2016 (2) TMI 605 - HC - Income Tax

Appeal Dismissed Due to Lack of Jurisdiction for Reopening Assessment Beyond Four Years

The appeal was dismissed, and the reopening notice dated 30th March 2010 was held to be without jurisdiction. The Tribunal concluded that the conditions ... Reopening of assessment beyond four years - jurisdictional satisfaction of the Assessing Officer under section 147/148 - reason to believe that income chargeable to tax has escaped assessment - failure to disclose truly and fully all material facts - change of opinion - deduction under Section 80IA and market value of supply of electricityReason to believe that income chargeable to tax has escaped assessment - jurisdictional satisfaction of the Assessing Officer under section 147/148 - reopening of assessment beyond four years - Assessing Officer did not have jurisdiction to issue the reopening notice dated 30th March 2010 for AY 2004-05. - HELD THAT: - The Court held that the primary jurisdictional requirement for reopening an assessment beyond four years is the Assessing Officer's own reason to believe that income has escaped assessment. Where the Assessing Officer, in the regular assessment proceedings, had examined the claim and resisted the Revenue Audit objection by recording that the rates charged were comparable to the electricity board tariff, he could not be said to have formed the requisite reason to believe thereafter. Satisfaction required by section 147 cannot be outsourced to or supplied by superiors or the audit party; absence of the Assessing Officer's own reason to believe renders the reopening notice unsustainable. The Tribunal and CIT(A) correctly concluded that this sine qua non was not satisfied and the reopening notice was without jurisdiction. [Paras 4, 5, 6, 8]Reopening notice quashed for want of jurisdiction as the Assessing Officer lacked independent reason to believe that income had escaped assessment.Change of opinion - reopening of assessment - There was a change of opinion by the Assessing Officer, so reopening could not be sustained on that ground. - HELD THAT: - Both the CIT(A) and the Tribunal found as a factual conclusion that the Assessing Officer had considered and adjusted the deduction claimed under Section 80IA during the regular assessment proceedings. The material shows that unit-wise details and profit & loss accounts were called for and examined; the subsequent reopening amounted to a change of opinion rather than discovery of new material. As such, the condition that no opinion was formed in the regular assessment proceedings was not satisfied. [Paras 10]Reopening cannot be upheld because it rested on a change of opinion.Failure to disclose truly and fully all material facts - deduction under Section 80IA and market value of supply of electricity - There was no failure on the part of the assessee to truly and fully disclose material facts justifying reopening. - HELD THAT: - The reasons recorded for reopening rely upon records which were in the Assessing Officer's possession during the original assessment; the assessee had disclosed primary facts and submitted unit-wise P&L and details called for. Determination of market value and application of Section 80IA are matters of valuation and law for the Assessing Officer to decide in the regular assessment. Since the Assessing Officer had considered the issue, there was no non-disclosure of material facts that would warrant reopening the assessment. [Paras 11]Reopening not sustainable for failure-to-disclose; the assessee had not concealed primary material facts.Final Conclusion: The appeal is dismissed. The reopening notice for AY 2004-05 was without jurisdiction because the Assessing Officer lacked an independent reason to believe that income had escaped assessment; additionally, reopening rested on a change of opinion and there was no failure by the assessee to disclose material facts. Issues Involved:1. Jurisdiction of the Assessing Officer to issue reopening notice under Section 148 of the Income Tax Act, 1961.2. Compliance with the conditions for reopening an assessment beyond four years.3. Validity of the reasons for reopening the assessment.4. Alleged failure of the Assessee to disclose all material facts.5. Change of opinion by the Assessing Officer.Issue-wise Detailed Analysis:1. Jurisdiction of the Assessing Officer to issue reopening notice under Section 148 of the Income Tax Act, 1961:The primary issue is whether the Assessing Officer had the jurisdiction to issue the reopening notice dated 30th March 2010 for the Assessment Year (AY) 2004-05. The reopening notice was issued based on an audit objection, which the Assessing Officer initially resisted. The Tribunal upheld the CIT(A)'s decision that the reopening notice was without jurisdiction because the Assessing Officer did not have an independent reason to believe that income chargeable to tax had escaped assessment.2. Compliance with the conditions for reopening an assessment beyond four years:For reopening an assessment beyond four years, three conditions must be satisfied:(i) The Assessing Officer must have reason to believe that income chargeable to tax escaped assessment.(ii) The Assessing Officer should not have formed an opinion on the issue during the regular assessment proceedings.(iii) There must be a failure on the part of the Assessee to disclose fully and truly all material facts necessary for the assessment.The Tribunal and CIT(A) concluded that none of these conditions were met. The Assessing Officer had already formed an opinion on the issue during the regular assessment, and there was no failure on the part of the Assessee to disclose material facts.3. Validity of the reasons for reopening the assessment:The reasons for reopening the assessment were based on the allegation that the Assessee had inflated profits by transferring power to non-80IA units at a price higher than the tariff fixed by regulatory authorities. The Assessing Officer initially resisted this audit objection, stating that the power was transferred at a rate comparable to the rate at which the electricity board sells to industrial undertakings. Both the CIT(A) and the Tribunal held that the Assessing Officer's initial resistance to the audit objection indicated that there was no reason to believe that income had escaped assessment.4. Alleged failure of the Assessee to disclose all material facts:The reopening notice claimed that the Assessee failed to disclose that the power transferred to non-80IA units was at a price higher than the regulatory tariff, inflating profits eligible for deduction under Section 80IA. However, the Tribunal found that the Assessee had disclosed all primary facts necessary for the assessment. The determination of the market value of electricity was a matter of enquiry by the Assessing Officer during the regular assessment proceedings, and there was no failure on the Assessee's part to disclose material facts.5. Change of opinion by the Assessing Officer:The Tribunal and CIT(A) found that the reopening of the assessment was based on a change of opinion. During the regular assessment proceedings, the Assessing Officer had already examined the details of the deduction claimed under Section 80IA and made necessary adjustments. The Tribunal noted that the reopening of the assessment on the same issue indicated a change of opinion, which is not permissible for reopening an assessment.Conclusion:The appeal was dismissed, and the reopening notice dated 30th March 2010 was held to be without jurisdiction. The Tribunal concluded that the conditions for reopening the assessment beyond four years were not satisfied, and the reopening was based on a change of opinion. There was no failure on the Assessee's part to disclose all material facts, and the Assessing Officer did not have an independent reason to believe that income had escaped assessment.