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2015 (6) TMI 497

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..... the notice issued under Section 147 of the Income Tax Act beyond the period of four years was wholly without jurisdiction and cannot be sustained.Hence, we have no hesitation in holding that reopening is bad. Accordingly, we uphold the findings of the Tribunal that it is a case of mere change of opinion on the same material already available on record, which has been submitted by the assessee in Annexure 1A of the Tax Audit Report at Point No.12(b) of the return of income. - Decided in favour of assessee. - Tax Case (Appeal) No. 217 of 2015 - - - Dated:- 2-6-2015 - The Honourable Mr. Justice R. Sudhakar And The Honourable Ms. Justice K. B. K. Vasuki,JJ. For the Appellant : Mr. T. Ravikumar Standing Counsel for Income Tax JUDGMENT (Judgment of the Court was delivered by R. Sudhakar,J.) This Tax Case (Appeal) is filed by the Revenue as against the order of the Income Tax Appellate Tribunal raising the following substantial question of law: 1. Whether on the facts and in the circumstances of the case, the Appellate Tribunal was right in upholding the order of the CIT(A) who held that the reassessment proceedings made was not valid? 2. Is not the finding of t .....

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..... justifying the correctness of the claim. However, the Assessing Officer did not accept the said explanation and came to hold that excise duty on finished goods had to be included in the total income, since, the value of closing stock of finished goods represented value as on 31st March of each year ready for removal but not removed from the factory. Thus, the Assessing Officer was of the view that the excise duty did not get crystallised as on 31st March and it would get crystallised only at the time of actual removal and based on the closing stock, no provision for payment of duty could be created and therefore, a sum of ₹ 22,60,275/- was added to the total income of the assessee. Accordingly, he made re-assessment disallowing the excess MODVAT Credit. 3. Aggrieved by the same, the assessee had filed an appeal before the Commissioner of Income Tax (Appeals), who was of the view that the workings pertaining to the MODVAT Credit had already available before the Assessing Officer at the time of passing an order under Section 143(3) of the Income Tax Act and the re-assessment proceedings have been initiated on a mere change of opinion on the same material on record. Reliance .....

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..... u/s 143(3), the reassessment proceedings have been initiated on mere change of opinion on the same material on record and, therefore, would amount to review of earlier assessment which is not permissible. This view is supported by decision of Hon'ble Supreme Court in the case of CIT v. Kelvinator of India Ltd (supra) where it was held that AO can reopen the assessment only if there is tangible material to come to the conclusion that there is escapement of income. Reopening cannot be done on change of opinion only. The AO does not have power to review and has power only to reassess. I am of the opinion that the ratio of this decision is applicable to the facts of the case. I also find that the Hon'ble ITAT, Mumbai in the case of Modepro India Private Limited (supra) has allowed the appeal of the appellant under similar facts. In the above case the AO completed the assessment u/s 143(3). Subsequently, on the perusal of records the AO noticed that the assessee had failed to include Modvat credit in its closing stock in contravention of the provisions of section 145A. The AO issued notice u/s 148 after the expiry of four years from the end of the relevant assessment year and c .....

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..... were available on record at the time of passing of the original order under section 143(3). when details of MODVAT working for the purpose of section 145A was provided by the assessee in Annexure 1(A) at point No.12(b) of the return of income. So, the reassessment proceeding initiated in the absence of any fresh material or evidence coming into the possession of the Assessing Officer has rightly been held to be mere change of opinion on the same material already on record as held by the Hon'ble Jurisdictional High Court in the case of CIT v. Cholamandalam Investment and Finance Company Limited (supra). Therefore, in view of the facts, circumstances and material on record, we hold that the issue is squarely covered in favour of the assessee and the ld. CIT(A) has exactly did the same thing to treat the reassessment to be not valid in law. Therefore, while, upholding the order of the ld. CIT(A), we dismiss the appeal of the Revenue being devoid of any merits. 6. Aggrieved by the said order of the Tribunal, the Revenue is before this Court. 7. Mr.T.Ravikumar, learned Standing Counsel appearing for the Revenue tried to distinguish the decision of this Court in the case of CI .....

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..... due diligence have been discovered by the Assessing Officer will not necessarily amount to disclosure within the meaning of the foregoing proviso. Explanation 2. 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 under assessed ; 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 this Act ; or (iv) excessive loss or depreciation allowance or any other allowance under this Act ha .....

