Indwel Lianings Private Ltd., CHENNAI V. ACIT, CHENNAI

CO 91/CHNY/2007

• Counselvise Citation: [2010] 122 COUNSELVISE.COM (IT) 5272 (ITAT-CHENNAI)
• Duration Of Justice: 3 year(s) 3 month(s) 2 day(s)
• Appeal Type: Cross Objection
• Pronouncement Date: 26-11-2010
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 22-11-2010
• Assessment Year: 2002-2003
• Appeal Filed On: 23-08-2007
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Reopening of assessment; Depreciation; Bad and doubtful debts; Difference of opinion; Reason to believe; Change of opinion; Reassessment proceedings
• Section: 143(3); 147; 148; 2

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL BENCH A CHENNAI (BEFORE DR. O.K. NARAYANAN, VICE PRESIDENT AND SHRI HARI OM MARATHA, JUDICIAL MEMBER) ..... C.O. NO. 91/MDS/2007 (IN I.T.A. NO. 1631/MDS/2007) ASSESSMENT YEAR : 2002-03 THE ASSISTANT COMMISSIONER OF INCOME TAX, COMPANY CIRCLE II(3), CHENNAI - 600 034. (CROSS OBJECTOR) V. M/S INDWEL LIANINGS PVT. LTD., NO.F/20, SECOND MAIN ROAD, ANNA NAGAR, CHENNAI - 600 102. PAN : AAACI2632M (RESPONDENT) CROSS OBJECTOR BY: SHRI C.K.N. RA VI SHANKARA PRABHU RESPONDENT BY: SHRI SHAJI P. JACOB O R D E R PER HARI OM MARATHA, JUDICIAL MEMBER : THIS IS A RECALLED MATTER. THE REVENUE HAD FILED APPEAL IN I.T.A. NO. 1631/MDS/2007 FOR THE ASSESSMENT YEAR 20 02-03 CORRESPONDING TO WHICH THE ASSESSEE HAD FILED THE C .O. BOTH C.O. AND APPEAL WERE HEARD AND COMMON ORDER WAS PASSED O N 13 TH JUNE, 2008. SUBSEQUENTLY, A MISCELLANEOUS PETITION WAS F ILED STATING THEREIN THAT THE LEGAL ISSUES RAISED VIDE GROUND NO S. 1, 2 & 3 IN THE CROSS OBJECTION REMAINED UNADJUDICATED. AFTER HEAR ING BOTH SIDES, C.O. NO. 91/MDS/07 2 THE TRIBUNAL ORDER IN QUESTION WAS RECALLED FOR DEC IDING GROUND NOS.1, 2 & 3 RAISED IN THE CROSS OBJECTION. FACTS OF THE CASE HAVE ALREADY BEEN NARRATED IN THE ORDER OF THE TRIBUNAL. THEREF ORE, WE DONT NEED TO REPEAT THEM. BUT, THE FACTS WHICH ARE MOSTLY RE LEVANT TO DISPOSE OF THE ISSUE IN GROUND NOS.1, 2 & 3 OF THE CROSS OBJEC TION SHALL BE DISCUSSED AS AND WHEN REQUIRED. THE GROUND NOS.1, 2 & 3 RAISED IN THE CROSS OBJECTION READ AS UNDER:- 1. FOR THAT THE REOPENING IS BAD IN LAW. 2. FOR THAT THE REOPENING WAS NOT BASED ON ANY FRESH MATERIAL. 3. FOR THAT WITHOUT PREJUDICE TO THE ABOVE, COMMISSIONER OF INCOME TAX (APPEALS) FAILED TO APPRECIATE THAT IT IS NOT OPEN TO THE ASSESSING OFFICER IN THE RE-ASSESSMENT TO TRAVEL BEYOND THE PURPOSE FOR WHICH THE ASSESSMENT WAS REOPENED . 2. WE HAVE HEARD RIVAL SUBMISSIONS AND HAVE CAREFUL LY EXAMINED THE ENTIRE RECORD. IN FACT, THE ASSESSEE WAS ENGAG ED IN THE BUSINESS OF ANTI-CORROSIVE LINING AND INSITU LINING OF INFRA STRUCTURE FACILITIES. FOR THIS YEAR, THE RETURN WAS FILED ON 27.11.2003 IN WH ICH TOTAL INCOME WAS DECLARED AT ` 28,27,100/-. ON MERITS, THE ISSUE INVOLVED IS DISALLOWANCE OF DEDUCTION OF DEPRECIATION CLAIMED A T THE RATE OF 100% CLAIMING ON CERTAIN PLANTS AND MACHINERY USED IN DE VELOPING INFRASTRUCTURE FACILITIES. AS PER THE ASSESSEE, IT S CLAIM IS COVERED C.O. NO. 91/MDS/07 3 UNDER SECTION 80IA(4) OF THE INCOME-TAX ACT, 1961 ( HEREINAFTER REFERRED TO THE ACT). BUT, THE A.O. HAS OBSERVED THAT THE ASSESSEE IS ONLY A CONTRACTOR FOR