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E.I. DuPont Private Ltd. 7 th Floor, Tower-C, DLF Cyber Greens,Sector-25-A Phase-III Gurgaon Vs. ACIT Circle-11(1) New Delhi
November, 20th 2015
                         DELHI BENCH `B', NEW DELHI

                            BEFORE SH. A.T.VARKEY, JM
                           SH. PRASHANT MAHARISHI, AM

                                    ITA No. 3218/Del/2011
                                        A.Y. 2004-05

E.I. DuPont Private Ltd.               Vs ACIT
7 Floor, Tower-C,                         Circle-11(1)
DLF Cyber Greens,Sector-25-A Phase-III
Gurgaon                                   New Delhi
(APPELLANT)                               (RESPONDENT)
                               PAN No. AAACE2462M

                                    ITA No. 2357/Del/2011
                                        A.Y. 2004-05

DCIT                                         E.I. DuPont Private Ltd.
Circle ­ 11(1), Room No. 312,                7th Floor, Tower-C,
C.R.Building                                 DLF Cyber Greens,Sector-25-A
New Delhi                                    Phase-III
(APPELLANT)                                  (RESPONDENT)
                                  PAN No. AAACE2462M

           Appellant by                : Sh. Deepak Chopra, Amit Shrivastava, Adv.
           Respondent by               : Sh. Hemant Gupta, SR. DR

Date of Hearing : 15.10.2015                  Date of Pronouncement : 18.11.2015


Per Prashant Maharishi, AM:

01. Parties have preferred captioned cross appeals against the order dated
     09.02.2011 of CIT (A) -V, New Delhi for AY 2004-05.
02. First taking up appeal of the assessee, assessee has raised following
     grounds of appeal -:

03. We first take up ground no. 3 of the                              appeal of the assessee where
      reopening of assessment has been challenged alle ging that same is on the
      basis of mere change of opinion without any new material fact or
      information coming into the possession of AO.
04.   The Assessee a private limited company filed its return of income on
      27.10.2004 declaring total income of Rs. 67,41,72,130/-. Assessment u/s
      143(3) was completed on 26.12.2006 computing income u/s 115JB at Rs.
      73,36,65,315/-. Subsequent t o that, a notice u/s 148 was issued on
      06.03.2009 in response to that assessee submitted letter dated 09.04.2009
      stating that return of income filed earlier ma y be treated as return filed u/s
      148 of the Act. For issue of notice u/s 147 the AO recorded reasons as
      under :-

