Court Quashes Income Tax Reassessment Notice, Citing "Mere Change of Opinion"

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Case Name:

GKN Sinter Metals Ltd. Vs Ms. Ramapriya Raghavan, Assistant Commissioner of Income Tax & Ors.(High Court of Bombay)

Writ Petition No. 2639 of 2007

Date: 6th January 2015

Key Takeaways:

1. An assessment can only be reopened if the Assessing Officer has "reason to believe" that income has escaped assessment.

2. A mere change of opinion does not constitute a valid "reason to believe".

3. If an opinion was formed on an issue during the original assessment, reopening the assessment on the same issue amounts to a change of opinion.

4. The reasons for reopening must be judged based on what was recorded at the time of issuing the notice, not on subsequent explanations.

Issue:

Whether the Income Tax Department had valid grounds to reopen the assessment of GKN Sinter Metals Ltd. for the 2002-03 assessment year?

Facts:

1. GKN Sinter Metals Ltd. had three manufacturing units - one in Pimpri and two in Ahmednagar.

2. The company claimed deductions under Section 80IA (of Income Tax Act, 1961)/80IB for its Ahmednagar units in its 2002-03 tax return.

3. During the original assessment, the Assessing Officer raised queries about the allocation of expenses between the units.

4. The company provided explanations, and the assessment was completed under Section 143(3) (of Income Tax Act, 1961) on March 9, 2005, accepting the company's claims.

5. On March 14, 2007, the Income Tax Department issued a notice to reopen the assessment, citing disproportionate allocation of expenses.

Arguments:

For the Petitioner (GKN Sinter Metals Ltd.):

1. The notice was based on a mere change of opinion, which is not a valid reason to reopen an assessment.

2. The Assessing Officer had formed an opinion on the allocation of expenses during the original assessment.

3. There is no universal method for allocating expenses, and the method used by the company was accepted in the original assessment.

For the Revenue (Income Tax Department):

1. The reopening was based on tangible material, not a change of opinion.

2. No opinion was formed on the allocation of expenses during the original assessment.

3. The court should not interfere at this stage as it's only a prima facie view.

Key Legal Precedents:

1. Commissioner of Income Tax v/s. Kelvinator of India Ltd. (320 ITR 561):

Explained the meaning of "reason to believe" and held that mere change of opinion cannot be a reason to reopen.

2. Hindustan Lever Limited v/s. R. B. Wadkar (268 ITR 332):

Held that a reopening notice must stand or fall based on the reasons recorded at the time of issuing the notice.

3. Idea Cellular Ltd. v/s. Deputy Commissioner of Income Tax (301 ITR 407):

Held that if all material was placed before the Assessing Officer during the original assessment, it cannot be contended that the Assessing Officer did not apply his mind.

Judgement:

1. The court held that the Assessing Officer had formed an opinion on the allocation of expenses during the original assessment.

2. The reopening notice was based on a mere change of opinion, which does not constitute a valid "reason to believe".

3. The court set aside the reopening notice dated March 14, 2007.

FAQs:

Q1: What is the "reason to believe" requirement for reopening an assessment?

A1: The Assessing Officer must have a genuine belief, based on new information or evidence, that income has escaped assessment. A mere change of opinion is not sufficient.

Q2: Can an assessment be reopened if the Assessing Officer overlooked something in the original assessment?

A2: Generally, no. If the information was available during the original assessment and the Assessing Officer had the opportunity to form an opinion, reopening based on the same information would likely be considered a change of opinion.

Q3: What is the significance of this judgment for taxpayers?

A3: This judgment reinforces the principle that tax authorities cannot reopen assessments arbitrarily. It provides protection to taxpayers against repeated scrutiny of the same issues that were considered during the original assessment.

Q4: Does this mean assessments can never be reopened?

A4: No, assessments can still be reopened if there is genuinely new information or evidence that was not available or considered during the original assessment.

Q5: How long after an assessment can the tax department issue a reopening notice?

A5: Generally, within 4 years from the end of the relevant assessment year. However, in cases of income escaping assessment of ₹100,000 or more, this can be extended to 6 years, and in certain cases involving foreign assets, up to 16 years.

