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2020 (3) TMI 1117

..... been issued to the petitioner was on account of change of opinion or on account of failure on the part of the petitioner to fully and truly disclose all material required for the assessment is to be determined by the Assessing Officer while passing order under Section 147 of the Income Tax Act, 1961. In the facts of the case, though the petitioner had furnished certain details at the time of re-assessment, the question still remains to be answered is whether there was full and true disclosure by the petitioner as is contemplated under proviso to Section 147 of the Income Tax Act, 1961. In this case, mere filing to the annexure by the petitioner in response to notice during scrutiny assessment by itself may or may not have been sufficient to come to the conclusion that there was full and true disclosure by the petitioner if the information furnished was neither complete nor true. It is therefore best left open for the petitioner to demonstrate before the 1st respondent that the details furnished by the petitioner vide letter dated 03.03.2016 in annexure 2 meets the requirements of full and true disclosure for the Assessing Officer to drop the proceedings in terms of 1st proviso to S .....

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..... hasto file a return and if he so desires, can ask for reasons for issuing notices and that the assessing officer is bound to furnish reasons within a reasonable time. In this case, the petitioner asked for such reasons. 4. By a communication dated 13.10.2017, the 1st respondent furnished the reasons for re-opening the assessment. It reads as under: The assessee company, M/s.Polaris Financial Technology Ltd., is engaged in the business of software development. It filed its Return of Income on 30/11/2012 admitting a total income of ₹ 119,80,36,060/-. The assessment u/s 143(3) r.w.s.92CA(3) was made on 10.05.2016 after making addition of ₹ 6,12,74,728 on account of TPO adjustment and ₹ 2,64,68,238 towards disallowance u/s 14A. The assessee has claimed deduction u/s 80JJAA amounting to ₹ 17,93,76,639/-. It was noticed that the assessee had treated many persons as a workmen, who were working in managerial or administrative capacity such as Senior Project Lead, Senior consultant, etc. As these employees are not regular workmen , as contemplated in the Industrial Dispute Act, (hereinafter read as I.D.Act), 1947, the payment mode do not qualify for the deduction u/s .....

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..... tice u/s 142(1) of the Income Tax Act, 1961. 9. It is submitted that the petitioner had given all the details to the 2nd respondent for the purpose of assessment, while claiming deduction under Section 80JJAA and therefore a mere change in opinion by an Assessing Officer, did not entitle the said officer to re-open the assessment. 10. The learned counsel appearing for the petitioner drew my attention to communication dated 03.03.2016, pursuant to a notice issued under Section 142(1) and after the personal hearing held on 15.02.2016 and 22.02.2016. It is the contention of the learned counsel appearing for the petitioner that the petitioner had clearly explained the basis on which the deduction under Section 80JJAA of the Income Tax Act was claimed by the petitioner. The learned counsel appearing for the petitioner relied on the following decisions:- i. Calcutta Discount Co. Ltd. V. Income Tax Officer, AIR 1961 SC 372. ii. Jeans Knit P. Ltd. V. CIT, 2018(12) SCC 36. iii. The Income Tax Officer V. Lakhmani Mewal Das, 1976(3) SCC 757. iv. Jindal Photo Films Ltd. V. The Deputy Commissioner of Income Tax, 1998 (46) DRJ (DB). v. Income Tax Officer V. Techspan India P. Ltd., (2018) 6 SCC 6 .....

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..... for reopening of the assessment is merely to allow an assessee to participate in the re-assessment proceedings by giving effective reply. The overruling of the objection by the respondents through a speaking order is however not an order under Section 147 of the Income Tax Act, 1961. 16. The decision of the Hon ble Supreme Court in Calcutta Discount Company Ltd. Vs. Income Tax Officer, Companies District I, Calcutta and Others, (1961) 2 SCR 241 was rendered in the context of Section 34(1)(a) of the Income Tax Act, 1922. The court there held that for an Assessing Officer to exercise his jurisdiction under Section 34(1)(a) of the Income Tax Act, 1922, the Assessing Officer has to satisfy two conditions co-exist, namely:- i. that he must have reason to believe that income, profits or gains had been under-assessed; and ii. that such under-assessment was due to non-disclosure of material facts by the assessee. 17. It must also be remembered that Section 148 of the Income Tax Act, 1961 as it stands now and Section 34 of the Income Tax Act, 1922 as it stood when the decision was rendered read differently. They are reproduced below for easy reference:- Section 34 of the Income Tax Act, 192 .....

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..... required to be furnished under Section 139 : Provided that in a case- (a) where a return has been furnished during the period commencing on the 1st day of October, 1991 and ending on the 30th day of September, 2005 in response to a notice served under this Section, and (b) subsequently a notice has been served under sub-Section (2) of Section 143 after the expiry of twelve months specified in the proviso to sub-Section (2) of Section 143, as it stood immediately before the amendment of said sub-Section by the Finance Act, 2002 (20 of 2002) but before the expiry of the time limit for making the assessment, re-assessment or recomputation as specified in sub- Section (2) of Section 153, every such notice referred to in this clause shall be deemed to be a valid notice: Provided further that in a case- (a) where a return has been furnished during the period commencing on the 1st day of October, 1991 and ending on Provided that- (i) the Income Tax Officer shall not issue a notice under this sub-Section, unless he has recorded his reasons for doing so and the Commissioner is satisfied on such reasons recorded that it is a fit case for the issue of such notice; (ii) the tax shall be charge .....

