(Per: HONOURABLE MS.JUSTICE HARSHA DEVANI) 1. By these petitions under Article 226 of the Constitution of India the petitioner has challenged the notice issued by the respondent under section 148 of the Income Tax Act, 1961 (hereinafter referred to as “the Act”) seeking to reopen the petitioner’s assessment for assessment year 1997-1998.
2. Since both the petitions involve common questions of facts and law, the same were taken up for hearing together and are disposed of by this common judgment. For the sake of convenience, reference is made to the facts as appearing in Special Civil Application No.7819/2001.
3. The petitioner, a cooperative society filed its return of income for assessment year 1997-1998 on 31.10.1997 declaring total income of Rs.2,13,38,110/-. The case was selected for scrutiny and ultimately assessment came to be framed under section 143(3) of the Act at an income of Rs.5,31,02,150/-. Subsequently by the impugned notice which was received by the petitioner on 2.5.2011, the assessment for the said year is sought to be reopened. By an affidavit dated 14.8.2012, respondent has placed on record a copy of the reasons recorded for initiating action under section 147 of the Act which reads as follows :
“In the instant case, the regular assessment was completed under section 143(3) on 22.2.2000 determining the income at Rs.5,31,02,150/-. In the assessment, the claim of Rs.1,94,61,141/-
being 25% of the profit transferred to reserve fund was allowed as revenue expenditure, keeping in view of the appellate decision in its own case, in earlier years. However, during the course of hearing before the ITAT,'C' Bench, Ahmedabad, relating to A.Y.s 1984-85, 1987-88 and 1988-89 in the case of the assessee are based on the M.P. High Court decision in the case of Keshkal Co-operative Marketing Society Ltd. 165 ITR 437 which is based on Madhyapradesh Co-operative Act. AS per M.P. Co.op Act the reserve fund cannot be utilised for the purpose of business of the society. However, in Gujarat Co.op Act the reserve fund cannot be utilised for the purpose of business of the society. However, in Gujarat Co.op Act, section 67 is very clear which authorises the assessee to use the reserve fund for the purpose of business of the society and thus both the Acts of M.P. and Gujarat are distinguishable. Thus, in terms of the Gujarat Co-op Act, the assessee society is having control over the reserve fund, and hence it is not entitled to deduction in respect of the amount being 25% of the profit transferred to reserve fund as revenue expenditure.
In view of above, I have reason to believe that the income to the extent of Rs.1,94,61,141/- chargeable to tax has escaped assessment as envisaged in clause(c)(i) of explanation (2) to section 147 of the I.T. Act, 1961.
Issue notice under section 148 of the I.T. Act, 1961.”
4. Mr. B.S. Soparkar, learned counsel for the petitioner submitted that the reopening of assessment under section 147 of the Act is based on a mere change of opinion and as such the assumption of jurisdiction on the part of the Assessing Officer is invalid. Elaborating upon the said submission it was pointed out that in the reasons recorded itself the Assessing Officer has observed that the claim of Rs.1,94,61,141/- was allowed as revenue expenditure keeping in view the earlier decision in the petitioner’s own case.
Referring to the notice issued by the respondent calling upon the petitioner to furnish certain details, it was pointed out that vide item No.3 thereof, the petitioner was called upon to furnish documentary evidence in respect of Rs.1,94,61,141/- on account of the amount transferred to reserve fund. The petitioner was also asked to furnish the working of net income as per Profit and Loss Account as well as further explanation whether all the terms and conditions of maintaining such reserve fund are fulfilled by the society. Referring to the reply dated 19.8.1999 furnished by the petitioner wherein the petitioner had explained the said query, it was submitted that pursuant to the said query, the petitioner had given its explanation thereto which had been accepted by the Assessing Officer and the claim of Rs.1,94,61,141/- being 25% of the profit transferred to reserve fund had been allowed as revenue expenditure. It was submitted that once the Assessing Officer had consciously applied his mind to the claim in question, it was not permissible for him to reopen the assessment on a mere change of opinion.
