M/s. Magnum Forge and Machine Works P.Ltd., Pune V. Assistant Commissioner of Income-tax,

ITA 6/PUN/2014

• Counselvise Citation: 624514 RSA 2014
• Duration Of Justice: 11 month(s) 21 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 24-12-2014
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Assessment Year: 2007-2008
• Appeal Filed On: 02-01-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Business income; Depreciation; Search and seizure; Tangible material; Difference of opinion; Deemed export; Reason to believe; Change of opinion; Reassessment proceedings
• Section: 143(3); 10B; 148; 139

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH A , PUNE BEFORE: SHRI G.S. PANNU, ACCOUNTANT MEMBER AND SHRI R.S. PADVEKAR, JUDICIAL MEMBER ITA NO . 06 /PN/20 1 4 ASSESSMENT YEAR : 200 7 - 08 MAGN UM FORGE AND MACHINE WORKS PVT. L TD., FLAT NO. 26, 82, PARVATI TOWERS, PUNE - 411009 VS. ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE - 11(2), PMT BUILDING, SWARGATE, PUNE (APPELLANT) (RESPONDENT) PAN NO. AABCM2183Q REVENUE BY: SHRI RAJESH DAMOR ASSESSEE BY: SHRI NIKHIL PATHAK DATE OF HEARING : 1 6 - 12 - 2014 DATE OF PRONOUNCEMENT : 24 - 12 - 2014 ORDER PER R.S . PADVEKAR , JM : - TH IS APPEAL IS FILED BY THE ASSESSEE CHALLENGING THE IMPUGNED ORDER OF THE LD. CIT(A) - I, PUNE DATED 30 - 09 - 2013 FOR THE A.Y. 200 7 - 08. THE ASSESSEE HA S TAKEN GROUND NO. 1 WHICH READS AS UNDER: 1. ORDER MADE BY A.O. UNDER SEC. 143(3) R.W.S. 147 ON THE BASIS OF CHANGE OF OPINION ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND LAW, THE COMMISSIONER OF INCOME TAX (APPEALS) ERRED IN NOT CANCELLING OR SETTING ASI DE THE REASSESSMENT ORDER PASSED U/S. 143(3) READ WITH SECTION 147, AS IT IS BASED ON CHANGE OF OPINION. THE LEARNED ASSESSING OFFICER ERRED IN REOPENING THE ALREADY COMPLETED ASSESSMENT BY ISSUING A NOTICE U/S. 148 AND PASSING THE REVISED ASSESSMENT OR DER U/S. 143(3) R.W.S. 147. THE ORIGINAL ASSESSMENT ORDER WAS PASSED BY THE THEN ASSESSING OFFICER, CONSIDERING AND EXAMINING AND MENTIONING IN HIS ASSESSMENT ORDER, ALL THE RELEVANT FACTS AND APPLYING HIS MIND ALLOWED THE EXEMPTION U/S. 10B, AS STATED IN PARA 4 OF THE ORIGINAL ASSESSMENT ORDER DATED 27.12.2009. 2 ITA NO . 06/PN/2014, MAGN UM FORGE AND MACHINE WORKS PVT. LTD., PU NE VARIOUS COURTS HAVE STATED THAT THE A.O. CANNOT REVISE OR REOPEN THE ASSESSMENT (ALREADY COMPLETED U/S. 143(3) ON THE BASIS OF CHANGE OF OPINION. 2. THE FACTS WHICH ARE REVEALED FORM THE RECOR DS AS UNDER. THE ASSESSEE COMPANY IS A 100% EXPORT ORIENTED UNIT (EOU) ENGAGED IN MANUFACTUR ING OF STEEL FORGING FOR EXPORT. IT IS STATED THAT THE ASSESSEE COMPANY IS EXPORTING ITS 100% OF PRODUCTION TO USA , UK AND ALSO SUPPLYING TO ANOTHER EOU. THE ASS ESSEES ASSESSMENT FOR THE A.Y. 2007 - 08 HAS BEEN COMPLETED U/S. 143(3) OF THE ACT VIDE ASSESSMENT ORDER DATED 31 - 12 - 2009 . THE ASSESSEE HAD CLAIMED THE DEDUCTION U/S. 10B OF RS. 66,07,760/ - AND THE SAME WAS ALLOWED IN ORIGINAL ASSESSMENT . THE RELEVANT PART OF THE ORIGINAL ASSESSMENT ORDER WHERE THE ASSESSING OFFICER HAS DISCUSSED THE CLAIM MADE BY THE ASSESSEE U/S. 10B IS AS UNDER: 4. THE ASSESSEE HAS COMPUTED BUSINESS INCOME RS.69,83,154/ - AND CLAIMED DEDUCTION U/S. 10B RS.66,07,760/ - . THE ASSESSEE HAS MA DE DIRECT EXPORT OF RS.17,06,02,280/ - AND EXPORT TO EOU OF RS.33,10,27,414/ - AND THE DEDUCTION U/S. 10B HAS BEEN CLAIMED ON RS.48,83,05,735/ - (TOTAL EXPORT TURNOVER AFTER EXCLUDING FREIGHT AND INSURANCE) RECEIVED IN FOREIGN EXCHANGE. IT IS CLAIMED THAT TH E SALE FROM THE EOU TO ANOTHER EOU