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TMI Blog2013 (3) TMI 9X X X X Extracts X X X X X X X X Extracts X X X X ..... n the part of the assessee to furnish primary facts fully and truly at the time of original assessment, that should be sufficient compliance with the requirements of section 148(2) of the Act. In this view of the matter we are unable to accept the contention of the petitioner that the failure to refer to the omission of the petitioner specifically to file the licence agreement (in the reasons recorded) is fatal to the validity of the reassessment proceedings. It is difficult to attribute any knowledge to the assessing officer while he is dealing with a return for a particular year under section 143(1), as to what he had done in the case of the same assessee in the earlier assessment years. Therefore, we are not able to accept the argument that the assessing officer consciously allowed the license fee payment as a deduction when he accepted the return under Section 143(1). All we have to see is whether there was “reason to believe” within the meaning of Section 147. The fact that the petitioner did not place the primary facts relating to the claim of the license fee by filing the license agreement dated 05.06.2001 along with the return of income filed for the assessment year 2006-07 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ment as revenue expenditure in the return of income. The return was processed under Section 143(1) and an intimation was issued to that effect. This effectively meant that the return was not being disturbed and consequently the payment made under the licence agreement was allowed as a deduction. 5. In the assessment made for the assessment years 2003-04 to 2006-07 also the amounts paid by the petitioner under the licence agreement were allowed as a deduction; in the first three assessment years, the assessments were completed under section 143(3) of the Act after scrutiny of the returns and in respect of the last year, the return was processed under section 143(1) of the Act. In all these years, it is common ground that the amounts paid by the petitioner under the licence agreement were claimed and allowed as deduction. 6. On 30.03.2010, the respondent issued notices under section 148 of the Act reopening the four assessments completed as above. The reasons recorded by him under section 148(2) of the Act are as under:- "Reasons for reopening the case u/s. 147 Name of assessee : M/s Remfry & Sugar, Remfry House, Millenium Plaza, Sector-27, Gurgaon-122002. Assessment Year : 2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and truly all material facts necessary for assessment for the said assessment year which were not put up by the assessee. Accordingly, I am satisfied that income Rs.9,86,06,944/- has escaped assessment for said assessment year being assessee's claim of expenditure to M/s Remfry & Sagar Consultants Pvt. Ltd. being the License Fee payment to M/s Remfry & Sagar Consultants Pvt. Ltd. for the use of goodwill of "Remfry & Sagar" and to practice in this name. In view of these facts, I have reason to believe that income chargeable to tax has escaped assessment for the AY 2003-04. Notice u/s 148 is being issued. (A.K.Dhir) Assistant Commissioner of Income Tax Circle 37(1), New Delhi." 7. The reasons recorded are identical for all the four assessment years except for the amount of income noted therein as having escaped assessment. The following chart will show the relevant details: - W.P.(C) No. A.Y. ORIGINAL ASSESSMENT (U/S.) COMPLETED ON NOTICE U/S. 148 BEYOND 4 YEARS INCOME ESCAPING ASSESSMENT 8375/10 2003-04 143 (3) 02.02.2006 30.03.2010 Yes 9,86,06,944 8377/10 2004-05 143 (3) 31.07.2006 30.03.2010 Yes 15,80,69,137 8376/10 2005-06 143 (3) 26.12.2007 30.0 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t for payment of the licence fee to the company. Thus the basic and primary facts relating to payment of licence fees could be found in the partnership deed. There was no failure to furnish primary facts. (c) The reasons recorded by the respondent for reopening the assessments merely referred to the opinion of the Assessing Officer while completing the assessment for the assessment year 2007-08, that licence fees were not allowable as business expenditure which amounted to a change of opinion based on the same facts, that were furnished by the petitioner at the time of the original assessment. (d) The respondent did not aver in the reasons recorded that the petitioner failed to furnish the licence agreement dated 05.06.2001 at the time of the original assessment proceedings. It is, therefore, not open to him to now supplement the reasons recorded and try to improve his case. 10. The contention of the petitioner in respect of the assessment year 2005-06 is that the licence agreement was submitted at the time of the original assessments which was also scrutinised and the assessment was completed under section 143(3) and, therefore, the reopening of the assessment is permitted by a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nth. Please produce the evidence regarding how much payment is made by M/s Remfry & Sagar to you during the FY 2004-05 and how you have accounted it in the profit and loss account of your company. You are also to produce with evidence whether the monthly payments have been made to you as per the agreement or not. The above mentioned information is being asked for u/s 133(6) of the Income Tax Act, 1961. You are requested to sent the requisite information by 15.11.2007. If the above information is not sent within the stipulated time, penalty u/s 272(2)(c) will be imposed. According to Section 272A(2)(c): "If any person fails to furnish in due time any of the returns, statements or particulars mentioned in Section 133, he shall pay, by way of penalty, a sum (of one hundred rupees) for every day during which the failure continues." Yours faithfully (JEETENDRA KUMAR) Assistant Commissioner of Income Tax Circle 37(1), New Delhi." What was relied upon was the words "during the course of the assessment proceedings in the case of assessee M/s Remfry & Sagar, it has been found that as per the agreement……….", appearing in the beginning of the letter. Relying ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to the conclusion that the respondent did not form any opinion on the issue of allowability of the licence fee; consequently the reassessment for this year is also vulnerable to the charge of being prompted by a change of opinion. According to the petitioner, to hold to the contrary would be to ignore the reality of the situation and the consistent history wherein scrutiny assessments under section 143(3) of the Act were made by the respondent, which were also being reopened on the very same ground. It is contended that having regard to this extraordinary situation, no factual or legal distinction can be made between the first three assessment years in which scrutiny assessments were made and the assessment year 2006-07 in which the original return was merely processed under section 143(1) of the Act. 12. The arguments of the petitioner were summarised in the written submissions which have also been taken into consideration. 