TaxTMI 
TaxTMI 
2012 (9) TMI 69
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....etitioner was selected for scrutiny. It is the case of the petitioner that during such assessment, number of queries were raised by the Assessing Officer and replies were also given by the petitioner to all such queries. Eventually, the assessment under section 143(3) of the Act was framed on 18.3.2005 for a total income of Rs.2,81,71,453/- under section 115-JB of the Act. 2.1 Thereafter, the Assessing Officer i.e. respondent herein issued the impugned notice dated 14.11.2006 under section 148 of the Act seeking to reopen such assessment which was previously framed after scrutiny. In response to such notice, the petitioner under its communication dated 27.11.2006 conveyed that the original return filed by the petitioner be treated as one filed in response to notice under section 148 of the Act. At the request of the petitioner, the respondent also supplied along with communication dated 13.11.2007 a copy of the reasons recorded for reopening the assessment. 2.2 The petitioner raised objections against reopening of the assessment under letter dated 21.11.2007. Such objections were, however, rejected by the Assessing Officer vide order dated 29.11.2007. The petitioner ha....
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....r under his communication dated 31.1.2005. In this letter, besides other questions, the Assessing Officer asked the assessee to substantiate the claim of exemption under section 10(23G) of the Act, both for the capital gain on sale of shares as well as on the interest income earned from SSNNL and GPICL bonds. Relevant portion of said letter dated 31.1.2005 reads as under: "2. To enable the undersigned to finalize the above mentioned pending assessment proceedings, you are hereby requested to kindly furnish the following information along with supporting documents and evidences, if any. .... .... [v] From the annual report, it appears that you have received long term capital gain of Rs.200.93 crores while disinvesting the equity holding of Rs.87.36 crores in GPEL. You have further claimed the complete tax exemption on such income u/s 10(23G) of the Act. Please justify your claim. .... .... [xii] Please also justify your claim of exemption u/s 10(23G) of the IT Act vis-a-vis interest earned from SSNNL/GIPCL bonds. .... ...." 7. In response to such letter, the petitioner replied under communication dated 11.2.2005. Regarding queries of exemption under section 10(....
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....fact, recorded as under : "6.1 From the above interest income, the assessee has claimed exemption u/s 10(23G) of the IT Act in respect of the following :- [i] Interest from SSNNL Bonds Rs. 3,50,880 [ii] Interest from GIPCL Bonds Rs. 96,81,593 ========= TOTAL Rs.1,00,32,473 ========= 6.2 From the above facts, it can be seen that on certain investment, the assessee had offered income for taxation, on balance investment the income has been shown but claimed as exempted and on certain investment no income has been shown at all. The details of investment from which no income has been shown are as under : xxx xxx xxx xxx xxx xxx" 9. The Assessing Officer thereupon proceeded to disallow expenditure incurred by the assessee in earning such tax free interest. He, however, did not disallow the exemption on the interest per se. We, however, note that in the assessment order, there was no discussion with respect to such exemption claimed by the petitioner under section 10(23G) of the Act. 10. In the reasons that the Assessing Officer recorded for reopening the assessment, he had stated as under : "3. From the records, it is seen that the assessee Corporation....
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....at in any case in the proceedings, during the original assessment, the Assessing Officer had raised several queries with respect to these very claims. The assessee had given detailed replies. At the time of framing of assessment, the Assessing Officer did not disallow the assessee's claim for exemption. Merely because the Assessing Officer did not give reasons in his order of assessment for not making additions, would not mean that he did not form any opinion on the merits of the claim made by the assessee. Counsel submitted that once in a scrutiny assessment, the Assessing Officer examines a particular claim of the assessee, but makes no disallowance in the final order of assessment, he must be deemed to have formed an opinion and that, therefore, any attempt on his part to reopen the assessment on the basis of very claim would only amount to change of opinion and therefore, wholly impermissible in law. 11.3 In support of his contentions, counsel relied on following decisions : [a] In case of Commissioner of Income Tax v. Nirma Chemicals Works P. Ltd. reported in (2009) 309 ITR 67 (Guj.), wherein the Division Bench of this Court had rejected the contention of the revenue tha....
