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2019 (12) TMI 154

..... ove two issues to the notice of the AO, the AO did not agree with the objections raised by the audit department and expressed the opinion that the original assessment was not erroneous. It appears that on the insistence of the audit department, which found that the reply of the Assessing Officer was not tenable, AO has reopened the assessment. In the aforesaid premises, it is evident that the AO did not form the requisite belief that income chargeable to tax has escaped assessment, but the reasons have been recorded on the basis of borrowed satisfaction of the audit department and not that of the Assessing Officer. Basic requirement for assumption of jurisdiction u/s 147 namely the formation of belief on the part of the Assessing Officer that income chargeable to tax has escaped assessment, is not satisfied in the present case. The assumption of jurisdiction by the AO u/s 147 of the Act is, therefore, invalid. The impugned notice under section 148 of the Act, therefore, cannot be sustained. Petition succeeds and is, accordingly, allowed. - R/Special Civil Application No. 16767 of 2018 - 7-10-2019 - HONOURABLE MS.JUSTICE HARSHA DEVANI AND HONOURABLE MS. JUSTICE SANGEETA K. VISHEN MR .....

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..... itted that in this case, the impugned notice dated 23.03.2018 has been issued in relation to the assessment year 2012­13, which is clearly beyond a period of four years from the end of relevant assessment year. Therefore, for the purpose of assuming jurisdiction under section 147 of the Act, there has to be failure on the part of the petitioner to disclose fully and truly all material facts necessary for its assessment for the assessment year under consideration. It was submitted that in the present case, all the facts relevant for assessment were duly placed before the Assessing Officer at the time of scrutiny assessment and hence, in the absence of any failure on the part of the petitioner to disclose fully and truly all material facts necessary for its assessment for the year under consideration, the assumption of jurisdiction on the part of the Assessing Officer is without authority of law. 6.1 The attention of the court was invited to the reasons recorded for reopening the assessment, to submit that the Assessing Officer seeks to reopen the assessment on two grounds, firstly, in relation to an amount of ₹ 2,47,62,500/­ shown by the petitioner in its return of inc .....

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..... e case of Income Tax Officer, Ward No.16(2) v. TechSpan India (P.) Ltd., (2018) 92 taxmann.com 361 (SC), wherein the court held thus: 13. The fact in controversy in this case is with regard to the deduction under Section 10A of the IT Act which was allegedly allowed in excess. The show cause notice dated 10.02.2005 reflects the ground for reassessment in the present case, that is, the deduction allowed in excess under Section 10A and, therefore, the income has escaped assessment to the tune of ₹ 57,36,811. In the order in question dated 17.08.2005, the reason purportedly given for rejecting the objections was that the assessee was not maintaining any separate books of accounts for the two categories, i.e., software development and human resource development, on which it has declared income separately. However, a bare perusal of notice dated 09.03.2004 which was issued in the original assessment proceedings under Section 143 makes it clear that the point on which the re­assessment proceedings were initiated, was well considered in the original proceedings. In fact, the very basis of issuing the show cause notice dated 09.03.2004 was that the assessee was not maintaining an .....

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..... tion the existence of such belief on the ground that what has been stated is not the correct state of affairs existing on record. Undoubtedly, in the face of the record, the burden lies, and heavily lies, on the petitioner who challenges it. If the petitioner is able to demonstrate that in fact the Assessing Officer did not have any reason to believe or did not hold such belief in good faith or the belief which is projected in papers is not belief held by him in fact, the exercise of authority conferred on such person would be ultra vires the provisions of law and would be an abuse of such authority. As the aforesaid decision of the Supreme Court indicates though audit objection may serve as information on the basis of which the Income­tax Officer can act, ultimate action must depend directly and solely on the formation of belief by the Income­tax Officer on his own where such information is passed on to him by the audit that income has escaped assessment. In the present case, by scrupulously analysing the audit objection in great detail, the Assessing Officer has demonstrably shown to have held the belief prior to the issuance of notice as well as after the issuance of not .....

