Claim already accepted during regular assessment cannot be reassessed u/s 148 without new tangible material

DCIT Vs IOT Anwesha Engineering and Projects Ltd. (ITAT Ahmedabad)

ITAT Ahmedabad held that initiation of reassessment proceedings under Section 148 of the Income Tax Act on the same issue/ claim which was already decided and accepted during the course of regular assessment, without bringing any new material facts on records, is not valid as per law.

Facts- The assessee company is engaged in the business of fabrication and erection, e-filed its return of income through electronic media declaring total income Rs. 2,67,91,420/-, which was initially processed u/s. 143(3) of the Act dated 29.11.2011. The assessment was finalized upon determining the total income at Rs. 2,69,50,080/- and subsequently revised at Rs. 2,67,91,420/- on 03.10.2013 in terms of the appeal order passed by the CIT(A) on 02.08.2013.

Subsequently, the assessment proceeding u/s. 147 of the Act was initiated upon taking approval from the CIT and notice dated 27.02.2015 u/s. 148 of the Income Tax Act was served upon the assessee on 03.03.2015.

Notably, the assessee claimed expenses to the extent of Rs.1,27,92,992/- on account of duties and taxes out of which a sum of Rs.62,92,692/- pertained to claim of expenses on account of VAT payment. In fact, the assessee paid VAT of Rs.5,31,615/- by 31.03.2008. The balance amount remained unpaid and shown as outstanding liability as on 31.03.2008 and neither the said amount of Rs.57,61,077 was paid before the due date of filing of return. Show cause notice u/s. 142(1) of the Act, therefore, was issued to the assessee to show as to why disallowance of Rs. 57,61,077/- may not be made in view of provisions of Section 43B of the Income Tax Act. Not being satisfied, AO added the impugned amount u/s. 143(3) r.w.s. 144C(3).

Notably, the assessment was completed u/s. 143(3) of the Act on 29.11.2011. The prescribed period for reopening u/s. 148 of the Act within the period of 4 years from the end of assessment year expires on 31.03.2013. However, a notice u/s. 148 of the Act was issued on 27.02.2015 culminating into the order of addition.

Conclusion- Held that as the precondition for initiation of proceeding under Section 147 of the Income Tax Act by recording reasons of income, escaping assessment was not reflecting from the said order of reopening due to the failure on the part of the assessee, the same was not found to be sustainable and hence liable to set aside. Neither any allegation has been labelled against the assessee by the AO while reopening assessment under Section 148 of the Act in failing to disclose fully or truly all material facts necessary for assessment which admittedly goes against such reopening of assessment by the department.

Held that when the material facts were truly and fully discussed at the time of original assessment, initiation of proceedings to reopen on the same set of facts held to be invalid. We further find from the records that during original assessment the Ld. AO asked for the details of duties and taxes and again initiated re-assessment proceeding on the very same issue without bringing any new material facts on records.

Once, upon considering the documents, the claim of the assessee decided and accepted by not making any addition during the course of regular assessment issuing notice under Section 148 of the Act on the same issue by successor AO amongst to assumption of revisionary power which is not valid as per law.

FULL TEXT OF THE ORDER OF ITAT AHMEDABAD

The instant two appeals filed by the Revenue are directed against the order dated 13.02.2020 passed by the Ld. Commissioner of Income Tax (Appeals)-1, Vadodara (in short ‘CIT(A)’) & order dated 14.06.2022 passed by the National Faceless Appeal Centre (NFAC), Delhi, arising out of the orders dated 27.10.2015 passed by the ACIT, Circle-1(1)(2), Baroda & 06.12.2019 passed by the DCIT, Circle-1(1)(1), Vadodara under Section 143(3) r.w.s. 147 & 144 r.w.s. 147 of the Act for Assessment Years 2008-09 & 2012-13, respectively.

2. Since both the appeals filed by the same assessee these are heard analogously and are being disposed of by a common order for the sake of convenience.

3. Amongst other grounds, the Revenue has taken ground of quashing the order passed by the Ld. AO on the ground of maintainability of re-assessment proceeding initiated under Section 148 of the Act by the Ld. CIT(A) on the count of change of opinion. Since this relates to the very maintainability of the entire proceeding initiated under Section 148 of the Act, we have decided to proceed with the matter to deal with this ground at the very threshold.

ITA No.386/Ahd/2020 – A.Y. 2008-09

4. The appeal preferred by the Revenue for A.Y. 2008-09 is barred by limitation for 60 days due to administrative reason, particularly, movement of the file in the department, as was the argument advanced by the Ld. DR, which has not been controverted by the Ld. AR with all his fairness. Hence, the delay is condoned.

