WALLACE SPORTS AND RESEARCH FOUNDATION ,CHENNAI vs. ACIT NON CORPORATE CIRCLE 3 , CHENNAI

आदेश / O R D E R PER CHANDRA POOJARI, ACCOUNTANT MEMBER: This appeal is filed by the assessee, aggrieved by the order of the Learned Commissioner of Income Tax(A)-4, Chennai dated 27.06.2017 pertaining to assessment year 2011-12.

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wherein it was held that when the entire issue was gone into by the Assessing Officer at the time of framing scrutiny assessment under Section 143(3); reopening of assessment on the very same issue can be said to be a change in opinion, which is not permissible. 7. The Learned CIT(A) has erred by holding that the Appellant has not substantiated its stand with documentary evidence. The Learned CIT(A) has failed to note that all the evidence was submitted at the time of scrutiny proceedings itself and was resubmitted at the time of appeal. The Learned CIT(A) has failed to consider that the Appellant has disclosed fully and truly all the necessary material facts for completion of assessment while filing the return as well as during scrutiny assessment u/s. 143 (3).

return of Income for the A.Y. 2011-12 on 30.09.2011 electronically

admitting a total income of Rs. 18,85,750/- . The return of income was

selected for scrutiny through CASS and the original assessment u/s 143(3)

was completed on 26.02.2014, accepting the income returned.

Subsequently, the case was re- opened u/s 147 and a notice u/s 148 was

issued on 02.03.2016. In response to the same, tie asseessee firm filed a

letter on 20.10.2016, thereby stating that the original return filed on

30.09,2011 may be taken on record in compliance with the notice u/s 148.

The assesse:e firm had requested the AO to furnish the reasons for

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reopening, which was duly furnished on 24.10.2016, the gist of which is

reproduce as under:

“The assessee has debited an interest cost of Rs30,46,435/- towards interest arid finance charges in the P&L account The break-up of the same cornpNses interest paid to M/s.Rellgare Finvest Ltd. of Rs.25, 14,613/-, Mis. Cholarnandalarn of Rs.5,516/- and that of 1DB! Bank of Rs. 5,26,306/- The assessee ought to have deducted TDS as per the provisions of Section 194A “on the urn paid to Mis Religare Finvest ltd When questioned about the omission to comply with the provisions of Section 194A, the assessee, vide his letter dated 20/08/20 14 had replied that the amount has been paid to a Public Financial Institution and hence the interest need not suffer TDS. The argument of the assessee was not acceptable . M/s. Religare Finvest Ltd. is not a Public Financial Institution or a Banking Concern, so as to get excluded from the purview of Section 194A. The assessee has neither submitted a copy of the Non deduction Certificate, if any, in respect of the interest payment made. Under the circumstances. I have firm reasons to believe that the interest cost of Rs.25, i4613/- has escaped assessment, since this amount calls for disallowance u/&40(a)(ia).”

Accordingly, in view of the above facts of the case, to take up the return

for scrutiny, notice u/s.143(2) was issued to the assessee firm on

24/10/2016. lt is noticed that despite a number of opportunities of being

heard provided to the assessee, there was no compliance. Therefore, in

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view of the same, a show cause notice dated 16/11/2016 was issued by

the AO to the assessee firm, thereby giving one last opportunity to submit

the complete set of details by 22/11/2016. The show cause notice had

clearly stated that in the absence of complete set of details furnished by

the said date, it would be presumed that the assessee firm did not have

any objection to proceed wish the scrutiny assessment and the scrutiny

assessment would be completed exparte u/s.144, based on the materiaIs

available on record, However, there was no response from the assessee till

the date this assessment order was passed by the AO. Under the

circumstances, the assessment order was completed u/s.144 of the Act on

28.11.2016. Aggrieved by the order of ld. Assessing Officer, the assessee

carried the appeal before the Ld.CIT(A). On appeal, Ld.CIT(A) confirmed

the action of the ld. Assessing Officer. Against the order of Ld.CIT(A),

now the assessee is in appeal before us.

