ORDER
H.S. Sidhu, J.M.
1. This is an appeal filed by the assessee against the order of the learned CIT(A), Raipur dt. 7th Jan., 2005 for the asst. yr. 1998-99. The assessee has raised the following grounds in his appeal:
(1) On the facts and in the circumstances of the case, the learned CIT(A) erred in confirming the assessment order passed by the AO in consequence of reinitiating of proceedings under Section 147 r/w Section 148.
(2) Alternatively, on the facts and in the circumstances of the case, the learned CIT(A) erred in confirming the assessment order passed under Section 143(3) in consequence of an invalid notice under Section 147 issued without approval of Jt. CIT under Section 151(1).
(3) On the facts and in the circumstances of the case, the learned CIT(A) further erred in confirming the disallowance made by the AO on account of expenses claimed from incentive bonus at Rs. 1,46,638 and depreciation on car at Rs. 23,675.
(4) On the facts and in the circumstances of the case, the learned CIT(A) erred in directing the AO for charging interest under Sections 234A, B and 234D.
2. The brief facts of the case are that the assessee is a Development Officer of Life Insurance Corporation of India. He derives income by way of salary, incentive bonus, commission etc. The assessee filed the original return of income on 28th April, 1999 showing total income at Rs. 2,71,630 which was processed under Section 143(1)(a) vide intimation dt. 8th Sept., 1999. Later on, a notice under Section 148 dt. 29th Sept., 1999 was served on the assessee. In response to the above notice, another return of income was filed on 5th July, 2001 showing the same income as was originally returned. The assessment was completed vide order under Section 143(3) dt. 20th March, 2002 and the total income was assessed at Rs. 5,19,641 thereby adding additional conveyance allowance of Rs. 1,38,030 and incentive bonus after allowing 10 per cent of expenses at RS. 1,09,979. Against the aforesaid order, an appeal was filed before the learned CIT(A). The learned CIT(A) vide order dt. 4th Oct., 2002 annulled the order on the ground that the notice under Section 148 was issued without jurisdiction.
3. Thereafter, the learned AO has again issued notice under Section 148 on 31st Oct., 2002 which was served on the assessee on 6th Nov., 2002. In response to this notice, a detailed reply dt. 7th Dec, 2002 was filed before the AO on 10th Dec, 2002 objecting to the proceedings initiated under Section 148. Thereafter in response to letter dt. 16th Dec, 2002, the assessee has again filed a reply on 23rd Dec, 2002 requesting to drop the proceedings initiated under Section 147 r/w Section 148.
4. However, the AO completed the assessment under Section 143(3)/147 vide order dt. 15th March, 2004 in consequence of the proceeding initiated, after the order of the appellate authority annulling the assessment, under Section 147 r/w Section 148 and assessed total income at Rs. 4,41,940 thereby disallowing expenses claimed at Rs. 1,46,638 from incentive bonus and claim of depreciation on car at Rs. 23,675.
5. Before the learned CIT(A), the assessee firstly contended that the order passed under Section 143(3) by taking recourse to re-initiation of proceedings under section for making above disallowances was highly unjustified, arbitrary and not according to law. The assessee argued before the learned CIT(A) that the second reopening under Section 148 on the basis of the same reasons is invalid. The learned CIT(A), in this respect, held a view that this argument of the assessee is not accepted simply because the first reopening was not declared invalid on the basis of reasons recorded but on the basis of timing of issuance of notice under Section 148. He further observed that the plea of the assessee before the learned CIT(A) that notice under Section 148 could not have been issued if the AO had with him time available to issue notice under Section 143(2) was accepted by the CIT(A) and the issue of notice was quashed.
