Income Tax Appeal v. M/S. Balaji Neemuch Infrastructure Pvt Ltd

HIGH COURT OF MADHYA PRADESH : BENCH AT INDORE D.B.: HON'BLE MR. S. C. SHARMA ANDHON'BLE MR. VIRENDER SINGH, JJ INCOME TAX APPEAL No. 51 / 2018PRINCIPAL COMMISSIONER OF INCOME TAX, UJJAIN Vs. M/S. BALAJI NEEMUCH INFRASTRUCTURE PVT LTD INCOME TAX APPEAL No. 52 / 2018PRINCIPAL COMMISSIONER OF INCOME TAX, UJJAIN Vs. M/S. BALAJI NEEMUCH INFRASTRUCTURE PVT LTD A N D INCOME TAX APPEAL No. 53 / 2018PRINCIPAL COMMISSIONER OF INCOME TAX, UJJAIN Vs. M/S. BALAJI NEEMUCH INFRASTRUCTURE PVT LTD * * * * * O R D E R( 21/02/2019) PER : S. C. SHARMA, J:- Regard being had to the similitude in the controversyinvolved in the present cases, the appeals were analogouslyheard and by a common order, they are being disposed of by --- 2 --- this Court. Facts of I.T.A.No. 51 / 2018 are narratedhereunder. The present appeal filed u/S. 260A of the Income TaxAct, 1961 is arising out of order dated 27/09/2017 passed bythe Income Tax Appellate Tribunal, Bench Indore inI.T.A.No. 918/Ind/2016 (assessee's appeal) for theassessment year 2007 – 2008. The brief facts of the case, as reflected from the record,reveals that the respondent – assessee is a Company derivingits income from road construction activity. The assesseeCompany filed its return of income and declared totalincome of Rs. NIL on 1/10/2007. The original assessmentu/S. 143(3) was completed on 22/9/2009 demanding thetotal income of Rs.3,94,600/-. A notice u/S. 148 of the Income Tax Act, 1961 wasissued on 13/1/2014 and the assessment u/S. 143(3) readwith Sec. 147 was completed on 18/3/2015 assessingincome of Rs.38,16,851/-. The Assessing Officer, while passing the aforesaidorder, made an addition of Rs.34,22,251/- on account of disallowance u/S. 80IA(4) on the ground that a person whoexecutes a work contract is not eligible to claim deductionu/S. 80IA of the Income Tax Act, 1961. It was held by theAssessing Officer that the assessee is a Contractor who isengaged in the construction work in respect of a Project onbehalf of the developer and earns profit at various stages ofthe construction and does not have stakes in the financialviability of the project. The Assessing Officer held that he isbeing paid regularly for the work done by him and at nostage of work it owns any of the projects. The AssessingOfficer held that the assessee is not a developer within themeaning of Sec. 80IA of the Income Tax Act, 1961 and,therefore, will not be eligible for tax benefits u/S. 80IA. The assessee being aggrieved by the order passed by theAssessing Officer has preferred an appeal before theCommissioner of Income Tax (Appeals) and the CIT(A) videorder dated 21/7/2016 has dismissed the appeal of the assessee.The assessee has thereafter preferred an appeal before theIncome Tax Appellate Tribunal and the Tribunal has quashedthe re-assessment order. The Income Tax Appellate Tribunalvide order dated 27/9/2017 has held that there was no new material before the Assessing Officer for assumption of validjurisdiction for initiation of re-assessment proceedings andreopening of assessment u/S. 147 / 148 of the Act. It was alsoheld that reopening was done based upon the same materialwhich was before the Assessing Officer during the regularassessment proceedings and there was no new tangible material.The Tribunal has also held that mere change of opinion does notpermit the assessing officer to reopen the assessmentproceedings. 11.On careful consideration of the above rivalsubmisions, first of all, we observe that in the present casepertaining to the assissment year 2007-08 the reasons forissuing notice under section 148 of the Act have beenrecorded on 13-1-2014 i.e. Beyond four years. For the sakeof completeness in our findings, the reasons are beingreproduced below :- "Reasons for issuing notice u/s 148 of the IT Act, 1961 11.On careful consideration of the above rivalsubmisions, first of all, we observe that in the present casepertaining to the assissment year 2007-08 the reasons forissuing notice under section 148 of the Act have beenrecorded on 13-1-2014 i.e. Beyond four years. For the sakeof completeness in our findings, the reasons are beingreproduced below :- "Reasons for issuing notice u/s 148 of the IT Act, 1961 1.In this case the return of income was filed by theassessee on 01-10-2007 declaring total income of Rs. NIL.Assessment u/s 143(3) of the IT Act, 1961 was completedon 22-09-2009 at a total income of Rs. 3,94,600/-. Theassessee Company is a contractor and is engaged in thework of Road Construction. 