2023 (2) TMI 468 - HC - Income Tax

Court Invalidates 2008-09 Tax Assessment Reopening; No New Evidence Found, Change of Opinion Not Justified.

The HC allowed the Petition, setting aside the notice dated 27 March 2015 and the Order dated 16 December 2015, deeming the reopening of the assessment ... Re-opening of assessment for escaped income under the proviso to Section 147 - disclosure of material facts fully and truly as condition precedent to reopening - inadmissibility of expenses prohibited by law under the explanation to Section 37(1) - retrospective application of statutory/regulatory amendments and CBDT circular - requirement of tangible material and prohibition of change of opinion for reopening - law applicable is law in force in the relevant assessment yearRe-opening of assessment for escaped income under the proviso to Section 147 - disclosure of material facts fully and truly as condition precedent to reopening - requirement of tangible material and prohibition of change of opinion for reopening - Validity of the notice issued under Section 148 read with Section 147 to reopen the assessment for A.Y. 2008-09 - HELD THAT: - The Court held that the proviso to Section 147 permits reopening beyond four years only where income has escaped assessment by reason of the assessee's failure to disclose fully and truly all material facts. The reasons recorded for reopening (notice dated 27 March 2015 and reasons dated 9 September 2015) did not specify what material facts were withheld or how nondisclosure would have led to a different conclusion in the original scrutiny assessment. The assessing officer had during scrutiny called for and received detailed particulars (communication dated 23 November 2011) and had made an estimation disallowance of 10% in the assessment order, thereby demonstrating that the assessee had furnished primary material facts. The reasons therefore lacked clarity, did not disclose the requisite link between omitted material and escaped income, and amounted to no tangible material to justify reopening; mere reliance on a different view or subsequent circular amounted to impermissible change of opinion. For these reasons the reopening notice and the order rejecting objections were quashed. [Paras 15, 16, 17, 18, 30]Impugned notice dated 27 March 2015 and order dated 16 December 2015 quashed for failure to satisfy the proviso to Section 147; reopening invalid.Inadmissibility of expenses prohibited by law under the explanation to Section 37(1) - retrospective application of statutory/regulatory amendments and CBDT circular - law applicable is law in force in the relevant assessment year - Whether Regulation 6.8 (inserted w.e.f. 10.12.2009) and CBDT Circular No.5/2012 apply to A.Y. 2008-09 so as to render the claimed expenditures inadmissible under the explanation to Section 37(1) - HELD THAT: - The Court examined the Indian Medical Council Regulations, 2002 and the amendment by notification dated 10 December 2009 (inserting Clause 6.8), and the Board's Circular No.5/2012 dated 1 August 2012. It observed that both the regulation amendment and the CBDT circular relate to the position brought about by the 2009 amendment and operate from the date of that amendment. The settled principle that the law applicable is the law in force in the relevant assessment year was applied: neither Regulation 6.8 nor the CBDT circular could be applied retrospectively to displace the law as it stood in A.Y. 2008-09. Consequently there was no sustainable basis to contend that the expenses for A.Y. 2008-09 were inadmissible under the explanation to Section 37(1) by reference to the 2009 amendment or the 2012 circular. [Paras 24, 25, 26, 28, 29]Regulation 6.8 (w.e.f. 10.12.2009) and CBDT Circular No.5/2012 are not applicable to A.Y. 2008-09; they cannot support reopening or denial of the claimed deductions for that year.Final Conclusion: The petition is allowed: the notice dated 27 March 2015 under Section 148 and the order dated 16 December 2015 rejecting objections are quashed; reopening was unsupported by the requisite disclosure failure or tangible material and the 2009 regulation/CBDT circular do not apply to A.Y. 2008-09. Issues Involved:1. Validity of the notice issued under Section 148 of the Income Tax Act, 1961 for reopening the assessment for the assessment year 2008-09.2. Validity of the Order rejecting the objections to the re-assessment proceedings.3. Applicability of the Indian Medical Council (Professional Conduct, Etiquette and Ethics) Regulations, 2002 and CBDT Circular No.5/2012 