6. Secondly, it was submitted that the AO had drawn wrong inference from the order of the Hon’ble Supreme Court in the case of B. Chinnaiah v. CIT and Ors. Appeal No. 5896 of 1998 in the case of Shiviaj Bhatia v. CTT. Relying on the decision of the Hon’ble Punjab & Haryana High Court in the case of Vipan Khanna v. CIT , it was argued that the proceedings under Section 143(1)(a) had come to an end because the AO had not issued notice under Section 143(2). It was argued that failure on the part of the AO to issue notice under Section 143(2) within the prescribed time had resulted in completion of assessment and acceptance of returned income and that issue of notice under Section 148 thereafter can be only a situation of change of opinion. Considering the above arguments of the assessee, the learned CIT(A) held as under:
I have considered the argument. It is found that notice under Section 143(2) was to be issued within one year. During that very period, the AO had formed an opinion that income had escaped assessment, but the AO committed a mistake. Instead of issuing notice under Section 143(2), the AO issued notice under Section 148. The timing of issuing notice under Section 148 was incorrect because if an assessment is otherwise open to action under Section 143(2), Section 148 cannot be resorted. This mistake was set right by the Hon’ble CIT(A) and reopening was annulled. Thus, from the facts, it is found that there had been consistently same opinion of the AO that income had escaped assessment. Never was any opinion of the AO that returned income was to be accepted. In view of the above, there is no change of opinion. Moreover decision on the same point against the assessee by Hon’ble High Court in two cases and dismissal of SLP by Hon’ble Supreme Court filed against the decision of High Courts by the assessee is sufficient information for the AO to form an opinion for issue of notice under Section 148 and there is nothing wrong in that. There may be conflict of opinion because of different decisions of some other High Courts but if SLP is dismissed against the assessee, then that is sufficient material for the AO to form an opinion that income had escaped assessment. There is nothing wrong in that. In view of the above, this argument of the assessee is not accepted and it is clearly held there was no change of opinion of AO. On the contrary, there was a clear case of escapement of income by reasons of assessee making a claim which was found not allowable by Hon’ble High Courts and by Hon’ble Supreme Court.
7. The next argument of the assessee was that the AO had once completed the assessment under Section 143(3) and, therefore, notice under Section 148 second time could have been issued only with the approval of Jt. CIT. This argument of the assesses was also not accepted by the learned CIT(A) because the final fate of original assessment under Section 143(3) was of annulment which means order under Section 143(3) had never existed. In view of above, approval of Jt. CIT was not necessary to issuing a fresh notice under Section 148.
8. Considering all the arguments of the assessee, the CIT(A) finally came to the conclusion that the reopening was valid. He dismissed the appeal of the assessee on legal ground as well as on merits also.
9. Aggrieved by the order of the learned CIT(A), the assessee has filed the present appeal.
10. Before me, the learned Counsel for the assessee filed before me paper book containing 75 pages which contains copies of the orders of the lower authorities, copies of replies filed, copies of written submissions filed before the authorities below and the copies of various decisions relied upon by him in support of the claims. He briefly narrated the facts of the case and made the following submissions:
(1) No notice under Section 143(2) although time was available was issued but notice under Section 148 dt. 29th Sept., 1999 was issued and received on 4th Oct., 1999 during the pendency of a valid return and the CIT(A) vide his order dt. 4th Oct., 2002 has rightly cancelled the reassessment proceedings initiated in consequence of invalid notice.
(2) Fresh notice under Section 148 was issued on 31st Oct., 2002 but it was issued without obtaining the approval from Jt. CIT as per Section 151(1) of the IT Act.
(3) It is also submitted that the AO issued fresh notice under Section 148 to circumvent and/or to defeat the effect of the appellate order passed by the CIT(A) dt. 4th Oct., 2002 annulling the reassessment.
(4) The learned AO has wrongly inferred from the decision of the Hon’ble Supreme Court in the case of Shiviaj Bhatia and B. Chinnaih (supra) wherein it was held that “…argument must be left open to be considered in an appropriate case where a question or questions in that regard have been referred” and hence, he submitted that the disputed matter was not adjudicated by the Hon’ble Supreme Court and left open for appropriate cases.
(5) Reasons recorded were communicated and it shows change of opinion because earlier 10 per cent was allowed as deduction from incentive bonus.