5. We have heard the rival submissions made by the respective parties and we have also perused the relevant materials available on record.

6. The brief facts leading to the case is this that the assessee company, engaged in the business of fabrication and erection, e-filed its return of income through electronic media declaring total income Rs.2,67,91,420/-, which was initially processed under Section 143(3) of the Act dated 29.11.2011. The assessment was finalized upon determining the total income at Rs.2,69,50,080/- and subsequently revised at Rs.2,67,91,420/- on 03.10.2013 in terms of the appeal order passed by the Ld. CIT(A)-1, Baroda on 02.08.2013. Subsequently, the assessment proceeding under Section 147 of the Act was initiated upon taking approval from the Ld. CIT-1, Baroda and notice dated 27.02.2015 under Section 148 of the Act was served upon the assessee on 03.03.2015. By and under the reply dated 04.06.2015, the assessee requested to treat the return filed under Section 139(1) of the Act as return filed against the notice issued under Section 148 of the Act. The assessee claimed expenses to the extent of Rs.1,27,92,992/- on account of duties and taxes out of which a sum of Rs.62,92,692/- pertained to claim of expenses on account of VAT payment. In fact, the assessee paid VAT of Rs.5,31,615/- by 31.03.2008. The balance amount remained unpaid and shown as outstanding liability as on 31.03.2008 and neither the said amount of Rs.57,61,077 was paid before the due date of filing of return. Show cause notice under Section 142(1) of the Act, therefore, was issued to the assessee to show as to why disallowance of Rs.57,61,077/- may not be made in view of provisions of Section 43B of the Act. The assessee submitted the following reply as under:

“In the above referred notice, your honour has asked to show cause as to why amount of Rs.57,61,077/ claimed as VAT expenditure should not be disallowed. In this regard, we would firstly like to bring to your kind attention that during the year under consideration we had debited VAT Tax expenses account by Rs.62,92,692/- out of which Rs.5,31,615/- was paid during the year. The remaining amount has been debited in VAT expense account as this was on account of VAT tax paid on various inputs purchases shown as current asset instead of debiting expense at that time. The amount was shown as input credit receivable on the bonafide belief that the said input on VAT on purchases would be available for set-off against future liability. Since, the said amount was shown as current asset, subsequently on discussion with the Sales-tax consultant, we came to know that the said input VAT credit would not be admissible to us and therefore we transferred the said amount to expenses. There is no question of non-payment of this VAT amount as the said amounts have already paid at the time of booking purchases.

Furthermore, as a routine accounting policy the Sales-tax expense for the year is transferred to Sales-tax payable account and is set-off against input credit available. We are herewith enclosing ledger copy of VAT/Sales-tax expense and VAT/Sales-tax payable for your kind reference

As it is well settled accounting rule, any VAT/Sales-tax paid on purchases (input credit) is usually shown as current asset if the same is eligible for set-off against future VAT/Sales-tax liability. The said input credit is availed against VAT/Sales-tax payable on sales. Furthermore where a set-off is not available or the VAT paid on purchases is not eligible as input credit, the same is definitely an expense of the assessee In the present case, the amount debited to Sales-tax expenses have been arrived after the above explained treatment of Sales-tax expense, Sales-tax payable and input credit receivable.

There is no anomaly in the present case, of the assessee company and the treatment of VAT/Sales tax and expenses claimed are in consonance with the prescribed accounting treatment and the ICAI Guidance notes and Income-tax provisions in this regard. The company has not deviated from the acceptable accounting methods. Therefore, the said claim must not be disallowed.”

7. Finally, the Ld. AO added the impugned amount of Rs.57,61,077/-under Section 143(3) r.w.s. 144C(3) of the Act. As per provision of Section 43B of the Act, the claim of unpaid expenses of VAT/Sales Tax of the impugned amount was found to be not allowable and addition was made. Such plea was also taken by the Ld. DR while making argument in favour of the Revenue and against the deletion of addition made by the Ld. CIT(A).

8. On the contrary, during the course of assessment proceedings, the additional ground was taken by the Ld. AR questioning very validity of reopening of assessment under Section 147 of the Act initiated beyond the period of 4 years from the end of relevant assessment year.

