INCOME TAX APPELLATE TRIBUNAL “C” BENCH: KOLKATA

I.T.A No. 668/Kol/2013 Assessment Year: 2001-02
M/s. Pilani Investments & Industries Corporation Ltd (Appellant) Vs. Assistant Commissioner of Income-tax,
Date of Order: 24-11-2015

ORDER

Per Shri Mahavir Singh, JM:
This appeal by assessee is arising out of order of CIT(A)-VI, Kolkata in Appeal No. 1468/CIT(A)-VI/Cir-5/09-10/Kol dated 21.01.2013. Assessment was framed by ACIT, Circle-5, Kolkata u/s. 147/143(3) of the Income-tax Act, 1961 (hereinafter referred to as “the Act”) for AY 2001-02 vide its order dated 28.11.2008.

2. The first issue in this appeal of assessee is, “Whether the AO has erred in assuming jurisdiction u/s. 147 read with section 148 of the Act in the given facts and circumstances of the case?”

3. Briefly stated facts are that the relevant assessment year involved is 2001-02. The original assessment was completed by AO u/s. 143(3) of the Act on 26.03.2004 and reassessment proceedings were initiated by issuing notice u/s. 148 of the Act dated 30.03.2008 by recording the following reasons:

“While going through the assessment records, it was found that the assessee has not disallowed any expenditure in respect of dividend income exempted u/s. 10(33). The dividend income earned by the assessee from Indian Companies which is exempted u/s. 10(33) is Rs.8,52,68,029/-. In terms of Sec. 14A of I. T. act, 1961, no deduction shall be allowed in respect of expenditure incurred by the assessee in relation to income which does not form part of the total income. Further, CBDT vide Circular No. 11 dt. 23.07.2001 directed that only where the assessment proceedings became final before 01.04.2001 the assessment should not be reopened u/s. 147 to disallow expenditure incurred to earn exempted income by applying the provision of section. But in the case of assessee the assessment proceedings has been completed on 26.03.2004.”

The assessee before the AO raised the objection for issuance of notice u/s. 148 by stating that in this case assessment was completed u/s. 143(3) of the Act and four years has expired from the end of the relevant assessment year as on the date of issuance of notice u/s. 148 of the Act and there is no failure on the part of the assessee to make a return of income u/s. 139(1) of the Act or to disclose fully and truly all material facts necessary for its assessment for this assessment year. But the AO rejected the contention of assessee stating that in term of section 14A of the act, no deduction shall be allowed in respect of expenditure incurred by the assessee in relation to income which does not form part of the total income. Aggrieved, assessee preferred appeal before CIT(A) and raised the jurisdictional issue but CIT(A) also confirmed the action of AO and held the reassessment notice u/s. 148 of the Act to be valid. Aggrieved, assessee came in second appeal before Tribunal.

4. We have heard rival submissions and gone through facts and circumstances of the case. The facts are clear that for the relevant AY 2001-02 assessee filed return of income on 30.10.2001 and original assessment was framed u/s. 143(3) of the Act vide order dated 26.03.2004 and subsequently, the AO recorded reasons u/s. 147 of the Act vide dated 30.03.2008 and served notice u/s. 148 of the Act on assessee on 31.03.2008. It is a fact that the notice has been issued after a period of four years from the end of assessment year and original assessment was completed u/s. 143(3) of the Act. On perusal of recorded reasons, as set out in para 3 above clearly shows that the AO while recording the reasons only consulted the assessment records and found that the assessee has not disallowed any relatable expense to exempt income i.e. dividend income exempted u/s. 10(33) of the Act. We find that the assessee has already disclosed the claim of dividend income as exempt u/s. 10(33) of the Act in its account, which are part of the return of income of the assessee for the relevant AY and assessment was completed under scrutiny by issuing notice u/s. 143(2) and thereby completed u/s. 143(3) of the Act. From the very opening line of the reasons, it is clear that the AO has based his entire premise for reopening the assessment and for recording of reasons the assessment records and the CBDT Circular no. 11 dated 23.07.2001. The opening lines of reasons recorded reads that, “while going through the assessment records, it was found that the assessee has not disallowed any expenditure in respect of dividend income exempted u/s. 10(33) of the act. The reasons recorded only states that no expenditure has been disallowed in respect of dividend income earned and claimed as exempt u/s. 10(33) of the Act. We find that there is no allegation of any nature whatsoever that there was any omission or failure on the part of the assessee to disclose truly or fully any material facts necessary for assessment. Further, the reasons recorded clearly shows that the notice u/s. 148 of the Act has been issued on the basis of assessment records and on the basis of CBDT Circular No. 11 dated 23.07.2001 and according to us, which cannot be the basis for reopening assessment u/s. 147 read with section 148 of the Act. As the notice has been issued on the basis of the material already available on assessment records, the assessee’s case clearly falls under the proviso to section 147 of the Act, for the reasons that the information was already available in the accounts of the assessee which are part of return of income. In the similar circumstances, Hon’ble Supreme Court in the case of CIT v. Foramer France [2003] 264 ITR 566, (SC), held that since the facts were before the Assessing Officer at the time of framing of original assessment, later a different view taken by him or by his successor on the same facts, it clearly tantamount to change of opinion and nothing else. This could not form the basis of reopening the assessment, permitting the Assessing Officer or his successor to reopen the completed assessment merely on conjecture and surmise, even nothing new has come to the possession of the Assessing Officer, which suggests that the income in the case of assessee has escaped assessment. If the Assessing Officer, while passing the original assessment order choose not to give any finding in respect of any issue, which is properly replied by the assessee, that could not give him or his successor in office a reason to reopen the completed assessment of the assessee or to contend that because the facts were considered in the assessment order, a full entry disclosure was not made. If the entire material has been placed by the assessee before the Assessing Officer at the time when the original assessment was made and the AO applied his mind to that material and accepted the view canvassed by the assessee, then merely because he did not express this in the assessment order, that by itself would not give him a ground to conclude that income has escaped assessment, and, therefore the assessment needed to be reopened. The assessee has no control over the way on the assessment order is drafted. The issues which are accepted by the Assessing Officer do not find mention in the assessment order and only such points are taken note on which the assessee’s explanation are rejected and additions are made.

