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Facts
The assessee's appeals concern reassessment proceedings initiated beyond the four-year period after the original assessment under Section 143(3). The Revenue's basis for reassessment was information about accommodation entries received from a third party, leading to reasons to believe that income had escaped assessment.
Held
The Tribunal held that the reassessment proceedings were initiated beyond the four-year period without fulfilling the conditions of the proviso to Section 147, specifically the requirement for an allegation of failure to disclose material facts. The reasons provided to the assessee were different from the internal reasons, and the reassessment was considered a "change of opinion," rendering the proceedings void.
Key Issues
Whether reassessment proceedings initiated after four years are valid when the reasons provided to the assessee do not allege failure to disclose material facts, and whether such proceedings constitute a "change of opinion."
Sections Cited
147, 148, 143(3), 153A(1)(b), 139, 142(1), 14A, 37
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Income Tax Appellate Tribunal, DELHI BENCH: ‘A’: NEW DELHI
Before: SHRI VIKAS AWASTHY
ORDER
PER AMITABH SHUKLA, AM
The above captioned appeals is directed against the order of the CIT(A), Delhi arising out of the order passed by the Assessing Officer for the A.Ys.2010-11, 2011- 2011-12 respectively.
All the three appeals of the assessee are of the same group and hence for the purposes of convenience were heard together and are adjudicated by this common order. We take up assessee appeal for vide 7428/Del/2019 first. Both the above appeals are for assessment year 2010-11 & 2011-12. It has been stated that the facts for both the years are identical.
Accordingly, the decision in 2010-11 shall apply mutatis mutandis in for assessment year 2011-12.
The Ld. Council for the assessee has contested the order of Ld. First Appellate authority both on legal grounds as well as qua merits of the addition. As the legal grounds strike at the very foundation of the assessment proceedings, we take up the legal grounds of the appeal of the assessee first. It is the case of the assessee that the action of Ld. AO in computing income for A.Y. 2010-11 vide u/s 147 r.w.s 143(3) order dated 06.12.2017 of the act is legally invalid as the same is resting upon notice u/s 148 dated 30.03.2017. The Ld. Council has argued that the impugned notice is hit by the mischief of first provision to section 147 and hence is an invalid notice. Consequently, the assessment order would also become bad in the eyes of law.
It is the case of the assessee that the reopening constitutes an action based upon change of opinion and which is not permissible by law. It has been contended that there was no failure on the part of the appellant to disclose fully and truly any material record or information and that therefore the notice u/s 148 issued to it becomes bad in law. For the purposes of this adjudication, we would consider the facts recorded by the Ld. AO in the order u/s 153A (1)(b) r.w.s 143(3) for AY-2010-11 dated 30.03.2015. Original return of income filed on 10.09.2013 declaring income of Rs.12,73,530/-. Order u/s 153A (1)(b) r.w.s 143(3) for AY-2010-11 dated 30.03.2015 was passed accepting returned income. Consequently, some information had come in possession of the revenue leading to formation of reasons to believe that income had escaped assessment. Notice u/s 148 issued on 30.03.2017. Briefly put the reopening was done as the assessee had allegedly indulged in receipts of some accommodation credit entries from a party called M/s. Trust worthy Sales Agencies Pvt. Ltd. The Ld. AO proceeded to reject the arguments taken by the assessee qua legality of the reopening proceedings and re-determine taxable income through his order dated 06.12.2017 determining total income of the assessee at Rs. 54,73,530/- by making an addition of Rs. 42,00,000/-.
The Ld. First Appellate Authority also dismissed the objections qua reassessment proceedings and confirmed the order of the Ld. AO. He held that material gathered by the assessing officer after due diligence will not amount to change of opinion because it would be hard to conclude that assessing officer had expressed opinion on an issue that he was not fully aware of in the first place. It was concluded that availability of reasons to believe is important rather than an established facts of escapement in any case for initiation of action u/s 148. While drawing his conclusions he placed reliance upon approval of higher authorities accorded to Ld. AO.
We have heard the rival submissions in the light of material available on records. The Ld. Counsel for the assessee invited our attention to the following reasons recorded by the revenue.
