Madras H.C : No legal necessity that materials referred to in section 147 should be fresh materials

High Court Of Madras

Sri Sakthi Textiles Ltd. vs. JCIT, Special Range-I, Coimbatore

Assessment Years : 1991-92 To 1993-94

Section : 147, 148

S. Nagamuthu, J.

W.P. Nos. 2498 To 2500 Of 2000 W.P.M.P. Nos. 3861, 3864 And 3866

August 4, 2010

ORDER

1. Since common issues are involved in these writ petitions and the parties are same, they were heard together and they are disposed of by means of this common order.

2. The challenges in these writ petitions are to the notices issued under section 148 of the Income-tax Act, 1961 [hereinafter referred to as “the Act”] for making reassessment of the income which have allegedly escaped from assessment during the assessment years 1991-92, 1992-93 and 1993-94 respectively.

3. The background facts of the cases are as follows:—The petitioner is a company engaged in the manufacture of textiles. For the assessment years 1991-92, 1992-93 and 1993-94, assessments were completed under section 143(3) of the Act on 28-3-1994, 21-3-1995 and 25-3-1996 respectively by the Deputy Commissioner/Assistant Commissioner. In the said assessment orders, replacement of assets to the tune of Rs. 1,06,56,527, Rs. 64,71,550 and Rs. 75,77,340 respectively for the assessment years 1991-92, 1992-93 and 1993-94 were allowed treating the same as revenue expenditure. Similarly, a sum of Rs. 2,73,012, Rs. 15,96,179 and Rs. 2,29,567 respectively for the above assessment years spent towards conversion of materials were also considered and allowed as revenue expenditure. These orders have become final.

4. While so, the 2nd respondent has issued the impugned notices under section 148 of the Act to the petitioner on 5-9-1997 for the assessment years 1991-92 and 1992-93 respectively and on 8-7-1997 for the assess- ment year 1993-94 in order to reassess. Though initially, the notices were issued by the 2nd respondent, the jurisdiction was subsequently taken over by the 1st respondent and thus the same are now pending before the 1st respondent. In the said notices, the 2nd respondent has not stated under what account and for what purpose the same have to be reopened which were already assessed and completed. The petitioner, therefore, made a request in writing to give the reasons for reopening. The 1st respondent by his letter dated 17-1-2000 in all these matters indicated the reasons for reopening the assessments by stating that he had proposed to complete the reassessment for the assessment years referred to above disallowing the claim of the petitioner for replacement of machineries and conversion materials as revenue expenditure and he had further proposed to treat the said expenditures as capital expenditure with an entitlement of only depreciation. The petitioner submitted his objections in writing stating that the expenditures towards replacement of machineries and conversion of materials would squarely fall within the head of revenue expenditure and, therefore, the earlier assessments made under section 143(3) of the Act do not require any reopening for reassessment under section 147 of the Act. The petitioner has also contended before the 1st respondent that these notices are barred by limitation as provided in section 149 of the Act. But, so far no final order has been passed in any of these matters by the 1st respondent. When things stand thus, the petitioner has rushed to this Court with these three writ petitions.

5. In these writ petitions, the following common grounds have been raised:—

(i) The notices issued under section 148 of the Act by the 2nd respondent which are impugned in these writ petitions do not indicate the reasons which made the 2nd respondent to believe that there have been chargeable tax escaped from assessment. In the absence of reasons in the notice itself, the respondents should not proceed further on the basis of such defective notices. In the reply dated 17-1-2000, for the first time, the 2nd respondent has stated the reasons in legal sense for reopening under section 147 of the Act. But, the so-called reasons stated in the notices do not constitute the reasons for reopening the assessments which were already completed. It is nothing but change of opinion on the part of the subsequent officer in respect of expenditures on replacement of machineries and conversion of materials. According to the original Assessing Officer, who assessed during the relevant years, these expenditures would fall within the sweep of revenue expenditure. Whereas, now, there is a change of opinion on the part of the subsequent Assessing Officer viz., the 2nd respondent to say that it is only capital expenditure with an entitlement of depreciation. Such a change of opinion, according to the petitioner cannot be a reason for reopening the assessments under section 147 of the Act.

