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Income Tax Appellate Tribunal, “J” BENCH, MUMBAI
Before: SHRI AMIT SHUKLA, JM & SHRI RAJESH KUMAR, AM
आदेश / O R D E R PER RAJESH KUMAR, A. M: This appeal by the assessee is directed against the order dated 25-10-2012 of Commissioner of Income Tax (Appeals)-7, Mumbai (hereinafter called as the CIT(A)) for assessment year 2004-05. The assessee has raised the following grounds of appeal:
(A.Y. 2004-05) JV Gokal Securities pvt. Ltd., Vs. ITO Ground I: Proceedings u/s.147 of the Act is bad in law 1.1 On the facts and in the circumstances of the case and in law, the CIT(A) erred in holding that reopening the assessment and passing an order under section 143(3) r.w.s 147 of the Act was completely justified. 1.2 The leaned CIT(A) failed to appreciate and ought to have held that: • Merely a change in the opinion cannot be a ground for reopening of assessment under section 147 of the Act; • The Appellant had disclosed the primary and material facts related to the issues based on which the assessment has been re-opened; and • In absence of any new information, the AO was not justified in re- opening the assessment merely due to change of opinion; 1.3 The Appellant prays that it be held that the reopening of assessment u/s147 of the Act is void ab-initio and/or otherwise bad-in-law. WITHOUT PREJUDICE TO GROUND 1: Ground 2: 2.1 On the facts and in the circumstances of the case and in law, the AO erred in disallowing the expenditure incurred by the Appellant of Rs.2,38,140/- on due diligence for acquiring the shares of Birla Sun Securities Ltd., a stock broking company, on the alleged ground that the same is capital in nature and the Appellant has not commenced the business during the captioned assessment year. 2.2 On the facts and in the circumstances of the case and in law, the AO erred in disallowing the establishment expenditure incurred by the Appellant of Rs.18,890/-. 2.3 The Appellant prays that the aforesaid disallowance be deleted. WITHOUT PREJUDICE TO GROUND 1&2 Ground 3: The Learned CIT(appeals) erred in holding that the Appellant was not eligible to a deduction under section 35D of the Act of expenditure incurred on due diligence. WITHOUT PREJUDICE TO GROUND 1,2&3:
(A.Y. 2004-05) JV Gokal Securities pvt. Ltd., Vs. ITO Ground 4:
The appellant prays that expenditure on due diligence be added to the cost of acquisition of investment for the purposes of computing capital gains as per the provisions of the Act.
The legal issue raised in the first ground of appeal is that the re-opening proceedings were not based upon any new materials but on the same facts and records which were before the AO at the time framing original assessment.
3. The brief facts of the case are that the assessee company filed its return of income u/s 139(1) of the Act on 01.11.2004 declaring loss of Rs. 6,85,531/- and the return of income was processed u/s 143(1) of the Act on 21.02.2005. The assessment was re-opened on 02.08.2006 by issuing notice u/s 148 r.w.s 147of the Act. The assessment order u/s 147 of the Act was passed on 30.03.2007 by accepting the returned loss of Rs. 2,57,031/- filed by the assessee as per the return of income in response to the notice u/s 148 of the Act in which the assessee rectified the amount of carried forward losses by disallowing the expenses incurred in connection with increase in share capital amounting to Rs.4,28,500/- on which notice u/s 148 was issued. Thereafter the AO re-opened the assessment again on 30.03.2009 for the (A.Y. 2004-05) JV Gokal Securities pvt. Ltd., Vs. ITO second time by recording the reasons u/s 148 of the Act that a sum of Rs. 25,703/- Claimed by the assessee were not allowable.
4. Second re-opening was done by the AO on the ground that the assessee was not carrying on any business during the year and the only activity was investments in the shares of Birla Sun Securities Ltd and there was an increase in the share capital of the assesseee. The assessee had claimed an expenditure of Rs. 6,85,531/-including Rs. 4,28,500/- incurred in connection with the increase of share capital which were disallowed by the assessee on its own at the time of filing its return of income in response to notice u/s 148 of the Act in the first re-opening however the remaining expenses of Rs. 2,57,031/- remained to be disallowed. The second re-opening was done only to disallow these expenses. The second order u/s 143(3) r.w.s. 147 of the Act was framed on 18.12.2009 at nil by disallowing the expenses of Rs. 2,57,031/-.
