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Income Tax Appellate Tribunal, DIVISION BENCH, CHANDIGARH
Before: SHRI SANJAY GARG & DR. B.R.R. KUMAR
Per Sanjay Garg, Judicial Member:
The present appeal has been preferred by the assessee against the order dated 17.10.2017 of the Commissioner of Income Tax(Appeals)-2, Chandigarh [hereinafter referred to as ‘CIT(A)’].
The assessee has taken the following grounds of appeal:-
That the order of Ld. CIT(A)is bad in law and against the facts of the case.
(a)That the order of Ld. CIT(A) is bad in law and on facts in not quashing order us 1434(3) r.w.s. 147 of Income Tax as all the facts relating to the external Development Charges of Rs. 102,83,72,519/- were fully & truly disclosed & discussed at the time of Scrutiny Assessment u/s 143(3) of Income Tax.
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( b) Notwithstanding of ground No.1 that the Ld. CIT(A) has erred in law and on facts in confirming the addition of Rs. 102,83,72,519/- on account of External Development Charges as it is neither income nor capital receipt of the assessee but is a deposit on behalf of Punjab Government. Hence, addition made is liable to be deleted.
The assessee in this appeal has agitated the reopening of
assessment u/s 147 of the Income-tax Act, 1961 (in short 'the Act')
by the Assessing officer on the ground that the External Development
Charges (hereby referred to ‘EDC’) received by the assessee was the
regular business income of the assessee which, however, was
reflected by the assessee as ‘liability’ in its balance sheet. The
Assessing officer, therefore, held that the income relevant to these
receipts on account of EDC charges had escaped assessment leading
to the reopening of the assessment and framing of the impugned
assessment order u/s 147 of the Income Tax Act.
At the outset, Ld. Counsel for the assessee has submitted that
the notice for reopening of the assessment u/s 148 of the Act had
been issued after the end of fourth assessment year from the relevant
assessment year and that initially assessment was carried out u/s
143(3) of the Act, therefore, the reopening of the assessee was hit by
the first proviso to section 147 of the Act, as per which the reopening
/ re-assessment can be resorted to only if the income chargeable to
tax has escaped assessment on account of any of the following
failure on the part of the assessee :
a) Making return u/s 139 or in response to notice u/s 142 or notice u/s 148.
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b) To disclose fully and truly all material facts necessary to assessment.
The Ld. Counsel has further submitted that in this case no new
information had come into the possession of the Assessing officer for
forming a belief that the income of the assessee had escaped
assessment. The Assessing officer has formed the opinion for
reopening of the assessment only on the basis of re-appraisal of the
material which was already on the record. He has further contended
that the assessee had duly reflected the EDC charges in the balance
sheet, apart from that the assessee during the original assessment
proceedings had disclosed EDC Charges received during the year in
the detail of ‘other liabilities’ filed in response to questionnaire
issued by the Assessing officer. He has further contended that the
reopening of the assessment exactly on similar facts and
circumstances was also done for assessment year 2008-09, however,
the Tribunal vide its detailed order dated 28.12.2017 (ITA No.
410/Chd/2013) in the case of assessee itself has held that the
reopening was bad in law. He, therefore, has contended that the facts
as well as the issue under consideration being identical, the issue is
squarely covered in favour of the assessee by the decision of the
Tribunal in the case of the assessee for assessment year 2008-09
vide order dated 28.12.2017 passed in ITA No. 410/Chd/2013
(supra).
The Ld. DR, on the other hand, has made the following written
submissions:-
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“Sub: Written Submission in the above case– reg.
The First Ground of Appeal in the case is against upholding order passed by the AO u/s 143(3) r.w.s. 147 of the Income Tax Act, 1961 [henceforth Act] as all the facts relating to External Development Charges of Rs.102.84 Cr were fully and truly disclosed & discussed at the time of scrutiny assessment u/s 143(3) of the Act. AO has dealt this issue at Para 2 Page 1 & 2 of his order. The case was reopened u/s 147 on 16.3.2016 and notice u/s 148 of the Act was issued after recording reasons. Reasons were duly provided to the assessee and objections filed by the assessee were duly disposed by way of speaking order. The AO has duly complied with the mandate of the act and as per findings of the Supreme Court Judgment GKN Driveshafts (India) Limited Vs. ITO 259 ITR 19. The CIT (A) at Para 2.3 to 2.5 Pages 3 to 6 has confirmed the action of the AO by way of reasoning that at the time of Original Scrutiny AO issued just a general questionnaire on 18.07.2011 and further clarifications by questionnaire issued on 10.10.2011. No specific query/clarification was raised by the AO on External Development Charges (EDC). Hence, the issue of EDC was not examined at all by the AO. When no opinion has been formed by the AO, there is no question arises regarding Change of Opinion.
