Gujarat High Court
Meghmani Organics Limited vs Deputy Commissioner Of Income Tax, ... on 4 December, 2024
Author: Bhargav D. Karia
Bench: Bhargav D. Karia
NEUTRAL CITATION
C/SCA/5627/2022 JUDGMENT DATED: 04/12/2024
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IN THE HIGH COURT OF GUJARAT AT AHMEDABAD
R/SPECIAL CIVIL APPLICATION NO. 5627 of 2022
FOR APPROVAL AND SIGNATURE:
HONOURABLE MR. JUSTICE BHARGAV D. KARIA
and
HONOURABLE MR.JUSTICE D.N.RAY
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Approved for Reporting Yes No
Yes
==============================================================
MEGHMANI ORGANICS LIMITED
Versus
DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE 2(1)(1),
AHMEDABAD & ANR.
===============================================================
Appearance:
MR B S SOPARKAR(6851) for the Petitioner(s) No. 1
MR.VARUN K.PATEL(3802) for the Respondent(s) No. 1,2
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CORAM:HONOURABLE MR. JUSTICE BHARGAV D. KARIA
and
HONOURABLE MR.JUSTICE D.N.RAY
Date : 04/12/2024
ORAL JUDGMENT
(PER : HONOURABLE MR. JUSTICE BHARGAV D. KARIA) Heard learned advocate Mr.B.S.Soparkar for the petitioner and learned Senior Standing Counsel Mr.Varun K. Patel with learned advocate Mr.Dev D. Patel for the respondents.
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1. Rule, returnable forthwith. Learned Senior Standing Counsel Mr.Varun K. Patel waives service of notice of rule for and on behalf of the respondents.
2. By this petition under Article 226 of the Constitution of India, the petitioner has challenged the notice dated 27th March, 2021 for re-opening of the assessment for the 2014- 15 issued under Section 148 of the Income Tax Act, 1961 (for short 'the Act').
3. The brief facts of the case are as under :
3.1. The petitioner filed its original return of income for the Assessment Year 2014- 15 on 28th November, 2014 declaring total income of Rs.3,23,95,810/-. Thereafter the case of the petitioner for the Assessment Year 2014-15 was selected for scrutiny, detailed Page 2 of 33 Uploaded by PALAK BRAHMBHATT(HC01391) on Thu Dec 19 2024 Downloaded on : Fri Dec 20 22:19:45 IST 2024 NEUTRAL CITATION C/SCA/5627/2022 JUDGMENT DATED: 04/12/2024 undefined scrutiny was undertaken and notice under Section 142(1) of the Income Tax Act, 1961 (for short 'the Act') dated 26th April, 2016 was issued asking inter-alia specific details relating to disallowance in accordance with Rule 8D read with Section 14A of the Act as well as the depreciation claimed by the petitioner on various assets.
3.2. The petitioner replied to the said notice in part on 30th August, 2017 and as such, further notice was issued to the petitioner seeking further details which were provided by the petitioner vide letter dated 20th November, 2017.
3.3. Thereafter, the Assessing Officer passed an Assessment Order under Section 143(3) read with Section 144C of the Act for Page 3 of 33 Uploaded by PALAK BRAHMBHATT(HC01391) on Thu Dec 19 2024 Downloaded on : Fri Dec 20 22:19:45 IST 2024 NEUTRAL CITATION C/SCA/5627/2022 JUDGMENT DATED: 04/12/2024 undefined Assessment Year 2014-15 on 28th December, 2017 assessing total income of the petitioner at Rs.6,69,69,760/- under normal provisions and book profit at Rs. 17,29,38,070/- and also made disallowance Rs.2,72,88,280/- under Section 14A of the Act.
3.4. The respondent No.1 issued the impugned notice under Section 148 of the Act dated 27th March, 2021 asking the petitioner to file return of income for Assessment Year 2014-15. In compliance of the notice issued under Section 148 of the Act dated 27th March, 2021, the petitioner filed its return of income and sought for the reasons recorded for reopening.
3.5. A copy of the reasons recorded for re-
opening was provided to the petitioner vide Page 4 of 33 Uploaded by PALAK BRAHMBHATT(HC01391) on Thu Dec 19 2024 Downloaded on : Fri Dec 20 22:19:45 IST 2024 NEUTRAL CITATION C/SCA/5627/2022 JUDGMENT DATED: 04/12/2024 undefined letter dated 17.05.2021 and thereafter, the petitioner filed the objections on 31st May, 2021 challenging the validity of the notice issued under Section 148 of the Act.
