Deputy Commissioner of Income-tax v. Kelvinator of India

Per B.R. Jain, AM - This appeal is directed against the order of the CIT(A) - III, New Delhi, dated 23-8-1991. The only ground raised by the revenue is as under :—

"On the facts and in the circumstances of the case, the ld. CIT(A) erred in holding that the proceedings initiated under section 147 of the I.T. Act by issue of notice under section 148 on 20-4-1990 were not valid, without taking into consideration the amended provisions of section 147 introduced by the Direct Tax Laws (Amendment) Act, 1987 w.e.f. 1-4-1989."

2. The Ld. D.R. has argued that the order of the CIT(A) has erred in holding that the Assessing Officer was not entitled to commence proceedings under section 147(a) or 147( b) and thus the re-assessment proceedings initiated by virtue of notice under section 148 are not valid. He has also argued that notice issued under section 148 read with section 147 is procedural in nature. The amendment in these sections has been made by the Direct Tax Laws (Amendment) Act, 1987 w.e.f. 1-4-1989 and it was therefore urged that the action of the AO in applying the amended provisions of the Act is a valid action and needs to be sustained.

3. On the other hand, Shri Ajay Vohra, the learned Authorised Representative has heavily placed reliance on the order of the CIT(A). It has also been pointed out that the Department has not shown as to how the amended provisions of section 147 were applicable in his case. It was also pointed out that the return was originally filed on 29-6-1987 declaring an income of Rs. 1,62,890. This return was subsequently revised by the assessee by reducing disallowance of guest house expenses of Rs. 2,67,485 to Rs.91,485 by placing reliance on the judgment of the Hon’ble Bombay High Court in the case of CIT v. Chase Bright Steel Ltd. (No. 1) [1989] 177 ITR 124/ 42 Taxman 142 enclosing therewith a letter dated 5-10-1989. In this letter it was clearly mentioned that expenditure on rent for guest house amounting to Rs. 1,76,000 was not hit by the provisions of section 37(4) of the Act. Notice under section 147 was issued by the Assessing Officer on 20-4-1990 and the ground on which such notice was apparently issued (other than those which were to be non-existent) was alleged as lower disallowance under sec. 37(4) of the Act to the extent of Rs. 2,42,441. It has been shown that in the re-assessment completed on 24-9-90 the only addition made by the Assessing Officer is on account of disallowance under sec. 37(4) for Rs. 2,42,441 only. The Authorised Representative has pointed out that the amended section does not speak that its operation shall be with retrospective date. It has also been argued that final assessment should not be disturbed unless expressly provided in the Act. Reliance has been placed on the judgment of the Hon’ble Apex Court in the case of Govinddass v. ITO [1976] 103 ITR 123 . Reliance has also been

placed on the judgment of the CED v. M.A. Merchant [1989] 177 ITR 491/ 44 Taxman 274 (SC) and Srinivasa Metal Works v. ITO [1987] 20 ITD 768 (Hyd.) and accordingly it was urged that reassessment has to be adjudged vis-a-vis old laws. On facts, it was argued that this case was a mere change of opinion and the Assessing Officer has merely enlarged the disallowance in the re-assessment proceedings. Reliance has also been placed on various judgments in the case of Kaira District Co-operative Milk Producers Union Ltd. v. Asstt. CIT [1996] 220 ITR 194 / 87 Taxman 144 (Guj.), Garden Silk Mills Ltd. v. Dy. CIT (No. 2) [1996] 222 ITR 68 (Guj.) VXL India Ltd. v. ACIT [1995] 215 ITR 295 (Guj.) and Naginbhai G. Patel v. ITO [1996] 134 CTR (Guj.) 210. It has been thus argued that the issue of notice under section 148 is bad in law and the CIT(A) has not committed any error in upholding the issuance of notice as invalid.

4. After careful consideration of the material on record and the rival submissions, we are of the opinion that revenue’s appeal is on the legal issue of assuming jurisdiction under section 147 of the Act by virtue of powers conferred on him under the amended provisions w.e.f. 1-4-89 and thereby validity of such an action. Accordingly, we are inclined to deal with the issue of jurisdiction under the amended Act first and thereafter the validity of issuance of notice.

5. The Ld. CIT(A) while holding the proceedings initiated as invalid has considered the issuance of notice under section 148 by basing his finding on the applicability of provisions of sections 147(a) and 147(b) of the Act whereas the case of the revenue is that there was amendment in the I.T. Act, w.e.f. 1-4-89 and separate clauses (a) and (b) have been deleted from section 147, of the Act. On a simple reading of the amended section 147 read with Explanations 1 and 2, it is seen that it also covers cases where income chargeable to tax is deemed to have been escaped assessment or if it had been under assessed or assessed at too low a rate or if any excessive relief or depreciation allowance or any other allowance had been allowed to the assessee. The case of the revenue is for assessment year 1987-88 which falls within a period prior to date of amendment on 1-4-1989 in the Income-tax Act, 1961. The original assessment in this case was completed by the Assessing Officer on 17-11-1989 and the copy of assessment order had been placed at pages 33 to 40 of the paper book. The issue raised by the Ld. counsel for the assessee that final assessment should not be disturbed unless it is expressly provided to have retrospective operation of a statute by placing reliance on the judgment of the Hon’ble Apex Court in Govinddass’case (supra) relate only to matters which take away or impair an existing right or create a new obligation or to impose new liability otherwise than as regards the matter of procedure. In the case before us, the matter relates to procedural action only.