05. Vide letter dated 9 t h April, 2009 assessee submitted objection a gainst the
    notice u/s 148 that no new material has come into possession of the
    assessee and as all the relevant details are already available on record the
    proceedings u/s 148 is invalid as it based on mere change of opinion.
06. Before us ld. AR of the assessee submitted that the reasons recorded by the
    assessing officer are on five counts and each of the issue has been
    examined by the assessee during the course of assessment proceedin gs for
    this. He submitted that notice dated 18.08.2000 covers point no. 6,8,15 and
    24 relevant details ask for in original assessment. He also drew our
    attention that vide letter dated September 06, 2006 assessee has submitted
    replies of those notices giving complete details.                              Therefore he               submitted
    that while framing original assessment u/s 143(3) dated 26 t h December,
    2006, AO has applied his mind on the detail submitted and has formed an
    opinion about those items. He submitted that in ori ginal assessment
    proceedings, no additions have been made regarding these items. Further,
    he submitted that there is no material coming into possession of the
                                              4                      ITA No. 3218/Del/2011
                                                                    CO. No. 2357/Del/2011
                                                                      E.I.DuPont P. Ltd.
    assessing officer after completion of assessment proceedings on                  which
    reopening can be based upon.              Therefore, he submitted that reopening
    proceedings are initiated on mere change of opinion for this he relied on
    several decisions of Hon'ble Delhi Hi gh Court and primaril y on decision of
    Hon'ble Supreme Court in case of CIT vs. Kelvinator of India Ltd. 320 ITR
    561. He further submitted that as no new material came into the possession
    of Assessing Officer, reopening is based on material alread y on record, it is
    not permitted. He relied on the decision of Hon'ble Delhi High Court in
    case of Madhukar Khosla v. ACIT 367 ITR 165 and CIT v. Orient Craft Ltd.
    354 ITR 536. He further submitted that reopening has been done at the
    behest of audit party and therefore it is invalid. For this proposition he
    relied on the orders of Hon'ble Gujarat High Court in case of Raajratna
    Metal Industries Ltd. v. ACIT and Vodafone West Ltd. v. ACIT, Therefore,
    he submitted that 148 proceedings are not validl y initiated and on this
    count itself the appeal of the assessee should succeed.
07. Ld. DR relied on the order of AO as well as the CIT (A) and submitted that
    on going through the orders of lower authorities it is apparent that
    reopening       proceedings   has   not    been   challenged.   He   submitted     that
    reopening has been validl y done b y AO and no infirmit y can be found
    therein. He further relied on the decision of Honourable Gujarat hi gh court
    in Gruh      Finance Limited V      JCIT      123 taxman 196 and      of Honourable
    Delhi hi gh court in case of         M/s EMA        India Limited      V ACIT that
    reopening is not done on mere change of opinion.
08. We have carefull y examined rival arguments and the material on record. We
    are of the opinion that though assessee has not challenged 148 proceedings
    before AO and CIT (A), assessee is well within his rights to challenge it
    now before us as it is a legal issue. The Three fold arguments advanced b y
    AR is that
              (a)     Reopening has been done on the basis of audit objection.
              (b)     There is no new material coming in to possession of AO after
                      original assessment for reopening it.
                                         5                      ITA No. 3218/Del/2011
                                                               CO. No. 2357/Del/2011
                                                                 E.I.DuPont P. Ltd.
             (c)   There is a change of opinion as in the original assessment
                   proceedings AO has examined the details, did not make an y
                   adjustments on that account, and subsequentl y reopened
                   assessment on same issues.
     All three proposition raised b y the AR of the assessee are examined
     independentl y as under:-
09. Ld. AR of the appellant has contended before us that reopening has been
    done at the behest of the audit part y. For this he relied on decision of
            (a)    Honorable Supreme court in Indian And Eastern Newspaper
                   societ y V CIT 1119 ITR 996 and
            (b)    Honourable Delhi high court in        Transworld international
                   Inc. v   JCIT   273 ITR 242 and      Xerox Modi Corp         Ltd V
                   DCIT 350 ITR 308 and
            (c)    Honourable Gujarat hi gh court in Rajratna metal Industries
                   Limited V ACIT            and Vodafone West Ltd V ACIT 37
          158 where audit objection is contested but
                   case is reopened.
    However, AR of the assessee could not produce an y evidence before us that
    the reopening has been initiated at the behest of audit part y. Therefore, in
    absence of an y evidence we are afraid we cannot appreciate this proposition
    and hence, reject it.
10. Second proposition raised b y the AR is that there is no new material
    coming in to the possession of AO after completing assessment based on
    which reopening proceedings are initiated. For this, we       have perused the
    reasons recorded by AO for reopening of assessment, which is placed at
    page no 10 of the paper book submitted by assessee.        At the beginning of
    the reasons, AO has mentioned that information gathered b y him is on
    verification of case records. On further readin g, we could not find that
    there is any new material based on which AO was of the view that there is
    an escapement of income. On reading of assessment order, also we did not
    find that there is any new material available with Ao at the time of
                                              6                                ITA No. 3218/Del/2011
                                                                              CO. No. 2357/Del/2011
                                                                                E.I.DuPont P. Ltd.
recording of reasons as all the additions have been made on the same
material available before AO at the time of original assessment. Ld. DR
also could not point out before us any new material coming in to the
possession of AO       before recording reasons for reopenin g. Honorable Delhi
high court in case of Madhukar khosla V ACIT 367 ITR 165 has quashed
where Ao initiated reopening proceedings on appreciation                                of the same
facts alread y on record. Honourable High court after considering decision
of Honourable Supreme court in CIT V kelvinator of India Li mit ed 320 ITR
561 and Honourable Delhi high court in case of                          case of        CIT v Orient
Craft Limited 354 ITR 356,                 despite absence of any explanation b y the
assessee regarding increase in capital account of the assessee in original
assessment proceedings, quashed reassessment notice u/s 148. Honourable
high court held that
         "9. In this case, the reasons provided under Section 148 are that in "absence of the source of the
         addition with documentary evidence on records, the same is required to be brought on tax net as
         per provisions of section 68 of the Income tax Act, 1961 as the assessee had offered no
         explanation about the nature and source of the said additions..." and thus, must be treated as
         income which escaped assessment. No details are provided as to what such information is which
         excited the AO's notice and attention. The reasons must indicate specifically what such objective
         and new material facts are, on the basis of which a reopening is initiated under Section 148.
         This reassessment is clearly not on the basis of new (or "tangible") information or facts that
         which the Revenue came by. It is in effect a re-appreciation or review of the facts that were
         provided along with the original return filed by the assessee. The Supreme Court in Kelvinator
         of India Ltd. (supra) frowned against such exercise of power:
                      "However, one needs to give a schematic interpretation to the words "reason to
                      believe" failing which, we are afraid, Section 147 would give arbitrary powers to
                      the Assessing Officer to re-open assessments on the basis of "mere change of
                      opinion", which cannot be per se reason to re-open. We must also keep in mind the
                      conceptual difference between power to review and power to re-assess. The
                      Assessing Officer has no power to review; he has the power to re-assess. But re-
                      assessment has to be based on fulfillment of certain pre-condition and if the
                      concept of "change of opinion" is removed, as contended on behalf of the
                      Department, then, in the garb of re-opening the assessment, review would take
                      place. One must treat the concept of "change of opinion" as an in-built test to
                      check abuse of power by the Assessing Officer. Hence, after 1st April, 1989,
                      Assessing Officer has power to re-open, provided there is "tangible material" to
                      come to the conclusion that there is escapement of income from assessment.
                      Reasons must have a live link with the formation of the belief. "
         10. This Court recollects that even in case of an assessment completed under Section 143 (1),
         the requirement of recording "reasons to believe" are mandatory - as the text of Section 147
         indicates. Rejecting an argument by the Revenue to the contrary, this Court in Orient Craft
         Ltd.'s case (supra) held that:
                                      7                                 ITA No. 3218/Del/2011
                                                                       CO. No. 2357/Del/2011
                                                                         E.I.DuPont P. Ltd.
"The assumption of the Revenue that somehow the words "reason to believe" have to be
understood in a liberal manner where the finality of an intimation under Section 143(1) is
sought to be disturbed is erroneous and misconceived. As pointed out earlier, there is no
warrant for such an assumption because of the language employed in Section 147; it makes no
distinction between an order passed under section 143(3) and the intimation issued under
section 143(1). Therefore it is not permissible to adopt different standards while interpreting the
words "reason to believe" vis-à-vis Section 143(1) and Section 143(3). We are unable to
appreciate what permits the Revenue to assume that somehow the same rigorous standards
which are applicable in the interpretation of the expression when it is applied to the reopening
of an assessment earlier made under Section 143(3) cannot apply where only an intimation was
issued earlier under Section 143(1). It would in effect place an assessee in whose case the
return was processed under Section 143(1) in a more vulnerable position than an assessee in
whose case there was a full-fledged scrutiny assessment made under Section 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; he has no choice in the matter. The other consequence, which is somewhat
graver, would be that the entire rigorous procedure involved in reopening an assessment and
the burden of proving valid reasons to believe could be circumvented by first accepting the
return under Section 143(1) and thereafter issue notices to reopen the assessment. An
interpretation which makes a distinction between the meaning and content of the expression
"reason to believe" in cases where assessments were framed earlier under Section 143(3) and
cases where mere intimations were issued earlier under Section 143(1)may well lead to such an
unintended mischief. It would be discriminatory too. An interpretation that leads to absurd
results or mischief is to be eschewed.
13. Certain observations made in the decision of Rajesh Jhaveri (supra) are sought to be relied
upon by the revenue to point out the difference between an "assessment" and an "intimation".
The context in which those observations were made has to be kept in mind. They were made to
point out that where an "intimation" is issued under section 143(1) there is no opportunity to the
assessing authority to form an opinion and therefore when its finality is sought to be disturbed
by issuing a notice under section 148, the proceedings cannot be challenged on the ground of
"change of opinion". It was not opined by the Supreme Court that the strict requirements of
section 147 can be compromised. On the contrary, from the observations (quoted by us earlier)
it would appear clear that the court reiterated that "so long as the ingredients of section 147 are
fulfilled" an intimation issued under section 143(1) can be subjected to proceedings for
reopening. The court also emphasised that the only requirement for disturbing the finality of an
intimation is that the assessing officer should have "reason to believe" that income chargeable
to tax has escaped assessment. In our opinion, the said expression should apply to an intimation
in the same manner and subject to the same interpretation as it would have applied to an
assessment made under section 143(3). The argument of the revenue that an intimation cannot
be equated to an assessment, relying upon certain observations of the Supreme Court in Rajesh
Jhaveri (supra) would also appear to be self-defeating, because if an "intimation" is not an
"assessment" then it can never be subjected to section 147 proceedings, for, that section covers
only an "assessment" and we wonder if the revenue would be prepared to concede that position.
It is nobody's case that an "intimation" cannot be subjected to section 147 proceedings; all that
is contended by the assessee, and quite rightly, is that if the revenue wants to invoke section 147
it should play by the rules of that section and cannot bog down. In other words, the expression
"reason to believe" cannot have two different standards or sets of meaning, one applicable
where the assessment was earlier made under section 143(3) and another applicable where an
intimation was earlier issued under section 143(1). It follows that it is open to the assessee to
contend that notwithstanding that the argument of "change of opinion" is not available to him, it
would still be open to him to contest the reopening on the ground that there was either no
reason to believe or that the alleged reason to believe is not relevant for the formation of the
belief that income chargeable to tax has escaped assessment. In doing so, it is further open to
the assessee to challenge the reasons recorded under section 148(2) on the ground that they do
not meet the standards set in the various judicial pronouncements."
                                                    8                                ITA No. 3218/Del/2011
                                                                                    CO. No. 2357/Del/2011
                                                                                      E.I.DuPont P. Ltd.
               11. The foundation of the AO's jurisdiction and the raison d'etre of a reassessment notice are
               the "reasons to believe". Now this should have a relation or a link with an objective fact, in the
               form of information or facts external to the materials on the record. Such external facts or
               material constitute the driver, or the key which enables the authority to legitimately re-open the
               completed assessment. In absence of this objective "trigger", the AO does not possess
               jurisdiction to reopen the assessment. It is at the next stage that the question, whether the re-
               opening of assessment amounts to "review" or "change of opinion" arises. In other words, if
               there are no "reasons to believe" based on new, "tangible materials", then the reopening
               amounts to an impermissible review. Here, there is nothing to show what triggered the issuance
               of notice of reassessment - no information or new facts which led the AO to believe that full
               disclosure had not been made. The impugned notice, the AO's order rejecting the objections,
               and the arguments of the Revenue nowhere indicate how the AO was impelled to seek re-
               opening of the assessee's case, as distinguished from the several other completed assessments."