That brief facts of the case for proper adjudication of this case are that the assessee has submitted that the order of the AO dated 16.12.2016 is arbitrary and illegal. In this regard, it is stated that the belief is based on facts and documents which have been mentioned in the reasons recorded for re-opening i.e. the EDC issues were not gone into in scrutiny provisions, but the assessee had wrongly shown them as liability while following a cash system of accountancy, therefore, the reasons recorded is not a change of opinion. It is emphasized that the reasons were recorded after due application of mind on this material/information. It is emphatically stated that the 'reason to believe' is not based on mere suspicion or presumption as claimed by the assessee. The issue in the case of the assessee is not regarding a notional/unrealized or uncertain income. The issue is regarding a claim of expense/liability when no income has been same qua the
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same. Before recording reasons, the documents were carefully perused and the issue was pondered upon. These documents were perused at the time of proceedings u/s 143(3) r/w Section 147 for the A.Y. 2009-10 in the case of this very assessee. Therefore, this issue was never looked into by the A.O. in the earlier years u/s 143(3) of the Act. There was no application/conscious consideration of the material wrongly shown by the assessee as a liability. Moreover, there is no requirement of possession of any "fresh material" with the A.O. There are several case laws which say that if no conscious consideration of the material available on record is made and a mistake has been committed, it will not prevent the competent officer to exercise powers u/s 147 of the Act. In view of the above, there is no change of opinion and the reasons recorded are valid.
The above mentioned case is pending adjudication before this Hon’ble ITAT. In this respect, it is humbly submitted that the assessee has come to the Hon’ble ITAT seeking an adjudication on the notice issued under section 148 and assessment framed under section 147 of the Act for AY 2009-10. The notice had been sent to the assessee beyond 4 years and therefore, section 147 R/W Explanation 1 would be applicable to the facts of this case. The assessee has been incorporated in 2006 under the Punjab Regional And Town Planning and development Act, 1995. The receipt of E.D.C is Income of the assessee as per Chapter VII Section 49 which is reproduced hereunder:-
“49. Fund of the Authority: (1) The Authority shall have and maintain its own fund to which shall be credited- a) all moneys received by the Authority from the State Government and the Central Government by way of grants, loans, advances or otherwise. b) All moneys received by the Authority from sources other than the State Government or the Central Government by way of loans or debentures. c) all fees received by the Authority under this Act.
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d) all moneys received by the Authority from the disposal of lands buildings and other properties, movable and immovable; e) all moneys received by the authority by way of the rent and profits or in any other manner or from any other source; and f) all moneys received by the Authority in connection with the execution of any town development scheme. (2) The funds of the Authority shall be applied towards meeting- a) The expenditure incurred in the administration, implementation and carrying out the provisions of this Act; b) The cost of acquisition of land for the purposes of this Act. c) The expenditure for development of land and construction of houses; and d) The expenditure for such other purposes as the state Government may direct or permit. 3) The Authority shall keep its fund in any Scheduled Bank or in any Apex Co-operative Bank or a Central Co-operative Bank. 4)The Authority may invest any portion of its fund in such securities or in such other manner as it may determine from time to time.
5) The income resulting from investments mentioned in sub section (4) and proceeds of the sale of the same shall be credited to the fund of the Authority.
The Notice under section 148 and assessment to be framed under section 147 was on the issue that the assessee had shown the EDC (External Development Charges) as a liability in the balance sheet only. It was not taken in the profit and loss account. It is important to state here that the assessee is following a cash system of accountancy, therefore, there could not have been any liability standing in its balance sheet at the end of the year as per the Accountancy Principles. The Assessing Officer had asked for details of the liabilities during proceedings under 143(3), the assessee did not disclose truly and fully the material facts/ documents pertaining to the liability and infact just reproduced the balance sheet in verbatim
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without elucidation thereon. It is seen that the assessee does not disclose all material documents pertaining to the said assessment years. It is important to state here that the assessee had information ,material and documents pertaining to the issue of EDC, but not disclosed the same. These documents were in the Exclusive knowledge of the assessee. The Notification of 2007 and 2010 are applicable to the facts of the case and therefore, the relevant portion of the Notification is reproduced hereunder:- “External Developments Charges (EDC) are the charges for utilization of existing infrastructure/ proposed infrastructure. 2. The External Development Charges will be utilized by the concerned local planning and urban development authorities for providing infrastructure. In case the concerned authority feels that connectivity is required from any local body, or any work is to be got executed from a local body, the proportionate amount may be deposited by the authority with the local body on case to case basis. Conversion charges will be deposited in the Government Treasury and License/ Permission Fee will be retained by the concerned urban development authority for planning and development of areas under its jurisdiction. Separate account shall be maintained for each of the above charges. 4. License/Permission fee is the fee for granting permission to colonizers/ promoters for their projects.”
