M/s. CALYON BANK, MUMBAI V. DDIT (I.T) - 1(2), MUMBAI

ITA 5145/MUM/2006

• Counselvise Citation: [2012] 119 COUNSELVISE.COM (IT) 8915 (ITAT-MUMBAI)
• Duration Of Justice: 5 year(s) 11 month(s) 22 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-09-2012
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: L
• Next Hearing Date: 03-09-2012
• Assessment Year: 1997-1998
• Appeal Filed On: 29-09-2006
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Reopening of assessment; Business income; Deemed to accrue or arise in india; Question of law; Difference of opinion; Reason to believe; Change of opinion
• Section: 143(3); 80HHC; 148; 139

Judgement Text

, , , , IN THE INCOME TAX APPELLATE TRIBUNAL L BENCH, MUMBAI . . , , !' !' !' !' , ,, , # # # # $ $ $ $ BEFORE SHRI R.S. SYAL, ACCOUNTANT MEMBER AND SHRI AMIT SHUKLA, JUDICIAL MEMBER . / ITA NO. 5145/MUM./2006 ( #& ' (' / ASSESSMENT YEAR : 199798 ) CALYON BANK (FORMERLY CREDIT AGRICOLE INDOSUEZ) HOECHST HOUSE, 11 TH , 12 TH & 14 TH FLOORS NARIMAN POINT, MUMBAI 400 021 .. )* / APPELLANT & V/S DY. DIRECTOR OF INCOME TAX (I.T) CIRCLE1(2), SCINDIA HOUSE BALLARD ESTATE, MUMBAI 400 038 .... +,)* / RESPONDENT ) . / PERMANENT ACCOUNT NUMBER AACCC3872B . / ITA NO. 5030/MUM./2006 ( #& ' (' / ASSESSMENT YEAR : 199798 ) ASSTT. DIRECTOR OF INCOME TAX (I.T) CIRCLE1(2), SCINDIA HOUSE, BALLARD PIER MUMBAI 400 038 .. )* / APPELLANT & V/S CALYON BANK (FORMERLY CREDIT AGRICOLE INDOSUEZ) HOECHST HOUSE, 11 TH , 12 TH & 14 TH FLOORS NARIMAN POINT, MUMBAI 400 021 .... +,)* / RESPONDENT ) . / PERMANENT ACCOUNT NUMBER AACCC3872B CALYON BANK 2 . / ITA NO. 4294/MUM./2005 ( #& ' (' / ASSESSMENT YEAR : 199394 ) CALYON BANK (FORMERLY CREDIT AGRICOLE INDOSUEZ) HOECHST HOUSE, 11 TH , 12 TH & 14 TH FLOORS NARIMAN POINT, MUMBAI 400 021 .. )* / APPELLANT & V/S DY. DIRECTOR OF INCOME TAX (I.T) CIRCLE1(2), SCINDIA HOUSE, BALLARD PIER MUMBAI 400 038 .... +,)* / RESPONDENT ) . / PERMANENT ACCOUNT NUMBER AACCC3872B #& '. / 0 / ASSESSEE BY : MR. P.J. PARDIWALA A/W MR. MADHUR AGARWAL 1 / 0 / REVENUE BY : MR. MAHESH KUMAR & / / DATE OF HEARING 05.09.2012 ! 23( / / DATE OF ORDER 21.09.2012 ! ! ! ! / ORDER !' !' !' !' , ,, , # # # # 4 4 4 4 / PER AMIT SHUKLA, J.M. FOR THE ASSESSMENT YEAR 199798, CROSS APPEALS HAVE BEEN FILED AGAINST THE IMPUGNED ORDER DATED 26 TH JUNE 2006, PASSED BY THE LEARNED COMMISSIONER (APPEALS)XXXI, MUMBAI, FOR THE QUANTU M OF ASSESSMENT UNDER SECTION 143(3) R/W 147 OF THE INCOME TAX ACT, 1961 (FOR SHORT THE ACT). FOR THE ASSESSMENT YEAR 199394, THE ASSESSE E HAS PREFERRED THE APPEAL WHICH IS DIRECTED AGAINST THE IMPUGNED ORDER DATED 4 TH MARCH 2005, PASSED BY THE LEARNED COMMISSIONER (APPEALS)XXXI, FOR THE QUANTUM OF ASSESSMENT UNDER SECTION 143(3) R/W 147 OF THE ACT. SINCE COMMON ISSUES WERE INVOLVED AND WERE HEARD TOGETHER, THEREFORE, A S A MATTER OF CONVENIENCE, ALL THESE APPEALS ARE BEING DISPOSED O FF BY WAY OF THIS CONSOLIDATED ORDER. CALYON BANK 3 2. WE FIRST TAKE UP THE PRELIMINARY AND LEGAL ISSUE, C OMMON IN BOTH THE ASSESSMENT YEARS, WHICH RELATES TO THE VALIDITY OF RE-OPENING UNDER SECTION 147 OF THE ACT. 3. BRIEFLY STATED, THE FACTS OF THE CASE IN THE CROSS APPEALS RELATING TO ASSESSMENT YEAR 199798, ARE THAT THE ASSESSEE IS A NON-RESIDENT BANKING COMPANY, DOMICILE IN FRANCE. FOR THE ASSESSMENT YEA R 1997-98, RETURN OF INCOME, UNDER SECTION 139 OF THE ACT, WAS FILED ON 26 TH NOVEMBER 1997, AT AN INCOME OF ` 14,16,46,210, AS PER THE COMPUTATION OF INCOME FIL ED ALONG WITH THE RETURN OF INCOME. THE SAID RETURN OF INCOM E WAS SUBJECTED TO SCRUTINY BY ISSUANCE OF NOTICE UNDER SECTION 143(2) AND AS AGAINST THE RETURN OF INCOME AS SHOWN ABOVE, THE ASSESSMENT WAS COMPLE TED AT AN INCOME OF ` 26,59,01,147, VIDE ORDER DATED 31 ST JANUARY 2000, PASSED UNDER SECTION 143(3). SUBSEQUENTLY, AFTER THE EXPIRY OF FOUR YEAR S FROM THE END OF THE RELEVANT ASSESSMENT YEAR, A NOTICE UNDER SECTION 14 8, WAS ISSUED ON 31 ST MARCH 2004, FOR RE-OPENING THE SAID ASSESSMENT. THE REASONS RECORDED FOR RE-OPENING THE CASE UNDER SECTION 147, WERE AS UNDE R. FACTUAL POSITION 1. IN THE RETURN OF INCOME FILED BY THE ASSESSEE FO R THE ABOVE ASSESSMENT YEAR, ASSESSEE CLAIMED INTEREST EARNED F ROM H.O. AND BRANCHES OF ` 26,46,802, AS EXEMPT FROM TAX AND REDUCED THE SAME FROM TAXABLE INCOME. 2. IN THE SCRUTINY ASSESSMENT COMPLETED UNDER SECTI ON 143(3) ON 22.12.1995, THE ABOVE REDUCTION WAS ALLOWED WITHOUT EXAMINING THE ISSUE INVOLVED AND FACTS OF THE CASE, THE ASSESSEE IS A FOREIGN BANKING COMPANY HAVING INDIAN OPERATION AND WHAT IS TAXABLE IN INDIA IS THE INCOME OF INDIAN OPERATIONS. THEREFORE, THE HEAD OF FICE OF THE FOREIGN BANK AND INDIAN OPERATIONS ARE SEPARATE ENTITIES AS FAR AS TAXATION IN INDIA IS CONCERNED. IN ASSESSMENT PROCEEDINGS FOR A .Y. 199899, THIS ISSUE WAS EXAMINED IN DETAIL AND IT WAS FOUND THAT BANKS INDIAN OPERATION IS RECEIVING INTEREST ON FUNDS PLACED BY IT WITH HEAD OFFICE AND FOREIGN BRANCHES. THE FUNDS PLACED WITH H.O. AN D BRANCHES IS THE BUSINESS FUND OF INDIAN P.E. (OPERATIONS) OF FOREIG N BANK. THE SAID INTEREST INCOME IS SQUARELY COVERED UNDER SECTION 9 (1)(A) OF INCOME TAX ACT AS BUSINESS INCOME OF INDIAN OPERATIONS. EV EN IN DTA, INCOME FROM BUSINESS OPERATIONS IN INDIA IS TAXABLE IN IND IA, THEREFORE, INTEREST INCOME RECEIVED FROM H.O. AND FOREIGN BRAN CHES IS DEFINITELY LIABLE FOR TAXATION IN INDIA. EVEN ASSESSEE HAS CLA IMED INTEREST COST