The Commissioner Of Income Tax Coimbatore v. Abdul Rahman Sait

IN THE HIGH COURT OF JUDICATURE AT MADRAS DATED: 10.7.2007 CORAM THE HON'BLE MR.JUSTICE P.D.DINAKARANANDTHE HON'BLE MR.JUSTICE P.P.S.JANARTHANA RAJA T.C.(A) No.1026 of 2007 The Commissioner of Income TaxCoimbatore...Appellant Vs.Abdul Rahman Sait..Respondent Appeal under Section 260A of the Income Tax Act, 1961 againstthe order of the Income Tax Appellate Tribunal, Madras 'D' Benchdated 4.8.2006 in ITA No.1306/Mds/2004, for the assessment year1995-96, against the order of the Commissioner of Income Tax,Appeals, Coimbatore for the Assessment Year of 1995-96 inITA.No.1044/01-02 dated 19.2.2004 and against the Assessment Orderof the Deputy Commissioner of Income Tax Circle-I(1) Ootacamund inPAN/GIR.No.1449-C/95-96/I(1) dated:5.7.2001. For Appellant:Mr.N.MuralikumaranJ U D G M E N T(Delivered by P.D.DINAKARAN, J.) The appeal has been preferred by the Revenue against the orderdated 4.8.2006 made in ITA No.1306/Mds/2004 passed with referenceto the assessment year 1995-96 in favour of the assessee, raisingthe following substantial questions of law: "In the light of the first explanation to section 147 ifthe assessee did not truly act by bringing to the noticeof the assessing officer the declaration of the value ofthe property which he has made in the wealth tax return,would not be discovery of the same amount to informationafresh and in such circumstances, the assessing officer,whether or not is empowered to reopen the assessmentwithin a period of four years from the end of theassessment year, the income chargeable to tax has escapedassessment?" 2.1. The brief facts led to the filing of the above appeal areas under. The assessment for the assessment year 1994-95 was completedunder Section 143(3) of the Act on 30.1.1998. Thereafter, it wasobserved that the long term capital gains of Rs.4,46,000/- (asadmitted by the assessee and accepted in the assessment order)arising from the sale of assessee's property known as 'BailyBuildings' was incorrectly computed, because the value as on1.4.1981, adopted on estimate of Rs.6.00 lacs for arriving at theIndexed Cost of Acquisition was not supported with any evidence andin consonance with the fair market value declared by the assesseein the return of wealth filed by him for the assessment year 1989-90. Hence, proceedings under section 147 of the Act were initiatedby issue of a notice under section 148 of the Act dated 8.3.2000. 2.2. In response to the notice, the assessee submitted that noincome had escaped assessment since all documents filed by theassessee were examined before the completion of the assessment on30.1.1998. Thereafter, a notice under Section 143(2) of the Actdated 3.11.2000 was issued for reopening of assessment and the samewas objected by the assessee contending that the reopening ofassessment was bad, as the same was based on the change of opinioneither with reference to the change in the method of accounting,much less based on the audit opinion, or change in the method ofvaluation, particularly, when all the materials were placed by theassessee before the Assessing Officer and the same were examinedbefore the passing of the original order dated 30.1.1998. 2.3. The Assessing Officer, by order dated 5.7.2001, rejectedthe contention of the assessee and came to the conclusion thatthere was an escaped assessment in view of the difference betweenthe value of the property known as 'Baily Building' adopted for thepurpose of allowing term capital gains, the income tax returns andthe value of the property mentioned in the Wealth Tax returns. 2.3. The Assessing Officer, by order dated 5.7.2001, rejectedthe contention of the assessee and came to the conclusion thatthere was an escaped assessment in view of the difference betweenthe value of the property known as 'Baily Building' adopted for thepurpose of allowing term capital gains, the income tax returns andthe value of the property mentioned in the Wealth Tax returns. 2.4. Enraged, the assessee preferred an appeal before theCommissioner, who, by order dated 19.2.2004 accepted the case ofthe assessee and allowed the appeal holding that the value of theproperty adopted by the assessee for the purpose of wealth tax didnot stop him from contending otherwise in the proceeding forcalculating tax on capital gains and that the adoption of certainvalue for wealth tax purposes could not be made on the basis forworking of capital gains, though it was prima facie sufficient forreopening reassessment but in arriving at the conclusion that alonewill not be the basis. 2.5. Against the said order, the Revenue preferred an appealbefore the Tribunal and the Tribunal, by order dated 4.8.2006,holding that there was no information or new material before the Assessing Officer on which he could change his opinion or tobelieve that the income had escaped assessment, which necessitatedto reopen the assessment by initiating reassessment proceedingsunder Section 147 of the Act, after issuing notice under Section148 of the Act and therefore, the Assessing Officer had erred inreopening the assessment based on the change of opinion as to thevaluation of the property, even though the valuation admitted bythe assessee in the income tax return and the wealth tax returnwere very much available before him while passing the assessmentorder on 31.1.1998, dismissed the appeal, confirming the order ofthe Commissioner. 