Cwp? v. Commissioner Of Income Tax & Another Cwp?

-|-SAILESH RANJAN2015.05.14 16:25I attest to the accuracy andintegrity of this document IN THE HIGH COURT OF PUNJAB & HARYANA AT CHANDIGARH CWP? No.6765 of 2013 ~Date of decision:2204.2015State Bank of PatialaVersusCommissioner of Income Tax & anotherCWP? No.6767 of 2013 — Petitioner Commissioner of Income Tax & another ......Respondents State Bank of PatialaVersusCommissioner of Income TaxState Bank of PatialaVersus _. Petitioner Commissioner of Income Tax ...... Responden CWP? No.17892 of 201 _. Petitioner Commissioner of Income Tax & another ......Respondents CORAM:HON'BLE MR.JUSTICE S.J.VAZIFDAR, ACTING CHIEF JUSTICEHON'BLE MR.JUSTICE G.S.SANDHAWALIA Present:Mr.Sanjay Bansal, Sr.Advocatewith Mr.Rajiv Sharma, Advocate, for the petitioner, Mrs.Savita Saxena, Advocate, for the respondents, G.S.Sandhawalia J. ,,,, 1,This judgment shall dispose of CWP Nos.6765, 17892 & 6767 of2013, pertaining to assessment years 2005-06, 2006-07 & 2007-08, respectively,since common questions of law and facts are involved. However, to dictateorders, facts have been taken from CWP No.6765 of 2013. ~).SAILESH RANJAN2015.05.14 16:25I attest to the accuracy andintegrity of this document |The petitioner-Bank has challenged the order dated 25.03.2013(Annexure Pl), passed by respondent No.2, the Assistant Commissioner ofIncome Tax (its acronym, 'ACIT"), whereby its objections to the notice issuedunder Section 148 of the Income Tax Act, 1961 (for short, the ‘Act'), forreopening of assessment, were rejected. Challenge has also been made to thenotice issued under Section 147 of the Act, on the basis of which, thereassessment notice was issued, whereby the reasons were recorded for reopeningthe assessment| onThe main submission raised by the Learned Senior Counsel for thepetitioner, in the cases pertaining to assessment years 2005-06 & 2006-07, is thatonce there was no finding recorded by the Assessing Officer (its acronym, 'AO')that the petitioner had not disclosed fully and truly all the material facts and aperiod of 4 years had expired from the end of the relevant assessment year,reopening could not be done on account of change of opinion, which had led tothe notices being issued. In CWP No.6767 of 2013, the challenge was on theeround that since it was only a change of opinion, the same was not permissibleon account of the foundation being illegal and the jurisdiction of this Court was,thus, being invoked. 4As per the pleadings, the return of income under Section 139(1) ofthe Act was filed on 28.10.2005 and the assessment order was passed on28.11.2007, under Section 143(3) of the Act. The case of the Bank was thatalong with the return of income, it had filed its balance-sheet, profit and lossaccount, cash flow statements, notes on accounting policies, auditors reports,directors report etc. The Bank had installed various Automatic Teller Machines(its acronym, 'ATM’), for the benefit of its customers and claimed depreciation @60%, by treating it as computers instead of claiming 15% depreciation, whichwas in the case of a plant and machinery. The assessment was finalised upto the year 2007-08 and no disallowance was made on account of the depreciationclaimed @ 60%. 4As per the pleadings, the return of income under Section 139(1) ofthe Act was filed on 28.10.2005 and the assessment order was passed on28.11.2007, under Section 143(3) of the Act. The case of the Bank was thatalong with the return of income, it had filed its balance-sheet, profit and lossaccount, cash flow statements, notes on accounting policies, auditors reports,directors report etc. The Bank had installed various Automatic Teller Machines(its acronym, 'ATM’), for the benefit of its customers and claimed depreciation @60%, by treating it as computers instead of claiming 15% depreciation, whichwas in the case of a plant and machinery. The assessment was finalised upto the year 2007-08 and no disallowance was made on account of the depreciationclaimed @ 60%. 