IBS Software Services Private Limited v. The Union Of India/ Commissioner of Income-tax Thiruvananthepuram/ The Assistant Commissioner of Income-tax, Circle-1(1), Thiruvananthepuram
[Citation -2015-LL-0320-108]

Citation 2015-LL-0320-108
Appellant Name IBS Software Services Private Limited
Respondent Name The Union Of India/ Commissioner of Income-tax Thiruvananthepuram/ The Assistant Commissioner of Income-tax, Circle-1(1), Thiruvananthepuram
Court HIGH COURT OF KERALA AT ERNAKULAM
Relevant Act Income-tax
Date of Order 20/03/2015
Judgment View Judgment
Keyword Tags export oriented undertaking • escapement of assessment • reopening of assessment • unabsorbed depreciation • depreciation allowance • barred by limitation • alternative claim • bogus transaction • change of opinion
Bot Summary: Section 147 of the IT Act permits assessment or re-assessment of income which has escaped assessment of any assessment year, if the Assessing Officer has reason to believe that any income chargeable to tax has escaped assessment or even recompute the loss or the depreciation allowance or any other allowance, as the case may be, for the relevant assessment year. The assessee's contention that mere change of opinion could not result in an exemption already granted being taken away also would not be relevant, since every assessment year is a separate unit of assessment and the exemption claimed could be looked into with reference to the concerned assessment year and the factum of disentitlement would not and could not be dismissed 'prima facie' as a mere change of opinion. Considering Section 34 of the Income Tax Act, 1922, as amended in 1948, it was held that, to confer jurisdiction under the Section to issue notice in respect of assessments beyond the period of four years but within a period of eight years from the end of the relevant year, two conditions are to be satisfied. 286 ITR 553 dealt with a deduction claimed of penal interest, which liability had accrued in the earlier years, and not in the previous year relevant to the assessment year. Exhibit P4 is the assessment order of the assessee Company for the year 2004-05 dated 27.12.2006 and Exhibit P5 is the assessment order of the Holding Company for the very same assessment year dated 26.12.2006. If the true and full disclosure had not been made for the year 2001-02, then the proceedings under Section 147 for that year had to be initiated within six years. No.27373 of 2011 - 27 - connected cases dispute the factum of the BCA being available in the files before the assessment was completed for the assessment year 2003-04 and the subsequent years beginning from assessment year 2004-05.


IN HIGH COURT OF KERALA AT ERNAKULAM PRESENT:- HONOURABLE MR.JUSTICE K.VINOD CHANDRAN FRIDAY, 20TH DAY OF MARCH 2015/29TH PHALGUNA, 1936 W.P.(C).No.27373 of 2011 (V) --------------------------------------------------- PETITIONER(S):- ------------------------- IBS SOFTWARE SERVICES PRIVATE LIMITED, NILA, TECHNOPARK, TRIVANDRUM, REPRESENTED BY ITS COMPANY SECRETARY MR.RAMESH BABU.M. BY ADVS.SRI.E.K.NANDAKUMAR (SENIOR ADVOCATE) SRI.K.JOHN MATHAI SRI.P.BENNY THOMAS SRI.P.GOPINATH SRI.KURYAN THOMAS RESPONDENT(S):- ---------------------------- 1. UNION OF INDIA, REPRESENTED BY SECRETARY, MINISTRY OF FINANCE (DEPARTMENT OF REVENUE), NORTH BLOCK, NEW DELHI-110 001. 2. COMMISSIONER OF INCOME TAX, THIRUVANANTHAPURAM-695 003. 3. ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE-1(1), THIRUVANANTHAPURAM-695 003. R1 TO R3 BY SENIOR COUNSEL FOR GOVERNMENT OF INDIA (TAXES) SRI.P.K.RAVINDRANATHA MENON & STANDING COUNSEL FOR GOVERNMENT OF INDIA (TAXES) SRI.JOSE JOSEPH. THIS WRIT PETITION (CIVIL) HAVING BEEN FINALLY HEARD ON 13-03-2015, ALONG WITH WP(C) NOS.3786/2013-W & 7896/2013-J, COURT ON 20-03-2015 DELIVERED FOLLOWING:- WP(C).No.27373 of 2011 (V) -------------------------------------- APPENDIX PETITIONER(S)' EXHIBITS:- --------------------------------------- EXHIBIT P1. TRUE COPY OF ASSESSMENT ORDER OF PETITIONER COMPANY FOR YEAR 2001-02 DATED 09.03.2004. EXHIBIT P2. TRUE COPY OF ASSESSMENT ORDER OF PETITIONER COMPANY FOR YEAR 2002-03 DATED 31.03.2005. EXHIBIT P3. TRUE COPY OF ASSESSMENT ORDER OF PETITIONER COMPANY FOR YEAR 2003-04 DATED 17.03.2006. EXHIBIT P4. TRUE COPY OF ASSESSMENT ORDER OF PETITIONER COMPANY FOR YEAR 2004-05 DATED 27.12.2006. EXHIBIT P5. TRUE COPY OF ASSESSMENT ORDER OF PETITIONER COMPANY FOR YEAR 2004-05 DATED 26.12.2006. EXHIBIT P6. TRUE COPY OF NOTICE ISSUED BY 3RD RESPONDENT UNDER SECTION 148 OF IT ACT, DATED 23.03.2011. EXHIBIT P7. TRUE COPY OF LETTER SENT BY PETITIONER TO 3RD RESPONDENT DATED 20.04.2011. EXHIBIT P8. TRUE COPY OF LETTER ISSUED BY 3RD RESPONDENT TO PETITIONER, DATED 11.07.2011. EXHIBIT P9. TRUE COPY OF OBJECTION DATED 16.08.2011 FILED BY PETITIONER, BEFORE 3RD RESPONDENT. EXHIBIT