ARE DEEMED TO BE EXPORTS. AS PER CHAPTER 8 OF THE FOREIGN TRADE POLICY. AS PER SEC. 8.2 CATEGORIES OF SUPPLY OF GOODS TO EOU SHALL DEEMED TO BE EXPORTS, PAYMENTS FOR WHICH IS RECEIVED EITHER IN INDIAN RUPEES OR IN FOR EIGN EXCHANGE. THE EQUIVALENT INVOICE VALUE OF FOREIGN EXCHANGE IN US $ 72,71,287/ - HAS BEEN REALIZED WITHIN DUE DATES, AS PER BANK REALIZATION CERTIFICATES. AS REGARDS DIRECT EXPORT THE EQUIVALENT VALUE IN US - $ 37,83,592/ - HAS BEEN REALIZED WITHIN DUE D ATES, AS PER BANK REALIZATION CERTIFICATES. COPIES OF BILLS, SHIPPING BILLS AND AIRWAY BILLS ARE FURNISHED BY ASSESSEE. 3. IN SUM AND SUBSTANCE IN THE SCRUTINY ASSESSMENT , THE ASSESSING OFFICER ALLOWED THE CLAIMED OF THE ASSESSEE. SUBSEQUENTLY, THE A SSESSING OFFICER INI TIATED PROCEEDINGS U/S. 147 OF THE ACT AND ISSUED NOTICE U/S. 3 ITA NO . 06/PN/2014, MAGN UM FORGE AND MACHINE WORKS PVT. LTD., PU NE 148 TO THE ASSESSEE. THE REASONS GIVEN BY THE ASSESSING OFFICER FOR ISSUING THE NOTICE U/S. 148 ARE AS UNDER: IN THIS CASE COMPANY IS A 100% EXPORT ORIENTED UNIT AND REGIS TERED AS SUCH WITH SEEPZ SEZ AND IS HOLDING A GREEN CARD WHICH IS VALID UP TO 31/03/2010. DURING THE COURSE OF ASSESSMENT PROCEEDINGS THE A.O. ALLOWED DEDUCTION U/S. 10B IN THE ORDER U/S. 143(3) DATED 31 /12/2009 AT RS. 66,07,760/ - ON TOTAL EXPORT TURNOVER OF RS. 48,83,05,735/ - AFTER EXCLUDING FREIGHT & INSURANCE. THE DEDUCTION U/S. 10B HAS BEEN CLAIMED ON DIRECT EXPORTS OF RS. 17,06,02,280/ - AND EXPORTS MADE TO ANOTHER EOU VIZ. MAGNA CASTING & MACHINE WORKS PVT. LTD. OF RS. 33,10,27,414/ - . THE ABOVE DEDUCTIO N WAS ALLOWED BY THE A.O. RELYING ON HON'BLE ITAT AHMEDABAD BENCH DECISION IN THE CASE OF ANITA SYNTHETIC PVT. LTD. (2006) 100 TTJ AHD. 277 AND AS PER THE PROVISIONS OF CHAPTER 8; OF FOREIGN TRADE POLICY. AT THE TIME OF FOLLOWING THE SAID DEDUCTION THE AO WAS NOT AWARE OF THE HON'BLE ITAT B ANGALORE A BENCH DECISION IN THE CASE OF TATA ELXI LTD. VS. ACIT DATED - 16/10/2007 WHEREIN IT HAS BEEN HELD THAT SALE OF SOFTWARE BY ONE STP TO ANOTHER STP WITHIN THE COUNTRY IS TREATED AS DEEMED EXPORT ONLY FOR THE PURP OSE OF DUTY DRAW BACK AND EXEMPTION FROM TERMINAL EXCISE DUTY. FOR THE PURPOSE INCOME - TAX WHAT IS TO BE TREATED AS DEEMED EXPORT IN RESPECT OF SUCH SALE IS PROVIDED IN SECTION 10A ITSELF. THEREFORE THE ASSESSEE WAS NOT ENTITLED TO EXEMPTION U/S. 10B IN RES PECT OF SALES WITHIN INDIA. IN VIEW OF THE ABOVE, THE DEDUCTION U/S. 10B HAS BEEN WRONGLY ALLOWED ON DIRECT EXPORTS AS WELL AS DEEMED EXPORTS. THE ALLOWABLE DEDUCTION ON DIRECT EXPORTS AMOUNTS TO RS. 21,28,293/ - . HENCE, FOR THE ABOVE REASONS THE ORDER U/S . 143(3) DATED - 30/12/2009 IS ERRONEOUS BEING PREJUDICIAL TO THE INTEREST OF REVENUE. I HAVE THEREFORE REASONS TO BELIEVE THAT INCOME OF RS. 66,07,760/ - HAS ESCAPED ASSESSMENT FOR A. Y. 2007 - 08, ON ACCOUNT OF DEDUCTION U/S. 108 CLAIMED BY THE ASSESSEE. 4 ITA NO . 06/PN/2014, MAGN UM FORGE AND MACHINE WORKS PVT. LTD., PU NE TH E CASE SATISFIES CONDITIONS LAID DOWN IN SECTIONS 149 (1)(A) AND 151(2) OF THE INCOME - TAX ACT, 1961. ISSUE NOTICE U/S. 148 FOR A. Y. 2007 - 08.' 