Court rules against Revenue in tax reassessment case, affirming validity of original assessment.

Get the full picture - access the original judgement of the court order here

Case Name:

Commissioner of Income Tax vs. Schwing Stetter India P. Ltd. (High Court of Madras)

Tax Case (Appeal) No.217 of 2015

Date: 2nd June 2015

Key Takeaways:

• The court emphasized that reassessment cannot be based solely on a change of opinion.
• It reinforced the principle that the Assessing Officer must have tangible material to justify reopening an assessment.
• The decision highlights the importance of full disclosure of material facts by the assessee during the original assessment.

Issue

Was the Appellate Tribunal correct in upholding the order of the CIT(A) that the reassessment proceedings were invalid?

Facts

• The case pertains to the assessment year 2001-2002, where Schwing Stetter India P. Ltd. filed a return admitting an income of ₹1,36,15,445.
• The original assessment was completed under Section 143(3) (of Income Tax Act, 1961), determining the total income at ₹1,40,40,250.
• The Assessing Officer later issued a notice under Section 148 (of Income Tax Act, 1961) to reopen the assessment, claiming the assessee failed to disclose details regarding MODVAT credit.
• The assessee argued that the details were already provided during the original assessment, and the reopening was merely a change of opinion.

Arguments

• For the Revenue: The Assessing Officer contended that the assessee did not fully disclose material facts regarding MODVAT credit, justifying the reopening of the assessment.
• For the Assessee: The company argued that all relevant details were disclosed during the original assessment, and the reopening was based on the same material, constituting a mere change of opinion.

Key Legal Precedents

• CIT v. Cholamandalam Investment and Finance Company Limited, 309 ITR 110: This case established that reopening assessments based on previously available information is not permissible.
• CIT v. Kelvinator of India Ltd., 320 ITR 561 (SC): The Supreme Court ruled that the Assessing Officer can only reopen assessments if there is tangible material indicating income has escaped assessment, not merely based on a change of opinion.

Judgement

The court upheld the decision of the Income Tax Appellate Tribunal, affirming that the reassessment proceedings initiated by the Revenue were invalid. The court reasoned that the details regarding MODVAT credit were already available during the original assessment, and the reopening was based on a mere change of opinion without any new evidence. Consequently, the appeal by the Revenue was dismissed.

FAQs

Q1: What does this ruling mean for the Revenue?

A1: The ruling indicates that the Revenue cannot reopen assessments without new evidence and cannot rely on a mere change of opinion.

Q2: How does this affect other taxpayers?

A2: This case sets a precedent that emphasizes the importance of full disclosure during assessments and protects taxpayers from arbitrary reassessments.

Q3: What happens next for Schwing Stetter India P. Ltd.?

A3: The company will not face the reassessment, and the original assessment stands as valid.

Q4: Can the Revenue appeal this decision?

A4: The ruling from the High Court is typically final unless there are grounds for further appeal to the Supreme Court, which would require substantial legal questions.

1. This Tax Case (Appeal) is filed by the Revenue as against the order of the Income Tax Appellate Tribunal raising the following substantial question of law:

“1. Whether on the facts and in the circumstances of the case, the Appellate Tribunal was right in upholding the order of the CIT(A) who held that the reassessment proceedings made was not valid?

2. Is not the finding of the Tribunal bad especially when the assessee had not furnished the details relating to working of MODVAT which resulted in failure on the part of the assessee by not disclosing fully and truly all material facts that was necessary for assessment?”

2. The brief facts of the case are as follows:

The assessment in this case relates to the assessment year

2001-2002. The assessee is engaged in the business of manufacture

of concrete mixtures, concrete pumps, concrete mixing plants

components and software development. The assessee company had

filed its return of income for the assessment year admitting a total

income of Rs.1,36,15,445/-. The return was processed under Section

143(1) of the Income Tax Act and subsequently assessment under

Section 143(3) (of Income Tax Act, 1961) was made by the Assessing

Officer determining the total income at Rs.1,40,40,250/-. Thereafter,

the Assessing Officer had issued notice under Section 148 (of Income Tax Act, 1961) of the

