IN THE INCOME TAX APPELLATE TRIBUNAL LUCKNOW BENCH “A”, LUCKNOW
ITA No.254/LKW/2014 Assessment year:2006-2007

U.P. Samaj Kalyan Nirman Nigam Ltd (Appellant) vs Dy.C.I.T (Respondent)
Date of Order: 24-09-2015

ORDER

PER A. K. GARODIA, A.M.
This is assessee’s appeal directed against the order of Learned CIT(A)- II, Lucknow dated 31/12/2013 for the assessment year 2006-07.

2. Ground No. 1,2& 3 are inter-connected, which are as under:
“1. That the notice u/s 148 of the Income Tax Act was not a valid notice.
2. That the Ld. A.O. did not have 'reason to believe' for initiating proceedings u/s 147 of the Income Tax Act.
3. That the Ld. CIT (Appeal) was wrong in upholding the action of the Ld. A.O. u/s 148 on the following grounds:-
(a) Because, according to him expenses related to earlier years could not in law be allowed in the assessment year 2006-07.
(b) Because, according to him assessee maintained its accounts on mercantile basis and therefore, expenses related to earlier years could not be allowed in the assessment year 2006-07.
(c) Because according to him the judgment/order passed by Hon'ble High Court and Hon'ble ITAT in the assessee's own case for the assessment year 2006-07 were not applicable in the present case.”

3. It was submitted by Learned A.R. of the assessee that the reasons recorded by the Assessing Officer for reopening are available on page No. 6 of the paper book. He also submitted that on page No. 12 is the copy of profit & loss account and the relevant schedules are available on page No. 17 and on that page the assessee has separately shown and claimed this amount of Rs.12,98,902/- on account of expenses relating to previous years. Therefore, he submitted that under these facts, the reopening is on mere change of opinion and without any material on record and therefore, not valid. In support of this contention, he placed reliance on the following judicial pronouncements:
(i) CIT vs. Usha International Ltd. [2012] 348 ITR 485 (Del)
(ii) SMCC Construction India Ltd. vs. ACIT [2013] 38 taxmann.com 146 (Delhi)

4. Learned D. R. of the Revenue supported the orders of the authorities below.

5. We have considered the rival submissions. We find that although the original assessment was completed by the Assessing Officer u/s 143(3) of the Act as per assessment order dated 11/12/2008 but the reopening by the Assessing Officer is within four years from the end of the relevant assessment year since notice u/s 148 was issued on 16/12/2010 and was duly served on the assessee on 21/01/2011 i.e. within four years from the end of the relevant assessment year 2006-07 and therefore, the proviso to section 147 is not applicable in the present case.

6. Now we examine the claim of the assessee regarding this contention that reopening is on mere change of opinion. Reliance has been placed on a judgment of Hon'ble Delhi High Court rendered in the case of Usha International Ltd. (supra). Para 13 to 17 of this judgment are relevant for the dispute in present case and the same are reproduced below for the sake of ready reference:-

“13. It is, therefore, clear from the aforesaid position that :

(1) Reassessment proceedings can be validly initiated in case return of income is processed under section 143(1) and no scrutiny assessment is undertaken. In such cases there is no change of opinion.

(2) Reassessment proceedings will be invalid in case the assessment order itself records that the issue was raised and is decided in favour of the assessee. Reassessment proceedings in the said cases will be hit by the principle of "change of opinion".

(3) Reassessment proceedings will be invalid in case an issue or query is raised and answered by the assessee in original assessment proceedings but thereafter the Assessing Officer does not make any addition in the assessment order. In such situations it should be accepted that the issue was examined but the Assessing Officer did not find any ground or reason to make addition or reject the stand of the assessee. He forms an opinion.

The reassessment will be invalid because the Assessing Officer had formed an opinion in the original assessment, though he had not recorded his reasons.

14. In the second and third situation, the Revenue is not without remedy. In case the assessment order is erroneous and prejudicial to the interest of the Revenue, they are entitled to and can invoke power under section 263 of the Act. This aspect and position has been highlighted in CIT v. DLF Power Ltd. I. T. A. No. 973 of 2011 decided on November 29, 2011—since reported in [2012] 345 ITR 446 (Delhi) and BLB Ltd. v. Asst. CIT Writ Petition (Civil) No. 6884 of 2010 decided on December 1, 2011—since reported in [2012] 343 ITR 129 (Delhi). In the last decision it has been observed (page 135) :

"The Revenue had the option, but did not take recourse to section 263 of the Act, in spite of audit objection. Supervisory and revisionary power under section 263 of the Act is available, if an order passed by the Assessing Officer is erroneous and prejudicial to the interest of the Revenue. An erroneous order contrary to law that has caused prejudiced can be correct, when jurisdiction under section 263 is invoked."

15. Thus, where an Assessing Officer incorrectly or erroneously applies law or comes to a wrong conclusion and income chargeable to tax has escaped assessment, resort to section 263 of the Act is available and should be resorted to. But initiation of reassessment proceedings will be invalid on the ground of change of opinion.

