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ORIENTAL BANK OF COMMERCE Vs. ADDITIONAL COMMISSIONER OF INCOME TAX
September, 18th 2014
         IN THE HIGH COURT OF DELHI AT NEW DELHI

                                               Judgment delivered on: 11.08.2014

W.P.(C) 2594/2013, CM 4918/2013 & CM 15970/2013


ORIENTAL BANK OF COMMERCE                                               .....Petitioner
                             versus



ADDITIONAL COMMISSIONER OF INCOME TAX                                 .....Respondent


Advocates who appeared in this case:

For the Petitioner    : Mr Rajat Navet, Ms Sanya Talwar and Mr Rohan Yadav.

For the Respondent    : Mr N.P.Sahni and Mr Nitin Gulati.



CORAM:
HON'BLE MR JUSTICE BADAR DURREZ AHMED
HON'BLE MR JUSTICE SIDDHARTH MRIDUL


                                  JUDGMENT

BADAR DURREZ AHMED, J (ORAL)

1.       This writ petition is directed against the re-assessment order dated

28.03.2013 passed by the Assessing Officer in re-assessment proceedings

pursuant to the notice under Section 148 of the Income Tax Act, 1961

(hereinafter referred to as the ,,said Act) dated 29.03.2012 pertaining to the




WP(C) 2594/2013                                                               Page 1 of 24
assessment year 2005-06. The writ petition also seeks the quashing of the

entire re-assessment proceedings under Section 147/148 of the said Act as

being without jurisdiction.


2.      It is an admitted position that the original assessment was completed

on 20.03.2006. The notice under Section 148 was issued in respect of the

said assessment year 2005-06 on 29.03.2012 and, as such, the said notice

was beyond the period of four years from the end of the relevant assessment

year. Thereby, the provisions of the first proviso to Section 147 of the said

Act would be invoked. Along with the notice under Section 148 dated

29.03.2012 the purported reasons for the re-opening were also furnished. The

said reasons read as under:-

                  "Reasons for reopening the case u/s 147 of the Income
                  Tax Act, 1961 in the case of M/s Oriental Bank of
                  Commerce- A.Y. 2005-06

                  Return declaring an income of Rs.174,45,44,140/- was filed
                  on 29.10.2005. Assessment u/s 143(3) of the IT Act was
                  made on 20.03.2006 at an income of Rs.664,17,56,340/-
                  and under section 154/154/154/143(3) was made on
                  28.03.2008 at an income of Rs.583,65,72,060/- under
                  normal provisions of the IT Act.

                  The scrutiny of assessment revealed that the assessee has
                  failed to disclose following facts in its Computation of
                  Income and Balance Sheet:-

                  (a) The assessee had made a provision of Rs.4,67,46,051/-
                      on account of "Expenses" in the balance sheet. As the



WP(C) 2594/2013                                                          Page 2 of 24
                      provision made was not an ascertained liability, the
                      same should also have been disallowed and added back
                      to the income of the assessee. The mistake resulted in
                      underassessment of Income of Rs.4,67,46,051/-
                      involving tax effect of Rs.1,71,05,548/-.

                  (b) The assessment record revealed that under section
                      143(1), a refund of Rs.125,55,01,247/- was allowed to
                      the assessee. However, assessment under section
                      154/154/143(3) a demand of Rs.154,25,41,272/- was
                      raised and no amount was refundable on assessment.
                      Thus, the assessee was liable to pay interest under
                      section 234 D on excess refund of Rs.125,55,01,247/-.
                      The mistake resulted in short levy of interest of
                      Rs.62,77,506/-.

