TMI Blog2006 (11) TMI 239X X X X Extracts X X X X X X X X Extracts X X X X ..... e gross income of the assessee was 'loss' which was allowed to be carried forward. For asst. yr. 1994-95 assessment had been made by the AO under s. 143(3) determining loss at Rs. 29,90,617. The said loss had been computed after allowing deduction under s. 80HH in respect of unit No. 1 at Rs. 4,36,952. For asst. yr. 1995-96, the assessment was made under s. 143(3) vide order dt. 27th March, 1996 at an income of Rs. 11,50,490. 3. The AO issued notices under s. 148 for the respective assessment years on 2nd Dec., 1997. For asst. yrs. 1992-93, 1993-94 and 1994-95, the notices under s. 148 had been issued on the ground that assessee had been allowed excess deduction under s. 80HH/80-I not permissible in law. For asst. yr. 1995-96 notice under s. 148 was issued as a consequence of redetermination of loss in earlier years which was to be set off against the profits of that year. 3.1 It will also be relevant to point out that for asst. yr. 1992-93 the assessee had filed the appeal to the CIT(A) against the original assessment order. The CIT(A) had deleted the addition of Rs. 24,198 on account of disallowance made under s. 40A(3) and had restored the matter regarding trading addition ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... onal grounds of appeal are common and out of five grounds raised, following three grounds are the effective additional grounds of appeal: 1. Whether on the facts and circumstances of the case, the learned C1T(A) was justified in holding that the notice under s. 148 was based on the mere change of opinion when: (i) the relevant issue i.e. deductions under ss. 80HH and 80-I are to be allowed out of gross total income and not out of the profits of individual unit, was never subject-matter of consideration and discussion at the assessment stage, therefore the question of forming or expressing any opinion did not arise at that stage; (ii) the issue did not admit of two opinions and therefore the question of changing the opinion did not arise. 2. That the relief given by the learned CIT(A) on the basis of CIT vs. Visakha Industries Ltd. of Andhra Pradesh High Court is totally wrong and uncalled for as the ratio of the said case has already been reversed by the Hon'ble Supreme Court in the following cases: (i) IPCA Laboratory Ltd. vs. Dy. CIT (2004) 187 CTR (SC) 513 : (2004) 266 ITR 521 (SC); (ii) Motila1 Pesticides (I)(P) Ltd. vs. CIT (2000) 160 CTR (SC) 389 : (2000) 24 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the admission of additional grounds of appeal and we are of the considered view that the Revenue having challenged the order of the CIT(A), the additional grounds raised at this stage are merely revised grounds of appeal expressing clearly the controversy involved in these appeals. Apart from the fact that the additional grounds of appeal raised by the Revenue are covered by the earlier grounds of appeal, it is noteworthy that no fresh facts are required for determination of the issue involved and therefore, even if the additional grounds of appeal are considered to be not covered by the earlier grounds of appeal, the said grounds deserve to be admitted in the light of the latest decision of the Hon'ble Punjab Haryana High Court in the case of Abhishek Industries vs. CIT. We, accordingly entertain the additional grounds of appeal raised by the Revenue and dispose of the same in accordance with law. 9. We have heard the rival contentions in regard to the grounds of appeal as well as in regard to the additional grounds of appeal raised by the Revenue. The issues involved in these appeals are two fold: (i) Firstly whether the proceedings under s. 147 r/w s. 148 have been vali ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Ltd. vs. Dy. CIT (2004) 187 CTR (SC) 513 : (2004) 266 ITR 521 (SC). Our attention was invited to the decision of the Hon'ble Punjab Haryana High Court in the case of Swaraj Engine Ltd. vs. Asstt. CIT Anr. (2003) 185 CTR (P H) 584 : (2003) 260 ITR 202 (P H) wherein deduction under s. 80-I had been allowed under s. 143(3) and the same was withdrawn by reopening the assessment. According to the learned Departmental Representative, the Hon'ble High Court upholding the reopening of the assessment has referred to the decision of the Supreme Court in the case of Raymond Woollen Mills Ltd. vs. ITO Ors. (1999) 152 CTR (SC) 418 : (1999) 236 ITR 34 (SC) and its own decision in the case of Bhajan Lal vs. CIT Anr. (2001) 169 CTR (P H) 287 : (2001) 250 ITR 399 (P H). Reliance was also placed on the decision of the Hon'ble Punjab Haryana High Court in the case of Aditya Co. vs. CIT Anr. (2005) 195 CTR (P H) 258 : (2005) 279 ITR 47 (P H) to support the