2023 (9) TMI 552 - HC - Income Tax

Validity of reopening of assessment - orders in terms of Section 148A(d) - approval granted by the PCIT is not in accordance with section 151(ii) - notice beyond 3 years - difference between a power to review and the power to reassess reasons to believe or suspect - HELD THAT - Assessing Officer shall pass orders in terms of Section 148A(b) in respect of each of the assessee and after following the procedure as required under Section 148 of the Act. Even judgment in Ashish Agarwal 2022 (5) TMI 240 - SUPREME COURT does not anywhere indicate the notices that could be issued for eternity like in this case, on 31st July 2022, would be sanctioned by the authority other than sanctioning authority defined under the Act. We have to also note that the instructions dated 11th May 2022, on which respondents have relied upon, has no applicability to the facts of this case. These instructions expressly provides that it applies only to the issue of reassessment notice issued by the Assessing Officer during the period beginning 1st April 2020 and ending with 30th June 2021 within the time extended under TOLA and various notifications issued thereunder. Since the impugned notice in this case is dated 31st July 2022, certainly the instructions no. 1 of 2022 dated 11th May 2022 shall have no applicability at all. This court in Godrej Industries Limited 2015 (8) TMI 668 - BOMBAY HIGH COURT has held that an assessment can be reopened under section 147 and 148 of the Act only on the jurisdictional preconditions being satisfied strictly. This Court held that sanction of a superior officer to the reasons recorded in terms of section 151 should be obtained before issuing the notice under section 148 of the Act and all jurisdictional requirements are required to be satisfied cumulatively and even if one of the numerous jurisdictional requirements necessary for issuing the notice under section 148 of the Act are not satisfied, the reopening of an assessment would fail. Hence, in the present facts also since the approval of the specified authority in terms of section 151(ii) of the Act is a jurisdictional requirement and in the absence of complying with this requirement, the reopening of assessment would fail. The Calcutta High Court in K K Agarwal and Sons HUF v. ITO ( 2022 (12) TMI 1170 - CALCUTTA HIGH COURT while dealing with the reopening of the assessment for AY 2016-17 held that the approval granted by the PCIT is not in accordance with section 151(ii) of the Act and such approval is not sustainable in law. Hence, the Court held that the show cause notice under section 148A(b) and all subsequent proceedings were not sustainable in law and were quashed. Change of opinion - If the concept of change of opinion is removed as contended on behalf of the Revenue, then in the garb of reopening the assessment, review would take place. The concept of change of opinion is an in-built test to check abuse of power by the Assessing Officer. The Assessing Officer does not have any power to review his own assessment when during the original assessment petitioner provided all the relevant information which was considered by him before passing the assessment order under section 143(3). Petitioner had debited an amount on account of software consumables in the profit and loss account and a detailed break-up of the said expenses were submitted before the Assessing Officer during the course of assessment proceedings. It is settled law that proceedings under section 148 cannot be initiated to review the earlier stand adopted by the Assessing Officer. AO cannot initiate reassessment proceedings to have a relook at the documents that were filed and considered by him in the original assessment proceedings as the power to reassess cannot be exercised to review an assessment. In petitioner s case the AO having allowed the amount of software consumables as a revenue expenditure now seeks to treat the same as capital expenditure which is a clear change of opinion. Various judicial precedents have held that reassessment proceedings initiated on the basis of a mere change of opinion are invalid and without jurisdiction. As decided in M/S. KELVINATOR OF INDIA LIMITED 2010 (1) TMI 11 - SUPREME COURT Assessing Officer has no power to review but has only the power to reassess. The concept of change of opinion must be treated as an in-built test to check abuse of power by the Assessing Officer/ We allow the petition for the following reasons (a) that approval for issuance of notice under Section 148A(d) of the Act has not been properly obtained and hence the order passed thereunder and consequent notice issued under Section 148 of the Act have to be quashed and set aside. The sanction ought to have been granted under Section 151(ii) and not under Section 151(i) of the Act. (b) The notice to reopen has also been issued on the basis of change of opinion which is not permissible Assessee appeal allowed.

Summary

Issues Involved:
1. Limitation and Validity of Notice
2. Specified Authority for Sanction
3. Change of Opinion

Summary:

1. Limitation and Validity of Notice:
The petitioner challenged the notice dated 25th June 2021 issued under Section 148 of the Income Tax Act, 1961, arguing it was issued under the provisions of Sections 147 to 151 as they stood prior to their substitution by the Finance Act, 2021. The petitioner contended that the notice was beyond limitation and lacked the required "information" under Section 148. The court noted that the notice was issued almost three years after the original assessment order dated 23rd December 2018, which had accepted the revised return of income without adjustments.

2. Specified Authority for Sanction:
The petitioner argued that the sanction for the notice should have been obtained from the Principal Chief Commissioner or Principal Director General as per Section 151(ii) of the Act, since more than three years had elapsed from the end of the relevant assessment year. The court agreed, stating that the approval from the Principal Commissioner of Income Tax-8 was invalid. The court emphasized that TOLA (Taxation and Other Laws (Relaxation and Amendment of Certain Provisions) Act, 2020) only extended the period of limitation and did not amend the scope of Section 151. The court referred to several judgments, including Tata Communications Transformation Services Ltd. and J.M. Financial & Investment Consultancy Services Pvt Ltd., which held that TOLA does not apply to assessment years 2015-16 and subsequent years.

3. Change of Opinion:
The petitioner contended that the reassessment was based on a change of opinion, as the issue of software consumables had been considered during the original assessment proceedings. The court agreed, noting that the Assessing Officer had accepted the revised return after considering the transaction-wise summary of software consumables provided by the petitioner. The court cited the Supreme Court judgment in Kelvinator of India Ltd., which emphasized that the Assessing Officer has no power to review but only to reassess, and that reassessment based on a change of opinion is not permissible. The court also referred to the judgments in Aroni Commercials Ltd. and Dr. Mathew Cherian, which held that issues decided during the original assessment cannot be revisited in the guise of reassessment.

Conclusion:
The court quashed and set aside the impugned order passed under Section 148A(d) and the notice issued under Section 148 of the Act dated 31st July 2022, on the grounds that the approval was not properly obtained and the reassessment was based on a change of opinion. The court did not consider other grounds raised by the petitioner, leaving them open for consideration in future cases.