Reasons recorded for AY-2010-11
The Ld. Counsel for the assessee has argued that notice u/s 148 was issued after the expiry of four year period and therefore provisions of the first proviso to section 147 were applicable in its case in as much as there ought to have been a failure on the part of the assessee to make a return of income u/s 139 or u/s 142(1) or to disclose fully and truly all facts necessary for his assessment. It is the case of the assessee that none of these conditions were not satisfied in its case and therefore the notice u/s 148 and consequent reassessment orders were void ab initio. The Ld. Counsel for the assessee has submitted that for AY-2010-11 orders u/s 143(3) were passed on 30.03.2015. It has been contended that the assessee had disclosed through, submissions, all its transactions, before the Ld. AO in response to his show cause notices and that the Ld. AO has concluded that assessment proceedings with due diligence and after application of mind. The Ld. AO thus had clearly considered the same and applied his mind before arriving at his orders dated 30.03.2015. In the light of the same the initiation of reassessment proceedings on the same set of material evidences falls under the mischief of first proviso to section 147.
In support of its contentions, the Ld. Counsel for the assessee placed his reliance upon catena of judicial pronouncements, inter alia, including the one pronounced by the Hon’ble Delhi High Court in the case of Haryana Acrylic Manufacturing as at 308 ITR 0038. We have noted that Hon’ble High Court in the impugned order , on subject of initiation of proceedings qua 1st proviso to section 148 held as under :
“…… 10. The learned counsel for the petitioner also submitted that the reasons which had been supplied to the petitioner did not contain any allegation that material facts had not been truly and fully disclosed by the assessee at the time of assessment. Reliance was placed on the decision of the Punjab and Haryana High Court in the case of Duli Chand Singhania v. Assistant Commissioner of Income Tax: 269 ITR 192 (P&H). In that decision the High Court of Punjab and Haryana had noted that the sine qua non for assuming jurisdiction under Section 147 of the Act, in a case falling under the proviso thereto, was that there must be an allegation that the escapement of income had occurred by reason of failure on the part of the assessee to disclose fully and truly all material facts necessary for its assessment. When there is no such allegation in the reasons supplied to the petitioner, the initiation of proceedings under the proviso to Section 147 would be without jurisdiction. The learned counsel for the petitioner also placed reliance on Fenner (India) Ltd. v. Deputy Commissioner of Income- tax: 241 ITR 672; Bhor Industries Ltd. v. Assistant Commissioner of Income Tax and Ors:. 267 ITR 16; Commissioner of Income-tax v. Indian Sugar and Gen. Ind. Ex.: 303 ITR 0155 and lastly on a recent decision of this Court in the case of Wel Intertrade Private Limited v. ITO: WP(C) 7722/2007 decided on 11.08.2008.
11. It was next contended on behalf of the petitioner that even in the impugned order it is not mentioned that the petitioner had taken an accommodation entry. All that had been stated was that as per the statement of Sh. Sanjay Rastogi it had come to the notice of the Department that several companies including Hallmark Healthcare Limited had taken accommodation entries.
12. Lastly, it was contended that in the counter-affidavit filed by the respondents the reasons which had been indicated for initiation of proceedings under Section 147 were entirely different to the reasons which had been supplied to the petitioner. The attention of this Court was drawn to paragraph 5 (d) of the counter-affidavit wherein it is stated that the true copy of the reasons recorded by the Assessing Officer and the approval granted by the Commissioner of Income Tax is enclosed as Annexure-A. Annexure-A purports to be a form for recording the reasons for initiating proceedings under Section 148 and for obtaining approval of the Commissioner of Income Tax. Serial No. 11 of the form pertains to "reasons for the belief that income has escaped assessment". Under this heading the following is recorded:- "11. Reasons for Original assessment in this case the belief that was completed on 07.03.2001 u/s. income has 143 (3). There was failure on the escaped part of the assessee to disclose assessment. fully and truly all material facts relating to accommodation entries raised from the one of the companies of Sh. Sanjay Rastogi to the extent of Rs 5 lacs. Therefore, I have reasons to believe that income to the extent of Rs 5 lacs has escaped assessment.
