Export Credit Guarantee Co. of India Ltd. v. Addl. CIT & Ors.

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The Tax Publishers2013 TaxPub(DT) 0551 (Bom-HC) : (2013) 350 ITR 0651 : (2013) 259 CTR 0465 : (2013) 087 DTR 0154 INCOME TAX ACT, 1961 --Reassessment--Reason to believe Tangible material--Assessee did not offer to tax an unapportioned claim recovery of Rs. 27.24 crores representing amount received from foreign countries as recoveries against claims paid and liability due to non-ascertainment of dues of other parties in respect of claim paid. Assessing officer stated that as the assessee was a resident, all income relevant to previous year was required to be brought to tax in accordance with section 5(1)(ia). However, in the assessment which was finalized under section 143(3) the said amount had not been brought to tax. As such it was a under assessment of income to the extent of Rs. 27.24 crores. Further, due to change in accounting policy there was a reduction of income to the extent of 20 crores. Also liability not crystallized before balance sheet date was escape assessment to the extent of 6.67 crores. Moreover, expenses of 16.29 lakhs under the head ISO certificate/Audit for as revenue upon was wrongly allowed as revenue expenses. The prior period expenses to the extent of 1.73crores escaped assessment. The assessing officer issue notice under section 148 on the ground that totaling to Rs. 54.66 crores escaped assessment. *Held:* Justified. All that is relevant at this stage is whether there is reason to believe on the part of assessing officer tat income had escaped assessment. The answer is in affirmative. It would not be appropriate for the High Court to pre-exempt an enquiry whatsover by the assessing officer once a tangible basis has been disclosed for reopening of the assessment. When an assessment is sought to be reopened within a period of four years of the end of the relevant assessment year, the test to be applied is whether there is tangible material to do so. What is tangible is something which is not illusory, hypothetical or a matter of conjecture. Something which is tangible need not be something which is new. An assessing officer who has plainly ignored relevant material in arriving at an assessment acts contrary to law. If there is an escapement of income in consequence, the jurisdictional requirement of section 147 would be fulfilled on the formation of a reason to believe that income has escaped assessment. The reopening of the assessment within a period of four years is in these circumstances within jurisdiction. [Para 8] The salient aspect of the case that merits emphasis is that the order of assessment that was passed by the assessing officer under section 143(3) is completely silent in respect of each one of the five points on the basis of which the assessment is sought to be reopened. There is merit in the contention which has been urged on behalf of the revenue that no query had been raised during the course of the assessment and the assessment order would ex-facie disclose that the assessing officer has not applied his mind at all to any of the points on the basis of which the assessment is now sought to be reopened. That there exists tangible material for the assessing officer to reopen the assessment in the present case is evident from the record. For instance, as court has noted earlier, in respect of one of the grounds, Ground (ii), the reasons which have been disclosed to the assessee would indicate that reliance has been placed on paragraph 6.1 of the notes forming part of the accounts in schedule 17. Paragraph 6.1 posits that an amount of Rs. 27.96 crores is the estimated amount of recovery expected out of the claims paid or payable by the assessee which had been recognized on an individual assessment/estimate basis on the basis of the accounting practice followed by the assessee. During the year in question, there was a change in accounting policy as a result of which the provision for estimated recovery in respect of claims paid and outstanding for recovery for a period of three years or more as on the balance-sheet date has been estimated at Rs. 100 for each claim in substitution of the individual assessment/estimate made earlier. The assessee has stated that the change in policy has the effect of the existing provision for estimated recovery being written off by about Rs. 20 crores to the revenue account and reducing the profit of the accounting year consequently. Evidently the assessing officer had not considered paragraph 6.1 of the notes forming part of the accounts. At this stage, it would be necessary for the court to record that we have not been called upon to decide as to whether any addition to the income would have to be made on that ground since that is a matter which has to be decided after the assessment is reopened. All that is relevant at this stage is whether there is reason to believe on the part of the assessing officer that income had escaped assessment. The answer is in the affirmative. It would not be appropriate for this Court to pre-empt an enquiry whatsoever by the assessing officer, once a tangible basis has been disclosed for reopening the assessment. Similarly, in respect of the revision of pay scales, the assessing officer has sought to reopen the assessment on the ground that the liability had not crystallized before the balance-sheet date. Here again, it is apparent that there has been no application of mind to the relevant facts by the assessing officer the course of the assessment proceedings. As regards the first ground, on the basis of which the assessment is sought to be reopened, it has been sought to be urged that under section 44 read with rule 5(a), it would not be open to the assessing officer to make an income addition. Moreover, it has been urged that in the past, the same practice had been accepted by the revenue. These are matters which on merits will be considered by the assessing officer and it would be inappropriate for this Court to express any opinion on the merits of issue. Moreover, once the court has come to the conclusion that even a single ground on the basis of which the assessment is sought to be reopened is valid and within jurisdiction, the notice for reopening of the assessment would have to be upheld. Consequently, we clarify that though submissions have been urged on the merits of each of the grounds, we keep all rights and contentions of the parties open to be urged before the assessing officer, once the assessment is reopened in exercise of the power conferred by section 147. The assessing officer has acted within jurisdiction in reopening the assessment. [Para 10] SUBSCRIBE FOR FULL CONTENT

