Https://Hcservices.ecourts.gov.in/Hcservices v. Income Tax Officer

IN THE HIGH COURT OF JUDICATURE AT MADRAS Dated: 23.01.2020 CORAM THE HONOURABLE DR. JUSTICE ANITA SUMANTHW.P. No.23768 of 2018andWMP. Nos.27723 to 27725 of 2018 M/s.Shivsu Canadian Clear Waters LimitedRepresented by Mr.C.Satish Kumar ...PetitionerVs Income Tax Officer,Corporate Ward 6(2),Room No.504, Wanaparthy Block, 5th Floor,121, MG Road, Nungambakkam,Chennai 600 034. ... Respondent Prayer: PETITION filed under Article 226 of The Constitutionof India praying for the issuance of Writ of CertiorarifiedMandamus, calling for the records of the Respondent containedin its notice issued under Section 148 of the Income Tax Act,1961, for PAN: , for the assessment year 2014-15,dated 17.08.2017, and all proceedings in furtherance thereof,including but not limited to the order dated 14.08.2018 passedby the Respondent disposing of the petitioner's objection tothe re-opening of the income tax assessment for the assessmentyear 2014-15, and to quash the same as arbitrary, unjust andillegal, and to consequently forbear the Respondent from inany manner reassessing the Petitioner's income under Section147 of the Income Tax Act, 1961, for the Assessment Year 2014-15. For Petitioner : Mr.Suhrith Parthasarathy For Respondents : Mr.ANR.Jayapratap, Standing Counsel https://hcservices.ecourts.gov.in/hcservices/ The petitioner challenges proceedings for re-assessment inrespect of Assessment Year 2014-15 commencing with notice forre-opening issued under Section 148 of the Income Tax Act,1961 (in short 'Act') dated 17.08.2017 and all subsequentproceedings. The petitioner had filed a return of incomewithin time that was accompanied by relevant financials. Thenotes on accounts detail the reserves and surplus position asfollows: 2. The assessment was taken up for scrutiny by issue ofnotice under Section 143(2) and questionnaire under Section142(1). After discussion of all relevant issues, an order ofassessment under Section 143(3) came to be passed on30.12.2016, wherein at paragraph 2 (internal page No.2 of theassessment order), the Officer deals with the share premium onthe first lot of 1,00,000 shares. An addition under Section56(2) (viib) came to be made in this regard. The petitionerstates that the order of assessment is under challenge by wayof statutory appeal. 3. While this is so, a notice under Section 148 of the Actwas issued on 17.08.2017. Admittedly, this notice has beenissued within a period of four years from the end of therelevant assessment year. The assessee, on 28.10.2017 compliedwith the notice under Section 148 and sought the reasons, onthe basis of which the re-assessment had been initiated.Reasons were supplied, which read as follows: 'It is seen from the records that during the F.Yrelevant to AY 2014-15 the assessee has issued on2,17,870 numbers of 3% cumulative convertiblepreference shares of face value of Rs.10/- each, atpremium of Rs.488/- per share. However, the market https://hcservices.ecourts.gov.in/hcservices/ value of each shares calculated as per Rule 11UA(2)(a) the I.T rules is Rs.2520 /- only. Theconsideration received from issue of shares thatexceeds the face value of such shares requires to beassessed to tax u/s. 56(2) (viib) of the I.T. Act.This was omitted to be considered in the assessmentorder U/s.143(3) of the I.T. Act dated 30.12.2016' 'It is seen from the records that during the F.Yrelevant to AY 2014-15 the assessee has issued on2,17,870 numbers of 3% cumulative convertiblepreference shares of face value of Rs.10/- each, atpremium of Rs.488/- per share. However, the market https://hcservices.ecourts.gov.in/hcservices/ value of each shares calculated as per Rule 11UA(2)(a) the I.T rules is Rs.2520 /- only. Theconsideration received from issue of shares thatexceeds the face value of such shares requires to beassessed to tax u/s. 56(2) (viib) of the I.T. Act.This was omitted to be considered in the assessmentorder U/s.143(3) of the I.T. Act dated 30.12.2016' 4. The Assessing officer in the impugned proceedings seeksto bring to tax the second lot of shares numbering 2,17,870details of which were available on record even at the time oforiginal proceedings. The petitioner thus raised an objectionto assumption of jurisdiction in line with the procedureprescribed in GKN Driveshafts (India) Limited V. Income TaxOfficer and others (259 ITR 1) which came to be rejected byorder of the respondent dated 14.08.2018. The AssessingAuthority, in rejecting the objections raised, relies on theprovisions of Section 147 of the Act pointing out that he has'reason to believe' that the income in relation to 2,17,870shares has escaped assessment insofar as the computation offair market value of the shares was, according to the Officer,incorrect. He relies on the judgment of the Supreme Court inthe case of Assistant Commissioner of Income Tax V. RajeshJhaveri Stock Brokers (P) Ltd. (291 ITR 500) and the decisionof the Delhi High Court in the case of Consolidated Photo &Finvest Ltd. V. Asstt. CIT [(2006) 151 Taxman 41 (Delhi)].It is as against the aforesaid proceedings dated 14.08.2018that the present Writ Petition is filed. 