DCIT 9(2)(1), MUMBAI vs. BRENNTAG INGREDIENTS (I) P.LTD, MUMBAI

आदेश / O R D E R PER R.C.SHARMA (A.M):

This is an appeal filed by the Revenue against the order of CIT(A)16, Mumbai dated 09/02/2018 for A.Y.2006-07 in the matter of order passed u/s.143(3) r.w.s. 147 of the IT Act. 2. The following grounds have been taken by the Revenue:- 1. "Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in holding the reopening as invalid relying on the decision of Hon'ble Tribunal in the case of M/s. Golden Tobacco Ltd. (ITA No. 5858/Mum/2012 & 5859/Mum/2012) ignoring the facts that the copy of reason recorded were provided to the assessee as per the procedure laid down by the Hon'ble Supreme Court in the case of GKN Drive Shaft reported in 259 ITR(SC)19.

2 ITA No.3351/Mum/2016 M/s. Brenntag Ingredients (I) Pvt. Ltd., 2. "Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in ignoring the facts that the question of concealment is not relevant and is not a precondition which confers jurisdiction to reopen the assessment. Correct material facts can be ascertained from the assessment records also and it is not necessary that the same may come from a third person or source, i.e., from source other than the assessment records, as held by the Hon'ble Delhi High Court in the case of CIT Vs Usha International Ltd. Reported in 253 CTR 113. The appellant prays that the order of the CIT(A) on the above grounds be set aside and that of the DCIT-9(2)(1) be restored. The appellant craves leave to amend or alter any grounds or a.<$ a new ground which may be necessary.

3 ITA No.3351/Mum/2016 M/s. Brenntag Ingredients (I) Pvt. Ltd., 5. By the impugned order CIT(A) annulled the assessment after observing as under:- “6.1.1 Although the appellant has raised a total number of four grounds but during the course of hearing the Ld. Counsel appearing on behalf of the appellant company contended that this case is covered in favour of the appellant on the legal ground itself. The appellant company had challenged the re-opening of the assessment. It has been argued that in this case original assessment was done u/s,143(3) of the I.T. Act 1961 on 18.12.2008 and the assessment year involved is A.Y. 2006-07. The assessment has been reopened on 28.03.2013 after the expiry of four years from the end of the assessment year. The appellant relied upon provision of section 147 which read as under: ''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 years from the end of the 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". 6.1.2 According to the appellant the provision makes it amply clear that for reopening the assessment u/s.!43(3) beyond a period of 4 years from the end of relevant assessment year, merely a belief that income has escaped assessment is not sufficient, such escapement must be due to the failure on part of the appellant to disclose fully and truly all material facts for the purpose of assessment of that year. For the sake of ready reference the reasons recorded by the A.O. are reproduced here under: The assessment in the above mentioned case for A.Y. 2006-07 was completed on 18.12.2008 at a loss of Rs.47,67,780/-. From the perusal it revealed that the assessee had claimed depreciation of Rs.1,21,98,750/- on contracts at the rate of (25%) (12.5% for less than 180 days. The depreciation on this should not have been allowed at all By doing so, the revenue has incurred loss of potential of tax effect of Rs.41,06,099/-.” 6.1.3 The Ld. Counsel after referring the reasons recorded by the A.O. argued that there was no failure on part of the appellant company to disclose the true facts of the case which were required for making assessment. Undoubtedly the original assessment was framed u/s.!43(3) and case was reopened after a lapse of more than 4 years. From

4 ITA No.3351/Mum/2016 M/s. Brenntag Ingredients (I) Pvt. Ltd., perusal of the aforesaid reasons it is evident that A.O. has no where mentioned about any failure on the part of the assessee in disclosure of the material facts. In para 2 of the assessment order the A.O. had simply mentioned that "from the perusal it revealed that the assessee had claimed depreciation of Rs.12198750/- on supply contract @25%." According to the A.O. the depreciation on this should not have been allowed at all. From careful reading of the reasons recorded by the A.O., it is clear that A.O. has simply relied upon the records submitted by the appellant itself. During the course of assessment proceedings no new material was brought on record. From the reasons recorded, nowhere it is mentioned that there was any failure on the part of the appellant in disclosure of the material facts, thus these reasons are apparently contrary to first proviso to section 147 of the Act. " ' 6.1.4 In similar circumstances, the Hon'ble ITAT in the case of M/s. Golden Tobacco Ltd. ITA Nos.5858 & 5859/Mum/2012 has held as under: "The other argument taken up by the learned Counsel was that there was no allegation in the 'Reasons' about failure on the part of the assessee in disclosure of material facts. Again, the perusal of aforesaid 'Reasons' shall reveal that the AO has nowhere mentioned about any failure on the part of the assessee in disclosure of material facts. Ratherwhat has been mentioned in the 'Reasons' is about the omission or mistake committed by the AO himself. In our considered view, the law does not give powers to the AO to reopen an assessment carried out u/s 143(3) after the expiry of four years unless the AO is able to demonstrate that there was failure on the part of the assessee in disclosure of material facts. In this regard, we feel it appropriate to reproduce hereunder t/ie first proviso to section 147 of the Act:- .. ... "provided that where an assessment under sub-section (3) of Section 143 of this section has been made for the relevant assessment year, no action shall be taken under this section after the expiry of four years from the end of the 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:" It may be noted that the reading of the 'Reasons', as reproduced in>, earlier part of this Order that neither there is any allegation of failure and disclosure of material facts' nor made out any case of any failure on the part of assessee in disclosure of material facts. Thus, these Reasons' are apparently contrary to law.

