TMI Blog2012 (8) TMI 714X X X X Extracts X X X X X X X X Extracts X X X X ..... deserves to be quashed - in favour of assessee. Re-opening of assessment - non application of provisions of Section 32(2) by AO - Held that:- Once the AO notices a certain claim made by the assessee in the return filed, has some doubt about eligibility of such a claim and therefore, raises queries, extracts response from the assessee, thereafter in what manner such claim should be treated in the final order of assessment, is an issue on which the assessee would have no control whatsoever, therefore,that in a situation where the AO during scrutiny assessment, notices a claim of exemption, deduction or such like made by the assessee, having some prima facie doubt raises queries, asking the assessee to satisfy him with respect to such a claim and thereafter, does not make any addition in the final order of assessment, he can be stated to have formed an opinion whether or not in the final order he gives his reason for not making addition - If on the facts disclosed by the assessee, a wrong legal inference is taken by the AO at the time of original assessment then it would not confer any power on him u/s 147 to commence reassessment proceedings - in favour of assessee. Treatment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Chartered Accountants of the assessee attended from time to time and filed details as called for. Since there were large number of transactions of import, royalty payment, management fee etc., the Assessing Officer after considering the volume of such transactions referred the return to Transfer Pricing Officer under Section 92CA(1) of the Act after obtaining approval of Commissioner of Income Tax 3, Baroda. The Transfer Pricing Officer, namely, the Additional Commissioner of Income Tax (TPO-1), Ahmedabad passed an order under Section 92CA(3) of the Act on 29.10.2009 and directed the Assessing Officer to make an addition of Rs.53.15 Crores to the total income of the assessee. 3. The additions of Rs.53.15 Crores proposed in the income returned by the assessee was prejudicial to his interest, therefore, a draft assessment order was passed on 20.11.2009 under Section 144C of the Act and it was forwarded and served on the assessee on the same day. The assessee filed his objections on 17.12.2009 to the draft assessment order with the Dispute Resolution Panel, Ahmedabad. A copy of the objections was also filed on 18.12.2009 in the office of the Deputy Commissioner of Income Tax, Panch ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f A.Y. 2001-02 Rs. 7,75,83,948/- 2. Unabsorbed depreciation of A.Y. 2002-03 Rs.14,89,50,584/- 3. Unabsorbed depreciation of A.Y. 2003-04 Rs.33,87,96,543/- 13. Assessed u/s. 143(3) read with section 144C of the IT Act. Calculate tax. Give credit of prepaid taxes. Issue Demand notice accordingly. Issue show cause notice u/s. 274 read with section 271(1)(c) of the IT Act for the reasons discussed above in para-5.4. 6. The Assessing Officer on 29.3.2011 issued notice under Section 148 of the Act wherein it was stated that he had reason to believe that income chargeable to tax for the A.Y. 2006-07 had escaped assessment within the meaning of Section 147 of the Act and, therefore, he had proposed to reassess income/recompute loss/ depreciation allowance for the aforesaid Assessment Year. In compliance of the notice dated 29.3.2011, the assessee wrote a letter dated 4.4.2011 to the Assessing Officer requesting him to supply the reasons recorded before issuing notice under section 148 of the Act. The reasons for reopening the assessment recorded under Section 147 of the Act dated 29.3.2011 was supplied to the assessee on 29.11.2011. According to the assessee, the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essment order. According to the petitioner, the order passed by the Assessing Officer is in violation of the decision of the Apex Court in GKN Driveshafts (India) Limited (infra), therefore, it is urged that the composite assessment order dated 27.12.2011 is illegal, without jurisdiction and is liable to be quashed. 11. The other argument of learned Senior Counsel for the assessee is that the impugned notice issued under Section 148 of the Act is contrary to law and it amounts to change of opinion by the Assessing Officer, thus, the notice is bad in law. When the earlier assessment order was passed on 20.9.2010, all material facts were truly and fully disclosed. The Assessing Officer even made additions to the income of the assessee and set off the same against the unabsorbed losses and unabsorbed depreciation of the previous years including the year under question i.e. A.Y. 1997- 98. The reopening of the assessment is now sought on the pretext that the unabsorbed depreciation for the A.Y. 1997-98 was inadmissible as per the provisions of Section 32(2) of the Act as amended by Finance Act No.2 of 1996 and not eligible for being carried forward and set off against the income for t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d depreciation for the A.Y. 1997-98 can be carried forward upto maximum period of 8 years from the year in which it was first computed. Thus, brought forward depreciation for the A.Y. 1997-98 was eligible for being carried forward and set off against the income for A.Y. 2005-06 only and unabsorbed depreciation of Rs.43,60,22,158/- for the A.Y. 1997-98 was not eligible for being carried forward and set off against income of A.Y. 2006-07. Therefore, the unabsorbed depreciation for the A.Y. 1997-98 was wrongly carried forward and set off against the income for the A.Y. 2006-07. Therefore, income to the extent has escaped assessment and the Assessing Officer rightly issued notice to the assessee under Section 148 after complying with Section 147 of the Act. 16. The learned counsel for the revenue has urged that while passing the assessment order dated 27.12.2011, the Assessing Officer has considered the objections of the assessee dated 7.12.2011 and, therefore, it cannot be urged by the assessee that the assessment order has been passed without disposing of the objections filed to the notice under Section 148 of the Act. He further urged that even if the objections dated 7.12.2011 of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and therefore, the unabsorbed depreciation for A.Y. 97-98 was wrongly carried forward and set off against the income for A.Y. 2006-07. Therefore, the income to the extent has escaped assessment. I have therefore reason to believe that income of Rs.43,60,22,158/- being wrong set off of unabsorbed depreciation for A.Y. 97-98 has escaped assessment within the meaning of Section 147 of the Act. Issue notice u/s. 148 of the I.T. Act. Date :- 29.03.2011 Sd/- Place :- Godhra Deputy Commissioner of Income-tax Panchmahals Circle, Godhra. 