The ACIT, Indore V. M/s Computer Scince Corporation India Pvt.Ltd.., Indore

ITA 319/IND/2010

• Counselvise Citation: [2011] 134 COUNSELVISE.COM (IT) 9659 (ITAT-INDORE)
• Duration Of Justice: 8 month(s) 6 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 25-01-2011
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: DB
• Next Hearing Date: 21-01-2011
• Assessment Year: 2006-2007
• Appeal Filed On: 19-05-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: K K SINGH
• Assessee Lawyers: C S AGARWAL; ARVIND RAJAN
• Keywords: Reopening of assessment; Recovery proceedings; Opportunity of being heard; Difference of opinion; Tax effect; Reason to believe; Change of opinion
• Section: 143(3); 142(1); 143(1); 143(2); 264; 147; 246; 148; 12; 11; 139

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL INDORE BENCH : INDORE BEFORE SHRI JOGINDER SINGH, JUDICIAL MEMBER AND SHRI R.C.SHARMA, ACCOUNTANT MEMBER PAN NO. : AJLPJ3049E I.T.A.NO.175/IND/2010 A.Y. : 2002-03 COMPUTER SCIENCE CORPORATION INDIA PRIVATE LIMITED, ACIT, TAX 2(1), INDORE. ELECTRONIC COMPLEX, VS PARDESHIPURA, INDORE. (APPELLANT) (RESPONDENT) I.T.A.NO.176, 177 & 319/IND/2010 A.Y. : 2002-03, 2005-06 & 2006-07 ACIT, TAX 2(1), INDORE. COMPUTER SCIENCES CORPORATION INDIA PRIVATE LIMITED, VS ELECTRONIC COMPLEX, PARDESHIPURA, INDORE. (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI C.S.AGARWAL, SR. ADVOCATE AND SHRI ARVIND RAJAN, C. A. DEPARTMENT BY : SHRI K.K.SINGH, CIT DR O R D E R -: 2: - 2 PER R. C. SHARMA, A.M. THESE ARE THE APPEALS FILED BY THE ASSESSEE AND REV ENUE AGAINST THE ORDER OF CIT(A)-I, INDORE, FOR THE ASSE SSMENT YEARS 2002-03, 2005-06 AND 2006-07. 2. FIRST, WE WILL TAKE UP THE APPEALS OF THE REVENUE I N I.T.A.NOS.176, 177 & 319/IND/2010. 3. THESE ARE THE APPEALS FILED BY THE REVENUE, WHEREIN COMMON GRIEVANCE WITH REGARD TO ALLOWING ASSESSEES CLAIM FOR DEDUCTION U/S 10A IN RESPECT OF INDORE UNIT WAS TAK EN. PRECISE GROUNDS OF APPEAL READ AS UNDER :- THE LD. CIT(A) HAS ERRED ON FACTS AND CIRCUMSTANCES OF THE CASE IN DIRECTING THE AO TO ALLOW DEDUCTION U/S 10A IN RESPECT OF INDORE UNIT WITHOUT APPRECIATING THE FACT THAT THE ASSESSEE HAD EARLIER CLAIMED DEDUCTION U/S 80HHE IN RESPECT OF PROFIT ON THIS UNIT AND ACCORDINGLY AS PER SECTION 8HHE(5), THE ASSESSEE WAS NOT ENTITLED FOR DEDUCTION U/S 10A OF THE INCOME-TAX ACT, 1961. -: 3: - 3 4. AT THE OUT-SET, THE LD. AUTHORIZED REPRESENTATIVE SUBMITTED THAT THE ISSUE WITH REGARD TO ASSESSEES CLAIM FOR DEDUCTION U/S 10A HAS BEEN DECIDED BY THE I.T.A.T., INDORE BENCH IN ASSESSEES OWN CASE FOR ASSESSMENT YEARS 2 000-01, 2001-02 AND 2003-04 VIDE ORDER DATED 22 ND FEBRUARY, 2007. WE HAD GONE THROUGH THE ORDER OF THE TRIBUNAL, WHER EIN THE ISSUE HAS BEEN DEALT AT PAGE 22 PARA 16 OF THE ORDE R, WHICH READS AS UNDER :- 16. IN VIEW OF THE ABOVE DISCUSSION AND FINDINGS GIVEN ABOVE, WE HOLD THAT THE ASSESSEE IS ENTITLED TO DEDUCTION U/S 10A OF INCOME-TAX ACT, 1961, IN THE YEAR IN APPEAL IRRESPECTIVE OF TH E FACT THAT IT CLAIMED DEDUCTION U/S 80HHE IN THE EARLIER YEAR. THE ORDERS OF THE AUTHORITIES BELOW ARE, THEREFORE, SET-ASIDE AND THE AO IS DIRECTED TO GRANT DEDUCTION U/S 10A OF THE ACT BY VERIFYING THE CLAIM OF THE ASSESSEE ON MERIT BY GIVING REASONABLE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. -: 4: - 4 5. IT IS CRYSTAL CLEAR FROM THE ORDER OF TRIBUNAL THAT AFTER EXAMINING IN DETAIL ASSESSEES CLAIM FOR DEDUCTION U/S 10A AT PARA 5 TO 15, THE TRIBUNAL HAVE REACHED TO THE CONC LUSION THAT THE ASSESSEE IS ENTITLED TO CLAIM DEDUCTION U/S 10A IRRESPECTIVE OF THE FACT THAT IT CLAIMED DEDUCTION U/S 80HHE IN THE EARLIER YEARS. AFTER HAVING ALL THESE OBSERVATI ONS, THE TRIBUNAL DIRECTED THE AO TO GRANT DEDUCTION U/S 10A OF THE ACT BY VERIFYING THE CLAIM ON MERIT. AS THE FACTS AND CIRCUMSTANCES DURING THE YEARS UNDER CONSIDERATION ARE IN PARI MATERIA, WE RESTORE THE MATTER BACK TO THE AO FOR ALLOWING DEDUCTION U/S 10A AFTER VERIFYING THE CLAIM OF THE ASSESSEE ON MERIT WE DIRECT ACCORDINGLY. 