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| DATE: | January 6, 2013 (Date of publication) |
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| Click here to download the judgement (orient_carft_143_1_Intimation_147_reopening.pdf) |
Even s. 143(1) Intimation cannot be reopened u/s 147 without “fresh material”
The assessee filed a ROI in which it claimed s. 80HHC deduction of Rs. 13.35 crores. The AO accepted the ROI u/s 143(1). He thereafter reopened the assessment u/s 147 on the ground that the sale proceeds of the quota was wrongly considered as export turnover and that it was business profits and 90% thereof had to be reduced u/s 80HHC. The assessee challenged the reopening on the ground that as there was no “fresh material“, the AO had no jurisdiction to reopen the s. 143(1) Intimation. This was upheld by the Tribunal (order attached) by relying on Kelvinator of India 320 ITR 561 (SC). On appeal by the department to the High Court, HELD dismissing the appeal:
S. 147 permits an assessment to be reopened if there is “reason to believe“. It makes no distinction between an order u/s 143(3) or an Intimation u/s 143(1). Accordingly, it is not permissible to adopt different standards while interpreting the words “reason to believe” vis-à-vis s. 143(1) and s. 143(3). The department’s argument that the same rigorous standards which are applicable in the interpretation of the expression when it is applied to the reopening of a s. 143(3) assessment cannot apply to a s. 143(1) Intimation is not acceptable because it would place an assessee whose return is processed u/s 143(1) in a more vulnerable position than an assessee in whose case there is a full-fledged s. scrutiny assessment u/s 143(3). Whether the return is put to scrutiny or is accepted without demur is not a matter which is within the control of assessee. An interpretation which makes a distinction between the meaning and content of the expression “reason to believe” between a case where a s. 143(3) assessment is made and one where an Intimation u/s 143(1) is made may lead to unintended mischief, be discriminatory & lead to absurd results. In Kelvinator 320 ITR 561 (SC) it was held that the term “reason to believe” means that there is “tangible material” and not merely a “change of opinion” and this principle will apply even to s. 143(1) Intimations. On facts, the AO reached the belief that there was escapement of income “on going through the ROI” filed by the assessee. This is nothing but a review of the earlier proceedings and an abuse of power by the AO. There is no whisper in the reasons recorded of any tangible material which came to the possession of the AO subsequent to the issue of the Intimation. It reflects an arbitrary exercise of the power conferred u/s 147 (Rajesh Jhaveri Stock Brokers 291 ITR 500 (SC) distinguished)
The editorial note stating that the recent decision in CIT vs Orient Craft Ltd. Is in contrast with the full bench verdict in the case of Usha International in which it was held that even if in the case of assessment u/s 143(3) AO did not made specific enquiry, the reassessment proceeding cannot be said as change of opinion. In my opinion the issue involved in both the cases are different and the decision in the case of Orient Craft Ltd cannot be said to contrast to the decision of Usha International as in the case of Orient Craft Ltd, the issue on which assessment was reopened was already decided in the favor of the assessee by the tribunal and the CIT(A) in earlier years. Because of this reason the Tribunal and the High Court held that since there is no new material after the decision of the Tribunal considering the CBDT instruction available before the assessing officer on which belief of escapement can be framed, therefore it was held that where the main ingredient of section 147 i.e. reason of belief for escapement of income was absent and therefore the proceeding u/s 143(1) or section 143(3) had no implication on the case under consideration.
In terms of S. 143(2) (ii) it is mandate upon the AO to issue notice u/s 143(2) to initiate scrutiny assessment proceedings if he consider that it is necessary or expedient to ensure whether the assessee has disclosed income properly and has not made excessive claims or paid lower taxes etc. Therefore, even a decision not to issue notice u/s 143(2) means that the AO has formed an opinion that scrutiny assessment and enquiry is not necessary or expedient.
Therefore, anything or information or material which is covered by return cannot be ground for reassessment. This is becsue words used are in temrs like … the AO shall .. if he consider it necessary or expedient to ensure …
Therefore, when a notice u/s 143(2) is not issued, it means that the AO has madeup his mind and opinion that further enquiry is not necessary or expedient.
Accordingly the view that even in case of assessment u/s 143(1), a notice u/s 148 cannot be validly issued and jurisdiction to reassess cannot be assumed if there is no tangible new material or information etc. which require reassessment to assess escaped income.
Similar views were expressed by me in another articles published/ webhosted few years ago.
With regard to comments of CA Dev Kumar Kothari,
Sir,
Can you please express your views in the situation where the return filed was looked by the AO after the expiry of time limit u/s 143(2), as u/s 143(1) return time limit is one year from the end of financial year in which return is made, which ends after the time limit u/s 143(2) which is six months from the end of financial year in which return is furnished.
Further I wish to draw attention toward the language of section 147 as of now and the section as was existed prior to 01/04/1989. Earlier in clause (b) of section language was that … in consequence of information in his possession….
Now in the amended section 147 there is no such requirement that the belief should be based … in consequence of information in his possession…. Therefore in my opinion if there is escapement of income, the AO can take action u/s 147. No doubt that if there is change of opinion the proceeding u/s 147 is not permissible. In the case of Orient Craft Ltd Hon’ble Judge found that there is no escapement of income therefore the proceeding was found not tenable.