Case Law Details
It was held by the Third Member that section 147 applies both to section 143(1) as well as section 143(3) and, therefore, except to the extent that a reassessment notice issued u/s 148 in a case where the original assessment was made u/s 143(1) cannot be challenged on the ground of a mere change of opinion, it is open to an assessee to challenge the notice on the ground that there is no reason to believe that income chargeable to tax has escaped assessment. As regards the decision of Hon’ble Supreme Court in the case of Rajesh Jhaveri Stock Brokers (P) Ltd. (supra) cited by the Revenue and relied upon by the Accountant Member, the Third Member held that the same was applicable in cases where the return was processed u/s 143(1) but later on notice was issued u/s 148 and the assessee challenges the notice on the ground that it is prompted by a mere change of opinion. The Third Member then referred to the decision of Hon’ble Supreme Court in the case of CIT vs. Kelvinator of India (supra) wherein it was held that there should be “tangible material” to come to the conclusion that income had escaped assessment. Relying on the said decision, it was held by the Third Member that while resorting to section 147 even in a case where only an intimation had been issued u/s 143(1)(a), it is essential that the Assessing Officer should have before him tangible material justifying his reason to believe that income had escaped assessment. Since there was no such tangible material before the AO from which he could entertain the belief that income of the assessee chargeable to tax had escaped assessment, the Third Member held that reassessment proceedings initiated by the Assessing Officer were liable to be quashed on the ground that there was no tangible material before the Assessing Officer even though the assessment was completed originally u/s 143(1). In our opinion, the Third Member decision of the Tribunal in the case of Telco Dadaji Dhackjee Ltd. (supra) is squarely applicable in the present case and respectfully following the same, we hold that the initiation of reassessment proceedings by the Assessing Officer itself was bad in law and the reassessment completed in pursuance thereof is liable to be quashed being invalid. We order accordingly and allow ground No.1 of the assessee’s appeal.
INCOME TAX APPELLATE TRIBUNAL, MUMBAI
I.T.A. No. 3476/Mum/2008 (Assessment Year : 2001-02)
Delta Air Lines, INC
Vs.
ITO (International Taxation)-2(1)
Date of Pronouncement : 30.11.2012
ORDER
Per P.M. Jagtap (AM):
This appeal filed by the assessee is directed against the order of learned CIT(A)- XXXI, Mumbai dated 27.3.2008.
2. The assessee in the present case is connected with operation of aircrafts. The return of income for the year under consideration was originally filed by it on 18.10.2001 declaring total income at Nil after claiming exemption for the entire income under Article 8 of Indo-US DTAA. The said return was initially processed by the Assessing Officer u/s. 143(1) of the Act on 2.1.2003. Subsequently, he noticed from the perusal of the record that interest income of Rs. 17,09,023/- was earned by the assessee on fixed deposit and since the same was not connected with the operation on aircrafts, assessee was not entitled for exemption under Article 8 of Indo-US DTAA in respect of the said interest income. According to the Assessing Officer, the said interest was chargeable to tax in the hands of the assessee under Article 11 of Indo-US DTAA @ 15%. He therefore reopened the assessment for the year under consideration after recording the reasons and issued a notice u/s. 148 on 26.10.2005. In response to the said notice, a letter dated 14.11.2005 was filed by the assessee requesting that the return originally filed by it on 18.10.2001 be treated as return filed in response to notice u/s. 148. During the course of assessment proceedings, the assessee obtained a copy of reasons recorded by the Assessing Officer and challenged the validity of reopening of assessment inter-alia on the ground that there was no new material that had come to the possession of the Assessing Officer till date of issue of the notice u/s. 148 on the basis of which assessment was reopened. This contention of the assessee was not found acceptable by the Assessing Officer. According to him, there was reason to believe that the income of the assessee chargeable to tax had escaped assessment and it was sufficient to justify the reopening of assessment. In this regard he relied on the decision of the Full Bench of HonGble Delhi High Court in the case of Kelvinator of India Ltd. (256 ITR 1), wherein it was held that reason to believe after completion of assessment was sound foundation for exercising power u/s. 147 of the Act. The Assessing Officer accordingly did not find merit in the preliminary objection pressed by the assessee challenging the reopening of assessment and overruling the same, he completed the reassessment u/s. 143(3) read with 147 of the Act vide order dated 23.11.2006 bringing to tax, interest income of Rs.17,09,023/- in the hands of the assessee at the rate of 15%.
