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Case Number

ITA No. 6847.MUM/2012 Assessment Year: 2003-04

Advocates

Assessee by: Mr. Dinesh Vyas, Sr. Advocate
Revenue by: Mrs. Vidisha Kalra, CIT-DR

Judges

D.T Garasia, J.M
N.K Pradhan, A.M

Acts

u/s 143(3) r.w.s 147 of the Income Tax Act 1961, (the Act).2.
u/s 147 r.w.s 143(3) of the I.T Act, 1961
u/s 143(3) of the I.T Act, 1961
Laws (Amendment) Act 1987, (i)

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Smart Summary

Concise Analytical Summary of the Opinion

Factual and Procedural Background

The assessee filed its return of income for assessment year (AY) 2003-04 on 27.11.2003 declaring a total income of Rs. 153,22,95,562/-. The Assessing Officer (AO) completed assessment under section 143(3) on 14.12.2005 and assessed total income at Rs. 205,35,29,372/-. On 24.03.2010 the AO issued a notice under section 148 (reopening under section 147), recording reasons that deduction under section 36(1)(viii) had been allowed in excess (alleged excess allowance Rs. 5,57,64,672/-) because apportionment of deduction under section 36(1)(viia) against profits from long-term finance was, according to the AO, incorrect.

The assessee appealed against the reopening and the order of the Commissioner of Income Tax (Appeals) [CIT(A)] who had dismissed the assessee's ground, holding (i) there was failure to disclose fully and truly material facts about the nature of the finances for claiming deduction under section 36(1)(viii) and (ii) several finances were not of the nature of long-term finance and hence did not qualify for the deduction.

Before the Tribunal, the assessee challenged the validity of the reopening (contending absence of failure to disclose and that the reopening amounted to a mere change of opinion), while the Departmental Representative supported the CIT(A)'s view. The Tribunal heard submissions, examined documents (return, Annexure-B, Notes 10 and 11, notices under sections 142(1) & 143(2), the assessee's letters and working papers dated 14.11.2005 and 24.11.2005, and the assessment order of 14.12.2005), and delivered the impugned decision quashing the notice under section 148 and cancelling the order dated 30.12.2010 under section 143(3) r.w.s. 147. The appeal was allowed.

Legal Issues Presented

Whether the reopening of assessment for AY 2003-04 by issuance of notice under section 148 (reassessment under section 147) after more than four years was valid — specifically, whether the AO had "reason to believe" that income had escaped assessment and whether the escapement was due to the assessee's failure to disclose truly and fully all material facts.
Whether the reopening constituted merely a change of opinion on the same facts and law (which would render reassessment impermissible), or was supported by tangible material justifying reopening beyond four years.

Arguments of the Parties

Appellant's Arguments

The assessee had not failed to disclose fully and truly all material facts necessary for assessment; the information and computations relevant to the claim were submitted with the return (Annexure-B, Notes 10 and 11) and during assessment proceedings.
There was no tangible material before the AO to justify reopening the assessment; the reopening amounted to a mere change of opinion by the AO.
Reliance was placed on a number of authorities (including CIT v. Foramer France; Desai Brothers v. DCIT; Bhor Industries v. ACIT; CIT v. Kelvinator of India Ltd; Cartini India Ltd v. ACIT) to support the proposition that reassessment cannot be based on mere change of opinion and that reopening after four years requires tangible material or failure to disclose.
The assessee pointed to documentary record before the AO: computation annexures, notices under sections 142(1) & 143(2) with questionnaire, a letter dated 14.11.2005 providing working and justification for the deductions, and further working submitted on 24.11.2005 in obedience to AO's directions; these show disclosure and engagement with the AO on the issue.

Respondent's Arguments (Department / DR)

The Department contended there was a failure by the assessee to disclose fully and truly material facts concerning the nature of the finances for claiming deduction under section 36(1)(viii).
It was argued that numerous financings shown by the assessee were not in fact long-term finance and thus ineligible for deduction under section 36(1)(viii), supporting the AO's reason to believe that income had escaped assessment.
Reliance was placed upon Dr. Amin's Pathology Laboratory v. JCIT (2001) 252 ITR 673 to support the proposition that reopening may be valid in circumstances where the AO later discovers that an item was overlooked or incorrectly dealt with.

