M/S Raj Woollen Industries v. Commissioner Of Income Tax

IN THE HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARH ITA No. 23 of 2011 Date of Decision: 7.7.2011 M/s Raj Woollen Industries Versus Commissioner of Income Tax ....Appellant. ...Respondent. CORAM:-HON'BLE MR. JUSTICE ADARSH KUMAR GOEL,ACTING CHIEF JUSTICE. HON'BLE MR. JUSTICE AJAY KUMAR MITTAL. PRESENT: Mr. S.K. Mukhi, Advocate for the appellant. AJAY KUMAR MITTAL, J. 1.This appeal has been preferred by the assessee underSection 260A of the Income Tax Act, 1961 (in short “the Act”) againstthe order dated 14.5.2010 passed by the Income Tax AppellateTribunal, Delhi Bench “F”, New Delhi (hereinafter referred to as “theTribunal”) in ITA No. 331/DEL/2009, relating to the assessment year2002-03, claiming the following substantial questions of law:- “i).Whether, on the facts and circumstances of the case, the Tribunal was justified in confirming the veryissuance of notice u/s 148 of the Income Tax Act,1961, by the authorities below, as valid withoutappreciating the fact that all facts have been dulyissuance of notice u/s 148 of the Income Tax Act,1961, by the authorities below, as valid withoutappreciating the fact that all facts have been duly declared/disclosed in the return filed originally so thatthe issuance of notice will lead to change of opinionwhich is not warranted under any circumstances? ii)Whether, on the facts and circumstances of the case,the Tribunal was justified in confirming the veryissuance of notice u/s 148 of the Income Tax Act,1961, by the authorities below, as valid withoutappreciating the fact that all facts have been dulydeclared/disclosed in the return filed originally andeven probed u/s 154 of the Income Tax Act, 1961 sothat the issuance of notice will lead to change ofopinion which is not warranted under anycircumstances? iii)Whether, on the facts and circumstances of the case,the Tribunal was justified in confirming the veryissuance of notice u/s 148 of the Income Tax Act,1961, by the authorities below, as valid withoutappreciating the fact that all facts have been dulydeclared/disclosed in the return filed originally so thatthe issuance of notice on the basis of Audit Objectionwhich is not warranted under any circumstancesbeing against the trite law as held by Hon'bleSupreme Court of India in the case of PVS Bedies(P) Ltd. reported in 237 ITR 13 (SC), CIT v. LucasTVS Ltd. reported in (2001) 17 SITC 289 (SC)andIndian & Eastern New Paper Society v. CIT (1979) 119 ITR 96 (SC)? iv)Whether, on the facts and circumstances of the case,the Tribunal was justified in confirming the veryissuance of notice u/s 148 of the Income Tax Act,1961, by the authorities below, as valid withoutappreciating the fact that assessee has returnedLong Term Capital Gains on the sale of non-depreciable assets being land by applying CostInflation Index and after claiming exemption u/s 54ECof the IT Act which was as per the provisions ofIncome Tax Act? v)Whether the order of the Tribunal is perverse andagainst the provisions of law?” 2.Put shortly, the facts necessary for adjudication as narratedin the appeal are that the assessee-firm is engaged in the business ofmanufacturing carpet yarn and shoddy yarn and it filed its return ofincome on 30.10.2002 for the assessment year 2002-03 declaring anincome of Rs.8,13,270/-. The said return was processed under Section143(1) of the Act on 29.1.2003. On 3.11.2003, notice under Section154 of the Act was issued for correction of the error apparent fromrecord with the proposal to withdraw the indexation done on the capitalgain having arisen on the sale of the land and also to withdraw theexemption under Section 54EC of the Act alleging the capital gain to beshort term capital gain. Later on, the said notice was withdrawn andnotice under Section 148 of the Act was issued to the assessee on3.8.2006 on similar facts as that of notice under Section 154 of the Act. Thereafter, notice under Section 143(2) of the Act was issued to theassessee on 6.11.2006 and later on, the assessee was supplied a copyof the reasons recorded under Section 148 of the Act. The assesseewas directed to justify its claim of long term capital gain on the transferof depreciable assets instead of claiming short term capital gain. TheAssessing Officer rejected the claim of the assessee and passed theassessment order dated 27.9.2007 under Section 143(3)/147 of the Actwhile assessing the income at