3.6. The respondent No.2 thereafter issued the notice under Section 142(1) of the Act dated 17th December, 2021 asking various details in connection with assessment instead of passing any order and disposed of the objections.
3.7. The petitioner thereafter, vide letter dated 31st December, 2021 requested the respondent No.2 to pass a speaking order disposing of the objections. The respondent No.2 thereafter passed the impugned order dated 15th January, 2022 disposing of the objections. Being aggrieved and dis-satisfied, Page 5 of 33 Uploaded by PALAK BRAHMBHATT(HC01391) on Thu Dec 19 2024 Downloaded on : Fri Dec 20 22:19:45 IST 2024 NEUTRAL CITATION C/SCA/5627/2022 JUDGMENT DATED: 04/12/2024 undefined the petitioner has preferred this petition.
4. The reasons recorded by the Assessing Officer can be summarised as under :
"2. Brief details of Information collected/received by the AO: On perusal of the assessment records for the year under consideration, it is noticed the assessee has claimed depreciation of Rs.41,46,74,708/- which include additional depreciation of Rs.3,70,97,978/- on pollution treatment plant.
2.1 On verification of 3CD report, the auditor in column no.22 reported that interest inadmissible u/s. 23 of Micro, Small & Medium Enterprise Act is of Rs.44,80,949/-.
2.2 It is further verified that while working out disallowance u/s. 14A of the Act the expenditure by way of interest is taken at Rs.19,47,87,211/-Page 6 of 33 Uploaded by PALAK BRAHMBHATT(HC01391) on Thu Dec 19 2024 Downloaded on : Fri Dec 20 22:19:45 IST 2024
NEUTRAL CITATION C/SCA/5627/2022 JUDGMENT DATED: 04/12/2024 undefined instead of Rs.33,28,98,762/- debited in the P&L A/c.
3. Analysis of information collected/received: From the records, it is verified that assessee has wrongly claimed additional depreciation of Rs.3,70,97,978/- u/s. 32(1)(iia) of the Act on pollution treatment plant which is not used for manufacturer or production of article or thing as laid down in Section 32(1)(iia) of the Act.
3.1 It is also verified from the 3CD report that the interest of Rs.44,80,949/- is inadmissible u/s. 23 of MSME Act is not considered by the assessee while computing the total income.
3.2 It is further seen that while working out the disallowance u/s. 14A of the Act, the interest of Rs. 19,47,87,211/- is taken instead of Rs.33,28,98,762/- debited in the P&L A/ c."Page 7 of 33 Uploaded by PALAK BRAHMBHATT(HC01391) on Thu Dec 19 2024 Downloaded on : Fri Dec 20 22:19:45 IST 2024
NEUTRAL CITATION C/SCA/5627/2022 JUDGMENT DATED: 04/12/2024 undefined 5.1. Learned advocate Mr.B.S.Soparkar for the petitioner submitted that the reasons recorded are based on the perusal of the assessment records only and there is no fresh new tangible material to form a prima-facie reason to believe that the income has escaped the assessment. It was submitted that the impugned notice is issued beyond the period of four years and the petitioner has disclosed truly and fully all material facts required for the assessment.
5.2. It was further submitted that the re-
opening is made by mere change of opinion as all the three issues which are referred to in reasons recorded are scrutinised during the course of the regular assessment. Reference was made to the notice issued under Section 142(1) of the Act dated 26th April, 2016 more Page 8 of 33 Uploaded by PALAK BRAHMBHATT(HC01391) on Thu Dec 19 2024 Downloaded on : Fri Dec 20 22:19:45 IST 2024 NEUTRAL CITATION C/SCA/5627/2022 JUDGMENT DATED: 04/12/2024 undefined particularly, point 9 pertaining to the dis-
allowance under Section 14A of the Act and point 18 pertaining to the details to be furnished for fixed assets and the claim of the depreciation. Reference was also made to page No.56 of the petition pertaining to the notice showing that the petitioner was also called upon to furnish the evidences and details of assets on which the depreciation claimed at higher rates/higher additional depreciation claimed during the year.
