ITAT, MUMBAI
M/S. GOLDEN TOBACCO LIMITED VS JT. COMMISSIONER OF INCOME-TAX
28-10-2015

 
ITA No.5858/Mum/2012: Asst.Year 2005-2006
ITA No.5859/Mum/2012: Asst.Year 2006-2007
ITA No.5858/Mum/2012: Asst. Year 2005-2006

This appeal is filed by the assessee-company against the order of learned Commissioner of Income-tax (Appeals) (in short “CIT(A)”) dated 28.06.2012, passed against the assessment order u/s 143(3) r.w.s. 147 dated 23.12.2011 for assessment year 2005-2006. The assessee-company has filed numerous grounds. However, during the course of hearing, the learned Counsel appearing on behalf of the assessee-company, emphasized that this case is covered in favour of the assessee on the legal ground itself. Therefore, we shall first dispose the legal ground raised by the assessee.

2. At the outset, it was pointed out by the learned Counsel that there was a delay on the part of the assessee in filing of the appeal by 16 days. The learned Counsel has drawn our attention on the petition for condonation of delay in filing of appeal and affidavit filed along with that.

3. We have heard both the parties on this issue. No serious objection has been raised by the learned Departmental Representative for granting condonation of delay in filing of appeal by the assessee. It is further noted by us that the assessee has been able to demonstrate sufficient cause in explaining the delay of 16 days. Therefore, in the interest of justice, relying upon the judgment of the Hon’ble Supreme Court in the case of Collector, Land Acquisition v. Mst.Katiji & Ors. [(1987) 167 ITR 471 (SC)], we find it appropriate to admit this appeal, and therefore, the appeal is admitted for adjudication on its merits.

4. In Ground No.1, the assessee-company has challenged the reopening of the assessment. It has been argued that in this case original assessment was done u/s 143(3) of the Income-tax Act, 1961 (in short “the Act”). Subsequently, notice has been issued u/s 148, after the expiry of four years from the end of the assessment year. It is submitted that there is no allegation in the reasons about any failure on the part of the assessee in disclosure of material facts, and thus, the case of the assessee is protected by the proviso to section 147 of the Act. It has been submitted that the proviso to section 147 puts an embargo of time limit of four years. It is further submitted that apart from the above the reopening is invalid, also on the ground that there is no fresh tangible material coming in the possession of the Assessing Officer at the time of recording of reasons, and therefore, in the absence of the same, no reasons can be recorded for reopening of the assessment. Reliance has been placed; in this case, on the judgment of Mumbai Bench of the Tribunal in the case of Motilal R. Todi and various cases discussed and relied in the said judgment. For the purpose of taking benefit of first proviso to section 147, reliance has been placed by the learned Counsel on the judgment of the Hon’ble Bombay High Court in the case of Titanor Components Limited in writ petition No.71 of 2005, order dated 9th June, 2011, Hindustan Lever Ltd. v. ACIT 268 ITR 332 (Bom.), CIT v. Shri Shailesh S.Shah in ITA No.1913 of 2013, order dated 30th September, 2015 (Bombay High Court), and on the judgment of the Hon’ble Supreme Court of India in the case of CIT v. Avadh Transformers (P.) Ltd. 51 Taxmann.com 369 (SC), wherein the judgment of the Hon’ble Allahabad High Court reported at 33 Taxmann.com 24 was upheld by the Hon’ble Supreme Court.

5. On the other hand, the learned Departmental Representative has supported the orders of the lower authorities and requested that the reopening should be held as valid. In response to our query that whether there was any failure on the part of the assessee in disclosure of material facts or whether there was any fresh material coming into the possession of the Assessing Officer, the learned Departmental Representative was not able to put forth any factual material to controvert the arguments of the learned Counsel of the assessee.

6. We have considered the facts and circumstances of the case as well as judgments relied upon by the learned Counsel and gone through the orders of the lower authorities. The brief facts are that in this case original assessment proceedings were done u/s 143(3) vide order dated 28.12.2007 determining the total income at nil, after set off of brought forward business loss of Rs.7,82,88,126 and brought forward unabsorbed depreciation of Rs.63,64,593. Subsequently, the Assessing Officer issued notice u/s148 dated 31.3.2011. In response to the same, the assessee-company filed its return of income and asked for the Reasons’ for reopening of the assessment, which was furnished by the AO to the assessee. For the sake of ready reference these reasons are reproduced here under:-

“In this case, the assessee filed Return of Income for the A.Y. 2005-06 on 28/10/2005, declaring total income at Rs.1811/-. Assessment u/s. 143(3) was completed on 28/12/2007, determining total income at NIL after set off of brought forward unabsorbed business losses and depreciation.

I. Irregular allowance of Depreciation :

It is seen from depreciation statement as per Income Tax Act, the assessee has claimed depreciation of Rs.76,83,991/- on ‘Time Sharing Unit Property’. The property is on lease for a period of 99 years and also the right to property is acquired prior to 01/04/1998, as such, the assessee is not eligible for depreciation either under the category of intangible assets or other. Omission to disallow the same has resulted into under assessment of Rs.76,83,991/-.

II. Incorrect computation of taxable income:

While computing the taxable income, the assessee had taken profit as per Profit & Loss Account at Rs.30,39,015/0 which included income on account of exceptional items of Rs.6,09,98,126/-. The exceptional items (net) comprised of adjustment of account of liabilities, no longer required and expenses on account of loans & advances and sundry debtors.

Further, it is seen that in computation statement, the assessee had reduced income of Rs.10,72,88,467/- chargeable u/s. 41(1) for considering it separately. It has also reduced an amount of Rs.119470524/-, chargeable u/s. 41(1) because the same was disallowed u/s. 43B, and as such, not claimed as expenditure in earlier assessment. The net impact of the above adjustment in the computation is as follows:

From the above, it is clear that the assessee had reduced an amount of Rs.5,84,72,398/- from profit instead of making an addition of Rs.10,72,88,467/- u/s. 41(1) to it, as quantified by statutory Auditor. The same is accepted by the Department. The mistake resulted in under assessment of income of Rs.16,57,60,865/- (5,84,72,398 + 10,72,88,467). Alternatively, it is seent that exceptional items (net) of Rs.6,09,98,126/- in the Profit & Loss Account is arrived as follows:

The exceptional items of Rs.6,09,98,126/- is arrived after reducing old sundry debtors and loans & advances (net) of Rs.165760865/- from the liabilities which are written back on account of settlement /amnesty etc. As the expenses debited on account of loans & advances and sundry debtors are either capital or inadmissible expenditure, the same is required to be disallowed. Omission to disallow the same has resulted into under assessment of R.16,57,60,865/- In view of the above, I have reasons to believe that, on the above two issues, the income amounting to Rs.17,34,44,856/- (Rs.76,83,991 + 16,57,60,865), chargeable to tax, has escapement within the meaning of section 147 of the I.T. Act. Therefore, the case is re-opened by issue of notice u/s. 148 of the I.T. Act, after obtaining the prior approval from the Hon’ble CIT – 8, Mumbai vide her office letter dated 31.03.2011. Issue notice u/s. 148 of the I.T.Act, 1961.”

