2005 (2) TMI 46 - HC - Income Tax

Validity and/or legality of the notices issued under section 148 - petitioners submit that all the notices and the proceedings initiated thereunder are without jurisdiction and illegal since none of the conditions precedent for assumption of the jurisdiction u/s 147 have been satisfied - It is evident that even according to the Central Board of Direct Taxes, a mere change of opinion cannot form the basis for reopening a completed assessment petition allowed notices are quashed

Issues Involved:
1. Validity and legality of notices issued under section 148 of the Income-tax Act, 1961.
2. Jurisdiction of the Assessing Officer under section 147 of the Income-tax Act.
3. Conditions precedent for reopening assessments under section 147.
4. Allegation of income escaping assessment.
5. Concept of deferred revenue expenditure under the Income-tax Act.
6. Change of opinion as a basis for reopening assessments.

Detailed Analysis:

1. Validity and Legality of Notices Issued under Section 148:
The petitioner challenged the notices dated March 31, 2001, issued under section 148 for the assessment years 1990-91 to 1996-97. The petitioner argued that these notices and the proceedings initiated were without jurisdiction and illegal, as the conditions precedent for assuming jurisdiction under section 147 were not satisfied.

2. Jurisdiction of the Assessing Officer under Section 147:
Section 147 confers jurisdiction on the Assessing Officer to reopen a completed assessment if there is reason to believe that any income chargeable to tax has escaped assessment. The court emphasized that this jurisdiction is subject to the provisions of sections 148 to 153, and the Assessing Officer must record reasons before issuing any notice under section 148.

3. Conditions Precedent for Reopening Assessments under Section 147:
The court highlighted that for reopening assessments beyond four years, it must be shown that the income escaped assessment due to the assessee's failure to disclose fully and truly all material facts necessary for the assessment. The court referred to the Supreme Court's decision in Calcutta Discount Co. Ltd. v. ITO [1961] 41 ITR 191, which established that both conditions (income escaping assessment and failure to disclose material facts) must be satisfied for reopening assessments.

4. Allegation of Income Escaping Assessment:
The petitioner denied any income escaping assessment for the years in question. The court noted that the reasons recorded for reopening the assessments did not allege any failure on the part of the assessee to disclose material facts. The reasons were based on a changed view of the nature of the expenditure (from revenue to capital) in a subsequent assessment year (1998-99), which the court found to be an insufficient basis for reopening.

5. Concept of Deferred Revenue Expenditure under the Income-tax Act:
The court found the view that there is no concept of deferred revenue expenditure under the Income-tax Act to be unsustainable. The Supreme Court in Madras Industrial Investment Corporation Ltd. v. CIT [1997] 225 ITR 802 (SC) approved the concept of spreading revenue expenditure over several years. The court held that whether an expenditure is revenue or capital is a matter of inference from disclosed facts, not a matter of disclosure by the assessee.

6. Change of Opinion as a Basis for Reopening Assessments:
The court reiterated that an assessment cannot be reopened on a mere change of opinion on the same facts. Referring to various Supreme Court decisions, the court emphasized that the Assessing Officer does not have the power to review or reconsider an assessment based on a change of opinion. The court concluded that the reopening of assessments in this case was based on a mere change of opinion and thus was without jurisdiction.

Conclusion:
The court quashed the notices dated March 30, 2001, issued under section 148 for the assessment years 1990-91 to 1996-97, and all proceedings initiated thereunder. The court held that the conditions precedent for reopening the assessments were not satisfied, and the proceedings were initiated on a mere change of opinion, which is not permissible under the law. The writ petition was allowed, and no order as to costs was made. The court also refused the respondents' prayer for a stay of the judgment's operation.

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