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Income Tax Appellate Tribunal, DELHI BENCH: ‘A’ NEW DELHI
Before: SHRI R. K. PANDA & MS SUCHITRA KAMBLE
PER SUCHITRA KAMBLE, JM The appeal is filed by the assessee against the order dated 27/1/2006 passed by CIT(A)-Circle 2(1) , New Delhi for Assessment Year 1999-2000.
The grounds of appeal are as under:-
The learned CIT(A) erred in law and on facts of the case in upholding the reopening of the assessment u/s 147.
The learned CIT(A) erred in law and on facts of the case in upholdingthe reopening of the assessment u/s 147 even though full details on issues stated in satisfaction note were given by the company and considered by the assessing officer in assessment u/s 143(3) . Hence learned CIT(A) erred in
law and on facts of the case in not holding that the notice issued by DCIT is defective and assessment is void ab initio.
The learned CIT(A) has erred in law and facts of the case in upholding the reopening of the assessment u/s 147 even though the assessing officer applied mind on the issues stated in satisfaction note and this is nothing but a change of opinion which is not covered by “reason to believe” Hence learned CIT(A) erred in law and on facts of the case in not holding that the notice issued by DCIT is defective and assessment is void ab initio.
4.a That the learned CIT(A) has erred in law and facts of the case in upholding the addition of interest on line of credit which was not received and specific note on this was given in Schedule-19 which was considered by the assessing officer at the time of assessment u/s 143(3). This is change of opinion only.
4.b That the learned CIT(A) erred in upholding that the interest has accrued to the company even though, during the year , the matter was under discussion and there was no final settlement on this issue.
4.c That the learned CIT(A) has erred in law and facts of the case in not considering the fact that the amount has not been received at all even on final settlement and hence the audition made by the assessing officer is notional.
4d That the learned CIT(A) has erred in law and on facts of the case in not considering the fact that in respect of assessment year 2001-02, the same issue was considered and no addition was made on this account.
4.e. Without prejudice to above the learned CIT(A) should have directed the assessing officer to allow the same as deduction in the year in which final settlement was made and no amount was received on account of above interest.
5.a. That the learned CIT(A) has erred in law and facts of the case in upholding the computation of the deduction u/s 80 O, which is not as per the provisions of income tax act.
5.b. That the learned CIT(A) has erred in laws and facts of the case in holding that this is not change of opinion and thus upholding the recomputation of the deduction u/s 80-0, the full facts of which were given in the return, tax audit repo'1 and considered by the assessing officer in assessment u/s 143(3).
5.c The learned CIT(A) has erred in law and facts of the case in upholding the estimates of expenses by assessing officer attributable to earning of income for deduction u/s 80-0.
5.d The learned CIT (A) has erred in law and facts of the case in no considering the full amount of exchange variation realized.
6.a That the learned CIT (A) has erred in law and facts of the case in upholding the disallowance of the deduction u/s 80-IA in respect of Nuclear Steam Generator (Tiruchy) in the order u/s 147 although the same was allowed in assessment u/s 143(3).
6.b That the learned CIT(A) has erred in laws and facts of the case in upholding the disallowance of the deduction u/s 80-IA in respect of Nuclear Steam Generator (Tiruchy), the full facts of which were given in the return, tax audit report and considered by the assessing officer and specific finding was given on this issue in assessment u/s 143(3). This is only a change of opinion.
6.c. The learned CIT(A) has erred in laws and facts of the case in upholding the disallowance of the deduction u/s 80-IA in respect of Nuclear Steam Generator (Tiruchy), even though evidence was given by the company that the production started in May, 1991 and hence deduction has rightly been given in the assessment u/s 143(3).
7.a That the CIT(A) erred in law and on facts of the case in upholding the recomputation of the deduction u/s 80HHC which was specifically considered during assessment u/s 143(3) and holding that this is not change of opinion.
7.b That the CIT(A)has erred in law and on facts of the case in upholding the addition to total turnover items which are not part of turnover for the purpose of computing claims u/s 80HHC.
7.c That the CIT(A)has erred in law and on facts of the case in upholding the reduction of the profit of the company by 90% of interest, vehicle hire charges and lease rentals which form pari of business in India and as eligible for benefit u/s 80HHC.
8.a That the CIT(A)has erred in law and on facts of the case in upholding the charge interest u/s 234D even though the details of the same were not given by the assessing officer.
