Oriental Insurance Co. LTd, v. ACIT Circle 16 (1),

ITA 3910/DEL/2007 | 2004-2005
Pronouncement Date: 22-07-2011 | Result: Dismissed

Appeal Details

RSA Number 391020114 RSA 2007
Assessee PAN AAACT0627R
Bench Delhi
Appeal Number ITA 3910/DEL/2007
Duration Of Justice 3 year(s) 9 month(s) 27 day(s)
Appellant Oriental Insurance Co. LTd,
Respondent ACIT Circle 16 (1),
Appeal Type Income Tax Appeal
Pronouncement Date 22-07-2011
Appeal Filed By Assessee
Order Result Dismissed
Bench Allotted E
Tribunal Order Date 22-07-2011
Assessment Year 2004-2005
Appeal Filed On 25-09-2007
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL (DELHI BENCH E NEW DELHI) BEFORE SHRI I.P. BANSAL JUDICIAL MEMBER AND SHRI K.G. BANSAL ACCOUNTANT MEMBER I.T.A. NO.3910/DEL/2007 ASSESSMENT YEAR : 2004-05 ORIENTAL INSURANCE CO. LTD. VS. ACIT A/25-27 ASAF ALI ROAD CIRCLE 16(1) NEW DELHI NEW DELHI PAN NO.AAACT 0627 R (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI TARUNDEEP SINGH CA RESPONDENT BY : SHRI RAJ TONDON CIT-DR ORDER PER K.G. BANSAL: AM: THE FACTS OF THIS CASE ARE THAT THE ASSESSEE FILED ITS RETU RN ON 29.10.2004 DECLARING NIL INCOME. HOWEVER THE TAX WAS PAID U/S 115JB ON BOOK PROFIT OF `381 11 15 084/-. THE ASSESSMENT WAS COMPLETED U/S 143(3) ON 30.01.2006 AT TOTAL INCOME OF `35 87 12 6 74/-. HOWEVER THE TAX WAS LEVIED U/S 115JB AT BOOK PROFIT OF `391 45 36 826/-. WHILE COMPLETING THE ASSESSMENT FOR ASSESSMENT YEAR 2005-06 THE IMMEDIATELY SUCCEEDING YEAR THE ASSESSING OFFICER NOTED THAT THE ASSESSEE DID NOT INCLUDE INCOME OF `505 33 63 209/- IN THE TOTAL INCOME WHICH REPRESENTED PROFIT ON SALE OF INVESTMENT S. IN THE ASSESSMENT ORDER OF REASSESSMENT IT IS MENTIONED THAT THIS A MOUNT WAS DIRECTLY CREDITED TO THE GENERAL RESERVE ACCOUNT RATHER THAN ROUTING IT THROUGH PROFIT AND LOSS ACCOUNT. IT MAY B E MENTIONED HERE THAT THIS FACT HAS BEEN DISPUTED BY THE ASSESSEE. IN VIEW OF AFORESAID FACTS THE ASSESSING OFFICER CAME TO THE CONCLUSION THAT THE AFORESAID 2 INCOME CHARGEABLE TO TAX ESCAPED ASSESSMENT WITHIN THE M EANING OF SECTION 147. IN THIS CONNECTION HE REFERRED TO THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF CALCUTTA DISCOUNT COMPAN Y LIMITED VS. INCOME TAX OFFICER (1961) 41 ITR 191 TO THE EFFEC T THAT IF SOME MATERIAL FOR THE ASSESSMENT LIES EMBEDDED IN THE EVIDENC E THEN IT IS THE DUTY OF THE ASSESSEE TO BRING IT TO THE NOTICE OF T HE ASSESSING OFFICER BECAUSE THE ASSESSEE KNOWS ALL THE MATERIAL AND R ELEVANT FACTS ABOUT WHICH THE ASSESSING OFFICER MAY NOT KNOW. IN OTH ER WORDS THE RATIO IS THAT PASSIVE DISCLOSURE IN RESPECT OF MATERIAL F ACTS IS NOT ENOUGH AND IT IS THE DUTY OF THE ASSESSEE TO BRING ALL M ATERIAL FACTS TO THE NOTICE OF THE ASSESSING OFFICER. IN THE LIGHT OF T HIS DECISION A PRIMA FACIE OPINION WAS FORMED THAT INCOME OF `505 33 63 2 09/- HAD ESCAPED ASSESSMENT. ACCORDINGLY REASONS WERE RECORDED FOR REOPE NING THE ASSESSMENT U/S 147 WHICH READS AS UNDER:- THE ORIGINAL RETURN OF INCOME WAS FILED ON 29-10-200 4 SHOWING NIL INCOME UNDER NORMAL PROVISIONS AND U/S 115JB(MAT) THE INCOME WAS CLAIMED AT RS.3 81 11 15 08 4/- . THE LATEST ASSESSMENT WAS COMPLETED U/S 143(3) OF THE INCOME-TAX ACT 1961 ON 30-01-2006 AT AN INCOME OF `3 91 45 36 826/- UNDER THE PROVISION OF MAT. DURING THE RELEVANT PREVIOUS YEAR THE ASSESSEE HAS DERIVED INCOME FROM THE BELOW MENTIONED BUSINESSES:- A} NON-LIFE INSURANCE BUSINESS B} TRANSACTION IN SHARES AND SECURITIES WHITE ACTING AS A PUBLIC FINANCIAL INSTITUTION U/S 4A OF THE COMPAN IES ACT. UNDER THE PRESCRIBED STATUTORY PROVISIONS ONLY THE PROFITS AND GAINS OF INSURANCE (OTHER THAN LIFE INSURAN CE) SHALL BE TAKEN TO BE THE BALANCE AS DISCLOSED IN THE AN NUAL ACCOUNTS BY THE ASSESSEE THE COPIES OF WHICH WERE REQUIRED UNDER THE INSURANCE AD 1938 (4 OF 1938) TO BE SUBMITTED TO THE PRESCRIBED CONTROLLER OF INSURANCE (REFERRED TO IN SCHEDULE 1 OF THE INCOME-TAX ACT 1 961). IT IS THEREFORE CLEAR THAT THE INCOME EARNED BY THE A SSESSEE FROM THE NON-INSURANCE ACTIVITIES ARE TAXABLE LIKE PR OFIT AND 3 GAINS OF BUSINESS AND PROFESSION. AFTER THE OMISSION OF RUL E 5(B) OF FIRST SCHEDULE OF THE I. TAX ACT 1961 WITH EFFECT FROM A.Y. 1989-90 THE ASSESSEE HAS BEEN CREDITING DIREC TLY THE PROFITS ON THE REALIZATION OF INVESTMENTS/SALE OF SH ARES OF COMPANIES AND REDEMPTION OF SUCH INVESTMENT INTO TH E BALANCE SHEET UNDER THE HEAD GENERAL RESERVE ACCOUNT WITHOUT SUBJECTING IT TO THE PROFIT: AND LOSS ACCOUNT OF THE CORRESPONDING YEAR. SINCE THIS PART OF THE PROFIT AND GAIN IS NOT ATTRIBUTABLE TO THE INSURANCE BUSINESS THE SAME DOE S NOT CONSTITUTE A VALID CAUSE FOR CLAIMING IT EXEMPTED . FURTHER TAKING PROFIT AND GAINS ATTRIBUTABLE TO SUCH ACTIVITIES DIRECTLY TO THE BALANCE SHEET WITHOUT SUBJE CTING IT TO THE PROFIT AND LESS ACCOUNT OF THE CORRESPONDING YE AR CONSTITUTE FURNISHING OF INACCURATE PARTICULARS OF INC OME ON THE PART OF THE ASSESSEE. BESIDES THE PROFIT ARISING OUT O F SALE OF INVESTMENTS BEING NON-OBLIGATORY UNDER THE INSURANCE ACT 1935 CONSTITUTE THE BUSINESS INCOME OF T HE ASSESSEE NOT INCIDENTAL TO THE INSURANCE BUSINESS. DURING THE PREVIOUS YEAR UNDER CONSIDERATION THE ASSESSEE HAS INTER-ALIA CREDITED A SUM OF `505 33 63 209/- DIREC TLY INTO THE GENERAL RESERVE ACCOUNTS IN THE BALANCE SHEET AS 'PROFIT ON SALE OF