Rd] November, 2021 Reserve Bank Officers Co-Operative Credit Society Ltd v. The Income Tax Officer - 17(3)(1) And Ors.1 (Unreported) Reads As

PURTIPRASADPARAB Digitally signed by IN THE HIGH COURT OF JUDICATURE AT BOMBAYPURTI PRASADPURTI PRASADPARABORDINARY ORIGINAL CIVIL JURISDICTIONDate: 2022.01.2115:42:13 +0530Date: 2022.01.2115:42:13 +0530 WRIT PETITION NO. 3638 OF 2021 Parinee Realty Pvt. Ltd.102 & 103, Smag House,Plot No.157-A, Sarojini Road Extension,Vile Parle, Mumbai – 400 056. V/s.1. Assistant Commissioner of Income Tax Central Circle - 2(3) Room No.803, 8[th] Floor, Pratishtha Bhavan, Old CGO, M.K. Road, Mumbai – 400 020. ….Petitioner 2. The Union of IndiaThrough the Secretary,Government of India,Ministry of Finance,New Delhi – 110 001. …Respondents ---- Mr. Nishant Thakkar a/w Mr. Hiten Chande i/b Lumiere Law Partners for Petitioner.Mr. Suresh Kumar for Respondents-Revenue. ---- CORAM : K.R. SHRIRAM & R.N. LADDHA, JJ. DATED : 19[th] JANUARY, 2022 ORAL JUDGMENT : (PER : K.R. SHRIRAM, J.) 1.Petitioner is impugning a notice dated 30[th] March, 2021 issued under Section 148 of the Income Tax Act, 1961 (the Act) seeking to re-open the assessment for A.Y. 2017-18 and the order dated 22[nd] June, 2021rejecting petitioner’s objections. 2.The re-opening is proposed to be made within four years of the end of the relevant assessment year. In such a situation even though proviso to Section 147 of the Act would not apply, and the Assessing Officer has toonly make out availability of tangible material, it is settled law that if the re-opening is based on mere change of opinion, the notice issued under Section148 of the Act has to be set aside. Paragraph No.12 of the judgment dated23[rd] November, 2021 Reserve Bank Officers Co-operative Credit Society Ltd.vs. The Income Tax Officer - 17(3)(1) and Ors.1 (unreported) reads asunder: 12.Section 147 enables the Assessing Officer to assessor reassess any income chargeable to tax which he has reasonto believe has escaped assessment for an assessment year.The proviso to section 147 imposes additional requirementswhere an assessment is sought to be reopened beyond aperiod of four years from the end of the relevant assessmentyear. In the present case, the exercise of power is within aperiod of four years and, therefore, the requirements of theproviso are not attracted. Where the Assessing Officerpurports to exercise power under section 147 within a periodof four years of the end of the relevant assessment year, thecondition precedent to the exercise of the power, is theexistence of a reason to believe that any income chargeableto tax has escaped assessment. We must keep in mind theconceptual difference between power to review and power toreassess. The Assessing Officer has no power to review; hehas the power to reassess. The reassessment has to be basedon the fulfillment of certain conditions. It is settled law that ifthe concept of change of opinion is removed, then in theguise of reopening the assessment, the review would takeplace. The concept of change of opinion has been built in thestatute to check abuse of power by the Assessing Officer. TheAssessing Officer has the power to reopen only when there istangible material to come to the conclusion that there isescapement of income from the original assessment. The testof "tangible material" has been enunciated in a judgment ofthe Supreme Court in CIT v. Kelvinator of India Ltd. 1 heldthus (page 564): "... one needs to give a schematicinterpretation to the words 'reason to believe'failing which, we are afraid, section 147would give arbitrary powers to the AssessingOfficer to reopen assessments on the basis of 1 Writ Petition No. 3332 of 2019 "... one needs to give a schematicinterpretation to the words 'reason to believe'failing which, we are afraid, section 147would give arbitrary powers to the AssessingOfficer to reopen assessments on the basis of 1 Writ Petition No. 3332 of 2019 'mere change of opinion', which can-not beper se reason to reopen. We must also keep inmind the conceptual difference betweenpower to review and power to reassess. TheAssessing Officer has no power to review; hehas the power to reassess. But reassessmenthas to be based on the fulfillment of certainpre-conditions. If the concept of 'change ofopinion' is removed, as contended on behalfof the Department, then the review wouldtake place in the garb of reopening theassessment. One must treat the concept of'change of opinion' as an in-built test to checkabuse of power by the Assessing Officer.Hence, after April 1, 1989, the AssessingOfficer has the power to reopen, providedthere is 'tangible material' to come to theconclusion that there is escapement of incomefrom assessment. Reasons must have a linkwith the formation of the belief…" 3. We have considered the reasons recorded and communicated to petitioner on 19[th] April, 2021. The reasons indicate that the JurisdictionalAssessing Officer (JAO) has proceeded on incorrect facts and also he hasproceeded on pure change of opinion. We say incorrect facts because theassessment order under Section 143(3) of the Act was passed on 21[st]December, 2019 determining total income of Rs.1,20,89,790/-. The JAOhowever states “Subsequently, an information was received on 20.01.2019in this case from Investigation Directorate, Mumbai ……….. During thecourse of survey, it was found that assessee has taken interest bearing loanfrom various institutions in market and advanced part of loan so taken togroup companies either at low interest rate or at NIL interest rate.”Therefore, the information on which reliance has been placed was receivedbefore the assessment order dated 21[st] December, 2019 was passed. On