Commissioner Of Income Tax, Faridabad v. M/S Itw India Limited

In the High Court of Punjab and Haryana, at Chandigarh 1. Income Tax Appeal No. 207 of 2014Date of Decision: 15.7.2015 Commissioner of Income Tax, Faridabad ... Appellant(s) Versus M/s ITW India Limited ... Respondent(s)2. Income Tax Appeal No. 208 of 2014 Commissioner of Income Tax, Faridabad ... Appellant(s) Versus M/s ITW India Limited ... Respondent(s) AND 3. Income Tax Appeal No. 227 of 2014 Commissioner of Income Tax, Faridabad ... Appellant(s) Versus M/s ITW India Limited ... Respondent(s) CORAM: HON'BLE MR. JUSTICE S.J. VAZIFDAR, ACTING CHIEF JUSTICE. HON’BLE MR. JUSTICE G.S. SANDHAWALIA. Present: Mr. Tajender K. Joshi, Advocatefor the appellant(s).for the appellant(s). Mr. Rohit Jain, Advocatefor the respondent.for the respondent. G.S.Sandhawalia, J. 1.The present judgment shall dispose of three appeals whichare directed against the order dated 5.4.2013 passed by the Income TaxAppellate Tribunal pertaining to the assessment years 2002-03, 2003-04 and 2004-05. For decision of the appeals, the facts are being taken fromIncome Tax Appeal No. 208 of 2014 pertaining to the assessment year2002-03. 2.The revenue has raised the following substantial questions oflaw for consideration of this Court:- “i)Whether ITAT was right in holding that reopeningbeyond 4 years from the assessment year was badin law as the assessee has not failed to disclosetruly and fully all material facts necessary forassessment, despite the fact that the treatment ofservice income for the purpose of calculation ofdeduction u/s 80 HHC was not discussed at anyprior stage, and the assessee had made no clearsubmission in this regard in earlier proceedings.beyond 4 years from the assessment year was badin law as the assessee has not failed to disclosetruly and fully all material facts necessary forassessment, despite the fact that the treatment ofservice income for the purpose of calculation ofdeduction u/s 80 HHC was not discussed at anyprior stage, and the assessee had made no clearsubmission in this regard in earlier proceedings. ii)Whether ITAT was right in holding that Explanation 1to Sec. 147 is not applicable to the facts of thepresent case, despite the fact that excessivededuction was given to the assessee u/s 80 HHCdue to failure on its part to exclude service incometo Sec. 147 is not applicable to the facts of thepresent case, despite the fact that excessivededuction was given to the assessee u/s 80 HHCdue to failure on its part to exclude service income from export profits. iii)Whether ITAT was right in ignoring Supreme Court'sdecisions in Calcutta Discount Co. Ltd. Vs. ITO(1961) 41 ITR 191(SC), CIT Vs. ChidambranChettiar (1971) 80 ITR 467 (SC), Indo Aden Salt Mfg& Trading Co. Pvt. Ltd. Vs. CIT (1986) 159 ITR 624(SC) and other cases.decisions in Calcutta Discount Co. Ltd. Vs. ITO(1961) 41 ITR 191(SC), CIT Vs. ChidambranChettiar (1971) 80 ITR 467 (SC), Indo Aden Salt Mfg& Trading Co. Pvt. Ltd. Vs. CIT (1986) 159 ITR 624(SC) and other cases. iv)Whether ITAT was right in ignoring the Hon'bleSupreme Court's decision in the case of CIT Vs.Chidambran Chettiar (1971) 80 ITR 467 (SC) thatstates “if some material for assessment isembedded in the evidence or submission whichSupreme Court's decision in the case of CIT Vs.Chidambran Chettiar (1971) 80 ITR 467 (SC) thatstates “if some material for assessment isembedded in the evidence or submission which revenue could have uncovered but did not so, it isthe duty of the assessee to bring it to the notice ofthe assessing authority. The assessee knows allmaterial and relevant facts, the assessing authoritymight not. If there are primary facts from whichreasonable belief could be formed that there wassome non disclosure or failure to disclose fully andtruly all material facts, reopening is attracted”. revenue could have uncovered but did not so, it isthe duty of the assessee to bring it to the notice ofthe assessing authority. The assessee knows allmaterial and relevant facts, the assessing authoritymight not. If there are primary facts from whichreasonable belief could be formed that there wassome non disclosure or failure to disclose fully andtruly all material facts, reopening is attracted”. v)Whether on the facts and in the circumstances ofthe case, ITAT was right in law in ignoring theprovisions of clause (C)(iii) of Explanation 2 to theSection 147 of the I.T. Act.” 3.The undisputed facts are that the respondent-assesseecompany had filed its return for the year in question on 31.10.2002 forreturned income of ` 24,49,94,815/- after taking benefit of deduction of`1,11,83,170/- under Section 80HHC of the Income Tax Act, 1961(hereinafter referred to as “the Act”). The said deductions pertaining toservice income of `52,86,87,813/- were claimed in the duly supportedform No. 10CCAC which was filed along with the return of income andthe detailed working computation of deduction had been given alongwith the Auditor's Report. The claim of benefit was reduced to `1,02,01,403/- after excluding the excise duty and the sales tax from theturnover and that point was within the knowledge of the AssessingOfficer that the assessee had received the said service income and theclaim of deduction was related to such service income and the incomewas then assessed at a sum of `24,86,85,407/- on 31.3.2005. 