ORAL JUDGMENT:
1. Rule, made returnable forthwith. Counsel appearing on behalf of the Respondents waive service. With the consent of counsel and at their request, the Petition is taken up for hearing and final disposal.
2. The challenge in these proceedings is to a notice issued under Section 148 of the Income Tax Act 1961 on 11 March 2011 seeking to reopen an assessment for Assessment Year 2004-05.
3. The Petitioner filed its return of income for Assessment Year 2004-05 on 30 October 2004. An order of assessment was passed on 28 November 2006 under Section 143(3). The reopening of the assessment under Section 148 is by a notice dated 11 March 2011 which admittedly has been issued beyond a period of four years of the end of the relevant Assessment Year. The reasons which have been disclosed to the Petitioner for reopening the assessment furnished two grounds for the reopening of the assessment. Firstly, it has been stated that as against a total income of Rs. 162.41 Crores, the assessee had applied an amount of Rs. 113.94 Crores towards the object of the trust under section 11(1)(a). This amount includes the provision for doubtful accounts amounting to Rs. 1.60 Crores. The Assessing Officer has stated that the provision made in the accounts cannot be treated as income applied to the objects of the trust and consequently this amount has to be deducted while calculating the total amount applied to the objects under Section 11(1)(a). Since the provision for doubtful accounts was allowed as application of income, the Assessing Officer has stated that there is reason to believe that income chargeable to tax has escaped assessment. The second ground for reopening is that the assessee has claimed depreciation on fixed assets amounting to Rs. 21.72 Crores in addition to an allowance of capital expenditure to the tune of Rs. 19.91 Crores. According to the Assessing Officer the assessee was not entitled to claim both capital expenditure as application of income and also a depreciation on capital assets which would tantamount to a double deduction.
4. As regards the second ground for reopening, the attention of the Court has been drawn to the fact that the assessment of the assessee for Assessment Year 2003-04 was sought to be reopened under Section 148 by a notice dated 24 March 2010. The same ground for reopening the assessment for Assessment Year 2003-04 was set out. A Division Bench of this Court, by its judgment dated 19 April 2011 allowed the writ petition filed by the assessee (Bombay Stock Exchange Limited v. Deputy Director of Income Tax (Writ Petition 2394 of 2010). While allowing the petition the Division Bench observed as follows -
“It is not in dispute that the additions sought to be made by reopening the assessment have been held on merits by this Court in the case of CIT v. Institute of Banking (264 ITR 110 (Bombay) that such additions are not permissible in law. Moreover in the present case, the assessment is sought to be reopened beyond four years. There is nothing on record to suggest that there was any failure on the part of the assessee to disclose fully and truly material facts necessary for the purpose of assessment. In this view of the matter, in our opinion, the notice issued under section 148 of the Income Tax Act, 1961 cannot be sustained.”
5. The order of the Division Bench has attained finality and has not been challenged by the Revenue. Consequently, the second ground on the basis of which the assessment for Assessment Year 2004-05 is sought to be reopened cannot be sustained.
6. Insofar as the first ground is concerned, it will be necessary to note that in the statement of income filed by the assessee, the income of the assessee was disclosed to be Rs. 162.41 Crores. The income applied for carrying out the objects of the trust under section 11(1)(a), as per Statement - 2 was reflected at Rs. 113.94 Crores. Statement - 2 in turn showed that the total expenditure as per the income and expenditure account was Rs. 100.27 Crores. The income and expenditure account clearly reflects a provision for doubtful accounts in the sum of Rs. 1.60 Crores. Therefore, ex facie, it is evident that there was no suppression of material facts by the assessee. The reasons for reopening in fact indicate that according to the Assessing Officer, the details of the amount applied for carrying out objects under section 11(1)(a) shows that this amount includes a provision for doubtful accounts amounting to Rs. 1.60 Crores. That being the position, it is impossible to even postulate that there was a failure on the part of the assessee to fully and truly disclose material facts necessary for the assessment for that Assessment Year. In the reply which was filed by the assessee before the Assessing Officer on 3 November 2011 objecting to the reopening of the assessment, it was stated that during the course of the discussions before the Assessing Officer, the assessee had explained that the provision for doubtful accounts consisted of three items viz. (i) general charges which could not be recovered from various members; (ii) amounts relating to Valan account and (iii) general charges and Valan account balance of members prior to 1996-97 which could not be recovered. This statement has not been controverted while disposing of the objections when the Assessing Officer passed an order thereon on 30 November 2011.
7. The reopening of the assessment has taken place beyond a period of four years. The jurisdictional requirement in such a case is that there must be a failure on the part of the assessee to fully and truly disclose all material facts necessary for the assessment for that Assessment Year. Explanation 1 to Section 147 stipulates 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 disclosure within the meaning of the proviso. However, from the facts of this case, it is evident that there was a disclosure of the relevant and material facts before the Assessing Officer. As a matter of fact, it is from that material, that the Assessing Officer has now formed a reason to believe that there was an escapement of income. However, since the reopening has taken place beyond a period of four years of the end of the relevant Assessment Year, it is necessary for the Assessing Officer to establish that there was a failure on the part of the assessee to disclose fully and truly all material facts. This ought to have been established as part of the reasons which are disclosed to the assessee. In Hindustan Lever Limited v. R.B Wadkar, Assistant Commissioner of Income Tax 2004 268 ITR 332, a Division Bench of this Court has held as follows:
“Reasons provide the 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 the vital link between the reasons and evidence. That vital link is the safeguard against arbitrary reopening of the concluded assessment.”
7. Beyond a bald averment in the reasons that the assessee had failed to disclose material facts, the Assessing Officer has not indicated as to what material facts were not disclosed. The record would indicate the contrary.
8. For these reasons, we quash and set aside the impugned notice dated 11 March 2011 issued under Section 148 of the Income Tax Act 1961. Rule is made absolute in these terms.
There shall be no order as to costs.
Comments