ACIT, CHENNAI vs. SHREE LAXMI JEWELLERY PVT. LTD., CHENNAI

The assessee had challenged the reopening U/s.147 & 148 of the Act vide its letter dated 12.11.2013 on the following grounds:

(i) Assessment cannot be reopened on the basis of information available with the Ld.AO at the time of original scrutiny assessment.

(ii) Condition precedent for assumption of jurisdiction

U/s.147 of the Act beyond the period of 4 years have not been satisfied because the assessee had disclosed fully and truly all the material facts necessary for the assessment before the Ld.AO.

The Ld.AO held the reopening U/s.147 of the Act to be valid by observing as follows: “5. The objections filed by the Assessee were disposed vide order dated 29.09.2014 as under:

“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."

This has been reiterated by the Hon'ble High court of Delhi in the case of Consolidated Photo & Finvest Ltd. v. ACIT [2006] 151 Taxman 41 as under:

" ... the argument that production of the account books and other documentary evidence relevant for assessment must imply a full and true disclosure of all material facts must be rejected out of hand in the light of the provisions of Explanation (1) .. "

5.2 Further, the procedure laid down under the act and the Hon'ble Supreme Court's decision in the case of Mls.Kelvinator & Co. Ltd. have been followed while reopening the assessment proceedings in the instant case. In the above mentioned case, the Hon'ble Supreme Court had discussed the effect of amendment to Sec. 147 of the Income Tax Act, 1961 wherein the Apex Court has distinguished between the expressions "reasons to believe" and "opinion". The Apex Court had stated, "Assessing Officer has power to re-open, provided there is "tangible material" to come to the conclusion that there is escapement of income from assessment. Reasons must have a live link with the formation of the belief. .. "

There has been recording of reasons for reopening, based on tangible material, to come to the conclusion that there is escapement of income from assessment.

In this regard, it is also important to quote some of the observations made by the Hon'ble Gujarat HC, in the case of Praful Chunilal Patel vs ACIT, 236 ITR 832, while upholding the issue of notice u/s. 148 which is as follows:

"the provisions of section 147 require that the Assessing Officer should have reason to believe that any income chargeable to tax has escaped assessment, The word "reason" in the phrase "reason to believe" would mean cause or justification. If the Assessing Officer has a cause or justification to think or suppose that income had escaped assessment, he can be said to have a reason to believe that such income had escaped assessment. The words "reason to believe" cannot mean that the Assessing Officer should have finally ascertained the facts by legal evidence. They only mean that he forms a belief from the examination he makes and if he likes from any information that he receives. If he discovers or finds or satisfies himself that the taxable income has escaped assessment, it would amount to saying that he had reason to believe that such income had escaped assessment. The justification for his belief is not to be judged from the standards of proof required for coming to a final decision. "

5.3· Further, reopening is based on a new finding of fact, totally different from the issues dealt in the original assessment. Since, the assessing officer had not applied his mind and formed any opinion on the issues for which the case has been re-opened during the original scrutiny proceedings, it cannot be argued that reassessment is based on change in opinion and hence for the same reason, the assessee is wrong 6 & CO No.15/Mds/2017 in stating that the issues for which the case was reopened at present have already been disclosed by the assessee and dealt by the Assessing Officer in the original assessment.

In view of the above, it is thus established that the reassessment is as per Law. Hence the Assessee's objection to reopening is hereby rejected. This order is passed as per the direction laid out by the Supreme Court in the case of GKN Driveshafts (India) Ltd Vs. ITO 2591TR 19 and Assessee's cooperation is sought in the continuance of the Assessment Proceedings u/s. 147 ...”

5.1 On appeal, the Ld.CIT(A) upheld the order of the Ld.AO by briefly stating as follows: “4.2 The matter is considered. The AO is Para 2-5 of the impugned order has given elaborate reasons on the assumption of jurisdiction under section 147 of the Act. On consideration of he same, I do not find any infirmity in the actions of the AO. The assessment proceedings are held to be valid, and grounds of appeal raised in this regard stand dismissed.”

5.2 Before us the Ld.AR submitted that the assessee had produced all the relevant documents required for assessment before the Ld.AO at the time of original scrutiny assessment.

Moreover the assessment is reopened beyond the period of 4 years from the end of the relevant assessment year. Therefore the necessary condition such as filing of return U/s.139 of the Act within the due date of filing the return or to disclose fully and truly with. Hence the Ld.AO did not have any jurisdiction to reopen the assessment in the case of the assessee which is beyond 4 years from the end of the relevant assessment year. The Ld.DR on the other hand relied on the order of the Ld.AO and the Ld.CIT(A).

5.3 We have heard the rival submissions and carefully perused the materials available on record. The Ld.AO in his order had relied on many case laws, however he has not mentioned as to what was the failure on the part of the assessee to disclose any material fact fully and truly which was necessary at the time of assessment on the earlier occasion U/s.143(3) of the Act. It is apparent from the facts of the case that the assessee has produced the details with respect to the loss of Rs.1,05,50,900/- at the time of original assessment. There is no contrary finding by neither the Ld.AO nor the Ld.CIT(A) that the assessee had concealed these facts at the time of original assessment. The Ld.Revenue authorities has also not brought out a case that any fresh tangible material has surfaced after the original assessment made U/s.143(3) of the Act. Considering these 8 & CO No.15/Mds/2017 aspects, the decisions cited by the Ld.AR applies to the case of the assessee. The most relevant case laws are extracted herein below for reference: “(i) Hon’ble Jurisdictional Apex Court in CIT v. Kelvinator of India Ltd reported in 320 ITR 0561 had held that “After 1st April,1989, AO has power to reopen the assessment under s.147 provided AO has reason to believe that income has escaped assessment and there is tangible material to come to the conclusion that there is escapement of income; mere “change of opinion” cannot per se be reason to reopen.”

(ii) Hon’ble High Court of Madras in TANMAC India v. DCIT reported in 97 CCH 0189 had held that “Department cannot be permitted to avail of the extended time limit in the absence of any new or tangible material, when the time for scrutiny assessment had elapsed, prior to issue of impugned notice u/s 148.”

(iii) Hon’ble High Court of Madras in CIT v. Schwing Stetter India P. Ltd reported in 378 ITR 0380 had held that “When Assessing Officer fails to record anywhere his satisfaction or belief that income chargeable to tax escaped assessment on account of failure of Assessee to disclose truly and fully all material facts necessary for assessment, notice issued u/s 147 beyond period of four years is wholly without jurisdiction and cannot be sustained.”

5.4 Considering the facts of the case and the decision cited by the Ld.AR supra, we are of the considered view that the Revenue has no jurisdiction to reopen the case of the assessee U/s.147 of the Act which is beyond the period of four years from 9 & CO No.15/Mds/2017 the end of the relevant assessment year, further the assessee had fully and truly disclosed all materials at the time of original assessment U/s 143(3) of the Act and no fresh materials had surfaced for the assessment to be reopened. Therefore, we hereby quash the order of the Ld.AO passed U/s.147 r.w.s143(3) of the Act dated 27.03.2015. Since we have allowed the cross objection of the assessee on the issue with respect to jurisdiction, we do not find it necessary to adjudicate the appeal of the Revenue on merits because it would only be academy.

Order pronounced on 12th September, 2017 at Chennai.