                  I, therefore, have reasons to believe that the escapement of
                  Income is on account of failure on the part of the assessee
                  to furnish true and fair particulars and disclose truly and
                  fully all material facts necessary for assessment for the
                  above assessment year, the income of Rs.4,67,46,051/- has
                  escaped assessment and interest u/s 234D to the extent of
                  Rs.62,77,506/- has not been withdrawn within the meaning
                  of proviso to section 147 of the IT Act.
                                                                          Sd/-
                                                               (Shankar Gupta)
                                           Asst. Commissioner of Income Tax
                                                     Circle 13(1), New Delhi"


3.      It is the case of the petitioner that no additions were made in respect of

either of the two reasons ­ (a) and (b) ­ indicated above. Instead, without

issuing a separate notice under Section 148 of the said Act, by virtue of a

mere note-sheet entry during the course of the re-assessment proceedings on




WP(C) 2594/2013                                                            Page 3 of 24
16.03.2013, the petitioner was asked to furnish a reply to the following

entry:-

                  "On examination of claim of the assessee for provision for
                  expenses, it is noticed that the assessee has claimed 10%
                  under section 36 of the act shows that the assessee has
                  calculated for in excess of 10% of aggregate rural
                  advances. He is asked to show cause as to why the excess
                  should not be disallowed by 21.03.2013."

In response thereto the petitioner furnished its reply on 21.03.2013 to the

said query indicating that the deduction had been correctly claimed under

Section 36(1)(viia) of the said Act. Thereafter, the assessment order dated

28.03.2013, which is impugned before us as being without jurisdiction, was

passed.


4.      The learned counsel for the petitioner took us through the said re-

assessment order dated 28.03.2013 and submitted that no additions have

been made in respect of the purported reasons [(a) and (b)] as indicated

above. Furthermore, even the deduction of approximately Rs.126 crores

claimed under Section 36(1)(viia) in respect of the assessment year 2005-06

has been accepted. However, an addition has been made to the extent of

Rs.453,96,44,854/- on account of the opening balance pertaining to the

assessment year 2005-06. The learned counsel for the petitioner drew our




WP(C) 2594/2013                                                          Page 4 of 24
attention to paragraphs 3.3.1 and 3.3.2 of the said re-assessment order which

read as under:-

                  "3.3.1      In response thereto, the assessee submitted
                  detail of deduction claimed U/s. 36(1)(viia). A perusal of
                  detail shows that the opening balance of deduction U/s.
                  36(1)(viia) already claimed and allowed to the assessee as
                  at 1/4/2014 is Rs.453,96,44,854/- {both 10% of rural
                  advances and 7.5% of total income}. A perusal of the
                  details submitted further reveals that aggregate of average
                  advance made by each rural branch of the assessee
                  computed in the manner prescribed in Rule 6ABA is Rs.
                  1040.56 crore. The total income of the assessee for the
                  assessment year under consideration before making any
                  deduction under section 36(1)(viia) and Chapter VIA is
                  Rs.303,48,04,587/-

                  3.3.2       Thus, the amount of deduction to which the
                  assessee is eligible by the provisions of section 36(1)(viia),
                  is worked out as under:

                  (i)7.5% on Rs.303,48,04,587, i.e., Rs.22,76,10,344; and

                  (ii) 10% on Rs. 1040,55,96,000/-, i.e., Rs.104,05,99,600/-,
                  totalling to Rs.104,05,59,600 + 22,76,10,344 =
                  126,81,69,944."


5.      With reference to paragraph 3.3.1 extracted above the learned counsel

for the petitioner pointed out that the claim of Rs.453,96,44,854/- had

already examined and allowed in respect of the preceding years. Insofar as

the current year was concerned the learned counsel for the assessee referred

to paragraph 3.3.2 extracted above where it is specifically recorded that the

assessee was eligible for the deductions to the extent of Rs.126,81,69,944/-



WP(C) 2594/2013                                                              Page 5 of 24
and, therefore, the deductions claimed in the year in question was not in

issue. The learned counsel for the petitioner submitted that the addition

which has been made in the re-assessment order does not pertain to the

assessment year 2005-06 but, it pertains to preceding years which was not

the subject matter of the original notice under Section 148 which was dated

29.03.2012 nor of the note sheet entry dated 16.03.2013.


6.      The learned counsel for the petitioner, therefore, submitted that the re-

opening as well as the re-assessment order were both without jurisdiction

and the same ought to be quashed. He submitted that since there was no

addition in respect of the original reasons given for re-opening of the

assessment for the year 2005-06 there could be no addition in respect of a

new entry. He also submitted that there was no valid notice under Section

148 of the said Act with regard to the additions made insofar as the

deduction claimed under Section 36(1)(viia) of the said Act is concerned.

