TMI Blog2015 (7) TMI 54X X X X Extracts X X X X X X X X Extracts X X X X ..... eal. Vide order dated 24.10.07, this Court, while admitting the appeal, framed the following substantial question of law for consideration :- Whether in the facts and circumstances of the case, the Tribunal was right in holding that the reopening of assessment is bad in law and setting aside the reassessment proceedings? 2. The facts, in a nutshell, are as hereunder :- The respondent/assessee is engaged in the business of manufacture and sale of drugs. The assessment pertains to the assessment year 1996-1997. The assessee filed return of income on 29.11.1996 admitting total income of ₹ 14,45,260/-. The return was subsequently selected for scrutiny and income was assessed at ₹ 17,16,211/- by order dated 31.3.96. Subsequently, after expiry of four years, Section 147 proceeding was initiated by issue of notice dated 4.2.03 under Section 148 of the Income Tax Act. According to the department, the assessee company purchased software package and the expenses incurred in this regard was claimed as revenue deduction, which is contrary to Section 37 of the Income Tax Act, whereas the said deduction should have been allowed under Section 35D of the Act. This amount, ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eciation, we first consider the scope of Section 147 and the first proviso, which reads as follows:- Income escaping assessment. 147. 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 shall be taken under this section after the expiry of four years from the end of the relevant assessment year, unless any income chargeable to tax has escaped assessment. Provided further that the Assessing Officer may assess or reassess such income, other than the income involving matters ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... order of the Tribunal reveals that the Tribunal has taken into consideration all the aspects surrounding the invocation of proceeding under Section 147 r/w 148 of the Income Tax Act and has arrived at its finding. Assuming for the moment that the claim in respect of those two heads has not been properly made, if at all it could be a ground for the Department to initiate proceeding under Section 263 of the Act and not under Section 147 of the Act. 9. Explanation (1) to Section 147 of the Income Tax Act cannot be pressed into service by the Department in the instant case, because the details of such claim has been revealed during the regular assessment and complete details have been provided before the Assessing Officer. If the Assessing Officer has not considered the same at the time of passing an order under Section 143(3) of the Income Tax Act, the assessee cannot be fastened with any liability for the same. Therefore, Explanation (1) Section 147 does not get attracted to this case. In this case, we find that the finding of the Tribunal is that the Proviso to Section 147 of the Income Tax Act does not get attracted since it is clear from the order of the Tribunal that it was fa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cation 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 - Vs - 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 power to reopen the assessment, provided there is tangible material to come to a conclusion that there was an escapement of income from assessment. For better appreciation, the relevant portion of the said decision reads as follows: 6. On going through the changes, quoted above, made to section 147 of the Act, we find that, prior to the Direct Tax Laws (Amendment) Act, 1987, reopening could be done under the above two conditions and fulfil ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eason 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) 18. Similar view has been taken by this Court in the decision reported in [2009] 309 ITR 110 (Mad) Commissioner of Income-Tax - Vs - Cholamandalam Investment and Finance Co. Ltd., wherein it was held as follows: In those circumstances, it could not be regarded that the assessee had failed to disclose fully and truly all material facts relevant for the assessment. As the facts revealed that the Assessing Officer who made the original assessm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... asonable 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 issued by the Assessing Officer beyond a period of four years from the end of the relevant assessment year, such notice being issued without recording the reasons for his belief that income escaped assessment, it cannot be presumed in law that there is also a failure on the part of the assessee to file the returns referred to in the proviso or a failure to fully and truly disclose the material facts. The reasons referred to in the main paragraph ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sue on the reopening of assessment, held as follows: 7. In the facts of the present case, there is nothing new which has come to the notice of the revenue. The accounts had been furnished by the Petitioner when called upon. Thereafter the assessment was completed under section 143(3) of the Income Tax Act. Now, on a mere relook, the officer has come to the conclusion that the income has escaped assessment and he is of course justified in his analysis. In our view, this is not something which is permissible under the proviso to section 147 of the Income Tax Act which speaks about a failure on the part of the assessee to make a proper return. In the present case, no such case is made out on the record. 8. In the circumstances, we allow this petition in terms of prayer (a) and quash and set aside the notice dated 27th March 2006 directing reopening of the assessment for the year 1999-2000. 21. The above-said view of the Bombay High Court was affirmed by the Supreme Court in Civil Appeal No.5960 of 2012. 12. In the light of the above, we hold that when the Assessing Officer had failed to record anywhere his satisfaction or belief that the income chargeable to tax had esca ..... 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