ITAT, MUMBAI BENCH `K’, MUMBAI,
Audco India Ltd. Vs ITO, A
APPEAL NO: ITA No. 6305/M/2007,
DECIDED ON April 22, 2010
This appeal filed by the assessee is directed against the order of CIT(A)-II, Mumbai, passed on 06.08.2007 for the assessment year 2001- 02.
2. Ground No. 1 is in respect of challenging reopening of assessment u/s 147 of the Act. Grounds No 2 and 3 are on merit related to reduction of profit under section 80IB while computing deduction under section 80HHC of the Act and calculation of deduction under section 80HHC in respect of DEPB respectively.
3. First we take up the legal ground challenging reopening of assessment u/s 147 of the Act. The CIT(A) rejected this legal ground of the assessee on the ground that the reopening is within four years. He further observed that after the amended provisions of section 147 substituted with effect from 01.04.1989 the power to reopen the assessment is much wider and the same can be exercised even after the assessee has disclosed fully and truly all the material facts.
4. The learned AR pointed out the reasons recorded by the AO for of which copy has been placed at page 68 of paper book filed by the assessee.
5. The learned AR submitted that in the light of the law laid down by the Hon’ble Supreme Court in the case of CIT Vs. M/s Kelvinator of India Ltd. vide Civil Appeal Nos. 2009-2001 of 2003 and 2520 of 2008, judgment dated 18th January, 2010, reopening is bad in law because there was no reason to believe that the income had escaped assessment as evident from the reasons recorded.
6. The learned DR, on the other hand submitted that reopening is within four years and the CIT(A) has rejected this ground of the assessee after a detailed discussion in his order. He relied upon the order of CIT(A) in support of revenue’s case.
7. We have heard the learned representatives of the parties and perused the record. The issue to be examined under consideration is whether the AO was correct in reopen the completed assessment with the reasons recorded. To examine the issue we would like to refer section 147 which reads as under:-
” [Income escaping assessment.
147. 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 re compute the loss or the depreciation allowance or any other allowance, as the case may be, for the assessment year concerned (hereafter in this section and in sections 148 to 153 referred to as the relevant assessment year) :
Provided that where an assessment under sub-section (3) of section 143 or this section has been made for the relevant assessment year, no action shall be taken under this section after the expiry of four years from the end of the relevant assessment year, unless any income chargeable to tax has escaped assessment for such assessment year by reason of the failure on the part of the assessee to make a return under section 139 or in response to a notice issued under sub-section (1) of section 142 or section 148 or to disclose fully and truly all material facts59 necessary for his assessment, for that assessment year:
[Provided further that the Assessing Officer may assess or reassess such income, other than the income involving matters which are the subject- matter 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 asses sable under this Act during the previous year exceeded the maximum amount which is not chargeable to income-tax ;
(b) where a return of income has been furnished by the assessee but no assessment has been made and it is noticed by the Assessing Off icer that the assessee has understated the income or has claimed excessive loss, deduction, allowance or relief in the return ;
(c) where an assessment has been made, but—
( i) income chargeable to tax has been under assessed ; or
( ii) such income has been assessed at too low a rate ; or
( iii) such income has been made the subject of excessive relief
under this Act ; or
( iv) excessive loss or depreciation allowance or any other allowance under this Act has been computed.]”
7.1 On plain reading of above section we noticed that one of the conditions which must be satisfied before the AO can assume jurisdiction under section 147 of the Act that, he must have reason to believe that the income of the assessee has escaped assessment. If this condition is not fulfilled, the notice issued by the AO would be without jurisdiction. The important words under s. 147 are “has reason to believe” and these words are stronger than the words “is satisfied “. The belief entertained by the AO must not be arbitrary or irrational. It must be reasonable or in other words it must be based on reasons which are relevant and material. The court, of course, cannot investigate into the adequacy or sufficiency of the reasons which have weighed with the AO in coming to the belief, but the court can certainly examine whether the reasons are relevant and have a hearing on the matters in regard to which he is required to entertain the belief before he can issue notice under S. 148. If there is no rational and intelligible nexus between the reasons and the belief, so that, on such reasons, no one properly instructed on facts and law could reasonably entertain the belief, the conclusion would be inescapable that the AO could not have reason to believe that any part of the income of the assessee had escaped assessment under that circumstances the notice issued by him would be liable to be struck down as invalid.
7.2 The basis for initiating the reassessment proceedings is to be judged solely on the basis of reasons recorded by the Assessing Officer and the material and information referred to by him in the reasons for initiating such action. It is settled law that Assessing Officer cannot initiate the reassessment proceedings merely on the basis of suspicion or for the purpose of making roving and fishy inquires. The Assessing Officer cannot support the reopening of the assessment by collecting the material or by making inquiry subsequently after the date of initiation of the proceedings. Thus, the reopening of the assessment is to be seen on the date when the Assessing Officer initiated action u/s 147 of the Act.
