M/S. AUDCO INDIA LTD, MUMBAI v. THE ITO 2(1)(1), MUMBAI

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH K MUMBAI BEFORE SHRI SHRI A.L. GEHLOT A.M. & SMT. ASHA VIJ AYRAGHAVAN J.M. ITA NO. 6305/M/2007 ASSESSMENT YEAR: 2001-02 AUDCO INDIA LTD. APPELLANT TAXATION DEPARTMENT L&T HOUSE N.M. MARG BALLARD ESTATE MUMBAI 400 001. (PAN AAACA9647E) VS. INCOME TAX OFFICER 2(1)(1) RESPONDENT 5 TH FLOOR AAYAKAR BHAVAN M.K. MARG MUMBAI 400 020. APPELLANT BY : MS. HEENA DOSHI RESPONDENT BY : M/MR. AMOL KAMAT T.T. JACOB S.S. RANA ORDER PER A.L. GEHLOT A.M.: THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAI NST THE ORDER OF CIT(A)-II MUMBAI PASSED ON 06.08.2007 FOR THE ASS ESSMENT YEAR 2001-02. 2. GROUND NO. 1 IS IN RESPECT OF CHALLENGING REOPEN ING OF ASSESSMENT U/S 147 OF THE ACT. GROUNDS NO 2 AND 3 A RE ON MERIT RELATED TO REDUCTION OF PROFIT UNDER SECTION 80IB W HILE COMPUTING DEDUCTION UNDER SECTION 80HHC OF THE ACT AND CALCUL ATION OF DEDUCTION UNDER SECTION 80HHC IN RESPECT OF DEPB RE SPECTIVELY. 3. FIRST WE TAKE UP THE LEGAL GROUND CHALLENGING R EOPENING OF ASSESSMENT U/S 147 OF THE ACT. THE CIT(A) REJECTED THIS LEGAL GROUND OF THE ASSESSEE ON THE GROUND THAT THE REOPENING IS WITHIN FOUR YEARS. ITA NO. 6305/M/07 AUDCO INDIA LTD. 2 HE FURTHER OBSERVED THAT AFTER THE AMENDED PROVISIO NS OF SECTION 147 SUBSTITUTED WITH EFFECT FROM 01.04.1989 THE POWER T O REOPEN THE ASSESSMENT IS MUCH WIDER AND THE SAME CAN BE EXERCI SED EVEN AFTER THE ASSESSEE HAS DISCLOSED FULLY AND TRULY ALL THE MATERIAL FACTS. 4. THE LEARNED AR POINTED OUT THE REASONS RECORDED BY THE AO FOR OF WHICH COPY HAS BEEN PLACED AT PAGE 68 OF PAPER B OOK FILED BY THE ASSESSEE. 5. THE LEARNED AR SUBMITTED THAT IN THE LIGHT OF TH E LAW LAID DOWN BY THE HONBLE SUPREME COURT IN THE CASE OF CIT VS. M/S KELVINATOR OF INDIA LTD. VIDE CIVIL APPEAL NOS. 2009-2001 OF 2003 AND 2520 OF 2008 JUDGMENT DATED 18 TH JANUARY 2010 REOPENING IS BAD IN LAW BECAUSE THERE WAS NO REASON TO BELIEVE THAT THE INC OME HAD ESCAPED ASSESSMENT AS EVIDENT FROM THE REASONS RECORDED. 6. THE LEARNED DR ON THE OTHER HAND SUBMITTED THAT REOPENING IS WITHIN FOUR YEARS AND THE CIT(A) HAS REJECTED THIS GROUND OF THE ASSESSEE AFTER A DETAILED DISCUSSION IN HIS ORDER. HE RELIED UPON THE ORDER OF CIT(A) IN SUPPORT OF REVENUES CASE. 7. WE HAVE HEARD THE LEARNED REPRESENTATIVES OF THE PARTIES AND PERUSED THE RECORD. THE ISSUE TO BE EXAMINED UNDER CONSIDERATION IS WHETHER THE AO WAS CORRECT IN REOPEN THE COMPLETED ASSESSMENT WITH THE REASONS RECORDED. TO EXAMINE THE ISSUE WE WOULD LIKE TO REFER SECTION 147 WHICH READS AS UNDER:- [INCOME ESCAPING ASSESSMENT. 