(SATPAL SINGH) Asstt. Commissioner of Income Tax Central Circle-18, New Delhi"
It is apparent by comparing these purported reasons with the reasons extracted earlier and which had been supplied to the petitioner that the two are different. While in the reasons supplied to the petitioner there is no mention of the allegation that there was a failure on the part of the assessee to disclose fully and truly all material facts, in the reasons shown in the said form in Annexure-A to the counter- affidavit, there is a specific allegation that there was failure on the part of the assessee to disclose fully and truly all material facts relating to accommodation entries raised from one of the companies of Sh. Sanjay Rastogi to the extent of Rs 5,00,000/-. In this context, the learned counsel for the petitioner submitted that the entire proceedings are vitiated inasmuch as the reasons which were supplied to the petitioner were different from what, according to the respondents, were the "true" reasons. Therefore, what was supplied to the petitioner cannot be regarded as the reasons and the entire process of filing of objections to those purported reasons and the impugned order dated 02.03.2005 would be in respect of something which, even as per the respondents, were not the true reasons. Consequently, the entire proceedings leading up to the passing of the impugned order dated 02.03.2005 have to be set aside.
13. Mrs Bansal, appearing on behalf of the respondents, supported the issuance of the notice under section 148 as well as the speaking order dated 02.03.2005 disposing of the petitioner‟s objections. She submitted that the decision of the Supreme Court in the case of Phool Chand Bajrang Lal v. ITO: 203 ITR 456 squarely applied to the present case. Mrs Bansal contended that in this decision the Supreme Court made it clear that the observations in the Burlop case (supra) were not of universal application but were limited to the fact situation in that case. In the Burlop case (supra), the Supreme Court had observed as under:- "The assessee had disclosed his books of account and evidence from which material facts could be discovered : it was under no obligation to inform the Income-tax Officer about the possible inferences which may be raised against him. It was for the Income-tax officer to raise such an inference and if he did not do so the income which has escaped assessment cannot be brought to tax under section 34(1)(a)." The Supreme Court noted that in the Burlop case (supra), apart from the Income- tax Officer holding, during the assessment proceedings of the same assessee for a subsequent year, that the alleged agreement between the assessee and one Ratiram was bogus, there was no other information or material from any other external source which came to the notice of the Income-tax Officer after the assessment proceedings, which could enable the Income-tax Officer to form a reasonable belief that the income of the assessee had escaped assessment in the earlier year. And that, as a matter of fact, after the conclusion of the original assessment proceedings, there was no fresh material at all available with the Income-tax Officer which could have enabled the Income-tax Officer to entertain any reason to believe that the income of the assessee had escaped assessment for the relevant assessment year. In Phool Chand (supra) it was further observed in the context of the Burlop decision (supra) that an assessment order for the subsequent year could not by itself lead to any inference, much less to the formation of a reasonable belief that income chargeable to tax had escaped assessment in the previous year, on account of the failure on the part of the assessee to make a true and full disclosure of the primary facts during the proceedings of the concluded assessment. In this background, the Supreme Court observed:- "The judgment in Burlop Dealers' case cannot be understood as laying down any such proposition that even where the Income-tax Officer gets some fresh information which was not available at the time of the original assessment, subsequent to the conclusion of the original assessment proceedings, which enables him to form a reasonable belief that the income of the assessee had escaped assessment because of the omission or failure of the assessee to disclose true and full facts during the assessment proceedings, he cannot reopen the assessment. The observations in Burlop's case, noticed above, were made in the peculiar fact-situation of that case and cannot be construed to be of universal application irrespective of the facts and circumstances of the particular case." Mrs Bansal placed heavy reliance on the above observations as also on the following:-
