TMI Blog2010 (9) TMI 350X X X X Extracts X X X X X X X X Extracts X X X X ..... - - Dated:- 14-9-2010 - CORAM : HON'BLE MR. JUSTICE A.K. SIKRI HON'BLE MS. JUSTICE REVA KHETRAPAL Ms. Prem Lata Bansal, Advocate Mr. Ajay Vohra with Ms. Kavita Jha and Mr. Somnath Shukla, Advocates A.K. SIKRI, J. The Background: 1. All these appeals pertain to the same assessee, viz., M/s. Xerox Modicorp Limited. Only the assessment years are different. Otherwise, the question of law, which arises for consideration is common and relates to the permissibility of the allowance under Section 32A of the Income Tax Act (hereinafter referred to as "the Act"). Income Tax Appellate Tribunal (hereinafter referred to as "the Tribunal") rendered a common decision dated 8th February, 2007 whereby five appeals filed by the assessee and five appeals filed by the Revenue were disposed of together. ITA No.1274 of 2007 is filed against the decision in respect of the assessment year 1986-87 which is the first relevant assessment year. Therefore, we shall take note of the facts appearing in this appeal before spelling out the exact formulation of the question of law that arises for consideration. 2. The assessee is engaged in manufacturing of xerographic machines, toner ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to mention that the original assessment was completed under Section 143(3) of the Act after eliciting various information on different queries raised by the AO including qua the investment allowance. Likewise for the subsequent years, i.e., 1987-88, 1988-89, 1989-90, 1990-91, the original assessment under Section 143(3) was completed on 26.12.1990, 04.03.1991, 12.02.1992 and 29.03.1993 respectively. In all these assessment years also, claim for deduction of investment allowance was computed and was allowed to the assessee. Circumstances leading to re-assessment 5. Subsequently, it appears that while considering the claim of the assessee for deduction under Section 80-I, the learned CIT (A) for the assessment year 1994-95 held that the assessee company was manufacturing office machines and apparatus, falling within ambit of entry at Sl. No.22 of Schedule XI and therefore, the assessee was not entitled to deduction. The AO observed that provisions of Section 80-I of the Act were similar to Section 32A of the Act and, therefore, the assessee was also not entitled to investment allowance. 6. On the basis of this order of CIT (A) for the assessment year 1994-95, the AO initiated ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ment year 1994-95 constituted information within the meaning of Section 147 (b) of the Act and such order had become available to the AO after he had completed the original assessment u/s 143 (3) for all these assessment years. The fact that the order of CIT (A) constituted information justifying the reopening of assessment u/s 147 (b) of the IT Act was supported by the judgment of the Punjab Haryana High Court in the case of Kumar Engineers Vs. CIT 223 ITR 18. Thus, he upheld the action of the AO for initiating the reassessment proceedings for the assessment year 1986-87, 1987-88 and 1988-89 under the pre-amended provisions of the Act. 9. Thereafter he considered the action of the AO for reinitiating the assessment proceedings for the assessment year 1989-90 and 1990-91 under the post amended provisions of Section 147. He accepted the contention of the assessee for the assessment year 1989-90 and 1990-91 like assessment year 1986-87 to 1988-89 that there was no failure or commission on the part of the assessee to disclose fully and truly all material facts necessary for the assessment in respect if subsequent assessment years. However, Ld. CIT (A) observed that the decision of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n 148 of the Act was warranted, beyond four years from the date when the assessments were made, and the related aspect which was examined was as to whether there was complete and full disclosure of particulars/information by the assessee? (ii) Whether the AO had considered the issue of allowing investment allowance in his original assessments under Section 143(3) in detail and it was a case of mere change of opinion, not warranting reopening of the assessments? 14. On both these counts, the Tribunal has held in favour of the assessee. Commenting on the first aspect, the Tribunal held that even the order of the CIT (A) while upholding initiation of reassessment proceedings had given a clear finding that there was no failure on the part of the assessee to disclose all the material facts fully and truly, necessitating the reassessment for the relevant assessment year. CIT (A) had also recorded the finding that all the relevant facts were fully discussed and considered by the AO at the time of completing the original assessment under Section 143(3) of the Act. However, the CIT (A) upheld the initiation of the reassessment proceedings only on the ground that the AO had rightly ent ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n to initiate reassessment proceedings by the AO and, therefore, the action of AO for initiating the reassessment proceedings was illegal and without jurisdiction. In the light of these facts and circumstances and the legal position, the reassessment completed by AO for all the assessment years are liable to be quashed on this point itself." 