TMI Blog2022 (6) TMI 1057X X X X Extracts X X X X X X X X Extracts X X X X ..... ot disclosed by the assessee warranting re-opening of assessment. The primary function of audit in relation to assessments and refunds is the consideration whether the internal procedures are adequate and sufficient, it is not intended that the purpose of audit should go any further. Audit party performs essentially administrative or executives functions and cannot be attributed the powers of judicial supervision over the quasi judicial acts of the Income tax Authorities i.e. AO. The Income Tax Act does not contemplate such powers in any internal audit party of the Income Tax Department but only in those authorities who are specifically authorize to exercise adjudicatory functions. There was no failure to disclose material facts and failure to place a version favourable to the Revenue cannot be a reason to reopen the assessment in the light of the undisputed factual material referred by us extensively it is apparent that the re-opening was fully impermissible in law. The facts which are taken from the Auditor s report, computation of income and return filed itself would indicate that the assessee had disclosed what was relevant and necessary for the purpose of making assessme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ement services to high net worth individuals. 4. On perusal of the return filed and on verification of assessment record, It is seen that the assessee had debited an amount of Rs.3, 03, 42,451/- on account of expenditure on Long Term Incentive Plan (LTIP) Incurred in foreign currency (sch. 15 employee cost) for the cost of Rs.1, 93,602/- In restricted shares of HSBC Holdings Plc awarded to the employees (note 17.13). In schedule 17 (17.11) it is mentioned that LTIP represents restricted stock award granted to select high potential employees awarded through restricted shares of HSBC Holding Plc and the shares vest after 3 years from the date of grant of the award to employees. It is further seen from the earlier assessment records that the assessee company has disallowed Rs.13, 80,665/- in A.Y. 2006-07 and Rs.1, 75, 53,079/- in A.Y. 2007- 08 on the same issue. However, no such disallowance has been made in the present year even though Rs.3,03,42,451/- has been debited to the P L A/c., wherein the nature of expense is same as it was in A.Y. 2006-07 and A.Y 2007-08 is disallowable u/s.40A(9) as per the assessee s auditor s report in those two years. Moreover, in earlier assessm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... me as that filed in pursuance of the captioned notice. Your Good self has provided us with the reasons recorded vide letter dated January 29, 2015. We have noted the said reasons and hereby submit our objections to them in the following paragraphs: I. Reasons reflect mere change of opinion: (a) We would like to state that, the reopening is based on same set of facts/ material available on record for the year under consideration. This can be evident from the reasons recorded by Your Good self. The relevant extract of the reasons recorded is reproduced as under: From the perusal of the records it is seen that the assessee had debited to P L a/c an amount of Rs. 3,03,42,451 on account of expenditure on Long Term Incentive Plant (LTIP) incurred in foreign Currency (Sch. 15 employee cost) for the cost of Rs 1,93,602 Restricted Shares of HSBC Holding Plc awarded to employees (Note 17.13)....... In footnote no. 4 mentioned in the computation of income of the AY 2006-07 (where the aforementioned amount disallowed) it has been mentioned, During the year, Rs. 5,40,22,158/- (Rs. 4.97,03,995 2 + Rs. 43,18.206) has been remitted to Abacus Corporate Trustee Limited ............. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... artment, then, in the garb of re-opening the assessment, review would take place. One must treat the concept of change of opinion as an in-built test to check abuse of power by the Assessing Officer. Hence, after 1st April, 1989, Assessing Officer has power to re-open, provided there is tangible material to come to the conclusion that there is escapement of income from assessment, Reasons must have a live link with the formation of the belief. (f) The Supreme Court has also held in CIT v. Burlop Dealers Ltd. (79 ITR 609) that: Mere disclosure of belief without setting out material on the basis of which belief was arrived at by ITO is not sufficient and therefore, the notice of reassessment is void. A proceeding under Section 147 will not lie merely on the ground that the ITO has raised an inference which he may later regard as erroneous . In addition to the aforesaid decision, it has been held in the following judicial pronouncements that reopening based on mere change of opinion is bad-in-law and ab-initio void: a) CIT v. Rao Tahkur Narayan Singh (56 ITR 234) (SC) b) CIT v. BhanjiLavji (79 ITR 582) c) Garden Silk Mills Pvt. Ltd. v. DCIT (222 ITR 