SANTECH SOLUTONS PVT LIMITED,CHENNAI vs. DCIT, CHENNAI

आदेश / O R D E R

PER ABRAHAM P. GEORGE, ACCOUNTANT MEMBER:

In this appeal filed by the assessee, which assails an order

dated 22.01.2016 of ld. Commissioner of Income Tax (Appeals)-15,

Chennai, it challenges the validity of reopening of assessment for the

impugned assessment year.

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Facts apropos are that assessee engaged in software 2.

development had filed its return of income for the impugned

assessment year declaring ‘’Nil’’ income. Assessment was completed

u/s.143(3) of the Income Tax Act, 1961 (in short ‘’the Act’’) on

19.11.2010 accepting the return. During the course of such

proceedings, assessee had filed a revised statement of income

requesting grant of depreciation �1,44,30,052/- in place of

�80,16,696/- claimed in the return. However, ld. Assessing Officer did

not accept the revised statement. As per the ld. Assessing Officer

without a revised return being filed such claim for enhanced

depreciation could not be considered. For taking this view he relied on

the judgment of Apex Court in the case of Geotze India Ltd vs. CIT,

284 ITR 323.

Thereafter a notice u/s.148 of the Act was issued to the 3.

assessee on 27.03.2013. As per the ld. Assessing Officer in the notes

to accounts, attached to the final accounts statement, it was

mentioned by the assessee that advance of �1,05,93,698/- received

was not credited in the profit and loss account but credited in an

account called Software Expenditure account. As per the ld. Assessing

Officer software development income was not offered by the assessee

on accrual basis, and there was reason to believe that income had

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escaped assessment. Thereafter, the reassessment was completed

through an order u/s.143(3) r.w.s.147 of the Act with the following

observations:

‘’4. Vide letter dated 25.02.2014, the assessee company stated that Health Q Software Product was a Joint Venture between the assessee and the parties who have contributed towards software development expenditure. Further- they stated that this amount Rs. 1,05,93,968 is received towards software development incurred by the assessee. However since the further contribution required for development was not coming forth as per the agreement, owing to difference of opinion between the parties and that the project was abruptly stopped. 5. In the Original return of Income the assessee company had debited a sum of Rs. 80,16,696 as head quarters Project cost write off which is detailed below: Total Project Cost (Semi finished) Health Q Software Products Project cost incurred : 3,46,43,785/- Less: Recovery : 1,05,93,698/- ------------------------------ Balance 2,40,50,087/- ------------------------------ ₹80,16,696/- 1/3rd of the above

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Rs. 80,16,696 .

Income Tax (Appeals) challenged the reopening done for the

impugned assessment year among others. According to it, all details

regarding the advance receipt and depreciation work-out were

furnished to the ld. Assessing Officer during the course of original

assessment proceedings. Contention of the assessee was that the

reopening was based on a change of opinion on same set of facts. As

per the assessee there was no fresh material available with the ld.

Assessing Officer. Contention of the assessee, was that there was a

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distinction between sale of software products and investments made

for software development. Investments made for software

development, as per the assessee could not be treated as part of its

income.

was not impressed by the above arguments. According to him, ld.

Assessing Officer had reopened the assessment since advance of

�1,05,93,698/- received against software development was not

credited in the profit and loss account. As per the ld. Commissioner of

Income Tax (Appeals), the reopening done was justified on facts. He

also dismissed the grounds challenging the merits.

Now before us, ld. Authorised Representative strongly 6.

assailing the reopening done for the impugned assessment year,

submitted that assessee through its letter dated 12.11.2010 filed

before the ld. Assessing Officer, during the course of original

assessment proceedings, had given full details on the project cost

relating to development of what is called as Health Q Software

products on which the advance was received. As per the ld.

