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TMI Blog2018 (12) TMI 968X X X X Extracts X X X X X X X X Extracts X X X X ..... Judicial Member, And Shri G. Manjunatha, Accountant Member For the Assessee : Shri J.D. Mistri And Shri S.I. Mogu For the Revenue : Shri Nitin Waghmode-DR ORDER PER JOGINDER SINGH (JUDICIAL MEMBER) The assessee is aggrieved by the impugned order dated 04/03/2014 of the Ld. First Appellate Authority, Mumbai. The first ground raised by the assessee pertains to confirming the action of the Ld. Assessing Officer holding that reopening of assessment under section 147/148 of the Income Tax Act, 1961 (hereinafter the Act) as valid, without appreciating the fact that details were already made available to the ld. Assessing Officer and thus the order was passed merely on "Change of Opinion" on the same facts. 2. During hearing, the ld. Sr. Advocate, Shri J. D. Mistri and Shri S.I. Mogu, ld. counsel for the assessee, invited our attention to the notice issued to the assessee for reopening the assessment (page-49 of the paper book) by claiming that there was no new tangible material with the Assessing Officer and the assessment framed under section 143(3) of the Act was reopened merely on the basis of change of opinion. Our attention was further invited to pages 6, 21, 24, 30, 31 and 33 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for that assessment year: Provided further that nothing contained in the first proviso shall apply in a case where any income in relation to any asset (including financial interest in any entity) located outside India, chargeable to tax, has escaped assessment for any assessment year: Provided also that the Assessing Officer may assess or reassess such income, other than the income involving matters which are the subject matters of any appeal, reference or revision, which is chargeable to tax and has escaped assessment. Explanation 1.-Production before the Assessing Officer of account books or other evidence from which material evidence could with due diligence have been discovered by the Assessing Officer will not necessarily amount to disclosure within the meaning of the foregoing proviso. Explanation 2.-For the purposes of this section, the following shall also be deemed to be cases where income chargeable to tax has escaped assessment, namely :- (a) where no return of income has been furnished by the assessee although his total income or the total income of any other person in respect of which he is assessable under this Act during the previous year exceeded the maximu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ly on the basis of "change of opinion", as has been claimed by the assessee. We have perused the record and found that the original assessment was framed under section 143(3) on 19/11/2010, assessing the total taxable income at ₹ 2,30,72,774/-. Subsequently, on perusal of record, it was found by the ld. Assessing Officer that taxable income, in view of incorrect claim of deduction under section 35DDA of the Act, had escaped assessment, consequently, proceedings under section 147/148 of the Act were initiated after recording the reasons and therefore notice under section 148 of the Act was issued on 01/03/2012 after obtaining approval of Additional DIT(E), Range-II, Mumbai and the notice was duly served upon the assessee. The assessee in its income and expenditure account debited an amount of ₹ 3,53,71,733/- towards salary which includes an amount of ₹ 1,74,51,505/- paid as voluntary retirement scheme (VRS). The ld. Assessing Officer considered section 35DDA(1) of the Act which is as under:- "35DDA. (1) Where an assessee incurs any expenditure in any previous year by way of payment of any sum to an employee in connection with his voluntary retirement, in accorda ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oprietary concern referred to in subsection (4) and in the case of a company referred to in sub ITA. section (4A) of this section, for the previous year in which amalgamation, demerger or succession, as the case may be, takes place. (6) No deduction shall be allowed in respect of the expenditure mentioned in sub-section (1) under any other provision of this Act." 2.4. If the aforesaid provision of section 35DDA of the Act which deals with amortization of expenditure incurred under VRS, it says where an assessee incurs any expenditure in any previous year by way of payment of any sum to any employee (in connection with his voluntary retirement) in accordance with any scheme or schemes or voluntarily retirement, one fifth of the amount so paid shall be deducted in computing the profit and gains of the business for that previous year and the balance shall be deducted in equal installments for each of the four immediately succeeding previous years. Section 35DDA was inserted by the Finance Act, 2001 (with effect from 01/04/2001 and scope and effect of such insertion was elaborated in the Department Circular No.14 of 2001. Further, the scope and the effect have been elaborated in De ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f opinion and then a change thereof. In the context of assessment proceedings, it means formation of belief by an Assessing Officer resulting from what he thinks on a particular question. It