TMI Blog2021 (9) TMI 326X X X X Extracts X X X X X X X X Extracts X X X X ..... s considered for reopening of assessment and the finding is given that the assessee company has misleading the assessing authorities by furnishing incorrect particulars - this Court cannot arrive a finding in this regard. It is for the assessee to establish his case during the course of reassessment proceedings. The writ petition is filed, challenging the reopening proceedings. Thus, objective satisfaction would be sufficient for the purpose of allowing the Assessing authority to proceed with the reopening proceedings. Objective satisfaction would be sufficient for the purpose of allowing the Assessing authority to proceed with the reopening proceedings. Once, the materials are available and such materials were not taken into consideration by the original assessing authority, or any findings are given in the assessment order, which would be sufficient for the purpose of reopening of assessment and once such reopening is made based on tangible materials, then the assessee has to defend his case by furnishing further particulars or explanations or documents during the course of reopening proceedings. High Court cannot form any opinion in respect of such findings to be made. Onl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Officer, who in turn, submitted a report on the Arm s length price. After completing the process of scrutiny, the assessment officer passed the final assessment order under Section 143(3) of the Act in order dated 01.03.2010. 4. While so, the respondent issued the impugned notice dated 29.03.2012 under Section 148 of the Act, which was received by the petitioner company on 03.04.2012. In response, the respondent company filed its return of income and requested to furnish reasons. The reasons were supplied to the petitioners. The initiation of reopening proceedings admittedly is beyond the period of four years, but within six years. The petitioner submitted its detailed objections on the reasons furnished and the respondents disposed of the objections by rejecting the same. Thus, the writ petitioner is constrained to move the present writ petition. 5. The learned Senior counsel appearing on behalf of the writ petitioner broadly raised several grounds for assailing the reopening proceedings. It is contended that 'reasons to believe' had been recorded prior to issuance of notice. There is no failure on the part of the petitioner to produce the materials fully and tr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... person the required belief before he can validly reopen a completed assessment under s. 147(a). In England, the majority in Liversidge v. Anderson [1942] AC 206 (HL) held that the belief entertained by the officer was not justiciable. Lord Atkin dissented. Now, it had been held by the House of Lords in the recent tax decision of IRC v. Rossminster Ltd. [1980] 2 WLR 1, 49 (HL), that Lord Atkin was right and that the majority were wrong. Lord Diplock has said : ..... I think the time has come to acknowledge openly that the majority of this House in Liversidge v. Anderson were expediently and, at that time, perhaps, excusably, wrong and the dissenting speech of Lord Atkin was right. Lord Scarman at p. 104 (of [1980] 1 All ER) said that the ghost of Liversidge v. Anderson no longer flutters in the pages of our books and need no longer haunt the law. It was laid to rest by Lord Radcliffe in Nakkuda Ali v. Jayaratne [1951] AC 66, 75 (HL) and no one has sought to revive it. It is now beyond recall. The Supreme Court in a long line of decisions has held that the matter is justiciable. [See ITO v. Madnani Engineering Works[1979] 118 ITR 1 SC.] (Emphasis Supplied) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sed the complete facts in the return of income/books of account/assessment proceedings and there is no allegation that the petitioner had failed to disclose fully and truly all material facts. Infact, admittedly, reasons to believe has been formed on the basis of the return of income/existing material, without any fresh tangible material. (ii) It is a case where the AO while framing assessment had considered all such material facts which are the basis for initiating the proceedings u/s 147 of the Act. It thus amounts to review as per the judgment of the Apex Court in the case of ACIT Vs. ICICI Securities Primary Dealership ltd., reported in 348 ITR 299 at Pg.301. (iii) That no fresh material had surfaced from the date of completion of assessment till the proceedings were initiated. (iv) It is a case of mere change of opinion and there has been otherwise no escapement of any income. The submission is that the initiation of proceedings are without jurisdiction and as such deserves to be quashed. (v) The reasons have been recorded on incorrect facts as such, assumption of jurisdiction is bad in law. (vi) That no reasons had been recorded before initiating th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... disclose fully and truly all material facts. Without prejudice, even the reasons recorded and supplied to the petitioner shows that such reasons are merely based on change of opinion. The petitioner further submitted that in the said judgment of Calcutta Discount Co., Ltd., (Supra) at Pg.202-203, the Hon'ble Apex Court has held as under: The only nondisclosure mentioned in the report is that the company had failed to disclose the true intention behind the sale of the shares . Mr. Choudhury contends that this is not an omission to disclose a material fact within the meaning o f s . 