Commissioner Of Income Tax - Itiruchirapalli v. M/S.trichy Steel Rolling Mills Ltd.,P.b

IN THE HIGH COURT OF JUDICATURE AT MADRAS THE HONOURABLE MR.JUSTICE R. MAHADEVANAND THE HONOURABLE MR.JUSTICE J.SATHYA NARAYANA PRASAD T.C.A.NO.1437 OF 2010 Commissioner of Income Tax - ITiruchirapalli... Appellant Versus M/s.Trichy Steel Rolling Mills Ltd.,P.B.No.603,Senthannipuram,Tiruchirapalli - 620 004. Appeal preferred under Section 260A of the Income Tax Act,1961, against the order of the Income Tax Appellate Tribunal,Chennai, “B” Bench, dated 30.04.2010 in I.TA.No.1569/Mds/2008for the assessment year 1998-1999. Against the Appellate Order and ground of Decision passed bythe Commissioner of Income Tax (A) No.4, Williams RoadContonment, Tiruchirapalli 620 001 dated 21.05.2008 made inITA.No.584/2005-2006, for the Assessment year 1998-1999 againstthe Assessment order passed by the Deputy Commissioner ofIncome Tax, Company Circle-1, Tiruchirapalli, dated 27.01.2006made in PAN/GIR for the Assessment year 1998-1999. (Judgment of the Court was delivered by R.MAHADEVAN, J.) This tax case appeal has been filed by the appellant /Revenue, challenging the order dated 30.04.2010 passed by theIncome Tax Appellate Tribunal, Bench 'B', Chennai, inI.T.A.No.1569/Mds/2008, relating to the assessment years 1998-99. https://hcservices.ecourts.gov.in/hcservices/ 2. On 07.02.2011, this court admitted this tax case appealby raising the following substantial question of law:- “Whether on the facts and in the circumstances ofthe case, the Income Tax Appellate Tribunal was rightin holding that the reopening of the assessment forthe Assessment Year 1998-99 was bad in law on theground that there was no fresh material that came tothe notice of the Assessing Officer, withoutappreciating that the assessee had not disclosed fullyand truly the material facts necessary for thecompletion of the assessment for the Assessment Year1998-99 and had wrongly claimed expenditure/ losspertaining to the period subsequent to the close ofthe relevant accounting year?" 3. The assessee is a manufacture of steel rods, steel barsetc., For the assessment year 1998-1999, they have submittedtheir return of income and the assessment was completed on17.01.2001 under Section 143 (3) of The Income Tax Act (in shortthe Act) determining a loss of Rs.3,60,69,466/. However, evenbefore the completion of the assessment, the assessee approachedthe Appellate Authority namely Commissioner of Income Tax(Appeals). The appellate authority enhanced the loss fromRs.3,60,69,466/- to Rs.3,67,54,764/-. The order passed by theAppellate Authority was also given effect to by the AssessingOfficer by re-computing the total loss at Rs.3,67,54,764/- andthe assessment was closed. 4. After completion of the assessment proceedings for theassessment year 1998-1999 on 17.01.2001, the Assessing Officernoticed that the assessee was erroneously allowed a deduction ofRs.94,86,333/- towards bad debts and it requires a re-assessment.Accordingly, the assessing officer initiated proceedings underSection 147 of the Act and issued a notice for re-assessment on09.09.2005. In response, the assessee has submitted theirresponse opposing the initiation of proceedings under Section 147of the Act without any tangible material evidence to do so.Notwithstanding such opposition on the part of the assessee, theAssessing Officer, by an order dated 27.01.2006, concluded there-assessment proceedings disallowing loss towards bad debts atRs.94,88,333/-. 5. Aggrieved by the same, the assessee has filed an appealbefore the Commissioner of Income Tax (Appeals) in ITA No. 584 of2005-2006. The appellate authority, by an order dated 21.05.2008,dismissed the appeal. Therefore, the assessee has filed afurther appeal to the Tribunal. The Tribunal, by the order dated30th April 2010, set aside the order passed by the Appellate Authority, confirming the order of the assessing officer. Theorder passed by the Tribunal reads as under:- 5. Aggrieved by the same, the assessee has filed an appealbefore the Commissioner of Income Tax (Appeals) in ITA No. 584 of2005-2006. The appellate authority, by an order dated 21.05.2008,dismissed the appeal. Therefore, the assessee has filed afurther appeal to the Tribunal. The Tribunal, by the order dated30th April 2010, set aside the order passed by the Appellate Authority, confirming the order of the assessing officer. Theorder passed by the Tribunal reads as under:- "3. Before us, a legal plea has been raised byway of additional ground that the already completedassessment under Section 143 (3) of the Act has beenre-opened in this case after a lapse of four yearsalthough the conditions mentioned in Section 147 arenotsatisfied.Therefore,there-assessmentproceedings become invalid and consequently, the re-assessment itself becomes invalid. Since thisadditional ground is purely a legal ground requiringno further investigation of facts, we are admittingthe same. This ground being of utmost importance andgoing to the very root of the matter, first of all,because we were convinced that after a lapse of fouryears, without there being any fresh material comingto the notice of the assessing officer, action undersection 147 cannot be initiated, in view of thedecision of the Honourable Apex Court in Civil AppealNos. 