PCIT Vs NTPC Ltd (Delhi High Court)
A New AO Cannot Reopen an Old File Merely Because He Prefers a New View—Reassessment u/s 147 Quashed as Change of Opinion: Delhi HC
Summary: The Delhi High Court has held that where the assessee had furnished detailed replies concerning the issues during the original scrutiny assessment & the AO, after considering them, chose not to make any addition, his successor could not reopen the assessment merely because he disagreed with the view taken by his predecessor. The absence of a discussion in the original assessment order would not mean that the AO had failed to examine the issue. Once the assessment record disclosed that specific queries were raised & answered, reopening on the same material amounted to an impermissible change of opinion.
Facts of the Case
NTPC Ltd. filed its original return for AY 2007-08 on 30.10.2007, declaring income of ₹3,794.55 crore. A revised return was filed on 31.10.2008, declaring income of ₹2,904.74 crore.
The return was selected for scrutiny & an assessment order was passed u/s 143(3) on 27.02.2009. During the scrutiny proceedings, the AO examined various claims made by the assessee.
Subsequently, on 23.03.2012, the assessment was reopened by issuing notice u/s 148. The reassessment culminated in an order dated 28.03.2013 passed u/s 143(3) r/w s.147.
The reassessment order made additions concerning oil & gas exploration expenditure of ₹7.70 crore & preliminary expenditure of ₹9.89 crore.
Reasons Recorded for Reopening
The subsequent AO recorded that scrutiny of the assessment records revealed that the assessee had claimed ₹7.70 crore towards oil & gas exploration expenditure. According to him, this expenditure conferred an enduring benefit & should therefore have been capitalised.
The AO further noticed that the assessee had debited ₹9.89 crore as survey & investigation expenditure written off in the profit & loss account. He believed that after allowing one-fifth of the expenditure, the balance ought to have been disallowed.
The recorded reasons also referred to alleged underassessment of prior-period income. The AO concluded that income aggregating to ₹24.91 crore had escaped assessment because the assessee had failed to disclose fully & truly all material facts necessary for the assessment.
CIT(A) & ITAT Quash Reassessment
The assessee challenged the reassessment before the CIT(A).
The CIT(A) examined the original scrutiny records & found that the issues forming the basis of reopening had already been considered during the original assessment proceedings. The assessee had furnished replies to query Nos. 7 & 8 through its letter dated 24.02.2009, explaining all the matters subsequently mentioned in the recorded reasons.
The CIT(A), therefore, held that the reassessment was founded entirely on a mere change of opinion & annulled the proceedings.
The Revenue carried the matter to the ITAT. By its order dated 14.02.2024, the ITAT upheld the CIT(A)’s decision. The Revenue thereafter approached the Delhi High Court.
Revenue’s Argument
The Revenue contended that the ITAT had erred in dismissing its appeal without examining the additions on merits.
It argued that the order passed by the predecessor AO suffered from a legal infirmity. The subsequent AO was therefore justified in reopening the assessment to correct the error.
The Revenue also submitted that merely because the original assessment had been completed u/s 143(3), the AO was not permanently barred from exercising the power of reassessment.
According to the Revenue, the CIT(A) had not reproduced the precise questions asked by the original AO. Therefore, it could not be presumed that the issues relating to exploration expenditure & preliminary expenditure had been specifically examined during the original scrutiny.
Assessee’s Defence
The assessee submitted that the original AO had examined each of the disputed issues. A questionnaire had been issued & the assessee had furnished detailed answers regarding oil & gas exploration expenditure, preliminary expenditure & prior-period items.
After examining the replies, the AO consciously chose not to make any addition on those issues.
The reasons recorded for reopening contained no fresh tangible material. They merely stated that scrutiny of the existing assessment record revealed that certain claims had been wrongly allowed. The reopening was therefore nothing more than a successor AO reviewing the opinion formed by his predecessor.
Delhi HC’s Findings
The High Court observed that a plain reading of the recorded reasons left no manner of doubt that reassessment had been initiated simply because the subsequent AO did not agree with the view taken by his predecessor.
The CIT(A) had recorded a clear factual finding that the assessee answered query Nos. 7 & 8 in its reply dated 24.02.2009 with respect to all three matters forming the reasons for reopening.