Table of Precedents Cited

Precedent	Rule or Principle Cited For	Application by the Court
CIT v. Foramer France, (2003) 264 ITR 566 (SC)	Cited by the appellant (specific rule not detailed in the opinion).	The decision was relied upon by the appellant; the opinion does not elaborate a specific application of this case to the facts.
Desai Brothers v. DCIT, 272 ITR 335 (Bom)	Cited by the appellant (specific rule not detailed in the opinion).	Referenced by counsel; the opinion does not state a particular aspect or application drawn from this case.
Bhor Industries v. ACIT, 267 ITR 161 (Bom)	Cited by the appellant (specific rule not detailed in the opinion).	Referenced by counsel; the opinion does not record a concrete application of this precedent.
CIT v. Kelvinator of India Ltd — Full Bench (256 ITR 1)	Held that the AO must have "reason to believe", a mere change of opinion does not justify reassessment, and AO does not have power of review on same facts and law.	The Tribunal relied on the Full Bench principle that reassessment after acceptance in the original assessment cannot proceed on mere change of opinion.
CIT v. Kelvinator of India Ltd — (320 ITR 561) (SC)	Affirmed the principle that tangible material is required to reopen assessment and mere change of opinion is not sufficient; emphasises "reason to believe".	The Tribunal cited the Supreme Court authority to support the requirement of tangible material and the "reason to believe" standard for reopening, particularly for proceedings after four years.
Cartini India Ltd. v. ACIT, 314 ITR 275 (Bom)	Cited by the appellant (specific rule not detailed in the opinion).	Mentioned as relied upon by the appellant; the opinion does not set out a specific use of this precedent.
Dr. Amin's Pathology Laboratory v. JCIT, (2001) 252 ITR 673	Held that mere production of accounts may not amount to disclosure within proviso to s.147; where AO overlooked an item and later noticed it, reassessment could be sustained (facts-driven).	The Tribunal considered this decision (relied upon by the Department) and distinguished it on facts because in the present case the assessee had submitted specific working and justification to the AO before completion of the original assessment.
Balkrishna Hiralal Wani v. ITO, 321 ITR 519	Cited as authority that reassessment after four years is unsustainable without material that shows failure by assessee to disclose fully and truly.	Used to support the Tribunal's statement that reopening after four years requires tangible material showing failure of disclosure; cited as part of the line of authorities applying this principle.
Asian Paints Ltd. v. DCIT, 308 ITR 195	Cited as authority affirming that reopening after four years demands tangible material and cannot be a mere change of opinion.	Relied upon by the Tribunal as part of the supporting authorities for the rule that mere change of opinion is not a ground for reassessment after four years.
D.T & T.D.C Ltd. v. ACIT, 324 ITR 234	Cited among authorities reinforcing the requirement of tangible material for reopening assessments.	Referenced by the Tribunal in the compilation of authorities that constrain reopening on the basis of mere change of opinion.
Satnam Overseas Ltd. v. ACIT, 329 ITR 237	Cited as a supporting authority that reopening cannot be based on mere change of opinion and requires justification.	Used by the Tribunal as part of the jurisprudential support for quashing the reassessment notice issued after four years.

Court's Reasoning and Analysis

The Tribunal's reasoning proceeded by applying established principles governing reopening under section 147 and notices under section 148, and by careful examination of the contemporaneous record:

Record review: The Tribunal noted that the assessee had claimed deduction under section 36(1)(viii) in the return (supported by Annexure-B and Notes 10 & 11) filed for year ended 31.03.2003.
Engagement with AO: The AO had issued notices under sections 142(1) and 143(2) on 09.09.2005 with a questionnaire specifically asking for a brief note and workings for deductions under sections 36(1)(viia) and 36(1)(viii). The assessee responded by letter dated 14.11.2005 with working and justification, and further submitted working on 24.11.2005 as per AO's directions. The AO then completed assessment on 14.12.2005 admitting deduction under section 36(1)(viii) at Rs. 54,44,51,395/-.
AO's reason for reopening: The AO's recorded reason for reopening (24.03.2010) asserted that apportionment of the section 36(1)(viia) deduction against profits from long-term finance should have been a larger amount (Rs. 29,15,25,000) based on the percentage share of long-term finance profits; thus alleging an excess allowance under section 36(1)(viii) of Rs. 5,57,64,672 and arriving at a "reason to believe" that income had escaped assessment.
Legal standard applied: The Tribunal reiterated the settled legal principle (as in Kelvinator and allied authorities) that even after amendments, reopening requires the AO to have "reason to believe" that income has escaped assessment and that a mere change of opinion on the same facts and law is not sufficient to justify reassessment. For reassessments initiated after four years, it must be shown that the escapement was due to the assessee's failure to disclose truly and fully all material facts.
Distinguishing contrary authority: The Tribunal considered and distinguished Dr. Amin's Pathology Laboratory because, unlike that case where the AO had overlooked an item in the accounts, here the assessee had furnished specific workings and justifications to the AO during the assessment proceedings (14.11.2005 letter and 24.11.2005 working), and the AO had accepted the deduction in the assessment order dated 14.12.2005.
Application to facts: On the specific material before it, the Tribunal found that the AO failed to establish that the escapement of income was by reason of the assessee's failure to disclose fully and truly the material facts necessary for the claim of deduction under section 36(1)(viii). The sequence of disclosures and the AO's acceptance at the original assessment led the Tribunal to conclude that the reopening represented a change of opinion rather than the discovery of new tangible material showing non-disclosure.
Conclusion from analysis: Given the lack of demonstrable failure of disclosure and the legal standard requiring tangible material for reopening after four years, the Tribunal quashed the notice under section 148 and cancelled the subsequent reassessment order under section 143(3) r.w.s. 147 dated 30.12.2010.

Holding and Implications

Core Holding: The appeal is allowed; the notice under section 148 (reopening) is quashed and the order under section 143(3) r.w.s. 147 dated 30.12.2010 is cancelled.

Direct implications:

The reassessment proceedings initiated by the AO by notice dated 24.03.2010 (under section 148) are invalidated and the reassessment order dated 30.12.2010 is set aside.
The effect is that the original assessment as completed on 14.12.2005 (which admitted the deduction under section 36(1)(viii) as applied by the AO at that time) stands, subject to any other legal remedies or steps not addressed in this opinion.

Broader implications: The Tribunal applied established jurisprudence (including Kelvinator and related authorities) reaffirming that reopening after four years requires tangible material or proof of failure to disclose fully and truly — and that a mere change of opinion by the AO is not a valid ground for reassessment. The opinion does not purport to create a new precedent; it applies settled principles to the facts before it.

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Export Import Bank Of India v. Cit

N.K Pradhan, A.M:— This is an appeal filed by the assessee. The relevant assessment year is 2003-04. The appeal is directed against the order of the Commissioner of Income Tax (Appeals)-6, [in short ‘CIT(A)’] Mumbai and arises out of the assessment completed u/s 143(3) r.w.s 147 of the Income Tax Act 1961, (the ‘Act’).

2. The 1 ground raised by the appellant in this appeal is that the Ld. CIT(A) ought to have held that the order passed u/s 143(3) r.w.s 147 dated 30.12.2010 is bad in law.

3. Briefly stated, the facts of the case are that the appellant filed its return of income for the assessment year under consideration on 27.11.2003 disclosing total income of Rs. 153,22,95,562/-. The Assessing Officer (AO) completed the assessment u/s 143(3) on 14.12.2005 assessing the total income at Rs. 205,35,29,372/-.

Subsequently, the AO reopened the assessment u/s 147 by issuing notice u/s 148 of the Act on 24.03.2010 The reasons recorded by him for reopening the assessment reads as under:

“In this case, assessment u/s 143(3) of the I.T Act, 1961 was completed on 14.12.2005, assessing the total income at Rs. 205,35,29,372/-. On perusal of the records, it is observed that assessee was allowed deduction of Rs. 54,44,51,395/- being 40% of the profits from the long-term financing u/s 36(1)(viii), calculated after deducting a sum of Rs. 15,21,13,320/- u/s 36(1)(viia). In this regard, it is observed that profits from long-term finance before giving deductions u/s 36(1)(viia) & 36(1)(viii) was Rs. 151,32,41,807/-, whereas the total profits of the assessee as per assessment order before giving deduction u/s 36(1)(viia) and 36(1)(viii) amounted to Rs. 300,40,10,921/-. Thus, the percentage of profit from long-term finance was 50.37% of the total profits.

The total deduction allowed u/s 36(1)(viia) was Rs. 57,50,00,000/-. Thus, for the purpose of computation of deduction u/s 36(1)(viii), the amount of deduction which has to be made u/s 36(1)(viia) from profits of long-term finance should have been Rs. 29,15,25,000/- (i.e Rs. 57,50,00,000/- × 50.37%). However, in the computation of deduction allowable u/s 36(1)(viii), the amount deduction u/s 36(1)(viia) was Rs. 15,21,13,320/- only. Thus, there was excess allowance of deduction u/s 36(1)(viii) amounting to Rs. 5,57,64,672/-.