Income Tax Act for initiating proceedings under Section 147 (of Income Tax Act, 1961) of the

Income Tax Act. In response to the said notice, the assessee filed a

letter dated 16.4.2008 requesting to treat the original return filed as

the return filed in response to the notice issued under Section 148 (of Income Tax Act, 1961) of

the Income Tax Act. Thereafter, notice under Section 143(2) (of Income Tax Act, 1961) was

issued to reopen the assessment. The assessee had asked for reasons

for reopening the assessment and it appears the reasons were

communicated to the assessee on the same day. In the return of

income filed, the assessee had arrived the MODVAT Credit utilization

during the current year. According to the Assessing Officer, as per

memo of computation of income, the excise duty debited to Profit and

Loss Account which was actually payable after adjustment of MODVAT

Credit was Rs.3,73,70442/- and the same would be paid at the time of

removal of finished goods and collected from purchasers. Hence, the

Assessing Officer took the view that there was no question of

adjustment of excise duty paid on finished goods upto the date of filing

the return. Accordingly, the Assessing Officer issued show cause

notice calling for explanation from the assessee as to why the excess

claim made by the assessee to the tune of Rs.22,60,275/- has to be

rejected. In response to the same, the assessee had replied that the

working of MODVAT credit had correctly made and submitted a

detailed working sheet justifying the correctness of the claim.

However, the Assessing Officer did not accept the said explanation and

came to hold that excise duty on finished goods had to be included in

the total income, since, the value of closing stock of finished goods

represented value as on 31

st March of each year ready for removal but

not removed from the factory. Thus, the Assessing Officer was of the

view that the excise duty did not get crystallised as on 31

st March and

it would get crystallised only at the time of actual removal and based

on the closing stock, no provision for payment of duty could be created

and therefore, a sum of Rs.22,60,275/- was added to the total income

of the assessee. Accordingly, he made re-assessment disallowing the

excess MODVAT Credit.

3. Aggrieved by the same, the assessee had filed an appeal

before the Commissioner of Income Tax (Appeals), who was of the

view that the workings pertaining to the MODVAT Credit had already

available before the Assessing Officer at the time of passing an order

under Section 143(3) (of Income Tax Act, 1961) and the re-assessment

proceedings have been initiated on a mere change of opinion on the

same material on record. Reliance was placed by the assessee before

the Commissioner of Income Tax (Appeals) the decision of this Court

in the case of CIT V. Cholamandalam Investment and Finance

Company reported in 309 ITR 110; CIT V. Tamilnadu Transport

Development Finance Corporation Limited reported in 306 ITR 136 and

CIT V. Kelvinator of India Ltd. reported in 320 ITR 561(SC). After

hearing both sides, the Commissioner of Income Tax (Appeals)

allowed the appeal in favour of the assessee holding as follows:

“4.2. I have carefully considered the facts of the

case and the submission of the ld. AR. I have also

gone through the decisions relied on by the ld. AR. In

this case return was filed on 29.10.2001. It was

processed on 02.01.2003. Subsequently, assessment

order u/s. 143(3) (of Income Tax Act, 1961) was passed on 31.03.2004. Notice

for reopening the assessment u/s 148 (of Income Tax Act, 1961) has been issued

on 28.03.2008. Thus it is clear that the notice was

issued beyond four years from the end of the relevant

assessment year. The appellant has claimed that the

original assessment was completed after obtaining all

the details required for the purpose of assessment. It

is seen that the AO has reopened the assessment to

disallow the excess claim made by the appellant in

respect of MODVAT Credit. The appellant has stated

that the details of MODVAT credit was given in

Annexure 1(A) of the Tax Audit Report. Further, the

appellant itself has disallowed the amount in

computing the total income for the year. Therefore,

the ld. AR has stated that the addition made by the AO

actual tantamount to duplication of disallowance.

Regarding the reopening the appellant has relied on

the decision in the case of CIT V. Cholamandalam

Investment and Finance Company 309 ITR 110; CIT V.

Tamilnadu Transport Development Finance Corporation

Limited 306 ITR 136 and CIT V. Kelvinator of India Ltd.

