Case Law Details
Sanjiv Dhireshbhai Shah Vs ITO (Gujarat High Court)
Section 148 Reassessment Quashed as Beyond Four Years and Based on Change of Opinion: Gujarat HC
The Gujarat High Court heard a writ petition challenging a notice dated 30.03.2019 issued under Section 148 of the Income-tax Act, 1961 for Assessment Year (AY) 2012-13. With the consent of both parties, the matter was taken up for final hearing.
The Court referred to its earlier interim order dated 21.10.2019, whereby it had granted ad-interim relief restraining the Revenue from proceeding further pursuant to the impugned notice. At that stage, it had been noted that the Assessing Officer sought to reopen the assessment on the ground that the petitioner had claimed exempt long-term capital gains of ₹1,74,34,398 and exempt dividend income of ₹18,09,019 without any disallowance of expenditure under Section 14A read with Rule 8D(2). During the original scrutiny assessment, the Assessing Officer had issued a notice under Section 142(1) calling for details of the exempt dividend income, justification for non-disallowance under Section 14A read with Rule 8D(2), and supporting evidence for the claim of exemption under Section 10(38) relating to long-term capital gains. After considering the petitioner’s explanation, the Assessing Officer completed the assessment under Section 143(3), allowing the claims.
The petitioner contended that the reopening was based merely on a change of opinion since the very issues had already been examined during the original scrutiny assessment. It was also argued that the notice dated 30.03.2019 was issued beyond four years from the end of the relevant assessment year and that there had been no failure on the petitioner’s part to fully and truly disclose all material facts necessary for assessment.
At the final hearing, the Revenue did not dispute that the petitioner had disclosed the exempt income in the original return and had furnished complete details relating to the exempt long-term capital gains of ₹1,74,34,398 under Section 10(38). It was also undisputed that the reopening for AY 2012-13 had been initiated after the expiry of four years from the end of the relevant assessment year.
The Court noted that the petitioner had filed the original return on 30.09.2012, the assessment under Section 143(3) was completed on 19.03.2015, and the notice under Section 148 was issued only thereafter on 30.03.2019. The petitioner had filed objections on 20.05.2019, which were rejected on 30.09.2019.
The High Court observed that under the old regime of Section 147, reassessment beyond four years from the relevant assessment year could not be initiated where a regular assessment had already been completed under Section 143(3), unless the statutory conditions were satisfied. The Court relied upon its earlier decision in C. Snehal Engineers (P.) Ltd. v. Assistant Commissioner of Income-tax, wherein it was held that for reopening beyond four years, the Assessing Officer must have reason to believe that income had escaped assessment and such escapement must have occurred due to the assessee’s failure to make a return or to disclose fully and truly all material facts. That decision had also referred to the Supreme Court judgment in Commissioner of Income-tax v. Kelvinator of India Ltd., holding that reassessment cannot be based on a mere change of opinion.
Applying those principles, the Court observed that the petitioner had already furnished all details relating to the dividend income and objections to the proposed disallowance under Section 14A read with Rule 8D(2) during the original assessment proceedings. Nothing had been pointed out to establish that the reopening was based on any new tangible material that had not been disclosed earlier. The Court held that the reopening was founded on a change of opinion and that the Assessing Officer sought only to re-verify matters already examined during the original assessment.
The Court further observed that the reopening had also been initiated beyond the limitation period of four years prescribed in the proviso to Section 147 after completion of the regular assessment under Section 143(3).
Accordingly, the High Court allowed the writ petition and quashed and set aside the impugned notice dated 30.03.2019 issued under Section 148.
Cases Discussed:
- C. Snehal Engineers (P.) Ltd. v. Assistant Commissioner of Income-tax, [2023] 146 taxmann.com 54 (Gujarat).
- Commissioner of Income-tax v. Kelvinator of India Ltd., (2010) 320 ITR 561 (SC).