Furthermore, there was a clear change of opinion even in respect of the issue

pertaining to Section 36(1)(viia) of the said Act inasmuch as a specific

question had been raised during the original assessment proceedings as a part

of a questionnaire issued on 13.02.2006 by the Assessing Officer wherein

question No.11 was as under:-



WP(C) 2594/2013                                                        Page 6 of 24
                  "11.       You have claimed Rs. 1040.55 Crs as aggregate
                  advance pertaining to rural branches on which you have
                  claimed 10% deduction U/s 36(i)(viia) of Rs. 104.05 Crs.
                  Please demonstrate the method followed to work out the
                  average aggregate advances made by the rural branches of
                  the bank as per Sec. 36(i)(viia) r/w explanation (ia) of I.T.
                  Act r/w Income Tax Rules 6ABA."


7.      The learned counsel further submitted that the specific question was

replied to on 28.02.2006 in the following manner:-

                  "11)       During the Assessment Year 2005-06, the bank
                  has claimed deduction of Rs. 104,05,59,600/- towards
                  Aggregate Average Advances pertaining to Rural Branches
                  of the Bank under Section 36(1)(viiia) of the Income Tax
                  Act, 1961.

                  Certificate in this regard from Statutory Auditors of the
                  bank is being enclosed for your kind perusal. Please note
                  this certificate is issued by the auditors taking into
                  consideration the criteria prescribed under Rule 6ABA as is
                  evident from the certificate."


8.      Thereafter, the Assessing Officer did not disallow the deduction so

claimed. Consequently, it was argued, the fact that the Assessing Officer,

through the re-assessment order, had made an addition on this very ground,

would straightaway amount to a mere change of opinion, which is not

permissible in law.




WP(C) 2594/2013                                                             Page 7 of 24
9.       Finally, the learned counsel for the petitioner also submitted that the

deduction under Section 36(1)(viia) of the said Act which has been

disallowed by virtue of the re-assessment order does not even pertain to the

assessment year 2005-06 but relates to earlier assessment years. This also is

not permissible, particularly, because it had become time barred by

16.03.2013 when the note sheet entry was made. In fact, it was stated to have

been time-barred even when the initial re-opening notice dated 29.03.2012

was issued.





10.     The learned counsel for the petitioner placed reliance on the following

decisions in support of his submissions:-

        (i)       Ranbaxy Laboratories Ltd. v. Commissioner of Income Tax:
                  (2011) 336 ITR 136 (Del).

        (ii)      Commissioner of Income Tax v. Jet Airways (I) Ltd.: (2011)
                  331 ITR 236 (BOM).

        (iii)     Commissioner of Income Tax v. Dr Devendra Gupta: (2011)
                  336 ITR 59 (Raj).

        (iv)      Commissioner of Income Tax, Delhi-II v. Kelvinator of India
                  Ltd.: 99 (2002) Delhi Law Times 221 (FB).

        (v)       Commissioner of Income Tax v. Usha International Ltd.:
                  (2012) 348 ITR 485 (Delhi).

        (vi)      Wel Intertrade Pvt. Ltd. and Anr. v. Income Tax Officer:
                  (2009) 308 ITR 22 (Del).



WP(C) 2594/2013                                                       Page 8 of 24
11.     Mr Sahni appearing on behalf of the Revenue contended that it was

not correct on the part of the learned counsel for the petitioner to submit that

no findings or additions have been made on the original reasons ­ (a) and (b)

of the reasons for re-opening of assessment. He submitted that insofar as

reason (a) was concerned there was a clear finding in the re-assessment order

and the same is recorded in paragraphs 2 and 2.1 which read as under:-

                  "2. The assessee has shown an increase in the amount of
                  its provisions for expenses by an amount of
                  Rs.4,70,46,051/-, which is an increase of nearly 20%. The
                  expenditure claimed by the assessee under the head other
                  expenses has shown a rise of more than Rs.24 crores, i.e. an
                  average of Rs. 2 crores a month whereas the increase in
                  provisions for expenses has risen by more than 4 crores.
                  The operating expenses of the assessee has also shown a
                  large rise of more than 23%. The assessee has explained
                  that these provisions are for expenses incurred in the last
                  month which could not be accounted for, thereby creating a
                  provision.

