2007 (9) TMI 303 - AT - Income Tax

Initiation of reassessment proceedings u/s 147 based on a mere change of opinion - liable to be quashed? - Income Escaping Assessment - which is sine qua non for assumption of valid jurisdiction - deduction u/s 80HHC - Whether reassessment proceedings can be held invalid on the grounds taken by the assessee - HELD THAT - The reassessment has been challenged by the assessee mainly on three grounds. Firstly that the impugned reassessment proceedings are based on mere change of opinion and therefore not permissible in law. Secondly no reasonable belief was formed for initiating reassessment proceedings to hold that income of the assessee had escaped assessment which is a pre-requisite condition for valid initiation of reassessment proceedings. Thirdly and lastly reassessment proceedings are invalidly initiated as according to proviso to section 147 reassessment proceedings cannot be validly initiated beyond the period of 4 years from the end of assessment year only in the circumstances where there is failure on the part of the assessee to disclose fully and truly all material facts necessary for the assessment. So as it relates to the issue of change of opinion it has already been found that in the present case it cannot be said that Assessing Officer had not formed any opinion during the course of original assessment proceedings regarding the issues on the basis of which reassessment proceedings are initiated by the revenue. The fact of having formed an opinion is apparent and findings in this regard are well recorded in the original assessment order itself. The ld. DR has placed reliance in the case of Highgain Finvest (P.) Ltd. 2007 (5) TMI 50 - HIGH COURT NEW DELHI . The facts in the present case are entirely different. The present case is not a case where bogus transactions are entered into by the assessee or they have subsequently been discovered. No new material has come to the notice of Assessing Officer after framing of the original assessment. Rather original assessment is also based on the same material and no new material has been relied upon for framing the reassessment proceedings. Thus the said case cannot be relied upon. The facts of the present case are rather on strong footings as in the case of Eicher Ltd. 2007 (5) TMI 107 - HIGH COURT DELHI no findings were recorded by the Assessing Officer in the assessment order itself and from the assessment record it was noticed that Assessing Officer had raised the query and assessee had submitted the replies. In the present case not only the queries were raised by the Assessing Officer and replies were given by the assessee but findings are also recorded in express terms in the original assessment order. Thus an opinion was formed by the Assessing Officer in the original assessment order itself and subsequent reopening has to be held to be based on mere change of opinion. Therefore reassessment proceedings cannot be held to be validly initiated in accordance with the facts of the present case by applying the law laid down by Hon ble jurisdictional High Court in the case of Eicher Ltd. It can be seen that all the aspects on the basis of which the assessment was proposed to be reopened were elaborately taken into consideration by the Assessing Officer in the original assessment order. As pointed out earlier that the proviso to section 147 postulates a duty on every assessee to disclose fully and truly all material facts for the reassessment. We have observed that the assessee had disclosed fully and truly all material facts necessary for the purpose of computing deduction u/s 80HHC. Thus no failure can be attributed on the part of assessee to disclose fully and truly all material facts necessary for his assessment for the years under consideration. From the reading of the reasons recorded it appears that it was in the mind of Assessing Officer that assessee itself should have not claimed deduction u/s 80HHC in respect of income from other sources and in view of the fact that if this income from other sources is excluded and separately assessed the business income will come to negative figure therefore no deduction should have been claimed and thus there is a failure on the part of the assessee to disclose fully and truly all material facts necessary for assessment. The well settled law does not support such contention of the revenue as according to law an assessee cannot delve into the mind of Assessing Officer and try to fathom it and predicate what are material facts in view of the officer. The rule of full disclosure of material and necessary facts should not be so fastidiously construed as would enable the department to say that non-disclosure of a fact which may have a remote bearing on the assessment attracts the section as the Assessing Officer would have material use of it to charge the assessee more than what he did. The Assessing Officer cannot certainly fall back on the one to make good his deficiency in the first completed assessment nor is he at liberty to take hold of any and every circumstance call it non-disclosure of material facts and set machinery of reassessment in motion. In the reasons recorded as well as in the reassessment order there was no fresh material with the Assessing Officer which was not made available by the assessee during the course of original assessment proceedings. As material facts were disclosed fully and truly during the course of original assessment proceedings there was no such failure on the part of assessee. Therefore reassessment proceedings also cannot be held valid according to proviso to section 147. Thus we hold that reassessment proceedings were not validly initiated and are liable to be quashed. The assessee is saved by the proviso to section 147 as there was no failure on the part of the assessee to disclose fully and truly all material facts necessary for its assessment for the year under consideration. Accordingly the reassessment proceedings are quashed. As we have quashed the reassessment proceedings on the ground of change of opinion as well as for the reason that there was no failure on the part of the assessee to disclose all necessary and material facts as envisaged in proviso to section 147 of the Act we do not consider it necessary to go into other third aspect challenging the validity of reassessment proceedings i.e. the aspect that impugned reassessment proceedings were initiated without forming a reasonable belief that income of the assessee has escaped assessment and also the merits of the claim of the assessee which will be of academic interest only. Before parting we may mention that while concluding that reassessment proceedings are invalid we have taken into consideration all the case laws relied upon by both the parties and which have been discussed in the earlier part of this order in the arguments of both the parties. The appeals filed by the assessee are allowed.