6. IN THE RESULT, ALL THE THREE APPEALS OF THE REVENUE ARE DISPOSED IN TERMS INDICATED HEREIN ABOVE. I.T.A.NO. 175/IND/2010 : 7. THIS IS AN APPEAL FILED BY THE ASSESSEE AGAINST THE ORDER OF CIT(A) DATED 5.1.2010, FOR THE ASSESSMENT YEAR 2002- 03, WHEREIN THE ASSESSEE HAS AGITATED REOPENING OF ASSESSMENT U/S 147 OF THE INCOME-TAX ACT, 1961. 8. FOLLOWING GROUNDS HAVE BEEN TAKEN BY THE ASSESSEE : - -: 5: - 5 1. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) ERRED IN CONFIRMING THE ASSESSMENT SO FRAMED BY THE ASSESSING OFFICER U/S 147 READ WITH SECTION 143(3) OF THE ACT WHICH I S BAD IN LAW AND IS LIABLE TO BE QUASHED. 1.1 THAT ON THE FACTS AND IN THE CIRCUMS TANCES OF THE CASE AND IN LAW, THE LD. CIT(A) HAS ERRED IN NOT APPRECIATING THE FACT THAT THE PRIMARY BASIS (REASO N TO BELIEVE) FOR REOPENING THE ASSESSMENT VIZ. ALLOWABILITY OF DEDUCTION U/S 10A OF THE ACT TO THE INDORE UNDERTAKING OF THE ASSESSEE WAS DELETED BY THE HON'BLE I.T.A.T. VIDE AN ORDER DATED FEB. 22, 2008. ACCORDINGLY, THE VERY BASIS FOR PROCEEDINGS U/S 147 OF THE ACT DOES NOT SURVIVE AND HENCE THE SAME OUGHT TO BE QUASHED. 1.2 ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE CIT(A) HAS FAILED TO APPRECIATE THA T THE LD. AO HAS ERRED IN INITIATING THE PROCEEDINGS U/S 147 OF THE ACT AGAINST THE APPELLANT WHEN THERE -: 6: - 6 WAS NO RELEVANT MATERIAL ON RECORD GIVING RISE TO ANY VALID REASON TO BELIEVE THAT INCOME OF THE APPELLANT HAD ESCAPED ASSESSMENT. 1.3 ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) HAS ERRED IN LAW IN IGNORING THE FACT THAT THE IMPUGNED RE-ASSESSMENT PROCEEDINGS IS BASED MERELY ON A CHANGE OF OPINION WITHOUT ANY CHANGE IN THE MATERIAL FACTS AND CIRCUMSTANCES AND THUS THE ORDER WAS BEYOND THE JURISDICTION CONFERRED UPON THE LD. AO U/S 147 READ WITH SECTION 143(3) OF THE ACT. 9. RIVAL CONTENTIONS HAVE BEEN HEARD AND RECORDS PERUSED. 10. IN THIS YEAR, THE ASSESSEE HAS CHALLENGED THE VALID ITY OF REOPENING IN RESPECT OF ITS CLAIM OF DEDUCTION U/S 10A. THE LD. AUTHORIZED REPRESENTATIVE SUBMITTED THAT RETURN OF INCOME WAS FILED ON 30 TH OCTOBER, 2002, AT A LOSS OF RS. 1.55 CRORES, WHICH WAS REVISED ON 13.6.2003 DECLARING TAXABLE IN COME AT RS. 83.37 LAKHS. THE RETURN WAS FURTHER REVISED ON 29.11.2003 -: 7: - 7 DECLARING LOSS AMOUNTING TO RS. 46.70 LAKHS. THE RE TURN WAS REVISED ON ACCOUNT OF OMISSION OF CLAIM OF LOSS INC URRED BY NOIDA UNDERTAKING AMOUNTING TO RS. 1.30 CRORES. THE LD. AUTHORIZED REPRESENTATIVE FURTHER DREW OUR ATTENTIO N TO THE INTIMATION U/S 143(1)(A) DATED 1.3.2004, WHEREIN RE VISED RETURN FILED ON 29.11.2003 WAS ACCEPTED WITHOUT MAK ING ANY FURTHER ADJUSTMENT. FURTHER, NOTICE U/S 148 WAS ISS UED ON 14.9.2006 REQUIRING THE ASSESSEE TO FURNISH RETURN OF INCOME ON THE GROUND THAT INCOME HAS ESCAPED ASSESSMENT AN D THE ASSESSEE HAS WRONGLY CLAIMED DEDUCTION U/S 10A OF T HE ACT, SINCE IT HAD CLAIMED EARLIER DEDUCTION U/S 80HHE OF THE ACT ON ITS INDORE UNDERTAKING. IN REPLY TO THE NOTICE, THE ASSESSEE SUBMITTED ON 16.10.2006 THAT THE RETURN FILED ON 29 .11.2003 TO BE CONSIDERED AS A RETURN FILED IN RESPONSE TO N OTICE U/S 148 AND SUBMITTED THAT THERE WAS NO ESCAPEMENT OF I NCOME. REASONS RECORDED FOR REOPENING WAS ALSO CALLED FOR VIDE LETTER DATED 24.8.2007, THE AO SUPPLIED COPIES OF THE REAS ONS, WHICH WERE RECORDED FOR REOPENING, READS AS UNDER :- A) NON-ALLOWABILITY OF DEDUCTION U/S 10A OF THE ACT I N RESPECT OF THE INDORE UNDERTAKING OF THE ASSESSEE I N -: 8: - 8 VIEW OF THE PROVISIONS OF SECTION 80HHE(50 OF THE ACT. HE STATED THAT, THE ASSESSEE HAD EARLIER CLAIM ED DEDUCTION U/S 80HHE ON ITS