Authorised Representative, assessee had claimed depreciation at 60%

on such software product but this was not allowed by the ld. Assessing

Officer in the original assessment. Further, as per the ld. Authorised

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Representative, letter filed by the assessee was duly considered by

the ld. Assessing Officer while completing the original assessment

though he had not accepted the claim for higher depreciation. Thus, as

per the ld. Authorised Representative, the ld. Assessing Officer was

aware of the software development advance received by the assessee

against project cost. The reopening according to him was merely on a

change of opinion. In support of his contention, that there could be

no reopening merely based on a change of opinion, ld. Authorised

Representative relied on the judgment of Apex Court in the case of CIT

vs. M/s. Kelvinator India Ltd 320 ITR 561 and that of Hon’ble Delhi

High Court in the case of CIT vs. Kelvinator of India Ltd. 256 ITR

0001.

Per contra, ld. Departmental Representative strongly 7.

supporting the order of the ld. Commissioner of Income Tax (Appeals)

submitted that the issue considered by the ld. Assessing Officer during

the original assessment proceedings was on claim of enhanced

depreciation. As per the ld. Departmental Representative, the ld.

Assessing Officer had never applied his mind to the nature of the

advance of �1,05,93,698/- against software development expenditure

received by the assessee from its joint venture partners. Thus

according to him, the reopening was not due to any change of

opinion. As per the ld. Departmental Representative, ld. Assessing

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Officer had not reached any opinion on the issue in the original

assessment. Therefore, according to him, the reopening was rightly

done.

orders of the authorities below. Reason for reopening is clear from the

order of the ld. Commissioner of Income Tax (Appeals). What is

stated by him is reproduced hereunder:-

‘’Subsequently, it was noticed that as per the Schedule annexure to notes on account it was stated that the advance received of Rs.1,O5,93,698/- has not been credited to the P&L Account but credited in the software development account. Further, it was also seen that income on software development had not been offered on accrual basis. As there was reason to believe that income has escaped assessment, notice u/s 148 was issued’’.

During the course of assessment proceedings, assessee had filed a

letter dated 12.11.2010 which stated as under:- Date: 12/11/2010 To

The Assistant Commissioner of Income Tax Company Circle VI(I), Chennai - 34 Sub:!T Assessment - AY 08-09 Ref Notice u/s.143(2) dated 12.08.2009 Dear Sir, Further to our appearance before your goodself on 27.10.10 we are furnishing the details' called for: 1. Total Project Cost (Semi Finished) Health Q Software Products

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a.Project Cost Incurred Rs:3,46,43,785.04 Details already furnished b. Less Recovery Rs:1,05;93,698.00 Please See Annexure -1 c. Balance Rs:2,40,50,087.04 d. One-third of c above Rs: 80,16,696.00 Written off in the Books 2. We are eligible to claim deprecations at 60% for full year On software products which works out to ₹1,44,30,052.22,since software at semi finished stage is also available for sales. This semi finished stage is reached before September 30th 2007. 3. We should have claimed Rs:l,44,30,052.22 as depreciation instead of writing off ₹80,16,696.00 4. Therefore kindly allow us Rs:l,44,30,052.22 in the place of Rs:80,16,696.00 5. We are enclosing sales invoice and Sales Details for having sold the products 6.We are producing the sample expenses vouchers ₹ for l Lakh or More for your perusal and Return as detailed below: a. Laser Soft Infosystems Ltd Rs:I0,OO,000.OO Ledger copy enclosed b. Teracorn Software Rs:25,52,025.00 Ledger copy enclosed Thanking You Yours Faithfully For Sactec Solutions Private Limited

Sd/- Director . It is clear from the above that assessee had given an annexure

wherein it had furnished the details of recovery of �1,05,93,698/- on

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semi finished software product called M/s. Health Q Software product.

Ld. Assessing Officer had indeed considered the submissions of the

assessee and this is clear from the following para of the original

assessment order.