"Acquiring fresh information, specific in nature and reliable in character, relating to the concluded assessment which goes to expose the falsity of the statement made by the assessee at the time of the original assessment is different from drawing a fresh inference from the same facts and material which were available with the Income-tax Officer at the time of the original assessment proceedings. The two situations are distinct and different. Thus, where the transaction itself, on the basis of subsequent information, is found to be a bogus transaction, the mere disclosure of that transaction at the time of original assessment proceedings cannot be said to be a disclosure of the "true" and "full" facts in the case and the Income-tax Officer would have the jurisdiction to reopen the concluded assessment in such a case. It is correct that the assessing authority could have deferred the completion of the original assessment proceedings for further enquiry and investigation into the genuineness of the loan transaction but, in our opinion, his failure to do so and complete the original assessment proceedings would not take away his jurisdiction to act under section 147 of the Act, on receipt of the information subsequently. The subsequent information on the basis of which the Income-tax Officer acquired reasons to believe that income chargeable to tax had escaped assessment on account of the omission of the assessee to make a full and true disclosure of the primary facts was relevant, reliable and specific. It was not at all vague or non-specific." xxxxx xxxxx xxxxx xxxxx xxxxx "From a combined review of the judgments of this court, it follows that an Income-tax Officer acquires jurisdiction to reopen an assessment under section 147(a) read with section 148 of the Income-tax Act, 1961, only if on the basis of specific, reliable and relevant information coming to his possession subsequently, he has reasons, which he must record, to believe that, by reason of omission or failure on the part of the assessee to make a true and full disclosure of all material facts necessary for his assessment during the concluded assessment proceedings, any part of his income, profits or gains chargeable to income-tax has escaped assessment. He may start re-assessment proceedings either because some fresh facts had come to light which were not previously disclosed or some information with regard to the facts previously disclosed comes into his possession which tends to expose the untruthfulness of those facts. In such situations, it is not a case of mere change of opinion or the drawing of a different inference from the same facts as were earlier available but acting on fresh information. Since the belief is that of the Income-tax Officer, the sufficiency of reasons for forming the belief is not for the court to judge but it is open to an assessee to establish that there in fact existed no belief or that the belief was not at all a bona fide one or was based on vague, irrelevant and non-specific information. To that limited extent, the court may look into the conclusion arrived at by the Income-tax Officer and examine whether there was any material available on the record from which the requisite belief could be formed by the Income-tax Officer and further whether that material had any rational connection or a live link for the formation of the requisite belief. It would be immaterial whether the Income-tax Officer, at the time of making the original assessment, could or could not have found by further enquiry or investigation, whether the transaction was genuine or not if, on the basis of subsequent information, the Income-tax Officer arrives at a conclusion, after satisfying the twin conditions prescribed in section 147(a) of the Act, that the assessee had not made a full and true disclosure of the material facts at the time of original assessment and, therefore, income chargeable to tax had escaped assessment."
At this juncture, it should be emphasized that the Burlop case (supra) related to the provisions of section 34(1)(a) of the Income Tax Act, 1922 which were similar to the provisions of section 147(a) of the said Act, prior to the amendment of 1989. The decision in Phool Chand (supra) was in the context of section 147(a)1 of the said act as it stood prior to the amendment of 1989. However, in the present case which relates to assessment year 1998-99, the provisions of section 147 after the amendment in 1989 would apply. The provisions of section 147 (so much as are relevant) as applicable to the present case are 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 re-compute 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): Section 147 as it stood then was as follows:- "147. Income escaping assessment.-- If-- (a) 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 (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). Explanation 1.--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 income chargeable to tax has been under-assessed; or (b) where such income has been assessed at too low a rate; or (c) where such income has been made the subject of excessive relief under this Act or under the Indian Income-tax Act, 1922 (11 of 1922), or (d) where excessive loss or depreciation allowance has been computed." 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. It is evident that the provisions of section 147, pre and post the 1989 amendment are different. Whether anything turns upon this difference, is discussed later in this judgment.
