TMI Blog2021 (2) TMI 1162X X X X Extracts X X X X X X X X Extracts X X X X ..... nd, it is to be noted that when the detailed questionnaire was issued by the Assessing Officer under Section 143(2) of the Income Tax Act, 1961 to the petitioner, in its reply dated 25.01.2005, the petitioner did not make true and full disclosure inasmuch as reference to Clause 2.4 of the II Agreement dated 17.08.2002 was not made. Though it was submitted that the Indian Company, namely Atlas Copco India Limited had paid a sum of ₹ 15 Crores to the petitioner, it is noticed from the Annual Report filed for the financial year ending on 31.03.2005 that only a sum of ₹ 1,50,000/- was paid under the II Agreement dated 17.08.2002. Further, it is also not clear whether the tax was indeed paid in the returns filed for the previous year 2004-2005/for the Assessment Year 2005-2006 as the total income declared was about ₹ 9 Crores. Therefore, there are also disputed questions of facts involved in the present case as to whether the tax has been paid by the petitioner during the succeeding assessment years. In our view, the decision of the Hon ble Supreme Court in Indi-Aden Salt Mfg. Trading Co. (P.) Ltd. Vs. Commissioner of Income Tax [ 1986 (3) TMI 342 - SUPREME CO ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... diction to reopen is attracted The words omission or failure to disclose fully and truly all material facts necessary for his assessment for that year postulate a duty on the assessee to disclose fully and truly all material facts for his assessment . In the case of the assessee-company, though the assessee has filed a detailed note on the non compete fee and submitted the agreement copies of the collaboration, nowhere in the note did the assessee speak of the overriding clause of the restrictions in the second agreement. Thus, the non disclosure of material facts fully and truly was the failure of the assessee to disclose the true intention behind the clause 2.4 of the second agreement. Here what needs to be emphasized is that the obligation on the assessee was to disclose the full and true intention in the agreement. Since no mention was made in the note submitted there was a false assertion or statement of material fact. Hence it is clear this attracted the jurisdiction of the Assessing Officer to reopen the assessment u/s 147. As per the decision of the Supreme Court, proceedings u/s 147 are for the benefit of Revenue only and are aimed at controlling the e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s clause. The Assessing Officer was not aware of this aspect as is evident from his note on the file. So explanation (2) to second proviso to Section 148 is applicable. Income escaped assessment due to incorrect claim of the assessee that the entire payment of ₹ 10 crores was for non-competition and was incorrect in nature. * compete 3. The petitioner gave a detailed reply and stated that there was no case made out for invoking the proviso to Section 147 of the Income Tax Act, 1961 as there was no failure on the part of the petitioner to make a return under Section 139 or in response to a notice issued under Sub-Section (1) of Section 142 or Section 148 of Income Tax Act, 1961 to disclose fully and truly all material facts necessary for the purpose of assessment for that assessment year. 4. The dispute in this Writ Petition surrounds the claim of the petitioner in its accounts and the income tax returns that the amount of ₹ 10 Crores (₹ 7.5 Crores and ₹ 2.5 Crores) respectively was paid to its associate companies, namely, Atlas Copco India Limited and Chicago Pneumatic Tool Company. The amount was treated as a revenue expenditure by the petition ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... are known as C.P. Group). It is submitted that the Assessment Order dated 28.03.2005 states that after going through the details filed, discussion with the assessee s representation and perusal of the statements accompanying the return of income, the assessment is completed implying true and full disclosure by the petitioner. 8. The learned counsel for the petitioner further submits that after going through the details filed, discussion with the petitioner s representation and the perusal of the statements accompanying return of income, the assessment was completed. In other words, the Officer was satisfied with the claim of the petitioner that the amount incurred towards a sum of ₹ 10 crores under two agreements to the two companies was towards non compete fees for a short period and therefore were in the nature of a revenue expenditure. 9. It is further case of the petitioner that for the Assessment Year 2005-2006, the petitioner treated an amount of ₹ 15 Crores received from the two companies for cancellation of non compete / non solicitation as non recurring exceptional income in Profit and Loss Account and paid tax and therefore, the issues was r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vi. Deputy Commissioner of Income Tax Vs. Visvas Promoters (P.) Ltd., (2019) 105 taxmann.com 65 (Madras). Duty of assessee is limited to fully and truly disclose all material facts failure of AO to reach warranted conclusion could not confer jurisdiction for reopening assessment. i. Calcutta Discount Co. Ltd. Vs. Income Tax Officer (1961) 41 ITR 191 (SC). ii. Fenner (India) Ltd. Vs. Deputy Commissioner of Income-tax, (2000) 241 ITR 672 (Madras) / (1999) 107 TAXMAN 53 (MAD.) When the reopening is quashed further directions to AO to check for any other grounds is unnecessary. T. Stanes and Company Ltd. Vs. Deputy Commissioner of Income Tax, Corporate Circle I (2), Coimbatore, (2021) 123 taxmann.com 39 (Madras). 