Karnataka High Court
Commissioner Of Income-Tax vs Hardware Trading Co. on 19 February, 2001
Equivalent citations: (2001)167CTR(KAR)4, [2001]248ITR673(KAR), [2001]248ITR673(KARN), [2001]116TAXMAN274(KAR), 2001 AIR - KANT. H. C. R. 1309, 2001 TAX. L. R. 732, (2001) 248 ITR 673, (2001) 162 TAXATION 526, (2001) 2 KANTLJ(TRIB) 289, (2001) 116 TAXMAN 274, (2001) 167 CURTAXREP 4
Author: D.V. Shylendra Kumar
Bench: D.V. Shylendra Kumar
JUDGMENT M.F. Saldanha, J.
1. The Revenue has through this reference posed the following question for opinion of the High Court :
"Whether, on the facts and under the circumstances of the case, the Tribunal is right in law in holding that the provisions of Section 147(b) would not apply to the present case ?"
2. The brief facts that may be relevant for the consideration of this question are that the assessee who is the respondent to this reference is trading in paints and other related products. We are concerned with the assessment for the assessment year 1985-86 which was originally completed under Section 143(3) on August 6, 1986. What is of some consequence is the fact that the Income-tax Officer concerned had left a note in the file which is contemporaneous with the assessment and which, it is necessary for us to reproduce because it is of some consequence :
"Note not for the assessee : During the accounting period Asian Paints India Ltd., has presented a Matador van to the assessee for the outstanding performance shown by the assessee. The value of the van is Rs. 1,05,000. This has been credited to the capital accounts of the partners in the ratio of sharing of profits. Bank pass book scrutinised. No suspicious credits."
3. The assessment was reopened later on under Section 147 and the single head of controversy concerned an amount of Rs. 1,05,000 which in the opinion of the Department came within the ambit of the concept "income from business" for that assessment year and was therefore includible. This amount comprised the value of a Matador van which had been given to the assessee as an incentive by Asian Paints Limited. There is no dispute about the circumstances under which this vehicle was received by the assessee. As per the note made by the Income-tax Officer on the earlier occasion this had been received by them for outstanding performance and the value thereof was Rs. 1,05,000. The assessee had credited the capital accounts of the partners in the ratio of sharing of profits and the Income-tax Officer had accepted the transfer to the capital account which was why it was not included in the income. Pursuant to a notice to the assessee under Section 148, they were heard and in the subsequent order that was passed, the Income-tax Officer included this amount under the head of income. The assessee, being aggrieved by this inclusion, filed an appeal and the Commissioner (Appeals) accepted the contention of the assessee that it was in the nature of a capital receipt and that consequently, there was no necessity of reopening the assessment as the assessee had already credited the amount in the capital accounts of the partners. The Department came up in further appeal before the Tribunal against the order of the Commissioner (Appeals).
4. The Tribunal in its order had occasion to observe that the Matador van had not been gifted by Asian Paints Limited to the assesses out of natural love and affection but, that this particular transaction was intimately and intricately connected with the business performance of the assessee and that consequently, it must be construed as forming part of the business receipts of the assessee. The Tribunal however, dismissed the appeal principally on the ground that this was a case coming within the definition of "change of opinion" and that consequently, it was impermissible to reopen the assessment under these circumstances. While dismissing the Department's appeal it was obvious that the Tribunal had taken cognizance not only of the note left by the Income-tax Officer when the original assessment was done, but furthermore that the Tribunal had taken note of the settled position in law that if it is merely a case of "change of opinion", that the provisions of Section 147(b) would not come to the assistance of the Department, The present reference flows out of this order of the Tribunal. The Revenue being aggrieved by the decision has approached the High Court.
