TaxTMI 
TaxTMI 
2011 (8) TMI 655
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....up of assessee's claim for deduction under sec.35D of the Act at Rs. 10,39,812/-, Rs. 7,92,808/- and Rs. 18,64,171/- respectively, being the fifth, fourth and third year of the respective claims. Assessment stood processed under sec.143(1) of the Act vide intimation dated 23-02-2000. On 01-03-2006 notice was issued under sec. 148 of the Act to the assessee notifying that AO had reason to believe income chargeable to tax to have escaped assessment. Assessee requested the AO to intimate the reason for reopening the assessment vide its letter dated 09-03-2006 (PB page 34) and 06-12-2000 (PB page 35). 4. On 11-12-2006 AO intimated the assessee the reason which was recorded for reopening the assessment and such reason as per the letter placed at PB page 39 read as under: "The assessee claimed deduction u/s 35D of Rs. 136,96,791/-. For the asst. year 1998-99 in the order u/s 143(3) the claim u/s 35D was restricted to Rs. 3,43,138/- due to reassessment of the income for the asst. year 1995-96 and the excess claim over the above. This amount was disallowed on the ground that the claim u/s 35D on the basis of new projects completed in each year was not acceptable." 5. On 28-12-2006....
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....ibunal dated 27-07-2007, ld. counsel submitted that Department's appeal met its Waterloo when this Tribunal confirmed the order of the CIT(A). This Tribunal, as per the ld. AR, had clearly held that actual investment for the purpose of setting up a new undertaking or expansion had to be considered for working out the deduction under sec.35D of the Act and there was no need to work-out any proportionate investment. Relying on the decision of Hon'ble Apex Court in the case of CIT v. Kelvinator India Ltd. [2010] 320 ITR 561, ld. AR argued that AO had no tangible material to come to any belief that the income had escaped assessment. According to him Hon'ble Apex Court had clearly held that materials which were available at the time of assessment alone would not be good enough for coming to a belief that income had escaped assessment. Placing further reliance on the decision of Jurisdictional High Court in the case of Tamilnadu Petroproducts Ltd. v. CIT [WP No.28457 of 2008 dt. 17-09-2010], ld. counsel submitted that even where original assessment was completed under sec. 143(1) of the Act by mere processing of the return, it was necessary for the AO to keep in mind the conceptional dif....
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....ad failed. According to him, the original reason for which the reassessment was resorted having failed, reassessment on other items of income alone was bad in law. For this proposition reliance was placed on the decision of Hon'ble Bombay High Court in the case of CIT v. Jet Airways (I) Ltd.. 10. Countering the above argument of the ld. AR, submission of the ld. DR was that here the original proceedings were completed under Sec.143(1) of the Act. According to him, in view of the decision of Hon'ble Apex Court in the case of Asstt. CIT v. Rajesh Jhaveri Stock Brokers (P) Ltd. [2007] 291 ITR 500, there could have been no change of opinion since AO formed no opinion whatsoever at the time of giving intimation under Sec.143(1) of the Act. Therefore, as per the ld. DR, decision of Hon'ble Apex Court in Rajesh Jhaveri Stock Brokers (P.) Ltd.' case (supra) fully supported the reopening done under Sec. 147 of the Act. Vis-a-vis the argument of the ld. AR that even where the assessment was originally done under sec. 143(1) of the Act without tangible material, AO could not have resorted to a reopening simply based on material available on record, i.e., along with the return, Ld. DR submi....
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.... to him, the decision of Hon'ble Bombay High Court in the case of Jet Airways (P.) Ltd. (supra) would not be applicable on facts here, since the AO had made an assessment on the issue mentioned in the reason for reopening and it was not a case where there was no assessment whatsoever done on the issues mentioned in the reasons for reopening. According to him, it was a different matter altogether that ld. CIT(A) had deleted the disallowance made on issues mentioned in the reason for reopening. 13. Vis-a-vis the contention of the ld. AR that decision of Hon'ble Apex Court in the case of Max India Ltd. (supra) canvassed a viewpoint that retrospective amendment would not justify assumption of jurisdiction, ld. DR submitted that the said decision of the Hon'ble Apex Court was in relation to validity of an order under Sec. 263 of the Act, where Sec.263 was resorted to by ld. CIT taking cue from a retrospective amendment. Therefore, as per the ld. DR, retrospectivity of a Section, though it could not bring into the order of the AO an error which was not there when he passed the assessment, it would not be so, for an action under sec. 147 of the Act, since reopening was not for correcti....
