Income-tax---

----Reassessment---Condition precedent---Reason to believe income has escaped assessment ---Assessee-company manufacturing photo films, an article placed under Sched. XI ---Manufacurers of photo films not entitled to deduction under S.80-1 because item fell under Sched. XI ---ITO reopening assessment and withdrawing deduction granted earlier---Between date of orders of assessment sought to be reopened and date of forming opinion by ITO nothing new happened---No change of law, no new material came on record and no information received---Mere fresh application of mind by same ITO to same set of facts ---Amounted to mere change of opinion---Notices for reassessment invalid---Indian Income Tax Act, 1961, Ss.80-1, 147, 148 .& Sched. XI.

Where the Income-tax Officer attempts to reopen an assessment because the opinion formed earlier by him was in his opinion incorrect, the reopening could not be done.

The power to reopen an assessment was conferred by the Legislature not with the intention to enable the Income-tax Officer to reopen the final decision made against the Revenue to respect of questions that directly arose for decision in earlier proceedings. If that were not the legal position it would result in placing an unrestricted power of review in the hands of the assessing authorities depending on their changing moods.

If an expenditure or deduction was wrongly allowed while computing the taxable income of the assessee, the same could not be brought to tax by reopening the assessment merely on account of the Assessing Officer subsequently forming an opinion that. earlier he had erred in allowing the expenditure or the deduction.

If a notice under section 148 of the Income Tax Act, 1961, has been issued without the jurisdictional foundation under section 147 being available to the Assessing Officer, the notice and the subsequent proceedings will be without jurisdiction, liable to be struck down in exercise of writ jurisdiction of the High Court. If "reason to believe" be available, the writ Court will not exercise its power of judicial review to go into the sufficiency or adequacy of the material.

The assessee-company was engaged in the business of manufacturing of photosensitive films. Prior to the assessment year 1991-92, the assessee had claimed investment allowance under section 32A of the Income Tax Act, 1961, on the machines installed for production of colour film rolls for the period relevant to the assessment year 1990-91. The claim of the petitioner was disallowed by the Assessing Officer on the ground that manufacture of colour film rolls was not entitled to investment allowance because such an article was included in the prohibited list mentioned in the Eleventh Schedule to the Income Tax Act, 1961. In the said list at Serial No. 10 the articles mentioned are: "Photographic apparatus and goods". The cinematographic films were also included in this list at Serial No. 9. The Government decided to withdraw cinematographic films from this Schedule (vide Finance Act, 1988) because these films were used for manufacturing educational and tourism documentaries. However, photographic apparatus and goods, which included photographic films were not excluded and remained in this list. Hence, the Assessing Officer disallowed the claim of the petitioner for investment allowance under section 32A of the Act for the assessment year 1990-91. The return for the assessment year 1991-92 was filed on December, 31, 1991, and in this return the petitioner did not claim any deduction under section 80-I of the Act. Similarly, for the assessment years 1992-93 and 1993-94 in the original return the petitioner had not claimed any deduction under section 80-I of the Act. The Commissioner of Income-tax (Appeals) while dealing with the appeal relevant to the assessment year 1990-91 in his order dated February 28, 1994, made an observation that after exclusion of the term "cinematographic films" from Entry No. 9 there was no justification for holding that the colour film rolls were included in the Eleventh Schedule to the Act. After the passing of the abovesaid order by the Commissioner of Income-tax (Appeals), the petitioner claimed deduction

under section 80-I of the Act for the assessment years 1991-92, 1992-93 and 1993-94 and the same was allowed by the Income-tax Officer in respect of profits of its colour roll films unit. Thereafter, for all the assessment years the Assessing Officer issued notice under section 147/148 of the Act and reopened the assessments because the Assessing Officer had reason to believe that the income of the assessee had escaped assessment since the manufacture of photo films was an article placed under the Eleventh Schedule of the Act which was not entitled to deduction under section 80-I. On writ petition challenging the notices for reassessment:

Held, that it was clear from the reasons placed by the Assessing Officer on record as also from the statement made in the counter-affidavit that all that the Income-tax Officer had said was, that he was riot right tin allowing deduction under section 80-I; because he had allowed the deductions wrongly and, therefore, he was of the opinion that the income had escaped assessment. Though he, had used the phrase "reason to believe" in his order, admittedly; between the date of orders of assessment sought to be reopened and the date of forming of opinion by the Income-tax Officer nothing new had happened. There was no change of law. No new material had come on record. No information had been received. It was merely a fresh application of mind by the same Assessing Officer to "the same set of facts. While passing the original orders of assess4ient, the order, dated February 28, 1994 passed by the Commissioner of Income-tax (Appeals) was before the Assessing Officer. That order stood till today. What the Assessing Officer had said about the order .of the Commissioner of Income-tax (Appeals) while recording reasons under section 147 he could have said even in the original orders of assessment. Thus, it was. a case of mere change of opinion which did not provide jurisdiction to the Assessing Officer to initiate proceedings under section 147 of the Act. Therefore, the notices issued for reassessment for all the assessment years were not valid.

