Case Law Details

Case Name : Calyon Bank Vs Deputy Director of Income-tax (International Taxation) (ITAT Mumbai)
Appeal Number : IT Appeal No. 4294 (MUM.) OF 2005 and 5030 & 5145 (MUM.) OF 2006
Date of Judgement/Order : 21/09/2012
Related Assessment Year : 1993-94 & 1997-98
Courts : All ITAT (5166) ITAT Mumbai (1632)

IN THE ITAT MUMBAI BENCH ‘L’

Calyon Bank

Versus

Deputy Director of Income-tax (International Taxation)

IT APPEAL NOS. 4294 (MUM.) OF 2005 and 5030 & 5145 (MUM.) OF 2006

[ASSESSMENT YEARs 1993-94 & 1997-98]

SEPTEMBER 21, 2012

ORDER

Amit Shukla, Judicial Member

For the assessment year 1997-98, cross appeals have been filed against the impugned order dated 26th June 2006, passed by the learned Commissioner (Appeals)-XXXI, Mumbai, for the quantum of assessment under section 143(3) r/w 147 of the Income Tax Act, 1961 (for short “the Act”). For the assessment year 1993-94, the assessee has preferred the appeal which is directed against the impugned order dated 4th March 2005, passed by the learned Commissioner (Appeals)-XXXI, for the quantum of assessment under section 143(3) r/w 147 of the Act. Since common issues were involved and were heard together, therefore, as a matter of convenience, all these appeals are being disposed off by way of this consolidated order.

2. We first take up the preliminary and legal 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 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 placed with H.O. and branches is the business fund of Indian P.E. (operations) of foreign bank. The said interest income is squarely covered under section 9(1)(a) of income tax Act as business income of Indian operations. Even in DTA, income from business operations in India is taxable in India, therefore, interest income received from H.O. and foreign branches is definitely liable for taxation in India. Even assessee has claimed interest cost against placing such deposits with H.O. it is also logical that where expenses are claimed, income has to be offered for taxation. Assessee took the plea in A.Y. 1998-99 that both foreign entity and Indian operations are same and, therefore, one cannot charge interest from oneself. This is absolutely wrong and misplaced since what is taxed in India is only the income earned by Indian PE and nothing more than this. For this purpose India PE and foreign H.O. are two separate entities and payment to each other cannot be said as payments made to self considering these fact, it is clear that assessee has wrongly reduced the income earned from H.O./Branches on deposits placed by it by not disclosing material facts regarding the taxability of the same and also the cost relating to same claimed by India branches.

Compliance of legal requirements for reopening assessment:-

  3.  In view of the Para-2 above, the assessee was allowed deduction for interest received from H.O. and branches Rs. 26,48,802. As per section 147 of the I.T. Act, for reopening the assessment, Assessing Officer should have reason to believe that any income chargeable to tax has escaped assessment. 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 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”.

4. Learned Sr. Advocate, Mr. P.J. Pardiwala, appearing on behalf of the assessee submitted that the Assessing Officer has sought to re-open the case on the ground that commission and interest paid to branches and commission received from branches have not been offered for tax and, therefore, the same has been alleged to have escaped assessment. In the light of this, he drew our attention to a copy of “computation of income” placed at Pages-1 and 2 of the paper book which was filed along with the return of income and submitted that the assessee has neither claimed the commission or interest as “Income” nor as “Expenditure” which is evident from the fact that the assessee has started the computation as per Profit & Loss Account and thereby added back the commission and interest paid to the branches. He further pointed out that the interest received on Nostro account and from correspondent branches, the Assessing Officer has raised a specific query at the time of original assessment proceedings, (a copy of which is placed in the paper book at Page-4), and in response to which the assessee submitted a reply vide letter dated 25th November 1999, and gave detail submission before the Assessing Officer, which has been duly taken into congnizance. The Assessing Officer, after scrutinizing, each and every detail of computation of income has completed the assessment. He further drew our attention to Page-22 of the paper book, which is the computation made by the Assessing Officer in the assessment order and showed that the Assessing Officer has duly considered the same. As regards sum of Rs. 3,86,797, on account of commission received from branches, he submitted that the same already stood assessed, as the Assessing Officer proceeded from computation given as per the Profit & Loss Account and thereby did not deduct the said amount, which, inter-alia, means that the same has been assessed as income. Regarding other items, he submitted that not only these were disclosed by the assessee, but the same has been duly considered by the Assessing Officer, therefore, there was no failure on the part of the assessee to disclose fully and truly all material facts on these issues either in 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 of opinion”, which is not permissible in law.

