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Cummins Technologies India (P) Ltd. v. Assistant Commissioner Of Income Of Tax
Factual and Procedural Background
The petitioner is a company registered under the Companies Act, 1956, aggrieved by an order dated 13/05/2016 of the Assessing Officer (AO), an order dated 28/11/2016 rejecting the company's objections, and by a notice dated 18/03/2016 issued under section 148 of the Income Tax Act, 1961 initiating reassessment proceedings for Assessment Year (AY) 2009-10.
The original assessment for AY 2009-10 was completed under section 143(3) on 22/02/2013 with a demand of Rs. 1,36,120/-. During that assessment the audit report (Form 3CD) contained a note that the company had changed its estimate for providing for slow/non-moving inventory, resulting in profit before tax and inventory being lower by Rs. 2,94,03,474/-. The AO issued a notice under section 148 on 18/03/2016 (served 22/03/2016). The petitioner filed a return in response to that notice, sought the reasons for reopening, and filed objections under section 147.
The AO provided written reasons on 13/05/2016 (citing, inter alia, the audit note and absence of Form 56F/report under section 10AA and calculation details) and fixed a hearing. The AO obtained prior approval of the Principal Commissioner of Income-tax before reopening and recorded reasons stating that the assessment was "erroneous and prejudicial to revenue" owing to (i) unexplained income of Rs. 2,94,03,474/- (auditor's note) and (ii) an exemption claim of Rs. 6,67,37,928/- under section 10AA without Form 56F/details.
The petitioner objected, relying on case law and asserting (among other things) that there was no failure to disclose material facts and that the AO's action amounted to a mere change of opinion. The AO rejected the objections by a reasoned order dated 28/11/2016. The petitioner approached this Court by writ; the Court heard counsel, considered the record, and declined admission of the writ petition, observing that the notice was within statutory time limits and that the AO had reasons to believe there was failure to disclose fully and truly material facts at the time of the original assessment.
Legal Issues Presented
- Whether reopening the assessment for AY 2009-10 under sections 147/148 after the expiry of four assessment years is valid in the present case — specifically, whether the proviso to section 147 (failure to disclose fully and truly all material facts or non-filing of return) is satisfied.
- Whether the reassessment initiated by the AO is based on merely a change of opinion (impermissible) or on new/previously undisclosed material facts justifying reopening.
- Whether the notice under section 148 was issued within the statutory time limits prescribed by sections 147/149 and whether prior approval for reopening was obtained.
- Whether the availability of alternative remedies bars admission of the writ petition (i.e., whether the Court should decline admission on that ground).
Arguments of the Parties
Petitioner's Arguments
- The assessment for AY 2009-10 was completed under section 143(3) on 22/02/2013 and the reassessment notice was issued after more than four assessment years, making the reopening time-barred.
- The audit report (Form 3CD) and financial statements containing the auditor's note about change in estimate for slow/non-moving inventory were available and were brought to the AO's notice during original assessment; therefore there was no failure to disclose material facts.
- The company had filed Form 56F (claiming exemption under section 10AA) and provided details in response to the AO's questionnaire; hence the claimed exemption was not undisclosed.
- The reassessment is a result of a mere change of opinion by the AO, which does not permit reopening under sections 147/148.
- The petitioner relied on several precedents (including decisions of the Delhi and Bombay High Courts and the Supreme Court) to assert that reopening on the same set of facts or where no new material exists is impermissible.
- It was also argued that availability of alternative remedies is not a ground to decline admission of the present writ petition (reference to certain judgments raised in support).
Respondent's Arguments (Assessing Officer)
- The AO recorded detailed, speaking reasons for reopening and passed a reasoned order dated 13/05/2016; prior approval of the Principal Commissioner of Income-tax was obtained (office letter dated 17/03/2016).
- The notice under section 148 was issued within statutory time limits and was served on the assessee on 22/03/2016.
- During the course of the original assessment under section 143(3) the assessee was not asked to provide the specific details or explanations now relied upon in the reasons recorded (e.g., explanation and documentation for the auditor's note and Form 56F/report under section 10AA).
- The assessee explained computation of book profit under section 115JB but did not inform about submission of Form 56F for claiming exemption under section 10AA, and no report in Form 56F or calculation sheet was found on file.
- No documents were found on record showing submission or production of the auditor's note regarding lowering of profit by Rs. 2,94,03,474/-; accordingly, the AO concluded there was a failure to disclose fully and truly material facts, justifying reassessment under the statutory provisions.
