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TMI Blog2022 (8) TMI 1293X X X X Extracts X X X X X X X X Extracts X X X X ..... r completion of assessment, this may be a sound basis for initiation of re-assessment. Test the correctness or otherwise of a methodology adopted by the petitioner for a claim of expenditure, it would, in my view, be appropriate to test whether such claim, and the methodology adopted for making such a claim, had been placed before the Authority even at the first instance. The answer in this case is in the affirmative. The successor officer has not come into possession any other information to indicate escapement of income but merely relies upon the methodology adopted by the petitioner to apprehend escapement of tax. In such circumstances, resort to Section 147 is, in our view, impermissible. In dealing with re-assessments and challenge there to, Courts have formulated principles over time, one of which is that an assessment being a quasi-judicial proceeding, is expected to have been formulated by an officer after due application to all issues that arise from the ROI. Useful reference may be made to Section 114(e) of the Indian Evidence Act that raises a statutory presumption in this behalf. No doubt, there are situations where errors occur, either on fact or on law. It is for this ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... st year has been initiated beyond the period of 4 years from the end of the relevant assessment year, whereas the subsequent two have been initiated within a period of 4 years from the end of relevant assessment year. That apart, the issues that sought to be addressed remain one and the same. 2. Since the veracity or otherwise of the impugned proceedings would have to be tested on the strength of the reasons and as to whether the statutory conditions have been complied/satisfied by the revenue, the reasons for AY 2013-14 are extracted herein: 'Subject: Reasons for Re-opening of Assessment - furnishing of - Reg (i). The assessee during the year relevant to AY 2013-2014 has claimed employee benefit expenses amount to Rs.1952.42 Crore. As noticed from Note 28(e) to the Annual accounts, pending pay revision settlement, a provision of Rs.139.70 crore has been made towards arrears of salaries and other benefits revision in respect of Non-executives. Any expenditure debited to the profit and loss account under the head provision is unascertained liability and not an allowance deduction u/s.37. Omission to disallow the unascertained liability has resulted in under assessment of Rs.1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r deduction u/s 35E for the AY 2013-14 in respect of Rajasthan Mine amounting to Rs.12.31 crore as against Rs.40.18 crore claimed and allowed . This has resulted in excess allowance of deduction of Rs.27.87 crores. Excess deduction claimed u/s 35E: Rs.27.87 Crores.' Barring the assessment years and the amount in question, the reasons for reassessment for the other assessment years remain one and the same. 3. The facts as are common to the three years in question are: i) Returns of Income (ROI) were filed in time. ii) Returns were accompanied by audited accounts with all required annexures. iii) Notices under Section 143(2) of the Act were issued by the Assessing Authority seeking various particulars from the petitioner. iv) Questionnaires under Section 142(1) were also issued, in compliance to which, responses were filed by the petitioner. v) The reasons for re-assessment are two-fold; in regard to the claim of employee benefit expenses and deduction claimed under Section 35E in respect of the mining business carried on by the petitioner. vi) As regards the claim of employee benefit expenses, the following disclosures have been made by the assessee in the cour ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... -8) The provisions debited in the P&L accounts are offered as income and the details are enclosed. (Annexure-7) xiii) Admittedly, identical questionnaires and responses of the assessee have been filed in respect of the other years as well. xiv) Order of assessment under scrutiny came to be passed by the Assessing Officer under Section 143(3) of the Act. Since no additions were proposed by the Assessing Officer in respect of the two points dealt with in the reasons for re-assessment, though details had been sought for and supplied by the petitioner, evidently, there is no discussion in that regard in the orders themselves. xv) It is in the aforesaid circumstance that notices under Section 148 came to be issued for AY 2013-14 on 03.09.2014, beyond the period of 4 years from the end of relevant assessment year, for AY 2014-15 on 28.09.2016 and for AY 2015-16 on 03.09.2014, both within the period of 4 years. 4. The submissions of Mr.Raghavan Ramabadran, learned counsel for the petitioner are that for the first year, the assessment is barred by limitation, insofar as the statutory condition set out under the proviso to Section 147 has not been complied with in that case. The pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... No.1) ([1995] 216 ITR 371 (Guj.)) 12.State Bank of India Vs. Assistant Commissioner of Income-tax, Circle 2(2)(1), Mumbai ([2019] 103 taxmann.com 164 (Bombay)) 8. Per contra, Mrs.Hema Muralikrishnan, learned Senior Standing Counsel appearing for the respondents, while not very seriously contesting the argument of limitation as far as the impugned proceedings for AY 2013-14 are concerned, puts up a spirited defence in respect of the remaining two AYs. 9. Heard learned counsel and perused the materials placed on record. 