TMI Blog2012 (9) TMI 69X X X X Extracts X X X X X X X X Extracts X X X X ..... ll for further explanation. In the final order of assessment, it is not as if the Assessing Officer totally lost sight of such claims. He in fact took into account the fact that the assessee was claiming exemption on the interest income from the bonds. He, therefore, examined as to what extent expenditure for earning such tax free income should be disallowed. In the order of assessment, he gave detailed reasons why a portion of the expenditure relating to earning tax free interest should be disallowed, thus in the reasons which the AO recorded for reopening the assessment, he based his case on wrong exemption of interest from SSNNL/GIPCL Bonds claimed under section 10(23G)such reopening would be based on a mere change of opinion - the reasons of AO started with the words, “from the records, it can be seen that .....” , thus the entire information and the material that the AO, therefore, had at his command was reflected from the record itself. This coupled with the fact that in the original assessment, the Assessing Officer examined such claims in detail, would convince that any reopening of the assessment of same claims on the basis of same material, amounts to a mere change of opi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... this Court, finalized the assessment pursuant to the impugned notice. This Court, on 25.8.2008, noted that the assessment order is served on the petitioner and the petitioner has also filed appeal against such fresh order of assessment. By way of interim relief, the Court stayed the demand raised by the Assessing Officer pursuant to such fresh order of assessment. We are informed that subsequently, the appeal was disposed of by the Commissioner (Appeals) and the petitioner had thereupon preferred further appeal before the Income Tax Appellate Tribunal ( the Tribunal for short) and such appeal on merits was allowed on 30.11.2010. Both the sides submitted that the issue would not rest at the level of the Tribunal and this Court, therefore, may decide the question of the validity of the notice for reopening the assessment. In fact, we are informed that appeal against the said judgement of the Tribunal dated 30.11.2010 has been preferred by revenue before this Court and such appeal is pending. 4. In the return filed by the petitioner, the petitioner claimed exemption under section 10(23G) of the Act with respect to certain interest income and capital gain from sale of shares in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n long term capital gain of Rs.200.93 crores received by us through disinvestments of the equity holding of Rs.87.36 crores in Gujarat Power Gen Energy Corporation (GPEC). The exemption is claimed in accordance with provisions of section 10(23G) of the Income Tax Act. A specific note was also appended to the return of income the same reads as under : 2. Interest received on bonds of SSNL and GIPCL and capital gain on sale of shares of GPEC are exempt u/s 10(23G) of the Income Tax Act, 1961 and therefore, excluded from the total income. We would like to draw your goodself's kind attention to the provisions of section 10(23G) of the Act. The relevant extract of the section reads as under : xxx xxx xxx xxx xxx xxx As per provisions of section 10(23G) of the Income Tax Act interest, dividend or long term capital gains received by infrastructure capital company is exempt from tax. It is submitted that we are the infrastructure company as defined in section 10(23G) of the Act and GPEC is carrying on the infrastructure activities. GPEC is also approved also u/s 10(23G) of the Act by the Central Government. Copy of the approval is enclosed herewith marked as ANNEXURE B. It ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... As per provisions of section 10(23G) of the I. T. Act, 1961, interest earned by an Infrastructure Capital Company on investments made by way of acquiring shares or providing long term finance to an approved enterprise is exempt. 4. The records reveal that the interest is earned on investment made out of surplus money in bonds and no loan or advance is given by the assessee Corporation. It is further seen that the interest is not derived from the long term finance as defined in section 10(23G) r.w.s. 36(1)(viii) of the Act. Had the interest been earned on long term finance, the investment would have been classified in Schedule 8 of Balance Sheet as Loans and Advances and not as investment in Schedule 5 as is in your case. 5. It is therefore, reason to believe that exemption u/s 10(23G) of the IT Act has been wrongly granted to the extent of interest income of Rs.1,00,32,473/- earned on bonds of Gujarat Industrial Power Corporation Ltd. and Sardar Sarovar Narmada Nigam Ltd. and income to that extent has escaped assessment within the meaning of section 147 of the Act. 11. On the basis of the above facts, learned senior counsel Shri Saurabh Soparkar for the petitioner submit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng or granting claim of deduction. [b] In case of Rayon Silk Mills v. Commissioner of Income Tax reported in (1996) 221 ITR 155, in which a Division Bench of this Court in the context of power of the Commissioner under section 263 of the Act to revise the order passed by the Assessing Officer, examined whether an assessment order which accepts certain claims without recording reasons would mean