Case: Asian Paints Limited Vs. Deputy Commissioner of Income-Tax & Another

P.C.Rule. Returnable forthwith. Heard finally by consent of parties.2. The Petitioner by this petition challenges the notice issued under Section 148 of the Income-tax Act as also the order dated 14th May, 2008 rejecting his objection to the notice issued under Section 148.3. The facts that are relevant are that the Petitioner is a company duly registered under the Companies Act and is engaged in the business of manufacturing and sale of paints and related products. The Petitioner is regularly assessed to income-tax. This petition relates to the assessment year 2003-04. The Petitioner had on 20-11-2003 filed returns of income declaring income of Rs.227,72,31,850/- inter alia disclosing provision for estimated liability of arrears of wages payable to workmen at its Ankleshwars Plant and contribution by way of reimbursement of capital loss incurred by Provident Funds, Gratuity and Superannuation Funds. On 7-12-2005, a notice-cum-questionaire was issued to the Petitioner in the course of assessment proceedings investigating into aforesaid issue. On 15-12-2005, the Petitioner filed reply to the said notice. On 17-1-2006, the Petitioner submitted further information on the aforesaid two issues. On 14-3-2006, assessment order for the assessment year 2003-04 was passed in which deduction for the aforesaid two items of expenditure was allowed. On 27-12-2006, a notice under Section 148 was issued for the assessment year 2003-04. In the annexure accompanying the notice, it was stated that "It is seen that income chargeable to the tax has been under assessed by Rs.254.30 lakhs plus Rs.71.54 lakhs totalling at Rs.325.84 lakhs for which provisions of explanation 2(c)(i) of Section 147 are applicable."4. The notice under Section 148, therefore, related to the deduction allowed in relation to two items of expenditure referred to above. The Petitioner filed an objection to the notice issued under Section 148. It was stated in the objection that "The company had made a full and true disclosure of the material facts in the computation of income. Further the Assessing Officer had during the course of assessment proceedings directed the company to show cause vide letter dated 7th December, 2005 why the provision of Rs.71.34 lakhs being the estimated wage arrears liability should be allowed. Similarly, vide order sheet entry, the Assessing Officer had directed the Company to show cause why the contributions to the Provident etc. Funds towards reimbursement of capital loss suffered by them should not be disallowed. The Company had, vide letters dated 15th December, 2005 and 17th January, 2006, provided detailed explanation on why the said two amounts deserved to be allowed and it was only thereafter that the Assessing Officer had passed the order allowing the Companys claim for the said expenditure. It was claimed that in this situation, therefore, notice under Section 148 has been issued only because the Assessing Officer had changed his opinion. It was claimed that the proceedings under Section 147 cannot be taken up merely because there is change of opinion.5. The objection of the Petitioner has been disposed of by a reasoned order passed by the Dy.Commissioner of Income-tax dated 14th May, 2008. Perusal of that order shows that according to Dy. Commissioner of Income-tax all the relevant information was called by the Assessing Officer before making the assessment order and all the information was available on record, but inadvertently that information was not taken into account while framing the assessment and therefore, according to the Respondent No.1- the Dy.Commissioner, he has reason to believe that the income has escaped assessment.6. From the record, therefore, now it is clear that the Respondent No.1 is invoking the power under Section 147 in reopening the assessment because according to him he inadvertently did not take into account the material information which was available on record, when he made the assessment order. The question is, can power under Section 147 be exercised in this situation.7. We have heard the learned Counsel appearing for both sides. We have also gone through the judgments on which reliance was placed by the learned Counsel appearing for both sides.8. In the order rejecting the objection filed by the Petitioner to the Notice under Section 148, the Respondent No.1 has observed "Verification of assessment record reveals that the said details were called for but inadvertently the same were not taken into account while framing the assessment and therefore, it cannot be said that there is a change of opinion." According to the Respondent No.1, thus, the relevant material was available on record, but he failed to apply his mind to that material in making the assessment order. The question is, can the Respondent No.1 take recourse to provision of Section 147 for his own failure to apply his mind to the material which according to him is relevant and which was available