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TMI Blog2018 (3) TMI 1587X X X X Extracts X X X X X X X X Extracts X X X X ..... f the Assessing Officer without proper appreciation of true scope and purport of Sections 147 and 148 of the Act with reference to the relevant case law. On the analysis as above, we hold that the impugned reassessment, on the facts of the case, was without jurisdiction and accordingly we hold substantial questions of law Nos.1 and 2 in favour of the assessee - I.T.T.A. No. 158 of 2005 - - - Dated:- 9-2-2018 - SRI C.V. NAGARJUNA REDDY AND SMT. KONGARA VIJAYA LAKSHMI JJ. Counsel for the appellant: Mr. Ch. Pushyam Kiran Counsel for the respondent: Ms. K. Mamata, Special Standing Counsel for Income Tax Department JUDGMENT: (per the Honble Sri Justice C.V. Nagarjuna Reddy) In this assessees appeal against order dt.27.1.2005 in I.T.A. No.192/Hyd/2002, on the file of the Income Tax Appellate Tribunal, Hyderabad (for short, the Tribunal), the following substantial questions of law have been raised. 1. Whether on the facts and circumstances, whether the Income Tax Appellate Tribunal is correct in law in upholding the order of reassessement against the order of assessment under Section 143(3) of the Income Tax Act, 1961, in the absence of any finding that the ap ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 996, the assessing officer re- opened the assessment under Section 147 of the Act proposing to revise the assessment order passed earlier under Section 143(3). The Assessing Officer on a change of opinion wanted to disallow the expenditure allowed earlier. It is evident from the reasons cited for reopening the assessment that the Assessing Officer acted upon an audit objection. It is also evident that the Assessing Officer did not apply his mind independently and the purported action to revise the assessment was not on account of any new material that has come on record and which material has been withheld by the appellant. It is also pertinent to mention that it was not the case of the Assessing Officer in the reassessment proceedings that the appellant had not filed the necessary material or has withheld the material evidence from the Income Tax Department. The Assessing Officer thus passed a revised order almost at the end of 4 years by disallowing the expenditure that was earlier allowed. The appellant carried the matter to the Commissioner of Income Tax (Appeals) and further to the Income Tax Appellate Tribunal, unsuccessfully. Aggrieved by the revised order passed on the reop ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erefore both the appellate fora have rightly rejected the appeals of the appellant. The learned Standing Counsel sought to derive support of her submissions from the judgments of the Supreme Court in Maharaj Kumar Kamal Singh v. Commissioner of Income Tax, Bihar and Orissa [1959] 35 ITR 1 (SC), Kalyanji Mavji Co. v. Commissioner of Income Tax, West Bengal II [1976] 102 ITR 287 (SC) and A.L.A. Firm v. Commissioner of Income Tax, Madras [1991] 189 ITR 285 (SC). 6. We have considered the respective submissions of the learned counsel for the parties with reference to the record. 7. Section 147 of the Act, as it stood at the relevant point of time, which is relevant for the present case on hand, reads as under: 147. If the assessing officer has reason to believe that any income chargeable to tax has escaped assessment for any assessment year, he may, subject to the provisions of sections 148 to 153, assess or reassess such income and also any other income chargeable to tax which has escaped assessment and which comes to his notice subsequently in the course of the proceedings under this section, or recomputed the loss or the depreciation allowance of any other a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n as an in-built test to check abuse of power by the Assessing Officer. Hence, after 1st April, 1989, Assessing Officer has power to re-open, provided there is tangible material to come to the conclusion that there is escapement of income from assessment. Reasons must have a live link with the formation of the belief. Our view gets support from the changes made to Section 147 of the Act, as quoted hereinabove. Under the Direct Tax Laws (Amendment) Act, 1987, Parliament not only deleted the words reason to believe but also inserted the word opinion in Section 147 of the Act. However, on receipt of representations from the Companies against omission of the words reason to believe , Parliament re- introduced the said expression and deleted the word opinion on the ground that it would vest arbitrary powers in the Assessing Officer. We quote herein below the relevant portion of Circular No. 549 dated 31st October, 1989, which reads as follows: 7.2 Amendment made by the Amending Act, 1989, 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 Sec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he assessee to disclose fully and truly all material facts necessary for his assessment for that year. The High Court held that the aforementioned requirements of law must be held to be conditions precedent for invoking the jurisdiction of the assessing officer to reopen the assessment under Section 147 of the Act and that both the conditions are cumulative. The Delhi High Court differed with the view of the Gujarat High Court in Garden Silk Mills (P) Ltd. v. Dy. C.I.T. expressed in the following terms. 