‘’During the course of scrutiny proceedings, the A.R of the assessee filed a revised statement of income and requested for consideration of depreciation as per LT Act amounting to Rs.l,5O,74,601/- in place of Rs.6A4,589/-. However, the request of the assessee is not acceptable as the above issue has been settled by the Hon'ble Supreme Court in the case of M/s. Goetze India Ltd." Vs. CIT [284 ITR 323], wherein it has been held that any claim for deduction /relief has to be made only by filing a revised return of income. As in this case, no revised return of income has been filed, the assessee’s claim of depreciation for deduction of ₹1,50,74,601/- in place of ₹6,44,589/- is not admissible’’.

Thus, the only reasonable conclusion that can be drawn is that ld.

Assessing Officer, while framing the original assessment was aware of

the recovery of �1,05,93,698/- made by the assessee on its semi

finished M/s. Health Q Software product from its joint venture parties.

We cannot say that ld. Assessing Officer was not aware or was not

informed of this. We cannot say that ld. Assessing Officer had not

applied his mind on the treatment of such amount by the assessee.

We are unable to accept the contention of the ld. Departmental

Representative that the ld. Assessing Officer had formed no opinion

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at the time of original assessment on this amount of �1,05,93,698/-.

Hon’ble Delhi High Court in the case of Kelvinator of India Ltd (supra)

had held as under at paras 8 to 23 of its judgment.

‘’What would constitute “reason to believe” is no longer res integra. In Calcutta Discount Co. Ltd.’s case [1961] 41 ITR 191, the apex court clearly held that once the primary facts are before the assessing authority he requires no further assistance by way of disclosure. It was observed by the apex court that (page 201) : “It is for him to decide what inferences of facts can be reasonably drawn and what legal inferences have ultimately to be drawn. It is not for somebody else-far less the assessee-to tell the assessing authority what inferences, whether of facts or law, should be drawn. Indeed, when it is remembered that people often differ as regards what inferences should be drawn from given facts, it will be meaningless to demand that the assessee must disclose what inferences-whether of facts or law-he would draw from the primary facts.” As regards the scheme of the Act, the apex court held (page 207) : “The scheme of the law clearly is that where the Income-tax Officer has reason to believe that an underassessment has resulted from non- disclosure he shall have jurisdiction to start proceedings for reassessment within a period of eight years ; and where he has reason to believe that an underassessment has resulted from other causes he shall have jurisdiction to start proceedings for reassessment within four years. Both the conditions, (i) the Income-tax Officer having reason to believe that there has been underassessment and (ii) his having reason to believe that such underassessment has resulted from non-disclosure of material facts, must co- exist before the Income-tax Officer has jurisdiction to start proceedings after the expiry of four years. The argument that the court ought not

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to investigate the existence of one of these conditions, viz., that the Income-tax Officer has reason to believe that underassessment has resulted from non-disclosure of material facts, cannot therefore be accepted.” In Indian and Eastern Newspaper Society v. CIT [1979] 119 ITR 996 (SC), a three judge-Bench of the apex court held that although disclosure of a new fact therein may be an information within the meaning of the aforementioned provisions, this opinion of law would not be, as regards a contention on the part of the Revenue that the expression “information” in section 147(b) refers to realisation by the Income-tax Officer that he has committed an error while making the original assessment. The apex court said (page 1005) : “. . . that he has committed an error when making the original assessment. It is said that, when upon receipt of the audit note the Income-tax Officer discovers or realises that a mistake has been committed in the original assessment, the discovery of the mistake would be ‘information’ within the meaning of section 147(b). The submission appears to us inconsistent with the terms of section 147(b). Plainly, the statutory provision envisages that the Income-tax Officer must first have information in his possession, and then in consequence of such information he must have reason to believe that income has escaped assessment. The realisation that income has escaped assessment is covered by the words ‘’reason to believe’, and it follows from the ‘information’ received by the Income-tax Officer. The information is not the realisation, the information gives birth to the realisation.” This has been the settled position in law all through. However, the question which requires consideration is whether any change in law has been brought about on account of amendment of section 147 with effect from April 1, 1989. In Jindal Photo Films Ltd. [1998] 234 ITR 170 (Delhi), R. C. Lahoti J. (as his Lordship then was), observed (headnote) : “The power to reopen an assessment was conferred by the Legislature not with the intention to enable the Income-tax Officer to reopen the

