Income Tax Appellate Tribunal - Chandigarh
D.C.I.T. vs Ruchira Papers Ltd. on 28 November, 2006
ORDER
M.A. Bakshi, Vice President
1. We find it convenient to dispose of these four appeals of the revenue for assessment years 1992-93, 1903-94, 1994-95 and 1995-96 by this consolidated order.
2. We have heard the parjties and perused the record. The relevant facts in this case are that assessee is engaged in manufacture of Kraft paper for the purpose of which it had set up two separate units Production of Unit No. 1 was started in the previous year relevant to assessment year 1985-86 and production in Unit No. 2 commenced in the previous vear relevant to assessment year 1992-93. For assessment year 1992-93, assessment was originall made Under Section 143(3), Vide order dated 25.11.1994 determining the loss at Rs. 18,13,230/-. For assessment year 1993-94 return of income had been filed declaring income a 'nil' The said return was processed Under Section 143(1)(a). Subsequently, it was found by the Assessing Officer that assessec had claimed deduction Under Section 80IIII at Rs. 1,38,930/from Unil No. 1., when the gross income of the assessec was 'loss' which was allowed to be carried forward. For assessment year 1994-95 assessment had been made by the Assessing Officer Under Section 143(3) determining loss at Rs. 29,90,617/The said loss had been computed after allowing deduction Under Section 80HH in respect of Unit No. 1 at Rs. 4,36,952/-. For assessment year 1995-96, the assessment was made Under Section 143(3) vide order dated 27.3.1996 at an income of Rs. 11,50,490/-.
3. The Assessing Officer issuer notices Under Section 148 for the respective assessment years on 2.12.1997. For assessment year 1992-93, 1993 94 and 1994-95, thc notices Under Section 148 had been issued on the ground that assessee had been allowed excess deduction Under Section 80HH/80I not permissible in law. For assessment year 1995-96 notice Under Section 148 was issued as a consequence of re-determination of loss in earlier years which was to be set off against the profits of that year.
3.1 It will also be relevant to point out that for assessment year 1992-93 the assessee had filed the appeal to the CIT (Appeals) against the original assessment order. The CIT (Appeals) had deleted the addition of Rs. 24,198/- on account of disallowance made Under Section 40A(3) and had restored the matter regarding trading addition of Rs. 2,00,000/- to the file of the Assessing Officer for fresh decision. Fresh assessment was made by the Assessing Officer Under Section 143(3) read with Section 250 on 22.11 1995 wherein the addition of Rs. 2,00,000/- was not made. Subsequently as pointed out earlier, assessment was re-opened Under Section 147 read with Section 148.
3.2 The Assessing Officer had made re-assessment for all the four assessment, years involved in appeal before us, The CIT (Appeals) vide impugned orders of dated 27.3.2002 cancelled re-assessments Under Section 147 made by the Assessing Officer. The grounds for cancellation of reassessment taken by the CIT (Appeals) are two fold. Firstly he has held that the re-opening was bad in law. Secondly he held that deduction had rightly been allowed to the assessee in so far as the loss suffered in Unit No. II was not to be set off against Unit No. 1.
4. The revenue is in appeal before us, Following are the effective grounds of appeal raised by the revenue for the respective assessment years:
Assessment year 1992-93 On the facts and in the circumstances of case, the learned CIT (Appeals) Shimla has erred in canceling the order passed Under Section 143(3) read with Section 147 on 31.08.1999 of the Income-tax Act, 1961, as the re-assessment was completed at a 'nil' income after adjusting loss of Unit-II and allowing deduction Under Section 80HH at Rs. 8,139/-, Assessment year 19,93-94 On the facts and in the circumstances of case, the learned CIT (Appeals) Shimla has erred in canceling the assessment order framed Under Section 143(3) read with Section 147 on 22.10.1999 of the Income-tax Act, 1961, as the re-assessment was completed at net loss of Rs. 28,10,881/- without allowing any deduction Under Section 80HH.
Assessment year 1994-95 On the facts and in the circumstances of case, the learned CIT (Appeals) Shimla has erred in canceling the assessment order framed Under Section 143(3) read with. Section 147 on 31.08.1999 of the Income-tax Act, 1961, as the re-assessment was completed at net loss of Rs. 25,53,665/- without allowing any deduction Under Section 80HH.
Assessment year 1995-96 On the facts and in the circumstances of the case the learned CIT (Appeals) Shimla has erred in directing the Assessing Officer to recomputed the income/loss for the year after taking into account losses carried forward as a consequence of his appellate orders for the assessment year 1992-93 to 1994-95.
Subsequently applications have been filed before us by the Revenue requesting for admission of additional grounds of appeal. For assessment years 1992-93, 1993-94 and 1994-95, the additional grounds of appeal are common and out of five grounds raised, following three grounds are the effective additional grounds of appeal:
1. Whether on the facts and circumstances of the case, the learned CIT (Appeals) was justified in holding that the notice Under Section 148 was based on the mere change of opinion when:
i) the relevant issue i.e. deductions Under Section 80HH & 80-I are to be allowed out of Gross total income and not out of the profits of individual unit, was never subject matter of consideration and discussion at the assessment stage, therefore the question of forming or expressing any opinion did not arise at that stage;
ii) the issue did not admit of two opinions and therefore the question of changing the opinion did not arise.
2. That the relief given by the learned CIT (Appeals) on the basis of Cit v. Visakha Industries Ltd. of A.P. High Court is total wrong and uncalled for as the ratio of the said case has already been reversed by the Hon'ble Supreme Court in the following cases;
i) Ipca Laboratory Ltd. v. DCIT, 266 ITR 521 (S.C.)
ii) Motilal Pesticides (i) Pvt.Ltd. v. CIT 243 ITR 26 (S.C.)
iii) H.H. Sir Rama Verma v. CIT 205 ITR 433 (S.C.)
3. On the facts and in the circumstances of the case, the Ld CIT (A)Shimla has gravely erred in deleting the additions by holding that the deduction claimed by the appellant Under Section 80HH&80I is in accordance with the views expressed by the Hon'ble Andhra Pradesh High Court in the case of CIT v. Visakha Industries Ltd. without appreciating the true spirit of the provisions of the Income-tax Act, 1961 that the deduction Under Section 80HH&80I was require. 1 to be allowed with ref to the gross total income which has been correctly worked out by the A.O. while passing order Under Section 143(3) read with Section 147 of the Income-tax Act, 1961.
5. The DR contended before us that in fact the additional grounds of appeal raised reflect the true controversy involved in these appeals and would be covered under the original grounds of appeal and that these grounds have been raised as a matter of precaution. It was further contended that even otherwise facts are on record for arriving at the decision and therefore the additional grounds of appeal are admissible.