P10. TRUE COPY OF NOTICE ISSUED TO PETITIONER, DATED 26.09.2011 BY 3RD RESPONDENT. EXHIBIT P11. TRUE COPY OF RESPONSE FILED BY PETITIONER TO NOTICE ISSUED TO IT, DATED 30.09.2011. EXHIBIT P12. TRUE COPY OF ORDER PASSED BY 3RD RESPONDENT DATED 27.09.2011. EXHIBIT P13. TRUE COPY OF COVERING LETTER DATED 03.02.2006 SEND BY PETITIONER TO 3RD RESPONDENT. EXHIBIT P14. TRUE COPY OF BUSINESS CORPORATION AGREEMENT DATED 31.12.1999 ENTERED INTO BETWEEN INTERNATIONAL BUSINESS SERVICES GROUP PRIVATE LIMITED (HOLDING COMPANY) AND PETITIONER COMPANY. RESPONDENT(S)' EXHIBITS --------------------------------------- NIL. Vku/ [ true copy ] K. Vinod Chandran, J. ----------------------------------------------- W.P(C) Nos.27373 of 2011-V, 3786 of 2013-W & 7896 of 2013-J ----------------------------------------------- Dated this 20th day of March, 2015 JUDGMENT Whether proceedings under Section 147 of Income Tax Act, 1961 [for brevity IT Act ] initiated to reassess escaped income, beyond four years, is sustainable on ground of assessee's failure to fully and truly disclose all material facts , is question arising herein. challenge is with respect to re-opening of assessments, respectively of years 2004-05, 2005-06 and 2006-07. 2. Section 147 of IT Act permits assessment or re-assessment of income which has escaped assessment of any assessment year, if Assessing Officer has reason to believe that any income chargeable to tax has escaped assessment or even recompute loss or depreciation allowance or any other allowance, as case may be, for relevant assessment year. first proviso to Section 147 speaks of such reopening of assessment after expiry of four years from end of relevant assessment year. That can be done only for reason of failure on WP(C).No.27373 of 2011 & -2- connected cases part of assessee to make return under Section 139 or failure to respond to notice issued under sub-section (1) of Section 142 or Section 148 or to disclose fully and truly all material facts necessary for assessment. Issue of notice to proceed under Section 147 has to be under Section 148 and Section 149 prescribes time limit for notice. Under clause (d) of sub-section (1) of Section 149, no notice under Section 149 can be issued beyond six years from relevant assessment year. 3. In instant case, Section 147 of IT Act is sought to be invoked after four years but within six years on ground that assessee has failed to disclose fully and truly all material facts. exemption granted has to be withdrawn for absence of such disclosure and assessment made afresh of income returned. 4. petitioner is Subsidiary Company of International Business Services Group Private Limited, Thiruvananthapuram and had Business Corporation Agreement [for brevity BCA ] with Holding Company. business commenced in previous year of assessment year 2001-02 as per BCA and assessee was before Assessing Officer, claiming exemption under notification SO.243(E) dated 22.03.1994 WP(C).No.27373 of 2011 & -3- connected cases or in alternative, under Section 10A of IT Act. In assessment year 2001-02 assessee was found to be disentitled to exemption under notification. However, assessee's claim for exemption under Section 10A of IT Act was admitted by Assessing Officer in assessment year 2001-02, by Exhibit P1 in W.P.(C).No.27373 of 2011. This is what is essentially sought to be revoked and assessment made afresh as escaped income. exemption continued in years 2002-03, 2003-04 and 2004-05, as evidenced by Exhibits P2, P3 and P4 in W.P.(C).No.27373 of 2011, and even thereafter. 5. W.P.(C).27373 of 2011 is against re-opening made for assessment year 2004-05. assessment was made as per Exhibit P4 on 27.12.2006. notice issued under Section 148 is at Exhibit P6, dated 23.03.2011 and order passed is at Exhibit P12, dated 27.09.2011. 6. W.P.(C).7896 of 2013 is concerned with assessment year 2005-06. assessment order is not produced. notice issued under Section 148 is dated 30.03.2012 and produced at Exhibit P8 and order is dated 06.03.2013, produced at Exhibit P12. WP(C).No.27373 of 2011 & -4- connected cases 7. W.P.(C).No.3786 of 2013 is concerned with assessment year 2006-07 and assessment order dated 14.12.2009 is produced at Exhibit P1. notice issued under Section 148 is dated 29.03.2012 and is produced at Exhibit P7, with order at Exhibit P11, dated 15.01.2013. 8. Essentially contention of Department is that notice issued under Section 148, though beyond four years, is within six year period and same is sustainable, since notice for reopening under Section 147 has been issued. Assessing Officer has sufficient reason to believe that there is escapement of assessment and that such escapement of assessment was due to assessee's contumacious conduct of not having fully and truly disclosed all material facts is evident, goes contention. escapement of assessment in all years is on premise that exemption granted under Section 10A is wrong. 