TaxTMI 
TaxTMI 
TaxTMI 
2025 (7) TMI 1298
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....law, the Ld. CIT(A) is justified in quashing the impugned notice dated 30.03.2021 issued u/s. 148 of the Income Tax Act, 1961 on account of change of opinion ignoring the provisions of Explanation 1 to Section 147 of the Act. ii). Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) is justified in quashing the impugned notice dated 30.03.2021 ignoring the decision of the Hon'ble Apex Court in the case of Raymond Woollen Mills Ltd (1999)236 ITR 34 (SC) and ACIT v Rajesh Jhaveri Stock Brokers P. Ltd 291 ITR 500(SC). iii). The appellant craves leave to amend or alter any grounds or add a new ground which may be necessary." 3. The brief facts of the case are that assessee is a non-deposit taking nonbanking financial company (NBFC) registered with Reserve Bank of India, primarily engaged in financing of Tata Motors' vehicles and is a captive financing arm of Tata Motors Ltd (TML) and wholly owned subsidiary of Tata Motors Ltd. During the impugned assessment year, the assessee filed the return on 01/11/2017 and declaring loss amount to Rs. 186 crores under normal provisions of the Act and the book loss was amount to Rs. 112 crores under section 1....
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....t year by reason of the failure on the part of the assessee to make a return under section 139 or in response to a notice issued under sub-section (1) of section 142 or section 148 or to disclose fully and truly all material facts necessary for his assessment, for that assessment year. Explanation 1- Production before the Assessing Officer of account books or other evidence from which material evidence could with due diligence have been discovered by the Assessing Officer will not necessarily amount to disclosure within the meaning of the foregoing proviso." 4. It is respectfully submitted that even if the assessee has submitted books of accounts or other documents to the AO in the original assessment, it does not automatically mean that everything is disclosed fully and truly unless it is explicitly brought to the attention of the AO. Reliance is placed on the following judgment with respect to above: Phoolchand Bajrang Lal v. ITΤΟ (1993) 203 1TR 456 (SC) The Hon'ble Supreme Court held that even if information was available in the records, if the assessee did not fully and truly disclose all material facts, reassessment is valid. Relevance to Explanatio....
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.... finding that the recorded reasons constituted valid prima facie material. Similarly. in Rajesh Jhaveri, the incorrect claim of bad debts was deemed sufficient to trigger reassessment. Both judgments reinforce that the AO's belief must be honest and based on reasonable grounds. but the final determination of escapement is a matter for the reassessment proceedings, not judicial review at the notice stage. Hence Ld. CIT(A) erred in ignoring these two landmark decisions." 5. Alternatively, the Ld. AR filed a paper book containing documents pertaining to the factual aspects of the case and also submitted a written submission. The Ld. AR contended that the issue under consideration was duly examined during the scrutiny assessment conducted under section 143(3) of the Act. It was further submitted that a notice under section 142(1) along with a detailed questionnaire was issued in relation to the said issue. A copy of the said notice is available in the Assessee's Paper Book (APB) at pages 212 to 217. In compliance with the said notice, the assessee furnished a reply vide letter dated 05.12.2019, which is placed on record at APB pages 204 to 316. The relevant portion of the repl....
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....the learned CIT(A), for the proceedings to be valid, there should have been new set of material or facts having live linkage to escapement of income. On same material which was already submitted to the assessing officer in case of the assessment proceedings, the assessing officer cannot take a different view in the course of the proceedings under section 147 of the Act. Reference in this regard is placed on the following decisions: * Kelvinator of India Ltd. [320 ITR 561 (SC)] [refer page nos. 411 to 413 of legal paperbook] * Castrol India Ltd. [(2024) 299 Taxman 71 dated 05 March 2024 (Bombay HC)] [refer page nos. 447 to 453 of legal paperbook] 3 The learned Departmental Representative has relied on the proviso and explanation 1 to section 147 of the Act as well as the decision in case of Phoolchand Bajrang Lal ((1993) 203 ITR 456 (SC)] and Consolidated Photo and Finvest Ltd [(2006) 281 ITR 394 (Delhi HC)] in this regard 4 It is humbly submitted that the decision in case of Phoolchand Bajrang Lal ((1993) 203 ITR 456 (SC)] and Consolidated Photo and Finvest Ltd. ((2006) 281 ITR 394 (Delhi HC)] are in relation to Explanation 1 to section 147 of the Act and what can be referr....