68) d) C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o the said deduction, Respondent No.1 applied his mind to the issue and thereafter passed the assessment order. In such a scenario, it would be unfair to the AO, who made the assessment order, to speculate that he was either incapable of applying, or did not apply his mind to the very aspects in respect of which he sought details. The reassessment proceedings were initiated only on the basis of a change of opinion and hence the AO had no jurisdiction to reopen the assessment proceedings. (i) Your Good self s attention is invited to the recent decision of Hon ble Jurisdiction High Court in case of Lupin Ltd. vs. ACIT (Writ Petition No.1095 of 2013, order dated 7th May, 2014) wherein it is held that on a perusal of the reasons for initiating reassessment proceedings, we find that it is not even the case of Respondent No.1.that any new tangible material was brought to his notice which led him to believe that income had escaped assessment. As stated earlier, all material facts were disclosed by the Petitioner in proceedings that were undertaken under sections 142(1) r/w 143(2), which finally culminated in the assessment order dated 30th December 2008 under section 143(3). It is t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng the notice after the end of for years from the end of the assessment years unless you record that there is a failure on our part to disclose fully and truly all material facts necessary for our assessment for that assessment year. We submit that the particulars of the expenditure on the LTIP were provided in the course of assessment. In the submissions filed in the course of assessment dated November 26, 2009 submitting the profit and loss account for the year ended March, 2008. At schedule 15 of the schedules forming part of the financials reflected the expense pertaining to the long term incentive plan. Thus, we had given complete details relevant to the LTIP expenditure debited to the Profit Loss Account which, the then AO considered and passed the original assessment order u/s 143(3). b) We invite Your Good self s attention to the decision of the Hon ble Supreme Court in the case of CIT Vs. Foramer France (264 ITR 566) (SC), wherein it has been held that: notice for reassessment would be illegal if issued more than four years after the end of the assessment year, if the original assessment were made under section 143(3) of the Act; Assessment could not be r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... original assessment. However, the AO re-opened the assessment based on the same ground. Accordingly, upon writ to the High Court, the Hon ble Bombay High Court held that the concluded assessments can be reopened under section 147 of the Act beyond a period of four years from the end of the relevant assessment years only if there is failure on the part of the assessee to disclose fully and truly all material facts necessary for the purpose of assessment. Having furnished all material facts even if an assessee erroneously claims higher depreciation, it will not be a case of failure to disclose fully and truly all material facts. At what rate the depreciation is to be claimed is a matter of legal inference to be drawn from the material facts. If the legal inference drawn from the material facts is erroneous it cannot be said that there is a failure on the part of the assessee to disclose Material facts, and therefore, the notice was held to be not valid and quashed. g) Attention is also invited to the decision of the Hon'ble Bombay High Court, being jurisdictional High Court in our case, in the case of Hindustan Lever Ltd. Vs. R. B. Wadkar (268 ITR 332) (Bom) wherein reasons r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erial available on record and absence of change in law is bad-in-law and void: a) In the present case, the reopening is based on same Set of the facts/material available on Your Good self s record for the year under consideration, The same can be seen from the extract from the reasons recorded of the AO mentioned aforesaid to justify that re-opening is based on the same set of facts available at the time of the assessment. b) Thus, the reopening is based on the same set of facts/materials available with the AO at the time of original assessment proceedings under section 143(3) of the Act. It is further evident from the foregoing reasons that Your Good self has not found any new material after the completion of the original assessment u/s 143(3) which could point to escapement of income for the captioned year. c) In this regard, we rely on the decision of the Hon ble Bombay High Court, being the jurisdictional High Court in our case, in the case of Asteroids Trading Investments Pvt. Ltd. Vs. DCIT (308 ITR 190), wherein has been held that the Assessee had fully disclosed material facts necessary for claiming deduction under section 80M of the Act and there was application ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h