THE COMMISSIONER OF INCOME-TAX V. M/S. FIBRES & FABRICS

ITA/310/2015

AI Insights

The case involves the Revenue's appeal against the Tribunal's decision which set aside the reassessment order for the assessment year 2004-2005. The reassessment was initiated based on a survey that revealed questionable expenses claimed by the assessee, M/s. Fibres & Fabrics, International Pvt. Ltd. The Revenue contended that the notice for reassessment was valid despite being issued beyond the four-year period, arguing that the assessee had failed to disclose material facts. However, the Tribunal found the notice invalid as the necessary conditions for extending the time limit for issuing the notice were not met, leading to the dismissal of the Revenue's appeal.

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 738535 (HC-KARNATAKA)
• Appeal Type: Others
• Pronouncement Date: 22-09-2015
• Assessment Year: misc
• Other Referred Cases: The Commissioner of Income Tax Vs. Hewlett Packard Digital Global Soft Ltd.
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Others
• Court: HIGH COURT
• Assessee Lawyers: K V ARAVIND
• Keywords: Escaped assessment; Income Tax; Invalid notice; Reassessment; Survey
• Section: 147; 148; 143(3); 133A; 260-A

Judgement Text

" 1 PIN THE HIGH COURT OF KARNATAKA AT BENGALURU DATED THIS THE 22ND DAY OF SEPTEMBER 2015 PRESENT THE HON’BLE MR.JUSTICE VINEET SARAN AND THE HON’BLE MR.JUSTICE B MANOHAR I.T.A. NO.310/2015 BETWEEN : 1. The Commissioner of Income-Tax, C.R. Building, Queens Road, Bangalore. 2. The Deputy Commissioner of Income-Tax, Circle-11(3), Rashtrothana Bhavan, Nrupathunga Road, Bangalore - 560 001. ... Appellants (By Sri K.V. Aravind, Adv.) AND: M/s. Fibres & Fabrics, International Pvt. Ltd., No.21, E-1, 2nd Phase, Peenya Industrial Area, Bangalore – 560 058. PAN: AAACF 6841M. ... Respondent This ITA is filed under Section 260-A of I.T. Act, 1961 arising out of order dated.27/02/2015 passed in 2 ITA No.1351/Bang/2014, for the assessment year 2004-2005 praying that this Hon'ble Court may be pleased to: (i) formulate the substantial questions of law stated above, and (ii) allow the appeal and set aside the orders passed by the ITAT Bangalore in ITA No.1351/Bang/2014 dated.27/02/2015 and confirm the order of the Appellate Commissioner confirming the order passed by the Deputy Commissioner of Income Tax, Circle-11(3), Bangalore. This appeal coming on for Admission this day, VINEET SARAN, J. delivered the following: J U D G M E N T The appeal is by the Revenue challenging the order dated 27.2.2015 passed by the Tribunal, whereby the notice issued under Section 148 of the Income Tax Act, 1961 (“the Act” for brevity) has been held to be invalid. 2. The respondent – assessee is a company which is engaged in manufacture and sale of garments. For the relevant assessment year 2004-2005, assessee had 3 declared its income at Rs.11,89,42,063/-. The assessment order was passed under Section 143(3) of the Act on 30.11.2006 whereby the total income of the assessee was determined at Rs.11,90,43,271/-. The assessment order had become final. A survey was conducted in the premises of the assessee company on 5.11.2009 in which certain documents were found, and thus for reopening the assessment of assessment year 2004-05, a notice dated 8.3.2010 was issued under Section 148 of the Act, after recording the following reasons: “The assessee filed return of income for the A.Y.2004-05 on 30.10.2004 declaring an income of Rs.11,89,42,063/- Assessment in this case was completed u/s 143(3) on 30.11.2006 determining a total income of Rs.11,90,43,271/-. In this case a survey u/s 133A was conducted on 5.11.2009 and during the course of survey, along with other issues, expenses debited to the P & L A/c were verified and it 4 was found that the assessee has incurred huge expenses in the nature of Info Trakking and Delivery schedule which is paid to foreign companies (M/s South Elegant Limited and others) as per the Service Agreement entered in to between the assessee company and M/s South Elegant Limited dated 1.7.2002. During the course of post survey proceedings statement of the Managing Director of the company Shri Anupam Kothari was recorded and was asked to substantiate this agreement and payments made in pursuance to this agreement and it is found that the reply of the Managing Director to most of the queries were evasive in nature and surprisingly, to quote a few, he could not substantiate with whom from South Elegant he had interacted or even to say where this deal was entered into and when. Surprisingly this service agreement was cancelled on 26.10.2005 though it was made for a period upto 2012 and the so called termination is done again through a three line letter and huge sum running into tens of crores rupees has been paid by the assessee company towards termination