Delhi High Court
Commissioner Of Income Tax vs Xerox Modicorp Limited on 14 September, 2010
Author: A.K.Sikri
Reportable
* IN THE HIGH COURT OF DELHI AT NEW DELHI
ITA No. 1274 of 2007
With
ITA No. 1270 of 2007, ITA No. 1273 of 2007, ITA No. 1275 of
2007, ITA No. 1285 of 2007, ITA No. 1286 of 2007, ITA No. 24 of
2008, ITA No. 26 of 2008, ITA No. 67 of 2008 and ITA No.331 of
2008.
Reserved On: August 12, 2010
% Pronounced On: September 14, 2010
1) ITA No. 1274 of 2007
COMMISSIONER OF INCOME TAX . . . Appellant
Through : Ms. Prem Lata Bansal,
Advocate.
VERSUS
XEROX MODICORP LIMITED . . .Respondent
Through: Mr. Ajay Vohra with Ms. Kavita
Jha and Mr. Somnath Shukla,
Advocates.
2) ITA No. 1270 of 2007
COMMISSIONER OF INCOME TAX . . . Appellant
Through : Ms. Prem Lata Bansal,
Advocate.
VERSUS
XEROX MODICORP LIMITED . . .Respondent
Through: Mr. Ajay Vohra with Ms. Kavita
Jha and Mr. Somnath Shukla,
Advocates.
3) ITA No. 1273 of 2007
COMMISSIONER OF INCOME TAX . . . Appellant
Through : Ms. Prem Lata Bansal,
Advocate.
ITA No. 1274 of 2007 & Others Page 1 of 22
VERSUS
XEROX MODICORP LIMITED . . .Respondent
Through: Mr. Ajay Vohra with Ms. Kavita
Jha and Mr. Somnath Shukla,
Advocates.
4) ITA No. 1275 of 2007
COMMISSIONER OF INCOME TAX . . . Appellant
Through : Ms. Prem Lata Bansal,
Advocate.
VERSUS
XEROX MODICORP LIMITED . . .Respondent
Through: Mr. Ajay Vohra with Ms. Kavita
Jha and Mr. Somnath Shukla,
Advocates.
5) ITA No. 1285 of 2007
COMMISSIONER OF INCOME TAX . . . Appellant
Through : Ms. Prem Lata Bansal,
Advocate.
VERSUS
XEROX MODICORP LIMITED . . .Respondent
Through: Mr. Ajay Vohra with Ms. Kavita
Jha and Mr. Somnath Shukla,
Advocates.
6) ITA No. 1286 of 2007
COMMISSIONER OF INCOME TAX . . . Appellant
Through : Ms. Prem Lata Bansal,
Advocate.
VERSUS
XEROX MODICORP LIMITED . . .Respondent
Through: Mr. Ajay Vohra with Ms. Kavita
Jha and Mr. Somnath Shukla,
Advocates.
ITA No. 1274 of 2007 & Others Page 2 of 22
7) ITA No. 24 of 2008
COMMISSIONER OF INCOME TAX . . . Appellant
Through : Ms. Prem Lata Bansal,
Advocate.
VERSUS
XEROX MODICORP LIMITED . . .Respondent
Through: Mr. Ajay Vohra with Ms. Kavita
Jha and Mr. Somnath Shukla,
Advocates.
8) ITA No. 26 of 2008
COMMISSIONER OF INCOME TAX . . . Appellant
Through : Ms. Prem Lata Bansal,
Advocate.
VERSUS
XEROX MODICORP LIMITED . . .Respondent
Through: Mr. Ajay Vohra with Ms. Kavita
Jha and Mr. Somnath Shukla,
Advocates.
9) ITA No. 67 of 2008
COMMISSIONER OF INCOME TAX . . . Appellant
Through : Ms. Prem Lata Bansal,
Advocate.
VERSUS
XEROX MODICORP LIMITED . . .Respondent
Through: Mr. Ajay Vohra with Ms. Kavita
Jha and Mr. Somnath Shukla,
Advocates.
