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TMI Blog2022 (11) TMI 382X X X X Extracts X X X X X X X X Extracts X X X X ..... rder passed by the ld. CIT(A) in quashing the assessment order passed under section 143(3) r.w.s. 147 - Thus, the grounds raised by the Revenue are dismissed. - I.T.A. No.1914/Chny/2019 - - - Dated:- 4-11-2022 - Shri V. Durga Rao, Judicial Member And Shri Manoj Kumar Aggarwal, Accountant Member For the Appellant : Shri G. Johnson, Addl. CIT For the Respondent : Shri S. Sridhar, Advocate ORDER PER V. DURGA RAO, JUDICIAL MEMBER: This appeal filed by the Revenue is directed against the order of the ld. Commissioner of Income Tax (Appeals) 1, Chennai, dated 29.03.2019 relevant to the assessment year 2010-11. 2. Facts are, in brief, that the assessee filed its return of income for the assessment year 2010-11 on 13.10.2010 admitting total income of ₹.15,50,25,060/-. The Assessing Officer has completed the assessment under section 143(3) of the Income Tax Act, 1961 [ Act in short] dated 25.03.2013 by assessing total income at ₹.15,50,25,060/-. 2.1 Subsequently, the Assessing Officer has reopened the assessment under section 147 of the Act by issuing notice under section 148 of the Act dated 27.02.2017 on the ground that there is an escapeme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of income submitted by the appellant for the A.Ys 2007-08 to 2013-14. These returns were perused. They reveal the fact that the appellant has been regularly reporting income under the head 'Profits and gains of Business or Profession' as well as from other heads such as 'capital gains' and 'other sources'. The appellant's submissions are replete with material facts and judicial decisions to leverage their contentions that the reopening of the assessment beyond four years was not justified. It was submitted that there was no failure on the part of the appellant to disclose fully and truly the material facts. Furthermore, it was held the act of shifting heads of income and reworking income offered under different heads of income only denotes 'change of opinion' on the part of the A.O. The appellant also cited the order dated 28/9/2016 of the CIT(A)-1, Chennai for the assessment year 2008-09 who had held that the action of the A.O. in re-opening of assessment does not satisfy the proviso to section 147 and hence cannot be upheld. Taking into account the factual matrix as well as the prevailing legal opinion regarding re-assessment and the order ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dmitting such mutual fund investments as Capital assets. Further Col. 12(a) of Audit Report in Form 3CD as well as books of account of assessee shows that there is no closing stock. All these facts prove that the assessee was not doing any business in mutual funds. 3.1.2 The above mentioned facts thus leave out two items viz. Item no.1 and 5. Nomenclature of Item 5 (that too a paltry sum of Rs.4,460/-) shows that it is not from out of any business activity. Finally the only item left out is item no. 1 which is Interest receipts . Scrutiny of accounts reveal that such interest was received from the deposits assessee had with banks and sister concerns which were continuing from earlier years. Para. 1 of Directors Report to Share Holders reads as under: 1. Your company generated an income of RS.1653 Lakhs mainly from temporary deployment of Surplus funds. This clearly proves that interest receipts shown as item nO.1 in the P L a/c was out of temporary deployment of surplus funds. 3.1.3 It is a settled principle that when surplus funds are invested in bank, interest thereon is to be assessed under the head Income from Other Sources . This view was held in a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not be considered while determining the net income from interest receipts. B) Expenditure general in nature: The following expenses claimed in the P L a/c are general in nature and are mainly incurred for the purpose of maintaining assessee company and has little or no Connection with the interest receipts from banks and sisters concerns: Remuneration to Managing Director Salaries Staff Welfare expenses Travelling expenses Telephone charges Printing Stationery Bank charges Audit fees General charges Preliminary Expenses Vehicle Expenses Depreciation Considering the fact that assessee had earned interest only from banks and sister concerns and such interest was directly credited to the account of assessee, There is no need to incur the exorbitant expenditure incurred under the above heads and such expenditure was incurred mainly in connection with its activity of making investment in shares, mutual funds and other securities, income from sale of the same being considered separately under the head Capital Gains . C) Not an Expenditure to earn income: Donation paid by the assessee falls und ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... m of the assessee in respect of capital gains. Subsequently, the Assessing Officer wanted to treat the very same capital gain as business income on the basis of the same material available on record. Obviously, the reopening is only a change of opinion and no new tangible material came to the notice of the Assessing Officer to come to a different conclusion and thus, the change of opinion is not permissible in law as the judgement of the Hon ble Supreme Court in the case of CIT v. Kelvinator of India Ltd. 320 ITR 561 (SC) applies. 6.2 In similar facts and circumstances, in assessee s own case for the assessment year 2008-09, the ld. CIT(A) quashed the reassessment order and vide order in I.T.A. No.3293/Chny/2016 dated 29.07.2022, by considering the facts and circumstances and relying upon various case law, the Coordinate Benches of the Tribunal has decided the issue against the Revenue by observing as under: 7. We have also gone through the assessment order and find that after considering all the details furnished by the assessee, the Assessing Officer came to a conclusion that the total capital gain of the assessee is ₹.1,95,78,283/-. Subsequently, the Assessing Offi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... terial facts truly and fully for assessment and assessment is completed under Section 143(3) of the Act, the reopening is permissible within a period of four years from the end of the relevant assessment year. The only condition precedent for exercising the jurisdiction to reopen an assessment, is the Assessing Officer should have reasonable belief that income chargeable to tax has escaped assessment. This reason to believe that income chargeable to tax has escaped assessment should not be on the basis of change of opinion, as otherwise the power of reassessment would become a power of review, which it is not. 7.2 Against the above decision of the