5. Mr. Indra Kumar, learned counsel who represents the Department, very vehemently submitted that the finding of the Tribunal which is to the effect that this is a case of change of opinion is vulnerable. It is his contention that the Tribunal itself had occasion to observe as indicated by us earlier, that the receipt of the van by the assessee which was a vehicle of substantial value i.e., Rs. 1,05,000 was not out of natural love and affection but that it was because of the business performance of the assessee and it is his submission that irrespective of whether the receipts by the assessee that emanate out of the business performance are in cash or kind, they come clearly within the definition of "concept of income" within the framework of the Income-tax Act. His submission was that the transfer to the capital account of the partners was clearly erroneous and that this would effectively be a reopening of the case on the basis of a reconsideration of the law which is totally and entirely different from a simple review which may be undertaken merely because the earlier findings appear to be incorrect or require a reconsideration. Undoubtedly it is a very fine distinction which learned counsel has propounded and it did require a detailed examination of the law particularly the decisions that have been rendered by the various courts from time to time. We do concede that the Supreme Court in the decision reported in A. I. A. Firm v. CIT , which was heavily relied upon by learned counsel has done almost a total review of the principles involved and Mr. Indra Kumar submitted that the Supreme Court has in this decision very clearly opened up the possibilities for the Department to include an item that has either escaped attention or has been wrongly omitted. His submission was that while the courts have consistently upheld the view that an opinion which is once crystallised into a decision in an assessment order cannot be lightly or frivolously reopened merely because it appears to that or another officer that another view is possible ; the Supreme Court has elaborately in this decision, pointed out that at a subsequent point of time, if it is demonstrated that either because of a change of law or additional information or whatever, a reopening is justified, it would be permissible. His submission was that on the facts of the present case, the opinion expressed by the Tribunal which we have had occasion to refer to more than once above, fully supports his argument that this is a set of facts that would bring the case outside the purview of the bar relating to change of opinion.
6. The respondents' learned counsel has vehemently disputed this position. He has taken us more than once through the observations as contained in the assessment order that have been passed after the case was reopened and he has laid extremely heavy emphasis on one sentence that appears there which we reproduce, i.e., "Subsequently it was noticed that during the accounting period the assessee has received a van value of which is shown at Rs. 1,05,000 from Asian Paints Limited for the outstanding performance shown by the asses-see . . ."
7. The main thrust of the argument put forward by the respondents' learned counsel centres around the fact that this sentence unequivocally establishes the position that it was the pre-existing material that has been reviewed at the stage of the reassessment. His submission is that there was no reconsideration of any change of law nor was any reconsideration on the basis of any additional or any information or material that the Department received or came across and that consequently, this is a simple situation in which the earlier assessment order was reconsidered and a different conclusion was arrived at on the second occasion. Consequently, it is contended that the case comes squarely within the mischief of the bar as envisaged by the courts wherein the proposition has been very clearly enunciated that an assessment order assumes finality and that a change of opinion is not permissible barring situations which would justify a reopening of the assessment.
8. The respondents' learned counsel drew our attention to several decisions which we shall briefly refer to :
(i) The Supreme Court in the case referred to in CIT v. Dinesh Chan-dra H. Shah , has very clearly cautioned the courts while assessing cases of this category into not being" confused by situations wherein a mere change of opinion is evident and is not based on any additional information. We need to point out here that the section in the form in which it was then applicable did very specifically refer to additional information.
(ii) Next, reliance was placed on the decision referred to in H. Noronka v. ITO , and the respondent's learned counsel highlighted the fact that the learned single judge of this court while considering the ambit and scope of Sections 147 and 148 of the Act had occasion to point out that a reassessment would only be justified at a point of time after the earlier assessment, provided there was fresh material or in other words, the material that was not earlier on record when the original assessment order was completed. In this decision, the learned single judge had occasion to analyse the law in some depth and to point out that they do accept a definite bar to a second opinion which is almost synonymous with change of opinion.
(iii) Next, reliance was placed on the decision reported in CIT v. Indian Plastics and Chemicals P. Ltd. . This was a petro-chemicals case and reliance was placed on a circular of the Central Board of Direct Taxes. Despite this position, a Division Bench of this High Court took the view that the reassessment was a mere change of opinion and that the assessment could not be reopened under Section 147(b).
