The Commissioner of Income Tax, vs. M/s. K.C.P.Limited

1 IN THE HIGH COURT OF KARNATAKA AT BENGALURU DATED THIS THE 11TH DAY OF AUGUST 2021 PRESENT THE HON’BLE MR. JUSTICE ALOK ARADHE AND THE HON’BLE MR.JUSTICE HEMANT CHANDANGOUDAR I.T.A. NO.433 OF 2011 BETWEEN: 1. THE COMMISSIONER OF INCOME-TAX

JSS TOWERS

BSK III STAGE, BANGALORE. 2. THE DY. COMMISSIONER OF INCOME-TAX

JSS TOWERS, BSK III STAGE

BANGALORE.

... APPELLANTS (BY SRI. K.V. ARAVIND, ADV.) AND: BHARATIYA RESERVE BANK NOTE MUDRAN PVT. LTD., NO.3 & 4, BTM LAYOUT NEAR JAL BHAVAN, 1ST STAGE 1ST PHASE, BANNERGHATTA ROAD BANGALORE-560029.

... RESPONDENT (BY SRI. A. SHANKAR, SR. COUNSEL FOR SRI. BHAIRAV KUTTAYYA, ADV.,) - - -

2 THIS I.T.A. IS FILED UNDER SECTION 260-A OF I.T.ACT, 1961 ARISING OUT OF ORDER DATED 15.07.2011 PASSED IN ITA NO.1123/BANG/2010, FOR THE ASSESSMENT YEAR 2005-06, PRAYING TO:

I. FORMULATE THE SUBSTANTIAL QUESTIONS OF LAW STATED THEREIN. II. ALLOW THE APPEAL AND SET ASIDE THE ORDERS PASSED BY THE ITAT, BANGALORE IN

ITA NO.1123/BANG/2010 DATED:15.07.2011 AND CONFIRM THE ORDER OF THE APPELLATE COMMISSIONER CONFIRMING THE ORDER PASSED BY THE DEPUTY COMMISSIONER OF INCOME TAX, LTU, BANGALORE, IN THE INTEREST OF JUSTICE AND EQUITY. THIS I.T.A. COMING ON FOR FURTHER HEARING, THIS DAY, ALOK ARADHE J., DELIVERED THE FOLLOWING: JUDGMENT This appeal under Section 260-A of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’, for short) has been filed by the revenue. The subject matter of the appeal pertains to the Assessment Year 2005-06. The appeal was admitted by a Bench of this Court on the following substantial question of law: "Whether the Tribunal was correct in the facts and circumstances of the case in holding that the reopening of assessment is a mere change of opinion when the Assessing Officer has not recorded finding expressing any opinion on the claim made by the assessee and also as per

3 the provisions of Section 147 of the Act and recorded a perverse finding?" 2. Facts leading to filing of this appeal briefly stated are that the assessee is a company and is engaged in the business of printing currency notes. The assessee filed the return of income for the Assessment Year 2005-06 on 28.10.2005 and declared a total income of Rs.62,48,47,870/- The return was processed under Section 143(1) of the Act on 31.10.2006 and a refund of Rs.27,06,17,046/- was issued. Subsequently, the return filed by the assessee was selected for scrutiny and a notice under Section 143(2) of the Act was issued on 25.09.2006. The Assessing Officer scrutinized the details furnished and completed the assessment. An order of assessment was passed under Section 143(3) of the Act on 27.07.2007. 3. The Assessing Officer thereafter reopened the assessment and issued a notice under Section 148 of the Act on 30.09.2009. The assessee by a communication dated 13.10.2009 requested the Assessing Officer to treat the return of income as return filed in response to notice under

4 Section 148 of the Act and the assessee requested the Assessing Officer to furnish the reasons recorded for reopening the assessment. The Assessing Officer was of the opinion that during the year, the assessee has received Rs.8,75,99,696/- as interest on securities from the Government Securities of India and against the aforesaid income, assessee claimed a sum of Rs.3,84,40,542/- towards premium paid to acquire the securities and offered net income of Rs.4,91,59,154/- to tax. The Assessing Officer passed an order dated 16.01.2010 by which a sum of Rs.3,84,40,542/- was disallowed. The assessee thereupon preferred an appeal before the Commissioner of Income Tax (Appeals), who by an order dated 22.07.2010 dismissed the appeal preferred by the assessee. The assessee thereupon filed an appeal before the Tribunal. The Tribunal, by an order dated 15.07.2011, inter alia held that reopening of the assessment under Section 147 read with Section 148 of the Act was on mere change of opinion and held that re-assessment itself was bad in law. Accordingly, the appeal preferred by the assessee was allowed. In the aforesaid factual background, this appeal has been filed.

