2021 (12) TMI 106 - HC - Income Tax

Reopening of assessment u/s 147 - Change of opinion - HELD THAT - AO has no power to review an assessment which has been concluded unless he has tangible material to come to the conclusion that there is an escapement of income from assessment. But in the reasons to believe in the present case, we do not find even a single ground which can be considered to be tangible basis for re-opening the assessment. AO states that from the partnership deed, audited accounts and Form No.3CD report, it is seen that that the Assessee has 15 partners, one of whom is Dhansukh Nanda HUF. According to the Assessing an HUF cannot become a partner of a firm or enter into a contract with other person and hence the Assessee has not complied with the provisions of Section 184 of the Act and the interest paid to partners cannot be considered for deduction. This is a clear case of change of opinion because Petitioner had filed Form No.3CD in which Dhansukh Nanda HUF is shown as a partner with 10% profit sharing ratio. Form No.3CD also indicates that a sum has been paid as interest to Dhansukh Nanda HUF. These materials were on the face of a document available before the Assessing Officer who passed the original Assessing Order dated 21/10/2015. Mr. Walve states that in the original Assessment Order, there is no mention about Dhansukh Nanda HUF and therefore it is likely that the original Assessing Officer has failed to note that one of the partners in Petitioner firm was an HUF. We do not agree with Mr. Walve because if Assessment Order does not speak about this, we would consider it as having been accepted by the Assessing Officer who passed the original Assessment Order that it was perfectly okay for an HUF to be a partner in Petitioner firm. We would hasten to add that we are not for a moment opining whether an HUF can be a partner in a firm under the provisions of Indian Partnership Act, 1932. Since we have concluded that it is nothing but a change of opinion, we do not propose to go into the issue as to whether the stand of Respondent that Petitioner has not complied with provisions of Section 184 of the Act is correct. - Decided in favour of assessee.

Summary

Issues:
1. Validity of notice dated 27/03/2019 issued under Section 148 of the Income Tax Act, 1961.
2. Compliance with the mandatory period of 4 weeks prescribed in a previous judgment.
3. Whether the notice of demand dated 09/12/2019 should be considered withdrawn.
4. Assessment based on the re-opening of the case for AY 2014-2015.
5. Consideration of change of opinion in re-opening the assessment.
6. Compliance with the provisions of Section 184 of the Act regarding partnership composition.

Issue 1: Validity of Notice under Section 148
The petitioner filed its return of income for AY 2014-2015, declaring total income as 'Rs. NIL.' The case underwent limited scrutiny, and the assessment was completed under Section 143(3) of the Act. Subsequently, a notice under Section 148 was issued on 26/03/2019, alleging that income had escaped assessment. The court found the reasons for re-opening the assessment lacking tangible basis, primarily focusing on the status of a partner, Dhansukh Nanda HUF, and interest deductions. The court deemed this a clear case of change of opinion, as the information was available during the original assessment.

Issue 2: Compliance with Previous Judgment's Prescribed Period
The Assessment Order and notice of demand dated 09/12/2019 were passed without waiting for the mandatory 4-week period, as per a previous judgment. The officer responsible for the order acknowledged his unawareness of the judgment and tendered an apology. Consequently, the respondents requested the withdrawal of the Assessment Order and notice of demand, which the court considered.

Issue 3: Compliance with Section 184 of the Act
The petitioner claimed compliance with Section 184(3) of the Act, stating that the partnership composition had been consistent in previous assessments. The court noted these averments and concluded that the issue of compliance need not be addressed further due to the primary finding of a change of opinion in re-opening the assessment.

Judgment
The court allowed the petition, issuing a Writ of Certiorari to quash the notice u/s 148 dated 27.03.2019, the subsequent order dated 19.11.2019 disposing of objections, and the assessment order and notice of demand dated 09.12.2019. The court's decision was based on the lack of a valid basis for re-opening the assessment and the presence of a clear change of opinion, rendering the notice invalid.