Court Quashes Income Tax Reassessment Notice Issued After 4 Years Without Proper Approval

Case Name**: ASIATIC OXYGEN LTD. VS DEPUTY COMMISSIONER OF INCOME TAX **Key Takeaways**: 1. Reopening an assessment after four years requires satisfaction of the Chief Commissioner or Commissioner, which must be recorded. 2. Reasons for reopening must be prepared before issuing the notice. 3. Reassessment cannot be based solely on a change of opinion. 4. Reasons given for reopening cannot be improved upon in later affidavits. **Issue**: Was the Income Tax Department's notice to reopen the assessment of Asiatic Oxygen Ltd. for the year 2006-2007 valid and in compliance with the legal requirements under the Income Tax Act, 1961? **Facts**: 1. The Income Tax Department sought to reopen the assessment of Asiatic Oxygen Ltd. for the assessment year 2006-2007. 2. The department issued a notice under Section 148 (of Income Tax Act, 1961), dated February 5, 2013. 3. The reasons for reopening were based on information received from the Director of Income Tax in Chennai regarding compensation received by the company for land acquisition. 4. There was a discrepancy in the computation of indexed cost of acquisition, with the company claiming Rs. 2,61,86,482.70 and the department calculating Rs. 1,30,49,560. 5. The department claimed to have obtained approval from the Commissioner on January 30, 2013, but the reasons were dated February 5, 2013. **Arguments**: The petitioner (Asiatic Oxygen Ltd.) argued: 1. The Commissioner's approval was obtained before the reasons were prepared, making it invalid. 2. The reassessment was based on a mere change of opinion, which is not permissible. 3. The reasons for reopening were based on the opinion of an officer in Chennai, not on concrete evidence. The Income Tax Department argued: 1. They had obtained necessary approval for reopening the assessment. 2. There was reason to believe that income had escaped assessment due to the discrepancy in the indexed cost of acquisition. **Key Legal Precedents**: 1. Hindustan Lever Ltd. Vs. R.B. Wadkar, Assistant Commissioner of Income-Tax And Others (No.1) reported in 268 ITR 322 (Bombay) 2. Aroni Commercials Ltd. Vs. Deputy Commissioner of Income-Tax And Another reported in (2014) 362 ITR 403(Bom) These cases established that reasons given for reopening an assessment cannot be added to, subtracted from, or improved upon in later affidavits. **Judgment**: The High Court ruled in favor of Asiatic Oxygen Ltd., quashing the reassessment notice. The court's reasoning included: 1. Under Section 151 (of Income Tax Act, 1961), reopening an assessment after four years requires recorded satisfaction of the Chief Commissioner or Commissioner . 2. The Commissioner could not have recorded satisfaction on January 30, 2013, when the reasons were dated February 5, 2013 . 3. The reassessment was based on a mere change of opinion, which is not permissible under law . 4. The reasons for reopening were based on the opinion of an officer in Chennai, not on concrete evidence of income escaping assessment . **FAQs**: 1. Q: Why was the reassessment notice quashed? A: The notice was quashed due to procedural irregularities and lack of proper approval from higher authorities. 2. Q: Can the Income Tax Department reopen an assessment based on a change of opinion? A: No, it is settled law that an assessment cannot be reopened solely on a change of opinion. 3. Q: What is the significance of the four-year time limit mentioned in the judgment? A: If an assessment is sought to be reopened after four years, it requires the satisfaction of the Chief Commissioner or Commissioner, which must be recorded. 4. Q: Can the reasons for reopening an assessment be improved upon later? A: No, the court cited precedents stating that reasons given for reopening cannot be added to, subtracted from, or improved upon in later affidavits. 5. Q: What impact does this judgment have on future reassessment cases? A: This judgment reinforces the importance of following proper procedures and obtaining necessary approvals before issuing reassessment notices, especially when the four-year limit has passed.

This writ asks for orders for quashing the notice under Section 148 (of Income Tax Act, 1961) dated 05th February, 2013 and the notices dated 12th December, 2013 issued in pursuance thereof under Sections 142 (of Income Tax Act, 1961) (1) and 143 (2) of the said Act.

Assessment of the writ petitioner’s case for the assessment year 2006-2007 was sought to be reopened. The reasons accompanied a letter dated 25th November, 2013 of the department.