19. The first question which arises for consideration is whether the writ petition filed by the petitioner challenging the notice under Section 148 and the reassessment order is maintainable or it is liable to be dismissed as adequate alternative remedy of filing an appeal was available or remedy of appeal had been availed by the petitioner while the writ petition was pending? Recently, a Division Bench of this Court in Parixit Industries (P.) Ltd. v. Assistant Commissioner of Income-tax (OSD) Circle-5, [2012] 207 TAXMAN 140 (Guj) has considered the question that where the Assessing Officer has issued notice under Section 148 after recording ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t. The Division Bench has further held that if reasons for issuing notice under Section 148 is demanded by the assessee which is provided to the assessee and instead of deciding the objection of the assessee, the Assessing Officer passes an assessment order, a writ petition would be maintainable in view of the law laid down by the Apex Court in Mafatlal Industries Ltd. v. Union of India [1997] 5 SCC 536. The Division Bench in paragraph 31 held as under :- From the above observation it is clear that the Supreme Court in the case of Mafatlal Industries Ltd. (supra), has specifically recognized the power of this court to entertain a writ-application by pointing out that such power cannot be circumscribed by the provisions of any enactment but while exercising such power, the writ court will certainly have due regard to the legislative intent evidenced by the provisions of the concerned statute and would exercise their jurisdiction consistent with the provisions of the Act. Thus, in a given case, if the statutory authority exercises its power even in the absence of the conditions recognized by the statutory provisions, a writcourt can definitely interfere to avoid prolonged alternat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 191 but to require the assessee first to lodge preliminary objection before the Assessing Officer who is bound to decide the preliminary objections to issuance of the re-assessment notice by passing a speaking order and, therefore, if such order on the preliminary objections is still against the assessee, the assessee will get an opportunity to challenge the same by filing a writ petition so that he does not have to wait till completion of the re-assessment proceedings which would have entailed the liability to pay tax and interest on re-assessment and also to go through the gamut of appeal, the second appeal before Income-tax Appellate Tribunal and then reference/tax appeal to the High Court. Viewed in this light, it appears to me that the rigour of availing of the alternative remedy before the Assessing Officer for objecting to the reassessment notice under section 148 has been considerably softened by the Apex Court in GKN case (2003) 259 ITR 19 in the year 2003. In my view, therefore, the GKN case (2003) 259 ITR 19 (SC) does not run counter to the Calcutta Discount Co. Ltd. case (1961) 41 ITR 191 (SC) but it merely provides for challenge to the re-assessment notice in two st ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reasonable time to the assessee for challenging his order, it was open to him to pass an assessment order. This was not done by the Assessing Officer, therefore, the order on the objection to the notice under section 148 and the assessment order passed under the Act deserves to be quashed. 24. The second question which arises for consideration in this petition is whether an assessment order can be reopened on the ground that in the original assessment order, the Assessing Officer had not correctly applied the provisions of Section 32(2) of the Act? The assessee filed his return of income for the A.Y. 2006-07 on 29.12.2006 declaring his total taxable income at Rs.NIL under e-filing. In his return the assessee had claimed unabsorbed losses for A.Y. 2000-01, A.Y. 2001-02 and unabsorbed depreciation for A.Y. 1997-98, A.Y.1999-2000, A.Y.2000-01, A.Y.2001-02. The case of the assessee was taken up for scrutiny and notice was issued on 17.12.2007 under Section 143(2) of the Act. Thereafter, a notice under Section 143(2) along with notice under Section 142(1) was issued with detailed questionnaire. In response the Chartered Accountants of the assessee attended from time to time and filed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ve a link with the formation of the brief. The relevant part of the judgment is extracted below :- On going through the changes, quoted above, made to section 147 of the Act, we find that, prior to the Direct Tax Laws (Amendment) Act, 1987, reopening could be done under the above two conditions and fulfillment of the said conditions alone conferred jurisdiction on the Assessing Officer to make a back assessment, but in section 147 of the Act (with effect from 1st April, 1989), they are given a go-by and only one condition has remained viz., that where the Assessing Officer has reason to believe that income has escaped assessment, confers jurisdiction to reopen the assessment. Therefore, post 1st April, 1989, power to reopen is much wider. However, one needs to give a schematic interpretation to the words reason to believe failing which, we are afraid, 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. We 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 pow ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... previously framed cannot be reopened on a mere change of opinion. It is stated that power to reopening cannot be equated with review. 