THE PRINCIPAL COMMISSIONER O vs. M/S. M.R.NARAYANAN

T.C.A.No.321 of 2021 IN THE HIGH COURT OF JUDICATURE AT MADRAS DATE: 22.06.2021 CORAM: THE HON'BLE MR. JUSTICE M.DURAISWAMY AND THE HON'BLE MRS.JUSTICE R.HEMALATHA T.C.A.No.321 of 2021 The Principal Commissioner of Income Tax, Non-Corporate Circle – 2(1), Chennai – 34. ... Appellant Vs. M.R.Narayanan ... Respondent Appeal preferred under Section 260A of the Income Tax Act, 1961, against the order of the Income Tax Appellate Tribunal, Madras, "A" Bench, dated 17.03.2017 in I.TA.No.2872/Mds/2016 for Assessment Year 2008-09. For Appellant : Mr.Karthik Ranganathan, Senior Standing Counsel For Respondent : Mr.Anand for M/s.PASS Associates Page 1/15 https://www.mhc.tn.gov.in/judis/ T.C.A.No.321 of 2021 JUDGMENT (Judgment was delivered by M.DURAISWAMY, J.) Challenging the order passed in I.T.A.No.2872/Mds/2016 in respect of the Assessment Year 2008-09 on the file of the Income Tax Appellate Tribunal, “A” Bench, Chennai, the Revenue has filed the above appeal. 2.The assessee is an individual, deriving income from salary and rental income. The return of income for the Assessment Year 2008-09 was filed admitting a total income of Rs.59,42,110/-. The return was selected for scrutiny and assessment was completed under Section 143(3) of the Income Tax Act on 20.12.2020. Subsequently, the Assessing Officer found that excess relief was allowed by way of deduction of interest on housing loan and therefore, the assessment was re-opened by issuance of notice under Section 148 of the Act on 08.03.2013. After completing the assessment, the Assessing Officer held that the property at Bombay was self-occupied by the assessee and therefore, the interest to be allowed has to be restricted to Rs.1,50,000/- as against the claim of Page 2/15 https://www.mhc.tn.gov.in/judis/ T.C.A.No.321 of 2021 Rs.8,51,524/-. In respect of the property at Chennai, the Assessing Officer estimated the annual letting value at Rs.1,20,000/- and brought a sum of Rs.84,000/- as income from house property. The Assessing Officer reworked the deduction allowable under Section 10(13A) and restricted the deduction at Rs.30,000/- and accordingly, determined the total income of the assessee at Rs.67,17,630/-. Challenging the order passed by the Assessing Officer, the assessee preferred an appeal before the Commissioner of Income Tax (Appeals) and the Appellate Authority dismissed the appeal. Aggrieved over the same, the assessee preferred an appeal before the Income Tax Appellate Tribunal and the Tribunal allowed the appeal. Challenging the order passed by the Income Tax Appellate Tribunal, the Revenue has filed the above appeal. 3.The Revenue has raised the following substantial questions of law in the appeal: “(i) Whether on the facts and circumstances of the case and in law, the Hon'ble Income Tax Appellate Tribunal was right and justified quashing the re- assessment when the assessment has been re-opened even Page 3/15 https://www.mhc.tn.gov.in/judis/ T.C.A.No.321 of 2021 before the expiry of 4 years from the end of the relevant assessment year? (ii)Whether on the facts and circumstances of the case and in law, the Hon'ble Income Tax Appellate Tribunal was right and justified in holding that Assessing Officer has made any change of opinion? (iii)Whether on the facts and circumstances of the case and in law, the Hon'ble Income Tax Appellate Tribunal was right in following the decision of the Hon'ble Supreme Court in the case of M/s.Kelvinator India Ltd., when no change of opinion could be alleged on a factual situation? (iv)Whether on the facts and circumstances of the case and in law, the Hon'ble Income Tax Appellate Tribunal was right in allowing assessee's claim of deduction u/s 24(b) beyond the monetary ceiling prescribed under that Section? (v)Whether on the facts and circumstances of the case and in law, the Hon'ble Income Tax Appellate Tribunal was right in following the decision of the Hon'ble High Court in the case of Usha International Ltd when the first proviso to Section 147 clearly stipulates that no assessment under Section 147 can be initiated under the circumstances provided therein only after the expiry of four Page 4/15 https://www.mhc.tn.gov.in/judis/ T.C.A.No.321 of 2021 years from the end of the relevant assessment year?” 4.Mr.Karthik Ranganathan, learned senior standing counsel appearing for the appellant-Revenue submitted that the 1st question of law alone is sufficient to be decided in the appeal and further fairly submitted that the 1st question of law has already been decided against the Revenue by the Hon'ble Supreme Court in the judgment reported in [2010] 187 Taxman 312 (SC) [Commissioner of Income-Tax, Delhi Vs. Kelvinator of India Ltd.], wherein the Apex Court held as follows: “... 