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....sessment. So without doubt, presence of a reason for reopening is a must 16. Now coming to the decision of Hon'ble Apex Court in Kelvinator India Ltd.'s case (supra) no doubt, it was with regard to a reopening done where the original assessment was completed under Sec. 143(3) of the Act. But nevertheless such reopening was done within four years and therefore, first proviso to Sec. 147 did not apply. Here also Hon'ble Apex Court clearly mentioned that after 01-04-1989 for resorting to reopening only one condition i.e., existence of a reason to believe alone was necessary. However, we are of the view that decision of Hon'ble Apex Court in Kelvinator India Ltd.'s case (supra) does require a thematic interpretation to the words 'reason to believe'. The question here is whether the reason mentioned by the AO here was a reason at all for reopening the assessment. We feel at this juncture necessary to reproduce the reason one again: "The assessee claimed deduction u/s 35D of Rs. 36,96,791/-. For the asst. year 1998-99 in the order u/s 143(3) the claim u/s 35D was restricted to Rs. 3,43,138/- due to reassessment of the income for the asst. year 1995-96 and the excess claim over the ....
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.... up new industrial unit. He has also found that proportionate capital expenditure during the year for setting up new undertaking or expansion is Rs. 3.72 crores. When the actual investment for the purpose of setting up new undertaking or expansion as per Sec.35D is Rs. 41.59 crores, there is no need to work out proportionate investment. Thus the claim based on investment of Rs. 41.59 crores appears to be in order. We see no infirmity in the order of the CIT(A) on this issue. This ground by the Department is dismissed." ITA No. 14334/04 was in relation to A.Y. 1995-96. Two things come out from this finding, First is that CIT(A) had held assessee's claim under Sec. 35D to be in order and this was confirmed by the Tribunal. Again at para-14 of its order the Tribunal followed its findings for AY 1995-96 for AY 1998-99 and dismissed Revenue's appeal for the latter year. The order of the CIT(A) in assessee's appeal for AY 1998-99 is also pertinent here, copy of which has been placed at PB Pages 68 to 77. The order is dated 26-03-2004 and relevant para of the said order is reproduced hereunder: "4.1 The appellant claimed deduction u/s 35D as under: A.Y95-96 A.Y96-97 ....
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....ing was held by their Lordships to be justified. Their Lordships observed that pendency of appeal on assessment for A.Y 1993-94, was wholly irrelevant. This makes it necessary for us to go ahead a little bit with reference to the case of Anusandhan Investment Ltd. (supra). The appeals of the assessee for both A.Yrs 1992-93 and 1993-94 had eventually come up before the Mumbai Bench of this Tribunal and the decision thereon was given by the Mumbai Bench on 31-05-2010 and reported as Anusandhan Investment Ltd. v. ITO [2010] 40 SOT 205. These appeals before the Tribunal were filed by the assessee for both these years, and obviously decisions of the CIT(A) were against the assessee. This, in other words, would mean that when Hon'ble Bombay High Court decided the Writ Petition of Anusandhan Investment Ltd. on 22-08-2006, the order of the CIT(A) for AY 1993-94 which was the basis on which reopening was done for AY 1992-93, was in favour of the Revenue. Or in other words, the reason for re-opening was very much live. On the other hand, here the appellate authorities including the CIT(A) had consistently held in favour of the assessee with regard to the claim of the assessee under sec.35D o....
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....es mentioned in the reason for reopening in that case, whereas here this is obviously not so. As for reliance placed by the ld. AR on the decision of the Hon'ble Apex Court in Max India Ltd.'s case (supra), as rightly pointed out by the ld. DR, it was in relation to assumption of jurisdiction under Sec.263 of the Act where existence of an error in the order of the AO was held not to be discerned on the basis of a retrospective amendment and this decision had nothing to do with a reopening under Sec. 147 of the Act. Action under sec. 263 and action under sec. 147 are entirely on different footing and in our opinion, decision given by Hon'ble Apex Court on an issue raising from Sec.263 of the Act could not be transported to an issue on reopening under Sec. 147 of the Ad. As held by the Hon'ble Apex Court itself in the case of CIT v. Sun Engineering Works (P.) Ltd. [1992] 198 ITR 297, it is not proper to pick out a word or sentence divorced from the context of the question and treat it as complete law declared. 19. Hon'ble Apex Court in the case of ITO v. Lakhmani Mewal Das [1976] 103 ITR 437 did hold that reason to believe did not mean a subjective satisfaction and it must be held....