2009-2011 of 2003 with Civil Appeal No. 2520 of2008 int he case of CIT vs. M/s. Kelvinator of IndiaLimited. It was found for a fact that no freshmaterial was either found by the Assessing Officer orwas brought on the record and whatever decision wastaken on the basis of available records at the time oforiginal assessment only these materials wereavailable before him during re-assessment proceedingsas well. Any change of opinion, which is not permittedin law, particularly after a lapse of four years fromthe date of original assessment. Undeniably, thenotice for re-assessment was issued after a lapse offour years to the assessee and there being no freshmaterial in his possession, he is debarred frominitiating re-assessment proceedings. Consequently,we hold that the re-assessment proceedings are nulland void ab initio. Accordingly, the re-assessmentorder itself becomes non actionable and, therefore, wequash the same. As a result, the assessee succeeds onthis legal issue. Having decided the legal issue asabove, there is no need to address the issues raisedon merits." 6. The learned counsel appearing for the revenue wouldvehemently contend that there was failure on the part of theassessee in truly and fully disclosing the material particularsrelating to the assessment in question which necessitated theAssessing Officer to re-open the assessment. The Tribunal didnot take note of the fact that there was a dispute between theAssessee Company and M/s. Shree Aravindh Steel Limited with respect to non-payment of a sum of Rs.45.97 lakhs by the assesseecompany towards purchases made by them. Therefore, M/s. ShreeAravindh Steel Limited has filed a suit before this Court andduring the pendency of the litigation, a Memorandum ofUnderstanding was entered into between the Assessee and M/s.Shree Aravindh Steel Private Limited and based on the same, thecase filed by M/s. Shree Aravindh Steel Limited was dismissed bythis Court. At the time of completion of the assessmentproceedings, the assessee has suppressed the dispute with M/s.Shree Aravindh Steel Limited over non-payment of Rs.45.97 lakhs.Subsequently, the Memorandum of Understanding was entered into on04.06.1998 much before the completion of assessment, therefore,the Assessing Officer is wholly justified in re-opening theassessment under Section 147 of the Act. The learned counsel forthe appellant therefore prayed for allowing this appeal bysetting aside the order of the Tribunal. 7. On the above contentions putforth by the learnedcounsel for the revenue, we have heard the learned counsel forthe respondent-assessee and perused the materials placed onrecord. 8. The only point arise for consideration in this appealis whether the Assessing Officer is entitled to re-open theassessment under Section 147 of the Act. In this context, theHonourable Supreme Court has considered the various parametersrequired for re-opening a concluded assessment under Section 147of the Act in the case of (Commissioner of Income Tax, Delhi vs.Kelvinator of India Limited) reported in (2010) 187 Taxman 312(SC) wherein it has been observed as under:- "4. On going through the changes, quoted above,made to section 147 of the Act, we find that prior toDirect Laws (Amendment) Act, 1987, re-opening could bedone under above two conditions and fulfilment of thesaid conditions alone conferred jurisdiction on theAssessing Officer to make a back assessment, but inSection 147 of the Act (with effect from 01-04-1989),they are given a go-by and only one condition hasremained viz., that where the Assessing Officer hasreason to believe that income has escaped assessment,confers jurisdiction to re-open the assessment.Therefore, post 01-04-1989, power to reopen is muchwider. However, one needs to give a schematicinterpretation to the words "reason to believe"failing which, we are afraid section 147 would givearbitrary powers to the Assessing Officer to re-openassessments on the basis of "mere change of opinion",which cannot be per se reason to reopen. We mustalso keep in mind the conceptual difference between power to review and power to re-assess. The AssessingOfficer has certain pre-condition and if the conceptof "change of opinion" is removed, as contended