2022 (1) TMI 1309 - HC - Income Tax

Reopening of assessment u/s 147 - deduction u/s 80P - Assessement reopened within a period of 4 years - scope of change of opinion - HELD THAT - It is true that the AO has drawn inference from the examination of the record that the original order of assessment is erroneous which has probably resulted due to the failure on the part of the assessee to disclose fully and truly all material facts relevant for the assessment. We have consciously applied our mind to the relevant facts and material available. We find that it is true that the once assessment made on material available or existing at the relevant point of time while making assessment and again on same material, if different or divergent view is sought, it would tantamount to change of opinion , but at the same time even in the case of existing material, if no conscious attempt has been made by the AO, it would at the most tantamount to mistake in not considering the relevant point or proposition and it would not certainly not fall in category of change of opinion . On bare appreciation of the audit report, one cannot overlook sight of the fact that the assessee has very conveniently mentioned under the head of deduction by referring to Section 80P and the reply which was submitted on record at the stage of scrutiny assessment. At first instance, it gives an impression that the writ applicant assessee has derived interest from it s own members. This Court finds that the writ applicant had failed to disclose fully and truly all material facts necessary for assessment, more particularly, to examine the nature of transaction vis-a-vis the deduction under Section 80P (a)(i) and Section 80P(2)(d). The Court further finds that in fact it was the duty of the assessee to make fully and truly material disclosure at the time of assessment. Mere production of the audit report without further reference of the interest derived from other than Cooperative Societies would not fall in the category of material evidence which the Assessing Officer with due diligence could have discovered and therefore, the Assessing Officer has rightly invoked proviso to Section 147 of the Act having satisfied for formation of belief which has bearing on the question of escape of income of the assessee from the assessment because of his failure or omission to disclose fully and truly all material facts. In the given case, the assessment has been reopened within a period of 4 years and therefore, the proviso to Section 147 has no application. This Court finds that the reasons recorded by the Assessing Officer which led to the formation of the belief contemplated by the proviso to Section 147 of the Act has material bearing on the question of escapement of income of the assessee from the assessment because of failure of the assessee or omission to disclose the fully and truly all material facts. We are of the view that though the material was available on record, at the time of first assessment, when no conscious consideration of the material is made and a mistake has been committed, it would not, in any case create an embargo on the power of the Assessing Officer to exercise powers under amended section 147 of the Income Tax act, 1961, as there could not be change of opinion , in the factual scenario. The only requirement is to see that the escapement of income which the Court finds in the given case and therefore, we hold that the notice issued under Section 148 is a valid notice. - Decided against assessee.

Issues Involved:
1. Validity of Reopening Assessment under Section 147 of the Income Tax Act.
2. Eligibility of Deduction under Section 80P(2)(d) of the Income Tax Act for Interest Income from Fixed Deposits with Cooperative and Nationalized Banks.
3. Concept of "Change of Opinion" in Reopening Assessments.
4. Requirement of "Tangible Material" for Reopening Assessment.

Issue-wise Detailed Analysis:

1. Validity of Reopening Assessment under Section 147 of the Income Tax Act:
The court examined whether the reopening of the assessment for the assessment year 2015-16 was valid under Section 147 of the Income Tax Act. The writ applicant, a Cooperative Society, argued that the reopening was based on a mere change of opinion since the original assessment had already considered the deduction under Section 80P. The court, however, found that the reopening was justified as the Assessing Officer (AO) had "reason to believe" that income had escaped assessment due to the incorrect allowance of deduction on interest income from fixed deposits with cooperative and nationalized banks. The court emphasized that the AO's belief was based on tangible material and not merely a change of opinion.

2. Eligibility of Deduction under Section 80P(2)(d) of the Income Tax Act for Interest Income from Fixed Deposits with Cooperative and Nationalized Banks:
The court scrutinized whether the interest income from fixed deposits with cooperative and nationalized banks qualifies for deduction under Section 80P(2)(d). The writ applicant contended that such interest income should be deductible. However, the court referred to the judgment in the case of Totagar's Co-operative Sale Society and the Supreme Court's decision, which held that interest income earned from investments in banks, not being cooperative societies, is not deductible under Section 80P(2)(d). The court concluded that the interest derived from the investment of surplus funds in banks does not qualify for deduction under Section 80P(2)(d) as it is not attributable to the business activities of providing credit facilities to its members.

3. Concept of "Change of Opinion" in Reopening Assessments:
The writ applicant argued that the reopening of the assessment was based on a mere change of opinion, which is not permissible. The court, however, differentiated between a change of opinion and the AO's failure to consider relevant material during the original assessment. The court held that if the AO had not formed an opinion on a particular issue during the original assessment, reopening based on new tangible material does not constitute a change of opinion. The court found that the AO had not consciously considered the nature of the interest income during the original assessment, thereby justifying the reopening.

4. Requirement of "Tangible Material" for Reopening Assessment:
The court emphasized the necessity of tangible material for reopening an assessment under Section 147. It was noted that the AO had relied on the assessment records and subsequent information indicating that the interest income from fixed deposits with banks was not admissible for deduction under Section 80P(2)(d). The court found that the AO had a valid reason to believe that income had escaped assessment and that the reopening was based on tangible material. The court highlighted that the AO's reasons were clear, unambiguous, and established a vital link to the belief that there was an escapement of income.

Conclusion:
The court concluded that the reopening of the assessment was valid and justified under Section 147 of the Income Tax Act. The interest income from fixed deposits with cooperative and nationalized banks does not qualify for deduction under Section 80P(2)(d). The court dismissed the petition, allowing the AO to proceed with the reassessment in accordance with the law.

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