In the present case, when the Revenue alleges failure to make full and true disclosure of material facts, then, the term failure has some specific legal connotation. Here, material facts are pertaining to the expenses under the head “management fees”. It is apparent that the words employed are material facts.
It is not just facts but material facts. The word “material” in the context means “important, essential, relevant, concerned with the matter, not the form of reasoning” (see Oxford Dictionary Concise Eighth Edition). Just as disclosure of every fact would not suffice but for proceeding under section 147 non disclosure ought to be of a material fact. The Assessee disclosed that loss under this head is derived from the acquisition of two centers. If that is known to the Revenue in this case, then, what further facts were expected to be disclosed so as to make the assessment has not been indicated. Mr.Naniwadekar is therefore right in urging that when the material facts have been disclosed and with full particulars truthfully, then, it is not enough to allege that there is a distortion of facts and as per the convenience of the Assessee. If there was distortion, then, we do not know as to how the Revenue contended before us and concluded in the reasons that the loss occasioned because of acquisition of two centers in US. Then, in para 4.1 at page 155, the reasons indicate that the factors stated by the Assessee go to prove that the payment of management fees to TRX Inc., USA has given enduring benefit to the assessee and is therefore capital in nature. Thus, now a different treatment to this head of loss is intended. The statement in the reasons that the Assessing Officer never questioned the Assessee with regard to deduction claimed in the profit and loss account in this regard during the course of assessment proceeding and also the Assessee showed no initiative to appraise the Assessing Officer of the actual facts is patently incorrect and inaccurate. There is no denial of the fact that when the case was selected for scrutiny, not only did the Petitioner give a detailed note on the nature of business, but with regard to every single heading in its balance sheet and profit and loss account. It produced the necessary enclosures. On 11th October, 2010, a departmental audit party raised objection and the audit query was brought to the notice of the Petitioner. The Petitioner responded to the same as well. Then, notice under section 154 of the IT Act has also been issued. It is thus apparent that when the assessment order was passed and which clearly refers to all the material supplied, then, this observation and conclusion is erroneous to say the least. At page 19 of the Petition paper book, there is a letter dated 16 th July, 2009 addressed by the Assessing Officer to the Petitioner’s principal officer and which calls upon the Petitioner to file a detailed note on the nature of business. It also calls upon the Petitioner to furnish certain information and balance sheet and profit and loss account along with all annexures. The corresponding figures for financial year 200506 under each heading are also called for facilitating comparison. Then, such further details, as are contained in this letter, have been clearly called for. The communication was extensive in nature. The Petitioner responded on this count and produced before the Assessing Officer the requisite details and the information. All this has been referred in the assessment order, copy of which is at page 85 of the paper book. Thus, we do not see any basis for the above conclusion and which has been reached. We find that the present case is fully covered by the Judgment of the Hon’ble supreme Court and which has been repeatedly relied upon and followed, namely, Commissioner of Income Tax vs. Kelvinator of India Limited reported in 320 ITR 561. Mr.Naniwadekar’s reliance on the two Division Bench Judgments is also apposite.
We are of the clear view that there was no failure to disclose material facts and failure to place a version favourable to the Revenue cannot be a reason to reopen the assessment. The conclusion that the Assessing Officer never applied his mind on this issue and therefore change of opinion is not the basis on which the assessment is sought to be reopened cannot be sustained. In the light of the undisputed factual material and referred by us extensively, it is apparent that the reopening was fully impermissible in law. Rather we do not find any reference to the specific stand taken by the Petitioner while objecting to the notice under section 148 of the IT Act. The Petitioner pointed out as to how the assessment was finalized. Reference has been made to the letter dated 16th July, 2009 from the Assessing Officer and
the response thereto on 5th August, 2009. There is no denial of the fact that the Assessing Officer has applied his mind to the expenditure debited to the profit and loss account and not disallowed it. The facts and which are taken from the director’s report itself would indicate that the Assessee had disclosed what was relevant and necessary for the purpose of making assessment. The Assessee did not hold back any document nor failed to supply any information in addition to the explanation given by it in writing concerning the said management fees expenses. In the circumstances, this is a clear case of change of opinion and based on which, the reassessment is proposed. That being impermissible in law, the Writ Petition must succeed. It is accordingly allowed. Rule is made absolute in terms of prayer clauses (a) and (b).