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Income Tax Appellate Tribunal, “A” BENCH: KOLKATA
Before: Shri A. T. Varkey, JM & Dr. A. L. Saini, AM]
Per Shri A.T.Varkey, JM
This appeal preferred by the assessee is against the order of Ld. CIT(A)-10, Kolkata dated 30.09.2016 for AY 2004-05.
The assessee has assailed the action of the AO to reopen the original assessment which was completed u/s. 143(3) of the Income-tax Act, 1961 (hereinafter referred to as the “Act”) after the expiry of 4 years, without pointing out in the reasons recorded for reopening, the facts or material which were not disclosed by the assessee fully and truly necessary for the assessment for that assessment year. For adjudicating the issue let us look at the facts leading to framing of this question. The assessee company filed its return of income for the AY 2004-05 on 29 October 2004 declaring total income as per normal provisions of the Act at Rs. Nil and book profit under section 115JB of the Act at Rs.1,303,360,620. Minimum Alternate Tax ('MAT') payable on the same was determined at Rs.101,604,031 (including interest of Rs.1,408,183 under section 234C of the Act). After
2 ITA No. 2348/Kol/2016 Materials Chemicals & Performance Intermediaries (P) Ltd., AY 2004-05 adjusting the same against tax deducted at source amounting to Rs 13,110,540 and taxes (advance tax and self-assessment tax) paid amounting to Rs 90,132,295, a refund of Rs 1,638,804 was claimed by the assessee in the return of income.
Thereafter notice under section 143(2) of the Act dated 28 March 2005 was issued by AO initiating scrutiny assessment proceedings under section 143(3) of the Act. After issuing notice under section 142(1) of the Act various information and details were called for from the appellant. Pursuant to the notices from AO, the assessee filed detailed submissions/ information/ explanations. The AO also made reference to the Transfer Pricing Officer under section 92CA(1) of the Act and the order of the TPO was received wherein certain adjustments was proposed. The AO completed the assessment on 19 December 2006 (also considering the adjustment suggested by the TPO) and issued an order under section 143(3)/115JB of the Act assessing the total income under the normal provision of the Act at Rs 39,017,442 (as against the returned total income as per normal provision of the Act of Nil) and revising the book profit under section 115JB of the Act to Rs. 1,324,972,064 (as against the returned book profit under section 115JB of the Act at Rs. 1,303,360,620). In view of the above assessment the AO computed the tax liability of the assessee at Rs 2,312,900 (including interest under sections 234B, 234C & 234D of the Act of Rs. 399,100, Rs. 1,213,022 & Rs. 252,420 respectively).
Aggrieved by the aforesaid original assessment order, the assessee had filed an appeal which is presently pending before the Ld. Commissioner of Income Tax (Appeals)- 22.
In the meantime, the AO issued notice under section 148 of the Act dated 22 March 2011 proposing to reopen of assessment made on 19.12.2006 u/s. 143(3) of the Act. In this regard, it was brought to our notice that the said notice has been issued after 4 years (nearly 6 years) from the end of the relevant AY. By the said notice, the assessee was asked to submit its return of income, for which the assessee reiterated its return of income originally filed on 29 October 2004 and also sought the reason for reopening the assessment.