AGAINST PLACING SUCH DEPOSITS WITH H.O. IT IS ALSO LOGICAL THAT WHERE EXPENSES ARE CLAIMED, INCOME HAS TO BE OFFERED FOR TAXATION. ASSESSEE TOOK THE PLEA IN A.Y. 199899 THAT BOTH FOREIGN ENT ITY AND INDIAN CALYON BANK 4 OPERATIONS ARE SAME AND, THEREFORE, ONE CANNOT CHAR GE INTEREST FROM ONESELF. THIS IS ABSOLUTELY WRONG AND MISPLACED SIN CE WHAT IS TAXED IN INDIA IS ONLY THE INCOME EARNED BY INDIAN PE AND NO THING MORE THAN THIS. FOR THIS PURPOSE INDIA PE AND FOREIGN H.O. AR E TWO SEPARATE ENTITIES AND PAYMENT TO EACH OTHER CANNOT BE SAID A S PAYMENTS MADE TO SELF CONSIDERING THESE FACT, IT IS CLEAR THAT AS SESSEE HAS WRONGLY REDUCED THE INCOME EARNED FROM H.O. / BRANCHES ON D EPOSITS PLACED BY IT BY NOT DISCLOSING MATERIAL FACTS REGARDING TH E TAXABILITY OF THE SAME AND ALSO THE COST RELATING TO SAME CLAIMED BY INDIA BRANCHES. COMPLIANCE OF LEGAL REQUIREMENTS FOR REOPENING ASSE SSMENT : 3. IN VIEW OF THE PARA2 ABOVE, THE ASSESSEE WAS AL LOWED DEDUCTION FOR INTEREST RECEIVED FROM H.O. AND BRANC HES ` 26,48,802. AS PER SECTION 147 OF THE I.T. ACT, FOR REOPENING T HE ASSESSMENT, ASSESSING OFFICER SHOULD HAVE REASON TO BELIEVE THA T ANY INCOME CHARGEABLE TO TAX HAS ESCAPED ASSESSMENT. IN VIEW O F THE FACTUAL AND LEGAL POSITION MENTIONED IN EARLIER PARAS, I HAVE S TRONG REASONS TO BELIEVE THAT SUBSTANTIAL INCOME CHARGEABLE TO TAX H AS ESCAPED ASSESSMENT. AS PER EXPLANATION 2 TO SECTION 147, IF INCOME HAS BEEN MADE THE SUBJECT OF EXCESSIVE RELIEF UNDER THIS ACT , THE SAME WILL BE DEEMED TO BE THE CASE WHERE INCOME CHARGEABLE TO TA X HAS ESCAPED ASSESSMENT. THIS IS AS PER EXPLANATION 2(C) TO SECT ION 147. THIS IS MUCH MORE THAN THE LIMITS MENTIONED IN SECTION 149. THE REOPENING OF ASSESSMENT WILL BE WITHIN 10 YEARS FROM THE END OF ASSESSMENT YEAR TILL 31 ST MAY 2001. ANOTHER REQUIREMENT FOR REOPENING OF AS SESSMENT AFTER 4 YEARS IS THAT THE ESCAPEMENT OF INCOME SHOU LD BE BY REASON OF THE FAILURE ON THE PART OF ASSESSEE TO DISCLOSE FUL LY AND TRULY ALL MATERIAL FACTS NECESSARY FOR HIS ASSESSMENT FOR THA T ASSESSMENT YEAR. AS DISCUSSED IN EARLIER PARAS, THE DETAILS OF SOURC E OF DEPOSIT, CLAIM OF EXPENSES RELATING TO THE SAID DEPOSITS AND THE PROV ISION UNDER WHICH SUCH INCOME IS EXEMPT, WHICH IS MATERIAL TO DECIDE THE EXEMPTION LEGALLY ALLOWABLE, WERE NEVER FURNISHED. ON ACCOUNT OF ASSESSEES NON SUBMISSION / DISCLOSURE OF MATERIAL FACTS FULLY AND TRULY INCOME HAS ESCAPED ASSESSMENT. IN VIEW OF THE ABOVE DISCUSSION THE STATUTORY REQU IREMENT FOR REOPENING OF ASSESSMENT HAVE BEEN FULLY MET AND THE REOPENING OF ASSESSMENT IS ESSENTIAL AND LEGALLY PERMISSIBLE. 4. LEARNED SR. ADVOCATE, MR. P.J. PARDIWALA, APPEARING ON BEHALF OF THE ASSESSEE SUBMITTED THAT THE ASSESSING OFFICER HAS S OUGHT TO RE-OPEN THE CASE ON THE GROUND THAT COMMISSION AND INTEREST PAI D TO BRANCHES AND COMMISSION RECEIVED FROM BRANCHES HAVE NOT BEEN OFF ERED FOR TAX AND, THEREFORE, THE SAME HAS BEEN ALLEGED TO HAVE ESCAPE D ASSESSMENT. IN THE LIGHT OF THIS, HE DREW OUR ATTENTION TO A COPY OF COMPUTATION OF INCOME PLACED AT PAGES-1 AND 2 OF THE PAPER BOOK WHICH WAS FILED ALONG WITH THE RETURN OF INCOME AND SUBMITTED THAT THE ASSESSEE HA S NEITHER CLAIMED THE COMMISSION OR INTEREST AS INCOME NOR AS EXPENDITURE WHICH IS EVIDENT CALYON BANK 5 FROM THE FACT THAT THE ASSESSEE HAS STARTED THE COM PUTATION AS PER PROFIT & LOSS ACCOUNT AND THEREBY ADDED BACK THE COMMISSION AND INTEREST PAID TO THE BRANCHES. HE FURTHER POINTED OUT THAT THE INTER EST RECEIVED ON NOSTRO ACCOUNT AND FROM CORRESPONDENT BRANCHES, THE ASSESS ING OFFICER HAS RAISED A SPECIFIC QUERY AT THE TIME OF ORIGINAL ASSESSMENT P ROCEEDINGS, (A COPY OF WHICH IS PLACED IN THE PAPER BOOK AT PAGE-4), AND I N RESPONSE TO WHICH THE ASSESSEE SUBMITTED A REPLY VIDE LETTER DATED 25 TH NOVEMBER 1999, AND GAVE DETAIL SUBMISSION BEFORE THE ASSESSING OFFICER, WHI CH HAS BEEN DULY TAKEN INTO CONGNIZANCE. THE ASSESSING OFFICER, AFTER SCRU TINIZING, EACH AND EVERY DETAIL OF COMPUTATION OF INCOME HAS COMPLETED THE A SSESSMENT. HE FURTHER DREW OUR ATTENTION TO PAGE-22 OF THE PAPER BOOK, WH ICH IS THE COMPUTATION MADE BY THE ASSESSING OFFICER IN THE ASSESSMENT ORD ER AND SHOWED THAT THE ASSESSING OFFICER HAS DULY CONSIDERED THE SAME. AS REGARDS SUM OF ` 3,86,797, ON ACCOUNT OF COMMISSION RECEIVED FROM BR ANCHES, HE SUBMITTED THAT THE SAME ALREADY STOOD ASSESSED, AS THE ASSESS ING OFFICER PROCEEDED FROM COMPUTATION GIVEN AS PER THE PROFIT & LOSS ACC OUNT AND THEREBY DID NOT DEDUCT THE SAID AMOUNT, WHICH, INTER-ALIA, MEANS TH AT THE SAME HAS BEEN ASSESSED AS INCOME. REGARDING OTHER ITEMS, HE SUBMI TTED THAT NOT ONLY THESE WERE DISCLOSED BY THE ASSESSEE, BUT THE SAME HAS BE EN DULY CONSIDERED BY THE ASSESSING OFFICER, THEREFORE, THERE WAS NO FAIL URE ON THE PART OF THE ASSESSEE TO DISCLOSE FULLY AND TRULY ALL MATERIAL F ACTS ON THESE ISSUES EITHER IN THE RETURN OF INCOME OR AT THE TIME OF THE ASSESSME NT. THE RE-OPENING UNDER SECTION 147, IN THE PRESENT CASE, IS THUS HIT BY PROVISO TO SECTION 147, WHICH PROVIDES THAT NO ACTION CAN BE TAKEN UNDER SECTION 147, AFTER THE EXPIRY OF FOUR YEARS FROM THE END OF THE RELEVANT ASSESSMENT YEAR, UNLESS ANY INCOME CHARGEABLE TO TAX HAS ESCAPED ASSESSMENT ON ACCOUNT OF FAILURE TO DISCLOSE FULLY AND TRULY ALL MATERIAL FACTS . 