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Notice Under Section 148 of Income Tax Act



When a notice u/s 148 is received the assessee is asked to file a return of the relevant assessment year. After filling the return, the assessee should ask for the copy of reasons recorded for issue of notice u /s 148 and can file objection to the issuance of notice. The assessee should ask specifically assessing officer to pass a speaking order. This issue is dealt in the Judgment of Honorable Supreme Court in GKN Driveshafts (India) Ltd vs ITO (2003) 259 ITR 19 (SC). The objections should be filed giving reasons for challenging the legality of the notice u/s 148. All this procedure has been laid down by the Honorable Supreme court in GKN Driveshafts (India) Ltd case. This procedure has been provided by the Honorable Supreme court to enable the assessee to file writ petition before the respective High Court challenging the legality of the notice u/s 148 before the assessment is completed.

Even if the Assessment Order has been passed and the matter is in appeal, the assessee can still file writ petition in the High Court challenging the legality of notice u/s 148, if the procedure as laid down by the Supreme Court in GKN Drive shafts (India) Ltd case is not followed. But for that assessee will have to show that, he asked for the copy of reasons for issue of notice u/s 148 and filed objections to that and asked the assessing officer to pass a separate reasoned order.

The law of Section 148 has been further strengthened by an amendments in Finance Act 2012, which gives department power to issue notice u/s 148 where not more than sixteen years have elapsed from the end of the relevant assessment years, if there is any income in relation to any asset (including financial interest in any entity) located outside India, chargeable to tax, which has escaped assessment.

However, judiciary of the country has ensured that this law is not misused to harass assessees, where there lies no reason that may cause an assessing officer to believe that income has escaped assessment. Hon’ble Supreme Court in GKN Driveshafts (India) Ltd. vs. ITO & Ors. (2003) 259 ITR 19 (SC) had held that :- “When a notice under section 148 of the Income-tax Act, 1961, is issued, the proper course of action for the notice is to file the return and, if he so desires, to seek reasons for issuing the notices. The assessing officer is bound to furnish reasons within a reasonable time. On receipt of reasons, the notice is entitled to file objections to issuance of notice and the assessing officer is bound to dispose of the same by passing a speaking order.”

A point has always been bone of contention between department and representatives whether reasons for issue of notice u/s 148 can be issued prior to filing of return of income. Or to be more specific, are reasons required to be sent along with notice u/s 148. So far as Section 148(2) of the Act is concerned, it is silent regarding ‘communication of reasons’ and as to whether the same are to be communicated before or after filing of return.

Allahabad High Court, while addressing this issue in the case of Mithilesh Kumar Tripathi vs CIT 2006) 280 ITR 16 (All.) held that : Normally one expects ‘Reasons’ to be communicated along with notice so that assessee is informed of the ‘ground’ for initiating reassessment in order to ensure that action is not ‘arbitrary’. It shall enable an ‘assessee’ to take care of the ‘escaped assessment’ (which is the basis/foundation of the notice) as well as to take care, while filing fresh return, to disclose/ explain any other income, if any, which may have otherwise escaped assessment.

Notice Under Section 148(2) of the Act requiring an assessee to file  ‘Revised-Return’ for re-assessment without disclosing ground/’reasons’ is no notice of the case to be met or opportunity to explain. Such a notice for sure lacks basic information and thus for certain fails to apprise the party even the basic ground/circumstance on the basis of which he is compelled by Assessing Officer to file revised return. It is complete denial of opportunity to defend and answer the Notice. Assessee is left in dark and compelled to make a ‘roving and fishing search’ to detect/locate alleged “escaped income”. In case reason/ground is disclosed along with the notice (without disclosing ‘source of information’ or ‘other material’) it will definitely facilitate expeditious filing of revised return and also enable the ‘Assessee’ to declare, apart from the ‘escaped income’ pointed out in the notice, other ‘escaped income’ or ‘undisclosed income’.





In our view, if reasons are supplied along with notice under Section 148(2) of the Act, it shall obviate unnecessary, harassment to the assessee as well to the Revenue by avoiding unnecessary litigation which will save Courts also from being involved in unproductive litigations. Above all it shall be in consonance with the principles of natural justice, as discussed above. How to Respond to 148 Notice - The issue of a notice under section 148 of the Income-tax Act, (‘the Act’) calling upon the Taxpayer to file a return of income  for the year specified in the notice is the starting point of the Re-assessment (Re-audit) proceedings. A Re-assessment proceeding – also referred as “re-opening” of the assessment – is initiated by the “assessing officer” when he has “reasons to believe” that income of a Taxpayer has “escaped” assessment for any year.

A notice can be issued even if a Return has already been filed for the year and the same has also been scrutinized / audited. However, the notice has to be in accordance with the parameters laid down under the law within the prescribed time-limit and supported by ‘valid reasons’.

A Taxpayer who feels aggrieved by the issuance of a notice and believes that the proceedings are unwarranted has a right to object to the same by challenging the issue of Notice. Generally speaking, whether a tax-payer has a “good case” to challenge the re-assessment would depend on a) whether he has already been subjected to a scrutiny or not and b) the time elapsed. Recording of the reasons for the issuance of the notice and a Tax payer’s right to know what those reasons are, is an important part of the procedural law relating to re-assessments. There is some difference in the practice followed in this respect – while some officers would supply a copy of the reasons along with the Notice, others would not. Whether or not the reasons have been communicated, the Taxpayer always has the right to obtain a copy of the reasons recorded in the files and object to the issue of Notice if no reasons have been recorded or if he can demonstrate that Notice is not based on ‘valid reasons’.

The procedural aspect of the law to be followed by a Tax payer objecting to a notice issued under section 148 in his case in essence, objecting the initiation of a Re-assessment / audit, has been laid down by the Honorable Supreme Court in judicial rulings. The typical list of next steps to be followed is set out below.

At the first instance, the Taxpayer has to comply with the Notice and file a Return of Income. Avoid the tendency to make the most common mistake in responding to a 148 notice. After having filed the Return of Income, the Tax payer can ask for a copy of the reasons recorded for issuing the notice and place on record his objections for initiating the proceeding. There is no prescribed format for filing of the objections – a brief guide on the essential points to cover in the communication challenging the notice can be found on above link.

The assessing officer has to supply the reasons for the re-opening within a reasonable time of the request being made by the Taxpayer. What is “reasonable time” – the Honourable Gujarat High Court has spelled out an indicative time-frame in this regard.

After receiving a copy of the reasons recorded, the Taxpayer can supplement his objections filed earlier with specific reference to the reasons recorded to show why the reasons do not support a valid inference of escapement of income. Assessing Officer has to pass an order disposing the objections raised by the Taxpayer -and only then can he proceed further with the assessment / audit
In practice, unfortunately, the assessing officers have a tendency to brush aside the objections raised by the Taxpayer and proceed with the reassessment, irrespective of how good the objections raised by the Taxpayer are. Nevertheless, the Taxpayer could do well to utilize the above process to build a case for challenge the proceedings in the higher judicial fora, should he so desire.

The Taxpayer has the following two choices for pursuing further challenge to the notice:

a) He can file a writ petition before the jurisdictional High Court challenging the order of the assessing officer.

b) He can participate in the proceedings and continue to agitate the ground relating to the jurisdiction in further appeals

As to which of the above two actions would be better suited would depend to a large degree on a qualitative evaluation of each
 
The reopening of assessment under Section 148 of the Income Tax Act (the Act) has been a continuous saga of litigation and uncertainty. Even when it appears that some finality is emerging, a new issue arises and it goes through the entire gamut of litigation all over again. This issue has witnessed retrospective amendments also, to annul the decision of the Courts. A recent decision of the Hon’ble Karnataka High Court on this issue, in the case of N.Govindaraju Vs. ITO, [TS-407-HC-2015(KAR)] income-sans-recorded-reasons) has raised concern and several questions in the minds of the taxpayers.




The crux of the decision is the interpretation of Explanation 3 of Section 147 and the issues that can be covered in the scope of reassessment. Essentially, the questions raised were twofold:

i) Once a case is reopened, can the Assessing Officer look into issues beyond the issue for which the assessment was reopened and

ii) In case the Assessing Officer is satisfied on the issue on which the reopening was made and does not make any addition, can he make additions on other issues, which came to his notice at the time of reassessment and which were not the reason for the reopening?


The answer to the first question is fairly simple. Explanation 3 to Section 147 of the Act, which was introduced in 2009, with retrospective effect from 1989, is clear that once an assessment is reopened, the A.O can proceed to assess the income in respect of any issue, even though the reasons for such issue have not been included in the reasons recorded for reopening. That is to say, once an assessment is reopened, the A.O can examine and make additions on all other issues, which were never part of the reopening. The second question is whether the reassessment notice survives if the reason for which the assessment was reopened does not survive. The answer to this question involves the interpretation of the phrase and “Also” present in the section. The Hon’ble Bombay High Court, in the case of Jet Airways, (2011) 331 ITR 236 had interpreted the phrase “and also” as being conjunctive and cumulative and not being in the alternative. Having held thus, the Hon’ble Bombay High court held that the scope of Sec 148 includes not only such income for which the assessment was reopened but also any other income which comes to the notice of the Assessing Officer subsequently in the course of reassessment proceedings. But the Hon’ble Bombay High court held that if the original reason for which the assessment was reopened does not survive, then the Assessing Officer cannot assess the income related to the other issues that came to notice during the reassessment proceedings. However, the Hon’ble Karnataka High Court, in the present case, has disagreed with the Hon’ble Bombay HC on the interpretation of the phrase “and also”. The Hon’ble Karnataka HC has held that in the phrase“and also”, “and” is conjunctive but “also” is dis-junctive.




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 SUPREME COURT RULINGS SECTION 148 





CIT, Delhi vs M/S. Kelvinator Of India Ltd

18 /01/ 2010: A short question which arises for determination in this batch of civil appeals is, whether the concept of "change of opinion" stands obliterated with effect from 1st April, 1989, i.e., after substitution of Section 147 of the Income Tax Act, 1961 by Direct Tax Laws (Amendment) Act, 1987?

After the Amending Act, 1989, Section 147 reads as under: 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)."

On going through the changes, quoted above, made to Section 147 of the Act, we find that, prior to Direct Tax Laws (Amendment) Act, 1987, re-opening could be done under above two conditions and fulfillment 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 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" failing which, we are afraid, 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. We must also keep in mind the conceptual difference between power 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 fulfillment 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 the ground that it would vest arbitrary powers in the Assessing Officer. We quote hereinbelow the relevant portion of Circular No.549 dated 31st October, 1989, which reads as follows:

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."

For the afore-stated reasons, we see no merit in these civil appeals filed by the Department, hence, dismissed with no order as to costs.


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CIT, Simla vs M/S Green World Corporation

06/05/2009: M/s Green World Corporation is a partnership concern of Shri R.S. Gupta and his wife Smt.Sushila Gupta. They had set up two units for manufacturing exercise books, writing pads, etc. atParwanoo in the State of Himachal Pradesh in the year 1995.

The Assessing Officer is hereby directed to examine the case records for all the preceding assessment years including those for assessment year 1996-97 and initiate necessary proceedings u/s 148. The AssessingOfficer is further directed to examine the succeeding assessment years also i.e. A.Y.2001-02, 2002-03 and 2003-04 and initiate appropriate action u/s 148/143(2) as may be applicable, in a week's time."Pursuant thereto or in furtherance thereof, notices under Section 148 of the Act were issued to the Assessee for the Assessment Years 1996-97 to 1999-2000, 2001-2002 and 2002-2003.

