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TMI Blog2010 (5) TMI 645X X X X Extracts X X X X X X X X Extracts X X X X ..... diture in the computation of income furnished by the assessee along with the return. According to the audit party, the assessee was not entitled to any deduction on the ground that expenditure was Revenue in nature. On the basis of audit party note, the Assessing Officer reopened the assessment by issue of notice under section 148 of the Act on 7-10-2002 after recording the following reasons :- "Assessment for assessment year 1998-99 was completed under section 143(3) dated 12-1-2001 at total loss of Rs. 4,38,51,970. It has been pointed out by the L.A.R. that during the year relevant to assessment year 1998-99 that the assessee has in house developed a software package known as "Vision Software" for use of processing of data conversion export articles of its own at cost of Rs. 4,82,35,771 including actual material cost and estimated labour and overhead charges. As was evident from the schedules forming part of balance sheet and profit and loss account, the cost of in house developed computer software "Vision Software" aforesaid was capitalized and included in the cost of fixed assets under the head of "Computer Plant" and depreciation proved accordingly. However, in the computatio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... CIT(A) and the submissions of the assessee in this regard was found to be correct. Regarding the deduction of expenditure as revenue expenditure, it was held by him that it was merely a case of change of opinion. Consequently, initiation of the reassessment proceedings was held to be bad in law. This legal finding has been challenged in the appeal before the Tribunal. 5. Both the parties have been heard in the light of material placed before us. The perusal of the reasons recorded shows that assessment was reopened on two grounds. Firstly, on the ground that assessee had claimed double benefit by claiming depreciation on the cost of "Vision Software" as well as by claiming the cost of software as revenue expenditure. We have examined the relevant statement of accounts. It is true that the assessee had capitalized the cost of "Vision Software" in the books of account and claimed depreciation. The total depreciation as per books of account amounted to Rs. 10,65,56,456. This detail is available from page-6 of the paper book. Page 23 of the paper book contains the statement of depreciation which was actually claimed by the assessee in the computation of income. The total depreciation ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... st included for arriving at the cost of the software package are in the nature of revenue expenses such as manpower cost, repair and maintenance, rent, insurance, communication expenses, printing and stationery, depreciation, interest, travelling and conveyance, legal and professional fees. Since all the expenses mentioned above are of revenue nature, we have claimed as deductible expenses while working of the total income of the company." 7. The above correspondence between the assessee and the Assessing Officer clearly shows that the Assessing Officer applied his mind in adjudicating the issue regarding the allowability of expenditure as revenue expenditure. No new facts had come to the possession of the Assessing Officer on the basis of which he could form the belief that there was any under-assessment. It is simply a case of change of opinion. It is a settled legal position that the reassessment proceedings cannot be initiated merely on the basis of change of opinion as held by the Hon'ble Apex Court in the case of CIT v. Foramer France [2003] 264 ITR 566/129 Taxman 72 as well as by the Full Bench of the Hon'ble Delhi High Court in the case of CIT v. Kelvinator of India Ltd. [ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... IT(A) is therefore upheld. 10. The Revenue has also taken the ground regarding allowability of the expenditure. Since the reassessment proceedings have been held to be invalid, this ground would not survive. 11. In the result, the appeal of the Revenue is dismissed. D.K. Srivastava, Accountant Member. - I have carefully gone through the Order proposed by my learned Brother dismissing Ground Nos. 2 and 3 taken by the Department and thereby confirming the order passed by the learned CIT(A) quashing the notice issued by the Assessing Officer under section 147/148 of the Income-tax Act on 7-10-2002 for the assessment year under appeal, i.e., 1998-99 on the sole ground that it was based on mere change of opinion. With utmost respect to my learned Brother, I am unable to persuade myself to concur with the findings recorded, reasoning given and the authorities relied upon for holding that the impugned notice is bad in law being based on mere change of opinion and therefore I proceed to write my order separately. 2. Relevant facts giving rise to the issue of notice under section 147/148 on 7-10-2002 are as under: (i) The assessee-company filed its return of income on 30-1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as required under section 151, issued the impugned notice on 7-10-2002 and passed the assessment order under section 143(3)/147 on 26-3-2004 which is now the subject-matter of appeal before this Tribunal. 