Income Tax Appellate Tribunal - Ahmedabad
Nova Petrochemicals Ltd.,, Ahmedabad vs Department Of Income Tax on 4 July, 2016
आयकर अपील य अ धकरण, अहमदाबाद यायपीठ 'SMC' अहमदाबाद ।
IN THE INCOME TAX APPELLATE TRIBUNAL "SMC" BENCH, AHMEDABAD BEFORE SHRI RAJPAL YADAV, JUDICIAL MEMBER आयकर अपील सं./ ITA.No.1154/Ahd/2012 नधा रण वष /Asstt. Year: 2003-2004 ACIT, Cir.4 Nova Petrochemicals Ltd.
Ahmedabad. Vs 369/403, Moraiya Village
Sarkhej Bavla Highway
Sanand, Ahmedabad 382 110.
PAN : AAACN 5419 K
अपीलाथ!/ (Appellant) "#यथ!/ (Respondent)
Revenue by : Shri Prasoon Kabra, CIT-DR
Assessee by : Ms.Urvashi Shodhan
ु वाई क तार ख/ Date
सन of Hearing : 14/06/2016
घोषणा क तार ख / Date of Pronouncement: 04/07/2016 आदे श/O RDER The Revenue is in appeal before Tribunal against the order of the ld.CIT(A)-XI, Ahmedabad dated 28.03.2012 passed for the Asstt.Year 2003-04.
2. Sole grievance of the Revenue is that the ld.CIT(A) has erred in quashing reassessment order passed under section 143(3) r.w.s. 147 on the ground that the AO was not justified in reopening of the assessment.
ITA No.1154/Ahd/2012 23. Brief facts of the case are that the assessee has filed its return of income on 29.11.2003 declaring total loss at Rs.1,03,97,752/-. The ld.AO has passed assessment order under section 143(3) on 8.3.2006 and determined the taxable income of the assessee at Rs.1,85,44,720/- as against returned loss. The assessee also claimed exemption under section 10A which was disallowed by the AO, and such disallowance was worked out at Rs.2,89,42,468/-. On appeal, the ld.CIT(A) deleted this disallowance. The AO, thereafter, recorded reasons and issued notice under section 148 on 22.3.2010. He was of the opinion that assessee has made payment of interest to a non-resident without deducting TDS, and therefore, it is not eligible for interest expenditure.
4. It emerges out from the record that the assessee-company imported certain machineries from Barmag AG-Germany. The said machineries were financed by Landesbank Baden Wurttemberg, (LBBW), Stuttgart, Germany. It is a German company and resident of Germany. The assessee was of the opinion that the loan was export credit guarantee by the German Federal Government and interest on such loan is not taxable in India, and therefore, no TDS is required to be deducted by the assessee. Somehow, the AO was of the opinion that the TDS ought to be deducted, therefore, the AO recorded reasons to reopen the assessment. The reasons recorded by the AO read as under:
"REASONS FOR RE-OPENING ASSESSMENT U/s.147 OF THE I.T. ACT, 1961 Reg.: NOVA PETROCHEMICALS LTD.A.Y.: 2003-04
The assesses company had filed return on 29.11.2003 showing loss at Rs. 10,39,752. The assessment u/s. 143(3) was finalized on 08.03.2006, determining total-income at Rs.1,85,44,720/-.ITA No.1154/Ahd/2012 3
2. It is seen that the interest expenses claimed by assessee include interest payment to LBBW, amounting to Rs.63,58,012/-, which has been incurred as expenditure in foreign currency, on which no TDS has been made. Hence, this expenditure was required to be disallowed as the assessee has not complied with the provisions of Section 195 of the Act.
3. Hence, I have reason to believe that income chargeable to tax has escaped assessment in the form of under-assessment of income within the meaning as envisaged by section 147 r.w explanation 2(c)(i) of the Act.
4. Hence notice u/s 148 is issued accordingly.
Sd/-
Name : (R.H.GOHEL)
Place: Ahmedabad. Designation : DCIT.Circle-5,
Date: 22.03.2010 Ahmedabad."
5. The ld.AO has passed re-assessment order on 18.11.2010 under section 143(3) r.w.s. 147. He made disallowance of Rs.63,58,012/-. Apart from this, he made certain small disallowances also.
6. On appeal, the ld.CIT(A) has held that the assessee did not fail to disclose all material facts fully and truly in respect of assessment of its income. Therefore, proviso appended to section 147 of the Income Tax would denude the AO to issue notice under section 148 of the Income Tax Act upon the assessee. Before the Tribunal, the ld.DR relied upon the order of the AO. On the other hand, the ld.counsel for the assessee relied upon the orders of the ld.CIT(A).
