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TMI Blog2016 (12) TMI 1287X X X X Extracts X X X X X X X X Extracts X X X X ..... ent proceedings, therefore, are invalid. - Decided in favour of assessee - ITA-11-2016 (O&M) - - - Dated:- 14-12-2016 - MR. S.J. VAZIFDAR AND MR. DEEPAK SIBAL, JJ. For The Appellant : Ms. Urvashi Dhugga, Advocate For The Respondent : Mr. Balbir Singh, Senior Advocate, with Mr. Surjeet Bhadu, Advocate, Mr. Raj Kamal, Advocate, Mr. Rupender Sinhmar, Advocate, and Mr. Veer Singh, Advocate, S.J. VAZIFDAR, C.J. This is an appeal against the order of the Income Tax Appellate Tribunal dismissing the appellant s appeal against the order of the CIT (Appeals). The matter pertains to the assessment year 2007-2008. 2. According to the appellant, the following substantial questions of law arise in this case:- (a) Whether on the facts and in the circumstances of the case and in law, the Hon ble ITAT was right in dismissing appeal of the revenue without appreciating the facts of the case? (b) Whether on the facts and in the circumstances of the case and in law, the Hon ble ITAT was right in treating the re-assessment made u/s 143(3) r.w.s. 147, as bad in law and in holding the re-assessment as null and void when the Assessing Officer has complied with all stat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 143(1) of the Income Tax Act, 1961 (in short the Act), but subsequently the case was selected for scrutiny and a notice under Section 143(2) of the Act was issued and served upon the assessee. The notice contained a detailed questionnaire which we will be referring to in some detail. 6. On 05.10.2011, a notice under Section 148 of the Act was issued. At the assessee s request, the reasons for the same were furnished to the assessee, which read as under:- Perusal of the balance-sheet of the concern M/s Alliance Formulations, of which the assessee is the Prop., shows capital work in Progress of Plant-ll at ₹ 65,88,844/-. Evidently the assets of Plant-ll, which was still under construction during the year, were not put to use during the previous year. The assessee has paid bank interest of ₹ 18,89,028/- in this concern on the borrowed funds of ₹ 2,28,26,459/-. Thus, interest needs to be 'disallowed as per proviso to section 36(1)(ii). The assessee has also claimed interest expenses of ₹ 6,03,655/- against the interest income of ₹ 1,31,992/- which is apparently not allowable. At the most interest expenses of ₹ 1,31,992/- can be cons ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pted as the investment was ultimately completed under Section 143(3). The Assessing Officer had then accepted the explanation. There were no change in circumstances or other material. 11. The CIT (Appeals), therefore, rightly held the same to be but a change of opinion. The Tribunal further noted that there was considerable correspondence between the Assessing Officer and the assessee in this regard and that, therefore, it cannot be said that the Assessing Officer was not aware or conscious of the issue that required determination. The CIT (Appeals) and the Tribunal, therefore, rightly did not permit the reopening of the assessment on this ground. 12. This brings us to the case under Section 54F of the Act. The assessee owned a house and industrial property. On 11.12.2006, he sold the industrial property. On 01.05.2007, he purchased a flat. The question is whether or not he was entitled to the benefit of Section 54F. The reasons referred to the assessee having purchased two residential properties. The first question, therefore, is whether the property that was purchased by the assessee constituted one flat or two flats. The assessee contends that he had purchased only one fla ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... accepted the assessee s contention. The contention now raised by the department that it ought to have been held to be two flats and not one flat is nothing but a change of opinion. The CIT (Appeals) and the Tribunal rightly held that the same constituted a change of opinion. 13. This brings us to the last of the reasons for re-opening the assessment. It relates to the claim under Section 80IC of the Act. In the reasons furnished to the assessee, what is stated is that the assessee had claimed excess deduction under Section 80IC which needs to be disallowed. 14. This aspect is also considered by the Assessing Officer at the time of the original assessment. A query in this regard had been raised on 16.09.2009 and 25.11.2009. It was answered by the assessee s letter dated 05.12.2009. The relevant part of the assessee s letter reads as under:- As explained to your goodself that all the conditions contained in Section 80IA that deduction has been claimed only on eligible business and this is only source of income from which the deduction has been claimed. No goods or services held for the purposes of eligible business were transferred to any other business carried on by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t the information/documents sought therein were to be furnished to enable the department to finalize the assessment proceedings. Item (j) of the letter reads as under:- (j) Complete details of staff welfare, stipend, J J, traveling exp., repair and maintenance, worker welfare, paint, pollution control exp. The Assessing Officer was, therefore, aware that there was at least one other unit, namely, J J and sought the particulars of the expenses in regard to the items mentioned therein. Presumably, the same were furnished. The contention, therefore, that the Assessing Officer in the original proceedings was unaware that the expenses were not bifurcated between the three units proportionately is unfounded. The Assessing Officer knew that the expenses were adjusted against the Jhonson Jhonson unit. The present endeavour is, therefore, clearly on account of a change of opinion. 