A.L.A. Firm v. CIT (1991) 189 ITR 285 (SC); Calcutta Discount Co. Ltd. v. ITO (1961) 41 ITR 191 (SC); CIT v. Bhanji Lavji (1971) 79 ITR 582 (SC); CIT v. Rao Thakur Narayati Singh (1965) 56 ITR 234 (SC); CWT v. Manilal C. Desai (1973) 91 ITR 135 (MP); Gopal Films v. ITO (1983) 139 ITR 566 (Kar.); Indian and Eastern Newspaper Society v. CIT (1979) 119 ITR 996 (SC); ITO v. Lakhmani Mewal Das (1976) 103 ITR 437 (SC); Kalyanji Mavji & Co. v. CIT (1976) 102 ITR 287 (SC); Phool Chand Bajrang Lal v. ITO (1993) 203 ITR 456 (SC); Satpal Automobile Co. v. ITO (1983) 141 ITR 450 (All.) and Siesta Steel Construction (Pvt.) Ltd. v. K. K. Shikare (1985) 154 ITR 547 (Bom.) ref.

G. C. Sharma, Anoop Sharma and R. K. Raghwan for Petitioner.

R. D. Jolly with Ms. Premlata Bansal for Respondents.

JUDGMENT

R. C. LAHOTI, J.---This, common order shall govern the disposal of three writ petitions between the same parties and arising out of a common set of facts and events. ??????????? _

The petitioner is a public limited company engaged in the business of manufacturing of photosensitive films and is a regular income-tax assessee since long. It commenced several industrial units, one of which is located at an industrially backward area of Bhimtal in Nainital District of the State of Uttar Pradesh. The unit was engaged in manufacturing of colour roll films.

Prior to the assessment year 1991-92, the assesee had claimed investment allowance under section 32A of the Income Tax Act, 1961, on the machines installed for production of colour film rolls for the period relevant to the assessment year 1990-91. This claim of the petitioner was disallowed by Assessing Officer on the ground that manufacture of colour film rolls was not entitled to investment allowance because such an article was included in the prohibited list mentioned in the Eleventh Schedule to the Income Tax Act, 1961. In the said list, at serial No. 10 of the articles mentioned are: 'Photographic apparatus and goods". The cinematographic films were also included in this list at serial No. 9. Vide Finance Act, 1988, the Government decided to withdraw cinematographic films from this Schedule because these films were used .for manufacturing educational and tourism documentaries. However, photographic apparatus and good which included photographic films were not excluded and remained in this list. Hence, the Assessing Officer disallowed the claim of the, petitioner, for investment allowance under section 32A of the Act for the assessment year 1990-91. The return of income for 1991-92 was filed on December 31, 1991. In this return, the petitioner did not claim any deduction under section 80-I of the Act.

Similarly, for the assessment years 1992-93 and 1993-94, in the original return the petitioner had not claimed any deduction under section 80-I of the Act.

The Commissioner of Income-tax (Appeals) while dealing with the appeal relevant to the assessment year 1990-91 in his order, dated February 28, 199.4, made an observation that after exclusion of the term cinematographic films from entry No. 9, there was no justification for holding that the colour film rolls were included in the Eleventh Schedule. The Commissioner of Income-tax (Appeals) held:

"After the exclusion of the term. 'cinematographic film from entry ' No. 9 colour film which is normally used in an important sector of tourism there does not appear to be any justification in holding that view that colour roll film is included in the Eleventh Schedule. All film whether cinematographic and colour roll film must be taken in one category and since the Legislature has excluded the term cinematographic film from Entry No. 9 of the Eleventh Schedule, the Assessing Officer was not justified in holding the view that the machineries purchased by the appellant relating to manufacturing of colour roll films were machineries covered by the provisions of the Eleventh Schedule to the Income-tax Act. However, after detailed discussion I have held that the appellant is not entitled to investment allowance during the current year and- the appellant shall be free to claim investment allowance in the next assessment year because whether the appellant is allowed investment allowance in this year or next assessment year does not make any difference to the revenue as the appellant has got a gross total income of Rs.4,77,27,307 even in the assessment year 1991-92 after deduction of depreciation claimed as per calculation given by the appellant."