5 After the expiry of 4 years from the date of the order passed underSection 143(3) of the Act, notice dated 27.03.2012 (Annexure P2) was issuedunder Sections 147 & 148, which apparently did not satisfy the requirementprovided under Section 147, regarding the failure of the assessee to disclose fullyand truly all the material facts. The same was replied by filing detailed objectionson 13.03.2013 (Annexure P5) by taking the plea that the returns, in response tothe notice, had been filed and the Bank had disclosed all the relevant materials,showing that operationalisation of 251 ATMs had been done by March, 2005 andno fresh material had come to the notice of the AO to reopen the assessment andissue the notice under Section 148. The reopening, thus, was alleged to be alchange of opinion by the successor, which was not permissible. Another detailedreply was submitted on 23.03.2013 (Annexure P4), placing reliance upon variousjudgments that since there were two views on the ATMs, the view in favour ofthe assessee should be adopted. | 6.The said objections were, thereafter, rejected by taking the plea thatno separate head of ATM machines was furnished for depreciation in thedepreciation chart and it was only later, this aspect came to the light in anotherassessment year. It was, accordingly, held that reason to believe that the incomehad escaped assessment would entitle the AO to re-assess the income chargeableto tax, for the said assessment year. T In order to appreciate the controversy, the reasons which have beenrecorded by respondent No.2, for issuing the notice under Section 147 read withSection 148, would go on to show that when the assessment proceedings for thesubsequent years 2008-09, were being processed, it came to the notice of the saidAO that depreciation had been claimed @ 60%, which was disallowed and an -4.SAILESH RANJAN2015.05.14 16:25I attest to the accuracy andintegrity of this document addition ofL3,71,00,000/- was made by disallowing the cost of depreciationclaimed and only allowing depreciation @ 15% on the ATM by treating the sameas plant and machinery. Accordingly, noticing that the position was similar forthe concerned assessment years 2005-06 and since the 251 ATMs had beenoperationalised by March, 2005 and by holding that there was reason to believethat the income of the assessee, chargeable to tax, had escaped assessment, noticewas issued for the years in question. -4.SAILESH RANJAN2015.05.14 16:25I attest to the accuracy andintegrity of this document addition ofL3,71,00,000/- was made by disallowing the cost of depreciationclaimed and only allowing depreciation @ 15% on the ATM by treating the sameas plant and machinery. Accordingly, noticing that the position was similar forthe concerned assessment years 2005-06 and since the 251 ATMs had beenoperationalised by March, 2005 and by holding that there was reason to believethat the income of the assessee, chargeable to tax, had escaped assessment, noticewas issued for the years in question. 8 Counsel for the petitioner has, thus, submitted that the said noticeswere liable to be quashed along with the impugned order dated 25.03.2013,whereby the objections had been dismissed as it was only a change of opinion,being recorded by the AO by submitting that the Bombay High Court inCommissioner_ of Income TaI Vs. M/s Saraswat Infotech Ltd.(in _ITA(LNo.1243 of 2012)decided on 15.01.2013(Annexue P1Q), has held against theRevenue on the said issue. Reliance has also been placed upon the judgment ofthe Income Tax Appellate Tribunal, New Delhi Bench, to contend that ATMs arecomputerized telecommunications and therefore, the depreciation was rightlyclaimed @ 60%. Similar reliance has also been placed upon the decision of theITAT, Bangalore Bench inM/s NCR Corporation Pvt. Ltd. Vs. AssistantCommissioner of Income Tax (in ITA No.353 (Bang) 2010)decided on28.02.2011, on the same issue, 3Counsel for the Revenue, on the other hand, has justified the order,by taking the plea that necessary permission had been taken from the competentauthority and notice was issued, thereafter, on 27.03.2012, since the AO hadreason to believe that the income had escaped assessment as the ATM was not acomputer and complete disclosure of material facts had not been made in thereturn filed and that depreciation @ 33.33% on straight-line method had beenprovided and there was no full disclosure to the annual report and accordingly, there was a valid reason to issue notice. -5- SAILESH RANJAN2015.05.14 16:25I attest to the accuracy andintegrity of this document 10.Without going into the merits of the issue as to whether the ATM isa computer or ought to be treated as normal plant and machinery, attractingdifferent rates of depreciation, we are of the opinion that the present writpetitions are liable to be allowed on the ground that admittedly, the notice issuedon 27.03.2012 did not fulfil the mandatory requirement of recording that theassessee did not disclose fully and truly all the material facts which was thenecessary requirement in CWP Nos.6765 and 17892 of 2013. The reasons whichhave prevailed with the AO to issue notice reads as under: Reasons u/s 14/7 r.ws. 148 of the Income Tax Act, 1961reopening the assessment. During the course of assessment proceedings for the assessmentyear 2008-09, it has been noticed that