Income Tax Appellate Tribunal - Delhi
Bses Rajdhani Power Ltd., New Delhi vs Department Of Income Tax
IN THE INCOME TAX APPELLATE TRIBUNAL
DELHI BENCH 'A': NEW DELHI
BEFORE SHRI G.D. AGRAWAL, VICE-PRESIDENT
AND
SHRI I.P. BANSAL, JUDICIAL MEMBER
ITA Nos. 488 & 489/Del/2011
Assessment Years: 2003-04 & 2004-05
DCIT, BSES Yamuna Power Ltd.,
Circle 3(1), Shakti Kiran Building,
New Delhi. Vs. Karkardooma,
New Delhi.
AABCC8569N
(Appellant) (Respondent)
ITA Nos. 486 & 487/Del/2011
Assessment Years: 2003-04 & 2004-05
DCIT, BSES Rajdhani Power Ltd.,
Circle 3(1), Shakti Kiran Building,
New Delhi. Vs. Karkardooma,
New Delhi.
AAGCH3187H
(Appellant) (Respondent)
Appellant by : Sh. H.L. Dhiyana, CIT(DR)
Respondent by : S/Shri Jitendra Sanghavi & Surender Kumar, CA
ORDER
PER BENCH:
All these appeals are filed by the revenue and are directed against two separate orders dated 10.12.2010 and 25.11.10 passed by the CIT(A) for each assessee in respect of assessment years 2003-04 and 2004-05 respectively.
2. In all these appeals revenue has raised common issue. Grounds of appeal in all the four appeals are also identical and read as under: -
2 ITA Nos.486 to 489/Del/20111. "The ld. CIT(A) has erred on facts and in law in annulling the order u/s 143(3)/147 of the I.T. Act while holding invalid the reopening u/s 147, ignoring that where transaction itself, on the basis of subsequent information is found to be bogus transaction, mere disclosure of that transaction at time of original assessment proceedings cannot be said to be a disclosure of the "true" and "full" facts in the case and ITO would have jurisdiction to reopen concluded assessment in such a case. Reliance is placed on the decision of the Hon'ble Supreme Court in Phool Chand Bajrang Lal vs. ITO (1993) 203 ITR 456 (SC); Bawa Abhai Singh vs. DCIT 253 ITR 83 (Del); 142 CTE (Del) 272 & 225 ITR 496; Ram Prasad vs. ITO (1995) 82 Taxman 199 (All); ESS ESS Kay Engg. Co. (P) Limited vs. CIT 124 Taxman 481 (SC).
2. The appellant craves leave for reserving the right to amend, modify, alter, add or forego any grounds of appeal at any time before or during the hearing of this appeal."
3. All these appeals were argued together by both the parties hence for the sake of convenience all of them are being disposed of by this single order.
4. In all the four appeals ld. CIT(A) has struck down the validity of reassessment proceeding on the basis of "change of opinion". In ITA No. 488/Del/2011 the validity of reassessment proceeding has also been struck down on the basis of applicability of proviso to sec. 147 as it is found that there was no failure on the part of the assessee to disclose fully and truly all material facts required to assess income.
5. For ITA No.488/Del/2011, to consider the issue regarding applicability of proviso to sec. 147 it will be necessary to mention few facts. The original return was filed at loss of Rs. 1689482456/- on 2.12.2003 which was processed u/s 143(1) on 11.03.2004. Original Income tax assessment was framed vide order dated 28.03.2006, whereby the loss of the assessee was assessed at Rs. 168939094/-. Notice u/s 148 was issued on 17th September, 2008 in response to which return was filed on 21st October, 2008 declaring loss of Rs. 177,85,12,752/-. The validity of reassessment was agitated on the ground that it is time barred under proviso to sec. 147 and also on the ground that it is based on "change of opinion". The only addition which is made in 3 ITA Nos.486 to 489/Del/2011 the reassessment order is a sum of Rs. 6,82,00,000/- which is disallowed on account of service line deposits. It was noticed by the AO that during the year under consideration the assessee company had received a sum of Rs.
10,23,00,000/- as service line deposits from its customers which was reflected in the liability side of the balance sheet under the head "loan and advances". Out of the aforementioned security deposit a sum of Rs. 3,41,00,000/-, being 1/3rd of the total amount, was transferred to profit and loss account as revenue receipt and the balance sum of Rs. 6,82,00,000/- was shown as "liability." The AO is of the view that the said amount was a receipt of the assessee which was non-refundable and the company itself has recognized 1/3rd of the total receipt in the nature of revenue receipt, hence entire receipts are chargeable to tax being revenue receipt. Accordingly, a sum of Rs. 6,82,00,000/- is added to the income of the assessee and the loss of the assessee is reduced to Rs. 162,11,09,994/- against the assessed loss of Rs. 168,93,09,994/- assessed as per original assessment order dated 28.03.2006.