3. Against the order passed by the Assessing Officer u/s. 143(3) read with section 147, an appeal was preferred by the assessee before learned CIT(A) challenging the validity of the said assessment as well as disputing the addition made therein on account of interest income on merit. Before learned CIT(A), submissions made before the Assessing Officer were reiterated on behalf of the assessee on the issue of validity of reopening of assessment. It was also pointed out by the assessee that the fact that it had earned interest income and claimed the same as not taxable under the provisions of Article 8 of the treaty was clearly disclosed in the return of income. The learned CIT(A) did not find merit in the submissions made on behalf of the assessee on this issue. He held that phrase “reason to believe” would mean cause or justification and if the Assessing Officer had cause or justification to know or suppose that income had escaped assessment, reopening of assessment to bring to tax such escaped income was in accordance with law. For this conclusion, he relied on the decision of HonGble Supreme Court in the case of Rajesh Jhaveri Stock Brokers (P) Ltd. (291 ITR 500), wherein it was held that so long as the ingredients of section 147 are fulfilled, the Assessing Officer is free to initiate proceeding under section 147 even when intimation under section 143(1) had been issued. He also relied on the decision of HonGble Gujarat High Court in the case of Praful Chunilal Patel (236 ITR 832), wherein it was held that it is not necessary that fresh facts should come to the notice of the Assessing Officer subsequent to original assessment to justify reopening and if the Assessing Officer on the basis of material already available at the time of original assessment comes to a conclusion that original assessment was erroneous, then such facts alone would justify initiation of reassessment proceedings. Accordingly validity of reassessment made by the Assessing Officer was upheld by learned CIT(A) and even the addition made therein to the total income of the assessee on account of interest income was confirmed by him on merit. Aggrieved by the order of learned CIT(A), assessee has preferred this appeal before the Tribunal.
4. In ground No. 1 of this appeal, assessee has raised a preliminary issue challenging the validity of reassessment made by the Assessing Officer on the ground that initiation of reassessment proceedings itself is bad in law.
5. Learned counsel for the assessee at the outset invited our attention to the copy of the note filed by the assessee alongwith its return of income placed at page No. 16 of his paper book to point out that the fact of having earned interest on fixed deposit out of funds retained in India and having claimed exemption for the same as per provisions of Article 8 of the Treaty was clearly disclosed by the assessee in the return of income filed originally. He then invited our attention to the copy of the reasons recorded by the Assessing Officer placed at page No. 75 of his paper book and submitted that there was no reference to any new material coming to possession of the Assessing Officer on the basis of which belief about escapement of income was entertained by the Assessing Officer to reopen the assessment. He relied on the Third Member decision of Mumbai Bench of the ITAT in the case of Telco Dadaji Dhackjee Ltd. Vs. DCIT (ITA No. 4613/Mum/2005 dated 12.5.2010), to contend that in the absence of any such new material, reopening of assessment itself was bad in law and the assessment made in pursuance thereof is liable to be cancelled being invalid.
