2018 (4) TMI 1781 - HC - Income Tax

Reopening of assessment u/s 147 - activity of mushroom farming is agricultural activity or not? - whether there was any new tangible material which was discovered by the Respondent No.1 ? - HELD THAT - In the facts of the present case when the Petitioner had categorically asserted both in the reply to the reasons as well as in the present petition that the Circular dated 14 June 1979 has no relevance, the contention of the Petitioner that this Circular was issued in context of Section 80JJA of the Act which was in operation prior to insertion of explanation 3 to Section 2(1A) and it had no relevance, has not been dealt with by the Respondent at all, except stating that it cannot be ignored. If by subsequent amendments, the Circular had lost its efficacy and that it was substituted by another circular dated 27 March 2009, the same cannot be considered as new and tangible material. Whether the Circular has lost its relevance and is substituted by a subsequent Circular has not been explained in the order rejecting the reasons, neither in the affidavit of reply. How a preexisting Circular amounts to discovery of new tangible material is also not explained. Therefore, what is before us is only a change of opinion of the Assessing Officer, without any new material. The Petitioner had placed the material before the Assessing Officer. The Assessing Officer is supposed to apply law, including the Circulars, to the material placed before him. The Assessing Officer took a particular view and the Respondent no. 1 has merely on a change of opinion sought to reopen the proceedings. Since the criteria for exercise of the jurisdiction are not met, the action of the Respondent no.1 is without jurisdiction and will have to be set aside.

Issues Involved:
1. Legality of the reopening of assessment under Section 148 of the Income Tax Act, 1961.
2. Whether mushroom farming qualifies as agricultural income.
3. Applicability and relevance of the CBDT Circular dated 14 June 1979.
4. Jurisdictional requirements for reopening assessments within four years.
5. Right to seek writ jurisdiction under Article 226 of the Constitution.

Issue-wise Detailed Analysis:

1. Legality of the reopening of assessment under Section 148 of the Income Tax Act, 1961:
The Petitioner challenged the reopening of the assessment under Section 148 on the grounds that it was merely a change of opinion without any new tangible material. The court emphasized that the phrase "Reason to Believe" cannot be interpreted as a mere change of opinion and must be based on new tangible material. The court cited the Supreme Court's decision in Commissioner of Income Tax vs. Kelvinator of India Ltd., which held that reassessment must be based on new information or material that was not available during the original assessment.

2. Whether mushroom farming qualifies as agricultural income:
The original assessment had accepted the Petitioner's claim that mushroom farming is an agricultural activity, supported by various certificates from government authorities. The Respondent sought to reopen the assessment on the grounds that mushroom farming does not qualify as agricultural activity due to its lack of connection with land. The court found that the original assessment had already considered these aspects and accepted the Petitioner's claim, and there was no new material to justify reopening the assessment.

3. Applicability and relevance of the CBDT Circular dated 14 June 1979:
The Respondent argued that the non-consideration of the CBDT Circular dated 14 June 1979 constituted new tangible material. The Petitioner countered that this circular had lost its relevance after the introduction of Section 80JJA and a subsequent circular dated 27 March 2009. The court agreed with the Petitioner, stating that the circular could not be considered new tangible material and that the Respondent had not adequately addressed the Petitioner's contentions regarding the circular's relevance.

4. Jurisdictional requirements for reopening assessments within four years:
The court reiterated that even though the power to reopen assessments within four years is broad, it is subject to certain jurisdictional requirements. The Assessing Officer must have a "Reason to Believe" based on new tangible material. The court found that in this case, the reopening was based on a mere change of opinion without any new material, thus failing to meet the jurisdictional requirements.

5. Right to seek writ jurisdiction under Article 226 of the Constitution:
The court addressed the objectionable remarks made by the Assistant Commissioner of Income Tax, who suggested that the Petitioner could not seek writ jurisdiction before exhausting all other remedies. The court clarified that if the Assessing Officer proceeds without jurisdiction, the Assessee has the right to approach the High Court under Article 226 to seek a writ of prohibition and certiorari. The court deemed the Assistant Commissioner's remarks as highly objectionable and bordering on contempt.

Conclusion:
The court allowed the Writ Petition, quashing the notice under Section 148 and the impugned order. The court emphasized that the reopening of the assessment was without jurisdiction as it was based on a mere change of opinion without any new tangible material. The court also directed that a copy of the order be forwarded to the Principal Chief Commissioner of Income Tax for perusal, particularly noting the objectionable remarks made by the Assistant Commissioner.

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