Madhya Pradesh High Court
M/S Cummins Technologies India Pvt. ... vs Assistant Commissioner Of Income Tax on 20 December, 2016
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Writ Petition No.8306/2016
20/12/2016
Mr. Sumit Nema, learned counsel for the petitioner.
Ms. Veena Mandlik, learned counsel for the
respondents.
The petitioner before this Court is a Company
registered under the provisions of Companies Act, 1956, is
aggrieved by order dated 13/05/2016 passed by the Assessing
Officer, order dated 28/11/2016 rejecting the objections filed by
the petitioner and also the notice dated 18/03/2016 issued under
Section 148 of the Income Tax Act, 1961.
02- The petitioner's contention is that the petitioner's
assessment for Assessment Year 2009-10 was completed under
Section 143(3) of the Income Tax Act, 1961 on 22/02/2013 and a
demand was raised to the tune of Rs.1,36,120/-. The petitioner
has further stated that during the assessment proceedings copy
of audit report in respect of book of accounts was also brought to
the notice of the Assessing Officer.
03- The petitioner has further stated that the petitioner
has received a notice on 18/03/2016 under Section 148 issued
by the Assessing Officer initiating reassessment proceedings for
the Assessment Year 2009-10. The petitioner has further stated
that the petitioner has filed its return afresh in compliance of
notice issued under Section 148 and thereafter, applied for
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reasons for reopening the case. The Assessing Officer provided
the reasons for reopening the case and passed an order on
13/05/2016.
04- The petitioner has also filed objections as required
under Section 147 of the Income Tax Act and a final order has
been passed on 28/11/2016 rejecting the objections. The
petitioner's contention is that the action initiated by the
Assessing Officer and the order passed by the Assessing Officer
dated 28/11/2016 is bad in law as proceedings have been
initiated after four years from the end of assessment for the
Assessment Year 2009-10.
05- A ground has also been taken that there was no such
failure to disclose the true and material facts and in fact the
reassessment is emerging from the audit report which was
brought to the notice of the Assessing Officer earlier. It has also
been argued that change of opinion will not empower the
Assessing Officer to initiate proceedings under Section 147/148
of the Act and therefore, the entire proceedings deserves to be
quashed.
06- Learned counsel for the petitioner has placed
reliance upon a judgments delivered by the Delhi High Court in
the case of Shipra Srivastava and Anr. Vs. ACIT reported in
(2009) 319 ITR 221 (Delhi), Norethern Strips Ltd. & Anr. Vs.
Income Tax Officer reported in (2009) 31 DTR (Delhi) 225:
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(2010) 186 Taxman 360, JSRS Udyog Ltd. Vs. Income Tax
Officer reported in (2009) 313 ITR 321 (Delhi), Jai Hotels Co.
Ltd. Vs. ACIT reported in (2009) 24 DTR 37, 184 Taxman 1
(Delhi) and CIT Vs. Eicher Ltd. reported in (2011) 239 CTR
(Delhi) 65 and of Bombay High Court in the case of German
Remedies Ltd. Vs. DCIT reported in (2006) 285 ITR 26 and
Asteriods Trading and Investment (P) Ltd. Vs. DCIT reported
in (2009) 308 ITR 190 (Bombay) wherein it has been held that
there being no new material in the hands of revenue leading to
the view that there was reason to believe that there was
escapement of assessment, there was mere change of opinion
and hence notice under Section 148 is liable to be quashed.
07- Reliance has also been placed upon another
judgment and it has been argued that the availability of the
alternative remedy is no ground to decline the admission of the
present writ petition.
08- On the other hand, a reply has been filed on behalf of
the respondent No.1 and the respondent No.1 has stated that he
has passed a detailed and speaking order on 28/11/2016
rejecting the objections raised by the petitioner for assessment
under Section 148 of the Income Tax Act. It has also been stated
that assessment proceedings under Section 147/148 have been
initiated for the Assessment Year 2009-10 after recording the
reasons in writing and after duly obtaining the prior approval of
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competent authority.
