BANGALORE TURF CLUB LIMITED V. UNION OF INDIA

WP/51223/2019

AI Insights

The case revolves around the Bangalore Turf Club Limited, which challenged the notices and orders issued by the Income Tax Department concerning the reassessment of income for the Assessment Year 2012-13. The primary contention was that the reassessment was initiated without proper justification and was time-barred. The petitioner argued that it had fully disclosed all material facts in its tax returns, and the payments made to horse trainers and jockeys, which were the subject of the reassessment, were not liable for TDS under the relevant sections of the IT Act. The court examined the procedural validity of the reassessment and the substantive disclosures made by the petitioner.

• Counselvise Citation: [2024] 140 COUNSELVISE.COM (IT) 725269 (HC-KARNATAKA)
• Appeal Type: Others
• Pronouncement Date: 25-03-2024
• Assessment Year: misc
• Other Referred Cases: Narayanappa S v. Commissioner of Income Tax, Bangalore, Haryana Acrylic Manufacturing Co. v. Commissioner of Income, GVK Gautami Power Ltd. v. Asst. CIT (OSD), GKN Driveshafts (India) Ltd. v. ITO, Modi Spinning Mills and Weaving Mills v. Income Tax Officer, SBI v. Vineet Agrawal, Asst. CIT
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Others
• Court: HIGH COURT
• Department Lawyers: RAVI RAJ
• Assessee Lawyers: S NAGANAND
• Keywords: Horse Racing; Income Tax; Reassessment; Stake money; TDS
• Section: 148; 142(1); 143(2); 40(a)(ia); 226; 227; 194BB

Judgement Text

" 1 IN THE HIGH COURT OF KARNATAKA AT BENGALURU DATED THIS THE 25TH DAY OF MARCH 2024 BEFORE THE HON’BLE MR. JUSTICE B. M. SHYAM PRASAD WRIT PETITION NO. 51223 OF 2019 (T-IT) BETWEEN: BANGALORE TURF CLUB LIMITED A COMPANY INCORPORATED UNDER THE COMPANIES ACT, 1956 HAVING ITS REGISTERED OFFICE AT: P.O. BOX NO. 5038, RACE COURSE ROAD, BANGALORE - 560 001. REPRESENTED BY ITS SECRETARY. ... PETITIONER (BY SRI.S..NAGANAND, SENIOR COUNSEL FOR SMT. SUMANA NAGANAND, ADVOCATE) AND: 1. UNION OF INDIA MINISTRY OF FINANCE, DEPARTMENT OF REVENUE, GOVERNMENT OF INDIA, NORTH BLOCK, NEW DELHI - 110 001 THROUGH THE SECRETARY. 2. ASSISTANT COMMISSIONER OF INCOME TAX CIRCLE (1)(1)(2) BMTC BUILDING, 80 FEET ROAD, 6TH BLOCK, NEAR KHB GAMES VILLAGE, KORAMANGALA, BENGALURU - 560 095. ... RESPONDENTS (BY SRI RAVIRAJ Y.V., ADVOCATE) 2 THIS WRIT PETITION IS FILED UNDER ARTICLES 226 AND 227 OF THE CONSTITUTION OF INDIA PRAYING TO QUASH THE NOTICE DATED 29.03.2019 ISSUED U/S 148 OF THE IT ACT, 1961 BY R-2 FOR THE A.Y. 2012-13 (ANNX- G); QUASH THE NOTICE DATED 31.05.2015 ISSUED BY R- 2 U/S 143(2) OF THE IT ACT, 1961 FOR THE A.Y.2012-13 (ANNX-J); QUASH THE ORDER DATED 15.11.2019 PASSED BY R-2 (ANNX-M) AND QUASH THE NOTICE DATED 15.11.2019 ISSUED BY R-2 U/S 142(1) OF THE IT ACT, 1961 FOR THE A.Y.2012-13 (ANNX-N). THIS WRIT PETITION COMING ON FOR PRONOUNCEMENT OF ORDERS THIS DAY, THE COURT DELIVERD THE FOLLOWING: ORDER The petitioner is a recognized Turf Authority and is engaged in the business of organising thorough bred horse racing. The petitioner has impugned the following. [i] The Notice dated 29.03.2019 [Annexure-G] in No. ITBA/A/COM/F/17/2018-19/101553669 7(1) issued under Section 148 of the Income Tax Act,1961 [for short, ‘the IT Act’]. [ii] The Notice dated 31.05.2019 [Annexure-J] in ITBA/AST/S/143(2) 3 3/2019-20/1016195141(1) issued under Section 143(2) of the IT Act . [iii] The second respondent’s order dated 15.11.2019 [Annexure-M] in No. ITBA/AST/F/17/20.19-20/1020516 969(1) rejecting the objections filed by the petitioner. [iv] the consequential Notice dated 15.11.2019 [Annexure-N] in No. ITBA/AST/F/142/2019-20/102052558 5(1) issued under Section 142(1) of the IT Act calling upon the Petitioner to furnish certain documents and information. These impugned notices and order are for the Assessment Year 2012-2013, and the petitioner’s grievance with these notices and order are in the backdrop of the circumstances outlined hereinafter. 2. The petitioner’s case is that its primary income is from the totalisators i.e., the commission from the total amount waged on horse races organized 4 by it, and it also earns from the income shared with the bookmakers, gate collections and license fee from bookmakers. The petitioner has summarized how the horses races are organized and its activities thus: a. The petitioner, as a Turf Authority, conducts thoroughbred horse racing and horses are registered with it by the owners1 who are duly licensed by the Turf Authorities. b. The owner engages a licensed professional trainer to these horses which must be trained2 and nourished. c. During the training and thereafter, the horses are stabled within the precincts of the racecourse owned by the petitioner. d. A professional trainer engages a helper [Syces] whose job is to look after the 1 The horse is purchased from a breeder or at a public auction at a young age of 1 or 2 years. 