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....ssment order and only such points are taken note of on which the assessee's explanations are rejected and additions/disallowances are made. [g] In case of Asian Paints Ltd. v. Deputy Commissioner of Income Tax and another reported in (2009) 308 ITR 195 (Bom.), wherein the Bombay High Court observed that the legislature has not conferred powers on the Assessing Officer to review his own order. It was further observed that, "It is clear from the observations made above that the Full Bench of the Delhi High Court has taken a view that in a situation where according to the Assessing Officer he failed to apply his mind to the relevant material in making the assessment order, he cannot take advantage of his own wrong and reopen the assessment by taking recourse to the provisions of section 147. We find, ourself, in respectful agreement with the view taken by the Full Bench of the Delhi High Court.". 12. On the other hand, learned counsel Shri Sudhir Mehta for the revenue opposed the petition contending that the Assessing Officer had recorded proper reasons before issuing notice under section 148 of the Act. The petition may, therefore, be dismissed. 13. Since the legal issues in....
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....ncome Tax v. Kelvinator of India Ltd. (Delhi) and Eicher Ltd. (supra), which were in appeal before the Apex Court, the ratio laid down therein, stood approved by the Apex Court. [c] For the same purpose, he also relied on the decision in case of S. Shanmugavel Nadar v. State of Tamil Nadu and another, reported in (2003) 263 ITR 658 wherein the Apex Court observed that, "It follows from a review of several decisions of this court that it is the speech, express or necessarily implied, which only is the declaration of law by this court within the meaning of article 141 of the Constitution.". 14. On the basis of the material on record and the submissions made before us by the counsel for either side, following questions arise for our consideration : [1] Whether in case of an assessment previously framed after scrutiny, by virtue of the provisions contained in section 147 of the Act as amended with effect from 1.4.1989, reopening of the assessment within a period of four years from the end of relevant assessment year would be permissible only upon availability of some new material extraneous to the record enabling the Assessing Officer to form a belief that income chargeable to....
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....income or recompute the loss or the depreciation allowance, as the case may be, for the assessment year concerned (hereinafter in sections 148 to 153 referred to as the relevant assessment year). Explanation 1 : For the purposes of this section, the following shall also be deemed to be cases where income chargeable to tax has escaped assessment, namely :- (a) Where income chargeable to tax has been under-assessed; or (b) Where such income has been assessed at too low a rate; or (c) Where such income has been made the subject of excessive relief under this Act or under the Indian Income-tax Act, 1922 (11 of 1922); or [d] where excessive loss or depreciation allowance has been computed. Explanation 2 : Production before the Assessing Officer of account books or other evidence from which material evidence could with due diligence have been discovered by the Assessing Officer will not necessarily amount to disclosure within the meaning of this section." 16. After 1.4.1989, along with section 143 of the Act, several major changes were made in section 147 also. The provision for making prima facie adjustment in the return of income filed by the assessee previously conta....
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....ly amount to disclosure within the meaning of the foregoing proviso. Explanation 2 : For the purposes of this section, the following shall also be deemed to be cases where income chargeable to tax has escaped assessment, namely :- (a) Where no return of income has been furnished by the assessee although his total income or the total income of any other person in respect of which he is assessable under this Act during the previous year exceeded the maximum amount which is not chargeable to income-tax; (b) Where a return of income has been furnished by the assessee but no assessment has been made and it is noticed by the Assessing Officer that the assessee has understated the income or has claimed excessive loss, deduction, allowance or relief in the return; (c) Where an assessment has been made, but - (i) Income chargeable to tax has been under-assessed; or (ii) Such income has been assessed at too low a rate; or (iii) Such income has been made the subject of excessive relief under this Act; or (iv) Excessive loss or depreciation allowance or any other allowance under this Act has been computed." 17. From the above comparison of two sets of statutor....
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....n mind the elementary principles laid down in the aforesaid decisions, we may have to apply them to the extent that they are now permissible in view of the Explanation-2." 20. The change in the statutory scheme contained in sections 143 and 147 after 1.4.1989 came up for consideration before the Apex Court in case of Assistant Commissioner of Income Tax v. Rajesh Jhaveri Stock Brokers P. Ltd., reported at (2007) 291 ITR 500 (SC). We are not unmindful of the fact that in such decision, the Court was concerned with a case where the return was not processed under section 143(3) but intimation under section 143(1) of the Act was sent. However, the observations made by the Apex Court examining the vital changes in sections 143 and 147 are relevant for our purpose which read as under: "The scope and effect of section 147 as substituted with effect from April 1, 1989, as also sections 148 to 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....