Table of Precedents Cited
| Precedent | Rule or Principle Cited For | Application by the Court (per the opinion) |
|---|---|---|
| Shipra Srivastava & Anr. v. ACIT (2009) 319 ITR 221 (Delhi) | Supports the proposition that where there is no new material and reopening is based on same material, it is a mere change of opinion and notice under section 148 is liable to be quashed. | The petitioner relied on this decision to argue the AO effected a mere change of opinion; the Court noted the reliance but concluded on the facts before it that the AO had reasons to believe and that the decision did not determine the present facts. |
| Northern Strips Ltd. & Anr. v. Income Tax Officer (2009) 31 DTR (Delhi) 225; (2010) 186 Taxman 360 | Case law cited for the principle that reassessment based on the same material without new evidence is a change of opinion and impermissible. | Petitioner relied on this authority; the Court recorded the reliance and explained that the AO's reasons in this case were different (AO had recorded failure to disclose specifics), and therefore the precedent was not dispositive here. |
| JSRS Udyog Ltd. v. Income Tax Officer (2009) 313 ITR 321 (Delhi) | Authority for quashing reassessment where reopening is founded on mere change of opinion. | Relied upon by petitioner; the Court acknowledged reliance but found the AO had recorded concrete reasons suggesting failure to disclose material facts, distinguishing the cited case on facts. |
| Jai Hotels Co. Ltd. v. ACIT (2009) 24 DTR 37; 184 Taxman 1 (Delhi) | Support for the principle that notice under section 148 is unsustainable where reopening is only a change of opinion. | Petitioner cited the case; the Court considered the reliance but concluded the facts before it (e.g., absence of Form 56F and unexplained auditor's note) justified reopening. |
| Commissioner of Income Tax v. Eicher Ltd. (2011) 239 CTR (Delhi) 65 | Authority cited in support of the view that reassessment cannot be based on the same material when no failure to disclose has occurred. | Relied upon by petitioner; the Court observed the citation but upheld the AO's action because the AO had recorded specific failures to disclose in this matter. |
| German Remedies Ltd. v. DCIT (2006) 285 ITR 26 (Bombay) | Bombay High Court authority cited to show reopening without new material amounted to mere change of opinion and was unsustainable. | Petitioner referenced this case; the Court noted the reliance but found the factual matrix here (alleged non-filing/submission of Form 56F and lack of documentation on auditor's note) supported reopening. |
| Asteroids Trading & Investment (P) Ltd. v. DCIT (2009) 308 ITR 190 (Bombay) | Bombay High Court decision cited for the proposition that without new material reopening is bad in law. | Relied upon by petitioner; the Court treated the reliance but concluded the AO's stated reasons and the magnitude of tax at stake justified reassessment on the facts here. |
| Commissioner of Income Tax v. Kelvinator of India Ltd. [2010- TIOL-06-IT-LB] | Supreme Court authority cited to the effect that an assessment under section 143(3) cannot be reappraised on the same set of facts available at original assessment. | Petitioner relied on Kelvinator to argue reassessment was impermissible; the Court noted the reliance but did not accept it as determinative because it found that the AO had recorded failure to disclose material facts in this case. |
| ACI Oils (P.) Ltd. v. Dy. CIT [2015] 370 ITR 561 (All.) | All India authority cited to support the requirement of proof of failure to disclose as a condition for reopening beyond four years. | Petitioner cited this case; the Court referenced it in the record of petitioner's objections but applied the AO's factual findings to uphold reopening, distinguishing ACI Oils on facts. |
| Commissioner of Income Tax v. Jubilant Organosys Ltd. [2016] 65 taxmann.com 196 (Allahabad) | Decision referenced alongside ACI Oils concerning lifting the bar on reopening only where failure to disclose is shown. | Relied on by petitioner; the Court reviewed the contention but held the AO's reasons indicated failure to disclose in the present case. |
| Godrej Industries Ltd. v. DCIT Circle 14(1)(2) [2015] 232 Taxman 380 (Bombay) | Bombay High Court decision stating that reopening after four years requires a record that the assessee failed to fully and truly disclose material facts. | Petitioner cited Godrej; the Court considered it but held that the AO had recorded non-disclosure in the present case and thus the Godrej principle did not lead to quashing here. |
| Standard Chartered Grindlays (P.) Ltd. v. DDIT (Intl. Taxation) [2015] 228 Taxman 199 (Delhi) (Mag.) | Authority holding that where there is no failure to disclose, notice under section 148 should be quashed (example given in the opinion). | Petitioner relied on this case as supportive authority; the Court noted the citation but found the facts here (claimed non-disclosure and missing documentation) to justify reopening. |
| Viren Sureshchandra Shah v. ACIT [2015] 63 taxmann.com 104 (Gujarat) | Held that where all material facts are furnished by assessee, initiation of reassessment beyond four years is not permissible. | Petitioner cited this case; the Court recognized the authority but concluded the AO had prima facie demonstrated failure to disclose on the record before it. |
| Donaldson India Filters Systems Pvt. Ltd. v. DCIT, Circle 10(1) [2015] 371 ITR 87 (Delhi) | Held that reopening based on material that had been scrutinized in original assessment was not justified. | Petitioner relied on this decision; the Court distinguished on facts, noting that the AO stated certain documents/details were not on record or were not asked for during the original assessment. |
| Jeans Knit Pvt. Ltd. v. Dy. CIT Bangalore & Ors., Civil Appeal No.11189/2016 (08/12/2016) | Cited in relation to the question of alternative remedies and their effect on admission of writ petitions. | The Court noted the citation and stated it was not declining admission on the basis of alternative remedy in the present matter; the petition was declined on merits as recorded in the order. |
Court's Reasoning and Analysis
The Court proceeded from the undisputed factual matrix: assessment under section 143(3) was completed on 22/03/2013 and a notice under section 148 was issued in March 2016 (served 22/03/2016). The AO had recorded reasons in writing for reopening and obtained prior approval from the Principal Commissioner of Income-tax.
