Dalmia Brothers (P.) Ltd. vs Commissioner of Income Tax

Sanjiv Khanna, J.—This review petition has been filed by Dalmia Brothers Private Limited, the petitioner on the following grounds:

(1) In the judgment Court has relied upon decision/judgments, which were not cited at the time of arguments.

(2) The decision of the Division Bench of the Delhi High Court in Consolidated Photo and Finvest Ltd. Vs. Asst. Commissioner of Income Tax,

has been adversely commented upon, if not dissented in KLM Royal Dutch Airlines Vs. Assistant Director of Income Tax, Commissioner of

Income Tax Vs. Eicher Ltd., and CIT v. Goetze (India) Ltd., [2010] 321 ITR 431 (Delhi) and the ratio of the said decision runs counter to the

Full Bench decision of this Court in Commissioner of Income Tax Vs. Kalvinator of India Ltd., which has been approved by the Supreme Court in

Commissioner of Income Tax, Delhi Vs. Kelvinator of India Limited,

(3) In the decision, the Court has relied upon the records produced by the Revenue but the said records were not made available to the petitioner.

The petitioner was not aware of the audit objections. Audit objections cannot be a ground to reopen assessments as held in Commissioner of

Income Tax Vs. Simbhaoli Sugar Mills Limited,

The first and the third contention for the sake of convenience can be taken up together. The matter was heard on 13th September, 2011 in the

morning and then was taken up and heard in the afternoon. Order dated 13th September, 2011 specifically records that the counsel for the

respondent had produced the requisite records. By an earlier order dated 18th July, 2011, the Revenue was directed to produce the relevant

assessment records at the time of hearing. The records were examined by the Court at the time of hearing and were retained for examination and

consideration to decide the writ petition. At the time of hearing on 13th September, 2011, the petitioner did not pray and ask that the records

should be shown to them.

Two contentions were raised by the petitioner at the time of hearing on 13th September, 2011. Firstly, that it is a case of change of opinion and

secondly, that the assessee had made full and true disclosure of material facts and, therefore, jurisdictional pre-conditions for initiation of

reassessment proceedings did not exist. Learned counsel had addressed arguments on the said aspects. The decisions referred to and relied upon

in the judgment deal with the two aspects and explain the legal position. It is not possible to accept the contention of the petitioner that the courts

cannot rely upon judgments which are not cited but which are relevant to the legal issues raised and which are required to be answered. Courts do

and can rely upon judgments which are not cited but are relevant to the issue in controversy. It may be noted that in the counter affidavit filed by

the respondents, several decisions have been relied upon, on change of opinion and failure or omission to disclose fully and truly material facts

necessary for assessment. In fact, counsel for the petitioner had also not read out or cited any judgment at the time of hearing, but these were

mentioned in the written submissions filed immediately after the hearing. These judgments have been mentioned in paragraph 7 of the order dated

26th September, 2011. Scope of review is circumscribed under Order XLVII, Rule 1 and the first and the third contention, therefore, deserve to

be rejected and cannot be accepted. It may be, however, recorded that it is difficult to believe and accept that the petitioner was not aware of the

audit objection as the same is available in the assessment records and has not been treated and regarded by the Revenue as a secret and

confidential document.

By order dated 4th November, 2011, learned counsel for the petitioner-applicant was asked to examine paragraphs 13, 15 and 16 of the

decision dated 26th September, 2011 wherein observations in Consolidated Photo & Finvest Ltd. (supra) have been quoted and state whether the

ratio or quotations are contrary to the judgment of the Full Bench of this Court and the Supreme Court in Kelvinator India Ltd. (supra).