INDORE UNIT, WHICH WAS NOT CORRECT. THE OMISSION HAD RESULTED INTO UNDER ASSESSMENT OF INCOME TO THE EXTENT OF RS. 17,65,56,494/-, WITH A SHORT LEVY OF TAX AND INTEREST. B) HE FURTHER STATED THAT, RETURN WAS FILED ON 29.11.2003 WHICH IS NOT WITHIN THE TIME PROVIDED U/S 139(I) WHEREAS, IT WOULD BE SEEN THE SAID DATE IS INCORRECT SINCE THE RETURN WAS FILED ON 31.10.2002 AS ADMITTED IN THE REASONS RECORDED AT PAGE 19, THUS HE INCORRECTLY OBSERVED THAT, THAT LOSS OF RS. 46,70,698/- COULD NOT BE CARRY FORWARD. HE FURTHER STATED THAT, OTHERWISE ALSO CONSEQUENT UPON AMENDMENT BY FINANCE ACT 2003 W.E.F. 2001-02 IN SECTION 10A REGARDING CARRY FORWARD SET OFF OF LOSS ES THE LOSS ASSESSED AT RS. 46,70,698/- WAS NOT CORREC T LEADING TO POTENTIAL TAX EFFECT OF RS. 16,74,439/-. -: 9: - 9 11. THE ASSESSEE FILED ITS WRITTEN SUBMISSION BEFORE THE AO ON 24.11.2008. THEREAFTER, THE AO PASSED THE ORD ER U/S 147 READ WITH SECTION 143(3). IN THE ORDER, THE AO HAS HELD THE PROCEEDINGS INITIATED U/S 147 AS A VALID PROCEE DINGS AND ALSO MADE DISALLOWANCE U/S 10A IN RESPECT OF INDORE UNDERTAKING. THE AO HAVE ALSO OBSERVED THAT EXPENSE S INCURRED ON FOREIGN CURRENCY ARE REQUIRED TO BE EXC LUDED FROM THE EXPORT TURNOVER AS PER EXPLANATION 2 (IV) TO SE CTION 10A OF THE ACT. IN AN APPEAL FILED BEFORE THE CIT(A), HE C ONFIRMED THE VALIDITY OF REOPENING. HOWEVER, BY FOLLOWING THE OR DER OF THE TRIBUNAL DATED 22.2.08, THE LD. CIT(A) DIRECTED THE AO TO GRANT DEDUCTION U/S 10A AND HELD THAT THE AO HAS ERRED IN REDUCING THE EXPENSES INCURRED IN FOREIGN CURRENCY FROM EXPO RT TURNOVER FOR THE PURPOSE OF COMPUTATION OF DEDUCTIO N U/S 10A OF THE ACT. THE REVENUE HAS ACCEPTED THIS FINDING C ONTAINING IN ORDER OF LD. CIT(A) IN PARA 3.03, AS NO GROUND H AS BEEN RAISED BY THE REVENUE CHALLENGING THE SAID FINDING. THUS, THE LD. CIT(A) HAS ALLOWED THE ASSESSEES APPEAL ON MER IT BUT UPHELD THE PROCEEDINGS INITIATED U/S 147 AS VALID. THE -: 10: - 10 ASSESSEE IS IN FURTHER APPEAL BEFORE US CHALLENGING THE ACTION OF LD. CIT(A) IN UPHOLDING THE VALIDITY OF REOPENI NG U/S 147. 12. THE CONTENTION OF THE LD. AUTHORIZED REPRESENTATIVE WAS THAT INTIMATION ISSUED U/S 143(1)(A) IS AN ASSE SSMENT ORDER, THEREFORE, THE AO WAS NOT JUSTIFIED IN REOPE NING THE ASSESSMENT AFTER EXPIRY OF FOUR YEARS FROM THE END OF THE RELEVANT ASSESSMENT YEARS. IT WAS SUBMITTED THAT TH E RETURN OF INCOME WAS PROCESSED U/S 143(1) ON MARCH 1, 2004, A CCEPTING THE RETURNED LOSS OF RS. 46.70 LAKHS. NO NOTICE U/S 143(2) WAS ISSUED TO THE ASSESSEE TO SCRUTINIZE THE RETURN OF INCOME WITHIN THE TIME PROVIDED UNDER THE PROVISO TO SECTI ON 143(2) OF THE INCOME-TAX ACT, 1961. HOWEVER, WHILE FRAMING TH E ASSESSMENT, THE AO ALLOWED DEDUCTION OF RS. 1.81 CR ORES BEING THE PROFIT AND GAINS OF THE INDORE UNDERTAKING U/S 10A. FURTHER CONTENTION OF THE LD. AUTHORIZED REPRESENTA TIVE WAS THAT EVEN WHILE FRAMING ASSESSMENT FOR ASSESSMENT Y EAR 2001- 02 U/S 143, SUCH CLAIM OF DEDUCTION U/S 10A WAS ALL OWED BY HIMSELF BY HIS ORDER OF ASSESSMENT DATED 31.3.2004. 13. HIS FURTHER CONTENTION WAS THAT REASONS RECORDED WHILE ISSUING NOTICE U/S 147, THE AO HIMSELF HAS ST ATED THAT -: 11: - 11 CLAIM U/S 10A OF THE ACT HAD BEEN ALLOWED TO THE ASSESSEE. ACCORDINGLY, IT WAS SUBMITTED THAT IT WAS NOT A CAS E WHERE THE CLAIM OF THE ASSESSEE U/S 10A OF THE ACT WAS NOT EX EMPT OTHERWISE THE AO WOULD NOT HAVE STATED THAT SUCH DE DUCTION WAS ALLOWED. HE FURTHER DREW OUR ATTENTION TO THE REASONS RECORDED AND SUBMITTED THAT NO WHERE THE AO HAS STA TED THAT SUCH A CLAIM WAS OMITTED TO BE EXAMINED, ON THE CON TRARY, IT HAS BEEN STATED THAT THE CLAIM WAS ALLOWED 14. FURTHER CONTENTION OF THE LD. AUTHORIZED REPRESENTATIVE WAS THAT THERE HAD BEEN NO MISINTERP RETATION AT THAT RELEVANT TIME, THE REVENUE WAS ALSO OF THE OPINION THAT A