DCIT 5(2), MUMBAI vs. MAHARASHTRA STATE ROAD DEVELOPMENT CORPORATION LTD, MUMBAI

आदेश / O R D E R Per Joginder Singh (Judicial Member) The Revenue as well as assessee is in cross appeal

against the impugned order dated 30/03/2011 of the Ld.

First Appellate Authority, Mumbai. In the appeal of the

assessee, the ground raised pertains to confirming the

issuance of notice u/s 148 of the Income Tax Act, 1961

(hereinafter the Act), dated 30/03/2009 on the basis of

change of opinion and beyond four years.

Shri Dalpat Shah, Ld. counsel for the assessee, contended

that the reopening is invalid as the notice was issued

beyond a period of four years, as per the assessee, it is not

permissible for which reliance was placed upon the

decision in the case of German Remidies Ltd. vs DCIT 287

3 ITA Nos.4519 & 4900/Mum/20111 Maharashtra State Road Development Corporation Ltd. ITR 494, Godrej Agrovet Ltd. vs DCIT & Anr. 323 ITR 97,

Nirmal Bang Securites Pvt. Ltd. vs ACIT 382 ITR 93(Bom.)

and CIT & Anr. Vs Foramar France 264 ITR 566 (SC). It

was also contended that the notice was issued to the

assessee on the basis of audit objection. Reliance was

placed upon the decision in CIT vs Lucas T.V.S. Ltd. 249

ITR 306(SC), Idea Celluar Ltd. vs DCIT 301 ITR 407 (Bom.),

ICICI Home Finance Co. Ltd. vs ACIT 210 taxmann 67

(Bom.), IL & FS Investment Managers Ltd. vs Income Tax

Officer & Ors. 298 ITR 32(Bom.) and Asian Cerc

Information Services Pvt. Ltd. vs ITO 293 ITR 271 (Bom.).

Our attention was invited to various pages of the paper

book. On the other hand, Shri Narendra Singh Janpangi,

Ld. CIT-DR, defended the order of the Ld. Commissioner of

Income Tax (Appeal).

2.1. We have considered the rival submissions and

perused the material available on record. So far as,

reopening beyond four years is concerned, it is our

bounded duty to analyze section 147 of the Act also, which

is reproduced hereunder:-

4 ITA Nos.4519 & 4900/Mum/20111 Maharashtra State Road Development Corporation Ltd. "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) : 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 fore going proviso. Explanation 2.—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 no return of income has been furnished by the assessee although his total income or the total income of any other person in respect of which he is assessable under this Act during the previous year exceeded the maximum amount which is not chargeable to Income-tax ;

(b) where a return of income has been furnished by the assessee but no assessment has been made and it is noticed by the Assessing Officer that the assessee has understated the income or has claimed excessive loss, deduction, allowance or relief in the return ;

(c) where an assessment has been made, but—

5 ITA Nos.4519 & 4900/Mum/20111 Maharashtra State Road Development Corporation Ltd. (i) income chargeable to tax has been under assessed ; or (ii) such income has been assessed at too low a rate ; or (iii) such income has been made the subject of excessive relief under this Act ; or (iv) excessive loss or depreciation allowance or any other allow ance under this Act has been computed. Explanation 3.—For the purpose of assessment or reassessment under this section, the Assessing Officer may assess or reassess the income in respect of any issue, which has escaped assessment, and such issue comes to his notice subsequently in the course of the proceedings under this section, notwithstanding that the reasons for such issue have not been included in the reasons recorded under sub- section (2) of section 148." 2.2. If the aforesaid provision of the Act is analyzed,

we are of the view that for reopening of an assessment

made under section 143(3) of the Act, the following

conditions are required to be satisfied :

(i) the Assessing Officer must form a tentative or prima facie opinion on the basis of material that there is underassessment or escapement of income ; (ii) he must record the prima facie opinion into writing ; (iii) the opinion formed is subjective but the reasons recorded or the information available on record must show that the opinion is not a mere suspicion. (iv) reasons recorded and/or the documents available on record must show a nexus or that in fact they are germane and relevant to the subjective opinion formed by the Assessing Officer regarding escapement of income. (v) In cases where the first proviso applies, there is an additional requirement that there should be failure or omission on the part of the assessee in disclosing full and true material facts. The Explanation to the section stipulates that mere production of books of account or other documents from which the Assessing Officer could have,

6 ITA Nos.4519 & 4900/Mum/20111 Maharashtra State Road Development Corporation Ltd. with due diligence, inferred material facts, does not amount to "full and true disclosure of material facts" (the proviso is not applicable where reasons to believe for issue of notice are recorded and notice is issued within four years from the end of assessment year). 2.3. The expression "change of opinion" postulates

formation of opinion and then a change thereof. In the

context of section 147 of the Act it implies that the

Assessing Officer should have formed an opinion at the first

instance, i.e., in the proceedings under section 143(3) and

now by initiation of the reassessment proceeding, the

Assessing Officer proposes or wants to take a different view.

The word "opinion" is derived from the latin word

"opinari" which means "to believe", "to think". The word

"opinion" as per the Black's Law Dictionary means a

statement by a judge or a court of a decision reached by

him incorporating cause tried or argued before them,

expounding the law as applied to the case and, detailing

the reasons upon which the judgment is based. Advanced

Law Lexicon by P. Ramanatha Aiyar (third edition) explains

the term "opinion" to mean "something more than mere

retaining of gossip or hearsay ; it means judgment or belief,

that is, a belief or a conviction resulting from what one

7 ITA Nos.4519 & 4900/Mum/20111 Maharashtra State Road Development Corporation Ltd. thinks on a particular question . . . An opinion is a

conviction based on testimony . . . they are as a result of

reading, experience and reflection".

2.4. In the context of assessment proceedings, it

means formation of belief by an Assessing Officer resulting

from what he thinks on a particular question. It is a result

of understanding, experience and reflection to use the

words in Law Lexicon by P. Ramanatha Aiyar. The question

of change of opinion arise when an Assessing Officer forms

an opinion and decides not to make an addition or holds

that the assessee is correct and accepts his position or

stand. In Hari Iron Trading Co. v. CIT [2003] 263 ITR 437

(P&H), a Division Bench of the Hon’ble Punjab and Haryana

High Court observed that an assessee has no control over

the way an assessment order is drafted. It was observed

that generally, the issues which are accepted by the

Assessing Officer do not find mention in the assessment

order and only such points are taken note of on which the

assessee's explanations are rejected and

additions/disallowances are made. Applying the principles

laid down by the Full Bench of this Court as well as the

8 ITA Nos.4519 & 4900/Mum/20111 Maharashtra State Road Development Corporation Ltd. observations of the Punjab and Haryana High Court, we

find that if the entire material had been placed by the

assessee before the Assessing Officer at the time when the

original assessment was made and the Assessing Officer

applied his mind to that material and accepted the view

canvassed by the assessee, and he expressed this in the

assessment order, that by itself would not give him a

ground to conclude that income has escaped assessment

and, therefore, the assessment needed to be reopened. On

the other hand, if the Assessing Officer did not apply his

mind and committed a lapse, there is no reason why the

assessee should be made to suffer the consequences of

those lapses.

2.5. We note that the Hon'ble jurisdictional High

Court in the case GERMAN REMEDIES LTD. v. DEPUTY

COMMISSIONER OF INCOME-TAX (287 ITR 494)(Bom.),

vide order dated 28/10/2005 held the notice to be invalid,

where, there was no failure on the part of the assessee to

disclose material facts for making the assessment. In this

case, the assessee was a public limited company engaged in

the business of manufacturing pharmaceutical products

9 ITA Nos.4519 & 4900/Mum/20111 Maharashtra State Road Development Corporation Ltd. and other formulations. The return of income for the

assessment year 1998-99 was filed and the assessment

order was passed in January, 2000. The last date for issue

of notice under section 148(1) of the Income-tax Act, 1961,

under the proviso to section 147 was March 31, 2003,

whereas notices under section 148(1) were issued on

September 15, 2003. The assessee responded to the notice

under protest and filed a letter seeking the reasons for

issuing the notice to reopen the assessment. The reasons

disclosed were that expenses on interest, royalty,

consultancy and analytic fees in foreign currency had been

allowed though there was no evidence on record to show

that tax had been deducted before remittance of the same,

that Central excise duty and customs duty payable on

finished goods for the year had not been taken into account

in valuing the closing stock resulting in underassessment.