The AO's reasons (set out in the order dated 13/05/2016) identified two primary bases for reopening:
- The audit report (Form 3CD) disclosed a change in estimate for slow/non-moving inventory that reduced profit before tax by Rs. 2,94,03,474/-, which the AO considered unexplained and amounting to escapement of income.
- The assessee had claimed an exemption of Rs. 6,67,37,928/- under section 10AA but no report in Form 56F or supporting calculation sheet was found on record; the AO treated this as escapement of income for want of the required documentation.
The AO's refusal to accept the objections (28/11/2016) explained that during the original assessment proceedings the AO was not asked for the specific details now relied upon (Form 56F and calculation sheet) and that no documents were found on record showing submission of the auditor's note or required reports. The AO therefore concluded that the assessee had failed to disclose fully and truly all material facts at the time of the original assessment, satisfying the proviso to section 147 that permits reopening beyond four assessment years.
The Court examined the statutory scheme (including section 147, its proviso, section 149 and Explanation 2 to section 147) and observed that the notice was served within six assessment years and that the tax effect was substantial (described in the order as "in crores of rupees"). On the basis of the AO's written reasons, prior approval, and service within statutory time limits, the Court accepted the AO's conclusion that there was a reason to believe that income had escaped assessment by reason of failure to disclose fully and truly material facts.
The Court acknowledged the petitioner's reliance on several precedents arguing that reopening on the same facts is impermissible, but held that those authorities were distinguishable on the facts in this case, because here the AO had recorded specific omissions (absence of Form 56F, lack of supporting calculations, and absence of documentary evidence of the auditor's note in the assessment file) justifying reopening.
Holding and Implications
Holding: The Court declined to admit the writ petition. The core ruling is summarized as: Admission Declined.
Implications:
- Direct effect on the parties: The reassessment proceedings initiated by the Assessing Officer under sections 147/148 for AY 2009-10 were upheld for the limited purpose of resisting the petitioner's challenge at the admission stage; the AO's reasons and rejection of objections were treated as sufficient to justify continuation of reassessment proceedings.
- The Court expressly noted that anything observed in its order shall not come in the way of the assessee in respect of proceedings ongoing before the Income Tax Department or other authorities, preserving the assessee's position in those proceedings.
- The opinion does not announce or indicate the setting of any new legal precedent; it applies the statutory tests (sections 147 and 149 and Explanation 2) to the facts and distinguishes relied-upon case law on factual grounds.
S.C. Sharma, J.—The petitioner before this Court is a Company registered under the provisions of Companies Act, 1956, is aggrieved by order dated 13/05/2016 passed by the Assessing Officer, order dated 28/11/2016 rejecting the objections filed by the petitioner and also the notice dated 18/03/2016 issued under section 148 of the Income Tax Act, 1961.
2. The petitioner''s contention is that the petitioner''s assessment for Assessment Year 2009-10 was completed under section 143(3) of the Income Tax Act, 1961 on 22/02/2013 and a demand was raised to the tune of Rs. 1,36,120/-. The petitioner has further stated that during the assessment proceedings copy of audit report in respect of book of accounts was also brought to the notice of the Assessing Officer.
3. The petitioner has further stated that the petitioner has received a notice on 18/03/2016 under Section 148 issued by the Assessing Officer initiating reassessment proceedings for the Assessment Year 2009-10. The petitioner has further stated that the petitioner has filed its return afresh in compliance of notice issued under Section 148 and thereafter, applied for reasons for reopening the case. The Assessing Officer provided the reasons for reopening the case and passed an order on 13/05/2016.