                  2.1 The assessee being a large organization with more than
                  1000 branches and 30 regions stated that it is difficult to
                  obtain even headwise break up of such expenses and
                  provision for expenses. This claim of the assessee cannot
                  be accepted as there must be at least a headwise breakup of
                  such provision for expenses to enable the officer to
                  examine the expenses claimed by the assessee. The
                  expenses has shown head wise expenses of the Delhi Head
                  Office amounting to more than Rs. 12 crores. Thus, the
                  assessee could not account for the headwise details of
                  expenses and the provision made thereon."

12.     He submitted that though the Assessing Officer recorded his finding

rejecting the pleas of the petitioner/assessee, through an inadvertence and by



WP(C) 2594/2013                                                            Page 9 of 24
a mistake no addition has been made in the computation given at the end of

the assessment order which, according to him, can be rectified under Section

154 of the said Act. The computation given in the assessment order is as

under:-

                  "Based upon the above, the income of the assessee is re
                  computed as under:

                  1. Income as per order U/s. 154, Dt. 31-03-2009   Rs.267,25,60,863/-

                  2. Add: disallowance of excess deduction claimed Rs.453,96,44,854/-
                     U/s. 36(1)(viia)
                  Total Income                                     Rs.721,22,05,717/-
                        Rounded off to                             Rs.721,22,05,720/-
                  Income is assessed at Rs.721,22,05,720/-/

                  Penalty proceedings u/s 271(1)(c) with reference to all
                  disallowance/additions discussed above are being initiated
                  separately. Charge interest u/s 234B, 234D, and 244A(c) of
                  I.T. Act as per law. Issue necessary forms."


13.     Insofar as the question of charging of interest under Section 234D on

the purported excess refund granted to the petitioner/assessee is concerned,

Mr Sahni submitted that although there is no discussion on this aspect in the

assessment order there is a clear direction to compute the same as given in

the extracted portion above. Therefore, Mr Sahni submitted that it was not

open to the learned counsel for the petitioner to allege that no additions have

been made in respect of the original reasons ­ (a) and/or (b), given in the

reasons for re-opening the assessment pertaining the assessment year 2005-




WP(C) 2594/2013                                                                          Page 10 of 24
06. He, thereafter, submitted that the case law relied upon by the learned

counsel for the petitioner for the proposition that unless and until there are

additions made in respect of the original reasons no fresh addition can be

made for subsequent items found during the course of the re-assessment

proceedings, would have no applicability.


14.     Insofar as the disallowance under Section 36(1)(viia) of the said Act is

concerned Mr Sahni submitted that the closing balance of the preceding year

would constitute the opening balance of the current year therefore when the

Assessing Officer questioned the opening balance it would by in itself have

an impact on the closing balance of the preceding year as also on the closing

balance of the current year. Therefore, the Assessing Officer was well within

his rights to make the additions by making the disallowance under Section

36(1)(viia) of the said Act even though it pertained to the preceding year.


15.     The learned counsel for the petitioner, however, pointed out in

rejoinder that the reasons as originally furnished were by themselves not

good enough for invoking the re-assessment proceedings. He drew our

attention to the fact that in both the reasons ­ (a) and (b), the Assessing

Officer has indicated that it was based on the mistake on the part of the




WP(C) 2594/2013                                                       Page 11 of 24
Assessing Officer. He submitted that though the reason mentioned that there

was of a failure on the part of the assessee to fully and truly disclose all

material facts necessary for the assessment, there is no specific indication as

to which material was not fully and truly disclosed by the assessee which he

was required to do for the purposes of assessment. All that the reasons

indicate are that on account of a mistake on the part of the Assessing Officer

the income had escaped assessment. He once again referred to the decision in

Wel Intertrade Pvt. Ltd. (supra) to submit that a mistake on the part of the

Assessing Officer is not sufficient to invoke the provisions of Section 147,

particularly, in view of the first proviso thereof wherein one of the pre-

conditions is that there must be failure on the part of the assessee to make a

full and true disclosure of the material facts which would be necessary for

making the assessment. Since there is no failure on the part of the assessee,

the provisions of Section 147 could not at all have been invoked after the

period of four years from the end of the assessment year. Insofar as the

disallowance under Section 36(1)(viia) of the said Act is concerned, the

learned counsel for the petitioner reiterated that there was a clear case of

change of opinion which, in any event, was not permissible.




