Principal Commissioner of Income-tax 6, Chennai v. Safe Corrugated Containers Pvt. Ltd
[Citation -2020-LL-0804-18]

Citation 2020-LL-0804-18
Appellant Name Principal Commissioner of Income-tax 6, Chennai
Respondent Name Safe Corrugated Containers Pvt. Ltd.
Court HIGH COURT OF MADRAS
Relevant Act Income-tax
Date of Order 04/08/2020
Assessment Year 2006-07
Judgment View Judgment
Keyword Tags reopening of assessment • escapement of income • tangible material • change of opinion • reason to believe • business income • profit on sale • sale of shares • business loss • revenue loss • capital loss • set off
Bot Summary: The ITAT, after hearing the arguments of both the counsel, passed a detailed order holding that the details of loss on sale of shares have been clearly disclosed in the profit and loss account by the assessee, while filing the original return of income and that the Assessing Authority made a thorough scrutiny after issuing scrutiny notice and thereafter, passed the original assessment order and therefore, the department cannot say now that no material was disclosed by the assessee and hence, the reassessment order passed under Section 147 of the Act was not proper and thus, allowed the appeal of the assessee. If the Assessing Officer has reason to believe that any income has escaped assessment for any of the assessment year, he may, subject to the provisions of Section 148 to 153, assess or re-assess such income and also other income chargeable to tax but has escaped assessment and which comes to his notice. 14.On perusal of Section 147, it is clear that if the Assessing Officer has reason to believe that any income chargeable has escaped assessment for any assessment year, the reassessment can be made. In Order dt.21.7.2020 in T.C.A No.450 of 2017 clear cut opinion after a thorough scrutiny of all the documents and passed the original assessment order. In Order dt.21.7.2020 in T.C.A No.450 of 2017 16.It appears that the reassessment proceeding under Section 147 was made to form change of opinion and therefore, it would clearly amount to reviewing the original order of assessment under Section 147 under the pretext of reassessment. If the Assessing Officer, for reasons to be recorded by him in writing, is of the opinion 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 recompute the loss or the depreciation allowance or any other allowance, as the case may be, for the assessment year concerned. In Order dt.21.7.2020 in T.C.A No.450 of 2017 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 recompute the loss or the depreciation allowance or any other allowance, as the case may be, for the assessment year concerned.


Order dt.21.7.2020 in T.C.A No.450 of 2017 IN HIGH COURT OF JUDICATURE AT MADRAS DATED: 04.08.2020 CORAM HONOURABLE DR.JUSTICE VINEET KOTHARI & HONOURABLE MR.JUSTICE KRISHNAN RAMASAMY T.C.A.No.450 of 2017 Principal Commissioner of Income Tax 6 No.121, Nungambakkam High Road, Chennai 600034. Appellant Versus M/s. Safe Corrugated Containers Pvt Ltd, F-17, Old F-BB, SIPCOT Industrial Complex, Gummidipundi, Chennai- 601 201 ... Respondent Prayer: Tax Case Appeal filed under section 260A of Income Tax Act, 1961 against order of Income Tax Appellate Tribunal Madras, 'C' Bench dated 25.1.2017 in ITA No.1250/Mds/2016 For Appellant : Mr. J. Narayanaswamy, Senior Standing Counsel For Respondent : No Appearance 1/19 http://www.judis.nic.in Order dt.21.7.2020 in T.C.A No.450 of 2017 JUDGMENT (Judgment of Court was delivered by Mr.Krishnan Ramasamy, J.) Court was held by Video Conference, as per Resolution of Full Court dated 3 July 2020, by Judges at their respective residences and counsel, staff of Court appearing from their respective residences. 2. This tax case appeal has been filed under Section 260A of Income Tax Act, 1961 against order of Income Tax Appellate Tribunal, Madras C Bench, dated 25.01.2017 in I.T.A.No.1250/Mds/ 2016. 3. Heard Mr. J. Narayanaswamy, learned Senior Standing Counsel for department/appellant and none appeared for respondent/assessee. 4. appellant filed present appeal and suggested following substantial questions of law:- 1.Whether Appellate Tribunal was right in cancelling reopening of assessment under Section 147 of Income Tax Act, when there was failure on part 2/19 http://www.judis.nic.in Order dt.21.7.2020 in T.C.A No.450 of 2017 of assessee to disclose fully and truly all material facts necessary for assessment relating to Asst. Year 2006-07? 2.Is finding of Tribunal not perverse when assessee claimed sale of shares in previous assessment year 2005 06 as capital gains and very next asst. year 2006-07 sale of shares is shown as business loss and set off against business income, which is against sub-clause [iv] to clause [c] to explanation 2 of Section 147 of Income Tax Act? 3.Whether Tribunal was right and justified in cancelling reopening of assessment u/s 147 overlooking binding decisions in Hoda Siel Products Ltd Vs. DCIt & Anr (Del) reported in 340 ITR 53 which was upheld by Honourable Supreme Court in 340 ITR 64? 