Date Of Judgment 31-07-2018 I.t.a v. M/S. Gmr Holdings Pvt. Ltd

IN THE HIGH COURT OF KARNATAKA, BENGALURU. DATED THIS THE 31 DAY OF JULY 2ZO18 PRESENT THE HON'BLE Dr. JUSTICE VINEET KOTHARI AND THE HON’BLE Mrs.JUSTICE S.SUJATHA| I.T.A.No.58/2012 BETWEEN: 1.|Commissioner of Income Tax, (Appeals)-I Central Revenue Buildings, Queens Road, Bengaluru — 560 OO1. 2 |The Deputy Commissioner of Income Tax, Circle-1(3), | Bengaluru. ... Appellan (By Mr. E.I. Sanmathi, Adv.) AND: M/s. GMR Holdings Pvt. Ltd.No.29/1, Skip House,Museum Road,Bengaluru — 560 O25. ...Respondent. (By Mr. K.S. Ramabadran, Adv.(Absent)) Date of Judgment 31-07-2018 I.T.A.No.58/2012 Commissioner of Income-tax & Anr. vs. M/s. GMR Holdings Pvt. Ltd. 2/16 This I.T.A is filed U/s.260A of I.T. Act, 1961,arising out of the order dated 31.10.2011 passed in ITA.No.1006/Bang/2010, for the assessment year 2003-04,praying to 1) formulate the substantial questions of lawstated therein; 11) set aside the common appellate orderpassed by the ITAT, ‘A’ bench, Bengaluru in ITANo.1006/Bang/2010 dated 31.10.2011, as sought for inthis appeal, in the interest of justice and equity. This I.T.A. coming on for Final Hearing this day,Dr. Vineet KothariJ. delivered the following:- JUDGMENT Mr.E.I. Sanmathi,Adv. for Appellants-RevenueMr.K.S. Ramabadran, Adv. torRespondent —Assessee (Absent) 1]Revenuehasfiled.thisappealraising purported substantial questions of law under Section260-A of the Income Tax Act, 1961 arising from theorder ot learned Tribunal dated 31.10.2011 in ITA!No.1006/Bang/2010 for the Assessment Year 2003- 3/16 2004 M/s.GMR Holdings Pvt. Ltd., vs. The DeputyCommissioner of Income Tax, Bengaluru. 2 |The learned Tribunal has held in favour otthe assessee in the impugned order that re-assessmentproceedings under Section 147/148 of the Income TaxAct, 1961 for the A.Y. 2003-2004 could not beundertaken on a mere change of opinion or auditObjection raised by the internal auditors of theDepartment. The Tribunal further held that the incomefrom “Dividends on Shares’ could not be taxed by theassessing authority under the head ‘Income from othersources’ as the business of the assessee itself was that|of investing in shares and securities and therefore, itwas taxable as business income. 3.|The learned Tribunal has also held that the|business loss of the assessee was set-olf against thecapital gains earned by the assessee during the said 4/16 year and therefore, one of the reasons given for re-assessment/reopening of assessment that the saidbusiness loss was not set-off against capital gains of theassessee was found to be factually incorrect. 4The relevant finding of the Income TaxAppellate Tribunal in the impugned order dated31.10.2011, is quoted below for ready reference: | “16.In the present case, the AO only afterhaving the|objection by the audit partytssued the notice u/s.148 of the Act- and inthe reasons recorded, henowhere stated thatincome of the assessee escaped assessment2he simply stated that the dividend income,interest income and other income imwere to bclassified as income under the head ‘incomefrom other sources’. However, in the precedingyear as well as subsequent year and even whileframing the original assessment for the yearunder consideration, the aforesaid incomes weretreated as business income while framing 4The relevant finding of the Income TaxAppellate Tribunal in the impugned order dated31.10.2011, is quoted below for ready reference: | “16.In the present case, the AO only afterhaving the|objection by the audit partytssued the notice u/s.148 of the Act- and inthe reasons recorded, henowhere stated thatincome of the assessee escaped assessment2he simply stated that the dividend income,interest income and other income imwere to bclassified as income under the head ‘incomefrom other sources’. However, in the precedingyear as well as subsequent year and even whileframing the original assessment for the yearunder consideration, the aforesaid incomes weretreated as business income while framing assessment u/s. 143(3) of the Act and the AOnot given any reason to deviate from the saidview while issuing the notice u/s. 148 of the Act.Assuming there was some mistake in _ thassessment order dated 30.12.05 and income ifany had been taken under a wrong head, thatmistake could have been rectified by issuingnotice u/s. 154 of the Act, however thereopening of the assessment by issuing thenotice u/s. 148 of the Act could have been doneonly when there was escapement of income. Inthe present case, the AO nowhere stated that theincome of the assessee escaped assessment andit was in his knowledge that income escapedassessment by fault of the assessee. In ouropinion, a mere change of opinion is_ notsufficient to issue notice u/s.148 of the Act forreassessingthe|income|by|invokingthe|provisions of section 147 of the Act. 17.