that the Assessing Officer had not at all examined such a claim. [c] In case of Commissioner of Income Tax v. Kelvinator of India Ltd. reported in (2002) 256 ITR 1, Full Bench of the Delhi High Court held that even after the amendment in section 147 of the Act with effect from 1.4.1989, the legal position has not altered, namely, assessment previously framed cannot be reopened within four years on a mere change of opinion. [d] In case of Commissioner of Income Tax v. Eicher Ltd. reported (2007) 294 ITR 310 (Delhi) wherein a Division Bench of Delhi High Court relying on the decision in case of Kelvinator of India Ltd. (Delhi) (supra), observed that if the entire material has been placed by the assessee before the Assessing Officer at the time when the original assessment was framed and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or consideration before the Assessing Officer in the original assessment, by itself without there being anything more on the record, would not mean that the Assessing Officer had formed an opinion in favour of the assessee simply because in the final order of assessment, such claim was not rejected. Counsel submitted that the question of formation of opinion would arise only if the Assessing Officer by conscious decision desired to allow such a claim. In a quasi-judicial order, such opinion must be reflected in the order itself. He, therefore, submitted that if after some scrutiny or inquiry, such claim is not rejected in the order of assessment, would not by itself amount to the Assessing Officer forming any opinion. He, therefore, submitted that only in those cases where a claim made by the assessee is examined by the Assessing Officer and allowed by reflecting conscious decision on his part, can it be stated that he had formed an opinion, which in absence of any new material, cannot be subject matter of reopening. 13.1 In support of his submissions, Shri Bhatt relied on the following decisions : [a] In case of Praful Chunilal Patel v. M. J. Makwana, Assistant Commissioner of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessing Officer had during the original assessment, not examined a certain claim of the assessee and even in such a case, in absence of any new material, re-assessment would amount to a mere change of opinion. [2] Whether when during the course of original assessment, the Assessing Officer had examined a certain claim put-forth by the assessee, raised queries with respect to such a claim, elicited response from the assessee with respect to the claim and thereafter at the time of framing assessment, did not reject the claim without recording reasons, could it be stated that the Assessing Officer had formed an opinion and that therefore, any attempt on his part to reopen such an assessment without any new or additional material, would amount to a mere change of opinion and therefore, reopening would be barred? [3] In the facts of the present case, how would our answers to above two questions apply? 15. We would answer the first question first. Section 147 of the Act, as is well known, pertains to the powers of the Assessing Officer to assess, re-assess income chargeable to tax which has escaped assessment or re-compute loss or depreciation or other allowance. Prior to 1.4.1989 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Assessing Officer that income chargeable to tax has escaped assessment, which it was felt would confer too wide a power on the Assessing Officer. Therefore, upon representations from the various quarters, the expression which was restored in the said provision was that the Assessing Officer has reason to believe . In the present state, section 147 of the Act provides as under : Section 147 Income escaping assessment - If the Assessing Officer has reason to believe that any income chargeable to tax has escaped assessment for any assessment year, he may, subject to the provisions of sections 148 to 153, assess or reassess such income and also any other income chargeable to tax which has escaped assessment and which comes to his notice subsequently in the course of the proceedings under this section, or recompute the loss or the depreciation allowance or any other allowance, as the case may be, for the assessment year concerned (hereafter in this section and in sections 148 to 153 referred to as the relevant assessment year) : Provided that where an assessment under sub-section (3) of section 143 or this section has been made for the relevant assessment year, no action s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssee to disclose truly and fully all material facts, was no longer relevant in case of reopening of an assessment within a period of four years. 18. Simultaneously, Explanation 1 to section 147 of the Act, which formed part of the pre 1.4.1989 section 147, was shifted to Explanation II and was also worded somewhat differently. Such Explanation 2 provides that 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 furnished by the assessee although his total income or the total income of any other person in respect of which he is assessable under this Act during the previous year exceeded the maximum amount which is not chargeable to income-tax; (b) Where a return of income has been furnished by the assessee but no assessment has been made and it is noticed by the Assessing Officer that the assessee has understated the income or has claimed excessive loss, deduction, allowance or relief in the return; (c) Where an assessment has been made, but - (i) Income chargeable to tax has been underassessed; or (ii) Such income has been assessed at too low ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... occurred by reason of either (i) 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. Thus, after 1.4.1989, power for reopening assessment within four years are much wider. 