Income Tax Appellate Tribunal - Hyderabad
Acit, Circle-2(2),Hyderabad, ... vs Tns India Pvt Ltd., Hyd, Hyderabad on 13 September, 2017
ITA No 515 of 2015 TNS India P Ltd Hyderabad
IN THE INCOME TAX APPELLATE TRIBUNAL
Hyderabad ' A ' Bench, Hyderabad
Before Smt. P. Madhavi Devi, Judicial Member
AND
Shri S.Rifaur Rahman, Accountant Member
ITA No.515/Hyd/2015
(Assessment Year: 2005-06)
Asstt. Commissioner of Vs M/s. TNS India Private Ltd
Income Tax, Circle 2(2) Hyderabad
Hyderabad PAN: AABCN 2278 C
(Appellant) (Respondent)
For Revenue : Shri P. Chandra Sekhar, DR
For Assessee : Shri Ravi Bharadwaj
Date of Hearing: 19.06.2017
Date of Pronouncement: 13.09.2017
ORDER
Per Smt. P. Madhavi Devi, J.M.
This is Revenue's appeal for the A.Y 2005-06. The Revenue is aggrieved by the order of the CIT (A)-2 Hyderabad, dated 23rd February, 2015. The Revenue has raised the following grounds of appeal:
"1.The CIT(A) erred on facts and in law in quashing the re-opening of assessment u/s.147 of the IT Act
2. The CIT(A) ought to have decided the case based on the merits of the case.
3. The CIT(A) has erred in quashing the re-opened assessment on the basis that re-opening was done based on the audit objection. The CIT(A) has failed to note that the Hon'ble Supreme Court in the case of Commissioner of Income vs. PVS Beedies Pvt. Ltd. 237 ITR 13, held that the re-opening of the Page 1 of 20 ITA No 515 of 2015 TNS India P Ltd Hyderabad case on the basis of factual information given by the audit party is valid in law.
4. Any other ground that may be taken up at the time of hearing".
2. Brief facts of the case are that the assessee company, which is engaged in the business of market research and data processing, filed its return of income on 23.3.2006 admitting taxable income at Rs.6,25,76,413. The return was initially processed u/s 143(1) of the I.T. Act and subsequently selected for scrutiny and the assessment order u/s 143(3) of the Act was passed on 15.12.2008 assessing the income at Rs.8,81,69,093 after making addition of the proposed adjustment by the TPO u/s 92CA of the Act. Subsequently, the internal Audit Department of the Revenue raised audit objections and on the basis of the said objections, the case was reopened u/s 147 of the I.T. Act by issuance of notice u/s 148 dated, 26.03.2013. The assessee, vide its letter dated 25.4.2012, submitted its reply stating that according to its information and knowledge, no income has escaped assessment in relation to the relevant A.Y and therefore, the initiation of proceedings u/s 147 is not warranted. Without prejudice to the said contention, the assessee also contended that the return already filed on 23.3.2006 be treated as a return in response to the notice u/s 148 and requested the AO to provide the reasons recorded for reopening of the assessment to it. In response to the same, the reasons for reopening of the assessment were furnished to the assessee and the assessee filed its objections against such reopening. Vide order dated 11.3.2013, the AO disposed off the preliminary objection raised by Page 2 of 20 ITA No 515 of 2015 TNS India P Ltd Hyderabad the assessee and thereafter completed the assessment by making various disallowances and the consequent additions to the returned income of the assessee. Aggrieved, the assessee preferred an appeal before the CIT (A) raising the grounds against the validity of the re-assessment proceedings and also against the merits of the additions. Further, the assessee has also raised an additional ground that the learned AO has erred in initiating the re-assessment proceedings based on audit objection. In support of the grounds raised, the assessee filed detailed submissions before the CIT (A). The CIT (A) observed that the grounds 1, 2 and 10 are against the validity of the re-assessment proceedings and after considering the assessee's submissions at length, he held that the notice u/s 148 on the basis of audit objection and the consequent re-assessment proceedings are void ab initio. He relied upon various judicial precedents for coming to this conclusion. He therefore, did not deal with the merits of the other grounds of appeal raised by the assessee on merits of the additions. Against the relief given by the CIT (A) by quashing the re-assessment proceedings as void ab initio, the Revenue is in appeal before us by raising the above grounds of appeal.
