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Income Tax Appellate Tribunal, ‘A’ BENCH : CHENNAI
Before: SHRI N.R.S. GANESAN & SHRI INTURI RAMA RAO]
आदेश / O R D E R
PER INTURI RAMA RAO, ACCOUNTANT MEMBER
This is an appeal filed by the Revenue directed against the order of the Commissioner of Income Tax (Appeals)-13, Chennai
(‘CIT(A)’ for short) dated 14.12.2018 for the Assessment Year (AY) 2011-12.
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The Revenue raised the following grounds of appeal:
1.The order of the learned CIT(A) is contrary to facts and circumstances of the case.
2.The learned CIT(A) erred in holding that the reopening of the assessment is not legally valid and thereby deleting the disallowance of Rs.60,10,655/- made under Sec.40(a)(ia) of the I.T. Act, 1961.
3.The Ld CIT(A) failed to appreciate that the above issue arises vide RAP Objection. As per Circular No.3/2018 which states as under:
“The above issues should be contested on merits notwithstanding that the tax effect entailed is less than the monetary limit specified in para 3 of circular no.3/20 18 or there is no tax effect.
Para 10 (C) where Revenue Audit Objection in the case has been accepted by the department.”
For these and other grounds that may be adduced at the time of hearing, it is prayed that the order of the learned CIT(A) may be set aside and that of the Assessing Officer restored.
The brief facts of the case are as under:
The Respondent-assessee is an individual carrying on the
business in the name and style of M/s. V.M. Venkatesa Mudaliar &
Sons is engaged in purchase and sale of lungies. The return of income
for the AY 2011-12 was filed on 24.02.2012 disclosing total income of
Rs.1,81,490/-. Against the said return of income, the assessment was
completed by the Income Tax Officer, Ward-3, Vellore, (hereinafter
called “AO”) vide order dated 31.03.2013 passed u/s. 143(3) of the
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Income Tax Act, 1961 (in short ‘the Act’) at total income of Rs.
2,75,190/-. Subsequently, the Assessing Officer formed an opinion
that income got escaped assessment to tax. Accordingly, initiated
reassessment proceedings by issue of notice u/s.148 of the Act on
28.03.2017. The Assessing Officer completed the reassessment
disallowing dying expenditure of Rs.60,10,655/- on the ground that
TDS provisions was not complied with and accordingly disallowed the
same vide assessment order dated 29.12.2017 passed u/s.143(3)
r.w.s. 147 of the Act.
Being aggrieved, an appeal was preferred before the ld.CIT(A)
contesting validity of reopening proceedings on the ground that the
Assessing Officer had no reason to believe that income had escaped
assessment, on mere change of opinion the reassessment proceedings
are initiated and there is no failure on the part of the assessee to
disclose all material facts fully and truly necessary for assessment.
The ld. Commissioner of Income Tax (Appeals) held that there is no
tangible fresh material available enabling the Assessing Officer to
form an opinion that income escaped assessment to tax. There is no
allegation by the Assessing Officer that assessee had failed to disclose
all material facts necessary for the purpose of making assessment and
accordingly held that reassessment proceedings were invalid in law.
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Being aggrieved, the Revenue is in appeal before us in the
present appeal. Ld. Departmental Representative submitted that the
ld. Commissioner of Income Tax (Appeals) ought not have squashed
the reassessment proceedings as the assessee failed to disclose
factum of non compliance with TDS provisions on dyeing expenses.
On the other hand, the ld. Authorised Representative submitted
that reassessment proceedings is based on material already available
on record and there was no fresh tangible material brought on record
suggesting escapement of income to tax. He further submitted that
there is no failure on the part of the assessee to disclose all material
facts necessary for the purpose of assessment and he also placed
reliance on the judgment of Hon’ble Jurisdictional High Court in the
case of CIT vs. Schwing Shetter India P. Ltd, (2015) 122 DTR 289.
