2022 (11) TMI 893 - HC - Income Tax

Reopening of assessment u/s 147 - reason to believe - change of opinion - information was obtained under the RTI Act comprising of the Audit point/objection relating to the claim of depreciation on DVN, the exchange of communications between the Respondent and the Audit - correctness of the claim of depreciation was examined by the assessing officer while making the assessment under Section 143(3) - HELD THAT - AO after having resisted the audit wing report/point, stating that there is no material much less tangible material for reassessment and secondly that the claim of depreciation was examined closely and allowed after appreciation of law and also making it clear that reassessment/revisit on the above issue would fall within the realm of change of opinion, the action of the assessing officer in proceeding to make the reassessment is thus unsustainable. Opinion need not be expressed For applying the limitation of change of opinion with regard to power of reassessment - Once a query is raised during the assessment proceedings and the assessee has replied to it, it follows that the query raised was a subject of consideration of the assessing officer while completing the assessment. It is not necessary that an assessment order should contain reference and / or discussion to disclose its satisfaction in respect of the query raised. Therefore, the entire proceeding for reopening the assessment had emanated only on account of change of opinion on the part of the assessing officer. Audit Objections relevance in making re-assessments - We have seen that the audit both Internal as well as by the Comptroller and Auditor General is not the Authority conferred with the jurisdiction to make an assessment which falls within the exclusive jurisdiction / domain of the assessing officer. Any attempt by an external agency other than the assessing officers would amount to entrenchment on the powers of assessment/reassessment vested exclusively under the statute on the assessing officer. In other words, it clearly amounts to transgression and usurping of powers vested with the assessing authority by a body/ unit not vested with the power of assessment/reassessment as in the present case, by the audit which is impermissible. The function of the audit is essentially executive in nature, while the function of the assessing officer and his power to make an assessment are essentially quasi judicial in nature. One may also have to bear in mind that the executive cannot trench upon the powers of a quasi judicial authority for permitting to do so may result in subverting the scheme of quasi-judicial function of making assessment / reassessment, which is impermissible. Evaluation of law and its bearing on the assessment must be directly and solely done by the assessing officer. The audit party can furnish information which leads the assessing officer to realise the need for reassessment - information / material provided by the audit or any external agency must give birth to the realisation on the part of the assessing officer of the need to exercise its power of reassessment - information cannot be the realisation. If the distinction between the two is lost sight, there is a grave danger of powers of reassessment being usurped by external agency and abdication of its quasi judicial function/power by the assessing officer, both of which are impermissible and would prove fatal to the validity of any proceedings which suffers from the above vice. Impugned order not an exercise of power of reassessment in good faith - The sequence of events and the exchange of communication between the Respondent and the Audit would reveal that the Respondents have not exercised their power in Good Faith . The power of reassessment has been exercised for purposes which are extraneous. The order of reassessment appears to be a manifestation of colourable exercise of power by the Assessing authority which vitiates the entire proceedings. The assessing officer, who after indicating that the Audit Report, does not enable the exercise of powers of reassessment as no new material is furnished and more importantly having expressed the view that in the circumstances it would tantamount to exercise of power of reassessment on change of opinion, has without any change in circumstance, proceeded to make the reassessment which is not in good faith rather indicative of exercise of power for purposes alien/foreign to the purpose for which such power was conferred/granted. Absence of finding failure on the part of the assessee to fully and truly disclose material facts and invoke extended period - impermissible - We find that for the assessment year 2008-09, the reassessment is beyond four years, whereas, the same with regard to assessment year 2009-10 is within four years. The common jurisdictional requirement for reopening of assessment both within and beyond four years, has to be on the basis of ''reason to believe'' which cannot be on the basis of mere change of opinion. In addition to the above which is a restriction common to exercise powers of reassessment both within and beyond four years, with regard to cases of reassessment falling under clause(b) i.,e beyond four years from the end of the relevant assessment year, there must be a failure on the part of the assessee to disclose fully and truly all material facts necessary for assessment during the original assessment proceedings. We find that the jurisdictional fact to invoke the extended period is failure on the part of the assessee to disclose fully and truly all material facts necessary for assessment. A finding on the above aspect is a sine qua non/condition precedent/pre-requisite for invoking the extended period. Absence of such finding, while invoking the extended period, may prove fatal. The order of assessment for the year 2008-09 suffers from this additional infirmity. The reassesment order for the Assessment Year 2008-09 also suffers from the infirmity of not rendering any finding of failure on the part of the assessee to disclose fully and truly all material facts necessary for assessment which would also vitiate the proceedings. We do not propose to examine the matter on merit as the exercise of power of reassessment under Section 147 of the Act is bad for want of jurisdiction and thus unsustainable. It is well-settled that Court would be loathe in infering with matters of reassessment where there is alternate remedy by way of statutory appeal. There are atleast in two circumstances which has been carved out as an exception to the above, self-imposed limitation namely If the order is shown to be made in violation of principles of natural justice and If the order is bad for want of jurisdiction. The impugned proceedings falls within the above exception as it is bad for want of jurisdiction thereby warranting interference. We set aside the order of the learned Single Judge and the orders of reassessment for the assessment years 2008-09 and 2009-10 passed by the Assessing Officer. Decided in favour of assessee.

