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Income Tax Appellate Tribunal, DELHI BENCH: ‘A’ NEW DELHI
Before: SHRI G.D. AGRAWAL, HON’BLE & SHRI SUDHANSHU SRIVASTAVA
ORDER PER SUDHANSHU SRIVASTAVA, JUDICIAL MEMBER: The present appeal has been preferred by the Department against the order dated 05/06/2013 passed by the ld. CIT(Appeals)-XXXI, New Delhi for AY 06-07, wherein he has held the reassessment proceedings u/s 147/148 of the Income Tax Act (the Act in short) as invalid. Page 1of 9 M/s Ansal Properties & Infrastructure Ltd.
In this case the original assessment was completed on 31/12/08 u/s 143(3) of the Act at a total income of Rs. 581,352,929/-. Thereafter, a notice u/s 148 of the Act was issued on 28/03/11 and the assessee filed its return of income on 29/04/11 under protest. The assessee objected to the initiation of reassessment proceedings which was not accepted by the AO and the assessee was required to show cause as to why interest on borrowed capital amounting to Rs. 120,368,000/- and expenditure on directors meeting fee at Rs. 478,000/- should not be considered for working out the deduction u/s 80IB(10) of the Act. The reasons recorded for the reassessment proceedings read as under:
“While computing deduction u/s 80IB (10) of the Income Tax Act, 1961, the assessee has not considered interest on borrowed capital at Rs. 120368000/- and expenditure on directors meeting fee at Rs. 478000/-. Thus, claiming excess deduction under the section. Both these expenses are relatable to the projects in respect of such deduction has been claimed.”
“The income chargeable to tax has escaped assessment by reason of failure on the part of the assessee and to disclose fully and truly all material facts necessary for the assessment. Therefore, I have reasoned to believe that income as mentioned above has escaped assessment. Accordingly, notice issued u/s 148 of the Income Tax Act, 1961.” Page 2of 9 M/s Ansal Properties & Infrastructure Ltd.
The reassessment was finally completed on 30/12/11 after making a disallowance of Rs. 8,994,689/- by re-computing the deduction u/s 80IB (10).
Aggrieved the assessee preferred an appeal before the ld. CIT (Appeals). The ld. CIT (Appeals) held that there was no mention of any new facts/fresh material which came into the possession of the AO on the basis of which he had reason to believe that income had escaped assessment.
The ld. CIT (Appeals), relying on the decision of the Hon’ble Delhi High Court in the case of CIT vs. Orient Craft Ltd. in allowed the assessee’s appeal and held that the reassessment was invalid.
Aggrieved the Department has preferred this present appeal and has raised the following ground of appeal:
2. “Whether on the facts and in the circumstances of the case the ld. CIT (A) is correct in law in holding that in the absence of fresh material, assessment cannot be re-opened by issue of notice u/s 148 of the I.T. Act, 1961 whereas the Apex Court has held that if some material for the assessment lay embedded in the evidence which the Revenue could have uncovered but did not, then it is the duty of the assessee to bring it to the notice of the assessing authority.”
Page 3of 9 M/s Ansal Properties & Infrastructure Ltd.
The ld. DR placed heavy reliance on the assessment order and the reasons recorded by him for the reopening and submitted that the reassessment proceedings had been correctly initiated and that the ld. CIT (Appeals) was patently wrong in quashing the reassessment proceedings.
The ld. AR submitted that merely because there was no discussion in the assessment order on the issue of interest and directors fee, it was not a sufficient ground to allege that assessment had been made without forming any opinion. It was further submitted that the AO has the power to reopen the assessment only where there is a fresh tangible material to come to the conclusion that there has been an escapement of income and that there can be no review of an assessment in the guise of reopening. It was further submitted that in the present appeal no fresh tangible material in respect of the claim of deduction u/s 80IB (10) has come on record subsequent to the original assessment and hence, there was no nexus between the reasons and escapement of income. It was further submitted that from the balance sheet it was evident that as compared to the year ended 31/03/05, assessee’s share capital and reserve as on 31/03/06 had increased from Rs. 10,564.70 lacs to Rs. 14,193.52 lacs and in the same period the borrowed funds decreased from Rs. 12,674.02 lacs to Rs. 9,800.44 lacs and even the interest Page 4of 9 M/s Ansal Properties & Infrastructure Ltd. expenditure has been reduced from Rs. 1,742.24 lacs to Rs. 1,203.68 lacs thus, raising a valid presumption in favour of the assessee that the funds provided to Valley View Estate Project was from the assessee’s own funds and hence the claim of deduction u/s 80IB (10) was correct. It was also submitted that the Schedule XVII to the balance sheet specifically states that “borrowing costs which have a direct nexus and are directly attributable to the construction projects are charged to the project and other borrowing costs are expensed as period costs.” It was also submitted that the impugned amounts relating to interest on borrowed capital (Rs.
