M/S. INDIA EXPOSITION MART LTD.,NEW DELHI vs. DCIT, NEW DELHI

PER KULDIP SINGH, JUDICIAL MEMBER : 3. Having gone through the proposed order passed by my Esteemed Brother, Accountant Member, wherein he has proposed to remand the issue regarding validity of initiation of proceedings under section 147/148 of the Income-tax Act, 1961 (for short ‘the Act’) to CIT (A) to pass a fresh order after ascertaining from communication between Assessing Authorities and Audit Party if AO indeed believed, genuinely and legitimately free from pressure and undue influence before the initiation of reassessment proceedings that income had escaped assessment, I am constrained to differ with the conclusion arrived at paras 2.6 & 2.7.1, thus writing a separate dissenting order. 4. Appellant, M/s. India Exposition Mart Limited (hereinafter referred to as the ‘assessee’) by filing the present appeal sought to set aside the impugned order dated 07.01.2016 passed by the Commissioner of Income-tax (Appeals)- 4, New Delhi qua the assessment year 2009-10 on the grounds inter alia that :-

2) The Learned DCIT erred in law by re-opening assessment u/s 147 of Income Tax Act without any new or fresh materials not disclosed during course of assessment.

3) The Learned DCIT-Cir 12(1) erred in law by not appreciating the Fact that full enquiry was made by the Assessing officer regarding abandoned Phase- 3 project by seeking the facts about the details of the project and after due application. of mind allowed the expense

4) The Learned DCIT-Cir 12(1) erred in Jaw by re-opening assessment u/s 147 of IT on the basis of Audit objection wherein no new facts have been disclosed.

5) The learned DCIT-Cir 12(1) erred in law by not in facts that the expenses on the abandoned phase-3 project were for survey and feasibility report, building plan preparation expenses and architecture fees and not on £1m; capital asset and no new asset were created.

6) The Learned DCIT-Cir 12(1) erred in law by treating abandoned Phase-3 as Capital expenditure when no new asset were created.

7) The Hon'ble CIT (A)-4 erred in law by not disputing the facts presented by the assessee but dismissed appeal of the assessee without assigning any reason or any ground.

7. Assessee has preferred to challenge the reopening of assessment u/s 147 of the Act on the basis of audit objection disclosing no new material/facts on record.

8. Ld. AR for the assessee challenging the impugned order contended inter alia that in the absence of any fresh material subsequent to the assessment order framed u/s 143 (3), no valid proceedings can be initiated u/s 147 of the Act; that reassessment proceedings have been initiated by the AO on the basis of opinion expressed by audit party that the claim of deduction claimed by the assessee already allowed by the AO by framing the assessment u/s 143 (3) of the Act is not allowable; that when the AO has allowed the claim debited by the assessee in the profit & loss account, in the absence of fresh tangible material, reassessment proceedings cannot be initiated on the basis of audit objection; and that assumption of jurisdiction by the AO on the basis of objection raised by the audit party amounts to change of opinion and as such proceedings u/s 148 of the Act were without jurisdiction.

9. On the other hand, ld. DR for the Revenue relied upon the orders passed by the AO as well as CIT (A) and contended that proceedings have been validly initiated after disposing of the objections raised by the assessee. Ld. DR also filed written submissions which are extracted as under :- “In the above case, it is humbly submitted that the following decisions may kindly be considered with regard to reopening of cases u/s 147 of I.T. Act:

2. Yuvraj v. Union of India [2009] 315 ITR 84 (Bombay)/ [2009] 225 CTR 283 (Bombay) Where the Hon’ble Court held that points not decided while passing assessment order under section 143 (3) not a case of change of opinion. Assessment reopened.

3. Devi Electronics Pvt. Ltd. vs. ITO 2017-TIOL-92-HC-Mum-IT

Wherein the Hon’ble High Court held that The likelihood of a different view when materials exist of forming a reasonable belief of escaped income, will not debar the AO from exercising his jurisdiction to assess the assessee on reopening notice.”

Based on the above facts, I have reason to believe that the income to the tune of Rs.1.81 chargeable to tax has escaped assessment. If approved, a notice u/s 148 of IT Act may be issued to assessee."