The assessee has challenged the aforesaid `Reasons’ on two counts, i.e., One - there is no fresh material coming into the possession of the AO at the time of recording of the reasons, and Two - the reopening has been done after expiry of four years from the end of the assessment year; and there is no allegation in the `Reasons’ about failure on the part of the assessee in disclosure of material facts.

We shall now deal with both the arguments one by one:

No fresh tangible material :

A perusal of the aforesaid `Reasons’ would clearly reveal that these have been recorded by the AO on the basis of examination done by the AO of the existing assessment records of the assessee-company. On none of the issues we could find reference to any fresh tangible material in the possession of the AO to make a belief about escapement of income. In our considered view, the law in this regard is now well settled. As relied upon by the learned Counsel also, recently Hon’ble Mumbai Bench of the Tribunal in the case of Motilal R.Todi (ITA No.2910/Mum/2013, order dated 22.09.2015) has analyzed the entire law available on this issue, and thereafter it was held by the Hon’ble Bench that reopening was invalid in the absence of fresh tangible material. The Hon’ble Bench has relied upon the judgment of the Hon’ble Bombay High Court in the case of Bombay Stock Exchange Limited, writ petition No.2468 dated 12.06.2014 reported at 89 CCH 118 and judgment of Hon’ble Delhi High Court in the case of Pr.CIT v. Tupperware India Pvt. Ltd. (ITA No.415 of 2015, order dated 10.08.2015). The relevant parts of this judgment are reproduced here under for the sake of ready reference :-

“6.6 . In the present case, it was noticed by us that the case of the assesse is that there was no fresh tangible material in the possession of AO at the time of recording of impugned reasons. A perusal of the ‘Reasons’ recorded by the AO in this case reveals that at the time of recording of these ‘Reasons’ the AO had examined original assessment records only and no fresh material had come in the possession of the AO. In response to our specific query also, Ld DR could not point out any fresh material available with the AO at the time of reopening of the case of the assessee. Thus, assertion of the assessee that there was no fresh material with AO for reopening of this case, remained uncontroverted.

Under these facts and circumstances, let us now examine settled position of law on this issue. It has been held in various judgments coming from various courts that availability of fresh tangible material in the possession of AO at the time of recording of impugned reasons is a sine qua none, before the AO can record reasons for reopening of the case. We begin with the judgment of Hon’ble Supreme Court in the case of CIT vs. Kelvinator India Ltd. 320 ITR 561 (SC), laying down that for reopening of the assessment, the AO should have in its possession ‘tangible material’. The term ‘tangible material’ has been understood and explained by various courts subsequently. There has been unanimity of the courts on this issue that in absence of fresh material indicating escaped income, the AO cannot assume jurisdiction to reopen already concluded assessment.

Recently, Hon’ble Delhi High Court in the case of Pr. CIT vs Tupperware India Pvt. Ltd., in its order dt 10-8-15 (ITA no 415/2015 ) got an occasion to analyse latest position of law on this issue. After discussing many judgments on this issue, it was held that even in the case of original assessment order having been passed u/s 143(1), it is mandatory for the AO to have in its possession, fresh tangible material before reopening of the case.

6.9 In the case of Bombay Stock Exchange Ltd. (writ petition no.2468 dt. 12.06.2014) (89 CCH 118), Hon’ble Bombay High Court observed as under:

“5. It is pertinent to note that Respondent No.1 has not set out in the reasons which fact or other material was not disclosed by the Petitioner that led to income escaping assessment. In fact, on going through the reasons, we find that Respondent No.1 has come to the conclusion/belief that income had escaped assessment on the basis of the material already before him and no new tangible material has been relied upon by Respondent No.1 to come the said conclusion/belief. This is clear from the use of the words “on perusal of the records it is noticed ”, “further perusal of statement 2 enclosed with the computation of income shows.......” and “it is further noticed ” in the impugned notice.”

In the case of CIT vs. Orient Craft Ltd. 354 ITR 536, it was observed by Hon’ble Delhi High Court that in the said case, Reasons for reassessment disclosed that AO reached belief that there was escapement of income "on going through the return of income" filed by assessee after he accepted return u/s. 143(1) without scrutiny, and nothing more. In these facts, it was held by the Hon’ble High Court that it was nothing but review of earlier proceedings and abuse of power by AO. It was further held that since there was no whisper in reasons recorded, of any tangible material which came to possession of AO subsequent to issue of intimation, therefore, it was an arbitrary exercise of power conferred u/s 147. Thus, reopening was held to be invalid on this ground itself.

In the case of Mohan Gupta (HUF) vs. CIT 366 ITR 115, same view has been followed by Hon’ble Delhi High Court.

Further, in the case of CIT vs. K. L. Arora in ITA 118/2014 dated 21-04-2014, Hon’ble Delhi High Court observed as under:

“This Court is of the opinion that no fault can be found with the Tribunal’s order. It is well settled that in order to issue a valid reassessment notice, the AO has to be satisfied on the basis of tangible material or information subsequently available to him that the assessee had not made full and true disclosure which led to income escaping assessment at the stage when the original assessment was completed. Short of that a re-appreciation of the existing materials which really amounts to review is impermissible. The Tribunal, in the circumstances of this case was justified in concluding that re-assessment proceedings themselves were not in accordance with law and consequently dismissing the Revenue’s appeal. No question of law arises for consideration.”

In the case of CIT vs. Shri Atul Kumar Swami in ITA No. 112/2014 dated 18-03-2014 reported at 52 Taxmann.com 47, Hon’ble Delhi High Court observed as under:

“…..Reopening of assessment is valid if it is based on tangible material to justify conclusion that there was escapement of income-In instant case note forming part of return clearly mentioned and described nature of the receipt under a non-compete agreement- Reasons for issuance of notice u/s 147 nowhere mentioned that revenue came up with any other fresh material warranting reopening of assessment-Mere conclusion of proceedings u/s 143(1) ipso facto does not bring invocation of powers for reopening assessment-Reopening of assessment was unjustified-Revenue’s appeal dismissed.”