ITA No. 1274 of 2007 & Others Page 3 of 22
10) ITA No. 331 of 2008
COMMISSIONER OF INCOME TAX . . . Appellant
Through : Ms. Prem Lata Bansal,
Advocate.
VERSUS
XEROX MODICORP LIMITED . . .Respondent
Through: Mr. Ajay Vohra with Ms. Kavita
Jha and Mr. Somnath Shukla,
Advocates.
CORAM :-
HON'BLE MR. JUSTICE A.K. SIKRI
HON'BLE MS. JUSTICE REVA KHETRAPAL
1. Whether Reporters of Local newspapers may be allowed
to see the Judgment?
2. To be referred to the Reporter or not?
3. Whether the Judgment should be reported in the Digest?
A.K. SIKRI, J.
The Background:
1. All these appeals pertain to the same assessee, viz., M/s. Xerox
Modicorp Limited. Only the assessment years are different. Otherwise,
the question of law, which arises for consideration is common and
relates to the permissibility of the allowance under Section 32A of the
Income Tax Act (hereinafter referred to as „the Act‟). Income Tax
Appellate Tribunal (hereinafter referred to as „the Tribunal‟) rendered a
common decision dated 8th February, 2007 whereby five appeals filed by
the assessee and five appeals filed by the Revenue were disposed of
together. ITA No.1274 of 2007 is filed against the decision in respect of
the assessment year 1986-87 which is the first relevant assessment
year. Therefore, we shall take note of the facts appearing in this
appeal before spelling out the exact formulation of the question of law
that arises for consideration.
2. The assessee is engaged in manufacturing of xerographic
machines, toner, developer and photoreceptor. It filed return of income
for the Assessment Year 1986-87 on 30.06.1986. The returns for
subsequent years up to 1990-91 were filed on different dates. During
the assessment proceedings in respect of first assessment year, the
assessee claimed that commercial production had not commenced at
company‟s Modipur plant. As on the date of balance sheet, no provision
of depreciation on fixed assets capitalized at Modipur was made. A note
was appended to the aforesaid effect and in that note, it was also
averred that the investment allowance reserve would be credited in the
year of assessable profits. As per the assessee, the accounting year
ended on 30.04.1985 and though trial production stated on 01.02.1985,
the commercial production began only from 01.05.1985. Since no
production commenced in the assessment year under consideration and
there was only trial run production of 53 machines, that is why no
depreciation on the plant and machinery had been claimed, but was
claimed in the subsequent assessment year. It is for this reason that
the assessee did not claim the investment allowance also.
3. The Assessing Officer (AO), however, found that the distinction
between the commercial production and trial production made by the
assessee was on artificial lines, which was not permitted. He was of the
opinion that once the production had been started for the
manufacturing of xerographic machines, whatever is sold after the
production in the form of xerographic machines, is definitely a trading
receipt because receipt of the same was the result of selling of the
goods by the assessee company in which the assessee deals. The
reason for arriving at this view was that it appeared on record that 43
machines out of 53 machines had been sold to different, separate and
independent customers. Once such a view was expressed by the AO,
the assessee submitted his reply (during assessment proceedings)
claiming the depreciation as well as investment allowance, as according
to the assessee in the aforementioned facts it had become entitled to
the depreciation and also the investment allowance.
4. It was in this backdrop that in the final assessment order passed
by the AO, he discussed the admissibility of investment allowance and
allowed the same to the assessee in the assessment year under
consideration, i.e., Assessment Year 1986-87. Needless to mention that
the original assessment was completed under Section 143(3) of the Act
after eliciting various information on different queries raised by the AO
including qua the investment allowance. Likewise for the subsequent
years, i.e., 1987-88, 1988-89, 1989-90, 1990-91, the original
assessment under Section 143(3) was completed on 26.12.1990,
04.03.1991, 12.02.1992 and 29.03.1993 respectively. In all these
assessment years also, claim for deduction of investment allowance was
computed and was allowed to the assessee.