4. The petitioner has also filed objections as required under section 147 of the Income Tax Act and a final order has been passed on 28/11/2016 rejecting the objections. The petitioner''s contention is that the action initiated by the Assessing Officer and the order passed by the Assessing Officer dated 28/11/2016 is bad in law as proceedings have been initiated after four asst. years from the end of assessment for the Assessment Year 2009-10.
5. A ground has also been taken that there was no such failure to disclose the true and material facts and in fact the reassessment is emerging from the audit report which was brought to the notice of the Assessing Officer earlier. It has also been argued that change of opinion will not empower the Assessing Officer to initiate proceedings under Section 147/148 of the Act and therefore, the entire proceedings deserves to be quashed.
6. Learned counsel for the petitioner has placed reliance upon a judgments delivered by the Delhi High Court in the case of Shipra Srivastava and Anr. v. ACIT reported in (2009) 319 ITR 221 (Delhi), Northern Strips Ltd. & Anr. v. Income Tax Officer reported in (2009) 31 DTR (Delhi) 225:(2010) 186 Taxman 360, JSRS Udyog Ltd. v. Income Tax Officer reported in (2009) 313 ITR 321 (Delhi), Jai Hotels Co. Ltd. v. ACIT reported in (2009) 24 DTR 37, 184 Taxman 1 (Delhi) and Commissioner of Income Tax v. Eicher Ltd. reported in (2011) 239 CTR (Delhi) 65 and of Bombay High Court in the case of German Remedies Ltd. v. DCIT reported in (2006) 285 ITR 26 and Asteriods Trading and Investment (P) Ltd. v. DCIT reported in (2009) 308 ITR 190 (Bombay) wherein it has been held that there being no new material in the hands of revenue leading to the view that there was reason to believe that there was escapement of assessment, there was mere change of opinion and hence notice under Section 148 is liable to be quashed.
7. Reliance has also been placed upon another judgment and it has been argued that the availability of the alternative remedy is no ground to decline the admission of the present writ petition.
8. On the other hand, a reply has been filed on behalf of the respondent No.1 and the respondent No.1 has stated that he has passed a detailed and speaking order on 28/11/2016 rejecting the objections raised by the petitioner for assessment under section 148 of the Income Tax Act. It has also been stated that assessment proceedings under Section 147/148 have been initiated for the Assessment Year 2009-10 after recording the reasons in writing and after duly obtaining the prior approval of competent authority.
9. It has also been stated that notice under Section 148 of the Act was issued within the statutory time limit and was served to the assessee on 22/03/2016. It has been further stated by the respondent that during the course of assessment under Section 143(3) the assessee was never asked for providing the details or explanation shown in the reasons recorded under Section 148(2) for reopening the case. It has been further stated that assessee has explained only about computation of book profit under Section 115JB in reply but did not informed about the submission of Form No.56-F for claiming exemption under Section 10AA.
10. It has been further stated no document was found or asked for submission of the notice of Auditor of the Company for lower of profit by Rs. 2,94,03,474/- due change in the method of slow moving inventory. It has been stated that assessee has failed to disclose fully and truly all materials facts at the time of assessment proceedings and therefore, the action initiated by the respondent is in consonance with the provisions governing the field.
11. Heard learned counsel for the parties and perused the record.
12. In the instant case, it is an undisputed fact that for the Assessment Year 2009-10 the assessment order was passed by respondent No.1. A notice was issued under Section 148 by the respondent No.1 for initiating reassessment proceedings for the Assessment Year 2009-10. The petitioner has filed its return in compliance of notice under Section 148 of the Act and thereafter, applied for reasons for reopening the case. The Assessing Officer has passed an order on 13/05/2016 (Annex.- P/7) and the same reads as under:-
Government of India
Office of the Assistant CIT, Circle-1(1), Ujjain
No.ACIT/Cir-1(1)/Ujjain/2016-17/582
Dated : 13.05.2016
M/s Cummins Technology India Pvt. Ltd.,
Dewas (MP).
PAN: AABCT2018B
Dear Sir / Madam,
Sub:- assessment proceedings under section 147/143(3) of the I.T. Act, 1961 for the A.Y. 2009-10 - Regarding -
**********
Please refer to your letter dated 18.04.2016 furnished in response to notice under section 148 issued on 18.03.2016. In the said letter, you have stated that you have filed return of income under protest and you have asked the reasons recorded for reopening the assessment for the year A.Y.2009-10. You have also filed objections that this case has been reopened under section 147 on a mere change of opinion, which does not entitled the AO to reopen the assessment under section 148.
