Even if at passing the original assessment order, there is a mistake or non-application of mind, initiation of re-assessment the proceedings bad in law – HC
ABCAUS Case Law Citation:
ABCAUS 2785 (2019) (02) HC
Important Case Laws Cited/relied upon by the parties
Calcutta Discount Co. Ltd. Vs. Income Tax Officer, 41 ITR 191 (SC), Ganga Saran & Sons P. Ltd. Vs. Income Tax Officer & Others (1981) 130 ITR 1 (SC), Commissioner of Income Tax, Delhi Vs. Kelvinator of India Limited (2010) 2 SCC 723, Phool Chand Bajrang Lal and Another Vs. Income Tax Officer (1993) 4 SCC 77 and State of Uttar Pradesh and Others Vs. M/s Aryaverth Chawal Udyog and Others 2016 (91) VST 1 (SC).
The petitioner had challenged the re-assessment proceedings initiated against him by ussie of notice under section 148 of the Income Tax Act, 1961 (‘the Act’).
The petitioner was an individual assessee and is running a Proprietorship concern. The original assessment order was passed under section 143(3) of the Act.
It was alleged that a survey under section 133-A of the Act was conducted at the business premises of a firm and it was found that in the partnership concern, the petitioner is one of the partners and also, the business as Proprietorship is run by him from the same premises.
The case of the petitioner was selected for scrutiny as per the guidelines of CBDT.
Thereafter, proceedings under section 154 of the Act were initiated but subsequently, the same were dropped. Thereafter, proceedings under section 148 of the Act were initiated by issuing the impugned notice on the ground that the petitioner has declared a huge amount of sundry creditors in the name of two concerns which lacked due confirmation/ verification.
It was found that sundry credit balances shown by the petitioner were not verified during the course of original assessment proceedings under section 143(3) of the Act. It was further alleged by the Department that the petitioner has created fake and fictitious liability, which was not ascertainable; hence, the same should be disallowed and added back to the income of the petitioner, which resulted in escapement of tax.
The Petitioner contended that there was no fresh material for initiating re-assessment proceedings against the petitioner, as at the time of passing of the original assessment order, the petitioner had disclosed fully and truly all material facts necessary for his assessment; hence, the present proceedings had been initiated only on the basis of a change of opinion, which is not permissible under the Act.
It was further argued that the proceedings under section 154 of the Act were initiated on the same fact as mentioned in the impugned notice and the proceedings under section 154 of the Act had already been dropped.
It was submitted that the alleged issue for initiating re-assessment proceedings had been decided twice by the respondent – Department; one at the time of passing of the original assessment order and subsequently, under the proceedings initiated under section 154 of the Act and therefore, the proceedings of re-assessment under section 148 of the Act were impermissible in the eyes of law.
On the basis of the various judgments of the Hon’ble Supreme Court, the petitioner argued that the Income Tax Officer must have reasons to believe that the income chargeable to tax had either been under-assessed or escaped assessment and such escapement or under-assessment was occasioned by reason of omission or failure on the part of the assessee to disclose fully and truly all material facts necessary for the assessment and the Income Tax Officer must have reasons to believe that the income chargeable to tax had either been under-assessed or escaped assessment.
The Hon’ble High Court observed that a perusal of the record, would reveal that at the time of passing of the original assessment order, the then Assessing Authority had noted that there was certain difference in creditors’ account and the assessee has given explanation that due to wrong posting done by the Accountant, the total amount of purchase made by him during the year, is much more than recorded. The said fact was confirmed by submitting the copy of the accounts of those party. On verification of the said documents produced by the petitioner, the Assessing Authority was satisfied that the total purchases were much more than the purchases found.
Further, it was noted that the re-assessment proceedings had been initiated on the ground that two concerns were not genuine sundry creditors and were unverifiable and unjustifiable, which was liable to be added back to the income of the petitioner.
The Hon’ble High Court also noted that the proceedings under section 154 of the Act were also initiated against the petitioner on the same set of facts and the same were dropped.
The Hon’ble High Court observed that the Hon’ble Supreme Court had held that mere change of opinion while perusing the same material cannot be a “reason to believe” that a case of escaped assessment exists requiring assessment proceedings to be reopened. The Apex Court had held that in case of there being a change of opinion, there must necessarily be a nexus that requires to be established between the “change of opinion” and the material present before the assessing authority. Discovery of an inadvertent mistake or non-application of mind during assessment would not be a justified ground to reinitiate reassessment proceedings.
The Hon’ble High Court opined that in view of the judgment of the Hon’ble Apex Court, even if, at the time of passing of the original assessment order, there is a mistake or non-application of mind, it would not justify the respondent – Department to re-initiate the proceedings of re-assessment.
The Hon’ble High Court opined that in the instant case, the Assessing Authority had applied its mind and passed the original assessment order and there is no fresh material on record permitting the respondent – Department to initiate re-assessment proceedings. The impugned notice issued under section 148 amounted to change of opinion on the same set of facts, which were available at the time of passing the original assessment order.
The Hon’ble High Court held that the initiation of the re-assessment proceedings was bad in law and accordingly quashed the impugned notice issued under section 148