6. The assessee objected to the reassessment proceeding on the ground that during the course of original assessment proceedings, vide annexure '2' annexed to letter dated 19.12.2005, the assessee had filed a detailed note on service line deposits received by the assessee from its customers which were accounted for as income over the period of three years. The said reply was duly considered by the AO and it was discussed with him and the AO was convinced with the submissions made by the assessee. Therefore, no addition was made in the original assessment order framed u/s 143(3) and subsequent issue of notice u/s 148 is based on "change of opinion". It was claimed that the initiation of reassessment proceedings is also barred by limitation as the same is after the expiry of four years from the end of the relevant assessment year and there is no failure on the part of the assessee to disclose fully and truly all material facts necessary for the assessment. The AO rejected the assessee's objection for reopening of the assessment vide order dated 27.11.2009 and reassessment order was passed on 09.12.2009.
4 ITA Nos.486 to 489/Del/20117. Before CIT(A) it was claimed that Assessing Officer, vide questionnaire issued on 16.11.2005, had raised the following query:
"In the Audit Report furnished along with the return it is stated that the service line deposits received from the consumers are accounted for as income over three years period. Please explain why the same should not be accounted in the current year itself since the assessee company has received the receipts in the current year."
8. It is found by ld. CIT(A) that assessee had filed a reply dated 19.12.2005, whereby a note on the service line deposits was filed and, therefore, she held that it is evident that the issue for which the case has been reopened was subject matter of scrutiny assessment which was completed on 29.12.2006. All the relevant material was filed before the AO. She held that reassessment proceedings are initiated "on perusal of the assessment record". She also held that it is not the case of the AO that any new information had come to his notice which could laid to the formation of belief that the income has escaped assessment. The assessment is reopened on the basis of same material which was available at the time of original assessment proceeding and thus, taking a different view at a later stage will be merely a case of "change of opinion". Relying on the decision of Hon'ble Supreme Court in the case of CIT vs. Kelvinator of India Ltd., 320 ITR 561 (SC) and also the decision of Hon'ble Delhi High Court in the case of Satnam Overseas Ltd. vs. Addl. CIT, 188 Taxman 172, she held that the proviso to sec. 147 is applicable hence the initiation of reassessment proceedings is time barred. It was not established by the AO that the income had escaped assessment because of the failure on the part of the assessee to disclose fully and truly all material facts necessary for the assessment of the assessee. Thus, the ld. CIT(A) has struck down the validity of reassessment proceedings on the basis of "change of opinion" as well as on the ground of applicability of proviso to sec. 147.
9. For the sake of completeness the factual aspect in respect of all the present appeals is described as below:-
5 ITA Nos.486 to 489/Del/2011 ITA No. 488/Del/201110. Copy of reasons recorded for reopening of assessment is placed at page 24 of the paper book and it will be relevant to reproduce the same.
M/s BSES Yamuna Power Limited A.Y. 2003-04 Reasons for reopening the case U/s 147/148 of the I.T. Act, 1961 Return of income in this case was filed on 2/12/2003 declaring loss of Rs. 1689482456/-. The return was processed u/s 143(1) on 11/03/2004. The scrutiny assessment completed u/s 143(3) on 29/12/2006 at loss of 1689309994/-.
On perusal of the assessment record of the assessee following discrepancies have come to the notice;
That during the year the assessee company received a sum of Rs. 10.23 crores from customers as Security Line Deposits which has been reflected in the liability side of the B/S under the head Loan & Advances. Out of this security deposits a sum of Rs. 3.41 crores, as 1/3rd of the total amount, was transferred to P&L Account as revenue receipt and a balance sum of Rs. 6.82 crores has been shown as liability. The whole of the security line deposits are in fact not a liability of the company but are revenue receipts accrued/received during the running of business operations of the company and hence are taxable in its hands. Similar type of addition was also made in the A.Y. 2005-06 the AO held that;
• The service line deposits are not in the nature of deposits since t hey are non-refundable. The fact also admitted by the assessee com.
• Once these receipts have been accepted as non-
refundable receipts they are no more a liability on the company. Hence the treatment given by the assessee to service line deposit by treating them as loan funds and accordingly as liabilities is altogether incorrect. • The fact that the assessee company itself treated 1/3rd of these receipts as revenue receipts, impliedly, goes on to show that the company believe that they are of revenue nature.
In view of the facts narrated above, I have reason to believe that income to the tune of Rs. 6.82 crores has escaped assessment for failure on the facts of the assessee to disclose fully and truly all material facts necessary for the assessment for the A.Y. 2003-04 as per the provisions of sec. 147 of the Income Tax Act,1961."
6 ITA Nos.486 to 489/Del/201111. Copy of questionnaire raised by the AO during the course of original assessment proceedings vide letter dated 16.11.2005 is filed at pages 46 to 48 of the paper book and following question no. 2 was raised for the service line deposit
2. "In the Audit Report furnished along with the return it is stated that the service line deposits received from the customers are accounted for as income over three years period. Please explain why the same should not be accounted in the current year itself since the assessee company has received the receipts in the current year."
