2024 (7) TMI 148 - HC - Income Tax

Validity of reassessment proceedings - reasons to believe - treating certain expenditures as capital expenditure - borrowed satisfaction of the Audit Party or independent application of mind - HELD THAT - It is not in dispute that the original assessment by the AO in this case was framed vide assessment order dated 28.03.2016 and during the course of these proceedings, entire books of accounts, bills and vouchers have been duly perused by the then Assessing Officer. It is after perusal of the books of accounts, bills and vouchers that the AO had formed a view that the parts imported from Majesty Packaging International Ltd. were used in the manufacturing of product. Therefore, reopening of the case, that too, on the ground that expenditure was incurred for acquisition of capital, is not liable to be treated as revenue expenditure, is absolutely wrong as admittedly what was imported was perfume pumps to be installed for packing and sale of the product of the petitioner-company and the same could not have been held to be capital expenditure at all and the same, therefore, has rightly been booked as revenue expenditure. As regards an amount towards earned receipt of damaged goods that was claimed by the petitionercompany, there was nothing on record to suggest that the sale of damaged stock had not been derived from an industrial activity and, therefore, not admissible for deduction u/s 80IC. Here again, while framing initial assessment of the petitioner-company, the AO had made independent analysis of the books of accounts and other relevant material. As a matter of fact, a detailed notice had been issued to the petitioner-company on 28.03.2021 qua this very aspect of the matter to which detailed written submissions along with cogent and corroborative documentary evidence in the form of invoices etc. had been duly supplied by the petitioner-company. Record reveals that the objections were raised only by the Audit Party and, therefore, reasons have been recorded on borrowed satisfaction of the Audit Party and not that of the respondent-department. A perusal of the reasons for reopening the case would make it evidently clear that all the material have been culled out from the assessment record submitted by the petitioner. Therefore, in absence of new facts coming to the knowledge of the Assessing Officer subsequent to the original assessment proceedings, the reopening of the case cannot be done on the basis of the same material. (Refer M/s Tech Span India Private Limited and another 2018 (4) TMI 1376 - SUPREME COURT The assessment order in the instant case is not the one which could be termed to be nonspeaking, cryptic or perfunctory in nature and, therefore, it can easily be inferred and attributed to the Assessing Officer that he was fully aware of the questions that have been raised in the proposed reassessment proceedings. Once, there is a conscious application of mind after taking into consideration the relevant facts and material available and existing at the relevant point of time while making assessment, a different and divergent view cannot again be taken as this would amount to change of opinion . If the assessing authority forms an opinion during the original assessment proceedings on the basis of the material facts and subsequently finds it to be erroneous, then it is not a valid reason under the law for re-assessment . From a overall reading of facts, it is clear that the respondents have sought to resurrect a stale issue which has already been examined during the course of regular assessment pursuant to which the assessment order was passed on 28.03.2016.

Issues Involved:

1. Validity of notice issued under Section 148 of the Income Tax Act, 1961.
2. Legality of the rejection of objections filed by the petitioner against the reopening of the case.
3. Applicability of the doctrine of "change of opinion".
4. Compliance with the requirements of "full and true disclosure" under Section 147 of the Act.
5. Maintainability of the writ petition.

Issue-Wise Detailed Analysis:

1. Validity of Notice Issued Under Section 148:

The petitioner challenged the notice dated 30.03.2021 issued under Section 148 for the assessment year 2013-14, seeking its quashing. The petitioner argued that the notice was issued after the expiry of four years from the end of the relevant assessment year, and there was no failure on their part to disclose fully and truly all material facts necessary for assessment. The court observed that the reasons for reopening the case were based on the audit party's objections, which revealed that certain incomes were not derived from manufacturing activities and that certain expenditures were of a capital nature. However, the court found that these reasons were not new facts but were already part of the original assessment record, thus reopening the case on the same material was not permissible.

2. Legality of the Rejection of Objections:

The petitioner's objections to the reopening were rejected by the respondents, who contended that the petitioner had failed to disclose fully and truly all material facts necessary for assessment. The court noted that the objections were rejected mechanically without considering the detailed submissions made by the petitioner. The court emphasized that the rejection of objections must be done with a proper application of mind and not in a perfunctory manner. The court found that the respondents' rejection of the objections was not justified and thus quashed the order rejecting the objections.

3. Applicability of the Doctrine of "Change of Opinion":

The court reiterated that the concept of "change of opinion" is an in-built test to check the abuse of power by the Assessing Officer. It was noted that the original assessment was completed after a thorough examination of the books of accounts, bills, and vouchers. The court held that reopening the assessment on the same facts amounted to a change of opinion, which is not permissible under the law. The court referred to various judgments, including the Hon'ble Supreme Court's decision in M/s Mangalam Publications, to emphasize that reassessment cannot be based on a mere change of opinion.

4. Compliance with Requirements of "Full and True Disclosure":

The court examined the scope and extent of "full and true disclosure" under Section 147 of the Act. It was observed that the petitioner had disclosed all primary facts during the original assessment proceedings, and the Assessing Officer had formed an opinion based on these facts. The court referred to the Hon'ble Supreme Court's decision in Calcutta Discount Co. Ltd. and other relevant judgments to highlight that the duty of the assessee is to disclose all primary facts necessary for assessment, and once this is done, it is for the Assessing Officer to draw inferences. The court concluded that there was no failure on the part of the petitioner to disclose fully and truly all material facts.

5. Maintainability of the Writ Petition:

The respondents argued that the writ petition was premature and not maintainable. However, the court referred to the Constitution Bench judgment in Calcutta Discount Co. Ltd., which held that the High Courts have the power to issue orders prohibiting an executive authority from acting without jurisdiction. The court found that the petitioner had approached the court at the earliest opportunity and there was no reason to refuse relief. The court held that the writ petition was maintainable and allowed it.

Conclusion:

The court allowed the writ petition, quashing the notice issued under Section 148 for the assessment year 2013-14 and the order rejecting the objections filed by the petitioner. The court emphasized that the reopening of the case was based on a change of opinion and not on any new facts, and thus was not permissible. The court also reiterated the importance of full and true disclosure and the maintainability of the writ petition in such cases.

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