2.In the return of income an amount of Rs. 34,22,251/-was claimed by the assessee as deduction u/s 80IA. 3.From the assessment record it is noticed that theassessee has credited an amount of Rs. 7,10,297/- as 'otherincome' in the profit and loss account. This amount includesinterest on Fixed Assets Rs. 7,00,327/- and interest fromother at Rs. 9.970/-. The assessee has shown GrossContractual Receipt at Rs. 7,35,65,907/-. Thus, the totalreceipts of Rs. 7,42,76,204/- has been shown by the assesseein the profit and loss account. After debiting the variousexpenses, the assessee has shown profit of Rs. 34,81,471/-.Thus, the profit shown by the assessee is inclusive of the --- 5 --- income shown as 'other income' amounting to Rs.7,10,297/-. 4.The assessee has shown in the computation of incomean amount of Rs. 34,22,251/- as Gross total income aftermaking necessary adjustments in respect of the depreciation.An amount of Rs. 34,22,251/- is clamed by the assessee asdeduction u/s 80IA in respect of 'Developing InfrastructureFacility' and has accordingly shown Nil income in its returnof income. 5.It is thus clear that the Gross Profit shown by theassessee at Rs. 34,22,251/- which is claimed as deductionu/s 80IA, is inclusive of the indcome from Other Sourcessamounting to Rs. 7,10,297/-. Thus, the assessee has claimedexcess deduction u/s 80IA in respect of the income fromOther Sources amounting to Rs. 7,10,297/-. 6-.................................It is also held by the Hon'bleSupreme Court that duty drawback DEPB benefit in theP&L A/c for purpose of s. 80IA/80IB as such remissions(credits) would constitute independent source of incomebeyond the first degree nexus between profits and theindustrial undertaking. 7.Thus, I have reason to believe that income amountingto Rs. 7,10,297/- has escaped assessment in the meaning ofsection 147 of the Income Tax Act, 1961. 8.Hon'ble Commissioner of Income Tax, Ujjain, hasrecorded sanction u/s 151(1) of the IT Act, 1961 for issue ofnotice u/s 151(1) of the IT Act, 1961 for issue of noticde u/s148 for the A.Y. 2007-08 though letter F. No.CIT/UJN/TECH/147/2013-14/6197 dated 09.01.2014. " 12.On careful and vigilant perusal of the above reasons,we clearly observe that there is no indication in the reasonsrecorded about the failure on the part of the assessee todisclose fully and truly all material facts necessary for itsassessment. From para 2 original assessment order weobserve that the Assissing Officer has allowed claim of theassessee after calling for required specific information andverifying and examining the same. From the reasonsrecorded, we are unable to see any new fact, document orevidence before the Assessing Officer as new tangiblematerial was not before the Assessing Officer as newtangible material was not before the Assessing Officerduring the original assessment proceedings. Therefore, it is aclear case of change of opinion. 13.In the case of Haryana Acrylic Manufacturing Co.(supra) the Hon'ble Delhi High Court held as under :- ''25. We shall now discuss whether the petitioner had failed 13.In the case of Haryana Acrylic Manufacturing Co.(supra) the Hon'ble Delhi High Court held as under :- ''25. We shall now discuss whether the petitioner had failed to disclose fully and truly all material facts necessary for hisassessment. We would like to reiterate that the decision ofthe Supreme Court in the case of Phool Chand (supra) wasin the context of Section 147 of the said Act prior to theamendment introduced with effect from 01.04.1989. InPhool Chand (supra), the Supreme Court noted that anAssessing Officer may start reassessment proceedings eitherbecause some fresh facts had come to light which were notpreviously disclosed or some information with regard to thefacts previously disclosed comes into his possession whichtends to expose the truthfulness of those facts. The SupremeCourt observed that in such situations, it is not a case ofmere change of opinion or the drawing of a differentinference from the same facts as were earlier available, but,one of acting on fresh information. These observations weremade in the context of Section 147 as it stood prior to theamendment of 01.04.1989. Both the provisions, prior to andafter the 1989 amendment, have already been extractedabove. Clause (a) of