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Income Tax Appellate Tribunal, “B” BENCH, MUMBAI
Asst. Commissioner of Income Tax, Mani Exports 16(3), Mumbai, Matru Mandir, 1903 Panchratna Opera House, Vs. 2nd Floor, R. No. 206 Tardeoi Mumbai-400 004 RD, Mumbai-07 Appellant .. Respondent PAN No. AAEFM2320F Revenue by .. Shri Dr. Suman Ratnam, DR Assessee by .. Shri K.A. Vaidyalingan, AR Date of hearing .. 09-02-2017 Date of pronouncement .. 26-04-2017 O R D E R PER MAHAVIR SINGH, JM:
This appeal by the Revenue is arising out of the order of CIT(A)-27, Mumbai, in appeal No. CIT(A)-27/ACIT 16(3)/258/2011-12 dated 15-02-2013. The Assessment was framed by ACIT Circle 16(3), Mumbai for the A.Y. 2004- 05 vide order dated 27-12-2011 u/s 143(3) of the Income Tax Act, 1961 (hereinafter ‘the Act’).
2. The only issue in this appeal of Revenue is against the order of CIT(A) in quashing the reopening under section 147 read with section 148 of the Act for this Revenue has raised following two grounds: - “1. Whether on the facts and circumstances and in law, the Ld. CIT(A) erred in allowing the appeal of assessee without considering the facts that the notice under section 148 of the Act was issued by the AO before transferring of jurisdiction over the case?
Whether on the facts and circumstances of the case, the Ld. CIT(A) erred in holding that the reopening under section 147 of the Act was bad in law without considering that the assessee has not furnished correct computation of deduction under section 80 HHC of the IT Act.”
Briefly stated facts are that the assessee for the AY 2004-05 filed its return of income on 28-10-2004. Along with this return of income, the assessee filed auditors certificate in form No. 10CCAC claiming deduction under section 80HHC at Rs. 97,6,022/-. The assessee for claiming this deduction has considered the profits and gains of business of Rs. 324.40 lakhs disclosed in the profit and loss A/c which includes income on account of exchange rate difference amounting to Rs. 2.58 crores and an amount of Rs. 4.47 lakhs on account of other incomes being interest received from bank, insurance claim etc. Original assessment was completed under section 143(3) on 30-11-2006 wherein full deduction was allowed after computing the working of deduction claimed under section 880HHC of the Act. Subsequently, the AO reopening the assessment by recording the following reasons: - “On perusal of assessment order and order giving effect to CIT(A)'s, excess deduction u/s. 80 HHC of the Act was allowed to the assessee. On perusal of annexure to form 10 CCAC filed by the assessee, it was observed that the profit of business was determined same as the profit and gain of business of Rs.324.40 lakhs without reducing any amount on account of the provision of explanation (baa) of section 80 HHC. The Profit and loss account was credited by other income of Rs.263.38 lakhs, the breakup of which is as under:
Thus, the profit of business of Rs.324.40 laths considered for arriving at the deduction u/s. 80 HHC of the Act, included the sum of Rs.258.90 lakhs also. This amount was required to be wholly excluded from the profit of business. Further, 90% of other receipts of Rs.4,47,606/- under the other income was also required to be reduced to arrive at the profit of business due to the o In the course of assessment proceedings assessee submitted details called for and the same is placed on record".”