2.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 1-4-1989, i.e., after substitution of section 147 of the Income-tax Act, 1961 by Direct Tax Laws (Amendment) Act, 1987 ? 3.To answer the above question, we need to note the changes undergone by section 147 of the Income-tax Act, 1961 [ for short, "the Act"] . Prior to Direct Tax Laws (Amendment) Act, 1987 , section 147 reads as under : "147. Income escaping assessment.— If— (a) the Income-tax Officer has reason to believe that, by Page 5/15 https://www.mhc.tn.gov.in/judis/ T.C.A.No.321 of 2021 reason of the omission or failure on the part of an assessee to make a return under section 139 for any assessment year to the Income-tax Officer or to disclose fully and truly all material facts necessary for his assessment for that year, income chargeable to tax has escaped assessment for that year, or (b) notwithstanding that there has been no omission or failure as mentioned in clause (a) on the part of the assessee, the Income-tax Officer has in consequence of information in his possession reason to believe that income chargeable to tax has escaped assessment for any assessment year, he may, subject to the provisions of sections 148 to 153 , assess or reassess such income or recompute the loss or the depreciation allowance, as the case may be, for the assessment year concerned (hereafter in sections 148 to 153 referred to as the relevant assessment year)." [Emphasis supplied] 3.1.After enactment of Direct Tax Laws (Amendment) Act, 1987 , i.e., prior to 1-4-1989, section 147 of the Act, reads as under : "147. Income escaping assessment.—If the Assessing Officer, for reasons to be recorded by him in writing, is of the opinion that any income chargeable to tax has escaped Page 6/15 https://www.mhc.tn.gov.in/judis/ T.C.A.No.321 of 2021 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)." [Emphasis supplied] 3.2.After the Amending Act, 1989 , section 147 reads as under : "147. Income escaping assessment.—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)." [ Emphasis Page 7/15 https://www.mhc.tn.gov.in/judis/ T.C.A.No.321 of 2021 supplied] 4.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 fulfilment of the said conditions alone conferred jurisdiction on the Assessing Officer to make a back assessment, but in section 147 of the Act [with effect from 1-4-1989], 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 1-4-1989 , power to reopen is much wider. However, one needs to give a schematic interpretation to the words "reason to believe" failing which, we are afraid, section 147 would give arbitrary powers to the Assessing Officer to re-open assessments on the basis of "mere change of opinion", which cannot be per se reason to reopen. We must also keep in mind the conceptual difference between power to review and power to re-assess. The Assessing Officer has no power to review; he has the power to reassess. But reassessment has to be based on fulfilment of certain pre-condition and if the concept of "change of opinion" is removed, as contended on behalf of the Department, then, in the garb of re-opening the assessment, Page 8/15 https://www.mhc.tn.gov.in/judis/ T.C.A.No.321 of 2021 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 1-4-1989 , Assessing Officer has power to reopen, 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 31-10-1989, which reads as follows : "7.2 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 Page 9/15 https://www.mhc.tn.gov.in/judis/ T.C.A.No.321 of 2021 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." [Emphasis supplied] 5.For the aforestated reasons, we see no merit in these civil appeals filed by the Department, hence, dismissed with no order as to costs.” Further, the learned senior standing counsel submitted that the issue was also decided by the Hon'ble Division Bench of this Court in the judgment reported in [2020] 118 taxmann.com 99 (Madras) [Commissioner of Income-Tax, Chennai Vs. India Cements Ltd.], wherein the Division Bench held as follows: “... Page 10/15 https://www.mhc.tn.gov.in/judis/ T.C.A.No.321 of 2021 30.Having held so, we need to consider as to whether the reassessment was validly done. The Tribunal held in favour of the assessee stating that the reassessment was bad in law. To decide this issue, we may straightaway refer to the decision in the case of Kelvinator of India Ltd. (supra), wherein the