(ii) Since there was no failure on the part of the petitioner to disclose fully and truly all material facts which were necessary for the assessment for the relevant assessment years, these cases would not fall within the ambit of the proviso to section 147 of the Act. Therefore, in any event, the reopening should have been done within four years from the end of the relevant assessment year. Thus, the limitation provided in section 149(1)(a) of the Act bars the notices in respect of the assessment years 1991-92 and 1992-93.

(iii) Insofar as the assessment year 1993-94 is concerned, it falls under main provision of section 147 of the Act. Since there is no reason stated either in the notice or reply notice dated 7-1-2000 issued by the 2nd respondent to the effect that there are reasons to believe that chargeable tax has escaped from assessment to satisfy the requirement of section 147 of the Act, this notice, though issued within four years from the end of the assessment year, is without jurisdiction.

6. The learned senior counsel appearing for the petitioner would take me through the relevant provisions of the Act and the original records in order to substantiate all the above contentions. He would also rely on a few judgments of the Hon’ble Supreme Court as well as various High Courts about which I would make reference during the course of this order.

7. No counter has been filed by the respondents. The original files have been produced for perusal. However, the learned counsel appearing for the respondent would vehemently oppose all these writ petitions on the following grounds:—

(i) The petitioner has got alternative remedy to submit his explanations before the 1st respondent and such a remedy is more efficacious. When such an alternative remedy is available for the petitioner, these writ petitions are not maintainable and, therefore, the same are liable to be dismissed.

(ii) The 2nd respondent has recorded the reasons in the file to substantiate his belief that there was chargeable tax escaped from assessment during the relevant assessment years and such a recording would satisfy the legal requirements as required under section 147 of the Act.

(iii) There is no legal requirement that such reasons which made the 2nd respondent to believe that there have been escapement of chargeable tax to be mentioned in the notices issued under section 148 of the Act. And, it would be suffice, if such reasons for the belief are furnished to the petitioner as soon as the same is required by the petitioner for the purpose of submitting his explanation. In the cases on hand, reasons for the belief have been duly furnished to the petitioner in the reply notices dated 17-1-2000. Thus, the basic mandatory legal requirement as provided in section 147 of the Act has been complied with.

(iv) The notices in respect of the assessment years 1991-92 and 1992-93 do not fall within the main provision of section 147 of the Act. Instead, it would fall only within the proviso to section 147 of the Act. For reopening the assessments under section 147 of the Act and for issuance of notices under section 148 of the Act, the period of limitation as provided in section 149(1)(b) of the Act is six years. In respect of notices for the assessment years 1991-92 and 1992-93, they have been issued within six years from the end of the relevant assessment year. Thus, the notices in respect of reopening of the assessment in respect of the assessment years 1991-92 and 1992-93 are not barred by limitation as provided in section 149(1)(b) of the Act.

(v) Insofar as notice relating to the assessment year 1993-94 is concerned, it falls within the ambit of main provision of section 147 of the Act, for which, the period of limitation provided in section 149(1)(a) of the Act is four years. Admittedly, the notice was issued on 8-7-1997 which was within four years from the end of the assessment year 1993-94. Thus, the said notice is also not barred by limitation.

(vi) The expenditure made towards replacement of machinery and conversion of materials would fall only within the ambit of capital expenditure with an entitlement of depreciation. But, by mistake, they were treated as revenue expenditure by the then Assessing Officer for the purpose of assessment. When this was noticed by the subsequent Assessing Officer viz., the 2nd respondent, he has rightly issued notices under section 148 of the Act after recording reasons. It cannot, therefore, be contended that the expenditures incurred towards replacement of machinery and conversion of materials would fall within the ambit of revenue expenditure as claimed by the petitioner.

(vii) There is no legal requirement that the formation of belief based on reasons to the effect that the income chargeable to tax has escaped from assessment, need to be based on any fresh materials collected subsequent to the original assessment. Even from the materials collected during the original assessment, if such escapement is noticed by the subsequent officer that itself can be the ground to reopen the assessment under section 147 of the Act. And, it cannot be stated that the impugned notices have been issued merely based on a change of opinion as it is claimed by the petitioner. But, it is based on materials on record which formed the basis for reasons to believe that there have been chargeable income-tax escaped from assessments.

8. The learned counsel appearing for the respondents has taken me through the original files to substantiate his contentions and he has also placed reliance on a number of judgments of the Hon’ble Supreme Court as well as various High Courts including this Court about which also I would make reference at the appropriate places of this judgment.

