2025 (5) TMI 2056 - HC - Income Tax

Reopening of assessment - reason to believe - petitioner failed to deduct TDS on Fees for balance Commission/professional/ Technical Service and secondly loss of earlier year was not reduced from the profit of current year while computing deduction u/s 80IC - HELD THAT - We are of the prima facie opinion that the petitioner has made available all the material including the details of TDS during the year under consideration. It appears that the petitioner has mentioned various provisions under which the tax was deducted however the respondent Assessing Officer has only considered the deduction for advertisement and sales promotion and legal and professional fees whereas the petitioner has deducted tax from salary interest commission paid to the contractors rent sale of scrap etc. It also appears from the record that there is no infirmity in the tax deducted at source by the petitioner and merely considering the partial information the respondent has come to the conclusion that there is failure on part of the petitioner to deduct tax at source. With regard to deduction under section 80IC of the Act also the petitioner has replied to the query raised during the course of regular assessment and thereafter assessment was framed and subsequently if it is found that if the petitioner has not claimed correct deduction by not reducing the loss of earlier year same cannot be considered as an information resulting into escapement of income as the petitioner had already disclosed the facts in response to the query raised during the course of the regular assessment. Therefore even when the notice under section 148 is issued after 01.04.2021 the respondent Assessing Officer could not have assumed the jurisdiction to reopen the assessment on mere change of opinion while exercising power to reopen the assessment by the respondent Assessing Officer under section 147 of the Act subject to the provision of sections 148 to 153 of the Act. The Hon ble Apex Court in case of Kelvinator of India Ltd 2010 (1) TMI 11 - SUPREME COURT has categorically held that reopening is not equivalent to review of the assessment order. Law has not changed even after the amendment of the provisions of section 147 and section 148 and introduction of procedural provision of section 148A in the statute. The concept of change of opinion has remained constant for the purpose of reopening of the assessment as the reopening or reassessment is not review of the assessment already done. Merely because there is an escapement of income by not deducting the loss of earlier year for computation of deduction under section 80IC of the Act would amount to mere change of opinion as the said issue was already considered by the AO in the regular assessment proceedings. Decided in favour of assessee.

Summary

The core legal questions considered by the Court in this petition under Article 226 of the Constitution of India pertain to the validity of notices and orders issued under Sections 148A(b), 148A(d), and 148 of the Income Tax Act, 1961 ("the Act") for reopening the assessment of the petitioner for Assessment Year 2018-2019. Specifically, the issues revolve around:

• Whether the issuance of the notice under Section 148A(b) and subsequent proceedings under Sections 148A(d) and 148 are valid when based on alleged escapement of income that was already considered during the original assessment.
• Whether the Assessing Officer can reopen the assessment on the grounds of a mere change of opinion, particularly regarding the deduction claimed under Section 80IC and the failure to deduct Tax Deducted at Source (TDS) on certain professional fees.
• The applicability of the legal principle that reassessment proceedings cannot be initiated merely on a change of opinion, especially when the material was already available and considered during the original assessment.
• Whether the petitioner's replies and submissions during the original assessment and subsequent proceedings sufficiently address the queries raised, thereby negating any escapement of income.

Issue-wise Detailed Analysis:

1. Validity of Notice under Section 148A(b) and Reopening of Assessment:

Legal Framework and Precedents: The Court examined the provisions of Sections 147, 148, and 148A of the Income Tax Act, which govern the reopening of assessments. Section 147 allows reopening if income chargeable to tax has escaped assessment, while Section 148 and 148A prescribe procedural safeguards. The proviso to Section 148 restricts issuance of notice unless the Assessing Officer has "information" leading to escapement of income. The Court relied heavily on the Apex Court's ruling in Commissioner of Income-tax, Delhi v. Kelvinator of India Ltd, which distinguishes between reassessment and review, holding that reassessment cannot be based on mere change of opinion. The Bombay High Court's decision in Hexaware Technologies Ltd. v. Assistant Commissioner of Income Tax was also pivotal, emphasizing that reopening cannot be used as a tool for review and that the concept of "change of opinion" acts as a safeguard against arbitrary reassessment.

Court's Interpretation and Reasoning: The Court noted that the petitioner had provided exhaustive details during the original assessment, including TDS returns and explanations for deductions claimed under Section 80IC. The assessment was completed under Section 143(3) after considering these submissions. The Court found that the respondent's reopening was based on a "change of opinion" rather than new tangible material indicating escapement of income. It was observed that the Assessing Officer had selectively considered partial information, ignoring other TDS deductions made by the petitioner, and that the issue regarding loss adjustment under Section 80IC had already been addressed during the original assessment.

Key Evidence and Findings: The petitioner's detailed replies dated 19.01.2021, 23.03.2022, and 26.03.2022, along with TDS returns filed during the original assessment, were critical. The Court found no infirmity in the tax deducted at source and noted that the petitioner had disclosed all relevant facts. The impugned notices and orders were therefore deemed to be founded on a mere change of opinion.

Application of Law to Facts: The Court applied the principle that reopening cannot be resorted to for re-examining issues already considered and decided. The petitioner's compliance and disclosure during the original assessment negated any escapement of income. The reopening was thus not justified under Section 147, and the procedural safeguards under Section 148A were not properly invoked.

