If issue already dealt during original assessment than no reassessment beyond 4 years
Fact and Issue of the case
The writ applicant seeks to challenge the legality and validity of the notice issued by the respondent under Section 148 of the Income Tax Act, 1961 (for short “the Act, 1961”) proposing to reopen the assessment for the year 2012-13 under Section 147 of the Act, 1961. It appears that the writ applicant filed his original return of income on 19th September, 2012, declaring total income at Rs.4,81,02,130/-. The case was selected for scrutiny and an order under Section 143(3) of the Act was passed on 26th February, 2015, determining the total income at Rs.4,81,02,130/-. Thereafter, an order under Section 154 of the Act was passed dated 25th May, 2018, determining the total income of Rs.4,81,18,350/-. In the original return of income, the TDS deducted by some of the parties was not included in the income and was also not claimed as TDS. In such circumstances, the amount of Rs.16,270/- was added to the total income of the assessee and the TDS of the same was also given under the order passed under Section 154 and, ultimately, the income was determined at Rs.4,81,18,350/-.
The reasons for reopening furnished to the writ applicant are as under;
“The assessee has filed original return of income on 19.09.2012 declaring total income of Rs.4,81,02,130/-. The case was selected for scrutiny and order u/s.143(3) of the Act was passed on 26.02.2015 determining total income of Rs.4,81,02,130/-. Thereafter, order u/s.154 of the Act was passed on 2.5.05.2010 determining total income of Rs.4,81,18,350/-. In the said order the TDS deducted by concerned parties was inadvertently not included in the income and only net of TDS income was offered in the return of income. Therefore, the amount of Rs.16270/- was added to the total income of the assessee. Accordingly, the revised total income has been determined at Rs.,4,81,18,350/-.
2. Subsequently, it was revealed that the assessee has claimed exempt income of Rs.27,43,265/- on account of dividend. As per profit & loss account, the assessee has claimed administrative and other expenses. However, no disallowance u/s. 14A r. w.r. 8D(2)(iii) was made. The investment as per balance sheet as on 31.03.2011 and 31.03.2012 is Rs.12,92,89,822/- and Rs.19,90,90,993/- respectively. The average investment worked out to Rs.164190407/- (1/2 of Rs.12,92,89,822/- and Rs.19,90,90,993/-). Hence, 0.5% of average investment is worked out to Rs.8,20,952/- (Rs.1 641900407 / 0.5%). The assessee has not disallowed Rs.8,20,952/- u/s. 14A r.w.r. 8D(2)(iii) which resulted into under assessment of Rs.8,20,952/.
3. Therefore, I have reason to believe that income chargeable to tax has escape assessment within the meaning of section 147 of the IT Act and the assessee failed to disclose fully and truly all material facts necessary for its assessment for the A.Y. 2012-13. Therefore, I am satisfied that it is a fit case for reopening the assessment under section 147 of the Act.
4. In this case, assessment order u/s. 143(3) of the Act has been passed and hence the case is covered by explanation 2(c) to section 147 of the IT Act.
5. In this case, four years have elapsed from the end of assessment year under consideration. Hence, necessary sanction to issue notice u/s. 148 has been obtained separately from the Pr. Commissioner of Income Tax-4, Ahmedabad as per the provisions of section 151(1) of the I.T. Act 1961.”
Observation of the court
Having heard the learned counsel appearing for the parties and having gone through the materials on record, the only question that falls for our consideration is whether the impugned notice issued under Section 148 of the Act is sustainable in law.
Court is of the view that the writ applicant should succeed on the first two contentions i.e. (i) change of opinion and (ii) no failure to truly and fully disclose all the material facts. We take notice of the fact that a notice under Section 142(1) of the Act, 1961 dated 25th July, 2014 was issued to the writ applicant, calling for certain information. One of the informations called for, as contained in Clause (5), reads thus;
“(5) Please provide details of working and documentary evidence in respect of income claimed exempt. You are also requested to provide what expenses you have incurred for earning such exempt income.”
The following information was furnished by the writ applicant vide letter dated 19th August, 2014.
“During the year I have received following tax free income.
a. PPF interest Rs.336423/-
b. Dividend from Mutual Fund and Indian Companies Rs.2743465/-
c. Interest on IFFCL Tax Free Bond Rs.458950/-
d. Long Term Capital Gain Rs.2507836/-
Copy of accounts and documentary evidence attached herewith. I have not expended any amount to earn above mentioned income.”
Thus, from the aforesaid information, it is evident that a specific query was raised by the Assessing Officer with respect to Section 14A and the same was appropriately replied by the writ applicant. The same was accepted at the relevant point of time. Once again the very same issue is sought to be raised for the purpose of reopening which is otherwise not permissible in law on mere change of opinion. It cannot be said that there was any failure on the part of the assessee to fully and truly disclose all the material facts. This writ application, in our opinion, could be said to be squarely covered by the decision of the Supreme Court rendered in the case of CIT vs. Kelvinator India, reported in (2010) 2 SCC 723, wherein the Supreme Court observed as under;
“On going through the changes, quoted above, made to Section 147 of the Act, we find that, prior to the Direct Tax Laws (Amendment) Act, 1987, reopening could be done under the above two conditions and fulfillment of the said conditions alone conferred jurisdiction on the assessing officer to make a back assessment, but in Section 147 of the Act (with effect from 1-4- 1989), they are given a go-by and only one condition has remained viz. that where the assessing officer has reason to believe that income has escaped assessment, confers jurisdiction to reopen the assessment. Therefore, post-14- 1989, power to reopen is much wider. However, one needs to give a schematic interpretation to the words “reason to believe” failing which, we are afraid, Section 147 would give arbitrary powers to the assessing officer to reopen assessments on the basis of “mere change of opinion”, which cannot be per se reason to reopen.
It must also be keet in mind the conceptual difference between power to review and power to reassess. 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 reopening 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, the 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. Our view gets support from the changes made to Section 147 of the Act, as quoted hereinabove. Under the Direct Tax Laws (Amendment) Act, 1987, Parliament not only deleted the words “reason to believe” but also inserted the word “opinion” in Section 147 of the Act. However, on receipt of representations from the companies against omission of the words “reason to believe”, Parliament reintroduced the said expression and deleted the word “opinion” on the ground that it would vest arbitrary powers in the assessing officer.
The tribunal quote hereinbelow the relevant portion of Circular No.549 dated 31-10-1989, which reads as follows:
“7.2. Amendment made by the Amending Act, 1989, to reintroduce the expression ‘reason to believe’ in Section 147.—A number of representations were received against the omission of the words ‘reason to believe’ from Section 147 and their substitution by the ‘opinion’ of the Assessing Officer. It was pointed out that the meaning of the expression, ‘reason to believe’ had been explained in a number of court rulings in the past and was well settled and its omission from Section 147 would give arbitrary powers to the Assessing Officer to reopen past assessments on mere change of opinion. To allay these fears, the Amending Act, 1989, has again amended Section 147 to reintroduce the expression ‘has reason to believe’ in the place of the words ‘for reasons to be recorded by him in writing, is of the opinion’. Other provisions of the new Section 147, however, remain the same.” (emphasis supplied)
For the aforestated reasons, we see no merit in these civil appeals filed by the Department, hence, dismissed with no order as to costs.”(Emphasis given by us)”
In the result the tribunal allowed the petition and ruled in favour of the assessee