TMI Blog2021 (9) TMI 249X X X X Extracts X X X X X X X X Extracts X X X X ..... eable to tax has escaped assessment, then the conditions stipulated in the proviso clause that disclosure of material facts fully and truly became absent. Assessing Officer has 'reason to believe' for reopening of assessment. It is sufficient if any one of the conditions stipulated in Proviso clause to Section 147 is satisfied for reopening of assessment. Second reason furnished for reopening, wherein the respondent considered as per schedule 18 of the profit and loss account, expenses have been debited - With reference to the said expenses, it is stated that as per clause I J of Explanation of section 115JB both the above items are to be added back to the book profits. Thus, there is escapement of ₹ 59,72,380/- to be taxed U/s.115JB. The tax effect thereon is ₹ 8.96 lakhs. Third reason stated is that there is revaluation of assets in the depreciation schedule which goes to increase the claims for depreciation under normal provisions by 25% i.e., ₹ 945.27 lakhs (₹ 4699.80-₹ 918.73=₹ 3781.1 25 %=₹ 945.27). This should have been added back in the normal computation of income as per provisions section 43A of the IT Act. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ompanies Act, 1956. The petitioner has been in the business of manufacturing of automobile parts and is a leading supplier to Companies such as Hyundai for over fifteen years. On 28.09.2009, the petitioner filed its return for the Assessment Year 2009-10. Notice under Section 142(1) of the Act was issued on 14.11.2011 along with the questionnaire. The petitioner furnished all the material informations and disclosed such information truly and fully. The case was referred to the Transfer Pricing Officer on 06.12.2012, which was cleared by the Transfer Pricing Officer and no adjustments were made. Finally, an order of assessment for the Assessment Year 2009-10 was passed, accepting the income declared by the petitioner and consequently, the tax assessed was also paid. 3. While so, a notice under Section 148 of the Act was issued, reopening the assessment, stating that the income chargeable to tax for Assessment Year 2009-10 has escaped assessment. The petitioner requested for reasons and reasons were furnished by the respondents. The petitioner submitted its objections in detail and the order impugned, disposing of the objections was communicated to the writ petitioner. Thus, the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... xchange difference in the Profit Loss Account pertaining to previous accounting year ending 31st March 2008 relating to said Long Term Liabilities in Foreign Currency have now been reversed from the Reserves Surplus, has prescribed in the above notification. Therefore, an amount of ₹ 918.73 Lakhs (gain) has been reduced from the cost of fixed assets and debited to the Reserves Surplus to the extent of ₹ 918.73 Lakhs. As the Company had adopted an option available relating to AS-11 as notified by Government of India as per Companies (Accounting Standards) Amendment Rules, 2009 there is a change in accounting policy and it is disclosed herewith in accordance with Para 32 of AS-5, Net Profit of Loss for the Period, Prior Period items and Changes in Accounting Policies. 7. The very same report has been taken into consideration for reopening of assessment. Thus, the reopening is based on change of opinion and not based on any new materials on record. 8. The return of income for the Assessment Year 2009-10 filed by the petitioner would reveal that the petitioner has furnished depreciation of plant and machinery. Additions for a period of less than 180 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , Calcutta and others, Vs. Lakhmani Mewal Das, reported in 1976 3 SCC 757 , the Hon'ble Supreme Court of India made the following observations: 7. It would appear from the perusal of the provisions reproduced above that two conditions have to be satisfied before an Income Tax Officer acquires jurisdiction to issue notice under Section 148 in respect of an assessment beyond the period of four years but within a period of eight years from the end of the relevant year viz. (1) the Income Tax Officer must have reason to believe that income chargeable to tax has escaped assessment, and (2) he must have reason to believe that such income has escaped assessment by reason of the omission or failure on the part of the assessee (a) to make a return under Section 139 for the assessment year to the Income Tax Officer, or (b) to disclose fully and truly material facts necessary for his assessment for that year. Both these conditions must coexist in order to confer jurisdiction on the Income Tax Officer. It is also imperative for the Income Tax Officer to record his reasons before initiating proceedings as required by Section 148(2). Another requirement is that before notice is iss ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tter's failure or omission to disclose fully and truly all material facts was missing in the case. In any event, the link was too tenuous to provide a legally sound basis for reopening the assessment. The majority of the learned Judges in the High Court, in our opinion, were not in error in holding that the said material could not have led to the formation of the belief that the income of the assessee respondent had escaped assessment because of his failure or omission to disclose fully and truly all material facts. We would, therefore, uphold the view of the majority and dismiss the appeal with costs. 