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TMI Blog2014 (12) TMI 53X X X X Extracts X X X X X X X X Extracts X X X X ..... the AO - the reasons recorded thereof to invoke section 147 of the Act do not show any fresh material which came to the notice of the AO so as to enable him to formulate a belief that income chargeable to tax has escaped assessment on the ground that income from short term capital gain was to be assessed as ‘business income’. On the issue of treating the short term capital gain as business income, the initiation of proceedings by the AO u/s 147 of the Act is based on material already available at the time of original assessment proceedings and no new tangible material come to his notice – following the decision in COMMISSIONER OF INCOME TAX. CENTRAL –I Versus SHRI AMITABH BACHCHAN [2012 (7) TMI 374 - BOMBAY HIGH COURT], such an initiation of re-assessment proceedings u/s 147 of the Act is invalid. The assessee is a company engaged in the business of manufacturing of engineering goods and fabrication as well as generation of electricity by windmill - As far as the application of section 32(1)(iia) of the Act relating to additional depreciation is concerned, what is required to be satisfied is acquisition and installation of a new machinery or plant after the 31st day of March ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... declaring total income of ₹ 1,49,80,092/-, which was subject to a scrutiny assessment u/s 143(3) of the Act on 27.11.2008, whereby the total income was determined at ₹ 1,51,88,442/- after making disallowances out of Travelling Conveyance expenses, office expenses and u/s 14A of the Act. Subsequently, the Assessing Officer recorded reasons formulating a belief that certain income chargeable to tax had escaped assessment and issued notice u/s 148 of the Act in order to reopen the assessment finalized on 27.11.2008. A copy of the reasons recorded by the Assessing Officer dated 29.03.2011 has been placed at page 66 of the Paper Book, which reads as under :- REASONS FOR RE-OPENING OF ASSESSMENT KHINVASAR INVESTMENTS PVT. LTD. A.Y. 2006-07 Assessee Company is a manufacturer of engineering goods and fabrication and generation of electricity. For A.Y. 2006-07 the scrutiny assessment was completed assessing total income at ₹ 1,51,88,442/- under normal provisions of the Act and book profit of ₹ 4,06,12,785/- u/s 115JB of the Act. The tax was paid on book profit u/s 115JB of the Act. On perusal of the details of short term capital gains for this year, it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... DTR 385 (Guj) mere opinion of the audit party could not be the basis for the Assessing Officer to reopen a completed assessment. Both the objections of the assessee have been dismissed by the Assessing Officer and also by the CIT(A) and accordingly, assessee is in appeal before us. 4. In this background, rival submissions have been made. The Ld. Representative for the assessee has referred to the material placed in the Paper Book, as well as the reasons recorded to show that no fresh material had come to the notice of the Assessing Officer in order to initiate the reassessment proceedings u/s 148 of the Act. As per the Ld. Representative the entire re-assessment is based on same material and facts which were available at the time of original assessment and therefore the reason to believe for escapement of income is a mere change of opinion. In the course of hearing, reliance has been placed on the following decisions :- (i) ACIT vs. Rolta India Ltd., 13 taxmann.com 91 (Mum); (ii) M/s GMR Holdings Pvt. Ltd. vs. DCIT (ITA No.1006/Bang/2010 dated 31.10.2011); (iii) CIT vs. Usha International Ltd., 251 CTR 28 (Del); and, (iv) Cadila Healthcare Ltd. vs. ACIT, 355 ITR 393 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... see filed a return of income originally for assessment year 2002- 03 declaring income of ₹ 14.99 crores, thereafter he furnished a revised return of income determining his income at ₹ 8.11 crores wherein he claimed expenses at 30% on ad-hoc basis amounting to ₹ 6.31 crores. However, before completion of assessment, the assessee withdrew the revised return along with the claim of deduction @ 30% from the total income. Thereafter the Assessing Officer completed the assessment determining the total income at ₹ 56.41 crores. Subsequently, a notice u/s 148 of the Act was issued seeking to reopen the assessment proceedings and thereafter in the consequent assessment finalized u/s 147/143(3) of the Act, the total income was assessed at ₹ 20.05 crores which, inter-alia, included an amount of ₹ 6.31 crores as unexplained expenses u/s 69C of the Act. In-fact, the notice u/s 148 of the Act was issued in connection with the aforesaid addition. In this background, the CIT(A) as well as the Tribunal came to conclude that the initiation of proceedings u/s 147 of the Act was invalid because the material on the basis of which the assessment was sought to be reope ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... her supported its proposition by relying on the judgement of the Hon ble Supreme Court in the case of ACIT vs. Rajesh Jhaveri Stock Brokers (P) Ltd., 291 ITR 500 (SC). On the other hand, the assessee had argued that following the judgement of the Hon ble Supreme Court in the case of Kelvinator of India Ltd. (supra) even in a case where the return was first processed u/s 143(1) of the Act, in the absence of any fresh tangible material the Assessing Officer could not formulate a belief that certain income chargeable to tax has escaped assessment within the meaning of section 147 of the Act. The Third Member has upheld the stand of the assessee after considering the rival judgements cited before him. The Tribunal explicitly referred to and explained that the Hon ble Supreme Court in the case of Kelvinator of India Ltd. (supra), while expounding the words reason to believe , held that there should be tangible material to come to the conclusion that certain income has escaped assessment. In this background, the Third Member came to conclude that even in a case where the return was earlier processed u/s 143(1) of the Act, absence of a tangible material bars the Assessing Officer from en ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t. The reason to believe must have a live link with the formation of the belief that income chargeable to tax had escaped assessment when the return was processed and accepted under section 143(1). To hold that in every case where a return was processed and accepted under section 143(1) the Assessing Officer will be free to reopen the same under section 148 even in the absence of a live link between the reasons recorded and the formation of the belief would be to make the conditions of section 147 and section 148 otiose as regards notices of reopening issued in cases where the return was