Hyundai Motor India Limited, Kancheepuram V. DCIT LTU-II, CHENNAI

ITA 1836/CHNY/2017

• Counselvise Citation: [2022] 105 COUNSELVISE.COM (IT) 8011 (ITAT-CHENNAI)
• Duration Of Justice: 4 year(s) 6 month(s) 29 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 24-02-2022
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Assessment Year: 2008-2009
• Appeal Filed On: 26-07-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Reopening of assessment; Capital asset; Business income; Depreciation; Search and seizure; Question of law; Tangible material; Difference of opinion; Reason to believe; Change of opinion; Reassessment proceedings; Set aside; Capital Gains
• Section: 147; 148; 139; 144C; 191; 264; 48; 13; 153; 22

Judgement Text

आयकर अपीलीय अिधकरण, ‘बी’ ᭠यायपीठ, चे᳖ई IN THE INCOME TAX APPELLATE TRIBUNAL ‘B’ BENCH, CHENNAI Įी महावीर ͧसंह, उपाÚय¢ एवं Įी मनोज कुमार अĒवाल, लेखा सदèय के सम¢ BEFORE SHRI MAHAVIR SINGH, VICE PRESIDENTAND SHRI MANOJ KUMAR AGGARWAL, ACCOUNTANT MEMBER आयकर अपील सं./ITA Nos.: 1836/CHNY/2017 िनधाᭅरण वषᭅ /Assessment Years: 2008-09 M/s. Hyundai Motor India Limited, Plot No.H-1, Sipcot Industrial Park, Irungattukottai, Sriperumbudur Taluk, Kancheepuram District – 602 117. PAN: AAACH 2364M v. The DCIT, Large Taxpayer Unit – II, Chennai – 34. (अपीलाथᱮ/Appellant) (ᮧ᭜यथᱮ/Respondent) अपीलाथᱮ कᳱ ओर से/Appellant by : Shri Sriram Seshadri, C.A. ᮧ᭜यथᱮ कᳱ ओर से/Respondent by : Shri Abani Kanta Nayak, CIT सुनवाई कȧ तारȣख/Date of Hearing : 17.02.2022 घोषणा कȧ तारȣख/Date of Pronouncement : 25.02.2022 आदेश /O R D E R PER MAHAVIR SINGH, VP: This appeal by the assessee is arising out of the order of Commissioner of Income Tax (Appeals)-17, Chennai in ITA Nos.67/14-15/CIT(A)-17, order dated 31.03.2017. The original assessment was framed by the DCIT(LTU), Chennai for the 2 I.T.A. No.1836/Chny/2017 assessment year 2008-09 u/s.143(3) r.w.s. 144C(13) of the Income Tax Act, 1961 (hereinafter the ‘Act’) vide order dated 29.10.2012. 2. At the outset, the ld.AR for the assessee stated that this is a second round of litigation and in the first round, the Tribunal has quashed the assessment for the reason that reopening u/s.147 r.w.s 148 of the Act is bad in law vide order in ITA No.1836/Chny/2017, dated 26.12.2018. The Revenue carried this matter before the Hon’ble High Court of Madras and the Hon’ble High Court in Tax Case Appeal No.323 of 2020, order dated 23.09.2020 remanded the matter back to the file of the Tribunal by stating that the order of Tribunal is a non-speaking order. For this, the Hon’ble High Court has recorded in para 18 & 19 as under:- “18. We have also perused the assessment order dated 31.12.2014 as well as the order passed by the CIT(A) dated 31.3.2017. We find that in both the orders, certain reasons were set out. However, we do not wish to express any opinion on the same because we have faulted the impugned order passed by the Tribunal on the ground that it is devoid of reasons. Therefore, we would not be justified in making any observations on the merits of the matter as to whether the reasons have been recorded or not. All that we can say is that the assessment order as well as the order passed by the CIT(A) are speaking orders. If the Tribunal comes to the conclusion that the Assessing Officer has not recorded any failure on the part of the assessee to disclose fully and truly any material facts necessary for its assessment, it is required that the Tribunal expresses itself as to how it formed such a opinion. In the absence of any such reasons emanating from the impugned order, we have to necessarily hold that the impugned order passed by the Tribunal is devoid of reasons and would call for interference. For all the above reasons, we are inclined to 3 I.T.A. No.1836/Chny/2017 interfere with the impugned order. As mentioned earlier, we do not want to express anything on the merits of the matter as it may prejudice the interest of the assessee. 19. In the result, the above tax case appeal is allowed, the impugned order is set aside and the matter is remanded to the Tribunal for a fresh consideration. The substantial questions of law raised are left open. No costs.” The ld.AR stated that the Hon’ble High Court has kept the issue open and mentioned in para 18 that “we do not want to express anything on the merits of the matter as it may prejudice the interest of the assessee”. According to him, the Tribunal has to re-adjudicate the issue of reopening. When this was put to ld.CIT-DR, he agreed that the Tribunal has to adjudicate this issue. 3. The assessee has raised the following grounds as regard to validity of reopening of assessment and assumption of jurisdiction by the AO u/s.147 r.w.s 148 of the Act as under:- 2.1 The order passed by the Ld.AO and as upheld by the Ld.CIT(A), to the extent prejudicial to the Appellant, is erroneous in facts and bad in law. 2.2 The Ld.AO failed to demonstrate that the mandatory approval from the Chief Commissioner of Commissioner under section 151 of the Act has been obtained to reopen the assessment proceedings, despite being demanded by the Appellant. 