this ground alone, we can safely conclude that the conditions precedent to theexercise of the powers to re-assessment, i.e., existence of a reason to believethat income chargeable to tax has escaped assessment has not been met. 4.We have to also note that after the information on 20[th] January,2019 was received, as noted in the assessment order dated 21[st] December,2019 five notices were issued by the Assessing Officer under Section 142(1)of the Act. In the notice dated 1[st] October, 2019 a specific query has beenraised by which petitioner was called upon to provide party wise detailsalongwith address of the parties to whom loan and advances were given anddetails of interest received on such loans and also furnish the nature of theloans/advances. Petitioner responded by its letter dated 8[th] November, 2019and 14[th] November, 2019. In the reply dated 14[th] November, 2019 at ItemNo.4, petitioner has provided party wise details alongwith address of theparties to whom loans and advances were given, interest received on suchloans and the nature of the loans/advances. The list includes all the namesgiven in paragraph no.3 of the reasons for re-opening. 4. These have been considered in the assessment order because inthe assessment order there is reference to five notices issued under Section142(1) of the Act and it is also noted that the assessee has filed detailsthrough ITBA Module in response to the notices issued from time to timewhich are placed on record. 4. These have been considered in the assessment order because inthe assessment order there is reference to five notices issued under Section142(1) of the Act and it is also noted that the assessee has filed detailsthrough ITBA Module in response to the notices issued from time to timewhich are placed on record. 5.Mr. Suresh Kumar submits that these cannot be said to havebeen subject of consideration of the Assessing Officer because theassessment order does not contain reference and/or discussion. We willhave to reject the submissions of Mr. Suresh Kumar since this court has timeand again held that once a query is raised during the assessmentproceedings and the assessee has replied to it, it follows that the queryraised was a subject of consideration of the Assessing Officer whilecompleting the assessment. It is not even necessary that an assessmentorder should contain reference and/or discussion to disclose its satisfactionin respect of the query raised. [Aroni Commercials Ltd. vs. Deputy2 Commissioner of Income-tax 2(1)].It is also settled law that change of opinion does not constitutejustification and/or reasons to believe that income chargeable to tax hasescaped assessment. 6.There can be no doubt in the facts of the present case that theissue of loan being given to group companies either at low interest rate orno interest rate was a subject matter of consideration by the AssessingOfficer during the original assessment proceedings. It would therefore,follow that the re-opening of the assessment is merely on the basis ofchange of opinion of JAO from that held during the course of assessmentproceedings leading to the assessment order dated 21[st] December, 2019. 2 [2014] 44 taxmann.com 304 (Bombay) This change of opinion does not constitute justification and/or reason tobelieve that income chargeable to tax has escaped assessment. 7.According to the JAO, survey report submitted by DDITinvestigation indicate that interest should be charged at 12% per annum onloan given to sister concern totaling to Rs.4,17,04,380/- and thereforeincome chargeable to tax has been under assessed by the said amount.According to the JAO this interest income of Rs.4,17,04,380/- has escapedassessment. We find it rather strange that such an opinion is formed by theJAO. It is an accepted position that petitioner has in fact not received anyinterest in respect of the loans/advances given to seven of its groupcompanies in the assessment order 2017-18. When no income is receivedthere is no question of paying any tax on income which respondent thinkshould have been received but was in fact not received. Income whichaccrues to a person is taxable in his hands but we have not seen anyprovision of law which says that income which he could have earned but hehas not earned is taxable as income accrued to him. It will be useful toreproduce paragraph no.7 of the judgment of this court in India Finance & Construction Co. (P.) Ltd. vs. B.N. Panda, Deputy Commissioner3. The samereads as under : 7. The second transaction on the basis of which noticeunder section 148 is issued relates to a transaction enteredinto in May, 1982, under which the assessee-companyadvanced to M/s. C. R. Developers (P) Ltd. a sum of Rs.15lakhs purporting to be an advance for the purpose ofconstruction of a hotel. The advance is in the nature of a loanunder section 148 is issued relates to a transaction enteredinto in May, 1982, under which the assessee-companyadvanced to M/s. C. R. Developers (P) Ltd. a sum of Rs.15lakhs purporting to be an advance for the purpose ofconstruction of a hotel. The advance is in the nature of a loan 3 [1993] 200 ITR 710 (Bombay) Construction Co. (P.) Ltd. vs. B.N. Panda, Deputy Commissioner3. The samereads as under : 7. The second transaction on the basis of which noticeunder section 148 is issued relates to a transaction enteredinto in May, 1982, under which the assessee-companyadvanced to M/s. C. R. Developers (P) Ltd. a sum of Rs.15lakhs purporting to be an advance for the purpose ofconstruction of a hotel. The advance is in the nature of a loanunder section 148 is issued relates to a transaction enteredinto in May, 1982, under which the assessee-companyadvanced to M/s. C. R. Developers (P) Ltd. a sum of Rs.15lakhs purporting to be an advance for the purpose ofconstruction of a hotel. The advance is in the nature of a loan 3 [1993] 200 ITR 710 (Bombay) and no interest is being charged on this account. Therespondents contend that the assessee-company should havereceived an interest income worth approximately incomeworth approximately Rs. 3 lakhs if interest had been chargedon this advance. Hence, this interest income of approximatelyRs. 