Vodafone Essar Gujarat Ltd (formerly known as Fascell Ltd) V. Assistant Commissioner of Income Tax

SCA/9817/2009

AI Insights

The case involves Vodafone Essar Gujarat Ltd, which challenged a notice issued by the Assistant Commissioner of Income Tax for reopening the assessment for the year 2003-2004. The original assessment had accepted the petitioner's claim for deduction of license fees without any disallowance. The reopening was based on the belief that the income chargeable to tax had escaped assessment, as the license fees were considered capital expenditure and should be treated under Section 35ABB of the Income Tax Act, 1961. The court examined whether there was a failure to disclose material facts by the petitioner that justified the reopening of the assessment beyond the four-year period.

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 804686 (HC-GUJARAT)
• Appeal Type: Others
• Pronouncement Date: 02-07-2012
• Assessment Year: misc
• Other Referred Cases: Assam Bengal Cement Co. Ltd Vs. CIT, Calcutta Discount Co. Ltd v. Income-tax Officer, Companies District Calcutta and another, Indo-Aden Salt Mfg & Trading Co. P. Ltd v. Commissioner of Income-tax, Bombay, Sri Krishna Pvt.Ltd. Etc. v. Income Tax officer and others
• Laws Referred To: Income-tax Act, 1961
• Result in Favour of: Others
• Court: HIGH COURT
• Department Lawyers: PAURAMI SHETH
• Assessee Lawyers: S N SOPARKAR; SWATI SOPARKAR
• Keywords: Assessment Reopening; Capital expenditure; Income Tax; License fee; Revenue Sharing
• Section: 147; 143(3); 115JB; 151; 35ABB

Judgement Text

"SCA/9817/2009 1/19 JUDGMENT IN THE HIGH COURT OF GUJARAT AT AHMEDABAD SPECIAL CIVIL APPLICATION No. 9817 of 2009 For Approval and Signature: HONOURABLE MR.JUSTICE AKIL KURESHI HONOURABLE MS.JUSTICE HARSHA DEVANI ========================================================= 1 Whether Reporters of Local Papers may be allowed to see the judgment ? 2 To be referred to the Reporter or not ? 3 Whether their Lordships wish to see the fair copy of the judgment ? 4 Whether this case involves a substantial question of law as to the interpretation of the constitution of India, 1950 or any order made thereunder ? 5 Whether it is to be circulated to the civil judge? ========================================================= VODAFONE ESSAR GUJARAT LTD (FORMERLY KNOWN AS FASCEL LTD) - Petitioner(s) Versus ASSISTANT COMMISSIONER OF INCOME TAX - Respondent(s) ========================================================= Appearance : MR SN SOPARKAR,SENIOR COUNSEL WITH MRS SWATI SOPARKAR for Petitioner(s) : 1, MS PAURAMI B SHETH for Respondent(s) : 1, ========================================================= CORAM : HONOURABLE MR.JUSTICE AKIL KURESHI and HONOURABLE MS.JUSTICE HARSHA DEVANI Date : 02/07/2012 SCA/9817/2009 2/19 JUDGMENT ORAL JUDGMENT (Per : HONOURABLE MR.JUSTICE AKIL KURESHI) 1. The petitioner has challenged notice dated 17.3.2009 as at Annexure­A to the petition by which the assessment for the assessment year 2003­2004 is sought to be reopened. The petition arises in the following factual background : 2. The petitioner is a company registered under the Companies Act and is regularly assessed to tax. For the assessment year 2003­ 2004, the petitioner filed its return of income on 30.11.2003. The return of the petitioner was taken in scrutiny by the Assessing Officer. During the assessment, detailed correspondences, questions and replies were exchanged between the Assessing Officer and the petitioner. The Assessing Officer ultimately framed assessment under Section 143(3) of the Income­tax Act, 1961 (“the Act” for short) for the said assessment year on 27.3.2006 determining the total income of Rs.6,70,122,000/­ under section 115JB of the Act. 3. In the return that the petitioner had filed, the petitioner had given details of significant accounting policies followed by it. Para.8 of Schedule 21 specifying such significant policies pertained to license fee. With respect to license fee payable to Department of Telecommunication by the petitioner company, it outlined its accounting policy till 31.7.1999 and, thereafter, with effect from 1.8.1999 in the following manner : “8. License Fee License Fee payable to the Department of Telecommunications, which was a fixed amount every year till 31st July 1999 and is payable on revenue sharing basis as per new Telecom Policy 1999 SCA/9817/2009 3/19 JUDGMENT w.e.f. 1st August, 1999, is treated as follows : Till 31st July, 1989 a) License fee payable upto to the date of commencement of commercial operations, I.e. 24th January, 1997, was treated as Deferred Revenue Expenditure and amortized on a straight line basis over the remaining period of license (without taking into consideration the extension in license period as per NTR 1999) b) License fee payable for the period subsequent to