Madras H.C : The prayer in the writ petition is for the issuance of a writ of certiorari to call for the records on the files of the respondent herein in PAN AX 1/015/2000-01 dt. 30th March, 2005 under s. 148

High Court Of Madras

Apollo Hospitals Enterprises Ltd. vs. Assistant Commissioner Of Income Tax

Sections 147, 148

Asst. Year 2000-01

K. Mohan Ram, J.

Writ Petn. No. 4991 of 2006 & WPMP No. 5360 of 2006

8th June, 2006

Counsel Appeared

C. Natarajan for N. Inbarajan, for the Petitioner : Mrs. Pushya Seetharaman, for the Respondent

ORDER

K. Mohan Ram, J. :

With the consent of counsel on either side, the writ petition itself is taken up for final disposal. The prayer in the writ petition is for the issuance of a writ of certiorari to call for the records on the files of the respondent herein in PAN AX 1/015/2000-01 dt. 30th March, 2005 under s. 148 of the IT Act, 1961 and quash the proceedings of the respondent in AX1/015/2000-01 dt. 30th March, 2005 as illegal and without jurisdiction.

The short facts that are necessary for the disposal of the above writ petition and as culled out from the affidavit filed in support of the writ petition are as follows : (i) The petitioner is a registered company which is running hospitals for diagnosis, mitigation and treatment of ailments and diseases in different parts of the country. By an order of amalgamation dt. 18th April, 2000, a scheme was approved to amalgamate M/s Deccan Hospital Corporation Ltd. (hereinafter referred to as “DHCL”) running a hospital at Hyderabad, which is equipped with various diagnostic, radiological and pathological departments with the petitioner-company. DHCL had an unabsorbed depreciation of Rs. 11,60,29,077 as on 31st March, 1999 which under the scheme of amalgamation belonged and vested with the petitioner-company. The scheme had necessary approvals of the Andhra Pradesh High Court and this Court. (ii) In respect of the asst. yr. 2000-01 the petitioner submitted returns and claimed the benefit of s. 72A of the IT Act (hereinafter referred to as “the Act”) to have the unabsorbed depreciation of DHCL as the depreciation of the petitioner. The respondent examined the details of the case and in his letter in G.I.No.AX1-015/2000-01 dt. 7th March, 2003, inter alia, under s. 142 vide para 7 stated as follows : “7. It is seen that during the previous year, Deccan Hospitals has got amalgamated with the assessee-company. In this connection, you are requested to furnish the following : Amount of loss accumulated in the case of Deccan Hospitals on the date of amalgamation along with the years in which such loss were incurred and carried forward. P&L a/c and balance sheet of the Deccan Hospitals for the last three years and copies of assessments made during the said period.” (iii) The petitioner vide letter dt. 19th March, 2003 addressed to the assessing authority furnished all the particulars sought for. It is the case of the petitioner that being satisfied about the eligibility of the petitioner under s. 72A and after taking note of an opinion filed on behalf of the petitioner along with the returns, the assessment has been completed by the Dy. CIT (the then AO) vide assessment order dt. 28th March, 2003 under s. 143(3) of the Act and the benefit of s. 72A of the Act was granted to the petitioner in the assessment order. It is the further case of the petitioner that the petitioner preferred an appeal in ITA No. 99/03-04/A.III against certain issues and the same was disposed of by the appellate authority on 21st Aug., 2003 and further appeal is said to be pending before the Tribunal, Chennai. It is the contention of the petitioner that the order of assessment is already merged in the appellate order. (iv) While so the respondent issued a notice under s. 148 in his proceedings in PAN AX 1/015/2000-01 dt. 30th March, 2005 stating that he had reasons to believe that the income chargeable to tax had escaped assessment and the said notice is challenged in the writ petition. (v) The reasons recorded for reopening the assessment are, “It is seen from the records that the company has claimed set off of loss to the tune of Rs. 11,60,29,077 being the loss of asst. yr. 1999-2000 against the income and computed the balance taxable income. This loss of Rs. 11,60,29,077 represents that loss of the amalgamating company, M/s DHCL under a scheme of amalgamation. The assessee has claimed that set off of loss as per the provisions of s. 72A of the IT Act vide Form No. 3CD. This section prescribes where there has been an amalgamation of a company owning an industrial undertaking or a ship with another company, then alone the accumulated loss or unabsorbed depreciation of the amalgamating company shall be deemed to be the loss of the amalgamated company. In the instant case, the assessee is neither an industrial undertaking nor a company owning a ship and hence, the provisions of s. 72A will not apply. Hence, the set off of loss to the tune of Rs. 11,60,29,077 has resulted in underassessment and income to that extent has escaped assessment.” (vi) It is the contention of the petitioner that the reasons as communicated prima facie contained no reasons except to communicate a conclusion after setting out the ingredients of the section which do not constitute the reason. The respondent has stated that the petitioner is not an industrial undertaking nor a company owning a ship and that s. 72A will not apply. Overlooking the fact that the status of the assessee for the relief under s. 72A of the Act is not relevant but what is relevant is the status of the amalgamating company namely, DHCL. On 9th Dec., 2005 the petitioner addressed a letter through their Authorized Representative stating (i) that there was no opinion justifying the notice, that the present exercise was a mere change of opinion, (ii) that the Central Board of Direct Taxes (in short CBDT) vide Circular No. 549, dt. 31st Oct., 1989 [(1990) 82 CTR (St) 1] had held that a change of opinion cannot provide a reason to believe even under the amended s. 147 of the Act and (iii) that in any view the issue was concluded by the judgment of this Court in CIT vs. Dr. V.K. Ramachandran (1981) 128 ITR 727 (Mad) besides other judgments. The jurisdiction to proceed was questioned. (vii) The impugned proceedings are challenged on the following grounds : (i) The respondent lacked complete jurisdiction in instituting proceedings under s. 147 of the Act. (ii) The impugned proceeding having regard to the orders already passed under s. 143(3) vide proceedings in assessment order dt. 28th March, 2003 after a full scale enquiry is a purported proceeding. (iii) The impugned proceedings are an output of mere change of opinion because a stand was correctly taken on primary facts that the ingredients of s. 72A were correctly satisfied to the benefit of the petitioner. (iv) Mere change of opinion cannot be a ground for reopening the assessment under s. 147 since a power to review on mere change of opinion will be ex facie arbitrary and violative of Art. 14 of the Constitution of India, 1950. (v) The respondent has no jurisdiction on the guidelines issued under s. 147 of the Act under the circular of the CBDT vide Circular No. 549, dt. 31st Oct., 1989 which denies jurisdiction on change of opinion. (vi) The reasons to believe communicated on 9th Dec., 2005 contained no reasons but merely communicated a final assertive conclusion and fall short of the requirement to reason to believe which is preliminary to a conclusion. (vii) The reason to believe communicated on 9th Dec., 2005 suffers from misdirection in addressing itself and constituting that the petitioner is not an industrial undertaking, whereas the question ought to have been whether the amalgamating company owned an industrial undertaking. The error is that the respondent was looking to the petitioner and would require to be an industrial undertaking which has nothing to do with the question. (viii) The very communication dt. 3rd Jan., 2005 discloses that the proceedings have been initiated not on rationale grounds but scanty enquiry and appreciation of the facts of the case as evidenced by question No. 1, No. 3 and No. 5 of the letter enclosed to notice under s. 142, dt. 3rd Jan., 2006, which are already forming part of the record of the original assessment. (ix) The respondent has no jurisdiction to bypass or ignore binding orders of this Court rendered in CIT vs. Dr. V.K. Ramachandran (supra).

