TMI Blog2019 (10) TMI 89X X X X Extracts X X X X X X X X Extracts X X X X ..... down by the Apex Court in Kelvinator's case is squarely applicable to the facts and circumstances of the present case and thus, the reopening is bad as the same is not permissible, based on change of opinion. Consequently, the revenue cannot escape from the clutches of limitation. Such being the position, the reopening notice issued after the period of four years is undoubtedly, barred by limitation There is no dispute to the fact that the reasons for reopening were based on two heads namely, Asset Written Off and Factory Land Development Charges . It is not the case of the Revenue that the amount referable to those two heads were not at all shown in the profit and loss account. Assessee along with the return enclosed trading profit and loss account wherein the above two heads were specifically shown with the referable quantum of amount. Therefore, it is evident that the materials relevant to subject matter in issue for reopening, are already on record before the Assessing Officer. After perusing the return filed along with its enclosures, the Assessing Officer completed the assessment. Therefore, there is every reasonable presumption that the Assessing Officer has a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 77; 35,37,000/-. The Assessing Officer also disallowed the expenses on the milk can purchases from Profit and Loss account and allowed only 15% depreciation in the Assessment Order. The petitioner did not file any appeal and accepted the demand and made the payment of tax and interest amounting to ₹ 21,35,750/-. Thus, the petitioner had fully and truly co-operated with the department in participating in scrutiny and assessment proceedings and also in paying the tax without any delay. While so, the impugned notice dated 22.11.2017 was issued under section 148 of the Income Tax Act contending that the Assessing Officer had reason to believe that the petitioner's income for the assessment year 2011-12 had escaped assessment within the meaning of section 147 of the Income Tax Act, 1961. The petitioner, through letter dated 27.11.2017, requested the respondent to treat the return filed under Section 139 as the one filed as revised return for the purpose of reassessment under Section 147. In the very same communication, the petitioner also requested the respondent to give reason for reopening. By communication dated 08.12.2017, the respondent directed the petitioner to file a f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or, at the most, assessee could have continued claiming depreciation on the assets. Thus, perusal of the ledge accounts prima facie indicate under assessment of income. During the course of assessment proceedings of the year 2011-12, the assessee had not filed the details representing the expense of ₹ 3,65,452/- on account of Asset Written Off and the Factory Land Development Charge of ₹ 3,30,000/-. Further, cash payment incurred under the head Factory Land Development Charge was not reported in the Tax Audit Report. Thus, during the course of assessment proceedings, the assessee failed to fully and truly disclose the material facts required for finalising the assessment. It was only during the course of verification carried out during the assessment proceedings of the assessment year 2014-15, these details were brought on record. Therefore, notice under section 148 was issued only on the basis of new facts that had come to light subsequently and not on account of change of opinion, as alleged by the petitioner. Therefore, the said notice is valid and well within the statutory time limit available under the said Act. The order dated ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... de based on such tangible material, it is not open to the petitioner to contend as if the reopening is made based on change of opinion. The issue raised in the reopening was not discussed in the original assessment order. Therefore, there is no question of saying that there is a change of opinion. An escaped assessment includes under assessment. The issue regarding under assessment, if not properly considered at the time of original assessment, is entitled to be considered by way of reopening. In other words, an issue not properly considered entitles for reopening. ii) In support of his contention, the learned counsel relied on the following case laws. i) 1976(12) ITR 287 (SC) (Kalyanji Mavji Co. v. Commissioner of Income-tax) ii) 1989 (46) Taxman 13 (Mad) (Virudhunagar Co-operative Milk Supply Society Ltd.v. Commissioner of Income-tax) iii) 1986 (25) Taxman 356 (SC) (Indi-Aden Sald Mfg. Trading co.P.Ltd..v. Commissioner of Incometax) iv) 1999 (236) ITR 34 (SC) (Raymond Woolen Mills Ltd. v. Income-tax Officer) v) 1993 (69) taxman 625 (SC) (Phool Chand Bajrang Lal v. I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ebited to the Profit and Loss account under the head Asset Written Off. Also an amount of ₹ 3,30,000/- was debited under the head Factory Land Development Charge. During the course of assessment proceedings of A.Y.2014-15 assessee was also asked to clarify admissibility of the above expenses. In response it was stated that value of obsolete assets were written off and that the land development charges was expenditure incurred for leveling the factory land. Writing off cost of obsolete asset is a capital loss and therefore cannot be allowed as an expense. While disallowing this amount at the most assessee will be eligible for depreciation @ 15%. Thus, there is under assessment of income of atleast ₹ 3,10,34/-. With respect to land development expense, on perusal of the ledger account it is noticed that cash payment of ₹ 1,50,.000/- was made on 12./10/10 and ₹ 75,000/- on 17/2/11 i.e. assessee had violated the provisions of section 40A(3) and therefore expense to the tune of ₹ 2,25,000/- was not allowable. The tax audit report too did not have any mention of this violation. The above aspects remain ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r to disclose fully and truly all material facts necessary for his assessment, for that assessment year; Provided further..... 