DEDUCTION U/S 10A OF THE INCOME-TAX ACT, 1961, IS ELIGIBLE EVEN TO THOSE UNDERTAKINGS WHICH HAD CLAIMED DEDUCT ION U/S 80HHE OF THE INCOME-TAX ACT, 1961, IN ALL THE PRECE DING YEARS, BUT DEDUCTION COULD NOT BE EITHER CLAIMED OR ALLOWE D FOR THE SAME YEAR U/S 80HHE AND 10A OF THE INCOME-TAX ACT, 1961. BY REFERRING TO THE ORDER OF THE AO FOR ASSESSMENT YEAR 2001- 02 PASSED U/S 143(3), THE LD. AUTHORIZED REPRESENTA TIVE SUBMITTED THAT IT WAS A CHANGE OF OPINION RESULTING INTO WITHDRAWAL OF DEDUCTION ALLOWED U/S 10A IN THE ORDE R PASSED -: 12: - 12 U/S 143(1)(A). FURTHER CONTENTION WAS THAT WHERE A O COMMITS AN ERROR OF LAW, THE SAME DOES NOT CONFER JURISDICT ION TO REOPEN AN ASSESSMENT. DECISION OF HON'BLE DELHI HIGH COURT WAS ALSO PLACED ON RECORD IN CASE OF RITU INVESTMENT PRIVATE LIMITED (IN WRIT PETITION WPC NO.7515/2010), WHEREIN IT HAS BEE N HELD AT PARA 14 THAT AN ERROR OF JUDGEMENT DOES NOT CONFER SUCH JURISDICTION TO THE AO TO REOPEN CLOSED ASSESSMENT. 15. FURTHER CONTENTION OF THE LD. AUTHORIZED REPRESENTATIVE WAS THAT NO PROCEEDINGS U/S 147 OF T HE ACT COULD BE VALIDLY INITIATED UNLESS FRESH MATERIAL FO R HAVING REASONS TO BELIEVE SURFACES BETWEEN THE DATE OF FUR NISHING THE RETURN/SENDING THE INTIMATION AND THE ISSUE OF NOTI CE U/S 148 OF THE ACT. ACCORDINGLY, ON THE VERY SAME MATERIAL, WHICH WAS AVAILABLE WITH THE AO IN THE RETURN FILED, THE AO C ANNOT ISSUE NOTICE U/S 148. RELIANCE WAS PLACED ON THE DECISION OF THE HON'BLE DELHI HIGH COURT IN THE CASE OF KLM ROYAL D UTCH AIRLINES V. ASSISTANT DIRECTOR OF INCOME-TAX, (2007 ) 292 ITR 49 (DEL), WHEREIN IT WAS HELD THAT WHERE NOTICE U/S 14 3(2) HAS NOT BEEN ISSUED, REOPENING CAN BE DONE U/S 147 ONLY WHE N FRESH MATERIAL HAD BEEN RECEIVED BY THE ASSESSING OFFICER AFTER -: 13: - 13 EXPIRY OF THE LIMITATION FIXED FOR FRAMING THE ORIG INAL ASSESSMENT. 16. ON THE OTHER HAND, THE CONTENTION OF THE LD. CIT DR WAS THAT EVEN WHEN THE AO HAS WRONGLY TAKEN A VIEW FOR ALLOWING ANY CLAIM OF DEDUCTION IN EARLIER YEARS, T HAT WILL NOT TAKE THE POWER OF THE AO TO REOPEN THE ASSESSMENT U /S 147, WHEN THERE IS AN ESCAPEMENT OF INCOME AS PER EXPLAN ATION 2- CLAUSE (B) OF SECTION 147. HE FURTHER RELIED ON THE DECISION REPORTED AT 224 ITR 362, AND PURSHOTTAM DAS BANERJE E AND THE DECISION REPORTED AT 236 ITR 34 AND 247 ITR 818 IN CASE OF S.K. ENGINEERING, IN SUPPORT OF ASSESSEES REOPENIN G OF ASSESSMENT U/S 147 ON ACCOUNT OF WRONG ALLOWING THE CLAIM OF DEDUCTION U/S 10A WHILE PROCESSING THE RETURN OF IN COME. 17. WE HAVE CONSIDERED THE RIVAL CONTENTIONS, CAREFULLY GONE THROUGH THE ORDERS OF THE AUTHORITIES BELOW AN D DELIBERATED ON THE CASE LAWS CITED BY THE LD. AUTHO RIZED REPRESENTATIVE AND LD. SENIOR D.R. DURING THE COURS E OF HEARING BEFORE US. FROM THE RECORD, WE FOUND THAT T HE RETURN PROCESSED U/S 143(1) WAS REOPENED BY ISSUE OF NOTIC E U/S 148. THE REASONS FOR REOPENING WAS STATED TO BE NON-ALLO WABILITY OF -: 14: - 14 DEDUCTION U/S 10A IN RESPECT OF INDORE UNDERTAKING OF THE ASSESSEE IN VIEW OF THE PROVISIONS OF SECTION 80HHE (5). AS PER AO, THERE WAS OMISSION ON THE PART OF THE AO, WHICH HAS RESULTED INTO UNDER ASSESSMENT OF INCOME TO THE EXT ENT OF RS. 17.65 CRORES. IT IS CRYSTAL CLEAR THAT RETURN WAS PROCESSED U/S 143(1), WHEREIN THE AO IS EVEN NOT EMPOWERED TO COR RECT ANY ARITHMETICAL MISTAKE DURING THE YEAR UNDER CONSIDER ATION AND HE HAS TO PROCESS THE RETURN AT THE INCOME DECLARED BY THE ASSESSEE AND TO ASCERTAIN THE TAX LIABILITY THEREOF . IT IS NOT A CASE WHERE ASSESSMENT HAS BEEN FRAMED U/S 143(3) AN D THE AO HAS APPLIED HIS MIND FOR ANY DISALLOWANCE DISCUS SED THEREIN. ASSESSEES CLAIM FOR DEDUCTION U/S 10A WAS NEITHER EXAMINED WHILE PROCESSING THE RETURN U/S 143(1), NO R THE AO WAS HAVING ANY POWER TO DISALLOW THE SAME IN THE CO URSE OF PROCESSING THE RETURN