The AO reopened by issuing notice under section 148 dated 14-12-2010 after expiry of four years from the end of the relevant AY 2004-05. The AO re- worked the computation of deduction under section 80HHC of the Act and disallowed the deduction in regard to the exchange rate difference on import and exchange fluctuation rate difference of Rs. 2,58,90,275/-. Further, other receipts of Rs. 4,04,47,606/- was also disallowed. Aggrieved assessee preferred the appeal before CIT(A) and challenged the reopening. The CIT(A) quashed the reassessment proceedings by observing that there is change of opinion on the part of AO in regard to recompute deduction u/s 80HHC of the Act and also the time limit of 6 years from the end of the AY was elapsed as the AY is 2004-05 an notice u/s 148 was issued on 14-12-2010 by the DCIT Circle-9, Surat whereas the jurisdiction was transferred vide order u/s 127(2) of the Act on 15-12-2010 with ACIT Circle 16(3) Mumbai where the records were send only after 30-11- 2011 by which time 6 years already elapsed. For this CIT(A) observed as under: - “6. I have carefully considered the contents of the assessment order and the appellant's submissions. At the outset, I note that all the relevant facts required for computing the deduction u/s.80HHC which inter alia includes the profits available to the appellant on account of fluctuation in foreign exchange have been fully and truly disclosed in the P & L A/c /Auditor's Certificate in Form No.1OCCAC filed along with the return of income. In other words, the impugned materials were part and parcel of the record and were fully and truly disclosed by the appellant at the time of original assessment u/s.143(3) and there is no failure on the pad of the appellant in this regard. On having verified the same, the A.O. has allowed the deduction u/s.80HHC as claimed by the appellant at the time of original assessment. It is also pertinent to note that the original assessment was subject matter of appeal before the CIT(A) on certain other grounds and there was no dispute as to the deduction u/s.80HHC that was allowed by the A.O. either at the time of original assessment or appeal proceedings. The deduction sought by the appellant was not disturbed even in the order giving effect to the CIT (A)'s order. In this background, in my considered opinion, there is no new material that was brought on record by the A.O. at present to arrive at a different conclusion. As already noted, there was no failure on the part of the appellant to disclose truly and fully all the relevant facts in this regard. In the above background, the reopening of the assessment with the intention to recompute the deduction u/s.80HHC would amount to change of opinion on the part of the A.O. It is judicially held in many a cases that the assessment cannot be reopened due to a change of opinion on the part of the A.O. Thus, in my considered opinion, the assessment could not have been reopened u/s.147 of the Act in the given facts and circumstances and the notice issued u/s.148 of the Act is bad in law.
6.1 From the perusal of the records, it is noted that the A.O. i.e. DCIT Cir-9, Surat sought to reopen the assessment u/s.147 of the Act vide his proposal dated 13.12.2010, which was approved by the CIT-3, Surat on 14.12.2010. Thereafter, the A.O. issued the notice uls148 dated 14.12.2010 which was served on the appellant's accountant at 7 p.m. on 31.3.2011. In the meanwhile, on 15. 12,2010, order uls.127(2) of the Act was passed by the CIT-3, Surat, a copy of which was also marked to DCIT Cir-9, Surat that the jurisdiction over the case was transferred with immediate effect to ACIT 16(3), Mumbai. In other words, while the DCIT Cir-9, Surat ceased to have jurisdiction over the appellant w.e.f. 15.12.2010 and nevertheless, he has served the notice u/s.148 dated 14.12.2010 issued by him on the appellant as late as 31.3.2011. In other words, the DCIT Cir-9, Surat has served the impugned notice without having the jurisdiction over the appellant. In my considered opinion, once the DCIT Cir-9, Surat ceases to have jurisdiction over the appellant w.e.f. 15.12.2010 and their being no notice u/s.148 served on the appellant by the DCIT Cir-9, Surat as on 15.12.2010, the mere fact that the DCIT Cir- 9. Surat has issued the notice uls.148 dated 14.12.2010 which was lying on his file unserved is of no consequence and it cannot be considered as a valid notice to proceed with the assessment u/s.147 of the Act. The law requires that ACIT 16(3), Mumbai. the present A.O. having jurisdiction over the appellant w.e.f. 15.12.2012 ought to have recorded the reasons on his own, followed the due procedure and then issued the notice uls.148 of the Act independently. It is also noted that even though the order u/s.127(2) was passed on 15.12.2010, the assessment records continues to lie with the Surat office and it was Page 5 of 12 only after repeated reminders from the ACIT 16(3), Mumbai that the records were finally sent on 30.11.2011 to the present A.O. by which time, the limit of six years from the end of the assessment year was lapsed. Thus, in my considered opinion, (a) the DCIT Cir-9, Surat has no jurisdiction to serve the notice issued by him uls.148 of the Act after 15.12.2010 on the appellant and thus the notice served by him on 31.3.2011 is invalid. (b) There is no notice issued by the jurisdictional AD. i.e. AOIT 16(3), Mumbai u/s.148 of the Act at any time after 15.12.2010 and before 31.3.2011. In other words, on procedural matters, I hold that there is no valid notice u/s.146 that was issued by the A.O. apart from the finding that the A.O. could not have issued any such notice in the given facts and circumstances that it amounts to change of opinion and there being no fresh materials brought on record. Thus, on both the grounds, the assessment made u/s. 143(3) r.w.s.147 of the Act is bad in law and therefore, the assessment is declared as null and void. Accordingly, the assessment is annulled.
