2016 (2) TMI 605 - HC - Income Tax

Validity of reopening of assessment - eligibility of benefit under Section 80IA denied - change of opnion - jurisdiction of AO - Held that - We are unable to understand how the mandate of the Act requiring the Assessing Officer to have reason to believe that income chargeable to tax has escaped assessment can be ignored on the altar of revenue collection. If such a submission is to be accepted, it would, be the beginning of the end of the Rule of Law. In fact, a Division Bench of this Court in IL & FS Investment Managers Ltd. v/s Income Tax Officer 2006 (11) TMI 181 - BOMBAY High Court has concluded the issue by pointing out that where the Assessing Officer in response to the query from the Revenue audit has opposed the reopening, it cannot be said that the Assessing Officer has formed his opinion that income has escaped assessment for the purpose of the reopening notice. In fact, though on the above issue itself, the appeal is not being entertained, it may be pointed out that none of the other two conditions precedent viz. no change of opinion and failure to disclose all material facts are satisfied in this case to sustain reopening of the assessment for AY 2004-05. So far as the change of opinion is concerned, both the CIT(A) as well as the Tribunal have rendered a finding of fact that there is a change of opinion. It is thus clear that necessary enquiry was made into the profits claimed by the eligible unit for the purpose of benefit under Section 80IA of the Act during regular assessment proceedings. So far as failure to disclose fully and truly all facts are concerned, it is noticed from the reasons recorded that its basis for issuing the reopening notice is the records of the Assessee in possession of the Assessing Officer during regular assessment proceedings. It is noticed from those records that the Assessee had claimed excess profits in respect of its power generating units. The obligation of the Assessee under the Act is only to disclose primary facts necessary for assessment. The application of law and the determination of the market value of the electricity sold by the eligible units under Section 80IA to the other units of the Respondent - Assessee is a subject matter of enquiry by the Assessing Officer while passing an order under Section 143(3) of the Act in regular assessment proceedings. Thus, there is no failure on the part of Respondent to disclose truly and fully all material facts which would warrant reopening of an assessment. - Decided in favour of assessee

Summary

Issues Involved:
1. Jurisdiction of the Assessing Officer to issue reopening notice under Section 148 of the Income Tax Act, 1961.
2. Compliance with the conditions for reopening an assessment beyond four years.
3. Validity of the reasons for reopening the assessment.
4. Alleged failure of the Assessee to disclose all material facts.
5. Change of opinion by the Assessing Officer.

Issue-wise Detailed Analysis:

1. Jurisdiction of the Assessing Officer to issue reopening notice under Section 148 of the Income Tax Act, 1961:
The primary issue is whether the Assessing Officer had the jurisdiction to issue the reopening notice dated 30th March 2010 for the Assessment Year (AY) 2004-05. The reopening notice was issued based on an audit objection, which the Assessing Officer initially resisted. The Tribunal upheld the CIT(A)'s decision that the reopening notice was without jurisdiction because the Assessing Officer did not have an independent reason to believe that income chargeable to tax had escaped assessment.

2. Compliance with the conditions for reopening an assessment beyond four years:
For reopening an assessment beyond four years, three conditions must be satisfied:
(i) The Assessing Officer must have reason to believe that income chargeable to tax escaped assessment.
(ii) The Assessing Officer should not have formed an opinion on the issue during the regular assessment proceedings.
(iii) There must be a failure on the part of the Assessee to disclose fully and truly all material facts necessary for the assessment.
The Tribunal and CIT(A) concluded that none of these conditions were met. The Assessing Officer had already formed an opinion on the issue during the regular assessment, and there was no failure on the part of the Assessee to disclose material facts.

3. Validity of the reasons for reopening the assessment:
The reasons for reopening the assessment were based on the allegation that the Assessee had inflated profits by transferring power to non-80IA units at a price higher than the tariff fixed by regulatory authorities. The Assessing Officer initially resisted this audit objection, stating that the power was transferred at a rate comparable to the rate at which the electricity board sells to industrial undertakings. Both the CIT(A) and the Tribunal held that the Assessing Officer's initial resistance to the audit objection indicated that there was no reason to believe that income had escaped assessment.

4. Alleged failure of the Assessee to disclose all material facts:
The reopening notice claimed that the Assessee failed to disclose that the power transferred to non-80IA units was at a price higher than the regulatory tariff, inflating profits eligible for deduction under Section 80IA. However, the Tribunal found that the Assessee had disclosed all primary facts necessary for the assessment. The determination of the market value of electricity was a matter of enquiry by the Assessing Officer during the regular assessment proceedings, and there was no failure on the Assessee's part to disclose material facts.

5. Change of opinion by the Assessing Officer:
The Tribunal and CIT(A) found that the reopening of the assessment was based on a change of opinion. During the regular assessment proceedings, the Assessing Officer had already examined the details of the deduction claimed under Section 80IA and made necessary adjustments. The Tribunal noted that the reopening of the assessment on the same issue indicated a change of opinion, which is not permissible for reopening an assessment.

Conclusion:
The appeal was dismissed, and the reopening notice dated 30th March 2010 was held to be without jurisdiction. The Tribunal concluded that the conditions for reopening the assessment beyond four years were not satisfied, and the reopening was based on a change of opinion. There was no failure on the Assessee's part to disclose all material facts, and the Assessing Officer did not have an independent reason to believe that income had escaped assessment.