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TMI Blog2016 (9) TMI 857X X X X Extracts X X X X X X X X Extracts X X X X ..... income was filed on 30th June 1995, declaring an income of Rs. 15,48,954/-, Rs. 15,48,310/- and Rs. 15,54,757/- i.e. respectively for each of the three assessees. The assessment, in each case, was made vide order under Section 143 (3) dated 29th March 1996 at the returned income after allowing the assessee its claim u/s.54 F of the Act. However, subsequently, it was found that the assessee also owned one more property, income from which is chargeable under the head Income from 'House Property', and therefore, the deduction under Section 54F stood wrongly allowed to it. Accordingly, notice under Section 148 of the Act was issued on 17.2.1997, which stood responded, in each case, by the assessee filing its return of income on 23.7.1997 at the income as originally returned. 3. In respect of its claim under Section 54F of the Act, it was explained by the assessee that it had released its share in the property being residential house at Shahpur, Ahmedabad on 23.7.1995 and, therefore, it did not own any other residential property as on the date of the transfer of original asset i.e. on the transfer of which the capital gains to it during the relevant previous year arose, or the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... also reduced from Rs. 5,l0,200, i.e., as adopted in the original assessment, to Rs. 4,18,600, and to which it has been stated in the said order that no objection was raised by the assessee. Aggrieved, the assessee preferred an appeal before the learned CIT (A), contesting, in the first place, the reopening of the assessment as being bad in law. 3.3 The assessee contended non-supply of the reasons (for reopening) in the appellate proceedings, even as the A.O states to have had supplied the same in response to the assessee's request therefore on the first date of hearing, i.e., . 19-1-1999. The same, dated at 17-2-1997, stand reproduced by the learned CIT (A) at page 12 of his order, and which do not contain any reference to any incorrect deduction claimed by the assessee u/s. 54 F. As revealed thereby, the A.O., on the basis of the perusal of the record, found that the 'transferred property' stood valued as on 1-4-1991 at Rs. 34,400 by the assessee for the purposes of its Wealth-tax return, and per the same valuer who had valued the same at Rs. 5,12,800/- as on 1-4-1981, i.e., for the purposes of determining its cost of acquisition in the computation of long term capital gain for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on for income tax and wealth tax, whereas in the reassessment order deduction under Section 54F of the Act was denied, therefore, reopening proceedings are bad in law. He further submitted that notice can be issued under Section 148 of the Act if an Assessing Officer has reason to believe that any income chargeable to tax has escaped assessment. It is settled law that the words "reason to believe" suggest that the belief must be that of an honest and reasonable person based on reasonable grounds and not a mere change of opinion, suspicion, gossip or rumor. He submitted that in the present case there is a change of opinion. He further submitted that there is no new information or evidence in possession of the concerned officer, which was not there before him when he framed the original assessment order. He submitted that original return declaring total income of Rs. 15,48,954 was filed on 30.6.1995, for which assessment was made on 29.3.1996 and within four years i.e. on 17.2.1997, on audit objections revised notice was issued and Income Tax Officer also send the matter for valuation to the Valuation Department. 5.1 He further submitted that the Assessing Officer has passed an orde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... considered as a case of change of opinion. We, therefore, uphold the same, reversing the order of the learned CIT (A)." He further contended that the basis for valuation under the Wealth tax Act and the Income Tax is different. In that view of the matter, when capital gain was already taken into consideration by the Assessing Officer, again original assessment cannot be changed on the basis of valuation report of wealth tax. It was also contended that wealth tax valuation report was available with the same officer and the CIT (A) has also observed that it was available on the record. Therefore, he contended that there is non-application of mind and there is a reason to believe that notice was issued mechanically and Assessing Officer cannot base his reasoning or cannot change his opinion and whatever is running in his mind on 17.2.1999, the date of notice, cannot be added or improved upon. He has relied upon following decisions in support of his submissions. (i) Commissioner of Income Tax v. Kelvinator of India Ltd. reported in [2010] 320 ITR 561 (SC):- "On going through the changes, quoted above, made to Section 147 of the Act, we find that, prior to Direct Tax Laws (Amendmen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... against the omission of the words `reason to believe' from Section 147 and their substitution by the `opinion' of the Assessing