Survival Technologies Pvt. Ltd v. The Deputy Commissioner Of Income Tax Circle – 4(3)(1),Room

SHRADDHAKAMLESHTALEKARDigitally signed bySHRADDHAKAMLESH TALEKARDate: 2023.02.2019:41:19 +0530 IN THE HIGH COURT OF JUDICATURE AT BOMBAYORDINARY ORIGINAL CIVIL JURISDICTION WRIT PETITION NO. 3035 OF 2022 Survival Technologies Pvt. Ltd.23, 6[th] Floor, Ahoora Mahal,93, “G” Road,Marine Drive, Mumbai 400 002. ….. Petitioner Versus 1. The Deputy Commissioner of Income Tax Circle – 4(3)(1),Room No.649, 6[th] Floor,Aaykar Bhavan, M.K. Road,Mumbai – 400 020. 2.The Assessing Offcer,National Faceless Assessment Centre,Delhi. 3. The Principal Commissioner of Income Tax-4, Aaykar Bhavan, M.K. Road,Mumbai – 400 020. 3. Union of India, Aaykar Bhavan, M.K. Road,Mumbai – 400 020. .... Respondents **** Ms.Krupa Toprani i/b PRH Juris Consults, Advocate for petitioner.Mr.Suresh Kumar, Advocate for respondents. **** CORAM : DHIRAJ SINGH THAKUR AND VALMIKI SA MENEZES, JJ. Pronounced on : 20[th] February 2023 : J U D G M E N T : PER DHIRAJ SINGH THAKUR : 1.The petitioner questions the legality of a Notice dated 30[th]March 2021 issued under section 148 of the Income Tax Act, 1961(‘the Act’) seeking to reopen the petitioner’s assessment for theassessment year 2015-16. The petitioner also challenges the orderdated 21[st] July 2022 passed by the respondent No.1, whereby theobjections to the reopening of the assessment have been disposed of. 2.Briefy stated the material facts are as under :2.1The petitioner fled a return of income for the assessmentyear 2015-16. The case was subsequently selected by ComputerAssisted Scrutiny Selection (CASS) for scrutiny assessment.Notices were issued under section 143(2) of the Act on 17[th] March2016 and subsequently under section 142(1), dated 23[rd] January2017. Necessary information and details were fled pursuant tosuch notices including the petitioner’s claim for deduction undersection 35(2AB) of the Act. Finally, an order of assessment dated13[th] June 2017 was passed under section 143(3) of the Actassessing the total income at Rs.8,48,00,190/-, by disallowing Rs.32,70,724/- being excess deduction claimed under section35(2AB) of the Act. The disallowance was subsequently reduced toRs.16,35,262/- as per rectifcation order dated 23[rd] June 2017passed under section 154 of the Act. 2.2 Notice dated 30[th] March 2021 was issued under section 148seeking to reopen assessment for the assessment year 2015-16 onthe ground that income chargeable to tax had escapedassessment. Pursuant to the said Notice and in compliancethereof, return of income was fled and reasons were sought, forsuch reopening, which were furnished and stated as under : 2.During the year under consideration, i.e. F.Y.2014-15(Relevant A.Y. 2015-16), it is noticed that as per note No.23to the accounts, the assessee company has transferredbuilding on WDV of Rs.91,61,341/- as on 1.4.2014 from fixedassets to the R & D Centre and accordingly the capitalexpenditure of R & D Building of Rs.1,63,40,354/- whichincludes WDV of the building of Rs.91,61,344/- is debited toP & L Account. However, in the computation of income, theassessee company has reduced the entire amount ofRs.1,63,40,354/- as weighted deduction under section35(2B) @ 100%, on capital expenditure. Whereas theamount debited of RS.91,61,341/- was firstly required to beadded back to the net profit as per the P & L Account (in thecomputation), before allowing the deduction under section35(2B) of Rs.1,63,40,354/-. This has resulted in excessesallowance of deduction under section 35(2B) of the tune ofRs.91,61,341/-. 3.Since 4 years from the end of the relevant year haveexpired in this case, the requirement to initiate proceedingsunder section 147 of the Act are reason to believe that income for the year under consideration has escapedassessment because of failure on the part of the assessee todisclose fully and truly all material facts necessary of hisassessment for the assessment year under consideration. 3.Since 4 years from the end of the relevant year haveexpired in this case, the requirement to initiate proceedingsunder section 147 of the Act are reason to believe that income for the year under consideration has escapedassessment because of failure on the part of the assessee todisclose fully and truly all material facts necessary of hisassessment for the assessment year under consideration. 4.It is true that the assessee has filed a copy of auditedP & L account and balance sheet along with return of incomewhere various information/material were disclosed. However,the requisite full and true disclosure of all material factsnecessary for assessment has not been made. It is pertinent tomention here that even though the assessee has producedbooks of accounts, annual report, audited P & L Accounts andbalance sheet or other evidence as mentioned above, therequisite material facts, as noted above, in the reasons forreopening were embedded in such a manner that materialevidence could not be discovered by AO and would have beendiscovered with due diligence, accordingly attractingprovisions of Explanation-I of section 147 of the Act. 5It is pertinent to mention here that reason to believethat income has escaped assessment for the year underconsideration have been recorded in the above referredparagraph. I have carefully considered the assessment recordcontaining the submission made by the assessee in responseto various notices issued during the assessment proceedingsand have noted that the assessee has not fully and trulydisclosed material facts necessary for his assessment of theyear under consideration thereby necessitating reopeningunder section 147 of the Act. 3.Objections were fled by the assessee to the proposedreopening, which were rejected vide order dated 21[st] February2022, which too, is impugned in the present petition. 