8.b That the CIT(A)has erred in law and on facts of the case in upholding the charge interest u/s 234D even though the assessment u/s 143(3) has already been completed and hence assessment u 's 147 cannot be considered as assessment fin the first time.
8.c Without prejudice to above the CIT(A)has erred in law and on facts of the case in not considering the fact that Section 234D has been introduced w.e.f. 01.06.2003.
8.d Without prejudice to above the CIT(A)has erred in law and on facts of the case in not holding that the interest u/s 234D is chargeable on the amount of tax which is payable in assessment u/s 147.
9.a That the CIT(A) has erred in law and on facts of the case in upholding the withdrawal of interest u/s 244A.
9.b. That the CIT(A) has erred in law and on facts of the case in holding that initiation of penalty proceedings u/s 271(1)(c) is not appealable.
The assessee company filed return of income on 26.11.1999 declaring an income of Rs. 10,84,60,76,693. The assessment u/s 143(3) was completed on 15.02.2002 at taxable income of Rs. 10,84,93,70,319 was determined. The case was reopened u/s 147 of the Income Tax Act on 04.03.2004 after recording the reasons. The extracts of the reasons are as under:
'‘ SATISFACTION NOTE M/s. Bharat Heavy Electricals Ltd. A.Y. 1999-00 The case was assessed u/s 143(3) on 15.02.2002 at an income of Rs.10,84,95,70,319/- against the returned income of Rs.1084,60,76,693/-. However, the following points remained unattended while completing the assessment u/s 143(3) for the A.Y. 1999-00.
The assessee had credited simple interest in the accounts, on credits extended to Andhra Pradesh State Electricity Board (APSEB) in
respect of supplies made to Vijayawada TPS, although the Memorandum of Understanding provided for charging of compound interest. The assessee had credited simple interest on the plea that the matter was under discussion with APSEB and it would be adjusted at the time of final settlement. As the assessee was following mercantile system of accounting, interest accrued to the extent of difference between simple interest and compound interest was required to be brought to tax.
The assessee had also debited prior period expenses of Rs. 18.56 lakhs to the profit and Loss account for the A.Y. 1999-2000. As the assessee was following mercantile system of accounting, the expenses which were not relevant to the previous year 1998-99 were required to be disallowed.
The assessee had claimed a deduction u/s 80-0 amounting to Rs. 197.69 lakhs on account of technical services rendered to the foreign enterprises. The accounts of the assessee shown that assessee had received Rs.56.49 lakhs only as income from technical fees/royalty and was thus entitled to claim deduction of Rs.28..25 lakh. The deduction is to be allowed on net receipts after deducting proportionate expenses on the receipts.
Further it is noted that in the 10th year, deduction u/s 80-IA, on account of Nuclear Steam Generators (Tiruchy), amounting to Rs.3,28,94,000/- has wrongly been considered whereas the same was being claimed u/s 80-1 in earlier 8 years.
In view of above, I have reason to believe that the true income of the assessee has escaped assessment, thus, proceedings u/s 147/148 are to be taken up hereby.
Sd/-
Dy. COMMISSIONER OF INCOME TAX
CIRCLE 2(1), NEW DELHI ”
Accordingly Notice u/s. 148 of the Act was issued and served upon the assessee on 04.03.2004. The assessee on 29.03.2004 submitted that original return filed may be treated in response to notice u/s 148 of the Income Tax Act, 1961. Notice u/s 143(2) of the Act was issued. During the Assessment Proceedings, the AR submitted that the assessment has been reopened after expiry of four years from the end of relevant assessment year. Since there is no failure on part of the company to disclose the facts relating to the issues (reasons for reopening), the said notice issued u/s 148 of the Act is null and void ab initio as per the Assessee. The assessee relied upon the proviso to Sec. 147 of the Act. Further the AR submitted that there was only a change of opinion in forming the reason to believe which could not be covered under reasons to believe. The Assessing Officer while considering the assessee’s contentions held that the assessee failed to disclose the facts fully and truly which were material for completion of the assessment and thus, rejected the contentions of the assessee. The Assessing Officer made additions relating to interest on credit extended to APSEB & prior period expenses as well as disallowed deduction u/s 80 of the Act, u/s 80IA and u/s 80HHC.
Being aggrieved the assessee filed appeal before the CIT(A). The CIT(A) dismissed the ground of reopening taken by the assessee and partly allowed the appeal of the assessee.