17. So, in the identical set of facts extracted above, Hon’ble High Court in case of Carlton Overseas Pvt. Ltd. vs. ITO (supra) held as under :- “Held, allowing the petition, that the audit report merely gave an opinion with regard to the non-availability of the deduction both under section 80-IA and under section 80HHC and that the deduction under section 80-IA was not deducted from the profits of the business while computing deduction under section 80HHC. Therefore, there was no new or fresh material before the Assessing Officer except the opinion of the Revenue audit party. Mere change of opinion could not form the basis for issuing of a notice under section 147/148 of the Act. Therefore, the notice under section 148 of the Act was liable to be quashed.”

ld. CIT (A), which fact has not been denied by ld. DR in written submissions, the issue cannot be ordered to be reinvestigated; (iii) that schematic interpretation to the words "reason to believe" needs to be given otherwise section 147 would give arbitrary power to the AO to reopen the assessment on the basis of mere “change of opinion” which cannot be per se reason to open as in the instant case; (iv) that subsequent to the original assessment framed u/s 143 (3) of the Act, AO was not in possession of any fresh material/facts so as to initiate the reassessment proceedings u/s 147/148 of the Act; (v) that perusal of the reasons recorded, assessment framed u/s 143 (3) & u/s 143 (3)/147 of the Act and order passed by the ld. CIT (A) go to prove that except for mere “change of opinion” on the basis of opinion expressed by audit party, there was no fresh material with the AO to reopen the assessment u/s 147 which is not permissible; (vi) that assessee has filed extensive written submissions before the ld. CIT (A) qua the claim of deduction of Rs.1,81,26,000/- in the P&L account which are duly extracted by the ld. CIT (A) in para 11 of the impugned order which are extracted as under :- “11) In support of the contention of the assessee we are submitting herewith the copy of correspondences/ documents submitted by the Assessee during course of Original Assessment. a) Copy of submission dated 29/11/2011 at page no. 25 to 28 (copy enclosed which contained following information asked for by the Assessing Officer regarding charging Capital Work in Progress to profit & loss A/c relating to phase-3 of Project which was abandoned by the assessee during the year (which is the ground of reopening assessment by the Assessing Officer).

I) Ledger account of consultancy charges paid along with Form no.16 issued to some of the major consultants like Fairwood Consultant Pvt. Ltd., Rajinder Kumar & Associates, Ravi Chauhan is enclosed herewith at page no, 29 to 37.

II) Copy of ledger account of Fairwood Consultants Pvt. Ltd. from April 2007 to March 2009 for Professional fees paid to-him is enclosed herewith at page no.38,

III) Copy of ledger account of Rajinder Kumar & Associates for consultancy fees paid to him/or Apri1 2007 to March 2009 is enclosed at page no.39 to 43.

IV) Copy of agreement with Rajinder Kumar & Associates as project Management consultant for Phase-3 is enclosed herewith at page no, 44 to 74.

V) Copy of Agreement with Fairwood Consultants Pvt Ltd. as Project Management Consultant for phase-3 is enclosed herewith at page no.75 to 97. b) It is submitted that the assessee was planning to set up the 3rd phase of the expansion but the same was shelved during the year as such Rs.1.70,02497/- relating to payment to consultants like Fairwood Consultants (P). Ltd, Rajinder Kumar & Associates & Ravi Chauhan initially debited the Capital Work In Progress but transferred to P&L a/c during the year on shelving the project.

Further vide letter dated 28/08/2011 (copy enclosed at page no. 29) the assessee had submitted the details of consultancy charges which gave full details of consultancy charges which contained debit of Rs.1,70,02,497/- towards consultancy charges in connection with Phase-III project which was abandoned during the year.

It is submitted here that the Assessing Officer in course of original Assessment had fully applied his mind as he had asked for full information about the Phase-3 project started in 2007 by asking details of the Project from the start in 2007 to 2009 like the project agreement with various consultants and fees paid to them which was submitted by the Assessee vide letter dated 29/11/2013. Thus it is clear from records & submission by the Assessee during course of original assessment that the Assessing Officer had fully applied his mind while allowing charging of capital Work in Progress If Rs.1,70,02,497/- to Profit & Loss Account on shelving of Phase-3 Project of the assessee company.”

(vii) that ld. CIT (A) has not discussed and meet with the aforesaid submissions raised by the assessee rather summarily upheld the reopening of assessment u/s 147 of the Act; (viii) that while disposing of the objections by the AO, he has relied upon the decision rendered by Hon’ble Gujarat High Court in case of Gruh Finance Ltd. vs. JCIT – 243 ITR 482 and Praful Chunilal Patel vs. M.J. Makwana, ACIT – 236 IT 832, which are not applicable to the facts and circumstances of the case in the face of binding precedent laid down by the Hon’ble jurisdictional High Court and Hon’ble Apex Court (supra) discussed in the preceding paras. So, I am of the considered view that they are not supporting the case of the Revenue in initiating the proceedings under section 147 of the Act.

