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Judgment
Regard being had to the similitude in the controversy involved in the present cases, the appeals were analogously heard and by a common order, they are being disposed of by this Court. Facts of I.T.A.No. 51 / 2018 are narrated hereunder.
The present appeal filed u/S. 260A of the Income Tax Act, 1961 is arising out of order dated 27/09/2017 passed by the Income Tax Appellate Tribunal, Bench Indore in I.T.A.No. 918/Ind/2016 (assessee's appeal) for the assessment year 2007 - 2008.
The brief facts of the case, as reflected from the record, reveals that the respondent - assessee is a Company deriving its income from road construction activity. The assessee Company filed its return of income and declared total income of Rs. NIL on 1/10/2007. The original assessment u/S. 143(3) was completed on 22/9/2009 demanding the total income of Rs.3,94,600/-.
A notice u/S. 148 of the Income Tax Act, 1961 was issued on 13/1/2014 and the assessment u/S. 143(3) read with Sec. 147 was completed on 18/3/2015 assessing income of Rs.38,16,851/-.
The Assessing Officer, while passing the aforesaid order, made an addition of Rs.34,22,251/- on account of disallowance u/S. 80IA(4) on the ground that a person who executes a work contract is not eligible to claim deduction u/S. 80IA of the Income Tax Act, 1961. It was held by the Assessing Officer that the assessee is a Contractor who is engaged in the construction work in respect of a Project on behalf of the developer and earns profit at various stages of the construction and does not have stakes in the financial viability of the project. The Assessing Officer held that he is being paid regularly for the work done by him and at no stage of work it owns any of the projects. The Assessing Officer held that the assessee is not a developer within the meaning of Sec. 80IA of the Income Tax Act, 1961 and, therefore, will not be eligible for tax benefits u/S. 80IA.
The assessee being aggrieved by the order passed by the Assessing Officer has preferred an appeal before the Commissioner of Income Tax (Appeals) and the CIT(A) vide order dated 21/7/2016 has dismissed the appeal of the assessee. The assessee has thereafter preferred an appeal before the Income Tax Appellate Tribunal and the Tribunal has quashed the re-assessment order. The Income Tax Appellate Tribunal vide order dated 27/9/2017 has held that there was no new material before the Assessing Officer for assumption of valid jurisdiction for initiation of re-assessment proceedings and reopening of assessment u/S. 147 / 148 of the Act. It was also held that reopening was done based upon the same material which was before the Assessing Officer during the regular assessment proceedings and there was no new tangible material. The Tribunal has also held that mere change of opinion does not permit the assessing officer to reopen the assessment proceedings.
On careful consideration of the above rival submisions, first of all, we observe that in the present case pertaining to the assissment year 2007-08 the reasons for issuing notice under section 148 of the Act have been recorded on 13-1-2014 i.e. Beyond four years. For the sake of completeness in our findings, the reasons are being reproduced below :-
"Reasons for issuing notice u/s 148 of the IT Act, 1961
In this case the return of income was filed by the assessee on 01-10-2007 declaring total income of Rs. NIL. Assessment u/s 143(3) of the IT Act, 1961 was completed on 22-09-2009 at a total income of Rs. 3,94,600/-. The assessee Company is a contractor and is engaged in the work of Road Construction.
In the return of income an amount of Rs. 34,22,251/-was claimed by the assessee as deduction u/s 80IA.
From the assessment record it is noticed that the assessee has credited an amount of Rs. 7,10,297/- as 'other income' in the profit and loss account. This amount includes interest on Fixed Assets Rs. 7,00,327/- and interest from other at Rs. 9.970/-. The assessee has shown Gross Contractual Receipt at Rs. 7,35,65,907/-. Thus, the total receipts of Rs. 7,42,76,204/- has been shown by the assessee in the profit and loss account. After debiting the various expenses, the assessee has shown profit of Rs. 34,81,471/-. Thus, the profit shown by the assessee is inclusive of the income shown as 'other income' amounting to Rs. 7,10,297/-.
The assessee has shown in the computation of income an amount of Rs. 34,22,251/- as Gross total income after making necessary adjustments in respect of the depreciation. An amount of Rs. 34,22,251/- is clamed by the assessee as deduction u/s 80IA in respect of 'Developing Infrastructure Facility' and has accordingly shown Nil income in its return of income.
It is thus clear that the Gross Profit shown by the assessee at Rs. 34,22,251/- which is claimed as deduction u/s 80IA, is inclusive of the indcome from Other Sourcess amounting to Rs. 7,10,297/-. Thus, the assessee has claimed excess deduction u/s 80IA in respect of the income from Other Sources amounting to Rs. 7,10,297/-.