6. The learned Counsel for the a.ssessee objected to the filing of the additional grounds of appeal by the revenue at this stage. It was contended that the revenue should not be permitted to raise new grounds of appeal at this stage in so far as no valid reason has been given as to why such grounds of appeal could not be taken earlier. It was contended that in view of the decision of the Tribunal in Abhishekh Industries Ltd., the additional grounds are not entertainable,
7. In counter reply, the learned OR filed copy of the decision of the Hon'ble Punjab & Haryana High Court in the case of Abhishekh Industries Ltd. v. CIT Central, Ludhiana and Ors. ITA 374 of 2005, order dated 21.8.2006 wherein the Hon'ble High Court relying upon the decision of the Hon'ble Supreme Court in the case of National Thermal Power Co. Ltd. v. CIT have reiterated the principle that when the material is on record and the request made by the party is reasonable, the additional grounds of appeal is required to be entertained and decided on merits.
8. We have considered the rival contentions in regard to the admission of additional grounds of appeal and we are of the considered view that the. revenue having challenged the order of the CIT (Appeals), the additional grounds raised at this stage are merely revised grounds of appeal expressing clearly the controversy involved in these appeals. Apart from the fact that the additional grounds of appeal raised by the revenue are covered by the earlier grounds of appeal, it is note worthy that no fresh facts are required for determination of the issue involved and therefore, even if the additional grounds of appeal are considered to be not covered by the earlier grounds of appeal, the said grounds deserve to be admitted in the light of the latest decision of the Hon'ble Punjab & Haryana High Court in the case of Abhishekh Industries v. ITO (supra), We, accordingly entertain the additional grounds of appeal raised by the Revenue and dispose of the same in accordance with law.
9. We have heard the rival contentions in regard to the grounds of appeal as well as in regard to the additional grounds of appeal raised by the revenue. The issues involved in these appeals are two fold;
i) Firstly whether the proceedings Under Section 147 read with Section 148 have been validly initiated; and
ii) Whether the deduction allowed to the assessee Under Section 80HH/80I was contrary to law and the Assessing Officer was justified in withdrawing/modifying the same in the re-assessment proceedings.
In regard to the first issue, the learned DR contended that for assessment year 1992-93, 1993-94 and 1994-95, the assessments were re-opened to withdraw excess deduction allowed to the assessee Under Section 80HH/80I in respect of Unit No. 1. It was pointed out that assessee had disclosed profit in unit: No. 1 and loss in unit: No. 2. The Assessing Officer had worked out the deduction Under Section 80HH without considering the loss in unit No. II. It was pointed out that the assessee was not entitled to any deduction in excess of gross total income. Gross total income was to be worked out first and deduction was not to be allowed in excess of the gross total income. In this case, according to the learned DR, the assessee had wrongly claimed the deduction and that the Assessing Officer had earlier computed the deduction and allowed the same so as to increase the loss to be carried forward for adjustment in the subsequent years. The learned DR pointed out that for assessment year 1992-93, assessment, was made Under Section 143(3) on 25.11.1994 and the notice Under Section 148 was issued to the assessee on 2.1.2.1997. For assessment year 1993-94, the return of income had been processed Under Section 143(1) and no assessment was made Under Section 143(3). For assessment year 1994-95, the assessment had been completed Under Section 143(3). For all the aforementioned assessment years the, the reopening was done for the purpose of withdrawing the excess deduction allowed to the assessee. It was further pointed out that for assessment year 1995-96 proceedings for assessment were initiated as the carried forward loss had undergone a change as a result of withdrawal of deduction Under Section 80HH/80I in earlier years. According to the learned DR, the CIT (Appeals) was not justified in holding that there was change of opinion in re-opening the assessments. It was contended that the CIT (Appeals) has ignored various judgments of the Hon'ble Supreme Court expressing the view that deduction is to be allowed under Chapter VI-A after computation of gross total income. It was further contended that this law has been affirmed by the Hon'ble Supreme Court in the case of Ipca Laboratory Ltd. v DCIT 266 ITR 521 (S.C). Our attention was invited to the decision of the Hon'ble Punjab & Haryana High Court in the case of Swaraj Engine Ltd. v. ACIT and Anr. 260 ITR 202 wherein deduction Under Section 801 had been allowed Under Section 143(3) and the same was withdrawn by re-opening the assessment. According to the learned DR, the Hon'ble High Court upholding the reopening of the assessment has referred to the decision of the Supreme Court in the case of Raymond Woollen Mills Ltd. v ITO and Ors. 236 ITR 34 and its own decision in the case of Bhajan Lal v CIT and Anr. 250 ITR 399. Reliance was also placed on the decision of the Hon'ble Punjab & Haryana High Court in the case of Aditya & Co. v CIT and Anr. 279 ITR 47 to support the contention that re-opening of assessment in this ease justified. Relying upon the decision of the Calcutta Bench of the Tribunal in the case of Som Datt Builders (P) Ltd, v DCIT 98 ITD 78 (Kol) it was contended that, where the Assessing Officer has wrongly applied the law, it cannot be said that he had taken a permissible view which cannot be changed in proceedings Under Section 147. Our attention was invited to Explanation (2) to Section 147 which provides certain circumstances under which the income of the assessee is deemed to have scaped assessment. According to learned DR, the case of the assessee falls within the ambit of Explanation (2) to Section 147 and accordingly the re-opening was justified and valid in law.
9.1 Learned DR further contended that the CIT (Appeals) has referred to the decision of the Andhra Pradesh High Court in the case of ACIT v. Visakha Industries Ltd. 171 CTR 300 to support the view that deduction is permissible to the assessee in respect of the one unit and the loss from, other unit is not to be adjusted. It was contended that the said decision of the Andhra Pradesh High Court has been impliedly over-ruled by the Hon'ble Supreme Court in the case of Ipca Laboratory Ltd. 266 ITR 521 (supra). Reliance was placed on the decision of Hon'ble Punjab & Haryana High Court in the case of Kumar Engineers v. CIT 223 ITR 18 to support the contention that any decision of the appellate authority will constitute information for the purpose of re-opening of an assessment. Reliance was also placed on the decision of Madhya Pradesh High Court in the case of 273 ITR 107 wherein lollowing the decision of the Hon'ble Supreme Court in the case of Ipca Laboratory v DCIT (supra) it has been held that deduction Under Section 80HHC is to be allowed after set off of loss of the current year. It was according pleaded that the orders of the CIT (Appeals) may be set aside and those of the Assessing Officer restored.