Assessee preferred an appeal against the order dated 12.7.2004 before the Income Tax AppellateTribunal (for short, "ITAT"). In its memo of appeal, the assessee raised contentions relating to: (1)jurisdiction, (2) bias on the part of the CIT (Shimla), and (3) on merit of the matter. The Income TaxOfficer of CIT (Shimla) himself remained personally present before ITAT for the purpose of defending his order under Section 263 of the Act.

Assessee questioned the legality of the notice under Section 148 of the Act by filing a Writ Petition before the Himachal Pradesh High Court on or about 5.8.2005, which was marked as Civil WritPetition No. 800 of 2005.

There can be no doubt that the provision cannot be invoked to correct each and every type of mistake or error committed by the Assessing Officer, it is only when an order is erroneous that the section will be attracted. An incorrect assumption of facts or an incorrect application of law will satisfy the requirement of the order being erroneous. In the same category fall orders passed without applying the principles of natural justice or without application of mind.

The phrase 'prejudicial to the interests of the revenue' has to be read in conjunction with an erroneous order passed by the assessing officer. Every loss of revenue as a consequence of an order of assessing officer cannot be treated as prejudicial to the interests of the revenue, for example, when an Income Tax Officer adopted one of the courses permissible in law and it has resulted in loss of revenue; or where two views are possible and the Income Tax Officer has taken one view with which the Commissioner does not agree, it cannot be treated as an erroneous order prejudicial to the interests of the revenue unless the view taken by the Income Tax Officer is unsustainable in law.

The other question which requires determination is as to whether the CIT (Shimla) could maintain an appeal before the High Court. An appeal is ordinarily maintainable at the instance of the Assessing Officer. Not only an order of assessment was passed but also CIT (Shimla) had already passed an order. Notices under Section148 of the Act had already been issued much prior thereto.Before us, reliance has been placed upon some decisions by Mr. Salve to contend that CIT (Shimla) has no jurisdiction. Even in a situation of this nature such a view appears to have been taken in Commissioner of Income Tax vs. Sahara India Financial Corporation Ltd. [212 CTR 178 (Delhi)]wherein a question whether the appeal preferred by the Revenue in the Delhi High Court was questioned by the assesse on the ground of lack of territorial jurisdiction.

We, therefore, in exercise of our jurisdiction under Article 142 of the Constitution of India direct that the assessment be reopened by the Commissioner of Income-tax, Delhi -VII.
These appeals are disposed of with the aforementioned directions.



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CIT & Ors vs Chhabil Dass Agarwal

08 /08 / 2013: Since no return was filed by the assessee for the Assessment Year 1996-1997 despite capitalizing the aforesaid profit, proceedings under Section 147 of the Act were initiated against him for the said Assessment Year. Accordingly, on 26.05.1998 the notice was issued under Section 148 of the Act. Further, the Revenue has found out that as on 31.03.1996 the assessee had brought forward closing capital of Rs.1,73,90,397/- including the aforesaid net profit during the Assessment Year 1996-1997.

The same remained unexplained as the return of income for Assessment Year 1995-1996 was also not furnished by the assessee. Hence, another notice under Section 148 was issued to the assessee for the Assessment Year 1995-1996, dated 30.03.2000. It has come on record that the assessee did not comply with the aforesaid notices issued under Section 148 of the Act and thus, a letter dated 19.01.2001 came to be issued to the assessee as a reminder to file his return of income for the assessment years clearly mentioning that failure to do so would lead to an ex-parte assessment under Section 144 of the Act. Thereafter, upon filing of written submissions by the assessee, notice under Section 142(1) of the Act dated 25.06.2001 was issued for the Assessment Year 1995-1996 alongwith final show cause fixing compliance for hearing dated 09.07.2001. The assessee sought for an adjournment which was not granted and the assessments were completed ex-parte under Section 144 of the Act raising a tax demand of Rs.2,45,87,625/- and Rs.6,32,972/- for Assessment Years 1995-96 and 1996-97, respectively by orders dated 09.07.2001 and 28.03.2001, respectively. Further, penalty proceedings under Section 271(1)(c) of the Act were also initiated for both Assessment Years.

In view of the above, we allow this appeal and set aside the judgment and order passed by the High Court in Writ Petition (Civil) No.44 of 2009. We grant liberty to the respondent, if he so desires, to file an appropriate petition/ appeal against the orders of re-assessment passed under Section 148 of the Act within four weeks' time from today. If the petition is filed before the appellate authority within the time granted by this Court, the appellate authority shall consider the petition only on merits without any reference to the period of limitation.

However, it is clarified that the appellate authority shall not be influenced by any observation made by the High Court while disposing of the Writ Petition (Civil) No.44 of 2009, in its judgment and order dated 05.10.2010.All the contentions of the parties are left open. Ordered accordingly.



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A.L.A. Firm vs CIT

21 /02/ 1991: I.T.O. issued a notice under section 148 read with Section 147(b) of the Income Tax Act, 1961. The assessee filed objections. Overruling all the objections, the Income Tax Officer completed reassessment of the assessee Firm adding back the sum of Rs. 1,58,057 to the previously assessed income.Having failed right upto the High Court, the assessee came in appeal before this Court.Dismissing the appeal, affirming the decision of the High Court, this Court.

HELD: (1) The proceedings u/s 147(b) were validly initiated. The facts of this case squarely fall within the scope of propositions (2) and (4) enunciated in Kalyanji Mavji's case. Proposition (2) may be briefly summarised as permitting action even on a "mere change of opinion". This is what has been doubted in the IENS case. But, even leaving this out of consideration, there can be no doubt that the present case is squarely covered by proposition (4) set out in Kalyanji's case.

In the present case, on the information already on record and in view of the decision in Ramachari & Co. v. C.I.T., [1961] 41 I.T.R. 142, there can be no doubt that the I.T.O. could reasonably come to the conclusion that income, profits and gains assessable for the assessment year 1961-62 had escaped assessment. But is that belief reached "in consequence of information in his posession"? The assessee's counsel says "no", for, says he, it is settled law that the "information" referred to in clause (b) above, should be "information" received by the I.T.O. after he had completed the original assessment. Here it is pointed out that all the relevant facts as well as the decision in Ramachari (supra) had been available when the original assessment was completed on 10.4.1962. Action cannot be taken under this clause merely because the I.T.O., who originally considered the surplus to be not assessable, has on the same facts and the same case law which had been available to him when he completed the assessment originally, changed his opinion and now thinks that the surplus should have been charged to tax.

If the Income-tax Officer had considered and formed an opinion on the said material in the original assessment itself, then he would be powerless to start the proceedings for the reassessment. Where, however, the Income-tax Officer had not considered the material and subsequently come by the material from the record itself, then such a case would fall within the scope of section 147(b) of the Act."

There, what the I.T.O. had missed earlier was the true purport of the relevant statutory provisions. It seems somewhat difficult to believe that the I.T.O. could have failed to read properly the statutory provisions applicable directly to facts before him (though that is what seems to have happened). Perhaps an equally plausible view, on the facts, could have been taken that he had considered them and decided, in one case, not to apply them and, in the other, on a wrong construction thereof. In the present case, on the other hand, the material on which the I.T.O. has taken action is a judicial decision. This had been pronounced just a few months earlier to the original assessment and it is not difficult to see that the I.T.O. must have missed it or else he could not have completed the assessment as he did. Indeed it has not been suggested that he was aware of it and yet chose not to apply it. It is therefore much easier to see that the initiation of reassessment proceedings here is based on definite material not considered at the time of the original assessment. In the above view of the matter, we uphold the High Court's view on the first question.

The appeal fails and is dismissed. But we would make no order regarding costs.




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HONDA SIEL POWER PRODUCTS LTD. VS DY.COMMR.

29/07/2011: In our view, the re-opening of assessment is fully justified on the facts and circumstances of the case. However, on the merits of the case, it would be open to the assessee to raise all contentions with regard to the amount of Rs.98.46 lakhs being offered for tax as well as it's contention on Section 14A of the Income Tax Act, 1961. Subject to above, the special leave petition is dismissed.


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HIGH COURTS RULINGS SECTION 148

Gujarat High Court:




Pr.CIT vs M/s.Pankaj Enka Pvt.Ltd.:

05/ 01/ 2016: Revenue has filed this appeal against the judgement of the Income Tax Appellate Tribunal dated 14.5.2015 raising following question for our consideration: Whether on the facts and circumstances of the case and in law, the Hon'ble ITAT is right in quashing the assessment passed u/s. 143(3) r.w.s 147 of the Act, when the two conditions viz. reason to believe and recording of reasons were fulfilled and Assessing Officer has duly applied his mind on the material furnished to him while recording his satisfaction?

The Tribunal recorded that the Assessing Officer only on the base of information supplied by the investigation wind at Mumbai that the assessee had received share application money from one of the tainted companies, issued notice. The Tribunal was of the opinion that the Assessing Officer himself did not satisfy about the requirement and issued notice under section 148 of the Act without forming a reason to believe that the income of the assessee had escaped assessment.

The Tribunal regardlessly proceeded to examine the issue on merits and deleted the addition of Rs.21 lacs and further deleted addition of Rs.85 lacs towards share application money. Upon perusal of the judgement of the Tribunal with the assistance of learned counsel for the Revenue, we are of the opinion that the issues raised are fundamentally questions of facts. The Tribunal having perused the facts on record comes to the factual findings. No question of law arises.

Under the circumstances quite apart from the validity of reopening, in our opinion, judgement does not require any further consideration. Tax Appeal is therefore, dismissed.



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Delhi High Court



The CIT vs Jagson International Ltd.

29/ 02 /2012: The following substantial question of law is framed:-"Whether the Income Tax Appellate Tribunal was right in holding that exercise of jurisdiction by the Assessing Officer under Section 147/148 of the Income Tax Act, 1961 was non est and invalid?"

The respondent assessee, Jagson International Limited is a public limited company. For the assessment year 2001-02, the respondent assessee filed its return of income on 29th October, 2001 declaring taxable income of Rs.48,61,651/-. Assessment order dated 24th March, 2003 under Section 143(3) of the Act was passed computing the total income at Rs.2,81,20,170/- as against the returned income mentioned above. The Assessing Officer recomputed the deduction under Section 33AC of the Act. The Assessing Officer also examined the deduction under Section 80 IA of the Act and the deduction was recomputed.

Subsequently, the Assessing Officer recorded "reasons to believe" dated 6th January, 2005 to initiate the reassessment proceedings, which read as under:-

"(a) The assessee had claimed deduction u/s 33AC on the ground that the assessee is in the business of operation of ships. From the perusal of record, it is noticed that the assessee purchased a drilling ship called Deep Sea Matdrill and the same was used for exploration/drilling purposes as per agreement with ONGC. Such a business of deriving income from drilling rig cannot be termed as business of operation of ships.

Deduction u/s 33AC was claimed at Rs. 9,23,56,432/- and allowed at Rs. 6,91,25,704/- u/s 143(3) of the Act. Therefore, the deduction u/s 33AC has wrongly been claimed and allowed.

(b)The assessee had claimed deduction u/s 80IA amounting to Rs. 74,89,845/- resulting to operation of ship Deep Sea Matrdrill. This deduction is not admissible under the provisions of Section 80-I(3) if the ship was owned by a person resident in India and used it in Indian territorial waters prior to acquisition. From the perusal of record, it is seen that this ship was purchased by the assessee company from the earlier owner who was operating it in Indian territorial waters prior to assessment year 1993-94. Further this ship was used for drilling exploration purposes, therefore, the deduction u/s 80IA is not admissible on such drilling rig. Therefore the deduction u/s 80IA was wrongly claimed and allowed.

