TaxTMI 
TaxTMI 
2011 (1) TMI 1186
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....dgment. 2. Before we take note of the questions of law, we reproduce the relevant facts herein. 3. The appellant is a Government of India Undertaking, established under Section 3 of the Warehousing Corporations Act, 1962 and for the purpose of the Income Tax Act it is deemed to be a company within the meaning of the Act. It is an Authority constituted under law for the marketing of commodities. The appellant derives income from letting-out of godowns or warehouses for storage, processing or facilitating the marketing of commodities. Assessment Year 1995-96 4. The appellant filed its return of income declaring a loss of Rs.1,078,36,6,678/-. In this return, the assessee had claimed Rs. 1514168354/- as exemption under Section 10 (29) of the Income-Tax Act, (hereinafter referred to as the „Act‟), being income derived from the letting of godown or Warehouses for storage purpose for facilitating the marketing of the commodities. This return was process under Section 143 (1) (a) of the Act and accepted. Vide assessment order dated 22nd January, 1999, after some time i.e 10th September, 1999 the Assessing Officer issued notice under Section 147 read with sect....
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.... be applied. The entire exemption was disallowed. 6. Aggrieved, the appellant challenged the order of the Assessing Officer before the Commissioner of Income Tax (Appeals), New Delhi questioning the reopening of the assessment. It also contested the treatment of the activity of CFS/ICD as a distinct line of business and denial of exemption u/s 10 (29) of the Act. The appellant submitted that the Assessing Officer erred in reopening the assessment under Section 147 of the Act because reassessment was possible just on mere change of opinion. Since all relevant material to enable the Assessing Officer to determine the income was already forming part of the assessment records and Assessing Officer in its original order under Section 143 (3) of the Act had deliberated on the exemption to be allowed under Section 10 (2() of the Act and further there was no failure on the part of the appellant, the reopening as such was bad in law. 7. As regards, activity of CFS/ICD as a distinct line of business, it was submitted, that, the appellant has been carrying out this activity since 1983-84 and this position has been accepted by the department as a part & parcel of the warehousing activity....
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....of Orissa State Warehousing Corporation, income in the nature of interest on fixed deposits, agency commission, misc. receipts and other income which have been derived outside the activities of warehousing should be subjected to tax. As the AO had not brought some of the income to the tax on the basis of the then Supreme Court decision, action was taken U/s 148 to bring to tax the same in view of the latest Supreme Court decision. This decision of the AO appears to be in order and it is evident that he was justified in taking recourse to the provision of Section 148 for reopening the assessment" 10. The respondent/Revenue challenged the aforesaid order of the CIT (A) on merits. In the appeal the assessee herein filed cross objections challenging that part of the order of the CIT (A) vide which CIT (A) had upheld the reopening of the assessment under Section 147 of the Act. The Tribunal vide consolidated order dated 31st March, 2008 held at the outset that the basis of reopening by the assessing officer as evident from the reasons recorded for the assessment years 1989-90 to 1996-97 was the ground that the decision of the Supreme Court in the case of U.P. State Warehousing Corpor....
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....he part of assessee to disclose fully and truly all material facts necessary for his assessment. If the assessee had disclosed all material facts necessary for his assessment in the return of income and the assessing officer after considering them took a conscious decision to allow the claim of the assessee, the assessments cannot be reopened in respect of the cases falling in proviso to section 147 of the Act. Likewise, the mistake of law can be rectified u/s 154 within the period of four years from the end of financial year in which the order sought to be amended was passed but not thereafter." 12. The Tribunal on the above reasoning held for the year under consideration, the return was processed under Section 143(3) and the notice under Section 148 of the Act was issued within four years. The tribunal held that the decision of the Supreme court in the case of Orissa State Warehousing Corporation (supra) constitute fresh information in the possession of the Assessing Officer, therefore, reopening is valid. The Tribunal also relied upon the judgment of Calcutta High Court in the case of Indra Co, Ltd. Vs. ITO, 80 ITR 559 for the above proposition. 13. The Tribunal held that ....
