Ambarnuj Finance And Investment Pvt. Ltd Vs DCIT (Delhi High Court)
Delhi high court held that there was no new/ fresh material before AO to initiate reassessment proceedings, accordingly, mere change of opinion cannot form the basis for initiating reassessment proceedings
Facts- During scrutiny assessment, AO disallowed the write off the ‘bad debt’ and made an addition to income of Rs. 30,00,152/- raising demand of Rs. 5,53,839/-.
Being eligible, the assessee availed benefit of Direct Tax Vivad Se Vishwas Scheme (DTVSV). However, via e-mail it was informed to the assessee that there was a computation mistake and a special rate of tax in lieu of business income was payable on Rs. 30,00,152/-. Accordingly, there is a short fall of Rs. 4,09,386/-.
AO consequently passed the impugned rectification order in exercise of his jurisdiction u/s. 154 of the Act of 1961, modifying the original assessment demand and raising a fresh enhanced demand of Rs. 9,27,047/- along with the interest.
The Assessee aggrieved by the aforesaid order, filed an application u/s. 154 of the Act of 1961, for rectification of order, raising its objection to the modified computation and stated that there was error apparent in the AO’s treatment of disallowed bad debt by himself. The Assessee, therefore, requested AO to consider the application and rectify the mistake apparent from record since business income needs to be adjusted against business loss first and balance business loss is to be set-off against other heads of income.
Conclusion- In the facts of the present case, there was no new or fresh material before the AO except the opinion of the Audit Party. Since, it is settled law that mere change of opinion cannot form the basis for initiating reassessment proceedings as per the decision of the Supreme Court in CIT Vs. Kelvinator of India Ltd. no reassessment could also have been permissible in the facts of the present case.
FULL TEXT OF THE JUDGMENT/ORDER OF DELHI HIGH COURT
1. The present writ petition has been filed by the Petitioner, Assessee, seeking quashing of the rectification order dated 15th February, 2021, passed by the Respondent during the consideration of the Assessee’s application for settlement of disputed tax under the Direct Tax Vivad Se Vishwas Act, 2020 (‘Act of 2020’).
2. The Assessee is also seeking a direction to the Respondent No. 1 to reconsider its application for settlement of disputed tax under the Act of 2020, for the Assessment Year (‘AY’) 2017-18.
3. The Assessee filed its Return of Income (‘ROI’) on 2nd November, 2017, and thereafter, filed its revised return on 14th May, 2018, both times declaring an income of NIL, as there was business loss in the AY 2017-18.
4. The Assessing Officer (‘AO’) initiated scrutiny assessment proceedings under Section 143(3) of the Income Tax Act, 1961 (‘the Act of 1961’) for the said assessment year and passed assessment order dated 21st December, 2019. The AO disallowed the write off of the ‘bad debt’ and made an addition to income of Rs.30,00,152/-. The AO computed and raised a demand of Rs.5,53,839/-.
5. The Assessee filed an appeal against the aforesaid assessment order dated 21st December, 2019, which is pending before the Commissioner of Income Tax (Appeals).
6. In the meantime, the Act of 2020 was notified, which provided for resolution of disputed tax. The applications eligible for settlement under the Act of 2020 were the proceedings which were pending and filed upto 31st January, 2020. The benefit of the Direct Tax Vivad Se Vishwas Scheme (‘DTVSV Scheme’) could be availed by Assessee upon payment of tax amount and the Assessee would be benefitted by the waiver of interest and penalty. Further, the DTVSV Scheme offered the Assessee immunity from further proceeding qua the relevant disputed tax and was intended to put a quietus to the said disputes.
7. The Petitioner herein opted for the said scheme and on 28th December 2020 filed relevant forms and declarations stipulated under Section 4 of the Act of 2020. Thereafter, on 4th January, 2021, the Assessee received an e-mail from the Respondent No. 1 stating that upon verification of Form-1 and Form-2, filed under the DTVSV Scheme, it was noticed that there was a computation mistake and therefore, the addition of Rs.30,00,152/- on account of ‘bad debt written off’, has been inadvertently taken as income chargeable to tax at special rates in lieu of business income and due to the alleged mistake, there was a short fall of Rs. 4,09,386/- approximately. It was further stated in the e-mail that the application of the Assessee under the DTVSV Scheme could not be entertained in the absence of correct tax liability.
