DCIT CIR 2(2)(1), MUMBAI vs. JAMES MACKINTOSH & CO. P.LTD, MUMBAI

Date of Hearing – 24.10.2017 Date of Order – 09.11.2017

O R D E R PER SAKTIJIT DEY, J.M.

Aforesaid appeal by the Revenue is directed against the order dated 14th September 2015, passed by the learned Commissioner (Appeals)–5, Mumbai, for the assessment year 2005–06.

income filed by the assessee was selected for scrutiny and the Assessing Officer completed the assessment under section 143(3) of the Act vide order dated 30th November 2007, determining the income at ` 80,54,516, after making number of disallowances. Subsequently, the Assessing Officer having reason to believe that the commission paid to directors were excessive, thereby, resulting in escapement of income re–opened the assessment under section 147 of the Act and issued notice under section 148 on 29th March 2012. After complying to the notice issued under section 148 of the Act, the assessee requested for communication of reasons for re–opening and thereafter, as it appears, also objected to the re–opening of assessment. However, the Assessing Officer ultimately completed the assessment under section 143(3) / 147 of the Act by disallowing bonus and commission paid of ` 1.50 crore to directors by invoking provisions of section 40A(2)(b) of the Act. The assessee challenged the assessment order by filing the appeal before the learned Commissioner (Appeals), inter–alia, challenging the validity of re–opening of assessment under section 147 of the Act.

audit report filed by the assessee in Form no.3CD which was filed by the assessee along with the original return of income and was available with the Assessing Officer during the original assessment proceedings under section 143(3) of the Act. He, therefore, held that re–opening of assessment was not on the basis of any tangible material but on a mere change of opinion. Further, the learned Commissioner (Appeals) found that re–opening of assessment under section 147 of the Act was made by the Assessing Officer on 29th March 2012, which is after expiry of four years from the end of the relevant assessment year in dispute. Therefore, as per the provisions of section 147 of the Act, such re–opening can be made only in case of failure on the part of the assessee to disclose fully and truly all necessary facts necessary for the assessment. The learned Commissioner (Appeals) held, since, there was no failure on the part of the assessee to disclose fully and truly all material facts necessary for assessment, the Assessing Officer could not have re–opened the assessment after expiry of four years from the end of relevant assessment year. Accordingly, he held the re–opening of assessment under section 147 as void. Being aggrieved of the aforesaid decision of the learned Commissioner (Appeals), Revenue is in appeal before us.

completely overlooked the reasonableness of bonus and commission paid to the directors keeping in view the provisions of section 40(A)(2)(b) of the Act. Therefore, it cannot be said that in the original assessment proceedings, the Assessing Officer has formed any opinion on the issue so as to constitute change of opinion in the re– assessment proceedings. Learned Departmental Representative submitted, the belief of the Assessing Officer that income has escaped assessment is material and not sufficiency of the reasons for forming the belief. He submitted, there is no requirement of law that in the reasons failure of the assessee should be expressly stated. Thus, it was submitted, re–opening of assessment under section 147 of the Act was valid.

number of disallowances. Thus, it is not a case where the Assessing Officer has passed a cryptic assessment order accepting the returned income. Further, from the reasons recorded which is reproduced in the impugned assessment order, it is evident that the Assessing Officer on verifying the audit report in form no.3CD was of the view that the bonus / commission paid of ` 1.90 crore to the directors is excessive, hence, the entire amount is not allowable. Thus, as could be seen from the reasons recorded, the re–opening of assessment was simply on the basis of audit report in Form no.3CD filed by the assessee along with the return of income and was available before the Assessing Officer at the time of original assessment proceedings under section 143(3) of the Act. Thus, it is very much clear that after completion of original assessment proceedings, no fresh and tangible material has come to the possession of the Assessing Officer revealing escapement of income. Rather, the Assessing Officer on a review of materials available before the Assessing Officer in the course of original assessment proceedings has formed a belief that income has escaped assessment on account of excessive bonus and commission paid to the directors. In our view, formation of belief on the basis of materials already available before the Assessing Officer and examined by him in the original assessment proceedings, amounts to change of opinion, hence, impermissible. Moreover, it is a fact on record that the 6 M/s. James Mackintosh & Co. Pvt. Ltd.

Assessing Officer initiated action under section 147 of the Act on 29th March 2012, which is after expiry of four years from the end of the relevant assessment year i.e., 2005–06.

Assessing Officer in the reasons recorded nor even in the impugned assessment order that there was any failure on the part of the assessee to disclose fully and truly all material facts relating to its assessment. The factual matrix of the case in any manner also do not establish such failure on the part of the assessee. On the contrary, the facts on record reveal that the assessee has made full disclosure of all facts and materials relating to its assessment and relying upon the very same facts and materials the Assessing Officer has re–opened the assessment. That being the case, the condition imposed under the proviso to section 147 of the Act is not satisfied. Therefore, the first appellate authority was justified in holding the re–assessment proceedings under section 147 of the Act to be illegal and void. Accordingly, we uphold the order of the learned Commissioner (Appeals) by dismissing the grounds raised.