TMI Blog2018 (8) TMI 2012X X X X Extracts X X X X X X X X Extracts X X X X ..... ORDER Per Joginder Singh(Judicial Member) The Revenue is aggrieved by the impugned order dated 21/11/2016 of the Ld. First Appellate Authority, Mumbai, treating the notice issued under section 148 of the Income Tax Act, 1961 (hereinafter the Act), as bad in law, as the same is based on mere change of opinion without appreciating that there was no discussion made in the assessment order and no details were called for by the Assessing Officer. 2. During hearing, Shri V. K. Chaturvedi, Ld. DR, advanced arguments, which is identical to the ground raised by contending that the Ld. Commissioner of Income Tax (Appeal), while coming to a particular conclusion, ignored the decision in Kalyanji Mavji Company vs CIT 102 ITR 287 (Supreme Court) and Ess Kay Engg. Company (P). Ltd. vs CIT (247 ITR 818)(Supreme Court). 2.1. On the other hand, the ld. counsel for the assessee, Shri Mehul Shah, defended the impugned order by contending that the necessary details were called for by the Ld. Assessing Officer before framing the assessment under section 143(3) of the Act. Our attention was invited to various pages of the paper book including page-15 17 by explaining that due e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rticular opinion was formed. Even in the original assessment order dated 20/05/2009, the Ld. Assessing Officer himself observes as under:- Return of income was filed on 29.07.2007 showing income of ₹ 2,82,58, 860/-. It was processed under section 143(1) of the IT Act on 16.08.2008 accepting the income returned. 2. The case was thereafter selected for scrutiny assessment and notices under section 143(2) 142(1) were issued. In response to above notices, Shri Rajiv Luthia, CA AR appeared from time to time, furnished various details called for, produced supporting evidences for verification and explained the income returned. He also produced the books of accounts which were examined. 3. Income shown by the assessee comprise of income from business profession of ₹ 65,517/- short term capital gains of ₹ 2,82,58,860/- and income from other sources of ₹ 5,158/-. The total income of ₹ 63,40,198/- is claimed as exempt income under various sections of the IT Act. 4. After verification of the datas made available and after verification of the details filed by the assessee, the assessment is finalized and the returned income is accepted as such. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ch cases is that the information or material available should relate to material facts. The expression material facts means those facts which if taken into account would have an adverse effect on the assessee by a higher assessment of income than the one actually made. They should be proximate and not have a remote bearing on the assessment. The omission to disclose may be deliberate or inadvertent. The question of concealment is not relevant and is not a precondition which confers jurisdiction to reopen the assessment. Correct material facts can be ascertained from the assessment records also and it is not necessary that the same come from a third person or source, i.e., from source other than the assessment records. However, in such cases, the onus will be on the Revenue to show that the assessee had stated incorrect and wrong material facts resulting in the assessment proceedings on the basis of facts, which are incorrect and wrong. The reasons recorded and the documents on record are of paramount importance and will have to be examined to determine whether the stand of the Revenue is correct. If a subject-matter, entry or claim/deduction is not examined by an Assessing Office ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... other aspects. (ii) Section 114(e) of the Act can be applied to an assessment order framed under section 143(3) of the Act, provided there has been a full and true disclosure of all material and primary facts at the time of original assessment. In such a case if the assessment is reopened in respect of a matter covered by the disclosure, it would amount to change of opinion. The ratio laid down in the following cases usefully throw lights on the issue in hand:- A. L. A. Firm v. CIT [1976] 102 ITR 622 (Mad) (para 9) A. L. A. Firm v. CIT [1991] 189 ITR 285 (SC) (paras 32, 60, 61) Anandji Haridas and Co. P. Ltd. v. Kushare (S. P.), STO [1968] 21 STC 326 (SC) (para 35) Bankipur Club Ltd. v. CIT [1971] 82 ITR 831 (SC) (para 34) Barium Chemicals Ltd. v. CLB [1966] 36 Comp Cas 639 (SC) (para 56) BLB Ltd. v. Asst. CIT [2012] 343 ITR 129 (Delhi) (para 14) Calcutta Discount Co. Ltd. v. ITO [1961] 41 ITR 191 (SC) (para 45) CIT v. A. Raman and Co. [1968] 67 ITR 11 (SC) (paras 9, 34) CIT v. Chase Bright Steel Ltd. (No. 1) [1989] 177 ITR 124 (Bom) (para 21) CIT v. DLF Power Ltd. [2012] 345 ITR 446 (Delhi) (para 14) CIT v. Eicher Ltd. [2007] 294 ITR 310 (Delhi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... valid or invalid on the ground of change of opinion ? (iii) Whether the bar or prohibition under the principle 'change of opinion' will apply even when the Assessing Officer has not asked any question or query with respect to an entry/note, but there is evidence and material to show that the Assessing Officer had raised queries and questions on other aspects ? (iv) Whether and in what circumstances section 114(e) of the Evidence Act can be applied and it can be held that it is a case of change of opinion ? 