The impugned issue to be considered is whether the reopening of assessment on the basis of so-called statement of Shri Ramalinga Raju (Satyam Computers) is warranted. As seen from the additions made, there is no live-link with the reasons recorded and the additions made. In fact, all the issues have been examined at the time of original assessment as scrutiny assessment has been completed in this case earlier.
In this case as there being no nexus or live-link with the reasons recorded and the ‘formation of belief’ to come to a conclusion that there was escapement of income and also since the assessment has been reopened beyond the period of 4 years when there is no failure on the part of the assessee to fully and truly disclose all material facts in the original assessment Itself and there being ‘no tangible material’ for the reopening of the assessment the CIT(A) erred in confirming the order of the Assessing Officer. We, therefore, hold that the reopening of the assessment under section 147 is bad in law and is to be quashed.
FULL TEXT OF THE ITAT JUDGEMENT
These are appeals by different assessees of Satyam Group raising similar grounds on the common but separate orders of Ld. Commissioner of Income Tax (Appeals)-12, Hyderabad dated 31-03-2015. As issues are common, these appeals are heard together and decided by this common order.
2. The assessees in this group are connected to Sri Ramalinga Raju, Ex.MD/Chairman of Satyam Technologies Ltd. On the basis of confessional statement given by Shri Raju, assessments in this group are reopened u/s. 147 after four years from the end of relevant assessment year on the reason of examining the transactions which are supposed to be fraudulent. AO recorded reasons, made additions which are confirmed by the Ld. CIT(A). The facts in this group of assessees are more or less same, except the quantum of addition made. Assessees have raised common grounds challenging the jurisdiction u/s. 147 for reopening the assessments u/s. 143(3) and additions made as unexplained. For the sake of clarity, the facts in the case of Smt. B. Radha in ITA No. 767/Hyd/2015 is discussed in detail.
I.T.A. Nos. 767 to 773/Hyd/2015
3. Briefly stated, assessee is sister-in-law of Shri B. Ramalinga Raju, Chairman of Satyam Computer Services Ltd. In light of the confessional statement dt. 07-01-2009 made by Shri Ramalinga Raju about fudging of accounts and manipulation of book results for the past so many years of that company, the associates of Satyam group comprising of various companies and family members came under a cloud. The AO had discussed these issues in para 2, 3 & 4 on pages 1 to 5 of the assessment order and issued notice u/s. 148 of the Act after rejecting the objections of assessee. The issuance of notice is challenged by assessee.
3.1. The addition made was on account of the differences in closing capital as on 31-03-2003 shown for AY. 2003-04 and the opening balance on 01-04-2004 shown in AY. 2004-05. The difference amounted to Rs. 75,62,083/-. This addition was discussed in para 10 on pages 7 to 9 of the assessment order.
3.2. The AO has also assessed protectively the interest accrued on fixed deposits held in the names of others but offered to tax by assessee herself. This was discussed in para 11 of the assessment order on page 9. As this was income offered by assessee herself originally, there are no grounds of appeal on protective assessment and therefore not discussed further.
4. Assessee challenged the reopening of assessment after four years from the end of relevant assessment year and the action of AO in making addition. The detailed contentions as rendered before Ld. CIT(A) are as under:
“4.2. (a) The appellant has filed exhaustive written submissions challenging the very opening of assessment u/s. 147. The appellant had enclosed copy of the reasons recorded by the AO for reopening and assessment and which was furnished to the appellant. The appellant had also enclosed its written objections. The appellant stated that the reasons were general in nature and nothing was specific. It was submitted that based on the statement of Sri B Ramalinga Raju to the Board of M/s Satyam Computers Ltd, a completed assessment of the appellant was reopened. The reasons mentioned in para 2 of the asst. Order is a description with a twist of basic fact that were there in the voluntary confession of Sri Ramalinga Raju. The relevance of that statement to the reopening of the appellant was not established even in the assessment made. It was submitted that the reasons recorded were not germane to the appellant’s case. The appellant also stated that the additions made in the assessment were not the additions based on the reasons recorded. It was submitted that in the original assessment completed u/s 143(3) all these issues were examined with evidences and which is available in the asst. record. The appellant cited the following case laws in support of the contention that the reopening was bad in law :
(ii) CIT Vs Jet Airways (I) Ltd (331 ITR 236) (Bombay High Court).