U/S 143(1), BECAUSE THAT POWE R WAS NOT AVAILABLE TO THE AO DURING THE YEAR UNDER CONSIDERA TION. FURTHERMORE, PROVISIONS OF CLAUSE (B) OF EXPLANATIO N 2 OF SECTION 147 CLEARLY PROVIDES THAT WHERE A RETURN OF INCOME HAS BEEN FURNISHED BY THE ASSESSEE BUT NO ASSESSMENT HA S BEEN MADE AND IT IS NOTICED BY THE A.O THAT THE ASSESSEE HAS UNDER- -: 15: - 15 STATED THE INCOME OR HAS CLAIMED EXCESSIVE LOSS, DE DUCTION, ALLOWANCE OR RELIEF IN THE RETURN, THE SAME WILL BE DEEMED TO BE A CASE WHERE INCOME CHARGEABLE TO TAX HAS ESCAPED ASSESSMENT, EMPOWERING THE AO TO REOPEN THE ASSESSM ENT U/S 147. 18. WITH EFFECT FROM 1 ST APRIL 1989, THE PROVISIONS UNDERWENT SUBSTANTIAL AND MATERIAL CHANGES. A NEW SCHEME WAS INTRODUCED AND THE NEW SUBSTITUTED SECTION 143( 1) PRIOR TO SUBSEQUENT SUBSTITUTION WITH EFFECT FROM 1 ST JUNE 1999 IN CLAUSE(A), A PROVISION WAS MADE THAT WHERE A RETURN WAS FILED UNDER SECTION 139 OR IN RESPONSE TO A NOTICE UNDER SECTION 142(1) AND ANY TAX OR REFUND WAS FOUND DUE ON THE B ASIS OF SUCH RETURN AFTER ADJUSTMENT OF TAX DEDUCTED AT SOU RCE, ANY ADVANCE TAX OR ANY AMOUNT PAID OTHERWISE BY WAY OF TAX OR INTEREST, AN INTIMATION WAS TO BE SENT U/S 143(1)( A), WITHOUT PREJUDICE TO THE PROVISIONS OF SECTION 143(2) TO TH E ASSESSEE SPECIFYING THE SUM SO PAYABLE AND SUCH INTIMATION W AS DEEMED TO BE A NOTICE OF DEMAND ISSUED UNDER SECTIO N 156. THE FIRST PROVISO TO SECTION 143(1)(A) ALLOWED THE DEPARTMENT TO -: 16: - 16 MAKE CERTAIN ADJUSTMENTS IN THE INCOME OR LOSS DECL ARED IN THE RETURN. THEY WERE AS FOLLOWS: A) AN ARITHMETICAL ERROR IN THE RETURN, ACCOUNTS AND DOCUMENTS ACCOMPANYING IT WERE TO BE RECTIFIED. B) ANY LOSS CARRIED FORWARD, DEDUCTIONS, ALLOWANCE OR RELIEF WHICH ON THE BASIS OF THE INFORMATION AVAILA BLE IN SUCH RETURN, ACCOUNTS OR DOCUMENTS, WAS PRIMA FACIE ADMISSIBLE, BUT WHICH WAS NOT CLAIMED IN THE RETURN WAS TO BE ALLOWED; AND C) ANY LOSS CARRIED FORWARD, RELIEF CLAIMED IN THE RET URN WHICH ON THE BASIS OF THE INFORMATION AS AVAILABLE IN SUCH RETURN, ACCOUNTS OR DOCUMENTS WERE PRIMA FACIE INADMISSIBLE WAS TO BE DISALLOWED. 19. WHAT WERE PERMISSIBLE UNDER THE FIRST PROVISO TO SECTION 143(1)(A) TO BE ADJUSTED WERE (I) ONLY APPA RENT ARITHMETICAL ERRORS IN THE RETURN, ACCOUNTS OR DOCU MENTS ACCOMPANYING THE RETURN, (II) LOSS CARRIED FORWARD, DEDUCTION, ALLOWANCE OR RELIEF, WHICH WAS PRIMA FACIE ADMISSIB LE ON THE BASIS OF INFORMATION AVAILABLE IN THE RETURN BUT NO T CLAIMED IN THE RETURN, AND SIMILARLY, (III) THOSE CLAIMS WHICH WERE ON THE BASIS OF THE INFORMATION AVAILABLE IN THE RETURN, P RIMA FACIE INADMISSIBLE, WERE TO BE RECTIFIED/ALLOWED/DISALLOW ED. WHAT -: 17: - 17 WAS PERMISSIBLE FOR CORRECTION OF ERRORS APPARENT O N THE BASIS OF THE DOCUMENTS ACCOMPANYING THE RETURN. THE ASSE SSING OFFICER HAD NO AUTHORITY TO MAKE ADJUSTMENTS OR ADJ UDICATE UPON ANY DEBATABLE ISSUE. IN OTHER WORDS, THE ASSE SSING OFFICER HAD NO POWER TO GO BEHIND THE RETURN, ACCOU NTS OR DOCUMENTS EITHER IN ALLOWING OR IN DISALLOWING DEDU CTION, ALLOWANCE OR RELIEF. 20. THE PROVISIONS OF SECTION 143(1)(A) ARE WITHOUT PREJUDICE TO THE PROVISIONS OF SECTION 143(2). THO UGH, TECHNICALLY THE INTIMATION ISSUED WAS DEEMED TO BE A DEMAND NOTICE ISSUED UNDER SECTION 156 THAT DID NOT PER SE PRECLUDE THE RIGHT OF THE ASSESSING OFFICER TO PROCEED UNDER SECTION 143(2). THAT RIGHT IS RESERVED AND NOT TAKEN AWAY. BETWEEN THE PERIOD FROM 1 ST APRIL, 1989 TO 31 ST MARCH 1998, THE SECOND PROVISO TO SECTION 143(1)(A), REQUIRED THAT WHERE A DJUSTMENTS WERE MADE UNDER FIRST PROVISO TO SECTION 143(1)(A) , AN INTIMATION HAD TO BE SENT TO THE ASSESSEE NOTWITHST ANDING THAT NO TAX OR REFUND WAS DUE FROM HIM AFTER MAKING SUCH ADJUSTMENTS. WITH EFFECT FROM 1 ST APRIL 1998, SECOND PROVISO TO SECTION 143(1)(A) WAS SUBSTITUTED BY THE FINANC