M/S CHHAGANLAL AGARWAL,CHAIBASA vs. ITO,WARD-3(4), CHAIBASA

आयकर अपीऱीय अधिकरण, रााँची न्यायपीठ, रााँची IN THE INCOME TAX APPELLATE TRIBUNAL RANCHI BENCH, RANCHI श्री चन्द्र मोहन गगग, न्द्याययक सदस्य एवं श्री एऱ.पी.साहु, ऱेखा सदस्य के समऺ । BEFORE SHRI CHANDRA MOHAN GARG, JM AND SHRI L.P. SAHU, AM आयकर अपीऱ सं./ITA No.319/RAN/2018 (नििाारण वषा / Assessment Year :2010-2011) M/s Chhaganlal Agarwal, Vs. ITO Ward-3(4), Chaibasa Bari Bazar, Chaibasa-833201 स्थायी ऱेखा सं./ जीआइआर सं./ PAN/GIR No. : AAFFC 6053 J (अपीऱाथी /Appellant) (प्रत्यथी / Respondent) .. निर्धाऩिती की ओर से /Assessee by : Shri Devesh Poddar, Advocate राजस्व की ओर से /Revenue by : Shri P.K.Mondal, Addl.CIT(DR)

सुनवाई की तारीख / Date of Hearing : 27/08/2019 घोषणा की तारीख/Date of Pronouncement : 29/08/2019 आदेश / O R D E R Per Bench: This appeal has been filed by the assessee against the order of Commissioner of Income Tax (Appeals), Jamshedpur, dated 18.07.2018 for the assessment year 2010-2011, on the following grounds :- 1. For that initiation of proceeding U/s 147 after four years by misinterpretation of provision of income tax act is unjustified and illegal. Ld. AO initiated proceeding based on provision in existence upto A.Y. 2009-10. Ld. CIT(A) went out of way and acted illegally by confirming action of Ld. AO. 2. For that the partnership deed of the appellant firm clearly provided that the mode of calculating the remuneration as may be revised as per income tax act prevailing during the year. That be so, the provision of income tax act was changed from A.Y. 2010-11 and the remuneration given to the partners was according to the amended provision to which partners of the appellant firm agreed. 3. For that the appellant followed what has been mentioned in the partnership deed, as such, remuneration paid as per amended provision of section 40(b))(v) was applicable, as such,

2 ITA No.319/Ran/2018 disallowance made on the basis of provision applicable upto to A.Y'. 2009-10 is unjustified, illegal and incorrect. 4. For that Ld. A.O. was not justified in charging interest u/s 234A and 234B on the assessed income. Interest should be charged on the returned income following the decision of Hon'ble Jharkhand High Court. 5. For that other grounds in detail will be argued at the time of hearing. 2. Brief facts of the case are that the assessee is a partnership firm and derives income from salary & share trading and filed his return of total income electronically declaring total income of Rs.1,55,710/- on 21.09.2010. The case of the assessee was selected for scrutiny and the Assessing Officer framed the assessment u/s.143(3) of the Act vide order dated 05.05.2013 assessing total income of Rs.2,00,994/-. Thereafter the Assessing Officer after recording the reasons, reopened the case of the assessee u/s.147 of the Act and passed order u/s.143(3)/147 of the Act assessing total income of the assessee at Rs.3,18,810/- and made addition of Rs.1,17,816/-. 3. Feeling aggrieved from the assessment order, the assessee appealed before the CIT(A) and the CIT(A) after considering the submissions of the assessee and findings of the Assessing Officer, dismissed the appeal of the assessee. 4. Further aggrieved from the order of CIT(A), the assessee is in appeal before the Income Tax Appellate Tribunal. 5. Ld. AR before us submitted that earlier the case was examined by the Assessing Officer u/s.143(3) of the Act and all the material were produced before him, on the basis of which the Assessing Officer has reopened the case. Ld. AR further submitted that partnership deed was

3 ITA No.319/Ran/2018 also produced at the time of original assessment. The Assessing Officer has reopened the case without any tangible material. Therefore, it is a clear case of change of opinion on the part of Assessing Officer, which is not tenable in the eyes of law decided by many Hon’ble Courts. Therefore, he prayed for allowing the appeal. 6. On the other hand, ld. DR relied on the orders of lower authorities. 7. After hearing both the sides and perusing the material available on record, we find that the case of the assessee was originally assessed by the Assessing Officer u/s.143(3) of the Act on 05.03.2013 assessing total income at Rs.2,00,994/-. On perusal of the reasons recorded by the Assessing Officer on which basis the addition has been made, it is clear that the assessee had submitted copy of the partnership deed before the Assessing Officer in the original assessment proceedings. The Assessing Officer has reopened the case without any new tangible material. The materials on which basis the Assessing Officer has reopened the case of the assessee, were produced before him during the course of original assessment proceedings. In our opinion, it is a clear case of change of opinion by the Assessing Officer which is not sustainable as per the decision of Hon’ble Delhi High Court in the case of CIT Vs. Kelvinator of India Ltd., 256 ITR 1, which has been affirmed by the Hon’ble Supreme Court reported in [2010] 320 ITR 561(SC), wherein the Hon’ble Supreme Court has observed as under :- “Heard learned counsel on both sides. 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

4 ITA No.319/Ran/2018 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- the Income-tax Officer has reason to believe that, by reason of the omission or failure on the part of an assessee to make a return under section 139 for any assessment year to the Income-tax Officer or to disclose fully and truly all material facts necessary for his assessment for that year, income chargeable to tax has escaped assessment for that year, or 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 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

5 ITA No.319/Ran/2018 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] 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, 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 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

6 ITA No.319/Ran/2018 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. 8. Respectfully following the above decision of Hon’ble Supreme Court, we are of the considered opinion that the AO has reopened the assessment u/s.147 of the Act on the basis of documents which were available before him at the time of original assessment proceeding, which is not sustainable. Accordingly, we set aside the order of CIT(A) and quash the reassessment order passed by the AO. We order accordingly. 9. In the result, appeal of the assessee is allowed. Order pronounced in the open court on 29/08/2019. Sd/- Sd/- (C.M.GARG) (L.P.SAHU) न्यानयक सदस्य / JUDICIAL MEMBER ऱेखा सदस्य / ACCOUNTANT MEMBER रााँची Ranchi; ददनांक Dated 29/08/2019 Prakash Kumar Mishra, Sr.P.S. आदेश की प्रनिलऱपप अग्रेपषि/Copy of the Order forwarded to : अपीऱाथी / The Appellant- . 1. M/s Chhaganlal Agarwal, Bari Bazar, Chaibasa-833201 प्रत्यथी / The Respondent- 2. ITO Ward-3(4), Chaibasa आयकि आयुक्त(अपील) / The CIT(A), 3. आयकर आयुक्त / CIT 4. निभधगीय प्रनतनिनर्, आयकि अपीलीय अनर्किण, रााँची / DR, ITAT, Ranchi 5. गार्ग फाईऱ / Guard file. 6. सत्यापपत प्रयत //True Copy// आदेशािुसार/ BY ORDER, (Senior Private Secretary) ITAT Cuttack Bench, Cuttack Camp at ITAT Ranchi Bench, Ranchi