2013 (1) TMI 207 - AT - Income Tax

Reopening of assessment - assessee-company had sold goods to its subsidiary concern at price less than the cost of producing those goods and sold to the other parties - Held that - Reasons disclosed by the AO do not set out as to what facts the assessee had failed to disclose fully and truly. Even a prima facie reference to the basis on which it was sought to be inferred that there was a failure to disclose all material facts had not been set out in the reasons. The primary jurisdictional requirement for reopening the assessment beyond a period of four years had not been fulfilled in the assessee s case. The reasons recorded by the AO and have found that except for the statement that there was omission on the part of the assessee to furnish the true and correct affairs of the company, there is nothing whatsoever in the reasons recorded to indicate the nature of the omission and as to which facts had not been truly and fully disclosed. If the AO had any reservation about the sale price of the goods sold to the group concerns, he should have questioned the genuineness of the transaction in the earlier AYs.i.e.1993-94 to 1995-96. All information regarding the sale by the assessee-company was before him. Alleged under pricing of goods if any as mentioned in the order of 1997-98 and in the reopening orders cannot be termed non-disclosure of material facts by the assessee-company. Full and true facts of sale-price were made available to the AO who had passed orders for earlier years. If AO did not or could not draw particular inferences from the facts narrated in the returns of earlier AYs, then assessee cannot be accused of not disclosing full and true information - the said failure is apparently on the part of the AOs who had framed the assessments for AYs.1993-95 and had accepted the genuineness of the sale transactions entered in to by the assessee and sister concerns. Non-supply of reasons recorded by the AO to the assessee-company - Held that - Awareness about the reasons recorded is totally different from supplying the copies of reasons to the assessee. FAA has admitted that it is no doubt true that appellant had requested for copy of the reasons recorded but this request was not repeated after that till filing of appeal before CIT(A). We fail to understand that why a request for supplying a copy of the reasons recorded should be repeated ? Only the AO knows why he preferred not to supply the copy of the reasons recorded, even after receiving a request form the assessee, though he chose to re-produced the same in the Assessment Order.In our opinion conduct of the AO was against the settled principles of justice - Thus reassessment completed without furnishing the reasons actually recorded by the AO for reopening of assessment is not sustainable in law because the A.O. is duty bound to supply the same within reasonable time as held in case of GKN Driveshafts (India) Ltd (2002 (11) TMI 7 - SUPREME COURT). In the case under consideration, AO had failed to furnish the reasons recorded for re-opening to the assessee within the reasonable time-prior to the completion of reassessment proceedings. Re-assessment order passed without supply of reasons, is invalid and cannot be sustained - appeals filed by the assessee-company allowed for all the three Assessment Years.

Summary

Issues Involved:
1. Validity of reassessment proceedings under Section 147 of the Income-tax Act, 1961.
2. Addition to the total income on account of sales made to Johnson & Johnson Exports Limited (JJEL).

Issue-wise Detailed Analysis:

1. Validity of Reassessment Proceedings:
The primary issue across all three assessment years (1993-94, 1994-95, 1995-96) is the validity of reassessment proceedings initiated by the Assistant Commissioner of Income-tax (ACIT) under Section 147 of the Income-tax Act, 1961. The assessee-company contended that the reassessment was void, bad in law, illegal, and beyond jurisdiction.

The reassessment proceedings were initiated based on findings from the assessment year 1997-98, where it was discovered that the assessee had sold goods to its subsidiary at prices below the cost of production. The ACIT believed this indicated income had escaped assessment in the earlier years. The Tribunal noted that the reasons recorded by the Assessing Officer (AO) did not specify which facts the assessee had failed to disclose fully and truly. The Tribunal emphasized that for reopening beyond four years, it must be clearly demonstrated that the income escaped assessment due to the assessee's failure to disclose material facts fully and truly. The Tribunal found the AO did not establish this adequately, thus invalidating the reassessment proceedings.

Additionally, the Tribunal highlighted the procedural lapse where the AO did not provide the assessee with the reasons for reopening the assessment despite a request. This failure to furnish reasons was against the principles of justice and rendered the reassessment orders unsustainable.

2. Addition on Account of Sales to JJEL:
For each assessment year, the CIT(A) directed the ACIT to add specific amounts to the total income of the assessee on the grounds that the assessee incurred a net loss by selling to JJEL at prices lower than the cost of production. The amounts added were Rs. 50,96,991 for 1993-94, Rs. 1,21,82,084 for 1994-95, and Rs. 94,20,905 for 1995-96.

The Tribunal noted that the AO's basis for these additions was the finding from the 1997-98 assessment year, where it was determined that the assessee's pricing strategy with its subsidiary resulted in a circular transaction that artificially reduced taxable income. However, the Tribunal found that the assessee had disclosed all relevant facts in the original returns and during the assessment proceedings for the earlier years. The Tribunal concluded that the AO's failure to draw particular inferences from these facts in the earlier assessments could not be attributed to the assessee's failure to disclose material facts.

The Tribunal also noted that the reassessment proceedings were initiated based on a change of opinion, which is not permissible under Section 147. The Tribunal held that the AO could not reopen assessments merely because he later believed the initial conclusions were incorrect.

Conclusion:
The Tribunal allowed the appeals filed by the assessee-company for all three assessment years, reversing the orders of the CIT(A). The reassessment proceedings were deemed invalid due to the lack of clear demonstration of the assessee's failure to disclose material facts and the procedural lapse of not providing the reasons for reopening. Consequently, the additions made to the total income on account of sales to JJEL were also invalidated. The order was pronounced in the open court on 28.09.2012.