The Ld. AR submits that the reopening of the assessment u/s 147 is bad in law as full details on issues stated in satisfaction note were given by the assessee company and considered by the Assessing Officer in Assessment u/s 143(3) of the Act. Hence notice issued by the Assessing Officer itself is defective and assessment is void ab initio. The same is change of opinion which
is not covered by “reason to believe” and it is not permissible for re-opening of the proceedings.
5.1 As relates to merit of the case, the Ld. AR submitted that issue relating to interest on credit extended to APSEB, i.e. Ground Nos. 4.a to 4.e, the company extended a line of credit to APSEB in respect of supplies made to Vijayawada TPS. Simple interest was paid by the customer and the same was reckoned as income although the MOU provides for charging of compound interest. Negotiations were on with the customer with regard to BHEL’s claim of differential interest, which did not yield fruitful results. Since APSEB is one of the valued customer of BHEL, it was felt commercially prudent not to press the claim on the differential interest upto settlement of dues. The full facts of the case were given in note 11 of Schedule 19 of the annual accounts attached with the income tax return for the assessment year. That the similar issue was raised by the assessing officer during the course of assessment proceedings in respect of A.Y. 2001-02 and the assessing officer accepted the contention of the company and no addition was made to the taxable income by the assessing officer in the assessment order dated 26.03.2004. It is significant that the assessing officer took this view after the reopening of assessment for A.Y. 1997- 98. Therefore, the assessing officer applied his mind in this regard and this is nothing but a change of opinion which is not covered by "reason to believe” as held in case of CIT Vs. Kelvinator of India Ltd. (Delhi) 320 ITR 561 (S.C).
5.2 As relates to Ground No. 5.a to 5.d i.e. prior period expenditure, the Ld. AR submitted that as per note No. 16 of Schedule-19 of the annual accounts. During the course of assessment vide letter dated 15.02.2002 the details of prior period expenditure were given along with documentary evidence. The Ld. AR submitted that after considering all the documents and submissions, the Assessing Officer did not make any addition on account of prior period expenditure. Therefore, the Assessing Officer applied his mind in this regard and this is nothing but a change of opinion which is not covered by “reason to
believe”. The Ld. AR further stated that as per note no. 16 of Schedule - 19 the company credited an income of Rs.237.71 lakhs relating to prior period and the same has also formed part of profit of the company for the purpose of computation of taxable income for the year. Further this issue was also examined by ITAT vide order dated 12.02.1981 wherein the system of accounting of the company was accepted and no disallowance on account of prior period expenditure was made.
5.3 As relates to Ground No. 6.a to 6.c i.e. claims u/s 80IA, the Ld. AR submitted that the company claimed a deduction of Rs.328.94 lakhs u/s 80IA in respect of Nuclear Steam generator expansion Scheme. In this connection it is stated that the commercial production of this project started in May, 1991. As per provisions of Section 80IA (iv) of the income tax act the deduction is allowed in case of industrial undertakings which begin to manufacture or produce articles or things or to operate such plant or plants, at any time during the period beginning of 1st day of April, 1991 and ending on the 31st day of March, 1995 or such further period as the Central Government may, by notification in the official gazette, specify with reference to any particular industrial undertaking. The deduction is allowed in respect of 10 assessment years including the initial assessment year. Initial assessment year means the assessment year relevant to previous year in which the industrial undertaking begins to manufacture of produce articles or things. In respect of Nuclear' Steam Generator expansion scheme the commercial production started in May, 1991. Hence the initial assessment year was 1992-93 relevant to previous year 1991-92. Accordingly, the company is entitled for deduction u/s 80IA from A.Y. 1992-93 to 2000-01. The details of claim u/s 80-IA on account of nuclear steam generator were given in the income tax return filed by the company. The details of 80-IA were also given in the tax audit report attached with the income tax return of the company. These details were examined and the assessing officer gave a specific finding for the allowability of claim u/s 80-IA in respect of nuclear
steam generator and the same was given in the assessment order in respect of above assessment year, where the assessing officer has clearly indicated that the claim is for the tenth year. Therefore, the present view taken in the reasons recorded is nothing but a change of opinion which will not amount to “reason to believe” as required in Section 147 of the Act. Besides the deduction u/s 80IA is allowable for 10 assessment years as per sub-section 6(ii) of Section 80-IA. From the above it is clear that no new facts have been brought on record after the original assessment and that the assessing officer had considered all these issues at the time of passing his order u/s 143(3) dated 15.02.2002. Therefore, this represents a change of opinion, which cannot be the basis for reopening an assessment. The Ld. AR also relied upon the Circular No.549 dated 31.10.1989.