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..... completion of assessment. 12. Having furnished the details of the working of the MODVAT Credit in Annexure 1(A) to the Tax Audit Report, which is a mandate as per the provisions of the Act and the Assessing Officer has considered the said issue in the order passed under Section 143(3) of the Income Tax Act, the Commissioner of Income Tax (Appeals) has given a clear finding that the details of MODVAT credit working were considered by the Assessing Officer during the assessment proceedings under Section 143(3) and the re-assessment is initiated on a mere change of opinion on the same material on record. Such being the case, the issue is whether there was a failure on the part of the assessee to disclose fully and truly all material facts necessary for assessment. The answer is a clear 'no'. The Department, at the threshold, has to cross the first proviso to Section 147 of the Income Tax Act before proceeding further to reopen the assessment on the ground of income escaping assessment. 13. For the purpose of assumption of jurisdiction under Section 147 of the Income Tax Act, the Officer must have reason based on materials that there has been an income escaping assessmen .....

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..... ular order of assessment is passed in terms of the said sub-section (3) of section 143 a presumption can be raised that such an order has been passed on application of 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 with out anything further, the same would amount to giving a premium to an authority exercising quasi-judicial function to take benefit of its own wrong. 17. The above said decision of the Full Bench of the Delhi High Court was upheld by the Supreme Court in the decision reported in [2010] 320 ITR 561 (SC) COMMISSIONER OF INCOME-TAX v. (1) KELVINATOR OF INDIA LTD., wherein the Supreme Court held that the concept of change of opinion on the part of the Assessing Officer to reopen the assessment did not stand obliterated after the substitution of Section 147 of the Income Tax Act. The Supreme Court also held that the Assessing Officer has pow .....

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..... ted the word opinion on the ground that it would vest arbitrary powers in the Assessing Officer. We quote hereinbelow the relevant portion of Circular No. 549 dated October 31, 1989 ([1990] 182 ITR (St.) 1,29), which reads as follows : 7.2 Amendment made by the Amending Act, 1989, to reintroduce the expression ' reason to believe' in section 147. A number of representations were received against the omission of the words ' reason to believe' from section 147 and their substitution by the ' opinion' of the Assessing Officer. It was pointed out that the meaning of the expression, ' reason to believe' had been explained in a number of court rulings in the past and was well settled and its omission from section 147 would give arbitrary powers to the Assessing Officer to reopen past assessments on mere change of opinion. To allay these fears, the Amending Act, 1989, has again amended section 147 to reintroduce the expression ' has reason to believe' in place of the words ' for reasons to be recorded by him in writing, is of the opinion' . Other provisions of the new section 147, however, remain the same. (emphasis supplied) 1 .....

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..... nt for that assessment year. Unless, the condition in the proviso is satisfied, the Assessing Officer does not acquire jurisdiction to initiate any proceeding under section 147 of the Act after the expiry of four years from the end of the assessment year. Thus, in cases where the initiation of the proceedings is beyond the period of four years from the end of the assessment year, the Assessing Officer must necessarily record not only his reasonable belief that income has escaped assessment but also the default or failure committed by the assessee. Failure to do so would vitiate the notice and the entire proceedings. The relevant words in the proviso are, . . . . unless any income chargeable to tax has escaped assessment for such assessment year by reason of the failure on the part of the assessee ... . . Mere escape of income is insufficient to justify the initiation of action after the expiry of four years from the end of the assessment year. Such escapement must be by reason of the failure on the part of the assessee either to file a return referred to in the proviso or to truly and fully disclose the material facts necessary for the assessment. Whenever a notice is is .....

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..... a draft assessment order. If the details placed by the assessee before the Assessing Officer were in conformity with the requirements of all applicable laws and known accounting principles, and material details had been exhibited before the Assessing Officer, it is for the Assessing Officer to reach such conclusions as he considered was warranted from such data and any failure on his part to do so cannot be regarded as the assessee s failure to furnish the material facts truly and fully. Any lack of comprehension on the part of the Assessing Officer in understanding the details placed before him cannot confer a justification for reopening the assessment, long after the period of four years had expired. On the facts of this case, it is clear that the escapement of income, if any, on this account is not on account of any failure on the assessee s part to disclose the material facts fully and truly. The notice issued by the Assessing Officer in exercise of his power under section 147, therefore, cannot be sustained. 20. In the case of ICICI Securities Ltd. V. Assistant Commissioner of Income Tax 3(2), Mumbai, the Bombay High Court vide order dated 22.08.2006 in W.P.No.1919 of 200 .....

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