CONSTRUCTION BUSINESS AND NOT FOR INFRASTRUCTURE FACILITIES. BUT, WE ARE NOT ON THE MERITS OF THIS ISSUE. THE MAIN THRUST OF ARGUMENT AS ADVANCED BY THE AUTHORIZED REPRESENT ATIVE OF THE ASSESSEE IS THAT THE REASONS RECORDED FOR ISSUANCE OF NOTICE UNDER SECTION 148(2) OF THE ACT ON THE BASIS OF WHICH THE A.O. HAS ASSUMED JURISDICTION IS IN FACT INVALID IN VIEW OF THE FACT THAT THE ASSESSEE HAD DISCLOSED ENTIRE RELEVANT MATERIAL FACTS AND NO NEW FACT HAD COME TO HIS KNOWLEDGE AND THERE WAS NO VALID REASON TO TAKE RECOURSE THE RE- ASSESSMENT PROCEEDINGS UNDER SECTION 147(1) OF THE ACT BECAUSE CONDITIONS LAID DOWN THEREIN DO NOT EXIST IN THIS C ASE. IT WAS ALSO ARGUED THAT THERE IS NO ESCAPEMENT OF INCOME IN TER MS OF THE PROVISIONS OF SECTION 147 READ WITH SECTION 148 OF THE ACT AS PER THE LAW OBTAINING AT THE RELEVANT TIME. 3. ON THE OTHER HAND, THE LEARNED D.R. HAS RELIED O N THE REASONS RECORDED AND HAS FURTHER SUBMITTED THAT THE INCOME CHARGEABLE TO TAX HAS ESCAPED ASSESSMENT. THEREFORE, RE-ASSESSMENT W AS VALIDLY DONE. WE MAY MENTION THAT THE REVENUES APPEAL WAS ALLOWED IN WHICH QUANTUM ADDITIONS HAVE BEEN CONFIRMED. BUT, THE FACT REMAINS C.O. NO. 91/MDS/07 4 THAT THE LEGAL ISSUE RAISED REMAINED UNDECIDED AND THE ISSUE IN QUESTION GOES TO THE VERY ROOT OF THE MATTER. THE REASON RECORDED IN THIS CASE READS AS UNDER:- ASSESSEE IS A CONTRACTOR FOR CIVIL WORK. IT IS IN THE BUSINESS OF IN-SITU CEMENT LINING WORKS. IT ENTER ED INTO CONTRACT WITH GUJARAT WATER SUPPLY AND SEWAGE BOAR D. ASSESSEE CLAIMED DEDUCTION U/S 80-IA. THE BALANCE SHEET DOES NOT DISCLOSE ANY ADDITION OF SPECIFIC ASSETS OF INF RASTRUCTURE, ONE OF THE CONDITIONS FOR CLAIMING DEDUCTION U/S 80 -IA. IT IS NOTED THAT THE ASSESSEE OWNS INFRASTRUCTURE WHICH I S ABSENT IN THE ASSESSEES CASE. DEVELOPING OR OPERATING AND M AINTAINING OR DEVELOPING/OPERATING OF FACILITY IS REQUIRED. ASSE SSEE IS NOT ELIGIBLE TO CLAIM DEDUCTION U/S 80-IA OF ` 17152320/-. INCOME ESCAPED ASSESSMENT. PL. PUT UP NOTICE U/S 148. 4. FROM THE ABOVE REASON, IT TRANSPIRES THAT THE AS SESSMENT WAS REOPENED WHEN THE A.O. FORMED HIS OPINION THAT ASSE TS OF INFRASTRUCTURE WAS NOT OWNED BY THE ASSESSEE, SO TH E ASSESSEE DONT QUALIFY FOR THIS DEDUCTION AND HENCE INCOME HAS ESC APED ASSESSMENT. IT WAS ARGUED BY THE LEARNED A.R. THAT OWNING OF ASSETS WAS NOT A REQUISITE CONDITION UNDER SECTION 80-IA A S IT STOOD AT THE RELEVANT TIME. SECTION 80-IA IT STOOD AT THE RELEV ANT POINT OF TIME READ AS UNDER:- (4) THIS SECTION APPLIES TO- (I) ANY ENTERPRISE CARRYING ON THE BUSINESS [OF (I) DEVELOPING OR (II) OPERATING AND MAINTAINING OR (III) DEVELOPING, OPERATING AND MAINTAINING] ANY C.O. NO. 91/MDS/07 5 INFRASTRUCTURE FACILITY WHICH FULFILS ALL THE FOLLOWING CONDIONS, NAMELY:- (A) IT IS OWNED BY A COMPANY REGISTERED IN INDIA OR BY A CONSORTIUM OF SUCH COMPANIES [OR BY AN AUTHORITY OR A BOARD OR A CORPORATION OR ANY OTHER BODY ESTABLISHED OR CONSTITUTED UNDER ANY CENTRAL OR STATE ACT;] (B) IT HAS ENTERED INTO AN AGREEMENT WITH THE CENTRAL GOVERNMENT OR A STATE GOVERNMENT OR A LOCAL AUTHORITY OR ANY OTHER STATUTORY BODY FOR (I) DEVELOPING OR (II) OPERATING AND MAINTAINING OR (III) DEVELOPING, OPERATING AND MAINTAINING A NEW INFRASTRUCTURE FACILITY;] (C) IT