Commissioner Of Income Tax, Udaipur v. M/S. Hindustan Zinc Ltd.(D.b.income Tax Appeal 166/14

COMMISSIONER OF INCOME TAX, UDAIPUR VS. M/S.HINDUSTAN ZINC LTD.(D.B.INCOME TAX APPEAL 166/14) Dated:- 20.5.16. HON'BLE MR.JUSTICE SANGEET LODHAHON'BLE MR.JUSTICE KAILASH CHANDRA SHARMA Mr.K.K.Bissa, for the appellant. BY THE COURT :( PER HON'BLE MR.SANGEET LODHA,J.) 1.This appeal is directed against order dated 4.3.14 of theIncome Tax Appellate Tribunal (ITAT), Jodhpur Bench, Jodhpur,whereby the Cross Objection filed by the assessee in the appealpreferred by the Revenue against the order dated 31.7.13 ofCommissioner of Income Tax (Appeal) [CIT (A)], Udaipur, hasbeen allowed and while striking down the re-assessmentproceedings initiated by the Assessing Officer (AO) for theassessment year 2005-06, on the change of opinion, the appealpreferred by the Revenue has been dismissed as having becomeinfructuous. 2.The relevant facts are that the assessee filed its return ofincome for assessment year 2005-06, on 29.10.05, disclosingtotal income at Rs.587,04,55,500/-, which was assessed underSection 143(3) by the AO on 26.12.07 at total income ofRs.609,09,40,080/-. The order passed by the AO was appealedagainst by the assessee before the CIT (A), which reduced the COMMISSIONER OF INCOME TAX, UDAIPUR VS. M/S. HINDUSTAN ZINC LTD.(D.B.INCOME TAX APPEAL 166/14) assessed income to Rs.587,04,55,500/-. After scrutiny ofassessment, it was observed that the assessee has madeincorrect claim of additional depreciation on Captive Power Plant(CPP) & Wind Mills. The re-assessment proceedings wereinitiated by the AO by issuing notice under Section 148 of theIncome Tax Act, 1961 (for short “the Act”). The AO framed theassessment order under Section 143(3) read with Section 148 ofthe Act and disallowed the additional depreciation on CPPclaimed by the assessee to the tune of Rs.30,09,36,309/- andaccordingly assessed the taxable income at Rs.617,13,91,709/-.Aggrieved thereby, the assessee preferred an appeal before theCIT (A), Udaipur. It was contended on behalf of the assesseethat the assessments completed after scrutiny assessment underSection 143(3), cannot be reopened under Section 147 merelyon the basis of change of opinion. The CIT(A) arrived at thefinding that the re-assessment proceeding initiated by the AOfor the reasons recorded is valid. However, after dueconsideration of the matter on merits, the CIT(A) allowed by theadditional depreciation for the Captive Power Plant ofRs.30,09,36,309/-. In these circumstances, the Revenuepreferred the appeal against the order of the CIT (A) before theITAT. The assessee filed Cross Objection questioning the order passed by the CIT(A), confirming the proceedings under Section147/148 of the Act. It was contended on behalf of the assesseethat the assessee has disclosed true and complete material factsbefore the AO and no new facts had come on record, justifyingthe action in initiating re-assessment proceedings. It wascontended that the re-assessment proceeding initiated by the AOon the basis of change of opinion, is not sustainable in the eyesof law. As noticed hereinabove, the ITAT has allowed the CrossObjection filed on behalf of the assessee, consequently, theappeal preferred by the Revenue questioning the order of theCIT(A) in allowing the additional depreciation, has beendismissed as having become infructuous. Hence, this appeal. 3.Learned counsel appearing for the Revenue contended thatthe ITAT has ignored the finding recorded by the AO that in thedepreciation charts, the assessee never bifurcated amount ofadditional depreciation allowable on assets during the relevantassessment year and thus, apparently, there was failure on thepart of the assessee in disclosing the complete facts. Learnedcounsel submitted that it is true that the assessment forassessment year 2005-06 was completed under Section 143(3)of the Act but the fact remains that the additional depreciationon CPP was allowed without examination and thus, it cannot be 3.Learned counsel appearing for the Revenue contended thatthe ITAT has ignored the finding recorded by the AO that in thedepreciation charts, the assessee never bifurcated amount ofadditional depreciation allowable on assets during the relevantassessment year and thus, apparently, there was failure on thepart of the assessee in disclosing the complete facts. Learnedcounsel submitted that it is true that the assessment forassessment year 2005-06 was completed under Section 143(3)of the Act but the fact remains that the additional depreciationon CPP was allowed without examination and thus, it cannot be said that the reopening of the assessment is based on change ofopinion. Learned counsel would submit that the ITAT has erred indismissing the appeal of the Revenue without examination of thesustainability of the disallowance made by the AO, is ex facieerroneous. 