9. assessee had, on receipt of notice, replied, seeking that return filed under Section 139(1) of Act, be treated as return filed pursuant to notice and also sought for detailed reasons on basis of decision of Hon'ble Supreme Court in GKN Driveshafts (India) Ltd. v. I.T.O. [(2003) WP(C).No.27373 of 2011 & -5- connected cases 259 ITR 19 (SC)]. said reasons were supplied by Income Tax Officer by various communications produced in writ petitions, which are similar, and Exhibit P8 in W.P.(C).No.27373 of 2011 is referred to herein. 10. reason for issuing notice under Section 147, according to Assessing Officer, was that BCA No.001/99 dated 31.10.1999 between assessee and their Holding Company indicated that assessee's business came into existence only with takeover of entire infrastructure facilities, employees and all pending orders of Holding Company, which later Company had been in existence for last three years. business thus having been formed, by splitting up or reconstruction of business already in existence and also by transfer to new business, of machinery or plant previously used for any purpose, conditions under Section 10A(2) of Act was found to be not satisfied and, hence, exemption under Section 10A was not permissible. grant of exemption was irregular and illegal and occurred only due to assessee's failure to disclose all material facts, truly and fully; i.e., non-production of BCA. 11. final orders referred to above, produced in WP(C).No.27373 of 2011 & -6- connected cases writ petitions too followed very same reasoning. Ext.P2 finds that as matter of fact, Assessing Officer did not examine eligibility of assessees claim for deduction under Section 10A, in light of agreement and nothing is mentioned regarding this particular agreement anywhere in assessment order. It was then found that said agreement was not made available to Assessing Officer during course of assessment for assessment year 2004-2005. Hence it was found that it was clear that Assessing Officer had not discussed matter and consequently there is escapement of income chargeable to tax in assessment and Assessing Officer has reason to believe that such escapement has occurred is sufficient for re-opening to be effected within four years. opening portion of order also indicates that there only two conditions are required to be satisfied as per Section 147 that is escapement of chargeable tax and reason available with Assessing Officer to believe that chargeable income has escaped assessment. However, when same is attempted after period of four years, then necessarily, question of absence of full and true disclosure by assessee of material facts become relevant. WP(C).No.27373 of 2011 & -7- connected cases 12. assessee has contention with respect to eligibility under Section 10A, grounded on Explanation provided under sub-section (2)(iii) and application of Explanation 1 and 2 of Section 80-I. However, question agitated in this petition under Article 226 of Constitution is not with respect to factual issue of whether assessee is eligible or not, for such exemption, based on such Explanation, which would be issue that could be considered in appeal under statute. present petition under Article 226 could be maintained only on ground that proceedings initiated under Section 147 is hit by limitation, since same is beyond four years and Department cannot avail of extended time till six years for reason of there being no absence of full and true disclosure of material facts. 13. Both sides have placed decisions of Hon'ble Supreme Court and various High Courts to substantiate their contentions. I have heard both counsel elaborately on facts and on law disclosed from provisions and dilated upon in decisions. 14. learned counsel for assessee relied on Calcutta Discount Co. Ltd. v. Income Tax Officer [(1961) XLI ITR WP(C).No.27373 of 2011 & -8- connected cases 191] to contend that satisfaction arrived at, that exemption was granted only for default of assessee in not having truly and fully disclosed material facts, cannot be sustained. It was also pointed out that exemption had been granted in year 2001-02 and had been continued on all subsequent years. assessee has also relied on number of decisions to buttress their alternate plea, that present attempt, to decline exemption under Section 10A, is mere change of opinion, which may not be relevant, as would be noticed later; and hence not referred to. 15. Learned Senior Counsel for Government of India (Taxes) Sri.P.K.R. Menon supported order of Assessing Officer on strength of decisions reported in Malegaon Electricity Co. P.Ltd. v. C.I.T. [(1970) 78 ITR 466 (SC)], C.I.T. v. Central India Industries Ltd. [(1971) 82 ITR 555 (SC)], Asst.CIT v. Rajesh Jhaveri Stock Brokers P. Ltd. [(2007) 291 ITR 500 (SC)], Bengal Luxmi Cotton Mills Ltd. v. I.T.O. [(1973) 87 ITR 618 (Cal.)], M.Varadarajulu v. I.T.O. [(1974) 97 ITR 476 (Mad.)], Iqbal Singh Atwal v. C.I.T. [(1984) 147 ITR 599 (Cal.)], Tiwari Kanhaiya Lal v. C.I.T. [(1985) 154 ITR 109 (Raj.)], CIT v. Kerala State WP(C).No.27373 of 2011 & -9- connected cases Cashew Development Corpn. [(2006) 286 ITR 553 (Ker.)] and CIT v. Popular Vehicles & Service Ltd. [(2010) 191 Taxman 333 (Ker.)]