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TMI Blog2024 (6) TMI 76X X X X Extracts X X X X X X X X Extracts X X X X ..... semblance with the factual matrix in Donaldson India [ 2015 (1) TMI 831 - DELHI HIGH COURT] as the reasons herein also vaguely refer to the expression on perusal of records , rather than disclosing the foundation of reasons to believe . A plain reading of the aforesaid extract of the order of the CIT(A), which has sustained the reopening of assessment on the basis of revenue audit report, in juxtaposition with the reasons to believe would manifest that there is apparently no live link between the reasons recorded and the formation of belief to take action u/s 147 of the Act. Interestingly, while deleting the additions on merits, CIT(A) has upheld the action of reassessment by the Revenue on the ground that the factum of giving away of 75 vehicles to dealers for achieving sale targets under the guise of incentives was not disclosed in the original assessment proceedings. However, according to the CIT(A), the said fact came to the light only after the proceedings in this regard were initiated u/s 201/201 (1A) of the Act. Evidently, the proceedings u/s 201 of the Act, which have been the bedrock for reaching the conclusion that there was no full and true disclosure by the respondent-a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ngwith a detailed questionnaire and an assessment order dated 21.03.2005 was passed under Section 143 (3) of the Act. In the assessment order, the Assessing Officer [ AO ] made various additions under different heads and assessed the business income of the respondent-assessee at Rs. 67,97,24,064/-. 4. Thereafter, a notice dated 25.03.2009 was issued under Section 148 of the Act for reopening assessment proceedings in accordance with the provisions enshrined in Section 147 of the Act. On 10.08.2009, the reasons recorded for reassessment were supplied to the respondent-assessee and the same were duly replied vide letter dated 16.12.2009. In the said reply, the respondent-assessee contended that there was no fresh material to reopen the assessment. 5. However, on 16.12.2009 itself, an assessment order under Section 147/143 (3) of the Act was passed by the AO after making certain additions and the total taxable income was computed at Rs. 73,71,78,670/-. 6. Aggrieved by the said order, the respondent-assessee preferred an appeal before the Commissioner of Income Tax (Appeals) [ CIT(A) ], who vide order dated 27.06.2011, held that the reassessment proceedings were validly initiated by th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hieving sales targets and the incentives being provided thereto was not disclosed by the respondent-assessee and the same impedes the requirement of true and full disclosure at the time of original assessment. According to him, the said fact was only disclosed after the proceedings under Section 201/201 (1A) of the Act were initiated against the respondent-assessee. He lastly contended that there is no elementary requirement to categorically mention the escapement of income on account of failure to truly and fully disclose the primary facts. 11. On the contrary, learned counsel appearing on behalf of the respondent-assessee vehemently opposed the submissions made by the learned counsel for the Revenue. He submitted that the initiation of reassessment proceedings is based upon the reasons recorded by the concerned authority, which cannot be subsequently allowed to improve or supplement the said reasons at the stage of appellate proceedings. According to him, the reasons recorded in the present case does not mention any failure upon the respondent-assessee to fully or truly disclose the material facts. He also asserted that the CIT(A) has traversed beyond its mandate to sustain the r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... his is not a case of information on a question of law. The dispute as to whether reopening is permissible after audit party expresses an opinion on a question of law is now being considered by a larger Bench of this Court. There can be no dispute that the audit party is entitled to point out a factual error or omission in the assessment. Reopening of the case on the basis of a factual error pointed out by the audit party is permissible under law. In view of that we hold that reopening of the case under Section 147(b) in the facts of this case was on the basis of factual information given by the internal audit party and was valid in law. The judgment under appeal is set aside to this extent. 17. It is undoubtedly settled by the aforesaid decision that the revenue audit party is duly entitled to signify a factual error or omission in assessment and reopening of the case on the said grounds is permissible under law. However, the said decision is only concerned with sub-section (b) to Section 147 of the Act, as it then stood, which read as under: - (b) Notwithstanding that there has been no omission or failure as mentioned in Clause (a) on the part of the assessee, the Income-tax Offic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n mind the conceptual difference between power to review and power to reassess. The assessing officer has no power to review; he has the power to reassess. But reassessment has to be based on fulfilment of certain precondition and if the concept of change of opinion is removed, as contended on behalf of the Department, then, in the garb of reopening the assessment, review would take place. 