Assessment Re-opening as Change of Opinion Not Permissible

The court held that the re-opening of the assessment under Section 147 of the Income Tax Act, 1961 constituted a mere change of opinion, which is impermissible in law. The court also ruled that the revenue audit personnel cannot comment on points of law, such as the interpretation of tax provisions. Consequently, the notice issued under Section 148 of the Act and all related proceedings were quashed and set aside, and the writ petition was allowed with no costs.

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Issues Involved:
1. Validity of the notice issued under Section 148 of the Income Tax Act, 1961.
2. Whether the re-opening of the assessment constitutes a mere change of opinion.
3. Jurisdiction of the revenue audit to comment on points of law.

Issue-wise Detailed Analysis:

1. Validity of the notice issued under Section 148 of the Income Tax Act, 1961:

The writ petition challenges the notice dated 24.02.2009 issued under Section 148 of the Income Tax Act, 1961 (the Act) for re-opening the assessment for the assessment year 2005-06. The petitioner contends that the provisions of Section 147 have been wrongly invoked by the revenue as the Assessing Officer is merely seeking to change his opinion, which is not permissible in law.

2. Whether the re-opening of the assessment constitutes a mere change of opinion:

The petitioner had filed its return of income for the assessment year 2005-06 on 29.10.2005, claiming a sum of Rs. 2,61,41,144/- as being exempted under Section 10B of the Act. The return included a detailed break-up of the export turnover and local turnover. The Assessing Officer issued a questionnaire on 22.08.2007, specifically asking about the DTA supply and why it was included in the export turnover. The petitioner responded on 13.09.2007, explaining the concept of constructive exports and providing a detailed summary of sales.

The Assessing Officer, after considering the petitioner's reply, framed the assessment under Section 143(3) of the Act on 04.10.2007, explicitly dealing with the issue of constructive exports and DTA supplies. The assessment order and the accompanying calculation sheet clearly indicated that the Assessing Officer had applied his mind to the question of supply to the domestic tariff area made by the petitioner on instructions from the publishers abroad.

The impugned notice under Section 148 was issued on the ground that the supply to the domestic tariff area did not amount to exports, which the petitioner contends is a mere change of opinion. The court observed that the Assessing Officer had specifically raised a query regarding the supplies made in the domestic tariff area and had considered the petitioner's detailed reply before framing the assessment order. Therefore, the re-opening of the assessment under Section 147 of the Act constitutes a mere change of opinion, which is impermissible in law.

3. Jurisdiction of the revenue audit to comment on points of law:

The reasons for re-opening the assessment included a reference to an audit note, which stated that the supply to the Domestic Tariff Area (DTA) in India does not constitute export out of India, resulting in excess allowance of deduction under Section 10B. The petitioner argued that the audit personnel could not comment on an interpretation of Section 10B of the Act, as that would be a comment on a point of law, which is not permissible according to the Supreme Court decision in Indian and Eastern Newspaper Society v. CIT: 119 ITR 996 (SC).

The court agreed with the petitioner, stating that an audit party could not have commented on a point of law and particularly on an interpretation of Section 10B of the Act. Therefore, the audit note could not form the basis for re-opening the assessment.

Conclusion:

On both points, the petitioner succeeded. The impugned notice dated 24.02.2009 and all proceedings pursuant thereto, including the order dated 07.12.2009, were quashed and set aside. The writ petition was allowed, with no order as to costs.

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