09- It has also been stated that notice under Section 148
of the Act was issued within the statutory time limit and was
served to the assessee on 22/03/2016. It has been further stated
by the respondent that during the course of assessment under
Section 143(3) the assessee was never asked for providing the
details or explanation shown in the reasons recorded under
Section 148(2) for reopening the case. It has been further stated
that assessee has explained only about computation of book
profit under Section 115JB in reply but did not informed about
the submission of Form No.56-F for claiming exemption under
Section 10AA.
10- It has been further stated no document was found or
asked for submission of the notice of Auditor of the Company for
lower of profit by Rs.2,94,03,474/- due change in the method of
slow moving inventory. It has been stated that assessee has
failed to disclose fully and truly all materials facts at the time of
assessment proceedings and therefore, the action initiated by
the respondent is in consonance with the provisions governing
the field.
11- Heard learned counsel for the parties and perused
the record.
12- In the instant case, it is an undisputed fact that for
the Assessment Year 2009-10 the assessment order was passed
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by respondent No.1. A notice was issued under Section 148 by
the respondent No.1 for initiating reassessment proceedings for
the Assessment Year 2009-10. The petitioner has filed its return
in compliance of notice under Section 148 of the Act and
thereafter, applied for reasons for reopening the case. The
Assessing Officer has passed an order on 13/05/2016 (Annex.-
P/7) and the same reads as under:-
GOVERNMENT OF INDIA
OFFICE OF THE
ASSISTANT COMMISSIONER OF INCOME TAX,
CIRCLE-1(1), UJJAIN
No.ACIT/Cir-1(1)/Ujjain/2016-17/582 Dated : 13.05.2016
M/s Cummins Technology India Pvt. Ltd.,
Dewas (MP).
PAN: AABCT2018B
Dear Sir / Madam,
Sub:- assessment proceedings u/s 147/143(3) of the I.T. Act, 1961 for the
A.Y. 2009-10 - Regarding -
**********
Please refer to your letter dated 18.04.2016 furnished in response to notice u/s 148 issued on 18.03.2016. In the said letter, you have stated that you have filed return of income under protest and you have asked the reasons recorded for reopening the assessment for the year A.Y.2009-10. You have also filed objections that this case has been reopened u/s 147 on a mere change of opinion, which does not entitled the AO to reopen the assessment u/s 148.
In this context, it is stated that your written reply/objection for reopening the assessment as well as various case laws furnished by you have been considered carefully and found that your objection is not tenable because your case for the AY 2009-10 has not reopened on account of a mere change of the opinion of the AO. It is re-opened after observing that scrutiny assessment completed by the my predecessor for the A.Y.2009-10 is erroneous and prejudicial to revenue for the following reasons:-
-6-1. In the tax audit report in Form 3CD at point No.03 for the A.Y.2009- 10 reveals that your auditors have mentioned clearly that "During the year, the company also decided to expand its operations and enter the field of re manufacturing of engines and sub-assemblies from the existing core business. This would be a new division of the company named PSMI (Parts and Service Manufacturing India). The PSMI division would have manufacturing facilities at two places, viz, for its domestic requirement at Pune and for its export requirements at SEZ Pithampur. As on financial year ended March 31, 2009, operations were not commenced but during the year, the Company has changed its estimate of providing for slow/non moving inventory as a result of which profit before tax and inventory is lower by Rs.2,94,03,474/-." You did not disclose its income in your return of income and therefore, the same is remained unexplained which is escaped assessment amounting to Rs.2,94,03,474/-.
2. Further, you have deducted an amount of Rs.6,67,37,928/- in item No.5B of schedule MAT. It is noticed that report u/s 10AA in form 56F was not filed by you and also details/calculation sheet for exemption u/s 10AA was not filed. You had stated during the original assessment proceedings that amount of Rs.6,67,37,928/- was pertaining to income of the Pithampur SEZ unit and the same is eligible for exemption u/s 10AA of the I.T.Act. But there is neither report u/s 10AA in form 56F was found on record nor any details/calculation sheet regarding computation of income eligible for exemption u/s 10AA is placed on record. In the absence of report in Form 56F as required u/s 10AA exemption of Rs.6,67,37,928/- there is an an escapement of income amounting to Rs.6,67,37,928/-.
A copy of reasons recorded for re-opening the assessment u/s 143(3) in enclosed herewith. In this context, it is also stated that this case has been reopened u/s 147/148 after obtaining prior approval of the Pr. CIT, Ujjain vide his offence letter dated 17.03.2016.