WP(C) 2594/2013                                                      Page 12 of 24
16.      Now, let us examine the decisions relied upon by the learned counsel

for the petitioner. In Ranbaxy Laboratories Ltd.(supra), a Division Bench of

this court had agreed with the reasoning of the Bombay High Court in the

case of CIT v. Jet Airways (I) Ltd.: (2011) 331 ITR 236 (Bom). In the latter

case, the Bombay High Court had observed in the context of proceedings

under Sections 147/148 of the said Act that:-

                  "Section 147 has this effect that the Assessing Officer has
                  to assess or reassess the income (,,such income) which
                  escaped assessment and which was the basis of the
                  formation of belief and if he does so, he can also assess or
                  reassess any other income which has escaped assessment
                  and which comes to his notice during the course of the
                  proceedings. However, if after issuing a notice under
                  section 148, he accepted the contention of the assessee and
                  holds that the income which he has initially formed a
                  reason to believe had escaped assessment, has as a matter
                  of fact not escaped assessment, it is not open to him
                  independently to assess some other income. If he intends to
                  do so, a fresh notice under section 148 would be necessary,
                  the legality of which would be tested in the event of a
                  challenge by the assessee."


17.     This court in Ranbaxy Laboratories Ltd.(supra), agreeing with the

above views held as under:-

                  "We are in complete agreement with the reasoning of the
                  Division Bench of Bombay High Court in the case of CIT
                  v. Jet Airways (I) Limited [2011] 331 ITR 236(Bom).We
                  may also note that the heading of Section 147 is "income
                  escaping assessment" and that of Section 148 "issue of
                  notice where income escaped assessment". Sections 148 is
                  supplementary and complimentary to Section 147. Sub-



WP(C) 2594/2013                                                            Page 13 of 24
                  section (2) of Section 148 mandates reasons for issuance of
                  notice by the Assessing Officer and sub-section (1) thereof
                  mandates service of notice to the assessee before the
                  Assessing Officer proceeds to assess, reassess or recompute
                  escaped income. Section 147 mandates recording of
                  reasons to believe by the Assessing Officer that the income
                  chargeable to tax has escaped assessment. All these
                  conditions are required to be fulfilled to assess or reassess
                  the escaped income chargeable to tax. As per Explanation 3
                  if during the course of these proceedings the Assessing
                  Officer comes to conclusion that some items have escaped
                  assessment, then notwithstanding that those items were not
                  included in the reasons to believe as recorded for initiation
                  of the proceedings and the notice, he would be competent
                  to make assessment of those items. However, the
                  legislature could not be presumed to have intended to give
                  blanket powers to the Assessing Officer that on assuming
                  jurisdiction under Section 147 regarding assessment or
                  reassessment of escaped income, he would keep on making
                  roving inquiry and thereby including different items of
                  income not connected or related with the reasons to
                  believe, on the basis of which he assumed jurisdiction. For
                  every new issue coming before Assessing Officer during
                  the course of proceedings of assessment or reassessment of
                  escaped income, and which he intends to take into account,
                  he would be required to issue a fresh notice under Section
                  148."


18.     In Ranbaxy Laboratories Ltd.(supra), which was an appeal under

Section 260A of the said Act, the question under consideration was as

follows:-

                  "Whether on the facts the Tribunal was right in law in
                  holding that the Assessing Officer had jurisdiction to
                  reassess issues other than the issues in respect of which
                  proceedings were initiated especially when the reasons for
                  the latter ceased to survive?"




WP(C) 2594/2013                                                             Page 14 of 24
The facts in that case were that the reassessment proceedings had been

initiated on the premise that on account of items such as club fees, gifts and

presents and provision for leave encashment, income had escaped

assessment. The explanation given by assessee pursuant to the notice under

Section 148 was accepted by the Assessing Officer and he did not make any

disallowance in respect of these items. However, during the reassessment

proceedings the Assessing Officer found that that deductions claimed by the

assessee therein under Section 80HH and 80I were inadmissible. In this

context, the court held:-

                  "20. The very basis of initiation of proceedings for which
                  reasons to believe were recorded were income escaping
                  assessment in respect of items of club fees, gifts and
                  presents, etc., but the same having not been done, the
                  Assessing Officer proceeded to reduce the claim of
                  deduction under Section 80 HH and 80-I which as per our
                  discussion was not permissible. Had the Assessing Officer
                  proceeded not to make dis-allowance in respect of the items
                  of club fees, gifts and presents, etc., then in view of our
                  discussion as above, he would have been justified as per
                  explanation 3 to reduce the claim of deduction under
                  Section 80 HH and 8-I as well.

