Chandigarh Housing Board, Chandigarh V. ACIT, Chandigarh

ITA 1111/CHANDI/2013

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 73536 (ITAT-CHANDIGARH)
• Duration Of Justice: 3 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-03-2014
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 05-03-2014
• Assessment Year: 2008-2009
• Appeal Filed On: 04-12-2013
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: JYOTI KUMARI
• Assessee Lawyers: RAVI SHANKAR B M MONGA
• Keywords: Rectification of order; Opportunity of being heard; Principle of natural justice; Tangible material; Difference of opinion; Assessment record; Reason to believe; Change of opinion; Reassessment proceedings
• Section: 143(3); 147; 148; 10; 154; 139

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL CHANDIGARH BENCH A, CHANDIGARH BEFORE SHRI T.R. SOOD, ACCOUNTANT MEMBER AND MS. SUSHMA CHOWLA, JUDICIAL MEMBER ITAS NO. 1109, 1110, 1111, 1112, 1113, 1114, 1115 & 1116/CHD/2013 ASSESSMENT YEARS : 2006-07, 2007-08, 2008-09, 2009- 10, 2006-07, 2007-08, 2008-09, 2009-10 CHANDIGARH HOUSING BOARD VS. A.C.I.T. C-1(1) SECTOR 9, CHANDIGARH CHANDIGARH AAALC 0132H (APPELLANT) (RESPONDENT) APPELLANT BY: S/SHRI RAVI SHANKAR, B.M. MONGA & RO HIT KAURA RESPONDENT BY: SMT. JYOTI KUMARI DATE OF HEARING 5.3.2014 DATE OF PRONOUNCEMENT 27 .3.2014 O R D E R PER BENCH ITAS NO. 1109, 1110,1111 & 1112/CHD/2013 ALL THESE APPEALS HAVE BEEN DISPOSED OF BY THE LD. CIT(A) BY A COMMON ORDER DATED 30.9.2013, THEREFORE THESE APPEALS WERE HEARD TOGETHER AND ARE BEING DISPOSED OFF BY T HIS COMMON ORDER. 2. IN ALL THESE APPEALS THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS: 1 THAT THE LD. CIT(A) HAS ERRED IN LOWER AUTHORITI ES AS WELL AS ON FACTS OF THE CASE IN UPHOLDING THE ACTION OF THE ASSESSING OFFICER IN PASSING THE ORDER U/S 143(3) R.W.S. 147. 2 THAT THE LD. CIT(A) IS NOT JUSTIFIED IN UPHOLDING THE ORDER OF THE ASSESSING OFFICER BECAUSE THERE WAS NO NEW/FRES H MATERIAL THAT HAD COME TO THE POSSESSION OF THE ASSESSING OFFICE R ADDITION IT WAS ONLY A CASE OF CHANGE OF OPINION AND NOT PER SE REASONS TO BELIEVE. 3 THAT THE LD. CIT(A) IS NOT JUSTIFIED IN CONCLUDIN G THAT THE APPELLANT HAD DELIBERATELY STOPPED PAYING SURCHARGE W.E.F. ASSESSMENT YEAR 2006-07 THOUGH IT HAD PAID THE SAM E UPTO 2 ASSESSMENT YEAR 2005-06 IGNORING THAT NO SURCHARGE IS PAYABLE AFTER ASSESSMENT YEAR 2005-06 AS PER RATES IN FORC E. 4 THAT THE LD. CIT(A) IS NOT JUSTIFIED IN UPHOLDING THE ORDER OF THE ASSESSING OFFICER BECAUSE FOR ASSUMING JURISDIC TION FOR REOPENING U/S 147 AFTER FOUR YEARS THERE HAS TO BE A SPECIFIC ALLEGATION IN THE REASONS RECORDED THAT THERE WAS A NY DEFAULT ON THE PART OF THE ASSESSEE IN NOT MAKING TRUE AND FU LL DISCLOSURE WHICH IS SINE QUA NON. 5 THAT THE LD. CIT(A) IS NOT JUSTIFIED IN UPHOLDING THE RE- ASSESSMENT ORDER OF THE ASSESSING OFFICER AS THE RE ASSESSMENT ORDER HAD AGAIN BEEN MADE IN THE SAME STATUS, RE-AS SESSING THE SAME INCOME WHICH TANTAMOUNT TO REVIEW NOT PERMISSI BLE UNDER LAW. 3 BY THE CONSENT OF THE PARTIES, THE FACTS FOR ASSE SSMENT YEAR 2006-07 IN ITA NO. 1109/CHD/2013 HAS BEEN TAKE N FOR DETAILED ADJUDICATION. BRIEF FACTS FOR ASSESSMENT Y EAR 2006-07 ARE THAT THE ASSESSEE FILED RETURN OF INCOME AT RS. 290425186/. INCOME WAS ASSESSED U/S 143(3) BY AN ASSESSMENT ORD ER PASSED ON 22.12.2008. THEREAFTER ASSESSMENT WAS RE OPENED AFTER RECORDING THE REASONS AND NOTICE U/S 148 WAS SERVED ON THE ASSESSEE ON 30.3.2012. THE MAIN REASON RECORDE D FOR REOPENING OF THE ASSESSMENT WAS THAT THE ASSESSEE C LAIMED TO BE A LOCAL AUTHORITY AND THEREFORE NOT PAID SURCHAR GE ON THE TAX WHEREAS THE ASSESSEE WAS ACTUALLY NOT A LOCAL A UTHORITY. THE ASSESSEE RAISED OBJECTIONS IN RESPECT OF REOPE NING OF THE ASSESSMENT AND IT WAS MAINLY SUBMITTED THAT ALL THE FACTS AND INFORMATION WERE PROVIDED DURING ASSESSMENT PROCEED INGS AND THEREFORE IT CANNOT BE SAID THAT INCOME OF THE ASSE SSEE HAS ESCAPED LEADING TO THE ISSUANCE OF NOTICE U/S 148. IT WAS POINTED OUT THAT THE ASSESSEE I.E. CHANDIGARH HOUSI NG BOARD (CHB) WAS CONSTITUTED BY GOVT OF INDIA, MINISTRY OF HOME AFFAIRS VIDE NOTIFICATION DATED 14.1.1975 IN EXERCI SE OF POWERS CONFERRED BY S 87 OF PUNJAB REORGANIZATION ACT, 196 6 AS EXTENDED UT OF CHANDIGARH, HARYANA HOUSING BOARD AC T, 1971 AS IN FORCE IN THE STATE OF HARYANA AT THE DATE OF THIS 3 NOTIFICATION. AS PER CLAUSE 3(3) OF THE ACT, THE C HANDIGARH HOUSING BOARD STAND ESTABLISHED AND CONSTITUTED AS LOCAL AUTHORITY. COPY OF HARYANA HOUSING BOARD ACT, 197 1 WAS ALSO FURNISHED. THE PURPOSE OF THE ACT REFERRED TO IN S UB SECTION (3) INCLUDED THE MANAGEMENT AND USE OF LANDS AND BUILDI NGS BELONGING TO ARE VESTING IN THE BOARD UNDER OR FOR THE PURPOSE OF THIS ACT, AND THE EXERCISE OF ITS RIGHTS OVER A ND WITH RESPECT TO SUCH LANDS AND BUILDINGS FOR THE PURPOSES OF THI S ACT. THEREFORE IT WAS CLEAR THAT FROM THE DATE OF INCEPT ION CHB WAS A LOCAL AUTHORITY. THE BOARD HAS BEEN FILING RETUR NS IN THE STATUS OF LOCAL AUTHORITY, IT WAS ACCEPTED IN THE E ARLIER YEARS. IT WAS FURTHER POINTED OUT THAT THE ASSESSEE BEING A L OCAL AUTHORITY WAS EXEMPT FROM INCOME TAX U/S 10(20A) OF INCOME - TAX ACT, 1961. THIS EXEMPTION WAS WITHDRAWN W.E.F. 1.4.2003 AND THE INCOME OF THE BOARD BECAME TAXABLE AND THE BOARD STARTED PAYING INCOME TAX AND FILING RETURN OF INCO ME UNDER THE STATUS OF LOCAL AUTHORITY. REMOVAL OF EXEMPTION DO ES NOT MEAN THAT THAT STATUS OF ASSESSEE IS ALSO CHANGED. IT W AS POINTED OUT THAT WHOLE OF THE CAPITAL WAS OWNED BY THE CHAN DIGARH ADMINISTRATION AND NO CONTRIBUTION HAS BEEN MADE BY ANY PRIVATE PARTY. THEREFORE IN THESE CIRCUMSTANCES IT WAS REQUESTED THAT NO SUCH SURCHARGE CAN BE LEVIED. FU RTHER REPLIES WERE ALSO SUBMITTED GIVING THE DETAILS OF T HE MANAGEMENT AND THE MEANING OF THE LOCAL AUTHORITY. THE ASSESSING OFFICER AFTER CONSIDERING THE REPLY REFER RED TO THE PROVISIONS OF SECTION 10(20) AND OBSERVED THAT AFT ER 1.4.2003 THE ASSESSEE-BOARD DID NOT FALL UNDER THE STATUS OF LOCAL AUTHORITY. THE ASSESSING OFFICER OBSERVED THAT THE ASSESSEE HAS ITSELF ADMITTED THAT AFTER REMOVAL OF EXEMPTION W.E.F. 4 1.4.2003 THE INCOME OF THE BOARD BECAME TAXABLE. T HE ASSESSING OFFICER ALSO REFERRED TO THE DECISION OF HON'BLE SUPREME COURT IN CASE OF UNION OF INDIA VS. R.C. JA IN & ORS, AIR 1981 (S.C) 951 WHICH LAID DOWN VARIOUS TEST FOR DETERMINING WHERE A PARTICULAR ENTITY WAS LOCAL AUT HORITY OR NOT? AFTER DISCUSSING EACH OF THE TEST HE DISCUSSE D THE FACTS OF THE ASSESSEE AND OBSERVED THAT THE ASSESSEE CANN OT BE CALLED A LOCAL AUTHORITY. 