HAS STARTED OR STARTS OPERATING AND MAINTAINING THE INFRASTRUCTURE FACILITY ON OR AFTER THE 1 ST DAY OF APRIL, 1995: PROVIDED THAT WHERE AN INFRASTRUCTURE FACILITY IS TRANSFERRED ON OR AFTER THE 1 ST DAY OF APRIL, 1999 BY AN ENTERPRISE WHICH DEVELOPED SUCH INFRASTRUCTURE FACILITY (HEREAFTER REFERRED TO IN THIS SECTION AS THE TRANSFEROR ENTERPRISE) TO ANOTHER ENTERPRISE (HEREAFTER IN THIS SECTION REFERRED TO AS THE TRANSFEREE ENTERPRISE) FOR THE PURPOSE OF OPERATING AND MAINTAINING THE INFRASTRUCTURE FACILITY ON ITS BEHALF IN ACCORDANCE WITH THE AGREEMENT WITH THE CENTRAL GOVERNMENT, STATE GOVERNMENT, LOCAL AUTHORITY OR STATUTORY BODY, THE PROVISIONS OF THIS SECTION SHALL APPLY TO THE TRANSFEREE ENTERPRISE AS IF IT WERE THE ENTERPRISE TO WHICH THIS CLAUSE APPLIES AND THE DEDUCTION FROM PROFITS AND GAINS WOULD BE AVAILABLE TO SUCH TRANSFEREE ENTERPRISE FOR THE UNEXPIRED PERIOD DURING WHICH THE TRANSFEROR ENTERPRISE WOULD HAVE BEEN C.O. NO. 91/MDS/07 6 ENTITLED TO THE DEDUCTION, IF THE TRANSFER HAD NOT TAKEN PLACE. IN OUR OPINION, THE SUBMISSION OF LEARNED A.R. IS C ORRECT BECAUSE THE WORD IT USED IN SECTION 80-IA(4)(I)(A) REFERS TO ENTERPRISE AND NOT TO INFRASTRUCTURE FACILITY. THE SIMPLE REASON FOR T HE SAME BEING THAT IN CASE IT IS TAKEN TO REFER TO INFRASTRUCTURE FACI LITY, CLAUSE (II) WILL BECOME OTIOSE BECAUSE THIS CLAUSE ALSO STARTS WITH THE WORD IT. IN THIS REGARD, THE DECISION OF MUMBAI TRIBUNAL OF ITA T IN THE CASE OF PATEL ENGINEERING 94 ITD 411 IS RELEVANT WHEREIN IT HAS BEEN HELD AS FOLLOWS:- 50. BESIDES, IF WE WERE TO COMPARE SUB-S. (4A) OF S . 80-IA, WHICH STANDS REPLACED BY SUB-S. (4) OF S. 80-IA BY THE FINANCE ACT, 1999, WE FIND THAT IN CLS. (I), (II) AND (III) OF THE EARLIER SUB- S. (4A), THE WORD ENTERPRISE WAS USED, BUT IN THE REPLACED (NEW) SUB-S. (4) IN THE CORRESPONDING SUB-CLS. (A), (B) AND (C) THE WORD ENTERPRISES HAS BEEN REPLACED BY THE WORD I T. OBVIOUS AS IT IS, READING IN THE ABOVE CONTEXT, IT IS AMPLY CLEAR THAT IN SUB-S. (4), AS AMENDED BY THE FINANCE ACT, 1999, TH E WORD IT NEEDS APPROPRIATELY TO BE INTERPRETED TO MEAN ENTE RPRISE. MOREOVER, IF THE INTERPRETATION CANVASSED BY THE A. O., THAT THE WORD IT REPRESENTS THE INFRASTRUCTURE FACILITY, IS ACCEPTED, IT WILL LEAD TO AN ABSURD RESULT, BECAUSE, SUB-CL. (B) OF CL. (I) OF SUB-S. (4) PROVIDES THAT : IT HAS ENTERED INTO AN AGREEMENT WITH CENTRAL GOVERNMENT AND THUS IT AS USED IN S UB-CL. (B) HAS TO BE SOMEONE WHO/WHICH HAS ENTERED INTO AN AGR EEMENT WITH THE GOVERNMENT, ETC. OBVIOUSLY, THE INFRASTRU CTURE FACILITY CANNOT BE SUCH AN ENTRANT AS IT CANNOT ENT ER INTO AN AGREEMENT WITH THE CENTRAL GOVERNMENT OR WITH ANYBO DY ELSE. UNDERSTANDABLY, IT IS ONLY THE ENTERPRISE, WHICH CAN ENTER INTO C.O. NO. 91/MDS/07 7 AN AGREEMENT WITH THE CENTRAL GOVERNMENT OR STATE GOVERNMENT OR ANY OTHER PERSON. AS SUCH, VIEWED AS ABOVE ALSO, THE WORD IT DENOTE S THE ENTERPRISE AND NOT THE INFRASTRUCTURE FACILITY. 