2.5. To explain the aforementioned position of the law, we are reproducing hereunder the relevant provision of section 147 of the Act. 147. Income escaping assessment.-If the Assessing Officer, has reason to believe that any income chargeable to tax has escaped assessment for any assessment year, he may, subject to the provisions of sections 148 to 153, assess or reassess such income and also any other income chargeable to tax which has escaped assessment and which comes to his notice subsequently in the course of the proceedings under this section, or re-compute the loss or the depreciation allowance or any other allowance, as the case may be, for the asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hstanding that the reasons for such issue have not been included in the reasons recorded under sub- section (2) of section 148. 2.6. For reopening an assessment made under section 143(3) of the Act, the following conditions are required to be satisfied:- (i) the Assessing Officer must form a tentative or prima facie opinion on the basis of material that there is underassessment or escapement of income ; (ii) he must record the prima facie opinion into writing ; (iii) the opinion formed is subjective but the reasons recorded or the information available on record must show that the opinion is not a mere suspicion. (iv) reasons recorded and/or the documents available on record must show a nexus or that in fact they are germane and relevant to the subjective opinion formed by the Assessing Officer regarding escapement of income. (v) In cases where the first proviso applies, there is an additional requirement that there should be failure or omission on the part of the assessee in disclosing full and true material facts. The Explanation to the section stipulates that mere production of books of account or other documents from which the Assessing Officer could have, wi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... principles laid down by the Full Bench of this court as well as the observations of the Punjab and Haryana High Court, we find that if the entire material had been placed on record by the assessee before the Assessing Officer at the time when the original assessment was made and the Assessing Officer applied his mind to that material and accepted/rejected the view canvassed by the assessee, then merely because he did express this in the assessment order, that by itself would not give him a ground to conclude that income has escaped assessment and, therefore, the assessment needed to be reopened. On the other hand, if the Assessing Officer did not apply his mind and committed a lapse, there is no reason why the assessee should be made to suffer the consequences of his lapses. 2.9. The Hon ble Delhi High Court in Consolidated Photo and Finvest Ltd. [2006] 281 ITR 394 (Delhi) held as under: In the light of the authoritative pronouncements of the Supreme Court referred to above, which are binding upon us and the observations made by the High Court of Gujarat with which we find ourselves in respectful agreement, the action initiated by the Assessing Officer for reopening the ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on the material available to him taken a view. If he had not done so, the proposed reopening cannot be assailed on the ground that the same is based only on a change of opinion. 2.10. From the foregoing discussion, the clear position emerges as under: (1) Reassessment proceedings can be validly initiated in case return of income is processed under section 143(1) and no scrutiny assessment is undertaken. In such cases there is no change of opinion. (2) Reassessment proceedings will be invalid in case the assessment order itself records that the issue was raised and is decided in favour of the assessee. Reassessment proceedings in the said cases will be hit by the principle of change of opinion . (3) Reassessment proceedings will be invalid in case an issue or query is raised and answered by the assessee in original assessment proceedings but thereafter the Assessing Officer does not make any addition in the assessment order. In such situations it should be accepted that the issue was examined but the Assessing Officer did not find any ground or reason to make addition or reject the stand of the assessee. He forms an opinion. The reassessment will be invalid because th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Co. Ltd. v. Asst. CIT [2012] 348 ITR 439 (Bom.) are two such cases, which throw light on the issue. The relevant portion from the original assessment has been reproduced in earlier paras of this order, therefore, the same is not repeated and it is self speaking that the original assessment was framed after due application of mind and on examination of material facts/details/reply/profit loss account, balance sheet, analysis of purchase and sale of shares, etc. Thus, it is clear that the original assessment was framed after due application of mind, consequently, it can be said the reassessment framed by the Assessing Officer in the second category is a case of change of opinion and cannot be reopened for the reason that the assessee, as required, has placed on record primary factual material but on the basis of legal understanding, the Assessing Officer has taken a particular legal view. 2.12. A division Bench of Hon ble Delhi High Court in New Light Trading Co. v. CIT [2002] 256 ITR 391 (Delhi), referred to the decision of the Hon ble Apex Court in CIT v. P. V. S. Beedies P. Ltd. [1999] 237 ITR 13 (SC) and made following observations. (page 392) : In the case of CIT v. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... It is, therefore, evident that even according to the CBDT a mere change of opinion cannot form the basis for reopening a completed assessment. 2.13. Another aspect of the matter also cannot be lost sight of. A statute conferring an arbitrary power may be held to be ultra virus article 14 of the Constitution of India. If two interpretations are possible, the interpretation which upholds constitutionality, it is trite, should be favoured. In the event it is held that by reason of section 147 if the Income-tax Officer exercises its jurisdiction for initiating a proceeding for re-assessment only upon mere change of opinion, the same may be held to be unconstitutional. We are, therefore, of the opinion that section 147 of the Act does not postulate conferment of power upon the Assessing Officer to initiate reassessment proceeding upon mere change of opinion. 2.14. The Hon ble Apex Court thereafter referred to the subsequent decision in Indian and Eastern Newspaper Society v. CIT [1979] 119 ITR 996 (SC) wherein it was observed that some of the observations made in Kalyanji Mavji (supra) were far too wide and the statute did not permit reappraisal of material considered by the As ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssment is sought to be reopened under section 148 and the objections of the assessee have been overruled by the Assessing Officer, then in such a case the Assessing Officer will not proceed further in the matter for a period of four weeks from the date of receipt of the order rejecting the objections of the assessee. [Para 4] ■ It is axiomatic that the law declared by the High Court is binding on all authorities functioning within its jurisdiction. It is not open to the Assessing Officer to feign ignorance of the law declared by the High Court and pass orders in defiance of the law laid down by it. It is averred in the petition that the Assessing Officer was informed at the hearing held on 10-12-2013 that the assessee is preparing a petition to challenge the reopening for the assessment year 2008-09 on identical grounds as done in earlier assessment year 2007-08 which is pending in the High Court and ad interim relief has also been granted restraining the revenue from proceeding with the assessment for the assessment year 2007-08. The passing of an order on 19-12-2013 by the Assessing Officer in undue haste and thereafter contending that in view of alternative remedy the w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is change of opinion on the part of the Assessing Officer notice under sections 147 and 148 is not permissible. The powers under sections 147 and 148 cannot be exercised to correct errors/mistakes on the part of the Assessing Officer while passing the original order of assessment. There is a sanctity bestowed on an order of assessment and the same can be disturbed by exercise of powers under sections 147 and 148 only on satisfaction of the jurisdictional requirements. Further the reasons for reopening an assessment have to be tested/examined only on the basis of the reasons recorded at the time of issuing a notice under section 148 seeking to reopen an assessment. These reasons cannot be improved upon and/or supplemented much less substituted by affidavit and/or oral submissions. ■ Moreover the reasons for reopening an assessment should be that of the Assessing Officer alone, who is issuing the notice, and he cannot act merely on the dictates of any another person in issuing the notice. Moreover the tangible material upon the basis of which the Assessing Officer comes to the reason to believe that income chargeable to tax has escaped assessment can come to him from any sou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t order