4.We have considered the submissions of the learned counselfor the Revenue and perused the material on record. 5.Indisputably, as per the provision of Section 147 of theAct, the Assessing Officer is empowered to initiate the re-assessment proceedings if any income of the assesseechargeable to tax has escaped assessment for any assessmentyear. But then, before initiating the re-assessment proceedings,the AO has to record the reasons in terms of sub-section (2) ofSection 148, for formation of the belief that any income of theassessee chargeable to tax for the relevant assessment year hasescaped assessment. As laid down by the Hon'ble SupremeCourt, the belief entertained by the Assessing Officer must notbe arbitrary or irrational, it must be reasonable and based onmaterial on record. The assumption of jurisdiction by theAssessing Officer under the provisions of the Act pre-supposesdue application of mind by the Assessing Officer on the materialon record and formation of the belief by the Assessing Officer that the income has escaped assessment cannot be based onwhims and fancy, there must exists rational and intelligiblenexus between the reasons and the belief. 6.In the matter of “Calcutta Discount Co. Ltd. vs. Income-taxOfficer, Companies District I, Calcutta”, (1961)41 I.T.R.191(SC), the Hon'ble Supreme Court while dealing with the ambitand scope of the provisions of Section 34 of the Indian IncomeTax, 1922, which were similar to the provisions of Section 147of the Act of 1961 explained the purports of Section 34 ,asunder:- “To confer jurisdiction under this section to issuenotice in respect of assessments beyond the period offour years, but within a period of eight years, from theend of the relevant year two conditions have thereforeto be satisfied. The first is that the Income-tax Officermust have reason to believe that income, profits orgains chargeable to income-tax have been under-assessed. The second is that he must have also reasonto believe that such “under-assessment”, has occurredby reason of either (i) omission or failure on the partof an assessee to make a return of his income undersection 22, or (ii) omission or failure on the part of anassessee to disclose fully and truly all material factsnecessary for his assessment for that year. Both theseconditions are conditions precedent to be satisfiedbefore the Income-tax Officer could have jurisdictionto issue a notice for the assessment or reassessmentbeyond the period of four years, but within the periodof eight years, from the end of the year in question.” The Hon'ble Supreme court further observed that it is dutyof every assessee to disclose fully and truly all material facts COMMISSIONER OF INCOME TAX, UDAIPUR VS. M/S. HINDUSTAN ZINC LTD.(D.B.INCOME TAX APPEAL 166/14) The Hon'ble Supreme court further observed that it is dutyof every assessee to disclose fully and truly all material facts COMMISSIONER OF INCOME TAX, UDAIPUR VS. M/S. HINDUSTAN ZINC LTD.(D.B.INCOME TAX APPEAL 166/14) necessary for his assessment. But, his duty does not extendbeyond this. The Hon'ble Supreme Court opined that once allprimary facts are before the Assessing Authority, he requires nofurther assistance by way of disclosure . It is for him to decidewhat inferences of facts can be reasonably drawn and what legalinferences have ultimately to be drawn. 7.In the matter of 'S.Narayanappa and Others Vs.Commissioner of Income Tax, Bangalore' (1996) 62 ITR 219, theHon'ble Supreme Court while relying upon the decision in thematter of Calcutta Discount Co. Ltd. vs. Income-tax Officer,Companies District I, Calcutta, (1961)41 I.T.R.191 (SC),hasobserved as under : “But the legal position is that if there are in factsome reasonable grounds for the Income-tax Officerto believe that there had been any non-disclosureas regards any fact, which could have a materialbaring on the question of under-assessment, thatwould be sufficient to give jurisdiction to the IncomeTax Officer to issue the notice under section 34.Whether these grounds are adequate or not is not amatter for the court to investigate. In other words,the sufficiency of the grounds which induced theIncome-tax Officer to act is not a justiciable issue. Itis of course open for the assessee to contend thatthe Income-tax Officer did not hold the belief thatthere had been such non-disclosure. In other words,the existence of the belief can be challenged by theassessee but not the sufficiency of the reasons forthe belief. Again the expression “reason to believe”in section 34 does not mean a purely subjective-satisfaction on the part of the Incometax Officer.The belief must be held in good faith: it cannot be merely a pretence. To put it differently, it is open tothe court to examine whether the reasons for thebelief have a rational connection or a relevantbearing to the formation of the belief and are notextraneous or irrelevant to the purpose of thesection. To this limited extent, the action of the-Incometax Officer in starting proceedings undersection 34 of the Act is open to challenge in a courtof law.”