2 The petitioner has referred to certain regulations governing the aspect of training of horses. 5 horses through the day in shifts and take care of its feeding. e. The owner hires a jockey3 through the professional trainer on mutually accepted terms of remuneration. 3. The petitioner contends that to facilitate the aforesaid transactions, it maintains an open, mutual and current account for every licensed trainer, owner and jockey, and an owner can deposit sums to the corresponding account and the petitioner also disburses the prize money to the owner’s corresponding account. The petitioner, either on standing instructions or case specific instructions, debits the balance in the owners’ account transferring the requisite amounts to the account of the professional trainer, jockey or any other to whom the payment is to be made. The petitioner is categorical that there should be no tax implication for it on the transactions 3 A jockey is also licensed by the Turf Authority. 6 executed on behalf of the horse owners because it has no role in training and does not enter into any agreement with the trainers or horse owners [except for licensing them] and it only facilitates the transactions for the owner of the horses. 4. The petitioner, for the Assessment Year 2012-13, has filed its return of income [ROI] on 28.09.2012. The petitioner has filed its revised Returns on 20.12.20124. The petitioner’s ROI is selected for scrutiny through Computer Assisted Scrutiny Selection [CASS], and the petitioner is issued with notice dated 24.09.2013 under Section 143(2) followed by the Questionnaire dated 09.10.2014 under Section 142(1) of the IT Act. The petitioner has responded to the queries through its letters dated 17.10.2014 and 22.12.2014. 4 The petitioner has declared a total income of Rs.3,32,97,476/- and tax liability of Rs.1,18,43,656/-. 7 5. The Assessing Officer [AO], after hearing the petitioner, has concluded the assessment proceedings by the Order dated 27.03.2015. The AO has concluded that the petitioner, in violation of the provisions of Section 194BB of the IT Act, has disbursed Rs.34,15,30,436/- to the horse owners without deducting tax at source claiming such amount as expenditure in the Profit and Loss Account. The AO has disallowed the amount of Rs.34,15,30,436/- under Section 40 (a)(ia) of the IT Act. The Commissioner of Income Tax (Appeals), by the order dated 31.07.2019, has dismissed the petitioner’s appeal in ITA No.l848/Bang/2019 against the AO’s order dated 27.03.2015. 6. The Commissioner’s order dated 31.07.2019 is called in question before the Income Tax Appellate 8 Tribunal, Bengaluru [ITAT] in S.P.No.271/BNG/20195, and as of the date of this petition, the operation of the orders dated 27.03.2015 was stayed in the proceedings in S.P.No.271/BANG/2019. The ITAT has allowed the petitioner’s appeal [and the other appeal] by its Order dated 18.12.2020. The ITAT was considering the question whether the provisions of TDS are applicable to Stake Money being paid to the owners of the horses participating in the race. The ITAT has opined that that Stake Money paid by petitioner to the horse owners are not liable to TDS under Section 194B or Section 194 BB of the IT Act, and therefore, the AO could not have disallowed under Section 40(a)(ia) of the IT Act. 7. In the meanwhile, the second respondent has issued notice dated 29.03.2019 under Section 148 of the IT Act proposing to reassess the income of the 5 This appeal is taken up for consideration by the ITAT along with the petitioner’s appeal against the similar orders for the Assessment years 2014-15. 9 petitioner under Section 147 of the Act for the Assessment Year 2012-2013. The relevant portion of this Notice reads as under: \"Whereas I have reasons to believe that your Income chargeable to tax for the Assessment Year 2012-13 has escaped Assessment within the meaning of section 147 of the Income Tax Act, 1961. I, therefore, propose to assess/ re-assess the income/loss for the said Assessment Year and I hereby require you to deliver to me within 30 days from the service of this notice, a return in the prescribed form for the said Assessment Year.