Ujjal Bhuyan, J.
1. Heard Mr. Challa Gunaranjan, learned counsel for the appellant-assessee and Mr. J.V.Prasad, learned Standing Counsel, Income Tax Department for the respondent-revenue.
2. This appeal under Section 260-A of the Income Tax Act, 1961 (briefly ‘the Act’ hereinafter) has been preferred by the assessee against the order dated 30.12.2004 passed by the Income Tax Appellate Tribunal, Hyderabad Bench ‘A’, Hyderabad (Tribunal) in I.T.A.No.262/Hyd/1999 for the assessment year 1990-91.
3. On 29.08.2005, the appeal was admitted on the following five ‘questions of law’:
i. Whether change in method of computation of income would justify the conclusion that income escaped assessment u/s.147 of the Income Tax Act?
ii. Whether there is any change between the earlier provisions of Section 147 of Income Tax Act and the new provisions of that Section substituted with effect from 01.04.1989 in regard to the scope of words ‘reason to believe’ appearing in the section?
iii. Whether the Income Tax Appellate Tribunal is justified in law in disallowing the personnel, administrative and financial expenditure relating to the sub-contracts allowed in the original assessment?
iv. Whether the order of the Income Tax Appellate Tribunal is perverse insofar as it omitted to consider the relevant material viz., computation of profits in subcontract works?
v. Whether the order of Income Tax Appellate Tribunal is perverse also for the reason that it omitted to consider the relevant judicial decisions cited in regard to interpretation of Section 147 of the Income Tax Act?
4. Assessee had filed original return of income on 31.12.1990 declaring income of Rs.74,93,200.00. Assessment order was passed by the assessing officer on 30.03.1993 under Section 143(3) of the Act determining the income of the assessee at Rs.1,09,32,430.00.
5. Subsequently, the aforesaid assessment was reopened under Section 147 of the Act by issue of notice dated 31.03.1997 under Section 148 of the Act.
6. During the reassessment proceedings, assessing officer noted that in the original assessment proceedings, he had not taken into account certain items of receipts, which should not have been treated as contract income being in the nature of other income not relatable to the contract income. Therefore, those receipts were added to the income of the assessee. Assessing officer further found that assessee had claimed investment allowance of Rs.45,62,227.00, which was allowed in the original assessment order. It was noticed that Supreme Court in CIT v. N.C.Buddha Raja (204 ITR 412) held that in the case of contractors, investment allowance could not be allowed since contractors cannot be construed to be engaged in the business of manufacturing or production of articles or things. Therefore, the investment allowance of Rs.45,62,227.00 earlier allowed was disallowed. Additionally, assessing officer made disallowance under Section 43B of the Act, depreciation on excavator and depreciation on trucks. Thereafter, vide the assessment order dated 31.03.1997 passed under Section 143(3) read with Section 148(sic) of the Act, assessing officer computed the total income of the assessee at Rs.2,16,89,170.00. However, after adjustment of the refund for earlier assessment years, the amount payable by the assessee was quantified at Rs.95,690.00.
7. Against the aforesaid order of assessment, assessee preferred appeal before the Commissioner of Income Tax (Appeals). By the appellate order dated 12.01.1999, the appeal was partly allowed. While granting certain relief to the assessee, first appellate authority however, held that once the assessment is reopened, it is open to the assessing officer to even re-evaluate the material available on record and redetermine the income accordingly.
8. Assessee preferred further appeal before the Tribunal. In ground No.3 of the appeal, assessee contended that assessing officer could not change the basis of original assessment by changing his opinion on the same issue, which was earlier considered and decided in the original assessment proceedings. Ground No.4 pertains to additions made by the assessing officer on account of commission earned on sub-contract and hire charges as other income.
9. Insofar ground No.3 is concerned, Tribunal found that assessing officer had not changed his opinion on issues which were already considered and decided in the original assessment proceedings. Net turnover of assessee continued to be Rs.6,36,16,441.00 and income thereon continued to be assessed @ 15% both in the original assessment order as well as in the reassessment order.
