TMI Blog2011 (10) TMI 498X X X X Extracts X X X X X X X X Extracts X X X X ..... earlier processed u/s. 143(1) on 8.3.2004, thereafter notice u/s. 143(2) was issued on 15.4.2004 and the AO mentioned that the assessee furnished the details called for and after examining the information filed and discussing the case, assessment was completed. So it cannot be said that the AO did not apply his mind while framing the assessment u/s. 143(3). Thus as assuming there was some mistake in the assessment order dated 30.12.05 and income if any had been taken under a wrong head, that mistake could have been rectified by issuing notice u/s. 154, however the reopening of the assessment by issuing the notice u/s. 148 could have been done only when there was escapement of income. Another objection taken by the AO that the assessee had not set off business loss against the capital gains, which is contrary to the provisions of the Act is totally wrong because the assessee had set off the business loss against the income from capital gain and the provisions contained in section 71(2) which clearly stipulates that the loss must be set off against the income, if any, assessable for that assessment year under any head of income including the head 'capital gains', whether short ter ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... apportioning the interest and administrative expenditure of Rs. 2,31,78,586/- among the income from long term capital gains and income from other sources, on a proportionate basis as correct. 3. The appellant prays that in the facts and circumstances of the case the apportioning of interest and admin expenses is not correct and is inconsistent with the treatment given in earlier years and hence the Assessing Officer be directed to assess the interest income as well as interest and administrative expenditure under the head 'business income' and determine the capital gains in accordance with the provisions of section 48 of the Act as were done in the original assessment completed under section 143(3) of the Income tax Act, 1961. III. 1. The CIT(A) has erred in rejecting the alternative plea of the appellant that the amount of interest attributable to money utilised in investments activity if not allowed as deduction under the head 'Business income' the same needs to be allowed as deduction under section 57(iii) of the Income tax Act, 1961. 2. The appellant therefore prays that the Assessing Officer be directed to allow the interest and admin expenses pertaining to investment a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and objected to the reopening. The AO rejected the objection raised by the assessee to the reasons recorded u/s. 148(2) of the Act by stating that at the threshold stage the correctness or sufficiency of the reasons could not be called in question. He also stated that there was no change of opinion since the issue now considered, was not at all considered in the assessment proceedings culminating in the earlier assessment order dated 30.12.2005. Reliance was placed on the judgment of the Hon'ble Supreme Court in the case of A.L.A. Firm v. CIT [1991] 189 ITR 285/55 Taxman 497. 6. Being aggrieved the assessee carried the matter to the ld. CIT (Appeals) and the submissions made by the assessee as incorporated in para 6.1 of the impugned order by the ld. CIT(A) are reproduced verbatim as under: 1. The appellant submits that section 147 of the Income-tax Act, 1961 authorizes and permits an Assessing officer to assess or reassess income chargeable to tax if he has reason to believe that the said income for any assessment year has escaped assessment. The expression "escaped assessment" clearly connotes a very basic postulate that the income for a particular assessment year we ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... per Society v. CIT (119 ITR 996). ( ii ) It is a settled position in law that the duty cast upon the assessee to make a full and true disclosure of all material facts does not absolve to make enquiry, especially when the primary facts were available on record. It is not possible to fall back on section 147 to make good his deficiencies in the first completed assessment. Reliance in this respect is placed on the decision of the Karnataka High Court in the case of CIT v. Kalappa , (167 ITR 22) and Calcutta High Court in the case of Dunlop Rubber Co. Ltd. v. ITO (79 ITR 349) Calcutta Credit Corporation Ltd. v. ITO (79 ITR 483). ( iii ) It is a settled position in law that an Assessing officer has no power to review his order and he cannot do so in the purported exercise of the authority under section 147. Reliance in this respect is placed on the decision of Allahabad High Court in the case of Smt. Jamila Ansari v. IT Department (225 ITR 490). ( iv ) It is a settled position of law that where all the material facts are before the Assessing officer but he takes a particular view, which subsequently transpires to be erroneous one, on those