The Court rejected the Revenue’s argument that no query had been raised merely because the CIT(A) had not reproduced the relevant questions in its order. If the original AO had not asked any question regarding those matters, there would have been no occasion or requirement for the assessee to furnish the corresponding explanations.
The assessee’s reply demonstrated that the issues were part of the original scrutiny proceedings. The predecessor AO considered the explanations, found them satisfactory & consciously refrained from making any addition.
In such circumstances, a subsequent incumbent in the office of the AO could not initiate reassessment merely because he held a different view.
The High Court accordingly upheld the orders of the CIT(A) & ITAT, finding no legal error in the annulment of the reassessment. The Revenue’s appeal was rejected.
Author’s Comments
The judgment reiterates that reassessment is a power to tax escaped income, not a statutory mechanism enabling one AO to sit in appeal over the opinion of another AO.
An assessment order need not record every query raised, every reply received & every conclusion reached. When the assessment record establishes that a claim was specifically examined, silence in the final order does not imply absence of application of mind.
The case is even stronger because the reopening notice for AY 2007-08 was issued on 23.03.2012, beyond four years from the end of the relevant assessment year. The recorded allegation of failure to disclose fully & truly all material facts could not survive when the assessee had specifically furnished explanations on the very issues relied upon for reopening.
In short, a successor AO may occupy the same chair, but he does not acquire appellate jurisdiction over the thought process of his predecessor—reassessment cannot be triggered merely because the new occupant sees the old facts through a different pair of spectacles.
FULL TEXT OF THE JUDGMENT/ORDER OF DELHI HIGH COURT
1. The appeal in hands emanates from order dated 14.02.2024 passed by Income Tax Appellate Tribunal, Delhi Bench ‘E’, New Delhi (hereinafter referred to as „Tribunal‟), whereby the Tribunal has upheld the order dated 25.09.2014 passed by the Commissioner of Income Tax (Appeals) (hereinafter referred to as „CIT(A)‟) vide which the assessment order dated 28.03.2013, passed under Section 143(3) read with Section 147 of the Income Tax Act, 1961 (hereinafter referred to as „the Act of 1961‟) had been set aside.
2. Narrated precisely, the facts are that the appellant’s scrutiny assessment for the assessment year 2007-08 was made by the Assessing Officer on 31.10.2007, whereafter a notice under Section 148 of the Act of 1961 was issued on 23.03.2012.
3. The initiation of said proceedings under Section 148 culminated into an order of assessment dated 28.03.2013 passed under Section 143(3) read with Section 147 of the Act of 1961, whereby additions on two counts were made against the respondent-assessee (i) Oil and Gas Exploration expenses of Rs. 7,70,00,000/- and (ii) preliminary expense of Rs. 9,89,12,000/-.
4. The respondent-assessee assailed the above referred assessment order by way of an appeal before the CIT(A), who vide its order dated 25.09.2014, set aside the reassessment proceedings by holding that the same were nothing but mere change of opinion. The revenue assailed the order of the Appellate Authority before the Tribunal by way of an appeal which appeal was rejected by the Tribunal vide order under challenge.
5. Ms. Naincy Jain, learned Junior Standing Counsel for the department submitted that the Tribunal has erred in rejecting department’s appeal without considering merit of the additions. She contended that the Assessing Officer has committed no error of law in making additions on the above-mentioned 2 counts. Her argument has been that since the order of the predecessor Assessing Officer (dated 27.02.2009) suffered from legal infirmity, the subsequent Assessing Officer was justified in initiating reassessment proceedings.
6. She highlighted that there are catena of judgments of this Court that simply because the first assessment was made under Section 143(3) of the Act of 1961, the Assessing Officer is not precluded from initiating reassessment proceedings.
7. Mr. Nischay Kantoor, learned counsel for the respondent-assessee, on the other hand, submitted that the CIT(A) has recorded a clear finding that during the course of reassessment proceedings under Section 143(3) of the Act of 1961, the Assessing Officer had examined each aspect, including the issues relating to the Oil and Gas Exploration expenses and the Preliminary expenses and had issued a questionnaire in this regard and being satisfied, did not made any addition.
