OLEOFINE ORGANICS (INDIA) P.LTD,MUMBAI vs. DCIT CIR 10(2), MUMBAI

आदेश / O R D E R PER M. BALAGANESH (A.M): This appeal in 5832/Mum/2014 for A.Y.2006-07 & 2010-11 arise out of the order by the ld. Commissioner of Income Tax (Appeals)-22, Mumbai in appeal Nos.CIT(A)-22/DCIT- 10(2)/IT-27/2013-14 & CIT(A)-22/DCIT-10(2)/IT-28/2013-14 respectively dated 07/07/2014 (ld. CIT(A) in short) against the order of assessment passed u/s.143(3) r.w.s. 147 of the Income Tax Act, 1961 (hereinafter

M/s. Oleofine Organics (India) Pvt. Ltd.

Thus, the only option available is to claim deduction u/s. 80IB(3)(ii). However, again, 80IB(3)(ii) deduction is applicable to an industrial undertaking being a small scale industrial undertaking which begins to manufacture or produce or things or to operate cold storage plant during the period beginning on the 1st day of April 1995 and ending on the 31st March, 2002. The assessee company is not in the business of cold storage plants and also in not a small scale industrial undertaking as its investment in fixed assets in Plant and Machinery, whether held on ownership basis or on lease or on hire purchase exceeds Rs. 1 crore is not eligible for deduction also u/s. Section 80IB(3)(ii). A.Y. in the present case involved is A.Y. 2006-07 and therefore provisions of Section 80IB(3) cannot be applied in the case of the assessee. From the above facts, it is seen that this has resulted in underassessment of to the extent of Rs. 2,20,37,548/- involving short levy of tax of Rs.98,65,724/-. In the light of above facts, remedial action u/s 148 is being taken. "

3.1. In the re-assessment, the ld. AO ultimately disallowed the claim of deduction u/s.80IB of the Act and added a sum of Rs.2,20,37,548/- to the total income of the assessee. The assessee challenged the assessment before the ld. CIT(A) both on merits as well as on the validity of reopening. The ld. CIT(A) upheld the action of the ld. AO both on validity of reopening as well as disallowance of deduction u/s.80IB of the Act on merits.

admittedly issued beyond four years from the end of the relevant assessment year. Hence, the applicability of proviso to Section 147 would come into operation wherein the failure on the part of the assessee to make full and true disclosure of the material facts should be clearly pointed out by the ld. AO in the reasons recorded itself. He argued that the reasons recorded by the ld. AO nowhere indicates the failure committed by the assessee with regard to disclosure of full and true facts before the ld. AO in the course of original assessment proceedings. Accordingly, he prayed that the entire re-assessment deserves to be quashed on that count. He placed reliance on the Co-ordinate Bench of this Tribunal in the case of Samarth Lifters Pvt. Ltd. vs. ACIT in dated 06/03/2019 in support of his argument. We have gone through the reasons recorded by the ld. AO for reopening the assessment which are reproduced hereinabove. From the perusal of the aforesaid reasons, we find that there is absolutely no whisper in the reasons recorded by the ld. AO indicating the failure on the part of the assessee to disclose fully and truly all material facts necessary for the relevant assessment year. Admittedly, the entire balance sheet wherein the investment in plant and machinery had been duly reflected was furnished before the ld. AO at the time of original assessment proceedings. The original assessment proceedings have been completed after verification of the necessary documents and the balance sheet filed