4. THE ASSESSING OFFICER COMPLETED THE ASSESSMENT U/S. 143 R.W.S. 147 VIDE ORDER DATED 07 - 12 - 2011 WITHD RAWING THE DEDUCTION ORIGINALLY ALLOWED TO THE ASSESSEE WHICH W AS CLAIMED U/S. 10B OF THE ACT TO THE EXTENT OF RS.66,07,760/ - . THE ASSESSEE CHALLENGED THE ACTION OF THE ASSESSING OFFICER BEFORE THE LD. CIT(A) BY TAKING THE PLEA THAT THE REOPENING OF THE A SSESSMENT OF THE ASSESSEE IS MERELY ON THE CHANGE OF THE OPINION. IT WAS FURTHER PLEADED BEFORE LD. CIT(A) THAT WHILE COMPLETING THE ORIGINAL ASSESSMENT U/S. 143 (3) OF THE ACT , TH E ASSESSING OFFICER HAS ALREADY CONSIDERED THE DEDUCTION CLAIMED BY THE ASSE SSEE U/S. 10B OF THE ACT AND WHICH IS SPECIFICALLY DISCUSSED IN THE ASSESSMENT ORDER PASSED U/S. 143(3) OF THE ACT MORE PARTICULARLY IN PARA 4. THE ASSESSEE ALSO TOOK THE STAND THAT THERE WAS A DECISION IN FAVOUR OF THE ASSESSEE WHEN THE ORIGINAL ASSESSME NT ORDER WAS PASSED. MERELY BECAUSE SUBSEQUENTLY ANOTHER DECISION OF THE ITAT, BANGALORE IN THE CASE OF TATA ELXI LTD. VS. ACIT DATED 16 - 10 - 2007 WAS NOTICED HAVING DIFFERENT VIEW ON THE MATTER THERE WAS NO REASON TO INITIATE THE ACTION AGAINST THE ASSESSE E. IT WAS ALSO PLEADED THAT IN THE CASE OF CIT VS. KELVINATOR OF INDIA LTD. 320 ITR 561 (SC) THE HON'BLE SUPREME COURT HAS HELD THAT ON MERE CHANGE OF THE OPINION COMPLETED ASSESSMENT CANNOT BE REOPENED. THE PLEA OF THE ASSESSEE DID NOT FIND FAVOUR BEFOR E THE LD. CIT(A). NOW, THE ASSESSEE HAS CHALLENGED THE PROCEEDINGS INITIATED BY THE ASSESSING OFFICER U/S. 147 OF THE ACT. 5. WE HAVE HEARD THE PARTIES AND PERUSED THE RECORD. ON THE IDENTICAL SET OF FACTS THE ISSUE HAD COME FOR CONSIDERATION BEFORE THE TRIBUNAL IN THE CASE OF ONE OF THE GROUP CONCERN OF THE ASSESSEE 5 ITA NO . 06/PN/2014, MAGN UM FORGE AND MACHINE WORKS PVT. LTD., PU NE COMPANY , M O RE PARTICULARLY IN THE CASE OF MAGNA CASTING AND MACHINE WORKS PVT. LTD., PUNE VS. ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE - 11(2), PUNE ITA NO. 1175/PN/2013 ORDER DATED 21 - 11 - 2014. IN THE SAID CASE ALSO THE REASONS RECORDED BY THE ASSESSING OFFICER FOR ISSUING THE NOTICE U/S. 148 ARE VERBATIM AS IN THE CASE OF THE PRESENT ASSESSEE. MOREOVER, IN THE SAID CASE ALSO THE ASSESSING OFFICER HAS ALLOWED THE DEDUCTION CLAIMED BY THE ASSESSEE U/S. 10B OF THE ACT BUT SUBSEQUENTLY ON THE BASIS OF DECISION OF THE ITAT, BANGALORE IN THE CASE OF TATA ELXSI LTD. (SUPRA) THE NOTICE WAS ISSUED U/S. 148 OF THE ACT. THE OPERATIVE PART OF THE SAID DECISION IS AS UNDER: 7. WE HAVE HEARD THE RIVAL SUBMISSIONS OF THE PARTIES AND PERUSED THE RECORD. IN THIS CASE, THE FACTS ARE NOT IN DISPUTE. THE ASSESSEE IS A 100% EOU. THE ASSESSEE ALSO SOLD GOODS TO ANOTHER EOU TO THE EXTENT OF RS.10,12,61,099/ - AND DEDUCTION U/S. 10B OF THE ACT TO THE EXTENT OF RS.4,26,30,184/ - WAS CLAIMED. ON PERUSAL OF THE ORIGINAL ASSESSMENT ORDER PASSED U/S. 143 IT IS SEEN THAT THE ASSESSING OFFICER DISCUSSED ISSUE OF DEDUCTION IN PARA NO. 4 WHICH READS AS UNDER: 4. THE ASSESSEE HAS MADE DIRECT EXPORT OF RS.40,53,728/ - AND EXPORT TO EOU OF RS.10,12,61,099/ - AND DEDUCTION U/S. 10B OF RS.4,26,30,184/ - HAS BEEN CLAIMED ON RS.10,35,06,894/ - (TOTAL EXPORT TURNOVER AFTER EXCLUDING FREIGHT AND INSURANCE) RECEIVED IN FOREIGN EXCHANGE. IT IS CLAIMED THAT THE SALE FROM THE EOU TO ANO THER EOU ARE DEEMED TO BE EXPORTS. AS PER CHAPTER 8 OF THE FOREIGN TRADE POLICY. AS PER SEC. 8.2 - CATEGORIES OF SUPPLY OF GOODS TO EOU SHALL DEEMED TO BE EXPORTS, PAYMENT FOR WHICH IS RECEIVED EITHER IN INDIAN RUPEES OR IN FOREIGN EXCHANGE. THE EQUIVALENT INVOICE VALUE OF FOREIGN EXCHANGE IN US - S 22,04,611.75/ - HAS BEEN REALIZED WITHIN DUE DATES, AS PER BANK REALIZATION CERTIFICATES. AS REGARDS DIRECT EXPORT THE EQUIVALENT VALUE IS US - $ 89,422/ - HAS BEEN REALIZED WITHIN DUE DATES, AS PER BANK REALIZATION C ERTIFICATES. COPIES OF BILLS, SHIPPING BILLS AND AIRWAY BILLS ARE FURNISHED BY ASSESSEE. 6 ITA NO . 