5. MR. PARDIWALA, FURTHER SUBMITTED THAT FROM THE PLAI N READING OF THE REASONS RECORDED AND ON THE FACTS OF THE IT CANNOT BE HELD OR INFER RED THAT THERE WAS ANY FAILURE ON THE PART OF THE ASSESSEE T O DISCLOSE ALL THE MATERIAL FACTS NECESSARY FOR THE ASSESSMENT. THUS, THE ENTIR E RE-OPENING IS INVALID AND THE PROCEEDINGS UNDER SECTION 147, AS HAVE BEEN INITIATED VIDE NOTICE DATED 31 ST MARCH 2004, SHOULD BE QUASHED. HE FURTHER SUBMITTE D THAT FROM CALYON BANK 6 THE REASONS RECORDED , IT CAN BE SAFELY INFERRED THAT THERE WAS NEITHER ANY REASON TO BELIEVE BY THE ASSESSING OFFICER THAT INCOME CHARGEABLE TO TAX HAS ESCAPED ASSESSMENT, NOR THERE WAS ANY FAILURE ON THE PART OF THE ASSESSEE TO DISCLOSE FULLY AND TRULY ALL MATERIAL F ACTS AND, LASTLY, SUCH A RE- OPENING AMOUNTS TO CHANGE OF OPINION , WHICH IS NOT PERMISSIBLE IN LAW. 6. LEARNED DEPARTMENTAL REPRESENTATIVE, ON THE OTHER H AND, SUBMITTED THAT THE ASSESSING OFFICER, DURING THE COURSE OF AS SESSMENT PROCEEDINGS, HAS NOT EXAMINED THE TDS ON PAYMENT OF COMMISSION AND I NTEREST. THERE WAS ALSO FAILURE ON THE PART OF THE ASSESSEE, AS IT WAS NOT STATED BY THE ASSESSEE ANYWHERE AS TO WHY THE ADJUSTMENTS WAS DONE AND WHE THER THE TAX WAS TO BE DEDUCTED OR NOT. NOTHING HAS BEEN MENTIONED EITH ER IN THE RETURN OF INCOME OR HAS BEEN EXAMINED BY THE ASSESSING OFFICE R. HE STRONGLY RELIED UPON THE FINDINGS GIVEN BY THE COMMISSIONER (APPEAL S), AS GIVEN IN PARA-2.4 OF THE APPELLATE ORDER AND DREW OUR ATTENTION TO VA RIOUS REASONING AND THE FINDINGS GIVEN BY THE COMMISSIONER (APPEALS) ON THI S SCORE. 7. WE HAVE CAREFULLY CONSIDERED THE RIVAL CONTENTIONS OF THE PARTIES, PERUSED THE FINDINGS OF THE AUTHORITIES BELOW AND T HE MATERIAL PLACED ON RECORD. ON PERUSAL OF THE COMPUTATION OF INCOME FIL ED ALONG WITH THE RETURN OF INCOME, IT IS SEEN THAT THE ASSESSEE HAS GIVEN A LL THE PRIMARY FACTS RELATING TO COMMISSION AND INTEREST PAID TO THE BRA NCHES / CORRESPONDENTS AND ALSO OTHER MATERIAL FACTS WITH REGARD TO THESE ITEMS APPEARING IN THE REASONS RECORDED . IT IS NOTICED THAT ON THE ISSUE OF COMMISSION OF ` 3,86,797, RECEIVED FROM THE BRANCHES, THE LEARNED C OMMISSIONER (APPEALS) HAS HELD THAT THE ASSESSING OFFICER WAS NOT JUSTIFI ED THAT THIS INCOME HAS ESCAPED ASSESSMENT, HOWEVER, WITH REGARD TO PAYMENT OF ` 18,93,305, BY WAY OF COMMISSION TO VARIOUS OTHER BRANCHES AND COR RESPONDENTS ALONG WITH THE SUM OF ` 2,57,312, BY WAY OF INTEREST TO OVERSEAS BRANCHES AND CORRESPONDENT, HE HAS HELD THAT THE ASSESSING OFFIC ER WAS JUSTIFIED IN ENTERTAINING THE REASONS TO BELIEVE ON THESE ISSUES THAT INCOME CHARGEABLE TO TAX HAS ESCAPED ASSESSMENT. FROM THE PERUSAL OF THE ORDER PASSED BY THE COMMISSIONER (APPEALS), IT IS SEEN THAT HE HAS NOT REFERRED TO THE PROVISO TO SECTION 147, WHICH PUTS A LIMITATION OF FOUR YEARS IN THE CASE WHERE CALYON BANK 7 ASSESSMENT HAS BEEN COMPLETED UNDER SECTION 143(3), OR THERE WAS ANY FAILURE ON THE PART OF THE ASSESSEE TO DISCLOSE THE FACTS ON THESE ISSUES. 8. IT IS A SETTLED POSITION OF LAW THAT THE CONDITIONS LAID DOWN UNDER SECTION 147, FOR THE PURPOSE OF RE-OPENING OF ASSES SMENT, MUST BE SATISFIED BEFORE A NOTICE UNDER SECTION 148, IS ISSUED, AS TH ESE CONDITIONS ARE THE JURISDICTIONAL FACTS NECESSARY TO ACQUIRE THE JURIS DICTION BY THE ASSESSING OFFICER TO RE-OPEN A CASE. IF THE BASIC JURISDICTIO NAL FACTS REQUIRE FOR RE- OPENING THE CASE UNDER SECTION 147, DO NOT EXIST, A NY PROCEEDINGS INITIATED BY NOTICE UNDER SECTION 148, BECOMES VOID AB INITIO . THE FIRST AND FOREMOST CONDITION IS THAT THE ASSESSING OFFICER MUST HAVE REASON TO BELIEVE THAT ANY INCOME CHARGEABLE TO TAX HAS ESCAPED ASSESSMENT FOR ANY ASSESSMENT YEAR AND THIS BELIEF MUST NOT BE ARBITRARY OR IRRAT IONAL, BUT MUST BE HELD IN GOOD FAITH AND THERE HAS TO BE RATIONAL COMMUNICATI ON CONNECTION ON OF RELEVANT BEARING ON THE FORMULATION OF BELIEF BY TH E ASSESSING OFFICER. NOT ONLY THIS, THE INFORMATION OR MATERIAL ON THE BASIS OF WHICH THE ASSESSING OFFICER SEEKS TO RE-OPEN THE CASE MUST HAVE A DIREC T AND LIVE LINK NEXUS WITH THE INCOME ESCAPING ASSESSMENT. ONCE THIS VITAL CON DITION STANDS FULFILLED, THE FIRST PROVISO CARVES OUT FURTHER LIMITATION THAT IN THE CASES WH ERE THE ASSESSMENT HAVE BEEN COMPLETED UNDER SECTION 143(3) OR UNDER SECTION 147, NO ACTION CAN BE TAKEN AFTER THE EXPIRY OF FOU R YEARS FROM THE END OF THE RELEVANT ASSESSMENT YEAR, UNLESS TWIN CONDITION S ARE SATISFIED, FIRSTLY, ANY INCOME CHARGEABLE TO TAX HAS ESCAPED ASSESSMENT FOR SUCH ASSESSMENT YEAR BY REASON OF THE FAILURE ON THE PART OF THE AS SESSEE TO MAKE A RETURN UNDER SECTION 139 OR IN RESPONSE TO A NOTICE ISSUED UNDER SUB SECTION 1 OF SECTION 142 OR SECTION 148 AND SECONDLY, THERE IS F AILURE ON THE PART OF THE ASSESSEE TO DISCLOSE FULLY AND TRULY ALL MATERIALS FACTS NECESSARY FOR THE ASSESSMENT, FOR THAT ASSESSMENT YEAR. ADVERTING TO THE INSTANT CASE, THE FIRST CONDITION GIVEN IN THE PROVISO IS ADMITTEDLY NOT AP PLICABLE AS THE ASSESSEE HAS DULY FILED ITS RETURN OF INCOME UNDER SECTION 1 39. SO FAR AS THE SECOND CONDITION WHETHER THERE WAS ANY FAILURE ON THE PART OF THE ASSESSEE TO DISCLOSE FULLY AND TRULY ALL MATERIALS FACTS OR NOT , ONE HAS TO SEE FROM THE REASONS RECORDED ITSELF. FROM THE PERUSAL OF THE REASONS RECORDED , AS HAVE BEEN INCORPORATED IN FOREGOING PARAGRAPH, IT I S AMPLY EVIDENT THAT THE CALYON BANK 8 ASSESSING OFFICER HAS NOWHERE RECORDED HIS SATISFAC TION THAT THERE WAS FAILURE ON THE PART OF THE ASSESSEE TO DISCLOSE FULLY AND T RULY ALL MATERIAL FACTS RELEVANT FOR THE ASSESSMENT. SUCH AN