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Income Tax Appellate Tribunal, DELHI BENCH ‘F’, NEW DELHI
IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH ‘F’, NEW DELHI BEFORE SHRI J. SUDHAKAR REDDY, ACCOUNTANT MEMBER AND MS. SUCHITRA KAMBLE, JUDICIAL MEMBER R.T. Paper Board Ltd. vs. ACIT, Circle 15(1) 407-408, Deepali New Delhi Nehru Place New Delhi 110 019 PAN: AABCR 9393 R (Appellant) (Respondent) Appellant by : Sh.Somil Agarwal, Adv. Respondent by : Sh. Raman Kant Garg, Sr.D.R. ORDER
PER J. SUDHAKAR REDDY, ACCOUNTANT MEMBER
This is an appeal filed by the Assessee directed against the order of Ld.CIT(A)-XVIII, New Delhi pertaining to the Assessment Year (hereinafter referred to as the A.Y.) 2003-04 dated 11.01.2013.
We have heard Shri Somil Agarwal, the Ld.Counsel for the assessee, and Shri Raman Kant Garg, Ld.Sr.D.R. on behalf of the Revenue, on the issue of reopening which is ground nos. 1 and 2 of this appeal. 3. On a careful consideration of the facts and circumstances of the case, orders of lower authorities and case laws cited, we hold as follows. 4. The reasons recorded for reopening are at page no.3 of the paper book. These read as follows. “Reasons: As per the 3 CD Report, the assessee had claimed prior period expenditure amounting to Rs.5,61,67,181/- in the profit and loss account out of which only Rs.1,17,24,633/- (17,40,605+99,84,028) related to A.Y. 2002-03 and R.T.Paper Board Ltd., New Delhi was claimed in the revised return of A.Y. 2002-03 and Rs.2,52,14,220/- was added in the computation of taxable income. As the assessee was following mercantile system of accountancy, balance of Rs.1,92,28,328/- (5,61,67,181- (1,17,24,633+2,52,14,220) of prior period expenses should have been disallowed. The omission to do so resulted in over assessment of loss of Rs.1,92,28,328/- involving potential tax effect of Rs.68,98,163/-. I have therefore reason to believe that a sum of Rs.1,92,28,328/- chargeable to tax has escaped assessment. Thus the same is to be brought to tax u/s 147/148 of the Act. Notice u/s 148 may be issued, if approved.” 4.1. The reopening in this case is made after a period of 04 years, and the original assessment was completed u/s 143(3) the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’). There is no allegation in the reasons recorded that the assessee has failed to disclose fully and truly all material facts necessary for assessment in its return of income. In the absence of such an allegation, Proviso to S.147 of the Act is attracted and the notice u/s 148 of the Act after expiry of 04 years is bad in law. 4.2. The Hon’ble Delhi High Court in the case of Wel InterTrade P.Ltd. and another vs. ITO, 308 ITR 22 (2009) held as follows. “A plain reading of Proviso to S.147 makes it more than clear that where the provisions of S.147 are being invoked after the period of four years from the end of the relevant A.Y. in addition to the AO having reason to believe that any income chargeable to tax has escapement assessment, it must also be established as a fact that such escapement of assessment has been occasioned by either the assessee failing to make a return u/s 139 etc. or by reason of failure on the part of the assessee to disclose fully and truly all material facts necessary for his assessment for that A.Y. In the present case, the only question is with regard to the second portion of the proviso, which relates to failure on the part of the assessee to disclose fully and truly all material facts necessary for assessment. Insofar as this precondition is concerned, there is not a whisper of it in the reasons recorded by the A.O. In fact, the AO could not have made this a ground because the AO had required the petitioner to furnish details with regard to loss occasioned by foreign exchange fluctuation which the petitioner did by virtue of the reply dt. 5th Feb., 2002. Since R.T.Paper Board Ltd., New Delhi the petitioner had fully and truly disclosed all the material facts necessary for the assessment, the precondition for invoking the proviso to s.147 had not been satisfied. The A.O. has acted wholly without jurisdiction. The invocation of s.147, the issuance of the notice u/s 148 and the subsequent order on the objections are all without jurisdiction. The impugned notice as well as the proceedings pursuant thereto are quashed.” 4.3. In the case of Haryana Acrylic Manufacturing Co. vs. CIT & another, 308 ITR 38 on the very same issue the Jurisdictional High Court has held as follows. “The Proviso to S.147 carves out an exception from the main provisions of s.147. If a case were to fall within the Proviso, whether or not it was covered under the main provisions of s. 147 would not be material. Once the exception carved out by the proviso came into play, the case would fall outside the ambit of s.
