Case Law Details

Case Name : Export Import Bank of India Vs ACIT (ITAT Mumbai)
Appeal Number : ITA No. 6847/MUM/2012
Date of Judgement/Order : 09/02/2018
Related Assessment Year : 2003-04
Courts : All ITAT (7598) ITAT Mumbai (2165)

Export Import Bank of India Vs ACIT (ITAT Mumbai)

A Full Bench of the Hon’ble Delhi High Court in CIT v. Kelvinator 256 ITR 1 held that even after the Direct Tax Laws (Amendment) Act 1987, (i) the AO must have ‘reason to believe’ that income has escaped assessment, (ii) a mere change of opinion does not justify a re­assessment and (iii) the AO does not have the power of review on the same set of facts and law.

The re-assessment proceedings cannot be initiated by the AO when he has accepted the matter in the original assessment, therefore, indicating a mere change of opinion. The principle that there must be tangible material on the basis of which an assessment is sought to be re-opened even within a period of four years is now well established in view of the judgment of the Hon’ble Supreme Court in CIT v. Kelvinator 320 ITR 561 (SC).

Indisputably, in the instant case, the AO has issued notice u/s 148 after four years from the relevant assessment year. We find that notice for reassessment issued after four years from the end of the relevant assessment year is unsustainable where there is no material to hold that there was a failure on the part of the assessee to disclose true and full facts resulting in escapement of income. The reason that some material which was available on record while making the assessment order, was inadvertently excluded from consideration, was held to be a re-opening merely on change of opinion and not valid. We refer here to the decision in Balkrishna Hiralal Wani v. ITO 321 ITR 519; Asian Paints Ltd. v. DCIT 308 ITR 195; D.T. & T.D.C. Ltd. v. ACIT 324 ITR 234; Satnam Overseas Ltd. v. ACIT 329 ITR 237.

To sum up, even under the amended law, in all cases, there must exist reason to believe that income has escaped assessment and a mere change of opinion on the same facts and law does not justify a reassessment. For a reassessment proceeding initiated after four years, it must further be established that the escapement was by reason of failure of the assessee to disclose fully and truly all material facts.

FULL TEXT OF THE ITAT ORDER IS AS FOLLOWS:-

This is an appeal filed by the assessee. The relevant assessment year is 2003-04. The appeal is directed against the order of the Commissioner of Income Tax (Appeals)-6, [in short ‘CIT(A)’] Mumbai and arises out of the assessment completed u/s 143(3) r.w.s 147 of the Income Tax Act 1961, (the ‘Act’).

2. The 1st ground raised by the appellant in this appeal is that the Ld. CIT(A) ought to have held that the order passed u/s 143(3) r.w.s. 147 dated 30.12.2010 is bad in law.

3. Briefly stated, the facts of the case are that the appellant filed its return of income for the assessment year under consideration on 27.11.2003 disclosing total income of Rs.153,22,95,562/-. The Assessing Officer (AO) completed the assessment u/s 143(3) on 14.12.2005 assessing the total income at Rs.205,35,29,372/-.

Subsequently, the AO reopened the assessment u/s 147 by issuing notice u/s 148 of the Act on 24.03.2010. The reasons recorded by him for reopening the assessment reads as under:

“In this case, assessment u/s 143(3) of the I.T. Act, 1961 was completed on 14.12.2005, assessing the total income at Rs.205,35,29,372/-. On perusal of the records, it is observed that assessee was allowed deduction of Rs.54,44,51,395/- being 40% of the profits from the long-term financing u/s 36(1)(viii), calculated after deducting a sum of Rs.15,21,13,320/- u/s 36(1)(viia). In this regard, it is observed that profits from long-term finance before giving deductions u/s 36(1)(viia) & 36(1)(viii) was Rs.151,32,41,807/-, whereas the total profits of the assessee as per assessment order before giving deduction u/s 36(1)(viia) and 36(1)(viii) amounted to Rs.300,40,10,921/-. Thus, the percentage of profit from long­term finance was 50.37% of the total profits.