6. Learned Departmental Representative, on the other hand, submitted that the Assessing Officer, during the course of assessment proceedings, has not examined the TDS on payment of commission and interest. There was also failure on the part of the assessee, as it was not stated by the assessee anywhere as to why the adjustments was done and whether the tax was to be deducted or not. Nothing has been mentioned either in the return of income or has been examined by the Assessing Officer. He strongly relied upon the findings given by the Commissioner (Appeals), as given in Para-2.4 of the appellate order and drew our attention to various reasoning and the findings given by the Commissioner (Appeals) on this score.

7. We have carefully considered the rival contentions of the parties, perused the findings of the authorities below and the material placed on record. On perusal of the computation of income filed along with the return of income, it is seen that the assessee has given all the primary facts relating to commission and interest paid to the branches/correspondents and also other material facts with regard to these items appearing in the “reasons recorded”. It is noticed that on the issue of commission of Rs. 3,86,797, received from the branches, the learned Commissioner (Appeals) has held that the Assessing Officer was not justified that this income has escaped assessment, however, with regard to payment of Rs. 18,93,305, by way of commission to various other branches and correspondents along with the sum of Rs. 2,57,312, by way of interest to overseas branches and correspondent, he has held that the Assessing Officer was justified in entertaining the “reasons to believe” on these issues that income chargeable to tax has escaped assessment. From the perusal of the order passed by the Commissioner (Appeals), it is seen that he has not referred to the proviso to section 147, which puts a limitation of four years in the case where assessment has been completed under section 143(3), or there was any failure on the part of the assessee to disclose the facts on these issues.

8. It is a settled position of law that the conditions laid down under section 147, for the purpose of re-opening of assessment, must be satisfied before a notice under section 148, is issued, as these conditions are the jurisdictional facts necessary 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 to tax has escaped assessment for such assessment year by reason of the failure on the part of the assessee to make a return under Section 139 or in response to a notice issued under sub-section (1) of Section 142 or section 148 and secondly, there is failure on the part of the assessee to disclose fully and truly all materials facts necessary for the assessment, for that assessment year. Adverting to the instant case, the first condition given in the proviso is admittedly not applicable as the assessee has duly filed its return of income under Section 139. So far as the second condition whether there was any failure on the part of the assessee to disclose fully and truly all materials facts or not, one has to see from the “reasons recorded” itself. From the perusal of the “reasons recorded”, as have been incorporated in foregoing paragraph, it is amply evident that the Assessing Officer has nowhere recorded his satisfaction that there was failure on the part of the assessee to disclose fully and truly all material facts relevant for the assessment. Such an assignment of failure in the “reasons recorded” is mandatory to acquire the jurisdiction under Section 147. It cannot be inferred from anywhere else or any other document. The “reasons recorded” must disclose that the assessee has failed to disclose fully and truly all material facts necessary for the purpose of assessment. The word ‘failure’ should not be inferred, it must be categorically spelled out. It is then the courts will examine whether there was any failure on the part of the assessee or not.