In this context, it is stated that your written reply/objection for reopening the assessment as well as various case laws furnished by you have been considered carefully and found that your objection is not tenable because your case for the AY 2009-10 has not reopened on account of a mere change of the opinion of the AO. It is re-opened after observing that scrutiny assessment completed by the my predecessor for the A.Y.2009-10 is erroneous and prejudicial to revenue for the following reasons:-
1.In the tax audit report in Form 3CD at point No.03 for the A.Y.2009- 10 reveals that your auditors have mentioned clearly that "During the year, the company also decided to expand its operations and enter the field of re manufacturing of engines and sub-assemblies from the existing core business. This would be a new division of the company named PSMI (Parts and Service Manufacturing India). The PSMI division would have manufacturing facilities at two places, viz, for its domestic requirement at Pune and for its export requirements at SEZ Pithampur. As on financial year ended March 31, 2009, operations were not commenced but during the year, the Company has changed its estimate of providing for slow/non moving inventory as a result of which profit before tax and inventory is lower by Rs. 2,94,03,474/-." You did not disclose its income in your return of income and therefore, the same is remained unexplained which is escaped assessment amounting to Rs. 2,94,03,474/-.
2. Further, you have deducted an amount of Rs. 6,67,37,928/- in item No.5B of schedule MAT. It is noticed that report under section 10AA in form 56F was not filed by you and also details/calculation sheet for exemption under section 10AA was not filed. You had stated during the original assessment proceedings that amount of Rs. 6,67,37,928/- was pertaining to income of the Pithampur SEZ unit and the same is eligible for exemption under section 10AA of the I.T. Act. But there is neither report under section 10AA in form 56F was found on record nor any details/calculation sheet regarding computation of income eligible for exemption under section 10AA is placed on record. In the absence of report in Form 56F as required under section 10AA exemption of Rs. 6,67,37,928/- there is an an escapement of income amounting to Rs. 6,67,37,928/-.
A copy of reasons recorded for re-opening the assessment under section 143(3) in enclosed herewith. In this context, it is also stated that this case has been reopened under section 147/148 after obtaining prior approval of the Pr. CIT, Ujjain vide his offence letter dated 17.03.2016.
You are now requested to please explain as to why an amount of Rs. 2,94,03,474/- as claimed by you on account of slow / non moving inventory may not be disallowed and added back to your total income treating as unexplained income for the year under consideration as stated above.
Please also explain as to why an amount of Rs. 6,67,37,928/- in items No.5b of schedule MAT as claimed exemption by you may not be disallowed and added back to your total income treating as unexplained income for the year under consideration as stated above.
The case is fixed for hearing on 25.05.2016 at 03:00 P.M.
Yours faithfully,
(J.S. Rao)
Asstt. Commissioner of Income Tax,
Circle-1(1), Ujjain
13. The order passed by the Assessing Officer makes it very clear that Assessing Officer was having a reason to believe to proceed ahead in the matter. Not only this, based upon the objections raised by the petitioner, the impugned order has been passed by the respondents on 28/11/2016 (Annex.-P/9) and the same reads as under:-
Government of India
Assistant CIT Circle-1(1), Ujjain
No.ACIT/C-1(1)/Asstt./Ujjain/2016-17/
Dated: 28.11.2016
M/s Cummins Technologies India Pvt. Ltd.,
Industrial Area No.2,
A.B. Road, Dewas
Distt. Ujjain
PAN: AABCT2018B
Sir,
Sub:- Rebuttal of objection raised against notice issued under section 148 of the I. T. Act, 1961 for the A.Y. 2009-10 - Regarding -
**********
Please refer to your letter dated 25.11.2016 raising objection against notice issued under section 148 of I. T. Act, 1961 to reopen the assessment order passed under section 143(3) for A. Y. 2009-10, dated 22.03.2013.
Assessment of the case for AY 2009-10 has been reopened under section 147/148 by this office after recording reasons in writing and duly obtaining prior approval of Principle Commissioner of Income-tax, Ujjain vide his office letter dated 17.03.2016. Notice under section 148 was issued within the statutory time limit and duly received by the assessee on 22.03.2016. You have filed objections for reopening the assessment vide letter dated 18.04.2016. In the said letter, you were stated that return of income in response to notice under section 148 is filed under protest and asked to provide reasons recorded for reopening proceedings. An objection was also filed challenging the reopening proceedings under section 147 on a mere change of opinion, which does not entitle the Assessing Officer to reopen the assessment under section 148.
On 13.05.2016, objections raised by you were rejected along with providing reasons recorded for reopening proceedings and case fixed on 25.05.2016 at 3:00 PM. On the said date request for adjournment was submitted and on 25.11.2016, the assessee again objected the reopening proceedings.
