JAL HOTELS COMPANY LTD. V. ASSISTANT DIRECTOR OF INCOME TAX

W.P.(C)/8904/2007

AI Insights

The case involves JAL Hotels Co. Ltd. challenging notices issued under Section 148 of the Income Tax Act, 1961, by the Assistant Director of Income Tax. The notices were based on four agreements between JAL Hotels and Sunair Hotel Ltd., which were already disclosed in the original assessments for the years 2001-2002, 2002-2003, and 2003-2004. The primary legal issue was whether the reopening of the assessments constituted a change of opinion or was based on new material. The court reviewed various precedents and concluded that there was no new material presented that would justify the reopening of the assessments, leading to the decision to quash the notices.

• Counselvise Citation: [2009] 140 COUNSELVISE.COM (IT) 762698 (HC-DELHI)
• Appeal Type: Others
• Pronouncement Date: 25-05-2009
• Assessment Year: misc
• Other Referred Cases: CIT -vs- Kelinator of India Ltd., CIT -vs- Ashish Rajpal, Calcutta Discount Co. Ltd. -us- Income Tax Officer, Indian and Eastern Newspaper Society -us- CIT, Jindal Photo Films Ltd. -vs- Deputy CIT, Bawa Abhai Singh -vs- Deputy Commissioner of Income Tax, Techspan India P. Ltd. -vs- Income Tax Officer, Consolidated Photo and Finvest Ltd. - us- ACIT, KLM Royal Dutch Airlines -us- ADIT, CIT -vs- P.V.S. Beedies Pvt. Ltd., CIT -vs- Lucas T.VS. Ltd., M/s. Kishanchand Chellaram -us- CIT Bombay City II, Bombay
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Others
• Court: HIGH COURT
• Department Lawyers: SANJEEV SABHARWAL
• Assessee Lawyers: N VENKATRAMAN; ACHIN GOEL
• Keywords: Assessment Order; Change of opinion; Escaped assessment; Income Tax; Permanent establishment
• Section: 147; 148; 143(3); 14B

