Reassessment upheld for non disclosure of Interest income set off against interest on loans and advances when production was not commenced
ABCAUS Case Law Citation:
ABCAUS 2262 (2018) (03) HC
The appellant Revenue was aggrieved by the order of the first appellate authority and the Income Tax Appellate Tribunal (ITAT) quashing the reassessment by holding that the assessee had made a full and true disclosure of all material facts necessary for assessment, when the assessee had not returned the income received as interest from deposits in Bank
The proceedings for re-assessment were initiated on grounds of escapement of income alleging non-disclosure of full and true material facts necessary for assessment; within six years.
The assessee had filed a return of income for the relevant assessment year disclosing a total income of Rs. 3,14,050/- which also included interest income. Later, it was discovered by the Assessing Officer (AO) that the interest income amounting to approx Rs. 38,35,504/- was not disclosed. Hence a notice was issued under Section 148 for re-assessment on the allegation of non-disclosure of full and true material facts.
The assessee contended that the return of income was a mistake committed; on misconception of law, especially since the assessee had un-utilized funds obtained by way of loans and advances from financial institutions and others, which were kept in short term deposits. The interest income so obtained from the short term deposits was only to be set off against the interest liability in the various loans and advances, was the argument. The assessee had also not commenced production in the previous year to the assessment year and there was no revenue receipts available to the assessee.
However, the contentions were rejected by the AO who completed the assessment by taxing the interest income of Rs. 34,51,954/-, which was not earlier returned.
The CIT(A) found that the schedule to the balance sheet mentioned that the interest income was net. Similalry there was a foot note in the statement of total income to this effect. CIT(A) held that the assessee had nothing left to be disclosed as a further primary fact. It was held that there could be no allegation of non-disclosure of full and material facts alleged against the assessee.
The Tribunal also concurred with the first appellate authority and found that in Section 147 proceedings, the balance sheet, more particularly, the said schedule was already available with the A.O. at the time of regular assessment.
Before the Hon’ble High Court the assessee contended that full disclosure was made in the profit and loss account, which was available with the Assessing Officer. The assessee had disclosed everything possible and it could not be asked to point out the inferences, which could be drawn from the material facts placed before the Assessing Officer, as has been held by a Constitution Bench of the Supreme Court, by majority.
However the Hon’ble High Court observed there was nothing to indicate that the Assessing Officer was apprised of the fact of there being interest income in addition to that disclosed in the return. The contentions raised were only with respect to the income returned and though the very same contentions were available against the interest income that was not disclosed in the return, there was no reference made to that by the Accounts Officer of the assessee.
The Hon’ble High Court observed that in the decision relied by the assessee, the Hon’ble Supreme Court contemplated a possible contention of production of books of accounts and other evidence and an assertion made by the assessee that the Income Tax Officer ought to have employed due diligence and discovered further facts as available from the books of accounts in view of section 64, which specified the production of books of accounts or other evidence before the ITO from which material facts could be discovered by due diligence which would not necessarily amount to disclosure within the meaning of the said Section. Explanation-I, in patri materia; is still available under Section 147.
The Hon’ble High Court opined that the assessee could not have claimed that the Assessing Officer ought to have employed due diligence and found out the further interest income from Bank deposits, which were not returned, but available in the books of accounts. This disclosure, going by the Explanation-I to Section 147 has to be made by the assessee in the return. That details were available in the books of accounts or the balance sheet or profit and loss account cannot absolve the assessee from a true and correct disclosure of material facts necessary for assessment. We are of the opinion that the first appellate authority and the Tribunal went wrong in finding that the facts of the case indicate full and true disclosure of facts which are necessary for assessment in the subject assessment year.
The appeal was allowed.