TaxTMI 
TaxTMI 
2018 (3) TMI 1587
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....leting the assessment? 2. Whether the Income Tax Appellate Tribunal is correct in law in holding that there was no change of opinion on part of Assessing Officer in spite of the fact that all material was available on record with the Assessing Officer who took a considered decision to allow the expenditure after considering the decision of this Honble Court in the assessment concluded under Section 143(3) of the Act? 3. Whether the Income Tax Appellate Tribunal is correct in law in holding that the expenditure incurred by the appellant are capital in nature and hence cannot be claimed as revenue expenditure against the interest income eared on short-term deposits invested out of share application money in view of the fact that the appellant was a running company and had earned business income for the year under consideration? 2. We have heard Mr. Ch. Pushyam Kiran, learned counsel for the appellant, and Ms. K. Mamata, learned Senior Standing Counsel for the Income Tax Department. 3. The averments in the memorandum of appeal are briefly stated as under: The appellant is a public limited company dealing in the business of manufacturing and trading in pig iro....
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....ed counsel for the appellant is that reopening of the assessment and revising the same are bad as the same were done on a mere change of opinion. That while passing the assessment order under Section 143(3) of the Act, the Assessing Officer has considered the judgment of this Court in CIT v. Derco Cooling Coils Ltd. [1992] 198 ITR 375 (AP) and taken an informed decision allowing deduction of the expenditure incurred by the appellant in raising the share capital and that the reasons given for reopening of the assessment would clearly reveal that the same was done on a mere change of opinion based on audit objection and that no fresh material was made available to the Assessing Officer for differing from his earlier view. On merits, it is the case of the appellant that the expenditure was incurred in the form of interest on bridge loans, advertisement, business promotion, printing and stationery, share application forms, traveling and other expenses which have direct nexus with the interest that accrued to the appellant and that as such expenditure was directly connected with the public issue, the same was eligible to the set off against interest earned on the short term deposits. Th....
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....here an assessment under sub-section (3) of sec. 143 or this section has been made for the relevant asst. year, no action shall be taken under this section after the expiry of four years from the end of the relevant Asst. Year, unless any income chargeable to tax has escaped assessment for such Asst. Year by reason of the failure on the part of assessee to make a return under section 139(1) in response to a notice issued under sub-section (1) of Section 142 or Section 148 or to disclose fully and truly all material facts necessary for his assessment, for that Asst. year. 8. This provision is subject matter of interpretation in a slew of judgments. The Legislative history of Section 147 of the Act has been explained by the Supreme Court in Kelvinator of India Limited (supra) as under: 6. On going through the changes, quoted above, made to Section 147 of the Act, we find that, prior to Direct Tax Laws (Amendment) Act, 1987, re-opening could be done under above two conditions and fulfillment of the said conditions alone conferred jurisdiction on the Assessing Officer to make a back assessment, but in Section 147 of the Act [with effect from 1st April, 1989], they are given a ....
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....court rulings in the past and was well settled and its omission from Section 147 would give arbitrary powers to the Assessing Officer to reopen past assessments on mere change of opinion. To allay these fears, the Amending Act, 1989, has again amended Section 147 to reintroduce the expression `has reason to believe' in place of the words `for reasons to be recorded by him in writing, is of the opinion'. Other provisions of the new Section 147, however, remain the same. The facts in Kelvinator of India Limited (supra) are almost similar to that in the present case. The order of assessment in the said case was passed by the Assessing Officer on 17.11.1989 wherein upon making additions and disallowances the taxable income was determined at Rs. 21,14,082/-. Subsequently, based on a tax audit report, a notice under Section 148 of the Act was issued on 20.04.1990. A reassessment order was passed based on subsequent order dt.27.7.1990 of the Commissioner (Appeals) for the assessment year 1986-87, although the assessment was reopened on 20.04.1990. The assessees appeal was allowed by the Commissioner (Appeals) on the ground that the reassessment was made on a mere change of opini....
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.... of Gujrat High Court in the said case, wherein it was held: "It will thus be seen that in the proceedings taken under Section 147, the Assessing Officer may make an assessment or reassessment, or recomputation, as the case may be. The word "assess" refers to a situation where the assessment was not made in the normal manner while the word "reassess" refers to a situation where an assessment is already made, but it is sought to be reassessed on the basis of this provision. In cases where the Assessing Officer has not made an assessment of any item of income chargeable to tax while passing the assessment order in the relevant assessment year, it cannot be said that such income was subjected to an assessment. In the assessment proceedings, the Assessing Officer would ascertain on consideration of all relevant circumstances the amount of tax chargeable to a given taxpayer. The word "assessment" would mean the ascertainment of the amount of taxable income and of the tax payable thereon. In other words, where there is no ascertaining of the amount of taxable income and the tax payable thereon, it can never be said that such income was assessed. Merely because during the assessm....
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....4(2) of the Act. Thus when the Assessing Officer or Tribunal has considered the matter in detail and the view taken is a possible view the order cannot be changed by way of exercising the jurisdiction of rectification of mistake. 15. It is a well settled principle of law that what cannot be done directly cannot be done indirectly. If the ITO does not possess the power of review, he cannot be permitted to achieve the said object by taking recourse to initiating a proceeding of re- assessment or by way of rectification of mistake. In a case of this nature the Revenue is not without remedy. Section 263 of the Act empowers the Commissioner to review an order which is prejudicial to the Revenue. The judgment of the Delhi High Court in Kelvinator of India Ltd. (supra) has been upheld by the Supreme Court in Kelvinator of India Ltd. (supra). 8. Referring to the judgment of the Supreme Court in Calcutta Discount Co. Ltd. v. I.T.O. , the Delhi High Court in Jindal Photo Films Ltd. (supra) held that law does not require the assessee to state the conclusion that could reasonably be drawn from the primary facts. That once assessment order is framed, the Assessing Officer cannot at a later p....