ASSIGNMENT OF FAILURE IN THE REASONS RECORDED IS MANDATORY TO ACQUIRE THE JURISDICTION UNDER SECTION 147. IT CANNOT BE INFERRED FROM ANYWHERE ELSE OR ANY OTHER DOCUMENT. THE REASONS RECORDED MUST DISCLOSE THAT THE ASSESSEE HAS FAILE D TO DISCLOSE FULLY AND TRULY ALL MATERIAL FACTS NECESSARY FOR THE PURPOSE OF ASSESSMENT. THE WORD FAILURE SHOULD NOT BE INFERRED, IT MUST BE CATEGO RICALLY SPELLED OUT. IT IS THEN THE COURTS WILL EXAMINE WHETHER THERE WAS ANY FAILU RE ON THE PART OF THE ASSESSEE OR NOT. 9. INSOFAR AS DISCLOSURE OF COMMISSION AND INTEREST PA ID TO BRANCHES, IT IS SEEN THAT THE ASSESSEE HAS DISCLOSED THESE PRIMARY FACT IN THE RETURN OF INCOME AND HAS NOT CLAIMED IT AS DEDUCTION FROM THE COMPUTATION OF BUSINESS INCOME. IN VIEW OF THESE FACTS, WE AGREE W ITH THE CONTENTION OF THE SR. ADVOCATE THAT FROM THE REASONS RECORDED, IT CAN NOT BE INFERRED AT ALL THAT THERE WAS FAILURE ON THE PART OF THE ASSESSEE TO DI SCLOSE THE MATERIAL FACTS NECESSARY FOR THE ASSESSMENT. THUS, THE REASONS AS RECORDED BY THE ASSESSING OFFICER DO NOT CLOTHE HIM WITH THE JURISD ICTION TO PROCEED UNDER SECTION 148 AND REOPEN THE CASE, AS THERE IS NO FAI LURE ON THE PART OF THE ASSESSEE TO DISCLOSE FULLY AND TRULY ALL MATERIAL F ACTS IN VIEW OF THE FIRST PROVISO TO SECTION 147, WHICH A VERY VITAL CONDITION. THIS PROPOSITION THAT ORDER PASSED UNDER 143(3) OR 147 CANNOT BE REOPENED BEYOND THE PERIOD OF FOUR YEARS UNLESS TWIN CONDITIONS SPECIFIED IN FIRS T PROVISO TO SECTION 147 STANDS FULFILLED, HAS BEEN SETTLED BY CATENA OF CAS E LAWS BY THE VARIOUS HIGH COURTS AND THE HONBLE SUPREME COURT. HOWEVER, FOR THE SAKE OF REFERENCE, SOME OF THE CASE LAWS ARE REFERRED TO HEREIN BELOW: - (I) CALCUTTA DISCOUNT CO. LTD. VS. INCOME-TAX OFFI CER, COMPANIES DISTRICTS 1, REPORTED IN (1961)41 ITR PAGE 191. A CONSTITUTION BENCH OF FIVE HONBLE JUDGES LAID DO WN THE FOLLOWING RULE IN THE MATTER OF ASSESSEES DUTY DISCLOSURE - THE DUTY IMPOSED BY THE ACT UPON THE TAX PAYER IS TO MAKE A FULL AND TRUE DISCLOSURE OF ALL MATERIAL FACTS NECESSARY FOR THE ASSESSEE ; HE IS NOT REQUIRED TO INFORM THE INCOME-TAX OFFICER AS TO WHAT LEGAL CALYON BANK 9 INFERENCE SHOULD BE DRAWN FROM THE FACTS DISCLOSED BY HIM NOR TO ADVISE HIM ON QUESTIONS OF LAW. WHETHER ON THE FACT S FOUND OR DISCLOSED, THE COMPANY WAS A DEALER IN SHARES, MAY BE REGARDED AS A CONCLUSION ON A MIXED QUESTION OF LAW AND FACT AND FROM THE FAILURE ON THE PART OF THE COMPANY TO DISCLOSE TO THE INCOME-T AX OFFICER THIS LEGAL INFERENCE, NO FAULT MAY BE FOUND WITH THE COMPANY.. ... (215) DOES THE DUTY, HOWEVER, EXTEND BEYOND THE FULL AND TRUTHFUL DISCLOSURE OF ALL PRIMARY FACTS? IN OUR OPINION, TH E ANSWER TO THIS QUESTION MUST BE IN THE NEGATIVE. ONE ALL THE PRIMA RY FACTS ARE BEFORE THE ASSESSING AUTHORITY, HE REQUIRES NO FURTHER ASS ISTANCE BY WAY OF DISCLOSURE. IT IS FOR HIM TO DECIDE WHAT INFERENCES OF FACTS CAN BE REASONABLY DRAWN AND WHAT LEGAL INFERENCES HAVE ULT IMATELY TO BE DRAWN. IT IS NOT FOR SOMEBODY ELSEFAR LESS THE ASS ESSEETO TELL THE ASSESSING AUTHORITY WHAT INFERENCES, WHETHER OF FAC TS OR LAW, SHOULD BE DRAWN. INDEED, WHEN IT IS REMEMBERED THAT PEOPLE OF TEN DIFFER AS REGARDS WHAT INFERENCES SHOULD BE DRAWN FROM GIVEN FACTS, IT WILL BE MEANINGLESS TO DEMAND THAT THE ASSESSEE MUST DISCLO SE WHAT INFERENCESWHETHER OF FACTS OR LAWHE WOULD DRAW FR OM THE PRIMARY FACTS. (II) GERMAN REMEDIES LTD. VS DEPUTY COMMISSIONER OF INCOME-TAX REPORTED IN( 2006) 287 ITR PAGES 494 (BOMBAY HIGH C OURT) HAVING SAID SO, IT IS NECESSARY TO CONSIDER TWO MOR E SUBMISSIONS ADVANCED ON BEHALF OF THE PETITIONERS. FIRSTLY, THE IMPUGNED NOTICE IS BARRED BY LIMITATION SINCE IT WAS ISSUED BEYOND THE PERIOD OF FOUR YEARS FROM THE END OF THE RELEVANT ASSESSMENT YEAR. FAILU RE ON THE PART OF THE PETITIONERS TO DISCLOSE FULL AND TRUE MATERIAL HAS NOT BEEN ALLEGED. IN THIS CASE, POWER TO REOPEN HAS BEEN EXERCISED AF TER THE EXPIRY OF FOUR YEARS FROM THE END OF THE RELEVANT ASSESSMENT YEAR TO WHICH THEY RELATE. IN THE CIRCUMSTANCES, THE IMPUGNED NOTICE H AVING BEEN ISSUED BEYOND FOUR YEARS FROM THE LAST DATE OF THE RELEVAN T ASSESSMENT YEAR WITHOUT ALLEGING ANY FAILURE TO DISCLOSE FULL AND T RUE MATERIAL FACTS IS LIABLE TO BE SET ASIDE. IT IS NOT IN DISPUTE THAT THE ASSESSING OFFICER ON SEPTEMBER 15, 2003, HAD HIMSELF CARRIED THE FILE TO THE COMMISSIONER OF INCOME-TAX AND ON THE VERY SAME DAY, RATHER THE SAME MOMENT IN THE PR ESENCE OF THE ASSESSING OFFICER, THE COMMISSIONER OF INCOME-TAX G RANTED APPROVAL. AS A MATTER OF FACT, WHILE GRANTING APPROVAL IT WAS OBLIGATORY ON HIS PART TO VERIFY WHETHER THERE WAS ANY FAILURE ON THE PART OF THE ASSESSEE TO DISCLOSE FULL AND TRUE RELEVANT FACTS I N THE RETURN OF INCOME FILED FOR THE ASSESSMENT OF INCOME OF THAT ASSESSME NT YEAR. IT WAS ALSO OBLIGATORY ON THE PART OF THE COMMISSIONER TO CONSI DER WHETHER OR NOT POWER TO REOPEN IS BEING INVOKED WITHIN A PERIOD OF FOUR YEARS FROM THE END OF THE ASSESSMENT YEAR TO WHICH THEY RELATE . NONE OF THESE ASPECTS HAVE BEEN CONSIDERED BY HIM WHICH IS SUFFIC IENT TO JUSTIFY THE CONTENTION RAISED BY THE PETITIONER THAT THE APPROV AL GRANTED SUFFERS FROM NON-APPLICATION OF MIND. IN THE ABOVE VIEW OF THE MATTER, THE IMPUGNED NOTICES AND CONSEQUENTLY THE ORDER JUSTIFY ING REASONS RECORDED ARE UNSUSTAINABLE. THE SAME ARE LIABLE TO BE QUASHED AND SET ASIDE. ITA NO : 2744/M/06 17 CALYON BANK 10 ( 500 & 501) (III) SESA GOA