Reopening notice u/s 148 quashed as Revenue was indulging in fishing by way of scrutinizing again something that had been specifically gone into- High Court
ABCAUS Case Law Citation:
ABCAUS 2121 (2017) (11) HC
Important Case Laws Cited/relied upon by the parties:
Phool Chand Bajrang Lal & Anr v Income Tax Officer & Anr [1993] 203 ITR 456 (SC)
Principal Commissioner v. Silver Line (2016) 383 ITR 455 (Delhi)(HC)
Income Tax Officer v Lakhmani Mewal Dass (1976) 103 ITR 437 (SC)
Commissioner of Income Tax v Kelvinator (India) Ltd (2010) 320 ITR 561
Commissioner of Income Tax v Usha International 348 ITR 485 (Del)
Lakhmani Mewal Dass (supra) and Calcutta Discount Ltd. v. ITO [1961] 41 ITR 191
Brief Facts of the Case:
The instant judgment deaIs with four writ petitions challenging the notice u/s 148 of the Income Tax Act, 1961 (Act) issued by the Assessing Officer (AO) proposing to re-open completed assessments for previous years.
In all the petitions it was alleged that the assessee had incorrectly claimed chapter VI-A deductions under Section 80-IA or Section 80IB as under:
(a) That wrong deduction claimed on interest income which is in the nature of “income from other sources” and it has not been derived from the industrial undertaking.
(b) That no separate particulars of trading sales were filed. Profits derived from trading business was not eligible for deduction u/s 80-lB
(c) That expenses on advertisements and sales promotion claimed in consolidated Profit and Loss Account catered to the needs of all units uniformly and are not unit specific.
(d) That mixing up of trading sales and absence of unit specific profit and loss accounts led to excess deduction under Section 80IB
Contention of the Petitioner Assessee:
It was argued that without any new or tangible materials, the AO could not have issued the impugned notices, upon a re-examination, as it were, of the existing record.
It was contended that there is no suggestion in the two impugned notices that the returns did not make full disclosure; rather the materials on record showed that assessments were completed after due inquiry into the relevant issues, including the issues which the AO highlighted as relevant grounds for re-opening assessments.
It was contended that as held by the Hon’ble Supreme Court, reasons for the formation of the belief must have a rational connection with or relevant bearing on the formation of the belief. Rational connection postulates that there must be a direct nexus or live link between the material coming to the notice of the Income Tax Officer and the formation of his belief that there has been escapement of the income of the assessee from assessment in the particular year because of his failure to disclose fully and truly all material facts. The powers of the Income Tax Officer to reopen assessment, though wide, are not plenary. The words of the statute are “reason to believe” and not “reason to suspect”. The reopening of the assessment after the lapse of many years is a serious matter.
It was argued that in all the cases, the reassessment notice was clearly issued, merely to reassess and recalculate the existing materials, without the benefit of any extrinsic evidence or material that came to the knowledge of the AO. Therefore, the reassessment notices were unsustainable.
It was submitted that argued that the AO did not examine the original record; had he done so, it would have been apparent that not only was the material relied on in re-assessment proceeding not different from what was relied on originally, but even that the AO had directed material and relevant queries in the original proceeding.
Relying upon the decision of the Hon’ble Supreme Court it was contended that in the absence of fresh “tangible” material the revenue is precluded from a second look at the assessment order as it would amount to an opinion.
It was also argued that the decision of Delhi HC was squarely applicable to the facts of the case, because notice under Section 143(2) was not issued.
Contentions of the Respondent Department:
The Department relied upon the decision of the Hon’ble Supreme Court that Since it is not for the Court of judge the sufficiency of reasons for forming the belief by the AO but it is open to an assessee to establish that there in fact existed no belief or that the belief was not at all a bona fide one or was based on vague, irrelevant and non- specific information. To that limited extent, the court may look into the conclusion arrived at by the Income-tax Officer and examine whether there was any material available on the record from which the requisite belief could be formed by the Income-tax Officer and further whether that material had any rational connection or a live link for the formation of the requisite belief.
It was contended that the AO acted within jurisdiction in seeking to reopen the assessment, given the fact that the assessments based on original returns, concealed crucial relevant particulars, which were not gone into. That whenever income escapement comes to light, the AO can look into the records to see whether the disclosure made was full and contained material particulars.
The Department relied on the judgment of the Delhi High Court wherein it was held that opinion formed or based on wrong and incorrect facts or which are belied and untrue do not get protection and cover under the principle of “change of opinion”. Factual information or material which was incorrect or was not available with the Assessing Officer at the time of original assessment would justify initiation of reassessment proceedings. The omission to disclose may be deliberate or inadvertent. The question of concealment is not relevant and is not a precondition which confers jurisdiction to reopen the assessment.
Observations made by the High Court:
The Hon’ble High Court observed that the judgment of the Hon’ble Supreme Court is an authority for the proposition that acquisition of “fresh information, specific in nature and reliable in character, relating to the concluded assessment” which exposes “falsity” of the assessee’s statement during the original statement is a legitimate basis for re-opening (the asssessment).
The Hon’ble High Court further observed that the Hon’ble Supreme Court had pointedly noted that “the mere disclosure of that transaction at the time of original assessment proceedings, cannot be said to be disclosure of the “true” and “full” facts in the case and the I.T.O. would have the jurisdiction to reopen the concluded assessment in such a case.”
The Hon’ble High Court observed that the Hon’ble Supreme Court took note of its earlier decision wherein it was held that the assessee’s prime obligation is to disclose fully and truly all material and relevant facts. This obligation does not extent to a responsibility to disclose what inferences can be drawn from such facts by the authorities.
It was further noted that a three judge bench of the Hon’ble Supreme Court in a subsequent decision crystallized the acceptable standard for upholding a reassessment notice u/s 147/148 as something beyond the existing record, in the form of “tangible material” available to the AO which provides a “live link” to the formation of a legitimate belief that reassessment is called for.
The Hon’ble High Court pondered on what was “tangible material” in all the four cases, which compelled the AO, to issue the reassessment notices?
The Hon’ble High Court opined that there was no such tangible material absolutely. It was not a case visualized by the Hon’ble Supreme Court where something relating to a past year comes to light in the course of assessment in a later assessment year
It was observed that revenue was not arguing that some new and significant information about concealment of income brought to light. The revenue was indulging in fishing, by way of scrutinizing again, something that had been specifically gone into, i.e the character of income and the extent of deduction claimed.
The Hon’ble High Court further observed that the decision of the Delhi High Court relied upon by the revenue itself points out that if some aspect, vital or important, is overlooked during assessment, per se the remedy are not reassessment, but rather, the corrective jurisdiction under Section 263. That such jurisdiction cannot be exercised for some reasons, would not entitle the revenue to resort to reassessment, which in the instant case, was nothing but impermissible review. Considering that the reassessment is premised on reasons which were explicitly gone into as evident from queries to the assessee during the original assessment) for previous years, in the three writ petitions, the notices were clearly unsustainable.
Decision/ Conclusion/Held:
The impugned reassessment notices and all subsequent proceedings were quashed.
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