NO 263 /148 ON 80IA(9) ISSUE

[pawansingla]

Where two views are possible and AO has taken one view, CIT cannot exercise his powers under section 263 to differ with view of AO even if there has been a loss of revenue
•   The expression prejudicial to the interest of revenue appearing in Section 263 has to be read in conjunction with the expression "erroneous" and every loss of revenue as a consequence of an order of the Assessing Officer cannot be treated as prejudicial to the interest of the revenue
[2010] 6 taxmann.com 15 (Delhi)
HIGH COURT OF DELHI
CIT
v.
Honda Siel Power Products Ltd.
ITA 1376/2009 and 1382/2009
July 5, 2010
FACTS
In this case, the assessment under Section 143(3) of the said Act was completed on 18.03.2004 on an income of Rs 18,74,31,920/-. The Assessing Officer had arrived at the said figure of total income after allowing deductions under Section 80HHC to the extent of Rs 2,70,48,517/- and under Section 80IB to the extent of Rs 3,04,15,236/-.

The Commissioner of Income-tax called for the records in respect of the assessment year 2001-02 and was, prima facie, of the view that the assessment was erroneous insofar as it was prejudicial to the interests of the revenue since the deduction under Section 80HHC was allowed on the whole profit of the business, including the profits derived from the Pondicherry unit and the deduction already allowed under Section 80IB to the extent of Rs 3,04,15,236/- was not reduced in terms of Section 80IB(13) read with Section 80IA(9) of the said Act. Consequently, the Commissioner of Income-tax issued a notice under Section 263 on 15.02.2006 and after receiving the written submissions from the respondent / assessee and hearing the representatives of the respondent / assessee, the Commissioner of Income-tax, by virtue of his order dated 07.03.2006, held that the assessment order passed by the Assessing Officer under Section 143(3) on 18.03.2004 was erroneous insofar as it was prejudicial to the interests of the revenue inasmuch as the Assessing Officer had not applied the provisions of Section 80IB(13) / 80IA(9) of the said Act and had wrongly calculated the deduction under Section 80HHC without reducing from the profits and gains computed for allowing such deduction, the claim already allowed as deduction to the extent of such profits and gains under Section 80IB of the said Act. The Commissioner of Income-tax directed the Assessing Officer to re-calculate the allowable deduction under Section 80HHC after reducing from the profits and gains calculated for the purposes of allowance under Section 80HHC, such profits and gains to the extent of Rs 3,04,15,236/-, which had been claimed and allowed as deduction under Section 80IB of the said Act.

In the order dated 07.03.2006 passed by the Commissioner of Income-tax under Section 263 of the said Act, it was mentioned that there was no question of there being any two views since the Assessing Officer had not, at all, considered the embargo placed by Section 80IA(9) / 80IB(13). According to the Commissioner of Income-tax, it was not a case where two views of a situation were reflected, but a case where the Assessing Officer did not, at all, apply his mind to the applicability of Section 80IA(9)/80IB(13) of the said Act.

HELD

The expression prejudicial to the interest of revenue appearing in Section 263 has to be read in conjunction with the expression "erroneous" and that every loss of revenue as a consequence of an order of the Assessing Officer cannot be treated as prejudicial to the interest of the revenue. In cases where the Assessing Officer adopts one of the courses permissible in law or where two views are possible and the Income-tax Officer has taken one view, the  Commissioner of Income-tax cannot exercise his powers under Section 263 to differ with the view of the Assessing Officer even if there has been a loss of revenue. Of course, if the Assessing Officer takes a view which is patently unsustainable in law, the Commissioner of Income-tax can exercise his powers under Section 263 where a loss of revenue results as a consequence of the view adopted by the Assessing Officer. It is also clear that while passing an order under Section 263, the Commissioner of Income-tax has to examine not only the assessment order, but the entire record of the profits. Since the assessee has no control over the way an assessment order is drafted and since, generally, the issues which are accepted by the Assessing Officer do not find mention in the assessment order and only those points are taken note of on which the assessee's explanations are rejected and additions / disallowances are made, the mere absence of the discussion of the provisions of Section 80IB(13) read with Section 80IA(9) would not mean that the Assessing Officer had not applied his mind to the said provisions. As pointed out in CIT v. Kelvinator of India Ltd. 256 ITR 1 (FB)(Delhi), when a regular assessment is made under Section 143(3), a presumption can be raised that the order has been passed upon an application of mind. No doubt, this presumption is rebuttable, but there must be some material to indicate that the Assessing Officer had not applied his mind.
In the facts of the present case, we find that there is no material to indicate that the Assessing Officer had not applied his mind to the provisions of Section 80IB(13) read with Section 80IA(9). The presumption that the assessment orders passed under Section 143(3) passed by the Assessing Officer had been passed upon an application of mind, has not been rebutted by the revenue. No additional facts were necessary before the Assessing Officer for the purpose of construing the provisions of Section 80IB(13) read with Section 80IA(9). It was only a legal consideration as to whether the deduction under Section 80HHC was to be computed after reducing the amount of deduction under Section 80IB from the profits and gains. There is no doubt that the Assessing Officer had allowed the deduction under Section 80HHC without reducing the amount of deduction allowed under Section 80IB from the profits and gains. He did not say so in so many words, but that was the end result of his assessment order.
"20. The next contention of the Revenue is that in the regular assessment, the Assessing Officer has not discussed the provisions of section 80-IB(13) read with section 80-IA(9) of the Act and if those provisions were taken into consideration, there would be negative profit and consequently deduction under Section 80HHC could not be granted. This argument is also without any merit because, in the affidavit in reply filed on behalf of the Revenue it is admitted that the assessee had not made exports of the goods manufactured in the industrial units eligible for deduction under section 80-IB. If the goods manufactured in the units availing of deduction under section 80-IB were not exported, then obviously the goods manufactured in those units would not be taken into account for computation of deduction under section 80HHC. In that event, the question of applying the principles laid down in section 80-IA(9) while computing the deduction under section 80HHC does not arise at all."