17. Mr. Balbir Singh s reliance upon the judgement of the Supreme Court in Commissioner of Income Tax Vs Kelvinator of India Ltd., (2010) 320 ITR 561 (SC) on behalf of the assessee is well founded. The Supreme Court in paragraph 6 held as under:- 6. On going through the changes, quoted above ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to reintroduce the expression reason to believe in section 147.- A number of representations were received 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 the 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. (emphasis supplied) 18. The Full Bench of the Delhi High Court in Commissioner of Income Tax Vs Usha International Ltd., (2012) 348 ITR 485 (Del) held as under:- 13. It is, therefore, clear from the aforesaid position that: (1) Reassessment proceedings can be validly initiated in case return of income is processed under Section 143(1) and no scru ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e that the Commissioner of Income Tax under section 263 is empowered to call for the record of the proceedings before making up his mind as to the justification for the revision. The reason is not far to seek: the question whether the Assessing Officer had applied his mind to a particular claim made by the assessee and had accepted it rightly can be judged only on the basis of what material or evidence was led before him, and not on the basis of what was written in the assessment order. This is an implicit recognition in the Act that the emphasis is on the furnishing of full and true particulars and primary facts by the assessee, rather than on the manner in which the Assessing Officer deals with them in the assessment order. Moreover, the assessee, as it was urged, has no say or control over the manner in which the assessment order is drafted. We are in respectful agreement with the judgement. Indeed, if a query is raised by the Assessing Officer and is answered by the assessee in the original assessment proceedings, it is reasonable to presume that his attention was drawn to the same and that he in fact considered the same. If the return is accepted as filed in that regard, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... R 34, where such notice had been challenged, the Supreme Court held that what is to be seen is whether there was prima facie some material on the basis of which the Department can reopen the case. The sufficiency of correctness of the material is not to be considered at this stage . Relying on this decision, the Apex Court, in the case of ACIT Vs Rajesh Jhaveri Stock Brokers(P) Ltd.(2007) 291 ITR 500, while considering the issuance of notice under section 147 of the Act prior to the amendment of 2009, has held that the final outcome of the proceedings is not relevant and at the initial stage, what is required is reason to believe but not established fact of escapement of income. It further held that 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 this stage . This would clearly mean that the issuance of notice is justiciable. If the assessee chooses not to challenge the notice or if it is challenged and found to be valid, then in either case, such notice is to be treated as valid and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... supplied) It was held, therefore, that the issuance of a valid notice under Section 148 is a pre-requisite to the exercise of the power to reopen the assessment. The words emphasized by us clearly state that if the notice is invalid the Assessing Officer cannot reopen the assessment. The judgement, therefore, supports the assessee s case. 21. Faced with this, Ms. Dhugga submitted that it is not open to the assessee to challenge the proceedings for re-opening the assessment as the respondent had never challenged the same. 22. The submission is factually incorrect. The assessee had challenged the validity of the proceedings under Sections 147 and 148 from the beginning. The assessment order passed under Section 143(3) pursuant to the proceedings under Sections 147 and 148 expressly refers to the assessee having challenged the validity of the reasons for initiation of the proceedings under Sections 147 and 148. The assessment order quotes a part of these reasons. For instance, the assessee contended that all the primary facts were disclosed in the return and were deliberated upon during the course of the original assessment proceedings and that the present exercise was mere ..... X X X X Extracts X X X X X X X X Extracts X X X X
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