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..... such a claim, it cannot be a ground for issuing notice under section 148 for reassessment. 6.9 It was, accordingly, urged that the petition deserves to be allowed by setting aside the impugned notice issued under section 148 of the Act as well as all proceedings taken pursuant thereto. 7. Opposing the petition, Mr. Nikunt Raval learned advocate for Mrs. Kalpana Raval, learned senior standing counsel for the respondent, submitted that insofar as the addition of the provision for future development expenses to the net profit for computing book profit under section 115JB of the Act is concerned, the said amount was created on estimation basis, which was never disclosed at the time of the scrutiny assessment proceedings. The then Assessing Officer had discussed about the allowability of such claim as business expense, as the provision was not an expense for the purpose of business. It was submitted that the issue of allowability of such unascertainable expense while calculating book profit under section 115JB of the Act was never discussed during the original assessment proceedings and therefore, it cannot be said that the Assessing Officer had formed an opinion on this issue. Under th .....

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..... into sub plots. For arriving at correct profit, every year the assessee estimated the cost required to be incurred to meet the promises made to the buyers of the plots and if required revised the estimates made earlier. For this, the assessee had created a provision for future development expense of ₹ 3,59,48,400/­ and debited the same under the head cost of materials. However, the same was created on an estimation basis, the liability for which was not ascertained during the year. As this was a provision, it was required to be added to the net profit for computing book profit as per the provisions of Section 115JB. As per the provision of section 115JB of the I.T. Act, prof1t as per P&L is to be increased by the amount set aside to provide for meeting liabilities, other than ascertained liabilities. Hence, ₹ 3,59,48,400/­ was required to be added to the net prof1t for computing Book Profit under section 115JB. 9. Thus, it is on the above referred two grounds that the Assessing Officer seeks to reopen the assessment of the petitioner for the assessment year under consideration. Since it has been contended on behalf of the petitioner that the reopening is ba .....

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..... ation the same was accepted, merely because a certain element or angle was not in the mind of the Assessing Officer while accepting such a claim, it cannot be a ground for issuing notice under section 148 of the Act. 13. In the facts of the present case, in respect of the provision for future development expenses made by the petitioner, the Assessing Officer had called for an explanation and after considering the same, had accepted it. Now, the respondent-Assessing Officer seeks to reopen the assessment for the purpose of examining it from another angle, namely the issue of allowability of such unascertainable expense while calculating book profit under section 115JB of the Act. 14. At this juncture, it may also be apposite to refer to the decision of the Supreme Court in the case of Income Tax Officer, Ward No.16 (2) v. TechSpan India (P.) Ltd. (supra), wherein it has been held that initiation of re­assessment proceedings under section 147 by issuing notice under section 148 merely because of the fact that now the Assessing Officer is of the view that deduction under section 10A was allowed in excess, was based on nothing but a change of opinion on the same facts and circumsta .....

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..... ng Officer was not tenable. Evidently, therefore, the formation of belief that income chargeable to tax has escaped assessment is not that of the Assessing Officer, but is based upon the borrowed satisfaction of the audit department. 18. As held by this court in the case of Adani Exports v. Deputy Commissioner of Income­Tax (Assessments) (supra), if the petitioner is able to demonstrate that in fact the Assessing Officer did not have any reason to believe or did not hold such belief in good faith or the belief which is projected in papers is not belief held by him in fact, the exercise of authority conferred on such person would be ultra vires the provisions of law and would be an abuse of such authority. 19. The Supreme Court, in the case of Indian and Eastern Newspaper Society v. CIT, (1979) 119 ITR 996 (SC), has held that though audit objection may serve as information on the basis of which the Income Tax Officer can act, ultimate action must depend directly and solely on the formation of belief by the Income Tax Officer on his own where such information is passed on to him by the audit that income has escaped assessment. 20. In the present case, from the audit para it emerg .....

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