06/PN/2014, MAGN UM FORGE AND MACHINE WORKS PVT. LTD., PU NE 8. HENCE, IT CANNOT BE SAID THAT THE ASSESSING OFFICER HAS NOT MADE AN ENQUIRY OR APPLIED HIS MIND TO THE ISSUE WHICH WAS THE SUBJECT MATTER OF THE REASSESSMENT PROC EEDINGS AND ISSUANCE OF THE NOTICE U/S. 148 OF THE ACT. IN THIS CASE THE ASSESSEE IS NOT PROTECTED BY THE PROVISO TO SEC. 147 AS ADMITTEDLY THE REASSESSMENT PROCEEDINGS ARE INITIATED WITHIN FOUR YEARS F ROM THE END OF THE RELEVANT ASSESSMENT YEAR. THE OBJ ECTION OF THE LD. COUNSEL IS THAT ONCE THE ASSESSING OFFICER HAS EXAMINED THE ISSUE , CONSIDERED ALL THE FACTS AND EXAMINED THE ISSUE APPLIED HIS MIND , THUS MERELY BECAUSE THERE IS SOME CONTRARY DECISION OF THE ANOTHER CO - ORDINATE BENCH OF THE ITAT THAT CAN NOT BE THE REASONS TO USE SEC. 147 FOR WITHDRAWING THE LEGITIMATE DEDUCTION. ON PERUSAL OF THE REASONS RECORDED BY THE ASSESSING OFFICER THERE IS NO QUARREL IN RESPECT OF THE FACT THAT WHILE COMPLETING THE ASSESSMENT THERE WAS A DECISION OF THE ITAT, AHME DABAD WHICH WAS CONSIDERED BY THE ASSESSING OFFICER IN THE CASE OF ANITA SYNTHETICS (P) LTD. (SUPRA). IT APPEARS THAT THERE WAS ALSO CONTRARY DECISION BY THE ITAT, BANGALORE IN THE CASE OF TATA ELXSI LTD. (SUPRA). THE ONLY REASON FOR INITIATING THE PROCE EDINGS U/S. 147 IS THAT THERE WERE TWO CONTRARY DECISIONS , ONE IS IN FAVOUR OF THE ASSESSEE AND ANOTHER IS AGAINST THE ASSESSEE AND THE DECISION WHICH IS AGAINST THE ASSESSEE WAS NOT AWARE OF THE SAME WHILE FRAMING ASSESSMENT U/S. 143(3) OF THE ACT. 9. THE RELEVANT PART OF S EC. 147 OF THE ACT READS AS UNDER: 147 . IF THE ASSESSING OFFICER HAS REASON TO BELIEVE THAT ANY INCOME CHARGEABLE TO TAX HAS ESCAPED ASSESSMENT 8 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 REFER RED TO AS THE RELEVANT ASSESSMENT YEAR : PROVIDED THAT WHERE AN ASSESSMENT UNDER SUB - SECTION (3) OF SECTION 143 OR THIS SECTION HAS BEEN MA DE 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 7 ITA NO . 06/PN/2014, MAGN UM FORGE AND MACHINE WORKS PVT. LTD., PU NE ASSESSMENT YEAR, UNLESS ANY INCOME CHARGEABLE TO TAX HAS ESCAPED ASSESSMENT FOR SUCH ASSESSMENT YEAR BY REASON OF T HE FAILURE 9 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 9 NECESSARY FOR HIS ASSESSMENT, FOR THAT ASSESSMENT YEAR. 10. AS PER THE HISTORY OF SEC. 147 WHICH IS RECASTED SECTION , BROUGHT ON STATURE BOOK W.E.F. 01 - 08 - 1989 , THE INITIAL WORDS THE REASON TO BELIEVE HAVE BEEN RETAI NED BY THE PARLIAMENT E VEN IF IN THE BILL WORDS IN THE OPINION OF THE ASSESSING OFFICER WERE PROPOSED FOR THE CONSIDERATION . THE ENTIRE SCHEME OF SEC. 147 OF THE ACT CONTEMPLATES TO BRING TO TAX ESCAPE D INCOME. IT IS TRUE THAT THERE MAY BE OCCASION IN WHICH THE ASSESSEE HAS CLAIMED THE DE DUCTION AND THERE MAY BE TWO DIFFERENT DECISIONS, ON E IS IN FAVOUR & ANOTHER AGAINST THE ASSESSEE, W HETHER THAT CAN BE THE GROUND FOR REOPENING AS IN PRESENT CASE IF THE ASSESSING OFFICER HAS NOT CONSIDERED THE DECISION WHICH IS AGAINST THE ASSESSEE. IN THIS CASE IN THE REASONS ITSELF THE ASSESSING OFFICER HAS RECORDED THAT THE DECISION OF THE ITAT, BANGALORE WAS NOT CONSIDERED AND IN OUR OPINION CANNOT BE THE REASON TO REOPEN COMPLETED ASSESSMENT BY TAKING SHELTER OF S EC. 147 TO WITHDRAW THE DEDUCTION. 