M/S BHARTIYA SAMRUDDHI FINANCE LTD.,,NEW DELHI vs. DCIT, NEW DELHI

It is obvious from the above discussion that the assessee has not disclosed fully and truly all material facts necessary for its assessment before the A.O. which resulted in under assessment of income of Rs.1,07,00.000/- by reason of failure on part of the assessee. Further. I am satisfied that 4 ITA.No.6022/Del./2016 M/s. Bhartiya Samruddhi Finance Ltd., New Delhi. this is a fit case for re-opening u/s. 147 of the I.T. Act, 1961.

In view of the above, I have reason to believe that income to the tune of Rs.1,07,00.000/- as discussed above, has escaped assessment within the meaning of section 147 of the I. T. Act and it is a fit case for the issue of notice u/s 148 of the I.T. Act.’’ 2.1. The assessee was provided with a copy of the reasons recorded for reopening of the assessment. In response to the notice under section 148 of the I.T. Act, 1961, the assessee submitted reply with the revised return of income declaring total income at Rs.3,86,67,355/- During the course of assessment proceedings, the A.O. asked the assessee to furnish details regarding receipt of subsidy. It was explained by the assessee that it has received an amount of Rs.23.46 lakhs and remaining amount of Rs.1.07 crores is outside the books of the assessee. The A.O. observed that Notes to Accounts clearly state that a sum of Rs.1.07 crores is subsidized by Shore Cap Exchange.

5 ITA.No.6022/Del./2016 M/s. Bhartiya Samruddhi Finance Ltd., New Delhi. Therefore, according to the A.O. such subsidy received by the assessee company is on account of revenue being given for business purposes and, therefore, the same is taxable in view of the principles laid down by the Hon’ble Apex Court in the case of M/s. Sahney Steel and Press Works Ltd., vs., CIT 228 ITR 253 (SC). He further noted that assessee company has revised its return of income under section 148 for the impugned assessment year and has not submitted any documentary evidence in support of its revised return of income. Relying on the decision of Hon’ble Supreme Court in the case of CIT vs., M/s. Sun Engineering Works Pvt. Ltd., reported in [1992] 1 SCR 732 wherein it has been held that assessee cannot take advantage of reopening for review of concluded items, the A.O. rejected the revised return of income filed by the assessee. Thus, the A.O. determined the total income of assessee at Rs.5,43,49,450/- by adding the amount of Rs.1.07 crores to the returned income of Rs.4,36,49,450/-.

2.2. The assessee challenged the validity of the reopening of the assessment as well as addition on merit.

6 ITA.No.6022/Del./2016 M/s. Bhartiya Samruddhi Finance Ltd., New Delhi. However, the assessee was unsuccessful since the Ld. CIT(A) upheld the validity of the re-assessment proceedings as well as the addition on merit.

3. Aggrieved with such order of the Ld. CIT(A), the assessee is in appeal before the Tribunal by raising the following grounds :

“1. That on the facts and in the circumstances of the case, the Commissioner of Income tax, (Appeals) has erred facts that the amount granted to the appellant for certain capacity building and enhancement of the appellant company aggregating to Rs.1,07,00,OOO (of which only Rs One Crore Seven Lakhs was received by the company).

2. That the on the facts and circumstances of the case, the Commissioner of Income tax, (Appeals) has also erred in not directing the Assessing officer in allowing the expenditure incurred by the 7 ITA.No.6022/Del./2016 M/s. Bhartiya Samruddhi Finance Ltd., New Delhi. assessee company as well by its sponsor, while treating the grant provided as income.

4. That the Commissioner of Income tax has erred on facts, in not directing the Assessing officer, to exclude from the total income of the appellant assessee, the excess provision for doubtful debts aggregating to Rs.49,82,092 included in the income, as this was not allowed in the earlier years, nor is taxable, as it is in the nature of provision made in the books.

8 ITA.No.6022/Del./2016 M/s. Bhartiya Samruddhi Finance Ltd., New Delhi. 5. The appellant craves to amend, modify and add grounds to the above.”

