Madras High Court
The Assistant Commissioner Of Income ... vs Indian Syntans Investments Pvt Ltd on 19 June, 2025
WA No.220 of 2021
IN THE HIGH COURT OF JUDICATURE AT MADRAS
DATED: 19.06.2025
CORAM
THE HON'BLE MR.K.R.SHRIRAM, CHIEF JUSTICE
AND
THE HON'BLE MR.JUSTICE SUNDER MOHAN
Writ Appeal No.220 of 2021
The Assistant Commissioner of Income Tax,
Company Circle-II(3)
5th Floor, New Block,
121, Mahatma Gandhi Road,
Chennai 600 034 : Appellant
versus
Indian Syntans Investments Pvt Ltd.,
rep. By N.Narayanan, Managing Director,
New No.12, Old No.71, Third Main Road,
Kasturba Nagar, Adyar,
Chennai 600 020. : Respondent
Prayer: Appeal filed against the order passed by learned Single Judge
dated 07.09.2020 in WP No.12300 of 2007.
For Appellant : Mr.B.Ramana Kumar,
Senior Standing Counsel
For Respondent : Mr.R.Sivaraman
JUDGMENT
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(Judgment of the Court was
delivered by the Hon'ble Chief Justice)
This writ appeal impugns an order and judgment dated 07.09.2020
passed by the learned Single Judge quashing a notice under Section 148 of
the Income Tax Act, 1961 (for short, 'the Act') and the consequential
proceedings.
2. Respondent is the assessee. Respondent had filed a return of
income on 27.10.2000 for assessment year 2000-01, and an intimation
under Section 143(1) of the Act was issued. No proceedings for assessment
had taken place thereafter.
3. A notice dated 22.11.2006 under Section 148 of the Act came to be
issued, informing the assessee that there was reason to believe that income
chargeable to tax for AY 2000-01 has escaped assessment, within the
meaning of Section 147 of the Act. By a letter dated 04.12.2016, assessee
replied that there was no reason to believe, and requested reasons for
reopening. The assessee was provided the reasons for reopening vide a
communication dated 02.02.2007 and it reads as under:
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“Please refer to the above.
The reasons for reopening the assessment are as
follows:
“The assessee company has taken
legal proceedings against M/s.REPL Engg.
Ltd and M/s.REPL Syndergy Power System
Ltd., Mumbai for misappropriation of
company's assets while in possession as a
lease treating it as tantamounting to
criminal breach of trust. In the above
circumstances, the lease rental on Turbine
Generator amounting to Rs.48.00 Lakhs
was not recognised as income and the
interest on HP Loan of Rs.13,67 lakhs was
also not claimed as expenditure. The income
had to be brought to tax on accrual basis,
pending finalisation of legal proceedings.
Under the head 'Administrative
Expenses', the assessee had claimed an
amount of Rs.26,41,631/- as debit balance
no longer required as expenditure. As this
not an allowable expenditure, the claim has
to be verified.”
Therefore, there were reasons to believe that
income chargeable to tax has escaped assessment within
the meaning of Section 147 of the Income Tax Act, 1961
and accordingly the assessment for the asst.year 2000-
01 in this case has been reopened.”
4. The assessee filed objections by letter dated 16.02.2007 and called
upon the Revenue to drop the proceedings. The objections were rejected by
order dated 07.03.2007, following which, the writ petition came to be filed.
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By the impugned order and judgment dated 07.09.2020, the writ petition
came to be allowed.
5. The assessee had purchased two wind turbines, one each during
AY 1996-97 and 1997-98, under hire purchase agreement, from one REPL
Group Companies. These turbines were leased back to REPL Group
Companies. Subsequently, the assessee realised that the wind turbines
were fraudulently removed by the lessee REPL. Assessee voluntarily
withdrew the entire transaction claim, i.e. depreciation on the wind
turbine, interest paid and lease rental income for tax purposes and paid the
resultant tax thereon with revised return for both assessment years 1996-
97 and 1997-98. The Department accepted the revised returns, and
assessment orders under Section 143(3) of the Act have been passed.
6. Mr.Ramana Kumar for Revenue submitted as under:
(a) that proceedings under Section 143(1) of
the Act were only intimations and therefore, a
proviso to Section 147 of the Act would not apply;
b) the reasons recorded mentioned that
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there was tangible material to reopen, and
therefore, it cannot be stated that there was
change of opinion;
c) Kelvinator India Ltd. vs. ITR1 does
not apply to the facts and circumstances of the
case because in that judgment, the Apex Court has
held that there is not much of a difference in the
intent and operation of Section 147 of the Act
before amendment and after amendment, and
that the power to reopen would not mean a power
to review on a mere change of opinion. In
Kelvinator India Ltd (supra), the original
assessment was a scrutiny assessment under
Section 143(3) of the Act and the reopening of
assessment was made within a period of four
years; but on the basis of the very same
documents that were available at the time of
original assessment under Section 143(3) of the
Act.
