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TMI Blog2010 (12) TMI 138X X X X Extracts X X X X X X X X Extracts X X X X ..... er remanded to tribunal - 740/2008 - - - Dated:- 24-12-2010 - Through: Ms. Prem Lata Bansal, Advocate Through: Mr. Satinder S. Gulati and Mr. Kamaldeep Gulati, Advocates MR. JUSTICE A.K. SIKRI, MS. JUSTICE REVA KHETRAPAL REVA KHETRAPAL, J. 1. This appeal seeks to assail the order dated 31.07.2007 passed by the Income Tax Appellate Tribunal ("ITAT" in short), pertaining to the assessment year 1993-94, whereby and whereunder the ITAT quashed the order of the CIT(A) dated 23.03.2001 on the ground that initiation of action under Section 147 of the Income-Tax Act, 1961 (hereinafter referred to as the "Act") read with Section 148 thereof was without jurisdiction. The aforesaid order was passed by the ITAT by observing that by way of re-assessment for the assessment year 1992-93, the carried forward losses of assessment years 1989-90 and 1990-91 had been adjusted by the Assessing Officer against profits of the assessment year 1992-93 for the purpose of deduction under Section 80-I of the Act, and the balance unabsorbed losses were carried forward to be adjusted in succeeding yea Rs. Since the re-assessment order for assessment year 1992-93 had been quashed by the IT ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ,085/- and Rs. 63,61,68,737/- in respect of the Aonla Unit for the previous years relevant to the assessment years 1989-90 and 1990-91 and had earned profit of and Rs. 11,43,31,588/- and Rs. 79,54,13,000/- for the previous years relevant to the assessment years 1991-92 and 1992-93 ITA No.740/2008 Page 4 of 38 respectively. In this manner, a loss of Rs. 1,37,39,91,234/- in respect of the Aonla Unit was to be carried forward to the subsequent assessment year. 5. In his order dated 23.03.2001, the Assessing Officer, keeping in view the provisions of Section 80-I (6) of the Act, was of the view that the profits and gains of an industrial undertaking, for the purpose of computing deduction under Section 80-I for the assessment year immediately succeeding the initial assessment year or any subsequent year must be computed as if such industrial undertaking was the only source of income of the assessee during the previous years, relevant to the initial assessment year and other subsequent years upto and including the assessment year for which the determination is to be made. Thus, the carried forward loss of the earlier years of the new industrial undertaking has to be taken into accou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... id Section. 6. Aggrieved by the assumption of jurisdiction under Section 147 of the Act by the Assessing Officer, the respondent Society filed an appeal before the CIT(A) challenging the same. The CIT(A), however, dismissed the appeal holding that the Assessing Officer had validly invoked powers under Section 147 of the Act. Even on merits, the CIT(A) held that the Assessing Officer had correctly computed deduction under Section 80-I of the Act. 7. The respondent Society thereupon filed an appeal before the ITAT, which quashed the assessment order dated 23.03.2001 on the ground that the initiation of action under Section 147 read with Section 148 of the Act by the Assessing Officer was without jurisdiction. The relevant portion of the order of the ITAT which has led to the filing of the present appeal is being reproduced hereunder: "8. During hearing of this appeal it was sensed that in view of the decision of the Hon'ble ITAT given for A.Y. 1992-93, as discussed above, the reason given for re-opening of the assessment for the second time does not survive and hence the Assessing Officer lacked a valid justification to initiate action u/s 147 of the Act. The reason for re-openin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he computation under the head "Profit and Gains of Business or Profession". Further, as per section 80 of the Income-tax Act, 1961, which is reproduced hereunder:- "80. Notwithstanding anything contained in this chapter, no loss which has not been determined in pursuance of the return filed shall be carried forward and set-off under sub-section (1) of section 72 .." Thus for carrying forward the loss it is mandatory that the loss should be determined by the Assessing Officer. The determination of the loss to be carried forward is the mandatory condition for setting-off the loss in succeeding yea Rs. That the re-assessment proceedings in the case of the appellant assessee were initiated on the ground that past years unabsorbed losses of eligible Unit i.e., Aonla for the A.Ys. 1989-90 to 1990-91 were to be set-off/adjusted against the profit for the A.Y. 1992-93 for the purpose of 80-I. It is pertinent to mention that in the A.Ys. 1989-90 to 1990-91, no losses for Aonla Unit were determined by the Assessing Officer to be carried forward. In the A.Y. 1992-93, the Assessing Officer allowed the deduction of 80-I in the original assessment order dated 10.03.1995 and there is no mention ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al preferred to the CIT(A), the learned CIT(A) upheld the re-opening of the assessment, as also the finding that there was no nexus between interest, subsidy and miscellaneous receipts and the activities of the assessee Aonla Unit, and consequential disallowances of Rs. 33,06,68,598/- under Section 80-I of the Act. Aggrieved, the assessee preferred further appeal before the ITAT. The ITAT vide its order dated 17.02.2006 allowed the assessee full deduction under Section 80-I, as claimed by the assessee. 