You are now requested to please explain as to why an amount of Rs.2,94,03,474/- as claimed by you on account of slow / non moving inventory may not be disallowed and added back to your total income treating as unexplained income for the year under consideration as stated above.
Please also explain as to why an amount of Rs.6,67,37,928/- in items No.5b of schedule MAT as claimed exemption by you may not be disallowed and added back to your total income treating as unexplained income for the year under consideration as stated above.
The case is fixed for hearing on 25.05.2016 at 03:00 P.M. -7- Yours faithfully, (J.S. Rao) Asstt. Commissioner of Income Tax, Circle-1(1), Ujjain 13- The order passed by the Assessing Officer makes it very clear that Assessing Officer was having a reason to believe to proceed ahead in the matter. Not only this, based upon the objections raised by the petitioner, the impugned order has been passed by the respondents on 28/11/2016 (Annex.-P/9) and the same reads as under:-
GOVERNMENT OF INDIA ASSISTANT COMMISSIONER OF INCOME TAX Circle-1(1), Ujjain No.ACIT/C-1(1)/Asstt./Ujjain/2016-17/ Dated: 28.11.2016 M/s Cummins Technologies India Pvt. Ltd., Industrial Area No.2, A.B. Road, Dewas Distt. Ujjain PAN: AABCT2018B Sir, Sub:- Rebuttal of objection raised against notice issued u/s 148 of the I. T. Act, 1961 for the A.Y. 2009-10 - Regarding -
********** Please refer to your letter dated 25.11.2016 raising objection against notice issued u/s 148 of I. T. Act, 1961 to reopen the assessment order passed u/s 143(3) for A. Y. 2009-10, dated 22.03.2013.
Assessment of the case for AY 2009-10 has been reopened U/s 147/148 by this office after recording reasons in writing and duly obtaining prior approval of Principle Commissioner of Income-tax, Ujjain vide his office letter dated 17.03.2016. Notice U/s 148 was issued within the statutory time limit and duly received by the assessee on 22.03.2016. You have filed objections for reopening the assessment vide letter dt. 18.04.2016. In the said letter, you were stated that return of income in response to notice u/s 148 is filed under protest and asked to provide reasons recorded for reopening proceedings. An objection was also filed challenging the reopening -8- proceedings u/s 147 on a mere change of opinion, which does not entitle the Assessing Officer to reopen the assessment u/s 148.
On 13.05.2016, objections raised by you were rejected along with providing reasons recorded for reopening proceedings and case fixed on 25.05.2016 at 3:00 PM. On the said date request for adjournment was submitted and on 25.11.2016, the assessee again objected the reopening proceedings.
The objections raised by you are as under:-
1. We bring your kind attention to the provisions of section 147 "If the Assessing Officer has reason to believe] that any income chargeable to tax has escaped assessment for any assessment year, he may, subject to the provisions of sections 148 to 153, assess or reassess such income and also any other income chargeable to tax which has escaped assessment and which comes to his notice subsequently in the course of the proceedings under this section, or recompute the loss or the depreciation allowance or any other allowance, as the case may be, for the assessment year concerned (hereafter in this section and in sections 148 to 153 referred to as the relevant assessment year) :
Provided that where an assessment under sub- section (3) of section 143 or this section has been made for the relevant assessment year, no action shall be taken under this section after the expiry of four years from the end of relevant assessment year, unless 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 in response to a notice issued under sub- section (1) of section 142 or section 148 or to disclose fully and truly all material facts necessary for his assessment for that assessment year." (Emphasis supplied)
2. Thus an assessment can be reopened beyond a period of 4 years from th end of the concerned Assessment Year if and only if • the assessee had not filed its Return of Income; or alternatively • the assessee has failed to disclose fully and truly all material facts necessary for the assessment for that assessment year.
3. Assessment for the AY 2009-10 was completed under section 143(3) of the Income-tax Act, 1961 (the Act) on 22.03.2013. The 4 years' time limit laid down in Section 147 of the Act expired on March 31, 2014. However, the notice -9- for reopening the assessment-dated March 18, 2016 was served on us on March 22, 2016, which is beyond the limitation prescribed in Section 147 of the Act.
