TaxTMI 
TaxTMI 
2010 (12) TMI 138
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....rbed losses were carried forward to be adjusted in succeeding yea Rs. Since the re-assessment order for assessment year 1992-93 had been quashed by the ITAT in ITA No.901/D/2004, no unabsorbed losses survived to be carried forward for assessment year 1993-94 and, therefore, the re-assessment proceedings for the assessment year 1993-94 were without any foundation and jurisdiction. 2. The following question of law arises for the consideration of this Court: "Whether ITAT was correct in law in quashing the reassessment order passed by Assessing Officer u/s 143(3)/147 of the Act on the ground that the reassessment proceeding initiated by the Assessing Officer u/s 147 R/W Section 148 of the Act was without jurisdiction?" 3. In order to appreciate the legal and factual points at issue in the present appeal, the facts attending this matter need to be marshalled at the outset. The respondent is a cooperative society manufacturing fertilize Rs. During the assessment year 1989-90, the respondent had set up a new manufacturing Unit at Aonla. For the assessment year under consideration, i.e., the assessment year 1993-94, the respondent filed the original return claiming deduction unde....
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....ment year for which the determination is to be made. Thus, the carried forward loss of the earlier years of the new industrial undertaking has to be taken into account while determining the quantum of deduction permissible under Section 80-I even though they may have actually been set off against the profit of the assessee from the other units/sources. The Assessing Officer observed that since the information regarding losses incurred in Aonla Unit in the earlier years was neither disclosed in the return originally filed by the assessee nor made available during the assessment proceedings, the assessee had been allowed deduction under Section 80-I on the entire profits. The assessee in its return, which was filed in respect of the said accounting period, had made a claim for deduction under Section 80-I which was grossly in violation of sub-sections (1) and (6) of Section 80-I. Subsequently, though the assessment was revised under Section 147 since the A.O. had reason to believe that the assessee's income chargeable to tax had escaped assessment, the assessee having claimed deduction under Section 80-I without excluding certain income which had not at all been derived from the elig....
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....t for the second time does not survive and hence the Assessing Officer lacked a valid justification to initiate action u/s 147 of the Act. The reason for re-opening given by the Assessing Officer was that the assessee did not disclose the fact that the eligible industrial undertaking at Aonla had incurred losses during the assessment years 1989-90 and 1990-91 which were required to be reduced from the profits of the present year under sub-section (6) of section 80-I of the Act. Thus, as per the reason so recorded, excess deduction u/s 80-I was again allowed to the society even in the reassessment dated 16.03.2000. There is no dispute about the above reason recorded by the ld. Assessing Officer for re-opening the assessment for the second time, apart from the challenge that no requisite satisfaction of Commissioner of Income-tax was made available to the assessee in spite of repeated requests. "Section 72 of the Income-tax Act, 1961 states that wherein for any A.Y. the net result of computation under head "Profit and Gains of Business or profession is a loss to the assessee, and such losses cannot be or if not wholly set-off against the income under any head of income in accordance ....
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....be carried forward. In the A.Y. 1992-93, the Assessing Officer allowed the deduction of 80-I in the original assessment order dated 10.03.1995 and there is no mention of any losses of Aonla Unit. The re-assessment proceedings were initiated by the Assessing Officer for the A.Y. 1992-93 for setting-off the losses of Aonla Unit for the A.Ys.1989-90 to 1990-91 and on this basis the Assessing Officer passed the reassessment order dated 20.02.2001. Since by way of reassessment for the A.Y. 1992-93, the Assessing Officer carried forward the losses of A.Ys. 1989-90 to 1990-91 to be set-off/adjusted against the profits for the A.Y. 1992-93 for the purpose of 80-I and the balance unabsorbed losses to be adjusted in succeeding years and since this reassessment order for the A.Y. 1992-93 in ITA No.901/DEL/2004 has been quashed by Hon‟ble ITAT, hence no unabsorbed losses survives to be carried forward for the A.Y. 1993-94 and the re-assessment proceedings for the A.Y. 1993-94 are without any foundation and jurisdiction." For the above mentioned reasons, the very foundation for assumption of jurisdiction u/s 147 becomes non-extent and hence it is held that the initiation of action u/s 147....