5.4 As relates to Ground No. 7.a to 7.c i.e. deduction u/s 80HHC, the Ld. AR submitted that in addition to the items on which reopening was made the Assessing Officer also recomputed deduction u/s 80HHC by changing his opinion in respect of profit to be considered for deduction u/s 80HHC of the Act. In the reassessment order u/s 148 the assessing officer recomputed the deduction u/s 80HHC by excluding 90% of lease rental income from profit considered for computation of deduction u/s 80HHC. The rental income on leased assets shown in schedule 13B relates to locos provided to Indian Railways on lease by the company. The lease rental is a business income of the company. In the original assessment u/s 143(3), the assessing officer fully considered the facts relating to claim u/s 80HHC. In the appeal against the order u/s 143(3), the CIT(A) vide his order dated 10.12.2002 for AY 1999- 2000, upheld the working of claim u/s 80FIHC. However, the assessing officer changed his opinion with regard to method of working of claim u/s 80HHC. Since this has been fully considered in assessment u/s 143(3) and by CIT(A) also, the re-computation of claim u/s 80HHC is clearly a change of opinion. T his is nothing but change of opinion. While computing the profit for the purpose of deduction u/s 80HHC the assessing officer reduced 90% of
the lease rentals.
The Ld. DR relied upon the orders of the Assessing Officer and the CIT(A). The Ld. DR further submitted that the assessee did not provide any details. There is no change of opinion but the escapement of income due to inaccurate particulars filed by the assessee during the assessment proceedings. Therefore, the Assessing Officer) rightly made additions and the same was confirmed by the CIT(A).
We have heard both the parties and perused the material available on record. The CIT(A) held that the assessee pleaded against reopening of the case on account of wrong calculation of 80-O, 80HHC & 80IA deduction and interest payable at compound interest rate to APSEB. These matters had come up for appeal in the year 1997-98 & 98-99 and dealt by him in detail in the orders of those years which were identical in present appeal. Therefore, the CIT(A) dismissed these grounds relying on his earlier years order. The said earlier years orders were set aside by the ITAT vide order dated 11.03.2011. The ITAT held as under:
“9. It is evident that for neither of the years has there been any allegation by the AO that the assessee failed to disclose fully and truly all material facts necessary for its assessment for these years. Now, this is in direct violation of the provisions of the first proviso to section 147 of the Act. The said proviso carries a mandate when it emplogs the word “shall” in requiring that no completed assessment shall be reopened unless income chargeable has escaped assessment for the reason of the failure of the assessment to disclose fully and truly all material facts necessary for its assessment for the relevant assessment year. Non-compliance with the first proviso to section 147, therefore, renders the reopening of a completed assessment in the absence of any failure on the part of the assessee to disclose fully and truly all material facts necessary for its assessment for the relevant assessment year, void ab initio. Moreover, in the present case, as discussed hereinabove,
not even an allegation as such failure has been made against the assessee company by the AO for either of the assessment years involved. Reliance by the assessee on Indian Farmers Fertilizers Coop. Ltd. (supra) is apt. Therein, it has been held that where in the reasons recorded in reopening, there was no allegation that the assessee had failed to disclose fully or truly all material facts necessary for its assessment, the AO was unjustified in taking action u/s 147/148 after the expiry of four years from end of the respective relevant assessment years. In the present case also, the Department has into been able to show, the AO to have recorded, in the reasons for reopening the assessment for both the years, any allegation that the assessee had failed to disclose fully and truly all material facts necessary for its assessment, even though both the assessments were reopened after the expiry of four years from the end of the relevant assessment years.
The CIT(A) has rejected the assessee’s objection in this regard by observing that the re-assessment proceedings were within limitation, since, the notices u/s 148 of the Act were issued within six years from the end of the relevant assessment year, after taking approval of the CIT(A) as stipulated in section 151 of the Act. In this regard, it would be appropriate to reproduce here section 151(1) of the Act:
(1) In a case where an assessment under sub-section (3) of section 143 or section 147 has been made for the relevant assessment year, no notice shall be issued under section 148 by an AO, who is below the rank of Assistant Commissioner or Deputy Commissioner, unless the Joint Commissioner is satisfied on the reasons recorded by such AO that it is a fit case for the issue of such notice.