18. From the aforesaid discussion, it is apparent that the expression prejudicial to the interest of revenue appearing in Section 263 has to be read in conjunction with the expression "erroneous" and that every loss of revenue as a consequence of an order of the Assessing Officer cannot be treated as prejudicial to the interest of the revenue. In cases where the Assessing Officer adopts one of the courses permissible in law or where two views are possible and the Income-tax Officer has taken one view, the  Commissioner of Income-tax cannot exercise his powers under Section 263 to differ with the view of the Assessing Officer even if there has been a loss of revenue. Of course, if the Assessing Officer takes a view which is patently unsustainable in law, the Commissioner of Income-tax can exercise his powers under Section 263 where a loss of revenue results as a consequence of the view adopted by the Assessing Officer. It is also clear that while passing an order under Section 263, the Commissioner of Income-tax has to examine not only the assessment order, but the entire record of the profits. Since the assessee has no control over the way an assessment order is drafted and since, generally, the issues which are accepted by the Assessing Officer do not find mention in the assessment order and only those points are taken note of on which the assessee‟s explanations are rejected and additions / disallowances are made, the mere absence of the discussion of the provisions of Section 80IB(13) read with Section 80IA(9) would not mean that the Assessing Officer had not applied his mind to the said provisions. As pointed out in Kelvinator of India (supra), when a regular assessment is made under Section 143(3), a presumption can be raised that the order has been passed upon an application of mind. No doubt, this presumption is rebuttable, but there must be some material to indicate that the Assessing Officer had not applied his mind.


[2010] 5 taxmann.com 14 (Mum. - ITAT)

Assessing Officer cannot take any action under section 147 merely because he happened to change his opinion or to hold an opinion different from that of his predecessor on same set of facts

•   Where it was clear from the original assessment orders as well as order made by the appellate authority that the Assessing Officer was well aware about the primary facts, viz., the claim made by the assessee, the circumstances under which the claim was made, and the provisions of law which could be applied while granting the benefits, and the Assessing Officer consciously considered the facts and arrived at a decision, the assessment cannot be reopened merely because subsequently the Assessing Officer changes his opinion or some other officer takes a different view.

ITAT, MUMBAI BENCH 'K', MUMBAI
Audco India Ltd.
v.
ITO
ITA No. 6305/M/2007
April 22, 2010

ORDER
PER A.L. GEHLOT, A.M.:


This appeal filed by the assessee is directed against the order of CIT(A)-II, Mumbai, passed on 06.08.2007 for the assessment year 2001-02.

2. Ground No. 1 is in respect of challenging reopening of assessment u/s 147 of the Act. Grounds No 2 and 3 are on merit related to reduction of profit under section 80IB while computing deduction under section 80HHC of the Act and calculation of deduction under section 80HHC in respect of DEPB respectively.

3. First we take up the legal ground challenging reopening of assessment u/s 147 of the Act. The CIT(A) rejected this legal ground of the assessee on the ground that the reopening is within four years. He further observed that after the amended provisions of section 147 substituted with effect from 01.04.1989 the power to reopen the assessment is much wider and the same can be exercised even after the assessee has disclosed fully and truly all the material facts.

4. The learned AR pointed out the reasons recorded by the AO for of which copy has been placed at page 68 of paper book filed by the assessee.

5. The learned AR submitted that in the light of the law laid down by the Hon'ble Supreme Court in the case of CIT Vs. M/s Kelvinator of India Ltd. vide Civil Appeal Nos. 2009-2001 of 2003 and 2520 of 2008, judgment dated 18th January, 2010, reopening is bad in law because there was no reason to believe that the income had escaped assessment as evident from the reasons recorded.

6. The learned DR, on the other hand submitted that reopening is within four years and the CIT(A) has rejected this ground of the assessee after a detailed discussion in his order. He relied upon the order of CIT(A) in support of revenue's case.