3. On appeal by the assessee challenging the initiation of proceedings under section 147/148 on the basis of the reasons recorded by the Assessing Officer, the learned CIT(A) noticed that the Assessing Officer had issued a questionnaire in response to which full details were supplied by the assessee at the time of original assessment and hence the Assessing Officer would be presumed to have applied his mind while allowing the impugned expenditure as revenue expenditure. Learned CIT(A) has therefore treated the initiation of proceedings under section 147/148 as based on mere change of opinion, which, according to him, was not permissible for initiation of the proceedings under section 147/148. In his proposed order, my Learned Brother has agreed with the aforesaid line of reasoning adopted by the learned CIT (A) for quashing the impugned notice. 4. Perusal of the reasons recorded by the Assessing Officer shows that (i) the assessee had incurred huge expenditure of well over Rs. 4 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... onform to the law laid down in the said judgment. The Hon'ble Supreme Court has stated the position of law in respect of cases falling under the main provisions of section 147 thus: ".....at the initiation stage, what is required is "reason to believe", but not the established fact of escapement of income. At the stage of issue of notice, the only question is whether there was relevant material on which a reasonable person could have formed a requisite belief. Whether the materials would conclusively prove the escapement is not the concern at that stage. This is so because the formation of belief by the Assessing Officer is within the realm of subjective satisfaction ....." At page 512 of the said Reports, the Hon'ble Supreme Court has further held as under: "..........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 confer jurisdiction under section 147(1) two conditions were required to be satisfied; firstly the Assessing Officer must have reason to believe that income, profits or gains chargeable to tax have escaped assessment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Both the reasons given by the Assessing Officer are prima facie relevant for the formation of requisite belief that the impugned expenditure was prima facie capital in nature; a fact which was completely overlooked by the Assessing Officer while completing the original assessment. 8. The Assessing Officer, while recording the reasons under section 148(2), has relied upon the assessee's own books of account and audit report, which, in turn, are based on and in conformity with the accounting standards and the provisions of law. Fixed assets are defined in paragraph 6.1 of the Accounting Standards 10 issued by the Institute of Chartered Accountants of India "as an asset held with the intention of being used for the purpose of producing or providing goods or services and is not held for sale in the normal course of business." These assets provide the infrastructure to an enterprise to carry on its revenue-producing activities. Apart from tangible fixed assets, an enterprise may also have "intangible" fixed assets such as patents, trademarks, computer software, etc. By their very nature, fixed assets have a relatively longer life that is spread over more than one accounting period and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ourt in IPCA Laboratories Ltd.'s case (supra) for assuming jurisdiction under the main provisions of section 147 is fully satisfied in the present case and hence the assumption of jurisdiction by the Assessing Officer under the aforesaid provisions is held to be fully in conformity with law. 9. It has been further held in Rajesh Jhaveri Stock Brokers (P.) Ltd.'s case (supra) that so long as the ingredients of section 147 are fulfilled, the Assessing Officer is free to initiate proceedings under section 147. Since all the ingredients of the main provisions of section 147 are fulfilled in the present case, there is no alternative except to confirm the action of the Assessing Officer in assuming jurisdiction under section 147 and hence his action in this behalf is confirmed in respectful compliance with the law laid down by the Apex Court. 10. The principles laid down in Amit Estate Organiser v. ITO [2008] 113 ITD 255 (Ahd.) (TM) also squarely cover the issue against the assessee. In that case, this Tribunal has held at p. 352 as under : "The scope and effect of section 147 have undergone a substantial change on amendment with effect from 1-4-1989. The amended provisions empower th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... are three types of presumptions, namely, (i) irrebuttable or conclusive presumptions; (ii) presumptions of law; and (iii) presumptions of facts. Section 4 of the Evidence Act defines presumptions. Conclusive presumptions or '"Conclusive proof" is defined by section 4 of the Evidence Act thus: "When one fact is declared by the this Act to be conclusive proof of another, the Court shall, on proof of the one fact, regard the other as proved, and shall not allow evidence to be given for the purpose of disproving it." Thus irrebuttable