facts, it is not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... It is submitted that it is a settled legal position in law that Assessing Officer cannot change the head of income in which interest income or any other income can be assessed since this amply amount to change in opinion. Hence, change of head of income to assess interest income from business head to income from other source is not permissible in an proceedings under section 147. The appellant therefore submits that the reassessment order dated December 31, 2008 passed by the Assessing Officer is liable to be annulled in as much as the facts and circumstances of the appellant's case do not warrant reopening of assessment completed vide assessment order dated December 30, 2005." 7. The ld. CIT (Appeals) after considering the submissions of the assessee observed that most of the cases relied upon by the assessee were relating to the assessment years prior to 1.4.1989 on which date the substituted section 147 of I.T. Act, 1961 amended by DTLA Act, 1987 r.w. DTLA 1989 came into effect making a radical departure from the original section 147 insomuch as clauses (a) and (b) had been deleted. He further observed that the present amended section is much wider in scope than that of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Act as well as in the subsequent year and the preceding year, the interest income as well as income from dividend was treated by the Assessing Officer as business income, but only for the year under consideration those income were considered as income from 'other sources', while framing the reassessment which was framed u/s. 147 r.w.sec.143(3) of the Act. It was pointed out that while framing the original assessment, the AO himself treated the interest income as well as the dividend income as business income, therefore there was a consistent view for those two income for the year under consideration as well as in the preceding and succeeding years, as such the notice issued u/s. 148 of the Act was only on the basis of change of opinion. It was pointed out that in the reasons recorded for reopening the assessment, the AO nowhere stated that income of the assessee escaped assessment. It was submitted that the reopening had been made only on the basis of objection of the audit party and the AO had not applied his own mind, therefore reopening by issuing notice u/s. 148 of the Act was not valid. Reliance was placed on the following case laws:- ( i ) Adani Exports v. Dy. CIT ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reopening the assessment u/s. 147 of the Act by issuing notice u/s. 148 of the Act. Reliance was placed on the following case laws: ( a ) CIT v. P.V.S. Beedies (P.) Ltd. [1999] 237 ITR 13/103 Taxman 294 (SC) ( b ) CIT v. Smt. S. Vijayalakshmi [2000] 242 ITR 46/[2002] 122 Taxman 949 (Mad.) ( c ) CIT v. Juhi Metal Works [2003] 263 ITR 287/[2004] 140 Taxman 306 (All.) ( d ) Nagrath Chemicals Works (P.) Ltd. v. CIT [2004] 265 ITR 401/137 Taxman 382 (All.) ( e ) Triveni Engg. Industries Ltd. v. Dy. CIT [2005] 93 ITD 561 (Delhi) ( f ) Yuvraj v. Union of India [2009] 315 ITR 84 (Bom.) ( g ) Delhi Cloth General Mills Co. Ltd. v. State of Uttar Pradesh [1979] 118 ITR 277 (SC) ( h ) New Light Trading Co. v. CIT [2002] 256 ITR 391/[2001] 117 Taxman 741 (Delhi) 12. We have considered the submissions of both the parties and carefully gone through the material available on record. In the present case, it is not in dispute that the original assessment was framed by the AO u/s. 143(3) of the Act vide order dated 30.12.2005. Later on, the AO, on the basis of objection by the audit party reopened the assessment by recording the follow ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .2006, copies of the said orders were furnished by the ld. counsel for the assessee and are kept on record. 14. From the above facts, it appears that the AO while framing assessment u/s. 143(3) on 30.12.2005 applied his mind and framed the assessment. Later on, on the basis of audit objection, the AO issued notice u/s. 148 of the Act for reopening the assessment u/s. 147 of the Act. 15. It is not in dispute that the amendment had been made in section 147 of the Act by Direct Tax Laws (Amendment) Act, 1987 w.e.f. 1.4.1989. Prior to the amendment, reopening could have been done if the AO was of the opinion that any income chargeable to tax had escaped assessment by recording the reason in writing, but with effect from 1.4.1989 the only condition is that if the AO has reason to believe that income has escaped assessment, he enjoys the jurisdiction to reopen the assessment. However, a mere change of opinion per se cannot be a reason to reopen because the AO has no power to review, but the power to reassess. More over, reassessment is to be made on fulfillment of certain pre-conditions, that condition is that the AO must have recorded reasons and believed that the income of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of income, other than "Capital gains", is a loss and the assessee has income assessable under the head "Capital gains", such loss may, subject to the provisions of this Chapter, be set off against his income, if any, assessable for that assessment year under any head of income including the head "Capital gains" (whether relating to short-term capital assets or any other capital assets)." In view of the above, we are of the considered view that the second objection of the AO in the reasons recorded for reopening the assessment u/s. 147 of the Act is totally wrong. 