M/s. Oleofine Organics (India) Pvt. Ltd. together with the books of accounts by the assessee. Hence, there cannot be any failure on the part of the assessee to disclose fully and truly all materials facts before the ld. AO during the course of original assessment proceedings. Admittedly in the instant case, the reopening has been made beyond four years from the end of the relevant assessment year. Hence, the proviso to Section 147 of the Act would certainly come into operation. We hold that the reasons recorded by the ld. AO absolutely does not indicate any failure on the part of the assessee to disclose fully and truly all material facts necessary for the purpose of assessment. There cannot be any addition or deletion to the reasons already recorded by the ld. AO. It is well settled that the reasons recorded by the ld. AO should speak for itself. We find that the Hon’ble Jurisdictional High Court in the case of Hindustan Unilever Ltd. vs. ACIT reported in 268 ITR 332 (Bom) had held as under:- 20. The reasons recorded by the Assessing Officer nowhere state that there was failure on the part of the assessee to disclose fully and truly all material facts necessary for the assessment of that assessment year. It is needless to mention that the reasons are required to be read as they were recorded by the Assessing Officer. No substitution or deletion is permissible. No additions can be made to those reasons. No inference can be allowed to be drawn based on reasons not recorded. It is for the Assessing Officer to disclose and open his mind through reasons recorded by him. He has to speak through his reasons. It is for the Assessing Officer to reach the conclusion as to whether there was failure on the part of the assessee to disclose fully and truly all material facts necessary for his assessment for the concerned assessment year. It is for the Assessing Officer to form his opinion. It is for him to put his opinion on record in black and white. The reasons recorded should be clear and unambiguous and should not suffer from any vagueness. The reasons recorded must disclose his mind. The reasons are the manifestation of the mind of the Assessing Officer. The reasons recorded should be self-explanatory and should not keep the M/s. Oleofine Organics (India) Pvt. Ltd. assessee guessing for the reasons. Reasons provide the link between conclusion and evidence. The reasons recorded must be based on evidence. The Assessing Officer, in the event of challenge to the reasons, must be able to justify the same based on material available on record. He must disclose in the reasons as to which fact or material was not disclosed by the assessee fully and truly necessary for assessment of that assessment year, so as to establish the vital link between the reasons and evidence. That vital link is the safeguard against arbitrary reopening of the concluded assessment. The reasons recorded by the Assessing Officer cannot be supplemented by filing an affidavit or making an oral submission, otherwise, the reasons which were lacking in the material particulars would get supplemented, by the time the matter reaches the court, on the strength of the affidavit or oral submissions advanced.

5.1. On the contrary, we find that the ld. DR placed reliance on the following decisions: a) Decision of Hon’ble Supreme Court in the case of CIT vs. PVS Beedies Pvt. Ltd reported in 237 ITR 13 (SC) We find that this decision was rendered in the context of reopening being made based on audit objection pointing out a factual mistake committed by the Assessing Officer. This decision is not applicable to the facts of the instant case. b) Decision of Hon’ble Jurisdictional High Court in the case of Hinduja Foundation vs. ITO reported in 2019(2) TMI 1210 dated 15/02/2019 We find that this decision was rendered in the context of writ petition preferred by the assessee in WP No. 2866/2018 wherein the Hon’ble High Court pointed out that minor inaccuracy in indicating the figure in the reasons recorded, would not shake the very foundation of the reasons so as to nullify the notice of reopening based on such M/s. Oleofine Organics (India) Pvt. Ltd. reasons. We find that the said decision was rendered in the peculiar facts of the said case by the Hon’ble Bombay High Court by holding that near non-mentioning of the figures in the reasons recorded would not nullify the re-assessment, whereas, in the instant case before us, the issue is whether the reasons recorded by the ld. AO would get invalidated by not mentioning the failure on the part of the assessee to make full and true disclosure of the material facts before the ld. AO in accordance with proviso to Section 147 of the Act. We hold that this is a statutory requirement and statutory duty cast on the part of the ld. AO to mention the failure of the assessee in the reasons recorded itself. Hence, the decision relied upon by the ld. DR in the case of Hinduja Foundation supra would not come to the rescue of the revenue. C. Decision of Hon’ble Supreme Court in the case of ACIT vs Rajesh Jhaveri Stock Brokers Pvt. Ltd reported in 291 ITR 500 (SC) This is a case wherein the original assessment was completed u/s.143(1) of the Act and thereafter reopening was made. Even in this case, the Hon’ble Supreme Court specifically observed that even if the re- assessment has been made in respect of assessment originally completed u/s.143(1) of the Act, the necessary ingredients of Section 147 of the Act with regard to availability of tangible material which leads the Assessing Officer to form a belief that income of the assessee had escaped assessment should be present. Hence, this decision also would not M/s. Oleofine Organics (India) Pvt. Ltd. advance the case of the revenue as it is factually distinguishable with the instant case before us. d) Decision of Hon’ble Jurisdictional High Court in the case of M/s. Pranawa Leafin Pvt. Ltd. vs. DCIT reported in 2013 (3) TMI 536, Bombay High Court dated 14/03/2013. We find that this decision was rendered by the Hon’ble Bombay High Court in the context of writ petition preferred by the assessee in WP No.167/2013 wherein the Hon’ble High Court had specifically observed that the assessee had failed to disclose in the computation, the fact that the payment of Rs.2.57 Crores for the shares was in fact made on 30/01/2004. Since this fact was not mentioned by the assessee before the ld. AO, the Hon’ble Bombay High Court held that there was a failure on the part of the assessee to disclose full and true material facts before the ld. AO. In the instant case before us , we have already held that the reasons recorded by the ld. AO does not indicate any failure on the part of the assessee to disclose fully and truly all material facts that are necessary for the assessment. Hence, the reliance placed by the ld. DR on this decision would also not come to the rescue of the revenue. e) Decision of Hon’ble Jurisdictional High Court in the case of Indian Hume Pipe Co. Ltd vs. ACIT reported in 348 ITR 439 (Bom) We find that in this case, the assessee has challenged the legality of reopening notice issued u/s.148 in writ petition No.1017/11. We find in this case that the assessee had made claim of exemption u/s.54EC of the Act in the computation of income but the date on which the amounts