Further reliance can be placed on the detailed judgment in the case of Madhukar Khosla vs. ACIT 367 ITR 165 (Delhi), wherein it has been held that the reopening is not permitted under the law unless it is based on fresh tangible material and that if The “reasons to believe” are not based on new, “tangible materials”, the reopening amounts to an impermissible review. It has been further observed that:

“The foundation of the AO’s jurisdiction and the raison d’etre of a reassessment notice are the “reasons to believe”. Now this should have a relation or a link with an objective fact, in the form of information or facts external to the materials on the record. Such external facts or material constitute the driver, or the key which enables the authority to legitimately re-open the completed assessment. In absence of this objective “trigger”, the AO does not possess jurisdiction to reopen the assessment. It is at the next stage that the question, whether the re-opening of assessment amounts to “review” or “change of opinion” arises. In other words, if there are no “reasons to believe” based on new, “tangible materials”, then the reopening amounts to an impermissible review. Here, there is nothing to show what triggered the issuance of notice of reassessment – no information or new facts which led the AO to believe that full disclosure had not been made (Kelvinator of India Ltd [(2010)320 ITR 561 (SC)] and Orient Craft Ltd [(2003)354 ITR 536 (Delhi)] followed, Usha International [(2012)348 ITR 485 (Del) (FB)] referred)”

In the case of CIT vs Jyoti Devi 218 CTR 264, Hon’ble Rajasthan High Court held that since Revenue could not point out any information or material which had subsequently come to the notice of the AO to enable him to form the requisite belief that any income liable to be assessed had escaped assessment, therefore, the initiation of reassessment proceedings was not valid.

Hon’ble Madras High Court in the case of Bapalal & Co. Exports 289 ITR 37, held that in the absence of any new material, the AO is not empowered to reopen an assessment irrespective of the fact whether it was made under s. 143(1) or s. 143(3).

Recently, Mumbai Bench of ITAT in the case HV Transmissions Ltd. in I.T.A No. 2230/Mum/2010 held that even though original assessment was made under s. 143(1) and not under s. 143(3), assessee having made full disclosure of its income, AO was not justified in reopening the assessment in the absence of any new material. Hon’ble Bench has relied upon third member judgment from Mumbai Bench of ITAT in the case Telco Dadajee Dhackjee Ltd vs DCIT ( ITA No 4613/Mumbai/2013 dt 12-5-2010), in support of this view. Similar view has been expressed by Hon’ble Delhi Bench of ITAT in the case of M/s Nexgen School of Business Vs. Deputy Commissioner of Income Tax, [ITA No. 5609/DEL/2010] holding that the Assessing Officer was not justified to initiate the reopening proceedings in absence of any new information or material on record since the date of filling and processing of the return of income.

In the present case, it has already been discussed that admitted facts are that there was no fresh material coming into the possession of the AO, at the time of recording of the ‘Reasons’. These facts have not been rebutted by Ld DR also. The case law relied upon by Ld DR in the case of Dr. Amin’s Pathology, supra is not applicable on the issue being decided here. The issue that in absence of any fresh material, whether AO can proceed to record Reasons, was not before Hon’ble High Court, therefore Hon’ble High court had decided the issue of Change of opinion in that case. In the case before us, as discussed above, we are not going into that issue. In our considered opinion, at this stage, we need not go into the other aspect i.e. whether there was change of opinion or not. This issue has been aptly clarified by Hon’ble High Court in the case of Madhukar Khosla, (supra), wherein it has been held by their lordships that external facts or material constitute the driver, or the key which enables the AO to legitimately reopen the completed assessment and in absence of this objective “trigger”, the AO does not possess  jurisdiction to reopen the assessment. Further, most importantly, it was held by the Hon’ble High Court that it is at the next stage when the question, whether the reopening of assessment amounts to “review” or “change of opinion” arises. In other words, if there are no “new tangible materials”, then there would be no “reasons to believe”, and consequently reopening would be an impermissible review. Under these circumstances there would not arise any need to go the next stage to examine the next question, i.e., whether there was “review” or “change of opinion”. The condition with respect to availability of “new tangible material” is step anterior to the condition of no “change of opinion” or “review”.

6.20 Thus, in view of judgments directly on the issue under consideration, as discussed in paras 6.7 to 6.18, above, reopening done by Ld. AO in the absence of fresh tangible material, is invalid and bad in law. Therefore, the initiation of reassessment proceedings was not valid. Thus, re-assessment order framed in pursuance to invalid reopening is illegal; the same is hereby quashed. Since assessment order has been quashed on jurisdictional ground itself, other grounds are not being adjudicated.”

In view of the above discussion by the Hon’ble Bench, we find that the issue stands squarely covered with the judgment of Hon’ble Bombay High Court, Hon’ble Delhi High Court and other Courts. Therefore, reopening is held invalid for want of availability of requisite conditions for exercising the jurisdiction of reopening by the Assessing Officer.

7. The other argument taken up by the learned Counsel was that there was no allegation in the `Reasons’ about failure on the part of the assessee in disclosure of material facts. Again, the perusal of aforesaid `Reasons’ shall reveal that the AO has nowhere mentioned about any failure on the part of the assessee in disclosure of material facts. Rather what has been mentioned in the `Reasons’ is about the omission or mistake committed by the AO himself. In our considered view, the law does not give powers to the AO to reopen an assessment carried out u/s 143(3) after the expiry of four years unless the AO is able to demonstrate that there was failure on the part of the assessee in disclosure of material facts. In this regard, we feel it appropriate to reproduce hereunder the first proviso to section 147 of the Act:-

“Provided that where an assessment under sub-section (3) of section 143 or this section has been made for the relevant assessment year, no action shall be taken under this section after the expiry of four years from the end of the relevant assessment year, unless any income chargeable to tax has escaped assessment for such assessment year by reason of the failure on the part of the assessee to make a return under section 139 or in response to a notice issued under sub- section (1) of section 142 or section 148 or to disclose fully and truly all material facts necessary for his assessment, for that assessment year:”

It may be noted that the reading of the `Reasons’ as reproduced in earlier part of this order, that neither there is any allegation of `failure and disclosure of material facts’ nor AO has made out any case of any failure on the part of assessee in disclosure of material facts. Thus these `Reasons’ are apparently contrary to law.

