Madras High Court
The Principal Commissioner Of ... vs M.R.Narayanan on 22 June, 2021
T.C.A.No.321 of 2021
IN THE HIGH COURT OF JUDICATURE AT MADRAS
DATE: 22.06.2021
CORAM:
THE HON'BLE MR. JUSTICE M.DURAISWAMY
AND
THE HON'BLE MRS.JUSTICE R.HEMALATHA
T.C.A.No.321 of 2021
The Principal Commissioner of Income Tax,
Non-Corporate Circle – 2(1),
Chennai – 34. ... Appellant
Vs.
M.R.Narayanan ... Respondent
Appeal preferred under Section 260A of the Income Tax Act,
1961, against the order of the Income Tax Appellate Tribunal, Madras,
"A" Bench, dated 17.03.2017 in I.TA.No.2872/Mds/2016 for Assessment
Year 2008-09.
For Appellant : Mr.Karthik Ranganathan,
Senior Standing Counsel
For Respondent : Mr.Anand
for M/s.PASS Associates
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JUDGMENT
(Judgment was delivered by M.DURAISWAMY, J.)
Challenging the order passed in I.T.A.No.2872/Mds/2016 in
respect of the Assessment Year 2008-09 on the file of the Income Tax
Appellate Tribunal, “A” Bench, Chennai, the Revenue has filed the
above appeal.
2.The assessee is an individual, deriving income from salary and
rental income. The return of income for the Assessment Year 2008-09
was filed admitting a total income of Rs.59,42,110/-. The return was
selected for scrutiny and assessment was completed under Section 143(3)
of the Income Tax Act on 20.12.2020. Subsequently, the Assessing
Officer found that excess relief was allowed by way of deduction of
interest on housing loan and therefore, the assessment was re-opened by
issuance of notice under Section 148 of the Act on 08.03.2013. After
completing the assessment, the Assessing Officer held that the property
at Bombay was self-occupied by the assessee and therefore, the interest
to be allowed has to be restricted to Rs.1,50,000/- as against the claim of
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Rs.8,51,524/-. In respect of the property at Chennai, the Assessing
Officer estimated the annual letting value at Rs.1,20,000/- and brought a
sum of Rs.84,000/- as income from house property. The Assessing
Officer reworked the deduction allowable under Section 10(13A) and
restricted the deduction at Rs.30,000/- and accordingly, determined the
total income of the assessee at Rs.67,17,630/-. Challenging the order
passed by the Assessing Officer, the assessee preferred an appeal before
the Commissioner of Income Tax (Appeals) and the Appellate Authority
dismissed the appeal. Aggrieved over the same, the assessee preferred an
appeal before the Income Tax Appellate Tribunal and the Tribunal
allowed the appeal. Challenging the order passed by the Income Tax
Appellate Tribunal, the Revenue has filed the above appeal.
3.The Revenue has raised the following substantial questions of
law in the appeal:
“(i) Whether on the facts and circumstances of the
case and in law, the Hon'ble Income Tax Appellate
Tribunal was right and justified quashing the re-
assessment when the assessment has been re-opened even
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before the expiry of 4 years from the end of the relevant
assessment year?
(ii)Whether on the facts and circumstances of the
case and in law, the Hon'ble Income Tax Appellate
Tribunal was right and justified in holding that Assessing
Officer has made any change of opinion?
(iii)Whether on the facts and circumstances of the
case and in law, the Hon'ble Income Tax Appellate
Tribunal was right in following the decision of the Hon'ble
Supreme Court in the case of M/s.Kelvinator India Ltd.,
when no change of opinion could be alleged on a factual
situation?
(iv)Whether on the facts and circumstances of the
case and in law, the Hon'ble Income Tax Appellate
Tribunal was right in allowing assessee's claim of
deduction u/s 24(b) beyond the monetary ceiling prescribed
under that Section?
(v)Whether on the facts and circumstances of the
case and in law, the Hon'ble Income Tax Appellate
Tribunal was right in following the decision of the Hon'ble
High Court in the case of Usha International Ltd when the
first proviso to Section 147 clearly stipulates that no
assessment under Section 147 can be initiated under the
circumstances provided therein only after the expiry of four
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T.C.A.No.321 of 2021
years from the end of the relevant assessment year?”
4.Mr.Karthik Ranganathan, learned senior standing counsel
appearing for the appellant-Revenue submitted that the 1st question of
law alone is sufficient to be decided in the appeal and further fairly
submitted that the 1st question of law has already been decided against
the Revenue by the Hon'ble Supreme Court in the judgment reported in
[2010] 187 Taxman 312 (SC) [Commissioner of Income-Tax, Delhi Vs.
Kelvinator of India Ltd.], wherein the Apex Court held as follows:
“...
2.A short question which arises for determination in
this batch of civil appeals is, whether the concept of "change
of opinion" stands obliterated with effect from 1-4-1989,
i.e., after substitution of section 147 of the Income-tax Act,
1961 by Direct Tax Laws (Amendment) Act, 1987 ?