18. As regards to the reopening on the basis of audit objection is concerned, the Hon'ble Gujarat High Court in the case of Adani Exports ( supra ) held as under: " . in the instant case, the Assessing Officer did not hold any belief that income had escaped assessment on account of erroneous computation of benefit under section 80HHC. The mere fact that as a subordinate officer he added the suggestion that if his views were not accepted, remedial actions may be taken could not be said to be belief held by him. He had no authority to surrender or abdicate his function to his superiors nor could the superiors arrog ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be held to be unconstitutional. Section 147 does not postulate conferment of power upon the Assessing Officer to initiate reassessment proceeding upon his mere change of opinion." The aforesaid case has been affirmed by the Hon'ble Supreme Court as reported in Kelvinator of India Ltd. ( supra ) wherein it has been held as under: "Prior to the Direct Tax Laws (Amendment) Act, 1987, reopening could be done under two conditions viz., if (a) the ITO had reason to believe that, by reason of the omission or failure on the part of an assessee to make a return under section 139 for any assessment year to the ITO or to disclose fully and truly all material facts necessary for his assessment for that year, income chargeable to tax had escaped assessment for that year, or (b) the ITO had in consequence of information in his possession reason to believe that income chargeable to tax had escaped assessment for any assessment year. The fulfillment of the said conditions alone conferred jurisdiction on the Assessing Officer to make a back assessment, but in section 147 of the Act with effect from 1-4-1989, those conditions are given a go-by and only one condition has remained, viz., whe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 8 of the Act, the AO had initiated proceedings under Section 154 of the Act for the same reasons and proceedings initiated under Section 154 were dropped by him after the issuance of notice under Section 148 and were thus pending on the date of initiation of the re-assessment proceedings. In these circumstances, the Tribunal while setting aside the reassessment proceedings relied upon the Full Bench Judgment of this Court in the case of Kelvinator of India Ltd. ( supra ) and quoted the following passage from the said judgment: "** ** **" 5. Various other judgments are also referred to by the Tribunal in support of its aforesaid view. 6. In these circumstances, we do not find any substantial question of law that would arise for consideration in this appeal. The appeal is devoid of any merit and is accordingly dismissed." 23. We therefore, by keeping in view the ratio laid down by the various Hon'ble Courts in the aforesaid referred to cases, are of the view that in the present case reopening u/s. 147 of the Act by the AO on the basis of change of opinion was not justified. 24. As regards the decisions relied by the ld. CIT(DR) are ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee was not manufacturing the goods by itself and getting them manufactured through some other party and the accounts had not been audited as required u/s. 80J(6A) of the Act, therefore the assessee was not entitled for the benefit of section 80J of the Act. But in the present case, there was no such infringement of law by the assessee and the income from "long term capital gain" and "loss from business" had been shown on the same basis as were shown in the earlier year which had been accepted by the AO while framing assessment u/s. 143(3) of the Act. Therefore the case relied by the ld. CIT(DR) is distinguishable on facts. 28. One more judgment of the Hon'ble Bombay High Court in the case of Yuvraj ( supra ) was relied by the ld. CIT(DR) wherein the facts were that the value of the land had not been determined nor the issue relating to whether the income was to be treated as capital gain or casual income been addressed by the AO, therefore it was held that he did not apply his mind and failed to record good and proper reasons for passing the order u/s. 143(3). Therefore it was not a case of mere change of opinion and the AO was justified in issuing notice u/s. 148. Howe ..... X X X X Extracts X X X X X X X X Extracts X X X X
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