. decisions on point of 'change of opinion', cited are not referred for reasons to be noticed later. 16. learned Senior Counsel, on basis of aforesaid decisions, would assert that Assessing Officer had never looked at BCA, which assessee had failed to produce before Assessing Officer. Explanation 1 to Section 147 is specifically referred, to contend that mere production of account books or other evidence from which material evidence could, with due diligence, have been discovered by Assessing Officer will not necessarily amount to disclosure within meaning of proviso. 17. This Court does not find that Explanation 1 to Section 147 is applicable, since specific contention taken is that BCA was never produced before Assessing Officer. If it were produced, from terms, it could be discerned whether assessee Company was formed by takeover of infrastructure facilities and existing orders of holding Company, which alone could have disentitled assessee from claiming such exemption. WP(C).No.27373 of 2011 & - 10 - connected cases alternate contention as to benefit of Explanation under sub-section (2)(iii) of Section 10A also could have been considered. It is not factum of admissibility of exemption that arises here, but whether re-assessment is permissible on ground of non-production of BCA. 18. assessee's contention that mere change of opinion could not result in exemption already granted being taken away also would not be relevant, since every assessment year is separate unit of assessment and exemption claimed could be looked into with reference to concerned assessment year and factum of disentitlement would not and could not be dismissed 'prima facie' as mere change of opinion. 19. What is relevant for consideration of aforesaid case is issue whether there was contumacious conduct on part of assessee; who could be deemed to have not fully and truly disclosed material facts. reference to Explanation 1 to Section 147, though not applicable, would be apposite. Explanation 1 takes in situations where assessee, for example, does not disclose chargeable income in his return, though same could be discerned from detailed and scrupulous examination of WP(C).No.27373 of 2011 & - 11 - connected cases books of accounts which have been produced before Assessing Officer. Such suppression made could definitely be considered as escaped assessment merely for reason of there being no full and true disclosure of facts. 20. Here, it would be worthwhile to notice decision in Calcutta Discount Co. Ltd. v. Income Tax Officer [(1961) XLI ITR 191]. Therein, original assessments of Company for three years was sought to be revised on ground that profits realised by Company, by sale of shares were not assessed to tax. reassessment was proposed on ground that at time of assessment, assessee had stated that sale of shares were casual transactions, in nature of mere change of investments. However, it was later revealed that there were systematic transactions in shares carried on by assessee and true intention was not disclosed at time of assessment. Hon'ble Supreme Court, by majority, found that assessee had in fact disclosed fact of sale of shares and whether same was with intention to make business profit or with intention to change form of investment was inference to be drawn by assessing authority from material facts taken in conjunction with WP(C).No.27373 of 2011 & - 12 - connected cases surrounding circumstances. conclusion being of Assessing Officer, it was not for assessee to contend either way and factum of selling of shares having been disclosed, there can be no inference of deliberate omission to state true intention behind sale of shares, was finding. Such omission could not be considered as failure or omission to disclose any material fact within meaning of section 34. 