the commencement of commercial operations was amortized as an expense over the remaining period of license. w.e.f. 1st August 1999 c) The entire amount of License fee of Rs.3,667.63 million lying unamortised on the above basis as at the close of 31st July, 1999, after adjusting waiver of Rs.815.50 million as per the migration package to New Telecom Policy, 1999 is amortised w.e.f. 1st August, 1999 on Straight Line basis over the balance of extended License Period (in terms of New Telecom Policy, 1999) ending on 18th December, 2014) d) The amount payable as Revenue Sharing Contribution to Department of Telecommunications under New Telecom Policy 1999 w.e.f. 1st August, 1999 was charged to Profit and Loss Account at the rate of 15% of the Adjusted Gross Revenue(AGR) upto 24th January, 2001. As per Department of Telecommunication's (DOT) order dated 22nd September, 2001, the Company has paid/provided for license fees at the rate of 12% and for WPC fees at the rate of 3% of the Adjusted Gross Revenue (AGR) from licensing activities w.e.f. 25th January, 2001.” 4. While processing the return of the petitioner, the Assessing Officer issued a communication dated 1.9.2005 and required the representative of the petitioner to remain present before him on an appointed day with necessary documents and replies to several queries annexed to such letter which included the following: “22. Please furnish the detailed working deduction claimed u/s. SCA/9817/2009 4/19 JUDGMENT 35ABB of Rs.27,62,40,888/­ and justify your claim. 27.Please refer to Note No.8(c) in Schedule 21 regarding license fees of Rs.3667.63 Million and the amortization of the same. Please explain and submit the details of the same. Please also furnish the details of amount payable as revenue sharing contribution to DOT as stated in Note 8(d) of the same schedule.” 5. In response to such communication, the petitioner replied under letter dated 15.9.2005. Such letter contained explanation with respect to deduction under section 35ABB of the Act as under : “2. In respect of following expenditure, your kind reference is invited to the Tax Audit Report in form no. 3CD as filed along with the Return of Income of the impugned Assessment Year. However, these details are being reproduced along with this letter as indicated below: (c) 35ABB Details as per Annexure­3 of the 3CD report vide Annexure­2B.” 6. Annexure­2B referred to in above reply in turn reads as under : “Details of deductions under Section 35ABB a. The cellular services commenced on 24th January, 1997 i.e. previous year ending on 31st March, 1997. b. As per the old license terms, it would have come end on expiry of 10 years i.e. on 8th December, 2005(previous year ending on 31st March, 2006) c. As per the NTP 99, license term has been increased to 20 years and it expires on 17th December, 2015 i.e. previous year ending on 31st March, 2016. The computation of deduction is as follows : SCA/9817/2009 5/19 JUDGMENT Deduction fraction Amount paid Amount claimed till Assessment year 2002­2003 Deduction for the year 1 In respect of amount paid in 1996­97 1/20 2,038,750,000 917,437,500 101,937,500 2 In respect of amount paid in 1997­98 1/19 815,500,000 309,985,381 42,921,053 3 In respect of amount paid in 1998­99 1/18 ­ ­ 4 In respect amount paid in 1999­00 1/17 2,233,499,702 394,147,005 131,383,335 Note : From assessment year 2000­2001, the denominator has been changed as per the terms of License under NTP 99, I.e. the denominator has been increased by 10. Amount debited to Profit and Loss account Rs.238,242,552” 7. Yet another clarification came to be made by the petitioner under communication dated 29.10.2005 in the following manner : “As regards Amortization of License Fees, it is submitted that the company had Balance of Rs.3,031.87 million of unabsorbed License fees under the heading Miscellaneous Expenditure out of the same Licence Fees amounting to Rs.238.24 million had been amortized against the profit of the impugned A.Y. and the same has been disallowed in the return of income. 4. During the relevant A.Y. the assessee has entered into the international transaction in the nature only of Encashment of Bank Guarantee and for the same Comparable Uncontrolled Price method has been adopted and it has been reflected from Annexure'A' to Form No.3CEB file along with the return of income copy of which is enclosed as Annexure­2. 5. Detailed working of deduction claimed u/s.35ABB of Rs.27,62,40,888 is enclosed as Annexure­3” 8. In yet another communication dated 20.12.2005, the petitioner clarified with respect to this claim which as under : SCA/9817/2009 6/19 JUDGMENT “Point No.20: The assessee has been asked to give the bifurcation of Expenditure amortized U/s.35ABB before commencement and after commencement of business and nature of expenditure. The details of the same is attached herewith vide Annexure­4.” 