LTD. VS. JOINT COMMISSIONER OF INCOM E TAX AND OTHERS REPORTED IN (2007) 294 ITR 101. THE POWER OF REASSESSMENT CONFERRED UNDER SECTION 1 47 OF THE ACT CAN BE EXERCISED WITHIN A PERIOD OF FOUR YEARS FROM THE END OF THE RELEVANT ASSESSMENT YEAR WITHOUT RESTRICTIONS IMPOSED BY THE PROVISO TO THAT SECTION. HOWEVER, AFTER THE EXPIRY OF FOUR YEARS FR OM THE END OF THE RELEVANT ASSESSMENT YEAR, POWER OF THE ASSESSING OF FICER IS RESTRICTED BY THE LIMITATIONS IMPOSED UNDER THE PROVISO, AS ST ATED EARLIER. SHRI REVONKAR, LEARNED COUNSEL FOR RESPONDENTS NOS.1 AND 2 RELYING UNDER SUB-CLAUSE (III) OF CLAUSE (A) OF SUB-SECTION (1) O F SECTION 149 OF THE ACT CONTENDED THAT ON ACCOUNT OF THE WRONG COMPUTAT ION OF CLAIM OF THE DEDUCTION UNDER SECTION 80HHC OF THE ACT, TAX O R MORE THAN RS.1,00,000 WOULD BE PAYABLE AND, THEREFORE, THE NO TICE COULD BE ISSUED WITHIN A PERIOD OF 10 YEARS FROM THE END OF THE RELEVANT ASSESSMENT YEAR. WE ARE UNABLE TO AGREE. SECTION 14 7 OF THE ACT IS THE SOURCE OF POWER OF THE ASSESSING OFFICER FOR RE OPENING OF THE ASSESSMENT. SECTION 148 CONTAINS PROCEDURAL RESTRIC TION FOR ISSUANCE OF A NOTICE FOR EXERCISE OF THE POWER OF REOPENING OF AN ASSESSMENT CONFERRED UNDER SECTION 147. SECTION 149 PRESCRIBES THE TIME LIMIT FOR ISSUANCE OF A NOTICE UNDER SECTION 148. IN OUR OPIN ION, THE CONDITIONS LAID DOWN UNDER SECTION 147 OF THE ACT FOR THE PURP OSES OF REOPENING THE ASSESSMENT MUST BE SATISFIED BEFORE THE NOTICE CAN BE ISSUED. THE CONDITIONS LAID DOWN IN SECTION 147 ARE THE JURISDI CTION FACTS NECESSARY FOR THE PURPOSE OF EXERCISE OF THE POWER UNDER SECT ION 147. THE JURISDICTIONAL FACTS PRESCRIBED UNDER SECTION 147 M UST EXIST BEFORE A NOTICE UNDER SECTION 148 CAN BE ISSUED. THE TIME LI MIT PRESCRIBED UNDER SECTION 149 OF THE ACT FOR ISSUANCE OF A NOTI CE UNDER SECTION 148 IS IN ADDITION TO AND NOT IN DEROGATION WITH THE NE CESSARY CONDITIONS REQUIRED TO BE SATISFIED UNDER SECTION 147 OF THE A CT. IN OTHER WORDS, IF THE BASIC JURISDICTIONAL FACTS REQUIRED FOR REOPENI NG OF AN ASSESSMENT UNDER SECTION 147 OF THE ACT DO NOT EXIST IT WOULD NOT BE COMPETENT FOR THE ASSESSING OFFICER TO ISSUE A NOTICE UNDER SECTI ON 148. EVEN WHERE THE JURISDICTIONAL FACTS PRESCRIBED UNDER SECTION 1 47 EXIST AND ALL CONDITIONS LAID DOWN UNDER SECTION 147 AND THE PROV ISO THERETO ARE SATISFIED, THE NOTICE UNDER SECTION 148 CAN BE ISSU ED ONLY AFTER THE ASSESSING OFFICER HAS RECORDED HIS REASONS FOR DOIN G SO UNDER SUB- SECTION (2) OF SECTION 148 AND HAS FURTHER OBTAINED THE NECESSARY SANCTION FOR ISSUANCE OF THE NOTICE AS REQUIRED UND ER SECTION 151 OF THE ACT. SUCH NOTICE IS ALSO REQUIRED TO BE ISSUED WITH IN THE TIME LIMIT PRESCRIBED UNDER SECTION 149 OF THE ACT. SECTION 14 9 OF THE ACT, IN OUR OPINION, DOES NOT RELAX THE RESTRICTION OF OUR YEAR S PRESCRIBED IN THE PROVISO TO SECTION 147 OF THE ACT FOR ISSUANCE OF A NOTICE UNDER THE PROVISO TO SECTION 147. THE RESTRICTION OF FOUR YEA RS WOULD BE APPLICABLE UNLESS THE INCOME CHARGEABLE TO TAX HAS ESCAPED ASSESSMENT BY REASON OF FAILURE OF THE ASSESSEE TO MAKE A RETURN UNDER SECTION 139 OR IN RESPONSE TO A NOTICE UNDER SECTION 142 OR 148 OF THE ACT OR THE FAILURE OF THE ASSESSEE TO DISCLO SE FULLY AND TRULY ALL MATERIAL FACTS. IF THE REASSESSMENT IS REQUIRED TO BE MADE ON ACCOUNT OF THE FAILURE OF THE ASSESSEE TO DISCLOSE FULLY AN D TRULY ALL MATERIAL FACTS NECESSARY FOR HIS ASSESSMENT, OBVIOUSLY, THE RESTRICTION OF FOUR YEARS PUT UNDER THE PROVISO TO SECTION 147 WOULD NO T BE APPLICABLE AND NOTICE CAN BE ISSUED AFTER THE EXPIRY OF A PERIOD O F FOUR YEARS, BUT WITHIN THE TIME LIMIT OF 7 OR 10 YEARS, AS THE CASE MAY BE, PRESCRIBED CALYON BANK 11 UNDER SECTION 149 OF THE ACT. THE OBJECT OF SECTION 149 IN IMPOSING THE RESTRICTION OF SEVEN YEARS OR TEN YEARS WHERE THE I NCOME LIKELY TO HAVE ESCAPED ASSESSMENT IS LESS THAN RS.50,000 OR RS.1,0 0,000, AS THE CASE MAY BE, IS NOT TO PERMIT REOPENING OF THE ASSE SSMENT WHERE THE TAX LIABILITY WOULD NOT BE SIGNIFICANT AS COMPARED WITH THE EFFORTS THAT WOULD BE REQUIRED FOR REOPENING OF AN ASSESSMENT AF TER A PASSAGE OF SEVEN OR TEN YEARS, AS THE CASE MAY BE. TO REPEAT, THE TIME-LIMIT IMPOSED UNDER SECTION 149 OF THE ACT FOR ISSUANCE O F THE NOTICE IS NOT IN DEROGATION OF AN IS NOT FOR ENLARGING THE TIME R ESTRICTION IMPOSED UNDER THE PROVISO TO SECTION 147 OF THE ACT BUT TO PUT AN ADDITION TIME RESTRICTION EVEN WHERE THERE IS NO RESTRICTION OF T IME FOR REOPENING OF THE ASSESSMENT ON ACCOUNT OF FAILURE OF THE ASSESSE E TO DISCLOSE FULLY AND TRULY ALL MATERIAL FACTS. IN THE PRESENT CASE, THE REASONS WHICH HAVE BEEN RE CORDED BY THE ASSESSING OFFICER FOR REOPENING OF THE ASSESSMENT D O NOT DISCLOSE THAT THE ASSESSEE HAD FAILED TO DISCLOSE FULLY AND TRULY ALL MATERIAL FACTS NECESSARY FOR THE PURPOSE OF ASSESSMENT. NO DOUBT I N THE LAST PARAGRAPH OF THE REASONS, THE FIRST RESPONDENT HAS STATED: I AM SATISFIED THAT DUE TO FURNISHING THE FALSE PA RTICULARS OF THE INCOME BY WAY OF INCORRECT CERTIFICATE WHICH MEANS FAILURE ON THE PART OF THE ASSESSEE TO DISCLOSE FUL LY AND TRULY ALL MATERIAL FACTS REQUIRED FOR THE ASSESSMEN T, INCOME OF RS.6,10,10,272 HAD ESCAPED ASSESSMENT THE SAID STATEMENT IS CLEARLY MADE ONLY AS AN ATTEM PT TO TAKE THE CASE OUT OF THE RESTRICTION IMPOSED BY THE PROVISO TO SE CTION 147 OF THE ACT. (111 TO 113) XXX XXX XXX XXX AS LAID DOWN BY THE SUPREME COURT IN THE CASE OF IT O V. LAKHMANI MEWAL