12. The copy of reply given by the assessee is letter dated 19.12.2005 copy of which is placed at pages 49 to 51 of the paper book, the reply of the assessee in this regard was as under: -
2. "Note on the service line deposits received from the customer and accounted for as income over 3 years period. (Annexure Annexure--2)"
Annexure
13. Copy of annexure '2' filed with letter dated 19.12.2005 is attached at page 25 & 26 of the paper book which read as under: -
"ANNEXURE 2 BSES YAMUNA POWER LIMITED ASSESSMENT YEAR 2003-04 Note on the Service Line Deposits received from the customers and accounted for as income over 3 years period.
Service Line Deposits are received from the customers for the required electrification of new lines/areas in their locality.
1. For electrifying the areas/locality, the assessee company has to incur huge expenses which are normally in the nature of capital expenses. In fact, as per Electricity (Supply) Act, 1948, service line deposits received from the customers is not the income but is in the nature of capital receipt to meet out the huge capital expenditure for electrifying the areas/locality.
2. In fact the Service Line Deposits received from the customers are required to be reduced in the corresponding capitalization of assets for electrifying the concerned areas. Accordingly, service line deposits received cannot be treated as revenue income. The most appropriate method of accounting of service line deposits is to account for the same under the head "current liabilities" and deduct the same against the capital expenditure incurred there against, the same should be the treatment for tax purpose, i.e. 7 ITA Nos.486 to 489/Del/2011 Depreciation should be allowed against the net fixed asset cost (i.e. net of service line deposit).
3. In the cases of non electrified areas it takes a lot of time spreading from 2 to 3 years in its electrification. After putting the assets into use, all the expenses incurred on electrification of the areas are capitalized and depreciation @ 25% per annum is being claimed in income tax. Accordingly, fixed assets (capitalized depending upon the finalization of electrification of areas) are being fully depreciated/ claimed as revenue expenditure by way of depreciation in the next 4 to 5 years.
4. In view of the above method, service line deposits received is not at all the income of the assessee company but required to be deducted from the concerned fixed assets and then claimed as depreciation on the net capitalization @ 25%. However, in the absence of one to one linking of service line deposits received from the customers and the expenses incurred there against for electrifying the concerned areas, service line deposits which are in the nature of capital receipt are being offered as revenue expenditure over 3 years period.
5. Based upon the above it is submitted that the service line deposits received in the current year (2002-03) itself cannot be treated as the income of the same year. In fact it is not the income at all and is really required to be deducted from the corresponding fixed assets as and when capitalized. The method followed by the company, (the service line deposits received from the customers) as income over the initial 3 year period, results in the assesee offering higher income for tax, much earlier than what would happened had the assessee followed the alternative method of claiming depreciation on the net fixed asset cost; over a 4-5 year period, which would begin at the end of the 2-3 year asset installation period."ITA No. 489/Del/2011
14. In this case the original assessment order is dated 29.12.2006 the copy of which has been placed at pages 19 to 22 of the paper book. Copy of reasons recorded for reopening is placed at page 108 of the paper book. In this case reason to reopen apart from issue of service line deposits also consists of issue regarding depreciation on energy meters. Addition made on account of service line deposits is to the tune of Rs. 96,40,00,000/- and on account of depreciation on energy meters is Rs. 9,14,71,039/-. The reasons recorded are as under: -
8 ITA Nos.486 to 489/Del/2011"M/s BSES Yamuna Power Limited A.Y. 2004-05 Reasons for reopening the case u/s 147/148 of the I.T. Act, 1961 "Return of income in this case was filed on 30/10/2004 declaring loss of Rs. 140154360/-. Subsequently the return was revised on 30/03/2000. The return was processed u/s 143(1) on 29/12/2006. The scrutiny assessment completed u/s 143(3) on 29/12/2006 at loss of Rs. 187430602/-.
On perusal of the assessment record of the assessee following discrepancies have come to the notice;
That the assessee company claimed and was allowed depreciation on energy meters @ 80% under the head "plant and machinery" instead of correct rate of 25%. It is pertinent to mention here that excess depreciation claimed on account of energy meter has also been disallowed in the A.Y. 2005-06. It was held in the assessment order for A.Y. 2005-06 that Energy Meters installed by the company are mostly mechanical meters used for measuring electrical consumption and are not energy saving devises. It is only the energy meters which have inherent quality of saving energy which quality for higher depreciation of 80% as envisaged in the clause 8(ix) of plant and machinery depreciation schedule of IT Rules. Since the facts are similar in this assessment year also, hence I have reason to believe that the assessee has claimed higher depreciation or energy meters to which he was not entitled. This excess claim is to the tune of Rs. 91471039/-.
That during the year the assessee company received a sum of Rs. 161600000/- from customers as Security Line Deposits which has been reflected in the liability side of the B/S under the head "Loan & Advances". Out of this security deposits a sum of Rs. 65200000/-, as 1/3rd of the total amount, was transferred to P&L account as revenue receipt and a balance sum of Rs. 964000000/- has been shown as liability. The whole or the security line deposits are in fact not a liability of the company but are revenue receipts accrued/received during the running of business operations of the company and hence are taxable in its hands. Similar type of addition also made in the A.Y. 2005-06.