3.To answer the above question, we need to note the
changes undergone by section 147 of the Income-tax Act,
1961 [ for short, "the Act"] . Prior to Direct Tax Laws
(Amendment) Act, 1987 , section 147 reads as under :
"147. Income escaping assessment.—
If—
(a) the Income-tax Officer has reason to believe that, by
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reason of the omission or failure on the part of an assessee
to make a return under section 139 for any assessment
year to the Income-tax Officer or to disclose fully and
truly all material facts necessary for his assessment for
that year, income chargeable to tax has escaped
assessment for that year, or
(b) notwithstanding that there has been no omission or
failure as mentioned in clause (a) on the part of the
assessee, the Income-tax Officer has in consequence of
information in his possession reason to believe that
income chargeable to tax has escaped assessment for any
assessment year,
he may, subject to the provisions of sections 148 to 153 ,
assess or reassess such income or recompute the loss or the
depreciation allowance, as the case may be, for the
assessment year concerned (hereafter in sections 148 to 153
referred to as the relevant assessment year)." [Emphasis
supplied]
3.1.After enactment of Direct Tax Laws (Amendment)
Act, 1987 , i.e., prior to 1-4-1989, section 147 of the Act,
reads as under :
"147. Income escaping assessment.—If the Assessing
Officer, for reasons to be recorded by him in writing, is of
the opinion that any income chargeable to tax has escaped
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assessment for any assessment year, he may, subject to the
provisions of sections 148 to 153 , assess or reassess such
income and also any other income chargeable to tax which
has escaped assessment and which comes to his notice
subsequently in the course of the proceedings under this
section, or recompute the loss or the depreciation
allowance or any other allowance, as the case may be, for
the assessment year concerned (hereafter in this section
and in sections 148 to 153 referred to as the relevant
assessment year)." [Emphasis supplied]
3.2.After the Amending Act, 1989 , section 147 reads
as under :
"147. Income escaping assessment.—If the Assessing
Officer has reason to believe that any income chargeable
to tax has escaped assessment for any assessment year, he
may, subject to the provisions of sections 148 to 153 ,
assess or reassess such income and also any other income
chargeable to tax which has escaped assessment and
which comes to his notice subsequently in the course of
the proceedings under this section, or recompute the loss
or the depreciation allowance or any other allowance, as
the case may be, for the assessment year concerned
(hereafter in this section and in sections 148 to 153
referred to as the relevant assessment year)." [ Emphasis
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supplied]
4.On going through the changes, quoted above, made
to section 147 of the Act, we find that, prior to Direct Tax
Laws (Amendment) Act, 1987 , re- opening could be done
under above two conditions and fulfilment of the said
conditions alone conferred jurisdiction on the Assessing
Officer to make a back assessment, but in section 147 of the
Act [with effect from 1-4-1989], they are given a go-by and
only one condition has remained, viz., that where the
Assessing Officer has reason to believe that income has
escaped assessment, confers jurisdiction to re-open the
assessment. Therefore, post 1-4-1989 , power to reopen is
much wider. However, one needs to give a schematic
interpretation to the words "reason to believe" failing which,
we are afraid, section 147 would give arbitrary powers to the
Assessing Officer to re-open assessments on the basis of
"mere change of opinion", which cannot be per se reason to
reopen. We must also keep in mind the conceptual difference
between power to review and power to re-assess. The
Assessing Officer has no power to review; he has the power
to reassess. But reassessment has to be based on fulfilment
of certain pre-condition and if the concept of "change of
opinion" is removed, as contended on behalf of the
Department, then, in the garb of re-opening the assessment,
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review would take place. One must treat the concept of
"change of opinion" as an in-built test to check abuse of
power by the Assessing Officer. Hence, after 1-4-1989 ,
Assessing Officer has power to reopen, provided there is
"tangible material" to come to the conclusion that there is
escapement of income from assessment. Reasons must have
a live link with the formation of the belief. Our view gets
support from the changes made to section 147 of the Act, as
quoted hereinabove. Under the Direct Tax Laws
(Amendment) Act, 1987 , Parliament not only deleted the
words "reason to believe" but also inserted the word
"opinion" in section 147 of the Act. However, on receipt of
representations from the Companies against omission of the
words "reason to believe", Parliament re-introduced the said
expression and deleted the word "opinion" on the ground
that it would vest arbitrary powers in the Assessing Officer.
We quote hereinbelow the relevant portion of Circular No.
549 , dated 31-10-1989, which reads as follows :
"7.2 Amendment made by the Amending Act, 1989, to
reintroduce the expression 'reason to believe' in section
147. —A number of representations were received against
the omission of the words 'reason to believe' from section
147 and their substitution by the 'opinion' of the Assessing
Officer. It was pointed out that the meaning of the
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expression, 'reason to believe' had been explained in a
number of court rulings in the past and was well settled
and its omission from section 147 would give arbitrary
powers to the Assessing Officer to reopen past
assessments on mere change of opinion. To allay these
fears, the Amending Act, 1989 , has again amended
section 147 to reintroduce the expression 'has reason to
believe' in place of the words 'for reasons to be recorded
by him in writing, is of the opinion'. Other provisions of
the new section 147, however, remain the same."