12. Per contra, Mr.A.P.Srinivas, the learned counsel for the respondent submits that the petitioner failed to make true and full disclosure before Assessing Officer during scrutiny. He further submits that the scrutiny was based on a reply to notice dated 25.08.2004 issued under Section 143(2) of the Income Tax Act, 1961. It is further submitted that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y person. It is therefore submitted that there was no restriction on manufacture and/or sale of the specified products in any part of the world by the petitioner. The Clause 2.4 of the said Agreement is reproduced below:- 2.4. Notwithstanding anything contained in the agreement dated 7th November, 1977 entered into between CP and REL (the petitioner) under which CP has inter alia granted to REL a license and know how to manufacture and sell the Specified Products ( Collaboration Agreement ) CP and REL agree as follows:- (a) The license granted by CP to REL under the Collaboration agreement is perpetual and that REL shall be free to license the right to manufacture and/or sell the Specified Products and/or disclose, impart and supply the know how received by it under the Collaboration Agreement to any Person; (b) There shall be no restrictions on the manufacture and/or sale of the Specified Products in any part of the world by REL. 15. He therefore submits that there was material suppression of facts and therefore, there was no scope for interference. The learned counsel for the respondents further refers to the following decisions:- i. Indi-Aden Salt Mfg. T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... losed. 17. It is submitted that in the facts of the case, the respondents directed the petitioner to disclose the particulars. However, there was no clarity in the reply given by the petitioner to the notice issued under Section 143(2) of the Income Tax Act, 1961. 18. By way of rejoinder, the learned counsel for the petitioner submits that the decision of the Hon ble Supreme Court in Calcutta Discount Co. Ltd. Vs. Income Tax Officer, (1961) 41 ITR 191 (SC) has also answered the issue as follows:- 20. To ascertain whether the Income Tax Officer could have had in mind any non-disclosure as a ground for thinking that by reason of such non-disclosure an underassessment had occurred - apart from what was mentioned in the affidavit - we enquired from respondent's counsel whether he could suggest any other non-disclosure that might have taken place. Mr Sastri suggested two. One is that the sales had not been disclosed; the other that the memorandum and articles of association of the Company had not been shown. This suggestion is against the record and we have no hesitation in repelling it. Not only is it not the ground set out by the Income Tax Officer at any stage not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the petitioner and its affiliate companies, namely, Atlas Copco India Limited and Chicago Pneumatic Tool Company (a company organized under the laws of the State of New Jersey, one of the United States of America). 21. In the first agreement, the petitioner had paid a sum of ₹ 7.5 Crores as non compete fees for a period of two years to the Atlas Copco India Limited and in the second agreement, it had paid a sum of ₹ 2.5 Crores to the same Company. It is not clear as to why two tripartite agreements were signed. Clause 2 of the respective agreements slightly varies. They are reproduced below:- Clause 2 in the I Agreement Clause 2 in the II Agreement Restrictions 2.1. In consideration of the payment of the sum stated in Article 3 hereof, CP Group covenants with, agrees and undertakes to and in favour of REL that they will not, jointly or severally, and cause that their Affiliates do not, directly or indirectly alone or in combination with others: (a) for a period of two years from the date hereof canvass, solicit or entice, supply or deal with the Specified Products to or in relation to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... carrying on or developing any Specified Products or Business which may in any way be the same or similar to and in competition with the Business in the Territory. 2.2. To the extent legally permissible to do so CP Group agrees and undertakes to and in favour of REL that they will, and will cause their Affiliates to, for a period of five years from the date hereof, not sell any Specified Products outside the Territory to any person which the CP Group knows or has reason to believe that the Specified Products sold will be resold in the Territory in any manner directly or indirectly CP Group shall discontinue any future sales of any Specified Products if REL brings to the notice of the CP Group of any such resale in the Territory of the Specified Products. 2.3. The CP Group acknowledge and agree with REL that each of the sub clauses contained in Clause 2.1 above constitutes an entirely separate severable and independent covenant by and restriction on them but the term of each shall run concurrently. 2.4.Notwithstanding anything contained in the agreement dated 7th November, 1977 entered into between CP and REL (the petitioner) under which CP has inter alia granted to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bring to the assessing authority's attention these particular items in the account books, or the particular portions of the documents, which are relevant, amount to omission to disclose fully and truly all material facts necessary for his assessment . 26. Passages from paragraph Nos.20 to 23 extracted above of the above decision were made in the context of facts and peculiar to the case in Calcutta Discount Co. Ltd. Vs. Income Tax Officer, (1961) 41 ITR 191 (SC). Therefore, they cannot be relied upon. 27. However, though it was submitted that the Indian Company, namely Atlas Copco India Limited had paid a sum of ₹ 15 Crores to the petitioner, it is noticed from the Annual Report filed for the financial year ending on 31.03.2005 that only a sum of ₹ 1,50,000/- was paid under the II Agreement dated 17.08.2002. Further, it is also not clear whether the tax was indeed paid in the returns filed for the previous year 2004-2005/for the Assessment Year 2005-2006 as the total income declared was about ₹ 9 Crores. Therefore, there are also disputed questions of facts involved in the present case as to whether the tax has been paid by the petitioner during th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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