Income Tax Appellate Tribunal - Nagpur
Income Tax Officer vs Jai Jinendra Investment (P) Ltd. on 30 October, 1998
Equivalent citations: [2000]70ITD512(NAG)
ORDER
This appeal by the revenue is against the order of the learned Commissioner (Appeals) in holding that the intimation of proceedings under section 147 of the Income Tax Act, 1961 was bad in law.
2. In this case, the return of income was filed by the assessee on 29-12-1989 declaring loss of '- 11,504 and the revised return was filed on 31-12-1990 declaring income of Rs. 6,198. The assessment was completed on 5-2-1991 accepting the return of income. Subsequently, it was noticed that the deduction under section 80M from the dividend income was wrongly calculated. Therefore, notice under section 148 was issued on 6-10-1993. Subsequently, the assessing officer passed order under section 143(3) read with section 147 of the Income Tax Act on 28-2-1996. There is nothing in the order mentioned regarding the validity or otherwise of the reassessment. The assessment was challenged by the assessee also on the ground that reopening under section 147 was bad in law. The assessee contended before the Commissioner (Appeals) that all the facts were before the assessing officer who had done the assessment at the first instance and the subsequent opinion formed by the second incumbent was a change of opinion and mere change of opinion does not give any legal sanctity to reopen the assessment under section 147. The assessee further submitted that by resorting to section 147 as a result of change of opinion, a deduction allowed cannot be withdrawn subsequently. It was the case of the assessee that all the materials were before the assessing officer and it was after satisfying himself that the claim of deduction under section 80M was allowed. At the time of passing of the order, the assessing officer applied his mind and then only, he allowed the claim. The successor assessing officer cannot sit on the judgment of the earlier order. He held that it was not an error of judgment but it was a change of opinion and, therefore, there was no legal sanctity to reopen under section 147 by the successor assessing officer. No additional information was available. The assessee relied upon the judgment of the Supreme Court in the case of Calcutta Discount Co. Ltd. v. ITO (1961) 41 ITR 191 . The learned Commissioner (Appeals) considering the above submissions, came to the conclusion that the assessee has disclosed all the material facts relating to computation and the claim of deduction under section 80M. The assessing officer, he held, has applied his mind. In the absence of any information, the subsequent assessing officer cannot act upon on the basis that he had different opinion. He further held that though the provisions of section 147 have been changed with effect from 1-4-1989, the judgment of the Hon'ble Supreme Court cited supra would still be valid. Thus, he allowed the appeal by the assessee. It is against this order, the revenue is in appeal before the Tribunal.
3. The learned Departmental Representative submitted that subsequent to the decision of the Hon'ble Supreme Court relied upon by the learned Commissioner (Appeals), the section had undergone a change of great magnitude and, therefore, the learned Commissioner (Appeals) was not justified in holding that the Supreme Court decision still lays down the law. Relying upon the decision of the Hon'ble Supreme Court in the case of CIT v. Sun Engg. Works (P) Ltd. (1992) 198 1TR 297 (SC), the learned Departmental Representative submitted that it is neither desirable nor permissible to pick out a word or sentence from the judgment of the Supreme Court divorced from the context of the question under consideration and treat it to be complete law declared by the court, The learned Departmental Representative, quoting the Judgment of the Hon'ble Supreme Court, submitted "the judgment must be read as a whole and observations from the judgment have to be considered in light of the questions which were before the court." "A decision of the Supreme Court takes its colour from the questions involved in the case in which it is rendered and while applying the decision to a latter case, the court must carefully try to ascertain the true principles laid down by the decision."
4. The learned Departmental Representative continuing her arguments, submitted that the decision of the Hon'ble Supreme Court in Calcutta Discount Co. Ltd.'s case (supra) was rendered before the amendment of the section 147. The amendment was with effect from 1-4-1989 vide Direct Tax Laws (Amendment) Act, 1987. The learned Departmental Representative further submitted that the present section 147 gives an absolute power to the assessing officer to reopen the case if he has reason to believe that the income has escaped assessment whereas in earlier section, the words were "for reasons to be recorded by him in writing, is of the opinion".
5. None attended on behalf of the assessee at the time of hearing. However, the assessee has made the following written submissions vide its letter dated 21-9-1998 :
"ln this case originally the assessment was completed under section 143(3) of the Income Tax Act, 1961. The claim made under section 80M by the assessee was allowed. However, the incumbent Income Tax Officer reopened the assessment and disallowed the claim under section 80M of the Income Tax Act, 1961.
This being a change of opinion in respect of decided matter, cannot be reopened, as has already been held by the Supreme Court.
The matter was argued in detail before the learned Commissioner (Appeals). After due verification of all the relevant facts and law applicable thereto, the learned Commissioner (Appeals) decided the appeal in favour of the assessee. The respondent strongly supports and relies and the same.
The respondent for some unavoidable reasons, is unable to appear on the date of hearing. However he submits that the appeal may kindly be decided and disposed of, in absence of the respondent, and the appeal filed by the department may be dismissed."
According to the assessee, this is a mere change of opinion in respect of decided matter and, therefore, it cannot be reopened. In its written submission, the assessee supports the order of the Commissioner (Appeals).