In view of the facts narrated above, I have reason to believe that income to the tune of rupees 187871039/- has escaped assessment for the assessment year 2004-05 as per provisions of sec. 147 of the I.T. Act, 1961. Accordingly notice u/s 148 is being issued."9 ITA Nos.486 to 489/Del/2011
15. The questionnaire issued by the AO is dated 9.10.2006 copy of which is placed at page 139 to 140 of the paper book. The query regarding both these issues are as under: -
4. "Please give the logic and the reason for accounting the "Service line deposits" as "income" over a period of three years."
.................................................................................................. ................................................................................................... ...................................................................................................
8. Please furnish the relevant documentary proof for claiming depreciation on "Energy Meters" @ 80%."
16. Copy of letter vide which the above mentioned queries were replied is placed at pages 37 & 38 of the paper book which is letter dated 18.11.2006. The note relating to service line deposit was replied vide sl. No. 9 which read as under: -
9. "Note on the logic and reasons for accounting the "Service line deposits" as income offered over a period of three years -
Annexure II."
17. The note regarding depreciation on energy meters was replied vide sl. No. 13 which read as under: -
13. "Note on Claiming Depreciation on "Energy Meters" @ 80% -
M."
Annexure M
18. The note relating to service line deposit is almost same and for the sake of bravity the same is not reproduced. However, the copy of the same is filed by the assessee at pages 39 to 40 of the paper book.
19. The reply regarding claiming of depreciation on energy meters in annexure 'M' placed at page 41 is as under: -
Annexure--M Annexure Note on Claiming Depreciation on "Energy Meters" @ 80% "The assessee company is claiming depreciation @ 80% on Energy Meters under Clause (III)(Machinery & Plant) 8(ix) of Part A to the Rates of Depreciation in the Appendix to the Income Tax Rules applicable for the A.Y. 2004-05, (Enclosed relevant documentary proof - Specification/PO's of Energy Meter-Annexure M(4)."
Annexure M(1), M(2), M(3), M(4) 10 ITA Nos.486 to 489/Del/2011 ITA No. 487/Del/2011
20. The original assessment in this case is framed vide order dated 29.12.2006 at a loss of Rs. 21,91,09,259/- passed u/s 143(3) of the Act.
21. Copy of reasons recorded for reopening is filed at page 110 of the paper book. The reasons are identical as are in ITA No. 489 and for the sake of brevity the same are not being reproduced. The escapement which has been pointed out in the reasons is a sum of Rs. 37,07,38,484/- on account of difference in depreciation on energy meters and a sum of Rs. 15,73,00,000/- on account of security line deposits and total escaped income is computed in the reasons at Rs. 55,86,09,523/-. Copies of queries raised by the AO vide letter dated 09.12.2006 is placed at pages 140, 141 of the paper book. The query relating to service line deposit is at sl. No. 4 which read as under: -
4. "Please give the logic and the reason for accounting the "Service line deposits" as "income" over a period of three years."
22. Query relating to depreciation on energy meter is at Sl. No. 8 which read as under: -
8. "Please furnish the relevant documentary proof for claiming depreciation on "Energy Meters" @ 80%."
23. The copy of the reply to the above queries was furnished by the letter dated 18.11.2006 (copy is filed at pages 38 & 39 of the paper book). The reply regarding service line deposits was given vide Sl. No. 9 which read as under: -
9. "Note on the logic and reasons for accounting the "Service line deposits" as income offered over a period of three years -
Annexure II."
24. Copy of reply given in respect of depreciation on energy meters is at Sl. No. 13 which read as under: -
11 ITA Nos.486 to 489/Del/201113. "Note on Claiming Depreciation on "Energy Meters" @ 80% -
Annexure--M."
Annexure
25. Note on service line deposits is almost same hence for the sake of brevity the same is not being reproduced (copies placed at pages 40 & 41 of the paper book). Similarly, copy of reply regarding depreciation of energy meters is placed at page 42 of the paper book which is also similar to the earlier. The technicalities specifications were also filed, copy of which is placed at pages 44 to 51 of the paper book.
ITA No. 486/Del/201126. The original assessment in the present case was completed vide order dated 28.03.2006 at a loss of Rs. 173,68,65,747/- passed u/s 143(3) of the Act. The copy of reasons is placed at page 23 of the paper book. The escaped income has been considered in the shape of security line deposits and escaped income on that account has been found at Rs. 11,66,95,223/-. Total amount of security deposit received by the assessee was 17,50,52,829/- out of which a sum of Rs. 5,83,57,606/- was considered by the assessee as revenue receipts and balance amount of Rs. 11,66,95,223/- was shown as a liability and the reason for reopening are the same. The copy of questionnaire issued by the AO during the course of original assessment proceeding is placed at page 46 to 48 of the paper book which is a letter dated 16.11.2005. The query relating to service line deposits is placed at Sl. No. 2 which read as under: -
2. "In the Audit Report furnished along with the return it is stated that the service line deposits received from the consumers are accounted for as income over three years period.