9. Yet again on 9.2.2006,the petitioner wrote to the Assessing Officer and stated inter­alia as under : “The assessee has been asked to provide for the details of Licence fee. In the same connection it is stated that the amount of 3667.63 million, as mentioned in the point no.8(c) of schedule­21 is the balance license fee, as on 31st July, 1999, which is amortized over the period of license, which is ending in 2014. The same is reproduced here under : License Fee payable to the Department of Telecommunications, which was a fixed amount every year till 31st July 1999 and is payable on revenue sharing basis as per new Telecom Policy 1999 w.e.f. 1st August, 1999, is treated as follows : “Till 31st July, 1989 a) License fee payable upto to the date of commencement of commercial operations, I.e. 24th January, 1997, was treated as Deferred Revenue Expenditure and amortized on a straight line basis over the remaining period of license (without taking into consideration the extension in license period as per NTR 1999) b) License fee payable for the period subsequent to the commencement of commercial operations was amortized as an expense over the remaining period of license. w.e.f. 1st August 1999 c) The entire amount of License fee of Rs.3,667.63 million lying unamortised on the above basis as at the close of 31st July, 1999, after adjusting waiver of Rs.815.50 million as per the migration package to New Telecom Policy, 1999 is amortised w.e.f. 1st August, 1999 on Straight Line basis over the balance of extended License Period (in terms of New Telecom Policy, 1999) SCA/9817/2009 7/19 JUDGMENT ending on 18th December, 2014) d) The amount payable as Revenue Sharing Contribution to Department of Telecommunications under New Telecom Policy 1999 w.e.f. 1st August, 1999 was charged to Profit and Loss Account at the rate of 15% of the Adjusted Gross Revenue(AGR) upto 24th January, 2001. As per Department of Telecommunication's (DOT) order dated 22nd September, 2001, the Company has paid/provided for license fees at the rate of 12% and for WPC fees at the rate of 3% of the Adjusted Gross Revenue (AGR) from licensing activities w.e.f. 25th January, 2001.” 10.On 17.3.2006, the Assessing Officer wrote to the petitioner and besides other, called for following information : “(1) In the statement of income you have claimed amount allowable u/s.35ABB at Rs.27.62 crores. It is observed from para 8 of schedule 21(significant accounting policies) that with effect from 1st August, 1999 ie under new telecom policy, 1999, the unamortised license fees of Rs.366.76 crores has remained to be amortized. This amount is worked out after adjusting waiver of Rs.81.55 crores. Thus with effect from 1st August, 1999 and the remaining period is 16 years. Under section 35ABB,the allowable expenditure will be equal to the appropriate fraction of the amount of such expenditure. On asking about detailed explanation about the working of the allowability,in all your replies dated 29.10.2005 and 9.02.2006, you have just enclosed the copy of annexure­3(clause 15(1))of the return. Ion these replies, it is not clear as to whether this waiver of Rs.81.55 crores have been accounted for. Further details of claim made in each year, prior to this year is also not clear. Under this circumstance, and in the absence of clear bifurcation of allowability u/s.35ABB of the Act for each of the years, it will be assumed that the waiver of Rs.81.55 crores has not been taken care of. Suitable working will be made accordingly.” 11.In reply to said letter dated 17.3.2006, the petitioner sent its communication dated 21.3.2006 clarifying this issue in the following manner : “Point 1 SCA/9817/2009 8/19 JUDGMENT Claim under Section 35ABB of Rs.37.62 Crore Please note that company has been granted waiver of two installments I.e. Rs.81.55 Crore from Department of telecommunication(DOT) in respect of payment of licence fees. This amount was reduced from the amount payable to DOT upto 31.7.99. The deduction under Section 35ABB is claimed on the basis of actual payment made to DOT as per working attached to Form No.3CD. So, the waiver of 81.55 Crore does not affect the claim of deduction under Section 35ABB.” 12.After this entire exercise was completed, the Assessing Officer framed his assessment on 27.3.2006. In such assessment order, there was no discussion with respect to the claim of deduction of the petitioner with respect to license fee. However, such claim was accepted without any disallowance. 13.It is this assessment which the Assessing Officer seeks to reopen for which the impugned notice dated 17.3.2009 came to be issued. 