Aggrieved, against the order of CIT(A) quashing the reassessment on change of opinion Revenue came in appeal before Tribunal.
We have heard rival contentions and gone through the facts and circumstances of the case. We find from the facts of the case that the assessee has claim deduction u/s 80HHC of the Act at Rs. 97,06,022/- as disclosed in the audit report in form No.10 CCAC. The assessee has considered profits and gains in business amounting to Rs. 3,24.40 lakhs which includes income on account of exchange rate difference amounting to Rs. 2.58 crore and an amount of Rs. 4.47 lakhs on account of interest from bank and insurance claim etc. The AO during the course of original proceeding examine the working of the claim of deduction u/s 80HHC of the Act and framed assessment u/s 143(3) of the Act. Admittedly, the AO reopened the assessment after expiry of four years from the end of relevant AY by issuing notice u/s 148 of the Act dated 14-12-2010. It was Page 6 of 12 claimed that there was no failure on the part of the assessee to disclose fully and truly all material facts necessary for the assessment of the assessee. There is no allegation in the reasons recorded that there is any failure on the part of the assessee to disclose any material fact, fully and truly, necessary for the assessment of the assessee. Once there is no failure on the part of the assessee to disclose the material facts, the assessment could not be reopened by invoking the provisions of section 147 r.w.s. 148 of the Act as that will tantamount the change of opinion. Accordingly, we confirm the order of CIT(A) quashing the re- assessment for the reason that the assessee’s case falls under proviso to section 147 of the Act.
We find that this issue is squarely covered in favor of the assessee and against Revenue by the decision of Hon’ble Supreme Court in the case CIT vs. Foramer France (2003) 264 ITR 566 (SC) has taken the view that the first proviso to section 147 of the Act lays down an exception whereby the AO is not permitted to exercise his jurisdiction in reopening the assessment beyond a period of four years from the end of the relevant assessment year. Once the exception carved out by proviso to s. 147 of the Act comes into play, the case would fall outside the ambit of s. 147 of the Act. As per proviso to s. 147 of the Act, no action under this section can be taken after expiry of four years from the end of the relevant assessment year, unless inter alia, income chargeable to tax had escaped assessment by reason of failure of the assessee to make full and true disclosure of all material facts necessary for assessment. In case, there being no whisper in the reasons supplied to assessee that income escaped assessment by reason of assessee’s failure to make a full and true disclosure of all material facts necessary for assessment, notice under s. 148 of the Act issued beyond four years from the end of relevant assessment year was barred by limitation under proviso to s. 147 of the Act, hence without jurisdiction. If either of these conditions is not fulfilled the notice is without jurisdiction. If the notice issued u/s 148 fails to satisfy either of the conditions, it deserves to be quashed. However, the officers have many time issued notices for reopening the assessments even beyond four years from the end of the assessment year without fulfillment of any of the legal conditions as stipulated in the first proviso to this Page 7 of 12 section. Such an action of the revenue authorities is strictly challenged by the taxpayers at large in the court of law and courts have quashed the notice issued by Revenue authorities or quashed the re-assessment orders. Hon’ble Supreme Court affirmed the judgment of Hon’ble Allahabad High Court in the case Foramer vs. CIT (2001) 247 ITR 436 (All) wherein Hon’ble Allahabad High court has considered the issue as under: - “Having heard the learned counsels for the parties, we are of the view that these petitions deserve to be allowed.
It may be mentioned that a new section substituted section 147 with effect from 1-4-1989. The relevant part of the new section 147 is as follows :
"147. Income escaping assessment.—If the Assessing Officer has reason to believe that any income chargeable to tax has escaped assessment for any assessment year, he may, subject to the provisions of sections 148 to 153, assess or reassess such income and also any other income chargeable to tax which has escaped assessment and which comes to his notice subsequently in the course of the proceedings under this section, or 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 sections 148 to 153 referred to as the relevant assessment year) :
Provided that where an assessment under sub-section (3) of section 143 or this section has been made for the relevant assessment year, no action shall be taken under this section after the expiry of four years from the end of the relevant assessment year, unless any income chargeable to tax has escaped assessment for such assessment year by reason of the failure on the part of the assessee to make a return under section 139 or in response to a notice issued under sub-section (1) of Page 8 of 12 section 142 or section 148 or to disclose fully and truly all material facts necessary for his assessment, for that assessment year."