15. Insofar as merits of allowing assessment proceedings are concerned, the Tribunal held the view that in the original assessment, issue of investment allowance was discussed by the AO in detail. Therefore, it was only a case of change of opinion, which could not be valid basis for initiating reassessment proceedings. We would like to reproduce the relevant discussion in the Tribunal's order on this aspect as well, which is as under: "8.2 We have already held that the AO had considered this issue in detail at the time of completing the original assessments u/s 143(3) for all the assessment years. Therefore, the action of the AO for initiating reassessment proceedings was only on the basis of mere change of opinion. Such course of action is not permission under law. Reliance in this regard, is placed on the judgment of the Hon'ble Delhi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the basis of change of opinion. Thus, we hold that the reassessments completed by the AO are also liable to be quashed on the point that these were initiated merely on the basis of change of opinion." The Arguments : Revenue 16. Ms. Prem Lata Bansal, learned counsel for the Revenue, has submitted that the Tribunal has erred on both the counts. In the first place, her contention is that concededly the assessee had not claimed investment allowance in the return filed by it. In fact, according to the assessee, in that year only trial production was done and no commercial production had started. Rather, the assessee had appended note to the effect that it would claim investment allowance in the year of profits. Thus, when during the assessment proceedings the assessee claimed the investment allowance, the AO examined the matter only from a limited angle, viz., whether there was commercial production in that year as well and, therefore, the assessee could be given investment allowance. Otherwise, contended the learned counsel, the issue about the permissibility of the allowance under Section 32A of the Act was not examined on merit at all. She submitted that the AO did not go int ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not was for the AO to decide. That did not amount to any information, which the assessee had not given. He referred to the following decisions in his support: (i) Calcutta Discount Co. vs. ITO [41 ITR 191 (SC)] (ii) Commissioner of Income Tax vs. Kelvinator of India Ltd. [256 ITR 1 (Del.)] 20. In continuation, his further submission was that if it was a case of failure on the part of the assessee to disclose full particulars, then in the „reasons to believe‟ furnished by the AO in his notice under Section 148 of the Act, there should have been specific averment to this effect, which was missing in the instant case. It was for this reason that the Tribunal rightly held that even as per CIT (A), it was not a case made out that there was failure on the part of the assessee to give complete particulars. He referred to the following judgments in his support this plea: (i) JSRS Udyog Ltd. vs. ITO [313 ITR 321 (Del.)] (ii) Hindustan Lever Ltd. vs. R.B. Wadkar [268 ITR 332 (Bom.)] 21. On the aspect of change of opinion, Mr. Vohra‟s forceful submission was that complete details of the items manufactured by the assessee were given. Whether they fall in Schedule ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h and quoted the following observations from earlier judgment of this Court in Haryana Acrylic Manufacturing Company Vs. CIT {2009} 308 ITR 38 (Delhi):- "In the reasons supplied to the petitioner, there is no whisper, what to speak of any allegation, that the petitioner had failed to disclose fully and truly all material facts necessary for assessment and that because of this failure there has been an escapement of income chargeable to tax. Merely having a reason to believe that income had escaped assessment, is not sufficient to reopen assessments beyond the four year period indicated above. The escapement of income from assessment must also be occasioned by the failure on the part of the assessee to disclose material facts, fully and truly. This is a necessary condition for overcoming the bar set up by the proviso to Section 147. If this condition is not satisfied, the bar would operate and no action under Section 147 could be taken. We have already mentioned above that the reasons supplied to the petitioner does not contain any such allegation. Consequently, one of the conditions precedent for removing the bar against taking action after the said four year period remains unfu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... clusion and evidence. The reasons recorded must be based on evidence. The Assessing Officer, in the event of challenge to the reasons, must be able to justify the same based on material available on record. He must disclose in the reasons as to which fact or material was not disclosed by the assessee fully and truly necessary for assessment of that assessment year, so as to establish the vital link between the reasons and evidence. That vital link is the safeguard against arbitrary reopening of the concluded assessment. The reasons recorded by the Assessing Officer cannot be supplemented by filing an affidavit or making an oral submission, otherwise, the reasons which were lacking in the material particulars would get supplemented, by the time the matter reaches the court, on the strength of the affidavit or oral submissions advanced." 28. In the absence of any such observation in "reasons to believe‟ to the effect that the assessee had not disclosed true, full and complete particulars/information , the notice under Section 148 was rightly quashed by the Tribunal on this ground itself. 29. In Calcutta Discount Co. Ltd's case (1961) 41 ITR 191, the Apex Court clearly held ..... X X X X Extracts X X X X X X X X Extracts X X X X
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