The main contention of the ld.A.R is that the assessment herein was

originally completed on 26.02.2014 u/s.143(3) of the Act, so that the

assessment can be re-opened u/s.147 of the Act subject to fulfillment of

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conditions precedent, which include the condition that the AO must have

“reason to believe” that income chargeable to tax is escaped assessment.

It is true that the original assessment order was passed u/s.143(3) of the

Act. The AO cannot disturb the finality of the original assessment passed

u/s.143(3) of the Act at his whims and caprice; he must have reason to

believe within the meaning of sec.147 of the Act. The scope and effect of

sec.147 of the Act substituted with effect from 01.04.1989, as also

Sections 148 to 152 are substantially different from the provisions as they

stood prior to substitution. Under the old provisions of section 147,

separate clauses (a) and (b) laid down the circumstances under which

income escaping assessment for the past assessment years could be

assessed or reassessed. To confer jurisdiction under section 147(a) two

conditions were required to be satisfied: firstly, the Assessing Officer must

have reason to believe that income, profits or gains chargeable to Income-

tax have escaped assessment, and, secondly, he must also have reason to

believe that such escapement has occurred by reason of either omission or

failure on the part of the assessee to disclose fully or truly all material

facts necessary for his assessment of that year. Both these conditions

were conditions precedent to be satisfied before the Assessing Officer

could have jurisdiction to issue notice under section 148 read with section

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147(a). But under the substituted section 147 existence of only the first

condition suffices. In other words if the Assessing Officer for whatever

reason has reason to believe that income has escaped assessment it

confers jurisdiction to reopen the assessment. It is, however, to be noted

that both the conditions must be fulfilled if the case falls within the ambit

of the proviso to section 147. The case at hand is covered by the main

provision and not the proviso.

4.1 As seen from the above, the finality of the assessment passed

u/s.143(3) of the Act can be disturbed by initiating the re-assessment

proceedings only “so long as the ingredients of sec.147 are fulfilled” and

there should be reason to believe that the income chargeable to tax has

escaped assessment and it does not matter that there has been no failure

or omission on the part of the assessee to disclose full and true particulars

at the time of the original assessment. There is nothing in the language of

section 147 to unshackle the Assessing Officer from the need to show

"reason to believe". When section 147 was recast with effect from April 1,

1989, the Legislature sought to replace the expression "reason to believe"

with the expression "for reasons to be recorded by him in writing". But

there were representations against the proposal and bowing to them the

original expression was restored. This aspect of the matter has been

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brought out by the Supreme Court in the case of CIT v. Kelvinator in 320

ITR 561 as follows:-

"However, one needs to give a schematic interpretation to the words 'reason to believe' failing which, we are afraid, section 147 would give arbitrary powers to the Assessing Officer to reopen assessments on the basis of 'mere change of opinion', which cannot be per se reason to reopen. We must also keep in mind the conceptual difference between power to review and power to reassess. The Assessing Officer has no power to review ; he has the power to reassess. But reassessment has to be based on fulfilment of certain preconditions and if the concept of 'change of opinion' is removed, as contended on behalf of the Depart ment, then, in the garb of reopening the assessment, review would take place. One must treat the concept of 'change of opinion' as an in- built test to check abuse of power by the Assessing Officer . . . 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', Parlia ment reintroduced the said expression and deleted the word 'opinion' on the ground that it would vest arbitrary powers in the Assessing Officer. We quote hereinbelow the relevant portion of Circular No. 549, dated October 31, 1989 ([1990] 182 ITR (St.) 1, 29), which reads as follows : Page No : 0544

'7.2 Amendment made by the Amending Act, 1989, to reintroduce the expression "reason to believe" in section 147. A