7. We have heard the learned representatives of the parties and perused the record. The issue to be examined under consideration is whether the AO was correct in reopen the completed assessment with the reasons recorded. To examine the issue we would like to refer section 147 which reads as under:-

" [Income escaping assessment.
147. If the [Assessing] Officer [has reason to believe] that any income chargeable to tax has escaped assessment for any assessment year, he may, subject to the provisions of sections 148 to 153, assess or reassess such income and also any other income chargeable to tax which has escaped assessment and which comes to his notice subsequently in the course of the proceedings under this section, or re compute the loss or the depreciation allowance or any other allowance, as the case may be, for the assessment year concerned (hereafter in this section and in sections 148 to 153 referred to as the relevant assessment year) :
Provided that where an assessment under sub-section (3) of section 143 or this section has been made for the relevant assessment year, no action shall be taken under this section after the expiry of four years from the end of the relevant assessment year, unless any income chargeable to tax has escaped assessment for such assessment year by reason of the failure on the part of the assessee to make a return under section 139 or in response to a notice issued under sub-section (1) of section 142 or section 148 or to disclose fully and truly all material facts59 necessary for his assessment, for that assessment year:

[7.2 The basis for initiating the reassessment proceedings is to be judged solely on the basis of reasons recorded by the Assessing Officer and the material and information referred to by him in the reasons for initiating such action. It is settled law that Assessing Officer cannot initiate the reassessment proceedings merely on the basis of suspicion or for the purpose of making roving and fishy inquires. The Assessing Officer cannot support the reopening of the assessment by collecting the material or by making inquiry subsequently after the date of initiation of the proceedings. Thus, the reopening of the assessment is to be seen on the date when the Assessing Officer initiated action u/s 147 of the Act.

7.3 We are also of the opinion that, howsoever widen the scope of taking action under section 148 of the Act, it does not confer jurisdiction on change of opinion on the interpretation of a particular provision earlier adopted by the assessing authority. For coming to the conclusion whether there has been excessive loss or depreciation allowance or there has been underassessment or assessment at a lower rate or for applying other provisions of Explanation 2, it must be material and it should have nexus for holding such opinion contrary to what has been expressed earlier. The scope of section 147 of the Act is not for reviewing its earlier order suo motu irrespective of there being any material to come to a different conclusion apart from just having second thoughts about the inferences drawn earlier .The Assessing Officer cannot take any action under this section merely because he happened to change his opinion or to hold an opinion different from that of his predecessor on the same set of facts. From the earlier assessment which clearly assumes that the Assessing Officer applied his mind to the computation of income and, therefore, in a case like this it would not be open to the Assessing Officer to issue notice under section 148 of the Act. - When the primary facts necessary for assessment are fully and truly disclosed, the ITO will not be entitled on change of opinion to commence proceedings for reassessment. Similarly, if he has raised a wrong legal inference from the facts disclosed, he will not, on that account, be competent to commence reassessment proceedings .Having second thoughts on the same material, and omission to draw the correct legal presumption during original assessment do not warrant the initiation of a proceeding under section 147. Where it was clear from the original assessment orders as well as order made by the appellate authority that the Assessing Officer was well aware about the primary facts, viz., the claim made by the assessee, the circumstances under which the claim was made, and the provisions of law which could be applied while granting the benefits, and the Assessing Officer consciously considered the facts and arrived at a decision, the assessment cannot  be reopened merely because subsequently the Assessing Officer changes his opinion or some other officer takes a different view. A decision is right or wrong is none of the concern of the subsequent officer. If the primary facts were not available or there was concealment or there was no application of mind at all, then a case for reopening the assessment could be made out .

7.4 If we consider the facts of the case under consideration we find the following reasons were recorded by the AO which are reproduced from page 68 of paper book filed by the assessee:-
"It is seen that you have claimed deduction u/s 80IB amounting to Rs. 58,13,490/-. However, this sum of Rs. 58,13,490/- has not been reduced from the eligible prof its for deduction u/s 80 HHC. As per clause 9 of section 80IA, any amount which has been claimed and allowed as deduction u/s 80IA cannot be considered eligible for any other deduction. Hence, it is proposed to reduce this sum of Rs. 58,13,490/- from the eligible prof its for the purposes of deduction u/s 80 HHC."

7.5 From the reasons recorded we find that the AO formed belief on the issue which is a controversial issue, whether while computing deduction u/s 80 HHC eligible profits for u/s 80IB of is to be reduced or not. We find that this controversial issue has traveled up to ITAT and the ITAT special bench Delhi has decided the issue in ACIT V Hindustan Mint and Agro products P. Ltd. (2009) 315 ITR (AT) 401 (Delhi) (SB). Thus it is evident that the reasons for which the AO want to reopen the completed assessment were a controversial issue. As discussed above that the scope of section 147 of the Act is not for reviewing its earlier order suo motu irrespective of there being any material to come to a different conclusion apart from just having second thoughts about the inferences drawn earlier .The Assessing Officer cannot take any action under this section merely because he happened to change his opinion or to hold an opinion different from that of his predecessor on the same set of facts. ."

7.5    In the light of above desiccation and under the facts and circumstances of the case, we are of the considered view that there is no belief of the AO which can be said to be in accordance with section 147, therefore, the order of the AO is liable to be quashed on this legal issue itself. We do so and allow the ground of appeal of the assessee. Since we have decided the appeal on legal issue, therefore we do not feel necessary to decide the other grounds on merit.

8. In the result, the appeal of the assessee is allowed.