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....ch for the impugned A.Y. Ground No.2 of the Revenue is therefore, dismissed. 25. Vide its ground No.3 grievance of the Revenue is that CIT(A) had deleted disallowance made by the AO under sec. 14A of the Act. 26. Ld. DR assailing the order of the CIT(A) submitted that though the relevant AY was 1999-2000, and there was specific bar made by the Parliament through proviso to Sec.14A, which disabled an AO from reopening an assessment made for any assessment year prior to AY 2002-03 for invoking Sec. 14A. Such proviso would apply only if the reopening was done for making any disallowance under sec. 14A of the Act. Ld. DR pointed out that this Tribunal in assessee's own case for AYs 1995-96 and 1998-99 had vide its order dt. 27-07-2007, remitted the issue of disallowance under sec. 14A of the Act to the file of the AO. Relying on the decisions of the Special Bench of this Tribunal in the case of Aquarius Travels (P) Ltd. v. ITO [2008] 111 ITD 53 (Delhi), ld. DR submitted that when an assessment was reopened for reasons other than making any disallowance under sec. 14A of the Act, then in the course of such reassessment, AO would not be disabled from making any disallowance under s....
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.... for the case of Special Bench in Aquarius Travels (P) Ltd. (supra) relied on by the ld. DR, we are of the opinion that the issue there was with reference to application of sec.14A of the Act, for the first time during the course of appellate proceedings and the said decision would have no application here. We are therefore, of the opinion that the ld. CIT(A) was justified in deleting the disallowance made by the AO under sec. 14A of the Act. Ground No. 3 of the Revenue stands dismissed. 29. Vide its ground No.4 Revenue is aggrieved regarding restriction of disallowance of expenses made by the AO. AO had disallowed claim of depreciation at 100% on certain items which were capitalized by the assessee in its books. Though assessee argued before the AO that if 100% depreciation was not allowable, then it should be allowed as normal business expenditure, since the expenses were on repairs and spares, AO did not appreciate this contention but, on the other hand, disallowed the claim. 30. Before the CIT(A) argument of the assessee was that AO ought have considered the claim under sec.31 or under Sec. 37 of the Act, if he was not in favour of allowing 100% depreciation. Ld. CIT(A) a....
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....elhi) had held that sec.234D would not have retrospective application and this view was ratified by Hon'ble Delhi High Court in the case of DIT v. Jacabs Civil Incorporated/Mitsubishi Corporation. 36. We have heard the rival submissions and perused the record. No doubt, Hon'ble Kerala High Court in the case of Kerala Chemicals & Proteins (supra) held that Sec.234D was chargeable from 01-06-2000 on completion of regular assessment. Nevertheless, the Special Bench in Ekta Promoters (P.) Ltd. (supra), held that Sec.234D would apply from AY 2004-05 only and this decision was approved by the Hon'ble Delhi High Court in Jacabs Civil Incorporated/Mitsubishi Corporation (supra). There being two conflicting decisions, of High Courts, both of which are not jurisdictional High Court, we find it appropriate to follow the decision which has approved the view of Special Bench in Ekta Promoters P. Ltd. (supra). 37. In the result, appeal of the Revenue is dismissed. 38. To summarise the result, appeal of the Revenue is dismissed whereas the cross-objection filed by the assessee stands allowed. ORDER U.B.S. Bedi, Judicial Member 39. Despite best persuasion of myself, I have not be....
