Income Tax Appellate Tribunal - Delhi
Sh. N.C. Gupta vs Acit on 13 April, 2004
Equivalent citations: [2004]90ITD768(DELHI), [2004]270ITR106(DELHI), (2004)85TTJ(DELHI)122
ORDER
K.C. Singhal, Judicial Member
1. All these appeals were heard together and are being disposed of by the common order for the sake of convenience. The main issue arising in these appeals relates to the validity of re-assessment proceedings Under Section
147.
2. Briefly stated, the facts are these: The assessee was employed as Development Officer with LIC of India, Saharanpur. In all these years under consideration, the assessee had received certain amount of incentive bonus from the employer in addition to the salary. In computing his income for all the years, he deducted amounts equal to 40% of incentive bonus on account of expenditure incurred for earning such income. Assessments were made Under Section 143(1) for all these years. At this stage, it may be mentioned that no disallowance was made by the AO while processing the return Under Section 143(1) in respect of asstt. Years 1998-99, 1999-2000 and 2000-2001 while such deductions were disallowed in respect of asstt. Years 1995-96 and 1997-98 which were deleted in the appeal proceedings. Subsequently, it appears from the asstt. Order for asstt. Year 1998-99 that office of the Accountant General, UP, pointed out that such deduction was not allowable in view of the CBDT instruction No. 1774 dated 14.10.97. Accordingly, directions were issued from the Office of the Additional Commissioner of Income-tax, Dehradun vide letter dated 1.2.2001 to the AO for taking necessary action for re-opening the assessment. Accordingly, the notices Under Section 148 were issued to the assessee in respect of all these assessment years. Thereafter, after giving opportunity to the assessee, the deduction claimed by the assessee against incentive bonus was disallowed for all these years under consideration. All the orders of the AO were upheld by the CIT(A). Aggrieved by the same, the assessee is in appeal before the Tribunal.
3. The learned counsel for the assessee has assailed the orders of the CIT(A) by raising two contentions. The first contention is that re-assessment proceedings cannot be initiated on the basis of the objection of the audit party. Reliance has been placed on two judgments of Supreme Court, namely, Indian and Eastern Newspaper Society, 119 ITR 996 and Lucas TVS Ltd., 249 ITR
306. He also relied on the decision of Gujarat High Court in the case of Kaira Distt. Cooperative Milk Producers Union Ltd., 216 ITR 371 for the proposition that re-assessment proceedings cannot be initiated where there is a complete disclosure of primary and material facts. The second contention of the learned counsel for the assessee is that there was no escapement of income in as much in as much as the claim of the assessee was in consonance with the view expressed by the Gujarat High Court in the case of Kirn Bhai Shelat, 235 ITR 635 and Bombay High Court in the cases of A.A. Banian, 197 ITR 717 and M.C. Shah, 189 ITR 180 as well as J&K High Court in the case of R.K. Salhotra.
4. On the other hand, the learned DR has strongly opposed the first contention of the learned counsel of the assessee by submitting that in view of the amended provision, reassessment proceedings can be initiated even on the basis of objection taken by the audit party. He also relied on the Supreme Court judgment in the case of P.V.S. Bidis P. Ltd., 237 ITR 13 for the proposition that re-assessment proceedings can be taken if the objection is pointed out be the audit party. It was further contended by him that there was escapement of income in view of the opinion expressed by various High Courts.
