Allowed

M/S.Mallikarjuna Rice Industries v. the Income Tax Officer

Telangana HC15 Feb 2023ITTA/128/2006

Case brief

AI extract

What is this about?

High Court examined validity of reopening assessment based on change of opinion regarding Rural Development Cess liability. Court held that mere change of opinion does not justify reopening under Section 147 if the original mistake was apparent from the record.

What did the court decide?

Reopening of assessment under Section 147 based on change of opinion was held impermissible; appeal allowed against the Tribunal's order.

M/S.Mallikarjuna Rice Industries Vs the Income Tax Officer — Income Tax | Telangana HC (2023)

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IN THE HIGH COURT FOR THE STATE OF TELANGANA AT HYDERABAD

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WEDNESDAY ,THE FIFTEENTH DAY OF FEBRUARY TWO THOUSAND AND TWENryTHREE

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PRESENT

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THE HON'BLE THE CHIEF JUSTICE UJJAL BHUYAN AND THE HON'BLE SRI JUSTICE N.TUKARAMJI

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INCOME TAX TR IBUNAL APPEAL NO: 128 0F 2006

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Appeal Under Section 260 A of the tncome Tax Act, 1961 aggrieved by the order of the lncome Tax Appellate Tribunal, Hyderabad Bench _ B Hyderabad dated 28-07 -2005 in ITA No. 783 t Hydt 2oo4 ( Assessment year 1998-99 ) preferred against the order of the commissioner of rncome Tax ( Appeals )Vl, 12th Floor, Gagan Vihar, M.J. Road, Hyderabad dated 29-072004 in Appeat No. 0193M-2, NLG/ crr (A) -vu 2oo3-04 preferred against the order of the Income Tax Officer, Ward -2, Nalgonda, dated 31-.10_2003 in pAN / GIR No. M-584

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Between:

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tV/S.tVlallikarjuna Rice lndustries, Choutappal Mandal,Nalgonda

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...APPELLANT

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AND

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The lncome Tax Officer, Watd-2, Nalgonda The lTO., Ward_2, Nalgonda

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...RESPONDENT

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Counsel for the Appettant: SRI. A. V. A. SIVA KARTIKEYA

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Counsel for the Respondents: J V PRASAD (SC FOR INCOME TAX)

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The Court delivered the following: JUDGMENT

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Trrr llQMt!=E IHEcIlI! [. tCE U AL BII -<sup>.AN ANI)

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T II i-l=[()N'rtl.r . sR I J r,S',t',rcF N.Tt' K.\ RAI\U I I.T.T.A. No- 128 .tt 2006

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IIIDCMENT^{'PL.rtt'tttt t'/t'/,, ( t,Jt} I,'tt."^t ,t,t/^{Ittut t)}

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Hear llr4r. A.V,A.Siva Kanikeya, leamed cor'6el for the appellant; md Nk. J.V.Prasad, learned Srandirp; Cbunsel, Income Ta l)epanment ior the respondenr

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This rppi'al has Lreen preier-red by the rss3s,see as the appellant u rder Secticrr 260,4. oi rhe Incon.re Tar. Acc, 196L (briefly he' Act' lrereinafter) against tl:re order dated 28.C 'z.11005^{pmsecl bv ttre Incornr: Ta:< Appellate} Tribunal F yclerabad Bench^'ii. I Iyclerabad (brief tv 'Tribunal' hereinafter) in I.-[.A.No.Z8.l/t li.r]/2004 ior the assessmenr year 7998-l t9).

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Thou;h the :rp,peel \'as ;rc'lnritted on 14.()3,.20,16, no substantial prestion c,i l.ru'urrs l-renred. I{<rwcver, from the memo of : cpeel, u,e f ind th:rt lppellant has prr>posed the

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followrng t\ o questions ;rs srrbstenri;rl qLrestions of )aw

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a) Vherher on rhe facts and in rie circurnsances of rhe case, Tribunal is reopenins or asscssment J:::,:#'l;ti * Acr panicularly *,hen rhe original a55655m6ng q/as conrpleted under Section 143(3) of the Act ? b) Vhether the amount of Rural Development Gss reinrbuned by the Food Corporadon of India in

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:rccordance wirh the provisiors of Ap.Rural Dcvelopmcnr Ccss Act, 1996 .s atrade receipt and is ;r-sscssable as income rvhen the assqssee did not dcbit the liabiliry to pay cess to the p6cl_ Account ?

