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Income Tax Appellate Tribunal, “G” BENCH, MUMBAI
Before: SHRI ABY T. VARKEY, JM & SHRI OM PRAKASH KANT, AM
O R D E R
PER ABY T. VARKEY, JM:
This is an appeal preferred by the assessee against the order of the Ld. Commissioner of Income Tax (Appeals)-50, Mumbai dated 23.09.2021 for the assessment year 2012-13.
By raising the ground no. 1 to 4, the assessee has challenged the legality/validity of the reopening of assessment for AY. 2012-13. Ground no. 1 to 4 is as under: - “1. That on the facts and circumstances of the case and in law, the Ld. AO erred in reopening the assessment u/s 148 and completing the assessment u/s 147. 2. That on the facts and circumstances of the case and in law, the Ld. AO erred in reopening the assessment u/s 148 on the basis of information on record and without any new information.
2 A.Y. 2012-13 M/s. Symphony Hence such order of assessment is bad in law and should be quashed.
3. That on the facts and circumstances of the case and in law, the Id. CIT(A) failed to appreciate that the notice u/s 143(2) and 142(1) has been issued prior to furnishing the reason to believe and disposal of objection against the reason to believe which is in violation of principal laid down by the apex court in the case of G K N Driveshaft.
That on the facts and circumstances of the case and in law Ld. AO erred in reopening the assessment without there being any failure on the part of the assessee. Hence, such order of reassessment is bad in law and liable to be quashed.”
Since the assessee has raised the legal issue challenging the validity of the reopening of the assessment for AY 2012-13, first we will adjudicate the same.
4. Brief facts relating to the legal issue are that the assessee has filed its return of income for AY. 2012-13 on 29.09.2012 declaring income of Rs.46,66,360/- which was selected for scrutiny (complete scrutiny), and the AO was pleased to accept the income returned by the assessee vide assessment order passed u/s 143(3) of the Income Tax Act, 1961 (hereinafter “the Act”) vide order dated 20.03.2015. Later, the assessee received a notice dated 14.03.2010 u/s 148 of the Act from the AO proposing re-opening of the assessment for AY. 2012-13; and pursuant thereto, the assessee requested the AO to treat the original return of income filed on 29.09.2012 as the returned income to 3 A.Y. 2012-13 M/s. Symphony notice u/s 148 of the Act. The assessee also requested for the copy of the reasons recorded by letter dated 11.10.2018; and on 23.10.2018 the assessee objected against the proposed reopening of the assessment which was rejected by AO on 31.10.2018 and thereafter the AO framed re-assessment by adding interest expenditure to the tune of Rs.1,01,15,039/-. Aggrieved, the assessee preferred an appeal before the Ld. CIT(A) wherein the assessee has challenged the legality/validity of the reopening which was dismissed by the Ld. CIT(A) as well as on merits. Aggrieved, the assessee is before us challenging the decision of the Ld. CIT(A) confirming the action of the AO.