INVESTMENT' WITHOUT ROUTING IT THR OUGH THE PROFIT AND LOSS ACCOUNT OF THE CORRESPONDING YEAR. THU S THE INCOME HAS ESCAPED ASSESSMENT MEANING OF SECTION 147 OF THE I.TAX ACT 1961 DURING THE PREVIOUS YEAR RELEVAN T TO THE ASSESSMENT YEAR UNDER CONSIDERATION. THE JURISDICTIONAL HON'BLE HIGH COURT OF DELHI WHILE EXAMINING THE APPLICABILITY OF THE PROVISIONS CONTAIN ED U/S 147 OF THE INCOME-TAX ACT 1961 IN CONSOLIDATED PHOT O & FINVEST LTD. VS ACIT REPORTED IN (2006) 151 TAXMAN 41 HAS LAID DOWN AS UNDER:- WE HAVE GIVEN OUR ANXIOUS CONSIDERATION TO THE SUBMISSION MADE AT THE BAR AND PERUSED THE RECORD. CHAPTER XIV OF THE ACT DESCRIBES THE PROCEDURE FOR ASSESSMENT. WHILE SECTIONS 139 TO 145 INTER-ALIA PROVID E FOR FILING OF RETURNS ISSUE OF PERMANENT ACCOUNT NUMB ERS SELF -ASSESSMENT REFUND INQUIRY BEFORE ASSESSMENT BEST JUDGMENT ASSESSMENTS AND METHOD OF ACCOUNTING ETC. SECTION 147 DEALS WITH INCOME ESCAPING ASSESSMENT. A CAREFUL READING OF SECTION 147 OF THE ACT MAKES IT CL EAR THAT IF THE ASSESSING OFFICER HAS REASON TO BELIEVE THAT ANY INCOME CHARGEABLE TO TAX HAS ESCAPED ASSESSMENT HE MAY SUBJECT TO THE PROVISIONS OF SECTIONS 148 TO 153 ASSESSEE OR REASSESS SUCH INCOME AND ALSO ANY OTHER 4 INCOME CHARGEABLE TO TAX WHICH HAS ESCAPED ASSESSMENT AND WHICH COMES TO HIS NOTICE IN THE COURSE OF PROCEED INGS UNDER THE SAID PROVISIONS. THE ASSESSING OFFICER CAN WHI LE DOING SO RECOMPUTE THE LOSS OR THE DEPRECIATION ALLOW ANCE OR ANY OTHER ALLOWANCE AS THE CASE MAY BE FOR THE ASSESSMENT YEAR CONCERNED. PROVISO TO SECTION 147 STIPULATES A PERIOD OF LIMITATION WITHIN WHICH ACTION FOR REASSESSMENT CAN BE INITIATED AND PROVIDES THAT NO ACTI ON UNDER SECTION 147 SHALL BE TAKEN AFTER THE EXPIRY OF FOUR YEARS FROM THE END OF THE RELEVANT ASSESSMENT YEAR IN CASES WHERE AN ASSESSMENT UNDER SUB SECTION (3) OF SECTION 143 HAS BEEN MADE UNLESS ANY INCOME CHARGEABLE TO TAX HAS ESCAPED ASSESSMENT FOR SUCH ASSESSMENT FOR SUCH ASSESSMENT YEAR BY REASON OF THE FAILURE ON THE PART OF THE ASSESSEE TO EITHER MAKE A RETURN U/S 139 OR TO RESPOND TO A NOTICE ISSUED UNDER SUB-SECTION (1) 0F SECTI ON 142 OR SECTION 148 TO DISCLOSE FULLY AND TRULY ALL MAT ERIAL FACTS NECESSARY FOR HIS ASSESSMENT FOR THAT ASSESSMENT YEAR. IT IS CLEAR FROM THE ABOVE THAT THE TWO CRITICAL ASPE CTS NEED TO BE ADDRESSED IN ANY ACTION UNDER SECTION 147 ARE WHETHER THE ASSESSING OFFICER HAS REASON TO BELIEVE THA T ANY INCOME CHARGEABLE TO TAX HAS ESCAPED ASSESSMENT AND WHETHER THE PROPOSED REASSESSMENT IS WITHIN THE PERIOD OF LIMITATION PRESCRIBED UNDER THE PROVISO TO SECTION 147. EXPLANATION (1) TO THE SAID PROVISION MAKES IT C LEAR THAT PRODUCTION OF ACCOUNT BOOKS OR OTHER EVIDENCE F ROM WHICH ASSESSING OFFICER COULD WITH DUE DILIGENCE DISCOV ER MATERIAL EVIDENCE WOULD NOT NECESSARILY AMOUNT TO DISCLOSURE WITHIN THE MEANING OF THE PROVISO THAT STIPU LATES AN EXTENDED PERIOD OF LIMITATION FOR ACTION IN CASES WHERE THE ESCAPEMENT ARISES OUT OF THE FAILURE ON THE PART O F THE ASSESSEE TO DISCLOSE FULLY AND TRULY ALL MATERIAL FACTS NECESSARY FOR ASSESSMENT. EXPLANATION (2) TO SECTION 147 ON THE OTHER HAND STIPULATES THE CIRCUMSTANCES IN WHIC H INCOME CHARGEABLE TO TAX SHALL BE DEEMED TO HAVE ESCAPED ASSESSMENT. IT NEEDS THUS: 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 TH E ASSESSEE ALTHOUGH HIS TOTAL INCOME OR THE TOTAL INCOME O F ANY OTHER PERSON IN RESPECT OF WHICH HE IS ASSESSABLE 5 UNDER THIS ACT DURING THE PREVIOUS YEAR EXCEEDED THE MAXIMUM AMOUNT WHICH IS NOT CHARGEABLE TO INCOME TAX . 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 OTH ER ALLOWANCE UNDER THIS ACT HAS BEEN COMPUTED. THE ABOVE WOULD SHOW THE CASES FALLING IN CLAUSE OF EXPLANATION (2) (SUPRA) IN WHICH INCOME CHARGEABLE T O TAX HAS BEEN UNDER-ASSESSED OR ASSESSED OF TOO LOW RATE OR CASES IN WHICH INCOME HAS BEEN MADE THE SUBJECT TO EXCESSIVE RELIEF UNDER THE ACT OR WHERE EXCESSIVE LOSS OR DEPRECIATION ALLOWANCE OR ANY OTHER ALLOWANCE UNDER THE ACT HAS BEEN COMPUTED WOULD CONSTITUTE CASES OF INCOME ESCAPING ASSESSMENT. THERE IS CONSIDERABLE AUTHORITY FOR THE PROPOSITION THAT THE JURISDICTION OF THE ASSESSING O FFICER TO INITIATE PROCEEDINGS WOULD DEPEND UPON WHETHER HE HAS REASONS TO BELIEVE THAT ANY INCOME CHARGEABLE TO TAX HAS ESCAPED ASSESSMENT. THE CASE OF THE ASSESSEE IS THEREFORE SQUARELY COVERED WITHIN THE STATUTORY PROVISIONS CONTAINED U/S 1 47 OF THE INCOME-TAX ACT 1961. SINCE THE ASSESSEE HAS FAI LED TO FURNISHED ACCURATE PARTICULARS OF HIS INCOME ILLUSTR ATED SUPRA I HAVE REASON TO BELIEVE THAT THE INCOME OF `505 33 63 209/- HAS ESCAPED ASSESSMENT WITHIN THE MEANING OF SECTION 147 OF THE INCOME-TAX ACT 1961. 1.1 IN PURSUANCE OF THE REASONS NOTICE U/S 148 WAS SERVE D ON THE ASSESSEE. IT WAS INFORMED THAT THE RETURN FILED ON 28.1 1.2004 MAY BE TAKEN TO BE THE RETURN U/S 148. THEREAFTER STATUTOR Y NOTICES WERE 6 ISSUED U/S 143(2) AND 142(1) FOR THE PURPOSE OF COMPLET ING REASSESSMENT PROCEEDING. AFTER HEARING THE ASSESSEE AT LEN GTH THE ASSESSMENT WAS COMPLETED ON 25.01.2007 IN WHICH THE AFOR ESAID SUM OF `505 33 63 209/- WAS INCLUDED IN THE TOTAL INCOME . 