21. We may also notice a decision of the Punjab Haryana High Court in case of Tilak Raj Bedi v. Joint Commissioner of Income Tax, reported at (2009) 319 ITR 385 (P H). In the said decision, the Division Bench drawing a distinction between change of opinion and a case of mere change of opinion o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessed; or (ii) such income has been assessed at too low a rate; or (iii) such income has been made the subject of excessive relief under the Act; or (iv) excessive loss or depreciation allowance or any other allowance under the Act has been computed. Where the Assessing Officer purports to exercise power under Section 147 within a period of four years of the end of the relevant assessment year, the condition precedent to the exercise of the power, is the existence of a reason to believe that any income chargeable to tax has escaped assessment. The expression 'reason to believe' must obviously be that of a prudent person and it is on the basis of the reasons recorded by the Assessing Officer that the question as to whether there was a reason to believe that income has escaped assessment, has to be determined. At the same time, the sufficiency of the reasons for reopening an assessment does not fall for determination, at the stage of a reopening of assessment. When the Court is concerned with a challenge to a notice under section 148, the issue is not as to whether it can be conclusively demonstrated that income had escaped assessment, but whether as a matter of fact, there was a re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ovided that, where the information may be obtained even from the record of the original assessment from the investigation of the materials on the record, or the facts disclosed thereby or from other inquiry or research into facts or law re-opening would be permissible. On this basis, the Apex Court observed as under : .............. Even making allowances for this limitation placed on the observations in Kalyanji Mavji [1976] 102 ITR 287 (SC), the position is summarized by the High Court in the following words represents, in 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the assessee is not examined, no queries raised, no answers elicited, it can not be stated that merely because the Assessing Officer did not reject such a claim in the final order of assessment, he should be deemed to have expressed an opinion with respect to such a claim and any reopening of an assessment of this nature even within a period of four years from the end of relevant assessment year would amount to change of opinion. We are further of the opinion that in any such case, as long as there is some tangible material on the basis of which the Assessing Officer can form a belief that the income chargeable to tax has escaped assessment, it would be permissible to reopen the assessment in exercise of powers under section 147 of the Act, particularly after the amendments made with effect from 1.4.1989. Such tangible material need not be alien to the record. 28. We may presently deal with the contentions of the petitioner that by virtue of the decision of the Apex Court in the case of Commissioner of Income Tax v. (1) Kelvinator of India Ltd. (SC) (supra), the ratio of Delhi High Court expressed in the case of Commissioner of Income Tax v. Kelvinator of India Ltd. (Delhi) (su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ge of opinion is not removed. Resultantly, reopening of assessment can be made provided there is some tangible material with the Assessing Officer to form a belief that income chargeable to tax has escaped assessment. 29. It is true that by the said decision, the Apex Court rejected the revenue's appeal against the Delhi High Court judgments in the case of Commissioner of Income Tax v. Kelvinator of India Ltd. (Delhi) (supra) and Eicher Ltd. (supra). However, the ratio of the decision of the Apex Court is what the judgement lays down and not what the decisions of the High Court under challenge held. It is well settled that a decision of the Court cannot be read as a Euclid's theorem or as a statute. There is plethora of judicial pronouncements on this issue. Reference to only some of them would be sufficient. In case of Union of India and another v. Major Bahadur Singh, reported in (2006) 1 SCC 368, the Apex Court observed as under : Courts should not place reliance on decisions without discussing as to how the factual situation fits in with the fact situation of the decision on which reliance is placed. Observations of Courts are neither to be read as Euclid's theorems nor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... posal of cases by blindly placing reliance on a decision is not proper because one additional or different fact may make a world of difference between conclusions in two cases. (Ref.: Bharat Petroleum Corpn. Ltd. amp; Anr. Vs. N.R. Vairamani amp; Anr.3; Sarva Shramik Sanghatana (KV), Mumbai Vs. State of Maharashtra amp; Ors.4 and Bhuwalka Steel Industries Limited Vs. Bombay Iron amp; Steel Labour Board amp; Anr.5.) 