12. The learned counsel for the petitioner has emphasized that the reopening of assessment is not in consonance with the conditions stipulated in proviso clause cannot be sustained. The Apex Court of India, in unequivocal terms, held that the duty of the assessee in any case does not extend beyond making 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 not the responsibility of the assessee to advise the Income Tax Officer with regard to the inferenc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oval from the Principal Commissioner of Income Tax-6, Chennai. The reasons were recorded based on tangible material and the Assessing Officer also has 'reason to believe' for reopening. There was a failure on the part of the assessee to disclose fully and truly the material facts necessary for assessment for that Assessment Year. In the case of M/s.Kelvinator Co., Ltd., regarding the reopening of assessment under Section 147, the Hon'ble Supreme Court of India had discussed the effects of amendment to Section 147 of the Act, wherein the Apex Court has distinguished between the expressions reasons to believe and opinion. The Apex Court had stated, Assessing Officer has power to re-open, provided there is tangible material to come to the conclusion that there is an escapement of income from assessment. Reasons must have a live link with the formation of the belief. This being the principles laid down, in the present case, the petitioner assessee did not furnish fully and truly material facts necessary for the assessment for the Assessment Year. The learned Senior Standing Counsel reiterated that it is a reopening proceedings and therefore, the scope for the assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion report. Giving the information in this manner shall be of no help to the appellant as the Assessing Officer was not expected to go through the said information available in the valuation report for the purpose of ascertaining the actual construction of the plot. (c) In the case of Shri Krishna Pvt. Ltd. Vs. Income Tax Officer 1996 87Taxman 315 (SC), the Hon'ble Supreme Court of India, considered the principles as under: 8. The first and foremost is the decision of the Constitution Bench Calcutta Discount Co. Ltd. v. Income Tax Officer, Companies District-I, Calcutta Anr. [(1961) 41 I.T.R. 191(SC). The case arose under Section 34 of the Income Tax Act [as amended in 1951]. In material particulars, the provisions in Section 34 were similar to those in Section 147. Having regard to the fact that it is the only Constitution Bench decision on the point, it is necessary to examine it in some detail. The Constitution Bench explained the purport of Section 34 in the following words: 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to put it in the words of the court - was the failure of the assessee to disclose the true intention behind the sale of the shares . The assessee had stated during the assessment proceedings that the sale of shares during relevant assessment years was a casual transaction in the nature of mere change of investment. The Income Tax Officer found later that those sale were really in the nature of trading transactions. The case of the Revenue was that the assessee ought to have stated that they were material, on the basis of which, he has reasons to believe that the assessee had put forward certain bogus and false unsecured hundi loans said to have been taken by him from non-existent persons of his dummies, as the case may be, and that on that account income chargeable to tax has escaped assessment. According to him, this was false assertion to the knowledge of the assessee. The Income Tax Officer says that during the assessment relating to subsequent assessment year, similar loans [from some of these very persons] were found to be bogus. On that basis, he seeks to re-open the assessment. It is necessary to remember that we are at the state of re-opening only. The question is whether ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ief is that of the Income tax Officer, the Sufficiency of reasons for forming the belief is not for the court of judge but it is not for the court of judge but it is open to an assessee to establish that there in fact not at all a bona fide one or was based on vague, irrelevant and non-specific information. To that limited extent, the court may look into the conclusion arrived at by the Income-tax Officer and examine whether there was any meterial 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. 11. Learned counsel for the assessee, Sri Gupta placed strong reliance upon the decisions of this Court in Chhugamal Rajpal v. S.P. Chaliha Ors [(1971) 79 I.T.R.603], Income Tax Officer, I Word, Dist. VI, Calcutta v. Lakhmani Mewal Das [(1976) 103 I.T.R.437] and Commissioner of Income Tax, Calcutta v. Burlop Dealers Limited [(1971) 79 I.T.R.609] as laying down propositions contrary to those laid down in Phool Chand Bajranglal. We cannot agree. The principle is wellsettled by Calcutta Discount and it is not reasonab ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r year period expired on March 31, 2002 and the notice under section 148 of the Act came to be issued only on December 20, 2003. Assessment under section 143(3) came to be made on March 29, 2000. In the return filed by the appellant, there was no specific reference to the receipt of a sum of ₹ 542 lakhs. However, in the profit and loss account, in the schedule, after ascertaining the profit, an extraordinary item was shown with the additional expression to the effect from transfer of division . The sum was indicated as ₹ 542 lakhs. That apart, the appellant is stated to have submitted a note on the extraordinary item on February 8, 2000 stating that the said sum of ₹ 542 lakhs represents consideration as a restrictive trade covenant for not engaging in forex business. Reliance was placed upon a decision of this court in support of the said claim. In the letter written by the chartered accountant dated March 15, 2000 the appellant, however, admitted that the date of commencement of forex business was only on January 3, 1995 with the details of RBI license. Significantly, neither the copy of the agreement, nor the date of the agreement was disclosed at any time bef ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ive satisfaction of the Assessing Officer for the purpose of reopening of assessment. 19. Section 149 contemplates Time Limit for Notice . Three circumstances are provided. The first case is within four years, Second case is beyond four years, but within six years subject to conditions and Third case is Financial interest outside India. Thus, Section 149 contemplates time limit for issuing notice under Section 148 and 147 provides income escaping assessment. Once income escaping assessment is satisfied, then notice must follow under Section 148 in consonance with the time limit prescribed under Section 149 of the Act. 20. Proviso to Section 147 imposes certain restrictions for reopening of assessment beyond the period of four years, but within the period of six years. If the period of four years expired, then any one of the following three conditions must be satisfied:- (i) 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 (ii) in response to a notice issued under sub-section (1) of section 142 or section 148, or, (iii) to disclose fully a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 9;reason to believe' that the income chargeable to tax has escaped assessment and such reasons must have live link with the materials discovered. 