11. In the case of the assessee during assessment proceedings, Ao asked the
    pertinent details and Assessee furnished them, AO examined them, and no
    additions have been made, even then on the same issues reassessment is
    initiated without any new, tangible material coming in to the possession of
12. Reliance placed b y Ld. DR on GRUH Finance Ltd. v. Jt. CIT [2000] 243
    ITR 4821 , a judgment of the Gujarat High Court, is misplaced and
    distin guishable. The said case is prior to the decision of Delhi Hi gh Court
    and the Supreme Court in the case of Kelvinator of India Ltd. (supra). The
    Gujarat High Court has recorded a specific finding that at the time of the
    original assessment, there was no conscious consideration of material and a
    mistake was made. It has been observed that conscious application of mind
    to the material and the issue in question is required. Change of opinion
    necessaril y means examination on an earlier occasion. In the present case
    before us, there is a specific application of mind.
13. Therefore respectfully following the decision of Honourable Delhi hi gh
    court in    Madhukar kholsa V                CIT ( Supra)           we are of the opinion that
    impugned      reassessment proceedings                 initiated      are sustainable, therefore
    same is quashed.
14. Alternativel y, also on the ground of change of opinion assessee's appeal
    deserves to succeed because in the original assessment proceedin gs vide
    notice dated 18/08/2008 AO has asked for all the details recorded in reason.
    Assessee submitted compliance letter dated 06/09/2006 furnishing these