320 ITR 561(SC). He has also given the decision of

the ITAT, Mumbai dated 29.03.2010. After perusing

the details I am of the opinion that the AO could not

have reopened the assessment because of the details

required for the assessment were available on record

at the time of passing the original order u/s 143(3) (of Income Tax Act, 1961).

The details of MODVAT working for the purpose of

s.145A was provided by the appellant in Annexure 1(A)

at point No.12(b) of the return of income. Therefore,

as the details pertaining to MODVAT were already

available to the AO during the assessment proceedings

u/s 143(3) (of Income Tax Act, 1961), the reassessment proceedings have been

initiated on mere change of opinion on the same

material on record and, therefore, would amount to

review of earlier assessment which is not permissible.

This view is supported by decision of Hon'ble Supreme

Court in the case of CIT v. Kelvinator of India Ltd

(supra) where it was held that AO can reopen the

assessment only if there is tangible material to come

to the conclusion that there is escapement of income.

Reopening cannot be done on change of opinion only.

The AO does not have power to review and has power

only to reassess. I am of the opinion that the ratio of

this decision is applicable to the facts of the case. I

also find that the Hon'ble ITAT, Mumbai in the case of

Modepro India Private Limited (supra) has allowed the

appeal of the appellant under similar facts. In the

above case the AO completed the assessment u/s

143(3). Subsequently, on the perusal of records the

AO noticed that the assessee had failed to include

Modvat credit in its closing stock in contravention of

the provisions of section 145A (of Income Tax Act, 1961). The AO issued notice

u/s 148 (of Income Tax Act, 1961) after the expiry of four years from the end of

the relevant assessment year and completed

assessment after making addition on account of

Modvat credit. The CIT(A) directed the AO to verify

the facts and make addition if there is difference in the

figure. The ITAT, under the above circumstances, held

that there was no failure on the part of the assessee to

disclose fully and truly all material facts qua the

Modvat credit as the same was part of Tax Audit

Report annexed to the Balance sheet filed along with

the return of income. The notice being beyond the

period of four year was obviously time barred. The

assessment flowing out of such time barred notice

cannot stand and was therefore quashed. In view of

the above precedents and the facts of the case, it is

held that the reopening is not valid and hence the

ground is allowed."

4. On the issue of disallowance of MODVAT credit on opening

stock, the Commissioner of Income Tax (Appeals) held that it has

become academic in nature, as he found that the reopening of

assessment by the Assessing Officer was not valid.

5. Aggrieved by the said order of the Commissioner of Income

Tax (Appeals), the Revenue pursued the matter before the Income Tax

Appellate Tribunal. The Tribunal, after hearing both sides, concurred

with the view of the Commissioner of Income Tax (Appeals), thereby,

dismissed the appeal holding as follows:

"11. We have heard both the sides and considered

the material on record and find that the return of income

for the year under consideration was filed on 29.10.2001,

which was first processed under section 143(1) (of Income Tax Act, 1961) on

02.01.2003 and subsequently assessment was framed

under section 143(3) (of Income Tax Act, 1961) on 31.03.2004, whereas, notice

under section 148 (of Income Tax Act, 1961) was issued on 28.03.2008, which

period is beyond four years from the end of assessment

year and no fresh material or evidence is found to have

come in the possession of the Assessing Officer when

reopening was done to disallow the excess claim made by

the assessee in respect of MODVAT credit and the

assessee has stated that the details of MODVAT credit are

given in Annexure 1(a) of the tax audit report. Further,

the assessee itself is stated to have disallowed the amount

in computing the total income for the year and further

disallowance of the same amount in computing the total

income for the year and further disallowance of the same

amount, amounted to duplication of the disallowance and

otherwise, all the details required for the assessment were

available on record at the time of passing of the original

order under section 143(3) (of Income Tax Act, 1961). when details of MODVAT

working for the purpose of section 145A (of Income Tax Act, 1961) was provided by

the assessee in Annexure 1(A) at point No.12(b) of the

return of income. So, the reassessment proceeding

initiated in the absence of any fresh material or evidence

coming into the possession of the Assessing Officer has

rightly been held to be mere change of opinion on the

same material already on record as held by the Hon'ble

Jurisdictional High Court in the case of CIT v.