The objections of the assessee were rejected. The Hon'ble

High Court held as under:-

“Held, (i) that it was not in dispute that the return of income filed by the assessee was accompanied by the audit report, profit and loss account and tax audit report under section 44AB of the Act. The record revealed that true and full information with respect to deduction of tax at source from the payments made to various parties towards expenditure was disclosed. With respect to valuation of closing stock with Modvat (excise and customs duty

10 ITA Nos.4519 & 4900/Mum/20111 Maharashtra State Road Development Corporation Ltd. paid) the inventory was required to be valued either at cost or market price whichever was lower. According to this principle, the assessee had valued its closing stock at cost. The reasons for issue of notice were unsustainable. (ii) That failure on the part of the assessee to disclose full and true material had not been alleged. In the circumstances, the notice having been issued beyond four years from the last date of the relevant assessment year without alleging any failure to disclose full and true material facts was liable to be set aside. While granting approval to the notice it was obligatory on the part of the Commissioner to verify whether there was any failure on the part of the assessee to disclose full and true relevant facts in the return of income filed for the assessment of income of that assessment year. It was also obligatory on the part of the Commissioner to consider whether or not power to reopen was being invoked within a period of four years from the end of the assessment year to which the proceedings related. None of these aspects had been considered by him. The notices and consequently the order justifying reasons recorded were unsustainable.” While coming to the aforesaid conclusion, the

Hon'ble jurisdictional High Court also considered the

following cases:-

i. Caprihans India Ltd. v. Tarun Seem, Deputy CIT [2004] 266 ITR 566 (Bom) ii. CIT v. British Paints India Ltd. [1991] 188 ITR 44 (SC) iii. CIT v. Foramer France [2003] 264 ITR 566 (SC) iv. CIT v. Indo Nippon Chemical Co. Ltd. [2000] 245 ITR 384 (Bom) v. CIT v. Indo Nippon Chemicals Co. Ltd. [2003] 261 ITR 275 (SC) vi. CIT v. Indo Nippon Chemicals Co. Ltd. [2003] 1 RC 208 (SC) vii. Grindwell Norton Ltd. v. Jagdish Prasad Jangid, Asst. CIT [2004] 267 ITR 673 (Bom)

11 ITA Nos.4519 & 4900/Mum/20111 Maharashtra State Road Development Corporation Ltd. viii. Hindustan Lever Ltd. v. R. B. Wadkar, Asst. CIT (No. 2) [2004] 268 ITR 339 (Bom) ix. United Electrical Co. P. Ltd. v. CIT [2002] 258 ITR 317 (Delhi) 2.6. In another case, of Godrej Agrovet Ltd. vs DCIT

(2010) 323 ITR 97 (Bom.), the Hon'ble High Court wherein,

For the assessment year 2003-04, the assessee claimed

deduction under section 80M of the Income-tax Act, 1961.

The Assessing Officer made disallowance of Rs. 27.95

lakhs. The Commissioner (Appeals) restricted the

disallowance and during the pendency of appeals to the

Tribunal by the assessee and the Department, a notice was

issued to the assessee under section 148 on the ground

that the assessee was not entitled to deduction under

section 80M of the Act in respect of dividend distributed by

it on which it had failed to pay additional Income-tax under

the provisions of section 115-O within the stipulated time.

The Hon'ble Court held as under

“Held, allowing the petition, that the Assessing Officer reopened the assessment on the ground that the assessee paid dividend tax after April 1, 2003, under section 115-O . Under section 80M , the deduction was not in respect of the amount declared or distributed by way of dividend. The deduction that was stipulated under section 80M was in respect of dividend received by a domestic company from another domestic company. The extent of the deduction was, however, subject to a monetary ceiling, the ceiling being that the deduction should not exceed the amount distributed by way of dividend on or before the due date for the

12 ITA Nos.4519 & 4900/Mum/20111 Maharashtra State Road Development Corporation Ltd.

filing of return. The Assessing Officer by adverting to the provisions of section 115-O had proceeded to reopen the assessment on a plainly extraneous ground. The Assessing Officer had clearly acted in excess of the restraints on his jurisdiction to reopen an assessment in exercise of the powers under section 147 read with section 148 .”

2.7. In another case in ICICI Home Finance Co. Ltd. vs

ACIT (2012) 210 taxman 67 (Bom.), vide order dated

20/07/2012, there was petition under Article 226 of the

Constitution of India, wherein, it was held as under:-

“(a) Notice dated 24.03.2011 (hereinafter referred to as 'impugned notice') issued under Section 148 read with Section 147 of the Income Tax Act, 1961 (hereinafter referred to as 'the Act') seeking to reopen the assessment for the assessment year 2006-2007; and

(b) Order dated 07.12.2011 of the Assistant Commissioner of Income Tax (hereinafter referred to as 'the Assessing Officer') rejecting the Petitioner's objection to initiations of reopening assessment for assessment year 2006-2007 under Section 148 of the Act (hereinafter referred to as 'the impugned order').

(a) The Petitioner is engaged in the business of home finance. For the assessment year 2006-2007 (previous year ending on 31.03.2006), the Petitioner filed its return of income declaring a loss of Rs. 9.11 crores. Thereafter, on 31.12.2008, by an order passed under Section 143(3) of the Act, the Assessing Officer assessed the Petitioner, to a loss of Rs. 18.24 crores under Section 115(JB) of the Act.

(b) On 29.12.2009, an audit objection was raised by the Dy. Commissioner of Income Tax (Audit) with regard to the Petitioners assessment to tax for assessment year 2006-2007. The audit objections were as under:

"(I) Perusal of the records made available reveal that the assessee bank is engaged in the business of 'Housing Finance'. During the year under review, assessee claims a turnover of Rs. 3,13,47,33,037/-. After reducing the direct and indirect expenses the assessee companies' Profit and Loss Account shows a net profit of Rs. 12,28,90,685/-. However, reading of the computation reveal that the assessee company has claimed the following deductions which are essentially 'provisions'/'contingencies' in nature and character:

XXXXXXXXXXXXXXXXXXXXX

13 ITA Nos.4519 & 4900/Mum/20111 Maharashtra State Road Development Corporation Ltd.

Prima facie, by and large, these are provisions on various accounts, though the nomenclature adopted by the assessee primarily appears to be varied.

It is an accepted fact that no provisions are eligible for deduction while arriving at the taxable profit of the year. In principle, only amounts expended wholly and exclusively for the purpose of earning the profit from the said business are eligible for deduction before arriving at the taxable income.

Rummaging of the records made available, reveal that the disallowance of these provisions amounting to Rs. 57,87,86,431/- has ineligible as admissible deduction. Subject to further verification the tax effect on this lapse works out to Rs. 17,36,35,929/-.

(II) Perusal of the Profit and Loss Account and the submissions on record reveal that TDS has remained to be deducted on advertisement and sales promotion expenses to tune of Rs. 22,48,91,672/- under the head Establishment and other expenses in accordance with Chapter XVII-B of the I.T. Act, 1961.

The aforementioned expenses are to be disallowed under section 40(a)(ia) r/w Section 200(1) of the I.T. Act, 1961 for non deduction of tax at source. Tax effect on this account is Rs. 6,74,67,501/-.

Further, the quantum of TDS that has remained to be deducted could be quantified at Rs. 22,48,916/-.

Penalty under Section 271-C for non compliance of TDS provision could be quantified at Rs. 22,48,916/-.