4 THE ASSESSING OFFICER ALSO OBSERVED THAT IT WAS N OT CORRECT THAT ALL THE INFORMATION WAS PROVIDED BY TH E ASSESSEE DURING ASSESSMENT PROCEEDINGS. ACCORDING TO HIM THE ASSESSEE WAS AWARE THAT IT IS NOT A LOCAL AUTHORITY AND IT W AS AN ENTITY WHICH WAS LIABLE TO TAX BUT DESPITE THAT THE FACT T HE ASSESSEE HAS NOT PAID SURCHARGE ON THE AMOUNT OF TAX. HE AL SO DISCUSSED THE EXPLANATORY NOTES WHICH CLEARLY SHOWS HOW VARIOUS AUTHORITIES WERE NOT TO BE TREATED AS LOCAL AUTHORITY. HE ALSO OBSERVED THAT EVEN IF THE ASSESSEE IS A LOC AL AUTHORITY UNDER SOME OTHER PROVISIONS THE SAME WILL HAVE NO B EARING ON THE STATUS OF THE ASSESSEE UNDER INCOME -TAX ACT, 1 961. ULTIMATELY HE HELD THAT THE ASSESSEE WAS NOT A LOC AL AUTHORITY AND LEVIED SURCHARGE ON THE INCOME OF THE ASSESSEE. 5 BEFORE THE LD. CIT(A) THE SUBMISSIONS MADE BEFORE THE ASSESSING OFFICER WERE REITERATED AND IT WAS SUBMIT TED THAT ASSESSMENT CANNOT BE REOPENED MERELY ON THE CHANGE OF OPINION. IN THIS REGARD RELIANCE WAS PLACED ON THE DECISION OF HON'BLE SUPREME COURT IN CASE OF CIT VS. KELVINATOR OF INDIA LTD. 320 ITR 561 AND IN CASE OF PARIXIT INDUSTRIES P. LTD. 352 ITR 349. 5 6 THE LD. CIT(A) AFTER CONSIDERING THE SUBMISSIONS OBSERVED THAT ASSESSMENT IN ALL THE FOUR YEARS WERE REOPENED BECAUSE SURCHARGE WAS NOT LEVIED IN THE ORIGINAL AS SESSMENT COMPLETED U/S 143(3). THE OBJECTION WAS FOUND NOT T O BE SUSTAINABLE BECAUSE OF EXP (2)(C)(II) TO SEC 147 OF THE ACT WHICH PROVIDES THAT IF INCOME HAS BEEN ASSESSED ON TOO LOW A RATE THEN THE SAME SHALL BE DEEMED TO BE A CASE OF CONCEALMENT OF INCOME. HE ALSO NOTED THAT THE ASSE SSEE HAD PAID SURCHARGE IN ASSESSMENT YEAR 2005-06 ON THE DE CLARED INCOME AND STOPPED PAYING SURCHARGE W.E.F. 2006-07 ONWARDS. THEREFORE IT CAN BE SAFELY CONCLUDED THAT THE ASSES SEE HAS DELIBERATELY STOPPED PAYING SURCHARGE. IN THIS BACK GROUND REOPENING WAS HELD TO BE VALID. THE DECISION RELIE D ON BY THE ASSESSEE WAS FOUND TO BE DISTINGUISHABLE. IN RESPE CT OF STATUS THE LD. CIT(A) MADE FOLLOWING OBSERVATIONS VIDE PAR A 6.3 AND 6.4 AT PAGE 5 & 6 OF HIS ORDER: 6.3 COMING TO THE ISSUE OF STATUS IN WHICH THE APP ELLANT IS TO BE ASSESSED, I MAY MENTION THAT CLAUSE (20A) OF SEC 10 , DEALING WITH THE EXEMPTION OF INCOME OF AN AUTHORITY CONSTITUT ED FOR THE PURPOSE OF HOUSING ACCOMMODATION ETC. HAS BEEN OMI TTED BY FINANCE ACT, 2002 WITH EFFECT FROM 1.4.2003 AND SO THE INCOME OF THE APPELLANT IS NOT EXEMPT AS SUCH. THE OTHER CLA USE PERTAINING TO THE PROVISIONS OF TAXABILITY OF INCOME OF LOCAL AUTHORITY IS CLAUSE (20) OF SEC 10 AND THE CASE OF THE APPELLANT IS NOT COVERED BY THIS CLAUSE ALSO, AFTER THE INSERTION OF EXP BELOW THIS CLAUSE, BY WHICH THE TYPES OF ASSESSES COVERED UNDER THE EXPRESSION LOCAL AUTHORITY HAS BEEN ENUMERATED. THUS THE APPELLANT CANNOT BE TREATED AS LOCAL AUTHORITY FOR THE PURPOSES OF INCO ME TAX AC, 1961. THE APPELLANT HAS SUBMITTED THAT AS PER HARYANA HO USING BOARD ACT, 1971; THE APPELLANT WAS ESTABLISHED AND CONSTI TUTED AS LOCAL AUTHORITY, BUT THIS ARGUMENT AND OTHER ARGUMENTS IN THIS REGARD DO NOT HOLD WATER BECAUSE THE APPELLANT BOARD MIGHT BE TREATED AS LOCAL AUTHORITY UNDER ANY OTHER LAW / ACT, BUT IT I S OUT OF THE PURVIEW OF THE DEFINITION OF LOCAL AUTHORITY AS PER THE PROVISIONS OF INCOME -TAX ACT, 1961. THE STATUS OF THE APPELLANT IS NOT OF A LOCAL AUTHORITY UNDER THE INCOME -TAX ACT, 1961 AND SINCE THE STATUS OF THE APPELLANT BOARD CANNOT BE INDIVIDUAL OR FIRM OR COMPANY OR AOP OR BODY OF INDIVIDUALS, IT HAS TO BE ASSESSED AS ARTIFICIAL JURIDICAL PERSON. IN FACT THE STATUS OF THE APPELLANT HAS ALSO BEEN CHANGED BY PASSING ORDER U/S 154 OF THE A CT TO ARTIFICIAL JURIDICAL PERSON IN RESPECT OF ALL THEE YEARS VIDE ORDERS DATED 14.8.2013 U/S 154 OF THE ACT. THE APPELLANT HAS FI LED APPEALS AGAINST THEE ORDERS US/ 154 ALSO. AS THE APPELLANT IS TO BE ASSESSED IN THE STATUS OF ARTIFICIAL JURIDICAL PER SON, IT IS LIABLE TO PAY INCOME TAX AS WELL AS SURCHARGE. 6.4 THE APPELLANT HAS RELIED UPO0NTEH DECISIONS OF HONBLE ITAT, CHANDIGARH IN ITS OWN CASE OF ASSESSMENT YEAR 2006-07 (SUPRA) TO SUPPORT ITS ARGUMENT THAT IT IS A LOCAL AUTHORITY BUT THIS ARGUMENT OF THE APPELLANT DOES NOT HOLD WATE R SINCE ITAT HAS 6 MERELY REPRODUCED THE FACTS, AS SUBMITTED BY THE AP PELLANT ITSELF. THE TRIBUNAL HAS MENTIONED IN PARA 2.1 OF ITS ORDER AS UNDER: 2.1 THE FACTS OF THE CASE, IN BRIEF ARE THAT THE A PPELLANT,, CHANDIGARH HOUSING BOARD IS A LOCAL AUTHORITY CONST ITUTED AND ESTABLISHED. 7 BEFORE US THE LD. COUNSEL FOR THE ASSESSEE WITH R EFERENCE TO VARIOUS GROUNDS MADE DETAILED SUBMISSIONS WHICH CAN BE SUMMARIZED AS UNDER: (A) ORIGINAL ASSESSMENT WAS COMPLETED U/S 143(3) ON 22.12.2008 AND NOTICE U/S 148 HAS BEEN ISSUED AFTER A GAP OF FOUR YEARS. ALL THE MATERIAL FACTS WERE DISCLOSED DURING ASSESSMENT PROCEEDINGS AND NO NEW MATERIAL HAS COME TO THE KNOWLEDGE OF THE ASSESSING OFFICER THEREFORE IT IS A SIMPLE CASE OF CHANGE OF OPINION WHICH IS NOT PERMISSIBLE UNDER LAW PARTICULARLY IN VIEW OF THE DECISION OF HON'BLE SU PREME COURT IN CASE OF CIT VS. KELVINATOR OF INDIA LTD. (SUPRA) ?. HE ALSO RELIED ON THE DECISION OF HON'BLE GUJARAT HIGH COUR T IN CASE OF PARIXIT INDUSTRIES P. LTD. (SUPRA. THE ASSESSING O FFICER HAS NOT MADE ANY SPECIFIC ALLEGATION THAT THE ASSESSEE HAS FAILED TO GIVE TRUE AND FULL DISCLOSURE OF RELEVANT MATERIAL. IN THE ABSENCE OF SUCH FAILURE THE ASSESSMENT COULD NOT BE REOPENED AND IN THIS REGARD HE RELIED ON THE DECISION OF HON 'BLE PUNJAB AND HARYANA HIGH COURT IN CASE OF DULI CHAND SINGH ANIAV ACIT, 269 ITR 192 (PH). (B) HE CONTENDED THAT IT IS NOT TRUE ON THE PART OF THE ASSESSING OFFICER TO HOLD THAT THE ASSESSEE HAS STO PPED PAYING SURCHARGE DELIBERATELY AFTER ASSESSMENT YEAR 2005- 06. IN THIS REGARD HE REFERRED TO PAPER BOOK PAGE 17 TO 22 WHIC H CONTAINS A SCHEDULE F OR RATES OF TAX FOR VARIOUS YEARS AND POINTED OUT THAT SURCHARGE WAS PAYABLE ONLY BY ASSESSMENT YEAR 2005-06 7 AND NO SURCHARGE WAS PAYABLE FROM ASSESSMENT YEAR 2006-07 AS PER THIS SCHEDULE. (C) HE CONTENDED THAT THE ASSESSMENT HAS BEEN MAD E U/S 147 R.W.S.143(3) AGAIN IN THE STATUS OF LOCAL AUTHO RITY WHICH BECOMES CLEAR FROM COL 5 DEALING WITH THE STATUS AT PAGE 1 OF ASSESSMENT ORDER. THIS FACT CLEARLY SHOWS THAT ASS ESSMENT HAS BEEN REOPENED WITHOUT ANY REASON PARTICULARLY W HEN THE ASSESSEE HAS BEEN ASSESSED UNDER THE SAME STATUS. (D) HE REITERATED THE SUBMISSIONS MADE BEFORE THE A SSESSING OFFICER THAT THE ASSESSEE STILL REMAINS LOCAL AUTHO RITY. THE ASSESSEE WAS CONSTITUTED UNDER THE PROVISIONS OF HA RYANA HOUSING BOARD, 1971BY THE GOVT OF INDIA AND CLAUSE 3.3 OF THIS SAID ACT CLEARLY SHOW THAT CHB WAS ESTABLISHED AS L OCAL AUTHORITY. THEREFORE STATUS OF THE ASSESSEE REMAIN S LOCAL AUTHORITY AND EVEN IF THE ASSESSEE IS NO MORE EXEMP T FROM TAX U/S 10(20) THAT DOES NOT MEAN THAT THE STATUS OF TH E ASSESSEE ALSO STANDS CHANGED. 