4. A detailed counter-affidavit has been filed by the respondent containing the following contentions : (i) The petitioner set off the accumulated depreciation of DHCL against its income for the asst. yr. 2000-01 without satisfying the twin conditions stipulated in s. 72A of the Act. Sec. 72A which defines industrial undertaking refers to the activity of manufacturing or processing of goods. In the case of a hospital, there is no manufacturing activity and whether DHCL was processing any goods and if so, what was the installed capacity on the effective date of amalgamation is the point for consideration. (ii) Sec. 72A r/w r. 9C stipulates certain conditions to claim benefits under that section and in the event of failure to comply with the said conditions within five years from the date of amalgamation, the unabsorbed depreciation shall be considered as income in the hands of the amalgamated company in the year in which the conditions are not complied with and no certificate was filed before the assessing authority in any of the four years from the date of amalgamation and the petitioner had not at all indicated the installed capacity of the amalgamating entity on the date of amalgamation. The decision reported in (1981) 128 ITR 727 (Mad) (supra) is not applicable to the facts of this case. The definition of industrial undertaking under s. 10(15)(iv)(c) of the Act was identical with that of s. 72A. In several judgments it was held that the diagnostic center was not processing goods as an industrial undertaking when it was exposing the films by the use of the scanner. (iii) It is further stated in the counter-affidavit that perusal of records shows that the particulars claimed by the petitioner to have been furnished in response to letter dt. 7th March, 2003 before the AO are not available on record. Besides, in the assessment order referred to, there is no discussion on the assessee’s claim under s. 72A.