Cholamandalam Investment and Finance Company Limited

(supra). Therefore, in view of the facts, circumstances

and material on record, we hold that the issue is squarely

covered in favour of the assessee and the ld. CIT(A) has

exactly did the same thing to treat the reassessment to be

not valid in law. Therefore, while, upholding the order of

the ld. CIT(A), we dismiss the appeal of the Revenue

being devoid of any merits."

6. Aggrieved by the said order of the Tribunal, the Revenue is

before this Court.

7. Mr.T.Ravikumar, learned Standing Counsel appearing for the

Revenue tried to distinguish the decision of this Court in the case of

CIT v. Cholamandalam Investment and Finance Company

Limited reported in 309 ITR 110 by placing reliance on the decision

of the Bombay High Court in the case of Dr.Amin's Pathology

Laboratory V. P.N.Prasad, Joint Commissioner of Income Tax

and others (No.1) reported in [2001] 252 ITR 673. He laid

emphasis on this decision to state that the mere production of balance

sheet and profit and loss account will not amount to disclosure within

the meaning of first proviso to Section 147 (of Income Tax Act, 1961). He

submitted that Explanation 1 and 2(c)(i) and (iii) to Section 147 (of Income Tax Act, 1961) of the

Income Tax Act would get attracted to the facts of the case and hence,

the Assessing Officer is correct in initiating re-assessment proceedings.

8. Heard Mr.T.Ravikumar, learned Standing Counsel appearing

for the Revenue at length and perused the materials placed before this

Court.

9. Before going into the merits of the case, for better

appreciation, we first consider the scope of Section 147 (of Income Tax Act, 1961) and the first

proviso. The said provision reads as follows:

"Income escaping assessment.

147. If the Assessing Officer has reason to believe that

any income chargeable to tax has escaped assessment 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 referred to as the relevant assessment year) :

Provided that where an assessment under sub-

section (3) of section 143 (of Income Tax Act, 1961) or this section has been

made 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 assessment

year, unless any income chargeable to tax has

escaped assessment.

Provided further that the Assessing Officer may assess or

reassess such income, other than the income involving

matters which are the subject-matter of any appeal,

reference or revision, which is chargeable to tax and has

escaped assessment.

Explanation 1.—Production before the Assessing

Officer of account books or other evidence from

which material evidence could with due diligence

have been discovered by the Assessing Officer will

not necessarily amount to disclosure within the

meaning of the foregoing proviso.

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 under

assessed ; 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

(iv) excessive loss or depreciation allowance or any other

allowance under this Act has been computed.

(emphasis supplied)

10. A plain reading of the above provision reveals that if the

Assessing Officer had reason to believe that income chargeable to tax

had escaped assessment, in exercise of his power under Section 147 (of Income Tax Act, 1961) of

the Income Tax Act, he may pursue the matter in accordance with the

said provision by issuing notice to the assessee within a period of four

years. Admittedly, in the present case, the proceedings initiated is

beyond the period of four years from the end of the relevant

assessment year. It is not the case of the Department that the

assessee has failed to file a return under Section 139 (of Income Tax Act, 1961) or failed to

respond to the notice issued under Section 142 (of Income Tax Act, 1961) or Section 148 (of Income Tax Act, 1961) of the

Income Tax Act . The only other issue is whether there was any

failure on the part of the assessee to disclose fully and truly all

material facts necessary for the assessment for that assessment year.

11. Before the Commissioner of Income Tax (Appeals), the

assessee had argued and filed written submissions, which were

extracted in the order of the Commissioner of Income Tax (Appeals).

For better clarity, we extract the same hereunder:

"a. The assessment was reopened after a lapse of four

years from the end of the assessment year vide notice u/s

148 of the Act, dated 28

th March, 2008. The appellant

humbly submits that the initial assessment by the learned

AO was completed after obtaining all details required for

the purpose of assessment. Hence, the assessment cannot

be reopened.

b. In this regard, the appellant relates to the decision of

jurisdictional High Court in the case of CIT v.