Maintainability

9. Let me now proceed to analyse the contentions of the rival parties. The first and foremost contention is with regard to the maintainability of the writ petitions.

10. Indisputably, the petitioner has got an alternative remedy of approaching the 1st respondent with an appropriate reply to the show-cause notices to place all his defences. For any reason, if such defences are rejected and an adverse order is passed, surely, he has got remedies before the appellate authority under the Act itself. When such an alternative mechanism is very much available under the Act, according to the respondents, these writ petitions cannot be entertained. In this regard, I may state that the writ jurisdiction of this Court under Article 226 of the Constitution of India is so wide and it is not circumscribed by any limitation by any of the provisions of the Constitution of India. But, in due course of time, while exercising such power, the Courts have evolved certain restrictions which are only self-imposed. One such restriction is to decline to entertain a writ petition in a case where there is an alternative remedy available to the party which is more efficacious to workout. It is only on the basis of such self-imposed restriction, the High Courts have been declining to entertain the writ petitions by directing the aggrieved to work out the remedy available under the alternative mechanism. But, it is also well-settled that in a case where, if the court is of the opinion that either the alternative remedy available would not be efficacious or the same cannot be secured without undue delay or in a case where the entire proceeding is wholly without jurisdiction or barred by limitation and allowing the authority to go ahead further with the proceeding will only be a wasteful exercise, in such a case, it would be very appropriate for this Court to come out of the self-imposed restriction and to entertain the writ petition to render justice to the aggrieved who knocks at the doors of the Writ Court. It has also been well-settled by the Hon’ble Supreme Court that having entertained a writ petition, if the same is dismissed after several years on the ground of availability of alternative remedy, it would not be in the interest of justice. [vide Calcutta Discount Co. Ltd. v. ITO [1961] 41 ITR 191 (SC)].

11. In the cases on hand, the writ petitions were admitted in the year 2000. Having entertained the same and having kept the same pending for 10 years on the file of this Court without disposal, if they are dismissed at this length of time on the ground of availability of alternative remedy thereby driving the aggrieved to go and avail the alternative remedy, in my considered opinion and as laid down by the Hon’ble Supreme Court in Calcutta Discount Co. Ltd.’s case (supra), surely, the same will not be in the interest of justice. Apart from that, when it is contended by the petitioner that all the proceedings impugned in these writ petitions are either barred by limitation as provided in section 149 of the Act, or wholly without jurisdiction, it will also be in tune with the interest of justice to examine the said questions in these writ petitions. For all these reasons, I hold that these writ petitions are maintainable and, therefore, the objection raised by the learned counsel for the respondents regarding the maintainability of these writ petitions is rejected.

Whether the impugned notices are without jurisdiction:—

12. Admittedly, the impugned notices in respect of the assessment years 1991-92 and 1992-93 were issued after the expiry of four years from the end of the relevant assessment year, but within six years. It is needless to state that in no case, such notice under section 148 of the Act could be issued beyond six years from the end of the relevant assessment year. If the cases fall within the main provision of section 147 of the Act, the period of limitation as provided in section 149(1)(a) of the Act is four years from the end of the relevant assessment year. Whereas, if the cases fall within the proviso to section 147 of the Act, then, it will fall within the limitation as provided in section 149(1)(b) of the Act [i.e.,] six years. Therefore, in these cases, it is to be seen whether the impugned notices fall within the scope of the proviso to section 147 of the Act or main provision of section 147 of the Act. Regarding this question, there is no controversy between the learned counsel on either side. It is stated by the respondents that the notices in respect of the assessment years 1991-92 and 1992-93 fall within the proviso to section 147 of the Act; whereas the impugned notice in respect of the assessment year 1993-94 falls within the scope of the main provision of section 147 of the Act.