contention that reopening of assessment in this case is justified. Relying upon the decision of the Calcutta Bench of the Tribunal in the case of Som Datt Builders (P) Ltd. vs. Dy. CIT (2006) 100 TTJ (Kol) 485 : (2006) 98 ITD 78 (Kol) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the decision of the Hon'ble Supreme Court in the case of G.K.N. Driveshafts (India) Ltd. vs. ITO (2003) 179 CTR (SC) 11 : (2003) 259 ITR 19 (SC). Reliance has also been placed on the decision of the Allahabad High Court in the case of Mithlesh Kumar Tripathi vs. CIT (2005) 199 CTR (All) 511 : (2006) 280 ITR 16 (All). (ii) That the completed assessment cannot be reopened on mere change of opinion. Reliance is placed on the following decisions: (a) Sheth Brothers vs. Jt. CIT (2001) 169 CTR (Guj) 519 : (2001) 251 ITR 270 (Guj); (b) Winsome Textile Industries Ltd. vs. Union of India Ors. (2005) 199 CTR (P H) 466 : (2005) 278 ITR 470 (P H); (c) Shri Warana Sahakari Dudh Utpadak Prakria Sang vs. Asstt. CIT (2005) 199 CTR (Bom) 24 : (2006) 284 ITR 477 (Bom). (iii) That reopening is permissible after the expiry of four years if there is no failure on the part of the assessee to disclose the particulars of its income fully and truly. Reliance has been placed on the following decisions: (a) Garden Silk Mills Ltd. vs. Dy. CIT (1996) 135 CTR (Guj) 405 : (1996) 222 ITR 68 (Guj); (b) Jindal Photo Films Ltd. vs. Dy. CIT (1999) 154 CTR (Del) 355 : (1998) 234 ITR 170 (Del); ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stment of carried forward loss. It was further reiterated that the AO, having not provided the reasons recorded to the assessee, the assessments are bad in law even on that score. According to the learned counsel for the assessee, this issue has not been dealt with by the CIT(A). 10.1 In counter reply, the learned Departmental Representative pointed out that the reasons recorded had been provided to the assessee as pointed out in the assessment orders as well as in other communications. Reliance has been placed on the following documents to support the claim: (i) Page Nos. 28 and 29 of the paper book for asst. yr. 1992-93. (ii) Page Nos. 5 and 6 of the paper book for asst. yr. 1993-94. (iii) Page Nos. 9 and 10 of the paper book for asst. yr. 1994-95. It was further pointed out by the learned Departmental Representative that the issue of notice for asst. yr. 1992-93 after the expiry of four years has been raised for the first time before the Tribunal and accordingly the CIT(A) has not dealt with this issue. The learned Departmental Representative contended that in this case escaped assessment was more than one lakh and therefore, by virtue of s. 149(1)(b), the limit f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er s. 34. Their Lordships of the Allahabad High Court in the case of Mithlesh Kumar Tripathi vs. CIT have advised the AO to supply reasons to the assessee so as to obviate unnecessary litigation. The observations of their Lordships of the Allahabad High Court are reproduced hereunder: The recording of reasons and 'obtaining approval' to give notice may be 'administrative action' but the very act of giving notice backed by good and valid reasons under s. 148(2) of the Act is quasi judicial function. If reasons are supplied along with the notice under s. 148(2), it will obviate unnecessary litigation which will save Courts also from being involved in unproductive litigations. Above all it will be in consonance with the principles of natural justice. As per the above principles of law, whereas it is desirable that the AO communicates the reasons to the assessee along with notice under s. 148, but it is not mandatory. If he has not done so, the proceedings will not be invalid. On the other hand, if the assessee requires the AO to issue the reasons recorded in reopening of assessment, the AO will be bound to inform the assessee about the reasons for reopening of assessment. In this case ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . If two interpretations are possible the interpretation which upholds constitutionality should be favoured. In the event it is held that by reason of s. 147 the ITO may exercise his jurisdiction for initiating a proceeding for reassessment only upon a mere change of opinion, the same may be held to be unconstitutional. An order of assessment can be passed either in terms of sub-s. (1) of s. 143 or sub-s. (3) of s. 143. When a regular order of assessment is passed in terms of sub-s. (3) of s. 143 a presumption can be raised that such an order has been passed on application of mind. It is well known that a presumption can also be raised to the effect that in terms of cl. (e) of s. 114 of the Indian Evidence Act, 1872, judicial and official acts have