5. The ld CIT(A) dismissed the appeal of the assessee on the ground that proceeding was validly initiated by holding as under:-
“I have considered the A.O.’s order as well as the appellant’s submission.
Having considered both, I find that the original assessment was completed in a summary manner u/s. 143(1) of the Act vide order dated 21/02/05. The appellant’s this arguments that all the facts was available on record will not suffice to reject the reopening of assessment, as the original assessment was done in a summary manner, wherein the A.O. has nowhere applied his mind
(A.Y. 2004-05) JV Gokal Securities pvt. Ltd., Vs. ITO and wherein no such permission of any addition is permitted to the A.O. taking nature of disallowance, which was wrongly allowed under summary manner u/s. 143(1), which was required to be reassessed and accordingly the A.O. was completely justified in reopening of assessment. Further the case laws relied upon by the appellant is nowhere of such help, as the assessment was done on summary manner. According the A.O. was completely justified and correct in re-assessing the appellant’s case. Thus, the ground of appeal is dismissed.”
The AR submitted before us that the re-opening of the assessment already completed vide order dated 30.03.2009 was nothing but a change of opinion on the basis of same records and information which were at the time of first re-opening before the AO at the time of assessment u/s 147 r.w. s. 148 of the Act and the re- opening was not based on the new information/records. The ld AR drew our attention to the reasons recorded by the AO for re-opening the assessment which is placed at page no 48 of the paper book wherein in it was mentioned that the expenses of Rs .2,57,031/- were capital in nature incurred for the purpose of increase in shares capital and were not allowable. The ld counsel also argued that it was also not mentioned that which order was being proposed to be re-opened. The ld counsel drew our attention to page no 15 & 22 of the paper book which comprised the various communications/submissions dated 27.03.2007 and 30.03.2007 to AO by the assessee on the legal and professional charges at the time of first re-opening which means that (A.Y. 2004-05) JV Gokal Securities pvt. Ltd., Vs. ITO the said issue was examined by the AO at the time of first re-opening and no new materials/information had come to the AO to re-open already concluded assessment.
The ld counsel for the assessee placed reliance on the following judgements (i) CIT Vs Kelvinator of India 123Taxman 433 Del (ii)CIT Vs Kelvinator of India(Civil Appeal No. 2520 of 2008187 Taxman 312(SC) (iii) Asian Paints Ltd DCIT 308ITR 195 Bom (iv) Idea Cellulor Ltd DCIT 301 ITR 407 Bom (v) CIT Vs United Breweries Ltd 321 ITR 546 and finally prayed that order passed by the AO deserved to be annulled and quashed as the re-opening was based on the same information/records which were before the AO in the first re-opening and this amounted to change of opinion which is not permissible under the law. The ld DR on the other hand relied on the orders of the authorities below.
We have considered the rival submissions and perused the materials on records.
We find from page no. 16 to 22 that the issue of legal and professional charges was examined by the AO at the time first re-opening and thereafter framed the assessment u/s 147 dated 30.03.2007. The reasons recorded for re-opening are placed at page no 48 of the paper book which are reproduced as under:-
“The assessment u/s. 147 r.w.s. 148 was completed on 30/3/2007. The assessee had not carried on any business during the assessment year under consideration and there was no income during the year. The only activity carried on was investment by acquiring the shares and increase in shares capital. The expenses of Rs. 2,57,031/- claimed by the assessee was capital in (A.Y. 2004-05) JV Gokal Securities pvt. Ltd., Vs. ITO nature being for the purpose of investment in shares and were not allowable business expenses.”