5. WE ARE IN AGREEMENT WITH THE LEARNED A.R. THAT T HE LAW WHICH WAS RULING THE FIELD AT THE RELEVANT POINT OF TIME, HAS TO BE CONSIDERED IN FORMING THE OPINION BY THE A.O. THE REASON FOR REOPENING HAS A GREAT RELEVANCE AND EVERY ACTION HAS TO BE TAKEN BY THE A.O. IN THE LIGHT OF THE LAW PREVAILING AT THAT PARTICULAR TIME , AND IF SUBSEQUENTLY, THERE IS A CHANGE IN THE LAW, THAT WOULD NOT GIVE A VALID JURISDICTION TO THE ASSESSING OFFICER TO RESORT TO THE PROVISIONS O F SECTION 147/148 OF THE ACT UNLESS THE CHANGED LAW IS GIVEN RETROSPECTI VE EFFECT. IT IS TRUE THAT IN THIS CASE, INITIALLY, THE RETURN WAS P ROCESSED UNDER SECTION 143(1)(A). BUT, STILL IN SUCH CASES, THE A.O. IS R EQUIRED TO RECORD THE REASONS IN THE SAME MANNER AS IT IS DONE IN CASE OF ASSESSMENT MADE UNDER SECTION 143(3). THERE IS NO SLIGHTEST D IFFERENCE IN LAW IN THESE TWO SITUATIONS REGARD TO THAT ASPECT. THE MA DRAS TRIBUNAL OF ITAT IN THE CASE OF SRI VIGNESH YARNS IN I.T.A. NO. 2232/MDS/08 AND IN OTHER CASE HAVE TAKEN A VIEW THAT IF THE PREVAIL ING LEGAL POSITION IS IN FAVOUR OF ASSESSEE AT THE RELEVANT TIME, IT WOUL D NOT GIVE SUBSEQUENTLY A VALID JURISDICTION TO THE ASSESSING OFFICER TO RESORT TO C.O. NO. 91/MDS/07 8 PROVISIONS OF SECTION 147. IN THE GIVEN CASE, THE ONLY RELEVANT REASON RECORDED BY THE A.O. IS THAT THE ASSESSEE DID NOT O WN REQUISITE INFRASTRUCTURE WHICH ACCORDING TO THE LEARNED A.R., WAS NOT A CONDITION PRECEDENT AFTER THE CHANGE OF LAW AND THI S REQUIREMENT WAS NO LONGER MANDATORY. TO BE MORE SPECIFIC ON THE LE GAL POSITION OF THE ISSUE, THE REOPENING OF ASSESSMENT UNDER SECTION 14 7 READ WITH SECTION 148 OF THE ACT HAS BEEN DEALT WITH AND DECI DED BY VARIOUS COURTS & TRIBUNALS. MANY CHANGES HAVE BEEN CARRIED OUT IN THE RELEVANT PROVISIONS OVER THE YEARS. PRIOR TO THE A MENDMENT WITH EFFECT FROM 01.04.1989, THE A.O. COULD FRAME AN ASS ESSMENT UNDER SECTION 143(1) OF THE ACT WITHOUT REQUIRING THE PRE SENCE OF THE ASSESSEE. HE HAD AN OPTION TO ISSUE A NOTICE UNDER SUB-SECTION (2) OF SECTION 143 OF THE ACT AND HE COULD EVEN REQUIRE THE ASSESSEE TO PRODUCE HIS BOOKS OF ACCOUNTS AND OTHER EVIDENCES I N SUPPORT OF THE RETURN FILED BY HIM TO FRAME ASSESSMENT UNDER SUB-S ECTION (3) OF SECTION 143 OF THE ACT. THUS, THE A.O. HAD TO PASS AN ASSESSMENT ORDER EITHER UNDER SUB-SECTION (1) OR UNDER SUB-SEC TION (3) OF SECTION 143 OF THE ACT. AFTER 01.04.1989 THIS POSITION HAS MATERIALLY CHANGED. THE A.O. IS NOT REQUIRED TO FRAME ASSESSM ENT ORDER IN EACH AND EVERY CASE. HE CAN PROCESS THE RETURN UND ER SECTION C.O. NO. 91/MDS/07 9 143(1)(A), INITIALLY, AND DETERMINE THE AMOUNT PAYA BLE OR REFUNDABLE ON THAT BASIS. IN CASE HE CHOOSES TO VERIFY THE RE TURN, HE HAS TO ISSUE A NOTICE UNDER SUB-SECTION (2) OF SECTION 143 AND R EQUIRE THE ASSESSEE TO PRODUCE HIS BOOKS OF ACCOUNTS AND OTHER SUPPORTING MATERIALS. THE ORDER SO FRAMED IS AN ASSESSMENT OR DER PASSED UNDER SECTION 143(3). ANOTHER VITAL CHANGE EFFECTE D FROM 01.04.1989 IS THAT THE A.O. CANNOT SERVE A NOTICE UNDER SUB-SE CTION (2) OF SECTION 143 ON AN ASSESSEE AFTER THE EXPIRY OF 12 MONTHS FR OM THE END OF THE MONTH IN WHICH THE RETURN IS FURNISHED. THEREFORE, IN A CASE WHERE A RETURN IS FILED AND IS PROCESSED UNDER SECTION 143( 1)(A) OF THE ACT AND NO NOTICE UNDER SUB-SECTION (2) OF SECTION 143 OF T HE ACT IS SERVED ON THE ASSESSEE WITHIN THE STIPULATED PERIOD OF 12 MON THS, THE ASSESSMENT PROCEEDINGS UNDER SECTION 143 COMES TO A N END. 6. SECTION 143(1) HAS UNDERGONE AMENDMENTS VIDE THE FINANCE (NO.2) ACT OF 1991 WITH EFFECT FROM OCTOBER 1, 1991 , AND SUBSEQUENTLY WITH EFFECT FROM JUNE 1, 1994, BY THE FINANCE ACT, 1994, AND ULTIMATELY OMITTED WITH EFFECT FROM JUNE 1, 1999. BY THE NEWLY SUBSTITUTED SECTION 143(1) WITH EFFECT FROM J UNE 1, 1999, EXCEPT AS PROVIDED IN THE SECTION ITSELF, THE ACKNO WLEDGEMENT OF THE RETURN SHALL BE DEEMED TO BE AN INTIMATION UNDER SE CTION 143(1)(2) C.O. NO. 91/MDS/07 10 WHERE (A) EITHER NO SUM IS PAYABLE BY THE ASSESSEE, OR (B) NO REFUND IS DUE TO HIM. THIS INTIMATION IS NOT AN ASSESS MENT. 7. THE SECTION 147 AFTER ITS SUBSTITUTION BY THE DI RECT TAX LAWS (AMENDMENT) ACT, 1987, AUTHORIZES AND PERMITS THE A .O. TO ASSESS OR RE-ASSESS INCOME CHARGEABLE TO TAX IF HE HAS REASON TO BELIEVE THAT INCOME FOR ANY ASSESSMENT YEAR HAS ESCAPED ASSESSME NT. WHAT THE WORD REASON IN THE PHRASE REASON TO BELIEVE MEA NS HAS BEEN SUCCINCTLY INTERPRETED BY THE HON'BLE APEX COURT IN THE DECISION OF THE CASE OF ASSISTANT CIT V. RAJESH JHAVERI STOCK BROKE RS P. LIMITED REPORTED IN (2007) 291 ITR (SC) PAGE 500. THEIR LO RDSHIPS AFTER RELYING ON THE DECISIONS OF THE HON'BLE SUPREME COUR T IN THE CASE OF ITO V. SELECTED DALURBAND COAL CO. P. LTD. (1996) 217 ITR 597 (SC) AND RAYMOND WOOLLEN MILLS LIMITED V. ITO REPORTED I N (1999) 236 ITR 34 (SC) HAVE COME TO THE CONCLUSION THAT AT THE INITIAL STAGE WHAT IS REQUIRED IS REASON TO BELIEVE, BUT NOT THE EST ABLISHED FACT OF ESCAPEMENT OF INCOME. AT THE STAGE OF ISSUE OF NOT ICE, THE ONLY QUESTION IS WHETHER THERE WAS RELEVANT MATERIAL ON WHICH A REASONABLE PERSON COULD HAVE FORMED A REQUISITE BEL IEF. WHETHER THE MATERIALS WOULD CONCLUSIVELY PROVE THE ESCAPEMENT I S NOT THE CONCERN AT THAT STAGE. THIS FORMATION OF BELIEF BY THE A.O. HAS BEEN C.O. NO. 91/MDS/07 11 HELD TO BE WITHIN THE REALM OF SUBJECTIVE SATISFAC TION. IT WAS FURTHER HELD THAT THE A.O. HAS A JURISDICTION TO ISSUE NOTI CE UNDER SECTION 148 FOR BRINGING TO TAX INCOME ESCAPING ASSESSMENT IN A N INTIMATION UNDER SECTION 143(1)(A) ON THE GROUND THAT THE CLAI M FOR BAD DEBTS BY THE ASSESSEE WAS NOT ACCEPTABLE AS THE CONDITION FO R ALLOWANCE SPECIFIED IN SECTION 36(1)(VII) AND (2) WERE NOT FU LFILLED. IT WAS ALSO HELD IN THIS CASE THAT TAXING OF INCOME ESCAPING AS SESSMENT IN THE CASE OF AN INTIMATION UNDER SECTION 143(1)(A) IS CO VERED BY THE MAIN PROVISIONS OF SECTION 147 AS SUBSTITUTED WITH EFFEC T FROM APRIL 1 ST , 1989, AND INITIATING RE-ASSESSMENT PROCEEDING IN TH E CASE OF INTIMATION WOULD BE COVERED BY THE MAIN PROVISIONS OF SECTION 147 AND NOT THE PROVISO THERETO. FAILURE TO TAKE STEPS UNDER SECTION 143(3) WILL NOT RENDER THE A.O. POWERLESS TO INITIA TE RE-ASSESSMENT PROCEEDINGS WHEN INTIMATION UNDER SECTION 143(1) HA S BEEN ISSUED. FROM THE ABOVE RECENT DECISION OF HON'BLE APEX COUR T ONE THING IS CLEAR THAT THE A.O. HAS TO RECORD REASONS WHICH CAN BE SUBJECTIVE BUT BASED ON OBJECTIVE MATERIALS. 