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First question is whether Tribunal was jwtified m sr.lsratnutg the reopening of assessment under Section 14g of the Act when rhe original assessment was completed under Secrion 1a-l(l) ol the Act.

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Appcllant befbre us rs a pannership firm and is an assessec rurcle r rhe Act. Appellant is engaged in the business of rice irrclrrstries. For rhe assessmen t year 199g-99, appellant had filed rcrrrrl of incomc which was subjected to scrutiny whereattcr, irssessnlcnr undcr Secrion 1a3e) ofthe Acr was conrpleted on 2J.Cg.1999 determining total income of the appellant .rr Its.4O,94l.OO. Subscquencly, ir was noticed by the

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assessing^{o['rc(]r that in the list oi creditors iil:d by the} appellant^{alt ng with the retr'rnro[ income' an rntot'nt o[} Rs.11.,30,465^{0() rvasshownas otrtstanc{ing Rural Dt"u':lopment} Crss^{(RD ( :s$, which is leviet-l untler the l':rdlr::r P:adesh} Rural^{Deve ol)nrcnt l\ct' 1996' fusessing offict':tookthe} view^{that e:} P()ndittlre^{on accorrnt oi RD O'ss is al'otablein} computing^{tl-e income o[ th:rt pt-cvious yL'ar lIIrvl.rchthe} amount^ls ctually^{paid. It rvas ior'rndin tlut c'rsetlrat liabiliry} rlss w,rs incurretl^{b,v the appellanrduring the} to pay^RT previor'rs 1^{:ar- relevant to the xssessnrentye'1r L91rl3'99 but the} said^{amor ot renuinedoutst;rrtclirrgi1s the xpPe lirnt lrad not} arne^{during thc 1.rn'r'iotts rc:rr' -l'llr' -':!on" tt was} paid^the shown^as a iiabiliry^{in thc [''rl'rrrcr' sheet' r\sst':'singofficer} took^the vi,ru' that^{this etrlotrtrr shotrlcl luve t't t'rr disallowed} and^add, d b;rck^{to the t()r-'ilitrcotlre oi tl-ie rs scs';ee u4rile} conrpleti rq the^{assessmctrttttrtle r Scctior i4ll'' t o1 the Act'} As this v.Snotdorrc'lsscsstlrgo[licerrsstre.lri<.ticetlnder 1li4 oi^{the Act on l6'01'lCClro ihe;rppe[ant} Section Lg to^{adcl the otrtst 'rritlir lg :llrlottrlt of U ) ( bss to the} ,zproposi

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tohl income. In response thereto, appellant filed reply contending that rhe amounr reccived towards RD Gss was neither credited to the profit and loss accounr nor claimed as expenditure but a separare account was mainrained and shown in the balance sheet. It was contended that this amounr was received from Food Crlporation ol'India to which appellant had sold the ricc.

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Considering rhe rcply of the appellanr, assessing officer dropped the proposal under Scction 154 of the Act. It was thereafter that noticc under Section 14g of the Act was issued following whiclr rhe assessrr]e nr was r-eopened and completed under Sectiort 147 of thc Act wtereaiter assessment order dated 31.10.200J uas passecl r.rndcr Section 1a3(3) of the Act read with Section 142 thcreol'. By the aforesaid order, the RD Cess amounr was adc-lcd to the income of the appellant.

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On the objcction raiscd by the appellant that all material facts were disclosc-d bcibri: the asscssing officer at the time of original assessllrcrlr:rnd the rt,l'orc, the reopening was sought to

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be done or the basis of change of opinion, assessing officer took tlre vi :q.that the reopening was being done ",,ithin for,rr yrars f rom .h: end ol the relevant assessment \ea., t[r(]re[ore, the questi< n of esc,rpement of income <lue r, r faiiure or omission o r lhe part of the assessee to disclose rr::rerial facts at thc tir a of original assessmenr, rhe reby :or fen-ing jurisdiction on the assessing officer to K'open :rssessme nr proceedingr , cloes not arise.

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On e tp,eal bef,tre the Commissioner o[ ]nr;onre Tax (Appeals)-I^r, Hydera.bad (briefly 'CIT(A)' here:n;rfter), the fist appt llate aurhority irle tlre rppcl ar e order dated 29.07 2(t04 held that reopening ol-asscssrr.rt'rrt r,,as done within four re.rn frorrr the end of the re lei,lnr :lsse ss nle r[ ].r;lr and after o[ mimng approval of the highe r arrthorirv ani :riter recordrng p. )[)er 1px5Cr[s. Therefore, thc senre u:rs rrph,'ld.