9. Insofar as disclosure of commission and interest paid to branches, it is seen that the assessee has disclosed these primary fact in the return of income and has not claimed it as deduction from the computation of business income. In view of these facts, we agree with the contention of the Sr. Advocate that from the reasons recorded, it cannot be inferred at all that there was failure on the part of the assessee to disclose the material facts necessary for the assessment. Thus, the “reasons” as recorded by the Assessing Officer do not clothe him with the jurisdiction to proceed under Section 148 and reopen the case, as there is no failure on the part of the assessee to disclose fully and truly all material facts in view of the first proviso to section 147, which a very vital condition. This proposition 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 …….. ” (215)

“Does the duty, however, extend beyond the full and truthful disclosure of all primary facts? In our opinion, the answer to this question must be in the negative. One all the primary facts are before the assessing authority, he requires no further assistance by way of disclosure. It is for him to decide what inferences of facts can be reasonably drawn and what legal inferences have ultimately to be drawn. It is not for somebody else-far less the assessee-to tell the assessing authority what inferences, whether of facts or law, should be drawn. Indeed, when it is remembered that people often differ as regards what inferences should be drawn from given facts, it will be meaningless to demand that the assessee must disclose what inferences-whether of facts or law-he would draw from the primary facts.”

(iiGerman Remedies Ltd. v. Deputy Commissioner of Income-tax reported in [2006] 287 ITR Pages 494 (Bombay High Court) –

Having said so, it is necessary to consider two more submissions advanced on behalf of the petitioners. Firstly, the impugned notice is barred by limitation since it was issued beyond the period of four years from the end of the relevant assessment year. Failure on the part of the petitioners to disclose full and true material has not been alleged. In this case, power to reopen has been exercised after the expiry of four years from the end of the relevant assessment year to which they relate. In the circumstances, the impugned notice having been issued beyond four years from the last date of the relevant assessment year without alleging any failure to disclose full and true material facts is liable to be set aside.

It is not in dispute that the Assessing Officer on September 15, 2003, had himself carried the file to the Commissioner of Income-tax and on the very same day, rather the same moment in the presence of the Assessing Officer, the Commissioner of Income-tax granted approval. As a matter of fact, while granting approval it was obligatory on his part to verify whether there was any failure on the part of the assessee to disclose full and true relevant facts in the return of income filed for the assessment of income of that assessment year. It was also obligatory on the part of the Commissioner to consider whether or not power to reopen is being invoked within a period of four years from the end of the assessment year 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 than Rs.1,00,000 would be payable and, therefore, the notice could be issued within a period of 10 years from the end of the relevant assessment year. We are unable to agree. Section 147 of the Act is the source of power of the Assessing Officer for reopening of the assessment. Section 148 contains procedural restriction for issuance of a notice for exercise of the power of reopening of an assessment conferred under section 147. Section 149 prescribes the time limit for issuance of a notice under section 148. In our opinion, the conditions laid down under section 147 of the Act for the purposes of reopening the assessment must be satisfied before the notice can be issued. The conditions laid down in section 147 are the jurisdiction facts necessary for the purpose of exercise of the power under section 147. The jurisdictional facts prescribed under section 147 must exist before a notice under section 148 can be issued. The time limit prescribed under section 149 of the Act for issuance of a notice under section 148 is in addition to and not in derogation with the necessary conditions required to be satisfied under section 147 of the Act. In other words, if the basic jurisdictional facts required for reopening of an assessment under section 147 of the Act do not exist it would not be competent for the Assessing Officer to issue a notice under section 148. Even where the jurisdictional facts prescribed under section 147 exist and all conditions laid down under section 147 and the proviso thereto are satisfied, the notice under section 148 can be issued only after the Assessing Officer has recorded his reasons for doing so under sub-section (2) of section 148 and has further obtained the necessary sanction for issuance of the notice as required under section 151 of the Act. Such notice is also required to be issued within the time limit prescribed under section 149 of the Act. Section 149 of the Act, in our opinion, does not relax the restriction of our years prescribed in the proviso to section 147 of the Act for issuance of a notice under the proviso to section 147. The restriction of four years would be applicable unless the income chargeable to tax has escaped assessment by reason of failure of the assessee to make a return under section 139 or in response to a notice under section 142 or 148 of the Act or the failure of the assessee to disclose fully and truly 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 of the assessment on account of failure of the assessee to disclose fully and truly all material facts.