7.1.8 Further, as has been rightly contended by the learned AR that this issue is no more res integra. Hon’ble Bombay High Court in many judgments has held that in those cases where the first proviso to section 147 is applicable, the reopening cannot be done unless there is allegation in the reasons that there was failure on the part of the assessee in disclosure of material facts. We place our first reliance upon the judgment of Hon’ble Bombay High Court in the case of Tata Business Support Services Ltd. v. DCIT 232 Taxman 702. Relevant para is reproduced here under:-

“In the present case, when the Revenue alleges failure to make full and true disclosure of material facts, then, the term failure has some specific legal connotation. Here, material facts are pertaining to the expenses under the head “management fees”. It is apparent that the words employed are material facts. It is not just facts but material facts. The word “material” in the context means “important, essential, relevant concerned with the matter, not the form of reasoning” (see Oxford Dictionary Concise Eighth Edition). Just as disclosure of every fact would not suffice but for proceeding under section 147 non disclosure ought to be of a material fact.”

We also rely upon the judgment of the Hon’ble Bombay High Court in the case of Titanor Components Limited, supra, and CIT v. Shri Shailesh S.Shah, supra. Further, reliance is placed by us on the judgment of the Hon’ble Supreme Court in the case of CIT v. Avadh Transformers (P.) Ltd. 51 Taxmann.com 369, wherein the Hon’ble Supreme Court has upheld the judgment of the Allahabad High Court, wherein it was held by the Hon’ble High Court that in absence of failure on the part of the assessee in disclosure of material facts, the reassessment proceedings could not be initiated after expiry of four years from the end of relevant assessment year merely on the ground that in view of the retrospective amendment to provisions of section 80IA, the assessee was not entitled to deduction granted earlier under said section. Thus, even in such cases, when there was a retrospective amendment in the law, the Hon’ble Supreme Court has approved the order of the Hon’ble High Court, upholding the view that no reopening can be done after the expiry of four years unless there was failure on the part of the assessee in disclosure of material facts. It is noted that the present case stands on a better footing.

Before we part with, it is found appropriate to refer to a recent judgment of Hon’ble Delhi High Court in the case of Pr.CIT v. Samcor Glass Ltd. (ITA No.768/2015 dated 12.10.2015), wherein Hon’ble High Court came down heavily upon the Income Tax Department for reopening of the assessments of the tax payers, in a casual manner and without complying with mandatory conditions of law. Relevant portion of the judgment is reproduced below:-

“4. Although the Assessees in both the appeals are different, the issue involved in both cases is similar, i.e., whether the reopening of the assessment under Section 147/148 of the Act is valid?

5. Apart from the fact that the impugned order of the ITAT suffers from no legal infirmity, the court is of the view that on the face of it, the reasons for reopening of the assessment in both the cases did not satisfy the basic requirement of the law, in at least in two aspects. One was that the reopening was of assessment beyond four years after the AY for which the original assessment was framed and yet the reasons for reopening did not categorically state that there was a failure by the Assessees to disclose any material particulars on the basis of which there were reasons to believe that the income has escaped assessment. This Court has recently, in a decision dated 22nd September 2015 in ITA No.356 of 2013 (CIT v. Multiplex Trading & Industrial Co. Ltd.), clearly stated in cases where reopening of assessment is beyond four years from the end of the relevant assessment year “the condition that there has been a failure on the part of the Assessee to truly and fully disclose all material facts must be concluded with certain level of certainty.”

6. Secondly, the Court finds that at lease in respect of one of the issues, viz., payment of interest on fixed deposits, the Assessees drew the attention of the Assessing Officer (`AO’) to the fact that the amount has already been offered to tax and tax had been paid and yet, in the order disposing of the objections, the AO is completely silent as regards this objection.

7. The Court is of the view that notwithstanding several decisions of the Supreme Court as well as this Court clearly enunciating the legal position under Section 147/148 of the Act, the reopening of assessment in cases like the one on hand give the impression that reopening of assessment is being done mechanically and casually resulting in unnecessary harassment of the Assessee.

8. The Court would have been inclined to impose heavy costs on the Revenue for filing such frivolous appeals but declines to do so since the appeals are being dismissed ex parte. However, the court directs the Revenue through the Principal Chief Commissioner of Income Tax (Pr CIT) to issue instructions to the AOs to strictly adhere to the law explained in various decisions of the Supreme Court and the High Court in regard to Sections 147/148 of the Act and make it mandatory for them to ensure that an order for reopening of an assessment clearly records the compliance with each of the legal requirements. Secondly, the AOs must be directed to strictly comply with the law explained by the Supreme Court in GKN Driveshafts (India) Ltd v. Income Tax Officer (2003) 259 ITR 19 (SC) as regards the disposal of the objections raised by the Assessee to the reopening of the assessment.”

Thus, in our considered view, this issue is squarely covered in favour of the assessee by the judgments of the Hon’ble jurisdictional High Court and Hon’ble Supreme Court of India, and therefore, reopening is held to be invalid on this ground as well. Thus, ground with regard to reopening is allowed and reassessment order is quashed, and therefore, other grounds with respect to merits and other legal issues are not being adjudicated.

ITA No.5859/Mum/2012 : Asst.Year 2006-2007

8. In this appeal, there is delay of 16 days in filing of appeal by the assessee, similar to that in A.Y. 2005-06. We follow our order for A.Y.2005-06, as per our observations given in para 2 and 3 of this order, and condone the delay, and admit this appeal for adjudication, after taking consent of the parties. In this appeal also, the learned Counsel has challenged validity of reopening of the assessment. In this case also the facts are similar. The original assessment proceedings was done u/s 143(3) vide order dated 30.12.2008, subsequently, a notice was issued u/s 148 dated 31.03.2011, i.e., within four years from the expiry of the relevant assessment year. Thus, the only difference is that this case has been reopened within the period of four years, and therefore, the assessee shall not get the benefit of proviso to section 147 of the Act.

9. The `Reasons’ recorded by the AO are reproduced here under for the sake of ready reference :-

 “In this case, the assessee filed Return of income for the A.Y. 20906-07 on 28/11/2006, declaring total income at Rs.8,31,753/- Assessment u/s 143(3) was completed on 30/12/2008, determining total income at Rs.8,30,050/-, being Long Term Capital Gain, after set off business loss and depreciation against the current year’s business income.

Irregular allowance of Depreciation:

It is seen from depreciation statement as per Income Tax Act, the assessee has claimed depreciation of Rs.57,62,993/- on `Time Sharing Unit Property’. The property is on lease for a period of 99 years and also the right to property is acquired prior to 01/04/1998, as such, the assessee is not eligible for depreciation either under the category of intangible assets or other. Omission to disallow the same has resulted into under- assessment of Rs.57,62,993/-.

In view of the above, I have reasons to believe that, on the above issue, the income chargeable to tax of Rs.57,62,993/- on account of depreciation, has escapement assessment within the meaning of section 147 of the I.T.Act. Therefore, the case is reopened by issue of notice u/s 148 of the Income Tax Act, after getting approval from the Hon’ble CIT-8, Mumbai. Issue notice u/s 148 of the I.T.Act.”

