Indian Roads Congress vs Income Tax Exemption, Ward 1(2)

1.

“That the Learned Commissioner of Income-tax (Appeals) has erred in law and on facts in holding that no sufficient cause existed for condonation of delay, and in rejecting the Appellant's prayer for condonation, without appreciating the bona fide reasons and circumstances beyond the control of the Appellant, thereby violating the settled principles of natural justice.

2.

That the Learned Commissioner of Income-tax (Appeals) has erred in law in not admitting the appeal and in failing to adjudicate the grounds raised on merits, despite the Appellant having made out a fit case for condonation of delay, thereby rendering the impugned order arbitrary and unsustainable in law.

3.

That the Learned Assessing Officer has erred in law and on facts in initiating and reopening the reassessment proceedings without any tangible material or fresh external evidence, and in the absence of any valid "reason to believe", and therefore the reopening is bad in law, without jurisdiction, and liable to be quashed.

4.

That the reassessment proceedings are bad in law and void ab initio, inasmuch as the Learned Assessing Officer failed to furnish the recorded reasons for reopening to the Assessee, which is a mandatory jurisdictional requirement, and therefore the assumption of jurisdiction under sections 147/148 is invalid.

5.

That the reassessment proceedings are bad in law and without jurisdiction, inasmuch as the reasons recorded by the Learned Assessing Officer for reopening are based solely on a change of opinion, without any fresh tangible material, thereby rendering the assumption of jurisdiction under sections 147/148 of the Income-tax Act, 1961 invalid in law.

6.

That the addition to total income is bad in law and on facts, inasmuch as the Learned Assessing Officer has erroneously treated the voluntary contributions received towards Life Membership Fees, Subscriptions and Entrance Fees-aggregating to 1,30,11,971/--as revenue receipts and subjected the same to tax, despite the fact that such receipts are capital / corpus receipts not chargeable to tax, being contrary to the provisions of section 11(1)(d) of the income-tax Act, 1961.

7.

That the Appellant is entitled in law to allowance of depreciation of ₹ 16,23,722/-, which though not claimed while filing the return of income or during the assessment proceedings, is a statutory deduction allowable while computing total income, and the same may kindly be allowed in accordance with law.

8.

Without prejudice to the other grounds, and only in the computed by the Assessing Officer is upheld, the Appellant ought to be granted the consequential benefit of accumulation under section 11 (2) read with section 11(5) of the Income-tax Act, 1961, in respect of such income, as a necessary corollary to any disallowance or addition made.

9.

That the levy of interest under section 234B the Income-tax Act, 1961 is consequential in nature, and the same is liable to be recomputed or deleted, as the case may be, upon determination of the total income in accordance with law.

10.

That the Appellant craves leave to add, alter, amend, modify or withdraw any of the aforesaid grounds of appeal, either in whole or in part, at any time before or during the course of hearing, as may be deemed fit in the interest of justice.”

5.

“Furthermore the CIT(Appeals) and the ITAT considered elaborately on the merits of the addition and held that the effort of the assessing officer ITA 575/2012 Page 3 to bring such amounts to tax was not justified. The ITAT pertinently noticed as under :

"The formation of such belief exhibiting the escapement of income or the reasons should have a direct nexus with the information enabling the Assessing Officer to form such belief. The interdiction provided in first proviso appended to section 147 puts and embargo upon the powers of the Assessing Officer. It contemplates that if an assessment under Sec. 143(3) has been made for the relevant assessment year and four years have expired from the end of the relevant assessment year then such notice would not be issued unless any income chargeable to tax has escaped assessment for such assessment year by reason of the failure on the part of assessee to make a return under Sec. 139 or in response to a notice issued under Sec.142(1) or Sec. 148 or to disclose fully and truly all material facts necessary for his assessment for that assessment year. Admittedly, the assessee has filed the return under Sec. 139 of the Income Tax Act, 1961. The only requirement left is whether the assessee can be charged with an allegation that it failed to disclose all material facts fully and truly in respect of the income escaped. Thus, operative force of the proviso is, that Assessing Officer should demonstrate, failure of assessee to disclose all material facts fully and truly, which gives rise to escapement of the income. In this connection, we have gone through the record carefully. The first item referred by the Assessing Officer in the reasons relates to allowability of certain expenditure which has to be ascertained whether incurred wholly and exclusively for the purpose of the business or not. Assessing officer thereafter referred to certain expenditure. In the questionnaire issued on 14.01.2005 at Sr. No.5, Assessing Officer called for the explanation of assessee on one item is :-

"Expense incurred on engineering division has been charged to revenue instead of capitalizing it with the project/capital assets."

