Income Tax Appellate Tribunal - Ahmedabad
Fag Bearings India Limited, Baroda vs Department Of Income Tax
IN THE INCOME TAX APPELLATE TRIBUNAL
AHMEDABAD BENCH "D
"D"
BEFORE SHRI BHAVNESH SAINI,
SAINI, JUDICIAL MEMBER AND SHRI N.S.SAINI,
N.S.SAINI,
ACCOUNTANT MEMBER
Date of hearing 24--11.: Drafted on:25.1.11
ITA No.455/AHD/2008
Assessment Year :1999-00
The Assistant Vs. M/s. Fag Bearings India Ltd.
Commissioner of Post Office Maneja,
Income Tax,Circle-1(2) Baroda.
Aayakar Bhavan,
Nr. Race Course
Circle, Baroda.
PAN/GIR No. :AAACF3357Q
(APPELLANT) .. (RESPONDENT)
Appellant by : Shri G.S. Souryawansi,
Sr.D.R.
Respondent by: Shri Milin Mehta.
ORDER
PER N.S.SAINI , ACCOUNTANT MEMBER :-
This is an appeal filed by the Revenue against the order of the Learned Commissioner of Income Tax (Appeals)-I, Baroda, dated 11-10-2007 for Assessment Year 1999-00 on the following grounds:-
"1(a) On the facts and in the circumstances of the case and in law, the Learned Commissioner of Income Tax (Appeals) erred in quashing the assessment made under section 143(3) r.w.s. 147 on 27-11-2006 making addition of `.1,59,34,531/- on account of disallowable expenses, without appreciating that the provisions of section 147 r.w. Explanation 2(c)(i), as amended w.e.f. 01-04-1989, no more require 'information' or new material but only reason to believe that income has escaped assessment irrespective of the source and the basis of the same, which may include reappraisal of the same.
(b) The Learned Commissioner of Income Tax (Appeals) erred in deciding the matter without considering the binding decision of the jurisdictional High Court in the case of Praful Chunilal Patel & Vasant Chunilal Patel vs. ACIT 236 ITR 832 (Guj.) laying down: "Merely because during the assessment proceedings the relevant material was on record or could have been with due diligence discerned by the Assessing Officer -2- for the purpose of assessing a particular item of income chargeable to tax, it cannot be inferred that the Assessing Officer must necessarily have deliberated over it and taken it out while ascertaining the taxable income or that he had formed any opinion in respect thereof..... In our view, the words "escaped assessment" where the return is filed, are apt to cover the case of discovery of a mistake in the assessment caused by either an erroneous construction of the transaction or due to its non-
consideration, or, caused by a mistake of law applicable to such transfer or transaction." (pp. 839-40 of 236 ITR), thus rendering the consideration of 'change of opinion' as irrelevant.
2. The appellant craves leave to add to, amend or alter the above grounds as may be deemed necessary."
2. The facts of the case are that the return of income was filed on 30-12-99 which was processed under section 143(1)(a) on 15-2-2002 resulting in a refund. Thereafter, assessment under section 143(3) was made on 28-3-2002. The Learned Commissioner of Income Tax (Appeals) allowed relief on issues regarding reduction of prepaid rent, interest and commitment charges, excise duty on finished goods, debenture issue expenses, disallowance under section 43B and depreciation on loans indication charges and debenture issue expenses. Subsequently, the CIT-I, Baroda passed order under section 263 of the Act for bringing the excise duty refund to tax which was claimed by the assessee as not taxable. Accordingly, order under section 143(3) r.w.s. 263 was made on 3-3-2004. Thereafter, the Assessing Officer issued notice under section 148 on 24-3-2006 with the approval of the CIT-I, Baroda. The assessee submitted that "the notice under section 148 has been issued without any authority granted under section 147 and is beyond the powers vested under section 147 for reopening the assessment where the assessment is completed under section 143(3) of the I. T. Act. He further submitted that if the reasons have been recorded for reopening the assessment, a copy of the same may please be given. Assessee would like to submit that in the case of GKN Driveshafts (India) Ltd. v. ITO, 259 ITR 19, the Hon'ble Supreme Court has held that after filing of return is bound to furnish reasons within a reasonable time of filing of return in pursuance of notice under section 148". The reasons were issued by the Assessing Officer vide letter dated 17-8-2006 served on the assessee. The objections raised by the assessee were rejected through a speaking order dated 6-10-2006 in which the Assessing Officer by relying upon the decision in the case of Navabgunj Sugar Mills Co. Ltd. vs. CIT 123 ITR 287 -3- (Del) observed, inter alia, that "there should be something positive to show that there was in fact such formation of opinion at the original assessment stage. If initially, no opinion was found, the question of change therein could not be said to take place. The case of the assessee is squarely covered as nothing emerges from the records in regard to the formation of an opinion at the stage of original assessment". The Assessing Officer also observed that every disclosure could not be treated a true and full disclosure. Assessee relied upon a large number of decisions and held that the assessee had not made full and true disclosure. Thus, he proceeded to complete the assessment.