5. Mr.J.Narayanaswamy, learned Senior Standing Counsel for department has submitted that respondent/assessee incurred loss of sum of Rs.26,51,684/- out of sale of shares and said loss was debited by assessee in profit and loss account of previous year, relevant to assessment year 2006-07, as revenue expenditure. Whereas, same assessee incurred profit out of sale of shares in previous 3/19 http://www.judis.nic.in Order dt.21.7.2020 in T.C.A No.450 of 2017 assessment year 2005-2006 and claimed said profit as capital gains and paid tax at rate of 10%. This aspect was not considered by Assessing Officer, while making assessment and therefore, reassessment was made by Deputy Commissioner of Income Tax under Section 147 of Act and order was passed holding that assessee company cannot claim loss on sale of shares as revenue loss for assessment year 2006-07, when same assessee had claimed profit on sale of shares as capital gains for assessment year 2005-06 and paid tax only at rate of 10%. 6.Against said reassessment order passed by Deputy Commissioner of Income Tax, Company Circle VI(1), Chennai, appeal was filed by Assessee before Commissioner of Income Tax (Appeals)-15, Chennai. 7.Before Commissioner of Income Tax (Appeals)-15, respondent/assessee claimed that they have been dealing with shares for several years and therefore, loss on sale of shares could be treated as business loss . However, Commissioner of Income Tax (Appeals)-15, 4/19 http://www.judis.nic.in Order dt.21.7.2020 in T.C.A No.450 of 2017 Chennai rejected contentions of respondent/assessee and confirmed action of Assessing Officer in initiating proceedings under Section 147 of Act, as there was no opinion formed by Assessing Officer in original assessment proceedings and accordingly, dismissed appeal. 8.Challenging said order, respondent/assessee preferred appeal before Income Tax Appellate Tribunal (ITAT). ITAT, after hearing arguments of both counsel, passed detailed order holding that details of loss on sale of shares have been clearly disclosed in profit and loss account by assessee, while filing original return of income and that Assessing Authority made thorough scrutiny after issuing scrutiny notice and thereafter, passed original assessment order and therefore, department cannot say now that no material was disclosed by assessee and hence, reassessment order passed under Section 147 of Act was not proper and thus, allowed appeal of assessee. 9.We have given due attention to submissions made by learned counsel for appellant and perused materials available on 5/19 http://www.judis.nic.in Order dt.21.7.2020 in T.C.A No.450 of 2017 record. 10.In present case, Commissioner of Income Tax (Appeals)- 15, Chennai came to conclusion that in original assessment proceedings, no opinion was formed by Assessing Officer. Therefore, in order to form fresh opinion, reassessment proceeding was initiated under Section 147 of Act. At this juncture, it would be apposite to refer paragraph no.5.1 of order of Commissioner of Income Tax (Appeals)-15, which reads as under:- 5.1. Ground No.1 to 5 raised by appellant are against action of AO in reopening assessment u/s 147 of IT Act. Assessing officer had reopened assessment u/s 148 on reason that Rs.26,51,684/- was debited as loss on shares which is capital loss resulting in escapement of income. appellant submitted before Assessing Officer that it had been trading in share market for past several years and therefore, loss on sale of shares should be treated as business loss. Assessing Officer asked it to submit financials for AY 2005-06 to verify its claim which were not submitted. As per assessment record of AY 2005-06, profit on sale of shares was shown as Long term capital gain. Therefore, 6/19 http://www.judis.nic.in Order dt.21.7.2020 in T.C.A No.450 of 2017 Assessing Officer disallowed loss on sale of shares. appellant has submitted that notice u/s148 was served without assigning any reason. It is not mandatory for Assessing Officer to inform appellant of reasons along with notice u/s.148. Reasons are furnished as and when appellant request for such reason. In original assessment proceedings, no opinion was formed by AO. Therefore, it can be said that there is no change of opinion. action of AO initiating proceedings u/s.147 are confirmed. These grounds of appeal are dismissed. 11.Learned counsel appearing for department/appellant submitted that since no opinion was formed by Assessing Officer in original assessment order, reassessment proceeding was initiated under Section 147 and that Assessing Officer is empowered to form opinion by initiating reassessment proceeding under Section 147 of Act. 12.We are not in agreement with above contention of appellant/department for reason that no assessment order can be made by any Assessing Officer, without forming any opinion prima facie. In present case, assessee company has filed its income tax return for 7/19 http://www.judis.nic.in Order dt.21.7.2020 in T.C.A No.450 of 2017 year 2006-07 on 28.11.2006 declaring total loss of Rs.18,15,356/- and same was processed under Section 143(1) on 19.03.2008. Again case was taken up for scrutiny by issuing notice under Section 143(2) on 08.10.2007. Subsequently, notice under Section 142(1) was issued on 20.04.2008, calling for some information. said required information was also furnished by assessee. After thorough examination of information received from assessee and on scrutiny of balance sheet, including profit and loss account, Assessing Officer (AO) passed assessment order on 15.12.2008. said assessment order has not been challenged. Therefore, by no stretch of imagination, it can be said by anyone that order was passed without forming any opinion, as Assessing Officer (AO) could pass assessment order, only after forming opinion and therefore, original assessment order itself should be considered as it has been passed after forming opinion by Assessing Officer. 