👍👍👍Reopening of assessment without any new tangible material is unsustainable

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Tahnee Heights CHS Ltd. Vs ITO (Bombay High Court)

Bombay High Court held that assessment order was passed after post considering the submission from the assessee regarding deduction under section 80P. Hence, reopening of assessment in absence of any new tangible material is unsustainable in law.

Facts- The petitioner claimed deduction under section 80P of the Income Tax Act. The return of the petitioner was selected for scrutiny. AO in the order of assessment made certain disallowances, however, AO allowed the deduction under section 80P. Subsequently, a notice under section 148 of the Income Tax Act.

Conclusion- We cannot forget that the order of assessment passed in the case of the assessee was under Section 143(3) of the Act. The Petitioner had specifcally claimed the deduction under Section 80P of the Act which was not only reflected in the return of income but also gone into specifcally as can be seen from the notice issued under Section 142(1) of the Act where by the details of various deductions and exemptions along with documentary evidence had been sought for by the A.O., which fnally led to the passing of the order of assessment where by while certain disallowances were made in respect to certain items, the claim of deduction under Section 80P was allowed.

It is settled law that if a query is raised during the assessment proceedings and the assessee submits a reply thereto, leading to the passing of the order of assessment, a reopening in the absence of any new tangible material would be nothing but a change of opinion, which would not furnish to the A.O. a basis for his ‘reasons to believe’ that income chargeable to tax had escaped assessment.

FULL TEXT OF THE JUDGMENT/ORDER OF BOMBAY HIGH COURT

The Petitioner challenges the order dated 10th March, 2022 as also the notice under Section 148 of the Income Tax Act, 1961 (“the Act”) dated 30th March, 2021 for the assessment year 2013-14 whereby the assessment for the said year is sought to be reopened on the ground that income for the said assessment year had escaped assessment within the meaning of Section 147 of the Act.

2. Briefly stated the material facts are as under:

The Petitioner is a housing society registered under the Maharashtra Cooperative Societies Act. It fled its return on 31st July, 2013 for the assessment year 2013-14 declaring a total income of Rs.11,39,990/- after claiming deduction of Rs.2,62,10,090/-under Section 80P of the Act. According to the Petitioner in the computation of income, the Petitioner had explained the deduction of Rs.2,62,10,090/- under Section 80P of the Act on the following basis, [Rs.2,61,60,090/- under Section 80P(2)(d) and Rs.50,000/-under Section 80P(2)(c) of the Act].

It is stated that the return of income was selected for scrutiny and a notice under Section 143(2) of the Act was issued. Subsequently, a notice under Section 142(1) of the Act was issued calling for various details from the Petitioner including computation of income, annual accounts, bank statements, details of various deductions etc.

A reply to the said notice was submitted by the Petitioner and fnally the deduction came to be allowed in the order of assessment under Section 143(3) of the Act dated 03rd March, 2016. What needs to be highlighted here is that while the A.O. in the order of assessment made certain disallowances, it allowed the deduction under Section 80P amounting to Rs.2,62,10,090/- in the order of assessment. Subsequently, a notice under Section 148 of the Act dated 30th March, 2021 was issued.

3. The reasons furnished to the Petitioner for reopening are as under:

“1. The assessee fled return of income for A.Y. 2013-14 on 31st July, 2013 declaring total income at Rs.11,39,990/-. The case was assessed u/s 143(3) of the I. T. Act, 1961 on 03.03.2016 determining total income at Rs.5,66,92,310/-.

2. It is observed from the records that during the assessment year under consideration, the assessee had earned interest income of Rs.2,61,60,090/- from the investments made in fixed deposits in co-operative Banks. The deduction of the amount was claimed by the assessee and allowed by the AO u/s 80P of the I. T. Act. As per section 80P(2)(d), the interest income derived from its investments with any other co-operative societies is eligible for deduction. In the instant case, the interest income has been derived from investments made in Co­operative Banks which does not fall under purview of Co­operative Society. As per Balance Sheet, the investments were made in Shamrao Vithal Co-op. Bank, Cosmos Co-op. Bank, Saraswat Co-op. Bank and Maharashtra Co-op. Bank. The assessee in its computation of total income claimed deduction of Rs.2,62,10,090/- u/s 80P on account of investments and the same was allowed.

