IN THE INCOME TAX APPELLATE TRIBUNAL
CHANDIG ARH BENCH ` A', CHANDIG ARH
BEFORE SHRI T.R. SOOD, ACCOUNTANT MEMBER AND
Ms. SUSHMA CHOWLA, JUDICI AL MEMBER
ITAs No. 1109, 1110, 1111, 1112,
1113, 1114, 1115 & 1116/Chd/2013
Assessment Years : 2006-07, 2007-08, 2008-09, 2009-10,
2006-07, 2007-08, 2008-09, 2009-10
Chandigarh Housing Board Vs. A.C.I.T. C-1(1)
Sector 9, Chandigarh Chandigarh
AAALC 0132H
(Appellant) (Respondent)
Appellant by: S/Shri Ravi Shankar, B.M. Monga & Rohit Kaura
Respondent by: Smt. Jyoti Kumari
Date of hearing 5.3.2014
Date of Pronouncement 27.3.2014
O R D E R
PER BENCH
I T As N o . 1 1 0 9 , 1 1 1 0 , 1 1 1 1 & 1 1 1 2 / C h d / 2 0 1 3
All these appeals have been disposed of by the Ld. CIT(A)
by a common order dated 30.9.2013, therefore these appeals
were heard together and are being disposed off by this common
order.
2. In all these appeals the assessee has raised the following
grounds:
"1 That the Ld. CIT(A) has erred in lower authorities as well as
on facts of the case in upholding the action of the Assessing
officer in passing the order u/s 143(3) r.w.s. 147.
2 That the Ld. CIT(A) is not justified in upholding the order of
the Assessing officer because there was no new/fresh material that
had come to the possession of the Assessing officer addition it
was only a case of `change of opinion' and not per se `reasons to
believe.'
3 That the Ld. CIT(A) is not justified in concluding that the
appellant had deliberately stopped paying surcharge w.e.f.
Assessment year 2006-07 though it had paid the same upto
2
Assessment year 2005-06 ignoring that no surcharge is payable
after Assessment year 2005-06 as per rates in force.
4 That the Ld. CIT(A) is not justified in upholding the order of
the Assessing officer because for assuming jurisdiction for
reopening u/s 147 after four years there has to be a specific
allegation in the reasons recorded that there was any default on
the part of the assessee in not making `true and full disclosure'
which is `sine qua non".
5 That the Ld. CIT(A) is not justified in upholding the re-
assessment order of the Assessing officer as the re assessment
order had again been made in the same status, re-assessing the
same income which tantamount to review not permissible under
law."
3 By the consent of the parties, the facts for Assessment
year 2006-07 in ITA No. 1109/Chd/2013 has been taken for
detailed adjudication. Brief facts for Assessment year 2006-07
are that the assessee filed return of income at Rs. 290425186/.
Income was assessed u/s 143(3) by an assessment order
passed on 22.12.2008. Thereafter assessment was reopened
after recording the reasons and notice u/s 148 was served on
the assessee on 30.3.2012. The main reason recorded for
reopening of the assessment was that the assessee claimed to
be a local authority and therefore not paid surcharge on the
tax whereas the assessee was actually not a local authority.
The assessee raised objections in respect of reopening of the
assessment and it was mainly submitted that all the facts and
information were provided during assessment proceedings and
therefore it cannot be said that income of the assessee has
escaped leading to the issuance of notice u/s 148. It was
pointed out that the assessee i.e. Chandigarh Housing Board
(CHB) was constituted by Govt of India, Ministry of Home
Affairs vide Notification dated 14.1.1975 in exercise of powers
conferred by S 87 of Punjab Reorganization Act, 1966 as
extended UT of Chandigarh, Haryana Housing Board Act, 1971
as in force in the State of Haryana at the date of this
3
notification. As per clause 3(3) of the Act, the Chandigarh
Housing Board stand established and constituted as "local
authority". Copy of Haryana Housing Board Act, 1971 was also
furnished. The purpose of the Act referred to in sub section (3)
included the management and use of lands and buildings
belonging to are vesting in the board under or for the purpose
of this Act, and the exercise of its rights over and with respect
to such lands and buildings for the purposes of this Act.
Therefore it was clear that from the date of inception CHB was
a local authority. The Board has been filing returns in the
status of local authority, it was accepted in the earlier years. It
was further pointed out that the assessee being a local
authority was exempt from income tax u/s 10(20A) of Income -
tax Act, 1961. This exemption was withdrawn w.e.f. 1.4.2003
and the income of the Board became taxable and the Board
started paying income tax and filing return of income under the
status of local authority. Removal of exemption does not mean
that that status of assessee is also changed. It was pointed
out that whole of the capital was owned by the Chandigarh
Administration and no contribution has been made by any
private party. Therefore in these circumstances it was
requested that no such surcharge can be levied. Further
replies were also submitted giving the details of the
management and the meaning of the local authority. The
Assessing officer after considering the reply referred to the
provisions of section 10(20) and observed that after 1.4.2003
the assessee-Board did not fall under the status of local
authority. The Assessing officer observed that the assessee
has itself admitted that after removal of exemption w.e.f.
4
1.4.2003 the income of the Board became taxable. The
Assessing officer also referred to the decision of Hon'ble
Supreme Court in case of Union of India Vs. R.C. Jain & Ors,
AIR 1981 (S.C) 951 which laid down various test for
determining where a particular entity was local authority or
not? After discussing each of the test he discussed the facts
of the assessee and observed that the assessee cannot be
called a local authority.
4 The Assessing officer also observed that it was not
correct that all the information was provided by the assessee
during assessment proceedings. According to him the assessee
was aware that it is not a local authority and it was an entity
which was liable to tax but despite that the fact the assessee
has not paid surcharge on the amount of tax. He also
discussed the explanatory notes which clearly shows how
various authorities were not to be treated as local authority.
He also observed that even if the assessee is a local authority
under some other provisions the same will have no bearing on
the status of the assessee under Income -tax Act, 1961.
Ultimately he held that the assessee was not a local authority
and levied surcharge on the income of the assessee.
