2017 (7) TMI 538 - HC - Income Tax

Notice under Section 148 Invalidated: Change of Opinion Not Permissible

The court held that the notice issued under Section 148 of the Income Tax Act, 1961, and the consequential Assessment Order were quashed and set aside. ... Reopening of assessment - reason to believe - disallowance u/s 35D and Section 14A - Held that:- What is apparent on seeing the records of the present case is that during the scrutiny assessment, the claims of the petitioner were thoroughly scrutinized and an Assessment Order was accordingly passed on 21.12.2010. From the communications on record which were exchanged inter se between the assessee and the Revenue, it is apparent that on being satisfied with the questions that were answered by the assessee, the Revenue passed an order under Section 143(3) of the Income Tax Act and the question of Section 35D and Section 14A of the Income Tax Act stood concluded. It is apparent from “reasons to believe” that the “reasons to believe”, are nothing but mere ‘Change of Opinion’. As held by this Court in the decisions referred to hereinabove, it is not open for the Revenue to reopen the assessment in exercise of powers under Section 148 of the Income Tax Act only under the pretext of ‘Change of Opinion’. Accordingly, the notice dated 26.03.2013 issued under Section 148 of the Income Tax Act and the consequential Assessment Order dated 27.01.2014 passed by the respondents is quashed and set aside. - Decided in favour of assessee. Issues Involved:1. Validity of the notice issued under Section 148 of the Income Tax Act, 1961.2. Entitlement to deductions under Section 35D of the Income Tax Act.3. Disallowance under Section 14A of the Income Tax Act.Detailed Analysis:1. Validity of the Notice Issued under Section 148 of the Income Tax Act, 1961:The petitioner, a Public Limited Company engaged in hospitality and outdoor catering, challenged a notice under Section 148 of the Income Tax Act, 1961, issued on 26.03.2013. The petitioner had filed its E-return for the Assessment Year 2008-2009 and revised it twice. The return was selected for scrutiny, and an Assessment Order was issued on 21.12.2010. The Revenue issued the notice under Section 148 within four years, citing reasons to believe that income had escaped assessment, primarily on three grounds. The petitioner contended that since the issues had been scrutinized and assessed under Section 143(3), reopening the assessment amounted to a 'Change of Opinion', which is not permissible under Section 148.2. Entitlement to Deductions under Section 35D of the Income Tax Act:The first ground for reopening the assessment was the disallowance of IPO expenses written off, amounting to Rs. 1,17,14,943. The Revenue argued that these expenses were capital in nature and did not qualify for deduction under Section 35D, as the assessee had already commenced business and was not engaged in 'industrial activity' as per Section 35D(1)(ii). The petitioner had communicated extensively with the Revenue during the original assessment, providing detailed calculations and justifications for the deduction under Section 35D. The court found that the issues were thoroughly scrutinized and addressed in the original assessment, thus reopening the assessment on this ground amounted to a 'Change of Opinion'.3. Disallowance under Section 14A of the Income Tax Act:The third ground for reopening was the disallowance of expenses under Section 14A, specifically the proportionate interest expense of Rs. 18,45,734. The petitioner had provided detailed calculations during the original assessment, and the Assessing Officer had accepted the disallowance of Rs. 8,71,250 as administrative expenses. The court noted that the issue was examined and concluded during the original assessment, and reopening it on this ground also amounted to a 'Change of Opinion'.Conclusion:The court held that the reasons for reopening the assessment were based on issues that had already been scrutinized and concluded during the original assessment. Therefore, the exercise of powers under Section 148 was deemed to be a 'Change of Opinion', which is not permissible. Consequently, the notice dated 26.03.2013 and the consequential Assessment Order dated 27.01.2014 were quashed and set aside. The rule was made absolute to the aforesaid extent.