Judgement Text

"l' * IN THE HIGH COURT OF DELHI AT NEW DELHI + wp(c)No.890212007 & cM No.1681212007 # JAL HOTELS CO. LTD. ..... Petitioner through ! Mr. N. Venkatraman, Sr. Adv. with Mr. Achin Goel, Adv. versus I ASSTT. DIR. OF INCOME TN(.....Respondent through Mr. Sanjeev Sabharwal, Adv. WITH WP(C)No.8903/2007 & CM No.168LB 12007 JAL HOTELS CO. LTD. ..... Petitioner through Mr. N. Venkatraman, Sr. Adv. with Mr. Achin GoeI, Adv. versus ASSTT. DIR. OF INCOME TAX.....Respondent through Mr. Sanjeev Sabhanrial, Adv. WITH WP(C)No .890412007 & CM No. 16819 12007 JAL HOTELS CO. LTD. ..... Petitioner through Mr. N. Venkatraman, Sr. Adv. with Mr. Achin Goel, Adv. versus ASSTT. DIR. OF INCOME TAx.....Respondent through Mr. Sanjeev Sabharwal, Adv. Date of Hearing: May L8th,2009 Date of Decision: May 25ft ,2009 WITH WP[C)No.8e02/2007 Page 1 of 8 Digitally Signed By:AMULYA Certify that the digital file and physical file have been compared and the digital data is as per the physical file and no page is missing. Signature Not Verified ITA No. L4O|2O09 CIT ..... Appellant through Mr. Imran Khan for Mr. Shiv Charan Garg, Adv. versus SUDHIR ENGINEEIRNG CO ......Respondent through Mr. K.R. Manjani with Mr. Madhu Sudan Sahni, Advs. % Date of Hearing: May L9th' 2009 Date of Decision: May 25th, 2009 CORAM: * HON'BLE MR. JUSTICE VIKRAMAJIT SEN HON'BLE MR. JUSTICE RAIIV SHAKDHER L. Whether reporters of local papers may be allowed to see the Judgment? Yes 2. To be referred to the Reporter or not? Yes 3. Whether the Judgment should be reported in the Digest? Yes VIKRAMAIIT SEN, J. L. The legal nodus that arises in these Appeals relates to the legal propriety of notices issued under Section 14B of the Income Tax Act, L96L (Act for short). Briefly stated, Jal Hotels Company Ltd. had, along with its Returns, flled copies of four Agreements that it had entered into with Sunair Hotel Ltd. - viz. (a)Hotet Management Agreement, (b)Technical Senrices Agreement, (c)Marketing Service Agreement and (d)Licence Agreement, The Assessment Orders dated 28.3.2005 are in respect of three Assessment Years, that is, 200L-2002, 2002-2003 and 2003-2004 and specifically record the existence of these four Agreements. No wP(C)No.8e02/2007 Page2 of 8 doubt, the Assessment Orders are remarkable for their brevity but it is well established that the Assessing Officer is not obligated to mention and discuss each and every argument or issue which has arisen in the course of Assessment. It has been opined in CIT - us- I(eluinator of India Ltd., t20021 256 ITR L that -\"We also cannot accept the submission of Mr.JolIy to the effect that only because in the assessment order, detailed reasons have not been record.ed an analysis of the materials on the record by itself may justify the Assessing Officer to initiate a proceeding under section t47 of the Act. The said submission is fallacious. An order of assessment can.be passed either in terms of sub-section(L) of section 143 or sub-section (3) of.section L43. When a regular order of assessment is passed in terms of the said sub-section(3) of section L43 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 tenns of clause(e) of section LL4 of the Indian Evidence Act judicial and official acts have been regrularly performed. If it be held that an order which has been passed purportedly without application of mind would itself confer jurisdiction upon the Assessing Officer to reopen the proceeding without any thing further, the same would amount to giving a premium to an authority exercising quasi- judicial function to take benefit of its own wrong\". This is also the approach adopted by this Bench in ITA No.485/2008 titled CIT -vs- WP[C)No.8902/2007 Page 3 of 8 Ashish Rajpal decided on 14.5.2009. We make mention of this position of the law because it has been contended before us that on a reading of Assessment Order it is not clear whether the Assessing Officer had cogitated upon these four Agreements. 2. The impugned Notice under Section L48 of the Act mentions these Agreements and. observes that \"the assessee is running, managing and operating Hotel thro,ugh Permanent Establishment, the income that the assessee darned through Permanent Establishment, has escaped assessment\". Predicated thereon, the Respondent has stated that she has \"reasons to believe after thorough application of mind that income chargeable to tax has escaped assessment\". Learned counsel for the Petitioners contends that the case manifests a change of opinion which, in a series of judgments, has been held not to be sufficient reason for reopening assessments already ftamed by resorting to Sections t47lt48 of the Act. Learned counsel for the Revenue has sought to rely on, two decisions to defend the impugned Order of the Respondent, dismissing the Objections against the proposed action. A complete discussion on these provisions is to be found in the decision of the Full Bench in l(eluinator which has, inter alia, analysed Calcutta Discount Co. Ltd. -us- Income Tax Officen [1961] 4L ITR L9L(SC), Indian and Eastern Newspaper Society -us- CIT t19791 LL9 ITR 996(SC), Jindal Photo Films Ltd. -vs- Deputy CIT lLgg8l 234 ITR 170(Del) and Bawa Abhai Singh -vs- Deputy Commissioner of wPtC)r.lo.a gO2/2007 Page 4 of 8 tl // '/ Income Tax, [2002] 253 ITR B3(DeI). The ratio of Sita World Travels Qndia) Ltd. -us- CIT l2D05l 274 ITRL86 which, without reference to the Full Bench decision in l(eluinaton had opined that a decision may be right or wrong but that was none of the concern of the subsequent officers. So long as the .Assessing Officer has consciously considered the facts, the decision cannot be reopened. Despite noting and extracting the passage from Techspan India P. Ltd. -vs- Income Tax Officen t20061 283 ITR 2t2 which elucidates that it is necessary for new material to come to light in order to justify the issuance of notice under Section L48, the Respondent has come to the contrary conclusion. 