TMI Blog2020 (5) TMI 263X X X X Extracts X X X X X X X X Extracts X X X X ..... (e) of IT Act do not apply and the reasons for arriving such a conclusion is sustainable in law. The findings recorded by the ITAT, in the impugned common order as to the non-application of mind on the part of the Assessing Officer to apply his mind independently for the purpose of reopening of assessment is also sustainable for the reason that the very same official, namely Mr.S.Krishna Kumar, in response to the audit objection dated 31.01.2015, had taken into consideration all the materials placed and requested for dropping of the audit objection and therefore, passing of second order of assessment dated 31.03.2015 by him amounts to change of opinion on the very same set of facts. This Court, on an independent application of mind and on thorough consideration of material aspects and legal position, is of the considered view that there is no error or infirmity in the reasons assigned by the ITAT in dismissing the appeal filed by the Revenue - Decided in favour of assessee. - TCA.Nos. 66&67/2018 - - - Dated:- 7-5-2020 - HON'BLE MR. JUSTICE M. SATHYANARAYANAN AND HON'BLE MR. JUSTICE ABDUL QUDDHOSE For Appellant in both the Appeals: Mr. J. Narayanaswamy, Senior ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 8,98,662 Less: Refund already issued 9,08,420 ------------ Balance Payable 9,758 ------------ 2.4. The Assessing Officer subsequently had noticed certain income chargeable to tax has escaped assessment for the Assessment Year 2007-2008 and accordingly, the said assessment was reopened with the approval of the Commissioner of Income Tax [CIT]- VI and notice under Section 148 of IT Act was issued on 31.03.2014. The respondent/assessee, in response to the said notice, filed Return of Income on 18.04.2014 and it was followed by a notice under Section 143(2) of the IT Act and that apart, the details concerning the assessment were also called for. 2.5. Authorized Representative / one of the officials of the respondent company appeared and furnished the information called for and the Books of Accounts and Bank Account Statements were produced and verified. The Assessing Officer, after taking note of the materials as well as the explanation offered by the Assessee, had found that Road Safety Club Private Limited (RSC) is a sis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ok a stand that reopening of the assessment is purely on account of audit objections for which the Assessing Officer himself sent a reply that there is no justification for raising objections and the assessment can be reopened only if the Assessing Officer is in possession of tangible materials /facts on the basis of which, he had reason to believe that income had escaped assessment. The appellant/assessee also contended as to the sustainability of addition of ₹ 2,29,00,539/- as deemed dividend under Section 2(22)(e) of IT Act and that apart, also took a stand that the credit balance in the accounts of RSC cannot be treated as deemed dividend under Section 2(22)(e) of IT Act. The Appellate Authority had allowed the appeal partly, vide order dated 25.05.2016 by directing the deletion of ₹ 2,29,00,530/- towards deemed dividend. 2.9. The Revenue, aggrieved by the order of CIT in partly allowing the appeal filed by the assessee and dismissal of their grounds pertaining to the assessment, filed ITA No.2276/Mds/2016 before the Income Tax Appellate Tribunal 'C' Bench, Chennai [ITAT], wherein the assessee / respondent filed cross objection in C.O.No.129/Mds/2016. ITA ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ot any additional amount year after year and that apart, RSC did not make payment for rendering services and the entire amount was required to be brought to tax and therefore, the balance amount of ₹ 6,01,84,164/- is required to be brought to tax and reiterated the said fact. ➔ The Assessing Officer had submitted his response dated 04.03.2014 reiterating their earlier stand for which there was a communication dated 20.03.2014 from the Deputy Director (DT) to the Officer of the CIT, Chennai (VI), vide letter dated 03.04.2014. The Assessing Officer, has submitted his response dated 10.04.2014 stating among other things that the assumption that there is no agreement between the assessee company and RSC is not correct and it will not be possible to tax the advance received as a revenue receipt even without the service having been rendered. ➔ The Deputy Director, DTI has sent a reply for which Mr.K.Krishna Kumar, Income Tax Officer, Corporate Ward -6(3), Chennai-34, has sent his response dated 30.01.2015 through proper channel stating among other things as to the justification of the Assessment Order and requested for dropping of audit objection for all the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d dividend, the