6. learned Departmental Representative on the other hand submitted that the return of income originally filed by the assessee was processed by the Assessing Officer u/s. 143(1) and since assessment was reopened by him within a period of four years on the basis of reasons duly recorded showing basis of his satisfaction, the same was in accordance with law. In support of this contention he cited the decision of HonGble Gujarat High Court in the case of Praful Chunilal Patel (supra) relied upon by learned CIT(A) in his impugned order, wherein it was held that it was not necessary that fresh facts should come to the notice of the Assessing Officer subsequent to original assessment to justify the reopening. He contended that the assessment made for the earlier years in any case was before the Assessing Officer which constituted tangible material available with the Assessing Officer to justify the reopening. In support of the revenue’s case on this issue, learned Departmental Representative also relied on the decision of HonGble Supreme Court in the case of Rajesh Jhaveri Stock Brokers (P) Ltd. (supra)
7. In the rejoinder, learned counsel for the assessee submitted that there is no reference whatsoever to any assessment of earlier years made by the Assessing Officer in the reasons recorded to justify the reopening. He also submitted that the view expressed by HonGble Gujarat High Court in the case of Praful Chunilal Patel (supra) has not been agreed to by the Full Bench of the HonGble Delhi High Court in the case of Kelvinator of India Ltd. (supra), which has been affirmed by HonGble Supreme Court. He further submitted that the decisions of HonGble Supreme Court in the case of Rajesh Jhaveri Stock Brokers (P) Ltd. (supra) and in the case of Kelvinator of India Ltd. (supra) have been taken into consideration by the Third Member in the case of Telco Dadaji Dhackjee Ltd. (supra) while deciding a similar issue in favour of the assessee.
8. We have considered the rival submissions and perused the material on record. It is observed that in the return of income originally filed for the year under consideration on 18.10.2001, exemption was claimed by the assessee in respect of interest income as per provisions of Article-7 of Indo-US treaty and this fact was clearly mentioned in the Note (copy placed at page No.16 of the paper book) filed alongwith the said return. The said return was initially processed by the Assessing Officer u/s. 143(1) on 2.1.2003. Subsequently, he however reopened the assessment for the following reasons recorded u/s. 148(2)
“30.9.2005: The assessee filed its return of income on 18.10.2001, declaring NIL income. The return was processed u/. 1 43(1)(a) of the I. T. Act, 1961 on 2.1.2003, accepting the Nil income declared by the assessee and a refund of Rs. 1,58,701/- was determined and issued to the assessee. The assessee has received interest which is not connected with operation of aircrafts but claimed exemption on all income under Article 8 of Indo-US DTAA, and that the interest should be taxed under Article 11 of the DTAA @ 15%. Since no prima facie adjustment can be made under the statutory provisions hence the retuned income was accepted while processing the return. However, remedial action by reopening the assessment u/s. 148 of the I.T. Act, 1961 is suggested. The last date for issuing of notice u/s. 148 is 31.3.2008. Submitted for your kind approval please.”
9. As is clearly evident from the reasons recorded by the Assessing Officer as above, there was no new material coming to the possession of the Assessing Officer on the basis of which assessment completed u/s. 143(1) was reopened and this position has not been disputed even by learned Departmental Representative. She however had submitted that the assessments completed in the case of the assessee for the earlier years were available on record before the Assessing Officer and they formed the basis for reopening the assessment. There is however no mention whatsoever to any such assessment in the reasons recorded by the Assessing Officer. It is well settled that the validity of reopening has to be judged on the basis of reasons recorded by the Assessing Officer and the document or material referred to therein and not on the basis of any exterior material which has not been referred to in the reasons recorded. Learned Departmental Representative has also relied upon the decision of HonGble Gujarat High Court in the case of Praful Chunilal Patel (supra) in support of the revenue’s case on the issue under consideration which has been relied upon by learned CIT(A) in his impugned order. As pointed out by learned counsel, the view expressed by HonGble Gujarat High Court in the said case that there is no necessity for the Assessing Officer to have fresh facts coming to his notice subsequent to original assessment to justify reopening has not been subscribed to by the Full Bench of HonGble Delhi High Court in the case of Kelvinator of India Ltd. (supra) which has been affirmed by HonGble Supreme Court. As held by HonGble Delhi High Court, if the contention of the revenue based on the decision of HonGble Gujarat High Court in the case of Praful Chunilal Patel (supra) is accepted, the same would confer an arbitrary power upon the Assessing Officer to reopen the proceedings only on the slightest pretext, which is not permissible.