13.The learned counsel for appellant further submitted that change of opinion in reassessment proceedings under Section 147 is permissible. At this juncture, it would be appropriate to extract 8/19 http://www.judis.nic.in Order dt.21.7.2020 in T.C.A No.450 of 2017 provisions of Section 147, which deals with income escaping assessment, hereunder:- 147. If Assessing Officer has reason to believe that any income has escaped assessment for any of assessment year, he may, subject to provisions of Section 148 to 153, assess or re-assess such income and also other income chargeable to tax but has escaped assessment and which comes to his notice. Subsequently, in course of proceedings under this section, or recomputing loss on shares or depreciation allowances or any other allowances as case may be, for assessment order is concerned. [herein after Section 148 to 153 is referred to as relevant assessment year]. 14.On perusal of Section 147, it is clear that if Assessing Officer has reason to believe that any income chargeable has escaped assessment for any assessment year, reassessment can be made. But, in present case, no income was escaped from assessment. loss on sale of shares was disclosed by assessee in original return of income. Thereafter, scrutiny was conducted and after such thorough scrutiny, assessment order was passed. Therefore, Assessing Officer formed 9/19 http://www.judis.nic.in Order dt.21.7.2020 in T.C.A No.450 of 2017 clear cut opinion after thorough scrutiny of all documents and passed original assessment order. Tribunal has also rightly dealt with this aspect at paragraph no.6 of its order. At this juncture, it would be relevant to re-produce paragraph no.6, which reads as follows:- 6. I heard rival submissions and perused material on record. It is not disputed that along with original return of income, assessee had provided Audited balance sheet, profit and loss account and schedules. Profit and loss account placed at paper book page no.6 clearly mentions loss on sale of shares of Rs.26,51,684/- as specific item of expenditure. loss claimed by assessee in return was Rs.18,15,356/-. loss was determined by Id. Assessing Officer in original assessment at Rs.17,94,091/-. only disallowance made was for non deduction of tax at source on sum of Rs.21,265/-. It would be na ve to presume that Id. Assessing Officer would not have gone through profit and loss account of assessee, especially when such profit and loss account reflected loss of Rs.15,93,811/-. It is not case were loss claimed was not visible. Substantial part of loss claimed by assessee was on account of loss in sale of shares of Rs.26,51,684/-, which was debited in its profit and loss account as specific item. It is not case, where Id. Assessing Officer was required to discover any 10/19 http://www.judis.nic.in Order dt.21.7.2020 in T.C.A No.450 of 2017 material evidence with diligence. entry was visibly available on face of record itself. Thus, we cannot say that Ld. Assessing Officer had determined loss of assessee without verifying profit and loss account filed by it. In case where reopening is attempted after four years from end of assessment year, first proviso to Sec.147 of Act would clearly apply. Nothing has been brought on record by Revenue to show that assessee had failed to disclose fully and truly all material facts necessary for assessment. Further, hon'ble Apex Court in case of Kelvinator India Ltd (Supra) held that in absence of fresh tangible material, reopening could not be done where original assessment was completed u/s.143(3) of Act. I am of opinion that reopening done for impugned assessment year was bad in law. Consequently assessment is set aside. 15. perusal of order of Commissioner of Income Tax (Appeals)-15 would make it clear that he has been persuaded to pass orders as if there was no change of opinion, as, according to him, no opinion was formed by Assessing Officer. However, fact remains that original assessment order was passed by Assessing Officer after forming opinion. 11/19 http://www.judis.nic.in Order dt.21.7.2020 in T.C.A No.450 of 2017 16.It appears that reassessment proceeding under Section 147 was made to form change of opinion and therefore, it would clearly amount to reviewing original order of assessment under Section 147 under pretext of reassessment. We make it clear that in reassessment proceedings under Section 147, original assessment order cannot be reviewed. Further, proceedings also cannot be initiated merely because there is possibility of change of opinion. Accordingly, we hold that no review on original assessment order is permissible in reassessment proceedings initiated under Section 147. Therefore, we are of view that Tribunal had rightly set aside impugned reassessment made under Section 147 of Act. In this regard, we would like to press into service of Judgments of Honourable Supreme Court rendered in Commissioner of Income Tax, Delhi Vs. Kelvinator of India Ltd., reported in (2010) 187 Taxman 312 or 320 ITR 561 (SC) to support our finding. extracts of relevant paragraph nos. 2 to 4 read as follows:- 2. short question which arises for determination in this batch of civil appeals is, whether concept of "change of opinion" stands obliterated with effect from 1st April, 1989, i.e., after substitution 12/19 http://www.judis.nic.in Order dt.21.7.2020 in T.C.A No.450 of 2017 of Section 147 of Income Tax Act, 1961 by Direct Tax Laws (Amendment) Act, 1987? 