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TMI Blog2017 (12) TMI 1594X X X X Extracts X X X X X X X X Extracts X X X X ..... e effect that the impugned order of reassessment cannot be faulted as the same was based on information derived from the tax audit report. The tax audit report had already been submitted by the assessee. It is one thing to say that the Assessing Officer had received information from an audit report which was not before the Income-tax Officer, but it is another thing to say that such information can be derived by the material which had been supplied by the assessee himself. We also cannot accept the submission of Mr. Jolly to the effect that only because in the assessment order, detailed reasons have not been recorded an analysis of the materials on the record by itself may justify the Assessing Officer to initiate a proceeding under section 147 of the Act. The said submission is fallacious. An order of assessment can be passed either in terms of sub-section (1) of section 143 or sub-section (3) of section 143. When a regular order of assessment is passed in terms of the said sub-section (3) of section 143 a presumption can be raised that such an order has been passed on application of mind. It is well known that a presumption can also be raised to the effect that in terms of clause ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng Officer software development income was not offered by the assessee on accrual basis, and there was reason to believe that income had escaped assessment. Thereafter, the reassessment was completed through an order u/s.143(3) r.w.s.147 of the Act with the following observations: ''4. Vide letter dated 25.02.2014, the assessee company stated that Health Q Software Product was a Joint Venture between the assessee and the parties who have contributed towards software development expenditure. Further- they stated that this amount ₹ 1,05,93,968 is received towards software development incurred by the assessee. However since the further contribution required for development was not coming forth as per the agreement, owing to difference of opinion between the parties and that the project was abruptly stopped. 5. In the Original return of Income the assessee company had debited a sum of ₹ 80,16,696 as head quarters Project cost write off which is detailed below: Total Project Cost (Semi finished) Health Q Software Products Project cost incurred : 3,46,43,785/- Less: Recovery : 1,05,93,698/- Balance 2,40,50,087/- 1/3rd of the above ₹ 80,16,696/- 6. Subsequ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... epresentative strongly assailing the reopening done for the impugned assessment year, submitted that assessee through its letter dated 12.11.2010 filed before the ld. Assessing Officer, during the course of original assessment proceedings, had given full details on the project cost relating to development of what is called as Health Q Software products on which the advance was received. As per the ld. Authorised Representative, assessee had claimed depreciation at 60% on such software product but this was not allowed by the ld. Assessing Officer in the original assessment. Further, as per the ld. Authorised Representative, letter filed by the assessee was duly considered by the ld. Assessing Officer while completing the original assessment though he had not accepted the claim for higher depreciation. Thus, as per the ld. Authorised Representative, the ld. Assessing Officer was aware of the software development advance received by the assessee against project cost. The reopening according to him was merely on a change of opinion. In support of his contention, that there could be no reopening merely based on a change of opinion, ld. Authorised Representative relied on the judgment of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... full year On software products which works out to ₹ 1,44,30,052.22,since software at semi finished stage is also available for sales. This semi finished stage is reached before September 30th 2007. 3. We should have claimed Rs:l,44,30,052.22 as depreciation instead of writing off ₹ 80,16,696.00 4. Therefore kindly allow us Rs: 1,44,30,052.22 in the place of Rs:80,16,696.00 5. We are enclosing sales invoice and Sales Details for having sold the products 6.We are producing the sample expenses vouchers for Rs. l Lakh or More for your perusal and Return as detailed below: a. Laser Soft Infosystems Ltd Rs:10,00,000.00 Ledger copy enclosed b. Teracorn Software Rs:25,52,025.00 Ledger copy enclosed Thanking You Yours Faithfully For Sactec Solutions Private Limited Sd/- Director . It is clear from the above that assessee had given an annexure wherein it had furnished the details of recovery of A1,05,93,698/- on semi finished software product called M/s. Health Q Software product. Ld. Assessing Officer had indeed considered the submissions of the assessee and this is clear from the following para of the original assessment order. ''During the course of scr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the apex court held (page 207) : "The scheme of the law clearly is that where the Income-tax Officer has reason to believe that an underassessment has resulted from nondisclosure he shall have jurisdiction to start proceedings for reassessment within a period of eight years ; and where he has reason to believe that an underassessment has resulted from other causes he shall have jurisdiction to start proceedings for reassessment within four years. Both the conditions, (i) the Income-tax Officer having reason to believe that there has been underassessment and (ii) his having reason to believe that such underassessment has resulted from non-disclosure of material facts, must coexist before the Income-tax Officer has jurisdiction to start proceedings after the expiry of four years. The argument that the court ought not to investigate the existence of one of these conditions, viz., that the Income-tax Officer has reason to believe that underassessment has resulted from non-disclosure of material facts, cannot therefore be accepted." In Indian and Eastern Newspaper Society v. CIT [1979] 119 ITR 996 (SC), a three judge-Bench of the apex court held that although disclosure of a new fact ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d the deductions wrongly and, therefore, he was of the opinion that the income had escaped assessment. Though he has used the phrase 'reason to believe' in his order, admittedly, between the date of the orders of assessment sought to be reopened and the date of forming of opinion by the Income-tax Officer nothing new has happened. There is no change of law. No new material has come on record. No information has been received. It is merely a fresh application of mind by the same Assessing Officer to the same set of facts. While passing the original orders of assessment the order dated February 28, 1994, passed by the Commissioner of Income-tax (Appeals) was before the Assessing Officer. That order stands till today. What the Assessing Officer has said about the order of the Commissioner of Income-tax (Appeals) while recording reasons under section 147 he could have said even in the original orders of assessment. Thus, it is a case of mere change of opinion which does not provide jurisdiction to the Assessing Officer to