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final decision made against the Revenue in respect of questions that directly arose for decision in earlier proceedings. If that were not the legal position it would result in placing an unrestricted power of review in the hands of the assessing authorities depending on their changing moods.” It was further held by the Bench that (page 178) : “Reverting back to the case at hand, it is clear from the reasons placed by the Assessing Officer on record as also from the statement made in the counter affidavit that all that the Income-tax Officer has said is that he was not right in allowing deduction under section 80-I because he had allowed the deductions wrongly and, therefore, he was of the opinion that the income had escaped assessment. Though he has used the phrase ‘reason to believe’ in his order, admittedly, between the date of the orders of assessment sought to be reopened and the date of forming of opinion by the Income-tax Officer nothing new has happened. There is no change of law. No new material has come on record. No information has been received. It is merely a fresh application of mind by the same Assessing Officer to the same set of facts. While passing the original orders of assessment the order dated February 28, 1994, passed by the Commissioner of Income-tax (Appeals) was before the Assessing Officer. That order stands till today. What the Assessing Officer has said about the order of the Commissioner of Income-tax (Appeals) while recording reasons under section 147 he could have said even in the original orders of assessment. Thus, it is a case of mere change of opinion which does not provide jurisdiction to the Assessing Officer to initiate proceedings under section 147 of the Act. It is also equally well settled that if a notice under section 148 has been issued without the jurisdictional foundation under section 147 being available to the Assessing Officer, the notice and the subsequent proceedings will be without jurisdiction, liable to be struck down in exercise of writ jurisdiction of this court. If ‘reason to believe’ be available, the writ court will not exercise its power of judicial review to go into the sufficiency or adequacy of the material available. However, the present one is not a case of testing the

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sufficiency of material available. It is a case of absence of material and hence the absence of jurisdiction in the Assessing Officer to initiate the proceedings under section 147/148 of the Act.” Thus, the court held that even under the newly substituted section 147, with effect from April 1, 1989, an assessment could not be reopened on a mere change of opinion. Yet again in Foramer’s case [2001] 247 ITR 436, a Division Bench of the Allahabad High Court has held that if a notice under section 147/ 148 was issued after the coming into force of the amended Act, the latter shall be attracted. However, it is observed that (page 444) : “Although we are of the opinion that the law existing on the date of the impugned notice under section 147/148 has to be seen, yet even in the alternative even if we assume that the law prior to the insertion of the new section 147 will apply even then it will make no difference since even under the original section 147 notice for reassessment could not be given on the mere change of opinion as held in numerous cases of the Supreme Court, some of which have been mentioned above. Since the Tribunal in the appeal relating to the assessee-company had considered the Tribunal’s earlier decision in Boudier Christian’s case, it will obviously amount to mere change of opinion, and hence the notice under section 147/148 would be illegal.” We may also notice that a Division Bench of the Gujarat High Court in Garden Silk Mills Pvt. Ltd. [1999] 237 ITR 668, while expressing similar views observed (page 674) : “The reasons recorded by the Assessing Officer which led to the belief about the escapement of assessment disclose that the present case is nothing but mere change of opinion on the facts which were already before the Assessing Officer while making the first assessment to which conscious application of mind is reflected from the proceedings, and allowed in the computation and which has not been disputed by the Revenue.” Although the referring Bench had prima facie agreed with the decision of this court in Jindal Photo Films’ case [1998] 234 ITR 170, but a doubt