14.At the request of the petitioner, the Assessing Officer provided the reasons he had recorded for reopening the assessment. Such reasons read as under : “2. As demanded the reason for reopening of your case vide your application dated 07.04.2009 is as under : Under section 35ABB of the I.T.Act, 1961 any expenditure incurred and paid in any previous year of a capital nature incurred for acquiring license/right to operate telecommunication services in any previous year either before the commencement of business or thereafter, shall be allowed a deduction equal to the appropriate fraction of such expenditure paid in each of the relevant previous years. As per Explanation (i)(B) 'relevant previous year' means the previous years beginning with the previous years in which the license fee is actually paid and the subsequent previous year or years during which the license, for which the fee is paid,shall be in force and as per Explanation (ii) “appropriate fraction” means the fraction the numerator of which is one and the denominator of which is the total number of th relevant previous years. SCA/9817/2009 9/19 JUDGMENT On perusal of the profit and loss account and statement of computation of income, it was seen that a deduction of Rs.276.24 lacs was allowed from income u/s.35ABB ibid. being the amortized sum of fixed license fee paid up to July 1999. Further, it was observed from schedule 14; operating Charge that the entire sum of Rs.39.54 crores incurred during the previous year 2002­03 towards license fee was charged to profit and loss account. In note 8 of schedule 16 it was mentioned that the assessee had treated the yearly license fee incurred from August 1999 and onwards as revenue expenditure pursuant to migration to the New Telecom Policy 1999 in April 2002. Accordingly, license fee expenditure of Rs.39.54 incurred during the previous year was charged to profit and loss account. However, license fee was in the nature of capital expenditure as it was paid to acquire and keep in force the license/right to operate the telecommunication services. Further, the fee paid to keep the license in force had an enduring benefit since the account had obtained a right to operate the telecommunication service for a period of 20 years beginning January 1997 and ending in December 2016.This was in fact more that the premigration license for 10 years period of January 1997 to December 2006. Prior to migration too the new policy too, assessee was required to pay license fee on a fixed formula basis. Under the new policy assessee was required to pay license fee each year but on a revenue sharing basis. Thus, except for the change in mode of computation of license fee, the nature of payment remained same from the commencement of business itself. In fact, assessee had acquired a greater enduring benefit than that was in place prior to migration. On migration to the new telecom policy, license granted for enhanced period of 20 years from 10 years earlier. The principals laid down by the Hon'ble Supreme Court in the case of Assam Bengal Cement Co. Ltd Vs. CIT 57 ITR 422 are relevant in the instant case, wherein it was held that the fact that payment was not a lump sum but recurring payment and was spread over a number of years was immaterial. One had to look at the nature of payment and what was acquired by the assessee in consideration of the same. In the case of assessee, the nature of payments clearly indicates that it has acquired an asset or advantage of enduring benefit thought the payments are recurring that under the Act, the expenditure on license is considered as a capital nature becomes crystal clear from the fact that the license too is covered under the business and commercial rights treated as intangible asset eligible SCA/9817/2009 10/19 JUDGMENT for depreciation u/s.32(1) of the Act. Thus, even though the assessee has effected a change in its accounting policy for the purpose of its books vis­a­vis the treatment of expenditure on license fee, the expenditure continued to be in the nature of capital expenditure for the purpose of I.T. Act and deduction was allowable only within the ambit of the provisions of section 35ABB of the Act equal to the appropriate fraction prescribed therein. Omission to restrict the deduction for expenditure on license fee in terms with the provisions of section 35ibid resulted in under assessment of income as follows ; Current previous year (a) 2002­03 Previous year up to which the license to operate telecommunication services granted (b) 2016­17 Therefore the denominator (remaining relevant years) (a) ­(b) (c) 15 Expense on license fee allowed deduction during the year (d) 35450000 Therefore deduction allowable at appropriate fraction (c)/(d) I.e. 1/12 x Rs.395450000 (e) 26363333 Excess deduction allowed & underassessment of income (d)­(e) (f) 369086667 Therefore, I have reason to believe that income has escaped assessment within the meaning of section 147. Since more than four years have lapsed necessary sanction u/s. 151 of the I.T. Act has been obtained from the CIT­IV , Ahmedabad.” 