42. Bearing in mind these conflicting interests, if we revert back to central issue in debate, it can hardly be disputed that once the Assessing Officer notices a certain claim made by the assessee in the return filed, has some doubt about eligibility of such a claim and therefore, raises queries, extracts response from the assessee, thereafter in what manner such claim should be treated in the final order of assessment, is an issue on which the assessee would have no control whatsoever. Whether the Assessing Officer allows such a claim, rejects such a claim or partially allows and partially rejects the claim, are all options available with the Assessing Officer, over which the assessee beyond trying to persuade the Assessing Officer, would have no control whatsoever. Therefore, while framing the assessment, allowing the claim fully or partially, in what manner the assessment order should be framed, is totally beyond the control of the assessee. If the Assessing Officer, therefore, after scrutinizing the claim minutely during the assessment procee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... under Section 147 are fulfilled otherwise under the garb of change of opinion, the Assessing Officer may review his earlier assessment order. 28. The Apex Court in Kelvinator of India Limited (supra) has observed that the concept of change of opinion is an in-built test to check abuse of power by the Assessing Officer. The Assessing Officer has wide power to reopen the assessment proceedings with effect from 1.4.1989 provided there was some tangible material to come to the conclusion that there was escapement of income from assessment and the reasons under Section 147 must have a link with the formation of the belief. The tangible material must have nexus to the escapement of income from being assessed to tax, but without there being any tangible material, it is not open to the Assessing Officer to form a belief that income of the assessee has escaped assessment from tax. The Assessing Officer while forming his opinion and recording reasons under Section 147 of the Act, in the instant case, was aware that at the time of original assessment, the Assessing Officer had considered the material on record and took a conscious decision in scrutiny assessment and allowed the unabsorbe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ive reasons for allowing the claim of unabsorbed depreciation in the original assessment order would not make the assessment order illegal. The Assessing Officer, in law, must be deemed to have formed an opinion that the assessee s claim deserves to be accepted. Thus, in such a situation, the original assessment order cannot be reopened as it would amount to change of opinion by the Assessing Officer and the reassessment order is liable to be set aside. 30. The last question which arises for consideration is that whether the unabsorbed depreciation pertaining to A.Y. 1997-98 could be allowed to be carried forward and set off after a period of eight years or it would be governed by Section 32 as amended by Finance Act 2001? The reason given by the Assessing Officer under section 147 is that Section 32(2) of the Act was amended by Finance Act No.2 of 1996 w.e.f. A.Y. 1997-98 and the unabsorbed depreciation for the A.Y. 1997-98 could be carried forward up to the maximum period of 8 years from the year in which it was first computed. According to the Assessing Officer, 8 years expired in the A.Y. 2005-06 and only till then, the assessee was eligible to claim unabsorbed depreciation o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not so set off shall be carried forward to the following assessment year and (a) it shall be set off against the profits and gains, if any, of any business or profession carried on by him and assessable for that assessment year; (b) if the unabsorbed depreciation allowance cannot be wholly so set off, the amount of unabsorbed depreciation allowance not so set off shall be carried forward to the following assessment year not being more than eight assessment years immediately succeeding the assessment year for which the aforesaid allowance was first computed: Provided that the time limit of eight assessment years specified in subclause (b) shall not apply in case of a company for the assessment year beginning with the assessment year relevant to the previous year in which the said company has become a sick industrial company under sub-section (1) of section 17 of the Sick Industrial Company (Special Provisions) Act, 1985 (1 of 1986) and ending with the assessment year relevant to the previous year in which the entire net worth of such company becomes equal to or exceeds the accumulated losses. Explanation .- For the purposes of this clause, net worth shall have the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the assessee s business or profession in another country. 30.4 The Act has allowed depreciation allowance on all imported motor cars acquired on or after 1st April, 2001. 30.5 These amendments will take effect from the 1st April, 2002, and will, accordingly, apply in relation to the assessment year 2002-03 and subsequent years. 37. The CBDT Circular clarifies the intent of the amendment that it is for enabling the industry to conserve sufficient funds to replace plant and machinery and accordingly the amendment dispenses with the restriction of 8 years for carry forward and set off of unabsorbed depreciation. The amendment is applicable from assessment year 2002-03 and subsequent years. This means that any unabsorbed depreciation available to an assessee on 1st day of April, 2002 (A.Y. 2002- 03) will be dealt with in accordance with the provisions of section 32(2) as amended by Finance Act, 2001 and not by the provisions of section 32(2) as it stood before the said amendment. Had the intention of the Legislature been to allow the unabsorbed depreciation allowance worked out in A.Y. 1997-98 only for eight subsequent assessment years even after the amendment of section 3 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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