147.IF THE [ASSESSING] OFFICER [HAS REASON TO BELI EVE] 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 ASSESSME NT AND WHICH COMES TO HIS NOTICE SUBSEQUENTLY IN THE COURS E OF THE PROCEEDINGS UNDER THIS SECTION OR RE COMPUTE THE L OSS OR THE DEPRECIATION ALLOWANCE OR ANY OTHER ALLOWANCE AS T HE CASE MAY BE FOR THE ASSESSMENT YEAR CONCERNED (HEREAFTER IN THIS SECTION ITA NO. 6305/M/07 AUDCO INDIA LTD. 3 AND IN SECTIONS 148 TO 153 REFERRED TO AS THE RELEV ANT ASSESSMENT YEAR) : PROVIDED THAT WHERE AN ASSESSMENT UNDER SUB-SECTION (3) OF SECTION 143 OR THIS SECTION HAS BEEN MADE FOR THE R ELEVANT ASSESSMENT YEAR NO ACTION SHALL BE TAKEN UNDER THI S SECTION AFTER THE EXPIRY OF FOUR YEARS FROM THE END OF THE RELEVANT ASSESSMENT YEAR UNLESS ANY INCOME CHARGEABLE TO TA X HAS ESCAPED ASSESSMENT FOR SUCH ASSESSMENT YEAR BY REAS ON OF THE FAILURE ON THE PART OF THE ASSESSEE TO MAKE A RETUR N UNDER SECTION 139 OR IN RESPONSE TO A NOTICE ISSUED UNDER SUB-SEC TION (1) OF SECTION 142 OR SECTION 148 OR TO DISCLOSE FULLY AND TRULY ALL MATERIAL FACTS59 NECESSARY FOR HIS ASSESSMENT FOR THAT ASSESSMENT YEAR: [PROVIDED FURTHER THAT THE ASSESSING OFFICER MAY AS SESS OR REASSESS SUCH INCOME OTHER THAN THE INCOME INVOLVI NG MATTERS WHICH ARE THE SUBJECT-MATTER OF ANY APPEAL REFEREN CE OR REVISION WHICH IS CHARGEABLE TO TAX AND HAS ESCAPED ASSESSME NT.] EXPLANATION 1.PRODUCTION BEFORE THE ASSESSING OFFI CER OF ACCOUNT BOOKS OR OTHER EVIDENCE FROM WHICH MATERIAL EVIDENCE COULD WITH DUE DILIGENCE HAVE BEEN DISCOVERED BY TH E ASSESSING OFFICER WILL NOT NECESSARILY AMOUNT TO DISCLOSURE W ITHIN THE MEANING OF THE FOREGOING PROVISO. EXPLANATION 2.FOR THE PURPOSES OF THIS SECTION TH E FOLLOWING SHALL ALSO BE DEEMED TO BE CASES WHERE INCOME CHARG EABLE 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 INC OME OF ANY OTHER PERSON IN RESPECT OF WHICH HE IS ASSESSABLE U NDER THIS ACT DURING THE PREVIOUS YEAR EXCEEDED THE MAXIMUM AMOUN T 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 UNDERST ATED THE INCOME OR HAS CLAIMED EXCESSIVE LOSS DEDUCTION AL LOWANCE OR RELIEF IN THE RETURN ; (C) WHERE AN ASSESSMENT HAS BEEN MADE BUT (I) INCOME CHARGEABLE TO TAX HAS BEEN UNDERASSESSE D ; OR (II) SUCH INCOME HAS BEEN ASSESSED AT TOO LOW A RA TE ; OR (III) SUCH INCOME HAS BEEN MADE THE SUBJECT OF EXC ESSIVE RELIEF UNDER THIS ACT ; OR (IV) EXCESSIVE LOSS OR DEPRECIATION ALLOWANCE OR AN Y OTHER ALLOWANCE UNDER THIS ACT HAS BEEN COMPUTED.] 