“On perusal of the orders of the AO and the Ld. CIT(A), information whether the AO indeed believed, genuinely and legitimately, free from pressure and undue influence, at any stage before initiation of proceedings U/s 147 of LT. Act read with section 148 of I.T. Act, that income had escaped assessment; is not available. It could have been ascertained by the Ld. CIT(A) from communication, including correspondence, between assessment authorities (including the AO) and Audit Department. However, the Ld. CIT(A) did not do this. As the relevant information is not available on record, and in the background of views and opinions expressed by us in the foregoing paragraph no. (2.6.2) of this order, we remand the issue regarding validity of initiation of proceedings U/s 147 of LT. Act read with section 148 of I.T. Act, to the file of the Ld. CIT(A) with the direction to pass the fresh order as per law, taking into consideration the views and opinions expressed by us in the foregoing paragraph no. (2.6.2), after ascertaining whether the AO indeed believed, genuinely and legitimately, free from pressure and undue influence, at any stage before initiation of proceedings U/s 147 of LT. Act read with section 148 of I.T. Act, that income had escaped assessment.”

“(iv) This Court is acting as appellate Court and has to act within the limitations provided under Section 26A of the Act. The appeals can be entertained only on substantial questions of law. In the process, this Court is to examine as to whether the order of the Tribunal is correct and any substantial question of law arises therefrom. The Tribunal has passed the impugned orders, sitting as appellate authority, on the basis of available record. When the matter is to be examined from this angle, there is no reason or scope to remit the case back to the AO(s) once it is found that on the basis of material on record, the order of the Tribunal is justified. Even the Tribunal acts purely as an appellate authority. In that capacity, the Tribunal has to see whether the assessment framed by the AO, all for that matter, orders of the CIT(A) were according to law and purportedly framed on facts and whether there was sufficient material to support it. It is not for the Tribunal to start investigation. The Tribunal is only to see as to whether the additions are sustainable and there is adequate material to support the same if not the addition has to be deleted. At that stage, the tribunal would not order further inquiry. It is to be kept in mind that the AO is prosecutor as well as adjudicator and it is for the AO to collect sufficient material to make addition. There may be exceptional circumstances in which such an inquiry can be ordered, but normally this course is not resorted to.”

PER: MAHAVIR SINGH, VP, AS THIRD MEMBER

By order of Hon’ble President, vide U.O.No.-F.90-Jd(ATD)/2024 dated 02/05.08.2024, undersigned is nominated to adjudicate the difference between the Learned Accountant Member and Learned Judicial Member.

2. The difference pointed out by Learned Judicial Member reads as under:- (i) “Whether validity of initiation of proceedings under section 147/148 of the Income-tax Act, 1961 (for short 'the Act') is to be examined from the perusal of reasons recorded, objections raised by the assessee, order passed by the Assessing Officer qua objections raised by the assessee, assessment order and impugned order of the Ld. CIT (A) and no extraneous material is to be taken into consideration? (ii) Whether the Tribunal being a fact finding authority is empowered to delegate its function to Ld. CIT (A) by way of remand to ascertain if the Assessing Officer has believed genuinely and legitimately free from pressure and undue influence by applying his

independent mind that income had escaped assessment particularly when entire material relied upon is available on record? (iii) Whether the Tribunal can remand the issue to the Ld. CIT (A) to ascertain application of independent mind by the Assessing Officer from the communication/correspondence between Assessing Officer and Audit Party, which has not been relied upon, in the absence of any allegation/request on the part of Ld. DR before initiating the proceedings under section 147/148 of the Act?”

3. Similarly, the difference pointed out by Learned Accountant Member reads as under:- (A) “Whether, when initiation of proceedings Under Section 147 of I.T. Act read with Section 148 of I.T. Act has been done before the expiry of four years from the end of the relevant Assessment Year, initiation of the reassessment proceedings U/s 147 read with section 148 of I.T. Act, can be held to be invalid merely because these proceedings were initiated subsequent to an audit objection. (B) Whether, when initiation of proceedings Under Section 147 of I.T. Act read with Section 148 of I.T. Act has been done before the expiry of four years from the end of the relevant Assessment Year, the initiation of the reassessment proceedings U/s 147 read with section 148 of I.T. Act on the basis of audit objection amounts to change of opinion; and, whether, the initiation of the reassessment proceedings U/s 147 read with section 148 of I.T. Act can be held to be invalid merely because these proceedings were initiated subsequent to an audit objection. (C) Whether, for initiation of proceedings Under Section 147 of I.T. Act read with Section 148 of I.T. Act to be valid, it is necessary for the AO, after due application of his own mind, to form his own belief, that income had escaped assessment and whether, if the AO did not himself legitimately and genuinely believe, free from pressure and undue influence that income had escaped assessment; the belief of any other authority that income had escaped assessment is immaterial. (D) Whether, when the information if the AO indeed believed, genuinely and legitimately, free from pressure and undue influence, at any stage before initiation of proceedings U/s 147 of I.T. Act read with section 148 of I.T. Act, that income had escaped assessment; is not available on records of Income Tax Appellate Tribunal; the issue regarding validity of initiation of proceedings Under Section 147 of I.T. Act read with Section 148 of I.T. Act, can be remanded to Commissioner of Income Tax (Appeals) to pass fresh order as per law after ascertaining whether the AO indeed believed, genuinely and legitimately, free from pressure and undue influence, at any stage before initiation of proceedings U/s 147 of I.T. Act read with section 148 of I.T. Act, that income had escaped assessment.”