on record. We find that this situation has been considered by the Full Bench of the Delhi High Court in its judgment in the case of Commissioner of Income-tax vs. Kelvinator of India Ltd., (2002) ITR (256) 1 and the Full Bench has observed thus:"The said submission is fallacious. An order of assessment can be passed either in terms of sub-section (1) of section 143 or sub-section (3) of section 143. When a regular order of assessment is passed in terms of the said sub-section (3) of Section 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 clause (e) of Section 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 Assessing Officer 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."9. It is clear from the observations made above that the Full Bench of the Delhi High Court has taken a view that in a situation where according to Assessing Officer he failed to apply his mind to relevant material in making the assessment order, he cannot take advantage of his own wrong and reopen the assessment by taking recourse to the provisions of Section 147. We find, ourself, in respectful agreement with the view taken by the Full Bench of the Delhi High Court.10. It is further to be seen that the Legislature has not conferred power on the Assessing Officer to review its own order. Therefore, the power under Section 147 cannot be used to review the order. In the present case, though the Assessing Officer has used the phrase "reason to believe", admittedly between the date of the order of assessment sought to be reopened and the date of formation of opinion by the Assessing Officer, nothing new has happened, therefore, no new material has come on record, no new information has been received, it is merely a fresh application of mind by the same Assessing Officer to the same set of facts and the reason that has been given is that the some material which was available on record while assessment order was made was inadvertently excluded from consideration. This will, in our opinion, amount to opening of the assessment merely because there is change of opinion. The Full Bench of the Delhi High Court in its judgment in the case of Kelvinator, referred to above, has taken a clear view that reopening of assessment under Section 147 merely because there is a change of opinion cannot be allowed. In our opinion, therefore, in the present case also, it was not permissible for the Respondent No.1 to issue notice under Section 148.

Decision reasoning: 1[ds]Perusal of that order shows that according to Dy. Commissioner ofall the relevant information was called by the Assessing Officer before making the assessment order and all the information was available on record, but inadvertently that information was not taken into account while framing the assessment and therefore, according to the Respondent No.1the Dy.Commissioner, he has reason to believe that the income has escaped assessment.6.From the record, therefore, now it is clear that the Respondent No.1 is invoking the power under Section 147 in reopening the assessment because according to him he inadvertently did not take into account the material information which was available on record, when he made the assessment order. The question is, can power under Section 147 be exercised in this situation.It is clear from the observations made above that the Full Bench of the Delhi High Court has taken a view that in a situation where according to Assessing Officer he failed to apply his mind to relevant material in making the assessment order, he cannot take advantage of his own wrong and reopen the assessment by taking recourse to the provisions of Section 147. We find, ourself, in respectful agreement with the view taken by the Full Bench of the Delhi High Court.10. It is further to be seen that the Legislature has not conferred power on the Assessing Officer to review its own order. Therefore, the power under Section 147 cannot be used to review the order. In the present case, though the Assessing Officer has used the phrase "reason to believe", admittedly between the date of the order of assessment sought to be reopened and the date of formation of opinion by the Assessing Officer, nothing new has happened, therefore, no new material has come on record, no new information has been received, it is merely a fresh application of mind by the same Assessing Officer to the same set of facts and the reason that has been given is that the some material which was available on record while assessment order was made was inadvertently excluded from consideration. This will, in our opinion, amount to opening of the assessment merely because there is change of opinion. The Full Bench of the Delhi High Court in its judgment in the case of Kelvinator, referred to above, has taken a clear view that reopening of assessment under Section 147 merely because there is a change of opinion cannot be allowed. In our opinion, therefore, in the present case also, it was not permissible for the Respondent No.1 to issue notice under Section 148.