Rachna Dogra, Shimla V. ITO, Shimla

ITA 944/CHANDI/2010

• Counselvise Citation: [2011] 134 COUNSELVISE.COM (IT) 5374 (ITAT-CHANDIGARH)
• Duration Of Justice: 1 year(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-06-2011
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 11-04-2011
• Assessment Year: 2003-2004
• Appeal Filed On: 17-06-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: JAI SHREE SHARMA
• Keywords: Reopening of assessment; Business income; Search and seizure; Tangible material; Difference of opinion; Reason to believe; Change of opinion
• Section: 143(3); 147; 148

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL CHANDIGARH BENCH B, CHANDIGARH BEFORE SHRI D.K.SRIVASTAVA, ACCOUNTANT MEMBER AND MS.SUSHMA CHOWLA, JUDICIAL MEMBER ITA NO.944 /CHD/2010 (ASSESSMENT YEAR : 2003-04) RACHNA DOGRA, VS. THE I.T.O., SAI DHAM, LOWER PANTHA GHATI, WARD 2, SHIMLA. SHIMLA. PAN: AGLPD3457B (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI NEERAJ SHARMA RESPONDENT BY : SMT. JAISHREE SHARMA, DR O R D E R PER SUSHMA CHOWLA, J.M, : THE APPEAL FILED BY THE ASSESSEE IS AGAINST THE OR DER OF THE COMMISSIONER OF INCOME-TAX (A), DATED 09.04.2010 RE LATING TO ASSESSMENT YEAR 2003-04 AGAINST THE ORDER PASSED UN DER SECTION 143(3) OF THE INCOME-TAX ACT. 2. THE EFFECTIVE GROUNDS OF APPEAL RAISED BY THE AS SESSEE READ AS UNDER : 2. THAT THE LD.CIT(APPEALS), SHIMLA WAS NOT JUSTIF IED IN UPHOLDING THE ORDERS OF THE LD.A.O. WHEREAS THE LD. A.O. HAS ERRED IN ISSUING NOTICE U/S 148 OF THE INCOME-TAX ACT, 1961 SINCE NO NEW FACTS HAVE COME TO THE KNOWLEDGE OF THE LD. A.O. AND OPENING OF THE CASE IS MERELY ON DIFFERENCE OF OPINION. 3. THAT THE INCOME OF RS.5,00,000/- ON ACCOUNT OF 2 INCOME FROM GROWING OF MUSHROOMS HAS BEEN WRONGLY TREATED AS BUSINESS INCOME. 3. THE FIRST ISSUE RAISED BY THE ASSESSEE IS AGAINS T THE INVOKING OF JURISDICTION UNDER SECTION 147/148 OF THE INCOME-TA X ACT. 4. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSE E HAD FILED RETURN OF INCOME DECLARING AGRICULTURAL INCOME OF RS.5 LACS. THE SAID CASE WAS PICKED UP FOR SCRUTINY. THE ASSESSING OFFICER DURI NG THE ORIGINAL ASSESSMENT PROCEEDINGS NOTED THE ASSESSEE TO BE ENG AGED IN THE GROWING OF MUSHROOMS AT HIS RESIDENCE IN SHIMLA SINCE THE F INANCIAL YEAR 2000 ONWARDS. THE SAID PURCHASE OF MUSHROOMS WAS SOLD TO ONE SHRI CHAMAN SINGH OF SHIMLA, WHO IN HIS STATEMENT RECORDED ON 1 3.1.2005 ACKNOWLEDGED THE PURCHASE OF MUSHROOMS FROM THE ASS ESSEE. THE ASSESSING OFFICER ALSO RECORDED THE STATEMENT OF TH E ASSESSEE ON 4.2.2005. THE ASSESSING OFFICER ACCEPTED THE AGRIC ULTURAL INCOME SHOWN BY THE ASSESSEE AT RS.5 LACS AND ADOPTED THE SAME F OR RATE