Delhi High Court
Jal Hotels Co. Ltd. vs Asstt. Dir. Of Income Tax on 25 May, 2009
Author: Rajiv Shakdher
* IN THE HIGH COURT OF DELHI AT NEW DELHI
+ WP(C)No.8902/2007 & CM No.16817/2007
# JAL HOTELS CO. LTD. ..... Petitioner through
! Mr. N. Venkatraman, Sr. Adv.
with Mr. Achin Goel, Adv.
versus
$ ASSTT. DIR. OF INCOME TAX.....Respondent through
^ Mr. Sanjeev Sabharwal, Adv.
WITH
WP(C)No.8903/2007 & CM No.16818/2007
JAL HOTELS CO. LTD. ..... Petitioner through
Mr. N. Venkatraman, Sr. Adv.
with Mr. Achin Goel, Adv.
versus
ASSTT. DIR. OF INCOME TAX.....Respondent through
Mr. Sanjeev Sabharwal, Adv.
WITH
WP(C)No.8904/2007 & CM No.16819/2007
JAL HOTELS CO. LTD. ..... Petitioner through
Mr. N. Venkatraman, Sr. Adv.
with Mr. Achin Goel, Adv.
versus
ASSTT. DIR. OF INCOME TAX.....Respondent through
Mr. Sanjeev Sabharwal, Adv.
Date of Hearing: May 18th, 2009
Date of Decision: May 25th , 2009
WITH
WP(C)No.8902/2007 Page 1 of 8
ITA No.140/2009
CIT ..... Appellant through
Mr. Imran Khan for Mr. Shiv
Charan Garg, Adv.
versus
SUDHIR ENGINEEIRNG CO ......Respondent through
Mr. K.R. Manjani with
Mr. Madhu Sudan Sahni,
Advs.
% Date of Hearing: May 19th, 2009
Date of Decision: May 25th, 2009
CORAM:
* HON'BLE MR. JUSTICE VIKRAMAJIT SEN
HON'BLE MR. JUSTICE RAJIV SHAKDHER
1. Whether reporters of local papers may be
allowed to see the Judgment? Yes
2. To be referred to the Reporter or not? Yes
3. Whether the Judgment should be reported
in the Digest? Yes
VIKRAMAJIT SEN, J.
1. The legal nodus that arises in these Appeals relates to the
legal propriety of notices issued under Section 148 of the Income
Tax Act, 1961 (Act for short). Briefly stated, Jal Hotels Company
Ltd. had, along with its Returns, filed copies of four Agreements
that it had entered into with Sunair Hotel Ltd. - viz. (a)Hotel
Management Agreement, (b)Technical Services Agreement,
(c)Marketing Service Agreement and (d)Licence Agreement. The
Assessment Orders dated 28.3.2005 are in respect of three
Assessment Years, that is, 2001-2002, 2002-2003 and 2003-2004
and specifically record the existence of these four Agreements. No
doubt, the Assessment Orders are remarkable for their brevity but
it is well established that the Assessing Officer is not obligated to
mention and discuss each and every argument or issue which has
arisen in the course of Assessment. It has been opined in CIT -
vs- Kelvinator of India Ltd., [2002] 256 ITR 1 that -"We also
cannot accept the submission of Mr.Jolly to the effect that only
because in the assessment order, detailed reasons have not been
recorded an analysis of the materials on the record by itself may
justify the Assessing Officer to initiate a proceeding under section
147 of the Act. The said submission is fallacious. An order of
assessment can be passed either in terms of sub-section(1) of
section 143 or sub-section (3) of section 143. When a regular order
of assessment is passed in terms of the said sub-section(3) of
section 143 a presumption can be raised that such an order has
been passed on application of mind. It is well known that a
presumption can also be raised to the effect that in terms of
clause(e) of section 114 of the Indian Evidence Act judicial and
official acts have been regularly performed. If it be held that an
order which has been passed purportedly without application of
mind would itself confer jurisdiction upon the Assessing Officer to
reopen the proceeding without any thing further, the same would
amount to giving a premium to an authority exercising quasi-
judicial function to take benefit of its own wrong". This is also the
approach adopted by this Bench in ITA No.485/2008 titled CIT -vs-
Ashish Rajpal decided on 14.5.2009. We make mention of this
position of the law because it has been contended before us that on
a reading of Assessment Order it is not clear whether the
Assessing Officer had cogitated upon these four Agreements.
2. The impugned Notice under Section 148 of the Act mentions
these Agreements and observes that "the assessee is running,
managing and operating Hotel through Permanent Establishment,
the income that the assessee earned through Permanent
Establishment, has escaped assessment". Predicated thereon, the
Respondent has stated that she has "reasons to believe after
thorough application of mind that income chargeable to tax has
escaped assessment". Learned counsel for the Petitioners contends
that the case manifests a change of opinion which, in a series of
judgments, has been held not to be sufficient reason for reopening
assessments already framed by resorting to Sections 147/148 of
the Act. Learned counsel for the Revenue has sought to rely on two
decisions to defend the impugned Order of the Respondent,
dismissing the Objections against the proposed action. A complete
discussion on these provisions is to be found in the decision of the
Full Bench in Kelvinator which has, inter alia, analysed Calcutta
Discount Co. Ltd. -vs- Income Tax Officer, [1961] 41 ITR 191(SC),
Indian and Eastern Newspaper Society -vs- CIT, [1979] 119 ITR
996(SC), Jindal Photo Films Ltd. -vs- Deputy CIT, [1998] 234 ITR
170(Del) and Bawa Abhai Singh -vs- Deputy Commissioner of
Income Tax, [2002] 253 ITR 83(Del). The ratio of Sita World
Travels (India) Ltd. -vs- CIT, [2005] 274 ITR186 which, without
reference to the Full Bench decision in Kelvinator, had opined
that a decision may be right or wrong but that was none of the
concern of the subsequent officers. So long as the Assessing
Officer has consciously considered the facts, the decision cannot
be reopened. Despite noting and extracting the passage from
Techspan India P. Ltd. -vs- Income Tax Officer, [2006] 283 ITR
212 which elucidates that it is necessary for new material to come
to light in order to justify the issuance of notice under Section 148,
the Respondent has come to the contrary conclusion.