10. The perusal of these `Reasons’ would show that, again, these `Reasons’ have been recorded by the AO by making examination of records, which are part of the existing assessment records, which were available with AO since the time of the framing of the original assessment order u/s 143(3). It is noted that in this case also, no fresh material has come into the possession of the AO. Therefore, following our order of assessment year 2005-2006, we hold that the `Reasons’ are not valid in the eyes of law on this ground, i.e., the `Reasons’ have been recorded without there being any fresh tangible material coming into the possession of the AO after the framing of the original assessment u/s 143(3).

11. Further, the learned Counsel has taken one more argument, i.e., in this case the reopening has been done on the basis of change of opinion by the AO. It was argued by him that the issue of depreciation on time sharing unit property, which has been raised in the aforesaid `Reasons’, came up for consideration before the AO in assessment year 2003-2004, wherein it was allowed by the Assessing Officer, after taking proper details and documentary evidences from the assessee. Our attention has been drawn on various pages of the paper book, wherein the AO had raised query on this very issue in the assessment proceedings of assessment year 2003-2004, replies were submitted by the assessee, giving full details and justification, these were considered by the AO, and thereafter only after consideration of these replies and details / documents of the assessee, the AO passed order u/s 143(3), wherein claim of the assessee was allowed and no disallowance was made of the depreciation on time sharing unit property. It was, thus, argued that it is a case of change of opinion on the part of the AO. Reliance was placed on the judgment of the Hon’ble Bombay High Court in the case of DIT v. HSBC Asset Management India Pvt. Ltd. (IT Appeal No.254 of 2012, dated 18th June, 2014) for the proposition that if depreciation is allowed in first year, then in subsequent years it becomes part of block of assets, and therefore, the depreciation is allowed on block of assets and not on the individual assets, and therefore, the same cannot be disallowed. We have considered this aspect also very carefully. We find force in the argument of the learned Counsel. It is noted that this issue has already been examined by the Assessing Officer himself in the assessment year 2003- 2004. This issue was again examined by the Assessing Officer in the original assessment proceedings u/s 143(3) of the impugned assessment year. Therefore, reopening the same, now on this very issue, which has already been examined by the Assessing Officer, amounts to review or change of opinion on the part of the Assessing Officer. It is settled law that `Reasons’ cannot be recorded, as per law, on the basis of change of opinion by the Assessing Officer. Therefore, viewed from this angle also, impugned `Reasons’ are invalid in the eyes of law, and therefore, reopening of the case and resultant reassessment order becomes bad in law, and therefore, the same is hereby quashed.

12. Since the appeal has been allowed on the legal grounds itself, we refrain from adjudicating other grounds raised by the assessee on merits.

13. In the result, both the appeals are allowed, on the grounds as discussed above.


Order pronounced on this 28th day of October, 2015.

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ITAT, AGRA
SH. ANUGRAH VARSHNEY, VS ITO
05 /04/ 2016


ITA No.134/Ag/2014

Assessment Year: 2003-2004

This appeal has been filed by the assessee against the order of Ld. CIT(A) Muzaffar Nagar dt. 20/01/2014. The assessee has raised the following grounds of appeal:

1.That the Hon’ble C.I.T (Appeals) has erred in law and on facts in sustaining the reassessment order passed u/s 147/143(3) of the I.T. Act, 1961 even when no addition has been made on the issue which was recorded in reasons to believe for initiating re-assessment proceedings by the Ld. A.O.

2. That the Hon’ble C.I.T(Appeals) has erred in law and on facts in not appreciating that no notice u/s 148 was ever served on the appellant.

3. That the re-assessment order passed u/s 148 of the I.T. Act, 1961 is void-ab- initio.

4. That the Hon’ble C.I.T (Appeals) has erred in law and on facts in sustaining the addition u/s 68 on account of gift received amounting to Rs. 5,00,000/- even when the identity, creditworthiness and genuineness of the transaction was proved by the appellant.

5. That the Hon’ble C.I.T (Appeals) has erred in law and on facts in sustaining the addition u/s 68 amounting to Rs. 15,47,000/- on account of unexplained deposits in the overdraft account.

6. That the order passed by the authorities below is bad in law and against the facts of the case.

7. That any other relief or reliefs deemed fit in the facts and circumstances of the case may be granted.

2. The facts relating to the case are that the assessee is an individual who filed his return of income for the impugned AY declaring income of Rs.1,33,810/-. Subsequently proceedings under section 147 were initiated and assessment was framed on the assessee making addition of Rs. 5.00 Lacs on account of gift received by treating the same as not genuine and Rs. 15,47,000/- on account of unexplained cash credits.

3. The assessee filed an appeal before the Ld. CIT(A) who dismissed the appeal of the assessee vide his order dt. 20/01/2014.

4. Aggrieved by the same the assessee filed the present appeal before us.

5. Ground No. 1 raised by the assessee is against the validity of the assessment order passed under section 147. The plea raised by the assessee in this ground is that since no addition has been made on the income which the AO had reason to believe had escaped assessment, the reassessment order passed was bad in law.

6. Before us Ld. AR pleaded that the reasons for reopening the assessment was that interest expenses had been claimed against LIC commission and income from other sources, which the AO believed was not allowable since there was no nexus between the expenses and the income earned and further that the assessee had wrongly claimed indexation on sale of UTIMEP-92. Ld. AR drew our attention to the order sheet entries of the case and more specifically to the order sheet entry dt. 30/05/2005 which recorded the reason for the reopening of the case. The same is reproduced here under:

The assessee has shown income from LIC Commission and income from other sources viz interest income, dividend income. As against such income of Rs. 1,24,678/-, the assessee has claimed deduction of interest paid on LIC Loan and O.D. A/c. There is no nexus of earning income with payment of such interest. Hence claim of deduction on account of payment of interest is not allowable. This practice is being done in this group of cases. Similar disallowances have been made in scrutiny assessment of Shri. Anurag Varshney, A.Y. 2001-02 and 2002-03 and Shri. Anupam Varshney A.Y. 2002-03, both brothers of the assessee. The assessee has also claimed indexation of sale of UTIMEP-92, which is an asset covered U/s 80CCB. No indexation is allowable u/s 45(6) on sale of such asset.

With the above facts, I have reason to believe that income of the assessee chargeable to tax has escaped assessment. Such income shall be assessed under section 147. With these reasons, notice u/s 148 is being hereby issued.

