9911796707
TMI Blog2021 (12) TMI 1215X X X X Extracts X X X X X X X X Extracts X X X X ..... 139 (1) of the Income Tax Act, 1961 [hereinafter referred to as the 'Act'] on 28.10.2005, for the Assessment Year 2005-06, declaring a total income of Rs. 91,13,40,000/-. The petitioner states that the return of income was filed with true and adequate income of the petitioner along with the audited financial statements, Tax Audit Report as required under Section 44AB of the Act. The case of the petitioner was selected for scrutiny. Notice was issued. The petitioner submitted further documents, materials and answered the queries. The case of the petitioner was referred to Transfer Pricing 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 29.12.2008. 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ieve" are commonly found when a Legislature or law-making authority confers powers on a minister or official. As Lord Radcliffe said [1980] 2 WLR 1, 22 (HL) : "However read, they must be intended to serve in some sense as a condition limiting the exercise of an otherwise arbitrary power. (Nakkuda Ali v. Jayaratne [1951] AC 66, 77 (PC)". These words do not make conclusive the officer's own honest opinion that he had reasonable cause for the prescribed belief. The grounds on which the officer acted must be sufficient to induce in a reasonable 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 an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... me Tax. (d) Scope of provisions of Section 147 of the Income Tax Act: The petitioner, at the outset, submitted that the Apex Court in its judgment in the case of Calcutta Discount Co. Ltd., Vs. ITO reported in 41 ITR 191, examined the scope of provisions of Section 34 of the Act and held at Pg.199 as under: "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 relevant year 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 s. 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 t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... umstances. The law does not require the assessee to state the conclusion that could reasonable drawn from the primary facts. The question of the assessee's intention is an inferential fact and so the assessee's omission to state his " true intentions behind the sale of shares " cannot by itself be considered to be a failure or omission to disclose any material fact within the meaning of s . 34 . Indeed, an assessee whose contention is that the shares were sold to change the form of investment and not with the intention of making a business profit cannot be expected to say that his true intention was other than what he contended it to be.. Dealing with this question the learned Chief Justice has said:- " The expression that the Respondent had failed to disclose " the true intention behind the sale of shares " may lack directness, but that deficiency of language is not sufficient to enable the Respondent to contend, in view of the circumstances alleged, that no failure to disclose facts was being complained of. On the facts as stated by the Income-tax Officer, it is clear that there had been a failure to disclose the fact that the Respondent was a dealer in shares and what ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssment order was not framed properly as it overlooked certain materials which led to loss of revenue. The Assessing Officer in the first instance did not perform his job properly for which the assessee cannot be faulted with. In Calcutta Discount Co. Ltd. v. ITO, [1961] 41 ITR 191 (SC) the Supreme Court had pointedly observed that the assessee is required to fairly disclose what is expected of him "the primary facts" while submitting the returns. It is up to the Assessing Officer to draw the necessary inferences. In the present case, the Assessing Officer's omission appears to have been the sole basis for issuing the reassessment notice and, consequently, proceeding to make the impugned demand. " ii. Indian and Eastern Newspaper Society Vs. Commissioner of Income-Tax, New Delhi, 119 ITR 996 (SC) at page 1004. "Now, in the case before us, the Income Tax Officer had, when he made the original assessment, considered the provisions of Sections 9 and 10. Any different view taken by him afterwards on the application of those provisions would amount to a change of opinion on material already considered by him. The Revenue contends that it is open to him to do so, and on that basis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not do. It was plainly a case of oversight, and it cannot be said that the income chargeable to tax for the relevant assessment year had escaped assessment by reason of the omission or failure on the part of the assessee to disclose fully and truly all material facts. The Income Tax Officer had all the material facts before him when he made the original assessment. He cannot now take recourse to Section 147(a) to remedy the error resulting from his own oversight. " iv. Chemicals And Fibres of India Limited Vs. M.K.N.Pillai and Another 146 ITR 280 (Bom) at Page 283 "It is clear that the assessee had made a claim on the footing which has been accepted by several judicial tribunals. It had disclosed the primary facts which were necessary for the purpose of making the assessment. If there was any doubt, it was for the concerned officer to make further inquiries. It is impossible to hold or accept the conclusion that the assessee had failed to disclose fully or truly the necessary material facts or had thereby caused the ITO to erroneously accept its claim u/s. 80-I and for higher development rebate. If that be my conclusion, it must follow that the action taken u/s. 148 read with s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssioner of Income-tax, [1974] 95 ITR 251 (Guj) [FB] illustrate this aspect of the legal position. It may be pointed out that, in the recent decision in Parashuram Pottery Works Co. Ltd. v. Income-tax Officer, [1977] 106 ITR 1, the Supreme Court has reiterated the same legal position and it is clear from this latest decision that the legal position is the same as was summarised by the Full Bench of the Gujarat High Court in Poonjabhai Vanmalidas and Sons v. Commissioner of Income-tax, [1974] 95 ITR 251. In Parashuram Pottery Works Co. Ltd. v. Income-tax Officer, [1977] 106 ITR 1 (SC), it was held by the Supreme Court that where, in working out the figures of depreciation for certain items of capital assets, the Income-tax Officer lost sight of the fact that the aggregate of the depreciation, including the initial depreciation allowed under the different heads, could not exceed the original cost to the assessee of these items of capital assets, the assessee cannot be held responsible for the remissness on the part of the Income-tax Officer in not applying the law contained in proviso (c) to section 10(2)(vi) of the Indian Income-tax Act, 1922, and it cannot be said that excess deprec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt of the petitioner. This was a clear case of failure on the part of the Income-tax Officer rather than the assessee." (g) The petitioner further submitted that though a statutory amendment had been made in section 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, Sect ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ovisions of the new Section 147, however, remain the same." (emphasis supplied) (h) The petitioner however adds that the Division Bench of High Court of Delhi in its judgment reported in 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 h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Revenue, the loss incurred was a speculative loss. Rejection of the objections of the assessee to the re-opening of the assessment by the assessing officer vide his order dated 23-6-2006, is clearly a change of opinion. In the circumstances, we are of the view that the order re-opening the assessment was not maintainable." (Emphasis supplied) (j) It is significant to be noted that their Lordships considered in its judgment that where a petitioner had challenged the initiation of proceedings u/s 148 of the Act and filed objections, the Assessing Officer was required bylaw to consider such objections, to enable the Court to examine whether it is a case of change of opinion or otherwise. It is submitted that if the aforesaid principles of law as laid down is complied, it is evident that an order on objection deserves to be examined by the Court before expressing its discretion under Article 226 of Constitution of India. (k) It is submitted that there is difference between the concept of inferential facts and material facts. It is submitted that in the instant case if the reasons recorded as extracted above in para 10, are closely read, there has been no failure on the part of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dicial pronouncement that any remissness, error, or mistake does not allow 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. Indian Sugar & General Industries 303 ITR 155(Delhi) v. Gordon Woodroffe & Co.Ltd., Vs. ITO 51 ITR 12(Mad) vi. Gemini Leather Store. Vs. Income-Tax officer 100 ITR 1 (SC) vii. Parashuram Pottery Works Co., Ltd. Vs. ITO 106 ITR 1 (SC) viii. Techman Buildwell (P) Ltd., Vs. Assistant Commissioner of Income -Tax 370 ITR 771 (Delhi) ix. Indian And Eastern Newspaper Society, Vs. Commissioner of Income Tax, New Delhi - 119 ITR 996 (SC) x. Chemicals and Fibres of India Limited vs. M.K.N.Pillai and another 146 ITR 280 (Bom) xi. Addl.Commissioner of Incometax Vs. Ganeshilal Lal Chand 154 ITR 274 (Rajasthan) xii. ITO Vs. Sirpur Papers Mills Ltd., 113 ITR 393 (AP) (m) The petitioner further submitted that on identical facts in th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tions, the learned Senior Standing counsel reiterated that the case of the petitioner is falling under the proviso clause to Section 147 of the Act and mere production of books of accounts and material evidences are insufficient and thus, the respondent must be allowed to proceed with the reopening proceedings. 7. Considering the arguments as advanced on behalf of the parties to the lis, notice under Section 148 of the Act was issued on 29.03.2012. The respondents have stated that they have 'reason to believe' that income chargeable to tax for the Assessment Year 2005-06 has escaped assessment within the meaning of Section 147 of the Act. Request is made to furnish reasons. Reasons are furnished in proceedings dated 08.10.2012 and in the present case, the reopening is made, in view of the fact that the reopening of assessment is made in respect of the very same petitioner company for the Assessment Years 2004-05 and 2006-07 and therefore, the implications on tangible material continued for further reopening of proceedings for the Assessment Year 2005-06 also. Thus, it is clear that once the reopening is made for the Assessment Years 2004-05, 2006-07, it necessitated the au ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er tax from the payment to the Non- Residents. The services in the subject case are different which do not fall within the ambit of section 44BB of the Act. Providers of such technical service are therefore are not entitled to lower deduction of tax and proportional disallowance under section 40(a)(i) is called for. However, the expenses so claimed have been allowed fully in the assessment. These excess deduction has resulted in escapement of income chargeable to tax. B] It is seen from the statement of computation of Income that the assessee was computing the income from the business of oil exploration in terms of section 42 of the Income Tax Act. In the computation statements, against the loss of Rs. 33,02,33,500 as per the Profit & Loss Account, the assessee added a sum of Rs. 154,73,86,700 being the expenditure relating to Exploration and Development-depletion & write off and in lieu deducted a sum of Rs. 3,09,81,422 pertaining to Exploration and Development expenditure (Schedule 4 to the CEIPL Financials). But, the deduction of Rs. 3,09,81,422 claimed in the statement of computation did not agree with the expenditure booked in schedule 4 to the financials and no separate ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... facts was not restricted only to disclosures made at the time of filing of the return of income but also extends to assessment proceedings. 4.2 Further, the Delhi High Court in the case of Consolidated Photo and Finvest Ltd., has also held that even where the tax official could have on investigation got necessary information from the records available with him, it cannot be said that the tax payer has been full and true disclosure of material facts. 4.3 Section 147 of the Income Tax Act requires that there is reason to believe that the income has escaped assessment. There is no question of sufficient or insufficient reason to believe but only the existence of reason to believe that income has escaped assessment as per facts on record and as per provisions of IT Act 1961. The belief can be verified, ascertained and confirmed only after verifying various details/factors during the assessment proceedings. 4.4 As regards the change of opinion, 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 is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... riod of four years and therefore, mere availability of tangible material would be sufficient for the purpose of invoking the powers under Section 147 of the Act. This failure on the part of the petitioner was considered for reopening of assessment and the finding is given that the assessee company has misleading the assessing authorities by furnishing incorrect particulars. However, 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. 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 Co ..... X X X X Extracts X X X X X X X X Extracts X X X X
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