2019 (8) TMI 173 - HC - Income Tax

Reopening the assessment u/s 147 - within four years from the end of the relevant assessment year - change of opinion - deduction u/s 80HHC - reopening based on audit objection - assessee contended that AO in reopening the assessment has acted under the dictation of the CIT - since AO rejected the objections raised in the audit report reopening is by changing his opinion - HELD THAT - In this case, the Assessing Authority was quite alive to this issue. There is not even any allegation that the Assessee had failed to disclose all the material facts in relation to the transaction in question. In such circumstances, permitting the Revenue to reopen the assessment would amount to permitting the Revenue to review its earlier order, which jurisdiction is clearly not vested in the Revenue while exercising powers under u/ss 147 and 148. After the audit raised its objection, the AO submitted reply to the same in which the AO resisted the audit objection and defended the completion of assessment. From the perusal of the reply, it is very apparent that the AO, at the stage of finalisation of assessment, had very clearly addressed the issue as to whether the transaction of sale of shares of an Indian company to a foreign company, in the facts and circumstances of the present case, constituted an export and consequently the proceeds were deductible u/s 80HHC. Both, the Commissioner (Appeals), as well as the ITAT, have recorded concurrent findings of fact that the aforesaid action on the part of the AO amounts to 'acting under dictation'. The material on record does indicate that there was no independent application of mind on the part of the AO and the notice proposing reassessment was issued reeling under the dictation from the CIT who was, admittedly, his superior officer. In such circumstances, there is no good ground to interfere with the impugned Judgment and Order. According to us, is a clear case of the AO merely changing his opinion or having a second thought on the basis of materials on record and that too reluctantly and reeling under the dictation from the superior officer. Accordingly, we are satisfied that there is no case made out to interfere with the impugned Judgment and Order. Whether the AO is precluded from issuing a notice for reassessment where such AO has already replied to the audit objection justifying his earlier position - HELD THAT - We do not deem it necessary to go into the larger issue as to whether the Assessing Officer is precluded from issuing a notice for reassessment where such Assessing Officer has already replied to the audit objection justifying his earlier position. No doubt, in Rajan N. Aswani 2018 (3) TMI 315 - BOMBAY HIGH COURT there are some observations to this effect as urged by Mr. Naniwadekar. However, Ms. Razaq did make attempts to distinguish the said decision. According to us, it is really not necessary to go into this larger issue, since, based upon the discussion as aforesaid, we are satisfied that there was no case made out for reopening of the assessment. - Appeal is dismissed

Summary

Issues Involved:

1. Justification of ITAT in upholding the order of CIT(A) in canceling the income escaping assessment.
2. Whether reopening the assessment was based on a change of opinion.
3. Justification of the assessee's claim for deduction under Section 80HHC.

Detailed Analysis:

1. Justification of ITAT in upholding the order of CIT(A) in canceling the income escaping assessment:

The appeal challenges the ITAT's judgment confirming the CIT(A)'s order, which quashed the reopening of the assessment by the Assessing Officer (AO) for the Assessment Year 1995-96. The Respondent-Assessee filed its return on 29/3/1996, and the assessment was completed on 2nd June 1997 under Section 143(3) of the Income Tax Act, 1961. However, on 17/2/2000, the AO issued a notice under Section 148 seeking to reopen the assessment. The CIT(A) quashed this reopening on 5th August 2002, and the ITAT upheld this decision on 3rd August 2007.

2. Whether reopening the assessment was based on a change of opinion:

The AO initially accepted the Assessee's claim for deduction under Section 80HHC after detailed scrutiny and consideration of the Assessee's responses and documents. Despite this, a notice for reassessment was issued on 17th February 2000, following an audit objection and a directive from the Commissioner of Income Tax. The ITAT and CIT(A) found that the AO's action amounted to a change of opinion and was influenced by the superior officer's directive, lacking independent application of mind. The court noted that the AO had already addressed the issue of whether the sale of shares constituted an export and allowed the deduction after thorough scrutiny.

3. Justification of the assessee's claim for deduction under Section 80HHC:

The Assessee, an investment company, claimed a deduction under Section 80HHC for the sale proceeds received in convertible foreign exchange from selling shares to a foreign company. The AO initially accepted this claim after detailed scrutiny, including verifying RBI approvals and other relevant documents. The court found that the AO had duly considered whether the transaction amounted to an export and allowed the deduction based on the materials on record. The court concluded that reopening the assessment based on the same set of facts amounted to a mere change of opinion, which is not permissible.

Conclusion:

The court answered the substantial questions of law (A) and (B) against the Revenue, stating that there was no case for reopening the assessment. Consequently, there was no need to remit the matter to the ITAT for deciding the issue raised in question (C). The appeal was dismissed with no order as to costs.