Ld. AR thereafter drew our attention to the assessment order passed under section 147 and stated that the addition made was on account of unexplained gift amounting to Rs. 5,00,000/- and unexplained cash credit of Rs. 15,47,000. Thus the Ld. AR stated that no addition on account of the issue raised in the reasons recorded were made. Ld. AR thereafter drew our attention to the provisions of section 147 and pointed out that it specifically stated that addition could be made on account of the issue on which the reopening was resorted and also on other income which has been found to have escaped assessment, during the course of reassessment proceedings. Ld. AR thereafter stated that the interpretation of the same is that it is only if addition on account of income which has been found to have escaped assessment as per the reasons recorded is made that addition on account of any other income can be made. Ld. AR drew our attention to the judgment of the Hon’ble Bombay High Court in the case of Jet Airways India vs CIT 331 ITR 236, the Hon’ble Delhi High Court decision in case of Ranbaxy Laboratories Ltd. Vs. CIT 336 ITR 136 and to the decision of the Agra Bench of the Tribunal in the case of ITO Vs. Smt. Urmila Singhal in ITA No. 286/Ag/2011 dt. 20/07/2012, in support of his contention.

7. Ld. DR on the other hand argued that the decision in the case of Jet Airways India vs CIT and Ranbaxy Laboratories Ltd. Vs. CIT relied upon by the AR pertained to those Assessment years, when Explanation 3 was not on the statute. Ld. DR further stated that merely because no addition was made on the issue raised in the reason recorded for reopening the validity of the proceedings under section 147 could not be challenged or held to be bad in law. Ld. DR stated that the reason recorded need not be conclusive on the issue of escapement of income and may result in addition not being ultimately made but the same does not render the reason invalid and hence the proceeding under section 147 also.

8. We have heard the rival submissions carefully and perused the material placed on record before us.

9. At the outset it may be stated that this ground was not raised before the Ld. CIT(A) and is for the first time being raised before us. The Ld. AR pleaded that since it is a legal ground and in view of the decision of the Hon’ble Supreme Court in the case of NTPC Ltd. Vs. CIT (1998) 229 ITR 383, the same ought to be entertained.

10. We have considered the submission of the assessee and being a legal ground arising from the facts found by the authorities below, we admit the same to be adjudicated upon.

Coming to the fact of the case, undisputedly reopening was resorted to, as per the reasons recorded and reproduced above, for disallowance of interest expenses claimed against LIC Commission and income from other sources. Further the claim of indexation on sale of UTI Mutual Fund was also not allowable as per the reasons recorded.

The assessment we find, has been framed making addition on account of unexplained cash credit and unexplained gifts and no addition on account of the income which were found to have escaped assessment as per the reasons recorded, has been made.

We hold that in this case the AO had no jurisdiction to subject to tax unexplained gifts and cash credits and frame the impugned assessment. The Hon’ble Bombay High Court in the case of Jet Airways(I)Ltd.(supra) had interpreted the provision of Section 147 on first principle and held that as per section 147, upon formulation of a reason to believe u/s 147, and following the issuance of a notice u/s 148, the AO has the power to assess or reassess the income which he has reason to believe has escaped assessment and any other income chargeable to tax. The word ‘and’ used in the section is important and results in an interpretation that it is only along with income which the AO has formed reason to believe has escaped assessments that any other income can be brought to tax. Independently any other income cannot be assessed to tax. It is only when in proceedings u/s 147, the AO, assesses or reassesses any income chargeable to tax which has escaped assessment for any assessment year, with respect to which he had reason to believe to be so, then only in addition, he can also put to tax any other income, which has escaped assessment and comes to his notice subsequently in the course of proceedings u/s 147. The Hon’ble court held at para 14-15 of its order as follows:-

“ 14. The rival submissions which have been urged on behalf of the Revenue and the assessee can be dealt with both as a matter of first principle, interpreting the section as it stands and on the basis of precedent on the subject. Interpreting the provision as it stands and without adding or deducting from the words used by Parliament, it is clear that upon the formation of a reason to believe under section 147 and following the issuance of a notice under section 148, the Assessing Officer has power to assess or reassess the income which he has reason to believe had escaped assessment, and also any other income chargeable to tax. The words “and also” cannot be ignored. The interpretation which the court places on the provision should not result in diluting the effect of these words or rendering any part of the language used by Parliament otiose. Parliament having used the words “assess or reassess such income and also any other income chargeable to tax which has escaped assessment”, the words” and also” cannot be read as being in the alternative. On the contrary, the correct interpretation would be to regard those words as being conjunctive and cumulative. It is of some significance that Parliament has not used the word “or”. The Legislature did not rest content by merely using the word ”and”. The words “and” as well as “also” have been used together and in conjunction.

15. The Shorter Oxford Dictionary defines the expression “also” to mean further, in addition besides, too. The word has been treated as being relative and conjunctive. Evidently therefore, what Parliament intends by use of the words “and also” is that the Assessing officer, upon the formation of a reason to believe under section 147 and the issuance of a notice under section 148(2) must assess or reassess: (i) such income; and also (ii) any other income chargeable to tax which has escaped assessment and which comes to his notice subsequently in the course of the proceedings under the section. The words “such income” refer to the income chargeable to tax which has escaped assessment, and in respect of which the Assessing Officer has formed a reason to believe that it has escaped assessment. Hence, the language which has been used by Parliament is indicative of the position that the assessment or reassessment must be in respect of the income in respect of which he has formed a reason to believe that it has escaped assessment and also in respect of any other income which comes to his notice subsequently during the course of the proceeding as having escaped assessment. If the income, the escapement of which was the basis of the formation of the reason to believe is not assessed or reassessed, it would not be open to the Assessing Officer to independently assess only that income which comes to his notice subsequently in the course of the proceedings under the section as having escaped assessment. If upon the issuance of a notice under section 148(2), the Assessing Officer accepts the objections of the assessee and does not assess or reassess the income which was the basis of the notice, it would not open to him to assess income under some other issue independently. Parliament when it enacted the provisions of section 147 with effect from April 1, 1989 clearly stipulated that the Assessing Officer has to assess to reassess the income which he had reason to believe had escaped assessment and also any other income chargeable to tax which came to his notice during the proceeding. In the absence of the assessment or reassessment of the former, he cannot independently assess the latter. “

The Hon’ble High Court further held that Explanation 3 to section 147 only lifts the embargo placed by judicial decisions on the making of an assessment or reassessment on grounds other than those recorded in the reasons for reopening.