10. Before proceeding to the re-assessments initiated within 4 years, I would first deal with the re-assessment for AY 2013-14. The proviso to Section 147 of the Act casts a statutory burden upon the respondents to complete the re-assessment within four years from the end of the relevant assessment year. A further extension of two years would be available only in a case of suppression of material/furnishing of incomplete material at the time of original assessment. 11. Evidently, the two issues, upon which the impugned proceedings have been initiated, deduction under Section 35E and allowance on employee benefit expenses, have not escaped the attention of the As ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e. The officer thereafter discusses the various entries appearing in the opening and closing stocks and purchases and sales of those stocks. Thereafter the officer has concluded that there is a loss of Rs.19.86 crores and that the loss was speculative one. He has therefore come to a conclusion that the income chargeable to tax to the extent of Rs.19.86 crores has escaped the assessment and that is how he has passed the order under section 147 of the Income Tax Act although almost 4 years have gone after the assessment of the concerned year. 4. Mr. Mistry, learned counsel for the Petitioner, points out that the reasons given by the 1st Respondent in his order dated 27th March, 2006 are clearly based on the documents, which the Petitioner had already furnished, containing the accounts tendered by the Petitioner. There is nothing new that has come to the notice of the revenue at this point of time. It is only a different analysis which is now being done and the conclusion is being drawn that its income to the extent of Rs.19.86 crores has escaped the assessment. In his submission, this is impermissible under the powers that are available to the revenue under section 147 of the Incom ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... March, 2006 directing reopening of the assessment for the year 1999-2000. 15. The above order has been confirmed by the Hon'ble Supreme Court by way of the following order: 'The assessee had disclosed full details in the Return of Income in the matter of its dealing in stocks and shares. According to the assessee, the loss incurred was a business loss, whereas, according to the Revenue, the loss incurred was a speculative loss. Rejection of the objections of the assessee to the re-opening of the assessment by the Assessment Officer vide his Order dated 23rd June, 2006, is clearly a change of opinion. In the circumstances, we are of the view that the order re-opening the assessment was not maintainable. The civil appeal is, accordingly, dismissed.' 16. Accordingly, and as the statutory condition has not been satisfied, the impugned proceedings for AY 2013-14 are barred by limitation and are set aside. W.P.No.30017 of 2019 is allowed. 17. As regards the reassessments for AY 2015-16 and 2015-16, a distinction is sought to be made by the learned Standing counsel drawing attention to the Explanations to Section 147 of the Act. The Explanations reads thus: SECTION 147 Income Es ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e key words are 'due diligence' and 'discovered by the Assessing Officer'. 19. The Explanation addresses a situation where the assessee seeks to take the benefit of the fine print embedded in the books of accounts or other material evidence. The process of assessment necessarily entails filing of material, sometimes voluminous, before the Assessing Officer and it is humanly impossible for the Officer to peruse every number and word on every page. 20. Thus, it is the duty of the Assessing Officer to peruse the primary documents, including the ROI and accompanying statutory documents, such as the financial statements including Annual Report. There are however instances where the officer misses some information, on account of the sheer volume thereof, or on account of it being so ingrained in the material that noticing such material itself becomes an exercise in deduction. It is the latter situation that the statute protects the officer from. 21. Thus, and for clarity, where the critical/key information is so embedded amongst a mass of information and evidences so as it render it virtually invisible, the assessee is estopped from relying upon the proviso to section 147 and claiming ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sufficiency or correctness of the material, on the basis of which re-assessment was initiated, is not a matter that should concern the Court in Writ jurisdiction and that the appropriate course of action in such case would be to relegate the assessee concerned to statutory appellate remedy. This judgement would not advance the case of the revenue as the issues that have been raised are purely legal in nature, touching upon the validity or otherwise of the proceedings for reassessment. They do not deal with the sufficiency of the reasons recorded. 