or conclusive presumptions are absolute inferences, established by law; they are called irrebuttable because evidence is not admissible to contradict them. Irrebuttable presumptions, as stated earlier, are always established by law. The presumption drawn by the learned CIT(A) is not established by law and hence it does not fall in the category of "irrebutable presumptions". Presumptions of law, i.e., "Shall presume" are defined by section 4 of the Evidence Act thus: "Whenever it is directed by this Act that the Court shall presume a fact, it shall regard such fact as proved, unless and until it is disproved." Presumptions of law" ("Shall presume") are pre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... held in favour of the assessee is too far-fetched a proposition to merit acceptance. There may indeed be a presumption that the assessment proceedings have been regularly conducted, but there can be no presumption that even when the order of assessment is silent, all possible angles and aspects of a controversy had been examined and determined by the Assessing Officer..." Thus, the presumptions drawn by the learned CIT(A) are not in conformity with the aforesaid principles. Secondly, it is also a matter of common course of natural events and human conduct that persons do overlook or forget or error commit mistakes and hence it can be equally presumed that the error committed by the Assessing Officer was caused by his oversight or by the absence of due diligence on his part. The said presumption will stand on a much higher footing when the assessment order is silent and contains no discussion to indicate that the issue has been examined or determined by the Assessing Officer. Thirdly, the mere production of books of account or submission of details do not necessarily lead to the presumption that the Assessing Officer has considered all of them and formed a view accepting all of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ditions for exercise of jurisdiction under section 147, 154 and 263 together with the time limits within which it should be exercised. It is a well-settled principle of public law that jurisdiction must be exercised strictly in accordance with the provisions of law. Nothing can be added to or subtracted from the conditions enumerated in the relevant provisions. As regards the actions falling under the proviso to section 147, the prescription of law is that the assessments completed under section 143(3) should not be reopened after four years from the end of the relevant assessment year unless the income chargeable to tax has escaped assessment by reason of omission or failure on the part of the assessee in making full and true disclosure of all the facts material to the computation of his income. But such a condition is absent in the main provisions of section 147 and therefore the issue as to whether the assessee has made full and true disclosure of material facts is quite irrelevant in adjudicating upon the validity of the notices issued under section 148 in cases falling under the main provisions of section 147. In cases falling under the main provisions of section 147, an asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The term "opinion" has been defined at page 1119 in Black's Law Dictionary (Seventh Edition) thus: "opinion. 1. A court's written statement explaining its decision in a given case, usu. including the statement of facts, points of law, rationale, and dicta. 2. A formal expression of judgment or advice based on an expert's special knowledge; esp., a document, usu. prepared at a client's request, containing a lawyer's understanding of the law that applies to a particular case." At page 1366 in P. Ramanatha Aiyer's "The Law Lexicon" (Reprint 2002), the term "opinion" has been defined as meaning "something than mere retaining of gossip, it means judgment or belief, that is, a belief or a conviction resulting from what one thinks on a particular question. Dolgorindu v. Nimai Charan, AIR 1959 SC 14, 918." The judgments of Law Lords delivered in the House of Lords are described as opinion. In the USA, the statement of reasons delivered by a Judge or Court leading to the decision pronounced in any of the Courts is called an "opinion". Formation of opinion in law thus requires due analysis of all the aspects of the matter before reaching a conclusion. But can there be formation of opinion w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l the aforesaid three examples, the Assessing Officer has taken a view but the view taken by him has led to the escapement of income chargeable to tax within the meaning of Explanation 2 to section 147 in utter disregard of the law laid down by the highest court of the land and the specific provisions of law. The question is whether he can take recourse to the main provisions of section 147 and bring the escaped income to the charge of tax notwithstanding the fact that he had earlier taken a view. If the line of reasoning taken by the learned CIT(A) is accepted, then the Assessing Officer cannot assume jurisdiction even under the main provisions of section 147 as it would be a case of change of opinion. But then it would indisputably lead to the escapement of income from tax in utter