The Commissioner Of Income Tax (Central), Ludhiana v. Avon Cycles (P) Limited, Ludhiana.woe Respoondent

IN THE HIGH COURT OF PUNJAB AND HARYANA ATCHANDIGARH Income Tax Reference No.81 of 1999|Decided on:-April 4[th], 2014, The Commissioner of Income Tax (Central), Ludhiana. ......... Applicant. Versus Avon Cycles (P) Limited, Ludhiana.woe RESpOondent, CORAM: Hon'ble Mr. Justice Rajive BhallaHon'ble Mr. Justice Dr. Bharat Bhushan Parsoon. +++++ Argued by:- Ms. Savita Saxena, Advocat for the applicant-revenue. Mr. Akshay Bhan, Advocate andMs. Samiya Singh, Advocatefor the respondent-assessee. Dr. Bharat Bhushan Parsoon, J. The assessee is a private limited company dealing inmanutacture and sales of cycles as also parts thereof. For the year ending30.6.1982 relevant to the assessment year 1983-84, return declaring anincome of Rs.61,30,/764/- was filed on 30.7.1983. The assessment wascompleted on 20.3.1986 at an income of Rs.1,70,80,403/-. Later on, when it came to the notice of the Assessing Officer(hereinafter referred to as the AO) that excessive relief on some of the pointsincluding depreciation and investment allowance, had been allowed to the LTR. No.&1 of 1999| assessee and he, accordingly, reopened the assessment by issuing noticeunder Section 148 read with Section 147(b) of the Income Tax Act, 1961 (forshort, the Act). Thereafter, the re-assessment proceedings were completed on11.10.1988 at an income of Rs.1,58,59,435/-. 3Not satisfied with this order (Annexure A) of the AO, theassessee went in appeal before the Commissioner of Income Tax (Appeals)(Central), Ludhiana {hereinafter called the CIT(A)], who vide order(Annexure B) dated 28.2.1989, holding the initiation of proceedings underSection 148 read with Section 147(b) of the Act bad in law, cancelled there-assessment framed by the AO. Against this order of the CIT(A), therevenue preferred an appeal before the Income Tax Appellate Tribunal,Chandigarh Bench (hereinafter called the ITAT). The ITAT vide its orderdated 30.6.1995 upheld the order of the CIT(A). The revenue took up thematter to this Court under Section 256(2) of the Act in ITC No.103 of 1996.sequelly, the following questions in terms of directions of this Court videorder dated 18.3.1998 were referred for opinion of this Court: (1)Whether, on the facts and in the circumstances of thecase, the Income Tax Appellate Tribunal was right in lawin holding the re-assessment proceedings as invalid andbad in law?case, the Income Tax Appellate Tribunal was right in lawin holding the re-assessment proceedings as invalid andbad in law? (II)Whether, on the facts and in the circumstances of thecase, the Income Tax Appellate Tribunal was right in lawin not at all considering the excessive relief depreciationand investment allowance having been allowed atoriginal assessment, reopening was legally justified asper the provisions of Explanation 1(d) to section 147(b)?case, the Income Tax Appellate Tribunal was right in lawin not at all considering the excessive relief depreciationand investment allowance having been allowed atoriginal assessment, reopening was legally justified asper the provisions of Explanation 1(d) to section 147(b)? 4Whereas stand of the revenue is that in case of escapement ofincome from assessment, power of re-assessment can validly be exercised,whereas stand of the assessee is that once the assessment proceedings arecomplete, merely because some different opinion emerges out on the sameset of facts, re-assessment under Section 148 read with Section 147(b) of the LTR. No.&1 of 1999| Act, cannot be ordered. 5 |We have heard counsel for the parties while going through thepaper book. 4Whereas stand of the revenue is that in case of escapement ofincome from assessment, power of re-assessment can validly be exercised,whereas stand of the assessee is that once the assessment proceedings arecomplete, merely because some different opinion emerges out on the sameset of facts, re-assessment under Section 148 read with Section 147(b) of the LTR. No.&1 of 1999| Act, cannot be ordered. 5 |We have heard counsel for the parties while going through thepaper book. 6.|At the outset, counsel for the revenue has urged that ifSatisfaction is arrived at after following the due procedure that income hadescaped assessment, power of re-assessment can validly be exercised,Elaborating this proposition further, it has been held that if facts come tolight in a subsequent year, this information could validly form the basis forinitiating fresh assessment proceedings. Reference has been made toExplanation 2 of Section 147 of the Act. For ready reference, Explanation 2appended to Section 147 of the Act is reproduced as below: “Explanation 2.