12,036,8000/-) and directors meeting fee (Rs. 478,000/-) were duly disclosed in the profit and loss account filed along with returned income.
Thus, all the primary facts were duly disclosed at the time of filing of the return. It was further submitted that the ld. CIT (Appeals) in the appellate order for AY 07-08 has adjudicated that the profit eligible for deduction u/s 80IB (10) cannot be reduced by the amount of directors meeting fee as the same is not attributable to any project and would have to be incurred even if there is no project in hand. It was submitted that this finding by the ld. CIT (Appeals) has not been challenged by the Department in a further appeal.
We have heard the rival submission and perused the material on Page 5of 9 M/s Ansal Properties & Infrastructure Ltd. record. A perusal of the reasons recorded by the AO clearly shows that the assessment originally completed u/s 143(3) of the Act were reopened by him without any new material or information which could be said to have come into his possession after the completion of the original assessment. It is very much clear that the assessment was reopened on the basis of fresh application of mind to the same material which was available even at the time of original assessment. It is amply clear on the facts of the case that the initiation of reassessment proceedings was based on a mere change of opinion of the AO which is not permissible in law. When a regular assessment is passed in terms of provisions of section 143(3), presumption can be raised that such an order has been passed on application of mind by the AO and subsequent to that there lies nothing in the mouth of the AO to say that such an order was passed without application of mind and thus to confer jurisdiction upon him to reopen the proceedings. It is a well settled law that power u/s 147 of the Act cannot be used to review an earlier order.
The Hon’ble Delhi High Court in the case of CIT vs. Kelvinator of India Ltd., 256 ITR 1 has held as under:
“When a regular assessment is passed in terms of sub-section (3) of sec. 143, a presumption can be raised that such an order has been passed on application of mind. Such a presumption can be Page 6of 9 M/s Ansal Properties & Infrastructure Ltd. raised in terms of clause (e) of sec. 114 of the Indian Evidence Act, 1872 that such an Act has been regularly performed. If it be held that an order which has been passed purportedly without application of mind would itself confirm jurisdiction upon the AO to reopen the proceedings without anything further, the same would amount to giving a premium to an authority exercising quasi judicial function to take benefit of its own working. Hence it is clear that sec. 147 of the Act does not postulate conferment of power upon the AO to reinitiate reassessment proceedings upon a mere change of opinion which is not permissible.”
The Hon’ble Apex Court affirmed the decision of the Hon’ble Delhi High Court in the case of Kelvinator of India Ltd. (supra) in its decision in CIT vs. Kelvinator of India Ltd., 320 ITR 561 (SC). The Hon’ble Apex Court held as under:
“However, one needs to give schematic interpretation to the words reason to belief failing which, we are afraid, section 147 would give arbitrary powers to the Assessing Officer through reopening 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 AO has no power to review; he has the power to reassess. But reassessment has to be based on fulfillment of pre-conditions and if the concept of change of opinion is removed, as contended on behalf of the department, Page 7of 9 M/s Ansal Properties & Infrastructure Ltd. then, in the garb of reopening of assessment, review would take place. One must beat the concept of change of opinion as an inbuilt test to check abuse of power by the AO”.
The Hon’ble Supreme Court in ITO vs. Lakhmani Mewaldas 103 ITR 437 (SC) laid down the following principles:
a) “The powers of the AO 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 of 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 subjective satisfaction of the assessing authorities; 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 giving to the notice of the AO and the formation is believed regarding escapement of income. f) The fact that the words definite information which were there in sec. 34 of the Act 1922 before 1948, are not there in sec. 147 of the1961 Act, would not lead to the conclusion that action can now be taken for Page 8of 9 M/s Ansal Properties & Infrastructure Ltd. reopening an assessment even if the information is wholly vague, indefinite, farfetched or remote”.
Having regard to the facts of the case in the instant appeal before us as well as the judicial pronouncements as discussed aforesaid, we have no hesitation in holding that from the reasons recorded it is very much clear that there was no fresh material available with the AO when he reopened the assessment which was originally completed u/s 143(3). It is very much a change of opinion by the AO and his action is not legally tenable. Hence, we uphold the order of the ld. CIT (Appeals) and dismiss this Departmental appeal.
In the final result, the appeal of the Department is dismissed.