the assessee bank hasclaimed depreciation on ATM @ 60% by treating the ATM asComputer. At the time of finalizing the assessment, the assesseewas allowed depreciation on ATM @ 15% as allowed under I.T.Laws on Plant & Machinery by treating the ATM as Plant &Machinery. Accordingly, an addition of Rs. 3,/1,00,000/- was madeby disallowing the excess depreciation claimed by the assessee.similar is the position for the assessment year under considerationi.e. A.Y. 2005-06. Assessee had operationalised 251 ATMs byMarch, 2005. Therefore, | have reason to believe that Income ofthe assessee chargeable to tax has escaped assessment for thefinancial year 2004-05 relevant to A.Y. 2005-06 within meaning ofsection 147. Issue notice u/s 148 r.w.s. 151 of the Income Tax Act, 1961.Date: 2/.03.7201Sd/- Asstt. Commissioner of Income-tax, Circle, Patiala” ll.A perusal of the above would go on to show that when the returnsfor the subsequent years were processed, the AO had disallowed the claim made@ 60% and added a sum of=3,71,00,000/- to the income of the assessee-Bank,by allowing depreciation @ 15% only, by treating the ATMs as plant and Issue notice u/s 148 r.w.s. 151 of the Income Tax Act, 1961.Date: 2/.03.7201Sd/- Asstt. Commissioner of Income-tax, Circle, Patiala” ll.A perusal of the above would go on to show that when the returnsfor the subsequent years were processed, the AO had disallowed the claim made@ 60% and added a sum of=3,71,00,000/- to the income of the assessee-Bank,by allowing depreciation @ 15% only, by treating the ATMs as plant and -6-SAILESH RANJAN2015.05.14 16:25I attest to the accuracy andintegrity of this document machinery. Keeping in view the fact that the ATMs had been operationalised byMarch, 2005, reasons were recorded to believe that the income of the assessee,chargeable to tax, had escaped assessment. There is no disputing the fact that theassessment for the said years, 1.e., 2005-06 and 2006-07, under Section 143(3)had concluded on 28.11.2007 and 30.11.2007 and determination of tax upon theassessee was made on the basis of the assessment. The proviso to Section 147provides that no action shall be taken under the said section, after the expiry of 4years from the end of the relevant assessment year unless any income chargeableto tax has escaped assessment, by reason of failure on the part of the assessee tomake the return or respond to the notice issued under Section 142(1) or Section148. The other condition is that there should be disclosure of fully and truly allmaterial facts necessary for the said assessment year. 12]The issue of initiating proceedings under Section 14/7 wasconsidered by this Court inDuli Chand Singhania Vs. Assistant Commissioner of Income Tax (2004) 269 ITR 192(wherein, it was held that in the absence ofvalid assumption of jurisdiction under Section 147, the notice after 4 years fromthe end of the assessment year in question, could not be initiated in the absence ofany allegation that there was failure on the part of the assessee to disclose fullyand truly all material 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 the AssessingOfficer in his order dated 13-3-2003 is to justify his satisfactionabout escapement of income. According to him, it was a clear caseof escapement of income as defined in Explanation-2 to Section14/7 as the assessee had been allowed excessive relief undersection 80-O of the Act. However, it is not necessary for us to gointo the merits of this finding as the second requirement of theproviso has not been satisfied obviously. The reasons recorded bythe Assessing Officer for initiation of proceedings under Section -/- SAILESH RANJAN2015.05.14 16:25I attest to the accuracy andintegrity of this document 14/ of the Act nave alreaay been reproduced above. A bareperusal of the same shows that the satisfaction recorded therein ismerely about escapement of income. There is not even a whisperof an allegation tnat sucn escapement nad occurred by reason offailure on tne part of the assessee to aisciose fully and truly allmaterial facts necessary for his assessment. Absence of thisfinding, which is a "sine quo non" for assuming jurisdiction undersection 14/ of the Act In a case falling under the proviso thereto,makes the action taken by the Assessing Officer wholly withoutjurisdiction. As already observed, the learned counsel for theRevenue nas conceded tnat neither in the reasons recorded nor inthe order dated 13-3-2003, has the assessee been charged withfailure to disclose, fully and truly all material facts necessary for hisassessment.” 