|In the present case, another objectiontaken by the AO in the reasons recorded forreopening the assessment is that the assesseehad not set off business loss against the capital gains, which is contrary to the provisions of theAct. In our opinion, the said observation of theAO is totally wrong because the assessee hadset off the business loss against the income fromcapital gain and the provisions contained insection 71(2) of the Act clearly stipulates that theloss must be set off against the income, if any,assessable for that assessment year under anyhead of income including the head ‘capitalgains’, whether short term capital gain or longterm capital gain. The said provision reads asunder: “71 (2) Where in respect of anyassessment year, the net result of thecomputation under any head of income,other than “Capital gains”, is a loss andthe assessee has income assessqble|under the head “Capital gains”, suchloss may, subject to the provisions ofthis Chapter, be set off against hisincome, if any, assessable for thatassessment year under any head ofincome including the head “Capitalgains” (whether relating to short-term 7/16 capital assets or any other capital assets).” In view of the above, we are of the consideredview that the second objection of the AO in thereasons recorded for reopening the assessmentu/s. 147 of the act ts totally wrong.” LTT xxx| TS xxx! IQ xxx! QO xxx] QI.|In the present case also, the AO issuednotice u/s. 148 of the Act, only after the auditpartyraisedcertainobjections,thereforereopening was not valid in view of the ratio laiddown in the aforesaid referred to cases. ASregards the initiation of the proceedings for thereassessment u/s. 147 of the Act on the basis ofchange of opinion, the Hon’ble High Court ofDethi (Full Bench) inCIT, Dethi v. Kelvinatorof India Ltd. [2010] 187 Taxman 312 (SC)held as under: “In the event it is held that by reason ofsection 147 if the ITO exercises itsjurisdiction for initiating a proceedingforreassessmentonlyuUpormleT’change of opinion, the same may beheld to be unconstitutional. Section 147does not postulate conferment of powerupon the Assessing Officer to initiatereassessment proceeding upon his merechange of opinion.” The aforesaid case has been affirmed by theHon’ble Supreme Court as reported in [2010] 187Taxman 312 SC wherein it has been held asunder:| “In the event it is held that by reason ofsection 147 if the ITO exercises itsjurisdiction for initiating a proceedingforreassessmentonlyuUpormleT’change of opinion, the same may beheld to be unconstitutional. Section 147does not postulate conferment of powerupon the Assessing Officer to initiatereassessment proceeding upon his merechange of opinion.” The aforesaid case has been affirmed by theHon’ble Supreme Court as reported in [2010] 187Taxman 312 SC wherein it has been held asunder:| “Priortothe|Direct:TaxLaws(Amendment) Act, 1987, reopening couldbe done under two conditions viz., if (a)the ITO had reason to believe that, byreason of the omission or failure on thepart of an assessee to make a returnunder section 139 for any assessmentyear to the ITO or to disclose fully andtruly all material facts necessary for his 9/16 assessmentforthatYear, incomechargeableTo tax|had.escapedassessment for that year, or (b) the ITOhad in consequence of information in his:possessionTeCaASOtobelievethat|income chargeable to tax had escapedassessment for any assessment year.The fulfillment of the said conditionsalone conferred jurisdiction on theAssessing Officer to make a backassessment, but in section 147 of theAct with effect from 1-4-1989, thoseconditions are given a go-by and onlyone condition has remained, viz., wherethe Assessing Officer has reason tobeltevethatincomehas|escapedassessment, thesectionconfers jurisdiction to re-open the assessment.Therefore, post 1-4-1989, power to re-open is much wider. However, one.needs to give a schematic interpretationto the words “reason to believe” failingwhich section 147 would give arbitrarypowers to the Assessing Officer to re- open assessments on the basis of “merechange of opinion’, which cannot be perse reason to re-open. One must alsokeep in mind the conceptual differencebetween power to review and power to.re-assess. The Assessing Officer has nopower to review; he has the power to re-assess, but the reassessment has to bebasedOrtfulfilmentof|certainpreconditions and if the concept of‘change of opinion’ is removed, ascontended on behalf of the department,then in the garb of reopening theassessment, review would take place.One must treat the concept of ‘change ofopinion’ as an in-built test to checkabuse of power by the AssessingOfficer. Hence, after 1-4-1989, theAssessing Officer has power to re-open,provided there is ‘tangible material’ tocome to the conclusion that there itiescapement of income from assessment.UndertheDirectTax|Laws(Amendment) Act, 1987, the Parliament not only deleted the words ‘reason tobelieve’ but also inserted the tword‘opinion’ in section 147. However onreceipt of representations from thecompanies against omission of thewordsreasons|tobelieve’,theParliamentre-introducedthe|Said.expressionanddeletedthe|Word‘opinion’ on the ground that it wouldvest arbitrary powers in the AssessingOfficer.” DD?Recently, the Hon’ble Delhi High Court inthe case of CIT v. Modipon Ltd. in ITA No.5335 of2011 by following the aforesaid referred tojudgment of the Hon’ble Supreme Court in thecase of CIT v. Kelvinator of India Ltd. 320 ITRO61 (SC) has held vide order dated 21.3.2011 asunder: “ALIt is not in dispute that the re-assessment proceedings