13. Assessment years 1991-92 and 1992-93:—Let me now, at first, take up the notices for the assessment years 1991-92 and 1992-93. In order to fall within the proviso to section 147 of the Act, apart from stating that there were reasons for the authority to believe that there had been escapement of chargeable income, it should have also been recorded that such escapement was due to the failure of the assessee to disclose fully and truly all material particulars necessary for his assessment for that assessment year. Such a recording is absolutely mandatory as per the provision and as laid down in various judgments. In this regard, I may refer to some of the judgments relied on by the learned counsel appearing on either side. The earliest judgment on this point is a judgment rendered by a Constitution Bench of the Hon’ble Supreme Court in Calcutta Discount Co. Ltd.’s case (supra) wherein while dealing with section 34 of the Indian Income-tax Act, 1922 [in pari materia to section 147 of the Income-tax Act, 1961], the Hon’ble Supreme Court has held as follows:—

“. . . To confer jurisdiction under this section to issue notice in respect of assessments beyond the period of four years, but within a period of eight years, from the end of the relevant year two conditions have therefore to be satisfied. The first is that the Income-tax Officer must have reason to believe that income, profits or gains chargeable to income-tax have been under- assessed. The second is that he must have also reason to believe that such “under-assessment” has occurred by reason of either (i) omission or failure on the part of an assessee to make a return of his income under section 22, or (ii) omission or failure on the part of an assessee to disclose fully and truly all material facts necessary for his assessment for that year. Both these conditions are conditions precedent to be satisfied before the Income-tax Officer could have jurisdiction to issue a notice for the assessment or reassessment beyond the period of four years, but within the period of eight years, from the end of the year in question.”

14. The only difference between the old Act and the present Act is that in the old Act the maximum period of limitation was eight years; whereas the same is six years in the present Act. Except the above, both the provisions viz., section 34 of the Indian Income-tax Act, 1922 and section 149 of the Income-tax Act, 1961 are verbatim the same. Thus, the aforesaid judgment of the Hon’ble Supreme Court holds the field. A reading of the above judgment would make it clear that unless the above twin conditions are satisfied, the notice issued under section 148 of the Act is without jurisdiction and on that ground alone the notice is liable to be quashed.

15. The learned counsel for the respondent would rely on a recent judgment in Asstt. CIT v. Rajesh Jhaveri Stock Brokers (P.) Ltd. [2007] 291 ITR 5001 (SC), wherein reiterating the very same legal position after the amendment of section 147 of the Act with effect from 1-4-1989, the Hon’ble Supreme Court has held as follows:—

“16. Section 147 authorises and permits the Assessing Officer to assess or reassess income chargeable to tax if he has reason to believe that income for any assessment year has escaped assessment. The word “reason” in the phrase “reason to believe” would mean cause or justification. If the Assessing Officer has cause or justification to know or suppose that income had escaped assessment, it can be said to have reason to believe that an income had escaped assessment. The expression cannot be read to mean that the Assessing Officer should have finally ascertained the fact by legal evidence or conclusion. The function of the Assessing Officer is to administer the statute with solicitude for the public exchequer with an inbuilt idea of fairness to taxpayers. As observed by the Delhi High Court in Central Provinces Manganese Ore Co. Ltd. v. ITO [1991] 191 ITR 662, for initiation of action under section 147(a) (as the provision stood at the relevant time) fulfilment of the two requisite conditions in that regard is essential. At that stage, the final outcome of the proceeding is not relevant. In other words, at the initiation stage, what is required is “reason to believe”, but not the established fact of escapement of income. At the stage of issue of notice, the only question is whether there was relevant material on which a reasonable person could have formed a requisite belief. Whether the materials would conclusively prove the escapement is not the concern at that stage. This is so because the formation of belief by the Assessing Officer is within the realm of subjective satisfaction—see ITO v. Selected Dalurband Coal Co. (P.) Ltd. [1996] 217 ITR 597 (SC); Raymond Woollen Mills Ltd. v. ITO [1999] 236 ITR 34 (SC).

17. The scope and effect of section 147 as substituted with effect from 1-4-1989, as also sections 148 to 152 are substantially different from the provisions as they stood prior to such substitution. Under the old provisions of section 147, separate clauses (a) and (b) laid down the circumstances under which income escaping assessment for the past assessment years could be assessed or reassessed. To confer jurisdiction under section 147(a) two conditions were required to be satisfied firstly the Assessing Officer must have reason to believe that income profits or gains chargeable to Income-tax have escaped assessment, and secondly he must also have reason to believe that such escapement has occurred by reason of either (i) omission or failure on the part of the assessee to disclose fully or truly all material facts necessary for his assessment of that year. Both these conditions were conditions precedent to be satisfied before the Assessing Officer could have jurisdiction to issue notice under section 148 read with section 147(a). But 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 is however to be noted that both the conditions must be fulfilled if the case falls within the ambit of the proviso to section 147. The case at hand is covered by the main provision and not the proviso.