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number of representations were received against the omission of the words "reason to believe" from section 147 and their substitution by the "opinion" of the Assessing Officer. It was pointed out that the meaning of the expression, "reason to believe" had been explained in a number of court rulings in the past and was well settled and its omission from section 147 would give arbitrary powers to the Assessing Officer to reopen past assessments on mere change of opinion. To allay these fears, the Amending Act, 1989, has again amended section 147 to reintroduce the expression "has reason to believe" in place of the words "for reasons to be recorded by him in writing, is of the opinion". Other provisions of the new section 147, however, remain the same'."

a few decisions of the Supreme Court which have infused meaning and

content to the expression "reason to believe" appearing in section 147.

Shenoy v. ITO [1958] 34 ITR 275 (SC), speaking through S. K. Das J held

that an assessment cannot be reopened on the basis of a mere guess,

gossip or rumour. This was in the context of the pre-1948 law relating to

reassessment under which the Assessing Officer was empowered to

reopen the assessment on the basis of "definite information". Though this

judgment is based on the phraseology of section 34 of the 1922 Act as it

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existed before 1948 which did not contain the expression "reason to

believe", that principle was adopted by the Supreme Court while dealing

with section 34 of the Act after the amendment made in 1948. In that

year, the words "definite information" were replaced by the words "reason

to believe". While expatiating on the new words, a three-judge Bench of

the Supreme Court, speaking through V. Ramaswami J., in S.Narayanappa

v. CIT [1967] 63 ITR 219 (SC), opined as under (page 222) :

"Again, the expression 'reason to believe' in section 34 of the Income- tax Act does not mean a purely subjective satisfaction on the part of the Income-tax Officer. The belief must be held in good faith: it cannot be merely a pretence. To put it different, it is open to the court to examine the question whether the reasons for the belief have a rational connection or a relevant bearing to the formation of the belief and are not extraneous or irrelevant to the purpose of the section. To this limited extent, the action of the Income-tax Officer in starting proceedings under section 34 of the Act is open to challenge in a court of law (see Calcutta Discount Co. Ltd. v. ITO [1961] 41 ITR 191 (SC))."

Supreme Court (Hegde J.) observed as under (page 153) :

"There can be no manner of doubt that the words 'reason to believe' suggest that the belief must be that of an honest and reasonable person based upon reasonable grounds and that the Income- tax Officer may act on direct or circumstances evidence but not on mere

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suspicion, gossip or rumour. The Income-tax Officer would be acting without jurisdiction if the reason for his belief that the conditions are satisfied does not exist or is not material or relevant to the belief required by the section. The court can always examine this aspect though the declaration or sufficiency of the reasons for the belief cannot be investigated by the court."

7.1 It was further observed that the reasons themselves cannot be

stated to be beliefs, which would be an obvious self-contradiction.

was summed up by H. R. Khanna J., speaking for the Supreme Court in

ITO v. Lakhmani Mewal Das [1976] 103 ITR 437 (SC). The following

principles were laiddown :

"(a) The powers of the Assessing Officer to reopen an assessment, though wide, are not plenary. (b) The words of the statute are 'reason to believe' and not 'reason to suspect'. (c) The reopening of an assessment after the lapse of many years is a serious matter. Since the finality of a judicial or quasi-judicial proceedings are sought to be disturbed, it is essential that before taking action to reopen the assessment, the requirements of the law should be satisfied. (d) The reasons to believe must have a material bearing on the question on escapement of income. It does not mean a purely

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subjective satisfaction of the assessing authority ; the reason be held in good faith and cannot merely be a pretence. (e) The reasons to believe must have a rational connection with or relevant bearing on the formation of the belief. Rational connection postulates that there must be a direct nexus or live link between the material coming to the notice of the Assessing Officer and the formation is belief regarding escapement of income. (f) The fact that the words 'definite information' which were there in section 34 of the Act of 1922 before 1948, are not there in section 147 of the 1961 Act would not lead to the conclusion that action can now be taken for reopening an assessment even if the information is wholly vague, indefinite, far-fetched or remote."