3. The learned DR, while supporting the order of the AO submitted that the assessee has filed the return belatedly on 23.3.2006 whereas the assessee ought to have filed it before 30.09.2005. He submitted that the assessee not only has to file the return but has to disclose truly and fully all the material facts relevant for the assessment of its income. He drew our attention to Form No.3CED at page 11 of the paper book filed by the Revenue and internal page No.7 thereof, wherein the assessee was Page 3 of 20 ITA No 515 of 2015 TNS India P Ltd Hyderabad required to declare as to whether the assessee has deducted the tax at source and paid the amount to the Central Govt. in accordance with the provisions of Chapter XVII B of the Act. He also drew our attention to the reply of the assessee to the AO's questionnaire "yes, but there was a short delay in payment". He submitted that this submission of the assessee is incorrect in so far as the payment to the government was in the subsequent financial year and not in the relevant financial year. He submitted that the relevant documents with regard to TDS made and remitted were not filed by the assessee during the assessment proceedings but were filed only during the re-assessment proceedings. He has also drawn our attention to the relevant copies of Form-16 which are placed at pages 62 to 64 of the paper book filed by the Revenue to demonstrate that the due dates of payment during the relevant financial year are 23.09.2004, 30.11.2004 and 22.11.2004 but the payment into the govt. a/c was made on 19.07.2005 in all the three cases. Thus, according to him, there is no true and full disclosure of all the material facts by the assessee while filing the return of income or during the assessment proceedings u/s 143(3) of the Act. As regards the assessee's contention that the re-assessment is on the basis of an audit objection and therefore is not sustainable, the learned DR submitted that the audit objections are the information brought to the notice of the AO about the escapement of income and the AO has verified the assessment records pursuant to such audit objection before forming the opinion that there is escapement of income and it is only thereafter, that the AO has issued notice u/s 148 of the Act. In support of his contention the audit objection Page 4 of 20 ITA No 515 of 2015 TNS India P Ltd Hyderabad can be considered as information for reopening of an assessment, the learned DR placed reliance upon the following decisions:
i) CIT vs. PVS Beedies Pvt. Ltd reported in (1999) 237 ITR 0013.
ii) Indian & Eastern Newspaper Society v. CIT [1979] 119 ITR 996 (S.C)
iii) CIT Cochin vs. National Tyres & Rubber Co. of India Ltd reported in (2011) 15 Taxmann.com 3 (Ker.) Thus, according to him, the order of the CIT (A), holding the re-
assessment proceedings to be void ab initio, has to be set aside and prayed that the matter may be remitted to the CIT (A) with a direction to decide the appeal on merits of the additions challenged by the assessee.
4. The learned Counsel for the assessee, on the other hand, supported the order of the CIT(A) and submitted that the assessee has filed the return of income disclosing all the material facts necessary for the assessment of its income. He submitted that the notice u/s 148 has been issued after expiry of four years from the end of the relevant A.Y and therefore, the proviso to section 147 of the Act would apply. He submitted that the audit party has raised the objections after verifying the assessment records of the assessee and therefore, it is clear that all the relevant facts were part of the record and no new material has come to the knowledge of the AO to form a belief that the income has escaped assessment. He submitted that there is no failure on the part of the assessee to disclose fully and truly all material facts necessary for assessment of its income and in such Page 5 of 20 ITA No 515 of 2015 TNS India P Ltd Hyderabad circumstances, the reopening of the assessment after the lapse of four years on the basis of audit objection is bad in law. He also submitted that the AO, while recording the reasons for reopening, has verbatim reproduced the objections raised by the Revenue and has nowhere recorded that there is a failure on the part of the assessee to disclose fully and truly all material facts. He submitted that it is only while disposing the assessee's objections against the re-assessment, that the AO has mentioned that the assessee has failed to disposing fully and truly all material facts necessary for assessment of its income. He submitted that the requirement of the law is that the AO has to be satisfied at the time of recording the reasons itself that the assessee has failed to disclose fully and truly all material facts. He also submitted that the Revenue has not raised any ground before this Tribunal that the assessee has failed to disclose fully and truly all material facts and therefore, the learned DR cannot now raise a ground that there is a failure on the part of the assessee to disclose fully and truly all material facts necessary for assessment of its income.