7.1 ON PLAIN READING OF ABOVE SECTION WE NOTI CED THAT ONE OF THE CONDITIONS WHICH MUST BE SATISFIED BEFORE THE AO CA N ASSUME JURISDICTION UNDER SECTION 147 OF THE ACT THAT HE MUST HAVE REASON TO ITA NO. 6305/M/07 AUDCO INDIA LTD. 4 BELIEVE THAT THE INCOME OF THE ASSESSEE HAS ESCAPED ASSESSMENT. IF THIS CONDITION IS NOT FULFILLED THE NOTICE ISSUED BY THE AO WOULD BE WITHOUT JURISDICTION. THE IMPORTANT WORDS UNDER S. 147 ARE HAS REASON TO BELIEVE AND THESE WORDS ARE STRONGER THA N THE WORDS IS SATISFIED '. THE BELIEF ENTERTAINED BY THE AO MUST NOT BE ARBITRARY OR IRRATIONAL. IT MUST BE REASONABLE OR IN OTHER WORDS IT MUST BE BASED ON REASONS WHICH ARE RELEVANT AND MATERIAL. THE COU RT OF COURSE CANNOT INVESTIGATE INTO THE ADEQUACY OR SUFFICIENCY OF THE REASONS WHICH HAVE WEIGHED WITH THE AO IN COMING TO THE BEL IEF BUT THE COURT CAN CERTAINLY EXAMINE WHETHER THE REASONS ARE RELEV ANT AND HAVE A HEARING ON THE MATTERS IN REGARD TO WHICH HE IS REQ UIRED TO ENTERTAIN THE BELIEF BEFORE HE CAN ISSUE NOTICE UNDER S. 148. IF THERE IS NO RATIONAL AND INTELLIGIBLE NEXUS BETWEEN THE REASONS AND THE BELIEF SO THAT ON SUCH REASONS NO ONE PROPERLY INSTRUCTED O N FACTS AND LAW COULD REASONABLY ENTERTAIN THE BELIEF THE CONCLUSI ON WOULD BE INESCAPABLE THAT THE AO COULD NOT HAVE REASON TO BE LIEVE THAT ANY PART OF THE INCOME OF THE ASSESSEE HAD ESCAPED ASSESSMEN T UNDER THAT CIRCUMSTANCES THE NOTICE ISSUED BY HIM WOULD BE LIA BLE TO BE STRUCK DOWN AS INVALID. 7.2 THE BASIS FOR INITIATING THE REASSESSMEN T PROCEEDINGS IS TO BE JUDGED SOLELY ON THE BASIS OF REASONS RECORDED BY T HE ASSESSING OFFICER AND THE MATERIAL AND INFORMATION REFERRED T O BY HIM IN THE REASONS FOR INITIATING SUCH ACTION. IT IS SETTLED L AW THAT ASSESSING OFFICER CANNOT INITIATE THE REASSESSMENT PROCEEDING S MERELY ON THE BASIS OF SUSPICION OR FOR THE PURPOSE OF MAKING ROV ING AND FISHY INQUIRES. THE ASSESSING OFFICER CANNOT SUPPORT THE REOPENING OF THE ASSESSMENT BY COLLECTING THE MATERIAL OR BY MAKING INQUIRY SUBSEQUENTLY AFTER THE DATE OF INITIATION OF THE PR OCEEDINGS. THUS THE REOPENING OF THE ASSESSMENT IS TO BE SEEN ON THE DA TE WHEN THE ASSESSING OFFICER INITIATED ACTION U/S 147 OF THE A CT. ITA NO. 6305/M/07 AUDCO INDIA LTD. 5 7.3 WE ARE ALSO OF THE OPINION THAT HOWSOEVE R WIDEN THE SCOPE OF TAKING ACTION UNDER