2. THIS ORDER WAS CHALLENGED BEFORE THE CIT(A)-XIX N EW DELHI BOTH IN RESPECT OF JURISDICTION TO REOPEN THE ASSESSMENT AND I NCLUDING PROFIT ON SALE OF INVESTMENTS IN THE TOTAL INCOME. THREE OT HER GROUNDS REGARDING WITHDRAWAL OF INTEREST AND CHARGING OF IN TEREST U/SS 244A 234B & 234D WERE ALSO RAISED. THE LEARNED CIT(A) DISM ISSED THE APPEAL OF THE ASSESSEE ON 16.08.2007. IN REGARD TO REO PENING THE ASSESSMENT HER FINDINGS ARE THAT THE EXPRESSION REASON TO BELIEVE CANNOT BE EQUATED WITH THE EXPRESSION REASON TO SUSPECT . HOWEVER THE EXPRESSION REASON TO BELIEVE EMPLOYED IN SECTION 147 ALSO DOES NOT MEAN THAT A CONCLUSIVE FINDING IS TO BE GIVEN BASE D ON EVIDENCE ON RECORD. THUS THE EXPRESSION FALLS SOMEWHERE BETWEEN TH E AFORESAID EXTREMES. THEREFORE IF ON THE BASIS OF MATERIAL ON R ECORD JUSTIFIABLE REASONS EXIST TO PRIMA FACIE SHOW THAT INCOME HAS ESCAPED ASSESSMENT THEN ACTION CAN BE TAKEN U/S 147. IN REGARD TO THE INCLUSION OF PROFIT ON SALE OF INVESTMENTS HER FINDING S ARE THAT THE AMOUNT CANNOT BE EXCLUDED FROM THE BOOK PROFITS AS UN DERSTOOD UNDER RULE 5 OF THE FIRST SCHEDULE. SHE FURNISHED A TABLE ON PAGE 19 OF HER ORDER DEPICTING THE TREATMENT GIVEN TO SUCH PROFITS IN VARIOUS EARLIER YEARS. IN ASSESSMENT YEARS 1999-00 TO 2001-02 THE PROFI TS WERE CREDITED DIRECTLY TO GENERAL RESERVES. IN ASSESSMENT YEA RS 2002-03 AND 2003-04 THE PROFITS WERE CREDITED TO PROFIT AND LOSS ACCOUNT BUT NO EXEMPTION WAS CLAIMED AS RETURNED INCOMES WERE NIL. IN THE CURRENT YEAR THE PROFITS WERE CREDITED TO PROFIT AN D LOSS ACCOUNT BUT WERE CLAIMED AS EXEMPT. RULE 5(B) OF THE SCHEDULE WAS DELETED W.E.F. 01.04.1989 THEREFORE THE SAME IS NOT APPLICABLE TO THE PROCEEDINGS OF THIS YEAR. IN VIEW THEREOF NO ADJUSTMENT WAS REQUIRE D TO BE MADE TO 7 THE BOOK PROFITS. IN OTHER WORDS THE AMOUNT WAS INCL UDIBLE IN THE TOTAL INCOME OF THE ASSESSEE. 2.1 AGGRIEVED BY THIS ORDER THE ASSESSEE IS IN APPEAL BE FORE US. THE ASSESSEE HAS CHALLENGED THE REOPENING OF THE ASSESSMENT AS WE LL AS INCLUDING PROFIT ON SALE OF INVESTMENT IN THE TOTAL I NCOME. THE WITHDRAWAL OF INTEREST PAID U/S 244A AND CHARGING OF INTEREST U/SS 234B AND 234D HAS ALSO BEEN CHALLENGED. BUT SUCH GROUNDS AR E ONLY CONSEQUENTIAL IN NATURE. THE DECISION ON SUCH GROUNDS FOLLOWS FROM THE MAIN GROUND. 3. BEFORE US THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITT ED THAT FACTS NARRATED IN THE REASONS RECORDED BY THE ASSESSING OF FICER ARE INCORRECT INASMUCH AS THE PROFIT ON SALE OF INVESTMENTS WAS CREDITED TO THE PROFIT AND LOSS ACCOUNT AND IT WAS NOT DIRECTLY CR EDITED TO THE GENERAL RESERVE ACCOUNT. THE ASSESSEE HAS BEEN CARRYING ON GENERAL INSURANCE BUSINESS AND IS GOVERNED BY INSURANCE ACT 1938 . THE ACT PROVIDES THAT THE AUTHORITY SHALL CANCEL THE REGISTRAT ION OF AN INSURER EITHER WHOLLY OR IN SO FAR AS IT RELATES TO A PARTICUL AR CLASS OF INSURANCE BUSINESS AS THE CASE MAY BE INTER ALIA IF THE INSURER C ARRIES ON ANY BUSINESS OTHER THAN INSURANCE BUSINESS OR ANY PRESCRIBED BU SINESS. THE REGULATORY AUTHORITY HAS NOT FOUND ANY DEFAULT C OMMITTED BY THE ASSESSEE SO AS TO LEAD TO CANCELLATION OF REGISTRATION. T HEREFORE THE REASON RECORDED BY THE ASSESSING OFFICER THAT IT IS CARRY ING ON THE SEPARATE BUSINESS OF INVESTMENT OR DEALING IN SHARES AND SE CURITIES PROFIT FROM WHICH HAS BEEN DIRECTLY CREDITED TO THE GENERAL RESERVE ACCOUNT IS NOT BORNE BY FACTS ON RECORD. ACTUALLY THESE FACTS ARE WRONG. AS A MATTER OF FACT SECTION 27B OF THE INSURA NCE ACT PERMITS INVESTMENT AS SPECIFIED THEREIN INCLUDING INTER ALIA (I) SHARES OF ANY COMPANY WHICH HAVE BEEN GUARANTEED BY ANY OTHER COM PANY SUCH OTHER COMPANY HAVING PAID DIVIDENDS ON ITS EQUITY SHAR ES FOR THREE YEARS IMMEDIATELY PRECEDING OR FOR AT LEAST 3 OUT OF 4 OR 5 YEARS IMMEDIATELY PRECEDING AND (II) SHARES OF ANY COMPANY ON WHICH 8 DIVIDENDS OF NOT LESS THAN 4% INCLUDING BONUS HAVE BEEN PAID FOR THREE YEARS IMMEDIATELY PRECEDING OR FOR AT LEAST 3 OUT OF THE 4 OR 5 YEARS IMMEDIATELY PRECEDING. IT HAS ALSO BEEN PROVIDED THA T AN INSURER SHALL NOT INVEST OR KEEP INVESTED ANY PART OF HIS ASSETS IN THE SHARES OR DEBENTURES OF ANY ONE COMPANY OTHER THAN A BANKING C OMPANY OR INVESTMENT COMPANY EXCEEDING 10% OF HIS ASSETS OR 10% O F THE PRESCRIBED SHARE CAPITAL AND DEBENTURES OF THE COMPANY WHICHEVER IS LESS. THE ASSESSEE HAS MADE INVESTMENTS IN CONFORMITY WITH THESE PROVISIONS AND NO INFRINGEMENT HAS BEEN POINTED OUT EI THER BY REGULATORY AUTHORITY OR BY THE ASSESSING OFFICER. INCO ME FROM SUCH INVESTMENTS IS A PART AND PARCEL OF THE INSURANCE BUSINE SS. ACCORDINGLY PROFIT AND SALE OF INVESTMENTS HAS BEEN CR EDITED DIRECTLY TO PROFIT AND LOSS ACCOUNT AS CAN BE SEEN FROM THE ANN UAL ACCOUNTS OF THE COMPANY. THUS IT IS ARGUED THAT THE FACTS HAVE N OT BEEN PROPERLY APPRECIATED BY THE ASSESSING OFFICER WITH THE RESULT THA T THERE IS NO LIVE NEXUS BETWEEN THE FACTS AND REASON TO BELIEVE. 3.1 IT IS FURTHER SUBMITTED THAT ORIGINAL ASSESSMENT WAS M ADE U/S 143(3). IN THIS ASSESSMENT THE ISSUE REGARDING INVESTMEN T WRITTEN OFF AMOUNTING TO `3 57 54 000/- HAS BEEN DISCUSSED I N PARAGRAPH NO.7. IN THE CONCLUDING PORTION IT IS MENTIONED TH AT THE INTENTION OF THE LEGISLATURE IS THAT IT HAS EXEMPTED ALL TYPES OF GA INS ON INVESTMENTS WHETHER BY WAY OF APPRECIATION OR BY WAY OF REALIZATION AND SIMULTANEOUSLY ALL TYPES OF LOSSES ON INVESTMENTS WHETH ER BY WAY OF APPRECIATION OR BY WAY OF REALIZATION ARE TO BE DISALLOWED. ACCORDINGLY THE LOSS AS AFORESAID HAD BEEN DISALLOWED I N COMPUTING THE INCOME. THIS DISCUSSION SHOWS THAT THE ASSESSING OFFICER HAD APPLIED HIS MIND TO BOTH THE ISSUES OF PROFIT AND LOSS ON SALE ETC. OF INVESTMENTS. AS THE MATTER HAD BEEN DISCUSSED AND DECIDE D THE ASSESSMENT CANNOT BE REOPENED ON ACCOUNT OF CHANGE OF O PINION. 