2016 (9) TMI 1529 - HC - Income Tax

Reopening of assessment u/s 148 - TDS on interest of payment was not deducted under Section 194A and it was dis allowable under Section 40(a) - HELD THAT - When we go through various reasons in respect to orders dated 08.01.2016 passed in all A.Ys. except 2009- 10 we find that there is either a statement of fact as to what has been disclosed by YEIDA in Returns submitted by it and documents appended thereto or there is guesswork that either TDS was deductable and if not deducted then there is default which has to be verified. This in itself shows that authority concerned has no subsequent material to form opinion but it is factual guesswork or conjectures on the part of authority concerned so as to include and make it part of reasons to justify re assessment under Section 147/148 of Act 1961. The reasons communicated to YEIDA we have already quoted in respect to A.Y s. 2010 -11 2011- 12 2012- 13 and 2013 -14. One of the ground is that Sundry Creditors have decreased and it needs verification. This is a fact disclosed by Assessee in the Returns and it was always open to the Assessing Officer to verify it at the stage of regular proceedings. If in the regular proceedings Assessing Officer did not find any reason for verification what prompted it or made it obligatory to make verification now is not clear and this ground in our view is nothing but change of process of opinion not even a complete change of opinion and cannot be justified to be a valid ground for reassessment unless there is something further to show that material was available before Assessing Authority so as to cause reason to believe that something has escaped assessment. There are several conditions under Section 194 A 194 C and 194 J and thereunder whether the TDS was actually deductable or not is a matter of investigation and inquiry. But it was always open to make this inquiry in regular proceedings when disclosure of payment under various heads as noted above was already there in the Income and Expenditure Account and Balancesheet of YEIDA. But when Assessing Authority did not find any justification to make verification at that stage for change of opinion now in our view Sections 147/148 would not be attracted. YEIDA claimed depreciation on electrical equipment at the rate of 15% instead of 10% which is prima facie inadmissible is also unsustainable for the reason that it is a clear case of change of opinion. Assessee at the time of filing Return was not found incorrect but now a different opinion is being formed that depreciation should be lesser than that actually claimed. In order dated 10.08.2016 height of non application of mind is evident from the fact that Assessing Authority while rejecting objection has observed that here is a case of seizure operation though admittedly there was no search and seizure matter. This clearly shows that while passing order dated 10.08.2016 competent authority did not care even to go through relevant record and apply its mind. When confronted learned Additional Solicitor General has nothing to offer except his regret accepting that here is a clear case of non application of mind on the part of authority concerned. So called reasons mentioned by authority concerned for all Assessment Years in question for justifying reassessment proceedings under Section 147/148 of Act 1961 are illegal showing non application of mind and an arbitrary exercise on the part of authority concerned. The writ petitions are allowed to the extent of notices issued by authority concerned under Section 148 and orders rejecting objection filed by petitioner against re assessment under Section 147/148 of Act 1961 are hereby quashed. - Decided in favour of assessee.

Summary

Issues Involved:
1. Legality and jurisdiction of reassessment proceedings and notices issued under Section 148 of the Income Tax Act, 1961.
2. Whether the conditions precedent for reassessment proceedings exist.
3. Application of mind by the authorities in initiating reassessment proceedings.
4. Validity and justification of the reasons to believe that income has escaped assessment.

Detailed Analysis:

1. Legality and Jurisdiction of Reassessment Proceedings and Notices Issued Under Section 148 of the Income Tax Act, 1961:
The petitioner, M/s Yamuna Expressway Industrial Development Authority (YEIDA), challenged the reassessment proceedings and notices issued under Section 148 of the Income Tax Act, 1961. The primary contention was that these proceedings were patently illegal and without jurisdiction as the conditions precedent to justify reassessment did not exist, and the authorities proceeded without the application of mind. The court noted that the reassessment proceedings were initiated based on notices issued for various assessment years (A.Ys.) from 2009-10 to 2013-14. The court emphasized that it was not concerned with whether YEIDA was amenable to income tax or the correctness of the assessment orders but focused solely on the validity of the reassessment proceedings.

2. Whether the Conditions Precedent for Reassessment Proceedings Exist:
The court examined whether the conditions precedent for initiating reassessment proceedings under Section 147/148 of the Income Tax Act were satisfied. It referred to several judgments, including Calcutta Discount Co. Ltd. Vs Income-Tax Officer and Commissioner of Income Tax, Delhi Vs Kelvinator of India Limited, to establish that the Assessing Officer must have "reason to believe" that any income chargeable to tax has escaped assessment. The belief must be based on tangible material and not merely a change of opinion. The court found that the reasons provided by the Assessing Officer were either statements of fact already disclosed by YEIDA in its returns or conjectures that required verification, indicating a lack of subsequent material to form a valid opinion for reassessment.

3. Application of Mind by the Authorities in Initiating Reassessment Proceedings:
The court scrutinized the reasons communicated to YEIDA for issuing notices under Section 148. It found that the reasons were almost similarly worded for all the assessment years and included statements like the decrease in sundry creditors needing verification and non-deduction of TDS on various expenses. The court noted that these reasons were based on facts already disclosed by YEIDA in its returns and did not constitute new material. The court highlighted that the Assessing Officer's mention of only the decrease in sundry creditors, despite fluctuations in both directions, showed non-application of mind and reliance on conjectures.

4. Validity and Justification of the Reasons to Believe that Income has Escaped Assessment:
The court evaluated the specific reasons provided for reassessment, such as non-deduction of TDS on interest payments, advertisement expenses, and consultancy expenses. It noted that these expenses were disclosed in YEIDA's returns, and any inquiry regarding TDS could have been made during the regular assessment proceedings. The court emphasized that the reasons for reassessment must have a live link with the formation of belief that income has escaped assessment, which was lacking in this case. Additionally, the court pointed out that the Assessing Officer's reference to a search operation in one of the orders, despite no such operation being conducted, further demonstrated non-application of mind.

Conclusion:
The court concluded that the reasons mentioned by the authorities for initiating reassessment proceedings were illegal, showed non-application of mind, and were arbitrary. Consequently, the court quashed the notices issued under Section 148 and the orders rejecting YEIDA's objections to the reassessment proceedings. The court allowed the writ petitions and awarded costs to YEIDA, while clarifying that the judgment would not preclude the respondents from proceeding afresh for reassessment if valid and just grounds existed. The court also stated that the judgment would not affect any regular assessments already made or pending at other stages.