HSBC SECURITIES AND CAPITAL MARKETS (INDIA) P.LTD,MUMBAI vs. DCIT RG 4(1), MUMBAI

After completing the assessment in the aforesaid manner, the assessee’s case has been reopened by issuance of notice u/s 148 dated 31.03.2009 which is much after the expiry of 4 years from the end of the relevant assessment year. The said assessment has been sought to be reopened u/s 147 on the following “reasons recorded” :- “The Assessee filed its return of income on 31.10.2002 declaring total income at Rs.14,65,03,840/-. Thereafter, the assessee filed its revised return of income on 14.10.2003 declaring total income at Rs. 14,47,53,500/-. The assessment u/s.143(3) was completed on 28.01.2005 assessing the total income at Rs.18,97,94,440/-. The total income was reduced to Rs.15,24,88,580/- vide rectification order u/s.154 dated 12.05.2006. It was seen from the profit and loss account that the assessee had debited Rs.1,57,07,000/- being service tax paid. On verification of copies of service tax returns filed by the assessee it is seen that the amount of service tax paid was Rs.1,37,86,326/- against Rs. 15,707,00O/- debited to P & L A/c.

Before us Ld. Counsel, Shri Yogesh A Thar submitted that the Ld. AO during the course of the original assessment proceedings had raised specific query with regard to the ‘service tax’ paid and also details regarding brokerage. This query, he pointed out was raised vide point no. 29, issued vide notice dated 25.10.2004 u/s 142(1). In response, the assessee had submitted the copy of service tax assessment order and also the details of brokerage along with return of service tax. All these details are appearing form pages 51 to 60 of the paper book. Thus, he submitted that not only this issue has been looked upon but also 4 HSBC Securities and Capital Markets (India) Pvt Ltd there is no failure on the part of the assessee to disclose fully and truly all material facts. He further submitted that from the perusal of the “reasons recorded”, it can be seen that the AO is only mentioning about the profit and loss account and the details which are already on the record and there is no whisper about any tangible material coming on record so as to suggest that any income chargeable to tax has escaped assessment and therefore, such a reopening beyond the period of 4 years cannot be sustained. In support of his contention, he relied upon the following decisions :- 1 Hindustan Lever Ltd. v R B Wadkar [2004] 268 ITR 332 (Bom) 2 Bhavesh Developers Ltd. v AO [2010] 329 ITR 249 (Bom) 3 Rock Castle Property Private Ltd. v CIT WP 738 of 2012(Bom) 4 Kimplas Trenton Fittings Ltd v ACIT [2011] 340 ITR 299(Bom) 5 CIT v Petroleum India International [2013] 220 Taxman 11(Bom) 6 Agilsys IT Services India (P) Ltd. v DCIT [2013] 40taxman.com139(Trib Mum) 7 Global Signals Cable Pvt Ltd vs DCIT WP No. 747 of 2014 (Del) 8 Bombay Stock Exchange Ltd vs DDIT WP no. 2468 of 2011(Bom) 9 Talati & Panthaky Associated (P) Ltd. v DCIT [2014] 362 ITR 362 (Bom) 5. On the other hand, Ld. DR relied upon the order of the CIT(A) and submitted that Ld. CIT(A) in para 2.10 of the order has pointed out that there was discrepancy in the amount shown in the profit and loss account and the amount of service tax claimed by the assessee in the return of income. The tax audit report did not disclose the amount of service tax which has remained unpaid after 31st March, 2002 though deducted in the accounts but it was reported that it was paid after 31.03.2002. Thus the Ld. CIT(A) has rightly pointed out that there was some discrepancy and hence it cannot be said that there was a proper disclosure by the assessee.

