AO'ld have new evidence to reopen reassessment - ITAT quashes reassessment proceedings, citing lack of new evidence.

Case Name:

M/s. Bharat Electronics Ltd. vs. The Assistant Commissioner of Income Tax, LTU, Circle – 1, Bangalore (ITAT Bangalore)

Key Takeaways:

• The court held that the AO's failure to dispose of the assessee's objections separately did not vitiate the proceedings, as the objections were considered during the reassessment order.

• The court emphasized that reassessment cannot be based on a mere change of opinion without any new tangible material, following the Supreme Court's decision in CIT vs. Kelvinator of India Ltd.

• The court found that the issues raised during reassessment were already examined during the original assessment, and the reopening was based on a change of opinion without any new evidence, rendering the reassessment proceedings void ab initio.

Issue:

Whether the reassessment proceedings initiated under Section 148 of the Income Tax Act for the assessment year 2009-10 were valid and maintainable.

Facts:

- The assessee filed its original return of income for the assessment year 2009-10, which was scrutinized, and an assessment order was passed under Section 143(3) of the Act.

- Subsequently, the AO issued a notice under Section 148 of the Act, alleging escapement of income related to the deduction for customer disallowances and the deduction under Section 35(2AB).

- The assessee filed objections dated 28.10.2014 against the initiation of reassessment proceedings, which were noted by the AO in the reassessment order but not disposed of separately.

- The AO completed the reassessment proceedings, making additions related to the issues raised in the notice under Section 148.

Arguments:

The assessee argued that the reassessment proceedings were vitiated as the AO failed to dispose of the objections filed against the initiation of reassessment proceedings.

- The assessee further contended that the issues raised during reassessment were already examined during the original assessment, and the reopening was based on a mere change of opinion without any new material, relying on the Supreme Court's decision in CIT vs. Kelvinator of India Ltd. and other judgments.

Key Legal Precedents:

CIT vs. Kelvinator of India Ltd. [2010] 187 Taxman 312 (SC):

The Supreme Court held that reassessment cannot be based on a mere change of opinion without any tangible material, as it would amount to a review, which the AO is not empowered to do.

Judgment

The court allowed the assessee's appeal and quashed the reassessment proceedings initiated under Section 148 of the Act for the assessment year 2009-10. The court held that:

1. The AO's failure to dispose of the assessee's objections separately did not vitiate the proceedings, as the objections were considered during the reassessment order.

2. The issues raised during reassessment were already examined during the original assessment, and the reopening was based on a mere change of opinion without any new tangible material, following the ratio laid down by the Supreme Court in CIT vs. Kelvinator of India Ltd.

3. The reassessment proceedings were void ab initio, bad in law, and quashed.

FAQs:

Q1. What is the significance of the court's decision?

A1. The court's decision reaffirms the principle that reassessment proceedings cannot be initiated based on a mere change of opinion without any new tangible material, as it would amount to a review, which the AO is not empowered to do.

Q2. Can the revenue appeal against this decision?

A2. Yes, the revenue can file an appeal against this decision in a higher court if they choose to do so.

Q3. What is the implication of the court's decision for the assessee?

A3. The quashing of the reassessment proceedings means that the additions made during the reassessment proceedings will be deleted, and the assessee's income will be determined based on the original assessment order.

Q4. Does this decision set a precedent for future cases?

A4. While the decision does not set a binding precedent, it reinforces the legal principles established by the Supreme Court in CIT vs. Kelvinator of India Ltd. and other similar cases, which will be persuasive in future cases involving reassessment proceedings based on a mere change of opinion.

The instant appeal filed by the assessee is directed against the order dated 29.03.2023 passed by the NFAC, Delhi arising out of the order dated 28.03.2016 passed by the Ld.DCIT, Large Tax Payers Unit, Circle – 1, Bangalore u/s. 143(3) r.w.s. 147 of the Income Tax Act, 1961 (hereinafter referred to as “the Act”) for A.Y. 2009-10 whereby and whereunder the addition made in the reassessment proceeding u/s. 148 of the Act for the A.Y. 2009-10 has been confirmed.

2. At the very threshold of the matter, the Ld.Advocate appearing for the assessee advanced her argument on the very point of the maintainability of the proceeding initiated u/s. 148 of the Act. The crux of the submission of the Ld.Advocate appearing for the assessee is on two fold.