21. Considering Section 34 of Income Tax Act, 1922, as amended in 1948, it was held that, to confer jurisdiction under Section to issue notice in respect of assessments beyond period of four years but within period of eight years from end of relevant year, two conditions are to be satisfied. first is that, Income Tax Officer should have reason to believe that income, profits or gains chargeable to income tax have been under-assessed. second is that, he must have also reason to believe that such under-assessment has occurred by reason of either omission or failure on part of assessee to make return of his income under Section 22, or omission or failure on part of assessee to disclose fully and truly all material facts necessary for his assessment. WP(C).No.27373 of 2011 & - 13 - connected cases 22. It was also held that what facts are material and necessary for assessment will differ from case to case. Assessing Officer, from primary facts in his possession, whether on disclosure by assessee or discovered by him on basis of facts disclosed or otherwise, has to draw inferences as regards certain other facts; and... ultimately, from primary facts and further facts inferred from them, authority has to draw proper legal inferences, and ascertain on correct interpretation of taxing enactment, proper tax leviable (sic.) [at page 200]. In said case, sale of shares having been disclosed, whether it be business profit as distinguished from change in form of investment, was held to be inference which had to be drawn by Assessing Officer from material facts taken in conjunction with surrounding circumstances. 23. Revenue, in that case on specific query made by Court; as to which was fact that was not disclosed, raised two contentions, one that sale had not been disclosed and other Memorandum of Articles of Association of Company had not been shown. first contention was repelled on claim WP(C).No.27373 of 2011 & - 14 - connected cases made by Income Tax Officer itself that disclosure of sale of shares was made; but on professed intention of change in form of investment. As to aspect of non-production of Memorandum of Articles of Association, it was held that Income Tax Officers could not have concluded proceedings without reference to such documents. Company had claimed to be investment Company and question whether sales were in nature of trade or in nature of change of investment could not have been considered without examining said documents and nature of sale which were disclosed by Company. said observations squarely apply in aforesaid case where it is contention of Revenue that exemption was granted without looking at constitution of assessee; BCA 24. decisions relied on by Revenue are following: a. (1970) 78 ITR 466 (SC) was case in which reopening of assessment was effected on ground that sale of assets of assessee Company, being more than written down value, was not disclosed. Neither was said fact reflected in profit and loss account nor was it disclosed in returns. WP(C).No.27373 of 2011 & - 15 - connected cases assessee merely informed Income Tax Officer about sale, price and agreement between seller and purchasers, reflected in their respective meetings. After setting off unabsorbed depreciation, Income Tax Officer determined income as nil, which was sought to be reopened for reason of assessee having not fully and truly disclosed material facts. Tribunal was directed to adjudicate on fact whether actually sale price received amounted to profit; without merely drawing inference that Income Tax Officer had considered relevant facts, on mere disclosure of sale, (b). (2007) 291 ITR 500 (SC) deals with concept of 'reason to believe' as contemplated in Section 147, which was held to be only reasonable belief based on relevant material and not established fact of escaped income. (1973) 87 ITR 618 (Cal.) and (1974) 97 ITR 476 (Mad.) are again on aspect of reasons to believe and non-disclosure leading to under-assessment being only primary facts, adequacy of which need not be gone into at stage of notice. Calcutta High Court dealt with issue where depreciation claimed on written down value of machineries was allowed and Assessing Officer, WP(C).No.27373 of 2011 & - 16 - connected cases later had reason to believe that such machineries did not at all exist. Loans said to have been taken, as hundi transaction, were found to be bogus transaction, on creditor disclaiming such loans, in Madras decision. prior disclosure was found to be reasonable ground to reopen, adequacy of which would not be gone into by High Court, was finding. Herein question is quite different for reason of reopening having been attempted after four years. (c). (1984) 147 ITR 599 (Cal.) and (1985) 154 ITR 109 (Raj.) were on issue of no return having been filed. In former, on notice being issued under Section 148, assessee contended that duplicate return filed, should be treated as return filed under Section 148 and in latter delayed return was sought to be treated as one properly filed. These do not at all apply to instant case. (d). (2006) 286 ITR 553 (Ker.) dealt with deduction claimed of penal interest, which liability had accrued in earlier years, and not in previous year relevant to assessment year. Assessing