credit balance in the account of RSC cannot be treated as deemed dividend under Section 2(22)(e) of the IT Act for the reason that RSC had enlisted the services of the assessee for the purpose of selling road safety equipments which are basically insurance products to promote road safety and the said amount has been advanced to the assessee without any interest and debited to RSC account and the said arrangement was supported by an agreement dated 01.04.2005 and since it is in the nature of fresh advance for the purpose of commercial transaction, the said advance do not attract Section 2(22)(e) of the said Act and the said aspect was also considered by CIT (Appeals) and a direction was given to delete the said addition. The learned counsel appearing for the respondent/assessee, in support of his submissions, has placed reliance upon the following decisions : (i) Judgment dated 21.03.2017 made in Civil Appeal No.5390 of 2007 [M/s.Larsen Toubro Ltd. v. State of Jharkhand and Ors.] ; (ii) ICICI Home Finance co. Ltd. v. Assistant Commissioner of Income Tax [(2012) 25 taxmann.com 241 (Bom.)] (iii) Adani Infrastructure Developers (P.) Ltd. v. A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by section 148[2]. Another requirement is that before notice is issued after the expiry of four years from the end of the relevant assessment years, the Commissioner should be satisfied on the reasons recorded by the Income-tax Officer that it is a fit case for the issue of such notice. We may add that the duty which is cast upon the assessee is to make a true and full disclosure of the primary facts at the time of the original assessment. Production before the Income-tax Officer of the account books or other evidence from which material evidence could with due diligence have been discovered by the Incometax Officer will not necessarily amount to disclosure contemplated by law. The duty of the assessee in any case does not extend beyond making a true and full disclosure of primary facts. Once he has done that his duty ends. It is for the Income-tax Officer to draw the correct inference from the primary facts. It is no responsibility of the assessee to advise the Income-tax Officer with regard to the inference which he should drawn 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 th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ee had furnished full particulars, had quashed the notice. 9. In Commissioner of Income-Tax v. Akbarali Jummabhai [1992 Vol.198 ITR 69], Gujarat High Court had considered the reference made by ITAT under Section 256(2) of the IT Act for answering the following Questions of Law: 1. Whether, on the facts and in the circumstances of the case, the Income Tax Appellate Tribunal was justified in law in holding that the reopening of assessment under Section 147(a) of the Income Tax Act, 1961, was not justified? 2. Whether, on the facts and in the circumstances of the case, it can be said that the assessee had disclosed fully and truly all the material necessary for the assessment and, therefore, the reassessment under Section 147(a) of the Income Tax Act, 1961, was not justified? The Assessing Officer therein had passed an Assessment Order and thereby, notice under Section 148 was issued on the assessee for the reason that the income returned was understated compared to the assets held by the assessee and it was overruled and passed revised order of assessment and the assessee therein filed an appeal and the Appellate Assistant Commissioner allowed the appeal of the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e material and necessary for the purpose of his assessment, his assessment cannot be reopened by the Income-tax Officer by resorting to section 147[a], but, if there is omission or failure on the part of the assessee to disclose any material or relevant primary facts and, in consequence, there is escapement of income from assessment, such income can be got taxed by the Revenue by reopening the assessment under section 147[a]. ...... From the aforesaid observations in the case before the Supreme Court, it becomes clear that to confer jurisdiction under section 147[a] to issue notice in respect of an assessment beyond the period of four years from the end of the relevant year, two conditions have to be satisfied. The first is that the Income Tax Officer must have reason to believe that income chargeable to tax has escaped assessment, and the second is that he must also have reason to believe that such escapement has taken place by reason of either [i]omission or failure on the part of the assessee to make a return of his income under section 139, or [ii] omission on the part of the assessee to disclose fully and truly all the material facts necessary for his assessment for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or filing the