This Petition under Article 226 of the Constitution of India challenges the notice dated 14th March, 2007 issued under Section 148 (of Income Tax Act, 1961) (the Act) by the Assessing Officer, seeking to re-open the assessment for the Assessment Year 2002­-03.

2 The Petition was admitted on 18th December, 2007. At the time of admission, the impugned notice dated 14th March, 2007 was stayed.

3 The brief undisputed facts leading to this Petition are as under:­

(a) The Petitioner has three manufacturing units – one located at

Pimpri and two at Ahmednagar. At all times relevant to this

Petition, two manufacturing units of the Petitioner were located at

Ahmednagar were entitled to the benefit of tax under Section 80IA (of Income Tax Act, 1961)/

80IB of the Act as they were situated in a backward region;

(b) On 30th October, 2002, the Petitioner filed its Return of Income for

the Assessment Year 2002­03, declaring total income of Rs.6.89

Crores. In its Return of Income, the Petitioner claimed deduction

under Section 80IA (of Income Tax Act, 1961)/80IB of the Act in respect of two manufacturing

units situated at Ahmednagar aggregating to Rs.2.86 Crores;

(c) Along with its Return of Income, the Petitioner had filed two

Auditor Certificates both dated 26th October, 2002 in respect of its

two manufacturing units situated at Ahmednagar, claiming the

benefit of Section 80IA (of Income Tax Act, 1961)/IB of the Act. The Auditor's certificate

was given in terms of Section 80IA(8) (of Income Tax Act, 1961) as then existing for

claiming the deduction. Along with the Auditor's report, the

Petitioner had also filed a note indicating the manner in which it

had worked out its claim for deduction under Section 80IA (of Income Tax Act, 1961) of the

Act. The note indicated that the expenses were allocated between

the three manufacturing units on its turnover, actual basis and

time spent depending upon the nature of expenses ;

(d) During the regular assessment proceedings, the Assessing Officer by

a communication dated 27th December, 2004 inter alia sought

the following information/ clarification in respect of the

working of its claim for deduction under Section 80IA (of Income Tax Act, 1961)/IB of the

Act:

“13 From the working of deduction u/s. 80IA (of Income Tax Act, 1961) in respect of

Ahmednagar unit, it is soon the profit of this unit includes

interest of Rs.17.14 lakhs. As interest not derived from such

business of the undertaking, please explain why same should

not be excluded for the profit of Industrial Undertaking.

14 File the Profit and Loss Account of each unit giving the

details of expenditure actually incurred and also the common

expenditure allocated against and also give the basis for

allocating the expenditure.

15 Details of Power and Fuel unit wise.

16 Please submit depreciation chart as per unit wise.

17 Details of inventories unit wise.

18 Details of stores consume unit wise.

19 Details of consumption of tools/materials etc. unit wise.”

(e) The Petitioner by its letter dated 25th January, 2005 responded to

the queries raised by the communication dated 27th December,2004.

In its response dated 25th January, 2005 the Petitioner in

particular gave details of the manner in which the expenses had

been allocated amongst the three manufacturing units i.e. two in

the backward region and one at Pimpri;

(f) On 9th March, 2005, the Assessing Officer passed an order for

Assessment Year 2002­03 in regular assessment proceedings under

Section 143(3) (of Income Tax Act, 1961). The income was determined at Rs.7.13

Crores while accepting the Petitioner's claim for deduction under

Section 80IA (of Income Tax Act, 1961)/IB of the Act of Rs.2.08 Crores in the order dated 9th

March, 2005;

(g) On 14th March, 2007, the impugned notice under Section 148 (of Income Tax Act, 1961) of the

Act was issued by the Assessing Officer, seeking to re­open the

assessment for the Assessment Year 2002­03. The relevant portion

of the letter dated 6th August, 2007 containing the reasons recorded

in support of the impugned notice dated 14th March, 2007 reads

as under:

“2 Assessment in your case for A. Y. 2002­03 was

originally completed u/s. 143(3) (of Income Tax Act, 1961) on 09.03.2005 at an income

of Rs.7,13,08,960/­. In theh said assessment, the Assessing

Officer had asked you to furnish details in support of your

claim of exemption u/s. 80IA (of Income Tax Act, 1961). You had furnished expenses as

per which it has been observed that there is a dis­appropriate

allocation of expenses between the various units eligible and

those not eligible for deduction u/s. 80IA (of Income Tax Act, 1961) in view of the

above, the Assessing Officer has re­opened your proceedings

u/s. 148 (of Income Tax Act, 1961), the reasons for which are being provided to you as

under:

“ The assesssee in this case filed Return of Income on

30/10/2002 declaring income of Rs.6,89,93,550/. The

assessment was completed u/s. 143(3) (of Income Tax Act, 1961) on 09/03/2005,

assessing the income at Rs.7,13,08,960/­.

