THE ASST. COMMISSIONER OF INCOME TAX vs. M/S KOTARKI CONSTRUCTIONS PVT LTD

The brief facts of the case are, the original Assessing Authority, while passing the Assessment Order under Section 143(3) of the Act on 28.3.2013, upon a detailed scrutiny of the records of the respondent- assessee, who is engaged in the business of construction of roads, buildings, dams, National Highways etc., and other infrastructural projects, partly allowed the deduction under Section 80-IA(4) of the Act, for the Assessment Year 2010-2011. This was bearing in mind the relevant contracts and certificates issued by the concerned Executive Engineers of the National Highway Divisions of Public Works Department and others, to an extent of

The Assessing Authority passed the assessment order on 28.3.2013. Subsequently, the said assessment was taken up for scrutiny and after such scrutiny, the said notice dated 15.3.2016 was issued to the respondent- assessee, which was impugned in the writ petition. For immediate reference the impugned notice is extracted as under:- "NOTICE UNDER SECTION 148 OF THE INCOME TAX ACT, 1961 PAN: AACCK6097J/ACIT-GLB/2015-16

Being aggrieved, the respondent-assessee filed the writ petition by contending there was no failure on the part of the assessee in truly disclosing all relevant facts and evidence with regard to the development of roads and highways undertaken by them for the said year and the original order passed by the Assessing Authority was just and proper and it was not necessary to issue the impugned notice on 15.3.2016 under Section 148 of the Act.

It was further submitted that the respondent- assessee was entitled to full deduction under Section 18IA(4) & (i) of the Act and in support of the said

The appellant-Revenue however supported the impugned notice dated 15.3.2016 and submitted that the assessee was not entitled to complete deduction under Section 18IA of the Act. Since the assessee was only executing works contract, the deductions made earlier by the original Assessing Authority was also correct. Therefore, re-assessment proceedings was rightly initiated under Sections 147/148 of the Act.

The learned Single Judge on considering the rival contentions allowed the writ petition and quashed the impugned notice dated 15.3.2016 issued under Section 148 of the Act and held that the reason recorded for re- opening was liable to be quashed.

The learned Single Judge placed reliance of the Judgment of the Hon'ble Supreme Court in the case of Commissioner of Income Tax Vs. Kelvinator of India Ltd., [(2010) 320 ITR 561 (SC)] and the judgment of the Mumbai High Court in the case of Sitara Diamond Pvt. Ltd., Vs. Deputy Commissioner of Income Tax and Others [(2012) 345 ITR 91].

Being aggrieved by the order of the learned Single Judge, the Revenue has preferred this appeal.

Learned counsel for the appellant Sri.Sanmathi E.I., contended the learned Single Judge was not right in quashing the notice dated 15.3.2016 by holding that the notice was issued on account of 'change of opinion', it was not so. The said notice was issued while scrutiny of returns being made subsequent to processing of returns for the Assessment Year 2013-14. The reasons recorded in the notice would clearly indicate that it was not a pure change

Learned counsel for the appellants relied upon ESS Kay Engineering Co. (P) Ltd., Vs. Commissioner of Income Tax reported in 247 ITR 818 (SC) in support of his submissions, as well as Phool Chand Bajrang Lal and Another Vs. Income Tax Officer and Another reported in 203 ITR 456 and I.P. Patel and Co. Vs. Deputy Commissioner of Income Tax reported in 346 ITR 206.

Learned counsel for the appellants submitted that the requisite conditions under Sections 147/148 have been fully satisfied in the instant case and the reasons recorded are just and proper and therefore the learned Single Judge ought not to have quashed the impugned notice dated 15.3.2016 on the ground that it was a case of

Per contra, learned counsel for the respondent- assessee supported the order of the learned Single Judge and contended that having regard to the judgments of the Hon'ble Supreme Court in Kelvinator of India and the judgment of the Mumbai High Court in Sitara Diamond Pvt. Ltd., which have been relied upon by the learned Single Judge, there is no merit in the appeal.

Learned counsel for the respondent/assessee drew out attention to the reasons recorded on 15.3.2016 to the effect that "the assessee is only the works contractor and not the developer" within the meaning of Section 80IA(4) of the Act. As such, the assessee is not eligible to claim deduction under Section 80IA". He contended that the same would clearly imply, it is a case of change of opinion and further there is no escapement of income as sought to be made out in the said order dated 15.3.2016.