8. ADVERTING TO THE FACTS OF THE CASE, WE ARE CONVI NCED THAT THE FINANCE ACT, 2001 MADE CERTAIN CHANGES IN THE PROVI SIONS OF SECTION C.O. NO. 91/MDS/07 12 80-IA. THE MAJOR CHANGES MADE ARE IN SUB-SECTION ( 4) (I) IN CLAUSE (I) AS UNDER:- FOR THE WORDS, BRACKETS AND FIGURES OF (I) DEVELOP ING (II) MAINTAINING AND OPERATING OR (III) DEVELOPING, MAIN TAINING AND OPERATING, THE WORDS, BRACKETS AND FIGURES OF (I) DEVELOPING OR (II) OPERATING AND MAINTAINING OR (III) DEVELOPING, OPERATING AND MAINTAINING WERE SUBSTITUTED WITH EFFECT FROM THE 1 ST DAY OF APRIL, 2002; FOR SUB-CLAUSE (B), THE FOLLOWING SUB-CLAUSE WAS SU BSTITUTED WITH EFFECT FROM THE 1 ST DAY OF APRIL, 2002, NAMELY:- (B) IT HAS ENTERED INTO AN AGREEMENT WITH THE CENT RAL GOVERNMENT OR A STATE GOVERNMENT OR A LOCAL AUTHORI TY OR ANY OTHER STATUTORY BODY FOR (I) DEVELOPING (II) OPERAT ING AND MAINTAINING OR (III) DEVELOPING, OPERATING AND MAIN TAINING A NEW INFRASTRUCTURE FACILITY; (II) FOR THE EXPLANATION, THE FOLLOWING EXPLANATION WAS SUBSTITUTED WITH EFFECT FROM THE 1 ST DAY OF APRIL, 2002, NAMELY:- EXPLANATION, - FOR THE PURPOSES OF THIS CLAUSE, INFRASTRUCTURE FACILITY MEANS - (A) A ROAD INCLUDING TOLL ROAD, A BRIDGE OR A RAIL SYST EM; (B) A HIGHWAY PROJECT INCLUDING HOUSING OR OTHER ACTIVITIES BEING AN INTEGRAL PART OF THE HIGHWAY PROJECT; (C) A WATER SUPPLY PROJECT, WATER TREATMENT SYSTEM, IRRIGATION PROJECT, SANITATION AND SEWERAGE SYSTEM OR SOLID WASTE MANAGEMENT SYSTEM; (D) A PORT, AIRPORT, INLAND WATERWAY OR INLAND PORT; 9. BE THAT AS IT MAY, THE CHENNAI BENCH OF ITAT IN THE CASE OF ACIT V. SRI VIGNESH YARNS P. LTD. IN I.T.A. NO. 223 2/MDS/08 BY ORDER C.O. NO. 91/MDS/07 13 DATED 4 TH MARCH, 2010 HAS TAKEN A SIMILAR VIEW AND IN THAT C ASE ALSO IDENTICAL FACTS WERE THERE. IT HAS BEEN HELD IN PA RAGRAPHS 10, 11, 12 AND 13 AS FOLLOWS:- 10. WE HAVE CIRCUMSPECTED THE ENTIRE FACTS AND PIEC ES OF EVIDENCE IN THE LIGHT OF THE RELEVANT PROVISIONS AN D THE PRECEDENTS RELIED BEFORE US. WHAT IS REQUIRED FOR TAKING ACTION U/S 147 READ WITH SECTIONS 148 AND 151 IS THAT THE ASSESSING OFFICER HAS TO FORM HIS BELIEF ABOUT THE ESCAPEMENT OF INCOME AND AFTER RECORDING THAT BELIEF IN THE FORM OF A RE ASON U/S 148(2) AND AFTER OBTAINING REQUISITE SANCTION U/S 151, HE HAS TO ISSUE THE SAME TO THE ASSESSEE. AFTER THE NOTICE IS SO ISSUE D AND SERVED ON THE ASSESSEE THE ASSESSING OFFICER CAN FRAME THE AS SESSMENT U/S 143(2) READ WITH SECTION 147, AS PER LAW. IN THIS CASE, THERE IS NO DISPUTE REGARDING RECORDING OF REASONS BY ASSESSING OFFICER. MAIN GRIEVANCE OF ASSESSEE-COMPANY IS THAT THE REAS ON IS NOT VALID BECAUSE THE PREVAILING LEGAL POSITION WAS IN FAVOUR OF THE ASSESSEE AND THAT THE CHANGE OF OPINION DOES NOT GIVE A VALI D JURISDICTION TO THE ASSESSING OFFICER. SECTION 143(1) HAS UNDERGON E AMENDMENTS VIDE THE FINANCE (NO.2) ACT OF 1991 W.E.F OCTOBER 1 , 1991; AND SUBSEQUENTLY W.E.F JUNE 1, 1994, BY THE FINANCE ACT , 1994, AND ULTIMATELY OMITTED W.E.F JUNE 1, 1999. THE NEWLY S UBSTITUTED SECTION 143(1) W.E.F JUNE 1, 1999, EXCEPT AS PROVID ED IN THE SECTION ITSELF THE ACKNOWLEDGEMENT OF THE RETURN OF INCOME SHALL DEEMED TO BE AN INTIMATION WHEN EITHER NO SUM IS PA YABLE BY THE ASSESSEE OR NO REFUND IS DUE TO HIM. THIS INTIMATI ON IS NOT AND CANNOT BE TREATED AS AN ASSESSMENT. NO APPLICATI ON OF MIND CAN BE ATTRIBUTED TO SUCH AN INTIMATION. 