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Facts
The Revenue appealed against the CIT(A)'s order. The assessee filed a cross-objection. The original assessment was completed, and later the AO reopened it under Section 148, beyond the four-year period, after the assessee had submitted a return and the original assessment was done under Section 143(3). The AO added unearned revenue, marked-to-market forex hedging gains, disallowed depreciation on office buildings, and lease rentals.
Held
The Tribunal held that the reassessment order was bad in law. The reasons recorded by the AO for reopening the assessment did not contain any allegation that the income had escaped assessment due to the assessee's failure to disclose full and true material facts. This condition is mandatory for reopening beyond four years. Therefore, the reopening was without jurisdiction.
Key Issues
Whether reopening of assessment beyond four years was valid when reasons did not state assessee's failure to disclose material facts.
Sections Cited
Section 147, Section 148, Section 143(3), Section 250
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Income Tax Appellate Tribunal, ‘B’ BENCH, CHENNAI
Before: SHRI GEORGE GEORGE KAND SHRI S.R. RAGHUNATHA
आदेश /O R D E R
PER GEORGE GEORGE K, VICE PRESIDENT:
This appeal at the instance of the Revenue and the cross objection preferred by the assessee is directed against the CIT(A)’s order dated 29.03.2024, passed under section 250 of the Income
There is a delay of 27 days in filing the appeal by the Revenue. The Assessing Officer has filed petition to condone the delay and affidavit stating there in the reasons for belated filing of this appeal. On perusal of the reasons stated in the affidavit, we are of the view that no latches can be attributed to the Revenue as there is sufficient cause for belated filing of this appeal. Hence, we condone the delay and proceed to dispose off the appeal on merits.
The assessee’s cross objection is time barred by 42 days. The assessee has filed a petition to condone the delay accompanied by the affidavit of the Managing Director of the assessee company stating therein the reasons for belated filing of cross objection. We have perused the reasons stated in the affidavit of the assessee company. We are of the view that no latches can be attributed to the assessee company as there is sufficient cause for belated filing of this cross objection. Hence, we condone the delay and proceed to dispose off the cross objection on merits.
Brief facts of the case are as follows:
CO No.67/CHNY/2024 The assessee is a company. It is engaged in the business of design and engineering contract, turnkey contract for cement plants. For the assessment year 2011-12, the return of income was filed on 29.11.2011 declaring total income of Rs.167,03,70,570/-. The assessment u/s.143(3) of the Act was completed vide order dated 24.03.2015 assessing total income at Rs.170,14,60,207/-.
Subsequently on 30.03.2018, a notice u/s.148 of the Act was issued to the assessee to re-open the assessment for the assessment year 2011-12. The reassessment was completed by the AO vide order dated 27.12.2018 passed u/s.143(3) r.w.s. 147 of the Act, reassessing the total income at Rs.346,35,82,077/-. The additions / disallowances made by the AO in the said reassessment order are as follows:- Addition of unearned revenue of Rs.170,52,20,800/-. Addition of Marked to Market Forex hedging gain of Rs.2,53,24,205/- disclosed in the Balance Sheet. Addition of Marked to Market Forex hedging gain of Rs.35,43,146/- reduced from the computation. Disallowance of depreciation of Rs.1,93,74,285/- on office buildings Disallowance of deduction of Rs.86,59,434/- being principal amount of lease rentals paid by the Company.
CO No.67/CHNY/2024 6. Aggrieved by the reassessment order dated 27.12.2018, the assessee filed appeal before the First Appellate Authority. Before the FAA, the assessee had raised grounds with regard to validity of reopening of assessment and also on merits. The CIT(A) partly allowed the appeal of assessee. On merits, the CIT(A) allowed the grounds of the assessee in its entirety. As regards to grounds relating to validity of reopening of assessment, the CIT(A) rejected the same by observing as under:- “3.2.2. Regarding the grounds with respect to validity of re-opening of Assessment under section 147 of the Act, I find that the reasons do not lack validity and there was a link between the material on record and formation of the belief that the income chargeable to tax had escaped assessment. Therefore, this ground stands dismissed.”