\" The petitioner, in response, has filed its ROI on 23.04.2019 and this is the Revised E-return filed on 20.12.2012. The petitioner by its letter dated 26.04.2019 has requested the second respondent to treat the Revised E-return filed on 20.12.2012 as the ROI in response to the notice dated 29.03.2019 and it has also sought for the reasons for reopening the 10 assessment under Section 148 of the IT Act and provide them with a copy of the supporting documents. 8. The second respondent has issued the notice dated 31.05.2019 under Section 143(2) of the IT Act directing the petitioner to produce certain documents and appear before the second respondent on 17.06.2019. On 06.06.2019, the second respondent has stated the following as the reasons for re-opening of assessment: \"During scrutiny proceedings for A.Y 2016- 17 it was observed that assessee was making payment of crores of rupees to horse Trainers, jockeys. etc. During A.Y 2016- 17 Rs.17.09Cr was paid to trainers & jockeys for horse maintenance and as mount fee. It is almost 7.04% of net revenue declared in Profit & loss account. These payments were not brought through profit & Loss account. Further, payments made to trainers & jockey required TDS. Same was not 11 deducted which calls for disallowance u/s 40a(ia) of IT act. As mentioned above, payments made to trainers, jockeys were not passed through profit & loss account. Further, it was also confirmed during scrutiny proceedings of A.Y 2016-17 that these services were professional services attract TDS . But assessee has failed to deduct TDS on these payments. As discussed above, it is confirmed that assessee had not declared gross revenue in profit & Loss account but only 12.5% of gross collection as its revenue. The payments made to trainers jockeys etc were directly setoff with owners accounts without passing through Profit & loss account. Assessee had failed to compliance to TDS provision. It is confirmed that assessee has not disclosed full & truly all material facts in the return, of income. Hence, I have reason to believe that there is escapement of income approximately of Rs.14.85Cr within the meaning of Section 147.\" 12 9. The petitioner has filed its detailed objections 17.07.2019 to the aforesaid reasons contending inter alia that the said reasons do not constitute 'reasons to believe’ as required under Section 148; that the proceedings are barred by limitation under first proviso to Section 149(1)(b) of the IT Act; and that the re-opening of the assessment would be academic in nature as the petitioner has not claimed expenditure in respect of the amounts paid to the trainers and jockeys, therefore, the same cannot be disallowed, etc. The second respondent by its order dated 15.11.2019 has rejected the objections filed by the petitioner, and the second respondent at the first instance has observed thus: The petitioner has failed to realize the fact that it is making payments of crores of rupees to horse trainers & jockeys for horse maintenance and as mount fee. These payments are not brought through profit & Loss account. The payments made to trainers & jockey require TDS thereon, 13 and the same is not adhered to. The payments made to trainers, jockeys are not passed through Profit and Loss Account and these services are professional services which attract TDS provisions. 10. The second respondent, after the afore and a reference to the decision of the Supreme Court in Narayanappa S v. Commissioner of Income Tax,Bangalore6 has considered the petitioner’s objections thus: Reasons recorded are vague and does not indicate how and why income has escaped assessment: - The reasons for reopening of case is already supplied to assessee. However, the summary of the same is - Assessee has not declared gross revenue in Profit & Loss account. Moreover, horse trainers and jockeys were directly paid with owners account without an entry routed through Profit and loss account. Apart from the above, assessee has failed to make TDS in spite of it being professional services rendered. It is assessee’s duty to disclose all the 6 [1967] 63 ITR 219 (SC) 14 income generated and expenses paid by assessee in his financials. Assessee has disclosed only net of the transactions in P& L account. Hence, as per the information available with this office Rs. 14.85 Crore has escaped assessment and assessee has failed to declare true facts in Profit and loss account. Hence, there is escapement of income to the tune of Rs. 14.85 Crore. Reassessment cannot be made merely on the basis of assessment order passed for subsequent year: The issue of escapement has come into light during the scrutiny proceeding for the assessment year 2016-17. Assessee is maintaining two sets of books of account- Primary and secondary. The information available with this office that assessee is making payments