2021 (3) TMI 912 - HC - Income Tax

Invalid notice under Section 148 quashed for lacking new material; rule made absolute for writ applicant.

Amrishbhai Hasmukhlal Parikh Versus Income Tax Officer Ward 2 (1) (3), Ahmedabad

The court held that the notice for reopening the assessment under Section 148 was not valid as it was solely based on a change of opinion without any new ... Reopening of assessment u/s 147 - AO did not add any income as deemed income while allowing deduction under section 35(1)(ii) - HELD THAT:- We are of the view that the impugned notice for reopening could be said to have been issued without there being any tangible material to come to the conclusion that there is escapement of income. There is no live link to form a belief, more particularly, when the Assessing Officer during the course of the original assessment had raised queries with regard to both the issues by issuing notices under section 142(1) of the Act, 1961 which were duly replied by the petitioner. AO during the course of the regular assessment proceedings, had passed the assessement order, under Section 143(3) of the Act after due consideration of the replies filed by the writ-applicant, wherein, the details of donation given by the petitioner to the Gujarat Cancer Society Limited has been disclosed together with the photographs of the receipts dated 30th March, 2013, to claim the allowance under Section 35 read with Section 80GGA of the Act. Writ-applicant claimed the deduction under Section 35(1)(ii) of the Act in the revised return dated 26.02.2014, and the assessment order, under Section 143(3) of the Act was passed on 15.10.2012 considering the revised return. Therefore, it cannot be said that the writ-applicant had failed to disclose, truly and fully, all the material facts so as to claim the deduction of 175% by showing the income as the business income. On perusal of the reasons recorded, it appears that the Assessing Officer has changed his opinion with regard to the claim of assessee without considering the provisions of Section 80GGA read with Section 35(1)(ii) which provides deduction in respect of certain donation for the scientific research or rural development to any research association or institution, approved for the purpose of clause (ii) of Sub-section (1) of Section 35 of the Act. The writ-applicant has claimed deduction under Section 35(1)(ii) of the Act and not under Section 80GGA of the Act. This fact is also disclosed by the assessee in the revised return. When there is no failure on the part of the petitioner-assessee to disclose, truly and fully, material facts, the Assessing Officer cannot reopen the assessment on the basis of “mere change of opinion”, as there is no tangible material to come to the conclusion that there is escapement of income from assessment. We have reached to the conclusion that the impugned notice under Section 148 of the Act for reopening of the assessment is not sustainable in law. - Decided in favour of assessee. Issues Involved:1. Validity of reopening assessment under Section 148 of the Income Tax Act, 1961.2. Alleged failure to disclose material facts by the assessee.3. Applicability of deemed dividend under Section 2(22)(e) of the Income Tax Act, 1961.4. Deduction claim under Section 35(1)(ii) versus Section 80GGA of the Income Tax Act, 1961.5. Concept of 'change of opinion' and its implications.Issue-wise Detailed Analysis:1. Validity of Reopening Assessment under Section 148:The writ-applicant challenged the validity of the notice issued under Section 148 for reopening the assessment for the Assessment Year 2013-14. The court noted that the original assessment was completed under Section 143(3) after detailed scrutiny, where specific queries were raised, and the writ-applicant provided satisfactory replies. The court held that the reopening was based on a mere change of opinion without any tangible new material, which is impermissible under the law. The court cited the Supreme Court's decision in Commissioner of Income Tax v. Kelvinator of India Ltd., emphasizing that reopening on a mere change of opinion is not allowed.2. Alleged Failure to Disclose Material Facts:The Revenue argued that the writ-applicant failed to disclose fully and truly all material facts necessary for assessment, particularly regarding his shareholding and accumulated profits in Hiramoti Texchem Pvt. Ltd. The court found that all relevant details were disclosed during the original assessment proceedings, and the revised return was accepted by the Assessing Officer without objections. Therefore, the court concluded that there was no failure on the part of the writ-applicant to disclose material facts.3. Applicability of Deemed Dividend under Section 2(22)(e):The Revenue contended that the transactions between the writ-applicant and Hiramoti Texchem Pvt. Ltd. should be treated as deemed dividend under Section 2(22)(e). The writ-applicant argued that the transactions were in the nature of a current account with continuous movement of funds. The court referred to the Calcutta High Court's decision in Commissioner of Income-tax, Kolkatta-1 v. Gayatri Chakraborty, which held that mutual transactions in a current account do not attract the provisions of Section 2(22)(e). The court found that the writ-applicant's case was similar and that the Assessing Officer had already considered this during the original assessment.4. Deduction Claim under Section 35(1)(ii) versus Section 80GGA:The writ-applicant claimed a deduction under Section 35(1)(ii) for donations made to the Gujarat Cancer Society, which was initially allowed at 175%. The Revenue argued that the deduction should be restricted to 100% under Section 80GGA as the writ-applicant had no business income in the original return. The court noted that the revised return was accepted, and the deduction under Section 35(1)(ii) was appropriately claimed. The court held that the Assessing Officer's change of opinion on this issue was not justified.5. Concept of 'Change of Opinion':The court reiterated the principle that reopening of assessment based on a mere change of opinion is not permissible. The court emphasized that the Assessing Officer must have tangible new material to justify reopening. The court found that the reasons recorded for reopening were based on the same set of facts already scrutinized during the original assessment, thus constituting a change of opinion.Conclusion:The court concluded that the impugned notice for reopening the assessment was not sustainable in law as it was based on a mere change of opinion without any tangible new material. The court quashed the notice under Section 148 and allowed the writ application, making the rule absolute with no order as to costs.