5. In this case, the assessee has filed complete details as is evident from the above facts and the details in respect of divided received and also the details of expenditure, which have been filed by the assessee vide different letters addressed to the AO, we feel that the reopening is just merely a change of opinion and nothing else. The change of opinion is not permissible in law as held by the Hon’ble Apex Court in the case of Former France (supra) while confirming the decision of Hon’ble Allahadabad High Court in the case of Foramer v. CIT (2001) 247 ITR 436 (All.), wherein the Hon’ble High Court has held as under:-

“In our opinion, we have to see the law prevailing on the date of issue of the notice under section 148, i.e November 20, 1998. Admittedly, by that date, the new section 147 has come into force and, hence, in our opinion, it is the new section 147 which will apply to the facts of the present case. In the present case, there was admittedly no failure on the part of assessee to make a return or to disclose fully and truly all material facts necessary for the assessment. Hence, the proviso to the new section 147 squarely applies, and the impugned notices were barred by limitation mentioned in the proviso.” And finally the Hon’ble Allahabad High Court has held as under:- “Although we are of the opinion that the law existing on the date of the impugned notice u/s 147/148 has to be seen, yet even in the alternative even if we assume that the law prior to the insertion of the new section 147 will apply even then it will make no difference since even under the original section 147 notice for reassessment could not be given on the mere change of opinion as held in numerous cases of the Supreme Court, some of which have been mentioned above. Since the Tribunal in the appeal relating to the assessee company had considered the Tribunal’s earlier decision in Boudier Christian’s case, it will obviously amount to mere change of opinion, and hence notice u/s 147/148 would be illegal.”

6. Further the Hon’ble Delhi High Court in the case of Jindal Photo Films Ltd v. Dy CIT [1998] 234 ITR 170 has held that (from head notes)-

“it cannot be disputed that discovery of new and important matter or knowledge of fresh facts which were not present at the time of original assessment would constitute a ‘reason to believe that any income chargeable to tax has escaped assessment’ within the meaning of even sec 147 (operative from 1-4-1989). Here also such facts which could have been discovered by the Assessing Officer but were not so discovered at the time of original assessment may not constitute a new information. In that view of the matter, where the Assessing Officer has formed the opinion that the income has escaped assessment because he has allowed the deduction under section 80-I wrongly and even though in recording the reasons the Assessing Officer has used the phrase ‘reason to believe’, between the date of the original order of assessment sought to be reopened and the date of forming of opinion by the Assessing Officer, nothing new has happened. There is no change of law. No new material has come on record. No information has been received. In such circumstances, it can be said that it is merely a fresh application of mind by the same Assessing Officer to the same set of facts. What the Assessing Officer has said about the order of the first appellate authority while recording reasons under section 147 he could have said even in the original order of assessment because such appellate order was before him at that time. Thus, it is a case of mere change of opinion which does not provide jurisdiction to the Assessing Officer to initiate proceedings u/s 147.

7. From the above facts of the case and the decision of the Hon’ble Apex Court as well as Hon’ble Delhi High Court in Jindal Photo Films Ltd.(supra), we are of the view that even in post-1989 amended provision of Section 147 of the Act, change of opinion is not permissible. Accordingly, we allow this legal issue of the assessee’s appeal and reverse the order of lower authorities on this issue. As regards to the merits of the case, since we have decided the issue of jurisdiction in favour of the assessee and allow the appeal of the assessee, we need not go into the merits of the case. Accordingly, this appeal of the assessee is allowed.

8. In the result, the appeal of assessee is allowed.

9. Order is pronounced in the open court on 24.11.2015

(M. Balaganesh)                       (Mahavir Singh)
Accountant Member                 Judicial Member