PURPOSES. HOWEVER, THE ADDITION OF RS.1 LAC WAS MADE AS INCOM E FROM OTHER SOURCES AS SURRENDERED BY THE ASSESSEE, SUBJECT TO NO PENALTY. THEREAFTER THE ASSESSING OFFICER RECORDED THE REASONS FOR REOP ENING OF ASSESSMENT UNDER SECTION 147 OF THE INCOME-TAX ACT AND ISSUED NOTICE UNDER SECTION 148 OF THE INCOME-TAX ACT, AGAINST WHICH, THE ASSES SEE FILED THE RETURN OF INCOME. THE CASE OF THE ASSESSING OFFICER WAS T HAT GROWING OF MUSHROOMS DOES NOT AMOUNT TO AGRICULTURAL INCOME. THE ASSESSEE FURNISHED VARIOUS D.O. LETTERS ISSUED BY THE STATE MINISTRY DECLARING MUSHROOMS CULTIVATION AS AN AGRICULTURE ACTIVITY. THE ASSESSING OFFICER REJECTED THE CONTENTION OF THE ASSESSEE IN THE ORDE R PASSED UNDER SECTION 143(3) READ WITH SECTION 147 OF THE INCOME-TAX ACT. HE ASSESSED THE INCOME AS INCOME FROM BUSINESS, AS AGAINST AGRICULT URAL INCOME SHOWN BY THE ASSESSEE. THE CIT(A) UPHELD THE ORDER OF TH E ASSESSING OFFICER 3 BOTH AGAINST REOPENING OF ASSESSMENT AND TREATING T HE INCOME FROM AGRICULTURE AS INCOME FROM BUSINESS. 5. SHRI NEERAJ SHARMA, APPEARED ON BEHALF OF THE AS SESSEE AND SMT.JAISHREE SHARMA APPEARED ON BEHALF OF THE REVEN UE AND PUT-FORTH THEIR CONTENTIONS. 6. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE RECORD. THE FIRST ISSUE RAISED IN THE PRESENT APPEAL IS AGAINST THE INVOKING OF PROVISIONS OF SECTION 147/148 OF THE INCOME-TAX ACT . THE ORIGINAL ASSESSMENT IN THE CASE WAS COMPLETED UNDER SECTION 143(3) OF THE ACT VIDE ORDER DATED 31.3.2005. THE COPY OF THE ASSESS MENT ORDER PASSED UNDER SECTION 143(3) OF THE ACT IS AVAILABLE ON REC ORD. THE ONLY INCOME DECLARED IN THE SAID RETURN OF INCOME WAS THE AGRIC ULTURAL INCOME ON SALE OF MUSHROOMS DECLARED AT RS.5 LACS. THE ASSESSING OFFICER IN THE BODY OF THE ASSESSMENT ORDER PASSED UNDER SECTION 143(3) OF THE ACT HAS ACKNOWLEDGED THE FACT THAT THE ASSESSEE WAS ENGAGED IN GROWING OF MUSHROOMS AT HIS RESIDENCE IN SHIMLA. THE STATEMEN T OF THE ASSESSEE WAS RECORDED DURING THE COURSE OF ASSESSMENT PROCEE DINGS IN RESPECT OF THE AGRICULTURAL INCOME SHOWN BY THE ASSESSEE. THE STATEMENT OF THE PURCHASER OF THE MUSHROOMS WAS ALSO RECORDED DURING THE COURSE OF ASSESSMENT PROCEEDINGS AND THEREAFTER AGRICULTURAL INCOME AS DECLARED BY THE ASSESSEE AT RS.5 LACS WAS ACCEPTED. HOWEVER, T HE ADDITION OF RS.1 LAC WAS MADE UNDER THE HEAD INCOME FROM OTHER SOUR CES ON AGREED BASIS. THE ASSESSING OFFICER THEREAFTER RECORDED T HE REASONS FOR REOPENING THE ASSESSMENT ON THE SURMISE THAT INCOME FROM MUSHROOMS FARMING IS NOT AGRICULTURAL INCOME. 