observed as under (page 564) :

"However, one needs to give a schematic interpretation to the words 'reason to believe' failing which, we are afraid, section 147 would give arbitrary powers to the Assessing Officer to reopen assessments on the basis of 'mere change of opinion', which cannot be per se reason to reopen. We must also keep in mind the conceptual difference between power to review and power to reassess. The Assessing Officer has no power to review ; he has the power to reassess. But reassessment has to be based on fulfilment of certain preconditions and if the concept of 'change of opinion' is removed, as contended on behalf of the Depart ment, then, in the garb of reopening the assessment, review would take place. One

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must treat the concept of 'change of opinion' as an in-built test to check abuse of power by the Assessing Officer."

It was also observed that after April 1, 1989, the Assessing Officer has

power to reopen provided there is "tangible material" to come to the

conclusion that there is escapement of income. This judgment has laid

emphasis on two more aspects: that there can be no review of an

assessment in the guise of reopening and that a bare review without any

tangible material would amount to abuse of the power.

expression "reason to believe", and the continued use of that expression

right from 1948 till date, we have to understand the meaning of the

expression in exactly the same manner in which it has been understood by

the courts. The assumption of the Revenue that somehow the words

"reason to believe" have to be understood in a liberal manner where the

finality of an intimation under section 143(3) is sought to be disturbed is

erroneous and misconceived. As pointed out earlier, there is no warrant for

such an assumption because of the language employed in section 147.

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the belief that there was an escapement of income on verification of the

documents, which were already on record, and it was seen that assessee

has not deducted TDS on the payment of interest to various parties.

Hence, the AO have a reason to believe that income chargeable to tax has

escaped assessment within the ambit of section 147 of the Act and the

case was re-opened. A notice u/s.148 was issued to the assessee on

02.03.2016. There was no whisper that the AO came to know this from

any tangible fresh material, which came to his possession after conclusion

of original assessment so that there was an escapement of income. This is

nothing but a review of the earlier proceedings and an abuse of power by

the ld. Assessing Officer, both strongly deprecated by the Supreme Court

in the case of CIT Vs. Kelvivator (supra).

our apprehension about the harm that a less strict interpretation of the

words “reason to believe” vis-à-vis and order u/s.143(3) and cast to the

tax regime. Since there was no whisper in the reasons recorded of any

tangible material, which came to possession of the AO, subsequent to the

order passed u/s.143(3) of the Act. It reflects an arbitrary exercise of the

power conferred u/s.147 of the Act.

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the time of recording of reasons itself, the AO should come to a conclusion

that there will be option of escaped assessment as per reason recorded.

The only requirement in law is, the AO prima facie must have a reason to

believe on the basis of material in his possession, that income is escaped

assessment . In facts of the present case, the AO completed the original

assessment on the basis of records available with him and there was no

allegation by the AO that neither disclosed correct consideration by the

assessee in the return filed for the assessment year nor was available

before the AO when the assessment was framed u/s.143(3) of the Act.

Undoubtedly, the information on the basis of which assessment was

reopened, which was already in the possession of the AO and it was not

subsequently came to his possession after the completion of the original

assessment so as to reveal understatement of the sale value. In such

circumstances, the AO is not empowered under the Act to reopen the

assessment.

13.1 The ld.D.R made a plea before us that production before Assessing

Officer of books of accounts or other evidence from which material

evidence could with due diligence have been discovered by the Assessing

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Officer will not necessarily amount to disclosure within the meaning of the

first proviso to sec.147 of the Act. We find that this situation has been

considered by the full Bench of the Delhi High Court in its judgment in the

case of CIT Vs. Kelvinator India Ltd.(256 ITR 1) and the full Bench

observed thus,

"The said submission is fallacious. An order of assessment can be passed either in terms of sub-s. (1) of s. 143 or sub-s. (3) of s. 143. When a regular order of assessment is passed in terms of the said sub-s. (3) of s. 143, a presumption can be raised that such an order has been passed on application of mind. It is well known that a presumption can also be raised to the effect that in terms of cl. (e) of s. 114 of the Indian Evidence Act, judicial and official acts have been regularly performed. If it be held that an order which has been passed purportedly without application of mind would itself confer jurisdiction upon the AO to reopen the proceeding without anything further, the same would amount to giving a premium to an authority exercising quasi-judicial function to take benefit of its own wrong."

