PROGREESIVE CONSTRUCTIONS LIMITED vs. JT. COMMISSIONER OF INCOME TAX

[ 32e5 ] IN THE HIGH COURT FOR THE STATE OF TELANGANA AT HYDERABAD WEDNESDAY, THE TWENTY FIRST DAY OF SEPTEMBER TWO THOUSAND AND TWENTY TWO PRESENT THE HONOURABLE THE CHIEF JUSTICE UJJAL BHUYAN AND THE HONOURABLE SRI JUSTICE C.V. BHASKAR REDDY INCOME TAx TRIBUNAL APPEAL NO: 163 OF 2005 Appeal under section 260A of lncome Tax Act 1961 aggrieved by the order of the lncome Tax Appellate Tribunal, Hyderabad Beach, Hyderabad, dated 08-04-2005 in ITA No.26ZHydl99 (Assessment year 1990-91) preferred against the order of the Commissioner of lncome Tax (Appeals) lll Hyderabad dated 12-01-1999 in Appeal No.288/TrlDC.SR.1/ClT(A)lll98/99 preferred against the order of the deputy commissioner of lncome Tax, (Assts) Special Range-|, Hyderabad dated 31-03-1997 in PAN/GIR No. P-2. Between: Progreesive Constructions Limited, Represented Managing Director 7th Floor, "Raghava" North Block, Abids, HYDERABAD. by K. Bhaskara Rao, R.R. Towers, C.A. Lane, ...APPELLANT Jt. Commissioner of income tax, Jt. Commissioner of lncome Tax Special Range - 3, Hyderabad. ...RESPONDENT AND Counsel for the Appellant : SRI CHALLA GUNARANJAN Counsel for the Respondents: J V PRASAD (SC FOR INCOME TAX) The Court made the following: ORDER

THE HON'BLE THE CHIEFJUSTICE UJJAL BHUYAN AND THE HON'BLE SRI JUSTICE C.V.BHASKAR REDDY I.T.T.A.No. 163 of 2005 IUDGMEIYT, rl'er rtt I toihL rtu t.ht lu,n.t t jlat Bhnatl Fleard Mr. Challa Gunaranjan, leamed counsel for the appellant-assessee and Mr. J.V.Pnsad, leamed Standing Counsel, Income Tax Depanment fbr the respondent-revenue. 2. This appeal under Section 260-A of the Income Tax Act, 1961 (briefly 'the Act' hereinafter) has been prefened by the assessee against the order darcd 30.12.2004 passed by the Income Tax Appellate Tribunal, Hyderabad Bench 'A, Hlderabad (Tribunal) in I.T.A.No.262/Hyd/1999 for the assessment )€ar 1990-9t. 3. On 29.08.2005, the appeal was admitted on the following five 'questions of law': ,) i. tVhether changc in method of computation of income wouk'l jr,stify the conclusion that income escaped assessment u/ s.147 of the Income Tax Act ? ii. Whether there is any changc bctween the earlier provisions of Section 147 of Incomc Tax Act and the new provisions o[ that Section substitutecl with effect from .i2::

1.. 01.04.1989 in regard to the scope of words'reason to believe' appearing in the section ? iii. \fltr':ther the lncome Tax Appellate Tribunal is justified in law in disallowing the personnel, adminis -rative and fhancial expenditure relating to the sub-contracts allowed in the or(inal assessment ? iv. \I(h,:ther the order of the Income Tax Appellate Tribunal is perverse insofar as it omined to consider the relevant material ,.rt , computation o[ profits in sub- contrac, worlss ? v. \X4ether t}le order of Income Tax Appellate Tribunal is pewt'rse a]so for the reason that it omitted to consider the re,evant judicial decisions cited in regard to interpretation of Section 147 of the Income Tax Act ? 4. Assessee had filed original retum of inconre on 31.12.1990 declaring incorre of Rs.74,93,200.00. fusessment ordcr \ras passed by the assessing officer on 10.03.1993 under Section 1a3(,1) of the Act determinirrg the income of the assessee ar Rs.1,09.12,410.00. 5. Subscqu,:ntly the aforesaid assessment was reopened under Section 147 ol the Act by issue of notice dated 31.01.1997 under Section 148 of the Act.