9 4. IN REPLY THE LEARNED CIT-DR SUBMITTED THAT THE I NSTANT ASSESSMENT PERTAINS TO ASSESSMENT YEAR 2004-05. THE NOTICE U/S 148 WAS ISSUED ON 28.11.2006 I.E. IN A PERIOD OF LESS THAN 4 YEARS FROM THE END OF THE RELEVANT ASSESSMENT YEAR. THEREFORE TH E CONTROVERSY IS GOVERNED BY MAIN PROVISION CONTAINED IN SECTION 147. IN OTHER WORDS PROVISO TO THIS SECTION REGARDING ESTABLISHMENT OF FAILU RE ON THE PART OF THE ASSESSEE IS NOT APPLICABLE. UNDER THE MAIN PROVISION THE ONLY PRE- CONDITION IS THAT THE ASSESSING OFFICER SHOULD HAVE REASON TO BELIEVE THAT ANY INCOME CHARGEABLE TO TAX HAS ESCAPED ASSESSMENT. THE ASSESSEE IS A GENERAL INSURANCE COMPANY AND ITS ASSESSMENT IS GOVERNED BY THE PROVISIONS CONTAINED IN SCHEDULE-I OF THE ACT. THUS RULE 5 REGARDING COMPUTATION OF PROFITS AND GAINS OF OTHER INSURANCE BUSINESS IS APPLICABLE IN THE CASE OF THE ASSESSEE. IT IS PR OVIDED THAT THE PROFITS AND GAINS OF ANY BUSINESS OF INSURANCE OTHER THAN LIFE INSURANCE BUSINESS SHALL BE TAKEN TO BE THE BALANCE OF T HE PROFIT DISCLOSED BY THE ANNUAL ACCOUNTS COPIES OF WHICH ARE R EQUIRED UNDER THE INSURANCE ACT 1938 TO BE FURNISHED TO THE CONTR OLLER OF INSURANCE. THE SECTION MANDATES TWO ADJUSTMENTS TO SUCH PROFITS ARE NOW TERMED AS BOOK PROFITS. NONE OF THESE ADJUSTMENTS ARE A DMITTEDLY APPLICABLE IN THE CASE OF THE ASSESSEE. THE ASSESSEE HAD CR EDITED THE PROFITS ON SALE OF INVESTMENTS TO THE PROFIT AND LOSS ACC OUNT. THERE HAS BEEN A MINOR ERROR IN RECORDED REASONS IN THIS BEHALF. HOWEVER SUCH A MINOR ERROR DOES NOT MAKE ANY DIFFERENCE TO THE CONC LUSION THAT THE INCOME HAD ESCAPED ASSESSMENT OR THAT THE ASSESSING OFFICER HAD REASON TO BELIEVE IN THIS MATTER. THE REASON IS THAT T HE AMOUNT WAS DEDUCTED IN COMPUTING THE TOTAL INCOME. THE PRESENT STAND OF THE LEARNED COUNSEL LEADS TO AN ANOMALOUS SITUATION THAT PR OFITS ON SALE OF INVESTMENTS ARE NOT BROUGHT TO TAX WHILE THE LOSS INCUR RED ON DEPRECIATION IN THE VALUE OF INVESTMENTS STANDS ALLOWED . ALTHOUGH THE ASSESSING OFFICER INITIALLY DISALLOWED THIS AMOUNT I N THE ASSESSMENT ORDER BUT THE ASSESSEE HAS GOT RELIEF IN THIS MATT ER. IT IS 10 FURTHER SUBMITTED THAT THE MATTER REGARDING TAXATION OF THE PROFIT WAS NOT DISCUSSED AT ALL IN THE COURSE OF ORIGINAL ASSESSMENT P ROCEEDINGS. THE ISSUE DISCUSSED WAS REGARDING PROFIT OR LOSS ON APPRECI ATION OR DEPRECIATION IN THE VALUE OF INVESTMENTS THUS THE CON TEXT WAS TOTALLY DIFFERENT. SINCE NO OPINION WAS FORMED AT THE TIME OF MAKING ORIGINAL ASSESSMENT THE CONCEPT OF CHANGE OF OPINION CANNOT BE EMPLOYED TO ASSAIL THE RECORDED REASONS. FURTHER THE PROVISION DOE S NOT CONTAIN ANY EXPLICIT WORDS REGARDING CHANGE OF OPINION THER EFORE THE CONCEPT IS NOT APPLICABLE TO THE FACTS OF THE CASE. IN ANY CA SE THIS VERY ISSUE WAS DECIDED AGAINST THE ASSESSEE IN ITS OWN CASE IN DY. CIT VS. ORIENTAL GENERAL INSURANCE COMPANY LIMITED (2005) 9 2 TTJ (DEL)/300. THEREFORE IT IS ARGUED THAT THE ASSESSMENT HAS BEEN RIGH TLY REOPENED AND PRE-CONDITIONS MENTIONED IN SECTION 147 IN SO FAR AS APPLICABLE TO THE FACTS OF THIS CASE STAND SATISFIED. 5. WE HAVE CONSIDERED THE FACTS OF THE CASE AND SUBMISSIO NS MADE BEFORE US. WE FIND THAT THE RETURN OF INCOME WAS FIL ED ON 29.10.2004 DECLARING NIL INCOME PURSUANT TO SECTION 139 (1). O RIGINAL ASSESSMENT WAS COMPLETED ON 30.01.2006 AT TOTAL INCOME OF `35 8 7 12 674/-. HOWEVER TAX WAS LEVIED UNDER THE PROVISIONS OF SECTION 115JB ON BOOK PROFIT OF `391 45 36 826/-. IN THE RETURN OF INCOM E THE ASSESSEE HAD CLAIMED DEDUCTION OF AN AMOUNT OF `505 33 63 209/- REPRESENTING PROFIT ON SALE OF INVESTMENTS. IN THE ASSESSMENT THERE I S NO DISCUSSION ABOUT THIS CLAIM ALTHOUGH THERE IS A DISCUSSION ABOUT THE LOSS OCCURRING TO THE ASSESSEE ON ACCOUNT OF DEPRECIATION IN THE VALUE OF ASSETS WHICH HAD BEEN DISALLOWED. IT HAS BEEN INFORMED BY THE LEARNED COUNSEL THAT THIS PART OF THE ORDER STANDS REVE RSED IN APPEAL. IT MAY BE MENTIONED HERE THAT IN THE CASE OF THE ASSESSE E ITSELF THE QUESTION OF TAXATION OF PROFIT ON SALE OF INVESTMENTS H AD ARISEN EARLIER IN ASSESSMENT YEARS 1982-83 TO 1986-87 1995-96 AND 1997 -98. IN THE DECISION RENDERED ON 29.09.2004 BY THE TRIBUNAL THI S MATTER HAD BEEN 11 DECIDED AGAINST THE ASSESSEE. IT WAS INTER ALIA HELD THA T IF THE INTENTION OF THE LEGISLATURE WAS TO EXEMPT PROFITS ON SALE OF INV ESTMENTS AND TO DISALLOW DEDUCTION OF LOSS ON SALE OF INVESTMENTS SUCH IN TENTION HAS NOT BEEN TRANSLATED IN THE STATUTORY PROVISIONS. THIS D ECISION WAS RENDERED PRIOR TO THE DATE OF FILING THE ORIGINAL R ETURN OF INCOME AND CONSEQUENTLY PRIOR TO MAKING THE ORIGINAL ASSESSMENT. I T APPEARS THAT THIS DECISION WAS NOT BROUGHT TO THE NOTICE OF THE ASSESSI NG OFFICER AND IT ALSO ESCAPED THE NOTICE OF THE ASSESSING OFFICER. THUS THE MATTER WAS NOT DISCUSSED IN THE ASSESSMENT ORDER. 5.1 THEREAFTER THE MATTER CAME TO THE NOTICE OF TH E ASSESSING OFFICER WHILE EXAMINING THE RETURN OF INCOME FOR IM MEDIATELY SUCCEEDING YEAR. CONSEQUENTLY HE RECORDED REASONS AND FORMED THE BELIEF THAT INCOME HAD ESCAPED ASSESSMENT. ACCORDINGLY NOTICE U/S 148 WAS ISSUED. 