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()n fi rtrer app,:al before the Tribun,rl, the uier,", tal<e n by a'f(A) Ias affirmed by the Tribrrn:r rr./i .[re ordcr 'datcd 28.07, lCC5. Tribunal held that rs pel l:rpler:rion (2) ro

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Section 147 of the Act, even where an assessrrcnr is made, so long as the notice is issued under Section l4g of the Act within four years from the end of rhe relevant assessment )ear, if the income chargeable to tax is under assessed, ir has to be deemed that such income had escaped assessment and thus the reopening of assessmenr on such a ground is permissible. Accordingly, the view taken by the assessing officer, as affirmed bythe firsr appenate aurhoriry, was confirmed.

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Advening to rhe assessment order dated j 1.10.2003, it is evident therefrom that at the time of filing the onginal retum of income, appellant had disclosed rhe [ist ol creditors wherein the outstanding RD Gss was rrentioned and it was shown as a Iiabiliryin the balance sheer.

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Initially assessn1en[ procecciing was taken up for scrutmy and assessment orcler was passed under Section M3(3) of the Act. Subsequently-, a vie."v was taken by the assessing officerthat the orrrstanding RD. Crss is required to be treated as income of the appellant. .Ihe assessnrent

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order nas s ugh.t to be rectified under Section 15.1 ol tlre Act and accordi Lg[y, notic,: was issued V4ren this rvas :,bje':red to by the appe [art, procr:eding under Section f .i4 oi tLre Act w.rs dropped. I r,,a:; then:after thar the notice under S,t,ction 148 o[ the Act r ar issued following which assessrnent :roce edings uer-e r-rndert rk:n under Sectior. l4T of rhe Act.

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I{ever ne authorities have justified rec pr:nirrg oi as ses s nle nt )n the grc)und that the reopening u,as : rmecl our u.ithin fotrre:rn from the end of the relevant asse::;':nent ye ar; tlrertiore, t[ :re is no bar for the assessing office r t -- r-e,:sir rhe lSSeSSnient ,rrleri question whether the assessec h: rl mrclc l.r"rll clisclosure o^'rrot. would not be relevant in such a ( ir.ei (r,cn il tull clisclosu e is made. if the assessing officer is oi tlre opinion that lncom( chargeable to tax has escaped asscs;rrrc.nl, ir IS opeu !o lrirr tc, r,:open a concluded assessmenL.

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I l. Ve ar : :rfraid we cannot subscribe to sr-rch r r ieu trlie n lr). ttre rer.e, u() authority.

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This aspecr \Mas gone into by a Full Bench o[ the Delhi F[gh Court in CIT v. Kelvinator of India Ltd1, against q,{rich decision, revenue preferred appeal before the Suprerne Clun. In CIT v. Kelvinator of India Ltcl2, Suprenre (-bun extracred Section 147 of the Act, w,hich existed in the statute book prior to Direct Tax Laws (Amen<Jmenr) Act, 19gZ as well as Section I4l of the Act, which came inro rhe statute book after enactmenr of the Direct Tax Laus (Amendment) Act, L987. Thereafter, Supreme C_oun hcld thar reassessmenr has to be based on fulfillnrent of ce nain preconditions and if the concept of 'change of opinion' is ren.roved as contended by the revenue, then in the garb o[ r-eopcning rhc asscssr.nenr, a review would take place, which is nor perlrissible under the Act. Supreme Coun held as follows:

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On going through the chanses, qtLored above, made to Section 147 of ite Act. ,rc finc.l thaq prior to Direct Tax Lari,s (funcndnrcnt) Act, 1987, rcopening could be dorre rLnclcr thc above two condirions and fullilLncnt of rhc s.ricl

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l [2002] 25$ trR I (FB) ' [20r01 320 rTR s61 (SC)