Please explain why the same should not be accounted in the current year itself since the assessee company has received the receipts in the current year."
27. The reply of the above questionnaire is letter dated 20.12.2005 copy of which is placed at pages 49 to 51 of the paper book. The reply to the aforementioned query was given vide Sl. No. 2 which read as under: -
12 ITA Nos.486 to 489/Del/20112. "Note on the services line deposits received from the customer and accounted for as income over 3 years period.
(Annexure Annexure--2)."
Annexure
28. The copy of annexure '2' is filed at pages 24 to 26 of the paper book which is almost the same as was given in respect of other years.
29. Thus, it is clear from the above facts that queries on the issues on which reassessment proceedings have been initiated were raised during the course of original assessment proceedings and the replies were also given by the assessee with regard to those queries.
30. Ld. DR after narrating the above facts pleaded that ld. CIT(A) while quashing the initiation of reassessment proceedings has failed to consider Explanation 1 of sec. 147, according to which mere production before the AO of the account books or other evidence from which material evidence could with due diligence have been discovered will not necessarily amount to disclosure within the meaning of proviso to sec.147. Therefore, he pleaded that ld. CIT(A) has wrongly applied the proviso to sec. 147. Mere raising of a query and reply thereof does not substantiate the fact that there was no failure on the part of the assessee to disclose fully and truly all material facts necessarily for its assessment. He submitted that there is absolutely no discussion whatsoever in the original assessment order and thus, it cannot be said that the reply of the assessee was considered by the AO and AO had applied his mind. He submitted that according to the language of Explanation 1 mere submission of facts is not sufficient. He also pleaded that it is not a case of mere "change of opinion" as AO has not applied his mind on the issues on which the reassessment proceedings have been initiated. To support his arguments ld. DR referred to the following decisions:-
i) M/s Honda Siel Power Products Ltd. vs. DCIT (2011) 197 Taxman 415 (Del.) : In this case, it was held by the Hon'ble High Court that the term "failure" on the part of the assessee is not restricted only to Income tax return and columns of Income tax returns or the tax audit report; expression "failure to fully and truly disclose material facts" also relates to the stage of 13 ITA Nos.486 to 489/Del/2011 assessment proceedings. It was held that "material particular" referred to in the first proviso to sec. 147 not only refers to the details in return but also to explanations and details furnished during the course of assessment proceedings. Therefore, it was held that merely because material lies embedded in material or evidence, which AO could have uncovered but did not uncover, is not a good ground to deny or strike down a notice for reassessment. Therefore, it is the contention of ld. DR that Explanation 1 is fully applicable, hence CIT(A) is not right in holding that there was no failure on the part of the assessee to disclose fully and truly all material facts necessary for assessment. He submitted that this decision of the Hon'ble Delhi High Court has been confirmed by the Hon'ble Supreme Court vide decision dated 29th July, 2011 in Civil No. 19085/2011. He has also submitted copy thereof in which their lordships of Hon'ble Supreme Court have upheld the validity of initiation of reassessment proceeding with the following observations "in our view, the reopening of the assessment is fully justified on the facts and circumstances of the case.
ii) M/s Dalmia P. Ltd. vs. CIT Writ Petition (Civil) No. 6205 of 2010 order dt.
26th Sept., 2011: In this case, on facts, it was found that the Assessing Officer required the assessee to submit details in respect of sundry creditors amounting to ` 1,66,37,402/- and despite various queries raised by the Assessing Officer during the course of original assessment proceedings, the assessee submitted details or confirmations only to the extent of ` 1,13,53,344/- and it was held by Hon'ble High Court that in respect of sundry creditors regarding which no details or confirmations were filed the reopening was valid.
iii) M/s Oriental Insurance Co. Ltd. vs. ACIT ITA No. 3910/Del/2007 order at 22nd July, 2011: To contend that in a case when an assessment order was passed u/s 143(3) a general presumption cannot be raised that such an order was passed after an application of mind and in absence of any discussion the case will not fall within the scope of "change of opinion" as no opinion whatsoever has been formed by the AO on that issue.