initiate proceedings under section 147 of the Act. It is also equally well settled that if a notice under section 148 has been issued without the jurisdictional found ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... evenue." Although the referring Bench had prima facie agreed with the decision of this court in Jindal Photo Films' case [1998] 234 ITR 170, but a doubt was sought to be raised by the Revenue in view of a decision of the Gujarat High Court in Praful Chunilal Patel's case [1999] 236 ITR 832 . Therefore, let us now consider the decision of the Division Bench of the Gujarat High Court in the said case, wherein it was held (page 839) : "It will thus be seen that in the proceedings taken under section 147, the Assessing Officer may make an assessment or reassessment, or recomputation, as the case may be. The word 'assess' refers to a situation where the assessment was not made in the normal manner while the word 'reassess' refers to a situation where an assessment is already made, but it is sought to be reassessed on the basis of this provision. In cases where the Assessing Officer has not made an assessment of any item of income chargeable to tax while passing the assessment order in the relevant assessment year, it cannot be said that such income was subjected to an assessment. In the assessment proceedings, the Assessing Officer would ascertain on consideration of all relevant ci ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Act. The said power can be exercised when the mistake is apparent. Even a mistake cannot be rectified where it may be a mere possible view or where the issues are debatable. Even the Income-tax Appellate Tribunal has limited jurisdiction under section 254(2) of the Act. Thus when the Assessing Officer or Tribunal has considered the matter in detail and the view taken is a possible view the order cannot be changed by way of exercising the jurisdiction of rectification of mistake. It is a well settled principle of law that what cannot be done directly cannot be done indirectly. If the Income-tax Officer does not possess the power of review, he cannot be permitted to achieve the said object by taking recourse to initiating a proceeding of reassessment or by way of rectification of mistake. In a case of this nature the Revenue is not without remedy. Section 263 of the Act empowers the Commissioner to review an order which is prejudicial to the Revenue. In Bawa Abhai Singh's case [2002] 253 ITR 83 (Delhi), a Division Bench of this court of which one of us (D. K. Jain J.) is a Member, clearly held (page 88) : "The crucial expression is 'reason to believe'. The expression predicates ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ificant change in the preliminary requirement of certain conditions mandatory in character before reassessment proceedings should be initiated in the pre-amended section. The conditions precedent for initiation of action under section 147(a) or 147(b) of the pre-amended situation, is highlighted above. The amended provisions are contextually different and the cumulative conditions spelt out in clause (a) or (b) of section 147 prior to its amendment, are not present in the amended provision. The only condition for action is that the Assessing Officer should have reason to believe that income has escaped assessment, which belief can be reached in any manner and is not qualified by a precondition of faith and true disclosure of material fact by an assessee as contemplated in the pre-amended section 147(a) of the Act and the Assessing Officer can under the amended provisions legitimately reopen the assessment in respect of an income which has escaped assessment. Viewed in that angle the power to reopen assessment is much wider under the amended provision and can be exercised even after the assessee has disclosed fully and truly all the material facts. To similar view were the conclusio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he class of cases or class of incomes specified in paragraph 2 of the said order for the period and on conditions which are enumerated therein. He submitted that in view of the said circular, the same authority can be exercised by the Commission since the said circular would amount to relaxation of the rigour of sections 234A, 234B and 234C of the Act. We are in unison with this submission of the learned Solicitor General. This court in a catena of cases has held that the circulars of the Central Board of Direct Taxes are legally binding on the Revenue : see UCO Bank v. CIT [1999] 237 ITR 889 (SC). Since these circulars are beneficial to assessees, such benefit can be conferred also on assessees who have approached the Settlement Commission under section 245C of the Act on such terms and conditions as contained in the circular. In our opinion, it is for this purpose that section 245F of the Act has empowered the Settlement Commission to exercise the power of an incometax authority under the Act. We must clarify here that while exercising the power derived under the circulars of the Board, the Commission does not act as a subordinate to the Board but will be enforcing the relaxed pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... postulate conferment of power upon the Assessing Officer to initiate reassessment proceeding upon his mere change of opinion. We, however, may hasten to add that if "reason to believe" of the Assessing Officer is founded on an information which might have been received by the Assessing Officer after the completion of assessment, it may be a sound foundation for exercising the power under section 147 read with section 148 of the Act. We are unable to agree with the submission of Mr. Jolly to the effect that the impugned order of reassessment cannot be faulted as the same was based on information derived from the tax audit report. The tax audit report had already been submitted by the assessee. It is one thing to say that the Assessing Officer had received information from an audit report which was not before the Income-tax Officer, but it is another thing to say that such information can be derived by the material which had been supplied by the assessee himself. We also cannot accept the submission of Mr. Jolly to the effect that only because in the assessment order, detailed reasons have not been recorded an analysis of the materials on the record by itself may justify the Asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as in consequence of information in his possession reason to believe that 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 or recompute the loss or the depreciation allowance, as the case may be, for the assessment year concerned (hereafter in sections 148 to 153 referred to as the relevant assessment year)." 4. After the enactment of the Direct Tax Laws (Amendment) Act, 1987, i.e., prior to 1st April, 1989, section 147 of the Act, reads as under : " 147. Income escaping assessment.-If the Assessing Officer, for reasons to be recorded by him in writing, is of the opinion 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 recompute the loss or the depreciation allowance or any other allowance, as the case may be, for the assessment year concerned (hereafter in this sect ..... X X X X Extracts X X X X X X X X Extracts X X X X
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