Officer. It was pointed out that the meaning of the expression, `reason to believe' had been explained in a number of court rulings in the past and was well settled and its omission from section 147 would give arbitrary powers to the Assessing Officer to reopen past assessments on mere change of opinion. To allay these fears, the Amending Act, 1989, has again amended section 147 to reintroduce the expression `has reason to believe' in place of the words `for reasons to be recorded by him in writing, is of the opinion'. Other provisions of the new section 147, however, remain the same." For the afore-stated reasons, we see no merit in these civil appeals filed by the Department, hence, dismissed with no order as to costs." (ii) Agricultural Produce Market Committee v. Income- Tax Officer reported in [2013] 355 ITR 384 (Guj) "13. In the facts of the present case, the Assessing Officer while framing the original assessment under section 143(3) of the Act, has, taken into consideration the certificate granted by the Commissio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the case of Commissioner of Income Tax v. Kelvinator of India Ltd., (2010) 320 ITR 561, has held that one needs to give a schematic interpretation to the words "reason to believe" failing which section 147 would give arbitrary powers to the Assessing Officer to reopen assessments on the basis of "mere change of opinion", which cannot be per se reason to reopen. One must treat the concept of "change of opinion" as an inbuilt test to check abuse of power by the Assessing Officer. Viewed in the light of the aforesaid decision, the reopening of assessment based on a mere change of opinion is bad in law and as such, the impugned notice issued under section 148 of the Act, cannot be sustained." (iii) Agricultural Produce Market Committee v. Income- Tax Officer reported in [2013] 355 ITR 400 (Guj) "Held, allowing the petition, that the the assessment was completed on scrutiny. In the post-assessment period, the audit party raised objections and the Assessing Officer had in internal communication, strongly objected to them. No material emerged to indicate any independent application of mind by the Assessing Officer. The facts on the contrary clearly established the absence of subjec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arlier under Section 143(1) may well lead to such an unintended mischief. It would be discriminatory too. An interpretation that leads to absurd results or mischief is to be eschewed. 14. Certain observations made in the decision of Rajesh Jhaveri (supra) are sought to be relied upon by the revenue to point out the difference between an "assessment" and an "intimation". The context in which those observations were made has to be kept in mind. They were made to point out that where an "intimation" is issued under section 143(1) there is no opportunity to the assessing authority to form an opinion and therefore when its finality is sought to be disturbed by issuing a notice under section 148, the proceedings cannot be challenged on the ground of "change of opinion". It was not opined by the Supreme Court that the strict requirements of section 147 can be compromised. On the contrary, from the observations (quoted by us earlier) it would appear clear that the court reiterated that "so long as the ingredients of section 147 are fulfilled" an intimation issued under section 143(1) can be subjected to proceedings for reopening. The court also emphasised that the only requirement for d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sons recorded by the Assessing ITA No.555/2012 Page 13 of 14 Officer in the present case do confirm our apprehension about the harm that a less strict interpretation of the words "reason to believe" vis-à-vis an intimation issued under section 143(1) can cause to the tax regime. There is no whisper in the reasons recorded, of any tangible material which came to the possession of the assessing officer subsequent to the issue of the intimation. It reflects an arbitrary exercise of the power conferred under section 147." (v) Dhruv Parulbhai Patel v. Assistant Commissioner of Income-Tax reported in [2014] 45 taxmann.com 20 (Gujarat):- "7. What thus emerges from the above discussion is that the reasons on which the notice for reopening is issued lacks validity. Section 54E of the Act was neither applicable nor sought to be applied by the assessee. The question of denying any such claim under the said provision for breach of condition therein therefore simply did not arise. It is well settled that notice for reopening has to be sustained and supported only on the basis of reasons recorded by the assessing officer and not with the help of extraneous ground, material or possibl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e balance sheet or the return of income does not indicate any inventory or stock in process. Therefore, there is application of mind on the part of the Assessing Officer to the report of the DVO warranting assumption of jurisdiction under section 147 of the Act. 8. The record of the case reveals that for the year under consideration, the petitioner had not claimed any deduction under section 80IB (10) of the Act and therefore as there was no profit, the same was not indicated in the profit and loss account for the year under consideration. While the assessment is sought to be reopened on the ground that the petitioner has under reported the cost of construction, from the reasons recorded, there is nothing to indicate that the Assessing Officer has independently applied his mind to the record of the case to ascertain as to whether the cost of investment as declared by the assessee was in fact under reported as recorded therein. The entire basis for reopening the assessment is the report of the DVO and the difference of cost as computed by him, which according to the Assessing Officer is the extent of income which has escaped assessment. 