12. We may also notice that a Division Bench of the Gujrat High Court in Garden Silk Mills Pvt. Ltd. (supra), while expressing similar views observed: The reasons recorded by the Assessing Officer which led to the belief about the escapement of assessment disclose that the present case is nothing but mere change of opinion on the facts which were already before the Assessing Officer while making the first assessment to which conscious application of mind is reflected from the proceedings, and allowed in the computation and which has not been disputed by the Revenue. Although the referring Bench had prima facie agreed with the decision of this Court in Jindal Photo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aphs 13, 14 and 15 held as follows: 13. We are, with respect, unable to subscribe to the afore-mentioned view. If the contention of the Revenue is accepted the same, in our opinion, would confer an arbitrary power upon the Assessing Officer. The Assessing Officer who had passed the order of assessment or even his successor officer only on slightest pretext or otherwise would be entitled to re- open the proceeding. Assessment proceedings may be furthermore re-opened more than once. It is now trite that where two interpretations are possible, that which fulfills the purpose and object of the Act should be preferred. 14. It is well settled principle of interpretation of statute that entire statute should be read as a whole and the same has to be considered thereafter Chapter by Chapter and then Section by Section and ultimately Word by Word. It is not in dispute that the Assessing Officer does not have any jurisdiction to review its own order. His jurisdiction is confined only to rectification of mistake as contained in Section 154 of the Act. The power of rectification of mistake conferred upon the ITO is circumscribed by the provisions of Section 154 of the Act. The said p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on made against the Revenue in respect of questions that directly arose for decision in earlier proceedings and that if that were not the legal position it would result in placing an unrestricted power of review in the hands of the assessing authorities depending on their changing moods. In conclusion, the Delhi High Court has stated the law as follows: 18. Following the settled trend of judicial opinion and the law laid down by their Lordships of the Supreme Court time and again different High Courts of the country have taken the view that if an expenditure or a deduction was wrongly allowed while computing the taxable income of the Assesses, the same could not be brought to tax by reopening the assessment merely on account of subsequently the assessing officer forming an opinion that earlier he had erred in allowing the expenditure or the deduction; ( See- Siesta Steel Construction Pvt Ltd v. K.K.Shikare Ors : [1985] 154 ITR 547 (Bom); Satpal Automobile Co. v. ITO: [1983] 141 ITR 450 (All); Gopal Films v. ITO : [1983] 139 ITR 566(Kar.); C.W.T. v. Manilal C. Desai : [1973] 91 ITR 135(MP). 9. In Phool Chand Bajrang Lal v. I.T.O. the Supreme Court reiterated the leg ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... riginal assessment proceedings and they were not new facts, which came to the possession of the assessing ITO and the said officer cannot be heard to say in the facts and background as mentioned hereinbefore, that the legal position was not known to him even though the relevant facts and materials were available. Thus, the initiation as made, cannot be upheld and such initiation must be observed and held to have been made on a mere change of opinion and to be not covered by or under the circumstances as envisaged in Section 147 of the said Act. The ignorance of law, as laid down by the Supreme Court, would be no ground or any excuse for the ITO concerned under the provisions of the said Act. 11. In Aryaverth Chawl Udyoug (supra), the Supreme Court holding that discovery of an inadvertent mistake or non- application of mind during the assessment would not be a justifiable ground to initiate reassessment proceedings, has observed: 27. This court has consistently held that such material on which the assessing authority bases its opinion must not be arbitrary, irrational, vague, distant or irrelevant. It must bring home the appropriate rationale of action taken by the ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ve that income has been assessed as too low a rate, he is empowered to revise the assessment; and there can be no doubt that the belief of the Income-tax Officer that any given income has been assessed as too low a rate may in many cases be due to information about the true legal position in the matter of the relevant rates. If the word information in reference to this class of cases must necessarily include information as to law, it is impossible to accept the argument that, in regard to the other cases falling under the same provision, the same word should have a narrower and a more limited meaning. We would accordingly hold that the word information in section 34(1)(b) includes information as to the true and correct state of the law and so would cover information as to relevant judicial decisions. If that be the true position, the