5 Before the Ld. CIT(A) the submissions made before the
Assessing officer were reiterated and it was submitted that
assessment cannot be reopened merely on the change of
opinion. In this regard reliance was placed on the decision of
Hon'ble Supreme Court in case of CIT Vs. Kelvinator of India
Ltd. 320 ITR 561 and in case of Parixit industries P. Ltd. 352
ITR 349.
5
6 The Ld. CIT(A) after considering the submissions
observed that assessment in all the four years were reopened
because surcharge was not levied in the original assessment
completed u/s 143(3). The objection was found not to be
sustainable because of Exp (2)(c)(ii) to Sec 147 of the Act
which provides that if income has been assessed on too low a
rate then the same shall be deemed to be a case of
concealment of income. He also noted that the assessee had
paid surcharge in Assessment year 2005-06 on the declared
income and stopped paying surcharge w.e.f. 2006-07 onwards.
Therefore it can be safely concluded that the assessee has
deliberately stopped paying surcharge. In this background
reopening was held to be valid. The decision relied on by the
assessee was found to be distinguishable. In respect of status
the Ld. CIT(A) made following observations vide para 6.3 and
6.4 at page 5 & 6 of his order:
"6.3 Coming to the issue of status in which the appellant is to be
assessed, I may mention that clause (20A) of Sec 10, dealing with
the exemption of income of an `auth ority' constituted for the
purpose of housing accommodation etc. has been omitted by
Finance Act, 2002 with effect from 1.4.2003 and so the income of
the appellant is not exempt as such. The other clause pertaining
to the provisions of taxability of income of local authority is clause
(20) of sec 10 and the case of the appellant is not covered by this
clause also, after the insertion of Exp below this clause, by which
the types of assesses covered under the expression `local
authority' has been enumerated. Thus the appellant cannot be
treated as local authority for the purposes of Income Tax Ac, 1961.
The appellant has submitted that as per Haryana Housing Board
Act, 1971; the appellant was established and constituted as local
authority, but this argument and other arguments in this regard do
not hold water because the appellant board might be treated as
local authority under any other law / Act, but it is out of the
purview of the definition of local authority as per the provisions of
Income -tax Act, 1961. The status of the appellant is not of a
local authority under the Income -tax Act, 1961 and since the
status of the appellant board cannot be individual or firm or
company or AOP or body of Individuals, it has to be assessed as
"artificial juridical person'. In fact the status of the appellant has
also been changed by passing order u/s 154 of the Act to `artificial
juridical person' in respect of all thee years vide orders dated
14.8.2013 u/s 154 of the Act. The appellant has filed appeals
against thee orders us/ 154 also. As the appellant is to be
assessed in the status of `artificial juridical person', it is liable to
pay income tax as well as surcharge.
6.4 The appellant has relied upo0nteh decisions of Hon'ble
ITAT, Chandigarh in its own case of Assessment year 2006-07
(supra) to support its argument that it is a local authority but this
argument of the appellant does not hold water since ITAT has
6
merely reproduced the facts, as submitted by the appellant itself.
The Tribunal has mentioned in para 2.1 of its order as under:
"2.1 The facts of the case, in brief are that the appellant,,
Chandigarh Housing Board is a local authority constituted
and established."
7 Before us the Ld. Counsel for the assessee with reference
to various grounds made detailed submissions which can be
summarized as under:
(a) Original assessment was completed u/s 143(3) on
22.12.2008 and notice u/s 148 has been issued after a gap of
four years. All the material facts were disclosed during
assessment proceedings and no new material has come to the
knowledge of the Assessing officer therefore it is a simple case
of change of opinion which is not permissible under law
particularly in view of the decision of Hon'ble Supreme Court
in case of CIT Vs. Kelvinator of India Ltd. (supra)?. He also
relied on the decision of Hon'ble Gujarat High Court in case of
Parixit industries P. Ltd. (supra. The Assessing officer has not
made any specific allegation that the assessee has failed to
give true and full disclosure of relevant material. In the
absence of such failure the assessment could not be reopened
and in this regard he relied on the decision of Hon'ble Punjab
and Haryana High Court in case of Duli Chand SinghaniaV
ACIT, 269 ITR 192 (PH).
(b) He contended that it is not true on the part of the
Assessing officer to hold that the assessee has stopped paying
surcharge deliberately after Assessment year 2005-06. In this
regard he referred to paper book page 17 to 22 which contains
a schedule f or rates of tax for various years and pointed out
that surcharge was payable only by Assessment year 2005-06
7
and no surcharge was payable from Assessment year 2006-07
as per this schedule.
(c) He contended that the assessment has been made u/s
147 r.w.s.143(3) again in the status of local authority which
becomes clear from Col 5 dealing with the status at page 1 of
assessment order. This fact clearly shows that assessment
has been reopened without any reason particularly when the
assessee has been assessed under the same status.
(d) He reiterated the submissions made before the Assessing
officer that the assessee still remains local authority. The
assessee was constituted under the provisions of Haryana
Housing Board, 1971by the Govt of India and clause 3.3 of this
said Act clearly show that CHB was established as local
authority. Therefore status of the assessee remains local
authority and even if the assessee is no more exempt from tax
u/s 10(20) that does not mean that the status of the assessee
also stands changed.
8 On the other hand, the Ld. D.R. for the Revenue
submitted that the assessee Board was exempt from income tax
as per Sec 10(20). The exemption was removed by the Govt
w.e.f. 1.4.2003. The assessee started filing returns and was
paying taxes but from Assessment year 2006-07 the assessee
stopped paying surcharge. During assessment proceedings the
fact that the assessee has specifically claimed the status of
local authority and no surcharge was payable, was not brought
to the attention of the Assessing officer. Therefore it is not a
case of proper disclosure and assessment has been rightly
reopened. She pointed out that in the original assessment u/s
8
143(3) nothing was discussed regarding status of the assessee
and therefore it cannot be said that any opinion was formed.
Once no opinion has been formed in the original assessment
then it cannot be called to be a case of change of opinion. In
this regard she relied on the decision of Full Bench of Delhi
High Court in case of CIT Vs. Usha International Ltd. 348 ITR
485. In this case it was clearly observed that reference to the
decision of Hon'ble Supreme Court in case of Kalyanji Mavji &
Co. Vs. CIT, 102 ITR 287 that if no opinion is formed in the
original assessment then it cannot be said later on when the
assessment is reopened that it is a case of change of opinion.