SECTION 148 OF THE ACT IT DOES NOT CONFER JURISDICTION ON CHANGE OF OPINION ON THE INTERPRETA TION OF A PARTICULAR PROVISION EARLIER ADOPTED BY THE ASSESSING AUTHORIT Y. FOR COMING TO THE CONCLUSION WHETHER THERE HAS BEEN EXCESSIVE LOS S OR DEPRECIATION ALLOWANCE OR THERE HAS BEEN UNDERASSESSMENT OR ASSE SSMENT AT A LOWER RATE OR FOR APPLYING OTHER PROVISIONS OF EXPL ANATION 2 IT MUST BE MATERIAL AND IT SHOULD HAVE NEXUS FOR HOLDING SU CH OPINION CONTRARY TO WHAT HAS BEEN EXPRESSED EARLIER. THE SC OPE OF SECTION 147 OF THE ACT IS NOT FOR REVIEWING ITS EARLIER ORDER S UO MOTU IRRESPECTIVE OF THERE BEING ANY MATERIAL TO COME TO A DIFFERENT CON CLUSION APART FROM JUST HAVING SECOND THOUGHTS ABOUT THE INFERENCES DR AWN EARLIER .THE ASSESSING OFFICER CANNOT TAKE ANY ACTION UNDER THIS SECTION MERELY BECAUSE HE HAPPENED TO CHANGE HIS OPINION OR TO HOL D AN OPINION DIFFERENT FROM THAT OF HIS PREDECESSOR ON THE SAME SET OF FACTS. FROM THE EARLIER ASSESSMENT WHICH CLEARLY ASSUMES THAT T HE ASSESSING OFFICER APPLIED HIS MIND TO THE COMPUTATION OF INCO ME AND THEREFORE IN A CASE LIKE THIS IT WOULD NOT BE OPEN TO THE ASS ESSING OFFICER TO ISSUE NOTICE UNDER SECTION 148 OF THE ACT. - WHEN T HE PRIMARY FACTS NECESSARY FOR ASSESSMENT ARE FULLY AND TRULY DISCLO SED THE ITO WILL NOT BE ENTITLED ON CHANGE OF OPINION TO COMMENCE PR OCEEDINGS FOR REASSESSMENT. SIMILARLY IF HE HAS RAISED A WRONG L EGAL INFERENCE FROM THE FACTS DISCLOSED HE WILL NOT ON THAT ACCOUNT BE COMPETENT TO COMMENCE REASSESSMENT PROCEEDINGS .HAVING SECOND TH OUGHTS ON THE SAME MATERIAL AND OMISSION TO DRAW THE CORRECT LEG AL PRESUMPTION DURING ORIGINAL ASSESSMENT DO NOT WARRANT THE INITI ATION OF A PROCEEDING UNDER SECTION 147 .WHERE IT WAS CLEAR FR OM THE ORIGINAL ASSESSMENT ORDERS AS WELL AS ORDER MADE BY THE APPE LLATE AUTHORITY THAT THE ASSESSING OFFICER WAS WELL AWARE ABOUT THE PRIMARY FACTS VIZ. THE CLAIM MADE BY THE ASSESSEE THE CIRCUMSTA NCES UNDER WHICH THE CLAIM WAS MADE AND THE PROVISIONS OF LAW WHICH COULD BE APPLIED WHILE GRANTING THE BENEFITS AND THE ASSESSING OFFI CER CONSCIOUSLY CONSIDERED THE FACTS AND ARRIVED AT A DECISION THE ASSESSMENT CANNOT ITA NO. 6305/M/07 AUDCO INDIA LTD. 6 BE REOPENED MERELY BECAUSE SUBSEQUENTLY THE ASSESSI NG OFFICER CHANGES HIS OPINION OR SOME OTHER OFFICER TAKES A D IFFERENT VIEW. A DECISION IS RIGHT OR WRONG IS NONE OF THE CONCERN O F THE SUBSEQUENT OFFICER. IF THE PRIMARY FACTS WERE NOT AVAILABLE OR THERE WAS CONCEALMENT OR THERE WAS NO APPLICATION OF MIND AT ALL THEN A CASE FOR REOPENING THE ASSESSMENT COULD BE MADE OUT . 