5. The impugned proceedings have no doubt, been initiatedwithin a period of four years. However, there is, admittedlyno tangible or fresh material that has come to the notice ofthe Assessing Authority and this is an admitted fact as may beseen from the reasons that have been extracted elsewhere inthis order. The relevant phrase in Section 147 is 'reason tobelieve', and it has been the consistent stand of the SupremeCourt that such reason must emanate from tangible or newmaterial that has come to the notice of the Assessing Officerand should not tantamount to review of the material alreadyavailable on record. If this were to be permitted, therewould be no end to the number of times when successiveofficers might apply and re-apply their mind to the same stalematerial coming to different conclusions every time. 6. In the present case, the financials annexed to thereturn of income disclose two lot of shares, one numbering1,00,000 and second numbering 2,17,870. The valuation thereofis also stated clearly. This has not escaped the attention of the Assessing Authority at the original instance and he has infact made a modification to the valuation of the first lot ofshares. For reasons best known to him, the second lot hasbeen left untouched. Admittedly, there is no material thathas come to the notice of the Assessing Authority in 2018 towarrant re-assessment. The proceedings impugned before me arethus nothing but a change of opinion, impermissible in law. 7. A Full Bench of the Delhi High Court in the case of CITV. Kelvinator of India Limited ((2002) 256 ITR 1) went intothe question of whether a re-assessment that is nothing but achange of opinion on available facts is permissible and withinthe contours of the Act and held as follows: the Assessing Authority at the original instance and he has infact made a modification to the valuation of the first lot ofshares. For reasons best known to him, the second lot hasbeen left untouched. Admittedly, there is no material thathas come to the notice of the Assessing Authority in 2018 towarrant re-assessment. The proceedings impugned before me arethus nothing but a change of opinion, impermissible in law. 7. A Full Bench of the Delhi High Court in the case of CITV. Kelvinator of India Limited ((2002) 256 ITR 1) went intothe question of whether a re-assessment that is nothing but achange of opinion on available facts is permissible and withinthe contours of the Act and held as follows: ' 40. In the event it is held that by reasonof Section 147 if ITO exercises its jurisdiction forinitiating a proceeding for re-assessment only uponmere change of opinion, the same may be held to beunconstitutional. We are therefore of the opinionthat Section 147 of the Act does not postulateconferment of power upon the Assessing Officer toinitiate re-assessment proceeding upon his mere changeof opinion.41. We, however, may hasten to add that if "reason tobelieve" of the assessing Officer if founded on aninformation which might have been received by theAssessing Officer after the completion of assessment,it may be a sound foundation for exercising the powerunder Section 147 read with Section 148 of the Act. 42. We are unable to agree with the submission of Mr.Jolly to the effect that the impugned order ofreassessment cannot be faulted as the same was basedon information derived from the tax audit report. Thetax audit report had already been submitted by theassessed. It is one thing to say that the AssessingOfficer had received information from an audit reportwhich was not before the ITO, but it is another thingto say that such information can be derived by thematerial which had been supplied by the assessedhimself. 43. We also cannot accept submission of Mr. Jolly tothe effect that only because in the assessment order,detailed reasons have not been recorded on analysis ofthe materials on the record by itself may justify theAssessing Officer to initiate a proceedingunder Section 147 of the Act. The said submission isfallacious. An order of assessment can be passedeither in terms of Sub-section (1) of Section 143 orSub-section (3) of Section 143. When a regular orderof assessment is passed in terms of the said Sub- section (3) of Section 143 a presumption can be raisedthat such an order has been passed on application ofmind. It is well known that a presumption can also beraised to the effect that in terms of Clause (e)of Section 114 of the Indian Evidence Act the judicialand official acts have been regularly performed. If itbe held that an order which has been passedpurportedly without anything further, the same wouldamount to giving premium to an authority exercisingquasi judicial function to take benefit of its ownwrong.' 