originally processed under section 143(1). There is no exclusion in section 147 to the effect that where the return was earlier processed under section 143(1) it is not necessary for the Assessing Officer to hold or entertain a belief that income chargeable to tax had escaped assessment for the reasons recorded by him. Therefore, the condition that the Assessing Officer must have reason to believe and the further condition that those reasons must have a live link with the formation of the belief is applicable equally to cases where the return was processed under section 143(1) as also to cases wher ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ervations at page 510 top). Except to this limited extent, the notice of reopening issued in a case where the return was first processed under section 143(1) is open to challenge on all grounds available to the assessee, including the ground that there was no reason to believe that income chargeable to tax had escaped assessment or that the materials before the Assessing Officer had no live link or nexus with the formation of such belief or that the reasons are based on gossip or rumour or were a mere pretence, this is made clear by the observations of the Court at page 512 of the report where it was held that so long as the ingredients of section 147 are fulfilled the Assessing Officer can reopen the proceedings even where intimation under section 143(1) had been issued. Thus fulfillment of the conditions of section 147, including the one that there should be reason to believe , is essential for the validity of the notice under section 148. It is while expounding the words reason to believe that the Supreme Court in the later judgment in CIT vs. Kelvinator of India Ltd. (supra) held that there should be tangible material to come to the conclusion that income had escaped ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was earlier processed under section 143(1), on the ground that there was no tangible material before the Assessing Officer to enable him to entertain a prima facie belief that income chargeable to lax has escaped assessment. I may also add that neither before the learned Members who heard the appeal originally nor before me did the Department produce any tangible material on the basis of which the reasons were recorded to demonstrate that there was a live link or nexus between them and the requisite belief. 12. In the view I have taken, I do not consider it necessary to refer to the various authorities cited by both the sides. I accordingly answer the point of difference No.1) by holding that the proceedings initiated by the Assessing Officer under section 147 are liable to be quashed on the ground that there was no tangible material before the Assessing Officer, even though the assessment was completed originally under section 143(1). 13. On the basis of the aforesaid discussion, it is to be appreciated that absence of fresh tangible material would not enable the Assessing Officer to entertain a belief that certain income chargeable to tax has escaped assessment within the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 8377; 83,14,790/-, which according to him is to be treated as a business income ; and secondly, additional depreciation of ₹ 54,80,000/- allowed on windmills, which according to him is not allowable to assessee. 9. Qua the first issue, it is noted by the Assessing Officer that on perusal of the details of short term capital gain it came to his notice that the assessee company dealt in many transaction of buying and selling of shares of huge amount on various dates; that the ratio between the purchase and sales worked out to 1:1.27; that assessee company held shares of ₹ 81,43,449/- as investment as on 31.03.2006; that the holding ratio to purchase and sales work out to of 0.102 and 0.08; and, that assessee has earned dividend of ₹ 33.10 lacs as against profit of ₹ 101.76 lacs which shows that the motive was to earn profit. On this basis, he has formed a belief that the short term capital gain of ₹ 83,14,790/- declared by the assessee should have been treated as a business income . 10. In this context, our attention has been drawn to the original assessment order passed by the Assessing Officer u/s 143(3)(ii) of the Act dated 27.11.2008. Notably ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... factum of the assessee having earned income by way of long term and short term capital gain on sale of shares and securities, which were held as investments, was very much before the Assessing Officer. It is also clear from the assessment order that the Assessing Officer was made aware of the intention and purpose for which the assessee was making investment in shares and securities. All this discussion in the assessment order goes to show that the existence of the transactions of long term and short term capital gain and dividend earnings was noted by the Assessing Officer. In contrast, the reasons recorded thereof to invoke section 147 of the Act do not show any fresh material which came to the notice of the Assessing Officer so as to enable him to formulate a belief that income chargeable to tax has escaped assessment on the ground that income from short term capital gain was to be assessed as business income . In-fact, the reasons recorded clearly point out that the belief of the Assessing Officer is founded only on the basis of a re-appraisal of material and evidence already on record before him at the time of original assessment. Pertinently, even such a re-appraisal is wit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ormulated a belief about escapement of income is the allowance of additional depreciation of ₹ 54,80,000/- on windmill installed at Coimbatore. In this context, the assertions of the Assessing Officer are quite bald and are not supported by any statutory provisions. Additional depreciation u/s 32(1)(iia) of the Act is clearly allowable as has been contended by the Ld. Authorized Represented before us. The assessee is a company engaged in the business of manufacturing of engineering goods and fabrication as well as generation of electricity by windmill. As far as the application of section 32(1)(iia) of the Act relating to additional depreciation is concerned, what is required to be satisfied is acquisition and installation of a new machinery or plant after the 31st day of March, 2005 by an assessee who is already engaged in the business of manufacture or production of any article or thing. As per the Assessing Officer, income has escaped assessment on account of allowance of additional depreciation on windmill because windmill is not related to business of manufacture or production of any article or thing . A bare perusal of the said provision reveals that it does not state ..... X X X X Extracts X X X X X X X X Extracts X X X X
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