Ita/1123/2009 Of The Commissioner Of Income Tax v. Parry Agro Industries Ltd

IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT: THE HONOURABLE MR.JUSTICE K.VINOD CHANDRAN & THE HONOURABLE MR. JUSTICE ASHOK MENON WEDNESDAY, THE 23RD DAY OF MAY 2018 / 2ND JYAISHTA, 1940 ITA.No. 1123 of 2009 -----------------------AGAINST THE ORDER IN ITA 1227/2004 of I.T.A.TRIBUNAL,COCHIN BENCH DATED 11-05-2007 APPELLANT(S)/APPELLANT/APPELLANT -------------------------------- THE COMMISSIONER OF INCOME TAX, COCHIN. BY SRI.JOSE JOSEPH, SC, FOR INCOME TAXSRI P.K MENON, SR COUNSEL, GOVERNMENT OF INDIA (TAXES) RESPONDENT(S)/RESPONDENTS: -------------------------- PARRY AGRO INDUSTRIES LTD., BRISTOW ROAD, WILLINGDON ISLAND,, KOCHI - 3. R BY ADV. SRI.P.BENNY THOMAS R BY ADV. SRI.P.GOPINATH R BY ADV. SRI.K.JOHN MATHAI R BY ADV. SRI.E.K.NANDAKUMAR R BY ADV. SRI.RAJAN P.KALIYATH THIS INCOME TAX APPEAL HAVING BEEN FINALLY HEARD ON 23-05-2018,THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING: ITA NO. 1123/2009 APPELLANTS ANNEXURES:--------------------- APPENDIX ---------- ANNEXURE A: COPY OF ORDER UNDER SECTION 143(3) R.W.S 147 DTD 22.03.2002 FOR THE ASST. YEAR 1994-95 ASST. YEAR 1994-95 ANNEXURE B: COPY OF THE ORDER DATED 31.08.2004 OF THE COMMISSIONER OF INCOME TAX (APPEALS) INCOME TAX (APPEALS) ANNEXURE C: COPY OF THE ORDER DT 11.05.2007 OF THE INCOME TAX APPELLATE TRIBUNAL COCHIN BENCH IN ITA NO. 1227COCH/2004 TRIBUNAL COCHIN BENCH IN ITA NO. 1227COCH/2004 ANNEXURE A1: TRUE COPY OF THE ASSESSMENT ORDER DT 31.03.1997 FOR THE ASST. YEAR 1994-95 1994-95 RESPONDENTS ANNEXURES: --------------------- ANNEXURE R1(a): THE ORDER DT 15.01.1999 PASSED BY THE COMMISSIONER OF INCOME-TAX (APPEALS) II, COCHIN INCOME-TAX (APPEALS) II, COCHIN TRUE COPY jma P.A TO JUDGE K. VINOD CHANDRAN & ASHOK MENON, JJ - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - I T Appeal No. 1123 of 2009 - - - - - - -- - - - - - - - - - - - - - - - - - - - - - - - - - - - Dated this the 23[rd] day of May, 2018 J U D G M E N T Vinod Chandran, J The question of re-opening of assessment underSection 147 of the Income Tax Act is up for consideration and thequestion of law as arising from the above appeal is re-framed asfollows: “Whether in the facts and circumstances of thecase, the Tribunal was correct in having interfered withthe re-assessment proceedings initiated under Section 147on the ground that there was absence of full and truedisclosure of material facts, as is necessary when suchre-assessment proceedings are taken up after four years;mandated by the statutory prescription as available inSection 147?” ITA No.1123/2009 - 2 - 2. The assessee is a company having plantations of itsown and also carries on trade in tea and coffee. The assessee dealsin tea grown in their plantations as also tea purchased fromoutside sources. For the assessment year 1994-95, assessment wascompleted by Annexure-A order on 31.03.1997. The loss fromPacket Tea Division (PTD) as found in the original assessmentorder was at Rs.1,86,29,034/-; which was allowed by the AssessingOfficer. After four years, notice was issued for re-assessment underSection 147 alleging that the entire loss of PTD cannot be claimedby the company as deduction. The reasoning was that the saleeffected by the PTD also included tea grown in its own plantations,at a proportion of 39% of the total tea sales. According to theRevenue 60% of the loss attributable to sale of tea grown in its ownplantations has to be apportioned, applying Rule 8 of the IncomeTax Rules; ie., 40% towards Income Tax under the Income Tax Actand 60% towards Agricultural Income Tax under the Agricultural Income Tax Act. The Assessing Officer confirmed the proposal ofre-assessment which was challenged in First Appeal. 3. The Commissioner of Appeal reversed the order of the Income Tax Act. The Assessing Officer confirmed the proposal ofre-assessment which was challenged in First Appeal. 3. The Commissioner of Appeal reversed the order of the Assessing Officer, finding that there cannot be allegednon-disclosure of full and true facts and the Tribunal too affirmedthe view of the first appellate authority. The Tribunal found thatwhat was attempted to be done on re-assessment, was to apply aninference which the original Assessing Officer could have drawnfrom the facts disclosed in the returns and the books of accountswhen the original assessment itself was taken up. 4. The learned Senior Counsel appearing for theRevenue would contend that it was the duty of the assessee to haveapportioned the loss as applicable to the sale of tea from the PTD,which was sourced from its own plantations to be adjusted againstthe agricultural income tax; since the income too is to beapportioned as provided under Rule 8 of the Income Tax Rules. The apportionment having not been made in the returns, this wouldlead to non-disclosure of full and true material facts which wouldenable re-assessment under Section 147, even after the 4 yearperiod is the compelling argument of the revenue. 