We heard the rival submissions and perused the material on
record. The only issue in the present appeal relates to the validity of
reassessment proceedings. Admittedly, the original assessment was
completed u/s.143(3) of the Act. The assessment was sought to be
reopened after expiry of four years from the end of the relevant
assessment year. It is not the case of the Assessing Officer that
assessee had failed to file return of income u/s.139 of the Act or
failed to respond to notice issued u/s.142 of the Act. The fact that in
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the original assessment order, the Assessing Officer made some
additions suggests that assessee had filed all requisite details required
to complete the assessment. For the purpose of assumption of
jurisdiction u/s.147 of the Act, the Assessing Officer should have
reasons to believe that income escaped assessment based on some
tangible new materials. From the perusal of the assessment order, it
is clear that the Assessing Officer had not made reference to any
tangible material nor which has come to his notice after completion of
original assessment which enable the Assessing Officer to form an
opinion that income escaped assessment. Therefore, it can be safely
concluded that reassessment proceedings was initiated based on
materials already available on record. It is a case of mere change of
opinion on the same set of information/material. The other requisite
condition to be satisfied in case where the reopening is sought after
expiry of four years from the end of the relevant assessment year is
that there should be failure on the part of the assessee to disclose all
material facts which are necessary for the purpose of assessment. In
the present case, admittedly, there is no allegation by the Assessing
Officer that there is any such failure on the part of the assessee.
Therefore, we are of the considered opinion that Assessing Officer
was not justified in initiating reassessment proceedings. The Hon’ble
Jurisdictional High Court in the case of Schwing Shetter India P. Ltd
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(supra), wherein it was held as follows in the identical facts of the
case.
‘’13. For the purpose of assumption of jurisdiction under Section 147 of the Income Tax Act, the Officer must have reason based on materials that there has been an income escaping assessment, which warranted assumption of jurisdiction under Section 147 of the Income Tax Act. A perusal of the assessment order shows that the Assessing Officer had not mentioned that there are materials for escapement of income. The Assessing Officer also did not record any reason that there was failure on the part of the assessee to disclose fully and truly all material facts necessary for assessment.
We find from the order of the Commissioner of Income Tax (Appeals) and the Tribunal and also on facts as has been culled out from the assessment order in question that there is no element of failure to disclose fully and truly all material facts necessary for assessment.
The reliance placed by the learned Standing Counsel appearing for the Revenue on Explanation (1) to Section 147 of the Income Tax Act cannot be pressed into service by the Department in the instant case, because the details of such claim has been revealed in the Tax Audit Report and apparently, the same has been considered by the Assessing Officer at the time of passing an order under Section 143(3) of the Income Tax Act. Therefore, Explanation (1) does not get attracted to this case. Explanation (2)(c)(i) and (iii) to Section 147 of the Income Tax Act, which is sought to be invoked in the present case, can arise only in a case where the Department is able to establish that there is income escaping assessment and the proviso to Section 147 gets attracted. In this case, we find that the finding of the Commissioner of Income Tax (Appeals) and the Tribunal is that the Proviso to Section 147 of the Income Tax Act did not get attracted and it is a case of mere change of opinion of the Assessing Officer.
Our view is fortified by the decision of the Full Bench of the Delhi High Court in the case of Commissioner of Income Tax V. Kelvinator of India Ltd. reported in [2002] 256 ITR 1 (Del), wherein, the Delhi High Court held as follows:
We also cannot accept the submission of Mr. Jolly to the effect that only because in the assessment order, detailed reasons have not been recorded an analysis of the materials on the record by itself may justify the Assessing Officer to initiate a proceeding under section 147 of the Act. The said submission
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is fallacious. An order of assessment can be passed either in terms of sub-section (1) of section 143 or sub-section (3) of section 143. When a regular order of assessment is passed in terms of the said sub-section (3) of section 143 a presumption can be raised that such an order has been passed on application of mind. It is well known that a presumption can also be raised to the effect that in terms of clause (e) of section 114 of the Indian Evidence Act judicial and official acts have been regularly performed. If it be held that an order which has been passed purportedly without application of mind would itself confer jurisdiction upon the Assessing Officer to reopen the proceeding with out anything further, the same would amount to giving a premium to an authority exercising quasi-judicial function to take benefit of its own wrong.�
The above said decision of the Full Bench of the Delhi High Court was upheld by the Supreme Court in the decision reported in [2010] 320 ITR 561 (SC) COMMISSIONER OF INCOME-TAX v. (1) KELVINATOR OF INDIA LTD., wherein the Supreme Court held that the concept of "change of opinion" on the part of the Assessing Officer to reopen the assessment did not stand obliterated after the substitution of Section 147 of the Income Tax Act. The Supreme Court also held that the Assessing Officer has power to reopen the assessment, provided there is "tangible material" to come to a conclusion that there was an escapement of income from assessment. For better appreciation, the relevant portion of the said decision reads as follows:
�6. On going through the changes, quoted above, made to section 147 of the Act, we find that, prior to the Direct Tax Laws (Amendment) Act, 1987, reopening could be done under the 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 1st April, 1989), they are given a go-by and only one condition has remained, viz., that where the Assessing Officer has reason to believe that income has escaped assessment, confers jurisdiction to reopen the assessment. Therefore, post- 1st April, 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 reopen 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 reassess. The Assessing Officer has no power to review ; he has the power to reassess. But reassessment has to be based
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on fulfilment of certain preconditions and if the concept of " change of opinion" is removed, as contended on behalf of the Department, then, in the garb of reopening the assessment, review would take place. One must treat the concept of " change of opinion" as an in-built test to check abuse of power by the Assessing Officer. Hence, after 1st April, 1989, the 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 herein above. 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 reintroduced 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 October 31, 1989 ([1990] 182 ITR (St.) 1,29), 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 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)
Similar view has been taken by this Court in the decision reported in [2009] 309 ITR 110 (Mad) COMMISSIONER OF INCOME-TAX v. CHOLAMANDALAM INVESTMENT AND FINANCE CO. LTD. , wherein it was held as follows:
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In those circumstances, it could not be regarded that the assessee had failed to disclose fully and truly all material facts relevant for the assessment. As the facts revealed that the Assessing Officer who made the original assessment order has called for all the details regarding the case where 100 per cent. depreciation were claimed and the assessee had furnished the invoices for purchase of assets on which 100 per cent. depreciation were claimed, there was no failure on the part of the assessee and if at all there was any failure, according to the Commissioner of Income-tax (Appeals), it was on the part of the Assessing Officer, who made the original assessment without going behind the nature of the transactions accepting the details furnished by the assessee. The Tribunal also extracted that portion of the order and found on the fact that there was no fault on the part of the assessee so as to enable the Department to reopen the assessment as the proviso to section 147 of the Income-tax Act would squarely apply to the case of the assessee. We find no infirmity in the order passed by the Tribunal. Hence, the appeal is dismissed.�
In an identical circumstance, a learned single Judge of this Court had considered the issue in the decision reported in [2000] 241 ITR 672 (Mad) FENNER (INDIA) LTD. v. DEPUTY COMMISSIONER OF INCOME-TAX, wherein, it was observed as follows: � The pre-condition for the exercise of the power under section 147 in cases where power is exercised within a period of four years from the end of the relevant assessment year is the belief reasonably entertained by the Assessing Officer that any income chargeable to tax has escaped assessment for that assessment year. However,when the power is invoked after the expiry of the period of four years from the end of the assessment year, a further pre-condition for such exercise is imposed by the proviso namely, that there has been a failure on the part of the assessee to make a return under section 139 or in response to a notice issued under section 142 or section 148 or failure on the part of the assessee to disclose fully and truly all material facts necessary for his assessment for that assessment year. Unless, the condition in the proviso is satisfied, the Assessing Officer does not acquire jurisdiction to initiate any proceeding under section 147 of the Act after the expiry of four years from the end of the assessment year. Thus, in cases where the initiation of the proceedings is beyond the period of four years from the end of the assessment year, the Assessing Officer must necessarily record not only his reasonable belief that income has escaped assessment but also the default or failure committed by the assessee. Failure to do so would vitiate the notice and the
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entire proceedings. The relevant words in the proviso are, �. . . . unless any income chargeable to tax has escaped assessment for such assessment year by reason of the failure on the part of the assessee ... . .� Mere escape of income is insufficient to justify the initiation of action after the expiry of four years from the end of the assessment year. Such escapement must be by reason of the failure on the part of the assessee either to file a return referred to in the proviso or to truly and fully disclose the material facts necessary for the assessment.
Whenever a notice is issued by the Assessing Officer beyond a period of four years from the end of the relevant assessment year, such notice being issued without recording the reasons for his belief that income escaped assessment, it cannot be presumed in law that there is also a failure on the part of the assessee to file the returns referred to in the proviso or a failure to fully and truly disclose the material facts. The reasons referred to in the main paragraph of section 147 would, in cases where the proviso is attracted, include reasons referred to in the proviso and it is necessary for the Assessing Officer to record that any one or all the circumstances referred to in the proviso existed before the issue of notice under section 147.
