ITA No. 23 of 2011 -1- IN THE HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARH ITA No. 23 of 2011 Date of Decision: 7.7.2011 M/s Raj Woollen Industries ....Appellant. Versus Commissioner of Income Tax ...Respondent. CORAM:- HON'BLE MR. JUSTICE ADARSH KUMAR GOEL, ACTING CHIEF JUSTICE. HON'BLE MR. JUSTICE AJAY KUMAR MITTAL. PRESENT: Mr. S.K. Mukhi, Advocate for the appellant. AJAY KUMAR MITTAL, J. 1. This appeal has been preferred by the assessee under Section 260A of the Income Tax Act, 1961 (in short “the Act”) against the order dated 14.5.2010 passed by the Income Tax Appellate Tribunal, Delhi Bench “F”, New Delhi (hereinafter referred to as “the Tribunal”) in ITA No. 331/DEL/2009, relating to the assessment year 2002-03, claiming the following substantial questions of law:- “i). Whether, on the facts and circumstances of the case, the Tribunal was justified in confirming the very issuance of notice u/s 148 of the Income Tax Act, 1961, by the authorities below, as valid without appreciating the fact that all facts have been duly ITA No. 23 of 2011 -2- declared/disclosed in the return filed originally so that the issuance of notice will lead to change of opinion which is not warranted under any circumstances? ii) Whether, on the facts and circumstances of the case, the Tribunal was justified in confirming the very issuance of notice u/s 148 of the Income Tax Act, 1961, by the authorities below, as valid without appreciating the fact that all facts have been duly declared/disclosed in the return filed originally and even probed u/s 154 of the Income Tax Act, 1961 so that the issuance of notice will lead to change of opinion which is not warranted under any circumstances? iii) Whether, on the facts and circumstances of the case, the Tribunal was justified in confirming the very issuance of notice u/s 148 of the Income Tax Act, 1961, by the authorities below, as valid without appreciating the fact that all facts have been duly declared/disclosed in the return filed originally so that the issuance of notice on the basis of Audit Objection which is not warranted under any circumstances being against the trite law as held by Hon'ble Supreme Court of India in the case of PVS Bedies (P) Ltd. reported in 237 ITR 13 (SC), CIT v. Lucas TVS Ltd. reported in (2001) 17 SITC 289 (SC)and Indian & Eastern New Paper Society v. CIT (1979) ITA No. 23 of 2011 -3- 119 ITR 96 (SC)? iv) Whether, on the facts and circumstances of the case, the Tribunal was justified in confirming the very issuance of notice u/s 148 of the Income Tax Act, 1961, by the authorities below, as valid without appreciating the fact that assessee has returned Long Term Capital Gains on the sale of non- depreciable assets being land by applying Cost Inflation Index and after claiming exemption u/s 54EC of the IT Act which was as per the provisions of Income Tax Act? v) Whether the order of the Tribunal is perverse and against the provisions of law?” 2. Put shortly, the facts necessary for adjudication as narrated in the appeal are that the assessee-firm is engaged in the business of manufacturing carpet yarn and shoddy yarn and it filed its return of income on 30.10.2002 for the assessment year 2002-03 declaring an income of Rs.8,13,270/-. The said return was processed under Section 143(1) of the Act on 29.1.2003. On 3.11.2003, notice under Section 154 of the Act was issued for correction of the error apparent from record with the proposal to withdraw the indexation done on the capital gain having arisen on the sale of the land and also to withdraw the exemption under Section 54EC of the Act alleging the capital gain to be short term capital gain. Later on, the said notice was withdrawn and notice under Section 148 of the Act was issued to the assessee on 3.8.2006 on similar facts as that of notice under Section 154 of the Act. ITA No. 23 of 2011 -4- Thereafter, notice under Section 143(2) of the Act was issued to the assessee on 6.11.2006 and later on, the assessee was supplied a copy of the reasons recorded under Section 148 of the Act. The assessee was directed to justify its claim of long term capital gain on the transfer of depreciable assets instead of claiming short term capital gain. The Assessing Officer rejected the claim of the assessee and passed the assessment order dated 27.9.2007 under Section 143(3)/147 of the Act while assessing the income at Rs.17,13,551/-. Penalty proceedings under Section 271(1)(c) of the Act were also initiated against the assessee separately. Feeling aggrieved, the assessee filed an appeal before the Commissioner of Income Tax (Appeals) who vide order dated 2.9.2008 dismissed the appeal holding that there was no change of opinion of the Assessing Officer. Still dissatisfied, the assessee approached the Tribunal by way of an appeal. The Tribunal vide order dated 4.2.2009 dismissed the appeal holding that reopening cannot be said to be result of change of opinion as there was no formation of opinion in the first place as the processing of return was done under Section 143(1) of the Act. The Tribunal further held that the assessee's claim of the land which was sold, remained unsubstantiated and the same was contrary to the facts on record. Hence, the present appeal by the assessee. 3. We have heard learned counsel for the assessee. 4. Learned counsel for the assessee submitted that the initiation of proceedings for reassessment by issuance of notice under Section 148 of the Act was without jurisdiction as the same was based on change of opinion. According to the learned counsel, the assessee ITA No. 23 of 2011 -5- had disclosed the entire facts in the original return filed and, therefore, no undeclared income could be there. He relied upon the following judgments:- I. Berger Paints India Ltd. v. ACIT [2010] 322 ITR 369 (Cal); II. Commissioner of Income Tax v. Kelvinator of India Ltd. [2010] 320 ITR 561 (SC); and III. CIT v. Lucas TVS Ltd. [2001] 249 ITR 306 (SC). 5. Learned counsel also submitted that the notice was issued on an audit objection raised by the department which was not permissible. Further, it was argued by the learned counsel for the assessee that the revenue had taken recourse to Section 154 of the Act on the ground that the mistake apparent on the record existed. However, after dropping the said proceedings, action under Section 148 of the Act was initiated. On the strength of the judgment of the Calcutta High Court in Berger Paints India Ltd's case (supra), learned counsel urged that no proceedings under Section 148 of the Act could be initiated. Lastly, it was contended that the cost inflation index which was applied by the assessee on the sale of non-depreciable assets for determination of Long Term Capital Gain and thereafter claiming exemption under Section 54EC of the Act was in accordance with the provisions of the Act. There was no occasion for the revenue to initiate reassessment proceedings as no income had escaped assessment. 6. From the submission made by learned counsel for the assessee, the following issues emerge which are required to be adjudicated in this appeal:- ITA No. 23 of 2011 -6- (a) Whether the reassessment proceeding in the present case is based on change of opinion and its effect? (b) Whether an audit objection could form basis of initiation of reassesment proceedings? (c) Whether revenue could take recourse to reassessment proceedings after having dropped proceedings under Section 154 of the Act? (d) Whether Cost Inflation Index applied by the assessee on non-depreciable assets for ascertaining Long Term Capital Gain and exemption claimed under Section 54EC of the Act, resulted in any income escaping assessment? 7. We do not find any merit in the submission of the learned counsel for the assessee. Taking up first issue, the learned counsel for the assessee was unable to show that there was any assessment order which was passed by the revenue under Section 143(3) of the Act after scrutinizing the return filed by the assessee. He, however, admitted that the return was earlier processed under Section 143(1) of the Act. In such circumstances, in view of Explanation 1 to Section 147 of the Act, the disclosure made by the assessee did not amount to full and true disclosure. The question of change of opinion, thus, does not arise. 8. The judgments relied upon by the learned counsel do not advance the case of the assessee as none of those cases was relating to scrutiny cases under Section 143(3) of the Act wherein on the same material, the income was sought to be taxed which was earlier held to be non-taxable. ITA No. 23 of 2011 -7- 9. In respect of second issue, on a specific question being put to the learned counsel for the assessee, he was unable to show that any argument was raised before the Tribunal with regard to the initiation of proceedings under Section 148 of the Act on the basis of audit objection. In the absence of any factual basis set up by the assessee to substantiate this plea, the substantial question of law as claimed by the assessee do not arise from the order of the Tribunal. 10. Adverting to third issue, it may be noticed that it is well recognized that under Section 154 of the Act, all mistakes apparent on the face of the record can be rectified. The proceedings under Section 154 of the Act were dropped in the instant case as it was noticed that rectification proceedings were not possible unless there was mistake apparent from record. It has no where been envisaged that initiation of rectification proceedings and dropping thereof on technical grounds results in any vested right in the assessee or results in passing of an assessment order. Once that is so, taking recourse to Section 147 of the Act for reassessment of income having escaped assessment cannot be held to be beyond jurisdiction of the assessing authority. The judgment of Calcutta High Court in Berger Paints India Ltd's case (supra) relied upon by the learned counsel for the assessee, being on individual fact situation involved therein is of no assistance to the assessee. The issue, thus, cannot be adjudicated in favour of the assessee. 11. Lastly, delving into the issue noticed above as to whether any income had escaped assessment, it would be expedient to notice the observations of the Tribunal. ITA No. 23 of 2011 -8- 12. The Tribunal on analyzing the material on record had come to the conclusion that the income had escaped assessment. The relevant findings recorded by the Tribunal repelling the contentions of the assessee in its order are as under:- “6.8 Now in this we find that the assessment has been reopened as the Assessing Officer on perusal of the records noticed that the assessee has shown long term capital gain on the depreciable assets after applying Cost Inflation Index Method, after claiming exemption u/s 54EC of the IT Act instead of showing short term capital gain, as per the provision of Section 50 of the IT Act. We find that the above reason for reopening can be said to be a tangible material for reopening the assessment. Moreover, initial processing of the return was done u/s 143(1) of the IT Act which cannot be said to be an assessment order passed. Hence on the anvil of the above Apex Court decisions the reassessment is quite justified in this case. It is also settled law that rectification u/s 154 is not possible, unless there is mistake apparent from record. Initiation and dropping of processing u/s 154 also cannot be equated with passing of an assessment order. The decisions cited by the ld. counsel of the assessee are not applicable on the facts of the present case because the reason mentioned for reopening is quite cogent and tangible ITA No. 23 of 2011 -9- one. Furthermore, the reopening here cannot be said to be result of change of opinion as there was no formation of opinion in the first place, as the processing of return was done u/s 143(1) of the IT Act.” 13. Learned counsel for the assessee was unable to show any error or perversity in the findings so recorded by the Tribunal, as noticed hereinabove, and, therefore, no substantial question of law arises. Accordingly, there is no merit in the present appeal and the same is hereby dismissed. (AJAY KUMAR MITTAL) JUDGE July 7, 2011 (ADARSH KUMAR GOEL) gbs ACTING CHIEF JUSTICE