(Emphasis supplied) 8.In the matter of 'Income Tax Officer, I Ward Distt VI,Calcutta Vs. Lakhmani Mewal Das', (1976) 103 ITR 437, theHon'ble Supreme Court has observed as under : “Production before the Income-tax Officer of theaccount books or other evidence from which materialevidence could with due diligence amount todisclosure contemplated by law. The duty of theassessee in any case does not extend beyond makinga true and full disclosure of primary facts. Once hehas done that his duty ends. It is for the Income-taxOfficer to draw the correct inference from the primaryfacts. It is no responsibility of the assessee to advicethe Income-tax Officer with regard to the inferencewhich he should draw from the primary facts. If anIncome-tax Officer draws an inference which appearssubsequently to be erroneous, mere change ofopinion with regard to that inference would not justifyinitiation of action for reopening assessment. The grounds or reasons which lead to theformation of the belief contemplated by section 147(a) of the Act must have a material bearing on thequestion of escapement of income of the assesseefrom assessment because of his failure or omission todisclose fully and truly all material facts. Once thereexist reasonable grounds for the Income-tax Officerto form the above belief, that would be sufficient toclothe him with jurisdiction to issue notice. Whetherthe grounds are adequate or not is not a matter forthe court to investigate. The sufficiency of thegrounds which induce the Income-tax Officer to act The grounds or reasons which lead to theformation of the belief contemplated by section 147(a) of the Act must have a material bearing on thequestion of escapement of income of the assesseefrom assessment because of his failure or omission todisclose fully and truly all material facts. Once thereexist reasonable grounds for the Income-tax Officerto form the above belief, that would be sufficient toclothe him with jurisdiction to issue notice. Whetherthe grounds are adequate or not is not a matter forthe court to investigate. The sufficiency of thegrounds which induce the Income-tax Officer to act is, therefore, not a justiciable issue. It is, of course,open to the assessee to contend that the Income-taxOfficer did not hold the belief that there had beensuch non-disclosure. The existence of the belief canbe challenged by the assessee but not the sufficiencyof the reasons for the belief. The expression “reasonto believe” does not mean a purely subjective-satisfaction on the part of the Incometax Officer. Thereason must be held in good faith. It cannot bemerely a pretense. It is open to the court to examinewhether the reasons for the formation of the beliefhave a rational connection with or a relevant bearingon the formation of the belief and are not extraneousor irrelevant for the purpose of the section. To thislimited extent, the action of the Income-tax Officer instarting proceedings in respect of income escapingassessment is open to challenge in a court of law.” The Hon'ble Supreme Court further observed :- “As stated earlier, the reasons for the formation ofthe belief must have a rational connection with orrelevant bearing on the formation of the belief.Rational connection postulates that there must be adirect nexus or live link between the material comingto the notice of the Income -tax Officer and theformation of his belief that there has beenescapement of the income of the assessee fromassessment in the particular year because of hisfailure to disclose fully and truly all material facts.”