10. Now we advert to the second re-assessment proceedings initiated on the ground that the carried forward loss from the assessment year 1992-93 was required to be set off against the profits of the eligible Unit (Aonla Unit) before computing the deduction under Section 80-I. The Assessing Officer by his order dated 23rd March, 2001 held that there was no manner of doubt that the losses suffered in the Aonla Unit in the previous years relevant to the assessment years 1989-90 to 1991-92 are to be carried forward separately and required to be set off against the profits of the Aonla Unit for the subsequent assessment years before computing deduction under Section 80-I though the lo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssed by this Court in ITA No.884/2007. Therefore, the order passed by the ITAT for the assessment year 1992-93 had attained finality. B. Unabsorbed losses must be set off during the immediate succeeding year and must enter the assessment of every following year. The next submission of the learned counsel for the respondent is that where the losses sustained are not set off against the profits of the immediately succeeding year or years, they cannot be set off against profits and gains of any business, profession or vocation at a later date. It is contended that the unabsorbed losses can be carried forward from year to year, as the case may be, for a maximum period of eight years, whereafter the respondent is not entitled to have the loss suffered by him in the preceding assessment years set off against the profits earned by him in the subsequent assessment year. In this context, the respondent heavily relied upon the following decisions: (i) Hiralal Jairamdas vs. CIT, (1965) 58 ITR 1 (Bom). (ii) Tyresoles India vs. CIT, (1963) 49 ITR 515 (Mad). (iii) B.C.S. Kartar Chit Fund and Finance Company Pvt. Ltd. vs. CIT, (1989) 179 ITR 137 (P H). C. Change of opinion cannot form the basis o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ders of his predecessor. It is the contention of the respondent that in the garb of re-opening the assessment, the Assessing Officer in effect reviewed his own decision on deduction under Section 80-I, which is not permissible under Section 147 of the Act. Reference in this context is made to the following decisions: (i) Commissioner of Income Tax vs. Indian Overseas Bank Ltd., (2001) 252 ITR 640 (Mad). (ii) Sita World Travels India Ltd. vs. CIT, (2002) 140 Taxman 381 (Del). E. Issue of notice under Section 148 of the Act is time barred. The respondent contends that by virtue of the proviso to Section 147 the issuance of notice to the respondent Society is barred by time. In this context, it is submitted that all the information regarding past years' losses of Aonla Unit were available with the Assessing Officer and he has admitted the same in his letter No.JCIT/SPL.R(10)/2000-01/430 dated 20.02.2001. The relevant portion is being reproduced hereunder: " However, as per information available from records losses of Rs. 164,75,67,085/-, Rs. 63,61,68,737/- and Rs. 11,43,31,588/- computed in accordance with the provisions of Chapter-IV-D of the Income Tax Act, 1961 was incurred i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and O Rs., (1971) 79 ITR 603 (SC). G. The re-assessment cannot be done to nullify the order of the appellate authority applying the principle of doctrine of merger. The contention of the respondent is that since the respondent was in appeal before the ITAT against the order of the CIT(A) dated 28.02.2001 on the issue of deduction under Section 80-I, the Assessing Officer had no authority to re-assess the deduction under Section 80-I by exercise of his powers under Section 147 as held by the Bombay High Court in the case of Metro Auto Corporation vs. Income Tax Officer, (2006) 286 ITR 618 (Bom). In the said case, the first appellate authority deleted the additions made by the Assessing Officer and the revenue took up the matter in second appeal before the appellate tribunal. Despite the pendency of the appeal before the ITAT, the Assessing Officer issued notice to the assessee company under Section 148 of the Act. On these facts, the Bombay High Court held that the assessment could not be treated as final as the appeal was pending and quashed the notice under Section 148 in a writ petition filed by the assessee. 