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TMI Blog1995 (12) TMI 6X X X X Extracts X X X X X X X X Extracts X X X X ..... eted on the basis of the return submitted on October 8, 1987, declaring an income of Rs. 54,419. Investment allowance on purchase of new machinery under section 32A at the rate of 25 per cent. to the extent of Rs. 2,03,684 was allowed. The proceedings under section 154/155 were also initiated to withdraw the said claim but the same were dropped. It is stated that the proceedings are base on change of opinion. It was the consistent view of the Tribunal and even a few of the High Courts that investment allowance under section 32A is admissible to the persons who are engaged in construction activities. The Income-tax Officer has no reason to believe that income chargeable to tax has escaped assessment or there was failure on the part of the petitioner to disclose fully and truly all material facts of assessment. The amended provisions of section 147 are not applicable. The Circular No. 549, dated October 31, 1989, issued by the Central Board of Direct Taxes clarifying the amendment as retrospective is also illegal. Reliance has been placed on the decision of Govinddas v. ITO [1976] 103 ITR 123 (SC), wherein, it was observed : "It is a well-settled rule of interpretation that unl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g earlier, therefore, in respect of assessments which have already been made before July 1, 1960, the new section cannot be made applicable. The decision of Karimtharuvi Tea Estate Ltd. v. State of Kerala [1966] 60 ITR 262 (SC) has also been relied on wherein it was considered by the apex court that it is well-settled that the Income-tax Act as it stands amended on the first day of April of any financial year must apply to the assessment of that year. Any amendments in the Act which came into force after the first day of April of a financial year, would not apply to the assessment for that year, even if the assessment is actually made after the amendments come into force. The decision of the Privy Council in the case of Delhi Cloth and General Mills Co. Ltd. v. CIT, AIR 1927 PC 242, has also been relied on, wherein relying upon the decision of Colonial Sugar Refining Co. v. Irving [1905] AC 369 (PC), it was observed that while provisions of a statute dealing merely with matters of procedure may properly, unless that construction be textually inadmissible, have retrospective effect attributed to them, provisions which touch a right in existence at the passing of the statute are ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be deemed to be cases where income chargeable to tax has escaped assessment, namely :-- (a) where income chargeable to tax has been under-assessed ; or (b) where such income has been assessed at too low a rate ; or (c) where such income has been made the subject of excessive relief under this Act or under the Indian Income-tax Act, 1922 (11 of 1922) ; or (d) where excessive loss or depreciation allowance has been computed. Explanation 2.--Production before the Income-tax Officer of account books or other evidence from which material evidence could with due diligence, have been discovered by the Income-tax Officer will not necessarily amount to disclosure within the meaning of this section." Section 147, after the amendment : Income escaping assessment. -- 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 recompute the loss or the dep ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... substantive. In accordance with law as it was in existence, the assessment on the same change of opinion was not possible and the assumption of jurisdiction was based on the information coming in possession of the Income-tax Officer, on the basis of which he could have reason to believe that the income chargeable to tax has escaped assessment to tax or it could have been on account of not fully and truly disclosing the material facts necessary for assessment. In the case of Maharaj Kumar Kamal Singh v. CIT [1959] 35 ITR 1 (SC), it was considered that the word "information" would embrace information as to fact as also to law. It is no doubt true that there should be a matter as to whether the investment allowance could be given has been considered by the apex court in the cases of CIT v. Shankar Construction Co. [1993] 204 ITR 412 and Builders Associations of India v. Union of India [1994] 209 ITR 877. Any exposition of law by the apex court is not enactment of law and is only exposition of correct position of law and, therefore, even if the notice for reassessment has been issued before the decision of the apex court, it would not make any difference as while deciding this writ pe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 4 (SC), it was considered that the position in reassessment is as if the Income-tax Officer was proceeding to assess the income of that very year. In Govinddas v. ITO [1976] 103 ITR 123, the apex court observed as under : "These words merely refer to the machinery provided in the new Act for the assessment of the escaped income. They do not import any substantive provisions of the new Act which create rights or liabilities. The word 'accordingly' in the context means nothing more than 'for the purpose of assessment' and it clearly suggests that the provisions of the new Act which are made applicable are those relating to the machinery of assessment. The substantive law to be applied for determining the liability to tax must necessarily be the law under the old Act, for that is the law which applied during the relevant assessment years and it is that law which must govern the liability of the parties." In CIT v. Mahaliram Ramjidas [1940] 8 ITR 442, the Privy Council observed as under : "The section, although it is part of a taxing Act, imposes no charge on the subject, and deals merely with the machinery of assessment. In interpreting provisions of this kind the rule is that t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pen the matter. The repealed section refers to the information on the basis of which the reassessment proceedings could have been initiated. The information with regard to the correct state of law by way of a judgment of the apex court is also an information on the basis of which the action could have been taken under the repealed section. Now, the Income-tax Officer can reassess for any reason, therefore, the amended section cannot be considered to be affecting any right of the assessee. The circular which has been issued by the Central Board of Direct Taxes, though having no binding effect on the court, the view which has been taken cannot be considered to be contrary to law. The relevant extract of the Circular No. 549 dated October 31, 1989, are reproduced hereunder : "7.1. Simplification of the provisions relating to assessment or reassessment of income escaping assessment (section 147). -- Under the old provisions of section 147 of the Income-tax Act, separate clauses (a) and (b) laid down the circumstances under which income escaping assessment for the past assessment years could be assessed or reassessed, as follows : (i) Clause (a) empowered the Income-tax Officer to a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e new section itself. (iv) A proviso to the new section provides that an assessment, which has been completed under section 143(3) or section 147, i.e., a scrutiny assessment, can be reopened after the expiry of four years from the end of the relevant assessment year only if income has escaped assessment due to the failure on the part of the assessee to file a return of income or to disclose fully and truly all material facts necessary for his assessment. 