4. Since the facts are already narrated by Learned Accountant Member and Learned Judicial Member in their respective orders and there is no dispute on the same. But for sake of clarity and brevity, I am narrating relevant facts that the assessee, India Exposition Mart Ltd., is a company promoted by Export Promotion Council for Handicrafts (Sponsored by Ministry of Textiles, Govt. of India) and exporters of Handicraft items. The company got certificate of registration with Registrar of Companies on 12/04/2001 and certificate of Commencement of Business on 12/06/2001. The main object of the company as per its Memorandum of Association is as under: "To provide support to cottage industries, small scale industries and Small Medium Enterprises (SMEs) engaged in exports and to encourage, supplement and support their marketing efforts through long term planning and creation of support facilities. The priority areas will be creation of new opportunities/market and improvement in the existing marketing/export opportunities of the cottage sector and SMEs exporting units, efficient utilization of present potential of exporting small scale sector by creating a new concept of round the clock international marketing through permanent contact point and to create a link between craft industries in developing countries which have limited international marketing facilities and the consumer market of Europe and other developed nations, through organizing exposition, exhibition, trade fairs or to provide such facilities to others on rental, license, contract and/or on lease basis, development of International network of marketing and product development expertise, and agents from around the world throughout the year and any other activity to promote the above sectors, in particular Handicrafts, Gift Items, Carpets, Silk, Jute, Handloom and other products having similar nature and to promote new products, languishing crafts, new items of crafts for exports, new exporters/new craftsmen entrepreneurs and to promote for the country design development to earn increased foreign exchange".

The Company had received a grant in aid of Rs.12 Crores from Govt. of India for Construction of the Mart for holding exhibition for export of Handicrafts. The Assessee further received a grant of Rs.5 crores from UP Government for enhancing reputation of Greater Noida. The Company has 2 nominee Directors from the Ministry of Textiles and 2 Directors from Greater Noida Industrial Development Authority. The Assessee Company had completed two phases of Construction, and the marts were sold to the allotters during the assessment year 2009-2010. The Third phase of the construction was also in the initial stage of progress. The Construction in Phases 1, 2 & 3 are in the same compound and are contagious in nature. As contended by Ld. Counsel that due to deep depression in International Market, the export of Handicrafts was also very badly affected. In view of the bleak international economic scenario, it was decided by the company not to go ahead with the expansion of 3rd Phase and Capital Work in Progress of Rs.1,70,00,497/- was transferred to expenses account. During the assessment proceedings for A.Y. 2009-10, the Assessee was asked to give full details of capital work in progress for 3rd phase & was provided full details of Rs.1,70,02,497/- i.e. consultancy charges along with copy of ledger accounts & copy of contracts with consultants and which were accepted by the assessing officer & write off of Capital work in progress of Rs.1,70,00,497/- was allowed by him. This fact can also be verified from the audit observation made by the office of the A.C.I.T, S.A.P, O/o CIT (Audit) -II from the reply of the assessee to the Assessing officer which reads as under:- "It is submitted that the assessee was planning set up the 3rd phase of the expansion but the same was shelved during the year as such Rs.1,70,00,497/-appearing in Capital Work in progress Phase-III Page | 43 have been changed to Profit & Loss Account. (Copy of our letter dated 29/11/2011 wherein Point No. 19 last Para & point 20 regarding charging in P&L A/c have been mentioned by us)"

Subsequently Internal Audit objection was raised by SAP-1 Assistant CIT (audit) that incorrect claim of Rs.1,81,70,947 on account of capital work in progress was made by the assessee. But on the basis of audit objection DCIT Cir 12(1) reopened the case by issuing notice U/s 148 of the Income Tax Act, 1961(hereinafter ‘the Act’). Further, while raising the objection, the audit officer mentioned extracts of assessee's letter dated 29.11.2011 & 07.12.2011 submitted to the assessing officer which reads as under. “It is submitted that the assessee was planning to set up the IIIrd phase of the expansion but the same was shelved during the year as such Rs.1,70,00,497/-appearing in capital work in progress phase III, have been charged to Profit & loss account.”

