TMI Blog2008 (1) TMI 450X X X X Extracts X X X X X X X X Extracts X X X X ..... d by the AO under s. 148 and the reassessment so made in furtherance of such initiation is invalid and liable to be quashed. 5. That the AO has failed to record the reasons before the issue of notice under s. 148 as required under the law and accordingly the reassessment proceedings so framed are invalid and bad in law. 6. That the condition as laid down under sub-s. (1) of s. 151 of the IT Act for the issuance of notice under s. 148 has not been complied with by AO and accordingly the notice under s. 148 as issued by AO is without jurisdiction and consequently the reassessment so framed in furtherance of such notice is bad in law. 7. That there was a change of opinion on the part of succeeding AO, after the completion of original assessment, in relation to the taxation of lease equalization charges amounting to Rs. 12,84,381 debited to the P L a/c, which is not permissible under the law to form 'reasons to believe' as contemplated under s. 147 of the IT Act and consequently the reassessment so framed after assumption of such invalid jurisdiction is not sustainable under the law. 8. That the addition of Rs. 12,84,381 being the lease equalization charges debited to the P L a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e on 6th April, 2005 and vide letter dt. 6th April, 2005 it was requested that the copy of reasons may be provided which were supplied to the assessee vide letter dt. 1st July, 2005 and thereafter reassessment was completed vide impugned assessment order dt. 31st Oct., 2005 passed under s. 143(3)/147 of IT Act, 1961. The copy of reasons as supplied by the AO vide letter dt. 1st July, 2005 are as under : "Original assessment in this case was completed under s. 143(3) on 22nd Aug., 2000 at a total income of Rs. 6,55,622. Subsequently it has come to notice that the assessee company has claimed lease equalization amount during the year at Rs. 12,84,381 as per computation of income enclosed with the return of income which was not allowable and which has resulted into under charge of tax at Rs. 6,76,145. Since the income to the extent of Rs. 12,84,381 has escaped assessment, therefore, I have reason to believe that on account of failure on the part of the assessee to disclose truly and fully all material facts necessary for its assessment for this year, the income chargeable to tax has escaped assessment within the meaning of s. 147 of the Act. Approval to issue notice under s. 148 m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee were considered by the AO vide his letter dt. 28th Oct., 2005 a copy of which is placed at pp. 29-30 of the paper book. The AO stated that the submissions of the assessee are not tenable on facts of the case. The assessee had deliberately excluded taxable amount from its computation of income, which was not allowable. The assessee has placed reliance on the guidelines issued by ICAI, however, it ignored the vital aspect as to declare the taxable income under IT Act and, thus, it was a deliberate act of the assessee and it cannot be held that there was true disclosure of material necessary for assessment. The AO relied on various decisions to reject the contention of the assessee that reassessment proceedings are not valid. 8. For the sake of completeness of the facts it may also be mentioned here that during the course of original assessment proceedings the AO had issued a questionnaire to the assessee vide letter dt. 2nd Dec, 1999 a copy of which is placed at pp. 18-19 of the paper book wherein the AO required the assessee to explain vide item No. 18 as under : "The company has deducted Rs. 21.16 lacs as 'Lease equalization account' charges from the income shown ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reassessment proceedings are not valid. For raising such contention he relied on the following decisions : (1) Calcutta Discount Co. Ltd. v. ITO [1961] 41 1TR 191 (SC); (2) CIT v. Bhanji Lavji [1971] 79 ITR 582 (SC); (3) Indian Oil Corporation v. ITO [1986] 58 CTR (SC) 83 : [1986] 159 ITR 956 (SC). In the case listed at No. 3, the assessee had disclosed all the primary facts except the opinion of the auditors and there was no evidence that at the time of filing of return, auditors' opinion about reasonableness of administrative charges was existing. Even otherwise reasonableness was held to be an inference of auditors. The AO had neither made best judgment assessment nor drawn any adverse inference against the assessee although opinion of auditors had not been supplied and it was held that assessee could not be said to have failed in disclosing fully and truly all basic facts. 