Reference was made to the reply dated 29th August, 2017 stating that explanation was provided with regard to disallowance under Section 14A of the Act. It was further submitted that the details with regard to the depreciation was also provided along with the reply.
Page 9 of 33 Uploaded by PALAK BRAHMBHATT(HC01391) on Thu Dec 19 2024 Downloaded on : Fri Dec 20 22:19:45 IST 2024NEUTRAL CITATION C/SCA/5627/2022 JUDGMENT DATED: 04/12/2024 undefined 5.3. Learned advocate Mr.B.S.Soparkar also referred to the Assessment Order dated 28th December, 2017 passed under Section 143(3) of the Act for the year under consideration to point out that there was a dis-allowance of Rs.2,72,88,280/- under Section 14A of the Act.
5.4. It was further submitted that the petitioner has dis-allowed the Provision for interest up to MSME amounting to Rs.44,80,949/- in the return of income which was duly explained in the objections filed by the assessee in response to the notice for re-
opening. It was therefore submitted that the impugned notice issued by the respondent-
Assessing Officer is nothing but mere change of opinion in absence of any new tangible material.
Page 10 of 33 Uploaded by PALAK BRAHMBHATT(HC01391) on Thu Dec 19 2024 Downloaded on : Fri Dec 20 22:19:45 IST 2024NEUTRAL CITATION C/SCA/5627/2022 JUDGMENT DATED: 04/12/2024 undefined 5.5. In support of his submissions, reliance was placed on the following decisions:
(i) Intercontinental India reported in [2016] 73 taxmann.com 232 (Gujarat),
(ii) Premium Finance (P.) Ltd. reported in [2016] 73 taxmann.com 369,
(iii) Gujarat State Board of School Textbooks reported in [2016] 75 taxmann.com 281,
(iv) Shanti Enterprise reported in [2016] 76 taxmann.com 184.
6.1. On the other hand, learned Senior Standing Counsel Mr.Varun Patel for the respondents submitted that the impugned notice is issued by the Assessing Officer on perusal of the assessment records as the three points Page 11 of 33 Uploaded by PALAK BRAHMBHATT(HC01391) on Thu Dec 19 2024 Downloaded on : Fri Dec 20 22:19:45 IST 2024 NEUTRAL CITATION C/SCA/5627/2022 JUDGMENT DATED: 04/12/2024 undefined which are referred to in the reasons recorded were not considered by the Assessing Officer during the regular course of assessment. In support of his submissions, reliance was placed on the following averments made in the affidavit-in-reply filed on behalf of the respondents:
"7. It is further submitted that the case was reopened as per the procedure after recording of satisfaction and taking approval of the competent authority, hence it cannot be said that the case was reopened in mechanical manner. The main ingredient required to issue notice u/s 148 of the IT. Act, 1961 is to form 'reason to believe. At the stage of issue of notice u/s 148, the only question is whether there was relevant material on which reasonable person could have form the requisite belief as to whether an income chargeable to tax has escaped assessment. The expression 'reason to Page 12 of 33 Uploaded by PALAK BRAHMBHATT(HC01391) on Thu Dec 19 2024 Downloaded on : Fri Dec 20 22:19:45 IST 2024 NEUTRAL CITATION C/SCA/5627/2022 JUDGMENT DATED: 04/12/2024 undefined believe' cannot be read to mean that the AO should have finally ascertained the fact by legal evidence or conclusion. Whether material would conclusively prove escapement of income is not the concern at the stage of issue of notice. It only means that the AO forms a belief from the examination of facts, from any information the AO receives. If the AO discovers or finds or satisfies that the taxable income has escaped assessment, it would amount to saying that the AO had 'reason to believe that such income has escaped assessment. The justification of AO's belief is not to be judged from the standards of proof required for coming to a final decision. A belief though justified for the purpose of initiation of the proceedings u/s 147 may ultimately stand altered after the hearing and while reaching the final conclusion on the basis of the intervening enquiry. At the stage where AO finds a cause or justification to believe that such income has escaped assessment, the AO is not required to Page 13 of 33 Uploaded by PALAK BRAHMBHATT(HC01391) on Thu Dec 19 2024 Downloaded on : Fri Dec 20 22:19:45 IST 2024 NEUTRAL CITATION C/SCA/5627/2022 JUDGMENT DATED: 04/12/2024 undefined base his belief on any final adjudication of the matter. The AO had applied his mind and examined the information received and then recorded his reasons to believe that the income of assessee had escaped assessment for the year under consideration. Considering the above facts, the AO has reasonable belief that by omission on the part of the assessee to disclose fully and truly all material facts necessary for the assessment, the income of the assessee has escaped assessment. The escapement of income was found and therefore the assessment was correctly reopened by the Jurisdictional Assessing Officer after recording the reasons of the same and by following the prescribed procedure laid down under the Income-tax Act along-with obtaining prior approval from the competent authorities. Hence, it is clear that the AO has applied his mind while re-opening the case.
