DEPUTYCOMMISSIONER OF INCOME TAX,, BANGALORE vs. M/S GOWRISHANKAR & CO.,, BANGALORE

Per Sunil Kumar Yadav, Judicial Member

This appeal is preferred by the revenue against the order of the CIT(A) on the following grounds:

1. The order of the CIT(A) is opposed to the facts of the case.

3. The learned CIT(A) has erred in holding that the AO, in the reasons recorded, did not make an allegation that income chargeable to tax has escaped assessment by reason of assessee's failure to disclose fully and truly all material facts necessary for assessment. The learned CIT(A) has failed to appreciate the condition precedent for initiating proceedings u/s.147 is that, the AO should have reason to believe that the income has escaped assessment at the time of initiation of proceedings u/s.147. This view is well supported by the decision of the Supreme Court in the case of Rajesh Jhavery Stock Brokers Pvt. Ltd.

Page 4 of 6 4. Having carefully examined the order of the lower authority in the light of the rival submissions, we find that undisputedly the reopening was done after a period of six years from the end of the relevant assessment year i.e., 2005-06. Since the reopening was done after four years from the end of the relevant assessment year, the AO is required to record the reasons that income chargeable to tax has escaped assessment for such assessment year by reason of the failure on the part of the assessee to disclose fully and truly all material facts necessary for the assessment for the assessment year. Since no reasons were recorded in this regard, the CIT(A) has rightly held that reopening to be bad and invalid. Relevant observation of the CIT(A) in this regard is reproduced below for the sake of reference: “4.2 I have carefully considered the appellant’s submissions and also perused the reassessment order in question. This is not a case where the proceedings stood at the stage of the return having been processed u/s 143(1) and intimation sent accordingly but one where the return had been selected and the assessment concluded u/s 143(3) after subjecting the same and the accompanying statements of account to scrutiny. It is clear even from the reassessment order dated 28.03.2013 that the fact that the appellant had disclosed the reeipt of Rs.23,12,409/- though it was claimed as dividend and that the AO, who had made the original assessment, had accepted the same. The appellant had not, therefore, failed to disclose the receipt of Rs.23,12,409/-. Hence, there was no new information available to the AO, who has completed the reassessment, for reopening the original assessment concluded on 29.12.2007. It was in similar circumstances mutatis mutandis that the Hon’ble ITAT, Bangalore Bench ‘C’ held in the case of M/s. AMCO Batteries Ltd. Vs. DCIT, Circle – 11(1), Bangalore (ITA No. 94/Bang/2013 dated 31.07.2013) that reopening of assessment without establishing that the assessee had failed to disclose fully and truly all the facts necessary for completion of the assessment was it by the proviso to section 147 of the Act and annulled the assessment order. The relevant portion from the Hon’ble Tribunal’s order is reproduced below:

Page 5 of 6 “8. Having heard both the parties and having considered their rival contentions, the undisputed facts are that the notice u/s 148 has been issued after the expiry of four years from the end of the relevant assessment year, and, therefore, the proviso to sec. 147 clearly applies. As seen from the reasons recorded for reopening of the assessment, the AO has not mentioned therein anywhere that the assessee has failed to disclose truly and fully all material facts necessary for computing its income due to which the income has escaped tax. Further, in the notices on accounts mentioned at schedule 19 of the profit and loss account for the year ended 31.03.2004, the assessee has disclosed the JVA with a property development company for development of company’s land at Hebbal and receipt of R.8 crores in March 2004 and that this amount has been credited to the profit and loss account. Therefore, the assessee has disclosed all the facts before the AO and it is to be presumed that the AO has applied his mind to these details before completing the assessment u/s 143(3) of the IT Act.”

4.3 Observing thus, the Hon’ble Tribunal annulled the assessment order in the case of M/s AMCO Batteries Ltd. for the assessment year 2004-05. In coming to this conclusion, the Hon’ble ITAT referred to its own decision in the case of DHFL Vysya Housing Vs. ACIT in wherein at paragraph 14 it was held that, where the AO concerned has not, in the reasons recorded, made an allegation that income chargeable to tax has escaped assessment by reason of the assessee’s failure to disclose fully and truly all material facts necessary for his assessment for the relevant assessment year, the proviso to section 147 was clearly attracted and the reassessment on the basis of such reasons recorded in void ab initio and has to be annulled. Therefore, the addition of Rs.23,12,409/- made in the appellant’s case is deleted. Moreover, the notice u/s 148 of the Act for reopening the assessment u/s 147 was issued on 28.3.2012 i.e., two years after the expiry of the four-year period from the end of the assessment year 2005-06, rendering the action of reopening invalid.”

Pronounced in the open court on this day of 6th January, 2017.