been regularly performed. It be held that an order which has been passed purportedly without application of mind would itself confer jurisdiction upon the AO to reopen the proceeding without anything further, the same would amount to giving a premium to an authority exercising quasi judicial function to take benefit of its own wrong. Hence, it is clear that s. 147 of the Act does not postulate conferment of power upon the AO to initiate ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s. ITO Ors. Hon'ble Supreme Court held as under: In determining whether commencement of reassessment proceedings was valid it has only to be seen whether there was prima fade some material on the basis of which the Department could reopen the case. The sufficiency or correctness of the material is not a thing to be considered at this stage. Held, that the case of the Revenue was that the assessee was charging to its P L a/c, fiscal duties paid during the year as well as labour charges, power, fuel, wages, chemicals etc. However, while valuing its closing stock, the elements of fiscal duty and the other direct manufacturing costs were not included. This resulted in undervaluation of inventories and understatement of profits. This information was obtained by the Revenue in a subsequent year's assessment proceedings. The commencement of reassessment proceedings was valid. Reopening of assessment is not permissible after the expiry of four years from the end of the assessment year if there is no failure of the assessee to file the return or to disclose all the material facts necessary for assessment. Some of the judicial precedents relating to this issue are referred to hereunder. In ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... m under s. 80-IA of the Act, he could have required the assessee to produce them. Failure of the AO to do so, could not be treated at par with the failure of the assessee to disclose fully and truly all material facts necessary for its assessment. The initiation of proceedings under s. 147 after the expiry of four years from the end of the assessment year was wholly without jurisdiction. The notice under s. 148 was not valid. In the case of Shri Warana Sahakari Dudh Utpadak Prakria Sang vs. Asstt. CIT, their Lordships of Bombay High Court has held as under: that the notice was admittedly beyond the period of limitation prescribed under the proviso to s. 147 of the Act and in the absence of any material to show that there was failure on the part of the assessee to disclose fully and truly all materials, such notice must be held to be barred by limitation. The notice was therefore, liable to be quashed. 12. From the aforementioned decisions, it becomes absolutely clear that the reopening of assessment is not permissible on mere change of opinion even under the amended provisions of s. 147. Moreover when the assessment made under s. 143(3) is reopened after the expiry of four ye ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... come referred in s. 5 computed in the manner laid down in the Act. Chapter VI-A provides for certain deductions in computing the total income which is chargeable to tax. Sec. 80A in Chapter VI-A reads as under: 80A. (1) In computing the total income of an assessee, there shall be allowed from his gross total income, in accordance with and subject to the provisions of this chapter, the deductions specified in ss. 80C to 80U. (2) The aggregate amount of the deductions under this chapter shall not, in any case, exceed the gross total income of the assessee. (3) Where, in computing the total income of an AOP or a BOI, any deduction is admissible under s. 80G or s. 80GGA or s. 80GGC or s. 80HH or s. 80HHA or s. 80HHB or s. 80HHC or s. 80HHD or s. 80-I or s. 80-IA or s. 80-IE or s. 80J or s. 80JJ, no deduction under the same section shall be made in computing the total income of a member of the AOP or BOI in relation to the share of such member in the income of the AOP or BOI. It is evident from s. 80A quoted above that deductions under ss. 80C to 80U are permissible from the gross total income. Sec. 80B(5) defines gross total income asunder: 'gross total income' means the to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... No. 1, the losses suffered in unit No. 2 are not to be adjusted. So however, in our view the real controversy involved in this case is somewhat different. The real issue involved in this appeal is relating to the effect of ss. 80A and 80AB. One cannot lose sight of the various steps which are to be taken in seriatim for determination of the total income of the assessee. The first step in computation of income of the assessee is to determine the gross total income computed in accordance with provisions of the