14 ITA Nos.486 to 489/Del/2011iv) M/s Ankita Deposits & Advances (P) Ltd. vs. CIT (2010) 193 Taxman 36 (HP) judgment dt. 18th June, 2011: In this case, it is held that power of the AO to reopen the assessment are very wide. The term "reason to believe" does not mean the mere "change of opinion". In a case where no opinion has been expressed, then whatever be the reason, as long as they prima-facie satisfy the conscience of the court, the court would not interfere with the issuance of a notice. It was found that no reasoned findings were given on the return filed by the assessee for the three previous years. The returns were accepted as a matter of course. The returns filed by the assessee are generally accepted to be correct and scrutiny is done in a few cases only. Later on it was found that the assessee was evading tax by claiming the income from the sale of shares to be long term capital gain. Thus, the AO had reasoned to believe that assessee was causing loss to the revenue and his action was detrimental to the interest of revenue. The reason for that prima-facie opinion was that when losses were being incurred on the sale of shares, the assessee claim those losses under the head "business income" and prior to A.Y. 1999-2000, the assessee had been showing investment in those very shares as a trading investment and not a long term capital investment. Thus, the initiation of reassessment proceeding was held valid.
v) CIT vs. Rinku Chakraborthy & others (Karnataka High Court judgment th dt. 6 January, 2011 in ITA No.2781 of 2005): To contend that no opinion having been formed by the AO during the course of original assessment, the AO was empowered to reopen the case as the tax payer should not be allowed to take advantage of an oversight or mistake committed by the taxing authority.
31. Referring to above decision, it is the case of ld. DR that in the facts of the present case, the AO having not formed any opinion, the case cannot fall under the purview of "change of opinion". He submitted that it has already pointed out that though the queries were raised by the AO and replies have been given by the assessee, there is no discussion in the assessment order.
15 ITA Nos.486 to 489/Del/2011Hence, it is a case where the AO has not applied his mind either inadvertently or by oversight. Thus, he pleaded that relief has wrongly been given by the ld. CIT(A) and his order should be set aside and that of AO be restored.
32. On the other hand, it was submitted by ld. AR that it has been shown that during the course of original assessment proceedings, the queries were raised by the AO and replies were given by the assessee. He submitted that non discussion of the issues in the assessment order cannot be viewed against the assessee. He submitted that according to well established law even when the concept of "change of opinion" stands obliterated w.e.f. 1st April, 1989 i.e. after substantiation of sec. 147 of the Act by Direct Tax Laws Amendment Act, 1987, the concept will prevail as if the said concept is removed, it would vest arbitrary powers in the Assessing Officer. Reference was made to the decision of Hon'ble Supreme Court in the case of CIT vs. Kelvinator of India 320 ITR 561. It was submitted that in the said case the Hon'ble Supreme Court had also decided departmental appeal in the case of CIT vs. Eicher Ltd. 294 ITR 310 (Del) and the departmental appeal was dismissed which means that the decision of Hon'ble Delhi High Court in the case of CIT vs. Eicher Ltd. was upheld. He submitted that in the case of CIT vs. Eicher Ltd. it was held that if the entire material was placed by the assessee before the AO at the time when the original assessment was made and the AO applied his mind to that material and accepted the view canvassed by the assessee, then merely because he did not express this in the assessment order, that by itself would not give him a ground to conclude that income has escaped assessment. The assessee has no control over the way an assessment order is drafted. Generally, issues which are accepted by the AO do not find mentioned in the assessment order and only such points are taken note on which the assessee's explanations are rejected and additions/disallowances are made. It was further pleaded that it is not a disputed position that during the course of original assessment proceedings, the AO had raised the queries and assessee had furnished all the facts and materials relating to that issue and no addition was made in the original assessment order. He submitted that even according to reasons no new 16 ITA Nos.486 to 489/Del/2011 material has come to the notice of the AO. Whatever has been mentioned by the AO in the reasons is taken from the facts and materials disclosed by the assessee during the course of original assessment proceedings. Thus, it was pleaded by him that ld. CIT(A) after considering the available position of law has rightly decided the issue in favour of the assessee and his order should be upheld.
33. Ld. AR relied upon the following decisions: -
i) RRB Consultants & Engineers Pvt. Ltd. vs. DCIT decision of Hon'ble Delhi High Court dated 08.12.2011 in Writ Petition (Civil) No. 7313/2010 copy of decision is placed at page 1 to 5 of the paper book. It was held by the Hon'ble High Court that assessee has not failed or omitted to disclose material facts either deliberately or intentionally. On the other hand, full and true information and details were furnished and given during the course of original assessment proceedings. The relevant and germane facts were truly and fully disclosed. As per the case of the revenue, the AO made an error of judgment and did not form a proper legal opinion. A wrong legal inference was drawn from the facts stated by the assessee and on record. It was held that once primary facts have been disclosed, then, it is for the AO to draw proper legal conclusion and apply the provisions and the statute. It was found that it was not alleged that any fact or factual detail was embedded in the evidence/books of account which the AO could have uncovered but had failed to do so. The letter written by the assessee dated 10.01.2006, spelt out and in categorical terms had stated truly and fully the material facts.