5. The assessee has also filed a paper book consisting of the copies of the judicial precedents in support of its contention. As regards the DR's reliance upon the decision of the Hon'ble Supreme Court in the case of CIT vs. PVS Beedies Pvt. Ltd and also Indian & Eastern Newspaper Society v. CIT (cited Supra), the learned Counsel for the assessee submitted that those decisions were on the provisions of section 147(b) of the Act which existed at that point of time, whereas the section 147 has undergone amendment by introduction of the proviso to section 147 and therefore, according to him, those decisions cannot be applied to Page 6 of 20 ITA No 515 of 2015 TNS India P Ltd Hyderabad the case before us for post amended period of the A.Y 2005-06. Therefore, according to him, those decisions are not applicable to the facts of the case before us. The decisions relied upon by the learned Counsel for the assessee, in support of its contentions are as under:
a) Hon'ble Andhra Pradesh High Court in the case of CIT-
III vs. LGE & C-NCC (Jt. Venture) in ITTA No.390 of 2014
b) Hon'ble Madras High Court in the case of CIT vs. Arvind Remedies Ltd (2015) (93 CCH 121)
c) Hon'ble Supreme Court in the case of CIT v. Bhanji Lavji (1971) (79 ITR 582)
d) Hon'ble Supreme Court in the case of CIT vs. Lucas T.V.S. Ltd (2001) (249 ITR 306)
e) Hon'ble Bombay High Court in the case of CIT vs. DRM Enterprises (2014) (230 Taxman 61)
6. Having regard to the rival contentions and the material on record, we find that the question before us is whether the re- assessment proceedings have been initiated only on the basis of the audit objection without any application of mind by the AO and whether the re-assessment u/s 147 is valid in law. Undisputedly, the assessment in the case of the assessee was completed u/s 143(3) of the I.T. Act by orders dated 15.12.2008 and the notice u/s 148 is dated 26.3.2013. The relevant A.Y 2005-06 ended on 31.03.2006. Therefore, the reopening of the assessment is clearly after a period of four years from the end of the relevant A.Y and in such circumstances, the proviso to section 147 of the Act would apply. It is also not in dispute that the audit party has raised objections and the AO replied to the said objections stating that the issue relating to the issuance of license fee and royalty payment have been considered by the TPO during the Transfer Pricing proceedings and for the objections relating i.e. 1 to 4, the Page 7 of 20 ITA No 515 of 2015 TNS India P Ltd Hyderabad AO while scrutinizing the file would have verified the same but the objections raised by the RAP needs verification and therefore, requested the CIT-II Hyderabad for directions to take necessary remedial action. The objections of the audit party are the information brought to the notice of the AO. It is a settled position of law that the information can be brought to the notice of the AO from any source including the audit party, but for initiating the re-assessment proceedings u/s 147 of the Act, the AO has to independently apply his mind to form an opinion/belief that there is escapement of income. Further, where the proviso to section 147 applies, the AO has to further record that the escapement of income is due to the failure of the assessee to disclose fully and truly all material facts necessary for assessment of its income. The reasons for reopening the assessment have been filed before us in the Paper Book filed by the assessee at page 3 of the Paper Book containing judicial precedents (Vol.-I) and it is noticed therefrom that the audit objections are reproduced therein as reasons for reopening of the assessment and there is no whisper of the failure of the assessee to disclose fully and truly all material facts. For the sake of clarity and ready reference, they are reproduced hereunder:
"Sub: Reasons for the re-opening of assessment II/s.147 of I.T. Act 1961 - in your case - Ass Year 2005-06 - communicating - Reg.