3. To answer above question, we need to note changes undergone by Section 147 of Income Tax Act, 1961 [for short, "the Act"]. Prior to Direct Tax Laws (Amendment) Act, 1987, Section 147 reads as under: " 147. Income escaping assessment. If-- [a] Income-tax Officer has reason to believe that, by reason of omission or failure on part of assessee to make return under section 139 for any assessment year to Income-tax Officer or to disclose fully and truly all material facts necessary for his assessment for that year, income chargeable to tax has escaped assessment for that year, or [b] notwithstanding that there has been no omission or failure as mentioned in clause (a) on part of assessee, Income- tax Officer has in consequence of information in his possession reason to believe that income chargeable to tax has escaped assessment for any assessment year, he may, subject to provisions of sections 148 to 153, assess or reassess such income or recompute loss or depreciation allowance, as case may be, for assessment year concerned (hereafter in 13/19 http://www.judis.nic.in Order dt.21.7.2020 in T.C.A No.450 of 2017 sections 148 to 153 referred to as relevant assessment year)." 3.1. After enactment of Direct Tax Laws (Amendment) Act, 1987, i.e., prior to 1-4-1989,Section 147 of Act, reads as under: "147. Income escaping assessment.-- If Assessing Officer, for reasons to be recorded by him in writing, is of opinion that any income chargeable to tax has escaped assessment for any assessment year, he may, subject to 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 course of proceedings under this section, or recompute loss or depreciation allowance or any other allowance, as case may be, for assessment year concerned (hereafter in this section and in Sections 148 to 153 referred to as relevant assessment year)." 3.2. After Amending Act, 1989, Section 147 reads as under: " 147. Income escaping assessment.-- If Assessing Officer has reason to believe that any income chargeable to tax has escaped assessment for any assessment year, he may, subject to provisions of 14/19 http://www.judis.nic.in Order dt.21.7.2020 in T.C.A No.450 of 2017 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 course of proceedings under this section, or recompute loss or depreciation allowance or any other allowance, as case may be, for assessment year concerned (hereafter in this section and in sections 148 to 153 referred to as relevant assessment year). 4.On going through changes, quoted above, made to Section 147 of Act, we find that, prior to direct Tax laws (Amendment) Act, 1987, re-opening 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 1-4-1989], they are given go-by and only one condition has remained, viz., that where Assessing Officer has reason to believe that income has escaped assessment, confers jurisdiction to re-open assessment. Therefore, post 1-4-1989, 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 re-open assessments 15/19 http://www.judis.nic.in Order dt.21.7.2020 in T.C.A No.450 of 2017 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 re-assess. 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 re-opening 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 1-4-1989, 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 reasons 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 re-introduced said expression and deleted word 16/19 http://www.judis.nic.in Order dt.21.7.2020 in T.C.A No.450 of 2017 opinion on ground that it would vest arbitrary powers in Assessing Officer. We quote herein below relevant portion of Circular No.549, dated 31.10.1989, which reads as follows:- 7.2. Amendment made by Amending Act, 1989 to reintroduce expression 'reason to believe' in section 147.- 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. 17.In view of reasons stated above, we do not find any questions of law arising for our consideration in present tax case appeal. Further, we do not find any infirmity or illegality in order passed by Tribunal. Therefore, we are of view that present Tax Case Appeal is liable to be dismissed. 17/19 http://www.judis.nic.in Order dt.21.7.2020 in T.C.A No.450 of 2017 18.In result, this Tax Case Appeal No.450 of 2017 is dismissed. No costs. [V.K., J.] [K.R., J.] 04.08.2020 klt 18/19 http://www.judis.nic.in Order dt.21.7.2020 in T.C.A No.450 of 2017 DR. VINEET KOTHARI, J. and KRISHNAN RAMASAMY,J. klt TCA.No.450 of 2017 04.08.2020. 19/19 http://www.judis.nic.in Principal Commissioner of Income-tax 6, Chennai v. Safe Corrugated Containers Pvt. Ltd
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