VODAFONE ESSAR GUJARAT LTD (FORMERLY KNOWN AS FASCEL LTD) v. ASSISTANT COMMISSIONER OF INCOME TAX

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 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 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 JUDGMENT “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 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.”

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 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 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 inter-alia 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 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. Income-tax Officer, Companies District Calcutta and another reported in 41 ITR 191,the Apex Court held that in every assessment proceeding the SCA/9817/2009 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 Indo-Aden Salt Mfg & Trading Co. P. Ltd v. Commissioner of Income-tax, 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 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, at-least 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 JUDGMENT notice is not sustainable. Same is therefore, quashed. Rule is made absolute accordingly with no order as to costs. (raghu) (Akil Kureshi,J.) (Harsha Devani,J.)