7. UNDER THE PROVISIONS OF SECTION 147 OF THE INCOM E-TAX ACT POWERS ARE GIVEN TO THE ASSESSING OFFICER THAT WHERE HE HA S REASON TO BELIEVE 4 THAT ANY INCOME CHARGEABLE TO TAX HAS ESCAPED ASSES SMENT FOR ANY ASSESSMENT YEAR, THEN WHERE SUCH ESCAPEMENT OF INCO ME COMES TO THE NOTICE OF THE ASSESSING OFFICER SUBSEQUENTLY, HE IS EMPOWERED TO INCLUDE THE SAME AS THE INCOME OR RECOMPUTED THE LOSS, IF A NY, IN SUCH CIRCUMSTANCES, AFTER RECORDING THE REASONS FOR REOP ENING. 8. THE PROVISION OF SECTION 147 OF THE ACT ARE APPL ICABLE WHEREIN THE ASSESSMENT HAS BEEN COMPLETED UNDER SECTION 143(1)/ 143(3) OF THE ACT AND NO ADDITION UNDER THE MAIN PROVISIONS IS TO BE TAKEN AFTER THE EXPIRY OF FOUR YEARS FROM THE END OF THE RELEVANT ASSESSME NT YEAR, IN CASES WHERE ASSESSMENT IS COMPLETED UNDER SECTION 143(3) OF THE ACT. ADMITTEDLY, THE PROCEEDINGS UNDER SECTION 147 OF TH E ACT, IN THE PRESENT CASE, HAVE BEEN INITIATED WITHIN A PERIOD OF FOUR Y EARS. THE ISSUE TO BE ADJUDICATED IN THE PRESENT CASE IS WHETHER THE PROV ISIONS OF SECTION 147 OF THE INCOME-TAX ACT CAN BE INVOKED IN THE PRESENT SET OF FACTS AND CIRCUMSTANCES. 9. THE HON'BLE SUPREME COURT IN RAYMOND WOOLEN MILL S VS. ITO [(1999) 236 ITR 34 (SC)] HELD THAT WHAT IS REQUIRED TO BE SEEN IN A CASE SUCH AS THIS IS WHETHER PRIMA FACIE THERE WAS SOME MATERIAL BEFORE THE ASSESSING OFFICER ON THE BASIS OF WHICH HE COUL D REOPEN THE CASE OF THE ASSESSEE. THE SUFFICIENCY OR CORRECTNESS OF TH E MATERIAL IS NOT TO BE CONSIDERED BECAUSE IT IS OPEN TO THE ASSESSEE TO PR OVE THAT THE FACTS ASSUMED BY THE ASSESSING OFFICER IN THE NOTICE WERE ERRONEOUS. 10. THE HON'BLE SUPREME COURT IN CIT VS. M/S KELVIN ATOR OF INDIA LTD. {320 ITR 561 (SC)} HELD AS UNDER:- ON GOING THROUGH THE CHANGES, QUOTED ABOVE, MADE T O SECTION 147 OF THE ACT, WE FIND THAT, PRIOR TO THE DIRECT TAX LAWS (AMENDMENT) ACT, 1987, REOPENING COULD BE DON E 5 UNDER THE ABOVE TWO CONDITIONS AND FULFILMENT OF T HE SAID CONDITIONS ALONE CONFERRED JURISDICTION ON THE ASSE SSING OFFICER TO MAKE A BACK ASSESSMENT, BUT IN SECTION 147 OF THE ACT (WITH EFFECT FROM 1ST APRIL, 1989), THEY ARE G IVEN 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 REOPEN IS MUCH WIDER. HOWEVER, ONE NEEDS TO GIVE A SCHEMA TIC INTERPRETATION TO THE WORDS 'REASON TO BELIEVE' FA ILING WHICH, WE ARE AFRAID, SECTION 147 WOULD GIVE ARBITR ARY POWERS TO THE ASSESSING OFFICER TO REOPEN ASSESSME NTS ON THE BASIS OF 'MERE CHANGE OF OPINION', WHICH CANNO T BE PER SE REASON TO REOPEN. WE MUST ALSO KEEP IN MIND THE CONCEPTUAL DIFFERENCE BETWEEN POWER TO REVIEW AND P OWER TO REASSESS. THE ASSESSING OFFICER HAS NO POWER TO REV IEW ; HE HAS THE POWER TO REASSESS. BUT REASSESSMENT HAS TO BE BASED ON FULFILMENT OF CERTAIN PRECONDITIONS AND IF THE C ONCEPT OF 'CHANGE OF OPINION' IS REMOVED, AS CONTENDED ON BEH ALF 