TMI Blog2021 (2) TMI 427X X X X Extracts X X X X X X X X Extracts X X X X ..... ny assessment under Section 143(3) of the Act is not sustainable in law having regard to the facts of this case - Decided in favour of assessee. - R/SPECIAL CIVIL APPLICATION NO. 8143 of 2019 - - - Dated:- 2-2-2021 - HONOURABLE MR. JUSTICE J.B. PARDIWALA AND HONOURABLE MR. JUSTICE ILESH J. VORA Appearance: MR MONAAL J DAVAWALA(6514) for the Petitioner(s) No. 1 MRS MAUNA M BHATT(174) for the Respondent(s) No. 1 ORAL JUDGMENT (PER : HONOURABLE MR. JUSTICE J.B.PARDIWALA) 1. By this writ application under Article 226 of the Constitution of India, the writ applicant has prayed for the following reliefs; (A) quash and set aside the impugned notice at Annexure-A to this Petition. (B) pending the admission, hearing and final disposal of this petition, to stay implementation and operation of the notice at Annexure-A to this petition and stay further proceedings for assessment for A.Y. 2012-13. (C) any other and further relief deemed just and proper be granted in the interest of justice. 2. The writ applicant seeks to challenge the legality and validity of the notice issued by the respondent under Section 148 of the Income Tax Act, 196 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sallowed ₹ 8,20,952/- u/s. 14A r.w.r. 8D(2)(iii) which resulted into under assessment of ₹ 8,20,952/. 3. Therefore, I have reason to believe that income chargeable to tax has escape assessment within the meaning of section 147 of the IT Act and the assessee failed to disclose fully and truly all material facts necessary for its assessment for the A.Y. 2012-13. Therefore, I am satisfied that it is a fit case for reopening the assessment under section 147 of the Act. 4. In this case, assessment order u/s.143(3) of the Act has been passed and hence the case is covered by explanation 2(c) to section 147 of the IT Act. 5. In this case, four years have elapsed from the end of assessment year under consideration. Hence, necessary sanction to issue notice u/s. 148 has been obtained separately from the Pr. Commissioner of Income Tax-4, Ahmedabad as per the provisions of section 151(1) of the I.T. Act 1961. 4. The writ applicant lodged his objections to the above noted reasons as under; The issue of investments and exempt income was examined at the time of original assessment and as opinion was formed that no disallowance u/s.14A was called for. It is the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the notice u/s. 148 is issued due to revenue audit objection. It is submitted that view expressed by revenue audit / internal audit party on a point of law could not be regarded as information for purposes of initiating proceedings under section 147. An opinion ought to be formed by the assessing officer alone. The law on this point is explained by the Supreme Court in Indian Eastern Newspaper Society (1979) 119 ITR 996 (SC). 5) It is therefore submitted that the reasons recorded and the subsequent notice issued are bad and illegal and therefore may be dropped at once. 6) In view of the decision of the Apex Court in the case of GKN DRIVE SHAFT (INDIA) LTD. vs. ITO (259 ITR 19). It is requested that you pass a speaking order dealing with the objection raised against the reasons recorded by you. 5. It appears that the writ applicant was asked to clarify why no disallowance with respect to the expenses were made under Section 14(A) of the Act read with Rule 8D of the Rules. In this regard, the writ applicant clarified vide letter dated 11.09.2014. The same reads as under; I state that I have received tax free income from Shares/ mutual fund and Bond. You h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... income is received. Held, yes- Whether , however, when it is possible to determine actual expenditure in relation to exempt income or when no expenditure has been incurred in relation to exempt income, then principle of apportionment embedded in section 14A has no application- Held yes- whether where assessee had not incurred any expenditure on earning dividend and other exempt income and expenses- claimed by assessee were in nature of expenditure for earning professional income section 14A had no application- Held yes [in favour of assessee] The said decision is recently followed in the case of a Senior Advocate of Mumbai viz. Shri Iqbal M. Chagla (ITA No.877/Mum./2013) where the facts are identical to the facts of my case. A copy of the said order is attached hereto. From the above it is clear that the no disallowance is required under Section 14A. 6. Ultimately, the objections raised by the writ applicant came to be disposed of vide order dated 25th April, 2019, which reads as under; The objection filed by assessee has duly been considered. However, the same is not found acceptable on following grounds; a) Regarding the contention of the assessee that he has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d for re-opening of assessment. c) The next objection is that the reassessment is invalid as the same is made merely on the basis of audit objection. The above objection is not acceptable. The assessment has not been reopened merely on the basis of audit objection. But after receipt of audit objection, the Assessing Officer has applied his mind and found that the information given by the audit party is correct. The Revenue Audit is constituted by the constitution of India to find out any mistake of law or of facts. Therefore, the mistake pointed out by the Audit is to be considered as information. However, such information should not be followed blindly by the Assessing Officer. In the instant case, the Assessing officer has taken cognizance of the information given by the Revenue Audit Party and thereafter to facts pointed out by the Audit has been verified and after applying the mind found that the mistake pointed out was correct. Therefore, after following due procedure, the assessment was reopened. Therefore, the reopening of the assessment is valid as per law. 5. In view of the above discussion and the judicial pronouncements in Revenue's favour, the objections r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n'ble Supreme Court had held that letter from DDIT (Inv.) constituted good information for reopening of assessment. 7. In view of the above discussion and the judicial pronouncements in Revenue's favour, the objections raised by the assessee against reopening of assessment cannot be entertained as the same are without any basis. It may be seen that while reopening the assessment, proper procedure as per income tax law has been followed by the Assessing Officer. The case has been reopened well within the time limit prescribed as per the provisions of the Income Tax Act,1961 and also on account of the fact that there was reason to believe that the income chargeable to tax has escaped assessment. It is not a case that there is no reason for reopening of the assessment. 