DAS [1976] 103 ITR 437, THE PHRASE REASON TO BELIEVE DOES NOT MEAN PURELY SUBJECTIVE SATISFACTION ON THE PART OF THE ASSESSING OFFICER AND THE BELIEF THAT INCOME HAS ESCAPED ASSE SSMENT BY REASON OF FAILURE OF THE ASSESSEE TO DISCLOSE ALL MATERIAL FACTS MUST BE HELD IN GOOD FAITH AND NOT MERELY AS A PRETENCE. IT IS OPEN TO A COURT TO EXAMINE WHETHER THE RELEVANT FACTS ON WHICH THE OPI NION HAS BEEN FORMED, HAVE A BEARING ON THE FORMATION OF THE BELI EF AND TO THAT LIMITED EXTENT THE OPINION IS OPEN TO CHALLENGE IN THE COURT OF LAW. PARAGRAPH NOS.2 AND 3 OF THE REASONS RECORDED BY TH E INCOME-TAX OFFICER STATE THE REASON FOR THE BELIEF OF THE ASSE SSING OFFICER THAT INCOME HAD ESCAPED ASSESSMENT. (113) XXX XXX XXX XXX IN OUR OPINION, A SUBSEQUENT DECISION OF A COURT C ANNOT JUSTIFY THE REOPENING OF AN ASSESSMENT AFTER A PERIOD OF FOUR Y EARS AS THE SUBSEQUENT DECISION DOES NOT MEAN FAILURE ON THE PA RT OF AN ASSESSEE TO DISCLOSE FULLY AND TRULY ALL MATERIAL FACTS. WE ARE FORTIFIED IN OUR VIEW THE DECISION OF THE CALCUTTA HIGH COURT IN INDRA CO LTD. V. ITO [1971] 80 ITR 559 AT PAGES 562 TO 565, AND THE GUJARAT HIG H COURT, RENDERED IN ARVIND MILLS LTD. V. DEPUTY CIT [2000] 242 ITR 1 73 AND CIT V. GUJARAT GINNING AND MFG. CO. LTD. REPORTED IN [1994 ] 205 ITR 40 TO WHICH OUR ATTENTION WAS DRAWN BY MR. DASTUR. HE ALS O RELIED UPON A DECISION OF THE CALCUTTA HIGH COURT REPORTED IN SIM PLEX CONCRETE PILES CALYON BANK 12 (INDIA) LTD. V. DEPUTY CIT [2003] 262 ITR 605. IN T HE CASE OF SIMPLEX CONCRETE PILES (INDIA) LTD. [2003]262 ITR 605, THE DIVISION BENCH OF THE CALCUTTA HIGH COURT, AFTER CONSIDERING THE LAW AS IT STOOD PRIOR TO THE AMENDMENT OF SECTION 147 (MADE WITH EFFECT FROM APRIL 1, 1989) AS ALSO THE LAW AFTER THE AMENDMENT, HELD THAT THER E HAS BEEN NO SUBSTANTIAL CHANGE IN THE PRINCIPLES ON WHICH ASSES SMENT CAN BE REOPENED EITHER BEFORE APRIL 1, 1989, OR THEREAFTER . THE DIVISION BENCH FURTHER HELD THAT ACTION FOR REOPENING OF AN ASSESS MENT CANNOT BE TAKEN AFTER THE EXPIRY OF FOUR YEARS UNLESS THE GIV EN CASE FALLS UNDER THE PROVISO TO SECTION 147 OF THE ACT, I.E., THE IN COME HAS ESCAPED ASSESSMENT ON ACCOUNT OF FAILURE OF THE ASSESSEE TO DISCLOSE TRULY AND FULLY ALL MATERIAL FACTS OR ON ACCOUNT OF SOME OTHE R CONTINGENCIES (WITH WHICH WE ARE NOT CONCERNED HERE) SPECIFIED IN THE P ROVISO. WE ARE WHOLLY IN AGREEMENT WITH THE VIEW EXPRESSED BY THE DIVISION BENCH OF THE CALCUTTA HIGH COURT IN THE CASE OF SIMPLES CONC RETE PILES (INDIA)[2003] 262 ITR 605. (115 & 116). 10. THUS, IN VIEW OF THE ABOVE FINDINGS AND THE LAW SET TLED BY THE COURTS, WE HOLD THAT THE PROCEEDINGS INITIATED UNDER SECTIO N 147, VIDE NOTICE DATED 31 ST MARCH 2004, IS VOID AB INITIO AND CONSEQUENTLY, THE ASSESSMENT ORDER DATED 28 TH MARCH 2005, PASSED UNDER SECTION 147 R/W SECTION 1 43(3) IS QUASHED. SINCE THE ENTIRE ASSESSMENT ORDER HAS BEEN QUASHED, THEREFORE, THE OTHER ISSUES ON MERITS HAVE BEEN RENDERED ACADE MIC AND, THEREFORE, THEY ARE NOT BEING DEALT WITH. 11. CONSEQUENTLY, THE GROUNDS RAISED BY IN THE REVENUE IN THIS APPEAL ALSO BECOMES INFRUCTUOUS AND, HENCE, THE SAME IS HEREBY DISMISSED AND THE ASSESSEES APPEAL IS TREATED AS ALLOWED. 12. . 7 #& '. / 8 / 1 9: 1 / .1 / 1 9: ; 12. IN THE RESULT, ASSESSEES APPEAL IS ALLOWED AND THE REVENUES APPEAL IS DISMISSED. WE NOW TAKE UP REVENUES APPEAL ITA NO.4294/MUM./2005, FOR ASSESSMENT YEAR 199394 . 13. IN THE PRESENT APPEAL ALSO THE ASSESSEE HAS CHALLEN GED THE VALIDITY OF PROCEEDINGS UNDER SECTION 147, BESIDES RAISING GROU NDS ON MERITS OF THE ADDITIONS. CALYON BANK 13 14. BRIEFLY STATED THE FACTS OF THE CASE ARE THAT THE A SSESSEE HAS FILED ITS ORIGINAL RETURN OF INCOME UNDER SECTION 139(1) OF T HE ACT ON 30 TH DECEMBER 1993, DECLARING INCOME OF ` 13,18,86,610. LATER ON, THE SAID RETURN OF INCOME WAS REVISED ON 8 TH FEBRUARY 1995, AT AN INCOME OF ` 12,85,47,380. THE ONLY REASON FOR REVISING THE RETURN OF INCOME W AS WITHDRAWAL OF CLAIM OF INTEREST BY THE RESERVE BANK OF INDIA FOR A SUM OF ` 35,14,969. IN THE COMPUTATION OF INCOME FILED ALONG WITH RETURN OF IN COME, THE ASSESSEE HAS PROCEEDED WITH THE PROFIT SHOWN IN THE PROFIT & LOS S ACCOUNT AND DISCLOSED ALL THE NECESSARY DETAILS FOR THE COMPUTATION OF INCOME INCLUDING THAT OF INTEREST AND COMMISSION PAID TO BRANCHES AND HEAD OFFICE, WH ICH WAS ADDED BACK TO THE PROFIT. THE INTEREST EARNED FROM THE HEAD OFFIC E AND BRANCHES WERE DEDUCTED. AS AGAINST THE RETURN OF INCOME AS ABOVE, THE ASSESSMENT WAS COMPLETED UNDER SECTION 143(3), VIDE ORDER DATED 22 ND DECEMBER 1995, AT AN INCOME OF ` 14,14,77,790, WHEREBY THE COMPUTATION OF INCOME WI TH REGARD TO THE INTEREST AND COMMISSION PAID TO THE B RANCHES AND INTEREST EARNED FROM HEAD OFFICE AND BRANCHES WERE ACCEPTED. SUBSEQUENTLY, AFTER THE EXPIRY OF FOUR YEARS FROM THE END OF RELEVANT A SSESSMENT YEAR, THE SAID ASSESSMENT HAS BEEN SOUGHT TO BE REOPENED UNDER SE CTION 147, BY ISSUANCE OF NOTICE UNDER SECTION 148 DATED 31 ST MAY 2001. THE REASONS FOR REOPENING THE CASE AS HAS BEEN RECORDED, ARE BEING REPRODUCED HEREIN BELOW: FACTUAL POSITION 1. IN THE RETURN OF INCOME FILED BY THE ASSESSEE FO R THE ABOVE ASSESSMENT YEAR, ASSESSEE CLAIMED INTEREST EARNED F ROM H.O. AND BRANCHES OF ` 26,46,802, AS EXEMPT FROM TAX AND REDUCED THE SAME FROM TAXABLE INCOME. 