2.3 The Ld. CIT(A) and AO failed to appreciate that no proceedings under section 147 of the Act and notice under section 148 of the Act shall be issued after the expiry of four years from the end of the relevant AY unless the Chief Commissioner or Commissioner is satisfied on the reasons recorded by the AO. 4 I.T.A. No.1836/Chny/2017 2.4 The Ld. AO has not demonstrated any failure on the part of the Appellant, hence notice under section 148 of the Act after expiry of four years in bad in law and liable to be quashed. 2.5 The Ld. CIT(A) ought to have appreciated that the reassessment proceedings have been initiated without any new material being available on record to form a basis for ‘reason to believe’ that income has escaped assessment. 2.6 The Ld. CIT(A) and AO failed to appreciate that the reopening of assessment under section 147 Of the Act on basis of information and records already available on record amounts to mere change of opinion. 2.7 The Ld. CIT(A) erred in upholding the reopening of the assessment without attributing any satisfactory reason regarding failure on the part of the Appellant to disclose fully and truly all material facts. 4. The ld.AR formulated two issues (i) First, the assessee’s case falls under the first proviso to section 147 of the Act and hence, the reopening is bad in law and (ii) the second issue raised is that the assessee filed complete details before AO during original assessment proceedings and hence, there is change of opinion in reopening of assessment on the same set of facts because no new material is brought on record for reopening of assessment. 5. Brief facts are that the assessee is a company engaged in the business of manufacturing, selling, trading and servicing of passenger vehicles and spare parts. The assessee has filed the original return of income for the relevant assessment year 2008-09, on 30.09.2008. The return was selected for scrutiny under CASS 5 I.T.A. No.1836/Chny/2017 and the original assessment was completed vide order u/s.143(3) r.w.s. 144C of the Act, dated 29.10.2012 by making various disallowances by following the directions of the Dispute Resolution Panel. Subsequently, the AO issued notice u/s.148 of the Act dated 10.03.2014 proposing to reopen the assessment u/s.147 of the Act. In response to notice issued u/s.148 of the Act, the assessee filed a letter dated 08.04.2014 requesting the AO to treat the original return of income filed on 30.09.2008 as the one filed in response to notice issued u/s.148 of the Act and also requested the AO to furnish reasons for reopening of assessment. The AO vide letter dated 11.04.2014 supplied the reasons for reopening of assessment for the relevant assessment year by proposing to make the following disallowances:- i. Treatment of transaction of slump sale as business income u/s.28(iv) of the Act and not u/s.50B of the Act as claimed by the assessee. ii. Disallowance of unutilized amount of provision for warranty amounting to Rs.23,00,64,000/-. Subsequently, in response to notice issued u/s.148 of the Act, the assessee apart from furnishing of letter dated 08.04.2014, also filed e-return on 12.05.2014 and intimated the same to the AO. The AO 6 I.T.A. No.1836/Chny/2017 issued notice u/s.143(2) of the Act calling for various details and assessee filed details and submissions from time to time. The AO completed the reassessment and passed re-assessment order u/s.143(3) r.w.s 147 of the Act, vide order dated 31.12.2014 by making the above disallowances as proposed in the reasons recorded for issuance of notice u/s.148 of the Act. Aggrieved assessee preferred appeal before CIT(A). Before the CIT(A), assessee challenged reopening. 6. The CIT(A) confirmed the action of the AO and uphold the reopening of assessment by observing in para 4.1.8 (iii) as under:- 4.1.8 (iii) A.Y. 2008-09 The assessment was reopened u/s.147 because there were reasons to believe that the sale of the business of after service parts division which was considered as “slump sale” by the appellant was required to be assessed as “business income”. The appellant had received a sum of Rs.425,25,00,000/- in lieu of the transfer of the business. The appellant considered the sale as “slump sale”. The net worth arrived at was Rs.44,99,73,400/-. The balance amount of Rs.380,25,24,600/- was offered as long-term capital gains. The notice u/s.148 was issued and the appellant was required to show cause as to why the sale should not be considered as business income u/s 28(1) since the appellant had not sold the entire assets of the after service division. Furthermore, the assessment was reopened to reconsider the issue regarding the provision for warranty. It was stated by the AO that out of the utilized amount of Rs.27,52,87,000/- only Rs.4,52,23,000/- was reversed back by the appellant. There were reasons to believe that the appellant had not adopted any scientific method for estimating the provision for warranties. The material facts of the case and the submissions of the appellant have been duly considered. The reasons for re-assessment adduced by the AO are 7 I.T.A. No.1836/Chny/2017 sound, solid and valid. The reopening was carried out in good faith and in the interest of revenue. I hereby uphold the reassessment proceedings for the A.Y.2008-09. The appeal is dismissed.” Aggrieved assessee is in appeal before the Tribunal. 