(c)The assessee had claimed deduction u/s 80IA in respect of income derived from new port infrastructure facilities. As per the provisions of section 80-IA(4), the deduction is admissible when an agreement is entered into with the port authorities and the new facilities starts operating on and after 1.4.1995. The perusal of record reveals that the assessee entered into an agreement with the trustees of New Mangalore Port on 9.2.1990. The deduction claimed on this account is not admissible in the case of the assessee.

(d)The assessee had claimed depreciation amounting to Rs. 93,26,271/- @ 25% on addition of Rs. 3,69,87,480/- made to Plant & Machineinry during the year. From the perusal of record. ot is noticed that the said addition was made after Sept., 2000 on which depreciation @ 12.5% (50% of 25%) is admissible. Therefore, the asessee has claimed depreciation of Rs. 46,23,435/- in excess.

(e)The assessee has shown dividend income of Rs. 1,21,07,517/- and has claimed as exempt u/s 10(33) of the Act. While making assessment,the expenses incurred on earning of dividend income has not been deducted as per the provisions of section 14A of the Act.

(f)The assessee has claimed depreciation @ 25% on Port infrastructure unit whereas the same is admissible @ 20%, therefore an amount of Rs. 8,37,717/- has been allowed in excess.
Total escapement of income comes to Rs. 8,20,76,701/- in respect of items at (a) to (f) I have reason to believe that an income of Rs. 8,20,76,701/- chargeable to tax has escaped assessment for the assessment year 2001-02."

The tribunal by the impugned order, as is apparent from the question of law, has held that the aforesaid "reasons to believe" do not justify reopening and satisfy the requirements under Section 147/148 of the Act.

With regard to reasons (a), (b) and (c), the tribunal has observed that these issues were examined at the time of original assessment and, therefore, amount to change of opinion. With regard to reason (e), the tribunal has relied upon the proviso to Section 14A and held that reopening is not permissible under the said Section for ground (e). With regard to ground (f), the tribunal has observed that the schedule of depreciation clearly shows that the respondent assessee had claimed depreciation @ 25% for port infrastructure.

This Court while issuing notice on the present appeal, vide order dated 22nd December, 2009 had held as under:-

"Re-assessment proceedings were initiated by the Revenue, inter alia, stating that income had escaped assessment in respect of so many items. Additions were made on account of as many as six heads, which are taken note of by the Tribunal in the impugned order. In so far as additions at (a) to (c) are concerned, on these very grounds the Revenue had earlier filed ITA Nos. 57 & 341/2009, which have since been dismissed. Qua additions at (e) are concerned, the Tribunal has stated that there is a subsequent amendment to Section 14A by the Finance Act, 2002 vide which proviso to the said section is added as per which the Assessing Officer is debarred from re- assessing the income under Section 147 of the Income Tax Act, 1961 qua this head. In so far as addition at (f) is concerned, the ITAT has stated that a perusal of schedule of depreciation clearly shows that the rate of depreciation, as provided in the Schedule for Port Infrastructure Unit is 25% and, therefore, there was no case for reopening.

In these circumstances, we issue notice only qua addition as per clause (d), returnable on 11th May, 2010."
Thus, the notice was issued in respect of ground (d) alone and not in respect of grounds (a) to (c), (e) and (f).
During the course of hearing before us, learned counsel for the appellant has drawn our attention to the order dated 7th December, 2011, which reads as under:- " Vide order dated 22nd December, 2009 notice was issued in respect of ground (d). It is noticed that ground (e) pertains to proviso to Section 14A, which was introduced and brought into the statute book by the Finance Act, 2002. The effect of the said proviso was examined by this Court in W.P. (C) No. 9036/2007, Honda Siel Power Products Ltd. vs. DCIT & Anr. Ld. counsel for the parties will examine the said decision and whether it will apply to the facts of the present case.

Relist this appeal for hearing and final disposal on 15th February, 2012."
"Ground No. 4: is raised against is raised against disallowance of Rs.46,23,435/- on account of excess claim of depreciation on plant and machinery. The assessing officer has noticed that certain additions have been made after September, 2000 on which assessee is entitled to depreciation @ 12.5% for which the appellant has not filed any explanation before the assessing officer.

The tribunal in the impugned order in paragraph 12 has dealt with the said contention and observed as under:

In regard to the reasons recorded in clause (d), it is noticed that the reasons also do not show the fresh information which has come to the possession of the AO to show that the plant and machinery has been added after September, 2000 but on which depreciation has been claimed......"

We have referred to and quoted the order of the CIT(A), to highlight the factual matrix and not for any other purpose. The "reasons to believe" have to be tested on the facts/material when the reasons are recorded. As noticed above, the tribunal has not examined and dealt with the said aspect as mandated and required. We accordingly accept the appeal by the Revenue and pass an order of remand directing the tribunal to decide the issue afresh. This is necessary as the respondent assessee has filed before us several documents, which it is stated, were also filed before the tribunal to show and justify that the date of acquisition of assets was prior to 30th September, 2000 and, therefore, full depreciation in the entire year and not 50% depreciation @ 12.5% was available.

Accordingly, we answer the aforesaid question of law in affirmative in favour of the Revenue, but limited to the extent indicated above. We also record that in case the reopening is upheld by the tribunal, necessary consequences will flow. No costs.



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Delhi High Court

CIT vs Usha International Limited

21/ 09/ 2012: By order dated 23rd April, 2012 in ITA No. 2026/2010, Commissioner of Income Tax - VI, New Delhi vs. Usha International Limited, the following substantial questions of law have been referred to this Full Bench:

(i) What is meant by the term change of opinion?

(ii) Whether assessment proceedings can be validly reopened under Section 147 of the Act, even within four year, if an assessee has furnished full and true particulars at the time of original assessment with reference to income alleged to have escaped assessment and whether and when in such cases reopening is valid or invalid on the ground of change of opinion?

(iii) Whether the bar or prohibition under the principle change of opinion will apply even when the Assessing Officer has not asked any question or query with respect to an entry/note, but there is evidence and material to show that the Assessing Officer had raised queries and questions on other aspects?

(iv) Whether and in what circumstances Section 114 (e) of the Evidence Act can be applied and it can be held that it is a case of change of opinion?

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 for such assessment year by reason of the failure on the part of the assessee to make a return under section 139 or in response to a notice issued under sub-section (1) of section 142 or section 148 or to disclose fully and truly all material facts necessary for his assessment for that assessment year.

Explanation 1.--Production before the Assessing officer of account books or other evidence from which material evidence could with 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 has been computed.

Explanation 3.-- For the purpose of assessment or reassessment under this section, the Assessing Officer may assess or reassess the income in respect of any issue, which has escaped assessment, and such issue comes to his notice subsequently in the course of the proceedings under this section, notwithstanding that the reasons for such issue have not been included in the reasons recorded under sub- section (2) of section 148.

In the light of the authoritative pronouncements of the Supreme Court referred to above, which are binding upon us and the observations made by the High Court of Gujarat with which we find ourselves in respectful agreement, the action initiated by the Assessing Officer for reopening the assessment cannot be said to be either incompetent or otherwise improper to call for interference by a writ court. The Assessing Officer has in the reasoned order passed by him indicated the basis on which income eligible to tax had in his opinion escaped assessment. The argument that the proposed reopening of assessment was based only upon a change of opinion has not impressed us. The assessment order did not admittedly address itself to the question which the Assessing Officer proposes to examine in the course of reassessment proceedings.

The principle that a mere change of opinion cannot be a basis for reopening completed assessments would be applicable only to situations where the Assessing Officer has applied his mind and taken a conscious decision on a particular matter in issue. It will have no application where the order of assessment does not address itself to the aspect which is the basis for reopening of the assessment, as is the position in the present case.
It is, therefore, clear from the aforesaid position that:

(1) Reassessment proceedings can be validly initiated in case return of income is processed under Section 143(1) and no scrutiny assessment is undertaken. In such cases there is no change of opinion;

(2) Reassessment proceedings will be invalid in case the assessment order itself records that the issue was raised and is decided in favour of the assesse. 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.

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.

A statute conferring an arbitrary power may be held to be ultra virus 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 ITO exercises its jurisdiction for initiating a proceeding for re- assessment 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 re-assessment 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.

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 without anything further, the same would amount to giving premium to an authority exercising quasi judicial function to take benefit of its own wrong.

The Supreme Court while disposing of the appeal of the Revenue in Kelvinator of India (supra) & Eicher Limited (supra), has only referred to the principle of change of opinion and held that reassessment proceedings will be bad and invalid if the said principle is violated.

The aforesaid observations are complete answer to the submission that if a particular subject matter, item, deduction or claim is not examined by the Assessing Officer, it will nevertheless be a case of change of opinion and the reassessment proceedings will be barred.

The Supreme Court emphasised the difference between the power to reassess and the power to review and in terms stated that the Assessing Officer has no power to review, but has only the power to reassess.

On the first question referred to this Full Bench as to the meaning of the term change of opinion, I have nothing to add to the draft proposed. As to the first part of the second question my answer would be that the assessment proceedings cannot be validly reopened under section 147 of the Act even within four years, if an assessee has furnished full and true particulars at the time of original assessment with reference to the income alleged to have escaped assessment, if the original assessment was made u/s 143(3). My answer to the second part of the second question is that the issue is concluded by the judgment of the Full Bench of this court in Kelvinator (supra).

My answer to the third question is this. So long as the assessee has furnished full and true particulars at the time of original assessment and so long as the assessment order is framed under section 143(3) of the Act, it matters little that the assessing officer did not ask any question or query with respect to one entry or note but had raised queries and questions on other aspects. Again the answer to this question stands concluded by the judgment of the Full Bench of this court in Kelvinator (supra). My answer to question No.(iv), in respectful agreement with the judgment of the Full Bench of this court in Kelvinator (supra), is a limited answer. It is that section 114(e) of the Evidence Act can be applied to an assessment order framed under section 143(3) of the Act, provided that there has been a full and true disclosure of all material and primary facts at the time of original assessment. In such a case if the assessment is reopened in respect of a matter covered by the disclosure, it would amount to change of opinion. I do not in the circumstances consider it necessary to answer the broad question as to what are all the circumstances under which section 114(e) of the Evidence Act can be applied.


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 ITATS RULINGS SECTION 148 





Income Tax Appellate Tribunal – Delhi

Chaya Sinha, New Delhi vs ACIT

11/ 03/ 2016: This appeal is preferred by the assessee for the Assessment Year 2006-07 against the order of learned Commissioner of Income- tax (Appeals)-18.03.2013 for the Assessment Year 2006-07, wherein there are effective grounds of appeal have been raised as under:-

"1. That having regard to the facts and circumstances of the case, Ld. CIT(A) has erred in law and on facts in confirming the action of Ld. AO in framing impugned assessment order and that too without complying the mandatory conditions of section 147 to 151 of the Income Tax Act, 1961 and reopening of the case is bad in law and beyond the jurisdiction of the Ld. A.O. and without recording valid reasons in the eyes of law and the same is barred by limitation.

2. That having regard to the facts and circumstances of the case, Ld. CIT(A) has erred in law and on facts in confirming the action of Ld. AO in framing the impugned assessment order without issuing the mandatory notice 143(2) of the Income Tax Act, 1961.