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....y, he has reasons, which he must record, to believe that, by reason of omission or failure on the part of the assessee to make a true and full disclosure of all material facts necessary for his assessment during the concluded assessment proceedings, any part of his income, profits or gains chargeable to Income Tax has escaped assessment. He may start reassessment proceedings either because some fresh facts had come to light which were not previously disclosed or some information with regard to the facts previously disclosed comes into his possession which tends to expose the untruthfulness of those facts. In such situations, it is not a case of mere change of opinion or the drawing of a different inference from the same facts as were earlier available but acting on fresh information. Since the belief is that of the Income Tax Officer, the sufficiency of reasons for forming the belief is not for the court to judge but it is open to an assessee to establish that there in fact existed no belief or that the belief was not at all a bona fide one or was based on vague, irrelevant and non-specific information. To that limited extent, the court may look into the conclusion arrived at by th....
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....uthority during both, the assessment proceedings and the issuance of notice for reassessment proceedings, it cannot be said by the assessing authority that "reason to believe" for initiating reassessment is an error discovered in the earlier view taken by it during original assessment proceedings. (See DCM v. State of Rajasthan: [1980] 4 SCC 71). 28. The standard of reason exercised by the assessing authority is laid down as that of an honest and prudent person who would act on reasonable grounds and come to a cogent conclusion. The necessary sequitur is that a mere change of opinion while perusing the same material cannot be a "reason to believe" that a case of escaped assessment exists requiring assessment proceedings to be reopened. (See: Binani Industries Limited, Kerala v. Assistant Commissioner of Commercial Taxes, VI Circle, Bangalore: [2007] 15 SCC 435 : [2007] 6 VST 783 (SC) and A.L.A. Firm v. Commissioner of Income-tax: [1991] 2 SCC 558 : [1991] 189 ITR 285 (SC). If a conscious application of mind is made to the relevant facts and material available or existing at the relevant point of time while making the assessment and again a different or divergent view is rea....
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....w was considered and it was ultimately held that the relevant decision of the Patna High Court which was binding on the department justified the assessees claim that the said income was not liable to be assessed to tax. There is no doubt that a part of the assessees income had not been assessed and in that sense, it has clearly escaped assessment. Can it be said that, because the matter was considered and decided on the merits in the light of the binding authority of the decision of the Patna High Court, no income has escaped assessment when the said Patna High Court decision has been subsequently reversed by the Privy Council?. We see no justification for holding that cases of income escaping assessment must always be cases where income has not been assessed owing to inadvertence or oversight or owing to the fact that no return has been submitted. In our opinion, even in a case where a return has been submitted, if the income-tax officer erroneously fails to tax a part of assessable income, it is a case where the said part of the income has escaped assessment. The appellants attempt to put a very narrow and artificial limitation on the meaning of the word escape in S. 34(1)(b) ca....
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....ax Act, 1922. it appears to us, with respect, that the proposition is stated too widely and travels farther than the statute warrants in so far as it can be said to lay down that if, on reappraising the material considered by him during the original assessment, the Income Tax Officer discovers that he has committed an error in consequence of which income has escaped assessment it is open to him to reopen the assessment. In our opinion, an error discovered on a reconsideration of the same material (and no more) does not give him that power. That was the view taken by this Court in Maharaj Kamal Singh v. Commissioner of Income Tax (supra), Commissioner of Income Tax v. Raman and Company (supra) and Bankipur Club Ltd. v. Commissioner of Income Tax : [1971] 82 ITR 831(SC), and we do not believe that the law has since taken a different course. Any observations in Kalyanji Mavji and Co. v. Commissioner of Income Tax (supra) suggesting the contrary do not, we say with respect, lay down the correct law. Interpreting the word information in Section 147(b) of the Act, the Supreme Court has held as follows: In that view, therefore, when Section 147(b) of the Income Tax Act is read as ....
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....er) attempts to reopen the assessment because the opinion formed earlier by himself (or, more often, by a predecessor I.T.O.) was, in his opinion, incorrect. Judicial decisions had consistently held that this could not be done and the IENS case (supra) has warned that this line of cases cannot be taken to have been overruled by Kalyanji Mavji (supra). The second paragraph from the judgment in the IENS case earlier extracted has also reference only to this situation and insists upon the necessity of some information which make the ITO realise that he has committed an error in the earlier assessment. This paragraph does not in any way affect the principle enumerated in the two Madras cases cited with approval in Anandji Haridas [1986] 21 S.T.C. 326. Even making allowances for this limitation placed on the observations in Kalyanji Mavji, the position as summarised by the High Court in the following words represents, in our view, the correct position in law: The result of these decisions is that the statute does not require that the information must be extraneous to the record. It is enough if the material, on the basis of which the reassessment proceedings are sought to be initiated....
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....ion coming to his possession subsequently, and he has reason to believe that by reason of omission or failure on the part of the assessee to make a true and full disclosure of all material facts necessary for his assessment during the concluded assessment proceedings, any part of his income, profits or gains chargeable to income tax has escaped assessment; (ii) Reassessment proceedings could be initiated either because some fresh facts had come to light, which were not previously disclosed, or some information with regard to the facts previously disclosed comes into his possession which tends to expose the untruthfulness of those facts. (iii) The jurisdiction under Section 147 of the Act is not akin to the power of review and it cannot be exercised based on mere change of opinion. (iv) After the assessment order is framed, the Assessing Officer cannot at a later point of time reopen the assessment merely on forming an opinion that after giving a second thought to the primary facts disclosed by the assessee, he arrived at a finding that he had committed an error in computing the taxable income of the assessee under Section 147 of the Act. (v) Even while discovering new and imp....