4. Learned Counsel for the Assessee referring to the Notes to Accounts drew the attention of the Bench to the following Pages-28 and 29 of the paper book which reads as under :

23.4. Grants and in kind donations :

23.4.1. During the year the company received a flexible grant of Rs.7.0 million from SIDBI of which Rs.5.4 million was spent on acquisition of capital assets. Retaining Rs.1 per identified assets, balance has been adjusted against grants. Grant amount, aggregating to Rs.1.6 million spent on Staff Training and Repairs and Maintenance are not reflected in the Income and Expenditure Statement.

23.4.2. The company has received computer systems, software and operating systems and procedures especially developed suiting

9 ITA.No.6022/Del./2016 M/s. Bhartiya Samruddhi Finance Ltd., New Delhi. its operational needs from its holding company, which has been financed out of the IFC Technical Assistance Facility. IFC is one of major shareholder of the company. The hardware;, software, other expenses for development of the same aggregating to Rs.10.8 million was managed by the holding company, BASICS Ltd. another major shareholder. After the development, the company is paying a nominal rent of Rs.1.0 million per annum, for the hardware only to BASICS Ltd.

23.4.3. Similarly, a sum of Rs.10.7 million was also subsidized by Shorecap Exchange, Chicago, USA towards Risk Management, Strengthening Middle Management and Business Process Reengineering of the company operations.”

4.1. Ld. Counsel for the assessee submitted that the amount in question is subsidized by Shorecap Exchange 10 ITA.No.6022/Del./2016 M/s. Bhartiya Samruddhi Finance Ltd., New Delhi. and not subsidy as interpreted by the A.O. He submitted that the assessment in the instant case was completed under section 143(3) of the I.T. Act, 1961 on 15.12.2009 for the impugned A.Y. 2007-2008. Referring to the copy of the reasons, he submitted that there is no allegation in the reasons so recorded that there is failure on the part of the assessee to disclose fully and truly all material facts necessary for completion of the assessment. Referring to the following decisions, he submitted that it is held in all these decisions that where an assessment has been completed u/s 143(3) and where there is no allegation of any failure on the part of the assessee to disclose fully and truly all material facts necessary for completion of the assessment, then initiation of re-assessment proceedings after a period of four years is invalid.

2. BPTP Limited & Anr. vs. Pr. CIT (2019) 106 CCH 0360 (Del) (HC).

11 ITA.No.6022/Del./2016 M/s. Bhartiya Samruddhi Finance Ltd., New Delhi. 3. Gita Education Society vs. ITO (2019) 56 CCH 0064 (D3I) (Trib.) “G” Bench.

6. Sun Investment Pvt. Ltd. v. Assistant Commissioner of Income-tax (2012) 344 ITR 0001 (Del) (HC).

7. Haryana Acrylic Manufacturing Co. vs. CIT (2009) 308 ITR 38 (Delhi).

12 ITA.No.6022/Del./2016 M/s. Bhartiya Samruddhi Finance Ltd., New Delhi. 12.Rose Serviced Apartments Pvt. Ltd. v. Deputy Commissioner of Income-tax [2012] 348 ITR 452 (Del) (HC).

4.2. Referring to the above cited decisions, he submitted that when there is no tangible material for belief that income had escaped assessment, such re-assessment proceedings are to be treated as invalid. He submitted that since in the instant case there was sufficient disclosure in the audited accounts giving the primary facts and there is no failure on the part of the assessee to disclose fully and truly all material facts necessary for completion of the assessment and since there is no tangible material for belief that income had escaped assessment, therefore, the re- assessment proceedings initiated by the A.O. and upheld by the Ld. CIT(A) is not in accordance with Law. Therefore, the 13 ITA.No.6022/Del./2016 M/s. Bhartiya Samruddhi Finance Ltd., New Delhi. grounds raised by the assessee challenging the validity of re-assessment proceedings has to be accepted and the re- assessment proceedings should be held as null and void.