                  21. In view of our above discussions, the Tribunal was
                  right in holding that the Assessing Officer had the
                  jurisdiction to reassess issues other than the issues in
                  respect of which proceedings are initiated but he was not so
                  justified when the reasons for the initiation of those
                  proceedings ceased to survive. Consequently, we answer
                  the first part of question in affirmative in favour of
                  Revenue and the second part of the question against the




WP(C) 2594/2013                                                            Page 15 of 24
                  Revenue."


19.     It is pertinent to point out that in Ranbaxy Laboratories Ltd.(supra),

this court had also referred to a decision of the Rajasthan High Court in the

case of CIT v. Shri Ram Singh: (2008) 306 ITR 343 (Raj), where it was

held as under:-

                  "To clarify it further, or to put it in other words, in our
                  opinion, if in the course of proceedings under section 147,
                  the Assessing Officer were to come to the conclusion, that
                  any income chargeable to tax, which, according to his
                  ,,reason to believe, had escaped assessment for any
                  assessment year, did not escape assessment, then, the mere
                  fact, that the Assessing Officer entertained a reason to
                  believe, albeit even a genuine reason to believe, would not
                  continue to vest him with the jurisdiction, to subject to tax,
                  any other income, chargeable to tax, which the Assessing
                  Officer may find to have escaped assessment, and which
                  may come to his notice subsequently, in the course of
                  proceedings under section 147."

The decision of the Rajasthan High Court in Dr Devendra Gupta (supra)

followed the decision in Shri Ram Singh (supra).


20.     We now come to the decision of the Supreme Court in Kelvinator of

India Ltd. (supra) which was rendered in the context of the concept of

,,change of opinion. The question before the Supreme Court was ­ "whether

the ,,concept of change of opinion stands obliterated with effect from 1st

April, 1989, i.e., after substitution of Section 147 of the Income Tax Act,



WP(C) 2594/2013                                                              Page 16 of 24
1961 by the Direct Tax Laws (Amendment) Act, 1987?" The Supreme Court

held as under:-

                  "6. On going through the changes, quoted above, made to
                  Section 147 of the Act, we find that, prior to Direct Tax
                  Laws (Amendment) Act, 1987, re-opening could be done
                  under above two conditions and fulfillment of the said
                  conditions alone conferred jurisdiction on the Assessing
                  Officer to make a back assessment, but in Section 147 of
                  the Act [with effect from 1st April, 1989], they are given a
                  go-by and only one condition has remained, viz., that
                  where the Assessing Officer has reason to believe that
                  income has escaped assessment, confers jurisdiction to re-
                  open the assessment. Therefore, post-1st April, 1989, power
                  to re-open is much wider. 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."





21.     The full bench decision of this court in Usha International Ltd.

(supra), again in the context of change of opinion, held as under:-



WP(C) 2594/2013                                                            Page 17 of 24
                   "13.        It is, therefore, clear from the aforesaid position
                  that:

                      (1) Reassessment proceedings can be validly initiated
                  in case return of income is processed under
                  Section 143(1) and no scrutiny assessment is undertaken. In
                  such cases there is no change of opinion;

                       (2) 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 by principle of
                  "change of opinion".

                       (3) Reassessment proceedings will be invalid in case
                  an issue or query is raised and answered by the assessee in
                  original assessment proceedings 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, though
                  he had not recorded his reasons.