11. SECTION 147 AFTER ITS SUBSTITUTION BY THE DIREC T TAX LAWS (AMENDMENT) ACT, 1987, AUTHORIZES AND PERMITS THE A SSESSING OFFICER TO ASSESS OR RE-ASSESS INCOME CHARGEABLE TO TAX IF HE HAS REASON TO BELIEVE THAT INCOME FOR ANY ASSESSMENT YE AR HAS ESCAPED ASSESSMENT. WHAT THE WORD REASON IN THE PHRASE REASON TO BELIEVE MEANS HAS BEEN SUCCINCTLY INTER PRETED BY THE HON'BLE APEX COURT IN THE DECISION OF THE CASE OF A SSISTANT CIT VS RAJESH JHAVERI STOCK BROKERS P. LTD REPORTED IN (2007) 291 C.O. NO. 91/MDS/07 14 ITR (SC) PAGE 500. THEIR LORDSHIPS AFTER RELYING ON THE DECISIONS OF THE HON'BLE SUPREME COURT IN THE CASE OF ITO VS SELECTED DALURBAND COAL CO. P LTD (1996) 217 ITR 59 7 (SC) AND RAYMOND WOOLLEN MILLS LIMITED VS ITO REPORTED IN (1 999) 236 ITR 34 (SC) HAVE COME TO THE CONCLUSION THAT AT THE INITIAL STAGE WHAT IS REQUIRED IS REASON TO BELIEVE, BUT NOT TH E ESTABLISHED FACT OF ESCAPEMENT OF INCOME. AT THE STAGE OF ISSU E OF NOTICE, THE ONLY QUESTION IS WHETHER THERE WAS RELEVANT MAT ERIAL ON WHICH A REASONABLE PERSON COULD HAVE FORMED A REQUISITE B ELIEF. WHETHER THE MATERIALS WOULD CONCLUSIVELY PROVE THE ESCAPEMENT IS NOT THE CONCERN AT THAT STAGE. THIS FORMATION O F BELIEF BY THE ASSESSING OFFICER HAS BEEN HELD TO BE WITHIN THE RE ALM OF SUBJECTIVE SATISFACTION. IT WAS FURTHER HELD THA T THE ASSESSING OFFICER HAS A JURISDICTION TO ISSUE NOTICE UNDER S ECTION 148 FOR BRINGING TO TAX INCOME ESCAPING ASSESSMENT IN AN IN TIMATION UNDER SECTION 143(1)(A) ON THE GROUND THAT THE CLAIM FOR BAD DEBTS BY THE ASSESSEE WAS NOT ACCEPTABLE AS THE CONDITION FO R ALLOWANCE SPECIFIED IN SECTION 36(1)(VII) AND (2) WERE NOT FU LFILLED. IT WAS ALSO HELD IN THIS CASE THAT TAXING OF INCOME ESCAPI NG ASSESSMENT IN THE CASE OF AN INTIMATION UNDER SECTION 143(1)(A) I S COVERED BY THE MAIN PROVISION OF SECTION 147 AS SUBSTITUTED WITH E FFECT FROM APRIL 1 ST , 1989, AND INITIATING REASSESSMENT PROCEEDING IN T HE CASE OF INTIMATION WOULD BE COVERED BY THE MAIN PROVISIO N OF SECTION 147 AND NOT THE PROVISO THERETO. FAILURE TO TAKE S TEPS UNDER SECTION 143(3) WILL NOT RENDER THE ASSESSING OFFICE R POWERLESS TO INITIATE REASSESSMENT PROCEEDINGS WHEN INTIMATION U NDER SECTION 143(1) HAS BEEN ISSUED. BUT FROM THE ABOVE RECENT D ECISION OF HON'BLE APEX COURT ONE THING IS CLEAR THAT THE ASSE SSING OFFICER HAS TO RECORD REASONS, WHICH CAN BE SUBJECTIVE, B ASED ON OBJECTIVE MATERIALS. IN THIS CASE THE ASSESSEE FI LED RETURN OF INCOME ON 31.10.2002 WHICH WAS PROCESSED ON 12.12. 2002. NO NEW MATERIAL WAS EITHER FOUND OR BROUGHT TO THE NOT ICE OF THE ASSESSING OFFICER EXCEPT THAT THE CHANGE OF LAW MAD E BY THE HON'BLE APEX COURT. 12. RECENTLY, THE MUMBAI BENCH OF HONBLE ITAT, HAS HELD THAT IN THE ABSENCE OF ANY NEW MATERIAL, THE ASSESSING O FFICER IS NOT EMPOWERED TO RE-OPEN AN ASSESSMENT WHETHER ORIGINA L ASSESSMENT WAS COMPLETED UNDER SECTION 143(1) OR 1 43(3). IT WAS C.O. NO. 91/MDS/07 15 ALSO HELD IN THIS CASE AIPITA MARKETING (P) LTD. VS. ITO REPORTED IN (2008) 21 SOT 302 (MUM) THAT IN CASE WHERE ASSES SMENT IS MADE UNDER SECTION 143(1) AND NOT UNDER SECTION 143 (3) IT IS NOT POSSIBLE TO HOLD THE VIEW THAT INCOME ESCAPING ASSE SSMENT IS ALWAYS JUSTIFIED. 