2019 (1) TMI 866 - HC - Income Tax

Court rules notice to reopen assessment invalid for being based on change of opinion & issued beyond time limit.

The court held that the notice for reopening the assessment was not justified as it was based on a change of opinion and issued beyond the permissible ... Reopening of assessment - reasons to believe - Held that:- The entire issue is a scrutinized issue. The Assessing Officer not only noticed the claim of the assessee during scrutiny assessment, prima facie not being satisfied, raised multiple queries during such assessment why the claim should not be disallowed. The assessee replied to the such queries and claimed the benefit of DTAA between the two countries. AO accepted such claim making specific mention in the order of assessment holding that the assessee is entitled to the benefit of DTAA since the assessee was carrying on bonafide banking activities in Mauritius. AO now desires to re-examine the issue on the ground that the assessee does not carry on bonafide the banking activities in Mauritius. This would be based on mere change of opinion and would be impressible as held by the series of judgments of the various Courts. Reference in this regard may made to the decision in the case of CIT Vs. Kelvinator of India Ltd. [2010 (1) TMI 11 - SUPREME COURT OF INDIA] in which it was held that even after the amendment in Section 147 of the Act with effect from 1.4.1989, the principle of change of opinion would continue to apply. There is nothing in the reasons recorded to suggest that there was any failure on the part of the assessee to disclose truly and fully all material facts which led to the income chargeable to tax escaping assessment. In fact, the perusal of the reasons would show that the Assessing Officer was merely proceeding on the material already on record. - Decided in favour of assessee. Issues Involved:1. Legality of the notice for reopening assessment issued by the Assessing Officer.2. Alleged failure of the petitioner to disclose true and full material facts.3. Examination of the petitioner’s claim of exemption under the Double Taxation Avoidance Agreement (DTAA) between India and Mauritius.Detailed Analysis:1. Legality of the Notice for Reopening Assessment:The petitioner challenged the notice of reopening of assessment issued by the Assessing Officer on 28.3.2018, which was beyond the period of four years from the end of the relevant assessment year. The court noted that for reopening an assessment beyond four years, there must be a failure on the part of the assessee to disclose fully and truly all material facts necessary for the assessment. The petitioner argued that there was no such failure and that the Assessing Officer's attempt to reopen the assessment was based on a change of opinion, which is impermissible. The court agreed with the petitioner, emphasizing that the entire issue had been scrutinized during the original assessment proceedings, and the Assessing Officer had accepted the petitioner’s claim of exemption under the DTAA after detailed examination.2. Alleged Failure to Disclose True and Full Material Facts:The Assessing Officer claimed that the petitioner failed to make true and full disclosure regarding its beneficial ownership status, which led to the income escaping assessment. However, the court observed that during the original assessment, the petitioner had provided comprehensive details, including tax residency certificates, computation of income, and explanations regarding the exempt income claimed under the DTAA. The court found that the Assessing Officer had thoroughly examined these details and had not found any issues with the petitioner’s claim of exemption on ECB interest. Therefore, the court concluded that there was no failure on the part of the petitioner to disclose material facts.3. Examination of the Petitioner’s Claim of Exemption under DTAA:The Assessing Officer issued the notice for reopening the assessment on the grounds that the petitioner’s claim of exemption on interest income under the DTAA was an attempt to misuse the treaty, as the petitioner did not carry out bona fide banking business in Mauritius. The court noted that this issue had already been examined during the original assessment. The petitioner had provided detailed explanations and documents to support its claim, and the Assessing Officer had accepted the claim after thorough scrutiny. The court held that the Assessing Officer’s attempt to re-examine the same issue based on the same material was a mere change of opinion, which is not permissible. The court referred to the Supreme Court’s decision in CIT Vs. Kelvinator of India Ltd., which held that the principle of change of opinion continues to apply even after the amendment in Section 147 of the Income Tax Act.Conclusion:The court concluded that the notice for reopening the assessment was not justified as it was based on a change of opinion and issued beyond the permissible period without any failure on the part of the petitioner to disclose material facts. Consequently, the impugned notice dated 28.3.2018 was set aside, and the petition was allowed and disposed of accordingly.