State Bank of Patiala v. Commissioner of Income-tax
[Citation -2015-LL-0422-2]

Citation 2015-LL-0422-2
Appellant Name State Bank of Patiala
Respondent Name Commissioner of Income-tax
Court HIGH COURT OF PUNJAB & HARYANA
Relevant Act Income-tax
Date of Order 22/04/2015
Assessment Year 2005-06
Judgment View Judgment
Keyword Tags reopening of assessment • plant and machinery • excess depreciation • competent authority • issuance of notice • change of opinion • reason to believe • cash flow
Bot Summary: The main submission raised by the learned senior counsel for the petitioner, in the cases pertaining to the assessment years 2005-06 and 200607, is that once there was no finding recorded by the Assessing Officer that the petitioner had not disclosed fully and truly all the material facts and a period of four years had expired from the end of the relevant assessment year, reopening could not be done on account of change of opinion, which had led to the notices being issued. Similar is the position for the assessment year under consideration, i.e., the assessment year 2005-06. There is no disputing the fact that the assessment for the said years, i.e., 2005-06 and 2006-07, under section 143(3) had concluded on November 28, 2007, and November 30, 2007, and determination of tax upon the assessee was made on the basis of the assessment. The proviso to section 147 provides that no action shall be taken under the said section, after the expiry of four years from the end of the relevant assessment year unless any income chargeable to tax has escaped assessment, by reason of failure on the part of the assessee to make the return or respond to the notice issued under section 142(1) or section 148. In Winsome Textiles Industries Ltd. v. Union of India 2005 278 ITR 470, it was held that once the assessment had been made under section 143(3), the genuineness of the claims made in the return had to be examined and the failure of the Assessing Officer to do so would not permit him to reopen the assessment which had already been completed and had become barred by limitation. In the present case, the assessment had been made under section 143(3) of the Act and if the Assessing Officer was of the view that he required profit and loss account and depreciation charts of the assessment years 1995-96 and 1996-97 for examining the correctness of the claim under section 80-IA of the Act, he could have required the assessee to produce the same. In CWP No. 6767 of 2013, pertaining to the assessment year 2007-08, the writ petition is liable to be allowed, in view of the principle of law laid down by the apex court in CIT v. Kelvinator of India Ltd. 2010 320 ITR 561 wherein it has been held that jurisdiction could not be conferred on the basis of mere change of opinion and it could not be a reason per se to reopen assessments which had been finalised and change of opinion was not relevant ground for reason to believe for issuance of notice under section 147.


JUDGMENT judgment of court was delivered by G. S. Sandhawalia J.-This judgment shall dispose of CWP Nos. 6765, 17892 and 6767 of 2013, pertaining to assessment years 2005-06, 200607 and 2007-08, respectively, since common questions of law and facts are involved. However, to dictate orders, facts have been taken from CWP No. 6765 of 2013. petitioner-bank has challenged order dated March 25, 2013 (annexure P1), passed by respondent No. 2, Assistant Commissioner of Income-tax (its acronym, "the ACIT"), whereby its objections to notice issued under section 148 of Income-tax Act, 1961 (for short, "the Act"), for reopening of assessment, were rejected. Challenge has also been made to notice issued under section 147 of Act, on basis of which, reassessment notice was issued, whereby reasons were recorded for reopening assessment. main submission raised by learned senior counsel for petitioner, in cases pertaining to assessment years 2005-06 and 200607, is that once there was no finding recorded by Assessing Officer (its acronym, "the AO") that petitioner had not disclosed fully and truly all material facts and period of four years had expired from end of relevant assessment year, reopening could not be done on account of change of opinion, which had led to notices being issued. In CWP No. 6767 of 2013, challenge was on ground that since it was only change of opinion, same was not permissible on account of foundation being illegal and jurisdiction of this court was, thus, being invoked. As per pleadings, return of income under section 139(1) of Act was filed on October 28, 2005, and assessment order was passed on November 28, 2007, under section 143(3) of Act. case of bank was that along with return of income, it had filed its balance-sheet, profit and loss account, cash flow statements, notes on accounting policies, auditors reports, directors report, etc. bank had installed various automatic teller machines (its acronym, "the ATMs"), for benefit of its customers and claimed depreciation at 60 per cent. by treating it as computers instead of claiming 15 per cent. depreciation, which was in case of plant and machinery. assessment was finalised up to year 2007-08 and no disallowance was made on account of depreciation claimed at 60 per cent. After expiry of four years from date of order passed under section 143(3) of Act, notice dated March 27, 