4. We wish to bring to your goodself's notice that we had filed our return for AY 209-10 on September 25, 2009 vide acknowledgment no 91142230250909 (enclosed as Annexure 1). The same was also submitted to your goodself on April 18, 2016 as part of response to your notice dated March 18, 2016.
Hence, we humbly submit that extended time period for reopening cannot be invoked for non filing of return.
5. Thus the assessment for AY 2009-10 can be reopened only if we have failed to disclose all material facts necessary for assessment.
6. With reference to point 4 and 5 of your goodself's notice, we submit that we had submitted Form 56F to the assessing officer on September 30, 2009 (copy of letter enclosed as Annexure 2). We further invite your goodself's attention to question number 26 of AO's letter dated September 10, 2012 and our response to the same dated September 19, 2012 (enclosed as Annexure 3) wherein we have provided the details of income and expenditure claimed under Section 10AA.
Further your goodself's reference to clauses of Tax Audit Report is evidence to fact that company had submitted all required information during assessment proceedings and has not withheld any material fact. During the Financial Year 2008-09, the Company's Auditor disclosed under Significant Accounting Policies of the Financial Statement under Schedule 17 at Point No.3 as under:
"During the year, the Company has changed its estimate of providing for slow/non-moving inventory as a result of which profit before tax and inventory is lower by Rs.2,94,03,474/-.
The Company submitted the Financial Statement for the FY 2008-09 at the time of original assessment proceedings in which the above facts are duly recorded and was present before the Assessing Officer while making assessment of the case. Also Company has disclosed the income as well as expenses related to unit claiming deduction u/s. 10AA. Company had submitted all the details called for during the course of the original assessment proceedings.
The Company has submitted all the relevant material facts regarding the same at the time of original assessment proceedings itself. Hence we humbly submit that extended time period for reopening cannot be invoked for non disclosure of al material facts.
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7. The notice under section 148 has been served beyond the period specified in the proviso to section 147 and therefore is time barred and bad in law.
In support of our objection to the reopening, we place reliance on in following cases.
1) In this matter, we would like to draw your kind attention to the apex court judgment in the case of CIT vs Kelvinator of India Ltd. [2010-
TIOL-06-IT-LB] (copy enclosed as annexure A) wherein it has been concluded that assessment u/s 143(3) cannot be reappraised for responded on the same set of facts which were available on record at the time of original assessment. The decision also reiterates and reaffirms the principle of law that what cannot be done directly cannot be done indirectly.
2) The "reasons to believe" as recorded by the Assessing Officer does not aver that the assessee had failed to fully and truly disclose all material facts necessary for the assessment, which is a condition precedent for reopening the assessment after four years. The reason to believe only indicates that the reason for reopening is based on the assessment records and the balance sheet. In our view, the foundational requirement for reopening an assessment beyond four years had not been fulfilled, as per the proviso to Section 147, which is a condition precedent. Consequently, we are of the opinion that the notice issued for reopening the assessment was contrary to law since it did not meet with the foundational requirement of the proviso to Section 147. Similar view was held by this Court in ACI Oils (P.) Ltd. v. Dy. CIT [2015] 370 ITR 561/57 taxmann.com 260 (All.), which is fully applicable in the present case. [CIT v. Jubilant Organosys Ltd. [2016] 65 taxmann.com 196 (Allahabad)]
3) The Bombay High Court in Godrej Industries Ltd. v. DCIT Circle - 14(1)(2) [2015] 232 Taxman 380 (Bombay) has laid that Once the assessment is sought to be reopened after a period of four years, then, the proviso mandates recording that the assessee has failed to fully and truly disclose all materials facts necessary for the assessment for the relevant assessment year. There is absolutely nothing which would enable us to conclude that the assessee had failed to make such disclosure even prima facie. If the issue which has been raised and regarding which the assessment is proposed to be reopened has been dealth with, then, had the assessee not provided materials and completely, it would not be possible for the authorities under the Act to deal with those issues, discuss them while passing the assesment order and appellate orders. In the circumstances, we do not find that
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the impugned notice can be sustained. Once we have arrived at this conclusion and on all counts, the assessee's objections refer to the materials which were before the assessing officer for the earlier assessment year, some of which were also the subject matter of revisional/Appellate proceedings, then, we would be failing in our duty if we do not interfere with the Notice in our writ jurisdiction. Once we come to this conclusion, then, we do not find any substance in the contention of Mr. Pinto that this Court cannot invoke its writ jurisdiction. As part of our further duty and to reinforce our conclusion that if the factual aspects and the details are undisputed then the issuance of the notice itself was not called for and if it was not called for, it cannot be upheld. Thus, by invoking the writ jurisdiction we interefere with and quash the same.