4.1. Therefore, it is seems that except for conversion charges which are to be deposited in Govt. Treasury, the EDC Charges and Permission is to be retained by the assessee and therefore, as per Section 49 of PRTPD Act, 1995, the assessee not only retained the money but it was also the fund of the assessee and liable to be taxed as revenue receipt and the assessee was to take this amount in his profit and loss account and show it has a revenue receipt and not as a liability. Therefore, it is seen that the assessee did not truly and fully disclose Material facts pertaining to the case, infact it “dressed up” its returns and audited returns as per its terms and not as per law.
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On these factual premise certain legal issues emanate which are delineated below. The section 147 R.W. Explanation 1 is reproduced for ready reference:-
If, the (Assessing) Officer (has reason to believe) that any income chargeable to tax has escaped assessment for any assessment year, he may, subject to the provisions of sections 148 to 153, assess or reassess such income and also any other income chargeable to tax which has escaped assessment and which comes to his notice subsequently in the course of the proceedings, under this section, or recomputed the loss or the depreciation allowance or any other allowance, as the case may be for the assessment year concerned (hereafter in this section and in sections 148 to 153 referred to as the relevant assessment year):
Provided that where an assessment under sub section (3) of section 143 or this section has been made for the relevant assessment year, no action shall be taken under this section after the expiry of four years from the end of the relevant assessment year, unless any income chargeable to tax has escaped assessment for such assessment year by reason of the failure on the part of the assessee to make a return under section 139 or in response to a notice issued under sub section (1) of section 142 or section 148 or to disclose fully and truly all material facts necessary for his assessment, for that assessment year. Provided further xxxx xx Provided also xxx xx
Explanation-1 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.
5.1. To confer valid jurisdiction under this section to issue notice in respect of assessments beyond the period of four years, two conditions have therefore, to be satisfied. The first is that the Income Tax Officer must have reason to believe that income, profits and gain chargeable to income tax have been under assessed. And
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secondly, that such underassessment has occurred due to the fact (i) omission or failure on the part of an assessee to make a return under section 139 or (ii) omission or failure on the part of an assessee to disclose fully and truly all material facts necessary for his assessment for that year. Both these conditions are conditions precedent to be satisfied before the Income tax Officer could have jurisdiction to issue a notice for the assessment or reassessment beyond the period of four years. Therefore the section postulates a duty on every assessee to disclose fully and truly all material facts necessary for his assessment.
A catena of judgments, both of the Hon’ble Supreme Court and of the Hon’ble High Courts have given judgments bringing certain broad principles on this issue. The undersigned is hereby submitting, as allowed by the Hon’ble Bench, copies of case laws as received from the ACIT vide letter dated 05.03.2018 which were submitted by the Department before the Hon’ble Punjab & Haryana High Court alongwith rejoinder to the writ petitions filed by the Assessee on the similar issue for AY 2010-11 & 2011-12. Copies of writ petitions and rejoinder filed by the Department in response to these writ petitions have already been submitted before the Hon’ble Bench on 07.03.2018. It is very humbly requested that the Rejoinder and copies of Case laws filed by the Department before the Hon’ble High Court may be considered while deciding validity of proceedings initiated u/s 148 of the Act.
The Ld. DR, has further relied upon the catena of judgements,
listed below, mainly to contend that mere production of books of
account or documents etc. without pointing out the relevant entries
therein does not amount of disclosure within the meaning of section
147 (a) of the Act.
