ITO Acted On Complete Change Of Opinion On Same Material With Intent To Review Assessment Order Passed By Him: Bombay HC Quashes Reopening

While holding so, the Division Bench of Justice G.S Kulkarni and Justice Advait M Sethna observed that there is no whisper of allegations against the assessee that income that has escaped assessment was attributable to the assessee for not disclosing fully & truly all material facts necessary for assessment.

Facts of the case:

The petitioner/ assessee company, engaged in investment and trading of shares and securities, filed its return, after which a notice u/s 142(1) was issued calling upon the assessee to furnish a brief note on the nature of business, copies of return, P&L A/c, Tax Audit Report along with relevant schedules, as also statement of computation of total income showing the working of income admitted under each head as also auditor's report in Form No.29B, in regard to Book Profit u/s 115JB along with computation of Book Profit and liability thereon. Even though assessee furnished copies of balance sheet, profit and loss account and tax audit report u/s 44AB, he however informed the AO that it is not having any book profit and it has a business loss, hence, the tax payable as per normal provisions was higher than MAT as per Section 115JB. Thereafter, the assessee was called upon to furnish information related to agreement for secured loan, party wise details of deposits, trade payables, etc.

Finally, the AO passed assessment order u/s 143(3) making a disallowance u/s 14A, holding that the interest-bearing funds were utilized for making investments which were capable of yielding income exempt u/s 10. Accordingly, a disallowance of interest of Rs. 2.71 Crores paid on the borrowings was made. When the appeal before the CIT(A) was pending consideration and five years have passed, the assessee received notice u/s 148. Later, the NFAC also passed an order disposing of the objections whereby it upheld the reassessment initiated by AO vide notice u/s 148.

Observations of High Court:

The Bench found from the reasons for reopening as furnished to the assessee, that the Assessing Officer has not stated that the petitioner has failed to disclose fully and truly all material facts necessary for assessment.

In fact the reasons for reopening are clearly based on the records which were already submitted by assessee in course of assessment proceedings, added the Bench.

From perusal of the record, the Bench noted that during the assessment proceedings, there was a series of correspondence between the assessee and the AO, and assessee had filed detailed replies furnishing all the information, which would clearly go to show that there was a complete disclosure of all details.

In the reasons for reopening, the AO had taken a clear position that the assessee has not utilized the funds for its own business and had diverted the funds to non-interest-bearing transactions, i.e., interest free advances to related parties, added the Bench.

The Bench explained that the statement as contained in the reasons for reopening not only breaches the mandate of the first proviso to Sec 147, namely, that the assessment could be reopened only on the failure of the assessee to fully & truly disclose all material facts necessary for his assessment, but also, amounting to a clear change of opinion of AO.

The AO while issuing the notice u/s 148 has clearly acted without jurisdiction, as the reasons as furnished to assessee, in no manner whatsoever make out a case on the failure on part of assessee to fully & truly disclose all the materials, added the Bench.

The Bench also emphasized that the reasons demonstrate that the entire basis for reopening is on the materials which was already available with the AO, in finalizing the assessee's assessment u/s 143(3).

If this be so, the AO was acting on a complete change of opinion on the same material and / or intending to have a review of the assessment order passed by him, which is not permissible, added the Bench.

Thus, the High Court allowed the Assessee's petition, while concluding that the AO had failed to adhere to the mandate of first proviso to Sec 147, by forming an opinion on the same material, which was available with him in course of original assessment.

Counsel for Petitioner/ Assessee: Nishant Thakkar, Jasmin Amalsadvala

Counsel for Respondent/ Revenue: Suresh Kumar

Case Title: Imperial Consultants and Securities vs. Deputy CIT

Case Number: Writ Petition No. 1783 of 2022

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