10. Regarding ground No.4, Tribunal noted that assessee had not led any evidence to show that the hire charges on plant & machinery and rent received from house property should be considered as contract receipts from its own contracts and only a percentage of the same should be brought to tax. Tribunal further noted that the entire argument advanced by the assessee was whether the assessing officer could bring to tax other income while making reassessment; and that assessee had not disputed validity of the reassessment proceedings.
11. According to the assessee in the reassessment proceedings, the assessing officer should only have disallowed the investment allowance which was earlier allowed by following the decision of the Supreme Court in N.C.Budharaja (1 supra) and not brought to tax as ‘other income’.
12. Such a contention of the assessee was not accepted by the Tribunal. Tribunal took the view that once an assessment is reopened, assessing officer can assess or reassess any other income chargeable to tax which had escaped assessment and which comes to the notice of the assessing officer subsequently.
13. Before us, learned counsel for the assessee strenuously argued that it is not open to the assessing officer to make fresh additions or delete disallowances earlier granted on mere change of opinion. Reassessment proceedings cannot be used to review the original assessment proceedings. In this connection, learned counsel has placed reliance on the following decisions:
Jindal Photofilms Limited v. DCIT (234 ITR 170 = 1998(46) DRJ)
CIT v. Kelvinator of India Ltd (256 ITR 1,2) (Del.)(FB).
CIT v. Kelvinator of India Ltd (2010(2) SCC 723).
Ritu Investments Private Limited v. Deputy Commissioner of Income Tax (2010 SCC Online Del 4070 = (2012) 345 ITR 214)
14. On the other hand, learned counsel for the respondent submits that assessee (appellant) has not challenged or questioned reopening of assessment. Having accepted reopening of assessment, it is not open to the assessee to question the additions made by the assessing officer on the ground that it amounted to mere change of opinion or reviewing earlier original assessment order. All the decisions cited by learned counsel for the assessee pertain to challenge to reopening of assessment and it was in that context that the judgments were delivered. He has referred to and relied upon a decision of the Supreme Court in CIT v. Sun Engineering Works (P) Ltd (1992(4) SCC 363= 198 ITR 297). In this connection, he has referred to decision of the Supreme Court in V.Jagan Mohan Rao v. CIT (75 ITR 373) which has since been reiterated by the Supreme Court in CIT v. Sun Engineering Works (P) Ltd. (6 supra).
15. Submissions made by learned counsel for the parties have received the due consideration of the Court.
16. Though a number of questions had been framed by this Court at the time of admission of the appeal, the basic question which arises for consideration in this appeal is whether upon reopening of assessment, assessing officer should confine only to the income chargeable to tax which had escaped assessment or is it open to him to bring to tax those items of income which had escaped assessment or which had suffered under assessment other than those item/items which led to reopening of assessment?
17. As rightly pointed out by learned counsel for the respondent-revenue, all the decisions relied upon by the learned counsel for the appellant-assessee relate to scope and power of the assessing officer while reopening the assessment. In that context, it was held by the courts that assessing officer has the power to reopen the assessment only if he has reason to believe that income had escaped assessment based on tangible material. Mere change of opinion does not empower the assessing officer to reopen assessment. A concluded assessment cannot be reviewed or revised in the garb of reassessment.
18. There can be no dispute to the proposition of law propounded in the aforesaid decisions relied upon by learned counsel for the appellant.
19. However, the moot question as adverted to above was examined by the Supreme Court in V.Jagan Mohan Rao v. CIT (7 supra) which dealt with reassessment under Section 34 of the Indian Income Tax Act, 1922. In that case, it was held that once an assessment is reopened, the previous under-assessment is set aside and the whole assessment proceeding starts afresh. When valid proceedings are started afresh, income tax officer had not only the jurisdiction but it was his duty to levy tax on the entire income that had escaped assessment during that assessment year. It was held as under:
Section 34 in terms states that once the Income-tax Officer decides to reopen the assessment, he could do so within the period prescribed by serving on the person liable to pay tax, a notice containing all or any of the requirements which may be included in a notice under Section 22(2) and may proceed to assess or reassess such income, profits or gains. It is, therefore, manifest that once assessment is reopened by issuing a notice under Sub-section (2) of Section 22 the previous under-assessment is set aside and the whole assessment proceedings start afresh. When once valid proceedings are started under Section 34(1)(b) the Income-tax Officer had not only the jurisdiction but it was his duty to levy tax on the entire income that had escaped assessment during that year.