This new section has made a radical departure from the original section 147 inasmuch as clauses (a) and (b) of the original section 147 have been deleted and a new proviso added to section 147.
In Rakesh Aggarwal v. Asstt. CIT[1997] 225 ITR 4961, the Delhi High Court held that in view of the proviso to section 147 notice for reassessment under section 147/148 should only be issued in accordance with the new section 147, and where the original assessment had been made under section 143(3), then in view of the proviso to section 147 the notice under section 148 would be illegal if issued more than four years after the end of the relevant assessment year. The same view was taken by the Gujarat High Court in Shree Tharad Jain Yuvak Mandal v. ITO[2000] 242 ITR 612.
In our opinion, we have to see the law prevailing on the date of issue of the notice under section 148, i.e., 20-11- 1998. Admittedly, by that date, the new section 147 has come into force and, hence, in our opinion, it is the new section 147 which will apply to the facts of the present case. In the present case, there was admittedly no failure on the part of the assessee to make a return or to disclose fully and truly all material facts necessary for the assessment. Hence, the proviso to the new section 147 squarely applies, and the impugned notices were barred by limitation mentioned in the proviso.
The learned departmental counsel relied on section 153(3)(ii) of the Act and submitted that there was no bar of limitation in view of the said provision. We do not agree. Section 153 relates to passing of an order of Page 9 of 12 assessment and it does not relate to issuing of notice under section 147/148. Moreover, this is not a case where reassessment is sought to be made in consequence of, or to give effect to, any finding or direction contained in the order of the Tribunal in Boudier Christian's case. As already stated above, Boudier Christian's case related to the employees of the company, whereas the impugned notice has been issued to the company. Hence, it cannot be said that the proposed reassessment in consequence of the impugned notice would be in consequence of, or to give effect to, any findings of the Tribunal in Boudier Christian's case.
A direction or finding as contemplated by section 153(3)(ii ) must be a finding necessary for the disposal of a particular case, that is to say, in respect of the particular assessee and in relevance to a particular assessment year. To be a necessary finding it must be directly involved in the disposal of the case. To be a direction as contemplated by section 153(3)(ii) it must be an express direction necessary for the disposal of the case before the authority or court vide Rajinder Nath v. CIT[1979]120 ITR 141 (SC); Gupta Traders v. CIT[1982] 135 ITR 5042 (All.); CIT v. Tarajan Tea Co. 236 ITR 4773 (SC) and CIT v. Goel (P.) Ltd.[1999] Bros.[1982] 135 ITR 5114(All.), etc. The case of an expatriate employee was to be decided on the basis of the provisions of article XIV of the treaty, whereas corporate income was to be decided on the basis of either article III or article XVI of the treaty or section 44BB. Hence, the observation of the Tribunal in Boudier Christian's case was not a direction necessary for the disposal of the appeal relating to the petitioner. The eligibility of income of the petitioner from manning and management contracts was never an issue directly or indirectly involved in the case of Boudier Christian. Page 10 of 12 Moreover, the Tribunal in the appeal relating to the assessment of the petitioner's own case, vide Dy. CIT v. O.N.G.C. As agent of Foramer France[1999] 70 ITD 468 (Delhi), has considered the decision of the Tribunal in Boudier Christian's case. It is settled law that an appeal is a continuation of the original proceedings and, hence, when the Tribunal in the appeal relating to the petitioner has considered the decision of the Tribunal in Boudier Christian's case, the impugned notice under section 147/148 would obviously be on the basis of a mere change of opinion by the income-tax authorities, which would not be valid as held by the Supreme Court in Indian & Eastern Newspaper Society v. CIT[1979] 119 ITR 996 1 ;Gemini Leather Stores v. ITO[1975] 100 ITR 1 (SC) and Jindal Photo Films Ltd. v. Dy. CIT[1998] 234 ITR 1702(Delhi), etc.
In the decision of the Tribunal in the assessee's own case O.N.G.C.'s (supra), it has been held that the income from the contract between the parties was business income and not fee for technical services.
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.” Page 11 of 12
In view of the above facts and the judgment of Hon’ble Supreme Court in the case of Foramer France (supra), we confirm the order of CIT(A) quashing the re-assessment proceedings. Accordingly, Revenue’s appeal is dismissed.
In the result, the appeal of Revenue is dismissed.
Order pronounced in the open court on 26-04-2017.