8. It is submitted that the case of the assessee was selected in scrutiny and Page 14 of 33 Uploaded by PALAK BRAHMBHATT(HC01391) on Thu Dec 19 2024 Downloaded on : Fri Dec 20 22:19:45 IST 2024 NEUTRAL CITATION C/SCA/5627/2022 JUDGMENT DATED: 04/12/2024 undefined assessment was completed u/s. 143(3) of the Act. The assessment order was passed by the then AO as per the information available with the AO at that time. However, the requisite full and true disclosure of all material facts necessary for assessment has not been made as noted above. The AO after analysing all facts and information from case records, has recorded his reason for reopening the case. It can be reasonably concluded that there is failure on the part of assessee to disclose fully and truly all necessary material facts during the assessment proceedings. In view of the facts as narrated above, this cannot be a case of change of opinion as there was no opinion formed in the first instance. The AO, subsequently, through the application of his mind on the 'information', had reasons to believe that the income had escaped assessment. In this regard, attention is drawn to the following judgement of the Apex Court (the relevant portion is Page 15 of 33 Uploaded by PALAK BRAHMBHATT(HC01391) on Thu Dec 19 2024 Downloaded on : Fri Dec 20 22:19:45 IST 2024 NEUTRAL CITATION C/SCA/5627/2022 JUDGMENT DATED: 04/12/2024 undefined reproduced): Salem Provident Fund Society Ltd. v. Commissioner of Income- tax [1971] 82 ITR 367 (SC):
"Suppose a mistake in the original order of assessment is not discovered by the Income-tax Officer himself on further scrutiny but it is brought to his notice by another assessee or even by a subordinate or a superior officer that would appear to be information disclosed to the Income-tax Officer. If the mistake itself is not extraneous to the record and the informant gathered the information from the record, the immediate source of information to the Income-tax Officer in such circumstances is in one sense extraneous to the record. It is difficult to accept the position that while what is seen by another in the record is 'information' what is seen by the Income-tax Officer himself is not information to him. In the latter case he just informs Page 16 of 33 Uploaded by PALAK BRAHMBHATT(HC01391) on Thu Dec 19 2024 Downloaded on : Fri Dec 20 22:19:45 IST 2024 NEUTRAL CITATION C/SCA/5627/2022 JUDGMENT DATED: 04/12/2024 undefined himself. It will be information in his possession within the meaning of section 34."
To the same effect the Gujarat High Court in the case of Gruh Finance Ltd. Vs. Jt. CIT (2000) 161 CTR (Guj) 100:
(2000) 243 ITR 482 (Guj) held that if no conscious consideration of the material available on record is made and a mistake has been committed, it will not prevent the competent officer to exercise powers under section 147 of the Act. The Hon'ble Court observed as under:
"We have also seriously considered the entire case law from which aforesaid paragraphs are relied on. Insofar as the expressions "reason to believe" and "change of opinion"
are concerned, we are of the view that though the material was available on record, at the time of first assessment, when no conscious consideration of the material is Page 17 of 33 Uploaded by PALAK BRAHMBHATT(HC01391) on Thu Dec 19 2024 Downloaded on : Fri Dec 20 22:19:45 IST 2024 NEUTRAL CITATION C/SCA/5627/2022 JUDGMENT DATED: 04/12/2024 undefined made and a mistake has been committed, it would not, in any case, create an embargo or a ban on the competent officer to exercise powers under the amended s. 147 of the IT Act, 1961, as prima facie, there could not be "change of opinion" in that factual scenario. It has also not been shown to us on behalf of an assessee. If conscious application of mind is made to the relevant facts and material available or existing at the relevant point of time while making assessment and again a different or divergent view is sought, it would tantamount to "change of opinion", whereas, in the case of existing material, no conscious attempt has been made, it would tantamount to mistake in not considering the relevant point or proposition and it would not be a "change of opinion". The principle that a mere change of opinion cannot be a basis for reopening completed assessments Page 18 of 33 Uploaded by PALAK BRAHMBHATT(HC01391) on Thu Dec 19 2024 Downloaded on : Fri Dec 20 22:19:45 IST 2024 NEUTRAL CITATION C/SCA/5627/2022 JUDGMENT DATED: 04/12/2024 undefined would be applicable only to situations where the AO has applied his mind and taken a conscious decision on a particular matter in issue. It will have no application where the order of assessment does not address itself to the aspect which is the basis for reopening of the assessment, as is the position in the present case. It is in that view inconsequential whether or not the material necessary for taking a decision was available to the AO either generally or in the form of a reply to the questionnaire served upon the assessee. What is important is whether the AO had based on the material available to him taken a view. If he had not done so, the proposed reopening cannot be assailed on the ground that the same is based only on a change of opinion."
