2015 (5) TMI 872 - HC - Income Tax

Court quashes invalid assessment notice based on change of opinion, emphasizes evidence over opinion in reassessment

The Court quashed the notice for reopening the assessment under Section 148 of the Income Tax Act, finding it invalid as it was based on a change of ... Reopening of assessment - whether the ATM is a computer or ought to be treated as normal plant and machinery, attracting different rates of depreciation? - Held that:- When the returns for the subsequent years were processed, the AO had disallowed the claim made @ 60% and added a sum of ₹ 3,71,00,000/- to the income of the assessee-Bank, by allowing depreciation @ 15% only, by treating the ATMs as plant and machinery. Keeping in view the fact that the ATMs had been operationalised by March, 2005, reasons were recorded to believe that the income of the assessee, chargeable to tax, had escaped assessment. There is no disputing the fact that the assessment for the said years, i.e., 2005-06 and 2006-07, under Section 143(3) had concluded on 28.11.2007 and 30.11.2007 and determination of tax upon the assessee was made on the basis of the assessment. The proviso to Section 147 provides that no action shall be taken under the said section, after the expiry of 4 years from the end of the relevant assessment year unless any income chargeable to tax has escaped assessment, by reason of failure on the part of the assessee to make the return or respond to the notice issued under Section 142(1) or Section 148. The other condition is that there should be disclosure of fully and truly all material facts necessary for the said assessment year. The reason for reopening, thus, being merely a change of opinion on account of the assessment being made for the subsequent years would not give the AO the jurisdiction to reopen as he would, thus, be reviewing his earlier decision which has been held not to be permissible. Reopening notice quashed - Decided in favour of assesse. Issues Involved:1. Legality of the notice issued under Section 148 of the Income Tax Act, 1961 for reopening of assessment.2. Validity of reopening the assessment based on a change of opinion.3. Compliance with the mandatory requirement of full and true disclosure of material facts by the assessee.4. Jurisdiction of the Assessing Officer to reopen the assessment after four years.Detailed Analysis:1. Legality of the notice issued under Section 148 of the Income Tax Act, 1961 for reopening of assessment:The petitioner-Bank challenged the order rejecting its objections to the notice issued under Section 148 for reopening the assessment, arguing that the notice did not satisfy the mandatory requirement under Section 147 regarding the failure to disclose fully and truly all material facts. The Court observed that the reasons recorded for issuing the notice under Section 147 read with Section 148 did not indicate any failure on the part of the assessee to disclose material facts. The Court noted that the reasons for reopening the assessment were based on the disallowance of a 60% depreciation claim on ATMs in subsequent years, which was treated as a change of opinion by the Assessing Officer (AO). The Court concluded that the notice issued did not fulfill the mandatory requirement under Section 147 and was thus invalid.2. Validity of reopening the assessment based on a change of opinion:The petitioner argued that the reopening of the assessment was based on a mere change of opinion, which is not permissible. The Court referenced the Supreme Court's decision in Commissioner of Income Tax, Delhi Vs. Kelvinator of India Ltd., which held that a change of opinion cannot be a reason per se to reopen assessments that have been finalized. The Court emphasized that the AO's power to reassess must be based on tangible material indicating escapement of income, and not on a mere change of opinion. The Court found that the reopening of the assessment in this case was indeed based on a change of opinion and, therefore, invalid.3. Compliance with the mandatory requirement of full and true disclosure of material facts by the assessee:The Court examined whether the assessee had disclosed all material facts fully and truly. It was noted that the petitioner-Bank had filed its balance-sheet, profit and loss account, cash flow statements, and other relevant documents along with its return of income. The Court found that there was no allegation or evidence to suggest that the assessee had failed to disclose any material facts. The Court referenced previous judgments, including Duli Chand Singhania Vs. Assistant Commissioner of Income Tax, which held that in the absence of an allegation of failure to disclose material facts, the assumption of jurisdiction under Section 147 is not justified. The Court concluded that the assessee had complied with the requirement of full and true disclosure.4. Jurisdiction of the Assessing Officer to reopen the assessment after four years:The Court examined the proviso to Section 147, which restricts the reopening of assessments after four years unless there is a failure on the part of the assessee to disclose fully and truly all material facts. The Court found that the reasons recorded for reopening the assessment did not indicate any such failure by the assessee. The Court referenced the case of Winsome Textiles Industries Ltd. Vs. Union of India, which held that the AO cannot reopen an assessment based on a failure to examine claims during the original assessment. The Court concluded that the AO did not have the jurisdiction to reopen the assessment after four years, as the mandatory conditions were not met.Conclusion:The Court allowed the writ petitions, quashing the notice dated 27.03.2012 and the order dated 25.03.2013. The Court held that the reopening of the assessment was based on a change of opinion, did not fulfill the mandatory requirement of recording a failure to disclose material facts, and was thus without jurisdiction.