5.2 COMING TO THE REASONS THERE IS AN ERROR IN RECORD ING THAT THE AFORESAID PROFIT WAS DIRECTLY CREDITED TO GENERAL RESE RVE ACCOUNT. FROM THE DISCUSSION MADE BEFORE US AS WELL AS FROM THE ORDER OF THE LEARNED CIT(A) IT IS CLEAR THAT IN SO FAR AS THIS YEAR IS CONCE RNED THE PROFIT WAS CREDITED TO PROFIT AND LOSS ACCOUNT ALTHOUGH FOR SOM E EARLIER YEARS SUCH PROFITS WERE CREDITED TO GENERAL RESERVE ACCOUNT. IT WAS ALSO MENTIONED BY THE ASSESSING OFFICER THAT THIS PROFIT IS NO T ATTRIBUTABLE TO INSURANCE BUSINESS BUT THAT DOES NOT CONSTITUTE A VALID G ROUND FOR CLAIMING THE PROFIT TO BE EXEMPT FROM TAX. IN BRIE F THE CASE OF THE LEARNED COUNSEL IS THAT THE REASONS DO NOT HAVE LIVE NE XUS WITH THE FACTS ON RECORD AND IT IS A CASE OF CHANGE OF OPINION. ON THE OTHER HAND THE CASE OF THE LEARNED DR IS THAT MINOR ERROR IN THE REASONS DO NOT DETRACT US FROM THE FACT THAT INCOME HAS ESCAPED A SSESSMENT. SINCE NO OPINION WAS FORMED IN THIS MATTER THERE IS N O QUESTION OF CHANGE OF OPINION. 12 5.3 AT THIS STAGE WE MAY REPRODUCE THE PROVISIONS CONT AINED IN SECTION 147 AS APPLICABLE TO THE FACTS OF THIS CASE:- 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 THI S 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. 5.4 WE MAY ALSO REPRODUCE THE PROVISION CONTAINED IN RULE 5 OF SCHEDULE-I:- THE PROFITS AND GAINS OF ANY BUSINESS OF INSURANCE OTHER THAN LIFE INSURANCE SHALL BE TAKEN TO BE THE BALANCE OF THE PROFITS DISCLOSED BY THE ANNUAL ACCOUNTS COPIES OF WHIC H ARE REQUIRED UNDER THE INSURANCE ACT 1938 (4 OF 193 8) TO BE FURNISHED TO THE CONTROLLER OF INSURANCE SUBJECT T O THE FOLLOWING ADJUSTMENTS:- A) SUBJECT TO THE OTHER PROVISIONS OF THIS RULE ANY EX PENDITURE OR ALLOWANCE INCLUDING ANY AMOUNT DEBITED TO THE PR OFIT AND LOSS ACCOUNT EITHER BY WAY OF A PROVISION FOR ANY TAX DIVIDEND RESERVE OR ANY OTHER PROVISION AS MAY BE PRESCRIBED WHICH IS NOT ADMISSIBLE UNDER THE PROVISIONS O F 13 SECTION 30 TO 43B IN COMPUTING THE PROFITS AND GAINS O F A BUSINESS SHALL BE ADDED BACK; B) .. C) SUCH AMOUNT CARRIED OVER TO A RESERVE FOR UN-EXPIR ED RISKS AS MAY BE PRESCRIBED IN THIS BEHALF SHALL BE ALLOWED AS A DEDUCTION. 5.5 ON PERUSAL OF THE RULE IT MAY BE SEEN THAT THERE IS NO PROVISION IN IT FOR EXCLUDING FROM THE BOOK PROFITS ANY PROFIT ACCRUING ON ACCOUNT OF SALE OF INVESTMENTS. THEREFORE IT CAN BE SAID ON A PRIMA FACIE BASIS THAT INCOME CHARGEABLE TO TAX HAS ESCAPED ASSESSMENT AS UN DERSTOOD UNDER SUB CLAUSE (I) OF CLAUSE-(C) OF EXPLANATION TO S ECTION 147. THE DECISION IN THE CASE OF THE ASSESSEE ITSELF WHICH HAS BEEN REFERRED TO EARLIER ALSO LEADS TO A CLEAR INFERENCE THAT INCOME HAS ESCAPED ASSESSMENT. THEREFORE WE ARE LEFT WITH THE ONLY QUESTI ON THAT WHETHER THE ASSESSING OFFICER HAD REASON TO BELIEVE THA T INCOME HAD ESCAPED ASSESSMENT? THE LEARNED COUNSEL HAS RELIED ON A N UMBER OF DECISIONS TO SUPPORT HIS CASE. WE MAY DISCUSS THEM AT THIS JUNCTURE. IN THE CASE OF INCOME TAX OFFICER VS. LAKHMANI MEVALD AS (1976) 103 ITR 437(S.C.) THE QUESTION BEFORE THE HONBLE COURT WAS REGARDING VALIDITY OF REOPENING OF THE ASSESSMENT UNDER PRE-AMEND ED SECTION 147(A) OF THE ACT. THE PROPOSITION LAID DOWN BY THE HONBLE COURT TO THE EXTENT IT IS APPLICABLE TO THE FACTS OF OUR CASE I S THAT THERE MUST BE A RATIONAL CONNECTION BETWEEN MATERIAL COMING TO TH E NOTICE OF THE INCOME TAX OFFICER AND FORMATION OF HIS BELIEF. THE CASE OF UNITED ELECTRICAL COMPANY (P) LIMITED VS. CIT AND OTHERS (2 002) 258 ITR 317 (DELHI) DEALT WITH THE REOPENING OF AN ASSESSMENT AFTE R LAPSE OF MORE THAN 4 YEARS FROM THE END OF RELEVANT ASSESSMENT YEAR. THE RATIO OF THE CASE IN SO FAR AS FACTS OF OUR CASE ARE CONCERNED IS THAT THERE SHOULD BE A RATIONAL CONNECTION OR RELEVANT BEARING BETWEEN THE FACTS ON RECORD AND REASON TO BELIEVE. SUCH IS ALSO THE D ECISION IN THE CASE OF CIT VS. BATRA BHATTA COMPANY (2010) 321 ITR 526 (DELHI) IN 14 WHICH THE APPEAL OF THE REVENUE HAS BEEN DISMISSED BY M ENTIONING THAT THERE IS A CONCURRENT FINDING BY THE LEARNED CI T(A) AND THE TRIBUNAL THAT THERE WAS NO MATERIAL BEFORE THE ASSESSIN G OFFICER ON THE BASIS OF WHICH HE COULD FORM A BELIEF THAT THE AGRICU LTURAL LAND SOLD BY THE ASSESSEE WAS A CAPITAL ASSET WITHIN THE MEANING OF SECT ION 2(14) OF THE ACT. THE ASSESSING OFFICER HAD USED THE EXPRESSION R EQUIRES MUCH DEEPER SCRUTINY WHICH INDICATES THAT HE WAS EMBA RKING ON AN EXPLORATION WITHOUT ANY BELIEF. BASED UPON THESE DEC ISIONS WE TEND TO AGREE WITH THE LEARNED COUNSEL THAT THERE MUST BE A L IVE NEXUS BETWEEN FACTS OF RECORD AND THE FORMATION OF BELIEF. IN THIS CONNECTION WE MAY ALSO EXAMINE THE CASES RELIED UPON BY THE LEARN ED CIT-DR. IN THE CASE OF P.K. HALDAR AND COMPANY VS. CIT AND OTHER S (1999) 237 ITR 317 (PATNA) THE ASSESSING OFFICER CAME IN POSSESSION O F SOME FURTHER INFORMATION FROM CPWD WHICH SHOWED THAT THE AMOUNT OF `1 40 552/- SHOWN IN THE ACCOUNTS AS SECURED ADVANCE HAD BEEN ADJUSTED THROUGH THE BILLS ON 31.03.1986. ALTHOUGH THE ASSESSEE OBJECTED TO THE CORRECTNESS OF THIS INFORMATION THE H ONBLE COURT HELD THAT WHAT IS TO BE SEEN AT THE STAGE OF RECORDING REASO NS IS WHETHER THERE IS MATERIAL ON RECORD ON THE BASIS OF WHICH THE