Aggrieved by the CIT(A)’s order, the Revenue is in appeal before the Tribunal. The assessee has filed cross objection before the Tribunal for rejecting its ground on validity of re-opening of assessment. The assessee has also filed a petition to challenge the order of CIT(A) on the grounds decided against him under Rule 27 of the Income Tax Appellate Tribunal Rules, 1963. The assessee in its cross objection and Rule 27 of the Appellate Tribunal Rules, 1963 has challenged the re-opening of assessment on various facets. One of the contention of the ld.AR before the Tribunal was that in the reasons recorded by the AO for re-opening of assessment, it is CO No.67/CHNY/2024 nowhere mentioned any allegation against the assessee that income has escaped assessment due to the failure on the part of the assessee to disclose fully and truly all material facts necessary for assessment for the relevant assessment year. It was submitted by the ld.AR that the original assessment in this case has been completed u/s.143(3) of the Act and the notice has been issued u/s.148 of the Act, beyond the period of four years, hence, necessarily in the reasons recorded by the AO, it has to be mentioned that assessee company has failed to disclose fully and truly all material facts necessary for its assessment. It was submitted, since in the instance case, there is no mention of the aforesaid failure on the part of the assessee to disclose all material fact necessary for the assessment, the reassessment order is bad in law. The ld.AR has filed a brief written submission on the aforesaid argument which reads as under:- 2. There is no allegation in the reason recorded about the non-disclosure of material facts fully and truly in the terms of the first proviso to section 147 even though original assessment was made u/s 143(3) and impugned reassessment is sought to be done after four years from the end of the relevant assessment year. PB 137 is the copy of notice u/s 148 dated 30.03.2018 PB 197-202 is the copy of assessment order us 143(3) dated 24.03.2015. PB 144-145 is the copy of objection to the reopening raising this very point of law.
PB 194-196 is the order of disposing the objections in which Ld. A.O. by grossly mis-appreciating the law has mentioned that this requirement is not there, if case is reopened after four years.
Without prejudice to above, Ld. A.O. has not pointed out as to which was the failure of the assessee and which material facts was not disclosed which makes the impugned reassessment is bad in law.
PB 139-142 is the copy of reasons recorded.
Reliance is placed on the following judicial decisions according to which if there was no failure mentioned by Ld. A.O. in the reason recorded and there is no such failure, reassessment done after four years from the end of the year is bad in view of the following judicial decisions:-
Haryana Acrylic Manufacturing Co. vs Commissioner of Income Tax & Anr. 308 ITR 38 (Del) (CLC 75-98). "Reassessment-Full and true disclosure-Notice after expiry of four years- Once the exception carved out by proviso to s. 147 comes into play, the case would fall outside the ambit of s. 147-As per proviso to s. 147, n0 action under this section can be taken after expiry of four years from the end of the relevant assessment year, unless inter alia, income chargeable to tax had escaped assessment by reason of failure of the assessee l0 make full and true disclosure of all material facts necessary for assessment-There being no whisper in the reasons supplied to assessee that income escaped assessment by reason of assessee's failure to make a full and true disclosure of all material facts necessary for assessment, notice under s. 148 issued beyond four years from the end of relevant assessment year was barred by limitation under proviso to s. 147, hence without jurisdiction "
Wel Intertrade Pvt. Ltd. vs ITO, 308 ITR 22 (Del) (CLC 99-105). "Reassessment-Full and true disclosure-Notice after expiry of four years- Petitioner had admittedly filed its return for the relevant assessment year-In the reasons recorded by the A0 for reopening the assessment there is no whisper that the assessee failed to disclose fully and truly all material facts necessary for assessment in fact, AO had required the petitioner to furnish details of loss occasioned by foreign exchange fluctuation which the petitioner did Since the petitioner had fully and truly disclosed all the material facts necessary for the for the assessment, the precondition for invoking the proviso to s. 147 was not satisfied satisfied-Therefore, A0 acted wholly without jurisdiction- Impugned notice as well as the proceedings pursuant thereto quashed.