3. It was submitted before the Learned Commissioner of Income Tax (Appeals) that the notice under section148 dated 24-3-2006 was issued after the expiry of four years from the end of assessment 1999-2000 i.e. 31-3-2004 while the assessment had already been completed under section. 143(3) on 28- 3-2002. It has been argued that, therefore, there is necessity for complying with the provisions of section 147 which is that the escapement of income should have happened due to the failure on the part of the appellant to disclose fully and truly all material facts necessary for the purpose of making assessment. However, it has been argued with reference to the notice under section 148 that the Assessing Officer has nowhere recorded his satisfaction in the notice that income had escaped assessment due to the failure on the part of the assessee. It has been further argued that the Assessing Officer has acted on the same material which was available in the return of income and at the time of original assessment. This point has been elaborated by the assessee with reference to para (xii) of the original notice issued at the time of original assessment under section 143(3) and the reply furnished by the assessee in response to the same on the issue of SAP R-3. Similarly, the issue of expenses relating to the EOU and the DTA units has been explained showing all the relevant details had been fully furnished and the issue had been considered in great detailed at the time of original assessment. From this, it has argued that it is a case of change of opinion. The assessee relied on the decision of ITAT Ahmedabad in the case of Startronic Investment Consultants Pvt. Ltd. in ITA No.2196/A/2002 where it was held that the re-assessment could not be made if there was a change of opinion. It has been emphasized that the said decision was given despite the fact that the assessment in that case had been reopened -4- within a period of four years and that the ITAT followed the Gujarat High Court decision in the case of Garden Silk Mills P. Ltd. vs. DCIT, 237 ITR 668, which had been rendered after the decision in the case of Praful Chunilal Patel vs. ACIT, 236 ITR 832. The appellant has argued that, therefore, its case is at a better footing since it was reopened after four years. The assessee relied upon large number of decisions including, inter alia, the following:
(i) Simplex Concrete Piles (India) Ltd. vs. DCIT & Other, 183 CTR-47 (Cal.)
(ii) Marudhar Hotels P. Ltd. vs. DCIT 181 CTR 253 (Raj.)
(iii) Tantia Construction Co. Ltd. vs. DCIT 257 ITR 84 (Cal.).
4. The Learned Commissioner of Income Tax (Appeals) considering the submissions of the assessee quashed the re-assessment proceedings vide his findings in para-5 and 6 of the order which are reproduced hereunder:-
"5. I have considered the rival submissions. It is not disputed that the assessment under section 143(3) had been made in this case on28-3- 2002 before the issue of notice under section 148 and, that the said notice under section 148 has been issued after the expiry of 4 years from the end of the relevant assessment year. Under the circumstances, it requires to be seen if income chargeable to tax has escaped assessment by reason of the failure on the part of the assessee to disclose fully and truly all material facts necessary because it is not a case where the return had not been furnished by the assessee under section 139 or in response to a notice under section 142(1) of the Act. The Assessing Officer was of the view that every disclosure was not and could not be treated to be a true and full disclosure and, that any disclosure must not only be full but also true. It was imputed by the Assessing Officer that the disclosure made by the assessee was not true and full and, therefore, justified the reopening of the assessment. The Assessing Officer also rejected the appellant's objection to the reopening on the ground that it was a case of change of opinion by holding that originally was formed by the Assessing Officer on the question of allocation of expenses in the ratio of their turnover between the EOU and the DTA unit so that the question of change of opinion did not arise.