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....ation business but the Assessing Officer had granted exemption under Section 19 (29) of the Act only in respect of two activities enlisted at sl. No. (i) and (v). This, according to Mr. Syali, clearly showed the application of mind. Therefore argued, the learned Sr. counsel, the assessment was clearly reopened on the same ground which was discussed and it would amount to change in opinion of the Assessing Officer to reopen the assessment, whereas change of opinion cannot be the ground for reopening of the assessment. He also argued that there was factually erroneous presumption in the „Reasons to Believe‟ recorded by the Assessing Officer that that CFS is an independent business. He submitted that it was within the knowledge of the Income-Tax Department that since 1992-83, the assessee was running the Container Freight Station and which was treated as separate business and right from the beginning till 1988 this position was accepted by the Department as well. He also argued that as per the Tribunal, the judgment of Supreme Court in Orrisa State Ware Housing Corporation (supra) provided the opinion which became the cause of reopening of the assessment ignoring the fact ....
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.... Income-tax, (Central Calcutta), [1970] 77 ITR 739. Therein the assessee company carried on business as a dealer in diverse commodities and also stock and shares. In the year of account 1949, it had suffered loss of Rs. 3,71,700/-in the sale of shares which the company claimed to carry forward and set off against the profits of subsequent years from transactions in other commodities. The Tribunal found that there was complete unity of control and shares were one of a number of commodities in which the company dealt in the ordinary course of business and that there was no element of diversity or distinction or separateness about the transaction in shares, and accordingly upheld the claim, On a reference the High Court held that the essential matter to be considered was the nature of the two lines of business and not merely their unity of control and that therefore the Tribunal erred in holding that the whole trading activity formed one business. Reversing the decision of the High Court this Court ruled that the decisive test was unity of control and not the nature of the two lines of business. For the reasons mentioned above we allow this appeal, discharge the answer given by the Hi....
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....he Income-tax Officer and examine whether there was any material available on the record from which the requisite belief could be formed by the Income-tax Officer and further whether that material had any rational connection or a live link for the formation of the requisite belief." Following the settled trend of judicial opinion and the law laid down by their Lordships of the Supreme Court time and again different High Courts of the country have taken the view that if an expenditure or a deduction was wrongly allowed while computing the taxable income of the Assesses, the same could not be brought to tax by reopening the assessment merely on account of subsequently the assessing officer forming an opinion that earlier he had erred in allowing the expenditure or the deduction; ( See- Siesta Steel Construction Pvt Ltd Vs . K.K.Shikare & Ors [1985] 154 ITR 547, Satpal Automobile Co. ITR [1983] 141 ITR 450, Gopal Films Vs. ITO . [1983] 139 ITR 566, CWT Vs . Manilal C. Desai [1973]91 ITR 135(MP)" 18. His last submission was that in any case Orissa Ware Housing (supra) could not be made the foundation for reopening the assessment. According to Mr. Syali, the decision in the case o....
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....of escapement of income of the assessee from assessment because of his failure or omission to disclose fully and truly all material facts. Once there exist reasonable grounds for the Income-tax Officer to form the above belief, that would be sufficient to clothe him with jurisdiction to issue notice. Whether the grounds are adequate or not is not a matter for the Court to investigate. The sufficiency of grounds which induce the income-tax Officer to act is, therefore, not a justiciable issue. It is, of course, open to the assessee to contend that the Income-tax Officer did not hold the belief that there had been such non-disclosure. The existence of the belief can be challenged by the assessee but not the sufficiency of reasons for the belief. The expression "reason to believe" does not mean a purely subjective satisfaction on the part of the Income-tax Officer. The reason must be held in good faith. It cannot be merely a pretence. It is open to the Court to examine whether the reasons for the formation of the belief have a rational connection with or a relevant bearing on the formation of the belief and are not extraneous or irrelevant for the purpose of the section. To this limit....
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....d on „change of opinion‟, Ms. Bansal submitted that CFS facility was started by the assessee only w.e.f. AY 1985-86 and therefore, earlier order of ITAT for AY 1976-77 to 1979-80 would not be applicable. The assessee had claimed exemption U/s 10 (29) even with respect to the income from CFS stating it to be the warehousing income from CFS. As stated by the assessee himself, it was appointed as custodian for ICDs/CFS on behalf of Custom Authorities u/s 8 of the Customs Act and its functions included: (i) Transporting the container from one port to ICD/CFS (ii) Stuffing the containers, (iii) Getting them inspected from the custom authorities, (iv) Clearing the goods to the clients, (v) Storing the empty containers Thus the activities of ICD/CFS were quite distinct and separate from warehousing activity of the assessee and, therefore, was not eligible for exemption u/s 10 (29) of the Act. She argued that this aspect had not been considered at all by the AO while passing the original assessment order. No query had been made and, therefore, no reply had been filed in this regard. She thus submitted that judgment of the Supreme Court in the case of Orrisa Wa....