should contain reference and/or discussion to disclose its satisfaction in respect of the query raised. There can be no doubt in the instant case that the very issue of taxability of sale of shares under the head capital gain or the head profits and gains from business was a subject matter of consideration by the Assessing Officer during the original assessment proceedings leading to an order dated 12-10-2010. It would, therefore, follow that the reopening of the assessment by impugned notice dated 28-3-2013 is merely on the basis of change of opinion of the Assessing Officer from that held earlier during the course of assessment proceeding leading to the order dated 12-10-2010. This change of opinion does not constitute justification and/or reasons to believe that income chargeable to tax has escaped assessment. [Para 14] ■ It was contended by the revenue that this is not a case of change of opinion, as the reopening is based on fresh tangible material, namely, audit report furnished by the internal audit department of the revenue. Neither the reasons furnished to the assessee disclose the material obtained from the audit report of the internal audit department of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mpanies to whom the loans were advanced. [Para 17] ■ Therefore, the entire proceeding for reopening the assessment had emanated only on account of change of opinion on the part of the Assessing Officer. [Para 19] ■ There was no reason for the Assessing Officer to have had a reasonable belief that income chargeable to tax has escaped assessment. Accordingly, the impugned notice dated 28-3-2013 issued under section 148 as well as the impugned order dated 20-112013 passed by the Assessing Officer rejecting the assessee's objection to reopen the assessment were liable to be set aside. [Para 20] The Hon'ble High court while coming to a particular conclusion, duly considered the followed cases:- Asian Points Ltd. v. Dy. CIT [2008] 296 ITR 90 (Bom.) (para 6); CIT v. Kelvinator of India Ltd. [2010] 320 ITR 561/187 Taxman 312 (SC) (para 11) and Hindustan Lever v. R.B.Wadkar [2004] 268 ITR 332/137 Taxman 479 (Bom.) (para 15) followed. CIT v. Gopal Purohit [2011] 336 ITR 287/[2010] 188 Taxman 140 (Bom.) (para 9), CIT v. Kelvinator of India Ltd. [2010] 320 ITR 561/187 Taxman 312 (SC) (para 11) 2.16. In another case in CIT vs Amitabh Bach ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rn claiming estimated expenses at 30 per cent. on the professional receipts, based on ad hoc estimated expenses claimed by the insurance agents because they cannot prove certain expenses being incurred to persuade the insurers. However, when the Assessing Officers asked to substantiate these expenses, the claim was withdrawn by the assessee without furnishing the details regarding sources for incurring these expenses were incurred out of undisclosed source which required further verification under the provisions of section 69 of the Income-tax Act. Further, there are certain issues for verification like : (i) Applicability of section 40A(3) in respect of cash journal expenses. (ii) Personal element in respect of vehicle expenses claimed. (iii) Professional expenses claimed were exactly for the purpose of profession or not. (iv) Books of account maintained by the assessee were not examined. (v) The assessee maintained seven bank accounts, but details in respect of six bank accounts were furnished. Details in respect of S. B. A/c. No. 107456 with SBI were neither provided nor called for by the Assessing Officer which might have been maintained by the assessee for profe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... x has escaped assessment. The order passed originally on March 29, 2005, under section 143(3) of the said Act was passed after the respondent had made ad hoc claim for expenditure at 30 per cent. of the professional receipts in the revised return of income which was later withdrawn. In fact the reasons for reopening the assessment for the year 2002-03 itself records that the claim of 30 per cent. ad hoc expenses was withdrawn when the respondent-assessee was asked to substantiate the claim. Therefore, the same material was a subject-matter of consideration during the proceedings for assessment leading to order dated March 29, 2005. In the circumstances, there could be no basis for the Assessing Officers to form a belief that income has escaped assessment. It is a settled position of law that review under the garb of reassessment is not permissible. In the circumstances, we uphold the order of the Tribunal dated March 19, 2010. 9. In view of the above, no substantial question of law arises for consideration by this court. Appeal is dismissed. No order as to costs. 