We have considered the rival contentions and also perused the relevant material placed on record qua the legal issue raised. In case of the assessee, the assessment was completed u/s 143(3) after examining all the books of accounts and calling for the entire records including that of service tax paid, service tax assessment and challans which was required by the AO to be produced before him during the course of assessment proceedings. After examining all these details and aspects, assessment was completed u/s 5 HSBC Securities and Capital Markets (India) Pvt Ltd 143(3). On the issue of brokerage also, the assessee had furnished all the details as required by the AO and the same were examined. After having completed the assessment in such a manner the same has been sought to be reopened u/s 147 after the expiry of 4 years from the end of the relevant assessment year. Such a reopening has to be scrutinized within the scope and ambit of Proviso to section 147, inasmuch as, there is a time limit of 4 years provided for reopening the case. Such an embargo of time limit can be lifted only on the twin conditions :- Firstly, there is a failure on the part of the assessee to file a return of income u/s 139 or in response to notice u/s 142(1) or under section 148; and Secondly, there is a failure on the part of the assessee to disclose fully and truly all material facts necessary for the assessment. Unless these twin conditions are satisfied, the case cannot be reopened after the expiry of 4 years (from the end of the relevant assessment year). Here in this case, there is no dispute about the first condition and hence, the same is not applicable. Coming to the second condition, it is evident from the perusal of the “reasons recorded” that the AO is not referring to any tangible material coming on record having live-link-nexus with the income chargeable to tax having escaped assessment. He is merely referring to the profit and loss account and the copies of service tax return filed by the assessee in the original assessment proceedings and also the details of brokerage which has already been disclosed by the assessee. His only allegation is that there has been under- assessment earlier. There is no whisper about assigning any failure on the part of the assessee to disclose fully and truly all material facts. It is mandatory requirement of law that while acquiring a jurisdiction to reopen the case beyond the period of 4 years the AO has ascribed the failure of the assessee in the “reasons recorded” itself. Here in this case otherwise also there is no failure on the part of the assessee to make full and true disclosure of material facts relating to the payment of service tax and brokerage.

So far as the observations of the CIT(A), as pointed out by the DR before us, the same is also not tenable; Firstly, there is no such failure ascribed by the AO in the “reasons recorded” and such a reasons cannot be substituted by the observation of the CIT(A) and Secondly, the assessee has duly disclosed the service tax paid as per the service tax return and also as per the profit and loss account. Not only that, these details have been duly produced and disclosed during the course of the assessment proceedings. The duty of the assessee is to place all the relevant material facts and disclose the entire particulars truly and fully. It is then upon the AO to draw the legal and factual inference. Otherwise also, here in this case the assessee had filed a reconciliation statement of service tax which tallies with the annual accounts and also as per the service tax returns, as placed in the paper book at page 94. Similar, reconciliation has been filed regarding brokerage also. Thus, in view of the said settled proposition of the law, if the assessee has disclosed all the primary and necessary facts and no failure has been ascribed by the AO in the reasons recorded then, such a reopening beyond the period of 4 years is prohibited by the Proviso to section 147. This proposition, have been upheld by the various decisions including that of the jurisdictional High Court as referred and relied upon by the Ld. Counsel. Thus, we hold that reopening of the case / assessment u/s 147 by the issuance of notice u/s 148 is bad in law and accordingly impugned assessment order passed u/s 147 r.w.s. 143(3) is void-ab-initio and is hereby quashed.

In view of the finding given therein, the issues relating to merits have become purely too academic, therefore, same is treated as infructuous. Order pronounced in the open court on 10th November, 2015. Sd/- Sd/- (रिमत कोचर) (अिमत शु�ला) लेखा सद�य �यायीक सद�य (RAMIT KOCHAR) (AMIT SHUKLA) ACCOUNTANT MEMBER JUDICIAL MEMBER 7 HSBC Securities and Capital Markets (India) Pvt Ltd Mumbai, Date: 10th November, 2015 ��त/Copy to:- 1) अपीलाथ� /The Appellant. 2) ��यथ� /The Respondent. 3) The CIT(A) -13, Mumbai. 4) The CIT– 7, Mumbai. 5) िवभागीय �ितिनिध “H”, आयकर अपीलीय अिधकरण, मुंबई/ The D.R. “H” Bench, Mumbai. 6) गाड� फाईल \ Copy to Guard File. आदेशानुसार/By Order / / True Copy / /