were initiatedby the AO on the basis of tax auditreport filed by the assessee in FormNo.3CD and on the basis of information not only deleted the words ‘reason tobelieve’ but also inserted the tword‘opinion’ in section 147. However onreceipt of representations from thecompanies against omission of thewordsreasons|tobelieve’,theParliamentre-introducedthe|Said.expressionanddeletedthe|Word‘opinion’ on the ground that it wouldvest arbitrary powers in the AssessingOfficer.” DD?Recently, the Hon’ble Delhi High Court inthe case of CIT v. Modipon Ltd. in ITA No.5335 of2011 by following the aforesaid referred tojudgment of the Hon’ble Supreme Court in thecase of CIT v. Kelvinator of India Ltd. 320 ITRO61 (SC) has held vide order dated 21.3.2011 asunder: “ALIt is not in dispute that the re-assessment proceedings were initiatedby the AO on the basis of tax auditreport filed by the assessee in FormNo.3CD and on the basis of information available in the Profit and Loss account.There was no reference to any newmaterial by the AO which had come intohis possession after the completion oforiginalassessment|undersection143(3) of the Act. It ts also a matter ofrecordthatbefore|initiatingre-assessmentproceedingsby|1SSUINGnotice under Section 148 of the Act, theAO had initiated proceedings undersection 154 of the Act for the samereasons and proceedings initiated undersection 154 were dropped by him ajterthe issuance of notice under Section 148and were thus pending on the date ofinttiationof|the|re-assessment§proceedings. In these circumstances, theTribunalwhilesettingaside.the|reassessment proceedings relied uponthe Full Bench Judgment of this Court in.the case of Kelvinator of India Ltd.(Supra)andquotedthe|followingpassage from the said judgment:XXX 13/16 5.Various other judgments are|also referred to by the Tribunal insupport of its aforesaid view. 6.In these circumstances, we donot find any substantial question of lawthat would arise for consideration inthis appeal. The appeal is devoid of anymerit and is accordingly dismissed. " QS.We therefore, by keeping in view the ratiolaid down by the various Hon’ble Courts in theaforesaid referred to cases, are of the view thatin the present case reopening u/s. 147 of the Actby the AO on the basis of change of opinion wasnotjustified. XXX| OO.In view of the aforesaid discussion,reopening wu/S.147 of the Act by issuingnotice u/s. 148 was not justified because|firstly, the AO nowhere mentioned in thereasons recorded that the income escapedassessment' and the view taken by the AO 14/16 while framing the original assessment U/S.143(3) of the Act vide order dated 30.12.2005was in consonance with the view taken in thepreceding as well as succeeding year. The saidview in respect of dividend income and interestincome which were treated as business incomewas in consonance with the view taken in thepreceding as well as succeeding year whereinthe assessment was also framed u/s. 143 (3) ofthe Act. Secondly, the reopening was made onthe basis of objection of the audit party and noindependent application of mind was there bythe AO. Furthermore, the second limb of reasonsrecorded by the AO that no loss for the sameassessment year was adjusted against the longterm capital gains was contrary to the factualmatrix. Therefore, considering the totality of thefacts as discussed in the former part of thisorder and in view of the various judicialpronouncements mentioned hereinabove, we areof the considered view that the notice tssuedu/s. 148 of the Act for reopening the assessmentu/s. 147 of the Act in the present case was notjustified. In that view of the matter, the reassessment framed by the AO on the basis ofinvalid notice is set aside. 31.)Since we have decided the legal issuerelating to reopening u/s. 147 of the Act infavour of the assessee and reassessment orderframed on the basis of notice under section 148is set aside, no findings are given on the othergrounds raised by the assessee on merits.” reassessment framed by the AO on the basis ofinvalid notice is set aside. 31.)Since we have decided the legal issuerelating to reopening u/s. 147 of the Act infavour of the assessee and reassessment orderframed on the basis of notice under section 148is set aside, no findings are given on the othergrounds raised by the assessee on merits.” 5Havingheardthelearnedcounselfor.Revenue, we are satisfied that no substantial questionof law arises in the present case requiring our furtherconsideration in the matter. Learned ‘Tribunal hasarrived at reasonable and sustainable findings based onrelevant materials and alter citing several judgments ofother High Courts as well as Hon’ble Supreme Courtdiscussing|thesroundsOT]whichsuch.Te-assessment/reopening can be undertaken and whencannot be undertaken, on the basis of mere audit Date of Judgment 31-07-2018 I.T.A.No.58/2012 Commissioner of Income-tax & Anr. vs. M/s. GMR Holdings Pvt. Ltd. 16/16 Objection raised by the internal auditors of theDepartment. 6. In view of this, there is no merit in thepresent appeal filed by the Revenue. Hence, it is liableto be dismissed. Accordingly, the appeal isdismissed Copy of this order be sent to the Respondent-Assessee forthwith. Sd/-. JUDGE Sd/- JUDGE