After passing of the abovesaid order by the Commissioner of Income-tax (Appeals), the petitioner staked the claim for deduction under section 80-I, vide letter dated March 15, 1994. No revised return was filed.

Vide order dated March 16, 1994, for the assessment year 1991-92, vide order dated March 31, 1994, for the assessment year 1992-93, and vide order of assessment, dated October 21, 1994, for the assessment year J993-94, the petitioner's claim for deduction under section 80-I was allowed.

For the assessment year 1991-92, the Assessing Officer has in his order dated March 16, 1994, Annexure P-1, in C.W.P. No.3528 of 1997 dealt with the petitioner's claim as under:

"(3) Claim raised in respect of deduction under section 80-I. The assessee has elaborately contended its claim under section 80-1 in respect of its colour roll film unit and other photosensitised goods, such as medical X-Ray, graphic art film, cine positive film and photographic colour paper. The contention of the assessee-company is that it fulfils the conditions laid down in subsection (2) of section 80-I and is entitled for the deduction at 25 percent. of the gross total in income of that unit. The assessee further contends that this roll film unit was set up in the assessment year 1989-90 as a new industrial undertaking and it is not engaged in production of any article specified in the Eleventh Schedule. On my specific query why entries Nos. 9 and 10 should not be construed as bringing the activity of the assessee within the ambit of Schedule Eleven, the assessee has referred to and relied upon a clear finding given by the learned Commissioner of Income-tax (Appeals) XVI, New Delhi in its own Appeal No.63 of 1993-94 relating to the assessment year 1990-91 in which my predecessor had turned down the claim of the assessee for investment allowance on the ground that the industrial unit of the assessee engaged in the manufacturing of colour roll film and other photosensitised items was an Eleventh Schedule industry Notice that the learned Commissioner of Income-tax (Appeals) XVI in his order, dated February 28, 1994, has held that the items, namely, colour roll film is not an item specified in Schedule Eleventh, which debars the assessee from getting necessary relief of investment allowance under section 80-I.

(3.1)--In accordance with the direction and finding of the Commissioner of Income-tax Appeals, the assessee is allowed deduction under section 80-I of the Act in respect of profits of its colour roll films unit."

Now for all the three years of assessment i.e. 1991-92, 1992-93, 1993-94, the Assessing Officer has issued notices under section 147/148 proposing to reopen the assessments on the ground of the income having escaped assessment within the meaning of section 147 of the Act. The reasons recorded for issuance of the said notice are identical for all the three years. The reasons read as under:

"The assessee-company manufactures photo films which is an article placed under the Eleventh Schedule to the Income-tax Act. By virtue of its placement in the Eleventh Schedule manufacturers of photo films are not entitled .o claim deduction under section 80-I. In the case of the assessee-company deduction under section 80-I amounting to Rs.1,59.91.442 has been allowed wrongly. Therefore, I have reason to believe that income to the tune of Rs.1,59,91,442, has escaped assessment."

In all the cases approval for issuance of notices under section 148 has been accorded by the Commissioner of Income-tax.

These three writ petitions have been filed laying challenge to the notices issued in respect of the said three assessment years.

According to the petitioner, all the relevant facts were disclosed to the Assessing Officer and the Assessing Officer having deliberated upon -the entitlement of the petition had allowed the deduction. The assessment was sought to be reopened merely on account of "change of opinion" by the Assessing Officer on the same facts. The Assessing Officer cannot simply review his own assessment orders. a power which is not conferred on him by the Act. The Assessing Officer had "no reason to believe" that any income had escaped assessment within the meaning of section 147 of the Income-tax Act and the show-cause notice under section 148 is, therefore, without jurisdiction, submitted learned senior counsel, Mr. G. C. Sharma, for the assessee.