[Emphasis supplied]
5.For the aforestated reasons, we see no merit in these
civil appeals filed by the Department, hence, dismissed with
no order as to costs.”
Further, the learned senior standing counsel submitted that the issue was
also decided by the Hon'ble Division Bench of this Court in the judgment
reported in [2020] 118 taxmann.com 99 (Madras) [Commissioner of
Income-Tax, Chennai Vs. India Cements Ltd.], wherein the Division
Bench held as follows:
“...
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30.Having held so, we need to consider as to whether
the reassessment was validly done. The Tribunal held in
favour of the assessee stating that the reassessment was bad
in law. To decide this issue, we may straightaway refer to
the decision in the case of Kelvinator of India Ltd. (supra),
wherein the Hon'ble Supreme Court pointed out that post 1-
4-1999, the power to reopen was much wider and that
however, one needs to give a schematic interpretation to the
words "reason to believe", failing which, Section 147 of the
Act would give arbitrary powers to the Assessing Officer to
reopen the assessment on the basis of "mere change of
opinion", which cannot be, per se, reason to reopen. It was
pointed out that there is a conceptual difference between the
power to review and power to reassess, that the Assessing
Officer has no power to review, that he has the power to
reassess and that reassessment has to be based on fulfilment
of certain pre-conditions and if the concept "change of
opinion" is removed, then in the garb of reopening the
assessment, review would take place. It was held that the
concept of "change of opinion" should be treated as in-built
test to check the abuse of power by the Assessing Officer.
Thus, it was held that after 1-4-1999, the Assessing Officer
has power to reopen provided there is "tangible material" to
come to the conclusion that there is an escapement of
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income from assessment and reasons must have a live link
with the formation of the belief.
31.Bearing the aforementioned legal principles in
mind, if we examine the facts of the present case, as rightly
pointed out by the Tribunal, all particulars relating to
dividends and short term capital gains and other particulars
were available with the Assessing Officer during the
assessment proceedings, which was concluded on 15-2-1999
under section 143(3) of the Act. Furthermore, the Tribunal,
on facts, recorded that the Department did not bring any
material fact before it, which was not disclosed in the
original return of income.
32.Even in this appeal, no such fact has been brought
to our notice nor pleaded in the memorandum of grounds of
appeal and presumably that is the reason why the Revenue
had raised the substantial questions involving the
interpretation of Rule 27 of the Rules and conveniently was
not focusing on the issue as to whether the reopening of
assessment was on account of change of opinion. A reading
of the reassessment order dated 31-3-2004 will clearly reveal
that all facts and figures were gathered by the Assessing
Officer only from the original return of income filed by the
assessee. There was no fresh or tangible material available
with the Assessing Officer to reopen the proceedings.
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Therefore, we have no hesitation to conclude that the
reopening of the assessment beyond four years was clearly a
case of change of opinion. For all the above reasons,
substantial questions of law Nos. 1 to 3 are liable to be
answered against the Revenue and consequently, it is held
that the reopening of the reassessment is bad in law and is
liable to be set aside.
33.Accordingly, the appeal filed by the Revenue is
dismissed. The re-assessment order dated 31-3-2004 is set
aside. Substantial questions of law Nos. 1 to 3 are answered
against the Revenue. As we have answered substantial
questions of law Nos.1 to 3 against the revenue, there would
be no necessity for us to answer the substantial question of
law No. 4 and the said question is left open. No costs.”
5.Mr.Anand, learned counsel appearing for the respondent
submitted that in view of the judgments of the Hon'ble Supreme Court
and the Division Bench of this Court, the 1st question of law has to be
decided against the Revenue and in favour of the assessee.
6.Having regard to the submissions made by the learned counsel
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on either side, following the ratio laid down by the Hon'ble Supreme
Court in the judgment reported in [2010] 187 Taxman 312 (SC)
[Commissioner of Income-Tax, Delhi Vs. Kelvinator of India Ltd.] and
and the Division Bench of this Court in the judgment reported in [2020]
118 taxmann.com 99 (Madras) [Commissioner of Income-Tax,
Chennai Vs. India Cements Ltd.], cited supra, the 1st question of law is
decided against the Revenue and in favour of the assessee. The questions
of law (ii) to (v) are left open and shall be decided in an appropriate
appeal. The Tax Case Appeal is dismissed. No costs.
Index : Yes/No [M.D., J.] [R.H., J.]
Internet : Yes 22.06.2021
va
To
The Income Tax Appellate Tribunal, Chennai, "A" Bench
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T.C.A.No.321 of 2021
M.DURAISWAMY, J.
and
R.HEMALATHA, J.
va
T.C.A.No.321 of 2021
22.06.2021
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