The reasons for re-opening. of assessment u/s.147 of the Income Tax Act, 1961, for the Asst. Year 2005-06, are furnished as under:-
It is noticed that:Page 8 of 20
ITA No 515 of 2015 TNS India P Ltd Hyderabad
1) Vide Schedule-F (d) other current assets: that the assessee company was in receipt of Rs.1 ,93,35,049/- as 'accrued income'. However, as seen from the P & L account, the said accrued income was not accounted for though the assessee was following mercantile method of accounting. Therefore, the accrued income of Rs. 1,93,35,049/-- escaped assessment.
2) It is noticed vide Schedule-I "Administrative Cost' forming part of the P & L account, the assessee company debited an amount of Rs.2,50,63,559/-
towards 'Licence Fees' (Rs.l,60,41,152/- towards Licence Fee payment for using 'Central Auto Technology' and Rs.90,,22,405/- towards 'Business Solutions license fee payment'). The payments were made to associated enterprises/group namely M/s.TNS U.K Ltd and M/s.TNS Singapore P. Ltd. The payments attracts the provisions of section 40(a)(i) and section 195 of the Act.
Further, as seen from the nature of payment the 'Licence Fee' had an enduring benefit to the assessee company on its usage in the day to day business activity. Hence, in view of the nature of business and nature of payment made for acquiring 'Licence fee' from Group companies, the said expenditure needs to be capitalized under 'Intangible assets' and depreciation @ 25% on Rs.2,50,63,559/- amounting to Rs.62,65,890/- is only allowable and the balance of Rs.l,87,97,669/- needs to be brought to tax.
3) It is observed from Schedule-I - Administrative cost that an amount ofRs.l,14,58,641/- was debited towards 'Royalty payment' (including the Central Group Service charges) made to Group companies. In the absence of details of TDS made u/s 195 on 'Royalty payment' it would attract provision of section 40(a)(i) and the entire expenditure needs to be disallowed and brought to tax.
4) The assessee company was allowed a TDS credit of Rs.l,91,36,242/-. However, as per the assessment Page 9 of 20 ITA No 515 of 2015 TNS India P Ltd Hyderabad record, the available TDS certificates were only 17, whose gross receipts worked out to Rs.99,49,738/- and the corresponding tax credit worked out Rs.4,90,752/-. The details for remaining TDS credit are not forthcoming from the assessment record.
Also as seen from Schedule-F (d) - Current assets, loans and Advances, the assessee company had received TDS credit worth Rs.10,13,44,415/-. Out of this Rs.l,91,36,242/- was allowed in the scrutiny order. The details of entire turnover could not be correctly ascertained".
7. We have also perused the audit objections placed at pages 1 & 2 of the paper book filed by the assessee and find that the audit objections only are recorded as reasons for reopening and the AO has not recorded that there is escapement of income which is due to failure on the part of the assessee to disclose fully and truly all material facts. It is also not clear whether he has verified the assessment record before forming a belief that there is escapement of the income on the grounds on which the audit party has raised the objections. In the light of above facts and circumstances, let us now examine the applicability or otherwise of the ratios of the decisions relied upon by both the parties to the facts of the case before us. The learned DR has read out extensively from the following decisions in support of his contentions.
(i) CIT vs. PVS Beedis Pvt. Ltd (237 ITR 13 (S.C) The Hon'ble Supreme Court in this case, while considering the meaning of section 147(b) of the Act held that the information given by the internal audit party could be treated as Page 10 of 20 ITA No 515 of 2015 TNS India P Ltd Hyderabad information and the reopening of the case on the basis of such information was valid in law. Section 147(b) at the relevant point of time read as under:
"If-
(a).....
(b) notwithstanding that there has been no omission or failure as mentioned in clause (a) on the part of the assessee, the 96a(Assessing) Officer has in consequence of information in his possession reason to believe that income chargeable to tax has escaped assessment for any A.Y, He may, subject to the provisions of sections 148 to 153, assess or reassess such income or recompute the loss or the depreciation allowance, as the case may be, for the A.Y concerned (hereafter in sections 148 to 153 referred to as the relevant A.Y".
