2022 (12) TMI 1282 - HC - Income Tax

Reopening of assessment u/s 147 - Reason to believe - short disallowance u/s 14A - HELD THAT - There shall be no gainsaying that the issue about the allowable expenditure u/s 14A was gone into by the AO at the time of scrutiny assessment on the basis of material and the information supplied and available with it. Notice u/s 148 was issued in respect of assessment year 2014-2015, after four years from the end of the year consideration. The pre-requisite was to show that there was failure on part of the petitioner assessee in fully and truly disclosing the facts as per the first proviso to section 147 of the Act. In the facts of the case, there was full and true disclosure in the year under consideration on the part of the assessee. The submission could not be brushed aside lightly that on the said ground alone, the notice issued by the respondent under section 148 of the Act was liable to be set aside. As could be seen AO had acted to undertake the assessment, which ended up with the assessment order under section 143(3) of the Act, in which the aspect of allowability of interest under section 14A was considered alolngwith the other aspects on the basis of the material and conscious decision was taken reflected in the assessment order. It is on the basis of the very facts that the assessing officer wanted to reopen the concluded assessment proceedings. It amounted to change of opinion. It is well settled that mere change of opinion could not be a ground for the AO to reopen the concluded assessment. In Commissioner of Income Tax vs. Kelvinator of India Ltd. 2010 (1) TMI 11 - SUPREME COURT the supreme court observed that concept of change of opinion was an inbuilt test and it did not stand obliterated after substitution of section 147 in the Act by the Direct Tax Laws (Amendment) Act, 1987 and 1989. AO issued notice u/s148 only to make a roving inquiry into the facts which were already considered and which had gone into his consideration and decision. It appeared that the assessing officer wanted to re-verify the facts, which is not an acceptable ground for exercising powers to reopen the assessment. - Decided in favour of assessee.

Summary

Issues Involved:
1. Validity of the notice issued under Section 148 of the Income Tax Act, 1961.
2. Alleged short disallowance under Section 14A of the Income Tax Act, 1961.
3. Whether the reopening of assessment constitutes a change of opinion.

Issue-wise Detailed Analysis:

1. Validity of the Notice Issued Under Section 148 of the Income Tax Act, 1961:
The petitioner challenged the notice dated 27.3.2021 issued under Section 148 of the Income Tax Act, 1961, for the Assessment Year 2014-2015. The notice sought to reopen the assessment on the grounds that the Assessing Officer had reasons to believe that the income chargeable to tax had escaped assessment. The petitioner argued that the notice was issued after four years from the end of the relevant assessment year, and there was no failure on their part to fully and truly disclose all material facts necessary for the assessment.

2. Alleged Short Disallowance Under Section 14A of the Income Tax Act, 1961:
The petitioner is engaged in providing clinical research services and had made significant investments in shares of foreign companies. The petitioner incurred interest expenses and made a suo motu disallowance of Rs. 1,12,869/- under Section 14A in their final return of income. The case was selected for scrutiny, and the Assessing Officer made an additional disallowance of Rs. 31,04,829/-, resulting in a total disallowance of Rs. 32,17,698/-. The appellate authority later deleted this disallowance, observing that investments in foreign companies should not be considered for disallowance under Section 14A read with Rule 8D. The notice for reopening was issued based on the belief that the disallowance should have been Rs. 99,81,608/-, leading to an alleged short disallowance of Rs. 67,63,910/-.

3. Whether the Reopening of Assessment Constitutes a Change of Opinion:
The court noted that the original assessment was completed under Section 143(3) read with Section 144C of the Act after a detailed scrutiny. The Assessing Officer had already considered the disallowance under Section 14A during the original assessment. The court observed that the reopening of the assessment on the same facts and material amounted to a change of opinion, which is not permissible. The court relied on the Supreme Court's decision in Commissioner of Income Tax vs. Kelvinator of India Ltd., which held that a mere change of opinion cannot justify the reopening of an assessment.

Conclusion:
The court found that the petitioner had made a full and true disclosure of all material facts necessary for the assessment during the original proceedings. The notice issued under Section 148 was based on a change of opinion and was therefore not valid. The court set aside the notice dated 27.3.2021 and the consequential actions and orders. The petition was allowed, and the rule was made absolute.