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....as reasons to believe that income liable to be taxed has escaped assessment is unjustified and further finalization of reassessment was not proper. It was argued before the first appellate authority that the Assessing Officer could not have taxed any other income apart from the income arising out of which he had reopened the assessment. However, the first portion of argument was accepted but second portion of it was not accepted by the ld. CIT(A) and the assessee, though did not file any appeal against such order, yet it has filed CO to plead that the Assessing Officer could not make reassessment being beyond jurisdiction, bad in law and void ab initio. 44. In order to argue the CO, the assessee's counsel strongly pleaded that the order of the Assessing Officer in reopening the assessment is bad in law firstly because, when the reopening was resorted to, reasons cited by the Assessing Officer were not there, because appeal of the assessee for the assessment year 1998-99 had already been adjudicated upon on the issue relatable to restricting the claim under section 35D as back as on 26.03.2004. Moreover, the Department had rejected the entire claim of the assessee under section 3....
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....e case of Rallis India Ltd. (supra) to submit that assumption of jurisdiction could not be validated but actions are validated. The ld. Counsel for the assessee further submitted that once original reason based on which case was reopened has failed then Assessing Officer's action comes to an end and no addition on other items could be made-Jet Airways (I) Ltd. (supra). So, it was submitted that initiation of reassessment is bad in law. 45. In order to counter the submissions of the ld. Counsel for the assessee, it was strongly pleaded by the ld. DR that intimation under section 143(1) was issued which is not assessment at all and relying upon the decision in the case of Rajesh Jhaveri Stock Brokers (P) Ltd. (supra), it was submitted that this issue is squarely covered by the Apex Court's decision and so far as the decision mainly relied upon by the ld. Counsel for the assessee in the case of Kelvinator India Ltd. (supra) is concerned, the same will not hold good as in that case reopening was initiated/done after assessment was originally completed under section 143(3). Further reliance was placed on Anusandhan Investment Ltd. (supra) in which it was held that pendency of an appe....
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....ever passed till notice under section 148 was issued/served upon the assessee for the year under consideration. It is also not in the dispute that the A.O. recorded reasons before issuing the notice u/s148. The Hon'ble Supreme Court, while interpreting the provisions of section 147 in force with effect from April 1, 1989, has opined in the case of Rajesh Jhaveri Stock Brokers (P.) Ltd. (supra) that present section 147 confers jurisdiction on formation or belief within subjective satisfaction of the Assessing Officer where only return has been processed under section 143(1) and relevant portion of the judgment reads as under: "The scope and effect of section 147 as substituted with effect from April 1, 1989 as also sections 148 and 152 are substantially different from the provisions as they stood prior to such substitution. Under the old provisions of section 147, separate clauses (a) and (b) laid down the circumstances under which income escaping assessment for the past assessment years could be assessed or reassessed. To confer jurisdiction under section 147(a) two conditions were required to be satisfied: firstly the Assessing Officer must have reason to believe that income, p....
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....sh Jhaveri Stock Brokers P. Ltd. reported in [2007] 291 ITR 500 (SC)(page 509): "In the scheme of things, as noted above, the intimation under section 143(1)(a) cannot be treated to be an order of assessment. The distinction is also well brought out by the statutory provisions as they stood at different points of time. Under section 143(1)(a), as it stood prior to April 1, 1989, the Assessing Officer had to pass an assessment order if he decided to accept the return, but under the amended provision, the requirement of passing of an assessment order has been dispensed with and instead an intimation is required to be sent. Various circulars sent by the Central Board of Direct Taxes spell out the intent of the Legislature, i.e., to minimize the Departmental work to scrutinize each and every return and to concentrate on selective scrutiny of returns, These aspects were highlighted by one of us (D.K. Jain J.) in Apogee International Ltd. v. Union of India [1996] 220 ITR 248 (Delhi)). It may be noted above that under the first proviso to the newly substituted section 143(1), with effect from June 1, 1999, except as provided in the provision itself, the acknowledgement of the return sh....