In the present case, the reasons which have been recorded by the Assessing Officer for reopening of the assessment do not disclose that the assessee had failed to disclose fully and truly all material facts necessary for the purpose of assessment. No doubt in the last paragraph of the reasons, the first respondent has stated:

“I am satisfied that due to furnishing the false particulars of the income by way of incorrect certificate which means failure on the part of the assessee to disclose fully and truly all material facts required for the assessment, income of Rs. 6,10,10,272 had escaped assessment”

The said statement is clearly made only as an attempt to take the case out of the restriction imposed by the proviso to section 147 of the Act.

(111 to 113)

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As laid down by the Supreme Court in the case of ITO v. Lakhmani Mewal Das [1976] 103 ITR 437, the phrase “reason to believe” does not mean purely subjective satisfaction on the part of the Assessing Officer and the belief that income has escaped assessment by reason of failure of the assessee to disclose all material facts must be held in good faith and not merely as a pretence. It is open to a court to examine whether the relevant facts on which the opinion has been formed, have a bearing on the formation of the belief and to that limited extent the opinion is open to challenge in the court of law. Paragraph Nos.2 and 3 of the reasons recorded by the Income-tax Officer state the reason for the belief of the Assessing Officer that income had escaped assessment.

(113)

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“In our opinion, a subsequent decision of a court cannot justify the reopening of an assessment after a period of four years as the subsequent decision does not mean failure on the part of an assessee to disclose fully and truly all material facts. We are fortified in our view the decision of the Calcutta High Court in Indra Co Ltd. 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 not concerned here) specified in the proviso. We are wholly in agreement with the view expressed by the Division Bench of the Calcutta High Court in the case of Simples Concrete Piles (India) [2003] 262 ITR 605. (115 & 116).”

10. Thus, in view of the above findings and the law settled by the Courts, we hold that the proceedings initiated under section 147, vide notice dated 31st March 2004, is void ab initio and consequently, the assessment order dated 28th March 2005, passed under section 147 r/w section 143(3) is quashed. Since the entire assessment order has been quashed, therefore, the other issues on merits have been rendered academic and, therefore, they are not being dealt with.

11. Consequently, the grounds raised by in the Revenue in this appeal also becomes infructuous and, hence, the same is hereby dismissed and the assessee’s appeal is treated as allowed.

12. In the result, assessee’s appeal is allowed and the Revenue’s appeal is dismissed.

We now take up Revenue’s appeal ITA no. 4294/Mum./2005, for assessment year 1993-94.

13. In the present appeal also the assessee has challenged the validity of proceedings under section 147, besides raising grounds on merits of the additions.

14. Briefly stated the facts of the case are that the assessee has filed its original return of income under section 139(1) of the Act on 30th December 1993, declaring income of Rs. 13,18,86,610. Later on, the said return of income was revised on 8th February 1995, at an income of Rs. 12,85,47,380. The only reason for revising the return of income was withdrawal of claim of interest by the Reserve Bank of India for a sum of Rs. 35,14,969. In the computation of income filed along with return of income, the assessee has proceeded with the profit shown in the Profit & Loss account and disclosed all the necessary details for the computation of income including that of interest and commission paid to branches and head office, which was added back to the profit. The interest earned from the head office and branches were deducted. As against the return of income as above, the assessment was completed under section 143(3), vide order dated 22nd December 1995, at an income of Rs. 14,14,77,790, whereby the computation of income with regard to the interest and commission paid to the branches and interest earned from head office and branches were accepted. Subsequently, after the 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 placed with H.O. and branches is the business fund of Indian P.E. (operations) of foreign bank. The said interest income is squarely covered under section 9(1)(a) of income tax Act as business income of Indian operations. Even in DTA, income from business operations in India is taxable in India, therefore, interest income received from H.O. and foreign branches is definitely liable for taxation in India. Even assessee has claimed interest cost against placing such deposits with H.O. it is also logical that where expenses are claimed, income has to be offered for taxation. Assessee took the plea in A.Y. 1998-99 that both foreign entity and Indian operations are same and, therefore, one cannot charge interest from oneself. This is absolutely wrong and misplaced since what is taxed in India is only the income earned by Indian PE and nothing more than this. For this purpose India PE and foreign H.O. are two separate entities and payment to each other cannot be said as payments made to self considering these fact, it is clear that assessee has wrongly reduced the income earned from H.O./Branches on deposits placed by it by not disclosing material facts regarding the taxability of the same and also the cost relating to same claimed by India branches.