8. The Assessee replied to the aforesaid email on 6th January, 2021, raising its objection that the enhanced demand now sought to be raised in the e-mail is not a mistake apparent on the record, but is a debatable issue and any rectification on the basis of a debatable issue is impermissible as it would amount to a case of change of opinion by the AO.
It was also stated that it is Assessee’s right to set-off loss inter-head without any particular sequence since no guidelines have been given in the Act of 1961, for sequence of set-off of losses. It was stated that the AO’s stance of changing sequence of set-off of business loss from one head to another head is nothing but change of opinion.
9. The Respondent No. 1, sent an email to the Assessee on 9th January, 2021, rejecting the objections raised by the Assessee and reiterated the earlier position communicated vide email dated 4th January, 2021.
10. The AO consequently passed the impugned rectification order dated 15th February, 2021, purportedly in exercise of his jurisdiction under Section 154 of the Act of 1961, modifying the original assessment demand dated 21st December, 2019, and raising a fresh enhanced demand of Rs. 9,27,047/- along with the interest.
11. The Assessee aggrieved by the aforesaid order, filed an application under Section 154 of the Act of 1961 on 11th March, 2021, for rectification of order dated 15th February, 2021, raising its objection to the modified computation and stated that there was error apparent in the AO’s treatment of disallowed bad debt by himself. The Assessee, therefore, requested AO to consider the application and rectify the mistake apparent from record since business income needs to be adjusted against business loss first and balance business loss is to be set-off against other heads of income.
12. Learned counsel for the Petitioner states that the present petition has been filed against the arbitrary action of the Respondent in modifying its original assessment order dated 21st December, 2019, which was pending in appeal, while considering the Assessee’s application for resolution of the tax dispute of AY 2017-18 under the DTVSV Scheme. She states that the action of the AO is in excess of his jurisdiction under the Act of 2020, as it is contrary to the intent of the DTVSV Scheme and also violative of the rights of the Assessee to have the tax dispute settled under the Scheme. She states that the exercise of modification of tax demand undertaken by the AO, while considering the application filed by the Assessee under the DTVSV Scheme of 2020 is impermissible, in addition to being contrary of the object of the DTVSV Scheme. She submits that the Assessee has till date, not received any formal intimation rejecting its application under the DTVSV Scheme. However, on a random login on ‘My Account’ of the Assessee on the e-Filing portal, the Assessee learnt that the status of the application under the DTVSV Scheme was marked as ‘rejected’ and no separate order, in this regard, has been communicated to the Petitioner.
13. In the alternative, on merits, the learned counsel for the Petitioner states that the modification dated 15th February 2021 of the assessment order by the AO with respect to the accounting treatment of the bad debt disallowed was incorrect since the Act of 1961, does not prohibit the accounting treatment in the manner undertaken originally by the AO in the assessment order dated 21st December 2019. Notice was issued in this petition and a counter-affidavit has been filed and brought on record by the Respondent No. 1.
14. In the counter-affidavit, it is stated that the rectification on 15th February, 2021, has been carried-out in pursuance to an audit objection raised by the ITO-IAP (Central)-3, Delhi (‘the Audit Party’) wherein, it was stated that the tax liability in this case should have been Rs. 9,00,046/- + statutory interest, instead of the demand raised in the original assessment order dated 21st December, 2019. Consequently, the Audit Party made an intra-head adjustment of business loss of current year towards the income from capital gain first and income from other sources second. The Audit Party then calculated the tax at 30% of the balance income.
15. The Respondent states that the AO has only followed the audit objection raised by the Audit Party and consequently, he amended the original assessment order dated 21st December, 2019. It is further stated that the rejection of the application filed by the Assessee under the DTVSV Scheme was a consequence of the rectification order dated 15th February 2021.
16. We have considered the submissions of the parties.
17. The computation of the returned income made by the AO in the Assessment order dated 21st December, 2019, and as modified vide rectification order dated 15th February, 2021, following the Audit objection are as under1: –
Computation as per the Assessment order dated 21st December, 2019
‘TABLE A’