15. It was further contended on behalf of the respondents that though the assessee had disclosed the factum of the share application money of Rs 5,00,000/- received from Hallmark Healthcare Ltd, the same was not "truly" declared and, therefore, the Assessing Officer had validly invoked the provisions of section 147 and had correctly issued the notice under section 148 of the said Act. Explanation 2.--Production before the Income-tax Officer of account books or other evidence 16. Mrs Bansal also submitted that this was not a case of mere change of opinion. She submitted that the expression "change of opinion" pre-supposes an opinion already formed by the Assessing Officer at the time of the assessment proceedings. She contended that the facts regarding the accommodation entries were not within the knowledge of the Assessing Officer at the time of the original assessment proceedings. The information was received by him only after completing the assessment under section 143(3) of the said Act. Therefore, the factum of the share application money was not even considered by the Assessing Officer from this standpoint. It was submitted that there is nothing in the original assessment order to show that the Assessing Officer had applied his mind to the said share application money received from Hallmark Healthcare Ltd and, therefore, the question of change of opinion did not arise.
17. Let us now examine the provisions of section 147 as applicable to the present case. It has been pointed out above that the present case, being a case of re- opening of an assessment after four years (but before six years) from the end of the assessment year in question, would be governed by the the proviso to section from which material evidence could with due diligence have been discovered by the Income- tax Officer will not necessarily amount to disclosure within the meaning of this section. 147. Before we examine the proviso, it would be instructive to examine the scope and function of a proviso. In CIT v. Indo- Mercantile Bank Ltd: 1959 Supp (2) SCR 256, the Supreme Court held:- "The proper function of a proviso is that it qualifies the generality of the main enactment by providing an exception and taking out as it were, from the main enactment, a portion which, but for the proviso would fall within the main enactment. Ordinarily it is foreign to the proper function of a proviso to read it as providing something by way of an addendum or dealing with a subject which is foreign to the main enactment. "It is a fundamental rule of construction that a proviso must be considered with relation to the principal matter to which it stands as a proviso." Therefore it is to be construed harmoniously with the main enactment. (Per Das, C.J.) in Abdul Jabar Butt v. State of Jammu & Kashmir [(1957) SCR 51, 59]. Bhagwati, J., in Ram Narain Sons Ltd. v. Assistant Commissioner of Sales Tax [(1955) 2 SCR 483, 493] said: "It is a cardinal rule of interpretation that a proviso to a particular provision of a statute only embraces the field which is covered by the main provision. It carves out an exception to the main provision to which it has been enacted as a proviso and to no other." 11. Lord Macmillan in Madras & Southern Maharatta Railway Co. v. Bezwada Municipality [(1944) LR 71 IA 113, 122] laid down the sphere of a proviso as follows: "The proper function of a proviso is to except and deal with a case which would otherwise fall within the general language of the main enactment, and its effect is confined to that case. Where, as in the present case, the language of the main enactment is clear and unambiguous, a proviso can have no repercussion on the interpretation of the main enactment, so as to exclude from it by implication what clearly falls within its express terms." The territory of a proviso therefore is to carve out an exception to the main enactment and exclude something which otherwise would have been within the section. It has to operate in the same field and if the language of the main enactment is clear it cannot be used for the purpose of interpreting the main enactment or to exclude by implication what the enactment clearly says unless the words of the proviso are such that that is its necessary effect. (Vide also Corporation of City of Toronto v. Attorney-General for Canada [(1946) AC 32, 37])" In Ali M.K. v. State of Kerala: (2003) 11 SCC 632, the Supreme Court made similar observations:- "10. The normal function of a proviso is to except something out of the enactment or to qualify something enacted therein which but for the proviso would be within the purview of the enactment. As was stated in Mullins v. Treasurer of Surrey [(1880) 5 QBD 170 : 42 LT 128] (referred to in Shah Bhojraj Kuverji Oil Mills and Ginning Factory v. Subhash Chandra Yograj Sinha [AIR 1961 SC 1596]and Calcutta Tramways Co. Ltd. v. Corpn. of Calcutta [AIR 1965 SC 1728]), when one finds a proviso to a section the natural presumption is that, but for the proviso, the enacting part of the section would have included the subject- matter of the proviso. The proper function of a proviso is to except and to deal with a case which would otherwise fall within the general language of the main enactment and its effect is confined to that case. It is a qualification of the preceding enactment which is expressed in terms too general to be quite accurate. As a general rule, a proviso is added to an enactment to qualify or create an exception to what is in the enactment and ordinarily, a proviso is not interpreted as stating a general rule..."