The assessee company is engaged in the business of

manufacturing and sale of sintered automotive parts, sintered

bearings and parts, fittings and mental powders.

The assessee is claiming deduction u/s. 80IA (of Income Tax Act, 1961) for its unit

located at Ahmednagar for manufacturing (i) Bearing and Parts

(year of commencement 1994­95) & (ii) Metal Powder (year of

commencement 1992­93).

The comparative figures for the turnover and profit in

respect of the assessee's 80 IA units and non 80IA units is as per

Annexure 'A' enclosed herewith.

Prima facie it appears that while preparing the accounts,

the assesee has claimed most of its expenditure in the units

which are not eligible for 80IA deduction, thereby inflating the

profits of the units which are eligible for deduction. To

highlight this fact, the following expenses are compared:

If the above expenses are re­allotted correctly in ratio of

the respective turnover, then the assessee's claim of deduction

u/s. 80IA (of Income Tax Act, 1961) will decrease and correspondingly the profits of non

80IA units would be increased as under:

1. Ratio of turnover of non 80IA unit to

Total turnover = 49.83%

2. Misc. Expenses allotted to non 80IA

Unit = 70.28% of

Rs.2,57,16,581/­

= Rs.1,80,73,613/­

3. Misc. Expenses allocable in ratio of

Turnover = 49.83%

Rs.2,57,16,581/­

= Rs.1,28,14,572/­

4. Excess Misc. Expenses allotted to non

80IA unit (2 – 3) = Rs.52,59,040/­

The profits of 80IA unit needs to be reduced by

Rs.52,59,040/­ and accordingly corresponding 80IA deduction

@ 30% i.e. Rs.15,77,712/­ needs to be reduced.

In view of the above facts, I have reason to believe that

the assessee's income has been escaped assessment and

accordingly request for permission u/s. 151(1) (of Income Tax Act, 1961) to issue notice

u/s. 148 (of Income Tax Act, 1961) in this case.”

(h) On 3rd September, 2007, Petitioner's filed its objections to the

reasons recorded by the Assessing Officer in support of the

impugned notice dated 14th March, 2007. In its objections, the

Petitioner contested the impugned notice essentially on the ground

that the same is issued on change of opinion. It was pointed out

that during the regular assessment proceedings under Section

143(3) of the Act, the Assessing Officer had formed an opinion that

the allocation of expenses between the three units was proper. This

on the basis of not only the complete disclosure of the allocation of

expenses but also in view of specific enquiry into the same by the

Assessing Officer during regular assessment proceedings before

accepting the same. Thus, it was submitted that there is no reason

to believe on the part of the Assessing Officer to acquire jurisdiction

to issue the impugned notice dated 14th November, 2007; and

(i) The Assessing Officer by an order dated 14th November, 2007

rejected the Petitioner's objections to the reasons recorded. This

inter alia, on the ground that income had escaped the

assessment and post the amendment to Section 147 (of Income Tax Act, 1961)

w.e.f. 1st April,1989, the power of Assessing Officer to issue notice

under Section 148 (of Income Tax Act, 1961) is much wider then that existing under

the earlier provisions.

SUBMISSIONS:­

4 Mr. Irani, learned Counsel in support of the Petition submits

as under:­

(a) The sine­qua­non for the issue of a notice to re­open the

assessment even within the period of four years from the end of the

relevant assessment year would be a reason to believe on the part of

the Assessing Officer that income chargeable to tax has escaped

assessment. However, in the present case as the Assessing Officer

had occasion to form an opinion on the very issue of allocation of

expenditure during the regular assessment proceedings, the issue

of impugned notice on the same facts being a change of opinion

would not satisfy the test of reasons to believe on the part of the

Assessing Officer;

