9911796707
TMI Blog2010 (6) TMI 55X X X X Extracts X X X X X X X X Extracts X X X X ..... nt. – notice was issued on the basis of assessment records - Revenue has failed to establish before the Court that there was a failure on the part of the assessee to disclose fully and truly all the material facts necessary for the assessment for assessment year 2002-2003 – notice u/s 147 set aside. X X X X Extracts X X X X X X X X Extracts X X X X ..... .89 million in P.Y. 00-01 on the same account. Thus there is an escapement of income to this extent. Thus there is a failure on the part of the assessee to disclose fully and truly all material facts necessary for his assessment, for the said assessment year. I have reasons to believe that the income to the extent of Rs.22.22 cr. has been escaped the assessment." 4. The petitioner furnished its objections to the reopening of the assessment. An order of assessment was passed on 30 November 2009 without disposing of the objections. In a petition instituted before this Court under Article 226 of the Constitution, a Division Bench by its order dated 10 March 2010 observed that in failing to deal with the objections of the assessee, the Assessing Officer had not complied with the directions of the Supreme Court in G.K.N. Drive Shaft (India) Limited V/s. Income Tax Officer {259 ITR 19 (SC). While setting aside the order of reassessment, this Court directed the Assessing Officer to pass an order on the objections of the assessee. On remand, the Assessing Officer has not dealt with the merits of the objections holding that it is at the stage of assessment that he would be dealing with t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essment has been carried out under subsection (3) of Section 143, action after the expiry of four years from the end of the relevant assessment year would stand barred unless income chargeable to tax has escaped assessment inter alia by the failure on the part of the assessee to disclose fully and truly all material facts necessary for the assessment for that assessment year. Hence, where a reopening of assessment takes place beyond a period of four years from the end of the relevant assessment year, the test which the statute requires to be applied is based on the nature of the disclosure that is made by the assessee. If the assessee has made a full and true disclosure of all the material facts for his assessment, the action of reopening the assessment would stand barred. Contrariwise, where there is a failure on the part of the assessee to disclose fully and truly all material facts necessary for the assessment, the reopening of the assessment would stand validated even if it takes place beyond the expiry of a period of four years. 7. Explanation (1) to Section 147 stipulates that the production before the Assessing Officer of account books or other evidence from which material ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Commissioner of Income Tax {(1996) 221 ITR 492 (Del.)}, the Delhi High Court held that the nature of the documents and the circumstances in which these are produced before the Assessing Officer will determine the question. If the material is not writ large on the document, but is embedded in voluminous records or books of account which require careful scrutiny by the Assessing Officer, it is quite possible that having regard to the nature of the documents, material evidence cannot be discovered from such records despite due diligence and the case would attract the Explanation. 9. In this background, it would now be necessary to consider each of the four reasons which have weighed with the Assessing Officer in reopening the assessment. The first ground on which the assessment is sought to be reopened is that the assessee had engaged a wholly owned subsidiary for providing market development and sales support in the US. The subsidiary was being remunerated on a cost plus basis. Out of such remuneration, expenses amounting to Rs.218.54 million (Rs.21.85 crores) were treated as deferred over a period of two years. The assessee had amortized Rs.9.36 crores out of the amount of Rs.21. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... expenditure of Rs.21.25 crores has been claimed as a deduction. The Petitioner was called upon to explain why there was a differential treatment of the expenses in the profit and loss account visavis the computation of income and to show cause as to why the balance of Rs.12.49 crores should not be added back to the total income of the assessee. In response to the questionnaire the assessee furnished a detailed note to the Assessing Officer by a letter dated 7 February 2005. In the course of its response the assessee clarified that during the year it had paid an amount of Rs.21.85 crores to its subsidiary and though the same was treated as deferred revenue expenditure in the books of account and amortized over a period of two years, the entire amount had been claimed as an expenditure. The assessee relied upon certain decisions in support of its case. It was after the assessee had filed its response that an order of assessment was passed by the Assessing Officer. 12. The record before the Court, to which a reference has been made earlier, is clearly reflective of the position that during the course of the assessment proceedings the assessee had made a full and true disclosure of a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Counsel appearing on behalf of the Revenue urged during the course of submissions that from the statement of total income it is not clear as to how the loss in the amount of Rs.1.85 million on the sale on investments is accounted for and whether this forms a part of the capital loss of Rs.2.80 million which is to be carried forward. The difficulty in accepting the line of submission urged on behalf of the Revenue is that this is not the reason which have weighed with the Assessing Officer when the assessment was sought to be reopened. The validity of the reopening of the assessment has to be determined with reference to the reasons which have weighed with the Assessing Officer. Those norms cannot be added to or supported on a basis which was not present to the mind of the Assessing Officer when he issued the notice to reopen. That apart, when this Court by its judgment dated 10 March 2010 found that the Assessing Officer had passed an order of assessment without dealing with the objections of the assessee, in breach of the judgment of the Supreme Court in G.K.N. Drive Shaft, an opportunity was granted to the Assessing Officer to deal with the objections of the assessee. The Assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... diture of the earlier years means expenditure which arose or which accrued in any earlier year and excludes any expenditure of an earlier year for which the liability to pay has crystallized during the year. Similarly, the assessee has clarified that excess / short of provision of an earlier year and income and expenditure crystallized during the year, though shown in the statement, have not been considered as prior period items. The assessee, as the material on record would show, therefore brought to bear the attention of the Assessing Officer to this facet while submitting the Tax Audit Report as a part of its return of income. This is not a case where the assessee can be regarded as having merely produced its books of account or other evidence during the course of the assessment proceedings on the basis of which material evidence could have been deduced by the Assessing Officer with the exercise of due diligence. Under Section 139 the assessee was under a mandatory obligation to furnish with its return of income the report of audit under Section 44AB. The assessee fulfilled the obligation. The disclosures which are made as part of the report under Section 44AB cannot fall file w ..... 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