13,The said view was followed inMahavir Spinning Mills Ltd. Vs. Commissioner _of Income Tax & another [2004] 270 ITR 290, and the objections raised by the Revenue that the writ was not maintainable against thenotice, was rejected. Relevant portion of the judgment reads as under: 13,The said view was followed inMahavir Spinning Mills Ltd. Vs. Commissioner _of Income Tax & another [2004] 270 ITR 290, and the objections raised by the Revenue that the writ was not maintainable against thenotice, was rejected. Relevant portion of the judgment reads as under: “11. A bare perusal of the above shows that the entire thrust of theobservations recorded by the Assessing Officer is to justify hissatisfaction about escapement of income. There is not even awhisper of an allegation that such escapement had occurred byreason of failure on the part of the assessee to disclose fully andtruly all material facts necessary for its assessment. As held in DullChand Singhania's case, absence of this finding makes the actionof the Assessing Officer wholly without jurisdiction. Since theillegality of notice under Section 148 of the Act is apparent from thereasons recorded for initiation of proceedings under Section 147 ofthe Act, it is a fit case for interference in the exercise of our writjurisdiction. Sending the petitioner back to the Assessing Officer toraise these objections and requiring him to pass an order thereonwould be prolonging the proceedings unnecessarily.| 14Similarly, inWinsome Textiles Industries Ltd. Vs. Union of India & others [2005] 278 ITR 470, It was held that once the assessment had beenmade under Section 143(3), the genuineness of the claims made in the return hadto be examined and the failure of the AO to do so would not permit him to reopen the assessment which had already been completed and had become barred bylimitation. 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 to Section14/7 has been made applicable only to cases where assessmentnave alreaay been compieted under Sub-section (3) of Section 143or under Section 14/7. |nere is a specific purpose benind It. VWnethe return is processed under Section 143(1)(a), the AssessingOfficer has no jurisdiction to examine the genuineness of theclaims made in the return of income. He has only limited power ofmaking adjustments on the basis of information available in thereturn. However, when an assessment is made under Section 143(3) of the Act, the Assessing Officer has very wide power toexamine the genuineness of the claims made in the return andrequire the assessee to furnish whatever information the AssessingOfficer deems necessary. In the present case, the assessment hadbeen made under Section 143(3) of the Act and if the AssessingOfficer was of the view that he required profit and loss account anddepreciation charts of the assessment years 1995-96 and 1996-97for examining the correctness of the claim under Section 80IA ofthe Act, ne could have required the assessee to produce the same.Failure of the Assessing Officer to do so, cannot be treated at parwith the failure of the assessee to disclose fully and truly allmaterial facts necessary for its assessment.” 15)The reasons for opening the assessment which had already beenconcluded on 28.11.2007 and 30.11.2007, thus, do not show that there was anyfailure on the part of the assessee to disclose fully and truly all the material factsand thus, it was merely a change of opinion and in view of the settled position oflaw, the petitioner would be entitled for setting aside the said notices issued. Thesaid factor, namely, the additional factor regarding the change of opinion by theAO, would also be a valid ground for setting aside the notice issued for theassessment year 2007-08, which is discussed below, 16.In CWP No.6767 of 2013, pertaining to assessment year 2007-08,the writ petition is liable to be allowed, in view of the principle of law laid down by the Apex Court inCommissioner of Income Tax, Delhi Vs. Kelvinator of 16.In CWP No.6767 of 2013, pertaining to assessment year 2007-08,the writ petition is liable to be allowed, in view of the principle of law laid down by the Apex Court inCommissioner of Income Tax, Delhi Vs. Kelvinator of India Ltd. [2010] 320 ITR 561wherein it has been held that jurisdiction couldnot be conferred on the basis of mere change of opinion and it could not be aT@aSOnDer SEéto reopen assessments which had been finalised and change ofopinion was not relevant ground for reason to believe for issuance of notice underSection 147. Relevant observations read as under: “4. On going through the changes, quoted above, made to Section147 of the Act, we find that, prior to Direct Tax Laws (Amendment)Act, 1987, re-opening could be done under above two conditionsand fulfillment of the said