The Hon’ble High Court while dealing with Explanation 3 to section 147, held at para 22 of its order as follows:-

“22.Explanation 3 lifts the embargo, which was inserted by judicial interpretation, on the making of an assessment or reassessment on grounds other than those on the basis of which a notice was issued under section 148. Setting out the reasons, for the belief that income had escaped assessment. Those judicial decisions had held that when the assessment was sought to be reopened on the ground that income had escaped assessment on a certain issue, the Assessing officer could not make an assessment or reassessment on another issue which came to his notice during the proceedings. This interpretation will no longer hold the field after the insertion of Explanation 3 by the Finance (No.2) Act of 2009. However, Explanation 3 does not and cannot override the necessity of fulfilling the conditions set out in the substantive part of section 147. An Explanation to a statutory provision is intended to explain its contents and cannot be construed to override it or render the substance and core nugatory. Section 147 has this effect that the Assessing Officer has to assess or reassess the income (“such income”) which escaped assessment and which was the basis of the formation of belief and if he does so, he can also assess or reassess any other income which has escaped assessment and which comes to his notice during the course of the proceedings. However, if after issuing a notice under section 148, he accepted the contention of the assessee and holds that the income which he has initially formed a reason to believe had escaped assessment, has as a matter of fact not escaped assessment, it is not open to him independently to assess some other income. If he intends to do so, a fresh notice under section 148 would be necessary, the legality of which would be tested in the event of a challenge by the assessee.”

Thus the Hon’ble High Court held that the word “and also” used in section 147 was used in a cumulative and conjunctive sense, meaning thereby that it is only if additions are made on account of incomes found to have escaped assessment as per reason recorded, that any other income which has escaped assessment and comes to the notice subsequently during assessment proceedings can be brought to tax. The Hon’ble High court held at para 23 of its order as follows:-

“23. We have approached the issue of interpretation that has arisen for decision in these appeals, both as a matter for first principle, based on the language used in section 147 and on the basis of the precedent on the subject. We agree with the submission which has been urged on behalf of the assessee that section 147 as it stands postulates that upon the formation of a reason to believe that income chargeable to tax has escaped assessment for any assessment year, the Assessing Officer may assess or reassess such income “and also” any other income chargeable to tax which comes to his notice subsequently during the proceedings as having escaped assessment. The words “and also” are used in a cumulative and conjunctive sense. To read these words as being in the alternative would be to rewrite the language used by Parliament. Our view has been supported by the background which led to the insertion to Explanation 3 to section 147. Parliament must be regarded as being aware of the interpretation that was placed on the words “and also” by the Rajasthan High Court in Shri Ram Singh [2008] 306 ITR 343. Parliament has not taken away the basis of that decision. While it is open to Parliament, having regard to the plenitude of its legislative powers to do so, the provisions of section 147 as they stood after the amendment of April 1, 1989, continue to hold the field.”

The Hon’ble Delhi High Court following the above decision of the Bombay High Court has also upheld this view in Ranbaxy Laboratories Ltd. Vs. CIT(2011) 336 ITR 136.

The argument of the Ld. DR that the ratio propounded in Jet Airways (Supra) and Ranbaxy Laboratories (Supra) does not apply since those cases related to assessment years when Explanation 3 to section 147 was not on the statute, we find has not merit since in the above mentioned decisions the Court has interpreted the provision of section 147 on first principle to hold that only if addition are made on account of income which the AO had reason to believe had escaped assessment that any other addition can be made. It is not Explanation 3 which had been interpreted in favour of the assessee in these cases. In fact we find that Explanation 3 empowers AO’s to make assessment on any matter which comes to their notice during assessment proceedings. But the same alongwith section 147 has been interpreted as stated above. Therefore, the presence or absence of Explanation 3 to section 147 does not nullify the interpretation given by the courts in the above stated judgments. Further the argument of the Ld. DR that the reason is not rendered invalid merely because no addition has been made on account of incomes which the AO had reason to believe had escaped assessment, is also of no consequence, since as is evident from the order cited above, the courts have not held the reasons to be invalid in such cases and quashed the proceedings. The validity of the reasons had not been in issue in these cases, but the courts have interpreted the provisions of section 147 on first principles and held that the AO had no power to assess any other income to tax unless addition is made of income which he had reason to believe had escaped assessment.

11. Respectfully following the above judgments, we hold that in the absence of any addition having been made on incomes which the AO had reason to believe had escaped assessment, no addition of any other income could have been made and that the AO had exceeded his jurisdiction in passing the impugned order u/s 147. The same is liable to be quashed. We quash accordingly.

Further since the order has been quashed on legal issue, we are not adjudicating on the merits of the case.

12. In the result appeal of the assessee is allowed.

Order pronounced in the Open Court.

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SUPREME COURT OF INDIA
M/S. P. G. & W. SAWOO PVT. LTD. & ANR. VS ACIT
16-04-2016


CIVIL APPEAL NO(S) 4091 OF 2016

1. Leave granted.

2. Heard learned counsels for the parties and perused the relevant material.

3. The short question that arises for determination in this appeal is the validity of the notice issued under Section 148 of the Income Tax Act (for short, 'the Act') seeking to reopen the concluded assessment of the appellant-assessee for the assessment year 1989-1990 (for the period of 21 months commencing on 01.07.198 and ending on 31.03.1989).

4. The income in question being income from house property is liable to be computed in accordance with the provision of Sections 22 and 23 of the Act. The premises belonging to the appellant was let out on rent to the Government of India. The rent was enhanced from Rs.4.00 to Rs.8.11 per sq.ft. per month effective from 01.09.1987. The said enhancement of rent was made by a letter dated 29.03.1994 of the Estate Manager of the Government of India. The said letter makes it clear that the enhancement was subject to conditions including execution of a fresh lease agreement and communication of acceptance of the conditions incorporated therein. Such acceptance was communicated by the appellant by letter dated 30.03.1994.

5. The contention of the assessee before us is that having regard to the provisions of Section 5, 22 and 23 of the Act and the decision of this Court in 'E.D. Sassoon & Company Ltd. And Others vs. Commissioner of Income-Tax', (1954) 26 ITR 27, no income accrued or arose and no annual value which is taxable under Sections 22 and 23 of the Act was received or receivable by the assessee at any point of time during the previous year corresponding to the assessment year 1989-1990. Hence, the impugned notice seeking to reopen the assessment in question is without jurisdiction or authority of law.

6. To controvert the aforesaid contention on behalf of the appellant-assessee the respondent-Revenue contends before us that the enhancement of rent is retrospective i.e. from 01.09.1987 and, therefore, the income must have to be understood to have been received in the said assessment year i.e. 1989-1990.