11. IN THE CASE OF PARVEEN P. BHARUCHA (SUPRA) IT IS HELD AS UNDER: 10 FURTHER THE REASONS RECORDED BY RESPONDENT NO.1 FOR REOPENING THE ASSESSMENT DO NOT STATE THAT THE DEDUCTION UNDER SECTION 54E WAS NOT CONSIDERED I N THE ASSESSMENT PROCEEDINGS. IN FACT FROM THE REASONS, IT APPEARS THAT ALL FACTS WERE AVAILABLE ON RECORD AND ACCORDING TO THE RESPONDENTS WAS ONLY ERRONEOUSLY GRANTED. THIS IS A CLEAR CASE OF REVIEW OF AN ORDER. THE APPLICATION OF LAW OR INTERPRETATION O F A STATUE LEADING TO A PARTICULAR CONCLUSION CANNOT LEAD TO A CONCLUSION THAT TAX HAS ESCAPED ASSESSMENT FOR THIS WOULD THEN CERTAINLY AMOUNT TO REVIEW OF AN ORDER WHICH IS NOT PERMITTED UNLESS SO SPECIFIED IN A STATUE. THE ORDER DATED 14.11.2011 DISPOSIN G OF THE PETITIONERS OBJECTION TO INITIATION OF PROCEEDINGS UNDER SECTION 147 OF THE SAID ACT ALSO PROCEEDS ON THE VIEW THAT THERE HAS BEEN NON APPLICATION OF MIND DURING THE ORIGINAL 8 ITA NO . 06/PN/2014, MAGN UM FORGE AND MACHINE WORKS PVT. LTD., PU NE PROCEEDINGS FOR ASSESSMENT. THIS IS UNSUSTAINABLE AND AS HELD THIS COUR T IN ASIAN PAINTS LTD. V. DY. C.I.T. 308 ITR 195 A FRESH APPLICATION OF MIND BY THE ASSESSING OFFICER ON THE SAME SET OF FACTS AMOUNTS TO A CHANGE OF OPINION AND DOES NOT WARRANT REOPENING. IN FACT OUR COURT FOLLOWED THE FULL BENCH DECISION OF THE DELHI HI GH COURT IN THE MATTER OF KELVINATOR (SUPRA) WHEREIN IT HAS BEEN HELD AS UNDER: 'WE ALSO CANNOT ACCEPT THE SUBMISSION OF MR. JOLLY TO THE EFFECT THAT ONLY BECAUSE IN THE ASSESSMENT ORDER, DETAILED REASONS HAVE NOT BEEN RECORDED AN 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 ASSESSMENT5 CAN BE PASSED EITHER IN TERMS OF SUB SECTION (1)OF SECTION 143 OR SUB - SECTION (3) O F SECTION 143. 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 JUDICIAL AND OFFICIAL ACTS HAVE BEEN REGULARLY PERFORMED. IF IT BE HELD THAT AN ORDER WHICH HAS BEEN PASSED PURPORTEDLY WITHOUT APPLICATION OF MIND WOULD ITSELF CONFER JURISD ICTION UPON THE ASSESSING OFFICER TO REOPEN THE PROCEEDING WITHOUT ANYTHING FURTHER, THE SAME WOULD AMOUNT TO GIVING A PREMIUM TO AN AUTHORITY EXERCISING QUASI JUDICIAL FUNCTION TO TAKE BENEFIT OF ITS OWN WRONG'. 11 ONE MORE POINT VERY STRENUOUSLY URGED BY MR. GUPTA FOR THE REVENUE WAS THAT THE COURT SHOULD NOT AT THIS STAGE QUASH THE PROCEEDINGS AS THE ONLY OBLIGATION OF THE REVENUE IS TO ESTABLISH THAT PRIMA FACIE MATERIAL EXISTS TO SHOW THAT INCOME HAS ESCAPED ASSESSMENT AND THE PARTY CAN THEREAFTER ESTA BLISH IN REASSESSMENT PROCEEDINGS THAT THE DEDUCTIONS AS ALLOWED IN THE ORIGINAL ASSESSMENT PROCEEDINGS ARE VALID. 12 THE ISSUE HERE IS ONE OF JURISDICTION TO ISSUE NOTICE AND NOT SUFFICIENCY OF REASONS IN ISSUING A NOTICE FOR REASSESSMENT. WE ARE CONSIDER ING THE JURISDICTION TO ISSUE A NOTICE UNDER 9 ITA NO . 06/PN/2014, MAGN UM FORGE AND MACHINE WORKS PVT. LTD., PU NE SECTION 148 TO REOPEN PROCEEDINGS. IN VIEW OF WHAT IS STATED EARLIER, WE DO NOT FIND ANY MERIT IN THIS CONTENTION. 12. IN THE CASE OF NYK LINE (INDIA) LTD. (SUPRA) IT IS HELD AS UNDER: 12. THE REOPENING OF THE A SSESSMENT IN THE PRESENT CASE HAS TAKEN PLACE WITHIN A PERIOD OF FOUR YEARS OF THE END OF THE RELEVANT ASSESSMENT YEAR. THE POWER OF THE AO TO REOPEN AN ASSESSMENT WITHIN A PERIOD OF FOUR YEARS OF THE RELEVANT ASSESSMENT YEAR IS UNDOUBTEDLY WIDER THAN WHER E A PERIOD OF FOUR YEARS HAS ELAPSED. ONCE A PERIOD OF FOUR YEARS HAS ELAPSED, THE PROVISO TO S. 147 STIPULATES THAT THERE MUST BE A FAILURE ON THE PART OF THE ASSESSEE TO DISCLOSE FULLY AND TRULY ALL MATERIAL FACTS NECESSARY FOR ASSESSMENT AS A RESULT OF WHICH INCOME CHARGEABLE TO TAX HAS ESCAPED ASSESSMENT. BUT, THAT IS NOT TO SAY THAT WITHIN A PERIOD OF FOUR YEARS, THE POWER OF THE AO TO REOPEN AN ASSESSMENT IS UNTRAMMELLED. EVEN WITHIN A PERIOD OF FOUR YEARS, IT IS NOW A SETTLED PRINCIPLE OF LAW THAT AN ASSESSMENT CANNOT BE REOPENED ON THE BASIS OF A MERE CHANGE OF OPINION. THE SUPREME COURT HAS EMPHASIZED THAT THE AO HAS NO POWER TO REVIEW, BUT HIS POWER IS A POWER TO REASSESS. IF A MERE CHANGE OF OPINION CANNOT FURNISH A GROUND FOR REOPENING OF AN ASSE SSMENT, THEN, UNDER THE GARB OF REOPENING AN ASSESSMENT, A REVIEW WOULD NOT EQUALLY BE PERMISSIBLE. CONSEQUENTLY, THE TEST IS THAT THERE SHOULD BE TANGIBLE MATERIAL TO COME TO A CONCLUSION THAT THERE IS AN ESCAPEMENT OF INCOME FROM ASSESSMENT. 