9. It is relevant to mention that for the year under consideration, the return was filed under Section on 30.09.2008. The assessment was completed under Section 143(3) of the Act on 29.11.2011. The prescribed period for reopening under Section 148 of the Act within the period of 4 years from the end of assessment year expires on 31.03.2013. However, a notice under Section 148 of the Act was issued on 27.02.2015 culminating into the order of addition. On the other hand, the law prescribes that in the event reopening under Section 147 of the Act is initiated one of the conditions that escapement of income has arisen due to the failure on the part of the appellant either to make a return or to disclose fully or truly all material facts necessary for the purpose of making assessment to be fulfilled. As the assessee already furnished return under Section 139 of the Act, the second condition of escapement of income due to failure on the part of the assessee is required to be established by the Revenue while reopening under Section 147 of the Act after 4 years from the end of the assessment year as contended by the assessee and also before us by the Ld. AR. On this aspect, before the First Appellate Authority, the assessee submitted as follows:

“Additional Ground 3 to 5: Reopening of proceedings under invalid exercise of powers u/s. 147.

1. The Appellant under Additional Grounds 3 to 5 vide letter dated 15-11-2016 most respectfully has challenged the action of learned AO in reopening the assessment u/s. 147 of the Act.

2. For appreciating the facts in a proper perspective the chronology of events is given hereunder:

Reopening beyond the period of 4 years:

The appellant filed return of Income on 30-9-2008 declaring therein total income of Rs.2,67,91,420. The return of income was accompanied by Audit Report with all enclosures and schedules thereto. The case was selected for scrutiny and all the details called for by Assessing Officer were filed before him. Regular books of accounts were also produced. The assessment was completed u/s 143(3) at a total income of Rs.2,69,50,080 on 29-11-2011 (page 69 to 72).

4. On 27-2-2015 notice u/s 148 was served on the appellant. Your appellant filed return on 04.06.2015 in the office of Assessing Officer in pursuance of notice u/s. 148 of the Act.

5. Notice u/s. 148 is challenged mainly on ground of non-fulfillment of conditions prescribed in proviso to section 147 of the I.T. Act.

6. Your particular attention is invited to the date of issuance of notice U/s. 148 (27-2-2015) vis-a-vis expiry of the period of 4 years from the end of the Assessment Year (being 31^st March, 2013 as the notice pertains to the A.Y. 2008-09). It may also be mentioned that the assessment was already completed in the appellant’s case by an order u/s. 143(3) passed on 29-11-2011. This therefore is a case where action U/s. 147 is sought to be taken beyond the period of 4 years from the end of the assessment year and for which the assessment has already been completed in pursuance of section 143(3) of the Act. It is therefore submitted that in the appellant’s case there is necessity for complying with the conditions prescribed under the first proviso to section 147 of the Act. Proviso to section 147 prescribe that no action U/s. 147 can be taken in such a case unless the escapement of income has happened due to failure on the part of the appellant to either make a return or to disclose fully and truly all material facts necessary for the purpose of making assessment. Since the appellant had already furnished the return U/s. 139 (1), it may be required to be seen whether the escapement of income has arisen due to failure on the part of the appellant.

7. Before embarking upon the addition for the purpose of showing that the assessing officer has merely relied upon the documents and papers which were filed during the course of original assessment itself for coming to the conclusion about the additions, it may be necessary for us to mention the following important and material facts and legal pronouncements on the subject:

(i) That the AO has not mentioned in the notice U/s. 147 that the income has escaped assessment due to the failure on the part of the appellant. Nowhere in the notice U/s. 147 it has been mentioned that the conditions prescribed Under Proviso to section 147 has been satisfied in the appellant’s case so as to empower the AO to issue notice U/s. 148 of the Income Tax Act, 1961. It is most respectfully mentioned that the failure to mention on the face of the notice U/s. 148 that the conditions prescribed under proviso to section 147 makes the entire notice U/s. 148 invalid. We invite your kind attention to the notice issued u/s. 148 attached to paper book at page no. 73. Your kind office would notice that there is no mention about the satisfaction of the conditions of Proviso to Section 147. We seek to rely on the decision of Bombay High Court in the case of IPCA Laboratories Ltd. vs. Gajanand Meena, Dy. CIT 251 ITR 416 (Bom). We also rely on the following decisions in this regard:

– Garden Silk Mills Ltd. 222 ITR 27, 29, 30 (Guj)

– Kaira District Co-op. Milk Producers Union Ltd. 216 ITR 371 (Guj)

– Orient Beverages Ltd. 208 ITR 509 (Cal)

(ii) On the perusal of the reasons recorded (page 74) your kind office would notice that there is no allegation that the Appellant had failed to disclose fully and truly all material facts necessary for assessment. In the following decisions it has been held that failure to mention that reopening is done on account of failure on the part of the Assessee to disclose fully and truly all material facts necessary for assessment makes the proceedings invalid.