20. Subsequently, it was noticed that the aforesaid decision in V.Jagan Mohan Rao v. CIT (7 supra) led to divergent interpretations by various High Courts- one set of High Courts took the view that in proceedings under Section 147 of the Act, the entire assessment is reopened. The original assessment is wiped off and therefore, the assessee can put forward all pleas even if rejected during the original proceedings; on the other hand, there were other High Courts which took the view that reassessment was confined only to the escaped assessment and that an assessee can put forward pleas only in respect thereof.
21. In view of such conflicting interpretations Supreme Court in CIT v. Sun Engineering Works (P) Ltd (6 supra) analysed the above issue in the following manner:
The principle laid down by this Court in Jaganmohan Rao's case, therefore, is only to the extent that once an assessment is validly reopened by issuance of notice under Section 22(2) of the 1922 Act (corresponding to Section 148 of the Act), the previous under assessment is set aside and the ITO has the jurisdiction and duty to levy tax on the entire income that had escaped assessment during the previous year. What is set aside is, thus, only the previous underassessment and not the original assessment proceedings. An order made in relation to the escaped turnover does not affect the operative force of the original assessment, particularly if it has acquired finality, and the original order retains both its character and identity. It is only in cases of "underassessment" based on Clauses (a) to (d) of Explanation (I) to Section 147, that the assessment of tax due has to be recomputed on the entire taxable income. The judgment in Jaganmohan Rao's case, therefore, cannot be read to imply as laying down that in the reassessment proceedings validly initiated, the assessee can seek reopening of the whole assessment and claim credit in respect of items finally concluded in the original assessment. The assessee cannot claim recompilation of the income or redoing of an assessment and be allowed a claim which he either failed to make or which was otherwise rejected at the time of original assessment, which has since acquired finality. Of course, in the reassessment proceedings it is open to an assessee to show that the income alleged to have escaped assessment has in truth and in fact not escaped assessment but that the same had been shown under some inappropriate head in the original return, but to read the judgment in Jaganmohan Rao's case, as if laying down that reassessment wipes out the original assessment and that reassessment is not only confined to "escaped assessment" or "under assessment" but to the entire assessment for the year and start the assessment proceeding de novo giving right to an assessee to re-agitate matters which he had lost during the original assessment proceeding, which had acquired finality, is not only erroneous but also against the phraseology of Section 147 of the Act and the object of reassessment proceedings. Such an interpretation would be reading that judgment totally out of context in which the questions arose for decision in that case. It is neither desirable nor permissible to pick out a word or a sentence from the judgment of this Court, divorced from the context of the question under consideration and treat it to be the complete 'law' declared by this Court. The judgment must be read as a whole and the observations from the judgment have to be considered in the light of the questions which were before this Court. A decision of this Court takes its colour from the questions involved in the case in which it is rendered and while applying the decision to a later case, the courts must carefully try to ascertain the true principle laid down by the decision of this Court and not to pick out words or sentences from the judgment, divorced from the context of the questions under consideration by this Court, to support their reasonings.
