TMI Blog2022 (5) TMI 1284X X X X Extracts X X X X X X X X Extracts X X X X ..... ted that the petitioner has enclosed Auditor's Certificate in Form No. 3CEB in the prescribed format furnishing the details of the transaction as required i.e., the nature of transaction, the rate of interest, interest computed and the method adopted in determining Arm's Length Price. There is no allegation that the petitioner has omitted or not disclosed any particular detail as required in this Form. As undisputed that the petitioner's loan transaction with MMG was examined in the proceedings under Section 143(2) of the I-T Act. The petitioner with the issuance of the notice under Section 143(2) is called upon to justify the advance to MMG, and after considering the petitioner's justification with reference to the disallowance of notional interest during the previous assessment years, the AO has disallowed interest in the premise that the petitioner has utilized loan bearing advances to lend loan to its associated enterprise, MMG. This circumstance clearly demonstrates that the value of the petitioner's advance to MMG was available with the AO and has received consideration. It cannot be opined that the petitioner had either omitted or failed to disclose ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ise barred by limitation. 2. During the assessment year 2012-13, the petitioner has received a sum of Rs.49,58,482/- from M/s Matec Maschinenbau GmbH [the petitioner's Associated Enterprise and hereafter referred to as MMG ] as interest on the loan extended by the petitioner. The petitioner has reflected the receipt of interest in the Return and has also filed the Auditor's Certificate in Form No.3CEB [Annexure-A] disclosing certain details of the transaction. During this Assessment Year, the petitioner has purchased 90% of the shares of MMG for an amount of Rs.92,68,49,551/-, and this transaction is also reflected in the balance sheet for the year ending 31.03.2012. 3. The petitioner's Return is initially processed under Section 143(1) of the I-T Act, but upon issuance of notices under Section 143(2) of the I-T Act, the petitioner's Return is taken up for scrutiny. The assessment order is passed on 05.02.2015 under Section 143(3) of the I-T Act making certain additions and disallowances. It is undisputed that the Assessing Officer [AO] has brought to tax an amount of Rs.54,53,449/- computed as interest on the loan extended to MMG. The AO has taken the view t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e petitioner's objections to the reasons offered for the proposed reassessment. After certain correspondences for details and application under the provisions of the Right to information Act 2005, the petitioner has filed interim objections dated 16.10.2018 to the proposed reassessment contending inter alia that: [a] The notice for reassessment is issued beyond the period of 4 [four] years from the relevant date, and none of the conditions that would justifying assumption of jurisdiction to invoke the provisions of section 148 of the I-T Act are satisfied. The reasons recorded do not even indicate that the AO has concluded that the petitioner had failed to disclose, either truly or fully, material facts; [b] The petitioner has furnished a complete set of financials, including the subsidiaries' financials, and the impugned proceedings are based on these very financials and therefore, there cannot be allegations of failure to disclose; [c] The difference in the value of investment recorded in the respective books by the petitioner and MMG is because the petitioner has purchased shares from third parties and the premium paid by the petitioner for the said share ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s after examination of the documents. 10. As regards the reference to the TPO, the first respondent has opined that the petitioner has disclosed only interest payment transaction in the Auditor's Certificate in Form No.3CEB, and this may have persuaded the AO not to refer the transaction to the TPO; if the petitioner had mentioned both the loan amount and the interest received in Form 3CEB, the AO would have referred the transaction to the TPO. The first respondent has also opined that with the latest instructions in No.3/2016 on Transfer Price Reference, and because the Arms Length Pricing is not determined on account of the petitioner's failure to disclose the loan transaction which is in excess of Rs.20 crores, the reference to TPO will be justified. Further, the first respondent has opined that because the reassessment proceedings are pending, the AO's jurisdiction to refer under Section 92CA of the I-T Act is not restricted. 11. Sri T. Suryanarayana, the learned Senior Counsel for the petitioner, submits that the first respondent could have assumed jurisdiction for reopening the assessment after the expiry of 4 years from the end of the Assessment Year 2012-1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ioned as Rs.21,40,68,782/- in the Assessment Order dated 05.02.2015] referring to the disallowance of notional interest during the previous reassessment years. The AO, upon consideration of the justification furnished by the petitioner, disallowed the interest and brought to tax under Section 36(1)(iii) of the I-T Act on the ground that the petitioner had utilised interest-bearing advances to lend to its sister concerns The subject matter of the appeal before the Commissioner of Income Tax (Appeals)-1 and further proceedings as referred to above 14. Sri T Suryanarayana submits that these circumstances demonstrate that the