4.3 As regards the addition made, the appellant submitted as under:
a) The appellant drew attention of the AO to the seizure of records by investigating agencies and hence its inability to produce “records”. It was also stated that with the availability of whatever was available, the appellant tried to reconstruct the accounts and filed the balance sheet and because of the incompleteness of the records, there was variation from what was filed originally and what was now submitted in response to the notice issued under section 147.
b) In the original assessment order done u/s 143(3), all the issues were examined but original assessment records were conveniently ignored even though it was brought to the attention of the AO.
c) The explanation of the appellant extracted from asst. Order at para 10 was self explanatory. In absence of books which were under seizure and a fact which was known to the AO the allegation that the appellant failed to reconcile the difference stands to no reason. The AO could have obtained the complete seized record and examine the issue.
The appellant thus submitted that not only the assessment was bad in law, but also the additions made were unjustified”.
5. Ld. CIT(A) however, rejected these contentions by stating as under:
“5.1 The legality of the re-opening is considered first. The assessing officer had considered the objections to the reopening of the assessment in the assessment order and gave a summary of the objections and his detailed reasons in the assessment order itself. At the outset, the AO stated that sufficiency of reasons to believe, which have been duly recorded and approved, cannot be questioned. Further, the assessing officer’s reasoning was that at the stage of initiation, all that is required is the reason to believe and not an established fact of escapement of income. The assessing officer also opined that a wide discretion was available to the assessing officer for reopening the proceedings and all that is needed is to see is, whether a reasonable person would form a belief that there was relevant material for initiating proceedings u/s 147 of the I.T.Act. The AO had cited the following case laws in his support:-
(a) United Electrical Co (P) Ltd Vs CIT – 258 ITR 317 (Del).
(b) 257 ITR 539(Del). no names mentioned appears to be wrong citation.
(c) Raymond Woolen Mills Ltd Vs ITO . 236 ITR 34 (SC).
(d) ITO Vs Lakshmi Mewal Das – 103 ITR 437 (SC).
(e) ACIT Vs Rajesh Jhaveri Stock brokers (P) Ltd . 291 ITR 500 (SC)
5.2 The statement dated 07/01/2009 of the Chairman/promoter of the iconic Co. of Andhra Pradesh, M/s Satyam computers had created a turmoil in ali circles and opened a pandora box. In this statement, apart from the doings in the Co, M/s Satyam computers Ltd, he had also mentioned about 33 specific companies that had given amounts to M/s. Satyam computers Ltd. A separate statement was also recorded on 21/2/2009 in the jail from .hi m, wherein the statement dated 7/1109 was confirmed by him apart from the other misdoings like “fudging” of books of accounts. This is also mentioned in the reasons recorded by the AO. Consequently, all the companies and entities with whom Sri B Ramalinga Raju was associated had a Question mark over their transactions and the individuals and family members too had a Question mark over their investments. Whether the AO had explicitly mentioned this aspect or not, this coming of all the related companies and individuals of M/s Satyam group under the cloud, is a fact that cannot be brushed under the carpet and the legality of reopening cannot be examined in isolation of this vital background.
5.3 It is also seen that at the stage of issuing of notice u/s 147, as per law, all that was required was a bonafide belief or a reason to believe about escapement of income. This belief and its bonafide were certainly there in the background. Thus, the issue of notice is therefore upheld. The justification of the additions made is altogether a different issue and the additions made are now examined”.
On merits, Ld. CIT(A) confirmed the addition as assessee failed to reconcile the differences in balances disclosed in different returns.