a. Haryana Acrylic Manufacturing Co. vs. Commissioner of Income- Tax and Another [2009] 308 ITR 38 (Delhi)

“29. In the reasons supplied to the petitioner, there is no whisper, what to speak of any allegation, that the petitioner had failed to disclose fully and truly all material facts necessary for assessment and that because of this failure there has been an escapement of income chargeable to tax. Merely having a reason to believe that income had escaped assessment, is not sufficient to reopen assessments beyond the four year period indicated above. The escapement of income from assessment must also be occasioned by the failure on the part of the assessee to disclose material facts, fully and truly. This is a necessary condition for overcoming the bar set up by the proviso to section 147. If this condition is not satisfied, the bar would operate and no action under section 147 could be taken. We have already mentioned above that the reasons supplied to the petitioner does not contain any such allegation. Consequently, one of the conditions precedent for removing the bar against taking action after the said four year period remains unfulfilled. In our recent decision in Wei Intertrade Private Ltd. [2009] 308 ITR 22 (Delhi) we had agreed with the view taken by the Punjab and Haryana High Court in the case of Dull Chand Singhania [2004] 269 ITR 192 that, in the absence of an allegation in the reasons recorded that the escapement of income had occurred by reason of failure on the part of the assessee to disclose fully and truly all material facts necessary for his assessment, any action taken by the Assessing Officer under section 147 beyond the four year period would be wholly without jurisdiction. Reiterating our view-point, we hold that the notice dated March 29, 2004, under section 148 based on the recorded reasons as supplied to the petitioner as well as the consequent order dated March 2, 2005, are without jurisdiction as no action under section 147 could be taken beyond the four year period in the circumstances narrated above, “(underlining added)

b. The same principle is reiterated in Rural Electrification Corporation Ltd. vs. Commissioner of Income Tax: [2013] 355 ITR 356 (Delhi).

(iii) In view of the above we request your kind office to quash the proceedings u/s. 147 and hold that the order passed by the AO is not as per law.

Nowhere in the notice, u/s. 147 of the Income Tax Act, 1961, the AO has recorded that the re-opening has been done on the reason of the failure on the part of the appellant to fully and truly disclose all material facts necessary for the purpose of making assessment. It may be mentioned that the Assessing Officer has made the following reference to the exercise of jurisdiction U/s. 147.

“In this case, the assessee has filed return of income for A. Y. 2008-09 on 30.09.2008, declaring of Rs. 2,67,91,420/-. The case was selected for scrutiny assessment u/s 143(3) was finalized on 29-11-2011, income was assessed of Rs.2,69,52,580/- u/s 143(3) of the IT. Act.

It was seen from P/L and annexure attach with it that assessee had debited a sum of Rs. 1,27,92,992/- as duties and taxes, out of this amount, Rs.62,92,692 was debited on account of VAT payment. It is observed from the ledger of VAT submitted by the assessee that only Rs.5,31,615/- was actual payment and remaining Rs.57,61,077 was either VAT payable or credit on purchase as evident from Journal entry passed for these claimed expenditures. It is seen from noticed from 3 CD that there was no outstanding VAT liability was shown either outstanding as on 31.03.2008 nor there was any mention of subsequent payment before filing of return. Further, as assessee is showing sales exclusive of VAT, separate VAT account is maintained and credit on account of payment of VAT on inputs and actual payment of VAT on output are adjusted against the VAT liability on output. Any credit balance is shown as assets side of the Balance sheet. As such, only actual payment of VAT on output is debited to P & L. As assessee had made payment of VAT only to the extent of Rs. 5,31,615, only this amount was required to be allowed as expenditure. Further, as there is no mention of payment of remaining liability of Rs.57,61,077/- before filing of return, it was required to be disallowed.

In view of the above facts, I have reason to believe that in this case the income chargeable to tax of Rs.57,61,077/- has escaped assessment for the AY 2008-09 within the meaning of clause (c) of Explanation 2 of section 147 of the Act and therefore this case is a fit case for reassessment.”.

(iii) On the basis of the above observations it can be clearly seen that the AO has not even examined the applicability of Proviso to section 147 of the Act and has not recorded his satisfaction that the income has escaped assessment due to the failure on the part of the appellant. Further on the perusal of the above observation of the AO, it is crystal clear that the AO has acted on the same material available at the time of original assessment and filed along with the return of income. We invite your kind attention to page no. 65 of the paper book. At the time of regular assessment proceedings the AO had required the appellant to submit the details of duties and taxes. The appellant duly furnished its reply and also the documents (refer page 68). In view of the same it is crystal clear that the AO has relied on the same material as was available at the time of original assessment.