12. The above provision of law is in force with effect from 01.04.1989 pursuant to the Direct Tax Laws (Amendment) Act, 1987, which substituted the above provision in the place of earlier provision as existed prior to 01.04.1989. In this case, we are concerned with the present provision under Section 147 as it stands with effect from 01.04.1989. The Hon'ble Full Bench of Delhi High Court in Kelvinator of India Limited case, reported in (2002) 256 ITR 1, considered the question in detail as to whether any change in law has been brought about on account of amendment of Section 147 with effect from 01.04.1989. In the above said decision, the Hon'ble Full Bench has observed as follows: 10. In Indian Eastern Newspaper Society v. CIT MANU/SC/0328/1979 three-Judge Bench of the Apex Court held that although disclosure of a new facts therein may be an information within the meaning of the afore-mentioned provisions this opinion of law would not be as regard a contention on the part of the revenue t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt. 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 28-2-1994, passed by the Commissioner (Appeals) was before the assessing officer. That order stands till today. What the assessing officer has said about the order of the Commissioner (Appeals) while recording reasons under section 147 he could have said even in the original orders of assessment. Thus, it is a case of mere change of opinion which does not provide jurisdiction to the assessing officer to initiate proceedings under section 147 of the Act. It is also equally well settled that if a notice under section 148 has been issued without the jurisdictional foundation under section 147 being available to the assessing officer, the notice and the subsequent proceedings will be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 favored. In the event it is held that by reason of section 147 if Income Tax Officer exercises its jurisdiction for initiating a proceeding for reassessment only upon 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 if 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. 22. .... 23. We also cannot accept submission of Mr. Jolly to the effect that only because in the assessment order, deta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ower to review and power to re-assess. The Assessing Officer has no power to review; he has the power to re-assess. But re-assessment has to be based on fulfilment of certain pre-condition and if the concept of change of opinion is removed, as contended on behalf of the Department, then, in the garb of re-opening the assessment, review would take place. One must treat the concept of change of opinion as an in-built test to check abuse of power by the Assessing Officer. Hence, after 1st April, 1989, Assessing Officer has power to re-open, provided there is tangible material to come to the conclusion that there is escapement of income from assessment. Reasons must have a live link with the formation of the belief. Our view gets support from the changes made to Section 147 of the Act, as quoted hereinabove. Under the Direct Tax Laws (Amendment) Act, 1987, Parliament not only deleted the words reason to believe but also inserted the word opinion in Section 147 of the Act. However, on receipt of representations from the Companies against omission of the words reason to believe , Parliament re-introduced the said expression and deleted the word opinion on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e assessee to disclose fully and truly all material facts necessary for the assessment of that assessment year. Only when the revenue succeeds in establishing such failure, the reopening can be sustained, as it has been made beyond the period of four years. 16. The reason for reopening the assessment is in respect of two issues which are as follows: i) The amount of ₹ 3,65,452/- was debited to the profit and loss account under the head of asset written off. ii) The amount of ₹ 3,30,000/- was debited under the head factory land development charges and out of such sum, a sum of ₹ 2,25,000/- spent on that account was in violation of Section 40A(3) of the said Act. 17. First of all, it is to be seen as to whether these two figures are shown in the return filed by the assessee. Perusal of the copy of the return filed would show that the profit and loss account for the year ended 31.03.2011 clearly reflected the Asset Written Off as ₹ 3,65,452/- and Factory Land Development Charges as ₹ 3,30,000/-. It is claimed by the revenue that the land development expen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Section 40A(3) and thus the same is not allowable. I have already discussed supra that even in respect of the issue raised in relation to the alleged violation of Section 40A(3), the materials were already available on record. Therefore, the above reasons of the Revenue would undoubtedly indicate that the Assessing Officer has changed his opinion in respect of the relevant entries under Profit and Loss Account, namely Asset Written Off and Factory Land Development Charges, which cannot be the basis for reopening the assessment. When the assessee had shown those two heads under the Profit and Loss account filed along with the return, it cannot be said that there is failure on the part of the assessee to disclose fully and truly all material facts. Nothing prevented the assessing officer to seek for clarification, if any, in respect of the above said two heads before making the assessment under Section 143(3), if he has any doubt on those two heads. 