7. We have heard rival contentions and gone through facts and circumstances of the case. Before us, the ld.AR for the assessee argued and took us through the reasons recorded by the AO for reopening of assessment, which are enclosed in assessee’s paper-book at pages 59 to 61, supplied by AO vide letter dated 11.04.2014. The relevant reasons recorded reads as under:- “1.1 During the Financial Year 2007-08, the assessee has sold CCP division to M/s. Mobis India Ltd. am' offered capital gain to the tune of Rs.380, 25, 26, 600/- as per sec.SOB o/ the IT Act The assessee company received sale consideration a/ Rs.425,25, 00.000/- and after reducing the value of business assets transferred of Rs. 44,99, 73,400/- which includes inventories, receivable, Loans and advances, current liabilities and fixed assets, the capital gain› is determined by the asses see at Rs.380,25,24, 600/-. 1.2 Slump sale means the transfer of one or more undertakings as a result of the sale for a lump sum consideration without values being assigned to the individual assets and liabilities in such sales. 1.3 On examination of the transaction, it is seen that the assessee company did not satisfy the above condition for the following reasons. 1.4 From the business transfer agreement, it is seen that apart from current assets, only Plant and Machinery, Furniture and Fittings, Office equipments. Data processing equipments arid vehicles have been transferred by the assessee company to M/s. Mobis India Ltd . This shows 8 I.T.A. No.1836/Chny/2017 that only machines and equipments have been transferred by the assessee. A part of the undertaking will not be termed as ‘undertaking’ for the purpose of the definition, if the assets a/ the specific part cannot by themselves constitute a business activity. Transfer of assets which excludes significant assets without which the business cannot be Carried on effectively, cannot be considered as transfer of business. Further, as stated by the assessee, the company has only one business segment, which is the manufacture and sale of motor vehicles and after sales services cannot be considered as a separate undertaking but a business activity incidental to main business. 1.5 It is clear from the above that as certain assets were transferred to another company which incidentally related to certain activity were incorrectly termed as 'slump sale’ of an undertaking and capital gains was computed u/s 50B. Hence without transferring land and building an undertaking cannot be transferred. This shows that there is no separate undertaking called “CCP Division” but only an activity existed. In this case, as only a business activity has been transferred, it is to be treated as business profit u/s 28(iv). In view of the above, the amount of Rs.380,25,24, 600/- treated as capital gains by the assessee is required to be assessed as business income. 2. Provision for Warranty: 2.1 During the Financial Year 2007-08, the company has made provision for warranty for Rs.82,47,61,000/- and utilized a sum of Rs.54,94,74,000/- Out of the unutilized amount of Rs.27,52,87,000/- only Rs.4,52,23,000/- was reversed back by the assessee. Further, on perusal of detail’s of provision for warranty for the past three years, it is found that the assessee had not adopted any scientific method for estimating the provision of warranties. Hence, the estimation is not a reliable one. 2.2 In the case of M/s. Rotork Control India, the Hon’ble Supreme Court had laid down 3 conditions for recognizing a provision a. An enterprise has a present obligation as result of past event. b. It is probable that an out flow of resources will be required to settle the obligation and c. A reliable estimate can be made on the amount of obligations I2.3 In the case of warranty, it is only a conditional obligation which arises 9 I.T.A. No.1836/Chny/2017 only when there is any defect in the product sold. Otherwise there is no obligation. Secondly, as there is no automatic obligation the outflow of resources is also not a probable one and is purely based on estimate and anticipation only. As there is no separate collection of warranty charges, it is included in the sale price only. The warranty provision is to be estimated on the basis of historical data and should minimize the need to reverse any unutilized warranty provision at the end of the warranty period. The assessee has not worked out the estimation of warranty on scientific methods. The actual amount of warranty claim is around 50 crores whereas the claim for provision is nearly 80 crores. Therefore the estimation of the assessee is not reliable. Therefore the assessee company does not satisfy the conditions laid by the Supreme Court. Hence the unutilized amount of provision for warranty of Rs.23,00,64,000/- is required to be disallowed. In view of the above, I have reason to believe that income to the tune of Rs.23,00,64,000/- has escaped assessment for the assessment year 2008-09 which is the subject matter of the provision of