                  14. In the second and third situation, the Revenue is not
                  without remedy. In case the assessment order is erroneous
                  and prejudicial to the interest of the Revenue, they are
                  entitled to and can invoke power under Section 263 of the
                  Act. This aspect and position has been highlighted in CIT
                  v. DLF Power Ltd. ITA No. 973 of 2011 decided on
                  November 29, 2011 ­ since reported in [2012] 345 ITR 446
                  (Delhi) and BLB Limited v. Asst. CIT Writ Petition (Civil)
                  No. 6884 of 2010 decided on December 1, 2011 ­ since
                  reported in [2012] 343 ITR 129 (Delhi). In the last
                  decision it has been observed (page 135):
                          "The Revenue had the option, but did not take
                          recourse to Section 263 of the Act, in spite of audit
                          objection. Supervisory and revisionary power under
                          Section 263 of the Act is available, if an order passed



WP(C) 2594/2013                                                                Page 18 of 24
                       by the Assessing Officer is erroneous and prejudicial
                       to the interest of the Revenue. An erroneous order
                       contrary to law that has caused prejudiced can be
                       correct, when jurisdiction under Section 263 is
                       invoked."

                  15. Thus where an Assessing Officer incorrectly or
                  erroneously applies law or comes to a wrong conclusion
                  and income chargeable to tax has escaped assessment,
                  resort to Section 263 of the Act is available and should be
                  resorted to. But initiation of reassessment proceedings will
                  be invalid on the ground of change of opinion."



22.     Finally, in Wel Intertrade Pvt. Ltd. (supra), a Division Bench of this

court analyzed the first proviso to Section 147 as under:-

                  "A plain reading of the said proviso makes it more than
                  clear that where the provisions of Section 147 are being
                  invoked after the period of four years from the end of the
                  relevant assessment year, in addition to the Assessing
                  Officer having reason to believe that any income
                  chargeable to tax has escaped assessment, it must also be
                  established as a fact that such escapement of assessment
                  has been occasioned by either the assessee failing to make
                  a return under Section 139, etc., or by reason of failure on
                  the part of the assessee to disclose fully and truly all
                  material facts necessary for his assessment, for that
                  assessment year. In the present case, the question of
                  making of a return is not in issue and the only question is
                  with regard to the second portion of the proviso, which
                  relates to failure on the part of the assessee to disclose fully
                  and truly all material facts necessary for assessment.
                  Insofar as this pre-condition is concerned, there is not a
                  whisper of it in the reasons recorded by the Assessing
                  Officer. In fact, as indicated above, the Assessing Officer
                  could not have made this a ground because the Assessing
                  Officer had required the petitioner to furnish details with
                  regard to loss occasioned by foreign exchange fluctuation
                  which the petitioner did by virtue of the reply dated



WP(C) 2594/2013                                                                Page 19 of 24
                  February 5, 2002. Since the petitioner had fully and truly
                  disclosed all the material facts necessary for the
                  assessment, the pre-condition for invoking the proviso to
                  Section 147 of the said Act had not been satisfied."


23.     From the above review of the case law it is evident that, in the facts of

this case, if no additions were made in respect of the said reasons (a) and/or

(b), it was not open to the Assessing Officer to make additions on some

other ground such as the disallowance of the deduction under Section

36(1)(viia) of the said Act without first issuing a notice under Section 148.

Mr Sahni, appearing for the Revenue, argued that although no addition has

been made in respect of reason (a), there is a finding against the assessee on

that aspect. He, as pointed out above, referred to paragraphs 2 and 2.1 of the

reassessment order to submit that the finding was recorded in favour of the

Revenue. We are unable to agree with this. It is clear that no addition has

been made on account of reason (a). It is also clear that though the specific

point was taken in reason (a) and it was one of the ,,reasons to believe that

income had escaped assessment yet, no addition was made. The proposition

that by ,,mistake or through ,,inadvertence the Assessing Officer did not

make the addition, cannot be accepted. Reason (a) was one of only two

reasons for reopening the assessment. How can it be accepted that the

Assessing Officer was so callous or naïve (whichever expression is taken)


WP(C) 2594/2013                                                          Page 20 of 24
that, though he found against the assessee yet he did not make any addition

in respect of reason (a)? As pointed out in Usha International Ltd.(supra),

when an Assessing Officer raises a specific issue in the assessment

proceedings and yet does not make any addition in the assessment order, it

should be accepted that the Assessing Officer did not find any ground or

reason to make the addition. What is stated in paragraph 2 and 2.1 of the

reassessment order are mere observations and not the conclusions. The fact

remains that no addition was made by the Assessing Officer insofar as

reason (a) is concerned. And, it must be taken that the Assessing Officer

consciously did not make any addition after examining the entire issue.