She also submitted that in the original assessment the
Assessing officer has taken a view on the wrong appreciation
then later on it cannot be said that assessment has been
reopened on the change of opinion and in this regard relied on
the decision of Som Dutt Builders P Ltd. Vs. DCIT, 98 ITD 78.
She contended that it is a settled position that if the assessee
fails to disclose fully and truly material facts then such
assessment can be reopened and in this regard relied on the
decision of Hon'ble Supreme Court in case of Phool Chand
Bajrang Lal and Anr Vs. ITO, 203 ITR 456. She also relied on
the decision of Gujarat High Court in case of Praful Chunilal
Patel Vs. ACIT, 236 ITR 832. She submitted that Hon'ble
Punjab and Haryana High Court in case of Jawand Sons Vs.
CIT, 326 ITR 39 has held that after the amendment to Sec 147
w.e.f. 1.4.1989 wide powers have been given to the Assessing
officer and in a case where even the assessee has disclosed
all the material facts, even then the assessment can be
reopened. She submitted that assessment has been reopened
9
after four years only in Assessment year 2006-07 and in other
years, reopening has been done within four years.
9 The Ld. D.R. for the Revenue submitted that there is no
force in the contention of the Ld. Counsel for the assessee
that fresh assessment u/s 147 r.w.s. 143(3) has been made in
the same status. No doubt in Col 5 status of the assessee has
been shown as local authority but this is clear case of
typographical mistake because body of the assessment order
clearly shows that the Assessing officer has clearly held that
the assessee is not local authority.
10 She also submitted that the assessee may be a local
authority for the purpose of Haryana Housing Board Act but the
assessee cannot be treated as local authority for the purpose
of Income Tax Act particular after the removal of exemption u/s
10(20). She also referred to the detail discussion in the
assessment order and relied on the assessment order.
11 W e have gone through the rival submissions carefully.
Sec 147 reads as under:
"147 - If the Assessing officer has reason to believe that any
income chargeable to tax has escaped assessment for any
Assessment year he may subject to the provisions of section 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 recomputed the loss or the depreciation allowance
or any other allowance, as the case may be for the Assessment
year concerned (hereafter in this section and in section 148 to
153 referred to as the relevant Assessment year ):
Provided that where an assessment under sub-section (3) of
section 143 or this section has been made for the relevant
Assessment year no action shall be taken under this section after
the expiry of four years from the end of the relevant Assessment
year unless any income chargeable to tax has escaped
assessment for such Assessment year by reason of the failure on
the part of the assessee to make a return u/s 139 or in response to
a notice issued under sub-sec (1) of section 142 or sec 148 or to
disclose fully and truly material facts necessary for his
assessment, for that Assessment year ."
Plain reading of the above provision shows that what is
required for reopening the assessment is that the Assessing
10
officer should have some reasons to believe that the income
has escaped assessment. In this regard it is important to note
that clause (c)(ii) of Exp 2 further provides that such income
would be deemed to have been escaped income if the income
has been charged at too low a rate. In the case before us
since surcharge was not levied in the original assessment
therefore it is a case of income being assessed at too low a
rate. Now the question is whether in this case assessment has
been reopened on the basis of change of opinion or not? No
doubt Hon'ble Supreme Court in case of CIT Vs. Kelvinator of
India Ltd (supra) has clearly observed as under:
"The concept of `change of opinion' on the part of th Assessing
officer to reopen an assessment does not stand obliterated after
the substitution of section 147 of Income -tax Act, 1961 by the
Director Tax Laws (Amendment) Acts, 1987 and 1989. After the
amendment, the Assessing officer has to have reason to believe
that income has escaped assessment, but this does not imply that
the Assessing officer can reopen an assessment on mere change
of opinion. The concept of `change of opinion' must be treated as
an in-built test to check the abuse of power. Hence after April 1,
1989 the Assessing officer has power to reopen an assessment
provided there is `tangible material' to come to the conclusion that
there was escapement of income from assessment. Reason must
have a link with the formation of the belief."
The above observation is subject to limitation i.e. if no opinion
has been formed then it cannot be said that assessment has
been reopened on the basis of change of opinion. In this
regard Hon'ble Delhi High Court in case CIT Vs. Usha
International Ltd. (supra) considered this aspect in detail.
After considering the judgment of Hon'ble Supreme Court in
case of CIT Vs. Kelvinator of India Ltd (supra) it was observed
at para 9 as under:
"It was argued on behalf of the Revenue that for determining
whether or not it is not a case of change of opinion, reference can
and should be made only to the assessment order and the
discussion or the reasons stated therein. Reliance was palced
on the decision of this court in CIT Vs. HP Sharma (1980) 122 ITR
675 (Delhi) and Consolidated Photo and Finvest Ltd. Vs. ACIT
11
(2006) 281 ITR 394 (Delhi). The relevant portion of the judgment
in HP Sharma (supra) reads as under (page 698):
"Adverting to the next question as to whether the resorts to
reassessment u/s 147(b) and 148 of the Act were justified or
not, it is noteworthy that both the Income Tax officer and the
Appellate Assistant Commissioner have clearly observed that
the assessee had not disclosed at the original assessment
stage that the rents realized exceeded those mentioned in
the municipal records. The Tribunal has not controverted
this finding, perhaps it did not consider it appropriate to into
the same after having held that the municipal valuation
should have a sway over the rent realized. My ld. Brother
has on this score sent the matter back to the Tribunal for
giving a finding on this aspect. I will only like to observe in
this connection that the second Explanation to sec 147 itself
makes it clear that the production before the ITO of account
books or other evidence from which material evidence could
with due diligence have been discovered by the ITO will not
necessarily amount to disclosure within the meaning of this
section. The Hon'ble Supreme Court too has, in the decision
of Kalyanji Mavji and Co. Vs. CIT (1976) 102 ITR 287 (S.C)
and CIT Vs. A. Raman and Co. (1968)67 ITR 11 (S.C)
observed that information in order to justify reassessment
may be obtained even from the record of original assessment
from an investigation of the material on record or the facts
disclosed thereby or from other enquiry or research into
facts or law. "To inform" means to "to impart knowledge"
and the detail available to the ITO in the papers filed before
him does not by its mere availability become an item of
information. It is transmuted into an item of information in
his possession only if, and only when, its existence is
realized and its implications are recognized. Where the ITO
had not in the original assessment proceedings applied his
mind, the reassessment proceedings are valid (see in this
respect the decision of the Kerala and Madras High Courts
in United Mercantile Co. Ltd. Vs. CIT (1967) 64 ITR 218
(Ker) and Muthukrishna Reddiar Vs. CIT (1973) 90 ITR 503
(Ker) and A.L.A Firm Vs. CIT (1976) 102 ITR 622 (Mad).
