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TMI Blog2012 (11) TMI 469X X X X Extracts X X X X X X X X Extracts X X X X ..... al issue, common in both the assessment years, which relates to the validity of re-opening under section 147 of the Act. 3. Briefly stated, the facts of the case in the cross appeals relating to assessment year 1997-98, are that the assessee is a non-resident banking company, domicile in France. For the assessment year 1997-98, return of income, under section 139 of the Act, was filed on 26th November 1997, at an income of Rs. 14,16,46,210, as per the computation of income filed along with the return of income. The said return of income was subjected to scrutiny by issuance of notice under section 143(2) and as against the return of income as shown above, the assessment was completed at an income of Rs. 26,59,01,147, vide order dated 31st January 2000, passed under section 143(3). Subsequently, after the expiry of four years from the end of the relevant assessment year, a notice under section 148, was issued on 31st March 2004, for re-opening the said assessment. The reasons recorded for re-opening the case under section 147, were as under. "Factual Position 1. In the return of income filed by the assessee for the above assessment year, assessee claimed interest ear ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sment. In view of the factual and legal position mentioned in earlier paras, I have strong reasons to believe that substantial income chargeable to tax has escaped assessment. As per explanation 2 to section 147, if income has been made the subject of excessive relief under this Act, the same will be deemed to be the case where income chargeable to tax has escaped assessment. This is as per explanation 2(c) to section 147. This is much more than the limits mentioned in section 149. The reopening of assessment will be within 10 years from the end of assessment year till 31st May 2001. Another requirement for re-opening of assessment after 4 years is that the escapement of income should be by reason of the failure on the part of assessee to disclose fully and truly all material facts necessary for his assessment for that assessment year. As discussed in earlier paras, the details of source of deposit, claim of expenses relating to the said deposits and the provision under which such income is exempt, which is material to decide the exemption legally allowable, were never furnished. On account of assessee's non- submission/disclosure of material facts fully and truly income has escape ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the return of income or at the time of the assessment. The re-opening under section 147, in the present case, is thus hit by proviso to section 147, which provides that no action can be taken under section 147, after the expiry of four years from the end of the relevant assessment year, unless any income chargeable to tax has escaped assessment on account of "failure to disclose fully and truly all material facts". 5. Mr. Pardiwala, further submitted that from the plain reading of the "reasons recorded" and on the facts of the it cannot be held or inferred that there was any failure on the part of the assessee to disclose all the material facts necessary for the assessment. Thus, the entire re-opening is invalid and the proceedings under section 147, as have been initiated vide notice dated 31st March 2004, should be quashed. He further submitted that from the "reasons recorded", it can be safely inferred that there was neither any "reason to believe" by the Assessing Officer that income chargeable to tax has escaped assessment, nor there was any "failure on the part of the assessee to disclose fully and truly all material facts" and, lastly, such a re-opening amounts to "change o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ecessary to acquire the jurisdiction by the Assessing Officer to re-open a case. If the basic jurisdictional facts require for re-opening the case under section 147, do not exist, any proceedings initiated by notice under section 148, becomes void ab initio. The first and foremost condition is that the Assessing Officer must have "reason to believe" that any income chargeable to tax has escaped assessment for any assessment year and this belief must not be arbitrary or irrational, but must be held in good faith and there has to be rational communication connection on of relevant bearing on the formulation of belief by the Assessing Officer. Not only this, the information or material on the basis of which the Assessing Officer seeks to re-open the case must have a direct and live link nexus with the income escaping assessment. Once this vital condition stands fulfilled, the first proviso carves out further limitation that in the cases where the assessment have been completed under Section 143(3) or under Section 147, no action can be taken after the expiry of four years from the end of the relevant assessment year, unless twin conditions are satisfied, firstly, any income chargeable ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that order passed under 143(3) or 147 cannot be reopened beyond the period of four years unless twin conditions specified in first proviso to section 147 stands fulfilled, has been settled by catena of case laws by the various High Courts and the Hon'ble Supreme Court. However, for the sake of reference, some of the case laws are referred to herein below:- "(i) Calcutta Discount Co. Ltd. v. Income-tax Officer, Companies Districts 1, reported in [1961] 41 ITR Page 191. A constitution Bench of five Hon'ble judges laid down the following rule in the matter of assessee's duty disclosure - "The duty imposed by the Act upon the tax payer is to make a full and true disclosure of all material facts necessary for the assessee ; he is not required to inform the Income-tax Officer as to what legal inference should be drawn from the facts disclosed by him nor to advise him on questions of law. Whether on the facts found or disclosed, the company was a dealer in shares, may be regarded as a conclusion on a mixed question of law and fact and from the failure on the part of the company to disclose to the Income-tax Officer this legal inference, no fault may be found with the company .... ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ar to which they relate. None of these aspects have been considered by him which is sufficient to justify the contention raised by the petitioner that the approval granted suffers from non-application of mind. In the above view of the matter, the impugned notices and consequently the order justifying reasons recorded are unsustainable. The same are liable to be quashed and set aside. ITA No : 2744/m/06 17. (iii) Sesa Goa Ltd. v. Joint Commissioner of Income Tax and others reported in [2007] 294 ITR 101. The power of reassessment conferred under section 147 of the Act can be exercised within a period of four years from the end of the relevant assessment year without restrictions imposed by the proviso to that section. However, after the expiry of four years from the end of the relevant assessment year, power of the Assessing Officer is restricted by the limitations imposed under the proviso, as stated earlier. Shri Revonkar, learned counsel for respondents Nos.1 and 2 relying under sub-clause (iii) of clause (a) of sub-section (1) of section 149 of the Act contended that on account of the wrong computation of claim of the deduction under section 80HHC of the Act, tax or more ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ruly all material facts. If the reassessment is required to be made on account of the failure of the assessee to disclose fully and truly all material facts necessary for his assessment, obviously, the restriction of four years put under the proviso to section 147 would not be applicable and notice can be issued after the expiry of a period of four years, but within the time limit of 7 or 10 years, as the case may be, prescribed under section 149 of the Act. The object of section 149 in imposing the restriction of seven years or ten years where the income likely to have escaped assessment is less than Rs. 50,000 or Rs. 1,00,000, as the case may be, is not to permit reopening of the assessment where the tax liability would not be significant as compared with the efforts that would be required for reopening of an assessment after a passage of seven or ten years, as the case may be. To repeat, the time-limit imposed under section 149 of the Act for issuance of the notice is not in derogation of an is not for enlarging the time restriction imposed under the proviso to section 147 of the Act but to put an addition time restriction even where there is no restriction of time for reopening ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... td. v. ITO [1971] 80 ITR 559 at pages 562 to 565, and the Gujarat High Court, rendered in Arvind Mills Ltd. v. Deputy CIT [2000] 242 ITR 173 and CIT v. Gujarat Ginning and Mfg. Co. Ltd. reported in [1994] 205 ITR 40 to which our attention was drawn by Mr. Dastur. He also relied upon a decision of the Calcutta High Court reported in Simplex Concrete Piles (India) Ltd. v. Deputy CIT [2003] 262 ITR 605. In the case of Simplex Concrete Piles (India) Ltd. [2003] 262 ITR 605, the Division Bench of the Calcutta High Court, after considering the law as it stood prior to the amendment of section 147 (made with effect from April 1, 1989) as also the law after the amendment, held that there has been no substantial change in the principles on which assessment can be reopened either before April 1, 1989, or thereafter. The Division Bench further held that action for reopening of an assessment cannot be taken after the expiry of four years unless the given case falls under the proviso to section 147 of the Act, i.e., the income has escaped assessment on account of failure of the assessee to disclose truly and fully all material facts or on account of some other contingencies (with which we are n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e expiry of four years from the end of relevant assessment year, the said assessment has been sought to be re-opened under section 147, by issuance of notice under section 148 dated 31st May 2001. The reasons for re-opening the case as has been recorded, are being reproduced herein below:- "Factual Position 1. In the return of income filed by the assessee for the above assessment year, assessee claimed interest earned from H.O. and branches of Rs. 26,46,802, as exempt from tax and reduced the same from taxable income. 2. In the scrutiny assessment completed under section 143(3) on 22.12.1995, the above reduction was allowed without examining the issue involved and facts of the case, the assessee is a foreign banking company having Indian operation and what is taxable in India is the income of Indian operations. Therefore, the head office of the foreign bank and Indian operations are separate entities as far as taxation in India is concerned. In assessment proceedings for A.Y. 1998-99, this issue was examined in detail and it was found that Banks Indian operation is receiving interest on funds placed by it with head office and foreign branches. The funds ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... truly all material facts necessary for his assessment for that assessment year. As discussed in earlier paras, the details of source of deposit, claim of expenses relating to the said deposits and the provision under which such income is exempt, which is material to decide the exemption legally allowable, were never furnished. On account of assessee's non- submission/disclosure of material facts fully and truly income has escaped assessment. In view of the above discussion the statutory requirement for reopening of assessment have been fully met and the reopening of assessment is essential and legally permissible." 15. Before us, the learned Sr. Advocate, Mr. P.J. Pardiwala, appearing on behalf of the assessee, drew our attention to the computation of income and submitted that the primary facts relating to interest and commission paid to the branches and interest earned from head office and branches were duly disclosed and the same were also subjected to scrutiny assessment under section 143(3). He further submitted that the duty of the assessee is to disclose all material facts necessary for the assessment and is not required to inform the Assessing Officer as to what legal inf ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it cannot be held that there was any failure on the part of the assessee to disclose fully and truly all material facts on these issues. Even though, the Assessing Officer has mentioned about the failure on the part of the assessee in the "reasons recorded", however, such a failure cannot be ascribed or inferred from the material placed on record for the simple reason as to what the Assessing Officer is contending in the reasons recorded is the legal inference of taxability of such income. It is the settled position of law that the assessee is required only to disclose primary facts necessary for the assessment and he is not expected to guide the Assessing Officer as to what legal inference should be drawn from the facts disclosed by him. This proposition has been laid down in celebrated decision of Constitutional Bench in Calcutta Discount Co. Ltd. v. ITO [1961] 41 ITR 191 (SC), wherein Their Lordships laid down the following rule in the matter of assessee's duty of disclosure. "The duty imposed by the Act upon the tax payer is to make a full and true disclosure of all material facts necessary for the assessee ; he is not required to inform the Income-tax Officer as to what lega ..... X X X X Extracts X X X X X X X X Extracts X X X X
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