5 ITA No.3351/Mum/2016 M/s. Brenntag Ingredients (I) Pvt. Ltd., 7.1.8.Further, as has bee rightly contended by the learned AR that this issue is no more res integra. Hon’ble Bombay High Court in many judgements has held that in those cases where the first proviso to section 147 is applicable, the reopening cannot be done unless there is allegation in the reasons that there was failure on the part of the assessee in disclosure of material facts. Weplace our first reliance upon the judgment of Hon'ble Bombay High Court in the case of Tata Business Support Services Ltd. v. DCIT 232 Taxman 702.Relevant para is reproduced here under:- "In the present case, when the revenue alleges failure to make full and true disclosure of material facts, then the term failure has some specific legal connotation. Here, material facts are pertaining to the expenses under the head "management fees" It is apparent that the words employed are material facts. It is not just facts but material facts. The word "material" in the context means "important, essential, relevant concerned with the matter, not the form of reasoning" Just as disclosure of every fact would not suffice but for proceeding under section 147 non disclosure ought to be of a material fact." 7.2 We also rely upon the judgment of the Hobble Bombay High Court in the case of Titanor Components Limited, supra, and CIT v. Shri Shailesh S.Shah, supra. Further, reliance is placed by us on the'judgment of the Hon'ble Supreme Court in the case of CITv. Avadh Transformers (P.)Ltd, 51 Taxmann.com 369, wherein the Hon'ble Supreme Court has upheld the judgment of the Allahabad High Court, wherein it was held by the Hon'ble High Court that in absence of failure on the part of the assessee in disclosure of material facts, the reassessment proceedings could not be initiated after expiry of four years from the end of relevant assessment year merely on the ground that in view ofthe retrospective amendment to provisions of section 801A, the assessee was not entitled to deduction granted earlier under said section, Thus, even in such cases, when there was a retrospective amendment in the law, the Hon'ble Supreme Court has approved the order of the Hon'ble High Court, upholding the view that no reopening can be done after the expiry of four years unless there was failure on the part of the assessee in disclosure of material facts. It is noted that the present case stands on a better footing. 7.3 Before we part with, it is found appropriate to refer to a recent judgement of Hon'ble Delhi High Court in the case of Pr.ClT Vs. Samcor Glass ltd. (ITA No.768/2015 dated 12.10.2015) wherein Hon'ble High Court came down heavily upon the Income tax Department for re-opening of the assessments of the lax payers, in a casual manner and without complying with mandatory conditions of law. Relevant portion of the judgment is reproduced be low:

6 ITA No.3351/Mum/2016 M/s. Brenntag Ingredients (I) Pvt. Ltd., "4. Although the Assessees in both the appeals are different, the issue involved in both cases is similar, i.e., whether the reopening of the assessment under Section 1471148 of the Act is valid? “5. Apart from the fact that the impugned order of the/TAT suffers from no legal infirmity, the court is of the view that on the face of it, the reasons for reopening of the assessment in both the cases did not satisfy the basic requirement of the law, in at least in two aspects. One was that the reopening was of assessment beyond four years after the AY for which the original assessment was framed and yet the reasons for reopening did not categorically state that there was a failure by the Assessees to disclose any material particulars on the basis of which there were reasons to believe that the income has escaped assessment. This Court has recently, in a decision dated 22nd September 2015 in ITA No.356 of 2013 (CIT vs. Multiplex Trotting & Industrial Ca Ltd.), clearly stated in cases when reopening of assessment is beyond four years from the end of the relevant assessment year he condition that there has been a failure on the part of the Assessee to truly and fully disclose all material facts must be concluded with certain level of certainty. 6. Secondly, the Court finds that at lease in respect of one of the issues, viz., payment of interest on fixed deposits, the assessee drew attention of the assessing Officer (AO) to the fact that the amount has already been offered to tax and tax had been paid and yet, in the order disposing of the objections, the AO is completely silent as regards this objection. 7. The Court is of the view that notwithstanding several decisions of the Supreme Court as well as this Court clearly enunciating the legal position under section 147/148 of the Act, the reopening of assessment in cases like the one on hand give the impression that reopening of assessment is being done mechanically and casually resulting in unnecessary harassment of the Assessee, 8. The Court would have been inclined to impose heavy costs on the Revenue for filing such frivolous appeals but declines to do so since the appeals are being dismissed ex parte.. However, the court directs the Revenue through the Principal Chief Commissioner of Income Tax (Pr CIT) . ; to issue instructions to the AOs to strictly adhere to the law explained in various decisions of the Supreme Court and the High Court in regard to Sections 1471148 of the Act and make it mandatory for them to ensure that an order for reopening of an assessment clearly records the compliance with each of the legal requirements. Secondly, tlie AOs must be directed to strictly comply with the law explained by the Supreme Court in GKN Driveshafts (India) Ltd v. Income Tax