2.6. Aggrieved, the Revenue has preferred the above appealraising the aforementioned substantial questions of law. 3. In this regard, it is apposite to refer Explanation 1 toSection 147 of the Act, which reads as follows: Income escaping assessment:If the Assessing Officer has reason to believe that anyincome chargeable to tax has escaped assessment for anyassessment year, he may, subject to the provisions ofsections 148 to 153, assess or reassess such income andalso any other income chargeable to tax which has escapedassessment and which comes to his notice subsequently inthe course of the proceedings under this section, orrecompute the loss or the depreciation allowance or anyother allowance, as the case may be, for the assessmentyear concerned (hereafter in this section and in sections148 to 153 referred to as the relevant assessment year): Provided that where an assessment under sub-section(3) of section 143 or this section has been made for therelevant assessment year, no action shall be taken underthis section after the expiry of four years from the endof the relevant assessment year, unless any incomechargeable to tax has escaped assessment for suchassessment year by reason of the failure on the part ofthe assessee to make a return under section 139 or inresponse to a notice issued under sub-section (1) ofsection 142 or section 148 or to disclose fully and trulyall material facts necessary for his assessment, for thatassessment year. Explanation 1.- Production before the AssessingOfficer of account books or other evidence from whichmaterial evidence could with due diligence have beendiscovered by the Assessing Officer will not necessarilyamount to disclosure within the meaning of the foregoingproviso. Explanation 2.- ... " 4.1. A careful reading of the above explanation makes itclear that mere production of the accounts books or other evidencefrom which material evidence could have been discovered by theAssessing Officer with due diligence by itself would notnecessarily amount to disclosure within the meaning of theforegoing proviso. Explanation 1.- Production before the AssessingOfficer of account books or other evidence from whichmaterial evidence could with due diligence have beendiscovered by the Assessing Officer will not necessarilyamount to disclosure within the meaning of the foregoingproviso. Explanation 2.- ... " 4.1. A careful reading of the above explanation makes itclear that mere production of the accounts books or other evidencefrom which material evidence could have been discovered by theAssessing Officer with due diligence by itself would notnecessarily amount to disclosure within the meaning of theforegoing proviso. 4.2. In the instant case, it is not the case of the assesseethat he has produced accounts books and other evidence from whichmaterial evidence could have been discovered by the AssessingOfficer, with due diligence, but on the other hand it is the caseof the assessee that the Assessing Officer had accepted the returnsbased on the materials placed before him and passed an order ofassessment under the Income Tax Act as well as Wealth Tax Act andthereafter, by change of opinion with reference to the valuationmethod adopted, proposed to reopen the assessment. 5.1. It is a settled proposition vide the decision of aDivision Bench of the Calcutta High Court in Hela Holdings Pvt.Ltd. v. Commissioner of Income Tax [(2003) 263 ITR 129] that theassessee is entitled to change his regular method of accounting byanother regular method. It would be open to the assessee toproduce records and show that it had followed such changedaccounting method in the subsequent years. In the said decision,the Calcutta High Court also laid the following general principlesregarding tax avoidance and tax evasion, while dealing with thevalidity of the change in method of valuation, change in accordancewith accounting practice and change followed in subsequent years.The general principles are: (i) the distinction between tax evasion and tax avoidance isstill prevalent. (ii) generally speaking, tax evasion is the result of suchthings as illegality, suppression, misrepresentation andfraud. (iii) tax avoidance is the result of actions taken by theassessee, none of which is illegal or forbidden by the lawin itself and no combination of which is similarly forbiddenor prohibited. (iv) the permissibility of a tax avoidance, will fall to bedecided, when and only when, on the basis of the facts andtransactions truly and correctly disclosed by the assessee,a point of law arises, whether on a certain reasonableconstruction of one part of the taxing statute, as appliedto the assessee's case, tax which would otherwise be payableby the assessee, becomes not payable in the case in hand. (v) When the court is faced with a task of construction inthe above manner, the court is not bound to make theconstruction