2014 (9) TMI 7 - HC - Income Tax

Reassessment u/s 147/148 Change of opinion Reason to believe - Disallowance u/s 36(1)(viia) Held that - The reasons indicate are that on account of a mistake on the part of the AO the income had escaped assessment relying upon WEL INTERTRADE PRIVATE LIMITED (FORMERLY WEL INTERTRADE LIMITED) & ANOTHER Versus INCOME TAX OFFICER, WARD 18 (3) 2008 (8) TMI 18 - HIGH COURT DELHI - a mistake on the part of the AO is not sufficient to invoke the provisions of Section 147, particularly, in view of the first proviso thereof wherein one of the pre-conditions is that there must be failure on the part of the assessee to make a full and true disclosure of the material facts which would be necessary for making the assessment - Since there is no failure on the part of the assessee, the provisions of Section 147 could not at all have been invoked after the period of four years from the end of the assessment year - Insofar as the disallowance under Section 36(1)(viia) of the said Act is concerned, the revenue reiterated that there was a clear case of change of opinion which, in any event, was not permissible. Also in RANBAXY LABORATORIES LIMITED Versus COMMISSIONER OF INCOME TAX 2011 (6) TMI 4 - DELHI HIGH COURT section 147 has the effect that the AO has to assess or reassess the income which escaped assessment and which was the basis of the formation of belief and if he does so, he can also assess or reassess any other income which has escaped assessment and which comes to his notice during the course of the proceedings - It is clear that no addition has been made on account of reason (a) - It is also clear that though the specific point was taken in reason (a) and it was one of the reasons to believe that income had escaped assessment yet, no addition was made - The proposition that by mistake or through inadvertence the Assessing Officer did not make the addition, cannot be accepted - when an AO raises a specific issue in the assessment proceedings and yet does not make any addition in the assessment order, it should be accepted that the AO did not find any ground or reason to make the addition - the AO consciously did not make any addition after examining the entire issue. The general statement at the end of the reassessment order cannot be regarded as a finding or an addition - The AO have indicated the specific amount of short levy of interest had to return a conclusive finding resulting in an addition - The note sheet entry of 16.03.2013, cannot, by any stretch of imagination be regarded as a notice u/s 148 - Where are the reasons to believe that income had escaped assessment and, more importantly, that escapement was on account of the assessee s failure to disclose truly and fully all material facts necessary for assessment - By virtue of Section 148(2) the AO is mandated to record his reasons before issuing any notice u/s 148 - in cases where the first proviso to Section 147 applies, in addition to the AO have reason to believe that any income chargeable to tax has escaped assessment, it must also be established as a fact that such escapement of assessment has been occasioned by either the assessee failing to make a return u/s 139, etc., or by reason of failure on the part of the assessee to disclose fully and truly all material facts necessary for assessment, for that assessment year. - This essential pre-condition is clearly missing even if we were, for the sake of argument, to assume, which cannot, that the note-sheet entry of 16.03.2013 was a notice u/s 148 as also the reasons to believe rolled into one. The disallowance in the reassessment order does not pertain to AY 2005-06 but to an earlier year which was not the subject-matter of reassessment - This is clearly impermissible in law - This is apart from the fact that reassessment for an earlier year was in any event time-barred and would also amount to a change of opinion which is also not permitted in law thus, the reassessment order as also the proceedings pursuant to the notice u/s 148 cannot be sustained Decided in favour of Assessee.

Issues Involved:
1. Validity of the re-assessment order dated 28.03.2013.
2. Jurisdiction of the re-assessment proceedings under Section 147/148 of the Income Tax Act, 1961.
3. Failure to disclose material facts by the assessee.
4. Change of opinion by the Assessing Officer.
5. Addition of income not originally stated in the re-assessment notice.
6. Time-barred reassessment for earlier years.
7. Compliance with procedural requirements under Sections 148 and 147 of the Income Tax Act.

Detailed Analysis:

1. Validity of the Re-assessment Order:
The writ petition challenges the re-assessment order dated 28.03.2013, claiming it was issued without jurisdiction. The original assessment was completed on 20.03.2006, and the notice under Section 148 was issued on 29.03.2012, beyond the four-year period, invoking the first proviso to Section 147. The reasons for re-opening the case were related to the assessee's failure to disclose certain facts and the short levy of interest under Section 234D.

2. Jurisdiction of the Re-assessment Proceedings:
The petitioner argued that no additions were made based on the original reasons (a) and (b) provided for re-opening the assessment. Instead, the re-assessment focused on a new issue regarding the deduction claimed under Section 36(1)(viia). The court found that the re-assessment order did not pertain to the assessment year 2005-06 but to preceding years, which was not the subject matter of the original notice under Section 148.

3. Failure to Disclose Material Facts by the Assessee:
The court noted that the reasons for re-opening the assessment did not specify which material facts were not fully and truly disclosed by the assessee. The reasons indicated a mistake on the part of the Assessing Officer rather than a failure by the assessee to disclose material facts.

4. Change of Opinion by the Assessing Officer:
The court held that the re-assessment order amounted to a change of opinion, which is not permissible in law. The specific issue of deduction under Section 36(1)(viia) was raised and answered during the original assessment proceedings, and no disallowance was made at that time.

5. Addition of Income Not Originally Stated in the Re-assessment Notice:
The court referred to various judgments, including Ranbaxy Laboratories Ltd. and Jet Airways (I) Ltd., which established that if no additions are made based on the original reasons for re-opening the assessment, the Assessing Officer cannot independently assess some other income without issuing a fresh notice under Section 148.

6. Time-barred Reassessment for Earlier Years:
The court found that the disallowance of Rs. 453,96,44,854/- pertained to an earlier year, which was not the subject matter of the re-assessment and was time-barred. The reassessment for an earlier year was impermissible as it would amount to a change of opinion.

7. Compliance with Procedural Requirements under Sections 148 and 147:
The court emphasized the importance of compliance with procedural requirements under Sections 148 and 147. The reasons to believe that income had escaped assessment must be recorded before issuing a notice under Section 148. The note-sheet entry of 16.03.2013 could not be regarded as a notice under Section 148 or as reasons to believe.

Conclusion:
The court quashed the re-assessment order dated 28.03.2013 and the proceedings pursuant to the notice dated 29.03.2012 under Section 148, deeming them without jurisdiction and not sustainable in law. The writ petition was allowed, and the parties were left to bear their own costs.

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