Reassessment – facts duly considered, no change in facts, not valid on mere change of opinion- Supreme Court re-affirms settled legal position. Some suggestions about re-assessment to avoid un-desirable litigation by revenue.

Reassessment – facts duly considered, no change in facts, not valid on mere change of opinion- Supreme Court re-affirms settled legal position. Some suggestions about re-assessment to avoid un-desirable litigation by revenue.

Recent case: Income Tax Officer Ward No. 16 (2) Versus M/s TechSpan India Private Ltd. & Another 2018 (4) TMI 1376 - SUPREME COURT.

Judgment referred and applied by the Supreme Court:

Commissioner of Income Tax, Delhi Versus M/s. Kelvinator of India Limited - 2010 (1) TMI 11 - SUPREME COURT OF INDIA

Related judgments of lower Court:

Techspan India P. Ltd. And Another Versus Income-Tax Officer.2006 (2) TMI 88 - DELHI High Court.

The case before High Court was by way of Writ Petition, therefore there is no order  and  judgment of  CIT(A) and ITAT.

Cases referred by High Court:

1. Harbanslal Sahnia And Anr. Versus Indian Oil Corpn. Ltd. And Ors. - 2002 (12) TMI 564 - SUPREME COURT
2. GKN Driveshafts (India) Ltd. Versus Income-Tax Officer And Others - 2002 (11) TMI 7 - SUPREME Court
3. Whirlpool Corporation Versus Registrar of Trade Marks, Mumbai & Ors. - 1998 (10) TMI 510 - SUPREME COURT
4. Income-Tax Officer, I Ward, Distt. VI, Calcutta, And Others Versus Lakhmani Mewal Das - 1976 (3) TMI 1 - SUPREME Court
5. Malegaon Electricity Co. Pvt. Limited Versus Commissioner of Income-Tax, Bombay - 1970 (8) TMI 8 - SUPREME Court
6. Madhya Pradesh Industries Limited Versus Income-Tax Officer, Nagpur - 1970 (4) TMI 9 - SUPREME Court
7. Kantamani Venkata Narayana And Sons Versus First Additional Income-Tax Officer, Rajahmundry - 1966 (10) TMI 50 - SUPREME Court
8. KS. Venkataraman And Company (Private) Limited Versus State Of Madras - 1965 (10) TMI 11 - SUPREME Court
9. Calcutta Discount Company Limited Versus Income-Tax Officer, Companies District I, Calcutta, And Another - 1960 (11) TMI 8 - SUPREME Court
10. THE STATE OF UTTAR PRADESH Versus MOHAMMAD NOOH - 1957 (9) TMI 42 - SUPREME COURT
11. UNION OF INDIA Versus TR. VARMA - 1957 (9) TMI 41 - SUPREME COURT
12. SANGRAM SINGH Versus ELECTION TRIBUNAL KOTAH - 1955 (3) TMI 31 - SUPREME COURT
13. KS. Rashid And Son And Others Versus The Income-Tax Investigation Commission And Others - 1954 (1) TMI 1 - SUPREME Court
14. Consolidated Photo And Finvest Ltd. Versus Assistant Commissioner Of Income-Tax. - 2006 (1) TMI 59 - DELHI High Court
15. Transworld International Inc. Versus Joint Commissioner of Income-tax. - 2004 (9) TMI 26 - DELHI High Court
16. Indra Prastha Chemicals Pvt. Ltd. And Others Versus Commissioner Of Income-Tax And Another. - 2004 (8) TMI 86 - ALLAHABAD High Court
17. Garden Finance Ltd. Versus Assistant Commissioner of Income-Tax. - 2003 (10) TMI 17 - GUJARAT High Court
18. Mohinder Singh Malik Versus Chief Commissioner of Income-Tax. - 2003 (3) TMI 15 - PUNJAB AND HARYANA High Court
19. Gruh Finance Ltd. Versus Joint Commissioner Of Income-tax (Assessment) - 2000 (2) TMI 86 - GUJARAT High Court
20. Jindal Photo Films Ltd. Versus Deputy Commissioner Of Income-Tax And Another - 1998 (5) TMI 20 - DELHI High Court
21. Praful Chunilal Patel Versus MJ Makwana / Assistant Commissioner Of Income-tax - 1998 (2) TMI 538 - GUJARAT High Court

Case of TechSpan India Private Ltd (SC and HC supra.):

In the original assessment proceedings the AO made enquiry and then allowed claim of assesse. Notice u/s 148 for reassessment was issued without any new tangible material or information.

On the basis of material already on record at the time of original assessment and particularly when the same matter was enquired into by the AO and replied by the assesse and decision was taken by the AO allowing relief, then on the same facts of the case reassessment is not valid.

Proceedings:

In this case the assesse challenged notice issued u/s 148 before the High Court by way of Writ Petition (WP). The High Court allowed WP and set aside the notice issued u/s 148 , rejection of objections to such notice and the reassessment order passed by the AO.

 The revenue preferred an appeal before the Supreme Court. The Supreme Court considered facts and law then confirmed the judgment of Delhi High Court.  Supreme Court applied judgment in case of Kelvinator India Ltd. (supra.)

Facts:

 Deduction u/s 10A was allowed in original assessment. Later on different  view  was taken by the AO that such deduction  has been allowed in excess. There was no new material.

It was found that  basis of issuing the show cause notice dated 09.03.2004 was that the assesse was not maintaining any separate books of account for two categories of business carried on by assesse.

Details available in assessment record do not reveal proportional allocation of common expenses be made to these categories. The notice suggested how proportional allocation should be done. (this means that it is based on information available in assessment record).
Courts considered that all these things leads to an unavoidable conclusion that the question as to how and to what extent deduction should be allowed under Section 10A of the IT Act was well considered in the original assessment proceedings itself.

Therefore, issue of notice to  initiate  re-assessment proceedings under Section 147 vide notice u/s 148 was found to be  merely because of the fact that now the Assessing Officer is of the view that the deduction under Section 10A was allowed in excess.

This view was based on nothing but a change of opinion on the same facts and circumstances which were already in knowledge of the AO,  even during the original assessment proceedings.

Therefore, issue of notice and reassessment were held void correctly by the High Court and the Supreme Court re-affirms the legal precedence in case of Kelvinator (supra.)

Un-necessary litigation by reassessment- some suggestions:

It is unfortunate that tax department is un-necessarily initiating reassessment proceedings even for small amounts alleged to have escaped assessment.

There seems no minimum limit of tax effect for issuing notices u/s 148. The Board should fix minimum limit of say Rs. ten  lakh of tax effect. In case the tax effect on alleged escaped income is below Rs. ten lakh, no proceeding should be started.

The Board is also requested to instruct that along-with notice u/s 148 copy of recorded reasons should be provided and the assesse should be given reasonable time (say 20 days) to file objections. In case AO accept objections filed by assesse, then proceedings to re-assess should be dropped, and assesse should not be required to file return in response to notice issued u/s 148.

Objections must be considered objectively and after providing an opportunity to assesse to make further clarifications, if the AO so require before rejecting objections.

Only when tax effect on alleged escapement is above Rs. ten lakh and the objections of assesse are rejected by the AO, then only assesse should be asked to file return in response to notice.

This will save lot of valuable time of tax authorities and courts.

The article is in relation to re-assessment proceeding under Income-tax Act. However similar provisions are found in other direct and indirect tax laws. There also monetary limits can be fixed so as to avoid disputes and proceeding on smaller matters.