4 6 During the reassessment proceedings, assessing officer noted that in the original assessment proceedings, he had not talcn into account certain items of receips, which should not have been treated as contract income being in the nature of other income not relatable to the contract income. Therefore, those receips were added to the incorne of the assessee. Assessing officer funher found that assessee had claimed investment allowance of Rs.45,62227.00, r'hich was allowed in the original assessment order. It was noticed that Supreme C-oun in CIT v. N.C.Buddha Raial held that in the case of contractors, investment allowance could not be allowed since contractors cannot be construed to be engaged in the business of manufacturing or production of anicles orthings. Therefore, the investment allowance of Rs.45,62,227.@ eadier allowed was disallowed. Additionally, assessing officer made disallowance under Section 4lB ol' the Act, depreciation on excavator and depreciation on tmc[s. Thereafter, uide the assessmenr order dated 31.03.1997 passed under Section 143(3) read with Section 1a8(sz;) o[ the Act, assessing officer computed t zol trn ltz

5 the total incor,re of the assessee at Rs.2,16,89,170.00. Flowever, after adjustmerrt of the refund for earlier assessment y3ars, the amount payabl,: bythe assessee was quantified at Rs.95,690.00. 7. Against rhe aforesaid order of assessment, assessee preferred appeal before r he Commissioner of Income Tax (Appeals). By the appellate orde dated 12.01.1999, the appeal was partly allowed. lWhile granting ceftain relief to the assessee, first appellate authority however, held that once the assessment is reopened, it is open to the assessing r,fficer to cvcn rc-cvaluate the material available on rc,co rd and red,:termine the income accordingly. 8 Assessee preferred funher appeal before the Tribtrnal. In ground No.3 of the appeal, assessee contended that esscssing otTicer could not change the basis of original assessmenr by changing his opinion on the same issue, u,hich was carlie r considered an.l decided in the original assessment pro,-:cedings, Cirotrnd No.4 pertains to additions rnade by the :rssessing officcr on account ol :ommission earned on sub-contract and hirc charges \ as other incon-.,e.

6 p 9. Insofar ground No.3 is concemed, Tribunal found that assess;ng officer had not changed his opinion on issues which were already considered and decided m the original assessment Net tumover of assessee continued to be Rs.6,36,16,441.00 and income thereon continued to be assessed @ l5o/o both in the original assessment order as well as in the reassessment order. 10. Regarding ground No.4, Tribunal norcd that assessee had not led any evidence to show that the hire charges on plant & machinery and rent received from house propeny should be considered as contract receips from its own contracts and only a percentage of the same should be brought to tax. Tribr.rnal lurther noted that the entire algument advanced by the assessee was whether the assessing officer could bring to tax other income while making reassessment; and that assessec had not disputed validityof the reqssessment proceedings.

7 ,l II. Accordin; tc the assessee in the reassessment proceedings, the assessing oificer should only have disallowed the investment allowance whic r was earlier allowed by following the decision of the Supremc C rurt in N.C.Budharaia (1 supra) and not brought to tax as 'other nconrc'. 12. Such a c,)ntention of the assessee was not acceprcd by the Tribunal. 'frilrunal took the view that once an assessment is reopened,, assessing officer can assess or reassess any other income chargeable to t;rx which lrad escaped assessment and u'hich comes to the notice o1 the assessing officer subsequendy. 1 l. Before r s, leamed counsel for the assessee strenuor.sly argued that it ,s not open to the assessing officer to make iresh additions or de ete disallowances earlier granted on mere change ol opinion. Reas.essment proceedings cannot be used to review the original assess nen[ proceedings. In this connection, leanrecl Jindal Ph, rtofilnrs Lirnitcd v. DCIT2 CIT v. Kc vinator of India Ltdr. l.I{ I'f R 170 = l99r {6) DRJ c<,unse I has pla :ed reliance on the following decisions:

::8 CIT v. Kelvinator of India Ltda. Ritu Investments Private Limited v. Deputy Commissioner of Income Taxs 14. On the other hand leamed counsel for the respondenr submits that assessee (appellant) has not challenged or questioned reopening of assessment. Flr"i.g accepted reopening of assessment, it is not open to the assessee to quesrion the additions made by the assessing officer on the ground that it amounted to change of opinion or reviewing earlier original assessment mere order. AII the decisions cited by leamed counsel fbr the assessee penain to challenge to reopening of assessment and it uas in that context that the judgments were delivered. F{e has ref'erred to and relied upon a decision of the Supreme C-oun in CIT r,. Sun Engineering Works (P) Ltd6. In this connectiorr, lre has referred to decision of the Supreme Court in VJagan Mohan Rao r,. CITT which has since been reiterated by the Suprcme C-oun in CIT v. Srrn Engineering Works (P) Ltd. (6 supra). I 1z;o trn 1,2) (Der.xFB) t zorolzy scc zz-r 5 z0r0 scc o,,ti.,. ocl 40?o = (m12) 345 ITR 214 u roozl+; scc -to:= 198 ITR 297 ' z5 mn izj

