2022 (2) TMI 1039 - HC - Income Tax

Reopening of assessment u/s 147 - True and full disclosure of all material facts - HELD THAT - There has been a full and true disclosure of the material facts by petitioner. It may be noted at the cost of repetition that in the recorded reasons, it has not been alleged that there has been any failure on the part of the assessee to make a full and true disclosure of the material facts. AO has also asked petitioner to specifically explain the facts relating to the sum debited to the P L Account towards provisions for customs duty and why a disallowance should not be made under Section 143(3) - Petitioner has explained the full facts vide its letter dated 14th November 2007. Amount has been offered to tax by petitioner in the succeeding Assessment Year 2006 2007 and assessed. It is only thereafter the Assessing Officer has passed the assessment order dated 30th November 2007 in which he has thoroughly discussed the explanation of the assessee on the issue of provision for customs duty in para 5 of the assessment order and held that the sum was disallowable under Section 143(b) of the Act on the ground that there was no actual payment. In computing the total income under the normal provisions of the Act, the Assessing Officer started from the business income as returned by petitioner, which included self-disallowance debited to the P L Account towards advance doubtful of recovery and provision for non-moving inventory, respectively. Therefore there has been a true and full disclosure of all material facts by petitioner. It is true that in the assessment order self-disallowances have not been discussed but at the same time it has been a subject of consideration during the assessment proceedings since the Assessing Officer has started from the business income as returned by petitioner, which included self-disallowances debited to the P L Account. Therefore, there can never be escapement of income. Respondent no.1 Assessing Officer also applied his mind to the computation of book profits under Section 115JB of the Act. In the assessment order, respondent no.1 has held that petitioner s deferred tax liability of ₹ 512,47,42,000/- had to be added to the book profits. He computed the book profit at ₹ 140,362,63,678/- and computed total tax payable by petitioner at ₹ 110,06,18,525/-. Therefore, in our view, there has been a full and true disclosure of the material facts by petitioner and it is a clear case of change of opinion to take a different view relying on the same set of documents. Change in opinion cannot construe reason to believe . - Decided in favour of assessee.

Summary

Issues:
1. Reopening of assessment for Assessment Year 2005-2006 under Section 147 of the Income Tax Act.
2. Allegation of income escaping assessment due to provisions for customs duty, advance doubtful of recovery, and provisions for non-moving inventory.
3. Compliance with the proviso to Section 147 regarding disclosure of material facts by the assessee.
4. Consideration of self-disallowances in the assessment proceedings.
5. Determination of book profits under Section 115JB of the Act.

Analysis:

Issue 1: Reopening of assessment under Section 147
The petitioner, a petroleum refinery company, filed a return for Assessment Year 2005-2006 disclosing income under normal provisions and "book profits" under Section 115JB. The Assessing Officer raised queries regarding a provision for customs duty debited to the P&L Account. Subsequently, a notice was issued under Section 148 alleging income escaping assessment due to various debits. The petitioner objected to the reopening, citing a lack of failure to disclose material facts and reliance on the same documents for reassessment.

Issue 2: Allegation of income escaping assessment
The Assessing Officer believed that income had escaped assessment due to provisions for customs duty, advance doubtful of recovery, and provisions for non-moving inventory. The petitioner argued that there was a full and true disclosure of material facts in the return and the reassessment was based on a change of opinion rather than fresh material.

Issue 3: Compliance with proviso to Section 147
The proviso to Section 147 mandates no action after four years unless income has escaped assessment due to failure to disclose material facts. The court found that the petitioner had made a full disclosure of material facts regarding the debits in question, and the reassessment lacked allegations of non-disclosure.

Issue 4: Consideration of self-disallowances
The court noted that the self-disallowances were part of the assessment proceedings, even though not explicitly discussed in the assessment order. The Assessing Officer computed book profits and total tax payable, indicating a consideration of all relevant aspects.

Issue 5: Determination of book profits
The court found that there was a full and true disclosure of material facts by the petitioner, leading to a conclusion that the reassessment was a change of opinion rather than a valid reason to believe income had escaped assessment. The court allowed the petition, quashing the notice to reopen the assessment for Assessment Year 2005-2006.