For the sake of convenience, the said paragraphs in the decision dated 26th September, 2011 are quoted below:-

Interpreting and highlighting the significance of the said explanation in Consolidated Photo and Finvest Ltd. Vs. Asst. Commissioner of Income

Tax, it has been held:-

The above would show that cases falling in clause (c) of Explanation 2 in which income chargeable to tax has been under assessed or assessed

at too low a rate or cases in which income has been made the subject of excessive relief under the Act or where excessive loss or depreciation

allowance or any other allowance under the Act has been computed, would constitute cases of income escaping assessment. There is considerable

authority for the proposition that the jurisdiction of the Assessing Officer to initiate proceedings would depend upon whether he has reasons to

believe that any income chargeable to tax has escaped assessment. A long string of decisions rendered by the Supreme Court have emphasized

that the belief of the Assessing Officer must be in good faith and must not be a mere pretence. The apex court has further held that there must be a

nexus between the material before the Assessing Officer and the belief which he forms regarding the escapement of the assessee''s income. A writ

court, therefore, is entitled to examine whether the Assessing Officer''s belief was in good faith and whether such reasons had a nexus with the

action proposed to be taken.

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Referring to the said explanation in Consolidated Photo and Finvest Ltd. (supra) it has been held:-

It is clear from the above that the two critical aspects which need to be addressed in any action u/s 147 are whether the Assessing Officer has

reason to believe"" that any income chargeable to tax has escaped assessment and whether the proposed reassessment is within the period of

limitation prescribed under the proviso to section 147. Explanation 1 to the said provision makes it clear that production of account books or other

evidence from which the Assessing Officer could with due diligence discover material evidence would not necessarily amount to disclosure within

the meaning of the proviso that stipulates an extended period of limitation for action in cases where the escapement arises out of the failure on the

part of the assessee to disclose fully and truly all material facts necessary for assessment.....

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In Kantamani Venkata Narayana and Sons Vs. First Additional Income Tax Officer, Rajahmundry, the apex court held that in proceedings

under article 226 of the Constitution of India challenging the jurisdiction of the income tax Officer to issue a notice for reopening the assessment,

the High Court was only concerned with examining whether the conditions which invested the income tax Officer with the powers to reopen the

assessment existed. It is not, observed the court, within the province of the High Court to record a final decision about the failure to disclose fully

and truly all material facts bearing on the assessment and consequent escapement of income from assessment and tax. The court also held that from

a mere production of the books of account, it could not be inferred that there had been full disclosure of the material facts necessary for the

purposes of assessment. The terms of the Explanation, declared the court, were too plain to permit an argument that the duty of the assessee to

disclose fully and truly all material facts would stand discharged when he produces the books of account or evidence which has a material bearing

on the assessment. The court observed (page 644) : ""It is the duty of the assessee to bring to the notice of the income tax Officer particular items in

the books of account or portions of documents which are relevant. Even if it be assumed that from the books produced, the income tax Officer, if

he had been circumspect, could have found out the truth, the income tax Officer may not on that account be precluded from exercising the power

to assess income which had escaped assessment.

To the same effect is the decision of the Supreme Court in Malegaon Electricity Co. P. Ltd. Vs. Commissioner of Income Tax, Bombay,

where the court observed (page 471):

It is true that if the income tax Officer had made some investigation, particularly if he had looked into the previous assessment records, he would

have been able to find out what the written down value of the assets sold was and consequently he would have been able to find out the price in

excess of their written down value realised by the assessee. It can be said that the income tax Officer if he had been diligent could have got all the

necessary information from his records. But that is not the same thing as saying that the assessee had placed before the income tax Officer truly and

fully all material facts necessary for the purpose of assessment. The law casts a duty on the assessee to ""disclose fully and truly all material facts

necessary for his assessment for that year"".

It has been further observed in Consolidated Photo and Finvest Ltd. (supra):-

...The argument that the proposed reopening of assessment was based only upon a change of opinion has not impressed us. The assessment

order did not admittedly address itself to the question which the Assessing Officer proposes to examine in the course of reassessment proceedings.

The submission of Mr. Vohra that even when the order of assessment did not record any explicit opinion on the aspects now sought to be

examined, it must be presumed that those aspects were present to the mind of the Assessing Officer and had been held in favour of the assessee is

too far-fetched a proposition to merit acceptance. There may indeed be a presumption that the assessment proceedings have been regularly

conducted, but there can be no presumption that even when the order of assessment is silent, all possible angles and aspects of a controversy had

been examined and determined by the Assessing Officer....