Circumstances leading to re-assessment
5. Subsequently, it appears that while considering the claim of the
assessee for deduction under Section 80-I, the learned CIT (A) for the
assessment year 1994-95 held that the assessee company was
manufacturing office machines and apparatus, falling within ambit of
entry at Sl. No.22 of Schedule XI and therefore, the assessee was not
entitled to deduction. The AO observed that provisions of Section 80-I
of the Act were similar to Section 32A of the Act and, therefore, the
assessee was also not entitled to investment allowance.
6. On the basis of this order of CIT (A) for the assessment year 1994-
95, the AO initiated reassessment proceedings by issuing notice under
Section 148 of the Act on 20.03.1997, for all the assessment years. The
AO completed the reassessment under Section 147 read with Section
143(3) of the Act on 12.03.1999 for all the assessment years whereby
investment allowance claimed by the assessee for these assessment
years was withdrawn on the ground that items manufactured by the
assessee fell in the prohibited category mentioned at Sl. No.22 of
Schedule XI of the Act.
7. The Ld. CIT (A) considered the submission and noted that the
provisions of Section 147 have been amended with effect from
1.4.1989. He considered the action of the Assessing Officer for initiating
the reassessment proceedings for the assessment year 1986-97, 1987-
88 and 1988-89, under the pre-amended provisions. The Ld. CIT (A)
observed that assessee had furnished complete details of the items
manufactured before allowing the investment allowance for the various
assessment years. It was for the Assessing Officer to have drawn the
proper inference from the facts that had been disclosed and were
before him to draw the inference. He also observed that the assessee
was expected to disclose the primary facts necessary for making the
assessment. He relied on the judgment of Kerala High Court in the case
of M/s Palla Marketing Cooperative Society Ltd., Vs. State of
Kerala & Another, 236, ITR 604. He also observed that it was for the
Assessing Officer to have considered whether the assessee was entitled
to investment allowance or not and whether these articles were covered
by the list in the XIth schedule. Thus, he concluded that by no stretch of
imagination it could be said that there was any failure on the part of the
assessee to disclose all material facts fully and truly. To this extent, the
Ld. CIT (A) accepted the contention of the assessee.
8. The Ld. CIT (A) than proceeded to examine whether there was any
material in possession of the AO which constituted information justifying
for reopening the assessment. He observed that provisions of Section
80-I were analogous to provision of Section 32A. For the assessment
year 1994-95, the Ld. CIT (A) held that items being manufactured by the
assessee fell within the ambit of Sl. No.22 of XI schedule and, therefore,
the assessee was not entitled to deduction under that section. He
observed that the findings of the Ld. CIT (A) in the assessment year
1994-95 constituted information within the meaning of Section 147 (b)
of the Act and such order had become available to the AO after he had
completed the original assessment u/s 143 (3) for all these assessment
years. The fact that the order of CIT (A) constituted information
justifying the reopening of assessment u/s 147 (b) of the IT Act was
supported by the judgment of the Punjab & Haryana High Court in the
case of Kumar Engineers Vs. CIT 223 ITR 18. Thus, he upheld the
action of the AO for initiating the reassessment proceedings for the
assessment year 1986-87, 1987-88 and 1988-89 under the pre-
amended provisions of the Act.
9. Thereafter he considered the action of the AO for reinitiating the
assessment proceedings for the assessment year 1989-90 and 1990-91
under the post amended provisions of Section 147. He accepted the
contention of the assessee for the assessment year 1989-90 and 1990-
91 like assessment year 1986-87 to 1988-89 that there was no failure or
commission on the part of the assessee to disclose fully and truly all
material facts necessary for the assessment in respect if subsequent
assessment years. However, Ld. CIT (A) observed that the decision of
the Ld. CIT(A) for the assessment year 1994-95, had become available
after completion of the original assessments u/s 143 (3) and therefore,
the reopening of the assessment even for the subsequent assessment
years was valid. Thus he upheld the action of the AO for initiating the
reassessment proceedings in respect of all the assessment years.