After an assessment has been made, in the normal circumstances, there would be no reason for anyone to doubt that the assessment has been made on the basis of all relevant facts. If the Assessing Officer chooses to entertain the belief that the assessment has been made in the background of the assessee�s failure to disclose truly and fully all material facts, it is necessary for him to record that fact, and in the absence of a record to that effect, it cannot be held that a notice issued without recording such a fact is capable of being regarded as a valid notice. As to whether the material facts disclosed by the assessee are full and true is always a question of fact and unless the facts disclosed had been examined in relation to the extent of failure if any on the part of the assessee, it is not possible to form the opinion that there had been a failure on the assessee�s part to truly and fully disclose the material facts. A notice issued without a record of the Assessing Officer�s reasonable belief that there was such failure on the part of the assessee would be indicative of a failure on the part of the Assessing Officer to apply his mind to material facts, and on that ground also the notice issued would be vitiated.
The reasons actually recorded and as set out by the officer in the counter affidavit are such that even after close scrutiny they do not establish even prima facie a failure on the part of
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the assessee to fully and truly disclose the material facts for the assessment.
.........
The duty of an assessee is limited to fully and truly disclosing all the material facts. The assessee is not required thereafter to prepare a draft assessment order. If the details placed by the assessee before the Assessing Officer were in conformity with the requirements of all applicable laws and known accounting principles, and material details had been exhibited before the Assessing Officer, it is for the Assessing Officer to reach such conclusions as he considered was warranted from such data and any failure on his part to do so cannot be regarded as the assessee�s failure to furnish the material facts truly and fully. Any lack of comprehension on the part of the Assessing Officer in understanding the details placed before him cannot confer a justification for reopening the assessment, long after the period of four years had expired. On the facts of this case, it is clear that the escapement of income, if any, on this account is not on account of any failure on the assessee�s part to disclose the material facts fully and truly. The notice issued by the Assessing Officer in exercise of his power under section 147, therefore, cannot be sustained.�
In the case of ICICI Securities Ltd. V. Assistant Commissioner of Income Tax 3(2), Mumbai, the Bombay High Court vide order dated 22.08.2006 in W.P.No.1919 of 2006, while dealing with the issue on the reopening of assessment, held as follows:
"7. In the facts of the present case, there is nothing new which has come to the notice of the revenue. The accounts had been furnished by the Petitioner when called upon. Thereafter the assessment was completed under section 143(3) of the Income Tax Act. Now, on a mere relook, the officer has come to the conclusion that the income has escaped assessment and he is of course justified in his analysis. In our view, this is not something which is permissible under the proviso to section 147 of the Income Tax Act which speaks about a failure on the part of the assessee to make a proper return. In the present case, no such case is made out on the record.
In the circumstances, we allow this petition in terms of prayer (a) and quash and set aside the notice dated 27th March 2006 directing reopening of the assessment for the year 1999-2000."
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The above-said view of the Bombay High Court was affirmed by the Supreme Court in Civil Appeal No.5960 of 2012. 22. In the light of the above, we hold that when the Assessing Officer had failed to record anywhere his satisfaction or belief that the income chargeable to tax had escaped assessment on account of the failure of the assessee to disclose truly and fully all material facts necessary for assessment, the notice issued under Section 147 of the Income Tax Act beyond the period of four years was wholly without jurisdiction and cannot be sustained. 23. Hence, we have no hesitation in holding that reopening is bad. Accordingly, we uphold the findings of the Tribunal that it is a case of mere change of opinion on the same material already available on record, which has been submitted by the assessee in Annexure 1A of the Tax Audit Report at Point No.12(b) of the return of income’.
In the light of the above facts and legal positions, we do not find any
reason to interfere with the order of the ld. Commissioner of Income
Tax (Appeals). The appeal filed by the Revenue stands dismissed.
In the result, the appeal filed by the Revenue stands dismissed.
Order pronounced on 9th day of January, 2020, at Chennai.
Sd/- Sd/- (एन.आर.एस. गणेशन) (इंटूर� रामा राव) (N.R.S. GANESAN) (INTURI RAMA RAO) �या�यक सद�य/JUDICIAL MEMBER लेखा सद�य/ACCOUNTANT MEMBER
चे�नई/Chennai �दनांक/Dated:9th January, 2020 KV आदेश क� ��त�ल�प अ�े�षत/Copy to: 1. अपीलाथ�/Appellant 3. आयकर आयु�त (अपील)/CIT(A) 5. �वभागीय ��त�न�ध/DR 2. ��यथ�/Respondent 4. आयकर आयु�त/CIT 6. गाड� फाईल/GF