Section 147 as it stood prior to the saidamendment, empowered the Income Tax Officer to initiatereassessment proceedings provided he had reason to believethat by reason of omission or failure on the part of anassessee to make a return under Section 139 for anyassessment year or to disclose fully and truly all materialfacts necessary for his assessment for that year, incomechargeable to tax had escaped assessment for that year. Onthe other hand, Clause (b) of Section 147 provided thatnotwithstanding that there had been no omission of failureas mentioned in Clause (a) on the part of the assessee, if theIncome Tax Officer had in consequence of information inhis possession, reason to believe that income chargeable totax had escaped assessment, he could initiate reassessmentproceedings. Thus, reassessment proceedings could beinitiated if the conditions specified in either Clause (a) orClause (b) were satisfied. It must also be noted that prior to1989, the time limit for issuance of notice under Section 149was also different. In cases falling under Clause (a) ofSection 147, the limitation was eight years from the end ofthe relevant assessment year unless the income chargeable totax, which had escaped assessment, amounted to or waslikely to amount to Rs 50,000/- or more for that year, inwhich case the period was 16 years. In respect of casesfalling under Clause (b) of Section 147, the period oflimitation for issuing a notice under Section 148 was fouryears from the end of the relevant assessment year. Thus, thetime limit for issuing a notice under Section 148 where theIncome Tax Officer merely had information in hispossession to believe that income chargeable to tax hadescaped assessment was four years from the end of the relevant assessment year. On the other hand where theIncome Tax Officer had reason to believe that incomechargeable to tax had escaped assessment for any year andthat such reason to believe was occasioned by the omissionor failure on the part of an assessee to either file a return orto disclose fully and truly all material facts necessary for hisassessment for that year, the period of limitation was eithereight years or 16 years depending on whether the incomesaid to have escaped assessment was less or more than Rs50,000/- for that year. But, if a notice under Section 148 wascontemplated within the period of four years from the end ofthe relevant assessment year, then it could have been issuedon the ground of provisions of Clause (a) or (b) of Section147 as it then stood. When a notice issued within this periodwas under contemplation, then despite there being no failureto disclose fully and truly all material facts, the Income TaxOfficer would still have had the power to initiate actionunder Section 147 if he had reason to believe that incomechargeable to tax had escaped assessment for anyassessment year in consequence of information in hispossession. It is necessary to understand the decision of theSupreme Court in Phool Chand (supra) in the light of theseprovisions. In Phool Chand (supra), the question ofinformation or subsequent information and the question offull and true disclosure have been intermingled inasmuch asthe question of limitation was not at all in consideration.Clause (b) of Section 147 was non-obstante the requirementsof Clause (a) thereof which is triggered, inter alia, by failureon the part of the assessee to disclose fully and truly allmaterial facts necessary for his assessment. Therefore, whenthe notice under Section 148 is contemplated within theperiod of four years, notwithstanding the non-applicabilityof Clause (a) of Section 147, Clause (b) could apply if theIncome Tax Office has information in his possession leadingto give him reason to believe that income chargeable to taxhad escaped assessment. 26. The provisions of Section 147 after the 1989 amendmentare somewhat different. Section 147 after the amendmentdoes not contain any expression pertaining to information inthe possession of the Income Tax Officer. The onlyrequirement is that the Assessing Officer has to have reasonto believe that income chargeable to tax has escapedassessment. The proviso is by way of an exception to thisprovision. The proviso also does not speak of anyinformation. This discussion makes it clear that the ratio inPhool Chand (supra) would not be strictly applicable to thiscase which relates to the provisions of Section 147 after theamendment of 1989. 