7.3 We are also of the opinion that, howsoever widen the scope of taking action under section 148 of the Act, it does not confer jurisdiction on change of opinion on the interpretation of a particular provision earlier adopted by the assessing authority. For coming to the conclusion whether there has been excessive loss or depreciation allowance or there has been under assessment or assessment at a lower rate or for applying other provisions of Explanation 2, it must be material and it should have nexus for holding such opinion contrary to what has been expressed earlier. The scope of section 147 of the Act is not for reviewing its earlier order suo motu irrespective of there being any material to come to a different conclusion apart from just having second thoughts about the inferences drawn earlier .The Assessing Officer cannot take any action under this section merely because he happened to change his opinion or to hold an opinion different from that of his predecessor on the same set of facts. From the earlier assessment which clearly assumes that the Assessing Officer applied his mind to the computation of income and, therefore, in a case like this it would not be open to the Assessing Officer to issue notice under section 148 of the Act. – When the primary facts necessary for assessment are fully and truly disclosed, the ITO will not be entitled on change of opinion to commence proceedings for reassessment. Similarly, if he has raised a wrong legal inference from the facts disclosed, he will not, on that account, be competent to commence reassessment proceedings .Having second thoughts on the same material, and omission to draw the correct legal presumption during original assessment do not warrant the initiation of a proceeding under section 147. Where it was clear from the original assessment orders as well as order made by the appellate authority that the Assessing Officer was well aware about the primary facts, viz., the claim made by the assessee, the circumstances under which the claim was made, and the provisions of law which could be applied while granting the benefits, and the Assessing Officer consciously considered the facts and arrived at a decision, the assessment cannot be reopened merely because subsequently the Assessing Officer changes his opinion or some other officer takes a different view. A decision is right or wrong is none of the concern of the subsequent officer. If the primary facts were not available or there was concealment or there was no application of mind at all, then a case for reopening the assessment could be made out .
7.4 If we consider the facts of the case under consideration we find the following reasons were recorded by the AO which are reproduced from page 68 of paper book filed by the assessee:-
“It is seen that you have claimed deduction u/s 80IB amounting to Rs. 58,13,490/-. However, this sum of Rs. 58,13,490/- has not been reduced from the eligible prof its for deduction u/s 80 HHC. As per clause 9 of section 80IA, any amount which has been claimed and allowed as deduction u/s 80IA cannot be considered eligible for any other deduction. Hence, it is proposed to reduce this sum of Rs. 58,13,490/- from the eligible prof its for the purposes of deduction u/s 80 HHC.”
7.5 From the reasons recorded we find that the AO formed belief on the issue which is a controversial issue, whether while computing deduction u/s 80 HHC eligible profits for u/s 80IB of is to be reduced or not. We find that this controversial issue has travelled up to ITAT and the ITAT special bench Delhi has decided the issue in ACIT V Hindustan Mint and Agro products P. Ltd. (2009) 315 ITR (AT) 401 (Delhi) (SB). Thus it is evident that the reasons for which the AO want to reopen the completed assessment were a controversial issue. As discussed above that the scope of section 147 of the Act is not for reviewing its earlier order suo motu irrespective of there being any material to come to a different conclusion apart from just having second thoughts about the inferences drawn earlier .The Assessing Officer cannot take any action under this section merely because he happened to change his opinion or to hold an opinion different from that of his predecessor on the same set of facts. The Honourable Supreme Court and the Apex Court in the case of M/s Kelivinator India Ltd. cited supra has rejected the revenue’s appeal by observing as under:-
“Our view gets support from the changes made to section 147 of the Ac, as quoted herein above. Under the Direct Tax Laws (Amendment) Act, 1987, Parliament not only deleted the words `reason to believe’ but also inserted the word `opinion’ in section 147 of the Act. However, on receipt of representations from the Companies against omission of the words `reason to believe’, Parliament re-introduced the said expression and deleted the word `opinion’ on the ground that it would vest arbitrary powers in the AO. We quote here in below the relevant portion of Circular
No. 549 dated 31st October, 1989, which reads as follows:-
`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 AO. 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 AO 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 place of the words `for reasons to be recorded by him in writing, is of the opinion’. Other provisions of the new section 147, however, remain the same.”
For the afore-stated reasons, we see no merit in these civil appeals filed by the Department, hence, dismissed with no order as to costs.”
7.5 In the light of above desiccation and under the facts and circumstances of the case, we are of the considered view that there is no belief of the AO which can be said to be in accordance with section 147, therefore, the order of the AO is liable to be quashed on this legal issue itself. We do so and allow the ground of appeal of the assessee. Since we have decided the appeal on legal issue, therefore we do not feel necessary to decide the other grounds on merit.
8. In the result, the appeal of the assessee is allowed.