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TMI Blog2016 (12) TMI 1287X X X X Extracts X X X X X X X X Extracts X X X X ..... ng the re-assessment as null and void when the Assessing Officer has complied with all statutory requirements for issuance of notice and had under amended provision of section reasonable belief on the escapement of income chargeable to tax as held by the Hon'ble Kerala High Court in the case of Innovative Foods Limited Vs Union of India and others (356 ITR 389)? (c) Whether on the facts and in circumstances of the case and in law, the Hon'ble ITAT was right in annulling the re-assessment made u/s 143 r.w.s. 147 of the Income Tax Act, 1961 on ground that re-opening of the assessment amounted to change of opinion, ignoring the explanation 1 and 2(C) to section 147 of the Income Tax Act, 1961, particularly when the notice for re-assessment was issued before the expiry of four years from the end of the relevant assessment year thus fulfilling the statutory requisites for initiating action u/s 148 as held by the Hon'ble Kerala High Court in the case of CIT Vs National Tyres and Rubber Company of India Limited (202 Taxman 625)?" 3. By CM-25483-CII-2016, the appellant sought to raise the following additional questions of law:- "(i) Whether the Hon'ble ITAT was correct in law in setti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of Rs. 1,31,992/- can be considered to be genuinely incurred to earn interest income of Rs. 1,31,992/-. Thus balance interest expenses of Rs. 4,71,663/- were required to be disallowed, u/s 57. The assessee has also claimed exemption of Rs. 10,85,422/- u/s 54F against the house property purchased by him by investing the LTCG of Rs. 31,92,419/-. On verification of the record, it is found that the assessee has purchased two residential house properties within a specified period whereas he should have purchased one residential house property only to claim exemption u/s 54 F. Thus the exemption claimed u/s 54F amounting to Rs. 10,85,422/- needs to be disallowed. The assessee has also claimed excess deduction u/s 801C, which needs to be disallowed. In view of the above facts, I have reason to believe that income of the assessee has escaped assessment to the extent of Rs. 24,47,746/-. Notice u/s 148 of the l.T. Act, 1961 is therefore issued." 7. It will be noticed, therefore, that there were four reasons for issuing the notice under Section 148. 8. The assessee filed objections to the reasons which were rejected by the Assessing Officer who then proceeded to pass a fresh assessme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... contends that he had purchased two. What is important to note in this regard is the fact that the Assessing Officer had in the original assessment proceedings raised a specific query in this regard which is evidenced by an entry in the order sheet of 16.09.2009. The assessee replied to the same by his letter dated 12.10.2009, the relevant part whereof reads as under:- "That there was no capital gain, on the sale of industrial building situated at village Saidamajra (Punjab) which was allotted by Punjab Financial Corporation on 22.11.1996 as per agreement to sell. This property was allotted for a sum of Rs. 42 lacs and after adding back the cost of stamp papers and other things, its value came to Rs. 43,91,000/-. It may be mentioned here that no depreciation whatsoever was claimed on this property. This property was sold for a sum of Rs. 1 crore and the capital gains earned thereon was invested in the Flat at Baddi. The copies of the relevant documents are attached. The assessee had purchased residential Flat No. FR-3 & FR 4, Block No. 22 (Naina Apartments, Baddi) on fourth Floor measuring 2384 sq. ft. It is a single flat comprising of two adjacent flats which were converted into ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y the C.A. within the meaning of Section 288(2) which were furnished before you alongwith Form No. 10 CCB. The assessee has not claimed such expenses in any other provisions of the Act." (emphasis supplied) The reference to Section 80IA of the Act is a typographical error. Both the learned counsel agree that it ought to be read as Section 80IC. It is important to note that the letter expressly refers to Form No. 10CCB. Thus, Form No. 10CCB was not one of the many documents merely furnished alongwith the return to which the Assessing Officer's attention may not have turned. It was a document which was specifically brought to the notice of the Assessing Officer during the original proceedings under Section 143(3) of the Act. It is not even the appellant's case and indeed it cannot be that the Assessing Officer despite the letter dated 05.12.2009 did not peruse the same. 15. The relevance of Form No. 10CCB is this. Sub rule (2) of Rule 18BBB of the Income Tax Rules, 1962 requires a separate report to be furnished by each undertaking or enterprise of the assessee claiming a deduction, inter alia, under Section 80IC. The report is to be accompanied by the Profit and Loss Account an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 987, reopening could be done under the above two conditions and fulfilment 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 1st April, 1989), they are given a go-by and only one condition has remained, viz., that where the Assessing Officer has reason to believe that income has escaped assessment, confers jurisdiction to reopen the assessment. Therefore, post-1st April, 1989, power to reopen is much wider. However, one needs to