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TMI Blog2013 (12) TMI 1725X X X X Extracts X X X X X X X X Extracts X X X X ..... /s 143(3) of the Act. Accordingly, it is canvassed that the validity of the notice issued u/s 148 of the Act reopening the assessment would depend upon fulfillment of the conditions prescribed in the first proviso to section 147 of the Act. The proviso to section 147 of the Act prescribes that where an assessment u/s 143(3) of the Act has been made for the relevant assessment year, no action shall be taken to reopen the assessment u/s 147 of the Act after the expiry of four years from the end of the relevant assessment year, unless any income chargeable to tax has escaped assessment for such assessment year by reason of failure on the part of the assessee to make a return u/s 139 of the Act or in response a notice issued u/s 142(1) or section 148 or to disclose fully and truly all material facts necessary for an assessment. In the present case, the claim made by the assessee is that it made a return u/s 139 of the Act and there was no failure on the part of the assessee to disclose fully and truly all material facts relating to the assessment for the year under consideration. In support of his submission, the learned counsel has referred to the relevant papers placed in the Paper B ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... luding surcharge. 3. Therefore, I have reason to believe that there has been an escapement of income within the meaning of section 147 of the Income Tax Act; therefore, it is a fit case for issue of notice u/s 148 of the Act. Accordingly, a notice u/s 148 is issued. 4. The notice u/s 148 is issued with approval of the CIT-V, Pune vide letter No. Pn/CIT-V/147/2009-10/3987 dated 26.03.2010. 6. Now, the first point made by the assessee is that the assessment has been reopened after a period of four years from the end of the relevant assessment year and the original assessment was made u/s 143(3) of the Act and therefore, the prescription of the first proviso to section 147 of the Act applies. It is sought to be made out that in terms of the first proviso to section 147 of the Act, the Assessing Officer is required to make out a case in the reasons recorded as to whether there is a failure on the part of the assessee to disclose fully and truly all material facts necessary for assessment. It is pointed out that the Assessing Officer could have proceeded to reopen the assessment only after recording the aforesaid and for his failure to do so, the initiation of proceedings u/s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at there was a failure to disclose fully and truly that all material facts must be read as recorded by the AO and it would not be permissible to delete or add to those reasons and that the AO must be able to justify the same based on material record. The Division Bench observed as follows : He must disclose in the reasons as to which fact or material was not disclosed by the assessee fully and truly necessary for assessment of that assessment year, so as to establish the vital link between the reasons and evidence. 5. We find in the circumstances that the impugned notice is not sustainable and is liable to be quashed and set aside. Accordingly, the writ petition is allowed in terms of prayer cls. (a) and (c). 8. Ostensibly, the Hon ble High Court observed that the Assessing Officer did not record that there was failure on the part of the assessee to fully and truly disclose all material facts necessary for the assessment. What was recorded in the case before the Hon ble High Court was that the petitioner had wrongly claimed certain deduction which he was not entitled to. Under these circumstances, the Hon ble High Court held that the notice u/s 148 of the Act was not su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssue in question relates to the determination of the profits of the business as defined in Explanation (baa) to section 80HHC of the Act. The assessee was inter-alia also engaged in activity of leasing and hire purchase of certain items of machinery. In the books of account prepared under the Companies Act, 1956 income was recognized on such transactions in terms of the Accounting Standard-19 issued by the Institute of Chartered Accountant of India. The lease rentals are apportioned between the principal and finance income, calculated on the basis of the implicit Internal Rate of Return. The principal amount received reduced the net investment in the lease/hire purchase and the component of finance income is recognized a revenue income. As a result, the income by way of lease rentals and hire charges was credited to the Profit and Loss account at ₹ 31,63,353/- and no depreciation was claimed on the assets leased/hired out and the portion of principal received reduced the net investment in the leased/hired asset. In the computation of income annexed to the return of income, assessee treated the entire lease rentals received (i.e. comprising of principal and finance income) a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 793,778/- As per Return Less : 90% of the Commission ₹ 373,259/- Interest Received ₹ 19,690,458/- Sale of Scrapped Assets ₹ 90,374/- Export Incentives ₹ 3,208,597/- Incentive form Brokers ₹ 5,221/- ₹ 23,367,909/- 90% thereof ₹ 21,031,118/- ₹ 832,762,660/- 11. Ostensibly, the profits of the business have been computed by applying Explanation (baa) to section 80HHC(4C) of the Act by considering the business income at ₹ 85,37,93,778/- as per the Computation of income, which is inclusive of the enhanced income shown by way of Impact on financial activity amounting to ₹ 98,43,701/-. 12. Now, at the time of initiation of proceedings u/s 147 of the Act, the point made by the Assessing Officer is that while determining the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... losure has been made by the assessee of all the material facts in relation to the computation of the profits of the business for the purpose of deduction u/s 80HHC of the Act but there was also a due application of mind by the Assessing Officer. At this point, we may also refer to an argument set-up by the Revenue that 90% of ₹ 98,43,701/- is excludible from the profits of the business for the purpose of computing deduction u/s 80HHC of the Act and thus excessive deduction stood allowed and therefore, invoking of section 147 of the Act is sought to be justified. A similar argument has been answered by the Hon ble Bombay High Court in the case of Titanor Components Ltd. (supra) by stating that there is a difference between a wrong claim made by the assessee after disclosing the full and true material facts and a wrong claim made by the assessee by withholding the material facts fully and truly. According to the Hon ble High Court, it is only in the latter cases that an Assessing Officer is entitled to proceed u/s 147 of the Act. In the present case, as we have concluded earlier, assessee has disclosed full and true material facts and even if the original assessment has res ..... 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