26. In Kalyanji Mavji & Co. (supra), the Hon'ble Supreme Court was concerned with what constituted 'information' to validate the re-opening of assessment. While balancing the ambit and application of the terms 'information' and 'reason to believe', certain tests and principles were formulated and the Court concludes that the provisions of reopening would apply to the following category of cases. 13.On a combined review of the decisions of this Court the following tests and principles would apply to determine the applicability of s.34(1)(b) to the following categories of cases: (1) Where the information is as to the true and correct st ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pura) concludes against the assessee relying on an earlier decision of that Court in Export Credit Guarantee Corpn. Of India Ltd. V. Addl. CIT (350 ITR 651) to the effect that re-opening is permissible when the original order of assessment was silent in respect of the issue based on which the re-assessment is premised. 31. It is to be noted, that this decision, though of the year 2014, does not refer to the Full Bench decision of the Delhi High Court in the case of CIT V. Kelvinator (256 ITR 1) to the effect that no re-assessment is permissible unless the officer has some new or tangible material in his possession. A reassessment initiated on the basis of the same material as available on record is a mere review, impermissible in law. 32. In Sumitoma Mitsui Banking Corporation (supra) , the Bombay High Court allowed the Writ Petition filed by the assessee recording the concession of both the parties to the effect that the issue on merits in that case stood covered by the judgment of the Hon'ble Court in the case of T.R.F. Ltd. V. Commissioner of Income Tax (323 ITR 397). 33. This decision was reversed by the Hon'ble Supreme Court noting that the reasons for re-assessment had spe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... has discharged its obligation of establishing that there was no complete disclosure by that assessee. 39. I have kept for last the decision of the learned single Judge of this Court, (as he then was) upon which substantial reliance has been made by the learned Senior Standing counsel, which is Jayaram Paper Mills (supra). In this case, the re-assessment had been initiated within a period of 4 years and the issue in re-assessment was whether the expenditure unconnected with earning of interest had been claimed and whether the set-off of brought forward business loss was in line with the prescription of Section 72 of the Act. 40. The learned Judge discussed a slew of decisions, concluding that the Writ Petition was not maintainable, since there was no error made out in the assumption of jurisdiction by the Officer. In arriving at this conclusion, it is Explanation (2) that has found favour with the Court. After extracting Explanation (2), the learned Judge states at paragraph 27 as follows: 27.In the light of the above deeming fiction, if we now look at the order dated 31.08.2009, passed by the second respondent, overruling the objections of the petitioner to the initiation of pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 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 Office 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 foundation under Section 147 being available ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stakes as contained in Section 154 of the Act. The power of rectification of mistake conferred upon the Income Tax Officer is circumscribed by the provisions of Section 154 of the 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. 46. The Bench relies upon a Notification issued by t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se from the ROI. Useful reference may be made to Section 114(e) of the Indian Evidence Act that raises a statutory presumption in this behalf. 51. No doubt, there are situations where errors occur, either on fact or on law. It is for this reason that the Income Tax Act provides for multiple measures that may be resorted to by the revenue to address the situation appropriately. 52. The provisions of Section 154 enable an Officer to rectify a mistake apparent from the record, Section 263 vests authority in a superior officer to revise an order of the subordinate officer, if the order is both erroneous and prejudicial to the interests of the revenue and Section 147 provides for reopening of assessment to bring to tax escaped turnover upon satisfaction of the conditions set out therein. 53. Each of these remedial measures are to address specific situations and must not trespass or transgress into the territory earmarked for the other measures. While Section 154 address those errors that are patent and evident from the record, Section 263 addresses those situations where there is concurrent compliance with the twin conditions of an order being 'erroneous' and 'prejudicial' to the rev ..... X X X X Extracts X X X X X X X X Extracts X X X X
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