8. Thus, it is clear that at the relevant point of time i.e. prior to 1.4.1989, the AO had the power to reopen the assessment without any time limit even where the assessee has disclosed all material facts truly and fully. Subsequent to the introduction of the proviso to section 147, the AO has the power to reopen the assessment only on satisfaction of the conditions mentioned therein. Thus, by virtue of this amendment, the power hitherto vested with the AO are subject to the conditions mentioned in the proviso. We are, therefore, satisfied that the decision of the Hon'ble Supreme Court in the above case is applicable only to the extent that audit objection can be considered as information brought to the notice of the AO and not for the proposition advanced by the learned DR that an assessment can be reopened on the basis of an audit objection.
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(ii) Indian & Eastern News Papers and Society v. CIT (119 ITR 996)(S.C) The Hon'ble Supreme Court in this case, has held that though the audit party does not possess the power to pronounce on the law, it nevertheless may draw the attention of the ITO to it and when such information is brought to his notice, the Income Tax Officer must determine for himself what is the effect and consequence of the law mentioned in the audit note and whether in consequence of the law which has now come to his notice, he can reasonably believe that the income has escaped the assessment and the basis of his belief must be the law which he has now become aware. The Hon'ble Supreme Court has further held that the true evaluation of law in its bearing on the assessment must be made directly and solely by the ITO. We find that the Hon'ble Supreme Court in this case also was dealing with the provisions of section 147(b) of the Act. Further, as held by the Apex Court, it is the AO who has to be satisfied that the income has escaped assessment and cannot solely rely upon the audit objection to reopen an assessment. We find that this decision is in fact in favour of the assessee.
(iii) CIT vs. National Tyres and Rubber Co. of India Ltd (202 Taxmann 625) (Kerala) In this case, the Hon'ble Kerala High Court was considering the case of an assessee whose assessment for the A.Y 1995-96 was reopened on the basis of an audit objection that the capital gain on conversion of capital asset into stock-in-trade was not offered to tax. The Hon'ble High Court considered the fact that in the said case, the assessee had not filed the return of income for the relevant A.Y and neither did the AO assess the liability under the said section i.e. section 45(2) and it was the audit party which Page 12 of 20 ITA No 515 of 2015 TNS India P Ltd Hyderabad brought to the notice of the AO that the income chargeable to tax u/s 45(2) has not been assessed for the A.Y 1995-96 because in the relevant previous year, the assessee had sold major portion of the land and building thereon held by it and that it was originally the capital asset which was transferred or converted into stock-in- trade in the year 1992-93 leading to a good amount of profit to the assessee. It was in these circumstances, that the Hon'ble High Court held that so long as income chargeable to tax has escaped the assessment and the AO has reason to believe so, whether suo moto found by him from record or brought to its notice by audit party, the AO will be justified in revising the assessment within the period of limitation provided therein. It was further held that the re-assessment in the said case was within the period of 4 years, whereas, in the case before us, the reopening of the assessment is beyond 4 years. Therefore, in our opinion, this decision is not applicable to the facts of the case before us.
(iv) Haryana Agro Industries Corporation Ltd vs. CIT reported in (2016) (385 ITR 488 (P&H) In this case, the Hon'ble Punjab & Haryana High Court was considering the case of reopening of the assessment on the basis of audit objection within a period of 4 years and therefore, the said decision is also not applicable to the facts of the case before us.
(v) Franchise India Holdings Ltd vs. ACIT reported in (2016) (388 ITR 563) (P&H)
(vi) Dalmiya Brothers (P) Ltd vs. CIT reported in (2011) (204 Taxman 83) (Del.) Page 13 of 20 ITA No 515 of 2015 TNS India P Ltd Hyderabad In this case the Hon'ble Delhi High Court was dealing with a case where during the assessment proceedings the AO had asked the assessee to furnish complete details/confirmation in respect of sundry creditors amounting to Rs.1,66,37,402 while the assessee submitted confirmation in respect of the part of the creditors only and for the balance, the audit objection was raised on the basis of which the assessment was reopened and the Hon'ble High Court has held that the re-assessment was valid. This case, in our view, is distinguishable on facts.