7. I have considered rival contentions and gone through the record carefully. I find that on the strength of authoritative pronouncement at the end of the Hon'ble High Courts as well as of the Hon'ble Supreme Court, the ITAT in the case of Neptune Textile Mills Pvt. Ltd. Vs. ACIT passed in ITA No.2195/Ahd/2009 had made a lucid enunciation of the ITA No.1154/Ahd/2012 4 scope of section 147. I cannot do better than extracting the discussion made by the Tribunal in this regard. It reads as under:
"7. We have considered the rival submissions and perused the material on record. In our considered view the reopening of the assessment is bad in law. For the sake of convenience we reproduce section 147 and proviso thereto:-
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 re-assess 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 recomputed 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 the 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;
[Provided further that the AO may assess or reassess such income other than the income involving matters which are the subject matters of any appeal, reference or revision which is chargeable to tax and has escaped assessment].
The requirements of the section are as under :-
(1) The AO has reason to believe;
(2) That an income chargeable to tax has escaped assessment; (3) If four years have expired from the end of the relevant Asst.
Year then such escapement was due to failure on the part of the assessee-
(i) to file a return u/s 139;ITA No.1154/Ahd/2012 5
(ii) to file a return in response to notice u/s 142(1) or section 148;
(iii) to disclose fully and truly all material facts necessary for the assessment.
All these aspects must come in the reasonings recorded by the AO. The reasons recorded by the AO should reflect -
(i) assessee in respect of whom assessment is sought to be reopened;
(ii) assessment year as sought to be reopened;
(iii) amount of income which has escaped assessment;
(iv) how the original assessment has been done whether u/s 143(1) or u/s 143(3) or sec.147/148;
(v) what is the reason of escapement of assessment;
(vi) whether there is any failure as mentioned in the proviso if assessment is sought to be reopened after four years from the end of the relevant Asst. Year;
(vii) in particular, whether there is any the failure of the assessee to disclose material facts fully and truly necessary for the assessment for that assessment year.
(viii) if assessment is done u/s 143(1), then whether the provision of section 149 are applicable.
8. If reasons recorded did not reflect these ingredients then reopening cannot be sustained. On the aspect of necessity to mention the failure of the assessee to disclose truly and fully all material facts necessary for assessment Hon. Allahabad High Court in CIT vs. Pradeshiya Industrial and Investment Corporation of Uttar Pradesh Ltd (2011) 332 ITR 324(All) has observed as under :-
"Admittedly, notice under section 148 of the Act was issued after the expiry of four years. The notice under the proviso of section 147 of the Act can be issued after the expiry of four years only in case where income chargeable to tax has escaped assessment by reason of the failure on the part of the assesses 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. From the perusal of the reason recorded it is apparent that no case has been made out that the assesses had failed to disclose fully and truly all material facts necessary for his assessment and no observation has been made in this regard, On the basis of the same material which was available on record, the assessing authority was of the view that the deduction had been ITA No.1154/Ahd/2012 6 wrongly allowed under section 36(1)(viii) of the Act. The Tribunal observed that the assessee had furnished the requisite details in respect of leasing income and upfront fee as received in the assessment year under consideration and the same was duly disclosed in the audited profit and loss account, as is evident from pages 4 and 5 of the paper book read with page 23 of the paper book and also computation of income filed along with return, a copy of which is placed at pages 33 to 35 of the paper book. This finding of the Tribunal has not been disputed by raising any question and during the course of the argument by the learned counsel for the appellant. Therefore, we are of the view that on the facts and circumstances, no substantial question of law arises for consideration by this court.
Learned counsel for the appellant cited a decision of the Bombay High Court in the ease of Dr. Amin's Pathology Laboratory v. P. M. Prosad, Joint CIT [2001] 252 ITR 673 ; [2002] 172 CTR 696. We have gone through the decision of the Bombay High Court. We are of the view that the said decision is not applicable to the facts of the present case. In the said case, the Bombay High Court has held that the assessing authority has overlooked the disputed item which he has noticed subsequently and at the time of passing the original order of assessment, he could not be said to have opined on the above item. Therefore, there was no change of opinion. While in the present case, complete details were furnished along with the return and during the course of the assessment proceedings and after an application of mind, the deduction under section 36(1)(viii) of the Act was allowed. In the reason recorded no case has been made out that there was failure to disclose any material particular on the part of the assessee. Therefore, limitation beyond the period of four years was not available to the assessing authority. Admittedly, the notice was issued after four years, therefore, the proceeding was barred by time and the Tribunal has rightly held so.
For the reasons stated above, the appeal fails and is dismissed."
Hon. Bombay High Court, in the case of Bhavesh Developers vs. A.O. & Others (2010) 329 ITR 249 (Bom), noted that the recorded reasons did not show finding that there was a failure to disclose necessary facts. In that case assessee has claimed deduction u/s 80IB(10) for Rs.3.85 crores which was allowed by the AO vide order u/s 143(3) and assessment was sought to be reopened after expiry of four years on the ground that the claim of deduction u/s 80IB(10) included ineligible items of other income such as society deposits, street parking charges, sundry balances, ITA No.1154/Ahd/2012 7 etc. Hon. Bombay High Court in the case of Bhavesh Developers vs. A.O. & Others (supra) observed as under :-
"Held, allowing the petition, that ex facie, the reasons which had been disclosed to the assessee would show that the inference that the income had escaped assessment was based on the disclosure made by the assessee itself. The reasons showed that the finding was based on the details filed by the assessee and from the profits and loss account. Therefore, it was impossible for the Assessing Officer to even draw the inference that there was a failure on the part of the assessee to disclose fully and truly all material facts necessary for its assessment for assessment year 2002-03. Significantly, the reasons that had been disclosed to the assessee did not contain a finding to the effect that there was a failure to fully and truly disclose all necessary facts, necessary for the purpose of assessment. In these circumstances, the condition precedent to a valid exercise of the power to reopen the assessment, after a lapse of four years from the relevant assessment year, was absent in the present case. The notice was not valid and was liable to be quashed."