Rs.17,13,551/-. Penalty proceedingsunder Section 271(1)(c) of the Act were also initiated against theassessee separately. Feeling aggrieved, the assessee filed an appealbefore the Commissioner of Income Tax (Appeals) who vide orderdated 2.9.2008 dismissed the appeal holding that there was no changeof opinion of the Assessing Officer. Still dissatisfied, the assesseeapproached the Tribunal by way of an appeal. The Tribunal vide orderdated 4.2.2009 dismissed the appeal holding that reopening cannot besaid to be result of change of opinion as there was no formation ofopinion in the first place as the processing of return was done underSection 143(1) of the Act. The Tribunal further held that the assessee'sclaim of the land which was sold, remained unsubstantiated and thesame was contrary to the facts on record. Hence, the present appealby the assessee. 3.We have heard learned counsel for the assessee. 4.Learned counsel for the assessee submitted that theinitiation of proceedings for reassessment by issuance of notice underSection 148 of the Act was without jurisdiction as the same was basedon change of opinion. According to the learned counsel, the assessee had disclosed the entire facts in the original return filed and, therefore,no undeclared income could be there. He relied upon the followingjudgments:- I.Berger Paints India Ltd. v. ACIT [2010] 322 ITR369 (Cal);369 (Cal); II.Commissioner of Income Tax v. Kelvinator ofIndia Ltd. [2010] 320 ITR 561 (SC); andIndia Ltd. [2010] 320 ITR 561 (SC); and III.CIT v. Lucas TVS Ltd. [2001] 249 ITR 306 (SC). 5.Learned counsel also submitted that the notice was issuedon an audit objection raised by the department which was notpermissible. Further, it was argued by the learned counsel for theassessee that the revenue had taken recourse to Section 154 of the Acton the ground that the mistake apparent on the record existed.However, after dropping the said proceedings, action under Section 148of the Act was initiated. On the strength of the judgment of the CalcuttaHigh Court in Berger Paints India Ltd's case (supra), learned counselurged that no proceedings under Section 148 of the Act could beinitiated. Lastly, it was contended that the cost inflation index whichwas applied by the assessee on the sale of non-depreciable assets fordetermination of Long Term Capital Gain and thereafter claimingexemption under Section 54EC of the Act was in accordance with theprovisions of the Act. There was no occasion for the revenue to initiatereassessment proceedings as no income had escaped assessment. 6.From the submission made by learned counsel for theassessee, the following issues emerge which are required to beadjudicated in this appeal:- (a)Whether the reassessment proceeding in the presentcase is based on change of opinion and its effect?case is based on change of opinion and its effect? (b)Whether an audit objection could form basis ofinitiation of reassesment proceedings? (c)Whether revenue could take recourse toreassessment proceedings after having droppedproceedings under Section 154 of the Act? (d)Whether Cost Inflation Index applied by the assessee on non-depreciable assets for ascertaining LongTerm Capital Gain and exemption claimed underSection 54EC of the Act, resulted in any incomeescaping assessment? 6.From the submission made by learned counsel for theassessee, the following issues emerge which are required to beadjudicated in this appeal:- (a)Whether the reassessment proceeding in the presentcase is based on change of opinion and its effect?case is based on change of opinion and its effect? (b)Whether an audit objection could form basis ofinitiation of reassesment proceedings? (c)Whether revenue could take recourse toreassessment proceedings after having droppedproceedings under Section 154 of the Act? (d)Whether Cost Inflation Index applied by the assessee on non-depreciable assets for ascertaining LongTerm Capital Gain and exemption claimed underSection 54EC of the Act, resulted in any incomeescaping assessment? 7.We do not find any merit in the submission of the learnedcounsel for the assessee. Taking up first issue, the learned counsel forthe assessee was unable to show that there was any assessment orderwhich was passed by the revenue under Section 143(3) of the Act afterscrutinizing the return filed by the assessee. He, however, admittedthat the return was earlier processed under Section 143(1) of the Act.In such circumstances, in view of Explanation 1 to Section 147 of theAct, the disclosure made by the assessee did not amount to full andtrue disclosure. The question of change of opinion, thus, does not arise. 