TMI Blog2012 (4) TMI 455X X X X Extracts X X X X X X X X Extracts X X X X ..... g Counsel For Respondent: Mr. Ajay Vohra Ms. Kavita Jha, Advocates. SANJIV KHANNA, J. The present appeal by the Revenue under Section 260A of the Income Tax Act, 1961 (Act, for short) was admitted for hearing on 10th January, 2012 and the following substantial question of law was framed:- Whether the Income Tax Appellate Tribunal was justified in holding that the jurisdictional pre-conditions for reopening under Section 147 of the Income Tax Act, 1961 are not satisfied in the present case? 2. This appeal pertains to assessment year 2001-02 in the case of Usha International Limited, the assessee. 3. The assessee is engaged in the business of trading in consumer durables, such as sewing machines, kitchen appliances, room heaters, air-conditioners etc. For the assessment year 2001-02, the assessee filed its return of income on 29th October, 2001. The case was taken up for scrutiny by issue of notice dated 28th October, 2002 under Section 143(2) of the Act. The assessment order under Section 143(3) was passed on 30th January, 2004, computing the total income at Rs.7,02,73,350/-, as against the declared income of Rs.6,92,16,132/-. 4. Vide reasons recorded on 30th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that the Assessing Officer completed the re-assessment proceedings vide order dated 29th September, 2006. He made an addition of Rs.1,73,00,000/- as capital gains earned by the assessee on transfer of exclusive distribution rights. The aforesaid order was upheld by the CIT (Appeals) and the challenge to the reopening was dismissed. The Income Tax Appellate Tribunal (tribunal, for short) by the impugned order dated 30th April, 2010, has held that in the reasons recorded by the Assessing Officer as also in the audit objection dated 10th February, 2005, there was no reference to any undisclosed fact or any fresh material or fresh evidence . According to the tribunal, the Assessing Officer had referred in the reasons to the Notes on accounts which were available to the Assessing Officer at the time of original assessment. Thus, it is a case of change of opinion and accordingly the ratio of the decision of Full Bench of this Court in CIT vs. Kelvinator of India Ltd., (2002) 256 ITR 1, which has been affirmed by Supreme Court in CIT vs. Kelvinator of India Ltd., (2010) 2 SCC 723, is applicable. 8. Section 147 of the Act reads as under:- 147. Income escaping assessment.--If the Asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e subject of excessive relief under this Act; or (iv) excessive loss or depreciation allowance or any other allowance under this Act has been computed. *Explanation 3. For the purpose of assessment or reassessment under this section, the Assessing Officer may assess or reassess the income in respect of any issue, which has escaped assessment, and such issue comes to his notice subsequently in the course of the proceedings under this section, notwithstanding that the reasons for such issue have not been included in the reasons recorded under sub-section (2) of section 148. 9. 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 under-assessment 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 r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e. The judgment of Hon ble jurisdictional High Court rendered in the case of Kelvinator of India Ltd. (supra) is squarely applicable in the present case and as per this judgment in the facts of the present case, the reopening is not valide. In the case of Kelvinator of India Ltd. (supra), it was the submission of the counsel of revenue that the reopening cannot be faulted as the same was based on information derived from the tax audited report. The relevant para of this judgment being para 22 23 are reproduced below:- 22. We are unable to agree with the submission of Mr. Jolly to the effect that the impugned order of reassessment cannot be faulted as the same was based on information derived from the tax audit report. The tax audit report had already been submitted by the assessee. It is one thing to say that the Assessing Officer had received information from an audit report which was not before the Income-tax Officer, but it is another thing to say that such information can be derived by the material which had been supplied by the asses- see himself. 23. We also cannot accept the submission of Mr. Jolly to the effect that only because in the assessment order, detailed reas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sides with regard to invalidity of the re-assessment on the basis that the same is based on audit objection does not call for adjudication. Ground No.1 is allowed. (emphasis supplied) 12. We may notice that Section 147 of the Act underwent substantial amendments w.e.f. 1st April, 1989. Earlier there was a specific provision relating to new/fresh information which had resulted in a legal debate and litigation about satisfaction of the said condition. The new provisions do not make any specific reference to new information . 13. In the Schedule 10 of the balance sheet, the assessee in Note No. 10 had stated as under:- 10. A sum of Rs.173 lacs received from M/s Daikin Shriram Airconditioning Private Limited as consideration for the transfer of exclusive distribution rights of Air conditioner and Water Cooler has been credited to Capital Reserve Account and out of the consideration of Rs.27 lacs for the transfer of Assets, a sum of Rs.13.32 lacs has been credited to respective assets Account and the balance Rs.14.68 lacs of Profits and Loss Account. 14. In paragraph 11 of the impugned order quoted above the tribunal has stated that in the original assessment proceedings, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t no question or query was raised in respect of Rs.173 lakhs i.e. Note 10. The Assessing Officer did not ask for any detail or justification. Copy of the agreement between the assessee and the third party under which payment of Rs.173 lakhs was made, was not required to be furnished and was not filed. 16. The question and issue is what is the effect of the aforesaid note given by the assessee and whether the Assessing Officer in spite of the said note being furnished along with the original return can initiate re-assessment proceedings? Whether this is a case of change of opinion? 17. The aforesaid questions arise in context that the re-assessment proceedings have been initiated on the basis of audit objections that non-inclusion of this amount i.e. Rs.173 lacs in the assessee s total income has resulted in income amounting to Rs.173 lacs escaping assessment with consequent short levy of tax by Rs.39,09,800/- @ 20% + 13% SC being tax on capital gains. Under the earlier provisions assessment would be reopened on basis of subsequent information. However, the Supreme Court in Indian Eastern Newspaper Society Vs. Commissioner of Income Tax, (1979) 119 ITR 996 (SC), had held ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mind. It is well known that a presumption can also be raised to the effect that in terms of clause (e) of section 114 of the Indian Evidence Act judicial and official acts have been regularly performed. If it be held that an order which has been passed purportedly without application of mind would itself confer jurisdiction upon the Assessing Officer 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. 