(iv) It is also contended that the assessee was not entitled to the relief of set off which was claimed, since the entity taken over was not an industrial undertaking, was the reason to believe that income had escaped assessment. The petitioner’s argument that the status of the assessee was not relevant for the relief and only the status of the amalgamating company is relevant does not dilute the reason in any way since the reasons recorded bear specific reference to the provisions of s. 72A. (v) It is further contended that the averment of the petitioner that reopening is on mere change of opinion is not correct since the records do not support the claim of the petitioner that the details have been filed and there is conscious application of mind by the AO thereof was also not borne out by the assessment order. Hence when there is no opinion formed, it cannot be said that the reopening is consequent to change of opinion. (vi) In para 18 of the counter-affidavit, it is stated as follows :

“18. The contention of the petitioner that the notice under s. 148 was issued consequent to audit objection from Audit General’s office is not fully justified. The notice was issued only after the AO satisfied himself about the escapement of income by duly recording the reasons thereon and not merely on the basis of audit objection.” (vii) It is further contended that the assessee has failed to discharge the onus that the amalgamating company had an industrial undertaking. The amalgamating company was a hospital and that it could own an industrial undertaking was sufficient to believe that the claim of the amalgamated company was incorrect as far as claim of set off of unabsorbed depreciation is concerned and the assessment proceedings referred to, did not convey that there was conscious application of mind on the issue agitated and hence, reopening of the assessment within four years from the end of assessment year is justified and is in accordance with law. The proceedings are not on account of change of opinion as no opinion was formed during the course of earlier assessment proceedings. It is further contended that the reasons to believe communicated on 9th Dec., 2005 are adequate enough to form the reason to believe that income has escaped assessment. The reasons communicated on 9th Dec., 2005, wherein it was mentioned that the assessee did not own an industrial undertaking, did not vitiate the proceedings and the AO is protected in accordance with the provisions of s. 292B of the Act, as the reasons to believe have specific reference to the provisions of s. 72A of the Act. Heard both.

Though the learned senior counsel appearing for the petitioner made several submissions, the main ground of challenge to the impugned proceeding is that the respondent lacked complete jurisdiction in initiating proceedings under s. 147 of the Act since mere change of opinion cannot be a ground for reopening the assessment under s. 147 and the impugned proceeding is contrary to the guidelines issued under s. 147 of the Act by the CBDT vide Circular No. 549 dt. 31st Oct., 1989. If this ground of challenge is accepted, no other submission made by the learned senior counsel need be considered. Therefore the abovesaid contention of the learned senior counsel is taken up for consideration first. Therefore, it is crystal clear that the respondent cannot supplement fresh reasons in the shape of counter-affidavit or otherwise. In this case, the respondent has stated several reasons in the counter- affidavit which were not stated in the impugned proceedings and in the light of the abovesaid decision of the Hon’ble Supreme Court of India the same cannot be looked into.

The learned senior counsel submitted that the petitioner submitted returns for the asst. yr. 2000-01 and claimed benefit of s. 72A of the Act to have the unabsorbed depreciation of DHCL as the depreciation of the petitioner and the AO after examining the details of the case by his notice dt. 7th March, 2003 issued under s. 142(1) of the Act called upon the petitioner to furnish several details and para 7 of the notice pertains to the petitioner’s claim for benefit under s. 72A of the Act. The said para 7 has been extracted supra. The petitioner furnished the particulars vide its letter dt. 19th March, 2003 and the Dy. CIT, Company Circle-I(1), who was the appropriate assessing authority at the relevant time, after taking note of the opinion filed on behalf of the petitioner along with the returns was satisfied about the eligibility of the petitioner under s. 72A and passed the assessment order dt. 28th March, 2003 under s. 143(3) of the Act. The benefit of s. 72A was granted in the assessment order. According to the learned senior counsel all the relevant facts were disclosed to the AO and the AO having deliberated upon the entitlement of the petitioner had allowed the claim. The assessment was sought to be reopened merely on the ground of ‘change of opinion’ by the respondent on the same facts. The respondent cannot simply review the assessment order passed by his predecessor, a power which is not conferred on him by the Act. The respondent had ‘no reason to believe’ that any income had escaped assessment within the meaning of s. 147 of the Act and the notice issued under s. 148 is therefore without jurisdiction. Referring to the averments contained in para 13 of the counter-affidavit wherein it is stated that the particulars said to have been furnished by the petitioner in response to letter dt. 7th March, 2003 before the AO are not available on record, the learned senior counsel submitted that if the original records are perused it could be seen that the petitioner actually furnished all the details sought for. Accordingly, the file produced by the learned standing counsel for the IT Department was perused. At p. 5 of the file, the following notings are found, viz., “Notice under s. 142(1) posting the case for hearing on 13th March, 2003 typed and put up. Sd/7th March, 2003. Shri V. Venugopal General Manager (Fin) appeared. Shri Nageswara Rao, Asstt. Manager of the company appeared. Filed the details called for. Sd/20th March, 2003.”