34 . The question whether sales of certain shares were by way of changing the investments or by way of trading in shares has to be decided on a consideration of different circumstances, including the frequency of the sales, the nature of the shares sold, the price received as compared with the cost price, and several other relevant facts. It is the duty of the assessee to disclose all the facts which have a bearing on the question; but whether the assessee had the intention to make a business profit as distinguished from the intention to change the form of the investments is really an infe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the present case, complete facts in respect of production bonus was disclosed in the books of account and also in the original assessment proceedings and as such, Explanation -1 of section 147 cannot be invoked. It is submitted that in fact, in the original assessment proceedings query in respect of difference between the amount of production bonus claimed and stated in statement was raised which was duly explained in the reply of the petitioner and after being satisfied with the reply/evidence, no adverse view was formed in the order of assessment. As such, it is not a case of mere filing of the details, but is a case, where respondent after due enquiry has accepted the claim. There is no fresh material to take a contrary view. The petitioner has cited below judgments wherein the scope of the provisions of Explanation (1) to section 147 has been explained. It has been held in these judgments that if the details have been filed and in the original assessment proceedings and the issue has been duly examined by the Assessing Officer, then provision of Explanation 1 does not get attracted: i. CIT Vs. Schwing Stetter India (P) Ltd., [2015] 378 ITR 380 (Madras) 15. The r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r hand, such non disclosure of a material fact must be of such nature that, but for such non disclosure, the income, relatable to such material fact, would not have escaped assessment. In other words, it should lead to an irrebuttable conclusion that by the conduct of the assessee, either by providing wrong or incorrect particulars or by not providing the full and correct particulars, he should have made the Assessing Officer not to bring a particular income to tax, which is otherwise liable to be taxed. If this test is applied to the present case, I am of the view that the Revenue has to fail. v. CIT vS. Arvind Remedies Ltd., [2015] 378 ITR 547 (Madras) Explanation 1 to section 147 of the Income-tax Act cannot be pressed into service by the Department in the instant case because the details of such claim has been revealed during the regular assessment and complete details have been provided before the Assessing Officer. If the Assessing Officer has not considered the same at the time of passing an order under section 143(3) of the Income-tax Act, the assessee cannot be fastened with any liability for the same. Therefore, Explanation 1 to section 147 does n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 148 of the Income Tax Act w.e.f.01.04.1989, however, the Apex Court in 320 ITR 561, while affirming the judgment of Delhi High Court in the case of CIT Vs. Kelvinator of India Ltd., reported in 256 ITR 1 (FB) held as under: On going through the changes, quoted above, made to Section 147 of the Act, we find that, prior to the Direct Tax Laws (Amendment) Act, 1987, reopening could be done under the above two conditions and fulfilment of the said conditions alone conferred jurisdiction on the assessing officer to make a back assessment, but in Section 147 of the Act (with effect from 1-4-1989), 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 reopen the assessment. Therefore, post-1-4-1989, power to reopen 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 reopen assessments on the basis of mere change of opinion , which cannot be per se reason to reopen. We must also keep in mind the conceptual dif ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 256 ITR 1 had held as under: We, however, may hasten to add that if reason to believe of the Assessing Officer is founded on an information which might have been received by the Assessing Officer after the completion of assessment, it may be a sound foundation for exercising the power under section 147 read with section 148 of the Act. We are unable to agree with the submission of Mr. Jolly to the effect that the impugned order of reassessment cannot be faulted as the same was based on information derived from the tax audit report. The tax audit report had already been submitted by the assessee. It is one thing to say that the Assessing Officer had received information from an audit report which was not before the Income-tax Officer, but it is another thing to say that such information can be derived by the material which had been supplied by the assessee himself . We also cannot accept the submission of Mr. Jolly to the effect that only because in the assessment order, detailed reasons have not been recorded an analysis of the materials on the record by itself may justify the Assessing Officer to initiate a proceeding under section 147 of the Act. The said subm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e to the notice of the Revenue. The accounts had been furnished by the petitioner when called upon. Thereafter the assessment was completed under Section 143(3) of the Income Tax Act. Now, on a mere relook, the officer has come to the conclusion that the income has escaped assessment and he is of course justified in his analysis. In our view, this is not something which is permissible under the proviso to Section 147 of the Income Tax Act which speaks about a failure on the part of the assessee to make a proper return. In the present case, no such case is made out on the record. In the circumstances, we allow this petition in terms of Prayer (a) and quash and set aside the notice dated 27-3-2006 directing reopening of the assessment for the year 1999-2000. It thus held as under: Leave granted. We have heard learned counsel on both sides. The assessee had disclosed full details in the return of income in the matter of its dealing in stocks and shares. According to the assessee, the loss incurred was a business loss, whereas, according to the Revenue, the loss incurred was a speculative loss. Rejection of the objections of the assessee to the re-opening ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in response to the aforesaid query filed its explanation and clarified the basis of such claim. The respondents being satisfied by the explanation, and books of account, accepted the aforesaid claim. As such, there is no failure to disclose any material facts. In fact, proceedings have not even been initiated on the ground that there was any failure on the part of the petitioner to disclose fully and truly all material facts but has been initiated merely on the ground that petitioner has been allowed excessive production bonus of ₹ 13,63,05,582/- and the same has escaped assessment. It is submitted that while forming the reasons to believe, the respondents have committed factual error, which has formed the basis of the assumption that excessive claim of production