16. Here we must draw a distinction between erroneous application/interpretation/understanding of law and cases where fresh or new factual information comes to the knowledge of the Assessing Officer subsequent to the passing of the assessment order. If new facts, material or information comes to the knowledge of the Assessing Officer, which was not on record and available at the time of the assessment order, the principle of "change of opinion" will not apply. The reason is that "opinion" is formed on facts. "Opinion" formed or based on wrong and incorrect facts or which are belied and untrue do not get protection and cover under the principle of "change of opinion". Factual information or material which was incorrect or was not available with the Assessing Officer at the time of original assessment would justify initiation of reassessment proceedings. The requirement in such cases is that the information or material available should relate to material facts. The expression "material facts" means those facts which if taken into account would have an adverse effect on the assessee by a higher assessment of income than the one actually made. They should be proximate and not have remote bearing on the assessment. The omission to disclose may be deliberate or inadvertent. The question of concealment is not relevant and is not a precondition which confers jurisdiction to reopen the assessment.

17. Correct material facts can be ascertained from the assessment records also and it is not necessary that the same may come from a third person or source, i.e., from source other than the assessment records. However, in such cases, the onus will be on the Revenue to show that the assessee had stated incorrect and wrong material facts resulting in the Assessing Officer proceeding on the basis of facts, which are incorrect and wrong. The reasons recorded and the documents on record are of paramount importance and will have to be examined to determine whether the stand of the Revenue is correct. A decision of this court in Writ Petition (Civil) No. 6205 of 2010, dated September 26, 2011—since reported in Dalmia P. Ltd. v. CIT [2012] 348 ITR 469 (Delhi) and a decision of the Bombay High Court in Writ Petition No. 1017 of 2011, dated November 8, 2011, Indian Hume Pipe Co. Ltd. v. Asst. CIT [2012] 348 ITR 439 (Bom) are two such cases. In the first case, the Assessing Officer in the original assessment had made addition of Rs. 19,86,551 under section 40(1) on account of unconfirmed sundry creditors. The reassessment proceedings were initiated after noticing that unconfirmed sundry creditors, of which details, etc.,were not furnished, were to the extent of Rs. 52,84,058 and not Rs. 19,86,551. In Indian Hume Pipe Co. Ltd. (supra), after verification the claim under section 54EC was allowed but subsequently on examination it transpired that the second property was purchased prior to the date of sale. The aforesaid decisions/ facts cases must be distinguished from cases where the material facts on record are correct but the Assessing Officer did not draw proper legal inference or did not appreciate the implications or did not apply the correct law. The second category will be a case of "change of opinion" and cannot be reopened for the reason that the assessee, as required, has placed on record primary factual material but on the basis of legal understanding, the Assessing Officer has taken a particular legal view. However, as stated above, an erroneous decision, which is also prejudicial to the interests of the Revenue, can be made subject-matter of adjudication under section 263 of the Act.

6.1 As per above paras from this judgment of Full Bench of Hon'ble Delhi High Court, it is seen that it was held in this case that reassessment proceedings will be invalid in case the assessment order itself records that the issue was raised and is decided in favour of the assessee because in that situation the reassessment proceedings will be hit by the principle of change of opinion. Similarly, in that situation where query is raised and answered by the assessee in original assessment proceedings, and thereafter, the Assessing Officer does not make any addition in the assessment order, the reassessment proceedings will be invalid in that scenario also, it has to be accepted that the Assessing Officer had formed an opinion in the original assessment although he had not recorded his reasons for forming opinion but still this is a change of opinion if the Assessing Officer starts the reassessment proceedings for the same issue. In the light of this, now we examine the facts of the present case. As per the original assessment order passed by Assessing Officer u/s 143(3) dated 11/12/2008, it is seen that it is noted by Assessing Officer on page No. 2 of this assessment order that queries were raised vide letter dated 12/11/2008. The queries are reproduced by the Assessing Officer on pages 2 of the assessment order and one of the queries was that the assessee was asked to explain as to why the prior years expenses should not be disallowed. The reply of the assessee before the Assessing Officer are also reproduced by the Assessing Officer on pages 2 & 3 of that assessment year and in the reply para 4, it was submitted by the assessee before the Assessing Officer that prior year expenses should be allowed as deduction because the same are in the nature of business expenses for which liability arose during the present year under question. Even after making this query and receiving reply from the assessee, no addition was made by the Assessing Officer in the assessment order u/s 143(3) dated 11/12/2008 on account of prior period expenses. But still it has to be accepted that opinion was formed by the Assessing Officer although the reasons for forming an opinion is not available in the assessment order u/s 143(3) of the Act. Hence, this judgment of full Bench of Hon'ble Delhi High Court rendered in the case of Usha International Ltd. (supra) is squarely applicable in the present case and hence, respectfully following this judgment of Hon'ble Delhi High Court, we hold that in the present case, reopening is on mere change of opinion and therefore, not valid. These grounds of the assessee are allowed.

7. In view of above decision regarding validity of reassessment proceedings as per above para, other grounds raised by the assessee on merit of the addition of Rs.12,98,902/- do not call for any separate adjudication.

8. In the result, the appeal of the assessee stands allowed. (Order was pronounced in the open court on the date mentioned on the caption page)

Sd/.                                                      Sd/.
(SUNIL KUMAR YADAV)         ( A. K. GARODIA )
Judicial Member           Accountant Member
Dated:24/09/2015