3. In view of the above facts and circumstances of the case and after application of mind, I have reason to believe that income of the assessee, chargeable to tax for the Assessment Year 2013-14 amounting to Rs.2,62,10,090/- or any other income chargeable to tax which comes to my notice subsequently in the course of proceedings for re-assessment has escaped assessment due to failure on the part of the assessee to disclose fully and truly all material facts in this case in terms of provisions of section 147 of the I.T. Act, 1961.

4. In this case, return of income was filed for the year under consideration and assessment u/s 143(3) was completed on 03.03.2016. Accordingly, in this case, the only requirement to initiate proceedings u/s 147 is reason to believe which has been recorded as above. It is pertinent to mention here that in this case the assessee had filed return of income for the year under consideration but no assessment as stipulated u/s 2(40) of the Act was made. In view of the above, provisions of clause (C) of explanation 2 to Section 147 are applicable to facts of this case and the assessment year under consideration is deemed to be a case where income chargeable to tax has escaped assessment.

5. In this case more than four years have lapsed from the end of assessment year under consideration. Hence, necessary sanction from the Pr. CIT-19, Mumbai to issue notice u/s 148 of the I.T. Act, 1961 is hereby sought as per the provisions of Section 151 of the Act.”

4. Objections to the reopening were filed by the Petitioner highlighting the fact that there was no failure on the part of the assessee to disclose fully and truly all material facts before the Assessing Officer (A.O.) during the assessment proceedings under Section 143(3) of the Act. It was also stated by the Petitioner that there was no new tangible material with the A.O. based upon which the assessment could be reopened and that a reappraisal of existing material would amount to review and change of opinion, which was impermissible in view of the various pronouncements on this subject. It was highlighted that the A.O. was very much aware of the claim of the Petitioner for deduction under Section 80P and had allowed the same while framing the assessment. The objections filed by the Petitioner were rejected vide order dated 10th March, 2022.

5. Learned Counsel for the Petitioner has, during the course of his arguments, reiterated the stand as was taken in the objections before the A.O.. Counsel for the Respondents Mr. Sharma has reiterated the stand of the revenue as reflected in the order disposing of objections, dated 10th March, 2022, further supported and buttressed by the reply filed by the Respondents to that extent.

6. Broadly stated the power of an A.O to reopen an assessment 20 WP.1809.2022 OS.doc falls under two categories i.e. reopening within a period of four years from the end of the relevant assessment year and a reopening after four years from the end of the relevant assessment year. Insofaras the reopening within a period of four years from the end of the relevant assessment year is concerned, the A.O. can reopen if he has reason to believe that income chargeable to tax has escaped assessment. Beyond the period of four years, the A.O. has to additionally be satisfied that in a case where an assessment under Section 143(3) of the Act had been completed, the assessee had failed to disclose fully and truly all material facts necessary for assessment during the original assessment proceedings.

7. In the present case admittedly the assessment is sought to be reopened beyond the period of four years and, therefore, both the jurisdictional conditions were required to be satisfied by the A.O.. While testing the issue whether there has been any failure to disclose material facts fully and truly by the assessee, it has repeatedly been held that a bald allegation made by the A.O. in the reasons recorded would not be sufficient and that the A.O. ought to specifically point out as to what facts which were otherwise material for the assessment were not disclosed by the assessee fully and truly during the regular assessment proceedings. A reference in this regard can be made to Hindustan Lever Ltd. V/s. R. B. Wadkar, Assistant Commissioner of Income-Tax and others1

“….. The reasons recorded should be clear and unambiguous and should not suffer from any vagueness. The reasons recorded must disclose his mind. The reasons are the manifestation of the mind of the Assessing Officer. The reasons recorded should be self-explanatory and should not keep the assessee guessing for the reasons. Reasons provide the link between conclusion and evidence. The reasons recorded must be based on evidence. The Assessing Officer, in the event of challenge to the reasons, must be able to justify the same based on material available on record. He must disclose in the reasons as to which fact or material was not disclosed by the assessee fully and truly necessary for assessment of that assessment year, so as to establish the vital link between the reasons and evidence. That vital link is the safeguard against arbitrary reopening of the concluded assessment.