section 147, 148 and 153 of the I.T. Act. 7.1 The ld.AR stated that as per the above reasons there are two issues arising and both the issues are framed above, which are being reiterated again:- (i) The assessee’s case falls under the first proviso to section 147 of the Act and hence, the reopening is bad in law and (ii) the second issue raised is that the assessee filed complete details before AO during original assessment proceedings and hence, there is change of opinion in reopening of assessment on the same set of facts because no new material is brought on record for reopening of assessment 10 I.T.A. No.1836/Chny/2017 7.2 The ld.AR stated that the AO during the course of assessment proceedings has gone into both the issues and for this he took us through the assessee’s paper-book at pages 39 to 41 wherein the questionnaire issued by AO dated 07.09.2011 u/s.142(1) of the Act calling for details is enclosed. The ld.AR first of all took us through the first issue of slump sale and AO vide questionnaire No.18, has asked for the details. The relevant question No.18 reads as under:- “18 Regarding transfer of after service parts division (ASPD) furnish the following details a) Copy of Business Transfer Agreement dtd. 26.4.2007 b) Balance Sheet of ASPD as on 31.3.2007 & as on date of transfer The ld.AR took us through the reply submitted and along with its reply, the complete Business Transfer Agreement for transfer of after sale and service of parts division is enclosed. The relevant reply dated 13.10.2011 and particularly point 18 reads as under:- “18. Enclosed the copy of Business Transfer Agreement for transfer of after service parts division (ASPD). Other details will be provided at the earliest.” The ld.AR then took us through another letter dated 19.12.2011 wherein answer vide point (1) & (2) regarding the details of asset of after service parts division is enclosed 1) Enclosed herewith the Balance Sheet of After Service Parts Division (ASPD) as on date of transfer. Annexure I (Reply to Q.No.18(b)) 2) Details of Fixed Assets additions during the financial year 2007-08 is enclosed herewith. Annexure II (Reply to Q.No.19(a)) 11 I.T.A. No.1836/Chny/2017 7.3 Further, the ld.AR drew our attention to computation of total income / loss statement filed with the return of income wherein the capital gains on account of sale of CCP division to Mobis India Limited is enclosed. The details are annexed at 19 and the relevant entry reads as under:- Computation of Total Income / Loss Statement B. Capital Gains Sale consideration of CCP Division to Mobis India Limited 4,252,500,000 Annex-19 7.4 Finally, the ld.AR for the assessee took us through the original assessment order passed by the AO u/s.143(3) r.w.s. 144C(13) of the Act, wherein the AO has computed the income from capital gains on amount of Rs.378,94,21,668/- and computed Long Term Capital Gain @ 20% amounting to Rs.75,78,84,334/-. He particularly drew our attention to the computation part of capital gain. Even in the notes attached to balance sheet as on 30.04.2007, attached vide Schedule 6, in the background of the company, it is clearly mentioned that after service parts division was sold to Mobis India Ltd., vide Business Transfer Agreement dated 26.04.2007 as a going concern as per the terms and conditions detailed out in the said agreement. This was part of the balance sheet. 12 I.T.A. No.1836/Chny/2017 7.5 As regards to disallowance of unutilized amount of provision for warranty amounting to Rs.23,00,64,000/-, the ld.AR for the assessee similarly took us through the relevant questionnaire issued by DCIT (LTU), Chennai while framing assessment and he particularly referred to para 6, 14, 22 and 26(a), which reads as under:- “6) Explain why Rs.3.64 cores of Focums Market Scheme cannot be considered as income for the current year as per the stand taken in the earlier assessments. 14) Whether provision for warranty is made during the year of Rs.82.47 crores is debited to profit and loss account or not? If so, under which head it is debited? 22) Explain why the provision for warranty of Rs.77.95 crores should be allowed as an allowable deduction by considering it as an uncertained liability? 26) a) Proportionate subsidy received from SIPCOT. The ld.AR then took us through the reply filed in consequence to the above letter of the AO and he drew our attention to para 17, wherein HMIL had capitalized the exchange difference arising from foreign currency liabilities and the relevant clause 17 reads as under:- “17. Upto 31st March, 2007, HMIL had utilized the exchange differences arising from foreign currency liabilities relating to fixed assets acquired from outside India. With effect from 01st April 2007, consequent to the applicability of Accounting Standard 11, notified by the Government of 13 I.T.A. No.1836/Chny/2017 India, the Company has accounted the exchange differences amounting to Rs.30.15 crores in the Profit and Loss account for the financial year ended 31st March 2008.” The ld. AR stated that unutilized amount of provision for warranty is computed based on scientific method and based on past warranty claims. For this, he