On non-compliance with statutory condition precedent, reopening of an assessment cannot be sustained
Case Law Details
SUMMARY OF THE CASE LAWS
The condition precedent in the proviso to Section 147 is that the income must have escaped assessment by the failure of the assessee to fully and truly disclose all material facts necessary for assessment for that Assessment Year.
CASE LAWS DETAILS
DECIDED BY: HIGH COURT OF BOMBAY,
IN THE CASE OF: Arthur Anderson & Co. Vs ACIT, APPEAL NO: Writ Petition No. 2555 of 2009, DECIDED ON March 19, 2009
RELEVANT PARAGRAPH
6. The material on the record before the Court shows that in the statement of total income the assessee had disclosed an interest income of Rs. 50.14 lacs as income from other sources. In the note appended to the statement of computation, under the heading `interest income ‘ the assessee stated that this represented interest received under Section 244 A of the Income Tax Act, 1961 net of 1 (2001) 252 ITR 673 (Bom.) interest paid under Section 220, based on the ratio of certain judgements to which it may not be necessary to refer at this stage. As noted earlier, during the course of the assessment proceedings the Assessing Officer called the assessee by his letter dated 20 th December, 2004 to explain with details the interest of Rs.4.91 Crores which was credited to the interest and expenditure account. Details of the interest received were sought together with an explanation for the shortfall in the current year as opposed to the earlier year. The assessee in its reply dated 28 th December, 2004 annexed a statement containing details of interest income earned during Assessment Year 2003 04. Serial No.6 of the statement contained a disclosure of interest on tax refund which was described as being net of interest paid under Section 220. Thus, it is evident that during the course of the assessment proceedings not merely was there a full disclosure by the assessee of the material fact that the interest income of Rs.50.14 lacs represented the difference between interest received under Section 244 A and interest paid under Section 220 but, that in addition the attention of the Assessing Officer was also specifically brought to bear on this aspect following the query which was raised on 20 th December, 2004. In these circumstances, it cannot be stated that there was a failure on the part of the assessee to fully and truly disclose all the material facts relating to the assessment.
7. Explanation 1 to Section 147 provides that the production before the Assessing Officer of account books or other evidence from which material evidence could with due diligence have been discovered by the Assessing Officer will not necessarily amount to a disclosure within the meaning of the proviso to Section 147. What Explanation 1 in essence ensures is that the duty which is cast upon he assessee to make a full and true disclosure of all material facts cannot be obviated merely by the production of account books or other evidence from which, by a line of enquiry, material evidence could be discovered by the Assessing Officer. The essential and primary duty to make a full disclosure of material facts is that of the assessee and the burden to disclose is cast upon the assessee. The assessee cannot excuse his failure to make a full and true disclosure by positing that had the Assessing Officer exercised his jurisdiction with due diligence, he could have discovered material evidence from the account books or other evidence which has been produced before him. This is, however, not a case where the assessee had merely produced its books of account or other evidence from which material evidence could have been gathered by the Assessing Officer with due diligence. In the reasons which have been disclosed by the Assessing Officer, there is no statement to the effect that there was a failure by the assessee to disclose fully and truly all the material facts pertaining to the assessment. There was, as a matter of fact, a full disclosure by the assessee of all the material facts and as noted earlier the attention of the Assessing Officer was specifically brought to bear on the fact that the interest income of Rs.50.14 lacs constituted the net difference between interest received under Section 244 A and interest paid under Section 220(2).
8. Hence, the condition precedent to the exercise of the jurisdiction to reopen the assessment beyond a period of four years, when an assessment has been completed under Section 143(3) has not been fulfilled. The condition precedent as spelt out in the proviso to Section 147 is that the income must have escaped assessment by the failure of the assessee to fully and truly disclose all material facts necessary for assessment for that Assessment Year. Absent compliance with the statutory condition precedent, the reopening of the assessment cannot be sustained. The judgment of the Division Bench in the case of Dr. Amin ‘s Pathology Laboratory (supra) is distinguishable. In that case, the assessee had been following the accrual system of accounting for all items of expenditure except for all collections which were on cash basis. The Division Bench observed that a reading of the assessment order showed that the Assessing Officer failed to notice an important item viz. an amount of Rs.6.70 lacs which represented unpaid purchases. It was in this context that the Division Bench observed that the mere production of the balance sheet, Profit & Loss Account or account books would not necessarily amount to a disclosure within the meaning of the proviso. The facts in that case showed that the Assessing Officer had inadvertently overlooked an entry representing unpaid purchases in respect of which he had wrongly granted a reduction and at the time when he passed the original order of assessment, he could not be said to have opined on that item. These were the distinguishing facts in that case.
9. Apart from the fact that there has been no failure on the part of the assessee to make a full and true disclosure of all material facts, it will be necessary to advert to the decision of the Supreme Court in Harshad Shantilal Mehta v. Custodian 2 The Supreme Court, in the course of its judgement observed that under the Income Tax Act, 1961 the definition of tax under Section 2(43) does not include penalty or interest and that the concepts of tax, penalty and interest are different concepts under the Act. Justice Sujata Manohar speaking for a Bench of three Learned Judges of the Supreme Court observed thus :
“We are concerned in the present case with penalty and interest under the Income tax Act. Tax, penalty and interest are different concepts under the Income tax Act. The definition of “tax ” under section 2(43) does not include penalty or interest. Similarly, under section 156, it is 2 (1998) 231 ITR 871.provided that when any tax, interest, penalty, fine or any of other sum is payable in consequence of any order passed under this Act, the Assessing Officer shall serve upon the assessee a notice of demand as prescribed. The provisions for imposition of penalty and interest are distinct from the provisions for imposition of tax.”