In view of the above, I have reason to believe that the income to the tune of Rs. 5,57,64,672/- has escaped assessment resulting into short levy of tax.

Therefore, the assessee's case is hereby reopened for reassessment u/s 147 r.w.s 143(3) of the I.T Act, 1961 for AY 2003-04.”

4. In appeal, the Ld. CIT(A) dismissed the said ground filed by the appellant on the reason that (i) there was failure on the part of the assessee to disclose fully and truly the material fact in respect of the nature of finance made by it for claiming deduction u/s 36(1)(viii) in the return of income or even in the assessment proceedings, (ii) the material fact has been discovered that numerous finances made by the assessee were actually not of the nature of long term finance and therefore, such finance did not qualify for deduction u/s 36(1)(viii) of the Act.

The Ld. CIT(A) thus dismissed the ground of appeal filed by the assessee against the notice issued by the AO u/s 148 of the Act.

5. Before us, the Ld. counsel of the appellant submits that there was no failure on the part of the assessee to disclose fully and truly all the material facts necessary for the assessment. It is further stated that there was no tangible material before the AO for reopening the assessment. Thus it is stated that it is a mere change of opinion by the AO. In this regard he placed reliance inter alia on the decision in CIT v. Foramer France, (2003) 264 ITR 566 (SC), Desai Brothers v. DCIT, 272 ITR 335 (Bom), Bhor Industries v. ACIT, 267 ITR 161 (Bom), CIT v. Kelvinator of India Ltd, 320 ITR 561 (SC), Cartini India Ltd. v. ACIT, 314 ITR 275 (Bom).

The Ld. counsel filed a Paper Book (P/B) and drew our attention to (i) computation of total income for the year ended 31.03.2003 along with Annexure ‘B’ and Note 10 and 11, (ii) notice u/s 142(1) & 143(2) issued by the AO on 09.09.2005 along with questionnaire, (iii) letter dated 14.11.2005 filed by the appellant before the AO (iv) working for deduction u/s 36(1)(viii) submitted by the appellant before the AO based on his direction vide letter dated 24.11.2005 and (v) the assessment order dated 14.12.2005 passed by the AO u/s 143(3).

From the above documents, the Ld. counsel submits that there was no failure on the part of the appellant to disclose fully and truly all the material facts necessary for the assessment and it was a case of mere change of opinion by the AO.

6. Per contra, the Ld. DR supports the order of the Ld. CIT(A) stating that there was failure on the part of the assessee to disclose fully and truly all the material facts about the nature of finance made by the assessee for claiming deduction u/s 36(1)(viii). It is stated that numerous finances made by the assessee did not qualify from deduction u/s 36(1)(viii).

Reliance is placed by her on the decision in the case of Dr. Amin's Pathology Laboratory v. JCIT, (2001) 252 ITR 673.

7. We have heard the rival submissions and perused the relevant materials on record. The reasons for our decision are given below.

Having examined the relevant materials on record, we find that the appellant had claimed deduction u/s 36(1)(viii) in the computation of total income for year ended 31.03.2003 filed along its ‘Return of Income’. The same was annexed to the ‘Return of Income’ as ‘Annexure-B’ and as ‘Note 10 and 11’ (page 1-7 of P/B).

The AO issued notice u/s 142(1) and 143(2) to the appellant on 09.09.2005 along with a questionnaire. We find that at serial no. 6 of the said questionnaire the AO had asked the appellant to file brief note on claim of deduction u/s 36(1)(viia) and 36(1)(viii) and working and justification thereof (page 8-13 of P/B).

In response to the above, the appellant filed letter dated 14.11.2005 addressed to the AO submitting the working and justification for claim of deduction u/s 36(1)(viia) and 36(1)(viii) (page 14-19 of P/B).

Again, the assessee filed before the AO on 24.11.2005 the working for deduction u/s 36(1)(viii) based on his directions (page 20-24 of the P/B).

Then the AO completed the assessment u/s 143(3) on 14.12.2005 determining the admissible deduction u/s 36(1)(viii) at Rs. 54,44,51,395/-.