It need hardly be said that change of opinion presupposes that
there was earlier a formation of an opinion. When no such opinion
was formed, it will be too far fetched to assume that a change in
that opinion was being effected. Further, the safest and surest
guide for ascertaining whether any such opinion was formed at the
original assessment stage, is to look to the assessment order
itself. When it, of its own, does not reveal that the matters and
controversies now sought to be raised by way of reassessment
were at all before the ITO or considered by him, it would be
entirely surmiseful and therefore not permissible to still import
their existence and consideration . This can, however, be
permissible only where the assessment record of that stage
overwhelmingly brings out that the mater did come for due
consideration and was in fact considered. Mere silence on a
matter or absence of discussion in the original order does not
imply that the ITO adjudicated upon the same one way or the
other." (emphasis supplied).
In the case before us admittedly no opinion was formed earlier
whether the assessee was a local authority or not? Further the
Ld. Counsel for the assessee has not placed any material
before us to show that the fact that the assessee was treated
as local authority, was brought to the knowledge of the
12
Assessing officer during original assessment proceedings u/s
143(3). Therefore there is clear failure on the part of the
assessee to disclose material fact that the assessee was being
treated as local authority. This aspect need to be examined
particularly in the background of removal of exemption u/s
10(20A) which at the relevant time i.e. year 2002 reads as
under:
"Sec 10(20) - the income of a local authority which is
chargeable under the head "income from house property" "capital
gains" or "income from other sources" or from a trade or business
carried on but it which accrues or arises from the supply of a
commodity or service (not being water or electricity_ within its own
jurisdictional area or from the supply of water or electricity within
or outside its own jurisdictional area"
10(20A) - any income of an authority constituted in India
by or under any law enacted either for the purpose of dealing with
and satisfying the need for housing accommodation or for the
purpose of planning, development or improvement of cities, towns
and villages, or for both."
Later on w.e.f. 1.4.2003 Sec 10(20A) was omitted by Finance
Act 2002 w.e.f. 1.4.2003 and following explanation was
inserted in Sec 10(20):
"The following Explanation shall be inserted to clause (20) of
section 10 by the Finance Act, 2002 w.e.f. 1.4.2003:
Explanation For the purposes of this clause, the expression
`local authority' means
(i) Panchayat as referred to in clause (d) of article 243 of
the Constitution; or
(ii) Municipality as referred to in clause (e) of article 243P of
the Constitution; or
(iii) Municipal Committee and District Board,
Legally entitled to or entrusted by the Government with the control
or management of a Municipal or local fund, or
(iv) Cantonment Board as defined in section 3 of the
Cantonments Act, 1924 (2 of 1924)."
Above clearly show that till Assessment year 2002-03
exemption was specifically granted to the local authority as per
the provisions of section 10(20A) which was omitted from
Assessment year 2003-04 and whatever exemption were
13
required were made in terms of Sec 10(20). However, the
exemption was restricted by adding the explanation by which
the meaning of the local authority itself, was restricted. This
amended position came up for interpretation before the Hon'ble
Supreme Court in case of Agricultural Produce Market
Committee, Narela Vs. CIT, 305 ITR 1 and it was clearly
observed that definition given in Explanation to Sec 10(20) was
exhaustive and there was no scope for extending the meaning
of other authorities. Held column reads as under:
"Held, that the appellant an agricultural marketing committee
established under the Delhi Agricultural Produce Marketing
(Regulation) Act, 1998 to provide facilities for marketing
agricultural produce in Narela in Delhi and for performing other
functions and duties such as superintendence, direction and
control of markets for regulating the marketing of agricultural
produce was not a "local authority" u/s 10(20) of the Income -tax
Act, 1961 as amended by the Finance Act, 2002 and was therefore
not exempt from income-tax thereunder.
Since the works "other authority" were omitted from the scope of
the expression "local authority" found in section 3(31) of the
General clauses Act, 1897 in the Explanation to section 10(20) by
the Finance Act, 2002 it would not be correct to say that the entire
definition of the works "local authority" was bodily lifted from
section 3(31) of the 1897 Act and incorporated by Parliament in
the Explantion to s ection 10(20) of the Income -tax Act, 1961.
The Explanation to section 10(20) provides a definition to the
expression "local authority" and that is an exhaustive definition. It
is not an inclusive definition. Therefore the functional test and
test of incorporations as laid down in the case of R.C. Jain (1981)
2 SCC 308, is no more applicable to section 10(20) as amended by
the Finance Act, 2002.
Union of India Vs. R.C. Jain 91981) 2 SCC 308 considered.
The reference to "Municipal Committee" and "District Board" in the
definition of "other authority" is out of abundant caution. In 1897
when the General Clauses Act was enacted there existed in India
Municipal Committees and District Boards. Therefore apart from a
panchayat and a Municipality, Parliament in its wisdom decided to
give exemption to Municipal Committees and District Boards and
has advisedly retained their exemption. Articles 243F and 243ZF
of the Constitution of India indicate that there could be enactments
which still retain the entities like Municipal Committees and
District Boards and if they exist, Parliament intends to give
exemption to their income u/s 10(20)."