8 ON THE OTHER HAND, THE LD. D.R. FOR THE REVENUE SUBMITTED THAT THE ASSESSEE BOARD WAS EXEMPT FROM I NCOME TAX AS PER SEC 10(20). THE EXEMPTION WAS REMOVED BY TH E GOVT W.E.F. 1.4.2003. THE ASSESSEE STARTED FILING RETUR NS AND WAS PAYING TAXES BUT FROM ASSESSMENT YEAR 2006-07 THE A SSESSEE STOPPED PAYING SURCHARGE. DURING ASSESSMENT PROCEE DINGS THE FACT THAT THE ASSESSEE HAS SPECIFICALLY CLAIMED THE STATUS OF LOCAL AUTHORITY AND NO SURCHARGE WAS PAYABLE, WAS N OT BROUGHT TO THE ATTENTION OF THE ASSESSING OFFICER. THEREFO RE IT IS NOT A CASE OF PROPER DISCLOSURE AND ASSESSMENT HAS BEEN R IGHTLY REOPENED. SHE POINTED OUT THAT IN THE ORIGINAL ASS ESSMENT U/S 8 143(3) NOTHING WAS DISCUSSED REGARDING STATUS OF TH E ASSESSEE AND THEREFORE IT CANNOT BE SAID THAT ANY OPINION WA S FORMED. ONCE NO OPINION HAS BEEN FORMED IN THE ORIGINAL ASS ESSMENT THEN IT CANNOT BE CALLED TO BE A CASE OF CHANGE OF OPINION. IN THIS REGARD SHE RELIED ON THE DECISION OF FULL BENC H OF DELHI HIGH COURT IN CASE OF CIT VS. USHA INTERNATIONAL LT D. 348 ITR 485. IN THIS CASE IT WAS CLEARLY OBSERVED THAT REF ERENCE TO THE DECISION OF HON'BLE SUPREME COURT IN CASE OF KALYAN JI MAVJI & CO. VS. CIT, 102 ITR 287 THAT IF NO OPINION IS FORM ED IN THE ORIGINAL ASSESSMENT THEN IT CANNOT BE SAID LATER ON WHEN THE ASSESSMENT IS REOPENED THAT IT IS A CASE OF CHANGE OF OPINION. SHE ALSO SUBMITTED THAT IN THE ORIGINAL ASSESSMENT THE ASSESSING OFFICER HAS TAKEN A VIEW ON THE WRONG APP RECIATION THEN LATER ON IT CANNOT BE SAID THAT ASSESSMENT HAS BEEN REOPENED ON THE CHANGE OF OPINION AND IN THIS REGAR D RELIED ON THE DECISION OF SOM DUTT BUILDERS P LTD. VS. DCIT, 98 ITD 78. SHE CONTENDED THAT IT IS A SETTLED POSITION THAT IF THE ASSESSEE FAILS TO DISCLOSE FULLY AND TRULY MATERIAL FACTS TH EN SUCH ASSESSMENT CAN BE REOPENED AND IN THIS REGARD RELIE D ON THE DECISION OF HON'BLE SUPREME COURT IN CASE OF PHOOL CHAND BAJRANG LAL AND ANR VS. ITO, 203 ITR 456. SHE ALSO RELIED ON THE DECISION OF GUJARAT HIGH COURT IN CASE OF PRAFU L CHUNILAL PATEL VS. ACIT, 236 ITR 832. SHE SUBMITTED THAT HO N'BLE PUNJAB AND HARYANA HIGH COURT IN CASE OF JAWAND SO NS VS. CIT, 326 ITR 39 HAS HELD THAT AFTER THE AMENDMENT T O SEC 147 W.E.F. 1.4.1989 WIDE POWERS HAVE BEEN GIVEN TO THE ASSESSING OFFICER AND IN A CASE WHERE EVEN THE ASSESSEE HAS D ISCLOSED ALL THE MATERIAL FACTS, EVEN THEN THE ASSESSMENT CA N BE REOPENED. SHE SUBMITTED THAT ASSESSMENT HAS BEEN R EOPENED 9 AFTER FOUR YEARS ONLY IN ASSESSMENT YEAR 2006-07 A ND IN OTHER YEARS, REOPENING HAS BEEN DONE WITHIN FOUR YEARS. 9 THE LD. D.R. FOR THE REVENUE SUBMITTED THAT THERE IS NO FORCE IN THE CONTENTION OF THE LD. COUNSEL FOR THE ASSESSEE THAT FRESH ASSESSMENT U/S 147 R.W.S. 143(3) HAS BEE N MADE IN THE SAME STATUS. NO DOUBT IN COL 5 STATUS OF THE A SSESSEE HAS BEEN SHOWN AS LOCAL AUTHORITY BUT THIS IS CLEAR CAS E OF TYPOGRAPHICAL MISTAKE BECAUSE BODY OF THE ASSESSMEN T ORDER CLEARLY SHOWS THAT THE ASSESSING OFFICER HAS CLEARL Y HELD THAT THE ASSESSEE IS NOT LOCAL AUTHORITY. 10 SHE ALSO SUBMITTED THAT THE ASSESSEE MAY BE A LO CAL AUTHORITY FOR THE PURPOSE OF HARYANA HOUSING BOARD ACT BUT THE ASSESSEE CANNOT BE TREATED AS LOCAL AUTHORITY FOR T HE PURPOSE OF INCOME TAX ACT PARTICULAR AFTER THE REMOVAL OF E XEMPTION U/S 10(20). SHE ALSO REFERRED TO THE DETAIL DISCUSSION IN THE ASSESSMENT ORDER AND RELIED ON THE ASSESSMENT ORDER . 11 WE HAVE GONE THROUGH THE RIVAL SUBMISSIONS CAREF ULLY. SEC 147 READS AS UNDER: 147 - IF THE ASSESSING OFFICER HAS REASON TO BELIE VE THAT ANY INCOME CHARGEABLE TO TAX HAS ESCAPED ASSESSMENT FOR ANY ASSESSMENT YEAR HE MAY SUBJECT TO THE PROVISIONS O F SECTION 148 TO 153, ASSESS OR REASSESS SUCH INCOME AND ALSO ANY OTHER INCOME CHARGEABLE TO TAX WHICH HAS ESCAPED ASSESSMENT AND WHICH COMES TO HIS NOTICE SUBSEQUENTLY IN THE COURSE OF THE PRO CEEDINGS UNDER THIS SECTION OR RECOMPUTED THE LOSS OR THE DEPRECIA TION ALLOWANCE OR ANY OTHER ALLOWANCE, AS THE CASE MAY BE FOR THE ASSESSMENT YEAR CONCERNED (HEREAFTER IN THIS SECTION AND IN S ECTION 148 TO 153 REFERRED TO AS THE RELEVANT ASSESSMENT YEAR ): PROVIDED THAT WHERE AN ASSESSMENT UNDER SUB-SECTION (3) OF SECTION 143 OR THIS SECTION HAS BEEN MADE FOR THE R ELEVANT ASSESSMENT YEAR NO ACTION SHALL BE TAKEN UNDER THI S SECTION AFTER THE EXPIRY OF FOUR YEARS FROM THE END OF THE RELEVA NT ASSESSMENT YEAR UNLESS ANY INCOME CHARGEABLE TO TAX HAS ESCAP ED ASSESSMENT FOR SUCH ASSESSMENT YEAR BY REASON OF T HE FAILURE ON THE PART OF THE ASSESSEE TO MAKE A RETURN U/S 139 O R IN RESPONSE TO A NOTICE ISSUED UNDER SUB-SEC (1) OF SECTION 142 OR SEC 148 OR TO DISCLOSE FULLY AND TRULY MATERIAL FACTS NECESSARY F OR HIS ASSESSMENT, FOR THAT ASSESSMENT YEAR . PLAIN READING OF THE ABOVE PROVISION SHOWS THAT WHA T IS REQUIRED FOR REOPENING THE ASSESSMENT IS THAT THE A SSESSING 10 OFFICER SHOULD HAVE SOME REASONS TO BELIEVE THAT TH E INCOME HAS ESCAPED ASSESSMENT. IN THIS REGARD IT IS IMPOR TANT TO NOTE THAT CLAUSE (C)(II) OF EXP 2 FURTHER PROVIDES THAT SUCH INCOME WOULD BE DEEMED TO HAVE BEEN ESCAPED INCOME IF THE INCOME HAS BEEN CHARGED AT TOO LOW A RATE. IN THE CASE BE FORE US SINCE SURCHARGE WAS NOT LEVIED IN THE ORIGINAL ASSE SSMENT THEREFORE IT IS A CASE OF INCOME BEING ASSESSED AT TOO LOW A RATE. NOW THE QUESTION IS WHETHER IN THIS CASE ASS ESSMENT HAS BEEN REOPENED ON THE BASIS OF CHANGE OF OPINION OR NOT? NO DOUBT HON'BLE SUPREME COURT IN CASE OF CIT VS. KELV INATOR OF INDIA LTD (SUPRA) HAS CLEARLY OBSERVED AS UNDER: THE CONCEPT OF CHANGE OF OPINION ON THE PART OF TH ASSESSING OFFICER TO REOPEN AN ASSESSMENT DOES NOT STAND OBLI TERATED AFTER THE SUBSTITUTION OF SECTION 147 OF INCOME -TAX ACT, 1961 BY THE DIRECTOR TAX LAWS (AMENDMENT) ACTS, 1987 AND 1989. AFTER THE AMENDMENT, THE ASSESSING OFFICER HAS TO HAVE REASON TO BELIEVE THAT INCOME HAS ESCAPED ASSESSMENT, BUT THIS DOES N OT IMPLY THAT THE ASSESSING OFFICER CAN REOPEN AN ASSESSMENT ON M ERE CHANGE OF OPINION. THE CONCEPT OF CHANGE OF OPINION MUS T BE TREATED AS AN IN-BUILT TEST TO CHECK THE ABUSE OF POWER. HENC E AFTER APRIL 1, 1989 