4.Counsel for the petitioner urged that the impugned noticeand the order dated 21[st] February 2022 are unsustainable as the petitioner had made full disclosure of all material facts which weregone into by the Assessing Offcer leading to the passing of theorder under section 143 of the Act. It was urged that there was nofailure on the part of the assessee to disclose fully and trulymaterial facts necessary for the purpose of assessment which wasa jurisdictional pre-condition which onus has not been dischargedby the Assessing Offcer under section 147 of the Act illegal andbad in law. 5.Counsel for the revenue, on the other hand, generallysupported and buttressed the view expressed by the AssessingOffcer in the order impugned dated 21[st] July 2022. 6.The question that arises for consideration in the presentcase is whether the jurisdictional pre-conditions envisaged undersection 147 of the Act, as was applicable to the present case,before its substitution by way of Finance Act, 2021 with effectfrom 1[st] April 2021 had been fulflled, and if not, whether thereassessment proceedings could be said to be bad on account ofchange of opinion. 7.Section 147 of the Act empowers the Assessing Offcer toassess or re-assess an income if he has reasons to believe thatsuch income has escaped assessment, subject to the provisions ofsection 148 to153. The frst Proviso to the said section, however,envisages, inter-alia that where an assessment under section143(3) has been made, no action shall be taken after the expiry ofperiod of four years from the end of the relevant assessment yearunless any income chargeable to tax has escaped assessment forsuch year by reason of the failure on the part of the assessee as tomake a return under section 139, or in response to the noticeunder section 142(1) or section 148 as to disclose fully and trulyall material facts necessary for its assessment for that assessmentyear. 8.Since this is a case of reopening beyond the period of fouryears, the Assessing Offcer was to satisfy the jurisdictionalconditions on both counts, i.e., ‘reason to believe’ and ‘failure todisclose fully and truly the material facts’. 8.Since this is a case of reopening beyond the period of fouryears, the Assessing Offcer was to satisfy the jurisdictionalconditions on both counts, i.e., ‘reason to believe’ and ‘failure todisclose fully and truly the material facts’. It is a settled principle of law that the jurisdictionexercised under section 147 by an AO has to be tested on thetouchstone of the reasons recorded, which can neither be improved subsequently nor added in the reply or in thesubsequent pleadings. 9.Admittedly, this was a case where an order of assessmentunder section 143(3) had been passed for the relevant assessmentyear. As per the ratio of the judgment in Hindustan Lever Ltd.V/s. R. B. Wadkar, Assistant Commissioner of Income-Tax andOrs. [1], the AO was obliged to disclose as to which fact or materialwas not disclosed by the Assessee fully and truly for the purposesof assessment of that assessment year so as to establish a vitallinkage between the reasons and the evidence. In the presentcase, the jurisdictional condition has not been satisfed by the AO,except having made a bald statement that the material facts werenot disclosed fully and truly. Shelter is sought to be taken by theAO in the reasons recorded that although the assessee hadproduced books of account, annual reports and audited proft andloss account as also the balance-sheet etc., the relevant materialor facts were so embedded therein that they could not have beendiscovered by the AO despite due diligence. 10.In our opinion, the AO has failed to establish that there wasany failure on the part of the assessee to disclose fully and truly 12004 ITR 332 Vol.268. any material fact in the present case. As all the relevant facts hadnot only been disclosed, as stated in the preceding paragraphs,but had also been considered by the AO, while considering theclaim of deduction under section 35(2AB) in the order ofassessment. Apart from this, the impugned notice has been issuedwithout there being any tangible material with the AO as he clearyrelied upon the material which was already on record. Noinformation was received by the AO between the date of the orderof assessment under section 143(3) and the issuance of the noticeunder section 148 of the Act. This is clearly impermissible interms of the ratio of the judgment in the case of Jindal PhotoFilms Ltd. Vs. Deputy Commissioner of Income Tax [2]as being acase of mere ‘change of opinion’ which does not providejurisdiction to the AO to initiate proceedings under section 147 of the Act. The Court held : “……….all that the Income-tax Offcer has saidis that he was not right in allowing deductionunder Section 80I because he had allowed thedeductions wrongly and, therefore, he was of theopinion that the income had escapedassessment. Though he has used the phrase"reason to believe" in his order, admittedly,between the date of the orders of assessmentsought to be reopened and the date of forming of opinion by the Income-tax Offcer nothing newhas happened. There is no change of law. Nonew material has come on record. Noinformation has been received. It is merely afresh application of mind by the same AssessingOffcer to the same set of facts. While passingthe original orders of assessment the orderdated February 28, 1994, passed by theCommissioner of Income-tax (Appeals) wasbefore the Assessing Offcer. That order standstill today. What the Assessing Offce has saidabout the order of the Commissioner of Income-tax (Appeals) while recording reasons underSection 147 he could have said even in theoriginal orders of assessment. Thus, it is a caseof mere change of opinion which does notprovide jurisdiction to the Assessing Offcer toinitiate proceedings under Section 147 of theAct. 11. Be that as it may, the present petition is allowed. Theimpugned notice 30[th] March 2021 issued under section 148 of theAct as also the order impugned, dated 21[st] February 2022rejecting the objections of the petitioner impugned in the presentpetition are held to be unsustainable and are accordingly setaside. [VALMIKI SA MENEZES, J .] [DHIRAJ SINGH THAKUR, J.]