2012 (annexure P2) was issued under sections 147 and 148, which apparently did not satisfy requirement provided under section 147, regarding failure of assessee to disclose fully and truly all material facts. same was replied by filing detailed objections on March 13, 2013 (annexure P5) by taking plea that returns, in response to notice, had been filed and bank had disclosed all relevant materials, showing that operationalisation of 251 ATMs had been done by March, 2005, and no fresh material had come to notice of Assessing Officer to reopen assessment and issue notice under section 148. reopening, thus, was alleged to be change of opinion by successor, which was not permissible. Another detailed reply was submitted on March 23, 2013 (annexure P4), placing reliance upon various judgments that since there were two views on ATMs, view in favour of assessee should be adopted. said objections were, thereafter, rejected by taking plea that no separate head of ATMs was furnished for depreciation in depreciation chart and it was only later, this aspect came to light in another assessment year. It was, accordingly, held that reason to believe that income had escaped assessment would entitle Assessing Officer to reassess income chargeable to tax, for said assessment year. In order to appreciate controversy, reasons which have been recorded by respondent No. 2, for issuing notice under section 147 read with section 148, would go on to show that when assessment proceedings for subsequent year 2008-09, was being processed, it came to notice of said Assessing Officer that depreciation had been claimed at 60 per cent., which was disallowed and addition of Rs. 3,71,00,000 was made by disallowing cost of depreciation claimed and only allowing depreciation at 15 per cent. on ATMs by treating same as plant and machinery. Accordingly, noticing that ATMs by treating same as plant and machinery. Accordingly, noticing that position was similar for concerned assessment year 2005-06 and since 251 ATMs had been operationalised by March, 2005, and by holding that there was reason to believe that income of assessee, chargeable to tax, had escaped assessment, notice was issued for years in question. Counsel for petitioner has, thus, submitted that said notices were liable to be quashed along with impugned order dated March 25, 2013, whereby objections had been dismissed as it was only change of opinion, being recorded by Assessing Officer by submitting that Bombay High Court in CIT v. Saraswat Infotech Ltd. (in I. T. A. L) No. 1243 of 2012, decided on January 15, 2013) (annexure P 10), has held against Revenue on said issue. Reliance has also been placed upon judgment of Income-tax Appellate Tribunal, New Delhi Bench, to contend that ATMs are computerised telecommunications and, therefore, depreciation was rightly claimed at 60 per cent. Similar reliance has also been placed upon decision of Income-tax Appellate Tribunal, Bangalore Bench, in NCR Corporation Pvt. Ltd. v. Asst. CIT (in I.T.A. No. 353 (Bang) 2010, decided on February 28, 2011) on same issue. Counsel for Revenue, on other hand, has justified order, by taking plea that necessary permission had been taken from competent authority and notice was issued, thereafter, on March 27, 2012, since Assessing Officer had reason to believe that income had escaped assessment as ATM was not computer and complete disclosure of material facts had not been made in return filed and that depreciation at 33.33 per cent. on straightline method had been provided and there was no full disclosure to annual report and, accordingly, there was valid reason to issue notice. Without going into merits of issue as to whether ATM is computer or ought to be treated as normal plant and machinery, attracting different rates of depreciation, we are of opinion that present writ petitions are liable to be allowed on ground that, admittedly, notice issued on March 27, 2012, did not fulfil mandatory requirement of recording that assessee did not disclose fully and truly all material facts which was necessary requirement in CWP Nos. 6765 and 17892 of 2013. reasons which have prevailed with Assessing Officer to issue notice reads as under: "Reasons under section 147 read with section 148 of Incometax Act, 1961, reopening assessment. During course of assessment proceedings for assessment year 2008-09, it has been noticed that assessee-bank has claimed depreciation on ATM at 60 per cent. by treating ATM as computer. At time of finalising assessment, assessee was allowed depreciation on ATM at 15 per cent. as allowed under income-tax laws on plant and machinery by treating ATM as plant and machinery. Accordingly, addition of Rs. 3,71,00,000 was made by disallowing excess depreciation claimed by assessee. Similar is position for assessment year under consideration, i.e., assessment year 2005-06. assessee had operationalised 251 ATMs by March, 2005. Therefore, I have reason to believe that income of assessee chargeable to tax has escaped assessment for financial year 2004-05 relevant to assessment year 2005-06 within meaning of section 147. Issue notice under section 148 read with section 151 of Income-tax Act, 1961. Date 27-3-2012 (Sd.)........ Dr. Raman Garg, Asst. Commissioner of Income-tax, Circle, Patiala." perusal of above would go on to show that when returns for subsequent years were processed, Assessing Officer had disallowed claim made at 60 per cent. and added sum of Rs. 3,71,00,000 to income of assessee-bank, by allowing depreciation at 15 per cent. only, by treating ATMs as plant and machinery. Keeping in view fact that ATMs had been operationalised by March, 2005, reasons were recorded to believe that income of assessee, chargeable to tax, had escaped assessment. There is no disputing fact that assessment for said years, i.e., 2005-06 and 2006-07, under section 143(3) had concluded on November 28, 2007, and November 30, 2007, and determination of tax upon assessee was made on basis of assessment. proviso to section 147 provides that no action shall be taken under said section, after expiry of four years from end of relevant assessment year unless any income chargeable to tax has escaped assessment, by reason of failure on part of assessee to make return or respond to notice issued under section 142(1) or section 148. other condition is that there should be disclosure of fully and truly all material facts necessary for said assessment year. issue of initiating proceedings under section 147 was considered by this court in Duli Chand Singhania v. Asst. CIT [2004] 269 ITR 192 (P&H), wherein, it was held that in absence of valid assumption of jurisdiction under section 147, notice after four years from end of assessment year in question, could not be initiated in absence of any allegation that there was failure on part of assessee to disclose fully and truly all material facts. In absence of any such reasons, assumption of jurisdiction under section 147 was not justified. relevant portion of reasoning given reads as under (page 199): "The entire thrust of findings recorded by Assessing Officer in his order dated March 13, 2003, is to justify his satisfaction about escapement of income. According to him, it was clear case of escapement of income as defined in Explanation 2 to section 147 as assessee had been allowed excessive relief under section 80-O of Act. However, it is not necessary for us to go into merits of this finding as second requirement of proviso has not been satisfied obviously. reasons recorded by Assessing Officer for initiation of proceedings under section 147 of Act have already been reproduced above. bare perusal of same shows that satisfaction recorded therein is merely about escapement of income. There is not even whisper of allegation that such escapement had occurred by reason of failure on part of assessee to disclose fully and truly all material facts necessary for his assessment. Absence of this finding, which is sine qua non for assuming jurisdiction under section 147 of Act in case falling under proviso thereto, makes action taken by Assessing Officer wholly without jurisdiction. As already observed, learned counsel for Revenue has conceded that neither in reasons recorded nor in order dated March 13, 2003, has assessee been charged with failure to disclose, fully and truly all material facts necessary for his assessment." material facts necessary for his assessment." said view was followed in Mahavir Spinning Mills Ltd. v. CIT [2004] 270 ITR 290 (P&H), and objections raised by Revenue that writ was not maintainable against notice was rejected. relevant portion of judgment reads as under (page 295): "A bare perusal of above shows that entire thrust of observations recorded by Assessing Officer is to justify his satisfaction about escapement of income. There is not even whisper of allegation that such escapement had occurred by reason of failure on part of assessee to disclose fully and truly all material facts necessary for its assessment. As held in Duli Chand Singhania's case, absence of this finding makes action of Assessing Officer wholly without jurisdiction. Since illegality of notice under section 148 of Act is apparent from reasons recorded for initiation of proceedings under section 147 of Act, it is fit case for interference in exercise of our writ jurisdiction. Sending petitioner back to Assessing Officer to raise these objections and requiring him to pass order thereon would be prolonging proceedings unnecessarily." Similarly, in Winsome Textiles Industries Ltd. v. Union of India [2005] 278 ITR 470 (P&H), it was held that once assessment had been made under section 143(3), genuineness of claims made in return had to be examined and failure of Assessing Officer to do so would not permit him to reopen assessment which had already been completed and had become barred by limitation. Accordingly, notices issued under section 148 were quashed. relevant portion of judgment reads as under (page 489): "The limitation of four years provided in proviso to section 147 has been made applicable only to cases where assessments have already been completed under sub-section (3) of section 143 or under section 147. There is specific purpose behind it. Where return is processed under section 143(1)(a), Assessing Officer has no jurisdiction to examine genuineness of claims made in return of income. He has only limited power of making adjustments on basis of information available in return. However, when assessment is made under section 143 (3) of Act, Assessing Officer has very wide power to examine genuineness of claims made in return and require assessee to furnish whatever information Assessing