13. Countering the arguments of the respondent, Ms. Bansal on behalf ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as allowed at Rs. 26,16,43,198/-. In view of the reasons mentioned above, I am satisfied that income to the extent of Rs. 26,16,43,198/- has escaped assessment. In his return of income, for the above mentioned assessment year the assessee has failed to disclose fully and truly all material facts necessary for his assessment, i.e. information regarding loss suffered in Aonla Unit during the previous years relevant to assessment year 1989-1990 to 1991-1992, respectively. Accordingly, it is proposed to issue notice under section 148 requiring the assessee to file a revised return of income to withdraw the deduction allowed under section 80-I. However, since a period of more than 4 years has elapsed from the end of asstt. year 1993-1994, the notice under section 148 cannot be issued unless the Chief Commissioner of Income Tax or Commissioner of Income Tax is satisfied, on reasons recorded by the assessing officer that is fit case for the issue of such notice. In view of the reasons recorded above, the kind approval of Commissioner of Income Tax, Delhi-VIII, New Delhi is solicited to issue notice under section 148." Referring to the provisions of Section 147 of the Act, Ms. Bansal conte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Revenue had placed on record the proposal sent for such permission as well as the Noting regarding the grant of permission by the Commissioner of Income Tax, which read as under: ""Commissioner of Income Tax, Delhi-VIII Received proposal for reopening the assessment for A.Y. 1993-1994 from JCIT, SR-10 alongwith the case records Ld. CIT may kindly peruse for necessary approval or otherwise. Sd/- 19.01.2001 DC(HQ.-VII), NEW DELHI CIT-VIII Perused the case records and other relevant records. I am satisfied that it is a fit case for re-opening the assessment for the year 93-94 u/s 147 in view of wrong claim for deduction u/s 80-I and allowance of the same. There has been failure on the part of the assessee to disclose fully and truly all material facts necessary for the assessment for which wrong deduction u/s 80-I stood allowed as claimed. Sd/- 19.01.2001 G.B. PARIDA IRS Commissioner of Income Tax, Delhi-VIII, New Delhi" III. Ms. Bansal further contended that the submission of the respondent, that the re-opening of the assessment was based upon change of opinion, was specious. According to Ms. Bansal, the records clearly indicate that it was only during the course of assessment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n respect of the Aonla Unit for previous yea Rs. There would also have been no occasion for the respondent to furnish the said details if the same had already been furnished, and the respondent would have merely indicated that the said details had already been furnished and were on the record. VI. In the above circumstances, Ms. Bansal contended that the contention of the learned counsel for the respondent, that Section 147 of the Act did not empower the A.O. to review his own order or the orders of his predecessor, was devoid of merit, as the very concept of review denotes the formation of an earlier opinion by the Assessing Officer. In the instant case, the assessee not having furnished the details of the losses incurred, quite obviously with a view to obtain the maximum deduction under Section 80-I of the Act, the contention of the assessee that the assessment was re-opened merely because the Assessing Officer had changed his opinion and decided to review his order, was without merits. VII. Adverting to the contention of the respondent's counsel that the notice under Section 148 of the Act was barred by time, Ms. Bansal relied upon the proviso to Section 148 of the Act to co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he determination is to be made. The information regarding the losses incurred in the Unit in the earlier year not having been disclosed by the respondent in the return of income filed by it nor made available during the assessment proceedings right uptill 8th December, 2000, the assessee was allowed deduction under Section 80-I on the entire profits. Later on, though the assessment was revised under Section 147 and deduction under Section 80-I was re-computed after excluding certain other income not derived from the industrial undertaking from the profits of the Unit, even at that time (i.e. at the time of first re-assessment), no information regarding the losses incurred in the Unit in the earlier years was disclosed or was made available by the assessee to the Department. As a result, excess deduction of Rs. 27,47,98,246/- was again allowed to the assessee under Section 80-I. 15. It bears repetition that it was only during the course of assessment proceedings for the assessment year 1998-99, when the assessee was requested to furnish details of profit/loss of different units for each year starting from the year of commercial production that it came to the notice of the Assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat income chargeable to tax has escaped assessment. Explanation 2 of Section 147 says that if:- iii) 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 the Act or (emphasis added) iv) excessive loss or depreciation allowance or any other allowance under this then it will be deemed to be a case where income chargeable to tax has escaped assessment. The present case will fall under this explanation." 16. On merits, the Assessing Officer, after discussing the scope and ambit of the provisions of Section 80-I, sub-section (1) and sub-section (6) and considering the legal precedents in this regard, held that there was no scope for doubt that the losses suffered in the Aonla Unit in the previous years relevant to the assessment years 1989-90 to 1991-92 were to be carried forward separately and were required to be set off against the profits of the said Unit for the subsequent assessment years before computing deduction under Section 80-I though the losses of the Aonla Unit had already been set off against the profits of other units in earlier yea Rs. Signifi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... disclose all material facts necessary for the assessment for which wrong deduction under Section 80-I stood allowed as claimed".