3. As has already been noted above, Bawa Abhai Singh n which D.K. Jain, J., as his Lordship then was, had spoken for the Division Bench [D.K. Jain, J. was a]so a member of the Full Bench in l(eluinatorl was duly considered in l(eluinator. The Respondent has relied on Consolidated Photo and Finvest Ltd. - us- ACIT [2006] 28L ITR 394 which, being irreconcilable with the FulI Bench view in lGluinator, is per incuriam as has been so observed in KLM Royal Dutch Airlines -us- ADIT [2007) 292 ITF. 49(Delhi). Regretfutly, the Assistant Director of Income Tax has ignored the views of Division Benches in Techspan and Sita WorI{ apart from the pronouncements of the Full Bench and Division Benches of the Delhi High Court. Furthermore, the Jnew, which has been assailed before uS, is contrary to Calcutta WP(C)No.8902/2007 Page 5 of 8 l> Discounf, in which the Constitution Bench opined that - \"If from primary facts. more inferences than one could be drawn, it would not be possible to say that the assessee should have drawn any particular inference and communicated it to the assessing authority. How could an assessee be charged with failure to communicate an inference, which he might or might not have drawn?\" Our attention has been drawn to CIT Calcutta -us- Burlop Dealers Ltd., l97L (1) SCC 462, the relevant portion qf which reads as follows:- The assessee had disclosed his books of account and evidence from which material facts could be discovered; it was under no obligation to inform the Income-tax Officer about the possible inferences which may be raised against him. It was for the Income-tax Officer to raise such an inference and i{ he did not do so the income which has . escaped assessment cannot be brought to lay under Section 34(1Xa). 4. We think it appropriate to advert to M/s. Kishanchand Chellaram -us- CIT Bomhay City II, Bombay, AIR 1-980 SC 2LL7 which lays down that once the basic or primary facts have been disclosed,the burden to prove that amounts represents undisclosed income of the assessee is on the Revenue. Applytng all these precedents to the case before us, we find it difficult to come to any conclusion other than that the case in hand represents those genre of cases in which there has been a change of opinion. One of the tests prescribed in Techspaa was to investigate whether any new WP(C)No.8902/2007 Page 6 of 8 material had come to the notice of the officer concerned which material would constitute \"reason to believe\". This new material is wholly missing in the case in hand. Our study would become more comprehensive with the mention of CIT -vs- P.V.S. Beedies Pvt. Ltd.,[1999] 237 ITR L3. In that case, the internal audit parby had pointed out that the Trust to which donations had been made by the assessee did not qualify for deduction under Section BOG as the recognition had expired.. Their Lordships considered this to be suffi.cient reason for reopening of the case; the new material obviously was in the form of the Audit Report. In this connection, however, the Three-Judge Bench in CIT -us- Lucas T.VS. Ltd., [2001] 249 ITR306 has affirmed the opinion of the Madras High Court expressed tn CIT -vs- Lucas T.VS. Ltd., [1998] 234 ITF* 296 to the effect that an audit opinion in regard to application or interpretation of law cannot be treated by the Income Tax Officer as information for reopening the assessment under Section L47B of, the Act. ' 5. On the strength of this analysis, we are of the opinion that there was no new material in the hands of the Revenue leading to the view that there was reason to believe that income had escaped assessment. Instead, the case is a classic instance of a change of opinion. Consequently, the Writ Petitions are allowed and the impugned Notice vide dated 26.3.2007 under Section L4B of the Act is quashed. WP(C)No.8902/2007 Page 7 of 8 t7 ITA No.140/2009 6. . This Appeal under Section 268 of the Act concerns the legal propriety of action taken under Section L47 of the Act in respect of interest amount to Rupees 1,2,gg,gL7l- earned on Vikas Cash Certificate. After referring Io KLM Royal Dutch Airlines -vs- ACIT (2007) 208 CTR (Del) 3 the ITAT had applied l{eluinator and ITA No.309/2006 entitled CIT -vs- Eicher Ltd. decided on 22.5.2007. The Tribunal had declined to apply Consolidated Phofo. It has not been controverted that, as recorded in the impugned Order, copies of the statement of income, trading account, profit and loss ., account, audit report etc. were appended to the Return filed by the Assessee. This being the factual position, the Tribunal has rightly concluded that taking resort to Sections I47lL48 of the Act was unwarranted, as it constituted a change of opinion since the material acted upon had been made available along with the Return. 7. No substantial question of law arises Dismissed. May 25b, 2009 tp ( VIKRAMAJIT SEN ) JUDGE for our consideration. ?3.,!dy-- ( RAJTV SHAKDHER ) JUDGE wP[C)No.8e02/2007 Page 8 of 8 "