The appellant has furnished copy of its letter dated 4-10-2006 addressed to the Assessing Officer in which it has drawn his attention to the para (xix) of Annexure to the notice under section 142(1) dated 25-1- 2002 wherein the Assessing Officer had observed "The profit from the EOU was claimed at `.1.62 crore. In this connection, you are requested to file the complete working of profit arrived at after taking into account the expenses which were common to the entire business of the assessee as a whole. Loss of `.2.14 crores as depreciation loss has also been claimed. The explanation of this loss and its adjustment against income claimed from existing unit may also be furnished. The profit and loss account of -5- EOU business needs to be filed in support of your claim". Similarly, in para (xxi) he had observed "Details of payments for SAP development of additional programmes and specify the amount of TDS deducted on the same." At para (xii) he had observed "The computation of income filed by the assessee revealed that the assessee claimed technical services fee in respect of development of additional programme / software as revenue expenditure which is not allowable as per the provisions of the I.T. Act. Your explanation may be furnished on this issue". I have seen the copy of the said notice and the replies furnished by the appellant. It is observed with reference to the reply furnished by the appellant that the appellant had furnished complete details. It is further observed from above that the Assessing Officer had applied his mind to the question of allocation of expenses by the appellant and had accepted the same and, therefore, the observation of the Assessing Officer in the impugned order that originally no opinion was formed by the Assessing Officer on the question of allocation of expenses is not correct. It is pertinent to note that after 143(3) assessment, the CIT had also passed order under section 263 and order under section 143(3) read with 263 had also been passed. Under the circumstances, it is observed that one of the conditions contained in section147 for issuance of notice under section 148 is not satisfied since the appellant is found to have disclosed all material facts, fully and truly, at the time of original assessment. Under the circumstances, it is held that the assessment completed under section. 143(3) was not validly reopened under section 148 r.w.s. 147 and, therefore, the reopening of assessment is quashed.
It is further observed that in the appellant's own for Assessment Year 2001-02 the assessment completed under section 143(3) had been reopened practically on the same grounds as done in the instant case and the facts were also comparable. The appeal in that case had come up before me. In that case in appeal No.CAB/I-327/06-07 dated 25-9- 2007 I have allowed the appellant's appeal and quashed the re- assessment proceedings. Following my order dated 25-9-2007, the reopening of the assessment already completed under section 143(3)is held to be bad in law and is, therefore, quashed.
In view of the fact that the reopening has been quashed, the other grounds are not gone into on merits.
6. In the end, appeal is allowed."
5. The Learned Counsel for the assessee reiterated the submissions made before the authorities below and referred to Paper book page- 52 which are the reasons for reopening the assessment supplied to the assessee and submitted that the Learned Assessing Officer did not record in the reasons that there was any failure on the part of the assessee not to disclose the relevant facts and material for the purpose of computation of the income. He has also referred to Paper book page-74 which is being letter of the Learned Assessing Officer dated 25-1-2002 raising specific query on the matter in issue on which re-
-6-assessment proceedings have been initiated. He also referred to Paper Book page-77 which is the specific reply of the assessee to the query raised by the Learned Assessing Officer on the matter in issue. He has also referred to Paper Book pages-83 & 84 which are also the replied of the assessee before the Learned Assessing Officer at the original assessment proceedings. He has referred to Paper book page-93 which is the original assessment order dated 28-3-2002 in which the Learned Assessing Officer has not pointed out if there was any failure on the part of the assessee to disclose fully and truly all material facts necessary for his assessment for that assessment year. He has also referred to Paper book page-117 which is again reply dated 20-3-2002 of the assessee and supported by further information paper book pages 125 to 130 which are the details on the matter in issue. He has submitted that the Learned Assessing Officer has already considered the details of the expenses and allocation of the expenses. Therefore, there was no failure on the part of the assessee to disclose fully and truly all necessary facts. He has therefore, submitted that Learned Commissioner of Income Tax (Appeals) has rightly quashed the re-assessment proceedings.
6. He has relied upon the decision of the Supreme Court in the case of CIT vs. Kelvinator of India Ltd., (2010) 320 ITR-561 (SC) wherein it was held as under:-
"The concept of "change of opinion" on the part of the Assessing Officer to reopen an assessment does not stand obliterated after the substitution of section 147 of the Income Tax Act, 1961, by the Direct Tax Laws (Amendment) Acts, 1987 and 1989. After the amendment, the Assessing Officer has to have reason to believe that income has escaped assessment, but this does not imply that the Assessing Officer can reopen an assessment on mere change of opinion. The concept of "change of opinion" must be treated as an in-built test to check the abuse of power. Hence after April 1, 1989, the Assessing Officer has power to reopen an assessment, provided there is "tangible material" to come to the conclusion that there was escapement of income from assessment. Reason must have a link with the formation of the belief."