29.2 It is equally well settled that it is the ratio of a decision and not the final judgement which is binding. In the case of Davinder Singh and others v. State of Punjab and others, reported in (2010) 13 SCC 88, the Apex Court observed that a judgement is authority for the proposition which it decides and not what can logically be deduced therefrom. It was observed as under : 18. A judgement, as is well known, is the authority for the proposition which it decides and not what can logically be deduced therefrom. This Court in Union of India v. Major Bahadur Singh, (2006) 1 SCC 368 has observed: 9. The Courts should not place reliance on decisions without discussing as to how the factual situation fits in with the fact situation of the decision on which re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... elhi v. Usha International Ltd., reported in (2012) 21 taxmann.com 454 (Delhi) had occasion to examine the decision of the Full Bench in case of Commissioner of Income Tax v. Kelvinator of India Ltd. (Delhi) (supra). Taking note of the provisions contained in section 147 of the Act as amended with effect from 1.4.1989 and several decisions of the Apex Court, the Bench desired that the issue whether the principle of change of opinion will apply even when the Assessing Officer has not asked any question or query with respect to an entry or a note during the original assessment proceedings be referred to larger bench. The Bench observed as under : 22. However, there can be cases when the Assessing Officer does not refer to a particular aspect in the assessment order or did not raise any written question or query during the course of original assessment proceedings. To what extent in such cases, doctrine of "mere change of opinion" is applicable and will bar re-assessment proceedings when assessment is completed under Section 143(3), is the issue or question raised. There can be different aspects/factual matrix in which this question may arise. There can be cases where the Assessi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ce and material to show that the Assessing Officer had raised queries and questions on other aspects? (iv) Whether and in what circumstances Section 114 (e) of the Evidence Act can be applied and it can be held that it is a case of change of opinion?" 30. In the result, we are of the opinion that reopening of an assessment within a period of four years from the end of relevant assessment year after 1.4.1989 could be made as long as the same is not based on mere change of opinion. Merely because a certain material which is otherwise tangible and enables the Assessing Officer to form a belief that income chargeable to tax has escaped assessment, formed part of original assessment record, per se would not bar the Assessing Officer from reopening the assessment on the basis of such material. Expression tangible material does not mean material alien to the original record. 31. Before closing this issue, we would like to refer to two decisions of our Court which were brought to our notice. It was pointed out that a Division Bench in a judgement dated 12.3.2012 rendered in Special Civil Application No.15067 of 2011 in case of Ganesh Housing Corporation Ltd. v. Deputy Commissioner ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... round that the Court held that if an explanation is added to a section of a statute for removal of doubts, the implication is that the law was the same from the very beginning and the same is further explained by way of addition of the explanation. It was in this background, the Bench made observations that we noted earlier. Such observations, in our opinion, must be appreciated in factual background in which the same were made. In any case, we do not find that this decision lays down a ratio that an assessment previously framed cannot be reopened even within four years without the Assessing Officer being able to demonstrate that the income chargeable to tax had escaped assessment due to failure on the part of the assessee to disclose material facts. 34. Our attention was also drawn to a short judgment dated 26.7.2012 passed by another Division Bench rendered in Special Civil Application No.17846 of 2011 in case of Metal Alloys Corporation v. Assistant Commissioner of Income Tax. In such order, while quashing the notice for reopening of an assessment which was issued within a period of four years from the end of relevant assessment year, it was observed as under : It is well s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ot be permissible on a mere change of opinion and that the Assessing Officer must have some tangible material to form a belief that income chargeable to tax has escaped assessment. The concept of change of opinion is not done away with in the newly amended section 147 of the Act. 39. In the context of the question before us, we may re-visit some of the decisions cited before us. In case of Commissioner of Income Tax v. Nirma Chemicals Works P. Ltd. (supra), the Division Bench of this Court, of course in context of the Commissioner's power to revise the decision of the Assessing Officer under section 263 of the Act, made certain observations which are relevant for our purpose. The Court rejected the revenue's contention that the assessment order does not reflect any application of mind of the Assessing Officer as to the eligibility