In Bawabhai Singh Vs. DCIT, 253 ITR83 the Hon'ble Delhi High Court has Page 19 of 33 Uploaded by PALAK BRAHMBHATT(HC01391) on Thu Dec 19 2024 Downloaded on : Fri Dec 20 22:19:45 IST 2024 NEUTRAL CITATION C/SCA/5627/2022 JUDGMENT DATED: 04/12/2024 undefined observed that:
"there must be some material which can be regarded as information, on the basis of which the Assessing Officer can have reason to believe that action under section 147is called for. Information means the communication or reception of knowledge or intelligence. It includes knowledge obtained from investigation study or instruction. The reasons which may weigh with the A.O. may be result of his own investigation and may come from any source that he considers reliable."
It is evident from the above facts as mentioned in the reason recorded, that the assessee had not truly and fully disclosed material facts necessary for his assessment for the year under consideration. At this juncture, it is worthwhile to point out here that the only requirement for reopening the assessment is that the AO has reasonable Page 20 of 33 Uploaded by PALAK BRAHMBHATT(HC01391) on Thu Dec 19 2024 Downloaded on : Fri Dec 20 22:19:45 IST 2024 NEUTRAL CITATION C/SCA/5627/2022 JUDGMENT DATED: 04/12/2024 undefined belief of escaped assessment. As stated in the ason recorded and also detailed discussion made above, it is apparent that the AO has information in his possession about the aecommodation entries provided to the assessee which is not genuine as discussed in foregoing paras. At the time of recording the reasons for reopening the assessment, it not necessary for the AO to bring all the evidences of concealed income of the assessee but the AO on the material available with him has a reasonable belief of escapement of income. In the case under reference, the AO has enough material in his hands to prove that the assessee has on the ground that the same is based only on a change of opinion."
In Bawabhai Singh Vs. DCIT, 253 ITR83 the Honble Delhi High Court has observed that :
"there must be some material which can be regarded as information, on the basis of which the Assessing Page 21 of 33 Uploaded by PALAK BRAHMBHATT(HC01391) on Thu Dec 19 2024 Downloaded on : Fri Dec 20 22:19:45 IST 2024 NEUTRAL CITATION C/SCA/5627/2022 JUDGMENT DATED: 04/12/2024 undefined Officer can have reason to believe that action under section 147 is called for. Information means the communication or reception of knowledge or intelligence. It includes knowledge obtained from investigation study or instruction. The reasons which may weigh with the A.O. may be result of his own investigation and may come from any source that he considers reliable."
It is evident from the above facts as mentioned in the reason recorded, that the assessee had not truly and fully disclosed material facts necessary for his assessment for the year under consideration. At this juncture, it is worthwhile to point out here that the only requirement for reopening the assessment is that the AO has reasonable belief of escaped assessment. As stated in the reason recorded and also detailed discussion made above, it is apparent that the AO has information in his possession about the accommodation Page 22 of 33 Uploaded by PALAK BRAHMBHATT(HC01391) on Thu Dec 19 2024 Downloaded on : Fri Dec 20 22:19:45 IST 2024 NEUTRAL CITATION C/SCA/5627/2022 JUDGMENT DATED: 04/12/2024 undefined entries provided to the assessee which is not genuine as discussed in foregoing paras. At the time of recording the reasons for reopening the assessment, it not necessary for the AO to bring all the evidences of concealed income of the assessee but the AO on the material available with him has a reasonable belief of escapement of income. In the case under reference, the AO has enough material in his hands to prove that the assessee has not furnished truly and correctly all the material necessary for the assessment.