The total deduction allowed u/s 36(1)(viia) was Rs.57,50,00,000/-. Thus, for the purpose of computation of deduction u/s 36(1)(viii), the amount of deduction which has to be made u/s 36(1)(viia) from profits of long-term finance should have been Rs.29,15,25,000/- (i.e. Rs.57,50,00,000/- x 50.37%). However, in the computation of deduction allowable u/s 36(1)(viii), the amount deduction u/s 36(1)(viia) was Rs.15,21,13,320/-only. Thus, there was excess allowance of deduction u/s 36(1)(viii) amounting to Rs.5,57,64,672/-.

In view of the above, I have reason to believe that the income to the tune of Rs.5,57,64,672/- has escaped assessment resulting into short levy of tax.

Therefore, the assessee’s case is hereby reopened for reassessment u/s 147 r.w.s. 143(3) of the I.T. Act, 1961 for AY 2003-04.”

4. In appeal, the Ld. CIT(A) dismissed the said ground filed by the appellant on the reason that (i) there was failure on the part of the assessee to disclose fully and truly the material fact in respect of the nature of finance made by it for claiming deduction u/s 36(1)(viii) in the return of income or even in the assessment proceedings, (ii) the material fact has been discovered that numerous finances made by the assessee were actually not of the nature of long term finance and therefore, such finance did not qualify for deduction u/s 36(1)(viii) of the Act.

The Ld. CIT(A) thus dismissed the ground of appeal filed by the assessee against the notice issued by the AO u/s 148 of the Act.

5. Before us, the Ld. counsel of the appellant submits that there was no failure on the part of the assessee to disclose fully and truly all the material facts necessary for the assessment. It is further stated that there was no tangible material before the AO for reopening the assessment. Thus it is stated that it is a mere change of opinion by the AO. In this regard he placed reliance inter alia on the decision in CIT v. Foramer France (2003) 264 ITR 566 (SC), Desai Brothers v. DCIT 272 ITR 335 (Bom), Bhor Industries v. ACIT 267 ITR 161 (Bom), CIT v. Kelvinator of India Ltd. 320 ITR 561 (SC), Cartini India Ltd. v. ACIT 314 ITR 275 (Bom).

The Ld. counsel filed a Paper Book (P/B) and drew our attention to (i) computation of total income for the year ended 31.03.2003 along with Annexure ‘B’ and Note 10 and 11, (ii) notice u/s 142(1) & 143(2) issued by the AO on 09.09.2005 along with questionnaire, (iii) letter dated 14.11.2005 filed by the appellant before the AO (iv) working for deduction u/s 36(1)(viii) submitted by the appellant before the AO based on his direction vide letter dated 24.11.2005 and (v) the assessment order dated 14.12.2005 passed by the AO u/s 143(3).

From the above documents, the Ld. counsel submits that there was no failure on the part of the appellant to disclose fully and truly all the material facts necessary for the assessment and it was a case of mere change of opinion by the AO.

6. Per contra, the Ld. DR supports the order of the Ld. CIT(A) stating that there was failure on the part of the assessee to disclose fully and truly all the material facts about the nature of finance made by the assessee for claiming deduction u/s 36(1)(viii). It is stated that numerous finances made by the assessee did not qualify from deduction u/s 36(1)(viii).

Reliance is placed by her on the decision in the case of Dr. Amin’s Pathology Laboratory v. JCIT (2001) 252 ITR 673 (Bom).

7. We have heard the rival submissions and perused the relevant materials on record. The reasons for our decision are given below.

Having examined the relevant materials on record, we find that the appellant had claimed deduction u/s 36(1)(viii) in the computation of total income for year ended 31.03.2003 filed along its ‘Return of Income’. The same was annexed to the ‘Return of Income’ as ‘Annexure-B’ and as ‘Note 10 and 11’ (page 1-7 of P/B).

The AO issued notice u/s 142(1) and 143(2) to the appellant on 09.09.2005 along with a questionnaire. We find that at serial no. 6 of the said questionnaire the AO had asked the appellant to file brief note on claim of deduction u/s 36(1)(viia) and 36(1)(viii) and working and justification thereof (page 8-13 of P/B).

In response to the above, the appellant filed letter dated 14.11.2005 addressed to the AO submitting the working and justification for claim of deduction u/s 36(1)(viia) and 36(1)(viii) (page 14-19 of P/B).

Again, the assessee filed before the AO on 24.11.2005 the working for deduction u/s 36(1)(viii) based on his directions (page 20­24 of the P/B).