disregard of the law declared by the highest court of the land and the provisions of law enacted by the Legislature. The answer to this question is provided by the main provisions of section 147 as explained by the Supreme Court in Rajesh Jhaveri Stock Brokers (P.) Ltd.'s case (supra). The Assessing Officer will be competent to assume jurisdiction in all the aforesaid three examples under the main prov ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... liable to tax has escaped assessment due to oversight, inadvertence or a mistake committed by the ITO, can be reopened by the Assessing Officer on the principle that the taxpayer cannot be allowed to take advantage of an oversight or mistake committed by the taxing authority provided the Assessing Officer satisfies the only ingredient of the main provisions of section 147, i.e., he has reason to believe that the income chargeable to tax has escaped assessment. This brings one to the same position of law which has been declared by the Supreme Court in Rajesh Jhaveri Stock Brokers (P.) Ltd.'s case (supra). Therefore the relevant test is not whether the income chargeable to tax has escaped assessment by reason of omission, oversight, inadvertence or a mistake committed by the Assessing Officer. Of course, an assessee cannot avoid the charge of tax on income that has escaped assessment due to the Assessing Officer overlooking relevant aspects of the case but the Assessing Officer can also not assume jurisdiction under the main provisions of section 147 unless he has reason to believe that the income chargeable to tax has escaped assessment. Once the Assessing Officer satisfies the onl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l High Court in IPCA Laboratories Ltd.'s case (supra). Since the Hon'ble jurisdictional High Court has followed the aforesaid judgment, the Tribunals and Courts under the jurisdiction of the Hon'ble Bombay High Court are bound to follow the same. There is no element of discretion left to them in choosing to follow the said decision. As a matter of fact, the judgment in Praful Chunilal Patel applies to the present case with greater force as the factual matrix of the present case is identical with the one in Praful Chunilal Patel's case (supra) which is quite evident on comparison of facts in the present case with those in Praful Chunilal Pate. As in the case of the present assessee, the assessment in Praful Chunnilal Pate was also reopened within four years from the end of the relevant assessment year. As in the case of the present assessee, the assessment in Praful Chunilal Pate was also reopened to tax an item of income which had escaped assessment at the original stage. As in the case of the present assessee, the assessment that was reopened in Praful Chunilal Pate was also completed after "scrutiny" under section 143(3) of the Income-tax Act. As in the present case, the Assessin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... opened in IPCA Laboratories Ltd. was also completed after scrutiny under section 143(3) of the Income-tax Act. As in the present case, the Assessing Officer had raised a query in IPCA Laboratories Ltd. also in response to which a written explanation was filed by the assessee before the Assessing Officer. As in the present case, all the material facts were disclosed in IPCA Laboratories Ltd. also by the assessee before the Assessing Officer. As in the present case, the Assessing Officer in IPCA Laboratories Ltd. had also overlooked to take the matter to logical conclusion after issuing the questionnaire. As in the present case, the reopening was challenged in IPCA Laboratories Ltd. also on the ground that it was bad being based on change of opinion. The aforesaid submission was rejected in IPCA Laboratories Ltd. with these observations: "The present case is similar to the case reported in the case of Praful Chunilal Patel v. Asstt. CIT [1999] 236 ITR 832. In that matter, it has been laid down that where the Assessing Officer has overlooked something at the time of the original assessment, which he ought to have looked into and which has resulted in the income escaping assessment, t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ons spelt out in the proviso cannot be applied to the cases falling under the main provisions of section 147. Therefore the said decision is not at all applicable to the present case. The other decision in Kelvinator of India Ltd.'s case (supra) referred to in the proposed order has been considered by the same High Court in Consolidated Photo & Finvest Ltd.'s case (supra) and after such consideration the Hon'ble Delhi High Court has held: "The principle that a mere change of opinion cannot be a basis for reopening completed assessment would be applicable only to situations where the Assessing Officer has applied his mind and taken a conscious decision on a particular matter in issue. It will have no application where the order of assessment does not address itself to the aspect which is the basis for reopening of the assessment, as is the position in the present case." In the present case also, the Assessing Officer completing the original assessment has not expressed any opinion in the assessment order and hence the initiation of proceedings under section 147 cannot be said to be based on change of opinion. 