4) Assessment year 2006-07- Assessee was a tax resident of Australia - It declared interest income mainly from investment and offered same for taxation at rate of 15 per cent taking benefit of article 11(2) - Revenue sought to reopen assessment after four years on ground that tax was to be levied at rate of 40 per cent - Whether since there had been no failure on part of assessee to make a full and true disclosure for making assessment, notice under section 148 should be quashed - Held, yes [Standard Chartered Grindlays (P.) Ltd. v. DDIT (International Taxation), Circle 2(2), New Delhi [2015] 228 Taxman 199 (Delhi)(MAG.)]
5) In Viren Sureshchandra Shah v. ACIT [2015] 63 taxmann.com 104 (Gujarat) held that Where all material facts with respect to demed dividend income necessary for assessment are furnished by assessee, initiation of reassessment proceedings beyond a period of four years i not permissible.
6) Donaldson India Filters Systems (P.) Ltd. v. DCIT [2015] 371 ITR 87 (Delhi) Where Assessing Officer proceeded for reassessment regarding adoption of incorrect turnover by assessee-company while computing deduction under section 80HHE, same was based on material which had been scrutinized in original assessment proceedings and hence reopening of assessment was not justified.
Therefore, in view of the above facts and favorable cases, the Company objects to reopening of assessment under section 147.
The objections raised by you are considered but not found tenable. The detailed reasons for not accepting the objections are as under:
1. The objections raised as per point Nos.1 to 5, you're invited attention
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towards the proviso of section 147 of the Income Tax Act which states that beyond expiry of four years an assessment proceedings can only be reopened if the assessee has failed to furnish any return of income or not disclosed fully and truly all material facts of the reassessment year in response to notice under section 142(1)/143(2). The objection is rejected on the facts available on record that during the course of assessment proceedings u/s 143(3) of the Act, the assessee was never asked for providing the following details or explanation:
a) In the audit report of the Company at point No.3 of the Notes to the Accounts for the A.Y.2009-10 reveals that your auditors have mentioned clearly that "The company has changed its estimated of providing for slow/non moving inventory as a result of which profit before tax and inventory is lower by Rs.2,94,03,474/-." You did not disclose its income in your return of income and therefore, the same is remained un explained which is escaped assessment amounting to Rs.2,94,03,474/-.
b) Further, you have been deducted an amount of Rs.6,67,37,928/- in item NO. 5B of schedule MAT. It is noticed that report u/s 10 AA in form 56F was not filed by you and also details/calculation sheet for exemption u/s 10AA was not filed you had stated during the original assessment proceeding that amount of Rs.6,67,37,928/- was pertaining to income of the pithampur SEZ unit and the same is eligible for exemption u/s 10AA of the I. T. Act but there is neither report u/s 10AA in form 56F was found on record nor any detail/calculation sheet regarding computation of income eligible for exemption u/s 10AA is placed on record. In the absence of report in form 56F as required u/s 10AA exemption of Rs.6,67,37,928/- there is an escapement of income amounting to Rs.6,67,37,928/-.
Therefore, in view of the above facts of non obtaining details and explanation on the above two reasons for reopening, the proceeding is rightly initiated and objection raised by you at point numbers 1 to 5 are rejected.
2. Objection raised at point No. 6, you have claimed that the claim of the deduction u/s 10AA it had submitted Form 56F to the AO and during the course of assessment proceedings U/s 143(3) also invited attention of the then AO in response to a question under the questionnaire dated September 10, 2012. In this regards, I have carefully considered the records available and found that the assessee only explained about the computation of book profit under 115JB in reply to the point number 26 of the questionnaire but did not informed about submission of Form 56F for claiming exemption U/s 10AA.
