CASE LAWS DETAILS
DECIDED BY: HIGH COURT OF BOMBAY,
IN THE CASE OF : Purity Tech Textile Pvt. Ltd. Vs ACIT, Appeal No: W. P. No. 268 & 269 of 2010, DECIDED ON: February 8, 2010
12. Section 147 provides that 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 163 assess or re assess 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 the Section. Under the first proviso, where an assessment has been made under Section (3) of Section 143 or Section 147 for the relevant assessment year, no action can be initiated under Section 147 after the expiry of four years from the end of the relevant assessment year unless the income chargeable to tax has escaped assessment by reason of the failure of the assessee inter alia to disclose fully and truly all material facts necessary for his assessment, for that assessment year. The jurisdictional condition under Section 147 is the formation of belief by the Assessing Officer that income chargeable to tax has escaped assessment for any assessment year. The reasons which are recorded by the Assessing Officer are crucial and it is on the basis of those reasons alone that the validity of the order reopening an assessment has to be decided. Where an assessment has been made under Section 143(3), action can be initiated after the expiry of four years from the end of the relevant assessment year if the income chargeable to tax has escaped assessment because of the failure of the assessee to make fully and truly a disclosure of the material facts. The provisions of Section 147 have been interpreted in a recent judgement of the Supreme Court in Commissioner of Income Tax V/s. Kelvinator of India Limited.1 The Supreme Court noted that after 1st April 1989 the power to reopen is much wider than earlier since the substantive part of Section 147 only imposes one condition namely that the Assessing Officer must have reason to believe that income has escaped assessment. The Supreme Court held that nonetheless, a mere change of opinion would not justify the exercise of the power to re open an assessment and there must be tangible material before the Assessing Officer to come to the conclusion that income has escaped assessment. The Supreme Court held thus :
“……., one needs to give a schematic interpretation to the words “reason to believe ” failing which, we are afraid, Section 147 would give arbitrary powers to the Assessing Officer to re open assessments on the basis of “mere change of opinion , which cannot be per se reason to re open. We must also keep in mind the conceptual difference between power to review and power to re assess. The Assessing Officer has no power to review; he has the power to re assess. But re assessment has to be based on fulfilment of certain pre condition and if the concept of “change of opinion ” is removed, as contended on behalf of the Department, then, in the garb of re opening the assessment, review would take place. One must treat the concept of “change of opinion ” as an in built test to check abuse of power by the Assessing Officer. Hence, after 1st April , 1989, Assessing Officer has power to re open, provided there is “tangible material ” to come to the conclusion that there is escapement of income from assessment. Reasons must have a live link with the formation of the belief.”
13. The assessee made a claim for deduction under Section 80IB of the Act, initially for A.Y. 2001- 2002, which was allowed. The benefit of a deduction under Section 80IB was also granted for A.Y. 2002- 2003. The assessment order for A.Y. 2001- 2002 was passed under Section 143(3) of the Act, upon scrutiny. During the course of assessment proceedings for A.Y. 2003 2004, the assessee filed an Audit Report in Form 10CCB in which relevant particulars of the license to work that was granted to the unit of the assessee was disclosed. The license to work dated 14th August 2000, copy of which was filed before the Assessing Officer, contains a disclosure of the fact that the plans have been approved by the Sarpanch by his letter dated 12th September 1988. The basis on which the assessment for A.Ys 2003 2004 and 2004 2005 has been sought to be re opened is that it was during the course of assessment proceedings for subsequent years that the Revenue had obtained a copy of the license which showed that the plans have been approved as far back as on 12th September 1988. This statement which is contained in the reasons, on the basis of which the assessment is sought to be re opened, is belied by the record which shows that the Revenue was in possession of the material produced by the assessee during the course of the assessment proceedings for A.Y. 2003 2004 which showed that the plans had been approved in the year 1988. Therefore, the basis on which the assessment has been sought to be re opened is factually incorrect. The Assessing Officer granted the assessee a deduction under Section 80IB after being appraised of all the relevant details, including those in Form 10CCB which showed that plans had been approved in 1988.
14. Moreover, the fact that plans for the building were approved in the year 1988 would make no difference to the claim of the assessee to a deduction under Section 80IB of the Act. Both in the notice re opening the assessment and in the order disposing of the objections of the assessee, reliance has been sought to be placed on the provisions of sub clause (i) of Clause (1) of sub section (2) of Section 80IB. Sub clause (i) postulates that the industrial undertaking ought not to have been formed either by splitting up or reconstruction of a business already in existence. On the basis of the facts and circumstances and as recorded by the Assessing Officer, it cannot possibly be postulated that the industrial undertaking of the assessee was formed either by the splitting up or by the reconstruction of a business already in existence. As already noted, it is an admitted position that the land and building was sold by MSFC in exercise of its statutory powers and the purchaser in turn has leased out the land and building to the assessee. It is not the case of the Revenue in the reasons for re opening the assessment that the plant and machinery installed by the assessee has been previously used. Section 80IB(2)(ii) provides that the industrial undertaking should not be formed by transfer to a new business of plant and machinery or a plant previously used for any other purpose. It is not the case of the Revenue in the reasons for re opening the assessment that the industrial undertaking of the assessee has been formed by transfer of plant and machinery which has been previously used for any other purpose. The assessee has annexed to the petition before the Court a copy of the Deed of Conveyance under which MSFC transferred the right of the defaulter only in respect of the land and building. The plant and machinery was not the subject matter of the sale. The Deed of Conveyance contains a specific recital that the machinery was not being sold. In these circumstances, it is apparent from the record before the Court that there was no failure on the part of the assessee to disclose fully and truly all the material facts necessary for the assessment so as to justify the invocation of the powers under Section 148 of the Act beyond the expiry of a period of four years from the end of the relevant assessment year.
15.We may also note in addition that the assessee has filed together with its affidavit in rejoinder, a copy of the information received during the course of a query under the Right to Information Act. The information includes a letter by the Assessing Officer to the Commissioner of Income Tax dated 24th March 2009 seeking permission to the proposal for re opening the assessment under Section 151(1) of the Act. The Assessing Officer has noted, while seeking approval of the
Commissioner of Income Tax, that during the course of Revenue audit proceedings, an audit objection has been raised on the ground that the assessee was not eligible to a deduction under Section 80IB from A.Y. 2002 2003. The Assessing Officer notes that the audit objection was not accepted but that as a precautionary measure the assessment was re opened under Section 147. There is merit in the submission urged on the part of the assessee that the Assessing Officer had no reason to believe that income had escaped assessment. We clarify that we have not regarded this circumstance namely, the information which was divulged during the course of a query and the Right to Information Act as the only and exclusive circumstance for coming to a conclusion that the power has not been validly exercised. Basically, the validity of the exercise of the powers to re open an assessment has to be decided with reference to the reasons recorded while re opening the assessment. The reasons recorded while re opening the assessment do not justify the exercise of the power in the facts of this case.