147. Examining the proviso to s. 147, one finds that no action can be taken under s. 147 after the expiry of four years from the end of the relevant assessment year if the following conditions are satisfied : (a) an assessment under sub-so (3) of S. 143 or this section has been made for the relevant assessment year; and (b) unless any income chargeable to tax has escaped assessment for such assessment year by reason of the failure on the part of the assessee : (i) to make a return under S. 139 or in response to a notice issued under sub-so (1) of S. 142 or, S. 148; or (ii) to disclose fully and truly all material facts necessary for his assessment for that assessment year. Condition (a) is admittedly satisfied inasmuch as the original assessment was completed under S. 143(3). Condition (b) deals with a special kind of escapement of income chargeable to tax. The escapement must arise out of the failure on the part of the assessee to make a return under S. 139 or in response to a notice issued under sub-so (1) of S. 142 or S.
This is clearly not the case here because the petitioner did file the return. Since there was no failure to make the return, the escapement of income cannot be attributed to' such failure. This leaves one with the escapement of income chargeable to tax which arises out of the failure on the part of the assessee to disclose fully and truly all material facts necessary for his assessment for that assessment year. If it is also found that the petitioner had disclosed fully and truly all R.T.Paper Board Ltd., New Delhi material facts necessary for its assessment, then no action under S. 147 could have been taken after the four year period indicated above. So, the key question is whether or not the petitioner had made a full and true disclosure of all material facts. In the reasons supplied to the petitioner, there is no whisper, what to speak of any allegation, that the petitioner had failed to disclose fully and truly all material facts necessary for assessment and that because of this failure there has been an escapement of income chargeable to tax. Merely having a reason to believe that income had escaped assessment, is not sufficient to reopen assessments beyond the four year period indicated above. The escapement of income from assessment must also be occasioned by the failure on the part of the assessee to disclose material facts, fully and truly. This is a necessary condition for overcoming the bar set up by the proviso to S.
If this condition is not satisfied, the bar would operate and no action under S. 147 could be taken. The reasons supplied to the petitioner does not contain any such allegation. Consequently, one of the conditions precedent for removing the bar against taking action after the said four year period remains unfulfilled. The notice dt. 29th March, 2004 under S. 148 based on the recorded reasons as supplied to the petitioner as well as the consequent order dt. 2nd March, 2005 are without jurisdiction as no action under S. 147 could be taken beyond the four year period in the circumstances narrated above. Wel Intertrade (P) Ltd. vs. ITa (2008) 13 DTR (Del) 204 followed.”
4.4. Respectfully following the propositions laid down in the judgements referred above, we have to hold that the reopening is bad in law. 4.5. Moreover there is no fresh material or information based on which the Assessing Officer (hereinafter referred to as the AO) came to a conclusion that the income has escaped assessment. The material based on which reopening was done was already on record. The Hon’ble Delhi High Court in the case of CIT vs. Central Warehousing Corporation in Order no.575/2012 jdugement dated 15.1.2015 at para 6 held as follows.
R.T.Paper Board Ltd., New Delhi “6. This Court had in the judgement reported as Honda Siel Power Products Ltd. vs. DCIT 340 ITR 53 held that page 81 para 13 held that a question as to whether there is failure or omission to disclose fully and truly material facts as essentially one of fact. This was affirmed by the Supreme Court in Honda Siel Power Porudcts vs DCIT 340 ITR 64(SC). The Supreme Court ruling in CIT vs. Kelvinator India Ltd. 320 ITR 561 (SC) is authority for the view that the ‘reason to believe’ on which a reassessment can be validly ordered should necessarily be based on ‘tangible material’ which an AO comes by after the assessment. Necessarily, such material is outside the record. Straying from this clear path would be sliding down the slippery slope into a quagmire of reappreciation of existing material and even the process of reasoning which is impermissible as it is a forbidden ‘merits review’. Reassessment, if permitted in such instances would be a route which (to borrow the phrase from another context) ‘unlocks the gate which shuts’ the AO/s review on merits. (Attorney General of New South Wales vs. Quin 1990 (64) Aust LJR 237).” 4.6. In the case of Principal CIT vs. Tupperware India P.Ltd. the Hon’ble Delhi High Court held that when there was no new material that came to the knowledge of the A.O. the requisite belief regarding the escapement of income cannot be formed. It is a change of opinion by the A.O. on the very same set of facts.
Respectfully following the propositions laid down therein and applying the same to the facts of this case, we uphold the contention of the assessee and hold that the reopening of the assessment is bad in law.
In the result the appeal of the assessee is allowed.
Order pronounced in the Open Court on 25th April, 2016.