THE COMMISSIONER OF INCOME TAX-IV vs. M/S QUALITY CARE INDIA LTD

Whether Reporters of Local newspapers Yes/No may be allowed to see the Judgments?

Whether the copies of judgment may be Yes/No marked to Law Reporters/Journals?

Whether Their Ladyship/Lordship wish to Yes/No see the fair copy of the Judgment?

Heard Mr. J.V. Prasad, learned senior standing counsel for the Income Tax Department, appearing for the

The respondent herein is a super speciality hospital. For the assessment year in question, they filed a return of income on 29.10.2004 declaring a loss of Rs.8,01,95,180/-. The return was processed under Section 143(1) of the Act.

Subsequently, there was a search and seizure operation under Section 132, as a consequence of which, proceedings were initiated under Section 153A. The assessment was completed under Section 143(3) r/w Section 153A. After completion of the assessment, the Assessing Officer reopened the assessment under Section 147 by issuing a notice under Section 148, on 31.03.2011.

The reason for reopening of the assessment was that while initiating proceedings under Section 147, an amount of Rs.4,73,75,000/- was identified to the assets acquired, which had been capatilized. Therefore, after the total payment of interest to the tune of Rs.6,99,76,000/-, a balance of Rs.2,26,01,000/- had been charged to P & L account as an extraordinary item.

After reopening, the Assessing Officer passed an order on 26.12.2011. The assessee filed a statutory appeal before the CIT (Appeals). The appeal was allowed, holding that the rationale behind the issue of notice under Section 148 and the basis for reopening the assessment was not tenable.

As against the said order, the Revenue filed a further appeal to the Tribunal. The Tribunal dismissed the appeal along with two other appeals relating to the assessment years 2005-2006 and 2006-2007. Therefore, the Revenue is before us.

The substantial questions of law, with which the Revenue has come up with the above appeal, are as follows: 1) Whether on facts and circumstances of the case, the Hon’ble ITAT is justified in upholding the order of the CIT(A) that the reopening of assessment u/s 147 of the Act is unsustainable in law, without appreciating the provisions of Explanation-I to proviso to Section 147 of the Act?

Though the third question of law revolves around the issue of revenue expenditure, the same is actually on the merits of the case. It is only if we answer the questions of law 1 and 2 revolving around the validity of reopening of the assessment in favour of the Department, the 3rd question of law would arise for consideration. Therefore, let us first take up the first two questions of law for consideration.

Admittedly, the case on hand is one, where the reopening of assessment was sought to be made after the

The case on hand, even according to the stand taken by the Revenue, did not fall under the first two categories. According to the learned standing counsel for the Department, the case on hand would fall under the category of failure to disclose fully and truly all the material facts. The learned standing counsel relies upon Explanation-I to Section 147, to contend that failure to disclose should be perceived in the manner stipulated in Explanation-I.

It is true that under Explanation-I, the production before the Assessing Officer of the books of account 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 first proviso to Section 147. But the

If we look at the case on hand, it is seen that the original assessment was completed under Section 143(1), after the assessee filed a return of income on 29.10.2014. Thereafter, there was a search and seizure operation under Section 132, leading to the proceedings being initiated under Section 153A. Thereafter, the assessment was again completed under Section 143(3). 14. Therefore, this is not a case of normal assessment, which has gone on in a routine manner, without any suspicion in the eyes of the Assessing Officer. This is a case where a scrutiny assessment was made, after which, a search and seizure operation was conducted and, thereafter, the assessment was again completed under Section 143(3) r/w Section 153A. 15. In a third round of attack, the Assessing Officer claimed that as per the annual report of the Directors for the previous year 2003-2004, an amount of Rs.4,73,75,000/- was identified to the assets acquired, from out of the total interest of Rs.6,99,76,000/- paid to another Company. The Directors’ report forms part and

In Assistant Commissioner of Income Tax Vs. ICICI Securities Primary Dealership Limited[2], the Supreme Court pointed out that when all details with respect to the stocks and shares and the income derived therefrom are disclosed in the return, a dispute as to whether the loss incurred was a business loss or speculative loss, cannot come under the category of failure to disclose.

Again, in Commissioner of Income Tax Vs. Elgi Finance Limited[3], before the Madras High Court, the assessee had furnished details regarding the acquisition of various machineries and assets and the details regarding leasing out of those machineries together with the lease rent received as well as computation of depreciation, but an attempt to reopen the assessment was made on the ground that depreciation was claimed and allowed at an higher rate. The Court held that when all material facts had been disclosed truly and fully, the question as to the correct rate of depreciation to be