E ACT, 1997, -: 18: - 18 WHICH WAS OPERATIVE TILL 1 ST JUNE 1999. THE REQUIREMENT WAS THAT INTIMATION WAS TO BE SENT TO THE ASSESSEE WHET HER OR NOT ANY ADJUSTMENTS HAD BEEN MADE UNDER THE FIRST PROVI SO TO SECTION 143(1) AND NOTWITHSTANDING THAT NO TAX OR I NTEREST WAS FOUND DUE FROM THE ASSESSEE CONCERNED. BETWEEN 1 ST APRIL, 1998 TO 31 ST MARCH 1999, SENDING OF AN INTIMATION UNDER SECTION 143(1)(A) WAS MANDATORY. THIS POSITION CO NTINUED TILL ALL THE ASSESSMENT YEARS UNDER CONSIDERATION BEFORE US. 21. THUS, LEGISLATIVE INTENT IS VERY CLEAR FROM THE US E OF THE WORD INTIMATION AS SUBSTITUTED FOR ASSESSMENT, THE ASSESSING OFFICER IS FREE TO MAKE ANY ADDITION AFTE R GRANT OF OPPORTUNITY TO THE ASSESSEE. BY MAKING ADJUSTMENTS UNDER THE FIRST PROVISO TO SECTION 143(1)(A), NO ADDITION WHICH IS IMPERMISSIBLE BY THE INFORMATION IN THE RETURN COUL D BE MADE BY THE ASSESSING OFFICER. REASON IS THAT UNDER SEC TION 143(1)(A) NO OPPORTUNITY IS GRANTED TO THE ASSESSE E AND THE ASSESSING OFFICER PROCEEDS ON HIS OPINION ON THE BA SIS OF THE RETURN FILED BY THE ASSESSEE. THE VERY FACT THAT N O OPPORTUNITY OF HEARING BEING GIVEN UNDER SECTION 143(1)(A) INDI CATES THAT -: 19: - 19 THE ASSESSING OFFICER HAS TO PROCEED ACCEPTING THE RETURN AND MAKING THE PERMISSIBLE ADJUSTMENTS ONLY. 22. AS A RESULT OF INSERTION OF EXPLANATION TO SECTION 143 BY THE FINANCE ACT (NO.2) OF 1991 WITH EFFECT FROM 1-10-1991 AND SUBSEQUENTLY WITH EFFECT FROM 1-6-1994 BY FINA NCE ACT 1994 AND ULTIMATELY OMITTED WITH EFFECT FROM 1-6-19 99 BY EXPLANATION AS INTRODUCED BY THE FINANCE ACT (NO.2) OF 1999, AN INTIMATION SENT TO THE ASSESSEE UNDER SECTION 1 43(1)(A) WAS DEEMED TO BE AN ORDER FOR PURPOSES OF SECTION 246 B ETWEEN 1- 6-94 TO 31-3-95 AND UNDER SECTION 264 BETWEEN 1-10 -1991 AND 31-5-1999. THE EXPRESSIONS INTIMATION AND A SSESSMENT ORDER HAVE BEEN USED AT DIFFERENT PLACES. CONTEXT UAL DIFFERENCE BETWEEN THE TWO EXPRESSIONS HAS TO BE UN DERSTOOD IN THE CONTEXT OF THE EXPRESSIONS USED. ASSESSMENT IS USED AS MEANING SOME TIMES THE COMPUTATION OF INCOME SOME TIMES THE DETERMINATION OF THE AMOUNT OF TAX PAYABLE AN D SOME TIMES THE WHOLE PROCEDURE LAID DOWN IN THE ACT FOR IMPOSING LIABILITY UPON THE TAX PAYER. IN THE SCHEME OF TH INGS THE INTIMATION UNDER SECTION 143(1)(A) CANNOT BE TREATE D TO BE AN ORDER OF ASSESSMENT. THE DISTINCTION IS ALSO WELL BROUGHT OUT -: 20: - 20 BY THE STATUTORY PROVISIONS AS THEY STOOD AT DIFFER ENT POINTS OF TIME. UNDER SECTION 143(1)(A) AS STOOD PRIOR TO 1 ST APRIL 1989, THE ASSESSING OFFICER HAD TO PASS AN ORDER IF HE DE CIDED TO ACCEPT THE RETURN, BUT UNDER THE AMENDED PROVISIONS , THE REQUIREMENT OF PASSING OF AN ASSESSMENT ORDER HAS B EEN DISPENSED WITH AND INSTEAD AN INTIMATION IS REQUIRE D TO BE SENT. 23. THE CENTRAL BOARD OF DIRECT TAXES (CBDT) HAD ISSUE D VARIOUS CIRCULARS IN THIS REGARD EXPLAINING THE PUR POSE BEHIND THE PROVISIONS OF SECTION 143(1)(A), NAMELY, TO MI NIMIZE THE DEPARTMENTAL WORK IN SCRUTINIZING EACH AND EVERY RE TURN, AND TO CONCENTRATE ON SELECTIVE SCRUTINY OF RETURNS. 24. UNDER THE FIRST PROVISO TO SECTION 143(1) WITH EFF ECT FROM 1 ST JUNE,1999, EXCEPT AS PROVIDED IN THE PROVISION ITS ELF, THE ACKNOWLEDGMENT OF THE RETURN SHALL BE DEEMED TO BE INTIMATION UNDER SECTION 143(1) WHERE (A) EITHER NO SUM IS PAYABLE BY THE ASSESSEE, OR (B) NO REFUND IS DUE TO HIM. IT IS SIGNIFICANT THAT THE ACKNOWLEDGEMENT IS MOSTLY DONE BY THE MINISTERIAL STAFF AND NOT BY THE ASSESSING OFFICER. THUS THE INTIMATION DOES NOT HAVE ALL THE CHARACTERISTICS OF AN -: 21: - 21 ASSESSMENT AS UNDERSTOOD IN THE COMMON PARLANCE OR EVEN DURING TAXING STATUTES. FURTHER, THE INTIMATION UN DER SECTION 143(1)(A) WAS DEEMED TO BE A NOTICE OF DEMAND UNDER SECTION 156 FOR THE PURPOSE OF MAKING MACHINERY PROVISIONS RELATING TO RECOVERY OF TAX APPLICABLE. BY SUCH APPLICATION ONLY TAX AMOUNT INDICATED TO BE PAYABLE BY THE INTIMATION BE CAME PERMISSIBLE AND NOTHING MORE CAN BE INFERRED FROM T HE DEEMING SECTION. 