Ita/433/2011 Of The Commissioner Of Income Tax v. Bharatiya Reserve Bank Note

IN THE HIGH COURT OF KARNATAKA AT BENGALURU DATED THIS THE 11TH DAY OF AUGUST 2071 PRESENT| THE HON’BLE MR. JUSTICE ALOK ARADHE AND| THE HON’BLE MR.JUSTICE HEMANT CHANDANGOUDAR. LT.A. NO.433 OF 2011 BEITWEEN 1. THE COMMISSIONER OF INCOME-TA® JSS TOWERS BSK III STAGE, BANGALORE. 2. THE DY. COMMISSIONER OF INCOME- TAX JSS TOWERS, BSK III STAGE BANGALORE. ~ _.. APPELLANTS (BY SRI. K.V. ARAVIND, ADV.) AND BHARATIYA RESERVE BANK NOTEMUDRAN PVT. LID.,|NO.3 & 4, BTM LAYOUTNEAR JAL BHAVAN, LST STAGE1ST PHASE, BANNERGHATTA ROADBANGALORE-560079.(BY SRI. A. SHANKAR, SR. COUNSEL FORSRI. BHAIRAV KUTTAYYA, ADV.,) ... RESPONDENT THIS I.T.A. IS. FILED UNDER SECTION 260-A OFI.T.ACT, 1961 ARISING OUT OF ORDER DATED 15.07.2011PASSED IN ITA NO.1123/BANG/2010, FOR THE ASSESSMENTYEAR 2005-06, PRAYING TO: I. FORMULATE THE SUBSTANTIAL QUESTIONS OF LAW|STATED THEREIN.. II]. ALLOW THE APPEAL AND SET ASIDE THE ORDERSPASSED|BY|THE|ITAT,.BANGALORE.IN|ITANO.1123/BANG/2010 DATED:15.07.2011 AND CONFIRM THEORDER OF THE APPELLATE COMMISSIONER CONFIRMINGTHE ORDER PASSED BY THE DEPUTY COMMISSIONER OFINCOME TAX, LTU, BANGALORE, IN THE INTEREST OFJUSTICE AND EQUITY, THIS I.T.A. COMING ON FOR FURTHER HEARING, THIS|DAY,ALOK ARADHE J.,DELIVERED THE FOLLOWING: JUDGMENT This appeal under Section 260-A of the Income TaxAct, 1961 (hereinafter referred to as ‘the Act’, for short) has|been filed by the revenue. The subject matter of the appealpertains to the Assessment Year 2005-06. The appeal wasadmitted by a Bench of this Court on the _ followinsubstantial question of law: "Whether the Tribunel was correct in thefacts and circumstances of the case in holding:that the reopening of assessment is a merechange of opinion when the Assessing Officer hasnot recorded finding expressing any opinion onthe claim made by tne assessee and also as per the provisions of Section 14/7 of the Act andrecorded a perverse finding?” 2. Facts leading to filing of this appeal briefly stated are.tnat tne assessee is a company and is engaged in thebusiness of printing currency notes. The assessee filed the|return of income for the Assessment Year 2005-06 on28.10.2005 and declared a total income of Rs.62,48,47,8/0/-The return was processed under Section 143(1) of the Act on31.10.2006 and a refund of Rs.27,06,17,046/- was issued.Subsequently, the return filed by the assessee was selectedfor scrutiny and a notice under Section 143(2) of the Act wasissued on 25.09.2006. Tne Assessing Officer scrutinized thedetails furnished and completed the assessment. An order ofassessment was passed under Section 143(3) of the Act on2/.0/7.200/7. 3. The Assessing Officer thereafter reopened theassessment and issued a notice under Section 148 of tne Acton 30.09.2009. Tne assessee by a communication dated|13.10.2009 requested tne Assessing Officer to treat thereturn of income as return filed in response to notice under 3. The Assessing Officer thereafter reopened theassessment and issued a notice under Section 148 of tne Acton 30.09.2009. Tne assessee by a communication dated|13.10.2009 requested tne Assessing Officer to treat thereturn of income as return filed in response to notice under Section 148 of the Act and the assessee requested theAssessing Officer to furnish the reasons recorded forreopening the assessment. The Assessing Officer was of theopinion that during the year, the assessee has receivedRs.8,/75,99,696/-as|interest|onsecuritiesfromthe.Government Securities of India and against the aforesaidincome, assessee claimed a sum of Rs.3,84,40,542/- towardspremium paid to acquire the securities and offered netincome of Rs.4,91,59,154/- to tax. The Assessing Officerpassed an order dated 16.01.2010 by which a sum of|Rs.3,84,40,542/- was disallowed. The assessee thereuponpreferred an appeal before the Commissioner of Income Tax(Appeals), who by an order dated 22.07.2010 dismissed theappeal preferred by the assessee. The assessee thereuponfiled an appeal before the Tribunal. The Tribunal, by an|order dated 15.07.2011,inter allaneid that reopening of the.assessment under Section 14/7 read with Section 148 of theAct was on mere cnange of opinion and wnhneld thatre-assessment itself was bad in law. Accordingly, the appealpreferred by the assessee was allowed. In the aforesaidfactual background, this appeal has been filed. 