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....-alia in A.L.A Firm v. CIT, Madras, (1991) 2 SCC 558. View of the Tribunal is consistent with settled law. It is not disputed by learned counsel for the assessee that the second proposed question is consequential and if reassessment is upheld, the levy of interest cannot be objected to. Thus, no substantial question of law arises." 22. In case of Multiscreen Media Private Limited v. Union of India and another (No.2), reported in (2010) 324 ITR 54 (Bom), the Bombay High Court also examined the legislative amendments made in section 147 of the Act with effect from 1.4.1989 and observed that the power under section 147 cannot be exercised on a mere change of opinion. The Division Bench observed as under : "Section 147 enables the Assessing Officer to assess or reassess any income chargeable to tax which he has reason to believe has escaped assessment for an assessment year. The proviso to Section 147 imposes certain additional requirements where an assessment inter alia is sought to be opened beyond a period of four years from the end of the relevant assessment year. In the present case, the exercise of power is within a period of four years and, therefore, the requirements of t....
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....actual context, the Courts have been drawing distinction between the expression "change of opinion" and "mere change of opinion". 24. In the context of our discussion, we may refer to the decision of the Apex Court in the case of A. L. A. Firm v. Commissioner of Income Tax, reported in (1991) 189 ITR 285. In such decision, even with respect to assessment proceedings which arose prior to the amendment in section 147 of the Act with effect from 1.4.1989, the Apex Court referring to large number of decisions on the point, accepted that for reopening of the assessment, the belief that the Assessing Officer may form may be based on the information which may have been obtained even from the record of the original assessment from the investigation of the materials on record or the facts disclosed thereby or from other inquiry or research into the facts or law. The Apex Court noticed the decision in the case of Kalyanji Mavji & Co. v. Commissioner of Income Tax, reported in (1976) 102 ITR 287 (SC) in which four legal propositions were laid down and that the later decision also of the Apex Court in case of Indian and Eastern Newspaper Society v. Commissioner of Income Tax, reported in (1....
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....ssessing Officer had formed an opinion with respect to such a claim. It is of course true that such reopening even within a period of four years from the end of relevant assessment year would not be permissible on a mere change of opinion. 26. The term "opinion" in "Webster's Third New International Dictionary" is explained as a view, judgment or appraisal formed in the mind about a particular matter; favourable impression or estimation; belief stronger than impression and less strong than positive knowledge; a notion or conviction of probable evidence; something that is generally or widely accepted as factual; a formal expression by an expert; a formal expression by a judge or court or referee of the legal reasons and principles upon which a legal decision is based. 26.1 In "Advance Law Lexicon" by P. Ramanatha Aiyar, Third Edition, the term "opinion" is explained as to mean something more than mere retaining of gossip or of hearsay; it means judgement or belief, that is, a belief or a conviction resulting from what one thinks on a particular question. It is further stated that the opinion of the court is the reasons given for a judgement. It is explained that there i....
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....rt examined the statutory provisions contained in section 147 of the Act after 1.4.1989. Comparing the provisions as contained prior to 1.4.1989, the Apex Court noted that post 1.4.1989, two conditions previously contained for reopening assessment have been given a go-bye and only one condition, namely, that the Assessing Officer has reason to believe that income has escaped assessment, is required to be satisfied to confer jurisdiction on him to reopen the assessment. It was observed that after 1.4.1989, the power to reopen is much wider. The Apex Court giving schematic interpretation to section 147 of the Act, however, held that even after 1.4.1989, such reopening cannot be on a "mere change of opinion". The Court was of the opinion that the concept of change of opinion is not removed after 1.4.1989 amendments in section 147 of the Act and therefore, even in such subsequent cases, the Assessing Officer has power to reopen the assessment only where there was tangible material to come to the conclusion that there is escapement of income from assessment. It was observed that such reasons must have a live link with the formation of the belief. 28.1 In such decision, the Apex Court....
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....the great weight to be given to the language actually used by that most distinguished judge." In Home Office v. Dorset Yacht Co. (1970 (2) All ER 294) Lord Reid said, "Lord Atkin's speech.....is not to be treated as if it was a statute definition. It will require qualification in new circumstances." Megarry, J in (1971) 1 WLR 1062 observed: "One must not, of course, construe even a reserved judgment of Russell L.J. as if it were an Act of Parliament." And, in Herrington v. British Railways Board (1972 (2) WLR 537) Lord Morris said: "There is always peril in treating the words of a speech or judgment as though they are words in a legislative enactment, and it is to be remembered that judicial utterances made in the setting of the facts of a particular case." 29.1 In case of Union of India and another v. Arulmozhi Iniarasu and others, reported in (2011) 7 SCC 397, it was observed as under : "Before examining the first limb of the question, formulated above, it would be instructive to note, as a preface, the well settled principle of law in the matter of applying precedents that the Court should not place reliance on decisions without discussing as to how the fact situatio....