to the horse trainers & Jockey on behalf of owners. Even though, assessee is making the payments. Hence, necessary TDS compliance is to be undertaken by assesse but failed to do so. Hence, based on this new information case has been re-opened. Assessee has not disclosed these payments in its Profit and Loss Account. Change of Opinion: Assessee raised objection that reasons stated were mere change of opinion. It is not accepted because, 15 the payments made to horse trainers & Jockeys were not even disclosed by assessee in earlier year. Hence, then assessing officer has not examined this issue. As. assessee has not disclosed these transactions in the P & L account even though payments were made by assessee. All the entries were directly taken to balance sheet Hence, assessee has failed to declare true and correct data in Profit and Loss account. Based on new information, Assessing Officer has rightly re-opened the case. Hence, it is not change of opinion. The issue of notice under Section 148 at the fag end of the limitation period and without copy of reasons recorded is bad in-law: Income-Tax Act 1961 postulates the time limit on the amount of income which has escaped assessment as under: i. lf the income which has escaped assessment is up to Rs. one Lakh, then notice cannot be issued after 4 years from the end of relevant assessment year. ii. If the income which has escaped assessment is more than Rs. One Lakh, then notice cannot be issued after 6 years from the end of relevant assessment year. 16 In view of the same, issuance of notice under section 148 is right and within the ambit of time limit prescribed by the Income Tax Act. 11. The petitioner has filed ROI on 20.12.2012, and the period of six [6] years from the end of the Assessment Year 2012 -13, as contemplated under Section 149 (1)(b) of the IT Act7, ended on 31.03.2019 The second Respondent has issued notice under Section 148 of the IT Act on 29.03.2019 and the petitioner is served with the reasons for re-opening assessment, when requested, is provided on 06.06.2019. The petitioner firstly contends that the 7 The provisions of Section 149 (1) of the IT Act material for the present case, as it stood prior to the Finance Act, 2021. 149. (1) No notice under section 148 shall be issued for the relevant assessment year,— (a) if four years have elapsed from the end of the relevant assessment year, unless the case falls under clause (b) or clause (c)]; (b) if four years, but not more than six years, have elapsed from the end of the relevant assessment year unless the income chargeable to tax which has escaped assessment amounts to or is likely to amount to one lakh rupees or more for that year]. 17 initiation of the re-assessment is barred by limitation because the reasons for initiating re-assessment are furnished beyond the period of six years, and the petitioner secondly contends that the respondents cannot allege that the petitioner, in filing the ROI on 28.09.2012 and Revised ROI on 20.12.2012, has failed to disclose all material facts truly and fully. It is undisputed that if it can be opined that the petitioner had disclosed all material facts truly and fully in filling the ROI and Revised ROI, the initiation of the re- assessment will be bad in law. Therefore, the questions for consideration are: [a] Whether this Court can opine that the initiation of the re-assessment proceedings for the Assessment Year 2012 -13 is time barred because the second respondent has failed to furnish to the petitioner the reasons recorded therefor before 31.03.2019, and 18 [b] Whether this Court can opine that the second respondent has initiated the re- assessment proceedings despite the fact that the petitioner has truly and fully disclosed all material facts when it filed its ROI and Revised ROI for the Assessment year 2012-13 and offered explanations in the proceedings under Section 143 of the IT Act for this Assessment year. 12. Sri. S.S. Naganand, the learned Senior Counsel for the petitioner, submits that the notice is issued on 29.03.2019 without assigning any reason just before the expiry of the outer limit of 6 years on 31.03.2019 and reasons are offered for the first time in the Communication dated 06.06.2019 [after 31.03.2019], and therefore, the notice dated 29.03.2019 is not issued within the time limit prescribed under Section 149(1)(b) of the IT Act. The learned Senior Counsel, in support of the proposition 19 that the notice and reasons should go in hand in hand and must be communicated to the assessee before the limitation prescribed, relies upon the following exposition by the Division Bench of the Delhi Court