10. Learned Departmental Representative has also relied on the decision of HonGble Supreme Court in the case of Rajesh Jhaveri Stock Brokers (P) Ltd. (supra) to contend that the reopening of assessment completed originally u/s. 143(1) is permissible without there being any new material coming to the possession of the Assessing Officer if the reasons recorded for reopening of assessment are otherwise valid. The learned counsel for the assessee, on the other hand, has relied on Third Member decision of the Tribunal in the case of Telco Dadaji Dhackjee Ltd. (supra) stating that a similar issue involved in the said case has been decided by the Third Member in favour of the assessee after taking into consideration the decision of Hon’ble Supreme Court in the case of Rajesh Jhaveri Stock Brokers (P) Ltd. (supra) relied upon by the learned DR. In the said case, the return filed by the assessee was originally accepted u/s. 143(1). In the said return the assessee had claimed deduction for payment of non-compete fees of Rs. 75 lakhs which included payment of Rs. 15 lakhs to Directors. The assessee had also claimed depreciation of Rs. 1,41,848/- on lease premises. The Assessing Officer issued notice u/s 148 on the ground that these were not allowable expenses and income chargeable to tax had escaped assessment. He accordingly disallowed both the items in the reassessment order. When the matter reached to the Tribunal, the learned Judicial Member took the view that there was no fresh material to support the formation of the belief of the Assessing Officer that income chargeable to tax had escaped assessment and in the absence of any fresh tangible material, he came to the conclusion that it was not permissible for the Assessing Officer to reopen the assessment. The learned Accountant Member, however, took a different view relying on the decision of Hon’ble Supreme Court in the case of Rajesh Jhaveri Stock Brokers (P) Ltd. (supra) and the matter, therefore, was referred to a Third Member for resolving inter alia, the following point of difference :-
“whether on the facts and circumstances of the proceedings initiated by the AO u/s 147 is liable to be confirmed or quashed when there was no fresh material available with the AO and the assessment had been completed originally u/s 143(1).”
The Third Member agreed with the view taken by the learned Judicial Member relying mainly on the decision of Hon’ble Supreme Court in the case of Kelvinator of India Ltd. (supra) and Eicher Ltd. 320 ITR 561. It was held by the Third Member that section 147 applies both to section 143(1) as well as section 143(3) and, therefore, except to the extent that a reassessment notice issued u/s 148 in a case where the original assessment was made u/s 143(1) cannot be challenged on the ground of a mere change of opinion, it is open to an assessee to challenge the notice on the ground that there is no reason to believe that income chargeable to tax has escaped assessment. As regards the decision of Hon’ble Supreme Court in the case of Rajesh Jhaveri Stock Brokers (P) Ltd. (supra) cited by the Revenue and relied upon by the Accountant Member, the Third Member held that the same was applicable in cases where the return was processed u/s 143(1) but later on notice was issued u/s 148 and the assessee challenges the notice on the ground that it is prompted by a mere change of opinion. The Third Member then referred to the decision of Hon’ble Supreme Court in the case of CIT vs. Kelvinator of India (supra) wherein it was held that there should be “tangible material” to come to the conclusion that income had escaped assessment. Relying on the said decision, it was held by the Third Member that while resorting to section 147 even in a case where only an intimation had been issued u/s 143(1)(a), it is essential that the Assessing Officer should have before him tangible material justifying his reason to believe that income had escaped assessment. Since there was no such tangible material before the AO from which he could entertain the belief that income of the assessee chargeable to tax had escaped assessment, the Third Member held that reassessment proceedings initiated by the Assessing Officer were liable to be quashed on the ground that there was no tangible material before the Assessing Officer even though the assessment was completed originally u/s 143(1). In our opinion, the Third Member decision of the Tribunal in the case of Telco Dadaji Dhackjee Ltd. (supra) is squarely applicable in the present case and respectfully following the same, we hold that the initiation of reassessment proceedings by the Assessing Officer itself was bad in law and the reassessment completed in pursuance thereof is liable to be quashed being invalid. We order accordingly and allow ground No.1 of the assessee’s appeal.
11. As a result of our decision rendered above on the preliminary issue quashing/cancelling the assessment made by the Assessing Officer u/s. 143(3) read with section 147, the other issues raised in the appeals of the assessee in respect of addition made in the said assessment have become infructuous and we do not deem it necessary or expedient to decide the same.
12. In the result, the appeal of the assessee is allowed.
Order has been pronounced on 30th Day of November, 2012.