In view of this situation the assessee should have brought this
fact that it was treating itself as local authority and surcharge
was not payable specifically to the attention of the Assessing
officer. Having failed to do so it cannot be later on said that
14
assessment has been wrongly opened. In fact in this regard we
are reminded of the famous lines of Hon'ble Supreme Court in
case of Phool Chand Bajrang Lal and Anr Vs. ITO (supra) relied
on by the D.R. for the Revenue which reads as under:
"203 ITR 478 - One of the purposes of section 147 appears to
us to be to ensure that a party cannot get away by willfully making
a false or untrue statement at the time of original assessment and
when that falsity comes to notice to turn around and say `you
accepted my lie, now your hand are tied and you can do nothing".
It would be a travesty of justice to allow the assessee that
latitude."
12 The Hon'ble Supreme Court in case of Honda Siel Power
Productions Ltd. Vs. DCIT & Another, 340 ITR 53 has clearly
held if there is a failure on part of the assessee to disclosed
fully and truly the material facts of the case then such
reopening would be valid.
13 The Hon'ble Punjab and Haryana High Court in case of
Jawand Sons Vs. CIT (supra) further held that even if the
assessee has fully disclosed material facts and still if the
Assessing officer has reason to believe that income has
escaped the assessment then such reopening would be valid.
In this regard we reproduce the relevant observations of the
Court which are as under:
"326 ITR 39 - U/s 147 of the Income -tax Act, 1961 after its
amendment w.e.f. April 1, 1989 wide power has been given to the
Assessing officer even to cover cases where the assessee had
fully disclosed the material facts. The only condition for action is
that the Assessing officer should have reason to believe that the
income chargeable to tax had escaped assessment. Such belief
can be reached in any manner."
Recently this issue also came up for consideration of the
Hon'ble Punjab & Haryana High Court in case of Arun Kumar
Goyal V CIT, ITA No. 54 of 2012 (order dated 21.11.2012). in
this case it was contended that the decision of Rajesh Jhavery
(supra) has already been distinguished by the Hon'ble Punjab &
Haryana High Court in case of CIT V. Paramjit Kaur, 311 ITR
15
38 (PH). Hon'ble High Court considered the provisions of
section 147 and observed at paras 12 to 14 as under:
"12 There is, however, a sea-change after the amendment in
Section 147 for determining jurisdictional scope for re-assessment
of the escaped income. The Hon'ble Supreme Court in Rajesh
Jhaveri's case (supra) has explained and laid down that under the
substituted Section 147 "existence of only the first condition
suffices. In other words if the Assessing Officer for whatever
reason has reason to believe that income has escaped assessment
it confers jurisdiction to reopen the assessment". It was further
held that "so long as the ingredients of Section 147 are fulfilled,
the Assessing Officer is free to initiate proceedings u/s 147 and
failure to take steps u/s 143(3) will not render the Assessing
Officer powerless to initiate re-assessment proceedings even when
intimation u/s 143(1) had been issued.".
13 The expression "reason to believe" thus cannot be
restrictively construed to say as if the Assessing Officer is
obligated firstly to finally ascertain the factum of escaped income
on the basis of admissible evidence and then only to issue shown
cause to the assessee. The Hon'ble Supreme Court held that the
final outcome of the proceedings initiated u/s 147 is not relevant
and what is of relevance is the existence of reasons to make the
Assessing Officer believe that there has been under-assessment of
the assessee's income for a particular year.
14 It is explicit from the post-amendment decisions cited above
that once there are reasons for the Assessing Officer to believe,
whether such reasons originate out of the record already
scrutinized for otherwise, he shall be within his competence to
initiate the re-assessment proceedings. The formation of belief by
the Assessing Officer must always be tentative and not a firm or
final conclusion as the latter will negate the very object of giving
an opportunity of hearing to the assessee as it will amount to
post-decisional hearing."
From the above it emerges that only requirement for
reopening the assessment is that there should be a reason to
believe that income has escaped assessment and such reasons
should be prima facie reason.
In view of the above discussion we are of the opinion that
assessment has been rightly reopened and therefore we reject
the ground of he assessee relating to reopening of the
assessment.
14 We find no force in the contention that ultimately
assessment has been framed in the status of local authority.
No doubt in Col 5 which refers to status on the first page of the
16
assessment order shows the status of the assessee was shown
as "local authority" but this seems to be a clear case of
typographical mistake. This becomes clear from the fact that
the assessment has been reopened for holding that the
assessee is not a local authority. Detailed discussions have
been made at para 6 to 10 wherein it has been very clearly
observed that the assessee is not a local authority. Therefore
merely mentioning the status of the assessee as local authority
on the first page would not alter the things. This situation
further becomes clear from the facts that the Assessing officer
has already passed the rectification order u/s 154 where this
mistake has been removed and the status of the assessee has
been rectified of "Artificial Juridical Person".
15 Last question to be decided is whether the assessee is
local authority or not? The issue regarding meaning of local
authority came up for consideration before the Hon'ble Apex
Court in case of Agricultural Produce Market Committee, Narela
Vs. CIT (supra). In that case the assessee was an agricultural
marketing committee and the question arose whether this
committee was a local authority or not? It was held as under:
"305 ITR 1 - Held, that the appellant an agricultural
marketing committee established under the Delhi Agricultural
Produce Marketing (Regulation) Act, 1998 to provide facilities for
marketing agricultural produce in Narela in Delhi and for
performing other functions and duties such as superintendence,
direction and control of markets for regulating the marketing of
agricultural produce was not a "local authority" u/s 10(20) of the
Income -tax Act, 1961 as amended by the Finance Act, 2002 and
was therefore not exempt from income-tax thereunder.
Since the works "other authority" were omitted from the scope of
the expression "local authority" found in section 3(31) of the
General clauses Act, 1897 in the Explanation to section 10(20) by
the Finance Act, 2002 it would not be correct to say that the entire
definition of the works "local authority" was bodily lifted from
section 3(31) of the 1897 Act and incorporated by Parliament in
the Explantion to s ection 10(20) of the Income -tax Act, 1961.
The Explanation to section 10(20) provides a definition to the
expression "local authority" and that is an exhaustive definition. It
is not an inclusive definition. Therefore the functional test and
17
test of incorporations as laid down in the case of R.C. Jain (1981)
2 SCC 308, is no more applicable to section 10(20) as amended by
the Finance Act, 2002.
Union of India Vs. R.C. Jain 91981) 2 SCC 308 considered.