conditions alone conferred jurisdiction onthe Assessing Officer to make a back assessment, but in section147 of the Act [with effect from 1st April, 1989], they are given a go-by and only one condition nas remained, viz., that where theAssessing Officer has reason to believe that income has escapedassessment, 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 the words"reason to believe" failing which, we are afraid, Section 14/7 woulgive arbitrary powers to the Assessing Officer to re-openassessments on the basis of "mere change of opinion", whichcannot be per se reason to re-open. VWe must also keep In minthe conceptual difference between power to review and power tore-assess. The Assessing Officer has no power to review; he hasthe power to re-assess. But re-assessment nas to be based onfulfillment of certain pre-condition and if the concept of "change ofopinion’ is removed, as contended on behalf of the Department,then, in the garb of re-opening the assessment, review would takeplace. One must treat the concept of "change of opinion" as an in-built test to check abuse of power by the Assessing Officer. Hence,after 1st April, 1989, Assessing Officer has power to re-open,provided there is tangible material’ to come to tne conclusion thatthere is escapement of income from assessment. Reasons musthave a live link with the formation of the belief. Our view getssupport from the changes made to Section 14/ of the Act, asquoted hereinabove. Under the Direct Tax Laws (Amendment) Act,1987, Parllament not only deleted the words reason to believe’ butalso inserted the word "opinion" in Section 147 of the Act. However,on receipt of representations from the Companies against omission -1() of the words reason to believe, Parliament re-introduced the saidexpression and deleted the word opinion on the ground that Itwould vest arbitrary powers in the Assessing Officer. We quotenereinbelow tne relevant portion of Circular No.549 dated 31stOctober, 1989, whicn reads as follows: -1() of the words reason to believe, Parliament re-introduced the saidexpression and deleted the word opinion on the ground that Itwould vest arbitrary powers in the Assessing Officer. We quotenereinbelow tne relevant portion of Circular No.549 dated 31stOctober, 1989, whicn reads as follows: "{.2 Amendment made by the Amending Act, 1989, toreintroduce the expression reason to believe’ in Section14/.--A number of representations were received against tneomission of the words reason to believe from Section 14/7and their substitution by the opinion’ of the AssessingOfficer. It was pointed out that the meaning of theexpression, reason to belleve nad been explained in anumber of court rulings in the past and was well settled andits omission from section 14/7 would give arbitrary powers tthe Assessing Officer to reopen past assessments on merechange of opinion. To allay these fears, the Amending Act,1989, has again amended section 14/ to reintroduce tneexpression has reason to believe’ in place of the words forreasons to be recorded by him in writing, is of the opinion’.Other provisions of the new section 14/7, however, remaithe same.reintroduce the expression reason to believe’ in Section14/.--A number of representations were received against tneomission of the words reason to believe from Section 14/7and their substitution by the opinion’ of the AssessingOfficer. It was pointed out that the meaning of theexpression, reason to belleve nad been explained in anumber of court rulings in the past and was well settled andits omission from section 14/7 would give arbitrary powers tthe Assessing Officer to reopen past assessments on merechange of opinion. To allay these fears, the Amending Act,1989, has again amended section 14/ to reintroduce tneexpression has reason to believe’ in place of the words forreasons to be recorded by him in writing, is of the opinion’.Other provisions of the new section 14/7, however, remaithe same. 5. For the aforestated reasons, we see no merit in these civilappeals filed by the Department, hence, dismissed with no order asto costs.|appeals filed by the Department, hence, dismissed with no order asto costs.| 17. 17.The reason for reopening, thus, being merely a change of opinion onaccount of the assessment being made for the subsequent years would not givethe AO the jurisdiction to reopen as he would, thus, be reviewing his earlierdecision which has been held not to be permissible. Thus, keeping in view theabove, writ petitions are allowed and the notice dated 27.03.2012 (Annexure P3)and the order dated 25.03.2013 (Annexure P1) are, accordingly, quashed, (S.J.Vazifdar) Acting Chief Justice (G.S.Sandhawalia) Judge