raised by the petitioner in the Writ Petition. The respondents could not establish that the alleged escaped income in question was not disclosed during the course of original assessment proceeding or that it was not taken into consideration by the Assessing Officer at the time of passing of the assessment order under Section 143 (3) of the Act or that the proceeding for reassessment under Section 147 of the Act was initiated within four years or that the recorded reason has specifically stated that there was any omission or failure on the part of the assessee to disclose fully and truly all the material facts necessary for assessment in the relevant assessment year. He also could not satisfy me by any provisions of law or any decisions that the impugned proceeding of reopening of assessment under Section 147 of the Income Tax Act, 1961 could be initiated beyond four years from the end of the relevant assessment year eve ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ring the relevant provisions of the I.T. Act 1961 as stated hereinabove, and as reference has been made to other provisions of the act, it is pertinent to mention those sections, which are under:- In Explanation to section 149 (1) of the Act, reference has been made to the Explanation 2 to section 147 and the applicability of the same to the said section. Before coming to the Explanation to section 2 to section 147, the provision of Section 147 with regard to the income escaping assessment needs to be referred to. Section 147 provides that, if the Assessing Officer has reason to believe that any income chargeable to tax has escaped assessment for any assessment year, he may, subject to the provisions of Section 148 to 153, assess or reassess such income and also any other income chargeable to tax which has escaped assessment and which comes to his notice subsequently in the course of the proceedings under this section. The first proviso to section 147 states 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 th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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