22. Thereafter, the Supreme Court held that in proceedings under Section 147 of the Act, the income tax officer may bring to charge items of income which had escaped assessment other than or in addition to those item or items which had led to issuance of notice under Section 148. It has been clarified that it is only the under-assessment which is set aside and not the entire assessment where reassessment proceedings are initiated. An assessee cannot resist validly initiated reassessment proceedings merely by showing that other income which had been assessed originally was too high a figure. Claims which have been disallowed in the original assessment proceedings cannot be permitted to be agitated by the assessee on reassessment. Object and purpose of proceedings under Section 147 of the Act is for the benefit of the revenue and not an assessee. An assessee cannot be permitted to convert the reassessment proceedings as his appeal or revision in disguise. Supreme Court further clarified that even in cases where the claims of the assessee during the course of reassessment proceedings relating to the escaped assessment are accepted, still allowance of such claims has to be limited to the extent to which they reduce income to that originally assessed. Income for the purposes of reassessment cannot be reduced beyond the income originally assessed. In this regard, Supreme Court held as follows:
Although, Section 147 is part of a taxing statute, it imposes no charge on the subject but deals merely with the machinery of assessment and in interpreting a provision of that kind, the rule is that construction should be preferred which makes the machinery workable. Since, the proceedings under Section 147 of the Act are for the benefit of the Revenue and not an assessee and are aimed at garnering the 'escaped income' of an assessee, the same cannot be allowed to be converted as 'revisional' or 'review' proceedings at the instance of the assessee, thereby making the machinery unworkable.
As a result of the aforesaid discussion, we find that in proceedings under Section 147 of the Act, the Income Tax Officer may bring to charge items of income which had escaped assessment other than or in addition to that item or items which have led to the issuance of notice under Section 148 and where re-assessment is made under Section 147 in respect of income which has escaped tax, the Income Tax Officer's jurisdiction is confined to only such income which has escaped tax or has been under-assessed and does not extend to revising, reopening or reconsidering the whole assessment or permitting the assessee to reagitate questions which had been decided in the original assessment proceedings. It is only the under-assessment which is set aside and not the entire assessment when reassessment proceedings are initiated. The Income Tax Officer cannot make an order of reassessment inconsistent with the original order of assessment in respect of matters which are not the subject matter of proceedings under Section 147. An assessee cannot resist validly initiated reassessment proceedings under this Section merely by showing that other income which had been assessee originally was at too high a figure except in cases under Section 152(2). The words "such income" in Section 147 clearly referred to the income which is chargeable to tax but has "escaped assessment" and the Income Tax Officers' jurisdiction under the Section is confined only to such income which has escaped assessment. It does not extend to reconsidering generally the concluded earlier assessment. Claims which have been disallowed in the original assessment proceeding cannot be permitted to be re-agitated on the assessment being reopened for bringing to tax certain income whi
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ch had escaped assessment because the controversy on reassessment is confined to matters which are relevant only in respect of the income which had not been brought to tax during the course of the original assessment. A matter not agitated in the concluded original assessment proceedings also cannot be permitted to be agitated in the reassessment proceedings unless relatable to the item sought to be taxed as 'escaped income'. Indeed, in the reassessment proceedings for bringing to tax items which had escaped assessment, it would be open to an assessee to put forward claims for deduction of any expenditure in respect of that income or the non-taxability of the items at all. Keeping in view the object and purpose of the proceedings under Section 147 of the Act which are for the benefit of the Revenue and not an assessee, an assessee cannot be permitted to convert the reassessment proceedings as his appeal or revision, in disguise, and seek relief in respect of items earlier rejected or claim relief in respect of items not claimed in the original assessment proceedings, unless relatable to 'escaped income', and reagitate the concluded matters. Even in cases where the claims of the assessee during the course of reassessment proceedings relating to the escaped assessment are accepted, still the allowance of such claims has to be limited to the extent to which they reduce the income to that originally assessed. The income for purposes of 'reassessment' cannot be reduced beyond the income originally assessed. 23. That being the position, we are of the view that the Tribunal was right in rejecting the appeal of the assessee. The questions framed cannot be said to be substantial questions of law arising out of the order of the Tribunal dated 30.12.2004 in I.T.A.No.262/Hyd/1992 for the assessment year 1990-91. 24. We do not find any merit in the appeal. Appeal is accordingly dismissed. No costs. As a sequel, miscellaneous petitions, pending if any, stand dismissed.