(III) The assessee company has declared short term capital gain to the tune of Rs. 36300587/-. However, the submissions on record does not reveal that details of the transactions relating to these short term capital gains in order to ascertain as to why the same could not be classified as business income. The correctness of these transactions therefore, has prima facie, remained to have been examined during the assessment proceedings. Prima facie, from the records it appears that the guidelines and directions laid down in instruction number 4 of 2007 dated 15th June, 2007 for distinguishing shares held as stock-in-trade and shares held as investment, has remained to have been followed during the assessment proceedings. Revenue effect can only be worked out after verifying the details of the transactions, hence not quantified."

(c) On 24.03.2011, the Assessing Officer issued a notice under Section 148 of the Act pointing out that he has reason to believe that income chargeable to tax had escaped assessment for the assessment year 2006-07 and therefore he proposes to reassess the income for the assessment year 2006-2007.

(d) Thereafter at the instance of the Petitioner, on 12.10.2011 the Assessing Officer provided the Petitioner the reasons for issuing of said notice under Section 148 of the Act. The reasons read as under :

14 ITA Nos.4519 & 4900/Mum/20111 Maharashtra State Road Development Corporation Ltd.

"Perusal of the records made available reveal that the assessee company is engaged in the business of 'Housing Finance'. During the year assessee had a turnover of Rs. 3,13,47,33,037/-. After reducing the direct and indirect expenses the company showed a net profit of Rs. 12,28,90,685/-. However, the computation of income reveal that the company has claimed the following deductions which are 'provisions'/'contingencies' in nature and character:

Prima facie, by and large, these are provisions on various accounts, though the nomenclature adopted by the assessee primarily appears to be varied. It is an accepted fact that no provisions are eligible for deduction while arriving at the taxable profit of the year. In principle, only amounts expended wholly and exclusively for the purpose of earning the profit from the said business are eligible for deduction before arriving at the taxable income. The records reveal that the disallowance of these provisions amounting to Rs. 57,87,86,431/- has remained to have been disallowed during the assessment proceedings. Perusal of the Profit and Loss Account and the submissions on record reveal that TDS has remained to be deducted on advertisement and sales promotion expenses to tune of Rs. 22,48,91,672/- under the head Establishment and other expenses in accordance with Chapter XVII-B of the I.T. Act, 1961. The aforementioned expenses are to be disallowed under section 40(a)(ia) r/w Section 200(1) of the I.T. Act, 1961 for non deduction of tax at source.

The company has declared short term capital gain to the tune of Rs. 3,63,00,587/-. Prima facie, from the records it appears that as per the guidelines and directions laid down in instruction no. 4 of 2007 dated 15th June, 2007 for distinguishing shares held as stock-in- trade and shares held as investment this STCG is to be treated as the business income has remained to have been followed

In view of the above, I have reason to believe that income of Rs. 83,99,78,690/- chargeable to tax has escaped assessment. Hence, the assessment is proposed to be reopened and notice under Section 148 is to be issued."

(e) On 28.11.2011, the Petitioner filed its objection to the reasons communicated on 24.10.2011 for reopening the assessment for assessment year 2006-2007. In its objection, the Petitioner pointed out that there has been no escapement of income for the assessment year 2006-2007. In any event, all facts in respect of which the assessment is being sought to be reopened were available with the Assessing Officer at the time of assessment and the issues now raised were specifically raised during the assessment proceeding for the assessment year 2006-2007. Therefore, the notice under Section 148 of the Act was a mere change of opinion and unwarranted. Without prejudice the above, it was pointed out

15 ITA Nos.4519 & 4900/Mum/20111 Maharashtra State Road Development Corporation Ltd.

that the reopening of the assessment has been done only at the behest of the audit department and not on independent application of mind. In view of the above, the petitioner requested that the said notice under Section 148 of the Act be withdrawn.

(f) On 07.12.2011, the Assessing Officer by the impugned order disposed of the Petitioner's objection to reopening of assessment for assessment year 2006-2007 by the impugned notice. The relevant portion of the reasons recorded in the impugned order read as under :

Whereas notice u/s. 148 of the Income Tax Act, 1961(hereinafter referred to as 'the Act') was issued on 24.03.2011 and duly served on the assessee company on 28.03.2011;

2 Whereas objections have been raised by the assessee company, vide its letter dated 28.11.2011 submitted on 29.11.2011 against the issuance of the said notice, which are summarized as under:

(I) There is no failure on the part of the assessee to make a return or to disclose fully and truly all material facts necessary for the assessment.

(II) No reopening can be done for the reason of mere change of opinion.

3.1 The objections raised by the assessee are not maintainable and rejected in numerous judgments discussed hereunder. The gist of all these judgments is that mere acceptance of the claim of the assessee and mere production of various details does not amount to full and true disclosure and the Assessing Officer has information in his possession leading to a prima facie belief that the income has escaped assessment, the notice u/s 148 is valid. It is pertinent to refer to the Explanation 1 to Section 147 which provides that "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". Therefore, all the ingredients of the apex court's judgment in the case of 259 ITR 0019(SC), GKN Driveshafts (India) Ltd have been complied with in this case which says that the objection of the assessee, if any, are to be disposed off by passing a speaking order.

Besides the impugned order relied upon extract of various case laws without mentioning how the same are relevant to the present purposes.

(a) The said notice is completely without jurisdiction as the Assessing Officer does not have any independent reason to believe that the petitioner's income for the assessment year 2006-2007 has escaped assessment. The only basis for the notice is the audit objection dated 29.12.2009. In particular, she invited our attention to the fact that the reasons for audit objection and the reasons recorded to reopen the assessment are identical.

16 ITA Nos.4519 & 4900/Mum/20111 Maharashtra State Road Development Corporation Ltd.

(b) All facts with regard to the reasons mentioned for reopening the assessment for the assessment year 2006-2007 was a subject matter of examination by the Assessing Officer while passing the assessment order dated 31.12.2008 for the assessment year 2006- 2007.

(c) The impugned order is without reasons and displays a non- application of mind to the objections made to reopening of assessment for the assessment year 2006-2007. Consequently, the entire exercise of seeking to reopen the assessment for assessment year 2006-2007 has been initiated not on any tangible material, but merely on a change of opinion and the same is not permissible.

(a) That the present proceeding to reopen assessment for assessment year 2006-2007 has been commenced by the impugned notice, within 4 years from the end of the relevant assessment year. In such cases, it is his submission that the jurisdiction is very wide and not fettered by the conditions found in the proviso to Section 147 of the Act seeking to reopen an assessment after the expiry of 4 years from the end of the relevant assessment year;

(b) In case where assessment sought to be reopened is less than 4 years then unless an assessment order deals with a particular issue, the Assessing Officer is free to re-agitate the issue even if the same may have been before the Assessing Officer during the assessment proceeding;

(c) In view of explanation (1) of Section 147 of the Act mere production of evidence during the course of assessment proceeding would not necessarily lead to the conclusion that the Assessing Officer has applied his mind and formed an opinion with regard to the claim of the Petitioner.

(d) In any event, the petitioner could contest the issues raised in reassessment proceeding on merits during the course of reassessment proceeding. At this stage the court should not stop the respondent from proceeding further with reassessing the petitioner's income for the assessment year 2006-2007. Therefore, he submits that the petition be dismissed.

17 ITA Nos.4519 & 4900/Mum/20111 Maharashtra State Road Development Corporation Ltd.

2006-2007 is sought to be reopened by communication dated 12.10.2011 are identical to the objection of the audit authority dated 29.12.2009. The reasons do not rely upon any tangible material in the audit report but merely upon an opinion and the existing material already on record. This itself indicates that there was no independent application of mind by the Assessing Officer before he issued the impugned notice. On this ground alone, the assumption of jurisdiction by the Assessing Officer can be faulted.