15. Based on above chart it is apparent that there is complete information asked
    by the AO, assessee replied, and no adverse view was taken. On the same
    issues now, reassessment notice is issued. Honourable Delhi high court in
    CIT V Usha International Limited 348 ITR 485 has laid down the following
    propositions of law:
                                           10                      ITA No. 3218/Del/2011
                                                                  CO. No. 2357/Del/2011
                                                                    E.I.DuPont P. Ltd.

   (i)    The expression 'change of opinion' postulates formation of opinion and
          then a change thereof. In the context of section 147, it implies that the
          Assessing Officer should have formed an opinion at the first instance,
          i.e., in the proceedings under section 143(3) and now b y initiation of
          the reassessment proceeding, the Assessing Officer proposes or wants to
          take a different view.
  (ii)    Reassessment proceedings will be invalid in case the assessment order
          itself records that the issue was raised and is decided in favour of the
          assessee. Reassessment proceedings in the said cases will be hit b y
          principle of 'change of opinion'.
  (iii)   Reassessment proceedings will be invalid in case an issue or query is
          raised and answered by the assessee in original assessment proceedin gs
          but thereafter the Assessing Officer does not make any addition in the
          assessment order. In such situations, it should be accepted that the issue
          was examined but the Assessing Officer did not find any ground or
          reason to make addition or reject the stand of the assessee. He forms an
          opinion. The reassessment will be invalid because the Assessing
          Officer, had formed an opinion in the original assessment, whether or
          not he had recorded his reasons in the assessment order.
16. In this case, an issue or query is raised and answered b y the assessee in
     original assessment proceedin gs but thereafter the Assessin g Officer did not
     make    any addition    in   the   assessment   order.   Respectfully following
     Honourable Delhi high court in CIT V Usha International (FB) (Supra) in
     such situations, it should be accepted that the issue was ex amined but the
     Assessing Officer, did not find an y ground or reason to make addition or
     reject the stand of the assessee. He forms an opinion. The reassessment will
     be invalid because the Assessing Officer, had formed an opinion in the
     original assessment, whether or not he had recorded his reasons in the
     assessment order. Therefore we do not have an y hesitation to hold that the
     reopening in this case is initiated solely on the          basis of `Change of
     Opinion' which cannot be sustained.
17. In view of this ground no 3 of the appeal is allowed.
18. As we have       held that reopening is not sustainable, we do not adjudicate
     other grounds of the appeal of the assessee as the y become infructuous.
19. In the result appeal of the assessee is allowed.
     ITA No 2351/del/2011 (Appeal of revenue)
                                        11                     ITA No. 3218/Del/2011
                                                              CO. No. 2357/Del/2011
                                                                E.I.DuPont P. Ltd.
20. Now we take up appeal of the revenue where in revenue has challenged the
    addition of Rs 25,78,900/- deleted b y CIT (A) on account of royalt y.
21. In view of our decision in appeal of assessee       In ITA No 2357/Del/2011
    wherein allowing ground number three of t hat appeal we have held that
    reopening proceedings initiated are not sustainable     in absence of an y new
    tangible material and even otherwise is based on mere change of opinion.
    This appeal of revenue has emerged from the same reopening proceedings,
    and hence   consequentl y we dismiss the appeal of revenue.
22. In the result, we allow appeal no ITA No 3218 /Del/2011 preferred b y
    assessee and     dismiss appeal no. 2351/Del/2011 preferred by revenue.
    (Order Pronounced in the Court on        18 /11/2015)

     Sd/-                                                      Sd/-
  (A.T.Varkey)                                        (Prashant Maharishi)
JUDICIAL MEMBER                                     ACCOUNTANT MEMBER

Dated: 18 /11/2015
*B. Rukhaiyar*
Copy forwarded to:
                                                   ASSISTANT REGISTRAR
                                             12                            ITA No. 3218/Del/2011
                                                                          CO. No. 2357/Del/2011
                                                                            E.I.DuPont P. Ltd.

                                                       Date     Initial
1.    Draft dictated on                            08/11/2015
2.    Draft placed before author                   10/11/2015
3.    Draft proposed & placed before the
      second member
4.    Draft discussed/approved by Second
5.    Approved Draft comes to the Sr.PS/PS
6.    Kept for pronouncement on
7.    File sent to the Bench Clerk
8.    Date on which file goes to the AR
9.    Date on which file goes to the Head Clerk.
10.   Date of dispatch of Order.
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