FULL TEXT OF THE JUDGMENT/ORDER OF GUJARAT HIGH COURT
1. Since the short issued is involved in the present writ petition, with consent of the learned advocates appearing for the respective parties, the matter is taken up for final hearing.
2. On 21.10.2019, the Coordinate Bench of this Court while granting ad-interim relief, has passed the following order:
“1. Mr. S.N. Divatia, learned advocate for the petitioner, invited the attention of the court to the reasons recorded for reopening the assessment, to submit that the Assessing Officer seeks to reopen the assessment on the ground that the petitioner had claimed long term capital gain of Rs.1,74,34,398/-and Rs.18,09,019/- as exempt disallowance had been dividend income of income, however, no made of expenditure directly or indirectly incurred in relation to the exempt income earned during the year. It was pointed out that during the course of scrutiny assessment, the Assessing Officer had issued notice dated 25.09.2014 under section 142(1) of the Income Tax Act, 1961 (hereinafter referred to as “the Act”) furnish calling details upon of the petitioner to income of dividend Rs.18,09,019/- claimed as exempt income and also to show cause as to why the disallowance under section 14A of the Act read with Rule 8D(2) of the Income Tax Rules, 1957 should not be made. He had further capital called gain of for details of Rs.1,74,34,398/- long term claimed as exempt income under section 10(38) of the Act with supporting evidences and to justify his claim.
2. It was submitted that after considering the explanation put forward by the petitioner, the Assessing Officer had passed the assessment order under section 143(3) of the Act and had allowed the claim. It was submitted that therefore, the Assessing Officer seeks to reopen the assessment on a mere change of opinion. It was pointed out that in the reasons recorded itself, the Assessing Officer has observed that on perusal of the record of the assessee, he had noticed the above.
3. It was submitted that in this case, the Assessing Officer seeks to reopen the assessment for the assessment year 2012-13 by the impugned notice dated 30.03.2019, which is clearly beyond the period of four years from the end of relevant assessment year and hence, in the absence of any failure on the part of the petitioner to disclose fully and truly all material facts, the assumption of jurisdiction on the part of the Assessing Officer lacks validity.
4. Having regard to the submissions advanced by the learned advocate for the petitioner, issue Notice, returnable on 09.12.2019.
By way of ad-interim relief, the respondent is restrained from proceeding further pursuant to the impugned notice dated 30.03.2019 issued under section 148 of the Act for the assessment year 2012-13. Direct service is permitted today.”
3. Today, when the matter is taken up for hearing, learned Senior Standing Counsel Mr.Yajnik is unable to controvert that at the time of filing of original Return of Income, the petitioner had disclosed the exempt income and accordingly, the details were given with regard to long term capital gain of Rs.1,74,34,398/-under section 10(38) of the Income Tax Act, 1961 (for short “the Act”). It is also not in dispute that the reopening of the assessment for Assessment Year (AY) 2012-13 by the impugned notice dated 30.03.2019 is beyond the period of 4 years from the end of the relevant AY.
4. The original Return of Income was filed by the petitioner for AY 2012-13 on 30.09.2012 and assessment under section 143(3) of the Act was completed on 19.03.2015 and thereafter, beyond the period of 4 years, the impugned notice under section 148 of the Act was issued by the respondent for reopening of the assessment. The petitioner accordingly, filed objections on 20.05.2019. The same were disposed of by the respondent on 30.09.2019.
5. Under the provision of the Old Regime of section 147 of the Act, it is not open for the respondent to reopen the issue beyond the period of 4 years from the relevant AY, which has already been recorded by the Coordinate Bench, while passing the interim order.