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....d "full" Relying upon the said judgment the High Court held that merely because the transaction of convertible bonds was disclosed at the time of original assessment does not mean that there is true and full disclosure of facts. 28. We are unable to agree with this reasoning given by the High Court. The assessee as mentioned above made a disclosure about having agreed to stand guarantee for the transaction by NNPLC and it had also disclosed the factum of the issuance of convertible bonds and their redemption. The income, if any, arose because of the redemption at a discounted price. This was an event which took place subsequent to the assessment year in question though it may be income for the assessment year. As we have observed above, all relevant facts were duly within the knowledge of the assessing officer. The assessing officer knew who were the entities who had subiscribed to other convertible bonds and in other proceedings relating to the subsidiaries the same assessing officer had knowledge of addresses and the consideration paid by each of the bondholders as is apparent from assessment orders dated 3-8-2012 passed in the cases of M/s NDTV Labs Ltd. and Mis NDTV Lifestyle....
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.... to believe would be prima facie and not a requirement that additions would invariably made in the assessment 14. In case of Rajesh Jhaveri Stock Brokers P. Ltd. [291 ITR 500 (SC)], the return was processed under section 143(1) of the Act by accepting the returned loss. Audit objections were raised regarding non-fulfilment of conditions of section 36(1)(vii) read with section 36(2) of the Act basis which the proceedings under section 147 of the Act were initiated [on the other hand, in the present case, proceedings under section 143(3) of the Act were conducted during the course of which queries on the impugned transaction were raised and reply to satisfaction of the learned assessing officer were submitted] 15. In case of Raymond Wollen Mills Ltd. [236 ITR 34 (SC)), proceedings under section 147 of the Act were initiated on the allegation that while valuing its closing stock, the elements of fiscal duty and the other direct manufacturing costs were not included by the assessee. This information was obtained by the Department in a subsequent year's assessment proceeding 16 However, in the present case, it can be appreciated that the learned assessing officer has not broug....
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.... misplaced since no new material has come to light after the completion of the original assessment proceedings and there is change of opinion of the officer. 20. Reliance in this regard is placed on the following decisions wherein the Department's reliance on the decision in case of Raymond Wollen Mills Ltd. (236 ITR 34 (SC)] and Rajesh Jhaveri Stock Brokers P. Ltd. [291 ITR 500 (SC)) has been distinguished and the proceedings being quashed on account of change of opinion * State Bank of India [418 ITR 485 ( Bombay HC)]: [refer page nos. 593 to 600 of legal paperbook] - Department's SLP dismissed in 447 ITR 368 [refer page nos. 601 to 602 of legal paperbook]. * Asianet Star Communications (P.) Ltd. [422 ITR 47 (Madras HC)] [refer page nos. 603 to 620 of legal paperbook] * Castrol India Ltd. [(2024) 299 Taxman 71 dated 05 March 2024 (Bombay HC)] [refer page nos. 447 to 453 of legal paperbook] 21. In view of the above, it can be appreciated that the learned departmental representative's reliance on the decision in case of Raymond Wollen Mills Ltd. [236 ITR 34 (SC)) and Rajesh Jhaveri Stock Brokers P. Ltd. (291 ITR 500 (SC)] is misplaced. Prayer: 22 In view o....
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....e Respondent that it has made the claim of Rs. 400 crores basis a provision in the books of accounts. In fact, the provision has been made in AY 2015-16 and was suo-moto disallowed by the Respondent while computing it total income. The same has only been claimed in the year when the expense was actually paid to Tata Motors Limited. 30. It is humbly reiterated that all relevant documents and explanations were submitted during the course of proceedings under section 143(3) and 147 of the Act and therefore, there is no basis for the learned departmental representative to argue that this is an application of income Prayer 31. In view of the above, it is humbly prayed that even on merits, the Respondent has rightly claimed deduction of Rs. 400 crores paid to Tata Motors Limited. In view of the above, we humbly request your goodself to consider the submission of the Respondent and accordingly adjudicated the issue in appeal." 6. Considering the legal issue, the Ld.CIT(A) made a detailed discussion in the impugned appellate order and the relevant part of the order of Ld.CIT(A) is extracted below:- "8.4. The Grounds 2 to 5 related to challenge to the validity of Reopening procee....
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....f the act. Thereafter the assessee filed Revised Return of income on 29.03.2019 declaring loss of Rs. (-) 1,85,40,01,426/- under regular provision of Act and Book Loss of Rs. (-) 112,34,96,476/- under section 115JB of the act. The case was selected for scrutiny. Subsequently, the assessing officer passed an assessment order u/s 143(3) of the Act on 18.12.2019 declaring total loss (-) 77,97,14,560/- under regular provision of Act and Book Loss of Rs. (-) 61,98,38,376/- under section 115JB of the act. 2 On perusal of records, it is seen that The assessee company is a Non-deposit taking Non-banking Financial Company registered with RBI. The assessee during the relevant previous year was primarily engaged in financing of Tata Motors Vehicles and as captive financing arm of TML (Tata Motors Limited). The entire shareholding of the company is held by TML. Thus assessee is a wholly owned subsidiary of Tata Motors Ltd. 2.1. a) It is seen from the Revised Statement of Computation of Income that the assessee inter-alia claimed Crystalised Claim Right liability payment of Rs. 400,00,00,000 which was allowed in the scrutiny assessment. Vide Note 24 and Annexure J, the assessee justified th....
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.... 481,45,80,526. Therefore, it compensated the holding company with Rs. 400,00,00,000 and this should be allowed as business expenses it further stated that it had already made a provision for this sum in AY 2015-16 iv) By just making provision for an expense, does not, per se, makes an expense allowable under the provisions of the Act. Further, the assessee being an NBFC, is covered under the provisions of section 36(1)(vii) and 36(1) (viia). It could have provided for the bad and doubtful debts and even could have written it off. However, instead of doing so, it had paid a compensation of Rs. 400 crores to holding company which cannot be equated with writing off bad-debt and allowed as deduction. Therefore, in essence, the payment made by the assessee to its holding company (100% shareholder) may be treated Application of Income rather than the legitimate business expense. v) It is further observed that in order to convert itself into Core Investment Company (CIC), the assessee has realigned its businesses by transferring the whole business (On Slump sale Basis) to two of its subsidiaries- M/s Sheba Properties Ltd. and Tata Motors Finance Solutions Limited. The assets and li....
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....th computation of income which was already available before the Ld AO during the course of assessment proceedings as well. There is no mention of any new tangible material or fact which formed the basis for reopening the assessment. To support the above claim, the appellant has also quoted from para 2.1. of the reason recorded as under "2.1. It is seen from the revised statement of computation of income that the assessee has inter-alia claimed crystalised claim right liability payment of Rs 400 crore which was allowed in the scrutiny assessment. Vide Note 24 and Annexure-J. the assessee justified the claim of this payment by stating the following facts....................." The appellant has also relied upon the several judicial pronouncements to support its submissions that it is a well settled judicial principal that the true test of income chargeable to tax escaping assessment is whether there exists fresh tangible material on whose basis an appropriate conclusion can be reached and in the absence of such fresh material, the reassessment proceedings would be invalid. 8.4.3. The appellant had further contended that the reopening is based on the mere change in opinion, which....
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....ssessment proceedings, as apparent from the query raised in the notice u/s. 142(1) and the detailed written submissions filed by the appellant in response to same. Even the reasons recorded show that AO has referred to the records and the revised computation of income filed by the appellant and the Note 24 and Annexure-J filed by the appellant for the claimed crystallized claim right liability payment of Rs. 400 crores which was accordingly allowed in the scrutiny assessment u/s. 143(3) The reasons recorded also do not refer to any fresh tangible material on basis of which the reassessment proceedings was initiated. The AO while disposing the objections vide letter dated 18-02-2022, has stated in para 3.2. that 3.2. In the instant case, the reassessment is being made for the A. Yr.2017-18 and the proceedings u/s. 147 have been initiated during the F. Yr. 2020-21 ie.. notice u/s 148 of the Act was issued on 30-03-2021. As such the proceedings u/s. 147 are within the 4 years from the end of A.Yr.2017-18. Hence the requirement of new tangible material is not required. Here, in regard to basic necessity of section 147 i.e., reason to believe, the reasons recorded by the AO amply demo....
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....where the assessee had not withheld any information and/or the Assessing Officer did not have any fresh tangible material. A second bite at the cherry is not what is contemplated under Section 147, on the basis of materials already available with the Assessing Officer, as the provision would become applicable in the present facts. Also, Section 147 certainly does not postulate a review jurisdiction so that the assessment can be reviewed, on the Assessing Officer intending to form a different and/or a new opinion" 8.4.7. In view of the above and considering the reasons recorded, the assessment order, the written submissions filed by the appellant alongwith the documentary evidences filed in support of the above grounds and various judicial pronouncements relied upon by the appellant and respectfully following the decision of Jurisdictional High Court of Bombay, as discussed above, I hold the reopening under section 148 being done without any fresh tangible material and merely based on the change of opinion, as elaborately discussed above, as bad in law and invalid. As a result, the above Grounds of appeal challenging the reopening u/s. 148 are allowed." 7. We have heard the rival....
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.... Statement of Computation of Income that the assessee has, inter alia, claimed Crystallised Claim Right Liability payment of Rs. 400,00,00,000, which was allowed in the scrutiny assessment. Vide Note 24 and Annexure J, the assessee justified the claim of this payment by stating the following facts:" It is evident from the above that the Ld. AO had already examined the issue in question. The assessee had submitted detailed explanations and supporting documentation during the original assessment, which were duly considered and accepted. Thus, the formation of a different view on the same material amounts to a mere change of opinion, which cannot be a valid ground for reopening under section 147. 7.2. Reliance is rightly placed by the assessee on the following judicial precedents: i. CIT vs. Kelvinator of India Ltd. [320 ITR 561 (SC)] 4. On going through the changes, quoted above, made to section 147 of the Act, we find that, prior to Direct Tax Laws (Amendment) Act, 1987, re-opening could be done under above two conditions and fulfilment of the said conditions alone conferred jurisdiction on the Assessing Officer to make a back assessment, but in section 147 of the Act (with ef....
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....sing Officer has raised the query dated 25 September 2017, during the assessment proceedings and the Petitioner had responded to the same by its letters dated 10 December 2017 and 21 December 2017. justifying its stand. The nonrejection of the explanation in the Assessment Order would amount to the Assessing Officer accepting the view of the assessee, thus taking a view/forming an opinion Therefore, in these circumstances, the reasons in support of the impugned notice proceed on a mere change of opinion and therefore would be completely without jurisdiction in the present facts Accordingly, the impugned notice dated 27 March 2019 is quashed and set aside" Departments SLP has been dismissed by the Hon'ble Supreme Court in 272 Taxman 179 (SC) iii. Shri Sai Baba Sansthan Trust (Shirdi) [(2024) 169 taxman.com 671 dated 20 December 2024 (Bombay HC)] "48. From the afore said discussion, it is quite clear to us that once tangible material during the course of assessment proceedings was available with the Assessing Officer and the same was considered in passing the assessment order under Section 143(3) of the IT Act, the Assessing Officer, in the absence of any fresh material, cou....
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....ch constitutes a clear case of "change of opinion." 11. Upon review of the records, it is evident that in response to the notice under Section 142(1) of the Act, the issue concerning the exclusion of foreign income earned in Dubai and Antwerp was specifically raised in Point No. 19 of the said notice. The assessee furnished complete details and explanations in support of its claim The Ld. AO had duly considered and applied his mind while determining whether the foreign branch income was to be excluded Only after such due application of mind, the Ld. AO allowed the said claim in the original assessment. 12. The reopening of the assessment proceedings under Section 147 of the Act on the pretext that the assessee failed to disclose fully and true material facts regarding the exclusion of foreign income despite detailed explanations and submissions made during the original scrutiny assessment - amounts to an impermissible "change of opinon". It is a well-settled position in law that reassessment proceedings cannot be initiated merely because the Assessing Officer intends to take a different view on the same set of facts that were already examined during the original assessment." 8....