2. IN THE SCRUTINY ASSESSMENT COMPLETED UNDER SECTI ON 143(3) ON 22.12.1995, THE ABOVE REDUCTION WAS ALLOWED WITHOUT EXAMINING THE ISSUE INVOLVED AND FACTS OF THE CASE, THE ASSESSEE IS A FOREIGN BANKING COMPANY HAVING INDIAN OPERATION AND WHAT IS TAXABLE IN INDIA IS THE INCOME OF INDIAN OPERATIONS. THEREFORE, THE HEAD OF FICE OF THE FOREIGN BANK AND INDIAN OPERATIONS ARE SEPARATE ENTITIES AS FAR AS TAXATION IN INDIA IS CONCERNED. IN ASSESSMENT PROCEEDINGS FOR A .Y. 199899, THIS ISSUE WAS EXAMINED IN DETAIL AND IT WAS FOUND THAT BANKS INDIAN OPERATION IS RECEIVING INTEREST ON FUNDS PLACED BY IT WITH HEAD OFFICE AND FOREIGN BRANCHES. THE FUNDS PLACED WITH H.O. AN D BRANCHES IS THE BUSINESS FUND OF INDIAN P.E. (OPERATIONS) OF FOREIG N BANK. THE SAID CALYON BANK 14 INTEREST INCOME IS SQUARELY COVERED UNDER SECTION 9 (1)(A) OF INCOME TAX ACT AS BUSINESS INCOME OF INDIAN OPERATIONS. EV EN IN DTA, INCOME FROM BUSINESS OPERATIONS IN INDIA IS TAXABLE IN IND IA, THEREFORE, INTEREST INCOME RECEIVED FROM H.O. AND FOREIGN BRAN CHES IS DEFINITELY LIABLE FOR TAXATION IN INDIA. EVEN ASSESSEE HAS CLA IMED INTEREST COST AGAINST PLACING SUCH DEPOSITS WITH H.O. IT IS ALSO LOGICAL THAT WHERE EXPENSES ARE CLAIMED, INCOME HAS TO BE OFFERED FOR TAXATION. ASSESSEE TOOK THE PLEA IN A.Y. 199899 THAT BOTH FOREIGN ENT ITY AND INDIAN OPERATIONS ARE SAME AND, THEREFORE, ONE CANNOT CHAR GE INTEREST FROM ONESELF. THIS IS ABSOLUTELY WRONG AND MISPLACED SIN CE WHAT IS TAXED IN INDIA IS ONLY THE INCOME EARNED BY INDIAN PE AND NO THING MORE THAN THIS. FOR THIS PURPOSE INDIA PE AND FOREIGN H.O. AR E TWO SEPARATE ENTITIES AND PAYMENT TO EACH OTHER CANNOT BE SAID A S PAYMENTS MADE TO SELF CONSIDERING THESE FACT, IT IS CLEAR THAT AS SESSEE HAS WRONGLY REDUCED THE INCOME EARNED FROM H.O. / BRANCHES ON D EPOSITS PLACED BY IT BY NOT DISCLOSING MATERIAL FACTS REGARDING TH E TAXABILITY OF THE SAME AND ALSO THE COST RELATING TO SAME CLAIMED BY INDIA BRANCHES. COMPLIANCE OF LEGAL REQUIREMENTS FOR REOPENING ASSE SSMENT : 3. IN VIEW OF THE PARA2 ABOVE, THE ASSESSEE WAS AL LOWED DEDUCTION FOR INTEREST RECEIVED FROM H.O. AND BRANC HES ` 26,48,802. AS PER SECTION 147 OF THE I.T. ACT, FOR REOPENING T HE ASSESSMENT, ASSESSING OFFICER SHOULD HAVE REASON TO BELIEVE THA T ANY INCOME CHARGEABLE TO TAX HAS ESCAPED ASSESSMENT. IN VIEW O F THE FACTUAL AND LEGAL POSITION MENTIONED IN EARLIER PARAS, I HAVE S TRONG REASONS TO BELIEVE THAT SUBSTANTIAL INCOME CHARGEABLE TO TAX H AS ESCAPED ASSESSMENT. AS PER EXPLANATION 2 TO SECTION 147, IF INCOME HAS BEEN MADE THE SUBJECT OF EXCESSIVE RELIEF UNDER THIS ACT , THE SAME WILL BE DEEMED TO BE THE CASE WHERE INCOME CHARGEABLE TO TA X HAS ESCAPED ASSESSMENT. THIS IS AS PER EXPLANATION 2(C) TO SECT ION 147. THIS IS MUCH MORE THAN THE LIMITS MENTIONED IN SECTION 149. THE REOPENING OF ASSESSMENT WILL BE WITHIN 10 YEARS FROM THE END OF ASSESSMENT YEAR TILL 31 ST MAY 2001. ANOTHER REQUIREMENT FOR REOPENING OF AS SESSMENT AFTER 4 YEARS IS THAT THE ESCAPEMENT OF INCOME SHOU LD BE BY REASON OF THE FAILURE ON THE PART OF ASSESSEE TO DISCLOSE FUL LY AND TRULY ALL MATERIAL FACTS NECESSARY FOR HIS ASSESSMENT FOR THA T ASSESSMENT YEAR. AS DISCUSSED IN EARLIER PARAS, THE DETAILS OF SOURC E OF DEPOSIT, CLAIM OF EXPENSES RELATING TO THE SAID DEPOSITS AND THE PROV ISION UNDER WHICH SUCH INCOME IS EXEMPT, WHICH IS MATERIAL TO DECIDE THE EXEMPTION LEGALLY ALLOWABLE, WERE NEVER FURNISHED. ON ACCOUNT OF ASSESSEES NON SUBMISSION / DISCLOSURE OF MATERIAL FACTS FULLY AND TRULY INCOME HAS ESCAPED ASSESSMENT. IN VIEW OF THE ABOVE DISCUSSION THE STATUTORY REQU IREMENT FOR REOPENING OF ASSESSMENT HAVE BEEN FULLY MET AND THE REOPENING OF ASSESSMENT IS ESSENTIAL AND LEGALLY PERMISSIBLE. 15. BEFORE US, THE LEARNED SR. ADVOCATE, MR. P.J. PARDI WALA, APPEARING ON BEHALF OF THE ASSESSEE, DREW OUR ATTENTION TO THE C OMPUTATION OF INCOME AND SUBMITTED THAT THE PRIMARY FACTS RELATING TO INTERE ST AND COMMISSION PAID TO THE BRANCHES AND INTEREST EARNED FROM HEAD OFFICE A ND BRANCHES WERE DULY CALYON BANK 15 DISCLOSED AND THE SAME WERE ALSO SUBJECTED TO SCRUT INY ASSESSMENT UNDER SECTION 143(3). HE FURTHER SUBMITTED THAT THE DUTY OF THE ASSESSEE IS TO DISCLOSE ALL MATERIAL FACTS NECESSARY FOR THE ASSES SMENT AND IS NOT REQUIRED TO INFORM THE ASSESSING OFFICER AS TO WHAT LEGAL IN FERENCE SHOULD BE DRAWN. HE REITERATED THE SAME SUBMISSIONS AS WERE MADE IN THE APPEAL RELATING TO ASSESSMENT YEAR 199798, AS HAVE BEEN DISCUSSED ABO VE. 16. THE LEARNED DEPARTMENTAL REPRESENTATIVE, ON THE OTH ER HAND, SUBMITTED THAT THE ASSESSING OFFICER, IN THE PRESEN T CASE, HAS DULY RECORDED IN THE REASONS THAT THERE WAS THE FAILURE ON THE PART OF THE ASSE SSEE TO DISCLOSE FULLY AND TRULY ALL MATERIAL FACTS. IN THE SAID REASONS , THE ASSESSING OFFICER HAS MADE OUT AN ELABORATED DISCUSSION AS TO HOW THE INCOME CHARGEABLE TO TAX HAS ESCAPED ASSESSMENT AND HAS AL SO POINTED OUT THE FAILURE ON THE PART OF THE ASSESSEE IN DISCLOSING F ULLY AND TRULY MATERIAL FACTS ON THE ISSUES REFERRED TO IN THE REASONS RECORDED. HE ALSO REFERRED TO THE FINDINGS GIVEN BY THE LEARNED COMMISSIONER (APPEALS ) IN PARA4.4 OF THE APPELLATE ORDER. 