(6) That in the original return filed on 28th April, 1999, all the material facts relating to computation of total income were disclosed by the assessee.
(7) He submitted that the expenses were incurred for securing more business for LIC of India to earn incentive bonus and car was used for this purpose and, therefore, he prayed for deletion of the disallowances.
He placed reliance on the following case laws in support of the claim of the assessee:
1. CIT v. Kalvinator of India Ltd. (2002) 174 CTR (Del) (FB) 617 : (2002) 256 ITR 1 (Del) B)
2. Jindal Photo Films Ltd. v. Dy. CIT
3. Krishna Metal Industries v. H.M. Algotar, Asstt. CIT
4. Associated Stone Industries (Kotah) Ltd. v. CIT
6. CIT v. Paul Merchants Ltd. (2003) 179 CTR (Del) 357
7. R.R.B. Securities Ltd. v. Jt. CIT (2004) 91 TTJ (Del) 883 : 3 SOT 13 (Del)
8. Simit Gems 4 SOT 955 (Mumbai)
9. CIT v. Juhi Metal Works
10. Jagatpal Jute & Industries Ltd. 1 SOT 210 (Kol)
11. Dr. Sanjay Tiwari in ITA No. 14/Nag/2002, dt. 12th May. 2005
12. Parashuram Pottery Works Co. Ltd. v. ITO
13. Sita World Travels India Ltd. v. CIT
14. Anil Kumar Mulani 1 TTJ 463 (Ind).
He, therefore, submitted that the orders passed by the lower authorities are not in accordance with law and it is prayed to cancel/annul the impugned order.
11. On the other hand, the learned Departmental Representative strongly relied on the orders of the lower authorities.
12. I have considered the rival submissions. I have carefully gone through the orders of the lower authorities. I have also deliberated upon the case laws cited by the learned Counsel for the assessee. The main thrust of the arguments of the learned Counsel for the assessee is that the learned AO assumed jurisdiction under Section 147 due to change of opinion which is not according to law and the learned CIT(A) erred in confirming the assessment order passed under Section 143(3) in consequence of an invalid notice under Section 147 issued without approval of Jt. CIT under Section 151(1). To appreciate the dispute involved in this case properly, it is necessary to elaborate the factual matrix of the case.
13. In the original return filed on 28th April, 1999, all the material facts relating to computation of total income were disclosed by the assessee. This return was processed under Section 143(1)(a) of the Act vide intimation dt. 8th Sept., 1999. Later on, a notice under Section 148 dt. 29th Sept., 1999 was served on theassessee in response to which the assessee filed the return on 5th Jan., 2001 under protest showing total income at Rs. 2,71,630 as was originally filed. The AO has recorded the following reasons for issue of notice under Section 148 of the Act:
29th Sept., 1999. Return for income was filed by the assessee on 15th April, 1999 showing a total income of Rs. 2,71,630. This included incentive bonus of Rs. 3,66,594 out of which Rs. 1,46,638 has been claimed as a deduction towards expenses. Since these expenses are not allowable (having regard to the decision of Hon’ble Supreme Court in Civil Appeal No. 7467, 7498 of 1995 in the case of B. Chinniah v. CIT and Civil Appeal Nos. 5896, 5897 of 1998 in the case of Shinaj Bhatia v. CIT and this gross incentive bonus is part of salary, I am of the opinion that income chargeable to tax has escaped assessment. In order to bring it to tax issue notice under Section 148. It is further noticed that deduction of conveyance allowance has been claimed in excess.
The assessee objected to the initiation of reassessment proceedings by the AO in the course of the reassessment proceeding but the assessment was completed under Section 143(3) vide order dt. 20th March, 2002 without considering the objections of the assessee and the income was determined at Rs. 5,19,641 due to disallowance of claim of expenses out of incentive bonus. This action of the AO was challenged before the learned CIT(A), who vide his order dt. 4th Oct., 2002 annulled the assessment by holding as under:
In view of the judicial pronouncements on this point, the action of the AO in initiating the reassessment proceedings is contrary to law and notice under Section 148 dt. 29th Sept., 1999 is held to be invalid. As the notice under Section 148 issued by the AO is held to be without jurisdiction, thus the subsequent reassessment proceedings are also void ah initio. In the result, the assessment is annulled.