is a result of understanding, experience and reflection. A distinction must be drawn between erroneous application/ interpretation/ understanding of law and cases where fresh or new factual information comes to the knowledge of the Assessing Officer subsequent to the passing of the assessment order. If new facts, material or information comes to the knowledge of the Assessing Officer, which was not on record or not made available by the assessee, during assessment proceedings, the principle of "change of opinion" will not apply. The reason is that "opinion" is formed on facts. "Opinion" formed or based on wrong and incorrect facts or which are belied and untrue do not get protection and cover under the principle of "change of opinion". Factual information or material which was incorrect or was not available with the Assessing Officer at the time of original assessment would justify initiation of reassessment proceedings. The requirement in such cases is that the information or material availabl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... are by way of example or guidelines. As a permissive provision it enables to judge to support his judgment but there is no scope of presumption when facts are known. Presumption of facts under section 114 is rebuttable. The presumption raised under illustration (e) to section 114 of the Act means that when an official act is proved to have been done, it will be presumed to have been regularly done but it does not raise any presumption that an act was done for which there is no evidence or proof. (i) Assessments cannot be validly reopened under section 147 of the Act even within four years, if an assessee had furnished full and true particulars at the time of original assessment with reference to the income alleged to have escaped assessment, if the original assessment was made under section 143(3). So long as the assessee has furnished full and true particulars at that time of original assessment and so long as the assessment order is framed under section 143(3) of the Act, it matters little that the Assessing Officer did not ask any question or query with respect to one entry or note but had raised queries and questions on other aspects. (ii) Section 114(e) of the Act can be app ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... I. T. [2007] 292 ITR 49 (Delhi) (para 12) Kunhayammed v. State of Kerala [2000] 245 ITR 360 (SC) (para 31) Maharaj Kumar Kamal Singh v. CIT [1959] 35 ITR 1 (SC) (para 34) Muthukrishna Reddiar v. CIT [1973] 90 ITR 503 (Ker) (para 9) New Light Trading Co. v. CIT [2002] 256 ITR 391 (Delhi) (para 18) Praful Chunilal Patel v. Makwana (M. J.)/Asst. CIT [1999] 236 ITR 832 (Guj) (para 21) Snowcem India Ltd. v. Deputy CIT [2009] 313 ITR 170 (Bom) (para 31) Sri Krishna P. Ltd. v. ITO [1996] 221 ITR 538 (SC) (paras 56, 58) Suresh Budharmal Kalani v. State of Maharashtra [1998] 7 SCC 337 (para 29) Union of India v. Suresh C. Baskey [1996] AIR 1996 SC 849 (para 20) United Mercantile Co. Ltd. v. CIT [1967] 64 ITR 218 (Ker) (para 9) "(i) What is meant by the term 'change of opinion' ? (ii) Whether assessment proceedings can be validly reopened under section 147 of the Act, even within four years, if an assessee has furnished full and true particulars at the time of original assessment with reference to income alleged to have escaped assessment and whether and when in such cases reopening is valid or invalid on the ground of change of opinion ? (ii ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t; as per the Black's Law Dictionary means a statement by a judge or a court of a decision reached by him incorporating cause tried or argued before them, expounding the law as applied to the case and, detailing the reasons upon which the judgment is based. Advanced Law Lexicon by P. Ramanatha Aiyar (third edition) explains the term "opinion" to mean "something more than mere retaining of gossip or hearsay; it means judgment or belief, that is, a belief or a conviction resulting from what one thinks on a particular question . . . An opinion is a conviction based on testimony . . . they are as a result of reading, experience and reflection". 2.9. In the context of assessment proceedings, it means formation of belief by an Assessing Officer resulting from what he thinks on a particular question. It is a result of understanding, experience and reflection to use the words in Law Lexicon by P. Ramanatha Aiyar. The question of change of opinion arise when an Assessing Officer forms an opinion and decides not to make an addition or holds that the assessee is correct and accepts his position or stand. In Hari Iron Trading Co. v. CIT [2003] 263 ITR 437 (P&H), a Div ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and had been held in favour of the assessee is too far-fetched a proposition to merit acceptance. There may indeed be a presumption that the assessment proceedings have been regularly conducted, but there can be no presumption that even when the order of assessment is silent, all possible angles and aspects of a controversy had been examined and determined by the Assessing Officer. It is trite that a matter in issue can be validly determined only upon application of mind by the authority determining the same. Application of mind is, in