24. Explanation 2 to Section 147 of the Act stipulates deemed cases , where income chargeable to tax has escaped assessment. Explanation 2 commences by stating that For the purpose of Section 147, the following shall also be deemed to be cases . Undoubtedly, the deemed cases are the cases, where reopening of assessment is permissible under Section 147 of the Act. 25. Sub-Clause (c) to Explanation 2 contends that where an assessment has been made, but - (i) income chargeable to tax has been underassessed; or (ii) such income has been assessed at too low a rate; or (iii) such income has been made the subject of excessive relief under this Act ; or (iv) excessive loss or depreciation allowance or any other allowance under this Act has been computed. 26. Thus various instances are provided. The cases may fall under deemed cases, where income chargeable to tax has escaped assessment. Therefore, in such cases, where the income chargeable to tax has escaped assessment under deemed cases, then reopening is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 918.73 lakhs (gain) has been reduced from the cost of fixed assets. Therefore, there is a net increase in the cost of assets of ₹ 3781.07 lakhs in the current year and the depreciation at rate of 10.34% works out to ₹ 390.96 lakhs which has been claimed during this year in addition to the normal depreciation. As per the provisions of section 43A of the Income Tax Act, the revaluation of any asset purchased in foreign currency can be revalued on account of fluctuation on the date of exchange and only at the time of actual repayment of the loan. It is clear from the notes to accounts that there has been no actual repayment during the current year made by the assessee and therefore the claim of ₹ 390.96 lakhs on account of depreciation in the current year is higher. This should have been added back to the book profits as per the clause iia of explanation 1 of section 115 JB. Thus, there is a shortfall in assessment of income U/S 155 JB by 390.96 lakhs. The tax effect thereon is ₹ 59 lakhs. 2. As per schedule 18 of the profit and loss account the following expenses have been debited. (i) Assets discarded ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... based on tangible material, to come to the conclusion that there is escapement of income from assessment. The reopening is based on a new finding of fact, totally different from the issues dealt in the original assessment. Since, the assessing officer had not applied his mind and formed any opinion on the issues for which the case has been re-opened, it cannot be argued that reassessment is based on change of opinion and hence for the same reason, the assessee is wrong in stating that the issues for which the case was reopened at present have already been disclosed by the assessee and dealt by the Assessing Officer in the original assessment. 30. The respondents relied on Explanation 2(c) to Section 147 deemed cases, where income chargeable to tax has escaped assessment. In the case of the petitioner, the respondents have stated that where an assessment has been made but income chargeable to tax has been under-assessed or such income has been made the subject of excess relief under this Act or excessive allowance under the Act has been computed. 31. The respondents arrived a conclusion that the case of the petitioner is falling within the ambit of Explanation 2(c) to Sect ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is a shortfall in assessment of income under Section 115JB by 390.96 lakhs. Thus, the Assessing Officer has 'reason to believe' that there was an under-assessment. When such an under assessment is identified and falling under the deemed cases, where income chargeable to tax has escaped assessment, then the conditions stipulated in the proviso clause that disclosure of material facts fully and truly became absent. Thus, the Assessing Officer has 'reason to believe' for reopening of assessment. 35. As discussed above, it is sufficient if any one of the conditions stipulated in Proviso clause to Section 147 of the Income Tax Act is satisfied for reopening of assessment. However, let us now consider the second reason furnished for reopening, wherein the respondent considered as per schedule 18 of the profit and loss account, expenses have been debited. With reference to the said expenses, it is stated that as per clause I J of Explanation of section 115JB both the above items are to be added back to the book profits. Thus, there is escapement of ₹ 59,72,380/- to be taxed U/s.115JB. The tax effect thereon is ₹ 8.96 lakhs. The thid reason stated is tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ould fall under the conditions stipulated under Proviso clause to Section 147 and in such cases, the jurisdiction is conferred on the Assessing Officer to reopen the assessment. 38. The manner in which the assessee has dealt with such materials and evidences for the purpose of filing of return of income is of paramount importance to form an opinion, whether the assessee has satisfied the condition of disclosing fully and truly all material facts necessary for the assessment. Any narrow interpretation in this regard undoubtedly will defeat the very purpose and object of the reopening proceedings contemplated under Section 147 of the Act. Fully and truly cannot be seen with naked eyes, but it is to be seen through tax lens. Thus, truly and fully would not fall under the literal Dictionary meaning and the word 'fully and truly' connotes the technical and contextual meaning, so as to inject life to the purpose and object of the reopening proceedings under Section 147 of the Act. 39. The Courts are expected to be cautious in such circumstances, where the assessee may broadly establish before the Court of law that he has furnished all the materials truly and fully and ..... X X X X Extracts X X X X X X X X Extracts X X X X
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