After this order of the learned CIT(A) annulling the assessment, the AO issued another notice under Section 148 dt. 31st Oct., 2002 and the reasons recorded for the second time are as under:
Assessee has filed return of income on 15th April, 1999 showing income of Rs. 2,71,630 which includes incentive bonus of Rs. 3,66,594. Assessee has claimed deduction of Rs. 1,46,638 against incentive bonus as expenses. The expenses are not allowable in view of the decision of Hon’ble Supreme Court in Civil Appeal Nos. 7467, 7498 of 1995 in the case of B. Chinnaiah v. CIT and Civil Appeal Nos. 5896, 7897 of 1998 in the case of Shivraj Bhatia v. CIT. The gross incentive bonus is part of salary and no expenses are allowable.
I have reason to believe that part of income has escaped the assessment within the meaning of Section 147 of the IT Act (specially Clause (c) to Expln. 2 thereof) read with decision of Praful Chunilal Patel v. M.J. Makwana Asstt. CIT .
Issue notice under Section 148 calling for return within 30 days.
14. From the perusal of the reasons recorded in both the notices, it is seen that no new information came into possession of the AO to hold a belief that he has reason to believe that part of income has escaped the assessment within the meaning of Section 147 of the IT Act. There is no material change in the reasons recorded by the AO for reopening the assessment for second time. The reasons recorded for issuing second notice under Section 148 are basically same with the reasons as recorded for issuing first notice under Section 148 of the Act. The power conferred under Section 147 is no doubt very wide. But at the same time it cannot be stated to be a plenary power. The assumption of jurisdiction under Section 147 must be on existence of material before the authority. Section 147 does not confer power of review. Section also does (not) empower the authority to assume jurisdiction under Section 147 to circumvent and/or to defeat the effect of the appellate order. In this case, on the basis of same reasoning on which the earlier reassessment proceedings initiated by the learned AO and reassessment framed in consequence thereof was annulled by the CIT(A) vide his order dt. 4th Oct., 2002 on the ground that the notice under Section 148 was issued without jurisdiction, the AO issued another notice under Section 148 to reopen the annulled assessment. In the case of Anand Sammt & Co. v. ITO , it has been held as under:
that the proposed reassessment was in negation of the principles of finality of the decision of the Tribunal and the implied bar against the initiation of reassessment proceedings on the same set of facts twice over. It was not open to the AO to go on resorting to reassessment proceedings piecemeal on a fresh appraisal of the material and evidence that comes into the light during the search. Accordingly, the notice under Section 148 was liable to be quashed.
The ratio of the above decision is applicable to the facts of the present case since in the present case, the second notice under Section 148 of the Act was issued after the decision of the appellate authority in order to circumvent or to defeat the effect of the appellate order passed by the CIT(A) dt. 4th Oct., 2002.
15. In the case of Parashuram Pottery Works Co. Ltd. v. FTO (supra), the Hon’ble Supreme Court held that “the policy of law is that there must be a point of finality in all legal proceedings, that stale issues should not be reactivated beyond a particular stage and that lapse of time must induce repose in and set at rest judicial and quasi judicial controversies as it must be in other spheres of human activity.”
The essential principle as to the rule of finality of an assessment is that the AO cannot change his mind and try to reopen a closed state of affairs.
16. It is also seen that the first notice under Section 148 was issued on the basis of the order of the Hon’ble Supreme Court in the case of B. Chinniah (supra) and in the case of Shivraj Bhatia (supra) and the second notice under Section 148 after annulment of the assessment order by the appellate authority was also issued on the basis of the same order of the Hon’ble Supreme Court. No new facts or material came into the possession of the AO. I have gone through the order of the Hon’ble Supreme Court in the case of Shivraj Bhatia and the order of the Hon’ble Supreme Court reads as under:
Having regard to the question that was referred, we cannot permit in these appeals the argument that incentive bonus is not salary and expenditure other than that mentioned in Section 10 cannot be allowed as a deduction thereupon. That argument must be open to be considered in appropriate cases where a question in that regard have been referred.