The brief fact of the case is that the assessee is an individual and she filed return of income for Assessment Year 2006-07 on 30.03.2007 u/s 143(3). After that notice u/s 148 of the Act was issued on 1st March 2011 against which the assessee submitted to consider return filed on 30th March 2007. As return filed in response to that notice. During the year the assessee has sold agricultural land and has claimed that it is not a capital asset u/s 2(14) of the Income Tax Act, and therefore profit arising thereon amounting to Rs.6218410 is not chargeable to tax as capital gain. It was further submitted that this land is also situated outside municipal area. The reasons recorded u/s 147 of the Act are as under:-

"The assessee has filed its return on 30.03.2007 declaring an income of Rs.57,664/- which was processed on 30.03.2007 at returned income. It has come to notice that the assessee has shown profit from sale of agriculture land amounting to Rs.62,18,410/- and has claimed exemption on the plea that the land sold during the year was agriculture land and being not a capital assets under the definition given u/s 2(14) of the Act, the profit/capital gains received on the sale of this Sand was not taxable. The land in question was situated in the adjoining area of Tehsil-Palwa it cannot be said that the land does not fall under the definition of capital asset u/s 2(14) of the Act."

Aggrieved by this the assessee is in appeal before us.

The assessee has raised the following arguments:-

a. There is no material come to possession of the AO after filing of return of income based on which the reopening has been made. For this he took us to the return of income and along with computation of total income and reasons recorded by the AO.
He stated that for reopening even in case of assessment u/s 143(1) or merely on processing of return there has to be some tangible material for reopening. He relied on the decision of Hon'ble Delhi High Court in the case of Orient Craft Ltd. He relied on the decision of Hon'ble Delhi High Court in the case of CIT Vs. Tupperware Ltd.

b. Further he submitted that reopening needs to be seen independently and for this he relied on the decision of Hon'ble Bombay High Court in 321 ITR 509 and Allahabad High Court in 368 ITR 638.

c. He also stated that reasons recorded for reopening does not speak about any material which had come to the notice of the officer, subsequent to finalization of the assessment u/s 143(1) and therefore the reassessment notice is without any foundation and hence not valid. He relied on the decision of the Hon'ble Delhi High Court in case of Sipra Srivastava and another Vs. ACIT 319 ITR 221.

d. He further stated that reopening was made as per the reasons recorded, holding that the land in question was situated in adjoining area Tehsil Palwal. Further the report of the inspector shows that from that area the distance of the main land is about 11 kms. Therefore there is wrong assumption of the fact. In view of the facts he submitted that reopening is invalid.

Against this the ld DR submitted that original assessment is u/s 143(1) of the Act which does not given any power to the AO for application of his mind and therefore the tangible material has come from the return itself and hence reopening is valid.

The case at hand is covered by the main provision and not the proviso.
So long as the ingredients of section 147 are fulfilled, the Assessing Officer is free to initiate proceeding under section 147 and failure to take steps under section 143(3) will not render the Assessing Officer powerless to initiate reassessment proceedings even when intimation under section 143(1) had been issued.

The consequence of countenancing such an argument could be grave. The expression "reason to believe" has come to attain a certain signification and content, nourished over a long period of years by judicial refinement painstakingly embarked upon by great judges in the past. The expression has been judicially interpreted in a particular manner. When section 147 was recast with effect from April 1, 1989, the Legislature sought to replace the expression "reason to believe" with the expression "for reasons to be recorded by him in writing". But there were representations against the proposal and bowing to them the original expression was restored.

It was also observed that after April 1, 1989, the Assessing Officer has power to reopen provided there is "tangible material" to come to the conclusion that there is escapement of income. This judgment has laid emphasis on two more aspects: that there can be no review of an assessment in the guise of reopening and that a bare review without any tangible material would amount to abuse of the power.

As pointed out earlier, there is no warrant for such an assumption because of the language employed in section 147; it makes no distinction between an order passed under section 143(3) and the intimation issued under section 143(1). Therefore, it is not permissible to adopt different standards while interpreting the words "reason to believe" vis-avis section 143(1) and section 143(3).We are unable to appreciate what permits the Revenue to assume that somehow the same rigorous standards which are applicable in the interpretation of the expression when it is applied to the reopening of an assessment earlier made under section 143(3) cannot apply where only an intimation was issued earlier under section 143(1). It would in effect place an assessee in whose case the return was processed under section 143(1) in a more vulnerable position than an assessee in whose case there was a full-fledged scrutiny assessment made under section 143(3).

It follows that it is open to the assessee to contend that notwithstanding that the argument of "change of opinion" is not available to him, it would still be open to him to contest the reopening on the ground that there was either no reason to believe or that the alleged reason to believe is not relevant for the formation of the belief that income chargeable to tax has escaped assessment. In doing so, it is further open to the assessee to challenge the reasons recorded under section 148(2) on the ground that they do not meet the standards set in the various judicial pronouncements.

In the present case, the reasons disclose that the Assessing Officer reached the belief that there was escapement of income "on going through the return of income" filed by the assessee after he accepted the return under section 143(1) without scrutiny, and nothing more. This is nothing but a review of the earlier proceedings and an abuse of power by the Assessing Officer, both strongly deprecated by the Supreme Court in CIT v. Kelvinator (supra). The reasons recorded by the Assessing Officer in the present case do confirm our apprehension about the harm that a less strict interpretation of the words "reason to believe" vis-a-vis an intimation issued under section 143(1) can cause to the tax regime. There is no whisper in the reasons recorded, of any tangible material which came to the possession of the Assessing Officer subsequent to the issue of the intimation. It reflects an arbitrary exercise of the power conferred under section 147."

In view of the above facts we are of the view that the case of the assessee squarely falls within the parameters laid down by Hon'ble Delhi High Court in above case. Hence we reverse the finding of the learned Commissioner of Income-tax (Appeals) and hold that the notice issued u/s 148 read with section 147 is invalid. Therefore we allow the appeal of the assessee on the issue of reopening. All the other grounds of the appeal we do not adjudicate in view of our decision of quashing the notice u/s 148 of the Act. In the result the appeal of the assessee is allowed.


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Income Tax Appellate Tribunal - Ahmedabad

Harmony Yarns Pvt.Ltd. Surat vs ITO, Wd 1(2),Surat. ITA

01/ 04 / 2016: Assessee has raised following grounds of appeal:-

1. On the facts and in circumstances of the case as well as law on the subject, the learned Commissioner of Income-tax (Appeals) has erred in confirming the action of the Assessing Officer in reopening assessment by issuing notice u/s. 148 of the Act. Asst. Year 2005-06

2. It is therefore prayed that assessment framed u/s 143(3) r.w.s. 147 of the Act may kindly be quashed or alternatively the additions made by assessing officer and confirmed by learned Commissioner of Income-tax (Appeals) may please be deleted.

Briefly stated facts as culled out from the assessment records are that assessee is a private limited company which filed its return of income at Rs.NIL on 20.09.2005. The case was selected for scrutiny assessment and order u/s 143(3) of the Act was framed on 28.12.2007 after making an addition of Rs.1,58,771/- and after giving credit to carry forward losses income was assessed at Rs.NIL. Thereafter notice u/s 148 of the Act was issued on 29/3/2011 and served upon the assessee on 31/03/2011 and in response to the notice u/s 148 of the Act assessee vide its letter dated 27.4.2011 submitted that the original return filed by the assessee company for Asst. Year 2005-06 may be treated as return filed in response of this notice. It was observed by the Assessing Officer during reassessment proceedings that assessee has taken share application money of Rs.26 lacs.

Aggrieved, assessee went in appeal before ld. CIT(A) who dismissed the appeal of assessee.

Aggrieved, assessee is now in appeal before the Tribunal.

First we take up ground no.2 raised against the action of ld. CIT(A) confirming the addition of Rs.26 lacs u/s 68 of the Act on account of share application and share premium money received by the assessee.

At the outset ld. AR submitted that the issue raised in this ground is squarely covered in favour of assessee by the decision of the co-ordinate bench in the case of M/s Pankaj Enka Pvt. Ltd. vs. DCIT in ITA No.816/Ahd/2013 for Asst. Year 2005-06 vide order dated 15.4.2015.

On the other hand ld. DR supported the orders of lower authorities.
We have heard the rival contentions and perused the material on record. The issue before us is in regard to action of ld. CIT(A) in confirming the addition of Rs.26 lacs made u/s 68 of the Act for share application and share premium money received by assessee during the year and addition was made in the proceedings u/s 143(3) r.w.s.147 of the Act pursuant to notice u/s 148 of the Act. We observe that ld. AR has placed reliance on the decision of co-ordinate bench Asst. Year 2005-06 in the case of M/s Pankaj Enka Pvt. Ltd. vs. DCIT (supra). The facts in the appeal before us are identical to the facts adjudicated in the case of M/s Pankaj Enka Pvt. Ltd. vs. DCIT (supra). In order to examine the same we reproduce the notice u/s 148 of the Act raised in the case of assessee at page 13 of the paper book.

In his statement recorded on oath he has admitted that these transactions are bogus. Asst. Year 2005-06 From the details submitted by the Investigation Wing it is seen that the assessee has obtained the shares application money of Rs.11,00,000/- from Mihir Agency Pvt. Ltd. one of company run by Mukesh Chokshi, during the financial year 2004-05 (A.Y.2005-06). In view of this new fact, I have reason to believe that income chargeable to tax has escaped assessment within the meaning of section 147 of the Act The approval of the CIT-I, Surat is therefore sought for issue of notice under the provisions of section 151(2) of the Act.

From the details submitted by the Investigation wing, Mumbai, it is seen that the assessee has obtained entry of the share application money of Rs. 11,00,000/- from Mihir Agency Pvt. Ltd., one of company run by Shri Mukesh Chokshi, during the financial year 2004-05 (A.Y. 2005-06). In view of this new fact, I have reason to believe that income chargeable to tax has escaped assessment within the meaning of section 147 of the Act.

In view of the above, income to the extent being more than Rs.1,00,000/-has escaped assessment within the meaning of section 147 of the Act. Therefore, Notice u/s 148 need to be issued.

The approval of the Addl. CIT Range-I, Surat is therefore, sought for issue of notice under the provisions of section 151(2) of the Act.
From comparison of both the notices raised in the case of assessee and M/s Pankaj Enka P. Ltd. we observe that the reasons recorded are verbatim similar except the change of figure, name of assessee and date of issue and some minor changes.

We further observe that assessee has submitted all details and supporting documents to prove the identity, creditworthiness and genuineness of both the parties M/s Mihir Agency Pvt. Ltd. And M/s Buniyad Chemicals Pvt. Ltd. From whom share application and share premium money of Rs.11 lacs and Rs.15 lacs respectively were received by the assessee in the year under appeal. These documents included registration certificates with Registrar of Companies, PAN Asst. Year 2005-06 allotted by the Department, copies of income-tax returns of both the companies, financial statement and relevant portion of bank statement along with duly signed share application form in relation to both the parties namely M/s Mihir Agency Pvt. Ltd. and M/s Buniyad Chemicals Pvt. Ltd. And further no specific defects have been brought on record by the lower authorities in respect of genuineness of the documents submitted by the assessee in regard to identity, genuineness and creditworthiness of M/s Mihir Agency Pvt. Ltd. and M/s Buniyad Chemicals Pvt. Ltd. We further find that co-ordinate bench in the case of M/s Pankaj Enka P. Ltd. vs. DCIT in ITA No.816/Ahd/2013 for Asst. Year 2005-06 has duly considered and decided similar issue in favour of assessee, in regard to addition of Rs.85 lacs from 12 parties in regard to share application and share premium money.