6- .................................It is also held by the Hon'ble Supreme Court that duty drawback DEPB benefit in the P&L A/c for purpose of s. 80IA/80IB as such remissions (credits) would constitute independent source of income beyond the first degree nexus between profits and the industrial undertaking.
Thus, I have reason to believe that income amounting to Rs. 7,10,297/- has escaped assessment in the meaning of section 147 of the Income Tax Act, 1961.
Hon'ble Commissioner of Income Tax, Ujjain, has recorded sanction u/s 151(1) of the IT Act, 1961 for issue of notice u/s 151(1) of the IT Act, 1961 for issue of noticde u/s 148 for the A.Y. 2007-08 though letter F. No. CIT/UJN/TECH/147/2013-14/6197 dated 09.01.2014. "
On careful and vigilant perusal of the above reasons, we clearly observe that there is no indication in the reasons recorded about the failure on the part of the assessee to disclose fully and truly all material facts necessary for its assessment. From para 2 original assessment order we observe that the Assissing Officer has allowed claim of the assessee after calling for required specific information and verifying and examining the same. From the reasons recorded, we are unable to see any new fact, document or evidence before the Assessing Officer as new tangible material was not before the Assessing Officer as new tangible material was not before the Assessing Officer during the original assessment proceedings. Therefore, it is a clear case of change of opinion.
In the case of Haryana Acrylic Manufacturing Co. (supra) the Hon'ble Delhi High Court held as under :-
''25. We shall now discuss whether the petitioner had failed to disclose fully and truly all material facts necessary for his assessment. We would like to reiterate that the decision of the Supreme Court in the case of Phool Chand (supra) was in the context of Section 147 of the said Act prior to the amendment introduced with effect from 01.04.1989. In Phool Chand (supra), the Supreme Court noted that an Assessing Officer may start reassessment proceedings either because some fresh facts had come to light which were not previously disclosed or some information with regard to the facts previously disclosed comes into his possession which tends to expose the truthfulness of those facts. The Supreme Court observed that in such situations, it is not a case of mere change of opinion or the drawing of a different inference from the same facts as were earlier available, but, one of acting on fresh information. These observations were made in the context of Section 147 as it stood prior to the amendment of 01.04.1989. Both the provisions, prior to and after the 1989 amendment, have already been extracted above. Clause (a) of Section 147 as it stood prior to the said amendment, empowered the Income Tax Officer to initiate reassessment proceedings provided he had reason to believe that by reason of omission or failure on the part of an assessee to make a return under Section 139 for any assessment year or to disclose fully and truly all material facts necessary for his assessment for that year, income chargeable to tax had escaped assessment for that year. On the other hand, Clause (b) of Section 147 provided that notwithstanding that there had been no omission of failure as mentioned in Clause (a) on the part of the assessee, if the Income Tax Officer had in consequence of information in his possession, reason to believe that income chargeable to tax had escaped assessment, he could initiate reassessment proceedings. Thus, reassessment proceedings could be initiated if the conditions specified in either Clause (a) or Clause (b) were satisfied. It must also be noted that prior to 1989, the time limit for issuance of notice under Section 149 was also different. In cases falling under Clause (a) of Section 147, the limitation was eight years from the end of the relevant assessment year unless the income chargeable to tax, which had escaped assessment, amounted to or was likely to amount to Rs 50,000/- or more for that year, in which case the period was 16 years. In respect of cases falling under Clause (b) of Section 147, the period of limitation for issuing a notice under Section 148 was four years from the end of the relevant assessment year. Thus, the time limit for issuing a notice under Section 148 where the Income Tax Officer merely had information in his possession to believe that income chargeable to tax had escaped assessment was four years from the end of the relevant assessment year. On the other hand where the Income Tax Officer had reason to believe that income chargeable to tax had escaped assessment for any year and that such reason to believe was occasioned by the omission or failure on the part of an assessee to either file a return or to disclose fully and truly all material facts necessary for his assessment for that year, the period of limitation was either eight years or 16 years depending on whether the income said to have escaped assessment was less or more than Rs 50,000/- for that year. But, if a notice under Section 148 was contemplated within the period of four years from the end of the relevant assessment year, then it could have been issued on the ground of provisions of Clause (a) or (b) of Section 147 as it then stood. When a notice issued within this period was under contemplation, then despite there being no failure to disclose fully and truly all material facts, the Income Tax Officer would still have had the power to initiate action under Section 147 if he had reason to believe that income chargeable to tax had escaped assessment for any assessment year in consequence of information in his possession. It is necessary to understand the decision of the Supreme Court in Phool Chand (supra) in the light of these provisions. In Phool Chand (supra), the question of information or subsequent information and the question of full and true disclosure have been intermingled inasmuch as the question of limitation was not at all in consideration. Clause (b) of Section 147 was non-obstante the requirements of Clause (a) thereof which is triggered, inter alia, by failure on the part of the assessee to disclose fully and truly all material facts necessary for his assessment. Therefore, when the notice under Section 148 is contemplated within the period of four years, notwithstanding the non-applicability of Clause (a) of Section 147, Clause (b) could apply if the Income Tax Office has information in his possession leading to give him reason to believe that income chargeable to tax had escaped assessment.