in favour of the assessee merely on proof by the assessee, that it has entered into no illegality andmade no prohibited transaction. (vi) the court would have to assess, in the facts andcircumstances of each case, upon general principles ofconscience and justice, whether the arrangement of affairsby the assessee, so as to cause the possibility of areduction of tax incidence, can fairly be permitted to theassessee, as a genuine and legal means of tax reduction,employed by it in a commercial fair sense, or whetherallowing the assessee to earn the reduction, in the factsand circumstances of the particular case, is opposed to thepublic policy of not encouraging citizens to engagethemselves in dealings and transactions designed primarilyfor the purpose of non-payment of tax only. (emphasis supplied) the assessee, that it has entered into no illegality andmade no prohibited transaction. (vi) the court would have to assess, in the facts andcircumstances of each case, upon general principles ofconscience and justice, whether the arrangement of affairsby the assessee, so as to cause the possibility of areduction of tax incidence, can fairly be permitted to theassessee, as a genuine and legal means of tax reduction,employed by it in a commercial fair sense, or whetherallowing the assessee to earn the reduction, in the factsand circumstances of the particular case, is opposed to thepublic policy of not encouraging citizens to engagethemselves in dealings and transactions designed primarilyfor the purpose of non-payment of tax only. (emphasis supplied) 5.2. A Full Bench of the Delhi High Court in Commissioner ofIncome Tax v. Kelvinator of India Ltd. [(2002) 256 ITR 1),interpreting the powers of the Income Tax Officer with respect toreassessment, held that a mere change of opinion cannot form abasis for reopening the completed assessment and further held thatwhen a regular order of assessment is passed under Section 143(3)of the Act, a presumption can be made that such an order has beenpassed on application of mind. It is well known that a presumptioncan be raised to the effect that in terms of Section 114(e) of theIndian Evidence Act, judicial and official acts have been regularlyperformed. If it be held that an order which has been passedpurportedly without application of mind would itself conferjurisdiction upon the Assessing Officer to reopen the proceedingwithout anything further, the same would amount to giving a premiumto an authority exercising quasi judicial function to take benefitof its own wrong. Hence, it is clear that section 147 of the Actdoes not postulate conferment of power upon the Assessing Officerto initiate reassessment proceedings upon a mere change of opinion. 5.3. Applying the above settled principles, this Court also inCommissioner of Income Tax v. Annamalai Finance Ltd. [(2005) 275ITR 451] held that mere change of opinion by the Assessing Officerwith reference to the materials already placed before him cannot bea ground for issue of notice under Section 148 of the Act andreassessment under section 147 of the Act. 5.4. In the instant case, we find that there is everyjustification as to the finding rendered by the Commissioner thatthe value of the property adopted by the assessee for the purposeof wealth tax did not stop him from contending otherwise in theproceeding for calculating tax on capital gains, because adoptionof certain value for wealth tax purpose cannot be made on the basisfor working out the capital gains, particularly when the valuation of the property admitted by the assessee in the income tax returnand the wealth tax return were accepted by the Assessing Officerand therefore, there cannot be any reassessment based on merechange of opinion by the Assessing Officer. 6. Incidentally, an attempt was also made on behalf of theRevenue that the Tribunal ought not to have held that the reopeningof assessment was not in order, as the finding of the Commissionerthat reopening of assessment was held to be in order remainunchallenged by the assessee. But, in our considered opinion, Rule27 of the Income Tax Rules, which provides that the respondent,though he may not have appealed, may support the order appealedagainst on any of the grounds decided against him, takes care ofthe right of the assessee to sustain the order of the Commissioner. Finding no substantial question of law, the appeal isdismissed. Sd/- Assistant Registrar /True Copy/ Sub Assistant Registrar. kplTo 1.The Assistant Registrar, Income-Tax Appellate Tribunal,Bench-D, Madras. 2.The Commissioner of Income Tax, Appeals, Coimbatore. 3.The Deputy Commissioner ofo Income Tax Circle-I, Ootacamund. One cc to Mr.N.Muralikumar, Sr.Standing Counsel for (IT)SR.No.41666 Finding no substantial question of law, the appeal isdismissed. Sd/- Assistant Registrar /True Copy/ Sub Assistant Registrar. kplTo 1.The Assistant Registrar, Income-Tax Appellate Tribunal,Bench-D, Madras. 2.The Commissioner of Income Tax, Appeals, Coimbatore. 3.The Deputy Commissioner ofo Income Tax Circle-I, Ootacamund. One cc to Mr.N.Muralikumar, Sr.Standing Counsel for (IT)SR.No.41666 T.C.(A) No.1026 of 2007. CO/AJsky/6/8