10. Learned Counsel for the assessee, on the other hand, sought to support the order of the CIT (Appeals). The learned Counsel has invited our attention to the synopsis of the case law filed before us and it has been submitted that the same may be considered. On perusal of the synopsis of case law furnished by the learned Counsel, the sum and substances of the contentions is recorded hereunder:
i) That reasons recorded for re-opening of assessment have not been supplied to the assessee and accordingly the re-assessments are bad in law. Reliance has been placed on the. decision of the Hon'ble Supreme Court in the case of G.K.N. Driveshalts (India) Ltd. v. ITO (2003) 259 ITR 19. Reliance has also been placed on the decision of the Allahanad High Court in the case of Mithlesh Kumar Tripathi v CIT .
ii) That the completed assessment cannot: be reopened on mere change of opinion. Reliance is placed on the following decisions:
a) Sheth Brothers v. JCIT
b) Winsome Taxtile Industries Ltd. v. Union of India and Ors..
c) Shri Warana Sahakar Dudh Utpadak Prakria Sang v. ACIT .
iii) That re-opening is permissible after the expiry of four years if there is no failure on the part of the assessee to disclose the particulars of its income fully and truly. Reliance has been placed on the following decisions:
a) Garden Silk Mills Ltd. v DOT .
b) Jindal Photo Films Ltd. v. DCIT .
c) Garden Silk Mills Pvt. Ltd. v. DCIT .
d) Tanna Builders Pvt. Ltd. v. Smt. Neela Krishnan and Anr. (2006) 283 I.T.R. 148.
e) Sanghvi Swiss Refills Pvt. Ltd. v. Smt. Arti Handa v. ACIT .
It has according been pleaded that re-opening of the assessment in this case was bad in law and therefore CIT (Appeals) was justified in canceling the same.
Learned Counsel has also pleaded that the deduction Under Section 80HH and 801 was rightly allowed earlier and there was no mistake committed by the Assessing Officer. It has been pleaded that the deductions Under Section 80HH and 801 are to be computed with reference to the profit and gains of the eligible unit alone for the purpose of computation of deduction permissible under the said sections. Reliance has been placed on the following High Court decisions:
1. CIT v. Siddaganga Off Extractions Pvt. Ltd. (1992) 201 ITR 268 (Kar).
2. CIT v. Visakha Industries Ltd.
3. Cit v. Siddaganga Oil Extractions Pvt. Ltd. (1993) 109 CTR 119 (Kar) Reliance has also been placed on the following decisions of the Tribunal:
1. JCIT v. Dr. Reddy's Laboratories Ltd. (2004) 272 ITR 38 (AT).
2. ITO v Kanchan Oil Industries Ltd. (2006) 92 ITD 557 (Cal).
3. Sybly Spinning Mills Lid. v. DCIT (20040 91 TTJ (Del) 824.
4. DCIT v. Delhi Iron & Steel Co.Ltd. (2005) 4 SOT 778.
5. DCIT v. Eastern Medikit Ltd. (2006) 100 TTJ 382.
It was further contended that for assessment year 1992-93, the notice Under Section 148 has been issued on 2.12.97 i.e. after the expiry of 4 years. The Assessee had disclosed all the particulars of income and Assessing Officer had made an assessment Under Section 143(3) after scrutiny. Subsequently Assessing Officer has re-opened trie assessment on mere change of opinion.
For assessment year 1993-94 and 1994-95, the Assessing Officer has issued notice Under Section 148 within four years. So however the basis for reopening of assessment is mere -.hange of opinion, which is not permissible in law, it was contended by learned A.R. For assessment year 1995-96 the learned Counsel pointed out that the notice Under Section 148 has been issued within the period of four years for the purpose of consequential adjustment of earned forward loss. It was further reiterated that the Assessing Officer, having not provided the reasons recorded to the assessee, the assessments are bad in law even on that score. According to the learned Counsel for the assessee, this issue has not been dealt with by the CIT (Appeals).
10. Iii counter reply, the learned DR pointed out that the reasons recorded had been provided to tie assessee as pointed out in the assessment orders as well as in other communications. Reliance has been placed on the following documents to support the claim:
i) Page No. 28 & 29 of the paper book for assessment year 1992-93.
ii) Page No. 5 & 6 of the paper book for assessment year 1993-94.
iii) Page No. 9 & 10 of the paper book for assessment year 1994-95, It was further pointed out by the learned DR that the issue of notice for assessment year 1992-93 after the expiry of four years has been raised for the first time before the Tribunal and accordingly the CIT (Appeals) has not dealt with this issue. The learned DR contended that: in this case escaped assessment was more than One Lakh and therefore, by virtue of Section 149(1)(b), the limit for issue of notice Under Section 148 was 6 years and not 4 years. For the purposes of disclosure made by the assessee our attention was invited to Explanation 1 to Section 147 and Explanation (2) (c)(ii)(iii) of Section 147 in rebuttable of the claim of the assessee. It was accordingly pleaded that the orders of the CIT (Appeals) may be set aside and those of the Assessing Officer restored.
11. We have given our careful consideration to the rival contentions and the material on record. We deal with the contentions advanced on behalf of parties in seriatim.
11.1 Reasons recorded not supplied to the assessee:
It is well settled principle of law that before issue of notice Under Section 148, it is compulsory for Assessing Officer to record reasons for issue of such notice. So however communication of reasons recorded by the Assessing Officer is not mandatory. The Assessing Officer is bound to inform the assessee about the reasons for issue of notice Under Section 148, if assessee so desires. In this connection their Lordships of Hon'ble Supreme Court in the case of G.K.N. Drive shafts (India) Ltd. v. ITO 2003 259 ITR 19.(S.C) have laid down the following principles of law:
when a notice Under Section 148 of the I.T. Act is issued, the proper course of action for the assessee to file the return and if he so desires, to seek reasons for issuing the notice. The Assessing Officer is bound to furnish reasons within a reasonable time. On receipt of reasons, the noticee is entitled to file objections to issuance of notice and the Assessing Officer is bound to dispose of the same by passing a speaking order.
In the case of S. Narayanappa v. CIT , Hon'ble Supreme Court laid down the following principle of law:
Proceedings for assessment or re-assessment under Section 34(1)(a) start, with the issue of a notice and It is only after the service of the notice that the assessee, whose income is sought to be assessed or reassessed, becomes a party to those proceedings. The earlier stage of the proceedings for recording the reasons of the Income-tax Officer and for obtaining the sanction of the Commissioner are administrative in character and are not quasi-judicial. There is no requirement in any of the provisions of the Act or any section laying down as a condition for the initiation of the proceedings that the reasons which induced the Commissioner to accord sanction to proceed under Section 34 must also be communicated to the assessee. The Income-tax Officer need not communicate to the assessee the reasons which led him to initiate the proceedings under Section 34.
Their Lordships of the Allabahad High Court in the case of Mithlesh Kumar Tripathi v. CIT (supra) have advised the Assessing Officer to supply reasons to the assessee so as to obviate unnecessary litigation. The observations of their Lordships of the Allahabad High Court are reproduced hereunder:
The recording of reasons and 'obtaining approval' to give notice may be 'administrative action but the very act of giving notice backed by good and valid reasons Under Section 148(2) of the Act is quasi-judicial function. If reasons are supplied alongwith the notice Under Section 148(2), it will obviate unnecessary litigation which will save courts also from being involved in unproductive litigations, Above all it will be in consonance with the principles of natural justice.