The reference to "Municipal Committee" and "District Board" in the
definition of "other authority" is out of abundant caution. In 1897
when the General Clauses Act was enacted there existed in India
Municipal Committees and District Boards. Therefore apart from a
panchayat and a Municipality, Parliament in its wisdom decided to
give exemption to Municipal Committees and District Boards and
has advisedly retained their exemption. Articles 243F and 243ZF
of the Constitution of India indicate that there could be enactments
which still retain the entities like Municipal Committees and
District Boards and if they exist, Parliament intends to give
exemption to their income u/s 10(20)."
In this case it was observed at para 31 as under:
"Before concluding we quote hereinbelow an important
principle of law enunciated by this court in the case of R.C.
Jain which reads as under:
"........it is not a sound rule of interpretation to seek the
meaning of words used in an Act, in the def clause of other
statutes."
From above it becomes clear that for understanding the
meaning of expression "local authority" we do not have to refer
to the definition given in other statutes. Local authority has
been defined in Explanation to Sec 10(20) and the Court in the
above case has clearly held that this definition is of exhaustive
nature and cannot be extended to other organizations.
16 Even if assuming for argument sake that the definition of
local authority in Explanation to Sec 10(20) cannot be extended
to Sec 2(31) then also the assessee-Board does not fit into the
definition of local authority as interpreted by Hon'ble Supreme
Court in case of Union of India Vs. R.C. Jain & ors, (1981) 2
SCC 308 which has been relied on by the Assessing officer. In
this case the Court was required to consider whether Delhi
Development Authority was "local authority" for the purpose of
payment of Bonus Act, 1965. The Court looked at Sec 3(31) of
18
the General Clauses Act, 1987 and observed at para 2 as
under:
"Let us, therefore concentrate and confine our attention and
enquiry to the definition of "local authority" in sec 3(31) of the
General Clauses Act. A proper and careful scrutiny of the
language of section 3(31) suggests that an authority, in order to
be a local authority, must be of like nature and character as a
Municipal committee, District Board or Body of Port Commissioner,
possessing, therefore many if not all of the distinctive attributes
and characters of a Municipal Committee, District Board or Body of
Port Commissioners, but, possessing one essential feature, namely
that it is legally entitled to or entrusted bite Government with the
control and management of a municipal or local fund. What then
are the distinctive attributes and characteristics, all of many of
which a Municipal Committee, District Board or Body of Port
Commissioners shares with any other local authority? First, the
authorities must have separate legal existence as corporate
bodies. They must not be mere Government agencies but must be
legally independently entities. Next they must function in a
defined area and must ordinarily, wholly or partly, directly or
indirectly be elected by the inhabitants of the area. Next they
must enjoy a certain degree of autonomy, with freedom to decide
for themselves questions of policy affecting the area administered
by them. The autonomy may not be complete and the degree of
the dependence may vary considerably but an appreciable measure
of autonomy there must be. Next they must be entrusted by
statute with such Governmental functions and duties as are usually
entrusted to municipal bodies such as those connected with
providing amenities to the inhabitants of the locality, like health
and education services, water and sewerage, town planning and
development , roads, markets, transportation, social welfare
services, etc. etc. Broadly we may say that they maybe entrusted
with the performance of civic duties and functions which would
otherwise be Governmental duties and functions. Finally they must
have the power to raise funds for the furtherance of their activities
and the fulfillment of their projects by levying taxes, rates,
charges or fees. This may be in addition to moneys provided by
government or obtained by borrowing or otherwise. What is
essential is that control or management of the fund must vest in
the authority."
The tests given in above para were further discussed by the
Assessing officer in para 7 which is as under:
"7 Fur th er t h e H o n' b le A pex C our t in U ni o n of In d ia Vs . R .C . J ai n &
O r s i n AI R 1 98 1 ( ) S . C) 9 5 1 hav e l a id d ow n f iv e t es ts f or d ec l ar i ng t he
as s es s e e i n th e s t at us o f L oc a l A u th or ity w h i c h ar e as u nd er :
"1 Th e a ut ho r i t ies m us t hav e s e p ar at e l e ga l e x is t e nc e as C or p or at e
bo d i es . Th ey m us t no t be m er e G ov er n me n t Ag e nc ies b ut mus t b e
l eg a l ly i nd e pe n de n t en ti t it i es .
B ut t he as s es s e e, C ha n d ig ar h Ho us i ng Bo ar d, is G ov er n m e nt
un d er t ak i ng an d a b id e a l l G ov er nm e nt o r d er s a nd i ns tr uc t i o ns an d is
pr im ar i ly d ep e nd e nt o n G ov t po l ic i es .
2 Th ey m us t fu nc ti o n in a d ef i ne d ar e a an d mus t o r d i na r i ly , w ho l l y
or p ar t ly d ir ec t ly or in d ir ec t ly b e e lec te d by th e i n ha b it a nts o f th e ar e a .
No n e of t he f u nc t i on a r i es of t h e C h a nd i gar h Ho us i ng Bo ar d ar e
e lec te d by t h e i nh a b it an ts o f th e ar ea a n d a ll t h e m em b er s ar e
no m i na t ed by t h e G ov er n m e nt .
19
3 Th ey mus t en j oy a c e r ta i n de gr ee o f au t on omy , w it h fr e e do m to
dec i d e fo r th e ms el v es q ues t io ns o r po l ic y e ff ec ti n g; t h e ar ea
ad m i n is t er e d by t he m . Th e a ut o no my ma y no t b e c o m p le te a nd th e
de gr e e o f t he d ep e nd enc e may v ar y c ons i der a b ly b ut , an ap pr ec ia b le
me as ur es of a u to n omy t her e m us t be .
Th e as s es s e e- Ch a nd i gar h H o us i n g B o ar d is d e pe n de nt on th e
G ov t po l ic ies an d h as to a b i de by al l t h e d ir e c ti o ns , e tc . of t he G ov t.
4 Th ey mus t be e n tr u s te d by S ta tu t e w i th s uc h G ov e r n m en t al
fu nc t i o ns an d d ut i es as ar e us ua l ly e ntr us t e d t o m u nic i p a l b od i es .