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....possibly come within the ambit of Section 10 (29)." It is now clear that the assessee is having more than one business i.e. warehousing and Container Freight Stations. Consequently, the computation made by the assessee, in the light of ITAT decision, is incorrect. The assessee has, therefore, wrongly computed the total income by not correctly disclosing the fact that it was having a separate business in the shape of Container Freight Stations. Moreover, in the light of the above decision of Supreme Court the receipts from Container Freight Station business is not eligible for deduction u/s 10 (29) as this cannot be said to be rental receipt from warehousing. It is also seen from the perusal of 143 (3) order dated 22.1.198 that income amounting to Rs. 248240042/- (54910026 + 193254161) has already been treated as not exempt u/s 10 (29). Keeping in view the above fact that assessee is having more than one distinguishable business, the expenses cannot be wholly set off against the taxable receipt of Rs. 248240042/- plus the receipts from Container Freight Stations which needs to be quantified. Since, I have reasons to believe that income chargeable to tax amounting to Rs. 248240042....
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....this stage that judgment of the Court can be a valid basis for reassessment proceedings by issuing notice under Section 147 of the Act. This is so held in Shard Bhai (supra) and it could not be disputed by the learned counsel for the appellant. 28. In this case, in „Reasons to Believe‟ the judgment of the Supreme Court in Orissa Warehousing (supra) was made as the basis for reopening the assessment. In that case, the Supreme Court held that as per the provisions of Section 10 (29) of the Act, exemption is available only to that part of the income which is derived from letting of godowns or Warehouses. Further, the Supreme Court held in no uncertain terms and categorically laid down the principle of law that if the income is derived from any other rouse then it would not possibly come within the ambit of Section 10 (29) of the Act. The Court spoke in the following language:- "In any event the factum of deposit of moneys with the bank does not take the matter any further by reason of the specific language and the expression used in Section 10(29) of the Act which reads as below: "10. In computing the total income of a previous year of any person, any income falling ....
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.... assistance to the submissions of assessee-appellants. Having due regard to the language used, question of exemption would arise pertaining to that part of the income only which arises or is derived from the letting of godowns or the warehouses and for the purposes specified in Section 10(29) of the Act - as noticed above. The statute has been rather categorical and restrictive in the matter of grant of exemption: storage, processing or facilitating the marketing of the commodities are definitely regarded as three different forms of activities which are entitled to exemption in the event of their being any income therefrom. We do lend our concurrence to the view expressed by the Madhya Pradesh High Court and record that in the event the letting of godowns or warehouses is for any other purpose or if income is derived from any other source, then and in that event such an income cannot possibly come within the ambit of Section 10(29) of the Act and is thus not exempt from tax. The facts in issue pertaining to the interest income on fixed deposit or ascribing the activities of the assessee being termed to be one integrated activity does not and cannot arise. Mr. C. S. Vaidyanathan, Ad....
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.... storage, processing or facilitating the marketing of commodities presents no difficulty because it stands undisputed that the income derived by the assessee was from letting of godowns or warehouses". In view of the observations of this court as regards the undisputed facts, the question of drawing any inspiration or obtaining support from the decision does not and cannot arise and the same is thus clearly distinguishable". 9.From above as observed by Hon‟ble Supreme Court it is clear that in that in the case of Union of India v/s U.P. State Warehousing Corporation there were two issues involved i.e. (i) relating to the status of assessee whether it was an authority within the meaning of section 10 (29) of the Act? and (ii) relating to exemption of income which was admittedly derived by the assessee from letting out of godowns and warehouses for storage, processing or facilitating the marketing of commodities. In this case the fact that the Corporation derived income from letting out of godowns and warehouses for storage, processing or facilitating the marketing of commodities, was not in dispute. Therefore in the case of U.P. State Warehousing Corporation (supra), there ....