In view of the abovesaid notings the contention of the respondent in this regard is liable to be rejected and the contention of the learned senior counsel for the petitioner that the particulars called for were produced before the AO has to be accepted.

8. The learned senior counsel submitted that the so-called “reasons to believe” stated in the impugned proceedings are sought to be supplemented by new reasons stated in the counter-affidavit which according to the learned senior counsel is not permissible in view of the law laid down by the Hon’ble Supreme Court of India. The Hon’ble Supreme Court of India in the case of Mohinder Singh Gill vs. Chief Election Commr. & Ors. AIR 1978 (2) SC J 441 has laid down in para 8 as follows : “8. The second equally relevant matter is that when a statutory functionary makes an order based on certain grounds, its validity must be judged by the reasons so mentioned and cannot be supplemented by fresh reasons in the shape of affidavit or otherwise. Otherwise, an order bad in the beginning may, by the time it comes to Court on account of a challenge, get validated by additional grounds later brought out. We may here draw attention to the observations of Bose, J., in Commr. of Police vs. Gordhandas Bhanji : ‘Public orders, publicly made, in exercise of a statutory authority cannot be construed in the light of explanations subsequently given by the officer making the order of what he meant, or of what was in his mind, or what he intended to do. Public orders made by public authorities are meant to have public effect and are intended to effect the actings and conducts of those to whom they are addressed and must be construed objectively with reference to the language used in the order itself.’ Orders are not like old wine becoming better as they grow older.”

9. Therefore the contention of the learned senior counsel has to be considered in the light of the “reasons to believe” as contained in the impugned proceedings. The learned senior counsel relied upon the following passage found at p. 177 of the decision rendered in the case of Jindal Photo Films Ltd. vs. Dy. CIT & Anr. (1999) 154 CTR (Del) 355 : (1998) 234 ITR 170 (Del), which reads as follows : “Where the ITO (very often successor-officer) attempts to reopen the assessment because the opinion formed earlier by himself (or more often, by a predecessor- ITO), was in his opinion incorrect, judicial decisions have consistently held that this could not be done. [See Indian & Eastern Newspaper Society vs. CIT (1979) 12 CTR (SC) 190 : (1979) 119 ITR 996 (SC) and A.L.A. Firm vs. CIT (1991) 93 CTR (SC) 133 : (1991) 189 ITR 285 (SC)].” Based on that the learned senior counsel submitted that the Dy. CIT, Company Circle-I(1), who was the appropriate assessing authority at the relevant time, after perusing the particulars furnished by the petitioner and after conducting an enquiry and after hearing the representatives of the petitioner on 20th March, 2003 and on being satisfied about the eligibility of the petitioner under s. 72A and after taking note of an opinion filed on behalf of the petitioner along with the returns passed the assessment order dt. 28th March, 2003 under s. 143(3) of the Act granting the benefit under s. 72A of the Act. The attempt of the respondent to reopen the assessment, because the opinion formed earlier by his predecessors was in his opinion wrong, is contrary to the law laid down by the Hon’ble Supreme Court of India and the Division Bench of the Delhi High Court reported in (1999) 154 CTR (Del) 355 : (1998) 234 ITR 170 (Del) (supra). The said contention of the learned senior counsel was sought to be countered by the learned standing counsel for the IT Department by submitting that the AO (the Dy. CIT) had not formed any opinion. The learned standing counsel for the IT Department further submitted that a perusal of the original assessment order shows that the AO had not formed any opinion while allowing the petitioner’s claim for set off and there is absolutely no discussion regarding the eligibility of the petitioner under s. 72A of the Act and as such there can be no change of opinion on the part of the respondent and therefore the contention of the learned senior counsel is liable to be rejected. In support of her

contentions she relied upon the decision of the Gujarat High Court reported in Praful Chunilal Patel vs. M.J. Makwana, Asstt. CIT (1998) 148 CTR (Guj) 62 : (1999) 236 ITR 832 (Guj).