14.In view of the above, as we have already noted that inthe reasons there is no indication that the assessee failed tofurnish truly and fully all material facts necessary forassessment, therefore, respectfully following the decision ofthe Hon'ble Delhi High Court in the case of Haryana AcrylicManufacturing Co. (supra), we hold that the initiation ofreassessment proceedings and reopening under section147/148 of the Act was bad in law. 15.In the case of CIT vs. Fujistu Optel Ltd (supra) theirLordships speaking for the Hon'ble jurisdictional HighCourt, held as follows :- 14.In view of the above, as we have already noted that inthe reasons there is no indication that the assessee failed tofurnish truly and fully all material facts necessary forassessment, therefore, respectfully following the decision ofthe Hon'ble Delhi High Court in the case of Haryana AcrylicManufacturing Co. (supra), we hold that the initiation ofreassessment proceedings and reopening under section147/148 of the Act was bad in law. 15.In the case of CIT vs. Fujistu Optel Ltd (supra) theirLordships speaking for the Hon'ble jurisdictional HighCourt, held as follows :- 6. We have considered the case and find that it is a case inwhich after filing of the return by the assessee the matterwas scrutinized and on thorough examination of the facts,the initial assessment order was passed. On the basis ofsame set of facts, if the assessing officer was of the viewthat it was a case of escaped assessment, then it was a caseof change of opinion and not a case for reassessment. In thepresent case, there was no new material before the assessingofficer to record a finding that on the basis of some newmaterial, he had formed an opinion that it was a case ofescaped assessment and the assessee had not disclosed thefact truly and rightly. On the basis of the material on whichthe assessment order was passed, the assessing officer couldnot form another opinion that the original assessment orderwas an escaped assessment and case deserves to bereassessed under section 147(b), then it was a case of changeof opinion and not a case for reassessment as is requiredunder section 147(b) of the Act. In view of the aforesaid settled position, we are of the viewthat these appeals do not involve any substantial question oflaw for our consideration, devoid of any merit and aredismissed at admission stage, without notice to the otherside. 16.When we respectfully consider the ratio of thedecision of the Hon'ble jurisdictional High Court in the caseof Cit vs. Fujistu Optel Ltd (supra), the judgment of theHon'ble Delhi High Court in the case of CIT vs. Orient Craft(supra) then we are inclined to hold that in the present case,there wasa no new material before the Assessing Officer forassumption of valid jurisdiction for initiation ofreassessment proceedings and reopening the assessment u/s147/148 of the Act and the reopening was done on the same material which was before the Assessing Officer during theassessment proceedings and there was no new tangiblematerial Hence, reopening of assessment on the basis ofsame set of facts and material is a clear case of change ofopinion and initiation of reassessment proceedings andreopening without any new tangible material on the basis ofsame material is a case ofr change of opinion. The conceptof "change of opinion" has an in-built test to check abuse ofpower by the Assessing Officer. Therefore, after 1[st] April,1989 the Assessing Officer has power to reopen theassessment under section 147/148 of the Act provided thereis tangible material to come to the conclusion that there isescapement of income from assessment and the reasonsmust have a live-link with the formation of such believe thatescapement of income from assessment has been done. 17.In the present case we are satisfied that the contentionof the learned counsel for the assessee that initiation ofreassessment proceedings and reopening was done on thesame set of facts without any new tangible material.Therefore, the same is held as bad in law. Accordingly,ground nos. 1 and 1.1 of the assessee are allowed andinitiation of reassessment proceedings and issue of notice u/s148 of the Act and consequent proceedings includingreassessment order passed under section 143(3) read withsection 147 of the Act are held as unsustainable and bad inlaw, Consequently, we quash the same. This Court has carefully gone through