Compliance of legal requirements for reopening assessment:-

  3.  In view of the Para-2 above, the assessee was allowed deduction for interest received from H.O. and branches Rs. 26,48,802. As per section 147 of the I.T. Act, for reopening the assessment, Assessing Officer should have reason to believe that any income chargeable to tax has escaped assessment. 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 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 inference should be drawn. He reiterated the same submissions as were made in the appeal relating to assessment year 1997-98, as have been discussed above.

16. The learned Departmental Representative, on the other hand, submitted that the Assessing Officer, in the present case, has duly recorded in the “reasons” that there was the failure on the part of the assessee to disclose fully and truly all material facts. In the said “reasons”, the Assessing Officer has made out an elaborated discussion as to how the income chargeable to tax has escaped assessment and has also pointed out the failure on the part of the assessee in disclosing fully and truly material facts on the issues referred to in the reasons recorded. He also referred to the findings given by the learned Commissioner (Appeals) in Para-4.4 of the appellate order.

17. In the rejoinder, learned Sr. Advocate submitted that even though the Assessing Officer has mentioned the word “that the escapement of income is by way of failure on the part of the assessee to disclosed fully and truly all material facts necessary for the assessment”, however, as per facts on record, such an allegation is wholly incorrect. What the Assessing Officer has mentioned in Para-2 is that these interest and commission are deemed income under section 9(1) of the Act, which means that the assessee should have informed the Assessing Officer at the time of assessment as to what legal inference should be drawn by him. Insofar as the assessee is concerned, all the details and facts were disclosed along with the return of income and also at the time of assessment. Lastly, he submitted that the learned Commissioner (Appeals) has not even referred to the proviso of section 147, and as to why such proviso is not applicable.

18. We have carefully considered the rival contentions of the parties, perused the findings of the learned Commissioner (Appeals) and also the material available on record. As pointed out by the learned Sr. Advocate, it is seen from the perusal of the computation of total income filed along with return of income that the assessee has disclosed the interest and commission paid to the head offices and branches and also interest earned from head offices and branches. Once these primary facts have been disclosed before the Assessing Officer and has also been accepted by him after verifying them in scrutiny proceedings, 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 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 …..” (215)

“Does the duty, however, extend beyond the full and truthful disclosure of all primary facts? In our opinion, the answer to this question must be in the negative. One all the primary facts are before the assessing authority, he requires no further assistance by way of disclosure. It is for him to decide what inferences of facts can be reasonably drawn and what legal inferences have ultimately to be drawn. It is not for somebody else-far less the assessee-to tell the assessing authority what inferences, whether of facts or law, should be drawn. Indeed, when it is remembered that people often differ as regards what inferences should be drawn from given facts, it will be meaningless to demand that the assessee must disclose what inferences-whether of facts or law-he would draw from the primary facts.”

19. Thus, in view of the above proposition, we hold that in the present case, there is no failure on the part of the assessee to disclose fully and truly all material facts necessary for its assessment. The reasons and the findings given in the appeal for assessment year 1997-98 applies mutatis mutandis in this year also. Therefore, in view of the reasons given therein, the re-assessment proceedings under section 147, initiated by notice dated 31st May 2001, under section 148, are treated as void ab initio and consequently, the assessment order dated 27th March 2003, passed under section 147, r/w section 143(3) stands quashed. As the assessment itself has been quashed on the point of jurisdiction, therefore, the other grounds on merits have been rendered purely academic and, therefore, the same is not required to be adjudicated separately.

20. In the result, assessee’s appeal for A.Ys 1997-98 and 1993-94 are treated as allowed. Revenue’s appeal for A.Y. 1997-98 is treated as dismissed.

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