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HIGH COURT OF MADAHYA PRADESH : AT JABALPUR
W.P.No.8173/2009
Satish Vishwakarma
Vs.
Asstt.Commissioner of Income Tax Circle 1(1),
Bhopal and another
&
W.P.No.8329/2009
Satish Vishwakarma
Vs.
Asstt.Commissioner of Income Tax Circle 1(1),
Bhopal and another
_______________________________________________
For petitioners:
Shri H.S.Shrivastava,Sr.Advocate with Shri
Abhijit Shrivastava, Advocate.
For respondents:
Shri Sanjay Lal, Advocate.
_______________________________________________
DB: Hon'ble Mr. Justice Arun Mishra&
Hon'ble Smt. Justice S.Shrivastava
Order passed on :13/04/2010
Whether approved for reporting :Yes/No.
O R D E R
As Per:- ARUN MISHRA,J.
These petitions pertain to validity of
the action initiated under Section 148 of the
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Income Tax Act for the assessment year 2004-
05 and 2005-06.
2. Question involved is same in both the
petitions. The facts are being referred to
from WP No.8173/2009. The petitioner is a
builder and colonizer. Petitioner filed
return for the assessment year 2004-05 on
30.10.2004. His case was subjected to the
scrutiny. Petitioner attended and produced
the books of account and other relevant
documents in connection with the claim of
deduction under Section 80-IB of the Income
Tax Act (hereinafter referred to as “the
Act”). All the necessary information with
respect to grant of exemption under Section
80-IB was submitted. Exemption was allowed
under Section 80-IB vide order dated
4.12.2006. Petitioner submitted that during
the course of assessment proceedings for the
assessment year 2006-07, the respondent no.1
had noticed that two of the houses sold
during the relevant accounting year covered
an area exceeding 1500 sq.ft.,hence the
provisions of exemption under Section 80-IB
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were not applicable. No definite information
was gathered by the respondents with respect
to the area being more than 1500 sq.ft.Thus,
reassessment proceedings initiated under
Section 148 of the Act by serving notice are
without jurisdiction. Petitioner filed reply
to the notice under Section 148 of the Act
and raised preliminary objections. The
preliminary objections have been rejected and
the assessing officer has evinced clear
intention to complete the assessment and
assess the income as proposed. Petitioner has
submitted that reassessment proceedings
initiated are without jurisdiction. It is
only on reason to believe that any income
chargeable to tax has escaped assessment,
then only the provisions of Section 147/148
of the Act could have been invoked. There
was no definite information collected with
respect to the house, hence, there could not
have been any reopening of the assessment.
The assessing officer had already assessed to
tax the income from housing having area more
than 1500 sq.ft. Provision of Section 80-IB
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of the Act has been misunderstood. Proceeding
could not have been initiated merely on
suspicion. There has to be existence of
reason to believe that any income chargeable
to tax has escaped assessment for which
definite information is necessary.
3. Return has been filed in WP No.8329/09
which has been adopted in WP 8173/09. The
respondents have contended that in
proceedings under Section 143(3) for
assessment year 2006-07, it is found that
assessee is not meeting the various
requirements of section 80-IB (10) of the
Act. Thus, assessing officer reopened the
case under Section 147 of the Act. For
attracting Section 80-IB (10) of the Act the
construction should be completed before
31.03.2008. The date of completion is to be
taken as the date on which completion
certificate was issued by the local
authority. Assessee did not receive any
completion certificate before 31.03.08. In
respect of assessment year 2006-07 it has
been noted that the assessee is not selling
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any constructed property to its customers
whereas all the sums received from the
customers are credited as construction
receipts. Registry for the land only is made.
The assessee merely acknowledges construction
receipts in its books of account for which no
registry is made. It was also found during
the test check measurement the built up area
of some of the houses as mentioned in Plot
B/7 Shankracharya Homes was more than 1500
sq.ft.as well as on Plot No.B/8. Thus,
petitioner was not entitled for the benefit
of Section 80-IB of the Act.Assessment
officer has reason to believe that deduction
claimed under Section 80-IB of the Act for
the assessment years were not available,
thus, the assessment has been rightly opened
under Section 147 of the Act. The power to
reopen assessment is much wider and can be
exercised even after the assessee has
disclosed fully and truly all the material
facts. The only condition for action under
Section 147 is that the AO should have
reasons to believe that the income has
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escaped assessment. Notice was in terms of
explanation 2(b) of Section 147 of the Act.
4. Shri H.S.Shrivastava, learned senior
counsel appearing with Shri Abhijit
Shrivastava,for petitioner has submitted that
merely the change of opinion is not enough,
there has to be existence of reason to
believe before reopening the assessment.
Learned senior counsel has further submitted
that an application was filed objecting as
to correctness of the measurement. When this
fact was disputed, fact ought to have been
ascertained before reopening the assessment.
He has relied upon decision of Apex Court in
Commissioner of Income Tax, Delhi vs.
Kelvinator of India Ltd. (2010) 187 Taxman
312 (SC), decisions of this Court in
Commissioner of Income Tax, Bhopal vs.
S.R.Construction, Bhopal 2002 (2) MPLJ 81, in
The Commissioner of Income Tax vs. Pithampur
Steels (P) Ltd. (2008) 11 ITJ 696 (MP) and
unreported decision in ITR No.33/1999
(Commissioner of Income Tax, Bhopal vs. M/s
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A.Yusuf Ali and Brothers, Pipariya, Itarsi)
decided on 24.9.2007.
5. Shri Sanjay Lal, learned counsel
appearing for Revenue has supported issuance
of notice for reopening the assessment under
Section 147 of the Act. He has submitted
that it is not a case of change of opinion,
certain material facts have come to the
knowledge and have been ascertained which
goes to indicate that income tax officers
have reason to believe that income has
escaped assessment.
6. The main question for consideration is
whether it is merely change of opinion or the
assessing officer had reason to believe to
initiate proceedings under Section 148 of the
Act. For initiating proceedings under Section
148 of the Act it is necessary as provided
under Section 148(2) of the Act that
assessing officer must record his reasons
before issuing any notice to make a
reassessment. Two conditions must exist; (1)
that the Income Tax Officer has reason to
believe that income, chargeable to income tax
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had been under-assessed; and (2) that he has
also reason to believe that such “under
assessment” had occurred by reason of either
(i) omission or failure on the part of an
assessee to make a return of his income (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. Existence of these conditions
is necessary as held by the Apex Court in
Modi Spinning and Weaving Mills Co.Ltd. vs.
The Income Tax Officer AIR 1969 SC 944 and in
Calcutta Discount Co.Ltd. vs. Income Tax
Officer, Companies District,I, Calcutta and
another AIR 1961 SC 372. The Apex Court
recently in Commissioner of Income-tax, Delhi
vs. Kelvinator of India Ltd. (supra) has
held that one must treat the concept of
“change of opinion” as an in-built test to
check abuse of power by the Assessing
Officer. After 1.4.89, Assessing Officer has
power to reopen, provided there is “tangible
material” to come to the conclusion that
there is escapement of income from
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assessment. Reasons must have a live link
with the formation of the belief. In Income-
Tax Officer, I Ward, Distt.VI, Calcutta and
others vs. Lakhmani Mewal Das (1976) 103 ITR
437 the Apex Court has laid down that the
duty which is cast upon the assessee is to
make a true and full disclosure of primary
facts at the time of the original assessment.
Once he has done that his duty ends. It is
for the Income-tax officer to draw the
correct inference from the primary facts. It
is no responsibility of the assessee to
advise the Income-tax officer with regard to
the inference which he should draw from the
primary facts. If an Income-tax officer draws
an inference which appears subsequently to be
erroneous, mere change of opinion with regard
to that inference would not justify
initiation of action for reopening
assessment.
In Raymond Woolen Mills Ltd. vs. Income-
Tax Officer and others (1999) 236 ITR 34
scope of interference in judicial review came
for consideration before their Lordship. It
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was laid down in determining whether there
was prima facie some material on the basis of
which the Department could reopen the case,
the sufficiency or correctness of the
material is not a thing to be considered at
this stage. The case of the Revenue was that
the assessee was charging to its profit and
loss account, fiscal duties paid during the
year as well as labour charges, power, fuel,
wages,etc. However, while valuing its closing
stock, the elements of fiscal duty and the
other direct manufacturing costs were not
included. This resulted in undervaluation of
inventories and understatement of profits.
This information was obtained by the Revenue
in a subsequent year’s assessment
proceedings. The commencement of reassessment
proceedings was held to be valid by the Apex
Court. In Calcutta Discount Co.Ltd. vs.
Income-Tax Officer, Companies District I,
Calcutta and another (1961) 41 ITR 191 the
Apex Court laid down that the Income-tax
officer who issued the notices under section
34 did not have any material before him for
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believing that there had been any material
non-disclosure by reason of which an under-
assessment had taken place. Thus, he had no
jurisdiction to issue the notices after the
expiry of four years from the end of the
assessment years,therefore, the Company was
entitled to an order directing the Income-tax
officer not to take any action on the basis
of the notices. In A.L.A.Firm vs.
Commissioner of Income Tax, Madras (1991) 2
SCC 558 the Apex Court has laid down in the
context of income escaping assessment what
can be the reasons to believe, “in
consequence of information.” In the context
of the facts that the law laid down in recent
decision of court was missed at the time of
original assessment but came to the knowledge
of ITO subsequently, it constitutes the
“information” for reopening the original
assessment. But mere change of opinion does
not constitute “information”. In
S.Narayanappa and others vs. The
Commissioner of Income-tax AIR 1967 SC 523
the Apex Court has considered the question of
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reopening of the assessment under Section
34(1)(a) of Income Tax Act. With respect to
“reason to believe” the Apex Court observed
that belief must be held in good faith, it
cannot be merely pretence. Existence of
belief is justiciable but not sufficiency of
grounds for belief.
7. In the light of principles laid down in
the aforesaid decisions, coming to the facts
of the instant case, it is apparent that when
assessment was being made for the year 2006-
07, facts came to the knowledge with respect
to previous assessment years also. Actual
measurement of the houses was conducted and
it was found that petitioner was not entitled
for applicability of the exemption provision
of Section 80-IB as certain houses exceeded
exemption limit of 1500 sq.fts. Petitioner
filed an application assailing the
measurement two days before the assessment
would have become barred by limitation. Thus,
it was not possible to go for the fresh
measurement, even otherwise first measurement
was made in presence of petitioner. Apart
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from that another ground which has been taken
for reopening assessment is that petitioner
is not selling any constructed property to
its customers and all the sums received,even
the receipts by selling the land were
included in the construction receipts whereas
registry for the land was only made by the
petitioner. Thus, the assessment made require
reopening. In our opinion, there was
existence of material for formation of
requisite reason to believe. It was based on
cogent reasons mentioned in the notice issued
under Section 148 of the Act. Thus, the
proceedings initiated are not amenable to
judicial review, it cannot be said in the
facts of the case that it was merely change
of opinion.
8. Petitioner’s counsel has also relied upon
decision of this Court in Pithampur Steels
(P) Ltd. (supra) in which Division Bench of
this Court has laid down in the context of
the fact that sales tax refund not treated as
income in regular assessment, there was
change of AO, new AO reopened assessment and
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added the amount, it was laid down that
reopening could not have been done on a mere
change of opinion. Facts are totally
different, it could not be said that there
was mere change of opinion in the instant
cases.
In Commissioner of Income Tax, Bhopal vs.
S.R.Construction, Bhopal (supra) this Court
quashed the notices of reopening of the
assessment issued under Section 148 of the
Act wherein the assessment was reopened on
the ground of costs of construction declared
by the assessee as per his books of accounts
appeared to be low. It was held by this Court
that assessment could not have been reopened
as all material facts were disclosed in the
return and there was no material with the
assessing officer for reopening purpose on
the ground that value was kept low. In the
aforesaid context, interference was made. In
the instant cases, there was cogent material
before the assessment officer to issue the
notice of reopening.
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9. Resultantly, we find the writ petitions
to be without merits, same deserve dismissal,
they are hereby dismissed. However, we leave
the parties to bear their own costs as
incurred of the petitions.
(Arun Mishra) (Smt.S.Shrivastava)
Judge. Judge.
Jk.