of section 80-IA of the Act in following manner : The contention on behalf of the revenue that the assessment order does not reflect any application of mind as to eligibility or otherwise under Section 80-I of the Act requires to be noted to be rejected. An assessment order cannot incorporate reasons for making/granting a claim of deduction. If it do ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ich assessments have to be completed in a time frame. To protect the interest of the revenue, therefore, such special provisions are made under section 147 of the Act. However, it must be appreciated that an assessment previously framed after scrutiny when reopened, results into considerable hardship to the assessee. The assessment gets reopened not only qua those grounds which are recorded in the reasons, but also with respect to entire original assessment, of course at the hands of the revenue. This obviously would lead to considerable hardship and uncertainty. It is precisely for this reason that even while recognizing such powers, in special requirements of the statute, certain safeguards are provided by the statute which are zealously guarded by the courts. Interpreting such statutory provisions courts upon courts have held that an assessment previously framed cannot be reopened on a mere change of opinion. It is stated that power to reopening cannot be equated with review. 42. Bearing in mind these conflicting interests, if we revert back to central issue in debate, it can hardly be disputed that once the Assessing Officer notices a certain claim made by the assessee in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to the Assessing Officer. 43. We are, therefore, of the opinion that in a situation where the Assessing Officer during scrutiny assessment, notices a claim of exemption, deduction or such like made by the assessee, having some prima facie doubt raises queries, asking the assessee to satisfy him with respect to such a claim and thereafter, does not make any addition in the final order of assessment, he can be stated to have formed an opinion whether or not in the final order he gives his reasons for not making the addition. 44. At this stage, we may examine the decision of the Division Bench of this Court in the case of Praful Chunilal Patel v. M. J. Makwana, Assistant Commissioner of Income Tax, (supra) more closely. This was a case wherein assessment previously framed under section 143(3) of the Act was sought to be reopened within a period of four years from the end of the relevant assessment year. The case concerned assessment year 1993-94 and therefore, the amended section 147 of the Act was applicable. On certain claims of the assessee which were not rejected by the Assessing Officer in the scrutiny assessment, the court held that in cases where the Assessing Officer has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... no transfer and hence, no capital gains accrued. ..... ..... The first premise which the Court took into consideration is that the cases of underassessment or excessive relief which are deemed cases of escapement of income leave no scope for an argument that they are not the cases of income having escaped assessment. There cannot be any doubt about this proposition. It arises in every case where an assessment results in lesser collection of revenue than what it ought to be. But, as it is noticed, reason to believe that there has been escapement of assessment must not be a pretence or change of opinion but must be founded on material having reasonable nexus to the formation of opinion about escapement of income. The sufficiency or adequacy of such material, so far it exists, some nexus between the material and the formation of opinion, is not subject-matter of judicial scrutiny nor holding of such belief on that basis can be challenged which is subjective in nature, giving jurisdiction to issue notice and initiate proceedings for reassessment. However, the Court while considering the contention about change of opinion observed, "while considering the cases referred to above change ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eopening on the ground that such claim was accepted on erroneous construction of the transaction or by mistake of law applicable to such a transaction. We are also of the opinion that by virtue of such observations if the revenue contends that post 1.4.1989, reopening of an assessment would be permissible on change of opinion, it would run counter to the decision of the Apex Court in case of Commissioner of Income Tax v. (1) Kelvinator of India Ltd. (SC) (supra). 48. Before closing this issue, we would like to clarify one aspect. We have expressed our opinion on the question framed by us. In a given case, it may so happen that a particular claim may have many facets. For example, a claim of deduction under section 80-HHC of the Act would have various parameters. If one of the parameters is scrutinized or accepted either with or without reasons, that by itself may not mean that the entire claim of deduction under section 80-HHC of the Act stood verified and accepted by the Assessing Officer. We hasten to add that each case must depend on facts individually and in a given case, it may be possible for the assessee to argue that all aspects of the claim were examined or that differen ..... X X X X Extracts X X X X X X X X Extracts X X X X
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