6. At the outset, Ld. Counsel submitted that the issue of reopening of assessments concluded under 143(3) in the group was exclusively discussed in various Co-ordinate Bench decisions and relied on these orders: I.T.A. Nos. 767 to 773/Hyd/2015
1. M/s Danishta Farms Pvt. Ltd., Vs. ACIT and others , ITA No. 535/Hyd/14 and others dated 12/12/2014.
2. M/s Rohini Biotech (P) Ltd. Vs. ITO and others in ITA Nos. 1233/Hyd/2011 and others, dated 31/12/2013.
3. M/s SRSR Advisory Services Pvt. Ltd. Vs. ACIT, in ITA No. 1227/Hyd/2014, 09/10/2015.
7. Ld. DR fairly admitted that the orders of ITAT are against Revenue.
8. We have considered the rival contentions and perused the facts on record. As far as the issue of reopening for AY 2006-07 is concerned, there is no dispute that assessment has been completed originally u/s 143(3) of the Act. The impugned issue to be considered is whether the reopening of assessment on the basis of so-called statement of Shri Ramalinga Raju is warranted. As seen from the additions made, there is no live-link with the reasons recorded and the additions made. In fact, all the issues have been examined at the time of original assessment as scrutiny assessment has been completed in this case earlier.
8.1 Similar issues came up for consideration before the coordinate bench in the group case (M/s SRSR Advisory Services Pvt. Ltd.) of the assessee where the coordinate bench after examining the issues, gave the following findings:
7. We have considered the rival contentions and perused the facts on record. As far as issue of reopening from AYs. 2002-03 to 2005-06 are concerned there is no dispute that assessments have been originally completed u/s. 143(3) for AYs. 2002-03 to 2004-05. Even though assessment u/s. 143(1) was done for AY. 2005-06 it is a fact on record that notice u/s. 148 was issued after four years. It is also fact that even though the similar proceedings were initiated for AYs. I.T.A. Nos. 767 to 773/Hyd/2015 2006-07, no addition/ disallowance was made. The main issue to be considered in all these appeals is whether the reopening of assessment on the basis of the so called statement of Shri Ramalinga Raju is warranted. Similar issue was examined in other group companies by the Co-ordinate Bench wherein, the following findings were given. (ITA No. 1233/Hyd/2011 and batch dt. 31-12-2013).
“18. To conclude,
I. The recording of reasons before the issue of notice under section 148 has absolutely no nexus with the assessment made.
II. That the assessment made under sec.143(3) cannot be reopened under sec..148 beyond period of 4 years as there is no failure on the part of the assessee to disclose fully and truly all the material facts in the original assessment itself
III.. The Assessing Officer had no tangible material to come to the conclusion that there was escapement of income from the original assessment.
IV The reopening was on wrong foundation of reasoning of the financial implication between the assessee-company and Mis. Satyam Computer Services Limited, which was not established in the reassessment to justify the reopening .
V. As can be seen from the assessment order, the assessment completed has no relation at all with the reasons for reopeninq. Even though assessee belongs to Satyam Group of Companies, there is no evidence of siphoning of funds or escapement of income. What the Assessing Officer has done in the assessment is denial of the explanations given by the assessee with reference to various investments made through the books of accounts, various credits and loans obtained and also addition to fixed assets on the reason that the evidences have not been filed. Thus as can be seen from the order. there is no nexus at all with reference to the reasons for reopening and the assessment completed.
19. Hence, there being no nexus or live-link with the reasons recorded and the ‘formation of belief’ to come to a conclusion that there was escapement of income and also since the assessment has been reopened beyond the period of 4 years when there is no failure on the part of the assessee to fully and truly disclose all material facts in the original assessment itself, and there being ‘no tangible material’ for the reopening of the assessment the CIT(A) erred in confirming the order of the Assessing Officer. We, therefore, hold that the reopening of the jurisdiction under section 147 is bad in law and is to be quashed.
20. Following the principles on the above issue as discussed and the facts as concluded above in paras No. 18 and 19, we allow assessee’s grounds on the issue of reopening raised before us from grounds 1 to 11. Since, we have allowed the assessee’s grounds on grounds 1 to 11, the other grounds on merits of the additions does not require any consideration as they become academic in nature. Accordingly; we allow the appeal ITA No.1233/Hyd/2011 of the assessee.”