We have heard both the parties and perused the records. Since the assessee has challenged the Ld.CIT(A)’s impugned action of up- holding the re-opening of assessment, let us look into the settled position of law regarding the power of AO to re-open the assessment u/s 147 of the Act. The concept of assessment is governed by the time- barring rule; and an assessee acquires a right as to the finality of proceedings. Quietus of the completed assessments can be disturbed only when there is information or evidence regarding undisclosed income or AO has information in his possession showing escapement of income as stipulated u/s 147 of the Act. As per Section 147 of the Act, if the AO intends to re-open the assessment, then AO has to record the reason to reopen the assessment, wherein he should record 4 A.Y. 2012-13 M/s. Symphony the “reason to believe, escapement of income”. It is settled principle of law that “reason to believe” postulates a foundation based on information and belief based on reason. After a foundation based on information is there, still, there must be some reason which should warrant the holding of a belief that income chargeable to tax has escaped assessment. In other words, before the AO issues notice u/s 148 of the Act, he must have recorded the reason to believe escapement of income. It is no doubt true that this Tribunal cannot go into the sufficiency or adequacy of the material and substitute its own opinion for that of the AO on the point as to whether action should be initiated for re-opening the assessment. At the same time, we have to bear in mind that it is not any and every material, howsoever vague and indefinite or distant or remote and far-fetched, which would warrant the formation of belief relating to escapement of income. It is well settled in law that reasons as recorded by AO for re-opening the assessment, are to be examined on a stand-alone basis. Neither anything can be added to the reasons so recorded, nor can anything be deleted from the reason so recorded. The Hon’ble Bombay High Court in the case of Hindustan Lever Ltd. (2004) 268 ITR 332 (Bom) has inter alia observed that “……it is needless to mention that the reasons are required to be read as they were recorded by the AO. No substitution or deletion is permissible. No additions can be made to those reasons. No inference can be allowed to be drawn on the basis of 5 A.Y. 2012-13 M/s. Symphony reasons not recorded by him. He has to speak through the reasons”. Their Lordship added “The reasons recorded should be self- explanatory and should not keep the assessee guessing for reason. Reason provide link between conclusion and the evidence…”. So as held by the jurisdictional High Court that while examining the jurisdiction of AO to have re-opened the assessment, we have to only consider the reasons recorded by the AO on a stand-alone basis and adjudicate as to whether AO has satisfied in the reasons recorded, the condition precedent i.e, reason to believe escapement of income) to validly reopen the assessment.”
Keeping in mind the well-settled principle of law regarding reopening of assessment, we note that in this case the assessee’s return of income for AY. 2012-13 was filed on 29.09.2012 declaring total income of Rs.46,66,360/-; and the return of income was selected for scrutiny (complete scrutiny). And the AO after issuance notice u/s 143(2)/142(1) of the Act and after going through the replies of the assessee has accepted the total income of Rs.46,66,360/- on 20.03.2015. Thereafter, notice u/s 148 of the Act was issued by the AO on 14.03.2018 (which is after four (4) years from the end of assessment year). Therefore, the first proviso to Section 147 of the Act would come into play and additional condition precedent also need to be satisfied before the AO re-open the assessment i.e. the income escaped assessment due to failure on the part of the assessee to 6 A.Y. 2012-13 M/s. Symphony disclose fully and truly all the materials facts necessary for the assessment. And the Hon’ble Supreme Court has held that when the AO reopened the assessment which has already undergone scrutiny u/s 143(3) of the Act, after expiry of four (4) years from the end of the relevant assessment year, the AO should have tangible material in his possession for doing so. Keeping this in mind let us have a look at the reasons recorded by the AO for reopening the assessment which is reproduced by the Ld. CIT(A) at page no. 4 & 5 of the assessment order which reads as under: - “In this case the assessee had filed its return of income on 29.09.2012 declaring total income at Rs.46,66,360/-. The assessment was completed u/s 143(3) of the IT Act, 1961 on 20.03.2015 at assessed income at Rs.46, 66, 360/-. Subsequently, it is observed from the records that the assessee is engaged in business of Builder and Real Estate Developer. Assessee has offered income on sale of premises at 75% of total value of the premises sold and also debited the cost of construction at same percentage. The Balance sheet of the assessee shows the construction work on progress amounting to Rs.35,08,08,390/-. The cost of construction work includes the interest paid on unsecured loan amounting to Rs.1,42,10,931/i.e. Rs.(3,53,14,785 - 2,11,03, 854). The detail scrutiny of ledger of interest paid on unsecured loan revealed that out of total interest paid Rs.1,42,10, 931/-, interest of Rs.1,01,15,309/- was paid to Urban Kshetra Infrastructure Pvt Ltd at the rate of 10%. However, it is seen from the schedule 2 of Balance Sheet that as on. 1st April 2011, the loan from Urban 7 A.Y. 2012-13 M/s. Symphony Kshetra Infrastructure Pvt Lte is Rs.2,15,00, 000/-. and as on 31st March 2012 Nil. The loan has been repaid on August 2011 and Assessee has not taken any further loan during the year from the Urban Kshetra Infrastructure Pvt Ltd: Thus the interest @ 10% on Rs.2,15,00,000/- works out to be Rs.8,95,833/- (for 5 months from April 17 to August 2011). The excess payment of interest of Rs.92,19,206/- i.e. Rs.(1,01,15,039 - 8,95,833) resulted is under assessment of income to such an extent. Hence, I have reason to believe that the assessee has not disclosed its real income in its books of accounts, to the extent of Rs.92,19,206/- and income chargeable to tax to such an extent has escaped assessment within the meaning of sec 147 of the IT Act, 1961. Such escapement has occurred due to assessee’s failure to disclose true and complete facts in the return of income filed on 20.09.2012. In order to assess/reassess such income of Rs.92,19,206/- which has escaped assessment and any other income chargeable to tax which may come to notice during this proceeding which has escaped assessment, notice u/s 148 of the IT Act 1961 is required to be issued for AY 2012- 13.” (Emphasis given by us).