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 IN-BUILT TEST TO CHECK ABUSE OF POWER BY THE ASSESSING OFFICER. HENCE, AF TER 1ST APRIL, 1989, THE ASSESSING OFFICER HAS POWER TO RE OPEN, PROVIDED THERE IS 'TANGIBLE MATERIAL' TO COME TO TH E 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 FRO M 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 'REASO N TO BELIEVE' BUT ALSO INSERTED THE WORD 'OPINION' IN S ECTION 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 DEL ETED THE WORD 'OPINION' ON THE GROUND THAT IT WOULD VEST AR BITRARY POWERS IN THE ASSESSING OFFICER. WE QUOTE HEREINBE LOW THE RELEVANT PORTION OF CIRCULAR NO. 549 DATED OCTOBER 31, 1989 ([1990] 182 ITR (ST.) 1, 29), WHICH READS AS FOLLOW S : '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 BELI EVE' HAD BEEN EXPLAINED IN A NUMBER OF COURT RULINGS IN THE PAST AND WAS WELL SETTLED AND ITS OMISSION FROM SEC TION 147 WOULD GIVE ARBITRARY POWERS TO THE ASSESSING OFFICER TO REOPEN PAST ASSESSMENTS ON MERE CHANGE O F OPINION. TO ALLAY THESE FEARS, THE AMENDING ACT, 1 989, 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 6 OF THE OPINION'. OTHER PROVISIONS OF THE NEW SECTI ON 147, HOWEVER, REMAIN THE SAME .' 11. THE APEX COURT HAD LAID DOWN THE PROPOSITION IN CIT VS. M/S KELVINATOR OF INDIA LTD (SUPRA) THAT THOUGH POST AM ENDMENT BY DIRECT TAX LAWS AMENDMENT ACT, 1987 W.E.F. IST APRIL, 1989 , POWER TO REOPEN WAS MUCH WIDER BUT THE SECTION 147 DOES NOT GIVE AR BITRARY POWER TO THE ASSESSING OFFICER TO REOPEN THE ASSESSMENT ON MERE CHANGE OF OPINION. THE HON'BLE SUPREME COURT FURTHER HELD THAT THERE W AS CONCEPTUAL DIFFERENCE BETWEEN POWER TO REVIEW AND POWER TO REASSESS. IT WAS THUS HELD THE ASSESSING OFFICER HAS NO POWER TO REVIEW; HE H AS THE POWER TO REASSESS BUT REASSESSMENT HAS TO BE BASED ON FULFILLMENT OF CERTAIN PRE CONDITIONS . THE HON'BLE SUPREME COURT CONCLUDED BY HOLDING THAT THE ASSESSING OFFICER HAS POWER TO REOPEN, PROVIDED THERE IS TANGIBLE MATERIAL TO COME TO THE CONCLUSION THAT TH ERE WAS ESCAPEMENT OF INCOME FROM ASSESSMENT. 12. IN THE FACTS OF THE PRESENT CASE BEFORE US THE ASSESSMENT PROCEEDINGS WERE REOPENED AFTER RECORDING REASONS F OR REOPENING THE SAME. AS PER THE REASONS RECORDED, REPRODUCED AT P AGE 2 OF THE ASSESSMENT ORDER, THE ASSESSING OFFICER WAS OF THE VIEW THAT THE MUSHROOMS GROWING DOES NOT AMOUNT TO AGRICULTURAL I NCOME AND AS NO AGRICULTURAL ACTIVITY WAS UNDERTAKEN AND PERFORMED BY THE ASSESSEE THE INCOME OF RS.5 LACS HAD ESCAPED FROM ASSESSMENT. IN REPLY, IT WAS EXPLAINED BY THE ASSESSEE THAT THE REOPENING UNDER SECTION 147/148 OF THE INCOME-TAX ACT WAS ON CHANGE OF OPINION AS SIMI LAR ISSUE WAS CONSIDERED BY THE ASSESSING