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con litions irlone conferred^{jurisdiction on t n e} fus^'ssinq Officer to make^{a back assessmr':rr-,} br.rt nr Se ctio n 1,47 of the Act [with^{efla. t} fror r l" April, 1989], theyare^{given a go-by:rn,-l} onl cne corLdition^{has remained, rzi., tlr:.t} u4r, re the A;sessing Officer has^{reason t,r} bel, 'v,r that income has escaped^{assessm(ttlt.} cor ers itrrisdicdon to reopen the^{assessmr:.r t.} Th, re[ore, post-1't April, 1989, Poq€r^tc reo rer-L is much wider. F{owever, one^{needs l.c} giv, :r. schemiltic interyretation to the u'c ris "rc. scn to lxlieve" failhg which, we are afrril, Sec ion 147 would give artitrary^{pov/en to the} As: :sr;ing Officer to reopen assessments^{on tlte} bes s o:^"me're change of opinion^",u'[,ic:h ..ll l( r l)e /,'r'..' reason to reoPen.^{(/e must.t .'o} licc r in mind the conceptual difference between po' ci' to review and power.to^{reassess. '[1:e} fu: :s;in.g Officer has^{no power} to^{review, l.e} h.-rs tl'e power to reassess. But^{reassessment lt,rs} to b, based on fulfillment of^{certain pr,r-} cor Ci:ion and if^{the concept of "change} '.>f op rir>n^' is rerno.,ed,^{as contended on behelf} ':rf the Dep,rttment. then,^{in the ga6 of reopelr ng} rhe r;scsstlent,^{reviet' *ould ta[<eplace . (-\re} rnr;r- tllr;.tt tht' concept^{of "changeof opinic'n"} es rn ir"built test to^{checkabuse of pou'er lrv}

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the fusessing Officer. Hence, after 1,, April, 1989, Assessing Officer has power ro reopen, provided there is^,tangible material,, ro cornc ro the conclusion that there is escapement of income from assessment. Reasons must h.rve a Iive link wirh the formation of the belief. Our view ges suppoft from the changes rn:rde to Section 147 of the Acr, as quored herrinabovc. Under the Direcr Tax [aws (A.rnendrnent) Act, 1987, P^itarnent not only deleted rhe u,ords "reason to believe,, but also insened thc u,or cl "opinion" in Secdon 147 of the Act. IJoue vcr. on receipt of reprcsentations fiom rhe C-ompanies against omission of rhe u.ords "reason to believe", parliament reintroclLrced the said expression and deleted the t,orcl "opinion" on the ground that it rv.oulcl r.cst atbinry powers in the fusessing Officcr quote hereinbelow the relevant poniou olCircular No.549 dated 31., October, 19g9. rvhich reads as follows:

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"7.2 Amendnrent made by thc Anrcntlir:q fut, 1989, to rcintroducc rhc cr1,1..,,rx,11 'reason ro believc' in Sccriorr I{7.--.\ numbcr of representatiol.ls \rrlc rrccn.t,tl against the omission of the r,,.61115^.11.1., ,11 to believe' frorn Section i47 .utl tlu.ir

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substitLuion by the 'opinion' of lle Assersing Officer. It was pointed out rbar thc nrcruring of the expression,^'reaso:r ro lrelicvt h.rd been explained in a rrunr;,.'r o[ coun rulings in the past antl was c"n::l[ settlel and its omission from Section I4-7 r...ouli sive arbitrary powen to J re Asscssing Officer ro reopen la.sr .rsscs:inlents on mere change of opinit:-r. T<r rr lay rhese fean, the Amending ^.r.t, 1989, h.rs again amended Section 14,'to reintrodr-rcc the expression'has reason to [re[ie.e' ir place of the words 'for reasc,;'rs to lre rccorded by him in writing, is of rJie opinion'. Other provisions of the ;re w Scctit,n 1,17, however, remain the samr."

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In D: n',od:rr [I. Shah r.. Asst. CIT3, a Divi:;ion Bench oi rlIt'^(ir. ar:rt I ligh C,ourt took the view dra I c,nce a proceetlins trnder Section 154 of the Act is <lrr.rpped on objection r: si.d L', v rh,: asscssee, it is not open to thre ft)venLre to irriti,rtc p or:ecdings Lurcler Section 148 of the Acr..^()ujartrt I Iiqh^(irtnt rclcl es [ollous:

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' tJi ll R 77r

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"...Mistake apparenr from the record which has the effect of enhancing assessmenr ought to be rectified by resoning to this special and spedy procedure u,hen in the view of ,h. A"r.rrirrg Offrcer it is unnecessary ro rcsorr to reopening of the assessment. In the field of .hag"rblJ inclme escaping assessment, however, sectron 142 is very widely worded and rvould include even escapement due to any mistal<c in the assessment order. But, when even according to rhe Assessing Officer himself th",. i, . rnistake, apparent from the record as it exiss. commimed in the order of assessnrenr, which is rectifiable on the basis of the existing record under secrion 15a being a special provision nrade for the pupose, and that there is r_ro nced to rcsort to reopening of the assessnlcnt is contemplated by section 14g rcad with scctron 142 of the Act, rhen he musr rcsor1 ro the provisio n and cannot wantonly or ar_bitrarilv ;rnd wirhout valid reason reson to ..op.ni,rg of the asses5ment...

