NRIPENDRA CHANDRA MODAK & CO.,KOLKATA vs. ITO, WARD-45(2), KOLKATA, KOLKATA

The Ld.AR submitted that the assessee raised two grounds of appeal before this Tribunal and Ground No.1 is challenging the validity of re-opening of assessment u/s 147 of the Act. Ground No. 2 is on merits of the case. He submitted that Ground No.1 may be taken up as preliminary issue. Ld. DR agreed for the same. Therefore, we proceed to hear Ground No.1 as preliminary issue.

Heard both parties and perused the material available on record. On perusal of the assessment order, it is noticed that returned income is Rs.7,75,620/- and assessed income is Rs.7,76,730/- u/s 143(1) of the Act. In the P&L A/c, the sale and purchases were as under:-

The AO observed that on an examination of Form 3CD in respect of quantitative details proved at Sl.No.28 are as under:-

According to AO, the assessee has shown gross profit @ 6.21% and, therefore, the sale value of Rs.81,46,46,736/- which is 106.21% of purchases as found in quantitative details. Therefore, the AO held that the assessee shown the less purchases and sales and thereby, the gross profit also less by Rs.453,83,604/- (Rs.77,75,52,550/- - Rs.73,21,68,946/-) were added to the total income of the assessee in the re-assessment proceedings. The CIT(A) while dealing with the issue of validity of re-opening proceedings held that since the assessment was completed u/s 143(1) of the Act and the AO has jurisdiction for re-opening the said assessment as it is not an assessment u/s 143(3) of the Act. Ld.AR submits that there was no new material before the AO to re-open the completed assessment u/s 143(1) of the Act, the AO only changed this opinion. We find force in the arguments of the submissions of the Ld. AR as discussed above in the first para of AO’s order, it is noted that on examination of Form 3CD, the AO alleged the assessee has shown less sales and purchases while adopting rate of closing stock. It is noted that Form 3CD was before the AO during the course of original proceedings as completed under intimation under section 143(1) of the Act and there was no new material as found by the AO to arrive such conclusion that the assessee has shown sales and purchases while adopting rate of closing stock applied to the quantity of purchases and sales. Ld. AR submits that there was no tangible material Page | 2

Hon’ble Supreme Court in the case of Kelvinator India Limited reported in 256 ITR 01 [SC] which held that in the absence of any tangible material, the AO cannot re-open the assessment. The relevant portion of which is reproduce herein below- “After the Amending Act, 1989, Section 147 reads as under: "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)." 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 fulfillment 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 re-open the assessment. Therefore, post-1st April, 1989, power to re-open 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 re- open. 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 re-assess. But reassessment has to be based on fulfillment 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 1st April, 1989, Assessing Officer has power to re-open, provided there is "tangible material" to come to the conclusion that there is (ASSESSMENT YEAR-2009-10) 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 here in below the relevant portion of Circular No.549 dated 31st October, 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 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." For the afore-stated reasons, we see no merit in these civil appeals filed by the Department, hence, dismissed with no order as to costs.”

A reading of afore-mentioned decision, we find that the Hon’ble Supreme Court was pleased to hold that the AO has no power to reopen the assessment proceedings without there being any new material to come to conclusion that there is escapement of income from the assessment which already completed. In the present case as discussed above, the AO did not refer any new tangible material to reopen the assessment, but however, come to a conclusion basing on the examination of Form 3CD which was already there before him in the original assessment, therefore, in our opinion, such conclusion is not in accordance with law. Thus, in view of the principle laid down by the Hon’ble Supreme Court in (ASSESSMENT YEAR-2009-10) the afore-mentioned decision and the discussion made by us in the afore-mentioned paragraphs, we hold that the AO has no jurisdiction to re-open the assessment completed under section 143(1) of the Act in the absence of any new material. The finding of CIT(A) in this respect is not justified. The preliminary issue as decided above in Ground No.1 raised by the assessee is allowed.

Ground No.2 raised on the merits of the case since we have decided Ground No. 1 in favour of the assessee that re-opening is not in accordance with law. Therefore, Ground No.2 becomes academic and requires no adjudication from us. Ground No.2 raised by the assessee is dismissed as infructuous.

In the result, the appeal of the assessee is partly allowed.