Cholamandalam Investment and Finance Company Limited

209 ITR 110 and case of CIT v. Tamil Nadu Transport

Development Finance Corporation Limited 306 ITR 136.

c. The assessment having been completed under scrutiny

u/s 143(3) (of Income Tax Act, 1961), any further reopening would amount to only a

change of opinon.

d. Details with respect to MODVAT working was specifically

given in Annexure 1(A) to the Tax Audit report, which is

intended exclusively for the purpose of scrutiny and

assessment proceedings.

e. The Supreme Court of India in the case of CIT v.

Kelvinator of India Ltd. Civil -2010-TIOL-06-SC-IT-LB held

that it was not open to the assessing officer to review his

own decision as the learned Assessing Officer has not

demonstrated any fresh material that has been received

after completion of assessment.”

12. Having furnished the details of the working of the MODVAT

Credit in Annexure 1(A) to the Tax Audit Report, which is a mandate as

per the provisions of the Act and the Assessing Officer has considered

the said issue in the order passed under Section 143(3) (of Income Tax Act, 1961), the Commissioner of Income Tax (Appeals) has given a clear

finding that the details of MODVAT credit working were considered by

the Assessing Officer during the assessment proceedings under Section

143(3) and the re-assessment is initiated on a mere change of opinion

on the same material on record. Such being the case, the issue is

whether there was a failure on the part of the assessee to disclose fully

and truly all material facts necessary for assessment. The answer is a

clear 'no'. The Department, at the threshold, has to cross the first

proviso to Section 147 (of Income Tax Act, 1961) before proceeding

further to reopen the assessment on the ground of income escaping

assessment.

13. For the purpose of assumption of jurisdiction under Section

147 of the Income Tax Act, the Officer must have reason based on

materials that there has been an income escaping assessment, which

warranted assumption of jurisdiction under Section 147 (of Income Tax Act, 1961). A perusal of the assessment order shows that the Assessing

Officer had not mentioned that there are materials for escapement of

income. The Assessing Officer also did not record any reason that

there was failure on the part of the assessee to disclose fully and truly

all material facts necessary for assessment.

14. We find from the order of the Commissioner of Income Tax

(Appeals) and the Tribunal and also on facts as has been culled out

from the assessment order in question that there is no element of

failure to disclose fully and truly all material facts necessary for

assessment.

15. The reliance placed by the learned Standing Counsel

appearing for the Revenue on Explanation (1) to Section 147 (of Income Tax Act, 1961) of the

Income Tax Act cannot be pressed into service by the Department in

the instant case, because the details of such claim has been revealed

in the Tax Audit Report and apparently, the same has been considered

by the Assessing Officer at the time of passing an order under Section

143(3) of the Income Tax Act. Therefore, Explanation (1) does not get

attracted to this case. Explanation (2)(c)(i) and (iii) to Section 147 (of Income Tax Act, 1961) of

the Income Tax Act, which is sought to be invoked in the present case,

can arise only in a case where the Department is able to establish that

there is income escaping assessment and the proviso to Section 147 (of Income Tax Act, 1961)

gets attracted. In this case, we find that the finding of the

Commissioner of Income Tax (Appeals) and the Tribunal is that the

Proviso to Section 147 (of Income Tax Act, 1961) did not get attracted and

it is a case of mere change of opinion of the Assessing Officer.

16. Our view is fortified by the decision of the Full Bench of the

Delhi High Court in the case of Commissioner of Income Tax V.

Kelvinator of India Ltd. reported in [2002] 256 ITR 1 (Del),

wherein, the Delhi High Court held as follows:

“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 Income Tax Act, 1961).

The said submission is fallacious. An order of assessment

can be passed either in terms of sub-section (1) of section

143 or sub-section (3) of section 143 (of Income Tax Act, 1961). When a regular order

of assessment is passed in terms of the said sub-section (3)

of section 143 (of Income Tax Act, 1961) 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 Income Tax Act, 1961) 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 jurisdiction upon the Assessing Officer to reopen the

proceeding with out anything further, the same would

amount to giving a premium to an authority exercising

quasi-judicial function to take benefit of its own wrong.”