Hon ble Bombay High Court in the case of Marico Ltd. v. ACIT, the Department preferred SLP (Civil) before the Hon ble Supreme Court and the Hon ble Supreme Court dismissed the SLP vide order dated 01.06.2020 in Diary No. 7367/2020 and confirmed the Hon ble Bombay High Court decision in which it was held that once the opinion is formed during the regular assessment proceedings, bars the Assessing Officer to reopen the same only on account of a different view. Admittedly, in the present case in hand, without any new tangible material, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... kground of the assessee's failure to disclose truly and fully all material facts, it is necessary for him to record that fact. A notice issued without recording such a fact cannot be regarded as a valid notice. If the details placed by the assessee before the Assessing Officer were in conformity with the requirements of all applicable laws and known accounting principles, and material details had been exhibited before the Assessing Officer, it is for the Assessing Officer to reach such conclusions as he considered warranted from such data and any failure on his part to do so cannot be regarded as the assessee's failure to furnish the material facts truly and fully. Any lack of comprehension on the part of the Assessing Officer in understanding the details placed before him cannot confer a justification for reopening the assessment, long after the period of four years had expired. By notice dated December 18, 1996, the Assessing Officer reopened the assessment of the petitioner for the assessment year 1989-90, for the following reasons: (a) that excessive deduction had been allowed under section 80HHC; (b) that excessive allowance had been granted under section 32A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nowhere stated that there was failure on the part of the assessee to disclose fully and truly all material facts necessary for assessment for that assessment year. Hence, the Assessing officer had no jurisdiction to reopen the assessment proceedings. The notice was not valid and was liable to be quashed. Similarly, in the case of Hindustan Lever Ltd. v. R.B. Wadkar, ACIT (2) 268 ITR 332, the Hon ble Bombay High Court has held as under: Held, that it was clear that the Revenue could not establish any lapse or failure on the part of the assessee-petitioner to disclose fully and truly all material necessary for the assessment of the petitioner for the assessment year in question. The notice was not valid and was liable to be quashed. 7.6 Further, in the case of Sadbhav Engineering Ltd. v. DCIT [2011] 333 ITR 483 (Guj), the Hon ble Gujarat High Court has held as under: Held, allowing the petitions, that on a plain reading of the reasons recorded, it was apparent that they were totally silent as regards any failure on the part of the assessee to disclose fully and truly all material facts necessary for its assessments for the relevant assessment years. Whether o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee in disclosing fully and truly the material facts for assessment. The relevant head-notes in the judgement delivered by the Hon ble Supreme Court in the case of ITO v. Lakhmani Mewal Das reported in (1976) 103 ITR 437 are reproduced as under: The reasons for the formation of the belief contemplated by section 147(a) of the Income-tax Act, 1961, for the reopening of an assessment must have a rational connection or relevant bearing on the formation of the belief. Rational connection postulates that there must be a direct nexus or live link between the material coming to the notice of the Income-tax Officer and the formation of his belief that there has been escapement of the income of the assessee from assessment in the particular year because of his failure to disclose fully and truly all material facts. It is no doubt true that the court cannot go into the sufficiency or adequacy of the material and substitute its own opinion for that of the Income-tax Officer on the point as to whether action should be initiated for re-opening the assessment. At the same time we have to bear in mind that it is not any and every material, howsoever vague and indefinite or distant, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... GAMAL RAJPAL V. S. P. CHALIHA [1971] 79 ITR 603 (SC) followed (ii) that since there was nothing to show that the confession of M.K, related to a loan to the assessee, much less to the loan which was shown to have been advanced by that person to the respondent, in the first ground the live link or close nexus which should be there between the material before the Income-tax Officer and the belief which he was to form was missing or in any event too tenuous to provide legally sound basis for reopening the assessment. Two conditions have to be satisfied before an Income-tax Officer acquires jurisdiction to issue notice under section 148 in respect of an assessment beyond the period of Jour years but within a period of eight years from the end of the relevant year, viz., (i) the Income-tax Officer must have reason to believe that income chargeable to tax has escaped assessment, and (ii) he must have reason to believe that such income has escaped assessment by reason of the omission or failure on the part of the assessee (a) to make a return under section 139 for the assessment year to the Income-tax Officer, or (b) to disclose fully and truly material facts necessary for his a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to believe does not mean a purely subjective satisfaction on the part of the Income-tax Officer. The reason must be held in good faith. It cannot be merely a pretence. It is open to the court to examine whether the reasons for the formation of the belief have a rational connection with or a relevant bearing on the formation of the belief and are not extraneous or irrelevant for the purpose of the section. To this limited extent, the action of the Income-tax Officer in starting proceedings in respect of income escaping assessment is open to challenge in a court of law. 8. After considering various case law including the judgement of the Hon ble Supreme Court in the case of CIT v. Kelvinator of India Ltd. (supra), the ld. CIT(A) has rightly held that the action of the Assessing Officer in reopening the assessment does not satisfy the proviso to section 147 of the Act. We find no infirmity in the order passed by the ld. CIT(A) and thus, the ground raised by the Revenue is dismissed. 9. In the result, the appeal filed by the Revenue is dismissed. 6.3 In the present case also, we are of the considered opinion that the reopening is only a change of opinion and no new tan ..... X X X X Extracts X X X X X X X X Extracts X X X X
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