4.3 So far as the merits of the case is concerned, the Learned Counsel for the Assessee submitted that it is not subsidy as interpreted by the A.O. and reiterated the arguments as made before the A.O. and the Ld. CIT(A).

5. The Ld. D.R. on the other hand relied on the orders of the A.O. and the Ld. CIT(A).

15 ITA.No.6022/Del./2016 M/s. Bhartiya Samruddhi Finance Ltd., New Delhi. 6.1. We find sufficient force in the above arguments of the Learned Counsel for the Assessee. We find the assessment in the instant case was completed under section 143(3) on 15.12.2009 and the assessment year involved is A.Y. 2007-2008. We find the assessee had given sufficient information of all the primary facts regarding the amount of Rs.1.07 crores subsidised by Sharecap Exchange, Chicago, USA towards Risk Management, Strengthening Middle Management and Business Process Reengineering of the company operations which have already been reproduced in the preceding paragraph. Further a perusal of the reasons recorded shows that there is no allegation of any failure on the part of the assessee to disclose fully and truly all material facts necessary for completion of the assessment.

6.2. We find that the Hon’ble Delhi High Court in the case of Haryana Acrylic Manufacturing Co. vs., CIT [2009] 308 ITR 38 (Del.) observed that action under section 147 of the Income Tax Act, 1961 cannot be taken after the expiry of 04 years from the end of the relevant assessment year unless the income chargeable to tax has escaped assessment for 16 ITA.No.6022/Del./2016 M/s. Bhartiya Samruddhi Finance Ltd., New Delhi. such assessment year by reason of failure on the part of the assessee to disclose fully and truly all material facts necessary for his assessment for that assessment year. The relevant observations of the Hon’ble Delhi High Court in the case of Haryana Acrylic Manufacturing Co. vs., CIT (supra) are as under :

“Viewed in this light, the proviso to section 147 of the said Act, carves out an exception from the main provisions of section 147. If a case were to fall within the proviso, whether or not it was covered under the main provisions of section 147 of the said Act would not be material. Once the exception carved out by the proviso came into play, the case would fall outside the ambit of section 147.

Examining the proviso [set out above], we find that no action can be taken under section 147 after the expiry of four years from the end of the relevant assessment year if the following conditions are satisfied:

17 ITA.No.6022/Del./2016 M/s. Bhartiya Samruddhi Finance Ltd., New Delhi. (a) an assessment under sub-section (3) of section 143 or this section has been made for the relevant assessment year; and (b) unless any income chargeable to tax has escaped assessment for such assessment year by reason of the failure on the part of the assessee:

(i) 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 (ii) to disclose fully and truly all material facts necessary for his assessment for that assessment year.

Condition (a) is admittedly satisfied inasmuch as the original assessment was completed under section 143(3) of the said Act. Condition (b) deals with a special kind of escapement of income chargeable to tax. The escapement must arise out 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. This is clearly not the case 18 ITA.No.6022/Del./2016 M/s. Bhartiya Samruddhi Finance Ltd., New Delhi. here because the petitioner did file the return. Since there was no failure to make the return, the escapement of income cannot be attributed to such failure. This leaves us with the escapement of income chargeable to tax which arises out of the failure on the part of the assessee to disclose fully and truly all material facts necessary for his assessment for that assessment year. If it is also found that the petitioner had disclosed fully and truly all material facts necessary for its assessment, then no action under section 147 could have been taken after the four year period indicated above. So, the key question is whether or not the petitioner had made a full and true disclosure of all material facts.