OFFICER IN THE ORIGINAL ASSESSMENT PROCEEDINGS. IT WAS FURTHER POINTED OUT BY THE ASS ESSEE THAT THE INCOME FROM MUSHROOMS HAD BEEN RECOGNIZED BY THE GOVT. OF INDIA AS AGRICULTURAL PRODUCE AND THE COPIES OF LETTERS ISSU ED BY THE MINISTRY OF 7 AGRICULTURE IN THIS REGARD WERE PRODUCED BEFORE THE ASSESSING OFFICER. THE ASSESSING OFFICER WAS OF THE VIEW THAT THE ONUS CAST UPON THE ASSESSEE TO PROVE THAT THE INCOME FROM GROWING OF M USHROOMS IS AN AGRICULTURAL INCOME, HAS NOT BEEN DISCHARGED AND HE NCE, THE SAME IS ASSESSABLE AS BUSINESS INCOME. THE CIT(A) UPHELD T HE ORDER OF THE ASSESSING OFFICER. 13. THE PROVISIONS OF SECTION 147 OF THE ACT ARE TO BE INVOKED IN ALL SUCH CASES WHERE THE ASSESSING OFFICER HAS REASON T O BELIEVE THAT THE INCOME HAS ESCAPED ASSESSMENT ON THE BASIS OF CERTA IN MATERIAL COMING TO HIS KNOWLEDGE. SUCH EXERCISE OF JURISDICTION UN DER SECTION 147 OF THE ACT IS NOT WARRANTED ON MERE CHANGE OF OPINION AS H ELD BY THE HON'BLE SUPREME COURT IN THE CASE OF RAYMOND WOOLEN MILLS V S. ITO (SUPRA) AND CIT VS. KELVINATOR OF INDIA LTD. (SC). THE POWER E NSHRINED UNDER SECTION 147 OF THE ACT CANNOT BE INVOKED IN ORDER T O REVIEW THE EARLIER ASSESSMENT ORDER PASSED IN THE CASE. WE FIND THAT IN THE ORIGINAL ASSESSMENT PROCEEDINGS COMPLETED UNDER SECTION 143( 3) OF THE ACT VIDE ASSESSMENT ORDER DATED 31.3.2005, THE ONLY SOURCE O F INCOME DECLARED BY THE ASSESSEE WAS THE AGRICULTURAL INCOME OF RS.5 LA CS FROM MUSHROOMS. THE ISSUE WAS CONSIDERED BY THE ASSESSING OFFICER A ND THE AGRICULTURAL INCOME AS SHOWN BY THE ASSESSEE AT RS.5 LACS WAS TA KEN FOR RATE PURPOSES, IN ADDITION TO THE INCOME FROM OTHER SOUR CES BEING ASSESSED AT RS.1 LAC ON SURRENDER BASIS. WE FIND NO MERIT IN T HE PRESENT RE- ASSESSMENT PROCEEDINGS INITIATED BY THE ASSESSING O FFICER BY HOLDING THAT THE MUSHROOM FARMING UNDERTAKEN BY THE ASSESSE E IS NOT AN AGRICULTURAL ACTIVITY. FURTHER, EVEN THE MINISTRY OF AGRICULTURE HAD APPROVED THAT THE CULTIVATION OF MUSHROOM IS AN AGR ICULTURAL ACTIVITY. ACCORDINGLY, WE HOLD THAT THE REOPENING OF ASSESSME NT UNDER SECTION 147 AND SUBSEQUENT ISSUE OF NOTICE UNDER SECTION 148 OF THE ACT IS INVALID IN 8 THE FACTS AND CIRCUMSTANCES OF THE PRESENT CASE AND THE SAME IS QUASHED. THE ASSESSMENT PROCEEDINGS COMPLETED THEREAFTER ARE CANCELLED. THE GROUND NOS.2 & 3 RAISED BY THE ASSESSEE ARE ALLOWED . 14. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 21 ST DAY OF JUNE, 2011. SD/- SD/- (D.K.SRIVASTAVA) (SUSHMA CHOWLA) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED : 21 ST JUNE, 2011 RATI COPY TO: THE APPELLANT/THE RESPONDENT/THE CIT(A)/TH E CIT/THE DR. TRUE COPY BY ORDER ASSISTANT REGISTRAR, ITAT, CHANDIGARH .