THE ASSESSING OFFICER HAS POWER TO REOPEN AN A SSESSMENT PROVIDED THERE IS TANGIBLE MATERIAL TO COME TO TH E CONCLUSION THAT THERE WAS ESCAPEMENT OF INCOME FROM ASSESSMENT. RE ASON MUST HAVE A LINK WITH THE FORMATION OF THE BELIEF. THE ABOVE OBSERVATION IS SUBJECT TO LIMITATION I.E. IF NO OPINION HAS BEEN FORMED THEN IT CANNOT BE SAID THAT ASSESSM ENT HAS BEEN REOPENED ON THE BASIS OF CHANGE OF OPINION. I N THIS REGARD HONBLE DELHI HIGH COURT IN CASE CIT VS. USH A INTERNATIONAL LTD. (SUPRA) CONSIDERED THIS ASPECT I N DETAIL. AFTER CONSIDERING THE JUDGMENT OF HON'BLE SUPREME C OURT IN CASE OF CIT VS. KELVINATOR OF INDIA LTD (SUPRA) IT WAS OBSERVED AT PARA 9 AS UNDER: IT WAS ARGUED ON BEHALF OF THE REVENUE THAT FOR D ETERMINING WHETHER OR NOT IT IS NOT A CASE OF CHANGE OF OPINIO N, REFERENCE CAN AND SHOULD BE MADE ONLY TO THE ASSESSMENT ORDER AND THE DISCUSSION OR THE REASONS STATED THEREIN. RELIAN CE WAS PALCED ON THE DECISION OF THIS COURT IN CIT VS. HP SHARMA (1980) 122 ITR 675 (DELHI) AND CONSOLIDATED PHOTO AND FINVE ST LTD. VS. ACIT 11 (2006) 281 ITR 394 (DELHI). THE RELEVANT PORTION O F THE JUDGMENT IN HP SHARMA (SUPRA) READS AS UNDER (PAGE 698): ADVERTING TO THE NEXT QUESTION AS TO WHETHER THE R ESORTS TO REASSESSMENT U/S 147(B) AND 148 OF THE ACT WERE JUS TIFIED OR NOT, IT IS NOTEWORTHY THAT BOTH THE INCOME TAX OFFI CER AND THE APPELLATE ASSISTANT COMMISSIONER HAVE CLEARLY OBSER VED THAT THE ASSESSEE HAD NOT DISCLOSED AT THE ORIGINAL ASSE SSMENT STAGE THAT THE RENTS REALIZED EXCEEDED THOSE MENTIO NED IN THE MUNICIPAL RECORDS. THE TRIBUNAL HAS NOT CONTRO VERTED THIS FINDING, PERHAPS IT DID NOT CONSIDER IT APPROP RIATE TO INTO THE SAME AFTER HAVING HELD THAT THE MUNICIPAL VALUA TION SHOULD HAVE A SWAY OVER THE RENT REALIZED. MY LD. BROTHER HAS ON THIS SCORE SENT THE MATTER BACK TO THE TRIBU NAL FOR GIVING A FINDING ON THIS ASPECT. I WILL ONLY LIKE T O OBSERVE IN THIS CONNECTION THAT THE SECOND EXPLANATION TO SEC 147 ITSELF MAKES IT CLEAR THAT THE PRODUCTION BEFORE THE ITO O F ACCOUNT BOOKS OR OTHER EVIDENCE FROM WHICH MATERIAL EVIDENC E COULD WITH DUE DILIGENCE HAVE BEEN DISCOVERED BY THE ITO WILL NOT NECESSARILY AMOUNT TO DISCLOSURE WITHIN THE MEANING OF THIS SECTION. THE HON'BLE SUPREME COURT TOO HAS, IN THE DECISION OF KALYANJI MAVJI AND CO. VS. CIT (1976) 102 ITR 28 7 (S.C) AND CIT VS. A. RAMAN AND CO. (1968)67 ITR 11 (S.C) OBSERVED THAT INFORMATION IN ORDER TO JUSTIFY REASS ESSMENT MAY BE OBTAINED EVEN FROM THE RECORD OF ORIGINAL AS SESSMENT FROM AN INVESTIGATION OF THE MATERIAL ON RECORD OR THE FACTS DISCLOSED THEREBY OR FROM OTHER ENQUIRY OR RESEARCH INTO FACTS OR LAW. TO INFORM MEANS TO TO IMPART KNOW LEDGE AND THE DETAIL AVAILABLE TO THE ITO IN THE PAPERS F ILED BEFORE HIM DOES NOT BY ITS MERE AVAILABILITY BECOME AN ITE M OF INFORMATION. IT IS TRANSMUTED INTO AN ITEM OF INFO RMATION IN HIS POSSESSION ONLY IF, AND ONLY WHEN, ITS EXISTENC E IS REALIZED AND ITS IMPLICATIONS ARE RECOGNIZED. WHER E THE ITO HAD NOT IN THE ORIGINAL ASSESSMENT PROCEEDINGS APPL IED HIS MIND, THE REASSESSMENT PROCEEDINGS ARE VALID (SEE IN THIS RESPECT THE DECISION OF THE KERALA AND MADRAS HIGH COURTS IN UNITED MERCANTILE CO. LTD. VS. CIT (1967) 64 ITR 218 (KER) AND MUTHUKRISHNA REDDIAR VS. CIT (1973) 90 IT R 503 (KER) AND A.L.A FIRM VS. CIT (1976) 102 ITR 622 (MA D). IT NEED HARDLY BE SAID THAT CHANGE OF OPINION PRESU PPOSES THAT THERE WAS EARLIER A FORMATION OF AN OPINION. WHEN NO SUCH OPINION WAS FORMED, IT WILL BE TOO FAR FETCHED TO ASSUME TH AT A CHANGE IN THAT OPINION WAS BEING EFFECTED. FURTHER, THE SAFE ST AND SUREST GUIDE FOR ASCERTAINING WHETHER ANY SUCH OPINION WAS FORMED AT THE ORIGINAL ASSESSMENT STAGE, IS TO LOOK TO THE ASSESS MENT ORDER ITSELF. WHEN IT, OF ITS OWN, DOES NOT REVEAL THAT THE MATTERS AND CONTROVERSIES NOW SOUGHT TO BE RAISED BY WAY OF REA SSESSMENT WERE AT ALL BEFORE THE ITO OR CONSIDERED BY HIM, IT WOULD BE ENTIRELY SURMISEFUL AND THEREFORE NOT PERMISSIBLE T O STILL IMPORT THEIR EXISTENCE AND CONSIDERATION . THIS CAN, HOWE VER, BE PERMISSIBLE ONLY WHERE THE ASSESSMENT RECORD OF THA T STAGE OVERWHELMINGLY BRINGS OUT THAT THE MATER DID COME F OR DUE CONSIDERATION AND WAS IN FACT CONSIDERED. MERE SI LENCE ON A MATTER OR ABSENCE OF DISCUSSION IN THE ORIGINAL ORD ER DOES NOT IMPLY THAT THE ITO ADJUDICATED UPON THE SAME ONE WA Y OR THE OTHER. (EMPHASIS SUPPLIED). IN THE CASE BEFORE US ADMITTEDLY NO OPINION WAS FOR MED EARLIER WHETHER THE ASSESSEE WAS A LOCAL AUTHORITY OR NOT? FURTHER THE LD. COUNSEL FOR THE ASSESSEE HAS NOT PLACED ANY MAT ERIAL BEFORE US TO SHOW THAT THE FACT THAT THE ASSESSEE W AS TREATED AS LOCAL AUTHORITY, WAS BROUGHT TO THE KNOWLEDGE OF THE 12 ASSESSING OFFICER DURING ORIGINAL ASSESSMENT PROCEE DINGS U/S 143(3). THEREFORE THERE IS CLEAR FAILURE ON THE PAR T OF THE ASSESSEE TO DISCLOSE MATERIAL FACT THAT THE ASSESSE E WAS BEING TREATED AS LOCAL AUTHORITY. THIS ASPECT NEED TO BE EXAMINED PARTICULARLY IN THE BACKGROUND OF REMOVAL OF EXEMPT ION U/S 10(20A) WHICH AT THE RELEVANT TIME I.E. YEAR 2002 R EADS AS UNDER: SEC 10(20) - THE INCOME OF A LOCAL AUTHORITY WHICH IS CHARGEABLE UNDER THE HEAD INCOME FROM HOUSE PROPER TY CAPITAL GAINS OR INCOME FROM OTHER SOURCES OR FROM A TRA DE OR BUSINESS CARRIED ON BUT IT WHICH ACCRUES OR ARISES FROM THE SUPPLY OF A COMMODITY OR SERVICE (NOT BEING WATER OR ELECTRICIT Y_ WITHIN ITS OWN JURISDICTIONAL AREA OR FROM THE SUPPLY OF WATER OR ELECTRICITY WITHIN OR OUTSIDE ITS OWN JURISDICTIONAL AREA 10(20A) - ANY INCOME OF AN AUTHORITY CONSTITUTED IN INDIA BY OR UNDER ANY LAW ENACTED EITHER FOR THE PURPOSE OF DEALING WITH AND SATISFYING THE NEED FOR HOUSING ACCOMMODATION OR FOR THE PURPOSE OF PLANNING, DEVELOPMENT OR IMPROVEMENT OF CITIES, TOWNS AND VILLAGES, OR FOR BOTH. LATER ON W.E.F. 1.4.2003 SEC 10(20A) WAS OMITTED BY FINANCE ACT 2002 W.E.F. 1.4.2003 AND FOLLOWING EXPLANATION WAS INSERTED IN SEC 10(20): THE FOLLOWING EXPLANATION SHALL BE INSERTED TO CLA USE (20) OF SECTION 10 BY THE FINANCE ACT, 2002 W.E.F. 1.4.2003 : EXPLANATION FOR THE PURPOSES OF THIS CLAUSE, THE EXPRESSION LOCAL AUTHORITY MEANS (I) PANCHAYAT AS REFERRED TO IN CLAUSE (D) OF ARTIC LE 243 OF THE CONSTITUTION; OR (II) MUNICIPALITY AS REFERRED TO IN CLAUSE (E) OF A RTICLE 243P OF THE CONSTITUTION; OR (III) MUNICIPAL COMMITTEE AND DISTRICT BOARD, LEGALLY ENTITLED TO OR ENTRUSTED BY THE GOVERNMENT WITH THE CONTROL OR MANAGEMENT OF A MUNICIPAL OR LOCAL FUND, OR (IV) CANTONMENT BOARD AS DEFINED IN SECTION 3 OF TH E