Treatment of Competing Arguments: The respondent argued that the petitioner failed to deduct TDS on Rs. 16.20 crore of fees and incorrectly computed deduction under Section 80IC by not adjusting prior year losses. The Court rejected these contentions on the ground that these issues were already considered during the original assessment, and the reopening was a disguised review.

Conclusion: The Court concluded that the issuance of the notice under Section 148A(b), order under Section 148A(d), and notice under Section 148 were invalid as they were based on a mere change of opinion and did not satisfy the statutory threshold of "information" leading to escapement of income.

2. Legality of Reopening on Grounds of Change of Opinion:

Legal Framework and Precedents: The Court extensively relied on judicial precedents that consistently hold that reassessment proceedings cannot be initiated on the basis of a mere change of opinion. Key authorities cited include the Apex Court's decisions in Indian and Eastern Newspaper Society v. Commissioner of Income-tax and Kelvinator of India Ltd., as well as various High Court decisions such as Hitech Outsourcing Services, Heubach Colour (P) Ltd., and others. These cases establish that an error discovered on reappraisal of the same material considered during original assessment does not justify reopening.

Court's Interpretation and Reasoning: The Court emphasized that the concept of "change of opinion" is an in-built safeguard to prevent abuse of reassessment powers by the Assessing Officer. It distinguished reassessment from review, holding that reopening cannot be used to revisit issues already decided unless new tangible material emerges. The Court noted that the petitioner had responded to all queries during the original assessment and that the Assessing Officer's attempt to reopen was essentially a review.

Key Evidence and Findings: The petitioner's submissions during the original assessment and the final assessment order under Section 143(3) were key evidence that the issues were considered. The Court noted the absence of any new material or information that would justify reassessment.

Application of Law to Facts: Applying the settled principle, the Court held that the reopening was impermissible as it was based on reassessment of issues already decided. The failure to adjust prior year losses for Section 80IC deduction and alleged non-deduction of TDS were matters already examined and could not constitute escapement of income warranting reopening.

Treatment of Competing Arguments: The respondent's argument that the reopening was justified due to audit objections and failure to deduct TDS was rejected because these matters were not new and had been addressed during the original assessment. The Court also distinguished the case relied upon by the respondent (Praful Chunilal Patel) on facts, noting that the petitioner had submitted detailed replies to all queries.

Conclusion: The Court held that reassessment on the ground of change of opinion is invalid and without jurisdiction, and the reopening notices and orders must be quashed.

3. Sufficiency of Petitioner's Replies and Material Disclosed:

Legal Framework and Precedents: The Court referred to the principle that if the Assessing Officer has considered the material furnished by the assessee during the original assessment and passed the assessment order, subsequent reopening on the same material is not permissible. The Apex Court's ruling in Indian and Eastern Newspaper Society was cited to support this proposition.

Court's Interpretation and Reasoning: The Court found that the petitioner had submitted all relevant TDS details and explanations regarding the deduction under Section 80IC during the original assessment. The assessment order under Section 143(3) reflected consideration of these details. The Court held that mere disagreement or different view taken later by the Assessing Officer does not amount to escapement of income.

Key Evidence and Findings: The petitioner's letters dated 19.01.2021, 23.03.2022, and 26.03.2022, along with TDS returns and Form 10CCB, were considered sufficient disclosure. The Court found no evidence of concealment or suppression of material facts by the petitioner.

Application of Law to Facts: The Court applied the settled legal principle that reassessment cannot be initiated where the material was already furnished and considered, and the assessment order passed. The petitioner's compliance negated any escapement of income.

Treatment of Competing Arguments: The respondent's contention that the petitioner failed to deduct TDS on certain fees and erred in computing deduction under Section 80IC was countered by the petitioner's detailed submissions and the Court's finding that these issues were not new or concealed.

Conclusion: The Court concluded that the petitioner had sufficiently disclosed all relevant facts and that the reopening was unwarranted.

Significant Holdings:

"The concept of change of opinion being an in-built test to check abuse of power by the Assessing Officer and the Assessing Officer having allowed the claim of deduction under Section 80JJAA of the Act in the assessment order dated 13th November 2017, now to disallow the same is based on a clear change of opinion. Reassessment proceedings initiated on the basis of a mere change of opinion is invalid and without jurisdiction."

"The Assessing Officer has no power to review his own assessment when during the original assessment petitioner provided all the relevant information which was considered by him before passing the assessment order under section 143(3) of the Act."

"The reopening is not equivalent to review of the assessment order. The Assessing Officer has only power to reassess not to review. If the concept of 'change of opinion' is removed, then in the garb of re-opening the assessment, review would take place."

"Any different view taken by the Assessing Officer afterwards on the application of provisions which were considered during the original assessment would amount to a change of opinion of material already considered by him and does not justify reopening."

Final determinations:

• The notices issued under Sections 148A(b), 148A(d), and 148 of the Income Tax Act, 1961, dated 21.03.2022 and 07.04.2022, are quashed and set aside.
• The reopening of the assessment for Assessment Year 2018-2019 on the grounds cited by the Assessing Officer is invalid as it is based on a mere change of opinion and not on any new tangible material indicating escapement of income.
• The petitioner had sufficiently disclosed all relevant facts and complied with the queries during the original assessment, negating any escapement of income.