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....re to be carried forward separately and required to be set off against the profits of the Aonla Unit for the subsequent assessment years before computing deduction under Section 80-I though the losses of Aonla Unit had already been set off against the profits of other units in earlier yea Rs. On this basis, the Assessing Officer computed the deduction under Section 80-I as Rs. 2,18,84,751/-. The CIT(A) held that the learned A.O. had validly invoked his powers under Clause (c) of Explanation to Section 147 of the Act in respect of the said assessment year and had committed no error in computing the deduction under Section 80-I which was eligible to the appellant Society. By its impugned order dated 31st July, 2007, the ITAT held that the initiation of action under Section 147 read with Section 148 was without jurisdiction and quashed the same. 11. We have heard Ms. Prem Lata Bansal, the learned counsel for the Revenue and Mr. Satinder S. Gulati and Mr. Kamaldeep Gulati, the learned counsel for the respondent. Written submissions were also filed by the learned counsel for the respondent supporting the order of the ITAT and praying for the dismissal of the appeal. 12. The pr....
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....m). (ii) Tyresoles India vs. CIT, (1963) 49 ITR 515 (Mad). (iii) B.C.S. Kartar Chit Fund and Finance Company Pvt. Ltd. vs. CIT, (1989) 179 ITR 137 (P&H). C. Change of opinion cannot form the basis of re-opening. It is contended by the learned counsel for the respondent that the legal position with regard to initiation of proceedings under Section 148 is well settled and was considered in detail by a Full Bench of this Court in the case of Commissioner of Income Tax vs. Kelvinator of India Ltd., (2002) 256 ITR 1 (Del), wherein this Court after discussing at length the legal position and relying upon the decision of the Supreme Court in the case of Calcutta Discount Company Ltd. vs. ITO, (1961) 41 ITR 191 (SC) and various other authorities, held that mere change of opinion would not confer jurisdiction on the Assessing Officer to re-open the assessment. It was further contended that when a regular assessment is made in terms of sub-section (3) of Section 143 of the Act, a presumption can be raised that such an order has been passed on application of mind, i.e., scrutiny of material furnished in the course of the assessment proceedings. Consequently, mere change of opinion will not gi....
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....er information available from records losses of Rs. 164,75,67,085/-, Rs. 63,61,68,737/- and Rs. 11,43,31,588/- computed in accordance with the provisions of Chapter-IV-D of the Income Tax Act, 1961 was incurred in respect of Aonla for the previous year relevant to the assessment years 1989-90, 1990-91 and 1991-92 respectively." According to the respondent, the last date of assessment of the assessment year 1993-94 ended on 31.03.1994, and the four year period mentioned in the proviso to Section 147 expired on 31.03.1998. Admittedly, the notice for the second re-opening was issued on 19.01.2001, which was beyond four yea Rs. Hence, the notice was time barred and the assumption of jurisdiction by the Assessing Officer on the basis of the aforesaid notice was unsustainable. The learned counsel for the respondent relied upon the case of Foramer vs. CIT, (2001) 247 ITR 0436 (All), wherein it is held that where the failure as indicated in the proviso has not been established, the four years rule would apply. The learned counsel points out that the Department's appeal against the said judgment has since been dismissed by the Supreme Court [(2003) 129 Taxman 072 (SC)], and, therefore, the ....
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....t could not be treated as final as the appeal was pending and quashed the notice under Section 148 in a writ petition filed by the assessee. 13. Countering the arguments of the respondent, Ms. Bansal on behalf of the Department made the following submissions: I. The assumption of jurisdiction by the Assessing Officer under Section 147 was valid and wholly justified as is evident from a bare perusal of the notice under Section 148 issued to the respondent Society dated 17.01.2001, the relevant portion of which reads as follows: "During the course of discussion on 08.12.2000 in respect of assessment proceedings for the assessment year 1998-1999, assessee was requested to give details of profit/loss of different Units, computed in accordance with the provisions of Chapter IV-D of Income-tax Act, for each year starting from the year of commercial production. As per the details submitted, the loss of Rs. 164,75,67,085/-, Rs. 63,61,68,737/- and Rs. 11,43,31,588/- was incurred in respect of Aonla Unit for the Asstt. Years 1989-1990, 1990-1991 and 1991-1992. Thus the total loss suffered during these three years is Rs. 239.80 crores. As per the provisions of Sub-section (6) of Section 80-I....