The objections raised by you are as under:-
We bring your kind attention to the provisions of section 147
"If the Assessing Officer has reason to believe] that any income chargeable to tax has escaped assessment for any assessment year, he may, subject to the provisions of sections 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 sections 148 to 153 referred to as the relevant assessment year) :
Provided that where an assessment under sub-section (3) of section 143 or this section has been made for the relevant assessment year, no action shall be taken under this section after the expiry of four asst. years from the end of relevant assessment year, unless any income chargeable to tax has escaped assessment for such assessment year by reason of the failure on the part of the assessee to make a return under section 139 or in response to a notice issued under sub-section (1) of section 142 or section 148 or to disclose fully and truly all material facts necessary for his assessment for that assessment year."
(Emphasis supplied)
2. Thus an assessment can be reopened beyond a period of 4 asst. years from the end of the concerned Assessment Year if and only if
? the assessee had not filed its Return of Income; or alternatively
? the assessee has failed to disclose fully and truly all material facts necessary for the assessment for that assessment year.
3. Assessment for the AY 2009-10 was completed under section 143(3) of the Income-tax Act, 1961 (the Act) on 22.03.2013. The 4 asst. years'' time limit laid down in Section 147 of the Act expired on March 31, 2014. However, the notice for reopening the assessment-dated March 18, 2016 was served on us on March 22, 2016, which is beyond the limitation prescribed in Section 147 of the Act.
4. We wish to bring to your goodself''s notice that we had filed our return for AY 209-10 on September 25, 2009 vide acknowledgement no 91142230250909 (enclosed as Annexure 1). The same was also submitted to your goodself on April 18, 2016 as part of response to your notice dated March 18, 2016. Hence, we humbly submit that extended time period for reopening cannot be invoked for non filing of return.
5. Thus the assessment for AY 2009-10 can be reopened only if we have failed to disclose all material facts necessary for assessment.
6. With reference to point 4 and 5 of your goodself''s notice, we submit that we had submitted Form 56F to the assessing officer on September 30, 2009 (copy of letter enclosed as Annexure 2). We further invite your goodself''s attention to question number 26 of AO''s letter dated September 10, 2012 and our response to the same dated September 19, 2012 (enclosed as Annexure 3) wherein we have provided the details of income and expenditure claimed under Section 10AA.
Further your goodself''s reference to clauses of Tax Audit Report is evidence to fact that company had submitted all required information during assessment proceedings and has not withheld any material fact. During the Financial Year 2008-09, the Company''s Auditor disclosed under Significant Accounting Policies of the Financial Statement under Schedule 17 at Point No.3 as under:
"During the year, the Company has changed its estimate of providing for slow/non-moving inventory as a result of which profit before tax and inventory is lower by Rs. 2,94,03,474/-."
The Company submitted the Financial Statement for the FY 2008-09 at the time of original assessment proceedings in which the above facts are duly recorded and was present before the Assessing Officer while making assessment of the case. Also Company has disclosed the income as well as expenses related to unit claiming deduction under section 10AA. Company had submitted all the details called for during the course of the original assessment proceedings.
The Company has submitted all the relevant material facts regarding the same at the time of original assessment proceedings itself. Hence we humbly submit that extended time period for reopening cannot be invoked for non disclosure of al material facts.
7. The notice under section 148 has been served beyond the period specified in the proviso to section 147 and therefore is time barred and bad in law.
In support of our objection to the reopening, we place reliance on in following cases.
1) In this matter, we would like to draw your kind attention to the apex court judgment in the case of Commissioner of Income Tax v. Kelvinator of India Ltd. [2010- TIOL-06-IT-LB] (copy enclosed as annexure A) wherein it has been concluded that assessment under section 143(3) cannot be reappraised for responded on the same set of facts which were available on record at the time of original assessment. The decision also reiterates and reaffirms the principle of law that what cannot be done directly cannot be done indirectly.
