2021 (12) TMI 263 - HC - Income Tax

Reopening of assessment u/s 147 - Notice after the expiry of period of four years - Admissibility of deduction u/s 80I - HELD THAT - There is nothing to indicate that there has been no failure on the part of petitioner to disclose fully and truly all material facts during the course of initial assessment proceedings. The reasons are entirely based on the records and documents available with respondents and filed by petitioner. The reasons stated that on perusal of record it indicates that there has been escapement of income. Admittedly, petitioner alongwith its return of income filed its Profit and Loss Account as well as the balance sheet. The computation of income that was filed clearly showed the manner in which the deduction under Section 80 I of the Act was claimed. In the course of the assessment proceedings a specific issue was raised by respondent which was replied to. It was only thereafter that the deduction under Section 80I of the Act was initially allowed by Respondent No.1. The duty of assessee is only to disclose fully and truly all primary facts and the duty ascertaining inferential facts as well as drawing necessary inference is on the Assessing Officer. We are satisfied that petitioner had discharged duty cast upon it and therefore even after there was failure on the part of Respondent No.1 to perform his duty, cannot justify initiation of proceedings under Section 147 of the Act. Also well settled that mere change in opinion by a succeeding Assessing Officer would not justify an exercise of jurisdiction under Section 148 of the Act. In the present case, the assessment for the Assessment Year 1992-93 was completed after due enquiry on 12th January, 1995. From the documents annexed to the petition, it is clear that petitioner s claim for deduction under Section 80 I of the Act was under consideration by the Assessing Officer who had sought details as to how the same was computed and petitioner had furnished details. Petitioner has clarified that the profits to determine after deduction from the gross operating earnings direct operating expenses, standing expenses, depreciation and interest charged. It was only after considering the same that Respondent No.1 having been satisfied with the correctness of petitioner claim allowed the deduction. In our view, the exercise to reopen a validly framed assessment is merely on the basis of change of opinion by succeeding Assessing Officer and such a mere change of opinion cannot justify the exercise of jurisdiction under Section 148. Deduction under Section 33 AC - The deduction prior to the amendment was available to the extent of the total income provided the amount was credited to reserve account and was utilised for the purchase of a new ship within the specified period. The circular further goes to state that it was noticed that shipping companies had diversified into other activities and are claiming deduction under Section 33AC of the Act even in respect of their income for the activities other than shipping for which there is no justification. Accordingly, it was decided to amend the provisions with effect from 1st April, 1996 to restrict deduction to 50% of the income derived from the business of operation of ships. Therefore, the fact that petitioner has been allowed a deduction under Section 33AC of the Act in respect of income from dividends, long term capital gains and interest, in our view is no ground for initiating proceedings under Section 148 of the Act.

Issues Involved:

1. Legality of the notice issued under Section 148 of the Income Tax Act, 1961.
2. Compliance with conditions under Section 147 of the Income Tax Act, 1961 for reassessment.
3. Requirement for the assessee to file a return pursuant to the notice under Section 148.
4. Validity of reopening assessment based on a change of opinion.
5. Interpretation of Section 33AC of the Income Tax Act, 1961.

Detailed Analysis:

1. Legality of the notice issued under Section 148 of the Income Tax Act, 1961:

The court examined the notice dated 21st March 2001, issued under Section 148 of the Income Tax Act, 1961, which called upon the petitioner to deliver a return for the Assessment Year 1992-93. The court noted that the notice was issued on the belief that the petitioner’s income had escaped assessment. However, the petitioner had already filed its return and completed assessment for the said year. The court found that the reasons for reopening were not provided to the petitioner, which led to the filing of this petition.

2. Compliance with conditions under Section 147 of the Income Tax Act, 1961 for reassessment:

The court emphasized that for valid initiation of reassessment under Section 147, certain preconditions must be met:
- The Assessing Officer must have reasons to believe that income chargeable to tax has escaped assessment.
- The escapement must be due to the failure of the assessee to disclose fully and truly all material facts necessary for assessment, especially if the notice is issued after four years from the end of the relevant Assessment Year.
- The reasons for such belief must be recorded by the Assessing Officer.
- Sanction from the Commissioner of Income Tax must be obtained.
- The notice must be validly issued and served.

The court found that these conditions were jurisdictional facts that must be fulfilled prior to initiating proceedings. In this case, the conditions were not met, making the notice dated 21st March 2001 invalid.

3. Requirement for the assessee to file a return pursuant to the notice under Section 148:

The respondent argued that the petitioner should have filed a return pursuant to the notice under Section 148 and then sought reasons for the notice. However, the court, referencing the judgment in Caprihans India Ltd. vs. Tarun Seem, held that there is no hard and fast rule requiring the assessee to file a return first, especially when the reasons for reopening do not indicate any failure by the assessee to disclose material facts.

4. Validity of reopening assessment based on a change of opinion:

The court reiterated that a mere change in opinion by a succeeding Assessing Officer does not justify reassessment under Section 148. The original assessment for the Assessment Year 1992-93 was completed after due inquiry, and the petitioner had provided all necessary details regarding the deduction under Section 80 I of the Act. The court found that the reopening was based on a change of opinion, which is not permissible.

5. Interpretation of Section 33AC of the Income Tax Act, 1961:

The court discussed the amendment to Section 33AC by the Finance Act, 1995, effective from 1st April 1996, which restricted the deduction to 50% of the profits derived from the business of operating ships. The court noted that prior to the amendment, the deduction was allowed on the basis of total income. The court referred to Circular No.717 by the Central Board of Direct Taxes, which clarified that the deduction was available to the extent of total income before the amendment. Therefore, the court held that the petitioner’s claim for deduction under Section 33AC was valid and not a ground for reassessment.

Conclusion:

The court concluded that the conditions for initiating reassessment under Section 147 were not met, and the notice issued under Section 148 was invalid. The court granted the writ of certiorari, quashing the impugned notice dated 21st March 2001, and disposed of the petition with no order as to costs.

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