Noting remained to be discovered or unearthed. Thus, it was held that the jurisdiction preconditions required for reopening of the assessment order was not satisfied.
ii) M/s Atma Ram Properties P. Ltd. vs. DCIT decision dated 11.11.2011 2011-TIOL-824-HC-Delhi-IT a copy placed at pages 6 to 17 of the paper book. In this case, the Hon'ble High Court has discussed the scope of Explanation 1 to sec. 147 and it has been held that in a case where the AO did not examine and gone into the question that whether or not provisions of sec. 2(22)(e) 17 ITA Nos.486 to 489/Del/2011 were attracted to the assessee's case can be a valid ground for initiation of reassessment proceedings and it was found that AO at the time of original assessment proceedings had gone into the question of loans and advances from the sister concern. Figures and details were furnished and given along with an annexure which had particulars like opening and closing balance sheet as well as the entries/transactions during the year under the question. Account of the Atma Ram Builders P. Ltd. was enclosed. It was the case of the revenue that AO had not examined and gone into the question whether or not provisions of sec. 2(22)(e) of the Act were attracted to the present case, therefore, reassessment proceedings are validly initiated. It was found by the Hon'ble High Court that sec. 2(22)(e) of the Act was not mentioned in the order sheet or in the assessment order but that fact does not help the case of the revenue for the reason that assessee cannot be faulted. If the AO had failed to apply legal provisions/sections of the Act, the fault cannot be attributed to the assessee. The requirement of the proviso is that assessee should not fail or omit to make full and true disclosure of material facts. The assessee is not required to disclose, state or explain the law and it was held that initiation of reassessment proceedings was not valid.
iii) Siemens Information vs. ACIT 295 ITR 303 copy placed at pages 124 to 132 to contend that mere "change of opinion" not sufficient.
iv) CIT vs. Feather Foam Enterprises Pvt. Ltd. 296 ITR 342 (Del) (Copy filed at Pages 116 to 119 paper book), wherein it has been held that facts which could have been discovered by the AO but were not discovered at the time of original assessment, will not constitute new information. Where no new material has come on record nor new information received, it would merely be a case of fresh application of mind by the AO to the same set of facts and in such a situation, it would be a case of mere "change of opinion" which does not provide justification to the AO to initiate proceedings u/s 147 of the Act.
18 ITA Nos.486 to 489/Del/2011v) M.J. Pharmaceuticals Ltd. 297 ITR 119 (Bom.) (Copy placed at pages 133 to 137 of the paper book), wherein it has been held that reassessment is not valid where reassessment is based on change of opinion. The explanation of the assessee was accepted in the original assessment. Rejection of explanation in the reassessment proceedings subsequently is not permissible.
33.1 Thus, it was pleaded by ld. AR that ld. CIT(A) has rightly given the relief to the assessee and his order in all these four appeals should be upheld.
34. He further pointed out that the appeals filed by the revenue states of "bogus transactions". He submitted that it is not even the case of the Assessing Officer that these are bogus transactions, therefore, the issue raised by the revenue by stating these transactions as bogus transactions is misconceived. Ld. AR submitted that the case laws relied upon by ld. DR are distinguishable on facts hence cannot be applied to the facts of the present case.
35. In the rejoinder it was submitted by the ld. DR that it has already been pointed out by him that there is no discussion in the assessment order on the issues on which the reassessment proceedings have been initiated. He submitted that AO did not apply his mind. He submitted that assessee itself had accepted the nature of the receipt as revenue as 1/3rd of the receipts was declared by the assessee as revenue receipt and no reason was submitted that why 2/3rd portion of the receipt was left to be considered as revenue receipt. The subsequent decision of Hon'ble Supreme Court in the case of Honda Siel should be applied.
36. We have carefully considered the rival submissions in the light of material placed before us. It is the case of the revenue that though the queries were raised by the AO in support of the issues which are subject matter of reassessment and replies were also given by the assessee but there is a complete absence of discussion of these issues in the assessment order which means that the AO did not apply his mind on these issues, therefore, it is not the case of "change of opinion". The non application of 19 ITA Nos.486 to 489/Del/2011 mind by the AO on these issues give an authority to the AO to reopen the assessment and for raising such contention reliance has been placed on several decisions which have been discussed in the earlier part of this order. Thus, it is admitted fact that during the course of original assessment proceedings these issues were raised by the AO and replies were given by the assessee and there is no discussion in the assessment order on these issues. Where assessee is able to demonstrate that the issues were deliberated upon during the course of original assessment proceedings, absence of discussion in the assessment order cannot lead to a presumption that AO did not apply his mind. Upholding such proposition would be contrary to the judicial pronouncement of the Hon'ble Jurisdiction High Court in the case of CIT vs. Eicher Motors (supra) and it will be relevant to reproduce the following observations from the said decision:
"In Hari Iron Trading Co. vs. CIT [2003] 263 ITR 437, a Division Bench of the Punjab and Haryana High Court observed that an assessee has no control over the way an assessment order is drafted. It was observed that generally, the issues which are accepted by the AO do not find mention in the assessment order and only such points are taken note of on which the assessee's explanations are rejected and additions/disallowances are made. We agree.
