2022 (8) TMI 1293 - HC - Income Tax

Validity of Reopening of assessment u/s 147 - re-assessment has been initiated beyond a period of four years from the end of the relevant assessment year - Reasons to believe - HELD THAT - Notification issued by the Board in Notification No.F.No.400/234/95-IT(B) dated 23.05.1996 at the time of amendment of Section 147 on 01.04.1989 taking a cue therefrom to state that even according to the Central Board of Direct Taxes a mere change of information cannot form the basis for reopening of a completed assessment. A note of caution that was sounded to state that if the reason to believe of the Assessing Officer is founded upon information which might have been received by the AO after completion of assessment this may be a sound basis for initiation of re-assessment. Test the correctness or otherwise of a methodology adopted by the petitioner for a claim of expenditure it would in my view be appropriate to test whether such claim and the methodology adopted for making such a claim had been placed before the Authority even at the first instance. The answer in this case is in the affirmative. The successor officer has not come into possession any other information to indicate escapement of income but merely relies upon the methodology adopted by the petitioner to apprehend escapement of tax. In such circumstances resort to Section 147 is in our view impermissible. In dealing with re-assessments and challenge there to Courts have formulated principles over time one of which is that an assessment being a quasi-judicial proceeding is expected to have been formulated by an officer after due application to all issues that arise from the ROI. Useful reference may be made to Section 114(e) of the Indian Evidence Act that raises a statutory presumption in this behalf. No doubt there are situations where errors occur either on fact or on law. It is for this reason that the Income Tax Act provides for multiple measures that may be resorted to by the revenue to address the situation appropriately. Section 148 must be resorted to only in those cases where the reasons disclose prima facie satisfaction that there is escapement of turnover. In a case where orders of assessment have been passed under scrutiny the specific issues set out in the reasons have been identified at the time of original assessment and information in that regard has been solcited and furnished by the assessee the legal assumption is that these orders have taken note of the ROI and accompanying statutory forms and all the material available on that account. All the more in a case where the officer has been careful in his analysis of the issues that arise and has raised queries that relate to the issues in question the only conclusion to be arrived at is that the proceedings constitute a review and not re-assessment. Hon ble Supreme Court in the case of Parashuram Pottery Works Ltd. 1976 (11) TMI 1 - SUPREME COURT has reiterated the importance of finality in matters of revenue assessments. In fact they say that finality is the hallmark of a civilised society. In the present situation it is not the revenue s case and the reasons do not so disclose that there was anything available to the officer over and above what the assessee has clearly categorically and conspicuously disclosed in the primary documents accompanying the ROI. Explanation (2) would be of no avail to the Department. Explanation (2) cannot be read in isolation but has to be read harmoniously with other propositions that are equally applicable in determining the veracity of a re-assessment. The impugned proceedings for AYs 2014-15 and 2015-16 are found to constitute merely a review of the original assessment proceedings impermissible in the context of Section 147 and the same are set aside

Summary

Issues Involved:
1. Validity of re-assessment proceedings initiated beyond four years for AY 2013-14.
2. Validity of re-assessment proceedings initiated within four years for AY 2014-15 and AY 2015-16.

Detailed Analysis:

Issue 1: Validity of Re-assessment Proceedings for AY 2013-14 (Beyond Four Years)
The petitioner challenged the re-assessment proceedings initiated beyond the statutory period of four years, arguing that the proviso to Section 147 of the Income Tax Act, 1961, was not complied with. The proviso requires the Income Tax Department to establish that income escapement was due to incomplete and untrue disclosure by the assessee. The court noted that all relevant materials, including the Annual Report and Form 3CD, were available during the original assessment, and no new material had come to light post-assessment. The court referenced the ICICI Securities Primary Dealership Ltd. case, where re-assessment based on the same materials was deemed a change of opinion, thus impermissible. Consequently, the court found the re-assessment proceedings for AY 2013-14 barred by limitation and set them aside.

Issue 2: Validity of Re-assessment Proceedings for AY 2014-15 and AY 2015-16 (Within Four Years)
For AY 2014-15 and AY 2015-16, the re-assessment was initiated within four years, thus not barred by limitation. However, the petitioner argued that the proceedings were merely a review of the original assessments, which were completed under scrutiny with all relevant materials disclosed. The court examined the explanations to Section 147, particularly Explanation 1, which states that the mere production of account books does not amount to full disclosure unless due diligence by the Assessing Officer could have discovered the material. The court found that the information regarding deductions under Section 35E and employee benefit expenses were clearly presented in statutory documents, thus constituting full and true disclosure.

The court also discussed Explanation 2, which deems certain situations as cases where income has escaped assessment. The revenue argued that the excessive relief granted under Section 35E and employee benefit expenses fell under this explanation. However, the court noted that for re-assessment to be valid, there must be new or tangible material, which was not present in this case. The court referred to the Kelvinator case, which established that re-assessment based on the same material as the original assessment is a mere review and not permissible.

The court distinguished the present case from others cited by the revenue, such as Raymond Woollen Mills Ltd. and Girilal & Co., where new information had come to light post-assessment. The court concluded that the re-assessment proceedings for AY 2014-15 and AY 2015-16 were also a review of the original assessments and thus impermissible under Section 147.

Conclusion:
The court set aside the re-assessment proceedings for all three assessment years (AY 2013-14, AY 2014-15, and AY 2015-16), finding them either barred by limitation or constituting an impermissible review of the original assessments. The petitions were allowed, and the connected miscellaneous petitions were closed.