15.The petitioner raised its objections to such proposal for reopening of the assessment vide its communication dated 17.6.2009. Several contentions were raised including that completed assessment cannot be reopened beyond a period of four years in absence of failure on part of the assessee to disclose truly and fully all material facts. It was contended that entire issue was examined threadbare by the Assessing Officer while framing the original assessment. Any attempt to deny this benefit at this stage would SCA/9817/2009 11/19 JUDGMENT only amount to change of opinion. 16.The Assessing Officer however, rejected the objection vide his order dated 24.8.2009. He was of the opinion that though the assessee had effected the change in his accounting policies for the purpose of its books, the expenditure incurred on the license fee continued to be in the nature of capital expenditure and the deduction thereof can be allowed only within the ambit of Section 35ABB of the Act. The Assessing Officer placed reliance on certain decisions of the Apex Court to suggest that every disclosure cannot be treated as true and full disclosure and that mere production of evidence before the Income Tax Officer would not be enough and there may be cases of omission or failure to make true and full disclosures. If some material for the assessment lay embedded in the evidence which the assessee could have uncovered but did not, would not absolve the assessee from onus to make full and true disclosure. Primarily on these grounds, the Assessing Officer rejected the objections of the petitioner. At which stage the petitioner approached this Court by filing the present petition. 17.Learned senior counsel Shri S.N. Soparkar appearing for the petitioner vehemently contended that there was no failure or omission on part of the assessee to disclose fully and truly all material facts necessary for assessment which occasioned any escapement of income chargeable to tax. He therefore, would submit that notice for reopening the issue beyond a period of four years from the end of relevant assessment year lacks jurisdiction. Taking us through the return of income filed by the petitioner and the correspondence exchanged between the petitioner and the Assessing Officer, during the course of original SCA/9817/2009 12/19 JUDGMENT assessment, the counsel submitted that the issue of deduction of the expenditure for license fee paid by the petitioner was one of the central controversies in the original assessment. The Assessing Officer after having raised several queries and elicited replies to the petitioner, made no disallowance in the final order of assessment. Any different view at this stage therefore, would only amount to change of opinion. Counsel submitted that all facts necessary for assessment were placed before the Assessing Officer in the original assessment as well as through further materials placed during the course of assessment. 18.On the other hand, learned counsel Shri Paurami Sheth for the department opposed the petition contending that the question of deduction of license fee was not examined by the Assessing Officer. All the queries raised during the assessment proceedings pertained to other aspects. There was failure on part of the assessee to disclose truly and fully all material facts. Reasons recorded sufficiently bring out this aspect of the matter. Assessment at this stage, therefore, should be allowed to be proceeded further. 19.Having thus heard learned counsel for the parties and having perused the documents on record, we may recall that the notice of reopening under section 148 of the Act has been issued beyond a period of four years from the end of the relevant assessment year. In that view of the matter, in addition to the Assessing Officer holding a belief that income chargeable to tax has escaped assessment, requirement of proviso to section 147 also must be fulfilled which reads as under : SCA/9817/2009 13/19 JUDGMENT “Provided that where an assessment under sub­section(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 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 sub­section(1) of section 142 or section 148 or to disclose fully and truly all material facts necessary for his assessment, for that assessment year.” 20.The moot question in the present case is whether there was any failure on part of the assessee to disclose fully and truly all material facts necessary for the assessment of assessment year in question. 21.Answer to such question, shall have to be ascertained from the reasons recorded by the Assessing Officer which reasons would have to be appreciated with the aid of the documents on record. 