Br oa d ly , th ey m ay b e en tr us t ed w it h t he per for m anc e o f c iv ic du t i es a nd
fu nc t i o ns wh ic h wo u l d ot h er w is e b e gov er n m en t d ut i es a nd f u nc t i o ns .
Th e as s es s ee- Ch a n di gar h Ho us in g B oar d h as n ot b ee n en tr us t ed
th e fu nc ti o ns a nd d ut i es as ar e us u a l ly en tr us te d t o mu n ic i pa l bo d i es .
Fur th er t he as s es s ee h as n ot b e en e nt r us te d w it h th e p er f or m a nc e o f
c iv ic d u ti es an d fu nc t i ons w hic h wo u ld o th e r wis e by G ov er n m en t du t ies
an d f unc t io ns .
5 Fi na l ly t h ey m us t h av e t h e p ow er t o r a is e f u nds f or t h e
fur th er a nc e o f t h e ir ac t iv it i es a nd t he f u l fi l l me n t of th e ir pr o j ec ts by
l ev y i n g tax es , r at es , c har g es or fe es . T h is may b e i n a dd i t io n to mo n ey s
pr ov i d ed by G ov er n m e nt or ob t ai n e d by b or r ow i ng or o th er w is e . W hat is
es s e n ti a l is th a t c o nt r o l or ma n ag e m en t o f th e f un d m us t v es t i n th e
au t hor i ty .
Th e as s es s ee /C h a nd i g ar h H ous i n g Bo ar d is no t au t hor i ze d t o lev y
any t ax es , r at es , c h ar ges or fe es wi t ho ut t h e p er m is s io n an d d ir e c ti o ns
of t h e G ov er n m en t. "
From above it becomes clear that the assessee-Board does not
meet the criteria or the tests laid down by the Hon'ble Supreme
Court for holding an organization as local authority. In view of this
decision, we are of the opinion that the assessee-board is not a
local authority and therefore liable to surcharge. Accordingly we
find nothing wrong with the order of the Ld. CIT(A) dated 30.9.2013
through which the appeals of the assessee for Assessment year
2006-07 to 2009-10 have been dismissed and we confirm the same.
17 In the result, ITAs No. 1109, 1110, 1111 & 1112/Chd/2013 are
dismissed.
ITAs No. 1113, 1114, 1115 & 1116/Chd/2013
18 In all these appeals the assessee has raised following
common grounds:
"1 Th at t h e L d. CI T( A) h as er r e d i n la w as w e ll as o n f ac ts o f t he
c as e in u p ho l d in g t he ac t i on o f th e As s es s i n g of f ic er in p as s in g t h e or d er
u/s 1 5 4.
2 Th at t he L d . CIT( A) is n ot j us t if i ed i n u p ho l d in g th e or d er p as s e d
by t h e As s es s i n g o ff i c er u/s 1 54 w hic h wa s pas s e d w i th o ut g iv i ng a ny
20
no t ic e or an o pp or tu n ity of b e in g he ar d u /s 15 4( 3) o f I nc o me - ta x Ac t ,
19 6 1 wh ic h ac ti o n is a ls o ag a i ns t t he pr inc i p l es of " N at ur a l J us t ic e ".
3 Th at th e L d. CIT ( A ) has er r e d i n u p ho l d in g th e or d er o f t h e
As s es s i n g o ff ic er b ec aus e a ny d e ba t ab l e i s s ue is i nc ap a b le of be i ng
r ec t i fi e d u/s 15 4 , s uc h as `c h a ng e o f s ta tus '.
19 After hearing both the parties we find that after passing the
reassessment order the orders were taken up by way of rectification
order u/s 154. Detailed discussion was made regarding status of
the assessee and reference was made to the order of Hon'ble
Supreme Court in case of U n i o n o f I n d i a V s . R . C . J a i n & O r s
(supra). It was held that correct status of the assessee was
"Artificial Juridical Person" (in short AJP).
20 On appeal it was mainly contended that the order us/ 154 has
been passed without issuing a notice. It was further contended that
status of the assessee could not be changed by passing an order
u/s 154.
21 The Ld. CIT(A) observed that since there was no enhancement
in the tax levied on the assessee therefore in view of section 154(3)
no notice was required to be issued. The other contention that
status can not be changed u/s 154 was adjudicated as under:
" T h e ar g um e nt of t h e L d. Co u ns e l f or t h e as s es s e e th a t t he c h an g e o f
s ta tus w as n ot p os s i b le by p as s in g or d er u /s 15 4, s inc e i t was a
de b at a bl e is s ue , a ls o do es no t h o l d w at er , s i nc e af te r o m is s io n o f s u b-
c l aus e ( 20 A) of s ec 1 0, t h e a p pe l l an t c ou l d no t h av e b ee n as s es s ed as
`l oc a l a ut h or ity ' a nd h ad t o b e as s es s e d as `ar t i fic i a l j ur id ic a l p er s on '.
22 Before us, the Ld. Counsel for the assessee submitted that
rectification order cannot be passed without issuing notice. In this
regard he relied on the decision of Hon'ble Supreme Court in case
of L. Hariday Narayan Vs. ITO, 78 ITR 26.
23 On the other hand, the Ld. D.R. for the Revenue submitted
that in fact the assessee itself moved a rectification application vide
application dated 6.5.2013 (copy of which is available at page 7 of
the paper book). She further submitted that in the order u/s 154 the
21
Assessing officer simply determined the actual status of the
assessee which does not have effect of enhancement tax liability of
the assessee and therefore as per the provisions of section 154(3)
no notice was required to be issued. Notice was required only if
rectification order would have effect of enhancing the liability of the
assessee. For this she relied on the decision of Third Member of
Chandigarh Bench of the Tribunal in case of ACIT Vs. Sandeep
Khanna, 67 ITD 23.
24 W e have gone through the rival submissions carefully. The
assessee has moved an application for rectification (copy of which
is available at page 7 of eh paper book). The application reads as
under:
" Th e As s is t a nt C o m mi s s i on er o f Inc o me t ax
Cir c l e 1( 1) , Ay ak ar Bh aw a n, S ec tor 17- E
Ch a nd i ga r h
S ir ,
S ub j ec t : R e qu es t f or r ec t if ic at i o n o f m is t ak e a p pa r e nt fr om
Rec or d u/s 1 5 4 in t h e c as e o f Ch a nd i g ar h H ous i ng Bo ar d, PA N
A A AL C 0 1 23 H ) As s es s me n t y ea r 2 0 06- 0 7
K in d ly r ef er t o t h e r e as s es s m e nt or d er f or th e a b ov e n ot e d As s e s s me n t
y ear p as s e d by y our ho n ou r on 17 .1 2 .2 0 12 .
