BY TIOL News Service

AHMEDABAD, SEPT 19, 2016: THE issue is - Whether after scrutinizing the claim minutely during the assessment proceedings, if the AO does not reject a claim but chooses not to give any reasons, reopening can be done, even if no reasons were given for making disallowance on such claim of exemption - NO is the answer.

Facts of the case

The assessee is a private limited company and a non-banking financial corporation registered with the Reserve Bank of India right from September 2001. The petitioner filed its return for the assessment year 2005-06 on 31.10.2005 showing total income of Rs. 24,41,300/- and the said return has been submitted alongwith a detailed computation of income, copy of accounts including profit and loss and balance sheet and in addition thereto, a copy of audit report u/s 44AB. The petitioner was, during the assessment proceedings, asked to furnish detail particulars by way of issuing notice u/s 142(1) on 29.01.2007 inter alia asking the petitioner to clarify 17 points enumerated in the said notice. One of the points which was a center of controversy was pertaining to the details regarding bad debts written off and its justification which is reflected on Item No. (xi) in the said communication. Assessee had submitted various replies on each of the points and one of such explanation in the form of reply was dated 17.09.2007 which was made a part of the record of the petition. Having considered the reply submitted by the petitioner and having satisfied, the AO did not disallow it by adding it back in the computation of income and has passed assessment order u/s 143(3) on 29.10.2007. The said scrutiny assessment has considered the issue pertaining to bad debts written off and its justification. ACIT, Circle IV then became the AO and had issued notice u/s 148 on 16.12.2009 under the Act stating that he has reason to believe that income chargeable to tax has escaped assessment and thereby required the petitioner to submit the return. In turn, the petitioner submitted a reply on 21.12.2009 stating inter alia that earlier return, which has been filed on 31.10.2005, be considered as a return in response to the notice u/s 148. Later on, under the communication dated 22.12.2009, the petitioner has requested the authority to furnish the reasons for reopening. In response to the said request, the respondent authority supplied reasons which were recorded on 04.12.2009 under the communication and cover of letter dated 05.03.2010. Having gone through the reasons initially, the petitioner has challenged the said notice u/s 148 by way of filing writ petition being Special Civil Application No. 6461 of 2010. However, since the procedure which was contemplated having not observed by the petitioner as has been laid down in the decision of SC in case of GKN Driveshafts (India) Ltd. vs. ITO 2002-TIOL-634-SC-IT, the Court had rejected the petition summarily vide order dated 21.06.2010. Thereafter, under a letter, assessee submitted its objection against reopening of assessment. Assessee had pointed out that the said objections which have been raised have not been properly considered and vide order dated 06.08.2010, by giving brief reasons, the objections have been rejected.

Held that,

++ both the sides have submitted on the issue of amendment to Section 147 w.e.f. 01.04.1989 and therefore to understand the said proposition we have to deal with and consider the decision delivered by SC in case of CIT vs. Kelvinator of India Ltd. In the said decision the short question which was paused before the SC was, whether the concept of change of opinion stands obliterated w.e.f. 01.04.1989 i.e. after substitution of Section 147 by Direct Tax Laws (Amendment) Act, 1987. Therefore, for consideration of the issue paused before the Court, SC analyzed the entire scheme of Section 147 onwards and have considered the effect of amendment to Section 147. SC while going through the changes which have taken place to Section 147, has found that prior to Direct Tax Laws (Amendment) Act, reopening could be done under the two conditions and fulfillment of the said two conditions would confer jurisdiction on the AO to make a back assessment but then after examining the amended provision w.e.f. 01.04.1989, the SC has found that subsequent to amendment only one condition remained viz. whether the AO has reason to believe that income has escaped assessment. Only that condition would confers jurisdiction to reopen the assessment. Therefore, SC found that scope of reopening is no doubt become wider after amendment. However, SC anticipating the uncontrolled power has categorically stated that the AO has no power to review. He has the only power to reassess and then the SC stated that the reassessment also had to be done not in a routine manner but on fulfillment of certain pre-condition therefor as laid down after 1st April 1989. The AO has power to reopen provided that there is tangible material to come to the conclusion that there is escapement of income from assessment. It has also been propounded that reasons imposed have a live link with formation of belief. Yet in another decision delivered by the Division Bench of HC in case of Gujarat Power Corporation Ltd. vs. ACIT 2012-TIOL-689-HC-AHM-IT, the Division Bench has considered this judgement of CIT vs. Kelvinator of India Ltd delivered by SC also and after considering various other decisions, the Court has concluded that the reopening of assessment within a period of four years from the end of relevant AY after 01.04.1989 could be made as long as the same is not based on a mere change of opinion. While further considering the SC judgements it was observed that after scrutinizing the claim minutely during the Assessment proceedings if the AO does not reject such a claim but choses not to give any reasons, such a course of action that he adopts had hardly be stated that he did not form the opinion on such a claim. Therefore, when the AO during scrutiny assessment notices a claim of exemption deduction for 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 thereafter, does not make any addition in the financial year of assessment. It can be stated to have form an opinion whether or not in the financial year he give his reason for making addition and after forming an opinion on the issue, the Court further held that any such reopening would be based on a mere change of opinion cannot be reopened simply because the AO did not record reasons for making no disallowance on such claim of exemption would be of a no consequence;

++ that the issue pertaining to provision for bad and doubtful debt has been gone into and only thereafter this scrutiny assessment came to be passed. To arrive at such conclusion, we have also gone through the stand taken by the Revenue authority. We have taken note of the contents stated by the deponent on behalf of the revenue contained in additional affidavit submitted before the Court. It was categorically stated by the deponent on additional affidavit that on account of workload and pressure of various files getting time barred asessement of various assessees and on account of corporate assessees being under jurisdiction of that AO he had categorically deposed that he could not incorporate the details of bad debts written off furnished by the assessee. This would clearly indicate that the details have already disclosed before the AO and while framing the assessment, AO has considered the same. It is only because of pressure of work he could not incorporate the details in an order u/s 143(3) and therefore, considering this overall view of the matter we are of the opinion that if the records speak like this it would not be permissible for respondent authority to reopen the assessment otherwise the same would be based on change of opinion and since the change of opinion is already spelt out by this Court and the decision which has been referred to above. In the background of these facts and circumstances we are of the opinion that the case is squarely covered by the ratio laid down by the above mentioned two decisions viz. Gujarat Power Corporation Ltd. vs. ACIT and CIT vs. Kelvinator of India Ltd. Counsel for the petitioner has further taken up yet another decision in case of Swati Saurin Shah vs. ITO, Ward 5(2)(4) 2016-TIOL-740-HC-AHM-IT and has drawn the attention of this Court to relevant para of the said decision. Having perused the same we found that the same is also profitable to be considered by this Court. Considering this overall set of circumstances coupled with the fact that there is no other tangible material available to justify the reopening more particularly when the issue has been gone into in detail during the course of regular scrutiny assessment, it is hardly justify for the revenue to reopen the issue which has relied upon, examined and even if it is within a period of four years. The ratio laid down by the aforesaid decision referred to above would clearly clinch the issue and therefore, the action of revenue in reopening the assessment is not justified as it would tantamount to be on the basis of mere change of opinion which is not permissible as the conditions which has been retained u/s 147 is also not satisfied. In that view of the matter we are of the opinion that the action on part of the respondent authority is not in consonance with proposition of law laid down and the background of facts would not warrant the Court to allow and precipitate further on account of main action on part of the respondent authority. Hence, the impugned notice dated 16.12.2009 and letter dated 06.08.2010 are hereby quashed and set aside.

(See 2016-TIOL-2160-HC-AHM-IT)