22.In the reasons recorded, the Assessing Officer though has outlined in some detail his belief that in case of the petitioner, income chargeable to tax has escaped assessment, he has not in any manner brought out to form the belief that such escapement of income was on account of failure on part of the assessee to disclose truly and fully all material facts. Though such precise words may not be necessary to satisfy the requirement of proviso to section 147 of the Act, such fact must be discernible from the reasons recorded to enable the Assessing Officer to assume jurisdiction to reopen the assessment. In that view of the matter, we have tried to peruse the reasons very minutely. It primarily suggests that according to the Assessing Officer the claim for deduction of license fees paid by the petitioner assessee was SCA/9817/2009 14/19 JUDGMENT required to be dealt with in the manner provided in section 35ABB of the Act. Even if the petitioner changed its accounting policy, such expenditure continued to be in the nature of capital expenditure and the deduction thereof was to be governed by Section 35ABB of the Act. Nowhere do the reasons record that such treatment to the expenditure was not accorded in the original assessment on account of failure or omission on part of the petitioner to disclose truly and fully all material facts. 23.The reasons recorded also do not indicate or suggest any new material which the Assessing Officer may have received after framing of the assessment on the basis of which he formed an opinion that income chargeable to tax has escaped assessment. 24.Quite apart from these significant aspects, we may also recall that during the scrutiny assessment, the Assessing Officer raised series of questions and queries. Many of these queries pertained directly to the petitioner's claim for deduction of the license fees paid. In the return that the petitioner filed, the petitioner had highlighted the change in the accounting policy pre and post 1.8.1999. The Assessing Officer had on 1.9.2005 called upon the petitioner to furnish a detailed working of the deduction claimed under section 35ABB of the Act and had also called upon the petitioner to explain with respect to notice under section 8(c) of schedule 21 i.e. the significant accounting policies pertaining to license fees (post 1.8.1999) regarding license fee of Rs.3,667.63 million. Assessing Officer asked the petitioner to explain and submit the details of the same and also asked the petitioner to furnish the details of amount payable as revenue sharing contribution to DOT as stated in note 8(d) of the said schedule. The petitioner replied SCA/9817/2009 15/19 JUDGMENT to such queries and submitted the details as available. 25.Further reply came to be issued by the petitioner on 29.10.2005 in which the petitioner stated inter­alia that regarding the amortization of license fees, the company had balance of Rs.3,031.87 million of unabsorbed license fees under the heading Miscellaneous expenditure. Out of the same license fees amounting to Rs.238.24 million has been amortized against the profit of said assessment year and same has been disallowed in the return of income. Detailed working of such deduction was also provided. 26.There are further queries by the Assessing Officer and replies by the petitioner on this issue. It is however, not necessary to take note of the same. Suffice it to record that during the original assessment that the Assessing Officer framed after scrutiny, he was fully conscious and alive to the petitioner's claim of deduction of license fee expenditure. Such deduction was claimed at the outset. Claim was explained and justified through correspondences and series of queries raised by the Assessing Officer. Detailed work out was provided as demanded. It therefore, cannot be stated that the petitioner relied on certain disclosures made in the return filed which only upon due diligence by the Assessing officer could be unearthed. The entire issue was threadbare examined by the Assessing Officer. It may be that ultimately in the assessment order that he passed, he did not deal with this aspect while not making any disallowance. In the present case, we are not called upon to opine whether same would amount to forming an opinion and therefore, any reopening at a later stage would be impermissible on mere change of opinion. We are called upon to decide whether SCA/9817/2009 16/19 JUDGMENT in the facts of the case reopening of assessment beyond a period of four years from the end of the relevant assessment year could be permissible. 