It is submitted that the Hon ble High Court of Gujarat in the case of Hemjay Construciton Co. Pvt Ltd - through Deenaben Yogeshbhai Shah Vs. ITO, Ward- 2(2) - in SCA No. 19392 of 2018, has held that merely because certain materials which is otherwise tangible and enables the Assessing Officer to form a belief that the income chargeable to tax has escaped assessment, formed part of the original assessment record, Page 23 of 33 Uploaded by PALAK BRAHMBHATT(HC01391) on Thu Dec 19 2024 Downloaded on : Fri Dec 20 22:19:45 IST 2024 NEUTRAL CITATION C/SCA/5627/2022 JUDGMENT DATED: 04/12/2024 undefined per se would not bar the Assessing Officer from reopening the assessment on the basis of such material. The expression "tangible material does not mean the material alien to the original record. The Hon'ble Court has also held that "it is not necessary that the Income Tax Officer should hold a quasi judicial inquiry before acting under Section 147. It is enough if he on the information received believes in good faith that the assesee's profits have escaped assessment or have been assessed at a low rate."
It is further ruled by the Hon'ble High Court that the reasons recorded or the material available on record must have nexus to the subjective opinion formed by the A.O. regarding the escapement of the income but then, while recording the reasons for the belief formed, the A.O, is not required to finally ascertain the factum of escapement of the tax and it Page 24 of 33 Uploaded by PALAK BRAHMBHATT(HC01391) on Thu Dec 19 2024 Downloaded on : Fri Dec 20 22:19:45 IST 2024 NEUTRAL CITATION C/SCA/5627/2022 JUDGMENT DATED: 04/12/2024 undefined is sufficient that the A.O had cause or justification to know or suppose that the income had escaped assessment [CIT v. Rajesh Jhaveri Stock Brokers (P) Ltd. (2007) 161 Taxman 316 (SC)]. It is also well settled that the sufficiency and adequacy of the reasons which have led to the formation of a belief by the Assessing Officer that the income has escaped the assessment cannot be examined by the court. In view of the above ruling of Hon'ble jurisdictional High court, the objection raised by the assessee does not sustain hence requires to be rejected.
It is thus submitted that for aforesaid reasons, it is not a case of change of opinion. It is evident from the above facts as mentioned in the reason recorded, that the assessee had not truly and fully disclosed material facts necessary for his assessment for the year under consideration. At this juncture, it is worthwhile to point out here that the only requirement for Page 25 of 33 Uploaded by PALAK BRAHMBHATT(HC01391) on Thu Dec 19 2024 Downloaded on : Fri Dec 20 22:19:45 IST 2024 NEUTRAL CITATION C/SCA/5627/2022 JUDGMENT DATED: 04/12/2024 undefined reopening the assessment is that the AO has reasonable belief of escaped assessment. At the time of recording the reasons for reopening the assessment, it not necessary for the AO to bring all the evidences of concealed income of the assessee but the AO on the material available with him has a reasonable belief of escapement of income. In the case under reference, the AO has enough material in his hands to prove that the assessee has not furnished truly and correctly all the material necessary for the assessment."
6.2. Referring to the above averments, it was submitted that no interference is required to be made while exercising extra-ordinary jurisdiction under Article 226 of the Constitution of India.
7. Considering the submissions made by the learned advocates for the respective parties Page 26 of 33 Uploaded by PALAK BRAHMBHATT(HC01391) on Thu Dec 19 2024 Downloaded on : Fri Dec 20 22:19:45 IST 2024 NEUTRAL CITATION C/SCA/5627/2022 JUDGMENT DATED: 04/12/2024 undefined and on perusal of the material on record as well as the reasons recorded, it is apparent that the Assessing Officer has issued the notice for re-opening only on the basis of perusal of the assessment records for the year under consideration and in absence of any new tangible material available with him. It is therefore apparent that it is the case of mere change of opinion.