18. So long as the ingredients of section 147 are fulfilled, the Assessing Officer is free to initiate proceeding under section 147 and failure to take steps under section 143(3) will not render the Assessing Officer powerless to initiate reassessment proceedings even when intimation under section 143(1) had been issued.”

16. From the above judgments, it could be understood that it is the settled position of law that in order to bring the case within the ambit of proviso to section 147 of the Act, the above two conditions are necessarily to be satisfied, otherwise, the issuance of notice under section 148 read with section 147 of the Act shall be wholly without jurisdiction.

17. Now, let us look into the reasons recorded by the 2nd respondent on 8-7-1997 for issuance of notices under section 148 of the Act for reopening the assessment in respect of the assessment year 1991-92. It reads as follows:—

“The assessment for the year 1991-92 has been completed under section 143(3) of the Act on 28-3-1994. While doing so, the claim of replacement of machineries to the tune of Rs. 1,06,57,527 has been allowed wrongly as revenue expenditure instead of treating it as capital in nature and the same is eligible only for normal depreciation on the additions to the machineries. Hence, I have reason to believe that the income chargeable to tax has escaped assessment and the approval is sought for.”

18. The reasons recorded on 8-7-1997 by the 2nd respondent for issuance of notice under section 148 of the Act for reopening the assessment in respect of the assessment year 1992-93 are as follows:—

“The assessment for the year 1992-93 has been completed under section 143(3) of the Act on 21-3-1995. While doing this assessment, the claim of replacement of machineries to the tune of Rs. 64,71,550 has been allowed fully on revenue expenditure instead of treating it as capital expenditure and the normal depreciation alone will be allowable. Hence, I have reason to believe that the income chargeable to tax has escaped assessment and the approval is sought for.”

19. Though it is true that in the notices issued for the assessment years 1991-92 and 1992-93, the reasons for reopening have not been indicated, indisputably, the above reasons were intimated to the petitioner in the reply when he required the same. From the records, as I have extracted above, the 2nd respondent has recorded the above reasons for his belief. A close reading of the above reasons recorded by the 2nd respondent would make it very clear that it satisfies only the first requirement of section 147 of the Act as held by the Hon’ble Supreme Court in the aforesaid judgments. The second requirement has not been satisfied. To put it precisely, there is no mention in the above recorded reasons that the escapement of chargeable income for tax was due to omission or failure on the part of the assessee to disclose fully and truly all material facts necessary for the assessment. Indisputably, these notices have been issued beyond the period of limitation of four years and that is the reason why the respondents make an attempt to bring the same within the scope of proviso to section 147 of the Act for which fulfilment of both the conditions is mandatory.

20. In view of the failure to fulfil the second legal requirement as laid down by the Hon’ble Supreme Court under section 147 of the Act, I have to necessarily hold that the notices in respect of the assessment years 1991-92 and 1992-93 issued under section 148 read with section 147 of the Act are wholly without jurisdiction and, therefore, they are liable to be quashed.

21. The learned counsel for the respondents would, however, submit that mere production of the account books would not satisfy the legal requirement of true and full disclosure of the income. In the cases on hand, though the petitioner produced all the accounts during the regular assessments, since he wrongly claimed the amounts spent on replacement of machinery and conversion of materials as revenue expenditure, it amounts to failure to make a true and full disclosure of the income, he contended. In my considered opinion. Whether there was true disclosure or not on the part of the petitioner during the relevant assessment years cannot be gone into in these writ petitions for, it is the subjective belief of the Assessing Officer who wants to reopen which alone confers jurisdiction on him to issue notice under section 148 of the Act. The failure on the part of the 2nd respondent to record the reasons in the impugned proceedings to the effect that he has reasons to believe that the escapement was due to failure of the petitioner to make true and full disclosure of the income itself is sufficient to quash the proceedings in respect of the assessment years 1991-92 and 1992-93, in view of the judgments which I have cited earlier.