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....ons recorded above, the kind approval of Commissioner of Income Tax, Delhi-VIII, New Delhi is solicited to issue notice under section 148." Referring to the provisions of Section 147 of the Act, Ms. Bansal contended that the ITAT had seriously erred in allowing the appeal of the assessee only on the ground that the assumption of jurisdiction by theAssessing Officer under Section 147 read with Section 148 was not valid. II. Ms. Bansal pointed out that the ITAT had arrived at an erroneous finding that on quashing of the re-assessment order for the assessment year 1992-93 by the ITAT, which order was confirmed in appeal by this Court, no losses survived to be carried forward for the assessment year 1993-94 to be set off for allowing the deduction under Section 80-I of the Act. Ms. Bansal pointed out that the order of this Court passed in ITA No.884/2007 dated 17.09.2007, pertaining to the assessment year 1992-93 (impugning the order of the ITAT dated 5th January, 2007 in ITA No.901/DEL/2004) clearly shows that there was no allegation whatsoever contained in the reasons for re-opening the assessment for the said year that the assessee had failed to disclose fully or truly all the mater....
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....ission of the respondent, that the re-opening of the assessment was based upon change of opinion, was specious. According to Ms. Bansal, the records clearly indicate that it was only during the course of assessment proceedings for the assessment year 1998-99, when the assessee was requested to give details of the profit/loss of different units, computed in accordance with the provisions of Chapter-IV-D of the Act for each year, starting from the year of commercial production and the assessee submitted such details showing that the Aonla Unit had suffered the loss of Rs. 1,64,75,67,085/-, Rs. 63,61,68,737/- and Rs. 11,43,31,588/- for the assessment years 1989-90, 1990-91 and 1991-92, that the Assessing Officer came to the conclusion that the said Unit had suffered a total loss of Rs. 239.80 crores during these three years and that income to the extent of Rs. 26,16,43,198/- had, therefore, escaped assessment on account of the failure of the assessee to disclose fully and truly all material facts necessary for its assessment. IV. Ms. Bansal also contended that the reliance placed by the respondent on letter dated 20th February, 2001 was misplaced, as the said letter was issued after t....
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....order, was without merits. VII. Adverting to the contention of the respondent's counsel that the notice under Section 148 of the Act was barred by time, Ms. Bansal relied upon the proviso to Section 148 of the Act to contend that though ordinarily the law mandates that no action shall be taken under Section 147 after the expiry of four years from the end of the relevant assessment year, an exception has been culled out by the proviso to Section 147 which clearly lays down that such action may be taken where any income chargeable to tax had escaped assessment for such assessment year by the reason of failure on the part of the assessee: (i) to make a return under Section 139, or (ii) in response to a notice under sub-section (1) of Section 142 or Section 148 to disclose fully and truly all material facts necessary for his assessment for that assessment year. In terms of the proviso, Ms. Bansal contended, the Assessing Officer had recorded in his "reasons to believe" that the respondent had failed to disclose fully and truly all material facts necessary for his assessment and hence there was occasion for re-opening the assessment. Since however the period of more than four years had ....
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....edings for the assessment year 1998-99, when the assessee was requested to furnish details of profit/loss of different units for each year starting from the year of commercial production that it came to the notice of the Assessing Officer that income to the extent of Rs. 27,47,98,246/- had escaped assessment and a notice under Section 148 of the Act was issued after obtaining the approval of the Commissioner of Income-Tax, Delhi, requiring the assessee to file the revised return of income. In response thereto, a revised return was filed by the respondent on 20th February, 2001 declaring an income of Rs. 97,61,84,320/-. Pertinently, in a letter filed with the revised return of income, the assessee protested against the issuance of notice under Section 148 on the sole ground that since there was no failure on the part of the assessee to disclose fully and truly all material facts necessary for the assessment year, no action could be taken under Section 147 after the expiry of four years from the end of the assessment year, i.e., 1993-94. The judgment of the Delhi High Court in the case of Jindal Photo Films Ltd. (supra) was cited in support. It deserves to be mentioned at this junctu....
