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Income Tax Appellate Tribunal, BENCH ‘A’ KOLKATA
Before: Hon’ble Shri N.V.Vasudevan, JM & Shri M.Balaganesh, AM ]
ORDER PER N.V.VASUDEVAN, JM:
This is an appeal by the Revenue against the order dated 27.10.2014 of CIT(A)-VI, Kolkata, relating to AY 2002-03. 2. Grounds of appeal raised by the Revenue read as follows :-
1. That on the facts and in the circumstances of the case, the C.I.T (A) erred as on facts as well as in law in holding that the case was reopened on the basis of change of opinion, ignoring the fact that the issue on which the case was reopened was not considered in the original assessment, and as such, reopening of the cases was valid as decided by the Bombay High Court in the case of Yuvraj Vs Union of India (315 ITR 84).
3. That the appellant craves leave to add, alter, or withdraw any ground or grounds of appeal on or at the time of hearing of the appeal.”
The Assessee is a Government of India enterprise under the control of Ministry of Petroleum and Natural Gas. For A.Y.2002-03 the assesee filed return of income on 30.10.2002 and the revised return of income on 27.02.2003. The income declared in the revised return was a loss of Rs.11,41,09,915/-. The assessee declared book profits u/s 115JB of the Income Tax Act, 1961 (Act) of Rs.8,08,18,867/-. An order of M/s. Balmer Lawrie & Co.Ltd A.Y.2002-03 2 assessment u/s 143(3) of the Income Tax Act, 1961 (Act) was passed by the AO on 28.03.2005.
In the computation of income and in arriving at the total income as per the computation of total income the assessee had claimed deduction of a sum of Rs.6,50,01,073/- under the head “Investments written off”. In a notice issued u/s 142 of the Act dated 23.11.2004, the AO called upon the assessee to explain under which provision of the Act “provision for diminishing in value of investment” of Rs.6.5 crores has been considered as an allowable expenditure. In response to the said query of the AO the assessee filed a detailed note explaining the transactions by which the deduction on account of diminishing in value of investment was claimed by the assessee as an allowable expenditure while computing the income from business. The said note which contains all details and explains as to how a joint venture company was promoted by the assessee and Cochin Refineries Ltd and the joint venture company ultimately merged with Cochin Refineries Ltd and how the assessee company got shares in the merged company in exchange for the shares it held in the joint venture company and as to how consequent to the allotment of shares in the merged company there was a diminution in the value of shares held by the assessee. The AO completed the assessment u/s 143(3) of the Act vide its order dated 28.03.2005, he did not disallow the expenditure claimed by the assessee as deduction on account of diminishing in value of investment amounting to Rs.6.5 crores.
There was a Comptroller and Auditor General (CAG) report in which it was opined that diminishing in value of investment of Rs.6.5 crores was capital in nature but was not disallowed while concluding the assessment of the assessee for A.Y.2002- 03. This report is stated to be for the year 2008. There appears to be a revenue audit objection, a copy of which is placed at page 33 of the assessee’s paper book in which there was a doubt raised as to whether the diminishing value of investment was capital in nature and ought not to have been allowed as a revenue expenditure while computing the business income of the assessee. This revenue audit objection does not bear any reference as having been raised consequent to the CAG report. M/s. Balmer Lawrie & Co.Ltd A.Y.2002-03 3
While the matter stood thus, the AO issued notice u/s 148 of the Act to the assessee dated 09.09.2008. The said notice was duly served on 11.09.2008. The reasons recorded by the AO. The reasons recorded by the AO before issuing notice u/s 148 of the Act making an assessment u/s 148 are as follows :-
“Reasons to believe:
On perusal off records, it is noticed that the assessee has debited its P/L account by RS.65001073/- under the head of " Investment Written Off' - which the assessee has failed to add back in the computation of income
While submitting his return of income for the assessment year 2002-03 the assessee has himself disallowed "Investment written -off" and added back in its computation of income.
The investment written off is capital -in-nature and hence should be disallowed as revenue expenditure .The assessee has not added it back for the Assessment year 2002-03; as it has done for next Assessment year 2003-04.
Therefore, I have reason to believe that an income of Rs.6,50,01,073/- chargeable to tax has escaped assessment for the assessment year 2002-03.”