8. This decision has been affirmed by the Supreme Court inCIT V. Kelvinator of India Limited ((2010) 320 ITR 561) wherethe Bench states as follows: section (3) of Section 143 a presumption can be raisedthat such an order has been passed on application ofmind. It is well known that a presumption can also beraised to the effect that in terms of Clause (e)of Section 114 of the Indian Evidence Act the judicialand official acts have been regularly performed. If itbe held that an order which has been passedpurportedly without anything further, the same wouldamount to giving premium to an authority exercisingquasi judicial function to take benefit of its ownwrong.' 8. This decision has been affirmed by the Supreme Court inCIT V. Kelvinator of India Limited ((2010) 320 ITR 561) wherethe Bench states as follows: ' On going through the changes, quoted above, madeto Section 147 of the Act, we find that, prior toDirect Tax Laws (Amendment) Act, 1987, re-openingcould be done under above two conditions andfulfillment of the said conditions alone conferredjurisdiction on the Assessing Officer to make a backassessment, but in section 147 of the Act [witheffect from 1st April, 1989], they are given a go-byand only one condition has remained, viz., thatwhere the Assessing Officer has reason to believethat income has escaped assessment, confersjurisdiction to re- open the assessment. Therefore,post-1st April, 1989, power to re-open 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 ofopinion", which cannot be per se reason to re-open.We must also keep in mind the conceptual differencebetween power to review and power to re-assess. TheAssessing Officer has no power to review; he has thepower to re-assess. But re-assessment has to bebased on fulfillment of certain pre-condition and ifthe concept of "change of opinion" is removed, ascontended on behalf of the Department, then, in thegarb of re-opening the assessment, review would takeplace. One must treat the concept of "change ofopinion" as an in-built test to check abuse of powerby the Assessing Officer. Hence, after 1st April,1989, Assessing Officer has power to re-open,provided there is "tangible material" to come to theconclusion that there is escapement of income fromassessment. Reasons must have a live link with theformation of the belief. Our view gets support from the changes made to Section 147 of the Act, asquoted hereinabove. Under the Direct Tax Laws(Amendment) Act, 1987, Parliament not only deletedthe words "reason to believe" but also inserted theword "opinion" in Section 147 of the Act. However,on receipt of representations from the Companiesagainst omission of the words "reason to believe",Parliament re-introduced the said expression anddeleted the word "opinion" on the ground that itwould vest arbitrary powers in the AssessingOfficer. We quote hereinbelow the relevant portionof Circular No.549 dated 31st October, 1989, whichreads as follows:"7.2 Amendment made by the Amending Act, 1989, toreintroduce the expression `reason to believe'in Section 147.--A number of representations werereceived against the omission of the words `reasonto believe' from Section 147 and their substitutionby the `opinion' of the Assessing Officer. It waspointed out that the meaning of the expression,`reason to believe' had been explained in a numberof court rulings in the past and was well settledand its omission from section 147 would givearbitrary powers to the Assessing Officer to reopenpast assessments 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.' 9. Reliance by the Officer to the judgement of the SupremeCourt is Rajesh Javeri (supra) does not advance his case asthe Supreme Court was, in that case, concerned with the re-assessment initiated in the case of an intimation passed interms of Section 143(1) of the Act and not an order ofscrutiny passed in terms of Section 143(3) thereof. Thenagain, his reliance upon the decision of the Delhi High Courtin Consolidated Photo (supra) is also clearly misplacedinsofar as a subsequent Bench of the Delhi High Court in thecase of KLM Royal Dutch Airlines V. Asst. Director of Income-tax ((2007) 292 ITR 49) has dissented from the view expressedby the Bench in Consolidated Photo (supra) pointing out thatthe judgment of the Supreme Court in Kelvinator (supra) andthe ratio thereof have been omitted to be taken intoconsideration in that decision. The relevant paragraph is asfollows: 12. The Full Bench of this Court in Commissionerof Income Tax v. Kelvinator of India Ltd. MANU/DE/2365/2002 : [2002] 256 ITR 1 had opined thatthe amendments introduced into Section 147 witheffect from 1.4.1989 have