Case Law Details
Boston Scientific International Vs ACIT (ITAT Delhi)
In a significant ruling, the Income Tax Appellate Tribunal (ITAT) Delhi, in the case of Boston Scientific International Vs ACIT, quashed the reassessment proceedings initiated by the Assessing Officer (AO) under section 147 of the IT Act. The tribunal held that the AO failed to present tangible materials that would warrant a reopening of the case under the given section.
The original assessment was completed under section 143(3) of the Act, after which the AO sought to reopen the case under section 148 due to suspected income escapement. However, the tribunal noted that the AO merely relied on existing records and did not present new tangible evidence to support the belief that the assessee’s income had escaped assessment.
Further, the AO did not satisfy the obligation under the proviso to section 147 of the IT Act, i.e., to record in the reasons the failure on the part of the assessee to fully and truly disclose all material facts relevant for the purpose of the assessment. ITAT Delhi ruled that the lack of these two critical factors – tangible material and failure to disclose – rendered the reassessment void ab initio.
Conclusion: This ruling reaffirms the necessity for Assessing Officers to provide tangible material and justify the belief of income escapement when initiating reassessment proceedings. It also emphasizes the need to adhere to the provisions of the IT Act to avoid potential legal issues. This landmark judgment could have far-reaching implications in future cases where the validity of reassessment proceedings is questioned.
FULL TEXT OF THE ORDER OF ITAT DELHI
1. This appeal in ITA No.789/Del/2023 for A.Y. 2013-14 arises out of the order by the ACIT, Circle-1(1)(2), International Taxation, Delhi in appeal No. ITBA/AST/S/147/2022-23/1049260705(1) dated 30.01.2023 (hereinafter referred to as ld. AO in short).
2. The ground No. 2 raised by the assessee is challenging the validity of assumption of jurisdiction u/s 147 of the Act by the ld AO. Since this being a preliminary ground of assumption of jurisdiction, we proceed to dispose off this issue first, before proceeding to adjudicate on other grounds, if found necessary.
3. We have heard the rival submissions and perused the materials available on record. The assessee is a foreign company dealing with trading and distribution of medical consumable and equipment and marketing support services. The original assessment for AY 2013-14 was completed u/s 143(3) of the Act on 29.03.2019 determining the total income of the assessee at Rs. 2,21,02,144/- u/s 115JB of the Act. This completed assessment was sought to be reopened by the AO by issuance of notice u/s 148 of the Act on 26.03.2021 after obtaining the approval u/s 151 of the Act from the competent authority. The reasons recorded by the ld AO for reopening the assessment are reproduced as under:-
“1. The assessee is a Foreign Company dealing with trading and distribution of medical consumable and equipments and marketing support evidences. The assessment of the assessee for the AY 2013-14 was completed u/s 143(3) on 29.03.2019 for total taxable income at Rs. 2,21.02.144/- under 115JB as per the IT Act, 1961.
2. It is also from the records that Rs.51,01,141/- is not included in P&L account but allowed as deduction as per provisions of section 40(a)(ia) of the IT Act, 1961, which was disallowed in earlier years on account of non deduction of TDS. No details are available regarding payment of taxes withheld and deposited in current year and the same has been allowed as per provisions of section 40(a) (ia).
3. It is also noticed from the 3CD report of the assessee, that the tax auditor has certified an amount of Rs.46,50,508/- as inadmissible u/s 40(a) against clause 17(1). Out of which only Rs.7.18, 129/- has been disallowed & added back to the total income of the assessee while the rest of the amount of Rs.39,32,379/- has been allowed.
4. It is further noticed from the records that, the assessee had created a provision for Interest on Income tax in the earlier year and the same was not considered as expense for computing the taxable income pertaining to that year. In the year under consideration, the assessee has made reversal of this provision, therefore interest on income tax amounting to Rs. 11,87,987/- has not been considered as Income as it is just a reversal of earlier year’s provision of expense which was not considered as expense while computing the taxable income for that year.
5. Section 147 of the I.T. Act, provides that if the assessing officer has reason to believe that any income chargeable to tax has escaped assessment for any assessment year, he may, subject to the provisions of section 148 to 153, assess or reassess such income.
6. In the light of the above provisions and the facts of the present case, I have reason to believe that income chargeable to tax has escaped assessment in the present case within the meaning of section 147 of the I.T. Act. Further, considering the volume and value of the transactions involved, the income escaping assessment is likely to amount to Rs. 1 lakh or more.