From a perusal of the reasons recorded, it is noted that the main reason for reopening is in respect of assessee’s claim of interest expenditure incurred on payment made to M/s. Urban Kshetra Infrastructure Pvt. Ltd. (hereinafter “M/s. UKIPL”) to the tune of Rs.1,01,15,309/- (which was allowed by the AO in the scrutiny 8 A.Y. 2012-13 M/s. Symphony assessment earlier done on 20.03.2015). In the reasons recorded to re- open, according to the AO, the loan from M/s. UKIPL was only to the tune of Rs.2,15,00,000/- (which has been re-paid on Aug, 2011) and the interest rate was only at 10%, but the assessee has incurred interest payment of Rs.92,19,206/- which was per-se excessive and therefore since assessee has claimed excess payment of interest to the tune of Rs.92,19,206/-(Rs.1,01,15,039/- - Rs.8,95,833/-) which resulted in under-assessment of income to that extent. Therefore, he reopened the assessment. However, on perusal of the reasons recorded reveals that there was no mention by AO of any new/tangible material/information from outside source on the basis of which the AO discovered the aforesaid facts. The assessee has shown construction work in progress (WIP) in its balance-sheet (Placed at page 8 of PB as on 31.03.2012) as Rs.35,08,08,390/- and its details (Schedule -8 refer page 14 of PB) shows, WIP as on 31.03.2012 the said amount which includes interest on loan to the tune of Rs.3,53,14,785/- and the interest on loan for earlier year i.e. as on 31.03.2011 was to the tune of Rs.2,11,03,854/- difference of which is Rs.1,42,10,931/-. And that unsecured loan from M/s. Urban Kshetra Infrastructure Ltd. (M/s. UKIPL) was squared up and not existing liability as on 31.03.2012 is shown from perusal of Schedule-2 Page 11 of PB. So the details noted by AO from the tax audited Financials submitted by it to AO u/s 44AB of the Act which was part of the assessment proceeding completed u/s 143(3) of the Act which was part of the assessment proceeding completed u/s 143(3) of the Act as on 20.03.2015. And other details of payment of interest also 9 A.Y. 2012-13 M/s. Symphony AO admits of taking note from ledger of interest paid. Therefore, it is seen that there was no tangible material from outside source which triggered the reopening of the assessment, [after original scrutiny assessment was framed u/s 143(3) of the Act dated 20.03.2015]. Even though the AO in the reasons recorded has made a bald statement at the last para that there was failure on the part of the assessee to disclose true and complete facts in the return filed by the assessee is not per-se wrong and incorrect as noted (supra). And as we noted the aforesaid information has been culled out by him (AO) from the balance-sheet/TAR of the assessee which has been furnished along with return of income during the complete scrutiny of the assessee. Moreover, we note that the AO during the original assessment proceedings had asked for the details of interest paid at Rs.3.35 crores vide notice dated 22.08.2014 (refer question no. 10 page 24 of PB); and pursuant to which the assessee had furnished reply dated 04.09.2014 wherein it has been clearly shown that the assessee has paid Rs.1,01,15,039/- to M/s. UKIPL which is found placed at page no. 20-23 of the PB. The chart filed at page no. 23 of the PB shows the name of all the eleven (11) parties from whom the assessee has taken loan, their respective PAN numbers, interest paid, rate of interest, TDS deducted, date of payment; and from which it is discernable that M/s. UKIPL has been paid interest of Rs.1,01,15,039/- on which TDS of Rs.10,11,504 was deducted on 03.05.2012. A perusal of page 23 of PB reveals that assessee has shown to have made total interest payment to the tune of Rs.1,42,10,931/- and out of it M/s. UKIPL has been paid 10 A.Y. 2012-13 M/s. Symphony