17. The above said decision of the Full Bench of the Delhi High

Court was upheld by the Supreme Court in the decision reported in

[2010] 320 ITR 561 (SC) COMMISSIONER OF INCOME-TAX v.

(1) KELVINATOR OF INDIA LTD., wherein the Supreme Court held

that the concept of "change of opinion" on the part of the Assessing

Officer to reopen the assessment did not stand obliterated after the

substitution of Section 147 (of Income Tax Act, 1961). The Supreme

Court also held that the Assessing Officer has power to reopen the

assessment, provided there is "tangible material" to come to a

conclusion that there was an escapement of income from assessment.

For better appreciation, the relevant portion of the said decision reads

as follows:

“6. On going through the changes, quoted above,

made to section 147 (of Income Tax Act, 1961), we find that, prior to

the Direct Tax Laws (Amendment) Act, 1987, reopening

could be done under the above two conditions and

fulfilment of the said conditions alone conferred

jurisdiction on the Assessing Officer to make a back

assessment, but in section 147 (of Income Tax Act, 1961) (with effect

from 1st April, 1989), they are given 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

schematic interpretation to the words " reason to

believe" failing which, we are afraid, section 147 (of Income Tax Act, 1961) would

give arbitrary powers to the Assessing Officer to reopen

assessments on the basis of " mere change of opinion",

which cannot be per se reason to reopen. We must also

keep in mind the conceptual difference between power

to review and power to reassess. The Assessing Officer

has no power to review ; he has the power to reassess.

But reassessment has to be based on fulfilment 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 in-built test to

check abuse of power by the Assessing Officer. Hence,

after 1st April, 1989, the Assessing Officer 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 with the formation of the

belief. Our view gets support from the changes made

to section 147 (of Income Tax Act, 1961), as quoted herein above.

Under the Direct Tax Laws (Amendment) Act, 1987,

Parliament not only deleted the words " reason to

believe" but also inserted the word " opinion" in section

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 arbitrary powers in the

Assessing Officer. We quote hereinbelow the relevant

portion of Circular No. 549 dated October 31, 1989

([1990] 182 ITR (St.) 1,29), which reads as follows :

"7.2 Amendment made by the Amending Act,

1989, to reintroduce the expression ' reason to

believe' in section 147 (of Income Tax Act, 1961).—A number of

representations were received against the

omission of the words ' reason to believe' from

section 147 (of Income Tax Act, 1961) and their substitution by the '

opinion' of the Assessing Officer. It was pointed

out that the meaning of the expression, ' reason

to believe' had been explained in a number of

court rulings in the past and was well settled and

its omission from section 147 (of Income Tax Act, 1961) would give arbitrary

powers to the Assessing Officer to reopen past

assessments on mere change of opinion. To allay

these fears, the Amending Act, 1989, has again

amended section 147 (of Income Tax Act, 1961) to reintroduce the

expression ' has reason to believe' in place of the

words ' for reasons to be recorded by him in

writing, is of the opinion' . Other provisions of the

new section 147 (of Income Tax Act, 1961), however, remain the same."

(emphasis supplied)

18. Similar view has been taken by this Court in the decision

reported in [2009] 309 ITR 110 (Mad) COMMISSIONER OF

INCOME-TAX v. CHOLAMANDALAM INVESTMENT AND FINANCE

CO. LTD. , wherein it was held as follows:

“In those circumstances, it could not be regarded

that the assessee had failed to disclose fully and truly all

material facts relevant for the assessment. As the facts

revealed that the Assessing Officer who made the original

assessment order has called for all the details regarding

the case where 100 per cent. depreciation were claimed

and the assessee had furnished the invoices for purchase

of assets on which 100 per cent. depreciation were

claimed, there was no failure on the part of the assessee

and if at all there was any failure, according to the

Commissioner of Income-tax (Appeals), it was on the

part of the Assessing Officer, who made the original

assessment without going behind the nature of the

transactions accepting the details furnished by the

assessee. The Tribunal also extracted that portion of the

order and found on the fact that there was no fault on

the part of the assessee so as to enable the Department

to reopen the assessment as the proviso to section 147 (of Income Tax Act, 1961)

of the Income-tax Act would squarely apply to the case

of the assessee. We find no infirmity in the order passed

by the Tribunal. Hence, the appeal is dismissed.”