ASSESSMENT IS SOUGHT TO BE REOPENED. THE COURT CANNOT GO INTO THE CORRECTNESS OR OTHERWISE OF THE MATERIAL. IN OTHER WORDS THE DECISI ON IS THAT THE QUESTION OF ESCAPEMENT OF INCOME AS TO BE SEEN ON A PRI MA FACIE BASIS WHILE DECIDING WHETHER ASSESSMENT HAS BEEN VALIDLY REOPE NED. AT THIS STAGE THE ASSESSING OFFICER DOES NOT HAVE TO PROVE CONCL USIVELY THAT THE INCOME HAD ESCAPED ASSESSMENT. FURTHER IN THE CASE OF BAWA ABHAI SINGH VS. DCIT (2002) 253 ITR 83 (DELHI) THE ASSESSING OFFICER HAD ACCEPTED THE COMPUTATION MADE BY THE ASSESSEE UNDER THE HEAD CAPITAL GAINS IN RESPECT OF SOME PROPERTIES. BEFORE COMPLETING THE ASSESSMENT REFERENCE HAD BEEN MADE TO DISTRICT VALUATIO N OFFICER FOR VALUING THE PROPERTIES. WHEN THE VALUATION OFFICER CALLED UPON THE ASSESSEE TO PRODUCE RELEVANT DOCUMENTS IT WAS SUBMITTED T HAT THE 15 ASSESSMENT HAD ALREADY BEEN COMPLETED AND THEREFORE T HE REFERENCE WAS IRRELEVANT. HOWEVER THE DVO SUBMITTED HIS REPORT TO THE ASSESSING OFFICER. ON THE BASIS OF THE REPORT THE ASSESSMEN T WAS REOPENED. THE HONBLE COURT HELD THAT THE ASSESSING OF FICER HAD COME TO THE CONCLUSION ABOUT ESCAPEMENT OF INCOME AFTER CO NSIDERING THE VALUATION REPORT. EVEN IF IT IS HELD THAT THE MATE RIAL WAS NOT OBTAINED IN DUE PROCESS OF LAW THE SAME WAS CAPABLE OF BEING USE D AS IT HAD EVIDENTIARY VALUE. THE RELEVANT ISSUE IN THIS CONNECT ION IS THAT THE ASSESSING OFFICER MUST HAVE RELEVANT MATERIAL WHICH FOR MS THE FOUNDATION OF BELIEF THAT INCOME HAD ESCAPED ASSESSMENT. ON THE BASIS OF BOTH THESE CASES IT CAN BE SAID THAT THE ASSESSING OFFICER CAME IN POSSESSION OF SOME INFORMATION OR MATERIAL ON TH E BASIS OF WHICH THE OPINION WAS FORMED THAT INCOME HAD ESCAPED ASSESSMENT. IN THE INSTANT CASE NO FURTHER MATERIAL HAS COME ON R ECORD. THE DECISION OF THE TRIBUNAL IN THE CASE OF THE ASSESSEE REGA RDING THIS ISSUE WAS RENDERED PRIOR TO EVEN FILING THE ORIGINAL RETUR N. HOWEVER THE CASE OF THE LEARNED DR IS THAT THE ISSUE CAME TO THE NO TICE OF THE ASSESSING OFFICER IN THE COURSE OF THE ASSESSMENT OF IMMEDIA TELY SUCCEEDING YEAR. HAVING CONSIDERED THE RIVAL SUBMISSION S WE ARE OF THE VIEW THAT INCOME HAS CERTAINLY ESCAPED ASSESSMENT WIT HIN THE MEANING OF SECTION 147 AS DISCUSSED ABOVE. ALTHOUGH T HE FACTS WERE AVAILABLE ON RECORD IT IS ALSO EQUALLY TRUE THAT SUCH FACTS WHICH WERE IN THE KNOWLEDGE OF THE ASSESSEE WERE NOT SPECIFICALLY BROUGHT TO THE NOTICE OF THE ASSESSING OFFICER IN THE COURSE OF ORIGINA L ASSESSMENT PROCEEDINGS. THE LEARNED COUNSEL HAS NOT BEEN ABLE TO PLACE ON RECORD ANY EVIDENCE TO SHOW THAT THIS MATTER WAS BROUGHT TO T HE NOTICE OF THE ASSESSING OFFICER OR CONSIDERED BY HIM. WHAT IS BAFFLING IS THAT THE ASSESSEE DID NOT MENTION ABOUT THE ORDER OF THE TRIBUNA L IN ITS OWN CASE WHICH WAS IN ITS KNOWLEDGE EVEN AT THE TIME OF F ILING THE RETURN. IN THIS SCENARIO THE QUESTION WHICH ASSUMES IMPORTANCE IS THAT WHETHER IT IS NECESSARY THAT INFORMATION SHOULD HAVE C OME TO THE 16 NOTICE OF THE ASSESSING OFFICER FROM ANY EXTERNAL SOURCE ? IT IS CLEAR THAT STATUTORY PROVISION DOES NOT CONTAIN ANY EXPLICIT WORDS THAT INFORMATION SHOULD COME IN POSSESSION OF THE ASSESSING OFFIC ER OR THAT IT SHOULD COME IN HIS POSSESSION AFTER COMPLETION OF ORIG INAL ASSESSMENT. IN OTHER WORDS IF ESCAPEMENT OF INCOME COME S TO THE NOTICE OF THE ASSESSING OFFICER BY EXAMINING THE EXISTIN G RECORD OR IN THE COURSE OF ASSESSMENT OF ANY SUBSEQUENT YEAR CAN IT BE SAID THAT FACTS EXIST ON RECORD WHICH LEAD TO THE INFERENCE TH AT INCOME HAS ESCAPED ASSESSMENT? THE STATUTORY LANGUAGE LEADS TO THE CONCLUSION THAT THE MATERIAL MAY BE EXISTING ON RECORD OR IT MA Y COME IN THE POSSESSION OF THE ASSESSING OFFICER FROM EXTERNAL SOURCES. T HESE TWO SITUATIONS DO NOT MAKE ANY DIFFERENCE IN HIS POWER TO COME TO THE CONCLUSION THAT THE INCOME HAS ESCAPED ASSESSMENT. THEREFO RE WE ARE OF THE VIEW THAT FACTS EXIST ON RECORD WHICH CLEARLY LEAD TO AN INFERENCE THAT INCOME HAD ESCAPED ASSESSMENT. THE FACTS ON RECORD HAVE LIVE NEXUS WITH THE FORMATION OF OPINION. IN THIS CONNECT ION MINOR ERRORS IN RECORDING FACTS DO NOT REALLY ALTER THE SITUATION FOR THE SIMPLE REASON THAT THE NET EFFECT IS THE SAME NAMELY THAT PROFIT ON SALE OF INVESTMENT HAD NOT BEEN ASSESSED TO TAX ALTHOUGH IT WAS L IABLE TO BE TAXED ON A PRIMA FACIE BASIS AS PER STATUTORY PROVISIONS. WITH THESE FINDINGS WE NOW COME TO THE ISSUE OF CHANGE OF OPINI ON. 5.6 IN REGARD TO CHANGE OF OPINION THE SUBMISSION O F THE LEARNED COUNSEL IS THAT ALL THE FACTS INCLUDING EARNING OF INC OME BY WAY OF SALE OF INVESTMENTS WERE THERE ON RECORD WHEN THE ASSESSING OF FICER MADE ORIGINAL ASSESSMENT. NOTHING NEW HAS COME TO HIS NOTICE IN THE PERIOD BETWEEN COMPLETION OF ORIGINAL ASSESSMENT AND RECORDING OF REASONS. THEREFORE THE ASSESSING OFFICER CANNOT INVOKE THE PROV ISION U/S 147 TO REOPEN THE ASSESSMENT. IN THE CASE OF JINDAL PHOTO FILM S LIMITED VS. DCIT AND ANOTHER (1998) 234 ITR 170 (DELHI) THIS I SSUE WAS EXAMINED. THE HONBLE COURT INTER ALIA CONSIDERED T HE DECISION IN THE 17 CASE OF KALYANJI MAVJI AND COMPANY VS. CIT (1976) 10 2 ITR 287 (SUPREME COURT) AND INDIA AND EASTERN NEWSPAPER SOCIE TY VS. CIT (1979) 119 ITR 996 (SUPREME COURT). WHILE DECIDING THE CASE AT HAND THE HONBLE COURT MENTIONED THAT THE REASONS AND THE STATEMENT IN COUNTER