25. ON A COMPARISON OF THE PROVISIONS AS IT STOOD BEFO RE THE DIRECT TAX LAWS (AMENDMENT) ACT, 1987 AND THE PROVISIONS AS SUBSTITUTED BY THE DIRECT TAX LAWS (A MENDMENT) ACT, 1987, IT WOULD BE CLEAR THAT: - THE SCOPE AND EFFECT OF SECTION 147 AS SUBSTITUTED WITH EFFECT FROM 1 ST APRIL 1989, AS ALSO SECTIONS 148 TO 152 ARE SUBSTANTIALLY DIFFERENT FROM THE PROVISIONS AS STOO D PRIOR TO SUCH SUBSTITUTION. 26. UNDER OLD PROVISIONS OF SECTION 147, SEPARATE CLAU SES (A) AND (B) LAID DOWN THE CIRCUMSTANCES UNDER WHICH INCOME ESCAPING ASSESSMENT FOR THE PAST ASSESSMENT YEARS C OULD BE ASSESSED OR REASSESSED. TO CONFER JURISDICTION UND ER SECTION -: 22: - 22 147(A) TWO CONDITIONS WERE REQUIRED TO BE SATISFIED : FIRSTLY, THE ASSESSING OFFICER MUST HAVE REASON TO BELIEVE THAT INCOME, PROFITS OR GAINS CHARGEABLE TO INCOME-TAXABLE HAVE ESCAPED ASSESSMENT, AND SECONDLY, HE MUST ALSO HAVE REASON TO BELIEVE THAT SUCH ESCAPEMENT HAS OCCURRED BY REASON OF EITH ER OMISSION OR FAILURE ON THE PART OF THE ASSESSEE TO DISCLOSE FULLY OR TRULY ALL MATERIAL FACTS NECESSARY FOR HIS ASSES SMENT OF THAT YEAR. BOTH THESE CONDITIONS ARE CONDITIONS PRECEDE NT TO BE SATISFIED BEFORE THE ASSESSING OFFICER COULD HAVE J URISDICTION TO ISSUE NOTICE UNDER SECTION 148 READ WITH SECTION 14 7(A). BUT UNDER THE SUBSTITUTED NEW SECTION 147, THE EXISTENC E OF ONLY THE FIRST CONDITION WOULD SUFFICE. IN OTHER WORDS, IF THE ASSESSING OFFICER FOR WHATEVER REASON HAS REASON TO BELIEVE THAT INCOME HAS ESCAPED ASSESSMENT, IT CONFERS JURI SDICTION TO REOPEN THE ASSESSMENT. IT IS, HOWEVER, TO BE NOTED THAT BOTH THE CONDITIONS MUST BE FULFILLED, IF THE CASE FALLS WITHIN THE AMBIT OF PROVISO TO SECTION 147 AS STOOD AFTER AMEN DMENT. 27. THUS AS PER THE AMENDED PROVISIONS OF SEC.147, FOR RE- OPENING OF AN ASSESSMENT THERE SHOULD BE A REASON T O BELIEVE THAT INCOME CHARGEABLE TO TAX HAD ESCAPED ASSESSMEN T FOR ANY -: 23: - 23 ASSESSMENT YEAR. SUCH REASON TO BELIEVE CAN BE RA ISED IN ANY MANNER AND IS NOT QUALIFIED BY A PRE-CONDITION OF F AITH AND TRUE DISCLOSURE OF MATERIAL FACTS BY AN ASSESSEE AS CONTEMPLATED IN PRE-AMENDED SECTION 147(A) AND THE ASSESSING OFFICER CAN, UNDER THE AMENDED PROVISIONS , LEGITIMATELY RE-OPEN THE ASSESSMENT IN RESPECT OF I NCOME WHICH HAD ESCAPED ASSESSMENT. VIEWED IN THAT ANGLE , POWER TO RE-ASSESSMENT IS MUCH WIDER UNDER THE AMENDED PR OVISIONS AND CAN BE EXERCISED EVEN AFTER ASSESSEE HAS DISCLO SED FULLY AND TRULY ALL MATERIAL FACTS. REASONS WHICH MAY WE IGH WITH THE ASSESSING OFFICER MAY BE THE RESULT OF HIS OWN INVESTIGATION AND MAY ALSO COME FROM ANY SOURCE THA T HE CONSIDERS RELIABLE. FORMING OF THIS BELIEF IS AN A DMINISTRATIVE DECISION TO BE ARRIVED AT IN JUDICIAL MANNER. THE ASSESSING OFFICER IS REQUIRED TO ACT FAIRLY AND JUDICIOUSLY. HIS BELIEF MUST HAVE SUBSTANCE AND MUST NOT BE A SHADOW. THERE IS NO DISPUTE TO THE WELL SETTLED LEGAL PROPOSITION THAT SUCH BELIEF SHOULD BE BONA FIDE AND SHOULD NOT BE BASED ON VAGU E, ARBITRARY AND NON-SPECIFIC INFORMATION. -: 24: - 24 28. IN THE CASE OF RAJESH JHAVERI, 291 ITR 500, HON'BL E SUPREME COURT CATEGORICALLY DEALT WITH REOPENING OF ASSESSMENT WITH REGARD TO MODE UNDER WHICH ASSESSME NT HAS BEEN DONE, EITHER BY WAY OF THE INTIMATION U/S 143 (1) OR BY WAY OF SCRUTINY ASSESSMENT ORDER U/S 143(3). IT WAS OBSERVED THAT THERE IS A CONTEXTUAL DIFFERENCE BETWEEN THE T WO EXPRESSIONS IN THE CONTEXT THE EXPRESSIONS ARE USED . THE WORD ASSESSMENT IS USED AS MEANING SOMETHING THE COMP UTATION OF INCOME, SOMETIMES DETERMINATION OF AMOUNT OF T AX PAYABLE AND SOMETIMES THE WHOLE PROCEDURE LAID DOW N IN THE ACT FOR IMPOSING