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was sought to be raised by the Revenue in view of a decision of the Gujarat High Court in Praful Chunilal Patel’s case [1999] 236 ITR 832 . Therefore, let us now consider the decision of the Division Bench of the Gujarat High Court in the said case, wherein it was held (page 839) : “It will thus be seen that in the proceedings taken under section 147, the Assessing Officer may make an assessment or reassessment, or recomputation, as the case may be. The word ‘assess’ refers to a situation where the assessment was not made in the normal manner while the word ‘reassess’ refers to a situation where an assessment is already made, but it is sought to be reassessed on the basis of this provision. In cases where the Assessing Officer has not made an assessment of any item of income chargeable to tax while passing the assessment order in the relevant assessment year, it cannot be said that such income was subjected to an assessment. In the assessment proceedings, the Assessing Officer would ascertain on consideration of all relevant circumstances the amount of tax chargeable to a given taxpayer. The word ‘assessment’ would mean the ascertainment of the amount of taxable income and of the tax payable thereon. In other words, where there is no ascertaining of the amount of taxable income and the tax payable thereon, it can never be said that such income was assessed. Merely because during the assessment proceedings the relevant material was on record or could have been with due diligence discerned by the Assessing Officer for the purpose of assessing a particular item of income chargeable to tax, it cannot be inferred that the Assessing Officer must necessarily have deliberated over it and taken it out while ascertaining the taxable income or that he had formed any opinion in respect thereof. If looking back it appears to the Assessing Officer (albeit within four years of the end of the relevant assessment year) that a particular item even though reflected on the record was not subjected to assessment and was left out while working out the taxable income and the tax payable thereon, i.e., while making the final assessment order, that would enable him to initiate the proceedings

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irrespective of the question of non-disclosure of material facts by the assessee.” We are, with respect, unable to subscribe to the aforementioned view. If the contention of the Revenue is accepted the same, in our opinion, would confer an arbitrary power upon the Assessing Officer. The Assessing Officer who had passed the order of assessment or even his successor officer only on the slightest pretext or otherwise would be entitled to reopen the proceeding. Assessment proceedings may be furthermore reopened more than once. It is now trite that where two interpretations are possible, that which fulfils the purpose and object of the Act should be preferred. It is a well settled principle of interpretation of statute that the entire statute should be read as a whole and the same has to be considered thereafter chapter by chapter and then section by section and ultimately word by word. It is not in dispute that the Assessing Officer does not have any jurisdiction to review his own order. His jurisdiction is confined only to rectification of mistakes as contained in section 154 of the Act. The power of rectification of mistake conferred upon the Income-tax Officer is circumscribed by the provisions of section 154 of the Act. The said power can be exercised when the mistake is apparent. Even a mistake cannot be rectified where it may be a mere possible view or where the issues are debatable. Even the Income-tax Appellate Tribunal has limited jurisdiction under section 254(2) of the Act. Thus when the Assessing Officer or Tribunal has considered the matter in detail and the view taken is a possible view the order cannot be changed by way of exercising the jurisdiction of rectification of mistake. It is a well settled principle of law that what cannot be done directly cannot be done indirectly. If the Income-tax Officer does not possess the power of review, he cannot be permitted to achieve the said object by taking recourse to initiating a proceeding of reassessment or by way of rectification of mistake. In a case of this nature the Revenue is not without remedy. Section 263 of the Act empowers the