According to the respondents, the Assessing Officer while examining the record for the assessee for all the three years found that deduction under section 80-I of the Act had been wrongly allowed in the assessments. The assessments were completed by merely following the order of the Commissioner of Income-tax (Appeals) passed on February 28, 1994, relevant to the assessment year 1990-91 which were not binding on the Assessing Officer for the subsequent years. The observations of the Commissioner of Income-tax (Appeals) were totally against the provisions of the Act. The photographic apparatus includes camera, etc., and photographic goods include colour film rolls, etc., and the intention of the Legislature is clear that the manufacture of these articles is not entitled to the deduction. Removal. of cinematographic films is to confer eligibility for deduction on educational and tourism documentary films. Looking to this fact and taking the view that income had escaped assessment notices under section 148 were issued. It was submitted that it was not a case of mere change of opinion particularly in view of the amendment made in section 147 of the Act with effect from April 1, 1989.

Section 147 of the Act reads as under:

"147. Income escaping assessment. ---If the Assessing Officer has reason to believe that any income chargeable to tax has escaped assessment for any assessment year, he may, subject to the provisions of sections 148 to 153, assess 'or reassess such income and also any other income chargeable to tax which has escaped assessment and which comes to his notice subsequently in the course of the proceedings under this section, or recompute the loss or the depreciation allowance or any other allowance, as the case may be, for the assessment year concerned (hereafter in this section and in sections 148 to 153 referred to as the relevant assessment year).

It is pertinent to note that the provision in its present from has been substituted for its predecessor provision by the Direct Tax Laws (Amendment) Act, 1987 (Act 4 of 1988), with effect from April 1, 1989. Even in the original text of section 147 so substituted, there were the words "for reasons to be recorded by him in writing is of the opinion" which have been substituted by "has reason to believe" by the Direct Tax Laws (Amendment) Act, 1989 (Act 3-of 1989), with effect from April 1, 1989. This phrase "has reason to believe" is an all important expression. On it depends the fate of the present petition. This expression, "reason to believe" was to be found contained in the predecessor provisions also and has been the subject-matter of, judicial scrutiny on numerous occasions.

Calcutta Discount Co. Ltd. v. ITO (1961) 41 ITR 191 (SC) is the leading authority which still holds the field. It is well settled that while submitting to the jurisdiction of an Assessing Officer, it is the duty of the assessee to disclose all the primary facts (in contradistinction with inferential facts), which have a bearing on the liability of the income earned by the assessee being subjected to tax. It is for the Assessing Officer to draw inference from the facts and apply the law determining the liability of the assessee. The law does not require the assessee to state the conclusions that can reasonably be drawn from the primary facts. Once that is done- and the assessment order framed, the Assessing Officer cannot at a later point of time merely on forming an opinion, by giving a second thought to the primary facts disclosed by the assessee, arrive at a finding that he had committed an error in computing the taxable income of the assessee and reopen the assessment by resort to section 147 of the Act. Discovery of new and important matters or knowledge of fresh facts which were not present at the time of original assessment would constitute a "reason to believe that income had escaped assessment" within the meaning of section 147. Here also such facts, which could have been discovered by the assessing authority but were not so discovered at the time of original assessment may not constitute a new information. (See Phool Chand Bajrang Lal v. ITO (1993) 203 ITR 456, 477 (SC), A. L. A. Firm v. CIT (1991) 189 ITR 285, 298 (SC), Indian and Eastern Newspaper Society v. CIT (1979) 119 ITR 996, 1004 (SC); ITO v. Lakhmani Mewal Das (1976) 103 ITR 437, 445 (SC); and CIT v. Bhanji Lavji (1971) 79 ITR 582, 588 (SC))

In Kalyanji Mavji & Co. v. CIT (1976) 102 ITR 287 (SC), one of the points decided was that where in the original assessment the income liable to tax had escaped assessment due to oversight, inadvertence or a mistake committed by the Income-tax Officer, the assessment can be reopened. It was a decision by a Bench of two honourable judges. At least on two occasions, Benches of three honourable judges have clarified that Kalyanji Mavji and Co.'s case (1976) 102 ITR 287 (SC), cannot be taken to have overridden the consistently laid down law. Where the Income-tax Officer (very often successor-officer) attempts to reopen the assessment because the opinion formed earlier by himself (or more often, by a predecessor-Income-tax Officer), was in his opinion incorrect, judicial decisions have consistently held that this could not be done. (See Indian and Eastern Newspaper Society v. CIT (1979) 119 ITR 996 (SC) and A. L. A. Firm v. CIT (1991) 189 ITR 285 (SC).