Thus, section 151(1) provides that in a case of a completed regular assessment, a notice u/s 148 of the Act is to be issued by an AO who is below the rank of Assistant Commissioner or Deputy Commissioner, only if the Joint Commissioner is satisfied on the reasons recorded by such AO that
it is a fit case for the issuance of such notice. The provisions of Section 141(1), in no way override the provisions of the first proviso to section 147 of the Act. It is rather, the stipulation contained in the first proviso to section 147, as discussed hereinabove, which takes precedence and unless there is an allegation of the assessee having failed to disclose fully and truly all material facts necessary for his assessment, no completed assessment can be reopened after the expiry of four years from the end of the relevant assessment year.
Therefore, for the above discussion alone, following Indian Farmers Fertilizers Coop. Ltd. (supra), the reopening of the completed assessments for both assessment years 1997-98 and 98-99 are cancelled.
Since the reopening of the completed assessment for both the assessment years has been cancelled for the primary reason of there being no allegation against the assessee of not having disclosed fully and truly all material facts for its assessment for both the assessment years 1997-98 and 98-99, there remains nothing further to be adjudicated.
In the result, both the appeals of the assessee are allowed.”
The issues involved in this case are similar to that of earlier assessment years. In this particular case also, the case was re-opened on 4/3/2004 despite the fact that the assessment u/s 143(3) was completed on 15/02/2002 at taxable income of Rs.1084,93,70,319/-. From the satisfaction note, it can be seen that there was no new material or escapement of income indicated by the Revenue. It is only the change of opinion and there is no significant satisfaction recorded for reopening u/s 147 of the Act. If the Assessing Officer has reason to believe that any income chargeable to tax had escaped assessment for any assessment year, he may 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 Section 147 of the Act. The proviso to Section 147 of the Act clearly states that no action shall be taken under this Section after the expiry of 4 years from the end of the relevant assessment year, unless an income chargeable to tax has escaped assessment for such assessment year by reason of failure on the part of the assessee to make a return u/s 139 or in response to a notice issued under sub Section 1 to Section 142 or Section 148 or to disclose fully and truly of material facts necessary for his assessment for that Assessment Year. But in this particular case, the assessee has given all the details at the time of regular assessment there was no failure on the part of the assessee to give any incorrect or inadequate particulars to the Assessing Officer at the time of original assessment proceedings. Therefore, there is no reason of failure on part of the assessee for reopening the assessment beyond four years. Therefore, the proviso to Section 147 of the Act will support the case of the assessee. Therefore, the reopening without any appropriate satisfaction/reason is not done as per the law by the Assessing Officer. Thus, the assessee’s case gets support from the Hon’ble Apex Court judgment in case of Kelvinator India (P) Ltd. wherein it is held that “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 re-assess. The Assessing Officer has no power to review; he has the power to re-assess. But re-assessment 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 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.”
The appeal of the assessee is allowed on the ground that the CIT(A) erred in upholding the re-opening of the assessment u/s 147 of the Act. The assessment itself is void ab initio and, therefore, there is no need to decide the issues on merit. The order of the CIT(A) is set aside.
In result, the appeal of the assessee is allowed.
Order pronounced in the Open Court on 26th October, 2017.
Sd/- Sd/- (R. K. PANDA) (SUCHITRA KAMBLE) ACCOUNTANT MEMBER JUDICIAL MEMBER
Dated: 26/10/2017 R. Naheed * Copy forwarded to: 1. Appellant 2. Respondent 3. CIT 4. CIT(Appeals) 5. DR: ITAT
ASSISTANT REGISTRAR ITAT NEW DELHI
Date 1. Draft dictated on 1/08/2017 PS 2. Draft placed before author 1/08/2017 PS 3. Draft proposed & placed before .2017 JM/AM the second member 4. Draft discussed/approved by JM/AM Second Member. 5. Approved Draft comes to the PS/PS Sr.PS/PS 26.10.2017 6. Kept for pronouncement on PS 7. File sent to the Bench Clerk 26.10.2017 PS 8. Date on which file goes to the AR 9. Date on which file goes to the Head Clerk. 10. Date of dispatch of Order.