6. We may at this stage, refer to the decision of this Court in the case of C.Snehal Engineers (P.) Ltd. Vs. Assistant Commissioner of Income- tax, [2023] 146 taxmann.com 54 (Gujarat), relevant observations of which are as under:
“11. We are of the opinion that to confer jurisdiction to the Assessing Officer to reopen the assessment under section 147 of the Act beyond four years from the end of relevant assessment year, the two conditions must be satisfied namely, that the Assessing Officer must have reason to believe that the income chargeable to tax has escaped assessment and that the same was occasioned on account of either failure on part of the assessee to make a return of his income for that assessment year or to disclose fully and truly all material facts necessary for that assessment year. In the present case, the entire material was available with the Assessing Officer during the original assessment and therefore, there was no failure on part of the assessee to disclose truly and fully all material facts necessary for assessment and based upon such material supplied by the petitioner, the Assessing Officer passed the original assessment order. Further, it appears that the notice for reopening is based upon the audit objection and there is nothing on record to suggest that such reopening is made on account of new tangible material available on record. It is therefore, apparent that there is change of opinion by the Assessing Officer to reopen the assessment for the Assessment Year 2011- 2012, more particularly, when the issue raised in the reopening assessment is already considered during the original assessment proceedings. The Assessing Officer cannot have any jurisdiction to issue the notice under under section 148 of the Act, 1961 for reopening the assessment for the year under consideration more particularly, when the assessment is sought to be reopened beyond a period of four years as held by the Supreme Court in case of Commissioner of Income tax v. Kelvinator of India Ltd. reported in (2010) 320 ITR 561(SC) as under:
“2. A short question which arises for determination in this batch of civil appeals is, whether the concept of “change of opinion” stands obliterated with effect from 1st April, 1989, i.e., after substitution of section 148 of the Income Tax Act, 1961 by Direct Tax Laws (Amendment) Act, 1987?
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6. ………… prior to Direct Tax Laws (Amendment) Act, 1987, re-opening could be done under above two conditions and fulfillment of the said conditions alone conferred jurisdiction on the Assessing Officer to make a back assessment, but in section 147 of the Act [with effect from 1st April, 1989], they are given a go-by and only one condition has remained, viz., that where the Assessing Officer has reason to believe that income has escaped assessment, confers jurisdiction to re- open the assessment. Therefore, post- 1st April, 1989, power to reopen is much wider, However, one needs to give a schematic interpretation to the words “reason to believe” failing which, we are afraid, Section 147 would give arbitrary powers to the Assessing Officer to re-open assessments on the basis of “mere change of opinion”, which cannot be per se reason to re- open. We must also keep in mind the conceptual difference between power to review and power to re-assess. The Assessing Officer has no power to review; he has the power to re-assess. But re-assessment has to be based on fulfillment of certain pre-condition and if the concept of “change of opinion” is removed, as contended on behalf of the Department, then, in the garb of re-opening the assessment, review would take place. One must treat the concept of “change of opinion” as an in-built test to check abuse of power by the Assessing Officer..
12. The Assessing Officer issued notice under section 148 of the Act only to make a roving inquiry into the facts which were already considered by the Assessing Officer at the time of framing the original assessment under section 143(3) of the Act. It appears that the Assessing Officer now wants to re-verify the facts which is not permissible to be an acceptable ground for exercising powers to reopen the assessment.”
7. The regular assessment under section 143(3) of the Act was completed on 19.03.2015, wherein the petitioner had already furnished all the details relating to dividend income and objections to the proposed disallowance under section 14A of the Act read with Rule 8D(2) of the Income Tax Rules, 1962. Nothing is pointed out to establish that reopening of the assessment is premised on any new tangible material which was not disclosed by the assessee at the time of filing of the original Return of Income and hence, reopening of the assessment which is premised on change of opinion is required to be quashed and set aside. Additionally, the reopening is also beyond the period of limitation of 4 years. The proviso to Section 147 of the Act states that if a regular assessment has already been completed under Section 143(3) of the Act, the Department cannot initiate reassessment proceedings, after the expiry of four years from the end of the relevant AY.
8. In light of the foregoing observations, the present writ petition succeeds. The impugned notice dated 30.09.2019 is hereby quashed and set aside.
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