24. In view of the foregoing, it is quite clear that the initiation of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eted the original assessment had overlooked relevant aspects of the case which is amply evident from the absence of any opinion in the original assessment order, the Assessing Officer was justified in assuming the jurisdiction under section 147. His action in doing so is fully covered by the judgment in IPCA Laboratories Ltd. and other judicial opinions, cited supra . In view of the binding judgments of the Hon'ble Supreme Court in Rajesh Jhaveri Stock Brokers (P.) Ltd.'s case (supra) and Hon'ble jurisdictional High Court in IPCA Laboratories Ltd.'s case (supra) covering the issue against the assessee, there is no way left to support the order of the CIT(A). His order in this behalf is therefore vacated. Ground Nos. 1 and 2 taken by the Department are consequently allowed. 25. Ground No. 3 taken by the Department reads as under: "On the facts and in law, the learned CIT(A) has erred in deleting the expenditure of Rs. 4,82,35,771 incurred in "vision software" which was a capital expenditure and hence not allowable." 26. In his proposed order, my Learned Brother has disposed of the aforesaid Ground as under: "10. The Revenue has also taken the ground regarding allowability of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... represent the point of difference. The question is : - "Whether, on the facts and in the circumstances of the case and in law, the initiation of re-assessment proceedings under section 147 of the Income-tax Act, 1961 was void ab initio as held by the Vice-President or is in accordance with law as held by the Accountant Member?" Accordingly, I proceed to decide the point of difference after hearing both the sides. 4. In my opinion, the issue now stands squarely covered by the judgment of the Supreme Court in (1) CIT v. Kelvinator of India Ltd. [2010] 320 ITR 561/187 Taxman 312 and (2) CIT v. Eicher Ltd. [2010] 320 ITR 561/187 Taxman 312. In this case the question was whether the concept of change of opinion stands obliterated with effect from 1-4-1989, i.e., after substitution of section 147 of the Income-tax Act, 1961 by the Direct Tax Laws (Amendment) Act, 1987? While answering the question in the negative, the Supreme Court held that (a) a schematic interpretation has to be given to the words "reason to believe" appearing in section 147 failing which, arbitrary powers would be available to the Assessing Officer to reopen assessments on the basis of a mere change of opinion, wh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of India Ltd. (supra), where the provisions of section 114(e) of the Evidence Act was invoked to hold that where the Assessing Officer had enquired into a point or an issue while completing the assessment proceedings, he is presumed to have applied his mind to the same and formed an opinion about its allowability even though no specific reference to the point or the enquiry made by him is made in the assessment order and even if no reasons were given in the assessment order as to how he formed the opinion about the allowability of the assessee's claim. It is pertinent to note that it was this judgment of the Full Bench of the Delhi High Court that was affirmed by the Supreme Court in the judgment cited supra. Therefore, even though in the present case there is no specific reference in the assessment order passed under section 143(3) to the issue of allowability of the Vision Software expenses as revenue, since the Assessing Officer had made enquiries to which the assessee had also sent its reply, it must be presumed that the Assessing Officer did form an opinion regarding the allowability of the assessee's claim. In the absence of any tangible material which could persuade the Asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssee's claim and that in the former type of cases the ratio of the judgment of the Supreme Court cited supra should not be applied. It was contended that the Legislative intention to get at escaped income must be given effect to. With respect, I am unable to accept the submission. It is only where the Assessing Officer has not expressed any opinion in the assessment order passed under section 143(3) that the presumption under the Evidence Act is to be invoked. If the presumption is invoked, then the Assessing Officer is presumed to have consciously accepted the assessee's claim and decided the issue in favour of the assessee. Even in that case it has been held by the Supreme Court in the judgment cited supra that that no notice can be issued under section 148 within a period of four years from the end of the assessment year in the absence of any tangible material affording a live link between the reasons and the belief that income has escaped assessment. Thus the distinction sought to be made by the learned CIT DR is also covered by the judgment of the Supreme Court, which has been followed by the Hon'ble Bombay High Court in the case of Rallis India Ltd. (supra). Therefore, so lon ..... X X X X Extracts X X X X X X X X Extracts X X X X
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