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TMI Blog2012 (10) TMI 403X X X X Extracts X X X X X X X X Extracts X X X X ..... ely this cannot be a ground to support the notice, thus no valid basis for reopening the assessment - in favour of assessee. Non-remission of export sale proceeds - Held that:- The assessee had made full disclosure about the claim under section 80HHC including the the sum of Rs.3,03,970/- towards the export sale proceeds, for which the assessee had also also sought extension. When such material was placed before the AO, at the time of original assessment, he could have disallowed the same. However, by no stretch of imagination, it can be said that the assessee failed to fully and truly disclose all material facts. In fact, in the original assessment AO scrutinized the claim of the assessee under section 80HHC. Even in the order disposing of the objections, the Assessing Officer has nowhere stated that the assessee failed to disclose full facts with respect to such claim - in favour of assessee. Assessee had debited lease equalization amount in the profit loss and account - Held that:- Neither in the reasons recorded nor even in the order disposing of the objections of the petitioner, the Assessing Officer has been able to demonstrate that the assessee had failed to disclose truly a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Such scrutiny assessment was sought to be reopened by the Assessing Officer for which purpose, the impugned notice came to be issued on 25.2.2004. In the notice, the Assessing Officer called upon the petitioner to file return of income within 30 days from the date of service of notice. 4. At the request of the petitioner, the Assessing Officer supplied the reasons recorded by him for reopening the assessment. We will take note of such reasons in detail later, which can be broadly divided into six separate grounds. At this stage, suffice it to notice that the main plenary ground taken in such reasons was that the Assessing Officer while scrutinizing the return of income of the assessee for the subsequent years, found that the assessee's claims were not proper. He noted that the assessee had submitted voluminous records along with the return of income which were not required. Various details were confusing which complicated the matter. Those details were supplied with an object to "frustrate quick understanding". On these plenary grounds, the Assessing Officer noted, in the reasons recorded, six different grounds on which he believed that income chargeable to tax in the case of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ated 20th August 2004, dropped certain grounds of reopening. He pointed out that certain objections with respect to specific grounds which the petitioner had raised were not refuted by the Assessing Officer in the said order. The Assessing Officer, therefore, should be deemed to have dropped such grounds. 11. Counsel further took us through various documents and made detailed submissions with respect to each separate ground of the reasons recorded by the Assessing Officer. We would advert to such contentions while dealing with each ground separately. 12. In support of his contentions, counsel relied on the following decisions: 12.1 In the case of Calcutta Discount Co. Ltd. v. Income-Tax Officer, 41 ITR 191, wherein the Apex Court held that to confer jurisdiction to issue notice for reopening the assessment beyond the period of four years, two conditions are required to be satisfied. First, the Income Tax Officer must have reason to believe that income, profits and gains chargeable to income tax have been under-assessed and second, that he must have also reasons to believe that such under-assessment had occurred by reason of either omission or failure on the part of an asssessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nder section 148 of the Act after expiry of four years from the end of the assessment year. 13. On the other hand, learned Senior Counsel Shri Manish Bhatt for the Department opposed the petition contending that the assessee had produced voluminous documents and details which were not necessary and thereby deliberately created confusion. Such complex data which included accounting entries made the task of verifying the validity of various claims difficult. He submitted that mere placing on record certain details would not absolve the assessee from the responsibility of truly and fully disclosing all material facts necessary for assessment. 14. He submitted that with respect to certain grounds raised in the reasons recorded there was total non-disclosure on the part of the assessee. He reiterated that there was deliberate attempt on the part of the assessee to prevent the Assessing Officer from discerning true facts. 15. In support of his contention, counsel relied upon the following decisions: 15.1 In the case of Kantamani Venkata Narayana and Sons v. 1st Addl. I.T., 63 ELT 638 wherein the Apex Court discussed the aspect of true and full disclosures in the context of the assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hould be proximate and not have any remote bearing on the assessment. Omission to disclose may be deliberate or inadvertent. This is not relevant, provided there is omissions or failure on the part of the assessee. The later confers jurisdiction to reopen the assessment." Special Leave Petition against the said decision came to be dismissed by the Apex Court, which order is reported in 340 ITR 64. 