In view of this, I have reason to believe that, income of Rs. 2,57,031/- has escaped assessment. The proceedings u/s. 147 are hereby initiated after taking approval of Addl. CIT, Range 1(2), Mumbai. (Tax effect Rs. 92,210/-).”
It is clear from the above facts that the second re-opening on the basis of records which was already before the AO is just change of opinion on the basis of same materials and therefore the consequential order of assessment dated 18.12.2009 cannot be sustained. The Hon’ble Supreme Court in the case of CIT Vs Kelvinator of India(Civil Appeal No 2520 of 2008187 Taxman 312(SC) while affirming the order of Delhi High court held that prior to the Direct Tax Laws (Amendment) Act, 1987, reopening could be done under two conditions, viz. if (a) the ITO had reasons to believe that, by reason of the omission or failure on the part of an assessee to make return under section 139 of the Act for any assessment year, to the ITO or to disclose fully and truly all material facts necessary for his assessment for that year, income chargeable to tax had escaped assessment for that year, or (b) the ITO had in consequence of information in his possession reason to believe that income chargeable to tax had escaped assessment for any assessment year. The fulfillment of the said conditions alone conferred jurisdiction on Assessing Officer to make a back assessment, but in section 147with effect from 1/4/1989 those conditions are given a go-by and only one condition has remained, viz., where the Assessing Officer has (A.Y. 2004-05) JV Gokal Securities pvt. Ltd., Vs. ITO reason to believe that income has escaped assessment, the section confers jurisdiction to reopen the assessment. Therefore, post 1/4/1989, power to re-open is much wider.
However, one needs to give a schematic interpretation to the words ‘reason to believe’, failing which section 147 would give arbitrary powers to the Assessing Officer to reopen assessment on the basis of ‘mere change of opinion’, which cannot be per se reason to reopen. One must also keep in mind the conceptual difference between power to review and power to reassess. The Assessing Officer has no power to review; he has the power to reassess, but the reassessment has to be based on fulfillment of certain pre-conditions and if the concept of change of opinion is removed as contended on behalf of the department, then in the garb of reopening the assessment, review would take place. One must treat the concept of change of opinion’ as an in-built test to check abuse of power by the Assessing Officer. Hence, after 1/4/1989, the Assessing Officer has power to reopen, provided there is ‘tangible material’ to come to conclusion that there is escapement of income from assessment.
Under the Direct Tax Laws (Amendment) Act, 1987, the Parliament not only deleted the words ‘reason to believe’ but also inserted the word ‘opinion’ in section 147.
However, on receipt on representations from the companies against omissions of the words ‘reasons to believe’, the parliament re-introduced the said expression and deleted the word opinion on the ground that it would vest arbitrary powers in the Assessing Officer. In the case of Asian Paints Ltd. Vs. DCIT(Supra) in a situation where the AO failed to apply his mind to the relevant material in making the (A.Y. 2004-05) JV Gokal Securities pvt. Ltd., Vs. ITO assessment order. The AO cannot take recourse to the provisions of 147 for his own failure to apply his mind to the material which, according to him, is relevant and which available on record. No new material had come on record, no new information had been received and it was a merely a fresh application on mind by the same AO to the same set of facts and the reason that had been given was that the same material which was available on record while the Assessment order was made, was in advertently excluded form consideration. This amounted to opening of assessment merely because there was change of opinion which was impermissible. Therefore, assessement was not justified. In the case of Idea cellular Ltd vs. DCIT (Supra) it has been held that where the AO raised specific queries on several occasions and all the queries were answered. Once all the material was before AO and he chose not to deal with several contention raised by the petitioner in his final assessment order, it could not be said that he has not applied his mind. We therefore respectfully following the ratio laid down in the above decisions, allow the appeal of the assessee by reversing the order of CIT(A)by quashing the assessment order passed by the AO. The AO is directed accordingly.
Since we have already decided the issue raised in the first ground in favour of the assessee, the other grounds raised by the assessee are not adjudicated as they become academic.
(A.Y. 2004-05) JV Gokal Securities pvt. Ltd., Vs. ITO