Based on an audit objection discovered from the assessment records raised by the audit party, the assessing officer issued notice u/s 148 of the Act date 11/03/2013. The assessee was supplied the reason for re-opening on 12.12. 2014 which reads as under:- "The assessment in the above-mentioned case no A.Y 2009-10 was completed on 09.12.2011. On further verification it was found that during the year the assessee had an opening balance of Rs.1.75 crore under the head "works in progress" phase III (superstructure) and the assessee also incurred expense of Rs.6.26 lacs on the project. However, the assessee write off the full balance of capital work in progress in P&L a/c in Financial year 2008-09 out of which Rs.1.70 crores was debited as consultancy charges. Since, the write off of capital work in progress is not allowable in the act as it is neither a revenue expenditure nor does it pertain to the current assessment year. By doing so the assessee had not disclosed its Income Truly & Fully to the extent of Rs.1.81 crores. Based on the above facts, I have reasons to believe that the Income to the tune of Rs.1.81 crores chargeable to tax has escaped assessment. If approved, a notice u/s 148 of IT ACT, may be issued to the assessee. Date: 11/03/2013 (Rajeev Kumar) Dy Commissioner of Income tax Circle 11(1)" Page | 44

5. The Assessing Officer framed reassessment under section 143(3) read with section 147 of the Act and disallowed write off capital work in progress amounting to Rs.1,81,26,000 by holding that the written off capital work in progress is not allowable as it is neither a revenue expenditure nor does it pertain to current assessment year. He discussed that the assessee had an opening balance of Rs.1.75crores under the head ‘work in progress in Phase- III[super structure]’ and the assessee also incurred expenses of Rs.6.26 lacs on the project. He noted that the assessee had written off the full balance of this capital work in progress in profit and loss account for the financial year 2008–09 relevant to assessment year 2009–10 out of which Rs.1.7crore was debited as consultancy charges. Hence he disallowed this amount of Rs.1.81crore. The Ld. CIT(A) adjudicated the issue only on jurisdiction and dismissed the appeal of the assessee by upholding the reopening of assessment u/s. 147 of the Act by the Assessing Officer by observing as under:- “4. There is in fact only one ground of appeal and that is against the reopening of assessment u/s. 147. The main argument of the appellant revolves around the fact that full details of the expenses of Phase-III of the project and its write off duly disclosed, during the original assessment made u/s. 143(3) by the Assessing Officer. Therefore, they argued that since full facts are disclosed already, the assessment could not have been reopened u/s. 147 on the basis of the audit objection. I have gone through the submissions as well as the assessment order, and I find that the case of the appellant is different from the case laws quoted by them. The appellant has nothing to say on merit and, I hereby dismiss the appeal.”

6. Before Tribunal, the assessee raised the issue on merits as well as on jurisdiction of reopening of assessment under section 147 of the Act. Ld.

Accountant Member adjudicated the issue on reopening by Assessing Officer u/s. 147 of the Act vide para no. 2.7. of his order and upheld the reopening. However, the learned Accountant Member set aside the issues on merits to the file of the CIT(A) for fresh adjudication. Ld. Judicial Member quashed the reopening and decided the issue of jurisdiction in favour of assessee vides para nos. 28 & 29 of his order. Hence there is a dissent and questions were referred to me by Hon’ble President, ITAT to adjudicate the same.