(iv) Learned counsel then drew our attention to the Jindal Photo Films's case , wherein the Delhi High Court had occasion to observe that between the date of the order of assessment sought to be reopened and the date of forming an opinion by the Income-tax Officer, nothing new had happened in so far as there had been no change of law, no new material came on record and no information was received. The court held that mere fresh application of mind by the Income-tax Officer to the same set of facts amounted to nothing other than a change of opinion and accordingly quashed the notices that had been issued for the proposed reassessment.
(v) Lastly, learned counsel drew our attention to the decision reported in VXL India Ltd. v. Asst CIT , wherein the Gujarat High Court had occasion to observe that where it appeared from the assessment order that it was nothing more than effectively corrective in nature, it still did not justify the reopening of the assessment because it was sufficient to bring this case within the wide doctrine of "change of opinion".
9. Having summarised the rival contentions and the position in law, the short question that we are required to address ourselves to is as to whether the decision of the Tribunal is justified or not. The legal position is quite unambiguous and there is no dispute about the fact that while a reopening of assessment is justified under circumstances wherein new or additional material is received which concept again is relatively wide, is in the possession of the Department or brought to its notice at a point of time after the original assessment has been concluded or if there has been a change of law, which has been construed as constituting opinion that could justify the reopening ; at the same time the courts have been equally strict with regard to situations wherein, in the absence of any of these factors, a reopening of the assessment is contemplated. There can be no quarrel with regard to the basic proposition that has been canvassed by Mr. Indra Kumar on behalf of the Department but where he has run into some difficulties is with regard to the factual position in the present case. What is coming heavily in his way is the note that has been referred to by the Income-tax Officer at the stage of reassessment and by the subsequent authorities also. This note envisages two positions, the first being that the aspect of whether the amount of Rs. 1,05,000 which comprised the value of the Matador van had come to the notice of the Income-tax Officer or whether it had escaped his attention is required to be assessed. From the note in question, two things arc clear, viz., that this particular head had come to the attention of the Income-tax Officer when he was finalising the assessment, that he has applied his mind to the contention raised on behalf of the assessee that it could justifiably be transferred to the head of capital and that he has also accepted this position. Undoubtedly, the main contention that has been pressed before us on behalf of the Revenue is that the Income-tax Officer on the earlier occasion had not formed any opinion and one of the possible justifications for this argument is perhaps the fact that there is no discussion with regard to this head nor is there any significant record in the assessment order. That is the main ground on which learned counsel submitted that where the Tribunal upheld the bar on the ground of change of opinion it presupposes the fact that there was an earlier opinion whereas in his submission there was no earlier opinion which was subsequently changed. We have very carefully dissected this argument and we do find that it would be impossible to uphold it for the simple reason that we have on record the note which very clearly indicates that the attention of the officer had been focussed to this very head and that despite this having been done he has upheld the contention of the assessee that the amount could be transferred to the head of capital. It is not for us to examine the correctness or otherwise of what had happened but, the limited observation that this court needs to make is that the Income-tax Officer had very clearly and definitely formed an opinion with regard to this particular head of income as is reflected in the note, and factually it would therefore not be permissible to contend that no opinion had been formed in the first instance. This is the real stumbling block in the way of the Department because this case again is distinguishable from the earlier decision of the Delhi High Court referred to by us wherein the court found that no opinion had been expressed on the first occasion. Furthermore, what we have taken careful cognizance of is the fact that even a meticulous examination of the record before us will indicate that the reassessment was done on the basis of the pre-existing material and nothing that had come to the notice or possession of the Department at a subsequent point of time. That is one of the essential ingredients that could justify the reopening of an assessment. Barring the cryptic reference in the record that it subsequently came to the notice of the Department . . . which we have referred to earlier, there is nothing to indicate that there was anything to justify a situation whereby any additional or new information had been received as this has not been set out anywhere. It is clear therefore from the orders before us that this was a simple case wherein the earlier order had been reconsidered/reviewed and that being the position, it would come squarely within a situation of "change of opinion" which having regard to the well crystallised law on the point is not permissible.