13. Per contra the learned standing counsel for the income tax department submitted that the primary or material facts relating to the claim of licence fees were not disclosed by the petitioner at the time of the original assessment proceedings. She submitte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... onfirmation of the Remfry & Sagar Consultant Pvt. Ltd., but no agreement was filed. Moreover, this paragraph only contained a statement of fact that the payment of licence fee (along with certain other payments) was made "as per relevant agreements/ deals"; the licence agreement as such was not filed. It was thus contended that even in respect of this year, the primary fact i.e. the licence agreement, was not furnished by the petitioner in the course of the original assessment proceedings. 15. The first issue to be tackled is the contention put forth on behalf of the petitioner that the reasons recorded for reopening the assessment do not allege that the petitioner failed to file the licence agreement dated 05.06.2001 nor is there anything in the counter affidavit to that effect and, therefore, it is not open to the revenue to take up that point for the first time before this Court as it is a well-settled legal position that the reasons recorded cannot be improved upon or supplemented by subsequent averments in the course of the proceedings and that the validity of the notice under section 148 has to be judged only on the reasons recorded under section 148(2) of the Act. We accep ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ment was found not allowable. It further refers to the fact that in the course of the assessment proceedings for the assessment years 2003-04, 2004-05, 2005-06 and 2006-07 neither the assessee suo motu furnished information (regarding the licence fee payment) nor did it furnish reasons as to why the said claim is allowable. It is true that the genesis of the present proceedings was the scrutiny assessment made for the assessment year 2007-08 in the course of which the petitioner had furnished the licence fee agreement; it is equally true that the respondent has clearly stated in the reasons recorded that there was failure on the part of the petitioner to furnish full and true particulars. The reference to failure of the petitioner is obviously to the failure to file the licence fee agreement, if regard is had to the reasons read as a whole, and the specific reference therein to the petitioner having filed the agreement in the assessment proceedings for the year 2007-08 as contrasted with the petitioner's failure to furnish full and true particulars or material facts at the time of the original assessments for the four earlier assessment years. It seems to us proper to understand a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ticular items in the books of account or portions of documents which are relevant. Even if it be assumed that from the books produced, the Income-tax Officer, if he had been circumspect, could have found out the truth, the Income-tax Officer may not on that account be precluded from exercising the power to assess income which had escaped assessment." 18. As to what would be a primary fact would largely depend on the facts and circumstances of each case. In Associated Stone Industries (Kotah) Ltd. v. CIT (1997) 224 ITR 560 the Supreme Court was concerned with the correctness of the action under section 34(1)(a) of the Indian Income Tax Act, 1922 which authorised the assessing officer to reopen an assessment on the ground of failure on the part of the assessee to disclose material facts. The assessee therein was granted a lease by the ruler of the State for quarrying stones. The assessee was to pay royalty inclusive of income tax. Subsequently, there was a merger of the princely State with Rajasthan and a triangular litigation between the assessee, the State of Rajasthan and the Union of India ensued. The assessing officer initiated action to reopen the assessment to disallow a par ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nership deed which was filed in the course of the original assessment proceedings narrated the history of the petitioner firm in the preamble wherein there was reference to the payment of the licence fee as also to the agreement, which would amount to sufficient disclosure. Reference was also made to the petitioner's letter dated 28.03.2005 written to the assessing officer in the course of the assessment proceedings for the assessment year 2003-04 in which the relevant primary details were said to have been furnished. 20. We have perused the partnership deed dated 05.06.2001 entered into between Dr. Sagar, Sampath Kumar, Ashwin Julka, Ramit Nagpal and Prem Nath Sewak. The preamble to the deed traces the history of the firm. Clause VIII of the preamble records that pursuant to a request by the partners, the company agreed to permit the partners and the firm to use the name "Remfry & Sagar" in the carrying on of the practice and in connection therewith on terms and conditions incorporated in an agreement being entered into between the partners and the company contemporaneously with the execution of the deed of partnership. Our attention was not referred to any other clause in the pa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t for assessment year 2007-08 that the licence fee payment was not an allowable deduction, cannot be accepted because, as we have observed earlier though the genesis of the issue can be traced to the assessment proceedings for the assessment year 2007-08, the reasons recorded show that the assessing officer took proceedings under Section 147 on the ground that the licence agreement was not filed by the petitioner in the original assessment proceedings. When there is a failure on the part of the petitioner to furnish the primary facts, it is futile to examine the question whether the re-assessment was prompted by a change of opinion based on the view which the assessing officer took in subsequent assessment proceedings. 22. In respect of the assessment year 2006-07 there was no earlier assessment under Section 143(3). The return was merely processed by the assessing officer under Section 143(1) and since he did not have any opportunity to form an opinion regarding the allowability of the licence fee, the question of change of opinion does not arise. However, he must have "reasons to believe" that income chargeable to tax had escaped assessment and the reasons should be based on val ..... X X X X Extracts X X X X X X X X Extracts X X X X
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