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TMI Blog2008 (2) TMI 464X X X X Extracts X X X X X X X X Extracts X X X X ..... claimed that deduction under s. 80-IA was claimed correctly and requested that the proceedings initiated under s. 148 may be dropped. The assessee also filed the return of income at Rs. 3,59,981 claiming deduction under s. 80-IA of Rs. 9,48,43,743. However, the AO after having rejected the said request of the assessee proceeded to examine the claim of deduction under s. 80-IA. The AO held that the interest earned from Vikas Cash Certificates (VCC) as the income from other sources and accordingly reduced the claim of deduction under s. 80-IA of the Act. On appeal before the CIT(A), the assessee has submitted that notice under s. 148 for assessment/reassessment can be issued if the AO has reason to believe that 'income chargeable to tax has escaped assessment'. The income for the asst. yr. 1998-99 had rightly been processed under s. 143 and assessed under s. 143(3) on the returned income. The interest of Rs. 12,98,970 earned on VCC attributed to its Silvassa unit and has rightly been taken by the assessee as business income. The AO, therefore, has no reason to believe that the income has escaped assessment. Further, notice under s. 148 appears to have been issued due to change of op ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 97-98 and in the original asst. yr. 1998-99. The interest of Rs. 12,99,917 earned on VCC is attributable to Silvassa unit had already been taken by the assessee. The assessee (sic-AO) has, therefore, no reason to believe that the income chargeable to tax has escaped assessment. The notice under s. 148 appears to have been issued due to change of opinion on the part of the AO. He has further submitted that even though true disclosure was made by the assessee and all the material facts were placed on record when the assessment under s. 143(3) was framed and after considering all the material facts on record, the deduction under s. 80-IA were allowed as claimed by the assessee. Later on, after receipt of internal audit objection, the AO issued notice under s. 148 solely on the basis of audit objection. He has further argued that the audit objections cannot be treated as information received subsequent to assessment framed for the purpose of reopening of assessment. A reliance in this regard has been placed upon the decision in the case of Indian Eastern Newspaper Society vs. CIT (l979) 12 CTR (SC) 190 : (l979) 119 ITR 996 (SC), CIT vs. Lucas T.V.S. Ltd. (2001) 168 CTR (SC) 311 : (20 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rators. The return of income filed by the assessee was processed under s. 143(1)(a) and subsequently the assessment was framed under s. 143(3) wherein income of interest of Rs. 12,99,917 earned on VCC attributable to its Silvassa unit (Union Territory of Dadra and Nagar Haveli) was treated as business income and the deduction on the said interest income was allowed under s. 80-IA of the Act. Later on the audit party of Revenue Department expressed the view that deduction under s. 80-IA in respect of income from interest on VCC had been wrongly allowed by observing that it has been judicially held [Cambay Electric Supply Industrial Co. Ltd. vs. CIT 1978 CTR (SC) 50 : (1978) 113 ITR 84 (SC)] that use of the term "derived from" in relevant provision of the Act (s. 80-IA) indicates the restricted meaning given by the legislature to cover only the profits and gains directly accruing from the conduct of the business of the undertaking. On receipt of the aforesaid objection of the audit party the AO formed the opinion that the deduction under s. 80-IA claimed by the assessee revealed that certain incomes, which do not form part of business income, had been included in the business income, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he instant case will fall within the purview of proviso to s. 147 inasmuch as the assessment for asst. yr. 1998-99 has been made under s. 143(3) and the notice under s. 148 has been issued on 26th March, 2003 i.e., after the expiry of four years from the end of relevant assessment year. Therefore, the AO must have reason to believe that assessee's income chargeable to tax has escaped assessment and, secondly, that the reason to believe that the said escapement occurred by reason either (a) omission or failure on the part of the assessee to make a return of income under s. 139; or (b) omission or failure on the part of the assessee to disclose fully and truly all material facts necessary for his assessment of that year. It is well settled that the expression 'reason to believe' does not mean a purely subjective satisfaction on the part of the AO. The reasons must be held in good faith and must have a rationale connection with or a relevant bearing on the formation of the belief. It is not any or every material howsoever vague or far-fetched which would warrant the formation of the belief relating to escapement of income of the assessee. The words 'omission or failure to disclose ful ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rse of reassessment proceedings. There may be a presumption that the assessment proceedings had been regularly conducted but there could be no presumption that even when the order of assessment was silent, all possible angles and aspects of a controversy had been examined and determined by the AO. The principle that a mere change of opinion could not be a basis for reopening completed assessments would be applicable only to situations where the AO had applied his mind and taken a conscious decision on a particular matter in issue. It would have no application where the order of assessment did not address itself to the aspect which was the basis for reopening of the assessment. Therefore, it was inconsequential whether or not the material necessary for taking a decision was available to the AO either generally or in the form of a reply to the questionnaire served upon the assessee. What is important was whether the AO had, based on the material available to him taken a view. Since he had not done so, the reassessment could not be challenged on the ground that it was based on a change of opinion." 8. It may however, be mentioned that subsequently, a similar issue came up before ano ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 961) 41 ITR 191, 201 (SC) it has been held that once all the facts are before the AO, he requires no further assistance by way of disclosure. It is for him to decide what inference of facts can be reasonably drawn and what legal inference has ultimately to be drawn. It is not for somebody else-far less the assessee to tell the AO what inference, whether on facts or on law should be drawn. In the case of Indian Eastern Newspaper Society us. CIT, it has been held that an opinion of an audit party of IT Department on a point of law cannot be regarded as 'information' within the meaning of cl. (b) and the same cannot form the basis of initiation of reassessment proceedings under s. 147(b). In the case of CIT vs. Lucas T.V.S. Ltd. (1999) 155 CTR (Mad) 160 : (1998) 234 ITR 296 (Mad), the Hon'ble Madras High Court has held thus: "An audit opinion in regard to the application or interpretation of law cannot be treated by the ITO as information for reopening the assessment under s. 147(b} of the IT Act, 1961. Held, that in the instant case, apart from the information furnished by the audit party, the ITO had no other information for reopening the assessment as could be seen from the r ..... X X X X Extracts X X X X X X X X Extracts X X X X
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