4.Thereafter, the re-assessment proceedings were initiated under Section 148 of the Act by issuing notice dated 27.3.2006and theincome was re-assessed at `25,30,84,690/- on 8.5.2006. The said re-assessment was concluded on a different issue and not in connectionwith Section 80HHC. Thereafter, notice under Section 148 was issuedon 31.3.2009, admittedly, after the expiry of four years from the end ofrelevant assessment year on the ground that the deduction was notadmissible on service income. The said notice was issued on the basisof the judgment of the Hon'ble Apex Court rendered in Commissionerof Income-tax, Thiruvananthapuram v. K. Ravindranathan Nair(2007) 295 ITR 228 (SC). 5.Resultantly, the re-assessment order was passed by holdingthat the income derived by the assessing company pertaining to serviceincome on which the deduction had been claimed could not be allowed.The plea of the assessee that four years time had lapsed from the endof the relevant assessment year and there was no fault on its part todisclose fully and truly all material facts necessary for re-assessmentwas answered against it in order dated 30.11.2009. Accordingly, theincome was re-assessed at ` 25,99,14,093/-. The assessee filed anappeal before the concerned Commissioner taking various pleas, whichwas accepted by holding that the re-assessment proceedings initiatedby way of issue of notice under Section 148 of the Act on 31.3.2009 wasnot sustainable in law and the subsequent order passed under Section143(3) read with Section 147 of the Act on 30.11.2009 was accordinglyheld to be bad. While recording the finding, it was held that the primary facts had been disclosed and the factum of service income wasseparately shown along with the return of income. The reasoning thatthe Assessing Officer had to go through the voluminous material wasrejected since he had dealt with the said issue and reduced theadmissible deductions. In the notice, it had been stated that the re-assessment proceedings were initiated for the failure on the part of theassessee to disclose fully and truly all material facts in respect of theclaim of deduction under Section 80HHC. Accordingly, it was held thatthere was no information or any tangible material before the AssessingOfficer to initiate the re-assessment proceedings and it would amount toreview of the original assessment based on change in the opinion on theappreciation of the facts, which was not permissible. 6.The matter was taken in appeal before the Tribunal by boththe sides since the assessee was also aggrieved on the validity of theproceedings initiated under Section 148 of the Act. The Tribunaldismissed the appeal filed by the revenue by recording the finding thatseparate schedule had been appended with the profit & loss statementshowing the service income separately and it had been duly certified bythe Auditor's Certificate in the requisite form. The interest on excise dutyand the sales tax has been reduced from the said claim and thededuction had been modified and therefore, all the facts had beendisclosed and there was no failure on the part of the assessee todisclose fully and truly all material facts necessary for the assessment. Itwas further held that the re-opening was done in view of the judgment rendered in K. Ravindranathan Nair's case (supra). It was accordinglyheld that the assessee had done his duties and it was for the AssessingOfficer to draw the correct inference from the primary facts and not theresponsibility of the assessee and there was no default on its part andthe appeal filed by the revenue was dismissed. The cross-appeal filedby the assessee, pertaining to the validity of the proceedings, wasallowed by noticing that the re-assessment proceedings were initiatedunder Section 148 of the Act beyond the four years from the end of therelevant financial year and it was held invalid and unsustainable.7. The issue of initiating proceedings under Section 147 wasconsidered by this Court in Duli Chand Singhania Vs. AssistantCommissioner of Income Tax (2004) 269 ITR 192, wherein, it washeld that in the absence of valid assumption of jurisdiction under Section147, the notice after 4 years from the end of the assessment year inquestion, could not be initiated in the absence of any allegation thatthere was failure on the part of the assessee to disclose fully and truly allmaterial facts. In the absence of any such reasons, the assumption ofjurisdiction under Section 147 was not justified. Relevant portion of thereasoning given, reads as under: “13. The entire thrust of the findings recorded by theAssessing Officer in his order dated 13-3-2003 is to justify hissatisfaction about escapement of income. According to him, itwas a clear case of escapement of income as defined