9. This court in the case of Vinayak Bui ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... :- "19. In response to such queries, the petitioners had given detailed replies and produced voluminous material to support the claim of deduction. It cannot be stated by any stretch of imagination that such claim of deduction under Section 80IB(8A) of the Act was not examined by the Assessing Officer in the original assessment. It may be that he did not raise specific query to allowability of the claim on the premise that the petitioner was doing scientific research for and on behalf of the companies. However, merely for the failure of the Assessing Officer to raise such a question, in our opinion, would not authorize him to reopen the assessment even within the period of 4 years from the end of the relevant assessment year. Any such attempt on his part would be based on mere change of opinion. To reiterate when a claim was processed at length and after calling for detailed explanation from the assessee, the same was accepted, merely because a certain element or angle was not in the mind of the Assessing Officer while accepting such a claim, cannot be a ground for issuing notice for reassessment." (viii) Commissioner of Income Tax, Delhi-IV v. Indian Sugar and General Industr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not 54E of the Act. 3) The assessing officer in the reasons recorded desired to disallow the claim on the ground that as required under section 54E of the Act, the assessee did not invest the surplus for a minimum period of 36 months. 4) Though through the affidavit-in-reply it is now pointed out that reference to section 54E is mere typographical error and the intention was to refer to section 54 of the Act, we are of the opinion that such stand is wholly incorrect. Had this been a case of mere typographical error, we would have ignored the mistake and referred to the correct statutory provision. The fact that reference under section 54E was however, not an error is manifest from the reasons recorded. It referred to the requirement of investing the surplus fund for a minimum period of 36 months. Such requirement flows from section 54E of the Act and not section 54. Section 54 in fact requires the assessee to acquire a new unit within a year or build himself within three years. In the later case he has to invest the surplus in specified investments. This was thus not a mere typographical error but a conscious decision on the part of the assessing officer to disallow the exem ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... anding amounts. Counsel for the petitioner, however, submitted that in the tax audit report, the petitioner had disclosed that the petitioner company and Aditya Medisales are closely associated. In our opinion, this would not be a sufficient disclosure. From the facts on record, it was not possible for the Assessing Officer to ascertain that the petitioner received interest from Aditya Medisales which was higher than the normal rate of interest. Three essential facts, namely, that the petitioner received interest on overdue payments from Aditya Medisales, that Aditya Medisales was a sister concern of the petitioner Company and that such interest was charged at the rate of 24% per annum, were not discernible from the record at all. 34. Under the circumstances, from the material on record, it was not possible for the Assessing Officer to make adjustment under section 80IA(10) even if it was required. It may be that the petitioner did give the total figure of interest received. However, from such figures, it was not possible for the Assessing Officer to ascertain these vital facts. Section 147 of the Act, explanation 1 provides that "production before the Assessing Officer of accou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ons of section 80IA(10) of the Act, primary facts were not on record. 