in Haryana Acrylic Manufacturing Co. v. Commissioner of Income8: “24……The notice under Section 148 was issued on 29.03.2004. The petitioner filed the return and sought reasons by its letter dated 11.05.2004. If the date of filing of the counter-affidavit in this writ petition is taken as the date of communication of the reasons which forms part of the said form, a copy of which is Annexure-A to the counter-affidavit, then the date of supply of reasons, based on this argument, would be 05.11.2007. This immediately makes it clear that the Assessing Officer, who was bound to furnish his reasons within a reasonable time, did not do so. The period which elapsed between 11.05.2004, when the petitioner made the request for 8 2008 SCCOnLine Del 1500 20 communicating the reasons, and 05.11.2007, the date when the counter-affidavit was filed, can certainly not be regarded as a reasonable period of time. In a case, where the notice has been issued within the said period of six years, but the reasons have not been furnished within that period, in our view, any proceedings pursuant thereto would be hit by the bar of limitation inasmuch as the issuance of the notice and the communication and furnishing of reasons go hand-in-hand. The expression \"within a reasonable period of time\" as used by the Supreme Court in GKN Driveshafts (supra) cannot be stretched to such an extent that it extends even beyond the six years stipulated in Section 149….” The underlining is by this Court. 13. However, the reliance on this decision must be examined in the light of the procedure followed in issuing the impugned notice under Section 148 of the IT Act and the decision of the Division Bench of the 21 Andhra Pradesh High Court in GVK Gautami Power Ltd. v. Asst. CIT (OSD)9. This Court has called upon the respondents to produce the original records to ascertain the circumstances in which the impugned notice is issued. The second respondent has placed on two files in No. FORWARDING/DCIT/C-1(1))1)/2022- 23. The following is seen from these files insofar as the proceedings followed prior to the issuance of notice under Section 148 of the IT Act • On 29.03.2019, a communication is addressed to the Principal Commissioner of Income Tax, Bangalore – I, informing that there is a technical error for online submission and as the matter could be time barred, manual approval as required under Section 151 of the IT Act may be granted. • A Proposal Proforma is appended to this Communication dated 29.03.2019. This Proposal Proforma, as regards the details of information collected/ received by the AO, 9 2011 SCC OnLine AP 945 22 there is a reference to the scrutiny proceedings for the Assessment Year 2016- 17, and as regards the analysis of the information, the following is observed. • the payments made to the horse trainers and jockeys is not brought into the Profit and Loss account, • the petitioner has not deducted TDS for the services offered by these horse trainers and jockeys would be professional services, • the petitioner maintains primary and secondary accounts with only 12.5% of the gross collection taken as net revenue in the secondary accounts. • On receipt of this Communication, both the Additional Commissioner of Income Tax and the Principal Commissioner of Income Tax, Bengaluru – 1, on 29.03.2019, have recorded satisfaction for re-assessment of the proceedings. 14. The Division Bench of the Andhra Pradesh, in GVK Gautami Power Ltd. v. Asst. CIT (OSD) supra disagreeing with the aforesaid decision of the Delhi High Court, has observed thus: 23 We respectfully disagree with the opinion expressed by the Delhi High Court in Haryana Acrylic. Section 148(2) of the Act merely requires the assessing officer, before issuing notice under Section 148(1), to record his reasons for doing so. If reasons are recorded, the requirement of Section 148(2) must be held to have been complied with. Further the time limit for issuing a notice under Section 148, in cases where the income which has escaped assessment is more than one lakh rupees, is six years under Section 149(1)(b) of the Act. The limitation prescribed therein is merely for issuance of notice under Section 148, and not for passing a re-assessment order. The judgment of the Delhi High Court, in Haryana Acrylic, runs contrary to the plain language of Section 147, 148 and 149 of the Act. The Supreme Court, in GNK Driveshafts (India) Ltd, did not hold that the period of limitation should be reckoned on the date of communication of reasons by the ITO. The observations of the Delhi High Court, in Haryana Acrylic, are contended to be a logical consequence of the law laid down in GKN Driveshafts (India) Ltd. Observations of Courts are neither to be read as Euclids theorems nor as provisions of a statute, and that too taken out of their context.” 