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....ll Bench considered was whether even on a mere change of opinion by the Income Tax Officer, action under section 147 of the Act can be brought into operation. In the context of this question, the Full Bench observed that, "In the event it is held that by reason of section 147 if the Income-tax Officer exercises his jurisdiction for initiating a proceeding for reassessment only upon a mere change of opinion, the same may be held to be unconstitutional. We are therefore of the opinion that section 147 of the Act does not postulate conferment of power upon the Assessing Officer to initiate reassessment proceeding upon his mere change of opinion.". The Bench further observed that, "We also cannot accept the submission of Mr. Jolly to the effect that only because in the assessment order, detailed reasons have not been recorded an analysis of the materials on the record by itself may justify the Assessing Officer to initiate a proceeding under section 147 of the Act.". 29.4 To our mind, such later observations of the Bench need to be appreciated in light of the ratio of the decision, namely, that under section 147 of the Act, assessment cannot be reopened on a mere change of opinion. ....
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.... case of Rajesh Jhaveri Stock Brokers Pvt. Ltd.,(supra) relates to processing of returns under Section 143(1)(a) and not to regular assessment under Section 143(3). The Supreme Court in their decision CIT vs. Kelvinator of India Ltd. (supra) has not specifically referred to Section 114 of the Evidence Act and has also not specifically disapproved or approved the observations of the Full Bench of Delhi High Court with reference to the said Section." In the concluding portion of the judgement, the Court made a reference to Larger Bench for decision on following questions : "25. Looking at the aforesaid decisions and the nature of controversy, we feel that the following substantial questions of law should be referred to a larger Bench for elucidation and examination. This is necessary as we have to examine the decision and observations made by the Full Bench of this Court in Kelvinator (supra):- "(i) What is meant by the term "change of opinion? (ii) Whether assessment proceedings can be validly reopened under Section 147 of the Act, even within four year, if an assessee has furnished full and true particulars at the time of original assessment with reference to income all....
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....be reopened within a span of four years from the end of relevant assessment year. In the original assessment, the assessee had made a claim for deduction under section 80-IB(10) of the Act which was also granted. The assessee had contended that such claim was made duly supported by audit report of the Chartered Accountants in the prescribed form which claim was duly allowed after thorough scrutiny by the Assessing Officer. It was, therefore, the contention of the assessee that such assessment was being reopened on a mere change of opinion on the basis of same material which was processed by the Assessing Officer in the original assessment. It was noticed that in the reasons recorded, the Assessing Officer desired to disallow the claim on the basis of a retrospective clarification added to the said section on the basis of which, the Assessing Officer held a belief that the assessee was only a works contractor and not a developer. It was in this background that the court found that the notice for reopening of assessment was without jurisdiction. It was observed as under : "After hearing the learned counsel for the parties and after going through the aforesaid materials on record, ....
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....d under section 148 of the Act is nothing, but a change of opinion.". 36. Once again, the decision must be seen in the background of the facts in which the same was rendered. An isolated observation cannot be picked up out of context and treated as a ratio of the decision. In this case also, in our opinion, no ratio has been laid down that reopening of an assessment even within four years after 1.4.1989 would not be permissible unless the Assessing Officer has reason to believe that the income chargeable to tax has escaped assessment due to failure on the part of the assessee to disclose material facts. 37. Coming to the second question, as recorded, contention of the petitioner is that as in the present case, once the Assessing Officer examines a certain claim of the assessee in the original assessment proceedings, raises queries, receives replies, but thereafter makes no additions or disallowances, without giving reasons, it would not be permissible to reopen the assessment even within four years on very same grounds. The contention of the revenue is that in absence of any direct discussion in the assessment order, the Assessing Officer cannot be stated to have formed any o....