—For the purposes of this section, thefollowing shall also be deemed to be cases where incomechargeable to tax has escaped assessment, namely :— (a)where no return of income has been furnished by the|assessee although his total income or the total income ofany other person in respect of which he is assessableunder this Act during the previous year exceeded the maximum amount which is not chargeable to income-tax;assessee although his total income or the total income ofany other person in respect of which he is assessableunder this Act during the previous year exceeded the maximum amount which is not chargeable to income-tax; (b)where a return of income has been furnished by the assessee but no assessment has been made and it 1s noticed by the Assessing Officer that the assessee has|understated the income or has claimed excessive loss, deduction, allowance or relief in the return;assessee but no assessment has been made and it 1s noticed by the Assessing Officer that the assessee has|understated the income or has claimed excessive loss, deduction, allowance or relief in the return; (c)where an assessment has been made, but— (1)income chargeable to tax has been underassessed;|OF,OF, (11)such income has been assessed at too low a rate; OF,OF, (iil) such income has been made the subject ofexcessive reliefunder this Act; or,excessive reliefunder this Act; or, (iv)excessive loss or depreciation allowance or any|Other allowance under this Act has beencomputed.A yd There is no dispute that re-assessment can be done in terms ofprovisions of Section 148 read with Section 147(b) of the Act provided theAO comes to a finding in the given facts and circumstances that in theearlier assessment, some income had escaped assessment. In the presentcase, information of escaping of income of the assessee from assessmentprimarily was gathered by the AO from the audit objection raised in the auditnote. Counsel for the assessee has urged that opinion of audit party on apoint of law does not amount to information sufficient enough to re-openassessment under Section 148 read with Section 147(b) of the Act. Reliancehas been placed on |Indian and Eastern Newspaper Society v.Commissioner of Income Tax, New Delhi [1979] 119 ITR 996 (SOC)wherein it was held that the opinion of the audit party on a point of lawcould not be recorded as information enabling the ITO to initiatere-assessment proceedings under Section 147(b) of the Act. It was furtherheld that the ITO had, when he made the original assessment, considered theprovisions of Sections 9 and 10 of the Indian Income Tax Act, 1922 and anydifferent view taken by him on the application of those provisions wouldamount to change of opinion on material already considered by him. S_Refuting this contention, counsel for the revenue has urged thatthe authority cited by the assessee nowhere restricts the domain of the AO toStart assessment proceedings afresh once he has information that income ofthe assessee has escaped assessment. It is claimed that the distinction drawnin the cited authority on a point of law viz. a viz. on a point of facts is veryvital. It is claimed that in the present case, the information gathered by theAO from the audit note was on bare facts which had categorically suggestedescapement of income from assessment. It is claimed that Hon'ble ApexCourt in a subsequent judgment of]A.L.A. Firm v. Commissioner ofIncome LTR. No.&1 of 1999| Tax [1991] 189 ITR 0285 (SC) even went to the extent of holding that if theAO had missed true purport of the relevant statutory provisions which afterpronouncement of a judicial decision came to his notice, resulting in re-Opening of the assessment, even then, such re-opening would be legallyvalid. Observations of the Hon'ble Supreme Court are as under: EThe more reasonable view to take would, in our opinion,be that the Income-tax Officer looked at the facts and acceptedthe assessee’s contention that the surplus was not taxable. But,in doing so, he obviously missed to take note of the law laiddown in Ramachari which there is nothing to show, had beenbrought to his notice. When he subsequently became aware ofthe decision, he initiated proceedings under Section 147(b). Thematerial which constituted information