fee. The genuineness of this Info Trekking and Delivery schedule 5 expenditure was not proved by the assessee to the satisfaction of the Assessing Officer and even the assessee could not prove the legality of this document as the document in question was on a plain sheet of paper, neither registered nor notarized or either witnessed by any person or even does not have the name of the authorized person as such. Further more the assessee company could not prove beyond doubt the necessity of such expenditure as this kind of expenditure is unknown in this line of trade. Accordingly in the order passed u/s 143(3) for A.Y.2006-07 the expenses debited under this head of Rs.10,68,71,384/- was disallowed and added to the returned income. Similar nature of expenditure has been debited by the assessee company for the financial year 2003-04, 2004-05 also. On verification of records of the assessee for the A.Y. 2004-05 it was found that similar expenses has been paid by the assessee in the name of Commission – Sales amounting to Rs.8,50,58,441/- and these commission payments have been paid to foreign company/s along with other. 6 As the issue of payment of commission – sales was not examined during the course of assessment proceedings for A.Y. 2004-05 as also this issue has come to light on account of survey u/s 133A, I have reason to believe that income chargeable to tax has escaped assessment within the meaning of section 147 of the Income-tax Act, 1961.” 3. The reassessment order under Section 143(3) of the Act read with Section 147 of the Act was completed by the Assessing Officer on 27.12.2010. Challenging the said order, the assessee filed an appeal before the Commissioner of Income Tax (Appeals), which was dismissed on 1.8.2014. Aggrieved by the same, the assessee filed further appeal before the Tribunal, which has been allowed and the assessment order has been set aside by the Tribunal vide its order dated 27.2.2015. Challenging the said order, this appeal has been filed by the Revenue, raising the following substantial question of law: 7 . “Whether on the facts and in the circumstances of the case, the Tribunal was right in law by setting aside the order under Section 143(3) r.w.s. 147 without appreciating the fact that there was conclusive material on record for reassessment proceedings before the assessing officer ?” 4. We have heard Sri.K.V.Aravind, learned counsel for the revenue and perused the records. 5. Sri.K.V.Aravind, learned counsel for the Revenue has submitted that though the notice for reopening the assessment has been issued beyond the period of four years from the end of the assessment year 2004-2005, as the same was issued on 8.3.2010 whereas the four year period ended on 31.3.2009, but because there was failure on the part of the assessee to disclose fully and truly all material facts for the assessment year 2004-2005, the notice could have been 8 issued beyond the period of four years and within six years. 6. Relying on the judgment of this Court in the case of The Commissioner of Income Tax Vs. Hewelett Packard Digital Global Soft Ltd., dated 19.9.2011, the Tribunal has held that since the Assessing Officer has not recorded the escapement of income is due to failure of the assessee to disclose fully and truly all or any facts necessary for assessment of income of the assessee for the relevant assessment year, hence reopening of the assessment itself is invalid. 7. Having gone through the reasons recorded for issuing notice, as well as the assessment order dated 27.12.2010, we do not find that there is any finding recorded to the effect that the assessee failed to disclose fully and truly all material facts necessary for the relevant assessment year. The submission of the learned counsel for the appellant is that certain 9 deductions had been claimed on the basis of an agreement under which commission was paid by the assessee and since after the survey conducted on 5.11.2009, it was found that the agreement was not genuine, it would amount to failure on the part of the assessee to disclose fully and truly all material facts and thus the notice could have been issued beyond the period of four years under the first proviso to Section 147 of the Act. 8. In our opinion, since such reason has not even been specified in the reasons recorded in the notice or in the assessment order itself, the notice issued beyond the period of four years has rightly been held to be invalid by the learned Tribunal. The Tribunal has rightly relied on the decision of this Court in the case of Hewelett Packard Digital Global Soft Ltd., (supra) and as such do not find any infirmity with the order of the Tribunal. 10 9. Accordingly, this appeal is dismissed, as in our opinion no substantial question of law arises for determination of this Court. Sd/- JUDGE Sd/- JUDGE RS/* Ct: ks "