Sr. Particulars Dated No. 1 CWP No. 13806 OF 2010 (P&H, HC ) 30.11.2010 M/s R.N. Gupta & Co Ltd Vs. ACIT
2 1991 SCC(2) 558 (SC) A.L.A Firm Vs. 21.02.1991
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CIT
3 1976 AIR 203 (SC) Kalyani Mavji & Co. 10.12.1975 Vs. CIT
4 159 ITR 624 ((SC)) Indo-Aden Salt 12.3.1986 Manufacturing Vs. CIT Bombay
5 1to Jodhpur Vs. Purpshottam Dass 22.1.1997 Bangar (SC)
6 AIR 1977 SC 2129 (SC) R.K. Malhotra 11.8.1977 Vs. Kastribhai Lal Bhai
7 1967 AIR 587 Kantamani Venkata 27.10.1986 Narayana & Sons Vs. First Addl. Income Tax
8 221 ITR 492 (Delhi HC) Rakesh 09.01.1966 Aggarwal Vs. ACIT
9 ITA 2026/10 CIT VI, New Delhi Vs. 23.04.2012 Usha International Ltd (Delhi HC)
10 137 ITR 446 (P&H HC) CIT Vs. Ess Ess Kay Engineering Co. Ptd
11 258 ITR 170 (P&H HC) Gurera Gas 29.9.2000 Cylinders Pvt ltd Vs. CIT
12 207 ITR 929 Raymond Woolen Mills Ltd 17.8.1991 Vs. ITO (Bombay High Court)
13 236 ITR 34 (SC), Raymond Woolen 17.12.1997 Mills Ltd Vs. ITO
14 Ravathy C.P. Equipments Vs. DCIT
15 CWP Civil 6205 of 2016 Dalmia Pvt Ltd 26.9.2011 Vs. CIT Delhi
16 SLP Civil 23898/11 (SC) CIT & Ors Vs. 8.8.2013 Chahbil Dass Aggarwal
17 290 ITR 377 (Bombay High Court) 06.02.2007 Piaggio vehicles Pvt ltd Vs. DCIT
18 203 ITR 456 (SC) Phool Chand Bajrang 13.7.1993 Lal & Others Vs. ITO
19 156 DTR 217 (Delhi High Court) New 10.08.2017 Delhi Television Ltd Vs. DCIT
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20 1987 AIR 523 (SC) S. Narayanappa & 27.9.1966 others Vs. CIT
21 76 ITR 496 (SC) Gita Devi Aggrwasl s 31.7.1969 CIT West Bengal & Others
22 W.P. (Criminal ) (SC) 176/17 Kamini Jaiswal Vs. Union of India & Another
23 1996 AIR (SC) 691 Executive Engineer, 22.11.1995 Bihar State Housing Board Vs. Ramesh Kumar Singh & Other
The Ld. DR, therefore, has submitted that as per law laid down
in the aforesaid case laws, the assessee did not discharge his duty by
merely producing the books of account or other evidences. That the
Assessing officer could have find out the correct position by further
probing the matter does not exonerate the assessee free from the duty
to make full and true disclosure of the material facts.
Though some of the case laws referred to above are not
applicable or relevant to the issue under consideration, however, the
sum and substance and Ld. DR submissions has been that the EDC
charges received by the assesse has not been reflected in the P&L
account, rather, the same have been reflected in the balance sheet.
That though the Assessing officer had issued a general questionnaire
on 18.7.2011 and further clarification by questionnaire issued on
10.10.2011, however, no specific query / clarification was raised by
the Assessing officer on EDC. Hence, the Assessing officer did not
form any opinion about the nature of EDC receipts and, therefore,
there was no question of change of opinion. That the assessee had
failed to disclose fully and truly the material facts necessary for the
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assessment for that year.
We have considered the rival submissions. Undisputedly, the
facts of the case and issue under consideration are exactly identical
to that of the assessee’s own case for assessment year 2008-09 (ITA
No. 410/Chd/2013) decided vide order dated 28.1.2017. In that case,
this Tribunal while holding the reopening of the assessment as bad in
law observed as under:-
“12. We have heard the contentions of both the parties, perused the orders of the authorities below and also the relevant documents to which our attention was drawn during the course of hearing.
Since the issue before us is the validity of the assessment framed u/s 147 of the Act, certain facts which are undisputed need to be outlined before proceeding with the issue:
a) The impugned assessment year is assessment year 2008-09.
b) Assessment u/s 143(3) for the said year had been made vide order dated 28.12.2010.
c) Notice u/s 148 was issued on 25.3.2015.
It is evident from the above that re-assessment proceedings were initiated after four years from the end of the relevant assessment year and assessment u/s 143(3) had already been framed on the assessee. In such factual circumstances, it is only in the conditions stipulated in the 1s t proviso to section 147 that the re-assessment proceedings can be resorted, which as per the Revenue in the present case is the failure to disclose material facts relating to EDC charges.
