2022 (1) TMI 896 - HC - Income Tax

Validity of Reopening of assessment u/s 147 - notice beyond the period of four years from the end of the relevant assessment year - reliance on audit observation sheet - set-off of business loss and unabsorbed depreciation pertaining to Times Now business, which was demerged from Times Global Broadcasting Company Limited - HELD THAT - This Court in Ananta Landmark (P) Limited Vs. Deputy Commissioner of Income-tax 2021 (10) TMI 71 - BOMBAY HIGH COURT has relied upon Indian and Eastern Newspaper Society Vs. Commissioner of Income Tax 1979 (8) TMI 1 - SUPREME COURT where the Court held that in every case, the Income Tax Officer must determine for himself what is the effect and consequence of the law mentioned in the audit note and whether in consequence of the law which has come to his notice he can reasonably believe that income had escaped assessment. The basis of his belief must be the law of which he has now become aware. The opinion rendered by the audit party in regard to the law cannot, for the purpose of such belief, add to or colour the significance of such law. Therefore, the true evaluation of the law in its bearing on the assessment must be made directly and solely by the Income Tax Officer. It is not at all a case that petitioner has not disclosed anything in his response. Petitioner had given the full particulars. The stand taken by petitioner was also accepted by respondents on merits. The Assessing Officer even disagreed with the audit objections but on second thought, to the objections from the auditors he has re-opened the assessment. In our view, re-opening of the assessment without any basis and merely change of opinion is not permissible while exercising the powers under Section 147 read with Section 148 of the Act. We have no option but to allow this petition

Summary

Issues Involved:
1. Legality of reopening assessment under Section 148 of the Income Tax Act, 1961.
2. Validity of set-off of business loss and unabsorbed depreciation under Section 72A(4) of the Income Tax Act, 1961.
3. Role of audit objections in forming the basis for reopening the assessment.

Detailed Analysis:

1. Legality of Reopening Assessment under Section 148 of the Income Tax Act, 1961:

The petitioner received a notice dated 31st March 2021 issued under Section 148 of the Income Tax Act, 1961, alleging that income chargeable to tax for the assessment year (A.Y.) 2015-16 had escaped assessment. The jurisdictional requirements to reopen an assessment beyond four years from the end of the relevant assessment year include:
- The Assessing Officer must have reason to believe that income chargeable to tax had escaped assessment.
- The Assessing Officer in the regular assessment proceedings had not formed an opinion on the issue on which the reopening notice is issued.
- There has been a failure on the part of the assessee to fully and truly disclose all necessary facts for the assessment.

The court noted that the Assessing Officer, Mr. Neeraj Kumar Agarwal, had initially accepted that the petitioner was correctly allowed the set-off of business loss and unabsorbed depreciation under Section 72A(4). However, in less than 45 days, relying on the same audit objection, he stated that he had reasons to believe that the petitioner’s income had escaped assessment. The court found this contradictory and concluded that the notice was issued based on the direction of the audit party rather than the personal satisfaction of the Assessing Officer, which is not permissible under law.

2. Validity of Set-off of Business Loss and Unabsorbed Depreciation under Section 72A(4) of the Income Tax Act, 1961:

The petitioner claimed set-off of business loss and unabsorbed depreciation pertaining to the Times Now business, which was demerged from Times Global Broadcasting Company Limited into the petitioner. The court examined the provisions of Section 72A(4), which allows the carry forward and set-off of accumulated losses and unabsorbed depreciation in the case of a demerger. The court noted that the Assessing Officer had initially accepted this claim, stating that the petitioner had correctly claimed the set-off as per the provisions of Section 72A(4) and not as per Section 72A(1) as mentioned in the audit observation sheet.

3. Role of Audit Objections in Forming the Basis for Reopening the Assessment:

The court highlighted that the Assessing Officer, Mr. Neeraj Kumar Agarwal, had initially disagreed with the audit objection but later issued the reopening notice based on the same objection. The court referred to the Supreme Court's judgment in Indian and Eastern Newspaper Society Vs. Commissioner of Income Tax, which held that the Income Tax Officer must determine for himself the effect and consequence of the law mentioned in the audit note and whether it leads to a belief that income had escaped assessment. The opinion rendered by the audit party cannot add to or color the significance of such law for the purpose of forming the belief necessary for reopening the assessment.

Conclusion:

The court concluded that the reopening of the assessment was not based on the Assessing Officer’s personal satisfaction but rather on the audit party’s direction, which is not permissible under law. The court also noted that the petitioner had fully disclosed all necessary facts, and the stand taken by the petitioner was accepted by the respondents on merits. Therefore, the reopening of the assessment was deemed to be without any basis and merely a change of opinion, which is not permissible under Section 147 read with Section 148 of the Act.

Judgment:

The petition was allowed, and the impugned notice dated 31st March 2021 issued under Section 148 of the Act and the impugned order dated 18th November 2021 were quashed and set aside. The petition was disposed of with no order as to costs.