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 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 o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n 147 itself. 7.5. Consequent upon further amendment of section 147 by the Amending Act, 1989, whereby the requirement of recording reasons in writing has been omitted from that section (refer to paragraph 7.2 ante), the Amending Act, 1989, has again amended section 148 to reinsert sub-section (2). Thus, the requirement of recording reasons in writing before issuing a notice under section 148 continues to remain in the Act. 7.6. Provisions relating to time limits for issue of notice under section 148 (sub-section (1) of section 149) -- Under the old provisions of sub-section (1) of section 149, time limits for opening or reopening of past cases were laid down depending upon whether the case was covered under clause (a) or clause (b) of the old section 147. Thus, no notice under section 148 could be issued in a case falling under clause (b) after the expiry of four years and in a case falling under clause (a) after the expiry of eight years from the end of the relevant assessment year. However, in a case falling under clause (a) if the income which had escaped assessment amounted to Rs. 50,000 or more in that year, the case could be reopened up to 16 years. 7.7. In view of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessment year, the sanction of the Board was necessary. 7.10. For the same reasons as discussed in paragraph 7.7 ante, the Amending Act, 1987, has substituted a new section 151, which contains substantially changed provisions. The issuing or sanctioning authorities will now depend upon whether the case is a scrutiny case (i.e., where an assessment order has been passed under section 143(3) or section 147) or a non-scrutiny case, and also the period after which the case is being opened or reopened. Thus, a scrutiny assessment will not be reopened by an Assessing Officer of the rank below the rank of an Assistant Commissioner. After the expiry of four years from the end of the relevant assessment year, a scrutiny assessment can be reopened only with the approval of the Chief Commissioner or Commissioner. A non-scrutiny case can be opened or reopened by any Assessing Officer and after the expiry of four years from the end of the relevant assessment year it can be opened or reopened with the approval of the Deputy Commissioner. However, where the Assessing Officer is the Deputy Commissioner himself, no sanction of the higher authority will be necessary for opening or reopening ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... --------------------------------------------------------------------------------------------------- 7.12 Consequential amendment to section 152(2).--The Amending Act, 1987, had made an amendment of consequential nature in sub-section (2) of section 152, containing a provision for dropping a reopened assessment under certain circumstances, pursuant to the merger of clauses (a) and (b) of the old section 147 into a single new section 147. 7.13 Amendments to have retrospective effect.--These amendments come into force with effect from the 1st day of April, 1989. However, it may be clarified that since the provisions of sections 147 to 152 lay down procedural law, these have retrospective effect, unless the amending statute provides otherwise. Therefore, the amendments made to these sections by the Amending Acts, 1987 and 1989, discussed in the preceding paragraphs, which came into force with effect from 1st April, 1989, will be retrospective in the sense that these will apply to all matters which were pending on 1st April, 1989, and had not become closed or dead on this date. 7.14 Thus, from 1st April, 1989, onwards, any action for opening or reopening an assessment for the asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... escaped assessment, if the Assessing Officer has reason to believe that any income chargeable to tax has escaped assessment. (Under the old provisions action could have been taken for these assessment years, if the circumstances mentioned in clause (a) or (b) of the old section 147 were satisfied. These old provisions, however, have no application now from 1st April, 1989, onwards). (v) a scrutiny assessment for any assessment year cannot be reopened now by an Assessing Officer below the rank of an Assistant Commissioner ; under the old provisions, there was no such restriction. [Sections 54 to 58 of the Amending Act, 1987] [Sections 23 and 24 of the Amending Act, 1989] Time limit for completion of assessments and reassessments. 8.1 Time limit for completion of assessment under section 143(3) or section 144 (sub-section (1) of section 153).--Under the old provisions of sub-section (1) of section 153 of the Income-tax Act, various time limits were laid down for completion of an assessment under section 143(3) or under section 144. The old sub-section (1) consisted of four clauses (a) to (d) and clause (a) consisted of three sub-clauses (i) to (iii). The general time limi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Thus, the time allowed for completion of all assessments under section 147 has now been reduced to two years to facilitate quicker assessments. 8.5 As a transitory measure, an exception has been made in cases where notice under section 148 was served on or before 31st March, 1987. In such cases, order of assessment, reassessment or recomputation can be made up to 31st March, 1990. This would help to tide over the difficulties during the transitional period while switching over from the earlier four year limit to the new two year limit. 8.6. Consequential amendment in Explanation 1 to section 153. The Amending Act, 1987, has amended Explanation 1 to section 153 by omitting clause (iv) of the said Explanation, which provided an extended time limit in a case referred to the Inspecting Assistant Commissioner under section 144B. This is consequent to the deletion of section 144B itself. 8.7 These amendments come into force with effect from the 1st April, 1989. [Section 59 of the Amending Act, 1987] In the case of the assessee, the power could have been exercised under the repealed section as well as the amended section. The matter with regard to the applicability of the repe ..... X X X X Extracts X X X X X X X X Extracts X X X X
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