3. As has already been noted above, Bawa Abhai Singh in
which D.K. Jain, J., as his Lordship then was, had spoken for the
Division Bench [D.K. Jain, J. was also a member of the Full Bench
in Kelvinator] was duly considered in Kelvinator. The
Respondent has relied on Consolidated Photo and Finvest Ltd. -
vs- ACIT, [2006] 281 ITR 394 which, being irreconcilable with the
Full Bench view in Kelvinator, is per incuriam as has been so
observed in KLM Royal Dutch Airlines -vs- ADIT, [2007] 292 ITR
49(Delhi). Regretfully, the Assistant Director of Income Tax has
ignored the views of Division Benches in Techspan and Sita
World, apart from the pronouncements of the Full Bench and
Division Benches of the Delhi High Court. Furthermore, the view,
which has been assailed before us, is contrary to Calcutta
Discount in which the Constitution Bench opined that - "If from
primary facts more inferences than one could be drawn, it would
not be possible to say that the assessee should have drawn any
particular inference and communicated it to the assessing
authority. How could an assessee be charged with failure to
communicate an inference, which he might or might not have
drawn?" Our attention has been drawn to CIT, Calcutta -vs- Burlop
Dealers Ltd., 1971 (1) SCC 462, the relevant portion of which
reads as follows:-
The assessee had disclosed his books of account and
evidence from which material facts could be discovered; it
was under no obligation to inform the Income-tax Officer
about the possible inferences which may be raised against
him. It was for the Income-tax Officer to raise such an
inference and if he did not do so the income which has
escaped assessment cannot be brought to lay under
Section 34(1)(a).
4. We think it appropriate to advert to M/s. Kishanchand
Chellaram -vs- CIT, Bombay City II, Bombay, AIR 1980 SC 2117
which lays down that once the basic or primary facts have been
disclosed,the burden to prove that amounts represents undisclosed
income of the assessee is on the Revenue. Applying all these
precedents to the case before us, we find it difficult to come to any
conclusion other than that the case in hand represents those genre
of cases in which there has been a change of opinion. One of the
tests prescribed in Techspan was to investigate whether any new
material had come to the notice of the officer concerned which
material would constitute "reason to believe". This new material is
wholly missing in the case in hand. Our study would become more
comprehensive with the mention of CIT -vs- P.V.S. Beedies Pvt.
Ltd., [1999] 237 ITR 13. In that case, the internal audit party had
pointed out that the Trust to which donations had been made by
the assessee did not qualify for deduction under Section 80G as the
recognition had expired. Their Lordships considered this to be
sufficient reason for reopening of the case; the new material
obviously was in the form of the Audit Report. In this connection,
however, the Three-Judge Bench in CIT -vs- Lucas T.V.S. Ltd.,
[2001] 249 ITR306 has affirmed the opinion of the Madras High
Court expressed in CIT -vs- Lucas T.V.S. Ltd., [1998] 234 ITR 296
to the effect that an audit opinion in regard to application or
interpretation of law cannot be treated by the Income Tax Officer
as information for reopening the assessment under Section 147B of
the Act.
5. On the strength of this analysis, we are of the opinion that
there was no new material in the hands of the Revenue leading to
the view that there was reason to believe that income had escaped
assessment. Instead, the case is a classic instance of a change of
opinion. Consequently, the Writ Petitions are allowed and the
impugned Notice vide dated 26.3.2007 under Section 148 of the
Act is quashed.
ITA No.140/2009
6. This Appeal under Section 268 of the Act concerns the legal
propriety of action taken under Section 147 of the Act in respect of
interest amount to Rupees 12,99,917/- earned on Vikas Cash
Certificate. After referring to KLM Royal Dutch Airlines -vs- ACIT,
(2007) 208 CTR (Del) 3 the ITAT had applied Kelvinator and ITA
No.309/2006 entitled CIT -vs- Eicher Ltd. decided on 22.5.2007.
The Tribunal had declined to apply Consolidated Photo. It has
not been controverted that, as recorded in the impugned Order,
copies of the statement of income, trading account, profit and loss
account, audit report etc. were appended to the Return filed by the
Assessee. This being the factual position, the Tribunal has rightly
concluded that taking resort to Sections 147/148 of the Act was
unwarranted, as it constituted a change of opinion since the
material acted upon had been made available along with the
Return.
7. No substantial question of law arises for our consideration.
Dismissed.
( VIKRAMAJIT SEN )
JUDGE
May 25th, 2009 ( RAJIV SHAKDHER )
tp JUDGE