7 ITA No.3351/Mum/2016 M/s. Brenntag Ingredients (I) Pvt. Ltd., Officer (2003) 2591TR 19 (SC) as regards the disposal of the objections raised b\j tlie Assessee to the reopening of the assessment" 7,4 Thus, in our considered view, this issue is sqarely covered in Javour of the assessee by the judgments of the Hon'ble jurisdictional High Court and Hon'ble Supreme Court of India, and therefore, reopening is held to be invalid on this ground as well." 6.1.5 The Hon'ble Tribunal has delivered its judgement after considering the judgement of Hon'ble Jurisdictional High Court and Hon'ble Apex Court. Therefore, respectfully following the judgement of Hon'ble Tribunal and Hon'ble Jurisdictional and Hon'ble Apex Court, reopening is held to be invalid. Hence ground no. 1 raised by the appellant is allowed. 6.1.6. Since the assessment framed u/s.143(3) r.w.s.147 is treated as invalid therefore ground nos. 2 to 4 become academic in nature hence not adjudicated. 7.In the result, the appeal of the appellant is allowed.” 6. Against the above order of CIT(A), Revenue is in further appeal before us. 7. We have considered rival contentions and carefully gone through the orders of the authorities below and found from record that initially assessment was u/s.143(3), the assessment year involved is AY 2006-07 and the assessment has been reopened on 28/03/2013 i.e., after the expiry of four years from the end of the relevant assessment year (which ends on 31.03.2011). Relevant provisions of Section 147 reads as under:- "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 years from the end of the 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)"•

8 ITA No.3351/Mum/2016 M/s. Brenntag Ingredients (I) Pvt. Ltd., 8. The above provisions makes it amply clear that for reopening the assessment u/s 143(3) beyond a period of four years from the end of relevant assessment year, merely a belief that the income has escaped assessment is not sufficient; such escapement must be occasioned by the failure on the part of the assessee to disclose fully and truly all material facts for the purpose of assessment of that year. The issuance of notice u/s 148, in the absence of such failure on the part of the assessee, would render the reopening bad in law. 9. In the instant case, the assessee had undergone a scrutiny assessment u/s 143(3) for the captioned year. All the details called for by the AO during the course of assessment were diligently furnished to the AO. After considering and verifying all the details/documents and explanations, the AO completed the assessment. More importantly, there is no whisper in the reasons recorded to the effect that the assessee has suppressed any material fact or has failed to disclose fully and truly all material facts necessary for the assessment of that year because of which the income has escaped assessment. As there is no failure on part of the assessee to disclose any material facts necessary for his assessment, the reopening of assessment, which is beyond a period of four years, is without jurisdiction and is bad in law. 10. As per the finding recorded by CIT(A) and also in terms of the notice issued for reopening, there was no failure on the part of the assessee to disclose fully and truly all the materials and facts.

9 ITA No.3351/Mum/2016 M/s. Brenntag Ingredients (I) Pvt. Ltd., Accordingly, we do not find any infirmity in the order of CIT(A) for holding that reopening was not valid. 11. In the result, appeal of the Revenue is dismissed.

Order pronounced in the open court on this 30/01/2019 Sd/- Sd/- (SANDEEP GOSAIN) (R.C.SHARMA) JUDICIAL MEMBER ACCOUNTANT MEMBER Mumbai; Dated 30/01/2019 Karuna Sr.PS Copy of the Order forwarded to : The Appellant 1. The Respondent. 2. The CIT(A), Mumbai. 3. CIT 4. DR, ITAT, Mumbai 5. BY ORDER, 6. Guard file. सत्यापित प्रतत //True Copy// (Asstt. Registrar) ITAT, Mumbai