17. IN THE REJOINDER, LEARNED SR. ADVOCATE SUBMITTED TH AT EVEN THOUGH THE ASSESSING OFFICER HAS MENTIONED THE WORD THAT THE ESCAPEMENT OF INCOME IS BY WAY OF FAILURE ON THE PART OF THE ASSESSEE TO DI SCLOSED FULLY AND TRULY ALL MATERIAL FACTS NECESSARY FOR THE ASSESSMENT, HOWEVER, AS PER FACTS ON RECORD, SUCH AN ALLEGATION IS WHOLLY INCORRECT . WHAT THE ASSESSING OFFICER HAS MENTIONED IN PARA2 IS THAT THESE INTEREST AND COMM ISSION ARE DEEMED INCOME UNDER SECTION 9(1) OF THE ACT, WHICH MEANS T HAT THE ASSESSEE SHOULD HAVE INFORMED THE ASSESSING OFFICER AT THE TIME OF ASSESSMENT AS TO WHAT LEGAL INFERENCE SHOULD BE DRAWN BY HIM. INSOFAR AS THE ASSESSEE IS CONCERNED, ALL THE DETAILS AND FACTS WERE DISCLOSED ALONG WITH THE RETURN OF INCOME AND ALSO AT THE TIME OF ASSESSMENT. LASTLY, HE SUBMITTED THAT THE LEARNED COMMISSIONER (APPEALS) HAS NOT EVEN REFERRE D TO THE PROVISO OF SECTION 147, AND AS TO WHY SUCH PROVISO IS NOT APPLICABLE. 18. WE HAVE CAREFULLY CONSIDERED THE RIVAL CONTENTIONS OF THE PARTIES, PERUSED THE FINDINGS OF THE LEARNED COMMISSIONER (A PPEALS) AND ALSO THE CALYON BANK 16 MATERIAL AVAILABLE ON RECORD. AS POINTED OUT BY THE LEARNED SR. ADVOCATE, IT IS SEEN FROM THE PERUSAL OF THE COMPUTATION OF TOTAL I NCOME FILED ALONG WITH RETURN OF INCOME THAT THE ASSESSEE HAS DISCLOSED TH E INTEREST AND COMMISSION PAID TO THE HEAD OFFICES AND BRANCHES AN D ALSO INTEREST EARNED FROM HEAD OFFICES AND BRANCHES. ONCE THESE PRIMARY FACTS HAVE BEEN DISCLOSED BEFORE THE ASSESSING OFFICER AND HAS ALSO BEEN ACCEPTED BY HIM AFTER VERIFYING THEM IN SCRUTINY PROCEEDINGS, IT CA NNOT BE HELD THAT THERE WAS ANY FAILURE ON THE PART OF THE ASSESSEE TO DISCLOSE FULLY AND TRULY ALL MATERIAL FACTS ON THESE ISSUES. EVEN THOUGH, THE ASSESSING O FFICER HAS MENTIONED ABOUT THE FAILURE ON THE PART OF THE ASSESSEE IN TH E REASONS RECORDED , HOWEVER, SUCH A FAILURE CANNOT BE ASCRIBED OR INFER RED FROM THE MATERIAL PLACED ON RECORD FOR THE SIMPLE REASON AS TO WHAT T HE ASSESSING OFFICER IS CONTENDING IN THE REASONS RECORDED IS THE LEGAL INF ERENCE OF TAXABILITY OF SUCH INCOME. IT IS THE SETTLED POSITION OF LAW THAT THE ASSESSEE IS REQUIRED ONLY TO DISCLOSE PRIMARY FACTS NECESSARY FOR THE ASSESSMENT AND HE IS NOT EXPECTED TO GUIDE THE ASSESSING OFFICER AS TO WHAT LEGAL INF ERENCE SHOULD BE DRAWN FROM THE FACTS DISCLOSED BY HIM. THIS PROPOSITION H AS BEEN LAID DOWN IN CELEBRATED DECISION OF CONSTITUTIONAL BENCH IN CALCUTTA DISCOUNT CO. LTD. V/S ITO, [41 ITR 191 (SC) , WHEREIN THEIR LORDSHIPS LAID DOWN THE FOLLOWING R ULE IN THE MATTER OF ASSESSEES DUTY OF DISCLOSURE. THE DUTY IMPOSED BY THE ACT UPON THE TAX PAYER IS TO MAKE A FULL AND TRUE DISCLOSURE OF ALL MATERIAL FACTS NECESSARY FOR THE ASSESSEE ; HE IS NOT REQUIRED TO INFORM THE INCOME-TAX OFFICER AS TO WHAT LEGAL INFERENCE SHOULD BE DRAWN FROM THE FACTS DISCLOSED BY HIM NOR TO ADVISE HIM ON QUESTIONS OF LAW. WHETHER ON THE FACT S FOUND OR DISCLOSED, THE COMPANY WAS A DEALER IN SHARES, MAY BE REGARDED AS A CONCLUSION ON A MIXED QUESTION OF LAW AND FACT AND FROM THE FAILURE ON THE PART OF THE COMPANY TO DISCLOSE TO THE INCOME-T AX OFFICER THIS LEGAL INFERENCE, NO FAULT MAY BE FOUND WITH THE COMPANY.. ... (215) DOES THE DUTY, HOWEVER, EXTEND BEYOND THE FULL AND TRUTHFUL DISCLOSURE OF ALL PRIMARY FACTS? IN OUR OPINION, TH E ANSWER TO THIS QUESTION MUST BE IN THE NEGATIVE. ONE ALL THE PRIMA RY FACTS ARE BEFORE THE ASSESSING AUTHORITY, HE REQUIRES NO FURTHER ASS ISTANCE BY WAY OF DISCLOSURE. IT IS FOR HIM TO DECIDE WHAT INFERENCES OF FACTS CAN BE REASONABLY DRAWN AND WHAT LEGAL INFERENCES HAVE ULT IMATELY TO BE DRAWN. IT IS NOT FOR SOMEBODY ELSEFAR LESS THE ASS ESSEETO TELL THE ASSESSING AUTHORITY WHAT INFERENCES, WHETHER OF FAC TS OR LAW, SHOULD BE DRAWN. INDEED, WHEN IT IS REMEMBERED THAT PEOPLE OF TEN DIFFER AS REGARDS WHAT INFERENCES SHOULD BE DRAWN FROM GIVEN FACTS, IT WILL BE MEANINGLESS TO DEMAND THAT THE ASSESSEE MUST DISCLO SE WHAT CALYON BANK 17 INFERENCESWHETHER OF FACTS OR LAWHE WOULD DRAW FR OM THE PRIMARY FACTS. 19. THUS, IN VIEW OF THE ABOVE PROPOSITION, WE HOLD THA T IN THE PRESENT CASE, THERE IS NO FAILURE ON THE PART OF THE ASSESS EE TO DISCLOSE FULLY AND TRULY ALL MATERIAL FACTS NECESSARY FOR ITS ASSESSMENT. TH E REASONS AND THE FINDINGS GIVEN IN THE APPEAL FOR ASSESSMENT YEAR 199798 APP LIES MUTATIS MUTANDIS IN THIS YEAR ALSO. THEREFORE, IN VIEW OF THE REASON S GIVEN THEREIN, THE RE ASSESSMENT PROCEEDINGS UNDER SECTION 147, INITIATED BY NOTICE DATED 31 ST MAY 2001, UNDER SECTION 148, ARE TREATED AS VOID AB INITIO AND CONSEQUENTLY, THE ASSESSMENT ORDER DATED 27 TH MARCH 2003, PASSED UNDER SECTION 147, R/W SECTION 143(3) STANDS QUASHED. AS THE ASSESSMENT IT SELF HAS BEEN QUASHED ON THE POINT OF JURISDICTION, THEREFORE, THE OTHER GROUNDS ON MERITS HAVE BEEN RENDERED PURELY ACADEMIC AND, THEREFORE, THE SAME I S NOT REQUIRED TO BE ADJUDICATED SEPARATELY. 20. . 7 #& '. / #& ' (' 199394 199798 / < 8 & 1 9: ; 1 / #& ' (' 199798 .1 & 1 9: ; 20. IN THE RESULT, ASSESSEES APPEAL FOR A.YS 1997 98 AND 199394 ARE TREATED AS ALLOWED. REVENUES APPEAL FOR A.Y. 1997 98 IS TREATED AS DISMISSED. ! / 3( < =&7 21 ST SEPTEMBER 2012 3 / > ; ORDER PRONOUNCED IN THE OPEN COURT ON 21 ST SEPTEMBER 2012 SD/- . .. . . . . . R.S. SYAL ACCOUNTANT MEMBER SD/- !' !' !' !' # # # # AMIT SHUKLA JUDICIAL MEMBER MUMBAI, =& =& =& =& DATED: 21 ST SEPTEMBER 2012 CALYON BANK 18 ! / +# ? @?( / COPY OF THE ORDER FORWARDED TO : (1) #& '. / THE ASSESSEE; (2) 1 / THE REVENUE; (3) A () / THE CIT(A); (4) A / THE CIT, MUMBAI CITY CONCERNED; (5) ?D> +# #& , , / THE DR, ITAT, MUMBAI; (6) >E' F / GUARD FILE. ,? +# / TRUE COPY !& / BY ORDER + 1. GH / PRADEEP J. CHOWDHURY .I #&1 G / SR. PRIVATE SECRETARY J / 9 1 / (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI