2023 (11) TMI 237 - HC - Income Tax

Reopening assessment under Section 147 based on change of opinion held impermissible when material facts disclosed

ICICI Bank Ltd. Versus Deputy Commissioner of Income Tax-2 (3) Mumbai, National Faceless Assessment Centre, Union of India

HC held that reopening of assessment under Section 147 based on change of opinion is impermissible. The assessing officer had previously examined the ... Reopening of assessment u/s 147 - reason to believe - notice issued after four years - Deductions u/s 36(1)(vii), 36(1)(viia) and 36(1)(viii) of bad debts was allowed in excess - onus to prove - HELD THAT:- As considered the reasons and the entire basis for forming a reason to believe that there has been escapement of income is the effect that the assessing officer gave while giving effect to CIT(A)’s order u/s 250 of the Act. These do not indicate that there was no failure on the part of Petitioner to truly and fully disclose material facts. During the assessment proceedings, AO had issued notices u/s 142(1) and also issued questionnaires from time to time with respect to Petitioner’s claim u/s 36(1)(vii), Section 36(1)(viia) and Section 36(1)(viii) and Petitioner has answered all those queries. In the assessment order, Petitioner’s claim u/s 36(1)(vii) r.w.s. 36(1) (viia) and Section 36(1)(viii) has been discussed in detail and certain amount of bad debts had been disallowed. Petitioner had carried that in appeal to CIT(A) and an order giving effect to the order passed by the CIT(A) came to be passed. Therefore, the reasons as recorded for reopening indicate only change of opinion which again is not permissible in law. Change of opinion does not constitute justification and/or reasons to believe that income chargable to tax has escaped assessment. Decided in favour of assessee. Issues Involved:The issues involved in the judgment are related to the deduction claims under Section 36(1)(vii), Section 36(1)(viia), and Section 36(1)(viii) of the Income Tax Act, 1961. The primary concern is the reassessment of the petitioner's income due to alleged discrepancies in the deductions claimed in the return of income for Assessment Year 2013-14.Deduction under Section 36(1)(vii):The petitioner initially declared a total income of Rs. 85,82,23,14,680/- for the relevant assessment year, which was later revised to Rs. 85,70,52,53,270/-. The respondent raised queries regarding deductions for bad debts claimed under Section 36(1)(vii) of the Act. The petitioner submitted detailed explanations, working of deductions, and revised statements, supported by relevant circulars of the Central Board of Direct Taxes (CBDT). The assessment order passed by Respondent No. 1 considered these submissions and made adjustments accordingly.Deduction under Section 36(1)(viia):The petitioner's claim for deduction under Section 36(1)(viia) was also scrutinized during the assessment proceedings. The Commissioner of Income Tax (Appeals) passed an order giving effect to CIT(A)'s decision, allowing a specific deduction amount under this section. However, the respondent later alleged an excess deduction under this provision, leading to the reassessment of the petitioner's income.Deduction under Section 36(1)(viii):The assessment order discussed the claim for deduction under Section 36(1)(viii) concerning the business income computed under the head 'Profits and Gains of Business and Profession.' The respondent noted a specific amount appropriated to the Special Reserve Account and allowed a deduction up to a certain limit. Subsequently, the petitioner's income was reassessed, and discrepancies were identified in the deductions allowed under this section.Reopening of Assessment:The petitioner was served with a notice under Section 148 of the Act, stating that income had escaped assessment. Reasons for reopening the assessment included alleged excess provisions for bad debts, deductions under Section 36(1)(viii), and Section 36(1)(viia). The petitioner challenged the notice, arguing that there was no failure on their part to disclose material facts necessary for assessment within the prescribed time limit.Court's Decision:The High Court considered the reasons for reopening the assessment and found that it could not be sustained. The Court emphasized that the reassessment was based on a change of opinion rather than new material facts, which is impermissible in law. The Court held that the reasons provided did not establish that there was a failure on the petitioner's part to disclose all relevant information. Consequently, the petition was allowed, and the notice and order issued by the respondent were quashed and set aside.