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2015 (7) TMI 297 - HC - Income TaxValidity of reopening of assessment - payment of purchase price in excess to the SMP - petitioners are Sugarcane Factory Societies - Held that - In absence of any allegation in the notice under Section 148 of the Act that there was any failure on the part of the assessee to disclose truly and fully all material facts necessary for assessment, considering first proviso to Section 147 of the Act, the assumption of jurisdiction is absolutely wholly without jurisdiction and illegal. Under the circumstances, impugned notices under Section 148 of the Act beyond the period of 4 years cannot be sustained on the aforesaid ground alone and the same deserve to be quashed and set aside. So far as the initiation of impugned reassessment proceedings and the impugned notices under Section 148 of the Act within 4 years is concerned, it appears that the reopening has taken place only on one ground that the assessee has paid price of sugarcane more than the SMP. It is required to be noted that in all these cases the assessments were completed under Section 143(3) of the Act after holding necessary inquiry by the Assessing Officer. It also appears that the inquiry was made and the issue was gone into detail. It is also required to be noted that in some of the cases the practice of paying more prices to the cane growers than the SMP declared by the Government has been consistently followed since many years and the same has been accepted and no objection has been raised at any point of time earlier. It appears that the reason to believe and/or formation of the opinion by the Assessing Officer that the income chargeable to tax has escaped assessment is on the ground that the assessee has paid more price than the price determined / declared by the Government and therefore, the same is nothing but distribution of profits and/or passing of profits on the basis of the decision of the Hon ble Supreme Court in the case of Shri Satpuda Tapi Parishar SSK Ltd. (2010 (1) TMI 117 - SUPREME COURT ). However it is required to be noted that once at the time of original assessment under Section 143(3) of the Act the Assessing Officer after applying the mind accepted the return, thereafter reopening of the assessment can be said to be on mere change of opinion of the Assessing Officer and as per the catena of decisions of the Hon ble Supreme Court as well as this Court mere on change of opinion of the Assessing Officer, reassessment proceedings are not permissible. It is also required to be noted that even the Control Order provides for additional price for sugarcane purchased and it also further provides that no additional price determined under sub-clause (2) or sub-clause (3) of Section 5A shall become payable by a producer of sugar who pays a price higher than the minimum sugarcane price fixed under Clause (3) to the sugarcane growers, provided that the price so paid shall in no case be less than the total price comprising the minimum sugarcane price fixed under clause (3) and the additional price determined under sub-clause (2) or subclause (3) as the case may be of Clause 5A. Therefore, even in the Control Order itself there is a reference to the additional purchase price which can be more than the purchase price fixed under clause (3). However, as observed hereinabove, in a given case after holding inquiry if it is found that the purchase price paid in excess to the SMP is so exorbitant and/or unreasonable it can be said to be distributing the profits and/or passing of the profits. However, for that purpose there must be some further inquiry and/or tangible material with the Assessing Officer. Under the circumstances, the impugned notices under Section 148 of the Act to reopen the proceedings beyond 4 years and within 4 years on the aforesaid ground i.e. on the ground that the payment of purchase price in excess to the SMP has escaped the assessment cannot be sustained and the same deserves to be quashed and set aside. - Decided in favour of assessee.
Issues Involved:
1. Reopening of assessment beyond 4 years under Section 148 of the Income Tax Act, 1961. 2. Reopening of assessment within 4 years under Section 148 of the Income Tax Act, 1961. 3. Alleged failure to disclose fully and truly all material facts necessary for assessment. 4. Treatment of excess payment to cane growers over the Statutory Minimum Price (SMP) as distribution of profits. 5. Use of subsequent Supreme Court decisions as a basis for reopening. 6. Borrowed satisfaction and change of opinion as grounds for reopening. 7. Specific grounds for reopening related to unabsorbed depreciation, wrong calculation under Section 145A, and Section 43B. Detailed Analysis: 1. Reopening of Assessment Beyond 4 Years: The reopening of assessments beyond the period of 4 years is governed by the proviso to Section 147 of the Income Tax Act, which stipulates that such reopening is permissible only if there is a failure on the part of the assessee to disclose fully and truly all material facts necessary for assessment. The court noted that the reasons recorded for reopening did not indicate any such failure on the part of the assessee. The court cited several precedents, including *Austin Engineering Co. Ltd. v. Joint Commissioner of Income Tax*, to reinforce that reopening beyond 4 years without such an allegation is invalid. Consequently, the court held that the assumption of jurisdiction for reopening beyond 4 years was wholly without jurisdiction and illegal. 2. Reopening of Assessment Within 4 Years: For reopening within 4 years, the court observed that the primary ground was the payment of sugarcane prices above the SMP. The court emphasized that mere payment above SMP does not per se indicate distribution of profits. The assessments were originally completed under Section 143(3) after detailed inquiry, and the practice of paying above SMP had been consistently followed and accepted in previous years. The court concluded that reopening on this basis amounted to a mere change of opinion, which is not permissible as per the Supreme Court's ruling in *Commissioner of Income-tax v. Kelvinator of India Ltd.*. 3. Alleged Failure to Disclose Fully and Truly All Material Facts: The court scrutinized the reasons recorded for reopening and found no mention of any failure by the assessee to disclose fully and truly all material facts. The absence of such an allegation in the notice under Section 148 rendered the reopening beyond 4 years invalid. The court reiterated the principle that once all primary facts are disclosed, the onus is on the Assessing Officer to draw inferences, and failure to do so does not justify reopening. 4. Treatment of Excess Payment to Cane Growers Over SMP: The court examined whether the excess payment to cane growers above the SMP constituted distribution of profits. It noted that the SMP is a minimum price set to protect cane growers and that paying above this price is not prohibited. The court highlighted that determining whether such payments are distributions of profit requires detailed inquiry into the reasonableness of the excess payment. The court found that the Assessing Officer had not conducted such an inquiry before forming the belief that income had escaped assessment. 5. Use of Subsequent Supreme Court Decisions as a Basis for Reopening: The court addressed the issue of reopening based on the subsequent Supreme Court decision in *Deputy Commissioner of Income Tax v. Shri Satpuda Tapi Parishar SSK Ltd.*. It held that reopening beyond 4 years based on a subsequent judgment without any allegation of failure to disclose material facts was impermissible. The court emphasized that borrowed satisfaction from another officer's findings does not constitute valid reasons to believe that income has escaped assessment. 6. Borrowed Satisfaction and Change of Opinion: The court found that the reasons recorded for reopening were largely based on findings from other cases or subsequent judgments, which constituted borrowed satisfaction. It reiterated that reopening on mere change of opinion is not permissible, as established in various judicial precedents, including *Orient Craft Ltd.* and *Shree Rajasthan Syntex Ltd.* 7. Specific Grounds for Reopening Related to Unabsorbed Depreciation, Wrong Calculation Under Section 145A, and Section 43B: The court examined specific grounds for reopening in certain petitions, such as unabsorbed depreciation carried forward beyond 8 years, wrong calculation under Section 145A, and issues under Section 43B. It found that these issues had been addressed in the original assessments after due inquiry, and reopening on these grounds amounted to a change of opinion. The court cited relevant decisions to support its conclusion that such reopening was not permissible. Conclusion: The court quashed the impugned notices under Section 148 for reopening the completed assessments, both beyond and within 4 years, on the grounds discussed. The court emphasized the importance of adhering to the statutory requirements and judicial principles governing the reopening of assessments. The rule was made absolute, and the petitions were allowed without any order as to costs.
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