9 15. Submissior rs made by leamed counsel for the panies have received the due :onsideratiirn of the C-oun. L6. Though a number of questions had been framed by this C-ourt at the tinre of admission of the appeal, the basic question ri,hich anses l.c r consideration in this appeal whether upon ls reopening o[ as;essment, assessing officer should confine only to the income charseable to tax which had escaped assessment or is it open to hirrr t,, bring to rax those items of income which had es,:apcd asscssr,)ent or which had suffered under assessment other th,rn thosc iterr, /items which led to reopening of assessment ? 17. fu riglrtl,'pointed out by leamed coursel for the respondent- revenuc. all thr' decisions relied upon by the learned counsel for the appellant-asses ;ec' re late ro scope and power of the assessing officer s hilc rcopcnin 1 the assessment. In that context, it was held by the couns that rssessing officer has the power to reopen the assessnlent or t1, if he h,rs reason to believe that income had e scaped asses: ment based on tangible material. Mere change of

:: l0:: opinion does not empower the assessing officer to reopen assessment. A concluded assessment cannot be reviewed or revised in the garb of reassessment. 18. There can be no dispute to the proposition of law propounded in the aforesaid decisions relied upon by learned counsel for the appellant. 19. However, the moot question as advened to above was examined by the Supreme C-ourt in VJagan Mohan Rao v. CIT (7 supra) which deak urith reassessment under Section 14 of the Indian Income Tax Act, 1922. In that case, it was held that once an assessment is reopened, the previous under-assessment is set aside and the whole assessment proceeding starts afresh. When valid proceedings are stafted afresh, income tax officer had not only the jurisdiction but it was his duryto levytax on the entire income that had escaped assessment during that assessment year. It was held as unde n Section 14 in rcrms states that once the Income-ax Officer decides to reopen the assessment, he could do so q.ithin the period prescribed by serving on the penon liable to

::ll:: pay tax, a ft,tice conuining all or any of the requirements which may be included in a notice under Section 22Q) and may proceed to a:.sess or leassess such income, profis or gains. It is, therefore. manifest that once assessment is reopened by issuing a nr tice under Subsection (2) of Section 22 the previous rm der-assessment is set aside and the whole assessment proceedings staft afresh. !(/hen once valid proceedings are staned under Section i4(0(b) the Income-tax Officer had not only the lurisdiction but it was his duty to levy tax on the rntir incorne that had escaped assessment during that 1ear. 20- Subserltre rtly, it was noticed that the aforesaid decision in V.Jagan Mol,ar.r Rao v. CIT (Z supra) Ied to divergent interpretations by various l{eh Coufts- one set of Flgh Courts took tire vicu ,hat in Procccdings under Section 147 of the Act, the erldre asscssnr,'nt is reope ned. The original assessmenf is wiped off and therefore. rhe asscssee can put forward all pleas even if rejected durine the or,ginal proceedings; on the other hand, there were other F[g]r ( buns u4rich took the view that reassessment was \ confined on[,,'to the escaped assessment and that an assessee can put forward 1 leas only in rtspecr rhereof.

:tl2:: 2L. In view of such conflicting inteqpretations Supreme C-oun in CIT v. Sun Engineering Works (P) Ltd (6 supra) analped the above issue in the following rrulnnen The principle laid down bythis Coun inJaganmohan Rao's case, therefore, is only to the extent that once an assessment is validly reopened by issuance of notice under Section 22(2) of the 1922 Act (corresponding to Section 148 of the Ac$, the previous under assessmenr is set aside and the ITO has the jurisdiction and duryto levy tax on the entire income fiat had escaped assessmenr during the previous par. I(lhat is set aside is, thus, only the previous underassessment and not the original assessment proceedings. An onCer made in relation to the escaped tumover does not affect the operative force of the original rssessment, particularly if it has acquired finaliry and the original order retains both its chancter and identiry. It is only in cases of " underassessment" based on Causes (a) to (d) of Explrnation Q to Seoion l47,that the assessment of tax due has to be recomputed on the entire taxable income. The judgment in Jaganmohan Rao's case, thertfore, cannot be read to imply as Iaying down that in the reassessment proceedings validly initiated, the assessee can see[< reopening of the ,*'hole assessment and claim credir in respect of items finally concluded in the original assessment. The assessee cannot claim recompilation of the

