Commissioner Of Income-Tax v. Vardhman Industries

Amitava Roy, C.J:— The instant appeal preferred under section 260A of the Income-tax Act, 1961, for short hereinafter referred to as “the Act”, witnesses a challenge to the judgment and order dated November 19, 2009, passed by the learned Income-tax Appellate Tribunal, Jodhpur, hereinafter referred to as “the Tribunal”, rendered in Income Tax Appeal No. 501.JU/2008 and 486.JU/2008 disposing of the same analogously.

2. We have heard Mr. K.K Bissa, learned counsel appearing on behalf of the appellant and Mr. Suresh Ojha, learned counsel for the respondent. Filtering out the unnecessary details, the facts in bare minimum indispensable for the present adjudication are that the respondent is an assessee under the Act. A survey under section 133A of the Act was conducted on March 25, 2003, at its business and office premises and, consequently, its books of account and other documents including loose papers pertaining to the assessment year 2003–04 were found and impounded. It submitted its return of income at Rs. 34,889 on September 27, 2003, and eventually following an assessment under section 143(3) of the Act, its taxable income was computed at Rs. 1,52,130. The assessee, thereafter, filed an application seeking permission to release his books of account and other records, as the assessment had already been completed and the demand on the basis thereof been paid.

3. The Assessing Officer, however, subsequent thereto initiated reassessment proceedings under section 148 of the Act on March 23, 2007, by scripting in essence that the assessee's books of account impounded following the survey, did disclosure that an income chargeable to tax Rs. 8,57,677 had escaped assessment in terms of the provisions of Explanation 2(c) to section 147 of the Act. The reassessment was, thereafter, completed on November 15, 2007, at an income of Rs. 34,93,043 by making an addition of Rs. 33,72,583 as income from undisclosed sources on the basis of the materials claimed to have been discovered during the course of survey.

4. The respondent-assessee being aggrieved, assailed this action before the learned Commissioner of Income-tax (Appeals), Bikaner, who, by order dated May 28, 2008, though upheld the validity of the process under section 148 of the Act deleted the addition of Rs. 33,66,533 made on the basis of loose papers found as a result of survey and Rs. 6,050 made on account of investments on purchase of stock and credit entry arrived at during the said exercise. Both the Revenue as well as the respondent-assessee preferred appeals before the learned Tribunal, the former being aggrieved by the deletion of the amount of income and the latter by the ruling upholding the validity of the exercise undertaken under section 148 of the Act. The learned Tribunal by the decision impugned allowed the appeal of the respondent-assessee and dismissed the one raised by the Revenue.

5. This court, while admitting the appeal on July 4, 2011, framed the following substantial question of law:

“Whether the Tribunal was justified in allowing the assessee's appeal by holding that proceedings of reassessment and issue involved under section 147/148 of the Income-tax Act for the year under consideration (2003–04) are illegal and, therefore, cannot be initiated against the assessee?”

6. Mr. Bissa, learned counsel appearing on behalf of the appellant, has emphatically argued that in the face of the disclosures surfacing from the documents and records impounded in the course of the survey, the initiation of the proceedings under section 148 of the Act and the reassessment made is valid and that the determination to the contrary made by the learned Tribunal is patently illegal warranting interference in the instant appeal. According to the learned counsel, having regard to the grounds recorded by the Assessing Officer based on the disclosures and revelations from the documents and records of the assessee impounded after the survey of its premises, it is apparent that he had reason to believe that an income of Rs. 33,72,583 had escaped assessment justifying initiation of the proceedings under section 148 of the Act. That the exercise so undertaken, was not merely as a consequence of his change of opinion, was assiduously asserted.

7. Per contra, Mr. Suresh Ojha, learned counsel for the respondent, has urged that as the documents and the records impounded not only had remained in the custody of the Assessing Officer on and from March 25, 2003, but had been taken note of and acted upon by him, while completing the assessment under section 143(3) of the Act on March 16, 2005, the initiation of the proceedings under section 148 thereof was an yield of a change in opinion rendering the action invalid. Learned counsel, inter alia, to reinforce this plea, placed reliance on the decision of the apex court in CIT v. Kelvinator of India Ltd., [2010] 320 ITR 561 (SC).

8. We have duly considered the pleaded facts, the documents on record and the arguments advanced.

9. The sequence of events recited hereinabove culminating in the impugned decision of the learned Tribunal are not in dispute. Significantly, the learned Tribunal had recorded in clear terms that the Assessing Officer in his order dated March 16, 2005, while making the assessment under section 143(3) of the Act mentioned about the factum of survey under section 133A as well as the impounding of the documents found in course thereof which remained with the Department since thereafter. That these impounded documents and records were test checked was affirmed as well in the assessment order. The Tribunal noticed that the assessment order under section 143(3) of the Act was made after duly considering the materials discovered during the course of the survey. It, thus, recorded its conclusion that the assessment was made on due application of mind to all the available records. Referring to various judicial pronouncements, the Tribunal held that section 147 of the Act did not postulate conferment of power upon the Assessing Officer to initiate proceedings on the basis of mere change of opinion. The finding of the learned Commissioner of Income-tax (Appeals) upholding the reassessment proceedings was, thus, interfered with. Consequently, the appeal of the respondent-assessee was allowed and that of the Revenue was dismissed.

10. On a plain perusal of the assessment order dated March 16, 2005, rendered under section 143(3) of the Act makes it abundantly dear that the Assessing Officer had not only referred to the impounded documents and records found in the course of the survey under section 133A of the Act from the business and office premises of the respondent-assessee but also those were test checked and evaluated in undertaking that exercise. There is, thus, no reason whatsoever to differ from the finding recorded by the learned Tribunal to this effect. The assessment order dated March 16, 2005, assuredly did follow amongst others on the scrutiny of these impounded documents and records. Not only these had remained with the Department since after the impounding thereof on March 25, 2003, these were examined and tested for working out the tax liability of the respondent-assessee for the assessment year in question. In this view of the matter, the endeavour on the part of the Assessing Officer to initiate a reassessment proceeding under section 147/148 of the Act on the purported ground that the same records/documents did disclose that the amount of Rs. 33,72,583 had escaped assessment, is unconvincing and untenable as well. Such a conclusion in the singular facts and circumstances of the case, in our comprehension, does certainly stem from a change in opinion, entertained by the Assessing Officer.

11. It is no longer res integra that a mere change in the opinion of the Assessing Officer after completion of the assessment under section 143(3) of the Act is not a legally approved determinant for valid initiation of reassessment proceeding under section 147 of the Act the essential and inviolable condition precedent therefor being the reason to believe that any income chargeable to tax has escaped assessment Such a reason has to be essentially traceable to discoveries and satisfaction from new and hitherto unexplored sources and materials and not to a view of his own differently oriented on the basis of the same inputs, once considered and applied.

12. The Hon'ble apex court in CIT v. Kelvinator of India Ltd. (supra), while dwelling on this prescription of section 147 of the Act, enunciated that with the schematic interpretation of the words “reason to believe” did not admit of conferment of arbitrary powers to the Assessing Officer to reopen assessment on the basis of mere change of opinion. It was held that the Assessing Officer had no power to review but to reassess and that reassessment has to be essentially based on the fulfilment of certain preconditions, as legislatively ordained. In the attendant facts and circumstances, having regard to the above noted judicially propounded essentiality for a valid invocation of power under section 147 of the Act, we find no cogent or convincing reason to interfere with the impugned judgment and order.

13. The appeal, thus, fails and is hereby dismissed.