10. As regards the merits of the claim of the assessee under Section
32A the Ld. CIT (A) held that provisions of Section 32A were similar to
section 80-I. The issue for deduction u/s 80-I came up before the ITAT,
Delhi Bench in the case of assessee in ITA No. 3034 (Del)/1996 and ITA
No. 3290(Del.)/1997 for the assessment year 1991-92 and 1992-93
reported in 67ITD 252 where it was held that the Xerographic machine
was the article which came within the ambit of item 22 of XI schedule.
Whereas, toner, developer and photoreceptors were not the items
included in XI schedule. Thus, the Tribunal held that the assessee was
entitled to deduction u/s 80-I of the IT act in respect of profits derived
from the manufacture and sale of toners, developers and photo
receptors and the assessee were not entitled to deduction u/s 80-B in
respect of profit derived from manufacture of xerographic machines.
Relying on the order of the Tribunal, the Ld. CIT (A) held that the
assessee was not entitled to investment allowance in respect of
additions to plant & machinery of the unit engaged in the manufacture
of xerographic machines whereas it was eligible to investment
allowance in respect of plant & machinery of the unit engaged in the
manufacture of toner, developer and photo receptors.
11. The assessee felt aggrieved by the orders of CIT (A) on the issue
of upholding the action of the AO for initiating the reassessment
proceedings and also not allowing the investment allowance in respect
of profit from unit engaged in the manufacture of xerographic
machines. On the other hand, the revenue was aggrieved with the
order of the Ld. CIT (A) for allowing investment allowance in respect of
profits derived from manufacture of toner, developer and photo
receptors for all the assessment years.
12. It was in these circumstances, both the assessee as well as
Revenue filed five appeals each in respect of all these assessment
years.
Order of the Tribunal
13. The Tribunal primarily went into two questions, viz:
(i) Whether notice under Section 148 of the Act was
warranted, beyond four years from the date when
the assessments were made, and the related
aspect which was examined was as to whether
there was complete and full disclosure of
particulars/information by the assessee?
(ii) Whether the AO had considered the issue of
allowing investment allowance in his original
assessments under Section 143(3) in detail and it
was a case of mere change of opinion, not
warranting reopening of the assessments?
14. On both these counts, the Tribunal has held in favour of the
assessee. Commenting on the first aspect, the Tribunal held that even
the order of the CIT (A) while upholding initiation of reassessment
proceedings had given a clear finding that there was no failure on the
part of the assessee to disclose all the material facts fully and truly,
necessitating the reassessment for the relevant assessment year. CIT
(A) had also recorded the finding that all the relevant facts were fully
discussed and considered by the AO at the time of completing the
original assessment under Section 143(3) of the Act. However, the CIT
(A) upheld the initiation of the reassessment proceedings only on the
ground that the AO had rightly entertained a plea that income
chargeable to tax had escaped assessment for the reason that the
assessee was not entitled to investment allowance. This, according to
the Tribunal, was not permissible in view of proviso to Section 147 of
the Act, which provided limitation of four years for issuing notice under
Section 147 of the Act and since beyond four years it could be reopened
only if there was non-disclosure of full and complete material facts. The
Tribunal further observed that even in the reassessment order passed
by the AO, there was no allegation made in the reasons recorded that
the escaped assessment was by reason of the failure of the assessee to
disclose fully and truly all material facts necessary for the assessment
for these assessment years. That apart, observed the Tribunal,
necessary material was placed on record and referred to by the AO in
the original assessment proceedings clearly demonstrating that the
assessee had disclosed all material facts relating to its claim for
investment allowance for all the assessment years. Relevant portion of
the order of the Tribunal, in this behalf, is as under:
"A perusal of the same shows that there is no
allegation made by the AO in the reasons recorded
that escapement of income was due to failure on the
part of the assessee to disclose fully and truly all
material facts necessary for the assessments for the
relevant assessment years. Even otherwise, we find
that the material placed on record and referred to
above clearly show that the assessee had disclosed
all material facts relating to its claim for investment
allowance for all the assessment years. In fact, the
claim was examined by the AO in detail after
referring to the items being manufactured by the
assessee and thereafter, the same was allowed. The
Ld. CIT (A) has himself accepted that there was no
failure on the part of the assessee to disclose
material facts necessary for the assessments and the
revenue has not challenged such findings in the
cross appeals. Therefore, such findings of CIT(A)
have attained finality. Thus, we hold that AO has
initiated such re-assessment proceedings without
establishing that income had escaped assessment by
reason of failure on the part of the assessee to
disclose fully and truly all material facts necessary
for the assessments. The mandatory requirement of
law has not been satisfied before assuming
jurisdiction to initiate reassessment proceedings by
the AO and, therefore, the action of AO for initiating
the reassessment proceedings was illegal and
without jurisdiction.