tangible material coming to the AO, is illegal. This, too, was the case where the AO had re-opened the assessment within 4 years from the end of the assessment year. g) Hon ble Bombay High Court in the case of Asian Paints Ltd. Vs. DCIT (308 ITR 195), being the jurisdictional High Court, has held that the initiation of reassessment proceedings would amount to change of opinion of the AO as it was merely a fresh application of mind by the AO to the same set of facts and that since the AO had failed to apply his mind to the relevant material while framing the assessment order u/s. 143(3), he could not take advantage of his own wrong and reopen the assessment under section 147 of the Act. h) Hon ble Delhi High Court in the case of Jal Hotels Co. Limited Vs. ADIT (184 Taxman 1) has held that in absence of new material on record which could form basis for recording reasons for reassessment, it would be a change of opinion which is not permissible under section 147 of the Act. i) The Hon ble Delhi High Court in the case of Legato Systems (India) Pvt. Ltd. Vs. DCIT (187 Taxman 294) has held that proceedings under section 147/148 of the Act vis a vis completed assessments cannot ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it party on a point of law could not be regarded as information enabling the ITO to initiate reassessment proceedings under s. 147(b). The ITO had, when he made the original assessment, considered the provisions of ss. 9 and 10 pf the Indian I.T. Act, 1922. Any different view taken by him afterwards on the application of those provisions would amount to a change of opinion on material already considered by him. Adani Exports vs. DCIT (240 ITR 224) (Guj) - Audit objections were raised but that would not amount to information within the meaning of section 147(b). Air India vs. V.K. Srivastava, CIT and Others (213 ITR 739)(Bom) wherein it has been held that reopening of the assessment based on the audit objection was without jurisdiction. The Commissioner of Income-tax has failed to exercise jurisdiction by placing blind reliance upon the opinion expressed by the Ministry of Law. Smt. Dhan Kaur vs. Controller of Estate Duty (246 ITR 210)(P H) The Opinion of the internal audit party on a point of law cannot be regarded as information for the purpose of reopening an assessment. That part of the note of an audit party which mentions the law which escaped the notice of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... its assessment under, section 143(3) of the Act; The assessment was originally completed under section 143(3) of the Act after considering all material available on record and our submissions on the issue under reassessment; There was no failure on our part to disclose true and full material facts; Your Good self has not come across any new material, apart from the submissions made by us which can lead to formation of belief that income has escaped assessment ; Thus, we humbly submit that the reopening of assessment be held as ab-initio void and bad-in law, and accordingly, the notice passed under section 148 of the Act be quashed or annulled. Needless to say, this is without prejudice to all our rights and contentions in the matter including that Your Good self s aforesaid notice under section 148 of the Act is ab initio or otherwise void, illegal and inoperative. Without Prejudice, we would like to place reliance on the decision of Hon ble Supreme Court in case of GKN Driveshaft (India) Ltd. vs. ITO (125 Taxman 963) and request Your Good self s to kindly pass a speaking order to dispose of the objections raised by us. Further, we would like to rely on th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s in any internal audit party of the Income Tax Department but only in those authorities who are specifically authorize to exercise adjudicatory functions. 12. We are of the clear view that there was no failure to disclose material facts and failure to place a version favourable to the Revenue cannot be a reason to re20 open the assessment in the light of the undisputed factual material referred by us extensively it is apparent that the re-opening was fully impermissible in law. The facts which are taken from the Auditor s report, computation of income and return filed itself would indicate that the assessee had disclosed what was relevant and necessary for the purpose of making assessment. The assessee did not hold back any document nor failed to supply any information. In the circumstances, this is a clear case of change of opinion and based on which the reassessment is proposed which is impermissible in law. 13. In the result, ground no.1 raised by assessee is allowed and assessment order framed found to be without jurisdiction. In the light of above, we are not dealing with ground no.2 on merits, as assessment order itself was without jurisdiction. Order pronounced in ..... X X X X Extracts X X X X X X X X Extracts X X X X
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