24 15. As per this decision what is crucial is reasons for initiating re-assessment must be assigned, and it cannot be that the reasons for initiating the proceedings must also be informed within the limitation period. The Supreme Court in GKN Driveshafts (India) Ltd. v. ITO10 has held thus ……… However, we clarify that when a notice under Section 148 of the Income Tax Act is issued, the proper course of action for the noticee is to file return and if he so desires, to seek reasons for issuing notices. The assessing officer is bound to furnish reasons within a reasonable time. On receipt of reasons, the noticee is entitled to file objections to issuance of notice and the assessing officer is bound to dispose of the same by passing a speaking order. In the instant case, as the reasons have been disclosed in these proceedings, the assessing officer has to dispose of the objections, if filed, by passing a speaking order, before proceeding with the 10 (2003) 1 SCC 72 25 assessment in respect of the abovesaid five assessment years. 16. The Supreme Court has thus stipulated that the Assessing Officer is bound to furnish the reasons if the Assessee is desirous of knowing the reasons for re- assessment with the assessee being entitled to file objections and the Assessing Officer being bound to consider the objections by a reasoned order. However, as observed by the Division Bench of the Andhra Pradesh in GVK Gautami Power Ltd. v. Asst. CIT (OSD) [supra], the Supreme Court has not stipulated that the notice and the reasons for the notice must also be issued within the stipulated period. The issuance of the notice under Section 148 of the Act could lead to the request for reasons and the adjudication on the objections, if any, to the reasons for re-assessment. 17. If it is to be canvassed that the reasons for the re-assessment must be furnished within the 26 stipulated time, despite the provisions of the IT Act and decision in GKN Driveshafts (India) Ltd. v. ITO [supra] being silent about the same, it could also be canvassed that theadjudication on the objection to the reasons must also be within this time line. If the conditions for exercise of the jurisdiction to initiate re- assessment are added to be complied within the time limit for issuance of notice, the power vested to exercise such jurisdiction will be shackled. 18. This Court, therefore, is of the considered view that it cannot be reasonably opined that the reasons for the re-assessment had to be furnished within the period of six [6] years, and in any event, as seen from the original file, the reasons are recorded for re-assessment before issuance of notice. As such, the submissions by Sri Y V Raviraj on behalf of the respondents on this ground must be accepted, but then, there can be reassessment during the period 27 between four and six years from the end of the relevant assessment year11 only if income chargeable to tax has escaped either by reason of: [i] the failure on the part of the assessee to make a return under section 139 or in 11 The provisions of Section 147 of the IT Act, as it read before the Finance Act, 2021: “Income escaping assessment. Section 147. If the Assessing Officer has reason to believe that any income chargeable to tax has escaped assessment for any assessment year, he may, subject to the provisions of sections 148 to 153, assess or reassess such income and also any other income chargeable to tax which has escaped assessment and which comes to his notice subsequently in the course of the proceedings under this section, or recompute the loss or the depreciation allowance or any other allowance, as the case may be, for the assessment year concerned (hereafter in this section and in sections 148 to 153 referred to as the relevant assessment year) : Provided that where an assessment under sub- section (3) of section 143 or this section has been made for the relevant assessment year, no action shall be taken under this section after the expiry of four years from the end of the relevant assessment year, unless any income chargeable to tax has escaped assessment for such assessment year by reason of the failure on the part of the assessee to make a return under section 139 or in response to a notice issued under sub-section (1) of section 142 or section 148 or to disclose fully and truly all material facts necessary for his assessment, for that assessment year:” 28 response to a notice issued under sub- section (1) of section 142 or section 148 or [ii] the failure to disclose fully and truly all material facts necessary for his assessment. 