In the light of these facts and circumstances and the
legal position, the reassessment completed by AO for
all the assessment years are liable to be quashed on
this point itself."
15. Insofar as merits of allowing assessment proceedings are
concerned, the Tribunal held the view that in the original assessment,
issue of investment allowance was discussed by the AO in detail.
Therefore, it was only a case of change of opinion, which could not be
valid basis for initiating reassessment proceedings. We would like to
reproduce the relevant discussion in the Tribunal‟s order on this aspect
as well, which is as under:
"8.2 We have already held that the AO had
considered this issue in detail at the time of
completing the original assessments u/s 143(3) for
all the assessment years. Therefore, the action of
the AO for initiating reassessment proceedings was
only on the basis of mere change of opinion. Such
course of action is not permission under law.
Reliance in this regard, is placed on the judgment of
the Hon‟ble Delhi High Court in the case of Jindal
Photo Films Ltd., Vs. CIT 234 ITR 170, where it was
held that re-assessment proceedings could not be
initiated merely on the basis of change of opinion.
The High Court further observed that from the date
of order of assessment sought to be reopened and
the date of forming of opinion by Income-tax Officer
nothing new had happened. There was no change of
law and no material had come or record. Thus, the
action of the AO for initiating the reassessment
proceedings was held to be bad in law. The full
Bench of the Hon‟ble Delhi High Court in the case of
CIT Vs. Kelvinator of India Ltd., 256 ITR 1; again
considered this issue. It was held that if an order had
been passed without application of mind, the same
could not confer jurisdiction upon the AO to reopen
the proceeding without anything further, as the same
could amount to giving premium to an authority
exercising quasi judicial function to take benefit of its
own wrong. Hence, section 147 of the Act does not
postulate conferment upon the AO to initiate
reassessment proceedings upon a mere change of
opinion. In the case of CIT Vs. Foramer France
reported in 264 ITR 566 the Hon‟ble Supreme Court
has approved the judgment of the Hon‟ble Allahabad
High Court and has held that the assessment cannot
be reopened on the basis of mere change of opinion
and the amendment of section 147 introduced with
effect from 1.4.89 has not altered the position. In as
much as that even under the amended provisions the
issue cannot be re-opened on mere change of
opinion. This view is further supported by the
judgment of Hon‟ble Punjab & Haryana High Court in
the cases of M/s. Mahavir Spinning Mills Vs. CIT, 270
ITR 290, CIT Vs. Smt. Binda Devi (2006) 150 Taxman
95, Duli Chand Singhania, 269 ITR 192. Now in the
present case, there is no doubt in our mind that
assessment proceedings have been initiated on the
basis of mere change of opinion. On same facts,
ITAT, Delhi Bench in the case of Modi Xerox Ltd., Vs.
DCIT, 67 ITD 252, for the assessment years 1991-92
and 1992-93, where the CIT revised the order u/s 263
had held that the CIT assumed the jurisdiction on the
basis of change of opinion. Further, on same facts,
ITAT Delhi Bench in the case of the assessee
considered this issue for the A.Y. 1991-92 (supra)
where the order of CIT(A) was upheld on the ground
that the AO initiated proceedings merely on the basis
of change of opinion. Thus, we hold that the
reassessments completed by the AO are also liable
to be quashed on the point that these were initiated
merely on the basis of change of opinion."