27.As already noted, in the reasons recorded, the Assessing Officer placed no reliance on any new material at his command to form a belief that income chargeable to tax has escaped assessment. Further during the original assessment framed after scrutiny, the claim of deduction for license fees paid by the petitioner came up for consideration. Various aspects thereof were examined. It may be that some of the queries did not directly relate to such claim and the limitation of deduction as provided in Section 35AAB of the Act. However, entire issue was at large before the Assessing Officer. He had occasion to apply his mind and material was elicited and placed before him before the final assessment was framed. 28.Under the circumstances, it cannot be stated that there was any failure or omission on part of the petitioner to disclose truly and fully any material facts necessary for assessment. Even the attempt on part of the Assessing Officer to rely on explanation(1) of section 147 would not be tenable. Such explanation reads as under : “Explanation 1 : Production before the Assessing Officer of account books or other evidence from which material evidence could with due diligence have been discovered by the Assessing Officer will not necessarily amount to disclosure within the meaning of the foregoing proviso.” 29.In case of Calcutta Discount Co. Ltd v. Income­tax Officer, Companies District Calcutta and another reported in 41 ITR 191,the Apex Court held that in every assessment proceeding the SCA/9817/2009 17/19 JUDGMENT Assessing Authority would for the purpose of computing or determining the proper tax due from an assessee, require to know all the facts which help in coming to the correct conclusion. From the primary facts in his possession, whether on the disclosure by the assessee, or discovered by him on the basis of the facts disclosed or otherwise the Assessing Authority had to draw inferences as regards certain other facts and ultimately from the primary facts and further facts inferred from them, the authority had to draw the proper legal inferences and ascertain on the correct interpretation of taxing enactment, the proper tax leviable. So far as primary facts were concerned, it was the assessee's duty to disclose all of them. The duty however, did not extend beyond full and truthful disclosure of all primary facts. Once all primary facts were before the Assessing Authority, it was for him to decide what inferences of facts can be drawn. It is not for somebody else, far less the assessee to tell the assessing authority what inferences, whether of facts or of law, should be drawn. 30.To our mind, this important aspect and conclusion of the Constitution Bench of the Apex Court would squarely apply in the present case. 31.Assessing Officer while rejecting the objections of the petitioners, relied on decision of the Apex Court in case of Indo­Aden Salt Mfg & Trading Co. P . Ltd v. Commissioner of Income­tax, Bombay reported in 159 ITR 624 which to our mind was not well founded. In the said decision, the Apex Court held that the fact that the Income Tax Officer could have in the original assessment proceedings found out the correct position by further probing did not exonerate the appellant from the duty to make a full and true SCA/9817/2009 18/19 JUDGMENT disclosure of material facts. 32.The Assessing Officer also relied on the decision of the Apex Court in case of Sri Krishna Pvt.Ltd. Etc. v. Income Tax officer and others reported in 221 ITR 538, wherein it was observed that the Income Tax Officer could have investigated the truth of the assertions of the petitioner which he actually did in the subsequent assessment year but that did not relieve the assessee of the obligation, placed upon it by the statute to disclose fully and truly all material facts. 33.In the present case, we have noticed that in addition to lodging the claim for deduction in the original return filed giving full details and particulars and accounting policies followed by it, the petitioner further elaborated its claim for deduction to the query issued by the Assessing Officer during such correspondence. Through such correspondence, at­least full details of such claims were brought on record. In essence, the assessee desired to claim deduction of license fees paid. If the Assessing Officer was of the opinion that such expenditure had to be spread over as provided in Section 35ABB of the Act, nothing prevented the Assessing Officer from doing so in the original assessment that he framed. Full facts with respect to such claim were on record before him. Thereafter, what legal inferences should be drawn and which statutory provision should be applied while allowing, rejecting or limiting such claim, was within the sole domain of the Assessing Officer. It was not for the assessee to lead the Assessing Officer to any particular legal inference. 34.Under the circumstances, we are of the opinion that the impugned SCA/9817/2009 19/19 JUDGMENT notice is not sustainable. Same is therefore, quashed. Rule is made absolute accordingly with no order as to costs. (Akil Kureshi,J.) (Harsha Devani,J.) (raghu) "