(b) The impugned order dated 14th November, 2007 not dealing with

the Petitioner's objection that the notice has been issued on account

of mere change of opinion, is an implicit acceptance of the

Petitioner's objection;

(c) In any event, the letter dated 6th August, 2007 by which the reasons

recorded were furnished to the Petitioner itself indicates that

during the regular assessment proceedings, specific questions were

raised by the Assessing Officer with regard to the Petitioner's claim

for deduction under Section 80IA (of Income Tax Act, 1961)/80IB of the Act and

consequent to the explanation of the Petitioner, the same was

accepted in regular assessment proceedings. It is on observations of

those very facts that now an opinion is formed, that the allocation

of expenditure among the three manufacturing units is dis-

proportionate. Thus, the impugned notice is clearly based on

change of opinion; and

(d) In any view of the matter, there is no universal method of allocation of expenditure between the distinct manufacturing units run by any assessee like the Petitioner. This allocation of expenditure could be done by adopting various methods and the Petitioner itself had

adopted different methods of allocation depending upon the

nature of expenditure incurred amongst the three manufacturing

units. This basis was found acceptable in regular assessment

proceedings under Section 143(3) (of Income Tax Act, 1961).

In view of the above, it is submitted that the impugned notice

is without jurisdiction.

5. Opposing the Petition, Mr. Chhotrary, learned Counsel

appearing for the Revenue submits as under:­

(a) The Petitioner in its objections to the reasons recorded in support

of the impugned notice dated 14th March, 2007 have not disputed

the dis­proportionate allocation of expenses to its Pimpri unit (non

80IA/80IB unit) resulting in escapement of income. Thus, the

escapement of Income having been accepted by the Petitioner,

re­opening notice cannot be found fault with;

(b) In the present case, the issue of the impugned notice is not on the

basis of any change of opinion but on the basis of tangible

material namely – communication dated 15th January, 2007

received by the Assessing Officer from an Additional Commissioner

of Income Tax who assessed the Petitioner to tax for Assessment

Year 2004­05 indicating that the allocation of expenditure

amongst thethree manufacturing units was dis­proportionate having

regard to its turn over, resulting in excessive allocation of

expenditure to non­80IA/IB unit. It is settled position of law that

the material obtained during the subsequent assessment

proceedings would be a tangible material for the purpose of

invoking a provisions of Section 147 (of Income Tax Act, 1961)/148 of the Act for re­opening

the assessment;

(c) Without prejudice to the above, it is submitted that in any view

the Assessing Officer had formed no opinion in respect of the

allocation of expenditure amongst the three manufacturing units

while passing the Assessment Order on 9th March, 2005 under

Section 143(3) (of Income Tax Act, 1961). This is evident from the fact that

no reference to the same is found in the Assessment Order dated

9th March, 2005. Moreover, the queries raised by letter dated 27th

December, 2004 by the Assessing Officer were of a general nature

and the response being voluminous, it did not indicate any

application of mind by the Assessing Officer for forming an opinion

in regular Assessment Proceedings; and

(d) At this stage, when, only a notice for re­opening has been issued,

this Court should not interfere. At this stage, it is only a prima

facie view and the Petitioner would during the regular assessment

proceedings have sufficient opportunity to satisfy the authorities

about the appropriates/ corrections of the allocation of expenditure

amongst its three manufacturing units.

In view of the above, it is submitted that no interference with

the impugned notice is warranted.

6. The law on re­opening of an assessment under the Act, is

fairly settled. An assessment once made, is final. The Assessing Officer

can re­open an assessment only in accordance with the express provisions

provided in Section 147 (of Income Tax Act, 1961)/148 of the Act. This is for the reason that there is a finality / sanctity attached to an assessment order. It is only on the Assessing Officer strictly satisfying the provisions of Section 147 (of Income Tax Act, 1961), that it acquires jurisdiction to re­open an assessment. Section 147 (of Income Tax Act, 1961), clothes the Assessing Officer with jurisdiction to re­open an assessment on satisfaction of the following:

(a) The Assessing Officer must have reason to believe that

(b) Income chargeable to tax has escaped the assessment and

(c) In cases where the assessment sought to be re­opened is beyond

the period of four years from the end of the relevant assessment

year, then an additional condition is to be satisfied viz: there must

be failure on the part of the Assessee to fully and truly disclose all

material facts necessary for assessment.