8. He argued that it is wrong to contend that specific question was not raised. He reiterated that the initiation of reassessment proceedings was nothing but a mere change of opinion and fell foul to catena of decisions of this Court and Hon’ble the Supreme Court.
9. Learned counsel placed for perusal of the Court, reasons for reassessment recorded by the Assessing Officer on 23.03.2012 and submitted that a simple look at the reasons shows that the same is a classic case of change of opinion.
10. Heard learned counsel for the parties.
11. A copy of the reasons so produced by Mr. Nischay Kantoor, learned Counsel for the respondent, is taken on record. The same is reproduced here in-extenso for the sake of ready reference:
“The original return declaring an income of Rs. 3794,55,74,739/- was filed on 30.10.2007. The revised return was filed on 31.10.2008 showing the total income of Rs. 2904,74,27,013/-. Assessment u/s 143(3) of the IT Act was made on 27.02.2009 at an income of Rs. 7786,34,59,000/-.
2. The scrutiny of the assessment record revealed following:-
(a) The assessee had claimed and allowed Rs. 7,70,00,000/- on account of Oil and Gas exploration expenses. As this gave an enduring benefit to the assessee, therefore, it should have been capitalized and added back to the income of the assessee. This mistake resulted in under assessment of income of Rs. 7,70,00,000/- involving short levy of tax of Rs. 3,18,79,386/-.
(b) The assessee had debited preliminary expenses of Rs. 9,89,12,000/- under the head survey and investigation expenses written off in the profit and loss account. These expenses were deferred in 5 equal installments and after allowing 1/5th expenses of Rs. 1,97,82,400/- for the year balance expense of Rs. 7,91,29,600/- should have been disallowed. The mistake resulted in under assessment of income of Rs. 7,91,29,600/- involving short levy of tax of Rs. 3,27,61,078/-.
(c) As per Schedule 25 of profit and loss account, Rs. 20,20,00,000/- was shown as prior period income of the assessee, but the AO had added back Rs. 10,90,00,000/- only (after adjusting prior period expenses) instead of Rs. 20,50,00,000/-. As the assessee was following mercantile system of accounting, any income, which is received or deemed to be received, or which accrues during the previous year was to be added back to the income of the assessee. Therefore, prior period income of Rs. 9,30,00,000/- (Rs. 20,20,00,000 Rs. 10,90,00,000) should have been added back to the income of the assessee. The mistake resulted in under assessment of income of Rs. 9,30,00,000/- involving short levy of tax of Rs. 3,85,03,674/-.
3. I therefore, have reasons to believe that on account of failure on the part of the assessee to disclose truly and fully all material facts necessary for assessment for the A. Y. 2007-08, an income of Rs. 24,91,29,600/-, has escaped assessment within the meaning of proviso to Section 147 of the Act.”
12. A simple look at the above-quoted reasons leaves no manner of doubt that the Assessing Officer had initiated proceedings simply because he did not agree with the view which his predecessor had taken.
13. On perusal of para 4.2 of the order of the CIT(A), we find that the CIT(A) has recorded that the assessee had given answer to query nos. 7 & 8 during the course of filing its reply dated 24.02.2009 qua all the three reasons for which the reassessment proceedings were initiated.
14. Simply because the CIT(A) has not reproduced or recorded the corresponding question in its order dated 25.09.2014, it does not mean that the Assessing Officer had not put any question raised any query in this regard.
15. We find ourselves unable to accept such contention of the revenue that no question relating to those issues was asked during scrutiny assessment. Had no question in this regard been put, the respondent-assessee had no occasion or requirement of giving or filing such reply before the Assessing Officer, during the assessment proceedings.
16. In view of the aforesaid and considering that the assessee had furnished satisfactory reply and the Assessing Officer being satisfied with the reply, furnished by the assessee during the course of scrutiny assessment, had chosen not to make any addition, the subsequent incumbent in the office, in our opinion, was not justified in initiating reassessment proceedings.
17. According to us, both the Appellate Authorities were fully justified in annulling the reassessment proceedings. We do not find any error in the orders passed by the CIT(A) so also by the Tribunal.
18. The appeal is, therefore, rejected.