inExplanation-2 to Section 147 as the assessee had beenallowed excessive relief under Section 80-O of the Act.However, it is not necessary for us to go into the merits of this finding as the second requirement of the proviso has not beensatisfied obviously. The reasons recorded by the AssessingOfficer for initiation of proceedings under Section 147 of theAct have already been reproduced above. A bare perusal ofthe same shows that the satisfaction recorded therein ismerely about escapement of income. There is not even awhisper of an allegation that such escapement had occurredby reason of failure on the part of the assessee to disclosefully and truly all material facts necessary for his assessment.Absence of this finding, which is a "sine quo non" forassuming jurisdiction under Section 147 of the Act in a casefalling under the proviso thereto, makes the action taken bythe Assessing Officer wholly without jurisdiction. As alreadyobserved, the learned counsel for the Revenue has concededthat neither in the reasons recorded nor in the order dated 13-3-2003, has the assessee been charged with failure todisclose, fully and truly all material facts necessary for hisassessment.” 8.The said view was followed in Mahavir Spinning Mills Ltd.Vs. Commissioner of Income Tax & another [2004] 270 ITR 290, andthe objections raised by the Revenue that the writ was not maintainableagainst the notice, was rejected. Relevant portion of the judgment readsas under: 8.The said view was followed in Mahavir Spinning Mills Ltd.Vs. Commissioner of Income Tax & another [2004] 270 ITR 290, andthe objections raised by the Revenue that the writ was not maintainableagainst the notice, was rejected. Relevant portion of the judgment readsas under: “11. A bare perusal of the above shows that the entirethrust of the observations recorded by the Assessing Officer isto justify his satisfaction about escapement of income. Thereis not even a whisper of an allegation that such escapementhad occurred by reason of failure on the part of the assesseeto disclose fully and truly all material facts necessary for itsassessment. As held in Duli Chand Singhania's case, absence of this finding makes the action of the Assessing Officer whollywithout jurisdiction. Since the illegality of notice under Section148 of the Act is apparent from the reasons recorded forinitiation of proceedings under Section 147 of the Act, it is a fitcase for interference in the exercise of our writ jurisdiction.Sending the petitioner back to the Assessing Officer to raisethese objections and requiring him to pass an order thereonwould be prolonging the proceedings unnecessarily.” 9.Similarly, in Winsome Textiles Industries Ltd. Vs. Union of India & others [2005] 278 ITR 470, it was held that once theassessment had been made under Section 143(3), the genuineness ofthe claims made in the return had to be examined and the failure of theAO to do so would not permit him to reopen the assessment which hadalready been completed and had become barred by limitation.Accordingly, the notices issued under Section 148 were quashed.Relevant portion of the judgment reads as under: “14. The limitation of four years provided in the proviso toSection 147 has been made applicable only to cases whereassessments have already been completed under Sub-section(3) of Section 143 or under Section 147. There is a specificpurpose behind it. Where the return is processed underSection 143(1)(a), the Assessing Officer has no jurisdiction toexamine the genuineness of the claims made in the return ofincome. He has only limited power of making adjustments onthe basis of information available in the return. However, whenan assessment is made under Section 143 (3) of the Act, theAssessing Officer has very wide power to examine thegenuineness of the claims made in the return and require theassessee to furnish whatever information the Assessing Officer deems necessary. In the present case, the assessmenthad been made under Section 143(3) of the Act and if theAssessing Officer was of the view that he required profit andloss account and depreciation charts of the assessment years1995-96 and 1996-97 for examining the correctness of theclaim under Section 80IA of the Act, he could have requiredthe assessee to produce the same. Failure of the AssessingOfficer to do so, cannot be treated at par with the failure of theassessee to disclose fully and truly all material factsnecessary for its assessment.” 