3 ITA No. 2348/Kol/2016 Materials Chemicals & Performance Intermediaries (P) Ltd., AY 2004-05 6. The Ld. Sr. Counsel Mr. Nageswar Rao brought to our notice the reason recorded by the AO to reopen the assessment which, according to him, is placed at page 49 of the paper book. For adjudicating the legal issue let us look at the reasons given by AO to reopen the assessment which is given by the AO at page 49 of the paper book as stated by the Ld. Sr. Counsel Mr. Nageswar Rao for the assessee before us: “2.1. In the computation of income for the A.Y. 2004-05, you had claimed depreciation of Rs.1,34,69,64,982/- including depreciation of Rs.1,26,14,78,536/- on account of plant and machinery and the same was allowed in the assessment. In the schedule of depreciation as per I.T. Act, addition to plant and machinery for less than 180 days was shown as Rs.(-) 34,56,75,769/~ with corresponding depreciation of Rs.(-)4,32,09,471/-. The addition to plant and machinery ended up in a negative figure due to adjustment of foreign exchange fluctuation. 2.2 Schedule III(b) of Tax Audit Report revealed that the actual addition to plant and machinery for less than 180 days was merely Rs,9,63,74,712/- which was reduced by Rs.44,20,50,481/- being gains in foreign exchange in respect of repayment and revaluation of loan to arrive at a net reduction in cost of assets by Rs.34,56,75,769/- on which depreciation was charged at fifty percent of normal rate calculated to be Rs.(-) 4,32,09,471/-. It was further noticed that foreign exchange fluctuation of Rs.44,20,50,481/- constituted 'addition no. 22- INR-USD-Swap principal merit' of Rs.26,52,981/-, 'addition no. 23-FX gain-JBIC 4th loan repayment' of Rs.1,05,51,500/-, 'addition no. 24 ECB loan revaluation' of Rs.20,44,24,000/- and 'addition no. 25-ECB loan revaluation' of RS.22,44,22,000/- which had, therefore, arisen out of repayment/revaluation of loans utilized for acquiring plant and machinery during earlier years as addition during the year for less than 180 days was merely Rs.9,63,74,7121-. As such, the depreciation on foreign exchange gains affecting the reduction in the cost of plant and machinery was required to be calculated @ 25% instead of calculating at 50% of the normal rate i.e. 12.5% so that the cost of assets acquired during earlier year could have been reduced by giving full effect of foreign exchange fluctuation. Omission to do so resulted in excess computation of depreciation by Rs.5,52,56,310/- (i.e.12.5% on Rs.44,20,50,481/-) and as such underassessment of income by Rs.5,52,56,310/~ with consequent tax effect of Rs.1,90,23,201/-.” 7. The main contention of the Ld. Sr. Counsel is that when the original assessment was completed u/s. 143(3) of the Act and reopening of the completed assessment was proposed after the expiry of four years, the AO is bound to point out in the reasons recorded for reopening the facts or material which were not disclosed by the assessee truly and fully during the original assessment proceedings. According to Ld. Counsel without pointing out the facts/material which were not disclosed during the original assessment in the reasons recorded for reopening goes to the root of the jurisdiction of the AO to reopen the assessment after four years. Here in this case it was brought to our notice that the notice proposing reopening has been issued after four years (nearly six years) from the end of the relevant assessment year, therefore, the AO according to him, has to spell out the
4 ITA No. 2348/Kol/2016 Materials Chemicals & Performance Intermediaries (P) Ltd., AY 2004-05 facts/material which were not disclosed by the assessee during the original assessment without which the AO lacks jurisdiction to reopen the assessment. For adjudicating this issue let us look into the legal provisions for reopening.
“Income escaping assessment. 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 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:” 8. Reading of the proviso to section 147 makes it clear that 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 section 147, or recompute the loss or the depreciation allowance or any other allowance, as the case may be, for the concerned assessment year. However, where an assessment under sub- section (3) of section 143 has been made for the relevant assessment year, no action can be taken under section 147 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 disclose all material facts necessary for his assessment for that assessment year.