6. I have heard the learned Departmental Representative, gone through the written submissions of the assessee and the arguments advanced by the assessee before the Commissioner (Appeals). I have also gone through the decisions relied upon by the contending parties. The main thrust of the arguments of the assessee before the Commissioner (Appeals) is recorded in para 3 of his appellate order. The assessing officer had applied his mind and then only, according to the assessee, the assessing officer and the Commissioner (Appeals), in the first instance, allowed the claim. The successor assessing officer cannot say that it was a mere error of judgment. According to the assessee, this is a change of opinion and the assessment order cannot be reopened under section 147 on mere change of opinion. No additional information has come into the possession of the assessing officer. The assessee relies upon the judgment of the Hon'ble Supreme Court in the case of Calcutta Discount Co. Ltd. (supra). I have gone through the orders of the revenue authorities. Before dealing with the arguments of the parties, for a better appraisal of the arguments, it is necessary to have a glance of the section before and after amendment. Before amendment brought in by the Direct Tax Laws (Amendment) Act, 1987 with effect from 1-4-1989, section 147 reads as under:
"If the assessing officer has reason to believe that, by reason of the omission of failure on the part of an assessee to make a return under section 139 for any assessment year to the assessing officer or to disclose fully and truly all material facts necessary for his assessment for that year, income chargeable to tax has escaped assessment for that year, or Notwithstanding that there has been no omission or failure mentioned in clause (a) on the part of the assessee, the assessing officer has in consequence of information in his possession reason to believe that 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 or recompute the loss or the depreciation allowance, as the case may be, for the assessment year concerned (hereinafter in sections 148 to 153 referred to as the relevant assessment year)"
After the change brought in, section 147 now reads as under:
"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) . ."
While allowing the assessee's appeal, the learned Commissioner (Appeals) came to the conclusion that "though provisions of section 147 have been changed with effect from 1-4-1989, nevertheless, the judgment of the Supreme Court cited by the counsel would still be valid." It is, therefore, held by him that the proceedings have not been validly reopened and, therefore, reassessment not validly made. He further held that there was no need to give any finding on merits.
7. Under section 34 of the Income Tax Act, 1922, the Income Tax Officer got jurisdiction to reopen the assessment, if the officer had reason to believe that by reason of the omission or failure on the part of the assessee to make a return of his income under section 22 or to disclose fully and truly all material facts necessary for his assessment for that year and income profits or gains chargeable to income-tax have escaped assessment for that year, or have been under-assessed, or assessed at too low a rate, or have been made the subject of excessive relief under the Act, or excessive loss or depreciation allowance has been computed or if' there was no failure or omission on the part of the assessee but subsequently, the officer has, in consequence of information in his possession, reason to believe that income has escaped assessment either by way of allowing excessive relief, or under-assessed or assessed at low rate of tax, then the Income Tax Officer got the jurisdiction to reopen the assessment. In the case of Calcutta Discount Co. Ltd. (supra), their Lordships of the Hon'ble Supreme Court was dealing with a case under 1922 Income Tax Act. Coming to the Income Tax Act, 1961, the words "by reason or omission or failure on the part of the assessee" have been omitted from the section. This means in case where there is no failure on the part of the assessee to file the return of income and no concealment, till the assessing officer may take action under section 147 if he had reason to believe that the income had escaped the assessment. Of course, the reason to believe as it was in the original section and interpreted by the court still applies and should be given effect. The 'reason' should be a belief of a reasonable man which should be supported by the facts, justice and fair play. In the case of Prafful Chundal Patel v. Makwana, Asstt. CIT (1998) 5 DTC 270 (Guj-HC) : (1999) 236 ITR 832 (Guj), the Hon'ble Gujarat High Court held that formation of belief by the assessing officer is not necessarily a judicial decision but an administrative decision. At the initiation of the proceeding by reopening, it does not determine anything at that stage. The reason may be the result of official information or his own investigation or may come from any source that he considers reliable. His reason is not to be judged by a court by the standard of what the ideal man would think, held the Gujarat High Court. The court further held that "he is the actual man trusted by the Legislature and charged with the duty of forming of a belief, for the mere purposes of determining whether he should proceed to collect what is strictly due by law and no other authority can substitute its standard of sufficient reason in the circumstances or his opinion or belief for him. "Their Lordships of the Gujarat High Court further held - "Therefore, unless it is shown that the assessing officer never enquired into the matter at all or that he never honestly believed that a mistake has been made, the result of his investigation and initiation of the proceedings under section 147 of the Act cannot be challenged on the ground of want of jurisdiction. The assessing officer has to determine the facts and the law in order to give him jurisdiction to proceed and if in the determination of this he goes wrong, the proper remedy for the assessee would be to go up in appeal and to have the case referred to the High Court under the provisions of the Act."
8. The decision of the Hon'ble Supreme Court relied upon by the learned Commissioner (Appeals) was rendered in the context of pre-amended law whereas after the introduction of changes with effect from 1-4-1989, the scope for reopening the assessment escaping the income has been widened. The only restriction put in this section is "reason to believe" and the reason, as noted above, should be a reason of a prudent man and it should be a reasonable fair and judicious one, and not necessarily due to the failure of the assessee to disclose fully or partially some material facts relevant for his assessment. If anything is escaped the assessment and the assessing officer notices it, subsequent, by his own investigation or by the reason of some information received it cannot be said that it is always a change of opinion by the successor officer. The decision relied upon by the learned Commissioner (Appeals) is not strictly applicable in this case. Therefore, I hold that the assessing officer was justified in reopening the matter on the facts of the case. Since the Commissioner (Appeals) has not decided the issue on merits, I remand the matter back to the file of the Commissioner (Appeals) to decide the issue on merits after affording the assessee a reasonable opportunity of being beard.
9. In the result, the appeal by the revenue is allowed for-statistical purposes.