5. The learned Senior Counsel would challenge thefinding of the Tribunal that there was a consideration by theAssessing Officer in Annexure A1 as to the loss from PTD,pointing out the mere computation carried out in Annexure A1.This does not lead to a presumption that the matter was consideredelaborately by the Assessing Officer; is the argument. The learnedSenior Counsel relies on [1967] 66 ITR 714 [Killick Nixon and Co. v.Commissioner of Income-Tax, Bombay City I] to urge that a mereconclusion recorded cannot lead to a presumption that the evidenceavailable was considered. Reliance was also placed on [1970] 78ITR 466 [Malegaon Electricity Co. P. Ltd. v. Commissioner ofIncome Tax, Bombay]. It was argued that the cryptic statement of the Income-tax Officer referring to the loss from PTD as declaredby the assessee, having been allowed cannot lead to an assumptionof consideration by the Assessing Officer of the apportionmentbetween agricultural income tax and income tax; in the originalassessment. Reliance is also placed on [1961] 41 ITR 201 [CalcuttaDiscount Co. Ltd. v. Income-tax Officer[ and a decision of this Courtreported in [2018] 403 ITR 389 (Ker) [Commissioner of Income-taxv. Tata Ceramics Ltd.], to draw a parallel to the instant case; inwhich, according to the learned Senior Counsel, there is absence ofdisclosure of full and true material facts necessary for assessment;insofar as the apportionment of loss in the very same proportion ofapportionment of income under Rule 8 having not been followedby the assessee in the return filed. 6. The learned Counsel appearing for the assessee wouldargue that the apportionment of income under the AgriculturalIncome-tax Act and the Income-tax Act was a matter specifically considered and effectuated by the Assessing Officer. If at all therehad to be an apportionment of loss in the very same proportionunder Rule 8; it was an inference which could have been drawn bythe Assessing Officer from the materials available. This is soespecially since the said rule was applied in apportioning theincome and it was very evident that the loss occasioned in the PTDwas with respect to sale of tea grown in the assessee's ownplantations and that procured from third parties. There cannot be are-assessment proceedings initiated after four years on the groundof non-disclosure of full and true material facts especially since theAssessing Officer does not refer to any new facts detected; leadingto reassessment. The only ground is that the assessee did notapportion the loss; as was done in the case of income under Rule 8in the returns, which is not possible of being taken up onre-assessment. ITA No.1123/2009 - 7 - ITA No.1123/2009 - 7 - 7. The Income-tax Act by Section 143 provides for theAssessing Officer to assess any income or make such dis-allowancescontrary to that claimed by the assessee in its returns. The Act alsoby Section 147 provides for bringing to tax any income, whichescaped assessment within four years; without anything more thansufficient reasons being recorded under Section 148(2). TheRevenue cannot exercise such right to reassess for all timeespecially when the statute prohibits it, other than on specificcontingencies as laid out in the proviso to section 147, beyond theperiod of limitation of four years. One of such contingency isfailure to disclose fully and truly all material facts; which isresorted to in the instant re-assessment. 8. The first argument is that the original assessment having not considered the apportionment of loss, in the sameproportion as the income; the reassessment beyond four years is nota mere change of opinion. Killick Nixon and Co. and Malegaon Electricity Co. P. Ltd. were relied on to urge that a mere conclusionrecorded, in assessment or appeal, cannot be taken as a properconsideration of the various aspects. It is the submission of thelearned Senior Counsel appearing for the Revenue that merelybecause the original assessment order, which is produced asAnnexure A1, indicates deduction having been allowed for “lossfrom Packet Tea Division”, there can be no presumption that theAssessing Officer had considered the issue of apportionment of lossin proportion to the apportionment made of income under theAgricultural Income Tax Act and Income Tax Act. 9. Killick Nixon and Co. was a case in which theAppellate Assistant Commissioner estimated the value of threeassets, which was affirmed by the Tribunal. The specific contentionof the assessee before the Tribunal was that there was evidence onrecord showing that the market value exceeded the estimated value.The mere affirmation made by the Tribunal and the conclusion ITA No.1123/2009 - 9 - recorded could not be deemed to have been on a properconsideration of the evidence, was the finding. 10. Malegaon Electricity Co. P. Ltd. was a case in whichthough sale of assets and consideration received were shown in thereturn, the written down value was never brought to the notice ofthe Assessing Officer; despite the fact that the considerationreceived was far in excess of the written down value. The IncomeTax Officer had, in the original assessment, made a crypticstatement that no adjustment is necessary based on which theTribunal held that the reassessment was on a mere change ofopinion. The assessee argued that the sale of assets and theconsideration received where before the Assessing Officer andthere could be no allegation raised of non-disclosure of full andtrue facts. The Hon'ble Supreme Court found that the written downvalue having not been placed before the Assessing Officer therecould not be said to be disclosure of all full and