As per the above principles of law, whereas it is desirable that the Assessing Officer communicates the reasons to the assessee alongwith notice Under Section 148, but it is not mandatory. If he has not done so, the proceedings will not be invalid. On the other hand, if the assessee requires the Assessing Officer to issue the reasons recorded in reopening of assessment, the Assessing Officer will be bound to inform the assessee about the reasons for re-opening of assessment. In this case we have perused the evidence on record and found that assessee had demanded the reasons for re-opening of assessment and issue of notices Under Section 148 for the respective assessment years. So however it is also on record that assessee has been provided the reasons for re-opening of assessment for respective years. The idea of providing reasons recorded for issue of notice Under Section 148 is to give an opportunity to the assessee to file objections, if any to the issue of notice and it is based on the principles of natural justice. In this case the reasons recorded for the issue of notice Under Section 148 having been provided to the assessee, we do not see any infirmity in the orders of the Assessing Officer in this regard.
We now proceed to consider the validity of re-opening of assessments in the light of this background. The rival contentions shall have to be considered in the light OJ relevant judicial precedents. Some of the precedents are referred to hereunder for the purpose of determination of issue involved in this case.
(2) Re-opening of completed assessment on change of opinion:
The assessee claims that assessments cannot be re-opened on change of opinion. In this connection the principles have been explained by various High Courts as well as by she Hon'ble Supreme Court, There are several decisions on this issue, so however, we would like to refer to the full Bench decision of the Delhi High Court in the case of Kelvinator (India) Pvt. Ltd. 256 ITR 1. In this case it has been held as under:
The scope and effect of Section 147 as substituted with effect, from 1.4.1989 by the Direct Tax haws (Amendment) Act, 1987, and subsequently amended by the Direct Tax Laws (Amendment) Act, 1989, w.ef. 1.4.1989, as also of Sections 148 to 152 have been elaborated in circular No. 549 dated 31.10.1989. A perusal of Clause 7.2 of the said circular makes it clear that the amendments had been carried out only with a view to allay fears that the omission of the expression "reason to believe" from Section 147 would give arbitrary powers to the Assessing Officer to reopen past assessments on a mere change of opinion. It is, therefore, evident that even according to the Central Board of Direct Taxes a mere change of opinion cannot form the basis for re-opening a completed assessment.
A statute conferring an arbitrary power may be held to be ultra vires Article 14 of the Constitution of India. If two interpretations are possible the interpretation which upholds constitutionality should be favoured. In the event it is held that by reason of Section 147 the Income-tax Officer may exercise his jurisdiction for initiating a proceeding for reassessment only upon a mere change of opinion, the same may be held to be unconstitutional.
An order of assessment can be passed either in terms of Sub-section (1) of Section 143 or Sub-section (3) of Section 143. When a regular order of assessment is passed in terms of Sub-section (3) of Section 143 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 the Indian Evidence Act, 1872, judicial and official acts have been regularly performed. 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 without anything further, the same would amount to giving a premium to an authority exercising quasi-judicial function to take benefit of its own wrong. Hence, it is clear that Section 147 of the Act does not postulate conferment of power upon the Assessing Officer to initiate re-assessment proceedings upon a mere charge of opinion, Similar view has been expressed by the Hon'ble Supreme Court in the case of CIT v. Foramer France 264 ITR 566:
From the decision of the High Court that Section 147 substituted in the Income-tax Act, 1961, by the Direct Tax Laws (Amendment) Act, 1987, had made a radical departure from the original Section 147, inasmuch as Clauses (a) and (b) had been deleted and under the proviso thereto notice for reassessment would be illegal if issued more than four years after the end of the assessment year, if the original assessment were make under Section 143(3); (ii) Section 153 related to the passing of an order of assessment and not to the issuing of a re-assessment notice under Section 147/148; (iii) the direction or finding contemplated by Section 153(3)(ii) had to be a finding in relation to the particular asscssee and the particular year and to be a finding it had to be directly involved in the disposal of the case; (iv) on the facts, the notices issued under Section 148 on 20.11.1998, to the as:,essee for re-opening the original assessment for the assessment years 1988-89, 1989-90 and 1990-91, on the basis of the Appellate Tribunal's decision rendered in the case of Boudier Christian relating to the assessee's technicians deputed to India, the income of the assessee was to be treated as fee for technical services and not as business income as assessed in the original assessments for those assessment years, were without jurisdiction as they were barred by limitation in view of proviso to Section 147, as amended by the Direct Tax Laws (Amendment) Act, 1987, as that was the provision that was applicable on 20.11.1998, when the re-assessment notices were issued, and admitted there was no failure on the part of the assessee to disclose fully and truly all material facts for assessment; (v) on the facts, the notices were bad as they were only on the basis of a change of opinion and the law that an assessment could not be reopened on a change of opinion was the same before and after amendment by the Direct Tax Laws (Amendment) Act, 1987 of Section 147; and (vi) as the notices were without jurisdiction, the assessee should not be relegated to the alternative remedy, the department preferred appeals to the Supreme Court. The Supreme Court saw no reason to differ and dismissed the appeals.
In the case of Raymonds Wollcn Mills Ltd. v. ITO and Anr. 236 ITR 34 Hon'ble Supreme Court held as under:
In determining whether commencement of re-assessment proceedings was valid it has only to be seen whether there was prima facie; some material on the basis of which the department: could reopen the case. The sufficiency or correctness of the material is of a thing to be considered at this stage, Held, that the case of the revenue was that the assessee was charging to its profit & loss account, fiscal duties paid during the year as well as labour charges, power, fuel, wages, chemicals etc. However, while valuing its closing stock, the elements of fiscal duty and the other direct manufacturing costs were not included. This resulted in undervaluation of inventories and understatement of profits. This information was obtained by the revenue in a subsequent year's assessment proceedings. The commencement of reassessment, proceedings was valid.
Re-opening of Assessment is not permissible after the expiry of four years from the end of the assessment year if there is no failure of the assessee to file the return or to disclose all the material facts necessary for assessment. Some of the judicial precedents relating to this issue are referred to hereunder.
In the case of Sheth Brothers (supra) their Lordships of Gujrat High Court held as under:
that there are three stages involved in every assessment; (i) disclosure of primary facts; (ii) inferences of facts to be drawn from the primary facts disclosed and (iii) legal inferences to be drawn from the primary facts disclosed and the inferences of facts drawn from them. The duty of the assessee relates to disclosure of primary facts alone. The duty to find the inferential facts from the primary facts disclosed as well as the duty of drawing inferences of law from the facts found are both on the Assessing Officer. The disclosure which is required to be made by the assessee should not only be full but also true.