7. The issue is capable of resolution within a short compass. A reading of the decision of this Court in E.D. Sassoon (supra) would go to show that the income to be chargeable to tax must accrue or arise at any point of time during the previous year. This Court in E.D. Sassoon (supra) has held in categorical terms that income can be said to have accrued or arisen only when a right to receive the amount in question is vested in the appellant-assessee. The following extract from the judgment in E.D. Sassoon (supra) amply illustrates the above position:

“The word "earned" has not been used in Section 4 of the Income-tax Act. The section talks of "income, profits and gains" from whatever source derived which:

(a) are received by or on behalf of the assessee, or

(b) accrue or arise to the assessee in the taxable territories during the chargeable accounting period. Neither the word "income" nor the words "is received", "accrues" and "arises" have been defined in the Act. The Privy Council in Commissioner of Income-tax, Bengal v. Shaw Wallace & Co.1 attempted a definition of the term “income” in the words following :-

1 (1932) I.L.R. 59 Cal. 1343 at 1352

"Income, their Lordships think, in the Indian Income-tax Act, connotes a periodical monetary return 'coming in' with some sort of regularity, or expected regularity from definite sources. The source is not necessarily one which is expected to be continuously productive, but it must be one whose object is the production of a definite return, excluding anything in the nature of a mere windfall."

Mukerji, J., has defined these terms in Rogers Pyatt Shellac & Co. v. Secretary of State for India "Now what is income ? The term is nowhere defined in the Act.....In the absence of a statutory definition we must take its ordinary dictionary meaning -'that which comes in as the periodical produce of one's work, business, lands or investments (considered in reference to its amount and commonly expressed in terms of money); annual or periodical receipts accruing to a person or corporation " (Oxford Dictionary). The word clearly implies the idea of receipt, actual or constructive. The policy of the Act is to make the amount taxable when it is paid or received either actually or constructively. 'Accrues', 'arises' and 'is received' are three distinct terms. So far as receiving of income is concerned there can be no difficulty; it conveys a clear and definite meaning, and I can think of no expression which makes its meaning 2(1925) 1 I.T.C. 363 at 371 plainer than the word 'receiving' itself. The words 'accrue' and 'arise' also are not defined in the Act. The ordinary dictionary meanings of these words have got to be taken as the meanings attaching to them. 'Accruing' is synonymous with 'arising' in the sense of springing as a natural growth or result. The three Expressions 'accrues', 'arises' and 'is received' having been used in the section, strictly speaking 'accrues' should not be taken as synonymous with 'arises' but on the distinct sense of growing up by way of addition for increase or as an accession or advantage; while the word 'arises' means comes into existence or notice or presents itself. The former connotes the idea of a growth or accumulation and the latter of the growth or accumulation with a tangible shape so as to be receivable. It is difficult to say that this distinction has been throughout maintained in the Act and perhaps the two words seem to denote the same idea or ideas very similar, and the difference only lies in this that one is more appropriate than the other when applied to particular cases. It is clear, however, as pointed out by Fry, L.J. in Colquhoun v. Brooks3, [this part of the decision not having been affected by the reversal of the decision by the House of Lords] that both the words are used in contradistinction to the word 'receive' and indicate a right to receive. They represent a stage anterior to the point of time when the income becomes receivable and connote a character of the income which is more or less inchoate.

One other matter need be referred to in connection with the section. What is sought to be taxed must be income and it cannot be taxed unless it has arrived at a stage when it can be called 'income'."

The observations of Lord Justice Fry quoted above by Mukerji J. were made in Colquhoun v. Brooks4 while construing the provisions of 16 and 17 Victoria Chapter 34, Section 2 , Scehedule'D'. The words to be construed there were “profits or gains, arising or accruing” and it was observed by Lord Justice Fry at page 59:-

"In the first place, I would observe that the tax is in respect of 'profits or gains arising or accruing.' I cannot read those words as meaning 'received by'. If the enactment were limited to profits and gains 'received by' the person to be charged, that limitation would apply as much to all Her Majesty's subjects as to foreigners residing in this country. The result would be that no income-tax would be payable upon profits which accrued but which were not actually received, although profits might have been earned in the kingdom and might have accrued in the kingdom. I think, therefore, that the words 'arising or accruing' are general words descriptive of a right to receive profits."

4 (1888) 21 Q.B.D. 52 at 59
To the same effect are the observations of Satyanarayana Rao J. in Commissioner of Income-tax, Madras

v. Anamallais Timber Trust Ltd.5, and Mukherjea J. in Commissioner of Income-tax, Bombay v. Ahmedbhai Umarbhai & Co., Bombay6, where this passage from the judgment of Mukerji J. in Rogers Pyatt Shellac & Co. v. Secretary of State for India7, is approved and adopted. It is clear therefore that income may accrue to an assesee without the actual receipt of the same. If the assessee acquires a right to receive the income, the income can be said to have accrued to him though it may be received later on its being ascertained. The basic conception is that he must have acquired a right to receive the income. There must be a debt owed to him by somebody. There must be as is otherwise expressed debitum in presenti, solvendum in futuro; See W. S. Try Ltd. v. Johnson (Inspector of Taxes8), and Webb v. Stenton and Others, Garnishees9. Unless and until there is created in favour of the assessee a debt due by somebody it cannot be said that he has acquired a right to receive the income or that income has accrued to him.”

5 (1950) 18 I.T.R. 333 at 342
6 (1950) S.C.R. 335 at 389 : 18 I.T.R. 472
7 (1925) 1 I.T.C. 365 at 372
8 (1946) 1 All E.R. 532 at 539
9 11 Q.B.D. 518 at 522, 527

8. Viewed from the aforesaid perspective, it is clear that no such right to receive the rent accrued to the assessee at any point of time during the assessment year in question, inasmuch as such enhancement though with retrospective effect, was made only in the year 1994. The contention of the Revenue that the enhancement was with retrospective effect, in our considered view, does not alter the situation as retrospectivity is with regard to the right to receive rent with effect from an anterior date. The right, however, came to be vested only in the year 1994.

9. In the light of the foregoing discussions, it has to be held that the notice seeking to reopen the assessment for the assessment year 1989-1990 is without jurisdiction and authority of law. The said notice, therefore, is liable to be interfered with and the order of the High Court set aside.

We order accordingly. Consequently, the appeal is allowed.

10. Needless to say, the present adjudication is confined to the question of jurisdiction to issue the notice under Section 148 of the Act for reopening the assessment for the assessment year 1989-1990. No opinion on the rights and liabilities of the parties in respect of the receipt in question with regard to any subsequent year(s) has been dealt with by us and we make it clear that the same will be governed by the relevant provisions of the Act.

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