stated that the entire details have been further filed vide letter dated 19.12.2011 vide item-3 as under:- “3) Hyundai Motor India Limited (HMIL) has entered into a contract with Hyundai Rotem Company for supply of capital equipments. During the financial year 2007-08 HMIL has imported various capital equipments on a principal to principal basis, wherein the title of goods w*s passed to HMIL in korea (ie. outside India) HMIL also entered into supervision contract with Rotem company for installation & commissioning of equipments in HMIL factory premises. During the FY 2007-08, we have entered into transaction With Hyundai Rotem Company to the extent of Rs.19.58 Crores. The Supreme Court in the case of Ishikawajima- Harima Heavy Industries Company Limited. Vs Director Of Income- Tax, Mumbai, 288 ITR 488 has held that income of non resident is not attributable to activities in India and also would not be liable to tax in India. In the case of CIT vs. Hyundai Heavy Industries Co. Ltd. (2007\) 291 ITR 482 (SC), it was held that in case of an EPC contract involving supply of material from outside India and installation and Commissioning services in India by the assessee, the contract shall be divided into two components: i) Procurement and supply of material from outside India — Not taxable ii) Installation and commissioning services in India — taxable 14 I.T.A. No.1836/Chny/2017 Hence the payments made to Hyundai Rotem Company during the Financial Year 2007- 08 need not to be disallowed. It was stated that the assessee has a present obligation to provide provision for warranty as a result of past events i.e., sale of cars. The AO during the course of original assessment proceedings examined the claim of assessee and after examination and getting himself satisfied has not made any addition. In view of the above, the ld.AR for the assessee stated that the entire facts of the issues before us are examined by the AO and complete details in relation to both the issues i.e., treatment of transaction of slump sales treated as capital gains claimed by the assessee u/s.50B of the Act and allowance of deduction of unutilized amount of provision for warranty was rightly allowed. The ld.AR for the assessee relied on few of the case laws:- 1) Hon’ble Supreme Court in the case of Foramer France, 264 ITR 566 (2003) 2) Hon’ble Allahabad High Court in the case of Foramer France, 247 ITR 436 (2001) 3) Hon’ble Supreme Court in the case of Kelvinator of India Ltd., 320 ITR 561 (2010) 4) Hon’ble Delhi High Court in the case of Kelvinator of India Ltd., 256 ITR 1 (2002) 5) Hon’ble High Court of Madras in the case of Elgi Finance Ltd., 286 ITR 674 (2006) 8. Whereas, the ld.CIT-DR in relation to slump sales of CCP division by assessee to Mobis India Ltd., argued that actually this is 15 I.T.A. No.1836/Chny/2017 not slump sale and for this, he cited a reason that in view of the Business Transfer Agreement plant and machinery, furniture and fittings, office equipments, data processing equipments and vehicles apart from current assets have been transferred but not the entire assets i.e., land and building. He explained that as per Business Transfer Agreement only machines and equipments have been transferred but a part of the undertaking will not be termed as ‘undertaking’ for the purpose of definition, if the assets of the specific part cannot by themselves constitute a business activity. The transfer of assets which excludes specific assets without which the business cannot be carried on effectively cannot be considered as transfer of business. He argued that it is a fact that the assessee has only one business segment and i.e., manufacture and sale of motor vehicles and after sales service cannot be considered as a separate undertaking but it is a business activity incidental to main business. These two cannot be separated. According to him in the absence of transfer of land and building, it cannot be said that after sales service business is transfer that will attract slump sale and will liable to capital gains. According to him this transfer of assets is out of its business and it will be treated as business profit u/s.28(iv) of the Act. The ld.CIT-DR stated that once some parts or machineries are sold by the assessee by way of one Business Transfer 16 I.T.A. No.1836/Chny/2017 Agreement, the entire facts are not disclosed by the assessee and the assessee cannot claim that there is a true and full disclosure for the purpose of section 147 of the Act. 8.1 As regards provision for warranty, ld.CIT-DR stated that the assessee had not adopted any scientific method or approach for estimating the provisions for warranty and no details were filed and hence, it cannot be said that there is true disclosure. The ld.CIT-DR relied on the decisions of Hon’ble Supreme Court in the case of Calcutta Discount Co. Ltd., vs. ITO, (1961) 41 ITR 191 and Phoolchand Bajrang Lal v. ITO, 203 ITR 456. 