7. Admittedly in this case, the impugned notice has been issued

within a period of four years from the end of the relevant assessment year i.e. Assessment Year 2002­03. In such cases, the Assessing Officer would be clothed with jurisdiction to issue a notice for re­opening of an

assessment if he has reason to believe that income chargeable to tax has

escaped the assessment. The requirement of failure to make true and full

disclosure as provided in the proviso to Section 147 (of Income Tax Act, 1961) is not to be satisfied for issuing of re­opening notice within the period of four years from the end of the relevant assessment year. Thus, in the absence of cumulative satisfaction of reason to believe and in the absence of and income chargeable to tax escaping assessment, the Assessing Officer is not empowered with jurisdiction to re­open an assessment.

8. So far as true and correct meaning of the word 'reason to

believe' is concerned, the Supreme Court in Commissioner of Income Tax

v/s. Kelvinator of India Ltd., 320 ITR 561 has after analyzing Section

147 of the Act explained the meaning of the words 'reason to believe' as:­

However, one needs to give a schematic interpretation to

the words “reason to believe” failing which, we are afraid,

Section 147 (of Income Tax Act, 1961) would give arbitrary powers to the Assessing Officer

to reopen assessments on the basis of “mere change of opinion”,

which cannot be per se reason to reopen. We must also keep in

mind the conceptual difference between power to review and

power to reassess. Bur reassessment has to be based on

fulfillment of certain pre­conditions and if the concept of

“change of opinion” is removed, as contended on behalf of the

Department, then, in the garb of reopening the assessment,

review would take place. One must treat the concept of “change

of opinion” as an in­built test to check abuse of power by the

Assessing Officer. Hence, after 1st April, 1989, the Assessing

Officer has power to reopen, provided there is “tangible

material” to come to the conclusion that there is escapement of

income from assessment. Reasons must have a live link with

the formation of the belief.”

From the aforesaid observations of the Supreme Court, it is

clear that the powers to re­open an assessment is not a power to review

an order of assessment. Further, a change of opinion on the part of the

Assessing Officer in issuing the re­opening notice, from the opinion

formed on the very issue during regular assessment proceedings would

result in the same ceasing to be a reason to believe.

9. Besides, this Court in cateina of decisions beginning with

Hindustan Lever Limited v/s. R. B. Wadkar 268 ITR 332 has taken a

view that a notice for re­opening of an assessment would stand or fall on

the basis of the reasons recorded at the time of issuing a notice for re-opening of an assessment. This Court had observed that the reasons are required to be read as recorded by the Assessing Officer and the same cannot be improved upon either by substitution, addition or deletion. In fact, in the above case, the Court observed as:

The reasons recorded by the Assessing Officer cannot be

supplemented by filing an affidavit or making an oral

submission, otherwise, the reasons which were lacking in the

material particulars would get supplemented, by the time the

matter reaches the Court, on the strength of the affidavit or oral

submissions.”

Thus, the validity of a notice for re­opening of an assessment

is to be examined on the basis of the reasons recorded at the time of

issuing the notice for re­opening an assessment. The impugned notice

cannot be supported any additional material which does not find a place

in the reasons recorded at the time while issuing the notice.

10. Keeping the above settled principles in mind, we shall now

examine the rival contentions.

11. In this case, the impugned notice has been issued within a

period of four years from the end of the relevant assessment year. In such a case, the Assessing Officer acquires jurisdiction to issue the impugned notice, if he has reason to believe that income chargeable to tax has escaped assessment. Mr. Irani submits that the objections taken by the Petitioner that the impugned notice has been issued on mere change of opinion, has not been dealt with in the order dated 14th November, 2007 which results in the Petitioner's submission of change of opinion, being accepted. It must follow that there is no reason to believe on the part of the Assessing Officer that income chargeable to tax has escaped assessment. This submission is not factually correct. The order dated 14th November, 2007 has in fact, held that there is no change of opinion in issuing the impugned notice although not supported by reasons.

Therefore, the contention of the Petitioner that the Petition be allowed

only on the above basis cannot be accepted.