We find that all the transactions were duly supported by the Share application form, acknowledgement of return of income, audited financial statements,bank statements, Memorandum of Association and Articles of Association of the share applicant. All the share application monies have been received through proper banking channel and there is no evidence that assessee has paid any money in cash to the share applicant in consideration of cheque received from share. No inquiry is made by the Assessing Officer once the assessee has discharged his primary onus to prove the identity, genuineness and creditworthiness of the share applicants. The facts of the present case are clearly distinguishable and fall in the second category and are more in line with facts of Lovely Exports (P) Ltd. (supra). In the remand report, the Assessing Officer himself has stated that the assessee has requested to issue summons u/s 131 but no further probe was made by the Assessing Officer. Thus there was a clear lack of inquiry on the part of the assessing officer once the assessee had furnished all the material which has already been referred to above.

In view of above legal and factual discussion on merit, the addition made by Assessing Officer of Rs. 1,06,00,000/- [Rs.21,00,000/- +Rs.85,00,000/-) on, account of share application money under provision of Section 68 of Act is directed to be deleted.
In result, appeal filed by the assessee is allowed.

Now we take up ground nos.1 & 3 which have been raised by the assessee against the action of ld. CIT(A) confirming the reopening of assessment made by ld. Assessing Officer by issuing notice u/s 148 of the Act and framing the assessment u/s 143(3) r.w.s. 147 of the Act.

At the outset ld. AR referred and relied on the decision of Hon. Jurisdictional High Court in the case of Principal CIT vs. Pankaj Enka Pvt. Ltd. (supra) wherein Tax Appeal of the Revenue was dismissed for lack of question of law and the order of the co-ordinate bench in the case of M/s Pankaj Enka Pvt. Ltd. vs. DCIT was upheld.

On the other hand ld. DR could not controvert the submissions of ld. AR. On going through the decision of the Tribunal in the case of M/s Pankaj Enka Pvt. Ltd. vs. DCIT we find that the co-ordinate bench has decided the issue by observing as under :- After going through rival submissions and material on record. Assessee is engaged in business of high seas sales of imported goods, yearn, plastic granules etc. On the point of reopening, we find that Return of Income was filed by assessee on 17.10.2005 declaring total income at Rs.96,520/- for A.Y. 2005-06. Return was accompanied with audited accounts as per audit report in Form no. 3CB and 3CD as discussed above. In this case, no assessment was made under scrutiny assessment and return was accepted u/s. 143(1) on 20.03.2006. Thereafter, Assessing Officer issued notice u/s. 148 on 01.07.2011 after recording reasons dated 23.06.2011 on the basis of details submitted by Investigation Wing of Mumbai. The relevant extracts of reasons recorded are as under: Asst. Year 2005-06 "The return of income was filed on 17.10.2005 declaring total income of Rs. 96,552/-, The same is processed u/s 143(1) on 20.03.2006 accepting the returned income. No order u/s 143(3) passed in this case.

From the details submitted by the Investigation wing, Mumbai, it is seen that the assessee has obtained entry of the share application money of Rs. 11,00,000/- from Mihir Agency Pvt. Ltd., one of company run by Shri Mukesh Chokshi, during the financial year 2004-05 (A.Y. 2005-06). In the view of this new fact, I have reason to believe that income chargeable to tax has escaped assessment within the meaning of section 147 of the Act.

In view of the above, income to the extent being more than Rs.1,00,000/- has escaped assessment within the meaning of section 147 of the Act. Therefore, Notice u/s.148 need to be issued.The approval of the Addl CIT Range-I, Surat is therefore, sought for issue of notice under the provisions of section 151(2) of the Act" Asst. Year 2005-06, The plain reading of reasons recorded by assessee makes it clear that notice u/s. 148 was issued as per information received from Investigation wing from Mumbai. The reasons recorded by Assessing Officer only indicate that as per information of Investigation wing from Mumbai, certain companies of Mukesh Chokshi group were operating and allegedly providing accommodation entries and assessee has also received share application money from such company.

Assessing Officer just made general observation about information supplied by Investigation Wing and sought to reopen the assessment without pointing out how information coming in his possession has nexus with escapement of income. The primary condition of Section 148 of the Act is that Assessing Officer must have reason to believe that income has escaped assessment and this satisfaction should be of Assessing Officer himself and not a borrowed satisfaction.
Therefore, notice so issued to assessee was illegal and bad in law on fact of it.

As per the provisions of Section 147/148, it is clear that for taking action u/s 147 of the Act, Assessing Officer must have reason to believe that an income chargeable to tax has escaped assessment for any assessment year. Therefore, Assessing Officer must satisfy himself regarding escapement of income. He should not act mechanically or on information supplied by any other person. In the present case, Assessing Officer acted on information supplied by the Directorate of Income Tax (Inv.), Mumbai but he has not applied his independent mind and reassessment proceedings were initiated only on the basis of information received from above investigation wing Mumbai.

We find that language used in above reasons recorded is exactly same as in case of assessee and hence the case of assessee is squarely covered by case of M/s Surbhi Minchem Pvt. Ltd. (supra). In fact para no. 2 of reasons recorded in case of assessee and above para of reasons recorded in case of Surbhi Minchem Pvt. Ltd. was exactly same. In the said case, case was reopened u/s 148 by Assessing Officer merely on the basis of information received from Investigation wing, Murnbai, and therefore, from reason recorded, it was not at all discernable as to whether Assessing Officer had applied his mind to the information and independently arrived at belief on the basis of material which he had before him that if any income had escaped assessment and therefore, assessment framed u/s. 143(3) r.w.s. 147 was requested to be quashed. Nothing contrary was brought to our knowledge with regards to decision taken in similar facts and circumstances in case of M/s. Surbhi Minchem Pvt. Ltd. (supra) wherein reopening was quashed on the ground reopening u/s. 148 of the Act by Assessing Officer was done merely on the basis of information from Investigation Wing, Mumbai. Even in case before us, it cannot be inferred that concern Assessing Officer has applied his mind information and independently arrived at certain belief on the basis of material before him that any income had escaped assessment. In view of above legal discussion, assessment framed u/s. 143(3) r.w.s. 147 of Act is quashed.

The Tribunal regardlessly proceeded to examine the issue on merits and deleted the addition of Rs.21 lacs and further deleted addition of Rs.85 lacs towards share application money. Upon perusal of the judgement of the Tribunal with the assistance of learned counsel for the Revenue, we are of the opinion that the issues raised are fundamentally questions of facts. The Tribunal having perused the facts on record come to the factual findings. No question of law arises. Under the circumstances quite apart from the validity of reopening, in our opinion, judgement does not require any further consideration. Tax Appeal is therefore, dismissed.

Respectfully following the decision of Hon. Jurisdictional High Court in the case of Principal CIT vs. Pankaj Enka Pvt. Ltd. (supra) and the decision of the co-ordinate bench in the case of M/s Pankaj Enka Pvt. Ltd. vs. DCIT (supra), we allow the grounds of assessee and quash the assessment framed u/s 143(3) r.w.s. 147 of the Act. Asst. Year 2005-06
In the result, appeal of assessee is allowed.



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Income Tax Appellate Tribunal – Delhi

Mohinder Kumar Chhabra , New Delhi vs ITO

13/ 12/ 2013: This appeal by the assessee is directed against the order of learned CIT(A)-XVII, New Delhi dated 26th April, 2013 for the AY 1999- 2000.

The assessee has raised as many as nine grounds. However, the learned counsel for the assessee stated that first ground No.2 of his appeal should be considered which goes to the root of the matter and is covered in favour of the assessee by the decision of Hon'ble Jurisdictional High Court.

Ground No.2 of the assessee's appeal reads as under:- "That the learned CIT(Appeals) erred in upholding the validity of assessment order passed u/s 147/143(3) of the Act, after recording the admission of the AO that no notice u/s 143(2) was issued in the case, ignoring the judgments of the Jurisdictional High Court, copies of which had been filed before him, and thus committing contempt of Court."

At the time of hearing before us, it is submitted by the learned counsel that admittedly in this case, no notice under Section 143(2) was served.

Learned DR, on the other hand, relied upon the order of learned CIT(A) and he stated that in this case, notice under Section 142(1) was duly issued, therefore, opportunity of being heard had already been allowed to the assessee. He further stated that the issue is in fact covered in favour of the Revenue by the decision of Hon'ble Jurisdictional High Court in the case of Ashok Chaddha Vs. ITO - [2011] 337 ITR 399 (Delhi). He, therefore, submitted that the order of learned CIT(A) should be sustained and thus, ground No.2 of the assessee's appeal should be rejected.

We have carefully considered the submissions of both the sides and perused the material placed before us. After considering the arguments of both the sides and the facts of the case, we find the contention of the learned counsel to be justified. The issue before the Hon'ble Jurisdictional High Court in the case of Ashok Chaddha (supra) was whether the issue of notice under Section 143(2) is necessary when the notice has been sent in a search case under Section 153A. Hon'ble Jurisdictional High Court in the said case held as under:-

"Held, dismissing the appeal, that (i) no specific notice was required under section 143(2) of the Act when the notice as required under section 153A(1)(a) of the Act was already given. In addition, the two questionnaires issued to the assessee were sufficient so as to give notice to the assessee, asking him to attend the office of the Assessing Officer in person or through a representative duly authorized in writing or produce or cause to be produced at the given time any documents, accounts, and any other evidence on which he may rely in support of the return filed by him."

However, in the case of V.R. Educational Trust (supra), the issue before the Hon'ble Jurisdictional High Court was identical to the issue in the present appeal because there also, the dispute was regard to issue of notice under Section 143(2) where the assessment was reopened under Section 147/148. The contention of the department was that the notice had already been issued under Section 142(1). However, Hon'ble Jurisdictional High Court did not agree with the Revenue's contention and held as under:- "Even otherwise, it is difficult to accept the contention of the appellant that notice under Section 142(1) can be regarded as a notice issued under Section 143(2) of the Act. This Court in the case of Commissioner of Income Tax versus Lunar Diamonds Ltd. [2008] 281 ITR 1 (Del.) has held that service of notice under Section 143(2) is mandatory. It is not disputed that in respect of the proceedings under Section 147 of the act, notice under Section 143(2) is required and is mandated except in cases covered by the first and second proviso to Section 148 of the Act. The present case is not covered by the exceptions carved out in the two provisos as the return in the present case filed on or after 1st October, 2005.

We may also notice here itself that the clarification given by CBDT in its Circular No.717 dated 14-8-1995, has 5 ITA-3523/Del/2013 a binding effect on the Department, but not on the Court. This circular clarifies the requirement of law in respect of service of notice under sub-section (2) of Section 143 of the Act. Accordingly, we conclude even for the purpose of Chapter XIV-B of the Act, for the determination of undisclosed income for a block period under the provisions of Section 158-BC, the provisions of Section 142 and sub- sections (2) and (3) of Section 143 are applicable and no assessment could be made without issuing notice under Section 143(2) of the Act.