Summary

Issues Involved:
1. Validity of reassessment proceedings under section 147.
2. Classification of interest and dividend income as "income from other sources" versus "business income."
3. Eligibility and computation of deduction under section 80HHC.
4. Application of section 80AB in limiting deductions.
5. Imposition of interest under section 234B and withdrawal of interest under section 244A.

Detailed Analysis:

1. Validity of Reassessment Proceedings under Section 147:
The primary issue was whether the reassessment proceedings initiated under section 147 were valid. The assessee argued that the reassessment was based on a mere change of opinion, which is not permissible in law. The Tribunal noted that the original assessment was completed after detailed investigations and due application of mind by the Assessing Officer (AO). The AO had considered all relevant facts and allowed the deduction under section 80HHC after excluding net interest income and dividend income. The Tribunal held that the reassessment proceedings were invalid as they were based on a mere change of opinion and there was no failure on the part of the assessee to disclose fully and truly all material facts necessary for assessment.

2. Classification of Interest and Dividend Income:
The AO in the reassessment proceedings had classified the gross interest income and dividend income as "income from other sources" rather than "business income." The Tribunal observed that in the original assessment, the AO had already assessed the net interest income (gross interest minus interest paid) and dividend income as "income from other sources." This classification was a conscious decision made by the AO after considering all relevant details provided by the assessee. The Tribunal found that there was no new material or information that warranted a different classification in the reassessment proceedings.

3. Eligibility and Computation of Deduction under Section 80HHC:
The AO had denied the deduction under section 80HHC in the reassessment proceedings by excluding the gross interest and dividend income from the business income. The Tribunal noted that in the original assessment, the AO had already excluded the net interest income and dividend income while computing the deduction under section 80HHC. The Tribunal held that the reassessment proceedings were invalid as they were based on the same facts and there was no failure on the part of the assessee to disclose fully and truly all material facts.

4. Application of Section 80AB:
The AO had applied section 80AB to limit the deduction under section 80HHC, arguing that the deduction cannot exceed the profit from business. The Tribunal observed that the AO had already considered the applicability of section 80AB in the original assessment and had restricted the deduction accordingly. The Tribunal held that the reassessment proceedings were invalid as they were based on a mere change of opinion and there was no new material or information that warranted a different conclusion.

5. Imposition of Interest under Section 234B and Withdrawal of Interest under Section 244A:
The AO had imposed interest under section 234B and confirmed the withdrawal of interest under section 244A in the reassessment proceedings. The Tribunal did not specifically address this issue as it had already quashed the reassessment proceedings on the grounds of change of opinion and failure to disclose material facts.

Conclusion:
The Tribunal quashed the reassessment proceedings on the grounds that they were based on a mere change of opinion and there was no failure on the part of the assessee to disclose fully and truly all material facts necessary for assessment. The Tribunal held that the original assessment was completed after detailed investigations and due application of mind by the AO, and there was no new material or information that warranted a different conclusion in the reassessment proceedings. The appeals filed by the assessee were allowed.