turn, best demonstrated by disclosure of mind, which is best done by giving reasons for the view which the authority is taking. In cases where the order passed by a statutory authority is silent as to the reasons for the conclusion it has drawn, it can well be said that the authority has not applied its mind to the issue before it nor formed any opinion. The principle that a mere change of opinion cannot be a basis for reopening completed assessments would be applicable only to situations where the Assessing Officer has applied his mind and taken a conscious decision on a particular matter in issue. It will have no application where the order of ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... articulars of information obtained during the course of assessment proceedings for the assessment year 1998-99. Therefore the reasons recorded do not indicate any tangible material which has led to a reasonable belief that income has escaped assessment. • Further case of the Department is that expenses attributable to non-fund based activity should be 10 per cent and not 20.1 per cent as claimed by the respondent. Consequently the expenses attributable to fund based activity would be 90 per cent and not 79.99 per cent resulting in less profit from fund based activity (long term finance). • The assessee had allocated its expenditure between fund based and nonfund based activity on the basis of the ratio of the income earned between fund and non-fund based activity. Therefore there was some basis for distributing the expenses. Neither the reasons nor the order of the Assessing officer indicate the basis on which 10% of expenditure is alone attributable to non-fund activity. • This again establishes absence of any tangible material obtained during proceeding for assessment year 1998-99 to form a reasonable belief that income has escaped assessment. In the circumst ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ound the mere fact that the Assessing Officer for Assessment Year 2007-08 had come to a different conclusion would not justify the reopening of the assessment for Assessment Year 2006-07. [Para 18] 2.13. The Hon'ble jurisdictional High Court in NDT Systems & Anothers vs Income Tax Officer (2014) 363 ITR 603(Bom.) held as under:- "This petition under article 226 of the Constitution of India seeks to quash a notice dated March 20, 2012, issued under section 148 of the Income-tax Act, 1961 ("the Act"). The impugned notice seeks to reopen the assessment for the assessment year 2007-08 on the ground that the Assessing Officer has reasons to believe that income chargeable to tax has escaped assessment within the meaning of section 147 of the Act. 2. At the request of the advocates for the petitioner and the respondent the 3. Brief facts leading to this petition are as follows : (a) At all times relevant to this petition, the petitioner firm was engaged in nondestructive testing business which includes testing of the blasting contents of the plant and machinery along with building which are being installed by its clients. This activity of testing was mainly supervis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... under section 148 of the Act to the petitioner. By the impugned notice the petitioner was informed by the Assessing Officer that he proposes to reassess the petitioner for the assessment year 2007-08, as he has reason to believe that the income assessable to tax has escaped assessment. In response to the above, the petitioner sought a copy of reasons recorded for issuing the impugned notice under section 148 of the Act. (e) On July 23, 2012, the Assessing Officer communicated the reasons for reopening the assessment for the assessment year 2007-08 to the petitioner as under: "Reasons for issue of notice under section 148 of the Income-tax Act, 1961 : The assessee-firm filed its return of income for the assessment year 2007-08 declaring a total income at ₹ 7,06,948. The assessee received testing charges of ₹ 2.49 crores on which expenses on account of radiography and labour charges were claimed. The case was selected for scrutiny and assessment was completed under section 143(3) on December 11, 2009, assessing the total income at ₹ 12,05,020 after disallowing the contract payments made in excess of ₹ 50,000 during the year. On verification, it is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent year 2007-08 ; S.No. Deductor's name Difference Amt. in Rs. 1. Hindalco Industries Ltd. 62,835.00 2. IFFCO, Allahabad 70,328.00 3. Onshore Const. Co. Pvt. Ltd. 1,51,943.00 4. Perron Engg. Const. Ltd. 25,416.00 5. Power Mech Projects P. Ltd. 22,189.00 6. Reliance Industries, Jamnagar 5,36,577.00 7. Tulasidharan Bhaskaran Metal Crafts, Surat 7,31,493.00 8. UB Engg. Ltd. Pune, 5,26,647.00 9. United Construction Co. 33,743.00 (b) The total difference of ₹ 21,61,168 had led to underassessment of income. (c) The payments made under the head radiography charges and labour charges aggregating to ₹ 17,23,647 and 77,69,630 were made to various persons like Sr. Technician, Asstt. R. T. Technician, Jr. Technician, Sr. Asstt. Radiologist, etc., as is evident from the chart of such payments submitted by you in the earlier assessment proceedings. Thus, all such payments, unambiguously, fall in the category of payments made for receiving technical services, attracting the provisions of section 194J and section 194C. Thus, for the purposes of Chapter XVII-B, the threshold limit of ₹ 20,000 would be applicable instead of ₹ 50,000. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing the original assessment proceedings leading to assessment order under section 143(3) of the Act dated December 11, 2009. There is no new material fact which has come to the notice of the Assessing Officer that could lead to his reasonable belief that income has escaped assessment. In fact, the reasons provided only indicate a different opinion on the same facts duly considered in the assessment order dated December 11, 2003, passed under section 143(3) of the Act ; (c) the reasons for reopening as communicated to the petitioner does not indicate as one of the reasons that amount of ₹ 21.61 lakhs being the difference between the amount received by the petitioner and the tax deduction at source certificate issued by the payer. However, the aforesaid ground is indicated as a reason for rejecting the objection to reopening the assessment for the assessment year 2007-08 under section 148 of the Act. This according to her is clearly not permissible ; and (d) the impugned notice has been issued by the Assessing Officer at the instance of the internal audit report and not on independent application of mind on the part of the Assessing Officer. In support she invites our att ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erial facts necessary for assessment, while issuing a notice reopening a completed assessment. However, even in case of reopening of assessment within a period of four years from the end of the relevant assessment year the Assessing Officer has to have reason to believe that income chargeable to tax has escaped assessment on the basis of tangible material. The words "reason to believe" has been construed by the Supreme Court in the matter of CIT v. Kelvinator of India Ltd. [2010] 320 ITR 561/187 Taxman 312 ; wherein the court has observed: "However one needs to give schematic interpretation to the words 'reason to believe' failing which we are afraid section 147 would give arbitrary powers to the Assessing Officer to reopen assessment on the basis of 'mere change of opinion' which cannot be per se reason to reopen. We must also keep in mind the conceptual difference between power to review and power to reassess. The Assessing Officer has no power to review ; he has power to reassess. But reassessment has to be based on fulfilment of certain preconditions and if the concept of 'change of opinion' is removed as contended by the department then ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , the reasons for reopening as communicated by the petitioner is not on the basis of any tangible material but merely on verification of the material and primary facts already on record that the Assessing Officer has duly considered while passing the order dated December 11, 2003, for the assessment year 2007-08. There is no fresh tangible material which would warrant taking a view different from the one taken during the regular assessment proceedings. In fact even the order dated October 15, 2012 disposing of the objections clearly records that radiography charges and labour charges were made to various persons like senior technicians, senior radiographer and Jr. technicians, etc., from the chart submitted in the regular assessment proceeding leading to order dated December 11, 2009. Therefore, it is very clear that the impugned notice for reassessing the assessment year 2007-08 has been issued merely on change of opinion and in fact seeks to review the assessment which is already completed. 9. One more aspect of the matter must be adverted to and that is in the order dated October 15, 2012, rejecting the objections filed by the petitioner with regard to reassessment proceedings ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... issue or query is raised and answered by the assessee in original assessment proceedings but thereafter the Assessing Officer does not make any addition in the assessment order. In such situations it should be accepted that the issue was examined but the Assessing Officer did not find any ground or reason to make addition or reject the stand of the assessee. He forms an opinion. The reassessment will be invalid because the Assessing Officer had formed an opinion in the original assessment, though he had not recorded his reasons. 2.15. Thus, where an Assessing Officer incorrectly or erroneously applies law or comes to a wrong conclusion and income chargeable to tax has escaped assessment, resort may be made through section 263 of the Act. But initiation of reassessment proceedings will be invalid on the ground of change of opinion. Here a distinction has to be drawn between erroneous application/interpretation/ understanding of law and cases where fresh or new factual information comes to the knowledge of the Assessing Officer subsequent to the passing of the assessment order. If new facts, material or information comes to the knowledge of the Assessing Officer, which was not on r ..... X X X X Extracts X X X X X X X X Extracts X X X X
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