It can be seen from the date of issue of notice u/s 148 of the Act namely 09.09.2008 that the assessment was sought to be reopened in the case of the assessee for A.Y.2002-03 and such reopening is beyond the period of four years from the end of the relevant assessment year. We have already seen in the case of the assessee that an order of assessment u/s 143(3) for A.Y.2002-03 has already been completed by order dated 28.03.2005. Proviso to section 147 of the Act reads thus :- “Provided that where an assessment under sub-section (3) of section 143 or this section has been made for the relevant assessment 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”
It can be seen from the proviso to section 147 of the Act that where an assessment u/s 143(3) of the Act has already been made for the relevant assessment year, no M/s. Balmer Lawrie & Co.Ltd A.Y.2002-03 4 action can be taken u/s 147 of the Act after the expiry of four years from the end of the relevant assessment year. The exception provided in section is that income chargeable to tax should have escaped assessment by reasons of the failure on the part of the assessee to disclose fully and truly all material facts necessary for his assessment for that assessment year. This is the relevant clause applicable to the case of the assessee.
The AO passed an order u/s 147 r.w.s. 143(3) of the Act on 19.01.2009 wherein the AO held that the investments in the shares made by the assessee was a capital investment and written off in such investment was also capital in nature and cannot be allowed as revenue expenditure. The AO therefore concluded that the sum of Rs.6.50 lakhs should be added to the total income of the assessee.
Aggrieved by the order of AO the assessee preferred appeal before CIT(A).
Before CIT(A) the assessee challenged the validity of initiation of reassessment proceedings. It was contended that while concluding the original assessment proceedings u/s 143(3) of the Act, the nature of diminution in value of investments which was claimed as deduction while computing the income from business, was duly examined by the AO and the assessee furnished all the details and the AO did not think it fit to disallow the claim of the assessee for deduction of the aforesaid sum as revenue expenditure. The assessee therefore submitted that there was no failure on the part of the assessee to disclose fully and truly all material facts necessary for assessment and therefore initiation of re-assessment proceedings beyond the period of four years from the end of the relevant previous year was not valid in view of the first proviso to section 147 of the Act. The assessee also submitted that the reassessment proceedings have been initiated by the AO purely on the basis of change of opinion and in this regard the assessee placed reliance on the decision of the Hon’ble Supreme Court in the case of CIT vs Kelvinator of India Ltd. 320 ITR 561 (SC).
12. After considering the submissions of the AO, who relied on the decision of Hon’ble Gujarat High Court in the case of Gujarat Power Corporation Limited vs ACIT 350 ITR 266 (Guj) and CIT vs Sun Engineering Works Pvt. Ltd. 198 ITR 297 M/s. Balmer Lawrie & Co.Ltd A.Y.2002-03 5 (SC) the CIT(A) held that the initiation of reassessment proceedings was not valid. CIT(A) accordingly annulled the order of assessment. According to CIT(A) the first proviso to section 147 of the Act was applicable and since there was no failure on the part of the assessee to fully and truly disclose all the facts initiation of reassessment proceeding beyond the period of four years is not valid. The following are the relevant observations of CIT(A) :-
“After considering the contentions made by the appellant and the assessing officer, I find more force in those made by the appellant. While there was no reference to any audit objection in the reason to believe that income had escaped assessment recorded by the assessing officer, there was also no mention of the escapement being on account of any failure of the appellant in making full and true disclosure of material facts. Rather, the reason is based directly on entry in the P&L a/c which was very much available to the assessing officer at the time of original assessment. Moreover, in the original assessment proceedings, specific query had been raised by the assessing officer on this point and after considering the explanation made by the appellant, no addition had been made. Therefore, escapement, if any, cannot be attributed to any lack of disclosure on the part of the appellant. Rather, it amounts to change of opinion. It has been held in a number of decisions, including that of Hon'ble Supreme Court in the case of CIT vs. Kelvinator of India Ltd. 320 ITR 561 (SC), that assessment cannot be reopened on mere change in opinion. The decision of Gujarat High Court in the case of Gujarat Power Corporation Ltd. 350 ITR 266 (Guj.) does not assist the case of he assessing officer in any way. Firstly, it relates to reopening within a period of four years from end of assessment year, when the first proviso did not come into picture. True, it has been observed in the cited decision that if in the original assessment the assessing officer had not examined the claim of the assessee, had not raised query or elicit answers, it cannot be stated that merely because of the fact, that the assessing officer did not reject such a claim in the final order of assessment, he should be deemed to have expressed an opinion with reference to such claim. However, in the same decision (which, as a matter of fact, was against revenue), it has also been held, that if the assessing officer, in course of assessment proceedings, makes a query on certain claim and thereafter does not make addition, he can be stated to have formed opinion. In the appellant's case, on the other hand, reopening is after lapse of period of four years and the original assessment had been made under section 143(3). Moreover, a specific query had been raised on the issue by the assessing officer at the time of original assessment. Therefore, the ratio given by the Gujarat High Court in the case of Gujarat Power Corporation Ltd. (supra) in fact goes in favour of the appellant. The decision in the case of Sun Engineering Works Pvt. Ltd. (supra) cited by the assessing officer only clarified the scope of reassessment once an assessment has been validly reopened. However, this decision does not discuss M/s. Balmer Lawrie & Co.Ltd A.Y.2002-03 6 the issue of validity of reopening and hence is not germane in the issue of consideration.