10.The Commissioner, Income-tax and the Appellate Tribunalhave noticed the detailed facts and recorded the finding as noticedabove that the re-assessment was on the basis of the subsequentjudgment of the Hon'ble Apex Court. Thus, apparently on the change ofthe opinion and in view of the principles of law laid down by the Hon'bleApex Court in Commissioner of Income Tax, Delhi Vs. Kelvinator of India Ltd. [2010] 320 ITR 561 wherein it has been held that jurisdictioncould not be conferred on the basis of mere change of opinion and itcould not be a reason per se to reopen assessments which had beenfinalized and change of opinion was not relevant ground for reason tobelieve for issuance of notice under Section 147. Relevant observationsread as under: 10.The Commissioner, Income-tax and the Appellate Tribunalhave noticed the detailed facts and recorded the finding as noticedabove that the re-assessment was on the basis of the subsequentjudgment of the Hon'ble Apex Court. Thus, apparently on the change ofthe opinion and in view of the principles of law laid down by the Hon'bleApex Court in Commissioner of Income Tax, Delhi Vs. Kelvinator of India Ltd. [2010] 320 ITR 561 wherein it has been held that jurisdictioncould not be conferred on the basis of mere change of opinion and itcould not be a reason per se to reopen assessments which had beenfinalized and change of opinion was not relevant ground for reason tobelieve for issuance of notice under Section 147. Relevant observationsread as under: “4. On going through the changes, quoted above, madeto Section 147 of the Act, we find that, prior to Direct Tax Laws(Amendment) Act, 1987, re-opening could be done underabove two conditions and fulfillment of the said conditionsalone conferred jurisdiction on the Assessing Officer to makea back assessment, but in section 147 of the Act [with effect from 1st April, 1989], they are given a goby and only onecondition has remained, viz., that where the Assessing Officerhas reason to believe that income has escaped assessment,confers jurisdiction to re- open the assessment. Therefore,post-1st April, 1989, power to re-open is much wider.However, one needs to give a schematic interpretation to thewords "reason to believe" failing which, we are afraid, Section147 would give arbitrary powers to the Assessing Officer to re-open assessments on the basis of "mere change of opinion",which cannot be per se reason to re-open. We must also keepin mind the conceptual difference between power to reviewand power to re-assess. The Assessing Officer has no powerto review; he has the power to re-assess. But re-assessmenthas to be based on fulfillment of certain pre-condition and ifthe concept of "change of opinion" is removed, as contendedon behalf of the Department, then, in the garb of re-openingthe assessment, review would take place. One must treat theconcept of "change of opinion" as an inbuilt test to checkabuse of power by the Assessing Officer. Hence, after 1stApril, 1989, Assessing Officer has power to re-open, providedthere is "tangible material" to come to the conclusion thatthere is escapement of income from assessment. Reasonsmust have a live link with the formation of the belief. Our viewgets support from the changes made to Section 147 of theAct, as quoted hereinabove. Under the Direct Tax Laws(Amendment) Act, 1987, Parliament not only deleted thewords "reason to believe" but also inserted the word "opinion"in Section 147 of the Act. However, on receipt ofrepresentations from the Companies against omission of thewords "reason to believe", Parliament re-introduced the saidexpression and deleted the word "opinion" on the ground thatit would vest arbitrary powers in the Assessing Officer. We quote hereinbelow the relevant portion of Circular No.549dated 31st October, 1989, which reads as follows: "7.2 Amendment made by the Amending Act, 1989,to reintroduce the expression `reason to believe' inSection 147.--A number of representations werereceived against the omission of the words `reasonto believe' from Section 147 and their substitution bythe `opinion' of the Assessing Officer. It was pointedout that the meaning of the expression, `reason tobelieve' had been explained in a number of courtrulings in the past and was well settled and itsomission from section 147 would give arbitrarypowers to the Assessing Officer to reopen pastassessments on mere change of opinion. To allaythese fears, the Amending Act, 1989, has againamended section 147 to reintroduce the expression`has reason to believe' in place of the words `forreasons to be recorded by him in writing, is of theopinion'. Other provisions of the new section 147,however, remain the same." 5. For the aforestated reasons, we see no merit inthese civil appeals filed by the Department, hence, dismissedwith no order as to costs.” 11.The reason for reopening, thus, being merely a change ofopinion on account of the subsequent judgment of the Hon'ble ApexCourt would not give the Assessing Officer the jurisdiction to reopen ashe would, thus, be reviewing his earlier decision which has been heldnot to be permissible. Similarly, in the absence of allegations that theassessee failed to disclose fully and truly all material facts, theassumption of jurisdiction was not justified. 12.Resultantly, in view of the above discussion, the questions oflaw framed are answered against the revenue by holding that theIncome Tax Officer had applied his mind earlier on the said issue andthere was no non-disclosure of the facts by the assessee. Resultantly,the present appeals are dismissed. July 15, 2015 “DK” (S.J. Vazifdar) (G.S.Sandhawalia) Acting Chief Justice Judge