7. On the above, Learned Departmental Representative relied upon the order of the Learned Assessing Officer and also relied upon decision of the Gujarat High Court in the case of Praful Chunilal Patel and Vasant Chunilal Patel (supra) referred to in the ground of appeal.
-7-8. We have considered the rival submissions and material available on record. It is not in dispute that that original assessment order passed on 28-3- 2002 for the assessment year under appeal i.e. Assessment Year 1999- 2000.The Learned Assessing Officer recorded reasons for reopening of the assessment copy of which is filed at page-52 of the Paper Book with regard to the computation of the benefit under section 10B of the Act. The Learned Counsel for the assessee has been able to demonstrate through the material contained in the paper book that the Assessing Officer raised queries on the matter on which re-assessment proceedings were initiated at the original assessment stage and the assessee furnished complete details and replies to the satisfaction of the Learned Assessing Officer. The Learned Assessing Officer recorded the reasons under section 148 of the Act on 24-3-2006.The proviso to section 147 of the Act provides that:
"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 sectioin142 or section 148 or to disclose fully and truly all material facts necessary for this assessment, for that assessment year:
9. Thus, it is clear that there was no 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 under section 148 to disclose fully and truly all material facts necessary for his assessment for that assessment year.
10. The Learned Authorised Representative of the assessee also relied on the following decisions:-
(1) Shree Tharad Jain Yuvak Mandal and Another vs. I.T.O. (2000) 242 ITR 612 wherein it is held as under :-
"Held, allowing the petition, that the letter dated March 28, 1990, written by Income tax Officer to the Commissioner of Income tax clearly stated that primary and material facts regarding transfer of funds during the course of the assessment year 1985-86. Exemption was claimed on that basis and exemption had been granted with reference to section12 read with section 2(24)(iia).Thus, it was clearly a case where on the primary facts having been disclosed, the Assessing Officer failed to draw the -8- legal inference necessary for the purpose of applying the law. Therefore, there was no failure on the part of the assessee to disclose fully and truly all material facts which were necessary for assessment and the Assessing Officer could not assume jurisdiction to initiate proceedings for assessment/reassessment of income for any assessment year beyond a period of four years from the end of the relevant assessment year 1985-86."
(2) In the case of Coca Cola Export Corporation vs. Income Tax Officer and Another (1998) 231 ITR-200 (SC) has held as under:-
" Held, allowing the appeals, that the two letters in question were issued under the provisions of the Foreign Exchange Regulation Act and dealt with remittance of foreign exchange outside India. Any contravention of these letters would entail prosecution under section 56 of the Foreign Exchange Regulation Act, 1973, and under section 23 of the Foreign Exchange Regulation Act, 1947. The embargo so placed by these two letters on the foreign remittance to be made abroad by the appellant had nothing to do with the amount of disallowances under the Income- tax Act. If any remittance of foreign exchange had been made in excess of the prescribed limit from January 1, 1969, it was for the Reserve Bank or the Central Government to take action or to grant permission as may be provided under the Foreign Exchange Regulation Act, 1973. That, however, could not be a ground for the Income Tax Officer to assume jurisdiction to start reassessment proceedings either under section 147(a) or section 147(b) of the Act on the ground that it would be "inconsequence of information"
in his possession in the shape of these two letters. Both the Acts - the Income tax Act and the Foreign Exchange Regulation Act - operate in different fields. The two letters were wholly irrelevant and could not be treated as information to the Income tax Officer to initiate reassessment proceedings. Therefore, there was inherent lack of jurisdiction in the Income Tax Officer to issue notices under section 148 of the Act on the basis of any income of the appellant escaping assessment either under clause (a) or clause (b) of section 147 of the Act. All the notices under section 148 of the Act were liable to be quashed."
(3) Hon'ble Madhya Pradesh High Court in the case of Commissioner of Income Tax v. Steel Tubes of India Ltd., (2010) 326 ITR-46 has held as under:-
" Held, dismissing the appeals, that the assessee had submitted revised returns which were duly considered and discussed by the Assessing Officer while passing the orders of assessment. In the revised returns, the assessee had disclosed the entire facts and therefore, the Commissioner (Appeals) as well as the Tribunal had rightly reached the conclusion that it was not a case where the assessee had failed to disclose fully and truly all -9- material facts necessary for its assessment. The reassessment proceedings were not valid".