(vii) HVK International Pvt. Ltd reported in (2016) 389 ITR 630 (Guj.) In this case, the Hon'ble Gujarat High Court was considering the case of an assessee where the re-assessment was initiated after a period of 4 years. In this case, there was a search and seizure operation during which, the material was found and seized on the basis of which the assessment has been reopened. This is the case where fresh information has been brought on record by the Investigation Wing and that is the basis for reopening of the case after a period of 4 years. Therefore, the facts of this case are also distinguishable from the facts of the case before us.
(viii) ABC Classes PRS vs. PR.CIT reported in (2016) (387 ITR 119) (Allahabad) In this case also, the basis for reopening of the assessment is the information gathered by the Excise Department from the statement of Partners during a search. For the reasons stated above in reference to the case of HVK International Pvt. Ltd, this case is also not applicable to the facts of the case before us.
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(ix) Raymond Wollen Mills Ltd vs. ITO & Others (207 ITR 929) (Bombay) The assessment year in this case are 1967-68, 1968-69, 1970-71 to 1973-74 and the reopening of the assessment was u/s 147(a) i.e. the pre-amended provisions and therefore, the same is not applicable to the facts of the case before us.
(x) Girilal & Co. vs. ITO & Others (387 ITR 122) (S.C) In this case, the Hon'ble Supreme Court was considering the case of an assessee where the re-opening of the assessment was after a period of 4 years. In this case, the Hon'ble Supreme Court has considered the fact that there was no true and full disclosure of facts by the assessee before the authorities. In the case before us, there is no finding of the AO that the information was not available in the assessment records or that there was a failure of the assessee to disclose fully and truly all material facts before him. In such circumstances, we are of the opinion that this decision also is not applicable to the facts of the case before us.
9) The learned Counsel for the assessee, on the other hand, had relied upon the following decisions:
i) Unreported decision of Hon'ble A.P & Telangana High Court in the case of CIT-II vs. LGE & C-NCC (Jt.Venture) (ITTA No.390 of 2014).
The Hon'ble Andhra Pradesh High Court in this case has held that where the pre conditions for issuance of notice u/s 148 after four years and within six years, namely, the allegation of escapement Page 15 of 20 ITA No 515 of 2015 TNS India P Ltd Hyderabad of income on account of failure on the part of the assessee to make a return u/s 139 or in response to notice issued under sub- section (1) of section 147 or section 148, or to disclose fully and truly all material facts necessary for its assessment for that A.Y, have not been fulfilled, initiation of proceedings u/s 147 is bad in law.
ii) Hon'ble Madras High Court in the case of CIT vs. Arvind Remedies Ltd reported in (2015) (93 CCH
121)
10) The Hon'ble Madras High Court in the case of CIT vs. Arvind Remedies Ltd (Cited Supra) has at Para 12 of its order held as under:
"12. In the light of the above, we hold that when the Assessing Officer had failed to record anywhere his satisfaction or belief that the income chargeable to tax had escaped assessment on account of the failure of the assessee to disclose truly and fully all material facts necessary for assessment. On the contrary, it was the Assessing Officer, who failed to consider the materials placed before him at the time of regular assessment for which the assessee cannot be found fault with. Therefore, the notice issued under Section 147 of the Income Tax Act beyond the period of four years was wholly without jurisdiction and cannot be sustained. Accordingly, for the reasons stated above, the substantial question of law is answered in favour of the respondent/assessee and against the appellant/Revenue".
iii) Hon'ble Andhra Pradesh High Court in the case of Mahalasxmi Motors Ltd vs. Dy.CIT reported in (2004) (265 ITR 53).
In this case, the Hon'ble jurisdictional High Court has held that where all the facts were available before the assessing authority while making the original assessment and the assessing authority allowed the claim, the Department cannot reopen the assessment Page 16 of 20 ITA No 515 of 2015 TNS India P Ltd Hyderabad even if there is loss of revenue or even if legal inferences drawn by the assessee is erroneous in the first place when full and true disclosure of the facts was made by the assessee.
iv) Hon'ble Supreme Court in the case of ITO vs. Lakhmani Mewal Das reported in (1976) 103 ITR 437.