Re-assessment proceedings can be initiated Under Section 147(a) of the Income-tax Act, only if two conditions are satisfied. The first is that the Income Tax Officer must have reason to believe that income, profits or gains chargeable to income tax have been under-assessed. The second is that he must also have reason to believe that such underassessment' has occurred by reason of either (1) omission or failure on the part of an assessee to make a return of his income Under Section 22 or (2) omission or failure on the pan of an assessee to disclose fully and truly all material facts necessary for his assessment for that year, In the case of Winsome Textile Industries Ltd. (supra), their Lordships of Hon'ble Punjab & Haryana High Court have laid down the following principle of law:
The limitation of your years provided in the proviso to Section 147 of the Income-tax Act has been made applicable only to cases where assessments have already been completed under Sub-section (3) of Section 143 or Under Section 147. There is a specific purpose behind it. Where the return is processed Under Section 143(1)(a), the Assessing Officer has no jurisdiction to examine the genuineness of the claims made in the return of income. He has only limited powers of making adjustments on the basis of information available in the return. However, when an assessment is made Under Section 143(3) of the Act, the Assessing Officer has very wide power to examine the genuineness of the claims made in the return and require the assessee to furnish whatever information the Assessing Officer deems necessary.
...The assessment had been made Under Section 143(3) of the Act and if the Assessing Officer was of the view that he required the profit and loss accounts and depreciation charts of the assessment years 1995-96 and 1996-97 for examining the correctness of the claim Under Section 80-Income-tax Act of the Act, he could have required the assessee to produce them. Failure of the Assessing Officer to do so, could not be treated at par with the failure of the assessee to disclose fully and truly all material facts necessary for its assessment. The initiation of proceedings Under Section 147 after the expiry of four years from the end of the assessment year was wholly without jurisdiction. The notice Under Section 148 was not valid, In the case of Shri Warana Sahakari Dudh Utpadak Prakria Sang v. ACIT (supra), their Lordships of Bombay High Court has held as under:
that the notice was admittedly beyond the period of limitation prescribed under the proviso to Section 147 of the Act and in the absence of any material to show that there was failure on the part of the assessee to disclose fully and truly all materials, such notice must be held to be barred by limitation. The notice was therefore, liable to be quashed.
12. From the aforementioned decisions, it becomes absolutely clear that the re-opening of assessment is not permissible on mere change of opinion even under the amended provisions of Section 147. Moreover when the assessment made Under Section 143(3) is re-opened after the expiry of four years from the end of the assessment year, the escapement of income can be brought to tax only if the escapement had resulted on account of failure of the assessee to the return of income or on account of failure of the assessee to disclose fully and truly all material facts necessary for assessment.
Before dealing with the contentions advanced on behalf of both the parties regarding the validity, of re-opening of assessments in this case, it will be necessary to consider the reasons for re-opening of assessments. As pointed out earlier, for assessment year 1992-93, 1993-94 and 1994-95, the Assessing Officer found that assessee had been allowed deduction Under Section 80HH/801 in excess, contrary to the provisions of the Act. for assessment year 1995-96, notice Under Section 148 has been issued as a consequence to re-opening of assessments for assessment years 1992-93, 193-94 and 1994-95 and wrong set off of the unabsorbed losses of earlier years. As pointed out elsewhere in this order, assessee had disclosed profits in respect of unit No. 1 and in respect, of unit No. II, the assessee had disclosed loss. The Assessing Officer had earlier computed the deduction in respect of unit No. 1 in accordance with provisions of Section 80HH/80I and allowed the same, After adding the loss from unit No. 2. the total loss was carried forward to the subsequent assessment year for the purpose of set off against profits, if any of that year. The assessee had filed the returns on the above basis for all the three years i.e. for assessment years 1992-93, 1993-94 and 1994.95. The return of income for assessment year 1995-96 was based on the loss claimed in earlier years which were carried forward and set off.
Subsequently, the Assessing Officer issued notices Under Section 148 on the ground that deduction Under Section 80HH/80I was to be restricted to the gross total income by virtue of provisions of Section 80AB of the Income-tax Act, 1961. The Assessing Officer, while framing re-assessment has restricted the deduction to the gross total income of the assessee invoking provisions of Section 80AB and 80A. It will, therefore, be necessary and in fact important to consider the law relating to the deduction Under Section 80HH/80I as per provisions of the Act. Under Section 4 of the Income-tax Act, 1961, Income Tax is chargeable in respect of both income of the previous year at any rate or rates, as may be provided under the Finance Act of each year. Total income is defined Under Section 2(45) of the Act, to mean the total amount of income referred in Section 5 computed in the manner laid down in the Act. Chapter VI-A provides for certain deductions in computing the total income which is chargeable to tax. Section 80A in Chapter VI-A reads as under:
80A. (1) In computing the. total income of an assessee, there shall be allowed from his gross total income, in accordance with and subject to. the provisions of this Chapter, the deductions specified in Sections 80C to 80U, (2) The aggregate amount of the deductions under this Chapter shall not, in any case, exceed the gross total income of the assessee.
(3) Where, in computing the total income of an association of persons or a body of individuals, any deduction is admissible under Section 80G or Section 80GGA or Section 80GGC or Section 80HH or Section 80HHA or Section 80HHB or Section 80HHC or Section 80HHD or Section 80-I or Section 80-IA or Section 80-IB or Section 80J or Section 80JJ, no deduction under the same section shall be made in computing the total income of a member of the association of persons or body of individuals in relation to the share of such member in the income of the association of persons or body of individuals.
It is evident, from Section 80A quoted above that deductions under Sections 80C to 80U are permissible from the gross total income. Section 80B(5) defines gross total income as under:
gross total income" means the total income computed in accordance with the provisions of this Act, before making any deduction under this Chapter.
Section 80AB is also relevant, which reads as under:
8QAB. Where any deduction is required to be made or allowed under any section included in this Chapter under the heading "C.-Deductions in respect of certain incomes" in respect of any income of the nature specified in that section which is included in the gross total income of the assessee, then, notwithstanding anything contained in that section, for the purpose of computing the deduction under that section, the amount of income of that nature as computed in accordance with the provisions of this Act (before making any deduction under this Chapter) shall alone be deemed to be the amount of income of that nature which is derived or received by the asses;see and which is included in his gross total income.
If the above provisions of Chapter VI-A are kept in mind, the confusion in regard to the deduction Under Section 80HH and 80I in this case will no longer subsist..
13. The issue, which has been hotly contested, is, as to whether the losses suffered by the assessee in unit No. II are to be set. off against the profits from unit No. 1 for the computation of deduction Under Section 80HH/80I. If one were to address the above issae in accordance with provisions of the Act, then the answer has got to be in favour of the assessee in the light of the decision of Hon'ble Supreme Court in the case of CIT v. Canara workshops (P) Ltd. . In this case, their Lordships laid down the following principle of law:
In the application of Section 80E of the Income-tax Act, 1961, the profits and gains earned by one priority industry (mentioned in that section) cannot be reduced by the loss suffered by any other (sic) or industries owned by the assessee. Each industry must be considered on its own working only, when adjudging its title to the deduction under Section 80E. It cannot be allowed to suffer because it keeps company with some other industry in the hands of the assessee. It; makes no difference that the other industry is also apriority industry.