and on the basis ofwhich the assessment was reopened was the decision inRamachari. This material was not considered at the time of theoriginal assessment. Though it was a decision of 1961 and the[.T-O. could have known of it had he been diligent, the obviousfact is that he was not aware of the existence of the decisionthen and, when he came to know about it, he rightly initiatedproceedingsfor assessment. QOA little later in.Income Tax Officer v. Saradbhai M. Lakhani[2000] 243 ITR 0001 (SC)case of.A.L.A. Firm (supra)was also consideredand followed. The Hon'ble Apex Court then made it clear that wheninformation is received by the AO from a decision, even that informationwould be a valid ground for reopening of the assessment. Observations ofthe Hon'ble Supreme Court are as under: EThis court has held that on the basis of the informationwhich is received by the Income-tax Officer, reassessmentproceedings can be initiated. The information which wasreceived by the Income-tax Officer was the decision of theGujarat High Court in Banyan and Berry's case [1996/ 222ITR S831. When the Income-tax Officer became aware of thidecision, he could initiate the proceedings under section 147(b)as has been held by this court in A.L.A. Firm v. CIT [1991] 189[TR 285ae. 10.A Division Bench of this Court inTilak Raj Bedi v. Joint LTR. No.&1 of 1999| Commissioner ofIncome Tax [2009] 319 ITR 0385has also verdicted thatpower of re-assessment can validly be exercised if satisfaction would bearrived at after following due procedure that income had escapedassessment. In this authority, it was held as under: EThe power of reassessment can be validly exercised ifsatisfaction is arrived at after following due procedure thatincome had escaped assessment. Such satisfaction may involvechange of opinion but was not at par with “mere change ofopinion’. If satisfaction is arrived at on the basis of anyrelevant material, such satisfaction cannot be assailed.A ll.In the present case, information regarding excessive relief onsome of the points including ‘depreciation’ and ‘investment allowance’became available to the AO after the assessment had already been framed on20.3.1986. This information was not on legal aspects and, therefore, ratherhas direct reference to factual matrix of the case, which earlier had beenoverlooked.| EThe power of reassessment can be validly exercised ifsatisfaction is arrived at after following due procedure thatincome had escaped assessment. Such satisfaction may involvechange of opinion but was not at par with “mere change ofopinion’. If satisfaction is arrived at on the basis of anyrelevant material, such satisfaction cannot be assailed.A ll.In the present case, information regarding excessive relief onsome of the points including ‘depreciation’ and ‘investment allowance’became available to the AO after the assessment had already been framed on20.3.1986. This information was not on legal aspects and, therefore, ratherhas direct reference to factual matrix of the case, which earlier had beenoverlooked.| 12.The CIT(A) as also the Tribunal were in error in rejecting theStarting of re-assessment proceedings and consequent finalisation of therevised assessment by the AO. The distinction, as mentioned earlier, was notnoticed either by CIT(A) or by the ITAT. This aspect clearly enough did notengage the attention of the CIT(A) as also the Tribunal. Finding of theTribunal is that gathering of such information would amount to substitutionof opinion, whereas it is not substitution by revised opinion of the AO. It isalso not information on a point of law. The entire matter was evaluated andconsidered on facts. The present case is clearly a case of escaping of incomeof the assessee. 13.Consequently, re-assessment proceedings started by the AO interms of Sections 147(b) and 148 of the Act are valid in law. The impugnedorder of the Tribunal is, thus, wrong on facts as also in law. 14.In view of the above discussion, both the questions of lawreferred for opinion are answered in favour of the revenue. LTR. No.&1 of 1999| 15.Sequelly, the reference is adjudicated against the assessee and in favour of the revenue. (Dr. Bharat Bhushan Parsoon)Judge April 4[th], 2014,‘Yag Dutt} (Rajive Bhalla)Judge iWhether Reporters of local papers may be allowed to see the judgment? Yes _2Whether to be referred to the Reporters or not? Yes2Whether to be referred to the Reporters or not? Yes 3Whether the judgment should be reported in the Digest? Yes