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Commissioner to review an order which is prejudicial to the Revenue. In Bawa Abhai Singh’s case [2002] 253 ITR 83 (Delhi), a Division Bench of this court of which one of us (D. K. Jain J.) is a Member, clearly held (page 88) : “The crucial expression is ‘reason to believe’. The expression predicates that the Assessing Officer must hold a belief . . . by the existence of reasons for holding such a belief. In other words, it contemplates existence of reasons on which the belief is founded and not merely a belief in the existence of reasons inducing the belief. Such a belief may not be based merely on reasons but it must be founded on information. As was observed in Ganga Saran and Sons P. Ltd. v. ITO [1981] 130 ITR 1 (SC), the expression ‘reason to believe’ is stronger than the expression ‘is satisfied’. The belief entertained by the Assessing Officer should not be irrational and arbitrary. To put it differently, it must be reasonable and must be based on reasons which are material. In S.Narayanappa v. CIT [1967] 63 ITR 219, it was noted by the apex court that the expression ‘reason to believe’ in section 147 does not mean purely a subjective satisfaction on the part of the Assessing Officer, the belief must be held in good faith ; it cannot be merely a pretence. It is open to the court to examine whether the reasons for the belief have a rational nexus or a relevant bearing to the formation of the belief and are not extraneous or irrelevant for the purpose of the section. To that limited extent, the action of the Assessing Officer in initiating proceedings under section 147 can be challenged in a court of law.” It was further observed : “Up to March 31, 1989, two conditions were required to be fulfilled to confer jurisdiction on the Assessing Officer to act under section 147(b). They are (1) he must have information which comes into his possession subsequent to the making of the original assessment order, and (2) that information must lead to his belief that income chargeable to tax has escaped assessment, or that it has been underassessed or assessed at too low a rate or has been made the subject of excessive relief.

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After April 1, 1989, the position is somewhat different. Section 147 with effect from April 1, 1989, provides that where the Assessing Officer has reason to believe that any income chargeable to tax has escaped assessment for any assessment year, he may apply the provisions of sections 148 to 153. He may assess or reassess the income which has escaped assessment. It is to be noted that section 147 as it stands with effect from April 1, 1989, not only merges clauses (a) and (b) of the pre-amended section 147 but also brings about a significant change in the preliminary requirement of certain conditions mandatory in character before reassessment proceedings should be initiated in the pre- amended section. The conditions precedent for initiation of action under section 147(a) or 147(b) of the pre-amended situation, is highlighted above. The amended provisions are contextually different and the cumulative conditions spelt out in clause (a) or (b) of section 147 prior to its amendment, are not present in the amended provision. The only condition for action is that the Assessing Officer should have reason to believe that income has escaped assessment, which belief can be reached in any manner and is not qualified by a precondition of faith and true disclosure of material fact by an assessee as contemplated in the pre-amended section 147(a) of the Act and the Assessing Officer can under the amended provisions legitimately reopen the assessment in respect of an income which has escaped assessment. Viewed in that angle the power to reopen assessment is much wider under the amended provision and can be exercised even after the assessee has disclosed fully and truly all the material facts. To similar view were the conclusions of this court in Rakesh Aggarwal v. Asst. CIT [1997] 225 ITR 496, it is to be noted at this juncture that the twin conditions must be fulfilled if the case is one which is covered by the proviso to section 147 operative with effect from April 1, 1989.” (emphasis supplied by us). It is evident from the afore-extracted portion of the decision that it is not an authority for the proposition that a mere change in the opinion would also confer jurisdiction upon the Assessing Officer to initiate a proceeding under section 147 of the Act as was contended by Mr. Jolly.

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A decision as is well known, is an authority for the proposition that it decides and not what can logically be deduced therefrom. A point not raised nor argued at the Bar cannot be said to be the ratio of the decision. Another aspect of the matter cannot be also lost sight of. The Board has power to issue circulars under section 119 of the said Act. It is trite that circulars which are issued by the Central Board of Direct Taxes are legally binding on the Revenue (see UCO Bank v. CIT [1999] 237 ITR 889 (SC)). Recently in CIT v. Anjum M. H. Ghaswala [2001] 252 ITR 1 (SC), the apex court following the said decision observed (page 15) : “It is true that by this press release the Board had interpreted the provisions of the Act in a particular manner. Be that as it may, we would like to make it clear that every clarificatory note or press release issued by the Board does not have statutory force like the circulars issued by the Board under section 119 of the Act. It is only those circulars issued by the Board under the provisions of section 119 of the Act, which will have statutory force and will be binding on every income-tax authorities. Therefore, the press release relied upon by Shri Ramamurti, not being a circular issued under section 119 of the Act, will not be of any assistance to the respondents in support of their contentions.” It further observed that (page 16) : “The learned Solicitor General has pointed out that by virtue of the power vested in the Board under section 119(2)(a) of the Act, the Board has issued circulars by Notification No. F. No. 400/234/95-IT(B), dated May 23, 1996. As per this circular, it has empowered that the Chief Commissioner of Income-tax and Director-General of Income-tax may waive or reduce interest charged under sections 234A, 234B and 234C of the Act in the class of cases or class of incomes specified in paragraph 2 of the said order for the period and on conditions which are enumerated therein. He submitted that in view of the said circular, the same authority can be exercised by the Commission since the said circular would amount to relaxation of the rigour of sections 234A, 234B and 234C of the Act. We are in unison