We would also like to mention that the words “It was seen from P/L and annexure ….It is observed from the ledger of VAT submitted by the assesse….It is seen from noticed from 3CD… “

in the reasons recorded for reopening itself shows that the AO has relied on the same material as available at the time of regular assessment. We therefore submit that there is no escapement of income because of the failure of the appellant to fully and truly disclose all material facts. We submit that the assessment should be quashed on this ground alone.

8. We seek to further submit that even for the sake of argument it is accepted that non- mention of the satisfaction is not fatal to the re- assessment proceedings, it may be relevant to examine the proposed addition to be made by the AO. It may be necessary to examine as to whether the AO has relied on any material which was not present at the time of the assessment for coming to the conclusion that in the original assessment the income has escaped assessment due to the failure on the part of the appellant. We therefore now deal with the observations made by AO:

• On the perusal of reasons recorded for reopening of assessment (refer page nos. 73 and 74) your kind office would notice that reopening is done mainly for the purpose of verification of the claim of expenditure of Rs. 57,61,077/- being VAT expense claimed for the year under consideration. The AO has stated that the Appellant has actually paid an amount of Rs. 5,31,615/- of the total expense of Rs. 62,92,692/- and the balance amount of Rs. 57,61,077/- was neither shown as outstanding VAT liability nor there was any mentioning of any subsequent payment before filing of return of income.
• We most respectfully submit that the issue of VAT expense claimed by the Appellant was examined at the time of assessment u/s. 143(3) rws 144C(3) of the Act. We invite your kind attention to the to the notice issued by the office of Dy. Commissioner of Income Tax, Circle 1(2) u/s. 142(1) of the Act dated 03.10.2011 wherein the AO vide point no. 2.09(8) (refer page 65) directed the Appellant to furnish ledger copy of the Duties and Taxes A/c. In response to same, the Appellant vide submission dated 25-10-2011 (refer page no. 68) vide point no 9 submitted the ledger copy of the Duties and Taxes A/c. It is only after examining the ledger copies during the course of Assessment the learned AO allowed the same as an expense to the Appellant. We herewith submit a copy of the Assessment Order framed u/s. 143(3) rws 144C(3) of the Act for your kind perusal (Page No. 69 to 72)
• On the basis of the above observations your kind office would appreciate that the only thing that the AO relies upon is the assessment record and the return of income furnished by the appellant in the regular assessment proceedings. There is not even a hint that there is any failure on the part of the appellant. It may be mentioned that the AO relies upon the same set of documents which were filed in the original proceedings and no new facts have been either brought on record or sought to be relied upon.
• It can be seen from the above submission that merely relying upon the appellant’s case records and the documents filed by the appellant for coming to the prima facie belief (at the time of issuance of notice) that the income has been under assessed. There is no reliance on any paper other than the papers and documents available at the time of making assessment U/s. 143 (3) of the Act. In view thereof it can be stated without any hesitation that the income has not been under assessed on the ground of failure on the part of the appellant to fully and truly disclose all material facts necessary for the purpose of making the assessment. In fact, the AO has actually relied only on the facts disclosed by the appellant and therefore the question of failure of the appellant does not arise at all.
• In view of the above submissions, it is most respectfully submitted that the entire proceedings are void ab initio on the ground that the re-opening is invalid.

10. No proper satisfaction has been recorded by the Ld. AO while recording reasons. It was necessary to examine as to whether the Ld. AO has relied on any material which was not present before the Ld. AO during original assessment in order to come to the conclusion that income escaped assessment due to the failure on the part of the assessee, as of the basic contention made by the assessee before the First Appellate Authority as narrated in the written submission mentioned hereinabove.

11. Apart from that, the assessee submitted following on the ground of mere change of opinion in reopening assessment:

“9. The appellant filed the return of income on 30-9-2008. Regular assessment u/s. 143(3) was completed on 29-11-2011. Subsequent to the completion of regular assessment u/s. 143(3) the AO reopened the case invoking provisions of section 148 of the Act. Vide notice dated 27-2- 2015 the AO reopened the case of the appellant. Copy of reasons recorded for reopening of assessment are attached on page no. 74. The AO had reopened the case for the purpose of making addition of Rs. 57,61,077.

10. We invite your kind attention to the reasons recorded for reopening of assessment vis- a-vis the reply filed by the appellant at the time of regular assessment proceedings u/s. 143(3) of the Act (refer page 65 and 68 of the paper book).

