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TMI Blog2024 (5) TMI 706X X X X Extracts X X X X X X X X Extracts X X X X ..... efore, the subsequent attempt of the Assessing Officer to tax the interest receipt as revenue receipt is clearly based on change of opinion. Since proceedings under Section 147 initiated by the AO against the respondent/assessee is based on change of opinion, therefore, the tribunal has not committed any manifest error of law to set aside the re-assessment proceedings. Thus, we find that once the AO has consciously applied his mind for not treating the interest paid and the interest received as revenue item and instead he treated it as capital item, subsequent proceedings under Section 147 was clearly based on change of opinion. Decided in favour of the assessee. - THE HON BLE JUSTICE SURYA PRAKASH KESARWANI AND THE HON BLE JUSTICE RAJARSHI BHARADWAJ Mr. Soumen Bhattacharjee , Advocate Mr. Ankan Das , Advocate for the appellant Mr. J. P. Khaitan , Senior Advocate Ms. Nilanjana Banerjee Pal , Advocate. for the respondent ORDER 1. Heard Sri Soumen Bhattacharjee, learned junior standing counsel for the appellant and Sri J. P. Khaitan, learned senior advocate assisted by Sm. Nilanjana Banerjee Pal, learned counsel for the respondent assessee. 2. This appeal was admitted by this Court ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iture. Against order of the CIT(A), the revenue filed an appeal before the Income Tax Appellate Tribunal [for short, ITAT ] which was allowed by order dated 25.01.2007 and the aforesaid amount of interest paid was held to be capital expenditure. Against the order of the ITAT, the assessee filed ITA No. 322 of 2007 (Kesoram Industries Ltd. Vs. Commissioner of Income Tax-II) in which the following substantial questions of law was framed :- Whether on the facts and circumstances of the instant case, the Tribunal is justified in disallowing the sum of Rs.28,89,56,562/- paid as interest on borrowed capital for acquisition of fixed assets under Section 36(1)(iii) of the Act inasmuch as the said assets have been acquired for the purposes of expansion of existing business of your petitioner and the findings of the Tribunal to this extent is unreasonable, arbitrary and perverse ? 4. By judgement and order dated 5.1.2009 in the aforesaid ITA no. 322 of 2007 this Court answered the aforequoted substantial questions of law in negative , i.e. in favour of the assessee and against the revenue. This judgement has attained finality. Thus finally the claim of the assessee for interest paid as reven ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Officer while quashing the original assessment order has consciously applied his mind on all facts relating to interest paid and interest received, which were claimed by the assessee as revenue expenditure and revenue receipt but he treated it as capital expenditure and capital receipt. It is only after the assessee s success before the CIT(A) in appeal which held the interest paid to be revenue expenditure, the Assessing Officer initiated proceedings under Section 147 of the Act, 1961. Since the Assessing Officer was not having any reason to believe that any income chargeable to tax has escaped assessment and as such the entire proceedings under Sections 147/148 of the Act, 1961 was void ab initio and has been correctly set aside by the ITA. In support of his submission, learned Counsel for the respondent has relied upon a judgment of Hon ble Supreme Court in Commissioner of Income Tax Vs. Kelvinator of India Ltd. reported in (2010) 320 ITR 561 and submits that proceeding under Section 147 of the Act, 1961 initiated by the Assessing Officer was based on change of opinion inasmuch as on conscious application of mind on facts of the case during original assessment proceeding he trea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n clear terms has held the action taken by assessing Authority on such reason to believe as arbitrary and bad in law. In case of the same material being present before the assessing Authority during both, the assessment proceedings and the issuance of notice for re- assessment proceedings, it cannot be said by the assessing Authority that reason to believe for initiating reassessment is an error discovered in the earlier view taken by it during original assessment proceedings. (See Delhi Cloth and General Mills Co. Ltd. v. State of Rajasthan, (1980) 4 SCC 71). 29. The standard of reason exercised by the assessing Authority is laid down as that of an honest and prudent person who would act on reasonable grounds and come to a cogent conclusion. The necessary sequitur is that a mere change of opinion while perusing the same material cannot be a reason to believe that a case of escaped assessment exists requiring assessment proceedings to be reopened. (See: Binani Industries Ltd. v. CCT, (2007) 15 SCC 435; A.LA. Firm v. CIT, (1991) 2 SCC 558). If a conscious application of mind is made to the relevant facts and material available or existing at the relevant point of time while making t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of an extraneous character, the same would not warrant initiation of proceedings under the above section. If, however, the grounds are relevant and have a nexus with the formation of belief regarding escaped assessment, the assessing authority would be clothed with jurisdiction to take action under the section. Whether the grounds are adequate or not is not a matter which would be gone into by the High Court or this Court, for the sufficiency of the grounds which induced the assessing authority to act is not a justiciable issue. What can be challenged is the existence of the belief but not the sufficiency of reasons for the belief. At the same time, it is necessary to observe that the belief must be held in good faith and should not be a mere pretence. 