Act before making any deductions under Chapter VI-A. [See s. 80B(5), para 12 of this order]. Deductions under s. 80HH/80-I fall under Chapter VI-A. Therefore, whereas deductions permissible under ss. 80HH and 80-I of each unit have got to be calculated separately, these are not to be deducted before determination of the gross total income of the assessee. In determining the gross total income, the profits and gains/losses from various businesses or various sources have got to be clubbed together. In this case assessee has earned profit in respect of unit No. 1 but has suffered loss in unit No. 2. Therefore, in order to work out the gross total income of the assessee, the incom ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e total income of the assessee both profits as well as losses will have to be taken into consideration. Sec. 80AB is relevant. It reads as follows: '80AB. Where any deduction is required to be made or allowed under any section included in this chapter under the heading 'C.- Deductions in respect of certain incomes' in respect of any income of the nature specified in that section which is included in the gross total income of the assessee, then, notwithstanding anything contained in that section, for the purpose of computing the deduction under that section, the amount of income of that nature as computed in accordance with the provisions of this Act (before making any deduction under this chapter) shall alone be deemed to be the amount of income of that nature which is derived or received by the assessee and which is included in his gross total income.' Sec. 80B(5) is also relevant. Sec. 80B(5) provides that gross total income means the total income computed in accordance with the provisions of the IT Act. Sec. 80AB is also in Chapter VI-A. It starts with the words: where any deduction is required to be made or allowed under any section of this chapter. This would include s. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... explaining the view expressed by the Hon'ble Supreme Court held as under: The use of expression 'computed in accordance with the provisions of the Act' in ss. 80A and 80B is significant. This implies that if the assessee has income falling in ss. 60 to 64 of Chapter V, it is required to be included. Similarly, if the case of the assessee falls under ss. 70 and 71 of Chapter VI which deals with cases of set off of losses from one source against income from another source as also carry forward and set off of business loss then the same has to be given effect to, while computing the total income of the assessee. Whatever then is arrived at becomes the gross total income of the assessee. It is from such gross total income of the assessee that the deductions provided in Chapter VI-A are to be allowed. It is thus clear that one cannot ignore the requirement of s. 72 of the Act which is an essential part while determining and computing the total income of an assessee in accordance with the provisions of the Act. In other words, total income is because of the use of the aforementioned expression, that s. 72 gets attracted for determining the total income of the assessee. Even otherwise ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as the case may be, for the assessment year concerned (hereafter in this section and in ss. 148 to 153 referred to as the relevant assessment year): Provided that where an assessment under sub-s. (3) of s. 143 or this section has been made for the relevant assessment year, no action shall be taken under this section after the expiry of four years from the end of the relevant assessment year, unless any income chargeable to tax has escaped assessment for such assessment year by reason of the failure on the part of the assessee to make a return under s. 139 or in response to a notice issued under sub-s. (1) of s. 142 or s. 148 or to disclose fully and truly all material facts necessary for his assessment, for that assessment year. Explanation 1.-Production before the AO of account books or other evidence from which material evidence could with due diligence have been discovered by the AO will not necessarily amount to disclosure within the meaning of the foregoing proviso. Explanation 2.