Woodward Governor (India) Ltd vs. ACIT (Delhi High Court)

DATE: October 5, 2016 (Date of pronouncement)
DATE: November 1, 2016 (Date of publication)
AY: 1997-98
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S. 147: Even if the claim for s. 80-IA deduction is contrary to Pandian Chemicals 262 ITR 278 (SC) and Liberty India 317 ITR 218 (SC), the assessment cannot be reopened (beyond 4 years) in the absence of tangible material. The reasons recorded for the reopening cannot be improved or supplemented later

(i) The revenue in support of the reassessment notice urges that the failure of the petitioner to indicate the break-up of income that arose on account of commission and interest on fixed deposits empowers it to proceed under Section 147. It is submitted that in any event, the materials on record originally disclosed to the revenue at the time of completion of assessment, do not give the appropriate break up; more significantly the AO did not make diligent enquiries in that regard. It is urged that the two heads of Income sought to be passed off as deductions and clubbed with the receipts that are legitimately admissible under Section 80-IA, are contrary to the declaration of law by the Supreme Court in Pandian Chemicals Ltd. Vs. CIT reported in 262 ITR 278 SC and Liberty India vs. CIT (2009) 317 ITR 218 SC.

(ii) The counsel for the petitioner urges that the so-called opinion or “reasons to believe” leading to the re-assessment, nowhere indicate any objective material much less tangible material in that impelled the AO to revisit a concluded issue. It is urged that the rationale for re-opening is utterly inaccurate because during the course of assessment proceedings, full disclosure including the break-up of income was in fact made.

(iii) It is evident from a plain reading of the reasons furnished by the revenue that there is no allusion to tangible material in the form of objective documents, information etc outside of the concluded assessment and the documents pertaining to it. According to the binding ruling of the Supreme Court in Commissioner of Income Tax vs. Kelvinator Ltd. 320 ITR 561, sans such documents, evidence or tangible material, there cannot be valid opinion leading to proper re-assessment proceedings.

(iv) The rationale furnished by the revenue in its counter affidavit and reiterated in the court during the hearing was that a component of income which was otherwise inadmissible but escaped the notice of the AO, because of the ratio in Liberty India and Pandian (supra) is unpersuasive. Besides, the lack of any reference to objective material, cannot in any way improve the case of the revenue – much less its reference to otherwise binding judgments that could have been the basis of a valid revision by the revenue under Section 264. It goes without saying that statutory orders containing reasons are to be judged on the basis of what is apparent and not what is explained later, as the validity of those orders does not improve with time or on account of better explanations furnished in the course of legal proceedings (refer M.S. Gill and Anr. vs. Chief Election Commissioner AIR 1978 SC 581).

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