TaxTMI 
TaxTMI 
2011 (10) TMI 498
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.... had discovered factual error in the original assessment; and (ii) The reopening has been done within the period of 4 years from the end of the relevant assessment year after recording proper reasons. 3. The appellant therefore prays that the impugned assessment which is contrary to the provisions of section 147 and the judicial pronouncement on issue should be annulled as such. II. 1. The CIT(A) erred in upholding the action of Assessing Officer of treating the interest income of Rs. 1,20,65,861/- as assessable under the head 'income from other sources' as correct as against to the same being offered by the appellant as 'business income' in the Return filed by it. 2. He has further erred in upholding the action of Assessing Officer in apportioning the interest and administrative expenditure of Rs. 2,31,78,586/- among the income from long term capital gains and income from other sources, on a proportionate basis as correct. 3. The appellant prays that in the facts and circumstances of the case the apportioning of interest and admin expenses is not correct and is inconsistent with the treatment given in earlier years and hence the Assessing Officer be dire....
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....sessment for the following reasons: "On verification of the statement of total income filed along with the return of income, it is observed that the assessee-company while working out taxable income, has paid tax @ 10% on the profit on the sale of investments (total income) which is inclusive of dividend income; interest income and other income. Since, these income are to be classified under "Income from other sources", they have to be treated separately for tax purpose. It is also observed that the assessee-company has not set-off the business loss against the Capital Gains which is contrary to the provisions of the Income Tax Act, 1961." 5. The AO issued notice u/s. 148 of the Act on 26.4.07, in response to that the assessee filed a letter dated 5.10.07 and objected to the reopening. The AO rejected the objection raised by the assessee to the reasons recorded u/s. 148(2) of the Act by stating that at the threshold stage the correctness or sufficiency of the reasons could not be called in question. He also stated that there was no change of opinion since the issue now considered, was not at all considered in the assessment proceedings culminating in the earlier assessment or....
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....evident in the facts and circumstances of the present case that there is no escapement of any income. When there is no escapement of income or the conditions laid down in Explanation-2 to section 147 are not fulfilled then in that event no action under section 147 can be taken. 3. The appellant further submits that: (i) The notice under section 147 is being issued due to audit objection. It is a settled position in law that an opinion of an internal audit party of the Income-tax Department on a point of law cannot be regarded as 'information' within the meaning of section 147 and the same cannot lead to proper and valid initiation of reassessment proceedings under section 147. Reliance in this respect is placed on the decision of the Hon'ble Supreme Court in the case of Indian & Eastern Newspaper Society v. CIT (119 ITR 996). (ii) It is a settled position in law that the duty cast upon the assessee to make a full and true disclosure of all material facts does not absolve to make enquiry, especially when the primary facts were available on record. It is not possible to fall back on section 147 to make good his deficiencies in the first co....
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....tained because the view taken by the subsequent officer is nothing but a change of opinion which is not permissible under section 147. 4. The appellant further submits that the original assessment in the present case has been completed on the basis of full and true disclosure of all the primary facts (as aforesaid) and there is no escapement and/or understatement of any income since the conclusion for allowing the interest income as well as interest expenditure to be assessed under the head 'business income' by the Assessing Officer was drawn after thorough examination of all material facts, detailed enquiry, applying his mind to the provisions of income tax law vis-â-vis facts of present case and further, the same was consistent with that of the view taken in the case of earlier years of the appellant. 5. It is submitted that it is a settled legal position in law that Assessing Officer cannot change the head of income in which interest income or any other income can be assessed since this amply amount to change in opinion. Hence, change of head of income to assess interest income from business head to income from other source is not permissible ....
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....e was valid i.e., the assumption of jurisdiction u/s. 147 of the Act was valid. Accordingly the ground raised by the assessee was dismissed. Now the assessee is in appeal. 9. The ld. counsel for the assessee submitted that in the present case, no income escaped assessment because the business loss was set off against the current long term capital gains as per the provisions contained in section 71 of the Act. It was further stated that no other income was included in the income under the head capital gains and there was business loss, so the question of income escaping assessment does not arise. It was also stated that the AO treated the interest income and dividend income as income from 'other sources', however, no disallowance of expenses was made. It was further stated that in the original assessment framed u/s. 143(3) of the Act as well as in the subsequent year and the preceding year, the interest income as well as income from dividend was treated by the Assessing Officer as business income, but only for the year under consideration those income were considered as income from 'other sources', while framing the reassessment which was framed u/s. 147 r.w.sec.143(3) of the Act....
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....well as succeeding years, the ld. CIT(DR) submitted that res judicata is not applicable in income-tax proceedings and if a wrong view has been taken in any particular assessment year, it is not necessary to take the same view in another assessment year. It was also submitted that the information given by the audit party could also be considered as an information for the purpose of reopening assessment u/s. 147 of the Act. It was contended that for reopening the assessment, a prima facie view that income has escaped assessment is sufficient and it is not necessary to prove the escapement of income at the time of recording the reasons, particularly when a clear application of mind by the Assessing Officer is there. He accordingly submitted that the ld. CIT (Appeals) was fully justified in confirming the action of the AO for reopening the assessment u/s. 147 of the Act by issuing notice u/s. 148 of the Act. Reliance was placed on the following case laws: (a) CIT v. P.V.S. Beedies (P.) Ltd. [1999] 237 ITR 13/103 Taxman 294 (SC) (b) CIT v. Smt. S. Vijayalakshmi [2000] 242 ITR 46/[2002] 122 Taxman 949 (Mad.) (c) CIT v. Juhi Metal Works [2003] 263 ITR 287/[2004]....