22. That apart, ‘it is not open for the respondents to raise a contention before this Court for the first time that there was such a failure on the part of the assessee.’ From out of the materials available on record, I am of the view that the 2nd respondent ought to have examined the question as to whether there are reasons for him to believe that the escapement was due to the failure on the part of the petitioner to make true and full disclosure of the income or not. In the event of arriving at such belief that it was because of the petitioner’s failure, he should have recorded the same in the order. That is the legal requirement. If only, the twin conditions, as laid down by the Hon’ble Supreme Court, are satisfied by way of recording reasons for both the conditions in the order, the 2nd respondent will get jurisdiction to issue notice under section 148 of the Act after the expiry of four years from the end of the relevant assessment year. Since the same has not been done so, the notices impugned in W.P. Nos. 2498 and 2499 of 2000, as I have already concluded, are wholly without jurisdiction.

23. In view of the above definite conclusion, it is not necessary to examine the other grounds raised by the petitioner in respect of the notices impugned in W.P. Nos. 2498 and 2499 of 2000. Thus, I hold that the impugned notices in respect of the assessment years 1991-92 and 1992-93 are liable to be quashed.

24. Assessment year 1993-94:—Now coming to the impugned notice in respect of the assessment year 1993-94, it has been issued within four years as provided in section 149(1)(a) of the Act. This case falls within the sweep of the main provision of section 147 and not within the proviso to section 147 of the Act. Hence, there is no need to satisfy the second legal requirement as laid down by the Hon’ble Supreme Court in Rajesh Jhaveri Stock Brokers (P.) Ltd.’s case (supra ) and Calcutta Discount Co. Ltd.’s case (supra). Instead it would be suffice, if the first legal requirement alone is satisfied. To put it otherwise, is not necessary for the Assessing Officer to record as to whether the escapement of chargeable income from tax assessment was due to the failure of the assessee to make true and full disclosure of the income. It would be suffice, if the Assessing Officer had recorded the reasons for his belief that there had been escapement of taxable income from assessment.

25. A perusal of the file would go to show that the 2nd respondent has recorded the following reasons on 8-7-1997 for reopening the assessment in respect of the year 1993-94:—

“The sum of Rs. 75,77,340 was spent towards addition of machinery. The above sum was shown in the fixed assets schedule and depreciation on them was claimed as per companies Act. In the income computation statement, the above sum was claimed as revenue expenditure. This is not correct. Only depreciation is to be allowed. The expenditure is of capital expenditure. The excess relief given is to be withdrawn. Hence, I have reason to believe that income escaped assessment. Please issue notice under section 148 of the Act.”

26. A perusal of the above reasons recorded by the 2nd respondent, in my considered opinion, would satisfy the first legal requirement as laid down by the Hon’ble Supreme Court and the same would fall within the ambit of main provision of section 147 of the Act for which, the period of limitation is four years. Since the impugned notice has been issued within four years, the same cannot be stated to be beyond the period of limitation.

27. But, the contention of the learned counsel appearing for the petitioner is that the notice is without jurisdiction as the so called reasons for the belief recorded do not satisfy the requirement of section 147 of the Act. In this regard the learned senior counsel appearing for the petitioner would submit that mere reproduction of the words, ‘I have reason to believe that income escaped assessment’ would not be sufficient. He would also contend that earlier during the original assessment, the then Assessing Officer had treated the expenditure in question as revenue expenditure. Unless, there are materials collected subsequent to the original assessment, by mere change of opinion, the second respondent cannot call it as a capital expenditure. The reason for belief can never be the out come of the change of opinion. He would further submit that if an expenditure or deduction was wrongly allowed while computing the taxable income of the assessee, the same could not be brought to tax by reopening the assessment merely on account of the fact that the subsequent Assessing Officer formed an opinion that the then Assessing Officer had erred in allowing certain expenditure or deduction. For this proposition, the learned senior counsel would rely on a judgment of the Delhi High Court in Jindal Photo Films Ltd. v. Dy. CIT [1998] 234 ITR 170 1. He would also submit that unless new materials have come on record, merely a fresh application of mind by the same Assessing Officer to the same set of facts, cannot form the belief as provided in section 147 of the Act. He would also rely on a judgment of this Court in Apollo Hospitals Enterprises Ltd. v. Asstt. CIT [2006] 287 ITR 252 wherein a learned single Judge of this Court has also taken similar view that ‘the authority cannot reopen the assessment order passed by a mere change of opinion or by drawing a different inference from the same facts as were earlier available.’