CO No.67/CHNY/2024 JSRS Udyog Ltd. and Anr. vs. ITO, 313 ITR 321 (Del) (CLC 106-118). "Petitioner company having inter alia, stated that all the share application money had came from companies which were duly registered under the Companies Act. 1956, and also filed an affidavit of the, director of an investor company, confirming that the said company had purchased 50,000 fully paid up equity shares of the petitioner company during the relevant financial year in response to certain queries raised by the AO regarding the share application money received by the petitioner and there being no allegation in the reasons recorded for reopening the assessment that the petitioner did not make a full and true disclosure of all the material facts the impugned notice under s. 148 issued beyond the period of four years from the end of the relevant assessment year is quashed and reassessment is set aside.” Sterlite Industries (India) Ltd. Vs. Assistant CIT & Anr., (2008) 305 ITR 339 (Mad) (CLC 119-135). Idea Cellular Ltd. vs DCIT and Others. 301 ITR 407(Bom) Himson textile Engineering Industries Ltd, (2013) 83 DTR 0132 (Guj) (CLC 136-142). Bombay Stock Exchange Ltd. vs. DDIT(E), (2014) 361 ITR 0160 (Bom) (CLC 143-149).
On the aforesaid argument of the ld.AR, since it was a legal issue which goes to the root of the matter, we directed the ld.DR to file her response. The ld.DR had sought for adjournment of case. Accordingly, the case was adjourned from 14.11.2024 to 21.11.2024. On the final date of hearing i.e., 21.11.2024, the ld.DR had placed reliance on the re-assessment order and the order of the CIT(A).
We have heard rival submissions and perused the material on record. As per first proviso to section 147 of the Act, no action can CO No.67/CHNY/2024 be taken u/s. 147 of the Act after the expiry of 4 years from the end of the relevant Assessment Year, if an assessment order is passed u/s. 143(3) for the relevant Assessment Year. However, if an assessee has failed to: (i) furnish a return under section 139 of the Act or in response to a notice issued under sub-section (1) of section 142 or section 148 of the Act for the relevant Assessment Year or (ii) disclose fully and truly all material facts necessary for assessment for the relevant Assessment Year, the AO can exercise jurisdiction under section 147 of the Act.
In the instance case, the reasons recorded for re-opening the assessment has been reproduced in para 2 of the re-assessment order. The same has been placed on record in assessee’s paper- book from pages 137 to 143. For the sake of brevity, we are not reproducing the same. From the perusal of the reasons recorded for reopening the assessment, we do not find anywhere in the reasons recorded that there is any allegation against the assessee company regarding not disclosing fully and truly all material facts necessary for completion of its assessment. In the instance case, reopening of assessment is admittedly beyond the period of four years. The case of the assessee relates to assessment year 2011-12 and the notice has been issued by the AO u/s.148 of the Act on 30.03.2018. The original assessment order u/s.143(3) of the Act was passed on CO No.67/CHNY/2024 24.03.2015 in the case of the assessee company. Since there is no allegation in the reasons recorded that there is a failure on the part of the assessee company to disclose fully and truly all material facts necessary for its assessment, we are of the view that necessary ingredients, which are required to be mentioned for reopening the assessment beyond the period of four years is not available on the facts of the instant case. Accordingly, we hold that the reasons recorded by the AO for exercising jurisdiction u/s.147 of the Act is not in conformity with the provisions of the Act and we quash the reassessment.
