Court quashes re-assessment for AY 2011-12 & 2013-14 due to limitation & lack of independent assessment

The court quashed the re-assessment proceedings for AY 2011-12 and AY 2013-14, finding them barred by limitation, constituting a review of the original assessment, and being based on audit objections without independent application of mind by the Assessing Officer. The writ petitions were allowed, and the connected miscellaneous petitions were closed with no order as to costs.

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Issues Involved:
1. Assumption of jurisdiction for re-assessment under Section 147 of the Income Tax Act, 1961.
2. Expiry of limitation period for re-assessment.
3. Full and true disclosure of material facts by the assessee.
4. Change of opinion by the Assessing Officer.
5. Basis for re-assessment being audit objections.

Issue-wise Detailed Analysis:

1. Assumption of Jurisdiction for Re-assessment under Section 147 of the Income Tax Act, 1961:
The petitioner challenged the orders rejecting their objections to the assumption of jurisdiction by the Assessing Officer for re-assessment under Section 147. The court noted that the Assessing Officer issued a notice under Section 148 after the expiry of six years from the end of the assessment year, stating that income chargeable to tax had escaped assessment. The court emphasized that the Supreme Court in GKN Drive Shafts Private Limited v. Income Tax Officer had set out the procedure for re-assessments, which includes filing a return, seeking reasons for issuing notices, and the Assessing Officer disposing of objections by passing a speaking order. The court found that the reasons for re-assessment were based on the belief that program/film rights should have been capitalized and not treated as revenue expenditure, which the petitioner objected to on various grounds, including the expiry of limitation and change of opinion.

2. Expiry of Limitation Period for Re-assessment:
The court observed that the notice under Section 148 for the assessment year 2011-12 was issued after the expiry of four years but before six years from the end of the assessment year. According to Section 147, the Revenue must establish that the escapement of income was due to the assessee's failure to disclose fully and truly all material facts necessary for the assessment. The court concluded that the petitioner had made a full and true disclosure of all material facts, including the method of amortization and valuation of program/film rights, which were consistently followed and accepted in previous years. Therefore, the extended period of limitation was not satisfied, and the re-assessment proceedings for AY 2011-12 were barred by limitation.

3. Full and True Disclosure of Material Facts by the Assessee:
The court found that the petitioner had consistently amortized expenditures on program/film rights and disclosed all relevant details in their returns and during the original assessment proceedings. The Assessing Officer had called for and verified these details, confirming the disclosure made by the petitioner. The court emphasized that the statutory condition for the extended period of limitation was not met as the petitioner had made a complete disclosure of all relevant facts, and the re-assessment proceedings constituted a review of the original assessment, which is impermissible in law.

4. Change of Opinion by the Assessing Officer:
The court referred to the Supreme Court's decision in Commissioner of Income Tax v. Kelvinator of India Ltd., which held that the Assessing Officer has no power to review but only to re-assess based on tangible material indicating escapement of income. The court noted that the reasons for re-assessment were based on the same material already on record, and there was no new tangible material. The proceedings were thus a change of opinion, which is not a valid ground for re-assessment.

5. Basis for Re-assessment being Audit Objections:
The court compared the audit objections with the reasons for re-assessment and found that the Assessing Officer had simply adopted the audit objections without independent application of mind. The Supreme Court in Indian Eastern Newspaper Society v. Commissioner of Income Tax held that the opinion of an audit party on a point of law cannot be regarded as "information" for re-assessment. The court concluded that the re-assessment proceedings were based on audit objections, which is not permissible, and there was no independent "reason to believe" by the Assessing Officer.

Conclusion:
The court quashed the re-assessment proceedings for AY 2011-12 and AY 2013-14, holding that they were barred by limitation, constituted a review of the original assessment, and were based on audit objections without independent application of mind by the Assessing Officer. The writ petitions were allowed, and the connected miscellaneous petitions were closed with no order as to costs.

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