16. Having thus heard the learned counsel for the parties, we may proceed to examine the material on record more closely. In the reasons recorded by the Assessing Officer, he had stated as under: "I. The scrutiny assessment U/s.143(3) was completed in this case on 22.03.2000. While scrutinizing the return of income for assessment of subsequent years, it is seen that the assessee's claims are not proper. It is seen that the assessee has submitted voluminous details along with the return of income which are not at all required to be filed along with the return of income. What is required is the Tax Audit Report, Profit and Loss Account and Balance Sheet, Other Statutory Reports pertaining to deductions u/s.80HHC and 80IA, Computation of income, Proof of payment of Advance Tax and TDS Ce ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing the formulation drugs produced by the units of Silvasa and Vapi on Sun Pharma Industries Ltd. It pays the interest @ 24% to the latter on the overdue bills which is much more than the prevailing market rate of interest in this line of business which varies from 15% to 18%. By adopting this modus operandi, the Sun Group has reduced the taxable profit of M/s.Aditya Medisales Ltd. and at the same time it has increased the profit of Silvasa Unit because the interest income is directly added to the sales figure, on which the deduction u/s 80IA is available. These facts are not clear from the working of deduction u/s.80IA given by the assessee along with the return of the income. This is not permissible as per the provisions of Section 80IA(10) of the Act and the rate of interest payable to SPIL has to be restricted @ 15% to 18% which will automatically reduce the profits of units entitled for 80IA deduction and consequently the deduction u/s.80IA claimed by the assessee will be reduced. IV. In the assessment order passed, the A.O. had not added the following amounts. 1. It has been mentioned in the Auditor's Report in 10CCAC form that Rs.3,03,970/- of foreign exchange had not be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... capital expenses and revenue expenses. According to the Assessing Officer, the claim did not tally with the Tax Auditors Report. (2) With respect to R and D expenditure where the Assessing Officer believed that the assessee had made double claim of deductions, once by way of depreciation on the capital expenditure pertained to R and D under section 35 of the Act and for the same amount, once again, depreciation of capital expenditure on R and D by forming the same part of the fixed assets. (3) Higher deduction under section 80-IA of the Act by collecting interest at the rate of 24% from a sister concern, namely, Aditya Medisales Ltd. (4) Excess claim of deduction under section 80HHC of the Act to the extent of Rs.3,03,970/- since the assessee had not been able to show that such amount was remitted in foreign exchange within the statutory time limit. (5) Excess deduction under section 80-IA of the Act with respect to Silvasa unit on which deduction under section 80HHC was also claimed. (6) With respect to computation under section 115JA of the Act wherein, the assessee had debited lease equalization amount of Rs.1,77,48,070/- in the Profit and Loss Account. 17. We may de ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Expenses claimed in Income Tax Return [a]+[b] 620.96 [a] Deduction @ 100% on Deferred Revenue expenses as mentioned in above u/s 35(i) of the Income Tax Act, 1961 172.61 [b] Deduction @ 100% on Capital expenditure U/s. 35(i) of the Income Tax Act, 1961 448.35 Assessment Year: 1997-1998 Financial Year: 1996-1997 Reconciliation of Addition to Fixed Assets as per Working of Book Depreciation-[Schedule 5 of Annual Accounts] and as per Income Tax Depreciation workings and as per R and D additions as per Form No. 3CD: [1] Additions to Buildings as per Schedule 5 of Audited Annual Report: 711.15 Less: Addition to R and D building as per Annexure No. III of the Form No. 3CD 302.63 Balance addition to Building which are considered in working of dep. As per Income Tax Act 408.52 Break up: [1] Addition to Housing Quarters 40.51 [2]Addition to Fac. and Off. Building 280.69 [3]Depreciation @ 100% claimed on Additions to P and M at Nagar of Rs.132.97 lacs which includes additions to ETP building of Rs.87.32 Lacs 87.32 408.52 [2] Additions to Plant and Machineries as per Schedule 5 of Annual Report: 1157.65 Less: Addition to various R and D assets as per Annexure No. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as entirely different from what emerged from the reasons recorded. As already noted, in the reasons recorded, he raised two contentions with respect to certain claims of deduction. Firstly, he contended that certain figures do not match with the Tax Audit Report and, secondly, that with respect to certain expenditure of R and D, double benefits were claimed in the form of depreciation as well as deduction under section 35AB of the Act. When the assessee objected to such grounds and pointed out in detail that the claims were valid and that there was no double claims made, the Assessing Officer in the order rejecting the objections went on yet different aspect altogether. We are not commenting on the validity of this new angle sought to be brought in by the Assessing officer. Suffice it to note that the notice for reopening must fail or succeed on the basis of the reasons recorded. If a new ground occurs to the Assessing Officer after he recorded the reasons for reopening of assessment and issued notice for such purpose, surely this cannot be a ground to support the notice. Under the circumstances, ground 1 and 2 noted above would not form valid basis for reopening the assessment. 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ded that full particulars were reflected in the return filed. Section 80AB of the Act does not mandate discarding deduction under section 80HHC of the Act while claiming deduction under section 80IA of the Act. The Assessing Officer had examined the claim and reopening of the same, therefore, would only amount to change of opinion. The objections of the petitioner were disposed of by the Assessing officer in the following manner: "2.5 The assessee has shown to have exported goods worth Rs.43.17 lacs from 'Silvasa Unit' claims exemption u/s.80IA. While scrutinizing deeply, the assessee's claim u/s.80HHC vis-a-vis unit wise allocation of receipt/expenses, it is noticed that export turnover of the 'Silvasa' Unit (exempt 100% u/s.80IA) is also included in the total export turnover, while calculating deduction u/s.80HHC, thus claiming double deduction u/s.80IA/80HHC, which is contrary to the provisions of section 80AB and the decisions of Hon'ble Supreme Court in the case of Escorts Ltd v. Union of India - 199 ITR 43 and the case of M/s.IPCA Laboratories Ltd. v. DCIT, Mumbai 266 ITR 521(SC). These facts could not be readily discovered by the A.O. from the records submitted by the asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hardly be a ground for permitting reopening of a closed assessment, that too beyond a period of four years. The Assessing Officer did, however, state that there was nothing on record to show what was the nature of expenditure booked under lease equalization charge. However, there was no further elaboration on this aspect. Neither in the reasons recorded nor even in the order disposing of the objections of the petitioner, the Assessing Officer has been able to demonstrate that the assessee had failed to disclose truly and fully all material facts. On this ground, reopening of assessment would not be permissible. 