11. At the time of scrutiny u/s. 143(3) of the Act, the appellant was directed to file the details of duties and taxes. The Appellant duly filed the same.

12. The AO duly applying his mind had taken a decision not to make any addition. It is not a case where the facts and explanation was not available on record. It is also not a case where the details were not filed or the AO had lost sight of the issue. In view of the above we submit that the reopening is done based on change of opinion which is not valid as per law. The same also amounts to assuming of revisionary powers which is not as per law. The AO by reopening the case has attempted to review the earlier order passed his predecessor which is not valid as per law.

13. The AO has relied on the same material which were available at the time of original assessment. The assessment is based on re-appreciation of same material as was available at the time of original assessment. Further, the AO has applied fresh mind on the material already available on record and considered by the AO at the time of regular assessment proceedings. We therefore submit that this amounts of change of opinion and therefore not valid as per law.

14. Further, once having considered the claim of the appellant and the AO deciding not to make any addition while framing regular assessment, issuing notice u/s. 148 on the same issue by successor assessing officer amounts to assumption of revisionary powers which is not valid as per law.

15. Where the Income Tax Officer attempts to reopen an assessment because the opinion formed earlier by him was in his opinion incorrect, the reopening could not be done.

16. The power to reopen an assessment was conferred by the Legislature not with the intention to enable the ITO to reopen the final decision made against the revenue in respect of the question that directly arose for decisions in earlier proceedings. If that were not the legal position, it would result in placing an unrestricted power of review in the hands of the assessing authorities depending on their changing moods.

17. If an expenditure of deduction was wrongly allowed white computing the taxable income of the assessee, the same could not be brought to tax by reopening the assessment merely on account of the Assessing Officer subsequently forming an opinion that earlier he had erred in allowing the expenditure or the deduction. The case of the appellant is on better footing because it was only after verification of the documents produced by the appellant also the explanation given at the time of regular assessment proceedings that the AO had decided not to make any addition. We therefore submit it is not a case of allowing wrong deduction but allowing deduction as per law after in depth analysis of the documents produced by the appellant.”

12. Series of judgments have been relied upon by the assessee before the First Appellate Authority in support of the ground of change of opinion as contended by the assessee. Upon calling for a remand report from the Ld. AO, the Ld. CIT(A) observed as follows:

“Vide additional grounds of appeal, the appellant contended that the reassessment is bad in law as conditions prescribed in the first proviso to sec. 147 was not complied. More specifically the appellant contended that the failure of the appellant in furnishing material facts fully and truly necessary for the assessment at the time of assessment was not mentioned either in the notice or in the reasons. Hence, the appellant requested to treat the order as invalid.

The appellant also contended that during the course of assessment proceedings, the information called for by the AO was provided and on the same material facts, the AO issued notice for reopening the assessment and to take a different stand, which is nothing but change of opinion and on change of opinion, reassessment cannot be made as held by several judicial authorities. Hence, requested to treat the reassessment as invalid. The appellant relied on several decisions in the submissions (supra).

The appellant contends that the AO has not mentioned in the notice issued for reopening that the income has escaped assessment due to failure on the part of the appellant. Relying on several decisions, it was contended that the AO has not satisfied the conditions prescribed as per the proviso to sec. 147 of the act and hence the initiation of reassessment itself is invalid.

The appellant also contended that the reasons recorded by the AO do not have allegation that the appellant had failed to disclose fully and truly all the material facts necessary for assessment and hence it was contended as to treat the assessment proceedings as invalid. The appellant relied on certain decisions as can be seen in the submissions (supra) for the above proposition.

It was contended by the appellant that at the time of original assessment, the AO called for the details of duties and taxes and appellant filed reply to the same. From the reasons recorded, the appellant contended, the AO considered the same material which were available at the time of original assessment and no new material was considered for the purpose of reassessment.

The appellant also contended that the reassessment is not valid if it is contemplated on change of opinion and for this purpose several decisions were relied upon by the appellant.