13.2 It is clear from the observations made above that the Full Bench of

the Delhi High Court has taken a view that in a situation where according

to the AO he failed to apply his mind to the relevant material in making the

assessment order, he cannot take advantage of his own wrong and reopen

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the assessment by taking recourse to the provisions of s. 147. We find

ourself in respectful agreement with the view taken by the Full Bench of

the Delhi High Court.

13.3 It is further to be seen that the legislature has not conferred power

on the AO to review its own order. Therefore, the power under s. 147

cannot be used to review the order. In the present case, though the AO

has used the phrase "reason to believe", admittedly between the date of

the order of assessment sought to be reopened and the date of formation

of opinion by the AO, nothing new has happened, therefore, no new

material has come on record, no new information has been received; it is

merely a fresh application of mind by the same AO to the same set of facts

and the reason that has been given is that the some material which was

available on record while assessment order was made was inadvertently

excluded from consideration. This will, in my opinion, amount to opening

of the assessment merely because there is change of opinion. The Full

Bench of the Delhi High Court in its judgment in the case of Kelvinator

(supra) referred to above, has taken a clear view that reopening of

assessment under s. 147 merely because there is a change of opinion

cannot be allowed. In my opinion, therefore, in the present case also, it

was not permissible for Assessing Officer to issue notice under s. 148.

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ITR 209 (Mad) wherein held that reading of the reasons given for

reopening of assessment shows that it was nothing but a review of the

orders passed u/s.143(3) of the Act relating to the assessment years 1996-

97 & 1997-98. Consequently, even though the assessment was re-

opened, then a limitation period of 4 years there being no fresh material to

disturb the reasoning arrived at reopening of assessment was

unsustainable.

14.1 In the case of Dishman Pharmaceuticals And Chemicals Ltd. Vs.

DCIT in [2012] 346 ITR 245 (Guj) held that the reasons for reopening of

assessment did not make out any case of escapement of income from

assessment on account of the assessee not disclosing fully and truly all

material facts necessary for the same. Quiet apart from the fact that no

such suggestion is recorded in the reasons, independently also there is no

finding that the AO’s stand in the reasons recorded , can in any manner be

construed as suggesting that the income escapement on account of the

assessee not disclosing the material facts.

14.2 In the case of Debashis Moulik Vs. ACIT in [2015] 370 ITR 660

(Cal) held that escapement of income could not be used to reopen an

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assessment on facts, information, documents which were before the AO

or could have been easily found by him while making the assessment.

wise today as all the materials are available before him, when he was

framing original assessment u/s.143(3) of the Act. If he failed to take a

view on the subject, the same documents should not be used to reopen

the assessment as it was before him and he could have been easily found

by him while framing the assessment. He cannot himself use the same

documents to reopen the concluded assessment, which is nothing but

abuse of law.

ld.D.R that the AO has been careless while framing original assessment.

The AO should not be precluded from issuing notice u/s.148 of the Act.

This submission of the ld.D.R overlooks the facts that power to reopen is

not a power to review an assessment order. At the time of passing the

assessment order, it is expected from the AO that he will apply mind and

pass an order in accordance with law. An assessment order is not a mere

scrap of paper. To accept the submissions of the ld.D.R, would mean to

negate the well settled position in law as stated by the Supreme Court in

the case of CIT Vs. Kelvinator of India Ltd.(256 ITR 1).