7. In view of the above reasons to believe that income has escaped assessment, prior sanction u/s 151(1) is being sought to issue notice u/s 148 of the Income Tax Act, 1961.”
4. From the perusal of the aforesaid reasons we find that reopening is sought to be made on three issues as detailed (supra) but on all the three issues, we find that the ld AO did not have any tangible material which would enable him to form a reasonable belief that income of the assessee had escaped assessment warranting reopening u/s 147 of the Act. We find that the ld AO had merely looked into the records available with him and the tax audit report in form 3CD which is also part of records available with him. It is pertinent to note that the original assessment has been completed u/s 143(3) of the Act on 29.03.2019. Hence, it can be safely concluded that there is no absolutely tangible material available with the ld AO which has a live link to enable the ld AO to form a belief that income of the assessee had escaped assessment. Moreover the reopening in the instant year has been made on 26.03.2021 which is beyond four years from the end of the relevant assessment year. Hence the proviso to erstwhile provision of section 147 of the Act would come into operation. It is also pertinent to note that since the reopening is done prior to 31.03.2021, the new provision of section 148A of the Act shall not be applicable for the year under consideration. Hence, as per the proviso to erstwhile provision of section 147 of the Act, the ld AO is duty bound to incorporate in the reasons recorded duly mentioning the failure on the part of the assessee to disclose fully and truly all material facts that are relevant for the purpose of the assessment. From the perusal of the reasons reproduced supra, we find that there is absolutely no whisper of the failure committed by the assessee to disclose fully and truly all material facts relevant for the purpose of assessment. In this regard, the Hon’ble Bombay High Court in the case of Hindustan Lever Ltd. vs R.B. Wadkar reported in 268 ITR 339 (Bom) had categorically held that reasons recorded by the ld AO should speak for itself and there cannot be any substitution by way of addition or deletion thereon. The relevant operative portion of the order of the Hon’ble Bombay High Court is reproduced as under:-
“20. The reasons recorded by the Assessing Officer nowhere state that there was failure on the part of the assessee to disclose fully and truly all material facts necessary for the assessment of that assessment year. It is needless to mention that the reasons are required to be read as they were recorded by the Assessing Officer. No substitution or deletion is permissible. No additions can be made to those reasons. No inference can be allowed to be drawn based on reasons not recorded. It is for the Assessing Officer to disclose and open his mind through reasons recorded by him. He has to speak through his reasons. It is for the Assessing Officer to reach to the conclusion as to whether there was failure on the part of the assessee to disclose fully and truly all material facts necessary for his assessment for the concerned assessment year. It is for the Assessing Officer to form his opinion. It is for him to put his opinion on record in black and white. The reasons recorded should be clear and unambiguous and should not suffer from any vagueness. The reasons recorded must disclose his mind. Reasons are the manifestation of mind of the Assessing Officer. The reasons recorded should be self-explanatory and should not keep the assessee guessing for the reasons. Reasons provide link between conclusion and evidence. The reasons recorded must be based on evidence. The Assessing Officer, in the event of challenge to the reasons, must be able to justify the same based on material available on record. 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 vital link between the reasons and evidence. That vital link is the safeguard against arbitrary reopening of the concluded assessment. The reasons recorded by the Assessing Officer cannot be supplemented by filing affidavit or making oral submission, otherwise, the reasons which were lacking in the material particulars would get supplemented, by the time the matter reaches to the Court, on the strength of affidavit or oral submissions advanced.”
5. In view of the aforesaid observations and respectfully following the judicial precedent relied upon hereinabove, we hold that the ld AO had invalidly assumed the jurisdiction u/s 147 of the Act in the facts of the instant case. Accordingly, the reassessment is hereby quashed.
6. Since the reassessment proceedings are quashed as void ab initio, the other grounds raised by the assessee on legal issue as well as on merits need not be adjudicated and they are left open. Accordingly, ground No. 2 is allowed.
7. Since, the appeal itself is hereby disposed off in favour of the assessee, the adjudication of stay petition of the assessee becomes infructuous.
8. In the result, the appeal of the assessee is allowed and the stay petition of the assessee is dismissed as infructuous.
Order pronounced in the open court on 08/06/2023.