I have carefully considered the material facts and the decisions relied upon by the appellant. It is a fact that the AO initiated reassessment proceedings considering the material available on record including the material submitted by the appellant at the time of original assessment and no new material was considered by the AO for the purpose of reopening. It is a fact that there is no allegation made by the AO’ in the reasons recorded for reopening about the failure of the appellant in furnishing the details of material facts fully and truly necessary for the purpose of assessment at the time of original assessment. It is also a fact that in the original assessment, the AO sought the details the details of duties and taxes and a reply was furnished by the appellant and considering the same the original assessment was completed. It is also a fact to be noted that the reassessment proceedings were initiated for the purpose of bringing VAT payments to tax u/s.436 of the Act and this particular issue form part of taxes and duties which was examined at the time of original assessment by the AO. The appellant relied on the decision of Hon’ble Supreme Court in the case of L &T Ltd. [113 taxmann.com 48] wherein the SLP filed by the revenue was dismissed holding that there is no failure on the part of the appellant to disclose material facts fully and truly and the reassessment was made on change of opinion. On going through the Hon’ble High Court order of the same case, it was found that the reasons recorded in that case do not have any allegation about failure of the appellant in furnishing material facts fully and truly for the purpose of assessment. It was also considered by the Hon’ble High Court that the AO proceeded to reopen the case on the same old material which was also available on record during the original assessment and hence held that the statutory requirement of income chargeable to tax has escaped assessment due to failure of the appellant is not there which makes the assessment invalid. The relevant part of the order of Hon’ble High Court is reproduced hereunder for better appreciation of the issue.

“2. The appeal as arises out of the judgment of the Income Tax Appellate Tribunal In which it was held that the notice of reopening which was issued beyond the period of 4 years from the end of the relevant assessment year, was invalid. We may reproduce the reasons recorded by the Assessing Officer for issuing such a notice:-

“(i) It was seen from the records that while computing the deduction u/s 80-IA, certain pass through components like Fuel adjustment Charges (FAC), electricity duty, wheeling charges, grid support charges etc. have not been considered for arriving at the market value of the electricity.

(ii) For the purpose of claiming deduction u/s 80-IA, excess profit from the generation of electricity has been shown as against ‘16% return on investment’ fixed by the Ministry of Power.

(iii) Various expenses like interest, commission, brokerage and corporate overheads were not debited to the separate Profit & Loss A/c. Further, sales and administrative expenditure is not proportionate to the expenditure debited in consolidated P&L A/c to the profit of 80-IA units, which has resulted in excess deduction u/s 80-IA.

(iv) The assessee claimed deduction u/s 80-IA, 80HHB, 80HHBA, 80-HHC, 80HHE etc. However, exemption claimed u/s 80-IA was not reduced from other chapter VI-A deduction as per provisions contained in Section 80-IA.

(v) Deduction u/s 80-IA was wrongly claimed in respect of work on contract basis for various Govt. Agencies, which cannot be considered as infrastructure provider.”

3. Perusal of the reasons recorded by the Assessing Officer would show that the Tribunal was perfectly correct in coming to the conclusion that the notice of reopening of assessment was invalid. From the reasons we gather that there was no element of lack of true and full disclosure on the part of the assessee, which resulted into any income chargeable to tax escaping assessment. The reasons clearly reveal that the Assessing Officer was proceeding on the material which was already on record. In the absence of the statutory requirement of income chargeable to tax have been escaped assessment due to the failure on the part of the assessee to disclose truly and fully all material facts been satisfied, the Tribunal correctly held that the notice of reopening of assessment was invalid. No question of law arises.”

In the present case the AO also recorded the reasons similarly and the ratio is squarely applicable to the appellant’s case also.

The appellant also relied upon the decision of Hon’ble Jurisdictional High Court of Gujarat in the case of ALPS Technologies (P) Ltd. (81 taxmann.com) for the proposition that when the material facts were truly and fully discussed at the time of original assessment, initiation of proceedings to reopen on the same set of facts held to be invalid. Similarly, the appellant relied upon the decision of Hon’ble High Court of Gujarat in the case of Manan Exports (P) Ltd. (78 taxmann.com 225) for the proposition that reassessment on account of change of opinion is bad in law.

After careful consideration of the material facts and the decisions as discussed above, it is held that the AO considered the material facts which were available at the time of original assessment for the purpose of reopening and the reasons recorded do not exhibit the fact of failure of the appellant in submitting material facts for the assessment truly and fully at the time of original assessment for which purpose the reassessment proceedings were initiated. The AO in the original assessment sought the details of duties and taxes and initiated reassessment proceedings on the very same issue without bringing any new material facts on records. Respectfully following the decisions of Hon’ble Supreme Court and the Hon’ble High Court of Gujarat, on which the appellant placed the reliance, it is held that the AO has not satisfied the conditions prescribed as per first proviso to sec. 147 of the Act to initiate reassessment proceedings by issuing notice u/s.148 of the Act, as the original assessment was completed u/s.143(3) and the notice u/s.148 was issued beyond four years from the end of the relevant assessment year. Hence, the reassessment proceedings initiated by the AO held to be invalid. It is also to be noted that as there are no new material facts considered by the AO, the reassessment proceedings held to be on the basis of change of opinion and hence on this count also the reassessment is treated as bad in law. The reliance is also placed on the decisions of Usha International Ltd. (25 taxman.com)(Del.)(FB), to state that reassessment proceedings cannot be initiated on mere change of opinion. Hence the initiation and completion of reassessment proceedings held to be invalid and the additional grounds raised by the appellant 3 to 5 are allowed.