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.... that the material was available in an earlier assessment year 1997-98, on the basis of which a view had been taken, was not relevant for the years in question. Therefore, the reopening of the assessments for the assessment years 1999-2000 to 2001-02 was valid." 46.3 Similarly in the case of WCI (Madras) (P) Ltd. v. Asstt. CIT [2010] 324 ITR 181 (Mad.) it is held as under "Assessment - intimation under section 143(1) - cannot be treated as assessment order -Income-Tax Act, 1961, section 143(1). Reassessment - non-disclosure of material facts - finding that income escaped assessment - plea of limitation of four years to be rejected - Income-Tax Act, 1961." 46.4 Therefore, applying the aforesaid rulings of the Hon'ble Apex Court and Jurisdictional High Court to the facts and circumstances of the case, the Assessing Officer came to subjective satisfaction as indicated in the reasons recorded followed by notice under section 148. So, it cannot be said that the contention of the assessee about Assessing Officer having no jurisdiction to consider the matter or to initiate reassessment proceedings once the proceedings are concluded is not valid. As laid down by the Hon'ble Sup....
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....on and other related decision, which followed this decision has no application in this case. 48. As regards, the Hon'ble Jurisdictional High Court's decision in the case of Tamilnadu Petroproducts Ltd. (supra) in that case two assessment years are involved and first appeal of the assessee was dismissed as infructuous and other has been dismissed on merits without quashing the reassessment with certain observation. So, same cannot be a precedent to help the assessee in any manner. 49. Therefore, keeping in view of facts, circumstances and material on record in the light of precedents relied upon and ratio of decision discussed above, it is held that the Assessing Officer could validly initiate reassessment proceedings by invoking provisions of section 147 and the conclusion as drawn by the ld. CIT(A) on the initiation of reassessment proceeding is correct and liable to be confirmed. The view taken herein fortified by the latest jurisdictional High Court decision in the case of Kone Elevator India (P.) Ltd. v. ITO [TC(A) No. 41 of 2008, dated 8-3-2011], in which, while following the Hon'ble Supreme Court's decision in the case of Rajesh Jhaveri Stock Brokers (P.) Ltd. (supra), ....
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....which should be upheld, because such proviso, accordingly to the ld. DR, would apply if reopening was done for making disallowance made under section 14A only and not with reference to reopened assessment on other count. Since the basis for reopening was on some other issue, so the disallowance could be made and in assessee's own case for the assessment years 1995-96 and 1998-99, the ITAT has remitted the same issue of disallowance under section 14A to the file of the Assessing Officer vide order dated 27.07.2007 with the direction to disallow the expenditure after ascertaining the details at actual. Relying upon the Special Bench decision in the case of Aquarius Travels (P.) Ltd. (supra), in which applicability of section 14A to assessment years 1997-98 and 1998-99 was under consideration and point at issue related to test the applicability of proviso when proceedings are pending before the ld. CIT(A) or the Tribunal, which came to be decided in favour of the Revenue, and applying the same analogy, the ld. DR submitted that when an assessment had been reopened on other reason than making disallowance under section 14A, the action is proper and the Assessing Officer could validly m....
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....f law formulated by the Hon'ble High Court was as under: "Whether in the facts and circumstances of the case, the Tribunal was right in holding that the reopening to disallow expenditure on exempted income as per Section 14A was bad in law as the assessment year in question was 2001-02, when the return was filed only after the introduction of the section?" And this question was answered by the Hon'ble High Court against the Revenue. 53.1 Similarly, in the case of PNB Finance & Industries Ltd. (supra), the following facts emerged from paras 1, 2 and 3 of the said order: "1. The assessee herein had filed the return of income for the assessment year 2001-02 declaring total income at Rs. 40,41,670. In this return, the assessee had claimed dividend income of Rs. 13,08,602 as exempt. The return was processed under section 143(1) of the Income Tax Act (hereinafter referred to as 'the Act') and accepted as filed vide orders dated 14.02.2003. The Assessing Officer (AO), after few years, i.e., vide notice dated 27.03.2008 reopened the assessment under Section 147/148 of the Act inasmuch as he was of the view that on the aforesaid dividend, income for which exemption was claimed b....
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....decision of Special Bench has more persuasive value than normal Division Bench decision of the Tribunal. Moreover, in this case, as reassessment has been initiated on the ground other than for making disallowance under section 14A, and that apart, the provision as contained in section 147 empowers the Assessing Officer to consider other items than on the basis of which assessment has been reopened, therefore, disallowance under section 14A, in my view, could be made. But, so far as quantum of disallowance is concerned, the same requires to be worked out by the Assessing Officer after obtaining necessary details from the assessee because in assessee's own case for the assessment 1998-99, there is already a direction to the Assessing Officer to work out the quantum of addition after ascertaining factual details and to disallow the same at actual expenditure involved for earning income which is not part of taxable income by the ITAT in assessee's own case for the assessment year 1998-99 as pleaded by the ld. DR and not objected to by the ld. counsel for the assessee. 54. As such, while accepting this ground of the appeal of the Revenue, the order of the ld. CIT(A) is set aside and ....