7. Being dissatisfied with the above, the writ applicant is here before this Court with the present writ application. 8. Mr. B.S. Soparkar, the learned counsel appearing for the writ applicant vehemently submitted that the case on hand is nothing but a mere change of opinion. Mere change of opinion would not constitute a sufficient ground to reopen the assessment proceedings and that too beyond the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ther hand, this writ application has been vehemently opposed by Mr. Manish Bhatt, the learned senior counsel appearing for the Revenue. Mr. Bhatt would submit that in the return filed by the writ applicant, the assessee claimed exempt income of ₹ 2,743,265/- on account of the dividend and also claimed administrative and other expenses in the profit and loss account. However, the assessee failed to make dissallowance of expenditure related to the exempt income under Section 14A read with Rule 8D(2)\(iii) . He would argue that the Assessing Officer has reason to believe that the income chargeable to tax has escaped assessment within the meaning of Section 147 of the Act and the assessee failed to disclose fully and truly all the material facts necessary for its assessment for the A.Y.2012-13. 12. Mr. Bhatt would argue that cogent reasons have been assigned while overruling all the objections raised by the writ applicant to the reasons assigned for the purpose of reopening of the assessment. 13. Mr. Bhatt would argue that in the case on hand, the escapement of income was noticed relying upon some tangible material. 14. Mr. Bhatt invited the attention of this Court to fe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ened as the assessee has claimed exempt income of dividend and also incurred administrative and other expenses. However the assessee failed to disallow the expenses related to exempt income under rule 8D(2(iii). Thus, though the assessee was aware about the disallowance of administrative and other expenses under rule 8D(iii), the same was not disallowed in the original return filed which has resulted in to escapement of income. Therefore the A.O. Issued notice u/s 148 of the act. The disallowance of expenditure was worked out at 0.5% of average investment as per Balance Sheet as on 31.03.2011 and 31.03.2012 at ₹ 8,20,952/-. Therefore, reopening of the assessment is valid as per law. 3.4 With reference to para 3.1, it is submitted that the assessment was reopened on the basis of tangible materials leading to the conclusion that income chargeable to tax has escaped assessment u/s.147 of the I.T. Act. The assessee failed to disallow the expenses related to exempt income in the return of income filed for the A.Y. 2012-13. Therefore, the reopening of the assessment was valid as per law. 3.5 With reference to para 3.2, it is submitted that the above contention of the asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rtant facts constitute information on the basis of which re-assessment proceedings could be initiated. In the case of ITO Vs. Parshottamas Bangar, 224 ITR 362 (SC), the Hon'ble Supreme Court had held that letter from DDIT (Inv) constituted good information for re-opening of assessment. With reference to para 3.5, it is submitted that the contention of the petitioner that the assessment was reopened merely on the basis of Audit Objection is not correct. It is submitted that the assessment has not been reopened merely on the basis of audit objection. But after receipt of information by way of audit objection, the Assessing Officer has applied her mind and found that the information given by the audit party is correct. The Revenue Audit is constituted by the constitution of India to find out any mistake of law or of facts. Therefore, the mistake pointed out by the Audit is to be considered as information. However, such information should not be followed blindly by the Assessing Officer. In the instant case the Assessing Officer has taken cognizance of the information given by the Revenue Audit Party and thereafter to facts pointed out by the Audit has been verified and afte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (5), reads thus; (5) Please provide details of working and documentary evidence in respect of income claimed exempt. You are also requested to provide what expenses you have incurred for earning such exempt income. 18. The following information was furnished by the writ applicant vide letter dated 19th August, 2014. During the year I have received following tax free income. a. PPF interest ₹ 336423/- b. Dividend from Mutual Fund and Indian Companies ₹ 2743465/- c. Interest on IFFCL Tax Free Bond ₹ 458950/- d. Long Term Capital Gain ₹ 2507836/- Copy of accounts and documentary evidence attached herewith. I have not expended any amount to earn above mentioned income. 19. Thus, from the aforesaid information, it is evident that a specific query was raised by the Assessing Officer with respect to Section 14A and the same was appropriately replied by the writ applicant. The same was accepted at the relevant point of time. Once again the very same issue is sought to be raised for the purpose of reopening which is otherwise not permissible in law on mere change of opinion. It cannot be said that there was any failure on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reason to believe , Parliament reintroduced the said expression and deleted the word opinion on the ground that it would vest arbitrary powers in the assessing officer. 8. We quote hereinbelow the relevant portion of Circular No.549 dated 31-10-1989, which reads as follows: 7.2. Amendment made by the Amending Act, 1989, to reintroduce the expression reason to believe in Section 147.-A number of representations were received against the omission of the words reason to believe from Section 147 and their substitution by the opinion of the Assessing Officer. It was pointed out that the meaning of the expression, reason to believe had been explained in a number of court rulings in the past and was well settled and its omission from Section 147 would give arbitrary powers to the Assessing Officer to reopen past assessments on mere change of opinion. To allay these fears, the Amending Act, 1989, has again amended Section 147 to reintroduce the expression has reason to believe in the place of the words for reasons to be recorded by him in writing, is of the opinion . Other provisions of the new Section 147, however, remain the same. (emphasis supplied) ..... X X X X Extracts X X X X X X X X Extracts X X X X
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