bonus has been made. It is submitted that it has been assumed that production bonus was claimed in AY 2004-05, whereas the fact of the matter is that no amount was paid in AY 2004-05. It is submitted that petitioner claimed, production bonus only on payment basis, and opening balance of the instant AY was ₹ 25,36,29,564/- and addition of production bonus during the year was of ₹ 9,21,14,449/- as such tot ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ning of an assessment can only be done when the Assessing Officer has reason to believe that income chargeable to tax has escaped assessment. The mere fact that the return has been processed under Section 143(1) of the Act, does not give the Assessing Officer a carte blanc to issue a re-opening notice. The condition precedent of reason to believe that income chargeable to tax has escaped assessment on correct facts, must be satisfied by the Assessing Officer so as to have jurisdiction to issue the re-opening notice. In the present case, the Assessing Officer has proceeded on fundamentally wrong facts to come to the reasonable belief conclusion that income chargeable to tax has escaped assessment. Further, even when the same is pointed out by the Petitioner, the Assessing Officer in its order disposing off the objection does not deal with factual position asserted by the Petitioner. Thus, it would safe to conclude that the Revenue does not dispute the facts stated by the Petitioner. On the facts as found, there could be no reason for the Assessing Officer to believe that income chargeable to tax has escaped assessment. iii. Mumtaz Hazi Mohmad Memon Vs. ITO 408 ITR 268 (Guj) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... petitioner submitted that on identical facts in the case of petitioner alone for the AY 2002-03 on identical reason, the Hon'ble Madras High Court by its judgment dated 29.10.2011 (pg.32-43 of case law compilation) had quashed the initiation of proceedings inter-alia on the ground that there had been no omission or failure to disclose fully and truly all material facts and otherwise too, the initiation of proceedings under Section 147 of the Act was beyond jurisdiction. That further, if the issue has been examined in the original assessment proceedings, then any error would also not clothe the respondent to assume jurisdiction to initiate proceeding under Section 147 of the Act. It has been held in the following judicial pronouncement that any remissness, error or mistake does not clothe the respondent to assume jurisdiction under Section 147 of the Act more particularly in the case wherein the proceedings have been initiated beyond a period of four years from the end of the assessment year. i.CIT Vs. BhanjiLavji 79 ITR 582 (SC) ii. Mohini Bai M.Sarda Vs. First ITO 190 ITR 541(Karnataka) iii. Fenner India Limited. Vs. DCIT 241 ITR 672(Mad) iv. CIT Vs. India ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he culminate the proceeding. In fact, he ought to have dropped the proceeding instead of having chosen to continue with the proceedings. 6. The learned Senior Standing counsel objected the said contentions raised on behalf of the petitioners by stating that the judgments relied on by the petitioners cannot be disputed. Admittedly, the Hon'ble Supreme Court of India laid down the principles on all these aspects. However, the application of the principles with reference to the facts and circumstances of the petitioner's case is to be considered by this Court. The learned Senior Standing counsel reiterated that in the case of the petitioner, the Assessing Officer has 'reason to believe', in view of the fact that the income chargeable to tax escaped assessment. The conditions stipulated in the Proviso clause to Section 147 is also complied with and thus, the petitioner has to participate in the reopening proceedings. The learned Senior Standing counsel relied on the reasons recorded for reopening and the findings of the authority competent, while disposing of the objections filed by the petitioner. Relying on the said reasons as well as the disposal of objections, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Total 10,67,96,247 In the statement of computation of income for the AY 2006-07, against the profit as per the Profit Loss Account, the assessee, interalia, made the following additions and deduction towards bonus with narrations as under: Add: In admissible Production bonus for the year admissible on payment basis as per clause 17.5(b) of the Ravva Production sharing Contract : ₹ 9,21,14,449 Less: Admissible Expenses Ravva production bonus paid during the year claimed as per clause 17.5 (b) of the Ravva production sharing Contract : ₹ 33,95,84,064 A review of the assessment records of the assessee for the assessment year 2004-05 and 2005-06 revealed that for the AY 2004-05 the assessee had claimed the entire liability on bonus payable in the relevant assessment year itself. For the AY 2005-06, the assessee did debit an expenditure of ₹ 12,14,24,477 in the Profit Loss Account towards bonus. In the statement of computation of income, o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it is submitted that the change of opinion arises when the assessing officer forms an opinion that decides not to make an addition and holds that the assessee is correct. The reassessment proceedings under section 147 is pending and the issue can be examined during the course of proceedings only. The submission of the assessee company is incorrect and misleading. This view is supported by the Delhi High Court decision in the case of Dalmia Pvt Ltd., Vs. CIT in which the court has held that despite specific and pointed queries in section 143(3) assessment, the Assessing officer cannot be said to have formed any opinion if explicit opinion not recorded. 10. In view of the fact that the competent authority made a finding that the submission of the assessee company is incorrect and misleading, the case of the petitioner falls under the proviso clause to Section 147 of the Act as the conditions that the assessee must disclose fully and truly is not satisfied. 11. This Court is of the considered opinion that based on the return of income filed by the petitioner / assessee, the assessment order has been passed and subsequently certain new tangible materials were traced out fo ..... X X X X Extracts X X X X X X X X Extracts X X X X
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