not altered the positionthat a mere change of opinion of the AO was notsufficient ground for embarking on a reassessment.Calcutta Discount was duly considered and applied bythe Full Bench. The Full Bench further observed thatan order of assessment must be presumed to have beenpassed by the AO concerned after due and properapplication of mind. In these circumstances thedecision of the Division Bench in Consolidated Photoand Finvest Ltd. v. Assistant Commissioner of IncomeTax MANU/DE/0424/2006 : [2006]281ITR394(Delhi) ,inasmuch as it is irreconcilable with the views ofthe Full Bench, must be held not to lay down thecorrect law. This is especially so since theassessment proceedings had not come to an end underthe first sub-section of Section 143, but under thethird Sub-section. A Division Bench of a particularHigh Court is fully bound by the view preferred by alarger Bench of that Court, regardless of the factthat another High Court prefers a different view inthis case that of the Gujarat High Court as in GruhFinance Ltd. v. Joint Commissioner of Income Tax(Assessment) MANU/GJ/0027/2000 : [2000]243ITR482(Guj), Praful Chunilal Patel v. M.J. Makwana, AssistantCIT MANU/GJ/0059/1998 : [1999]236ITR832(Guj) andGarden Silk Mills Ltd. v. Deputy CIT (No. 1),MANU/GJ/0030/1996 : [1996]222ITR27(Guj) . The FullBench of this Court has taken into consideration bothPraful Chunilal Patel as well as Garden Silk Mills.In Kelvinator the Full Bench had also analysed theearlier Division Bench decisions, namely, JindalPhoto Films Ltd. v. Deputy Commissioner of Income TaxMANU/DE/0729/1998 : [1998]234ITR170(Delhi) presidedover by R.C. Lahoti J. (as learned Chief Justice ofIndia then was) and Bawa Abhai Singh v. DeputyCommissioner of Income Tax MANU/DE/0302/2001 : [2002]253 ITR 83 comprising Arijit Pasayat and D.K. Jain(as their Lordships then were). It is quite possiblethat had the Court in Consolidated Photo been madeaware of the consistent opinion of this Court inJindal Photo and Bawa Abhai Singh, their conclusionmay have been totally different, notwithstandingalternative view of the Gujarat High Court.' 10. The existence of new and tangible material is ajurisdictional fact. This fact must necessarily exist inorder to validate the assumption of jurisdiction in law. TheSupreme Court in the case of Parashuram Pottery Works Co. Ltd. vs. Income Tax Officer, Circle I, Ward A, Rajkot (1977 AIR SC429) considered the power to re-open concluded assessmentsand, in an oft quoted paragraph, states as follows: 10. The existence of new and tangible material is ajurisdictional fact. This fact must necessarily exist inorder to validate the assumption of jurisdiction in law. TheSupreme Court in the case of Parashuram Pottery Works Co. Ltd. vs. Income Tax Officer, Circle I, Ward A, Rajkot (1977 AIR SC429) considered the power to re-open concluded assessmentsand, in an oft quoted paragraph, states as follows: '15. It has been said that the taxes are the pricethat we pay for civilization. If so, it is essentialthat those who are entrusted with the task ofcalculating and realisms that price shouldfamiliarise themselves with the relevant provisionsand become well versed with the law on the subject.Any remissness on their part can only be at the costof the national exchequer and must necessarilyresult in loss of revenue. At the same time, we haveto bear in mind that the policy of law is that theremust be a point of finality in all legalproceedings, that stale issues should not bereactivated beyond a particular stage and that lapseof time must induce repose in and set at restjudicial and quasi-judicial controversies as it mustin other spheres of human activity. So far asincome-tax assessment orders are concerned, theycannot be reopened on the score of income escapingassessment under Section 147 of the Act of 1961after the expiry of four years from the end of theassessment year unless there be omission or failureon the part of the assessee to disclose fully andtruly all material facts necessary for theassessment. As already mentioned, this cannot besaid in the present case.' 11. Though rendered in the context of a re-assessmentbeyond four years, the observations of the Court above, seenin the context of the march of the law, are equally applicablein the case of a review of assessment, couched as a re-assessment. Thus and in the light of the discussion as above,the impugned proceedings fail and are quashed. This WritPetition is allowed. No costs. Connected MiscellaneousPetitions are closed. sl Sub Assistant Registrar https://hcservices.ecourts.gov.in/hcservices/ To Income Tax Officer,Corporate Ward 6(2),Room No.504, Wanaparthy Block, 5th Floor, 121, MG Road, Nungambakkam,Chennai 600 034. +1cc to Mr.A.P.Srinivas, Advocate, S.R.No. 4708 W.P. No.23768 of 2018andWMP. Nos.27723 to 27725 of 2018CP(CO)Maya(28/05/2020)