2022 (1) TMI 1162 - HC - Income Tax

Reopening of assessment u/s 147 - Notice after four years - reopening based on audit objections - HELD THAT - Admittedly, this is a case where the notice under Section 148 of the Act has been issued after the expiry of 4 years from the end of the relevant assessment year and assessment u/s 143(3) of the Act has also been completed. Hence, proviso to Section 147 shall apply. Respondents have to show that there was failure on the part of petitioner to truly and fully disclose material facts relevant for the assessment. We have considered the reasons recorded for reopening the assessment and we have no doubt in concluding that respondents have failed in discharging its onus to show that petitioner has failed to disclose truly and fully all material facts. From the reasons itself as well as the documents annexed to the petition, it is quiet clear that there has been full disclosure by petitioner. Jurisdictional Assessment Officer (JAO) has raised 4 heads, under which he feels that income chargeable to tax has escaped assessment. We are in agreement with the explanation offered by petitioner. Moreover, this point has been raised because of audit objections. The Assessing Officer cannot be stated to be satisfied that he had reasons to believe that this item has escaped assessment. 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. The true evaluation of the law in its bearing on the assessment must be made directly and solely by the Income Tax Officer. ( See Indian and Eastern Newspaper Society V/s. Commissioner of Income Tax, New Delhi 1 1979 (8) TMI 1 - SUPREME COURT Further there is nothing under this head to indicate that there was failure on the part of petitioner to truly and fully disclose any fact. JAO has relied on the documents already filed before the Assessing Officer. Petitioner is therefore, directed to pay the amount of ₹ 30,54,398/- as mentioned in the revenue audit objections. Respondents are directed to raise the demand on petitioner for this amount and petitioner shall pay the amount within time prescribed in the demand. We are making it clear that as noted earlier, the entire 148 notice is quashed and set aside and we have held that assessment could not have been reopened at all by respondents. We have only included this portion in this order in view of the without prejudice offer made by Mr. Thakkar and that cannot be construed as an admission of any liability by petitioner. We also clarify that in view of our observation as above, no penalty proceedings can be initiated by respondents under this head.

Issues Involved:
1. Validity of the notice under Section 148 of the Income Tax Act, 1961.
2. Reopening of assessment beyond four years.
3. Alleged failure to disclose material facts fully and truly.
4. Specific heads under which income was alleged to have escaped assessment.
5. Change of opinion by the Jurisdictional Assessment Officer (JAO).
6. Audit objections as the basis for reopening assessment.
7. Deduction of statutory liabilities.

Detailed Analysis:

1. Validity of the notice under Section 148 of the Income Tax Act, 1961:
The petitioner challenged the notice dated 28th March 2019 issued under Section 148 of the Income Tax Act, 1961, for the assessment year 2012-2013, alleging that income had escaped assessment. The court concluded that the notice, along with the order dated 13th November 2019 rejecting the petitioner’s objections, should be quashed and set aside.

2. Reopening of assessment beyond four years:
The notice was issued after the expiry of four years from the end of the relevant assessment year, and an assessment under Section 143(3) had been completed. Therefore, the proviso to Section 147 applied, requiring the respondents to show that there was a failure on the part of the petitioner to disclose material facts fully and truly.

3. Alleged failure to disclose material facts fully and truly:
The court found that the respondents failed to discharge their onus to show that the petitioner did not disclose all material facts. The reasons recorded for reopening the assessment indicated full disclosure by the petitioner.

4. Specific heads under which income was alleged to have escaped assessment:
- Item (1): The JAO alleged that ?29,30,000/- debited towards security deposit was not allowable under Section 37. The petitioner clarified that this amount was interest paid on security deposits and not security deposits themselves. The court agreed with the petitioner’s explanation.
- Item (2): The JAO claimed that ?22,08,18,000/- towards rationalization initiative was capital expenditure, of which only ?15,42,60,000/- was added back. The court found this to be a change of opinion.
- Item (3): The JAO noted that ?2,15,19,017/- towards sales tax paid should not be reduced in the computation of income. The court found this view erroneous and based on audit objections.
- Item (4): The JAO stated that the petitioner claimed a deduction of ?64,48,000/- on account of export incentives receivable, which should have been disallowed. The court found this to be a change of opinion.

5. Change of opinion by the Jurisdictional Assessment Officer (JAO):
The court held that reopening the assessment based on a change of opinion is not permissible. Items (2) and (4) were found to be based on a change of opinion.

6. Audit objections as the basis for reopening assessment:
The court noted that audit objections cannot be the sole basis for reopening an assessment. The JAO must independently evaluate the law and facts. The court cited the Indian and Eastern Newspaper Society case to support this view.

7. Deduction of statutory liabilities:
The court referenced the Kedarnath Jute Mfg. Co. Ltd. case, stating that statutory liabilities arise in the year the taxable event occurs, even if disputed. Therefore, the sales tax payments should be deductible in the year of payment.

Conclusion:
The court quashed the notice under Section 148 and the corresponding order, holding that the reopening was based on a change of opinion and audit objections, which is not permissible. The petitioner was directed to pay ?30,54,398/- as per the revenue audit objections, without it being considered an admission of liability or leading to penalty proceedings. The petition was disposed of with no order as to costs.

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