2016 (3) TMI 1025 - HC - Income Tax

Court quashes Income Tax Act Section 148 notice for reopening assessment.

The court quashed the notice issued under Section 148 of the Income Tax Act for reopening the assessment for AY 2002-03, ruling that it was based on a ... Reopening of assessment - reasons recorded - Held that:- In case of absence of records, the AO can assess the income of an assessee on the basis of a reasonable estimation. In such cases, it would not be open for the AO to subsequently hold that the Assessee had failed or omitted to truly and fully disclose all material facts and reopen the assessment on the basis that he should have estimated the income by adopting a different method. In the present case, there is no material to hold that the Assessee had withheld or concealed any material information; on the contrary, the Assessee had specifically pointed out that it had not maintained India specific books of accounts. The Assessee had furnished the records that it maintained and also answered all the queries raised by the AO; the fact that another AO had adopted a different method of estimating the income attributable to Indian activities can hardly be a reason to reopen the assessment or to allege that the Assessee had failed to truly and fully disclose material facts for the purposes of its assessment. - Decided in favour of assessee Issues involved:1. Legality of the notice issued under Section 148 of the Income Tax Act, 1961 for reopening the assessment for AY 2002-03.2. Examination of whether the reopening of assessment is based on a mere change of opinion.3. Consideration of the applicability of the principle of change of opinion.4. Evaluation of whether the Assessee failed to disclose fully and truly all material facts necessary for the assessment.5. Analysis of the impact of previous assessments and judicial decisions on the current case.Detailed Analysis:1. Legality of the notice issued under Section 148 of the Income Tax Act, 1961 for reopening the assessment for AY 2002-03:The Petitioner, BBC Worldwide Limited (the Assessee), challenged the notice dated 30th March 2009 issued under Section 148 of the Income Tax Act, 1961 for reopening the assessment for AY 2002-03. The Assessee argued that the notice was issued based on a mere change of opinion, which is impermissible under the law. The Assessee had previously declared its income and filed returns, which were scrutinized and assessed by the AO. The AO had initially accepted the Assessee's claim of incurring a loss and attributed a portion of the loss to its Indian operations.2. Examination of whether the reopening of assessment is based on a mere change of opinion:The court examined the reasons recorded by the AO for reopening the assessment, which indicated that the AO decided to reopen the assessment based on the following reasons:- The AO noticed that the Assessee had shown global profits in AY 2003-04, and a portion of the profits was attributed to Indian sales.- The Assessee had not furnished documentary evidence in support of its claim for loss but had merely furnished summary figures.- The AO relied on assessments for subsequent AYs, where it was held that the global loss was not on account of activities in India.- The AO applied the CBDT Circular No. 742 to estimate the taxable income, despite the Circular being withdrawn.- The AO considered the Assessee's income from distribution as royalty.The court found that these reasons essentially indicated a change of opinion by the AO, as the AO had already examined the Assessee's records, vouchers, and statements during the initial assessment and found them satisfactory.3. Consideration of the applicability of the principle of change of opinion:The court reiterated that the provisions of Section 147 of the Act do not permit the review of an assessment order but allow reassessment if the AO has reason to believe that the income has escaped assessment. A change of opinion does not constitute a valid reason for reopening an assessment. The court referred to the Supreme Court's decision in CIT v. Kelvinator of India Limited, which held that reopening of assessment on a mere change of opinion is not permissible.4. Evaluation of whether the Assessee failed to disclose fully and truly all material facts necessary for the assessment:The court examined whether the Assessee failed to disclose all material facts necessary for the assessment. The AO had recorded that the Assessee did not produce documentary evidence in support of its claim of losses and merely furnished summary figures. However, the court found this assertion erroneous, as the assessment order indicated that the Assessee had produced vouchers, which were examined and found satisfactory by the AO. The court also noted that the Assessee had disclosed all relevant facts and provided the necessary information during the initial assessment.5. Analysis of the impact of previous assessments and judicial decisions on the current case:The court considered the previous assessments and judicial decisions, including the decision in BBC World News Limited v. Assistant Director of Income Tax, which quashed the reassessment proceedings for AY 2003-04. The court found that the reasons for reopening the assessment in the current case bore similarity to the reasons recorded for reopening the assessment of BBC World News Ltd. for AY 2003-04. The court concluded that the AO had already examined the computation furnished by the Assessee in detail during the initial assessment, and therefore, the reassessment was based on a mere change of opinion.Conclusion:The court quashed the notice dated 30th March 2009 issued under Section 148 of the Act for reopening the assessment for AY 2002-03, holding that it was based on a mere change of opinion. The petition was allowed, and the parties were left to bear their own costs.