The Arguments : Revenue
16. Ms. Prem Lata Bansal, learned counsel for the Revenue, has
submitted that the Tribunal has erred on both the counts. In the first
place, her contention is that concededly the assessee had not claimed
investment allowance in the return filed by it. In fact, according to the
assessee, in that year only trial production was done and no commercial
production had started. Rather, the assessee had appended note to the
effect that it would claim investment allowance in the year of profits.
Thus, when during the assessment proceedings the assessee claimed
the investment allowance, the AO examined the matter only from a
limited angle, viz., whether there was commercial production in that
year as well and, therefore, the assessee could be given investment
allowance. Otherwise, contended the learned counsel, the issue about
the permissibility of the allowance under Section 32A of the Act was not
examined on merit at all. She submitted that the AO did not go into the
question as to whether the goods manufactured by the assessee would
fall in any of the entries mentioned in Schedule-XI and therefore, the
investment allowance would be impermissible, except in the case of
small scale industries. She further submitted that there was not full
disclosure of the facts, as the assessee never informed that it was not a
small scale industry. Thus, there was no evidence before the AO on the
basis of which the deduction of investment allowance could be given. It
was, therefore, not a case of full disclosure of all material facts by the
assessee, contended the learned counsel.
17. Proceeding further on the basis of the above, she also argued that
when the issue regarding applicability of Schedule XI and whether the
assessee-company is small scale industry or not was not even in the
contemplation of the AO and was not discussed, the question of change
of opinion does not arise. This becomes clear when the CIT(A) made
observations in his order in the appeal decided by him in respect of
Assessment Year 1994-95. This constituted information on the basis of
which it was permissible for the AO to act upon and reopen the
assessment proceedings, as was done in the case of A.L.A. Firm vs.
Commissioner of Income Tax [189 ITR 285 (SC)].
18. In support of the plea as to what constitute full and material
particulars, she relied upon the following judgments:
(i) Calcutta Discount Co. vs. ITO [41 ITR 191]
(ii) Rakesh Agarwal (Legal Heir of Late R.S.
Agarwal) v. Assistant Commissioner of Income-
tax [221 ITR 492 (Del.)]
(iii) Indo-Aden Salt Mfg. & Trading Co. Pvt. Ltd. v.
Commissioner of Income Tax, Bombay [159 ITR
624 (SC)].
The Arguments: Assessee
19. Mr. Ajay Vohra, learned counsel appearing for the assessee,
contested these appeals and made a fervent plea in support of the
conclusion drawn by the Tribunal in the impugned order. Regarding full
and complete disclosure of the facts, his submission was that the duty
cast upon by the assessee was to give primary facts and not to disclose
what can be inferred therefrom. In the present case, complete facts
were given as is clear from the original assessment order passed by the
AO himself, in the form of complete list of machinery and plant.
According to him, whether the manufacturing of particular type of
machinery and plant falls within all the items specified in Schedule XI or
not was for the AO to decide. That did not amount to any information,
which the assessee had not given. He referred to the following
decisions in his support:
(i) Calcutta Discount Co. vs. ITO [41 ITR 191 (SC)]
(ii) Commissioner of Income Tax vs. Kelvinator of
India Ltd. [256 ITR 1 (Del.)]
20. In continuation, his further submission was that if it was a case of
failure on the part of the assessee to disclose full particulars, then in
the „reasons to believe‟ furnished by the AO in his notice under Section
148 of the Act, there should have been specific averment to this effect,
which was missing in the instant case. It was for this reason that the
Tribunal rightly held that even as per CIT (A), it was not a case made out
that there was failure on the part of the assessee to give complete
particulars. He referred to the following judgments in his support this
plea:
(i) JSRS Udyog Ltd. vs. ITO [313 ITR 321 (Del.)]
(ii) Hindustan Lever Ltd. vs. R.B. Wadkar [268 ITR
332 (Bom.)]
21. On the aspect of change of opinion, Mr. Vohra‟s forceful
submission was that complete details of the items manufactured by the
assessee were given. Whether they fall in Schedule XI or not was hotly
debated and discussed. Even certificate under Section 80CC (3) was
given. Two views were possible on this aspect. According to him, when
the matter was discussed in detail by the AO in the original assessment
and the deduction for investment allowance was granted, as admissible,
thereafter holding a different view that too by the CIT (A) in the
assessment proceedings relating to the Assessment Year 1994-95 would
amount to change of opinion.