7. One must treat the concept of change of opinion as an in-built test to check abuse of power by the assessing officer. Hence, after 1-4-1989, the assessing officer has power to reopen, provided there is tangible material to come to the conclusion that there is escapement of income from assessment. Reasons must have a live link with the formation of the belief. Our view gets support from the changes made to Section 147 of the Act, as quoted hereinabove. Under the Direct Tax Laws (Amendment) Act, 1987, Parliament not only deleted the words reason to believe but also inserted the word opinion in Section 147 of the Act. However, on receipt of representations from the companies against omission of the words reason to believe , Parliament reintroduced the said expression and deleted the word opinion ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .2024 in the case of S.B. Packagings Ltd. v. Asstt./Dy. Commissioner of Income Tax, Circle 22 (2), New Delhi Ors. [W.P. (C) 13743/2018] has held that the authority to reassess income under Section 147 of the Act is circumscribed with a predominant condition that the AO must be in possession of reasons to believe that any income chargeable to tax has escaped assessment. 23. In the instant case, the reasons recorded by the AO while issuing notice under Section 148 of the Act on 25.03.2009, which finds mention in the assessment order dated 16.12.2009 at Annexure-A2, are reproduced as under:- On perusal of records it reveals that capital expenditure amounting to Rs. 1,40,22,335/- was not allowable u/s 37 of the IT Act, 1961. Further, Rs. 1,79,44,942/- was receivable from different sources which were included in the expense head, as per section 5 of the IT Act, 1961, the total income of a person for any previous year includes income from whatever sources derived which is received or which accrue or arise during such previous year unless it is specifically exempt from tax by the other provision of the Act, have been disallowed and added back. Further, adjustment pertaining to earlier yea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the I.T. Act. It is observed that this primary fact of distribution of 75 vehicles as commission or brokerage to those dealers who achieve the set targets of the company had not been disclosed at the time of original assessment proceeding. Therefore, the contention of the Ld. A.R. that all primary facts relevant to the assessment had been fully and truly disclosed, does not cut ice. Hence, re-opening beyond 4 years from the end of the assessment year is justified in this regard. 26. A plain reading of the aforesaid extract of the order of the CIT(A), which has sustained the reopening of assessment on the basis of revenue audit report, in juxtaposition with the reasons to believe would manifest that there is apparently no live link between the reasons recorded and the formation of belief to take action under Section 147 of the Act. Interestingly, while deleting the additions on merits, the CIT(A) has upheld the action of reassessment by the Revenue on the ground that the factum of giving away of 75 vehicles to dealers for achieving sale targets under the guise of incentives was not disclosed in the original assessment proceedings. However, according to the CIT(A), the said fact cam ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ddition in the reassessment proceedings. The observations of Ld. AO in the original assessment proceedings are very much pertinent at this juncture. Ld. AO therein has given categorical finding regarding the expenditure not been considered for the purposes of deduction in the P L account. The decisions relied upon by Ld. DR in the written submissions filed mostly relate to situations where there was tangible material available outside the record based on which Hon'ble Supreme Court and various High Courts have held reassessment proceedings to be valid. 4.2. In our considered opinion there was no tangible material in the possession of Ld. AO to initiate the reassessment proceedings and the additions made by Ld. AO was based on the materials already on record which has failed to stand the test of law as the same has been deleted by Ld. CIT (A) by observing categorically that they were never considered for the purposes of deduction in the original assessment proceedings itself. 4.3. On the basis of the above discussions we allow the legal ground raised by assessee in its cross objection and quash and set-aside the notice issued under section 147 of the act. Accordingly the reasses ..... X X X X Extracts X X X X X X X X Extracts X X X X
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