Hon. Supreme Court in the case of ITO vs. Lakhmani Mewal Das (1976) 103 ITR 437 (SC) held that where assessment is sought to be reopened after expiry of four years reasons for belief must show live link between the material and belief. There should be a rational connection or relevant bearing on the formation of the belief. Rational connection postulates that there must be a direct nexus or live link between the material coming to the notice of the ITO and the formation of the belief that there is an escapement of income of the assessee for that particular year because of his failure to disclose fully and truly all material facts. Even though Court cannot go into sufficiency or adequacy of the material and substitute its own opinion for that of the ITO on the point as to whether action should be initiated for reopening of the assessment, but at the same time we have to bear in mind that it is not any and every material, howsoever vague and indefinite or distant, remote and far fetched, which would warrant the formation of the belief relating to escapement of the income of the assessee from assessment.
Hon. Supreme Court in the case of CIT vs. Kelvinator India Ltd. (2010) 320 ITR 561(SC), while dismissing the legislation of section 147, held that expression "reasons to believe" needs to be given schematic interpretation in order to ensure against an arbitrary exercise of power by the AO. The power to reopen the assessment is not akin to power to review the assessment and ITA No.1154/Ahd/2012 8 mere change of opinion would not justify the course of action u/s
147. Unless the AO has tangible material fact to reopen the assessment, power u/s 147 cannot be validly exercised.
9. In the present case there is a clear case of change of opinion. Even though reliance has been placed on the decision of Hon. Supreme Court in Ballimal Navalkishore and others vs. CIT (supra), that judgment existed at the time when the AO took the decision u/s 143(3) and held the expenditure as current repairs allowable in the profit and loss account under section 143(3). Without there being material on record and an allegation of failure on the part of the assessee to disclose any material which could have made the AO to believe that expenditure so incurred was capital in nature, new view so taken for reopening of assessment would be only a change of opinion. Earlier same expenditure was held as revenue in nature and now considered as capital would be akin to reviewing his own decision on the subject. Hon. Bombay High Court in the case of ICICI Prudencial Life Insurance Co. Ltd. vs. ACIT (2010) 325 ITR 471 (Bom) also held that when there is no material on record and without there being any allegation of failure of the assessee to disclose such material fact, assessment cannot be reopened after four years. Hon. Gujarat High Court in Inducto Ispat Alloys Ltd. vs. ACIT (2010) 320 ITR 458 (Guj) and Nikhil K. Kotak vs. Mahesh Kumar (2009) 319 ITR 445 (Guj) also held that where the period of four years has expired from the end of relevant Asst. Year the proviso to section 147 would come into play. It stipulates three conditions and one of those conditions is showing omission or failure on the part of the assessee to disclose fully and truly all material facts necessary for the assessment. When we go through the reasons recorded and as mentioned above we do not find any reference to such failure on the part of the assessee to disclose any material fact necessary for assessment and in fact narration given in the reasons do not show any such failure which could be inferred even if not so mentioned specifically in the reasons. In our considered view when neither there is any allegation of failure nor the AO has brought any material on record to suggest escapement of income then it is only a change of opinion and therefore assessment cannot be reopened after expiry of four years."
8. In the light of the above, if I examine the facts of the present case, then, it would reveal that the AO had issued a detailed questionnaire which was duly replied by the assessee. It has furnished statutory audit accounts under the Companies Act as well as audit report in Form ITA No.1154/Ahd/2012 9 No.3CA and 3CD along with return. The assessee has submitted all other details called for by the AO. In the reasons recorded by the AO to reopen the assessment, nowhere it has been alleged that the assessee has failed to disclose any particular item fully and truly. The proviso appended to section 147 puts fetter on the power of the AO to reopen the assessment in the case where originally the assessment was passed under section 143(3) and four years have expired. In such cases no notice under section 148 can be issued unless it is established that income chargeable to tax has escaped assessment on account of failure of the assessee to disclose all material facts fully and truly. No such allegation has been leveled by the AO. Therefore, the ld.CIT(A) has rightly quashed the re-assessment order. In view of this, I do not find any merit in the appeal of the Revenue. It is dismissed.
9. In the result, the appeal of the Revenue is dismissed. Order pronounced in the Court on 4th July, 2016 at Ahmedabad.
Sd/-
(RAJPAL YADAV) JUDICIAL MEMBER