the order passed 17.In the present case we are satisfied that the contentionof the learned counsel for the assessee that initiation ofreassessment proceedings and reopening was done on thesame set of facts without any new tangible material.Therefore, the same is held as bad in law. Accordingly,ground nos. 1 and 1.1 of the assessee are allowed andinitiation of reassessment proceedings and issue of notice u/s148 of the Act and consequent proceedings includingreassessment order passed under section 143(3) read withsection 147 of the Act are held as unsustainable and bad inlaw, Consequently, we quash the same. This Court has carefully gone through the order passed by the Tribunal. The aforesaid order makes it very clear thatreassessment proceedings by issuing notice u/S. 148 of the Actwere done merely on the basis of change of opinion. There wasno tangible material to arrive at a conclusion that there wasescapement of income by the assessment. Hon'ble the SupremeCourt in the case of Commissioner of Income Tax, Delhi Vs.Kelvinator of India Ltd., reported in [2010] 187 Taxman 312(SC), in paragraph 4 and 5 has held as under : 4.On going through the changes, quoted above,made to 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 [with effectfrom 1st April, 1989], they are given a go-by and onlyone condition has remained, viz., that where theAssessing Officer has reason to believe that income hasescaped assessment, confers jurisdiction to re- open theassessment. Therefore, post-1st April, 1989, power tore-open is much wider. However, one needs to give aschematic interpretation 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 re-open. We must alsokeep in mind the conceptual difference between powerto review and power to re-assess. The Assessing Officerhas no power to review; he has the power to re-assess.But re-assessment has to be based on fulfillment ofcertain pre-condition and if the concept of "change ofopinion" is removed, as contended on behalf of theDepartment, then, in the garb of re-opening theassessment, review would take place. One must treat theconcept of "change of opinion" as an in-built test tocheck 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 tothe conclusion that there is escapement of income fromassessment. Reasons must have a live link with theformation of the belief. Our view gets support from thechanges made to Section 147 of the Act, as quotedhereinabove. Under the Direct Tax Laws (Amendment)Act, 1987, Parliament not only deleted the words"reason to believe" but also inserted the word "opinion"in Section 147 of the Act. However, on receipt ofrepresentations from the Companies against omission ofthe words "reason to believe", Parliament re-introducedthe said expression and deleted the word "opinion" onthe ground that it would vest arbitrary powers in theAssessing Officer. We quote hereinbelow the relevantportion of Circular No.549 dated 31st October, 1989,which reads as follows: "7.2 Amendment made by the Amending Act, 1989, toreintroduce the expression `reason to believe' in Section147.--A number of representations were receivedagainst the omission of the words `reason to believe'from Section 147 and their substitution by the `opinion'of the Assessing Officer. It was pointed out that themeaning of the expression, `reason to believe' had beenexplained in a number of court rulings in the past andwas well settled and its omission from section147 would give arbitrary powers to the AssessingOfficer to reopen past assessments on mere change ofopinion. To allay these fears, the Amending Act, 1989,has again amended section 147 to reintroduce theexpression `has reason to believe' in place of the words`for reasons to be recorded by him in writing, is of theopinion'. Other provisions of the new section 147,however, remain the same." 5.For the afore-stated reasons, we see no merit inthese civil appeals filed by the Department, hence,dismissed with no order as to costs. The apex Court in the aforesaid case has held that the Assessing Officer has the power to reopen assessment providedthere is tangible material to come to a conclusion that there isescapement of income from assessment and the reason musthave a live link with formation of belief. The apex Court in the case of Indian & Eastern Newspaper Society Vs. Commissioner of Income Tax reported in [1979] 2 Taxman 197 (SC), in paragraph 14 has held as under : 14.Now, in the case