8. From the material available on record, it is evident that the Assessing Officer during the regular course of assessment has called for the details of depreciation as well as the dis-allowance to be made under Section 14A of the Act. The assessee has also dis-allowed the interest qua MSME in the return of income amounting to Rs.44,80,949/- which is also stated in the objections raised by the Page 27 of 33 Uploaded by PALAK BRAHMBHATT(HC01391) on Thu Dec 19 2024 Downloaded on : Fri Dec 20 22:19:45 IST 2024 NEUTRAL CITATION C/SCA/5627/2022 JUDGMENT DATED: 04/12/2024 undefined petitioners. Therefore, the Assessing Officer had no jurisdiction to re-open the assessment on the basis of the above details which were already scrutinised during the course of the regular assessment.
9. In addition to the above, the impugned notice is issued beyond the period of four years for the Assessment Year under consideration and in absence of any allegation to the effect that the assessee has failed to disclose truly and fully all material facts relevant for the assessment, as per the provisio to Section 147 of the Act, the Assessing Officer would not have jurisdiction to re-open the assessment.
10. In view of the foregoing reasons and as per the settled legal position as held in the Page 28 of 33 Uploaded by PALAK BRAHMBHATT(HC01391) on Thu Dec 19 2024 Downloaded on : Fri Dec 20 22:19:45 IST 2024 NEUTRAL CITATION C/SCA/5627/2022 JUDGMENT DATED: 04/12/2024 undefined decision of the Hon'ble Supreme Court in case of Commissioner of Income Tax, Delhi vs M/S. Kelvinator of India Ltd reported in 320 ITR 560 (SC) which reads as under, we are of the opinion that the impugned notice cannot be sustained:
"On going through the changes, quoted above, made to Section 147 of the Act, we find that, prior to Direct Tax Laws (Amendment) Act, 1987, re-opening could be done under 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 re- open the assessment. Therefore, post- 1st April, 1989, power to re-open is Page 29 of 33 Uploaded by PALAK BRAHMBHATT(HC01391) on Thu Dec 19 2024 Downloaded on : Fri Dec 20 22:19:45 IST 2024 NEUTRAL CITATION C/SCA/5627/2022 JUDGMENT DATED: 04/12/2024 undefined 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 re-open assessments on the basis of "mere change of opinion", which cannot be per se reason to re- open. 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 power to re-assess. But reassessment has to be based on fulfillment of certain pre-condition and if the concept of "change of opinion" is removed, as contended on behalf of the Department, 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 Page 30 of 33 Uploaded by PALAK BRAHMBHATT(HC01391) on Thu Dec 19 2024 Downloaded on : Fri Dec 20 22:19:45 IST 2024 NEUTRAL CITATION C/SCA/5627/2022 JUDGMENT DATED: 04/12/2024 undefined the conclusion that there is escapement of income from assessment. Reasons must have a live link with the formation of the belief. Our view gets support from the changes made to Section 147 of the Act, as quoted hereinabove. Under the Direct Tax Laws (Amendment) Act, 1987, Parliament not only deleted the words "reason to believe" but also inserted the word "opinion" in Section 147 of the Act. However, on receipt of representations from the Companies against omission of the words "reason to believe", Parliament re-introduced the said expression and deleted the word "opinion" on the ground that it would vest arbitrary powers in the Assessing Officer. We quote here in below the relevant portion of Circular No.549 dated 31st October, 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 Page 31 of 33 Uploaded by PALAK BRAHMBHATT(HC01391) on Thu Dec 19 2024 Downloaded on : Fri Dec 20 22:19:45 IST 2024 NEUTRAL CITATION C/SCA/5627/2022 JUDGMENT DATED: 04/12/2024 undefined 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 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."
For the afore-stated reasons, we see no merit in these civil appeals filed by the Department, hence, dismissed with no Page 32 of 33 Uploaded by PALAK BRAHMBHATT(HC01391) on Thu Dec 19 2024 Downloaded on : Fri Dec 20 22:19:45 IST 2024 NEUTRAL CITATION C/SCA/5627/2022 JUDGMENT DATED: 04/12/2024 undefined order as to costs."
11. In view of the foregoing reasons, the petition succeeds and accordingly allowed. The impugned notice dated 27th March, 2021 is hereby quashed and set aside. Rule is made absolute to the aforesaid extent. No orders as to cost.
(BHARGAV D. KARIA, J) (D.N.RAY,J) PALAK Page 33 of 33 Uploaded by PALAK BRAHMBHATT(HC01391) on Thu Dec 19 2024 Downloaded on : Fri Dec 20 22:19:45 IST 2024