13. THESE P RINCIPLES HAVE BEEN EMPHASIZED IN THE JUDGMENT OF THE SUPREME COURT IN CIT VS. KELVINATOR OF INDIA LTD. (2010) 228 CTR (SC) 488 : (2010) 34 DTR (SC) 49 : (2010) 320 ITR 561 (SC). THE SUPREME COURT HAS OBSERVED AS FOLLOWS : '6. ........... THEREFORE, POST 1ST APRIL, 1989, POWER TO REOPEN IS MUCH WIDER. HOWEVER, ONE NEEDS TO GIVE A SCHEMATIC INTERPRETATION TO THE WORDS 'REASON TO BELIEVE' FAILING WHICH, WE ARE AFRAID, S. 147 WOULD GIVE ARBITRARY POWERS TO THE AO TO REOPEN ASSESSMENTS ON THE BASIS OF 'MERE CH ANGE OF OPINION', WHICH CANNOT BE PER SE REASON TO REOPEN. WE MUST ALSO KEEP IN MIND THE CONCEPTUAL DIFFERENCE BETWEEN POWER TO REVIEW 10 ITA NO . 06/PN/2014, MAGN UM FORGE AND MACHINE WORKS PVT. LTD., PU NE AND POWER TO REASSESS. THE AO HAS NO POWER TO REVIEW; HE HAS THE POWER TO REASSESS. BUT REASSESSMENT HAS TO BE BASED ON F ULFILMENT OF CERTAIN PRECONDITIONS AND IF THE CONCEPT OF 'CHANGE OF OPINION' IS REMOVED, AS CONTENDED ON BEHALF OF THE DEPARTMENT, THEN, IN THE GARB OF REOPENING THE ASSESSMENT, REVIEW WOULD TAKE PLACE. ONE MUST TREAT THE CONCEPT OF 'CHANGE OF OPINION' AS AN INBUILT TEST TO CHECK ABUSE OF POWER BY THE AO. HENCE, AFTER 1ST APRIL, 1989, THE AO HAS POWER TO REOPEN, PROVIDED THERE IS 'TANGIBLE MATERIAL' TO COME TO THE CONCLUSION THAT THERE IS ESCAPEMENT OF INCOME FROM ASSESSMENT. REASONS MUST HAVE A LIVE LINK W ITH THE FORMATION OF THE BELIEF. OUR VIEW GETS SUPPORT FROM THE CHANGES MADE TO S. 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 S. 147 OF THE ACT. HOWEVER, ON RECEIPT OF REPRESENTATIONS FROM THE COMPANIES AGAINST OMISSION OF THE WORDS 'REASON TO BELIEVE', PARLIAMENT REINTRODUCED THE SAID EXPRESSION AND DELETED THE WORD 'OPINION' ON THE GROUND THAT IT WOULD VEST ARBITRA RY POWERS IN THE AO. ......' 14. NOW, UNDOUBTEDLY AN ORDER OF ASSESSMENT WHICH HAS BEEN PASSED FOR A SUBSEQUENT ASSESSMENT YEAR MAY FURNISH A FOUNDATION TO REOPEN AN ASSESSMENT FOR AN EARLIER ASSESSMENT YEAR. HOWEVER, THERE MUST BE SOME NEW FACTS WHICH CO ME TO LIGHT IN THE COURSE OF ASSESSMENT FOR THE SUBSEQUENT ASSESSMENT YEAR WHICH EMERGE IN THE ORDER OF ASSESSMENT. OTHERWISE, A MERE CHANGE OF OPINION ON THE PART OF THE AO IN THE COURSE OF ASSESSMENT FOR A SUBSEQUENT ASSESSMENT YEAR WOULD NOT BY ITSELF L EGITIMISE THE REOPENING OF AN ASSESSMENT FOR AN EARLIER YEAR. 15. IN RAYMOND WOOLLEN MILLS LTD. VS. ITO (1999) 152 CTR (SC) 418 : (1999) 236 ITR 34 (SC), THE CASE OF THE REVENUE WAS THAT THE ASSESSEE WAS CHARGING TO ITS P&L A/C, FISCAL DUTIES PAID DURING THE YEAR AS WELL AS LABOUR CHARGES, POWER, FUEL, WAGES, CHEMICALS ETC. HOWEVER, WHILE VALUING ITS CLOSING STOCK, THE ELEMENTS OF FISCAL DUTY AND THE OTHER DIRECT MANUFACTURING COSTS WERE NOT INCLUDED BY THE ASSESSEE. THIS RESULTED IN UNDERVALUATION OF INVE NTORIES AND UNDERSTATEMENT 11 ITA NO . 