Officer was aware that assessee was following mercantile system of accounting and that liability of earlier years would not be entitled for deduction in subsequent year. But WP(C).No.27373 of 2011 & - 17 - connected cases fact remained that, liability of penal interest for non-payment of sales tax being of previous year, was not disclosed by assessee, though discernible from books of account. (e). (1971) 82 ITR 555 (SC) is placed to refute contention of assessee that exemption granted in earlier years would stand against reopening. No benefit can be claimed based on erroneous order; but specific period provided for reopening, that too on aspect of absence of full and true disclosure would disable Revenue from opening even erroneous assessment, after limitation prescribed. None of these decisions apply herein. 25. In present case what is alleged is, escapement of income, on ground that assessee was granted exemption, which they were not entitled to. assessment orders of earlier years are produced in all writ petitions and reference is made to Exhibit P1 in W.P.(C).No.27373 of 2011. Assessment year 2001-02, was first year in which exemption was claimed. Exhibit P1, being assessment completed under Section 143(3) of Act, indicates that assessee had claimed exemption under notification as also under WP(C).No.27373 of 2011 & - 18 - connected cases Section 10A. assessee having submitted application for registration as 100% export oriented undertaking and same having been accepted by Government of India, benefit of tax holiday under STP Scheme [Notification No.SO.243(E) dated 22.4.94] was found to be not entitled. assessee's claim under Section 10A was, however, allowed. True, there is no reference to BCA in assessment order. 26. exemption available under Section 10A is special provision with respect to newly established undertakings in free trade zone. assessee having been established in previous year of assessment year 2000-01, it is difficult to comprehend how exemption was allowed without looking at BCA, which is essential document with respect to its constitution. It is also not clear as to what are documents which Assessing Officer had looked into, as produced by assessee, to grant such exemption. Unlike income chargeable to tax available in books of accounts, which was not disclosed by assessee, herein there is affirmative action on part of Assessing Officer to grant exemption. It was alternative claim made by assessee that was allowed. said exemption WP(C).No.27373 of 2011 & - 19 - connected cases continued in subsequent years, as is revealed in Exhibit P2 (2002-03) and Exhibit P3 (2003-04) and thereafter. Exhibits P1 to P3 remained untouched, since limitation of six years was over. 27. (2010) 191 Taxman 333 (Ker.) would be apposite for reference, in context of assessment order having not disclosed any consideration on aspect of exemption under Section 10A. In said case, assessee was granted entire deduction claimed towards interest paid, without noticing that there was diversion of interest-free loans to sister concerns. Hence, reopening was proposed to disallow proportionate interest attributable to interest-free loans granted to sister concerns. appeal filed by assessee before C.I.T. (Appeals) was allowed and challenge made to it by Revenue before Tribunal was rejected. Division Bench specifically noticed that there was no discussion in assessment order, by Assessing Officer, as to allowance of claim. Deduction was merely allowed in terms of claim and it was held that, hence, there could be no ground urged of change of opinion being basis of such reopening. Full Bench of Delhi High Court in CIT v. Kelvinator of India Ltd. [(2002) 256 ITR 1] was specifically noticed WP(C).No.27373 of 2011 & - 20 - connected cases to hold that said decision is no longer good law in view of decision of Hon'ble Supreme Court in Asst. CIT v. Rajesh Jhaveri Stock Brokers (P.) Ltd. [(2007) 291 ITR 500]. Hon'ble Supreme Court had held that amendment introduced with effect from 01.04.1989 to Section 147 has brought out substantial difference in meaning and content of Section and, hence, finding of Delhi High Court that amendment was inconsequential was overruled. On facts of aforesaid case, it was found that Tribunal had wrongly assumed that re-assessment was completed beyond four years from end of relevant assessment year. Hence, it was also held that there was no requirement for finding absence of full and true disclosure of any relevant facts. assessment therein was initiated within four year period and amended provisions of Section 147, effective from 01.04.1989, was held to authorise reopening, if Assessing Officer has reason to believe that income chargeable to tax has escaped assessment for any assessment year. Hence, only two conditions were required, being (i) escapement of assessment and (ii) belief, of Assessing Officer, grounded on reasons. This was fact on which WP(C).No.27373 of 2011 & - 21 - connected cases contention of assessee that there was mere change of opinion was refused to be accepted. That would be valid contention to be urged when reopening is attempted within four years. Herein, admittedly reopening was made belatedly. Hence, said decision would not apply to facts of present case. 28. learned Senior Counsel for Revenue would also rely on judgment of learned Single Judge in W.P.