38. Under the circumstances, in so far as ground No.3 is concerned, we find that the same cannot be stated to be invalid. The issue being common, we see no reason to take a different view. In fact, we may notice that the above decision was rendered by us in a case where notice for reopening of the assessment was issued beyond the period of four years from the end of the relevant assessment year whereas in the present case, such notice is issued within four years. In that view of the matter, the contention of the counsel for the petitioner that full facts were available on record before the Assessing Officer when the assessment was previously framed after scrutiny would be of no avail." (ii) Dishman Pharmaceuticals and Chemicals Limited v. Deputy Commissioner of Income-Tax (OSD) (No.1) reported in [2012] 346 ITR 228 (Guj):- "8. From the above judicial pronouncements, following principles can be culled out :- [i] To confer jurisdiction to the Assessing Officer to reopen the assessment under Section 147 of the Incometax Act, beyond four years from the end of assessment year, following two conditions mu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing Officer. (vi) At the time of ascertaining whether the notice was validly issued, what could be the probable conclusion of fresh assessment if re-opening is permitted, is not the inquiry of the Court. In other words, the merits of the proposed action, through opening of the assessment, cannot be gone into by the court beyond prima facie stage." (iii) Rajesh Jhaveri Stock Brokers P. Ltd. v. Assistant Commissioner of Income-Tax reported in [2006] 284 ITR 593 (Guj):- "10. In the present case also, as the facts demonstrate, despite recording of reasons the respondent has sustained his objection to the proposal made by the audit department and the objection raised by the respondent has been endorsed by the Additional Commissioner of Income Tax. Therefore, it is abundantly clear that the respondent did not hold the belief at any point of time, either before or after recording reasons, that income of the assessee has escaped assessment on account of erroneous computation of loss and it is required to be held that the exercise of recording reasons on the file is a mere pretence to give validity to the exercise of power for assuming jurisdiction. In other words, it was a colourable ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... udit party, though she herself held a contrary belief that no income chargeable to tax has escaped assessment on these two counts. Had this being the sold reason for issuing notice for reopening, we would have perhaps allowed the petition and quashed the notice. In the present case, however, the Assessing Officer was convinced that on third ground recorded in the reasons, income chargeable to tax had escaped assessment. It is true that such ground was also brought to her notice by the audit party and that by itself would not mean that she was acting at the instance of the audit party. As held by the Supreme Court in case of Commissioner of Income-Tax v. P.V.S Beedies Private Limited, reported in [1999] 237 ITR 13 (SC), if a particular issue is brought to the notice of the Assessing Officer by the audit party and the Assessing Officer of his/her application of mind finds that the ground is valid, reopening of assessment cannot be quashed merely because such ground was brought to the notice of the Assessing Officer by the audit party. In this context, even the counsel for the petitioner was unable to dispute that the question of depreciation require reexamination since the question w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nformation " in Section 34(1)(b) included information as to the true and correct state of the law, and so would cover information as to relevant judicial decisions, secondly, that " escape" in Section 34(1) was not confined to cases where no return had been submitted by the assessee or where income had not been assessed owing to inadvertence or oversight or other lacuna attributable to the assessing authorities. But even in a case where a return had been submitted, if the Income-tax Officer had erroneously failed to tax a part of the assessable income, it was a case where that part of the income had escaped assessment. The decision of the Privy Council, therefore, was held to be information within the meaning of Section 34(1)(b) and the proceedings for reassessment were validly initiated. In our opinion, the principle of this decision governs the present case and it must be held that the proceedings initiated under Section 34 for the assessment year 1944- 45 were legally valid. It was stated on behalf of the appellant that in any case the Income-tax Officer could have legitimately assessed one-third share of the income which was due to the assessee according to the judgment of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e or justification to know or suppose that income had escaped assessment, it can be said to have reason to believe that an income had escaped assessment. The expression cannot be read to mean that the Assessing Officer should have finally ascertained the fact by legal evidence or conclusion. The function of the Assessing Officer is to administer the statute with solicitude for the public exchequer with an inbuilt idea of fairness to taxpayers. As observed by the Supreme Court in Central Provinces Manganese Ore Co. Ltd. Vs. ITO [1991] 191 ITR 662, for initiation of action under section 147(a) (as the provision stood at the relevant time) fulfilment of the two requisite conditions in that regard is essential. At that stage, the final outcome of the proceeding is not relevant. In other words, 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 for ..... X X X X Extracts X X X X X X X X Extracts X X X X
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