CANTONMENTS ACT, 1924 (2 OF 1924). ABOVE CLEARLY SHOW THAT TILL ASSESSMENT YEAR 2002- 03 EXEMPTION WAS SPECIFICALLY GRANTED TO THE LOCAL AUT HORITY AS PER THE PROVISIONS OF SECTION 10(20A) WHICH WAS OMITTE D FROM ASSESSMENT YEAR 2003-04 AND WHATEVER EXEMPTION WER E 13 REQUIRED WERE MADE IN TERMS OF SEC 10(20). HOWEVER, THE EXEMPTION WAS RESTRICTED BY ADDING THE EXPLANATION BY WHICH THE MEANING OF THE LOCAL AUTHORITY ITSELF, WAS REST RICTED. THIS AMENDED POSITION CAME UP FOR INTERPRETATION BEFORE THE HON'BLE SUPREME COURT IN CASE OF AGRICULTURAL PRODUCE MARKE T COMMITTEE, NARELA VS. CIT, 305 ITR 1 AND IT WAS CLE ARLY OBSERVED THAT DEFINITION GIVEN IN EXPLANATION TO SE C 10(20) WAS EXHAUSTIVE AND THERE WAS NO SCOPE FOR EXTENDING THE MEANING OF OTHER AUTHORITIES. HELD COLUMN READS AS UNDER: HELD, THAT THE APPELLANT AN AGRICULTURAL MARKETING COMMITTEE ESTABLISHED UNDER THE DELHI AGRICULTURAL PRODUCE MA RKETING (REGULATION) ACT, 1998 TO PROVIDE FACILITIES FOR MA RKETING AGRICULTURAL PRODUCE IN NARELA IN DELHI AND FOR PER FORMING OTHER FUNCTIONS AND DUTIES SUCH AS SUPERINTENDENCE, DIREC TION AND CONTROL OF MARKETS FOR REGULATING THE MARKETING OF AGRICULTURAL PRODUCE WAS NOT A LOCAL AUTHORITY U/S 10(20) OF T HE INCOME -TAX ACT, 1961 AS AMENDED BY THE FINANCE ACT, 2002 AND W AS THEREFORE NOT EXEMPT FROM INCOME-TAX THEREUNDER. SINCE THE WORKS OTHER AUTHORITY WERE OMITTED FROM THE SCOPE OF THE EXPRESSION LOCAL AUTHORITY FOUND IN SECTION 3 (31) OF THE GENERAL CLAUSES ACT, 1897 IN THE EXPLANATION TO SEC TION 10(20) BY THE FINANCE ACT, 2002 IT WOULD NOT BE CORRECT TO SA Y THAT THE ENTIRE DEFINITION OF THE WORKS LOCAL AUTHORITY WAS BODIL Y LIFTED FROM SECTION 3(31) OF THE 1897 ACT AND INCORPORATED BY P ARLIAMENT IN THE EXPLANTION TO S ECTION 10(20) OF THE INCOME -TA X ACT, 1961. THE EXPLANATION TO SECTION 10(20) PROVIDES A DEFINI TION TO THE EXPRESSION LOCAL AUTHORITY AND THAT IS AN EXHAUST IVE DEFINITION. IT IS NOT AN INCLUSIVE DEFINITION. THEREFORE THE FUNC TIONAL TEST AND TEST OF INCORPORATIONS AS LAID DOWN IN THE CASE OF R.C. JAIN (1981) 2 SCC 308, IS NO MORE APPLICABLE TO SECTION 10(20) AS AMENDED BY THE FINANCE ACT, 2002. UNION OF INDIA VS. R.C. JAIN 91981) 2 SCC 308 CONSI DERED. THE REFERENCE TO MUNICIPAL COMMITTEE AND DISTRIC T BOARD IN THE DEFINITION OF OTHER AUTHORITY IS OUT OF ABUNDANT CAUTION. IN 1897 WHEN THE GENERAL CLAUSES ACT WAS ENACTED THERE EXIS TED IN INDIA MUNICIPAL COMMITTEES AND DISTRICT BOARDS. THEREFORE APART FROM A PANCHAYAT AND A MUNICIPALITY, PARLIAMENT IN ITS WIS DOM DECIDED TO GIVE EXEMPTION TO MUNICIPAL COMMITTEES AND DISTRICT BOARDS AND HAS ADVISEDLY RETAINED THEIR EXEMPTION. ARTICLES 2 43F AND 243ZF OF THE CONSTITUTION OF INDIA INDICATE THAT THERE CO ULD BE ENACTMENTS WHICH STILL RETAIN THE ENTITIES LIKE MUNICIPAL COMM ITTEES AND DISTRICT BOARDS AND IF THEY EXIST, PARLIAMENT INTEN DS TO GIVE EXEMPTION TO THEIR INCOME U/S 10(20). IN VIEW OF THIS SITUATION THE ASSESSEE SHOULD HAVE BROUGHT THIS FACT THAT IT WAS TREATING ITSELF AS LOCAL AUTHORITY AND SURCHARGE WAS NOT PAYABLE SPECIFICALLY TO THE ATTENTION OF TH E ASSESSING OFFICER. HAVING FAILED TO DO SO IT CANNOT BE LATER ON SAID THAT 14 ASSESSMENT HAS BEEN WRONGLY OPENED. IN FACT IN THIS REGARD WE ARE REMINDED OF THE FAMOUS LINES OF HON'BLE SUPREME COURT IN CASE OF PHOOL CHAND BAJRANG LAL AND ANR VS. ITO (SU PRA) RELIED ON BY THE D.R. FOR THE REVENUE WHICH READS AS UNDER : 203 ITR 478 - ONE OF THE PURPOSES OF SECTION 147 A PPEARS TO US TO BE TO ENSURE THAT A PARTY CANNOT GET AWAY BY WILLFULLY MAKING A FALSE OR UNTRUE STATEMENT AT THE TIME OF ORIGINAL ASSESSMENT AND WHEN THAT FALSITY COMES TO NOTICE TO TURN AROUND AN D SAY YOU ACCEPTED MY LIE, NOW YOUR HAND ARE TIED AND YOU CAN DO NOTHING. IT WOULD BE A TRAVESTY OF JUSTICE TO ALLOW THE ASSE SSEE THAT LATITUDE. 12 THE HON'BLE SUPREME COURT IN CASE OF HONDA SIEL POWER PRODUCTIONS LTD. VS. DCIT & ANOTHER, 340 ITR 53 HA S CLEARLY HELD IF THERE IS A FAILURE ON PART OF THE ASSESSEE TO DISCLOSED FULLY AND TRULY THE MATERIAL FACTS OF THE CASE THEN SUCH REOPENING WOULD BE VALID. 13 THE HON'BLE PUNJAB AND HARYANA HIGH COURT IN CAS E OF JAWAND SONS VS. CIT (SUPRA) FURTHER HELD THAT EVEN IF THE ASSESSEE HAS FULLY DISCLOSED MATERIAL FACTS AND STI LL IF THE ASSESSING OFFICER HAS REASON TO BELIEVE THAT INCOME HAS ESCAPED THE ASSESSMENT THEN SUCH REOPENING WOULD BE VALID. IN THIS REGARD WE REPRODUCE THE RELEVANT OBSERVATIO NS OF THE COURT WHICH ARE AS UNDER: 326 ITR 39 - U/S 147 OF THE INCOME -TAX ACT, 1961 AFTER ITS AMENDMENT W.E.F. APRIL 1, 1989 WIDE POWER HAS BEEN GIVEN TO THE ASSESSING OFFICER EVEN TO COVER CASES WHERE THE ASS ESSEE HAD FULLY DISCLOSED THE MATERIAL FACTS. THE ONLY CONDI TION FOR ACTION IS THAT THE ASSESSING OFFICER SHOULD HAVE REASON TO BE LIEVE THAT THE INCOME CHARGEABLE TO TAX HAD ESCAPED ASSESSMENT. SU CH BELIEF CAN BE REACHED IN ANY MANNER. RECENTLY THIS ISSUE ALSO CAME UP FOR CONSIDERATION OF THE HON'BLE PUNJAB & HARYANA HIGH COURT IN CASE OF ARUN KUMAR GOYAL V CIT, ITA NO. 54 OF 2012 (ORDER DATED 21.11. 2012). IN THIS CASE IT WAS CONTENDED THAT THE DECISION OF RAJ ESH JHAVERY (SUPRA) HAS ALREADY BEEN DISTINGUISHED BY THE HON'B LE PUNJAB & HARYANA HIGH COURT IN CASE OF CIT V. PARAMJIT KAUR, 311 ITR 15 38 (PH). HON'BLE HIGH COURT CONSIDERED THE PROVISI ONS OF SECTION 147 AND OBSERVED AT PARAS 12 TO 14 AS UNDER : 12 THERE IS, HOWEVER, A SEA-CHANGE AFTER THE AMEND MENT IN SECTION 147 FOR DETERMINING JURISDICTIONAL SCOPE FO R RE-ASSESSMENT OF THE ESCAPED INCOME. THE HON'BLE SUPREME COURT I N RAJESH JHAVERIS CASE (SUPRA) HAS EXPLAINED AND LAID DOWN THAT UNDER THE SUBSTITUTED SECTION 147 EXISTENCE OF ONLY THE FIRS T CONDITION SUFFICES. IN OTHER WORDS IF THE ASSESSING OFFICER FOR WHATEVER REASON HAS REASON TO BELIEVE THAT INCOME HAS ESCAPE D ASSESSMENT IT CONFERS JURISDICTION TO REOPEN THE ASSESSMENT. IT WAS FURTHER HELD THAT SO LONG AS THE INGREDIENTS OF SECTION 14 7 ARE FULFILLED, THE ASSESSING OFFICER IS FREE TO INITIATE PROCEEDIN GS U/S 147 AND FAILURE TO TAKE STEPS U/S 143(3) WILL NOT RENDER TH E ASSESSING OFFICER POWERLESS TO INITIATE RE-ASSESSMENT PROCEED INGS EVEN WHEN INTIMATION U/S 143(1) HAD BEEN ISSUED..