TMI Blog2017 (12) TMI 1594X X X X Extracts X X X X X X X X Extracts X X X X ..... rmation 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 assessee himself. We also cannot accept the submission of Mr. Jolly to the effect that only because in the assessment order, detailed reasons have not been recorded an analysis of the materials on the record by itself may justify the Assessing Officer to initiate a proceeding under section 147 of the Act. The said submission is fallacious. An order of assessment can be passed either in terms of sub-section (1) of section 143 or sub-section (3) of section 143. When a regular 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ware development income was not offered by the assessee on accrual basis, and there was reason to believe that income had escaped assessment. Thereafter, the reassessment was completed through an order u/s.143(3) r.w.s.147 of the Act with the following observations: 4. Vide letter dated 25.02.2014, the assessee company stated that Health Q Software Product was a Joint Venture between the assessee and the parties who have contributed towards software development expenditure. Further- they stated that this amount ₹ 1,05,93,968 is received towards software development incurred by the assessee. However since the further contribution required for development was not coming forth as per the agreement, owing to difference of opinion between the parties and that the project was abruptly stopped. 5. In the Original return of Income the assessee company had debited a sum of ₹ 80,16,696 as head quarters Project cost write off which is detailed below: Total Project Cost (Semi finished) Health Q Software Products Project cost incurred : 3,46,43,785/- Less: Recov ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d against software development was not credited in the profit and loss account. As per the ld. Commissioner of Income Tax (Appeals), the reopening done was justified on facts. He also dismissed the grounds challenging the merits. 6. Now before us, ld. Authorised Representative strongly assailing the reopening done for the impugned assessment year, submitted that assessee through its letter dated 12.11.2010 filed before the ld. Assessing Officer, during the course of original assessment proceedings, had given full details on the project cost relating to development of what is called as Health Q Software products on which the advance was received. As per the ld. Authorised Representative, assessee had claimed depreciation at 60% on such software product but this was not allowed by the ld. Assessing Officer in the original assessment. Further, as per the ld. Authorised Representative, letter filed by the assessee was duly considered by the ld. Assessing Officer while completing the original assessment though he had not accepted the claim for higher depreciation. Thus, as per the ld. Authorised Representative, the ld. Assessing Officer was aware of the software development advance r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a. Project Cost Incurred Rs:3,46,43,785.04 Details already furnished b. Less Recovery Rs:1,05;93,698.00 Please See Annexure -1 c. Balance Rs:2,40,50,087.04 d. One-third of c above Rs: 80,16,696.00 Written off in the Books 2. We are eligible to claim deprecations at 60% for full year On software products which works out to ₹ 1,44,30,052.22,since software at semi finished stage is also available for sales. This semi finished stage is reached before September 30th 2007. 3. We should have claimed Rs:l,44,30,052.22 as depreciation instead of writing off ₹ 80,16,696.00 4. Therefore kindly allow us Rs: 1,44,30,052.22 in the place of Rs:80,16,696.00 5. We are enclosing sales invoice and Sales Details for having sold the products 6.We are producing the sample expenses vouchers for Rs. l Lakh or More for your perusal and Return as detailed below: a. Laser Soft Infosystems Ltd Rs:10,00,0 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1) : It is for him to decide what inferences of facts can be reasonably drawn and what legal inferences have ultimately to be drawn. It is not for somebody else-far less the assessee-to tell the assessing authority what inferences, whether of facts or law, should be drawn. Indeed, when it is remembered that people often differ as regards what inferences should be drawn from given facts, it will be meaningless to demand that the assessee must disclose what inferences-whether of facts or law-he would draw from the primary facts. As regards the scheme of the Act, the apex court held (page 207) : The scheme of the law clearly is that where the Income-tax Officer has reason to believe that an underassessment has resulted from nondisclosure he shall have jurisdiction to start proceedings for reassessment within a period of eight years ; and where he has reason to believe that an underassessment has resulted from other causes he shall have jurisdiction to start proceedings for reassessment within four years. Both the conditions, (i) the Income-tax Officer having reason to believe that there has been underassessment and (ii) his having reason to believe that such underassessmen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that directly arose for decision in earlier proceedings. If that were not the legal position it would result in placing an unrestricted power of review in the hands of the assessing authorities depending on their changing moods. It was further held by the Bench that (page 178) : Reverting back to the case at hand, it is clear from the reasons placed by the Assessing Officer on record as also from the statement made in the counter affidavit that all that the Income-tax Officer has said is that he was not right in allowing deduction under section 80-I because he had allowed the deductions wrongly and, therefore, he was of the opinion that the income had escaped assessment. Though he has used the phrase reason to believe in his order, admittedly, between the date of the orders of assessment sought to be reopened and the date of forming of opinion by the Income-tax Officer nothing new has happened. There is no change of law. No new material has come on record. No information has been received. It is merely a fresh application of mind by the same Assessing Officer to the same set of facts. While passing the original orders of assessment the order dated February 28, 1994, passe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... We may also notice that a Division Bench of the Gujarat High Court in Garden Silk Mills Pvt. Ltd. [1999] 237 ITR 668, while expressing similar views observed (page 674) : The reasons recorded by the Assessing Officer which led to the belief about the escapement of assessment disclose that the present case is nothing but mere change of opinion on the facts which were already before the Assessing Officer while making the first assessment to which conscious application of mind is reflected from the proceedings, and allowed in the computation and which has not been disputed by the Revenue. Although the referring Bench had prima facie agreed with the decision of this court in Jindal Photo Films case [1998] 234 ITR 170, but a doubt was sought to be raised by the Revenue in view of a decision of the Gujarat High Court in Praful Chunilal Patel s case [1999] 236 ITR 832 . Therefore, let us now consider the decision of the Division Bench of the Gujarat High Court in the said case, wherein it was held (page 839) : It will thus be seen that in the proceedings taken under section 147, the Assessing Officer may make an assessment or reassessment, or recomputation, as the case may be. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t should be preferred. It is a well settled principle of interpretation of statute that the entire statute should be read as a whole and the same has to be considered thereafter chapter by chapter and then section by section and ultimately word by word. It is not in dispute that the Assessing Officer does not have any jurisdiction to review his own order. His jurisdiction is confined only to rectification of mistakes as contained in section 154 of the Act. The power of rectification of mistake conferred upon the Income-tax Officer is circumscribed by the provisions of section 154 of the Act. The said power can be exercised when the mistake is apparent. Even a mistake cannot be rectified where it may be a mere possible view or where the issues are debatable. Even the Income-tax Appellate Tribunal has limited jurisdiction under section 254(2) of the Act. Thus when the Assessing Officer or Tribunal has considered the matter in detail and the view taken is a possible view the order cannot be changed by way of exercising the jurisdiction of rectification of mistake. It is a well settled principle of law that what cannot be done directly cannot be done indirectly. If the Income-tax ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oo low a rate or has been made the subject of excessive relief. After April 1, 1989, the position is somewhat different. Section 147 with effect from April 1, 1989, provides that where the Assessing Officer has reason to believe that any income chargeable to tax has escaped assessment for any assessment year, he may apply the provisions of sections 148 to 153. He may assess or reassess the income which has escaped assessment. It is to be noted that section 147 as it stands with effect from April 1, 1989, not only merges clauses (a) and (b) of the pre-amended section 147 but also brings about a significant change in the preliminary requirement of certain conditions mandatory in character before reassessment proceedings should be initiated in the pre-amended section. The conditions precedent for initiation of action under section 147(a) or 147(b) of the pre-amended situation, is highlighted above. The amended provisions are contextually different and the cumulative conditions spelt out in clause (a) or (b) of section 147 prior to its amendment, are not present in the amended provision. The only condition for action is that the Assessing Officer should have reason to believe that i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ti, not being a circular issued under section 119 of the Act, will not be of any assistance to the respondents in support of their contentions. It further observed that (page 16) : The learned Solicitor General has pointed out that by virtue of the power vested in the Board under section 119(2)(a) of the Act, the Board has issued circulars by Notification No. F. No. 400/234/95-IT(B), dated May 23, 1996. As per this circular, it has empowered that the Chief Commissioner of Income-tax and Director-General of Income-tax may waive or reduce interest charged under sections 234A, 234B and 234C of the Act in the class of cases or class of incomes specified in paragraph 2 of the said order for the period and on conditions which are enumerated therein. He submitted that in view of the said circular, the same authority can be exercised by the Commission since the said circular would amount to relaxation of the rigour of sections 234A, 234B and 234C of the Act. We are in unison with this submission of the learned Solicitor General. This court in a catena of cases has held that the circulars of the Central Board of Direct Taxes are legally binding on the Revenue : see UCO Bank v. CIT [ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ty to issue binding circulars. Another aspect of the matter also cannot be lost sight of. A statute conferring an arbitrary power may be held to be ultra vires article 14 of the Constitution of India. If two interpretations are possible, the interpretation which upholds constitutionality, it is trite, should be favoured. In the event it is held that by reason of section 147 if the Income-tax Officer exercises his jurisdiction for initiating a proceeding for reassessment only upon a mere change of opinion, the same may be held to be unconstitutional. We are therefore of the opinion that section 147 of the Act does not postulate conferment of power upon the Assessing Officer to initiate reassessment proceeding upon his mere change of opinion. We, however, may hasten to add that if reason to believe of the Assessing Officer is founded on an information which might have been received by the Assessing Officer after the completion of assessment, it may be a sound foundation for exercising the power under section 147 read with section 148 of the Act. We are unable to agree with the submission of Mr. Jolly to the effect that the impugned order of reassessment cannot be faulted a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Tax Laws (Amendment) Act, 1987, section 147 reads as under : 147. Income escaping assessment.-If- (a) the Income-tax Officer has reason to believe that, by reason of the omission or failure on the part of an assessee to make a return under section 139 for any assessment year to the Income-tax Officer or to disclose fully and truly all material facts necessary for his assessment for that year, income chargeable to tax has escaped assessment for that year, or (b) notwithstanding that there has been no omission or failure as mentioned in clause (a) on the part of the assessee, the Income-tax Officer has in consequence of information in his possession reason to believe that 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 or recompute the loss or the depreciation allowance, as the case may be, for the assessment year concerned (hereafter in sections 148 to 153 referred to as the relevant assessment year). 4. After the enactment of the Direct Tax Laws (Amendment) Act, 1987, i.e., prior to 1st April, 1989, section 147 of the Act, reads as under : 147. I ..... X X X X Extracts X X X X X X X X Extracts X X X X
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