LIABILITY UPON THE TAX PAYERS. IT WAS FURTHER OBSERVED THAT IN THE SCHEME OF THINGS, THE INTIMATI ON U/S 143(1)(A) CANNOT BE TREATED TO BE AN ORDER OF ASSES SMENT. THIS DISTINCTION IS ALSO WELL BROUGHT OUT BY THE STATUTO RY PROVISIONS AS THEY STOOD AT DIFFERENT POINTS OF TIME, PRIOR TO 1 ST APRIL, 1989, U/S 143(1)(A), THE AO HAD TO PASS AN ASSESSME NT ORDER IF HE DECIDED TO ACCEPT THE RETURN, BUT UNDER THE A MENDED PROVISIONS, THE REQUIREMENT OF PASSING OF AN ASSESS MENT ORDER HAS TO BE DISPENSED WITH AND INSTEAD OF IT AN INTIM ATION IS REQUIRED TO BE SENT. IT WAS FURTHER ELABORATED THAT UNDER THE -: 25: - 25 FIRST PROVISO TO THE NEWLY SUBSTITUTED SECTION 143( 1) W.E.F. 1 ST JUNE, 1999, EXCEPT AS PROVIDED IN THE PROVISION ITS ELF, ACKNOWLEDGEMENT OF THE RETURN SHALL BE DEEMED TO BE INTIMATION U/S 143(1), WHERE NO SUM IS PAYABLE BY T HE ASSESSEE OR WHERE NO REFUND IS DUE TO HIM. IT WAS C ATEGORICALLY OBSERVED THAT ACKNOWLEDGEMENT IS NOT DONE BY THE AS SESSING OFFICER, BUT BY THE MINISTERIAL STAFF. UNDER THESE CIRCUMSTANCES, IT CANNOT BE SAID THAT THE ASSESSMEN T HAS BEEN MADE BY THE MINISTERIAL STAFF. THE INTIMATION U/S 1 43(1)(A) IS DEEMED TO BE A NOTICE OF DEMAND U/S 156. FOR THE AP PARENT PURPOSE OF MAKING MACHINERY PROVISION RELATING TO R ECOVERY OF TAX APPLICABLE. BY SUCH APPLICATION ONLY RECOVERY I NDICATED TO BE PAYABLE IN THE INTIMATION BECOMES PERMISSIBLE AN D NOTHING MORE CAN BE INFERRED FROM THE DEEMING PROVISION. TH US, THERE IS NO ASSESSMENT U/S 143(1)(A) OF THE ACT. 29. IT IS CRYSTAL CLEAR FROM THE ABOVE DECISION OF THE HON'BLE SUPREME COURT WHICH IS HAVING BINDING EFFEC T ON US UNDER CONSTITUTION OF INDIA THAT THE PROCESSING OF RETURN U/S 143(1) DOES NOT AMOUNT TO ASSESSMENT ORDER. THEREFO RE, NEITHER ANY OPINION IS FORMED NOR THERE IS A QUESTI ON OF CHANGE -: 26: - 26 OF OPINION. SINCE INTIMATION U/S 143(1) IS NOT AN A SSESSMENT, THERE IS NO NECESSITY OF ANY NEW MATERIAL TO EMPOW ER THE AO TO REOPEN THE ASSESSMENT U/S 147, WHEN THERE IS A R EASON TO BELIEVE THAT THERE IS ESCAPEMENT OF INCOME. IN THE INSTANT CASE BEFORE US, THE RETURN WAS PROCESSED U/S 143(1) AND NO ASSESSMENT WAS FRAMED BY ISSUE OF NOTICE U/S 143(2) . UNDER THESE FACTS AND CIRCUMSTANCES, THE PROPOSITION OF L AW LAID DOWN BY THE HON'BLE SUPREME COURT IN THE CASE OF RA JESH JHAVERI IS CLEARLY APPLICABLE. IT IS PERTINENT TO M ENTION HERE THAT SECTION 147 AUTHORIZES THE AO TO ASSESS OR REA SSESS INCOME CHARGEABLE TO TAX, WHEN, HE HAS REASON TO BE LIEVE THAT INCOME FOR ANY ASSESSMENT YEAR HAS ESCAPED ASSESSME NT. 30. IN VIEW OF THE ABOVE DISCUSSION, WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF LD. CIT(A) FOR UPHOLDING THE VALIDITY OF REOPENING WHEN THE RETURN WAS PROCESSED U/S 143(1) AND REASONS WERE RECORDED WITH REGARD TO WRONG ALLOWING THE CLAIM OF ASSESSEE U/S 10A. AT THE TIME OF ISSUE OF NOTICE , THE AO NEED NOT TO GO IN DETAIL WITH REGARD TO MERIT OF TH E ADDITIONS/DISALLOWANCES, IT WILL BE FOR THE AO TO H AVE A BONA FIDE BELIEF THAT INCOME HAS ESCAPED ASSESSMENT. THE WORD -: 27: - 27 REASON IN THE PHRASE REASON TO BELIEVE WOULD ME AN CAUSE OR JUSTIFICATION. IF THE AO HAS CAUSE OR JUSTIFICAT ION TO KNOW THAT THE INCOME HAD ESCAPED ASSESSMENT, IT CAN BE S AID TO HAVE ASCERTAINED THE FACT BY LEGAL EVIDENCE OR CONC LUSION. THE SCOPE AND EFFECT OF SECTION 147 HAS SUBSTITUTED W.E .F. 1 ST APRIL, 1989, AS ALSO SECTIONS 148 TO 152 ARE SUBSTANTIALLY DIFFERENT FROM THE PROVISIONS AS THEY STOOD PRIOR TO SUCH INS TITUTION. 31. IN THE RESULT, THE APPEAL OF THE REVENUE AND ASSESS EE ARE DISPOSED OF IN THE MANNER INDICATED HEREINABOVE . THIS ORDER HAS BEEN PRONOUNCED IN THE OPEN COURT ON 25 TH JANUARY, 2011. SD/- SD/- (JOGINDER SINGH) ( R.C.SHARMA) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED : 25 TH JANUARY, 2011. CPU* 241