question of advances by the petitioner to MMG was specifically considered and a certain decision taken. As such, the assessment cannot be revisited either on the ground that the petitioner did not disclose the transaction or that the AO has reasons to believe that income chargeable to tax has escaped assessment. As regards the reasons offered by the AO viz. that the petitioner did not disclose the underlying loan transaction in the Auditors Certificate in Form 3CEB, Sri T Suryanarayana submits that all the details as prescribed in this prescribed Form are fu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed Rs.5 crores. The petitioner cannot controvert that the loan of Rs.20,74,77,900/- advanced to MMG is not specifically mentioned in the Auditor's Certificate in Form No.3CEB. The fact that the petitioner did not disclose the loan transaction of Rs.20,74,77,900/- and the petitioner only mentioned the interest of Rs.49,58,482/-, has led the AO to believe that the petitioner's case would not be covered under the instructions. 18. Sri K V Aravind submits that disallowance of interest in terms of the assessment order dated 05.02.2018 could vary if there is an opinion by the TPO on the interest charged and therefore could be escapement of income from tax. If the petitioner cannot dispute this fact, the threshold requirements of failure to fully and truly disclose material facts and reason to believe some income has escaped tax are established. As such, the reassessment proceedings are justifiably commenced for reference to TPO and consequential adjustments. 19. Sri K V Aravind submits that on the face of the records i.e., the petitioner's 51st Annual Report, which is relevant to the subject Assessment Year, indicates that the petitioner has shown a trade investment in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... : The scope and effect of section 147 as substituted with effect from April 1, 1989, as also sections 148 to 152 are substantially different from the provisions as they stood prior to such substitution. Under the old provisions of section 147, separate clauses (a) and (b) laid down the circumstances under which income escaping assessment for the past assessment years could be assessed or reassessed. To confer jurisdiction under section 147(a) two conditions were required to be satisfied firstly the Assessing Officer must have reason to believe that income profits or gains chargeable to income tax have escaped assessment, and secondly he must also have reason to believe that such escapement has occurred by reason of either (i) omission or failure on the part of the assessee to disclose fully or truly all material facts necessary for his assessment of that year. Both these conditions were conditions precedent to be satisfied before the Assessing Officer could have jurisdiction to issue notice under section 148 read with section 147(a) But under the substituted section 147, existence of only the first condition suffices. In other words if the Assessing Officer for whatever reason ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ance clearly demonstrates that the value of the petitioner's advance to MMG was available with the AO and has received consideration. 27. In the light of these undisputed circumstances, it cannot be opined that the petitioner had either omitted or failed to disclose the advance/loan transaction with MMG. As such, it must be concluded that the Revenue has failed to establish one of the necessary conditions viz., that the petitioner has either omitted or failed to disclose fully or truly material circumstances. In that event the first respondent could not have assumed jurisdiction for reassessment and issued the impugned notice dated 29.01.2018 (Annexure-E). 28. The Revenue relies upon Instruction in No.3/2003 to justify reassessment on the ground that the petitioner did not specifically mention the loan/ advance amount Rs.20,74,77,900/- but only mentioned the interest component of Rs.49,58,482/- and therefore, the AO, who was bound to refer every case where the aggregate of the transaction was more than Rs.5 Crore as of that day, did not consider the case for reference to TPA as contemplated under Section 92CA of the I-T Act. The merit of this assertion must be necessarily ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to the TPO. 30. The first respondent has next reasoned that the petitioner has indicated an investment of Rs. Rs.92,68,49,551/- in its Books of Accounts/ 51st Annual Report to purchase the shares of MMG, but the MMG's financials, which is part of the petitioner's said Annual Report, for the relevant assessment year indicate that the investment is only in a sum of Rs.24 crore. Thus there is an unexplained investment which will have to be brought to tax as contemplated under Section 69 of the I-T Act. 31. As rightly argued by Sri T Suryanarayana, the Revenue must, to treat the value of any investment as income under section 69 of the I-T Act, necessarily establish that source of income for investment is not recorded in the books of accounts and the explanation as regards the source of income for such investment is either not offered or if offered, is not satisfactory. The provisions of Section 69 of the I-T Act reads as follows: Where in the financial year immediately preceding the assessment year the assessee has made investments which are not recorded in the books of account, if any, maintained by him for any source of income, and the assessee offers no explanat ..... X X X X Extracts X X X X X X X X Extracts X X X X
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