1(320 ITR 561)
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7. Mr.Sivaraman for the assessee submitted as under:
a) Though it cannot be disputed that the
proviso to Section 147 of the Act will not apply,
the fact is, for reopening, there has to be a
tangible material and in the case at hand,
reopening is on the basis of the very same
documents that were available even when the
returns were filed;
b) Therefore, there is nothing new, and the
attempt is to go on a fishing inquiry, which is not
permissible;
c) The reason to believe itself indicates that
it is a fishing inquiry because it says “... claim has
to be verified”;
d) If verification is required to be made,
then there cannot be a reason to believe
escapement of income.
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8. In any case, the reasons recorded are ambiguous and vague, and
as held in Hindustan Lever Ltd vs. R.B.Wadkar2, the reasons
recorded must disclose the officer's mind because the reasons are the
manifestation of mind of the Assessing Officer. The reasons recorded
should be self-explanatory and should not keep the assessee guessing for
the reasons, and it has to provide link between the conclusion and
evidence.
9. Admittedly, the notice issued is beyond the period of four years.
The return of income filed by assessee was accompanied by financials that
contained a note explaining the lease transaction and a perusal of the
reasons for re-assessment make it clear that the reasons are based entirely
upon the documentation accompanying the return. No material extraneous
to that already on record or new has been discovered by the Assessing
Officer indicating income that had escaped taxation. It applies equally to
lease income as well as the claim of administrative expenses. A full and true
disclosure has been made insofar as all materials germane to the
computation of income and it forms part of return of income. In such
2 2004(268) ITR 332 (Bom)
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circumstances, escapement of income, if any, cannot be attributed to the
assessee.
10. More over, the Apex Court in Kelvinator India Ltd., (supra)
considered the case of reassessment that has been initiated within four
years. Reasons for reopening merely reiterated materials that was already
on record, as a result that the Bench came to the conclusion that the
proceedings were not one of reassessment but one of review, impermissible
under the Act.
Relevant portion reads as under:
“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, reopening could be done
under above two conditions and fulfillment 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 1st April, 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 reopen the
assessment. Therefore, post 1st April, 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 reopen 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 reassess. The
Assessing Officer has no power to review; he has the power
to reassess. But reassessment has to be based on fulfillment
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of certain precondition and if the concept of 'change of
opinion' is removed, as contended on behalf of the
Department, then, in the garb of reopening the assessment,
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 1st April, 1989,
Assessing Officer has power to re~open, 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 31st October, 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 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.”
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For the afore-stated reasons, we see no merit in these
civil appeals filed by the Department, hence, dismissed with
no order as to costs.
(emphasis supplied)
11. The settled proposition therefore is that change of opinion is an
in-built test to check abuse of power by the Assessing Officer. In the garb of
reopening the assessment, review would take place.
12. Therefore, it is clear, a reassessment made within four years or
beyond four years has to be based on tangible material de hors that is
available on record that has come to the notice of the Assessing Officer.
Recourse to proceedings for reassessment is available only if the
Department comes into possession of materials, apart from that already
available as part of its records or if primary particulars reveal discrepancies
that are not explained or resolved by the accompanying documentation.
This is subject, therefore, to the assessee having placed on record all
materials necessary for the appreciation of issues arising for assessment
including financials and annexures along with its return of income at the
first instance.
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13. Even the Hon'ble Delhi High Court in Commissioner of
Income Tax-V vs. Orient Craft Ltd3 has held that reopening of
assessment made under Section 143(1) of the Act is without jurisdiction, in
the absence of any tangible material available with the Assessing Officer to
form the requisite belief regarding escapement of income. The Court held
that in the absence of any tangible material, there will be a review in the
guise of reopening.
14. In the present case, the reasons disclose that the Assessing
Officer reached the belief that there was escapement of income, on going
through the return of income filed by assessee after it was accepted under
Section 143(1) of the Act, without scrutiny and nothing more. Therefore,
this is nothing but a review of the earlier proceedings. There is no whisper
in the reasons recorded, of any tangible material which came to the
possession of Assessing Officer subsequent to the issue of the intimation. It
reflects arbitrary exercise of the power conferred under Section 147 of the
Act.
15. In the circumstances, the appeal stands dismissed. There will be
3 [2013] 29 taxmann.com392 (Delhi)
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no order as to costs. Consequently, the interim application also stands
disposed of.
(K.R.SHRIRAM, CJ.) (SUNDER MOHAN, J.)
19.06.2025
Index : Yes
Neutral Citation : Yes
tar
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To
The Assistant Commissioner of Income Tax,
Company Circle-II(3)
5th Floor, New Block,
121, Mahatma Gandhi Road,
Chennai 600 034
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THE HON'BLE CHIEF JUSTICE
AND
SUNDER MOHAN, J.
(tar)
19.06.2025
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