7.4 IF WE CONSIDER THE FACTS OF THE CASE UNDER CONSIDERATION WE FIND THE FOLLOWING REASONS WERE RECORDED BY THE AO WHIC H ARE REPRODUCED FROM PAGE 68 OF PAPER BOOK FILED BY THE ASSESSEE: - IT IS SEEN THAT YOU HAVE CLAIMED DEDUCTION U/S 80I B AMOUNTING TO RS. 58 13 490/-. HOWEVER THIS SUM OF RS. 58 13 490/- HAS NOT BEEN REDUCED FROM THE ELIGIBLE PROFITS FOR DEDUCTIO N U/S 80 HHC. AS PER CLAUSE 9 OF SECTION 80IA ANY AMOUNT WHICH H AS BEEN CLAIMED AND ALLOWED AS DEDUCTION U/S 80IA CANNOT BE CONSIDERED ELIGIBLE FOR ANY OTHER DEDUCTION. HENCE IT IS PROP OSED TO REDUCE THIS SUM OF RS. 58 13 490/- FROM THE ELIGIBLE PROFI TS FOR THE PURPOSES OF DEDUCTION U/S 80 HHC. 7.5 FROM THE REASONS RECORDED WE FIND THAT THE AO FORMED BELIEF ON THE ISSUE WHICH IS A CONTROVERSIAL ISSUE WHETHER WHILE COMPUTING DEDUCTION U/S 80 HHC ELIGIBLE PROFITS FOR U/S 80IB OF IS TO BE REDUCED OR NOT. WE FIND THAT THIS CONTROVERSIAL ISSUE HAS TRAVELED UP TO ITAT AND THE ITAT SPECIAL BENCH DELHI HAS DECIDED THE IS SUE IN ACIT V HINDUSTAN MINT AND AGRO PRODUCTS P. LTD. (2009) 315 ITR (AT) 401 (DELHI) (SB). THUS IT IS EVIDENT THAT THE REASONS F OR WHICH THE AO WANT TO REOPEN THE COMPLETED ASSESSMENT WERE A CONTROVER SIAL ISSUE. AS DISCUSSED ABOVE THAT THE SCOPE OF SECTION 147 OF TH E ACT IS NOT FOR REVIEWING ITS EARLIER ORDER SUO MOTU IRRESPECTIVE O F THERE BEING ANY MATERIAL TO COME TO A DIFFERENT CONCLUSION APART FR OM JUST HAVING SECOND THOUGHTS ABOUT THE INFERENCES DRAWN EARLIER .THE ASSESSING OFFICER CANNOT TAKE ANY ACTION UNDER THIS SECTION M ERELY BECAUSE HE HAPPENED TO CHANGE HIS OPINION OR TO HOLD AN OPINIO N DIFFERENT FROM THAT OF HIS PREDECESSOR ON THE SAME SET OF FACTS. T HE HONBLE SUPREME COURT AND THE APEX COURT IN THE CASE OF M/S KELIVINATOR ITA NO. 6305/M/07 AUDCO INDIA LTD. 7 INDIA LTD. CITED SUPRA HAS REJECTED THE REVENUES A PPEAL BY OBSERVING AS UNDER:- OUR VIEW GETS SUPPORT FROM THE CHANGES MADE TO SEC TION 147 OF THE AC AS QUOTED HEREINABOVE. UNDER THE DIRECT TAX LAWS (AMENDMENT) ACT 1987 PARLIAMENT NOT ONLY DELETED THE WORDS REASON TO BELIEVE BUT ALSO INSERTED THE WORD OPI NION IN SECTION 147 OF THE ACT. HOWEVER ON RECEIPT OF REPRESENTATI ONS FROM THE COMPANIES AGAINST OMISSION OF THE WORDS REASON TO BELIEVE PARLIAMENT RE-INTRODUCED THE SAID EXPRESSION AND DE LETED THE WORD OPINION ON THE GROUND THAT IT WOULD VEST ARB ITRARY POWERS IN THE