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....oduced below:- "The assessee claimed deduction under section 35D of Rs. 36,96,791/-. For the assessment year 1998-99 in the order under section 143(3) the claim under section 35D was restricted to Rs. 3,43,138/- due to reassessment of the income for the assessment year 1995-96 and the excess claim over the above. This amount was disallowed on the ground that the claim under section 35D on the basis of new projects completed in each year was not acceptable." 4. The learned Accountant Member held that the above reason is not sustainable on the ground that the disallowance made by the assessing authority for the earlier assessment year was deleted by the Commissioner of Income-tax (Appeals) on accepting the computation of deduction worked out by the assessee under section 35D. 5. The assessment in this case was completed under section 143(1). Therefore, relying on the judgment of the Hon'ble Supreme Court in the case of Rajesh Jhaveri Stock Brokers (P.) Ltd. (supra), the learned Accountant Member held that the only condition that is to be satisfied to reopen the assessment is that there should be a reason for the Assessing Officer to believe that income has escaped assessment....
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.... is having jurisdiction to reopen the assessment provided he has reason to believe that income of the assessee has escaped assessment. In the present case he held that the requirements of law are satisfied and the reopening of the assessment was made lawfully and the Commissioner of Income-tax (Appeals) is justified in confirming the jurisdiction of the assessing authority to reopen the assessment. 9. I heard Shri Shaji P Jacob, the learned Commissioner of Income-tax, appearing for the Revenue and Shri Ajay Vohra, the learned counsel appearing for the assessee. I have perused the facts of the case summarized before me and also considered the various judicial pronouncements cited by both the sides. The learned counsel appearing for the assessee has placed before me a paper-book containing copies of as much as 39 decisions, right from the Income-tax Appellate Tribunal to the Hon'ble Supreme Court of India. Almost all these decisions have been considered and discussed by the Hon'ble Members in their respective orders. I have considered all the relevant judgments cited by both sides but not quoted them extensively as the decisions have already been considered and discussed in the or....
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....erpretation, as held by the Hon'ble Accountant Member, the reason recorded by the assessing authority fits into that view. The reason that, in appeal the Commissioner of Income-tax (Appeals) has reversed the finding of the Assessing Officer in the matter of computation of section 35D claim, cannot be a reason to take away the jurisdiction of the Assessing Officer. The decision of the Commissioner of Income-tax (Appeals) on an issue need not be final. If the Revenue has consistently accepted the view of the Commissioner of Income-tax (Appeals) on a particular point, it is possible to hold a view, relying on the rule of consistency that the said issue has reached finality by the order of the Commissioner of Income-tax (Appeals) in the present case the order of the Commissioner of Income-tax (Appeals) on the issue was challenged by the Revenue before the Income-tax Appellate Tribunal. Some of the orders of the Tribunal were delivered only after the reopening of the impugned assessment, even though delivered in favour of the assessee. But this future development could not have been visualized by the assessing authority while recording the reason for reopening the assessment. If the rea....
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....er the proceeding under section 147 was only for first assessment or a reassessment is irrelevant. 17. The learned Judicial Member on the other hand held that the assessment was reopened not for dealing with the question of section 14A. The notice for reopening was issued for the purpose of disallowing the excessive relief granted under section 35D. Once an assessment is reopened for a valid reason, it is open for the assessing authority to deal with any other issue that would surface before him in the course of reassessment proceedings. According to the learned Judicial Member the proviso given under section 14A prevents the Assessing Officer to reopen an assessment for the purpose of section 14A alone. If an assessment is reopened just to make a disallowance with reference to section 14A, then such reopening will not be valid. But if the assessment is already reopened for another reason then any issue coming to the notice of the Assessing Officer in the course of reassessment proceedings can be considered in accordance with law. In view of above, he held that the Assessing Officer is justified in dealing with the issue arising out of section 14A as well. 18. The Hon'ble Del....