Gruh Finance Ltd. vs Joint Commissioner of Income Tax

J.N. Bhatt, J.—In this group of three petitions, at the stage of show-cause notice, the petitioners-assessees, have invoked extraordinary,

plenary, equitable and discretionary jurisdiction of High Court under Art. 226 of the Constitution of India, a common question has surfaced for our

consideration and adjudication i.e., whether in exercise of powers by the respondent authority, for reassessment and resultant notices under s. 148

of the IT Act, 1961 to the petitioners, at this stage, prima facie, could be said to be passed on ""change of opinion"" or on new opinion on finding out

mistake upon the existing material or could it be said that there is total lack of jurisdiction ?

The case of the petitioner in each petition is that the impugned notice is without jurisdiction, as reassessment cannot be made on the basis of

change of opinion"" since all the relevant facts and entire material had been considered by the AO at the relevant time. Whereas, Revenue has

contended that assessee has claimed depreciation as deduction on non-existent machinery and bogus claim was found and depreciation, thereon,

claimed was not, consciously considered. Therefore, there is no question of bar of the jurisdiction.

We have heard, extensively, the rival submissions made on behalf of the parties and materials emerging from record in light of the relevant

proposition of law.

It is true that even after the amendment in the provisions of s. 147 of the IT Act, 1961, a mere change of opinion, ipso facto, would not confer

or empower the AO to embark upon reassessment exercise. Notwithstanding that, power to make assessment or reassessment within four years

of the end of the relevant assessment year, would be attracted even in the cases where there has been complete disclosure of all relevant facts

upon which the assessment might have been based at the first instance, but for or in case of a mistake, as per amended provisions of s. 147 of IT

Act.

The assessment of the return for the relevant years has been done under s. 143(3) of the IT Act. Record of these petitions indicates the order

dt. 24th November, 1999, placed along with the affidavit-in-reply. It is the order showing reasons for issuance of notice under s. 148 of IT Act

which reads as under :

As per the information received from DDI (Inv.) Unit-II, Khanpur under No. F. No. G-18/DD-II/KNP/2(35)/1998-99, dt. 19th June, 1999, it is

seen that assessee during the Financial year 1995-96 corresponding to asst. yr. 1996-97 purchased and leased the machinery (Sheltting Line Tube

Mill) amounting to Rs. 1,47,81,250 to Rajendra Group of Companies and claimed depreciation as deduction against its income in respect of

machinery that either did not exist or the real worth of these machinery was only 10 per cent to 20 per cent of the value recorded in the books. In

this way the assessee has claimed bogus depreciation on non-existent machinery. Since the above amount of income appears to be escaped from

taxable income for asst. yr. 1996-97. It is mandatory to issue notice under s. 148 of the IT Act to cover the above income and tax the same

accordingly, a notice under s. 148 is therefore, issued to the assessee for this purpose.

It could very well be seen from the aforesaid reasons that depreciation claimed on the machinery which was non-existent, as per the information

received by the Department, whereas, in scrutiny assessment, depreciation under s. 32 r/w s. 43(6) of the IT Act had been claimed and accepted.

Thus, it was noticed that there was a bogus claim and mistake was discovered.

Expression ""reason to believe"" employed in s. 147 of the IT Act would mean some cause or justification if the competent authority has a cause

or ground or some justification that some income has escaped assessment or that there was a mistake in making assessment. In the peculiar facts

and special circumstances emerging from the record, we are extremely unable to uphold the contention raised on behalf of the petitioner that the

respondent authority has no jurisdiction to issue impugned notices under s. 148 of the IT Act, 1961 as it involved only a mere ""change of opinion"".

This Court in Praful Chunilal Patel Vs. M.J. Makwana, Assistant Commissioner of Income Tax, has observed in this behalf while interpreting the

provisions of s. 147 of the IT Act and expression ""reason to believe"" which are relied on on behalf of the respondents, are also material for

reinforcing the view which we are taking in this group of petitions.