The provisions of Section 147 after the 1989 amendment are somewhat different. Section 147 after the amendment does not contain any expression pertaining to information in the possession of the Income Tax Officer. The only requirement is that the Assessing Officer has to have reason to believe that income chargeable to tax has escaped assessment. The proviso is by way of an exception to this provision. The proviso also does not speak of any information. This discussion makes it clear that the ratio in Phool Chand (supra) would not be strictly applicable to this case which relates to the provisions of Section 147 after the amendment of 1989.
In view of the above, as we have already noted that in the reasons there is no indication that the assessee failed to furnish truly and fully all material facts necessary for assessment, therefore, respectfully following the decision of the Hon'ble Delhi High Court in the case of Haryana Acrylic Manufacturing Co. (supra), we hold that the initiation of reassessment proceedings and reopening under section 147/148 of the Act was bad in law.
In the case of CIT vs. Fujistu Optel Ltd (supra) their Lordships speaking for the Hon'ble jurisdictional High Court, held as follows :-
We have considered the case and find that it is a case in which after filing of the return by the assessee the matter was scrutinized and on thorough examination of the facts, the initial assessment order was passed. On the basis of same set of facts, if the assessing officer was of the view that it was a case of escaped assessment, then it was a case of change of opinion and not a case for reassessment. In the present case, there was no new material before the assessing officer to record a finding that on the basis of some new material, he had formed an opinion that it was a case of escaped assessment and the assessee had not disclosed the fact truly and rightly. On the basis of the material on which the assessment order was passed, the assessing officer could not form another opinion that the original assessment order was an escaped assessment and case deserves to be reassessed under section 147(b), then it was a case of change of opinion and not a case for reassessment as is required under section 147(b) of the Act.
In view of the aforesaid settled position, we are of the view that these appeals do not involve any substantial question of law for our consideration, devoid of any merit and are dismissed at admission stage, without notice to the other side.
When we respectfully consider the ratio of the decision of the Hon'ble jurisdictional High Court in the case of Cit vs. Fujistu Optel Ltd (supra), the judgment of the Hon'ble Delhi High Court in the case of CIT vs. Orient Craft (supra) then we are inclined to hold that in the present case, there wasa no new material before the Assessing Officer for assumption of valid jurisdiction for initiation of reassessment proceedings and reopening the assessment u/s 147/148 of the Act and the reopening was done on the same material which was before the Assessing Officer during the assessment proceedings and there was no new tangible material Hence, reopening of assessment on the basis of same set of facts and material is a clear case of change of opinion and initiation of reassessment proceedings and reopening without any new tangible material on the basis of same material is a case ofr change of opinion. The concept of "change of opinion" has an in-built test to check abuse of power by the Assessing Officer. Therefore, after 1st April, 1989 the Assessing Officer has power to reopen the assessment under section 147/148 of the Act provided there is tangible material to come to the conclusion that there is escapement of income from assessment and the reasons must have a live-link with the formation of such believe that escapement of income from assessment has been done.
In the present case we are satisfied that the contention of the learned counsel for the assessee that initiation of reassessment proceedings and reopening was done on the same set of facts without any new tangible material. Therefore, the same is held as bad in law. Accordingly, ground nos. 1 and 1.1 of the assessee are allowed and initiation of reassessment proceedings and issue of notice u/s 148 of the Act and consequent proceedings including reassessment order passed under section 143(3) read with section 147 of the Act are held as unsustainable and bad in law, Consequently, we quash the same.