We are not in agreement with this contention of the Revenue. Undisputedly EDC charges had been disclosed in the Balance Sheet of the assessee for the impugned year and which formed part of the documents filed with the return of income. Also it is
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not disputed that during assessment proceedings the assessee had disclosed EDC charges received during the year in the detail of “other liabilities” filed in response to questionnaire issued by the Assessing Officer. Further, a perusal of the reasons recorded for reopening reveal that the information provided by the assessee itself, as pointed out above, formed the basis of reopening. The copy of reasons placed at paper book pages 39 and 40 read as under: “During perusal of records in this case, it. was seen that the assesses had received External Development Charges (EDC) from Land Developers/Colonizers/Real Estate Builders/Promoters during the F.Y. 2007-08. The said External Development Charges were not brought to th e ambit of tax by the assessee but were instead shown as a liability in its Balance Sheet under the head "Other Liabilities". It is pertinent to mention here that External Development Charges are received from the Land Developers/Colonizers/Real Estate Builders/Promoters who seek approval from the assessee (i.e. GreaterMohali Area Development Authority) or other Competent Authority to develop a Residential or Commercial or Institutional Zone on their piece/chunk of land. The said amount received under the nomenclature "External Development Charges" is supposed be used by the assessee for carrying on of External- Development Works and other related jobs outside the land of the Land Developer/ Colonizer /Real Estate Builder/Promoter who has paid the .External Development Charges (EDC). Thus, it is seen that the receipt of External Development Charges by the assessee is attributable to its regular business. Further, the receipt and expenditure of the said amount is a regular, routine and re- occurring phenomenon as External Development Charges are being regularly received by the assessee from Land Developers/ Colonizers/Real Estate Builders; Promoters in every year and similarly these are being regularly expended /utilized/ spent for the purpose of carrying out External Development Works and other related jobs. In light of the above, it is observed that both the receipts as well as the expenditure
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related to External Development Charges (EDC) are clearly revenue in nature as they are attributable to the regular business of the assessee and are also a routine, regular and re-occurring phenomenon. Accordingly, the assessee was required to credit the receipts of External Development Charges to its P'&L Account and debit the expenses incurred on account of the same. Since, the assessee is following Cash System of accounting, therefore, the net amount received by the assessee during the year as External Development Charges was required to be brought to the ambit of tax by crediting the receipts earned during the year and debiting the expenses incurred on account of external development work & other related jobs. However, the assessee ------------------ has rather shown the External Development Charges EDC received as liability in its Balance Sheet. The said failure on the part of the assessee has led to escapement of taxable income as the net income earned on account of the External Development Charges has escaped the ambit of taxation. Thus after independent verification of records with respect to the above mentioned facts, I have reasons to believe that an income of Rs.1,59,61,85,128/- has escaped assessment within the meaning of Section 147 of the Income Tax Act, 1961. A calculation of the same is as under: i. Opening Balance of Rs.65,51,36,250/ External Development - Charges (EDC) as on 01.04.2007 ii. Closing Balance of Rs.2,25,13,21,37 External Development 8/- Charges (EDC) as on 31.03.2008 iii. Net amount Received Rs.1,59,61,85,12 during the year on 8/- account of External Development Charges (i.e. (ii) – (i) This escapement of income is due to failure of the assessee to fully and. truly disclose all the material facts relating to its income and due to default on its part by not treating the Amount Received on account of External Development charges (EDC) as Revenue Receipt.
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Issue notice u/s 148 of the Income Tax Act, 1961 to the assessee for the A.Y. 2008-09.”
A perusal of the above reveals that, in the first para of the reason, the Assessing Officer records “during perusal of records in this case, it was seen that EDC charges were received by the assessee.” (emphasis supplied) Thereafter the reasons only state the nature of the EDC charges, which is general and publicly known information, and further on inference and conclusion has been drawn therefrom that it is in the nature of revenue receipt of the assessee and hence chargeable to tax. The Assessing Officer thereafter states that since the assessee failed to include it in its income, the same has escaped assessment. And lastly the Assessing Officer mentions that “after independent verification of records with respect to the above mentioned facts”, I have reason to believe that income has escaped assessment.
It is amply evident from the above that it was on the basis of already available information and not any new information pertaining to EDC charges that came in the possession of the Assessing Officer thereafter that led to the formation of belief that the EDC charges were in the nature of revenue receipt of the assessee and had thus escaped assessment. Therefore when the reopening was resorted to on the basis of material already on the file, the same having been provided by the assessee only during assessment proceedings, and nothing else, we fail to understand how the assessee could be charged with failure to disclose material facts relating to the said receipt.
Moreover the section empowers that Assessing Officer to assume jurisdiction to reopen the case when the escapement of income is on account of failure of the assessee to disclose material facts relating to the income, meaning thereby that only important and primary facts pertaining to the income have to be disclosed and not the reasoning or logic which lead to the conclusion of the nature of the receipt. In the present case, vis-à-vis EDC charges, the necessary facts were nature of the income and the quantum of the income. The assessee having disclosed that it had outstanding
ITA No.1560/Chd/2017- Greater Mohali Area Development Authority, Mohali
EDC charges received amounting to Rs.252 crores as at the end of the year, the nature and the quantum of the receipt was duly disclosed by the assessee. It is not the case of the Revenue that the nature of the receipt is something other than EDC charges or that the quantum is not as disclosed by the assessee. Therefore, failure to disclose any material fact cannot be attributed to the assessee. Even the reasons recorded for formation of belief are on the same set of facts, which having already been disclosed by the assessee, No failure to disclose any material fact can therefore be attributed to the assessee. The reasons do not state as to what other material fact was not disclosed by the assessee pertaining to the EDC charges and which came in the possession of the Assessing Officer thereafter which led to the belief of escapement of income. What is derived from the reasons is that the information relating to EDC charges was the same as provided by the assessee during assessment proceedings, and it is only that inference from the said information, that it is in the nature of revenue receipts, has now been derived by the AO. In Calcutta Discount Co. Ltd. vs ITO 41 ITR 191 the Hon’ble Supreme Court held that the expression “material facts” refers only to primary facts, the duty of the assessee is only to disclose primary facts and he does not also have to indicate what factual or legal inferences should properly be drawn from the primary facts. Clearly therefore it cannot be said that the assessee had failed to disclose any material facts during assessment.
The reliance placed by the Ld.Counsel for the assessee in this regard on the decision of the Hon’ble Gujarat High Court in the case of Micro Inks P. Ltd. vs Assistant Commissioner of Income Tax (2017) 393 ITR 366 (Guj) is apt wherein reopening, beyond four years and where assessment had been framed earlier, on the basis of material already on record was held not to fulfill the condition of failure on the part of assessee to disclose material facts . The findings of the Hon’ble High Court are as under:
“ At the outset, it is required to be noted that in the present case, the Assessing Officer has sought to reopen the assessment for A.Y 2009-2010 beyond the period of four years. Therefore, unless and until the
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condition precedent to reopen the assessment beyond the period of four years as mentioned in proviso to Section 147 of the I.T Act are satisfied, the Assessing Officer is not justified in initiating the re-assessment proceedings. As per the proviso to Section 147 of the Act, if it is found that there was any failure on the part of the assessing in not disclosing the true and correct facts, which has resulted into escapement of the income, the Assessing Officer is not justified in reopening the assessment. 7.1 Considering the reasons recorded, there is no allegation that there was any failure on the part of the assessee in not disclosing the true and correct facts due to which, there is escapement of income from the assessment.
7.2 Moreover, from the reasons recorded, it appears that according to the Assessing Officer, the expenditure was incurred to establish a subsidiary in USA, and therefore, such expenditure was covered under Section 35D [1] (ii) of the I.T Act, and therefore, only 1/5th of the expenditure i.e., ₹47,23,722/- was required to be allowed. Instead, the entire amount claimed by the assessee i.e., ₹2,36,18,612/- is allowed to be debited. Therefore, according to the Assessing Officer, his predecessor has wrongly allowed the entire amount of ₹2,36,18,612/- to be debited under the head “Interest and Finance charges”. In the reasons recorded, it is specifically observed by the Assessing Officer that, “..On observation of the assessment records, …. ..” meaning thereby, while issuing notice, the subsequent Assessing Officer did consider the material which was already on the record, which was considered by the Assessing Officer, while framing the scrutiny assessment under Section 143 of the Act.
As observed hereinabove, even there is no allegation in the reasons recorded that there was any failure on the part of the assessee in not disclosing true and correct facts necessary for the assessment. Under the circumstances, the Assessing Officer has materially erred in assuming the jurisdiction to reopen the assessment for Assessment Year 2009-2010 and that too beyond the period of four years, as the condition precedent to assume the jurisdiction to reopen the assessment beyond the period of four years is not satisfied.
On the aforesaid ground alone, the impugned notice dated 31st March 2016 under Section 148 of the Income-tax Act, 1961 and re-assessment proceedings deserves to be quashed and set-aside.”
The Hon’ble Delhi high court in the case of Avtec Ltd. vs DCIT (2017) 395 ITR 434 reiterated the same holding as under:
ITA No.1560/Chd/2017- Greater Mohali Area Development Authority, Mohali
“In the present case, the tangible material that the AO came across for the AYs in question that warranted the reopening of the assessments is not clear from the 'reasons to believe' recorded by the AO. The reasons merely record the fact that HML had borne the costs and expenses including professional fee and, therefore, the capitalisation of those expenses to the various block of assets was not allowable under Section 43(1) of the Act. After recording the above statement, the AO adds: “I have reason to believe that due to failure on the part of the assesse to disclose all the material facts truly or fully, income of ₹7,16,299 have escaped assessment.” This does not satisfy the requirement of law that the reasons to believe should, where the reopening is after the expiry of four years from the end of the FY, specifically state in what manner there was a failure by the Assessee to make a full and true disclosure of material facts. That, again, will have to be preceded by spelling out the tangible fresh material that led the AO to come to that conclusion. None of this is found in the reasons to believe recorded by the AO in the case on hand. The necessity for tangible material to be present to trigger the reopening was emphasised in Commissioner of Income tax v. Orient Craft Ltd. (supra).
The repeated assertion by Mr. Manchanda that the claim for depreciation for AYs 2006-07 and 2007-08 was disallowed by the AO is not entirely correct. It overlooks the history of the litigation around the claims for those AYs with both ending in the Assessee ultimately succeeding on the point after the remand to the AO by the ITAT for AY 2006-07 and the level of the CIT (A) for AY 2007-08 . Mr. Manchanda has also not been able to counter the submission that for AYs 2011- 12 and 2012-13 the same claim for depreciation has been allowed.
For all of the aforementioned reasons, the writ petitions are allowed and the notices dated 31st March, 2015 and the consequential orders dated 11th January, 2016 passed by the AO disposing of the Petitioner’s objections are hereby set aside. No order as to costs.”
Further we do not find any merit in the contention of the Ld.DR that mere production of account books and balance sheet and profit and loss account will not tantamount to disclosure. The Ld.DR has borrowed from Explanation-1 to section 147 of the Act to so contend. The said Explanation reads as under:
“Explanation 1-Production before the Assessing Officer of account books or other evidence from which material evidence could with due diligence have been discovered by
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the Assessing Officer will not necessarily amount to disclosure within the meaning of the forgoing proviso.”
This Explanation only deals with account books or other evidences which are “produced” before the Assessing Officer. Now the word “produced” would not include Balance Sheet and Profit & Loss Account which the assessee is obliged to file alongwith return and, therefore, this Explanation cannot be invoked where the Assessing Officer fails to notice an entry or statement in the Balance Sheet or the Profit & Loss Account. The Hon'ble Gujarat High Court in the case of Gujarat Ginning & Manufacturing Company Vs. CIT reported in 108 ITR 674, found that the Profit & Loss Account was there before the Assessing Officer during the original proceedings disclosing the amounts of Municipal taxes recovered from the tenants of the assessee company which the Assessing Officer believed had escaped assessment. It was found that the only grievance of the Assessing Officer was that the said amounts had not been shown in the statement filed alongwith return of computation of income. The question before the Hon'ble High Court was whether in such case it could be held that the primary facts necessary for ascertaining the income had been disclosed to the Assessing Officer and the disclosure so made in the Profit & Loss Account was sufficient in the eyes of law. The Hon'ble High Court held that the disclosure in the Profit & Loss Account was sufficient and since the Profit & Loss Account was submitted alongwith the return of income disclosing aforesaid recoveries, it could not be brought within the purview of “production” before the Assessing Officer of account books or other evidences. The relevant findings of the Hon'ble High Court are as under:
“We are unable to accept Mr. Kaji's contention that this case of the Supreme Court and the observations of the Bombay High Court apply to the present case. In the instant case the assessee has not suppressed material facts as was the case in Jai Hind Printing Press's case (supra). He has not failed to disclose in the documents submitted to the ITO the amounts of the recoveries of municipal taxes from the tenants. Actually, in the profit and loss account one finds that in each of those two assessment years, the total amount of rates and taxes were first shown and the recoveries were shown as
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deductions from those amounts of rates and taxes. Therefore, to any person reading the profit and loss account it would be obvious that these recoveries, namely, Rs. 27,098 in one case and Rs. 26,477 in the other case, were recoveries of taxes for which the assessee-company before us was not claiming any deductions. Thus, the primary fact that these recoveries were made was before the ITO at the time of the original assessment proceedings. As the Supreme Court has pointed out in CIT vs. Burlop Dealers Ltd. (supra), it was for the ITO to raise the possible inferences. The assessee-company was under no obligation to inform the ITO about the possible inferences which could be raised against him. If the ITO did not raise the appropriate inference on the primary facts disclosed before him the income which has escaped assessment cannot be brought to tax under s. 147(a) of the Act of 1961. The duty which has been cast upon the assessee is to disclose all the primary facts necessary to enable the ITO to arrive at the proper figure of the total income and to assess the tax accordingly. Beyond disclosure of the primary facts, no other duty is cast on the assessee. Here is not a case of books of account or other evidence produced by the assessee at the time of the original assessment proceedings. The profit and loss account of the assessee-company was submitted and it did disclose the recoveries in each of these two year. In the reassessment proceedings it has been pointed out that at the time of the original assessment proceedings those profit and loss accounts of the two years were before the ITO and those profit and loss accounts did mention these two amounts of Rs. 27,098 and Rs. 26,477 as recoveries of municipal taxes. If the ITO did not draw the necessary inferences from these primary facts, the assessee cannot be blamed and it cannot be said that the tax had escaped assessment because of the omission or failure on the part of the assessee to disclose fully and truly all material facts. The material facts which were the primary facts were disclosed and the assessee was not bound to point to the possible inferences which should be raised from these primary facts. Because of the failure on the part of the ITO to raise the necessary inferences at the time of the original assessment proceedings, the assessee cannot be blamed nor can the case be brought under s. 147(a) of the IT Act, 1961, because of such failure of the ITO at the time of the original assessment proceedings.”
The case laws relied upon by the Ld. DR relating to Explanation-1 to section 147 of the Act are, therefore, not applicable in the present case.