Taking note of the requirement of law in case when the original assessment was framed u/s. 143(3) and four years have expired in the present case before us and a perusal of the reasons recorded to reopen the completed assessment u/s. 143(3),(supra) we do not find any whisper/averment to the effect that assessee has not truly and fully disclosed any facts or material to assess the income of the assessee in the original assessment. In a similar
5 ITA No. 2348/Kol/2016 Materials Chemicals & Performance Intermediaries (P) Ltd., AY 2004-05 case the Hon’ble Bombay High court in the case of Hindustan Lever Ltd. Vs. ACIT 268 ITR 332 (Bom) has laid the law on the issue as under: “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 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.”(Emphasis given by us)
We note that in the reasons recorded in this case in hand the AO has used the expression “omission to do so resulted in excess computation of depreciation and as such under assessment of income”, so, according to ld. DR, the AO has indeed indicated that there was failure on the part of the assessee to make full and true disclosure of the material facts necessary for assessment. We are not inclined to accept the said contention of the Ld. DR. We note that assessee had in fact disclosed all material relevant for claiming depreciation. The AO has merely used the expression “omission to do so resulted in excess computation of depreciation”. The AO has not pointed out which fact the assessee has not truly and fully disclosed during the original assessment which in turn resulted in escapement of income. Without pointing out the facts and materials omitted by the assessee during the original assessment, in the reasons recorded to reopen (after 4 years) makes the initiation of reopening bad in the eyes of law. We note in a similar case the Hon’ble Delhi High Court has dealt with similar contention of department in the case of
6 ITA No. 2348/Kol/2016 Materials Chemicals & Performance Intermediaries (P) Ltd., AY 2004-05 M/s. Microsoft Corporation (I) Pvt. Ltd. Vs. DCIT WP(C) 284/2014 order dated 23.05.2013 wherein the Hon’ble High Court held as under:
“20. We may also point out that we do not agree with the contention of Mr. Sahni that the recorded reasons expressly indicate that there was failure on the part of the assessee to make a full and true disclosure of the material facts necessary for its assessment. Mr. Sahni had placed reliance on the last sentence of the recorded reasons which reads as under:- “I therefore have reasons to believe that the income of Rs.12,17,91,668/- have escaped assessment within the meaning of Section 147 of the IT Act, 1961, due to omission on the part of the assessee to include this sum into its income for the relevant previous years". What is to be seen is that the expression used by the Assessing Officer is "due to omission on the part of the assessee to include this sum into its income". The allegation is not that there was no disclosure on the part of the assessee but that the assessee had not included the said amount as part of its income. This expression needs to be read in the context of the earlier part of the recorded reasons where the reasons essentially recorded that expenses should have been shown as capital expenditure and not as revenue expenditure and that the provision for payment of gratuity as inadmissible etc. It is not a statement that the petitioner had failed to disclose fully and truly any particular piece of information which was necessary for the purpose of assessment. Furthermore, we also cannot infer any such belief on the part of the Assessing Officer that there was a failure to make a full and true disclosure of material facts on the part of the assessee.” 11. We, therefore, hold that there was no failure on the part of the assessee to disclose fully and truly all the material facts necessary for its original assessment and the AO without pointing out the facts which the assessee failed to truly and fully disclose during the original assessment in the reasons recorded to reopen makes the AO “quorum non-judice”. Thus the assessee’s appeal succeeds. Therefore, we quash the notice of reopening on this legal infirmity which goes to the root of subsequent actions and, therefore, all actions are null in the eyes of law.
In the result, the appeal of assessee is allowed.
Order is pronounced in the open court on 21st August, 2018 Sd/- Sd/- (Dr. A. L. Saini) (Aby. T. Varkey) Accountant Member Judicial Member
Dated : 21st August, 2018
Jd.(Sr.P.S.)
7 ITA No. 2348/Kol/2016 Materials Chemicals & Performance Intermediaries (P) Ltd., AY 2004-05 Copy of the order forwarded to: 1. Appellant – Materials Chemicals & Performance Intermediaries Pvt. Ltd. 22, Camac Street, 4th floor, Block C, Kolkata-700 016. 2 Respondent – DCIT, Circle-11, Kolkata.
CIT(A)-10, Kolkata. (sent through e-mail) CIT – , Kolkata. 4.
DR, ITAT, Kolkata. (sent through e-mail)
/True Copy, By order,
Sr. Pvt. Secretary