In the light of above decision of the Supreme Court, there is no necessity of referring to any decision of High Courts. In order to put the record straight, we have no hesitation to hold that in computing the deduction in respect of Unit No. 1. the losses suffered in unit No. 2 are not to be adjusted. So however, in our view the real controversy involved in this case is somewhat different. The real issue involved in this appeal is relating to the effect of Section 80A and 80AB. One cannot loose sight of the various steps which are to be taken in seriatim for determination of the total income of the assessee.
The first step in computation of income of the assessee is to determine the gross total income computed in accordance with provisions of the Act before making any deductions under Chapter VI-A. (See Section 8013(5) Para 12 of this order). Deduction Under Section 80 HH/80I fall under Chapter V1-A. Therefore, whereas deductions permissible Under Section 80HH and 80I of each Unit have got to be calculated separately, these are not to be deducted before determination of the gross total income of the assessee. In determining the gross total income, the profits and gains/losses from various businesses or various sources have got to be clubbed together. In this case assessee has earned profit in respect of unit No. 1 but has suffered loss in unit No. 2. Therefore, in order to work out the gross total income of the assessee, the income of unit No. 1 is got to be adjusted with unit. No. 2 and any other income or loss earned/suffered. This is the first step to be taken for the purpose of determining the total income. The result of computation as above would give the gross total income of the assessee.
14. The second step to be taken is computation of deductions Under Section 80HH/801 to be worked out as provided under the said provisions of the Act. The deductions under the. provisions of the Act have got to be determined with reference to the: profits of each unit eligible for deduction under the said provisions of the Act separately. In this case the assessee is entitled to deduction in respect of Unit No. 1. Therefore deduction shall have to be worked out on the basis of the profits earned in unit. No. 1 only at this stage for working out the deductions under Section 80HH/80I, the loss suffered in unit No. 2 is not to be set off. The amount of deduction worked out, as above, shall have to be deducted from the gross total income. So however, there is a restriction placed under Sub-section (2) of Section 80A which has been quoted elsewhere in this order, At the cost of repetition, it may be stated that as per the aforementioned provisions of the Act, the aggregate amount of deductions under Chapter VI-A can not exceed the gross total income of the assessee. In other words if the deduction worked out under Section 80HH and 80I is more than the gross total income, the deduction permissible to the assessee has got to be limited to the gross total income and rest of the deduction has got to be ignored. This position of law has been explained by the Lordships of the Hon'ble Supreme Court in various cases, some of which may be referred to as under:
1. H.H. Sir Rama Verma v. CIT 205 ITR 433
2. Motilal Pesticides (1) Pvt. Ltd. 243 ITR 26
3. CIT v. Kotagiri industrial Co-operative Tea Factory Ltd. 224 ITR 604
4. Commissioner of Central Excise, Meerut v. Kisan Sahkari Chinni Mills Ltd. 255 ITR 57 Recently their Lordships of the Hon'ble Supreme Court have reiterated the above principle of law in the case of Ipca Laboratory Ltd. 266 ITR 521 (supra). The relevant observations at page 530 are quoted hereunder:
Under Section 80HHC (1), the deduction is to be given in computing the total income of the assessee. In computing the total income of the assessee both profits as well as losses will have to be taken into consideration. Section 80AB is relevant. It reads as follows:
80AB. Where any deduction is required to be made or allowed under any section included in this Chapter under the heading "C.--Deductions in respect of certain incomes" in respect of any income of the nature specified in that section which is included in the gross total income of the assessee, then, notwithstanding anything contained in that section, for the purpose of computing the deduction under that section, the amount of income of that nature as computed in accordance with the provisions of this Act (before making any deduction under this Chapter) shall alone be deemed to be the amount of income of that nature which is derived or received by the assessee and which is included in his gross total income.
Section 8013(5) is also relevant Section 80B(5) provides that "gross total income" means the total income computed in accordance with the provisions of this Act.
Section 80AB is also in Chapter VI-A. It starts with the words:
Where any deduction is required to be made or allowed under any section of this Chapter." This would include Section 80HHC. Section 80AB further provides that notwithstanding anything contained in that section", Thus Section 80AB has been given an overriding effect over all other sections in Chapter VI-A. Section 80HHC does not provide that its provisions are to prevail over Section 80AB or over any other provision of the Act, Section 80HHC would thus be governed by Section 80AB. The decisions of the Bombay High Court and the Kerala High Court to the contrary cannot be said to be the correct law. Section 80AB makes it clear that the computation of income has to be in accordance with the provisions of the Act. If the income has to be computed in accordance with the provisions of the Act, then not only profits but also losses have to be taken into consideration.
In our considered view, there is no conflict between the decision of Hon'ble Supreme Court in the case of CIT v. Canara Workshops (P) Ltd. (supra) and its decisions in the case of Ipca Laboratory (supra). As pointed out earlier, the issue in the case of Canara Workshops (P) Ltd. was limited to the setting off of loss against profits of another unit. We have explained above that in wording out the deduction Under Section 80HH or 80I, the loss in unit No. 2 is not to be taken into consideration. This is in accord with the decision of Supreme Court in the case of Canara workshops (P) Ltd. So however, in working out the gross total income, the income or loss from various sources or various businesses has got to be pooled together. That was not the issue involved in the case of Canara Workshops (P) Ltd. The issue arose in. subsequent cases before the Hon'ble Supreme Court and the provisions of the Act have been explained thoroughly without leaving any doubt about the interpretation of the provisions of the Act. The Hon'ble Andhra Pradesh High Court in the case of Visakha Industries Ltd. (supra) have pointed out that the issue before the Hon'ble Supreme Court in the case of H.H. Sir Rama Verma v. CIT 205 ITR 433 (supra) and in the case of 243 ITR 26 was totally different. We cannot but bow to above observation of their Lordships. So however, the latest decision of the Supreme Court in the case of Ipca Laboratory Ltd. 266 ITR 521 (S.C) clearly lays down the law in regard to set off of losses from various businesses and nothing is left to the opinion of lower forums.
In this regard in the case of Vippy Solvex Products Ltd. 273 ITR 107, the Hon'ble Madhya Pradesh High Court, (Jndore Bench) explaining the view expressed by the Hon'ble Supreme Court held as under:
The use of expression "computed in accordance with the provisions of the Act" in Sections 80A and 80B is significant. This implies that if the assessee has income falling in Sections 60 to 64 of Chapter V it is required to be included. Similarly, if the case of the assessee falls under Sections 70 and 71 of Chapter VI which deals with cases of set off of losses from one source against income from another source as also carry forwarded and set off of business loss then the same has to be given effect to, while computing the total income of the assessee. Whatever then is arrived at becomes the gross total income of the assessee. It is from such gross total income of the assessee that: the deductions provided in Chapter VI-A are to be allowed.