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3. Another objection raised at point No. 6 is regarding note of the auditor of the Company for lower of profit by Rs. 2,94,03,474/- due change in the method of slow moving inventory. You claims that it has submitted entire documents related to the above note of the auditor at the time of assessment proceedings U/s 143(3) of the Act. On careful verification of the assessment records for the AY 2009-10 for the assessment proceedings U/s 143(3), no documents was found or asked for submission of the same by the then Assessing Officer. Therefore, on both the above reasons, the proceeding of reopening U/s 147 has rightly been made and assessee was failed to disclose fully and truly all material facts at the time of assessment proceedings U/s 143(3). Hence, both this objections raised at point No. 6 are hereby rejected.
4. At point No. 7, you have relied on various case laws of honourable courts. On careful consideration of all these judgments, it has been found that the facts of the your case and the facts of the judgments relied by you are different therefore, on the basis of such decided cases, you are not entitled to get relief from the reopening proceedings. Therefore, this objection is also not tenable and hereby rejected.
In view of the above discussion, the objection raised by you for reopening the case for AY 2009-10 is hereby rejected. You are hereby required to submit the reply of the show cause letter sent by this office vide letter No. 582 dated 13.05.2016 on 05.12.2016. at 11:00 AM to this office.
This letter may be treated as notice u/s 142(1) of the I. T. Act, 1961.
Yours faithfully, (J. S. Rao) Asstt. Commissioner of Income-Tax Circle-1(1), Ujjain 14- In the considered opinion of this Court, the order passed by the Assessing Officer makes it very clear that the assessee has failed to disclose fully and truly all materials facts at the time assessment proceedings initiated under Section 143(3). Not only this, Section 149 which provides for time limit of the Income Tax Act and the same reads as under:-
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"Section 149. Time limit for notice: (I) No notice under section 148 shall be issued for the relevant assessment year,-
(a) if four years have elapsed from the end of the relevant assessment year, unless the case falls under clause (b) or clause (c);
(b) if four years, but not more than six years, have elapsed from the end of the relevant assessment year unless the income chargeable to tax which has escaped assessment amounts to or is likely to amount to one lakh rupees or more for that year;
(c) If four years, but nor more than sixteen year, have elapsed from the end of the relevant assessment year unless the income in relation to any asset (including financial interest in any entity) located outside India, chargeable to tax, has escaped assessment.
Explanation- In determining income chargeable to tax which has escaped assessment for the purpose of this sub section, the provisions of Explanation-2 of Section 147 shall apply as they apply for the purposes of that section.
The Explanation-2 of Section 147 reads as under:
(Income escaping assessment) For the purpose of this Section, the following shall also be deemed to be cases where income chargeable to tax has escaped assessment, namely)-
(a).........
(b).........
(ba).......
(c) Where an assessment has been made, but-
(i) income chargeable to tax has been under assessed; or
(ii) such income has been assessed at too low 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."
15- In light of the aforesaid statutory provision, in the present case, notice has been served within six years from the end of the relevant assessment year and the tax effect is in crores of rupees and therefore, the Assessing Officer was justified in initiating proceedings and in rejecting the objections
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raised by the petitioner.
16- Learned counsel for the petitioner has also placed reliance upon a judgment delivered by the apex Court in the case of Jeans Knit Pvt. Ltd. Bangalore Vs. The Deputy Commissioner of Income Tax Bangalore & Ors. passed in Civil Appeal No.11189/2016 on 08/12/201 on the ground of alternative remedy and this Court is not declining admission on the question of availability of alternative remedy.
17- The net result is that this Court is of the considered opinion that notice has been served within the time frame work to the assessee, notice has rightly been served as the Assessing Officer was having reasons to believe and there was a failure on the part of the assessee to disclose the fully and truly material and facts at the time of proceedings initiated under Section 143(3) of the Act.
18- Resultantly, admission is declined. However, it is made clear that anything observed by this Court in the present order will not come in way of the assessee in respect of proceedings which are going on before the Income Tax Department as well as before the other authorities.
Certified Copy as per rules.
(S. C. Sharma) (Rajeev Kumar Dubey)
JUDGE JUDGE
Tej