onbehalf of the Department, then, in the garb of re-opening the assessment, review would take place. Onemust treat the concept of "change of opinion" as anin-built test to check abuse of power by the AssessingOfficer. Hence, after 01-04-1989, Assessing Officerhas power to reopen, provided, there is "tangiblematerial" to come to the conclusion that there isescapement of income from assessment. Reasons musthave a link with the formation of the belief. Ourview gets support from the changes made to section 147of the Act, as quoted hereinabove. Under the DirectTax Laws (Amendment) Act, 1987, Parliament not onlydeleted the words "reason to believe" but alsoinserted the word "opinion" in Section 147 of the Act.However, on receipt of representations from theCompanies against the omission of the words "reason tobelieve", Parliament re-introduced the said expressionand deleted the words "opinion" on the ground that itwould vest arbitrary powers in the Assessing Officer.We quote hereinbelow the relevant portion of CircularNo.549, dated 31-10-1989, which reads as follows:- "7.2. Amendment made by the Amending Act, 1989 toreintroduce the expression "reason to believe" inSection 147.- A number of representations werereceived against the omission the words "reason tobelieve" from Section 147 and their substitution ofthe 'opinion' of the Assessing Officer. It waspointed out that the meaning of the expression 'reasonto believe' had been explained in a number of courtrulings in the past and was well settled and itsomission from section 147 would give arbitrary powersto the Assessing Officer to reopen past assessments onmere change of opinion. To allay these fears, theAmending Acct, 1989, has again amended Section 147 toreintroduce the expression 'has reason to believe' inplace of the words "for reasons to be recorded by himin writing, is of the opinion". Other provisions ofthe new section 147, however, remain the same" 5. For the aforesaid reasons, we see no meritin these civil appeals filed by the Department, hence,dismissed with no order as to costs." 5. For the aforesaid reasons, we see no meritin these civil appeals filed by the Department, hence,dismissed with no order as to costs." 8. Applying the judgment of the Honourable Supreme Courtin the above case, which was also relied on by the Tribunal, theassessment proceedings initiated under Section 143 (3) of the Act was completed on 17.01.2001. Thereafter, the Assessing Officerissued a notice dated 09.09.2005 for re-assessment on the groundthat certain income, which are liable for payment of tax, hasescaped the assessment and it warrants re-assessment. In the re-assessment order, it was merely stated that "it was noticed thatthe assessee was allowed a deduction of Rs.94,86,333/- as baddebts, wrongly. The assessment was therefore re-opened underSection 147. This would stand testimony to the fact that theAssessing Officer has no tangible material evidence to initiatethe re-assessment proceedings. Had there been any materialevidence, which prompted the assessing officer to initiate re-assessment proceedings, he ought to have atleast indicated it inthe order of re-assessment proceedings. But the re-assessmentproceedings was concluded only on the basis of the explanationoffered by the assessee with respect to the suit filed againstthem before this Court and the Memorandum of Understandingentered into with M/s. Shree Aravindh Steel Private Limited.Therefore, it is evident that the re-assessment proceedings havebeen initiated without any tangible material evidence, unearthedsubsequently, which the assessee did not produce at the time oforiginal assessment under Section 143 (3) of the Act. Thus,based on a change of opinion on the part of the AssessingOfficer, the re-assessment proceedings were initiated. TheTribunal also held that there was no fresh material in thepossession of the Assessing Officer warranting initiation of re-assessment proceedings under Section 147 of the Act. In suchview of the matter, we are of the view that the Tribunal is rightin allowing the appeal filed by the assessee and it does not callfor any interference by this Court. In the light of our above conclusion, the substantialquestion of law is answered against the revenue and in favour ofthe assessee. The Tax Case Appeal is dismissed. No costs. Sd/- Assistant Registrar(CS IX) //True Copy// Sub Assistant Registrar gba/rsh To 1. The Commissioner of Income Tax - I Tiruchirapalli 620 001. Tiruchirapalli 620 001. https://hcservices.ecourts.gov.in/hcservices/ 2. The Income Tax Appellate Tribunal, Chennai, “B” Bench, Chennai. 3. The Deputy Commissioner of Income Tax, Company Circle-1, Tiruchirapalli. +1cc to Mr.M.Swaminathan, Advocate, S.R.No.9485 TCA No.1437 of 2010 EV(CO)PM/28/02/2022