(C). No.7863 of 2013 dated 12.04.2013 [Suntec Business Solutions Private Limited v. Union of India]. Therein also, similar reopening was under challenge and same was proceeded with after four year period; but within six year period. Therein, impugned orders specifically found that there was no revised return of income filed by assessee and there was no contention taken that there was full and true disclosure of material facts or rather assessee did not refute seriously absence of full and true disclosure. Hence, this Court does not find denial of exercise of discretion, to be binding precedent, looking at distinguishable facts. 29. first notice issued is dated 23.03.2011, just prior to expiry of six years from relevant assessment year, being WP(C).No.27373 of 2011 & - 22 - connected cases 2004-05. Till issuance of such notice, exemption was granted. In all aforesaid assessment years, one Ms. R.Dolly, Deputy Commissioner of Income-tax, Circle-1(1) had carried out assessment and granted exemption. notices under Section 148 were issued by one Mr.Abdul Hakeemn.M., Assistant Commissioner of Income-tax, Circle-1(1) in previous year of assessment year 2011-12. 30. It is pertinent that in first of assessment years where Section 147 proceedings were initiated; i.e., 2004-05, very same Assessing Officer (Ms.Dolly) passed assessment order with respect to Holding Company, just day previous to that of assessment carried out in case of assessee Company. Exhibit P4 is assessment order of assessee Company for year 2004-05 dated 27.12.2006 and Exhibit P5 is assessment order of Holding Company for very same assessment year dated 26.12.2006. assessment of both assessee and Holding Company were carried out by very same Assessing Officer, Ms.R.Dolly. True wrong assessment made with respect to Holding Company cannot be relied on by Subsidiary Company, so as to perpetrate that wrong in WP(C).No.27373 of 2011 & - 23 - connected cases latter's assessment too. But here, assessee has also, by I.A.No.2445 of 2015, produced document as Exhibit P13, which discloses that at least in previous assessment year BCA was forwarded to Assessing Officer on 03.02.2006 and same was available in files of Assessing Officer before completion of assessment of assessment year 2003-04. 31. There is no dispute on that count raised by Revenue. However, learned Senior Counsel for Revenue would assert that it is not non-disclosure of particular year which is relevant; but fact remains that there is nothing to show that assessee had produced BCA in first assessment year, to support claim of exemption, i.e., in 2001-02. This Court is not convinced that same is sustainable argument. If true and full disclosure had not been made for year 2001-02, then proceedings under Section 147 for that year had to be initiated within six years. Admittedly such proceeding was not initiated and same was barred by limitation by time new incumbent officer woke up to alleged mistake. Limitation stands against Revenue in two subsequent years also; i.e., 2002-03 and 2003-04. We are concerned with assessment years WP(C).No.27373 of 2011 & - 24 - connected cases commencing from 2004-05. Before completion of assessment of said years, evidently BCA was available in records of Assessing Officer. At least before completion of assessment for previous assessment year, i.e., 2003-045, BCA was perused and exemption granted. There is no discussion in assessment order of terms in BCA. But when it was available in records, that too produced in midst of hearing, there could be no absence of full and true disclosure alleged. 32. document produced by assessee, in fact, refutes specific contention of Revenue in statement filed on 25.07.2013, where it is contended that BCA between assessee and Holding Company was not made available to Assessing Officer during assessment proceedings. defence now raised, on production of Exhibit P13, can only be seen as last ditch effort by Revenue to somehow uphold Section 147 proceedings. specific contention in aforesaid statement that Assessing Officer had not examined eligibility for assessee's claim for deduction under Section 10A with reference to said agreement for assessment year 2004-05 can only be default of Assessing Officer and there could be no allegation of WP(C).No.27373 of 2011 & - 25 - connected cases lack of full and true disclosure of material facts. Department also admits in its statement that assessment years from 2001-02 to 2003-04 were not reopened for reason of it being beyond six year period provided under Section 153. 