19. In an identical circumstance, a learned single Judge of this

Court had considered the issue in the decision reported in [2000] 241

ITR 672 (Mad) FENNER (INDIA) LTD. v. DEPUTY

COMMISSIONER OF INCOME-TAX, wherein, it was observed as

follows:

“ The pre-condition for the exercise of the power

under section 147 (of Income Tax Act, 1961) in cases where power is exercised

within a period of four years from the end of the relevant

assessment year is the belief reasonably entertained by

the Assessing Officer that any income chargeable to tax

has escaped assessment for that assessment year.

However,when the power is invoked after the expiry of

the period of four years from the end of the assessment

year, a further pre-condition for such exercise is imposed

by the proviso namely, that there has been a failure on

the part of the assessee to make a return under section

139 or in response to a notice issued under section 142 (of Income Tax Act, 1961)

or section 148 (of Income Tax Act, 1961) or failure on the part of the assessee to

disclose fully and truly all material facts necessary for his

assessment for that assessment year. Unless, the

condition in the proviso is satisfied, the Assessing Officer

does not acquire jurisdiction to initiate any proceeding

under section 147 (of Income Tax Act, 1961) after the expiry of four

years from the end of the assessment year. Thus, in

cases where the initiation of the proceedings is beyond

the period of four years from the end of the assessment

year, the Assessing Officer must necessarily record not

only his reasonable belief that income has escaped

assessment but also the default or failure committed by

the assessee. Failure to do so would vitiate the notice

and the entire proceedings. The relevant words in the

proviso are,

“. . . . unless any income chargeable to tax has escaped

assessment for such assessment year by reason of the

failure on the part of the assessee ... . .”

Mere escape of income is insufficient to justify the

initiation of action after the expiry of four years from the

end of the assessment year. Such escapement must be

by reason of the failure on the part of the assessee either

to file a return referred to in the proviso or to truly and

fully disclose the material facts necessary for the

assessment.

Whenever a notice is issued by the Assessing Officer

beyond a period of four years from the end of the

relevant assessment year, such notice being issued

without recording the reasons for his belief that income

escaped assessment, it cannot be presumed in law that

there is also a failure on the part of the assessee to file

the returns referred to in the proviso or a failure to fully

and truly disclose the material facts. The reasons

referred to in the main paragraph of section 147 (of Income Tax Act, 1961) would,

in cases where the proviso is attracted, include reasons

referred to in the proviso and it is necessary for the

Assessing Officer to record that any one or all the

circumstances referred to in the proviso existed before

the issue of notice under section 147 (of Income Tax Act, 1961).

After an assessment has been made, in the normal

circumstances, there would be no reason for anyone to

doubt that the assessment has been made on the basis

of all relevant facts. If the Assessing Officer chooses to

entertain the belief that the assessment has been made

in the background of the assessee’s failure to disclose

truly and fully all material facts, it is necessary for him to

record that fact, and in the absence of a record to that

effect, it cannot be held that a notice issued without

recording such a fact is capable of being regarded as a

valid notice. As to whether the material facts disclosed by

the assessee are full and true is always a question of fact

and unless the facts disclosed had been examined in

relation to the extent of failure if any on the part of the

assessee, it is not possible to form the opinion that there

had been a failure on the assessee’s part to truly and

fully disclose the material facts. A notice issued without a

record of the Assessing Officer’s reasonable belief that

there was such failure on the part of the assessee would

be indicative of a failure on the part of the Assessing

Officer to apply his mind to material facts, and on that

ground also the notice issued would be vitiated.

The reasons actually recorded and as set out by the

officer in the counter affidavit are such that even after

close scrutiny they do not establish even prima facie a

failure on the part of the assessee to fully and truly

disclose the material facts for the assessment.