Whereas, learned counsel for the assessee has placed reliance on the observations made by this Court in the decision in Garden Silk Mills (P)

Ltd. Vs. Deputy Commissioner of Income Tax, . He placed reliance on relevant observations at p. 673 which read as under :

Even the decision of this Court in Garden Silk Mills Ltd. Vs. Deputy Commissioner of Income Tax (Assessment) (No. 1), cannot assist the

petitioner because in that case it was held that the AO was aware about the investment and fluctuations in the exchange rate and depreciation had

been allowed after considering the material on record and further that the notice was issued after four years and there was no failure on the part of

the assessee to disclose material facts necessary for assessment. Reliance placed on the case of that very assessee, reported in the same volume at

p. 68. Garden Silk Mills Ltd. Vs. Deputy Commissioner of Income Tax (No. 2), also cannot help the petitioner, because in that case the Court

found that in the first assessment the AO had applied his mind in the computation of income and that there cannot be a mere change of opinion.

When, at the first assessment all the relevant aspects are considered and there is proper application of mind for ascertainment of the amount of

taxable income and of the tax payable thereon then in the absence of any error or mistake being discovered or found, the AO later on cannot

merely for the sake of giving a different opinion, change the earlier opinion. However, in cases where are error or mistake is detected, it can never

be said that there is only a mere change of opinion. The mistake or error which is detected and which constituted a valid decision or cause to form

a belief in the first assessment as a result of which the income has escaped assessment, would constitute a reason to believe that the income had

escaped assessment and such cases where mistake and errors are detected and which constitute a valid justification or cause to form a belief

sought to be corrected, cannot be said to be cases or mere change of opinion.''

We are in respectful agreement with the aforesaid enunciation of distinction between the change of opinion and finding erroneous nature of earlier

assessment on detection of mistake on an issue which was not earlier considered by the AO. The present case may be examined in the light of the

principles noticed above. No return has been filed. However, the reasons recorded by the AO has been placed on record which are identical in all

the three cases except for the amount and the name of the assessee.

We have also, seriously, considered the entire case law from which aforesaid paragraphs are relied on. Insofar as expression ""reason to

believe"" and ""change of opinion"" are concerned, we are of the view that though the material was available on record, at the time of first assessment,

when no conscious consideration of the material is made and a mistake has been committed, it would not, in any case, create an embargo or a ban

on the competent officer to exercise powers under the amended s. 147 of the IT Act, 1961, as prima facie, there could not be ""change of opinion

in that factual scenario. It has also been shown to us on behalf of an assessee. If conscious application of mind is made to the relevant facts and

material available or existing at the relevant point of time while making assessment and again different or divergent view is sought, it would

tantamount to ""change of opinion"", whereas, in the case of existing material, no conscious attempt has been made, it would tantamount to mistake

in not considering the relevant point or proposition and it would not be a ""change of opinion"". As in the present case, prima facie upon information,

the Department noticed that depreciation was claimed and approved in respect of a machinery which was not at all in existence and that aspect

was not, consciously, considered, at the time of first assessment, as otherwise there was no question of granting depreciation, thereon, claimed by

the assessee.

In our, prima facie view, therefore, this group is also covered by the observations and ultimate view taken by this Court in Praful Chunilal

Patel''s case (supra). We need not divulge ourselves further on meticulous discussion. Otherwise also, there is no fit case for exercise of

extraordinary jurisdiction under Art. 226 of the Constitution, in absence of any jurisdictional issue. Authority has jurisdiction.

Learned counsel Mr. Shah, at this stage, submitted that since again the competent authority is required to examine the merits after giving an

opportunity of hearing to the assessee, and material, it may be observed that the observations made, hereinbefore, may not come in the way of the

point/issue being decided on merits as ours is a prima facie view in absence of material. In fact, this requires no clarification as such. However, this

Court has dealt with the point prima facie, at the interim stage, i.e. at the stage of issuance of notice under s. 148 of the IT Act, where the party has

to appear and show cause, the decision on merits will be upon the material that may be placed/submitted. So, observations made, at this stage,

obviously, would not and should not influence and colour the vision of the competent authority while making final decision upon merits after hearing

and considering the materials.

In the result, these petitions are dismissed. Notice in each petition shall stand discharged. Obviously, interim relief, if any, would not assume

any survival value. No order as to costs.