18 ITA Nos.4519 & 4900/Mum/20111 Maharashtra State Road Development Corporation Ltd.

profit aggregating to Rs. 52.87 crores is concerned, the same was not only disclosed in the notes to account filed with the return of Income but also in response to specific queries raised during the assessment proceeding. It was reiterated at the hearing that on the aforesaid account of provision, the tax had already been paid in the earlier years and the amounts were merely written back in this year to the extent they were in excess of the provisions required. So far as, failure to deduct TDS on advertisement and sales promotion are concerned leading to disallowance of the entire amount of Rs. 22.48 crores under Section 40(a)(ia) the same was also subject to scrutiny by the Assessing Officer during the assessment proceedings. In fact, the clause 17(f) of the tax audit report submitted alongwith return of income clearly brings out the fact that where tax has not been deducted, then the entire amount of payment has been offered for disallowance under Section 40(a)(ia). In fact, by letters dated 10.11.2008 and 26.12.2008 in response to specific queries of the Assessing Officer during assessment proceedings the petitioner had pointed out alongwith details the expenses in respect of which the tax had not been deducted and which were offered to tax. So far as, the reason to reopen the assessment on the ground that the petitioner had declared short term capital gains of Rs. 3.63 crores in respect of income earned out of investments had to be taxed/classified as business Income is concerned, it is not disputed before us that the treatment given was consistent with the earlier year practice and accepted by the Respondent. Further, it is not disputed before us that the short term capital gains have been assessed to the maximum marginal rate and even if considered as business income, the tax effect would be the same. Consequently, there could be no reasonable basis to have a belief that there is any escapement of Income.

2.8. The Hon’ble Delhi High Court in Consolidated

Photo and Finvest Ltd. [2006] 281 ITR 394 (Delhi) held as

under:-

19 ITA Nos.4519 & 4900/Mum/20111 Maharashtra State Road Development Corporation Ltd. "In the light of the authoritative pronouncements of the Supreme Court referred to above, which are binding upon us and the observations made by the High Court of Gujarat with which we find ourselves in respectful agreement, the action initiated by the Assessing Officer for reopening the assessment cannot be said to be either incompetent or otherwise improper to call for interference by a writ court. The Assessing Officer has in the reasoned order passed by him indicated the basis on which income exigible to tax had in his opinion escaped assessment. The argument that the proposed reopening of assessment was based only upon a change of opinion has not impressed us. The assessment order did not admittedly address itself to the question which the Assessing Officer proposes to examine in the course of reassessment proceedings. The submission of Mr. Vohra that even when the order of assessment did not record any explicit opinion on the aspects now sought to be examined, it must be presumed that those aspects were present to the mind of the Assessing Officer and had been held in favour of the assessee is too far-fetched a proposition to merit acceptance. There may indeed be a presumption that the assessment proceedings have been regularly conducted, but there can be no presumption that even when the order of assessment is silent, all possible angles and aspects of a controversy had been examined and determined by the Assessing Officer. It is trite that a matter in issue can be validly determined only upon application of mind by the authority determining the same. Application of mind is, in turn, best demonstrated by disclosure of mind, which is best done by giving reasons for the view which the authority is taking. In cases where the order passed by a statutory authority is silent as to the reasons for the conclusion it has drawn, it can well be said that the authority has not applied its mind to the issue before it nor formed any opinion. The principle that a mere change of opinion cannot be a basis for reopening completed assessments would be applicable only to situations where the Assessing Officer has applied his mind and taken a conscious decision on a particular matter in issue. It will have no application where the order of assessment does not address itself to the aspect which is the basis for reopening of the assessment, as is the position in the present case. It is in that view inconsequential whether or not the material necessary for taking a decision was available to the Assessing Officer either generally or in the form of a reply to the questionnaire served upon the assessee. What is important is whether the Assessing Officer had based on the material available to him taken a view. If he had not done so, the proposed reopening cannot be assailed on the ground that the same is based only on a change of opinion." 2.9. From the foregoing discussion and judicial

pronouncements, the clear position emerges as under:

20 ITA Nos.4519 & 4900/Mum/20111 Maharashtra State Road Development Corporation Ltd. (1) Reassessment proceedings can be validly initiated in case return of income is processed under section 143(1) and no scrutiny assessment is undertaken. In such cases there is no change of opinion. (2) Reassessment proceedings will be invalid in case the assessment order itself records that the issue was raised and is decided in favour of the assessee. Reassessment proceedings in the said cases will be hit by the principle of "change of opinion". (3) Reassessment proceedings will be invalid in case an issue or query is raised and answered by the assessee in original assessment proceedings but thereafter the Assessing Officer does not make any addition in the assessment order. In such situations it should be accepted that the issue was examined but the Assessing Officer did not find any ground or reason to make addition or reject the stand of the assessee. He forms an opinion. The reassessment will be invalid because the Assessing Officer had formed an opinion in the original assessment, though he had not recorded his reasons. 2.10. Thus, where an Assessing Officer incorrectly or

erroneously applies law or comes to a wrong conclusion

and income chargeable to tax has escaped assessment,

resort to section 263 of the Act is available and should be

resorted to. But initiation of reassessment proceedings will

be invalid on the ground of change of opinion. Here a

distinction has to be drawn between erroneous

application/interpretation /understanding of law and cases

where fresh or new factual information comes to the

knowledge of the Assessing Officer subsequent to the

passing of the assessment order. If new facts, material or

information comes to the knowledge of the Assessing

Officer, which was not on record and made available at the

21 ITA Nos.4519 & 4900/Mum/20111 Maharashtra State Road Development Corporation Ltd. time of the assessment order, the principle of "change of

opinion" will not apply. The reason is that "opinion" is

formed on facts. "Opinion" formed or based on wrong and

incorrect facts or which are belied and untrue do not get

protection and cover under the principle of "change of

opinion". Factual information or material which was

incorrect or was not available with the Assessing Officer at

the time of original assessment would justify initiation of

reassessment proceedings. The requirement in such cases

is that the information or material available should relate to

material facts. The expression "material facts" means those

facts which if taken into account would have an adverse

effect on the assessee by a higher assessment of income

than the one actually made. Correct material facts can be

ascertained from the assessment records also and it is not

necessary that the same may come from a third person or

source, i.e., from source other than the assessment

records. However, in such cases, the onus will be on the

Revenue to show that the assessee had stated incorrect and

wrong material facts resulting in the Assessing Officer

proceeding on the basis of facts, which are incorrect and

22 ITA Nos.4519 & 4900/Mum/20111 Maharashtra State Road Development Corporation Ltd. wrong. The reasons recorded and the documents on record

are of paramount importance and will have to be examined

to determine whether the stand of the Revenue is correct. A

decision of from Hon’ble Delhi High Court dated September

26, 2011 in Dalmia P. Ltd. v. CIT [2012] 348 ITR 469

(Delhi) and another decision from Hon’ble jurisdictional

High Court dated November 8, 2011, in Indian Hume Pipe

Co. Ltd. v. Asst. CIT [2012] 348 ITR 439 (Bom) are two such

cases, which throws light on the issue. The aforesaid

decisions/ facts cases must be distinguished from cases

where the material facts on record are correct but the

Assessing Officer did not draw proper legal inference or did

not appreciate the implications or did not apply the correct

law. The second category will be a case of "change of

opinion" and cannot be reopened for the reason that the

assessee, as required, has placed on record primary factual

material but on the basis of legal understanding, the

Assessing Officer has taken a particular legal view.

However, as stated above, an erroneous decision, which is

also prejudicial to the interests of the Revenue, can be

23 ITA Nos.4519 & 4900/Mum/20111 Maharashtra State Road Development Corporation Ltd. made subject-matter of adjudication under section 263 of

the Act.

2.11. A division Bench of Hon’ble Delhi High Court in

New Light Trading Co. v. CIT [2002] 256 ITR 391 (Delhi),

referred to the decision of the Hon’ble Apex Court in CIT v.