M/s. Oleofine Organics (India) Pvt. Ltd. were invested were not mentioned anywhere in the records available before the ld. AO and the assessment order did not deal with the said aspect. In this factual background of that case, the Hon’ble High Court had held that there was a complete failure on the part of the assessee to disclose full and true facts that are necessary in the assessment. However, there is no such allegation in the instant case before us made by the ld. AO in the reasons recorded. Hence, this decision also would not come to the rescue of the revenue.

5.2. Hence, it could be safely concluded that the aforesaid reliance on various decisions placed by the ld. DR does not come to rescue of the revenue in the given set of facts and circumstances of the case. We find that the ld. DR finally placed reliance on Explanation 1 of 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.”

In this regard, we find that the Hon’ble Supreme Court had considered this explanation in the case of ITO vs. Lakhmani Mewal Das reported in 103 ITR 437 (SC) at page 445 and held as under:- The grounds or reasons which lead to the formation of the belief contemplated by section 147(a) of the Act must have a material bearing on the question of escapement of income of the assessee from assessment

M/s. Oleofine Organics (India) Pvt. Ltd. because of his failure or omission to disclose fully and truly all material facts. Once there exist reasonable grounds for the Income-tax Officer to form the above belief, that would be sufficient to clothe him with jurisdiction to issue notice. Whether the grounds are adequate or not is not a matter for the court to investigate. The sufficiency of the grounds which induce the Income-tax Officer to act is, therefore, not a justiciable issue. It is, of course, open to the assessee to contend that, the Income-tax Officer did not hold the belief that there had been such non-disclosure. The existence of the belief can be challenged by the assessee but not the sufficiency of the reasons for the belief. The expression "reason to believe" does not mean a purely subjective satisfaction on the part of the Income- tax Officer. The reason must be held in good faith. It cannot be merely a pretence. It is open to the court to examine whether the reasons for the formation of the belief have a rational connection with or a relevant bearing on the formation of the belief and are not extraneous or irrelevant for the purpose of the section. To this limited extent, the action of the Income-tax Officer in starting proceedings in respect of income escaping assessment is open to challenge in a court of law. (See observations of this court in the cases of Calcutta Discount Co. Ltd. v. Income-tax Officer [1961] 41 ITR 191 (SC)and S.Narayanappa v. Commissioner of Income- tax [1967] 63 ITR 219 (SC) while dealing with the corresponding provisions of the Indian Income-tax Act, 1922).

Hence we hold that the reliance placed on Explanation 1 to section 147 by the ld DR also does not advance the case of the revenue.

In view of our aforesaid detailed observations on the validity of reopening and respectfully following the decision of Hon’ble Jurisdictional High Court in the case of Hindusthan Lever Limited relied upon supra, we hold that the ld. AO had not indicated the failure on the part of the assessee to make full and true disclosure of material of facts that are necessary for the purpose of assessment in the original assessment proceedings in accordance with proviso to Section 147 of the Act. Accordingly, in view of M/s. Oleofine Organics (India) Pvt. Ltd. this statutory violation of the ld. AO, the reopening made by the ld. AO deserves to be quashed and is hereby quashed. Accordingly, the ground No.1 raised by the assessee challenging the validity of reopening is allowed.

2. The CIT(A), Mumbai.

3. CIT 4. DR, ITAT, Mumbai 5.