The power to reopen an assessment was conferred by the Legislature not with the intention to enable the Income-tax Officer to reopen the final decision made against the Revenue in respect of questions that directly arose for decision in earlier proceedings. If that were not the legal position it would result in placing an unrestricted power of review in the hands of the assessing authorities depending on their changing moods. (See CIT v. Rao Thakur Narayan Singh (1965) 56 ITR 234, 239 (SC))

In Phool Chand Bajrang Lal (1993) 203 ITR 456, 477 (SC), their Lordships have held while interpreting section 147 as it stood in the assessment year 1963-64:

"An Income-tax Officer acquires jurisdiction to reopen an assessment under section 147(a) read with section 148 of the Income-tax Act. 1961, only if on the basis of specific reliable and relevant information coming to his possession subsequently, he has reasons, which .he must record, to believe that, by reason of omission or failure on the part of the assessee to make a true and full disclosure of all material facts necessary for, his assessment during the concluded assessment proceedings, any part of his income, profits or gains chargeable to income-tax has escaped assessment: He may start reassessment proceedings, either because some fresh facts had come to light which were not previously disclosed or some information with regard to the facts previously disclosed comes into his possession which tends to expose the untruthfulness of those facts. In such situations, it is not a case of mere change of opinion or the drawing of a different inference from the same facts as were earlier available but acting on fresh information. Since the belief is that of the Income tax Officer, the sufficiency of reasons for forming the belief is not for the Court to judge but it is open to an assessee to establish that there in fact existed no belief or that the belief was not at all a bona fide one or was based on vague, irrelevant and non-specific information. To that limited extent, the Court may look into the conclusion arrived at by the Income-tax Officer and examine whether there was any material available on the record from which the requisite belief could be formed by the Income-tax Officer and further whether that material had any rational connection or a live link for the formation of the requisite belief."

Following the settled trend of judicial opinion and the law laid down by the Lordships of the Supreme Court time and again, different High Courts of the country have taken the view that if an expenditure or a deduction was wrongly allowed while computing the taxable income of the assessee, the same could not be brought to tax but reopening the assessment merely on account of subsequently the Assessing Officer forming an opinion that earlier he had erred in allowing the expenditure or the deduction (see Siesta Steel Construction (Pvt.) Ltd. v. KK.K. Shikare (1985) 154 ITR 547 (Bom.); Satpal Automobile Co. v. ITO (1983) 141 ITR 450 (All.); Gopa1 Films v. ITO (1983) 139 ITR 566 (Kar.) and CWT v Manilal C. Desai (1973) 91 ITR 135 (MP).

Reverting back to the case at hand, it is clear from the reasons placed by the Assessing Officer on record as also from the statement made in the counter-affidavit that all that the Income-tax Officer has said is that he was not right in allowing deduction under section 80-I because he had allowed the deductions wrongly and, therefore, he was of the opinion that the income had escaped assessment. Though he has used the phrase "reason to believe" in his order, admittedly, between the date of the orders of assessment sought to be reopened and the date of forming of opinion by the Income-tax Officer nothing new has happened. There is no change of law. No new material has come on record. No information has been received. It is merely a fresh application of mind by the same Assessing Officer to the same set of facts. While passing the original orders of assessment the order, dated February 28, 1994, passed by the Commissioner of Income-tax (Appeals) was before the Assessing Officer. That order stands till today. What the Assessing Officer has said about the order of the Commissioner of Income?tax (Appeals) while recording reasons under section 147 he could have said even in the original orders of assessment. Thus, it is a case of mere change of opinion which does not provide jurisdiction to the Assessing Officer to initiate proceedings under section -147 of the Act. '

It is also equally well-settled that if a notice under section 148 has been issued without the jurisdictional foundation under section 147 being available to the Assessing Officer, the notice and the subsequent proceedings will be without jurisdiction, liable to be struck down in exercise of writ jurisdiction of this Court. If "reason to believe" be available, the writ Court will not exercise its power of judicial review to go into the sufficiency or adequacy of the material available. However, the present one is not a case of testing the sufficiency of material available. It is a case of absence of material and hence the absence of jurisdiction in the Assessing Officer to initiate the proceedings under section 147/148 of the Act.

For the foregoing reasons all the three petitions are allowed. The impugned notices under section 148 of the Income-tax Act issued by the Assessing Officer and relevant to the assessment years 1991-92, 1992-93, 1993-94 are all directed to be quashed. No order as to costs.

M.B.A/3396/FC????????? ?????????????????????????????????????????????????????????????????? Petitions allowed.