22. Mr. Vohra further pointed out that even this view held by the
CIT(A) has been reversed by the Tribunal in the appeal filed by the
assessee vide its decision dated 22.03.2004.
23. Mr. Vohra, also referred to the following judgments in support of
his submissions that where two views were possible mere change of
opinion would not provide sufficient ground for a reopening of the
assessment:-
(i) CIT Vs. Kelvinator of India Ltd. 256 ITR 1 (Del)
(ii) KLM Royal Dutch Airlines Vs. ADIT, 292 ITR 49 (Del.)
Analysis of the issue involved:
24. After having considered the submissions of both the counsel, we
proceed to discuss and decide the following question which arises for
consideration in the following manner:-
"(i) Whether notice under Section 148 of the Act was
warranted, beyond four years from the date when the
assessments were made, and the related aspect which
was examined as to whether there was complete and
full disclosure of particulars/information by the
assessee?
25. It is not in dispute that notice under section 148 of the Act was
issued beyond four years from the date when the assessments were
made. Such a notice could be issued only if it is established that there
was no complete and full disclosure of particulars/information given by
the assessee at the time when original assessment was made. In the
„reasons to believe‟ furnished by the Assessing Officer while issuing
notice under Section 148 of the Act, we find that there is no specific
averment made by the Assessing Officer that full and complete
particulars were not disclosed. CIT (Appeal) has recorded a categorical
finding to this effect namely that there was no failure on the part of the
assessee to disclose the full and complete particulars/information
necessary for assessment, which finding is accepted by the ITAT also.
26. In JSRS Udyog Ltd. (supra), this Court dealt precisely with such
an issue at great length and quoted the following observations from
earlier judgment of this Court in Haryana Acrylic Manufacturing
Company Vs. CIT {2009} 308 ITR 38 (Delhi):-
"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 Section 147. If this condition
is not satisfied, the bar would operate and no action
under Section 147 could be taken. We have already
mentioned above that 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. In our recent
decision in Wel Intertrade Private Ltd. V. ITO (2009)
308 ITR 22 (Delhi) we had agreed with the view
taken by the Punjab and Haryana High Court in the
case of Duli Chand Singhania V. Asst. CIT (2003) 269
ITR 192 that, in the absence of an allegation in the
reasons recorded that the escapement of income
had occurred by reason of failure on the part of the
assessee to disclose fully and truly all material
facts necessary for his assessment, any action taken
by the Assessing Officer under Section 147 beyond
the four year period would be wholly without
jurisdiction. Reiterating our view-point, we hold that
the notice dated March 29, 2004, under section 148
based on the recorded reasons as supplied to the
petitioner as well as the consequent order dated
March 2, 2005 are without jurisdiction as no action
under section 147 could be taken beyond the four
year period in the circumstances narrated above"
27. Similar view is taken by the Bombay High Court in Hindustan
Lever Limited (supra). It would be apt to quote the following extract
there from:-
"The reasons recorded by the Assessing Officer
nowhere state that there was failure on the part of
the assessee to disclose fully and truly all material
facts necessary for the assessment of that
assessment year. It is needless to mention that the
reasons are required to be read as they were
recorded by the Assessing Officer. No substitution or
deletion is permissible. No additions can be made to
those reasons. No inference can be allowed to be
drawn based on reasons not recorded. It is for the
Assessing Officer to disclose and open his mind
through reasons recorded by him. He has to speak
through his reasons. It is for the Assessing Officer to
reach the conclusion as to whether there was failure
on the part of the assessee to disclose fully and truly
all material facts necessary for his assessment for
the concerned assessment year. It is for the
Assessing Officer to form his opinion. It is for him to
put his opinion on record in black and white. The
reasons recorded should be clear and unambiguous
and should not suffer from any vagueness. The
reasons recorded must disclose his mind. The
reasons are the manifestation of the mind of the
Assessing Officer. The reasons recorded should be
self-explanatory and should not keep the assessee
guessing for the reasons. Reasons provide the link
between conclusion and evidence. The reasons
recorded must be based on evidence. The Assessing
Officer, in the event of challenge to the reasons,
must be able to justify the same based on material
available on record. He must disclose in the reasons
as to which fact or material was not disclosed by the
assessee fully and truly necessary for assessment of
that assessment year, so as to establish the vital link
between the reasons and evidence. That vital link is
the safeguard against arbitrary reopening of the
concluded assessment. The reasons recorded by the
Assessing Officer cannot be supplemented by filing
an affidavit or making an oral submission, otherwise,
the reasons which were lacking in the material
particulars would get supplemented, by the time the
matter reaches the court, on the strength of the
affidavit or oral submissions advanced."