(emphasis supplied) 9.In the matter of 'M/s. S.Ganga Saran & Sons (Pvt.) Ltd., Calcutta vs. Income Tax Officer & Ors.', (1981) 3 SCC, 143, theHon'ble Supreme Court held as under:- “6. It is well settled as a result of several decisions ofthis Court that two distinct conditions must besatisfied before the Income Tax Officer can assumejurisdiction to issue notice under Section 147(a).First, he must have reason to believe that the income 9.In the matter of 'M/s. S.Ganga Saran & Sons (Pvt.) Ltd., Calcutta vs. Income Tax Officer & Ors.', (1981) 3 SCC, 143, theHon'ble Supreme Court held as under:- “6. It is well settled as a result of several decisions ofthis Court that two distinct conditions must besatisfied before the Income Tax Officer can assumejurisdiction to issue notice under Section 147(a).First, he must have reason to believe that the income of the assessee has escaped assessment andsecondly, he must have reason to believe that suchescapement is by reason of the omission or failure onthe part of the assessee to disclose fully and truly allmaterial facts necessary for his assessment. If eitherof these conditions is not fulfilled, the notice issuedby the Income Tax Officer would be withoutjurisdiction. The important words under Section 147(a) are “has reason to believe” and these words arestronger than the words “ is satisfied”. The beliefentertained by the Income Tax Officer must not bearbitrary or irrational. It must be reasonable or inother words it must be based on reasons which arerelevant and material.The court, of course, cannotinvestigate into the adequacy or sufficiency of thereasons which have weighed with the Income TaxOfficer in coming to the belief, but the court cancertainly examine whether the reasons are relevantand have a bearing on the matters in regard to whichhe is required to entertain the belief before he canissue notice under Section 147(a). If there is norational and intelligible nexus between the reasonsand the belief, so that, on such reasons, no oneproperly instructed on facts and law could reasonablyentertain the belief, the conclusion would beinescapable that the Income Tax Officer could nothave reason to believe that any such escapement wasby reason of the assessee had escaped assessmentand such escapement was by reason of the omissionor failure on the part of the assessee to disclose fullyand truly all material facts and the notice issued byhim would be liable to be struck down as invalid.”(emphasis supplied) 10.In the matter of ' Sri Krishna Pvt. Ltd., Etc. Vs. Income Taxofficer and Others' (1996) 221 ITR 538, the Hon'ble SupremeCourt has observed as under : “The Income-tax Officer can issue notice undersection 148 of the Income-tax Act,1961, proposingto reopen an assessment only where he has reason 10.In the matter of ' Sri Krishna Pvt. Ltd., Etc. Vs. Income Taxofficer and Others' (1996) 221 ITR 538, the Hon'ble SupremeCourt has observed as under : “The Income-tax Officer can issue notice undersection 148 of the Income-tax Act,1961, proposingto reopen an assessment only where he has reason to believe that on account of either the omission orfailure on the part of the assessee to file the returnor on account of the omission or failure on the partof the assessee to disclose fully and truly allmaterial facts necessary for his assessment for thatyear, income has escaped assessment. Theexistence of the reason(s) to believe is intended tobe a check, a limitation, upon his power to reopenthe assessment. Section 148(2) imposes a furthercheck upon the said power, viz., the requirement ofrecording of reasons for such reopening by theIncome-tax Officer. Section 151 imposes yetanother check upon the said power, viz., theCommissioner or the Board, as the case may be,has to be satisfied, on the basis of the reasonsrecorded by the Income-tax Officer, that it is a fitcase for issuance of such a notice. The powerconferred upon the Income-tax Officer by sections147 and 148 is thus not an unbridled one. It ishedged in with several safeguards conceived in theinterest of eliminating room for abuse of this powerby the Assessing Officers. The idea was to save theassessees from harassment resulting frommechanical reopening of assessments but thisprotection avails only to those assessees whodisclose all material facts truly and fully. Everydisclosure is not and cannot be treated to be trueand full disclosure. A disclosure may be a false oneor a true one. It may be a full disclosure or it maynot be. A partial disclosure may very often be amisleading one. What is required is a full and truedisclosure of all material facts necessary for makingassessment for that year. All the requirementsstipulated by section 147 must be given due andequal weight. It was further observed that : “Since the belief is that of the Income-tax Officer, thesufficiency of reasons for forming the belief is not forthe court to judge but it is open to an assessee toestablish that, in fact there existed no belief or thatthe belief was not at all a bona fide one or was based-on vague, irrelevant and nonspecific information.To that limited extent, the court may look into theconclusion arrived at by the Income-tax Officer andexamine whether there was any material available onthe record from which the requisite belief could beformed by the Income-tax Officer and further whetherthat material had any rational connection or a live linkfor the formation of the