-For the purposes of this section, the following shall also be deemed to be cases where income chargeable to tax has escaped assessment, namely: (a) where no return of income has been fur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng a false or untrue statement at the time of the original assessment and when that falsity comes to notice, to turn around and say: 'You accepted my lie, now your hands are tied and you can do nothing.' It would be a travesty of justice to allow the assessee that latitude. The other possible view is that all the facts have been disclosed by the assessee and it was for the AO to draw the inference from the facts disclosed and make proper assessment. Reference to the following observations of the Supreme Court in the case of CIT vs. Tarajan Tea Co. (P) Ltd. (1999) 152 CTR (SC) 1 : (1999) 236 ITR 477 (SC) would be relevant: Dismissing the appeal, that a perusal of the record in this case showed that there was no omission or failure on the part of the assessee to make a return under S. 139 as contemplated in cl. (a) of s. 147; nor was there any information in the possession of the AO obtained by him subsequent to the assessment order. Whatever information was necessary was already available to the AO when the first assessment was made. The order passed by the AAC in another case is not 'information' within the meaning of the section. Hence, neither cl. (a) nor cl. (b) of the section w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mited powers of making adjustments on the basis of information available in the return. However, when an assessment is made under s. 143(3) of the Act, the AO has very wide power to examine the genuineness of the claims made in the return and require the assessee to furnish whatever information the AO deems necessary. ........The assessment had been made under s. 143(3) of the Act and if the AO was of the view that he required the P L a/cs and depreciation charts of the asst. yrs. 1995-96 and 1996-97 for examining the correctness of the claim under s. 80-IA of the Act, he could have required the assessee to produce them. Failure of the AO to do so, could not be treated at par with the failure of the assessee to disclose fully and truly all material facts necessary for its assessment. The initiation of proceedings under s. 147 after the expiry of four years from the end of the assessment year was wholly without jurisdiction. The notice under s. 148 was not valid. This view has further been reiterated by the same High Court in the case of (2005) 195 CTR (P H) 258 : (2005) 279 ITR 47 (P H). In this case their Lordships held as under: Dismissing the writ petition, that it is on t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the assessable income, it was a case where that part of the income had escaped assessment. Relying upon the decision of the Supreme Court in the case of Maharaj Kumar Kamal Singh their Lordships of the Kerala High Court in the case of A.V. Thomas Co. Ltd. vs. CIT (1966) 61 ITR 1 (Ker), held that the AO can reopen an assessment on the basis of the decision of the Tribunal as it can constitute opinion in consequence of which the AO has reason to believe that income had escaped assessment. In the case of CIT vs. Simon Carves Ltd. 1976 CTR (SC) 418 : (1976) 105 ITR 212 (SC), their Lordships of the Supreme Court laid down the following principles of law in regard to reopening of the assessment: The taxing authorities exercise quasi judicial powers and in doing so they must act in a fair and not a partisan manner. Although it is part of their duty to ensure that no tax which is legitimately due from an assessee should remain unrecovered, they must also at the same time not act in a manner as might indicate that scales are weighted against the assessee. We are wholly unable to subscribe to the view that unless those authorities exercise the power in a manner most beneficial to the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s source. There was no information available with the ITO on the basis of which he could reopen the assessments. This was a case of mere change in opinion and, therefore, the assessments had not been validly reopened under s. 147(b) of the IT Act, 1961. It is evident from the above decision that where AO takes a conscious view, he may not be permitted to change his opinion unless the assessment made by him is due to an inadvertent mistake or oversight or his view is erroneous. In the present case, the AO has overlooked the provisions of s. 80AB and sub-s. (2) of s. 80A of IT Act, 1961. Therefore, it cannot be said that the reopening of assessment was on mere change of opinion. The escapement of income was due to overlooking the relevant provisions of the Act. We, accordingly uphold the validity of initiation of proceedings under s. 147 for asst. yr. 1993-94 as well as for asst. yr. 1994-95. The order of the CIT(A) is, thus, set aside and that of the AO is restored for asst. yr. 1994-95 also. For asst. yr. 1995-96, the notice under s. 148 has been issued for giving effect to the earlier years in respect of the loss computed for such assessment years. It may be pertinent to mention ..... X X X X Extracts X X X X X X X X Extracts X X X X
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