Then the AO completed the assessment u/s 143(3) on 14.12.2005 determining the admissible deduction u/s 36(1)(viii) at Rs.54,44,51,395/-.

7.1 At this stage, we may refer to the decision in Dr. Amin’s Pathology Laboratory (supra) relied on by the Ld. DR. In that case the assessee had filed its return of income for the AY 1994-95 showing certain income and the same was accompanied by duly audited accounts for the year ending 31.03.1994 and by a tax audit report u/s 44AB. The AO passed the assessment u/s 143(3). Subsequently, he found that he overlooked an entry representing unpaid purchase in respect of which he had wrongly granted a deduction and therefore, he issued a notice u/s 148 for reassessment. On writ, the assessee contended that the period of four years elapsed on 31.03.1999, whereas, notice u/s 148 was issued on 14.03.2001. He further contended that under the proviso to section 147, reopening of assessment could be effected only if he had failed to disclose truly and fully all facts, and as he had disclosed all the facts, the case merely involved change of opinion.

The Hon’ble High Court held:

“Therefore, mere production of the balance-sheet, profit and loss account or account books will not necessarily amount to disclosure within the meaning of the proviso. In the instant case, the facts showed that the Assessing Officer overlooked the aforestated item. That, he noticed it subsequently. That, at the time of passing the original order of assessment, he could not be said to have opined on the above item. Consequently, there was no change of opinion. Therefore, in the instant case, the impugned notice was to be sustained.”

7.1.1 We find that it is not a question of mere production of the balance sheet, profit and loss account or account books in the instant case. As mentioned earlier, the appellant filed letter dated 14.11.2005 addressed to the AO submitting the working and justification for claim of deduction u/s 36(1)(viia) and 36(1)(viii) (page 14-19 of P/B). Again, the appellant filed before the AO on 24.11.2005 the working for deduction u/s 36(1)(viii) based on his directions (page 20-24 of the P/B).

Therefore, the case of the appellant is distinguishable from the above decision relied on by the Ld. DR.

7.2 A Full Bench of the Hon’ble Delhi High Court in CIT v. Kelvinator 256 ITR 1 held that even after the Direct Tax Laws (Amendment) Act 1987, (i) the AO must have ‘reason to believe’ that income has escaped assessment, (ii) a mere change of opinion does not justify a re­assessment and (iii) the AO does not have the power of review on the same set of facts and law.

The re-assessment proceedings cannot be initiated by the AO when he has accepted the matter in the original assessment, therefore, indicating a mere change of opinion. The principle that there must be tangible material on the basis of which an assessment is sought to be re-opened even within a period of four years is now well established in view of the judgment of the Hon’ble Supreme Court in CIT v. Kelvinator 320 ITR 561 (SC).

Indisputably, in the instant case, the AO has issued notice u/s 148 after four years from the relevant assessment year. We find that notice for reassessment issued after four years from the end of the relevant assessment year is unsustainable where there is no material to hold that there was a failure on the part of the assessee to disclose true and full facts resulting in escapement of income. The reason that some material which was available on record while making the assessment order, was inadvertently excluded from consideration, was held to be a re-opening merely on change of opinion and not valid. We refer here to the decision in Balkrishna Hiralal Wani v. ITO 321 ITR 519; Asian Paints Ltd. v. DCIT 308 ITR 195; D.T. & T.D.C. Ltd. v. ACIT 324 ITR 234; Satnam Overseas Ltd. v. ACIT 329 ITR 237.

To sum up, even under the amended law, in all cases, there must exist reason to believe that income has escaped assessment and a mere change of opinion on the same facts and law does not justify a reassessment. For a reassessment proceeding initiated after four years, it must further be established that the escapement was by reason of failure of the assessee to disclose fully and truly all material facts.

Having perused the relevant materials on record, we find that the AO has not established that the escapement of income was by reason of failure on the part of the assessee to disclose fully and truly all material facts for claiming deduction u/s 36(1)(viii).

In view of the above set of facts and position of law, we quash the notice u/s 148 issued by the AO after four years from the end of the relevant assessment year.

Consequently, the order u/s 143(3) r.w.s. 147 dated 30.12.2010 is cancelled.

8. In the result, the appeal is allowed.

Order pronounced in the open Court on 09/02/2018.

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