:: l3:: income or redoing of an assessment and be allowed a claim r4rich he either failed to make or which was otherwise rejected ar the time of original assessment, which has since acquired finaliry Of course, in the reassessment proceedings it is open to an assessee to show that the income alleged to have escaped assessment has in truth and in fact nr't escaped assessrrrent but that the same had been shown under some inappropriate head in the original retum, but to read dre judgment in Jaganmohan Rao's case, as if laying dolvn that reassessment wipes out the original assessmenr and that reassessment is not only confine<' to "escaped assessment" or *under assessment" but to -he entire assessment for the par and staft the assessm,:nt proceeding ,le noro givnrg right to an assessee to re-agitar e matten which he had lost during the original assessn'ent proceeding, u,hich had acquired finaliry, is not only er oneous brrt .rls,; against the phraseology of Section 147 of rhe Act and the object of reassessment proceedings. Such . n interpretrrtion v,'ould be rcading that judgment totally out of context in rvhich the questions arose for decisi n h that case. [t is neither desirable nor permissible to picli out ir word or.r sentence fricm the judgment of this C-out divorced fronr the conrext of the question under consirleration and tre.rt it to be the complete 'law' declared b1'thrs C,ourt. The juden-rent must be read as a whole and the olrsen.rtions frrrnr the iudgment have ro be considered in th, light oi rhe qr.restions which werr beforc this Coun. \ J

::14.i A decision of tht Coun takes its colour from the questions involved in the case in which it is rendered and while applyrng the decision to a later case, rhe courrs musr carefully try to ascertain the true princrple laid down by the decision of this Coun and not to pick out words or sentences from the judgment, divorced from tle context of the questions under consideration by this Court, to support their reasonings. 22. Thereafteq the Supreme Court held that in proceedings under Section 147 of the Act, the income tax officer may bring to charge items of income which had escaped assessnrcnt other than or in addition to those item or items which had led to issuance of notice under Section 148. It has been clarified that it is only the under-assess ment which is set aside and not the entire assessment where reassessment proceedings are initiated, An assessee cannot resist validly initiated reassessment proceedings merely by showing that other income u4rich had been assessed originallywas too high figure. Clainx which have been disallowed in the original a assessment proceedhgs cannot be permitted to be agitated by the assessee orl rcassessment. Object and pulpose of proceedings under Section 147 of the Act is for the benefit of the revenue and

) :: l5:: not an assessee. An assessee cannot be permitted to conven the reassessment pro,:eedings as his appeal or revision in disguise. Supreme Courc fi nher clarified that even in cases where the claims of the assessee Juring the course of reassessment proceedings relating to the es:aped assessment are accepted, still allowance of such claims has ;o be limited to the extent to w'l'rich they reduce incr>me to that rriginally assessed. Income for the purposes of reassessment ca rnot be reduced beyond the income originally assessed. In thi ; regard, Suprerne Coun held as follows: Although, Section 147 is pan of a taxing statute, it imposes no charge on the subiect but deals nrerely with the machinery <,f assessment anci in intelpreting a provision of that kind, the r,rle is that construction should be prcfened r+'hich makes the machinery workrble. Since, the proceedings under Section 14i' of the Act arc for the benefit of the Revenue and not an assessee and arc aimed at gamering the 'esc:rped income' of an asss,see, the same cannot be allowed to be conveted x 'revisional' or 'review' pr-oceedings at the instance of the assessee, tlrereby making thc r-nachinery unworkrble. A. a result of the .rforesaid discussion, ne find that in proceedinr;s under Section 147 of the Act, the Income Ta-x Officer n ray bring to charge iterrs of income u,hich had escaped a isessmenr other-rhen or in addirion to that item or

