EMA India vs. ACIT (Allahabad High Court)

DATE: (Date of pronouncement)
DATE: October 5, 2009 (Date of publication)

Click here to download the judgement (ema_india_kelvinator_s_147_reopening.pdf)

An order passed without discussion is liable for reopening. Kelvinator 256 ITR 1 (Del) (FB) dissented from

In respect of AY 2000-01, the assessee filed a ROI. In the accompanying balance sheet it was disclosed that prior period expenditure of Rs. 5,41,850 was debited to the P&L A/c and that interest of Rs. 8,34,720 receivable from a particular party had not been accounted for as income. The AO passed an order u/s 143(3) in which he did not make any addition on account of the aforesaid two items. Subsequently (within four years), he issued a notice u/s 148 in which he took the view that income had escaped assessment as the prior period expenditure was not allowable as a deduction and the interest on advances was assessable. The assessee filed a writ petition on the ground that there being a disclosure of the material facts and the implied acceptance of the stand of the assessee vide the s. 143 (3) order, the reopening was based on a change of opinion. HELD, dismissing the Petition:

(i) Reassessment is permissible where the AO has passed an assessment order without any application of mind. If the order of assessment does not contain any discussion on a particular issue, the same may be held to have been rendered without any application of mind. On facts, as there was no discussion by the AO in the s. 143 (3) order about the prior period expenditure and the non-offering of interest income, there was no application of mind by the AO and he was entitled to reopen;

(ii) The judgement of the Full Bench of the Delhi High Court in CIT vs. Kelvinator of India Ltd. 256 ITR 1 where it was held that when an order u/s 143 (3) is passed, a presumption is raised that it has been passed on application of mind and that the Revenue cannot support reopening on the ground of non-application of mind because that would amount to giving a premium to an authority to take benefit of its own wrong cannot be followed as it is contrary to the law laid down by the Supreme Court in Kalyanji Mavji 102 ITR 286, Indian Eastern Newspaper Society 119 ITR 996 and A. L. A. Firm 189 ITR 285 where it was held that if the AO had not considered the material on record and subsequently came across it, the case fell within the scope of s. 147(b) and could be reopened. The Full Bench also did not consider the effect of Explanations 1 & 2 to s. 147;

(iii) If the reassessment is within 4 years, the fact that the assessee has made a disclosure of material facts is not a defense in view of Expl. 1;

(iv) The effect of Expl. 1 to s. 147 is that the assessee does not discharge his duty by merely producing the books of account or other evidence. He has to further bring to the notice of the Assessing Officer particular items in the books of account or portions of document which are relevant. The fact that from the books produced, the AO could have found out the truth does not preclude him from exercising the power to re-assess the escaped income;

(v) On facts, though the books of account including audit report, profit and loss account, balance sheet and other documents were filed before the AO at the time of passing of the s. 143 (3) order and it was stated in the balance sheet that the amount of Rs. 8, 34,720 was not credited in the profit and loss account, still it does not amount to disclosure under Expl. 1 to s. 147 since the same could have been discovered by the AO only with due diligence.

Note: Kelvinator 256 ITR 1 (Del) (FB) has been followed by the Bombay High in Asian Paints 308 ITR 195.
See Also Idea Cellular 301 ITR 407 (Bom), Hari Iron 263 ITR 437 (P&H) and Eicher 294 ITR 310 (Bom) where it was held that the fact that there is no discussion in the assessment order does not mean there is no application of mind.