Moreover, as stated above and as is evident from the facts on record, no new material has come
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in possession of the assessing officer for reopening the assessment and the AO is only attempting to review his earlier order through the reassessment proceedings which is neither valid nor justified as held by the Hon'ble Apex court in the case of CIT vs Kelvinator of India(2010) 320 ITR 561. The assessee was asked to furnish details in relation to “other liabilities” reflected in the balance sheet, which was duly filed disclosing EDC charges payable of Rs.225.13 Cr. Admittedly no further questions were asked during assessment proceedings. It is reasonable therefore to presume that the Assessing Officer had formed a view on EDC charges while going through the detail furnished to him on his behest. The reopening now on the same set of information is nothing but based on change of opinion. The contention of the Ld.DR that there was no change of opinion since no view had been formed by the Assessing Officer during assessment as information regarding receipt of EDC had been furnished in response to a general questionnaire issued to the assessee asking for break up of other liabilities and no further questions were asked thereafter, is not acceptable. If a query is raised during assessment proceedings and answered by the assessee, undoubtedly the attention of the Assessing Officer is drawn to the same and it is reasonable to presume that he has considered the same and formed a view also. The Hon'ble Delhi High Court held so in the case of CIT vs Usha International Ltd.(2012) 348 ITR 485 (Del) which has been relied upon by the Hon'ble Punjab & Haryana High Court in the case of Pr. CIT vs Anil Nagpal (2017) 291 CTR 272(P&H) which has been relied upon by the Ld.Counsel for the assessee. Moreover, the reopening in this case, as discussed above, is hit by the first proviso to section 147 of the Act. 23. Considering the above discussion we do not find any justification for the authorities below to justify the reopening of the assessment. The reopening is thus clearly bad in law and liable to be quashed. We accordingly set aside the orders of the authorities below and quash the reopening of the assessment u/s 147/148 of the Act.
Ground of appeal No.2(a), therefore, stands allowed.
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Since we have set aside the assessment order on the legal ground raised before us, we do not find any need to adjudicate the issue raised before us by the assessee on the merits of the case in ground 2(b) since it would be a purely academic exercise.
Further since we have adjudicated the main appeal in above terms, the stay application is also disposed off accordingly.
In the result the appeal of the assessee is partly allowed.”
A perusal of the above order of the Tribunal reveals that all
the contentions raised by the Department as discussed / reproduced
above, have already been dealt with by the Tribunal in its order
dated 28.12.2017 (supra). The Tribunal has specifically discussed
that the EDC charges have been disclosed by the assessee in the
balance sheet of the assessee which form part of the documents filed
with the return of income and further the Assessing officer had also
gone through the balance sheet and made various queries to assessee
through questionnaires dated 18.7.2011 and 10.10.2011. The EDC
charges formed part of Schedule D of the balance sheet under the
head ‘other liabilities’. Further, that no new tangible material had
come to the knowledge of the Assessing officer. The Assessing
officer has recorded that “during perusal of records in this case, it
was seen that EDC charges were received by the assessee”. Hence
the opinion regarding the escapement of income had been derived by
the Assessing officer on re-appraisal of the material already available
on record. The Tribunal has also discussed in para 17 of the order
(supra) that what the assessee was supposed to disclosed was that
important and primarily facts pertaining to the income and not
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reasoning or logic which would lead to the conclusion of the nature
of receipt. When the assessee in this case had already disclosed the
necessary facts about the EDC charges i.e the nature and quantum of
receipts, hence, there was no failure on the part of the assessee to
disclose fully and truly any material facts necessary for the
assessment. The Tribunal while relying on various case laws has
held that the balance sheet and profit and loss account are the
primary documents, which are attached along with return. The
Assessing officer is supposed to go through these primary documents.
These documents do not fall in the category of books of account or
other evidences which may escape the attention of the Assessing
officer during the assessment proceedings.
In the case in hand before us also, the facts are identical to that
for assessment year 2008-09. The balance sheet wherein the EDC
charges found mention under the head “other liability” was duly
attached with the return of income. The Assessing officer had duly
considered the said balance sheet and applied his mind and issued
various queries to the assessee regarding various expenditure,
liabilities and assets etc. forming part of the balance sheet through
questionnaires dated 18.7.2011 and 10.10.2011. Under the
circumstances, it cannot be said that there was any failure on the part
of the assessee to disclose fully and truly the material facts necessary
for the assessment. The reopening in this case is, therefore, hit by
the first proviso to section 147 of the Act, the same being reopened
after end of the fourth assessment year from the relevant assessment
year. The issue, otherwise, is squarely covered by the decision of the
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Tribunal dated 28.12.2017 (supra), in the own case of the assessee, for assessment year 2008-09.
In view of this, the reopening is hereby held bad in law and re- assessment framed in this case is set aside and the consequential additions made during the re-assessment, hence, stood deleted.
In the result, the appeal of the assessee is hereby dismissed
Order pronounced in the Open Court on 22-05-2018.
Sd/- Sd/- (B.R.R.KUMAR) (SANJAY GARG) ACCOUNTANT MEMBER JUDICIAL MEMBER Dated : 22. 05.2018 Rkk
Copy to: • The Appellant • The Respondent • The CIT • The CIT(A) • The DR