give a schematic interpretation to the words "reason to believe" failing which, we are afraid, section 147 would give arbitrary powers to the Assessing Officer to reopen assessments on the basis of "mere change of opinion", which cannot be per se reason to reopen. We must also keep in mind the conceptual difference between power to review and power to reassess. The assessing officer has no power to review; he has the power to reassess. But reassessment has to be based on fulfilment of certain precondition and if the concept of "change of opinion" is removed, as contended on behalf of the Department, then, in the garb of reopening the assessment, review woul ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be invalid in case the assessment order itself records that the issue was raised and is decided in favour of the assessee. Reassessment proceedings in the said cases will be hit by principle of "change of opinion". (3) Reassessment proceedings will be invalid in case an issue or query is raised and answered by the assessee in original assessment proceedings but thereafter the Assessing Officer does not make any addition in the assessment order. In such situations it should be accepted that the issue was examined but the Assessing Officer did not find any ground or reason to make addition or reject the stand of the assessee. He forms an opinion. The reassessment will be invalid because the Assessing Officer had formed an opinion in the original assessment, though he had not recorded his reasons. 15. Thus, where an Assessing Officer incorrectly or erroneously applies law or comes to a wrong conclusion and income chargeable to tax has escaped assessment, resort to Section 263 of the Act is available and should be resorted to. But initiation of reassessment proceedings will be invalid on the ground of change of opinion. 46. I have searched in vain the provisions of the Act to fi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on on the answer furnished by the assessee. A view to the contrary would be doing the Assessing Officer little credit. 19. In Turner Broadcasting Systems Asia Pacific Inc. Vs Deputy Director of Income Tax, (2016) 380 ITR 412 (Del), a Division Bench of the Delhi High Court held as under:- "20. On applying the above principles to the facts of the present case and on perusal of the reasons, we find that no fresh information or material has been referred to in the reasons recorded for seeking to reopen the assessment. The material that is referred to is the very same material that was already before the Assessing Officer at the time of framing of the assessment under Section 143(3) of the Act and even the reasons recorded that "from the perusal of the assessment record, it is observed that". This clearly shows that the Assessing Officer has sought to reappreciate the material that was already there at the time when the assessment was framed under Section 143(3). Thus, as seen from the above, it is clearly a case of change of opinion, which is clearly not permissible." The case before us is similar. The Assessing Officer raised a query and sought information/document(s) which was ad ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eassessment of 'any other income' in the case of a validly issued notice cannot be said to be a case of fishing and roving enquiry. The assessee has the opportunity to challenge the notice, and if it is held to be invalid for not giving adequate reasons for reopening the assessment, the entire reopening proceedings would lapse. In such a case there would be no question of assessment of either 'such income 'of the first part of section 147 or 'any other income 'of its second part. But if the notice is either not challenged or if challenged and found to be justified, it would be a case of reopening the assessment on the basis of a valid notice. Once the notice for reopening of a previously closed assessment is held to be valid, the assessment proceedings as well as the assessment order already passed would be deemed to have been set aside. The Assessing Officer would then have the power to pass fresh assessment order with regard to the entire income which has escaped assessment. As long as the proceedings have been initiated on the basis of a valid notice, it becomes the duty of the Assessing Officer to levy tax on the entire income which may have escaped assessment during the asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 48 are not permissible on a change of opinion especially when it is based on information and details already available on record. 23. Ms. Dhugga lastly submitted that even assuming that the notice is invalid and issued without jurisdiction, Explanations 2 and 3 to Section 147 entitle the Assessing Officer to reopen the assessment in respect of items other than those mentioned in the notice. 24. The contention, if accepted, would be contrary to the entire law on the subject. A valid notice under Section 148 is a pre-requisite to proceedings under Sections 147 and 148. A valid notice is what gives the Assessing Officer jurisdiction to reopen the assessment and to pass a fresh assessment order. Clause (c) of Explanation 2 to Section 147 reads as under:- "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:- (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 a rate; or (iii) such income has been made the subject of excessive relief under this Act; or (iv) excessive loss or de ..... X X X X Extracts X X X X X X X X Extracts X X X X
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