:: l6:: tems which have led to the issuance of notice under Section 148 and where re-assessment is made under Section 147 in respect of inconre which has escaped tax, the Income Tax Officer's jurisdiction is confined to only such income which has escaped tax or has been under-assessed and does not etend to revising, reopening or reconsi&ring t}re whole assessment or permining the assessee to reagitate questions w*rich had been decided in the original assessmert proceedings. It is only the under-assessment which is set aside and not the entire assessment when rexsessrnent proceedings are initiated. The Income Tax Officer cannot male an order of reassessment inconsistent with the original order of assessment in respect of matters which are not the subject matter of proceedings under Section 147. An assessee cannot resist validly initiated reassessment proceedings u.nder this Section merely by showing that other income which had been assessee originally was at too high a figure except in cases under Section 152Q). \\e rvords "such income" in Section 147 cleaAy referred to the income which is chaqgeable rc tax but has "escaped assessment" and the Income Tax Officen' jurisdiction under the Section is conf ined only to such income which has escaped assessnlent. It does not etend to reconsidering genenlly the concluded earlier assessment. Claims which have been disallow,ed in the original assessment proceeding cannot be pennitted to be re-agitated on the assessment being reopened for bringing to tax certain income u4rich had cscaped assessment because the controversy on ) )

iilTti reassessmeff is confined to nxrtters which are relevant only in respect of the income which had not been brrcught to tax during the r oune of the originat assessment. A matter not agitated in tlre concluded original assessment proceedings also cannot be permimed to be agitated in the reassessment proceedings unless relatable to the item sought to be axed as 'escaped inc.>me'. Indeed, in the reassessment proceedings for bringing to rax iterns which had escaped assessment, it would be open to .n assessee to put forward claims for deduction of any expendir ure in respect of that incorne or the non-mxability of the itenrs at all Keeping in view the object and pupose of the proceedings underSection 147 ofrhe Act which are forthe benefit of dre Revenue and not an assessee, an assessee cannot be permitte,l to convert the reassessment proceedings as his appeal or r,:vision, in disguise, and seek relief in respect of items eadie,' re.iected or claim relief in respect of items not claimed in tlrc orfuinal assessment proceedings, unless relatable to 'escaped ncome', and reagiute the concluded mattcn. E ven in cases wh,:re the claims of the assessee during the cour:e of reassessfircrt proceedings relating to the escaped assessnlent are accepte J, still the allowance of such claims has to be limited to trre extent to u,hich they reduce the income to that originally a.sessed. The income for purposcs o[ 'reassessnrent' cannot be r,:duced beyond the income originally assessed.

To, :: I8:: 23. Thar being the position, we are of the view that the Tribunal was right in rejecdng the appeal of the assessee. The questions framed cannor be said to be substantial questions of law arising out of the orrder of the Tribunal dated 30.12.2@4 in I.T.LNo.262 / Ht d/ lg9 2 for the assess menr 1ear l9g G9 l. 24. \fle do not find any merit in rhe appeal. Appeal is accordinglydismissed. No costs. As a sequel, miscellaneou petitions, pending if any, stand dismissed. Sd/- B.S.CHIRANJEEVI JOTNIREGTSTRAR //TRUE COPY/I qD SECTION OFFICER ONE FAIR COPY TO THE HON'BLE THE CHIEF JUSTICE UJJAL BHUYAN (FOR HIS LORDSHIPS KIND PERUASAL) ONE FAIR COPY TO THE HON'BLE SRI JUSTICE C.V.EHASKAR REDDY (FOR HIS LORDSHIPS KIND PERUASAL) 'I . The lncome Tax Appellate Tribunal, Hyderabad Beanch, Hyderabad 2. The Commissioner of lncome Tax (Appeals) lll, Hyderabad. 3. The Deputy Commissioner of lncome Tax, (Assts) Special Range-|, Hyderabad. 4. l, L.R. Copies. 5. The Under Secretary, Union of lndia, Ministry of Law, Justice and Company Affairs, New Delhi, 6. The Secretary, Telangana Advocates Association, Library, High Court Buildings, Hyderabad. 7. One CC to SRI CHALLA GUNARANJAN, Advocate [OPUC] 8. One CC to SRI J.V.PRASAD (SC FOR INCOME TAX) IOPUC] 9. Two CD Copies BSK q II

HIGH COURT DATED:21 10912022 ORDER l.T.T.A.No.163 of 2005 DISMISSING T}{E ITTA WITHOUT COSTS iELrl -t ,a A\ \\" =8 $) * tiJ ir'. '. @qa lJL- ( \\\