9. We have gone through the original assessment order, the reasons recorded and the details filed before AO during the course of original assessment proceedings vide letters dated 13.10.2011 & 19.12.2011. We have also gone through queries raised by AO during the course of original assessment proceedings vide notice u/s.142(1) of the Act. We noted that the assessee has filed complete Business Transfer Agreement dated 26.04.2007 as well as balance sheet of after sales and service division of the assessee as on 31.03.2007 and as on the date of transfer. We noted that the ld.CIT-DR argued that the complete details are not filed. We have 17 I.T.A. No.1836/Chny/2017 considered the argument of ld.CIT-DR that the assessee has transferred part of the undertaking i.e., machineries and equipments and not land & building i.e., assessee has transferred only one segment. We cannot agree with the argument of ld.CIT-DR that this is not true and full disclosure for the purpose of assessment because the assessee has filed complete details and even otherwise there are divergent views on this issue whether this is a slump sale or not, this is a highly debatable issue. The AO during the course of original assessment proceedings has opined that this is slump sale liable to capital gains tax and he accordingly charged Long Term Capital Gain on this transaction. In regard to another issue of provision for warranty, the assessee has followed a scientific method for computation of warranty expenditure and provision is also created on a scientific basis as per the details filed by the assessee during the course of original assessment proceedings. The AO framed assessment u/s.143(3) of the Act and the AO subsequently reopened the assessment beyond 4 years without providing any reason that there is failure on the part of the assessee to disclose fully and truly all material facts necessary for its assessment for the relevant assessment year 2008-09. 18 I.T.A. No.1836/Chny/2017 9.1 In such circumstances, we have to go through the case laws cited by both the sides. We have gone through the decision of Hon’ble Supreme Court in the case of CIT vs. Foramer France, (2003) 264 ITR 566, wherein the Supreme Court has affirmed the decision of Hon’ble Allahabad High Court in the case of Foramer France vs. CIT, (2001) 247 ITR 436 and held as under:- 14. Having heard learned counsel for the parties, we are of the view that these petitions deserve to be allowed. 15. It may be mentioned that a new Section substituted Section 147 of the Income-tax Act by the Direct Tax Laws (Amendment) Act, 1987, with effect from April 1, 1989. The relevant part of the new Section 147 is as follows : "147. If the Assessing Officer, has reason to believe that any income chargeable to tax has escaped assessment for any assessment year, he may, subject to the provisions of sections 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 proceedings under this section, or recompute the loss or the depreciation allowance or any other allowance, as the case may be, for the assessment year concerned (hereafter in this Section and in sections 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 relevant assessment year, no action shall be taken under this Section after the expiry of four years from the end of the relevant assessment year, unless any income chargeable to tax has escaped assessment for such assessment year by reason of the failure on the part of the assessee to make a return under Section 139 or in response to a notice issued under Sub-section (1) of Section 142 or Section 148 or to disclose fully and truly all material facts necessary for his assessment for that assessment year." 16. This new Section has made a radical departure from the original Section 147 inasmuch as clauses (a) and (b) of the original Section 147 have been deleted and a new proviso added to Section 147. 17. In Rakesh Aggarwal v. Asst. CIT (1997] 225 ITR 496, the Delhi High Court held that in view of the proviso to Section 147 notice for reassessment under Section 147/148 should only be issued in.accordance with the new 19 I.T.A. No.1836/Chny/2017 Section 147, and where the original assessment had been made under Section 143(3) then in view of the proviso to Section 147, the notice under section 148 would be illegal if issued more than four years after the end of the relevant assessment year. The same view was taken by the Gujarat High Court in Shree Tharad Jain Yuvak Mandal v. ITO [2000] 242 ITR 612. 18. 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 the 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.” 9.2 Further, Hon’ble Delhi High Court in the case of Kelvinator of India Ltd., 256 ITR 1, also considered the issue of change of opinion on same set of facts and the relevant decision reads as under:- 19. The Board in exercise of its jurisdiction under the afore-mentioned provisions had issued the Circular on 31st October 1989. The said Circular admittedly is binding on the Revenue. The Authority, therefore, could not have taken a view, which would run counter to the mandate of the said Circular. Clause 7.2 as referred to hereinbefore is important. From a perusal of Clause 7.2 of the said Circular it would appear that in no uncertain terms it was stated as to under what circumstances the amendments had been carried out i.e. only with a view to allay the fears that the omission of the expression "reason to believe" from Section 147 would give arbitrary powers to the Assessing Officer to reopen past assessment on mere change of opinion. It is, therefore, evident that even according to the Board, a mere change of opinion cannot form the basis for re-opening a completed assessment. 