2) The "reasons to believe" as recorded by the Assessing Officer does not aver that the assessee had failed to fully and truly disclose all material facts necessary for the assessment, which is a condition precedent for reopening the assessment after four asst. years. The reason to believe only indicates that the reason for reopening is based on the assessment records and the balance sheet. In our view, the foundational requirement for reopening an assessment beyond four asst. years had not been fulfilled, as per the proviso to Section 147, which is a condition precedent. Consequently, we are of the opinion that the notice issued for reopening the assessment was contrary to law since it did not meet with the foundational requirement of the proviso to Section 147. Similar view was held by this Court in ACI Oils (P.) Ltd. v. Dy. CIT [2015] 370 ITR 561/57 taxmann.com 260 (All.), which is fully applicable in the present case. [Commissioner of Income Tax v. Jubilant Organosys Ltd. [2016] 65 taxmann.com 196 (Allahabad)]
3) The Bombay High Court in Godrej Industries Ltd. v. DCIT Circle - 14(1)(2) [2015] 232 Taxman 380 (Bombay) has laid that Once the assessment is sought to be reopened after a period of four asst. years, then, the proviso mandates recording that the assessee has failed to fully and truly disclose all materials facts necessary for the assessment for the relevant assessment year. There is absolutely nothing which would enable us to conclude that the assessee had failed to make such disclosure even prima facie. If the issue which has been raised and regarding which the assessment is proposed to be reopened has been dealth with, then, had the assessee not provided materials and completely, it would not be possible for the authorities under the Act to deal with those issues, discuss them while passing the assesment order and appellate orders. In the circumstances, we do not find that the impugned notice can be sustained. Once we have arrived at this conclusion and on all counts, the assessee''s objections refer to the materials which were before the assessing officer for the earlier assessment year, some of which were also the subject matter of revisional/Appellate proceedings, then, we would be failing in our duty if we do not interfere with the Notice in our writ jurisdiction. Once we come to this conclusion, then, we do not find any substance in the contention of Mr. Pinto that this Court cannot invoke its writ jurisdiction. As part of our further duty and to reinforce our conclusion that if the factual aspects and the details are undisputed then the issuance of the notice itself was not called for and if it was not called for, it cannot be upheld. Thus, by invoking the writ jurisdiction we interfere with and quash the same.
4) Assessment year 2006-07- Assessee was a tax resident of Australia - It declared interest income mainly from investment and offered same for taxation at rate of 15 per cent taking benefit of article 11(2) - Revenue sought to reopen assessment after four asst. years on ground that tax was to be levied at rate of 40 per cent - Whether since there had been no failure on part of assessee to make a full and true disclosure for making assessment, notice under section 148 should be quashed - Held, yes Standard Chartered Grindlays (P.) Ltd. v. DDIT (International Taxation), Circle 2(2), New Delhi [2015] 228 Taxman 199 (Delhi)(MAG.)
5) In Viren Sureshchandra Shah v. ACIT [2015] 63 taxmann.com 104 (Gujarat) held that Where all material facts with respect to demed dividend income necessary for assessment are furnished by assessee, initiation of reassessment proceedings beyond a period of four years is not permissible.
6) Donaldson India Filters Systems Pvt. Ltd. v. Dcit, Circle 10(1) [2015] 371 ITR 87 (Delhi) Where Assessing Officer proceeded for reassessment regarding adoption of incorrect turnover by assessee-company while computing deduction under section 80HHE, same was based on material which had been scrutinized in original assessment proceedings and hence reopening of assessment was not justified.
Therefore, in view of the above facts and favorable cases, the Company objects to reopening of assessment under section 147.
The objections raised by you are considered but not found tenable. The detailed reasons for not accepting the objections are as under:
1. The objections raised as per point Nos.1 to 5, you''re invited attention towards the proviso of section 147 of the Income Tax Act which states that beyond expiry of four asst. years an assessment proceedings can only be reopened if the assessee has failed to furnish any return of income or not disclosed fully and truly all material facts of the reassessment year in response to notice under section 142(1)/143(2). The objection is rejected on the facts available on record that during the course of assessment proceedings under section 143(3) of the Act, the assessee was never asked for providing the following details or explanation:
a) In the audit report of the Company at point No.3 of the Notes to the Accounts for the A.Y.2009-10 reveals that your auditors have mentioned clearly that "The company has changed its estimated of providing for slow/non moving inventory as a result of which profit before tax and inventory is lower by Rs. 2,94,03,474/-." You did not disclose its income in your return of income and therefore, the same is remained un explained which is escaped assessment amounting to Rs. 2,94,03,474/-.
b) Further, you have been deducted an amount of Rs. 6,67,37,928/- in item NO. 5B of schedule MAT. It is noticed that report under section 10 AA in form 56F was not filed by you and also details/calculation sheet for exemption under section 10AA was not filed you had stated during the original assessment proceeding that amount of Rs. 6,67,37,928/- was pertaining to income of the pithampur SEZ unit and the same is eligible for exemption under section 10AA of the I. T. Act but there is neither report under section 10AA in form 56F was found on record nor any detail/calculation sheet regarding computation of income eligible for exemption under section 10AA is placed on record. In the absence of report in form 56F as required under section 10AA exemption of Rs. 6,67,37,928/- there is an escapement of income amounting to Rs. 6,67,37,928/-.
Therefore, in view of the above facts of non obtaining details and explanation on the above two reasons for reopening, the proceeding is rightly initiated and objection raised by you at point numbers 1 to 5 are rejected.