33. We are not concerned with earlier assessment years, in which exemption was claimed and allowed. Nor is it permissible for Department to reopen said assessments; for reason only of such proceedings being hit by limitation. We are specifically concerned with exemption granted from year 2004-05 onwards. proceedings initiated under Section 147 is on ground that there is reason to believe that there is escapement of income for reason of ineligible deduction being granted and grant of such deduction is alleged to be on assessee not fully and truly disclosing material facts before Assessing Officer. adequacy of reasons or eligibility to deduction cannot be gone into by this Court. But ground of absence of full and true disclosure of material facts stands demolished. 34. Even with respect to grant of exemption for earlier years, this Court is unable to find any absence of full and true disclosure as is contemplated under provision, since WP(C).No.27373 of 2011 & - 26 - connected cases exemption claimed cannot be granted for mere asking. It was duty of Assessing Officer to examine whether exemption claimed under Section 10A was applicable to Company. assessee having claimed such exemption on first assessment year after incorporation and commencement of business, necessarily constitution of assessee Company is most relevant factor in deciding claim of exemption. BCA between holding Company and assessee Company is essential document which discloses factum of commencement of business. It would be surprising if Assessing Officer had granted such exemption merely for asking and without looking at constitution of Company; formation of which in previous year of assessment year 2001-02 is basic factor that had to be examined for granting exemption which, as is stated before, was affirmative action on part of Assessing Officer. 35. De hors that, for assessment year 2003-04, it has been unequivocally established that BCA was before Assessing Officer even before completion of assessment. production of said document, as is evident from Exhibit P13, is pursuant to hearing held on 19.12.2005. Revenue does not WP(C).No.27373 of 2011 & - 27 - connected cases dispute factum of BCA being available in files before assessment was completed for assessment year 2003-04 and subsequent years beginning from assessment year 2004-05. Hence, there could be no contention raised as to there being no full and true disclosure of material facts. 36. If essential and basic documents which are to be necessarily examined before grant of exemption, if not gone into, then it is default of officer and not assessee as held in Calcutta Discount Co. Ltd. (supra). Further, as held by Hon'ble Supreme Court, here too grant of exemption, is inferential conclusion of Assessing Officer and it cannot be said that assessee while claiming exemption under Section 10A should have, in same breath, pointed out that they are not entitled to it. 37. This Court would not look into question of whether there is change of opinion or not, since assessment of subsequent year, which was challenged on ground of exemption being disallowed, assailed as mere change of opinion, has been declined consideration under Article 226 and assessee relegated to statutory remedy. This Court, hence, would not refer to decisions on that aspect too. Any observation made on that WP(C).No.27373 of 2011 & - 28 - connected cases count in this judgment is in nature of prima facie one; not binding on statutory authorities who are to first consider that aspect. Going by binding precedents with respect to full and true disclosure of material facts, this Court is of opinion that no proceedings could be initiated under Section 147 of IT Act. impugned orders in respective writ petitions would stand set aside, for proceedings are hit by limitation; - having been initiated beyond four years - as provided under Section 153 of Act. There is no warrant to extend period by two years, again as provided under Section 153, since on facts it cannot be said that grant of exemption, at least from assessment year 2003-04, was in absence of full and true disclosure by assessee. writ petitions would stand allowed. Parties are left to suffer their respective costs. Sd/- K. Vinod Chandran, Judge vku/ [ true copy ] IBS Software Services Private Limited v. Union Of India/ Commissioner of Income-tax Thiruvananthepuram/ Assistant Commissioner of Income-tax, Circle-1(1), Thiruvananthepuram
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