The order of the Hon’ble Supreme Court in the case of B. Chinniah (supra) is also to the same effect. On going through the orders of the Hon’ble Supreme Court, I find substantial force in the argument of the learned Counsel for the assessee that the disputed matter with regard to deduction from an incentive bonus has not been adjudicated and left open to be considered in an appropriate case where the question or questions in that regard have been referred. It is also pertinent to note that the assessee claimed Rs. 1,46,638 being 40 per cent as expenses out of receipt of incentive bonus but only 10 per cent was allowed by the AO. In my considered view, mere fresh application of mind to the same set of facts or mere change of opinion does not confer jurisdiction under Section 147. There are several judicial pronouncements to support this view. In the case of Jindal Photo Films Ltd. (supra), it has been held that it is a case of mere change of opinion which does not provide jurisdiction to the AO to initiate proceedings under Section 147. In the case of Govinda Choudhaiy & Sons v. ITO , it has been held that it is not open to the AO to act under Section 147 on a mere change of opinion on the same set of facts and laws. In the case of ITO v. Nawab Mir Barkat Ali Khan Bahadur , it has been held that second thoughts on the same material does not warrant the initiation of reassessment proceedings. The decisions relied upon by the assessee’s counsel also supports the case of the assessee in this regard.
17. In view of the above discussion, I am of the considered opinion that the second notice issued under Section 148 to reopen the annulled assessment to circumvent or to defeat the effect of appellate order on mere change of opinion is not valid in law and the reassessment made in consequence of invalid notice issue for second time cannot be said to be in accordance with law. I, therefore, hold that the CIT(A) erred in law to uphold the reassessment order made in consequence of invalid notice issued for a second time under Section 148.
18. I also find substantial force in the argument of the learned Counsel for the assessee that the fresh notice under Section 148 was issued on 31st Oct., 2002 but it was issued without obtaining the approval from Jt. CIT as per Section 151 of the IT Act, 1961. The provisions of Section 151(1) of the Act reads as under:
151(1)In a case where an assessment under Sub-section (3) of Section 143 or Section 147 has been made for the relevant assessment year, no notice shall be issued under Section 148 by an AO who is below the rank of Asstt. CIT or Dy. CIT unless the Jt. CIT is satisfied on the reasons recorded by such AO that it is a fit case for the issue of such notice.
In view of the above provisions, it is mandatory on the part of the AO to obtain the approval of the Jt. CIT which he failed to do so in the present case. Hence second notice issued on 31st Oct., 2002 under Section 148 without obtaining the approval of the Jt. CIT as mandated by the provisions of Section 151(1) is also not in accordance with law and the same is held to be invalid on this ground. I do not agree with reasoning of the learned CIT(A) that because the final fate of original assessment under Section 143(3) was of annulment which means order under Section 143(3) had never existed, the approval of Jt. CIT was not necessary for issuing a fresh notice under Section 148.
19. In view of the above factual and legal position and the discussions made hereinabove. I, therefore, hold that the learned CIT(A) erred in confirming the assessment order passed by the AO in consequence of an invalid notice under Section 147 issued without approval of Jt. CIT under Section 151(1). I, therefore, quash the order of the learned CIT(A) upholding reassessment made by the AO in consequence of invalid notice issued on 31st Oct., 2002 under Section 148.
20. Since I have quashed the order of the learned CIT(A) upholding the reassessment proceedings initiated on the basis of invalid notice under Section 148 issued on 31st Oct., 2002, I do not think it necessary to adjudicate upon on the other grounds of appeal on merits.
21. In the result, the appeal of the assessee is allowed.