2.17. In A. L. A. Firm (supra), the Hon ble Apex Court explained that there was no difference between the observa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ther research into law he finds that there was a direct decision holding that category of receipt to be an income receipt. He would be entitled to reopen the assessment under section 147(b) by virtue of proposition (4) of Kalyanji Mavji. The fact that the details of sales of house properties were already in the file or that the decision subsequently come across by him was already there would not affect the position because the information that such facts or decision existed comes to him only much later. What then, is the difference between the situations envisaged in propositions (2) and (4) of Kalyanji Maviji's case [1976] 102 ITR 287 (SC). The difference, if one keeps in mind the trend of the judicial decisions, is this. Proposition (4) refers to a case where the Income- tax Officer initiates reassessment proceedings in the light of 'information' obtained by him by an investigation into material already on record or by research into the law applicable thereto which has brought out an angle or aspect that had been missed earlier, for e.g., as in the two Madras decisions referred to earlier. Proposition (2) no doubt covers this situation also but it is so widely expr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Income-tax Officer had not considered the material and subsequently came by the material from the record itself, then such a case would fall within the scope of section 147(b) of the Act'. (emphasis supplied) The aforesaid observations are a complete answer to the issue that if a particular subject-matter, item, deduction or claim is not examined by the Assessing Officer, it will nevertheless be a case of change of opinion and the reassessment proceedings will be barred. 2.18. We are conscious of the fact that the aforesaid observations have been made in the context of section 147(b) with reference to the term information and conceptually there is difference in scope and ambit of reopening provisions incorporated with effect from April 1, 1989. However, it was observed by the Hon ble Apex Court in Kelvinator of India Ltd. [2010] 320 ITR 561 (SC) that the amended provisions are wider. What is important and relevant is that the principle of change of opinion was equally applicable under the unamended provisions. The Supreme Court was, therefore, conscious of the said principle, when the observations mentioned above in A. L. A. Firm [1991] 189 ITR 285 were made. 2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pite of complete disclosure of material facts. The primary condition of reasonable belief having nexus with the material on record is still operative. However, we are of the view, that mere fresh application of mind to the same set of facts or mere change of opinion does not confer jurisdiction to the Assessing Officer even under the post 1989 section 147 of the Act. Our view find support from the decision from Hon ble Delhi High court in Jindal Photo Films Ltd. vs DCIT (1998) 234 ITR 170 (Del.), Garden Silk Mills Pvt. Ltd. vs DCIT (1999) 151 CTR (Guj.) 533, Govind Chhapabhai Patel vs DCIT 240 ITR 628, 630 (Guj.), Foramer vs CIT (2001) 247 ITR 436 (All.), affirmed in CIT vs Foramer Finance (2003) 264 ITR 566, 567 (SC), Ipica Laboratories vs DCIT (2001) 251 ITR 416 (Bom.), Ritu Investment Pvt. Ltd.(2012) 345 ITR 214 (Del.), Ketan B. Mehta vs ACIT (2012) 346 ITR 254 (Guj.), Ms. Praveen P. Bharucha vs DCIT (2012) 348 ITR 325 (Bom.), CIT vs Usha International Ltd. 348 ITR 485 (Del.), Agricultural Produce Market Committee vs ITO (2013) 355 ITR 348 (Guj.), B.B.C. World News Ltd. vs Asst. DIT (2014) 362 ITR 577 (Del.). Identical ratio was laid down in CIT vs Malayala Manorma Company Ltd ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Information for the purposes of section 34(1)(b) of the 1922 Act (which corresponds to section 147(b) of the 1961 Act) the Hon ble Apex Court in CWT vs Imperial Tobacco Company Ltd. (1966) 61 ITR 461 has noted such divergence of opinion on the point. Hon ble jurisdictional High Court in CIT vs Sir Mohammad Yusuf Ismail (1944) 12 ITR 8 (Bom.) held that mere change of opinion on the same facts are on question of law or mere discovery of mistake of law is not sufficient information and that in order to sustain action u/s 34 by further holding that reassessment is not permissible. The Hon ble Apex Court in Simon Carves Ltd. (1976) 105 ITR 212 held that errorless legally correct order cannot be reopened, therefore, it is settled law that without any new information and on the basis of mere change of opinion, reopening of assessment is not permissible. As was held in CIT vs TTK Prestige ltd. (2010) 322 ITR 390 (Karn.) SLP dismissed in 2010 322 ITR (St.) 14 (SC). Reference also made to Asian Paints ltd. vs DCIT (2009) 308 ITR 195 (Bom.), Andhra Bank Ltd. vs CIT (1997) 225 ITR 447 (SC). The observations of the Supreme Court are a protection against the abuse of power; they also protect ..... X X X X Extracts X X X X X X X X Extracts X X X X
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