28. In the absence of any such observation in "reasons to believe‟ to
the effect that the assessee had not disclosed true, full and complete
particulars/information , the notice under Section 148 was rightly
quashed by the Tribunal on this ground itself.
29. In Calcutta Discount Co. Ltd's case (1961) 41 ITR 191, the
Apex Court clearly held that once the primary facts are before the
assessing authority he requires no further assistance by way of
disclosure. It was observed by the apex court that:-
"It is for him to decide what inferences of
facts can be reasonably drawn and what
legal inferences have ultimately to be drawn.
It is not for somebody else - far less the
assessee - to tell the assessing authority
what inferences, whether of facts or law,
should be drawn. Indeed, when it is
remembered that people often differ as
regards what inferences should be drawn
from given facts, it will be meaningless to
demand that the assessee must disclose
what inferences - whether of facts or law - he
would draw from the primary facts."
As regards the scheme of the Act, the Apex Court held:-
"The scheme of the law clearly is that where
the Income-tax Officer has reason to believe
that an under assessment has resulted from
non-disclosure he shall have jurisdiction to
start proceedings for re-assessment within a
period of 8 years; and where he has reason
to believe that an under assessment has
resulted from other causes he shall have
jurisdiction to start proceedings for
reassessment within 4 years. Both the
conditions, (i) the Income-tax Officer having
reason to believe that there has been under
assessment and (ii) his having reason to
believe that such under assessment has
resulted from non-disclosure of material
facts, must co-exist before the Income-tax
Officer has jurisdiction to start proceedings
after the expiry of 4 years. The argument
that the Court ought not to investigate the
existence of one of these conditions, viz.,
that the Income-tax Officer has reason to
believe that under assessment has resulted
from non-disclosure of material facts cannot
therefore be accepted."
We also cannot accept the submission of Mr.
Jolly to the effect that only because in the
assessment order, detailed reasons have not
been recorded an analysis of the materials
on the record by itself may justify the
Assessing Officer to initiate a proceeding
under section 147 of the Act. The said
submission is fallacious. An order of
assessment can be passed either in terms of
sub-section (1) of section 143 or sub-section
(3) of section 143. When a regular order of
assessment is passed in terms of the said
sub-section (3) of section 143 a presumption
can be raised that such an order has been
passed on application of mind. It is well
known that a presumption can also be raised
to the effect that in terms of clause (e) of
section 114 of the Indian Evidence Act
judicial and official acts have been regularly
performed. If it be held that an order which
has been passed purportedly without
application of mind would itself confer
jurisdiction upon the Assessing Officer to
reopen the proceeding without anything
further, the same would amount to giving a
premium to an authority exercising quasi-
judicial function to take benefit of its own
wrong."
30. We would also like to observe that as pointed above, the
assessment was reopened because of the view taken by the CIT
(Appeal) in respect of assessment year 1994-95. The very fact that this
view is reversed by the Tribunal, is in itself sufficient to demonstrate
that two views were possible and, therefore, it would be a case of
change of opinion only. We, therefore, are of the view that the order of
the Tribunal does not call for any interference. As a result, all these
appeals are dismissed.
(A.K.SIKRI)
JUDGE
(REVA KHETRAPAL)
JUDGE
SEPTEMBER 14, 2010
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