This Court has carefully gone through the order passed by the Tribunal. The aforesaid order makes it very clear that reassessment proceedings by issuing notice u/S. 148 of the Act were done merely on the basis of change of opinion. There was no tangible material to arrive at a conclusion that there was escapement of income by the assessment. Hon'ble the Supreme Court in the case of Commissioner of Income Tax, Delhi Vs. Kelvinator of India Ltd., reported in [2010] 187 Taxman 312 (SC), in paragraph 4 and 5 has held as under :
On going through the changes, quoted above, made to Section 147 of the Act, we find that, prior to Direct Tax Laws (Amendment) Act, 1987, re-opening could be done under above two conditions and fulfillment of the said conditions alone conferred jurisdiction on the Assessing Officer to make a back assessment, but in section 147 of the Act [with effect from 1st April, 1989], they are given a go-by and only one condition has remained, viz., that where the Assessing Officer has reason to believe that income has escaped assessment, confers jurisdiction to re- open the assessment. Therefore, post-1st April, 1989, power to re-open is much wider. However, 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 fulfillment 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. Our view gets support from the changes made to Section 147 of the Act, as quoted hereinabove. 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 Assessing Officer. We quote hereinbelow 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 Assessing Officer. 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 Assessing Officer 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.
The apex Court in the aforesaid case has held that the Assessing Officer has the power to reopen assessment provided there is tangible material to come to a conclusion that there is escapement of income from assessment and the reason must have a live link with formation of belief.
The apex Court in the case of Indian & Eastern Newspaper Society Vs. Commissioner of Income Tax reported in [1979] 2 Taxman 197 (SC), in paragraph 14 has held as under :
Now, in the case before us, the Income Tax officer had, when he made the original assessment, considered the provisions of sections 9 and 10. Any different view taken by him afterwards on the application of those provisions would amount to a change of opinion of material already considered by him. The Revenue contends that it is open to him to do so, and on that basis to reopen the assessment under section 147(b). Reliance is placed on Kalyanji Mavji & Co. v. Commissioner of Income Tax, where a Bench of two learned Judges of this Court observed that a case where income had escaped assessment due to the "oversight, inadvertence or mistake" of the Income Tax officer must fall within section 34(1) (b) of the Indian Income Tax Act, 1922. It appears to us, with respect, that the proposition is stated too widely and travels farther than the statute warrants in so far as it can be said to lay down that if, on reappraising the material considered by him during the original assessment, the Income Tax officer discovers that he has committed an error in consequence of which income has escaped assessment it is open to him to reopen the assessment. In our opinion, an error discovered on a reconsideration of the same material (and not more) does not give him that power. That was the view taken by this Court in Maharaj Kamal Singh v. Commissioner of Income Tax (supra), Commissioner of Income Tax v. Raman and Company (supra) and Bankipur Club Ltd. v. Commissioner of Income Tax. and we do not believe that the law has since taken a different course. Any observations in Kalyanji Mavji & Co. v Commissioner of Income Tax (supra) suggesting the contrary do not, we say with respect, lay down the correct law.
In the light of the aforesaid, in the present case as the reassessment proceedings were initiated on the basis of same material which was available before the Assessing Officer and mere change of opinion led to reassessment, which is certainly not at all permissible in the light of the aforesaid judgment.
Similar view has been taken in large number of cases by various High Courts, in the case of Yuvraj Vs. Union of India and another reported in [2009] 315 ITR 84 (Bom.); Honda Siel Power Products Ltd. Vs. Dy. Commissioner of Income Tax and another reported in [2012] 340 ITR 53 (Delhi); Principal Commissioner of Income Tax Vs. RJD Impex (P) Ltd., reported in [2016] 69 Taxmann.com 306 (Gujarat); and in the case of Commissioner of Income Tax chennai Vs. A. Vinod Kumar Reddy reported in [2018] 96 Taxmann.com 287 (Madras) as also by the Hon'ble Supreme Court in the case of Asstt. Commissioner of Income Tax Rs. Rajesh Jhaveri Stock Brokers Pvt. Ltd., reported in [2007] 291 ITR 500 (SC) and in the case of Honda Siel Power Products Ltd., Vs. Dy. Commissioner of Income Tax and another reported in [2012] 340 ITR 64 (SC), similar view has been taken time and again.
The Department has certainly placed reliance upon a judgment delivered by the Hon'ble Supreme Court of India in the case of Kalyanji Mavji & Co., Vs. Commissioner of Income Tax West Bengal reported in [1976] 102 ITR 287 (SC), however, the apex Court in the case of Indian & Eastern Newspaper Society (supra) after taking into account the judgment delivered in the case of Kalyanji Mavji (supra) has held that change of opinion does not empower the Assessing Officer to reopen the assessment and, therefore, the judgment relied upon by the learned counsel is of no help to the Department.
In the light of the aforesaid, as no substantial question of law arises in the present case, the same is dismissed.
The other connected appeals which are arising out of different financial years involving the same point, are also dismissed as no substantial question of law arises.
A copy of this order be placed in the record of connected appeals.