6. In another case relied by the Authorised Representative in the case of Srinivasa Metal Works (supra) it was held that although limitation is a procedural law and although the legislation can extend the period of

limitation, an important right accrues to an assessee when the remedy against him is barred by the existing law of limitation. The Ld. A.R. has not brought any material on record to prove that such a right vested in him. Similarly reliance placed on the judgment of the Hon’ble Gujarat High Court in M.A. Merchant’s case (supra) is of no help to the respondent- assessee as the original assessment in the case of respondent-assessee has been completed on 17-11-1989 which is a date after the amendment in I.T. Act effective from 1-4-1989.

7. A right can be said to have accrued to an assessee where the assessments have been completed and they are barred by limitation. Unless an assessment is barred by limitation, the right of re-opening of assessment continues to vest with the revenue. Of course, such a right can only be exercised judiciously but not capriciously. But once such a right ceases to vest with the revenue, it automatically divests to an assessee. It is only at this stage where an assessee can say that his right is being taken away or that a new obligation or a new liability is being imposed on him by way of applying the procedures on him with a retrospective date.

8. In a simpler form the position is summed as follows :^__

"The cases where assessments have been completed prior to 31-3-89 and limitation under section 153 of the I.T. Act, 1961 has also expired, then the revenue does not have a right of reopening of the completed assessment under the old provisions of Act, i.e. prior to amendments made by Finance Act, 1987 w.e.f. 1-4-1989. It is because the right of revenue for reopening an assessment gets vested in an assessee and such matters are considered as dead or closed matters for the purpose of assessment. It is thus where the legislation does not make an amendment by specifically enacting its applicability with retrospective date, then any amendment made in the procedural sections cannot penetrate into the limited scope with retrospective effect."

9. In the case of the appellant the matter of assessment was not closed matter but a matter fully alive on the date when the amendment was made effective. The original assessment was completed on 17-11-1989 and a notice under section 148 was issued on 20-4-90. When the issue is examined on the basis of availability of limitation in the case of the present assessee before us, we find that the period of limitation has also not expired. In case the limitation had already expired then the amended law could have not revived matter which was to be treated as closed or dead. It is also established law that no one has vested right in procedural law and whenever change is made with regard to procedure, it is retrospective in nature. However, here we are of the clear opinion that the existing right of a person cannot be impaired nor any liability can be created nor penetration can be done into an existing right of a person by extending the scope of amendment retrospectively unless it has been specifically provided in the statute. We find that in case of amendment made in section 147 of the Act no specific provision has been made by the legislation for making their applicability with retrospective effect in respect of the matters where the limitation had already been expired. Accordingly, we are of the opinion that such amendments could be made effective from retrospective date only in such cases where limitation has not expired up to the date of bringing the amendment into effect, i.e., up to 1-4-1989. As all such cases where the time limitation has not expired up to 1-4-1989, the amended provisions will give an exhaustive right to reopen the cases with retrospective effect as per amended provisions of the Act. We find that in the case of respondent-assessee not only that the limitation period had not expired but the original assessment was also not completed prior to coming of the amendment in force w.e.f. 1-4-1989. Accordingly, in such a situation we hold that the Assessing Officer was having legal jurisdiction in initiating the procedure under section 147 of the Act by issue of notice under section 148 on 20-4-1990 under the amended provisions of section 147 introduced by the Direct Tax Laws (Amendment) Act, i.e. 1-4-1989.

10. In the preceding para, we have held that the Assessing Officer was having legal jurisdiction under section 147 of the Amended Act but whether the action taken by the Assessing Officer in the case of the appellant is a valid action or not is being considered hereinafter.

11. The AR before the CIT(A) has made out a case that the Assessing Officer has merely changed his opinion. Before us, it has been argued that the only effective addition has been made in respect of guest house expenses by way of enlarging the disallowance which the Assessing Officer had made originally at a lower figure after considering the details filed and legal position relied upon by the appellant.

12. After hearing the rival submissions and careful consideration of the material on record, we find that the Assessing Officer has made a disallowance of Rs. 91,485 only in the original assessment after considering the submission of the respondent-company in view of the Hon’ble Bombay High court decision in the case of Chase Bright Steel Ltd. (No.1) (supra). The CIT(A) has discussed the position on this issue in great detail and has held it to be a mere change of opinion. The cases relied upon by the assessee also support its contention inasmuch as the reassessment cannot be sustained on a mere change of opinion. The D.R. also could not draw any distinction as to how the action taken by the Assessing Officer under the amended provision was a valid action. Keeping in view the overall position, we hold that this was a case of mere change of opinion. Accordingly, we uphold the action of the CIT(A) in annulling the reopening of the assessment.

13. In the result, the appeal filed by the revenue is dismissed.