Officer deems necessary. In present case, assessment had been made under section 143(3) of Act and if Assessing Officer was of view that he required profit and loss account and depreciation charts of assessment years 1995-96 and 1996-97 for examining correctness of claim under section 80-IA of Act, he could have required assessee to produce same. Failure of Assessing Officer to do so, cannot be treated at par with failure of assessee to disclose fully and truly all material facts necessary for its assessment." reasons for opening assessment which had already been concluded on November 28, 2007, and November 30, 2007, thus, do not show that there was any failure on part of assessee to disclose fully and truly all material facts and thus, it was merely change of opinion and in view of settled position of law, petitioner would be entitled for setting aside said notices issued. said factor, namely, additional factor regarding change of opinion by Assessing Officer, would also be valid ground for setting aside notice issued for assessment year 2007-08, which is discussed below. In CWP No. 6767 of 2013, pertaining to assessment year 2007-08, writ petition is liable to be allowed, in view of principle of law laid down by apex court in CIT v. Kelvinator of India Ltd. [2010] 320 ITR 561 (SC) wherein it has been held that jurisdiction could not be conferred on basis of mere change of opinion and it could not be reason per se to reopen assessments which had been finalised and change of opinion was not relevant ground for reason to believe for issuance of notice under section 147. relevant observations read as under (page 564): "On going through changes, quoted above, made to section 147 of Act, we find that, prior to Direct Tax Laws (Amendment) Act, 1987, reopening could be done under above two conditions and fulfilment of said conditions alone conferred jurisdiction on Assessing Officer to make back assessment, but in section 147 of Act (with effect from 1st April, 1989), they are given goby and only one condition has remained, viz., that where Assessing Officer has reason to believe that income has escaped assessment, confers jurisdiction to reopen assessment. Therefore, post-1st April, 1989, power to reopen is much wider. However, one needs to give schematic interpretation to words'reason to believe' failing which, we are afraid, section 147 would give arbitrary powers to Assessing Officer to reopen assessments on basis of'mere change of opinion', which cannot be per se reason to reopen. We must also keep in mind conceptual difference between power to review and power to reassess. Assessing Officer has no power to review; he has power to reassess. But reassessment has to be based on fulfilment of certain pre-condition and if concept of'change of opinion' is removed, as contended on behalf of Department, then, in garb of reopening assessment, review would take place. One must treat concept of'change of opinion' as in-built test to check abuse of power by Assessing Officer. Hence, after 1st April, 1989, Assessing Officer has power to reopen, provided there is'tangible material' to come to conclusion that there is escapement of income from assessment. Reasons must have live link with formation of belief. Our view gets support from changes made to section 147 of Act, as quoted hereinabove. Under Direct Tax Laws (Amendment) Act, 1987, Parliament not only deleted words 'reason to believe' but also inserted word'opinion' in section 147 of Act. However, on receipt of representations from Companies against omission of words'reason to believe', Parliament reintroduced said expression and deleted word'opinion' on ground that it would vest arbitrary powers in Assessing Officer. We quote hereinbelow relevant portion of Circular No. 549, dated 31st October, 1989 (see [1990] 182 ITR (St.) 1, 29), which reads as follows: '7.2 Amendment made by Amending Act, 1989, to reintroduce expression "reason to believe" in section 147.-A number of representations were received against omission of words "reason to believe" from section 147 and their substitution by "opinion" of Assessing Officer. It was pointed out that meaning of expression, "reason to believe" had been explained in number of court rulings in past and was well settled and its omission from section 147 would give arbitrary powers to Assessing Officer to reopen past assessments on mere change of opinion. To allay these fears, Amending Act, 1989, has again amended section 147 to reintroduce expression "has reason to believe" in place of words "for reasons to be recorded by him in writing, is of opinion". Other provisions of new section 147, however, remain same.' For aforestated reasons, we see no merit in these civil appeals filed by Department, hence, dismissed with no order as to costs." reason for reopening, thus, being merely change of opinion on account of assessment being made for subsequent years would not give Assessing Officer jurisdiction to reopen as he would, thus, be reviewing his earlier decision which has been held not to be permissible. Thus, keeping in view above, writ petitions are allowed and notice dated March 27, 2012 (annexure P3) and order dated March 25, 2013 (annexure P1) are, accordingly, quashed. *** State Bank of Patiala v. Commissioner of Income-tax
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