\ 13 THE EXPRESSION REASON TO BELIEVE THUS CANNOT B E RESTRICTIVELY CONSTRUED TO SAY AS IF THE ASSESSING OFFICER IS OBLIGATED FIRSTLY TO FINALLY ASCERTAIN THE FACTUM O F ESCAPED INCOME ON THE BASIS OF ADMISSIBLE EVIDENCE AND THEN ONLY T O ISSUE SHOWN CAUSE TO THE ASSESSEE. THE HON'BLE SUPREME COURT H ELD THAT THE FINAL OUTCOME OF THE PROCEEDINGS INITIATED U/S 147 IS NOT RELEVANT AND WHAT IS OF RELEVANCE IS THE EXISTENCE OF REASON S TO MAKE THE ASSESSING OFFICER BELIEVE THAT THERE HAS BEEN UNDER -ASSESSMENT OF THE ASSESSEES INCOME FOR A PARTICULAR YEAR. 14 IT IS EXPLICIT FROM THE POST-AMENDMENT DECISIONS CITED ABOVE THAT ONCE THERE ARE REASONS FOR THE ASSESSING OFFIC ER TO BELIEVE, WHETHER SUCH REASONS ORIGINATE OUT OF THE RECORD AL READY SCRUTINIZED FOR OTHERWISE, HE SHALL BE WITHIN HIS C OMPETENCE TO INITIATE THE RE-ASSESSMENT PROCEEDINGS. THE FORMAT ION OF BELIEF BY THE ASSESSING OFFICER MUST ALWAYS BE TENTATIVE AND NOT A FIRM OR FINAL CONCLUSION AS THE LATTER WILL NEGATE THE VERY OBJECT OF GIVING AN OPPORTUNITY OF HEARING TO THE ASSESSEE AS IT WI LL AMOUNT TO POST-DECISIONAL HEARING. FROM THE ABOVE IT EMERGES THAT ONLY REQUIREMENT FO R REOPENING THE ASSESSMENT IS THAT THERE SHOULD BE A REASON TO BELIEVE THAT INCOME HAS ESCAPED ASSESSMENT AND SUCH REASONS SHOULD BE PRIMA FACIE REASON. IN VIEW OF THE ABOVE DISCUSSION WE ARE OF THE OPINI ON THAT ASSESSMENT HAS BEEN RIGHTLY REOPENED AND THEREFORE WE REJECT THE GROUND OF HE ASSESSEE RELATING TO REOPENING OF THE ASSESSMENT. 14 WE FIND NO FORCE IN THE CONTENTION THAT ULTIMATE LY ASSESSMENT HAS BEEN FRAMED IN THE STATUS OF LOCAL A UTHORITY. NO DOUBT IN COL 5 WHICH REFERS TO STATUS ON THE FIR ST PAGE OF THE 16 ASSESSMENT ORDER SHOWS THE STATUS OF THE ASSESSEE W AS SHOWN AS LOCAL AUTHORITY BUT THIS SEEMS TO BE A CLEAR C ASE OF TYPOGRAPHICAL MISTAKE. THIS BECOMES CLEAR FROM THE FACT THAT THE ASSESSMENT HAS BEEN REOPENED FOR HOLDING THAT T HE ASSESSEE IS NOT A LOCAL AUTHORITY. DETAILED DISCUS SIONS HAVE BEEN MADE AT PARA 6 TO 10 WHEREIN IT HAS BEEN VERY CLEARLY OBSERVED THAT THE ASSESSEE IS NOT A LOCAL AUTHORITY . THEREFORE MERELY MENTIONING THE STATUS OF THE ASSESSEE AS LOC AL AUTHORITY ON THE FIRST PAGE WOULD NOT ALTER THE THINGS. THIS SITUATION FURTHER BECOMES CLEAR FROM THE FACTS THAT THE ASSES SING OFFICER HAS ALREADY PASSED THE RECTIFICATION ORDER U/S 154 WHERE THIS MISTAKE HAS BEEN REMOVED AND THE STATUS OF THE ASSE SSEE HAS BEEN RECTIFIED OF ARTIFICIAL JURIDICAL PERSON. 15 LAST QUESTION TO BE DECIDED IS WHETHER THE ASSES SEE IS LOCAL AUTHORITY OR NOT? THE ISSUE REGARDING MEANIN G OF LOCAL AUTHORITY CAME UP FOR CONSIDERATION BEFORE THE HON 'BLE APEX COURT IN CASE OF AGRICULTURAL PRODUCE MARKET COMMIT TEE, NARELA VS. CIT (SUPRA). IN THAT CASE THE ASSESSEE WAS AN AGRICULTURAL MARKETING COMMITTEE AND THE QUESTION AROSE WHETHER THIS COMMITTEE WAS A LOCAL AUTHORITY OR NOT? IT WAS HEL D AS UNDER: 305 ITR 1 - HELD, THAT THE APPELLANT AN AGRICULTUR AL MARKETING COMMITTEE ESTABLISHED UNDER THE DELHI AGR ICULTURAL PRODUCE MARKETING (REGULATION) ACT, 1998 TO PROVIDE FACILITIES FOR MARKETING AGRICULTURAL PRODUCE IN NARELA IN DELHI A ND FOR PERFORMING OTHER FUNCTIONS AND DUTIES SUCH AS SUPER INTENDENCE, DIRECTION AND CONTROL OF MARKETS FOR REGULATING THE MARKETING OF AGRICULTURAL PRODUCE WAS NOT A LOCAL AUTHORITY U/ S 10(20) OF THE INCOME -TAX ACT, 1961 AS AMENDED BY THE FINANCE ACT , 2002 AND WAS THEREFORE NOT EXEMPT FROM INCOME-TAX THEREUNDER . SINCE THE WORKS OTHER AUTHORITY WERE OMITTED FROM THE SCOPE OF THE EXPRESSION LOCAL AUTHORITY FOUND IN SECTION 3 (31) OF THE GENERAL CLAUSES ACT, 1897 IN THE EXPLANATION TO SEC TION 10(20) BY THE FINANCE ACT, 2002 IT WOULD NOT BE CORRECT TO SA Y THAT THE ENTIRE DEFINITION OF THE WORKS LOCAL AUTHORITY WAS BODIL Y LIFTED FROM SECTION 3(31) OF THE 1897 ACT AND INCORPORATED BY P ARLIAMENT IN THE EXPLANTION TO S ECTION 10(20) OF THE INCOME -TA X ACT, 1961. THE EXPLANATION TO SECTION 10(20) PROVIDES A DEFINI TION TO THE EXPRESSION LOCAL AUTHORITY AND THAT IS AN EXHAUST IVE DEFINITION. IT IS NOT AN INCLUSIVE DEFINITION. THEREFORE THE FUNC TIONAL TEST AND 17 TEST OF INCORPORATIONS AS LAID DOWN IN THE CASE OF R.C. JAIN (1981) 2 SCC 308, IS NO MORE APPLICABLE TO SECTION 10(20) AS AMENDED BY THE FINANCE ACT, 2002. UNION OF INDIA VS. R.C. JAIN 91981) 2 SCC 308 CONSI DERED. THE REFERENCE TO MUNICIPAL COMMITTEE AND DISTRIC T BOARD IN THE DEFINITION OF OTHER AUTHORITY IS OUT OF ABUNDANT CAUTION. IN 1897 WHEN THE GENERAL CLAUSES ACT WAS ENACTED THERE EXIS TED IN INDIA MUNICIPAL COMMITTEES AND DISTRICT BOARDS. THEREFORE APART FROM A PANCHAYAT AND A MUNICIPALITY, PARLIAMENT IN ITS WIS DOM DECIDED TO GIVE EXEMPTION TO MUNICIPAL COMMITTEES AND DISTRICT BOARDS AND HAS ADVISEDLY RETAINED THEIR EXEMPTION. ARTICLES 2 43F AND 243ZF OF THE CONSTITUTION OF INDIA INDICATE THAT THERE CO ULD BE ENACTMENTS WHICH STILL RETAIN THE ENTITIES LIKE MUNICIPAL COMM ITTEES AND DISTRICT BOARDS AND IF THEY EXIST, PARLIAMENT INTEN DS TO GIVE EXEMPTION TO THEIR INCOME U/S 10(20). IN THIS CASE IT WAS OBSERVED AT PARA 31 AS UNDER: BEFORE CONCLUDING WE QUOTE HEREINBELOW AN IMPORTAN T PRINCIPLE OF LAW ENUNCIATED BY THIS COURT IN THE CA SE OF R.C. JAIN WHICH READS AS UNDER: ..IT IS NOT A SOUND RULE OF INTERPRETATION TO SE EK THE MEANING OF WORDS USED IN AN ACT, IN THE DEF CLAUSE OF OTHER STATUTES. FROM ABOVE IT BECOMES CLEAR THAT FOR UNDERSTANDING THE MEANING OF EXPRESSION LOCAL AUTHORITY WE DO NOT H AVE TO REFER TO THE DEFINITION GIVEN IN OTHER STATUTES. LOCAL AU THORITY HAS BEEN DEFINED IN EXPLANATION TO SEC 10(20) AND THE C OURT IN THE ABOVE CASE HAS CLEARLY HELD THAT THIS DEFINITION IS OF EXHAUSTIVE NATURE AND CANNOT BE EXTENDED TO OTHER ORGANIZATION S. 16 EVEN IF ASSUMING FOR ARGUMENT SAKE THAT THE DEFI NITION OF LOCAL AUTHORITY IN EXPLANATION TO SEC 10(20) CANNOT BE EXTENDED TO SEC 2(31) THEN ALSO THE ASSESSEE-BOARD DOES NOT FIT INTO THE DEFINITION OF LOCAL AUTHORITY AS INTERPRETED BY HON 'BLE SUPREME COURT IN CASE OF UNION OF INDIA VS. R.C. JAIN & ORS , (1981) 2 SCC 308 WHICH HAS BEEN RELIED ON BY THE ASSESSING O FFICER. IN THIS CASE THE COURT WAS REQUIRED TO CONSIDER WHETHE R DELHI DEVELOPMENT AUTHORITY WAS LOCAL AUTHORITY FOR THE PURPOSE OF PAYMENT OF BONUS ACT, 1965. THE COURT LOOKED AT SE C 3(31) OF 18 THE GENERAL CLAUSES ACT, 1987 AND OBSERVED AT PARA 2 AS UNDER: LET US, THEREFORE CONCENTRATE AND CONFINE OUR ATTE NTION AND ENQUIRY TO THE DEFINITION OF LOCAL AUTHORITY IN S EC 3(31) OF THE GENERAL CLAUSES ACT. A PROPER AND CAREFUL SCRUTINY OF THE LANGUAGE OF SECTION 3(31) SUGGESTS THAT AN AUTHORIT Y, IN ORDER TO BE A LOCAL AUTHORITY, MUST BE OF LIKE NATURE AND C HARACTER AS A MUNICIPAL COMMITTEE, DISTRICT BOARD OR BODY OF PORT COMMISSIONER, POSSESSING, THEREFORE MANY IF NOT ALL OF THE DISTIN CTIVE ATTRIBUTES