8. Not only in the above case but also in a batch of appeals from ITA No. 482 to 484/Hyd/2014, 489/Hyd/2014, 492 & 493/Hyd/2014, 495 to 497/Hyd/2014, 519 to 524/Hyd/2014 dt. 10-10-2014, Co-ordinate Bench ‘B’ (wherein one of us AM is party) has considered the issue and held as under vide para 9, 10 and 11:
“9. We have heard both the parties. We find that the assessment has already been completed under section 143(3) after scrutiny which has become final. Therefore reopening the assessment after four years from the end of assessment year can only be done only when there is failure on the part of assessee to disclose fully and truly all material facts of any particulars of income. AO did not allege anything of that sort. Therefore disallowing the expenditure claims and bringing to tax credits which were accepted in the assessment earlier comes within the domain of ‘change of optinion; For the concept of change of opinion, the Supreme Court has held in the case of CIT vs. Kelvinator of India Ltd (2010) 320 ITR 561 as follows:
“The concept of “change of opinion” on the part of the Assessing Officer to reopen an assessment does not stand obliterated after the substitution of section 147 of the Income Tax Act, 1961, by the Direct Tax Laws (Amendment) Acts, 1987 and 1989. After the amendment, the Assessing Officer has to have reason to believe that income has escaped assessment, but this does not imply that the Assessing Officer can reopen an assessment on mere change of opinion. The concept of “change of opinion” must be treated as an inbuilt test to check the abuse of power. Hence, after April 1, 1989, the Assessing Officer has power to reopen an assessment, provided there is “tangible material” to come to the conclusion that there was escapement of income from assessment. Reason must have a link with the formation of the belief Decisions of the Delhi High Court in Cit v. Kelvinator of India Ltd. (2002) 256ITR 1 (FE) and CIT v. Eicher Ltd. (2007) 294 ITR 310 affirmed.”
“147. Income escaping assessment.-If the AO has reason to believe that any income me chargeable to tax has escaped assessment for any assessment year, he may, subject to the provisions of ss. 148 to 153, assess or reassess such income and also any other income chargeable to tax which has escaped assessment and which comes to his notice subsequently in the course of the proceedings under this section, or recompute the loss or the depreciation allowance or any other allowance, as the case may be, for the assessment year concerned (hereafter in this section and in ss. 148 to 153 referred to as the relevant assessment year).”
After the Amending Act, 1989, s. 147 mads as under:
4. On going through the changes, quoted above, made to s. 147 of the Act, we find that, prior to Direct Tax Laws (Amendment) Act, 1987, reopening could be done under above two conditions and fulfillment of the said conditions alone conferred jurisdiction on the AO to make a back assessment, but in s. 147 of the Act (w.e.f 1st April, 1989), they are given a go by and only one condition has remained, uiz., that where the AO has reason to believe that income has escaped assessment, confers jurisdiction to reopen the assessment. Therefore, post 1st April, 1989, power to reopen is much wider. However, one needs to give a schematic interpretation to the words “reason to believe” failing which, we are afraid, s. 147 would give arbitrary powers to the AO to reopen assessments on the basis of “mere change of opinion”, which cannot be per se reason to reopen. We must also keep in mind the conceptual difference between power to review and power to reassess. The AO has no power to review; he has the power to reassess. But reassessment has to be based on fulfillment of certain pre-condition and if the concept of “change of opinion” is removed, as contended on behalf of the Department, then, in the garb of reopening the assessment, review would take place. One must treat the concept of “change of opinion” as an in-built test to check abuse of power by the AD. Hence, after 1st April, 1989, AO has power to reopen, provided there is “tangible material” to come to the conclusion that there is escapement of income from assessment. Reasons must have a live link with the formation of the belief Our view gets support from the changes made to s. 147 of the Act, as quoted hereinabove. Under the Direct Tax Laws (Amendment) Act, 1987, Parliament not only deleted the words “reason to believe” but also inserted the word “opinion” in s. 147 of the Act. However, on receipt of representations from the companies against omission of the words “reason to believe”, Parliament reintroduced the said expression and deleted the word “opinion” on the ground that it would vest arbitrary powers in the AO. We quote hereinbelow the relevant portion of Circular No. 549, dt. 31st Oct., 1989 [( 1990) 82 CTR (St) 1}, which reads as follows:
“7.2 Amendment mode by the Amending Act, 1989, to reintroduce the expression ‘reason to believe’ in s. 147. A number of representations were received against the omission of the words ‘reason to believe’ from s. 147 and their substitution by the ‘opinion’ of the AD. It was pointed out that the meaning of the expression, ‘reason to believe’ had been explained in a number of Court rulings in the post and was well settled and its omission from s. 147 would give arbitrary powers to the AO to reopen post assessments on mere change of opinion. To alloy these fears, the Amending Act, 1989, has again amended s. 147 to reintroduce the expression ‘has reason to believe’ in place of the words ‘for reasons to be recorded by him in writing, is of the opinion’. Other provisions of the new s. 147, however, remain the some.”
