IN THE INCOME TAX APPELLATE TRIBUNAL
DELHI BENCH `B', NEW DELHI
BEFORE SH. A.T.VARKEY, JM
AND
SH. PRASHANT MAHARISHI, AM
ITA No. 3218/Del/2011
A.Y. 2004-05
E.I. DuPont Private Ltd. Vs ACIT
th
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.
Vs
Circle 11(1), Room No. 312, 7th Floor, Tower-C,
C.R.Building DLF Cyber Greens,Sector-25-A
New Delhi Phase-III
Gurgaon
(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
ORDER
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 :-
3
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
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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.
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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
Taxmann.com 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
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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
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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."
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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
AO.
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
9
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:
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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
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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:
1.Appellant
2.Respondent
3.CIT
4.CIT(Appeals)
5.DR: ITAT
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
Member.
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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