24. We may now refer to ground No.3. In this respect, the stand of the Assessing Officer is that the assessee had sold certain goods to its sister concern Aditya Medisales during the year under consideration. On delayed payments of such goods, Aditya Medisales paid interest at the rate of 24% which was much higher than the prevailing market rate of interest which varies between 15% to 18%. By adopting such modality, the assessee had reduced the taxable profit of Aditya Medisales and at the same time increased the profit of Silvasa unit of the assessee company which was eli ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2 of M/s.Aditya Medisales Ltd. This issue is discussed in detail in the Assessment Order u/s.143(3) in the case of M/s.Aditya Medisales Ltd." It is not in dispute that Aditya Medisales is the sister concern of the petitioner Company. It is also not in dispute that on the delayed payments of sales proceeds, Aditya Medisales paid interest at the rate of 24% to the petitioner Company. Section 80IA of the Act, as is well known, pertains to deduction in respect of profits and gains from industrial undertakings engaged in infrastructural development. Section 80-IA(10) reads as under: "(10) Where it appears to the Assessing Officer, that owning to the close connection between the assessee carrying on the eligible business to which this section applies and any other person, or for any other reason, the course of business between them is so arranged that the business transacted between them produces to the assessee more than the ordinary profits which might be expected to arise in such eligible business, the Assessing Officer, shall in computing the profits and gains of such eligible business for the purposes of the deduction under this section, take the amount of profits as may be reaso ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rmation of belief by the Income Tax Officer is essentially within his subjective satisfaction. At the stage of issue of notice, the only question is whether there was relevant material on which the reasonable person could have formed the requisite belief. 30. In the case of Raymond Woollen Mills Ltd. v. ITO, 236 ITR 34, the Apex Court observed that "in this case, we do not have to give a final decision as to whether there is suppression of material facts by the assessee or not. We have only to see whether there was prima facie some material on the basis of which the Department could reopen the case. The sufficiency or correctness of the material is not a thing to be considered at this stage. We are of the view that the court cannot strike down the reopening of the case in the facts of this case". 31. In the case of Asstt. CIT v. Rajesh Jhaveri Stock Brokers P. Ltd., 291 ITR 500 (SC), the Apex Court observed as under: "Section 147 authorises and permits the Assessing Officer to assess or reassess income chargeable to tax if he has reason to believe that income for any assessment year has escaped assessment. The word reason in the phrase reason to believe would mean cause or just ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... his possession which tends to expose the untruthfulness of those facts. In such situations, it is not a case of mere change of opinion or the drawing of a different inference from the same facts as were earlier available but acting on fresh information. Since, the belief is that of the Income-tax Officer, the sufficiency of reasons for forming the belief, is not for the Court to judge but it is open to an assessee to establish that there in fact existed no belief or that the belief was not at all a bona fide one or was based on vague, irrelevant and non-specific information. To that limited extent, the Court may look into the conclusion arrived at by the Income-tax Officer and examine whether there was any material available on the record from which the requisite belief could be formed by the Income-tax Officer and further whether that material had any rational connection or a live link for the formation of the requisite belief." 33. In view of the above settled legal position, at this stage, we do not find that the reasons recorded lack validity. The above observations of various decisions noted would also be relevant when we examine whether such escapement of income was due to f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ting from mechanical reopening of reassessment. This protection avails only to those assessees who disclose all material facts truly and fully. 36. In the case of Phool Chand Bajrang Lal (supra), the Apex Court held as under: "Where the transaction itself, on the basis of subsequent information was found to be a bogus transaction, mere disclosure of that transaction at the time of original proceedings could not be said to be a disclosure of true and full facts and officer would have jurisdiction to reopen the concluded assessment in such a case." 37. In the present case, as already noted, the only disclosure was that the assessee had earned interest income of Rs.3,03,48,973/-. There was no further information available on record that such interest included overdue payment charges at the rate of 24% received from the sister concern, viz. Aditya Medisales. Even without the aid of explanation (1) to proviso to section 147, therefore, it was perhaps open for the Assessing Officer to contend that there was no true and full disclosure on the part of the assessee in this respect. At any rate, by applying such explanation, it can be easily gathered that the assessee failed to disclose ..... X X X X Extracts X X X X X X X X Extracts X X X X
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