In holding the above view, we rely on the following judicial pronouncements which categorically held that the reassessment is bad in law, if the reasons recorded for issuance of notice u/s.148 of the Act does not allege that the income has escaped assessment by reason of failure on the part of the assessee to disclose fully and truly all material facts necessary for its assessment.
i) The Hon’ble High Court of Madras in the case of CIT vs. Premier Mills Ltd., reported in [2008] 296 ITR 157, has observed as under:-
CO No.67/CHNY/2024 “In case where the assessment is completed under Section 143(3) of the Income-tax Act, the reopening of the assessment under Section 148 beyond the period of four years at the end of the relevant assessment year can be sustained only if it is established that there is a failure on the part of the assessee to disclose fully and truly all material facts. In this case there is no finding that there is failure on the part of the assessee to disclose fully and truly all material facts. Further, all the material facts are available at the time of making original assessment. The Tribunal has correctly followed the principles enunciated in the Supreme Court judgment reported in 264 ITR 566 cited supra, as well as this Court judgment reported in CIT v. Foramer France [2003] 264 ITR 566 as well as this Court judgment in the case of Commissioner of Income-tax Vs. Elgi Finance Ltd. (supra) and came to the correct conclusion.” ii) The Hon’ble High Court of Madras in the case of CIT vs. Elgi Ultra Industries Ltd., reported in [2008] 296 ITR 573, has observed as under:- “In case where the assessment is completed under section 143(3) of the Income-tax Act, the reopening of the assessment under section 148 beyond the period of four years at the end of the relevant assessment year can be sustained only if it is established that there is a failure on the part of the assessee to disclose fully and truly all material facts. In this case, there is no finding that there is failure on the part of the assessee to disclose fully and truly all material facts. Further, all the material facts are available at the time of making original assessment. The Tribunal has correctly followed the principles enunciated in the Supreme Court judgment reported in CIT v. Foramer France [2003] 264 ITR 566, as well as in this court judgment reported in the case of CIT v. Elgi Finance Ltd. [2006] 286 ITR 674 and came to the correct conclusion.” iii) The Hon’ble High Court of Madras in the case of Sterlite Industries (India) Ltd., vs. ACIT reported in [2008] 305 ITR 339, has observed as under:-
CO No.67/CHNY/2024 “34. From the records, it is clear that the Revenue failed to satisfy that the assessing officer had reasons to believe that (i) the income, profits and gains, chargeable to income tax, have been under-assessed and (ii) the assessing officer had also reason to believe that such under-assessment had occurred by reason of either (a) omission or failure on the part of the assessee to make a return of his income or (b) omission or failure on the part of the assessee to disclose fully and truly all material facts necessary for its assessment for the year. All the aforesaid conditions having been not satisfied by the assessing officer, we hold that the assessing officer had no jurisdiction to issue the notice under Section 148 of the Act, relating to the income escaping assessment u/s 147 of the Act, for the assessment or re- assessment beyond the period of four years, but within the period of eight years from the end of the year in question.” iv) The Hon’ble High Court of Madras in the case of CIT vs. Schwing Stetter India (P.) Ltd., reported in [2015] 378 ITR 380, has observed as under:- “22. In the light of the above, we hold that when the Assessing Officer had failed to record anywhere his satisfaction or belief that the income chargeable to tax had escaped assessment on account of the failure of the assessee to disclose truly and fully all material facts necessary for assessment, the notice issued under Section 147 of the Income Tax Act beyond the period of four years was wholly without jurisdiction and cannot be sustained.”
In light of the aforesaid reasoning and judicial pronouncements of Jurisdictional High Court cited supra, we hold that reassessment order is bad in law. Since we have held that reassessment is bad in law, the other facets of the ground raised in the cross objection of the assessee as against the reopening of assessment are not adjudicated and is left open. Further, since the reopening has been quashed, the issues on merits raised by the Revenue are not
In the result, the appeal filed by the Revenue is dismissed and the cross objection filed by the assessee is partly-allowed.
Order pronounced in the open court on 26th November, 2024 at Chennai.