Apart from this one query, the assessee has placed on record details of all other expenses referred by the Assessing Officer in the reasons. The learned counsel for the assessee at the time of hearing, referred Schedule No.5 at page Nos.125 & 126 of the paper book which contains details of miscellaneous expenses on page 125 at Sr.No.5, assessee has made a reference to deferred revenue expenses written off. Similarly at sr. No.8, it refers to Dunnage. At sr.No.24, expenses relating to quality improvement expenses (ISO) has been shown and at Sr.No.32, expenses related to unabsorbed overhead on capital work has been shown. The learned counsel for the assessee thereafter referred to page No.133 and pointed out that assessee has placed on record income and expenditure account relating to prior periods. In this connection, it has referred loss on write off assets also which is sought to be enquired by Assessing Officer in these reasons. The net Rs.1,70,42,520 worked out by the assessee in the income and expenditure account has duly been taken in the computation of income. For buttressing this learned counsel for the assessee drew out attention towards Annexure B at page 22 of the paper book wherein computation of assessable income/loss has been placed on record. In this computation, he pointed out that prior period expenditure charged to the P&L account has been added at Rs.1,70,42,520. The learned counsel for the assessee similarly explained the other items. After going through all the details, we find that assessee has disclosed all the material facts fully and truly. Assessing officer has merely made a mention in the reasons that it failed to disclose all material facts fully and truly. We have ITA 575/2012 Page 5 gone through the accounts which were made available to the assessing officer in the original round of litigation. When Assessing Officer sought to reopen the assessment at the first instance, he did not make reference to these aspects though he made a reference to the allowability of expenses under Sec. 37 of the Income Tax Act, 1961. In view of the above discussion, we are of the view that assessee has demonstrated on the record, that all facts relevant for the assessment of its income have been declared by it fully and truly."

6.

This Court had in the judgment reported as Honda Siel Power Products Ltd. V. DCIT 340 ITR 53 held that page 81 para 13 held that a question as to whether there is failure or omission to disclose fully and truly material facts as essentially one of fact. This was affirmed by the Supreme Court in Honda Siel Power Product V. DCIT 340 ITR 64 (SC). The Supreme Court ruling in Commissioner of Income Tax vs. Kelvinator India Ltd. 320 ITR 561 (SC) is authority for the view that the "reason to believe" on which a reassessment can be validly ordered should necessarily be based on "tangible material" which an A.O. comes by after the assessment. Necessarily, such material is outside the record. Straying from this clear path would be sliding down the slippery slope into a quagmire of re- appreciation of existing material and -even the process of reasoning which is impermissible as it is a forbidden "merits review". Reassessment, if permitted in such instances would be a route which (to borrow the phrase from another context) "unlocks the gate which shuts" the A.O's review on merits. (Attorney General for New South Wales V. Quin 1990 (64) Aust LJR 237).”

6.

“On going through the changes, quoted above, made to Section 147 of the Act, we find that, prior to Direct Tax Laws (Amendment) Act, 1987, re-opening could be done under above two conditions and fulfillment of the said conditions alone conferred jurisdiction on the Assessing Officer to make a back assessment, but in section 147 of the Act [with effect from 1st April, 1989], they are given a go-by and only one condition has remained, viz., that where the Assessing Officer has reason to believe that income has escaped assessment, confers jurisdiction to re- open the assessment. Therefore, post-1st April, 1989, power to re-open is much wider. However, one needs to give a schematic interpretation to the words "reason to believe" failing which, we are afraid, Section 147 would give arbitrary powers to the Assessing Officer to re-open assessments on the basis of "mere change of opinion", which cannot be per se reason to re-open. We must also keep in mind the conceptual difference between power to review and power to re-assess. The Assessing Officer has no power to review; he has the power to re-assess. But re-assessment has to be based on fulfillment of certain pre-condition and if the concept of "change of opinion" is removed, as contended on behalf of the Department, then, in the garb of re-opening the assessment, review would take place. One must treat the concept of "change of opinion" as an in-built test to check abuse of power by the Assessing Officer. Hence, after 1st April, 1989, Assessing Officer has power to re-open, provided there is "tangible material" to come to the conclusion that there is escapement of income from assessment. Reasons must have a live link with the formation of the belief. Our view gets support from the changes made to Section 147 of the Act, as quoted hereinabove. Under the Direct Tax Laws (Amendment) Act, 1987, Parliament not only deleted the words "reason to believe" but also inserted the word "opinion" in Section 147 of the Act. However, on receipt of representations from the Companies against omission of the words "reason to believe", Parliament re-introduced the said expression and deleted the word "opinion" on the ground that it would vest arbitrary powers in the Assessing Officer. We quote hereinbelow the relevant portion of Circular No.549 dated 31st October, 1989, which reads as follows:

"7.2

Amendment made by the Amending Act, 1989, to reintroduce the expression `reason to believe' in Section 147.--A number of representations were received against the omission of the words `reason to believe' from Section 147 and their substitution by the `opinion' of the Assessing Officer. It was pointed out that the meaning of the expression, `reason to believe' had been explained in a number of court rulings in the past and was well settled and its omission from section 147 would give arbitrary powers to the Assessing Officer to reopen past assessments on mere change of opinion. To allay these fears, the Amending Act, 1989, has again amended section 147 to reintroduce the expression `has reason to believe' in place of the words `for reasons to be recorded by him in writing, is of the opinion'. Other provisions of the new section 147, however, remain the same."

7.

For the afore-stated reasons, we see no merit in these civil appeals filed by the Department, hence, dismissed with no order as to costs.”