CIT LUDHIANA V. M/S AVON CYCLES P.LTD.LUDHIANA

ITR/81/1999

AI Insights

The case involves Avon Cycles (P) Limited, a private limited company engaged in the manufacture and sale of cycles, which faced re-assessment of its income tax returns for the assessment year 1983-84. Initially, the company declared an income of Rs.61,30,764, which was later assessed at Rs.1,70,80,403. The AO reopened the assessment due to excessive reliefs allowed on depreciation and investment allowance, leading to a revised assessment of Rs.1,58,59,435. The assessee contested the re-assessment, which was initially set aside by the CIT(A) but later upheld by the ITAT. The revenue's appeal to the High Court sought clarification on the legality of the re-assessment under the provisions of the Income Tax Act, particularly focusing on whether the re-assessment was valid despite being based on factual information that emerged post the original assessment.

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 720549 (HC-CHANDIGARH)
• Appeal Type: Others
• Pronouncement Date: 04-04-2014
• Assessment Year: misc
• Other Referred Cases: Indian and Eastern Newspaper Society v. Commissioner of Income Tax, New Delhi [1979] 119 ITR 996 (SC), A.L.A. Firm v. Commissioner of Income Tax [1991] 189 ITR 0285 (SC), Income Tax Officer v. Saradbhai M. Lakhani [2000] 243 ITR 0001 (SC), Tilak Raj Bedi v. Joint Commissioner of Income Tax [2009] 319 ITR 0385
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Revenue
• Court: HIGH COURT
• Department Lawyers: AKSHAY BHAN; SAMIYA SINGH
• Assessee Lawyers: SAVITA SAXENA
• Keywords: Audit objection; Depreciation; Income escape; Investment allowance; Re-assessment
• Section: 148; 147(b); 256(2)