06/PN/2014, MAGN UM FORGE AND MACHINE WORKS PVT. LTD., PU NE OF PROFITS. THIS INFORMATION, AS THE SUPREME COURT EMPHASIZED, WAS OBTAINED BY THE REVENUE IN THE ASSESSMENT PROCEEDINGS OF A SUBSEQUENT YEAR. CONSEQUENTLY, THE REOPENING OF THE ASSESSMENT WAS HELD TO BE VALID. THE POINT TO BE EM PHASIZED IS, THEREFORE, THAT WHERE IN THE CASE OF ASSESSMENT PROCEEDINGS FOR A SUBSEQUENT YEAR CERTAIN ADDITIONAL INFORMATION IS OBTAINED BY THE REVENUE WHICH WAS NOT AVAILABLE TO IT IN THE COURSE OF AN ASSESSMENT FOR AN EARLIER YEAR, THAT MAY LEGITIMATELY BE UTILIZED AS A GROUND FOR REOPENING AN ASSESSMENT OF THE EARLIER YEAR. WHERE THE REOPENING HAS TAKEN PLACE WITHIN FOUR YEARS THAT MAY LEGITIMATELY GIVE RISE TO AN INFERENCE OF ESCAPEMENT OF INCOME. THE NEW INFORMATION WHICH HAS COME TO THE KNOWLEDGE OF THE REVENUE WOULD, THEREFORE, CONSTITUTE TANGIBLE MATERIAL. 16. THE JUDGMENT OF THE DIVISION BENCH OF THIS COURT IN MULTISCREEN MEDIA (P) LTD. VS. UNION OF INDIA (2010) 38 DTR (BOM) 14 : (2010) 324 ITR 54 (BOM) ADVERTS TO A DECISION OF THE SUPREME COURT I N ESS KAY ENGINEERING CO. (P) LTD. VS. CIT (2001) 166 CTR (SC) 396 : (2001) 247 ITR 818 (SC) AS LAYING DOWN THE PRINCIPLE THAT MERELY BECAUSE THE CASE OF THE ASSESSEE WAS ACCEPTED AS CORRECT IN THE ORIGINAL ASSESSMENT FOR THE ASSESSMENT YEAR IN QUESTION TH AT WOULD NOT PRECLUDE THE AO TO REOPEN AN ASSESSMENT OF AN EARLIER YEAR ON THE BASIS OF A FINDING OF FACT MADE ON THE BASIS OF FRESH MATERIAL IN THE COURSE OF AN ASSESSMENT FOR A SUBSEQUENT ASSESSMENT YEAR. THIS COURT IN ITS JUDGMENT IN MULTISCREEN MEDIA ( SUPRA) ALSO ADVERTED TO A DECISION OF THE DIVISION BENCH IN SIEMENS INFORMATION SYSTEM LTD. VS. ASSTT. CIT (2008) 214 CTR (BOM) 16 : (2007) 295 ITR 333 (BOM). THE DIVISION BENCH HELD THAT THE JUDGMENT IN SIEMENS INFORMATION SYSTEM LTD. (SUPRA) WOULD NOT PR ECLUDE THE AO TO REOPEN AN ASSESSMENT FOR AN EARLIER YEAR ON THE BASIS OF FRESH MATERIAL WHICH HAS COME IN THE COURSE OF ASSESSMENT FOR A SUBSEQUENT ASSESSMENT YEAR. 17. NOW, IN THIS BACKGROUND AND CONSIDERING THESE TESTS, THE FACTS OF THE PRESENT CASE WO ULD HAVE TO BE EVALUATED. THE ASSESSEE IN THE PRESENT CASE HAD MADE A DISCLOSURE IN THE NOTES FORMING PART OF THE ACCOUNTS OF THE NATURE OF PAYMENTS REQUIRED TO BE MADE TO THE FOREIGN PRINCIPAL ON ACCOUNT OF 12 ITA NO . 06/PN/2014, MAGN UM FORGE AND MACHINE WORKS PVT. LTD., PU NE CDC. A REFERENCE WAS MADE TO THE FACT THAT AS A RESULT OF A CIRCULAR ISSUED BY THE RBI, THE ASSESSEE WAS NOT PERMITTED TO REMIT A CERTAIN PROPORTION EQUIVALENT TO US $ 1.5 FOR EACH CONTAINER. THE STATUTORY AUDITORS HAD ALSO INCLUDED A NOTE IN THE REPORT. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSEE ADDRESSED A COMPREHENSIVE LETTER DT. 18TH NOV., 2009 MAKING A FULL DISCLOSURE OF FACTS. NOW IT IS IN THIS BACKGROUND THAT THE ORDER OF ASSESSMENT UNDER S. 143(3) MUST BE CONSIDERED. THE AO SPECIFICALLY DISCUSSED IN THE COURSE OF THE ASSESSMENT ORD ER THE MATTERS IN RESPECT OF WHICH HE HAS MADE A DISALLOWANCE EITHER FULLY OR IN PART. SINCE THE AO DID NOT FIND ANY JUSTIFICATION TO REJECT THE CLAIM OF THE ASSESSEE IN RESPECT OF THE ISSUE OF CDC, THERE WAS NO SPECIFIC DISCUSSION IN THE COURSE OF ORDER. IN THIS REGARD THE FOLLOWING OBSERVATIONS OF A DIVISION BENCH OF THIS COURT IN IDEA CELLULAR LTD. VS. DY. CIT (2008) 215 CTR (BOM) 288 : (2008) 3 DTR (BOM) 179 : (2008) 301 ITR 407 (BOM) HAVE RELEVANCE : '9. IT WAS ALSO SOUGHT TO BE CONTENDED THAT SINCE T HE AO HAD NOT EXPRESSED ANY OPINION REGARDING THIS MATTER IN HIS ORIGINAL ASSESSMENT ORDER, IT COULD NOT BE SAID THAT THERE WAS ANY CHANGE OF OPINION IN THIS CASE. IN OUR VIEW, ONCE ALL THE MATERIAL WAS BEFORE THE AO AND HE CHOSE NOT TO DEAL WITH THE SEVER AL CONTENTIONS RAISED BY THE PETITIONER IN HIS FINAL ASSESSMENT ORDER, IT CANNOT BE SAID THAT HE HAD NOT APPLIED HIS MIND WHEN ALL MATERIAL WAS PLACED BY THE PETITIONER BEFORE HIM.' 18. CONSEQUENTLY AND IN THIS BACKGROUND THE MERE FACT THAT THE AO FOR ASS T. YR. 