.........

The duty of an assessee is limited to fully and truly

disclosing all the material facts. The assessee is not

required thereafter to prepare a draft assessment order.

If the details placed by the assessee before the

Assessing Officer were in conformity with the

requirements of all applicable laws and known

accounting principles, and material details had been

exhibited before the Assessing Officer, it is for the

Assessing Officer to reach such conclusions as he

considered was warranted from such data and any

failure on his part to do so cannot be regarded as the

assessee’s failure to furnish the material facts truly and

fully. Any lack of comprehension on the part of the

Assessing Officer in understanding the details placed

before him cannot confer a justification for reopening the

assessment, long after the period of four years had

expired. On the facts of this case, it is clear that the

escapement of income, if any, on this account is not on

account of any failure on the assessee’s part to disclose

the material facts fully and truly. The notice issued by

the Assessing Officer in exercise of his power under

section 147 (of Income Tax Act, 1961), therefore, cannot be sustained.”

20. In the case of ICICI Securities Ltd. V. Assistant

Commissioner of Income Tax 3(2), Mumbai, the Bombay High

Court vide order dated 22.08.2006 in W.P.No.1919 of 2006, while

dealing with the issue on the reopening of assessment, held as follows:

"7. In the facts of the present case, there is nothing new

which has come to the notice of the revenue. The accounts

had been furnished by the Petitioner when called upon.

Thereafter the assessment was completed under section

143(3) of the Income Tax Act. Now, on a mere relook, the

officer has come to the conclusion that the income has

escaped assessment and he is of course justified in his

analysis. In our view, this is not something which is

permissible under the proviso to section 147 (of Income Tax Act, 1961) which speaks about a failure on the part of the

assessee to make a proper return. In the present case, no

such case is made out on the record.

8. In the circumstances, we allow this petition in terms of

prayer (a) and quash and set aside the notice dated 27th

March 2006 directing reopening of the assessment for the

year 1999-2000."

21. The above-said view of the Bombay High Court was affirmed

by the Supreme Court in Civil Appeal No.5960 of 2012.

22. In the light of the above, we hold that when the Assessing

Officer had failed to record anywhere his satisfaction or belief that the

income chargeable to tax had escaped assessment on account of the

failure of the assessee to disclose truly and fully all material facts

necessary for assessment, the notice issued under Section 147 (of Income Tax Act, 1961) of the

Income Tax Act beyond the period of four years was wholly without

jurisdiction and cannot be sustained.

23. Hence, we have no hesitation in holding that reopening is

bad. Accordingly, we uphold the findings of the Tribunal that it is a

case of mere change of opinion on the same material already available

on record, which has been submitted by the assessee in Annexure 1A

of the Tax Audit Report at Point No.12(b) of the return of income.

24. The reliance placed by the learned Standing Counsel

appearing for the Revenue on the decision of the Bombay High Court

in the case of Dr.Amin's Pathology Laboratory V. P.N.Prasad,

Joint Commissioner of Income Tax and others (No.1) reported

in [2001] 252 ITR 673 cannot come to the aid of the Department, in

view of the decision of the Supreme Court in the case of CIT V.

Kelvinator of India Ltd. Reported in 320 ITR 561(SC), which was

rendered subsequently; in any event, on facts, the said decision of the

Bombay High Court stands distinguished.

25. In view of our finding that reopening of the assessment

itself is bad, it is not necessary to go into the second question.

Accordingly, the Tax Case (Appeal) stands dismissed. No costs.

Index: Yes / No (R.S.,J.) (K.B.K.V.,J.)

Internet: Yes / No 02.06.2015

To

1. The Income Tax Appellate Tribunal, Madras 'A' Bench.

2. The Commissioner of Income Tax (Appeals), Large Taxpayer Unit,

Chennai.

3. The Assistant Commissioner of Income Tax, Large Taxpayer Unit,

Chennai.

R.SUDHAKAR,J.

AND

K.B.K.VASUKI,J.

Tax Case (Appeal) No.217 of 2015

02.06.2015