Hon'ble Supreme Court pointed out that post 1- 4-1999, the power to reopen was much wider and that however, one needs to give a schematic interpretation to the words "reason to believe", failing which, Section 147 of the Act would give arbitrary powers to the Assessing Officer to reopen the assessment on the basis of "mere change of opinion", which cannot be, per se, reason to reopen. It was pointed out that there is a conceptual difference between the power to review and power to reassess, that the Assessing Officer has no power to review, that he has the power to reassess and that reassessment has to be based on fulfilment of certain pre-conditions and if the concept "change of opinion" is removed, then in the garb of reopening the assessment, review would take place. It was held that the concept of "change of opinion" should be treated as in-built test to check the abuse of power by the Assessing Officer. Thus, it was held that after 1-4-1999, the Assessing Officer has power to reopen provided there is "tangible material" to come to the conclusion that there is an escapement of Page 11/15 https://www.mhc.tn.gov.in/judis/ T.C.A.No.321 of 2021 income from assessment and reasons must have a live link with the formation of the belief. 31.Bearing the aforementioned legal principles in mind, if we examine the facts of the present case, as rightly pointed out by the Tribunal, all particulars relating to dividends and short term capital gains and other particulars were available with the Assessing Officer during the assessment proceedings, which was concluded on 15-2-1999 under section 143(3) of the Act. Furthermore, the Tribunal, on facts, recorded that the Department did not bring any material fact before it, which was not disclosed in the original return of income. 32.Even in this appeal, no such fact has been brought to our notice nor pleaded in the memorandum of grounds of appeal and presumably that is the reason why the Revenue had raised the substantial questions involving the interpretation of Rule 27 of the Rules and conveniently was not focusing on the issue as to whether the reopening of assessment was on account of change of opinion. A reading of the reassessment order dated 31-3-2004 will clearly reveal that all facts and figures were gathered by the Assessing Officer only from the original return of income filed by the assessee. There was no fresh or tangible material available with the Assessing Officer to reopen the proceedings. Page 12/15 https://www.mhc.tn.gov.in/judis/ T.C.A.No.321 of 2021 Therefore, we have no hesitation to conclude that the reopening of the assessment beyond four years was clearly a case of change of opinion. For all the above reasons, substantial questions of law Nos. 1 to 3 are liable to be answered against the Revenue and consequently, it is held that the reopening of the reassessment is bad in law and is liable to be set aside. 33.Accordingly, the appeal filed by the Revenue is dismissed. The re-assessment order dated 31-3-2004 is set aside. Substantial questions of law Nos. 1 to 3 are answered against the Revenue. As we have answered substantial questions of law Nos.1 to 3 against the revenue, there would be no necessity for us to answer the substantial question of law No. 4 and the said question is left open. No costs.” 5.Mr.Anand, learned counsel appearing for the respondent submitted that in view of the judgments of the Hon'ble Supreme Court and the Division Bench of this Court, the 1st question of law has to be decided against the Revenue and in favour of the assessee. 6.Having regard to the submissions made by the learned counsel Page 13/15 https://www.mhc.tn.gov.in/judis/ T.C.A.No.321 of 2021 on either side, following the ratio laid down by the Hon'ble Supreme Court in the judgment reported in [2010] 187 Taxman 312 (SC) [Commissioner of Income-Tax, Delhi Vs. Kelvinator of India Ltd.] and and the Division Bench of this Court in the judgment reported in [2020] 118 taxmann.com 99 (Madras) [Commissioner of Income-Tax, Chennai Vs. India Cements Ltd.], cited supra, the 1st question of law is decided against the Revenue and in favour of the assessee. The questions of law (ii) to (v) are left open and shall be decided in an appropriate appeal. The Tax Case Appeal is dismissed. No costs.

Index : Yes/No [M.D., J.] [R.H., J.] Internet : Yes 22.06.2021 va

To The Income Tax Appellate Tribunal, Chennai, "A" Bench Page 14/15 https://www.mhc.tn.gov.in/judis/ T.C.A.No.321 of 2021 M.DURAISWAMY, J. and R.HEMALATHA, J. va T.C.A.No.321 of 2021 22.06.2021 Page 15/15 https://www.mhc.tn.gov.in/judis/