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....lure on the part of the assessee to fully and truly disclose all material facts, was not there. However, on the question of a change of opinion, when in the original assessment order, the Assessing Officer did not record reasons for not making certain disallowances, the Division Bench of Delhi High Court observed as under : "Applying the principles laid down by the Full Bench of this Court as well as the observations of the Punjab and Haryana High Court, we find that if the entire material had been placed by the assessed before the Assessing Officer at the time when the original assessment was made and the Assessing Officer applied his mind to that material and accepted the view canvassed by the assessed, then merely because he did not express this in the assessment order, that by itself would not give him a ground to conclude that income has escaped assessment and, therefore, the assessment needed to be reopened." 41. The powers under section 147 of the Act are special powers and peculiar in nature where a quasi-judicial order previously passed after full hearing and which has otherwise become final is subject to reopening on certain grounds. Ordinarily, a judicial or....
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....ring the assessment proceedings, does not reject such a claim, but chooses not to give any reasons for such a course of action that he adopts, it can hardly be stated that he did not form an opinion on such a claim. It is not unknown that assessments of larger corporations in the modern day, involve large number of complex claims, voluminous material, numerous exemptions and deductions. If the Assessing Officer is burdened with the responsibility of giving reasons for several claims so made and accepted by him, it would even otherwise cast an unreasonable expectation which within the short frame of time available under law would be too much to expect him to carry. Irrespective of this, in a given case, if the Assessing Officer on his own for reasons best known to him, chooses not to assign reasons for not rejecting the claim of an assessee after thorough scrutiny, it can hardly be stated by the revenue that the Assessing Officer can not be seen to have formed any opinion on such a claim. Such a contention, in our opinion, would be devoid of merits. If a claim made by the assessee in the return is not rejected, it stands allowed. If such a claim is scrutinized by the Assessing Offic....
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...., Assistant Commissioner of Income Tax (supra) came up for consideration in case of Garden Silk Mills Pvt. Ltd. v. Deputy Commissioner of Income Tax, reported in (1999) 237 ITR 668. To the extent the decision in case of Praful Chunilal Patel v. M. J. Makwana, Assistant Commissioner of Income Tax (supra) drew a distinction between change of opinion and finding erroneous nature of earlier assessment on detection of mistake on an issue which was not earlier considered by the Assessing Officer, the Bench found itself in complete agreement. We may notice the relevant portion of this decision of this Court in case of Garden Silk Mills Pvt. Ltd. v. Deputy Commissioner of Income Tax (supra), which reads as under : "The question was again discussed at some length by another Division Bench of this Court in Praful Chunilal Patel vs. M. J. Makwana, Asstt. CIT. It was a case in which notice under s. 147 had been issued. Recording of reasons disclosed that a part of item of income though disclosed as per information submitted by the assessee, had remained to be considered for assessment and, therefore, the income has been underassessed. It was submitted on behalf of the assessee that all fact....
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....me Tax, however, goes beyond the above proposition. The Bench went on to hold that, "On a proper interpretation of s. 147 of the Act, it would appear that the power to make assessment or reassessment within four years of the end of the relevant assessment year would be attracted even in cases where there has been a complete disclosure of all relevant facts upon which a correct assessment might have been based in the first instance, and whether it is an error of fact or law that has been discovered or found out justifying the belief required to initiate the proceedings. In our view, the words "escaped assessment" where the return is filed, are apt to cover the case of a discovery of a mistake in the assessment caused by either an erroneous construction of the transaction or due to its non-consideration, or, caused by a mistake of law applicable to such transfer or transaction even where there has been a complete disclosure of all relevant facts upon which a correct assessment could have been based.". 47. The above observations of the Bench, in our opinion, need not be seen as a ratio of the decision since in the said case, the facts were that assessment was reopened within four y....
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....laims. In paragraph 5 of his letter dated 31.1.2005, he called upon the assessee to justify the claim of exemption of capital gain on the sale of shares. In paragraph 12, he called upon the assessee to justify the claim of exemption under section 10(23G) of the Act vis-a-vis interest earned from SSNNL/GIPCL bonds. The assessee gave detailed reply to the query raised in para 5 with respect to capital gain. The assessee, thereafter, contended that such justification would apply with respect to interest on the bonds also. Contents of the letter of the assessee would demonstrate that the assessee offered its explanation for claiming exemptions under section 10(23G) of the Act. If for some reason the Assessing Officer was not satisfied with such explanation, surely it was open for him to call for further explanation. In the final order of assessment, it is not as if the Assessing Officer totally lost sight of such claims. He in fact took into account the fact that the assessee was claiming exemption on the interest income from the bonds. He, therefore, examined as to what extent expenditure for earning such tax free income should be disallowed. In the order of assessment, he gave detail....