Rs.1,01,15,039/-. According to Ld. AR, during the original assessment proceedings, the AO had asked the assessee to explain since it has shown at schedule 8 (WIP) of Rs.35.08 cr out of which interest on loan was to the tune of Rs.3.53 cr, and pursuant to which the assessee had explained to AO by referring to schedule-10 (placed at page 15 & 16 of PB) which reflects the current liabilities (especially to page 16), wherein under ‘others’ M/s. UKIPL name is figuring in last i.e. as on 31.03.2011, it is showing Rs.7 cr outstanding but as on 31.03.2012, it is ‘Rs 91 lakhs’. According to Ld. AR, it was explained to AO (during original assessment) that this amount of Rs.7 cr was returned back to M/s. UKIPL with settled interest on it of Rs.1,01,15,039; and thus the total interest comes to Rs.3,53,14,785/-. Therefore, the AO in the original assessment didn’t draw any adverse inference against the assessee on this issue. Thus it is noted that the AO has discharged his duty by conducting inquiry on this issue and the assessee has filed all the details regarding the interest expenditure including that paid to the M/s. UKIPL. Even though the Ld. DR justified the AO’s action of re- opening by citing Explnation-1 to Section 147 of the Act which reads as under: - “Explanation-1 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 foregoing proviso.”
11 A.Y. 2012-13 M/s. Symphony 9. According to the Ld. DR mere production of books of accounts would not necessarily amount to disclosure. And therefore merely filing the balance-sheet cannot absolve the assessee’s duty to explain/furnish fully and truly all the relevant material facts necessary for the assessment in respect of interest expenditure. However, we note that Hon’ble Bombay High Court in the case of M/s. Godrej & Boyce Mfg. Co. LTD Vs. ACIT [2022 (4) TMI 639] held that petitioner cannot be stated to have not disclosed material facts after having filed balance-sheet along with computation of income with its Annual return u/s 139 of the Act. The Hon’ble High Court observed “………there was nothing more to disclose and a person cannot be said to have omitted to disclose or failed to disclose when he had no knowledge.’ And therefore it was held that Explanation-1 to Section 147 of the Act would not come to rescue of the revenue; and Hon’ble High Court has held as under:- “3. We have to note that reasons as quoted above clearly provides that information regarding first item, i.e., WIP has been obtained from the balance-sheet of the Company and 2nd item, ground rent, has been obtained from Profit and Loss account and computation of income of Petitioner. Therefore, information has been obtained from the primary facts and documents filed by Petitioner. 4] This not a case where Petitioner can be accused as having merely produced its books of accounts or other evidence during the course of assessment proceedings on the basis of which material evidence could not have been deduced by the Assessing Officer with the exercise of due diligence. Section 139 of the 12 A.Y. 2012-13 M/s. Symphony Act provides for mandatory obligations to furnish with its return of income the report of audit. Petitioner fulfilled its obligations. Petitioner had filed return of income alongwith audited Profit and Loss Account and balance-sheet as required under Section 139 of the Act. Balance-sheet being a part of the return of income under Section 139 of the Act, Petitioner cannot be stated to have not disclosed material facts. Petitioner having filed balance-sheet alongwith computation of income with its annual returns, there was nothing more to disclose and a person cannot be said to have omitted to disclose or failed to disclose when he had no knowledge. This Court in paragraph 14 of Kalpataru Ltd. v. Deputy Commissioner of Income-tax, Mumbai (2021) 132 taxmann.com 212 (Bombay), has observed as under: “14, Therefore, though it is correct that explanation 1 to section 147 of the Act says mere production of books of accounts or other documents are not enough, and the duty of disclosing all the primary facts relevant to the decision of the question before the assessing authority lies on the assessee, this duty does not extend beyond the full and truthful disclosure of all primary facts. Once all the primary facts are before the assessing authority, he requires no further assistance by way of disclosure. It is for him to decide what inferences of facts can be reasonably drawn and what legal inferences have ultimately to be drawn. It is not for somebody else-far less the assessee to tell the assessing authority what inferences, whether of facts or law, should be drawn. Indeed, when it is remembered that people often differ as regards what inferences should be drawn from given facts, it will be meaningless to demand that the assessee must disclose what inferences — whether of facts or law — he would draw from the primary facts. If from primary facts, more 13 A.Y. 2012-13 M/s. Symphony inferences than one could be drawn, it would not be possible to say that the assessee should have drawn any particular inference and communicated it to the assessing authority. How could an assessee be charged with failure to communicate an inference, which he might or might not have drawn?” 5] Since this notice to reopen has been issued after expiry of four years from the end of relevant assessment year, as provided in the proviso of Section 147 of the Act, onus is on Respondent to show that income has escaped assessment due to failure on the part of assessee to disclose truly and fully material acts required for assessment. 6) Mr. Pardiwalla submitted and rightly stated that reasons do not indicate anywhere that there has been failure to disclose. Use of expression “…..it is quite clear that assessee company has failed to disclose fully truly all material facts necessary for assessment.....” is only a bald statement used to get out of the restrictions imposed in Section 147 of the Act. 7) Mr. Pinto relied upon a judgment of this Court in Crompton Greaves Ltd. V/s. Assistant Commissioner of Income Tax, Circle 6 (2) (2015) 55 taxmann.com 59 (Bombay) to submit that even if the reason for reopening does not specifically state that there was any failure on the part of petition, disclose fully and truly all material facts necessary for its assessment for the relevant assessment yea, will not be fatal to the assumption of jurisdiction under sections 147 and 148 of the Act. We would certain, agree with Mr. Pinto but as held in Crompton Greaves Ltd. (Supra), this is subject to the rider that there must be cogent and clear indication in the reasons supplied, that in fact there was failure on the part of the assessee to disclose fully and truly all the material facts necessary for its assessment. If the factum 14 A.Y. 2012-13 M/s. Symphony of failure to disclose can be culled from the reasons in support of the notice seeking to reopen assessment, that will certainly not be fatal to the assumption of jurisdiction under sections 147 and 148 of the Act. The Court held “However, if from the reasons, no case of failure to disclose is made out, then certainly the assumption of jurisdiction under sections 147 and 148 of the Act would be ultra vires, being in excess of the jurisdictional restraints imposed by the first proviso to Section 147 of the Act”. 8] Having considered the reasons we are satisfied that even the reasons does not indicate there was failure to disclose truly and fully material facts. In fact there was nothing t indicate non- disclosure. Reasons itself rely on the balance-sheet and computation of income filed.”