According to her, though upon receipt of the notice u/s. 148 of the Act dated 01.10.2014 alleging escapement of assessment in regard to a sum of Rs.48,47,73,370/- being the deduction towards the provision for customer disallowances and disallowance u/s. 35(2AB) to the extent of Rs.1,02,76,500/-, the appellant duly made objections dated 28.10.2014 before the Ld.AO on merit on two counts as raised by him, the Ld.AO proceeded with the reassessment proceeding without first disposing of the said application preferred by the assessee dated 28.10.2014. As the Assessing Officer is bound to dispose of the said objection by passing a speaking order but proceeded to pass the order of assessment, the entire proceeding is not in terms of the statutory provisions and the impugned order is, therefore, bad in law and liable to be quashed. Secondly, it was argued by the Ld.Advocate appearing for the assessee that the issues as raised by the Ld.AO while reopening assessment u/s. 148 of the Act were already been dealt with during the original assessment proceeding. Upon examining the documents furnished by the assessee in support of the claim made out the original assessment was framed and in the absence of any new material given to the knowledge of the assessing officer subsequent to the original assessment proceedings, reopening on the same set of facts was a clear case of change of opinion and the same is not, therefore, permissible. In this regard she has relied on very many following judgments including the judgment passed by the Hon’ble Supreme Court in case of CIT vs. Kelvinator of India Ltd. reported in (2010) 187 Taxman 312 (SC): 

CIT v. Kelvinator of India Ltd [2010] 187 Taxman 312 (SC) 

Deepak Extrusions (P.) Ltd. vs. Deputy Commissioner of Incometax, Central Circle 1(4), Bangalore [2017] 80 taxmann.com 77 (Karnataka) 

Hewlett Packard Financial Services (India) (P.) Ltd. vs. Deputy Commissioner of Income-tax [2023] 152 taxmann.com 559 (Karnataka) 

M/s. Mahindra Electric Mobility Ltd. v. ACIT [IT Appeal No. 641 (Bang.) 

Provimi Animal Nutrition India Pvt. Ltd. v. Principal Commissioner of Income Tax, Bangalore [2021] 124 taxmann.com 73

3. The ultimate prayer made by the Ld.AR is, therefore, to quash the impugned reassessment proceeding initiated u/s. 148 of the Act as without jurisdiction and not maintainable in the eye of law. On the other hand, the Ld.DR relied upon the order passed by the authorities below.

4. We have heard the rival submissions made by the respective parties, we have also perused the relevant materials available on record including the orders passed by the authorities below in different stages.

5. The brief facts leading to this case is this that the appellant filed its original return of income declaring total income at Rs.1004,29,76,670/-. Notice u/s. 143(2) was issued and served upon the appellant; followed by a revised return on 18.03.2011 declaring total income at Rs.1004,00,57,290/-. The appellant duly complied with all the notices by furnishing required information and documents as called for by and under the submissions dated 09.06.2011. By and under a further notice dated 07.06.2011 u/s. 142(1), the assessee was directed to submit the information relating to the deduction claimed u/s. 35(2AB), provision for customer disallowance, enhanced depreciation and disallowance u/s. 14A of the Act. The said assessment proceeding was completed with the following addition:

a) Enhanced Depreciation of Rs.7,59,02,526/-

b) Disallowance of Rs.6,00,425/- u/s. 14A r.w.Rule 8D of the Act

6. During the appellate proceedings, the disallowance of expenditure u/s. 14A stood upheld but the enhanced depreciation was allowed. Further that the TDS credit after due verification was also partly allowed whereupon the appeal before the Tribunal was filed by the appellant which was finalised upon allowing the whole TDS credit after due verification.

7. Thereafter on 01.10.2014 a notice u/s. 148 of the Act seeking to reopen the assessment was served upon the assessee. The assessee was also served with the copy of the reasons as asked for; On 28.10.2014, the assessee made his submissions explaining the issues before the Ld.AO with a prayer for dropping of the proceeding initiated u/s. 148 of the Act. We have gone through the objection dated 28.10.2014 preferred by the assessee to the DCIT, Bangalore, a copy whereof has been submitted before us which is also reproduced here in below:

8. The case of the assessee is this that this particular submissions is nothing but objection of the proceeding Page 7 of 19 ITA No. 420/Bang/2023 initiated by the Ld.AO u/s. 148 of the Act; the same was not disposed of at the very threshold of the matter in terms of the provisions of the law, instead, the Ld.AO proceeded with the reassessment proceeding and finalised the same with the order as above. Upon perusal of the order passed by the Ld.AO, it appears that the Ld.AO duly mentioned the said objection dated 28.10.2014 made by the appellant to the initiation of the proceeding u/s. 148 of the Act; such observation is appearing at page 2, paragraph 3 of the assessment order. Once the Assessing Officer has taken note of the said objection filed by the appellant and mentions the same in the assessment order itself, we do not find any reason to undo the reassessment proceeding merely because of the observation has not been made independently before proceeding with the reassessment proceeding by the Ld.AO. In fact, we decline to accept such contention made by the assessee that since the objection has not been dealt with and disposed of at the very threshold by the Ld.AO, the entire proceeding is vitiated and thus liable to be set aside. Rather once the objection was taken into consideration in its proper perspective which is also reflecting while dealing with the matter on merit, by the Ld.AO upon consideration of the said objection dated 28.10.2014, in our considered opinion the same is not causing any prejudice to the appellant and therefore, the said ground is found to be devoid of any merit and thus dismissed.