5. Opposing the petitions, Mr. K. M. Parikh, learned senior standing counsel for the respondent submitted that after the assessment came to be framed under section 143(3) of the Act, the Assessing Officer had come across information that the decision of the Madhya Pradesh High Court in the case of Keshkal Co- operative Marketing Society Ltd. v. Commissioner of Income-tax, 165 ITR 437, on the basis of which the claim of the petitioner had been allowed, was rendered in the context of provisions of Madhya Pradesh Cooperative Act, wherein the provision in respect of reserve fund was different from section 67 of the Gujarat Cooperative Societies Act which authorizes the assessee to use the reserve fund for the purpose of the business of the society. It was submitted that the decision of the Madhya Pradesh High Court having been wrongly applied to the facts of the present case, the reopening of assessment is fully justified.
More so, when there is no discussion in respect thereof in the assessment order made under section 143(3) of the Act.
6. From the facts as emerging from the record, it is apparent that the petitioner had made a claim of Rs.1,94,61,141/- being 25% of the profit transferred to reserve fund as revenue expenditure. In the context of claim made by the petitioner, the Assessing Officer had raised a specific query in the notice dated 8.7.1999 calling upon the petitioner to furnish certain details. As noticed earlier, specific details had been called for from the petitioner in respect of the above-referred amount transferred to the reserve fund along with the working of the net profit as per Profit and Loss Account as well as to explain as to whether all the terms and conditions for maintaining such reserve fund were fulfilled by the society. In response to such query, the petitioner replied as under:
“(ii) As regards amount transferred to reserve fund, we invite your attention to Note no.6 which is reproduced hereunder:
“Deduction is claimed for Rs.1,94,61,141/- being the amount transferred to Reserve Fund A/c. as per the Gujarat State Co-operative Societies Act as the said amount does not comprise income of the society because the same having been diverted under the provisions of Sec.67 of the Societies Act and can only be utilized in such manner and on such terms and conditions as may be laid down by the Register in this behalf. As such the said amount is not available for the use of the assessee at its option and it loses control over the said amount. Therefore, it is submitted that deduction is admissible for the amount set apart for statutory reserve as per the provision of the Sec. 28 and/or 37 of the I.T. Act as the same having been diverted by over riding title. In this connection the Federation also relies on the M.P. High Court decision in the case of Keshkal Co-operative Marketing Society Ltd. v/s. CIT 165 437. It is further stated that in earlier year similar claim has been allowed by CIT(A).
We may state that in the earlier year prior to Asst. Year 1995-96, the disallowance was made. However, the same were deleted by the CIT(A). The order of the CIT(A) was confirmed by the Tribunal and decision of the Tribunal has been accepted by the department and no addition has been made in the regular assessment made for Asst. Year 1995-96. A copy of ITAT Order for A.Y. 1989-90 is enclosed herewith for your ready reference.
We may state that we have complied with all the terms and conditions for maintaining such reserve funds. The working of net profit is already available in the annual report submitted along with the return of income.
In view of above contribution to education fund and transferred to reserve fund should be allowed as deduction, immediately preceding year is enclosed herewith for your ready reference.”
7. True it is that there is no discussion as regards the above claim in the assessment order. Nonetheless, the record clearly indicates that the Assessing Officer during the course of assessment proceedings had raised a specific query in relation thereto and after considering the reply by the petitioner had allowed such claim. Thus, it can be safely presumed that on the basis of the reply submitted by the petitioner in response to the query raised by him, the Assessing Officer was satisfied that such deduction was allowable as revenue expenditure and had accordingly allowed the claim. Besides, as can be seen from the reasons recorded by the respondent, who is the very same Assessing Officer who had framed the assessment under section 143(3) of the Act, it has been specifically recorded therein that in the assessment, the claim of Rs.1,94,61,141/- being 25% of the profit transferred to reserve fund was allowed as revenue expenditure keeping in mind the appellate decision in its own case in earlier year. Thus, evidently, the Assessing Officer had consciously allowed the deduction in respect of the amount of Rs.1,94,61,141/- being 25% of the profit transferred to the reserve fund as revenue expenditure. Therefore, the reopening of assessment in respect of such deduction is apparently based upon a mere change of opinion.