13. THEREFORE, ALBEIT ON MERITS THE ASSESSEE HAS GO T NO CASE, BUT ON LEGAL ISSUE IT HAS A GOOD CASE. ACTUALLY TH E CHANGE OF LEGAL POSITION, AS HAS BEEN DISCUSSED IN EARLIER PART OF THIS ORDER, HAS CREATED SUCH A DILEMMA. BE THAT AS IT MAY, THE AS SESSEE SUCCEEDS ON LEGAL POINT AND WE ARE LEFT WITH NO OPT ION BUT TO HOLD THE RE-ASSESSMENT ORDER AS NULL AND VOID AB INITIO . HAVING HELD SO, THE CROSS OBJECTION IS ALLOWED. THE APPEAL OF THE REVENUE THEN BECOMES INFRUCTUOUS AND HAS TO BE DISMISSED, E ITHER. 10. WHILE ARGUING ON GROUND NO.1, IT WAS SUBMITTED THROUGH WRITTEN SUBMISSION THAT THE ASSESSEE ALSO FILED CROSS OBJEC TIONS AGAINST THE PROPOSED RE-ASSESSMENT IN DECEMBER, 2005 WHICH FACT HAS NOT BEEN DENIED BY THE REVENUE AS A COPY OF THE SAME IS ENCL OSED AS PAGES 4 TO 6 OF THE PAPER-BOOK OF THE ASSESSEE. ADMITTEDLY , THESE OBJECTIONS WERE NOT DISPOSED OF BEFORE MAKING RE-ASSESSMENT. IN THIS REGARD, RELIANCE WAS PLACED ON THE DECISION OF THE GUJARAT HIGH COURT IN THE CASE OF MGM EXPORTS V. DCIT (2009) 23 DTR (GUJ) 356 AND ALSO ON THE DECISION OF SUPREME COURT IN THE CASE OF GKN DR IVESHAFTS (INDIA) LTD. V. ITO AND OTHERS (2003) 259 ITR 19 (SC). IN THIS CASE, THE SUPREME COURT HELD AS UNDER:- WHEN A NOTICE UNDER SECTION 148 OF THE INCOME-TAX A CT IS ISSUED, THE PROPER COURSE OF ACTION FOR THE NOTI CEE IS TO FILE A RETURN AND IF HE SO DESIRES, TO SEEK REASONS FOR IS SUING NOTICES. C.O. NO. 91/MDS/07 16 THE ASSESSING OFFICER IS BOUND TO FURNISH REASONS W ITHIN A REASONABLE TIME. ON RECEIPT OF REASONS, THE NOTICE E IS ENTITLED TO FILE OBJECTIONS TO ISSUANCE OF NOTICE AND THE AS SESSING OFFICER IS BOUND TO DISPOSE OF THE SAME BY PASSING A SPEAKING ORDER. 11. SINCE IN THIS CASE, THE OBJECTIONS RAISED AGAIN ST THE PROPOSED RE-ASSESSMENT WERE NOT DECIDED, THE RE-ASSESSMENT C ANNOT SURVIVE IN THE EYES OF THE LAW AS THE DECISION OF THE HON'B LE SUPREME COURT BECOMES THE LAW FROM ITS INCEPTION IN VIEW OF THE A RTICLE 141 OF THE CONSTITUTION OF INDIA. FOR THAT MATTER ALSO, THE R E-ASSESSMENT MADE IN THIS CASE CANNOT BE SUSTAINED. OBVIOUSLY, THE O BJECTION OF THE ASSESSING OFFICER IN THIS CASE IS NOT THAT THE ASSE SSEE WAS A CONTRACTOR AND THEREFORE, NOT ELIGIBLE FOR BENEFIT UNDER SECTION 80-IA OF THE ACT. THE REASON WAS THAT THE ASSESSEE DID NOT OWN ANY INFRASTRUCTURE ASSETS WHICH FACT IS NOT CORRECT AND THE ASSESSEE HAD MADE AVAILABLE ENTIRE FACTS IN FULL BEFORE THE A.O. AND NO FURTHER MATERIAL OR INFORMATION CAME TO HIS POSSESSION THER EAFTER. ON THE DATE OF PASSING INTIMATION, THE LAW OF THE LAND WAS IN FAVOUR OF ASSESSEE. HENCE, WE DO NOT FIND ANY VALID REASON T O ASSUME JURISDICTION BY THE A.O. UNDER SECTION 147 OR 148 O F THE ACT. 12. IN SO FAR AS THE DECISION ON MERITS IS CONCERNE D, THAT HAS ALREADY BEEN TAKEN BY THE BENCH AND WE ARE NOT CONC ERNED WITH THE C.O. NO. 91/MDS/07 17 SAME FOR DISPOSAL OF THIS LEGAL ISSUE EVENTHOUGH TH E MERITS OF THE CASE HAVE GONE AGAINST THE ASSESSEE. CONSEQUENTLY, ON LEGAL ISSUES, THE ASSESSEE SUCCEEDS AND THE RE-ASSESSMENT ITSELF IS, THEREFORE, QUASHED. THUS, GROUND NOS.1, 2 & 3 ARE DECIDED IN FAVOUR OF ASSESSEE. 13. IN THE RESULT, THE CROSS OBJECTION FILED BY THE ASSESSEE IS ALLOWED. THE ORDER WAS PRONOUNCED IN THE COURT ON 26.11.2010 . SD/- SD/- (DR. O.K. NARAYANAN) (HARI OM MARATHA) VICE PRESIDENT JUDICIAL MEMBER CHENNAI, DATED THE 26 TH NOVEMBER, 2010. KRI . COPY FORWARDED TO: (1) CROSS OBJECTOR (2) RESPONDENT (3) CIT(A) (4) CIT (5) D.R. (6) GUARD FILE