P. V. S. Beedies P. Ltd. [1999] 237 ITR 13 (SC) and made

following observations. (page 392) :

"In the case of CIT v. P. V. S. Beedies P. Ltd. [1999] 237 ITR 13 (SC), the apex court held that the audit party can point out a fact, which has been overlooked by the Income-tax Officer in the assessment. Though there cannot be any interpretation of law by the audit party, it is entitled to point out a factual error or omission in the assessment and reopening of a case on the basis of factual error or omission pointed out by the audit party is permissible under law. As the Tribunal has rightly noticed, this was not a case of the Assessing Officer merely acting at the behest of the audit party or on its report. It has independently examined the materials collected by the audit party in its report and has come to an independent conclusion that there was escapement of income. The answer to the question is, therefore, in the affirmative, in favour of the Revenue and against the assessee." “As recorded above, the reasons recorded or the documents available must show nexus that in fact they are germane and relevant to the subjective opinion formed by the Assessing Officer regarding escapement of income. At the same time, it is not the requirement that the Assessing Officer should have finally ascertained escapement of income by recording conclusive findings. The final ascertainment takes place when the final or reassessment order is passed. It is enough if the Assessing Officer can show tentatively or prima facie on the basis of the reasons recorded and with reference to the documents available on record that income has escaped assessment.”

24 ITA Nos.4519 & 4900/Mum/20111 Maharashtra State Road Development Corporation Ltd. This takes us to the observations of the Delhi High

Court in Kelvinator of India Ltd. [2002] 256 ITR 1 (Delhi)

[FB] which read as under (page 18):

"The Board in exercise of its jurisdiction under the aforementioned provisions had issued the circular on October 31, 1989. The said circular admittedly is binding on the Revenue. The authority, therefore, could not have taken a view, which would run counter to the mandate of the said circular.” 2.12. From a perusal of clause 7.2 of the said circular

it would appear that in no uncertain terms it was stated as

to under what circumstances the amendments had been

carried out, i.e., only with a view to allay the fears that the

omission of the expression 'reason to believe' from section

147 would give arbitrary powers to the Assessing Officer to

reopen past assessment on mere change of opinion. It is,

therefore, evident that even according to the CBDT a mere

change of opinion cannot form the basis for reopening a

completed assessment.

2.13. Another aspect of the matter also cannot be lost

sight of a statute conferring an arbitrary power may be held

to be ultra virus article 14 of the Constitution of India. If

two interpretations are possible, the interpretation which

upholds constitutionality, it is trite, should be favoured. In

25 ITA Nos.4519 & 4900/Mum/20111 Maharashtra State Road Development Corporation Ltd. the event it is held that by reason of section 147 if the

Income-tax Officer exercises its jurisdiction for initiating a

proceeding for re-assessment only upon mere change of

opinion, the same may be held to be unconstitutional. We

are, therefore, of the opinion that section 147 of the Act

does not postulate conferment of power upon the Assessing

Officer to initiate reassessment proceeding upon mere

“change of opinion”.

2.14. The Hon’ble Apex Court thereafter referred to the

subsequent decision in Indian and Eastern Newspaper

Society v. CIT [1979] 119 ITR 996 (SC) wherein it was

observed that some of the observations made in Kalyanji

Mavji (supra) were far too wide and the statute did not

permit reappraisal of material considered by the Assessing

Officer during the original assessment. The observations in

Kalyanji Maviji (supra) that reopening would cover a case

"where income has escaped assessment due to the

oversight, inadvertence or mistake" was too broadly

expressed and did not lay down the correct law. It was

clarified and observed at page 1004 in Indian and Eastern

Newspaper Society [1979] 119 ITR 996 (SC) as under :

26 ITA Nos.4519 & 4900/Mum/20111 Maharashtra State Road Development Corporation Ltd. "Now, in the case before us, the Income-tax Officer had, when he made the original assessment, considered the provisions of sections 9 and 10. Any different view taken by him afterwards on the application of those provisions would amount to a change of opinion on material already considered by him. The Revenue contends that it is open to him to do so, and on that basis to reopen the assessment under section 147(b). Reliance is placed on Kalyanji Mavji and Co. v. CIT [1976] 102 ITR 287 (SC), where a Bench of two learned judges of this court observed that a case where income had escaped assessment due to the 'oversight, inadvertence or mistake' of the Income-tax Officer must fall within section 34(1)(b) of the Indian Income-tax Act, 1922. It appears to us, with respect, that the proposition is stated too widely and travels farther than the statute warrants in so far as it can be said to lay down that if, on reappraising the material considered by him during the original assessment, the Income-tax Officer discovers that he has committed an error in consequence of which income has escaped assessment it is open to him to reopen the assessment. In our opinion, an error discovered on a reconsideration of the same material (and no more) does not give him that power. That was the view taken by this court in Maharaj Kumar Kamal Singh v. CIT [1959] 35 ITR 1 (SC), CIT v. A. Raman and Co. [1968] 67 ITR 11 (SC) and Bankipur Club Ltd. v. CIT [1971] 82 ITR 831 (SC), and we do not believe that the law has since taken a different course. Any observations in Kalyanji Mavji and Co. v. CIT [1976] 102 ITR 287 (SC) suggesting the contrary do not, we say with respect, lay down the correct law." 2.15. In A. L. A. Firm (supra), the Hon’ble Apex Court

explained that there was no difference between the

observations of the Supreme Court in Kalyanji Maviji [1976]

102 ITR 287 (SC) and Indian and Eastern Newspaper

Society case [1979] 119 ITR 996 (SC), as far as proposition

(4) is concerned. It was held that (page 297 of 189 ITR) :-

"We have pointed out earlier that Kalyanji Maviji's case [1976] 102 ITR 287 (SC) outlines four situations in which action under section 34(1)(b) can be validly initiated. The Indian Eastern Newspaper Society's case [1979] 119 ITR 996 (SC) has only indicated that propo sition (2) outlined in this case and extracted earlier may have been somewhat widely stated ; it has not cast any doubt on the other three propositions set out

27 ITA Nos.4519 & 4900/Mum/20111 Maharashtra State Road Development Corporation Ltd. in Kalyanji Mavji's case. The facts of the present case squarely fall within the scope of propositions 2 and 4 enunciated in Kalyanji Maviji's case [1976] 102 ITR 287 (SC). Proposition (2) may be briefly summarized as permitting action even on a 'mere change of opinion'. This is what has been doubted in the Indian and Eastern Newspaper Society case [1979] 119 ITR 996 (SC) and we shall discuss its application to this case a little later. But, even leaving this out of consideration, there can be no doubt that the present case is squarely covered by proposition (4) set out in Kalyanji Maviji's case [1976] 102 ITR 287 (SC). This proposition clearly envisages a formation of opinion by the Income-tax Officer on the basis of material already on record provided the formation of such opinion is consequent on 'information' in the shape of some light thrown on aspects of facts or law which the Income-tax Officer had not earlier been conscious of. To give a couple of illustrations ; suppose an Income-tax Officer, in the original assessment, which is a voluminous one involving several contentions, accepts a plea of the assessee in regard to one of the items that the profits realised on the sale of a house is a capital realisation not chargeable to tax. Subsequently, he finds, in the forest of papers filed in connection with the assessment, several instances of earlier sales of house property by the assessee. That would be a case where the Income-tax Officer derives information from the record on an investigation or enquiry into facts not originally undertaken. Again, suppose the Income-tax Officer accepts the plea of an assessee that a particular receipt is not income liable to tax. But, on further research into law he finds that there was a direct decision holding that category of receipt to be an income receipt. He would be entitled to reopen the assessment under section 147(b) by virtue of proposition (4) of Kalyanji Mavji. The fact that the details of sales of house properties were already in the file or that the decision subsequently come across by him was already there would not affect the position because the information that such facts or decision existed comes to him only much later. What then, is the difference between the situations envisaged in propositions (2) and (4) of Kalyanji Maviji's case [1976] 102 ITR 287 (SC). The difference, if one keeps in mind the trend of the judicial decisions, is this. Proposition (4) refers to a case where the Income- tax Officer initiates reassessment proceedings in the light of 'information' obtained by him by an investigation into material already on record or by research into the law applicable thereto which has brought out an angle or aspect that had been missed earlier, for e.g., as in the two Madras decisions referred to earlier. Proposition (2) no doubt covers this situation also but it is so widely expressed as to include also cases in which the Income-tax Officer, having