AO. WE QUOTE HERE IN BELOW THE RELEVANT PORT ION OF CIRCULAR NO. 549 DATED 31ST OCTOBER 1989 WHICH READS AS FO LLOWS:- 7.2 AMENDMENT MADE BY THE AMENDING ACT 1989 TO R EINTRODUCE THE EXPRESSION REASON TO BELIEVE IN SECTION 147. A NUMBER OF REPRESENTATIONS WERE RECEIVED AGAINST T HE OMISSION OF THE WORDS REASON TO BELIEVE FROM SECTION 147 A ND THEIR SUBSTITUTION BY THE OPINION OF THE AO. IT WAS POI NTED OUT THAT THE MEANING OF THE EXPRESSION REASON TO BELIEVE HAD BEEN EXPLAINED IN A NUMBER OF COURT RULINGS IN THE PAST AND WAS WE LL SETTLED AND ITS OMISSION FROM SECTION 147 WOULD GIVE ARBITRARY POWERS TO THE AO TO REOPEN PAST ASSESSMENTS ON MERE CHANGE OF OPI NION. TO ALLAY THESE FEARS THE AMENDING ACT 1989 HAS AGAI N AMENDED SECTION 147 TO REINTRODUCE THE EXPRESSION HAS REAS ON TO BELIEVE IN PLACE OF THE WORDS FOR REASONS TO BE RECORDED B Y HIM IN WRITING IS OF THE OPINION. OTHER PROVISIONS OF TH E NEW SECTION 147 HOWEVER REMAIN THE SAME. FOR THE AFORE-STATED REASONS WE SEE NO MERIT IN TH ESE CIVIL APPEALS FILED BY THE DEPARTMENT HENCE DISMISSED W ITH NO ORDER AS TO COSTS. 7.5 IN THE LIGHT OF ABOVE DESICCATION AND UNDER TH E FACTS AND CIRCUMSTANCES OF THE CASE WE ARE OF THE CONSIDERED VIEW THAT THERE IS NO BELIEF OF THE AO WHICH CAN BE SAID TO BE IN ACCO RDANCE WITH SECTION 147 THEREFORE THE ORDER OF THE AO IS LIABLE TO BE QUASHED ON THIS LEGAL ISSUE ITSELF. WE DO SO AND ALLOW THE GROUND O F APPEAL OF THE ASSESSEE. SINCE WE HAVE DECIDED THE APPEAL ON LEGAL ISSUE THEREFORE WE DO NOT FEEL NECESSARY TO DECIDE THE OTHER GROUND S ON MERIT. ITA NO. 6305/M/07 AUDCO INDIA LTD. 8 8. IN THE RESULT THE APPEAL OF THE ASSESSEE IS ALL OWED. PRONOUNCED ON THIS 22 ND DAY OF APRIL 2010. SD/- SD/- (ASHA VIJAYRAGHAVAN) (A.L. GEHL OT) JUDICIAL MEMBER ACCOUNTAN T MEMBER DATED: 22 ND APRIL 2010. COPY TO:- 1) THE APPELLANT. 2) THE RESPONDENT. 3) THE CIT (A) CONCERNED. 4) THE CIT CONCERNED. 5) THE DEPARTMENTAL REPRESENTATIVE K BENCH I.T .A.T. MUMBAI. BY ORDER //TRUE COPY// ASST. REGISTRAR I.T.A.T. MUMBAI. KV S.NO. DESCRIPTION DATE INTLS 1. DRAFT DICTATED ON 7.4.10 SR.P.S./P. S 2. DRAFT PLACED BEFORE AUTHOR 9.4.10 SR.P.S/PS 3 DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER JM/AM 4 DRAFT DISCUSSED/APPROVED BY SECOND MEMBER JM/AM 5 APPROVED DRAFT COMES TO THE SR.P.S./PS SR.P.S./P. S 6. KEPT FOR PRONOUNCEMENT ON SR. P.S./P.S. 7. FILE SENT TO THE BENCH CLERK SR.P.S./P. S 8 DATE ON WHICH FILE GOES TO THE HEAD CLERK 9 DATE OF DISPATCH OF ORDER