19. This takes this Court to the second question. Sri S S Naganand submits that the petitioner has adequately complied with all requests for information and documents throughout the various stages of assessment proceedings for the Assessment Year 2012- 13, and the learned Senior Counsel, relying upon the following circumstances, contends that there cannot be any allegation of failure to disclose fully and truly all material facts,: A) During assessment proceedings, the petitioner submitted all details, evidence and material called for by the assessing officer. The petitioner has furnished the annual audited accounts, tax audit report,. Form 3CD, and reply to each query raised by the AO. 29 B) In the fourth paragraph of the order dated 27.03.2015 under Section 143(3) of the IT Act it is stated that the petitioner appeared from time to time and furnished the details called for in the said notices. C) At para 612 of the Order dated 27.03.2015, it is stated that the assessment is concluded after verifying the books of account. 20. Sri. S S Naganand, relying upon the Note 6 to the Financial Statements that is part of the Annual Report [Annexure A], submits that the liabilities to the owners are disclosed, and that when the petitioner is called upon to answer questionnaire, it is stated that the petitioner maintains Primary and Secondary books and the financials are prepared as per the Primary Books explaining that it has disbursed stake money and cups amount to the horse owners. The learned Senior 12 The observation in this regard read as under: “6. After discussion with the assessee’s authorized representative and after verifying the books of account, etc., the assessment is concluded as under:….. 30 Counsel further submits that thus there is full and true disclosure and that the petitioner has not claimed any expenditure, relies upon the following paragraph from the decision of a Division Bench of Allahabad High Court in Modi Spinning Mills and Weaving Mills v. Income Tax Officer13: \"These observations made by the Supreme Court clearly make out that while an assessee is not bound to disclose any information other than that what is required to be mentioned in by him in various columns of a prescribed form or return or which he is bound under the provisions of the Act to furnish even though that fact may otherwise be relevant for the purposes of his assessment. Merely because such information has not been furnished in the return it would not mean that the assessee had failed or omitted to disclose fully and truly all material facts necessary for his assessment. As stated, the obligation for 13 1974 SCC OnLine All 422 31 supplying such other information could arise only if the Income-tax Officer had required the assessee to furnish information in connection with the amount of depreciation on the written-down value of his machinery and plant.\" 21. This Court must refer to the following from the decision of the Division Bench of the Bombay High Court in SBI v. Vineet Agrawal, Asst. CIT14 The expressions \"reason to believe\" and \"failure on the part of the assessee to disclose fully and truly all material facts\" have been subjected to numerous judicial pronouncements, and it is not necessary to burden this judgment by making reference to the long line of judicial precedents. Suffice it to say that there must be a live link between the reasons recorded and formation of the belief that income chargeable to tax has escaped assessment because of failure on the part of the assessee to disclose fully and truly all material facts necessary for assessment which must not be fanciful or based on 14 2020 SCC OnLine Bom 943 32 suspicion. Both the conditions must co-exist in order to confer jurisdiction on the Assessing Officer. Of course, the assessee is required to make a true and full disclosure of the primary facts at the time of the original assessment. Production before the Assessing Officer books of account or other materials from which the required evidence with due diligence could have been discovered by the Assessing Officer would not necessarily amount to disclosure contemplated by law. But the duty of the assessee in any case does not extend beyond making a true and full disclosure of primary facts. Once he has done that, his duty ends. It is for the Assessing Officer to draw the correct inference from the primary facts. Once such an inference is drawn which may appear subsequently to be erroneous that could not be a basis for initiation of action