It is thus clear that one cannot ignore the requirement of Section 72 of the act which is an essential part while determining and computing the total income of an assessee in accordance with the provisions of the Act. In other words, total income is because of the use of the aforementioned expression, that Section 72 gets attracted for determining the total income of the assessee. Even otherwise, the principles of accountancy recognise carry forward and set off of business losses as one of the relevant facts while calculating the net profits of the current year and hence, the same cannot be ignored. While examining the case of the assessee under Section 80. HHC. Despite some amendment made in the wording of Section 80 HHC with effect from April 1,1986, it did not make any change in so far as it related to computation of total income of an assessee and hence, the law laid down by the Supreme Court in the case of IPCA Laboratory Ltd. (2004) 266 ITR 521 would apply.
Therefore, in the light of the decisions of the Hon'ble Supreme Court and in the light of Sub-section (2) of Section 80A read with Section 80AB, there is no doubt in our mind that the allowance of deduction to the assessee in excess of gross total income was clearly erroneous, in so far as it was contrary to the provisions of the Act and the decision of the Hon'ble Supreme Court referred to above. We accordingly hold that assessee had been given excess deduction at the time of original assessment made Under Section 143(3) or at. the time of processing the returns under Section 143(1) for the respective assessment years (1992-93 to 1994-95). For assessment year 1995-96 re-opening of assessment was consequent to adjustment of losses of earlier years. The A.O. was right to adjust the loss carried forward as properly determined.
15. We have quoted some of the relevant precedents earlier. We accordingly proceed to test the validity of re-opening of assessments in the light of above discussion and in the light of judicial precedents. For assessment year 1992-93, notice Under Section 148 has been issued after the expiry of four years from the end of the assessment year. As pointed out earlier notice Under Section 148 was issued on 2.32.1997. Assessment for the assessment year 1992-93 was made originally Under Section 143(3). At this stage it will be relevant to refer to Section 147, which is reproduced hereunder:
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 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 for such assessment year by reason of the failure on the part of the assessee to make a return under or in response to a notice issued under Sub-section (1) of or to disclose fully and truly all material facts necessary for his assessment, for that assessment year.
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-fax ;
(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.
Proviso to Section 147 reproduced above places the restriction upon the power of the Assessing Officer to reopen an assessment, originally made Under Section 143(3) after the expiry of four years. Restriction so placed is that there should not only be escapement, of income to enable the Assessing Officer to assess the same, but the escapement should be by reason of the assessee not having filed the return or not having disclosed the material facts truly and fully at the time of assessment. In this case, assessee had filed the return of income giving all the particulars. Deduction Under Section 80 HH and 80I had been correctly computed in accordance with law. The only mistake committed by the assessee was that it did not reflect the deduction to the gross total income as provided under Sub-section (2) to Section 80A. So there was a mistake committed by the assessee but at: the same time, the Assessing Officer also committed the same mistake of ignoring the provisions of Section 80A(2). The question that assumes importance is as to whether it can be said that the assessee did not disclose fully and truly all the material facts necessary for assessment. One possible view is that if a deduction is not correctly claimed by the assessee in accordance with law, it will not amount to true disclosure of material facts necessary for assessment. In this connection reference to the decision of the Supreme Court in the case of Phool Chand Bajrang Lal v. CIT is relevant:
One of the purposes of Section 147 is to ensure that a party cannot get away by willfully making a false or untrue statement at the time of the original assessment and when that falsity comes to notice, to turn around and say :"You accepted my lie, now your hands are tied and you can do nothing." It would be a travesty of justice to allow the assessee that latitude.
The other possible view is that all the facts have been disclosed by the assessee and it was for the Assessing Officer to draw the inference from the facts disclosed and make proper assessment. Reference to the following observations of the Supreme Court in the case of CIT v. Tarajan tea Co. (P) Ltd. 236 ITR 477 would be relevant:
Dismissing the appeal, that a perusal of the record in this case showed that there was no omission or failure on the part of the assessee; to make a return under Section 139 as contemplated in Clause (a) of Section 147: nor was there any information in the possession of the Assessing Officer obtained by him subsequent to the assessment order. Whatever information was necessary was already available to the Assessing Officer when the first, assessment was made The order passed by the Appellate Assistant Commissioner in another case is not 'information' within the meaning of the section. Hence, neither Clause (a) nor Clause (b) of the section would apply in this case. The re-assessment was not valid.
In fairness to the parties, we are of the considered view that both the views are possible, Since we arc not sure which of the two views is preferable on the facts of this case, we adopt the view favourable to the assessee in so far as nothing had been concealed by the assessee and all the facts had been disclosed to the Assessing Officer. There was no other fact necessary which would have enabled the Assessing Officer to make proper assessment. We, therefore, are of the considered view that for assessment year 1992-93 notice Under Section 148 issued in this case after the expiry of 4 years was not valid in the eye of law. The contention advanced on behalf of the revenue that proviso to Section 147(1) does not apply in such cases where income escaped is more than one lakh is not well founded. Section 149 places separate restriction upon the Assessing Officer on issue of notice Under Section 148 for re-opening of assessment. Restriction under proviso to Section 147 and Section 149 are independent and have got to be considered as such. The CIT (Appeals) was, therefore justified in canceling the assessment for the assessment year 1992-93. So however, his decision on merits is not in order as explained earlier.
16. For assessment year 1993-94, no assessment was made Under Section 143(3). The return of income filed by the assessee had been processed Under Section 143(1), Notice Under Section 148 had been issued within the period of four years from the end of the assessment year. There was escapement of income in so far as the assessee had been given excess deduction ignoring the provisions of Sections 80AB and 80A(2). There was no change of opinion. The Assessing Officer not having made any assessment Under Section 143(3), it cannot be said that he had expressed any opinion in regard to the claim of the assessee. In this connection the observations of their Lordships of Hon'ble Punjab & Haryana High Court in the case of Winsome Textile Industries Ltd, (supra) are relevant and these observations arc quoted hereunder even at the cost of repetition:
The limitation of your years provided in the proviso to Section 147 of (he income-tax Acs has been made applicable only to cases where assessments Lave already been completed undcr Sub-section (3) of Section 143 or Under Section 147, There is a specific purpose behind it. Where the return is processed Under Section 143(1)(a), the Assessing Officer has no jurisdiction to examine the genuineness of the claims made in the return of income. He has only limited powers of making adjustments on the basis of information available in the return. However, when an assessment is made Under Section 143(3) of the Act, the Assessing Officer has very wide power to examine the genuineness of the claims made in the return and require the assessee to furnish whatever information the Assessing Officer deems necessary.
...The assessment had been made Under Section 143(3) of the Act and if the Assessing Officer was of the view that he required the profit and loss accounts and depreciation charts of the assessment years 1995-96 and 1996-97 for examining the correctness of the claim Under Section 80-lncome-tax Act of the Act, he could have required the assessee to produce them, Failure of the Assessing Officer to do so, could not be treated at par with the failure of the assessee to disclose fully and truly all material facts necessary for its assessment. The initiation of proceedings Under Section 147 after the expiry of four years from the end of the assessment year was wholly without jurisdiction. The notice Under Section 148 was not valid.