As the reassessment order held to be invalid as above, it is felt not necessary to adjudicate the grounds of appeal which are on merits including the additional grounds 6, 7, 8 & 9. Hence no separate adjudication has been made.”

13. As the assessee already filed return of income under Section 139(1) of the Act, it is to be seen as to whether the assessee failed to disclose truly and fully all material facts necessary for the purpose of making assessment. No such recording of satisfaction is available that escapement of income has arisen due to failure on the part of the appellant and in the absence of fulfillment of proviso to Section 147 of the Act reopening after 4 years from the end of relevant assessment year is bad in law and liable to be quashed as the case made out by the assessee is acceptable or not.

14. Upon perusal of the relevant materials available before us, we find that as the precondition for initiation of proceeding under Section 147 of the Act by recording reasons of income, escaping assessment is not reflecting from the said order of reopening due to the failure on the part of the assessee, the same is not found to be sustainable and hence liable to set aside. Neither any allegation has been labelled against the assessee by the Ld. AO while reopening assessment under Section 148 of the Act in failing to disclose fully or truly all material facts necessary for assessment which admittedly goes against such reopening of assessment by the department. On this aspect, we have further considered the judgment passed by the Hon’ble Apex Court in the case of L&T Ltd., reported in 113 taxmann.com 48, wherein SLP filed by the Revenue was dismissed as there was no failure on the part of the appellant to disclose material facts fully and truly was found. The re-assessment was, thus, at the best made on change of opinion.

15. We have further considered the judgment passed by the Jurisdictional High Court in the case of ALPS Technologies (P) Ltd., reported in 81 taxmann.com holding that when the material facts were truly and fully discussed at the time of original assessment, initiation of proceedings to reopen on the same set of facts held to be invalid. We further find from the records that during original assessment the Ld. AO asked for the details of duties and taxes and again initiated re-assessment proceeding on the very same issue without bringing any new material facts on records. On this aspect, we further considered the order passed by the Jurisdictional High Court in the case of Micro Inks (P.) Ltd. vs. ACIT, reported in [2017] 79 taxmann.com 153 (Guj) as relied upon by the Ld. AR wherein expenditure incurred towards interest and finance charges on loan was treated as business expenditure after scrutiny, and, since there was no failure on part of the assessee in disclosing true and correct facts, reopening assessment beyond period of four years was held to be unjustified.

16. We have carefully considered all the relevant materials available on record before us including the notice dated 27.02.2015 issued by the Ld. CIT(A), Baroda, wherein no recording of reasons of the fact of failure on the part of the appellant in submitting material facts for the purpose of making assessment truly and fully at the time of original assessment is reflecting for initiation of such re-assessment proceeding. Once, upon considering the documents, the claim of the assessee decided and accepted by not making any addition during the course of regular assessment issuing notice under Section 148 of the Act on the same issue by successor AO amongst to assumption of revisionary power which is not valid as per law. When the Assessing Officer attempts to reopen an assessment on the count the opinion formed earlier by him was an incorrect opinion, the reopening is not warranted. Further that, though the statutory power has been given in the hands of the ITO to reopen the final decision made against the Revenue in respect of the question that directly arose from the decisions in earlier proceeding, the same is required to be exercised sparingly upon due application of mind, otherwise it would result in placing an unrestricted and unguided power of review in the hands of the assessing authorities depending on their changing moods. Thus, with the above observation, we find that in the absence of new material facts brought on record by the Revenue reopening of assessment beyond the period of 4 years from the end of the assessment year in the present facts and circumstances of the case is found to be not sustainable in the eye of law and order of quashing the same by the Ld. CIT(A) with the same observation is found to be just and proper so as to warrant interference. Thus, Revenue’s appeal is found to be devoid of any merit and hence, dismissed.

17. In the result, Revenue’s appeal is dismissed.

18. The decision in ITA No. 386/Ahd/2020 for A.Y. 2008-09 shall also apply mutatis mutandis in ITA No. 309/Ahd/2022 for A.Y. 2012-13.

19. In the combined result, both appeals preferred by the Revenue are dismissed.

This Order pronounced on 29/08/2023