Judgement Text

"I.T.R. No.81 of 1999 -1- IN THE HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARH Income Tax Reference No.81 of 1999. Decided on:-April 4th, 2014. The Commissioner of Income Tax (Central), Ludhiana. .........Applicant. Versus Avon Cycles (P) Limited, Ludhiana. .........Respondent. CORAM: Hon'ble Mr. Justice Rajive Bhalla Hon'ble Mr. Justice Dr. Bharat Bhushan Parsoon. ***** Argued by:- Ms. Savita Saxena, Advocate for the applicant-revenue. Mr. Akshay Bhan, Advocate and Ms. Samiya Singh, Advocate for the respondent-assessee. Dr. Bharat Bhushan Parsoon, J. The assessee is a private limited company dealing in manufacture and sales of cycles as also parts thereof. For the year ending 30.6.1982 relevant to the assessment year 1983-84, return declaring an income of Rs.61,30,764/- was filed on 30.7.1983. The assessment was completed on 20.3.1986 at an income of Rs.1,70,80,403/-. 2. Later on, when it came to the notice of the Assessing Officer (hereinafter referred to as the AO) that excessive relief on some of the points including depreciation and investment allowance, had been allowed to the Yag Dutt 2014.04.07 18:17 I attest to the accuracy and integrity of this document I.T.R. No.81 of 1999 -2- assessee and he, accordingly, reopened the assessment by issuing notice under Section 148 read with Section 147(b) of the Income Tax Act, 1961 (for short, the Act). Thereafter, the re-assessment proceedings were completed on 11.10.1988 at an income of Rs.1,58,59,435/-. 3. Not satisfied with this order (Annexure A) of the AO, the assessee went in appeal before the Commissioner of Income Tax (Appeals) (Central), Ludhiana [hereinafter called the CIT(A)], who vide order (Annexure B) dated 28.2.1989, holding the initiation of proceedings under Section 148 read with Section 147(b) of the Act bad in law, cancelled the re-assessment framed by the AO. Against this order of the CIT(A), the revenue preferred an appeal before the Income Tax Appellate Tribunal, Chandigarh Bench (hereinafter called the ITAT). The ITAT vide its order dated 30.6.1995 upheld the order of the CIT(A). The revenue took up the matter to this Court under Section 256(2) of the Act in ITC No.103 of 1996. Sequelly, the following questions in terms of directions of this Court vide order dated 18.3.1998 were referred for opinion of this Court: (I) Whether, on the facts and in the circumstances of the case, the Income Tax Appellate Tribunal was right in law in holding the re-assessment proceedings as invalid and bad in law? (II) Whether, on the facts and in the circumstances of the case, the Income Tax Appellate Tribunal was right in law in not at all considering the excessive relief depreciation and investment allowance having been allowed at original assessment, reopening was legally justified as per the provisions of Explanation 1(d) to section 147(b)? 4. Whereas stand of the revenue is that in case of escapement of income from assessment, power of re-assessment can validly be exercised, whereas stand of the assessee is that once the assessment proceedings are complete, merely because some different opinion emerges out on the same set of facts, re-assessment under Section 148 read with Section 147(b) of the Yag Dutt 2014.04.07 18:17 I attest to the accuracy and integrity of this document I.T.R. No.81 of 1999 -3- Act, cannot be ordered. 5. We have heard counsel for the parties while going through the paper book. 6. At the outset, counsel for the revenue has urged that if satisfaction is arrived at after following the due procedure that income had escaped assessment, power of re-assessment can validly be exercised. Elaborating this proposition further, it has been held that if facts come to light in a subsequent year, this information could validly form the basis for initiating fresh assessment proceedings. Reference has been made to Explanation 2 of Section 147 of the Act. For ready reference, Explanation 2 appended to Section 147 of the Act is reproduced as below: “Explanation 2.—For the purposes of this section, the following shall also be deemed to be cases where income chargeable to tax has escaped assessment, namely :— (a) where no return of income has been furnished by the assessee although his total income or the total income of any other person in respect of which he is assessable under this Act during the previous year exceeded the maximum amount which is not chargeable to income-tax; (b) where a return of income has been furnished by the assessee but no assessment has been made and it is noticed by the Assessing Officer that the assessee has understated the income or has claimed excessive loss, deduction, allowance or relief in the return; (c) where an assessment has been made, but— (i) income chargeable to tax has been underassessed; or, (ii) such income has been assessed at too low a rate; or, (iii) such income has been made the subject of excessive relief under this Act; or, Yag Dutt 2014.04.07 18:17 I attest to the accuracy and integrity of this document I.T.R. No.81 of 1999 -4- (iv) excessive loss or depreciation allowance or any other allowance under this Act has been computed.” 