The reasons advanced were as follows:-

“Information has been received from Director of Income Tax (I & CI), Chennai that the assessee company has received compensation and enhanced compensation from the Govt. of Tamil Nadu for acquisition of land for widening of the existing MTH Road, measuring 96.89 sqm [ as per the sale deed page 5] during the F.Y. 2005-06 which is liable to capital gain for A.Y. 2006-07. The assessee has computed indexed cost of acquisition (as per 2nd provision to sec.48 (of Income Tax Act, 1961)) on 01/04/1981 at Rs. 2,61,86,482.70. According to the computation of ITO-II, (I & CI), Chennai-34 the cost of acquisition as per cost index on 01/04/1981 is Rs. 1,30,49,560/-. The assessee company has claimed excess cost of acquisition by Rs. 13136923/- and income from Capital G Gain has been under assessed. Therefore, I have reasons to believe that income has escaped assessment.”

The reasons are dated 05th February, 2013.

Under Section 151 (of Income Tax Act, 1961) if an assessment is sought to be reopened after four years it can be done on the satisfaction of the Chief Commissioner or Commissioner which has to be recorded. The satisfaction has to be to the effect that it is a fit case for issuance of such a notice.

It appears from annexure-D of the affidavit-in-opposition that by a letter dated 30th January, 2013 of the department it was stated that the Commissioner had accorded necessary approval for reopening of the assessment of the writ petitioner for the assessment year 2006-2007.

Mr. R.N. Bajoria, learned Senior Advocate pointed out that the reasons had been prepared after issue of the purported sanction by the Commissioner.

It appears from the reasons enclosed with the said letter dated 25th November, 2013 that they were extracted from the file. The relevant page of the file was photocopied and annexed to the notice.

Learned counsel argued that their could be no formation of an opinion by the Commissioner of Income Tax to issue such a notice under Section 148 of the Income Tax Act, 1961 on 30th January, 2013 in the absence of cogent reasons, which were recorded later on 5th February, 2013. More curiously the notice under Section 148 (of Income Tax Act, 1961) of the Income Tax was also dated 5th February, 2013 is annexure P-2 at page 26 of the petition. A specific declaration in the notice that it was being issued after obtaining the necessary satisfaction of the Commissioner and Chief Commissioner of Income Tax was scored out. Mr. Bajoria submitted that there was every reason to believe that no permission of the Commissioner of Income Tax or the Chief Commissioner was obtained before issuing the notice.

I agree with the submissions of learned counsel that in the absence of reasons on 30th January, 2013, the Commissioner could not have recorded satisfaction under Section 151 of the Income Tax Act, 1961.

The next point of challenge were the reasons itself. The department cannot act beyond the reasons furnished. The only basis for reopening the assessment was error in computation of the “ indexed cost of acquisition on 1st April, 1981”. According to the assessee it was Rs. 2,61,86,482.70., according to the computation of ITO-II, (I & CI), Chennai-34 it was Rs. 1,30,49,560/-. If this variation was true, the assessee was liable to pay higher Capital Gains Tax.

Now, Mr. Bajoria challenges these reasons, very rightly, on the ground that they are based on the opinion of an officer posted in Chennai. It is stated in the body of the reasons that it is based on such opinion. Therefore the assessment of the case of the assessee was sought to be reopened not on the basis of non-disclosure of income or concealment of income or under assessment of income but on a change of opinion.

Learned counsel of the petitioner was right when he argued on the basis of Hindustan Lever Ltd. Vs. R.B. Wadkar, Assistant Commissioner of Income-Tax And Others (No.1) reported in 268 ITR 322 (Bombay) and Aroni Commercials Ltd. Vs. Deputy Commissioner of Income-Tax And Another reported in (2014) 362 ITR 403(Bom) both Division Bench judgments of the Bombay High Court that the formal reasons given in support of reopening the case cannot be added to or subtracted from or improved in the affidavit-in-opposition. In this case also the reasons dated 05th February, 2013 have been sought to be improved in the affidavit-in-opposition which is not permissible on the basis of the above decisions.

Furthermore, what is more important is that the assessment was sought to be reopened on a mere change of opinion, the change of opinion being with regard to estimation of the indexed cost of acquisition on 1st April, 1981. It has been declared in the formal reasons that the justification for reassessment was to be found the view of the Income Tax Officer Chennai. On the face of the records the department was acting on a change of opinion.

It is settled law that an assessment can not be reopened on a change of opinion.

For all those reasons this writ application succeeds. I allow the same by passing orders in terms of prayers (a) and (b) of the writ petition.

Certified photocopy of this Judgment and order, if applied for, be supplied to the parties upon compliance with all requisite formalities.

(I. P. MUKERJI, J.)