AFFIDAVIT POINT OUT THAT THE INCOME-TAX OFF ICER WAS NOT RIGHT IN ALLOWING DEDUCTION U/S 80-I AND IT WAS WRONGLY ALLOWE D THEREFORE HE WAS OF THE OPINION THAT INCOME HAD ESCAPED ASSESSMENT. A LTHOUGH HE USED THE PHRASE REASON TO BELIEVE ADMITTEDLY NOTHI NG NEW HAD HAPPENED BETWEEN PASSING THE ORIGINAL ASSESSMENT ORDER AN D RECORDING THE REASONS. IT WAS ONLY FRESH APPLICATION O F MIND ON THE SAME FACTS BY THE SAME ASSESSING OFFICER. THE ORDER OF TH E CIT(A) DATED 28.02.1994 WAS THERE BEFORE HIM AND THAT ORDER STANDS TILL DATE. THEREFORE WHAT HE RECORDED BY WAY OF REASONS COULD H AVE BEEN SAID IN THE ORIGINAL ORDER ALSO. THUS IT IS A CASE OF MERE CH ANGE OF OPINION WHICH DOES NOT PROVIDE JURISDICTION TO THE ASSESSING OFFI CER TO INITIATE PROCEEDING U/S 147. SUCH A RATIO CAN ALSO BE DEDUCED FROM THE CASE OF CIT VS. KELVINATOR OF INDIA LIMITED (2002) 256 ITR 1 (DELHI) (FULL BENCH) WHEREIN IT HAS BEEN STRESSED THAT WHEN AN ORDER OF ASSESSMENT IS PASSED U/S 143(3) A PRESUMPTION CAN BE RAISED THAT SUCH AN ORDER HAS BEEN PASSED AFTER APPLICATION OF MIND . THIS DECISION HAS BEEN UPHELD BY THE HONBLE SUPREME COURT REPORT ED IN (2010) 320 ITR 561 WHEREIN IT IS MENTIONED THAT THE CONCEPT OF CHANGE OF OPINION SHOULD BE TREATED AS INBUILT TEST TO CHECK THE ABUSE OF POWER BY THE ASSESSING OFFICER. IT MAY HOWEVER BE MENTIONED THAT THE DECISION PERTAINS TO ASSESSMENT YEAR 1987-88 PRIOR TO THE AMENDM ENT OF THIS SECTION. IN THE CASE OF CIT VS. EICHER LIMITED (2007 ) 294 ITR 310 (DELHI) THE FACTS ARE THAT THE ASSESSEE HAD PLACED ALL FACTS BEFORE THE ASSESSING OFFICER AND WHERE THERE WAS A DOUBT EVEN THAT WAS CLARIFIED IN LETTER DATED 08.11.1995. THE ASSESSING OFFICER DID NOT CHOOSE TO GIVE ANY FINDING IN THE MATTER. THE HONBLE COURT HELD THAT SUCH FAILURE DOES NOT GRANT TO HIM OR HIS SUCCESSOR IN OFFICE TO REOP EN THE 18 ASSESSMENT. IT MAY BE MENTIONED THAT THE ASSESSMENT WAS SOUG HT TO BE REOPENED AFTER LAPSE OF MORE THAN 4 YEARS FROM THE END OF RELEVANT ASSESSMENT YEAR. IN REBUTTAL THE LEARNED DR RELIED ON THE DECISION IN THE CASE OF ACIT VS. RAJESH JHAVERI STOCK BROKERS (P) L IMITED (2007) 291 ITR 500 (SUPREME COURT). IN THAT CASE THE RETU RN FOR ASSESSMENT YEAR 2001-02 WAS PROCESSED U/S 143(1)(A) AND THEREAFTER A NOTICE WAS ISSUED U/S 148 ON THE GROUND THAT THE CLAIM OF BAD DEB TS WAS NOT ACCEPTABLE. THE HONBLE COURT DISTINGUISHED BETWEEN THE ASSESSMENT AND THE PROCESSING OF A RETURN OF INCOME. FURTHER T HE PROVISIONS CONTAINED IN SECTION 147 BEFORE ITS AMENDMENT AND AFT ER ITS AMENDMENTS WERE CONSIDERED. THE PROVISIONS CONTAINED I N SECTION 147 WERE ALSO CONSIDERED IN SO FAR AS THOSE RELATED TO T HE MEANING OF THE EXPRESSION INCOME CHARGEABLE TO TAX HAS ESCAPED ASSE SSMENT. THE COURT CAME TO THE CONCLUSION THAT PRE-AMENDED PR OVISIONS WERE MORE STRINGENT THAN THE AMENDED PROVISIONS. UNDER THE AMENDED PROVISIONS THE CONDITION OF REASON TO BELIEVE THAT IN COME CHARGEABLE TO TAX HAS ESCAPED ASSESSMENT WILL SUFFICE. COMING TO THE ISSUE OF CHANGE OF OPINION IT HAS BEEN HELD THAT SINCE NO OPI NION IS FORMED IN PROCESSING THE RETURN U/S 143(1)(A) THERE WOULD BE NO QUESTION OF CHANGE OF OPINION. ON THE BASIS OF THE DECISION IN TH E CASE OF RAYMOND WOOLEN MILLS LIMITED VS. INCOME TAX OFFICER A ND OTHERS (1999) 236 ITR 34 (SUPREME COURT) HIS FURTHER CASE I S THAT SUFFICIENCY OR CORRECTNESS OF THE MATERIAL IS NOT A THING TO BE CO NSIDERED AT THIS STAGE. THUS THE PROVISION CONTAINED IN THE INSURANCE ACT DO NOT ASSUME IMPORTANCE AT THIS STAGE. 5.7 WE HAVE CONSIDERED THIS MATTER ALSO. THE CONCEPT OF CHANGE OF OPINION HAS BEEN A SUBJECT MATTER OF DISCUSSION IN VARI OUS DECISIONS UNDER THE OLD AS WELL AS THE NEW PROVISIONS. HONBLE S UPREME COURT IN THE CASE OF KALYAN JI MAV JI AND COMPANY (SUPRA) TOO K THE OPINION THAT THIS IS AN AMORPHOUS CONCEPT WHICH GETS RELEGATED TO T HE BACKGROUND 19 IF THERE IS MATERIAL ON RECORD TO COME TO THE CONCLU SION THAT THERE IS REASON TO BELIEVE THAT INCOME HAS ESCAPED ASSESSMENT. HOW EVER THIS VIEW DID NOT FIND FAVOUR WITH THE SAME COURT IN THE CASE OF INDIA AND EASTERN NEWSPAPER SOCIETY (SUPRA). THESE DECISIONS WERE RENDERED UNDER THE OLD PROVISION WHERE COMING INTO POSSESSION OF INFORMATION WAS ONE OF THE NECESSARY PRE-CONDITIONS FOR REOPENING T HE ASSESSMENT U/S 147(B). THIS CONCEPT HAS BEEN APPROVED BY THE HON BLE DELHI HIGH COURT EVEN UNDER THE AMENDED PROVISIONS IN THE CASE OF JINDAL PHOTO FILMS LIMITED AND KELVINATOR OF INDIA LIMITED ALTHO UGH THE LATTER CASE PERTAINS TO THE PRE AMENDMENT PERIOD. IN THE CASE OF RAJESH JHAVERI STOCK BROKERS (P) LIMITED THE COURT CAME TO THE CON CLUSION THAT THE PROCESSING OF RETURN U/S 143(1) DOES NOT LEAD TO FORMAT ION OF ANY OPINION AND THEREFORE THERE IS NO QUESTION OF CHANG E OF OPINION IN SUCH A CASE. THE CASE OF THE LEARNED DR IS THAT THE RA TIO OF THIS CASE IS APPLICABLE INASMUCH AS THE TAXATION OF PROFIT ON SALE OF INVESTMENT WAS NOT CONSIDERED IN ANY MANNER IN THE ORIGINAL ASSESSMENT. ALTHOUGH THE ASSESSMENT WAS MADE U/S 143(3) THIS MATTER WAS NEITHER RAISED BY THE ASSESSING OFFICER NOR HIS ATTENTION WAS DRAWN TOWA RDS IT BY THE ASSESSEE. THEREFORE THE POSITION OF ASSESSMENT U/S 143(3) I S THE SAME AS PROCESSING OF RETURN U/S 143(1)(A) ON THIS ISSUE. ON THE OTHER HAND THE CASE OF THE LEARNED COUNSEL