To summarise, in the appellant's case, the original assessment was made u/s 143(3) of the Income Tax Act, 1961, during which specific query had been raised on the issue of 'investment written off and after considering the reply no addition had been made. Therefore, the escapement of income from assessment, if any, was not on account of lack of disclosure of material facts on the part of the appellant. Hence, in view of restriction placed by first proviso to section 147 of the Act, the assessment could not be reopened for the reason recorded by the assessing officer. Considering this legal position, I am left with no alternative but to quash the reopening of assessment.”
The CIT(A) did not go into the merits of the addition made by the AO. Aggrieved by the order CIT(A) the revenue has preferred the present appeal before the Tribunal.
We have heard the submissions of the ld. DR and the ld. Counsel for the assessee. The crux of the arguments of the ld. DR was that on almost identical facts the Hon’ble Bombay High Court in the case of Yuvraj vs Union of India and Another 315 ITR 84 (Bom) had upheld the validity of initiation of re-assessment proceedings. We have perused the decision of the Hon’ble Bombay High Court in the case of Yuvraj vs Union of India and Another (supra). In the aforesaid case the assessee received a sum of Rs. 12 lakhs on sale of right to purchase open plot of land in Pune and disclosed it in the return of income filed for A.Y.1996-97. The same was brought to tax in the order of assessment u/s 143(3) of the Act. Later on reassessment proceedings u/s 147 of the Act were initiated on the ground that the income in question was of casual in nature and had to be brought to tax at a higher rate. The initiation of re-assessment proceedings was challenged by the assessee in a writ petition. It was contended on behalf of the assessee that the issue whether the income in question was capital gain or casual income was addressed by the AO while concluding the assessment u/s 143(3) of the Act and therefore initiation of the reassessment proceedings u/s 147 of the Act was on a mere change of opinion. This was rejected by the Hon’ble Bombay High Court. We do not see any similarity of M/s. Balmer Lawrie & Co.Ltd A.Y.2002-03 7 facts of the assessee’s case with the case decided by the Hon’ble Bombay High Court. As we have already explained that the CIT(A) in the present case held that initiation of reassessment proceedings was not valid in view of the first proviso to section 147 of the Act as the assessment of the assesse was sought to be reopened after a period of four years from the end of the relevant assessment year and an order of assessment u/s 1543(3) of the Act for the relevant assessment year has already been completed by the AO. The CIT(A) also came to the conclusion that there was no failure on the part of the assessee to fully and truly disclose all the material facts necessary for assessment of that assessment year. We are therefore of the view that there is no merit in the stand taken by the revenue in the grounds of appeal which was also the basis of submissions made by the revenue before us. Another aspect submitted by the ld. DR was that while concluding the assessment u/s 143(3) of the Act, the AO had not expressly dealt with the issue of allowability of deduction on account of diminishing in value of investments. We are of the view that this argument of the ld. DR is also without any merit. The Hon’ble Gujarat High Court in the case of Sai Consulting Engineers Pvt. Ltd vs DCIT 377 ITR 354 (Guj) dealt with a situation of challenge of initiation of re- assessment proceedings u/s 147 of the Act. While concluding the original assessment proceedings the AO raised queries on issues which were recorded by the AO in the reasons for initiation of re-assessment proceedings. The AO while completing the original assessment proceedings did not make any reference or give any reasons for accepting the answer of the assessee to the issue but did not make any addition. The question before the Court was whether the re-assessment proceedings were validly initiated. The Hon’ble Gujarat High Court held that in the given circumstances the AO may be held to have applied his mind on this issue and thereafter allowed the claim of the assessee. It cannot therefore be said in the present case that the AO while completing the original assessment did not consider the issue with regard to the allowability of deduction on account of diminishing in value of investments. The arguments of the ld. DR in this regard is therefore not accepted.
15. Arguments were also advanced before us on the validity of reassessment proceedings based on audit objection on a point of law and the validity of initiation of M/s. Balmer Lawrie & Co.Ltd A.Y.2002-03 8 reassessment proceedings on a mere change of opinion. Several decisions were also filed in the form of paper book before us. We do not deem it necessary to consider all those arguments and decisions in view of our conclusion that the conditions to be satisfied for validity of reassessment proceedings by the first proviso to section 147 of the Act are not satisfied in the present case. In conclusion we hold that there is no merit in this appeal by the revenue and the order of CIT(A) does not suffer from infirmity. Order of CIT(A) is therefore confirmed and the appeal of the revenue is dismissed.
In the result the appeal by the revenue is dismissed.
Order pronounced in the Court on 18.08.2017.