to the assessment year 2008-09.4. Alleged failure of the assessee to disclose fully and truly all material facts necessary for assessment.5. Whether the re-assessment was based on a change of opinion.6. Tangibility of the material for reopening the assessment.Detailed Analysis:1. Validity of the notice issued under Section 148 of the Income Tax Act, 1961 for reopening the assessment for the assessment year 2008-09:The Petitioner challenged the notice dated 27 March 2015 issued under Section 148 of the Income Tax Act, 1961 for reopening the assessment for the assessment year 2008-09. The notice was issued beyond the period of four years from the end of the relevant assessment year. According to the proviso to Section 147, no action shall be taken after the expiry of four years unless there is a failure on the part of the assessee to disclose fully and truly all material facts necessary for assessment. The Court found that the reasons furnished for reopening did not reflect any material facts that were not disclosed by the Petitioner, which would have led the assessing officer to bring to tax such income in the scrutiny assessment. Therefore, the notice was deemed invalid.2. Validity of the Order rejecting the objections to the re-assessment proceedings:The Petitioner also challenged the Order dated 16 December 2015, which rejected the objections to the re-assessment proceedings. The Order stated that the expenses claimed under 'physicians Sample' and 'Gifts to Healthcare Professionals' were non-admissible as they were prohibited by law, and the assessee failed to disclose full and true material facts. However, the Court found that the Petitioner had disclosed all relevant material facts during the original assessment proceedings, and the assessing officer had already scrutinized these expenses. Therefore, the rejection of the objections was not justified.3. Applicability of the Indian Medical Council (Professional Conduct, Etiquette and Ethics) Regulations, 2002 and CBDT Circular No.5/2012 to the assessment year 2008-09:The Court noted that the Indian Medical Council (Professional Conduct, Etiquette and Ethics) Regulations, 2002 were amended on 10 December 2009 to include Clause 6.8, which prohibited medical practitioners from receiving gifts, travel facilities, hospitality, and cash or monetary grants from the pharmaceutical industry. The CBDT Circular No.5/2012 dated 1 August 2012 reiterated these regulations. However, the Court held that neither the amended regulations nor the circular were applicable to the assessment year 2008-09, as the law to be applied is the one in force during the relevant assessment year.4. Alleged failure of the assessee to disclose fully and truly all material facts necessary for assessment:The Court found that the Petitioner had disclosed all relevant material facts during the original assessment proceedings. The assessing officer had called for and received detailed information regarding the expenses on publicity and propaganda, and had made an estimated disallowance of 10% of these expenses. Therefore, there was no failure on the part of the Petitioner to disclose fully and truly all material facts necessary for assessment.5. Whether the re-assessment was based on a change of opinion:The Court held that the re-assessment was indeed based on a change of opinion. The original assessment had already scrutinized the expenses in question, and the assessing officer had made an estimated disallowance. The reasons for reopening the assessment did not provide any new tangible material that was not already considered during the original assessment. Therefore, the re-assessment was not justified.6. Tangibility of the material for reopening the assessment:The Court found that there was no tangible material or basis for the assessing officer to have 'reason to believe' that income for the assessment year 2008-09 had escaped assessment. The reasons for reopening were based on the amended regulations and the CBDT circular, which were not applicable to the relevant assessment year. Therefore, the reopening of the assessment was not justified.Conclusion:The Court allowed the Petition and set aside the impugned notice dated 27 March 2015 and the impugned Order dated 16 December 2015, with no Order as to costs. The reopening of the assessment for the assessment year 2008-09 was deemed invalid due to the lack of failure on the part of the Petitioner to disclose material facts, the inapplicability of the amended regulations and CBDT circular, and the absence of new tangible material.