5. Rival submissions of the parties have been considered carefully. We are not inclined to accept the first contention of the learned counsel for the assessee that reassessment proceedings could not be initiated on the basis of audit objection for the reasons given hereafter. The amended provisions of Section 147 effective from 1.4.89 authorizes the AO to re-open the assessment if he has reason to believe that any income chargeable to tax had escaped assessment while Section 147(b) prior to amendment authorizes the AO to re-open the assessment if he has reason to believe that income chargeable to tax had escaped assessment as a consequence of information in his possession. The judgment of apex court in the case of Indian and Eastern Newspaper Society, 119 ITR 996 was based on the interpretation of the word "information" as appearing in Section 147(b) prior to amendment. The apex court held that audit objection on interpretation of a provision did not amount to information within the ambit of Section 147(b) and, therefore, the assessment could not be re-opened on such audit objection. This judgment was followed by their Lordships in the case of Lucas TVS Ltd., 249 ITR 306. The Gujarat High Court judgment reported as 216 ITR 371 is not on the point before us. However, it is mentioned that the said judgment also considered the old provisions of Section 147(a). The judgment of the Supreme Court in the case of P.V.S. Bidis P. Ltd., 237 ITR 13 relied upon by the learned DR is also not on the point before us since it was also delivered in the light of old provisions Under Section 147(b) wherein it was held that audit note regarding factual error constitute 'information' Under Section 147(b). Therefore, neither of the judgments relied by the parties before us is on the issue before us. We are concerned about the provisions of Section 147 as amended from 1.4.89. After the amendment, there is no condition precedent that the escapement of income must be found on the basis of 'information' coming to the possession of the AO. The relevant portion of Section 147 effective from 1.4.89 reads as under:
"Section 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 147 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 recomputed the loss or the depreciation allowance or any other allowance, as the case may be, for the assessment year concerned (hereinafter in this section and in sections 148 to 153 referred to as the relevant assessment year).
Provided............................................................"
The perusal of the above provisions clearly shows that assessment can be re- opened if the AO has reason to believe that income chargeable to tax had escaped assessment. Such reason to believe can be founded on the basis of any material and cannot be restricted to 'information' coming to the possession of the AO. The amended provisions are much wider than the un-amended provision. Accordingly, the first contention of the learned counsel for the assessee is rejected.
6. As far as the second contention of the learned counsel for the assessee that there was no escapement of income, we are of the view that the same is not without force. The contention on behalf of the assessee is that income cannot be said to be escaped, if the deduction claimed by the assessee is in accordance with the decisions of the Tribunal and High Courts and the claim of the assessee has been accepted by the AO even Under Section 143(1), merely on the ground that such claim of the assessee is not in accordance with the other decisions of other High Courts. On the other hand, the case of the Department is that if the claim of the assessee is not in accordance with the judgments of the majority of the High court then it can be said that income of the assessee has escaped assessment. However, none of the party has brought to our notice any judgment of High Court or Tribunal directly on this issue.
7. Admittedly, there is divergence of opinion on the issue whether deduction can be allowed against the incentive bonus received by the development Officer employed with an insurance company. Majority of the High Courts i.e. High Courts of Punjab & Haryana, Rajasthan, Orissa, Andhra Pradesh, Madras and Bombay have taken the view that such incentive is part of salary and therefore, no deduction can be allowed against such incentive except standard deduction. On the other hand, Gujarat High Court has dissented from such view by holding that profits in lieu of salary Under Section 17 would include net profits and not the gross receipts and, therefore, assessee is entitled to deduction on account of expenditure in earning of such incentive. Various benches of the Tribunal in the past had also accepted such stand of the (sic) and the High Court had refused to interfere with the finding given by the Tribunal. The issue is still pending before the Supreme Court and there is no judgment of allahabad High Court which is the jurisdictional High Court in the case of the assessee. Hence, there was no finality of the issue as far as the present assessee is concerned.
8. So the question arises whether income can be said to be escaped assessment, where deduction claimed by the assessee is in accordance with judicial opinion expressed by the Tribunal and High Court and also has been accepted by the AO Under Section 143(1), merely on the ground that some of the High Courts have taken the view in favour of the department. No direct judgment on this issue has been brought to our notice by either of the parties. However, we find three judgments of Supreme Court which are nearer to such issue. The first judgment is in the case of Simon Craves Ltd., 105 ITR 212. In that case, the assessee was a non resident company carrying on the business as construction engineers. The income of assessee was computed by applying one of the methods provided in Rule 33 of Income-tax Rules, 1922 at Rs. 16,16,005/-. Subsequently, the AO re-opened the assessment Under Section 147(b) and re-computed the income at Rs. 64,51,933/- by applying the other method permissible. The appellate authority held that re-assessment was not valid. Finally, the matter reached Supreme Court. Their Lordships defined the scope of expression 'escaped assessment' used by the legislature in Section 147(b) {prior to amendment} by holding as under:
"There is necessarily an element of error in cases of income escaping assessment mentioned in Section 147(b) of the Act of 1961. Such error resulting in income escaping assessment becomes manifest in the light of information coming subsequently into the possession of the Income-tax Officer. Where the order making the original assessment was a legally correct order and was not vitiated by any error, the case would not be one which would fall within the ambit of Section 147(b) of the Act of 1961 or Section 34(1)(b) of the Act of 1922. The Income-tax Officer ordering reassessment does not sit as a court of appeal over the Income-tax officer making the original assessment. Nor is it open to the Income-tax Officer ordering reassessment to substitute his own opinion regarding the method of computing the income for that of the Income-tax Officer who made the original assessment, especially when the method of computation adopted at the time of original assessment was permissible in law. The fact that the adoption of a different method of computation would have resulted in higher yield of tax would not in such a case justify the reopening of the assessment."