7.1 At this stage, we may refer to the decision in Dr. Amin's Pathology Laboratory (supra) relied on by the Ld. DR. In that case the assessee had filed its return of income for the AY 1994-95 showing certain income and the same was accompanied by duly audited accounts for the year ending 31.03.1994 and by a tax audit report u/s 44AB. The AO passed the assessment u/s 143(3). Subsequently, he found that he overlooked an entry representing unpaid purchase in respect of which he had wrongly granted a deduction and therefore, he issued a notice u/s 148 for reassessment. On writ, the assessee contended that the period of four years elapsed on 31.03.1999, whereas, notice u/s 148 was issued on 14.03.2001 He further contended that under the proviso to section 147, reopening of assessment could be effected only if he had failed to disclose truly and fully all facts, and as he had disclosed all the facts, the case merely involved change of opinion.

The Hon'ble High Court held:

“Therefore, mere production of the balance-sheet, profit and loss account or account books will not necessarily amount to disclosure within the meaning of the proviso. In the instant case, the facts showed that the Assessing Officer overlooked the aforestated item. That, he noticed it subsequently. That, at the time of passing the original order of assessment, he could not be said to have opined on the above item. Consequently, there was no change of opinion. Therefore, in the instant case, the impugned notice was to be sustained.”

7.1.1 We find that it is not a question of mere production of the balance sheet, profit and loss account or account books in the instant case. As mentioned earlier, the appellant filed letter dated 14.11.2005 addressed to the AO submitting the working and justification for claim of deduction u/s 36(1)(viia) and 36(1)(viii) (page 14-19 of P/B). Again, the appellant filed before the AO on 24.11.2005 the working for deduction u/s 36(1)(viii) based on his directions (page 20-24 of the P/B).

Therefore, the case of the appellant is distinguishable from the above decision relied on by the Ld. DR.

7.2 A Full Bench of the Hon'ble Delhi High Court in CIT v. Kelvinator, 256 ITR 1 held that even after the Direct Tax Laws (Amendment) Act 1987, (i) the AO must have ‘reason to believe’ that income has escaped assessment, (ii) a mere change of opinion does not justify a reassessment and (iii) the AO does not have the power of review on the same set of facts and law.

The re-assessment proceedings cannot be initiated by the AO when he has accepted the matter in the original assessment, therefore, indicating a mere change of opinion. The principle that there must be tangible material on the basis of which an assessment is sought to be re-opened even within a period of four years is now well established in view of the judgment of the Hon'ble Supreme Court in CIT v. Kelvinator, 320 ITR 561 (SC).

Indisputably, in the instant case, the AO has issued notice u/s 148 after four years from the relevant assessment year. We find that notice for reassessment issued after four years from the end of the relevant assessment year is unsustainable where there is no material to hold that there was a failure on the part of the assessee to disclose true and full facts resulting in escapement of income. The reason that some material which was available on record while making the assessment order, was inadvertently excluded from consideration, was held to be a re-opening merely on change of opinion and not valid. We refer here to the decision in Balkrishna Hiralal Wani v. ITO, 321 ITR 519; Asian Paints Ltd. v. DCIT, 308 ITR 195; D.T & T.D.C Ltd. v. ACIT, 324 ITR 234; Satnam Overseas Ltd. v. ACIT, 329 ITR 237.

To sum up, even under the amended law, in all cases, there must exist reason to believe that income has escaped assessment and a mere change of opinion on the same facts and law does not justify a reassessment. For a reassessment proceeding initiated after four years, it must further be established that the escapement was by reason of failure of the assessee to disclose fully and truly all material facts.

Having perused the relevant materials on record, we find that the AO has not established that the escapement of income was by reason of failure on the part of the assessee to disclose fully and truly all material facts for claiming deduction u/s 36(1)(viii).

In view of the above set of facts and position of law, we quash the notice u/s 148 issued by the AO after four years from the end of the relevant assessment year.

Consequently, the order u/s 143(3) r.w.s 147 dated 30.12.2010 is cancelled.

8. In the result, the appeal is allowed.

Export Import Bank Of India v. Cit

Concise Analytical Summary of the Opinion

Factual and Procedural Background

Legal Issues Presented

Arguments of the Parties

Appellant's Arguments

Respondent's Arguments (Department / DR)

Table of Precedents Cited

Court's Reasoning and Analysis

Holding and Implications

Export Import Bank Of India v. Cit

Comments