28 ITA Nos.4519 & 4900/Mum/20111 Maharashtra State Road Development Corporation Ltd. considered all the facts and law, arrives at a particular conclusion, but reinitiates proceedings because, on a reappraisal of the same material which had been considered earlier and in the light of the same legal aspects to which his attention had been drawn earlier, he comes to a conclusion that an item of income which he had earlier consciously left out from the earlier assessment should have been brought to tax. In other words, as pointed out in Indian and Eastern Newspaper Society's case [1979] 119 ITR 996 (SC), it also ropes in cases of a 'bare or mere change of opinion' where the Income-tax Officer (very often a successor officer) attempts to reopen the assessment because the opinion formed earlier by himself (or, more often, by a predecessor Income- tax Officer) was, in his opinion, incorrect. Judicial decisions had consistently held that this could not be done and the Indian and Eastern Newspaper Society's case [1979] 119 ITR 996 (SC) has warned that this line of cases cannot be taken to have been overruled by Kalyanji Mavji [1976] 102 ITR 287 (SC). The second paragraph from the judgment in the Indian and Eastern Newspaper Society's case [1979] 119 ITR 996 (SC) earlier extracted has also reference only to this situation and insists upon the necessity of some information which make the Income-tax Officer realise that he has committed an error in the earlier assessment. This paragraph does not in any way affect the principle enumerated in the two Madras cases cited with approval in Anandji Haridas 21 STC 326. Even making allowances for this limitation placed on the observations in Kalyanji Mavji, the position as summarised by the High Court in the following words represents, in our view, the correct position in law (at page 629 of 102 ITR) : The result of these decisions is that the statute does not require that the information must be extraneous to the record. It is enough if the material, on the basis of which the reassessment proceedings are sought to be initiated, came to the notice of the Income-tax Officer subsequent to the original assessment. If the Income-tax Officer had considered and formed an opinion on the said material in the original assessment itself, then he would be powerless to start the proceedings for the reassessment. Where, however, the Income-tax Officer had not considered the material and subsequently came by the material from the record itself, then such a case would fall within the scope of section 147(b) of the Act'." (emphasis supplied) The aforesaid observations are a complete answer to

the issue that if a particular subject-matter, item,

29 ITA Nos.4519 & 4900/Mum/20111 Maharashtra State Road Development Corporation Ltd. deduction or claim is not examined by the Assessing

Officer, it will nevertheless be a case of “change of opinion”

and the reassessment proceedings will be barred. The

Hon'ble Apex Court in CIT vs Foramer France, vide order

dated 16/01/2003, where, there was no failure on the part

of the assessee to disclose the material facts, it was held

that the notice issued beyond prescribed period cannot be

sustained merely on the basis of change of opinion. Even

otherwise, when two views are possible, the view, which

favours the assessee has to be preferred.

2.16. We are conscious of the fact that the aforesaid

observations have been made in the context of section

147(b) with reference to the term "information" and

conceptually there is difference in scope and ambit of

reopening provisions incorporated with effect from April 1,

1989. However, it was observed by the Hon’ble Apex Court

in Kelvinator of India Ltd. [2010] 320 ITR 561 (SC) that the

amended provisions are wider. What is important and

relevant is that the principle of "change of opinion" was

equally applicable under the un-amended provisions. The

Supreme Court was, therefore, conscious of the said

30 ITA Nos.4519 & 4900/Mum/20111 Maharashtra State Road Development Corporation Ltd. principle, when the observations mentioned above in A. L.

A. Firm [1991] 189 ITR 285 were made.

2.17. Under the new provisions of section 147, an

assessment can be reopened if the Assessing Officer has

"reason to believe" that income chargeable to tax has

escaped assessment; but if he wants to do so after a period

of four years from the end of the assessment year, he can

do so only if the assessee has fallen short of his duty to

disclose fully and truly all material facts necessary for his

assessment. It does not follow that he cannot reopen the

assessment even within the period of four years as

aforesaid if he has reason to believe that the assessee has

failed to make the requisite disclosure. All that the section

says is that in a case where the assessment is sought to be

reopened after the period of four years, the only reason

available to the Assessing Officer is the non-disclosure of

material facts on the part of the assessee. The Act places a

general duty on every assessee to furnish full and true

particulars along with the return of income or in the course

of the assessment proceedings so that the Assessing Officer

is enabled to compute the correct amount of income on

31 ITA Nos.4519 & 4900/Mum/20111 Maharashtra State Road Development Corporation Ltd. which the assessee shall pay tax. The position has been

further clarified by the proviso itself in a case where

assessment under sub-section (3) of section 144 of the Act

or this section has been made for the relevant assessment

year, no action shall be taken 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

year by the 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) of section 142 or section 148 or to

disclose truly and fully all material facts necessary for his

assessment for that assessment year. It is also noted that

the scope of newly substituted (w.e.f. 01/04/1989) section

147 has been elaborated in department circular number

549 dated 31st October, 1989, meaning thereby, on or after

01/04/1989, initiation of reassessment proceedings has to

be governed by the provisions of section 147 to 151 as

substituted (amended) w.e.f. 01/04/1989. Still, power u/s

147 of the Act, though very wide but no plenary. We are

aware that Hon’ble Gujarat High Court in Praful Chunilal

Patel: Vasant Chunilal Patel vs ACIT (1999) 236 ITR 82,

32 ITA Nos.4519 & 4900/Mum/20111 Maharashtra State Road Development Corporation Ltd. 840 (Guj.) even went to the extent that action under main

section 147 is possible in spite of complete disclosure of

material facts. The primary condition of reasonable belief

having nexus with the material on record is still operative.

However, we are of the view, that mere fresh application of

mind to the same set of facts or mere change of opinion

does not confer jurisdiction to the Assessing Officer even

under the post 1989 section 147 of the Act. Our view finds

support from the decision from Hon’ble High Courts in

following cases:-

i. Jindal Photo Films Ltd. vs DCIT (1998) 234 ITR 170 (Del.), ii. Garden Silk Mills Pvt. Ltd. vs DCIT (1999) 151 CTR (Guj.) 533, iii. Govind Chhapabhai Patel vs DCIT 240 ITR 628, 630 (Guj.), iv. Foramer vs CIT (2001) 247 ITR 436 (All.), affirmed in CIT vs Foramer Finance (2003) 264 ITR 566, 567 (SC), v. Ipica Laboratories vs DCIT (2001) 251 ITR 416 (Bom.), vi. Ritu Investment Pvt. Ltd.(2012) 345 ITR 214 (Del.), vii. Ketan B. Mehta vs ACIT (2012) 346 ITR 254 (Guj.),

33 ITA Nos.4519 & 4900/Mum/20111 Maharashtra State Road Development Corporation Ltd. viii. Ms. Praveen P. Bharucha vs DCIT (2012) 348 ITR 325 (Bom.), ix. CIT vs Usha International Ltd. 348 ITR 485 (Del.), x. Agricultural Produce Market Committee vs ITO (2013) 355 ITR 348 (Guj.), xi. B.B.C. World News Ltd. vs Asst. DIT (2014) 362 ITR 577 (Del.). xii. Identical ratio was laid down in CIT vs Malayala Manorma Company Ltd. (2002) 253 ITR 378 (Ker.)

We think this thread runs through the various

provisions of the Act. But Explanation 1 to the section

confines the duty to the disclosure of all primary and

material facts necessary for the assessment, fully and truly.