In the reasons supplied to the petitioner, there is no whisper, what to speak of any allegation, that the petitioner had failed to disclose fully and truly all material facts necessary for assessment and that because of this failure there has been an escapement of income chargeable to tax. Merely having a reason to 19 ITA.No.6022/Del./2016 M/s. Bhartiya Samruddhi Finance Ltd., New Delhi. believe that income had escaped assessment, is not sufficient to reopen assessments beyond the four year period indicated above. The escapement of income from assessment must also be occasioned by the failure on the part of the assessee to disclose material facts, fully and truly. This is a necessary condition for overcoming the bar set up by the proviso to section 147. If this condition is not satisfied, the bar would operate and no action under section 147 could be taken. We have already mentioned above that the reasons supplied to the petitioner does not contain any such allegation. Consequently, one of the conditions precedent for removing the bar against taking action after the said four year period remains unfulfilled. In our recent decision in Wel Intertrade (P.) Ltd.’s we had agreed with the view taken by the Punjab and Haryana High Court in the case of Duli Chand Singhania that, in the absence of an allegation in the reasons recorded that the escapement of income had occurred by reason of failure on the part of the assessee to disclose fully and truly all 20 ITA.No.6022/Del./2016 M/s. Bhartiya Samruddhi Finance Ltd., New Delhi. material facts necessary for his assessment, any action taken by the Assessing Officer under section 147 beyond the four year period would be wholly without jurisdiction. Reiterating our viewpoint, we hold that the notice dated 29-3-2004 under section 148 based on the recorded reasons as supplied to the petitioner as well as the consequent order dated 2-3-2005 are without jurisdiction as no action under section 147 could be taken beyond the four year period in the circumstances narrated above.

The matter, however, does not end here. We have mentioned above that the stand taken by the respondents in their counter-affidavit before this court is that the ‘actual’ reasons recorded are those recorded in the Form for recording reasons, a copy of which has been filed as Annexure A to the said counter-affidavit. It was urged on behalf of the respondents that the ‘reasons for the belief that income has escaped assessment’ at serial No. 11 of the said form clearly carries the allegation that ‘there was failure on the part 21 ITA.No.6022/Del./2016 M/s. Bhartiya Samruddhi Finance Ltd., New Delhi. of the assessee to disclose fully and truly all material facts relating to accommodation entries’. This being the case, it was submitted, the bar of taking action within four years would not apply and, consequently, the notice under section 148 was valid.

This argument suffers from several infirmities. First of all, the respondents cannot be permitted to gloss over the fact that the reasons which were supplied to the petitioner were different from the reasons purportedly recorded in the said form on which they now seek to rely. If the reasons in the said form were the ‘actual’ reasons, why were they not communicated to the petitioner? Why was nothing said about these reasons (noted in the form) when the petitioner filed its objections to the reasons which were supplied to it? It must be remembered that in its objections, the petitioner took the specific plea that in the absence of any allegation that the petitioner had failed to disclose fully and truly all material facts necessary for assessment, the Assessing Officer had no jurisdiction to issue the 22 ITA.No.6022/Del./2016 M/s. Bhartiya Samruddhi Finance Ltd., New Delhi. notice under section 148 and initiate action under section 147 after four years from the end of the relevant assessment year. Despite this precise objection, there is no mention of the reasons noted in the said form in the impugned order dated 2-3-2005. If the respondents had regarded the reasons noted in the said form to be the ‘actual’ reasons, it would have been very easy for the Assessing Officer to have countered this objection by simply referring to the reasons noted in the form and saying that the allegation of failure to disclose is very much there. It is obvious that the reasons noted in the said form were never regarded as the reasons for initiating action under section 147 of the said Act. Thus, the respondents cannot now be permitted to fall back on those purported reasons noted in the said form.