1 It is r eq u es t e d t ha t i n t he a bov e s a id a s s es s m e nt or de r t he
ap p l ic a n t h as b e en de t er mi n ed to b e a t ax ab l e e nt i ty a n d as s es s e d i n t he
s ta tus o f `l o c a l a u th o r ity ' n o t be i n g a l oc a l a ut h or ity u /s 1 0( 2 0) wh os e
i nc o m e is ex e mp t. So th e i nc om e o f th e a p pl ic an t is t ax a b l e.
2 Th e t ax h as be e n c alc u la te d by a pp ly i ng t he r at es a pp l ic a bl e to a
l oc a l a ut h or ity , bu t t he s ur c h ar ge h as a ls o be e n l ev i e d, w h ic h is n ot
l ev i a b le i n t he c as e o f a loc a l a u th or ity . S o, y our h on o ur w o ul d agr e e
th at it is a m is t ak e a pp ar e nt fr o m t h e r ec or ds w hic h r e qu ir es
r ec t i fic a ti o n.
It is , t h er e f or e r e q ues t ed t ha t th e a bov e m is t ak e b e in g a pp ar e nt fr o m t h e
r ec o r ds , m ay k i nd ly b e r ec t if i ed .
Y our s f a it h fu l ly ,
S d /-
( A. K . S i n gh a l)
Ch ar t er e d Ac c ou n ta nt , A .R
For C ha n d ig ar h Ho us i ng Bo ar d "
From above it becomes clear that the assessee itself requested the
Assessing officer to determine the correct status. The Assessing
officer took up the matter by way of rectification proceedings and
22
passed the order u/s 154 by holding that the status of the assessee
was "AJP". Admittedly no notice has been issued to the assessee.
W e have no quarrel with the contention that no order can be passed
without complying with the principles of natural justice i.e.
opportunity must be given to the assessee before passing an order.
However, at the same time Sec 154(3) reads as under:
" A n a me n d me nt , w h ic h h as th e e ff ec t of e nh a nc in g a n as s es s m en t or
r ed uc i ng a r e fu n d or o th er w is e i nc r e as i ng t h e li a b i li ty of th e as s es s ee [ or
th e d ed uc tor ], s h a l l n ot b e m a de u n der t h is s ec ti o n u nl es s t he au th or ity
c onc er n ed h as g iv en no t ic e to t he as s es s ee [o r t he d ed uc tor ] of its
i nt en t io n s o t o d o a n d h as a l l ow e d t he as s es s e e [ or t h e d e duc tor ] a
r eas o n ab l e o pp or tu n it y o f b ei n g h ear d . "
The plain reading of the above provision clearly show that the
Assessing officer is required to issue a notice if the order which is
to be passed us/ 154, has effect of enhancing the assessment or tax
liability or reducing the refund to the assessee. In fact in case of
Sandeep Khanna (supra) it was held by Third Member of Chandigarh
Bench of the Tribunal as under:
" In th e c as e of CI T Vs . P a nk a j G u pt a ( 19 9 1) 18 8 I TR 18 4 , t he A l l a ha b ad
Hi g h C ou r t obs er v ed th at s ec t i o n 1 54 ( 3) g iv es s t at ut or y s h a p e to t h e
pr inc i p le of n a tur a l j u s tic e a n d a ny or der o f r ec t i f ic a t io n w h ic h h as th e
ef fec t o f e nh a nc i n g the l ia b i l ity o f t he as s es s ee , p as s e d wi t ho ut
c om p ly i ng w i th th e s a id r eq u ir em e nt is i nv a l i d i n l a w. Th e ab ov e
dec is i on s q u ar ely s u pp or te d th e Ac c o un t an t Me m b er 's v i ew . T he
pr ov is i o ns o f s ec t io n 15 4( 3) a r e m an d at or y in n at ur e a n d ar e m ea n t t o
ens ur e t ha t n o or d er i s pas s ed to t h e d etr i me n t of th e as s es s ee wi t ho ut
af for d i ng h is du e op p or t u ni ty of be i n g h e ar d. T h us , th e Co m m is s i on er
( A pp e a ls ) w as r i gh t i n c a nc e ll i n g t h e i nt er es t c ha r g e d fr o m t h e
as s es s e e. "
Therefore it becomes clear that if an order is to be passed u/s 154
for enhancing the tax liability or reducing the refund due to
assessee then no notice is required to be issued. Therefore in our
opinion, the Assessing officer passed the rectification order
correctly because he has only rectified the correct status of the
assessee through this order. W e may note that while adjudicating
the appeals in respect of reassessment order it was noted that in
the assessment order status of the assessee was shown "local
authority". W e had noted that perhaps it was done by mistake or
23
due to typographical mistake and that is why this order has been
passed. Liability to pay tax as surcharge got determined through
reassessment order passed by the Assessing officer u/s 147 r.w.s.
143(3) on 17.12.2012 for all the four Assessment years i.e.
Assessment year 2006-07 to 2009-10. Through this order the
assessee was held to be a local authority and surcharge was levied.
Therefore it becomes clear that through rectification order only the
correct nomenclature of status of the assessee has bee determined
and no fresh liability has been imposed on the assessee.
25 In view of the above, we uphold the order of the Ld. CIT(A).
26 In the result, ITAs No. 1113,1114, 1115 & 1116/Chd/2013 are
dismissed.
27 In the result, all the appeals of the assessee are
dismissed.
Order pronounced in the open court on 27.3.2014
Sd/- Sd/-
(SUSHMA CHOWLA) (T.R. SOOD)
JUDICI AL MEMBER ACCOUNTANT MEMBER
Dated : 27.3.2014
SURESH
Copy to: The Appellant/The Respondent/The CIT/The CIT(A)/The DR
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