The aforesaid reasoning will equally apply to proceedings initiated under Section 147 of the Act." That even in the case of Alpine Electronics Asia Pte. Ltd. (supra) also, the Hon'ble Jurisdictional High Court quashed the assessment proceedings because of non-issue of notice under Section143(2) within time. In the said case also, the assessment was reopened under Section 147/148. In the aforesaid case, their Lordships of Hon'ble Jurisdictional High Court held as under:- "Admittedly the petitioner had filed returns of income pursuant to the notice under section 147/148 by letter dated November 19, 2009 adopting its earlier returns under section 139(1) of the Act and the notice under section 143(2) was issued only on November 23, 2010. The final assessment order had not been passed and only a draft assessment order had been passed. The proviso to section 292BB was applicable. The principle of estoppel under section 292BB would therefore, not apply. In these circumstances, the Assistant Director could not rely upon the main section 292BB and claim that notice under section 143(2) was deemed to be served within the stipulated time. In view of this position, there was no reason why reassessment proceedings should continue as no notice under section 143(2) of the Act was served on the assessee within the stipulated time. The assessment proceedings pursuant to the notices under section 148 of the Act were to be quashed and the Assistant Director was to issue a "no objection certificate" to the petitioner as required by the Reserve Bank of India."

In view of the above, we are of the opinion that on the facts of the assessee's case, the decision of Hon'ble Jurisdictional High Court in the case of Alpine Electronics Asia Pte. Ltd. (supra) and V.R. Educational Trust (supra) would be applicable. Respectfully following the same, we hold that the assessment completed without issue of notice under Section 143(2) of the Act was invalid. The same is quashed and consequentially, the assessment order passed in pursuance thereto is also cancelled.

Once we have quashed the assessment order, the other grounds raised by the assessee against the addition made by the Assessing Officer in the assessment order do not survive for adjudication. In the result, the appeal of the assessee is allowed.



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Income Tax Appellate Tribunal – Kolkata

Sicpa India Private Limited VS Joint CIT

09 / 03 / 2016: This appeal by revenue and cross objection by assessee u/s. 147/143(3) of the Income Tax Act, 1961 (hereinafter referred to as "the Act") for Assessment Year 2002-03 vide his order dated 29.12.2009.

At the outset, the Ld. Counsel for the assessee stated that he has raised jurisdictional issue with respect to assumption of jurisdiction u/s. 147 read with section 148 of the Act. Hence, the Cross Objection should be taken up first for hearing.

The only issue in this Cross Objection of assessee is against the order of CIT(A) confirming the action of AO in assumption of jurisdiction u/s. 147/148 of the Act despite the fact that original assessment was completed u/s. 143(3) of the Act and this reopening beyond four years without any charge that there is any failure of the assessee to disclose Sicpa India Pvt. Ltd.., AY 2002-03 truly and fully all material fact during completion of original assessment. For this, assessee has raised following ground no.1 in his Cross Objection: "1(a). That on the facts and in the circumstances of the case, the Ld. CIT(Appeals) erred in confirming the action of the AO in initiating the reassessment proceedings u/s. 147/148 without appreciating the fact that the same has been done in utter disregard of the express provisions of the Act on fresh application of mind on  the same set of facts, more so when there was no failure on the part of the appellant to disclose truly and fully all the facts necessary for completion of the original assessment u/s. 143(3). 1(b). That on the facts and in the circumstances of the case, the Ld. CIT(Appeals) erred in not holding that the order u/s. 143 r.w.s. 147 dated 29.12.2009 passed by the AO is unjustified, erroneous and needs to be summarily cancelled."

Briefly stated facts are that the assessee filed its return of income for AY 2002-03 on 13.10.2002. The return of income was assessed by the AO u/s. 143(3) of the Act on 21.03.2005. Subsequently, notice u/s. 148 of the Act was issued on 24.03.2009 by recording the following reasons:

The assessee filed its return of income on 30.10.2002 declaring total income at Rs.11,35,96,450/-. Assessment was completed under section 143(3) of Act on 21.03.2005 assessing total income at Rs.14,85,56,420/. In the instant case the assessee company entered into a collaboration agreement with foreign company for manufacture of security printing inks for Bank notes and for other securities and the right to sell such products under the terms of agreement. The foreign company also agreed to keep the Indian company upgraded with the latest and modern development in the field of manufacture of security printing inks for Bank notes and for other securities and to train the necessary personnel at its Switzerland factory or elsewhere and granted the assessee company exclusive, non-transferable rights to manufacture, the products in India and a non-exclusive right to sell in India. Under the terms of the agreement, the assessee company agreed to pay to the foreign company as consideration for the services rendered by it, a royalty on sales and a lump sum for the technical aid, payable in three equal instalments, the payment to be spread over a period of time, Sicpa India Pvt. Ltd.., AY 2002-03 Accordingly, the assessee company paid royalty to the foreign company of Rs.l,80,71,146/- as shown in the Profit & Loss Account as revenue expenditure and the TDS on royalty was also deducted.

However, in the light of Judicial decision held by the Hon'ble Supreme Court of India in the case of Southern Switch Gear Ltd. Vs. Commissioner of Income Tax and another (232 ITR 359(scrutiny) 1998), the right to manufacture certain goods exclusively in India should be taken to be on independent right secured by the assessee from the foreign company which was of an enduring nature, that consequently, the entire royalty could not be allowed as a revenue expenditure and 25% of royalty would have to be taken as being Capital in nature.

Accordingly, 25 per cent of royalty paid by the assessee, amounting to Rs.45.17,787/- to the foreign company would have to be treated as capital expenditure and it is not an allowable revenue expenditure. Thus the assessee claimed excess expenditure by not disclosing facts fully and truly which were necessary for assessment.

On the above facts of the case, I have reason to believe that the assessee failed to disclose all the facts fully and truly necessary for assessment and, hence, I have reason to believe that income chargeable to tax has escaped assessment. Notice under section 148 of the Income Tax act, 1961 is issued. You are required to file detailed reply on 11.12.2009 at 1.30 P.M."

We have heard rival submissions and gone through facts and circumstances of the case. We find that the fact relating to payment of royalty to foreign company amounting to Rs.l,80,71,146/- as shown in the Profit & Loss Account and claimed as revenue expenditure is declared by assessee in its accounts and computation  of income with the return of income. Even otherwise, on merits, the issue is covered by the order of jurisdictional High court in the case of Agarwal Hardware Works Pvt. Ltd. Vs. CIT (1980) 121 ITR 510 (Cal), wherein it is held that the expenditure incurred for payment of royalty for patents on percentage basis of annual production where the ownership rights of patents are retained by the owners, the expenditure is revenue in nature. Similar view was taken by Hon'ble Calcutta High court in CIT Vs. B. N. Elias & Co. Pvt. Ltd. (1987) 168 ITR 190 (Cal), wherein the assessee entered into collaboration agreement with a foreign company to use technical know-how for manufacture of machines upto the termination of agreement. Hon'ble Calcutta High Court considering the facts and also the decision of Hon'ble Supreme Court in the case of Southern Switchgear Ltd., supra, held that once the know-how remained the property of the foreign company, and there is no outright transfer of know-how to assessee, hence, royalty paid by the assessee is to be regarded as revenue in nature. In such situation, whether the revenue on same set of facts can reopen the assessment by resorting to the provisions of section 148 r.w.s. 147 of the Act? Admittedly, in the present case, the relevant AY involved is 2002-03 and assessment was completed u/s. 143(3) of the Act. We find from reassessment order framed u/s. 143(3) r.w.s. 147 of the Act and consequent to that the order of CIT(A), there is no finding as such that there is any failure on the part of the assessee to disclose fully and truly all material facts necessary for its assessment for the relevant assessment year. The CIT(A) has simply confirmed the action of AO for reopening of assessment by holding as under: Sicpa India Pvt. Ltd.., AY 2002-03 "I have carefully considered the submission of the A/R of the appellant and examined both the original and reopened assessment orders, the reasons recorded by the AO and the materials available on records and my observation as under:

(i) After careful examination of the original assessment it is noticed that the AO had not examined the matter and dealt with the issues under consideration, so there is no question of change of opinion.

(ii) On perusal and examination of the reasons recorded by the AO it is observed that there is "prima facie" material and reasons to reopen the case. Hence, the reopening of the case by the AO is held valid and issues are being decided on merits."

We find that this issue is squarely covered in favour of the assessee and against revenue by the judgment of Hon'ble Supreme Court in the case of CIT Vs. Kelvinator India Ltd. (2010) 310 ITR 561 (SC), wherein newly substituted provision of section 147 of the Act with effect from 01.04.1989 is interpreted by observing, that section 147 of the Act, as substituted w.e.f. 01.04.1989 does not postulates conferment of power upon the AO to initiate reassessment proceeding upon his mere change of opinion. Further, if 'reason to believe' of the AO is founded on an information which might have been received by the AO after the completion of assessment, it may be a sound foundation for exercising the power under section 147 r.w.s. 148 of the Act. It cannot be accepted that only because in the assessment order, detailed reasons have not been recorded, an analysis of the materials on the record by itself may be justifying the AO to initiate a proceeding u/s. 147 of the Act. When a regular order of assessment is passed in terms of section 143(3) of the Act, 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 section 114(e) of the Indian Evidence Act, 1872, 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 AO to reopen the proceeding without any thing further, the same would amount to giving a premium to an authority exercising quasi judicial function to take benefit of its own wrong.

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 for such assessment year by reason of the failure on the part of the assessee to make a return under section 139 or in response to a notice issued under sub-section (1) of section 142 or section 148 or to disclose fully and truly all material facts necessary for his assessment for that assessment year."
This new section has made a radical departure from the original section 147 in as much as clauses (a) and (b) of the original section 147 has been deleted and a new proviso added to section 147.

In Rakesh Aggarwal v. Asst. CIT [1997] 225 ITR 496, the Delhi High Court held that in view of the proviso to section 147 notice for reassess ment under section 147/148 should only be issued in accordance with the new section 147, and where the original assessment had been made under section 143(3) then in view of the proviso to section 147, the notice under section 148 would be illegal if issued more than four years after the end of the relevant assessment year.

Admittedly, by that date, the new section 147 has come into force and, hence, in our opinion, it is the new section 147 which will apply to the facts of the present case. In the present case, there was admittedly no failure on the part of the assessee to make a return or to disclose fully and truly all material facts necessary for the assessment. Hence, the proviso to the new section 147 squarely applies, and the impugned notices were barred by limitation mentioned in the proviso.

Although we are of the opinion that the law existing on the date of the impugned notice under section 147/148 has to be seen, yet even in the alternative even if we assume that the law prior to the insertion of the new section 147 will apply even then it will make no difference since even under the original section 147 notice for reassessment could not be given on the mere change of opinion as held in numerous cases of the Supreme Court, some of which have been mentioned above. Since the Tribunal in the appeal relating to the assessee-company had considered the Tribunal's earlier decision in Boudier Christian's case, it will obviously amount to mere change of opinion, and hence the notice under section 147/148 would be illegal."

From the above facts of the case and legal position as enunciated by Hon'ble Supreme Court in the above two case laws, we are of the considered view that the Sicpa India Pvt. Ltd.., AY 2002-03 reopening u/s. 147 r.w.s. 148 of the Act is bad in law. Hence, reopening is quashed. Accordingly, the jurisdictional issue is decided in favour of the assessee and the CO of the assessee is allowed. Since we have quashed the reopening, we need not to adjudicate the issues raised assessee in its CO and by revenue on merits. Accordingly, the CO of assessee is allowed and appeal of revenue is dismissed.


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Income Tax Appellate Tribunal - Delhi

Sohna Forge (P) Ltd. vs Jt. CIT

14 /12 2012: This appeal filed on 19.09.2012 by the assessee against an order dated 05.06.2012 of the ld. CIT(A)-XII, New Delhi, raises the following grounds:-

That the Ld. CIT(A) was not justified in confirming the action of Ld. A.O. in reopening the case u/s 148 on the ground that depreciation has been claimed by the assessee without there being any business, commercial and manufacturing activity whereas as per the assessee the issue of allowance of depreciation has already attained finality in assessee's own wealth tax cases for the A.Y's 2001-02 to 2006-07 wherein the Hon'ble Delhi High Court while dismissing the departmental appeal in WT A No. 1 to 6 of 2011 held that in the impugned year the assessee had carried on business utilizing the assets.