As to what are material or primary facts would depend

upon the facts and circumstances of each case and no

universal formula may be attempted. The legal or factual

inferences from those primary or material facts are for the

Assessing Officer to draw in order to complete the

assessment and it is not for the assessee to advise him, for

obvious reasons. The Explanation, however, cautions the

assessee that he cannot remain smug with the belief that

since he has produced the books of account before the

34 ITA Nos.4519 & 4900/Mum/20111 Maharashtra State Road Development Corporation Ltd. Assessing Officer from which material or evidence could

have been with due diligence gathered by him, he has

discharged his duty. It is for him to point out the relevant

entries which are material, without leaving that exercise to

the Assessing Officer. The caveat, however, is that such

production of books of account may, in the light of the facts

and circumstances, amount to full and true disclosure ;

this is clear from the use of the expression "not necessarily"

in the Explanation. Thus, the question of full and true

disclosure of primary or material facts is a pure question of

fact, to be determined on the facts and circumstances of

each case. No general principle can be laid down. It was

observed by the Hon’ble Apex Court, in various cases that

there should be some "tangible material" coming into the

possession of the Assessing Officer in such cases to enable

him to resort to section 147 of the Act. Despite being a case

of full and true disclosure, tangible material coming to the

possession of the Assessing Officer after he made the

original assessment under section 143(3), would influence

the opinion, formed or presumed to have been formed

earlier, by the assessing authority; he can with justification

35 ITA Nos.4519 & 4900/Mum/20111 Maharashtra State Road Development Corporation Ltd. change it, but that would not be a case of a "mere change of

opinion" unguided by new facts or change in the legal

position. It will be a case of the assessing authority having

"reason to believe", notwithstanding that full and true

particulars were furnished by the assessee which were

examined, or presumed to be examined, by him. There was

a divergence of opinion amongst various High Courts as to

what constitute “Information” for the purposes of section

34(1)(b) of the 1922 Act (which corresponds to section

147(b) of the 1961 Act) the Hon’ble Apex Court in CWT vs

Imperial Tobacco Company Ltd. (1966) 61 ITR 461 has

noted such divergence of opinion on the point. Hon’ble

jurisdictional High Court in CIT vs Sir Mohammad Yusuf

Ismail (1944) 12 ITR 8 (Bom.) held that mere change of

opinion on the same facts are on question of law or mere

discovery of mistake of law is not sufficient information and

that in order to sustained action u/s 34 by further holding

that reassessment is not permissible. The Hon’ble Apex

Court in Simon Carves Ltd. (1976) 105 ITR 212 held that

errorless legally correct order cannot be reopened,

therefore, it is settled law that without any new information

36 ITA Nos.4519 & 4900/Mum/20111 Maharashtra State Road Development Corporation Ltd. and on the basis of mere change of opinion, reopening of

assessment is not permissible. As was held in CIT vs TTK

Prestige ltd. (2010) 322 ITR 390 (Karn.) SLP dismissed in

2010 322 ITR (St.) 14 (SC). Reference also made to Asian

Paints ltd. vs DCIT (2009) 308 ITR 195 (Bom.), Andhra

Bank Ltd. vs CIT (1997) 225 ITR 447 (SC). The observations

of the Supreme Court are a protection against the abuse of

power; they also protect the Revenue which can, in the light

of subsequent coming into light of facts or law, reopen the

assessment. In the light of the aforesaid discussion, since,

there was no new tangible material available with the

Assessing Officer while resorting to section 147/148 of the

Act, more specifically, while framing original assessment

u/s 143(3) of the Act, there was full disclosure of material

facts by the assessee and on the basis of those facts,

assessment was completed u/s 143(3) of the Act, therefore,

in our humble opinion, the reassessment/reopening u/s

147 of the Act is unjustified as there was no fresh tangible

material with the Assessing Officer, while reopening the

assessment, therefore, the reopening beyond a period of

four years is not permissible, more specifically, when the

37 ITA Nos.4519 & 4900/Mum/20111 Maharashtra State Road Development Corporation Ltd. material facts were disclosed by the assessee and

assessment was framed u/s 143(3) of the Act. Thus, the

reopening of assessment is bad in law. This ground of the

assessee is allowed.

lost sight, is that the notice was issued on the basis of

audit objection. We have perused the record and one of the

basis for issuance of notice/reopening of assessment is

based upon the audit objection. In such scenario, following

cases throws light upon the issue whether reopening can

be done on the basis of audit objection. In the case of CIT

vs Lucas T.V.S. Ltd. (2001) 249 ITR 306 (SC), order dated

05/12/2000, wherein reassessment was done on the basis

of information that income has escaped assessment in the

opinion of audit party regarding application or

interpretation of law. The Hon'ble Apex Court held that

reassessment based on opinion of audit party is not valid.

The Hon'ble Court held as under:-

“From the decision of the High Court (see [1998] 234 ITR 296) to the effect that, apart from the information furnished by the audit party, the Income-tax Officer had no other information for reopening the assessment under section 147(b) of the Income-tax Act, 1961, that the opinion of the audit party was to the effect that the Income-tax Officer

38 ITA Nos.4519 & 4900/Mum/20111 Maharashtra State Road Development Corporation Ltd.

failed to apply section 35 to the facts of the case, and that this would amount to pointing out the law and the interpretation of the provisions of section 35, which was clearly barred in view of the decision of the Supreme Court in INDIAN AND EASTERN NEWSPAPER SOCIETY v. CIT [1979] 119 ITR 996, the Department preferred appeals to the Supreme Court. The Supreme Court dismissed the appeals.”

Decision of the Madras High Court in CIT v. LUCAS T. v. S. LTD. [1998] 234 ITR 296 affirmed.

3.1. The Hon'ble jurisdictional High Court in another

case of Idea Cellular Ltd. vs DCIT (2008) 301 ITR 407

(Bom.), order dated 13/02/2008 held as under:-

“On October 30, 2001, the petitioner filed a return in respect of the assessment year 2001-02 which indicated a loss of Rs. 133,91,49,737. The return was accompanied by a copy of the petitioner’s audited accounts for the year ended March 31, 2001. In the computation annexed to the return, the petitioner had disclosed that a company named T had amalgamated with the petitioner with effect from January 1, 2001. More details of the amalgamation were given in the directors’ report annexed to the audited accounts. In the balance-sheet and in Schedule 2 thereto, the petitioner had disclosed that a sum of Rs. 9,984.15 lakhs was credited to the amalgamation reserve account under the head “Reserves or surplus”. In note 4(a) of Schedule 19 to the audited accounts, the petitioner had given full details as to how the sum of Rs. 9,984.15 lakhs was arrived at. It explained that the assets and liabilities of T had been accounted for in the accounts as per the pooling of interest method prescribed in the Standard on Accounting for Amalgamations (AS-14) as issued by the Institute of Chartered Accountants of India. It was explained that the sum of Rs. 9,984.15 lakhs was the difference between the net book value of the assets and liabilities so acquired and the share capital to be issued thereagainst. Queries raised concerning this issue were replied to by letter dated February 11, 2002. Again, the Deputy Commissioner raised further queries by show-cause letter dated March 1, 2002, and this was replied to by the petitioner by letter dated March 5, 2002. On the third occasion, queries were raised by the Deputy Commissioner by his letter dated March 10, 2005, and this was replied to by the petitioner by letter dated March 12, 2005. Again, after the issue of the notice dated March 26, 2007, and after receipt of recording reasons, the petitioner addressed the issue by letter dated December 13, 2007. The Assessing Officer did not make any addition in respect of the amalgamation reserve of Rs. 9,984.15 lakhs. On March 26, 2007, he issued a notice under section 148 . In reply to the objection raised by the petitioner it was stated that as the issue had not been discussed in the assessment order, it could not be said that