AND CHARACTERS OF A MUNICIPAL COMMITTEE, DISTRICT B OARD OR BODY OF PORT COMMISSIONERS, BUT, POSSESSING ONE ESSENTIAL F EATURE, NAMELY THAT IT IS LEGALLY ENTITLED TO OR ENTRUSTED BITE GO VERNMENT WITH THE CONTROL AND MANAGEMENT OF A MUNICIPAL OR LOCAL FUND . WHAT THEN ARE THE DISTINCTIVE ATTRIBUTES AND CHARACTERISTICS, ALL OF MANY OF WHICH A MUNICIPAL COMMITTEE, DISTRICT BOARD OR BODY OF PORT COMMISSIONERS SHARES WITH ANY OTHER LOCAL AUTHORITY ? FIRST, THE AUTHORITIES MUST HAVE SEPARATE LEGAL EXISTENCE AS C ORPORATE BODIES. THEY MUST NOT BE MERE GOVERNMENT AGENCIES BUT MUST BE LEGALLY INDEPENDENTLY ENTITIES. NEXT THEY MUST FU NCTION IN A DEFINED AREA AND MUST ORDINARILY, WHOLLY OR PARTLY, DIRECTLY OR INDIRECTLY BE ELECTED BY THE INHABITANTS OF THE ARE A. NEXT THEY MUST ENJOY A CERTAIN DEGREE OF AUTONOMY, WITH FREED OM TO DECIDE FOR THEMSELVES QUESTIONS OF POLICY AFFECTING THE AR EA ADMINISTERED BY THEM. THE AUTONOMY MAY NOT BE COMPLETE AND THE DEGREE OF THE DEPENDENCE MAY VARY CONSIDERABLY BUT AN APPRECI ABLE MEASURE OF AUTONOMY THERE MUST BE. NEXT THEY MUST BE ENTRU STED BY STATUTE WITH SUCH GOVERNMENTAL FUNCTIONS AND DUTIES AS ARE USUALLY ENTRUSTED TO MUNICIPAL BODIES SUCH AS THOSE CONNECT ED WITH PROVIDING AMENITIES TO THE INHABITANTS OF THE LOCAL ITY, LIKE HEALTH AND EDUCATION SERVICES, WATER AND SEWERAGE, TOWN PL ANNING AND DEVELOPMENT , ROADS, MARKETS, TRANSPORTATION, SOCIA L WELFARE SERVICES, ETC. ETC. BROADLY WE MAY SAY THAT THEY MA YBE ENTRUSTED WITH THE PERFORMANCE OF CIVIC DUTIES AND FUNCTIONS WHICH WOULD OTHERWISE BE GOVERNMENTAL DUTIES AND FUNCTIONS. FIN ALLY THEY MUST HAVE THE POWER TO RAISE FUNDS FOR THE FURTHERANCE O F THEIR ACTIVITIES AND THE FULFILLMENT OF THEIR PROJECTS BY LEVYING TA XES, RATES, CHARGES OR FEES. THIS MAY BE IN ADDITION TO MONEYS PROVIDED BY GOVERNMENT OR OBTAINED BY BORROWING OR OTHERWISE. WHAT IS ESSENTIAL IS THAT CONTROL OR MANAGEMENT OF THE FUND MUST VEST IN THE AUTHORITY. THE TESTS GIVEN IN ABOVE PARA WERE FURTHER DISCUSSE D BY THE ASSESSING OFFICER IN PARA 7 WHICH IS AS UNDER: 7 FURTHER THE HON'BLE APEX COURT IN UNION OF INDIA VS. R.C. JAIN & ORS IN AIR 1981 ()S.C) 951 HAVE LAID DOWN FIVE TEST S FOR DECLARING THE ASSESSEE IN THE STATUS OF LOCAL AUTHORITY WHICH ARE AS UNDER: 1 THE AUTHORITIES MUST HAVE SEPARATE LEGAL EXISTEN CE AS CORPORATE BODIES. THEY MUST NOT BE MERE GOVERNMENT AGENCIES BUT MUST BE LEGALLY INDEPENDENT ENTITITIES. BUT THE ASSESSEE, CHANDIGARH HOUSING BOARD, IS GOVE RNMENT UNDERTAKING AND ABIDE ALL GOVERNMENT ORDERS AND INS TRUCTIONS AND IS PRIMARILY DEPENDENT ON GOVT POLICIES. 2 THEY MUST FUNCTION IN A DEFINED AREA AND MUST ORD INARILY, WHOLLY OR PARTLY DIRECTLY OR INDIRECTLY BE ELECTED BY THE INHABITANTS OF THE AREA. NONE OF THE FUNCTIONARIES OF THE CHANDIGARH HOUSIN G BOARD ARE ELECTED BY THE INHABITANTS OF THE AREA AND ALL THE MEMBERS ARE NOMINATED BY THE GOVERNMENT. 19 3 THEY MUST ENJOY A CERTAIN DEGREE OF AUTONOMY, WIT H FREEDOM TO DECIDE FOR THEMSELVES QUESTIONS OR POLICY EFFECTING ; THE AREA ADMINISTERED BY THEM. THE AUTONOMY MAY NOT BE COMP LETE AND THE DEGREE OF THE DEPENDENCE MAY VARY CONSIDERABLY BUT, AN APPRECIABLE MEASURES OF AUTONOMY THERE MUST BE. THE ASSESSEE-CHANDIGARH HOUSING BOARD IS DEPENDENT ON THE GOVT POLICIES AND HAS TO ABIDE BY ALL THE DIRECTION S, ETC. OF THE GOVT. 4 THEY MUST BE ENTRUSTED BY STATUTE WITH SUCH GOVER NMENTAL FUNCTIONS AND DUTIES AS ARE USUALLY ENTRUSTED TO MU NICIPAL BODIES. BROADLY, THEY MAY BE ENTRUSTED WITH THE PERFORMANCE OF CIVIC DUTIES AND FUNCTIONS WHICH WOULD OTHERWISE BE GOVERNMENT DUTIE S AND FUNCTIONS. THE ASSESSEE-CHANDIGARH HOUSING BOARD HAS NOT BEEN ENTRUSTED THE FUNCTIONS AND DUTIES AS ARE USUALLY ENTRUSTED T O MUNICIPAL BODIES. FURTHER THE ASSESSEE HAS NOT BEEN ENTRUSTED WITH TH E PERFORMANCE OF CIVIC DUTIES AND FUNCTIONS WHICH WOULD OTHERWISE BY GOVERNMENT DUTIES AND FUNCTIONS. 5 FINALLY THEY MUST HAVE THE POWER TO RAISE FUNDS F OR THE FURTHERANCE OF THEIR ACTIVITIES AND THE FULFILLMENT OF THEIR PROJECTS BY LEVYING TAXES, RATES, CHARGES OR FEES. THIS MAY BE IN ADDITION TO MONEYS PROVIDED BY GOVERNMENT OR OBTAINED BY BORROWING OR OTHERWISE. WHAT IS ESSENTIAL IS THAT CONTROL OR MANAGEMENT OF THE FUND MUST VEST IN THE AUTHORITY. THE ASSESSEE/CHANDIGARH HOUSING BOARD IS NOT AUTHO RIZED TO LEVY ANY TAXES, RATES, CHARGES OR FEES WITHOUT THE PERMI SSION AND DIRECTIONS OF THE GOVERNMENT. FROM ABOVE IT BECOMES CLEAR THAT THE ASSESSEE-BOARD DOES NOT MEET THE CRITERIA OR THE TESTS LAID DOWN BY THE HON 'BLE SUPREME COURT FOR HOLDING AN ORGANIZATION AS LOCAL AUTHORIT Y. IN VIEW OF THIS DECISION, WE ARE OF THE OPINION THAT THE ASSESSEE-B OARD IS NOT A LOCAL AUTHORITY AND THEREFORE LIABLE TO SURCHARGE. ACCORDINGLY WE FIND NOTHING WRONG WITH THE ORDER OF THE LD. CIT(A) DATED 30.9.2013 THROUGH WHICH THE APPEALS OF THE ASSESSEE FOR ASSES SMENT YEAR 2006-07 TO 2009-10 HAVE BEEN DISMISSED AND WE CONFI RM THE SAME. 17 IN THE RESULT, ITAS NO. 1109, 1110, 1111 & 1112/ CHD/2013 ARE DISMISSED. ITAS NO. 1113, 1114, 1115 & 1116/CHD/2013 18 IN ALL THESE APPEALS THE ASSESSEE HAS RAISED FOL LOWING COMMON GROUNDS: 1 THAT THE LD. CIT(A) HAS ERRED IN LAW AS WELL AS ON FACTS OF THE CASE IN UPHOLDING THE ACTION OF THE ASSESSING OFFIC ER IN PASSING THE ORDER U/S 154. 2 THAT THE LD. CIT(A)IS NOT JUSTIFIED IN UPHOLDING THE ORDER PASSED BY THE ASSESSING OFFICER U/S 154 WHICH WAS PASSED W ITHOUT GIVING ANY 20 NOTICE OR AN OPPORTUNITY OF BEING HEARD U/S 154(3) OF INCOME -TAX ACT, 1961 WHICH ACTION IS ALSO AGAINST THE PRINCIPLES OF NATURAL JUSTICE. 3 THAT THE LD. CIT(A) HAS ERRED IN UPHOLDING THE OR DER OF THE ASSESSING OFFICER BECAUSE ANY DEBATABLE ISSUE IS IN CAPABLE OF BEING RECTIFIED U/S 154, SUCH AS CHANGE OF STATUS. 19 AFTER HEARING BOTH THE PARTIES WE FIND THAT AFTE R PASSING THE REASSESSMENT ORDER THE ORDERS WERE TAKEN UP BY WAY OF RECTIFICATION ORDER U/S 154. DETAILED DISCUSSION WAS MADE REGARD ING STATUS OF THE ASSESSEE AND REFERENCE WAS MADE TO THE ORDER OF HON'BLE SUPREME COURT IN CASE OF UNION OF INDIA VS. R.C. JA IN & ORS (SUPRA). IT WAS HELD THAT CORRECT STATUS OF THE AS SESSEE WAS ARTIFICIAL JURIDICAL PERSON (IN SHORT AJP). 20 ON APPEAL IT WAS MAINLY CONTENDED THAT THE ORDER US/ 154 HAS BEEN PASSED WITHOUT ISSUING A NOTICE. IT WAS FURTH ER CONTENDED THAT STATUS OF THE ASSESSEE COULD NOT BE CHANGED BY PASS ING AN ORDER U/S 154. 