2019 (5) TMI 1206 - HC - Income Tax

Re-assessment Proceedings u/ss 147 / 148 - original assessment u/s 143(3) - beyond the limitation of 4 years - failure on the part of the Assessee to fully and truly disclose the relevant materials resulted in such escapement of income - disallowance of broken period interest - entertainment expenses - share issue expenses - disallowance u/s.14A - deduction u/s.36(1)(viia) - provision for salary arrears - depreciation on buildings - recognition of commission, exchange and brokerage on receipt basis - non inclusion of claims under ECGC DICGC - HELD THAT - In the facts and circumstances of the case, from the reasons for reopening, which we find only in the form of Assessment Proceedings as reproduced by the learned Tribunal, we cannot infer any such failure on the part of the Assessee to disclose fully and truly the relevant material resulting in such escapement of income in the form of either excess deductions or some additions or deductions u/s 36(1). All these deductions / allowance / disallowance of expenses were dealt with by the Assessing Authority at the time of original assessment upon scrutiny made u/s 143(3) of the Act and there is nothing on record to show that there was non-application of mind on the part of the Assessing Authority on these aspects of the matter at the time of original assessment u/s 143(3). The learned Tribunal was justified in relying upon the judgment of the Hon'ble Supreme Court in the case of CIT v. Kelvinator of India Limited 2010 (1) TMI 11 - SUPREME COURT . The Hon'ble Supreme Court, in the above judgment, dealt with the amendment in law, with effect from 1st April 1989 under Section 147 of the Act, prior to and after enactment of the Direct Tax Law (Amendment) Act, 1987 has held that after 1st April, 1989, the Assessing Officer has power to reopen, provided there is tangible material to come to the conclusion that there is escapement of income from assessment. Reasons must have a live link with the formation of the belief. These words enabling the Assessing Authority to undertake the Re-assessment Proceedings, viz.that the 'reasons must have a live link with the formation of the belief' on the basis of 'tangible material' to come to the conclusion that there is escapement of income, are the conditions precedent for invoking Re-assessment Jurisdiction, and though the distinction between the two, viz. 'change of opinion' on the one side and 'reason to believe' on the other side is thin, it is definite and discernible. We do not find that the Tribunal, on the basis of the alleged reasons for reopening, wrongly found it to be a mere case of change of opinion or it has erred in arriving at such conclusion relying upon the aforesaid decision of the Hon'ble Supreme Court. - we do not find any substantial question of law arising for consideration in these appeals - appeals dismissed

Summary

Issues Involved:
1. Validity of Re-assessment Proceedings under Sections 147/148 of the Income Tax Act beyond the limitation period of four years.
2. Whether the Re-assessment Proceedings were initiated merely on a change of opinion.

Detailed Analysis:

Issue 1: Validity of Re-assessment Proceedings under Sections 147/148 Beyond Four Years
The Revenue contended that the Tribunal erred in upholding the Commissioner of Income Tax (Appeals) decisions which dismissed the Revenue’s appeals regarding the Re-assessment Proceedings initiated against the respondent Bank beyond the limitation period of four years. The Tribunal relied on the Madras High Court decision in Fenner (India) Limited v. Deputy Commissioner of Income Tax, which held that for reassessment beyond four years, it must be indicated that there was a failure on the part of the Assessee to fully and truly disclose relevant materials. The Gujarat High Court in I.P. Patel and Co. v. Deputy Commissioner of Income Tax held that mere non-mention of such failure does not render the reassessment proceedings non-est if the reasons conveyed such failure.

The Commissioner of Income Tax (Appeals) remitted the matter back to the Assessing Authority to verify whether the Assessee had disclosed all primary facts fully and truly and whether the notice under Section 147 was issued beyond four years with due approval from higher authorities. The Tribunal, after considering the findings, held that since the Assessing Authority had not stated that there was a failure on the part of the Assessee to disclose fully and truly all material facts, notices under Sections 147 and 148 were liable to be quashed.

The High Court upheld the Tribunal’s decision, emphasizing that the Proviso to Section 147(1) requires such failure on the part of the Assessee to be attributed for invoking the larger limitation beyond four years. The court reiterated that the Assessing Authority must specifically record such reasons, and the failure to do so vitiates the notice and the entire proceedings.

Issue 2: Re-assessment Proceedings Initiated on Change of Opinion
The Revenue argued that the Tribunal erred in holding that the reassessments were initiated merely on a change of opinion, even though the earlier Assessment Orders were made upon scrutiny under Section 143(3). The Tribunal, following the Supreme Court decision in Commissioner of Income Tax v. Kelvinator of India Limited, held that mere change of opinion cannot justify reopening assessments. The Tribunal noted that the Assessing Officer had not pointed out any new material which came into possession after completing the assessment under Section 143(3).

The High Court agreed with the Tribunal’s findings, stating that the Assessing Authority must have a reasonable belief based on tangible material for escapement of income, and mere change of opinion is not sufficient. The court noted that all deductions and allowances were dealt with during the original assessment under Section 143(3), and there was no indication of non-application of mind by the Assessing Authority at that time.

Conclusion:
The High Court concluded that no substantial question of law arises in the present case and upheld the Tribunal’s orders regarding both issues. The appeals filed by the Revenue were dismissed, and the court directed the Registry to forward a copy of the order to the Assessee forthwith.