11. Further, raising contention that reassessment proceedings are invalid as they are based merely on change of opinion, learned Authorised Representative relied on the following decisions : (1) Jindal Photo Films Ltd. v. Dy. CIT [1999] 154 CTR (Del) 355 : [1998] 234 ITR 170 (Del) wherein it was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l) 57 : [2007] 294 ITR 310 (Del) wherein it has been held that reassessment is not permissible on change of opinion. In a case where all material facts were disclosed and AO had applied his mind, in such a situation failure to record finding in assessment order does not mean that income has escaped assessment. 13. KLM Royal Dutch Airlines v. Asstt. Director of IT [2007] 208 CTR (Del) 33 : [2007] 292 ITR 49 (Del), it was held that since enquiries had been initiated under s. 143(2), it became mandatory that they should have culminated in an order under s. 143(3). Since the return of income has been filed and since no order of assessment was made, there was no scope for invoking s. 147. Thus, it was held that initiation of proceedings under s. 147 was irregular and illegal. Thus, it was pleaded by learned Authorised Representative that reassessment proceedings have to be held invalid. 14. On the other hand, the learned Departmental Representative contended that according to Expln. 1 to s. 147 mere 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... information obtained by the AO is vague, hearsay and indefinite having no direct nexus with the formation of belief regarding escapement of income. Thus it was held that the initiation of proceedings was invalid. After referring to various case law their Lordships have upheld initiation of proceedings under s. 147/148. 16. The learned Departmental Representative further relied on the decision in the case of Sri Krishna (P) Ltd. v. ITO [1996] 135 CTR (SC) 75 : [1996] 221 ITR 538 (SC). In this case it was held that disclosure of loans which was subsequently discovered to be false, reassessment was validly initiated. This case law was relied upon to contend that since the belief is that of ITO, the sufficiency of reasons for forming the belief is not for the Court to be judged but it is open to an assessee to establish that, in fact there existed no belief or that the belief was not at all a bona fide one or was based on vague, irrelevant and non-specific information. To that limited extent, the Court may look into the conclusion arrived at by the ITO and examine whether there was any material available on the record from which the requisite belief could be formed by the ITO and fu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent proceedings was challenged before the AO on the ground of "mere change of opinion". The objection of the assessee was rejected by way of an order dt. 21st Oct., 2005 observing therein that assessee had failed to disclose fully and truly all material facts necessary for the assessment which had resulted in escapement of income. Relying on the decision of Hon'ble Supreme Court it was held by AO that mere production of evidence by the petitioner before the ITO was not enough. Assessee was duty-bound to bring to the notice of AO all material and relevant facts which may lie embedded in the evidence produced by the assessee no matter the AO could have uncovered such facts but had not actually done so. Correctness of such order was challenged before the Hon'ble High Court in the said case. Reliance on behalf of the assessee was placed on the Full Bench decision of jurisdictional High Court in the case of CIT v. Kelvinator of India in support of the submission that an order of assessment must be presumed to have been passed by the concerned AO after due and proper application of mind and thus the reassessment is based on change of opinion. 19. On behalf of the Revenue it was pleaded ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pearing on behalf of the assessee pleaded that the case law relied upon by the learned Departmental Representative is not applicable to the facts of the present case. He contended that in the case of Sri Krishna (P) Ltd. v. ITO the loans which were treated to be genuine in the original assessment proceedings were subsequently discovered to be false and, therefore, it was held by the Hon'ble Supreme Court that reassessment proceedings were validly initiated. He contended that in the present case no material fact disclosed by the assessee is found to be false rather disallowance is made on the basis of change of opinion. 23. With regard to the decision of Hon'ble Delhi High Court in the case of CIT v. Highgain Finvest (P) Ltd. it was submitted by the learned counsel that assessment in the said case was framed under s. 143(1)(a) of the Act and in that circumstances it was held by the Hon'ble Delhi High Court that the assessee did not disclose the true source and nature of the receipt and thus no true and full disclosure was made. He contended that in the present case there is material on record to show that query was raised by the AO and the reply was given by the assessee. Thus he ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in respectful agreement with the view of the Gujarat High Court. 