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....ated 30.12.2005, it is noticed that the return of income filed by the assessee was earlier processed u/s. 143(1) on 8.3.2004, thereafter notice u/s. 143(2) was issued on 15.4.2004 and the AO mentioned that the assessee furnished the details called for and after examining the information filed and discussing the case, assessment was completed. So it cannot be said that the AO did not apply his mind while framing the assessment u/s. 143(3) of the Act vide order dated 30.12.2005. Moreover, the view taken by the AO was in consonance with the view already taken while framing the assessment for the preceding year i.e., A.Y. 2002-03 vide order dated 25.11.2004, the same view had been taken in the subsequent year i.e., A.Y. 2004-05 wherein also the assessment was framed u/s. 143(3) of the Act vide order dated 29.9.2006, copies of the said orders were furnished by the ld. counsel for the assessee and are kept on record. 14. From the above facts, it appears that the AO while framing assessment u/s. 143(3) on 30.12.2005 applied his mind and framed the assessment. Later on, on the basis of audit objection, the AO issued notice u/s. 148 of the Act for reopening the assessment u/s. 147 of the....
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....7. In the present case, another objection taken by the AO in the reasons recorded for reopening the assessment is that the assessee had not set off business loss against the capital gains, which is contrary to the provisions of the Act. In our opinion, the said observation of the AO is totally wrong because the assessee had set off the business loss against the income from capital gain and the provisions contained in section 71(2) of the Act clearly stipulates that the loss must be set off against the income, if any, assessable for that assessment year under any head of income including the head 'capital gains', whether short term capital gain or long term capital gain. The said provision reads as under: "71(2) Where in respect of any assessment year, the net result of the computation under any head of income, other than "Capital gains", is a loss and the assessee has income assessable under the head "Capital gains", such loss may, subject to the provisions of this Chapter, be set off against his income, if any, assessable for that assessment year under any head of income including the head "Capital gains" (whether relating to short-term capital assets or any other capital asset....
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.... objection before issuing a notice under section 148. On the contrary, the note suggested that the notice was issued mechanically as a result of the audit objection." 21. In the present case also, the AO issued notice u/s. 148 of the Act only after the audit party raised certain objections, therefore reopening was not valid in view of the ratio laid down in the aforesaid referred to cases. As regards the initiation of the proceedings for the reassessment u/s. 147 of the Act on the basis of change of opinion, the Hon'ble High Court of Delhi (Full Bench) in Kelvinator of India Ltd. (supra) held as under: "In the event it is held that by reason of section 147 if the ITO exercises its jurisdiction for initiating a proceeding for reassessment only upon mere change of opinion, the same may be held to be unconstitutional. Section 147 does not postulate conferment of power upon the Assessing Officer to initiate reassessment proceeding upon his mere change of opinion." The aforesaid case has been affirmed by the Hon'ble Supreme Court as reported in Kelvinator of India Ltd. (supra) wherein it has been held as under: "Prior to the Direct Tax Laws (Amendment) Act, 1987, reopening c....
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....e Assessing Officer." 22. Recently, the Hon'ble Delhi High Court in the case of Modipon Ltd. (supra) by following the aforesaid referred to judgment of the Hon'ble Supreme Court in the case of Kelvinator of India Ltd. (supra) has held vide order dated 21.3.2011 as under: "4. It is not in dispute that the re-assessment proceedings were initiated by the AO on the basis of tax audit report filed by the assessee in Form No.3CD and on the basis of information available in the Profit and Loss account. There was no reference to any new material by the AO which had come into his possession after the completion of original assessment under section 143(3) of the Act. It is also a matter of record that before initiating re-assessment proceedings by issuing notice under Section 148 of the Act, the AO had initiated proceedings under Section 154 of the Act for the same reasons and proceedings initiated under Section 154 were dropped by him after the issuance of notice under Section 148 and were thus pending on the date of initiation of the re-assessment proceedings. In these circumstances, the Tribunal while setting aside the reassessment proceedings relied upon the Full Bench Judgment of ....
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....ding year as well as in the succeeding year. Therefore, the said case relied by the ld. CIT(DR) is also distinguishable from the facts of the present case. 27. Similarly in the case of Juhi Metal Works (supra), the Hon'ble Allahabad High Court has held as under: "If there is information regarding the law and not its interpretation by the audit party, and if the assessing authority applies his mind to the said legal position and finds that it is a case for reopening, the reopening is valid under section 147(b) of the Income-tax Act, 1961." In the aforesaid case, the Hon'ble Allahabad High Court held reopening is valid for the reason that there was information regarding the law and not its interpretation by the audit party, since the assessee was not manufacturing the goods by itself and getting them manufactured through some other party and the accounts had not been audited as required u/s. 80J(6A) of the Act, therefore the assessee was not entitled for the benefit of section 80J of the Act. But in the present case, there was no such infringement of law by the assessee and the income from "long term capital gain" and "loss from business" had been shown on the same basis as ....