2007 (10) TMI 58 - HC - Income Tax

Court quashes notice under Income Tax Act, emphasizing need for new evidence

The court ruled in favor of the petitioner, quashing the notice issued under section 148 of the Income Tax Act. It held that the assessing officer cannot ... Reopening of assessment based on mere change of opinion - reason to believe that income chargeable to tax has escaped assessment - provision for deferred taxation not includable in book profit for computation of total income under section 115JB - excessive relief - Explanation 2(c) to section 147 requires definite basis - binding effect of tribunal decision on assessing officerReopening of assessment based on mere change of opinion - reason to believe that income chargeable to tax has escaped assessment - Validity of the notice under section 148 read with section 147 to reopen the assessment - HELD THAT: - The assessing officer had raised the question of including the provision for deferred taxation at the original assessment under section 143(3) and accepted the assessee's explanation when passing the regular assessment. The reasons recorded for reopening do not show any fresh material or prima facie basis to conclude that the earlier acceptance was erroneous or that income chargeable to tax has escaped assessment. Reopening the assessment on the same issue without any new material amounts to a mere change of opinion, which cannot sustain reassessment. Consequently the jurisdictional requirement for reopening was not fulfilled. [Paras 10, 13]Notice under section 148 is invalid and cannot be sustained as it is based on mere change of opinion without material forming a reason to believe.Provision for deferred taxation not includable in book profit for computation of total income under section 115JB - binding effect of tribunal decision on assessing officer - excessive relief - Explanation 2(c) to section 147 requires definite basis - Whether the provision for deferred taxation made in the profit and loss account is to be added to book profit for computing total income under section 115JB - HELD THAT: - The assessee's explanation - that the provision for deferred taxation is made in accordance with accounting standards and is not an unascertained liability falling within the Explanation to section 115JB - was accepted in the regular assessment. The Income-tax Appellate Tribunal, Kolkata Bench in Balrampur Chini Mills Ltd. has considered the same question and held that the book profit cannot be increased by the deferred tax provision. In absence of any contrary decision or fresh material, the assessing officer could not disregard that position. Likewise, the invocation of Explanation 2(c) to section 147 (excessive relief) must be founded on a definite basis, which is absent here. [Paras 10, 11, 12]The deferred taxation provision cannot be treated as an unascertained liability to be added to book profit under section 115JB, and the assessing officer was not justified in proceeding to reassess on that ground.Final Conclusion: The petition is allowed; the notice dated December 27, 2006 issued under section 148 is quashed and set aside as reopening was based on mere change of opinion without any material and in face of the accepted explanation and relevant tribunal precedent. Issues:Challenge to notice under section 148 of the Income Tax Act, 1961 for the assessment year 2003-04 based on provision for deferred taxation in determining book profit under section 115 JB.Analysis:1. The assessing officer sought to reopen the assessment based on the provision for deferred taxation made by the assessee in the profit and loss account. The assessee argued that the provision was made in accordance with accounting standard 22 and not covered by the clauses in the Explanation to Section 115JB. The original assessment was completed without any additions to the book profit based on this provision.2. The assessing officer's reasons for reopening the assessment included under-assessment of book profit due to the provision for deferred tax. The assessee objected to the reopening, citing a decision by the Income-tax Appellate Tribunal, Kolkata Bench. The assessing officer rejected the objection without providing reasons, leading to the petition challenging the reopening.3. The court analyzed the situation and concluded that the assessing officer cannot reopen an assessment merely on a change of opinion without any new material or basis. The court emphasized that once an explanation is accepted during the original assessment, reopening the assessment on the same issue requires new material indicating an error in the original assessment.4. The court highlighted that the assessing officer should consider relevant decisions, such as the one from the Kolkata Bench, which held that the provision for deferred taxation should not increase the book profit under section 115 JB. Ignoring such a decision without providing a valid reason for doing so is not justified.5. The court further explained that the belief that income has escaped assessment due to excessive relief must be based on a definite basis. In this case, the provision for deferred taxation was not considered an unascertained liability during the original assessment, and no new reasons were provided to challenge this conclusion.6. Consequently, the court ruled in favor of the petitioner, quashing and setting aside the notice issued under section 148 of the Act. The court found that the jurisdictional requirements for reopening the assessment were not fulfilled, leading to the success of the petition.