Applying the principles laid down by the Full Bench of this court as well as the observations of the Punjab & Haryana High Court, we find that if the entire material had been placed by the assessee before the AO at the time when the original assessment was made and the AO applied his mind to that material and accepted the view canvassed by the assessee, then merely because he did not express this in the assessment order, that by itself would not give him a ground to conclude that income has escaped assessment and, therefore, the assessment needed to be reopened. On the other hand, if the AO did not apply his mind and committed a lapse, there is no reason why the assessee should be made to suffer the consequences of that lapse.
In so far as the present appeal is concerned, we find that the assessee had placed all the material before the AO and where there was a doubt, even that was clarified by the assessee in its letter dated November 8, 1995. If the AO, while passing the original assessment order, chose not to give any finding in this regard, that cannot give him or his successor in office a reason to reopen the assessment of the assessee or to contend 20 ITA Nos.486 to 489/Del/2011 that because the facts were not considered in the assessment order, a full and true disclosure was not made. Since the facts were before the AO at the time of framing the original assessment, and later a different view was taken by him or his successor on the same facts, it clearly amounts to a change of opinion. This cannot form the basis for permitting the AO or his successor to reopen the assessment of the assessee.
In sum and substance, this was the decision rendered by the Tribunal and we do not find any fault in the view taken. Consequently, we are of the view that since the case is one of a mere change of opinion that does not justify the AO's reopening the assessment of the assessee."
37. Therefore, according to the decision of jurisdiction High Court mandate of law is that where there is a material existing on record according to which the issues were raised by the revenue and replies were given by the assessee then it cannot be presumed that AO did not apply his mind and even if there is lapse on the part of the AO that position cannot go to the disadvantage to the assessee. This decision of Hon'ble Delhi High Court has been confirmed by the Hon'ble Supreme Court in the case of ( i) CIT vs. Kelvinator of India Ltd. & (ii) CIT vs. Eicher Ltd. 320 ITR 561.
38. Now, it is the case of the revenue that later on legal position has been changed by the decision of Hon'ble Delhi High Court in the case of Honda Siel (supra). We find no force in such contention of the department. The facts in the case of Honda Siel Powers are discussed in detail in the decision of Hon'ble Delhi High Court. From the facts, it is clear that no query whatsoever was raised by the department during the course of original assessment proceedings and no replies were given by the assessee on that issue. The issue involved was disallowance to be made u/s 14A, which was introduced in the statute by the Finance Act, 2001. The assessee filed its return of income on 30.11.2000 i.e. prior to insertion of sec. 14A and it was the case of the assessee that it was not under an obligation to disclose any fact in respect of the expenditure incurred to earn exempted/tax free income and thus, it was the contention of the assessee that there is no failure on the part of the assessee to disclose fully and truly all material facts in respect of expenditure incurred for earning tax free income, therefore, reopening of the assessee 21 ITA Nos.486 to 489/Del/2011 was without jurisdiction. On these facts, it was held by the Hon'ble High Court that as the assessment order was passed on 17.03.2003 the failure of the assessee to disclose fully and truly all material facts can be envisaged at the stage of assessment. Therefore, it was held that there was an omission and failure on the part of the assessee to disclose fully and truly all material facts during the course of assessment proceedings which culminated after the introduction of sec. 14A. Thus, the facts of that case are entirely different. The law is well settled that a judgment must be read as a whole and the observations from the judgment have to be considered in the light of the questions which were before the Court. Decision of the Court take its colour from the questions involved in the case in which it is rendered and while applying the decision to a later case, the courts must carefully consider the principle laid down by the decision of the court and not to pick out words and sentences from the judgment, diverse from the context of the questions under consideration by the court, to support their reasoning and reference in this regard can be made to the decision of Hon'ble Supreme Court in the case of CIT vs. Sun Engineering Works P. Ltd , 198 ITR 297 (SC). Therefore, the context in which the decision in the case of Honda Siel Power Products Ltd. vs. ACIT was rendered are entirely different from the context of the present case. Similarly, the other cases are relied upon by the ld. AR are not applicable to the facts of the present case. We are bound by the decision of jurisdictional High Court in the case of CIT vs. Eicher Motors (supra) which is fully applicable to the facts of the case of the assessee. Therefore, we find no infirmity in the order of the CIT(A) vide which it has been held that initiation of reassessment proceeding is based merely on "change of opinion".
39. For ITA No. 488 we found that the initiation of reassessment proceeding is also bad on account of applicability of proviso to sec. 147 and we hold that ld. CIT(A) has rightly held that the initiation of reassessment proceeding was bad also on account of applicability of proviso to sec. 147.
40. In view of above discussion, we find no merit in aforementioned departmental appeals which are dismissed.
22 ITA Nos.486 to 489/Del/201141. In the result, the appeals are dismissed.
Order was pronounced in the open court on 27 .01.2012.
Sd/- Sd/-
(G.D. AGRAWAL) (I.P. BANSAL)
VICE PRESIDENT JUDICIAL MEMBER
Dated: 27.01.2012.
dk
Copy to:
1. Appellant
2. Respondent
3. CIT
4. CIT(A)
5. DR, ITAT, New Delhi.
TRUE COPY
By Order
DEPUTY REGISTRAR