As per relevant orders are that return declaring income of ``7,65,495/-filed on 26.10.2004 by the assessee, was processed u/s 143(1) of the Income-tax Act, 1961. Subsequently, the Assessing Officer recorded the following reasons, in writing, in terms of provisions of sec. 148(2) of the Act:-

"During the year, the assessee has claimed depreciation of ``1,58,494/- as per the Income Tax Act. Since, no business or commercial or manufacturing activity were carried out by the assessee during the year under consideration, the assessee was not eligible to claim any depreciation. Hence, the depreciation claimed by the assessee was not allowable."

Accordingly, the AO issued a notice u/s 148 of the Act on 31.03.2011. In response, the assessee filed a letter dated 18.04.2011 stating that return filed originally may be treated as return in response to notice u/s 148 of the Act. After having a copy of reasons recorded by the AO, the assessee filed objections against the reasons, which were disposed of by the AO on 1.11.2011. To a query by the AO, the assessee submitted vide letter dated 16.11.2011 as under:-

"The information called for by your good self has no relevance with the issue of depreciation disallowance which is part of the reasons recorded by your good self. Since the assessee never claimed that it is carrying out any manufacturing activity so the calling of information in this regard has no relevance. The assessee has only carried out business activity from which commission income was earned. It is nowhere disputed in the order disposing off objections that assesses company was not doing any business. The only dispute created in the order of disposing objections was regarding manufacturing activity for which the assessee company itself admitted that it was not carried out as manufacturing activity. Calling of information regarding computation of Long Term Capital Gain has no relevance to the claiming of depreciation. Moreover, most of the information called by your good self is the part of the computation and balance sheet that filed along with income tax return.

Since the assessee company is claiming depreciation only because the asset used for business activities which fact is not in dispute. so the calling of general information-has no relevance to the fact of the issue involved. In view of above, kindly drop the assessment proceeding initiated U/s 147 of the Income Tax Act. "

However, the AO did not accept the submissions of the assessee on the ground that in the preceding AY 2003-04 also, the assessment was reopened and thereafter, completed with the disallowance of claim for depreciation on the ground that no business or commercial or manufacturing activity was carried out by the assessee in the preceding so many years. Since the land sold by the assessee was part of land on which building was constructed while no commercial activities were taken in the preceding several years, the AO disallowed the claim of depreciation of ``1,58,494/-. Beside an amount of ``7,18,230/- was disallowed on account of repairs and maintenance of building, legal and filing fee, telephone expenses, salaries etc. , the assessee having not submitted copy of bills, vouchers etc. called for in terms of a notice dated 01.11.2011issued u/s 142(1) of the Act.

On appeal, the ld. CIT(A) while referring to decision dated 18.7.2011 of Hon'ble jurisdictional High Court in the assessee's own case for the AY 2001-02 to 2006-07 in WTA nos. 1 to 6 of 2011,upheld the validity of reopening of the assessment as under:- "Ground No.1: I have perused the facts stated in the assessment order as well as the facts stated by the assessee in his submissions and the ITAT and the Hon'ble High Court in assessee's own case. In this case the return for assessment year 2004-05, was filed on 26.10.04 declaring taxable income of `.7,65,495/-. The original assessment was made U/S 143(1) of the I.T. Act.

A notice under section 148 was issued on 31.3.11 after recording the following reasons:- "During the year, the assessee has claimed depreciation of `.1,58,494/- as per the Income Tax Act. Since, no business or commercial or manufacturing activity were carried out by the assessee during the year under consideration, the assessee was not eligible to claim any depreciation. Hence, the depreciation claimed by the assessee was not allowable. "

Although the assessee has ITAT "G" Bench and Delhi High Court's order in his favour, but when the Assessing Officer had reopened the case and issued notice on 31.3.2010, at the time of reopening he could not take'-benefit of Delhi High Court's order which was passed on 18, July,2011.

In view of the facts stated above, I uphold the reopening proceedings U/S 148 of the LT. Act. As regards claim of depreciation, the ld. CIT(A) followed the aforesaid decision of Hon'ble Delhi High Court and allowed the claim in the year under consideration , holding as under:-
I have perused the facts stated in the submission and as well as in the assessment order passed by the Assessing Officer. The facts are stated in the Hon'ble Delhi High Court's order, details are at page 5 & 8 of this order. Following the decision of Delhi High Court, depreciation of Rs.1,58,494/- has been allowed on merits. The same issue was decided in favour of the assessee's own case for Asstt. Year 2003-04 vide my order dated 24.8.11. Hence the appeal of the assessee is allowed on this ground."

Regarding disallowance of expenses of ``7,18,230/-, the ld. CIT(A) concluded as under:- "Ground No. 3(a)&(b) I have perused the facts stated in the submission and as well as in the assessment order passed by the Assessing Officer. The assessee in his submission has stated that the AO has wrongly made an addition of R`.7,18,230 on account of disallowance of expense.

The assessee in his submission has stated as under: "That during the  reassessment proceedings the Ld. Assessing Officer exceeded his the jurisdiction by asking for the details of other expenditures claimed by the assessee, which was declined by the assessee as the same did not fall under his jurisdiction when the matter have been re- opened on specific issue, however without examining the said issue the Ld. A.O. made ad-hoc addition amounting to Rs.7, 18,230/-. "

The assessee is now in appeal before us against the aforesaid findings of the ld. CIT(A). At the outset, the ld. AR on behalf of the assessee while referring to decision dated 18th July, 2011 of the Hon'ble High Court in the assessee's own case in the Wealth Tax proceedings for the AYs 2001-02 to 2006-07 in WTA nos.1 to 6 of 2011 and the decision dated 9th April, 2010 of the Tribunal in WTA  nos.6 to11/Del./2010 as also the decision of the ld. CIT(A) for the AY 2003-04 argued that the assessee having carried on business activity in the year under consideration, as concluded by the Hon'ble High Court, ld. CIT(A) was not justified in upholding the validity of reopening on the issue of depreciation. As regards disallowance of expenses, the ld. AR argued that since validity of reopening of assessment is being questioned on the issue of depreciation, the ld. CIT(A) was not justified in travelling beyond the reasons recorded by the AO and thereby, upholding the disallowance. On the other hand, the ld. DR supported the findings of the ld. CIT(A).

We have heard both the parties and gone through the facts of the case. The issue before us relates to validity of reopening of the assessment on the basis of aforesaid reasons recorded by the AO, before issuing notice u/s 148 of the Act on 31.3.2011. Indisputably, the assessment in this case was completed u/s 143(1) of the Act in pursuance to return filed on 26.10.2004. In the assessment under section 143(1) of the Act inquiry relating to the income of an assessee is not made. Under section 147 of the Act, as substituted by the Direct Tax Laws (Amendment) Act, 1987, with effect from 1-4-1989, the only requirement for initiating proceeding is that the AO should have reason to believe that any income chargeable to tax, has escaped assessment. However, where an assessment has been made under sub-section (3) of section 143, the action is required to be taken within four years from the end of the relevant assessment year unless any income chargeable to tax has escaped assessment by reason of failure on the part of the assessee to make a return or to disclose fully and truly all material facts necessary for his assessment for that year. Explanation 1 provides that the production before the Assessing Officer of account books or other evidence from which material evidence could with due diligence have been discovered by the AO will not necessarily amount to disclosure within the meaning of the proviso to sec. 147 of the Act. Explanation 2(b) & (c), inter alia, stipulate deemed cases of income chargeable to tax escaping assessment where excessive deduction or relief has been claimed in the return.

In the instant case, the AO recorded in the reasons that since no business or commercial or manufacturing activity was carried out by the assessee during the year under consideration, the assessee was not eligible to claim depreciation of `1,58,494/ .Accordingly assessment was reopened.

The Tribunal has, as noticed above, accepted the appeal of the assessee holding that the assessee had doing the business in the form of aforesaid job work and therefore, the property in question would be exempt from the Wealth Tax, as per section 2(ea) of the Wealth Tax Act, which defines "asset" and specifically excludes the asset occupied by the assessee for the purpose of any business or profession carried on by him.

The Tribunal took note of a very crucial fact, viz., for the assessment years 2001-02 to 2006-07, the assessee had filed income tax returns in which the assessee had shown business income. It had also claimed depreciation on the aforesaid building constructed by the assessee on the leasehold land in question and this depreciation was allowed by the Assessing Officer in all these years.

The Tribunal further found that though no regular assessment u/s 143(3) of the Act for the assessment years 2001- 02 to 2004-05 had been made by the Assessing Officer and in those assessment years, the assessment was completed u/s 143(1) of the Act, insofar as the assessment years 2005-06 to 2006-07 are concerned, the case of the assessee for these years was selected for scrutiny and regular assessment u/s 143(3) of the Act had been made wherein the assessee's claim of depreciation on the building @10% on written down value had been allowed. As mentioned above, in these assessment years, the assessee had shown income under the head "profits and gains of business or profession", which was also accepted by the Assessing Officer. Even when the CIT(A) while discussing the case of the assessee under the Wealth Tax Act had opined that the case of the assessee under Income Tax Act be reopened, no such steps were taken by the Assessing Officer under the provisions of the Act had become final. This fact was specially taken note of by the Tribunal.

From the aforesaid narration, it is clear that not only in the Assessment Years in question, the assessee had carried on its business utilizing the aforesaid asset for this purpose, but this decision was even accepted by the Department as well.

In these circumstances, we are of the opinion that the order of the Tribunal is without blemish. We are, thus, of the view that no substantial question of law arises.

These appeals are accordingly dismissed."

Thus, as on the date of recording reasons and issuance of notice u/s 148 of the Act on 31.3.2011, the AO had before him aforesaid findings of facts recorded by the ITAT in their order dated 9.4.2010 that the land or building constructed thereon was undoubtedly used by the assessee for its business.

The ld. DR did not place before us any material for the basis recorded by the AO in his aforesaid reasons that no business or commercial or manufacturing activity was carried out by the assessee during the year under consideration.

In view thereof, we have no hesitation in reversing the findings of the ld. CIT(A) on the issue of validity of reopening of the assessment and accordingly, quash the reassessment order. Consequently, ground no. 1 in the appeal is allowed. As a corollary, ground no.2 in the appeal does not survive for our adjudication and is, therefore, treated as infructuous.

Ground no.3 in the appeal,being general in nature, does not require any separate adjudication while no additional ground having been raised before us in terms of residuary ground no. 4 in the appeal, accordingly, these grounds are dismissed. No other plea or argument was made before us. In the result, appeal is allowed.



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Income Tax Appellate Tribunal - Mumbai

Sunil Gavaskar , Mumbai vs Income Tax Officer

16 /03 /2016:These appeals have been filed by the assessee against separate orders of the learned Commissioner (Appeals)-10, Shri Sunil Gavaskar Mumbai, passed against the separate assessment orders under section 143(3) r/w section 147 of the Income Tax Act, 1961 for the assessment year 2001-02 and 2002-03.