for reopening assessment as it would amount to change of opinion and change of opinion cannot be a ground for reopening concluded assessment. [underlying is by this Court] 22. This Court, as the above propositions cannot be disputed, must, in answering the second question 33 framed, must examine whether in the facts and circumstances of the case it could reasonably be opined that the petitioner has failed to make a true and full disclosure of primary facts and whether there is a live link between this failure, if there is, and the reasons recorded for initiation of the re-assessment proceedings. In the present facts the following are seen: 23. The petitioner, after the revised ROI is filed, is issued with the questionnaire to answer, amongst others, on the details of the TDS deducted and omission in TDS provisions. The petitioner, responding to this question, on 22.12.2014, has categorically stated that no deductions are made towards TDS and there is no omission in this regard. Further, during the personal hearing, as recorded in the AO’s order dated 27.03.2015, the petitioner’s Chartered Accountant has explained inter alia that the petitioner maintains two 34 Books of Accounts and the financials are prepared as per the primary books command and that insofar as the revenue, he has explained that stake money and cups amounting to Rs.34,15,30,436/- is paid to the horse owners. It is undisputed that this amount of Rs.34,15,30,436/- includes the amount debited by the petitioner on the horse owner’s instructions to the Horse Trainers and Jockeys. 24. The AO, considering these explanations and after examining the Books of Accounts, by the Order dated 27.03.2015 has disallowed the said amount under Section 40(a)(ia) of the IT Act. However, the petitioners appeal with the ITAT as against the AO’s Order and the Commissioner’s order in first appeal, is allowed with the ITAT opining that the stake money paid by the petitioner to the horse owners is not liable to TDS under Section 194B or Section 194 BB of the IT Act and consequentially, the disallowance made is set- 35 aside. It follows from these circumstances that the petitioner has disclosed the primary facts i.e., the receipt on behalf of the horse -owners and the debits affected on their instructions disclosing that the financials are prepared from the primary accounts and without claiming any expenditure in the regard. As such, there cannot be any allegation of failure to truly and fully disclose material facts. 25. The second respondent despite the above circumstances, has offered the following as the reason for the initiation of the re-assessment proceedings: As discussed above, it is confirmed that assessee had not declared gross revenue in profit & Loss account but only 12.5% of gross collection as its revenue. The payments made to trainers jockeys ..etc were directly setoff with owners accounts without passing through Profit & loss account. Assesses had failed to comply with the TDS provision. It is confirmed that assessee has not disclosed full & truly all material facts in the return, of 36 income . Hence, I have reason to believe that there is escapement of income .approximately of Rs.14.85Cr within the meaning of section 147. The second respondent, while deciding on the petitioner’s objections to the reasons offered to initiate re-assessment, has overlooked that the question of failure to deduct TDS for the amounts paid as Stake Money and the amounts deducted from the Stake Money on the instructions of the horse-owners to the credit of the horse-trainers and jockeys was examined after scrutiny of the petitioner’s book while considering disallowing these amounts under Section 40(a)(ia) of the IT Act. In the light of the above, this Court must opine that there was no failure on the petitioner’s part to disclose primary facts and the reasons for re- assessment are recorded arbitrarily without considering all the circumstances. Hence, the second question framed is answered in favour of the petitioner holding 37 that the re-assessment that is initiated after four years on the ground that there is failure to disclose primary facts is barred in law. Therefore, the following ORDER The petition is allowed quashing [a] Notice dated 29.03.2019 in No. ITBA/A/COM/F/17/2018- 19/ 1015536697 (1) - Annexure-G, [b] the Notice dated 31.05.2019 in ITBA/AST/S/143(2) 3/2019- 20/1016195141(1) -Annexure-J, (c] the second respondent’s order dated 15.11.2019 in No. ITBA/AST /F/17/20.19-20/1020516969(1) - Annexure-M, and [d] the consequential Notice dated 15.11.2019 in No. ITBA/AST/F/142/2019-20/1020525585(1) - Annexure-N. SD/- JUDGE SA* "