2023 (8) TMI 1285 - HC - Income Tax

Reopening of assessment u/s 147 - reason to believe - commencement date / year for deduction u/s 80IA - Eligible from 1995 or 2000 - scope of change of opinion - HELD THAT - Division Bench of this court in Aroni Commercials Ltd 2014 (2) TMI 659 - BOMBAY HIGH COURT held that once a query is raised during the assessment proceedings and assessee has replied to it, it follows that the query raised was a subject of consideration of the AO while completing the assessment. It is not necessary that the assessment order should contain reference and/or discussion to disclose its satisfaction in respect of the query raised. As a background we must note that assessee had established business and had received approval to set up EPZ, i.e., Export Processing Zone vide notification dated 31st May 1994. The Government of India, Ministry of Commerce and Industry vide its letter dated 3rd March 2004 had informed assessee that the EPZ was converted into a Special Economic Zone (SEZ) vide resolution dated 1st November 2000 but all the terms and conditions mentioned in the Notification dated 31st May 1994 remained unchanged. Assessee u/s 80IA was entitled to claim deduction for any ten consecutive assessment out of the period of 15 years commencing from the date the Notification dated 1st November 2000 was issued and assessee has been claiming such deduction. In Assessment Year 2006-07 when the reasons to reopen was issued the A.O. had formed an opinion that assessee was entitled to claim for 15 years only from 31st May 1994 and not from 1st November 2000. Assessee had filed the petition challenging the reopening for AY 2006-07. Order stating that the proceedings that were initiated u/s 147 for AY 2006-07 were dropped. In view thereof assessee withdrew Writ Petition - Mr. Vaidya therefore is justified in submitting that there can never be a case of incorrect dates being stated in Form 10CCB by assessee as regards establishment of Industrial Park. We agree with that this is nothing but a case of change of opinion by the A.O. from that held earlier during the course of assessment proceedings and this change of opinion does not constitute justification and/or reasons to believe that income chargeable to tax has escaped assessment. We should also note that in the affidavit in reply filed through one Ms. Jyothi Sharma affirmed on 24th April 2023 it is stated that the reassessment proceedings have been initiated in view of the objections/ observations raised by the revenue audit. The law on that is quite settled. In every case the Income Tax Officer must determine for himself what is the effect and consequences of the law mentioned in the audit note and whether in consequence of the law which has come to his notice that he can reasonably believe that income has escaped assessment. The basis of his belief must be the law on which he has now become aware and the opinion rendered by the audit party in regard to the law cannot, for the purpose of such belief, colour the significance of such law. The true evaluation of the law in its bearing on the assessment must be made directly and solely by the Income Tax Officer. We have to note that the Income Tax Officer who has issued the notice to reopen and who has recorded the reasons to believe based on which we would assume he has obtained approval under Section 151 of the Act has chosen to suppress the fact that there were audit objections raised. In the reasons to believe there is not even a whisper that there was any audit objection. He was duty bound to disclose that there were audit objections and that he has now become aware of the law based on which he can reasonably believe that income had escaped assessment. Decided in favour of assessee.

Summary

Issues involved: Reopening of assessment for Assessment Year 2013-14 based on alleged escapement of income due to incorrect claim of deduction under Section 80IA(4)(iii) of the Income Tax Act.

The judgment of the High Court Bombay addressed the issue of reopening the assessment for the Assessment Year 2013-14. The petitioner had filed the return of income for the said year, disclosing total income under normal provisions and Section 115 JB of the Income Tax Act. The assessment was completed, and subsequently, a notice was issued under Section 148 of the Act, alleging that income had escaped assessment due to an incorrect claim of deduction under Section 80IA(4)(iii). The reasons for reopening highlighted discrepancies in the dates of establishment of the Industrial Park and the claim for deduction made by the assessee. The court noted that the proviso to Section 147(1) of the Act limits reopening after four years unless there is a failure to disclose material facts. The court found that during the original assessment proceedings, the Assessing Officer had raised queries related to Section 80 IA and Form 10CCB, to which the assessee had responded with explanations and supporting documents. The court emphasized that the assessment order did not need to explicitly discuss every query raised during the proceedings, as long as the queries were addressed by the assessee. Additionally, the court highlighted a previous notice issued for Assessment Year 2006-07, where similar reasons for reopening were given, indicating a pattern of reassessment based on the same grounds. The court concluded that the notice and order rejecting objections were to be quashed as there was no justification or new grounds to believe that income had escaped assessment.

The judgment also delved into the aspect of audit objections raised by the revenue audit, which allegedly triggered the reassessment proceedings. The court emphasized that the Income Tax Officer must independently evaluate the law and its implications on the assessment, regardless of the audit party's opinion. It was noted that the officer issuing the notice to reopen failed to disclose the audit objections in the reasons recorded for belief, which was deemed as a suppression of crucial information. The court held that the notice and the order on objections were to be quashed and set aside, as the reassessment lacked valid grounds for believing that income had escaped assessment.