9. So far as the maintainability of the reopening on the same set of facts is concerned, we find that the assessee was issued a notice u/s. 142(1) dated 07.06.2011, the copy whereof has been annexed in the paper book filed before us. The same is reproduced here in below.

10. In reply the appellant duly filed the details as asked for particularly the details of capital expenditure on which deduction u/s. 35(2AB) is claimed and details of provisions for customer disallowance created during the year, the same is also annexed to the paper book filed before us. The relevant extract whereof is reproduced here in below.

11. Thus it appears from the above that both the alleged issues relating to escaping assessment as raised in the reopening proceeding initiated u/s. 148 of the Act, were duly verified by the assessing officer while completing the assessment u/s. 143(3) of the Act and no new material came to the knowledge of the Assessing Officer subsequent to the original assessment proceeding is reflecting in recording reasons or in the notice u/s. 142(1) of the Act by the Ld.AO. Thus the facts which was available during the regular assessment and duly verified and examined by the Ld.AO, reopening on the same set of facts is nothing but a clear case of change of opinion as submitted by the Ld.AR appears to be acceptable.

12. In this regard, we have also dealt with the judgment passed by the Hon’ble Supreme Court in case of CIT vs. Kelvinator of India Ltd. (supra). While affirming the decision of the Full Bench of the Hon’ble Delhi High Court, the Hon’ble Apex Court was pleased to observe as follows:

“Prior to the Direct Tax Laws (Amendment) Act, 1987, reopening could be done under two conditions, viz., if (a) the ITO had reason to believe that, by reason of the omission or failure on the part of an assessee to make a return under section 139 for any assessment year to the ITO or to disclose fully and truly all material facts necessary for his assessment for that year, income chargeable to tax had escaped assessment for that year, or (b) the ITO had in consequence of information in his possession reason to believe that income chargeable to tax had escaped assessment for any assessment year. The fulfilment of the said conditions alone conferred jurisdiction on the Assessing Officer to make a back assessment, but in section 147 with effect from 1-4-1989 those conditions are given a go-by and only one condition has remained, viz., where the Assessing Officer has reason to believe that income has escaped assessment, the section confers jurisdiction to reopen the assessment. Therefore, post 1-4-1989, the power to re-open is much wider. However, one needs to give a schematic interpretation to the words 'reason to believe, failing which section 147 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. One must also keep in mind the conceptual difference between power to review and power to reassess. The Assessing Officer has no power to review; he has the power to reassess, but the reassessment has to be based on fulfilment of certain pre-conditions 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 in-built test to check abuse of power by the Assessing Officer. Hence, after 1-41989, the Assessing Officer has power to reopen, provided there is 'tangible material' to come to conclusion that there is escapement of income from assessment. Under the Direct Tax Laws (Amendment) Act, 1987, the Parliament not only deleted the words 'reason to believe' but also inserted the word 'opinion' in section 147. However, on receipt of representations from the companies against omission of the words 'reason to believe', the Parliament re-introduced the said expression and deleted the word 'opinion' on the ground that it would vest arbitrary powers in the Assessing Officer.”

13. We find that in the case in hand, the allegation of the assessing officer to disclose fully or truly of material facts for assessment for the year under consideration or the income chargeable to tax has escaped assessment for the year under consideration has no legs to stand upon. Moreso, once the issue has already been dealt with during the original assessment proceeding and only upon due application of mind and upon examination of the same, the Ld.AO passes an order in the original assessment, the Assessing Officer cannot exercise the power to review or reassess the same. The same, in this case, is a change of opinion which cannot be appreciated, which is a product of uncanalised and unguided power exercised by the Assessing Officer in the garb of reassessment. We also find that the ratio laid down by the Hon’ble Apex Court in the present facts and circumstances of the case, to this effect that the reopening of the assessment on the basis of mere change of opinion cannot be per se reason to reopening, has been duly followed in all the other judgments relied upon by the Ld.AR. Thus on identical facts and circumstances of the matter, respectfully relying on the judgments cited by the Ld.AR, we find the reassessment proceeding initiated u/s. 148 of the Act merely on the basis of change of opinion, in the absence of any new evidence/material in the hands of the revenue on the same set of information which was available at the time of original assessment, is found to be void-ab-initio, bad in law and thus, the entire proceeding is quashed.

In the result, the appeal filed by the assessee stands allowed. Order pronounced in the open court on 20th September, 2023.

Sd/- Sd/-

(CHANDRA POOJARI) (MADHUMITA ROY)

Accountant Member Judicial Member