2023 (1) TMI 329 - HC - Income Tax

Reopening of assessment u/s 147 - Reopening beyond a period of four years - deduction granted for Keyman policy and disallowance u/s 14A - HELD THAT - As it appears from the record that claim of Keyman insurance premium appeared in computation of income and also in audited annual accounts under the head Long term loans and advances and details of Keyman insurance policy along with receipts for payments made during the year under consideration were also furnished before the AO. Disallowance u/s 14A - case of the respondent is that there was an error in computation of the average value of investments, as adopted at the original assessment stage, whereby certain investments yielding exempt income were not considered. From the record, it appears that investments and assets were shown in the balance sheet and specific notice was issued with respect to disallowance under section 14A - assessee vide letter gave complete details and explanation as to why disallowance under section 14A is unwarranted and in fact, the AO made addition u/s 14A of the Act while framing the assessment under section 143(3) of the Act. AO after threadbare examining the various issues including issues as to Keyman insurance premium and disallowance u/s 14A of the Act, took a view not to make any disallowance in respect of Keyman insurance premium while framing assessment under section 143(3) of the Act and made disallowance under section 14A of the Act. There is change of opinion by the AO to reopen the assessment for the AY 2013-2014, more particularly, when the issues raised in the reopening assessment were already considered during the assessment proceedings under section 143(3) - AO cannot have any jurisdiction to issue the notice u/s 148 for reopening the assessment for the year under consideration more particularly, when the assessment is sought to be reopened beyond a period of four years as held by the Supreme Court in case of Commissioner of Income tax v. Kelvinator of India Ltd. 2010 (1) TMI 11 - SUPREME COURT - Decided in favour of assessee.

Summary

Issues Involved:
1. Validity of notice under section 148 issued in the name of a non-existent entity.
2. Alleged suppression of income and improper disallowance under section 14A.
3. Reopening of assessment beyond four years on the grounds of change of opinion.

Issue-wise Detailed Analysis:

1. Validity of Notice Under Section 148 Issued in the Name of a Non-Existent Entity:
The petitioner challenged the notice dated 13.12.2017 issued under section 148 of the Income Tax Act, 1961, for reopening the assessment for the Assessment Year 2012-2013. The petitioner argued that the notice was issued in the name of the amalgamating company, which had ceased to exist due to its merger with the petitioner company, as sanctioned by the court on 27.08.2014. The petitioner contended that any notice issued in the name of a non-existent entity is non-est and void in law. The court observed that the assessment order under section 143(3) was passed on 16.03.2015 in the name of the old company, and the notice under section 148 was issued in the name of the amalgamating company instead of the new company. The court held that the notice issued in the name of a non-existent entity is not tenable in law and quashed the notice.

2. Alleged Suppression of Income and Improper Disallowance Under Section 14A:
The petitioner claimed a deduction of Rs. 27,62,980/- for Keyman insurance premium, which was reflected in the balance sheet under Long Term Loans and Advances. The Assessing Officer initially allowed this deduction but later issued a notice for reopening the assessment, alleging that the policies were not pure life insurance policies but investment plans, and thus, the deduction was wrongly allowed. Additionally, the Assessing Officer noted an error in the computation of disallowance under section 14A, where certain investments yielding exempt income were not considered. The court found that the petitioner had fully disclosed all material facts during the original assessment, and the Assessing Officer had already examined these issues. The court held that reopening the assessment on these grounds constituted a change of opinion, which is not permissible.

3. Reopening of Assessment Beyond Four Years on the Grounds of Change of Opinion:
The petitioner argued that the reopening of the assessment beyond four years was illegal, as there was no failure on the part of the assessee to fully and truly disclose all material facts necessary for assessment. The court noted that the Assessing Officer had thoroughly examined the issues related to Keyman insurance premium and disallowance under section 14A during the original assessment. The court referred to the Supreme Court's decision in Commissioner of Income Tax v. Kelvinator of India Ltd., which held that a mere change of opinion cannot justify reopening an assessment. The court concluded that the reopening of the assessment was based on a change of opinion and not on any new tangible material, rendering the notice under section 148 invalid.

Conclusion:
The High Court quashed the notice under section 148 and the consequential order disposing of the objections raised by the petitioner. The court ruled that the reopening of the assessment was not justified, as it was based on a change of opinion and issued in the name of a non-existent entity. The assessment order under section 143(3) was upheld, and the rule was made absolute to the extent of quashing the notice and the consequential order.