IS THAT THE ASSESSIN G OFFICER HAD EXAMINED THE ISSUE REGARDING LOSS OCCURRING ON ACCOUNT OF DEPRECIATION IN THE VALUE OF INVESTMENTS. IN VIEW THEREOF IT CAN BE SAID THAT BOTH THE ISSUES WERE CONSIDERED BY HIM. WE ARE UNABLE TO AC CEPT EITHER OF THE POSITIONS. THERE IS A QUALITATIVE DIFFERENCE BETW EEN PROCESSING OF A RETURN U/S 143(1)(A) AND AN ASSESSMENT MADE U/S 143(3). THE LATTER IS MADE AFTER SCRUTINY OF RETURN AND IN THE PROCESS THE A SSESSING OFFICER IS EXPECTED TO CALL FOR INFORMATION ON ALL SUCH MATTE RS AS DEEMED FIT BY HIM. ON THE OTHER HAND AN INQUIRY INTO THE LOSS ON ACCOUNT OF DEPRECIATION IN THE VALUE OF INVESTMENTS DOES NOT MEAN THAT INQUIRY HAS ALSO BEEN MADE INTO THE ISSUE OF PROFIT ARISING ON SA LE OF 20 INVESTMENT. IT IS AN ADMITTED POSITION AND ALTHOUGH T HE LOSS AS AFORESAID WAS DISALLOWED BY THE ASSESSING OFFICER THE ASSESSE E OBTAINED A RELIEF IN APPELLATE PROCEEDINGS. THIS MEA NS THAT TREATMENT METED OUT TO THE PROFIT WHICH IS NOT SUPPORTED AT AL L BY THE STATUTORY LANGUAGE CONTAINED IN RULE 5 OF SCHEDULE-1 IS DIFFER ENT FROM TREATMENT METED OUT TO THE LOSS ARISING ON ACCOUNT OF DEPRECIATI ON IN THE VALUE OF THE ASSETS. HOWEVER RULE 5 DOES NOT CONTAIN ANY PROVI SION FOR TREATING THEM DIFFERENTLY. IN FACT NO ADJUSTMENT I S REQUIRED TO BE MADE ON EITHER COUNT. AS MENTIONED EARLIER WHAT IS T HE BAFFLING IN THIS CASE IS THAT THE ADVERSE DECISION OF THE TRIBUNAL WAS AV AILABLE WITH THE ASSESSEE BUT THE SAME WAS NOT POINTED OUT TO THE ASSESSING O FFICER IN ANY MANNER WHATSOEVER I.E. EITHER BY WAY OF A NOTE IN THE RETURN OR BY WAY OF A LETTER IN THE COURSE OF ORIGINAL ASSESSMENT PROCEEDINGS. THE ASSESSING OFFICER HAS NOT MADE A MENTION OF THIS DEC ISION EVEN IN THE RECORDED REASONS. HOWEVER IT IS A MATTER OF FACT THAT A DEDUCTION PATENTLY INADMISSIBLE AS PER STATUTORY LANGUAGE HAS BEEN CLAIMED IN SPITE OF ADVERSE TRIBUNAL DECISION. WE ARE OF THE VI EW THAT SUCH AN ISSUE SHOULD HAVE BEEN BROUGHT TO THE NOTICE OF ASSESSING OFFICER SPECIFICALLY FAILING WHICH IT CAN BE HELD THAT SPECI AL CIRCUMSTANCES EXIST BY WAY OF FACTS ON RECORD SO AS TO LEAD TO THE CO NCLUSION THAT THE ASSESSING OFFICER HAD REASON TO BELIEVE THAT INCOME HAD ESCAPED ASSESSMENT. SINCE THE INCOME ESCAPED ASSESSMENT ON ACCOUNT OF WITHHOLDING OF RELEVANT INFORMATION IT IS HELD THAT THE ASSESSING OFFICER WAS WITHIN HIS RIGHT TO REOPEN THE ASSESSMENT. 6. THIS BRINGS US TO THE MERITS OF THE ADDITION. WE HAV E ALREADY REPRODUCED THE PROVISION CONTAINED IN RULE 5 OF SCHE DULE-1 IN PARAGRAPH NO.5.4 (SUPRA). THE LANGUAGE OF THE STATUT E IS CLEAR THAT NO ADJUSTMENT IS REQUIRED TO BE MADE TO THE ACCOUNTS FURN ISHED TO THE CONTROLLER OF INSURANCE IN RESPECT OF PROFIT ON SALE O F INVESTMENTS. THIS VIEW IS SUPPORTED BY TWO DECISIONS OF THE TRIBUNAL IN T HE CASE OF 21 ASSESSEE REPORTED IN (2005) 92 TTJ (DELHI) 300; AND (20 10) 130 TTJ (DELHI) 388. ON THE OTHER HAND THE LEARNED COUNSEL HAS RELIED ON THE DECISION OF PUNE BENCH OF THE TRIBUNAL IN THE CASE OF BAJAJ ALLIANZ GENERAL INSURANCE COMPANY (2010) 130 TTJ 398. IN T HIS CASE IT HAS BEEN HELD THAT AFTER DELETION OF RULE 5(B) OF THE F IRST SCHEDULE NO CLAUSE WAS INTRODUCED TO PRESCRIBE THE METHOD OF TAXAT ION OF SUCH INCOME. THEREFORE THE REVENUE HAS NO RIGHT TO TAX SUCH INCOME IN THE ABSENCE OF ANY ENABLING PROVISION. THIS DECISION WAS FO LLOWED IN THE CASE OF GENERAL INSURANCE CORPORATION OF INDIA LIMITE D VS. ACIT IN I.T.A. NOS.6500 TO 6502/MUM./2005 FOR ASSESSMENT YEARS 2002-03 TO 2004- 05 DATED 22.10.2009 A COPY OF WHICH HAS BEEN PLACED BEFORE US. THIS DECISION WAS ALSO FOLLOWED IN THE CASE OF DCIT VS. ROYAL SUNDRAM ALLIANCE INSURANCE CO. LTD. BY THE D BENCH OF CHEN NAI TRIBUNAL IN I.T.A. NOS.847 TO 849/MDS./2008 FOR ASSESSMENT YEARS 200 2-03 TO 2004-05 DATED 05.03.2010 A COPY OF WHICH HAS BEEN P LACED ON RECORD. HAVING CONSIDERED THESE DECISIONS WE ARE OF THE VIEW T HAT THE DECISION OF THE TRIBUNAL IN THE CASE OF THE ASSESSEE ITSEL F IS A BINDING PRECEDENT WHICH HAS TO BE FOLLOWED. THE DECISION IN THE CASE OF BAJAJ ALLIANZ GENERAL INSURANCE CO. PROCEEDS ON AN ASSUMPTION WHICH GOES AGAINST THE ARGUMENT OF THE LEARNED COUNSEL IN THIS CA SE THAT THE ASSESSEE IS CARRYING ON ONLY ONE BUSINESS OF GENERAL INSURAN CE AND INVESTMENT AND SALE THEREOF IS PART AND PARCEL OF THIS VERY BUSINESS. IT HAS BEEN DEMONSTRATED ELABORATELY WHILE DEALING WITH THE INSURANCE ACT WHICH PERMITS THE ASSESSEE-COMPANY TO MAKE INVESTMEN TS. THESE INVESTMENTS ARE IN THE NATURE OF STOCK IN TRADE AS THE VALUE THEREOF IS ADJUSTED IN THE BOOKS AT THE END OF EACH YEAR WITH A VIEW TO FIND OUT APPRECIATION OR DEPRECIATION THEREIN. SUCH DEPRECI ATION HAS BEEN CLAIMED AS DEDUCTION IN THE BOOKS OF ACCOUNT OF THIS Y EAR WHICH HAS ALSO BEEN ALLOWED. THEREFORE WE ARE OF THE VIEW TH AT IN THE LIGHT OF THESE SUBMISSIONS WE ARE BOUND TO FOLLOW THE DECISION OF THE TRIBUNAL IN THE CASE OF THE ASSESSEE. 22 7. IN RESULT THE APPEAL IS DISMISSED. THIS ORDER WAS PRONOUNCED IN THE OPEN COURT ON 22.07. 2011. SD/- SD/- ( I.P. BANSAL ) ( K.G. BANSAL ) JUDICIAL MEMBER ACCOUNTANT ME MBER DT. 22.07.2011. NS COPY FORWARDED TO:- 1. THE APPELLANT. 2. THE RESPONDENT. 3. THE CIT 4. THE CIT (A)- NEW DELHI. 5. THE DR ITAT LOKNAYAK BHAWAN KHAN MARKET NEW DELHI. TRUE COPY. BY ORDER (ITAT NEW DELHI