true material facts. The matter was remanded to the Tribunal to first examine whetherthe amounts received as consideration in excess of the written downvalue could be deemed to be profit and if that question is answeredin the affirmative, there could be no flaw found in the reassessmentproceedings. The Hon'ble Supreme Court found that the Tribunalwas not justified in drawing the inference that the ITO hadconsidered all the relevant facts from a cryptic statement made thatthere need be no further adjustment made. We do not think thesituation in this case is in any way similar to the decisions relied on. 11. The reliance placed, on Calcutta Discount Co. Ltd. bythe Hon'ble Supreme Court and Tata Ceramics Ltd by this Court,does not support the Revenue's view. The judgment of this Courtwas one in which the judgment of the Hon'ble Supreme Court wasrelied on and there was found absence of full and true disclosure ofmaterial facts necessary for assessment. In Tata Ceramics Ltd., theassessee filed a return disclosing a total income just above Rs.3lakhs, which included interest income, which according to theassessee, was not liable to tax. In the original assessment, thecontention was rejected and the interest income was taxed. Later, itwas found that the interest income itself came to more thanRs.38lakhs, which was sought to be assessed to tax, as escapementof income, under Section 147. The four year period had elapsedand hence there was a contention raised that there was disclosure offull and true material facts necessary for assessment. Theallegation in Calcutta Discount Co. Ltd. was with respect tonon-disclosure of regular business of trading in shares. Theassessee had produced audited accounts in which the sale of shareswere expressly mentioned. In the regular assessment, the AssessingOfficer had also considered the issue of sale of shares and opinedthat there was only a change in investment. The regular trading inshares being easily discernible and having been returned; thefinding was that there could be no allegation raised of non-disclosure of full and true material facts. 12. Tata Ceramics Ltd., referring to Calcutta DiscountCo. Ltd., found a distinction on facts but relied on the dictum as laiddown by Calcutta Discount Co. Ltd., itself, but on facts upheld there-assessment in that case. As had already been noticed there wasonly a portion of the interest income disclosed in the returns. Therewas hence non-disclosure of full and true material facts whichresulted in the re-assessment proceedings being upheld. We are ofthe opinion that in the present case, the facts are more similar tothat in Calcutta Discount Co. Ltd., than that of Tata Ceramics Ltd.13. We see from the Annexure A1 order that thequestion of application of Rule 8 was specifically taken into accountby the Assessing Officer. Income from tea under Rule 8, ie: 40% ofthe income so computed was assessed to tax leaving 60% to beassessed under the Agricultural Income-tax Act. The sale carriedout by the assessee from the PTD would obviously include the tea ITA No.1123/2009 - 13 - grown in its own plantations, the income from which wasapportioned under Rule 8. The loss from the PTD as returned bythe assessee without any further disclosure in the returns wouldtake in the component of tea grown in its own plantations as alsothat purchased from outside sources. It is relevant that theAssessing Officer while allowing the loss from PTD failed todifferentiate the loss with respect to that occasioned by the sale oftea grown in the assessee's own plantations and apportion it in thesame manner, the income was apportioned under Rule 8. What isdiscernible is that the re-assessment was initiated not on thedetection of new facts which were not disclosed at the first instancebut only for application of Rule 8 of the Income-tax Rules. grown in its own plantations, the income from which wasapportioned under Rule 8. The loss from the PTD as returned bythe assessee without any further disclosure in the returns wouldtake in the component of tea grown in its own plantations as alsothat purchased from outside sources. It is relevant that theAssessing Officer while allowing the loss from PTD failed todifferentiate the loss with respect to that occasioned by the sale oftea grown in the assessee's own plantations and apportion it in thesame manner, the income was apportioned under Rule 8. What isdiscernible is that the re-assessment was initiated not on thedetection of new facts which were not disclosed at the first instancebut only for application of Rule 8 of the Income-tax Rules. 14. Rule 8 was applied to the income generated fromagricultural operations and the Assessing Officer merely failed toapply it in the case of loss occasioned. Even within the four yearperiod the question would arise whether it was a mere change of opinion or otherwise. To permit a re-assessment after the four year period, there should be failure to disclose all full and true material facts, on detection of which alone there could be proceedings underSection 147. This element of non-disclosure we fail to see in theinstant case. We hence answer the question of law in favour of theassessee and against the revenue and as a consequence reject theappeal. No order as to costs. Sd/- K. Vinod Chandran, Judge Sd/-Ashok Menon, Judge jma