18. Viewed in this light, the proviso to section 147 of the said Act, carves out an exception from the main provisions of section 147. If a case were to fall within the proviso, whether or not it was covered under the main provisions of section 147 of the said Act would not be material. Once the exception carved out by the proviso came into play, the case would fall outside the ambit of section 147.
Examining the proviso [set out above], we find that no action can be taken under section 147 after the expiry of four years from the end of the relevant assessment year if the following conditions are satisfied: (a) an assessment under sub-section (3) of section 143 or this section has been made for the relevant assessment year; and (b) unless any income chargeable to tax has escaped assessment for such assessment year by reason of the failure on the part of the assessee: (i) 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 (ii) to disclose fully and truly all material facts necessary for his assessment for that assessment year Condition (a) is admittedly satisfied inasmuch as the original assessment was completed under section 143(3) of the said Act.
Condition (b) deals with a special kind of escapement of income chargeable to tax. The escapement must arise out 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. This is clearly not the case here because the petitioner did file the return. Since there was no failure to make the return, the escapement of income cannot be attributed to such failure. This leaves us with the escapement of income chargeable to tax which arises out of the failure on the part of the assessee to disclose fully and truly all material facts necessary for his assessment for that assessment year. If it is also found that the petitioner had disclosed fully and truly all material facts necessary for its assessment, then no action under section 147 could have been taken after the four year period indicated above. So, the key question is whether or not the petitioner had made a full and true disclosure of all material facts ? 20. In the reasons supplied to the petitioner, there is no whisper, what to speak of any allegation, that the petitioner had failed to disclose fully and truly all material facts necessary for assessment and that because of this failure there has been an escapement of income chargeable to tax. Merely having a reason to believe that income had escaped assessment, is not sufficient to reopen assessments beyond the four year period indicated above. The escapement of income from assessment must also be occasioned by the failure on the part of the assessee to disclose material facts, fully and truly. This is a necessary condition for overcoming the bar set up by the proviso to section 147. If this condition is not satisfied, the bar would operate and no action under section 147 could be taken. We have already mentioned above that the reasons supplied to the petitioner does not contain any such allegation. Consequently, one of the conditions precedent for removing the bar against taking action after the said four year period remains unfulfilled. In our recent decision in Wel Intertrade Private Ltd (supra) we had agreed with the view taken by the Punjab & Haryana High Court in the case of Duli Chand Singhania (supra) that, in the absence of an allegation in the reasons recorded that the escapement of income had occurred by reason of failure on the part of the assessee to disclose fully and truly all material facts necessary for his assessment, any action taken by the Assessing officer under section 147 beyond the four year period would be wholly without jurisdiction. Reiterating our view-point, we hold that the notice dated 29.03.2004 under section 148 based on the recorded reasons as supplied to the petitioner as well as the consequent order dated 02.03.2005 are without jurisdiction as no action under section 147 could be taken beyond the four year period in the circumstances narrated above….”
The Ld. Counsel had thus contended that reassessment of any proceedings on the basis of change of opinion is not permissible in law. It has been submitted that as per extant statutory provisions covering the subject, reassessment u/s 148 is only permissible if either some new facts have come to the notice of the department post conclusions of original proceedings or the assessee is found guilty of concealing true particulars of its facts before the AO during the original assessment proceedings. The Ld. Counsel has argued that in its case no such circumstances exists. During the course of original assessment proceedings each and every information covering the transactions, was provided to the Ld. AO and that therefore there cannot be any case for reopening u/s 148.
At this stage we deem it necessary to examine the statutory provisions of Income escaping assessment postulated u/s 147 of the act reproduced herein below.
…..147. Income escaping assessment.—If the 2[Assessing Officer]3[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): 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….