Having found that assessee had filed the primary documents like profit & loss account, balance-sheet, tax audit report which was gone through by the AO during the original assessment which culminated in framing of assessment order u/s 143(3) of the Act as on 20.03.2015 and the fact that interest expenditure of Rs.3.53 cr was included in the WIP of Rs.35.08 cr and the other details of interest expenditure was discerned from the ledger submitted by the assessee during the original assessment proceedings, Explanaltion-1 cannot be used to justify the re-open of assessment after four year from the end of the assessment year to get-over the additional condition precedent as laid down by first proviso to Section 147 of the Act, which insists that AO can re- open an assessment only if assessee had failed to disclose fully and 15 A.Y. 2012-13 M/s. Symphony truly all material facts necessary for assessment. Here in the instant case, we note that assessee had disclosed all the primary documents before the AO as discussed; and it cannot be said in the facts of this case that the assessee failed to disclose any material facts necessary for assessment on this issue (interest expenditure). Moreover, as noted by us (supra), this issue (Interest expenditure of Rs.3.5 cr.) has been specifically asked and assessee has replied to it as discussed (supra). Therefore assessee cannot be said to have failed to disclose truly and fully the material/information regarding this issue. The Hon’ble Bombay High Court in the case of Mangalore Refinery & Petro Chemicals Ltd. Vs. DCIT (W.P. No. 1160 of 2014 dated 18.202.2009) reported in 2022 (2) TMI 1038 had an occasion to deal with such a situation and their Lordship observed as under: - “12. The situation which is obvious is that during the course of the scrutiny assessment under section 143(3) of the Act, 1961, the Assessing Officer had made specific query as regards leased assets repurchase expenses and solicited explanation and documents. In compliance thereto, the petitioner furnished the requisite information and documents. It is true that in the assessment order dated 18th December, 2008, the Assessing Officer did not specifically advert to the said aspect of the matter and in terms record that the explanation so furnished was accepted and allowance upheld. However, this factor is not of decisive significance. 13. It is trite law that once a query is raised and the assessee furnishes explanation thereto, the Assessing Officer is presumed to have applied his mind to the question so raised and the fact 16 A.Y. 2012-13 M/s. Symphony that the Assessing Officer had not specifically dealt with the said aspect in the assessment order does not justify an inference that the Assessing Officer did not consider the same. On the contrary, it would be justifiable to assume that the Assessing Officer was satisfied with the explanation so furnished by the assessee.
This position in law was expounded by this Court in the case of Aroni Commercials Ltd. v. Dy. CIT [2014] 44 taxmann.com 304/224 Taxman 13 (Mag.)/362 ITR 403 wherein the following observations were made:— "14. ……… We are of the view that once a query is raised during the assessment proceedings and the assessee has replied to it, it follows that the query raised was a subject of consideration of the Assessing Officer while completing the assessment. It is not necessary that an assessment order should contain reference and/or discussion to disclose its satisfaction in respect of the query raised. If an Assessing Officer has to record the consideration bestowed by him on all issues raised by him during the assessment proceeding even where he is satisfied then it would be impossible for the Assessing Officer to complete all the assessments which are required to be scrutinized by him under section 143(3) of the Act. Moreover, one must not forget that the manner in which an assessment order is to be drafted is the sole domain of the Assessing Officer and it is not open to an assessee to insist that the assessment order must record all the questions raised and the satisfaction in respect thereof of the Assessing Officer. The only requirement is that the Assessing Officer ought to have considered the objection now raised in the grounds for issuing notice 17 A.Y. 2012-13 M/s. Symphony under section 148 of the Act, during the original assessment proceedings. …….."
Once it becomes evident that the Assessing Officer had raised the query and reply thereto was furnished by the assessee, the endeavour on the part of the revenue to reopen the assessment is fraught with two infirmities. One, it cannot be said that the income escaped assessment on account of failure to make a true and full disclosure of the material facts (in cases where the proviso operates). Two, the exercise would then fall in the realm of mere change of opinion on the basis of the very same material, which is legally impermissible. Further, it cannot be said that there is a "tangible material" which would justify recourse to the provisions contained in section 147 of the Act, 1961.”
In the light of the aforesaid discussion, we allow the legal issue raised by the assessee and quash the notice issued u/s 148 of the Act dated 26.03.2014. Therefore all subsequent action are null in the eyes of law.