(4) The Hon'ble Bombay High Court in the case of Multiscreen Media P. Ltd. v. Union of India and Another(No.1.) (2010) 324 ITR 48 (Bom.) has held as under:
"Held, allowing the petition, that the notice did not state that there had been any failure to disclose material facts at the time of the original assessment. The ground furnished in the notice for reassessment would indicate that according to the Assistant Commissioner of Income-tax, allocation of expenses as between the petitioner and the foreign principal ought to have been originally considered by the Assessing Officer when the order of assessment was passed under section 143(3). That however would not give a valid reason to reopen the assessment beyond a period of four years. The notice was not valid and was liable to be quashed."
(5) The Hon'ble Delhi High Court in the case of Haryana Acrylic Manufacturing Co. vs. Commissioner of Income Tax (2009) 308 ITR- 38(Delhi) has held as under:-
"Held, allowing the petition, (i) that the reasons recorded did not indicate the failure on the part of the petitioner to disclose fully and truly all material facts necessary for its assessment for the assessment year 1998-99. While in the reasons supplied to the petitioner there was no mention of the allegation that there was a failure on the part of the assessee to disclose fully and truly all material facts, in the reasons shown in the said form to the counter-affidavit there was a specific allegation t5hat there was a failure on the part of the assessee to disclose fully and truly all material facts relating to accommodation entries raised from one of the companies to the extent of `. 5 lakhs. Thus, one of the conditions precedent for removing the bar against taking action after the said four year period remained unfulfilled. Consequently, the notice under section 148 based on the recorded reasons supplied to the petitioner as well as the consequent order were without jurisdiction as no action under section 147 could be taken beyond the four year period.
(ii) That on the facts the reasons which were supplied to the petitioner were different from the reasons purportedly recorded in the form attached to the counter-affidavit. The petitioner took the specific plea that in the absence of any allegationthat the petitioner had failed to disclose fully and truly all material facts necessary for assessment, the Assessing Officer had no jurisdiction to issue the notice under section 148 and initiate action under section 147 after four years from the end of the relevant assessment year. If the authorities had recorded the reasons noted
- 10 -
in the said form to be the actual reasons, it would have been very easy for the Assessing Officer to have countered this objection by simply referring to the reasons noted in the form and saying that the allegation of failure to disclose was very much there. Even assuming that the actual reasons were those as noted in the said form, it was obvious that the reasons were never communicated to the petitioner and it was only for the first time in the course of the writ petition that those reasons had surfaced. Therefore, the notice under section 148 as well as all the proceedings subsequent thereto were liable to be quashed."
11. Considering the facts of the case and in the light of the above decisions, we do not find any infirmity in the order of the Learned Commissioner of Income Tax (Appeals) in quashing the reassessment proceedings. The decisions cited by the Learned Departmental Representative would not support the case of the Revenue. Accordingly we do not find any merit in the Departmental appeal, the same is accordingly dismissed.
Order signed, dated and pronounced in the Court on this 31st day of January,2011.
Sd/- Sd/-
(BHAVNESH SAINI) ( N.S. SAINI )
JUDICIAL MEMBER ACCOUNTANT MEMBER
Dated: Ahmedabad,31st day of January, 2011.
Compiled and compared by: Patki
Copy of the Order forwarded to :
1. The Appellant 2. The Respondent
3. The CIT Concerned 4. The ld. CIT(Appeals)-I, Baroda.
5. The DR, Ahmedabad Bench 6. The Guard File.
BY ORDER,
स᭜यािपत ᮧित //True Copy//
(Dy./Asstt.Registrar), ITAT, Ahmedabad
Date Initials
1. Draft dictated on 25-1-2011 -------------------
2. Draft Placed before authority 27-1-2011 -------------------
3. Draft proposed & placed 27-1-2011 ------------------- JM
Before the Second Member
4. Draft discussed/approved 31-1-2011 ------------------- JM/AM
By Second Member
5. Approved Draft comes to P.S 31-1-2011 --------------------
6. Kept for pronouncement on 31-1-2011 --------------------
7. File sent to the Bench Clerk 31-1-2011 --------------------
8. Date on which file goes to theAR---------------- --------------------
9. Date of dispatch of Order ---------------- ---------------------