20. The submission of Mr. Jolly to the effect that the said Circular cannot be construed in such a manner whereby the jurisdiction of the statutory authority would be taken away is not apposite for the purpose of this case. In Union of India and Others (supra), whereupon Mr. Jolly had placed 20 I.T.A. No.1836/Chny/2017 strong reliance, the Apex Court was dealing with an administrative instructions whereby no right was conferred upon the respondents to have the house rent amount included in their emoluments for the purpose of computing overtime allowance. The Apex Court held that otherwise also the Governement's instruction have to be read in conformity with the provisions of the Act. Therein the Apex Court was not concerned with the statutory powers of a statutory authority to issue binding circulars. 21. Another aspect of the matter also cannot be lost sight of. A statute conferring an arbitrary power may be held to be ultra vires Article 14 of the Constitution of India. If two interpretations are possible, the interpretation which upholds constitutionality, it is trite, should be favored. In the event it is held that by reason of Section 147 if ITO exercises its jurisdiction for initiating a proceeding for re-assessment only upon mere change of opinion, the same may be held to be unconstitutional. We are therefore of the opinion that Section 147 of the Act does not postulate conferment of power upon the Assessing Officer to initiate re-assessment proceeding upon his mere change of opinion. We, however, may hasten to add that if "reason to believe" of the assessing Officer if founded on an information which might have been received by the Assessing Officer after the completion of assessment, it may be a sound foundation for exercising the power under Section 147 read with Section 148 of the Act. 22. We are unable to agree with the submission of Mr. Jolly to the effect that the impugned order of reassessment cannot be faulted as the same was based on information derived from the tax audit report. The tax audit report had already been submitted by the assessed. It is one thing to say that the Assessing Officer had received information from an audit report which was not before the ITO, but it is another thing to say that such information can be derived by the material which had been supplied by the assessed himself. 23. We also cannot accept submission of Mr. Jolly to the effect that only because in the assessment order, detailed reasons have not been recorded on analysis of the materials on the record by itself may justify the Assessing Officer to initiate a proceeding under Section 147 of the Act. The said submission is fallacious. An order of assessment can be passed either in terms of Sub-section (1) of Section 143 or Sub-section (3) of Section 143. 21 I.T.A. No.1836/Chny/2017 When a regular order of assessment is passed in terms of the said Sub-section (3) of Section 143 a presumption can be raised that such an order has been passed on application of mind. It is well known that a presumption can also be raised to the effect that in terms of Clause (e) of Section 114 of the Indian Evidence Act the judicial and official acts have been regularly performed. If it be held that an order which has been passed purportedly without anything further, the same would amount to giving premium to an authority exercising quasi judicial function to take benefit of its own wrong. For the reasons afore-mentioned we are of the opinion that answer to the question raised before this Bench must be rendered in the affirmative, i.e. in favor of the assessed and against the Revenue. No order as to costs. This was confirmed by the Hon’ble Supreme Court in CIT vs. Kelvinator of India Ltd., 320 ITR 561 and the Hon’ble Supreme Court came to the conclusion that the AO has power to reopen provided there is tangible material to come to conclusion that there is escapement of income from assessment and reasons recorded must have a live link with formation of belief. The Hon’ble Supreme Court considered the same vide para 4 as under:- On going through the changes, quoted above, made to Section 147 of the Act, we find that, prior to Direct Tax Laws (Amendment) Act, 1987, re-opening could be done under above two conditions and fulfillment of the said conditions alone conferred jurisdiction on the Assessing Officer to make a back assessment, but in section 147 of the Act [with effect from 1st April, 1989], they are given a go-by and only one condition has remained, viz., that where the Assessing Officer has reason to believe that income has escaped assessment, confers jurisdiction to reopen the assessment. Therefore, post-1st April, 1989, power to re-open is much wider. However, one needs to give a schematic interpretation to the words “reason to believe” failing which, we are afraid, Section 147 