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Before: Shri Chandra Poojari & Shri Duvvuru RL Reddy
O R D E R
PER DUVVURU RL REDDY, JUDICIAL MEMBER:
This appeal preferred by the Revenue and the Cross Objection filed by the assessee are directed against the order of the ld. Commissioner of Income Tax (Appeals) 1, Madurai dated 06.10.2015 for the assessment year 2005-06. In the appeal, the grievances of the Revenue are that the ld. CIT(A) erred in cancelling the reopening of assessment under section 147of the Income Tax Act, 1961 [“Act” in short] on the ground of write off of trade
The tax effect in the appeal filed by the Revenue is less than the monetary limit of ₹.10,00,000/- fixed by the CBDT to file an appeal by the Revenue before the Tribunal as per the CBDT Circular No. 21/2015, dated 10.12.2015, since the tax demanded by the Department is “NIL” as well as the figures of returned income and assessed income are in minus. Being so, the Revenue authorities are precluded from filing the appeal before the Tribunal, since the tax effect is less than ₹.10,00,000/- in this appeal and liable for dismissal as not maintainable. However, the Revenue has raised legal issue in this appeal, we proceed to consider the issue of reassessment on the facts and circumstances and materials available on record.
The crux of the issue is that original assessment under section 143(3) of the Act was completed on 26.09.2007. Thereafter, the assessee carried the matter in appeal before the ld. CIT(A). With regard to the disallowance of dividend received from Malaysian subsidiary of ₹.77,70,828/-, the ld. CIT(A) deleted the addition, against which the Department preferred further appeal before the Tribunal. The Tribunal vide its order in dated 13.03.2009 dismissed the appeal filed by the Revenue. The Department passed order dated 22.04.2008 to give effect to the order of the ld. CIT(A) by deleting the disallowance made in respect of Malaysian
3 & C.O.No. 31/M/16 dividend receipt of ₹.77,70,828/-. Subsequently, the Assessing Officer reopened the assessment under section 147 of the Act by issuing notice under section 148 of the Act. Reasons for reopening of assessment was duly forwarded to the assessee vide letter dated 12.03.2010. Vide letter dated 12.04.2010, the assessee objected to the reasons recorded for reopening of assessment. The Assessing Officer has not considered the objections filed by the assessee and passed a speaking order against the objections filed by the assessee and proceeded to complete the assessment under section 143(3) r.w.s. 147 of the Act dated 13.04.2010 by considering the materials available on record and made various additions. Against the order under section 143(3) r.w.s. 147 of the Act, the assessee filed an appeal before the ld. CIT(A), who has allowed the appeal filed by the assessee by holding that the assessment order passed under section 143(3) r.w.s. 147 of the Act is invalid and bad in law.
On being aggrieved, the Revenue is in appeal before the Tribunal and challenged with regard to cancelling the reassessment on the issue of write off of trade debts and also deleting the addition made on account of write off of trade receivables from subsidiary amounting to ₹.88,02,04,034/-.
We have heard both sides, perused the materials available on record and gone through the orders of authorities below. On perusal of the original assessment order passed under section 143(3) of the Act dated 26.09.2007,
4 & C.O.No. 31/M/16 the Assessing Officer has given his findings with regard to the issue, which reads as under: 4.4 Write off of interest receivable from U.S.A. subsidiary: A perusal of the accounts shows that the aggregate of the interest now written off, had been admitted as income for various assessment year from A.Y. 2001-02 to 2005-06. As such this is nothing but “Bad debts” now claimed by the assessee. As such this claim is allowed.” It is clear from the above findings that, after examining the complete details of sales made in the earlier period and written off as irrecoverable in this year, the Assessing Officer has not disputed the write off of interest receivable from U.S.A. subsidiary and thus, this issue stands adjudicated at original assessment stage. Therefore, the contention of the ld. DR that as per Explanation 1 to section 147 of the Act, which stipulates that production of books of account and other evidences will not necessarily amount to disclosure, is not acceptable because, in this case, during the course of assessment proceedings, as required by the Assessing Officer, the assessee filed complete details vide its letter dated 17.08.2007 and after verification of the details furnished by the assessee, the Assessing Officer has given a concrete findings that the write off made by the assessee is nothing but “bad debts”, as reproduced here in above.
Based on the complete details furnished by the assessee during the course of original assessment proceedings, the reopening of assessment under section 147 of the Act cannot be held as valid in the absence of any 5 & C.O.No. 31/M/16 fresh tangible materials before the Assessing Officer even though it was reopened within four years from the end of the relevant assessment year. From the above, it is amply clear that reassessment was made purely on the basis of change of opinion. Thus, it is well settled law that assessment cannot be reopened on mere change of opinion.
The Hon’ble Supreme Court in the case of CIT v Foramer France [264 ITR 566] affirmed the decision of the Hon’ble Allahabad High Court in the case of Foramer France v. CIT [247 ITR 436], wherein the Hon’ble High Court has held that when there was no failure on the part of the assessee to disclose fully and truly all material facts for assessment, the assessment cannot be reopened under section 147 of the Act and is barred by limitation. It was also held that the assessment cannot be reopened on mere change of opinion.
7.1 In the case of Sri Sakthi Textiles v. JCIT 340 ITR 144 (Mad), the Hon’ble Madras High court has observed that the “to confer jurisdiction under section 147 proviso to issue notice in this respect of assessment beyond the period of four years, two conditions have to be satisfied viz., the Assessing Officer must have a reason to believe that the income, profits or gains chargeable to income tax have been under assessed and he must have also reason to believe that such under assessment has occurred by reason of omission or failure on the part of the assessee to disclose fully and 6 & C.O.No. 31/M/16 truly all material facts necessary for the assessment for that year. There is no mention in the recorded reason that the escapement of chargeable income was due to omission or failure on the part of the assessee to disclose fully and truly all material facts necessary for the assessment. In view of the failure to fulfil the second legal requirement under section 147, the notice in respect of the assessment years 1991-92 and 1992-93 issued under section 143(3) r.w.s. 147 and wholly without jurisdiction and therefore, they are liable to be quashed.
7.2. In the present case, the Assessing Officer has not recorded the reasons that the second legal requirement under section 147 of the Act that there is a failure on the part of the assessee to make true and full disclosure all material facts necessary for the assessment. Thus, the Assessing Officer has not fulfilled the second legal requirement under section 147. Therefore, respectfully following the decisions of the Hon’ble Jurisdictional High Court in the case of CIT v. Fenner India Ltd. (supra) and CIT v. Elgi Finance Ltd. and also in the case of Sri Sakthi Textiles v. JCIT (supra) and taking into consideration of the facts and circumstances of the case, even though the issuance of notice under section 148 of the Act was before expiry of four years from the end of relevant assessment year is bad and cannot be sustained. Since the assessment order passed under section 143(3) r.w.s.
By means of Cross Objection, it was the submission of the assessee that the appeal filed by the Revenue before the Tribunal is not maintainable since the tax effect is less than 10 lakhs. There is no dispute regarding tax effect. Since we have dismissed the appeal filed by the Revenue with regard to the issue of reassessment under section 147 of the Act, the CO filed by the assessee become infructuous and accordingly dismissed.
In the result, both appeal filed by the Revenue as well as CO filed by the assessee are dismissed. Order pronounced on the 11th July, 2017 at Chennai.