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Jhc function of the Assessing Officer .rcting urrder section 147 s noc lirnited, as urx{er scctron 154, rnerely ro rectifying the result u.hich nu1, havc been vitiated due to mistake :rpp,ucnr

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fro n the record. It s'ould therefore follow..hru in :r;c: of rnistake resulting in escapem:rrt, rvh :lr i,; the arel u,hcre both the provisi:rLs wo Lltt f,econr,: televant, the fusessine Off r<:,,rr ri,il h:rve to consider rvhether he was requrred by lr,, nature of escepement to reconsider ttre qur ;ri:rn of h<>u. lre ruould xcertain and asr r::;s inc, n,e rhat hes escaped assessment and reope n the ir-sse;snrenL or if that is not requrred tlr,:.r me: :l',. r,> recti.l-y rlie misrrken result on the b:uis of r re erjsting rccord. I[ he chooses to resofl tr) the I ormer, t. !. , secrion 147 reed uith secl orr 148 proceedings, he cannot lt,_. con pr'lkd ro rcsorr ro section 154 becaue tbat not lci inrpinge upon his subjective satisfact on rrrrd^,r section 117. But if he resorts c,:) scct crr 1-r.1 oh rlle glound thar the mistake ir the rnicr-rrpp.ucnr trour rlre record has resukr,:l in sc.rpernenr s'hich could be recr ified b,z erne r<linq the orcler :rnd enhancrng rh,:: .rsse s )enr. tlrt n he. on iinding that there is r,r r srrcl nristekc .lpp;lrtnr irorn the rccc,rr1 \'.u. rntrrLg recril icerion since thc vievr tal<en i, pleLr il'lc. cannor in rlrt, ,rbsence of any otlu:r. gror r( on tht' ltesis ol ri hiclr he has still reas:r: to x,lieye th.rt rhc income has escaperi ,lSSe sl't(,tlr. stJll 1'rroccedings again un(.(:r.

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section 147. If he finds thar there is no such misrake since the result was $/aranted from the record, there would be no occasion to amend the assessrnenr order. where the rectification could not be done on the ground that there wele two views possible or that there was discretion law{ully exercised, then the same will also be true even when the Assessing Officer sufts the proceedings under section 147 on the same rnterial because, that power cannot be invoked when there is only a mere change of ophion and in case where in rhe proceedings under section 154 it is found that whar was thought to be a misuke was not a mistale becaue that view was warranted or permissible from the existing record, then the same finding will trind the fusessing Officer *{ren trying to excrcisc powers under section 147. In such a case, it rvould be incumbent on the pan of the Asscssing Officer who had chosen to r€solt to section 154 to demonstrate why he is now for the same pupose resoning to section 147. 'flre ri: has to be some compelling reason in such a c.rse for him sd]l to believe that the income that uas the subiect-matter of rectification has escaped :Nscssmenr though that^q/as not due to any obviots rnismke bome out from the existing

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rr( )rl, u,hich could be rcctified urrer se<:ic,n 154. .........1t s,rll nor be op :n t() the fusessing Officer ro arbitr.rril,, ,tr o7.- 11,ln11 resc,ll to the provisions o[ s,.ction ,,t7 wl :t,: the process of rectificati()n ulder

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ser tion 154 f.rils on the merits.

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Upo , rlue consideration and rhorough eK.rrilnarion of

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the mater-i: .s on record, we are of the view thrt rl)r)pening of assessment ir, this c:rse was entirel)/ on account o[ ch;rnge of opinion b r.he assessing olficer. In tlre initia. :NS(,ssment proceeding ; rrnder Se ction lal(l) of the AcL, he haC a,:cepted the clrrim c I rht.appellant rhar rhe outstanding RI) Gss was a liability anr accorclinql), did not make rcldition of tl.re :;ame to the incomr ol the;rsressec. Asscssinq ollicr'r, u1;,rrr change of opinion, La,l sor.rght to rccti[), the ;iss('ssn1(]nr under Section 15 ol'thc r\ct btrt th;rt rv:rs qiven trp whe.n ol>jection was raisec^{'[-hcn'rrlter.} he h:rc] issucd rhc rr,rrice under Section 14 t,l thc A,-'t ;rr-rd caniec{ out the rr::rssc: s rner.t under Section l, 7 ol thc i\ct. In oru- opini<,n, t[,rs is clearly imperrniss rl,:.

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