would give arbitrary powers to the Assessing Officer to re-open assessments on the basis of “mere change of opinion”, which cannot be per se reason to re-open. We 22 I.T.A. No.1836/Chny/2017 must also keep in mind the conceptual difference between power to review and power to re-assess. The Assessing Officer has no power to review; he has the power to re-assess. But re-assessment has to be based on fulfillment of certain pre-condition and if the concept of “change of opinion” is removed, as contended on behalf of the Department, then, in the garb of re-opening the assessment, review would take place. One must treat the concept of “change of opinion” as an in-built test to check abuse of power by the Assessing Officer. Hence, after 1st April, 1989, Assessing Officer has power to re-open, provided there is “tangible material” to come to the conclusion that there is escapement of income from assessment. Reasons must have a live link with the formation of the belief. Our view gets support from the changes made to Section 147 of the Act, as quoted hereinabove. Under the Direct Tax Laws (Amendment) Act, 1987, Parliament not only deleted the words “reason to believe” but also inserted the word “opinion” in Section 147 of the Act. However, on receipt of representations from the Companies against omission of the words “reason to believe”, Parliament re-introduced the said expression and deleted the word “opinion” on the ground that it would vest arbitrary powers in the Assessing Officer. We quote hereinbelow the relevant portion of Circular No.549 dated 31st October, 1989, which reads as follows: “7.2 Amendment made by the Amending Act, 1989, to reintroduce the expression `reason to believe' in Section 147.--A number of representations were received against the omission of the words `reason to believe' from Section 147 and their substitution by the `opinion' of the Assessing Officer. It was pointed out that the meaning of the expression, `reason to believe' had been explained in a number of court rulings in the past and was well settled and its omission from section 147 would give arbitrary powers to the Assessing Officer to reopen past assessments on mere change of opinion. To allay these fears, the Amending Act, 1989, has again amended section 147 to reintroduce the expression `has reason to believe' in place of the words `for reasons to be recorded by him in writing, is of the opinion'. Other provisions of the new section 147, however, remain the same.” 23 I.T.A. No.1836/Chny/2017 9.3 Similarly, the Hon’ble Madras High Court in the case of CIT vs. RPG Transmissions Ltd., [2014] 48 taxmann.com 57, held as under:- “22. We find from the reasons set out in the assessment orders that the assessee has explained an disclosed the entire facts which would constitute a full disclosure and, therefore, we have no hesitation to hold that the reopening of assessment is barred by the proviso to section 147. Further, the facts which emerge from the assessment order as well as the order of Commissioner of Income-tax(Appeals) are well founded and in terms of the principles laid down by the apex court. For the aforesaid reasons, we find that the Tribunal has correctly appreciated the facts in holding that the reopening of the assessment orders are barred by limitation. We find that the Commissioner of Income-tax (Appeals) as well as the Tribunal has concurrently held from the facts that the proviso to section 147 would not apply to the facts of this case and since it is a finding of fact that too which is essentially based on the principles which are gathered from the judgments referred to above, we find that the Assessing Officer has departed from the said principles in arriving at a conclusion that the proviso to section 147 would apply in the instant case. We see no reason to deviate from the finding of fact and, hence, the appeal of the Revenue fails on this ground. Therefore, the first part of the substantial question of law No. 1 in T. C. (A.) Nos. 310 to 312 of 2007 with regard to the invocation of extended period of time under the proviso to section 147 is answered in the affirmative and in favour of the assessee.” 10. In view of the above facts and circumstances, we are of the view that the reopening is beyond 4 years and as the original assessment was framed u/s.143(3) of the Act, the Revenue could not establish any failure on the part of the assessee to disclose fully and truly all material facts necessary for its assessment. In view of the legal interpretation by Hon’ble Supreme Court and Hon’ble 24 I.T.A. No.1836/Chny/2017 Madras High Court, we are of the view that the reopening in present case is bad in law and hence, quashed. 11. In the result, the appeal of the assessee is allowed. Order pronounced in the court on 25th February, 2022 at Chennai. Sd/- Sd/- (मनोज कुमार अᮕवाल) (MANOJ KUMAR AGGARWAL) लेखा सद᭭य /ACCOUNTANT MEMBER (महावीर ᳲसह ) (MAHAVIR SINGH) उपा᭟यᭃ /VICE PRESIDENT चे᳖ई/Chennai, ᳰदनांक/Dated, the 25th February, 2022 RSR आदेश कᳱ ᮧितिलिप अᮕेिषत/Copy to: 1. अपीलाथᱮ/Appellant 2. ᮧ᭜यथᱮ/Respondent 3. आयकर आयुᲦ (अपील)/CIT(A) 4. आयकर आयुᲦ /CIT 5. िवभागीय ᮧितिनिध/DR 6. गाडᭅ फाईल/GF.