return, the Assessing Officer shall record his reasons for doing so. Therefore, formation of reason to believe and recording of reasons are imperative before the Assessing Officer can re-open the completed assessment. Proviso to Sub-section (1) of Section 151 of the Act provides that after the expiry of four years from the end of the relevant assessment year, notice under Section 148 shall not be issued unless the Chief Commissioner or the Commissioner, as the case may be, is satisfied, on the reasons recorded by the Assessing Officer concerned, that it is a fit case for the issue of such notice. These are some in-built safeguards to prevent arbitrary exercise of power by an Assessing Officer to fiddle with the completed assessment. 12. In Bawa Abhai Singh v. Deputy Commissioner of Income-tax, (2002) 253 ITR 83, a Division Bench of this Court, speaking through Chief Justice Arijit Pasayat (as his Lordship then was), has said that the crucial expression reason to believe predicates that the Assessing Officer must hold a belief .by the existence of reasons for holding such a belief. In other words, it contemplates existence of reasons on which the belief is fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed, no reasonable person could have come to the conclusion that action under Section 132 was called for. The opinion which has to be formed is subjective and, therefore, the jurisdiction of the Court to interfere is very limited. A Court will not act as an Appellate Authority and examine meticulously the information in order to decide for itself as to whether action under Section 132 is called for. But the Court would be acting within its jurisdiction in seeing whether the act of issuance of an authorisation under Section 132 is arbitrary or mala fide or whether the satisfaction which is recorded is such which shows lack of application of mind of the Appropriate Authority. The reason to believe must be tangible in law and if the information or the reason has no nexus with the belief or there is no material or tangible information for the formation of the belief, then, in such a case, action taken under Section 132 would be regarded as bad in law. 16. It is thus, trite that when a challenge is made to the action under section 147 of the Act what the court is required to examine is whether some material exists on record for the Assessing Officer to form the requisite belief and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... they were barred by limitation in view of the proviso to section 147, as amended by the Direct Tax Laws (Amendment) Act, 1987, as that was the provision that was applicable on November 20, 1998, when the reassessment notices were issued, and admittedly there was no failure on the part of the assessee to disclose fully and truly all material facts for assessment ; (v) on the facts, notices were bad as they were only on the basis of a change of opinion and the law that an assessment could not be reopened on a change of opinion was the 1987, of Section 147, and (vi) as the notices were without jurisdiction, the assessee should not be relegated to the alternative remedy, the Department preferred appeals to the Supreme Court. The Supreme Court saw no reason to differ and dismissed the appeals. 12. In Commissioner of Income-Tax v. A.V.Thomas Exports Ltd. [(2008) 296 ITR 603 (Mad)], a Division Bench of this Court had considered the challenge made to the notice issued after 4 years viz-a-viz Sections 147 and 148 of the IT Act. The Division Bench of this Court has also considered the decision in CIT v. Foramer France [(2003) 264 ITR 566 (SC)] (cited supra) as well as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... elieve that income chargeable had escaped assessment. The new law has inserted a proviso to section 147 in the following words: Provided 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 the end of the relevant assessment year, unless any income chargeable to tax has escaped assessment for such assessment year 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 subsection (1) of section 142 or section 148 or to disclose fully and truly all material facts necessary for his assessment for that assessment year. In addition to the time-limits provided for under section 149, the law has provided another limitation of four years under the proviso to section 147. As far as the above proviso to section 147 is concerned, the law prescribes a period of four years to initiate reassessment proceedings, unless the income alleged to have escaped assessment was made out as a result of failure on the part of the assessee to disclose fully and truly all materi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was also observed from the materials that the Assessing Officer had to issue notice on the ground of directions issued by the audit party and not on his personal satisfaction which is not permissible under law and accordingly, allowed the appeal filed by the assessee. 