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with this submission of the learned Solicitor General. This court in a catena of cases has held that the circulars of the Central Board of Direct Taxes are legally binding on the Revenue : see UCO Bank v. CIT [1999] 237 ITR 889 (SC). Since these circulars are beneficial to assessees, such benefit can be conferred also on assessees who have approached the Settlement Commission under section 245C of the Act on such terms and conditions as contained in the circular. In our opinion, it is for this purpose that section 245F of the Act has empowered the Settlement Commission to exercise the power of an income- tax authority under the Act. We must clarify here that while exercising the power derived under the circulars of the Board, the Commission does not act as a subordinate to the Board but will be enforcing the relaxed provisions of the circulars for the benefit of the assessee in the process of settlement.” 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. Clause 7.2 as referred to hereinbefore is important. 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 fears that the omission of the expression “reason to believe” from section 147 would give arbitrary powers to the Assessing Officer to reopen past assessments on mere change of opinion. It is, therefore, evident that even according to the Central Board of Direct Taxes a mere change of opinion cannot form the basis for reopening a completed assessment. The submission of Mr. Jolly to the effect that the said circular cannot be construed in such a manner whereby the jurisdiction of the statutory authority would be taken away is not apposite for the purpose of this case. In Union of India‘s case, AIR 1996 SC 849 ; [1996] 11 SCC 701,

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whereupon Mr. Jolly had placed strong reliance, the apex court was dealing with administrative instructions whereby no right was conferred upon the respondents to have the house rent amount included in their emoluments for the purpose of computing overtime allowance. The apex court held that otherwise also the Government’s instructions have to be read in conformity with the provisions of the Act. Therein the apex court was not concerned with the statutory powers of a statutory authority to issue binding circulars. Another aspect of the matter also cannot be lost sight of. A statute conferring an arbitrary power may be held to be ultra vires article 14 of the Constitution of India. If two interpretations are possible, the interpretation which upholds constitutionality, it is trite, should be favoured. In the event it is held that by reason of section 147 if the Income-tax Officer exercises his jurisdiction for initiating a proceeding for reassessment only upon a 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 his mere change of opinion. We, however, may hasten to add that if “reason to believe” of the Assessing Officer is founded on an information which might have been received by the Assessing Officer after the completion of assessment, it may be a sound foundation for exercising the power under section 147 read with section 148 of the Act. We are unable to agree with the submission of Mr. Jolly to the effect that the impugned order of reassessment cannot be faulted as the same was based on information derived from the tax audit report. The tax audit report had already been submitted by the assessee. It is one thing to say that the Assessing Officer had received information from an audit report which was not before the Income-tax Officer, but it is another thing to say that such information can be derived by the material which had been supplied by the assessee himself.