The Tax Publishers2013 TaxPub(DT) 0551 (Bom-HC) : (2013) 350 ITR 0651 : (2013) 259 CTR 0465 : (2013) 087 DTR 0154

INCOME TAX ACT, 1961

--Reassessment--Reason to believe Tangible material--Assessee did not offer to tax an unapportioned claim recovery of Rs. 27.24 crores representing amount received from foreign countries as recoveries against claims paid and liability due to non-ascertainment of dues of other parties in respect of claim paid. Assessing officer stated that as the assessee was a resident, all income relevant to previous year was required to be brought to tax in accordance with section 5(1)(ia). However, in the assessment which was finalized under section 143(3) the said amount had not been brought to tax. As such it was a under assessment of income to the extent of Rs. 27.24 crores. Further, due to change in accounting policy there was a reduction of income to the extent of 20 crores. Also liability not crystallized before balance sheet date was escape assessment to the extent of 6.67 crores. Moreover, expenses of 16.29 lakhs under the head ISO certificate/Audit for as revenue upon was wrongly allowed as revenue expenses. The prior period expenses to the extent of 1.73crores escaped assessment. The assessing officer issue notice under section 148 on the ground that totaling to Rs. 54.66 crores escaped assessment. Held: Justified. All that is relevant at this stage is whether there is reason to believe on the part of assessing officer tat income had escaped assessment. The answer is in affirmative. It would not be appropriate for the High Court to pre-exempt an enquiry whatsover by the assessing officer once a tangible basis has been disclosed for reopening of the assessment.

When an assessment is sought to be reopened within a period of four years of the end of the relevant assessment year, the test to be applied is whether there is tangible material to do so. What is tangible is something which is not illusory, hypothetical or a matter of conjecture. Something which is tangible need not be something which is new. An assessing officer who has plainly ignored relevant material in arriving at an assessment acts contrary to law. If there is an escapement of income in consequence, the jurisdictional requirement of section 147 would be fulfilled on the formation of a reason to believe that income has escaped assessment. The reopening of the assessment within a period of four years is in these circumstances within jurisdiction. [Para 8] The salient aspect of the case that merits emphasis is that the order of assessment that was passed by the assessing officer under section 143(3) is completely silent in respect of each one of the five points on the basis of which the assessment is sought to be reopened. There is merit in the contention which has been urged on behalf of the revenue that no query had been raised during the course of the assessment and the assessment order would ex-facie disclose that the assessing officer has not applied his mind at all to any of the points on the basis of which the assessment is now sought to be reopened. That there exists tangible material for the assessing officer to reopen the assessment in the present case is evident from the record. For instance, as court has noted earlier, in respect of one of the grounds, Ground (ii), the reasons which have been disclosed to the assessee would indicate that reliance has been placed on paragraph 6.1 of the notes forming part of the accounts in schedule 17. Paragraph 6.1 posits that an amount of Rs. 27.96 crores is the estimated amount of recovery expected out of the claims paid or payable by the assessee which had been recognized on an individual assessment/estimate basis on the basis of the accounting practice followed by the assessee. During the year in question, there was a change in accounting policy as a result of which the provision for estimated recovery in respect of claims paid and outstanding for recovery for a period of three years or more as on the balance-sheet date has been estimated at Rs. 100 for each claim in substitution of the individual assessment/estimate made earlier. The assessee has stated that the change in policy has the effect of the existing provision for estimated recovery being written off by about Rs. 20 crores to the revenue account and reducing the profit of the accounting year consequently. Evidently the assessing officer had not considered paragraph 6.1 of the notes forming part of the accounts. At this stage, it would be necessary for the court to record that we have not been called upon to decide as to whether any addition to the income would have to be made on that ground since that is a matter which has to be decided after the assessment is reopened. All that is relevant at this stage is whether there is reason to believe on the part of the assessing officer that income had escaped assessment. The answer is in the affirmative. It would not be appropriate for this Court to pre-empt an enquiry whatsoever by the assessing officer, once a tangible basis has been disclosed for reopening the assessment. Similarly, in respect of the revision of pay scales, the assessing officer has sought to reopen the assessment on the ground that the liability had not crystallized before the balance-sheet date. Here again, it is apparent that there has been no application of mind to the relevant facts by the assessing officer the course of the assessment proceedings. As regards the first ground, on the basis of which the assessment is sought to be reopened, it has been sought to be urged that under section 44 read with rule 5(a), it would not be open to the assessing officer to make an income addition. Moreover, it has been urged that in the past, the same practice had been accepted by the revenue. These are matters which on merits will be considered by the assessing officer and it would be inappropriate for this Court to express any opinion on the merits of issue. Moreover, once the court has come to the conclusion that even a single ground on the basis of which the assessment is sought to be reopened is valid and within jurisdiction, the notice for reopening of the assessment would have to be upheld. Consequently, we clarify that though submissions have been urged on the merits of each of the grounds, we keep all rights and contentions of the parties open to be urged before the assessing officer, once the assessment is reopened in exercise of the power conferred by section 147. The assessing officer has acted within jurisdiction in reopening the assessment. [Para 10]