3 lakhs has escaped assessment. Once again the reasonwhich is recorded is beyond the scope of section 147. It is anaccepted position that the assessee-company has in fact notreceived any interest in respect of this advance from M/s. C.R. Developers (P) Ltd. in the assessment year 1988-89. Whenno income is received there is no question of paying any taxon income which the respondents think, should have beenreceived but was in fact not received. In the case of CIT v. A.Raman and Co. [1968] 67 ITR 11, the Supreme Court saidthat the law does not oblige a trader to make the maximumprofit that he can out of his trading transactions. Incomewhich accrues to a trader is taxable in his hands. Incomewhich he could have but has not earned, is not made taxableas income accrued to him. The Court also said that the HighCourt exercising Jurisdiction under article 226 of theConstitution has power to set aside a notice issued undersection 147(b) if the condition precedent for the exercise ofjurisdiction does not exist. It is open to the court to ascertainwhether the ITO had in his possession any information andwhether from the information the ITO have reason to believethat the income chargeable to tax has escaped assessment. Inthe present case, the reasons which are recorded clearly showthat there is no material at all on the basis of which theAssessing Officer could have reason to believe that anyinterest income had escaped assessment. No such income hadaccrued during the assessment year in question. 8. It will also be useful to reproduce paragraph nos.5, 6 and 7 of the judgment of the High Court of Delhi in Shivnandan Buildcon (P.) Ltd. vs. 4Commissioner of Income-tax. 5. On going through the said decision, it can be discernedthat the Guwahati High Court held that there was nothing toshow that the assessee had, in fact, received interest or thatthe company to whom the loan was given had, in fact, paidinterest to the assessee. There was also nothing on record toshow that the alleged interest was not reflected in theaccounts. The only finding recorded was that the assessee"ought to" have charged interest. Referring to an earlier 4 [2015] 60 taxmann.com 347 (Delhi) decision of the Guwahati High Court, in HighwaysConstruction Co. (P.) Ltd. v. CIT [1993] 199 ITR 702, theCourt observed that their attention had not been invited toany provision of the Income-Tax Act empowering the income-tax authorities to include in the income, interest which wasnot due or not collected. 6. In similar vein, when we asked Mr Sahni, who isappearing for the respondent to point out some provision ofthe Income Tax Act, whereunder such ‘notional’ interest couldbe made the subject matter of tax, the only reference hemade was to Section 144 of the said Act. However, we areclear that Section 144 does not at all apply to the presentproceedings because the present proceedings originate froman assessment under Section 143(3) of the said Act. 4 [2015] 60 taxmann.com 347 (Delhi) decision of the Guwahati High Court, in HighwaysConstruction Co. (P.) Ltd. v. CIT [1993] 199 ITR 702, theCourt observed that their attention had not been invited toany provision of the Income-Tax Act empowering the income-tax authorities to include in the income, interest which wasnot due or not collected. 6. In similar vein, when we asked Mr Sahni, who isappearing for the respondent to point out some provision ofthe Income Tax Act, whereunder such ‘notional’ interest couldbe made the subject matter of tax, the only reference hemade was to Section 144 of the said Act. However, we areclear that Section 144 does not at all apply to the presentproceedings because the present proceedings originate froman assessment under Section 143(3) of the said Act. 7. In the absence of any specific provision under which theso called notional income on advances, could be brought totax, we do not see as to how the impugned orders passed bythe Commissioner of Income Tax can be sustained. 9.As held by the Apex Court in the case of Indian & Eastern5Newspaper Society, New Delhi vs. Commissioner of Income Tax, New Delhi,even if it is an error that the Assessing Officer discovered, still an errordiscovered on a re-consideration of the same material does not given himpower to re-open. When the primary facts necessary for assessment arefully and truly disclosed, the Assessing Officer is not entitled on change ofopinion to commence proceedings for reassessment. Even if the AssessingOfficer, who passed the assessment order, may have raised too many legalinferences from the facts disclosed, on that account the Assessing Officer,who has decided to reopen assessment, is not competent to reopenassessment proceedings. Where on consideration of material on record, oneview is conclusively taken by the Assessing Officer, it would not be open to 5 119 ITR 996 (SC) reopen the assessment based on the very same material with a view to take another view. 10.In the circumstances, petition is allowed. The impugned noticedated 30[th] March, 2021 issued under Section 148 of the Act and the orderdated 22[nd] June, 2021 rejecting petitioner’s objections are quashed and setaside. 11.Petition disposed with no order as to costs. (R.N. LADDHA, J.) (K.R. SHRIRAM, J.)