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We also cannot accept the submission of Mr. Jolly to the effect that only because in the assessment order, detailed reasons have not been recorded an analysis of the materials on the record by itself may justify the Assessing Officer to initiate a proceeding under section 147 of the Act. The said submission is fallacious. An order of assessment can be passed either in terms of sub-section (1) of section 143 or sub-section (3) of section 143. When a regular order of assessment is passed in terms of the said sub-section (3) of section 143 a presumption can be raised that such an order has been passed on application of mind. It is well known that a presumption can also be raised to the effect that in terms of clause (e) of section 114 of the Indian Evidence Act judicial and official acts have been regularly performed. If it be held that an order which has been passed purportedly without application of mind would itself confer jurisdiction upon the Assessing Officer to reopen the proceeding with out anything further, the same would amount to giving a premium to an authority exercising quasi-judicial function to take benefit of its own wrong. For the reasons aforementioned, we are of the opinion that the answer to the question raised before this Bench must be rendered in the affirmative, i.e., in favour of the assessee and against the Revenue. No order as to costs’’.

While affirming the judgment of Hon’ble Delhi High Court, the Hon’ble

Apex Court had held as under at paras 2 to 4 of its judgment.

‘’2. A short question which arises for determination in this batch of civil appeals is, whether the concept of " change of opinion" stands obliterated with effect from 1st April, 1989, i.e., after substitution of section 147 of the Income- tax Act, 1961 by the Direct Tax Laws (Amendment) Act, 1987 ? 3. To answer the above question, we need to note the changes undergone by section 147 of the Income-tax Act, 1961 (for short, " the Act" ). Prior to the Direct Tax Laws (Amendment) Act, 1987, section 147 reads as under :

ITA No. 1036/Mds/2016. :- 22 -:

" 147. Income escaping assessment.—If—

(a) the Income-tax Officer has reason to believe that, by reason of the omission or failure on the part of an assessee to make a return under section 139 for any assessment year to the Income-tax Officer or to disclose fully and truly all material facts necessary for his assessment for that year, income chargeable to tax has escaped assessment for that year, or

(b) notwithstanding that there has been no omission or failure as mentioned in clause (a) on the part of the assessee, the Income-tax Officer has in consequence of information in his possession reason to believe that 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 or recompute the loss or the depreciation allowance, as the case may be, for the assessment year concerned (hereafter in sections 148 to 153 referred to as the relevant assessment year)." 4. After the enactment of the Direct Tax Laws (Amendment) Act, 1987, i.e., prior to 1st April, 1989, section 147 of the Act, reads as under : " 147. Income escaping assessment.—If the Assessing Officer, for reasons to be recorded by him in writing, is of the opinion that any income chargeable to tax has escaped assessment for any assessment year, he may, subject to the provisions of sections 148 to 153, assess or reassess such income and also any other income chargeable to tax which has escaped assessment and which comes to his notice subsequently in the course of the proceedings under this section, or recompute the loss or the depreciation allowance or any other allowance, as the case may be, for the assessment year concerned (hereafter in this section and in

ITA No. 1036/Mds/2016. :- 23 -:

sections 148 to 153 referred to as the relevant assessment year)." In our opinion, there was no fresh material available with the ld. Assessing Officer for harboring even a doubt that any income had

escaped assessment. The reopening in our opinion was purely based on a change of opinion. It failed to satisfy the test laid down in

Sec.147 of the Act. We hold the reopening to be bad in law. The assessment stands set aside. Since we have decided the ground on

jurisdiction in favour of the assessee, merits of the issues are not considered.

In the result, the appeal of the assessee is treated as 9.

allowed. Order pronounced in the opening court at the time of hearing on 7th December, 2017, at Chennai.

Sd/- Sd/- (जॉज� माथन) (अ�ाहम पी. जॉज�) (GEORGE MATHAN) (ABRAHAM P. GEORGE) �या�यक सद�य/JUDICIAL MEMBER लेखा सद�य/ACCOUNTANT MEMBER

चे�नई/Chennai �दनांक/Dated: 7th December, 2017. KV आदेश क� ��त�ल�प अ�े�षत/Copy to: 1. अपीलाथ�/Appellant 3. आयकर आयु�त (अपील)/CIT(A) 5. �वभागीय ��त�न�ध/DR 2. ��यथ�/Respondent 4. आयकर आयु�त/CIT 6. गाड� फाईल/GF