24.     Coming to reason (b), we find that there is no addition with regard to

that either. Nor is there any adverse finding in the reassessment order.

Mr Sahni, as pointed out above, suggested that there is a finding by referring

to the sentence at the end of the reassessment order to the following effect:-

                  "Charge interest u/s 234B, 234D and 244A(c) of I.T. Act as
                  per law."


25.     We are afraid that we cannot accept this argument either. This general

statement at the end of the reassessment order cannot be regarded as a

finding or an addition with regard to reason (b). If we recall, reason (b) was



WP(C) 2594/2013                                                          Page 21 of 24
a specific allegation that the assessee was liable to pay interest under Section

234D on excess refund of Rs.125,55,01,247/- and that because of the

,,mistake that the assessee had not been required to pay the interest amount,

there was a short levy of interest of Rs.62,77,506/-. We do not find any

conclusion with regard to this in the reassessment order. The Assessing

Officer having indicated the specific amount of alleged short levy of interest

had to return a conclusive finding resulting in an addition. There was none.

Therefore, even in respect of reason (b) there was no addition made.


26.     That being the position, since no addition had been made in respect of

reasons (a) and/or (b), in view of the decisions in Ranbaxy Laboratories

Ltd.(supra), Jet Airways (I) Ltd.(supra), Shri Ram Singh (supra) and

Dr Devendra Gupta (supra), it was not open to the Assessing Officer to

independently assess some other income [in this case, disallowance under

Section 36(1)(viia)].


27.     The note sheet entry of 16.03.2013, cannot, by any stretch of

imagination be regarded as a notice under Section 148.          Where are the

,,reasons to believe that income had escaped assessment and, more

importantly, that such escapement was on account of the assessees failure to




WP(C) 2594/2013                                                        Page 22 of 24
disclose truly and fully all material facts necessary for assessment? By

virtue of Section 148(2) the Assessing Officer is mandated to record his

reasons before issuing any notice under Section 148. Moreover, as pointed

out in Wel Intertrade Pvt. Ltd. (supra), in cases where the first proviso to

Section 147 applies, "in addition to the Assessing Officer having reason to

believe that any income chargeable to tax has escaped assessment, it must

also be established as a fact that such escapement of assessment has been

occasioned by either the assessee failing to make a return under Section 139,

etc., or by reason of failure on the part of the assessee to disclose fully and

truly all material facts necessary for assessment, for that assessment year."

This essential pre-condition is clearly missing in the present case even if we

were, for the sake of argument, to assume, which we cannot, that the note-

sheet entry of 16.03.2013 was a notice under Section 148 as also the

,,reasons to believe rolled into one!


28.     As regards the deduction claimed under Section 36(1)(viia) of the said

Act to the tune of Rs.126,81,944/-, the learned counsel for the petitioner has

correctly pointed out that the same has been accepted by the Assessing

Officer insofar as the assessment year 2005-06 is concerned. This would be

evident from paragraph 3.3.2 of the reassessment order which has been



WP(C) 2594/2013                                                      Page 23 of 24
extracted in paragraph 4 above. The disallowance of Rs.453,96,44,854/- in

the reassessment order does not pertain to assessment year 2005-06 but to an

earlier year which was not the subject-matter of reassessment.         This is

clearly impermissible in law. This is apart from the fact that reassessment

for an earlier year was in any event time-barred and would also amount to a

,,change of opinion which is also not permitted in law as is evident from the

decision of the Supreme Court in Kelvinator of India Ltd. (supra).


29.     For all these reasons, the reassessment order dated 28.03.2013 as also

the proceedings pursuant to the notice dated 29.03.2012 under Section 148

cannot be sustained. They are quashed. The writ petition is accordingly

allowed. The parties are left to bear their own costs.



                                             BADAR DURREZ AHMED, J




                                                  SIDDHARTH MRIDUL, J
        AUGUST 11, 2014
        mk




WP(C) 2594/2013                                                      Page 24 of 24

 
 
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