The perusal of the above observations clearly shows that there must be an error in the order of assessment for the purpose of re-opening Under Section 147(b). If the order of the AO is in accordance with one of the two methods available to the AO then it cannot be said that the order of AO was erroneous and accordingly, such assessment could not be re-opened merely on the ground that the other method was advantageous to the revenue.
9. The other judgment of the Hon'ble Supreme Court is in the case of G.M. Mittal Stainless Steel (P) Ltd., 263 ITR 255 wherein it was held that where the AO passed an order in accordance with decision of High Court, then such order could not be considered as erroneous for the purpose of assumption of jurisdiction Under Section 263 even though such decision of the High Court has been reversed subsequently by the Supreme Court. Similarly, in the case of Malabar Industrial Co. Ltd., 243 ITR 83, their Lordships of Supreme Court held that CIT could not assume jurisdiction Under Section 263 where the order of assessment passed by the AO was in accordance with one of the two possible views in as much as the order of AO could not be said be erroneous. The relevant observations of their Lordships are being reproduced as under:
"The phrase "prejudicial to the interest of the Revenue" has to be read in conjunction with an erroneous order passed by the Assessing Officer. Every loss of revenue as a consequence of an order of the Assessing Officer, cannot be treated as prejudicial to the interests of the Revenue, for example, when an Income-tax Officer adopted one of the courses permissible in law and it has resulted in loss of revenue, or where two views are possible and the Income- tax Officer has taken one view with which the Commissioner does not agree, it cannot be treated as an erroneous order prejudicial to the interests of the Revenue unless the view taken by the Income-tax Officer is unsustainable in law."
10. We also find one judgment of jurisdictional High Court in the case of Seth Satish Kumar Modi, 139 ITR 373 (All). In that case, shares held by the firm in which assessee was partner were required to be valued for determining the value of his interest in the firm for wealth-tax purposes. The assessee determined the value of shares in accordance with commercial principles as per Rule 2 of Wealth-tax Rules, 1957 and the same was accepted by Assessing Officer. Subsequently, the AO sought to re-open the assessment on the ground that such shares should have been valued by applying Rule 1D. The Hon'ble High Court, on writ petition filed by assessee, held that re-opening was illegal as the original order was not erroneous.
11. The perusal of above judgments clearly shows that if the original assessment is in accordance with law prevalent at that time or in accordance with one of the possible views then such order cannot be said to erroneous in law, 243 ITR 83 (SC). If the original order is not erroneous than it cannot be said that income chargeable to tax escaped assessment merely because that the other view would be more advantageous to revenue, 105 ITR 212 SC. By applying the same analogy, we hold that income cannot be said to be escaped where the claim of assessee is based upon one of the two views and such claim is accepted even Under Section 143(1).
12. In the present case, at the time when the returns were filed by the assessee, there was divergence of opinion among the various High Courts. Further, there was no judgment of jurisdictional High Court. The dispute is still pending before the apex court. The claim of assessee was in accordance with one of the views expressed by High Courts. The same was also accepted in three assessment years. In two assessment years, the AO made certain adjustments but the same were deleted by the Tribunal by holding that such adjustments could not be made by Assessing Officer. In view of the same and the judgments discussed above, the assessment Under Section 143(1) could not be said to be erroneous and consequently, it cannot be said that there was escapement of income. We hold accordingly. Consequently, the orders of CIT(A) as well as the orders of AO Under Section 147 are hereby quashed.
13. In the result, all appeals of assessee are allowed.