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....e profits of the said Unit for the subsequent assessment years before computing deduction under Section 80-I though the losses of the Aonla Unit had already been set off against the profits of other units in earlier yea Rs. Significantly before the Commissioner of Income Tax also, the only grievance made by the respondent was that no notice under Section 148 could be said to have been legally issued justifying the assumption of jurisdiction by the Assessing Officer after the expiry of four years from the end of the relevant assessment year 1993-94, and hence, the re-opening of the assessment under Section 147 was totally illegal. As a matter of fact, the Commissioner of Income Tax recorded that the authorized representative of the assessee had nothing much to say insofar as the merits of the matter were concerned "except to urge albeit somewhat baldly, that the words "source of income" employed in sub-section (6) of Section 80-I only mean that the income from other units should not be attributed to the income of the eligible Unit while computing the deduction". It was for the first time before the ITAT that the respondent in its written submissions urged that for carrying forward t....
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....o, that where the failure as indicated in the proviso to Section 147 of the Act has not been established, the four years rule would apply. In the present case, the failure as indicated in the proviso has been clearly established, and the necessary corollary to our mind is that the four year rule of limitation would stand relaxed on the Commissioner of Income Tax granting his approval to the issuance of notice under Section 148 of the Act. The said approval, as noted by us, has been granted by the Commissioner of Income Tax in clear terms. 19. The reliance placed by the respondent on the decision of the Madras High Court in the case of Commissioner of Income Tax, Coimbatore vs. ELGI Finance Ltd., Coimbatore, (2006) 155 Taxman 124 (Mad) that the mere escapement of income cannot be a valid ground for re-opening of assessment after four years is also of no avail to the respondent. There cannot, in our opinion, be any quarrel with the aforesaid proposition of law as it is well settled that to escape the rigors of the time period prescribed for re-opening the assessment, it is incumbent upon the revenue to establish failure on the part of the respondent to disclose fully and trul....
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....f the assessee's industrial undertaking, in this case the Aonla Unit. It also cannot be lost sight of that Section 80-I of the Act is a beneficial provision and like every beneficial provision is susceptible to misuse. The benefit under the aforesaid Section, though must enure to the benefit of the assessee so as to encourage the sprouting of new industrial units, cannot be used to obtain deduction which is not legally permissible under the provisions thereof by camouflaging the real income of the assessee. 22. Another significant aspect of the matter is that sub-section (6) of Section 80-I of the Act starts with a non-obstante clause. It then lays down that the profits and gains of an industrial undertaking, to which the provisions of sub-section (1) apply, shall for the purposes of determining quantum of deduction be computed "as if such industrial undertaking is the only source of income of the assessee". This being so, in our view, the ITAT failed to appreciate that the Assessing Officer was under an obligation to adjust unabsorbed loss of the earlier years of the eligible Unit against the profit of the subsequent years, whether declared by the assessee or not, or whether dete....
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....f opinion the same may be held to be unconstitutional. We are therefore of the opinion that section 147 does not postulate conferment of power upon the Assessing Officer to initiate reassessment proceeding upon his mere change of opinion. We however may hasten to add that if "reason to believe" of the Assessing officer is founded on an information which might have been received by the Assessing Officer after the completion of assessment, it may be a sound foundation for exercising the power under section 147 read with section 148 of the Act." 7. But be that as it may the background of the present matter as detailed above speaks for itself. It cannot be said that the notice which was issued by the ld. AO u/s 148 reflected a mere change of opinion. The appellant society cannot seriously dispute that its claim for deduction u/s 80-I was grossly in violation of the law laid down in both Section 80-I(1) and section 80-I(6). To my mind it is clear that the A.O. had invoked his powers when he discerned the aforesaid reality from the records which had been proffered before him by the assessee and which were of the type as are covered by Explanation 1 to section 147.....................