8. At this juncture it may be germane to refer to the principles propounded by the Supreme Court in Commissioner of Income-tax v. Kelvinator of India Ltd. (supra). The court held thus:
“5. On going through the changes, quoted above, made to Section 147 of the Act, we find that, prior to the Direct Tax Laws (Amendment) Act, 1987, reopening could be done under the above two conditions and fulfilment of the said condi- tions alone conferred jurisdiction on the as- sessing officer to make a back assessment, but in Section 147 of the Act (with effect from 1-4- 1989), they are given a go-by and only one con- dition has remained viz. that where the assess- ing officer has reason to believe that income has escaped assessment, confers jurisdiction to reopen the assessment. Therefore, post-1-4-1989, power to reopen is much wider. However, one needs to give a schematic interpretation to the words “reason to believe” failing which, we are afraid, Section 147 would give arbitrary powers to the assessing officer to reopen assessments on the basis of “mere change of opinion”, which cannot be per se reason to reopen .
6. We must also keep in mind the conceptual dif- ference between power to review and power to re- assess. The assessing officer has no power to review; he has the power to reassess. But reas- sessment has to be based on fulfilment of cer- tain precondition and if the concept of “change of opinion” is removed, as contended on behalf of the Department, then, in the garb of reopen- ing the assessment, review would take place.
7. One must treat the concept of “change of opinion” as an in-built test to check abuse of power by the assessing officer. Hence, after 1- 4-1989, the assessing officer has power to re- open, provided there is “tangible material” to come to the conclusion that there is escapement of income from assessment. Reasons must have a live link with the formation of the belief.”
9. In the present case the reopening of assessment being based on a mere change of opinion, the above decision would be squarely applicable. Under the circumstances, the assumption of jurisdiction on part of the Assessing Officer under section 147 of the Act is not valid.
10. The aforesaid view is fortified by a recent decision of this court in the case of Gujarat Power Corporation Ltd. v. Assistant Commissioner of Income Tax rendered on 30.07.2012 in Special Civil Application No.29792 of 2007 wherein the court had occasion to deal with the question as to when during the course of original assessment, the Assessing Officer had examined a certain claim put forth by the assessee, raised queries with respect to such claim, elicited response from the assessee with respect to the claim and thereafter at the time of framing assessment, did not reject the claim without recording any reasons, could it be stated that the Assessing Officer had formed an opinion and that therefore, any attempt on his part to reopen such an assessment would amount to a mere change of opinion. The court held that if the Assessing Officer, after scrutinizing the claim minutely during the assessment proceedings, does not reject such a claim, but chooses not to give reasons for such a course of action that he adopts, it can hardly be stated that he did not form an opinion on such a claim. If a claim made by the assessee in the return is not rejected, it stands allowed. If such a claim is scrutinized by the Assessing Officer during assessment, it means he was convinced about the validity of the claim. His formation of opinion is thus complete. Merely because he chooses not to assign his reasons in the assessment order would not alter this position. It may be a non- reasoned order but not of acceptance of a claim without formation of opinion. Any other view would give arbitrary powers to the Assessing Officer.
11. In the result, the petitions succeed and are accordingly allowed. The impugned notices seeking to reopen the petitioner’s assessment for assessment years 1997-1998 and 1998-1999 are hereby quashed and set aside. Rule is made absolute accordingly in each of the petitions, with no order as to costs.
(Akil Kureshi,J.) (Harsha Devani,J.)
(raghu)