10. The learned senior counsel for the petitioner relied upon a Full Bench decision of the Delhi High Court rendered in the case of CIT vs. Kelvinator of India Ltd. (2002) 174 CTR (Del)(FB) 617 : (2002) 256 ITR 1 (Del)(FB). At p. 19 of the said decision, it is observed as follows :

“We also cannot accept the submission of Mr. Jolly to the effect that only because in the assessment order, detailed reasons have not been recorded an analysis of the materials on the record by itself may justify the AO to initiate a proceeding under s. 147 of the Act. The said submission is fallacious. An order of assessment can be passed either in terms of sub-s. (1) of s. 143 or sub-s. (3) of s. 143. When a regular order of assessment is passed in terms of the said subs. (3) of s. 143 a presumption can be raised that such an order has been passed on application of mind. It is well known that a presumption can also be raised to the effect that in terms of cl. (e) of s. 114 of the Indian Evidence Act judicial and official acts have been regularly performed. If it be held that an order which has been passed purportedly without application of mind would itself confer jurisdiction upon the AO to reopen the proceeding without anything further, the same would amount to giving a premium to an authority exercising quasi-judicial function to take benefit of its own wrong.”

The learned senior counsel submitted that the above-extracted passage effectively answers the contention of the learned standing counsel for the IT Department. It is seen from the above judgment that the decision reported in (1998) 148 CTR (Guj) 62 : (1999) 236 ITR 832 (Guj) (supra) relied upon by the learned standing counsel for the IT Department has been dissented from. Hence, the said submission of the learned senior counsel merits acceptance as the contention of the learned standing counsel for the IT Department is liable to be rejected.

The learned senior counsel further submitted that only when there is a change of law or new materials come on record or information is received, the respondent can initiate the proceedings under s. 147 of the Act, but not otherwise. He further contended that by a mere fresh application of mind to the same set of facts the respondent cannot seek to reopen the assessment by initiating proceedings under s. 147 of the Act.

The power to reopen an assessment was conferred by the legislature not with the intention to enable the ITO to reopen the final decision made against the Revenue in respect of questions that directly arose for decision in earlier proceedings. If that were not the legal position it would result in placing an unrestricted power of review in the hands of the assessing authorities depending on their changing moods. [See CIT vs. Rao Thakur Narayan Singh (1965) 56 ITR 234, 239 (SC)].

In Phool Chand Bajrang Lal vs. ITO (1993) 113 CTR (SC) 436 : (1993) 203 ITR 456, 477 (SC), their Lordships have held while interpreting s. 147 as it stood in the asst. yr. 1963-64 : “An ITO acquires jurisdiction to reopen an assessment under s. 147(a) r/w s. 148 of the IT Act, 1961, only if on the basis of specific, reliable and relevant information coming to his possession subsequently, he has reasons, which he must record, to believe that, by reason of omission or failure on the part of the assessee to make a true and full disclosure of all material facts necessary for his assessment during the concluded assessment proceedings, any part of his income, profits or gains chargeable to income-tax has escaped assessment. He may start reassessment proceedings either because some fresh facts had come to light which were not previously disclosed or some information with regard to the facts previously disclosed comes into his possession which tends to expose the untruthfulness of those facts. In such situations, it is not a case of mere change of opinion or the drawing of a different inference from the same facts as were earlier available but acting on fresh information. Since the belief is that of the ITO, the sufficiency of reasons for forming the belief is not for the Court to judge but it is open to an assessee to establish that there in fact existed no belief or that the belief was not at all a bona fide one or was based on vague, irrelevant and non-specific information. To that limited extent, the Court may look into the conclusion arrived at by the ITO and examine whether there was any material available on the record from which the requisite belief could be formed by the ITO and further whether that material had any rational connection or a live link for the formation of the requisite belief.”

The abovesaid two judgments of the Hon’ble Supreme Court of India clearly lay down that the respondent cannot reopen the assessment order passed by mere change of opinion or by drawing a different inference from the same facts as were earlier available. Admittedly, in this case there is no change of law and no fresh material has come on record enabling the respondent to invoke the powers under s. 147 of the Act. The instant case is a case of mere change of opinion which does not provide jurisdiction to the respondent to initiate proceedings under s. 147 of the Act.

It is well settled that if a notice under s. 148 of the Act has been issued without the jurisdictional foundation under s. 147 being available to the AO, the notice and the subsequent proceedings will be without jurisdiction, liable to be struck down in exercise of writ jurisdiction of this Court. If “reason to believe” be available, the writ Court will not exercise its power of judicial review to go into the sufficiency or adequacy of the material available. However, the present one is not a case of testing the sufficiency of material available. It is a case of absence of material and hence the absence of jurisdiction in the AO to initiate the proceedings under s. 147/148 of the Act.

For the foregoing reasons, the writ petition is allowed. The impugned notice under s. 147 of the Act issued by the respondent relevant to the asst. yr. 2000-01 is quashed. No costs. Consequently the connected WPMP is closed.

[Citation : 287 ITR 25]

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