argument that the Income-tax Officer was not justified in treating the Privy Council decision in question as information within section 34(1)(b) cannot be accepted. The Supreme Court further held: 10. Even if the assessee has submitted a return of his income, cases may well occur where the whole of the income has not been assessed and, s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion may be obtained even from the record of the original assessment from an investigation of the materials on the record, or the facts disclosed thereby or from other enquiry or research into facts or law. 14. Two three-Judge Benches of the Supreme Court did not agree with the view of the two-Judge Bench in Kalyanji Mavji Co. (supra) that income escaping assessment due to the oversight, inadvertence or mistake of the Income Tax Officer must fall within Section 34(1)(b) of the Indian Income Tax Act, 1922. The first judgment is Indian Eastern Newspaper Society, New Delhi v. Commissioner of Income Tax, New Delhi and the second one is A.L.A. Firm (supra). In Indian Eastern Newspaper Society (supra), the Supreme Court held as under: 14. Now, in the case before us, the Income Tax Officer had, when he made the original assessment, considered the provisions of Sections 9 and 10. Any different view taken by him afterwards on the application of those provisions would amount to a change of opinion on material already considered by him. The Revenue contends that it is open to him to do so, and on that basis to reopen the assessment under Section 147(b). Relianc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ), referred to the judgment in Kalyanji Mavji Co. ( supra), and observed that category 2 in the said case was somewhat widely stated. It, however, approved category 4 in Kalyanji Mavji Co. ( supra) by explaining the difference between the two categories as under: What then, is the difference between the situations envisaged in propositions (2) and (4) of Kalyanji Mavji (supra)? The difference, if one keeps in mind the trend of the judicial decisions, is this. Proposition (4) refers to a case where the I.T.O. initiates reassessment proceedings in the light of information obtained by him by an investigation into material already on record or by research into the law applicable thereto which has brought out an angle or aspect that had been missed earlier, for e.g., as in the two Madras decisions referred to earlier. Proposition (2) no doubt covers this situation also but it is so widely expressed as to include also cases in which the I.T.O., having considered all the facts and law, arrives at a particular conclusion, but reinitiates proceedings because, on a reappraisal of the same material which had been considered earlier and in the light of the same legal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... A.L.A. Firm (9 supra), by holding that the said view cannot be taken to have overridden the consistently laid down law that where the ITO (very often successor officer) attempts to reopen the assessment because the opinion formed earlier by himself (or more often, by a predecessor ITO), was in his opinion incorrect, such a course is not permissible. It is further interesting to note that in Aryaverth Chawl Udyoug (supra) the Supreme Court held: It is trite that subsequent change in law according to which the assessment proceedings were conducted, cannot constitute change in opinion of the assessing authority so as to initiate reassessment proceedings. In fact the same is impermissible if the Act does not specify the operation of law as retrospective. This view appears to come in conflict with the view taken in Maharaj Kumar Kamal Singh (supra), as reproduced hereinbefore. However, this aspect need not detain this Court as the reassessment proceedings in the instant case were not initiated based on the subsequent change of law. On the contrary, it is the pleaded case of the appellant with respect to which there is no denial that all the details based on which the Ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the income escaped assessment. He has in fact relied upon the judgment in Kalyanji Mavji Co. (8 supra) in coming to the conclusion that when there is a mistake in interpretation of a statute or law at the time of completion of original assessment, the same can be rectified by making reassessment. The Assessing Officer, in our opinion, has committed a serious legal error in ignoring the judgments of the three-Judge Benches of the Supreme Court in Indian Eastern Newspaper Society, New Delhi (supra) and A.L.A. Firm (supra) which did not accept the view in Kalyanji Mavji Co. (supra). When it is not the case of the Assessing Officer that the reassessment was necessitated on account of a fresh information, either with regard to the facts or law received by him, he is denuded of the jurisdiction to initiate reassessment proceedings merely because the previous assessment order was passed ignoring the existing judgments or materials. Non-noticing of the existing judgments squarely falls under the categories of oversight, inadvertence or mistake committed by the ITO and those reasons do not constitute a justifiable ground under Section 147(b) of the Act for initiating reassessment proc ..... X X X X Extracts X X X X X X X X Extracts X X X X
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