before us, the Income Taxofficer had, when he made the original assessment,considered the provisions of sections 9 and 10. Anydifferent view taken by him afterwards on theapplication of those provisions would amount to achange of opinion of material already considered byhim. The Revenue contends that it is open to him to do so, and on that basis to reopen the assessmentunder section 147(b). Reliance is placed on KalyanjiMavji & Co. v. Commissioner of Income Tax, where aBench of two learned Judges of this Court observed thata case where income had escaped assessment due to the"oversight, inadvertence or mistake" of the Income Taxofficer must fall within section 34(1) (b) of the IndianIncome Tax Act, 1922. It appears to us, with respect,that the proposition is stated too widely and travelsfarther than the statute warrants in so far as it can besaid to lay down that if, on reappraising the materialconsidered by him during the original assessment, theIncome Tax officer discovers that he has committed anerror in consequence of which income has escapedassessment it is open to him to reopen the assessment. Inour opinion, an error discovered on a reconsideration ofthe same material (and not more) does not give him thatpower. That was the view taken by this Courtin Maharaj Kamal Singh v. Commissioner of IncomeTax (supra), Commissioner of Income Tax v.Raman and Company (supra) and Bankipur Club Ltd. v.Commissioner of Income Tax. and we do not believethat the law has since taken a different course. Anyobservations in Kalyanji Mavji & Co. v Commissionerof Income Tax (supra) suggesting the contrary do not,we say with respect, lay down the correct law. In the light of the aforesaid, in the present case as thereassessment proceedings were initiated on the basis of samematerial which was available before the Assessing Officer andmere change of opinion led to reassessment, which is certainlynot at all permissible in the light of the aforesaid judgment. Similar view has been taken in large number of cases byvarious High Courts, in the case of Yuvraj Vs. Union of Indiaand anotherreported in [2009] 315 ITR 84 (Bom.); Honda SielPower Products Ltd. Vs. Dy. Commissioner of Income Tax and --- 13 --- In the light of the aforesaid, in the present case as thereassessment proceedings were initiated on the basis of samematerial which was available before the Assessing Officer andmere change of opinion led to reassessment, which is certainlynot at all permissible in the light of the aforesaid judgment. Similar view has been taken in large number of cases byvarious High Courts, in the case of Yuvraj Vs. Union of Indiaand anotherreported in [2009] 315 ITR 84 (Bom.); Honda SielPower Products Ltd. Vs. Dy. Commissioner of Income Tax and --- 13 --- anotherreported in [2012] 340 ITR 53 (Delhi);PrincipalCommissioner of Income Tax Vs. RJD Impex (P) Ltd., reportedin [2016] 69 Taxmann.com 306 (Gujarat); and in the case ofCommissioner of Income Tax chennai Vs. A. Vinod KumarReddyreported in [2018] 96 Taxmann.com 287 (Madras) asalso by the Hon'ble Supreme Court in the case of Asstt.Commissioner of Income Tax Rs. Rajesh Jhaveri Stock BrokersPvt. Ltd., reported in [2007] 291 ITR 500 (SC) and in the caseof Honda Siel Power Products Ltd., Vs. Dy. Commissioner ofIncome Tax and another reported in [2012] 340 ITR 64 (SC),similar view has been taken time and again. The Department has certainly placed reliance upon ajudgment delivered by the Hon'ble Supreme Court of India inthe case of Kalyanji Mavji & Co., Vs. Commissioner of IncomeTax West Bengalreported in [1976] 102 ITR 287 (SC),however, the apex Court in the case of Indian & EasternNewspaper Society(supra) after taking into account thejudgment delivered in the case of Kalyanji Mavji(supra) hasheld that change of opinion does not empower the AssessingOfficer to reopen the assessment and, therefore, the judgmentrelied upon by the learned counsel is of no help to the KR --- 14 --- Department. In the light of the aforesaid, as no substantial question of law arises in the present case, the same is dismissed. The other connected appeals which are arising out ofdifferent financial years involving the same point, are alsodismissed as no substantial question of law arises. A copy of this order be placed in the record ofconnected appeals. (S. C. SHARMA)J U D G E (VIRENDER SINGH)J U D G E Digitally signed by Kamal Rathor Date: 2019.02.22 10:53:36 +05'30'