3 Learned counsel for the revenue submitted that.proceedings for re-assessment were initiated under Section14/7 of the Act wnichn was in existence at tne relevant timand tne power under Section 147 could be invoked providedtne Assessing Officer had reason to believe that any incomechargeable to tax had escaped assessment. It is furthersubmitted that in the instant case, the Assessing Officer hadnot formed any opinion and the Tribunal therefore erred insetting aside the proceeding for re-assessment on theprinciple of change of opinion. It is further submitted that|the Tribunal ought to have appreciated that mere disclosureof the material before the Assessing Officer does not amountto formation of opinion. In support of aforesaid submission,reliance has been placed on the decision of the SupremeCourt in‘'ACIT Vs. RAJESH JHAVERI STOCK BROKERS(P) LID. (2007) 291 ITR O500 (SC), CIT Vs.KELVINATOR OF INDIA LTD. (2010) 320 ITR 561 (SC),"KALYANJI MAVJI & CO Vs. CIT’ (1976) 102 ITR 287(SC), INDIAN & EASTERN NEWSPAPER SOCIETY Vs.CIT’ (1976) 119 ITR 0996 (SC), ‘ALA FIRM Vs. CIT’ (1991) 189 ITR 285 (SC), ITO Vs. TECH SPAN INDIA|(P) LTD. (2018) sO2 CIR 74 (SC), CIT VI Vs. USHAINTERNATIONAL LTD." (2012) 348 ITR 485 (DELHI)AND ‘NDTV Vs. DEPUTY COMMISSIONER OF INCOMETAX (2020) 116 TAXMANN.COM 151 (SC). | 4. On the other hand, learned Senior counsel for theassessee submitted that the assessment was reopened Dy tne Assessing Officer only on account of mere change ofopinion, as to whether premium written off is an expenditureallowable under Section 5/7 of the Act. It is further submittedthat proceeding for re-assessment cannot be initiated onaccount of change of opinion and the contention of therevenue that Assessing Officer did not record a findingexpressing an opinion on the claim is untenable. It Is|tnerefore contended tnat notice issued under Section 148 oftne Act and the proceeding initiated pursuant thereto are |ab initio void. It is also urged that premium paid onGovernment of India securities which are held to maturity is to be amortized and therefore, the premium paid on theGovernment securities is required to be allowed. Even though the same may be under a different head yet it willhave any tax impact on the total income. In support ofaforesaid submission, reliance has been placed on the|decision of the Supreme Court in.CIT VS KELVINATOR OF| though the same may be under a different head yet it willhave any tax impact on the total income. In support ofaforesaid submission, reliance has been placed on the|decision of the Supreme Court in.CIT VS KELVINATOR OF| INDIA LTD (2010) 320 ITR 561 (SC) Cir VSKELVINATOR OF INDIA LTD (2002) 256 ITR 1 (DEL),CIT VS USHA INTERNATIONAL LTD (2012) 348 ITR 485(DEL), ALA FIRM VS CIT (1991) 189 ITR 673 (KAR),|DELLINDIA(P)LID,VSJCIT(2021)123|TAXMANN.COM 468 (KAR),ORACLE INDIA (P) LTD VSACIT (2017) 397 ITR 480, BANKIPUR CLUB LTD VS CIT(1971) 82 ITR 439 (KAR) 5. We have considered the submissions made on bothsides and have perused the record. Tne Supreme Court inKALYANJI MAVJI & CO.SUDIdheld as under: | "13. On a combined review of the decisions of thisCourt the following tests and _ principles woulapply to.determinetheapplicabilityof Section 34(1)(b) to the following categories of cases: (1) Where the information is as to tne true andcorrect state of the law derived from relevant Judicialdecisions; (2) Where in the original assessment the incomeliable to tax nas escaped assessment due tooversight, inadvertence or a mistake committed bythe Income Tax Officer. This is obviously based ontne principle that the tax- payer would not beallowed to take advantage of an oversight or mistakecommitted by the taxing autnority; (3) Where tne information is derived from anexternal source of any kind. Such external sourcewould include discovery of new and importantmatters or knowledge of fresh facts whicn were notpresent at the time of the original assessment; (4) Where the information may be obtained evenfrom tne record of the original assessment from aninvestigation of the materials on tne recora, or thefacts disclosed thereby or from otner enquiry or|research into facts or law. If these conditions areSatisfieqd then the [Income Tax Officer would havcompletejurisaiction|tOFEOPe?)theoriginalassessment, It is obvious that where the [Income TaxOfficer gets no subsequent information, but merelyproceeds to reopen the original assessment withoutany fresn facts or materials or without any enquiryinto the materiais which form part of tne original assessment,Section.34(1)(b)wouldhaveNo|application. A Full Bench of this Court In‘DELL INDIA PVT. LTD.Ys.JOINT|COMMISSIONEROF|INCOME-TAxX,BANGALORE’ (2021) 123 TAXMANN.COM 468 (KAR)dealt with the question whetner reason to believe in thecontext of Section 147 of the Income Tax Act can be based|on mere change of opinion of the Assessing Officer andanswered tne reference as follows: ‘17. Thus, wnat is neld by the Apex Court is that|when a power under Section 147 is to be exercised,concept of change of opinion must be treated as aninbuilt test to check abuse of power of the AssessingOfficer. Further, it is held that after 1st April 1989,the Assessing Officer has power to reopen providedthere is a tangible material to come to _ thconclusion that there is escapement of income from.assessment. Tne Apex Court neld tnat mere changeof opinion on consideration of the same material Is no ground to invoke Section 147 of tne said Act. 19. Therefore, in the light of law laid down in thecase of M/s. Indian and Eastern Newspaper Society(supra), tne first question will have to be answered| in the negative by nolding that the decision in tne|case of Rinku Chakraborthy does not lay down|correct position law to the extent to which it follows.wnat Is held in clause (2) of paragraph 13 of tne|decision of the Apex Court in the case of Kalyanji|Mavji and Company (supra). Tne second question|will have to be answered in the affirmative. In view|of tne consistent decisions of the Apex Court holdingthat “reason to believe in the context of Section|147 of the Income Tax cannot De based on mere|change of opinion of tne Assessing Officer, the third|question will nave to be answered in tne negative.In fact, in view of settled law, framing of questionNo.3 was not warranted at all.” in the negative by nolding that the decision in tne|case of Rinku Chakraborthy does not lay down|correct position law to the extent to which it follows.wnat Is held in clause (2) of paragraph 13 of tne|decision of the Apex Court in the case of Kalyanji|Mavji and Company (supra). Tne second question|will have to be answered in the affirmative. In view|of tne consistent decisions of the Apex Court holdingthat “reason to believe in the context of Section|147 of the Income Tax cannot De based on mere|change of opinion of tne Assessing Officer, the third|question will nave to be answered in tne negative.In fact, in view of settled law, framing of questionNo.3 was not warranted at all.” 6. In the instant case, the assessee at the time of filingthe original return of income on 28.10.2005, enclosed with itthe computation of income along with an annexure indicatingcomputation of net interest received from government|securities. Tne annexure clearly indicated the_ interestreceived from investment in government securities viz.,Rs.8,/5,99,696/- and premium written off during financial|year 2004-05 viz., Rs.3,84,40,542/-. The aforesaid returnwas processed under Section 143(1) of the Act on| 31.03.2006. The return thereafter was selected for scrutinyand the Assessing Officer passed an original order of assessment dated 27.07.2007. Thus, the details were placedbefore tne Assessing Officer, at the time of original|assessment and therefore, it is not possible to infer that theAssessing Officer nad not at all applied nis mind. TheSupreme Court in TECHSPANINDIAS PVT LTD supra has heldthat the use of the words ‘reason to believe’ in Section 147nas|CO peinterpretedscnematicallyas|tnejiperalinterpretation of the word would have the consequence of conferring arbitrary powers on the assessing officer wno mayeven initiate such re-assessment proceedings merely on hischange of opinion on the basis of same _ facts ancircumstances wnhicn has already been considered by himduring the original assessment proceedings. 7. From the order of assessment also, it is evident that|the Assessing Officer, on perusal of the record available withhim, came to a different conclusion and therefore, he cannot|be permitted to change his opinion. It is settled in law thatthe concept of ‘change of opinion’ is in-built test to check the abuse of power by the Assessing Officer. Thus, the initiationof the re-assessment proceedings on account of ‘change ofopinion’ is not permissible in law as the Assessing Officer hadexamined all the relevant material furnisned by the assesseeand had accepted the claim of the assessee. The Tribunal hastnerefore, rightly held that the re-opening of the assessment|is based on mere change of opinion by the Assessing Officer.For the afore mentioned reasons, the substantial question oflaw is answered in the negative and against the revenue. In the result, the appeal fails and is hereby dismissed. Sd/-JUDGESd/-JUDGE