In the case of Income Tax Officer vs. Lakhmani Mewal Das reported in (1976) (103 ITR 437), the Hon'ble Supreme Court held that the expression "reason to believe" does not mean a purely subjective satisfaction on the part of the ITO but the reasons must be held in good faith
v) Hon'ble Supreme Court in the case of CIT vs. Bhanji Lavji reported in (1971) 79 ITR 582.
The Hon'ble Supreme Court in the case of CIT vs. Bhanji Lavji (cited Supra) has held where ITO has passed an order holding that the assessee has no income chargeable to tax in British India, with full knowledge, he could not seek to reassess the assessee on the ground of failure to disclose fully and truly the facts necessary for the assessment of his income.
vi) Hon'ble Supreme Court in the case of Calcutta Discount Co. v. ITO [1961] 41 ITR 191 (SC)
11) In this case, the Hon'ble Supreme Court has held that it is the duty of the assessee to disclose the primary facts relevant to the decision of the question before the assessing authority and once all the primary facts are before the AO, he requires no further assistance by way of disclosure. It is held that it is for the AO to decide what inferences of facts can be reasonably drawn and what legal inferences have ultimately to be drawn and it is Page 17 of 20 ITA No 515 of 2015 TNS India P Ltd Hyderabad not for somebody else far less the assessee - to tell the assessing authority what inferences-whether of facts or law should be drawn. It has also been held that Explanation to the sub-section to section 34 of 1922 Act has nothing to do with the inferences to be drawn and deals only with the question whether primary material facts not disclosed, could still be said to be constructively disclosed on the ground that with due diligence, the Income Tax Officer has discovered them from the facts actually disclosed. From the above decision, it is clear that though the Audit Party can bring information to the knowledge of the AO that the income of the assessee has escaped the assessment, it is incumbent upon the AO to record a finding along with the reasons for reopening of the assessment, that the income has escaped assessment due to the failure of the assessee to disclose fully and truly all material facts for the assessment of its income.
12. Thus, it is clear that for issuance of notice u/s 148 beyond a period of 4 years from the end of the relevant A.Y, it was necessary for AO to record that the income has escaped assessment on account of the failure of the assessee to disclose fully and truly all material facts necessary for assessment. We have also gone through the order sheet entries of the AO placed at pages 30 & 31 filed by the Revenue and there is no recording whatsoever even in the order sheet that there is escapement of income due to failure of the assessee to disclose truly and fully all material facts. The CIT (DR) has tried to justify that there is failure on the part of the assessee to disclose fully and truly all material facts by drawing our attention to the financials of the assessee but it is the AO who has to record the finding and not the CIT (DR). It has been held that the AO has to speak his mind Page 18 of 20 ITA No 515 of 2015 TNS India P Ltd Hyderabad through his order and it cannot be presumed in the absence of any such recording.
13. In the case before us also, the assessee has filed the return of income for the relevant financial year and it is only from these documents that the audit party has raised its objections. Thus, there is no new material which has come to the notice of the audit party or the AO for raising such objection or forming a belief that there is escapement of income. When all the material facts were part of the record, even if there is loss of revenue, it cannot be reassessed after lapse of four years from the end of the relevant A.Y unless the loss has occurred due to failure on the part of the assessee to disclose fully and truly all material facts. Since the preconditions for initiation of proceedings u/s 147 of the Act by issuance of notice u/s 148 of the Act are not satisfied, we see no reason to interfere with the order of the CIT (A) and the Revenue's appeal is accordingly dismissed.
16. In the result, Revenue's appeal is dismissed.
Order pronounced in the Open Court on 13th September, 2017.
Sd/- Sd/-
(S.Rifaur Rahman) (P. Madhavi Devi)
Accountant Member Judicial Member
Hyderabad, dated 13th September, 2017.
Vinodan/sps
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Copy to:
1 Asstt. Commissioner of Income Tax, Circle 2(2), Room No.513, 5th Floor, Signature Towers, Kondapur, Hyderabad 2 M/s. TNS India Private Ltd, Plot No.17, Road No.3, Banjara Hills, Hyderabad 500034 3 CIT (A)-2 Hyderabad 4 Pr.CIT - 2 Hyderabad 5 The DR, ITAT Hyderabad 6 Guard File By Order Page 20 of 20