7. Now before me, Ld. Counsel for the assessee, first of all stated the facts in brief that assessee company was planning to set up a 3rd phase of the expansion, but the same was shelved during the year and for the same an amount of Rs.1.70 crore relating to the payment to consultants like Fairwood Consultants (P) Ltd., Rajinder Kumar & Associate & Ravi Chauhan were initially debited to capital work in progress, but later transferred to profit and loss account during the year. It was contended that during the original assessment proceedings vide letter dated 28.8.2011, assessee submitted all the details of consultancy charges containing debit notes for an amount of Rs.1.70 crore towards consultancy charges in connection with Phase-III Project which has been abandoned during the year. Ld. Counsel for the assessee first of all made an argument that this is allowable claim and AO rightly allowed the claim during the original assessment proceedings. He stated that the construction/acquisition project was abandoned at work in progress stage only and decision to abandon project was taken in relevant assessment year for the purpose of business expediency, hence, write off of the said expenditure by the assessee arose in the relevant assessment year. I Page | 46 noted that this issue itself is covered by the decision dated 05.06.2018 decided in TS (Appeal) Nos. 907 and 908 of 2007 of the Honourable Madras High Court in the case of Tamil Nadu Magniste Ltd. vs. ACIT wherein, exactly same facts were discussed as loss of Rs.11.58 crores as project expenses was claimed and charged to the profit and loss account by appending the note stating that due to various reasons, the Government of Tamil Nadu ordered the closure of the project i.e. implementation of the Chemical Beneficiation Plant vide G.O. No. 140 dated 11.05.1998 and as a consequence the project was abandoned and major portion of intangible assets were shown as revenue expenditure. Hon’ble Madras High Court allowed the same as capital expenditure. Similarly Hon’ble Calcutta High Court in the case of Binani Cement Vs. vs. CIT (2016) 380 ITR 116 wherein it was held that if the expenditure is incurred for starting a new business, which was not carried out by the assessee in earlier year, such expenditure was held to be capital in nature. However, if the expenditure incurred is in respect of same business, which is already carried on by the assessee, even if it is for the expansion of the business, viz. to start a new unit, which is same as earlier business and there is unity of control and a common fund, then such an expense is to be treated as business expenditure and in such a case where it is a new business / asset would become a relevant factor. Similarly, Hon’ble Delhi High Court in the case of Indo Rama Synthetics Limited (2011), 333 ITR 18 (Delhi) considered and held that if the expenditure is incurred for starting a new business, there is no creation of new asset then the expenditure would be revenue in nature. Hence, in the present case before me also the expenditure incurred would be revenue in nature. Also, it is not the allegation of the revenue that a new asset is created.

8. Be that as it may be, whether it is a fit case of reopening of assessment, this is being answered by Hon’ble Delhi High Court Full Bench in the case of CIT V Usha International (2012) 348 ITR 485 Del, wherein the principle of “change of opinion” was discussed extensively as under:-

“16. Here we must draw a distinction between erroneous application/ interpretation/understanding of law and cases where fresh or new factual information comes to the knowledge of the Assessing Officer subsequent to the passing of the assessment order. If new facts, material or information comes to the knowledge of the Assessing Officer, which was not on record and available at the time of the assessment order, the principle of ―change of opinion‖ will not apply. The reason is that ―opinion‖ is formed on facts. ―Opinion‖ formed or based on wrong and incorrect facts or which are belied and untrue do not get protection and cover under the principle of ―change of opinion‖. Factual information or material which was incorrect or was not available with the Assessing Officer at the time of original assessment would justify initiation of reassessment proceedings. The requirement in such cases is that the information or material available should relate to material facts. The expression ‗material facts' means those facts which if taken into account would have an adverse affect on the assessee by a higher assessment of income than the one actually made. They should be proximate and not have remote bearing on the assessment. The omission to disclose may be deliberate or inadvertent. The question of concealment is not relevant and is not a precondition which confers jurisdiction to reopen the assessment.

18. In New Light Trading Co. vs. Commissioner of Income Tax (2002) 256 ITR 391 (Del), a Division Bench of this Court had referred to decision of the Supreme Court in CIT vs. P.V.S. Beedies Pvt. Ltd. (1999) 237 ITR 13 (SC) and the following observations were made:-

―In the case of P. V. S. Beedies Pvt. Ltd. [1999] 237 ITR 13, the apex court held that the audit party can point out a fact, which has been overlooked by the Income-tax Officer in the assessment. Though there cannot be any interpretation of law by the audit party, it is entitled to point out a factual error or omission in the assessment and reopening of a case on the basis of factual error or omission pointed out by the audit party is permissible under law. As the Tribunal has Page | 49 rightly noticed, this was not a case of the Assessing Officer merely acting at the behest of the audit party or on its report. It has independently examined the materials collected by the audit party in its report and has come to an independent conclusion that there was escapement of income. The answer to the question is, therefore, in the affirmative, in favour of the Revenue and against the assessee.‖ 19. As recorded above, the reasons recorded or the documents available must show nexus that in fact they are germane and relevant to the subjective opinion formed by the Assessing Officer regarding escapement of income. At the same time, it is not the requirement that the Assessing Officer should have finally ascertained escapement of income by recording conclusive findings. The final ascertainment takes place when the final or reassessment order is passed. It is enough if the Assessing Officer can show tentatively or prima facie on the basis of the reasons recorded and with reference to the documents available on record that income has escaped assessment.”