10. It may also be mentioned that at the stage of the issue of notice the consideration which has to weigh is whether there is some relevant material giving rise to prima facie inference that some turnover has escaped assessment. The question as to whether that material in sufficient for making assessment or re-assessment under section 21 of the Act would be gone into after notice is issued to the dealer and he has been heard in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ief must be that of an honest and reasonable person based upon reasonable grounds and that the Income Tax Officer may act on direct or circumstantial evidence but not on mere suspicion, gossip or rumour. The Income Tax Officer would be acting without jurisdiction if the reason for his belief that the conditions are satisfied does not exist or is not material or relevant to the belief required by the section. The court can always examine this aspect though the declaration or sufficiency of the reasons for the belief cannot be investigated by the court. 15. In the case of Union Of India And Others vs M/S. Rai Singh Dev Singh Bist others, AIR 1974 SC 478: (1973) 3 SCC 581 (para-5), Hon'ble Supreme Court held as under:- .......... before an Income-tax Officer can be said to have had reason to believe that some income had escaped assessment, he should have some relevant material before him from which he could have drawn the inference that income has escaped assessment. His vague feeling that there might have been some escape of income from assessment is not sufficient. 16. In the case of ITO vs. Lakhmani Mewal Das, (1976) 3 SCC 757 (para-11 and 12), Hon'ble Supreme Court has hel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ied. The live link or close nexus which should be there between the material before the Income-tax Officer in the present case and the belief which he was to form regarding the escapement of the income of the assessee from assessment because of the latter's failure or omission to disclose fully and truly all material facts was missing in the case. In any event, the link was too tenuous to provide a legally sound basis for reopening the assessment. The majority of the learned Judges in the High Court, in our opinion, were not in error in holding that the said material could not have led to the formation of the belief that the income of the assessee respondent had escaped assessment because of his failure or omission to disclose fully and truly all material facts. We would, therefore, uphold the view of the majority and dismiss the appeal with costs. 17. In the case of M/s. S. Ganga Saran and Sons (P) Ltd. Calcutta vs. ITO and others, (1981) 3 SCC 143 (Para-6), Hon'ble Supreme Court held as under:- 6. It is well settled as a result of several decisions of this Court that two distinct conditions must be satisfied before the Income Tax Officer can assume jurisdiction to issue n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... have the consequence of conferring arbitrary powers on the assessing officer who may even initiate such reassessment proceedings merely on his change of opinion on the basis of same facts and circumstances which has already been considered by him during the original assessment proceedings. Such could not be the intention of the legislature. The said provision was incorporated in the scheme of the IT Act so as to empower the Assessing Authorities to re-assess any income on the ground which was not brought on record during the original proceedings and escaped his knowledge; and the said fact would have material bearing on the outcome of the relevant assessment order 15. Section 147 of the IT Act does not allow the reassessment of an income merely because of the fact that the assessing officer has a change of opinion with regard to the interpretation of law differently on the facts that were well within his knowledge even at the time of assessment. Doing so would have the effect of giving the assessing officer the power of review and Section 147 confers the power to re-assess and not the power to review. 16. To check whether it is a case of change of opinion or not one has to see its ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... attempt to bring to tax, income that has escaped assessment, cannot be absorbed by judicial intervention on an assumed change of opinion even in cases where the order of assessment does not address itself to a given aspect sought to be examined in the reassessment proceedings. 19. In the case of Radha Krishna Industries vs. State of H.P., (2021) 6 SCC 771, Hon'ble Supreme Court reiterated the law laid down in its earlier judgments in the case of Kelvinator of India Limited (supra) and TechSpan India (P.) Ltd. (supra) and held that the power to reopen an assessment must be conditioned on the existence of tangible material and that reasons must have a live link with the formation of the belief . 20. The law laid down in the judgments referred above, leaves no manner of doubt that:- (a) The assessing officer under Section 147 of the Act, 1961 has the power to re-assess any income which escaped assessment to tax for any assessment year subject to the provisions of Sections 148 to 153. The power to reassess under Section 147 of the Act, 1961 has been incorporated so as to empower the Assessing Authorities to re-assess any income on the ground which escaped his knowledge. (b) The wor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ication then on the same matter, a reassessment proceedings for the alleged escapement of income from assessment to tax, cannot be initiated as it would be a case of change of opinion . If the assessment order is non-speaking, cryptic or perfunctory in nature, then it may be difficult to attribute to the assessing officer any opinion on the questions that are raised in the proposed reassessment proceedings. If a conscious application of mind is made to the relevant facts and material available or existing at the relevant point of time while making the assessment and again a different or divergent view is reached, it would tantamount to change of opinion . If the assessing Authority forms an opinion during the original assessment proceedings on the basis of material facts and subsequently finds it to be erroneous; it is not a valid reason under the law for re-assessment. 21. Since there was full disclosure of interest by the assessee and the Assessing Officer while passing the original assessment order, after discussion, had formed opinion that the interest paid and interest received are not revenue items but capital item, therefore, the subsequent attempt of the Assessing Officer t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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