Facts and circumstances of the case:
The appeal was filed by the Revenue under Section 260A of the Income Tax Act, 1961 against the order dated 22.6.2012 passed by the Income Tax Appellate Tribunal. The appeal was preferred in relation to the Assessment Year 2005-06.
The respondent – assessee had filed a return for the Assessment Year 2005-06 stating total income of Rs.83.34 lakhs. The Assessing Officer during the assessment asked the respondent the details of its debts and also sought for its justification.
The respondent filed the details stating that an amount of Rs.1.35 crores was the outstanding loan the respondent owed to M/s.LA Cream Finance Ltd. The Assessing Officer being satisfied with the justification of the debts passed the assessment order dated 12.12.2007.
The Assessing Officer assessed the income of the respondent to be Rs.1.12 crores without disturbing the debts claimed.
Thereafter, the Assessing Officer issued a notice under Section 154 of the Act dated 24.11.2009 making a rectification in the amount of income calculated by the Assessing Officer. The rectification was based on the fact that an amount of Rs.1.35 crores as bad debts was actually a capital loss and could not be considered to calculate the income of the respondent.
The respondent objected to the said notice. However, the Assessing Officer did not pass any order on notice issued under Section 154 of the Act.
Though the rectification notice under Section 154 of the Act was pending, the Assessing Officer on 1.7.2010 issued a notice under Section148 of the Act for the purpose of reopening the assessment.
The assessee moved before the Tribunal against the order of the Assessing Officer. The Tribunal allowed the appeal filed by the assessee and set aside the reassessment proceedings. Being aggrieved by the order of the Tribunal, the Revenue moved before the High Court.
Issues raised before the High Court:
The following legal issues were raised before the Bombay High Court by the Appellant-Revenue for consideration:
1. Whether on the facts of the case, the Tribunal was justified in setting aside the re-assessment order passed according to Section 147?
2. Was the re-assessment order bad in law?
3. Whether the Tribunal was justified in holding that it was a case of change of opinion though the Assessing Officer nowhere expressed any opinion regarding change of opinion at the time of the assessment?
4. Whether the Tribunal was justified in holding that the issue of notice under Section 148 after the issue of that under Section 154 was bad in law?
Arguments made by the parties:
Mr. Chhotaray, the learned Counsel for the Revenue contended that the reopening was valid due to the reason that the Assessing Officer acted on an object which constitutes “tangible material” and did not deal with the issue in the original assessment order. It was further argued that the Assessing Officer had jurisdiction as was held by the Apex Court in Kalyanji Mavji & Co., 102 ITR 287.
It was pointed out by the learned counsel that the Tribunal has rendered a finding that the Assessing Officer raised an issue regarding which was responded to by the assessee and thereafter the assessment order was passed. Therefore, reopening of assessment would not amount to a change of opinion.
Mr.Satish Mody and Ms.Aasifa Khan, the learned Counsel for the respondent contended that the Assessing Officer completed the assessment by order dated 12.12.2007 after being satisfied. As such, the reopening notice was based on mere change of opinion and was not valid. It was also urged that no tangible material was brought on record to state the necessity for reopening of assessment. It was further pointed out that as the notice under Section 154 of the Act for rectification was still pending, the notice for reopening of assessment under Section 148 of the Act was bad in law.
The judgment of the Bombay High Court:
The argument that the reason of reopening was tangible material by the Assessing Officer was not acceptable as there was no mention of any tangible material in the reasons recorded by the Assessing Officer. It was held that a notice for reopening can be sustained only on the grounds mentioned in the reasons recorded. The Assessing Officer cannot add later the reasons recorded at the time of issuing such notice.
The argument that the Assessing Officer was careless in considering a particular amount which was chargeable to tax is not justified as it should be borne in mind that the power to reopen is not a power to review an assessment order.
It was also held that during passing an assessment order, it is expected from the Assessing Officer that he will apply his mind. An assessment order is not only a scrap of paper. The submission of the department cannot be accepted as it would negate the admitted position in law as stated by the Apex Court in the case of CIT Vs. Kelvinator of India Ltd 256 ITR 1 (Delhi)(FB) that the concept of ‘change of opinion’ is a test to check abuse of power by the Assessing Officer.
It was held in the case of Kalyanji Mavji & Co 102 ITR 287 by the Supreme Court that oversight or inadvertent mistake in passing an assessment order giving the Assessing Officer jurisdiction to reopen the assessment is not good in law.
It was finally held that as on merits of reopening, no fault with the impugned order of the Tribunal was found. Accordingly no reason to entertain the questions as proposed by the Revenue was observed. In view of the above, the appeal filed by the Revenue was dismissed.