12. Similarly, the contention of Revenue that merely because

Petitioner had not contested the fact of escapement of income in its

objections to the reasons recorded, it must conclusively follow that the

impugned notice is valid in law and this Court should not interfere is not acceptable. The Petitioner had in its objections questioned the jurisdiction of the Assessing Officer to issue the impugned notice on the ground that there was no reason to believe on the part of the Assessing Officer this on the basis of the impugned notice is a change of opinion. This is evident from the fact that the opinion on the issue of allocation of expenses for claiming deduction under Section 80IA (of Income Tax Act, 1961)/IB of the Act was formed during the regular assessment proceedings. As observed above, the jurisdiction to issue a notice is acquired on satisfaction of twin conditions i.e. reason to believe and escapement of income tax in case of assessment being sought be opened within a period of less then four years from the end of Assessment Year. Besides, the issue of escapement of income chargeable to tax is also an issue on merits and may not in particular facts establish ex­facie absence of jurisdiction.

13 In the present facts, the Petitioner had along with its Return

of Income filed its Computation of Income wherein claim for deduction

under Section 80IA (of Income Tax Act, 1961)/IB of the Act was made. Besides the Auditor's

certificate as required under Section 80IA(8) (of Income Tax Act, 1961) to claim to

deduction was also filed along with a note indicating the basis of

allocation of expenditure amongst its three manufacturing units was also

filed. These were all primary documents which would not normally escape

examination during the scrutiny proceedings. This is also evident from the fact that during assessment proceedings, the Assessing Officer had by letter dated 27th December, 2004 called upon the Petitioner to furnish details with regard to its claim for deduction under Section 80IA (of Income Tax Act, 1961)/IB of the Act including the method/ manner of allocation of expenditure amongst its three manufacturing units. The Petitioner by its letter dated 25th January, 2005 submitted various details of allocation of expenses supporting its note filed along with the Return of Income that the expenditure had been allocated actual basis, turn over basis and time spent basis amongst the three manufacturing units. The aforesaid allocation of expenses on different basis was on the basis of the nature of expenditure. The Assessing Officer was satisfied with the Petitioner's

response and consequently in the assessment order dated 9th March, 2005

under Section 143(3) (of Income Tax Act, 1961) accepted the Petitioner's claim for

deduction under Section 80IA (of Income Tax Act, 1961)/IB of Rs.2.08 Crores. This establishes that

an opinion was formed in respect of allocation of expenses amongst the

three manufacturing units for deduction under Section 80IA (of Income Tax Act, 1961)/IB of the Act

while passing an order of assessment on 9th March, 2005.

14. However, Mr. Chhotrary, learned Counsel appearing for the

Revenue submits that there has been no formation of opinion on

allocation of expenditure amongst the three manufacturing units by the

Assessing Officer as the Assessment Order dated 9th March, 2005 passed

under Section 143(3) (of Income Tax Act, 1961) contains no discussion on the same.

According to the Revenue, it could only be when the assessment order

contains discussion with regard to particular claim can it be said that the Assessing Officer had formed an opinion with regard to the claim made by the assessee. This Court in Idea Cellular Ltd. v/s. Deputy Commissioner of Income Tax 301 ITR 407 has expressly negatived on identical contention on behalf of the Revenue. The Court held that once all the material was placed before the Assessing Officer and he chose not to refer to to the deduction/ claim which was being allowed in the assessment order, it could not be contended that the Assessing Officer had not applied his mind while passing the assessment order. Moreover in this case, it is evident from the letter dated 6th August, 2007 addressed by the Assessing Officer to the Petitioner containing the reasons recorded for issuing the impugned notice also record the fact that during the regular assessment proceedings, the Petitioner has been asked to furnish details in support of

the claim for exemption under Section 80IA (of Income Tax Act, 1961)/IB of the Act. The letter

further records that the details sought for were furnished and it is now

observed that there has been a dis­proportionate distribution of expenses

between various units belonging to the Petitioner for claiming deduction

under Section 80IA (of Income Tax Act, 1961)/IB of the Act. This is a further indication of the fact that the Assessing Officer had during the regular assessment proceedings for Assessment Year 2002­03 sought information in respect of the allocation of expenses and the explanation offered by the Petitioner was found to be satisfactory. This is evident from query dated 27th December,2004 and the Petitioner's response to the same on 25th January, 2005 explaining the manner of distribution of common expenses for delaying the process of claiming deduction under Section 80IA (of Income Tax Act, 1961)/IB of the Act. All this would indicate that Assessing Officer had formed an opinion while passing the order dated 9th March, 2005. This Court in Aroni Commercials Ltd. v/s. Assistant Commissioner of Income Tax 367 ITR