8.1 The ratio of the above judgment discussed is that when it was nowhere the case of the Assessing Officer that some factual information or material qua the issue in question was incorrect or was not available with him at the time of original assessment under section 143(3), merely on the basis of opinion expressed by Audit Party, the reopening is not permissible, because, as in the present case before us the claim of deduction of Rs.1,81,26,000 debited in the profit and loss account was specifically raised and explained by the assessee during the original assessment proceedings as is evident by the detailed reply filed by the assessee dated 28.8.2011. Even this issue has been dealt by the Hon’ble Delhi High Court in the case of Carltron Overseas (P) Ltd. V ITO (2009) 318 ITR 295 (Delhi) wherein, after considering the facts and submissions sides, it has been observed as under:- “6. Mr. Ajay Vohra, learned counsel for the petitioner has contended that the reasons for reopening of the assessment clearly Page | 50 do not provide the basis for issuing of the notice under Section 148 inasmuch as no new material has been disclosed for issuing of the notice and the reasons given for reopening of the assessment merely reflect a change of opinion, and a mere change of opinion is not sufficient for issuing the notice under Section 148. Counsel has further referred to the counter-affidavit filed by the Revenue in this Court in which it has been clearly stated that objection was raised by the Revenue audit party with regard to allowing of the deduction under sections 80-IA and 80HHC, i.e. after the assessee was allowed deduction of Rs.70.70 lakhs under section 80-IA but the said amount was not deducted from the profits of the business while computing deduction under section 80HHC, and, therefore, the mistake has resulted in the incorrect allowance of deduction of Rs.49.08 lakhs involving a short levy of tax of Rs.24.57 lakhs including interest. Mr. Vohra contends that it is quite clear in view of the stand taken in the counter-affidavit that no new facts have come on record and the impugned notice is merely based on a change of opinion being on the basis of the same material which was already available with the Assessing Officer at the time of making initial assessment under section 143(3) of the Act.

said judgments. In fact, as stated above, counsel for the Revenue does not dispute this principle of law.”

8.2 Similar is the ratio of this judgment is also same that the audit report gives an opinion with regard to deduction from the profit or the claim of allow ability of deduction on the available material in assessment records. If there is no new or fresh material before the assessing officer except the opinion of audit party, reopening u/s 147 read with section 148 of the Act is not possible. The facts in the present case are that all the details in regard to write off of capital work-in-progress were available with the Assessing Officer during original assessment proceedings. The fact is that assessee had written off full balance of this capital work-in-progress in profit & loss account for the relevant assessment year 2009-10, out of which, a sum of Rs.1.70 crores was debited as consultancy charges. This fact was available before the Assessing Officer during original assessment proceedings and the Revenue audit party also relied on the same material which was considered by the Assessing Officer. However, on merits, this issue is covered by the decision of Hon'ble Delhi High Court in the case of Carlton Overseas Pvt.Ltd. (supra).

8.3 Hon'ble Supreme Court has propounded the jurisprudence on reopening on the basis of audit objection in the case of Indian and Eastern Newspaper Society Vs. CIT, New Delhi [1979] 119 ITR 996 (SC), wherein it has considered that the opinion of internal audit party of the Department on a point of law cannot be regarded as information within the meaning of Section 147(b) of the Act for the purpose of reopening of assessment. Hon'ble Supreme Court considered the fact that the ITO had, when he made the Page | 52 original assessment, considered the provisions of Section 9 and 10 of the I.T. Act, 1922 and any different view taken by him afterwards on the application of those provisions would amount to a change of opinion on material already considered by him. This decision was cited by the learned Accountant Member as it is favourable to the Revenue but, it is favouring the assessee on the given facts and circumstances of the case. Learned AM also relied on the decision of Hon'ble Supreme Court in the case of CIT Vs. P.V.S. Beedies Pvt.Ltd. [1999] 237 ITR 13 (SC). I noted that Hon'ble Supreme Court has held that internal audit party is entitled to point out a factual error or omission in the assessment. Reopening of a case on the basis of a factual error pointed out by the audit party was permissible in law. Hon'ble Supreme Court, in these facts, held that reopening of assessment was valid. This was not an opinion on a question of law. But, the facts in the present case are totally distinguishable for the reason that the capital work-in-progress claimed by the assessee in the present case is allowable deduction per-se and the Assessing Officer, during original assessment proceedings, after considering all the evidences and documents, applied his mind and formed an opinion and thereafter allowed the claim. Here, the audit party pointed out, which is not a factual error, rather, that was an allowable claim. Hence, in my view, the decision relied upon by the learned Accountant Member in the case of P.V.S. Beedies Pvt.Ltd. (supra) is totally distinguishable from the facts of the present case in hand. According to me, the reopening in the present case is bad in law as held by learned Judicial Member.