39 ITA Nos.4519 & 4900/Mum/20111 Maharashtra State Road Development Corporation Ltd. the Deputy Commissioner had formed any opinion and that there was consequently no change of opinion. On a writ petition to quash the notice : Held, that there was a full and true disclosure of all material facts placed before the Assessing Officer at the first instance and thus there was no suppression of any material from the Assessing Officer. This was a case in which the Assessing Officer had raised specific queries on several occasions and all the queries had been answered. Once all the material was before the Assessing Officer and he chose not to deal with the several contentions raised by the petitioner in his final assessment order, it could not be said that he had not applied his mind. The Explanation to section 147 was not applicable. The notice of reassessment was not valid and was liable to be quashed.” While coming to the aforesaid conclusion, following

cases were considered by the Hon'ble High Court:-

i. CIT v. Shaw Wallace and Co. [1932] 6 ITC 178 ii. CIT v. Shaw Wallace and Co. [1932] 2 Comp Cas 276 (PC) (para 2) iii. CIT v. Foramer France [2003] 264 ITR 566 (SC) (para 2) iv. IPCA Laboratories Ltd. v. Gajanand Meena, Deputy CIT (No. 2) [2001] 251 ITR 416 (Bom) (para 2)

3.2. In the case of IL and FS Investment Managers

Ltd. vs Income Tax Officer & Ors. (2008) 298 ITR 32 (Bom.),

order dated 27/11/2006, wherein, depreciation was

allowed on intangible asset. There was disagreement with

the audit objection on subsequent notice to withdraw the

depreciation. It was held that there was no material in the

notice to show how income has escaped assessment. The

40 ITA Nos.4519 & 4900/Mum/20111 Maharashtra State Road Development Corporation Ltd.

notice u/s 147/148 was held to be not valid. The Hon'ble

Court held/observed as under:-

“The assessee was an asset management company which managed private institutional funds of Indian and foreign investors for investments in India. The assessee entered into an agreement dated April 12, 2002, with its sister concern by which it agreed to purchase the business of managing private equity funds and venture capital funds and providing financial services, for a lumpsum consideration of Rs. 14.15 crores. Under the agreement, it purchased various intangible assets. It filed its return for the assessment year 2003-04 wherein it claimed depreciation on the intangible assets. This was allowed. Subsequently, a notice was issued to the assessee seeking to withdraw the depreciation. On a writ petition against the notice :

Held, that the assessee had given full particulars of the intangible assets and it had maintained that it was eligible for the depreciation. The stand taken by the assessee was accepted by the respondents on the merits and even after disagreeing with the audit objection. Reopening of the assessment without any basis was not valid.” 3.3. In another case, in Asian Cerc Information

Services (I) P. Ltd. vs Income Tax Officer (2007) 293 ITR 271

(Bom.), order dated 17/07/2007, it was held/observed as

under:-

“The Assessing Officer issued a notice under section 148 of the Income-tax Act, 1961, to the assessee. While disposing of the objections raised by the assessee, he had not given any reason as to why he had now come to the view, from the earlier view taken while addressing the letter to the auditor to remove the objections as to why the judgment of the Rajasthan High Court which earlier in his opinion was not applicable, became applicable. It was possible that the Assessing Officer may have further reconsidered the judgment, but some reasons ought to have been disclosed. Thus, the matter was remanded to the Assessing Officer to reconsider the matter de novo and according to law.”

If the aforesaid judicial pronouncements are kept in

juxtaposition with the facts of the present appeals, we find

41 ITA Nos.4519 & 4900/Mum/20111 Maharashtra State Road Development Corporation Ltd. that the Ld. Assessing Officer during scrutiny proceedings

vide letter dated 07/02/2005 (page-66 of the paper book)

asked for various details (page-67 of the paper book) and

vide question no.5 asked as under:-

“On perusal of annual report, it is noticed that during the year, you have received Rs.496.41 lakhs and Rs.3861.78 lakhs from Govt. of Maharashtra. Please explain whether that income is offered for taxation or not.” 3.4. The Ld. Assessing Officer vide question No.10

(page 68 of the paper book) also asked for non-match of

working with respect to Pune Expressway and

miscellaneous expenses, etc. The assessee replied to the

query so raised by the Ld. Assessing Officer vide letter

dated 17/03/2005 (page-60 to 62 of the paper book)

replied to the queries in detail. At page-61 of the paper

book specifically point no.8, 10 and 13 clearly specifies

with respect to queries raised by the Assessing Officer. So

far as, statement of depreciation for the year ending

31/03/2002 is concerned, the same has been attached and

produced before the Ld. Assessing Officer (page-59 of the

paper book). So far as, the completion of Pune Expressway

project is concerned, the same has been explained vide

42 ITA Nos.4519 & 4900/Mum/20111 Maharashtra State Road Development Corporation Ltd. note no.12 (page-91 of the paper book) and page-59 is the

part of tax audit report. Totality of facts clearly indicates

that the assessee made full and true disclosure of material

facts. Thus, the reopening was done by the Ld. Assessing

Officer merely on the basis of change of opinion, audit

party objection and the notice was issued beyond a period

of four years. Considering the factual matrix and the case

laws discussed in earlier paras of this order, we find no

justification in the order of the Ld. Assessing Officer, thus,

it is held that the issuance of notice beyond period of four

years/audit objection/change of opinion is not permissible.

Thus, the appeal of the assessee is allowed.

Since, on legal ground, the appeal of the assessee has

been allowed therefore, we refrain ourselves to go into the

alternate ground.

(ITA No.4519/Mum/2011), wherein, the direction to the

Assessing Officer to disallow depreciation and decide in the

year of disallowance has been challenged. The Ld. CIT-DR,

advanced arguments, which is identical to the ground

43 ITA Nos.4519 & 4900/Mum/20111 Maharashtra State Road Development Corporation Ltd. raised whereas the ld. counsel for the assessee defended

the impugned order.

4.1. We have perused the observation made by the

Ld. Assessing Officer and the factual matrix considered by

the Ld. Commissioner of Income Tax (Appeal). The gist of

GRS received with reference to IRDP Nagpur projects, in

the nature of promoter contributions and with no

conditions attached thereto, the details are available in

para-5.6 of the impugned order. It was clear from the note

itself that said grants were received from the government

bodies from time to time for development of infrastructure.

The stand of the Revenue/Assessing Officer/Ld. CIT-DR is

that the assessee did not explain as to why the grants

which were in the nature of capital subsidy were not

reduced from respective asset before claiming depreciation.

We have perused the submissions from both sides and are

in agreement with the finding of the Ld. Commissioner of

Income Tax (Appeal) that no depreciation was claimed this

year as none of the project was completed. The amount was

related to incomplete projects of PWD department which

were taken over by the assessee. The amount of Rs.38.62

44 ITA Nos.4519 & 4900/Mum/20111 Maharashtra State Road Development Corporation Ltd. crores was received by the assessee and was spent on

project in question. Thus, we find infirmity in the direction

of the Ld. Commissioner of Income Tax (Appeal) to the

Assessing Officer with respect to decide the year of

disallowance of depreciation. Thus, the appeal of the

Revenue is having no merit, consequently, dismissed.

Finally, the appeal of the assessee allowed and that of

the Revenue is dismissed.

This order was pronounced in the open court in the

presence of the ld. representative from both sides at the

conclusion of the hearing on 25/01/2018.

Sd/- Sd/-

(Rajesh Kumar) (Joginder Singh) लेखा सद�य / ACCOUNTANT MEMBER �या�यक सद�य /JUDICIAL MEMBER

मुंबई Mumbai; �दनांक Dated : 25/01/2018

f{x~{tÜ? P.S //.�न.स.

आदेश क� ��त�ल�प अ�े�षत/Copy of the Order forwarded to : 1. अपीलाथ� / The Appellant (Respective assessee) 2. ��यथ� / The Respondent. 3. आयकर आयु�त(अपील) / The CIT, Mumbai. 4. आयकर आयु�त / CIT(A)- , Mumbai, 5. �वभागीय ��त�न�ध, आयकर अपील�य अ�धकरण, मुंबई / DR,

45 ITA Nos.4519 & 4900/Mum/20111 Maharashtra State Road Development Corporation Ltd. ITAT, Mumbai 6. गाड� फाईल / Guard file. आदेशानुसार/ BY ORDER,

उप/सहायक पंजीकार (Dy./Asstt. Registrar) आयकर अपील�य अ�धकरण, मुंबई / ITAT, Mumbai