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TMI Blog2013 (4) TMI 599X X X X Extracts X X X X X X X X Extracts X X X X ..... ion, cannot be the tangible material required for Assessing Officer to hold a belief that income chargeable to tax had escaped assessment. The Apex Court in the case of CIT v. Kelvinator of India Ltd. [2010 (1) TMI 11 – SC] has held that even post amendment in section 147 of the Act with effect from 1.4.1989, the concept of change of opinion has not been given a go-by. Even after the amendment in section 147, the Assessing Officer must have some tangible material to hold a belief that income chargeable to tax had escaped assessment. Thus on the basis of some general observation and discussion on principles for treating an expenditure either revenue or capital in nature, the Assessing Officer cannot claim to have been in possession of tangible material to hold a belief that income chargeable to tax had escaped assessment. we are satisfied that in the present case, notice for reopening has been issued without jurisdiction. In the result, the petition is allowed. X X X X Extracts X X X X X X X X Extracts X X X X ..... s valid, the Assessing Officer, in the original assessment, made no disallowance. The counsel submitted that the Assessing Officer, having formed an opinion that the claim was genuine and valid, cannot now reopen the assessment which would be based on mere change of opinion. 3. The counsel further submitted that even otherwise the reasons recorded by the Assessing Officer would not be sufficient for the Assessing Officer to assume jurisdiction to reopen the assessment. As per the Assessing Officer, in view of the circular of Central Board of Direct Taxes (hereinafter to be referred to as "C.B.D.T") such expenditure had to be treated as capital in nature. He therefore, held a belief that income chargeable to tax had escaped assessment. Drawing our attention to the circular of C.B.D.T in question, counsel submitted that in the circular, no specific directions have been issued to treat a particular expenditure as a capital expenditure. In any case, such directions if at all read into circular of the C.B.D.T, would be outside the purview of C.B.D.T under section 119 of the Act. It was further contended that several courts have opined that such expenditure would be revenue expenditure, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ot have issued such a circular. In the said judgment the Court referred to and relied upon the decision of the Apex Court in the case of UCO Bank v. CIT [1999], in the case of Collector of Central Excise v. Dhiren Chemical Industries AIR 2002 SC 453 and Commissioner of Customs v. Indian Oil Corpn. Ltd. [2004] 3 SCC 488 on the question of binding effect of the circular of the board issued under section 119 of the Act. 6. On the other hand, learned counsel Mr. Bhatt for the Revenue opposed the petition contending that the Assessing Officer was within his rights to reopen the assessment. He submitted that the circular of the board would form the source of information, on the basis of which, the Assessing Officer could form a belief that income chargeable to tax had escaped assessment. He submitted that sufficiency of reasons cannot be gone into by this Court while examining the validity of the notice for reopening the assessment. 7. Heavy reliance was placed on the decision of the Apex Court in the case of A.L.A. Firm v. CIT [1991] 189 ITR 285, wherein the Apex Court had the occasion to examine the validity of the notice for reopening issued by the Assessing Officer on the basis of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... why the same should be allowed as revenue expenditure and decisions in support of such a stand. The assessee stated as under: "You have asked us to show cause why the expenditure incurred on retrenchment compensation should not be disallowed on the basis of assessment order for Asstt. Year 1996-97. In this regard we have to state as under: Arvind Polycot Limited is in the business of mfg. & sale of textiles. As is already on record, the company is restructuring its business activities. The Voluntary Retirement Scheme was introduced to streamline the business activities. In this process it has incurred an expenditure of Rs. 187.54 lakhs on account of Voluntary Retirement Scheme. While stating that the amount spent on Voluntary Retirement Scheme is admissible revenue expenditure, we rely on the decision of Madras High Court in case of CIT v. George Oaks Ltd. (197 ITR 288) in which has held as under: "Held, that the purpose of retrenching the nine workmen as found by the Tribunal was only to contain the loss, reorgainse the branch by reducing the staff and to bring about a reduction in the wage bill as well. These were the matters of management pertaining to business consideratio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 37 of the Act under the head "Profits & Gains of Business". b. The business prior to the retrenchment was of manufacture & sale of textile and its marketing and that it not only continued but has grown as figures of turn over given above proves it. c. All the decisions of Madras High Court quoted above cover the claim of the Assessee Company. d. Expenditure was made wholly and exclusively for the purpose of business as textile manufacturer in order to survive the compensation. e. The principles of commercial expediency and the test of commercial expediency which justify the action of the assessee company." 11. After eliciting explanation of the assessee on the question of deduction, the Assessing Officer in the original order of assessment, made no disallowances. Under the circumstances, it can be gathered that the Assessing Officer, being fully satisfied with respect to the assessee's claim for deduction, allowed the same. It is true that in the final order of assessment, he gave no reasons. In the recent decision dated 30.7.2012 in the case of Gujarat Power Co. Ltd. v. Asstt. CIT [2012], a Division Bench of this Court had an occasion to consider a question whether during ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d 23rd January, 2001, which read as under: "It is noticed that a number of assessee have resorted to restructuring of human resources, financial engineering etc. Invariably, ex-gratia payments are made in order to encourage such schemes to further long term advantage to the assessee by way of profitability, competitiveness and also to further induction of technology. Particular mention may be made of the Voluntary Retirement Scheme (VRS) of the banking sector in this connection. The question arises whether the ex-gratia amount is allowable as revenue expenditure. In this connection, the primary test is to see whether any enduring benefit has resulted to assessees by making an expenditure. In the event, the expenditure is laid out for acquiring or bringing into existence an asset or advantage for the enduring benefit of the business, it is properly attributable to capital and is of the nature of capital expenditure. If any such asset or advantage for enduring benefit of the business is thus acquired or brought into existence, it would be immaterial whether the source of payment was the capital or the income of the concern or whether payment payment was made once and for all or was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the present case, income chargeable to tax had escaped assessment. 17. Even otherwise, in our opinion, the Assessing Officer could not have issued the impugned notice on the basis of C.B.D.T circular. Learned counsel Mr. Bhatt may be correct in pointing out that the C.B.D.T, through its circular, could have brought certain aspects to the notice of the Assessing Officer, insofar as assessment was concerned. it had to be the opinion of the Assessing Officer alone which would prevail. In that view of the matter, the circular of C.B.D.T may be a trigger, on the basis of which, the Assessing Officer may himself be satisfied that income chargeable to tax in a given case had escaped assessment. Such a circular by itself, in our opinion, cannot be the tangible material required for Assessing Officer to hold a belief that income chargeable to tax had escaped assessment. The Apex Court in the case of CIT v. Kelvinator of India Ltd. [2010] 320 I.T.R 561 has held that even post amendment in section 147 of the Act with effect from 1.4.1989, the concept of change of opinion has not been given a go-by. Even after the amendment in section 147, the Assessing Officer must have some tangible mat ..... X X X X Extracts X X X X X X X X Extracts X X X X
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