Since both the appeals pertain to same assessee and involve identical issues, therefore, these were heard together and are being disposed of by this common order for the sake of convenience.
We first take up appeal in ITA no.3970/Mum/2010, for the assessment year 2001-02. Assessee has raised following grounds:-

On the facts & circumstances of the case the Learned Commissioner of Income tax (Appeals) has erred in concluding that notice issued u/s 148 is valid and the reassessment proceedings are validly initiated. He has also erred in holding that reopening the assessment was in order. The appellant prays that the notice issued u/s 148 is bad in law. The conditions stipulated u/s 147 are not satisfied. The reassessment order passed by the Learned AO may be treated as invalid. The appellant prays that reassessment order passed by the Learned AO may be cancelled.

2. Without prejudice to ground No.1 the Learned Commissioner of Income Tax (Appeals) has erred in rejecting the claim of the appellant u/s 8ORR amounting to Rs.97,71,079/-. On the facts & circumstances of the case the appellant submit that he is entitled to deduction u/s 8ORR at Rs.97,7 1,079/- as all the conditions stipulated u/s 80RR are satisfied.

3. On the facts & circumstances of the case the appellant prays that deduction u/s 8ORR may be granted at Rs.97,71,079/-.

4. On the facts & circumstances of the case the Learned Commissioner of Income tax (Appeals) has erred in confirming the levy of interest u/s 234B at Rs. 38,07,838/-. The appellant denies the liability for payment of interest u/s 234B and prays that the interest levy at Rs.38,07,838/- may be deleted."

During the course of hearing, detailed arguments have been made by both the sides on the grounds raised before us. It is noted from the perusal of the record that on an earlier date, it was pointed out by the learned Counsel for the assessee that an inspection of assessment record was carried out by him wherein it was noted that there were certain glaring discrepancies in compliance of the law to be followed for the reopening of the already concluded assessment. Accordingly, the Bench had directed the Ld. DR to produce the assessment records. In accordance with the same, learned DR produced before us assessment records containing, inter-alia, documentation work done by the Department for reopening of the case, which was examined by us. Ld. DR submitted copies of "reasons" recorded by the AO and other supporting material to the Bench with one copy to the counsel of the assessee. The case was adjourned to next date to enable both the parties to file their respective replies. Accordingly, on the date of hearing, parties made their respective submissions on the jurisdictional and other legal aspect of the reopening as well as on the merits of the case.

The learned Counsel for the assessee has made detailed arguments to assail the reopening done by the AO as well as merits of additions/disallowances. He relied upon various judgments to argue that reopening was illegal and the disallowance was also bad in law and factually incorrect. He took us through these judgments in support of his argument that assessee is very much eligible as per law to claim deduction under section 80RR and inconsistent stand of the Revenue is not only legally invalid but also causing undue hardship to a tax payer whose services have brought fame to the entire country. Before concluding his argument he also drew our attention upon the advisory issued by the Ministry of Finance, Department of Revenue, dated 24th June 1982, wherein it was opined that audit objection should not be formed the basis of reopening of an assessment. He also relied upon the circular of the CBDT no.554 dated 13th February 1990. Thus, he concluded his argument by submitting that neither the reopening nor the addition made by the AO was valid and, therefore, reopening should be quashed and additions should be deleted.

Per-contra, the learned DR appearing on behalf of the Revenue has also made detailed arguments. He was fair enough to accept that two sets of "reasons" were available in records. Undated "reasons" were approved / sanctioned by the Additional DIT and then also by the DIT on 25th May 2007. He fairly admitted that nothing was available in assessment record to show any approval / sanction of a competent authority with regard to the 'reasons' dated 6th June, 2007. It has been argued by him that variance in the "reasons" does not have any material effect. It was further submitted that the Additional DIT as well as the DIT have gone through the entire records before granting their approval and thus due procedure was followed before reopening of the assessment. It was further submitted that the AO did not form any specific opinion during the course of original assessment proceedings and, therefore, there arises no question of any change of opinion. On merits, it was submitted by the learned DR that in section 80RR, what has been envisaged is a sportsman, and assessee was not a sportsman during the year.

In reply to the argument of the learned DR, learned Counsel for the assessee has submitted that the learned DR has not been able to meet or counter various arguments of learned Counsel for the assessee with respect to jurisdiction lapses committed by the AO before reopening of the assessment as well as on merits of the case.

We have carefully gone through the orders of the lower authorities, arguments made, evidences shown and judgments relied upon before us, by both the parties.

We shall first deal with the arguments made by both the parties before us with regard to the reopening of the case. The foremost issue as was raised before us is with regard to existence of two sets of "reasons". The assessment records were produced by the learned DR during the course of hearing before us. Surprisingly, there do exist two sets of "reasons". The first set of "reasons" is undated which is approved by the Additional-DIT(IT), Range-3, Mumbai, on 24th May 2007 and was forwarded for further approval by the DIT. Accordingly, DIT(IT), Mumbai, granted sanction of the same on 25th May 2007, by making detailed reasoning in his own handwriting. It is noted that while giving reasoning, the DIT had raised few new aspects which were not raised by the AO in the "reasons" recorded viz, some difference in income shown in the return of income and amount shown in the remittance certificate and a change in method of accounting by the assessee. It is noted that subsequent to the sanction granted by the DIT, the AO recorded another set of "reasons" dated 6th June 2007. This set of "reasons" appears to have been provided to the assessee during the course of assessment proceedings for inviting his objections. But, we could not find anything in the assessment records and nothing was shown to us indicating any approval / sanction from the competent authority under section 151(1) with respect to this set of "reasons" dated 6th June 2007. Thus, admittedly, as per records, the  reopening has been done without complying with the mandatory jurisdictional condition of section 151. Thus, reopening becomes bad on this ground itself.

The reason to believe that income chargeable to tax has escaped assessment on the part of the AO is a sine qua non for issue of a reopening assessment under section 148 of the Act as non satisfaction of reason to believe would by itself make the notice fatal. In such a case, the satisfaction of other conditions would not even require examination.

Both the CIT(A) as well as the Tribunal, on the aforesaid basis came to the conclusion that in view of the fact that the AO himself has not accepted the audit objection, there could be no reason for him to believe that income chargeable to tax has escaped assessment. It is clear from Section 147 of the Act that the jurisdictional requirement to issue a notice for reopening the assessment is the satisfaction of the "AO." This satisfaction of the AO cannot be outsourced or arrived at on the basis of directions of his superiors. The Act requires his reason to believe that income chargeable to tax has escaped assessment. Thus, the impugned notice is not sustainable. In that view, the first condition precedent of reason to believe is that income chargeable to tax is escaped assessment being the primary requirement is not satisfied, the notice for reopening is without jurisdiction.

We have carefully examined the requisite facts required to address this issue also. It is noted that original return in this case was filed under section 139(1) on 30th October 2001, along with computation sheet, Balance Sheet and Profit & Loss account and tax audit report under section 44AB. All these facts are bone out and evident from the original assessment order passed under section 143(3) dated 25th August 2003. Detailed verification was done during the course of assessment proceedings, before passing the order under section 143(3).

The assessee is a well known erstwhile Cricketer and who has also been conferred the RASHTRIYA SANMAN by the C.B.D.T on 7th April, 2000, for being the highest taxpayers during the period AY 1994-95 to 1998-99. The assessee's is deriving his income by way of remuneration and interest from the partner firm M/s. PMG Exports in the capacity as a Partner. Salary and rent from M/s All Star Management Group. The assessee has also received foreign remittance from ESPN Star Sports Ltd. for giving commentary."

While computing the income in the assessment order, income from business was computed by the AO under the head income from business or profession and deduction under section 80RR thereon was granted as was claimed by the assessee in its return of income. A perusal of the assessment order shows that complete facts have been narrated in the assessment order that assessee is a well known erstwhile cricketer. It has also been mentioned that assessee has also received foreign exchange remittance from ESPN Star Sports Ltd. for giving commentary. Further, perusal of the computation sheet enclosed with the return shown that complete facts have been narrated in the computation sheet wherein income has been shown under the head income tax from business and deduction under section 80RR has been claimed @ 60% of factual income describing the same as professional income from foreign sources. It is further noted that assessee had filed replies to the AO wherein various relevant facts have been mentioned.

With the assistance of both the parties, we have gone through the "reasons" recorded. We have already discussed in detail in earlier part of our order that complete facts with regard to work profile and status of the assessee, nature of receipt and particulars of deductions claimed in the return were provided along with return and further supported by further information and documents submitted during the course of original assessment proceedings. The AO had examined these documents and he was aware of complete facts, and thus, apparently, an opinion was formed by the AO while granting the benefit of deduction u/s 80RR.

Subsequently, at the stage of reopening, the AO has alleged in the "reasons" recorded that the deduction was wrongly granted. In our opinion, it is clearly a case of change of opinion by the AO. The law in this regard is also well settled, i.e., the reopening of an assessment cannot be done on the basis of change of opinion by the AO.

We have carefully considered the contention of the revenue, but do not agree with the contentions raised before us for denying the benefit of section 80RR to the assessee by the AO.

The perusal of the said circular clearly shows that section 80RR is a beneficial provision intended to provide benefits of tax concessions to those persons who can contribute to greater understanding of our country and its culture abroad and also for augmenting our foreign exchange resources. The circular clearly lays down that aim of section 80RR is to encourage our sportsman, and athletes and persons of other categories as mentioned in the section 80RR.

It is further noted by us from the certificate dated 21st May, 2009 issued by ICC Cricket Committee that assessee was nominated by the Board of Control for Cricket In India (BCCI) as Indian representative and accordingly the ICC Executive, Board elected the assessee as the chairman of 'Cricket Committee- Playing' at its meeting in June, 2000. This committee was subsequently renamed as ICC Cricket Committee. The assessee remained its chairman until his resignation in May, 2008. We shall further like to state the broad intention of section 80RR, as was discussed in detail in earlier part of this order also, is to promote the sports and persons associated with it for the sake of building up greater understanding of the country and augmenting foreign resources.

Our view gets further strengthened from this fact that in section 80RR, it has been no where mentioned that the sportsman should be the person who is currently playing in the field or the person earning income directly from playing in the field only. Thus, we find that the broader objective of section 80RR is met if we define the term sportsman in a wider sense, as seems to have been intended by the legislature also. In this backdrop, it can certainly be said that the assessee was a sportsman during the year for the purpose of section 80RR.

Thus, the facts of this case suggest that the assessee is eligible to claim deduction u/s 80RR, and therefore no belief could have been formed for escapements of his income. The claim is allowable on merits also, as discussed above in detail. Thus, the benefit of deduction claimed u/s 80RR was in accordance with law, and therefore, disallowance made by the AO in this regard is directed to be deleted.

As a result Ground nos. 1, 2 & 3 are allowed and Ground no.4 is consequential, therefore, dismissed and Ground no.5 is general and does not need any specific adjudication. Now we shall take up assessee's appeal for AY 2002-03 in ITA No.3971/Mum/2010:

In this appeal also the issue involved and the facts are identical to A.Y. 2001-02. The grounds raised by the assessee are also identical. The reopening has been done on the same reason that deduction u/s 80RR was wrongly claimed by the assessee. In the A.Y. 2001-02, we have held that in the given facts of the case, no belief could have been formed about escapement of income and it has also been held that assessee had rightly made a claim as per law, and therefore, we have quashed the reopening on various grounds and also held the claim u/s 80RR as allowable to the assessee. Thus, our order for A.Y. 2001-02 shall apply mutatis mutandis on the facts of this year as well as on the issues raised by the assessee in the appeal of this year. Accordingly, ground nos. 1, 2, & 3 are allowed, Ground no.4 is consequential and therefore, dismissed, and ground no.5 is general and does not need any specific adjudication. As a result, both the appeals are partly allowed.
 








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