7. There is no dispute that re-assessment can be done in terms of provisions of Section 148 read with Section 147(b) of the Act provided the AO comes to a finding in the given facts and circumstances that in the earlier assessment, some income had escaped assessment. In the present case, information of escaping of income of the assessee from assessment primarily was gathered by the AO from the audit objection raised in the audit note. Counsel for the assessee has urged that opinion of audit party on a point of law does not amount to information sufficient enough to re-open assessment under Section 148 read with Section 147(b) of the Act. Reliance has been placed on Indian and Eastern Newspaper Society v. Commissioner of Income Tax, New Delhi [1979] 119 ITR 996 (SC) wherein it was held that the opinion of the audit party on a point of law could not be recorded as information enabling the ITO to initiate re-assessment proceedings under Section 147(b) of the Act. It was further held that the ITO had, when he made the original assessment, considered the provisions of Sections 9 and 10 of the Indian Income Tax Act, 1922 and any different view taken by him on the application of those provisions would amount to change of opinion on material already considered by him. 8. Refuting this contention, counsel for the revenue has urged that the authority cited by the assessee nowhere restricts the domain of the AO to start assessment proceedings afresh once he has information that income of the assessee has escaped assessment. It is claimed that the distinction drawn in the cited authority on a point of law viz. a viz. on a point of facts is very vital. It is claimed that in the present case, the information gathered by the AO from the audit note was on bare facts which had categorically suggested escapement of income from assessment. It is claimed that Hon'ble Apex Court in a subsequent judgment of A.L.A. Firm v. Commissioner of Income Yag Dutt 2014.04.07 18:17 I attest to the accuracy and integrity of this document I.T.R. No.81 of 1999 -5- Tax [1991] 189 ITR 0285 (SC) even went to the extent of holding that if the AO had missed true purport of the relevant statutory provisions which after pronouncement of a judicial decision came to his notice, resulting in re- opening of the assessment, even then, such re-opening would be legally valid. Observations of the Hon'ble Supreme Court are as under: “The more reasonable view to take would, in our opinion, be that the Income-tax Officer looked at the facts and accepted the assessee's contention that the surplus was not taxable. But, in doing so, he obviously missed to take note of the law laid down in Ramachari which there is nothing to show, had been brought to his notice. When he subsequently became aware of the decision, he initiated proceedings under Section 147(b). The material which constituted information and on the basis of which the assessment was reopened was the decision in Ramachari. This material was not considered at the time of the original assessment. Though it was a decision of 1961 and the I.T.O. could have known of it had he been diligent, the obvious fact is that he was not aware of the existence of the decision then and, when he came to know about it, he rightly initiated proceedings for assessment.” 9. A little later in Income Tax Officer v. Saradbhai M. Lakhani [2000] 243 ITR 0001 (SC) case of A.L.A. Firm (supra) was also considered and followed. The Hon'ble Apex Court then made it clear that when information is received by the AO from a decision, even that information would be a valid ground for reopening of the assessment. Observations of the Hon'ble Supreme Court are as under: “This court has held that on the basis of the information which is received by the Income-tax Officer, reassessment proceedings can be initiated. The information which was received by the Income-tax Officer was the decision of the Gujarat High Court in Banyan and Berry's case [1996] 222 ITR 831. When the Income-tax Officer became aware of this decision, he could initiate the proceedings under section 147(b) as has been held by this court in A.L.A. Firm v. CIT [1991] 189 ITR 285.” 10. A Division Bench of this Court in Tilak Raj Bedi v. Joint Yag Dutt 2014.04.07 18:17 I attest to the accuracy and integrity of this document I.T.R. No.81 of 1999 -6- Commissioner of Income Tax [2009] 319 ITR 0385 has also verdicted that power of re-assessment can validly be exercised if satisfaction would be arrived at after following due procedure that income had escaped assessment. In this authority, it was held as under: “The power of reassessment can be validly exercised if satisfaction is arrived at after following due procedure that income had escaped assessment. Such satisfaction may involve change of opinion but was not at par with “mere change of opinion”. If satisfaction is arrived at on the basis of any relevant material, such satisfaction cannot be assailed.” 11. In the present case, information regarding excessive relief on some of the points including 'depreciation' and 'investment allowance' became available to the AO after the assessment had already been framed on 20.3.1986. This information was not on legal aspects and, therefore, rather has direct reference to factual matrix of the case, which earlier had been overlooked. 12. The CIT(A) as also the Tribunal were in error in rejecting the starting of re-assessment proceedings and consequent finalisation of the revised assessment by the AO. The distinction, as mentioned earlier, was not noticed either by CIT(A) or by the ITAT. This aspect clearly enough did not engage the attention of the CIT(A) as also the Tribunal. Finding of the Tribunal is that gathering of such information would amount to substitution of opinion, whereas it is not substitution by revised opinion of the AO. It is also not information on a point of law. The entire matter was evaluated and considered on facts. The present case is clearly a case of escaping of income of the assessee. 13. Consequently, re-assessment proceedings started by the AO in terms of Sections 147(b) and 148 of the Act are valid in law. The impugned order of the Tribunal is, thus, wrong on facts as also in law. 14. In view of the above discussion, both the questions of law referred for opinion are answered in favour of the revenue. Yag Dutt 2014.04.07 18:17 I attest to the accuracy and integrity of this document I.T.R. No.81 of 1999 -7- 15. Sequelly, the reference is adjudicated against the assessee and in favour of the revenue. (Dr. Bharat Bhushan Parsoon) Judge (Rajive Bhalla) Judge April 4th, 2014 'Yag Dutt' 1. Whether Reporters of local papers may be allowed to see the judgment? Yes 2. Whether to be referred to the Reporters or not? Yes 3. Whether the judgment should be reported in the Digest? Yes Yag Dutt 2014.04.07 18:17 I attest to the accuracy and integrity of this document "