5 3. Learned counsel for the revenue submitted that proceedings for re-assessment were initiated under Section 147 of the Act which was in existence at the relevant time and the power under Section 147 could be invoked provided the Assessing Officer had reason to believe that any income chargeable to tax had escaped assessment. It is further submitted that in the instant case, the Assessing Officer had not formed any opinion and the Tribunal therefore erred in setting aside the proceeding for re-assessment on the principle of change of opinion. It is further submitted that the Tribunal ought to have appreciated that mere disclosure of the material before the Assessing Officer does not amount to formation of opinion. In support of aforesaid submission, reliance has been placed on the decision of the Supreme Court in 'ACIT Vs. RAJESH JHAVERI STOCK BROKERS (P) LTD.' (2007) 291 ITR 0500 (SC), 'CIT Vs. KELVINATOR OF INDIA LTD.' (2010) 320 ITR 561 (SC), 'KALYANJI MAVJI & CO Vs. CIT' (1976) 102 ITR 287 (SC), 'INDIAN & EASTERN NEWSPAPER SOCIETY Vs. CIT' (1976) 119 ITR 0996 (SC), 'ALA FIRM Vs. CIT'

6 (1991) 189 ITR 285 (SC), 'ITO Vs. TECH SPAN INDIA (P) LTD.' (2018) 302 CTR 74 (SC), 'CIT VI Vs. USHA INTERNATIONAL LTD.' (2012) 348 ITR 485 (DELHI) AND 'NDTV Vs. DEPUTY COMMISSIONER OF INCOME TAX' (2020) 116 TAXMANN.COM 151 (SC). 4. On the other hand, learned Senior counsel for the assessee submitted that the assessment was reopened by the Assessing Officer only on account of mere change of opinion, as to whether premium written off is an expenditure allowable under Section 57 of the Act. It is further submitted that proceeding for re-assessment cannot be initiated on account of change of opinion and the contention of the revenue that Assessing Officer did not record a finding expressing an opinion on the claim is untenable. It is therefore contended that notice issued under Section 148 of the Act and the proceeding initiated pursuant thereto are ab initio void. It is also urged that premium paid on Government of India securities which are held to maturity is to be amortized and therefore, the premium paid on the Government securities is required to be allowed. Even

7 though the same may be under a different head yet it will have any tax impact on the total income. In support of aforesaid submission, reliance has been placed on the decision of the Supreme Court in CIT VS KELVINATOR OF INDIA LTD (2010) 320 ITR 561 (SC), CIT VS KELVINATOR OF INDIA LTD (2002) 256 ITR 1 (DEL), CIT VS USHA INTERNATIONAL LTD (2012) 348 ITR 485 (DEL), ALA FIRM VS CIT (1991) 189 ITR 673 (KAR), DELL INDIA (P) LTD. VS JCIT (2021) 123 TAXMANN.COM 468 (KAR),ORACLE INDIA (P) LTD VS ACIT (2017) 397 ITR 480, BANKIPUR CLUB LTD VS CIT (1971) 82 ITR 439 (KAR) 5. We have considered the submissions made on both sides and have perused the record. The Supreme Court in KALYANJI MAVJI & CO. supra held as under: "13. On a combined review of the decisions of this Court the following tests and principles would apply to determine the applicability of Section 34(1)(b) to the following categories of cases:

8 "(1) Where the information is as to the true and correct state of the law derived from relevant judicial decisions; (2) Where in the original assessment the income liable to tax has escaped assessment due to oversight, inadvertence or a mistake committed by the Income Tax Officer. This is obviously based on the principle that the tax- payer would not be allowed to take advantage of an oversight or mistake committed by the taxing authority; (3) Where the information is derived from an external source of any kind. Such external source would include discovery of new and important matters or knowledge of fresh facts which were not present at the time of the original assessment; (4) Where the information may be obtained even from the record of the original assessment from an investigation of the materials on the record, or the facts disclosed thereby or from other enquiry or research into facts or law." If these conditions are satisfied then the Income Tax Officer would have complete jurisdiction to reopen the original assessment. It is obvious that where the Income Tax Officer gets no subsequent information, but merely proceeds to reopen the original assessment without any fresh facts or materials or without any enquiry into the materials which form part of the original

9 assessment, Section 34(1)(b) would have no application." A Full Bench of this Court in 'DELL INDIA PVT. LTD. Vs. JOINT COMMISSIONER OF INCOME-TAX, BANGALORE' (2021) 123 TAXMANN.COM 468 (KAR) dealt with the question whether 'reason to believe' in the context of Section 147 of the Income Tax Act can be based on mere change of opinion of the Assessing Officer and answered the reference as follows: "17. Thus, what is held by the Apex Court is that when a power under Section 147 is to be exercised, concept of change of opinion must be treated as an inbuilt test to check abuse of power of the Assessing Officer. Further, it is held that after 1st April 1989, the Assessing Officer has power to reopen provided there is a tangible material to come to the conclusion that there is escapement of income from assessment. The Apex Court held that mere change of opinion on consideration of the same material is no ground to invoke Section 147 of the said Act. 19. Therefore, in the light of law laid down in the case of M/s. Indian and Eastern Newspaper Society (supra), the first question will have to be answered

10 in the negative by holding that the decision in the case of Rinku Chakraborthy does not lay down correct position law to the extent to which it follows what is held in clause (2) of paragraph 13 of the decision of the Apex Court in the case of Kalyanji Mavji and Company (supra). The second question will have to be answered in the affirmative. In view of the consistent decisions of the Apex Court holding that "reason to believe" in the context of Section 147 of the Income Tax cannot be based on mere change of opinion of the Assessing Officer, the third question will have to be answered in the negative. In fact, in view of settled law, framing of question No.3 was not warranted at all." 6. In the instant case, the assessee at the time of filing the original return of income on 28.10.2005, enclosed with it the computation of income along with an annexure indicating computation of net interest received from government securities. The annexure clearly indicated the interest received from investment in government securities viz., Rs.8,75,99,696/- and premium written off during financial year 2004-05 viz., Rs.3,84,40,542/-. The aforesaid return was processed under Section 143(1) of the Act on

11 31.03.2006. The return thereafter was selected for scrutiny and the Assessing Officer passed an original order of assessment dated 27.07.2007. Thus, the details were placed before the Assessing Officer, at the time of original assessment and therefore, it is not possible to infer that the Assessing Officer had not at all applied his mind. The Supreme Court in TECHSPANINDIAS PVT LTD supra has held that the use of the words ‘reason to believe’ in Section 147 has to be interpreted schematically as the liberal interpretation of the word would have the consequence of conferring arbitrary powers on the assessing officer who may even initiate such re-assessment proceedings merely on his change of opinion on the basis of same facts and circumstances which has already been considered by him during the original assessment proceedings. 7. From the order of assessment also, it is evident that the Assessing Officer, on perusal of the record available with him, came to a different conclusion and therefore, he cannot be permitted to change his opinion. It is settled in law that the concept of 'change of opinion' is in-built test to check the

12 abuse of power by the Assessing Officer. Thus, the initiation of the re-assessment proceedings on account of 'change of opinion' is not permissible in law as the Assessing Officer had examined all the relevant material furnished by the assessee and had accepted the claim of the assessee. The Tribunal has therefore, rightly held that the re-opening of the assessment is based on mere change of opinion by the Assessing Officer. For the afore mentioned reasons, the substantial question of law is answered in the negative and against the revenue. In the result, the appeal fails and is hereby dismissed. Sd/- JUDGE Sd/- JUDGE RV