2. Objection raised at point No. 6, you have claimed that the claim of the deduction under section 10AA it had submitted Form 56F to the AO and during the course of assessment proceedings under section 143(3) also invited attention of the then AO in response to a question under the questionnaire dated September 10, 2012. In this regards, I have carefully considered the records available and found that the assessee only explained about the computation of book profit under 115JB in reply to the point number 26 of the questionnaire but did not informed about submission of Form 56F for claiming exemption under section 10AA.
3. Another objection raised at point No. 6 is regarding note of the auditor of the Company for lower of profit by Rs. 2,94,03,474/- due change in the method of slow moving inventory. You claims that it has submitted entire documents related to the above note of the auditor at the time of assessment proceedings under section 143(3) of the Act. On careful verification of the assessment records for the AY 2009-10 for the assessment proceedings under section 143(3), no documents was found or asked for submission of the same by the then Assessing Officer. Therefore, on both the above reasons, the proceeding of reopening under section 147 has rightly been made and assessee was failed to disclose fully and truly all material facts at the time of assessment proceedings under section 143(3). Hence, both this objections raised at point No. 6 are hereby rejected.
4. At point No. 7, you have relied on various case laws of honourable courts. On careful consideration of all these judgments, it has been found that the facts of the your case and the facts of the judgments relied by you are different therefore, on the basis of such decided cases, you are not entitled to get relief from the reopening proceedings. Therefore, this objection is also not tenable and hereby rejected.
In view of the above discussion, the objection raised by you for reopening the case for AY 2009-10 is hereby rejected. You are hereby required to submit the reply of the show cause letter sent by this office vide letter No. 582 dated 13.05.2016 on 05.12.2016. at 11:00 AM to this office.
This letter may be treated as notice under section 142(1) of the I. T. Act, 1961.
Yours faithfully,
(J.S. Rao)
Asstt. Commissioner of Income-Tax
Circle-1(1), Ujjain
14. In the considered opinion of this Court, the order passed by the Assessing Officer makes it very clear that the assessee has failed to disclose fully and truly all materials facts at the time assessment proceedings initiated under Section 143(3). Not only this, Section 149 which provides for time limit of the Income Tax Act and the same reads as under:-
Section 149. Time limit for notice: (I) No notice under section 148 shall be issued for the relevant assessment year,-
(a) if four asst. years have elapsed from the end of the relevant assessment year, unless the case falls under clause (b) or clause (c);
(b) if four asst. years, but not more than six asst. years, have elapsed from the end of the relevant assessment year unless the income chargeable to tax which has escaped assessment amounts to or is likely to amount to one lakh rupees or more for that year;
(c) If four asst. years, but nor more than sixteen year, have elapsed from the end of the relevant assessment year unless the income in relation to any asset (including financial interest in any entity) located outside India, chargeable to tax, has escaped assessment.
Explanation - In determining income chargeable to tax which has escaped assessment for the purpose of this sub section, the provisions of Explanation - 2 of Section 147 shall apply as they apply for the purposes of that section.
The Explanation - 2 of Section 147 reads as under: (Income escaping assessment)
For the purpose of this Section, the following shall also be deemed to be cases where income chargeable to tax has escaped assessment, namely)-
(a) .........
(b) .........
(ba) .......
(c) Where an assessment has been made, but-
(i) income chargeable to tax has been under assessed; or
(ii) such income has been assessed at too low rate; or
(iii) such income has been made the subject of excessive relief under this Act; or
(iv) excessive loss or depreciation allowance or any other allowance under this Act has been computed."
15. In light of the aforesaid statutory provision, in the present case, notice has been served within six asst. years from the end of the relevant assessment year and the tax effect is in crore''s of rupees and therefore, the Assessing Officer was justified in initiating proceedings and in rejecting the objections raised by the petitioner.
16. Learned counsel for the petitioner has also placed reliance upon a judgment delivered by the apex Court in the case of Jeans Knit Pvt. Ltd. Bangalore v. The Deputy Commissioner of Income Tax Bangalore & Ors. passed in Civil Appeal No.11189/2016 on 08/12/2016 on the ground of alternative remedy and this Court is not declining admission on the question of availability of alternative remedy.
17. The net result is that this Court is of the considered opinion that notice has been served within the time frame work to the assessee, notice has rightly been served as the Assessing Officer was having reasons to believe and there was a failure on the part of the assessee to disclose the fully and truly material and facts at the time of proceedings initiated under Section 143(3) of the Act.
18. Resultantly, admission is declined. However, it is made clear that anything observed by this Court in the present order will not come in way of the assessee in respect of proceedings which are going on before the Income Tax Department as well as before the other authorities.
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