5. For the a fore-stated reasons, we see no merit in these civil appeals filed by the Department hence, dismissed WIth no order as to costs .
10. We also find that CIT(A) erred in holding that the Assessing Officer had valid reasons to reopen the assessment of Assessee-company to examine the veracities and financial implications between Assessee company and M/s. Sat yam Computer Services Limited. We find there is no rationale nexus with such statement by Sri Ramalinga Raju and reassessment made. As seen from the order of AO even though the assessment was reopened to examine the transaction between M/s Satyam computers and assessee, no such exercise was undertaken and no findings were given on that issue. The additions made are routine disallowances out of already allowed expenditure in original assessment There is no nexus between the reasons recorded and additions made in the guise of escapement of income. We rely upon the decision of the Hon’’ble Supreme Court in the case of Ganga Saran & Sons P Ltd. vs. ITO and others 130 ITR 1 (SC) for the proposition that if there is no rational nexus between the “reasons” and the “belief’; so that on such reasons the AD. cannot have reason to believe that any part of the income of the assessee has escaped assessment and such escapement was by reason of omission or failure on the part of the assessee to disclose fully and truly all material facts. The notice issued by the A. O. is to be struck as invalid. As there is no rational nexus between the ”reasons I’ and the “belief’; and on such reasons the A.O. cannot have reason to believe that any part of the income of Assessee has escaped assessment and such escapement was by reason of omission or failure on the part of Assessee to disclose fully and truly all material facts, the notice issued by the A.O. is to be struck down as invalid. The Assessing Officer had no tangible material to come to the conclusion that there was escapement of income from the original assessment. The assessment made under sec. 143(3) has been wrongly reopened under sec. 147 beyond period of 4 years, as there is no failure on the part of the assessee to disclose fully and truly all the material facts in the original assessment itself. The reopening was on wrong foundation of reasoning of the financial implication between the assessee-company and M/s. Satyam Computer Services Limited, which was not established in the reassessment to justify the reopening.
11. Thus, there being no nexus or live-link with the reasons recorded and the ‘formation of belief’ to come to a conclusion that there was escapement of income and also since the assessment has been reopened beyond the period of 4 years when there is no failure on the part of the assessee to fully and truly disclose all material facts in the original assessment Itself and there being ‘no tangible material’ for the reopening of the assessment the CIT(A) erred in confirming the order of the Assessing Officer. We, therefore, hold that the reopening of the assessment under section 147 is bad in law and is to be quashed”.
Since the facts being similar, we hold that reopening of assessment in the impugned AY is bad in law. The issues considering the merits are purely academic in nature and therefore it is not necessary to consider the disallowance/ addition made by the AO in the assessment. Considering the above facts and the law on the issue, the orders of AO and CIT(A) are set aside. Assessee’s grounds on reopening is accepted and appeal is accordingly allowed.
9. Facts in the other cases are similar. Therefore, considering the findings in ITA No. 767/Hyd/2015, other appeals of assessees are allowed.
10. In the result, all the appeals of the assessees are allowed.
Order pronounced in the open Court on 13th May, 2016