There cannot be any doubt about paragraph 13 and the quote therein. The principle or the ratio laid down is a correct and the right principle and

not a rule, which has been dissented or disapproved in Kelvinator India Ltd. (supra). In paragraphs 15 and 16 of the decision in Consolidated

Photo & Finvest Ltd. (supra) reference is made to two decisions of the Supreme Court in Kantamani Venkata Narayana and Sons Vs. First

Additional Income Tax Officer, Rajahmundry, and Malegaon Electricity Co. P. Ltd. Vs. Commissioner of Income Tax, Bombay, and the ratio and

the findings recorded by the Supreme Court in the two decisions. It cannot be said that the ratio and the observations in aforesaid paragraphs of

Consolidated Photo & Finvest Ltd. (supra) are at variance or do not lay down the law or ratio which is contrary to the decision in the case of

Kelvinator India Ltd. (supra). Realizing this, Mr. Mehta, learned counsel for the petitioner- applicant did not press his submissions on these

paragraphs.

Learned counsel for the petitioner-applicant made grievance with regard to paragraph 16 and submitted that the observations in Consolidated

Photo & Finvest Ltd. (supra) are too broad and wide. Counsel for the Revenue has submitted that special leave was granted against the decision in

Consolidated Photo & Finvest Ltd. (supra) but the civil appeal has been dismissed. We need not examine the said aspect because we are

convinced that in the present case what has weighed with the Court is the factual findings recorded in the paragraphs 8 and 9, which read as

under:-

We have examined the original records of the case which have been produced before us. Reassessment proceedings have been initiated after

examining and considering the audit note. The note records that the auditor''s scrutiny revealed that the Assessing Officer had asked the assessee

to furnish complete details/confirmations in respect of the sundry creditors amounting to Rs. 1,66,37,402/-. Out of the said amount, the assessee

could submit confirmations in respect of the creditors amounting to Rs. 1,13,53,344/- and the balance amount of Rs. 52,84,058/- remained

unconfirmed. The Assessing Officer in the original assessment order has held that the provisions of Section 41(1) were attracted as liability had

remained unpaid and the assessee had failed to explain nexus of these expenses with its business activities. But unconfirmed creditors amounting to

Rs. 19,86,551/- only were added back, in spite of total unconfirmed creditors of Rs. 52,84,058/-. This had resulted in under assessment of Rs.

32,97,057/-

In this regard, we may notice the questionnaire/notice dated 14th September, 2005, which was issued by the Assessing Officer at the time of

original assessment proceedings. The petitioner was asked to submit list of sundry creditors with their names and addresses, opening and closing

balance amount wise. Thereafter, by another notice dated 14th October, 2005, the petitioner was asked to furnish names and addresses of the

sundry creditors of Rs. 1.66 crores explaining each creditor and give details since when the amount was outstanding. What is available on record

and what was submitted by the assessee-petitioner as per the reassessment notice, were details or confirmations to the extent of Rs. 1,13,53,344/-

. No other details and particulars were available. This was noticed in the audit objection/note. Inspite of this, an addition of Rs. 19,86,551/- was

made in the original assessment order u/s 41(1) of the Act, but there is no explanation why no addition was made in respect of Rs. 32,97,507/-.

The facts of the case are very peculiar and unusual. The Assessing Officer in the original assessment proceedings had asked the petitioner to

furnish complete details/confirmations in respect of sundry creditors amounting to Rs. 1,66,37,402/-. The petitioner had submitted confirmations in

respect of creditors amounting to Rs. 1,13,53,344/- and the balance amount of Rs. 52,84,058/- remained unconfirmed. The Assessing Officer in

the original assessment order, which has been quoted in paragraph 2 of the decision dated 26th September, 2011, made an addition of Rs.

19,86,551/- u/s 41(1) but not in respect of other unconfirmed creditors of Rs. 32,97,507/-. This was a factual lapse, which was pointed out in the

audit objection and then examined by the authorities. This factual lapse was found to be correct and, therefore, reassessment proceedings were

initiated. Initiation of the reassessment proceedings has been held to be proper in view of the decision of the Supreme Court in Commissioner of

Income Tax Vs. P.V.S. Beedies Pvt. Ltd., and the Delhi High Court in New Light Trading Co. Vs. Commissioner of Income Tax, In view of the

aforesaid findings, we do not find merit in the present review petition and the same is accordingly dismissed. No costs.