The central theme thus emanating from above mentioned statutory provisions as well as the judicial pronouncements, is that no action u/s 148 can be taken on the basis of change of opinion. Income Tax Authorities cannot revisit their decisions merely by having a change of mind. The latter is permissible only in existence of certain facts and circumstances and cannot be an arbitrary or ad-hoc decision. Hon’ble Apex Court in its decision of Kelvinator of India postulated that there is a conceptual difference between “power to review” and “power to reassess”. Whereas Direct tax statute empowers an assessing authority the power to reassess, it nowhere provides any power to review. In the case referred above it has been laid down that 148 proceedings after four years would be only justified if some new material comes to the fore or else there was a definite failure on part of the assessee to have disclosed true material facts during the course of original assessment. Thus, once an assessing officer has applied his mind to certain material, during an assessment proceedings, and drawn his conclusions, it is not permissible to reappreciate the same material and take a different decision by taking recourse to 148 proceedings.
The facts of the present case, when viewed in the light of above mentioned judicial pronouncements, clearly indicate that the case of revenue qua reopening u/s 148 rests upon a very weak rather negligible foundation. During the original assessment proceedings u/s 153A (1) read with section 143 (3) , the issues qua which reassessment proceedings were initiated, were examined and considered by the Ld. AO. Thus it is crystal clear that full application of mind was made to the facts of the case surrounding determination of taxable income of the assessee. In view of the elaborate enquiries and discussions made in the assessment order in respect of impugned transactions the AO is precluded from changing his opinion subsequently and reopening the case u/s 148.
The reasons recorded by the Ld. AO and as approved by his supervisory authorities, reproduced herein above do not in any way demonstrate that there was any failure on part of the assessee to have not fully and truly disclosed true facts of the case. The action of the AO in initiating proceedings u/s 148 is thus hit by the concept of “change of opinion” or a case of “review of the assessment order” and the same cannot be approved. We have also noted that, from the reasons recorded in the case extracted herein above, there is not even a whisper that the assessee is in any way guilty of suppressing any disclosure of any material. It is a certain position of law that reasons recorded in a case must be viewed on a stand alone basis and that nothing can be added or subtracted therefrom. Thus, no case of any valid escapement of income falling within the tenets of section 147 rws 148 is made out against the assessee. As the reasons u/s 147 / 148 themselves are not supported by valid legal authority, consequent reassessment order arising there from would be a case of nullity and an order being void ab initio. Accordingly, we are of the view that the proceedings u/s 148 are bad in law and deserves to be quashed. We therefore quash the proceedings u/s 148 as being bad in law and allow the grounds of appeal raised by the assessee. Consequently the assessment orders for AY-2010-11 passed on 06.12.2017 is quashed and set aside. The order of the Ld. CIT(A) for the impugned assessment year also stands set aside.
14. As we have decided legal grounds in favour the assessee, ground of appeals concerning merits of addition have become academic in nature.
As facts of the case for A.Y. 2011-12 in are identical decision taken here in above shall apply mutatis mutendis. Consequently, all the grounds of appeal raised by the assessee are allowed.
The first issue raised through grounds of appeal No.1 and 2 in the impugned appeal is regarding the action of the Ld. AO is making an addition of Rs.24,36,065/- under Section 14A of the Act. The Ld. Counsel submitted that the AO has considered the impugned additions para -3 of his order dated 29.09.2016. It is the case of the assessee that by invoking the referred provisions of Rule 8D the satisfaction of the Ld. AO, mandatorily required, is absent in the order. It has accordingly being argued that in the absence of Ld. AO’s satisfaction, no addition was required to be made. In support of his arguments the Ld. Counsel has invited reference to decision of Hon’ble Delhi High Court in the case of TaiKisha Engineering 370 ITR 338 Delhi and of this Tribunal in the case of HT Media Ltd. dated 23.08.2017. The Ld. DR placed reliance upon the order of lower authorities.