This view has further been reiterated by the same High Court in the case of 279 ITR 47. In this case their Lordships held as under:
Dismissing the writ petition, that it is on the basis of facts of each case that it has to be decided whether a particular income falls under the head "Business income" or "Income from other sourees". The assessee was only sent intimation under Section 143(1) of the Act and the question of examination oi the material by the Assessing Officer did not arise at that stage. Thus, their was no question of change of opinion. The notice under Section 148 was valid.
Delhi High Court has also expressed the same view in the case of 246 ITR 173 (Del). Respectfully following the ratio laid down in the aforementioned decisions, we hold that re-opening of assessment for assessment year 1993-94 was in order and the Assessing Officer was also justified in restricting the deduction to the assessee in accordance with the provisions of Section 80AD read with Section 80A(2) as held earlier, The order of the CIT (Appeals) is accordingly set. aside and that of the Assessing Officer restored for assessment year 1993-94.
For assessment year 1994-95, the assessment had been made Under Section 143(3). So however, the Assessing Officer had not expressed any opinion about the provisions of the Act or the decisions of the Hon'ble Supreme Court in regard to determination of the deductions permissible in Chapter VI-A. The Assessing Officer had. committed an error of law in ignoring the provisions of Section 80A and 80AB. The Assessing Officer not having expressed any opinion in regard to the issue involved in this case it cannot be said that there was change of opinion. Even otherwise, if it is presumed that Assessing Officer while allowing the deduction, as claimed by the assessee, had formed an opinion, the bar in regard to change of opinion applies to the opinion which is permissible in law, If the Assessing Officer had taken any erroneous view which is unacceptable in law, he will not be precluded from taking an opinion subsequently in accordance with law merely because it. will amount to change of view. In this connection, reference to the decision of Hon'ble Supreme Court in the case of Maharaj Kumar Kamal Singh v. CIT 35 ITR 1 may be relevant. In this case their Lordships held as under:
That 'escape' in Section 34(1)(i) was not confined to cases where no return had been submitted by the assessee or where income had not been assessed owing to inadvertence or oversight or other lacuna attributable to the assessing authorities; even in a case where a return had been submitted, if the Income-tax Officer had erroneously failed to tax a part of the assessable income, it was a case where that part of the income had escaped assessment.
Relying upon the decision of the Supreme Court in the case of Maharaj Kumar Kamal Singh (supra) their Lordships of the Kerala High Court in the case of A.V. Thomas & Co. Ltd. v. CIT (Ker) 61 ITR Page 1, held that the Assessing Officer can reopen an assessment on the basis of the decision of the Tribunal as it can constitute opinion in consequence of which the Assessing Officer has reason to belief and income had escaped assessment.
In the case of Simon Carves Ltd. 105 ITR 212, their Lordships of the Supreme Court laid down the following principles of law in regard to re-opening of the assessment.
The taxing authorities exercise quasi-judicial powers and in doing so they must act in a fair and not a partisan manner. Although it is part of their duty to ensure that no tax which is legitimately due from an assessee should remain unrecovered, they must also at the same time not act in a manner as might indicate that scales are weighted against the assessee. We arc wholly unable to subscribe to the view that unless those authorities exercise the power in a manner most beneficial to the revenue and consequently most adverse to the assessee, they should be deemed not to have exercised it in a proper and judicious manner The order made by the Income-tax Officer at the time of the original assessment was a legally correct order and was not vitiated by any error. The absence of an error in that order would justify the inference that the present is not a case of income escaping assessment. 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. Whereas in the present case, 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 1901 or Section 34(1)(b) of the Act of 1922.
It was further held:
It has been argued on behalf of the appellant that reassessment under Section 147(b) would be justified where in the original assessment income liable to tax has escaped assessment due to oversight, inadvertence or a mistake committed by the Income-tax Officer. The present, however, we find is a case which does not fall in any of those categories.
Though Hon'ble Supreme Court decided the issue in favour of the assessee on the basis of facts of that case, yet the principle of law has been laid down that re-opening is permissible in case there is error of law committed by the Assessing Officer while framing original assessment, Reference may also be pertinent to the decision of the Supreme Court in the case of Andhra Bank Ltd. v. CIT 225 ITR 447 wherein their Lordships while deciding the issue in favour of the assessee held as under:
Reversing the decision of the High Court, that the Income-Tax Officer had allowed the change in the method of accounting for the assessment years 1960-61, 1961-62 and 1963-64 knowingly. It was not a case of an inadvertent mistake which was discovered later on after completion of the assessment or oversight. Once the change in the method of accounting had been knowingly allowed by the Income-tax Officer after taking into account all the relevant facts it was not permissible for the Income-tax Officer, or his successor, to reopen the assessment at a later point of time under Section 147(b) of the Income-tax Act unless any information came from an extraneous source. There was no information available with the Income Tax Officer on the basis of which he could reopen the assessments. This was a case of mere change in opinion and, therefore, the assessments had not. been validly reopened under Section 147(b) of the Income-tax Act, 1961.
(Emphasis supplied).
It is evident from the above decision that where Assessing Officer takes a conscious view, he may not be permitted to change his opinion unless the assessment made by him is due to an inadvertent mistake or over-sight or his view is erroneous. In the present case, the Assessing Officer has overlooked the provisions of Section 80AB and Sub-section 2 of Section 80A of Income-tax Act, 1961. Therefore, it cannot be said that the re-opening of assessment was on mere change of opinion. The escapement of income was due to overlooking the relevant provisions of the Act. We, accordingly uphold the validity of initiation of proceedings Under Section 147 for assessment year 1993-94 as well as for assessment year 1994-95.
The order of the CIT (Appeals) is, thus, set aside and that, of the Assessing Officer is restored for assessment year 1994-95 also.
For assessment year 1995-96, the notice Under Section 148 has been issued for giving effect to the earlier years in respect of the loss computed for such assessment years. It may be pertinent to mention that the effect to the re-determination of the losses of earlier years could be given by the Assessing Officer Under Section 155(4), even without resorting to provisions of Section 147. So however, where both the provisions are applicable, the Assessing Officer is not precluded from taking action Under Section 147. Since action of the Assessing Officer Under Section 147 was consequential to reassessments for earlier years, we arc of the view that re-opening for this year also was in order and did not suffer from any legal infirmity. It may also be pertinent to mention that the view that where action Under Section 155(4) is permissible, re-opening of assessment would be valid, is supported by the following decisions:
1) CIT, Gujrat II v. Himatla Bhagubhai 86 ITR 481
ii) G. Sreerama Murthy v. ITO, A-ward, Rajahmundry, 97 ITR
iii) R. Madhavan Nair v. CIT Kerala 105 813
17. We accordingly set aside the order of the CIT (Appeals) for 1995-96 laso and restore that of the Assessing Officer.
18. In the result, whereas appesl of the revenue for assessment year 1992-93 is dismissed, its appeals for 1993-94, 1995-96 are allowed.
19. Order pronounced in the Open Court on 82.11.06