14. Subsequently, a similar issue came up before another Division Bench of this Court in KLM Royal Dutch Airlines v. Asstt. Director of IT [2007] 208 CTR (Del) 33 : [2007] 159 Taxman 191 (Del). The Division Bench noted the conflict between the decisions of the Full Bench and the Division Bench of this Court and quite naturally concluded that since the view expressed by the Division Bench cannot be reconciled with the view of the Full Bench, it must be held that the Division Bench did not lay down the correct law. Following the view expressed in KLM Royal Dutch Airlines' case, we are of the view that it would not be correct on our part to overlook the decision of the Full Bench in Kelvinator of India Ltd.'s case and rely upon the decision of the Division Bench in Consolidated Photo Finvest Ltd.'s case. That would be subversive of judicial discipline. 15. In Hari Iron Trading Co. v. CIT [2003] 183 CTR (P H) 228 : [2003] 263 ITR 437 (P H), a Division Bench of Punjab Haryana High Court observed that an assessee has no control over the way an assessment order is drafted. It was observed that generally, the issues ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e pleaded that initiation of reassessment proceedings in the present case should be held illegal and, therefore, should be quashed. 25. We have carefully considered the rival submissions in the light of material placed before us. The reassessment has been challenged by the assessee mainly on two grounds. Firstly, that the impugned reassessment proceedings are based on mere change of opinion and, therefore, not permissible in law. Secondly, reassessment proceedings are invalidly initiated as according to proviso to s. 147 reassessment proceedings can be validly initiated beyond the period of 4 years from the end of assessment year only in the circumstances where there is failure on the part of the assessee to disclose fully and truly all material facts necessary for the assessment. 26. The following facts are not in dispute : (i) Assessee filed its return of income on a sum of Rs. 6,55,622 on 26th Oct., 1998; (ii) Assessment under s. 143(3) of the Act was completed vide order dt. 22nd Aug., 200 (sic) assessing the income of assessee at a sum of Rs. 6,55,622; (iv). A notice dt. 7th March, 2005 was issued by the AO under s. 148 initiating reassessment proceedings for the yea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessing authority to decide what inference of fact or law could be drawn therefrom and reassessment will not be justified if assessee has discharged its obligation of making full and true disclosure of all primary facts. The case law relied upon by learned Authorised Representative and discussed in the above part of the order duly supports this proposition. The same is discussed below : (1) Calcutta Discount Co. Ltd. v. ITO in which it has been held that duty of the assessee is to make full and true disclosure of all primary facts and once it is done, it is for the assessing authority to decide what inference of fact or law could be drawn therefrom and where the assessee disclosed income from sale of investment, and on assessee's representation that the transactions were casual and mere change of investments, the ITO did not assess the same treating the assessee an investment company; subsequent reopening of assessment by the ITO on the ground that the assessee had failed to disclose the true intention behind the sale of the shares was not justified as while assuming jurisdiction under s. 34, the ITO did not have in mind non-disclosure of material facts by the assessee. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uery on the issue on which income is alleged to have escaped and assessee had furnished the reply, now question will be whether reassessment proceedings are based on mere change of opinion. The answer is in affirmative. By making query and by obtaining reply of the assessee, the AO in the original assessment order was satisfied with the claim of the assessee, it is for that reason no addition was made to the income of the assessee and a view was formed by AO which has not been shown to be a view which was unsustainable in law. Here according to the decision of Hon'ble jurisdictional High Court in the case of CIT v. Eicher Ltd. where the facts were before the AO at the time of framing the original assessment and later a different view was taken by him or his successor on the same facts, it was observed that it clearly amounts to change of opinion which cannot form the basis for permitting the AO or his successor to reopen the assessment of the assessee. It has further been observed by their Lordships that in a situation where the assessee had placed all the material before AO and where there was a doubt, even that was clarified by the assessee in its letter, in that situation, if AO ..... X X X X Extracts X X X X X X X X Extracts X X X X
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