Secondly, let us assume for the sake of argument that the ‘actual’ reasons were those as noted in the said form. Then why did the Assessing Officer communicate a different set of reasons to the petitioner? Did he think that the supplying of reasons and the inviting of 23 ITA.No.6022/Del./2016 M/s. Bhartiya Samruddhi Finance Ltd., New Delhi. objections were mere charades? Did he think that it was a mere pretence or a formality which had to be gotten over with ? At this point, it would be well to remember that the Supreme Court in GKN Driveshafts (India) Ltd.’s case had specifically directed that when a notice under section 148 of the said Act is issued and the noticee files a return and seeks reasons for the issuance of the notice, the Assessing Officer is bound to furnish reasons within a reasonable time. On receipt of the reasons, the noticee is entitled to file objections to the issuance of notice and the Assessing Officer is bound to dispose of the same by passing a speaking order. These are specific directions given by the Supreme Court in all cases where notices under section 148 of the said Act are issued. Surely, the Assessing Officer could not have construed these specific directions to be a mere empty formalities or dead letters? There is a strong logic and purpose behind the directions issued by the Supreme Court and that is to prevent high-handedness on the part of Assessing Officers and to temper any action 24 ITA.No.6022/Del./2016 M/s. Bhartiya Samruddhi Finance Ltd., New Delhi. contemplated under section 147 of the said Act by reason and substance. In fact, even section 148 (2) stipulates that the Assessing Officer shall, before issuing any notice under the said section, record his reasons for doing so. The Supreme Court has only carried forward this mandatory requirement by directing that the reasons which are recorded be communicated to the assessee within a reasonable period of time so that at that stage itself the assessee may point out any objections that he may have with regard to the initiation of action under section 147 of the said Act. The requirement of recording the reasons, communicating the same to the assessee, enabling the assessee to file objections and the requirement of passing a speaking order are all designed to ensure that the Assessing Officer does not reopen assessments which have been finalized on his mere whim or fancy and that he does so only on the basis of lawful reasons. These steps are also designed to ensure complete transparency and adherence to the principles of natural justice. Thus, a 25 ITA.No.6022/Del./2016 M/s. Bhartiya Samruddhi Finance Ltd., New Delhi. deviation from these directions would entail the nullifying of the proceedings. Assuming as we have done that the ‘actual’ reasons were those as noted in the said form, it is obvious that the reasons were never communicated to the petitioner and it is only for the first time in the course of the present writ petition that those ‘reasons’ have surfaced. Therefore, if he proceeded on the assumption that the ‘actual’ reasons were those as noted in the said form, the proper course of action as directed by the Supreme Court in GKN Driveshafts (India) Ltd.’s case, has not been followed. It would mean that the reasons which were supplied to the petitioner were not the actual reasons and the objections which were taken by the petitioner were not to the actual reasons and the speaking order dated 2-3- 2005 which was passed was also neither on the basis of the actual reasons nor the objections to the actual reasons. The entire process would be a sham and would amount to making a mockery of the law as settled by the Supreme Court. Therefore, for this reason 26 ITA.No.6022/Del./2016 M/s. Bhartiya Samruddhi Finance Ltd., New Delhi. also, the notice under section 148 as well as all proceedings subsequent thereto as also the order dated 2-3-2005 are liable to be quashed.”

6.3. We find the Hon’ble Supreme Court in the case of CIT vs., Kelvinator of India Ltd., [2010] 320 ITR 561 (SC) has held that after 1st April, 1989 the A.O. has power to reopen the assessment provided there is tangible material to come to the conclusion that there was escapement of income from assessment. The reason must have a link for the formation of the belief. The relevant observation of the Hon’ble Supreme Court reads as under :

“After the Amending Act, 1989, Section 147 reads as under:

"Income escaping assessment.

On going through the changes, quoted above, made to Section 147 of the Act, we find that, prior to Direct Tax Laws (Amendment) Act, 1987, re-opening could be done under above two conditions and fulfillment of the said conditions alone conferred jurisdiction on the Assessing Officer to make a back assessment, but in section 147 of the Act [with effect from 1st April, 1989], they are given a go-by and only one condition has remained, viz., that where the Assessing Officer has reason to believe that income has escaped assessment, confers jurisdiction to re-open the assessment. Therefore, post-1st April, 1989, power to re-open is much wider. However, one needs to give a 28 ITA.No.6022/Del./2016 M/s. Bhartiya Samruddhi Finance Ltd., New Delhi. schematic interpretation to the words "reason to believe" failing which, we are afraid, Section 147 would give arbitrary powers to the Assessing Officer to re-open assessments on the basis of "mere change of opinion", which cannot be per se reason to re-open. We must also keep in mind the conceptual difference between power to review and power to reassess. The Assessing Officer has no power to review; he has the power to re-assess. 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 re-opening 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 Assessing Officer. Hence, after 1st April, 1989, Assessing Officer has power to re- open, 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 29 ITA.No.6022/Del./2016 M/s. Bhartiya Samruddhi Finance Ltd., New Delhi. changes made to Section 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 Section 147 of the Act. However, on receipt of representations from the Companies against omission of the words "reason to believe", Parliament re-introduced the said expression and deleted the word "opinion" on the ground that it would vest arbitrary powers in the Assessing Officer. We quote here in below the relevant portion of Circular No.549 dated 31st October, 1989, which reads as follows:

7.2 Amendment made by the Amending Act, 1989, to reintroduce the expression `reason to believe' in Section 147. --A number of representations were received against the omission of the words `reason to believe' from Section 147 and their substitution by the `opinion' of the Assessing Officer. It was pointed out that the meaning of the expression, `reason to believe' had been explained in a number of court rulings in the past 30 ITA.No.6022/Del./2016 M/s. Bhartiya Samruddhi Finance Ltd., New Delhi. and was well settled and its omission from section 147 would give arbitrary powers to the Assessing Officer to reopen past assessments on mere change of opinion. To allay these fears, the Amending Act, 1989, has again amended section 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 section 147, however, remain the same.

For the afore-stated reasons, we see no merit in these civil appeals filed by the Department, hence, dismissed with no order as to costs.”

6.4. We find the Hon’ble Delhi High Court in the case of Bharti Infratel Ltd., vs., DCIT & Another [2019] 411 ITR 403 (Del.) has held that proviso to Section 147 of the I.T. Act, 1961 clearly states that no action under section 147 will be taken by the A.O. unless any income chargeable to tax has escaped assessment by reason of failure on the part of the assessee to disclose fully and truly all material facts 31 ITA.No.6022/Del./2016 M/s. Bhartiya Samruddhi Finance Ltd., New Delhi. necessary for that assessment year. The relevant observation of the Hon’ble Delhi High Court reads as under:

“31. In the aforesaid factual background and the legal position elucidated, it has to be held that BIL had made full and true disclosure of material facts i.e. all primary facts which are mentioned and stated in the reasons to believe'. Nothing was concealed, withheld and nothing was left to be factually discovered in the form of 'material' mentioned in detail in accounts and other evidence, that was not disclosed/stated but could have been discovered by due diligence. In fact as noted above, reading of the reasons to believe' i.e. evidence and material in form of facts and figures were duly stated and mentioned in the affidavit sworn by Mr. Raghuveer Singh Dagur on 12th February, 2010, opposing the second scheme of demerger and transfer of infrastructure assets in 12 circles by BIL to M/s Bharti Infratel Ventures Ltd. and language, facts and figures in the reasons to believe' are similar, if not identical.

32 ITA.No.6022/Del./2016 M/s. Bhartiya Samruddhi Finance Ltd., New Delhi.

33 ITA.No.6022/Del./2016 M/s. Bhartiya Samruddhi Finance Ltd., New Delhi. 6.5. Since in the instant case the primary facts were already disclosed in the Notes to Accounts filed along with the balance-sheet which is the subject matter of reopening of the assessment and since the original assessment was completed under section 143(3) and since there is no allegation by the A.O. of any failure on the part of the assessee to disclose fully and truly all material facts necessary for completion of the assessment and since there is no tangible material for belief that income chargeable to tax has escaped assessment, therefore, respectfully following the decisions cited (supra), we hold that the re- assessment proceedings initiated by the A.O. in the instant case after a period of four years from the relevant assessment year are not in accordance with Law. Accordingly, the re-assessment proceedings are quashed as null and void. Since the re-assessment proceedings are held to be null and void, the subsequent proceedings also become infructuous. Since the assessee succeeds on this legal ground, the grounds on merit are not being 34 ITA.No.6022/Del./2016 M/s. Bhartiya Samruddhi Finance Ltd., New Delhi. adjudicated being academic in nature. Accordingly, the appeal of the assessee is allowed.

Order pronounced in the open Court on 10.09.2021.