This Court in the aforementioned judgment proceeded to allow the petition and set aside the notice impugned therein only on this ground that the jurisdictional requirement of proviso to Section 147 of the Act had not been complied with by the A.O. In the judgment supra, this Court had noticed that the A.O. had nowhere stated that there was failure on the part of the assessee to disclose fully and truly all the material facts necessary for the assessment of that assessment year, without touching upon any of the other grounds.

8. In the present case although the A.O. has recorded in the reasons that there was failure on the part of the assessee to disclose 20 WP.1809.2022 OS.doc fully and truly material facts, it failed to identify as to what was that material fact which was not disclosed by the assessee which if so disclosed could have prevented the escapement of income. The alleged failure to disclose appears to be nothing but a statement to somehow overcome the hurdle of reopening the assessment beyond four years.

Apart from the above, the A.O. could have proceeded to reopen the assessment only if he had reason to believe that ‘income had escaped assessment’.

9. In CIT V/s. Kelvinator of India Ltd.2 the Supreme Court held:

“ The Assessing Officer has no power to review; he has the power to reassess. But reassessment has to be based on fulfillment of certain precondition and if the concept of “change of opinion” is removed, as contended on behalf of the Department, then, in the garb of re-opening the assessment, review would take place. One must treat the concept of “change of opinion” as an in-built test to check abuse of power by the Assessing Officer. Hence, after 1-4-1989, Assessing Officer has power to reopen, provided there is “tangible material” to come to the conclusion that there is escapement of income from assessment. Reasons must have a live link with the formation of the belief.”

10. In Jindal Photo Films Ltd. Vs. Deputy Commissioner of Income Tax 3the Court, in the light of the facts before it and in the background of section 147 of the Act, observed :

“……………… all that the Income-tax Officer has said is that he was not right in allowing deduction under Section 80I 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 Office 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.”

11. Even in the present case there appears to be no tangible material with the A.O. as can be seen from the reasons recorded and that the reference was made only to the records of the assessment. It thus appears that between the date of the order of assessment and the date of the issuance of notice, nothing new had happened. There was no new information received by the Assessing Officer nor was any reference made to any new material on record. The A.O. was simply attempting to accord a fresh consideration on the issue of deduction under Section 80P of the Act claimed and allowed in favour of the Petitioner.

12. We cannot forget that the order of assessment passed in the case of the assessee was under Section 143(3) of the Act. The Petitioner had specifcally claimed the deduction under Section 80P of the Act which was not only reflected in the return of income but also gone into specifcally as can be seen from the notice issued under Section 142(1) of the Act where by the details of various deductions and exemptions along with documentary evidence had been sought for by the A.O., which fnally led to the passing of the order of assessment where by while certain disallowances were made in respect to certain items, the claim of deduction under Section 80P was allowed.

It is settled law that if a query is raised during the assessment proceedings and the assessee submits a reply thereto, leading to the passing of the order of assessment, a reopening in the absence of any new tangible material would be nothing but a change of opinion, which would not furnish to the A.O. a basis for his ‘reasons to believe’ that income chargeable to tax had escaped assessment.

13. Be that as it may, we are of the opinion that the impugned notice is unsustainable on account of these jurisdictional errors committed by the A.O.. Consequently, the petition is allowed. The impugned notice dated 20 WP.1809.2022 OS.doc 30th March, 2021 under Section 148 of the Act and the impugned order dated 10th March, 2022 are held to be unsustainable and are accordingly quashed.

The writ petition is disposed of accordingly.

Notes:-

1 2004 ITR 332 Vol.268.

2 [2002] 123 Taxman 433 (Delhi).

3 [1998] 234 ITR 170 (Delhi)

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