8.4 In terms of the above discussion, now I will answer the questions referred, both by the learned Accountant Member as well as learned Judicial Member, as under :-

Question framed by the Answer to the Question framed Ld. Accountant Member by the Ld. Accountant Member (i) Whether, when initiation of In the given facts and proceedings under Section 147 of I.T. circumstances of the case and in Act read with Section 148 of I.T. Act view of the above discussion, the has been done before the expiry of four reopening under Section 147 read years from the end of the relevant with Section 148 of the Act on the Assessment Year, initiation of basis of audit objection is invalid. reassessment proceedings U/s 147 Accordingly, this question is read with section 148 of I.T. Act, can answered in the affirmative. be held to be invalid merely because these proceedings were initiated subsequent to an audit objection. (ii) Whether, when initiation of In the given facts and proceedings under Section 147 of I.T. circumstances of the case and in Act read with Section 148 of I.T. Act view of the above discussion that has been done before the expiry of four there is a change of opinion, the years from the end of the relevant reopening under Section 147 read Assessment Year, the initiation of with Section 148 of the Act on the reassessment proceedings U/s 147 basis of audit objection is invalid. read with section 148 of I.T. Act on the Accordingly, this question is basis of audit objection amounts to answered in the affirmative. change of opinion; and, whether the initiation of the reassessment proceedings U/s 147 read with section 148 of I.T. Act can be held to be invalid merely because these proceedings were initiated subsequent to an audit objection. (iii) Whether, for initiation of In the given facts and proceedings Under Section 147 of I.T. circumstances of the case and in Act read with Section 148 of I.T. Act to view of the above discussion, the be valid, it is necessary for the AO, AO has just relied on the audit after due application of his own mind, objection and not applied his own to form his own belief, that income had mind for reopening, and hence, escaped assessment and whether, if the reopening under Section 147 the AO did not himself legitimately and read with Section 148 of the Act genuinely believe, free from pressure on the basis of audit objection is and undue influence that income had invalid. Accordingly, this escaped assessment; the belief of any question is answered in the other authority that income had affirmative. escaped assessment is immaterial. (iv) Whether, when the information This question needs not be if the AO indeed believed, genuinely answered as it has become and legitimately, free from pressure academic for the reason that the and undue influence, at any stage question of jurisdiction of before initiation of proceedings U/s reopening under Section 147 read 147 of I.T. Act read with section 148 of with Section 148 of the Act has I.T. Act, that income had escaped been held as invalid and assessment; is not available on answered above vide Question records of Income Tax Appellate No.(i) and (ii). Tribunal; the issue regarding validity of initiation of proceedings Under Section 147 of I.T. Act read with Section 148 of I.T. Act, can be remanded to Commissioner of Income Tax (Appeals) to pass fresh order as per law after ascertaining whether the AO indeed believed, genuinely and legitimately, free from pressure and undue influence, at any stage before initiation of proceedings U/s 147 of I.T. Act read with section 148 of I.T. Act, that income had escaped assessment.

Question framed by the Answer to the Question framed Ld. Judicial Member by the Ld. Judicial Member (i) Whether validity of initiation of In the given facts and proceedings under section 147/148 of circumstances of the case and in the Income-tax Act, 1961 (for short view of the above discussion, the ‘the Act’) is to be examined from the reopening under Section 147 read perusal of reasons recorded, with Section 148 of the Act on the objections raised by the assessee, basis of audit objection is invalid. order passed by the Assessing Officer Accordingly, this question is qua objections raised by the assessee, answered in the affirmative. assessment order and impugned order of the Ld. CIT(A) and no extraneous material is to be taken into consideration? (ii)Whether the Tribunal being a fact Since answer to Question No.(i), finding authority is empowered to as above, is in the affirmative, this Page | 55 delegate its function to Ld. CIT(A) by has become academic and needs way of remand to ascertain if the no answer. Assessing Officer has believed genuinely and legitimately free from pressure and undue influence by applying his independent mind that income had escaped assessment particularly when entire material relied upon is available on record? (iii) Whether the Tribunal can Since answer to Question No.(i), remand the issue to the Ld. CIT(A) to as above, is in the affirmative, this ascertain application of independent has become academic and needs no answer. mind by the Assessing Officer from the communication/correspondence between Assessing Officer and Audit Party, which has not been relied upon, in the absence of any allegation/request on the part of Ld. DR before initiating the proceedings under section 147/148 of the Act? 8.5 In view of the above answers to the questions referred and discussions carried out on facts and circumstances of the case, I agree with the view of the learned Judicial Member quashing the reopening under Section 147 read with Section 148 of the Act.

PER: BRAJESH KUMAR SINGH, AM

This appeal was filed by the assessee assailing the order of ld. Commissioner of Income Tax (Appeals), New Delhi (hereinafter referred to as the ‘the CIT(A)’) dated 07.01.2016 for AY 2009-10 upholding the issue of notice u/s 148 of the Act dated 11.03.2013.

Order pronounced in the open Court on Thursday, 07th August, 2025