Commissioner of Income Tax vs Hindustan Tools and Forgings P. Ltd.

Ajay Kumar Mittal, J.—In this reference, the Income Tax Appellate Tribunal, Chandigarh Bench, Chandigarh (for short "the Tribunal"), has referred the following question of law u/s 256(1) of the Income Tax Act, 1961 (for short "the Act"), for the assessment year 1987-88:

Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in holding that Section 147(b) was not applicable to the case of the assessee inasmuch as the information available with the Assessing Officer at the time of the original assessment could not be reappraised by the Assessing Officer on the ground that excessive relief had been allowed to the assessee u/s 80HHC of the Income Tax Act?

Briefly noticed, the facts are that originally the assessment was completed on an income of Rs. 4,32,910 and upon coming to the notice of the Assessing Officer that the deduction u/s 80HHC of the Act has not been correctly allowed, a notice u/s 148 of the Act was issued. Thereafter, the deduction was reduced from Rs. 9,21,945 to Rs. 8,24,919. Aggrieved by the same, the assessee filed an appeal raising a plea that the action u/s 147(b) of the Act was not valid as there was no information with the Assessing Officer to invoke that section. It was further pleaded that the claim had been allowed after considering the assessee''s claim at the time of making the original assessment. Since there was no further material available with the Assessing Officer, the action u/s 147(b) of the Act was improper. The Commissioner of Income Tax (Appeals), however, rejected the appeal. On further appeal by the assessee to the Tribunal, the assessee''s plea was accepted and the initiation of proceedings u/s 147(b) of the Act was quashed.

Learned Counsel for the Revenue submitted that the Tribunal has wrongly proceeded on the premise that the initiation of reassessment proceedings was a result of change of opinion based on an objection raised by the auditor on an inspection note, whereas the same is contradictory to the findings recorded by the Tribunal where it was noticed that the Tribunal had felt satisfied by looking into the record that the Income Tax Officer did record the reasons before initiating action u/s 147(b) of the Act and there is no reference to the audit objection or inspection note therein. Learned Counsel further submitted that under Clause (c) of Explanation 1 to Section 147 of the Act where an excessive relief has been given to an assessee, the same can be withdrawn by resorting to Section 147(b) of the Act.

No one has appeared on behalf of the assessee to oppose the reference made by the Tribunal.

We have heard learned Counsel for the Revenue and find force in his submission.

A perusal of the order of the Tribunal shows that after perusing the record it had categorically observed that the reasons before initiating action u/s 147(b) of the Act had been recorded and further it does not make any reference to an audit objection or an inspection note. In such a situation, the Tribunal was not right in concluding that the reopening was a result of change of opinion based on an audit objection or an inspection note.

Still further, Section 147(b) of the Act at the relevant time reads, thus:

If-

(a) ....

(b) notwithstanding that there has been no omission or failure as mentioned in Clause (a) on the part of the assessee, the Income Tax Officer has in consequence of information in his possession reason to believe that 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 or recompute the loss or the depreciation allowance, as the case may be, for the assessment year concerned (hereafter in Sections 148 to 153 referred to as the relevant assessment year).

Explanation 1. - 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 income chargeable to tax has been underassessed; or

(b) where such income has been assessed at too low a rate; or

(c) where such income has been made the subject of excessive relief under this Act or under the Indian Income Tax Act, 1922 (11 of 1922); or

(d) where excessive loss or depreciation allowance has been computed.

A plain reading of Clause (c) of Explanation 1 to Section 147 of the Act provides that an Assessing Officer can resort to reassessment proceedings in a case where income has been made the subject of excessive relief under the Act. The assessee at the regular assessment had been allowed a deduction of Rs. 9,21,945 as against Rs. 8,24,919 which was actually allowable deduction u/s 80HHC of the Act. The case, thus, falls under Clause (c) of Explanation 1 to Section 147(b) of the Act.

Accordingly, the action initiated by the Assessing Officer in the case of the assessee for reassessment u/s 147(b) of the Act cannot be held to be invalid and the question referred to this court is answered in the negative, i.e., in favour of the Revenue and against the assessee.