21 THE LD. CIT(A) OBSERVED THAT SINCE THERE WAS NO ENHANCEMENT IN THE TAX LEVIED ON THE ASSESSEE THEREFORE IN VIEW OF SECTION 154(3) NO NOTICE WAS REQUIRED TO BE ISSUED. THE OTHER CON TENTION THAT STATUS CAN NOT BE CHANGED U/S 154 WAS ADJUDICATED A S UNDER: THE ARGUMENT OF THE LD. COUNSEL FOR THE ASSESSEE TH AT THE CHANGE OF STATUS WAS NOT POSSIBLE BY PASSING ORDER U/S 154, S INCE IT WAS A DEBATABLE ISSUE, ALSO DOES NOT HOLD WATER, SINCE AF TER OMISSION OF SUB- CLAUSE (20A) OF SEC 10, THE APPELLANT COULD NOT HAV E BEEN ASSESSED AS LOCAL AUTHORITY AND HAD TO BE ASSESSED AS ARTIFI CIAL JURIDICAL PERSON. 22 BEFORE US, THE LD. COUNSEL FOR THE ASSESSEE SUBM ITTED THAT RECTIFICATION ORDER CANNOT BE PASSED WITHOUT ISSUIN G NOTICE. IN THIS REGARD HE RELIED ON THE DECISION OF HON'BLE SUPREME COURT IN CASE OF L. HARIDAY NARAYAN VS. ITO, 78 ITR 26. 23 ON THE OTHER HAND, THE LD. D.R. FOR THE REVENUE SUBMITTED THAT IN FACT THE ASSESSEE ITSELF MOVED A RECTIFICAT ION APPLICATION VIDE APPLICATION DATED 6.5.2013 (COPY OF WHICH IS AVAILA BLE AT PAGE 7 OF THE PAPER BOOK). SHE FURTHER SUBMITTED THAT IN THE ORDER U/S 154 THE 21 ASSESSING OFFICER SIMPLY DETERMINED THE ACTUAL STAT US OF THE ASSESSEE WHICH DOES NOT HAVE EFFECT OF ENHANCEMENT TAX LIABILITY OF THE ASSESSEE AND THEREFORE AS PER THE PROVISIONS OF SECTION 154(3) NO NOTICE WAS REQUIRED TO BE ISSUED. NOTICE WAS RE QUIRED ONLY IF RECTIFICATION ORDER WOULD HAVE EFFECT OF ENHANCING THE LIABILITY OF THE ASSESSEE. FOR THIS SHE RELIED ON THE DECISION OF T HIRD MEMBER OF CHANDIGARH BENCH OF THE TRIBUNAL IN CASE OF ACIT VS . SANDEEP KHANNA, 67 ITD 23. 24 WE HAVE GONE THROUGH THE RIVAL SUBMISSIONS CAREF ULLY. THE ASSESSEE HAS MOVED AN APPLICATION FOR RECTIFICATION (COPY OF WHICH IS AVAILABLE AT PAGE 7 OF EH PAPER BOOK). THE APPL ICATION READS AS UNDER: THE ASSISTANT COMMISSIONER OF INCOME TAX CIRCLE 1(1), AYAKAR BHAWAN, SECTOR 17-E CHANDIGARH SIR, SUBJECT: REQUEST FOR RECTIFICATION OF MISTAKE APPA RENT FROM RECORD U/S 154 IN THE CASE OF CHANDIGARH HOUSING BO ARD, PAN AAALC 0123H ) ASSESSMENT YEAR 2006-07 KINDLY REFER TO THE REASSESSMENT ORDER FOR THE ABOV E NOTED ASSESSMENT YEAR PASSED BY YOUR HONOUR ON 17.12.2012. 1 IT IS REQUESTED THAT IN THE ABOVE SAID ASSESSMENT ORDER THE APPLICANT HAS BEEN DETERMINED TO BE A TAXABLE ENTIT Y AND ASSESSED IN THE STATUS OF LOCAL AUTHORITY NOT BEING A LOCAL AUTHO RITY U/S 10(20) WHOSE INCOME IS EXEMPT. SO THE INCOME OF THE APPLICANT IS TAXABLE. 2 THE TAX HAS BEEN CALCULATED BY APPLYING THE RATES APPLICABLE TO A LOCAL AUTHORITY, BUT THE SURCHARGE HAS ALSO BEEN LE VIED, WHICH IS NOT LEVIABLE IN THE CASE OF A LOCAL AUTHORITY. SO, YOU R HONOUR WOULD AGREE THAT IT IS A MISTAKE APPARENT FROM THE RECORDS WHIC H REQUIRES RECTIFICATION. IT IS, THEREFORE REQUESTED THAT THE ABOVE MISTAKE B EING APPARENT FROM THE RECORDS, MAY KINDLY BE RECTIFIED. YOURS FAITHFULLY, SD/- (A.K. SINGHAL) CHARTERED ACCOUNTANT, A.R FOR CHANDIGARH HOUSING BOARD FROM ABOVE IT BECOMES CLEAR THAT THE ASSESSEE ITSEL F REQUESTED THE ASSESSING OFFICER TO DETERMINE THE CORRECT STATUS. THE ASSESSING OFFICER TOOK UP THE MATTER BY WAY OF RECTIFICATION PROCEEDINGS AND 22 PASSED THE ORDER U/S 154 BY HOLDING THAT THE STATUS OF THE ASSESSEE WAS AJP. ADMITTEDLY NO NOTICE HAS BEEN ISSUED TO THE ASSESSEE. WE HAVE NO QUARREL WITH THE CONTENTION THAT NO ORDE R CAN BE PASSED WITHOUT COMPLYING WITH THE PRINCIPLES OF NATURAL JU STICE I.E. OPPORTUNITY MUST BE GIVEN TO THE ASSESSEE BEFORE PA SSING AN ORDER. HOWEVER, AT THE SAME TIME SEC 154(3) READS AS UNDE R: AN AMENDMENT, WHICH HAS THE EFFECT OF ENHANCING AN ASSESSMENT OR REDUCING A REFUND OR OTHERWISE INCREASING THE LIABI LITY OF THE ASSESSEE [OR THE DEDUCTOR], SHALL NOT BE MADE UNDER THIS SECTION UNLESS THE AUTHORITY CONCERNED HAS GIVEN NOTICE TO THE ASSESSEE [OR THE DEDUCTOR] OF ITS INTENTION SO TO DO AND HAS ALLOWED THE ASSESSEE [OR THE DEDUCTOR] A REASONABLE OPPORTUNITY OF BEING HEARD. THE PLAIN READING OF THE ABOVE PROVISION CLEARLY SH OW THAT THE ASSESSING OFFICER IS REQUIRED TO ISSUE A NOTICE IF THE ORDER WHICH IS TO BE PASSED US/ 154, HAS EFFECT OF ENHANCING THE A SSESSMENT OR TAX LIABILITY OR REDUCING THE REFUND TO THE ASSESSEE. IN FACT IN CASE OF SANDEEP KHANNA (SUPRA) IT WAS HELD BY THIRD MEMBER OF CHANDIGARH BENCH OF THE TRIBUNAL AS UNDER: IN THE CASE OF CIT VS. PANKAJ GUPTA (1991) 188 ITR 184, THE ALLAHABAD HIGH COURT OBSERVED THAT SECTION 154(3) GIVES STATU TORY SHAPE TO THE PRINCIPLE OF NATURAL JUSTICE AND ANY ORDER OF RECTI FICATION WHICH HAS THE EFFECT OF ENHANCING THE LIABILITY OF THE ASSESSEE, PASSED WITHOUT COMPLYING WITH THE SAID REQUIREMENT IS INVALID IN L AW. THE ABOVE DECISION SQUARELY SUPPORTED THE ACCOUNTANT MEMBERS VIEW. THE PROVISIONS OF SECTION 154(3) ARE MANDATORY IN NATU RE AND ARE MEANT TO ENSURE THAT NO ORDER IS PASSED TO THE DETRIMENT OF THE ASSESSEE WITHOUT AFFORDING HIS DUE OPPORTUNITY OF BEING HEARD. THUS , THE COMMISSIONER (APPEALS) WAS RIGHT IN CANCELLING THE INTEREST CHAR GED FROM THE ASSESSEE. THEREFORE IT BECOMES CLEAR THAT IF AN ORDER IS TO B E PASSED U/S 154 FOR ENHANCING THE TAX LIABILITY OR REDUCING THE REF UND DUE TO ASSESSEE THEN NO NOTICE IS REQUIRED TO BE ISSUED. THEREFORE IN OUR OPINION, THE ASSESSING OFFICER PASSED THE RECTIFICA TION ORDER CORRECTLY BECAUSE HE HAS ONLY RECTIFIED THE CORRECT STATUS OF THE ASSESSEE THROUGH THIS ORDER. WE MAY NOTE THAT WHIL E ADJUDICATING THE APPEALS IN RESPECT OF REASSESSMENT ORDER IT WA S NOTED THAT IN THE ASSESSMENT ORDER STATUS OF THE ASSESSEE WAS SHO WN LOCAL AUTHORITY. WE HAD NOTED THAT PERHAPS IT WAS DONE BY MISTAKE OR 23 DUE TO TYPOGRAPHICAL MISTAKE AND THAT IS WHY THIS O RDER HAS BEEN PASSED. LIABILITY TO PAY TAX AS SURCHARGE GOT DETE RMINED THROUGH REASSESSMENT ORDER PASSED BY THE ASSESSING OFFICER U/S 147 R.W.S. 143(3) ON 17.12.2012 FOR ALL THE FOUR ASSESSMENT YE ARS I.E. ASSESSMENT YEAR 2006-07 TO 2009-10. THROUGH THIS O RDER THE ASSESSEE WAS HELD TO BE A LOCAL AUTHORITY AND SURCH ARGE WAS LEVIED. THEREFORE IT BECOMES CLEAR THAT THROUGH RECTIFICATI ON ORDER ONLY THE CORRECT NOMENCLATURE OF STATUS OF THE ASSESSEE HAS BEE DETERMINED AND NO FRESH LIABILITY HAS BEEN IMPOSED ON THE ASSE SSEE. 25 IN VIEW OF THE ABOVE, WE UPHOLD THE ORDER OF THE LD. CIT(A). 26 IN THE RESULT, ITAS NO. 1113,1114, 1115 & 1116/C HD/2013 ARE DISMISSED. 27 IN THE RESULT, ALL THE APPEALS OF THE ASSESSEE A RE DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 27.3.2014 SD/- SD/- (SUSHMA CHOWLA) (T.R. SOOD) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED : 27.3.2014 SURESH COPY TO: THE APPELLANT/THE RESPONDENT/THE CIT/THE C IT(A)/THE DR