(iv) There is nothing on record to justify the plea taken for the first time before the ITAT that all material facts had been fully disclosed by the respondent much prior to the issuance of notice under Section 148 by the Assessing Officer, and as a matter of fact, the record shows that it was after 8th December, 2000 and during the assessment proceedings for the assessment year 1998-99 that the assessee for the first time disclosed the losses incurred by it in the Aonla Unit, thereby bringing it to the notice of the concerned A.O. that deduction under Section 80-I of the Act had been claimed by the assessee by suppressing its real income. 18. As regards the reliance placed by the respondent on the judgment of the Allahabad High Court rendered in the Foramer case (supra), the Allahabad High Court has held, and we think rightly so, that where the failure as indicated in the proviso to Section 147 of the Act has not been established, the four years rule would apply. In the present case, the failure as indicated in the proviso has been clearly established, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t the profits of the immediately succeeding year or years, they cannot be set off against profits at a later date. All these cases thus pertain to the assessee's claim of set off, which not having been exercised for the relevant assessment year was sought to be exercised at a subsequent stage. This is not the controversy in the present case which relates to Section 80-I of the Act, whereunder the assessee is entitled to claim deduction on the profits derived from its business. The ascertainment of the said profits requires the absorption and set off of the losses suffered by the assessee. 21. What needs to be borne in mind is that it is not the assessee who is claiming set off. It is the Department, which, for the purpose of computing the deduction to which the assessee is entitled under Section 80-I of the Act, is required to arrive at the real income of the assessee derived from its business, after taking into account the past losses of the assessee's industrial undertaking, in this case the Aonla Unit. It also cannot be lost sight of that Section 80-I of the Act is a beneficial provision and like every beneficial provision is susceptible to misuse. The benefit under the afor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... are not reactivated beyond a particular stage and the controversies are set at rest. It is well known that reopening of assessment under section 147 is not permissible simply on the ground that a new view may be entertained on the same facts. The consistent judicial view is that even after amendment of section 147 with effect from 1/4/89, mere change of opinion does not confer jurisdiction on AO to initiate proceedings for reassessment under section 147 and various authorities on this point had been considered by the Hon‟ble Gujarat High Court in Garden Silk Mills (P) Ltd. vs. DCIT (1999) 151 CTR (Guj) 533. A full bench of the Delhi High Court in CIT, Delhi-II vs. Kelvinator of India Ltd. (2002) 256 ITR 1 (Del) (FB) has succinctly exposited the law in following eloquent words:- "In the event it is held that by reason of section 147 if ITO exercises its jurisdiction for initiating a proceeding for reassessment only upon mere change of opinion the same may be held to be unconstitutional. We are therefore of the opinion that section 147 does not postulate conferment of power upon the Assessing Officer to initiate reassessment proceeding upon his mere change of opinion. We ho ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... siness or profession for that assessment year. Therefore section 72(1) has a direct impact upon the computation under the head profits and gains of business or profession. In other words the correct figure of total income, which is otherwise taxable under other provisions of the Act, cannot be arrived at without working out the net result of computation under the head profits and gains of business or profession‟. Further the question whether special benefit under section 80-E as well as the normal or usual benefit of carry forward of losses of previous years should both be available to an assessee without one impinging on the other must depend upon the intention of the legislature and such intention has to be gathered from the language employed. In this view of the matter it is extremely doubtful whether in spite of the legislative mandate contained in the three steps provided for by sub-section (1) of section 80-E the carried forward losses would not be deductible before working out the 8% deduction contemplated by section 80E and therefore the contention that by parity of reasoning or on a priori reasoning unabsorbed development rebate and unabsorbed depreciation should be ..... X X X X Extracts X X X X X X X X Extracts X X X X
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