28. In this regard, the learned counsel appearing for the respondent would submit that it is not necessary to form an opinion there are to be fresh materials collected subsequent to the original assessment. For this proposition, the learned counsel would rely on a judgment of the Hon’ble Supreme Court in CIT v. Kelvinator of India Ltd. [2010] 320 ITR 561 3 wherein the Hon’ble Supreme Court has held as follows:—

“However, one needs to give a schematic interpretation to the words “reasons to believe” failing which, we are afraid, section 147 would give arbitrary powers to the Assessing Officer to reopen assessments on the basis of “mere change of opinion”, which cannot be per se reason to reopen. We must also keep in mind the conceptual different between power to review and power to reassess. The Assessing Officer has no power to review; he has the power to reassess. But reassessment has to be based on fulfilment of certain preconditions and if the concept of “change of opinion” is removed, as contended on behalf of the Department, then, in the garb of reopening the assessment, review would take place. One must treat the concept of “change of opinion” as in-built test to check abuse of power by the Assessing Officer. Hence, after 1st April, 1989, the Assessing Officer has power to reopen, 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.”

29. A reading of the above judgment would go to really show that an assessment already completed cannot be reopened for the purpose of reassessment merely on the basis of the change of opinion by the subsequent Assessing Officer. Such reopening is possible only on tangible materials in the event of the Officer finding reasons to believe that there is escapement of income from assessment. In my considered opinion, as I have understood from the judgments cited supra, more particularly, the recent judgment of the Hon’ble Supreme Court cited supra, there is no legal necessity that the materials referred to in section 147 of the Act should be fresh materials collected subsequent to the original assessment orders. Even from out of materials which are already available on record, if the subsequent officer finds reasons to believe that there has been escapement of assessment, surely he can issue notice under section 148 of the Act. Such course, will not, in my considered opinion, amount to reviewing the earlier assessment. I am conscious that there is a vast difference between the original assessment and reassessment as held by the Hon’ble Supreme Court. In the instant case, there are sufficient materials available on record to hold that there has been escapement of income from assessment. It is only out of the available materials, the 2nd respondent has found the reasons to believe that there has been escapement of chargeable income from assessment since, instead of treating the expenditure in question as capital expenditure, the then Assessing Officer has treated the same as revenue expenditure. This, in my considered opinion, would not amount to either “change of opinion” or “reviewing the earlier assessment order”.

30. Nextly, the learned senior counsel appearing for the petitioner would submit that the expenditure incurred towards replacement of machinery and conversion of materials would not amount to capital expenditure. In this regard I am of the view that it is not for this Court to decide. Whether these expenditures would fall within the sweep of capital expenditure or revenue expenditure is a matter to be decided by the competent authority viz., the 1st respondent before whom the proceeding is now pending, if any opinion is expressed in this regard by this Court in this writ petition, the same may influence the mind of the 1st respondent. Further, it may not be proper for this Court to venture into the said question of fact and to decide whether the same would amount to capital expenditure or revenue expenditure. From the records already available and from the materials which the petitioner is going to place, if any, before the 1st respondent, it is for the 1st respondent to decide the question as to whether the expenditure on replacement of machinery and conversion of materials or any part of the same, would fall within the ambit of capital expenditure or revenue expenditure so as to make reassessment accordingly, if it is so warranted. Insofar as this writ petition [W.P. No. 2500 of 2000] is concerned, what all that I would say is that the notice in respect of the assessment year 1993-94 cannot be stated to be without jurisdiction. It also cannot be stated to be barred by limitation as provided in section 149(1) of the Act. Thus, insofar as the impugned notice in respect of the assessment year 1993-94 is concerned, I find no merit in the writ petition. In respect of this notice, it is for the petitioner to avail of the alternative mechanism and to work out his remedy in accordance with law.

Result

31. In fine, (a ) W.P. Nos. 2498 and 2499 of 2000 are allowed and the impugned notices in respect of the assessment years 1991-92 and 1992-93 are quashed; (b) W.P. No. 2500 of 2000 is dismissed, however, with a liberty to petitioner to submit his explanation to the impugned notice before the 1st respondent and to work out his remedies in accordance with law. The petitioner shall submit his further explanation, if any, within a period of four weeks from the date of receipt of a copy of this order and the 1st respondent shall thereafter afford sufficient opportunity to the petitioner and pass appropriate final orders within a period of eight weeks. No costs. Consequently, connected WPMPs are closed.

[Citation : 340 ITR 144]

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