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..... ear 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 under-assessed. The second is that he must have also reason to believe that such under-assessment has occurred by reason of either (i) omission or failure on the part of an assessee to make a return of his income under Section 22, or (ii) omission or failure on the part of an assessee to disclose fully and truly all material facts necessary for his assessment for that year. Both these conditions are conditions precedent to be satisfied before the Income Tax Officer could have jurisdiction to issue a notice for the assessment or reassessment beyond the period of four years but within the period of eight years, from the end of the year in question. 20.It was further observed as follows:- 14. The position therefore is that if there were in fact some reasonable grounds for thinking that there had been any non-disclosure as regards any primary fact, which could have a material bearing on the question of under-assessment that would be sufficient to give jurisdiction to the Income Tax Officer to issue the n .....

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..... ion 147 as it stands today, any other income chargeable to tax which had escaped assessment and which comes to his notice subsequently in the course of the proceedings under this section also can be taxed. For comparison, they are reproduced below:- Provisions as it stood when the decision rendered Sections 147 & 148 of the Income Tax Provision as it stands today Sections 147 & 148 of the Income Tax 147. Income escaping assessment.- If- (a) the Income Tax Officer has 147.Income escaping assessment. If the Assessing Officer has reason to believe reason to believe that, by reason of the omission or failure on the part of an assessee to make a return under Section 139 for any assessment year to the Income Tax Officer or to disclose fully and truly all material facts necessary for his assessment for that year, income chargeable to tax has escaped assessment for that year, or (b) notwithstanding that there has been no omission or failure as mentioned in clause (a) on the part of the assessee, the Income Tax Officer has in consequence of information in his possession reason to believe that income chargeable to tax has escaped assessment for any assessment year, he may, subject to .....

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..... s or depreciation allowance has been computed. Explanation 2.-Production before the Income Tax Officer of account books or other evidence from which material evidence could with due diligence have been discovered by the Income Tax Officer will not necessarily amount to disclosure within the meaning of this Section. Explanation 1.-Production before the Assessing Officer of account books or other evidence from which material evidence could with due diligence have been discovered by the Assessing Officer will not necessarily amount to disclosure within the meaning of the foregoing proviso. Explanation 2.-For the purposes of this Section, the following shall also be deemed to be cases where income chargeable to tax has escaped assessment, namely :- (a) where no return of income has been furnished by the assessee although his total income or the total income of any other person in respect of which he is assessable under this Act during the previous year exceeded the maximum amount which is not chargeable to income-tax; (b) where a return of income has been furnished by the assessee but no assessment has been made and it is noticed by the Assessing Officer that the assessee has understat .....

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..... r sub- Section (2) of Section 139 ; and the provisions of this Act shall, so far as may be, apply accordingly as if the notice were a notice issued under that sub- Section. (2) The Income Tax Officer shall, before issuing any notice under this Section, record his reason for doing so. Sub-Section (1) of Section 149 prescribes the time limit for notice and reads as under: (1) No notice under Section 148 shall be issued, (a) in cases falling under clause (a) of Section 147- (i) for the relevant assessment year, if eight years have elapsed from the end of that year, unless the case falls under sub-clause (ii); (ii) for the relevant assessment year, where eight years, but not more than sixteen years, have elapsed from the end of that year, unless the income chargeable to tax which has escaped assessment amounts to or is likely to amount to rupees fifty thousand or more for that year; period, as may be specified in the notice, a return of his income or the income of any other person in respect of which he is assessable under this Act during the previous year corresponding to the relevant assessment year, in the prescribed form and verified in the prescribed manner and setting forth such .....

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..... everal changes. 28. The Hon ble Supreme Court in Income Tax Officer Vs. Lakhmani Mewal Das, (1976) 3 SCC 757 clearly mentioned that for the purpose of the disposal of the said case, they were not relevant. The Court was concerned with the Assessment Year 1958-59 under Income Tax Act, 1961. 29. Therefore, the ratio of the Hon'ble Supreme Court in the above case in the Income Tax Officer Vs. Lakhmani Mewal Das (1976) 3 SCC 757, cannot be straightaway applied under the amended provision as it stands today. The Supreme Court merely followed the views of the Hon ble Supreme Court in Calcutta Discount Company Ltd. Vs. Income Tax Officer, Companies District I, Calcutta and Others, (1961) 2 SCR 241. 30. Whether the notice that has been issued to the petitioner was on account of change of opinion or on account of failure on the part of the petitioner to fully and truly disclose all material required for the assessment is to be determined by the Assessing Officer while passing order under Section 147 of the Income Tax Act, 1961. 31. In the recent decision, the Honourable Supreme Court in Jeans Knit Private Limited Vs. Deputy Commissioner of Income Tax, (2018) 12 SCC 36, has held that the .....

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..... g Officer to make a back assessment, but in Section 147 of the Act (with effect from 1st April, 1989), they are given a go-by and only one condition has remained, viz., that where the Assessing Officer has reason to believe that income has escaped assessment, confers jurisdiction to re-open the assessment. Therefore, post-1st April, 1989, power to re-open is much wider. However, one needs to give a schematic interpretation to the words reason to believe failing which, we are afraid, Section 147 would give arbitrary powers to the Assessing Officer to re-open assessments on the basis of mere change of opinion , which cannot be per se reason to re-open. We must also keep in mind the conceptual difference between power to review and power to re-assess. The Assessing Officer has no power to review, he has the power to re-assess. But re-assessment has to be based on fulfilment of certain pre-condition and if the concept of change of opinion is removed, as contended on behalf of the Department, then, in the garb of re-opening 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. 37. In .....

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