Learned counsel for the appellants submitted that the conditions required for issuance of notice under

Learned counsel for the respondent/assessee also submitted that there was no failure on the part of the assessee in disclosing all material facts at the time of filing of the returns and hence, issuance of the notice was wholly unjustified and therefore the order of the learned Single Judge would not call for any interference in this appeal.

Having heard the learned counsel for the respective parties, we have perused the impugned notice dated 15.3.2016 which has been extracted above for immediate reference. On reading of the same, it clearly indicates that the assesseee is stated to be a 'works contractor and not developer' within the meaning of Section 80IA(4) of the Act and the assessee is not eligible to claim deduction under Section 80IA of the Act. Therefore, the question is, whether the aforesaid reason recorded would amount to a change of opinion or the same is in compliance of the requirements of Sections 147/148 of the Act.

In this regard, it would be useful to know that the assessee, while filing his returns had clearly disclosed that he was a developer and engaged in the development of infrastructural facilities including laying of roads and National Highways, buildings, etc., The assessment for the year 2010-2011 was also made on the basis that the assessee was a developer and not as a works contractor. In fact, at that stage, no such query was raised with regard to the returns filed by the assessee. It was only in the subsequent assessment year i.e. 2013-14, after completion of the said assessment the impugned notice dated 15.3.2016 was issued by recording that the assessee was a works contractor and not a developer. We find that the said reasons recorded in the impugned notice dated 15.3.2016 amounts to a change of opinion and therefore, the conditions stipulated under Sections 147/148 are not at all satisfied in the instant case.

In this regard it would be useful to place reliance on the judgment of the Hon'ble Supreme Court in Kelvinator of India Ltd., wherein it has been observed that, schematic interpretation to the words "reason to believe" under Section 147 cannot be made use of when the Assessing Officer intends to reopen assessments on

Further in the case of Sitara Diamond Pvt. Ltd., it has been observed that 'the condition precedent to the exercise of jurisdiction to reopen an assessment beyond a period of four years as spelt out in the proviso to Section 147 is that there ought to be a failure on the part of the assessee to disclose fully and truly all material facts necessary for assessment for that assessment year. In that case, it was held that the reasons which had been

Even in the instant case, on a reading of the contents of the order, we find that the reason set out does not have any nexus to the fact that there had been a failure on the part of the respondent/assessee in fully disclosing all material facts or that there was any basis for interfering on account of the said reason there had been any escapement of income. In fact, the primary jurisdictional requirement for reopening any assessment beyond a period of four years must be fulfilled strictly, otherwise it would be an arbitrary exercise of power.

In the instant case, on perusing the reasons recorded dated 15.3.2016 we do not find anything to the effect that the assessee had not disclosed fully and truly all material facts or that the assessee had not disclosed the fact that he was a developer. In fact the assessment for the assessment year 2010-11 was made on the basis that the respondent/assessee was a developer. If that was so, the impugned proceeding initiated on the premise that the assessee was a works contractor and not the developer is

In fact, a Full Bench of this Court in the case of Dell India (P.) Ltd. Vs. Joint Commissioner of Income Tax, Bangalore [2021] 123 taxmann.com 468 (Karnataka) disposed of on 27.1.2021, considered "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?"

After reviewing all the relevant decisions on the point, the Full Bench of this Court, speaking through the Hon'ble Chief Justice, opined that the concept of 'change of opinion' must be treated as an inbuilt limitation on the power of the Assessing Officer; that 'mere change of opinion' on consideration of the very same material does not give any ground to invoke Section 147 of the Act. In order to reopen the concluded assessment, there must be tangible material to come to the conclusion that there is escapement of income from assessment. These are the tests, which have to be satisfied before issuance of notice under Section 147/148 of the Act.

Having regard to the aforesaid observations and considering the same, in the light of the impugned notice dated 15.3.2016, we find that the reasons recorded do not also indicate that there was any tangible material which was the basis for issuance of the impugned notice.

In the circumstances, we hold that the learned Single Judge was justified in coming to the conclusion that the jurisdictional requirements for invocation of Section 147/148 of the Act in the instant case were not satisfied and therefore, the impugned notice was only a case of 'change of opinion' and did not come within the scope and ambit of 'reason to believe'.