405 had occasion to consider somewhat similar submission made by the

Revenue and negatived the same by holding that when a query has been

raised with regard to a particular issue during the regular assessment

proceedings, it must follow that the Assessing Officer had applied his

mind and taken a view in the matter as is reflected in the Assessment

Order. Besides, the manner in which an Assessing Officer would draft/

frame his order is not within the control of an assessee. Moreover, if every contention raised by the assessee which even if accepted is to be reflected in the assessment order, then as observed by the Gujarat High Court in CIT v/s. Nirma Chemicals Ltd. 305 ITR 607, the order would result into an epic tome. Besides, it would be impossible for the Assessing Officer to complete all the assessments which have to under gone scrutiny at its hand. In the above view, it is clear that once a query has been raised during the assessment proceedings and the Petitioner has responded to the query to the satisfaction of the Assessing Officer as is evident from the fact that the Assessment Order dated 9th March, 2005 accepts the Petitioner's claim for deduction under Section 80IA (of Income Tax Act, 1961)/IB of the Act. It must follow that there is due application of mind by the Assessing Officer to the issue raised.

15. Therefore, as there is a change of opinion in issuing the

impugned notice having regard to the opinion formed while passing the

assessment order under Section 143(3) (of Income Tax Act, 1961), the Assessing Officer

would cease to have any reason to believe as held by the Supreme Court

in Kelvinator of India Ltd. (supra). Moreover, the power to re­assess under Section 147 (of Income Tax Act, 1961)/148 of the Act is not a power to review an order of

assessment passed under Section 143(3) (of Income Tax Act, 1961).

16. It is further submitted on behalf of the Revenue that so far as

letter dated 27th December, 2004 issued by the Assessing Officer is

concerned, same was of general nature and particulars furnished by the

Petitioner in response to the same are voluminous and, therefore, not

indicative of any application of mind on this issue by the Assessing Officer.

Reliance was placed upon the decision of this Court in Export Credit

Guarantee Corporation v/s. Additional CIT 350 ITR 651 by the Revenue

in support of its stand that as the issue of allocation of expenses was

ignored/ overlooked while passing an assessment order, then in such case,it is open to an Assessing Officer to exercise its jurisdiction under Section 147 (of Income Tax Act, 1961)/148 of the Act and re­open the assessment. In the above decision,during regular assessment proceedings, no query was made with regard to the issue on which the assessment was sought to be re­opened, and therefore, ex­facie indicative of non application of mind. In the present case, the Assessing Officer had raised queries with regard to the allocation for expenditure between the three manufacturing units of the Petitioner which could only be raised on consideration of the claim and consequently accepted on consideration of the reply. Thus, it is not a case where the Assessing Officer overlooked/ ignored the material and/or the issue which now forms the basis of issuing the impugned notice for re-opening of the assessment order for Assessment Year 2002­03.

17. Further, reliance is also placed by the Revenue upon the

decision of the Bombay High Court in Sociedade De Formento Industrial

P. Ltd. v/s. Assistant Commissioner of Income Tax 339 ITR 595 to

relegate the Petitioner to the remedies available under the Act. In the

above case, this Court refused to exercise its extra ordinary jurisdiction under Article 226 of the Constitution of India and dismissed the Petition,challenging a notice under Section 148 (of Income Tax Act, 1961) at the stage of admission. This on the ground that whether or not there was a full and true disclosure, is a debatable issue and consequently, same could be appropriately be examined by the statutory authorities. In the present case, as pointed above, there has been a formation of opinion by the Assessing Officer, as is evident from the queries raised with regard to the allocation of expenses between the three manufacturing units by the Petitioner during the regular assessment proceedings. No debatable issue requiring examination into jurisdictional fact arises in this case. Therefore,

above decision also does not assist the Revenue in the present facts.

