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TMI Blog2019 (12) TMI 154X X X X Extracts X X X X X X X X Extracts X X X X ..... tion of jurisdiction by the AO u/s 147 of the Act is, therefore, invalid. The impugned notice under section 148 of the Act, therefore, cannot be sustained. Petition succeeds and is, accordingly, allowed. - R/Special Civil Application No. 16767 of 2018 - - - Dated:- 7-10-2019 - HONOURABLE MS.JUSTICE HARSHA DEVANI AND HONOURABLE MS. JUSTICE SANGEETA K. VISHEN MR. HARDIK V VORA(7123) FOR THE PETITIONER(S) NO. 1 MRS KALPANAK RAVAL(1046) FOR THE RESPONDENT(S) NO. 1 ORAL JUDGMENT PER : HONOURABLE MS.JUSTICE HARSHA DEVANI 1. Rule. Mrs. Kalpana Raval, learned senior standing counsel, waives service of notice of rule on behalf of the respondent. 2. Having regard to the controversy involved in the present case, which lies in a very narrow compass, the matter was taken up for final hearing today. 3. By this petition under article 226 of the Constitution of India, the petitioner has challenged the notice dated 23.03.2018 issued by the respondent under section 148 of the Income Tax Act, 1961 (hereinafter referred to as the Act ) seeking to reopen the assessment of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the petitioner to disclose fully and truly all material facts necessary for its assessment for the year under consideration, the assumption of jurisdiction on the part of the Assessing Officer is without authority of law. 6.1 The attention of the court was invited to the reasons recorded for reopening the assessment, to submit that the Assessing Officer seeks to reopen the assessment on two grounds, firstly, in relation to an amount of ₹ 2,47,62,500/ shown by the petitioner in its return of income as capital gain on the ground that the same should have been assessed as income of the petitioner under section 28(iv) of the Act; and secondly, that the petitioner had created a provision for future development expense of ₹ 3,59,48,400/ and had debited the same under the head cost of materials , which was created on estimation basis and hence, this was a provision which was required to be added to the net profit for computing book profit as per the provisions of section 115JB of the Act. 6.2 Reference was made to the notice dated 19.11.2014 issued by the Assessing Officer under section 142(1) of the Act during the course of scrutiny assessmen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that the assessee was not maintaining any separate books of accounts for the two categories, i.e., software development and human resource development, on which it has declared income separately. However, a bare perusal of notice dated 09.03.2004 which was issued in the original assessment proceedings under Section 143 makes it clear that the point on which the re assessment proceedings were initiated, was well considered in the original proceedings. In fact, the very basis of issuing the show cause notice dated 09.03.2004 was that the assessee was not maintaining any separate books of account for the said two categories and the details tiled do not reveal proportional allocation of common expenses be made to these categories. Even the said show cause notice suggested how proportional allocation should be done. All these things leads to an unavoidable conclusion that the question as to how and to what extent deduction should be allowed under Section 10A of the IT Act was well considered in the original assessment proceedings itself. Hence, initiation of the re assessment proceedings under Section 147 by issuing a notice under Section 148 merely because of the fact that now the Ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d be an abuse of such authority. As the aforesaid decision of the Supreme Court indicates though audit objection may serve as information on the basis of which the Income tax Officer can act, ultimate action must depend directly and solely on the formation of belief by the Income tax Officer on his own where such information is passed on to him by the audit that income has escaped assessment. In the present case, by scrupulously analysing the audit objection in great detail, the Assessing Officer has demonstrably shown to have held the belief prior to the issuance of notice as well as after the issuance of notice that the original assessment was not erroneous and so far as he was concerned, he did not believe at any time that income has escaped assessment on account of erroneous computation of benefit under section 80HHC. He has been consistent in his submission of his report to the superior officers. The mere fact that as a subordinate officer he added the suggestion that if his view is not accepted, remedial actions may be taken cannot be said to be belief held by him. He has no authority to surrender or abdicate his function to his superiors, nor the superiors can arrogate to th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... profit for computing book profit under section 115JB of the Act is concerned, the said amount was created on estimation basis, which was never disclosed at the time of the scrutiny assessment proceedings. The then Assessing Officer had discussed about the allowability of such claim as business expense, as the provision was not an expense for the purpose of business. It was submitted that the issue of allowability of such unascertainable expense while calculating book profit under section 115JB of the Act was never discussed during the original assessment proceedings and therefore, it cannot be said that the Assessing Officer had formed an opinion on this issue. Under the circumstances, it cannot be said that the reopening is based upon a mere change of opinion. 7.1 As regards the contention raised by the learned advocate for the petitioner that the reopening of assessment is based upon an audit objection, it was submitted that there is no mention of any audit objection in the reasons recorded for reopening the assessment. Therefore, the question of borrowed satisfaction on the part of the Assessing Officer while reopening the assessment would not arise. It was subm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ot ascertained during the year. As this was a provision, it was required to be added to the net profit for computing book profit as per the provisions of Section 115JB. As per the provision of section 115JB of the I.T. Act, prof1t as per P L is to be increased by the amount set aside to provide for meeting liabilities, other than ascertained liabilities. Hence, ₹ 3,59,48,400/ was required to be added to the net prof1t for computing Book Profit under section 115JB. 9. Thus, it is on the above referred two grounds that the Assessing Officer seeks to reopen the assessment of the petitioner for the assessment year under consideration. Since it has been contended on behalf of the petitioner that the reopening is based upon a mere change of opinion, it would be necessary to examine as to whether the Assessing Officer, at the time of scrutiny assessment, has applied his mind to the said issues. In this regard, a perusal of the notice dated 19.11.2014 issued under section 142(1) of the Act reveals that the Assessing Officer had specifically stated that the provision for future development expenses of ₹ 2,51,86,534/ have been debited to the Profit and Loss Ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... considering the same, had accepted it. Now, the respondent-Assessing Officer seeks to reopen the assessment for the purpose of examining it from another angle, namely the issue of allowability of such unascertainable expense while calculating book profit under section 115JB of the Act. 14. At this juncture, it may also be apposite to refer to the decision of the Supreme Court in the case of Income Tax Officer, Ward No.16 (2) v. TechSpan India (P.) Ltd. (supra), wherein it has been held that initiation of re assessment proceedings under section 147 by issuing notice under section 148 merely because of the fact that now the Assessing Officer is of the view that deduction under section 10A was allowed in excess, was based on nothing but a change of opinion on the same facts and circumstances which were already in his knowledge even during the original assessment proceedings. 15. In the opinion of this court, the above decisions would be squarely applicable to the facts of the present case inasmuch as insofar as the first issue is concerned, the Assessing Officer had called for details and after considering the explanation given by the assessee, had ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Tax (Assessments) (supra), if the petitioner is able to demonstrate that in fact the Assessing Officer did not have any reason to believe or did not hold such belief in good faith or the belief which is projected in papers is not belief held by him in fact, the exercise of authority conferred on such person would be ultra vires the provisions of law and would be an abuse of such authority. 19. The Supreme Court, in the case of Indian and Eastern Newspaper Society v. CIT, (1979) 119 ITR 996 (SC), has held that though audit objection may serve as information on the basis of which the Income Tax Officer can act, ultimate action must depend directly and solely on the formation of belief by the Income Tax Officer on his own where such information is passed on to him by the audit that income has escaped assessment. 20. In the present case, from the audit para it emerges that upon the audit department bringing the above two issues to the notice of the Assessing Officer, the Assessing Officer did not agree with the objections raised by the audit department and expressed the opinion that the original assessment was not erroneous. However, it appears t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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