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16.1 Further, the Supreme Court in the case of Indian and Eastern

Newspaper Society v. CIT [1979] 119 ITR 996 (SC) wherein held that:-

"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 sec tion 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 observa tions in Kalyanji Mavji and Co. v. CIT [1976] 102 ITR 287 (SC) sug gesting the contrary do not, we say with respect, lay down the correct law."

16.2. The aforesaid view on the above proposition has been reiterated by the apex court in A. L. A. Firm v. CIT [1991] 189 ITR 285 (SC) wherein the

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court held that change of opinion where opinion was formed earlier does not give the Assessing Officer jurisdiction to reopen an assessment. The apex court, inter alia, on the above issue held as under (page 298) :

"Even making allowances for this limitation placed on the observations in Kalyanji Mavji [1976] 102 ITR 287 (SC) 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 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)

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16.3 The decision of the jurisdictional High Court in the case of CIT

vs.Chakiat Agencies Pvt. Ltd., in [2009] 314 ITR 200 (Mad) wherein held

that:-

“Dismissing the appeals, (i) that the Revenue had not stated that new materials were received by the Assessing Officer and the Assessing Officer on the basis of the new materials based his opinion that there was escapement of income. There was no material placed on record to show that the assessee had suppressed any material fact or had failed to disclose fully and truly all material facts necessary for the assessment. The Assessing Officer had recourse to reopening of the assessment only due to change of his opinion about the admissibility of deduction under section 80-O which was originally allowed by the Assessing Officer after considering the materials placed before him. The Tribunal was right in holding that the reassessment proceedings to deny the benefit of section 80-O were only on a change of opinion of the Assessing Officer.

(ii) That the assessee was a shipping agent and its activities were based on the information received from the parties intending to send cargo and the assessee also used to contact the ship owners and other parties on various issues before the conclusion of the agreements between them. The assessee received commission for such services. It was not disputed that the assessee had rendered commercial service to the foreign shipping owners and for the use of such information outside India by the foreign ship owners received commission in convertible foreign exchange. Hence, the rendering of the commercial

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service and receiving of commission in foreign exchange by the assessee would entitle the assessee to the benefit of section 80-O.”

Officer and reproduced hereinabove clearly indicate that there was no

tangible fresh material adverting to the reasons recorded for issuing

reopening notice. Similarly, the decision of Bombay High court in the case

Dr. Amin's Pathology Laboratory (252 ITR 673), it has been observed that

if any item has escaped from assessment which otherwise is includible

within the assessment and the Assessing Officer notices it subsequently by

raising of some information received by him, one cannot say that it

constitutes change of opinion. In the present case, the AO reopened the

assessment originally completed by him on the basis of the same records

as were available before him while completing the original assessment

and there was no new tangible material that had come to his possession

on the basis of which the assessment was reopened. The relevant records

including the books of account of the assessee were duly examined by the

AO during the course of assessment proceedings completed u/s.143(3) of

the Act and only after being satisfied with the details, the assessment of

the assessee was completed. Therefore, the reopening of the assessment

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by the AO was bad in law as it was based merely on a change of opinion

and the assessment in pursuance thereof was invalid and liable to be

quashed. In view of the above, I find no substance in the submissions

raised by ld.D.R. Accordingly, I quash the reassessment order.

by the assessee.

In the result, the appeal of the assessee is partly allowed. 19. Order pronounced on 08th December, 2017. Sd/- (चं� पूजार�) (CHANDRA POOJARI) लेखा सद�य /ACCOUNTANT MEMBER

Chennai, Dated the 08th December, 2017. K s sundaram.

आदेश क� ��त�ल�प अ�े�षत/Copy to: 1. अपीलाथ�/Appellant 3. आयकर आयु�त (अपील)/CIT(A) 5. �वभागीय ��त�न�ध/DR 2. ��यथ�/Respondent 4. आयकर आयु�त/CIT 6. गाड� फाईल/GF