Further, the reliance was also placed by the Revenue upon by the Gujarat

High Court's decision in Prafful C. Patel v/s. M.J.Makwana– Assistant

Commissioner of Income Tax, 236 ITR 832 to contend that where the

Assessing Officer had overlooked something in the order passed in the

regular assessment proceedings, there can be no question of any change

of opinion. The aforesaid decision is not applicable to the present facts as in this case, queries were raised in respect of the allocation of expenditure during regular assessment proceedings. There was admittedly an application of mind to the facts involved and opinion formed by the Assessing Officer to allow the claim for deduction under Section 80IA (of Income Tax Act, 1961)/IB of the Act. In the Gujarat High Court's decision in Prafful C. Patel (supra),the observations were made in the context of the Assessing Officer admittedly not having formed an opinion on the issue on which a re-opening notice for re­assessment was issued. The aforesaid decision is also of no avail to the Revenue.

18. In was next contended by Mr. Chhotrary, learned Counsel

appearing for the Revenue that in the present case, the impugned notice

does not emante from any change of opinion but on account of

communication dated 15th January, 2007 received by the Assessing Officer

from Additional Commissioner of Income Tax who had assessed the

Petitioner to tax for the Assessment Year 2004­05. The aforesaid

communication dated 15th January, 2007 has been annexed to the

affidavit in reply dated 11th January, 2008 filed by the Assistant

Commissioner of Income Tax. The aforesaid communication dated 15th

January, 2007 is not even referred to in the reasons recorded while issuing the impugned notice dated 14th March, 2007. On the contrary, the

communication dated 6th August, 2007 which contains the reasons

recorded at the time of issuing the impugned notice refers to the details furnished by the Petitioner during the regular assessment proceedings and it is now observed therefrom that the allocation of common expenses between the three manufacturing units belonging to the Petitioner is disproportionate.

19. As pointed out herein above, this Court in series of decision

beginning with Hindustan Lever (supra) has taken a view that re­opening

notice has to stand or fall on the basis of the reasons recorded at the time of issuing the notice for re­opening. It is not open to the Assessing Officer to improve upon the reasons recorded at the time of issuing the notice either by adding and/or substituting the reasons by affidavit or otherwise.

The tangible material i.e. letter dated 15th January, 2007 on which the

Revenue relies upon for issuing of the notice, could have undoubtedly

been the basis for issuing the impugned notice even if the same has been

obtained in assessment proceedings for a subsequent assessment year

provided the same was the basis of the impugned notice and so recorded

in the reasons in support of the impugned notice.

20. In these circumstances, the reliance by the Revenue upon the

letter dated 15th January, 2007 from the Additional Commissioner of

Income Tax cannot be read into the reasons recorded while issuing the

impugned notice.

21 It was lastly contended by Mr. Chhotrary, learned Counsel

appearing for the Revenue that the impugned notice is only for re-

assessment for Assessment Year 2002­03. At this stage, the Revenue is not

required to establish the case to the hilt, but only required to make out a prima facie case in support of its stand. In support of the above

submission, reliance was also placed upon the decision of the Supreme

Court in Assistant Commissioner v/s. Rajesh Jhaveri 291 ITR 520.

There can be no dispute to the above proposition. It is submitted that

during the course of re­assessment proceedings, the Petitioner would have

opportunities to satisfy the authorities that there has been no escapement of income and the allocation of the common expenses between the three manufacturing units for the purposes of claiming deduction under Section 80IA (of Income Tax Act, 1961)/IB of the Act is in accordance with law. However, issue being examined is whether the Assessing Officer has jurisdiction to issue the re­opening notice. Once an assessment order is being passed, it has some sanctity. If the assessment order is to be disturbed, then the Assessing Officer must strictly satisfy the condition precedent as provided under Section 147 (of Income Tax Act, 1961)/148 of the Act before he can issue a notice, seeking to re-open an assessment. In this case, as we have pointed out herein above,there has been a change of opinion on the part of the Assessing Officer in issuing a notice and, therefore, he has no reason to believe that income chargeable to tax has escaped assessment. In these circumstances, the jurisdictional requirement for issuing a notice is not satisfied and,therefore, the impugned notice and the consequent order dated 14th November, 2007 disposing of the objections, are not sustainable.

22. For the reasons indicated herein above, we set aside the

impugned notice dated 14th March, 2007 issued under Section 148 (of Income Tax Act, 1961) of the

Act. Petition allowed. No order as to costs.

(G.S.KULKARNI,J.) (M.S.SANKLECHA,J.)