16. In ICICI Home Finance Co. Ltd. v. Assistant Commissioner of Income-tax, 10(1) [(2012) 25 taxmann.com 241(Bom.)], the order passed by the Assessing Officer under Section 143(3) of IT Act as well as the scope of Section 147 of IT Act came up for consideration and on facts found that the reasons for reopening of the assessment are identical to the objections raised by the audit party and in para 7 had dealt with the law on the said subject and it is relevant to extract the same: 7. However, as submissions were made on other issues also we are examining them also. It is a settled position in law that where assessment sought to be reopened is before the expiry of four years from the end of the relevant assessment year, then in such cases the power to reopen an assessment is very wide. However, even though such a power is very wide yet such a power would not justify a review of the assessment order already p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of Income Tax-3 [(2018) 409 ITR 560], a Division Bench of Delhi High Court, after taking note of the above quoted judgment of the Hon'ble Apex Court in Commissioner of Income Tax v. Kelvinator of India Ltd. [320 ITR 561] wherein it was held that review of the completed scrutiny can be done only if tangible material is made available to the Revenue and on the facts of the case found that reassessment notice is solely based on an audit opinion and accordingly, allowed the appeal filed by the assessee. 18. In the decision in Commissioner of Income Tax-17, Mumbai v. Shri Rajan N.Aswani [(2018) 403 ITR 30], the appeal filed by the Revenue was dismissed on the ground that reopening of the assessment was solely based upon audit objections. 19. The decision in Adani Infrastructure Developers (P.) Ltd. v. Assistant Commissioner of Income Tax [(2019) 101 taxmann.com 256 (Gujarat)] relied on by the learned counsel appearing for the respondent/assessee, it was held that re-opening of the assessment merely upon audit objection and was not based upon the satisfaction of the Assessing Officer is unsustainable. 20. CBDT, New Delhi had issued Instruction No.9/2006 date ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , had failed to deal with the said issue and merely recorded a finding that the Assessing Officer did not apply his mind as to the income escaping assessment. The Assessing Officer, after application of mind, found that there was no escapement of income and also requested the Audit Wing to dropping proceedings did change his mind and the said finding is per se unsustainable. 23. The Income Tax Officer, Company Ward-VI(1), Chennai-600 034 had issued a notice dated 31.03.2014 stating that she had reason to believe that the income chargeable to tax for the Assessment Year 2007-2008 had escaped assessment within the meaning of Section 147 of the Income Tax Act, 1961 and the respondent/assessee, in response to the said notice, sent a reply dated 19.04.2014, enclosing copy of the Profit Loss Account, Balance Sheet and Statement of Computation of Income and requested reasons for issuance of notice under Section 148 of IT Act dated 31.03.2014 and since it was not furnished, the respondent/assessee invoked the provisions of Right to Information Act and vide communication dated 30.06.2015, the Assessing Officer, namely Mr.S.Krishna Kumar, Income Tax Officer, Corporate Ward-6(3), Chennai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ,39,99,960/- in the said order of assessment should be treated as deemed dividend. 27. The primordial submission of the learned Senior Standing Counsel appearing for the Revenue is that the reasons recorded by ITO, in the order dated 30.01.2015 as to the treating of the amount of ₹ 5,30,99,960/- as on 31.03.2007 came into being on an independent application of mind to the materials placed and he did not refer to the audit objections which pertain to some other issue and though it is obligatory on the part of ITAT to deal with the merits of the appeal also, did not go in the merits at all and prays for remanding of the matter. 28. The respondent/assessee, in the case on hand, did not burke/suppress any material and whatever materials in their possession, had submitted the same by enclosing in their reply dated 19.04.2014, in response to the notice under Section 148 of the IT Act dated 31.03.2014. The ITO has passed the order of assessment dated 31.03.2015 and had also drawn the attention of the Deputy Director of Revenue Audit as to the said material, especially referring to the amount of ₹ 5,39,99,960/- in Schedule G and prayed for dropping of the audit objectio ..... X X X X Extracts X X X X X X X X Extracts X X X X
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