8.The judgments relied upon by the learned counsel do notadvance the case of the assessee as none of those cases was relatingto scrutiny cases under Section 143(3) of the Act wherein on the samematerial, the income was sought to be taxed which was earlier held tobe non-taxable. 9.In respect of second issue, on a specific question being putto the learned counsel for the assessee, he was unable to show thatany argument was raised before the Tribunal with regard to the initiationof proceedings under Section 148 of the Act on the basis of auditobjection. In the absence of any factual basis set up by the assessee tosubstantiate this plea, the substantial question of law as claimed by theassessee do not arise from the order of the Tribunal. 10.Adverting to third issue, it may be noticed that it is wellrecognized that under Section 154 of the Act, all mistakes apparent onthe face of the record can be rectified. The proceedings under Section154 of the Act were dropped in the instant case as it was noticed thatrectification proceedings were not possible unless there was mistakeapparent from record. It has no where been envisaged that initiation ofrectification proceedings and dropping thereof on technical groundsresults in any vested right in the assessee or results in passing of anassessment order. Once that is so, taking recourse to Section 147 ofthe Act for reassessment of income having escaped assessment cannotbe held to be beyond jurisdiction of the assessing authority. Thejudgment of Calcutta High Court in Berger Paints India Ltd's case(supra) relied upon by the learned counsel for the assessee, being onindividual fact situation involved therein is of no assistance to theassessee. The issue, thus, cannot be adjudicated in favour of theassessee. 11.Lastly, delving into the issue noticed above as to whetherany income had escaped assessment, it would be expedient to noticethe observations of the Tribunal. 12.The Tribunal on analyzing the material on record had cometo the conclusion that the income had escaped assessment. Therelevant findings recorded by the Tribunal repelling the contentions ofthe assessee in its order are as under:- 11.Lastly, delving into the issue noticed above as to whetherany income had escaped assessment, it would be expedient to noticethe observations of the Tribunal. 12.The Tribunal on analyzing the material on record had cometo the conclusion that the income had escaped assessment. Therelevant findings recorded by the Tribunal repelling the contentions ofthe assessee in its order are as under:- “6.8 Now in this we find that the assessment hasbeen reopened as the Assessing Officer on perusalof the records noticed that the assessee has shownlong term capital gain on the depreciable assets afterapplying Cost Inflation Index Method, after claimingexemption u/s 54EC of the IT Act instead of showingshort term capital gain, as per the provision ofSection 50 of the IT Act. We find that the abovereason for reopening can be said to be a tangiblematerial for reopening the assessment. Moreover,initial processing of the return was done u/s 143(1) ofthe IT Act which cannot be said to be an assessmentorder passed. Hence on the anvil of the above ApexCourt decisions the reassessment is quite justified inthis case. It is also settled law that rectification u/s154 is not possible, unless there is mistake apparentfrom record. Initiation and dropping of processing u/s154 also cannot be equated with passing of anassessment order. The decisions cited by the ld.counsel of the assessee are not applicable on thefacts of the present case because the reasonmentioned for reopening is quite cogent and tangible ITA No. 23 of 2011-9- one. Furthermore, the reopening here cannot besaid to be result of change of opinion as there was noformation of opinion in the first place, as theprocessing of return was done u/s 143(1) of the ITAct.” 13.Learned counsel for the assessee was unable to show anyerror or perversity in the findings so recorded by the Tribunal, as noticedhereinabove, and, therefore, no substantial question of law arises.Accordingly, there is no merit in the present appeal and the same ishereby dismissed. (AJAY KUMAR MITTAL) JUDGE July 7, 2011gbs (ADARSH KUMAR GOEL)ACTING CHIEF JUSTICE