2007 - 08 HAD COME TO A DIFFERENT CONCLUSION WOULD NOT JUSTIFY THE REOPENING OF THE ASSESSMENT FOR ASST. YR. 2006 - 07. IN ORDER TO ESTABLISH THAT THE REOPENING OF THE ASSESSMENT FOR ASST. YR. 2006 - 07 IS NOT A MERE CHANGE OF OPINION, THE REVENUE MUST DE MONSTRATE BEFORE THE COURT THAT DURING THE COURSE OF THE ASSESSMENT PROCEEDINGS FOR THE SUBSEQUENT YEAR I.E. ASST. YR. 2007 - 08 SOME NEW INFORMATION OR MATERIAL HAD BEEN BROUGHT ON RECORD WHICH WAS NOT AVAILABLE WHEN THE ASSESSMENT ORDER WAS PASSED FOR ASST . YR. 2006 - 07. THAT INDEED IS NOT THE CASE OF THE REVENUE. ALL 13 ITA NO . 06/PN/2014, MAGN UM FORGE AND MACHINE WORKS PVT. LTD., PU NE MATERIAL WHICH WAS RELEVANT TO THE DETERMINATION WAS AVAILABLE WHEN THE ASSESSMENT WAS COMPLETED FOR ASST. YR. 2006 - 07. CONSEQUENTLY, THE MERE FORMATION OF ANOTHER VIEW IN THE COURSE OF ASSESSM ENT PROCEEDINGS FOR ASST. YR. 2007 - 08 WOULD NOT JUSTIFY THE REVENUE IN REOPENING THE ASSESSMENT FOR ASST. YR. 2006 - 07 THOUGH THE REOPENING OF THE ASSESSMENT HAS TAKEN PLACE WITHIN A PERIOD OF FOUR YEARS. THE POWER TO REOPEN ASSESSMENTS IS STRUCTURED BY LAW . THE GUIDING PRINCIPLES WHICH HAVE BEEN LAID DOWN BY THE SUPREME COURT IN KELVINATOR (SUPRA) MUST BE FULFILLED. IN THE PRESENT CASE THERE WAS NO TANGIBLE MATERIAL, NO NEW INFORMATION AND NO FRESH MATERIAL WHICH CAME BEFORE THE REVENUE IN THE COURSE OF ASS ESSMENT FOR ASST. YR. 2007 - 08 WHICH CAN JUSTIFY THE REOPENING OF THE ASSESSMENT FOR ASST. YR. 2006 - 07. 13. IN THE PRESENT CASE THE ASSESSING OFFICER HAS CONSIDERED THE OF THE ASSESSEE BY APPLYING HIS MIND. IT IS ALSO NOT DISPUTED IN THIS CASE THAT THERE WAS A DECISION ON THIS ISSUE IN FAVOUR OF THE ASSESSEE WHEN THE ASSESSMENT WAS COMPLETED U/S. 143(3) OF THE ACT. M ERELY BECAUSE SUBSEQUENTLY ANOTHER DECISION OF THE CO - ORDINATE BENCH OF THE ITAT IS NOTICED BY THE ASSESSING OFFICER , IN OUR OPINION THAT WIL L NOT VESTS THE JURISDICTION IN THE ASSESSING OFFICER TO EXERCISE HIS POWERS U/S. 147 OF THE ACT. WE, THEREFORE, HOLD THAT THE ASSESSING OFFICER WAS NOT JUSTIFIED AT ALL ON THE FACTS OF THIS CASE TO INITIATE THE PROCEEDINGS U/S. 147 AND ISSUED THE NOTICE U/S. 148 OF THE ACT. WE, ACCORDINGLY, QUASH THE PROCEEDINGS INITIATED BY THE ASSESSING OFFICER U/S. 14 7 OF THE ACT AND CANCEL THE ASSESSMENT . A S THE ASSESSEE HAS SUCCEEDED ON THE ISSUE OF VALIDITY OF THE REASSESSMENT PROCEEDINGS , W E DO NOT DECIDE THE GRO UND NO. 2 WHICH IS TAKEN ON MERIT. 6. WE, THEREFORE, FOLLOWING OUR DECISION IN THE CASE OF MAGNA CASTING AND MACHINE WORKS PVT. LTD. (SUPRA) ALLOW THE GROUND TAKEN BY THE ASSESSEE AND QUASH THE PROCEEDINGS INITIATED BY THE ASSESSING OFFICER U/S. 147 OF THE ACT AND ALSO CANCEL THE ASSESSMENT ORDER PASSED BY THE ASSESSING OFFICER BY HOLDING THAT REASSESSMENT PROCEEDINGS INITIATED BY THE ASSESSING OFFICER IS MERELY ON THE CHANGE OF THE OPINION. THE 14 ITA NO . 06/PN/2014, MAGN UM FORGE AND MACHINE WORKS PVT. LTD., PU NE ASSESSEE HAS ALSO TAKEN A GROUND ON MERIT BUT AS THE ASSE SSEE HAS SUCCEEDED ON THE ISSUE OF LEGALITY OF THE REASSESSMENT PROCEEDINGS WE DO NOT CONSIDER IT NECESSARY TO DECIDE THE GROUND NO. 2. 7. IN THE RESULT, THE ASSESSEES APPEAL IS ALLOWED. PRONOUNCED IN THE OPEN COURT ON 24 - 1 2 - 201 4 SD/ - SD / - ( G . S . PAN NU ) ( R.S. PADVEKAR ) ACCOUNTANT MEMBER JUDICIAL MEMBER PUNE, DATED : 24 TH DECEMBER, 201 4 RK/PS COPY TO 1 ASSESSEE 2 DEPARTMENT 3 THE CIT(A) - I , PUNE 4 THE CIT - I, PUNE 5 6 THE DR, ITAT, A BENC H, PUNE. GUARD FILE. //TRUE COPY// BY ORDER ASSISTANT REGISTRAR , INCOME TAX APPELLATE TRIBUNAL , PUNE