18. On the other hand, the Assessing Officer has accepted the return filed by the petitioner even in respect of those two heads and passed the order of assessment. Consequently, he is not entitled to reopen the assessment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r not one has to see its meaning in literal as well as legal terms. The word change of opinion implies formulation of opinion and then a change thereof. In terms of assessment proceedings, it means formulation of belief by an assessing officer resulting from what he thinks on a particular question. It is a result of understanding, experience and reflection. 17. It is well settled and held by this Court in a catena of judgments and it would be sufficient to refer Commissioner of Income Tax, Delhi v. Kelvinator of India Ltd. MANU/SC/0047/2010 : (2010) 320 ITR 561 (SC) wherein this Court has held as under: 5....where the Assessing Officer has reason to believe that income has escaped assessment, confers jurisdiction to re-open the assessment. Therefore, post-1st April, 1989, power to re-open is much wider. However, one needs to give a schematic interpretation to the words reason to believe ..... Section 147 would give arbitrary powers to the Assessing Officer to re-open assessments on the basis of mere change of opinion , which cannot be per se reason to re-open. 6. We must also keep in mind the conceptual ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ficer. The Assessing Officer completed the scrutiny assessment vide order dated 30.12.2011. After the expiry of four years, the impugned notice dated 31.03.2016 was issued. The petitioner requested for the copy of the reasons for reopening vide representation dated 13.04.2016. The respondent by communication dated 19.04.2016 furnished the reasons for reopening. On a perusal of the reasons, I find that the respondent on verification of the assessment records and the order sheet entries inferred that the Assessing Officer on scrutiny had failed to examine and deliberate on the correctness of the income reported under the head agricultural income. Further, the respondent would state that even though the assessee had derived the predominant portion of the agricultural income from sale of coffee seeds, the aspect as to whether the income so derived is completely exempt or is it a case falling under Rule 7B was also omitted to be verified. Added to this, the Assessing Officer was inspired by a direction issued by the ITAT in the case of one TC Abraham. Thus, on a mere reading on the reasons for reopening clearly show that there is no allegation against the petitioner that there has been ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vinator's case is squarely applicable to the facts and circumstances of the present case and thus, the reopening is bad as the same is not permissible, based on change of opinion. Consequently, the revenue cannot escape from the clutches of limitation. Such being the position, the reopening notice issued after the period of four years is undoubtedly, barred by limitation. 21. No doubt, it is contended by the learned counsel for the Revenue that the issue raised for the reopening was not discussed in the original assessment order and therefore, it cannot be said that the reopening is made based on change of opinion. I am unable to appreciate the above contention for the following reasons: There is no dispute to the fact that the reasons for reopening were based on two heads namely, Asset Written Off and Factory Land Development Charges . It is not the case of the Revenue that the amount referable to those two heads were not at all shown in the profit and loss account. On the other hand, as already stated supra, the assessee along with the return enclosed trading profit and loss account wherein the above two heads were specifically shown with ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Therefore, I am of the view that the Revenue is not right in contending that the assessee had not correctly disclosed the material details. Even otherwise, as I pointed out earlier, neither the show cause notice nor the proceedings stating reasons for reopening indicate anywhere that the assessee failed to disclose truly and fully material details. Therefore, the learned counsel for the Revenue is not justified in relying the above decision of the Apex Court. 24. The other decisions relied on by the Revenue reported in 2018 409 ITR 502 (A.Sridevi Vs. Income-tax Officer) is in support of the contention that when no opinion was formed during the assessment proceedings, it cannot be termed now as change of opinion. It is true that the Division Bench of this Court at paragraph No.21 has observed that the reopening of the assessment therein is just and proper and no opinion was formed during the assessment proceedings in which to be termed as 'change of opinion' more so, when the assessee has failed to disclose fully and truly all the materials necessary for its assessment. However, it is to be noted that in order to arrive a ..... X X X X Extracts X X X X X X X X Extracts X X X X
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