requisite belief.” (emphasissupplied) 11.In the matter of “CIT vs. Kelvinator of India Ltd.”, (2010) 320 ITR 561 (SC), the Hon'ble Supreme Court held: that limited extent, the court may look into theconclusion arrived at by the Income-tax Officer andexamine whether there was any material available onthe record from which the requisite belief could beformed by the Income-tax Officer and further whetherthat material had any rational connection or a live linkfor the formation of the requisite belief.” (emphasissupplied) 11.In the matter of “CIT vs. Kelvinator of India Ltd.”, (2010) 320 ITR 561 (SC), the Hon'ble Supreme Court held: “However, one needs to give a schematic interpretationto the words 'reason to believe', failing which section147 would give arbitrary powers to the AssessingOfficer to reopen assessments on the basis of 'merechange of opinion', which cannot be per se reason toreopen. One must also keep in mind the conceptualdifference between power to review and power toreassess. The Assessing Officer has no power to review;he has the power to reassess, but the reassessment-has to be based on fulfilment of certain preconditionsand if the concept of 'change of opinion' is removed ascontended on behalf of the department, then in thegarb of reopening the assessment, review would takeplace. One must treat the concept of 'change of opinion'-as an inbuilt test to check abuse of power by theAssessing Officer.Hence, after 1-4-1989, the AssessingOfficer has power to reopen, provided there is 'tangiblematerial' to come to conclusion that there isescapement of income from assessment. Under theDirect Tax Laws (Amendment) Act, 1987, theParliament not only deleted the words 'reason tobelieve', the Parliament reintroduced the saidexpression and deleted the word 'opinion' on theground that it would vest arbitrary powers in theAssessing Officer.” (emphasis supplied) 12.In the backdrop of the settled position of law noticedhereinabove adverting to the facts of the present case, it is to be noticed that the assessee had made true and full disclosure ofall relevant facts relating to the claim of additional depreciationand also in respect of claim for grant of deduction under Section80 IA. A separate audit report in the prescribed form 10CCB insupport of the claim for deduction under Section 80IA/80IB wasalso duly submitted. The assessee had also submitted replypursuant to all queries made by AO during the assessmentproceedings under Section 143(3) of the Act. In this view of thematter, the contention sought to be raised by the Revenue aboutnon-disclosure on the basis of the failure on the part of theassessee in mentioned bifurcated amount of additionaldepreciation allowable in the depreciation chart is absolutelybaseless. It is to be noticed that all that has been said by the AOis that after scrutiny assessment, it was observed that assesseehas made incorrect claim of additional depreciation on CPPwhereas, the claim for additional depreciation on CPP wasallowed by the AO while framing the assessment under Section143(3) after conscious consideration of the material on record.It is not even the case of the Revenue that the formation of thebelief regarding the escapement of the assessment by the AO isbased on any new material coming on record. Apparently, theformation of the belief by the AO regarding escapement of the assessment is based on re-appreciation of the material alreadyavailable on record at the time of scrutiny assessment whichamounts to mere change of opinion. Obviously, in the garb ofpurported exercise of the power to reassess, the AO cannot bepermitted to review his own order or the order passed by hispredecessor. Thus, the finding arrived at by the ITAT that thereassessment proceedings initiated by the AO by mere change ofopinion is patently illegal, cannot be faulted with. assessment is based on re-appreciation of the material alreadyavailable on record at the time of scrutiny assessment whichamounts to mere change of opinion. Obviously, in the garb ofpurported exercise of the power to reassess, the AO cannot bepermitted to review his own order or the order passed by hispredecessor. Thus, the finding arrived at by the ITAT that thereassessment proceedings initiated by the AO by mere change ofopinion is patently illegal, cannot be faulted with. 13.The ITAT having arrived at the categorical finding that re-opening of the completed assessment without any freshmaterial, merely on the basis of change of opinion of the AO, iswithout jurisdiction and erroneous, the appeal preferred by theRevenue has rightly been dismissed as having becomeinfructuous. 14.In the result, the appeal fails, it is hereby dismissed. (KAILASH CHANDRA SHARMA),J. (SANGEET LODHA),J.