We have heard the rival submissions in the light of material available on records. We have noted that this Tribunalin in the case of M/S PARAS BUILDTECH (INDIA) for A.Y.2011-12 has held as under :-
“We have heard both the parties and perused the relevant records, especially the impugned order. With regard to ground no. 2 relating to deletion of addition of Rs. 63,78,347/- made by the AO u/s. 14A r.w. rule 8D is concerned, we find that AO has proceeded to make the impugned disallowance without confronting proposed disallowance to the assessee at the time of assessment proceedings and therefore, has completely ignored the factual matrix of the case. The interest amounting to Rs 60 lakhs debited in P&L a/c has been paid to M/s Pink and Blue P Ltd in pursuance of a written agreement wherein the assessee was in agreement is bound to deliver the constructed area as per the stipulated time and because of non-fulfillment on the part of the assessee, the requisite interest expense had to be incurred. This clearly shows that the impugned interest expense has nothing to do with the investment made into the un-quoted shares of its subsidiary company by the assessee. Therefore, there is no case for the consequent disallowance made, hence, the same was rightly deleted by the Ld. CIT(A) in his impugned order. We further find that there is no exempt income credited in the P&L a/c during the year under consideration and therefore, no disallowance u/s 14A of the Act was warranted. It is also seen that the assessee company has shareholders funds as on 31.03.2011 to the tune of Rs. 46.81 crores whereas investment in the shares of subsidiary companies is only 15.07 crores. As such the shareholders funds are substantially in excess of amount invested and the logical inference from the same could only be that the impugned investments have been made out of self generated funds and not interest bearing resources. The judgement. of the Hon'ble Delhi High Court in the case of CIT vs Taikisha Engineering India Ltd 2015 37.0 ITR 338 (Delhi) is directly applicable to the facts of the case. We also agree with the claim of the assessee that the impugned investments in the shares of the subsidiary companies is not meant to generate dividend income but are strategic in nature to obtain long term advantage in terms of control of the business. Our view is fortified by the judgment of Hon'ble Delhi High Court in the case of CIT vs Oriental Structural Engineers Pvt Ltd 4245/DEL/2011 and of ITAT, Delhi in the case of ACIT Circle 2(1), New Delhi vs. Bharat Hotel Ltd (IT AT No. 4959/DEL/2012 & No. 5401/DEL/2013, on which the Ld. CIT(A) has also relied. In view of the above detailed analysis of the case, there is no case for disallowance u/s 14A, hence, the same was rightly directed to be deleted by the Ld. CIT(A), which does not need any interference on our part, therefore, we uphold the well reasoned order passed by the Ld. CIT(A) on the issue in dispute and accordingly reject the ground no. 2 raised by the Revenue.”
19. Accordingly, in respectful compliance to the above we are of the considered view that no disallowance under section 14A was permissible in this case. Accordingly, the findings of lower authorities on the issue are set aside and the Ld. AO is directed to delete the addition Rs.24,36,065/-. The grounds of appeal No. 1 and 2 are, therefore, allowed.
The next issue raised by the assessee through grounds of appeal No.3 to 8 are regarding an addition of Rs.4,24,00,584/-u/s. 37 of the Act. The Ld. Counsel invited our attention to para 4 of Ld. AO’s order where the impugned addition has been made. The Ld. Counsel submitted that the Ld. AO has made the addition raising the premise of the same being unvouched as also the lack of commercial expediency in the same. The assessee has filed an exhausted paper book in support of its arguments.Inviting reference to page 12, 20, 21, 3, 4, it has been submitted that the Ld. AO has made addition more than the total expenses claimed by the assessee. It is the case of the assessee that the AO has not brought on record any basis or material in support of his conclusions. Citing reference to page 44, 45, 55 and 56 of his paper book it was stated that requested details were filed before the Ld. AO. The Ld. Counsel for the assessee argued that ad-hoc disallowance made by the Ld. AO is uncalled for when audited books of accounts were accepted and no defect was found therein. The Ld. DR would like to believe on the correctness of the order of lower authorities.
We have heard rival submissions in the light of material available on record. We have noted from the perusal of page 44, 45, 55 and 56 of assessee’s paper book that all requested details were produced before AO alongwith books of accounts. No mistakes have been found by the Ld. AO and hence, the conclusion drawn by him cannot be support. Accordingly, the order of lower authorities is set aside and the Ld. AO is directed to delete the addition Rs.4,24,00,584/- made u/s. 37 of the Act. The grounds of appeal No. 3 to 8 , raised are therefore, allowed. for A.Y. 2014-15 is also allowed.
Order pronounced in the Open Court on 21.03.2025