Summary

Issues Involved:
1. Assumption of jurisdiction to reassess under Section 147 read with Section 148 of the Income Tax Act, 1961.
2. Non-furnishing of reasons for reopening in terms of the GKN Driveshafts case.
3. Reassessment based on audit objections and whether it constitutes a change of opinion.
4. Availability and adequacy of alternate remedy.
5. Validity of reassessment beyond the four-year limitation period.

Detailed Analysis:

I. Assumption of Jurisdiction to Reassess:
The appellant challenged the reassessment orders for the assessment years 2008-09 and 2009-10, arguing that the jurisdiction to reassess under Section 147/148 was improperly assumed. The court held that the power of reassessment cannot be exercised on mere change of opinion. The original assessments had already considered the issue of depreciation on Dealer and Vendor Network (DVN) and goodwill, and thus, revisiting these issues without new tangible material was impermissible.

II. Non-Furnishing of Reasons for Reopening:
The appellant contended that the reasons for reopening were not furnished, violating the procedure mandated by the Supreme Court in GKN Driveshafts. The court noted that the reasons must be provided to the assessee, and failure to do so vitiates the reassessment proceedings. Despite repeated reminders, the reasons were not furnished, which was a procedural lapse.

III. Reassessment Based on Audit Objections:
The court examined whether the reassessment based on audit objections constituted a change of opinion. The audit had suggested that DVN did not constitute "commercial rights" and thus depreciation should be disallowed. The court found that the audit's opinion on a legal question cannot form the basis for reassessment. The assessing officer initially resisted the audit's view, stating there was no new material to justify reassessment. The court held that reassessment based on audit objections, without new tangible material, was a mere change of opinion and therefore impermissible.

IV. Availability and Adequacy of Alternate Remedy:
The learned Single Judge had dismissed the writ petitions on the grounds of availability of an alternate remedy. However, the court held that the existence of an alternate remedy does not bar the exercise of judicial review under Article 226 if the proceedings are bad for want of jurisdiction. The court found that the reassessment proceedings were indeed bad for want of jurisdiction, thus warranting interference despite the alternate remedy.

V. Validity of Reassessment Beyond the Four-Year Limitation Period:
For the assessment year 2008-09, the reassessment was beyond the four-year period. The court emphasized that for reassessment beyond four years, there must be a failure on the part of the assessee to fully and truly disclose all material facts. The court found no such failure on the part of the assessee and noted the absence of a finding to this effect in the reassessment order. This additional infirmity rendered the reassessment invalid.

Conclusion:
The court set aside the order of the learned Single Judge and the reassessment orders dated 31.12.2014 for the assessment years 2008-09 and 2009-10. The reassessment proceedings were found to be bad for want of jurisdiction, constituting a change of opinion, and were influenced by audit objections which cannot form the basis for reassessment. The appeals were allowed, and no costs were imposed.