18. Referring to the decision of the Supreme Court in Kelvinator (supra), it is submitted that the words tangible material appearing therein would clearly show that there should be something new which should come to the knowledge of the Assessing Officer. It is submitted that in terms of the decision of the Supreme Court in Indian and Eastern Newspaper (supra), opinion of the audit party on a legal issue cannot be ground/reason to reopen. It is, accordingly, stated that notice under Section 147/148 cannot be issued even within a period of four years and is valid only if the following three conditions are satisfied:- (i) Full and true particulars have not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e satisfied, firstly, the assessing officer must have reason to believe that income, profits or gains chargeable to income tax have escaped assessment, and secondly, he must also have reason to believe that such escapement has occurred by reason of either omission or failure on the part of the assessee to disclose fully or truly all material facts necessary for his assessment of that year. Both these conditions were conditions precedent to be satisfied before the assessing officer could have jurisdiction to issue notice under Section 148 read with Section 147(a) but under the substituted Section 147 existence of only the first condition suffices. In other words if the assessing officer for whatever reason has reason to believe that income has escaped assessment it confers jurisdiction to reopen the assessment. It is however to be noted that both the conditions must be fulfilled if the case falls within the ambit of the proviso to Section 147. The case at hand is covered by the main provision and not the proviso. 20. With effect from 1st April, 1989, the provisions of Section 147 underwent substantial changes. It is agreed that the provisions have been widened, but still do not i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the entry/claim is a repetition and has been allowed and considered in earlier years. There can also be cases where the note/entry in the returns/accounts is there but there is nothing to indicate that the Assessing Officer examined/considered the entry/note. To what extent the presumption under Section 114 (e) of the Evidence Act would apply is the issue. The contention/question is whether the presumption is rebuttable and when the presumption is rebutted. Further, whether the said presumption only applies to procedural aspects or even to substantive assertions relevant to the assessment. 23. Having considered the matter in depth, we feel that the matter should be examined by a larger Bench. We may note that the decision in the case of Rajesh Jhaveri Stock Brokers Pvt. Ltd.,(supra) relates to processing of returns under Section 143(1)(a) and not to regular assessment under Section 143(3). The Supreme Court in their decision CIT vs. Kelvinator of India Ltd. (supra) has not specifically referred to Section 114 of the Evidence Act and has also not specifically disapproved or approved the observations of the Full Bench of Delhi High Court with reference to the said Section. The Sup ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee in regard to one of the items that the profits realised on the sale of a house is a capital realisation not chargeable to tax. Subsequently, he finds, in the forest of papers filed in connection, with the assessment, several instances of earlier sales of house property by the assessee. That would be a case where the Income-tax Officer derives information from the record on an investigation or enquiry into facts not originally undertaken. Again, suppose an Income-tax Officer accepts the plea of an assessee that a particular receipt is not income liable to tax. But, on further 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 [1976] 102 ITR 287 (SC). 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 proposit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n our view, the correct position in law (at p. 629 of 102 ITR) : "The result of these decisions is that the statute does not require that the information must be extraneous to the record. It is enough if the material, on the basis of which the reassessment proceedings are sought to be initiated, came to the notice of the Income-tax Officer subsequent to the original assessment. If the Income-tax Officer had considered and formed an opinion on the said material in the original assessment itself, then he would be powerless to start the proceedings for the reassessment. Where, however, the 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." Let us now examine the position in the present case keeping in mind the narrow but real distinction pointed out above. On behalf of the assessee, it is emphasised (a) that the amount of surplus is a very substantial amount, (b) that full details of the manner in which it had resulted had been disclosed, (c) that the profit and loss account, the profit and loss adjustment account and statement made before the In ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on the same date. Nevertheless, it is opposed to normal human conduct that an officer would complete the assessment without looking at the material placed before him. It is not as if the assessment record contained a large number of documents or the case raised complicated issues rendering it probable that the Income-tax Officer had missed these facts. It is a case where there is only one contention raised before the Income-tax Officer and it is, we think, impossible to hold that the Income-tax Officer did not at all look at the return filed by the assessee or the statements accompanying it. The more reasonable view to take would, in our opinion, be that the Income-tax Officer looked at the facts and accepted the assessee's contention that the surplus was not taxable. . 25. Looking at the aforesaid decisions and the nature of controversy, we feel that the following substantial questions of law should be referred to a larger Bench for elucidation and examination. This is necessary as we have to examine the decision and observations made by the Full Bench of this Court in Kelvinator (supra):- (i) What is meant by the term change of opinion? (ii) Whether assessment proceedin ..... X X X X Extracts X X X X X X X X Extracts X X X X
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